Randomly Noted

The recent Bank for International Settlements FX market survey unvelied a number of trends. One that didn’t get much coverage was some of the reordering of the top ten trading centers around the world. Not huge shifts but interesting nonetheless. For example, Switzerland – home of two of the largest FX trading banks in UBS and Credit Suisse dropped from the third largest trading center in 2007 to the 5th largest in 2010. Moving ahead and up a spot each was Japan (now 3rd) and Singapore (now 4th). The answer for the shift could be connected to the credit crisis of 2008 – Asia was touched but in a way much less then Europe and the U.S. Asian economies suffered through the recession but not as much as elsewhere.  And big banks were particularly hit hard through the crisis.

Another interesting tidbit – when you look at the top four trading centers in each of the three regions, you know that Europe will certainly be the largest, which it is with around 47% of the marketshare. But second place is Asia (20%) and the Americas are third (19.7%). The gap between numbers one and four in Asia is 4.4 percentage points. But it is 17.6 percentage points in the Americas. The U.S. is the second biggest player but it drops significantly after that – Canada comes in number two in the region with a 1.2% market share. Mexico and Brazil each have an 0.3% share.

The numbers are just starting to flow in – and it is becoming pretty evident that the one-time U.K. bonus tax imposed on banks is reaping more than expected for the British government.

Two big U.S. banks said yesterday and today that they have paid about $950 million in that bonus tax to the U.K. – JP Morgan yesterday said it would fork out $550 million and Citigroup said it would pay $404 million.

Bank of America didn’t detail its payout but said its non-interest expenses increased by $870 million, largely driven by the U.K. payroll tax and prior year incentive deferrals. Some analysts had estimated that Bank of America would pay a tax of more than $400 million.

The tax was imposed on banks after the public outcry over bankers compensation.

Maybe the Group of 20 nations can only find unity of action in the face of true crisis. Maybe that’s okay.

It’s just the beginning of a weekend of multinational and bilateral meetings, with various protests and other side shows thrown in, that will constitute the G20 session here in Toronto.

But it’s likely to end up a meeting of no new big agreements. There will be a big tent erected to incorporate all nations on the continue-the-stimulus/rein-in-the-deficits spectrum. Countries will be told to impose bank levies if they feel the need, but no worries if you do not.

There will be a lot of statements of the obvious. For example: fiscal deficits are a real problem that must eventually be dealt with, but not at the expense of cutting the underpinnings from the still questionable global economic recovery.

The bigger issue about that uneven global recovery is one not fully in control of the political powers gathered here. That’s how to get the private sectors to take over and start hiring in real numbers. Solve that and the rest pretty much falls into place.

Behind the non-agreements likely to emerge here is this reality: we are in a place that can afford non-agreement. For all of the remaining problems, the global economy is far enough out of the woods for that.

Of course, it’s not so simple as the U.S. is for stimulus, Germany and the United Kingdom are for cutting deficits. Even in the U.S. the unease, including in Congress, is growing along with the swollen federal debts. Meanwhile, the more deficit-reduction-focused nations are carving out long-term plans for cuts and higher taxes and they’ll have a difficult enough time making them work. No one is just saying halt.

The G20 might be judged too harshly if this turns into a weekend of non-agreements. That’s because it will be seen against the backdrop of seemingly heroic unity of proper actions taken at the height of the credit crisis.

That recent heritage was summed up nicely by the finance minister of host country Canada, Jim Flaherty. “The fact that we’re in the midst of a recovery, however fragile that recovery may be, is due to the efforts of the G20.”

There’s value in these high-level get-togethers, even when they produce only lots of words and few new or different actions by the sovereign participants. They keep the gears well greased for when actual unified action is essential to avert financial disaster.

Here’s an agenda item for the Group of 20 major nations’ economic meeting later this week: agree that you all need to raise retirement ages and make sure you pick a high number.

How about 72?

Retirement age might seem a small and arcane issue when the powerful from the G20 nations grapple with such macro notions as how to sustain nascent economic recoveries while simultaneously developing plans to eventually return to fiscal sanity.

But retirement age is part of the long-term answer to the second part of that delicate equation. And, among the host of changes in the social contract between citizens and governments that will be necessary because many countries simply don’t have enough money to keep it up, retirement age increases rank among the most palatable choices.

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This Dow 10,000 thing is getting very old.

The U.S. stock market slid below 10,000 as measured by the Dow Jones Industrial Average yet again. Piercing that level on the upswing happened for the first time back in 1999. That’s right, 1999.

Call me an optimist, but we’ll eventually again head through and above 10,000. Maybe even today, as the stock market slightly recovers from its worst intra-day levels.

The issue is Europe. First was the worry whether certain European countries, Greece prominently among them, would be able to to continue to sell debt  and repay outstanding sovereign debt in full.

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It’s about 1130pm here in London – time to head into the office for many currency traders and traders in gilts, the U.K. government bonds.

That’s because we’re about the start the ritual of UK gilts and currency markets being open overnight during the counting of votes for a U.K. general election, as Britons find out whether Labour’s Gordon Brown has to hand the keys to Number 10 Downing Street to his Conservative rival David Cameron.

You’ll see the overnight (well, overnight for Britons) markets coverage on our Newswire. The opening gilts comment that usually comes out at around 8am London time will come out at about 1am as LIFFE, the market that is the main trading venue for gilts futures, will open then.

It’s good news for the handful of places in London that offer pizza delivery overnight. But the reality is that not much trading gets done. Traders who have sat through previous vigils report that spreads are wide and it’s not easy to make money. After all, everyone else in the market is watching the same results coming through, it’s not easy to come up with a truly original trading strategy in these circumstances – and with wide spreads you need to be  very sure that you’re right because quickly backing out of a trade is pricey.

Fund managers certainly aren’t going to be phoning big orders through either for the same reason.

In this environment with low liquidity small trades can make big moves. The real market verdict may have to wait until around 8am London time, when liquidity comes into the sterling market and gilts volumes rise.

However TV exit polls are predicting that no party will win. If no party emerges with a clear majority it could be days, not hours,  before it’s clear who is running the U.K.

Scrabble may be a simple game to learn to play, but it sure gets complicated as a business. For a start, Hasbro owns the rights in the USA and Canada and its arch-rival Mattel owns them for the rest of the world.

Now, adding further to the confusion are reports (for example here and here) that the rules are being changed to allow proper nouns. If you’re stuck with hard-to-play tiles you’ve now got Jay-Z and New Boyz to help you out.

The change, as many commentators have pointed out, is proof that the world is becoming a dumber place, where youngsters know the names of rappers instead of words such as adze (a woodworking tool)  or calx (the residue from burning a metal), which previous generations used to great effect to clear troublesome tiles out of the racks or get a high-scoring tile onto a triple-scoring space on the board.

Except that it’s not true. The rules of Scrabble aren’t being changed.

What’s happening instead is a smart piece of brand extension by Mattel. Scrabble may be a great and loved brand, but the core game hasn’t changed for decades so most people who want to play have a set.

So Mattel UK spokesman Philip Nelkon told Randomly Noted that Mattel in the UK is planning to launch Scrabble Trickster, a souped up version of Scrabble in which players in some circumstances will be able to play proper nouns, steal tiles from rivals and even spell words backwards.

Standard Scrabble will continue to be sold, Nelkon says. “The rules of that are sacrosanct,” he stated. Scrabble Trickster is aimed at a new audience.

It’s not a new idea. Over recent years the Scrabble brand has been stretched and applied to games that aren’t standard Scrabble or even anything like it. Going by amazon.com sales rankings, the best-selling Scrabble game in the U.S. at present is Scrabble Slam, a $5.99 card game with no plastic tiles, no double word scores and indeed no board. However the Scrabble brand name gives it instant shelf space in retailers and credibility with buyers. The original Scrabble board game doesn’t feature in amazon.com’s top 100 games. However neither Hasbro or Mattel will be pleased to see that Bananagram, a US-designed wordmaking game that uses tiles but no gameboard, is selling far faster than any Scrabble spin-off. It shows that word games may have been around a long time but Scrabble can’t rest just on its brand.

Based on this writer’s own recent visits to Toys R Us, to see brand extension turned into a fine art it’s necessary to find the shelves selling Hasboro’s Monopoly. Our local toy superstore on the last visit had seven varieties of Monopoly, including Simpsons and Star Wars themes, upmarket versions with lots of electronics, a version where property values have been adjusted for inflation so you’re trying to keep track of huge-denomination bills, and another one with different rules where you don’t need to own all of a color set to start building. Yet Hasbro still makes the traditional version available – although they’ve included an optional twist in the rules using an extra die that can make the game quicker to play.

Of course the real money in all these classic games is going electronic. The success of Scrabble-alike Lexulous online shows that Scrabble has a real edge over many other games in that it’s easy to dip in and out of playing, making it ideal for mobile phones or playing in a 10-minute coffee break in the office. One question yet to be answered is whether spin-offs and electronic versions can survive if the original is deemed to have lost relevance or be played only by the non-digital generation. Mattel is obviously not keen to find out.

Bond manager William H. Gross has some tough talk for government debt issuers. If widely agreed, the view expressed by the PIMCO managing director will make the hard task of budget-deficit cutting in the industrial world even harder.

“Just last week Bank of England Governor Mervyn King said that it would be difficult to cut government spending quickly, but that there neeeds to be a clear plan for doing so,” wrote Gross in his monthly investment outlook.

“Not good enough, Mr. King. Don’t care. Show investors the money, not vice-versa,” Gros wrote.

Clearly, soveriegn debt is replacing the credit crunch as global economic issue number one. An extraordinary balancing act will be required of elected officials in deomcracies whose recoveries are extremely fragile but whose budget deficits already have caused worry among investors.

Hards words, if understandable from an investor’s viewpoint. Gross already has had some quite negative things to say about British sovereign debt.

In an extreme situation, and depending on the people in power, a showdown between citizens and creditors in the U.K. or elsewhere will likely be ugly for both groups. See Greece as potentially Exhibit A.

The top bankers at Big British financial institutions appear to be more responsive than their American counterparts to public outrage about large bonuses, especially for those banks that received government aid.

Our Newswires colleague Patricia Kowsmann inLondon reports Lloyds Banking Group Chief Executive Eric Daniels waived his 2009 bonus. He was entitled to 2.3 million British pounds despite the company planning to report a net loss for the year and being 41%-owned by the British government.

Stephen Hester, who heads Royal Bank of Scotland, 84% owned by the U.K. government, will turn down a 1.6 million bonus, Kowsmann reported.

Perhaps more surprising was the bonus turn down by Barclays CEO John Varley. That bank has thrived and taken no government assistance.

Might simply be a case – rare as it seems - of true long-term thinking in the executive suite. The Barclays restraint should serve the bank well with an angry public. 

Significant bonuses at loss-making institutions are no doubt harder to understand.

Enjoy this guest blog from colleague Mike Reid, deputy managing editor of the Dow Jones News Service:

Here’s some fresh evidence from Europe and the U.K. that governments, when confronted with a significant structural problem in their economy, will simply kick the can down the road. The Conservative Party in the U.K. is talking of disbanding the FSA, the financial industry’s super-regulator; in Europe, Germany is talking about a bailout for Greece. Worse, at least with the Greek situation, the markets actually applauded this short-termism.

This isn’t just about moral hazard, it’s about policies which weaken a trading bloc. Allowing Greece off the hook from its needed fiscal austerity discourages others – Portugal, Spain etc – from taking politically unpalatable decisions to get their economies in order. Allowing your fiscal discipline to be dictated by the weakest links won’t create a stronger trading bloc and currency. Forcing citizens of more productive E.U. countries to subsidize the laggards isn’t smart economics.

In the U.K., the Tories want to give more of the FSA’s power to the Bank of England (probably further politicizing an already put-upon central bank) – and a new consumer agency (which sounds vaguely populist). The FSA’s rationale was to better regulate risk than the nine self-regulating bodies previously overseeing the City. Britain’s pension mis-selling scandal partly prompted its creation though the poor grasp of risk revealed by excessive lending practices of recent years showed its limitations. Still, the FSA alone wasn’t to blame for the U.K.’s problems. Redistributing regulatory powers to new agencies solves nothing…it just moves the problem to another entity some time in the future. Again, it’s short-termist and negligent.