from MacroScope:

Economic Ties?

As rare as it is to get any two economists to agree, the chances are even slimmer of hearing three Nobel economics laureates concur.

And so it was that each of the award winning economists -- Eric Maskin (2007), Michael Spence (2001) and Robert Merton(1997) -- all had their own take on the legacy of three years of financial and economic crises when they spoke to a conference organised by Pioneer Investments  in London last week.

 To be fair, they broadly coagulated around the inevitability of greater regulation of banking and finance and also on the enormity of China's now imposing position in world economic affairs.

Iceland: slipping again?

Just when you thought it was all over, Iceland looks like it’s in trouble again.  The cost of insuring Iceland’s debt against restructuring or default has risen this week to 720 basis points in the five-year credit default swap market, its highest since mid-2009.  That means it costs 720,000 euros a year for five years to insure 10 million euros of Icelandic debt against default.

Icelanders are to vote by March 6 on a deal to repay $5 billion lost in online Icesave bank accounts in Britain and the Netherlands. Those governments compensated savers when the bank collapsed and now want their money back from Reykjavik, but opinion polls show voters are likely to reject what are seen as the harsh terms of the agreement.

The uncertainty has driven debt insurance costs back up towards the levels seen just before the country’s banking system and government collapsed in Oct 2008.

The government doesn’t have to worry too much yet, as it has a $10 billion international aid pakcage, and no major debt maturing before 2011, when a 1 billion euro bond expires.

from Hedge Hub:

Milan’s deserted depots point to double dip

 Travelling towards Italy's major financial centre Milan last Sunday on my way back to Zurich, I spotted something out of the window that had little effect on my fellow train passengers but made my blood run cold.

 The massive storage depot just outside the city was practically devoid of goods containers.

    These containers are usually stacked four high in periods of normal economic activity, although their number fell noticeably during the recession from which we have now supposedly emerged.

But now there was bare space on the ground.

from MacroScope:

Growth is not enough for Africa

Lots of talk at the moment about how Africa's economy is looking up.  The International Monetary Fund, for one, reckons sub-Saharan growth will be 1 percentage point above the world average this year and it has put eight African countries in its top 20 fastest growing economies list for 2010.

Reuters has written a special report on the subject as part of its Davos coverage. You can read it here.

But before taking its place alongside Asia and Latin America, the continent has quite a lot of work to do with investors. It could start by giving them something to buy (beyond commodities that is).

Polls of leading institutional investors conducted by Reuters asked a new question about allocations to Africa and the Middle East. The results were a bit grim. On average 44 large firms in the United States, Japan, continental Europe and Britain had less than 1 percent of their equities allocated to the region and the bond allocation was 0.1 percent.

No one flying to safety yet

Reuters asset allocation polls for January are out and — perhaps not surprisingly — show global investors cutting back a bit on stocks. That would be expected given that world stocks are heading for a negative month and the likes of emerging markets have had a few days battering.

What was perhaps most interesting, however, was the fact that the pull back was not accompanied by any flight to safety. Both bond and cash allocations also fell slightly. The money went into other assets such as property and hedge funds.

Conclusion? No one is panicking. Some, such as Charlie Morris of HSBC Global Asset Management, even reckon that January’s pull back is nice and healthy, taking the froth off the market.

Bosch Boss Bashes Bloated Bank Bonuses

Bosch CEO Franz Fehrenbach

Everyone complains about fat banker bonuses, but Bosch Chief Executive Franz Fehrenbach is taking the debate to a new level. The head of the world’s biggest car parts maker is going to review ties with its financiers and may break off business with those that pay excessive bonuses, he told reporters. “We find it irresponsible if some big banks more or less go back to business as usual before the crisis despite what we have gone through,” he said.  He cited HSBC and JP Morgan as positive examples of good corporate behaviour. Of course it’s easier to be picky when you are unlisted and generate huge cash flow.

It’s the exit, stupid

Anyone wondering what ghoul is most haunting investors at the moment could see it clearly on Tuesday — it is the exit strategy from the past few years’ central bank liquidity-fest.

Germany came out with a quite positive business sentiment indicator, relief was still there that Greece had managed to sell some debt a day before, and Britain formally left recession – albeit in a limp kind of way.

But what was the main global market mover? It was China implementing a previously announced clampdown on lending.

from DealZone:

Hershey’s day in the sun

With the smell of Cadbury Cream Eggs and Kraft cheese slices thick in the air, Nestle could well be getting hungry for some M&A. Will the Kraft-Cadbury deal soften the Hershey Trust enough for a Nestle merger?

Nestle has plenty of firepower with $28 billion from the sale of its remaining stake in eyecare group Alcon and Hershey might be seen as no more than a large bolt-on. In addition, Hershey is one deal Nestle could do without big anti-trust issues.

And as David Jones reports, from a Hershey perspective, some heat may be softening the the Hershey Trust's aversion to a deal.

The fact that Hershey had been actively trying to fund a bid for Cadbury, even if it ultimately failed, has raised speculation about its future, as has the fact that 85 percent of its sales come from the U.S. market, where Kraft is likely to attack it with Cadbury products.

from Hedge Hub:

Catching the wave

Distressed debt investors are pinning their hopes on a second wave of insolvencies in 2010 after banks' refusal to write off bad loans made 2009 something of a damp squib.

Market participants at the launch of Debtwire's European Distressed Debt survey in London today could not hide their frustration at the sticking plaster approach that has been applied to many ailing companies. "Some of these capital structures are irretrievably broken and it doesn't do any good to pretend that they're not," said Richard Nevins, senior partner at Cadwalader, Wickersham & Taft.

The majority of survey respondents expect European restructuring to peak in the first half of 2010 as the economy improves and quantitative easing is withdrawn. Companies that have limped along through the downturn by stripping costs to the bone may struggle to build inventories and sales growth without a cash injection.

“There is still some money to be made in a second wave,” said Shaun O’Callaghan of FTI Consulting. “Companies have stopped talking about cutting back and are looking at some level of investment but we are seeing a parting of the ways between those companies that can invest and those that can’t find the money.”

from Cecilia Valente:

UK sovereign sukuk? Yes, no, maybe …

Given that a general election looms and parties are out to get as many votes as they can,  I half- expect grand promises to expand the Islamic financial sector, which is still growing despite the crisis.

At an event hosted by law firm Norton Rose, both major British political parties went out of their way yesterday to stress London's superiority in matters of Islamic finance -- but neither was willing to expand on what it lacks most: a sovereign sukuk. 

If the UK issued a sukuk (roughly described as an Islamic bond) it would:

The UK may be proud of its sophisticated Islamic finance sector, but neither Labour or the Conservatives could shed light on an issue casting a long shadow on the sector's long-term prospects.