SocGen’s Black Swan Risk Map

HERE IT IS: SocGen’s Black Swan Risk Map

Sam Ro | Mar. 19, 2013, 8:49 AM | 3,543 | 4

Here’s Societe Generale’s review of some of the tail risks, or unlikely scenarios, out there.  For now, they believe we should be more worried about the downside risks.

CHART OF THE DAY: The Most Outrageous Reason Why A Company Would Raise Its Dividend; senior management are compensated in options that are much more likely to increase dividends

CHART OF THE DAY: The Most Outrageous Reason Why A Company Would Raise Its Dividend

Sam Ro | Mar. 19, 2013, 8:18 AM | 1,477 | 

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The Fed’s Effect On Commodity Prices Has Vanished

The Fed’s Effect On Commodity Prices Has Vanished

Sam Ro | Mar. 18, 2013, 10:04 PM | 3,682 | 5

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Is Bali losing its allure? There have been several reports this year already that indicate the island has seen the number of foreign visitors retreat to levels not seen for several years

Is Bali losing its allure?

There have been several reports this year already that indicate the island has seen the number of foreign visitors retreat to levels not seen for several years. -Jakarta Post/ANN

Chris O’Connor
Wed, Mar 20, 2013
The Jakarta Post/Asia News Network

The Tirtha Empul Temple in Bali draws tourists who seek its holy waters.

BALI – There have been several reports this year already that indicate the island has seen the number of foreign visitors retreat to levels not seen for several years.

Specific groups, such as Chinese and European visitors, have been highlighted and a variety of explanations offered as to why.

Certainly the cafes and restaurants do appear quieter than normal and even the steady stream of domestic bus tours seems reduced.

Analyses of relevant data are very important if any industry is to develop its market and adjust its planning and policies accordingly, and statements made by key players within the sector can be taken as a measure of understanding of both businesses and the administration. Read more of this post

Chinese Premier Li Cutting Wrist and pledging to cut the “hand” of the state in the economy pushes borrowing costs of railway network up; yield of 3.95% is lower than the 8.99% for similar-maturity notes of Indian Railway and slightly higher than Suntech’s 3% CB in China’s first high-profile bond default

Li Cutting Wrist Lifts Rail Costs Most in 16 Weeks: China Credit

China’s railway network became the first test case for Premier Li Keqiang’s pledge to cut the “hand” of the state in the economy, pushing its borrowing costs up the most in 16 weeks.

The yield premium over government notes for one-year bonds from the former Ministry of Railways, whose debt was transferred to the newly created China Railway Corp. on March 17, jumped 10 basis points last week to 118, the biggest rise since the period ended Nov. 23, data compiled by Bloomberg show. The yield of 3.95 percent is lower than the 8.99 percent for similar-maturity notes of Indian Railway Finance Corp.

China Railway will take over commercial operations from the ministry, according to a March 14 cabinet statement. The authority had more than 2 million employees and 2.66 trillion yuan ($427.8 billion) of debt that’s larger than Denmark’s economy. While the government offered assurances the company will receive its backing, Premier Li said three days later that he would act when the “hand” of the state shouldn’t be involved in the market, even if it feels like “cutting one’s wrist.”

“Previously creditors legally had recourse to the ministry,” said Ivan Chung, a Hong Kong-based senior credit officer at Moody’s Investors Service. “While investors expect there will be very strong support from the government for China Railway Corp., they no longer have a direct claim on the government as they used to.” Read more of this post

More bond investors bet on US rate rise

March 19, 2013 7:37 pm

More bond investors bet on US rate rise

By Stephen Foley, Michael Mackenzie and Dan McCrum in New York

More US bond investors are seeking new ways to hedge against the risk of a sharp rise in interest rates in case growth in the world’s largest economy picks up and the Federal Reserve starts to wind up its current stimulus policies.

The US central bank is expected on Wednesday to maintain its current level of bond purchases, which have pushed up bond prices and kept rates low. However, some investors are taking positions in exchange traded funds and leveraged loans that are designed to profit if market interest rates spike higher. Read more of this post

The ghosts of ’94: Veteran bond traders fear the omens point to a repeat of the catastrophic collapse of the mid-nineties

March 19, 2013 6:32 pm

Markets: The ghosts of ’94

By Michael Mackenzie, Robin Wigglesworth and Stephen Foley

Veteran bond traders fear the omens point to a repeat of the catastrophic collapse of the mid-nineties

Nineteen-ninety four. Nelson Mandela was inaugurated South Africa’s first black president. Ace of Base dominated the pop charts on both sides of the Atlantic. And Pulp Fiction introduced “Royale with cheese” to the vernacular. On Wall Street, 1994 was the year many money managers lost their shirts.

A sharp, unexpected rise in interest rates wrecked the value of bond portfolios and turned profitable trades into money losers. Hedge funds blew up, banks plunged into the red and the resulting shockwaves even hurt the equity market, which reversed a strong start to end down on the year.

It was, in other words, a year for investors to forget. But it is also a year that is important to remember. Today, with interest rates at rock-bottom thanks to the US Federal Reserve and other central banks, some bond market veterans are hearing echoes of 1994. What will happen, they ask, when the Fed decides it has done enough to stimulate the economy? Could there be another shock?

Richard Tang, now head of North America sales at RBS Securities, recalls the “gigantic roar” that went up across the trading floor at Salomon Brothers on February 4, 1994, when the Fed unexpectedly raised rates.

“I remember 1994 very well, clearly like it was yesterday. It was my first bear market in the business,” he says.

The Fed kept tightening through the year, as the US economy picked up steam and the central bank decided to put down a marker against inflation. Traders who had loaded up on debt, notably in mortgage securities, were squeezed, and the leverage in the nascent securitisation market meant the pain was magnified. Read more of this post

Indonesians left to pick up the pieces; “I want to become smart, I want to make my parents proud. I want to take them on the Hajj.”

March 19, 2013 8:36 am

Indonesians left to pick up the pieces

By Ben Bland in Bantar Gebang

©AFP

Rastinah lives in the midst of Indonesia’s decade-long economic boom, without being part of it.

Along with her husband and five children, the 40-year-old ekes out a living as a scavenger at the vast Bantar Gebang landfill site on the outskirts of Jakarta, scouring a mountain of trash every day to find material that she can sell for recycling.

Even in a good month, her family rarely earns more than $180. So, when it costs about Rp30,000 ($3) for a very basic family meal, life is a struggle.

“It’s barely enough for food, sometimes it’s not enough,” she says as she picks plastic bags from the trash heap, a foul stench in the air and the midday sun beating down, the only shade provided by a Komatsu digger operating perilously close by.

Mrs Rastinah and her family are among the tens of millions of people who have been left behind as Indonesia’s economy has taken off on the back of a fast-growing middle class and Indonesia’s plentiful natural resources. Read more of this post

China: Politicizing discovery: A system of political patronage often forces scientists to choose between career advancement and real innovation

Politicizing discovery

Wednesday, March 20, 2013

A system of political patronage often forces scientists to choose between career advancement and real innovation

Bill Dodson is chief China industry analyst at market research firm TrendsAsia in greater Shanghai and author of several books, most recently “China Fast Forward: The Technologies, Green Industries and Innovations Driving the Mainland’s Future,” published last August.

Throughout 2010, Fang Shimin – China’s self-appointed “Science Cop “ – had been relentless in his pursuit of Dr Xiao Chuanguo. Fang Shimin had publicly accused the medical researcher of falsifying test data in trials with children. The doctor had retaliated against Fang Shimin by hiring thugs to beat the Science Cop to “send him a message.” Despite Xiao Chuanguo’s confession, the court had shown great leniency toward the doctor.

The public accusations against Xiao Chuanguo, his confessed attacks on his accusers and the court’s light sentences for his crimes point to a fundamental flaw in China’s plan to surpass the United States as a preeminent innovation nation. The country lacks checks and balances within its own scientific community and society. Science prides itself on its scientific method of repeatable results rigorously tested and approved by a group of peers.

As Thomas Kuhn wrote in his seminal study of the work of scientists, “The Structure of Scientific Revolutions,” most often discoveries are resisted by peers who have vested interests, yet eventually the community of scientists adapts – typically in nonviolent ways – as the discovery becomes a fact that expands on previous understanding. The scientific method is supposed to weed out wrong or misleading results and researchers to contribute to a base of standing knowledge upon which others may continue to build. The court systems in a civil society function similarly, with judgments passed based on a body of evidence that is indisputable in its objectivity and certainty.

Both science and society in China are based on patronage, though. Read more of this post

SEC Digging Into Fund Fees; Focus on Expenses Billed to Investors by Hedge Funds and Private-Equity Firms

• Updated March 19, 2013, 7:57 p.m. ET

SEC Digging Into Fund Fees

Focus on Expenses Billed to Investors by Hedge Funds and Private-Equity Firms

By JULIE STEINBERG

The Securities and Exchange Commission is closely scrutinizing the fees and expenses, including travel and entertainment, that hedge funds and private-equity firms charge to their investors.

Many managers of hedge funds and private-equity funds—collectively called “private investment advisers”—had long been largely unregulated and therefore had less oversight in how they billed their investors.

As part of the Dodd-Frank financial law, the SEC now oversees more than 1,500 additional such advisers that were required to register with the agency. In that capacity, the SEC is checking to ensure they are charging their investors reasonable expenses.

“Exotic” expenses like travel, entertainment and consulting arrangements are more likely to attract the agency’s attention than routine charges like legal and accounting fees, say compliance consultants who advise funds on registration and reporting requirements. Read more of this post

Largest pension fund considers dumping active management

Largest pension fund considers dumping active management

CalPERS’ review keeps pressure on from passive funds

By Jason Kephart

Mar 19, 2013 @ 1:35 pm (Updated 3:46 pm) EST

In the latest sign of the apocalypse for active management, the largest pension fund in the United States is mulling a move to an all-passive portfolio.

The California Public Employees Retirement System’s investment committee is evaluating whether the fees it pays its active managers are worth it or if paying less fees for passive management will lead to better long-term results, according to sister publication Pensions & Investments.

The pension fund, commonly referred to as CalPERS, oversees about $255 billion in assets, more than half of which already is invested in passive strategies.

The critique of active management is part of a review of the fund’s investment beliefs, which began yesterday, P&I said.

At the heart of the review of active management is whether taking the trouble to pick the right managers is worth it. Read more of this post

Canada Pension Plan Investment Board (CPPIB) laments dearth of investments for pension funds’ ‘patient capital’; “How can we think and act long term when the world around us is caught up in this ‘myopia of the moment’?

CPPIB laments dearth of investments for pension funds’ ‘patient capital’

19 March 2013

Author: Jonathan Williams

GLOBAL – The short-termist focus of governments and investors is creating problems for pension funds to invest their “patient capital”, the head of the CAD172bn (€130bn) Canada Pension Plan Investment Board (CPPIB) has said.

Mark Wiseman, chief executive and president of CPPIB, said the focus on the short term – due to shorter election cycles, quarterly profit reports and a “revolving door” of chief executives within listed companies – was causing problems, and that there was a need for longer-term thinking.

During a speech to the Canadian Australian Chamber of Commerce in Sydney, he asked: “How can we think and act long term when the world around us is caught up in this ‘myopia of the moment’?

“All market participants – be they investors or governments – desperately need a long-term lens,” he added. “While we may discuss practical, actionable items for reform, I am convinced that, unless we first address this short-term, structural paradigm, we will fail to create a policy environment that supports fundamental and lasting change.” Read more of this post

Malaysian PM Najib Sees Early Achievement of Mahathir Vision: Southeast Asia

Najib Sees Early Achievement of Mahathir Vision: Southeast Asia

Malaysian Prime Minister Najib Razak said the nation may reach high-income status two years ahead of target, as he seeks to convince voters of his economic achievements before elections due within weeks.

Gross national income could rise to $15,000 per capita in 2018, earlier than a target of 2020, Najib said in a televised speech late yesterday. The measure has increased 49 percent since 2009, to $9,970 last year, the government estimates. Najib also pledged to give annual cash handouts to low-wage earners.

“The time has come for Malaysians to make a decision and I hope you make the right choice,” said Najib, 59, without indicating when the election will be held. He must dissolve parliament by April 28 and hold a vote by the end of June.

Najib, who inherited a country in recession when he replaced Abdullah Ahmad Badawi as leader in 2009, is focusing voters on his efforts to boost investment and improve incomes as he seeks a popular mandate for the first time. The ruling National Front coalition won the last election in 2008 by its narrowest margin in more than five decades, prompting Abdullah to hand over the leadership mid-term. Read more of this post

Leveraged Asian Investors May Spur Bond Price Slump: Barclays

Leveraged Asian Investors May Spur Bond Price Slump: Barclays

Wealthy Asian investors who’ve borrowed against their houses to buy bonds may find themselves among forced sellers if interest rates rise, spurring a price slump in vulnerable securities, according to Barclays Plc.

U.S. dollar-denominated notes sold by more than 20 companies including Olam International Ltd. and Henderson Land Development Co. are some of those most exposed if private bank clients move money out of the fixed-income market, Barclays said in a research note dated March 14. Private banks hold 15 percent to 20 percent of total corporate bonds in Asia and as much as 30 percent of high-yield, or junk, notes.

Low borrowing costs have been one of the main factors driving the strong demand for Asia credit and many high net worth investors went further into debt to buy the securities, according to the report. In the past six months, equities have generated solid returns while credit has lagged, creating a risk fund flows will rotate out of bonds in a quest for higher returns and compound the price slump.

“U.S. rates are already beginning to rise, albeit gradually, and leveraged lending could be scaled back if risk committees begin to focus on the quality of such lending,” according to analysts led by Krishna Hegde, Barclays’ Singapore- based head of Asia credit research. Furthermore, any sharp or sustained sell-off in Treasuries would impact bond prices and raise borrowing costs. Considering most private bank investors don’t hedge rates, “this is an important risk factor,” they wrote. Read more of this post