Draghi’s speech at Jackson Hole

Read it here, and see also the slide deck. As with all things ECB-related, we recommend following Lorcan’s twitter feed.

An excerpt from the speech below: Read more

Janet Yellen’s Rorschach speech

If the policy implications of Janet Yellen’s every word could be ignored, then her speech at Jackson Hole this year would merely be a wonderful elucidation of why it’s so hard to measure labour market health in real time.

The meaning for policy obviously can’t be ignored, and yet markets didn’t respond strongly one way or the other, while the instant reactions from commentators and strategists differed widely. Read more

Janet Yellen’s speech at Jackson Hole

You can read it here.

And below is an excerpt: Read more

Germany vs France on the euro, part deux

A brief follow-up to this morning’s post in response to a question we received on Twitter…

Below is a chart showing the full history of French household indebtedness data. It only goes back to 1996 but provides some additional context about the changes that occurred after the introduction of the euro: Read more

When creative destruction becomes creative devastation

John Komlos of the Ludwig-Maximilians University in Munich proposes in a new paper that ‘creative destruction’ has become devastating, not just destructive:

the destructive power associated with Schumpeterian creative destruction has increased markedly relative to their creative component, in contrast to previous epochs. Creative destruction’s gentle winds have mutated into cyclones of destruction.

Thus, our sense of well-being will probably not keep pace with even the slow economic growth being predicted by Gordon, Summers, and Krugman. While the economy will be growing, albeit slowly, we predict that our sense of well-being will be mysteriously lagging well behind.

 Read more

Plus500 as a model, citizen

One way to think about companies that have listed in recent years is that they are in the “show me” phase of their existence. Raising cash on a promise and a neat idea is one thing, the important part once the stock trades is to show that the business model works and is sustainable.

So consider Plus500, the Haifa, Israel-based Contract-For-Difference trading group that listed in London a year ago. The shares have since quadrupled, giving it a market valuation of £550m, a quarter of that of its long established competitor IG. The group recently reported first half earnings of $54m, up from $15m in the same period a year ago.

Some aspects of the company’s business deserve consideration. Read more

This speaks for itself. When’s the crash?

Felix Salmon on the redundancy of banks, in Friday’s FT:

Today’s big Silicon Valley deals are not based on corporate synergies, or the amount that earnings per share will increase after the deal closes. They are not, therefore, based on the sort of thing that bankers can model. (Very few of the acquired companies have any earnings at all; some even lack revenues.)

 Read more

The (early) Lunch Wrap

Janet Yellen to see Jackson Hole return to wonky roots || StanChart’s NY anti-money laundering settlement draws UAE ire || Activist Edward Bramson steps up pressure to join Electra board || Co-op Bank slashes first-half losses || Markets Read more

On wages and inflation: jeers for fears

We live in disinflationary times, at least in the developed world.

This doesn’t mean that monetary and fiscal policies lack the potency to offset disinflation or deflation. What it means is that holding policy constant across time, non-policy economic forces have become less and less inflationary in recent years. Read more

Deutsch-Rückhalte and le malaise français

With a hat-tip to our friends at CreditSights, check out the starkly different paths of household indebtedness in France and Germany since the introduction of the euro:

(Sources: Bundesbank 1 and 2, Banque de FranceRead more

Buiter on helicopter drops

Some further, further reading on Friday — a new paper from Citi’s Willem Buiter, on why helicopter drops of money always work. From the abstract (our emphasis):

Three conditions must be satisfied for helicopter money always to boost aggregate demand. First, there must be benefits from holding fiat base money other than its pecuniary rate of return. Second, fiat base money is irredeemable – viewed as an asset by the holder but not as a liability by the issuer. Third, the price of money is positive. Given these three conditions, there always exists – even in a permanent liquidity trap – a combined monetary and fiscal policy action that boosts private demand – in principle without limit. Deflation, ‘lowflation’ and secular stagnation are therefore unnecessary. They are policy choices.

 Read more

Further reading

Elsewhere on Friday,

- Mugabe’s bailout.

- FX, where the summertime torpor disguises existential angst.

- Ferguson and the modern debtor’s prison.

- Hawks crying wolf.

- The shift from gold to fiat money as a black swan. Read more

The 6am London Cut

Markets: Asia-Pacific markets are in a broad-based rally led by Taiwan, after US equities touched a record high and buoyed sentiment. The MSCI Asia Pacific Index, a regional barometer, rose 0.3 per cent in early Friday trading – its first rise in three sessions – led by a 1 per cent climb in Taiwanese stocks spurred by data which showed Taiwan’s unemployment rate had fallen to a six-year low of 3.95 per cent and highlighted the economy’s resilience in spite of a slowdown in mainland China. (FT’s Global Markets OverviewRead more

The Closer


- “The past 60 years of data suggest that large increases in bond risk premiums are independent of the recent level or change in risk premiums” Read more

Video: US banking regulation and foreign banks

A discussion between FT banking editor Martin Arnold and Lombard editor Jonathan Guthrie:

Quindell, promises and a cash flow conundrum – Update

The cash situation at Quindell is important, hard to follow and weird all at the same time. The revenues that the group reports are largely promises of cash at some point in the future.

So our recommendation to those interested in the UK’s largest listed law firm is to pass over the commentary (don’t worry, we’ll be coming back to it) and turn straight to the balance sheet and cash flow statement. Read more

Argentina and Elliott – was it really a bond play?

Pablo Triana, Professor at the ESADE Business School and all round derivatives expert, thinks that the role of CDS deserves consideration in the fight between Argentina and a hedge fund. In this post he explores possible motives for litigation. Elliott Management declined to comment.

Hedge fund NML Capital, a subsidiary of Elliott Management Corporation, has won crucial legal victories in its long search for rightful compensation from the Republic of Argentina. Courts in the United States sided with NML in finding a “creative” way to finally gain some leverage over the South American nation, which had long refused to make good on defaulted debt owned by the fund (along with other so-called vulture investors).

Argentina was found to have discriminated de jure against NML et al, breaching the now famous “pari passu” clause that entitled those creditors to equal rank with similar creditors. As per the remedy ordered by the judge, Argentina can´t pay a dime to those who accepted new bonds in the 2005 and 2010 debt restructurings unless it also pays NML et al in a ratable fashion. Read more

The (early) Lunch Wrap

Good morning New York,


Video and review: “The System Worked”, by Dan Drezner

While reading Dan Drezner’s The System Worked, I kept thinking of the well-publicised conversation between Barack Obama and Tim Geithner that took place shortly before Obama’s inauguration as president in January 2009. Read more

Hedge Funds and the problem of structure

Not the hedge fund structure, a fee schedule masquerading as an asset class, that is old hat. What we mean is the problem that arises once your pension fund has hired staff to invest in alternative assets.

For instance, consider this nugget of information from a poll of institutional investors conducted by Preqin and written up in COO Connect under the headline Investors to grow allocations to alternatives:

Twelve per-cent of private equity investors and 9% of hedge fund investors said the asset classes had surpassed expectations.

 Read more

The Legend of Jackson Hole

It is probably the highest profile event on the Fed calendar: the chair’s opening speech at the Kansas City Fed’s symposium in Jackson Hole, Wyoming. The setting is spectacular; the audience runs the world’s central banks. Markets go on high alert for new guidance on policy. To add to the sense of occasion this year, it will be Janet Yellen’s first visit as Fed chair.

The oddity is that Jackson Hole’s reputation as a market mover is largely accidental. It is not an obvious venue for the Fed to communicate policy: what, in fact, could seem more out-of-touch than proclaiming the nation’s economic path from a gorgeous mountain resort in one of the richest zip codes in the USA? It is most likely, therefore, that Yellen’s speech on Labour Markets (the title has been announced) will contain a lot of important analysis but much less red meat on policy. Read more

Further reading

Elsewhere on Thursday,

- Saving Horatio Alger.

- And Fukuyama on the sources of US political dysfunction.

- Buffett: “If you’ve got 160 IQ, sell 30 points to somebody else because you won’t need it in investing.”

- The high cost of defeating Isis. Read more

The 6am London Cut

Markets: Chinese stocks slipped after further evidence suggested the mainland economy is falling victim to the summer doldrums, while a third solid performance by Wall Street buoyed sentiment and lifted stocks in Japan and Australia. The Flash China Manufacturing Purchasing Managers’ Index, which is weighted towards smaller manufacturers, came in at a three-month low of 50.3 for August, down from 51.7 in July. (FT’s Global Markets OverviewRead more

The Closer


- 40 charts that explain money in politicsRead more

Escape from New York, pari passu edition

“I’m a little nervous,” the President of Argentina told the nation on Tuesday night.

We’ll bet.

President Cristina Fernandez de Kirchner had just sent a draft law to the Argentine congress.

This would offer restructured bondholders to route around New York law into Argentina’s domestic jurisdiction, set up local payment for them in the meantime, and in general, attempt to remodel bonds free of holdout lawsuits and a default that could last a long time.

And on Wednesday the market more or less retorted that it prefers to hold the defaulted paper anyway. Read more

FOMC minutes for meeting of July 29-30

Now available here.

For now, the FOMC seems unwilling to replace the moribund Fed Funds rate with other short-term interest tools: Read more

The incredible shrinking (foreign) demand for US corporate debt?

Every month, the US Treasury publishes data on international capital flows by the type of asset and the country in which the transaction occurred.

In a recent note on the latest data, CreditSights highlighted something we found very interesting: foreigners appear to have stopped buying US corporate bonds (on a net basis) during the crisis and have refused to return to the market in the years since. The truth of the matter is a little more complex, but still interesting: Read more

Patent trolls as the new rentier class

According to the Merriam-Webster dictionary, a rentier is a person who lives on income from property or securities.

From the point of view of Marxist rentier capitalist theory, a rentier is also a parasite who adds no value to society, but instead survives solely due to his ability to extract rents (tribute) from productive people. A rentier achieves this through muscle or social norms which defend his exclusive rights over property in such a way that he must be compensated for their use by others.

Today, patent trolls are emerging as the world’s most nefarious rentier types.

The reason they’re so particularly nefarious, we’d argue, is directly linked to the type of property that they’re trying to monopolise. Intellectual property. Read more

The (early) Lunch Wrap

Isis claims to execute US journalist || Missouri Police break up peaceful protest || Balmer departs Microsoft board || BoE unanimity ends || Sterling rises || Russia hits Carlsberg || Glencore profit, buyback || Stocks flat Read more

Will redemption gates cause runs? Redux

And by redemption gates we mean rules that give a financial intermediary the right to impose redemption restrictions (keep your money) when things get tense and liquidity is scarce. Rules like the SEC approved in July allowing money market funds sold to both retail and institutional investors “to impose temporary suspensions on redemptions, or gates, if a fund’s level of weekly liquid assets fell below 30 per cent of its total assets. The fund could also impose a liquidity fee of up to 2 per cent on all redemptions in those circumstances.”

We’ve asked before if imposing such gates might precipitate the problems they are meant to alleviate — if they might cause runs which otherwise would have been avoided — and at least one SEC commissioner, Kara Stein, thought so when voting against the new MMF rules above:

“As the chance that a gate will be imposed increases, investors will have a strong incentive to rush to redeem ahead of others to avoid the uncertainty of losing access to their capital… “More importantly, a run in one fund could incite a system-wide run.”

Now, here’s the New York Fed’s Marco Cipriani, Antoine Martin, Patrick McCabe, and Bruno M. Parigi arguing just that  Read more