Posts from August 2012

Two Jackson Hole papers: Woodford and Haldane

It’s no secret that we’re big fans of Andy Haldane on this blog.

Exhibit A — a paper given to this year’s Jackson Hole conference by the Bank of England’s executive director for financial stability, and Vasileios Madouros (also of the Bank). Read more

Bankia, el banco malo

The Spanish bank posted a €4.4bn loss late on Friday night, requiring the Spanish government to inject ‘transitory’ capital “con carácter inmediato” months before a proper, EU-led restructuring and recap plan for the Bankia group is drawn up.

Yes, this bank is still a disaster zone. Read more

Iron ore, an alternative view

The following comes from Icap’s shipping team on Friday:

The carefully engineered economic slowdown in China is a fact clearly expressed in the recent readings of some key economic indicators. However, we fail to see any affirmative sign of a weakness in the structural demand for iron ore and other raw materials key for industrial output.

 Read more

Time to resurrect the ‘missing variable’?

Anyone who has watched the 2011 Adam Curtis documentary series “All watched over by machines of loving grace” will remember the bit about Alan Greenspan becoming confused about America’s exceptional growth in the 1990s.

At the time, the data didn’t seem to fit the prevailing reality. The incredible and seemingly unstoppable growth Greenspan was seeing on the ground was at odds with his economic models, which instead were signalling an imminent rebalancing on the back of wage pressures and implied inflation. Read more

Bernanke, the speech (and that market functioning issue)

From Ben Bernanke’s opening remarks to the Jackson Hole shindig…

In sum, both the benefits and costs of nontraditional monetary policies are uncertain; in all likelihood, they will also vary over time, depending on factors such as the state of the economy and financial markets and the extent of prior Federal Reserve asset purchases. Moreover, nontraditional policies have potential costs that may be less relevant for traditional policies. For these reasons, the hurdle for using nontraditional policies should be higher than for traditional policies. At the same time, the costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant.

 Read more

Total domination!

Of risk-on, risk-off.

It’s getting back to its all-time high according to HSBC’s quant team: Read more

If QE3 is so close, why is the Fed’s balance sheet shrinking?

As the markets wait to see if Helicopter Ben is maybe about to treat them to a third round of QE, it’s interesting to note that the Fed’s balance sheet has been shrinking of late.

This morning’s The King Report raises the obvious question: Read more

Markets Live transcript 31 Aug 2012

Live markets commentary from 

And this one time, at economist camp…

It’s Friday.

It’s what you’ve been waiting for. Read more

The (early) Lunch Wrap

Good morning, New York…


The Dragometer

Look what the markets priced in:

 Read more

Further reading

Elsewhere on Friday,

– Gina Rinehart tells Australia’s poor to stop moaning and work harderRead more

The 6am Cut London

Asian stocks fell as investors awaited Ben Bernanke’s speech later on Friday, and reports showed an unexpected decline in Japan’s industrial output and manufacturing activity contracted to the lowest level in 16 months. South Korea’s second consecutive month of decline in industrial output also dampened exporters there (BloombergFinancial Times).

The ECB would have sweeping powers over all eurozone banks under draft plans drawn up by the European Commission, although Germany and the ECB itself have urged more decentralised steps towards a eurozone banking union. The EC plan, which is still being drafted and will be unveiled on September 12, would strip national supervisors of almost any authority to shut down or restructure their countries’ failing banks, handing this power to a new ECB board separate to its governing council (Financial Times). Read more

I’ve Got the Power/ Dumbest bloke in the world – 62 Fe edition

Yep, it’s time for our daily look at the ever-decreasing iron ore price and the goings on at Fortescue Metals Group, the self-styled ‘New Force in Iron Ore’.

We start with FMG and this amusing ditty from the Australian Financial ReviewRead more

The Closer


From flat to down (a bit) for US stocks. The S&P 500 closed down 0.78 per cent at 1,399, its first trip below 1,400 since August 16. It hasn’t moved more than 1 per cent in either direction since August 3 (Reuters). Read more

Bain, Bane, geddit

Protesting private equity monster points menacingly at Alphavillain. The scene at Bain Capital’s NY outpost, Madison Ave and 57th, ahead of tonight’s starring role for the firm in Romney’s convention speech.

MMFs still fleeing eastwards

The rivals rely on each other in potentially unstable ways. The US Treasury estimates that 105 money market funds with total assets of $1tn could fail in the same way as Reserve Primary if any of their top 20 counterparties defaulted. The latter include many European banks – 30 per cent of the assets of money market prime funds are European bank debt.

That’s from John Gapper’s column on the failure of the Securities and Exchange Commission to tame the $2.6tn US money market fund industry. Cardiff also has a few words to say on the topicRead more

Portugal and a second bailout

Chalk this one up to the ‘second bailout, no PSI‘ trade, maybe — Portuguese government bonds have been a top performer so far this year.

So, as for that second bailout… Read more

The rapid march towards urbanisation

In our first post in this series, we examined the widely-held belief that China’s steel demand will continue to rise at a rapid rate. FT Alphaville, along with others, contend that such forecasts are on shaky ground. This is, in part, because of the dubiousness of one of the underlying assumptions: that China will rapidly urbanise more of its population. (Here’s a very recent example of this argument, from Stephen Roach.)

The proportion Chinese living in urban areas just passed the 50 per cent mark in the past year but, the story goes, there is more to come. This will in turn mean more industrialisation, more modernisation, a bigger and consuming middle class and of course more GDP growth. In other words: Read more

Converging competitiveness and balance sheet recessions

Nomura’s Richard Koo is back to bang the balance-sheet-recession-drum and has taken a look at falling unit labour costs across the eurozone periphery and where they are likely to meet Germany’s as they creep upwards.

(This is the good type of convergence.) Read more

The ever-increasing hunger for steel

It used to be an accepted fact that China’s appetite for steel and steel’s main ingredients — primarily coking coal and iron ore — would continue to rise sharply, not just in absolute terms but at an accelerated pace.

Annual steel consumption had been expected to rise from 2011’s 680m-plus metric tonnes to 1bn metric tonnes by 2020. This forecast has been a mainstay of many China-related predictions for some time, particularly in the mining sector. It was still being cited by BHP Billiton in March, even while the miner’s head of iron ore surprised many with a bearish tone. Since then, however, the world’s two biggest miners began to back away from it and this month Rio Tinto is talking about 1bn tonnes of steel by 2030 — a hazily far-off date. Read more

Markets Live transcript 30 Aug 2012

Live markets commentary from 

The (early) Lunch Wrap

Good morning New York,


The latest in the eurozone, in bullet points

FT Alphaville caught a sniffle this morning. As a result of which, our 6am London Cut newsletter was sent out later than usual. We’re sorry.

One newsletter that did get sent out on time was the morning update from Eurointelligence. So if you can’t be asked to shuffle through all the latest headlines on the eurozone, just scan through the bullet points below. (And apols again for the morning disruption.) Read more

Further reading

Elsewhere on Thursday,

– Short-selling bans no worky, says New York FedRead more

The 6am Cut London

Mario Draghi said it was justified for the ECB to use “exceptional measures” as part of its mandate to keep prices stable in the eurozone, in an apparent rebuff to German criticism. “Fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools,” Draghi wrote in German newspaper, Die Zeit. Many details of the ECB’s bond-buying programme appear yet to be fleshed out ahead of the September 6 announcement. (Financial Times)

Barclays is facing a fresh criminal probe as the SFO investigates payments the bank made as part of its 2008 capital raising. Barclays in a short statement on Wednesday night said the SFO had commenced an investigation into payments under certain commercial agreements between Barclays and Qatar Holding LLC”. (Financial Times) Read more

In defence of the iron ore price floor (and Fortescue)

This comes via Charlie Aitken, one of Australia’s better known and certainly most vocal stockbrokers. He’s also an iron ore bull.

The note follows a meeting with Fortescue Metals Group and starts with iron ore and the spot market. (Emphasis throughout ours). Read more

Down down prices are down

Yep it’s the incredible shrinking iron ore price…

  Read more

The Closer


Flat again for US stocks: the S&P 500 gained 0.08 per cent to close at 1,410.49 (Reuters). US crude fell 1.4 per cent to $95 a barrel on bets that hurricane Isaac would leave relatively little damage on Gulf of Mexico oil production. Read more

Taking Stanchart down under

As fantasy banking M&A goes — this isn’t such an outlandish idea, we reckon.

But see what you think: Read more