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Colin Lea
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The author is Australian with a long term interest and personal stake in financial planning and management. He works within the Financial Services Industry, is a member of the FPA Australia, and is a Certified Gold Seeking Alpha Contributor. Prior professional background of 20 years in military... More
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  • Mystery Trades Hit ANZ And CBA Stocks

    From this morning's Sydney Morning Herald:

    Traders suspect that the share prices of a number of major ASX200 stocks - including ANZ Bank - were manipulated when trade opened this morning.

    Mystery trades in ANZ pushed the share price of ANZ up $1.67, or 6.5 per cent, when trading began at 10am.

    ANZ, which closed at $25.79 yesterday, soared to $27.63 per share on the opening bell, before the stock collapsed to $26.16.

    In the first few minutes of trading about a third of the average daily number shares in ANZ changed hands. Large fluctuations hit the share prices of Ansell, Aristocrat and AGL, while Commonwealth Bank and Bank of Queensland also spiked when the ASX opened.

    "I've had five of my brokers contact the ASX and they are clueless as to what has gone on," said one of Australia's leading stockbrokers.

    "They are saying the trades fall within a reasonable range, but if a broker pushed a stock up five per cent we'd cop a $25,000 fine. Right now, I'd say this is in the 'too hard' basket for market control at the ASX."

    Watchdogs alerted

    A spokesman for the body in charge of monitoring real-time trading - the Australian Securities Investment Commission - said it was ''aware of a surge in ANZ share prices and was looking into the matter.''

    ''This is not a formal investigation,'' he said.

    ASX spokesman Matthew Gibbs said the price jumps were a result of buying orders, and nothing to do with the trading system itself.

    ''There were a number of large buying orders at the market's open, and the price of a number of stocks went up,'' he said.

    ''Most of them appear to have come down now and are trading at a normal price band. Naturally ASX is monitoring the situation.''

    Mr Gibbs said the ASX was so far aware of a price jump in AMP, ANZ, AGL, Aristocrat and Brambles stocks.

    ''It's certainly nothing to do with trading system,'' he said.

    Options affected

    The trades were large enough to affect the price of options traded on the S&P/ASX 200 Index - commonly referred to in the investment world as XJO Index Options. The index tracks shares that form the S&P/ASX 200. The XJO Index rose to 4606 on the back of the moves, before settling back to 4575.

    A number of brokers noted that those options expire at the close of trade today. The settlement price for those options will be calculated using today's 4606 opening price of the XJO index.

    "I hope ASIC and the ASX investigate the ANZ open at $27.63 this morning," posted one reader on the BusinessDay markets blog. "It might just be a coincidence that index options expire today."

    Brokers have called for the trades to be investigated immediately because they caused volatility on markets and could cause substantial losses.

    "Someone has made big money on the Index trades this morning," said one major broker.

    "Either that or an algorithm has gone haywire, a mistake has been made, or these trades are deliberate.' Either way, do we have an orderly market?"

    Brokers have complained that the shift in responsibility for control of the market from the ASX to ASIC meant that nothing was done when trades of this nature caused alarm bells to ring.

    "We rang the ASX, they said 'Ring ASIC'. We rang ASIC, they said 'Ring the ASX'," said one Melbourne-based broker.

    With Georgia Wilkins

    Read more:

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 18 8:23 AM | Link | 1 Comment
  • Indians Answering The Call To Rebuild Their Economy

    The following article is shared from the Sydney Morning Herald:


    October 13, 2012 by William Pesek

    A surprise Finance Ministry appointment suggests India is serious about reform and investment.

    THE first time I met Raghuram Rajan, the Indian economist couldn't sit still.

    It was over coffee in Bangkok in November 2008, less than two months after Lehman Brothers imploded and almost took the global financial system down with it. Rajan had become a big draw by then, having warned as early as 2005 that a crash was coming. On that day in Thailand, he had a crisis on his hands: The hotel's WiFi was out.

    "I'll be back - I need to make a call and make sure the world economy is still there before I begin my speech," he deadpanned. "You never know."

    That last sentiment could also apply to an extraordinary bit of recruitment on the part of Indian Prime Minister Manmohan Singh. Rajan, 49, is one of his most pointed critics, never one to shy away from slamming India for trying the same failed policies over and again. Rather than castigate Rajan, Singh offered him a job: top adviser to the Finance Ministry.

    Rajan's arrival might shake up India at just the right moment and accelerate moves to open retailing, aviation and insurance to foreign investment. Palaniappan Chidambaram's return as finance minister in July might have seemed enough of a jolt. He wasted no time in announcing policies that amounted to shock therapy for an economy that has lost its way. If those were a sign India is again open to business, hiring Rajan suggests it won't stop there. There are three things about Rajan that are noteworthy:

    One, his focus. He's looking in the right places - modernising the financial sector, making it easier for companies and entrepreneurs to do business and tackling the labyrinthine distribution system in areas such as agriculture;

    Two, Rajan is a University of Chicago guy. To some extent he's about increasing economic efficiency as a means of raising living standards. Supply-side solutions can go too far, as we saw when the US went off the rails due to lax regulations and oversight. Yet if there is anything India needs, it is a burst of deregulation fever.

    Among the most common phrases you hear in India is "licence raj," shorthand for the baffling and elaborate system of issuing permits to do anything. This snarl of red tape throttles business and breeds corruption. It is the single biggest barrier standing between India's 5.5 per cent growth and shantytown dwellers in Mumbai or Kolkata. New strategies are desperately needed to remove it;

    Three, Rajan is an intellectual re-import. It is often said that India's best export is its chief executives - Indra Nooyi, of PepsiCo, Lakshmi Mittal, of ArcelorMittal, Anshu Jain, of Deutsche Bank, to name a few. Its academics, too, remind us that developed nations don't have a monopoly on economic wisdom.

    Rajan is part of a growing pattern of talent returning home. Take Rana Kapoor, who left Wall Street to start Mumbai-based Yes Bank. Or former Citigroup executive Jaithirth Rao who founded software maker MphasiS in the US before moving the group's headquarters to India, where he started an affordable-housing finance company. Rajan's experience as chief economist of the International Monetary Fund from 2003 to 2006 and as a celebrity academic is now to India's benefit.

    There's still plenty of flow in the opposite direction, including Kaushik Basu. He recently left India's Finance Ministry to become chief economist of the World Bank, which along with the International Monetary Fund is holding its annual meeting this week in Tokyo.

    Basu is the rare iconoclast in a position to make a difference. An adherent of his own brand of Freakonomics, his interest lies not with the politically correct or expedient but common-sense solutions to the biggest quandaries of our day. One is what to do about corruption. He argues that it be legalised, thereby adding transparency and having the effect of naming and shaming graft seekers.

    Like Basu, Rajan is an example of an Indian in the right job at the right time in ways that could benefit humanity. Jump-starting India's economy would offer the world another engine at the perfect moment. It would also arrest the policy decay in Asia's third-biggest economy.

    A day after Chidambaram met the US Treasury Secretary, Timothy Geithner, in New Delhi this week, Standard & Poor's reminded India it may become the first BRIC economy - Brazil, Russia, India and China - to lose its investment-grade rating. Junk status would be a terrible blow to a nation S&P predicts will see its budget shortfall widen to about 6 per cent of GDP in the year to March 2013. Borrowing costs would surge, investors would flee and reducing poverty would become harder.

    The good news is that Rajan is on the case to help Singh's team get back in touch with its reformist roots. You can bet he won't be sitting still on the job.

    Read more:

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Oct 12 3:48 PM | Link | 3 Comments
  • Fortescue Gets $4.3b Lifeline, Shares Soar

    Article from Sydney Morning Herald:

    Shares in Fortescue Metals have soared after the iron ore miner was handed a $4.26 billion lifeline by its creditors, which will delay its earliest debt repayments until November 2015.

    The iron ore miner this morning announced a commitment for a senior secured credit facility of up to $US4.5 billion from backers Credit Suisse and JP Morgan. The deal gives the troubled miner more time to manage its $US9 billion in debts, as the outlook for iron ore grows less certain.

    The miner's shares rose as much as 51 cents, or 17.1 per cent, to $3.50 in early trade.

    "This facility will be used to refinance all existing bank facilities and provide Fortescue with additional liquidity," the company said.


    "The facility extends the earliest repayment date for any of the company's debt to November 2015 and removes financial maintenance covenants which applied under previous facilities," the company said, noting that Credit Suisse and JP Morgan both signed a full underwriting commitment for the facility that provided "funding certainty to Fortescue".

    Perth-based Fortescue also flagged potential partial sales of assets to a range of interested partners in order to strengthen the company's balance sheet.

    "Fortescue is currently evaluating these approaches," the company said. "Transactions of this nature are not required under Fortescue's new debt facilities and will only be pursued if they clearly add shareholder value."

    Fortescue shares were placed into a trading halt on Friday morning after its stock plunged the day before on revelations that the company was in talks with its creditors to renegotiate its debt covenants. The company's stock closed 48 cents lower, or 13.8 per cent, to $2.99 on Thursday.

    Job cuts

    The iron ore miner has cut $300 million from its costs and laid off 1000 staff in recent weeks in response to softer demand from Chinese steelmakers. Fortescue, with debts of $9 billion, requires iron ore to remain at $US110 per tonne or higher in order to cover repayments to its backers.

    The benchmark price for a tonne of iron ore at the Chinese port of Tianjin has sunk as much as 34 per cent since the beginning of July, reaching a low of $US86.70 a tonne on September 5, as growth in the industrial giant switches into lower gear. Since hitting the low, iron ore has regained some strength, rising by $US9 to $US105.1 after the US Federal Reserve unleashed its latest monetary stimulus which lifted global commodities prices.

    Leyland Asset Management senior portfolio manager Rohan Schmidt said the deal would be positive for Fortescue shares this morning but over the longer-term fate of the company was still tied with the direction of iron ore prices.

    "It looks like Fortescue stock may bounce on the open but it's still very much an iron ore price story," he said.

    "If the iron ore price stays under $US100 per tonne in the mid-term or well below this company would still be in trouble."

    Mr Schmidt said the deal announced this morning showed Andrew Forrest "still has a very good relationship with his bankers... once again he has shown his deal-making acumen".

    Mr Schmidt said, however, the debt may not be particularly attractive to the backer.

    "I imagine Credit Suisse and JP Morgan would want to offload this debt in the secondary market pretty quickly because I'm sure they don't want it on their balance sheets."

    Fortescue chief Nev Power said the company had started talks to restructure its bank facilities and scrap earnings-based covenants ahead of Fortescue's next review in December.

    ''This action, together with our previously announced measures, will continue to build on Fortescue's profitability, liquidity and above all, removes uncertainty around our financing arrangements," he said.

    Read more:

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Sep 17 9:41 PM | Link | Comment!
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