Further reading

Elsewhere on Tuesday,

- Of NY’s pension pot: “When you’re that big, it’s fair to ask why you’re paying external managers at all.”

- Crowding in and the paradox of thrift.

- Greece, where an irresistible force is about to meet an unmovable object.

- “Corzine is a guy who lives and breathes the motto “Each Time A Door Closes, A Bigger, More F*cking Awesome One Opens.” If he hasn’t had it tattooed across his lower back yet, it’s only because he’s still settling on a font.”

- Pity the poor, unloved, elite.  Read more

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Gazprom is next in the pipeline for Margrethe Vestager, the EU’s competition chief. She plans to accuse the Russian energy company of illegally abusing its dominant position in Europe’s gas market by thwarting competition and pushing up prices in central and eastern Europe. (FT)

Charges have been ready since the end of 2013 but the case was delayed by the Ukraine crisis. The FT looks at how the case, which could inflame already difficult relations with Moscow, began with Europe’s biggest ever antitrust raid in September 2011. Read more

Quoth the Raven steps out of the shadows

When we first looked at pyramid scheme law, we set out to get away from the personalisation of the debate about the legitimacy of a multi-level marketing business selling protein shakes around the world. Bill Ackman versus Carl Ichan and George Soros is ultimately a sideshow while government agencies conduct investigations into Herbalife.

Still, inevitably perhaps, the debate has become personalised, and the “Herbalife is a pyramid scheme” camp is sometimes presented as an organised campaign where short selling hedge fund Pershing Square pulls all the strings.

Hence a new blog from Quoth the Raven, a frequent writer on the topic of multi-level marketing who has abandoned his anonymity to leave no room for innuendo. Meet Chris Irons, a working class Philadelphian, a Liverpool FC fan, and a blogging finance guy who did his own work and happened to come to the same conclusion as a famous and successful fund manager. Read more

Secret Camp Alphaville 2015 discount code

You’ll have to be quick to take advantage of this.

The early bird half price ticket offer for Alphaville’s annual finance festival in London (July 1 in the grounds of the HAC) expired on Sunday.

But an email extending the £99 offer to members of the Long Room went out late, on Monday, with this discount code… Read more

The default position: wait two and a half years

Deutsche Bank’s annual study of defaults has landed. Thoughts on how the next cycle for corporate borrowers might be affected by flatter yields curves below, but first a reminder of just how little money has been lost to bad debts since 2009.

We can’t overstate how low overall defaults are. The 2010- 2014 cohort is the lowest 5-year period for HY defaults in modern history (quality adjusted). To protect for default risk in BB and Single-B rated bonds over this period, investors would have only required 27bps and 94bps respectively. Current EUR/USD BB spreads are 301/350bps and Single-Bs 598/527bps. Indeed in CDS, Crossover now has 10 full years of default history. The peak 5 year default period was the 12% seen in Series 8-10 (late 2007 to late 2013). Relative to its ratings, average default risk for this index should now be around 20%. So this reiterates that recent history and average history in default terms remain remarkably far apart.

 Read more

Markets Live: Monday, 20th April, 2015

Live markets commentary from FT.com 

A policy put and a call in China?

Not an unhelpful way of looking at this weekend’s moves in China — the largest RRR cut since 2008 on Sunday following ropey growth data and a move to rein in the stock market, via more room for shorting and less room for leverage, on Friday — from Citi with our emphasis:

We reiterate H [shares of mainland Chinese companies traded on the Hong Kong stock exchange and denominated in Hong Kong dollars] preference over A [shares of Chinese companies listed on either the Shanghai or Shenzhen stock exchanges], following the 100-bp RRR cut and CSRC’s margin trading rule enhancement over the weekend. The “economic policy put option”, i.e., easing bias if economy weakens, is in line with our views post 1Q15 GDP. The RRR cut, more significant than expected, suggests urgency to ease and provides Rmb1.3tn liquidity. Our economists now expect two more rates cuts and two more RRR cuts ahead in 2015. MXCN gained 1% on average following 50-bp RRR cuts historically. For the gov’t A-share equity policy stance, however, we think an “equity policy call option”, i.e., tightening bias if equity surges, seems emerging given the high leverage and reasonable valuation

 Read more

Further reading

Elsewhere on Monday,

- Oh look, Varoufakis met Buchheit.

- Krugman on Greece and sunk costs.

- Game (theory) of Thrones.

- And the Night’s Watch as the perfect central bank for Westeros? Read more

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Hundreds of refugees are feared dead after an overcrowded boat tipped over off the Libyan coast. This was the worst maritime disaster of its kind in the Mediterranean and has increased pressure on EU countries to prevent further incidents. (FT)

Italy last year shut down its patrol of the Mediterranean and the EU launched a more limited mission in November. The Italian government has persistently asked the EU to increase funding for the patrol but there is no consensus to do so, with many European governments feeling pressure from anti-immigration groups. Read more

Law professors come up with zany plan to ruin your retirement

Here’s a weird idea (emphasis ours):

Pass a law that restricts the holdings of mutual funds and other institutional investors. The law would be very simple. Currently, employees and employers get tax advantages when employers set up retirement accounts for employees. The government regulates the types of funds that employers may offer to their employees. The government should direct employers to offer only mutual funds that do not own a significant number of shares of more than one firm in a specific industry. In other words, mutual funds would be allowed to own shares of only a single firm in any specific industry, but could invest in as many industries as they wanted.

For example, a mutual fund could own shares in United or Delta or Southwest, but not more than one airline. The same mutual fund could also own shares in GM or Ford or Tesla, but not more than one car manufacturer. By owning shares in different industries, mutual funds could continue to offer the diversification benefits that investors value them for. But because mutual funds would not be allowed to own shares of firms in the same industry, they would have no incentive to encourage firms not to compete on price.

 Read more

Guest post: The Euro and the IMF Now

Here’s former IMF staffer Peter Doyle , with some bold advice from the wings of the IMF Spring meetings…

_______ Read more

Markets Live: Friday, 17th April, 2015

Live markets commentary from FT.com 

Wunderbund watch (0.072)

This is the first in what will probably be a short-lived series watching the miracle German 10 year benchmark bond head to zero. (It’s not about Eight Insane Most Breath-Stealing Rolex Day-Date Watches. You’d have to go to Buzzborg for that.Read more

The artisanal of valuation


Day one move for Etsy share price, the ““human, authentic and community-centric global and local marketplace”: a jump from $16 to $30.

 Read more

A disturbance in the financial force

This is the one thing we didn’t want to happen…

 Read more

Further reading

Elsewhere on Friday,

- Turkish economic myths.

- Even in Holland prostitution and central bank work don’t go together very well.

- Buying Virtu and existential angst.

- Tony Yates vs Steve Keen, continued. Read more

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The crisis may finally be loosening its grip on the financial sector. Goldman Sachs and Citigroup, two of Wall Street’s largest banks, each recorded one of their strongest quarters since 2007. Earlier in the week JPMorgan Chase’s report of boosted trading revenues and profits sent its shares to a record high. (FT)

Debate has focused on whether depressed returns are a cyclical phenomenon – owing to weak economies and low volatility – or a structural one, with tougher regulation permanently damaging industry ability to make money. Goldman, which saw its best return on equity in 18 quarters, has always insisted that revenues and returns would improve even after the tide of regulation. (FT) Read more

Debt is dangerous, part 245925028508

The most recent US downturn was so painful because US households’ borrowing binge in the first half of the 2000s left them stuck repaying large debts (often against assets that had plunged in value) and unable to spend money on new goods and services that they actually wanted. Moreover, they weren’t in a position to take out new to debt to support consumption as they had before the crisis.

A fascinating new paper by Xavier Giroud and Holger Mueller argues that many US companies went through a similar experience, and that this made the downturn about twice as worse as it otherwise would have been. Read more

About that ELA rulebook (all two pages)

With Greek sovereign yields blowing wider on Thursday (and pretty much staying there), it’s worth revisiting what exactly might happen if, say, May 1 arrives and Greece fails to pay the €200m due to the IMF that day.

Received wisdom has it that the ECB will withdraw the ELA — emergency liquidity assistance — currently propping up the Greek banking system, which will promptly collapse; Tsipras and Co would then be forced to bring back the Drachma (or similar) and Greece would exit the eurozone.

But what do the “rules” here say? In the case of the ELA they run to all of two pages. Click the image to read in full. Read more

Dumb money update, Greek edition

Bond Vigilantes reminds us of this:

Greece has raised €3bn in a five-year bond deal after attracting in excess of €20bn in orders for its eagerly anticipated return to the bond market. The yield on the deal was confirmed at 4.95 per cent – much lower than most analysts expected. Read more

Markets Live: Thursday, 16th April, 2015

Live markets commentary from FT.com 

Plus500 churn update

A central question for Plus500, the London-listed but Israel-based online contract for difference broker, is how does it treat customers? Are the punters returning regularly to trade, earning steady income for Plus, or do they hand over their shirt then disappear to nurse loses which have fed impressive profits for their broker?

The question matters because it underlies another central question, the sustainability of those profits.

Numbers disclosed by the company make it hard to tell, as an “active customer” is one who has made just one trade in the period in question. Still, the first trading quarter update released on Thursday shows further signs of customer base churn.

Here’s how Plus500 presents it: Read more

Your October 2014 flash crash, charted

Courtesy of the IMF and spotted by Toby Nangle, do click to enlarge:

 Read more

Further reading

Elsewhere on Thursday,

- The asymmetric-information problem doesn’t disappear; it merely regresses.

- “Reading Wilhelm II on every conceivable subject for more than 1200 pages… is like listening for days on end to a dog barking inside a locked car.”

- Your ECB protest retold in three pictures.

- Fighting the bubble in bubbles.

- Bernanke on mon policy in the future (now with more John Taylor sideswipes). Read more

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Greece is now even more likely to go bust in May after German finance minister Wolfgang Schaeuble ruled out a deal to release bailout funds to Athens. Talks between Greek authorities and the country’s bailout monitors have got nowhere and senior officials have been pessimistic but Mr Schaeuble is the first senior eurozone policy maker to be quite so blunt. (FT)

He blamed the Syriza-led government for reversing improvements made by previous administrations under the bailout programme: “Nobody has any idea how we can agree on an even more ambitious programme,” he said. “You can’t spend hundreds of billions… in a bottle without a bottom.” Read more

European bonds not scarce (yet), says Draghi

We were too distracted by wardrobe-malfunctioning protesters to pay proper attention to what Draghi was saying.

Luckily, we’ve just gone through the meeting summary from Greg Fuzesi at JP Morgan and it seems one of the key takeaways was probably this:

Draghi also dismissed concerns about bond scarcity as premature. He said that the ECB was not encountering any problems so far in making the intended volume of purchases and he added that the programme was flexible enough to adapt to any problems that might emerge. But, apart from again ruling out a cut in the deposit rate as a way of raising the amount of bonds that can be purchased, he did not say which aspects of the programme could be changed in the future, if needed.

 Read more

Another immediately comic release

Yay! Emoticon A fresh “update” from Worthington, the wannabe global conglomerate.

The Company provides the following clarification of its announcement on 31st March 2015, which stated that “the Company is therefore pleased to inform shareholders that it has been negotiating to merge with an overseas listed company on terms that would represent a significant premium to the Company’s suspended share price”. Read more

Caption competition: Protest in motion

From Reuters:

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Why deflation is not a girl’s best friend

The biggest news in diamond land is still April’s audacious heist of a Hatton Garden safety deposit company and the theft of up to 70 boxes worth of diamonds.

Police by now have a suspect, and parallels between the robbery and the plot of a novel by Michael Connelly are even being noted.

What we’d like to draw attention to is something the criminals may not have considered when planning the heist — something that could seriously impede their ability to monetise the loot.

Deflation. Read more

Hanging some of India’s public banks out to dry?

Evidence of a potentially large change in India’s banking system from Credit Suisse and Neelkanth Mishra’s India markets team:

Even within bank loans, which are losing share to bonds in corporate borrowing, [public sector, or PSU, banks] are losing share to private banks, being short of capital. In this environment, by allocating just Rs80 bn for PSU bank recapitalisation in the FY16E budget (half that of the previous year, and the lowest after FY10), the government has shown willingness to let PSU banks fall in relevance, and not perpetuate moral hazard by bailing out weak banks. This is a remarkable and unexpected change in stance, given the potential advantages in micro-managing three-fourths of the bank lending space in India.

And lo did the wails of certain politicians rent the sky. Read more