Monday, 30 April 2012

Monday .... game on

A busy day for me today as I'm advising on a commodity transaction. It's always a tough ask on these deals as there's usually multiple groups behind the scenes all looking for their 2%. I'm relaxed about this mornings meeting as I'm going into this on the basis that there's only going to be one way I can do the deal. If they can do a better deal away, then I'm guessing they wouldn't be dealing with an independent.
I don't see the difference??
So we're just starting to get leaks about a Spanish plan to adopt the good bank / bad bank model (GBBB). I'd like to think they will get this done. The problem is, unlike previous versions of GBBB Spain is a member of a bigger economic block . . . as soon as we see what's going into the BB we're going to get a series of write-downs in multiple European banks. Some people are already saying it would work like NAMA the Irish bad bank, but this is bigger and more complex . . . . and remember a lot of the products and structures likely to be written down would have a contagion effect elsewhere in the EU banking system. Who next then? The Italians? The French (don't laugh . . . we know how leveraged they were).

Anyone see the reports that the inventor of BRICs, aka Jim O'Neill of Goldman Sachs is in line to become next BoE Governor? Look, I know several people that will be screaming about this. I believe that it would be ... how shall we say this??? ... "unwise" at best. Why not just let Lloyd Blankfein run Europe? It has to be quicker and dare I say it cheaper than just appointing every GS employee to each individual central bank?

I got out for a 35k ride just after lunch. I timed it beautifully to coincide with the one rain downfall for the day. Both me and Pinarello got covered in the grey clay that spun up from my wet wheels. I estimate at least 2 hours work to get back to show condition. The main thing is that I knocked off over a 1000 calories and managed to do some of my old hill climbs nearer to town which confirmed that my technique and general fitness are better than they were a year ago.

Sunday, 29 April 2012

It's the weekend . . . Part 2

Wish you were here . . . .

Gorgeous day here today. Absolutely fantastic. A short ride through the vineyards near Geneva with Mrs IBC made me feel a lot better about things. Here's me taking a break in the fields:

Can you tell a green field from a cold steel rail?
A smile from a veil?
Do you think you can tell?

I thought the sky looked fantastic in this picture. It kind of reminds me of those album covers you used to see in the 70's. As the theme of the weekends blogs is the 70's I thought the picture was appropriate. I'm not going to print the stats of the ride as we stopped a lot and generally enjoyed ourselves. Mrs IBC had a  fall early . . . she hasn't been on the pink and white Pinarello since before Xmas, so it was understandable. She soldiered on.

So inflation . . . German engineers union announced they were looking for 6.5% pay rise. Mmmm .... and so it begins. You can understand them. Because of the LTRO/QE  the German economy is booming, these guys are the core of the German success story. Very few countries in the G20 invest as much in technical skills as the Germans and so this is what they get.

Isn't that Mike Ditka?

Hey, we need to stick together. The French want to f**k us over. We need 6.5% .... right?
Merkel knows Europe needs to stay together for the German fairytale to continue, but at the same time the local political scene is built to demand some kind of rebellion against this. I though Sarkozy was in a tight spot, but Merkel ... yuck!

Let's hope we can move on from the 70's . . . If Merkel has the balls . . . I give you the 80's:

Saturday, 28 April 2012

It's the weekend . . . Part 1

A quick trip back to the 70's in salute to inflation, French socialism and the end of substance . . .

I thought the best line of the week came from Nouriel Roubini's twitter feed:

"For how long can consumption grow at a 2.9% rate when real disposable income is growing only 0.4%? Not long as you can't keep cuttin savings"

The US GDP disappointed Friday registering only 0.5% growth for Quarter or 2.2% annualized against expectations of 2.5%. No doubt everyone will pile into the risk on trade in the face of more QE speculation. The world now is perverse that it's hard to take Bernanke and other central bankers seriously.

Speaking of taking things seriously, what about the Italians. Are they serious? Maybe . . . Recently I was driving back from Italy through the cycling heaven that is Val d'Aosta ... an upmarket bar in one of the ski resorts (La Thuile), had a turnover of €350,000 (£286,000) in the past five years but had never declared a penny to the taxman. The evasion was discovered after tax agents went through the bar's records and receipts. Since Christmas it is reported 2,100 cases of tax evasion have been identified. Wait until summer when the Guardia di Finanza start enquiring as to ownership of super yachts cruising the beautiful waters off the Italian coast.

Looking for work in Portofino? Apply to the Guardia di Finanza.

Leaving Italy for the moment. It was 16 degrees when I left Val D'Isere on Saturday and the snow was melting nearly as fast as the euro-austerity pact. I saw more cyclists than skiers heading up the valley. A couple of nice looking Cannondale Supersix Evo's cruised past us out of Bourg-Saint-Maurice up the D902. I wish was doing the same because as usual the pace of eating in a ski resort takes its toll on your body like no other vacation.

Super Six Evo - the frame weighs 695g's .... è bello
While driving I was thinking about the state of interest rates and how to trade the market now. It's a strange thing, I can remember a mate of mine loading up on Japanese Government Bond (JGB) puts back in 2000-2. He was convinced that the Japanese economy was coming back and the BoJ was going to have to raise rates. He was kind of right as we got the end of the Zero Interest Rate Policy (ZIRP), but nothing else. Since then being short JGB's has been a huge loser. Just look at the performance of the JPY and you know that it was futile to try and escape deleveraging by governments printing cash until the presses caught on fire. Thus when I saw the the FT's report of Mr John Paulson's recent conference call with investors I had to have a quiet chuckle to myself.

Paulson has made more money in a week than I'll be worth in a lifetime. Good for him. The trouble is he's shifted from a mathematical model to a subjective model of the world and he's fallen for a huge trap in my humble view. His plan has a Soros type feel to it. . . short core Europe (Germany, the Netherlands, etc), build momentum in the market and break apart alliance. But aren't governments a bit too wise to this trick now? I admit it kind of has merit, but it's too exposed. I mean Europe plus the Swiss seem content on the Zombification of the fringe economies. The only thing that Brussels has to worry about is revolution and civil unrest. Most politicians seem happy to wait out the current generation's infatuation with the Occupy movement. Mr. Paulson has a timing problem. How long can you rely on investors sticking with you while your bet pays out? Maybe it doesn't matter as he's his own biggest investor? In the meantime trying to garner supplemental returns could be hazardous as the market remains deeply dysfunctional in terms of value and volumes being traded.

Other things that make me smile this weekend. . .

Alex Wilmot-Sitwell has been poached from UBS to head up Bank of America Merrill Lynch’s European business. Recently UBS had hired "workaholic investment banking god" Andrea Orcel, BAML’s chairman of global banking and markets. Fantastic, my old shop loses another pretty good banker, just another reason to stay long CS over UBS.

Friday, 27 April 2012

Apologies . . . .

Apologies to followers as I've been having trouble with the blog software while traveling and using iPad. I will be writing a full Thursday + weekend blog on Sunday. Many thanks for you interest.

Wednesday, 25 April 2012

Tiny bubbles in the snow ....

I had a friend when I lived in London who used to continually buy puts on the Nikkei. He did it for year after year as the N225 moved ever higher post 2000. He was such a macro guy that he just couldn't believe in an investment case that could justify the valuations of the market. It cost him a lot of money . . . Until that is the bubble burst. I never asked him for a PnL, but I know the world appreciated the bears more in 2008 than 2001 and therefore I'll always remember him as a success in his terms and the market terms.

So what? Well as Mrs IBC will tell you I'm an Apple product fan boy and enough of one to say that I'm secretly stupid paying the extra margin for them over standard consumer electronics. The margins are unbelievable. I Remember a visit to Japan in 2006 to Panasonic. The investor relations guy spent the hour describing their great plan to hit 5% margins by 2008. Imagine that thinking at Apple? No, neither can I. What do we make of the Apple numbers. They're fantastic, but how long can it last? It just defies so many laws that products like these can forever grow market share and margin at the same pace. Apple may come up with a cure for cancer that you can download through iTunes, but the odds against it are slim .... Even with Steve Jobs somewhere out there influencing things. Where are we? I'm getting back to my old Nikkei put buying mate and saying that maybe some puts one a quarter might be appropriate. In the meantime I'm the idiot with the white headphones in typing away on his iPad.

In case anyone out there is wondering .... There is snow in Val D'Isere and it just might be skiable tomorrow.


Tuesday, 24 April 2012

Flicking European governments and businesses in decline . . . Lets go skiing . . .

I missed the collapse of the centre right coalition in the Netherlands over the weekend that led to the Dutch CDS widening over the last two days. It's fast becoming obvious that Europe is losing the will and ability to hold fast to the German line of austerity at all costs. The French have no stomach for it and Sarkozy's likely defeat in my mind will be the nail in the Euro's fiscal coffin. The QE bulls will say this will trigger a new round of money printing, but I can see a time when the Germans will veto this, even though they have been a huge beneficiary of the slackness over the last two years.

Netflix doesn't mean much to me as a company because they really didn't get much of a business going outside the US. Their original business filled a gap in the market when digital downloading was in its infancy. Mailing DVDs directly to people too lazy to get off their butts and go a store was good . . . after all it was a simple logistics business that benefited from the increased competition of the various delivery companies and their increasing sophistication in respect of their computer tracking and management systems. The problem for them is that they failed to erect and barriers to entry for their potential competitors . . . I mean competing with Apple's closed end system was always going to be a suicide mission without some kind of monopoly agreement with various studios. So slowing streaming subscriber growth is and DVD renters are in terminal decline. Avoid?

So more rain here and a fierce wind. My support crew chief didn't really like her daily walk through the park and up into the old town.

"I'm over this weather - pack up the car and the bike and lets go to Italy."

I did an hour in the gym and now have the pleasure of dusting off the ski gear and loading the car for tomorrow. I'm not sure what to expect, but it could be worse ... I could be an analyst with a buy recommendation on Netflix.

Monday, 23 April 2012

Missing the woods for the trees . . .

I just had lunch with an old friend and spent a pleasant couple of hours chewing the fat over the usual things. I told him that I wanted to say something about the Vodafone takeover of Cable & Wireless today in the blog. And so I will.

Nice logo . . . a bit fuzzy though?

In a former life I had a minor advisory role to C&W shortly after they divested themselves of Hong Kong Telecom. At the time the divestment was seen as a great deal and given HKT's performance thereafter they probably did the right thing for the right price. But, and there's always a but to these things its what they did after they got the cash they mattered more. You see they sold out of a high cashflow business and entered the world of infrastructure build supported only by the legacy teleco fixed line businesses in the Caribbean. That didn't have to be the end of things, but in hindsight it was the beginning of the end as they never found a suitable investment for their billion dollar cash pile. The zenith of it's misadventures with investing came with the purchase of Digital Island and merger of it with Chapter 11 refugee Exodus Communications. The subsequent attempt to restructure being in my view a failure that eventually led to the destruction of huge amounts of cash. But enough of that.

What I noticed about C&W's corporate team was a complete inability to deal with the bigger picture. I spent huge amounts of time dissecting dates for this and dates for that and not enough seeing to the actual strategic goals of the business. Most days towards the end of the business I did with them I just wanted to scream. They seemed happy to let their cash pile get whittled away on the Digital Island while they  argued about buying back their own debt at a significant discount to face. In my view such a move would have created a virtuous circle of debt retirement leading to a better credit rating, leading to their ability to reissue debt when needed at a better financing rate. I'm sure some will disagree with me, but what can I say? I mean maybe it was me that couldn't see the wood for the trees . . .  all I know is that today we see the final chapter of what started in 2000 and it looks pretty much like one of those trees finally fell on C&W. Vale Cable and Wireless, it was fun while it lasted.

Mixed weather here again, so much so that I'm going to dust off the skis for one last run for the year. Mrs IBC is keener than me as I'd prefer to pound out some more miles on the Pinarello. Either way I'm starting to look forward to it. The Atomics sit there next to my bike and I gave them a wipe down yesterday when I was working on the Dogma. All seems ready to go. I hit the gym today and unless we get some sun will do the same tomorrow. I just know as soon as I pack the car with ski gear the sun will come out leaving me wishing I had the Dogma with me. Vale skiing.

Sunday, 22 April 2012

Wind, rain and France . . .

I finally got a chance to sit down and write a few things for the blog. It's been an interesting weekend so far and hopefully as I write this we will see the final 100km's of the Liege - Bastogne - Liege bike race develop into something special. Judging be the pictures it must have rained earlier and after my ride yesterday I have some understanding of how difficult that can be.

So a short ride of 45k's yesterday felt like about 80k's yesterday as the wind and rain hit me hard on the run down the hill at Ballaison. My original plan had been to just ride for an hour after lunch around the slopes that surround our side of the lake here. I was feeling so good that instead I extended on a new route via the little town of Gy about 15k from Geneva.

Anyway all was fine until the return trip were when first I got hit by the wind and then the rain. Luckily I had my lightweight rain jacket in my back pocket. It was the wind that really made it hard work. An an example I usually come off the Ballaison hill at 55 to 60kmh, but not this Saturday. the wind was so fierce directly into my face that I was restricted to about 30. To top it off as I snaked down the hill I was hit by a side wind that almost pushed me off the bike and had me wishing that I'd switched to the non aero Easton wheels before I went out. I made it back, but was out or over 2 hours and was lucky to average 20kph.

Aero wheels are not good on a windy day . . . 

Should have had the non-aeros . . . my bad.

I got a reward though when we drove back later to a restaurant in Douvaine named O Flaveurs. I can testify that it deserves its Michelin star.

Finally as I write this the French Presidential election first round results are coming in. The nationalist right got a record 20%. The liberal media is going to have a meltdown trying to explain this.

I still think Hollande wins the run off, but its going to be closer than I thought. Either way though I'm not sure the markets will take this well. My favorite socialist policy is the luxury goods tax. I mean I've lived in mainland Europe long enough to know if you can buy a bag cheaper in Frankfurt than Strasbourg you are going to take a weekend break over the boarder. The Italians already put a cap of E1000 on cash payments for goods so they could track money laundering. That has killed foot traffic at Gucci in Italy . . . and ironically it's owned by the French. I mean really . . .  how many police are going to be manning boarder crossings checking handbags?? Please, it reminds me of the master plan of the 35 hour week that said if everyone works less hours than big business will employ more people. Jeezus, these people are they all idiots?

A Hollande victory is about to be priced in . . .  and it's going to be ugly.

Friday, 20 April 2012

Copper, copper everwhere . . . .

The last 6 months have been hard to take if you are a global growth bear. The key was always to hold your nerve and get the timing right. One of the principal battle grounds for this has been the copper market and the derivatives thereof. As I've written before the war is a battle between:

a) Global growth / Chinese growth as a proxy for demand, and

b) Production limitations that expect 500,000 metric ton deficit in refined copper this year

Now I know that the last few days have confirmed that growth is slowing. Chinese GDP "officially" now at 8.1%, but even that looks shaky. Brazil with emergency rate cuts. And European governments pressured about funding huge deficits. I agree with the production side of the argument because we saw the evidence out of that with the news earlier in thew week out of Chile. But what to do?

China makes up 40% of copper demand, but stocks of the metal in China have risen to new highs. Stocks ex-china have been falling, but this is where it gets tricky. If the rest of the major infrastructure builders of the BRICs slow I'd expect copper demand to fall back and we'll be left with an overhang. I feel it's already turned ahead of what I'd expect to be weak summer data from China. You have been warned.

While at the gym today I noticed UK retail spending was above f/c. Readers know that I'm more happy with the pound now that QE doves have stopped their constant demand to roll the presses. Now we get the news that retail sales rose 1.8% between February and March and 1.5% ex car fuel, while expectations were for  a 0.4% without car fuel and 0.5% with. Part of this was the warm weather, which economists always get wrong. The UK just looks better than the rest of Europe.

One last word on Europe . . . . If Sarkozy loses the presidential election just pray that Hollande steps back from the edge before he jumps. Another good reason to hide in sterling. You be the judge.

So the weather here today forced me into the gym. I worked out for an hour and listened to the guys from Cycling 360 podcast.

A really interesting show that helped clarify in my mind the advantages of understanding cadence. Sometimes it can be really obvious that just sitting in a grove at say 90rpm doesn't always work. Other times you need to get passed to prove it. You have to understand that certain points on your cadence range when properly stressed can improve your overall performance. A great show. Thanks guys.

Thursday, 19 April 2012

First China, now Brazil .... and it's raining ...

I guess its priced in, ... kind of. I didn't expect Brazil to cut rates by 75bps bringing them down to 9% for the first time since April 2010. So what do you say? It's good for equities you say? It shows the rest of the world that the BRICs will bail us out you say? Rubbish. It shows economies in BRICs are not going to bail anyone out. They are hurting because they rely on exports. Even India exports .... exports its human capital and it imports a truck load of energy which costs a lot more now.

I feel like its getting to the be every man/woman for themselves part now.

Check this out from Moodys:

I honestly don't care about Moodys as they have helped to perpetuate much of the damage to global economies in the last 10 years, but in this case I thought they have summed up things quite well. So for instance Italy would need to reduce its long-term borrowing costs to 4.2% in order to return to a sustainable path. Japan is a basket case and how they can give the IMF 60bn is a joke of monumental proportions. I wonder why the BRICs aren't on this table? Makes you think?

I had lunch today with a friend who mentioned that a huge chunk of arable land in Argentina is owned by foreigners. I didn't know that. Will the mad women scoop this up next? Given the support she's had in Argentina why not? Probably gets her or husband or some other relative elected next time the country goes to the polls.

The rain today forced me into the gym. A one hour workout followed by lunch. Not a healthy day, but this rain is starting to get to me. I should mention that I won't be riding leg 2 of the Piemonte Cup. I was scared off by someone I met at Novi Ligure who told me it was tough, very tough.

I looked up the course and I have to say it looks ... challenging? This is the medio fondo:

There's 1700m of climbing in 98km's of riding. When I did Novi Ligure I climbed 1300m in 104k's. Its similar, but given the rain here lately I'm not sure I could get another 400m's of climbing. Maybe if I'd managed 220k's last week with a couple of climbs I may have been in shape.

Wednesday, 18 April 2012

Has the bank of England lost it?

Has the bank of England lost it? And what is "it"? Well I think the 'it' is the balance in the economy and the reason I mention "it" is the publishing of the latest minutes of the MPC.

It looks to me that inflation is starting to be a real concern especially after the latest numbers saw an increase last month to 3.5%. The committee seems perplexed about the weakness in various sectors considered core to the economy - but why? Basically they and most of the G7 have debased a huge chunk of the world's currency. That surely sparked inflation and more importantly for the UK has lifted costs for many input commodities that the average man has taken for granted during the period of the strong pound. So now what. Well clearly so long as jobs don't crater that's the end of QE. If my assumption is right, buy GBP and sell the FTSE?

Europe remains sick. I don't care how many JPY the Japanese print and give to the IMF. Look at today. Italy ran up the white flag and cut its 2012 growth forecast while simultaneously doing a Gordon Brown and changed it's own rules on a balanced budget. So this year they'll shrink by 1.2% v. the f/c of -0.4% previously. Well I guess that in a way it was priced in but not the changing of the balanced budget f/c. Normally this is where I'd say short the EUR etc. . . . but even my dog has stopped listening to me:

So on to more enjoyable things. I managed to pump out 50k's on a new route up one of my usual hills. I'm not sure any of you use Strava to record your exercise routine, but I like it. What I'd like to point out is the segment feature. Basically the Strava team via its users have setup various segments of interest that allow you to compare yourself to other riders or runners. In my case this morning's new segment shows me as sadly the slowest rider on the "Impasse Des Peupliers Climb", though I take some solace in the fact I am also the heaviest and oldest to have completed the climb! So all's not too bad?

The fastest rider is 15 years younger and 30kgs lighter, so I'm not overly concerned that he beat me by 12mins. It's still fun to compare. Kind of like comparing Europe to the US .... on second thoughts maybe that's not fun?

Tuesday, 17 April 2012

Sun or Flag? . . . get on your bikes and ride!

Was that the sun I spied . . . . . or was it just the Argentinian flag? Well first things first . . . .

So Argentinian nationalism is back. First we had all the noises about the Falklands and now fruitcake President Cristina Fernandez announces on live television that state oil corp YPF would be 51% nationalised. That leaves Spanish giant Repsol looking for 10bn in compensation .... mmmm ... good luck with that. And good luck to Argentina on getting foreign investment. Cristina and a bunch of other LatAms have decided that Chavez was right. What are they thinking?

So out of this comes opportunity. The Telegraph quotes Stuart Joyner, an analyst at Investec, as saying: "We had hoped that Argentina would pull back from this extreme action, but, now that this is apparently off table, our worst case scenario values Repsol (with YPF at zero) at €15.62 [...] At a minimum, Repsol is now set to lose control of YPF and, of course, any compensation seems set to be at current depressed prices."There you have it. Now do the simple work and compare it to BP during the gulf oil spill. Bingo!

The other sun that was shinning today was Geneva's. Its still a tad cold, but sun is sun, so time to ride. Total today was 65k's. It hurt a lot. You lose condition really fast. The gym can't compare to open air exercise. Lately I've tried to make things at the gym more interesting by using the climbing and gradient programs on the treadmill and the other cardio machines, but it's really not the same. My times were pretty pathetic, but at least 1700 calories got shed and that makes me feel better. I stopped on the way back down the plage to take in Geneva. You know even though I'll be happy to head back to Sydney this place still has a certain something about it.

Monday, 16 April 2012

Fact v fiction .... what happened to Phillippe Gilbert?

My back is better, so I'm going to stop thinking about myself for the moment and ponder a more interesting question: If I was a metals producer what would I be thinking today? I'd probably spent much of the weekend reading stories about a Chinese slowdown.  Should I delay plans to expand a particular mine or should I go ahead on the basis of continuing production problems?

Well today we find out that Codelco has been buying in copper to meet its supply contracts. We knew the situation in Chile was serious back in February when yearly production figures for 2011 were finalised. Production at Escondida, the world’s largest copper mine, was down 7.9%, Los Bronces saw a 15% per cent fall and overall grades throughout the country were declining. Codelco in the meantime has been at odds with Anglo American surely distracting the state run company from turning around the situation.

My former partner and I spent many hours going through production reports of various metals and almost always concluded that long term you'd want to be an owner of the supply source. The trouble was that even with that type of conclusion we always surrendered to the macro situation as much of our tradeable universe represented certain forward expectations (whether that be futures, equities or derivatives there of) and therefore depended on a premium or discount to a theoretical price. Right now the premium to me is too high in a metal such as copper given the macro situation and I'd look to trades across the curve rather than trading solely in the spot month.

I wanted to remind readers of my concern regarding student loans. I note that this week Barron's lead piece is on the subject.

People out there better understand the situation coming into the September print of the latest information regarding the arrears in the product when it is released by the US department of education. An interesting side note to this is NZ student loans, which I am told are tradeable, but I have no figures at this time as I'd like to do more research . . .  Needless to say early indications are bearish.

As opposed to student loans I'm getting very bullish on the cycling season. I watched the highlights from the weekends big race at the gym this morning where I put in a solid hour free of back pain. I spent Sunday afternoon watching the last 80k's of the Amstel Gold. Hey what happened to Phillippe Gilbert? I honestly don't get it?

He seemed to hit a wall when the race was in his grasp. He and BMC had looked good for most of the race. I thought the biggest threat might be Liquigas' Sagan, but no way did I think Gilbert would hit a wall like that in the attached video. So far this year I think Nibali, Cancellara and Boonen have been my standout riders for sheer brilliance. I don't want to take anything away from Simon Gerrans after his Milano - San Remo, but that was tactical genius more than anything else.  I amy own a BMC and a Pinarello, but for mine the sexiest looking bike out there at the moment is a coin toss between the Cannondale of Liquigas and the Cipollini of Farnese Vini ... thoughts?

Sunday, 15 April 2012

Thinking long range

More rain here so Saturday was a gym day. We just really don't get weather like this. It's more like London than Geneva at the moment. Anyway it looks Sunday is going to be an afternoon of watching the Amstel Gold Race on Europsorts for me.

I have this feeling that the Chinese are rattled at the moment. Fridays 8.1% GDP (or 6.9% according to Professor Roubini) seems to have them thinking. So this announcement of a widening of the trading range for the Rmb is very interesting. It effectively doubles the range to 1% of the peg and in a way is a white flag to the market.The external inflation shocks from (for example) the crude oil price rises need capping. If you're China you either go to war or you let your currency rise to absorb some of the hit. The problem with the stroger currency is that you may just snuff out demand growth for your exports. Its a fine balancing act and I just can't see it ending well.

Check out the brain

I note the Op-Ed piece from Pimco's Mohamed El-Erian regarding what a rise in volatility is telling us. I honestly don't think you need a brain the size of Mr. El-Erian's to understand that the market was being kept buoyant and in place by QE. Remove this and the average equity punter starts to reconsider valuations. The conflict now is between the QE addicted and the bears. MS says that there's only a 33% chance (down from 66%) that we'll get QE3 in June. GS believes its better than 50/50.

Friday, 13 April 2012


After the Aussie jobs data yesterday I tried not to spend too much time navel gazing about how the economy there has been able to avoid the problems facing many other G20 economies. But I'm back courtesy of the Chinese GDP data. The headline said 8.1 per cent, but the huge brain of Nouriel Roubini saw it differently:

Mmmm ..... the brain has spoken
I'm not going to get into 8.1 v. 6.9% fight, all I know is that at the higher rate it's still the lowest pace in nearly three years.

Which brings me back to Australia. A great indicator of the precarious nature of my homeland is summed up by what's happening in the mortgage market there.

After the market closed in Sydney the ANZ bank announced it was actually lifting its variable mortgage rate by 6 basis points. 

ANZ's Australian boss Phil Chronican:

"The funding environment changed quite dramatically in late 2011 as a result of the economic and financial crisis in Europe. This has seen wholesale funding costs rise and competition increase dramatically among  banks for deposits ," Mr Chronican said.

The Aussie mortgage market it is way too big to be funded solely via onshore sources. They have huge offshore exposure and a fall in the AUD would exacerbate the big banks leverage to the markets. This is not good. What next? Well if the RBA do cut rates on May 1st I'm betting very little of that will get passed through to their mortgage customers.

The sun has tried to come out here a few times today, but as my back was acting up and I've had several meetings I avoided a workout. I'm praying for a clear sky tomorrow morning. I just have to belt out a long fast ride. I want to mention that the Tour de Romandie Starts on the 24th with a Time Trial and I'm going up to Lausanne to watch. Cadel Evans and Mark Cavendish are riding so it should be fun. 

Small men with big trophies

66th Tour de Romandie
Prologue, April 24: Lausanne (ITT), 3.3km
Stage 1, April 25: Morges to La Chaux-de-Fonds, 184.5km
Stage 2, April 26: Montbéliard to Moutier, 149.1km
Stage 3, April 27: La Neuveville to Charmey, 157.6km
Stage 4, April 28: Bulle to Sion, 184km
Stage 5, April 29: Crans-Montana (ITT), 16.5km

Thursday, 12 April 2012

Not cooking with gas? .... No worries mate!

Its hard to say any portfolio position is a more crowded trade than long Apple shares or US Government bonds. One that my ex-partner and I ran into more often than not in the last 18 months was and still is natural gas. It's a funny thing in hedge fund world, if you spend two days on the road in London or New York you'll know after the first 3 hours what the "money' play is. In my case it was natural gas. I won't mention names but for months now certain HF's have used long natural gas as their best money making, sure-fire, can't miss, lock it up special. So it was with a sigh I noted the natural gas price fell through its iron clad, it won't ever go there floor of 2 bucks per mbtu. I don't know what turns this around. The glut won't clear up quickly and the oft mention take up through the power grid remains mathematically challenged.


A couple of other finance things I'm watching:

1. Dodgy Spanish Banks: Banesto was the first Spanish bank to report for the period. Everyone should read these results, because it shows you what the EU template is going to be.

a) Make a profit. Produce it any way you can, just so long as the numbers add up
b) Magically get you tier 1 capital above the current limits
c) Make truly extraordinary gains, so extraordinary in fact that by the end of the reporting season everyone will have done the same thing making them just truly ordinary
d) Balance everything out with some provisions that will be big, but not big enough to cause real panic about the true quality of some of the collateral you've been passing off to the ECB

Would Miguel Induran, aka "Big Mig" want to ride his Pinarello today if Banesto was his sponsor?
2. Dodgy crude oil brokers .... aka beware of Iranians: I mention this for a couple of reasons. I noticed the FT was highlighting the discount that Iran was offering on its crude. I'm currently advising some people on the sale of a certain supply of petroleum products, but as soon as I took it to market I was swamped by Iranian's undercutting my price. It's a truly ugly business and if you're like me you run a mile from the first sign of a contact representing anyone speaking farsi - you just don't want to be seen as facilitating these people. The other thing is the 90 day credit terms they're offering .... you just can't compete using standard letters of credit on product from legitimate suppliers. The small trader is getting wiped out.

3. Not so dodgy Aussie jobs numbers: My brothers continue along their merry way. Aussie jobs dated outperformed expectations of 6,000 new positions by creating 44,000 positions for the period. Think about it .... This is a huge number and I'm prepared to swallow some paper losses for the moment until the Chinese reality starts to bite. There's an expectation that the RBA Reserve will cut its cash rate 25 basis points to 4.00% on May 1 . . . but how can they? Stay tuned.

Speaking of no worries, my back problem has almost gone. Unfortunately the rain is here again so it was off for a gentle session at the gym. While there I listened to the usual ESPN sports talk and one of my favorite cycling themed podcasts "The Bike Show". The Bike Show is a bit furry and green for most fire eating masters of the universe and it deals a lot with local issues in London. Having said that so long as you know that Blackfriars bridge is in London and that cyclists get hurt or killed there a lot you'll be able to get to the good stuff such as this weeks run down of the big one day races. I highly recommend it.

Wednesday, 11 April 2012

Back spasms and earnings . . . . both can be a pain

Tuesday, 10 April 2012

Back problems, Yen problems, bad poker playing and low tire pressures ....

It's the first time in ages that I've woken up with a stiff back. I know it's not the bike riding. Sometimes you just don't sleep well, like when you're worried about something. The fact is I have this huge checklist in my mind that constantly bubbles up problems regarding my impending move back to Australia.

So, today what can we see? Two things. Firstly the downgrades at Japanese consumer electronic companies Sony and Sharp. I was less surprised about Sony as they have a new CEO who obviously wanted to get all the bad numbers out there, but Sharp surprised me as it came well after the close. Maybe I shouldn't have been surprised as Japan Inc. is just under so much pressure with the JPY where it is. Add in the high cost base and international competition and you know that these companies have little room to move. Maybe Apple should buy them both and put them out of their misery?

Secondly Facebook paying a billion bucks for a company that has 30 million users certainly raises an eyebrow or two. The math involved to get to this valuation really staggers me. It basically says Zuckerberg is playing poker with other players chips and he has so much money he's lost perspective on the value of his stack. It really confounds me that a CEO can pay a billion dollars for something that produces no real revenue and then tell us that he intends to run it as a completely stand-alone? Maybe this is just how silicon valley operates or maybe, just maybe Facebook realises that the barriers to entry to their business are so low that its better if they take out competitors fast and early.

Either way I bet Instagram doesn't exist in 2 years. The winner here are the Google team who clearly forced the Instagram price up and then walked away. Now that's poker!

Speaking of playing your cards close to your chest did anyone/everyone spot the poker playing by the pro-teams at Paris Roubaix? I'm not talking about the actual race, but rather the equipment set up. Now going over all those cobbles obviously causes some problems for the boys of the peleton, so reading the tire setups was interesting to a nerd like me. Take the winner M. Boonen, his FMB tires held only 60psi at the start of the race. He's a big man and I am astounded that he survived the nearly six hour trip without a serious wheel malfunction. Check this from Velo News .......

I filled the Conti's on my Bora's yesterday to 140'ish psi before my 50k ride. I keep thew GP4000 clincher's on my Easton EA90SLX's at about 120 just to put things in perspective.

Monday, 9 April 2012

Time for some Chinese.....

The press usually gets it wrong and then has to sprint to catch up. Most of the teeth gnashing over the weekend had to do with poor US jobs data. But that's not the reason the stock market took a dive, rather it is of course the Chinese CPI number. Today's CPI number confirms once again that central banks have little room to move. It may be OK for Bernanke to let things go as he's trying to re-inflate a housing market that is still on the slide. The Chinese on the other hand are at the begining of defalting their own property bubble. They need to balance the needs of a small affluent middle class in the main cities against a vast mass of peasants who are not so concerned about Beijing condo prices. They just know if meat and fuel goes up they get poorer.

So, what are we left with? Probably the market is now betting against any Chinese stimulus to help stock prices. The very fact a teenager in China sold a kideny for an iPad and Phone has got to ring alarm bells with the central government .... and with Apple for that matter. The Aussies are not going to like the result in my view. Stay short the AUD.

Meanwhile Big Ben must be itching to do QE3 because he knows that without it the next shock (such as the student loan bubble bursting) might kill off his economy for 10 years.

Back to the bike. 50k short ride before lunch with the Baron. Couple PB's on the time front as well. Clearly my Italian experience has helped. The goal this week is 220k's.

I forgot to mention I spent some time working on Mrs IBC's bike. SRAM lovers are a mystery to me. I just don't get the benefit of double tap technology on the shifters. It feels too easy to make a mistake ... I mean the last thing you want is to shift down when you want to shift up for a hill climb. I think I fixed her problem. It seems that the cable to the rear derailleur was actually too tight causing her difficulty in shifting down . . . . I loosened it up and all looks good.

Sunday, 8 April 2012

The difference between a banker and a manager . . .

I was preparing for a big day in front of the TV watching the Paris-Roubaix bike race by reading team's twitter feeds when I spied a post on Zero Hedge about J P Morgan getting out of the student loans business.

As many people will remember, it was Jamie Dimon the CEO of JPM who made a decision sometime before 2007 that his bank would no longer be in the exotic mortage derivatives business. That's an awkward way of saying that he sold what he could of his repackaged subprime mortages and waited for the product to blow up. Now I always wondered how you do that? I mean within a bank you've created a huge specialist unit who have essentially swapped a good pay package for a f##king great pay package . . . those people tend to be zealots in their view of the product and therefore fight back against any move to marginalise them as Mr. Dimon had done in 2006 - 08. Personally I've never respected JPM because of the things ex-JPM's have told me about the poor risk systems they had in place to deal with the products in question. "They weren't really a player in those because they couldn't manage them, not because of they didn't want to be in them . . . " was a typical comment I heard during 2008 - 09 around the bars of Singapore. Here's the genius of Jamie Dimon. Clearly if all those PhD's and specialists couldn't show him how to manage/commoditize the business safely then why even bother trying to be in the space? If you make that decision you need to cut out the cancer from the company. Essentially you have to learn to live without an organ that you thought was integral to your future/return on equity etc.

So back to student loans. We've seen the figures about students falling behind on loans. In September the Department of Education reported that in 2009 the default rate, which is defined as non-payment for 270 days, had reached 8.8%.

The 2009 tranche is the latest "cohort" available and we won't get the data for the 2010 tranche until September this year. The Economist reported back at the time these 2009 stats became available that "By some estimates delinquency rates, an earlier indicator of stress, for student loans exceed 10%, ten times that for credit cards and car loans." So, JPM decides to get out of the product. Dimon does it right . . . he sacks all the sales specialist of the product so there's no one left to tell the generalists every morning how great the product is and more importantly there's no one left to remind clients, important clients, that JPM was the one who sold them the repackaged crap. All the clients know is that the only people pushing this stuff is some other huge investment bank. It's beautiful. If you think this isn't important than maybe you don't know that there is a trillion dollars of these loans out there .... anyone remember subprime?

OK, enough of the doom and gloom onward to Paris-Roubaix. Hey anyone notice how nearly all the teams have developed bikes specifically for these northern races? Just coincidentally these bikes tend to be a more comfortable upright ride than traditional grand tours racers. Makes you think, why now? It couldn't be the fact that your average MAMIL might prefer to buy one of these rather than a mid-level racer he knows isn't ridden by the pro's? Just thinking out loud.....

Bon weekend!

Friday, 6 April 2012

A long drive home ....

Finally got home on Friday after a long day in the car. We stopped off at Cicli Mattio in the little town of Piasco to see if we could get some help with the cable retention plate on my MOst handle bars. You can see a picture of the plate in question here:

I wasn't expecting to be able to get the piece there and then, but Giovanni the owner called Pinarello and told them he was going to give me two new plates from bars he had in stock if they could agree to send him the replacement pieces. What a guy, he fitted them and tightened my brakes and took a look over the bike. I stocked up on new tubular tires for my Boras and an assortment of gear that you just can't get off the street in Geneva. He then gave us the address of a trattoria which he said served the best Gnochi and wild boar in the region. How could we not go? The supprot crew really enjoed the treatment, especially Jessie as all the staff at the trattoria loved my little mechanic.

Jessie making a last minute check of the appropriately name Dogma.
Speaking of which I owe reader some stats and photos from the GF. Here's the Garmin stats to the days pain:

And here's some shots from the day:

Pre-race prep ... "Maybe we can just go to lunch?"
The Aussie is the one who forgot to shave his legs.
My new lucky number?

Spot the outsider? Two Italian legends and yours truly after the race.
Support crew: Mrs IBCyclist and chief mechanic Jessie.


So markets are sliding as I finish packing my bags for the leisurely drive back to Geneva. the AUD hit a low of 1.0254 after an announcement that the country had run a trade deficit last month. I'm not sure this should have surprised anyone as I've pointed out on more than one occasion that the Chinese are fighting a losing battle for growth. The AUD is still fairly buoyant but a string of trade deficits over the northern summer should see it back below parity.
I'm taking a slight detour today to visit a large bike shop near Milan in an effort to get a replacement for my handlebar cable retention plate. I have no idea if they'll have it and trying to explain what I want in Italian over the phone would be a nightmare. I hope the support crew can be patient with me as I try and extract the part. That reminds me I need to pick up some dry lube and check out the wheels they have in stock.
Not sure which way we'll enter Switzerland. Monte Bianco is fast, but San Bernardino is pretty. I guess Easter traffic will be my guide.