Tuesday, October 26, 2010

FT: the Darien scheme

The Darien scheme was dreamed up by the Scottish businessman William Paterson. He planned to found a Scottish colony at Darien on the narrow isthmus of Panama in Central America, to control trade between the two great oceans and so transform impoverished Scotland into a great trading nation. Thousands of ordinary people invested in the scheme; thousands elected to make the tough sea voyage and settle there as pioneers. But the plans ended in disaster.

“It’s generally thought it absorbed more than half of the national wealth of Scotland,” says Beaton. “They sent 14 ships in total and only one came back. Two thousand people died. Three huge factors were ignored. One was that the English could really put a spoke in it by putting an embargo on trade. Second, the climate was much, much worse than they had squared up to: conditions were terrible and 12 people were dying a day. Third, Paterson had wagered that the Spanish empire was waning and they had lost their chutzpah. And he was wrong.”

The downfall of the scheme crippled the Scottish economy and left the country demoralised, bankrupted and struggling to go forward as an independent nation. “The really significant thing about it in terms of British history is that it was a straight line from there to the Treaty of Union [leading to the joining in 1707 of Scotland to England in the single kingdom of Great Britain].”

...“It’s a story in its own right. But it’s also full of echoes for now. The idea that Scotland would overnight become a rich nation is a bit like what happened to Iceland ... [The economist] JK Galbraith wrote that one of the things that fuels every bubble is the belief that there’s a new device that makes everything safe. And the new device in the late 17th century was the joint stock company. It’s a very loose shorthand, but I think of it as the credit default swap of the era. People thought it had taken the risk away.”

FT: container ship industry older August article

Only 1.7 per cent of the world’s fleet is now laid up, according to Paris-based AXS-Alphaliner, a shipping consultancy.

Container shipsTwo of the most important forces in container shipping on Wednesday confirmed the strength and robustness of the recovery. Denmark’s AP Møller-Maersk, Maersk Line’s parent, announced it now expected 2010 to be its best year since 2004, when the container shipping boom was at its height.

Dubai’s DP World, one of the biggest container terminal operators, announced that container volumes grew by 7 per cent in the first half, while net profits, adjusted for the effects of exceptional gains, rose by 10 per cent.

The question is how long this unexpected recovery will last and what kind of container shipping industry will emerge.

FT: usinng Intex to analyze structured securities

...Although few outsiders have heard of it, the single most important language of mortgage-backed securities and similar products is a system called Intex. It includes a computer language for defining deals’ intricate cash flow rules, a graphics-based tool for designing deals, and a truly remarkable computerised “library” of the parameters of the underlying asset pools and the cash flow rules of more than 20,000 deals. Intex is not cheap – one user told me his bank pays about $1.5m a year for it – and it has competitors such as Bloomberg, but it is essential for all serious participants in structured securities...

FT: sugar price rises

...The changing shape of the global sugar market is one of the clearest examples of the shift towards emerging markets that is a common trend across commodity markets. Whereas a century ago London was the centre, the sugar trade is now dominated by the Bric countries: Brazil is the largest exporter, Russia the largest importer and India the largest consumer.

FT: negative rates on TIPS

Bonds and Rates
Yield Today's Change 1 Month Ago
US 2 Yr Bond

0.37% yield

+0.01 today's change
0.44% change i month ago
US 10 Yr Bond


US 30 Yr Bond


UK 2 Yr Gilt


UK 10 Yr Gilt


UK 30 Yr Gilt



Tuesday, October 19, 2010

China rate hike

Alloway: QE2 up to $2000bn by 2011

Oct 19 (Reuters) – Atlanta Federal Reserve Bank President Dennis Lockhart said on Tuesday that further easing by the Fed has to be large enough to help boost demand, and purchases of $100 billion of securities a month would be a possibility.

“If we’re going to pursue another round of quantitative easing, it has to be a large enough number to make a difference,” Lockhart said in an interview on CNBC.

“As a monthly number ($100 billion) is fairly consistent with what we did before, and so I think it would certainly be in the range of numbers one might consider … but if you were talking about $100 billion as simply the overall program, I think that’s too small,” he said.

Wednesday, October 13, 2010

Andolini: Chinese $194bn reserves

The country’s reserves, already by far the largest in the world, increased by $194bn in the past three months to $2,650bn, eclipsing the previous record rise of $178bn in the second quarter of 2009.
Wolf: US will win global currency battle - Oct-12
Opinion: China’s unbalanced growth - Oct-07
Fears of China-US currency war overdone - Oct-12
Beijing targets banks to curb lending - Oct-12
Chinese economy shows signs of stabilising - Sep-12
Chinese economy wins manufacturing boost - Sep-01

The recent strengthening of the euro and yen against the US dollar explains some of the increase because China’s reserves are expressed in dollars but invested in a range of currencies and assets.

Buck: Palestinians open trade talks with Mercosur

Trade between the Palestinian territories and the four members of Mercosur – Brazil, Argentina, Uruguay and Paraguay – is minimal.

However, Abdel-Hafiz Nofal, the Palestinian deputy minister for national economy, said that the potential for improvement was significant, suggesting that trade flows could reach as much as $200m a year.

“Mercosur is one of the biggest economies in the world, and we believe that we should reach an agreement as soon as possible,” he added.

The Palestinians already enjoy preferential trade deals with a number of countries and blocs around the world, including the US, the European Union and Turkey.

Finalising a deal with Mercosur is regarded as promising because several Latin American countries boast large minorities with Arab or Palestinian roots.

Peak steel?

Or you will if you listen to Eiji Hayashida, chief executive of JFE Steel of Japan. The head of the world’s fifth biggest steelmaker told the FT that from around 2015 world steel output will reach a plateau for at least 5-10 years, driven both by resource constraints and a weakening in demand.

It is hardly the consensus view - but the idea is gaining ground.

waiting for QE

Tuesday, October 12, 2010

Blair: Ian Bremmer's boom in the night events: Iraq/Iran oil reserves...

Iraq produces 2.5m barrels per day, compared with Iran’s 3.7mbd. Mr Shahristani says that Iraq can achieve 12mbd by 2017, a level that would rival Saudi Arabia, but analysts are sceptical.

“We don’t believe that’s achievable,” says Patrick Gibson, oil supply analyst at Wood Mackenzie, a consultancy, adding that the main constraints are simply logistical. Iraq lacks the infrastructure and export facilities to make such a quantum leap.

But Mr Gibson says that 7.5mbd by 2017 is possible, while 5.3mbd is a “fully risked estimate”. Meanwhile, he added: “We don’t see Iranian production going anywhere in the next five years.”

On any view, Iraq will probably overtake Iran and become Opec’s second-biggest producer in the next five years. If so, Iraq’s status will have to change.

The country has not been subject to Opec’s production quotas since Saddam Hussein’s invasion of Kuwait in 1990. As Iraq’s output grows, this position will become untenable.

Dr Takin said the crucial moment will come when Iraqi output reaches 3.5 or 4mbd. “Then they will say to the Iraqi minister, ‘Your Excellency, the time has come for you to join our quotas. If you don’t, then prices will fall and we’ll all lose’."

Braithwaite: Trouble in dis-paradise, bank regulation prospects and issues

van Duyn: CDS poor predictors of risk

Mr Grossman said the most surprising result of the study was the high volatility in probability of default implied by CDS spreads.

The implied probability of default for bond insurers rose nearly 80 times from before the credit crisis to the peak levels during the crisis, while that for Reits rose nearly 30 times and the probability of default for banks and insurers and for homebuilders by about 15 times and 5 times respectively.

“Volatility in CDS spreads over the cycle translated into dramatic shifts in implied probability of defaults, reducing their usefulness as gauges of medium-term credit risk,” the report said

Google is taking over! The GPI...

Google is using its vast database of web shopping data to construct the ‘Google Price Index’ – a daily measure of inflation that could one day provide an alternative to official statistics.

The work by Google’s chief economist, Hal Varian, highlights how economic data can be gathered far more rapidly using online sources. The official Consumer Price Index data are collected by hand from shops, and only published monthly with a time lag of several weeks...

While the Federal Reserve is unlikely to panic just yet, Mr Varian said that the GPI shows a “very clear deflationary trend” for web-traded goods in the US since Christmas.