Home is where the money is

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Markets Live: Thursday, 24th April, 2014

Live markets commentary from FT.com 

Roar of the permabear

Albert Edwards, the SocGen strategist who first began advocating a big holding of long government bonds seventeen years ago, would like to bring to your attention news overlooked during the Easter break by giddy investors.

China’s Q1 GDP was highly significant, not for the headline slowdown in GDP growth to 7.4%, but because economy-wide inflation slumped further towards outright deflation. The continuing deterioration in Chinese economic data significantly increases the odds of global deflation being unleashed via an unavoidable Chinese devaluation. No wonder the markets prefer to look elsewhere!

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The (early) Lunch Wrap

Labour cuts ties with Co-op Bank || Amazon inks deal to stream HBO shows || Mobile growth boosts Facebook shares || China becomes the iPhone growth story || Carlos Slim’s long-running battle to establish himself in the European telecoms market took a step forward on Wednesday, after Austria’s state holding company (ÖIAG) approved a shareholder agreement that paves the way for the Mexican tycoon to take control of Telekom Austria || Zynga founder gives up operational role || Markets  Read more

The hegemony of homogeneity

Further evidence arrives that if you are looking for value stocks in these markets, then you are going to have a tough time of it.

Millennial Invest has charted the change in the dispersion of valuations over the last five years for the US market. What he finds is that it is not just the average valuation that rose in the long post crisis bull market, but the range of valuations has narrowed as well as the market has become much more homogenous.

What he looks at is something called the Ebitda yield. Read more

Further reading

Elsewhere on Thursday,

- The Neo-Fisherite rebellion.

- The rise of the ‘super’ working class.

- In economics, something is not thought or known until the right person says it.

- Phantom bubbles at FiveThiryEight. Read more

Further, further, further Piketty

For those who haven’t yet reached Piketty saturation point… here’s Stiglitz. Krugman and Durlauf in discussion with Piketty at the Graduate Center, CUNY, last Wednesday.

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The 6am London Cut

Markets: Asian equities trading was mixed, with Japanese markets retreating as earnings season kicks off. Big names including Canon, Panasonic, Honda, and NTT Docomo are slated to report results in the next few days, and some analysts have voiced concerns that Japan’s recent increase in the sales tax, which is damping business sentiment, may cloud companies’ outlooks for earnings in 2014. (FT’s Global Market OverviewRead more

The Closer

FURTHER FURTHER READING

- “The strange and curious grip of country income status on otherwise smart and decent people”. Read more

Here’s a curious thing … and an update

The presentation on Quindell by Gotham City Research, which the company has rejected as defamatory, is a long piece of work with plenty of screenshots of the source material quoted.

One such screenshot, on page 36 of the document, is curious for what it might indicate about the construction of that presentation. The purpose is to highlight the author of Quindell’s 2012 annual report, but note the file location.

C:\Users\Baupost\Dropbox\HouseofCards\

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Stock picking works! (sort of, maybe)

A white paper lands from Commonfund, a type of investment consultant and asset manager for US endownments. It asks the question: does active management benefit endowment returns?

Concerned people really would like to know. And the answer is a qualified maybe, in that Commonfund finds correlation between the amount of US stock holdings that an endowment chooses to actively manage, and the likelihood that the stock portfolio will outperform the market.

However to get there involves some fun with statistics. Read more

ECB FX intervention, de facto or otherwise

RBI governor Rajan, when not being taken to task by a tie-less Bernanke, recently railed against QE spillovers. Most pertinently he said (with our emphasis):

By downplaying the adverse effects of cross-border monetary transmission of unconventional policies, we are overlooking the elephant in the post-crisis room. I see two dangers here. One is that any remaining rules of the game are breaking down. Our collective endorsement of unconventional monetary policies essentially says it is ok to distort asset prices if there are other domestic constraints to reviving growth, such as the zero-lower bound. But net spillovers, rather than fancy acronyms, should determine internationally acceptable policy.

Otherwise, countries could legitimately practice what they might call quantitative external easing or QEE, whereby they intervene to keep their exchange rate down and build huge reserves. The reason we frowned on QEE in the past is because we believed the adverse spillover effects for the rest of the world were significant. If we are unwilling, however, to evaluate all policies based on their spillover effects, there is no legitimate way multilateral institutions can declare that QEE contravenes the rules of the game. Indeed, some advanced economy central bankers have privately expressed their worry to me that QE “works” primarily by altering exchange rates, which makes it different from QEE only in degree rather than in kind.

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Markets Live: Wednesday, 23rd April, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Good morning New York,

FT ALPHAVILLE Read more

Rubber not hitting the road in Russia

In Putin’s Russia, risk prices you. That includes tyres. Keeping an eye out for signs and signals from the Russian economy amid the Ukraine crisis… we note Citi’s Philip Watkins on some big drops in tyre sales: Read more

Further reading

Elsewhere on Wednesday,

- Globalization and premature deindustrialization.

- Why India isn’t suited to a strong hand.

- “Free to air” really means that broadcasters have no case. Read more

The 6am London Cut

Markets: Asian equities opened higher echoing a buoyant session in the US, but pared gains after the latest sign of a slowdown in China. HSBC’s preliminary purchasing managers index for China’s manufacturing sector hit 48.3, signalling that activity contracted for a fourth month in April. The Australian dollar dropped the most in a week, falling as much as 0.7 per cent against its US counterpart to US$0.9302, after consumer price inflation for the first quarter trailed economists’ expectations, lessening the chances of an interest rate hike. (FT’s Global Market OverviewRead more

The Closer

FURTHER FURTHER READING

- Martin Wolf: a more equal society will not hinder growth. Read more

Bloody Quindell, Batman — Update

On Tuesday morning AIM listed Quindell plc was a “technology enabled claims outsourcing business”, whatever that is, worth £2.4bn.

Then Gotham City Research announced an initiation of coverage on the company with a target price of 3p and, well… Read more

Markets Live: Tuesday, 22nd April, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Novartis and GSK agree asset swap || Philips blames strong euro for slow growth || The bribery trial of a former Deutsche Bank salesman has begun in Japan || Japan has revamped the committee in charge of the world’s largest pot of retirement savings || Man U sacks Moyes || Stocks rise Read more

Travelling versus arriving, edition Man U

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Further reading

Elsewhere on Tuesday,

- The most expensive lottery ticket in the world.

- Cowen reviews Piketty.

- The contradiction in economicsRead more

The 6am London Cut

Markets: Asian markets were quiet, mirroring a subdued session on Wall Street. (FT’s Global Market OverviewRead more

The Closer

FURTHER FURTHER READING

- The week in four charts, via Fast FT. And what’s coming next week.  Read more

Larry Summers on forwarding the Doozer economy

Larry Summers was interviewed by Chrystia Freeland at the INET conference in Toronto last week, in a conversation that very usefully expanded upon his thoughts about secular stagnation. (H/T Interfluidity)

It’s a reassuring interview for us because so many of the statements he made echo what we (and other bloggers such as Steve Randy Waldman) have been saying for some time. Namely, that there’s something more significant going on in the industrialised global economy than the effects of a banking crisis per se, and that that *something* is probably related to technological abundance. More so, that this phenomenon is having strange macro effects on capitalist incentives.

There was also a nod to the point we’ve made for a long time, that the financial intermediation industry loses its raison d’etre in such an environment, and worse than that, potentially becomes a malignant rather than constructive force on development and growth. In short, that negative rates are hardly the solution. Read more

Bonds for the long run

If we know one thing about investing, it’s that time and the power of compounding make stocks an essential holding for savers, right?

Well, maybe not, at least when the choice is to hold bonds with a reasonable yield instead and the excess returns from stocks have been on a long term downward trend, something suggested by this presentation from Claude Erb, the West Coast based manager of TR.

Which is going to take us on a mostly chart based and, we hope, relatively painless tour of a wonky concept — the equity risk premium. But it’s also a way to come at those arguments about long term measures of stock market valuation, the Cape ratio and Shiller PE, from another direction. Read more

Constructing negativity and the ECB

We wonder if, after a brief blaze of real scrutiny, people have started to look past the imposition of a negative deposit rate by the ECB in favour of the more seductive and mysterious ECB QE and how it might be constructed. And we wonder if that is something of a mistake.

How a move to negative is constructed will, of course, have much to do with what it is intended to achieve — a weaker euro at last check — but we also can’t help but think it would be cool to make sure it won’t cause too much harm either. Herein lies a plan. Read more

Markets Live: Thursday, 17th April, 2014

Live markets commentary from FT.com 

Leasing out mutuality

Sale and leaseback transactions represent an expensive addiction the cost of which does not appear, even now, to be fully appreciated by the Board.

– Lord Myners, update on review into the Co-operative Group Read more