JPY, it wasn’t meant to be this way

What must the BoJ be thinking as the yen keeps getting stronger post the Japanese central bank’s announcement of negative rates?

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How negative is negative? Try 4.5 per cent negative

The Riksbank cut its main repo rate by 15 basis points to minus 0.5 per cent as it felt forced to act by “weakening confidence” in achieving its inflation target of 2 per centFT, just now

So this seems an appropriate time to rediscuss the idea of a lower bound.

First a quick summary: Negative rates might be destroying the banking system. They might, as Kocherlakota says, be “a sign of a terrible policy failure by fiscal policymakers.” They might simply be a experiment being played out in real time which we are as yet unfit to judge. Read more

“The business model of Wall Street is fraud”? Kind of

American senator and presidential candidate Bernie Sanders has repeatedly argued “the business model of Wall Street is fraud”. Critics were quick to claim this was “nonsense”, with some going so far as to call it “slander”.

Taken literally, they have a point. After all, widespread criminality across a range of business lines — just in the past decade many of the big financial firms have gotten into trouble for price fixing, bid rigging, market manipulation, money laundering, document forgery, lying to investors, sanctions-evading, and tax dodging, among other things — isn’t the same as actually having fraud as the core of the business. More generally, the financial sector contains many parts, often with competing economic and policy interests, so it doesn’t make much sense to talk about “Wall Street” as a unified entity.

Still, there is an essential truth in what Sanders said: from a certain point of view, banking is an act of fraud. Read more

FT Opening Quote

Rio Tinto is dropping its progressive dividend policy, SocGen is the latest large bank to miss expectations, Google is facing a grilling from MPs. 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

Further reading

Elsewhere on Thursday,

- Turbulent exit redux.

- Of neg rates: “At this juncture the impact upon banks should be fairly clear, but what about pension funds with liabilities discounted by long-term rates?”

- Kocherlakota: “the FOMC’s policy moves will be inappropriately insensitive to adverse information about the evolution of the economy. ”

- Cruise Conspira-Sea markets in everything.

- I[gor], Robot (hater).  Read more

FirstFT – Yellen warns on global turbulence, Christie ends White House bid and how your ‘smart’ devices could spy on you

The Federal Reserve chair says that financial conditions had become ‘less supportive’ of US growth Read more

On unicorn imperialism

It may have been a slip of the keyboard, but Marc Andreessen’s pro-colonialism Tweet on Wednesday (later retracted) arguably told us more about the mindset of Silicon Valley insiders than anything ever uttered at a TechCrunch disruptor conference.

Nor should it strike any of us as surprising. The parallels between unicorn imperialist ambition and the British Empire run deep. (And no, we won’t dwell on the shared fondness for unicorn insignia.)

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Macro Live, Yellen testimony

Live markets commentary from 

Macro Live, Yellen testimony special edition starting at 10am

Cardiff and Matt will be live-blogging Janet Yellen’s testimony before Congress. You can find us at the usual place, and we’ll kick things off at 9:58am, just a couple of minutes before the hearing begins.

Her opening remarks are here, and the FT’s Sam Fleming previews the testimony hereRead more

A brief look at Metro Bank’s offer document

All companies and people like to be seen in the best possible light, even if that means a little historical tweak here or an omission there. The question for any reasonable observer, or indeed investor in an unusual private placement/float combo, is what constitutes a bit of acceptable revisionism, and what counts as an error that probably needs correcting.

And so to Metro Bank’s offer document, which was circulated to shareholders late last month but not to the general investing public, who will have to wait until after the shares have begun trading to see a prospectus. (*Cough*.) Read more

Markets Live: Wednesday, 10th February, 2016

Live markets commentary from 

On the hypothetical eventuality of no more free internet

This is the first in an occasional series lamenting the hypothetical eventuality of a world without a free internet* and the extraordinary implications this could have for markets and companies. A tragedy of the web commons if you will.

It is inspired both by India’s ruling to bar Facebook from subsidising internet availability with Free Basics packages (see Kadhim’s series of posts for more on that) but also Balaji Srinivasan (he of 21 Inc toaster fame), and his attempts — including a Stanford Bitcoin course — to convince the world the web should in fact be a paid-for luxury product of scarcity.  Read more

FT Opening Quote

Chip designer Arm has etched out a 24 per cent rise in profits, Tullow Oil has shrunk losses, Janet Yellen is to testify to Congress. 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

Further reading

Elsewhere on Wednesday,

- Bonds on the run.

- Kocherlakota: “going negative is daring but appropriate monetary policy. But it is a sign of a terrible policy failure by fiscal policymakers.”

- Goldman’s top trades for 2016 aren’t looking great.

- “Bernie Sanders is seeing Kim Jong-un levels of support among millennials.” Read more

FirstFT – Trump and Sanders win primaries, a cure for jet lag and why contemplating death changes how you think

Mr Trump had secured 34.4 per cent, while Mr Sanders led Mrs Clinton by a commanding 59.5 per cent to 38.8 per cent in the New Hampshire primaries Read more

The CoCo that popped

Let’s go back in time — to May 2014. Deutsche Bank was in the market to raise capital, including at least €1.5bn of additional Tier 1 capital securities. Or CoCo (short for contingent convertible) bonds. Read more

Markets Live: Tuesday, 9th February, 2016

Live markets commentary from 

FT Opening Quote

Tokyo stocks fell more than 5 per cent after Japanese government bond yields hit zero, L&G has revealed its bond portfolio, Icap is upbeat on its deal with Tullett Prebon. 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

Tin hat time… everywhere?

So far in 2016, yes.

From Deutsche’s latest House View:

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Further reading

Elsewhere on Tuesday,

- At times like this I’m happy I’m poor.

- Chesapeake falling… Catharsis or beginning?

- Oil: “the supply pressures won’t stop until debt-financed production becomes equity-financed production. It really is that simple.”

- Why doesn’t the ECB just buy oil?

- What if you could know one asset price 20yrs out?

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FirstFT – Bank stock rout, US immigration and a Twitter backlash

Deutsche Bank led a rout in global bank stocks, with its shares sliding more than 10 per cent at one point, and closing down 9.5 per cent Read more

Tin hat time in Japan?

That’s the 10yr going negative for the first time, becoming the first G7 country to do so. Read more

The Bank of Canada admits easy money can inflate debt bubbles

We want to highlight a speech from the Bank of Canada’s Timothy Lane on Monday. Whilst the conclusions are not particularly new, Lane makes several points that can’t be repeated enough.

Start with his description of how changes in monetary policy affect the economy: Read more

Lay off Tim Geithner, yeah?

For a writer about skin in the game, here’s someone who seems not to like Tim Geithner putting more of his skin in the game of private equity investing.

— NassimNicholasTaleb (@nntaleb) February 8, 2016

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Foreign cbank drawdowns, int’l drawbridges and a Fed moat

Chinese FX reserves are down to a three-year low according to figures released this weekend.

But, if like us, you trace the current drawdowns to dynamics which first emerged at the end of December 2011… then you might find the following chart from Macquarie Bank’s global equities team of interest:

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Quoth the Zoman: Revenue

The co-founding Zoman* — Deepinder Goyal, that is — took time for a chat with us last week about the change going on in India’s start-up world, a change that has involved hyperbole by many and an utterance of mea culpa by a few. Online food portal Zomato is included in the latter category. Read more

Facebook loses battle over free internet initiative in India

All of Facebook’s huffing and puffing in India seems to have come to naught. Today the country’s telecommunications regulator banned “discriminatory tariffs for data services on the basis of content”, meaning that Facebook and its local partner will no longer be able to offer the social network for free to Indian consumers as part of its Free Basics product. Read more

Markets Live: Monday, 8th February, 2016

Live markets commentary from 

A note for your calendars: the end of the credit cycle

The credit cycle is long in the tooth by anyone’s reckoning — just how long in the tooth is a different question.

How about four-fifths of the way there? Read more

BIS to EM: worry

Borrowing isn’t necessarily bad, but you could be forgiven for thinking so, considering all the new research showing what tends to happen after big increases in indebtedness.

The latest comes from a speech by Jaime Caruana, the Bank for International Settlement’s general manager and the former boss of the Bank of Spain. We already discussed the first part of his speech, which explains the basic differences between his framework for economic analysis and the approach popular before the crisis, in a previous post. In this post we’re going to focus on the meat of his speech, which concerns the dangers facing many so-called “emerging market economies”. Read more