It as good as the +1% consensus. Only much better.

Utilization capacity continues to hum at a pace re-emphasizing the inflation threat the Fed has to handle amid what are increasingly political calls to ease the plight of over-lenders and over-borrowers. Then again self-interest is what makes the system so dominant.

Equity markets have made a small initial jump on the news; but perhaps the odds-making on the two Fed funds cuts over 60% of polled economists expect by year end has been complicated a shade: Mr Bernanke's goal is to prevent a lack of credit liquidity in the interbank market getting out of hand whilst keeping a grip on inflationary pressure - he is not in the business of saving from insolvency those who got greedy.

Or at least that is what his published utterances appears to say.

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UPDATE, 13h00 (GMT+1): iSoft have just announced they are discussing the terms of an auction process with the UK Takeover Panel

The UK's Takeover Panel rules were not designed with Schemes of Arrangement, a structure under which a bidder need gain 75% control in order to squeeze out the remaining quarter, in mind. The only previous case the scribe has read of with two competing bids somewhat similar to this involved Tata and CSN's cash bids for Corus. Then, the Takeover Panel made them enter a snap auction. The bottom line now: iSoft have a duty to shareholders to encourage further bids - and it would be a surprise if they do not find a way to do this.

IBA have control of over 25% of the share capital. Yet for all the offensive quality this appears to imply its strongest feature is a defensive one: CompuGroup have over £250m in cash and new debt facilities to throw; IBA circa £180m most of which is, in fact, other people’s money (OPM). So although the IBA stake sabotages the CompuGroup Scheme of Arrangement it is probably aimed more at discouraging an open bidding war that they would lose (as resources and available info stand).

The OPM is Allco, Chairman Cohen’s ex-employer. It is stunning Allco would even consider taking up such diluted equity sitting on a foundation of what are truly extremely modest IBA operations. Justifications of ‘exciting growth prospects’, unless they are ironic, surely refer to the target for they are engaged in the financial equivalent of stuffing a Mini with rugby prop-forwards. And the car will still not go any faster unless they successfully scrum/mug the iSoft/CompuGroup combo.

IBA’s bid is already within £15m of its resources this round. Would Allco stump up more? Who knows, since they are all good friends currently defying prudent financial logic. They must already know Deutsche have been accumulating for CompuGroup since January; and the German firm probably had agreements over at least 15% of iSoft’s shares before IBA’s second cherry bite. Nonetheless, come 27 August when IBA announce annual results expect a bumper production to showcase its bid.

That aside, who knows what else is up various sleeves.

NB: Writer holds iSoft equity; and (hostage to fortune warning) he calculates a final CompuGroup bid (if they come back) 8p to 10p higher would win it.

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Sautéd chapeau even in this fabulous culinary nation is not tasty. 50 bps to the discount rate (not Fed funds) and stick Jim Cramer in the FOMC forthwith, if you please.

Now, as markets climax in relief there is a tiny question that arises: who was imploding that badly to merit this?

Then there’s the medium-sized question (but not by much from the biggie below if you're currently in the deleverage spit-roast position): is it enough to reduce the half-lives of the financially toxic such that they become operationally treatable?

And the biggie: temporary or not, is it in the best interests of the wider economy?

Ack, ack, ack, ack, ack.

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Seeking some calm and balance for their popular 'Mad Money' show, CNBC's recruitment department are currently in intensive negotiations to get this commentator off the sports desk and into the business team as soon as possible.


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Dear Investor,

In these troubled times ‘solidarity’ is more than a word the French bandy about during unemployment rallies. It is a clarion call to stand firm, shoulder to shoulder as the credit barbarians bear down upon us. They demand redemptions; but I ask you to stand pat and trust us although for all intents and purposes matters are entirely out of our hands. God, Buddha, Muhammed, Joe Smith Jnr and whatever it is the Scientologists want - the entire deity community and its acolytes really - will prevail for we are all on the same side here (yes, their Earth-living reps tucked a little something away with us too). Faith, please.

In this scenario you may get your cash back and we may not go bust (there’s no telling). But let me remind all our investors that there is no foundation for the assertion that panicking and bawling like a banshee for your cash is the only way to avoid being stitched up like a kipper. Remember all the warnings from our regulatory friends - historical precedent is no guide to current or future events when it comes to investing (whatever your customer service rep implied on this when soliciting you was probably exaggerated).

Alternatively you may keep bansheeing for your cash like some of the unreasonable whinertards we invest for. That appears to be your legal right (pending reply from our lawyers). But we believe if one investor breaks rank, the floodgates will open and we will be in turn broken. More importantly, of course, so will you. We would certainly be forced to liquidate and you will catch a baby grand from a great height. Still, you would get something back but I do not think there is any reason to share our scary data on that front now. Just bear with us and assume zero. We need to stay in business to protect ourselves – and more importantly, of course, you the very, very highly esteemed client. That’s why we have frozen your money. For you.

Rest assured we've communicated the situation to all our investors. Except management insiders of whose choices and actions we may or may not inform you of at a later date depending on how active regulatory bodies show themselves to be in the coming months.

Please do not write us about guarantees that we may or may not have implied, made or suggested. Ditto on prevailing legislation binding us to respect client wishes regarding withdrawals. Ditto on how much we've made in the last 5 years when you were not really paying attention. We are aware and discussing with our legal department.

Kindest regards,


ANO Financial


PS/Bestest to the wife and kids.

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August 1, 2007

"As far as the U.S. subprime crisis is concerned, BNP Paribas's exposure is absolutely negligible,''
Baudouin Prot, CEO
“We'll benefit from having had a particularly prudent risk policy”
Georges Chodron de Courcel, COO

August 9, 2007

BNP Paribas freezes three of its negligibly exposed prudent funds due to the "complete evaporation of liquidity in certain market segments of the U.S. securitization market."

They did this, they say
"to protect the interests and ensure the equal treatment of our investors, during these exceptional times…[we'll let up] as soon as liquidity returns to the market allowing net asset value to be calculated".
In other words, as soon as these funds are worth something, the énarque / arisotcrat management combo will let you know how well you've been 'protected'.

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Was that a sop Mr Bernanke tossed out earlier?

A reference to credit tightening ‘turmoil’ in the financial markets was politically inevitable; and enough to feed the grist mills of most prejudices.

In spite of that most observers will continue to assume that the only bailing out scenario conceivable would be one in which the wider US economy was also under grave threat.

That is simply not clear as is. Maybe it will become so for the popular (it seems) belief that excessive leverage and credit will not in due course have a wider reaching non-housing sector 'real world' economic impact is a touchingly faith-based one.

Still, that is not a call for cuts: an unmedicated end to the liquidity bender must be (up to a point) preferable.

The Chairmen just prescribed a chill-pill. But, really, he had little choice.

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Sneak preview of the Federal Reserve Board’s minutes appearing, officially, next week. The resemblance to Jimmy Cliff’s Many Rivers to Cross may be a reflection of the Board's summer holiday spirit. Sing along with the genuine article of the great track here.

Cramer’s really quite cross
Cause we won’t open the discount window
He wonders when the Fed lost
Its means to cut like The Maestro

Seems the Big 5 have got memory loss
But whilst the penny’s dropping they’re still alive
Credit’s been loose, sloshing round for years
And they’ve more than survived upon its rising tide

And now this noise from their constant moans
It's such a drag – wish it were overblown
Sure, they’re hurting and yes we do know why
Still, looks like they’re gonna cry

Cause we don’t give a toss
And as for cuts Ben’s biding his time
There has been data he’s found all by himself
None of which are exactly sublime

Yes, they've got many rivers to cross
Cause there’s no way the rate holding’s over
Wandering, they are lost
As they travel along in search of more easy clover


NB: Inspired by a marvellous Cassandra comment and conceived (how sad this is) during idle late night reveries.

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When Robert Cray wrote that line he did not have fixed income markets in mind. In fact, the scribe is fairly certain no blues songs cover the topic. Which is one reason why the world has blues-man convert Jim "Where'd my Groove Go" Cramer.

The scribe has shared carefully selected, little known but useful management tips here before. And here is another: when you’re in deep shit, it’s best to keep your mouth shut**.

Mr Cramer acknowledges the merits of this tip. Shortly before ignoring it in the following CNBC-sponsored missive which may be described as truly entertaining (whatever one’s own assessment). Is it worth asking where the market pro ends and the tv-loid journalist begins?


"Riverdance" Chuck's insights at this point would be wonderful. Immense balance sheet over there, true. But what does Mr Prince make of dicier balance sheets where lending commitments overshadow the capital base? You know – like Merrill Lynch’s and the rest of the Big Five US investment banks.

The Fed decision and minutes next Tuesday are looking unmissable.

*Given Mr Cramer's history, the scribe wanted to call this post "About that buying opportunity". But casting the first stone is not honest.

**Not, ahem, offered as a life philosophy.

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Whilst a collection of credit market actors have marched unsuspectingly into their Isandhlwala the Baltic Dry Index cruises on, unperturbed, to the record 7,000 level. This is China (mainly) at work, of course: and shippers are in part coping by holding back vessels that, through age, would be destined for the breakers in less buoyant times.

The scale of the veteran vessel build up is this: for each of the next four years 25 million dead-weight tons (dwt) of old steel hits the 25 year old mark, the age generally regarded as the useful life of a vessel. That 100m dwt is in addition to 80m dwt of vessels already aged between 25 and 29 years old. Thus a total of around 180m dwt is due in at the knacker’s yard by 2010.

To put this in context, in each of the last three years breakers have scrapped only 10.6m, 5.7m and 6.6m dwt. Scrap yards, seriously struggling for work through scarcity, will have a boat-load coming their way shortly. If freight rates hold, it will be an orderly feast. If they don’t it will be a riotous one.

Before rushing off to buy into ship-breakers there is something else to consider. It is a largely unregulated industry mostly in the hands of family firms; it is fiendishly difficult to make profits on due to the diverse products extracted and sold into quite different markets; there is no pricing power; and it is ever more political given the environmental pollution it generates. Once dominated by the US and Europe, then the Far East, since the late 1980s it is now India, Pakistan and Bangladesh who rule the roost (such as it is).

That trend speaks to the importance of labour costs over the technical expertise required to dispose of ship pollution safely. However, ‘responsible disposal’ is an ever-hotter topic with NGOs, sovereign governments, industry associations and even the subsidy-toting EU becoming involved. The latest (July) result of the blather is a set of International Maritime Organisation interim ship recycling guidelines, a development that probably, should it grow teeth, will promote and benefit new waste/breaking business alliances.

The prime example of this it that established by three Suez subsidiaries (waste disposal, industrial dismantling, metal salvaging) which last September won a contract to dismantle a French frigate. It wants to do the same to the Clemenceau aircraft carrier, star of the tug of war between France, India and Greenpeace over the last several years.

With the vast tonnage hitting its shelf life and strong environmental (and increasingly so) political momentum expect more such groupings – and maybe go so far as to consider their investments merits.

Usual disclaimers.


Sources: Clarksons Shipping Intelligence; McQuilling Services; International Maritime Organisation Library Services

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