Category: A Rationale
Posted by: Admin
Much of BWG's work involves my fascination with and belief in the power of financial transactions and the capital markets they take place in.
Typically, standard economics deals with trades where a product or service is exchanged for some form of money. Financial economics deals with trades where money sits on both sides of the trade.
Typically, standard economics deals with trades where a product or service is exchanged for some form of money. Financial economics deals with trades where money sits on both sides of the trade.
03/02: What's in a face?
There are other ways assess Facebook’s value than through technical valuations for its IPO. Before a company goes public, stocks are bought and sold on secondary private markets. Trading of Facebook on Sharespost currently values the company at more than $82 billion. The chart below shows how the company’s valuation has grown over time based on investments.
All figures through Jan. 31, 2011 (NYT Dealbook)
January 2012 $83.5 billion Value based on private secondary markets.
March 2011 T. Rowe Price invests $190.5 million through various funds for a stake less than 1 percent.
March 2011 $65 billion General Atlantic purchases shares from former Facebook employees for a 0.1 percent stake, CBC reports.
February 2011 $52 billion Kleiner Perkins Caufield & Byers invest $38 million for a stake less than 1 percent, The Wall Street Journal reports.
January 2011 $50 billion Goldman Sachs and DST Global get a 1 percent stake for $500 million. Goldman’s overseas clients also invested $1 billion.
June 2010 $23 billion Elevation Partners spends $120 million for shares in the secondary market for 1.5 percent stake.
May 2009 $10 billion Digital Sky Technologies (later DST Global and Mail.ru) invests $200 million for a 2 percent stake.
January 2008 European Founders Fund invest $15 million.
March 2008 $15 billion Li Ka-Shing invests a second $60 million for a total stake of 0.8 percent.
November 2007 Li Ka-Shing invests $60 million.
October 2007 $15 billion Microsoft pays $240 million for a 1.6 percent stake.
Sept 2006 $900 million Offer by Yahoo that was turned down.
June 2006 Interpublic buys a 0.5 percent stake for less than $5 million.
April 2006 $500 million Greylock Partners, including Meritech Capital Partners, Founders Fund.Accel invest $27.5 million for a 1.5 percent stake.
January 2006 $750 million Offer from Viamcom that was rebuffed.
April 2005 $100 million Accel Partners pays $12.7 million for a 15 percent stake. Jim Breyer also puts up $1 million of his own money.
February 2005 Maurice Werdegar of WTI Partner provides a second $300,000 credit line and a $25,000 equity investment.
October 2004 Mr. Werdegar provides a $300,000 three-year credit line.
2004 Peter Thiel puts up $500,000 for a loan, later converted to a 10 percent stake and eventually reduced to 3 percent.
All figures through Jan. 31, 2011 (NYT Dealbook)
January 2012 $83.5 billion Value based on private secondary markets.
March 2011 T. Rowe Price invests $190.5 million through various funds for a stake less than 1 percent.
March 2011 $65 billion General Atlantic purchases shares from former Facebook employees for a 0.1 percent stake, CBC reports.
February 2011 $52 billion Kleiner Perkins Caufield & Byers invest $38 million for a stake less than 1 percent, The Wall Street Journal reports.
January 2011 $50 billion Goldman Sachs and DST Global get a 1 percent stake for $500 million. Goldman’s overseas clients also invested $1 billion.
June 2010 $23 billion Elevation Partners spends $120 million for shares in the secondary market for 1.5 percent stake.
May 2009 $10 billion Digital Sky Technologies (later DST Global and Mail.ru) invests $200 million for a 2 percent stake.
January 2008 European Founders Fund invest $15 million.
March 2008 $15 billion Li Ka-Shing invests a second $60 million for a total stake of 0.8 percent.
November 2007 Li Ka-Shing invests $60 million.
October 2007 $15 billion Microsoft pays $240 million for a 1.6 percent stake.
Sept 2006 $900 million Offer by Yahoo that was turned down.
June 2006 Interpublic buys a 0.5 percent stake for less than $5 million.
April 2006 $500 million Greylock Partners, including Meritech Capital Partners, Founders Fund.Accel invest $27.5 million for a 1.5 percent stake.
January 2006 $750 million Offer from Viamcom that was rebuffed.
April 2005 $100 million Accel Partners pays $12.7 million for a 15 percent stake. Jim Breyer also puts up $1 million of his own money.
February 2005 Maurice Werdegar of WTI Partner provides a second $300,000 credit line and a $25,000 equity investment.
October 2004 Mr. Werdegar provides a $300,000 three-year credit line.
2004 Peter Thiel puts up $500,000 for a loan, later converted to a 10 percent stake and eventually reduced to 3 percent.
While the language of finance tends to be jargonistic and often full of equations it is difficult to beat a really excellent writer who applies his skills to a finance arena in explaining even complex concepts. The following is drawn from such a writer – Stephen Fry - in his recent autobiography “The Fry Chronicles”, London, Penguin, 2011.
Fry is writing about an insurance contract he attempted to buy to cover the possibility of the Queen Mother – patron and mentor – of the Cambridge “May Ball”. The insurance was to cover the possibility that the Queen Mother might die and therefore the event would need to be cancelled. Fry describes the way in which he attempts to buy from various traditional insurance companies. Relatively early in the conversations he discovers that he was looking to buy a form of insurance known as “Abandonment”. He describes this insurance in the following terms:
“This kind of insurance is, of course, nothing more nor less than gambling. You bet your stake (which insurance companies call a premium) and should your horse win (house catch fire, car get stolen, royal family die) you collect your winnings. The relationship between the premium and the amount collected is determined by balancing the value of the insured thing (the indemnity) against the odds and statistical probability of its being threatened. Bookies use the form and stud books together with the market flow of betting to determine their prices; insurance companies use a similar mixture of market trends in their own history and precedent books, which they call actuarial tables. I can understand that. Had I wanted an abandonment policy against snow and ice, they would have looked at the value of the May Ball and seen that they would have had to shell out £40,000 if it was cancelled.
They would also see that blizzards in early June are incredibly rare, even in Cambridge, so they would probably charge a fraction of a fraction of 1% of the indemnity: £20 would be ungenerous, but then only an idiot would bother to insure against so remote a contingency in the first place. With a rain policy the insurers might decide, after consulting forecasters and local records, that there was, say, a fifty fifty chance of precipitation in which case the premium would be a whopping £20,000. But then, what kind of idiot would arrange a summer party in England which was so weather dependent that it would have to be abandoned if the heavens opened? Abandonment policies are not very common, that is the point, but there are nonetheless fairly obvious mechanisms in place, for resolving the issue of price when it comes to natural disasters like weather, fire and earthquake. The death of the Monarch’s mother, on the other hand... how could an actuary be able to calculate the odds of that? She was 79 years old.“
He goes on to say that he decided he would give the companies three hours before calling back for a quote.
The point here is that the concepts are quite complicated and yet with his strong writing skills – and even given genius – probably a not inconsiderable time working on the words Fry produces a better explanation than any number of Greek equations and jargonistic nonsense likely to be found in a finance textbook.
We can all learn from this.
Fry is writing about an insurance contract he attempted to buy to cover the possibility of the Queen Mother – patron and mentor – of the Cambridge “May Ball”. The insurance was to cover the possibility that the Queen Mother might die and therefore the event would need to be cancelled. Fry describes the way in which he attempts to buy from various traditional insurance companies. Relatively early in the conversations he discovers that he was looking to buy a form of insurance known as “Abandonment”. He describes this insurance in the following terms:
“This kind of insurance is, of course, nothing more nor less than gambling. You bet your stake (which insurance companies call a premium) and should your horse win (house catch fire, car get stolen, royal family die) you collect your winnings. The relationship between the premium and the amount collected is determined by balancing the value of the insured thing (the indemnity) against the odds and statistical probability of its being threatened. Bookies use the form and stud books together with the market flow of betting to determine their prices; insurance companies use a similar mixture of market trends in their own history and precedent books, which they call actuarial tables. I can understand that. Had I wanted an abandonment policy against snow and ice, they would have looked at the value of the May Ball and seen that they would have had to shell out £40,000 if it was cancelled.
They would also see that blizzards in early June are incredibly rare, even in Cambridge, so they would probably charge a fraction of a fraction of 1% of the indemnity: £20 would be ungenerous, but then only an idiot would bother to insure against so remote a contingency in the first place. With a rain policy the insurers might decide, after consulting forecasters and local records, that there was, say, a fifty fifty chance of precipitation in which case the premium would be a whopping £20,000. But then, what kind of idiot would arrange a summer party in England which was so weather dependent that it would have to be abandoned if the heavens opened? Abandonment policies are not very common, that is the point, but there are nonetheless fairly obvious mechanisms in place, for resolving the issue of price when it comes to natural disasters like weather, fire and earthquake. The death of the Monarch’s mother, on the other hand... how could an actuary be able to calculate the odds of that? She was 79 years old.“
He goes on to say that he decided he would give the companies three hours before calling back for a quote.
The point here is that the concepts are quite complicated and yet with his strong writing skills – and even given genius – probably a not inconsiderable time working on the words Fry produces a better explanation than any number of Greek equations and jargonistic nonsense likely to be found in a finance textbook.
We can all learn from this.
23/12: EU prospects for 2012
December 14th 2011 - from EIU
Europe's failure to tackle its financial crisis urgently and forcefully has left the global economy at risk of a deep and prolonged recession. A summit of EU leaders on December 8th-9th, billed as a "make or break" meeting for the euro zone, was at best a disappointment and at worst a failure. The outcome marked a return to the medium-term, muddle-through strategies of prior months—and this at a time when panicky financial markets have shown that they can quickly push indebted euro zone sovereigns to the brink of a liquidity crisis. Indeed, the week that was meant to save the euro zone left the single currency, by week's end, ropier than it was at the start. Apart from the inconclusive summit (see the Western Europe section of this report), a major ratings agency warned that it may downgrade almost the entire euro zone in the next three months, while the continent's banking authority said its financial institutions, including those in Germany, were even more poorly capitalised than was originally thought. For these reasons, the Economist Intelligence Unit continues to assign a 40% probability to a break-up of the euro zone, which would trigger a depression in Europe and a serious recession for the global economy overall.
Despite the high probability of such a dire outcome—indeed, because of it—we still believe that euro zone leaders will take the necessary steps to avert a full-blown collapse of the single currency. This will almost certainly require the sustained intervention of the European Central Bank (ECB) in sovereign bond markets—essentially purchasing the debt of distressed governments in sufficient quantities to stop the increasingly severe investor panics that threaten the ability of these countries to finance their debts. We maintain our view that the ECB, despite its statements to the contrary, will find a way, or a pretext, to support these countries, as it has been doing in a limited fashion for many months. There remains the possibility—a small one, in our opinion—that the muddle-through strategy, including promises of stricter fiscal policies and larger bailout funds, will gradually reassure markets, reducing the pressure on sovereign bond yields and allowing the crisis to ease. But the range of potential shocks facing the euro zone in the coming months is so large that a gradual, go-slow approach by euro zone leaders is unlikely to work.
Europe's failure to tackle its financial crisis urgently and forcefully has left the global economy at risk of a deep and prolonged recession. A summit of EU leaders on December 8th-9th, billed as a "make or break" meeting for the euro zone, was at best a disappointment and at worst a failure. The outcome marked a return to the medium-term, muddle-through strategies of prior months—and this at a time when panicky financial markets have shown that they can quickly push indebted euro zone sovereigns to the brink of a liquidity crisis. Indeed, the week that was meant to save the euro zone left the single currency, by week's end, ropier than it was at the start. Apart from the inconclusive summit (see the Western Europe section of this report), a major ratings agency warned that it may downgrade almost the entire euro zone in the next three months, while the continent's banking authority said its financial institutions, including those in Germany, were even more poorly capitalised than was originally thought. For these reasons, the Economist Intelligence Unit continues to assign a 40% probability to a break-up of the euro zone, which would trigger a depression in Europe and a serious recession for the global economy overall.
Despite the high probability of such a dire outcome—indeed, because of it—we still believe that euro zone leaders will take the necessary steps to avert a full-blown collapse of the single currency. This will almost certainly require the sustained intervention of the European Central Bank (ECB) in sovereign bond markets—essentially purchasing the debt of distressed governments in sufficient quantities to stop the increasingly severe investor panics that threaten the ability of these countries to finance their debts. We maintain our view that the ECB, despite its statements to the contrary, will find a way, or a pretext, to support these countries, as it has been doing in a limited fashion for many months. There remains the possibility—a small one, in our opinion—that the muddle-through strategy, including promises of stricter fiscal policies and larger bailout funds, will gradually reassure markets, reducing the pressure on sovereign bond yields and allowing the crisis to ease. But the range of potential shocks facing the euro zone in the coming months is so large that a gradual, go-slow approach by euro zone leaders is unlikely to work.
Category: debt markets
Posted by: Admin
This from Bloomberg.... illustrates how the N.Z. view of itself is often completely at odds with what the world sees - happily as it happens... in respect of debt at least from a sovereign bond investors perspective.
Loomis Loving Kiwi Bonds Means Record-Low Yields for Next Prime Minister
By Sarah McDonald and Kristine Aquino - Nov 25, 2011 8:33 PM GMT+1300Fri Nov 25 07:33:06 GMT 2011
Traffic moves along The Terrace in the central business district of Wellington, New Zealand. New Zealand’s economy probably will expand 4 percent in 2012, the fastest pace in eight years, according to the International Monetary Fund.
Loomis Loving Kiwi Bonds Means Record-Low Yields for Next Prime Minister
By Sarah McDonald and Kristine Aquino - Nov 25, 2011 8:33 PM GMT+1300Fri Nov 25 07:33:06 GMT 2011
Traffic moves along The Terrace in the central business district of Wellington, New Zealand. New Zealand’s economy probably will expand 4 percent in 2012, the fastest pace in eight years, according to the International Monetary Fund.
01/11: Re building capital markets
Category: Market Functionning
Posted by: Admin
Almost a decade ago Michael Jensen predicted thast the combination of rent seeking, agency problems and regulators would make mainstream public listing markets if not obsolete at least barely relevant. Another prescient specualtion from him! Rushing to fill the void though are, predicatbly the best of the capital market's entrepreneurs.
Mary Kissel (WSJ 29 October)
No entrepreneurs I know aspire to be a public-company CEO anymore."
If that seems like a startling claim, it's all the more so coming from a bright-faced 35-year-old sitting a stone's throw from Merrill Lynch's famous charging bull. But Barry Silbert can back up his words because he's making money on them. He's the founder and CEO of SecondMarket, an online trading platform that pairs buyers and sellers of such financial assets as mortgage-backed securities and especially the stock of companies that haven't gone public.
Mary Kissel (WSJ 29 October)
No entrepreneurs I know aspire to be a public-company CEO anymore."
If that seems like a startling claim, it's all the more so coming from a bright-faced 35-year-old sitting a stone's throw from Merrill Lynch's famous charging bull. But Barry Silbert can back up his words because he's making money on them. He's the founder and CEO of SecondMarket, an online trading platform that pairs buyers and sellers of such financial assets as mortgage-backed securities and especially the stock of companies that haven't gone public.
Category: Monetary Policy
Posted by: Admin
The US FOMC (held interest rate at 0-0.25%): "The Committee continues to anticipate that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate for an extended period."
17/06: The Pandora IPO
Category: capital asset pricing
Posted by: Admin
Pandora I.P.O. Underwriters Got It Right (Sort Of)By STEVEN M. DAVIDOFF
Richard Drew/Associated PressPandora executives at the New York Stock Exchange on Wednesday. With the post-I.P.O. Pandora halo fading, it is time to grade the underwriters of the initial public offering: Morgan Stanley, JPMorgan Chase and Citigroup.
In a nutshell, Pandora managed to sidestep the LinkedIn debate over I.P.O. underpricing.
As the offering approached, the underwriters raised the target price to a final sale price of $16, from a range of $7 to $9.The stock finished the day at $17.42 after hitting a high of $26. First-day returns were 8.9 percent. This is in the average range for I.P.O.’s and a particularly good result considering the recent broad decline in the stock market. (On Thursday, shares fell more than 7 percent, back to its I.P.O. price of $16.)
The muted first-day pop was possible only because the underwriters used a now-standard formula for hyping these tech I.P.O.’s. It goes like this: Offer a very small number of shares. then retail investors, hungry for Internet riches, will drive up the price by bidding on the small number of shares offered in the market.
Bigger, more experienced investors will then also buy these shares in the offering in order to resell them quickly to retail shareholders.
In Pandora’s case, only about 14.7 million shares were sold. This is about 9.2 percent of Pandora’s outstanding shares. The company itself sold only six million shares, with the rest sold by current stockholders. This type of sale is usually frowned upon because investors prefer to see I.P.O. proceeds go to the company rather than selling stockholders. Shareholder sales are seen as a lack of commitment to the company’s prospects, although in this case, the sales were small compared with the amount being retained so the negative impact was limited.
In this light, the Pandora I.P.O. was really a success, in no small part because of an underwriter sleight of hand in capitalizing on excessive, perhaps ill-advised demand. And the valuation — $2.78 billion — is a product of that. The company has never recorded a profit and posted revenue of only $44 million last quarter.As a DealBook reporter, Susanne Craig (@susannecraig), noted in a Twitter message, compare this with Sirius, which had revenue of $724 million last quarter and a market capitalization of about $9.26 billion.
At this point I could simply retype the story language from the tech bubble, comparing Internet media companies and their heady valuations with old-line companies and their much lower ones. Analysts were certainly quick to make the comparison with Pandora, noting that its valuation seemed out of line with its prospects and historical results.
Still, the chance to grab Internet riches is a real draw for shareholders. And, hey, you never know, the opportunity to be the next Google is always a possibility, however small. This could be true even if you are in the declining business like the music one.
In this light, the underwriters did a stellar job of building expectations for an I.P.O. that has uncertain prospects. The lack of a big first-day bounce is evidence.
But of course, they also sold a product in a manner that may have led it to be overpriced because of failures in the market. If you buy into the argument that underwriters should serve a gate-keeping function, the subject of my column on Tuesday, then this affects their final grade. As gatekeepers, underwriters have a responsibility to bring companies to market that are appropriate for an I.P.O.
You can argue whether I have a too optimistic and unrealistic view of the I.P.O. market. In addition, it is unclear what investors expectations are for underwriters here. Investors themselves may disagree with my view. And of course, caveat emptor.
But the Pandora I.P.O. again shows that the underwriting process is about how to sell shares in these types of companies rather than whether they should be sold.
So the underwriters deserve a solid A- for selling this risky I.P.O. so successfully. But for stoking demand in a manner intended to sell a chancy product, I am lowering their final grade to a gentleman’s C, subject to future revision. And yes, this shows how subjective grading can be.
--------------------------------------------------------
Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.
Richard Drew/Associated PressPandora executives at the New York Stock Exchange on Wednesday. With the post-I.P.O. Pandora halo fading, it is time to grade the underwriters of the initial public offering: Morgan Stanley, JPMorgan Chase and Citigroup.
In a nutshell, Pandora managed to sidestep the LinkedIn debate over I.P.O. underpricing.
As the offering approached, the underwriters raised the target price to a final sale price of $16, from a range of $7 to $9.The stock finished the day at $17.42 after hitting a high of $26. First-day returns were 8.9 percent. This is in the average range for I.P.O.’s and a particularly good result considering the recent broad decline in the stock market. (On Thursday, shares fell more than 7 percent, back to its I.P.O. price of $16.)
The muted first-day pop was possible only because the underwriters used a now-standard formula for hyping these tech I.P.O.’s. It goes like this: Offer a very small number of shares. then retail investors, hungry for Internet riches, will drive up the price by bidding on the small number of shares offered in the market.
Bigger, more experienced investors will then also buy these shares in the offering in order to resell them quickly to retail shareholders.
In Pandora’s case, only about 14.7 million shares were sold. This is about 9.2 percent of Pandora’s outstanding shares. The company itself sold only six million shares, with the rest sold by current stockholders. This type of sale is usually frowned upon because investors prefer to see I.P.O. proceeds go to the company rather than selling stockholders. Shareholder sales are seen as a lack of commitment to the company’s prospects, although in this case, the sales were small compared with the amount being retained so the negative impact was limited.
In this light, the Pandora I.P.O. was really a success, in no small part because of an underwriter sleight of hand in capitalizing on excessive, perhaps ill-advised demand. And the valuation — $2.78 billion — is a product of that. The company has never recorded a profit and posted revenue of only $44 million last quarter.As a DealBook reporter, Susanne Craig (@susannecraig), noted in a Twitter message, compare this with Sirius, which had revenue of $724 million last quarter and a market capitalization of about $9.26 billion.
At this point I could simply retype the story language from the tech bubble, comparing Internet media companies and their heady valuations with old-line companies and their much lower ones. Analysts were certainly quick to make the comparison with Pandora, noting that its valuation seemed out of line with its prospects and historical results.
Still, the chance to grab Internet riches is a real draw for shareholders. And, hey, you never know, the opportunity to be the next Google is always a possibility, however small. This could be true even if you are in the declining business like the music one.
In this light, the underwriters did a stellar job of building expectations for an I.P.O. that has uncertain prospects. The lack of a big first-day bounce is evidence.
But of course, they also sold a product in a manner that may have led it to be overpriced because of failures in the market. If you buy into the argument that underwriters should serve a gate-keeping function, the subject of my column on Tuesday, then this affects their final grade. As gatekeepers, underwriters have a responsibility to bring companies to market that are appropriate for an I.P.O.
You can argue whether I have a too optimistic and unrealistic view of the I.P.O. market. In addition, it is unclear what investors expectations are for underwriters here. Investors themselves may disagree with my view. And of course, caveat emptor.
But the Pandora I.P.O. again shows that the underwriting process is about how to sell shares in these types of companies rather than whether they should be sold.
So the underwriters deserve a solid A- for selling this risky I.P.O. so successfully. But for stoking demand in a manner intended to sell a chancy product, I am lowering their final grade to a gentleman’s C, subject to future revision. And yes, this shows how subjective grading can be.
--------------------------------------------------------
Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.
Category: Monetary Policy
Posted by: Admin
Country Target
Armenia 5.5%
Australia 1-3%
Brazil 4.5%
Chile 3% +/-1%
China 4.0%
Colombia 2-4%
Czech 2.0%
EU 0-2%
Georgia 6.0%
Hungary 3.0%
Indonesia 5% +/-1%
Israel 1-3%
Japan 1.0%
Korea 2-4%
New Zealand 1-3%
Nigeria 10.0%
Peru 1-3%
Poland 2.5%
Romania 3% +/-1%
Russia 7.0%
Serbia 4.5% +/- 1.5%
Sweden 2.0%
Thailand 3.0%
Turkey 5.5%
UK 2.0%
Source Central Bank News
Armenia 5.5%
Australia 1-3%
Brazil 4.5%
Chile 3% +/-1%
China 4.0%
Colombia 2-4%
Czech 2.0%
EU 0-2%
Georgia 6.0%
Hungary 3.0%
Indonesia 5% +/-1%
Israel 1-3%
Japan 1.0%
Korea 2-4%
New Zealand 1-3%
Nigeria 10.0%
Peru 1-3%
Poland 2.5%
Romania 3% +/-1%
Russia 7.0%
Serbia 4.5% +/- 1.5%
Sweden 2.0%
Thailand 3.0%
Turkey 5.5%
UK 2.0%
Source Central Bank News
Category: Monetary Policy
Posted by: Admin
Here are the OCR rates worldwide as at 12th June 2011.
Central Bank Rates 12-06-11
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Central Bank Rates 12-06-11
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