Good morning

The headlines:
  1. I’m going to start with a slight personal irritation. Bloomberg reports that Sobbing Venezuelan President Hugo Chavez wept for his life at a Catholic Mass in his Home State yesterday. He followed this by telling everyone that he carried their crosses and was wearing a crown of thorns. Yes – I’m sure that he’s a real victim of the inflation that he has inflicted. For the record, Venezuela was on the hyperinflation watch list pretty soon after the giant Zimbabwean hyperinflation. That position may have been eclipsed by the potential of one in Belarus; but still. If you’re one of those leaders presiding such an epic economic decline, the “crown of thorns” has a certain “Vengeance is mine, sayeth…” And as for identifying himself with a Christ figure, he’s in good company. Every dictator worth his salt has claimed messianic roots. Chinese emperors, Roman caesars, Egyptian Pharoahs, Robert Mugabe… Mr Chavez. Best of luck. Link: Chavez and the Cancer Cross.
  2. The fun story floating around the blogosphere is that of Mysterious Trader X. Well he’s not that mysterious. Nor is his name “X”. JPMorgan Trader Bruno Iksil, a derivatives trader in the bank’s Chief Investment Office, has amassed such large positions that he’s driving the trade moves of Credit-Derivative Indices. That’s what the market is saying. What does this mean? Well most people have some memory of George Soros supposedly breaking the British Pound. And what that theoretically meant (George has never quite admitted to breaking the pound) is that he had enough capital to make purchases that would literally eclipse the supply of pounds on the market, driving the price through the roof. Or (more relevantly), he had enough pounds to dump on the market that the supply flood would cause a sudden and dramatic devaluation (the so-called breaking of the pound). Indeed, capital controls at Reserve Banks in many (if not all) developing countries are there to prevent exactly that. And the principle with Mr Iksil is the same. Enough purchasing power that when he makes a trade move, the market reacts with dramatic movements in price. And what is a broken credit index? Well – the credit index is meant to represent a basket of investments in, let’s say, credit default swaps. In theory, I could replicate the index by buying some of those underlying investments. However, when a trader can dramatically change the price of the index just by trading it, the index stops replicating its underlying investments. In efficient markets, this self-regulates because investors start taking the other side of the trade expecting a reversion to fundamentals. But because Iksil is so large, and is not liquidating his positions, this mean reversion is not happening. Exciting! Oh – and did I mention that this is all being done with JPMorgan’s money, not its customers? Buy JPM shares! Link: The distortion of credit indices.
  3. BlueGold Hedge fund is closing after losing 34% of its value last year. The $1billion energy hedge fund is set to return 98% of its investors’ funds (ie. 98% of what’s left). When the fund was first founded in 2008, it made a 209% return that year. In 2009, that return was 55%. Short-lived success! But I guess quit while you’re still ahead some. Link: The Liquidation of BlueGold.
  4. And the African Business News in brief. Link: ABN Briefs. The highlights:
    • A group of former World Bank officials have endorsed Africa’s nominee, Nigerian Finance Minister Ngozi Okonjo-Iweala.
    • British Drinks giant Diageo (producer of the famous Johnny Walker and Smirnoff brands) has announced that it expects its annual growth in Africa to exceed the current rate of 15%. 
That’s all for now.
Have a good day.