Good morning

The headlines:

1. Drama around the pegged exchange rate in Hong Kong.

   Link: all this talk of depreciation/appreciation.

   Wrote about it here. 

2. Petronas rejected.

   Link: no net Canadian benefit?

   The Petronas bid to purchase Progress Energy Resources Corp. has been rejected by the Canadian government. In terms of Canada’s foreign takeover law, the transaction has to give rise to a “net benefit” to Canada.

   Of course, they could have had these:

   

   Which were only the tallest building in the world from 1998 to 2004. But then, I suppose, buildings can’t get too tall in Canada for fear of icing windows and such.

   Everyone (which means everyone in favour of the takeover) is very surprised and taken-aback that there is no reason explanation being given for the reason given. And the Canadian government is being accused of being anti-foreign investment.

   On the other had, shale gas is an industry with some potential. Petronas would almost certainly expatriate the profit base through intercompany management fees and re-invoicing and fun exemptions. Where’s the tax in that?!

3. Carry trades and stimulus limits.

   Link: “worst” ever.

   All the exchange traders are woeing themselves because the carry trade days are over.

   A carry trade: one where you notice that you can borrow money at an interest rate of 2% in the States, and you can also earn interest at 5% on a German bond. So you borrow dollars at 2% in the States, buy euros, and invest the euros in Germany at 5%. Assuming that the exchange rate doesn’t change too much (or you buy a forward contract to lock in the exchange rate), you can take the ≈3% interest differential as profit.

   The problem: as the central banks desperately try to stimulate their economies, those interest rates are being pushed closer to zero, if they’re not at zero already. And when everyone has an interest rate of zero, well then that makes carry trades a bit pointless….

4. More QE on the horizon.

   Link: a unanimous expectation.

   All 21 of the primary traders in Federal securities in the States expect Mr Bernanke to expand QE3 to include government securities (currently, it’s mainly the monthly purchase of $40 billion of mortgage securities).

   Just not this week.

   The timeline revolves around the end of Operation Twist in December, along with that damned Fiscal Cliff. So somewhere around the Mayan end-of-the-world prediction. December 21, wasn’t it?

5. Iran oil tankers.

   Link: flag them down.

   Iranian oil tankers have been running incorrect state flags, according to the Tanzania-Zanzibar boat registration authority.

   

   They’ve been running Tanzania-Zanzibar flags.

   I’m not sure why this is important, though – because as far as I can tell, the US has placed all of the Iranian oil tankers (designated by their unique International Maritime Organisation number) on a widely-circulated blocked persons list. So surely the state flag waving is really just an affectation at this point?

6. South African strikes calm down.

   Link: and the Rand strengthens.

   Many striking workers are returning to work, and the Rand has started to appreciate:

   

That’s all for now.

Have a good day.