Oh dear: On April 1 Skilled Group CEO Greg Hargrave sold four million shares at $1.59 “to settle a pre-committed family property transaction”, according to this statement. That property deal was the $7.5 million purchase of a house at exclusive Wategos at Byron Bay. This morning, Hargrave said he will walk the plank after Skilled revealed yet another earnings downgrade. The shares tanked 9c to $1.265 just after 11am, a fall of 7%. “Skilled Group’s major shareholder and managing director and chief executive officer, Mr Greg Hargrave, has announced his intention to lead the review and then to step aside from his role as managing director and chief executive officer upon completion of the review and the implementation of its recommendations.” … “I take responsibility for this performance” Hargrave said. He and associated interests still hold 57,725,283 shares, or 30.26% of Skilled Group, worth about $75 million. The share price has halved since late last November, despite the wider market rising.

Think of Greece: Up until Greece hit the fan this week, quite a few US economists and analysts were hopping around, urging the the Fed to change the wording of its post-meeting statement early to qualify that phrase, “extended period” and put the markets out of their misery. By introducing some sort of term limit on the current record low rates, analysts would have something new to write about. Rising jobs numbers, house prices, retail sales and car sales have made Americans more confident. Profits are rising, even though many commentators don’t see the cost cuts and job losses that have allowed this to happen. But suddenly Greece is wobbling towards default, and other debtor countries are looking nervously at their rising bond yields. The bond market vigilantes are more a lynch squad internationally.

Fed closes ranks: So there was no chance the Fed doing anything but reiterating its previous statement, which it did. Greece wasn’t mentioned, but it’s the large animal in the back of the room, terrifying everybody. The Fed cut the Federal Funds rate to the current record lows in December 2008 and in March last year promised “exceptionally low” rates for “an extended period”, a vow it has maintained at every meeting since then. Any move to indicate a future rise in US rates would send the euro lower and the dollar higher. Normally that would be helpful for Europe and Greece, but not in the present climate of fear.

But watch the UK: With the UK election next week looking very close, keep an eye on UK bonds for any sign of a raid or sell-off if there’s a hung government. An ideal time to make money is when there is really no one in charge. There’s talk of a 10-day period where the horse trading will happen between Labour, Conservative and the Liberals. The election campaign could produce a last-minute swing next week and there’s a sudden clear winner, but that looks unlikely. The markets will wait and see what happens because there are other, easier victims in Spain (downgraded today), Portugal, Ireland and Italy. Yum.

Inflate #1: Yesterday’s March quarter consumer price index have confirmed the Reserve Bank’s reservations about the measure’s adequacy and accuracy. These were outlined in March in a submission to the Australian Bureau of Statistics inquiry into revamping the CPI.  The RBA wants a monthly CPI, seasonally adjusted if possible and wants more work done on several of the sub indexes, especially the volatile deposit and loan series, which attempts to measure the impact of interest rates and finance costs on consumers.

Inflate #2: “There is a strong argument for the CPI to be produced on a monthly, rather than quarterly, basis, in line with other advanced economies. The methodology used to measure price changes in the deposit and  loan facilities expenditure class, and the weight of this item in the CPI, should be reassessed. If improvements to the methodology are not feasible, this item should be removed from the CPI,” the RBA said in its submission. In fact the big rise (13.3%) in the pharmaceuticals sub index supports the RBA’s call for a seasonally adjusted index, as that sub-index was behind the 0.5% rise in December, which was a bit lower than expected, and then March’s 0.9% jump. The RBA will publish its new inflation and growth forecasts next Friday.

Kiwi rate rise looms: New Zealand looks like getting its first rate rise in June after the country’s Reserve Bank held rates steady at 2.50% this morning. Governor Alan Bollard, however, said: “We expect to begin removing policy stimulus over the coming months, provided the economy continues to evolve as projected. He said the recovery will be “in line with or slightly faster than our March projection”. NZ official rates have been at their current level now for two years. The RBNZ next meets on June 10 and economists say a 0.25% increase is very possible after this morning’s statement, which also suggested that the number of rate rises could be less than many people think.

The gnomes of Zurich are back: Switzerland is to host a forum of bankers and policy makers next month in Zurich to discuss strengthening the global monetary system after the financial crisis. The Swiss central bank says it will jointly host a high-level conference on the international monetary system in Zurich on May 11,  with the IMF. The conference will examine issues such as sources of instability in the international monetary system, improving the supply of reserve assets, dealing with volatile capital flows and the use of currency reserves. So will they help save Greece, or is this just a chance for the gnomes to parade their spring fashions? Certainly Switzerland knows a lot about strong financial systems. One of its two big banks, UBS, was as close to falling over as Citigroup was, or Lehman Brothers, which did. Switzerland was saved by the fact that the other bank, Credit Suisse, was well run and relatively conservative.

Keelhaul them all, I say: Norfolk, Virginia (The Borowitz Report) — “Eleven indicted Somali pirates dropped a bombshell in a US court today, revealing that their entire piracy operation is a subsidiary of banking giant Goldman Sachs. There was an audible gasp in court when the leader of the pirates announced: “We are doing God’s work. We work for Lloyd Blankfein.” The pirate, who said he earned a bonus of $US48 million in doubloons last year, elaborated on the nature of the Somalis’ work for Goldman, explaining that the pirates forcibly attacked ships that Goldman had already shorted. “We were functioning as investment bankers, only every day was casual Friday,” the pirate said. The pirate acknowledged that they merged their operations with Goldman in late 2008 to take advantage of the more relaxed regulations governing bankers as opposed to pirates, “plus to get our share of the bailout money.” In the aftermath of the shocking revelations, government prosecutors were scrambling to see if they still had a case against the Somali pirates, who would now be treated as bankers in the eyes of the law. “There are lots of laws that could bring these guys down if they were, in fact, pirates,” one government source said. “But if they’re bankers, our hands are tied.”

Peter Fray

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Peter Fray
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