Or something like it. We’re not, after all, physicists. Though, feel free to read about the Hubble Bubble theory here. What we probably should be referring to is Hubble’s flow, the rate at which expansion of the universe occurs.
All of which is a whimsical way of suggesting that perhaps Larry Summers has a point. Perhaps bubbles are part of our collective universal nature? A phenomenon that should be embraced as an unstoppable physical force, one that will find a way no matter what.
The proof is out there if we look hard enough. Latest manifestation: Bitcoin.
If we go with that notion, then perhaps inflating asset bubbles one after the other isn’t such a bad idea. Perhaps it’s even necessary? Read more
Interesting little exercise from Andrew Wilkinson at Miller Tabak & Co. Having seemingly generated a lot of client interest with some earlier research looking at valuations of key US indices, he’s now extended the methodology to bourses around the world.
For each index Wilkinson has compared a blended forward 12 month PE ratio with two standard deviations of the five-year average PE. Here’s his resulting table: Read more
We are big fans of index tracking, particularly for those cash strapped and socially sensitive large pension funds, and we are far from alone: passive is massive for a reason.
But where there’s a fee there’s a way. As alternative investments suffer the slow zombification of poor performance, active managers have been trying to find a way into this passive game, prompting some elegant demolition. Read more
A good report, not much in the way of revisions, and a healthy fall in the unemployment rate accompanied by a climb in the labour force participation rate.
Here are the main bits: Read more
Consider this chart from Morgan Stanley:
And then this from Barc: Read more
Car sales are related to economic growth and consumer confidence, says Citi. But wait! The bank’s analysts, Philip Watkins makes the journey to that humdrum conclusion interesting — with a detour through the banks, psuedo-banks, and financing operations of the European car companies.
Even if sales are tied more to GDP than to interest rates — seven in every ten new cars are sold on credit these days. Plus, the financial companies hiding within the automakers have around €400bn of assets and produce a sixth of of pre-tax profits (click chart to enlarge). Read more
Live markets commentary from FT.com
Nelson Mandela dies || US Volcker rule leaves grey area for regulators || Gazprom denies it will cut prices for Ukraine || WTO deal stalls as India holds firm || Shell ditches plans for US gas-to-liquids plant || The SEC is looking into JC Penney’s controversial offering || Palantir Technologies has been valued at $9bn || Citigroup and Wells Fargo accused of discriminatory mortgage lending || GM to pull out of vehicle production in Australia || Berkeley concerned about tax plans for overseas home buyers || Markets Read more
Bored with zero interest in the bank? Why don’t you check out the latest in aluminium-backed deposit accounts? You take the excess aluminium off our hands, we sell it forward, and hey presto you get interest rates conventional banks just can’t beat!
(It’s the way the gold market has been compensating for its oversupply for generations.) (Terms and conditions apply.)
All of which is another way of saying the world’s aluminium oversupply burden has created some excellent carry opportunities in the off-market storage space over the last few years. Read more
Markets: Asian equities and currencies were mostly on hold as markets looked to Friday’s looming release of US jobs data. Economists expect the US unemployment rate to have fallen from 7.3 per cent in October to 7.2 per cent for November. Non-farm payrolls data are forecast to show the world’s biggest economy added 185,000 jobs in November. (Financial Times) Read more
FURTHER FURTHER READING
- Lew on funding financial reform. Read more
The market vogue is to obsess about how the Fed is suppressing long-term rates.
But for years now, FT Alphaville has been trying to explain why, in reality, Fed intervention is as much focused on propping up short-term rates (preventing them from falling through zero) as it is about keeping longer-term rate expectations anchored. Read more
It’s not just the Chinese who are warning about the risks associated with Bitcoin. On Thursday, Business Insider reported that the former president of the Dutch Central Bank Nout Wellink warned that the hype around Bitcoin was worse than Tulip mania in the 17th century.
From BI: Read more
Some are betting that Beijing will eventually endorse Bitcoin. This week Lightspeed Venture Partners of San Francisco and a China-based sister fund announced a $5m investment in BTCChina…
– Financial Times, November 22
The People’s Bank of China even did a Q&A on Thursday to explain why it’s more or less forbidden the Chinese financial system from dabbling in Bitcoin… Read more
Courtesy of the Bundesbank (h/t Dario Perkins):
In a nutshell, the paper concludes that current account adjustment is significantly hampered in countries that are members of a monetary union. This holds particularly in comparison with floating exchange rate regimes owing to the lower level of exchange rate flexibility. Furthermore, the persistence of current account balances in member countries of a monetary union is also more pronounced than in fixed-rate regimes due to less flexible interest rates as a result of the single monetary policy.
Live markets commentary from FT.com
Beijing has banned banks from Bitcoin transactions || Australia’s Qantas Airways on Thursday forecast steep first-half losses while announcing a further 1,000 job cuts and possible asset sales || German drugs and chemicals group Merck acquires Apple supplier AZ Electronic Materials || Siemens announced a plan for higher profits at its infrastructure unit at an analyst day on Thursday || BNP will buy Bank Gospodarki Zywnosciowej from Dutch lender Rabobank to boost its presence in Poland || A suicide bomber has attacked Yemen’s defense ministry || Markets update Read more
A friend of FT Alphaville who works in the real world, far from finance, asked us what we think about putting money with peer-to-peer lenders.
We advised him to buy gold-bitcoins instead, but it made us want to take a look. It turns out we’re not alone. The chancellor is expected on Thursday to launch a consultation on blessing peer-to-peer lending with inclusion in the UK’s popular ISA scheme for tax free savings accounts.*
But where we think we might be alone, for now, is worrying about something that has afflicted lenders from time immemorial: run risk. Read more
Elsewhere on Thursday,
- When the 2-and-20 crowd drives economic research.
- Fantasy economics.
- “I’m the largest victim,” said Mr. Shah, once India’s “exchange king”. Read more
Markets: Equity markets are weaker across the Asia-Pacific region. Investors are cautious ahead of interest rate decisions in the eurozone and the UK on Thursday plus a highly-anticipated monthly US jobs report on Friday. The broad losses follow a 0.1 per cent pullback in the S&P 500, after a strong private payrolls survey increased speculation that the Federal Reserve could soon trim back, or “taper”, its stimulus measures known as quantitative easing. (Financial Times) Read more
FURTHER FURTHER READING
- How to fix Econ 101. Read more
We first proposed the idea that QE could be (but wasn’t necessarily) deflationary a couple of years ago. It was dubbed a counter-intuitive idea by Tyler Cowen.
More recently, a similar proposition has been made by Stephen Williamson — though this time using models and proper math. His view is a little different to ours because it’s less focused on the safe asset squeeze and more on the conditions that generate a preference for cash over yielding paper in the first place. Hint: you have to think the purchasing power of cash will go up regardless. Read more
You can’t turn a virtual corner this week without tripping over a discussion about the US minimum wage.
The case in favour of raising it has been made by Arindrajit Dube, Paul Krugman, Ed Luce, and Kevin Drum. Arguing against have been Tyler Cowen, Scott Winship, and Adam Ozimek. Read more
This guest post is from Larry Brainard, Chief Economist and Co-Founder of Trusted Sources, an independent advisory firm specialising in emerging market macroeconomic and policy research.
The continuing debate about the timing of Fed tapering has overshadowed two developing issues that have important implications for EMs in 2014. The first is the reappearance of deflation in the Eurozone and the other is the suggestion by former Treasury Secretary Larry Summers that the US economy is slipping into secular stagnation. Read more
An interesting thing happened on the way to Sheep Marketplace — the online market for illicit goods which rose to prominence after Silk Road, the dominant site for illicit goods trading, was apprehended by the Feds in October.
The interesting thing is not that after a couple of months in the limelight the site closed down because a hacker allegedly made off with $5m worth of Bitcoins. Nor is it that the Bitcoin community failed to buy the story because they noticed that all withdrawals from the site were being blocked by the site’s operators — promptly branding the entire website a scam from the beginning.
What is interesting are the “capital controls” the community is now effectively enforcing on the Bitcoin wallet address they suspect is responsible for the theft. In fact, an entire community of Bitcoin vigilantes has sprung up on the Reddit website, dedicating themselves to chasing the money across the open peer-based Bitcoin ledger. Read more
One-year total return of the Athens stock index, to the end of October 2013: +50%
One-year return of the Bloomberg Greece Sovereign Bond Index, same period: +134%
One-year net return of Dromeus Capital’s Greek Advantage Fund: +107%
Yep — FT Alphaville hears that the first-year performance of Dromeus Capital’s Greece-focused fund would make it one of 2013′s best-performing, having already made a strong start at the beginning of the year.
It’s another indicator of how much both Greek equities, and the sovereign’s restructured debt, have recovered this year… Read more
However late you might decide to come clean, it pays to be first to ‘fess up.
Antitrust: Commission fines banks € 1.71 billion for participating in cartels in the interest rate derivatives industry Read more