Random Thoughts and Opinions on Market Stories

Just some stories I wanted to share and my thoughts on them.  Bottom line is I don't see much optimism in many of the stories or data out there.  The recovery is still nascent and, I believe, on the edge of stagnating.  As I have stated, I am not a huge fan of risk, which keeps me from putting on meaningful positions.  I still do not believe that the market has factored in the risks - geopolitical or financial.




Saw the following on Bloomberg today:

Swiss regulators, spooked by the near collapse of UBS in 2008, may require the two Zurich-based lenders to sell the securities, known as CoCos, to avoid future bailouts. Gruebel has called the debt, which turns into equity when a bank’s capital drops below a certain level, “dangerous.” Dougan, who runs the firm Gruebel once led, sold the first CoCos last month.

Credit Suisse is using the bonds to replace so-called hybrid debt, which will no longer count as the highest-quality capital under rules approved last year by the Basel Committee on Banking Supervision. For UBS, which has less such debt to replace, CoCos may prove a more expensive way to fatten capital cushions. Simon Maughan, co-head of European equities at MF Global Ltd., estimated that selling the securities may shave 10 percent from UBS’s annual net income after 2012.

The disagreement over CoCos may play out around the world if the Basel committee approves the use of CoCos to fulfill added capital requirements for systemically important financial firms and governments force lenders to sell them. Banks globally may need to issue $1 trillion of CoCos over the next decade to meet tougher rules designed to prevent another crisis, Standard & Poor’s said in December. 

The market for CoCos is going to be big.  But, as stated, it will be contentious depending on which bank is being looked at.  Given the implications on hybrids of Basel III, I believe that hybrid issues are still somewhat attractive.  As the story would suggest, look for those issuers that have a large amount of capital derived from hybrids as they will be the first to try a call of those issues.   


From the Atlantic today:

The Fed has rejected Bank of America's bid to modestly increase its dividend.  The problem isn't the loss of the dividend itself, of course--even major investors aren't really going to miss a cent a share.  Rather, the problem is what this herald's for Bank of America's financial condition.  Other banks have been allowed to increase their dividends, which suggests that the Fed thinks BofA is still unusually weak. 

I don't see any positive to this.  While the dividend increase might have been nominal, the Fed saying a further increase isn't going to happen does not bring comfort.


BAC 5.875 01/15/21  +185/181/10YR   bonds out 3bps today
BAC equity closed at $13.65, down $0.23 or 1.66% on230MM shares (avg volume is 166MM shares).


On BusinessWeek:

A nearly 50 percent increase in vegetable prices should ease in coming weeks as farmers deliver more tomatoes, lettuce and other crops to grocers.

Prices shot up last month after cold weather destroyed winter vegetables in the southern U.S. and Mexico. From tomatoes in Florida to lettuce in Arizona, fruit and vegetables became frostbitten, and prices rose.

Grocers and farmers say they expect crops planted after winter freezes to reach stores in the next few weeks. That's expected to bring prices down.

Once again, does the Fed eat their veggies?  50% price increases - even if they fall somewhat, don't think they will fall much.  What is this then?  Oh yeah, inflation.

From the WSJ:

Best Buy Co.'s fourth-quarter earnings fell 16% as declining domestic same-store sales masked margin growth.

The largest U.S. consumer electronics retailer has struggled in recent months, losing market share to online retailers such as Amazon.com Inc. and big-box and discounters such as Wal-Mart Stores Inc. and Costco Wholesale Corp. The electronics seller was one of the few major retailers that reported an outright sales decline in December, following a dismal third quarter dragged down by weak domestic revenue.

In the U.S., same-store sales of TVs and other consumer-electronics products fell 6.5%, while home-office sales rose 2.5%. Domestic same-store sales of entertainment software and hardware dropped 14%. 

With fuel and food costs up, consumers are backing off discretionary purchases. 

From the BBC:

The southern Syrian city of Deraa has been hit by daily protests for the past week against the government of President Bashar al-Assad, posing the greatest challenge to his rule since he took office in 2000 on the death of his father, Hafiz.

Located 120km (75 miles) south of Damascus, just a few miles from the Jordanian border, it has long been Syria's gateway to the south.

But the main challenge to the Assad government would be the loss of control over the Jordanian border.

Jordan's Islamic Action Front has a significant following in the nearby city of Irbid. 

Unrest continues, and Syria leads to Jordan.  There are also fundamentalist factions in the south which have to be considered.


From Reuters:

Capitalism may be to blame for the lack of life on the planet Mars, Venezuela's socialist President Hugo Chavez said on Tuesday.

"I have always said, heard, that it would not be strange that there had been civilization on Mars, but maybe capitalism arrived there, imperialism arrived and finished off the planet," Chavez said in speech to mark World Water Day.

Thank you Hugo, it is now crystal clear to me.