Meet the man who could own Aviva France

When he was seven years old, Max-Hervé George was given a magic ticket by his father. It lets him turn back the clock, to invest with perfect hindsight week after week, steadily accumulating a fortune.

The ticket is a life insurance contract and Mr George, now 25, has fought for years in the French courts to preserve its magic. He could be a billionaire by the end of this decade and, by the end of the next, his contract would be worth more than the insurance company which stands behind it, Aviva France.

There is no mystery to the financial magic, however. Instead it is a story of grand stupidity, of how a French insurer wrote the worst contract in the world and sold it to thousands of clients. Read more

When the commodity rents stop flowing…

Ever wonder what the collapse of a commodity means for the hegemonic order that controls access to it?

Look no further than the sugar trade of the 1800s.

A new paper by Christian Dippel, Avner Greif, Daniel Trefler entitled The rents from trade and coercive institutions: removing the sugar coating examines the effect of the sugar price collapse on wages and incarceration rates in colonies established for sugar cane cultivation. Read more

Markets Live: Friday, 27th February, 2015

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“If it were a museum, some say that it would probably be the best museum in the world”

This fab alleged art market fraud story is fast developing…. While it does so, here’s the Bouvier brochure. Click to read:

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Quindell ain’t for sale whole

The latest update from Quindell lands. Contrary to rumors circulating, the company is not talking to Australian law group Slater & Gordon about a takeover of the whole business, just the professional services division where the UK ambulance chasing law firm resides.

Meanwhile, an ongoing review of the books by accounting firm PWC continues, and has taken longer than expected due to “the high level of corporate activity” which went into the formation of a jumble of businesses loosely connected to insurance. Also:

Advice in relation to the Company’s main accounting policies (in particular revenue recognition in the Professional Services Division) is being further considered and no conclusions have been reached.

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The Bank of England’s balance sheet in looong-term perspective

In celebration of the Bank of England’s One Bank Research conference, the Bank has, for the first time, produced information on its balance sheet going back more than three centuries “in a user-friendly spreadsheet form and as continuous time series.”

There’s lots to digest in there, but one thing we’d like to focus on is the size of the balance sheet relative to the UK economy. Bond-buying initiated under the Bank’s quantitative easing programme boosted the relative size of the Old Lady’s holdings by a large amount relative to the recent past. Relative to the full history, however, QE looks somewhat less exceptional: Read more

Further reading

Elsewhere on Friday,

- The hyperloop is becoming a thing.

- Charlie Stross on the financialization of everything.

- Is oil space running out?

- How the Silk Road episode shows that stateless pirate fiefdoms always turn into states.  Read more

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The US approved the biggest government intervention in the way the internet is run in almost two decades. The telecoms regulator adopted new “net neutrality” powers to ensure that broadband is treated as a public utility and all traffic is treated equally. (FT) Read more

Bonar turns into subpoena

That’s the gist of the latest from Judge Thomas P. Griesa…

On Wednesday the District Court judge ordered Deutsche and JPMorgan to turf over documents on the “flow of funds” relating to an unofficial, $2bn sale they were arranging of US dollar-denominated — although not US-law — bonds (Bonars) issued by Argentina. Read more

A tale of two deflations, in one chart

The US has falling prices again, but bulls need not fear: it is “good” deflation, as it is all about falling gas (petrol) prices making consumers better off.

Still, this chart should offer pause for thought: it shows US inflation on the same basis as the eurozone, which is worrying about “bad” deflation. The eurozone doesn’t include housing costs in its basket of consumer prices, so this compares the US excluding housing costs too. It doesn’t look pretty, with more deflation on this basis in the US than Europe. Read more

US bank assets, then and now

We know there’s been a great deal of change on the asset-side of banks’ balance sheets since the crisis. But if you ever wanted it summed up in one table, look no further than the following:

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Noble Group, an ‘asset light’ commodity nomad

Earlier this month, Noble Group – Asia’s biggest commodity trader by sales – rebuffed accusations by an unknown research group called “Iceberg Research”, which had accused it of shoddy accounting practices that inflate profits.

On Thursday, Noble released its full-year results, recording headline net profit of $132m after impairments on a range of assets and investments totalling $438m, which generated a net loss of $240m in the last quarter. Read more

Markets Live: Thursday, 26th February, 2015

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Some StanChart reading

An orderly succession plan balancing stability with fresh perspective...

Standard Chartered’s new chief executive Bill Winters, who brings gravitas and respectable fame to the top of the bank, has been both a banker and a shadow banker. Happily, the FT has already spilt many pixels on his career. Here’s a quick selection: Read more

Why isn’t the Fed worried about collapsing breakevens?

Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.

–Charles Goodhart, 1975 Read more

A portrait of the takeover artist as a young man: Warren Buffett’s 1965 letter

No doubt readers have set aside a few hours this coming Saturday to digest Warren Buffett’s annual letter to Berkshire Hathaway shareholders, which this year weighs in at a record 20,000 words.

It is the Golden Anniversary edition, with musings not just on the past year but also on what the next 50 might hold. We are promised a little reminiscing, too — which prompted us to look back to the time when Mr Buffett assumed control of an ailing New England textile manufacturer and set out on his most extraordinary journey. Read more

Further reading

Elsewhere on Thursday,

- Pettis: When do we decide that Europe must restructure much of its debt?

- Lessons for Greece from Iceland’s banks.

- Scarcity.

- RU, a pain in my Bund?

- Russia: You can always know what’s going to happen slightly in advance by following the financial dealings of insiders.  Read more

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Morgan Stanley will pay $2.6bn to settle claims that it mis-sold mortgage-backed securities in the run-up to the financial crisis. The US Department of Justice had charged half a dozen banks with mis-selling – this settlement brings the total of mortgage-relatedpenalties to about $40bn. Goldman Sachs is likely to be the last of the banks to settle its case. (FT) Read more

Should central banks adopt a green agenda?

We know central banks have the power to support asset classes and to move markets, and do so frequently in the name of financial stability.

But are there other social threats that could be stabilised or mitigated by central banks in a similar way?

For example, should central bank monetary policy be charged with a green agenda? Should central banks take it upon themselves to encourage and support the formation of liquid environmentally-focused markets? Read more

Mark 3:25 (or, the UK’s housing divide)

A few charts from the latest English Housing Survey, out on Wednesday…

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The BoE on fundamental digital change in central banking

Here’s a comment to note in the Bank of England’s “fundamental change” section of its One Bank Research Agenda discussion paper:

Technology is potentially transforming the landscape for money and banking. New digital or e-monies and new methods of payment and financial intermediation raise fundamental questions for financial regulation, money demand generally and central bank money in particular. For example, might central banks issue digital currencies and what would be the impact on existing payment and settlement systems? Is the cryptographic technology behind Bitcoin transformational? How will financial regulation need to adapt if new non-bank credit intermediaries emerge in scale?

Talk of official digital money, of course, is not new to FT Alphaville readers. Nor, for that matter is talk of collaborative non-bank credit unions that mint their own currencies for their own network use. Or even talk of digital money solutions that open up the central bank’s balance sheet to more people in a way that eases the safe-asset shortage. Read more

Counting customers at Plus500

The central question for Plus500, the Israel-based but London-listed provider of contract for difference trading, is whether its business model is sustainable.

Sales doubled last year, to $229m, and results released on Wednesday show profits rising even faster. Perhaps unusual for a technology group, the company pays out almost all of its profits as dividends.

What catches our eye, however, is the sharp rise in the cost of finding traders to use the Plus500 platform. Read more

How to play Footsie

Now the FTSE 100 has broken through to a new high, there are a lot of myths about what it means peddled by people who should know better – including the grand old BBC.

Myth 1: The Footsie’s been really slow to get back to its peak because British shares have done so much worse than those of other countries Read more

Markets Live: Wednesday, 25th February, 2015

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The Bank of England is responding to change

The Bank of England, in case you thought otherwise, is a thoroughly modern institution that embraces change, innovation and the hip lexicon of the fintech start-up of today.

That’s why on Wednesday, in a bid to show us just how ‘with it’ the Old Lady Threadneedle Street really is, the Bank will be launching its “One Bank Research Agenda”, focused on crowd-sourcing feedback on all its policies, structures and methodologies. Read more

AO, here she goes, low self-esteem and vertigo

AO World offer price at listing one year ago: 285p.

AO World share price on Tuesday: 281p

AO World share price at pixel: 202p, after opening at 150p following a profit warning for the UK based online seller of appliances.

The reason? In what may be a first for a retailer, too much hype. Read more

In the long run we’re all charted

These came out yesterday courtesy of BofAML’s 2015 look at looong term trends in financial markets by Harnett and Leung…

The obvious place to start:

And the obvious place to continue, asset prices: Read more

Further reading

Elsewhere on Wednesday,

- Eurosystem QE may indeed be close enough to a free lunch.

- Stagnation and intergenerational justice.

- Pocket money in Toby’s house: “So the ledger looks a bit more like an unregulated Defined Contribution pension scheme with a lot of concentrated counterparty risk than a bank.”

- Inflation = corruption? Xi = Volcker?  Read more

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US Fed chairwoman Janet Yellen laid the groundwork for the end of zero interest rates yesterday. She said the labour market had improved and the central bank will start tightening monetary policy when it is “reasonably confident” that inflation will move back to its 2 per cent objective. (FT) Read more

Behind the post-crisis rich-world bond market boom

Here’s an arresting chart from CreditSights, which shows the face value of all dollar and euro corporate debt outstanding:

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