Opinion

Ben Walsh

from Felix Salmon:

Counterparties: Bushmasters and baksheesh

Ben Walsh
Dec 18, 2012 23:21 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

We found out in April, thanks to the NYT’s David Barstow, that Wal-Mart de Mexico was a corrupt organization and that the US parent company had seemingly no interest in what was going on there. But just how bad did things get? Barstow’s now back, showing that the corruption at Mexico’s largest employer was systemic and integral to its growth:

Wal-Mart de Mexico was an aggressive and creative corrupter, offering large payoffs to get what the law otherwise prohibited. It used bribes to subvert democratic governance — public votes, open debates, transparent procedures. It used bribes to circumvent regulatory safeguards that protect Mexican citizens from unsafe construction. It used bribes to outflank rivals.

Through confidential Wal-Mart documents, The Times identified 19 store sites across Mexico that were the target of Wal-Mart de Mexico’s bribes... Over and over, for example, the dates of bribe payments coincided with dates when critical permits were issued. Again and again, the strictly forbidden became miraculously attainable.

In the wake of the initial NYT report, Wal-Mart has spent $100 million investigating the bribes, including the  corruption scandal at Wal-Mart’s Indian joint venture; it is also the subject of a criminal investigation, part of a larger move by the Justice Department to crack down on violators of the Foreign Corrupt Practices Act.

Who cares about rising rates?

Ben Walsh
Dec 14, 2012 18:56 UTC

At this week’s Dealbook Conference,  Lloyd Blankfein, David Rubenstein and Ray Dalio each fretted about a “bond bubble”.  This isn’t necessarily a new or unique fear. It was already a “constant refrain” in 2010. Jeff Gundlach exemplifies a more extreme version of the same point, and it’s been recently covered in the FT and WSJ.  Here’s Blankfein:

“I think [investor complacency about low interest rates] is one of the big risks that are looming out there right now…What’s going to happen when growth picks up and interest rates rise? There’s going to be a reversal and people will have losses.”

Blankfein is right: if you’re a fixed-income investor, rising interest rates are a risk. That statement is correct now, but it’s also always correct; There’s no way rising rates can’t not be a risk to bond buyers. The same goes for inflation, which bond-investor extraordinaire Bill Gross is worried about.

In the wake of the financial crisis, it’s easy to hear the phrase “bond bubble” and think economy stability is at risk. Blankfein feeds into this perception when he says that “one of the big risks that is looming… is that people are once again complacent about this low level of interest rates”. That sounds scary in isolation, but in context  his comments are actually positive. The bubble will be over, he says, when “growth… come[s] back”. But Fortune cut that crucially important caveat when it published its story. Blankfein and others’ worries might sound like they are meant for a wide audience, but the idea that the bond bubble is a risk is a message aimed squarely at bond portfolio managers.

from Felix Salmon:

Counterparties: Central bankers are the new rockstars

Ben Walsh
Dec 14, 2012 21:57 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

Here’s a type of attention that has escaped most of the financial world in the last few years: resounding praise. And it’s being directed at practitioners of that dullest of financial professions, central banking.

Mario Draghi, the head of the European Central Bank, is the FT’s person of the year. Draghi gets the nod for standing against an existential threat with almost Churchillian resolve and rhetoric: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro... And believe me, it will be enough”. The FT calls that July statement a “turning point in the three-year-old crisis”  that “in effect dared financial markets to challenge the ECB’s unlimited firepower”. Draghi has necessarily made the job deeply political: Matt Yglesias compared Draghi’s ECB to a “shadow government” enforcing budget cuts.

from Felix Salmon:

Counterparties: Aggressive Doves

Ben Walsh
Dec 12, 2012 22:54 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

For the first time, the Fed has explicitly tied its interest rate policy to specific levels of unemployment and inflation. Short-term rates will stay at essentially zero as long as unemployment is above 6.5% and inflation is under 2.5%, the Fed announced today. WaPo’s Neil Irwin says Fed policymakers “unveiled a huge surprise”.

If you’ve been following Chicago Fed president Charles Evans, this policy -- a version of which is known as the “Evans Rule” -- is familiar. The surprise is that Bernanke delivered almost exactly what Evans advocated: monetary policy that is tied to economic conditions, rather than the Gregorian calendar. Jon Hilsenrath and Brian Blackstone point out that the move comes in the context of increasingly coordinated and unprecedented actions by central bankers around the world; this is certainly the latter, if not the former.

from Felix Salmon:

Counterparties: 43 words you can’t say on Facebook

Ben Walsh
Dec 7, 2012 22:59 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

Facebook is unlikely to become your go-to source for corporate announcements any time soon. In July, Netflix CEO Reed Hastings said on his Facebook page that viewers had watched over one billion hours of video using his company’s service in June. Now, the SEC may bring a civil suit against the company for improperly disclosing that information.

As the NYT’s Michael de la Merced reports, the regulator is “concerned that the post violated the Regulation Fair Disclosure rule...which requires a company to announce information that is material to its business to all investors at the same time”.

from Felix Salmon:

Counterparties: Return of the Mac

Ben Walsh
Dec 6, 2012 23:27 UTC

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American manufacturing has gained boosters recently, with politicians from President Obama to Rick Santorum championing its merits. The Atlantic’s current cover proclaims “Comeback”. Even Apple -- the epitome of the Made-in-China multinational -- is bringing a mini portion of its manufacturing back to the US: CEO Tim Cook says that “next year, we will do one of our existing Mac lines in the United States”.

Cook’s announcement, which came in the form of an interview with Businessweek, is a savvy move by a company that has faced questions about its reliance on an overseas suppply chain. Still, it’s not much of a homecoming. The FT’s Tim Bradshaw, looking at the $100 million that Cook says he will invest in US manufacturing, notes that it pales in comparison to the billions Apple has invested in Asian manufacturing in the last year alone.

from Felix Salmon:

Counterparties: A series of unfortunate repositioning actions

Ben Walsh
Dec 5, 2012 23:27 UTC

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Citigroup will fire 11,000 employees as part of a “series of repositioning actions”. The full press release is a meticulously assembled monument to business-speak. If only its first paragraph, appropriately skewered by Derek Thompson, could be laughed off as parody instead of pink slips for 4% of the company’s workers:

Citigroup today announced a series of repositioning actions that will further reduce expenses and improve efficiency across the company while maintaining Citi's unique capabilities to serve clients, especially in the emerging markets. These actions will result in increased business efficiency, streamlined operations and an optimized consumer footprint across geographies.

from Felix Salmon:

Counterparties

Ben Walsh
Dec 4, 2012 23:25 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

President Obama said in an interview with Bloomberg today that to reach a deal on the fiscal cliff, “we’re going to have to see the rates on the top 2 percent go up, and we’re not going to be able to get a deal without it”. The President pushed back against a proposal from Speaker Boehner, saying an insistence on tax increases is “not me being stubborn; it's not me being partisan. It's just a matter of math”.

Josh Barro was not impressed by Obama’s comments:

The President’s frame on what the fiscal cliff is is completely wrong. The fiscal cliff is an austerity crisis...we are going to have tax increases and spending cuts that are going to drag down the economy in 2013 if they are not reversed. [The President’s] top priority going forward is a tax increase...but raising taxes has nothing to do with relieving austerity. And then what he talks about giving in exchange for that is entitlement cuts.

from Felix Salmon:

Counterparties: Greece’s latest bond deal

Ben Walsh
Dec 3, 2012 23:36 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

Greece is buying back €10 billion of bonds it issued earlier this year, at between 30% and 40% of face value. As Landon Thomas notes, the expected average price of 32-34 cents on the euro represents a “premium of 4 cents above the level where the bonds traded at the end of last week”.

The program is part of the agreement Greece reached on November 27 to decrease its debt burden to 124% of GDP by 2020. That agreement allowed Greece to remain on track to receive more than €40 billion in vitally needed aid.

from Felix Salmon:

Counterparties: Why your house is getting more valuable

Ben Walsh
Nov 30, 2012 22:38 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

Two things you don’t expect to see together are the nation’s highest foreclosure rate and a housing shortage. Yet as Bloomberg’s John Gittelsohn and Prashant Gopal report, that’s exactly what Stockton, California is experiencing right now. While there are lots of foreclosures, they’re not happening at heavily-discounted prices. “People see a foreclosed home for sale in this area and they’re going to jump on it”, said one longtime Stockton realtor.

There’s also evidence that Obama administration’s much-maligned foreclosure relief program is now picking up pace. Susan Wachter, a Wharton professor, was particularly impressed:

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