Mikuni's Passing
Remarkably, given the stakes are so high, investors seem acquiescent in this area. Last December saw the closure of Japan's only truly independent and rational (at least to me) credit rating agency. The following is an excerpt from an actual e-mail I received:
Re: Termination of Mikuni's Credit Ratings services
Please be noted that we will terminate Mikuni's Credit Ratings services on December 31, 2009.
Thank you very much for your support to our services.
We have provided with Mikuni's Credit Ratings on Japanese banks and companies since July 1983. When we started this service, it was widely recognised that banks and large companies basically had never failed in Japan and credit ratings had not been necessary for the investors.
However, in July 1984, Riccar's convertible bonds were defaulted and the final investors lost money for the first time since the World War II. Thereafter, we have experienced 46 cases of failures of bond issuers. Among them were large bank failures. We understand that credit risks on Japanese large corporations have been less "socialized" in recent years and are likely to be "privatized" more completely in near future.
Thank you again for your support and ask for your understanding.
Mikuni & Co., Ltd
The closure of course coincided with Japan's first ISDA recognised credit default event, the restructuring of the consumer finance company Aiful, and preceded by a mere month the bankruptcy of JAL. It is as though the truth is so unpalatable that investors would rather not hear it, certainly not pay Mikuni $5,000 per quarter to confirm the near certainty that they own overvalued corporate credits. A country with a debt burden that is unprecedented in the modern age and whose companies typically pay less than 2% per annum for ten year money has decided that it has no need for tales of possible woe. To quote Hillary Clinton, it's, "Unf***ingbelievable."
The Fund has been buoyed by the performance of our Sterling, Australian and Kiwi interest rate swaptions this year as well as gains from European sovereign CDS and successful speculations in currency and corporate debt. These profits have allowed us to lean into the sell off in risk-averse markets in February/March. We have therefore been able to double notional exposure to our Asian bear portfolio. Today we are 3.5x short the Fund's NAV. We have a maximum loss of 8.5% and a maximum potential gain of 250% should our names go bankrupt and creditors recover 25% of their assets. We are ready...
However, so dramatic are the pricing anomalies prevailing in today's market that we intend to launch a single strategy version of this trade in June 2010. As a single strategy product, we anticipate the new Fund will offer investors much more gearing to the upside potential inherent in this asymmetric trade. More detailed information about the investment parameters and structure of this Fund is available upon request.
China accounts for one-fifth of world corn production, and a similar proportion of demand. Its net exports over the last five years have been negligible. And, according to the statistics, China holds 34% of global inventories, well above the world average. In fact, its stocks-to-use ratio is 31%, which compares with a global average of 18% and an average ex-China of a rather paltry 14%. In short, China is long. So can someone please explain to me why the price of corn in Dalian, a port city to the east of Beijing, trades for $7.50 per bushel, more than double the Chicago price?
