- Hedge funds are betting against the Eurozone. There is a core group of hedge fund managers (including John Paulson – who keeps being mentioned in books written by Michael Lewis) that has been rejoicing in the Long Term Refinancing Operations of the ECB. The theory is that German bonds are underpriced (their yields are near zero). Why? Well if you continue to look at Germany as a separate economy, then it makes sense to buy their bonds compared to other countries in the Eurozone. But practically speaking, the Eurozone is a collective economy, and the German bonds should be pricing in the risk of a default from, say, Spain. Germany would probably step in to help with a bailout, which would significantly alter its risk profile. What happens in that scenario? The price of bonds drop, and yields go up. And the other side of the equation is credit-default swaps. Because the current yields on the German bonds are so low, credit-default swaps are cheap (around 86 basis points per annum – or 86 cents for every $100 of protection). And as the yield goes up, so does the price of credit-default protection. If the German CDS spreads go back to their December 2010 levels of 121 basis points, that’s a gain of almost 50% for current holders of default protection. It’s not insuring against the risk of default so much as betting on the change of default risk relative to the other members of the Eurozone. Link: Hedge funds support Hollande.
- Facebook snubs Wall Street. At least, that’s what Wall Street is saying. The reasons? Well, Marky Mark doesn’t want to go to the roadshow, which I believe makes the Wall Streeters feel like they’re not wanted enough. Facebook is also maintaining control over the allocation of shares – and it’s rumoured that they’re going to screen the applicants for weed out the short-term individual investors in favour of long-term institutional ones. It mostly wrote its own exchange filing, thereby depriving first year analysts of weeks of review and amendment and change of font. I reckon that there’s a lot of reference to Fecesbook in internal mails between bankers… Link: Mr Zuckerberg ignores the rules.
- Clinton and Geithner are still going to visit China, despite reports that the US is sheltering a Chinese activist. Legal Activist Chen Guangcheng escaped house arrest in Shandong and fled to the US embassy in Beijing. Has anyone else noticed the string of chinese “defectors” fleeing to US embassies in China? If I was into conspiracy theories, I would say that those Sino-US relations are under attack. Link: Annual US-China talks to continue.
- China invests in South Sudan. The $8 billion loans will be used over the next two years for infrastructure improvement. However, it looks like one of the requirements is that the construction companies used be Chinese. Which looks a lot like China lending money to South Sudan to pay China. And then South Sudan will repay the original loan to China, plus interest (in whatever form the interest will take). China will no doubt get some more pre-emptive rights to oil. The deal sounds sweet! Link: South Sudan’s $8 billion loan.
- Australian Billionaire to build the Titanic II. But I don’t understand why? How expensive is it to maintain ocean liners – and is there really a grand demand to travel by boat? Link: Titanic Reloaded.
- Syria continues to fall apart. There’s not much more to be said really. Link: Syrian Peace Plan not working.
- Lakshmi Mittal is not giving up on India. Link: “The India Story is not over”.
- Malawi is to devalue its kwacha to meet IMF Aid Requirements. The devaluation by 40% will allow Malawi access to IMF aid. The World Bank may help by offering grants to help cushion the impact of a sudden devaluation (presumably the grant can be used to subsidize imports, thereby slowing the cost-push inflationary impact?). Link: Banda to devalue kwacha by 40%.