Phil's Stock World

Submitted by Nemo of Nemo’s Blog

I’m reading two books right now, which I will deal with in two posts. The first is The Forgotten Continent by Michael Reid, the former bureau Chief for Latam at The Economist about modern Latin American history and development.

Firstly, to all the Sinologists and policy analysts does this sound at all familiar?

“In addition to raising tariffs on imports, governments added many non-tariff barriers (such as outright prohibitions) against goods which competed with local production, and gave soft loans and subsidies to favored industrial firms. They also used the state aggressively to promote development, through state-owned companies and regulation, and to try to spread its benefits around. This effort was partly successful: economic growth was fairly brisk….. But the cost was heavy. Because they were over-protected, many industrial firms were very inefficient.”

Wow, this could be China today – soft loans, SOEs, protected industries and informal trade barriers. Well where did all that wasted capital and loan printing go I wonder?

“Given the ideal external conditions, growth.. remained relatively disappointing [in the late 70s to the 90s]- especially when measured against growth rates in China and India. That comparison was in part unfair: China is at a similar stage in its development to that of Brazil from the 1950s to the 1970s, Of industrialization based on drawing in the reserve army of rural labour and foreign capital.”

Which gets to an important point: most of China’s productivity gains are based off the back of moving people out of subsistence labor to the cities where they work in the private and relatively efficient export sector. Once this party is over, and, indeed, by some accounts it was before the recession hit, the real test of China’s economic model will come to the fore. If they get it wrong and fail to do the kind of microeconomic reform then should know what to expect:

“Inflation, chronically higher… than elsewhere, took off. Devaluation increased the price of imports. Budget-cutting was offset by recession, which cut tax revenues, leading many governments to print money on an unprecedented scale…High inflation acts as a tax on the

It was only a week ago that we were conjecturing about the prospects for Austrian mega-bank Raiffeisen. This being Zero Hedge of course, we came to the conclusion that the prospects were not that hot. Some readers vehemently disagreed. Maybe news today out of RZB will make them a tad less skeptical: the bank announced that it was scrapping the exchange offer without providing much of a reason.

Among some percolating speculations as to the reason why are:

1. Complete lack of investor interest
2. Concerns about what would happen once the lack of interest is made public
3. Trouble with accountants
4. rating agency getting back to the bank that this would be treated as a distressed exchange (as Zero Hedge speculated), putting the company into an Event of Default.

Then again, the real reason is probably much more innocuous, and has to do with the bank discovering a buried gold treasure in its back yard which will be used to satisfy the several hundred billion in toxic assets as a result of chicken coups built in Transylvania at a 180% LTV (in a probably JV with GE Capital).

And in order to bring even more seriousness to this grave situation, I present Google’s erudite translation of the German text provided by RZB to explain the exchange offer pull (about as legible as the 2930 line, non-broken sentence from the latest MGM Grand indenture).

RZB Finance (Jersey) IV Limited announces the withdrawal of the exchange offer the EUR 500,000,000 Non-cumulative Subordinated Perpetual Callable Step-up Fixed to Capital Floating Rate Notes (ISIN / Common Code XS0253262025/025326202) to RZB Finance (Jersey) Limited IV invited on 18 June 2009 to holders of the above.

Debt, the existing debt into new “Non-cumulative Subordinated Perpetual Callable Fixed to Floating Rate Capital Notes “to the issuer exchange offer (the” Exchange Offer “). The Exchange offer was based on the conditions of the Exchange Offer Memorandum of 18. June 2009. The new bonds were, as the existing Bonds, with a supporting statement of the Raiffeisen Zentralbank Österreich AG (RZB)

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