In this Week’s Issue: September 16, 2011
• A “rogue trader” in London racked up about $2 billion in trading losses for UBS (WSJ)
• The ECB is expected to pause monetary policy tightening until Q2 of 2012 (Economist)
• The Euro area annual inflation during August was stable at 2.5% (Eurostat)
• World’s leading central banks to provide unlimited dollar funding to EU’s banks (WSJ)
• Foreign investment into China remained strong in August, up 11.1% y/y (Economist)
• U.S. consumer sentiment index inched up to 57.8 in September from 55.7 in August (AP)
• U.S. current-account deficit decreased to $118bn or 3.1% of GDP in Q2 of 2011 (ESA)
• U.S. consumer price index for all urban consumers increased 0.4% in August (BLS)
• U.S. industrial production increased 0.2% in August versus 0.9% in July (Federal Reserve)
• U.S. retail sales in August unchanged from July and up 7.2% from one year ago (BLS)
• The Producer Price Index for finished goods was unchanged in August (BLS)
• China imports surged 30.2% in August from a year ago, following a 22.9% rise in July (WSJ)
This week marked the third anniversary of Lehman Brothers’ bankruptcy filing. It was one of the largest implosions of financial institutions and became a catalyst for the 2008 financial crisis. Steven Davidoff of NY Times‘ Dealbook gives us a brief history lesson in a tale of two deals: the acquisition of Merril Lynch by Bank of America and the purchase of Lehman’s investment banking and capital markets operations by Barclays.
Which was the better deal? The chart below suggests that shareholder value for Lehman was completely lost. However, as Steven Davidoff suggests, “by buying Lehman out of bankruptcy, Barclays did not take on Lehman’s toxic assets. These consisted of more than $600 billion in debt. Barclays avoided liability for most of it.”
Too bad we can’t make those kinds of deals…
Please consider This $2bn mess has uncanny historical echoes, a succinct assessment of another rogue trading scandal. Despite supposedly tighter controls and vastly improved risk management models, UBS was yet another bank that has failed miserably in preventing an alleged rogue trader from potentially bringing down the Swiss bank. As Gillian Tett concludes, would someone please translate “déjà vu” into Swiss German?
Please consider U.S. Treasury Secretary Tim Geithner’s interview with Jim Cramer. Lots of interesting suggestions by a competently speaking Mr. Geithner. However, as he points out the elephant in the room (i.e. the political dysfunction of governments), we must wonder how more government and more Dollars in the hands of dysfunctional governments can do the trick.
Good luck and good investing!
Clemens Kownatzki, MBA is an adjunct professor of financial risk management at the Graziadio School of Business and Management, as well as the founder and CEO of FX Investment Strategies, a Registered Investment Advisor. In addition to running his investment advisory firm, he is a contributing author at SeekingAlpha.com and BusinessInsider.com. He also authored the book, Money Music 101, available on Amazon and Kindle, in addition to publishing the popular investment blog www.fxinvestmentstrategies.com along with a weekly newsletter.Disclaimer
Neither the information nor any opinion contained in this communication constitutes a solicitation or offer by us to buy or to sell any securities, futures, options or other financial instruments or to provide any investment advice or service. Each decision by you to do any investment transactions and each decision whether a particular investment is appropriate or proper for you is an independent decision to be taken by you. In no event should the content of this communication be construed as an express or an implied promise, guarantee or implication by or from us that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Please note that there is no requirement and no commitment to make any payments to FX Investment Strategies LLC in order to access our published information be it via email or via website publication. All information is publicly available without any required monetary consideration. Any payments or donations made by you are deemed to be voluntary and cannot be considered as payments for investment advice given to you.