The Closer

FURTHER FURTHER READING

- Another false alarm on US inflationRead more

‘The Age of Asset Management’ — less risk, not more

This guest post, from Brian Reid, chief economist of the Investment Company Institute, is a response to this speech in April by the Bank of England’s chief economist, Andrew Haldane…

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As banks learn to live under tighter post-crisis constraints, central bankers around the world are worrying about financial risks that could move from banks to capital markets and perhaps trigger the next great crisis. After the experience of 2007–08, regulators rightly should be on guard for sources of weakness in the financial system.

Unfortunately, in their vigour, many regulators are seeing ‘systemic risk’—threats to the stability of the financial system—when the issue at hand is investment risk. Investment risk is a necessary part of a well-functioning economy, attracting investors willing to take known risks in hopes of gaining a reward. Systemic risk occurs when the financial system itself breaks down and is unable to perform its normal functions of matching savings to investment opportunities or facilitating economic activity. Read more

The Herbalife debate, shifted

So, Bill Ackman cried on Tuesday at the end of a presentation the showman investor had said will define his career. He remains committed as ever to what he first trailed as “the patriotic short”. For better or worse the reputation of his hedge fund, Pershing Square, will be hard to disentangle from this campaign to shut down Herbalife, the multi-level marketing company he has said is a fraud.

What did we learn, then, in 250 slides over the course of three hours?

Actually quite a lot about the way a pyramid scheme targeting the very poor can work. Read more

Whitney Tilson now 12 percentage points more confident in Herbalife short

Judging by the share price reaction to his Herbalife presentation, Bill Ackman delivered a “death blow” not to the company but to many investors who followed him in shorting the stock.

Not so Whitney Tilson, Buffett-watcher, value investor, friend of Ackman and now one of Herbalife’s biggest bears.

In fact, Tilson says he is more confident in his short now than before he settled in for the three-and-a-half hour event. Read more

Markets Live: Wednesday, 23rd July, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Japan trading houses look to sell coal assets || Metro bank attracts deposits || Iberdrola hit by energy reforms || Calstrs calls for Trian seat at Pepsi || Flights to Tel Aviv halted || Stocks up Read more

Safeguarding the future with public endowments​ for research

We routinely use our smart phones without realizing the research and development that produced it: the transistor, integrated circuits, wireless communication, the laser and optical communication, the internet, the Unix operating system, and so on. None of these existed during World War II. But four decades of post-war research created the foundation for today’s products (as Mariana Mazzucato has shown in her book The Entrepreneurial State).

Can we learn any principles about research and how it should be funded as a result of this example? Read more

China property chart du jour (yes, another one)

And the reason we keep going on about lower tier cities, from Nomura:

 Read more

Further reading

Elsewhere on Wednesday,

- Senate literary critics don’t like fictional derivatives.

- The history of autocorrect and why Word couldn’t very well go around recommending the correct spelling of mothrefukcer.

- Crime, punishment and the Citi settlement.

- Monetarism and the great depression. Read more

The 6am London Cut

Markets: Asia-Pacific equities climbed to fresh six-year highs as investors continued to place geopolitical concerns on the back burner. The upward moves followed an overnight session that saw global equities rally, in part because sales of previously owned homes in the US rose to their highest since October. The S&P 500 touched a record intraday high but then pared gains, ending up 0.5 per cent at 1,983.5. Volatility, as measured by the CBOE Vix index, fell 6.8 per cent. Even Russia’s Micex snapped a six-day run of losses, gaining 1.6 per cent. (FT’s Global Markets OverviewRead more

The Closer

FURTHER FURTHER READING

- The most powerful economic sanctions of all. Read more

Development banks good in crises, even better all other times

This is a guest post by Luciano Coutinho, CEO, BNDES, Brazilian Development Bank for the FT Alphaville Mission Finance series, in which he argues that development banks act as system stabilisers for the real economy.

The 2008-2009 crisis revealed to the world what was known at a national level: qualified public financial institutions are of extreme importance when private credit slows down. Delicate financial situations require immediate and efficient actions and the recent countercyclical success of development banks (DBs) shows to what extent these institutions behave as system stabilisers in times of credit contraction. Read more

Ackman and the 100 Club

Bill Ackman’s presentation in December 2012 was an attempt to simultaneously teach the world what a pyramid scheme looks like and explain why he thinks Herbalife is a such a diabolic endeavour. What he delivered on Tuesday in New York was very different.

In a presentation targeted squarely at his critics, Mr Ackman attempted to explain how Herbalife works in practice. Drawing on work by undercover teams in several countries, he made the case for how the company has adapted the pyramid scheme model to draw in recruits from the world’s poor. Read more

On Russian sanctions and Belgian beer…

Given that Russian subjects are reportedly being force fed a diet of Putin-esque mis-information over the downing of Malaysia Airlines Flight 17, it seems worth noting what strategists employed by Russian investment banks are saying about the threat of deeper sanctions against Russia.

Here’s Charlie Robertson, global chief economist at Renaissance Capital (emphasis ours)… Read more

A Herbalife Pre-response

Pershing Square, the hedge fund dedicated to the destruction of Herbalife for truth, justice and a tidy profit, will hold a presentation on the subject of Nutrition Clubs run by the multi-level marketing company shortly on Tuesday.

In advance of that Herbalife has released a summary of its own research, a report prepared by a former FTC advisor on the company’s business model. Walter H. A. Vandaele of Navigant Economics:

assessed whether Herbalife’s operations appropriately are classified as a beneficial, legitimate Multi-Level Marketing (“MLM”) firm.

Spoiler: it is legitimate. Read more

De-financialising the real economy

Mariana Mazzucato organiser of this week’s Mission-Oriented Finance conference in London and RM Phillips Professor in the Economics of Innovation, SPRU, University of Sussex, is attempting to rescue the idea of The Entrepreneurial State, debunking myths about private and public sector innovation. Here is her latest contribution to the Mission Finance series at FT Alphaville.

Today our mission-oriented finance for innovation conference begins at the Houses of Parliament. Vince Cable, UK secretary of state for business, innovation and skills will be kicking off this evening arguing that a serious commitment to funding innovation means doubling innovation spend. Read more

Exorbitant privilege, meet pari passu

With less than a fortnight until Argentina risks defaulting on its restructured debt, there will be another hearing in the pari passu saga later on Tuesday. After a look at Argentina’s position, now for what Judge Griesa’s hearing will focus on — restructured bondholders who argue that he has no jurisdiction over them…

Notably, local-law restructured bondholders. Read more

The RUFO persecution complex

“Madmen in authority, who hear voices in the air,” Keynes wrote at the end of the General Theory, “are distilling their frenzy from some academic scribbler of a few years back.”

In Argentina, the scribblers are sovereign bond contract draughtsmen. Read more

Markets Live: Tuesday, 22nd July, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Apple eyes return to glory days of $100 share price || US Senate alleges hedge fund and banks avoided $6bn tax bill || Royal Mail struggles to deliver as competition for parcels grows || Credit Suisse quits commodities trading and trims investment bank || Saudi stock market to open to foreigners || Barclays ‘dark pool’ trades dry up after high-frequency suit in US || Markets Read more

Fighting poverty: how the wealthy can help

This guest post is from Mark Haefele, global chief investment officer at UBS Wealth Management and also chairman of the UBS Global Investment Committee.

Note that Mark will be fielding questions on the topic of poverty during Markets Live at 11am on Tuesday. A UBS white paper on fighting poverty is available here.

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Global economic growth, the rise of China, and the fall of communism have all contributed to lifting hundreds of millions out of poverty in the past 25 years. Unfortunately, the ‘easy gains’ have been made. The aforementioned factors are either one-off in nature, or likely to be less supportive in the future. As a result, private individuals, particularly wealthy investors, have a potentially significant role to play in reducing poverty, through a combination of sustainable and impact investing, and philanthropy. Read more

In defence of cows as safe assets

You’ll remember this from last year, we’re sure:

Our main finding is that, on average, [rural Indian] households earn negative returns on their investments in cows and buffaloes if labor is valued at market wages: we estimate average returns of negative 64% and negative 39% for cows and buffaloes respectively. If we value the household’s own labor at zero, estimated average returns increase, to negative 6% for cows and positive 13% for buffaloes… if cows and buffaloes earn such low, even negative, economic returns, why would rural Indian households continue to invest in them?

That, from Anagol, Etang and Karlan, led to a host of speculation about various economic and cultural factors which might explain India’s ability to slide past the “central tenets of capitalism”… h/t’s to the Onion all round. Read more

Further reading

Elsewhere on Tuesday,

- Let them eat cosmopolitanism.

- Russia: not, in reality, as big as it appears.

- Hound Putin not the minigarchs of Belgravia.

- Fiscal deceit and privatising the UK’s student loan book. Read more

The 6am London Cut

Markets: Asian investors brushed aside geopolitical tensions from Ukraine and Gaza, with equities broadly higher across the region. The advances came in spite of a weak session on Wall Street and little fresh news from the region. The S&P 500 ended 0.2 per cent lower in New York and the CBOE Vix volatility index rose 6.2 per cent. (FT’s Global Markets OverviewRead more

The Closer

FURTHER FURTHER READING

- Are labor markets exploitativeRead more

Imminent collapse of gigantic fraud promised (by short seller)

Bill Ackman, who will be making a new Herbalife presentation on Tuesday at 10am EST in New York, has given CNBC a small taste in advance. Well, by taste we mean he predicts ithe company’s rapid and imminent exposure as a fraud.

 Read more

One in four lose some more

The cover of FTfm features some tough Monday morning reading for professionals paid to help investors pick hedge funds:

Roughly a quarter of all hedge funds tracked by Preqin have posted negative returns year to date, though the industry is up 3.2 per cent overall.

 

One in four is pretty bad for an industry with aspirations to asset class status, when the world has largely been calm and markets positive. Indeed, hedge fund managers are braced for their worst year since 2008. Read more

Markets Live: Monday, 21st July, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Good morning, New York,

FT ALPHAVILLE Read more

Flight to a semblance of quality, China property edition

Today in Chinese efforts to shore up the property market, from Bloomberg:

China will revive mortgage-backed debt sales this week after a six-year hiatus, as the government extends help to homebuyers in a flagging property market.

Postal Savings Bank of China Co., which has 39,000 branches in the country, plans to sell 6.8 billion yuan ($1.1 billion) of the notes backed by residential mortgages tomorrow, according to a July 15 statement on the website of Chinabond. The last such security in the nation was sold by China Construction Bank Co. in 2007, Bloomberg-compiled data show.

And from Nomura: Read more