Market Commentary 21 September

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Market Commentary 21 September


Falling on your sword is just so last century

“He’s not the messiah, he’s a very naughty boy.. – Monty Python, Life Of Brian.”

There was a time when politicians made an effort to set the moral agenda. However, given the refusal of leading politicians (in all countries) to accept any responsibility for their actions it comes as no surprise when the CEOs of major companies display the same levels of arrogance and defiance when confronted with their failure…

The harshest punishment Oswald Gruebel, chief executive officer of UBS, may face is pressure to cut the levels of risk and shrink the investment bank when the board meets in Singapore today, less than a week after a $2.3 billion loss (and ‘conveniently’ rising) from unauthorised trading.

The CEO apparently received a “scolding” yesterday from the Government of Singapore Investment Corp., the company’s biggest investor, who expressed “disappointment and concern about the lapses” and urged UBS to “take firm action to restore confidence in the bank,” according to a statement from the sovereign wealth fund after its senior management met with Gruebel yesterday.

Gruebel, was anointed with the responsibility to rebuild Zurich-based UBS after the huge bank suffered record losses on their U.S. sub-prime mortgage securities which in turn led to a state rescue. “Saint Ossie” helped to restore Credit Suisse Group AG’s profits as a consequence of the rescue and bailout.

Christian Hamann, an analyst at Hamburger Sparkasse;

“This is a black eye for Gruebel and the bank. On the other hand, he’s done a few things quite well and successfully stabilised the bank, which may have earned him some credit that he hasn’t used up yet.”

Eurobonds are being ‘pushed’ once again by the European Commission President Jose Barroso; “the commission believes we should look also at that option. We are not saying it is immediate. This is a matter that must be discussed, but we should not exclude that option either.”

The Eurobond initiative would be sold jointly by the euro area’s seventeen nations, it remains an option due to the fact that the bailouts by governments and the European Central Bank failed to alleviate solvency concerns. Barroso said in an interview with Bloomberg that the commission, (the European Union’s executive branch), will present euro-bond options very soon.

The reality of Greek Prime Minister George Papandreou’s brain-wave is beginning to hit the general populous, the new property tax, summarily dumped on the electricity bill from this month onwards, is causing anguish and despair in equal measures, could it be the straw that finally breaks the Spartans’ backs? Greek subway, tram, train, bus and trolley workers will hold a 24-hour strike in Athens tomorrow in opposition to their government’s plans to cull the public sector, according to spokespeople at the Greek Transit Workers Union.

As an example of modern day politicians not accepting responsibility for their collective actions G.Pap is Emmy award winning. However, in his and his country’s current predicament he’s snookered. If Greece wants the next tranche of bailout funds, in order to pay civil servants and to take care of the mundane office jobs, such as filling the ATMs with freshly printed Euros, then his government has to prove compliance with the previous bailout and an ability, based on incredible austerity cuts, to meet further loan obligations whilst continuing to pay loan shark rates for a few billion here and there off the ‘markets’.

As the two day Fed policy meeting comes to an end today many commentators and analysts are predicting something BIG to be announced at the culmination of the meeting. Presumably this announcement can only be positive news and indices will no doubt react accordingly.

The Federal Reserve appears likely to try to push long-term borrowing costs lower by re-balancing its $2.8 trillion portfolio of bond holdings to weight it more heavily to longer-term securities. Fed officials believe that by shifting bond holdings this will encourage mortgage refinancing and push investors into riskier assets, such as corporate bonds and stocks, without flaming consumer price inflation.


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