Posts from — June 2007
2007 Currency Highlights
EUR/JPY all time highs
EUR/CHF all time highs
GBP/JPY 15 year highs (1992)
USD/JPY 4.5 year highs (Dec 2002)
AUD/USD 18 year highs (1989)
NZD/USD 25 year highs (1982)
NZD – first RBNZ intervention since 1985.
June 20, 2007 No Comments
Sugar industry hits the sweet spot
Since oil isn’t getting any cheaper, the subsidy farmers sugar industry may finally catch a ride on the biggest subsidy wave to date: the alternative-fuel craze.
Per Bloomberg,
Prices of sugar, the worst- performing commodity in the past year, may more than double by the end of 2007 as gains in crude oil encourage ethanol use, said Greg Smith, executive director at hedge fund manager Global Commodity Ltd. More ethanol will be put into use in Brazil and the U.S. as crude oil prices in New York rose to a nine-month high yesterday. Increased use of ethanol may help whittle down inventories of sugar, which is used as a feedstock to produce the alternative fuel, Smith said in an interview in Singapore today.
American ethanol efforts have revolved around corn-based ethanol, which is much less efficient, but which would be a godsend to American agribusiness interests. Corn has thus done very well. With new Brazilian innovation yielding promising results for sugar-based ethanol, sugar finally seems poised for a bull market of its own.
June 19, 2007 No Comments
July Crude Oil Futures Hit September 2006 High
From the Boston Globe:
Crude oil in New York approached $70 a barrel for the first time since September after Nigerian unions planned a strike this week, threatening supplies from Africa’s biggest oil producer.
June 19, 2007 No Comments
Sub-Prime Lenders Poor Math Skills
How much of a credit risk is a 95 year old women paying down a loan that was IO for ten years? From the LA Times:
Alexis Desanti, a 57-year-old legal secretary and West Hollywood renter, began searching for a Long Beach condo in the $250,000 range in March…
Desanti also qualified for a 40-year loan at 5.75%. She pays interest only for the first 10 years.
June 18, 2007 No Comments
A rippling credit meltdown?
Steve Rattner (WSJ) thinks so.
In recent months, lower credit bonds — conventionally defined as BB+ and below — have traded at a smaller risk premium (as compared to U.S. Treasuries) than ever before in history. Over the past 20 years, this margin averaged 5.42 percentage points. Shortly before the Asian crisis in 1998, the spread was hovering just above 3 percentage points. Earlier this month, it touched down at a record 2.63 percentage points. That’s less than 8% money for high-risk borrowers.
[...]
The low spreads have been accompanied by less tangible indicia of imprudent lending practices: the easing of loan conditions (“covenants,” as they are known in industry parlance), options for borrowers to pay interest in more paper instead of cash, financings to deliver large dividends to shareholders (generally private equity firms) and perhaps most importantly, a general deterioration in the credit quality of borrowers.
I’m hearing that PE shops are now hiring lots of people to do interest-rate swaps. Not exactly their core area of “expertise.”
However, Rattner seemed incorrect in one respect. The subprime fiasco, far from being “reduced to rubble,” is still alive and kicking.
Alexis Desanti, a 57-year-old legal secretary … got a $15,000 down-payment grant from a first-time-buyers program sponsored by the Pacific West Assn. of Realtors. Opening Doors participants must purchase a home priced at less than $564,264 in Los Angeles County, their incomes must not exceed $97,320 and they must contribute 1% of the sales price toward the down payment. As long as Desanti lives in the home for the first three years, the grant will be forgiven.
Desanti also qualified for a 40-year loan at 5.75%. She pays interest only for the first 10 years.
… three years and the grant will be forgiven? Time to short the hell out of every member company in the “Pacific West Assn. of Realtors.”
June 18, 2007 4 Comments
Long Sarkozy? – Buy France
If the 2nd round of parliamentary elections go his way you can expect a quick jump in the ETF. Barring an overall decline in Euro equities
June 15, 2007 No Comments
Chilly winds from Moscow
According to Lipper HedgeWorld,
Russian authorities have raised the stakes by launching an investigation into Mr. Browder’s Hermitage Fund, the world’s largest Russia-focused hedge fund. The investigation, which is being conducted by Russia’s Ministry of the Interior, is focusing on allegations of tax evasion.According to a report in yesterday’s [June 14] International Herald Tribune, Russian authorities are examining whether a Cyprus-based company called Kameya underpaid some $44 million in taxes.
This definitely has a “Yukos” ring to it.
Much of Russian prosecutorial activity, however, seems correlated with involvement in the Russian energy sector (the turf of Gazprom and Rosneft, which are synonymous with the Kremlin and do not hesitate to stomp on competition, foreign or domestic), or with people connected with the Yeltsin “Family” kleptocracy. The fact that Putin has been at war with most of the Russian oligarchic class seems lost on all Western media (especially UK-based media, where Berezovsky, Abramovitch and virtually all other Russian oligarchs-in-exile are based).
June 15, 2007 No Comments
Maltbie’s Call: Short Macys
Pitched as a macro bet:
If retail sales continue at their modest pace or slow down further, costs of operations at 850 stores are not going away as inventories accumulate. If we put the entire picture together and do the calculation, it is unlikely Macy’s can maintain its current premium with deteriorating fundamentals. Looking ahead, we believe that an economic slowdown and earnings uncertainty, coupled with increased price competition from rivals and discount retailers, will contain Macy’s earnings potential. Our model predicts that fair value for Macy’s is $32 per share at 16 times fiscal 2008 earnings of $2.00.
June 14, 2007 No Comments
“Currency Manipulator” sound and fury again comes to naught
The Treasury Department surprised no one when it politely listened, rolled its eyes, and rejected the demand of US Senators Smoot and Hawley Graham and Schumer to affix the “currency manipulator” label on China.
China’s currency reserves are now estimated at $1.07 trillion. However, the amount of its NPLs is estimated to be in the $800bn-$1.2 trillion range.
However, Asia should be fine as long as the BoJ doesn’t raise interest rates faster than expectations. (They will have to eventually, but in the near term its more visible impact would be exploding the yen carry trade.)
June 14, 2007 No Comments
QQQQ Put Option Volume Surge
WSJ says its a hedge:
More than 610,000 put options on the Nasdaq-100 Trust, or QQQQ, changed hands, far heavier than the recent daily volume of these contracts, according to Track Data. With the QQQQ down 28 cents to $46.54, trading was heaviest in puts that grant the right to sell shares of the ETF for $46 in the days, weeks and months ahead.
Among the volume that stood out, for example, was trading in the August $46 put options. More than 51,800 of these puts changed hands, compared with 11,026 previously outstanding, and they rose 13 cents to $1.03.
June 13, 2007 No Comments
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