Thursday, May 26, 2016

Funny Story

I will not name names but...

In the early 1990s the then CEO of a large Canadian company (Aerospace) was having dinner with his bankers, one of the banker CEOs complained; he was unhappy with his exposure to the company, and that his credit group though the borrower was too risky.

The next morning, his entire loan was repaid, and all relationships was terminated.  The company CEO refused to pay penalties (that the bank was asking) stating that the bank's CEO's comment was deemed to be a notice of termination (he did say this in front of several bemused bank CEOs).  Then bank, which until that time was the company's #1 bank saw 100% of its activities cut:

Trade Finance
Client financing referral

My friend who worked at the bank told me that in those days the cost of terminating the relationship had cost the bank nearly $5 million in annual revenues.  The bank was never re-invited to any syndicate nor were they able to buy the company's debt in the secondary market, because the borrower has a clause in its loan agreement that prohibited the sale of any loans to that bank.

The bank CEO was stupid, to say such a thing in a public forum to embarrass the company shows a tremendous lack of judgment.  The company CEO was also a dick because he behave like a small child.  The bank was not a participant to the companies financial activities long after the CEO had retired!

Greece: Episode...who cares anymore since i've now lost my bet

Well it now looks like I will lose my bet, Greece, the IMF (although they changed their mind this morning) and the ECB (aka Germany) have agreed to release a further Euro 10 + 7 billion bailing out Greece on more time, so now Greece should be Ok for the summer.

There will "apparently" be debt forgiveness... well maybe, well we don't know, but well we will decide something in 2018 (in political speak that means NEVER!).

But it now paves the way for the ECB to keep on shovelling the BS forward for another two years (hence I've now lost my bet), Greece will not be out of the European area until well after the drop dead date of my bet come by!!!!

Now lets be clear, things are unchanged in Greece, the economy continues to not grow in any meaningful way, the IMF and ECB are still disagreeing on what do to; ECB aka Germany is still on the no debt forgiveness (hence the delay until 2018 before any conversation occurs -- see comment above) because fundamentally Greece made a deal and has to stick to it (at least until the ALL of Greece's debt has been socialized -- away from Germany and France's pension funds and banks, no I am not joking).  Because this entire exercise of extend and pretend is driven by one factor: saving Europe's largest investors (banks and pension funds) from having to take losses.  

The entirety of Greece's debt will be in the hand of the ECB and its friends, and the private sector will be able to then say:  write it off, write it off!  

what a mess

Tuesday, May 24, 2016

Its not only the assembly line where robots rule!

For years we have been told that many blue collar jobs have disappeared; replaced by the assembly line robot.

Well the financial world is seeing the same thing.

A long long time ago, when I started in finance an order was written by hand (badly) on a ticket -- there was the counterpart, the amount and the price and time of trade.  This was then shipped to middle and back office for confirmation and booking.

For many many years the paper tickets have been replaced (although you still see the occasional dusty time the trading rooms).  Over the years more and more of the back and middle office functions have been replaced by computers -- reconciliation and confirmation is a lot easier. As I was leaving the capital markets an increasingly large portion of trading (stocks & bonds) was done by machines with little human intervention.  F/X was one of the last bastions and even there products such as Autobahn from DB was showing the future of no human intervention.

Now for a reality check -- how has automation changed Wall Street?  In a nutshell nearly 1/5th of all jobs have disappeared from Wall Street between 2011 and 2016 -- worse affected were commodities over the past 12 months -- which is not surprising, but over the long term its bond desk -32% that have been the most affected (because so much of their work can be automated).

I predict its just going to get worse for Wall Street

  • Trade finance will become the domaine of Fintechs (few legacy costs)
  • Payments (domestic and international) already many new low cost players are emerging both cheaper and faster (new players will often execute an international payment within hours -- as opposed to days/weeks for High street banks)
  • Receivables financing they never liked the business and were rather bad at it
  • Investment banking:  Honestly, so much BS in the prospectus written by junior bankers who know nothing, building models based on WAG assumptions.  If a computer can write fiction -- it should be amazing at writing a prospectus.
  • Research:  Honestly, surprisingly that low value business (honestly when was the last time you read a research report worth the paper it was written on).  Its even easier now since there is almost no proprietary information (excluding hedge funds and they don't share their thoughts with the planet)

Ok these last two are just a dream -- so much of the low level IB work is completely redundant and the same for a large percentage of research...

Still a business that accounts for nearly 7% of America's GDP, and probably a larger percentage of its profits is shedding workers at an unprecedented rate.  These high paying jobs are gone, replaced by algorithms and robots -- the overlords are here...

This may be a good thing for Wall Street; few weeks go buy these days without some other market rigging mega fine payed by some mega banks (which doesn't recognize any guilt, but is just paying billions...'cause they are good guys really).  Machine are less likely to do these things to "improve their bonus pools" because they don't have bonus pools...

Anyway, Wall Street may soon be the only fully automated business in America, long live our robot overlords!

End of rant.

Tuesday, May 3, 2016

How Cheap? 2.99 US cents per kw/h -- that's how cheap

Solar power is now 16% cheaper than coal plants.

In January 2015, the price per w/h for solar was as low as 5.85 cents per watt.  joking aside in the past 18 months the cost of installed solar power has nearly halved!  

We know that there's still a lot of room for improvement of solar cells, just a few weeks ago there cost of watt installed was 4.00 cents per watt.  It needs, according to certain economists, to drop to US$0.005 (that's half a penny BTW) if not even lower.  In the past 18 months the cost has halved -- far ahead of expectation.  

The key now is panel with greater energy transfer, the next step is to improve the panels (as opposed to lower production costs).

Still this is amazing.  Rooftop solar panel will be the next big thing, especially in markets where electricity prices are high -- subsides are no longer needed.

Monday, May 2, 2016

Learning Spanish -- bad journalists...

Ok so because of work, Spanish has become essential, and one of the ways I get this done is that I read articles in Spanish.  They are usually about economics and this is because its easier for me, so although the important thing is the language I cannot resist really reading the article.

This particular article was about a new accord so that labour contracts would now be registered with the central government, and that the minimum wages would be increased by 12%, 5% earlier this year and another 6% at the end of the year (trust me on that -- it adds up to nearly 12%...).  My teacher though the article was very boring and pointless, for me I though what was interesting was what was not said.

Why a 12% minimum wage hike -- the first since 2012, why registering the labor contracts?  The issue is really rather different; in fact the idea of registration is that the government will know who earns what, its a way of tracking the workers...and their wages. Mexico is going through a difficult period; having relied on oil revenues for all its tax income (70% of Federal revenues are PEMEX related), that dramatic fall in oil prices -- and the equally dramatic fall in production (From a peak of 3.3 MM/bbl per day to 2.2 MM/bbl per day) has had a huge impact on Government revenues.

So what the article should have been about is that the Federal government wants to better track the revenues of workers so that it can tax the tax base shift from natural resources to income taxes, in order to get this, the Federal government "bribed" the unions by increasing minimum wages by 12% (which should reflect itself in higher wage packages).

The third issue that was not discussed in the article is that this 12% is really just a catch up from the Mexican inflation that has been running around 2.2% per annum for the past 4 years.

The information provided by the President was important, but the journalist was too bad/stupid to understand what was going on here.  In fact, the article discussed new labor laws to "better reflect the law 123 of the 1917 constitution" -- you would think that over a 99 years would have been enough to get the labor law right!  That's what got me started on this whole thing.

  • Mexico is planning for a major shift in its revenue base away from oil towards income taxes.
  • The federal government has put in place a registry of workers (and their labour contracts) to better track those revenues.
  • As a gift, the Federal government raised minimum wages by 12%!

Now that's the story that should have been covered by a competent journalist.

End of rant