Global Investing

from MacroScope:

Should central banks now sell gold?

Central banks in debt-strapped countries have a golden opportunity ahead of them, if you will excuse the pun, to help their countries' finances by selling their yellow metal holdings.

At least, that is the message that Royal Bank of Scotland's commodities chief Nick Moore has been giving in recent presentations -- and he thinks it might happen.   The gist is that gold is now at a record price but banks have not come close to  meeting their sales allowance for the year.

Under the Central Bank Gold Agreement there is a quota of 400 tonnes that can be sold by central banks within a 12 month period and with only about three months to go in the latest period less than 39 tonnes has been sold.  At today's price that remaining 361 tonnes is worth some $14 billion.

Moore believes that euro zone central banks in particular may increase their sales because of the record price and the deteriorating fiscal positions.  Furthermore, he reckons the price of gold will come down over the next 12 months as its  safe-haven appeal eases and inflation expectations fade.

Among the so-called PIGS -- Portugal, Italy, Greece and Spain -- Italy is the major gold holder with qround 2450 tonnes. But Portugal has some 380 tonnes,  Spain 280 and  Greece 112.

Scrambling for debt

Developing countries must be eyeing with alarm the vast amounts of bonds that the euro zone and the United States are planning to sell this year and for years to come. Having borrowed large sums, starting a couple of years back to fund the bailout of  U.S. and European banks, developed economies must now raise the cash to repay the holders of those old bonds  – in market parlance, they need to roll over the debt.

The prospect of rolling such vast sums continuously in the current fragile market must be unnerving to say the least. But what about other countries who too have creditors to pay off — emerging markets in particular?  How will their deals fare if  U.S. and European bonds, seen usually as safer assets,  flood the market and drive up yields?

Not too badly, it would seem. The first reason is a simple matter of numbers. The United States needs to roll over one-fifth of all  its outstanding bills in 2010, — a whopping $1.6 trillion. The euro zone must find 1.3 trillion euros in the coming year — more than the recent Greek aid deal that took them so much time and hand-wringing to finalise.   Emerging markets’ needs are tiny in comparison.  ING Bank reckons they need as little as $75 billion to service their hard currency debt in 2010 and half of this has already been raised.  Should not be a problem, then.

Act now or forever hold your (b)-piece, Obama

It appears the penny has finally dropped in Washington. Bank bailout watchdog Elizabeth Warren, chair of the Congressional Oversight Panel, has unveiled a report that outlines the shocking state of the U.S. commercial mortgage sector, which left unaided could spark “economic damage that could touch the lives of nearly every American”. The Havard Law School Professor and her panel colleagues are talking the kind of apocalyptic language that may just shake the White House and its star policy advisers into facing problems we have now rather simply obsess about those we may or may not encounter in the future. The global banking system may well need some kind of Volcker-esque guidelines to curb the next generation of excessive risk-takers but Obama is putting the cart before the horse in his efforts to haul the economy back on track. Certainly, his and the previous administration has toiled long and hard to stabilise the U.S. housing market, propping up Fannie and Freddie and their dysfunctional offspring, but the subprime mess has distracted attentions from the toxic commercial market, where the clean-up task is no less important. Warren reckons there is about $1.4 trillion worth of outstanding commercial real estate loans in the U.S that will need to be refinanced before 2014, and about half of them are already “underwater,” an industry term that refers to loans larger than the property’s current value. But bank brains are wasting too much time figuring out how the so-called “Volcker rule” might affect their operations and future profitability, instead of getting their arms around underwater real estate loans that could break their institutions in two long before the anti-risk measures even take hold. Obama’s premature challenge to their investment autonomy, which he says cultivated the collapse of banks like Lehmans, is like suturing a papercut while your jugular gapes wide open. Maybe now, as Warren’s report hammers home the threat posed by unperforming commercial real estate debt, Obama will give Wall Street a chance to refocus on the “now” and worry about “tomorrow”, tomorrow.

It appears the penny has finally dropped in Washington.

Bank bailout watchdog Elizabeth Warren, chair of the Congressional Oversight Panel, has unveiled a report that outlines the perilous state of the U.S. commercial mortgage sector, which left unaided could spark “economic damage that could touch the lives of nearly every American”.

The Havard Law School Professor and her panel colleagues are talking the kind of apocalyptic language that may just shock the White House and its star policy advisers into facing problems banks have now rather simply obsess about those they may or may not encounter in the future.

A black swan in the desert

Just when investors were settling down to lock in a few of the year’s profits and put their feet up for the end of the year holidays, a black swan has come waddling out of the desert to put everything on edge.

The unwelcome cygnus atratus came in the form of Gulf emirate Dubai telling creditors of Dubai World and property group Nakheel that debt repayments would be delayed.  Fears of contagion spread widely, hitting world stocks, lifting the dollar out of its basement and driving demand for European debt so much that a roughly 6-month trading range for futures was breached.

It all may settle down soon. Dubai says the problem does not apply to its big international ports group.  Meanwhile, the emirate is a pretty leveraged place, but fellow emirates and neighbouring countries such as Abu Dhabi, Qatar and Saudi Arabia are pretty flush with cash. They could even step in to help as a matter of solidarity.

from DealZone:

Cocos – credit market classics?

 "Cocos" has become the user-friendly name for a new type of hybrid bond created to help UK bank Lloyds raise money from investors to break away from a government insurance scheme for bad loans.

This nickname seems to have caught on in financial circles as it is much snappier than the bonds' official title: Enhanced Capital Notes.

The name Cocos seems to have derived from "contingent convertible," which describes one characteristic of these bonds - they convert to equity in certain circumstances.

from John Irish:

Mid-East business leaders to discuss economic recovery

Starting Monday, Reuters is inviting  business leaders from various sectors in Dubai, Riyadh and Cairo to discuss key challenges facing them in the aftermath of the global financial crisis and the lessons they have learnt.

Is the downturn over or are we set for a double-dip? Will buyers flock back to Dubai's property bonanza or will they stay away for the foreseeable future? Will the oil-reliant economies of the Gulf manage to diversify as they had hoped at the start of the boom in 2002 or will they continue to rest on their barrels of crude? Read this for a preview.

Addicted to Credit

The Federal Reserve’s expansionist monetary policies are the equivalent of giving an alcoholic another drink or the heroin addict another fix, according to Dr Marc Faber, also known as Dr Doom, and a fierce critic of Alan Greenspan and Ben Bernanke.

“This is not solving the problem – it is just treating the symptoms,” he said, speaking at the CFA Institute’s European Investment Conference in Frankfurt on Thursday.

Faber blames Greenspan’s decision to hold interest rates at artificially low levels for precipitating the housing bubble and sees Bernanke repeating the mistake in the current crisis. “The Fed seems to ignore the fact that one of the causes of this crisis was the amount of leverage in the system. This is a credit-addicted economy.”

But what does Argentina’s presidential couple think?

Markets are waiting for Argentine President Cristina Fernandez and her husband and predecessor ex-President Nestor Kirchner to show they support plans for Argentina to return to international credit markets after a long absence.  Fernandez and Kirchner are known as the presidential couple and no major Argentine policy move can go forward without their stamp of approval.  Decision making is seen as almost entirely concentrated in them.

So, no matter how much new Economy Minister Amado Boudou talks about his plans to resolve Argentina’s different debt problems and issue a new global bond, eyes are on the presidential couple.  Boudou says he wants to move forward on various fronts. First, he wants to reopen a massive 2005 restructuring to attract holders of some $20 billion in defaulted sovereigns to neutralize their lawsuits — but this means sending a bill to Congress, something the president would probably announce. Secondly, he wants to normalize rlations with the International Monetary Fund, which were derailed a few years ago.  Lastly, he wants to restructure some $6.7 in defaulted debt to wealthy creditor nations in the Paris Club. 

Argentine bonds have rallied strongly on expectations that Boudou will make progress on these fronts, but the rally could fizzle without prompt concrete steps.

Austrian subprime woes turn into political hot potato

The Austrian government debt agency’s two-year old foray into subprime investments has turned into a political hot potato and sparked an increasingly heated debate between the Social Democrats and conservatives, caught in an uneasy but coalition government without viable alternative.

Austria’s audit court last week revealed that the agency, which in its staid day job issues government bonds and makes sure state coffers are full when they need to be, started to moonlight on money markets in 2002 to earn a little extra money on the side.

Its cash position ballooned from an average 4.5 billion euros in 2002 to a peak of 26.8 billion euros in October 2007. This level “was not only determined by economic necessities, but was also meant to generate additional revenues,” the audit court said in its report.

Global government-backed bonds surging

Government-backed lending programs around the world have sparked a revival in financial and corporate borrowing — for now. Worldwide sales of corporate bonds rose to $251 billion in January, the highest level since May 2008, marking the first signs of a thaw after a long global capital markets winter. The following are the global sales totals and a list of the biggest borrowers, according to Thomson Reuters data.

Read the full story here.

Top Temporary Liquidity Guarantee Program
(TLGP) Issuers
Ranking Issuer Name Proceeds (USD) Market Share 1 BANK OF AMERICA CORP 32,628,557,500 23% 2 GENERAL ELECTRIC CAPITAL CORP 21,045,031,500 15% 3 CITI 17,726,150,000 12% 4 JPMORGAN CHASE & CO 16,176,202,500 11% 5 MORGAN STANLEY 14,324,084,000 10% 6 GOLDMAN SACHS 13,558,528,800 9% 7 WELLS FARGO & CO 5,996,490,000 4% 8 AMERICAN EXPRESS BANK FSB 5,247,235,000 4% 9 REGIONS BANK 3,497,682,500 2% 10 PNC FUNDING CORP 2,896,760,000 2% 11 SUNTRUST BANK 2,743,940,000 2% 12 HSBC USA INC 2,673,895,750 2% 13 JOHN DEERE CAPITAL CORP 1,995,380,000 1% 14 SOVEREIGN BANCORP INC 1,597,932,500 1% 15 KEYCORP 1,499,050,000 1% 16 NEW YORK COMMUNITY BANCORP INC 601,626,380 0% 17 ZIONS BANCORPORATION 254,892,000 0%

Corporate and Government Guaranteed Debt – Global Month Global Corporate Debt US Guaranteed Debt (TLGP) International Guarenteed Debt Total January 2007 317,575.6 317,575.6 February 2007 254,769.1 254,769.1 March 2007 315,515.9 315,515.9 April 2007 197,842.8 197,842.8 May 2007 336,817.1 336,817.1 June 2007 320,097.3 320,097.3 July 2007 123,559.2 123,559.2 August 2007 135,911.7 135,911.7 September 2007 221,778.5 221,778.5 October 2007 260,642.5 260,642.5 November 2007 156,442.8 156,442.8 December 2007 117,873.8 117,873.8 January 2008 203,028.2 203,028.2 February 2008 155,728.7 155,728.7 March 2008 147,390.8 147,390.8 April 2008 303,897.8 303,897.8 May 2008 357,243.5 357,243.5 June 2008 219,317.5 219,317.5 July 2008 133,174.8 133,174.8 August 2008 125,650.0 125,650.0 September 2008 106,030.8 106,030.8 October 2008 68,402.9 4,869.0 73,271.9 November 2008 116,849.8 20,079.9 9,955.9 146,885.6 December 2008 102,066.7 87,768.5 4,050.5 193,885.7 January 2009 251,013.0 46,493.8 19,665.9 317,172.7