I, for one, welcome our new AI-regulator overlords

Most people aren’t terribly excited about teaching computers how to do their jobs, but multi-million-dollar settlements after regulatory investigations seem like a pretty good motivator.

IBM announced today that it’s buying Promontory Financial, a consultancy that came to represent some of the problems raised by the revolving door between regulators and Wall Street banks (it was founded by Eugene Ludwig, comptroller of the currency for the Clinton Administration). The company says it’ll build a machine-learning compliance platform, with Promontory’s staff training its Watson technology.

Promontory’s recent regulatory history is the main reason this looks like a pretty good deal for them. Last year, the company was almost suspended indefinitely from consulting for New York-licensed banks suspected of wrongdoing. (It ended up getting cut to six months, with a $15 million fine.)  Read more

In Japan, my kingdom for a dollar hedge

Could the collapse of covered interest rate parity be the harbinger of even stranger things to come ? At the heart of the issue is how on earth the interest rate differential between two currencies in the cash money markets is no longer equal to the differential between the forward and spot exchange rates. Read more

Markets Live: Thursday, 29th September, 2016

Live markets commentary from FT.com 

Chinese property goes up, Chinese property goes down

Everyone understood their opportunity: real estate. In China, it is always real estate.

From Red Capitalism, pg38, before launching into a description of the Great Hainan Real Estate Bust of 1988 to 1993.

…the stormy situation in national large midsize cities’ housing prices has created a new real estate market craze

From a People’s Daily editorial on Tuesday.

It’s the “biggest bubble in history”

From China’s richest man Wang Jianlin, Sept 28th, on the current state of the real estate market and before… well that bit hasn’t happened yet so we are fine sticking with maybe nothing, but maybe something pretty bad at some point in future. Read more

FCA: ‘Kill all the sell-side scribblers’

Cheery tome here, fresh out of the City regulator…
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Sweden’s job market isn’t working for non-EU migrants

Compared to most rich countries, Sweden handled the twin challenges of the 2007-8 crisis and the never-ending euro crisis with aplomb.

The share of people in Sweden with a job is at all-time highs. Real output per person is at all-time highs, and has grown much more than in most other rich countries over the past ten years. Underlying inflation is essentially at its long-term average. The trade surplus remains massive. And Swedish house prices continue to float into the stratosphere.

Yet despite all this, Sweden’s central bank has been unusually aggressive in trying to stimulate its economy by cutting interest rates far below zero, buying assets, and cheapening its (already undervalued) currency.

We recently had the chance to talk to a former Swedish central banker about this. He suggested the Riksbank could potentially justify its behaviour as an attempt to heal structural problems in Sweden’s jobs market. Read more

FT Opening Quote: The CMA compares the market

The CMA compares the market, Merlin’s “Little Big City” and keeping shtumm on Brexit: 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

Including…

– Dan Davies, briefly, on Deutsche and why the really interesting question is “how much damage is going to be done by DBK limping along as an undercapitalised hulk?”

– Harvard’s students want higher investment returns and nd they want them now!

– And how many “of those born in the 1960s will be hoping to retire in the next 10 to 20 years. The trouble is, they might not have very much money to do so.”  Read more

FirstFT – Opec agrees on output cut, inside the minds of bankers and why some people die younger

Production cut sends crude prices higher by more than 6 per cent Read more

LendUp: playing with people’s lives

A few years ago, Marc Andreessen and Ben Horowitz, the founders of venture capital firm Andreessen Horowitz, were interviewed by Fortune and talked about why they were different to the venture capitalists that came before them.

Part of the magic was that both were entrepreneurs before they became investors, but they didn’t just bring a new outlook to the rarefied world of venture investing. They also brought a new business model. Read more

Yahoo email capture

As a yahoo email user, we can testify to the fact that being continuously told by friends and family that: “hey there, I think you’re email may have been hacked” was good enough of an incentive to defect to an alternative provider. Read more

The Deutsche domino

Is there something particularly hubristic about a German bank being the bank to trigger a renewed eurozone banking panic? We think so. Read more

The euro crisis and the French Revolution

There are lots of good reasons to study history, but perhaps the best is to avoid being misled by people who claim to have “learned the lessons” from the past when they don’t actually know what they’re talking about. For example, the policy mistakes exacerbating the euro crisis may have been partly caused by a profound misunderstanding of the causes of the French Revolution.

The thought occurred to us while reading The Euro and the Battle of Ideas, an intriguing new book we reviewed in this weekend’s FT. Two of the authors, Markus Brunnermeier and Harold James, are academics at Princeton. The third, Jean-Pierre Landau, was Deputy Governor of the Banque de France from 2006-2011 after a long career in the French Treasury and the International Monetary Fund. Consider the following passage, from pages 256-7 in the hardcover, emphasis ours: Read more

Markets Live: Wednesday, 28th September, 2016

Live markets commentary from FT.com 

The ECB, innovation and yield targets

Where the BoJ leads the ECB may/may not follow.

You will all remember that last week the BoJ unveiled QQE with yield control — a 10yr yield target that may signal the end of QE as we know itRead more

MMF flows and restricted money-ness

About $700bn has shifted from prime to government money-market funds this year. Here’s what that says about regulations and the illusion of safety in certain assets. Read more

FT Opening Quote: RBS settles two US lawsuits

RBS settles two US lawsuits, AA in low gear and Deutsche Post to buy UK Mail. 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

Including…

– How Merrill Lynch sold some stocks too fast.

– Want to punch Martin Shkreli in the face for a good cause? You could get a chance.

– “These days, working at a big bank must feel like Stalin’s Russia, only without the warm and fuzzy feelings of happiness and security.”

– Your Rosie O’Donnell stock market bubble, and Trump vs the Fed.

– On presidential debates, social media, Neil Postman and Marshall McLuhan.

– Roger Farmer on the liquidity trap and how to escape it.

– And how another “significant source of stupidity in firms we came across was a deep faith in leadership.” Read more

FirstFT – Wells Fargo chief to forfeit $40m, Elon Musk’s mission to Mars and the nuclear project beneath the Arctic ice

John Stumpf forfeits more than $41m in pay as the board investigates the bank’s sales tactics Read more

“No hidden fees” fintech lender settles with CFPB for, amongst other things, charging hidden fees

LendUp CEO Sasha Orloff tells me they’re giving the startup time to build a long-standing brand in finance “the right way”, rather than squeezing as much profit as possible from its customers in the short-term.

Everything has to be transparent. There is no fine print. No hidden fees. And everything has to get someone to a better place” Orloff insists.

That’s from a TechCrunch story in January about LendUp, a payday lender backed by Andreessen Horowitz, Google Ventures, QED and Kapor Capital, with debt funding from Victory Park Capital.

And this is from a press release just put out by the California Department of Business Oversight:

 Read more

Inquiring minds want to know: can blockchain reconcile 200% institutional ETF ownership?

A good questioned posed to us by former financial “ops guy” Fred Sommers (now retired) on Tuesday, relates to whether or not a blockchain can deal with the phenomenon of lots of different institutional parties thinking they own the very same ETF share? Read more

The diminishing returns of blockchain fetishism

Rather than pretending resources spent on data systems in information exclusive industries (like banking) can lead to longstanding productivity gains which don’t just buy us a little time until the next paperwork crisis in five years time, perhaps we should invest that money in the expansion of industrial capacity?  Read more

Markets Live: Tuesday, 27th September, 2016

Live markets commentary from FT.com 

Rocket Internet would like to see your business idea

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Rocket Internet, the Berlin-based clone factory that made its name copying other people’s business ideas in new markets, is looking for Europe’s “most promising start-ups, scale-ups and tech for social impact companies” and would like to hear from you. Read more

Racing to the bottom in boats, clouds and ZEDEs

E-commerce often gets billed as the great equaliser of trade. The argument is that it allows small businesses to reach buyers who’d otherwise be accessible only to multinational corporations, which can afford the necessary lobbyists and project managers who work on boring but important things like logistics.

The United Nations Conference on Trade and Development, or UNCTAD*, did its best to make that case when it named Chinese e-commerce tycoon Jack Ma as a special adviser last week. Read more

How would a Fed rate hike affect consumers?

We don’t really understand how changes in the level of short-term interest rates affect things we actually care about, such as growth and employment. There are too many moving parts and leaps of logic required, many of which are based on bogus assumptions about how the world works.

So it’s always nice to find new research into a small piece of the monetary transmission mechanism that’s grounded in facts. Researchers at TransUnion, the credit reporting company, looked at which American consumers would be exposed to an increase in the Federal Reserve’s policy rate corridor and the dollar magnitude of the impact of different tightening paths. We recently had a chance to discuss their findings with Nidhi Verma, who led the project. Read more

FT Opening Quote: Sterling windfall for Wolseley

Sterling windfall for Wolseley, UK oil and gas down, dollar firms after US debate. 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

Including…

– The penny stock chronicles, a series.

– The stakes of the helicopter money debate, a primer from DeLong.

– How power poses are dead.

– Why traffic is fake, audience numbers are garbage, and nobody knows how many people see anything.

– And how Zombie Moore’s Law shows hardware is eating software. Read more

FirstFT – A fiery first presidential debate, the prospect of bank break-ups and going au naturel in Paris

Stakes could not be higher as American polls tighten but much depends on which Donald Trump shows up Read more

SDRs and the renminbi

China will join the exclusive club of “hard currency” issuing countries when its currency, the renminbi, becomes a fully fledged member of the IMF’s special drawing right basket on October 1. Read more