JPMorgan sends false signals to wider debt market

Influence … JPMorgan can change the market perception of a company.JPMorgan Chase & Co’s disastrous bets on corporate debt may have caused unexpected collateral damage: erratic behavior in a barometer that measures the financial health of blue-chip U.S. companies.
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Those bets used Wall Street derivatives called credit default swaps. They are supposed to act like homeowners insurance, allowing bondholders, banks and hedge funds to buy protection against declines in the value of corporate debt, and ultimately protection against a default.

In this case, though, they became more like the pawns in a battle between JPMorgan and hedge funds on the other side of its bet. This struggle so dominated a corner of the market that it sent false negative signals about the credit quality of some major companies whose underlying finances were largely unchanged, market experts said.

A Reuters analysis shows that in recent weeks the trading may have sharply increased the cost of default insurance for companies such as railroad operator CSX Corp and McDonald’s Corp.

In late April, CSX indicated it was in good financial shape. The company reported first-quarter earnings that beat analysts’ expectations, while ratings agency Standard & Poor’s said it expected CSX’s credit “to remain satisfactory.”

Yet the cost to insure against a default at CSX surged 28 per cent to $US64,300 for five-year protection on $US10 million in debt on May 14 from $US50,100 on May 1. At the same time, the company’s stock fell just 5 per cent.

A CSX spokesman declined to comment.

There was a similar pattern at McDonald’s. The cost of protecting the fast-food company’s debt against default rose more than 19 per cent to $US24,300 on May 14 from $US20,400 on May 10, while McDonald’s stock fell just 1.1 per cent.

Again, there was no news during that time to explain a significant increase in the cost of default insurance. “It’s business as usual for us at McDonald’s,” spokeswoman Becca Hary said when asked about the jump.

CRITICAL PERIOD

The first two weeks of May were a critical period because JPMorgan announced May 10 that a flawed trading strategy led to at least $US2 billion in paper losses for the bank. The losses could eventually total $US5 billion or more, analysts said.

Trading in default insurance for major U.S. companies showed unusual spikes during that time.

To be sure, renewed concerns about the U.S. economy and the European debt crisis are at least partly responsible for increasing worries about companies’ financial health. There is no way to quantify whether JPMorgan-related trading contributed more or less than the broader economic concerns to the increases in costs for credit default insurance.

A JPMorgan spokeswoman said there was no causal link between the credit derivatives prices and the trading tied to the bank’s losses. The theory, she said in an emailed statement, “is wrong and ridiculous.”

But the Reuters analysis showed the 121 companies underlying the index of credit derivatives at the heart of the trading battle had a sharper increase in default insurance costs than 41 companies in a separate index that was not believed to be part of the big bets.

The trend held true even when distressed companies, whose default insurance costs are more sensitive to market movements, were removed from the analysis. Reuters used data from Markit, the index publisher, for the analysis.

New York University finance professor Marti G. Subrahmanyam, who looked at the results of Reuters’ analysis, disputed JPMorgan’s statement that there was no cause-and-effect relationship between the big bets and the subsequent increase in default insurance costs.

“How could it be otherwise?” Subrahmanyam said. “The whole market knows that one agent has a substantial position, and the market will react to that.”

WIDER INFLUENCE

Peter Tchir of TF Market Advisors, a financial advisory firm in New Canaan, Connecticut, analyzed the trading in May and said the spikes in default insurance were a result of the struggle between JPMorgan and the hedge funds. That type of trading “can just influence the whole market,” Tchir said.

On Friday, Barclays Capital analysts said default insurance for some companies was more expensive than their credit quality seemed to warrant.

Making a direct comparison is impossible because there are no companies that are exactly similar to the 121 in the index at the center of the trades, Subrahmanyam cautioned.

But if the broader economic concerns were the dominant factor, companies in the unrelated index should have had an equally strong jump in the cost of their credit insurance, Subrahmanyam said.

A surge in credit default swap prices can sometimes make a big difference for companies. When the cost of insurance increases, it can signal a company is in trouble because investors, increasingly worried that debt won’t be repaid, buy more protection against default.

For example, the cost to protect against default at Bank of America Corp climbed last autumn, sending jitters through the stock market.

A company’s borrowing costs can be affected. At least 33 of the 121 companies in the credit default swap index in the JPMorgan trades have loan commitments from banks whose interest rates are tied to various versions of the index or their individual default insurance costs. Companies use these loan commitments to provide cash for day-to-day operations.

Financially strong companies typically do not tap the loan commitments except in times of stress.

A look at one credit agreement illustrates how borrowing costs can be affected. Caterpillar Inc has a $US3.9 billion loan commitment whose interest rate will go up if its five-year default protection increases, according to Thomson Reuters LPC data.

From May 1 to May 14, the construction equipment maker’s five-year default insurance has increased to $US104,000 a year from $US82,900. That means that if Caterpillar had to tap the loan commitment, its cost to do so would have increased. Under the agreement, though, the company’s interest rates on the loan would be calculated based on a maximum default insurance cost of $US100,000.

Reuters

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European rifts deepen as markets reject fixes

Tensions among European leaders are breaking into the open as markets reject their fixes for a debt crisis that threatens to overwhelm the eurozone’s financial firewalls.
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German Finance Minister Wolfgang Schaeuble sniped at Greek yacht owners in comments published yesterday while Spanish Prime Minister Mariano Rajoy declared “battle” on the European Central Bank. Austrian Finance Minister Maria Fekter retracted a forecast that Italy would need aid, and Spain pushed back against Finnish advice on how to use its 100 billion-euro ($126 billion) bank bailout.

Rifts are deepening with Greek elections on June 17 risking the first exit from the single currency as voters buckle under the continent’s most severe austerity program. Spanish bond yields reached a record after the nation’s request for aid for its banks fueled speculation the world’s 12th biggest economy may need a full rescue.

“What we’re seeing now says much about the deepening cracks in Europe’s political financial and economic edifice,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said in a telephone interview.

Monti meeting

French President Francois Hollande, who is pushing back against the austerity measures advocated by Germany, will meet Italian Prime Minister Mario Monti in Rome today. Mr Monti called for a “credible package of growth measures” yesterday as he said Europe faces a “particularly intense and crucial phase.”

Borrowing costs for Spain and Italy, southern Europe’s biggest economies, rose yesterday, as disagreements between European leaders further undermined confidence that politicians are prepared to deal with the fallout from the Greek election.

“It’s not easy to cut the minimum wage in Greece if you think about all the yacht owners,” Mr Schaeuble said in an interview in Stern magazine. “But the Greek minimum wage is just dropping to the level of Spain. If the country wants to become competitive again, it has to sink.”

The yield on Spain’s 10-year debt rose to a euro-era record of 6.75 per cent yesterday while Italy’s benchmark bond yields increased to 6.22 per cent. The Spanish rate has jumped more than 50 basis points since Mr Rajoy agreed the bailout package of as much as 100 billion euros for the nation’s banks on June 9.

Battle cry

Mr Rajoy yesterday called for the ECB to take steps to ease the government’s interest costs in a letter to European Commission President Jose Manuel Barroso. Spain’s bond market has already received support from the ECB as banks channeled emergency central bank loans into government debt. Lenders took a record 263.5 billion euros from the central bank in April and the Bank of Spain will release data for May today.

“That is the battle we have to wage in Europe,” Mr Rajoy told Parliament in Madrid. “I am waging it.”

Hours later, Deputy Economy Minister Fernando Jimenez Latorre said Spain will stick to the tools it has used so far to shore up its banks, rejecting calls from Finland, one of the euro region’s six AAA rated sovereigns, to break up failing lenders.

Full bailout

Wrangling over the Spanish bank bailout is adding to concerns over the single currency’s future. The package will probably fail to avert a full sovereign bailout out for Spain, and Mr Monti may have to follow Mr Rajoy in seeking aid within months, James Nixon, chief European economist at Societe Generale said.

Mr Monti told the national parliament yesterday that the EU hasn’t time to wait for austerity plans to stabilise borrowing costs and officials must support growth as Italy slides deeper into a recession.

The Italian economy shrank by 0.8 per cent in the first quarter compared with 0.7 per cent in the previous three months and a 0.3 per cent contraction in Spain in the first quarter. The Italian Treasury is due to auction as much as 4.5 billion euros of bonds today. Yields jumped at a sale of one-year bills yesterday.

“Above all, Europe needs more growth,” said Monti, who visited Berlin late yesterday to receive an award from Schaeuble. The single currency area is “in a particularly intense and particularly crucial” situation, he added.

Greek vote

European leaders will meet in Brussels on June 28 in a attempt to plot a route out of the crisis.

Any measures may come too late for Greeks who will vote June 17 on whether to back Alexis Tsipras, who wants to scrap the austerity plan dictated by the EU and the International Monetary Fund as a condition of its bailout. New Democracy leader Antonis Samaras, who supports the bailout conditions, said backing Tsipras will see Greece thrown out of the euro.

“We have no sense that European partners will follow this tactic of blackmail heard from some quarters and stop funding,” Mr Tsipras, whose Syriza party is vying for first place in pre-election polls, said in an interview in Athens yesterday with Bloomberg Television. “Something like that would be catastrophic not only for Greece but for the entire euro area.”

Mr Schaeuble told the German magazine he had sympathy for the suffering of ordinary Greeks who were suffering because of decades of economic mismanagement by their leaders.

“I can’t spare him that,” the German finance chief said. “Crises are seldom fair.”

Bloomberg

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Housing trend points to southern gloom

Victorians are closing more mortgages than they’re opening.As policy-makers embrace the “structural change” from mining-led growth from yesteryear’s credit-led expansion, spare a thought for those states that do not participate directly in the mining boom.
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Victoria is the prime example. Its economy is based around three industries that are under simultaneous pressure. The biggest is property. Second is manufacturing and third is finance.

Last Friday, Victorian Department of Sustainability & Environment (DSE) released transfer and mortgage data for May, which showed a continued paucity in the number of housing transfers and finance commitments, and ongoing weakness therefore for Victoria’s other two critical industries.

According to the DSE, the annual number of Victorian home transfers fell slightly over the month – from 172,706 in April 2012 to 172,524 in May – which is the lowest level reached in the series’ history and 12 per cent below average levels.

The DSE’s mortgage finance statistics are unique in that they provide data on both mortgage lodgements (i.e. new mortgages) and mortgage discharges (i.e. mortgages repaid in-full). Below is a chart showing both series on a rolling 12-month basis:

As you can see, mortgages discharged have risen above mortgages originated for three successive months and the gap is slowly widening.

According to the DSE, the annual number of mortgages discharged (192,534) actually exceeded the number of mortgage lodgements (191,602), meaning that 932 mortgages were lost in the state of Victoria in the 12 months to May.

To give you some perspective, this compares with the average of about 13,700 annual net mortgage creations since the series began in 2002:

Between 2003 and 2005, there were around 11 mortgages created for every 10 mortgages discharged. In the 12 months to May 2012, however, the number of mortgages lodged has slipped just below the number of mortgages discharged, signalling that Victorians are deleveraging.

So far, Victoria’s jobs market has held up under these strains. But overall, the weakness of the DSE data suggests the recent deflation of dwelling prices in Melbourne will continue.

With this weakness, combining with the pressure now being applied to Victoria’s manufacturing sector, the future looks difficult for the former dynamo.

Leith van Onselen is an economist who has previously held positions at the Australian and Victorian Treasury and Goldman Sachs. This is an extract from a longer report on Victorian housing available free at MacroBusiness. link: www.macrobusiness南京夜网.au

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Entangled in web health

Wellness and the web … Researching illness on the internet can be a double-edged sword.My son was 18 months old when he was diagnosed with meningitis. He had a high fever, was listless and vomiting, and, crucially, had a rash on his belly. A rash that stayed resolutely scarlet when I pressed it.
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It wasn’t a medical professional that diagnosed my son. It was me, an ordinary mum with no medical training but 24-hour access to health-related advice, courtesy of the internet.

My self-diagnosis resulted in a panic-stricken dash to Emergency, where we endured a six-hour wait before being sent home. It turns out my son didn’t have meningitis, just an unspecified virus that cleared up in a few days.

I was both relieved and ashamed. I was right to worry, but instead of contacting the doctor I’d allowed the internet to tell me what I didn’t know.

Cyberchondria is the term used to describe the state of escalating concern caused by researching medical matters on the web. If my kids contract anything unusual – beyond the common winter sniffles – I’ve been known to spend hours online, terrifying myself with the possibility it might be a horrible affliction.

It sounds ridiculous, particularly when a visit to the doctor or after-hours clinic is easy to come by in the middle of Sydney, but self-diagnosing via the internet is incredibly common.

A study conducted by Bupa Health showed that nearly 80% of Australians admitted to going online for health information. Almost half of those (47%) look for information to make a self-diagnosis.

Parents’ appetite for web-based information may be fueled by the need for immediate answers. If we’re worried about our children’s health, even a day’s wait to see the doctor can be interminable. The ability to ‘diagnose’ our kids there and then is therefore too tempting for many of us.

Rachel Holden, a mum from Bondi, first got concerned when she noticed her young son, Edward, was experiencing facial seizures. She says, “I researched his symptoms online, which lead me to believe he had something serious, such as Tourette’s or autism. I looked at the internet pretty much every day, changing the wording in my searches to come up with something positive.”

Rachel eventually saw her doctor, but he dismissed her concerns as the irrational fears of a first-time mum. Despite his assurances that Edward was fine, Rachel’s online analysis convinced her something awful was causing his seizures. She finally got a referral to a pediatrician. He also told Rachel her son was absolutely fine and that he’d grow out of his condition. And the doctors were right: he did.

Rachel found the experience exhausting and emotionally draining. “The worst part was that as a first-time parent I had no benchmark, and I hoped the internet would give me one. Instead I went down a helter-skelter spiral the moment I typed the symptoms into a search engine.”

The doctor’s viewpoint  Dr Mike Torry, a GP with pediatric experience, sees many parents who research their children’s health online. Although he believes self-diagnosis can cause unwarranted anxiety, he doesn’t feel it’s always a bad thing.

“Some people use the internet to find out more about their child’s symptoms prior to an appointment. It can make for informed parents who are able to have an engaged discussion regarding their child,” he says.

Dr Torry also believes that access to information via the web can prompt parents to act more quickly, explaining, “As a population we’re becoming increasingly aware about our families’ health. The internet facilitates that interest and can encourage parents to seek help sooner than they might have done 15 or 20 years ago.”

Still, he points out that the negative consequences of web-based research are concerning. “It’s understandable that parents want immediate answers but paranoia fueled by the web can lead to an almost constant state of hyper-vigilance and awareness,” he says.

This level of constant concern is worrying – it not only causes parental stress, but can have a knock-on effect for the whole family. The unrelenting scrutiny for signs of illness, combined with numerous health-related conversations, might lead children to have unrealistic perceptions around illness and disease. As Dr Torry explains, “Frequent analysis of children’s wellbeing has the ability to impact their self-confidence, create anxiety and hinder their move towards independence.”

And the stress and paranoia caused by inaccurate self-diagnosis has a flip side that’s equally as troubling. Dr Torry is concerned that parents may look online and be assured symptoms are the sign of something minor when there could actually be a serious problem.

“It could be very easy to find information that suggests everything is okay even though the child needs urgent medical attention,” he says.

If you’re concerned about your child’s wellbeing, the best idea is to book an appointment with your GP or local childhood health practitioner as soon as you can. And if you’re tempted to consult the internet in the meantime, Dr Torry makes the following recommendations:This story Administrator ready to work first appeared on Nanjing Night Net.

Laughing at beginners … yes, it happens

Yes, people will be watching when you make mistakes as a learner … but so what?I was late to skiing, very late. Not for me the glow of the goggle tan entitled on the first day back at school after winter holidays.
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Skiing was a club I simply had no access code to. My parents had left the grey skies of England for summer blues, damned if they were going to embrace the cold on annual leave. Skiing, to them, was strictly done while being dragged behind a boat in a pyramid formation at Sea World each winter. Even then, it was done by others while they watched, why exert yourself unless you have to?

God forbid I mention snowboarding – still considered at the time to lead to drug addiction, body piercing and an almost certain life of prostitution by the parents of my goggle-tanned school friends.

In my family, we had no generations of privately educated ancestors with names etched on members-only ski club walls, granting us access through the front door of the private ski lodge. The world of skiing in Australia was as foreign to me as the British Order of the Garter is with a door bitch or bastard measuring one’s worthiness to enter the hallowed white halls.

Twenty year later I have (I think) managed to negotiate my way to the front of the queue, past the door bitch and into the club – only to discover there’s another club within, managed by a hierarchy of self-appointed folk who are watching beginners’ every move and laughing in their wake. The inner circle of ‘I ski/snowboard better than you’ skiers and boarders.

Then there’s the ski club members. Not all private ski clubs and their lodges are created equal either, some even sing anthem-style songs heralding their greatness over other ski clubs, while standing before dinner served up by the club chef. Other ‘more lowly’ and more accessible clubs have you pitch in and make dinner yourself. Either way, like True Blood’s vampires, you have to be invited through the front door to get in, but your tens of thousand of membership dollars will get you uber-cheap accommodation for life. Oh the irony.

Let’s not forget the highly competitive clique of race club parents (think soccer mums in Prada) whose little miss and master are ‘naturally’ destined for the Olympics. They spend their days begging for more funding from the government and emailing for sponsorship from private ski brands from their iPad at 37,000 feet at the front of the plane.

If only they could trade in a spare gemstone in the top drawer, a racehorse hind quarter or an acre of ‘the farm’ and contribute to junior’s cause, while the really worthy get the funding on offer. Oh, that’s right, there is no alpine racing funding (that’s another blog begging to be written).

But alas, I digress. The average first-time skier in Australia won’t know the difference between the seasonaires pulling beer for a lift ticket with no care for those who paid for their own, the locals who live and work there year-round, and the clubsters and trustafarians who lay claim to the land that the indigenous had before them.

Thankfully the first-time skier or snowboarder will be too focused on keeping their butt off the snow to notice, but know: we are watching you. Beginners are like sitting ducks to the Royal family on hunt day.

I arrived at my first time at the snow with a suitcase filled with stilettos clearly keen on après. Five sliding skater steps on an icy access path saw me return to my lodgings and don a pair of gym shoes (the only flats I had brought) channelling Jerry Seinfeld with jeans in humiliation.

Warren Miller makes a mockery of the beginner on the chairlift in many a feature ski film. Plant yourself at the top of a chairlift and watch the games begin.

Snow It All loves a beginner, the more converts to the snow the merrier I say. There are telltale signs that reveal the beginner to the snow world of Australia and if you’re considering joining ‘the club’ this winter and setting foot on snow for the first time, let me warn you of the dress code lest you hear snickering behind you in the lift line.Denim is called Texas gore-tex for a reason. Only an oversized cowboy from Houston would consider jeans appropriate ski attire. Denim is cotton and it will get wet.Garbage bags may be a cheaper option than rental gear but as they say ‘you are what you wear’. Two holes for arms and one for the head may work for a turtle but you are far from the sea.You are not washing dishes, leave the Marigold rubber gloves at home. They may be waterproof but they freeze, retain the cold and play havoc with the manicure.Beware the ‘turkey gap’ otherwise known as ‘the gaper’. Exposing that flap of exposed skin between the ski goggles and the beanie is akin to Madonna flashing her breast to a stadium of 55,000. One is forced to look away.When carrying your ski poles under your arm, have the baskets and pole tips facing in front of you or you may find a few small children shish-kebabbed on the end behind you. They are pesky to remove.Skis are to be carried over the right shoulder with the tips at the front or to be carried by Sven, the personal ski instructor.Skis and snowboards on the roof of the car should be with the bindings facing skyward, and preferably without boots still attached, while driving through satellite ski towns.Snow tyre chains are for the snow, unless you’re in an episode of Survivor and searching for fire from the flint sparks on the bitumen. If you are in a front-wheel-drive don’t put them on the back tyres. They become, like Kevin Rudd, redundant.Lift passes should be put on zipper pockets, not tied to the zipper at the front of your jacket. Why? Because if you zip your jacket up with the lift pass on it then you’ll spend the day getting lift-pass lash as it continually hits your face. You can thank me for that one later.Beware the riding-high snow-pants and that pesky leg hem that sits above the ski or snowboard boot begging for a damn dragging down. If you’re showing off your boot tops you can go back to the end of the queue.

There are many more telltale ‘new to the snow’ signs. Backpack done up while on the chairlift, hanging upside down from the lift as it makes it’s way back down or the permanent snow plough legs on the dance floor.

What beginner mistakes did you make your first time at the snow? What ones do you notice most often? What tips do you have for beginners Post a comment below and share your stories.

WIN WIN WIN 

You won’t look like a beginner in these swanky his and hers jackets from our friends at Burton Australia on Facebook. The Women’s Sage Down in medium (RRP$429.95) will keep riders uber toasty and warm and the Men’s Large Arctic Jacket (RRP$279.95) features a Trail Mapped Insulation with Sherpa fleece. For stockists check out the Burton Stockists page.

To enter just share your beginner rookie mistakes you made when learning to ski or snowboard or tell us how to spot a beginner at the snow by posting a comment on our blog. If you are a first timer this year then share with us what you’re looking forward to the most. Terms and conditions.

FUR TEDDY’S SAKE – LOST SNOW BEAR IN NEED OF A HOME

Hotham Alpine Resort posted a pic of Teddy on their Facebook page on Monday night after the opening long weekend. Poor Teddy had got separated from his best mate who took him to the snow. Now Teddy wants to go home and has lost his way.

Is this your Teddy? If it is contact [email protected]南京夜网.au and they’ll make sure Teddy finds his way home. In the meantime he’s living the high life with Harry the Snow Dragon, riding the chair, boarding the slopes and sipping hot chocolates at tea time.

FIT TO SKI & SNOWBOARD – WEEK TWO

Snow It All has teamed up with Mark Richardson from Body Language Personal Training to create four simple three-minute video workouts you can do at home – lower body, upper body, core and cardio.

Last week we focused on legs and you can view that video here. This week we focus on the upper body. Any production value complaints see the manager of No Budget Productions.

Join in the fun and ‘like’ our Snow It All Facebook Page. This week we’re giving away Snowy Mountain Cookies  and a Dragon Alliance prize pack then Monday to Sunday is White Ninja bandeanie week, one a day to give away. Plus follow us on Twitter @misssnowitall

Last week’s winners of the Brookfarm Winter Hampers are Celtic 62, Rabbitoh Shane, Marralduci and Jules. Check your emails for a note from us.Latest snow weather report and web camsFull ski season coverage

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