From SocGen, with the suggestion that the recent shoddy PMI numbers might get worse before they get better:
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John Hempton of Bronte Capital has good news for you.
Hempton, an avowed Herbalife bull, is sceptical about whether any inventory loading happened at the company. When a firm requires its distributors to buy lots of inventory, it’s one sign of a pyramid scheme, which grows by recruiting distributors instead of actually selling products. Hempton says there probably wasn’t inventory loading because the company refunds distributors for unsold products.
A look at Herbalife’s website shows that they did offer refunds as of 2014, with one caveat found in a footnote of its pitchbook: “If requested within 90 days for the return of the HMP [Note: That's the Herbalife Member Pack, a starter pack] and one year for the return of resalable inventory, upon leaving the business.” That’s a conditional refund, to be sure.
Still, Hempton has been hunting for the telltale distributors with tons of unsold Herbalife shakes in his or her basement, and has had trouble — but for one grim exception. Read more
Helicopter money won’t work in Japan, says Nomura’s Richard Koo in a note on Tuesday, because when the typical Japanese citizen finds a 10,000-yen note lying on the ground, she will turn it in at the nearest police station rather than spend it.
Put differently, a helicopter money policy can only work if the people in a country have little sense of right and wrong.
Koo, of course, is talking about the effectiveness of actual banknotes being thrown out of helicopters in the sky. It’s one of four ways he thinks helicopter money policy could be implemented — since the real challenge with helicopter money is how it would be distributed, and to whom. Read more
Expectations can be tricky things to manage, as in life so in central banking.
The Bank of Japan has everyone ramped up for its decision on the 29th. Although not many actually expect helicopter money (for a variety of reasons, including legal and excluding the fact that it’s not clear it would actually work) there is a belief in the market that some extra bit of stimulus is en route — which will be backed up by some fiscal goodness too.
Here’s a Barclays summary of those expectations: Read more
Elsewhere on Wednesday,
- Andrew Ross Sorkin on the (potential, and most probably just partial) return of Glass-Steagall.
- How does this hedge fund manager make so much money? He haz spreasheetz. Obviously.
- Also… Bridgewater, sex, fear, and video surveillance.
Hillary Clinton becomes the first female nominee to run for the White House Read more
The Financial Conduct Authority today released their final report on the UK’s credit card market, highlighting among other things the profits lenders make from customers who just make minimum repayments. The full 70-page report is here, or you can check out the FT’s write-up:
Almost one in nine card holders have balances it would take them more than a decade to repay, the Financial Conduct Authority said in a report on the industry. There are also 1.6m customers who repeatedly make minimum repayments, the regulator found. Read more
Private technology startups are pretty tough to value, particularly if you’re on the outside looking in.
First, you have the inherent subjectivity in valuing any company. Investors can differ on which metrics are most appropriate and what to include or exclude in their calculations. Even a price set by a reasonably liquid market doesn’t settle the argument; after all, one of the reasons an investor buys or shorts a stock is that they disagree with the market.
Second, you have opaque and complicated capital structures. The classic, clean idea of selling equity involves a certain number of shares at a certain price giving a straightforward percentage ownership of a company. In the tech world, however, liquidation preferences are common and the blurred line between debt and equity make it difficult to deduce anything sensible from fundraising announcements. Read more
Elsewhere on Tuesday,
- Says the BoE: “CB digital currency… issuance could have far-reaching consequences for commercial and central banking – divorcing payments from private bank deposits and even putting an end to banks’ ability to create money.”
- Banks giving up on their dreams of global empire…
- More on Larry Ball’s contention that Lehman could have been saved by the Fed.
- “Justin Zhen was in his WeWork [ the world’s ninth-richest startup, valued at $16 billion] office in midtown Manhattan on July 19 when he published the blog post that would result in his startup, Thinknum, being removed from the co-working space three days later.” Read more
Sanders urges his supporters to ensure that Hillary Clinton beat Donald Trump in November Read more
“[Censors] rake through the entrails of many an old good author, with a violation worse than any could be offered to his tomb.” – John Milton
We live in sad times. Across the world, radicalism and hate is on the rise. The future of western democracy itself is uncertain. And on top of all this, yet another injustice. Read more
Bryce has fled north of the border; Murphy’s skulking at home in London. There’s no session of Markets Live today, or any day this week. Unless there’s a market emergency, of course. Normal service will be resumed on August 1. Read more
Philip Green slammed by MPs, an approach for William Hill and a warning from Rangold. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here. Read more
Below the break is just one of what we are sure will be many US election guesswork charts.
It’s from HSBC this time and includes solid ‘buy gold’ and ‘currency war’ moments.
The shorthand at the top of each column could be expanded thusly: Read more
Elsewhere on Monday,
- Gavyn Davies: Regime change in the financial markets.
- Bill McBride: The future is still bright!
- You break it, you pay for it, Brexit edition.
- John Lanchester on Brexit: “One of the things you notice, travelling around the country talking to people about economics, is that young people in particular feel they are living in an economic system rather than a political one.”
Quick audio vox pop here from Cardiff, who happened to in a restaurant near the site of the lone gunman attack on Friday night… Read more
I do like the simplicity of the one product. We’ll probably expand in time, though. Maybe people would cook more if they could do things a little differently. Maybe, functionally, a new ingredient would allow that. People are still using eggs and milks and bread. When were those invented? People upgrade their iPhones every couple of years but we’re still eating the same foods that our ancestors did.
– Rob Rhinehart, inventor of Soylent meal-substitute gunk, enjoying Lunch with the FT
Should we really be surprised then that someone like Elon Musk, a man not just from Mars but an active card-carrying citizen of Mars, should be continuously confusing what are ultimately social problems for engineering ones?
Take a look at Deposit Solutions, a Berlin-based fintech company backed by Peter Thiel. This week it raised another €15m from the Trump-supporting billionaire and other investors at a reported €110 million valuation. What’s the idea behind the four-year-old startup? Read more
Live markets commentary from FT.com
Is 22 per cent a big number?
That’s how much Ratesetter increased its expected future losses on Thursday, “partly to reflect greater economic uncertainty due to external events”. The online lender, which is one of the UK’s top three, added £3m to the £13.9m of expected claims on its provision fund, which serves as protection against defaults for its retail investors.
Those “external events” are presumably a reference to Brexit, but sceptical readers might also remember the higher than expected defaults on its 2014 cohort of loans. At the start of that year, Ratesetter had expected a 2.07 per cent default rate. So far, defaults on the 2014 cohort of loans have reached 2.915 per cent. It’s also worth noting that last month Ratesetter brought on board a new chief risk officer, Cyrille Sallé de Chou, who joined from Lloyd’s. Read more
Here’s a rough piece of calculation based on the last few years of news: When x happens, yields fall. An example of this post-GFC rule-of-thumb was Brexit and its fallout.
The potential lesson from said rule is that yield hunting isn’t fun anymore, say Credit Suisse’s William Porter and team, with our emphasis: Read more