Randomly Noted

The head of one of the largest hedge funds in the U.S. reminds us today of the need to regulate the derivatives market – and now. In an op-ed piece in today’s Financial Times, Kenneth Griffin of Citadel Investment Group notes there was one big missed opportunity for derivatives reform nearly ten years ago when Long Term Capital Management collapsed. A government report about LTCM that called for reforms noted very presciently: “market history indicates that even painful lessons recede from memory with time.”

Are we deja vu all over again post-Lehman Brothers? Griffin hopes not but points out that the five biggest bank derivatives players (who hold 97% of the notional value of dervatives held by banks outstanding at the end of the 2Q) are lobbying aggressively against reform. Why? To protect big trading profits.

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Alan Greenspan, his reputation widely reconsidered in light of the current recession and lingering credit crisis, remains a font of forecasting.

Good for him. Solidly into his 80s, the former and longest serving Federal Reserve chairman isn’t shrinking from the flak. And some of what he’s saying is surprising.

Writing in the Financial Times today, Greenspan opines, among other things, about the importance of the 2009 U.S. stock market rally to the easing of the credit crisis.

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Ford Motor is complaining about Germany’s scramble to help GM’s Opel unit, according to the FT - and with good reason. Its competitors are getting government help while arguably better-managed auto makers are left to fend for themselves. As the FT reports, Ford’s John Fleming contends government aid will help Opel compete more fiercely against Ford’s own European business. http://www.ft.com/cms/s/0/4ab6cc5a-4639-11de-803f-00144feabdc0.html Fleming, who runs Ford in Europe, is also “very concerned” about France’s state aid to PSA Peugeot Citroen and Renault, the FT quotes him as saying. Fleming calls on the European Union to keep an eye on government bailouts. Good luck with that! The FT story includes this remark from Fleming: “Ford believes it is vital that a level playing field is enforced to ensure a fair and equitable distibution of any assistance being offered, and that competition is not distorted.” The FT goes on to say that in the U.S., Ford has taken a different tack, welcoming bailout loans for rivals GM and Chrysler, and notes Ford itself obtained an emergency credit line. I wonder if in fact Ford is reading the politics differently in the U.S. versus Europe, and feels it has to go along with what’s happening in America.

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For a second straight day, China’s government has come out and said it’s worried about its economic stimulus program. (See yesterday’s “Transparent or Whitewash” blog for background.) Today, China addresses the billions of dollars going to what’s known as fixed-asset investment – mainly urban infrastructure projects. Note that FAI spending is already producing some of those “green shoots” in China’s economy everyone’s buzzing about. When big public works projects go up, there are lots of construction jobs for the otherwise jobless, and theoretically people spend some of their hard-earned money, thus keeping the economy humming if not growing. For more on this, have a look at what DJN’s  J.R. Wu has written about it: “UPDATE: China To Step Up FAI Loan Oversight Amid Credit Binge.” Continue reading…

In a fit of apparent self-criticism, China has come out and said its economic stimulus plan isn’t working as well as it could. Is this a sign that Beijing intends to be more candid about its internal processes - or a whitewash that conceals bigger problems as CNY4 trillion sloshes across the giant country? It’s hard to tell from what little the government auditor said. As DJN’s J.R. Wu reports, China’s National Audit Office says some bank funding – spurred by the government’s bid to loosen up credit – isn’t getting through to the real economy. Some money intended to launch projects – presumably building/fixing roads, bridges, subways, power plants and the like – is mired in bureaucratic red tape. Government efforts to help small and mid-size businesses isn’t effective enough. Local bank employees are letting some companies put short-term loans – intended for working capital – into interest-bearing accounts. Some big, state-run banks need to be reviewed; it’s hard to know what exactly this means. The FT notes the stimulus was always a concoction of funding from the central government blended with contributions “from local governments, state-owned enterprises and private companies.” Needless to say, it’s a massive exercise in cross-financing and transfer payments – perhaps the biggest such program in history. (CNY4 trillion=USD585 billion.) What I find unconvincing is the auditor’s contention that “no major violations or problems had been uncovered,” as J.R. writes. Six months into the stimulus and surely a transparent government would have more to say. Check out the story: “UPDATE:China Auditor: Not All Stimulus Funds Getting To Econ.” Continue reading…

News flash: Bank of America will need $35 billion (BILLION) in additional capital – which is a lot more than people expected the so-called government “stress tests” would require. The news has given the yen a boost this morning in Asia and is pushing down U.S. stock futures. With Tuesday’s U.S. stock market already showing signs investors are losing confidence, expect a lousy Wednesday. http://online.wsj.com/article/SB124158058615290821.html#mod=testMod Continue reading…

DJN colleague Rosalind Mathieson’s “Money Talks” column today addresses “artificial” versus “genuine” causes of financial market volatility amid the economic crisis. She takes a relatively focused, week-ahead view, noting, among other things, that Japan will be closed until Thursday for “Golden Week.” This means thin forex trading with the yen ”susceptible to efforts by short-term traders…to push it around.” (As Ros predicted, JPY’s getting kicked around today in Asia.) Other likely prompts for speculation or panic:  results of U.S. bank stress tests, the European Central Bank rate decision, and U.S. payrolls data for April. Corporate earnings outlooks are likely to be a mix of so-so and lousy.  Ultimately, risk measures “are likely to remain on the high side” as investors try to navigate fundamental versus transitory market conditions, she writes. Continue reading…