Journey to Alpha

ECB pledges to do "whatever it takes" to preserve the Euro

2012-07-26T17:26:00.001+01:00

Mario Draghi, president of the European Central Bank has reiterated today his commitment to the preservation of the common currency by hinting at upcoming supportive measures. Mr. Draghi said today during a conference in London that the ECB is prepared to do "whatever it takes" to keep the euro-boat afloat. The announcement sparked a relief rally in risk assets such as the EUR/USD, the S&P500, Gold and Spanish yields. But, without hard facts, the rally will most likely be short lived.

It`s a QE world

2012-07-05T18:55:00.001+01:00

When patients do not respond to a particular type of medicine, or suffer from side effects, doctors usually stop administrating it and decide on a different course of action. But for central bankers, which are medics hired to fix ailing economies things are not that simple. The European Central Bank and the Bank of England initiated today programmes aimed to expand the availability of credit in an attempt to cure the economic sickness with the very thing that caused it: too low interest rates.

Greek election updates

2012-06-17T14:34:00.001+01:00

RESULTS: New Democracy - 29.66% - 129 seats , Syriza - 26.89% - 71 seats, Pasok - 12.28% - 33 seats, Indep. Greeks - 7.51% - 20 seats, Golden Dawn - 6.92% - 18 seats, Dimar - 6.26% - 17 seats, KKE - 4.50% - 12 seats. New Democracy will now most likely form a majority with the centre-left party PASOK.

In Greece, cash is king

2012-06-17T13:26:00.000+01:00

With the Greek elections between the pro-EU New Democracy party and the anti-bailout party Syriza under way, one can`t stop and think about the critical importance of today`s events. The future of the European Union may well rest on the ballets in this small Mediterranean country that accounts for only 2% of the EU combined GDP. No matter the outcome, Greek households and corporations have switched to cash, stuffing the mattresses with euro bills, just in case the economy reverts to the drachma. Greece has become in the last months a cash economy.

$125 billion bailout for the Spanish banking sector

2012-06-10T21:09:00.002+01:00

After Ireland, Portugal and Greece, the financial contagion has finally spread to Spain, as the Southern-European country asked on Sunday for a bailout worth as much as $125 billion dollars. The money will most likely come from the European Financial Stability Facility and the yet-to-be ratified European Stability Mechanism and are supposed to go towards the recapitalization of Spanish liquidity stripped banks. If the EU does not start taking bolder steps towards more integration Italy may go next.

Markets dissapointed as FED`s Bernanke hints no QE3

2012-06-07T18:51:00.001+01:00

Just as expected, no new news came out from Chairman Bernanke today, as he delivered his testimony to the Joint Economic Committee of Congress. He instead focused on reassuring financial markets that FED is ready to act in case of an European financial meltdown and plead against fiscal tightening. As an immediate result, gold plunged by $40 to $1592, and the S&P went down to $1321. Markets need their daily dose of stimulus talk Bernanke!

Greece has to stay in!

2012-06-04T12:05:00.000+01:00

The Greek may not be the hardest-working fellows in Europe, as they like to think of themselves as, they may not be the tax-loving people that Christine Lagarde wants them to be, they may have one of the biggest average salaries in the European Union, but these are not good enough economic arguments to allow for their eviction from the EU. It is not about Greece anymore, Greece is a symptom of a bigger problem: should the European Union push for more integration ?

The curious case of the Canadian penny

2012-06-01T00:33:00.000+01:00

The inflation squid finally took its toll on the Canadian one penny coin. Due to increasing metal prices the cost of minting and distributing the coin reached 1.6 cents and the Central Bank of Canada decided in May to discontinue its production. Its purchasing power dropped by a staggering 96% since the coin was first introduced in 1908. The Central Bank of Canada reckons that the move will save $11 million a year, while Bloomberg estimates that banks will save $20 million per year from not having to deal with small change. Not worth a penny ?

Interested in negative yields ?

2012-05-30T17:17:00.002+01:00

Yields are meant to repay the providers of capital for the risk of tying up their available liquidities into risky projects. The concept is related to the existence of time preference of money: a 1$ today is worth more than a 1$ tomorrow, because lending it entails lost consumption and investment opportunities and because that dollar is subject to inflation. Therefore the only theoretical way in which an interest would be zero, is if the perceived risk of the issuing entity is zero. If this is mesmerizing, than how would one explain the negative nominal yields on Swiss bonds ?

Schadefreude as post IPO Facebook sells-off

2012-05-24T11:15:00.000+01:00

Early investors in the over-hyped social networking portal Facebook could not be happier: they managed to cash out most of their stakes while the company was in the extremely overvalued price range. The recent initial public offer raised $16 billion, at an initial price of $38. According to that share price, the internet company was valued at $104 billion, with a price earnings ratio of almost 100 times the expected profits of 2012. Google, a proven internet advertising and search engine giant is valued at 13x earnings. Is Facebook still overvalued ?

The Greek odyssey

2012-05-21T16:07:00.000+01:00

Just like the legendary Greek warrior Achilles, at one point Greece seemed invulnerable: the country reported above the European average real GDP growth rates, relatively low budget deficits and stellar growth prospects. The figures ultimately proved deceitful: the budget deficit was adjusted to 12.5% of GDP in October 2009, in a time when the public debt was "only" 90% of GDP. It all went downhill from there.With credit spreads increasing, investors shunned Greek debt, prompting European banks to use cheap ECB credits to purchase more and more Greek bonds.

Message for the muppets

2012-05-11T01:23:00.002+01:00

This is pretty much how things are going to be: JP Morgan gets some more of the tax payer`s money in form of a more than generous bailout. Fed will bring back to life credit markets by injecting a massive more than a trillion dollars QE3, giving some more crack to the market, buying some time until the presidential elections. Some more debt ceiling circus in the autumn, followed by some more black box economics. What about Europe? About that, in the next episode.
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How to play Herbalife`s sell off

2012-05-08T15:48:00.002+01:00

I am not one with a good history of calling market tops or bottoms, and frankly speaking, I think it is close to impossible to do so. That being said, an investor should focus on asymmetric trading or investment opportunities, which have a much higher risk adjusted expected return than the expected market return. One of this opportunities presented itself in regards to Herbalife stock, which experienced a massive sell-off, after trading in the 70`s a week ago, it is now close to $48. The panic run was generated by an inquiry made by the hedge fund manager David Einhorn on the distribution policy of Herbalife. I consider the worries unwarranted.

Galactic earnings report for Samsung

2012-04-27T14:28:00.000+01:00

Samsung Electronics reported a massive gain of 81% in net income for Q1 of 2012 on account of surging sales of its flagship Galaxy smartphones, the demand for which increased by 36% to 93.5m handsets. The South Korean company finally overtook Nokia as the worlds biggest handset provider in terms of volume, after more than 14 years. Even though the Finnish company has sold 82.7 million mobiles in the last quarter, a good part of them were lower range.

Is JP Morgan getting too big not to fail ?

2012-04-13T18:29:00.000+01:00

The investment bank, colloquially nicknamed JP Morgue, or the vampire squid posted a first quarter net-income of $5.4 billion, slightly down from last year`s $5.6 billion figure. Earnings per share increased by 4% due to the share buy-back programme which decreased the overall number of floating shares. Investment banking accounted for $7.3 billion our of the $27.4 billion total revenues, while retail financial services accounted for $7.65 billion. The interesting part is the ever-increasing market power attained by its proprietary trade desk, on huge markets such as the ones for MBS, Credit Default Swaps and Treasuries.

Samsung expects record earnings

2012-04-07T10:24:00.000+01:00

Samsung Electronics, the brightest child of the massive South Korean conglomerate (Samsung Group chaebol) is due to track the phenomenal quarter of its competitor, Apple. The company announced revenues of $40 billion with a quarterly profit of $5.15 billion, beating analyst estimates of $5 billion, on accounts of higher smartphone, tablets, and TV sales. Analysts believe that Samsung won back the title of market leader in terms of volumes on the smartphones market from Apple, selling 44 million devices.

Swiss Franc: Will another peg bite the dust ?

2012-04-06T10:26:00.000+01:00

When back in September of last year the EUR/CHF was heading towards the 1.1 level, many were expecting some sorts of monetary intervention, under the form of a showering of Swiss francs towards the commercial banks. Since the benchmark interest rate was already at the rock-bottom level 0 - 0.25%, and the minimum reserve requirements for short term debt are already at 2.5%, there was little leeway for "traditional" policy instruments. On the 6th of September the Swiss National Bank (SNB) announced an unprecedented peg against the Euro at the 1.20 yardstick. Within minutes the EUR/CHF reached 1.2180, a spectacular 10% gain, after which it hovered around 1.218 - 1.245 depending on the minor jolts sent by the SNB.

Last piece of entertainment: 100 year gilts

2012-03-31T10:38:00.001+01:00

The UK announcement that it would start offering sovereign bonds with a maturity of 100 years was greeted with a lukewarm reception by investors. It reminds some of us of the perpetuities issued in 1752 by the Chancellor of the Exchequer Sir Henry Pelham which started as 3.5% annuities and, after a series of "consolidations", ended up with coupons of 2.50%. Truth be told, now with the inflation monster surfacing more and more, issuing 100 year debt without inflation links is nothing more than a bad joke.

Gold surges as chairman Bernanke signals more QE

2012-03-26T21:50:00.001+01:00

To QE or not to QE? This is the question. No definite answer is still firmly enunciated, but all odds are in favor of another round of CTRL+ Print. Why? Too put it quite simply, because the massive US debt needs to be financed in some manner, and the easiest way to get away from this Damocles` sword is through a combination of inflationary devaluation and exchange rate manipulation. All under the noble banner of stimulating the economy. Now, why is this even important? It`s probably related to the narrow-minded "traders`" obsession with the term quantitative easing. Upon hearing mere hints or allusions towards more printing, the market turns haywire: launching in 5...4...3...2...1. The side-effects of such a policy of wealth redistribution are inflated asset prices and accumulated cash piles at the corporate level (which incidentally are usually left to "compound" in this negative rate environment).

A Facebook credit for your thoughts

2012-03-21T16:06:00.003+00:00

Mr. Friedrich Hayek, one of the most proponent theorists of the Austrian school would be terribly happy to find out that competition is creeping up on the government monetary monopoly. This is because companies like Facebook or PocketChange, offering virtual credits for their users to use in games such as Farmville, or Mafia Wars, are gaining more and more popularity: revenue generated by the Facebook credits system sky-rocketed to $557 million in 2011, from only $106 million the previous year, according to its most filing prospectus. They are counting more and more on the virtual credits to generate income streams and this could generate a positive effect, depending on the popularity of their currency, of competition on government controlled market.

Brazil joins the currency world war

2012-03-16T15:19:00.010+00:00

Brazil has been no stranger to monetary intervention and currency devaluation, but, until now the political rhetoric has been rather passive on this subject. The tone changed a bit after Brazil`s finance minister Guido Mantega declared this week that his country will no longer "play the fool" and let its currency appreciate while richer nations gain economic advantage by devaluing theirs. As a result the government extended this Monday a tax on foreign loans to 6% (similar to the Robin-Hood tax that the European Union is planning to implement). Will this coll down the hot money inflows ?

Monetary policy case study: South Korea vs Japan

2012-03-12T19:22:00.002+00:00

The picture may be four years old, but it does a great job of showing the South-Korean eagerness to take Japan`s place as high-end apparel exporter. While most of the eyes focus on the miraculous growth story of China, the economic power of South Korean business conglomerates (formally called chaebols) is ever-increasing at the expense of their Japanese counterparts (named keiretsu). This is because South Korean companies have a fortunate advantage in the relative weakness of their national currency.

February Chinese trade deficit at record $31.5 billion

2012-03-10T17:16:00.004+00:00

The Chinese establishment is not shy to show us that after a long period of hoarding cash in the negative yielding "safe haven" of US Treasury bills, they are prepared to initiate the world`s biggest corporate shopping spree. Data released by the Chinese Customs Office present the biggest monthly trade deficit since 1989 as the industrial mammoth is seeking to employ its cash reserves by purchasing industrial commodities like copper and oil. Whereas the deficit may well be seasonal due to the timing of the Lunar New Year, the figure does show the spending appetite of China.

Greek debt deal 95% agreed

2012-03-09T12:16:00.000+00:00

A major breakthrough in Greek debt talks was reached today as investors representing 95.7% of Greece`s privately held bonds agreed to restructure their bond holdings without being classified as a credit event and thereby not triggering the underlying credit default swaps. Out of these 95.7% of bond, investors holding 85.8% of bonds have voluntarily agreed to swap their current depressed bonds with new, lower yielding, higher maturity bonds, and the rest will be forced to accept the restructuring under invoking collective action. Where to now ?

Watson: the future of algo trading ?

2012-03-06T14:22:00.007+00:00

News emerged today that the IBM supercomputer which defeated the champions of "Jeopardy!" almost a year ago was hired by City Group to analyse financial, economic and client data. Its main capabilities include translating natural human language into quantifiable objective data, an extremely refined form of what some algorithmic trading bots can accomplish at the moment. It will most likely be used to read and analyse SEC reports and market developments and issue prompt trading suggestions. Ladies and gentlemen welcome to the future!