/* ----------------------------------------------- Blogger Template Style Name: Brandenburg Gate Designer: Michiel Oppenheimer URL: Date: 24 april 2005 ----------------------------------------------- */ Notes From Europe

Notes From Europe

My observations on the world of Finance and Politics from a European perspective.

Friday, May 27, 2005

What Constitution?

Oh boy, here we go again! The “Liberal elite” of Europe are at it again trying to convince the French electorate that they need to vote “oui” in the upcoming referendum. I must confess, I’m a little upset at the prospect of not being able to add my voice to “non” camp.

It strikes me as odd, that the European Union is trying to convince the electorate that a vote of non on the referendum would be disastrous for the state of the European Union as a whole. This of course is nonsense, but really comes as no surprise at the length this bloated bureaucracy will go to, in their zealous but careless attitude to convince us that we in Europe need to be ruled by a centralized behemoth, telling us what to do.

It’s true that come the day after the referendum, a vote of non will have an impact on the Euro, and possibly on the debt of tier – 2 government debt (Greece, Spain and Portugal). In any event this would merely indicate that their debt rating/yield are currently being skewed by tier-1 government debt, namely that of France, Germany and the United Kingdom.

Just look at the economics: Unemployment in the EU as a whole has not fallen below 8% of the labour force since 1990, with the latest date showing unemployment steadily creeping up to 8.6%, a good 2.0% above that of the United States and over 3% higher than the United Kingdom. What is noteworthy here is the fact that the United Kingdom is seeing unemployment numbers not witnessed for some 20 years, and of course, the United Kingdom is not in the Euro. Its true that Euro has aggressively appreciated against the US dollar, but this mealy belies the true problem, and is more due to the change of Asian Central Banks diversifying their currency holdings.

Europe needs a bureaucratic constitution wreaking the resolving of the its member states like a hole in the head. What ever happened to the notion of Europe as a group of nation states willing to cooperate on matters of social policy, trade and commerce? Perhaps solace can be found in the fact that this will give the elite pause for though on any further thought of tighter integration!
Oppenheimer, Friday, May 27, 2005 | link | 1 comments |

Thursday, May 05, 2005

GM “roils” the markets!

As a Dow Jones Industrial, and Standard and Poor’s member, the markets had a massive and pronounced sell off as Standard and Poor’s (ratings agency) cut the debt ratings to junk status(below investment grade) for General Motors. This downgrade to junk by Standard & Poor’s was not just limited to GM, but hit Ford Motors as well.

While the Markets were in a fairly “tight” range prior to the downgrade, its clear that this move combined with the non-farm payroll data due to be released on Friday, left investors including “yours truly” concerned. This was all worth -54.68, -5.43 and -3.28 on the Dow, S&P500 and NASDAQ respectively.

Standard & Poor’s stated that their downgrade of GM was due to feeling that management’s strategy may prove to be ineffective in addressing GM’s competitive disadvantage.

It should really come as no surprise in light of the fact that the automotive industry as a whole is in what could only be describe as “up the proverbial creek, without a paddle!” I’m mindful to point out however; that all of GM’s woes can’t be entirely causative of this general decline in automotive sales.

General Motors and the UAW must “seriously” reconsider the prohibitively expensive health care package enjoined by workers at GM. Health care provisions GM are some of the “richest” in industry as a whole. And just to put it in perspective, here’s a nice little stat: “Approximately $1,250.00 of a cars price manufactured at GM goes to workers health care cost”; it should be clear that is just in not sustainable.

I just hope that the old maxim “As goes GM, so goes the country!” is nothing more than that a maxim!

For information of Junk Bond and how they are rated:
Oppenheimer, Thursday, May 05, 2005 | link | 0 comments |

Wednesday, May 04, 2005

Talk about a “non event”!

Well, like all other traders, my eyes where firmly glued to the newswires in anticipation of the feds decision on the federal funs rate. Alan Greenspan & Co as expected nudged the rate up by one-quarter basis point (a unit used in fixed income and is equal to a 1/100th of 1%) – No surprise there!

For those of us who are consummate fed watchers, our attention was more attuned to what the actual fed statement was going to say – more specifically that “measured” pace statement. That stayed in with the intent of offsetting faster inflation.

My title of “non-event” is due to lack of true direction, either bullish or bearish on the major bourses with the release of this news. Yes, the Dow, S&P and NASDAQ, rallied; but this just fizzled out. This I guess could be due to the FED correcting its statement with respect to inflation expectations being contained.

In a way I’m glad with my trade on the 10-Year Treasury Note future, as I went long, and the future fell, only to rise again on correction by the feds to close at 111’120. Well I won’t say I was entirely sure I would be able to get out of this trade, but I did manage – needless to say, in the words of Austin Powers “I’m spent”!

Tomorrow’s another day, and hopefully we should get some direction, especially in light of light sweet crude closing again down -0.075 point to 49.425.

Later bloggers!
Oppenheimer, Wednesday, May 04, 2005 | link | 0 comments |

Friday, April 29, 2005

Hold on to your Pants!

Yup, I think this Friday we might just do it! Do what you ask? End the main bourses on a high! Who do we have to thank for this nice pop to the upside? Look no further than the sudden fall of light sweet crude, for the first time falling below the $50.00 price point.

I have been searching the news wires to find out what has precipitated the nice move south, and the most I can see is the comments from OPEC, which stated that they intend to load 0.7 percent more oil for export on tankers in the four weeks ending May 16, than the previous four.

At the time of writing I see that light sweet crude has settled out at $49.70, down -2.075 on the day and according to my data, this would be the first time that crude has closed below $50.00 since February 18. Knowing how hyper-sensitive crude is to the most trivial of events, it would be interesting to see where crude opens up on Sunday, do watch this space.

For those of us that “eat, sleep, and breathe” on a diet of “Fed watch”, our most important date is coming up next week. I won’t bore you with all the economics data an analysis, let to mention the more salient bits I’m paying attention too. US Swap spreads ended noticeably tighter, I suspect there is a lot of short covering taking place here with a view of the FOMC meeting.

The most venerable of fixed income products, the 10–Year Treasury note fell 15/32 to a yield of 4.20 percent, which is significantly up from the 10-week low of 4.15 percent on Thursday, this moves the next target to 4.25 percent..

This is interesting as the Federal Reserve meets next week. This suggests to me that the fed will maintain its pace of raising interest rates this year, which is taken in light of the report on consumer spending and inflation. Its worth noting that the US Commerce Departments report on inflation figures excluding, that most volatile of commodities, “energy”, is the key piece of data that the Fed policy Makers track. 1.7 percent is the most recent measure from that of March of last year, and compares some 1.6 percent to the annual pace in February.

I’m personally active in the Treasury futures complex, specifically the 10 year note, and at the time of writing, I see that volume on the June05 expiry is some 962,071K; down -0’085 or -0.24%. But the futures contract of the day in terms of volume has to be the E-Mini S&P 500. This contract racked up a volume of 1.150 Million! That’s got to be close to the record high! Even the E-Mini Dow Jones contract has had some heavy volume – 144,004K to be exact!

As I quickly scan the cash market, I see there has been some heavy volume there as well, the most active by far is Microsoft (MSFT - http://finance.yahoo.com/q?s=msft&d=v1) 97.250 million shares on this baby!! And the stock was better by +0.85 or 3.48%.

Well it’s safe to assume I did have a good day, actually quite a good week! Shabbat Shalom! Have a great weekend!
Oppenheimer, Friday, April 29, 2005 | link | 1 comments |

Thursday, April 28, 2005

"Storm in a thimble?"

European focus here, from London to be precise. After the relentless claims from those against the decision to go to war, and the rather “suspect timing” of the leaking of the UK Attorney General, Lord Goldsmith’s advice on the legality of the war in Iraq, the full document has been release.

I was quite worried that perhaps there would be something in this documentation that might embarrass the Prime Minister, let alone show that he lied about the advice given to him. Well, today, we need not have even worried, as the document proved to be such an anti-climax.

I have to say, there appears to be nothing in this document that could even suggest a so called “smoking gun”! Anything but! The documentation sets out a methodological case for the war, as well outlining any “hiccups” the could be perceived should the United Kingdom decide to go to war without the “desirable” additional UN resolution.

It’s clear I supported the war, and still do this day, and for all the liberal appeasers out there, they need only look at the Iraq of today. For the first time in a generation people were able to vote for the first time, and it was the Iraqi citizens who risked life and limb to take advantage of this new right.

In the United Kingdom, “Her Majesty’s Loyal Opposition”, under the leadership of Mr. Michael Howard, whom I despise with a passion, is trying to play both sides of the Iraq war controversy. As a Tory, I find my self cringing, at the rather feeble attempts by him to distort a delicate and crucial issue as Iraq war for electoral benefit.

Mr. Howard has continually made accusations, or more accurately innuendo, as he has not the courage to truly come clean with the Electorate as to what it is he really stands for. Talk about “flip-flopping”, he makes Sen. John Kerry look like a distinguished man of principal!

My Tory Party”, is the party of Margaret Thatcher, Winston Churchill and Benjamin Disraeli, to name but a few of the highly principled leaders whom have lead the distinguished Tory Party. The Tory Party has always stood for low taxation, small government, individualism, and pro business. Under Michael Howard, we have taken on more hues than a chameleon could even dream to muster. Just as important, is the cultivation of our longstanding links with that of United States, and in his zealous yeal to reach 10 Downing Street, he has proved he is not the “man” to carry this on, with his constant undermining of Prime Minster Blair’s decision to go to war in Iraq, with our long term partners. Don’t take my word for this; he is not even welcomed to the White House.

With regards to those other “big issues” that the Tory Party stands for, such as low taxation, we now find out that the Troy Party does not even stand for that anymore. If it’s true that the Tory Party does stand for low taxation, I find it extremely difficult to reconcile the plans for spending to meet that of Labour, and cut taxes as well. It does not take a rocket scientist to see that you simply can’t do both.

On Immigration, I’m further dismayed by the stance that Mr. Howard has personally taken. He proposes a cap on the number of asylum seekers that the UK would take, but his caveat flies in the face of even the simplest of logic. He asserts that, if there was a major catastrophe, or humanitarian disaster, we would not turn an asylum seeker away had we reached our quota….??? Say what? There either is a quota or there is not a quota!

If it’s one thing that has become clear of Mr. Howard’s leadership of the Tory Party, it's that he is not a man of principal and I suspect that he can’t be trusted to be the natural torch bearing for the Tory Party going forward. DUMP MICHIEL HOWARD NOW!
Oppenheimer, Thursday, April 28, 2005 | link | 0 comments |

Tuesday, April 26, 2005

End of an era at the Big Board???

Anyone with a rudimentary connection directly or indirectly interest in the capital markets, would be aware of the recent activity surrounding the future of the “Big Board" – The NYSE. This story is clearly evolving in “real-time” and is not limited to that of the NYSE, but seems to be running in parallel with the changes taking place at the NASDAQ, which also announced its intention last week to merge with The Instinet Group (INGP - http://finance.yahoo.com/q?s=ingp).

For his part, John Thain, the NYSE’s chief executive announced last week that “change is a coming” at the 213-year-old stock exchange with the merging of the NYSE , and that of Archipelago Holdings Inc (AX - http://finance.yahoo.com/q?s=ax).

John Thain suggested that the primary aim of the deal “is to create a truly global competitor that can compete with anyone in the world.” On that narrow point, I have to say that I think he has his work cut out. Unless the NYSE can decide if they truly wish to deviate from the current “modus operandi” – namely, that of “open outcry”(a system of shouting prices).

When you look at some of the statistics of the NYSE, you might wonder why change is needed at all; after all, the NYSE has some 2,774 listed companies worth well over 20 trillion dollars in capitalisation (source – www.nyse.com). One need only look at the rise of Archipelago, Instinet, BRUT and others, all electronic competitors that allow traders to seamless trade stocks on any number of exchanges. It’s clear that this has had the effect of eroding the profits generated by the NYSE as these electronic exchanges have been able to undercut the NYSE.

In Europe, “open out-cry” has pretty much come to an end, with only the LME (London Metal Exchange) offering this method of price discovery. EUREX, run by the Deutsche Börse Group (www.eurexexchange.com) is fully electronic, and is of course the world’s largest derivatives exchange. I’m mindful to point out that fully electronic exchanges do come at a cost as well, not least for the main specialist companies operating at the exchange, La Branche & Co, and Van Der Moolen Specialists LLC. I fail to see how they would be able to survive in a “post” NYSE, with out the trading floor. It would be folly indeed if I left the topic without mentioning the vaule added for small stocks that trade relatively infrequently by these market makers, also the fact that it could be argued that they help these smaller stocks by limiting volatility and lowering trading cost.

Importance must also be given to the reliability of all electronic exchanges. Today is a classic example: the market data feed for the E-Mini S& P 500 contract was down for a good few hours today, and the Exchange was cancelled my orders – my point: An all electronic exchange does not in itself imply reliability or efficiency over “open out cry”.

All that is missing is a little bit of controversy to throw into the mix, and provide that much needed drama. “By George, I think we got it!” Billionaire Kenneth Langone has thrown his hat into the ring, and as far I can tell has raised some rather crucial points regarding the NYSE / Archipelago merger.

Mr. Langone is highlighting the role that Goldman Sachs (GS - http://finance.yahoo.com/q?s=gs) is playing in this deal. Goldman Sachs is an Archipelago share holder, holds a seat on the NYSE, and is acting in the capacity of advisor to both sides. Now, I have to say, that on the point of appearance, this one does not pass the smell test! Goldman Sachs asserts that it negotiated a fair deal, but if they can’t see the conflict of interest perception case that could be made against them, than they are clearly “naive with intent”.

Yes it true, there is some “bad history” between Mr. Langone and CEO of Goldman Sachs, Henry Paulson. Accepting that premise is simply not a valid argument or sufficient to quash the conflict of interest claims brought to the front by Kenneth Langone.

I’m a committed capitalist, and I want an open and level playing filed. The NYSE is a global brand respected globally, no one person or entity should benefit unfairly. There are some very tough questions and issues that have to be worked through at the “Big board” rest assured; this story is far from over!
Oppenheimer, Tuesday, April 26, 2005 | link | 20 comments |

Saturday, April 23, 2005

Bears in Command...???

OK, exactly what’s the deal with the capital markets...? From Tokyo to Frankfurt and London to New York, all major bourses have turned in nothing short of anaemic performance this week. It’s safe to say that we can ignore the bullish run the Dow Jones and NASDAQ experienced on Thursday, after all at some time today both nearly lost half of Thursday’s gains. Yeah, I hear you, Light Sweet Crude climbed back up to close at 55.40(+1.200), but even this can’t fully account for the steep declines of the Dow and NASDAQ Composite.

CNBC was reporting later in the trading session, that the sell off could be attributable to the reports of the North Korean government expressing its intention to test a nuclear warhead. Throw into this mix Bloomberg’s (http://www.bloomberg.com/) assertion that the Kodak Company's - EK (http://finance.yahoo.com/q?s=ek) less than impressive earnings report did not do much in the way of investor confidence, and I guess you could argue that you have your answer. Hmmmmmm…Interesting premise, but yet again the pundits have failed to convince me!

I went short the Dow E-Mini contract at 10176, and closed out at 10157, and again at 10113 to close out all positions at 10108. As you can imagine, I am quite pleased with this performance. And If I were asked to give you some explanation, my previous paragraph would not be my rational. It is true that I did take into account the price of Light Sweet Crude, but looking at the Dow Components, it was a sea of Red, and that was more a precipitator for me.

This brings me to the question… What is up with the Bearish sentiment of late? Tuesday saw the release of the Producer Price Index (PPI), Wednesday the Consumer Price Index (CPI) and the Beige Book, followed by Thursdays Jobless Claims, Leading Indicators, and the Philadelphia Fed Survey, which according to my analysis, showed the US Economy to be in not to bad shape, yet we sill have the major bourses eking out such weak returns. Is it truly the return of the Bears?

And While I’m on the subject of the US Economy, can someone explain to me please exactly why the EURO would be doing as good as it is? I mean for heavens sake, the “Big Four” of Europe – Germany, France, Italy and the United Kingdom, excluding the United Kingdom, are in no better shape than the United States. Unemployment is high, and deficits are high, and by extension a high Euro is bad for exporting countries such as Germany, as a result of making their good more expensive. In spite of all of this, the pundits still book themselves on Bloomberg and CNBC proselytizing their so call good fortunate. Well I guess that’s the markets for you!

Have a great weekend and Shabbat Shalom!
Oppenheimer, Saturday, April 23, 2005 | link | 2 comments |