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ParticleMan

Euro Trash

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So back in February when I made a cryptic if ballsy call about a difficulty the SNB was about to face up to, it wasn't clear if the Euro was going to be the Deutschemark or the Lira - now that we've established that it is after all a curious camel called the Drachmark, it's time to stroke our collective beard and have a think about the new new.

One thing that's abundandly clear from Merkel's moment of madness is that no crack in the skein of reality is too vast to be papered over with (she and her Bundesbank are in good company in this regard, if a little late to the party).

A curious (and occasionally reported) effect of this little act of presto-changeo is that private sector risks have been collatoralised and underwritten at varying maturities along the public sector's borrowing (as far long as the national credibility or perhaps credulity allows).

So far so good.

However, while the systemic effect of increasing the private sector's ability to offset risk was to magnify its appetite for it (to the point where much as with Mr Creosote's gluttonous bulk, it found itself unable to ingest any further), the public sector is in the process of discovering that the private sector is reluctant to be fooled a second time.

Fundamentally, to persuade the private sector to roll over its very own delightful legacy, the private sector will wish to see a net reduction in the risk the public sector takes on; it will measure GDP growth against forecast, and cast a beady eye over fiscal overhang.

If it doesn't get what it wants, it will (like the petulant child it is) hold its breath until it turns blue. Auctions will be un-covered, yields will rise the way an elephant strapped to a JATO pack would.

With far less liquidity on offer, and far less direct and indirect pump-priming (QE and CE alike are inneffective against this trade being flattened out in currencies then commodities), the private sector will find itself exposed to far greater risk than it has priced for (given the choice between boosting demand, and reducing market rates, the public sector will find itself unable to opt for the former).

Now we get to the meat of this.

The private sector is most exposed to this kind of risk in the one industry so far insulated from the tremors rumbling around the globe since this all began back in May 2007 - our very good friend Insurance, and its tentacles named Pensions, Annuities, and General Underwriting.

In this light some insurers are a little more entertaining than others. Some are a little further exposed to EUR-denominateds (sovereign and otherwise), some are a little further exposed to the far East.

The thrilling question for the day is - what will Merkel do, the day she realises she must attempt to swallow Allianz, too?

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that was a great post.

shame I cant understand a word you are saying.

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However, while the systemic effect of increasing the private sector's ability to offset risk was to magnify its appetite for it (to the point where much as with Mr Creosote's gluttonous bulk, it found itself unable to ingest any further), the public sector is in the process of discovering that the private sector is reluctant to be fooled a second time.

Fundamentally, to persuade the private sector to roll over its very own delightful legacy, the private sector will wish to see a net reduction in the risk the public sector takes on; it will measure GDP growth against forecast, and cast a beady eye over fiscal overhang.

If it doesn't get what it wants, it will (like the petulant child it is) hold its breath until it turns blue. Auctions will be un-covered, yields will rise the way an elephant strapped to a JATO pack would.

With far less liquidity on offer, and far less direct and indirect pump-priming (QE and CE alike are inneffective against this trade being flattened out in currencies then commodities), the private sector will find itself exposed to far greater risk than it has priced for (given the choice between boosting demand, and reducing market rates, the public sector will find itself unable to opt for the former).

Now we get to the meat of this.

The private sector is most exposed to this kind of risk in the one industry so far insulated from the tremors rumbling around the globe since this all began back in May 2007 - our very good friend Insurance, and its tentacles named Pensions, Annuities, and General Underwriting.

In this light some insurers are a little more entertaining than others. Some are a little further exposed to EUR-denominateds (sovereign and otherwise), some are a little further exposed to the far East.

The thrilling question for the day is - what will Merkel do, the day she realises she must attempt to swallow Allianz, too?

Fantastic writing PatricleMan! The fact is the transfer of debt and risk from the private sector banks to the public sector is becoming circular. It's about to blow back on itself. Guess who will pick up the bill? The real economy, the private sector and the taxpayers themselves. Print away or inflate away or have a deflation, but dear govt you will be making us all pay somehow.

Edited by plummet expert

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.....If it doesn't get what it wants, it will (like the petulant child it is) hold its breath until it turns blue...

good post, but let me stop you right there. I'm not buying this notion the private sector is going to self strangulate rather than come to some accomodation with the public sector. The operative word he is accomodation, which means presumably meeting , if not in the middle, at least away from the extremes.

Much discussion of this debt thang seems to turn on the assumption that those investors most gasping for breath can simply enter the cool tent of some safe haven, just like a kid playing tag declares he's 'in the base', and can't be touched.

Course, we know the rules, and you're not allowed to stay on base for more than a count of, what?

Then there's the fact that there are fewer and fewer bases left.

In the end: how many bond investors can fit on the head of a pin?

The thrilling question for the day is - what will Merkel do, the day she realises she must attempt to swallow Allianz, too?

insurance as the next crack? Yes, that makes sense. Hopefully when that happens people will be ready to talk sense.

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that was a great post.

shame I cant understand a word you are saying.

I thought I'd been on HPC too long when I started to understand what Injin was talking about. Now I find I can make sense of what Particle Man says... and he makes sense! :blink:

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insurance is another "City" job.

its basis is a gamble on an outcome.

my first read of the OP was that the Private Sector may rebel in some form, looking for a reign back in the liabilities that the public sector is committing it to.

my reaction was ? I am private sector, how does this comment relate to my reality.

It doesnt.

I do my job, I get a demand for tax. thats it. I cant look to Public sector to be responsible, much less, budget for it. I either have trade or I dont.

my only protest would be closing the business.

Insurance firms could close. they too just skim off society at the end of the day, but can help out individuals in a bind. but would society as a whole die off without them...no.

Pensions are an issue, but quite how the whole lot of us are going to be bailed when these are snapped up to pay for the bankers bailouts, I dont know.

The fact is, there needs to be some default to clear the air. and in the interest of natural justice, the financial system and its employees MUST be the ones seeing the brunt of the pain.

Let them leave our shores if they are dissatisfied.

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http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a_gKkM37yJz0

May 28 (Bloomberg) -- Insurance investors are betting the corporate bond rally that bolstered industry stocks can withstand concern that the Greek rescue plan will be insufficient to stabilize debt markets.

Prudential Financial Inc., American International Group Inc., MetLife Inc. and Allstate Corp. had a net unrealized gain of $13.2 billion on the securities on March 31, compared with a $38.6 billion loss a year earlier. The figures reflect market fluctuations that aren’t counted toward earnings and are tracked by investors and rating firms as a gauge of financial strength.

U.S. insurers, which hold more than $2.2 trillion in corporate debt, added to their portfolios in early 2009 when the bonds sunk in value, and then benefited from their rebound over the next year. Corporate bonds have returned 22 percent since March 31 of last year, including reinvested interest, after losing about 5 percent in 2008, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index.

“One of the reasons I’m overweight the group is it really lives and dies by U.S. corporate bonds, which I still think is a relatively good asset class,” Randy Binner, an analyst with FBR Capital Markets, said of life insurers. “When you mention the rally in corporate bonds, that really drives their book values.”

The 24-stock KBW Insurance Index gained 11 percent this year through yesterday, compared with the 1.1 percent drop in the Standard & Poor’s 500 Index. Prudential is up 19 percent since Dec. 31.

Bonds and Punishment

An end to the corporate debt rally could pressure life insurers, said Wayne Dalton, a senior industry analyst with SNL Financial in Charlottesville, Virginia. Corporate bonds lost 0.6 percent since April 30 and are headed for their first monthly decline this year, Bank of America Merrill Lynch data show.

Given what’s happened this quarter, it’ll be interesting to see where we’re at June 30” with the value of life insurers’ fixed-income portfolios, Dalton said. “If bonds are having a bad time, you’d probably see the stock price punished.”

Corporate debt sales have dwindled and credit risk indicators have risen this month, even after European policy makers unveiled a loan package worth almost $1 trillion and a program of bond purchases on May 10 to help countries including Greece under attack from speculators.

Europe’s sovereign debt crisis could threaten portfolio gains if it isn’t contained, Thomas Watjen, chief executive officer of Unum Group, said in a May 25 interview at Bloomberg headquarters in New York.

‘Capital-Market Event’

“The more it starts to spread from Greece to Spain to others, it’s going to continue to be a prominent capital-market event,” said Watjen, whose company oversees more than $30 billion in corporate debt. “Whether it becomes an economic event and begins to affect our growth rates, for example, in the U.S., I’m not quite there yet, personally.”

The chance of credit-rating downgrades for U.S. companies that aren’t financial institutions is the lowest since July 1998 as the nation’s improving economy overshadows European debt strains, ratings firm Standard & Poor’s said in a report yesterday.

Unum bought bonds issued by Wal-Mart Stores Inc., the world’s largest retailer, and obtained a yield in early 2009 that would typically be available only from a lower-rated company, Watjen said. Unum, the biggest U.S. long-term disability insurer, had an unrealized gain of $1.96 billion on its corporate bond holdings on March 31.

Prudential, the second-biggest U.S. life insurer, had $3.1 billion of unrealized gains from corporate debt as of March 31, compared with $7.9 billion of unrealized losses a year earlier, the company said in a May 7 filing. No. 1 MetLife had $2.5 billion in unrealized gains from the bonds at the end of the first quarter, compared with a $15.4 billion unrealized loss.

AIG, Allstate

AIG had $6.6 billion in unrealized gains from corporate debt on March 31, compared with $11.8 billion of unrealized losses a year earlier. Allstate had a gain of $914 million on March 31, compared with a loss of about $3.5 billion.

U.S. insurers bought corporate debt at the fastest pace in five years in 2009, as net purchases climbed to $153 billion, Federal Reserve data in March showed. That compares with outflows of $59 billion in 2008.

A rise in interest rates could pressure the value of insurers’ bonds. Futures show traders were betting late yesterday that there’s a 39 percent chance Federal Reserve policy makers will raise their target rate for overnight loans between banks by at least 0.25 percentage point by their December meeting, up from a 34 percent chance on May 26.

‘Fundamental Improvement’

Leslie Barbi, managing director of fixed-income securities at policyholder-owned Guardian Life Insurance Co. of America, said bond investors have been encouraged by “clear fundamental improvement” in the economy and borrowers’ ability to cut costs.

“Here’s a case with a sector in the fixed-income market where you can see why true credit improvement and fundamental improvement will come through,” said Barbi, who helps oversee $23 billion.

The extra yield investors demand to own corporate debt instead of similar-maturity government debt has widened 51 basis points from the year’s low on April 21 to 193 basis points as of yesterday, Bank of America Merrill Lynch data show. Still, that compares with a spread of 355 basis points a year ago.

Edited by ParticleMan

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http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aIpwzU.Z7RtQ

July 17 (Bloomberg) -- China Life Insurance Co. plans to sell its stake in a property insurance venture in China, the Commercial Times reported, without saying where it got the information.

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aBCUp3EJjCF0

July 16 (Bloomberg) -- Bank of America Corp. plans to sell the insurance unit it acquired in the purchase of Countrywide Financial Corp. as Chief Executive Officer Brian T. Moynihan seeks to simplify the company and raise funds.

:

Balboa is one of the largest providers of coverage on foreclosed homes and properties occupied by distressed borrowers. Sales have expanded as banks seek to protect their mortgage collateral and seized houses against storm damage and vandalism. Munich Re and Warren Buffett’s Berkshire Hathaway Inc. have entered the market for so-called forced-placed coverage to compete with Balboa and market leader Assurant Inc.

Meanwhile, down in Omaha...

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=a.7POIMO5J3U

July 15 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc., which was stripped of its top credit ratings over the last two years, agreed to put up $2.2 billion in a collateral trust to win a reinsurance deal with CNA Financial Corp.

The cash will fund asbestos and environmental claims from CNA clients. Omaha, Nebraska-based Berkshire will receive a $2 billion premium and the right to collect reinsurance of $200 million from third parties, CNA said today in a statement.

“We’re in this new environment where people want collateral posted,” said Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha” and founder of hedge fund Ram Partners LP. “$2.2 billion is a large number.”

:

Berkshire got a $7.1 billion premium in 2007 for assuming asbestos risks previously held by Lloyd’s of London investors. Those funds were delivered to Berkshire as a portfolio of investments that Buffett then reshaped, with the expectation that his stock picks would beat the return of the Standard & Poor’s 500 Index.

“They actually sent us the S&P 500 they had in their equity portfolio,” Buffett said of the Lloyd’s premium at a press conference in May 2007. “I proceeded to sell 496 or 497 of them in a couple of days.”

:

Berkshire’s float from insurance businesses rose 5.9 percent last year to $61.9 billion. Buffett also collects investable funds from derivatives counterparties. The collateral posting requirement for Berkshire on derivatives contracts was $35 million at the end of December, according to the firm’s annual report.

Berkshire “always holds the money,” Buffett said of his derivative contracts in the 2008 annual report. This float means that when the contracts are settled, “the substantial investment income we earn on the funds will be frosting on the cake.”

... taking the butt of the stock backing large derivatives portfolios, liquidating 90% of it, and value investing the remainder?

Genius.

But 'ware below...

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=alu3UkOdUiVQ

July 14 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. scaled back sales of the most unusual and riskiest U.S. insurance policies as prices declined and the company guarded capital for its biggest acquisition.

Berkshire’s premiums from companies insured through excess and surplus policies plummeted 32 percent to $473.9 million in the 12 months ended March 31, SNL Financial said in a report distributed yesterday by e-mail. That was the biggest drop among the top 30 carriers, pushing Omaha, Nebraska-based Berkshire to No. 12 from No. 8 among excess and surplus insurance writers.

“Their premium decline is quite a bit more than other insurance companies,” Andrew Schukman, the SNL analyst who wrote the report, said in an interview. “That’s probably an indicator that they’re pulling back a bit.”

Insurers are facing price declines as they compete for business in a contracting market. Buffett, 79, Berkshire’s chief executive officer, has reduced his firm’s reliance on insurance over the last decade by acquiring energy and freight businesses. Last year, he curbed Berkshire’s coverage of natural-disaster risks, and in February he spent $27 billion buying railroad Burlington Northern Santa Fe Corp., his biggest acquisition.

Rates in the excess and surplus market, which includes unusual policies like “fire insurance to a fireworks factory,” have slipped for at least three years, said Schukman. American International Group Inc., the bailed-out insurer, posted an 11 percent premium decline and remained at the top of the rankings, according to SNL. Industrywide, premiums fell 5.5 percent to about $23 billion.

Edited by ParticleMan

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http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=al6hzpudTeE4

]July 26 (Bloomberg) -- QBE Insurance Group Ltd. said it expects net profit after tax to be down by about 40 percent in the first half. The company released the information in a statement to the Australian stock exchange.

http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=avMOUnISKsZg

July 27 (Bloomberg) -- Insurance Australia Group Ltd., the Sydney-based insurer formed in 1925, said fiscal-year profit halved after rising claims at its loss-making U.K. unit.

Net income in the year ended June 30 fell to A$91 million ($82 million) from A$181 million a year ago, Insurance Australia said in a statement today based on preliminary data. The company removed its top U.K. executive, Neil Utley, after he oversaw a A$367 million second-half charge at his division.

Insurance Australia fell the most in almost two months in Sydney trading as natural disaster claims also overran internal forecasts and the group set aside more funds to bolster reserves. The company has blamed rising personal injury claims among U.K. drivers and today replaced Utley with Ian Foy, head of the New Zealand unit.

:

The insurance profit margin for the year was 7 percent, matching a reduced forecast announced in June. For the fiscal year ending June 2011, the margin will be between 10.5 percent and 12.5 percent, Insurance Australia said.

Full results will be released on Aug. 26.

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Guest Noodle

So back in February when I made a cryptic if ballsy call about a difficulty the SNB was about to face up to, it wasn't clear if the Euro was going to be the Deutschemark or the Lira - now that we've established that it is after all a curious camel called the Drachmark, it's time to stroke our collective beard and have a think about the new new.

One thing that's abundandly clear from Merkel's moment of madness is that no crack in the skein of reality is too vast to be papered over with (she and her Bundesbank are in good company in this regard, if a little late to the party).

A curious (and occasionally reported) effect of this little act of presto-changeo is that private sector risks have been collatoralised and underwritten at varying maturities along the public sector's borrowing (as far long as the national credibility or perhaps credulity allows).

So far so good.

However, while the systemic effect of increasing the private sector's ability to offset risk was to magnify its appetite for it (to the point where much as with Mr Creosote's gluttonous bulk, it found itself unable to ingest any further), the public sector is in the process of discovering that the private sector is reluctant to be fooled a second time.

Fundamentally, to persuade the private sector to roll over its very own delightful legacy, the private sector will wish to see a net reduction in the risk the public sector takes on; it will measure GDP growth against forecast, and cast a beady eye over fiscal overhang.

If it doesn't get what it wants, it will (like the petulant child it is) hold its breath until it turns blue. Auctions will be un-covered, yields will rise the way an elephant strapped to a JATO pack would.

With far less liquidity on offer, and far less direct and indirect pump-priming (QE and CE alike are inneffective against this trade being flattened out in currencies then commodities), the private sector will find itself exposed to far greater risk than it has priced for (given the choice between boosting demand, and reducing market rates, the public sector will find itself unable to opt for the former).

Now we get to the meat of this.

The private sector is most exposed to this kind of risk in the one industry so far insulated from the tremors rumbling around the globe since this all began back in May 2007 - our very good friend Insurance, and its tentacles named Pensions, Annuities, and General Underwriting.

In this light some insurers are a little more entertaining than others. Some are a little further exposed to EUR-denominateds (sovereign and otherwise), some are a little further exposed to the far East.

The thrilling question for the day is - what will Merkel do, the day she realises she must attempt to swallow Allianz, too?

Particle's, are you this chap?

20486.png

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Guest Noodle

:rolleyes: The chap on the left or right?

Ummmm . . . left.

We needed Particle's on Quorky's cryptic clues 3-2-1 thread in the OT last week.

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  • 140 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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