Morning Reading – Wednesday, February 2, 2011

FT Alphaville: Dear Nokia and Microsoft CEOs

Required reading ahead of next week’s make-or-break strategy day at Nokia…

FT Alphaville: Meredith Whitney and the muni fifth dimension

In an article out on Tuesday, Whitney is asked about her prediction that “You could see 50 sizable defaults, 50 to 100 sizable defaults” amounting to “hundreds of billions of dollars’ worth of defaults” in the municipal bond market…

FT BeyondBRICs: Mubarak won’t run for re-election

Egyptian president Hosni Mubarak will not run for office again, he said in televised address, but will spend the remainder of his term working towards a peaceful and stable transfer of power.

FT BeyondBRICs: Russia’s oil windfall: how to spend it?

With the price of oil above $100 a barrel, Russia’s federal budget is starting out 2011 in the black. The country’s budget balances at about $95 per barrel and it will be interesting to see how it uses its windfall oil surplus.

The Big Picture: 90/90 Down Days Followed by Rally, Then…

Yesterday, I reviewed the major indices, explaining why we are expecting a 5-8% correction at a minimum, and possibly an 8-12% whack over the next few months.

Whenever markets experience the intense selling of 90/90 days — those trading sessions when 90 percent of the volume is to the downside, and 9 out of 10 stocks close lower — it often marks a turning point in a bull run. The psychology is shifting, as institutions are changing postures from accumulation to distribution.

London Banker: Egypt, China and Famine Futures

Along with the rest of the world, I am watching events unfold in Egypt and I am awed by the civilised and moderate nature of the Egyptian crowds. Students have formed protective rings around the most important heritage sites to prevent damage. Neighbourhood Watches have sprung up to provide civil security. Supplies of food and water are couriered to the protestors and shared with the police and soldiers. There is no obvious political leadership among the protesters, but their self-organisation is still impressive.

Bond Vigilantes: Inflation Hedging for Long-Term Investors – the most important academic paper you will read this year

You would have to be living under a rock to not notice the increasing number of articles dedicated to the topic of inflation. The increase in inflationary articles has almost been as dramatic as the increase in inflation itself. Even 3 out of our last 4 blogs have been on inflation. Unsurprising really, seeing as we are bond investors. Looking elsewhere, the pundits have decided to focus on the idea of how an investor can protect a portfolio of assets from inflation. Having done a lot of research on the topic here on the M&G bond team, we would like to draw your attention to an IMF working paper entitled “Inflation Hedging for Long-Term Investors” which adds an interesting angle on the debate.

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