The Fed can take its time, if it wants to

By most accounts — the musings of Wall Street strategists and media Fed watchers, speeches by FOMC members, countless online FOMC previews — momentum is building for the Fed to soon change its “considerable time” language, and to give clearer guidance on when and why it will start raising rates.

Will such changes be included in the FOMC statement that will be released on Wednesday? Read more

Further reading

Elsewhere on Monday,

- Silicon Valley has officially run out of ideas.

- How to get it wrong.

- Bitcoin and the Greater Fools theory.

- Felix Salmon on why Scotland is voting Yes. Read more

The 6am London Cut

Survey bleg: The 6am Cut, Lunch Wrap and Closer emails will soon be relaunched in enhanced form. We want to ensure we’re providing only the most useful data, news and views — taking this short 2 minute survey would help us do that.

Markets: “Asian stocks stumbled to their lowest in five weeks on Monday after a batch of weak data out of China raised the spectre of a sharp slowdown in the world’s second-biggest economy. The Australian dollar, considered a liquid proxy for China plays, also took a hammering and slumped to a six-month low… Data released on Saturday showed China’s factory output grew at the weakest pace in nearly six years in August, while growth in other key sectors also cooled. “This confirms a slowdown in growth momentum in Q3 following the Q2 rebound,” analysts at Barclays wrote in a note to clients, adding they have cut their 2014 growth forecast for China to 7.2 percent from 7.4 percent.” (ReutersRead more

The corporate M&A genotype theory

Merger and acquisition activity, as we all know, comes in waves. There are M&A frenzies and then there are M&A lulls.

But a new study by a group of complexity and evolutionary scientists looks deeper into the social drivers of corporate M&A activity and suggests there may be more intrinsic forces, such as ancestry, at work.

The authors define ancestry as the cumulative number of mergers from all acquired entities — an idea that puts the corporation in the category of an organism which pursues M&A for mainly for survival reasons. The more pronounced a corporation’s ancestry on the M&A front, they say, the more likely it is to survive in the long term. Read more

Markets Live: Friday, 12th September, 2014

Live markets commentary from 

The (early) Lunch Wrap

EU adds Rostec head to latest Russian sanctions list || Barclays appoints Aviva’s John McFarlane as chairman || Support for No campaign in Scots poll holds up || Virgin Money boosts board amid IPO preparation || Amazon to join rush for Silicon Roundabout || IMF warns of market fallout from a Scottish split || Yahoo faced fines over NSA compliance || Mario Draghi hits back at critics of asset-backed securities plan || Markets Read more

Further reading

Elsewhere on Friday,

- Scotland and the SNP: Fooling yourselves and deceiving others.

- Their own imaginary Keynes.

- The death of adulthood in American culture.

- The fading dream of EM convergence. Read more

The 6am London Cut

Markets: Asian bourses were mixed following the release of data showing that Chinese credit grew in August, while US investors continued to fret over the likelihood of the Federal Reserve boosting interest rates. Aggregate financing – a measure of credit in China that includes bank loans and lightly-regulated trust products funded by retail investors – was Rmb957.4bn ($156bn) in August. That was up from Rmb273bn in July, hinting that Beijing is allowing banks to lend more freely amid a property market downturn — trust lending fell by Rmb51.5bn, after also falling by Rmb15.8bn in July.. (FT’s Global Markets OverviewRead more

Known unknowns in the Scottish referendum polls

The latest from the crew at Credit Suisse:

The chart below shows the spread between the “Yes” and “No” vote in various polls since the start of the year. The narrowing of the gap has been sudden, and looks to have been a consequence of both “No” voters switching to “Yes” and the hitherto large pool of undecided voters starting to drift towards the “Yes” camp. Although that trend is not clear across all polls, two major national polling organizations – YouGov and TNS – have picked it up. And, perhaps more critically, all the opinion polls are now showing a tight race. … Read more

The Closer


- Dumpster dwelling, professor edition. Read more

BoE on the potential of the blockchain

The key finding of the BoE’s report on cryptocurrencies is that the technology which supports digital currencies, the distributed open ledger — also known as the blockchain — may have a potential and positive use in the wider banking and asset business.

This is contrary, however, to its position on the Bitcoin currency which it says in its current fixed supply form would expose the economy to significant deflationary risk if it was ever to be widely adopted by the public. Or as they put it:

…the inability of the money supply to vary in response to demand would likely cause welfare-destroying volatility in prices and real activity.

 Read more

How to avoid another housing crisis (maybe)

No matter how you count it — consumer spending, employment, fertility, divorce — the US housing bust was extremely costly. While cycles of greed and fear are inevitable features of human nature, things did not have to happen this way.

Smarter government responses in the initial phase of the downturn would have been very helpful. Perhaps in a repeat performance, policymakers will do better, although we wouldn’t want to rely solely on their learning capabilities when there are reasonable preventive measures available as well. Continuous workout mortgages and shared responsibility mortgages would be useful financial innovations, for example. Read more

Movement in Mongolia

We hear, from sources close to the Mongolian Prime Minister’s office, that a tax dispute with Rio Tinto has been solved. A $130m tax bill has been negotiated down to $30m.

The dispute had been one of the few remaining stumbling blocks in the way of agreement on a deal to begin development on the next phase of Oyu Tolgoi. This is an enormous copper-mining project that promises to transform the Mongolian economy.

Don’t count your chickens too soon, however. Usually knowledgeable people point out that Rio is yet to get the settlement in writing. The way in which the penalty is classified also matters — the company won’t agree to something that puts the investment agreement at risk by changing the underlying tax terms.

Still, it is the latest sign of movement to emerge from Ulaanbaatar in recent days. Read more

BoE on the Bitcoin tech arms race

Okay, we know, this is now our fourth post on the BoE’s foray into the world of cryptocurrencies. But we think it may be the most interesting, given that it focuses on the economics at the heart of Bitcoin mining.

For example, who can resist this log scale chart of the computational power per address in the Bitcoin network?:

 Read more

BoE on the non-cost advantage of digital currencies

The latest edition of the BoE’s quarterly bulletin looks at the rise of cryptocurrencies and, as we’ve already discussed, expresses a cautiously optimistic attitude towards the technology that drives the system. Less so, however, about the potential of “bitcoin the currency” itself.

In this post, we’d like to look closer at the issue of cost and digital currencies.

You see, monitoring and supervising the global claims system is expensive business, since it takes a lot energy and resources to make sure wealth is allocated fairly to those who supposedly deserve it.

Those who are trusted to do this job tend to be compensated for that burden. Those who do that job really well, meanwhile, are usually paid a bonus by the economy to keep them involved. Historically, that job has tended to be given to a sovereign or to gold. Read more

BoE on the moneyness of modern payment innovation

The BoE’s latest quarterly bulletin delves into the choppy waters of cryptocurrency innovation, providing some useful historical context into what’s going on. As we’ve already noted, the house view on Bitcoin “the currency” is sceptical due to its ultimate inflexibility relative to demand. But the BoE is much more open-minded about the potential of the distributed ledger that drives the Bitcoin system, and sees it a true innovation.

Before we get to the latter point, however, it’s worth presenting the Bulletin’s view on how all these new technologies fit into the monetary hierarchy picture.

As the Bulletin makes clear, while new payments “technologies” do have the potential to expand that unsupervised money base and add risk, they don’t always have to. Read more

The BoE opens Pandora’s Bitcoin box

The Bank of England is daring to open Pandora’s Bitcoin box with two major articles on the rise of cryptocurrencies in its latest Quarterly Bulletin, released on Thursday.

The two-minute take-away is that the report’s authors remain sceptical about Bitcoin’s potential as a currency (due to its inability to respond to aggregate demand), but are open minded about the potential of the technology of the distributed open ledger. As we’ll explain later, a lot of that open mindedness is related to the distributed ledger’s potential to bringing transparency to financial transactions outright, and also its potential to limit the system’s dependence on centralised clearers and counterparties.

The best thing about the report, however, is that it brings much needed clarity on the issue (and hierarchy) of the modern money system. Read more

Well they would redomicile, wouldn’t they?

Cross-posted from Lex Live — Lex’s new, free, blog. Lex has also been writing notes this week on the consequences of independence for sovereign debt, banks, and Scotland’s oil industry


Or, why it isn’t surprising at all that RBS and Lloyds would move their respective holding companies to the UK, probably overnight, if Scotland voted to become independent. Despite the odd packaging of this as NEWS by the UK press.

It’s the emergency liquidity (or ELA). Click chart to enlarge:

 Read more

China’s anti-corruption trillions

Some thoughts from Nomura a little while back on where exactly all of this anti-corruption cash being swept up in China on the orders of Xi Jinping might end up.

Potentially, in the coffers of local and central government:

Our anecdotal checks reveal that for cases involving cooperation among various local and central governments, distribution of any recovered funds has largely been based on negotiation among the governments involved.

… a billion here, a billion there

 Read more

Markets Live: Thursday, 11th September, 2014

Live markets commentary from 

The (early) Lunch Wrap

Europe negotiates to be touched by Apple || Gazprom profits hit by Ukraine dispute || Huawei probe finds corruption || Aussie jobs a statistical quirk || Credit Agricole near sanction probe accord, says source || Morrison profits halve || Next sales rise || European stocks up Read more

And the market says No

Momentum can be a funny thing, but for the bettors at Betfair, it has moved firmly into the “No” camp.

 Read more

Slacking to stand still

Our favourite passage of Janet Yellen’s speech at Jackson Hole this year wasn’t actually in the text. It was in a footnote.

Specifically, footnote 7: “For convenience, the analysis here is presented as if cyclical factors and structural factors can be neatly delineated. In reality, the line between the two may be indistinct.”

Our initial reaction to the footnote was that it’s a banal but important point about economics in general. Even the biggest topics remain open to debate. Simplification is sometimes necessary to provide an organisational framework and a common jargon for discussing the relevant issues.

But the footnote was obviously there for a more specific reason, which was made clear in the rest of the speech: its relevance to the ongoing discussion within the FOMC and among economic commentators everywhere for the last couple of years. Read more

Further reading

Elsewhere on Thursday,

- What will bring down US equity prices?

- “This study ought to be the final nail in the coffin of techno-libertarianism. “

- Lifting the oil export ban is really about Downstream Medium Oil vs. Upstream Medium Oil.

- The euro crash?  Read more

The 6am London Cut

Markets: Asian bourses were mixed after China reported weaker than anticipated inflation figures for August. Sydney’s S&P/ASX 200 was down 0.2 per cent, following the release of jobs data. Australia’s headline unemployment rate fell from the 12-year high it reached in July, mainly due to an increase in the number of part-time positions. (FT’s Global Markets OverviewRead more

Is this really the way to choose the chair of a systemically important bank?

 Read more

Beware the Yieldco

Hedgeye’s Kevin Kaiser is an independent analyst on a lone crusade against the shoddy valuation of capital intensive corporations with limited earnings but with strong dividend payout track records. His question: where exactly is the money coming from?

His biggest beef is with Kinder Morgan, the pipeline operator which recently transformed itself from a Master Limited Partnership into a corporation. But, as Kaiser observes in a new research note, “Yieldco” syndrome could be much more common than that. Read more

FX vol is back, say relieved FX analysts

FX vol is edging back and we have the notes to prove it.

The question is whether they are reflecting an overreaction to a small jump, after a period of slumped volumes and returns, or a real shift with further to go? Read more

Markets Live: Wednesday, 10th September, 2014

Live markets commentary from 

The (early) Lunch Wrap

Santander patriarch Emilio Botín dies || French woman to take over as Kingfisher chief executive || France misses its EU budget deficit target || Ferrari chairman quits after ‘misunderstandings’ with Fiat boss || Apple looks to swipe the payments market || AngloGold shares sink after restructuring plan announcement || Markets Read more