Thought for the weekend

Jennifer Aniston is one of the millions of Americans who experience symptoms consistent with Chronic Dry Eye. Commonly referred to as Dry Eye, Aniston has revealed how the condition gets in the way of her daily life. In partnership with Shire plc (LSE: SHP, NASDAQ: SHPG), Aniston is encouraging people to make eye health a priority, and is raising awareness and understanding about Chronic Dry Eye symptoms, like the ones she experiences. She hopes to educate and inspire people to chat with their eye doctor about what’s really going on with their eyes.

– Shire’s campaign to raise awareness of dry eyes.

Blockchains? Where we’re going, we don’t need blockchains

In today’s daily blockchain bulletin we bring you news that next big thing in financial back-office technology isn’t actually the blockchain. Apparently it’s something called a “distributed concurrence ledger”.

We’re not yet convinced that’s a thing, but the white paper outlining the DisLedger DCL concept does at least provide a refreshingly honest account of the core problems with blockchains. Read more

What we’ve got here is a failure to communicate

The conflict between economists and market strategists is one of our favourite theory-versus-practice debates, since both groups try to answer big questions about the allocation of resources.

And in the bumpy years since the global financial crisis, the two groups have had an especially tough time agreeing. That’s why it’s been fascinating to see a mini-debate unfold between economist Brad DeLong and Matt King, Citigroup’s global head of credit products strategy. Read more

Yellen on negative rates: we do not speak its name

Janet Yellen opened the festivities at this year’s Jackson Hole economic symposium by musing on what central bankers had learned since the crisis and how they can deal with future recessions in a world where interest rates are far lower than in the past.

Unsurprisingly, bond-buying and “forward guidance” featured prominently in Yellen’s narrative of successful new tools. (On the other hand, scholars have estimated the combined impact of these measures was an unemployment rate a mere 0.13 percentage points below where it would have been using purely conventional instruments.) Read more

Thoughts on Levine’s “Best Capital Allocating Robot (U.S. Division)”

Probably too much has been written already about Bernstein’s passive investing is worse than Marxism note, but *shrugs* it’s August so…

Over at Bloomberg, Matt Levine argued persuasively that a lot of what is called passive investing actually involves decisions about capital allocation, and that codifying those decisions (in the sense of computer code) doesn’t mean we’re headed towards a future where companies only receive investment in proportion to their current size. Read more

The RBI wants to disintermediate you!

The Reserve Bank of India announced some fun stuff last night, which you can read about here and here.

The short story is that the central bank (with shiny new governor about to take control) seem to be trying to push large corporate borrowers away from banks — for lots of occasionally crony capitalist reasons — and towards a growing corporate bond market. Read more

Week Two: FT Alphaville Fantasy Football League and negative rates

For most of human history, financiers believed in the sanctity of the Lower Bound, imagining that if we crossed from the world of positive interest rates into the Hades of negative numbers all manner of disasters would befall society.

In the real world, it took six years of fallout from a global financial crisis to push us boldly below zero; in the FT Alphaville Fantasy Football League world, it took barely a fortnight. Read more

Markets Live: Friday, 26th August, 2016

Live markets commentary from 

Revising the taxonomy of trading venues

People love to use the word “evolution” when discussing market structure, because it’s a living system.

So we’ll extend the metaphor of the living system, and point out a change in the membership of the groups laid out in our cheesy exceptionally well-rendered taxonomy of Treasury-trading platforms (click to enlarge):

We apologize for this, dear readers, we just couldn't resist.

LiquidityEdge, a venue that started last year, is planning a new centralised platform where investors, banks and high-speed trading firms can trade anonymously, according to a letter from the platform to its clients. It’ll also allow traders to select which types of counterparties he or she wants, or doesn’t want. The platform is expected to start operating in September, according to people familiar. Read more

Alphachat: the egregiously protectionist dairy racket in… Canada?

Alphachat is available on Acast, iTunes and Stitcher. Read more

It really is very quiet

We mean, for poor Macro Man “there have been only five prior days in his lifetime where the 30 day historical volatility of the SPX has been lower” — January 3-6, 1994 and September 12, 1995.

And consider this series of charts from Citi. Read more

Further reading

Elsewhere on Friday,

- ‘It took on a life of its own’: how one rogue tweet led Syrians to Germany.

- Teenage hedge fund manager Jacob Wohl — nicknamed “Wohl of Wall Street” — had his first run-in with a regulator.

- Why do we talk about helicopter money?

- The US Treasury just declared tax war on Europe.  Read more

FirstFT – ‘Fed up’ activism, China’s football foray and the sinister side of cash

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Test your knowledge with our week in news quiz.  Read more

Richard Koo’s chart to explain the past 200 years

It may take a few minutes to wrap your head around it, but this chart from Richard Koo, borrowing heavily from the insights of W. Arthur Lewis, is a pretty good framework for understanding the history of the world since the start of the industrial revolution:

For most of human history, technological progress was achingly slow, especially when it came to agricultural productivity. Unable to boost yields, populations couldn’t expand unless additional farmland were brought under cultivation. There were about as many people alive on Earth in the age of Caesar as there were more than a thousand years later. When that finally changed, farmers moved to urban factories and joined the proletariat. Read more

Fun with peer-to-peer accounting. (Yes, actual fun)

Imagine you lent a friend £2000 for three years at a 25 per cent yearly interest rate. That would be a nice little earner for you and, sure, it’s not a cheap loan as far your friend is concerned. But he’s not that good of a friend anyway and rent-seeking is easier than working.

The first nine months pass and your friend pays up every month, right on time. But then he misses a payment. When you call his mobile, you get his answering machine and when you ask around, people shuffle their feet and mumble stuff like “I dunno maybe he’s like at the gym or something”. Read more

DLTs and the “can’t we all just get along?” barrier

Another day, another blockchain distributed ledger technology (DLT) report*. Today’s comes from the World Federation of Exchanges, which provides us with a survey of what financial market infrastructure types are thinking about DLT. And, interestingly enough, the bulk of the survey is dedicated to unknown, unknowns.

Since DLT hype is exclusive to all other media outlets on the internet, we won’t feel bad about highlighting some of the real concerns being raised by market practitioners in the space with respect to DLT rollout. Read more

Markets Live: Thursday, 25th August, 2016

Live markets commentary from 

Are traders allowed to front-run customer orders in the Treasury market?

The Securities and Exchange Commission wants to know.

In a letter to the Financial Industry Regulatory Authority, the SEC’s markets division draws attention to a handful of trading rules that either don’t apply to Treasuries, or aren’t clear about whether they do. The group requested that Finra review its rulebook, and then either justify or remove any exemptions for US government debt.

See, if you’re a logical person who doesn’t know much about Treasuries, you’d assume the exemptions and unclear rules would be about minor stuff. But what’s truly bewildering is how serious the rules on that list are.  Read more

Further reading

Elsewhere on Thursday,

- Superman and stocks: It’s not the Cape (CAPE), it’s the Kryptonite (cash flow)!

- China’s ever more mysterious tourism numbers: “China’s increased [and still pretty inexplicable] spending on tourism is getting close to equaling its decreased spending on commodities.”

- How much control does the central government really have in China?.

- Whom do the Fed bank boards serve? Also, the Fed welcomes protestors.

- Levine takes on the Bernstein ‘passive investing may be worse than communism’ thing. Read more

FirstFT – Transatlantic tax tensions, how Facebook labels you and Japan’s ‘handsome weeping boys’

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The US has launched a stinging attack on the European Commission in a last-ditch bid to dissuade Brussels from hitting Apple with a demand for billions of euros in underpaid taxes. Read more

We already have a utility settlement coin: it’s called the euro

Four banks have stolen loads of column inches on Wednesday with news that they are developing “a new form of digital cash that they believe will become an industry standard to clear and settle financial trades over blockchain, the technology underpinning bitcoin”.

In the fanfare, however, lots of common sense has been abandoned.

The big idea here (allegedly) is that banks will use a “utility settlement coin” to bypass the need for costly and inefficient fiat liquidity from the cbank.

The utility settlement coin, based on a solution developed by Clearmatics Technologies, aims to let financial institutions pay for securities, such as bonds and equities, without waiting for traditional money transfers to be completed. Instead they would use digital coins that are directly convertible into cash at central banks, cutting the time and cost of post-trade settlement and clearing.

 Read more

Markets Live: Wednesday, 24th August, 2016

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As an investment strategy grows more popular, the probability of a comparison involving Marxism apparently approaches 1

Is there a Godwin’s Law equivalent for Marxism? Do we need one since the Law basically means that the longer an argument goes on the more likely we are to reach for extreme examples while in attack or in defence? So, you know, this kind of thing is already covered?

 Read more

A would-be disruptor hits a Treasury-market-shaped wall

To those who don’t follow Treasury markets, Direct Match might sound like a ruthlessly efficient dating website. Go on one date with a partner meticulously chosen by high-powered algorithms, and end up married within a week.

In reality, Direct Match was a trading platform attempting to upend the way investors buy and sell U.S. government securities.

It also appears to be closing down, according to a Business Insider post from Jim Greco, the company’s founder. Read more

Further reading

Elsewhere on Wednesday,

- Apollo paid itself some fees and gave itself some loans.

- Bernstein: “The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism.”

- DeLong vs Matt King on safe assets and the search for yield.

- DeLong vs Stan Fischer on inflation targets and the Fed.

- The folly of prudence, IMF edition.  Read more

FirstFT – Italy struck by quake, the benefits of a 4am start and how London might have looked

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A magnitude 6.1 earthquake at the very shallow depth of 10km has struck central Italy, collapsing buildings and leaving people trapped under rubble. Reports of casualties are currently unconfirmed, but the mayor of one town said: “The roads in and out of town are cut off. Half the town is gone”. Read more

It’s going to be one heck of an election year, folks

Exhibit one: The new Facebook page of the Board of Governors of the Federal Reserve. It looks like an attempt to explain Fed structure and governance to the layman: check out recent posts on Janet Yellen and the Fed’s mandate.

It hasn’t exactly become a Facebook-user favourite. For starters, as pictured below, it uses the phrase “open market operations” in the second sentence of an explanation of what the FOMC does, failing the low-jargon test for mom-and-pop explanations. Many of the comments on its posts aren’t worth the server space it would take to reproduce them. Read more

Markets Live: Tuesday, 23rd August, 2016

Live markets commentary from 

Further reading

Elsewhere on Tuesday,

- DeLong with a tentative macroeconomic reform agenda.

- Down the (Jackson) hole.

- Stanley Fischer rewrites Fed inflation target, prepares to throw people out of work.

- bows out/ it was murdered.

- Taleb on employment as a risk management strategy (also autocrats): “In short, every organization wants a certain number of people associated with it to be deprived of a certain share of their freedom. How do you own these people?” Read more

FirstFT – Renault emissions probe, Deutsche Bank’s $10bn scandal and the crisis in Anglo-American democracy

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A French government report omitted significant details of how Renault’s diesel cars were able to emit fewer deadly gases when subject to official emissions testing, members of the state inquiry have told the Financial Times. Read more