FA Notes Monday October 31, 2011
Markets have over-interpreted comments by incoming European Central Bank chief Mario Draghi on the bank’s readiness to go on buying the bonds of troubled euro zone states, outgoing ECB President Jean-Claude Trichet said. Link
Industrial conglomerate 3M Co. singled out Europe as a chief contributor to its poor third-quarter performance. In Western Europe, 3M saw its organic volumes fall 4% in the third quarter after a flat second quarter and a 4% increase in the first three months of the year. Source: WSJ
Acer originally expected its notebook shipments to remain flat in the fourth quarter of 2011, or rise by up to 5% from the preceding quarter, but now has lowered the fourth-quarter estimate to a decrease by 5-10% on quarter due to short supply of hard disk drives (HDDs) due to the flooding in Thailand.. shortages have caused an increase in HDD prices of 5-20% and Acer has decided to hike prices for its notebooks in November to reflect its increased costs, Wong indicated. Based on a lead time of about two months, the global supply of HDDs will be 25% short of demand from mid-December 2011 to February 2012, according to Taiwan-based notebook ODMs Link
Japan intervened to weaken the yen for the third time this year and pledged more sales after the currency’s gain to a postwar high against the dollar threatened a recovery from the March 11 earthquake and nuclear disaster. Link
Google engineer posts on Jeff Bezos (expand first blog post) Link
NFLX CEO on what went wrong Link
Chanos on Europe and China. He’s still (surprise!) bearish Link
Protestors are probably in in the top global 1% Link
In late 2010, Mr. Corzine started making big bets on bonds issued by European countries. He sometimes placed orders himself based on a list of prices left with an assistant, according to people familiar with the situation. Mr. Corzine, who made his name and fortune as a Treasury bond trader at Goldman, was convinced that sovereign debt from countries like Italy and Spain with high yields was a steal, these people said.
"Europe wouldn’t let these countries go down," Mr. Corzine, who is also chairman of MF Global, told another executive at the New York City company early this year. When the lower-ranking official suggested that the trade was too big, Mr. Corzine brushed the concerns aside, responding that his career on Wall Street and in politics made him confident about the bets.
It was the kind of gutsy trade that helped make Mr. Corzine a star at Goldman in the 1990s. "If it was a good trade for $100, he wanted to make it $1,000 or $1 million," a former colleague recalls.
He set out on a five-year makeover, but it wasn’t easy. Last year, stocks rose, but interest rates that MF Global relies on to profitably lend to clients stayed stubbornly low, hurting profits. "We have to take risks," he said in an interview.
Last year, Mr. Corzine immersed himself in the idea of making bets on European sovereign bonds. He asked colleagues what they thought of the financial situation in Europe, talked to MF Global’s risk officers and board of directors, and then starting putting on the trades in September, according to people familiar with the situation.
Mr. Corzine oversaw the European sovereign-debt trades largely on his own even after hiring a new trading chief earlier this year, a person familiar with the matter says. In one quarter where the trade worked well, it represented 12% of the firm’s revenues, according to Christopher Allen, an analyst with Evercore Partners Inc. Mr. Corzine regularly reviewed the positions with the company’s directors, and he was allowed by the board several times to increase MF Global’s exposure to Europe, these people said.
Investors in debt issued by MF Global were pleased, too. In August, they lent the company money at a lower interest rate if Mr. Corzine stayed at the company instead of leaving for a federal-government post, such as Treasury secretary.
One person who has worked with Mr. Corzine at MF Global says he was uncomfortable that so much of the firm’s strategy essentially boiled down to a bet by Mr. Corzine on European bonds. "There was no one else at the firm who was helping him think about what to do on this trade," this person says. Link
Barton Biggs, the hedge fund manager who bought stocks when the market bottomed in 2009, boosted bullish bets on equities in his Traxis Global Equity Macro Fund after European leaders took action to contain the debt crisis. Link
It didn’t hurt that Caterpillar saw the recession coming more clearly than most large companies. Top management, realizing the company’s susceptibility to GDP shifts, had once asked Cat economists to find a leading indicator. "We’ve got good news and bad news," the economists reported, as CFO Rapp tells it. "The good news is, we found an indicator that predicts shifts in U.S. GDP with a lead time of six to nine months. The bad news is, it’s our own sales to users." Using that metric, Cat anticipated the U.S. recession coming in the third quarter of 2007 and said so publicly, triggering a 2.6% one-day drop in the S&P 500. Link
Soros – said that the 50pc "haircut" on private bond holders would only reduce Greek debt by 20pc.. "It will bring relief partly because the markets were so obsessed by the lack of leadership. The mere fact that something was achieved was a major relief and it will be good for any time from one day to three months. Link
