THE DISTILLERY: Reading Rinehart

One jotter examines the subtleties of OTC derivatives, while another returns to the Fairfax registry.

The growing list of collapsed over-the-counter derivative sellers has got global regulators talking tough about the industry, and Australia is no exception. However, The Age’s Adele Ferguson explains this morning that while the Australian Securities and Investments Commission has made it clear that it takes the practice of taking clients funds and then not giving them back in the event of a collapse seriously, it needs to recognise that there are two separate types of OTC derivative sellers. Elsewhere, another commentator has an interesting inside word on Gina Rinehart’s share raid on Fairfax that includes some other big names, while the Glencore International-Xstrata merger discussions has another writer a little puzzled.

Firstly, it’s The Age’s Adele Ferguson who says ASIC may have utilised some strong words against the over-the-counter derivatives industry with its regulatory guide, but falls short on one crucial point.

"This paper is squarely aimed at contracts for difference, but it fails to address there are two models, the market maker model and the direct market access model. The direct market access model has more transparency particularly in the pricing but it uses client money for hedging, whereas the market maker model basically operates within the closed environment created by the market maker. Though they sometimes use external hedging in the real market, the clients are really just betting against the 'house' – or each other. The risk here is obvious if the operator collapses.

The Sydney Morning Herald’s Elizabeth Knight has a very interesting inside line on Gina Rinehart’s share raid on her publisher.

"For iron ore billionaire Andrew Forrest, Gina Rinehart's move this week to become Fairfax's largest shareholder is nothing if not serendipitous. For the mega-wealthy, control of Australia's most influential newspaper group, Fairfax, is like an insurance policy against political decisions that run against their commercial interests. Rinehart has paid less than $200 million for this insurance and while she probably will have to pay more, the investment could yield a hefty return. According to well-placed sources Rinehart was not the only candidate running the ruler over Fairfax – Forrest and his mate Kerry Stokes were sniffing around as well.”

The Australian’s John Durie is a little confused about some of the details of the merger discussion between Glencore International and Xstrata, which pits highly rated chief executives Ivan Glasenberg and Mick Davis against each other.

"Just why Glasenberg has chosen now to relaunch his long-planned bid for 34 per cent owned Xstrata is hard to fathom, given his concerns about European markets, but maybe his sojourn at Davos gave him comfort. Equally, just why the deal became public before all the details were worked out is confusing. Arguably Davis may have confirmed the deal to set the clock running under Britain's "put up or shut up” rules, which force companies to follow through on bids within one month of the talks becoming public. But the level of detail emerging suggests Glencore's bankers are also using the media to force Davis's hand. Either way the deal is on a tight rope.”

Staying with resources for the rest of this morning’s commentaries, Fairfax’s Garimpeiro column makes a return after the departure of Barry Fitzgerald with some attention for the annual Mining Indaba conference’s new Insomnia Index. The Australian’s Paul Garvey looks at the booming gold business in Hong Kong, which is increasingly taking the form of a Dragon.

The Australian’s David Uren says the Australian dollar could hit $1.20, while his colleague Robin Bromby urges investors not to chase after missed opportunities.

The Sydney Morning Herald’s Ross Gittins finds some relatively reassuring takeaways from the latest forecasts of the International Monetary Fund, while The Age’s Michael West makes the telling point that the US economy will have to recover significantly just to cover the increasingly daunting interest payments on its debt.

The Australian’s Richard Gluyas entertains the possibility of the Reserve Bank keeping interest rates on hold tomorrow, just to imagine what the big four banks might do, while the Herald Sun’s Terry McCrann takes a sympathetic look at the manufacturing industry.

The Sydney Morning Herald’s Michael Pascoe says onlookers lamenting the lost jobs in the banking industry should remember that many bankers have been directly or indirectly responsible for enforcing job losses in other sector and, given that our employment statistics have been flat, the jobs market is a still a good one historically speaking.

Finally, Fairfax’s Ian McIlwraith throws in his two cents on the Gina Rinehart share raid and The Australian Financial Review’s Chanticleer columnist Tony Boyd looks at the growing accolades for a new theory from Nomura chief economist Richard Coo called the "balance sheet recession”.

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