The Portuguese DEBT AUCTION today went as well as could be contrived. While the EURO initially stuttered, by days end it had rallied and ended the day up 1 percent. Tomorrow, the Spanish raise cash through a DEBT AUCTION and the market there has been well set up to take what the Spanish government offers. Interestingly, it was the GREEK DEBT markets that had the largest rally as the GREEK TWO-YEAR NOTE dropped to 10.09 percent from 11.44 percent. The BUNDS were sold off as the safe haven status of German debt eased.
The U.S. Treasury sold $21 billion of 10-year notes as well and that auction also went well, causing a rally in the notes. So the credit markets were well-behaved today and EUROPE awaits Spain and a Bank Of England meeting on Thursday. Consensus is for the BOE to keep rates at .50 percent but the market will watch to see if there is any hint about ending the QE program in the U.K. Inflation has been creeping up more than the bank’s mandate, so it will be interesting if Mervyn King lets on that the Monetary Policy Committee is thinking of removing the extra stimulus.
The strength of the BRITISH POUND today reflects that some investors are sensing a removal of QE policy so it will be useful to watch what the POUND does if there is no change. If the POUND were to rally further it may well reflect on the DOLLAR as the fundamentals of the U.K. economy is weak and the austerity plan has not even begun to bite. And, there is also a rise in the VAT tax that commenced on January 1, which is weighing on the economy and inflation.
Two stories today provide food for thought and prompt me to think outside the proverbial box. In the U.S. equity markets, shares of ITT rallied more than 15 percent as the company announced that it was breaking itself into three publicly held firms, which allows for the unlocking of value for its more dynamic divisions. Large corporations are often trapped by their size as innovative products are not valued for growth as they are too insignificant within a behemoth. I have argued for years that GE would be better unlocking the energy and medical divisions and allowing the market to assess the value of ECOIMAGINATION on its own by spinning off the new technological advances. Let’s see if the GE board gets break-up fever as they watch the shares of ITT soar.
A Bloomberg story reported that the European Central Bank’s GOLD holdings earned $130 billion in 2010, helping to support its overall balance sheet as the BOND part of its portfolio was under stress. It’s time for the ECB to issue GOLD-BACKED BONDS to support the PIIGS if the EURO structure is to survive. I would argue that ECB GOLD-BACKED BONDS would be the perfect securitized asset as it would attract investors seeking GOLD while paying the holders an interest rate. It would also make the European policy makers more responsible as they would certainly never default on the BONDS as they wouldn’t want the GOLD called away. It seems that GOLD-BACKED BONDS are the most prudent instrument for the times. Europe gets its funding needs at a much lower rate of interest while bringing into use the BARBAROUS RELIC. Gold investors would rejoice as it would remove the possible sale of the precious metal from the market, a true shining example of securitization.
Tags: auctions, BOE, bonds, Bunds, Dollar, Euro, Europe, GE, Gold, Gold-backed bonds, Greek debt, PIIGS, Portugal, Pound, QE, Spain, VAT
January 13, 2011 at 7:48 am |
On Europe: With the European periphery bond auctions going smoother than perhaps initually thought by some…is there any value in the eurodollar curve?
On ITT: I have often found myself wondering, as of late, what value is really created out of big M&A. No doubt there are examples of great enterprises constructed out of two companies that are able to innovate better as one than as two seperate competitors or entities. But I often question whether the benefits of M&A extending beyond laying off the overlapping middle management & lower employees – claiming this as enhanced productivity while upper management cuts bigger checks to themselves for the responsibilities inherent with running a company 10X bigger than what they were previously responsible for? Can we really say that Potash shareholders would be better off getting paid cash and/or shares of BHP instead of being Potash stockholders alone? I just wonder if the era of masquerading a lack of capital investment decision making via M&A is about to slow down for a while. Just maybe we are entering an era in which the previously acquired companies (that were terrific enough to be targets for acquisition) get spun out to strut their stuff. Disclaimer: my perspective should not be seen as anti-business…however, I am anti-shady business practices that leave employees and stock holders worse off.
Thanks as always,
Danny
January 13, 2011 at 9:48 am |
Danny–I couldn’t agree more which is why the DEmocrats are flat wrong —for if you taxed dividends at 0% and returned the money to shareholders then corporates would not have the pol of cash to due foolish deals and any deal would have to meet real testa of value,denying wall street and private equity groups of a ready pool of cash to prey upon—and prevent the destroying of jobs for the mere self aggrandizement of ego driven CEOs and the fee driven nature of Wall Street
January 13, 2011 at 3:16 pm |
interesting read
January 13, 2011 at 4:28 pm |
Fortunately, “This will be the year of the US comeback” (FT, Jim O´Neill)… Elena Salgado, finance minister, rejected the idea of a bail-out for Spain, solid demand for Spanish bonds–too much optimist?
January 13, 2011 at 7:07 pm |
Arthur–who are we tpo argue with Jim O’Neill.I am merely a lone analyst /trader who must eat what he kills and I don’t have the combine writing me a check if I am wrong–besides Squids not Kosher
January 13, 2011 at 10:53 pm |
I love it, “a lone analyst/trader who must eat what he kills”.