Thursday, 31 May 2012

Kiss it goodnight . . . back from Barbaresco

I got home after a pleasant enough 4 hour drive from Barbaresco listening to various podcasts I downloaded this morning at the hotel. They weren't all from Bloomberg, but some were. One of my favorites was from Nomura's Michael Kurtz HK (Head of Global Equity Strategy) who spent the first 75% of the interview talking about all the headwinds the global economy and Chinese corporate profit shrinkage, then in the last quarter of the show reeled off all his bullish forecasts for 2H12 .... excuse me? Maybe he recorded that before seeing the Indian GDP numbers?

India's GDP confirmed the general condition of the world when it disappointed my banking friends by missing their unrealistic GDP forecast numbers. 5.3% is not going to cut it in a world looking for a bail out from the BRICs countries. Energy costs are killing India and demand for manufactured goods looks awful. The Indian manufacturing sector actually contracted 0.3% for the quarter. The FT had a great quote:

“It’s a disaster,” said Rajiv Kumar, the secretary-general of the Federation of Indian Chambers of Commerce and Industry. “We are facing a crisis of slow growth and high inflation that is extremely concerning.”

Turning to banking and as usual something always happens to surprise me. Morgan Stanley as I said yesterday is under a lot of pressure, but today they exercised the option to buy more of the Smith Barney franchise. Essentially the company is trying to buy revenue to replace what it's lost from the scaling down of other activities. Maybe that's a smart move .... I just don't know. Certainly net revenues of $3.4bn and net income of $387m from the unit will be welcome, but what capital requirements a wealth management expansion comes with I am not too clear on. I expect MS, like most banks to have to raise capital in some form in the next 12 months. Good luck to them.

This morning I got up before breakfast to ride through the vineyards of Barbaresco. Aside from a stiff breeze it was a fantastic morning. Clearly i was sore from yesterdays collapse on the Cat 2 climb Brondello da Ponte Romanico.

The hills around Barbaresco and my little hotel at Tre Stelle are almost purpose built for cycling. The views are fantastic and the people always say hello.

At 7am the vineyard works are already out amongst the vines checking the buds and making adjustments to the trellising. I kept it to a leisurely 20k's, just enough to work the kinks out.

After breakfast I headed down to Barbaresco to do some tasting. It's not my normal practice to taste big reds at 10am in the morning, but I made an exception. I picked up a bakers dozen of mostly wines from modern producers, though I couldn't help but splurge on a bottle of the hard to get chardonnay from Gaja .... one of Mrs I B Cyclist favs:

Wednesday, 30 May 2012

A great day to ride / Pavlov's dog bites back . . .

I had a fantastic day. There's no other way of putting it. So instead of my usual practice of leading with my thoughts on the current global situation let me try and put a smile on your face.

As I write this I'm sitting at Tre Stelle, a restaurant/hotel in Barbaresco Italy. I love the wines of this little town and the vineyards themselves look green and lush after the May rains. At the ends of many of the vine rows are beautiful red roses in full bloom. The roses act as an early warning signal to the onset of various diseases that might afflict the vines. No sign of that at the moment.

I hit the road early this morning and headed south from Geneva towards Turin and a small town about an hour further south named Piasco. I had paid the deposit for my new Cannondale Evo Super Six and had to go down and see my friend Giovanni about a final fitting. Giovanni is more like a tailor working on a fine wool suit, than a bike salesman. He tilts his head in a considered fashion before making a suggestion. "I think for you . . . " this crank set or these pedals. "I think for a bike like this you need the best." Yes Giovanni I do. Then more measurements. I was a text book size 56, though he might want to change the stem to alter the reach once he puts the bike together . . . "When you come back i put you on the trainer and we decide what adjustments we make ... " A bit like shortening the sleeves on a suit to allow for certain style etc. I loved it.

After an hour, when I thought I was finished he surprised me by asking me to join his club's lunchtime ride. "Just one hour and maybe thirty minutes . . . " I was hooked. I was going on real ride in Italy with a local club. There were nine of us on the ride including the current ladies leader from the Coppa Piedmonte. I wonder how many hours she beat me by when I raced at Novi Ligure? Lots of smiles, fit people and beautiful bikes. There were five Cannondales, two Pinarellos, a BMC and a Scott. This was serious.

We rode a 40k route circular route, which I will publish after I download it onto the web when I get back to Geneva. The highlight was a 7k climb. Giovanni and the team didn't tell me that parts of the climb would be at 15 degrees! I'm embarrassed to report I hit the wall at the 6.5k mark and had to stop. The temperature was close to 30 degrees and even with the kind sheparding of one of the guys I couldn't make it. I was crest fallen and gasping for air. The worst moment of my cycling career .... But you know what? Giovanni and Jean came back down the hill to help and with good humor and a little encouragement and after 100m of walking I was back in the saddle. No one was unhappy, no frowns, only smiles including mine. Fantastico, what great people.

On the way down the hill we stopped at a special spring to take the lite mineral water. I called it magic water as I felt refreshed on the final 15k's into Piasco. I managed a sprint at 45kph on the flat. What a ride. Great hospitality. I am so lucky to have had this opportunity. As the experience was priceless I now consider the bike a bargain. Thank you to all the riders of Piasco.

It's amazing when you feel on top of things you start living the dolce vita. You see things differently and clearly. I knew the Chinese stimulus being touted by the street was an illusion. Why, oh why don't people learn. The Chinese want to keep their powder dry in case a billion or so of people not leveraged to the various condo markets of the new cities decide they've had enough. The 1%'ers of China are not the People who will keep the Communist Party in power. Enough!

Meanwhile Australian retail sales look to be falling off a cliff. The government has nothing to give, no 2008 style stimulus for my brothers. The government promised a surplus and therefore it's up to the RBA to cut rates hard. And this is rub. The AUD is a carry positive currency ... cut rates and people will sell it. Stay short, next stop 90.

The big banking freeze is gathering pace in ways that the man on the street can't comprehend. Today comes news that the trade finance insurers have stopped covering the Greeks as its no longer possible to have certainty of the liabilities in the case of a Grexit. This of course is a harbinger of things to come. Wait until Spain freezes up, as I expect it will. Normally this is where governments or the local banking system steps in, but they are all capital poor and unable to take such bets as they have no ability to make payouts in the case of a disaster. Remember when the oil rig Piper Alpha exploded in the 80's and Lloyd's insurance market essentially imploded leaving many including an ex-Australian Prime Minister flirting with open ended liabilities. Well Greece may not be Piper Alpha, but Spain most definitely is. Kaboom!

Just before dinner I had an hour long conversation with a very perceptive friend of mine. I love bouncing ideas back and forward with smart people . . . Especially people you trust to filter out all the rumors and wild theories. It's sobering to hear someone on the ground who is in the day to day grind of Invesment banking. Have you seen the Morgan Stanley share price? How can they run a huge prime brokerage business that relies on credit when their own investors don't trust them enough to buy their stock. JPM, ditto? GS, when will the market understand that they too have an earnings problem? Readers I humbly suggest staying away from banking shares. If I learn't one thing today it's that the "Occupy" movement may end up getting their way . . . bankers out of work.

There's only one thing for it .... Buy the best bike you can by visiting Giovanni. At least you'll be smiling at the end.


Note: due to working on an iPad far from home I will have to skip the usual references and links tonight. Any readers who need the footnotes can send me mail at

Tuesday, 29 May 2012

Any port in a storm . . . or how I learned to love freight rates.

I have a company from Hamburg coming today to quote on my move home to Australia. They will be the 4th company to quote so far. If I told you that a friend of mine here in Geneva was quoted CHF4,500 to move across town then how do you think a Swiss company would charge to move me to Australia? Here's the thing, so far I've been impressed with the quotes, suspiciously so. Even the one Swiss company to quote was reasonably competitive. Which leads me to ask what is going on in the container freight market?

Thanks to the internet your ability to source rates and quotes is extremely transparent. I signed up for a commercial service at Essentially it's an open tender service that allows you to get basic quotes from multiple sources allowing you to check pricing across the globe. It's free, though I reckon it's probably worth the 100 bucks a year for research purposes.

This is the "CTEXIDEX" or ConTex is a Container Ship Time Charter Assessment Index. It is a company-independent index. The index is compiled by a group of international operating brokers and is updated twice a week.

I'm no container shipping guru so the chart for me is about trends and from that point of view it seems to mirror what we've seen in the global economy for the last five years. It tells me that when I moved to Geneva 2 years ago things were bouncing back, but now deterioration has set in and it's a good time to move. That latest up-tick you see is likely to be shipping lines trying to raise rates to make up for the fuel price rises they're suffering. The latest company to warn was Maersk (MAERSKB). On May 16 while reporting quarterly results Maersk said it was hurt by a 9 percent drop in freight rates and 31 percent higher fuel prices. Some analyst think Maersk is just being conservative in downgrading its forecast. This is typical equity analyst thinking. Mangement couldn't be any clearer:

“Right now container rates are at a level where we’re at break-even,” Chief Executive Officer Nils Smedegaard Andersen said in a phone interview. “Rates obviously need to go higher if we’re to be at break-even for the full year as we had a loss in the first quarter. But I do think that this could happen.”

I don't trade the stock, so I don't have to spend hours looking into the reputation of company officials by reading annual reports and press releases. All I know is that something has got to give and this is a space and an index worth watching. If fuel prices start to move down as I suspect they will then will freight rates remain steady or will the over capacity in the sector cause a new freight war to break out?

I'm packing today for Italy. Mrs. Investment Banker Cyclist has given me the OK to go to Italy to be measured for a new bike. I'm off to the little town of Piasco to Cicli Mattio which is located at the start of the Colle dell'Agnello. I'm packing the Pinarello with the Easton clinchers and the big 11-27 rear cassette. This is the Colle dell'Agnello:

Those red bits are where the pain hits, they show gradients over 10%. From the Itallian side it's about 22km's to the top and the average gradient is 6.5%. That's harsh. I reckon for me that equates to a sub 10kph average speed, so I figure on spending 2.5hrs in the saddle if I attempt it. In the 2011Tour de France they climbed it in the stage from Pinerolo to Galibier Serre-Chevalier. Here's another Aussie doing the climb last year:

Yikes . . . maybe I'm not brave enough. We'll see? Perhaps I'll stick on the roads around Barbaresco.

Awesome . . . Ciao!

Monday, 28 May 2012

Something for the weekend Part 2: Another Geneva long weekend.

Pentecost to some, Whit Monday to others. Whichever way you like it, it spells vacation here in Geneva. So with the roads deserted and some like myself recovering from yesterdays Tour du Leman I give you part deux of my weekend blog.

How many people genuinely cringed when they read Christine Lagarde's interview with the Guardian this weekend? Honestly? Well I think if you're Greek it probably was a little to close to the bone, but for the rest of us she was just telling it like it is.

"Do you know what? As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax."

Even more than she thinks about all those now struggling to survive without jobs or public services? "I think of them equally. And I think they should also help themselves collectively." How? "By all paying their tax. Yeah."

It sounds as if she's essentially saying to the Greeks and others in Europe, you've had a nice time and now it's payback time.

"That's right." She nods calmly. "Yeah."

And what about their children, who can't conceivably be held responsible? "Well, hey, parents are responsible, right? So parents have to pay their tax."

To me it sounds like even the most pro-euro groups are losing their patience with the Greeks. Comments are now coming out of the SNB, which seem to suggest that the capital leaving Greece for whatever reason is starting to impact the Alpine state. Consider the fact that the Swiss, who pegged their currency to the Euro at 1.2 are now at a point of having to look at restricting capital inflows. Why, because they are perceived as the ultimate safe haven. Back in the 70's Switzerland pegged to the DM and in doing so adopted several policy initiatives:

(a)  A ban on interest payments to non-resident Swiss bank balance increases
(increases so as not to penalise existing holders)
(b)  A quarterly charge on non-resident Swiss bank balance increases. The charge varied during 1971-79 between 0% per quarter and 10% per quarter, depending on the capital inflow pressure
(c)  Prohibition on the purchase of Swiss Franc denominated bonds, property and other securities by non-residents
(d)  Restrictions on non Swiss-denominated borrowing by Swiss residents. 

So with pressure mounting it's likely that the SNB already has in place some measures to stem the deflationary destruction of a move to parity in the CHF to Euro rate. If they impose this I respectively suggest it's basically the starting pistol for the "Grexit".

Of course Asia has a different view. Today market's rallied there on the back of more Chinese stimulation talk. Apparently this was sparked by figures published today showing profits of industrial companies across China fell 1.6% in the first four months of 2012 this decline follows a 1.3 percent drop in the first three months, in line with slowing economic growth.

After my comments on Australia the other day we get some more confirmation of the slowdown there as engineering group Hastie collapsed. 7,000 quality jobs are likely to go. Hastie of course is leveraged to the construction sector, so it shows what the general trend must be downunder. Of course the AUD was up a full cent chosing to rely on the Chinese speculation than the reality of the situation. Add to AUD shorts.

My legs are pretty sore after yesterday. I had hoped to average 30kmh for the 110km course from Evian to Lausanne. I was a shade under. 

My Garmin track says that I cracked 4 hours for the journey. I should have been closer to 3hrs 45mins, but I fell off the back of a group dominated by some anglo-saxon's at the 85km mark and was unable to keep up the pace when I was stuck in the no-mans land between two groups. My fault really as i let myself lose concentration when we started to hit some traffic around Morges. Oh well, live and learn.

My bike went well and for once I wasn't regretting keeping my aero wheels on as the wind, except for a section near Nyon was fairly benign. I was surprised at the number of Time Trial / Triathlon bikes people were using for the 110km course. That's a long way in such an extreme position. There's reason you don't see the pros riding 100km TT's. 

Oh Canada! . . . 

Great to see our Canadian brothers in the form of Ryder Hesjedal enjoying the Maglia Rossa and a stirring rendition of Oh Canada. It's been a great Giro to watch, especially the Alpine legs. I just don't think the Italian Tourist Board could get a better advertisement for their country. It was a fantastic travelogue. 

I know a couple of my blogs readers who were not cycling fans before watching the Giro are contemplating joining the party soon. One reader asked me about bikes he should be looking at and as I know he's never been one to do things half-heatedly I put together the following list of elite machines. See what you think:

For beauty: Pinarello Dogma 2

For Lightness: Cannondale Super Six Evo

For Passion: Colnago C59

For Pain: Cipollini RB1000

For History: Bianchi Oltre

Anyway I've just ordered a Cannondale to add to my collection. I'll be doing a travelogue/blog on the buying and fitting process on my new website which I'm building at the moment. I hope it helps anyone inspired by the Giro to take the next step and joing me on a long hill climb in the Italian coutryside.



Saturday, 26 May 2012

Something for the weekend sir? Part 1 - Welcome to the Stelvio.

I thought I'd do a weekend special edition of the blog focused on cycling. Time to ride ....

But before the fun, a little business. I'd like to mention another late day slide in the US. I think what we're seeing is the opposite of the late last year early this year buy on Fridays because governments solve problems (i.e. pump in money) after weekend meetings. The equity market is learning that the solutions now are not as clear to our over-extended politicians as they once were.

Nomura Bike ... as dodgy as week old sushi.

I also want to mention the latest case of insider trading by a brokerage house. No one who knows me and my experience of Japanese markets would be in an doubt that I've always considered much of the banking world in Tokyo as highly suspicious. The house of Nomura is now facing its second charge in two months. The Japanese SESC believes an employee of Nomura, which was an underwriter of the Mizuho Financial Group offering in 2010, tipped-off a fund manager at Sumitomo Mitsui Trust Holdings allowing them to sell the stock ahead of the placing. What a surprise .... I've seen it numerous times.

I'm declaring today a Stelvio Holiday .... as in the final great climb of the 2012 Giro d'Itallia. My plans are simple. Coffee with friends this morning, then clean and prepare the Pinarello for tomorrow's Tour du Leman 110km section ride and finally sit in front of the TV and watch the pain.

Crank up your sound . . . 

This is what the riders will look up and see this afternoon . . . if it's fine:

Endless switchbacks. The race is there for some to lose and some to win. If the weather is bad it might even snow. The pain will be extreme. They will climb 1550m in 21.6km for an average gradient of 7.2%. The riders will summit at 2750m. Today there is at least a 10% chance for rain. It should be in the mid-teens in temperature. 

Before they get the the Stelvio they'll have to climb Mortirolo. Lance Amstrong called Mortirolo the hardest climb he's ever done. It is only 11kms, but it rises at an average gradient of 10.5%. If you want to know what that's like set a treadmill at a gym at that gradient and try and jog for 11k's at say 7kmh. I bet you'll have trouble finding a treadmill that will let you set such a gradient.

Part of the way up is a famous monument to the now deceased champion Marco Pantani:

In the official ratings it would seem idiotic to put these two climbs togetherf on one day, but that is why the Giro is the Giro:

I hope you enjoy your day as much as I will.


Friday, 25 May 2012

Are we learning anything yet?

So it's come to this. The market is starting to fade rallies more quickly at this stage. It's almost Pavlovian watching people waking up to what's going on. People would still like to believe we are back in the glory days of 2009 when grand alliances were de rigueur, but that's wrong because the core Franco-German axis is disintegrating.

Something else taking a whack is Australian housing. I was reading my home city's poor man's NYT, aka the Sydney Morning Herald and noted with some concern that the main organ of the real estate bulls is starting to flip as signs of mortgage stress grow evermore ominous. "Forced home sales rise as slowdown bites" screams the headline:

"The trend in Victoria is showing up in NSW, the most populous state. Filings with the NSW Supreme Court show repossession have risen to 2955 cases in the nine months to March 2012.

At that rate, the tally will reach about 3940 in 2011-12, up marginally from 3848 cases in 2010-11, data from the court showed. In 2008-9, during the GFC, the total number of repossessions lodged was 5749 in NSW.

I'm not surprised Victoria is getting hit the hardest as it is the manufacturing hub of the country. The over-valued AUD is biting and local consumers are hung-over on cheap debt. Add to that the fact that house prices in Melbourne have historically traded at a 15 - 30% discount to Sydney and have in recent memory (2010) traded close to parity should of course have rung alarm bells to many.

Maybe the locals are learning . . . .?

Not so the ECB where the ex-Goldman Sachs man in charge, Mario Draghi, is once again confusing leadership with democracy:

“We have now reached a point where the process of European integration needs a brave leap of political imagination,” Mr Draghi said in a speech in Rome

What he's really calling for is for politicians to ignore their electorates and do what the bankers want. Even a dedicated free market blogger like myself is not too arogant enough to understand that markets only function by operation of a consensus; a consensus that says the best fairest way to interact economically is through transparent open markets. That consensus is being challenged every day now. Fade the rally . . .

One commodity I won't be worried about on Sunday as I dig deep on the Cyclotour du LĂ©man is oil. Bikes use very little.  Oil is consolidating at the moment because of the  intransigent attitude of the former revolutionaries who run Iran. Talks in Moscow have ground to a halt, though my favorite quote comes from diplomatic lightweight Lady Ashton, the EU high representative who chairs the six powers (US, Britain, France, Germany, China and Russia) talks:

“It is clear that we both want to make progress and that there is some common ground, However, significant pressures remain.”

NO it isn't clear at all Lady Ashton, I'm terribly sorry. Go to neutral on your oil positions here because this is going to continue all summer. Maybe buy crude sell products .... just a thought?

Treviso in Italy is home to Pinarello bikes. The 19th stage of the Giro will start here.

Gianni Pinarello still comes to the original shop everyday. He gave a blessing to my bike as it was prepared for me. He was also the winner of the not so coveted black Jersey at the Giro d'Itallia for coming last. The Jersey is framed and on a wall in the shop.
It's a lovely town surrounded by the industry that uses the outer ports of Venice to export goods around the world.

There are five categorised climbs including the 20km ascent of the Passo Manghen, with an average gradient of 7.4 per cent but hitting twice that at its steepest point. It should be a great day if you like pain.

Bon weekend!

Thursday, 24 May 2012

Rehypothecate this!

I got out on the bike for a quick 50k after a busy morning doing paper work ahead of my move back to Australia. When I left home the S&P was at 1324 and looking solid, but 2 hours later we were back to flat in what is becoming a familiar daily pattern. It was a surprise to me that the markets had been up at all as the Chinese PMI confirmed my previously stated view that China was slipping down the sink hole. That PMI fell to 48.7 in May from a final reading of 49.3 in April. It marked the seventh straight month that it has been below 50, indicating contraction. Obviously the "money honeys" of CNBC chose to lead most reports with the usual spin that China stood ready with stimulus and that the PMI was a sign money was about to be printed. Really? Is that what the media has come to?

Hold on for another round of rehypothecation as geniuses J P Morgan are trying to get a copper ETF listed. I note that amongst parties against this is Red Kite, a metals trading house who I saw present in NY before Xmas. I'm sure if you're a sales guy at JPM it seems like a great idea, but if you're the SEC I think you want to start putting a break on this type of thing. Surely the realisation that the Gold price is ahead of itself on the back of the numerous ETF's must start to ring bells somewhere in government?

Maybe we need to start looking at the success of the major US corporates who have done well from government stimulus. HP plans to lay off 27,000 people. This is a familiar story as CEO's in the strongest companies continue to squeeze their workforce as hard as possible. I wonder what the end game is for HP. Meg Whitman doesn't seem to me like she's really into this for the long run. Is it possible that HP and Dell merge at some stage? That would leave Lenovo as the main competition and of course the odds and sods of Japan and Taiwan. Someone has to say, so it may as well be me.

Readers from the early days of this blog know that I am a believer in mining group Xstrata. I currently do not own the stock, but have done well there in recent years. I always believed that Glencore would take them out, but only at a proper price, not at the current levels. Therefore it was with some interest that I note the Qatar Investment Authority's aim of gaining 10% of the company in the open market. The FT is suggesting that the real game here is the QIA is trying to end up with a significant stake in a merged Glencore-Xstrata. I honestly don't know why thay would be just building an old fashioned blocking stake aimed at achieving a nice premium exit price. What ever happened to the 80's and greenmail?

Leaving markets aside for the moment I wanted to mentioned that I've been roped into yet another cycling sportive. This time I'm doing the 110k Evian to Lausanne ride this Sunday in Geneva. The support crew will be dropping me in Evian around 08:00 and hopefully 4hours later they will pick me up in Lausanne. It costs CHF 85, but you do get a cycling Jersey.

I didn't say it was particularly attractive . . .


Wednesday, 23 May 2012

Time to go . . .

Late yesterday I learned that Trafigura were moving their domicile from Switzerland to Singapore. They are a major presence in Geneva and this will start sounding alarm bells amongst the governing elite. It wasn't that long ago that the corpulent local finance minister David Hiler was telling the voters here that Geneva was full. They didn't want anyone else, especially from the financial (read hedge funds) community coming here. M. Hiler has done little to enhance the canton financially to make it recession proof.

A year ago the Economist had started to point out the rising cost base here.  The Genevois in my experience are people that have been used to taking a 2% turn on everything and looking the other way. Unlike Zurich or Basel people here seem generally unhelpful to the norms of international business. So what happens when the lights go out?

The CHF is pegged to the Euro at 1.20 currently. I wonder if the Swiss are willing to debase their currency further to save jobs at the various corporates here in Switzerland?

Trafigura leaving Switzerland is for me a signal that the commodities cycle has changed. We might not be about to burst the bubble as much as deflate it. Trafigura are smart enough to know that the commodities axis has shifter east and the value of overpaying for infrastructure and taxes in Switzerland is not a good business plan.

Just in case you thought that China was the answer the World Bank has downgraded Chinese GDP this year from 8.4 to 8.2%.  They are still behind the curve. 

Late yesterday former Greek Premier L-Pap pushed the exit button that caused the last hour tumble in risk assets. Clearly the Greek ruling elites are starting to understand that they need to get out of the Euro or get out of the country before they get taken by a mob. Meanwhile EU leaders will gather for a special summit today in Brussels. Good news if you're a business in Brussels, bad news if you expect a solution. My fav pre-conference quote comes from Michael Meister, a member of Mrs Merkel’s Christian Democratic Union party, who said there was nothing to stop France and Italy from going it alone on common bonds. HOW DOES THAT WORK??? 

Take a deep breath . . .

I missed the Giro live yesterday. Joaquin Rodrguez of Katusha still has a 30 second lead in the general classification. My pick for the Giro, Ivan Basso lies in 3rd 1'22" behind. The key is trying to work out whether Basso is still the climber he once was. The sprinters have gone now, so in my mind the real race has begun now.

Velo news today has a great article on the pros and cons of spending your way to poverty trying to get a lighter bike . Check it out .....

Tuesday, 22 May 2012

Playoffs?? Not for your bank buddy . . .

How do you react to someone stating the bleeding obvious? Furthermore what is the correct reaction to someone who is clearly pushing an agenda you have little time for?

Christine Lagarde came to London pushing her save the Euro agenda. I've got to hand it to George Osborne, he kept his cool when clearly he really can't stomach being lectured by a member of the failed 1% euro elite. Good for him.

The OECD followed Madame Lagarde by calling for more innovation ... i.e. jointly-guaranteed eurobonds. Democracy is clearly under siege. Who voted for this type of union? I know that to the elites it makes sense, but it needs to have the ascent of the people, not just of the politicians in Brussels and Strasbourg who continue to ride the largest gravy train in world history.

Moving on . . .

Now that J P Morgan has shelved its $15bn dollar buy-back we can concentrate on the real problem at hand and that's the banking crisis.

Apparently Jamie Dimon is not worried about the ultimate size of his trading losses!
As I said yesterday Barclays partial sale of BlackRock has started the stampede for money raising. Remember that the BlackRock sale is primarily motivated by the risk weighted capital requirements (250%) required under Basel III. Therefore start going through bank balance sheets (DB comes to mind) and look for simialr holdings and start working out the viability versus the capital available. That's before we get to the main problem which is that multiple stress tests that occurred over the last 18months are floored. They were based on models such as the one that failed to identify the risks inherent in the positions at JPM. Therefore all of that needs to be stressed and redone. I believe once we get into this that we'll be looking at closer to 500bn than 300bn, which I believe will precipitate multiple merges and some closures of banks especially in Europe.

I was listening to the "This Week in Tech" (TWIT) podcast as I walked back from the gym today. They were having a long discussion on the Facebook IPO. Adam Curry is the original podcaster and he took a company public in 1996 ... so he has form. Curry is no genius, but he's pretty sensible and his view is that Facebook will trade at 17 bucks! Listen to the podcast and contrast Curry with the uber-bull Robert Scobel who is also a doyen of tech gossip. I like Scobel and you can check out his blog here.

I managed to get to the gym today to work off the 7 course meal we had on Sunday night in Barolo. It feels funny to say it, but for once in Europe I thought I was getting great value. Our share of the bill came to 80 Euros and we were drinking a nice Barbera d'Alba from Pio Cesare (2 bottles) . For anyone going that way check out La Cantinetta - nice people.

Monday, 21 May 2012

Scenes from the Giro . . . why did I come back to this mess

Back in the 70's there was a bumper sticker that said "I'd rather be sailing" and there was also one that said "SH*T HAPPENS". Well these are both apt for what I'm feeling today as I watch the market struggle with yet more conferences amongst the leaders of "G-somethings". Has Hollande actually seen his office yet?

First up the Giro d'Italia . . .

If the Italians are worried about the world then they didn't show it in Cherasco on Saturday. It was a sea of pink. Smiling people everywhere. Cherasco lies just to the south of Turin and is at the centre of a valley brimming with specialized industry and high end agricultural endeavors. This is the reason why Italy can inflate out of this mess. Unlike Greece and several other eurozone members Italy actually produces things we all want to buy.  If they went back to the lire they could inflate themselves out the mess in a couple of years.

Pink is the predominant color of the Giro as the leader each day dons the maliga rosa as he leads the field through Italy. The Italians love the Giro ... they told me it was harder than the Tour de France.

My own Maliga Rosa
I don't have any statistics that support one being tougher than the other, but several of the climbs are considered above their TdF counter-parts. The daddy of them all is the Stelvio which is the highest climb in any of the Grand Tours. The beast summits at nearly 2800m, this year the Giro will approach from Bormio and climb 1550m.

It rained every day while I was in Italy and I only managed one short bike ride on Sunday morning.

Breakfast Cherasco

The highlight of course was that I managed to ride the 24km's to Barolo and spend a good hour and considerable Euros tasting and buying wine.

Support Crew on hand to check everything.

Luckily I had the support crew on hand at all times to help me with various combination's of wine, meats and cheeses.

We made friends with a great euro couple ... semi retired German man, Italian lady. It was interesting to hear about things from their point of view. They seemed only too aware of the problems they lay ahead. The gentleman had lots of stories and observation that only a northern European that had lived in the south for 20 years could have. I was telling him my views on QE and the distruction of the Euro. I hope I didn't scare him.

The markets are no doubt steadier today because of all this talk of growth alliances. The nervous shorts seem to want to run for the hills in the face of Mr. Hollande and President Obama. As my new German friend said: "Now these people have to go through what we did with East Germany". If this is what 83million Germans think, then how can the calls for ECB issued bonds etc. get through. Poland's Finance Minister wrote an Op-Ed today in the FT in which he declared:

"There is only one institution that can provide the firewall that Europe needs in the time we have before the Greek elections, and that is the ECB. It should immediately announce that in the event of a Greek exit from the eurozone it will stand ready to buy unlimited amounts of the sovereign bonds of countries remaining in the euro for a limited period of time – say a year or 18 months".

Oh my, so basically blank cheques for all???? Meanwhile Obama is staking his hopes on Europe being more stimulative, thus saving he and Bernanke from the growing anger in the US amongst fiscal conservatives. If you ask me whether I think Obama loses, then I'd have to say no. I don't even think it's close . . .  at the moment. But one more round of QE and the scale might tip towards Romney. I've said before that the tipping point could be the US student loan numbers when they get published in September. If they show a disaster in terms of arrears then I don't know what might happen?

Shit that Happens:

I really don't want to talk about JP Morgan's loss ballooning towards 5bn . .  you can read about that in the FT's Alphaville. Nor do I want to talk about the goings on at UBS's Asia II desk at their Wealth Management /  Private Bank unit. I kind of would like to say something about Facebook, but the stock is down over 10% as I write this and to be honest I didn't tell you so. In fact I admit that I was quietly positive. I did tell you that banks need to raise capital and Barclays move to sell part of cash cow Black Rock strikes me as a sensible first step to showing the euro banks how you have to clean yourselves up. Mind you I still suspect there's a whole lot more that needs to be done at Barclays.

Until tomorrow . . .

Friday, 18 May 2012

Reality bites . . . On the road to the Giro

It was only a week ago that the talking heads of the various news channels were telling us that the Greek election outcome was priced into the market. We have a market chronically addicted to the printing of money and nothing short of a crash is going to intervene to stop that. Sorry folks, these are the facts of life.

My Australian brothers spent the day pondering the nuances in comments coming out from national champion BHP. Apparently they're waking up to the fact that India is not going to pick up the slack from a slowing Chinese economy. We knew India was in trouble when Brent first got over 80 bucks. The life is being squeezed out of the slack money in the economy there and no amount of house building by the upper classes is going to save them.

The AUD breached 98 today as it prepares for at least two 25bp rate cuts during the northern summer. I expect the currency to continue its slide until a couple of days before the Greek elections. Sometime during that period the 1%'ers will decide to either a) save the Greeks or b) print money and save themselves or c) surrender. I think they print money if the Greek elections look bad for decision making. If you're timing is good you might ride a bounce.

I feel like the only one who missed sterling's slide from 1.61 safe haven  trade to 1.575 get me out status.  David Cameron's options are looking less attractive every day. The flexibility of the UK jobs market alone is probably not enough. GBP being weaker helps, but when a conservative starts talking about increasing government guarantees for small business loans I think we need to start preparing for a plan B.

San Francisco . . .  a very nice place for dreaming. Someone asked me this week about Facebook. I know nothing about these business models. I did some work and to a degree came back more bullish than I thought. Was I being sucked into a trap? The valuations are stretched, but so is the growth profile. Once upon a time  you used to hear the phrase "no one ever got fired for buying IBM" on trading floors throughout the world. Today's version is Apple. If you buy Facebook at these levels you are putting it in that class. Is Google a better bet than Facebook? Or just a less leveraged one? 

Today I'm heading to Italy. Tomorrow I hope to be at the start of stage 14 of the Giro d'Italia. I'm staying within a short ride of Cherasco. I need a cheer up from all this doom and gloom and I think a sporting even is just what the doctor ordered. Here's the profile of the course:

I kind of wish I was waiting in Cervinia to see the a mountain finish. It should be a great party as Cervinia is a pretty upmarket ski resort that links to Zermatt. Clearly Saturday is not a day for the sprinters.

In yesterdays stage I was a bit surprised that Sandy Casar didn't win. He looked in control for much of the final kilometers. He rides a Lapierre Xelius 900, not an attractive bike, especially in this years colors:

I'll be riding my Dogma on Easton EA 90 SLX's this weekend. I just didn't want to risk a puncture on tubulars in Italy. They're not as sexy as the Campagnolos, but when I'm stuck half way up a hill in the middle of nowhere with no mobile phone reception I think I'll be happy that I can change a tube and not have to mess around trying to get some tire sealant to work.


Thursday, 17 May 2012

Another Swiss vacation ....

A lot of people think the Swiss are all business, industry and hard work. Maybe thats the case in Zurich, Basel and Bern, but here Geneva things are a little different. This is a city that grew up taking a 2% turn on money. As anyone who followed the Madoff saga would know ... the Genevois don't ask a lot of questions. Today is Ascension day. I don't know why it's holiday and I went to a catholic school! So I'm taking a day off myself.

I don't want to think about J P Morgan's losses growing to 3bn, nor do I want to start adding up all the capital that is needed for the world's largest banks to meet capital requirements for Basel III (500 - 600bn?) and I definitely don't want to analyze the prospects of the Greeks exit from the eurozone.

Maybe the one thing I want to think about today is the prospects for the US natural gas industry. Shell today said they expected prices to double by 2015. I can't argue with that. At 2 bucks a unit capacity was going to be used or shut down. If the market rebalances and crude stays at these levels I'm sure its possible. Does that mean I want to be involved in the going on at Chesapeake? NO.

Anyhow I'm going to get out and enjoy the day before it's over.

Happy Ascension Day.

Wednesday, 16 May 2012

The Prisoners' Dilemma .... and what would St Francis say about the Giro d'Italia?

 Prisoners' Dilemma is a classic of game theory. In the "game" the following situation occurs:

Two men are arrested, but the police do not possess enough information for a conviction. Following the separation of the two men, the police offer both a similar deal—if one testifies against his partner (defects/betrays), and the other remains silent (cooperates/assists), the betrayer goes free and the cooperator receives the full one-year sentence. If both remain silent, both are sentenced to only one month in jail for a minor charge. If each 'rats out' the other, each receives a three-month sentence. Each prisoner must choose either to betray or remain silent; the decision of each is kept quiet. What should they do?

Yesterday I mentioned that the Greeks had a decision to make in relation to the maturation of €435m of outstanding foreign law bond. It was a tough decision, similar to the prisoners dilemma in my view. They chose to honor the bonds. Did they play the game successfully? Well here's what we've learnt:

a) Holders of local law bonds throughout the Eurozone must now treat these as inferior or in some way subordinate to foreign law (mostly UK) issued paper.

b) Someone in Greece is running the country, but we don't who authorized a payment that some estimate to be worth about 25% of available cash in the country.

c) Greece is preparing a way out of the Eurozone. By effectively telling participants in the euro-bond market centered on London that holders will get their money back they have signaled that they know they have to prepare for an ECB-less world.

Of course we had another version of the game being played in Berlin last night. When Hollande did get to Berlin he and Frau Merkel look decidely like two prisoners being subjected to the dilemma.

They obviously both want to get away with the minimum sentence, but how? I think Merkel will rat out Hollande as she holds more cards in terms of economic strength. Hollande's best solution is to rat out Merkel and cause them both to suffer a middle road sentence. We shall see.

Yesterday BHP Chairman Jac Nasser threw a bit of "tape bomb" out there when talking about the company's expansion plans:

"It is all about appropriate allocation of capital. When Marius (Kloppers) talked about the $80 billion, the environment was different, we should pause, take a deep breath and wait and see where the pieces fall around the world."

There's a lot of analyst who needed to be reminded that in the real world prices are falling. BHP fell ... 4% to close around a 3 yr low. Of course the post 2008 low was AUD20 and the AUD itself was at the time in the low 60's. Lets not consider these as a target because much of the money printing since then (QE) has probably raised the floor higher. Right now BHP is at 35 and the AUD is about 0.99. The way I look at it BHP is still expensive in USD's, the primary currency it earns. I don't want to put targets on it, but take a BHP model plug in ther following: Copper 3.20, Oil (Brent) 90 etc . . . you get the picture.

If St Francis of Assisi were alive today I wonder where he would put his Order's cash? I know he took a vow of poverty, but he'd be worried man today looking at Europe's problems. I would hope that his spirits would be raised by the sight of the riders gathered in front of the basilica. The Maglia Rosa signed in ready for an interesting day in the saddle. 

Today is classified as a flat sprinters stage of 255km's. I really hope that Canvendish, Goss and the other sprinters get a clear run at the end ... either that or let's hope for a strong break away.


Tuesday, 15 May 2012

Observations, conclusions and the paranoia of an unemployed banker ... and some bikes

When does an anecdote become a valid observation? A friend told me that on Sunday Geneva airport was full of Greeks. Of course he could have coincidentally arrived at the same time as the daily flight from Athens, in which case it might be valid to say that at least once a day there's a lot of Greek passengers in Geneva airport. Well whatever the case there were a lot of people speaking Greek in central Geneva today when I rode through Place Molard on my old bike. How paranoid am I if I take this anecdote, turn it into an observation and then conclude that the Greeks are here opening bank accounts in order to get their money somewhere safe. Crazy? I'm not so sure ....

The most crucial thing I can see today is the maturation of €435m that Greece issued under foreign laws. Now there is a grace period, so we might not get anything today other than a technical default notice. If they pay out in full investors who took the negotiated haircut back in April are not going to be happy. If they don't then they will suffer the indignity of a foreign court dictating terms to them. It may be somewhat indicative that the Greeks honored a coupon payment on JPY denominated bonds on May 8. Clearly it would be easier to only deal with the Greek law bonds, but €435m is a lot more than a ¥900m (US$11.3m) coupon payment.

So the new French President flies out soon to meet with the now Sarkozy-less Merkozy. Can it be anything other than a disaster? I guess that depends where you're coming from. If Merkel backs down on austerity then she's doomed to join other ex-national leaders on the lecture circuit. If she and her phalanx of treasury officials call the Presidents bluff (because that's what it is), she probably has doomed Greece and Spain. My theory is that they'll make a joint statement along the lines that they are reviewing the current agreement and would both like to see more incentives given to the Greek nation . . . yadda, yadda, ... At least Merkel and German's are cruising along with the help of the weak Euro. German GDP expanded at 0.5% in the first quarter.

Enough of the doom and gloom . . . see I didn't mention J P Morgan once!

In the Giro I was happy to see a rider on a Pinarello Dogma 2 take out stage 9 yesterday. I'm bias as I ride a Dogma 1, but most agree that it's one of the most unusual bikes in the Peleton with it's curved lines that seem to be always in motion. I'd like to have the electronic shifting, but at around 4 grand it's a lot for a simple amateur like me.

Pinarello Dogma 2 with Campagnolo electronic shifting
There was a  crash 400 meters from the finish that took out most of the top sprinters, including points leader Matt Goss (GreenEdge on a Scott Foil) and world champion Mark Cavendish (Sky - On in my view an ugly black Pinarello Dogma 2).

Scott Foil

Cavendish's Pinarello Dogma 2
I'm kind of getting bored with these crashes on sprint finishes. It seems like a huge lottery to me and thats no way to pick a champion.

Monday, 14 May 2012

Get your bonds here .... red hot bonds

So a day off from cycling and the gym after the marathon ride yesterday. Maybe if I find time I'll switch on the Giro d'Italia to get a cycling fix.

Today it's all about bonds again and between visits to my local coffee shop I see Spanish yields have hit 6.2%. So much for drawing a line at 6%! The market now understands it's game on for Greece to leave the Eurozone and the weak (i.e. southern) members of the block to renegotiate things again. The Germans are in a horrible position now that their main ally France has voted for a soft option. The flight to quality is on and the German bund is heading for 1% (now at 1.45%).

The Chinese rate cut helped for about 2minutes this morning and my favorite short, the AUD has gone straight through parity. I think we'll see another rate cut in the next 60days in Australia and the realistic target for the currency is 90cents.

Enough of the eurozone.

As a sometime commodities trader I've been surprised by the lack of speed at which the various trading houses have moved towards IPO's. Louis Dreyfus Commodities plans to issue a bond as a way of financing new acquisitions. This of course is similar to Glencore's move. This is the usual pattern, you get some debt out in the market and establlish a price and get the analysts to conduct the proper credit due diligence. Later you have to expect that they will look to list the company, no matter what the lovely Margarita Louis-Dreyfus says.

I don't want your money honey, I just want your research . . .
Of course this mimics Glencore, though their move was always primarily aimed at consolidating Xstrata within their empire. I guess we have to expect the rest to follow. Vitol anyone?

And finally I personally want to stop talking about J P Morgan for the moment. I thought Krugman's piece in the NYT yesterday did a good job at saying why the average man has a right to be worried. More importantly though I thought the FT had a small but important angle on it by putting the loss in the context of published VaR exposure. And for those who have said to me nothing is wrong at JPM, then why fire Ina Drew in NY and a raft of others in the London office?

Any a quick cycling fix from yesterdays Giro - enjoy!

Sunday, 13 May 2012

Lost in France . . . What you think about climbing hills for 5 hours

Are you lucky or unlucky when you get lost? I guess if you're on a bike 50k's from home you just have to put your head down and pedal. You can't get out of it. The lucky part is you can start mashing through your mind the week that was and the week that is to be. First the riding . . .

Yes I got lost today. A nice simple 3 hour cycling sportive turned into 5 hours of misery, hill climbing and pumping the pedals into the wind. Statistically what have I got to show?. . . well first of all a pathetic average speed, but I do have 94k's and 2500 calories to the credit side. I also have 1500 meters of climbing and a strava suffer score rating of "extreme" (meaning I was in pain a lot).

We got up over the 1000m mark, but there's another 300m of climbing available which the course set by the organizers skipped. Still, I'm glad I finished.

100m to go ... a view from Mt Saleve

Firstly the week that was:

1. Greeks still have no government.

While lost in France I asked myself what would you have to give me to be a leader of a Greek political party? Honestly, I just can't imagine being in a position where you doom your people to EU servitude or you exit the union and stare a 10%+ contraction in your economy in the face. They have to leave, we all kind of know it. Some people say the real national debt of Greece is more than a trillion euro's (it's big no matter who you believe) ... there's no way they can ever pay it all back. If you were leading a Greek political party I reckon the people will burn you (figuratively I hope) either way.

2. France has no hope of getting it's budget within the 3% deficit limit set by the EU.

Hollande promised to spend like there's no tomorrow, thinking he actually can just print money. The fool doesn't realise that the French don't have a currency. The growth pact he goes on about is really an inflation pact. Classic Krugman-esque thinking .... inflate your way out. How can it happen? If the ECB etc. prints euro's to satisfy the French then it will be open house for the PIIGs to rebel. And what do the French think the German people are going to do?

3. J P Morgan out-smarts itself.

It's a mess and I think we now know the limits on Jamie Dimon's ability to manage the whole bank personally. I've said in this blog before that several ex-JPM guys I knew in Singapore had told me horror stories about the risk management systems the bank used leading up to the GFC. Maybe today it's different, but it looks more and more like a guy in London built a model that was wrong and he convinced the powers to be that it was right. I kind of want to give Dimon a break as there's no way he'd have the sophistication to check the model himself. Unfortunately he went around telling people that he was infallible .... whoops!

4. Chinese RRR sparks hope.

So apparently the Chinese cut to the RRR freed up 62bn dollars or so for loans. Sounds good - right? Well what if banks need to write off a lot of loans currently on their books? Do they a) inject some of this "new" capital to support existing loans or b) sit on it in case things get worse? About half way up the third climb of the day I had decided the answer was "b".

The week ahead:

"Hey, don't you run the IMF?"

1. Christine Lagarde is on the case.

I predict it will be a busy week for the well tanned head of the IMF after the Belgian central bank governor openly questioned the viability of the EU's ability to hold things together:

“We cannot solve the fundamental problems. We can only buy time, and there is a limit to how much time you can buy. One of the lessons we have learnt is that low interest rates for too long create new problems."

Mdm Lagarde is in a tough position. A lot of the funds she has been raising come with restrictions, mainly no bailing out the Eurozone. Now I guess the good news for the PIIGs is that if they leave the monetary union they can probably access these funds. Therefore look for the IMF to get out the slides and explain how much they have ready for the Greeks. This might help calm the market in the case of an exit.

2. Spanish banks need a plan soon. And the government needs to start explaining it this week.

Right now the Spanish are falling into the same trap that the Japanese had after they had property bubble burst. We're on the fourth version of property market reform and we're still questioning if 30% provisioning on developers and 45% on their loans is enough. I can tell you from my Japan experience it isn't. And just to emphasize the point the government in Madrid is talking about CB's as a way to recapitalise the banks. Classic! I'm guessing they've been sold this story by the same Goldman's guys that originated the strategy in respect to a number of the Japanese banks. We know what happened there . . . GS made out.

3. Greek government to be formed?

4. Latest FOMC minutes (Wednesday).

This will be all about the nuances of various phrasing by "the Bernank". Any hint of QE3 will be grabbed at by a worried market.

Friday, 11 May 2012

Schadenfreude .... ain't it sweet. And a bike race in Geneva...

Schadenfreude. . . what a great word. It seems a particularly good choice for word of the day given the rather large mishap incurred by JP Morgan. Today is the day that Jamie Dimon got his.

What, me worry?
They'll be more than one ex-Lehman Bros or Bear Stearns employee cracking open a 2008 bottle of bubbly and toasting Saint Jamie. For weeks now the rumors have been circulating around the hedge fund world about an enormous prop bet gone wrong out of London. I didn't follow it that closely as I trade more commodities than credit now days. Whatever the circumstances surrounding the 'flattner" trade the one question I'd ask as a regulator is "who authorized this trader and can you please show me your daily scenario analysis for the last 2 months". If everything is above board they should have all this and they should be able walk me through their thinking with a white board and a smile. If they can't ... I think you have a big problem.

I think JP Morgan is lucky that the Spanish and to a lesser degree the French also have their own banking problems. Soc Gen continues to writedown all sorts of assets in it's Greek unit Emporiki. It's funny listening to the talking heads discuss the situation at SocGen . . . "well they cut the financing costs of the unit in roughly half in the last year". This reminds me of HSBC and its disastrous foray into low end lending in the US via Household Finance Corp, who ended up being the second largest subprime lender in the US. That bled for years. HSBC were lucky they had Asia, Soc Gen doesn't have an Asia, but they do have an Italy, a Spain and ... well you get the picture.

And finally Spain. €30bn is a lot of new provisions and a lot of capital to set aside. You can smell the nationalization coming down the pipe. The problem is that I believe it's likely to come in slices in a similar fashion to the Japanese approach post the bursting of the property bubble. The Spanish have already had a lost half decade, but its easy to see another 10years before this gets sorted out.

It's the weekend and it;s time for my own bike race. The Giro can wait. I'll be competing in the Brevet Jean Brun on Sunday. There are two courses, a 70km and a 100km. If the weather is cool and fine I'll probably do the whole 100k's. If it's wet or hot it's the 70k course as we'll be going up the Mt Saleve climb. It will be my first time up Saleve and according to the local guru's it's a must do before I leave. Luckily one of my favorite websites has great coverage of the mountain and covers all 5 possible routes. Cycling Challenge is a fantastic site for anyone in or coming to Europe.

I haven't met Will and his friends, but they do a great job of providing the reconnaissance for many of my climbs.

The above is the map of the 70k course on Sunday. Basically on the short course you circle the summit, while in the long course you do the extra 300m to the top. So here's the climbing data:

So what we have are two Cat 3's, a 4 and a 5. The longest climb is only 6k's and the average gradients are all under 5%. Call it 850m's of climbing. That's a good morning out. Here's a photo I took from Baillaison looking towards Saleve this morning, just to give you an idea of the topography:

That's it from say 25k's away. Sunday should be fun.

Bon weekend ... happy climbing!