Video: Argentina’s default

Joseph has a chat with FT capital markets editor Ralph Atkins:

The $10bn birth of the trusted deletion industry

Nobody has been more annoyed by Alibaba’s potential upcoming valuation of Snapchat at $10bn than the Bitcoin community, since its own “world changing” technology currently has a market value of no more than $7bn.

Here’s a flavour of the outrage on the Bitcoin subReddit: Read more

The curious case of capital gain-like profit

Iren Levina, economics lecturer at Kingston University, brings to our attention a fascinating, if under-appreciated, phenomenon in finance.

She describes this as the “puzzling rise in financial profits and the role of capital gain-like revenues” throughout most of the 2000s, which were totally delinked from real economic growth during the period.

Okay. Why so puzzling you ask? Don’t we know these profits were the result of too much risk taking? And haven’t there been hundreds of papers about this sort of thing?

Well, yes. But this isn’t quite Levina’s argument.

In a paper published in April this year she instead argues that the reason financial profits became disassociated from real economic growth was because of the way they were formed and the way they were transferred through the financial system consequently.

More to the point, because they were enabled by the very phenomenon of “capital gain-like revenues’.

Unfortunately, the monetary assets which facilitated these revenues have been incorrectly understood by the financial system. In Levina’s eyes they are not, as many believe, borrower liabilities matched by real assets at financial institutions, but rather borrower liabilities matched by something altogether different. Read more

Do you really want to open this can of trust-breachy worms?

You can’t shake everything up at once. Some sensible paragraphs from Bank of America Merrill Lynch’s China team who are searching for explanations in place of the trust defaults they expected:’s understandable why local officials do not want to see any default and try all they can to avoid one. Given the amount of resources they command and how much influence they can exert on local financial institutions, it’s not a surprise to us that they have managed to do so. However, the central government, supposedly having broader interests and a longer horizon in mind, could have stepped in to force some defaults, make investors more aware of the hidden risks, address the implicit-guarantee moral hazard and improve resources allocation.

 Read more

Markets Live: Thursday, 31st July, 2014

Live markets commentary from 

The (early) Lunch Wrap

Markets || Argentina defaults as last-minute talks fail || Sierra Leone declares Ebola virus public health emergency || SFO pays £1.5m to Robert Tchenguiz || Lloyds takes fresh £600m PPI hit || House price growth slows in July || Former Banco Espírito Santo board face legal action after losses || Balfour Beatty ends merger talks with Carillion: Read more

Banco Encephalopathy Spongiform

Relisted in Lisbon, Banco Espirito Santo, down 45 per cent at pixel…

 Read more

Most hedge funds fail

That conclusion, and its consequence — picking good hedge funds that will survive is beyond the ability of big investors like pension funds — has been the central point of this series about hedge fund zombies.

However, reading John Lanchester in the New Yorker on how the jargon of finance obscures and reverses the meaning of words, the simple clarity of the message was striking:

Most hedge funds fail: their average life span is about five years. Out of an estimated seventy-two hundred hedge funds in existence at the end of 2010, seven hundred and seventy-five failed or closed in 2011, as did eight hundred and seventy-three in 2012, and nine hundred and four in 2013. This implies that, within three years, around a third of all funds disappeared. The over-all number did not decrease, however, because hope springs eternal, and new funds are constantly being launched.

 Read more

Further reading

Elsewhere on Thursday,

- Then and now, the similarities and differences between 1914 and 2014

- When entertainment passes for investment advice.

- The anti-court court. Read more

The 6am London Cut

Markets: Most Asian markets paused to end July on a quieter note after better-than-expected US economic data raised the possibility of a jump in interest rates. (FT’s Global Markets OverviewRead more

Argentina, default, and the prisoner’s dilemma

That was the Argentine economy minister, Axel Kicillof, shortly before pixel time, having announced a (rejected) ‘offer’ of the same terms as Argentina’s restructured debt to the holdouts; blamed Judge Griesa; and otherwise prepared his country for default. Direct negotiations, in short, are over for now. Read more

Banco Espírito Santo: call a policia?

Following the disclosure of the exposures to Espírito Santo Group to the market on July 10th, 2014 the Board of Directors learned about the existence of two letters issued by Banco Espírito Santo in favour of creditors of Espírito Santo International, which had not been approved in accordance with the internal procedures in place at the Bank and was not registered in its accounting records as at June 30th, 2014.

 Read more

The Closer


- America’s inverted tax logicRead more

Video: markets react to Q2 GDP and FOMC, look ahead to Friday

A brief chat with Fast FT’s Eric Platt:

Fed sees continued “underutilization of labor resources”

Better employment situation reports. Strong second-quarter growth. Inflation rising steadily. Recent congressional testimony from Janet Yellen admitting that the labour market was improving more quickly than the Fed had forecast.

Yet despite acknowledging the recent moves in the unemployment rate and inflation towards the Fed’s targets, Wednesday’s FOMC statement also added that “a range of labor market indicators suggests that there remains significant underutilization of labor resources”. Read more

This is nuts. When’s the crash?

This valuation will self destruct in ten, nine…

Snapchat is worth $10bn, according to Alibaba. The yet to list Chinese ecommerce company is in talks to inject a round of financing that would make the company worth as much as Dropbox and and Airbnb, reports BloombergRead more

US Q2 un-blips Q1

A healthy Q2 print is no surprise: underlying growth was already known to be much better than the abysmal, weather-traumatised first quarter numbers indicated, while labour market indicators had been portraying an accelerated recovery for months now.

But 4 per cent annualised growth, along with a slight positive revision to the first quarter number from -2.9 to -2.1 per cent, was even better than expected. Read more

What would an anti-corruption top even look like?

So, with the corruption investigation into taboo busting tiger, former Politburo Standing Committee member Zhou Yongkang, the first such investigation against a politburo standing member since 1949, are we calling the top of this thing?

Kinda, says Gavekal’s Andrew Batson: Read more

Markets Live: Wednesday, 30th July, 2014

Live markets commentary from 

The (early) Lunch Wrap

Power companies face tougher-than-expected price controls || Barclays takes £900m PPI charge as investment bank profits halve || Ukraine tensions prompt Total to suspend Novatek share buys || Airbus eyes Dassault stake sale as profits rise || Rightmove’s profit rise underscores recovery in UK property || Markets Read more

Further reading

Elsewhere on Wednesday,

- What debate? Economists agree the stimulus lifted the economy.

- ‘Tis but a scratch.

- I don’t want to make fun of synergies. Synergies are great.

- Transocean transfer pricing and corporate inversions. Read more

The 6am London Cut

Markets: Asian markets were broadly positive on hopes of a robust US second quarter gross domestic product report due out later today. Tokyo markets were subdued after data released on Wednesday showed a 3.3 per cent decline in Japanese industrial production from May to June. (FT’s Global Markets OverviewRead more

The get out of RUFO free card

Update – Midnight UK time: Argentine press was reporting at pixel time that the country’s banks may provide collateral to the holdouts for a temporary stay. Argentina would then use the stay to ask restructured bondholders to consent to waiving the RUFO clause. (Using private banks to pay the collateral would avoid a RUFO trigger.) Also at pixel time, Argentina’s economy minister had entered negotiations in New York — so something was up.

The talks may move quickly into Wednesday. But the emergency stay request in the original post below shows some of the issues here… Read more

The Closer


- FT editorial on Russia and sanctionsRead more

Rearranging the ISINs on the Titanic

We are one day away from Argentina’s second default this century. Drama or farce?

Farce. For all the confusion that was on show in Judge Griesa’s hearing last week, about whether Argentina’s restructured local-law bonds should join the foreign-law debt within the pile of paper at risk…

At least holders of these bonds will be OK after all on Wednesday.

Only just this once, though. And they were let off for a reason which underlines tensions we’ve been noting in the pari passu saga between enhanced powers to enforce sovereign debt, and the complexity of international finance. Read more

Markets Live: Tuesday, 29th July, 2014

Live markets commentary from 

Default settings in China

Or, how far is market pricing of credit risk catching on in China, after all?

Here’s your default-risk adjusted corporate bond yields in China from Nomura (our emphasis):

Liquidity injections and targeted easing so far this year has had a material impact on corporate bond yields. Corporate bond yields have dropped across the rating spectrum, while a similar narrowing of spreads can be seen relative to Chinese government bonds. Data provided by the China Government Securities Depository Trust & Clearing Co Ltd ( shows that both 1yr and 5yr AA-rated bond yields have fallen, from highs of 7.22% and 7.63%, respectively, at the start of the year to 5.38% and 6.53% today.

 Read more

The (early) Lunch Wrap

GKN earnings and dividend up || Renault hit by Russian weakness || Morrison boardroom changes || Next profits up || UK mortgage approvals higher than expected || Markets softer Read more

Further reading

Elsewhere on Tuesday,

- Nilometers and the language of finance.

- Where are the time-traveling arbitrageurs?

- Another gave women in the audience a tip for pitching VCs: “Wear a wedding ring.”

- Why not link the maximum wage to the minimum wage?  Read more

The 6am London Cut

Markets: “Asian stocks rose, sending the benchmark regional index to a six-year high, while bonds followed U.S. Treasuries lower before the Federal Reserve starts meeting today. Oil fell while gold climbed.” (BloombergRead more