More about 'The IKN Weekly'

The response this morning to the new subscription service 'The IKN Weekly' has taken me by pleasant surprise. Thank you to the people that have already signed up (you know who you are) and also thank you to the people that have written in asking for more information. There have been plenty of different questions arising and I'll be answering the person-specific ones as soon as I've finished this post. However two questions have been repeated in several different places so by way of a pre-emptive strike I'll answer them here.

1) Will the blog change or finish?

• Answer: The blog continues, no worries. As for content, there is likely to be a slight change as I give first call to some of the pure mining issues to the subscription newsletter and perhaps feature them at a later date on the blog. But the general political, economic, Trading Posts, rants, opinions, and sillystuff etc etc will carry on as normal for sure.
  

2) Do I need a PayPal account to subscribe?

• Answer: No, you can go to the subscription page and pay by credit card if you prefer. One you click the "subscribe" button you're taken to the PayPal page. Under the 'e-mail & password' blok there's a link that says "Don't have a PayPal account? Use your credit card or bank account (where available)." Click that link and you're taken to the right place...it's pretty straightforward and totally secure.
  
  So with that I'll now toddle off and answer your mails. If you decide to give the service a try, the necessary buttons (monthly or annual discounted) are over there on the right of the page. And feel free to write in with your own queries, as I'll be happy to explain more. The main post explaining in more depth about The IKN Weekly and what it will contain/do for you can be found right here on this link. Thank you for your attention.
  
  

Chuck Norris Financial Facts

These are so good I am contractually obliged as a finance-esque blogger to share.

Please go over to Felix Salmon's blog to get the full post. He picked them up from Epicurean Dealmaker's Twitterfeed. Here are the first three on the list, get the others over Chez Salmon.

• Little-known Chuck Norris Fact: Chuck Norris does not mark to market. The market marks to Chuck.

• More: Chuck Norris does not go bankrupt. Chuck Norris ruptures banks.

• Source of hedge fund survivorship bias?: Funds that pay Chuck Norris 2 and 20 survive; others don’t.

Problem 287: Regular Octagon, Diagonals

Proposed Problem



See also:
Complete Problem 287: Regular Octagon, Diagonals
Collection of Geometry Problems

Level: High School, SAT Prep, College geometry

LME warehouse copper

There's a lot of talk about this chart crossing my desk today:

For sure the 100,000MT lopped in copper stored at LME warehouses in just the last couple weeks is ostensibly bullish. No denying that, but boring old fundy-headed Otto is yet to be convinced there's any demand driver here, sorry.

One clear thing is that China is the driver of this copper take-up. There's little debate on that score. However we saw China restock iron ore over the new year period, now we see iron ore piled up on the docks of that nation and end user demand clearly wasn't the driving force. So why should copper be any different here? This copper move has all the hallmarks of Chinese restocking, as the move is fast and against the grain of world macroeconomics. Another rebuttal worth mentioning to the auto-copper bulls is that warehouse stocks that leave one warehouse (eg in Europe) and are transported to another (eg Shanghai) are subtracted from the warehouse lists while in transit. That might also be a factor in play here.

If the stocks are still dropping hard in, let's say, four weeks time I'll review my bearish outlook on copper, but there's no way I'm chasing a speculative sentiment fuelled by Hope™ in the middle of this bear market. Because that's where we are, like it or not. You won't get any fairydust sprinkled in your eyes at this blog, so if you want the Kool-Aid go watch CNBC.

DYODD

"Psst! Wanna buy a Venezuelan gold backed dollar bond, guv?"

In Venezuela, there is mucho talk from mucho places about how the goverment is setting itself up to raise cash by selling (or attempting to sell) a new swathe of bonds to a willing world. This article in Bloomberg outlines the bureaucratic nuts'n'bolts filings that have taken place recently. Most intriguing are the manifold rumours swirling around about gold-backed bonds being emitted by CVG. There is a lot of confusion and the story is by far from definitive yet, but this (as far as I can work out) is the general scenario:

1) CVG is a quasi-state run company that operates heavy industry in the South of the country

2) The idea is for CVG to raise up to U$6Bn on dollar denominated bonds that will be backed up by gold production in the years to come.

3) Much the same way as the previous years' PDVSA bonds emissions, the bonds will be offered to Venezuelans via the private banking system. Citizens can pay for the dollar bonds using Bolivares Fuertes (VEF), probably paying a significant premium to the official 2.15/U$1 rate.

If it happens this way, the bonds will be wildly and incredibly popular with the local citizens. Even if the government makes people pay 3.0 for every bond-dollar, it's a big difference to the 6.50/6.90 spread currently offered by the parallel market. Or put theoretically:

• You buy a $1,000 dollar bond using VEF3,000
• The next day you sell that bond back to the banks for, let's say a 10% hairut. The bank gives you U$900.
• You run down the street and buy VEF5,850 with your dollars.

Now for sure the scenario isn't as smooth as that, but the theory will hold true even if the bank takes a more probable 30% haircut on the bonds (i.e. gives you U$700) and even if the parallel rate drops to VEF6.0 = U$1 (you finish with VEF4,200, which is still a nice day's work).

The question will then be "What do the local banks do with all their CVG dollar bonds?". These will be rather....hmm, how can we say this diplomatially...rather dubious financial devices in the end. Backing a dollar bond with revenue from gold that is still underground and mixed up in its mineral rock is a bit of a stretch, especially when you consider the dog's dinner that CVG has made of its non-production around the KM88 region so far this....well, this century, basically. Then there's the inflation in Venezuela and the way the local currency is fading against the dollar. A large lump of dollar debt may become rather difficult for CVG to service in the medium term and the local banks know it. They won't want to hold a stack of CVG dolalr bond paper in their safes, whatever nominal asset value may be printed on them

So Venezuelan banks will be keen to punt plenty of this paper on to other people. AND THAT'S WHERE YOU COME IN, GRINGOS! If all the above does come to pass as has been suggested by the Veenezuelan financial jungledrums, the world financial community will certainly get the "wonderful opportunity" to invest in "gold-backed dollar bonds" from Venezuela "at a considerable and attractive discount to face value".

My advice is that you should avoid such paper like the plague, as the buck has to stop somewhere. If...

• Venezuela is happy with its shiny new U$6bn in funds, and...
• Locals are happy to have made some coin from a quick flip, and....
• Venezuelan banks are happy to have made coin by punting the bnods off to foreign concerns...

...there has to be someone who pays for the party. Look in the mirror, blue-eyed-whitey. If all this happens, Venezuelan banks will be keen to offer any sort of arbitrage over the haircut offered to locals, so if you get the "$1,000 worth of dollar bonds back up by GOLD! for just $710" pitch, please don't go there.

However there is another side to all this. The Venezuelan government needs the cash, so it'll be keen to make this happen. So it must appease the local banks and make the deal profitable one for them, because otherwise it's not going to happen and Hugo&Co won't get their hands on the funds they seem to need (and with more than a little urgency, I gather). Therefore if the bonds deal doen't go ahead, the flipside is that Venezuela ill have to do something quick to shore up its finances. This mean...yep you guessed it...the deval. Thus watching the parallel market in the days and weeks to come will give you a very good idea of whether the government bonds deals will happen and, more importantly, whether they will be successful. Here's what the exchange rate looks like right now.


DYODD.

Ecuador Bonds: Game on

It took over four months for the Ecuador defaulted bondholders to make a move, but yesterday they tipped their card everso slightly. Reuters reported yesterday afternoon (Soto, natch) that they had got their hands on (i.e. sent by bondholders on a courier bike) a letter sent by the holders of a minor slice of the bond pie (estimated at $130m or above by Eurasia's Patrick Esteruelas). The letter had been sent to the government of Ecuador and requested the government to make good on the full amount of the bond capital and interest due.

Interesting that they should have waited until after the Presidential elections to make this opening gambit. This story is at the top of the second, approximately. Watch this space.

Chart of the day is.......

....the Peruvian Nuevo Sol versus US Dollar, three month time period.

The Nuevo Sol (PEN) briefly went under three to the greenback yesterday before closing a touch above, the first time it has traded under 3 since October. The main reason for the surge in the Sol is that local banks are now unwinding dollar positions as they feel more confident about the worst of the recession being behind them. Well, good luck to them on that score is all I can say.

Also part of the equation are the still relatiely high interest rates on offer for foreign investors. Central bank chief Velarde cut an agressive point off the benchmark rate last metting around, but rates still lie at 5%, much higher than place like Chile, for example.

Going forward, exporters will start to moan and whine about lost competitivity if the trend continues and the last thing Peru needs is to be priced out of foreign markets. So we can expect rates to drop quickly from here.