Can't pay? Won't pay... watch the credit default swaps/ economist

oh boy. some sobering examples that the world is really awash with excess cash and that the protection/insurance from the swaps maybe not always be on top of things. here is another example of "junk bond schadenfreude" from eastern europe http://immobilienblasen.blogspot.com/2007/01/junk-bond-schadenfreude.html.

oh mann! einmal mehr beispiele für eine welt in der einfach zu vile liquidität herrscht und risiken dadurch nicht wahr genommen werden. besonders schön zu sehen wie das mittel der "versicherung" gegen ausfälle die swaps anscheined längst nicht immer auf der höhe der zeit sind. ein weiteres beispiel aus osteuropa könnt beim link oben sehen.

In emerging markets, the bond-market dogs lose their bite

“WHEN I come back, I want to come back as the bond market, because then you can intimidate everybody,” said James Carville, Bill Clinton's political adviser, in the 1990s. But the “bond-market vigilantes” are not always as menacing as they once were.

Emerging-market governments now seem able to thumb their noses at investors. The latest is Ecuador, where the economy ministry has described some parts of its debt as “illegitimate” and hinted at repaying just 40% of the outstanding total

It is not that Ecuador lacks resources. Investors generally agree that any default would be the result of unwillingness, rather than inability, to pay. Standard & Poor's, a rating agency, said Ecuador had “one of the weakest payment cultures” of the 113 countries it monitors.

WOW!!!!!! more questions...?.....when this is "insurance" cost for one of the weakest players out there.......noch fragen? wenn das die versicherungskosten für den schwächsten schuldner überhaupt sind....

.....credit-default swaps, which insure the buyer against non-payment, traded as low as 270 basis points (hundredths of a percentage point) in August; they are now at 1,350 basis points.!!!!!!!

...... With returns on American Treasury bonds and high-grade debt too low to meet the needs of pension funds and endowments, they have to take more risks. ( is also true for almost every other asset class out there.../ gilt gleichermaßen für fast jede andere anlageklasse.......)

According to the Institute of International Finance (IIF), an international banking club, some $502 billion of private capital flowed into emerging markets last year, only slightly down on the $509 billion in 2005. The IIF predicts $469 billion of capital flows this year, which would be the third-highest level on record. (the liquidity has to go somewhere........)

Those flows reflect the general perception that emerging-market economies have improved substantially since the Asian crisis of 1997-98. Many developing countries are running current-account surpluses, in order to be less dependent on foreign capital than they were a decade ago.....

An element of moral hazard may have entered the equation. Argentina imposed a substantial default on its creditors five years ago. Its debt now yields a little above two percentage points more than American Treasury bonds; hardly a sign that it is a financial pariah. ....... (read this twice. wow! they are for sure fans of madness. (and some may have also alzheimer)....... wie kurz doch das gedächnis manchmal ist......sind bestimmt fans von madness darunter..einge evtl. mit alzheimer......:-)

This may reflect a change among investors. When the Latin American debt crisis broke in the 1980s, much of the debt was in the hands of Western banks. Given the importance of these banks to the financial system, there was a lot of political interest in ensuring that the loans were restructured. ( not so sure about this point about the "political interest" if not from government the central banks will take an important role. would be great but ltcm has shown that at least the fed is way too often willing to bail somebody out..../ bin mir da nicht so sicher. wäre fast sicher hilfreich. die geschichte zeigt allerdings das zumindest die fed bei der schieflage von ltcm sofort eingesprungen ist)

Now that debt is widely dispersed among hedge funds, pension funds and the rest, it may be harder for creditors to join ranks. And while one hedge fund may give up on Ecuador, another may see the crisis as a buying opportunity.

...... Ecuador's bonds were trading close to their face value in the spring of last year, according to PIMCO, a fund-management group; now the benchmark 2030 bond trades at only 70 cents to the dollar. Its credit-default swaps, which insure the buyer against non-payment, traded as low as 270 basis points (hundredths of a percentage point) in August; they are now at 1,350 basis points. (schadenfreude!)

Emerging-market investors also point out that Ecuador is a small country, in terms of both population and importance to financial markets. They argue it would be wrong to see it as a harbinger. So far there has been little sign of a “contagion effect” in other markets.

However, Richard Bernstein of Merrill Lynch likens risk to popcorn in a microwave. One kernel pops, but it seems to be an isolated event. Then another goes and another, until the entire bag is active. Ecuador is only the latest pop, following Thailand's botched capital controls, Venezuela's proposed nationalisations and sharp falls in commodity prices.

At some point, the credit cycle will turn and some emerging markets may regret “dissing” international investors when the going was good. .......( well, i think thet in the first place the investors of this bonds with only 2 points spread will regret the purchase.........../nun ja, ich denke das wohl zuallererst die käufer dieser anleihen die zu niuedrigen risikoaufschlägen gekauft haben das bereuen werden......

so just when you think that at least some riskpremiums are widening the next player steps in to fill the gap..... / so gerade wenn man denkt das zumindest ein teil der risikoaufschläge sich ausweiten kommt schon der nächste spieler und füllt die lücke

Nigerian bonds / No laughing matter

http://www.economist.com/finance/displaystory.cfm?story_id=8599008

IF YOU had told an international banker a few years ago that Nigeria was preparing to issue bonds on the global market, he may well have laughed in your face. The banking sector was weak and fragmented and Nigeria's government was bogged down in fruitless negotiations over the billions of dollars of debt racked up during years of corrupt military rule.

But on January 22nd one of the country's main commercial banks issued a five-year Eurobond worth $350m at an interest rate of over 8%, and demand was high. It was the first time any Nigerian institution, private or public, had approached the international capital markets since the early 1990s. ...

The government is itself looking seriously at entering the Eurobond market this year, once important capital-market guidelines have been implemented, he says. The country should be able to take advantage of its lower debt profile after it finally succeeded in negotiating an $18 billion write-down from Paris Club lenders in return for a $12 billion settlement last year and announced plans to repay—through a complicated manoeuvre—its remaining London Club debt.......

Mr Muhtar says that Nigeria hopes to win better debt ratings from Standard & Poor's and Fitch. Both credit-rating agencies still place it a few notches below investment grade. The government is keen to place its own Eurobond so that it can offer investors a sovereign benchmark, against which other issuers are measured. It also wants to use debt to finance the country's pressing infrastructure needs without having to dip into its international reserves, valued at more than $40 billion. ( hey its always better to negotiate the debt when things go wrong.... when you can finance things to 8% its no wonder that nigeria is taking on debt. clever and a good move from nigeria (honestly) / kein wunder. wenn man sich zu 8% verschulden kann hat man wenn sachen nacher nicht gut laufen immer noch die möglichkeit die kredite zu verhandeln )

Despite the economy's progress, politics are likely to be the determining factor in Nigeria. It took the government of President Olusegun Obasanjo almost two terms in office to bring Nigeria's capital-market reforms this far. With national elections in April that are due to be hotly contested and Mr Obasanjo fully aware that politics could upset his economic reforms, international investors still have plenty to be nervous about. “We are keeping our fingers crossed,” says Mr Muhtar.

Stock Markets Contract as Global Mergers Overtake Equity Sales

wow! what set of numbers!! if there was any doubt left that cheap credit rules the world here is another example of how this topic is the "most importend" one.

wahnsinn. was für daten. billige/günstige kreditbedingungen sind "der" entscheidende faktor!

Jan. 8 (Bloomberg) -- Stock markets are shrinking as mergers and acquisitions take shares out of public hands faster than companies add them through equity sales.

The value of U.S. shares dropped last year by the most since 1984 and the European market narrowed for the first time, according to Citigroup Inc. Last year's $3.68 trillion in takeovers, led by AT&T Inc.'s $86 billion purchase of BellSouth Corp., outweighed the biggest year for initial public offerings since at least 1999.

The contraction may continue in 2007 as dealmaking accelerates. M&A will rise by at least 10 percent this year, analysts at Deutsche Bank AG, JPMorgan Chase & Co. and Bank of America Corp. forecast. Private-equity investors alone have $1.6 trillion to spend, (including massive leverage. wait until the spreads widen..../inklusive kredithebel. sobald sich die rissikoaufschläge ausweiten schmilzt dieser betrag schnell zusammen...)

"Corporations and the private-equity crowd both appear to still be on a buying spree,'' ..... ``Less supply implies higher prices. That's bullish.''

The reductions helped lift the Standard & Poor's 500 Index and the Dow Jones Stoxx 600 Index in Europe to the highest in six years. Stock buybacks also climbed to an all-time high. ..

Top Priority
``Given the sheer amount of money that's been raised, it seems to me that there's a chance that this could be taken to an extreme,'' he said. ``Fads tend to take on a life of their own.''
Chief financial officers at Fortune 1000 companies consider takeovers their top priority, a survey in September of 100 executives by Morgan Stanley showed. A year earlier, M&A ranked seventh and increasing cash on hand topped the list.

The value of publicly traded shares in the U.S. fell 2.2 percent during 2006 on a net basis, according to Citigroup, whose figures are based on constant stock prices and reflect only equity added to and removed from the market.

The drop accelerated from 0.2 percent in 2005. Before then, the last time the market contracted was 1988, during Wall Street's first leveraged-buyout binge.

In Europe, the value of shares fell 1.2 percent. The U.K. market shrank 4.1 percent, the third straight decrease and the biggest since at least 1983, when New York-based Citigroup began collecting data.

IPOs, Repurchases
The contractions last year occurred even as companies raised $242 billion in IPOs globally, the most since Bloomberg started compiling data in 1999. Industrial & Commercial Bank of China Ltd.'s $22 billion sale was the biggest ever. Companies already publicly traded raised $312 billion selling additional shares.

Repurchases contributed to the declines. U.S. buyback announcements last year totaled $654.9 billion, 39 percent more than a record set in 2005, .....

Stock markets are likely to shrink again because deals are inexpensive to finance and shares are undervalued, (really?)

In the U.S., yields on non-investment grade bonds are close to 10-year lows. Ten-year Treasury note yields, at 4.65 percent, are lower than the 6.65 percent average in the 1990s.

`Cheap Debt Financing'
Corporate bond yields in Europe have been lower in the past three years, on average, than any other time when compared with so-called earnings yields, or earnings per share divided by stock prices, according to the firm's data. That suggests companies are worth buying with borrowed money, the strategists said.

``Rarely has it been as attractive as it is now for companies or private equity to use cheap debt financing,'' .....

Potential stock gains are big enough that buyout firms may borrow more and buy larger companies. Nine of the 10 largest U.S. leveraged buyouts ever were announced last year,

`Unbelievable Firepower'
``We haven't seen any mega deals in Asia yet,'' ....``there's a lot of money sloshing around.''

David Rubenstein, co-founder of Carlyle Group, last month predicted a $100 billion LBO would occur in the next two years. .....

``Right now, these guys have unbelievable firepower, and they are using it,''( but are they using it it in a clever way? nur ob das immer alles clever ist....) .....

"The `Skyscraper Curse' Is Worth Watching in 2007"

an alternative indicator. but a fascinating one. it also reflects some importend topics like the carry trade, loose credit etc. (see labels at the bottom of the post). i hope that someone from the us can tell me if my projection on the chicago project is correct.

zwar ein alternativer indikator. trotzdem interessant. er streift zudem wichtige themen wie den carrytrade, wild wuchernde kreditmärkte etc.... (bitte dazu die labels am ende des posts beachten)

Dec. 11 (Bloomberg) -- ...... I'm wondering if it might make more sense to look at the skyline.

Standing out amidst the tangle of skyscrapers is the 1,671- foot (509 meters) Taipei 101, which is currently the world's tallest building. Its presence, coupled with a worsening political crisis that could trip up the economy, reminds one of the ``Skyscraper Curse.''

A bizarre suggestion, perhaps, and certainly an unscientific one. Yet history shows an uncanny correlation between tallest building projects and financial crises. Be it in Kuala Lumpur in 1997, Chicago in 1974, New York in 1930 or the biblical Tower of Babel long ago, mankind's penchant for architectural overreach is a strangely reliable omen of troubles.

A coincidence? Perhaps, yet economists such as Mark Thornton, senior fellow at the Ludwig von Mises Institute in Auburn, Alabama, argue that skyscrapers can speak volumes about a nation's wealth, technological prowess, ambition and, perhaps most importantly, hubris.

Rome's Last Days
``It's these features that make skyscrapers, especially the construction of the world's tallest building, a salient marker of 20th-century business cycle,'' Thornton argues.

For a time in the early 2000s, analyst Andrew Lawrence, then with Deutsche Bank Securities in Hong Kong, published a periodic ``Skyscraper Index'' for investors. As 2007 approaches, perhaps we need to start producing more building-project barometers.

Take Dubai, which is undergoing one of history's greatest construction booms. After visiting the city recently, economist Claudia Zeisberger of the Asia Pacific Institute of Finance at Insead in Singapore quipped: ``All the building going on made me feel like I was experiencing the last days of ancient Rome.''

Perhaps it is just a coincidence, but "dubai" is putting the finishing touches on a 2,300-foot building that will top Taipei 101.

In "china"China, the 101-story Shanghai World Financial Center will become the most populous nation's tallest building. And a residential construction project in "chicago"will top the Sears Tower, currently North America's tallest skyscraper. ( i almost rule out that the chicago project will ever get startet! the dubai and shanghai building have already breaking ground./ ich schließe fast zu 100% aus das das chicago projekt jemals gestartet wird. die projekte in dubai und shanghai sind schon gestartet.)

Excess Cash
In India, developers are planning to build a 140-story skyscraper in the city of Gurgaon, near New Delhi. In 2008, South Korea will complete the 1,903-foot International Business Center, which the government hopes will solidify Seoul's place as a global business hub. Massive skyscrapers also are being considered from Australia to Russia to Brazil.

``It all makes sense given current conditions,'' Thornton says.

Even though the Federal Reserve, Bank of Japan and European Central Bank have been raising interest rates, markets are still awash in excess cash. Loose monetary policies have fueled investment frenzies in London, Shanghai, Tokyo and elsewhere. They have increased the amount of leverage in the global financial system, raising the stakes if growth slows markedly in 2007.

Over-investment and financial speculation led to each of the Skyscraper Curse episodes during the 20th century. Coincidence or not, history suggests such projects are often less about technological innovation than economic booms. The desire to have the tallest building correlates suspiciously well with sudden capital inflows that pump up credit creation and confidence.

Presaging Gloom
In 1908, for example, New York's 47-floor Singer Building opened, followed by the 50-story Metropolitan Life Building. Both were planned, financed and raised while the U.S. was in the midst of the Panic of 1907, a credit crunch that necessitated help from financier J.P. Morgan.

In 1929, the opening of 40 Wall Street and the Chrysler Building were harbingers of the worst-ever U.S. meltdown, the Great Depression. A year later, the Empire State Building became the world's tallest building, presaging years of gloom.

The 1970s saw the completion of New York's World Trade Center and Chicago's Sears Tower. They opened amid stagflation in the U.S. economy, a fiscal crisis in New York and the breakdown of the Bretton Woods monetary system.

Tall Task
More recently, Malaysia's 1,483-foot Petronas Towers were being completed during the Asian crisis. .....

Thickening the plot: the plunge in the U.S. dollar analysts have predicted for years may come in 2007. Other risks include a slowdown in China, higher global interest rates and inflation and geopolitical risks from North Korea, Iran, Iraq and a number of other regions. Oil prices also might climb anew.

Add in the rapid increase in the number of hedge funds and the proliferation of the so-called yen-carry trade. The trade, a favorite among hedge-fund managers, involves borrowing in ultra- low-interest-rate yen and re-investing the funds in riskier, higher-yielding assets elsewhere. It is believed to have greatly increased leverage in markets around the globe.

None of this means a crisis is in the cards ........