Further reading

Elsewhere on Friday,

- Andolfatto interviews Woodford.

- Barc’s dark pool rebuttal: technical and nit-picky, but persuasive.

- In other words, to continue offering high yields, Yu’E Bao has started to display classic signs of maturity mismatch.

- Hazlitt, Keynes and the glazier’s fallacy. Read more

The 6am London Cut

Markets: Asian markets were generally higher following a strong Wall Street session buoyed by corporate earnings, with Japanese stocks brushing off figures showing a fall in inflation. The attraction of haven assets dimmed as the S&P 500 notched yet another record high close in New York, gaining 0.1 per cent to 1,987.9 as generally well-received earnings reports outweighed lingering geopolitical worries. (FT’s Global Markets OverviewRead more

The Closer

FURTHER FURTHER READING

- Robin Hanson on the new Nicholas Bostrom bookRead more

How to forward a new golden age

This is a guest post by Carlota Perez, Centennial Professor of International Development at the London School of Economics (LSE) and author of Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages in which she responds to arguments set out by Bank of England chief economist Andrew Haldane at the launch of the Mission-Oriented Finance this week.

Andy Haldane is one of the most brilliant and original minds in analysing the complexity of today’s finance and the policies that could shape it. It is an honour to be his discussant and indeed a challenge. Read more

Dryness alert, the Liquid-o-Meter siren has sounded

RBS have joined the chorus of concerns about dangers in credit markets from thin trading volumes and a lack of risk takers making markets.

The bank also, it turns out, has a measure for trading lubricacity:

Our Liquid-o-Meter shows liquidity in the credit markets has declined around 70% since the crisis, and it is still falling. We define liquidity as a combination of market depth, trading volumes and transaction costs: all have worsened. We also measure the premium for illiquidity: it is at a record low, meaning investors are not getting paid to take liquidity risk.

 Read more

The importance of patience and the danger of information overload

That Andrew Haldane, chief economist of the Bank of England, believes that short-termism is a bad thing for markets is hardly news.

He’s published numerous papers on the subject of patience in markets and the danger of short-sightedness, speaking frequently about the need to encourage long-term thinking in finance.

But what was fascinating about his speech at the mission-oriented finance launch party this week – where he once again outlined this argument — was not only the breadth and range of the colourful anecdotes he provided to make the case for long-termism, but also the concerns he raised about information overload. Read more

Putting a floor under the Grosvenor in India

Some numbers to understand the Sahara group, India’s hotel-to-banks conglomerate:

Rs 10,000 crore (roughly $1.6bn): the amount Subrata Roy, he of the “empire built on the poor“, must pay in bail if he is to be let out of Delhi’s Tihar jail after a five month stay.

Roughly $1.6bn: the combined estimated values of Mayfair’s Grosvenor House Hotel and the Plaza and Dreams Downtown Hotels in New York, all owned by Sahara.

Six hours: the amount of time per day Roy will be let out of jail to negotiate sales of the group’s hotels once a concrete offer is made. Read more

When are monopolies a good thing?

Here’s the proposition. Rule by committee isn’t a good thing.

In the worst-case scenario it leads to the “Lawrence of Arabia” problem, wherein you spend so much time trying to figure out how to rule well, you fail to notice when your sovereignty is being stripped away from you under your nose. Alternatively, it leads to the phenomenon of “settling”, wherein the pressure of arriving at a consensus allows all sorts of sub-optimal scenarios to creep in.

It’s probably not a coincidence, consequently, that great leaps forward tend to be associated with charismatic visionaries who, thanks to a near hypnotic effect on colleagues and associates, end up attracting the sort of approval and following that allows them to sculpt the future as they, not others, see fit.

Once in charge these guys tend to rule absolutely, deploying their wealth and power – often generated by early career triumphs – to implement the change they believe in. A lot of time, their greatest directional successes come as a result of forming monopolies or near monopolies in the areas they operate in. Read more

Markets Live: Thursday, 24th July, 2014

Live markets commentary from FT.com 

STAN: “We do not accept these media rumours”

We should just note the livid statement from Standard Chartered on Thursday morning…

The Board of Standard Chartered PLC “The Board” notes rumours in some media outlets on succession planning for the Group Chief Executive, and Chairman. Read more

The (early) Lunch Wrap

Good morning New York,

FT ALPHAVILLE Read more

Patient capital is a virtue

This guest post, part of FT Alphaville’s Mission Finance series, is by William Lazonick, Professor of Economics at the University of Massachusetts Lowell where he directs the Center for Industrial Competitiveness. He argues that stock buybacks and dividends are the mechanism by which financial interests, including top executives, reap gains that should be going to taxpayers and workers.

Whenever financial markets get hyperactive (the norm rather than exception over the past three decades), we hear calls for “patient capital” that can fund long-term investment in the productive capabilities that are essential for a prosperous economy. Read more

Further reading

Elsewhere on Thursday,

- Behind the scenes in Putin’s court.

- Anarchy unbound.

- More Summers on secular stagnation.

- The pen is dead, long live the fingerRead more

The 6am London Cut

Markets: Chinese equities led Asia-Pacific bourses higher on hopes that the manufacturing sector in the world’s second-largest economy is expanding at a quickening pace. HSBC’s “flash” purchasing managers’ index for July – an early indicator of factory activity – rose to an 18-month high of 52. A reading above 50 indicates growth. Other markets in the region were also buoyed by a positive tone from Wall Street, where the S&P 500 closed at record high. (FT’s Global Markets Overview)

Mark Carney on Wednesday sent the strongest signal yet that the Bank of England was preparing to raise interest rates. But the bank governor voiced deep concerns over the ability of UK households to cope with higher borrowing costs. Speaking to business leaders in Glasgow, Mr Carney said the economy “is starting to head back to normal” and as it does so, “[the] bank rate will need to start to rise in order to achieve the inflation target”. (Financial TimesRead more

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…

——–

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