Posts from August 2013

The EMpire strikes back

Do you know who this man is?

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‘I take your hypothetical scenario of counterparty failure, and raise you a bank resolution regime…’

Imagine spending an entire career evaluating bad things that might happen to financial institutions. It’s no mere thought experiment done in passing, but rather a task that one slaves over in excruciating detail. For years upon years on a constantly moving chessboard of potential disaster.

So, who wants to be a regulator? Read more

The portable Summers

The Fed is his to lose, so here’s a useful service by Barclays rates analysts — quotes from Larry Summers on monetary policy, all the way from December 1986 to August 2013, all in one place. Click to enlarge.

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Guest post: Why the Fed is a marginal player in US debt (Updated)

This is is a guest post from Philip Pilkington, a writer and research assistant at Kingston University.

Over the past few years some quarters of the financial commentariat have taken to describing the Federal Reserve’s asset purchases as the monetisation of US national debt, something which has given rise to all sorts of misguided fears about inflation and much else.

While the Fed certainly have been purchasing extensive amounts of government debt in the secondary markets it is perhaps misleading to assume that these markets would not otherwise be buoyant without such intervention. Read more

The (early) Lunch Wrap

How to stop those EM capital outflows / GE plans to offload consumer finance unit / BP in war of words with Louisiana over Gulf clean-up / Singh says India not facing 1991 crisis repeat / Eurozone confidence at a two-year high Read more

The options for emerging markets

From a recent Citi presentation, a chart stressing the potential risk of negative-feedback loops in the options available to those emerging market countries now trying to stem capital outflows and defend their currencies: Read more

Further reading

Elsewhere on Friday,

– Credit growth remains the weakest link in the eurozone’s recovery.

– Human brain-to-brain interfaces are coming.

– Researchers grow 3D human brain tissueRead more

The 6am Cut London

Most Asian markets higher || Japan CPI reaches 5-year high, but mostly on energy costs || US and Switzerland reach tax evasion accord || RBI ‘to pilot gold buying project’ || Vodafone nears Verizon Wireless stake sale || KPN foundation blocks Carlos Slim bid || German economic miracle runs out || The Fed’s new tool  Read more

The Closer


Asian vulnerability, then and now. Read more

Vodamort and the Chamber of Secrets

Today marked the rarest of events: a Vodafone statement that directly references its joint venture partner.

The last time we had a mention of Verizon Communications outside the boilerplate on a Vodafone stock market announcement was back in 2007, when Arun Sarin was bounced (by this blog) into denying the existence of Project Vulture. It seems that Verizon, like Lord Voldemort, shall not be named. Read more

The Oil Drum, peak oil and why some good blogs don’t last

At the end of this month, The Oil Drum will be archived after eight years.

A flurry of commentary when this was first announced concluded that it’s shutting down because of the demise of peak oil. Noah Smith, Forbes and Reuters’ John Kemp, among others, have concluded that extraction from new sources, particularly shale gas and oil in the US, have killed the idea of peak oil and, in turn, The Oil Drum. As an explanation for TOD’s impending closure, it sounds neat — but it’s not correct. Read more

The (early) Lunch Wrap

JPMorgan hiring probe expands in Asia || Vodafone in talks over selling 45% stake in Verizon Wireless || New York Regulator Steps Up Probe of Lloyd’s || Brazil raises rates for fourth time since April || Amazon takes tax fight to Supreme Court || Syrian action raises oil price fears || Bond-King Pimco Plans to Push ‘Alternative Funds || BP fails in new bid to stop spill payments || Markets  Read more

Prepare to be assimilated

Felix Salmon at Reuters has a thoughtful response to our post on the value of unique and how it may come unstuck due to the dawn of perfect copying processes.

It raises some interesting points, but largely argues that perfect copies will not disrupt the value of the original market, providing that authenticity can continue to be assured. Indeed, Salmon suggests art will likely go down the route of the music industry, where value has increasingly become attached to the live performances of musicians and artists. Read more

Further reading

Elsewhere on Thursday,

– “It is psychologically extremely difficult to attribute something to luck.” Read more

The 6am Cut London

Asian stocks rise || Syrian fears push oil higher || Red flags found in JP Morgan Asian hiring probe || US Lloyd’s of London probe intensifies || Brazil raises interest rates again || Philippines GDP beats || Pimco eyes asset expansion || The worrying reality of Chinese debt Read more

The Closer


Federal Reserve employees afraid to speak.

– Mark Thoma on the great lesson from the Great Recession.

– The “equity recourse note” as a solution to make banks safer. Read more

Dates for the pari passu diary

This comes via Shearman & Sterling, in their note on Argentina’s crunching defeat at the Second Circuit (and its Supreme Court litigation options for avoiding paying holdouts alongside current restructured bondholders, which it might have just blown up)…

Emphasis on ‘illustrative’. This is a case where an appeals court ruling has just landed about four months after it was first described as ‘imminent’. Read more

Statement from Capital Taliban

Not a relaxation of capital requirements by the Prudential Regulation Authority on Wednesday — it’s a relaxation of the amount of liquid assets which banks have to hold (falling by some £90bn, apparently) so long as they do meet strictures on capital.

From the release: Read more

The golden rupee

The Indian rupee’s plunge continues.

As the FT reported on Wednesday, consensus opinion is that the weakness is connected to India’s growing current account deficit and unimpressive attempts thus far to bring it back to reasonable levels.

But Bloomberg on Wednesday alluded to another interesting connection: India’s attempts to suppress gold consumption. Read more

The (early) Lunch Wrap

China’s massive FX reserves? Not such a get-out clause / Syria fears in the market / EM currencies continue to fall / Brent hits six-month high / UK drafts UN resolution “authorising necessary measures” / Ryanair told to reduce Aer Lingus stake Read more

Why $3.4tn in foreign reserves is not China’s escape hatch

By Paul J. Davies, the FT’s Asia financial correspondent.

After trying to work out how big China’s bad debt problem might be, many people still turn round and point to the country’s mammoth foreign exchange reserves as its great get-out clause. Read more

Further reading

Elsewhere on Wednesday,

– AllThingsD and the value of the “opinionated scoopmonger”.

– Bribery in China: why GSK’s a turning point.

– Or… why it’s not a turning point.

– “Bow not before any other Gold but It, for they are but false and wicked idols…” Read more

The 6am Cut London

Asian stocks fall || FHFA seeks $6bn from JP Morgan over MBS mis-selling || JP Morgan ‘whale’ penalty seen at $500m – 600m || Syria fears drive oil higher || Carney speaks today || Are EMs suffering more than US benefited from QE? || Fonterra says no botulism-causing bacteria || Central bankers give up trying to save world || Curious patterns in forex rates  Read more

The Closer


Jack Lew perfects the art of dodging questions.

– India’s currency crisis, and its options.

Brazil and Mexico are heading in different directions.

– Central bankers have given up on fixing global financeRead more

Argentine roulette

They did it! They finally did it, post-Second Circuit fiasco:

[Bloomberg] Argentina will send a bill to Congress tomorrow [August 27] to reopen a debt restructuring for those creditors who haven’t accepted previous swaps after the nation’s 2001 default, said President Cristina Fernandez de Kirchner…

She also said that holders of restructured bonds, who accepted discounts of as much as 70 percent, will be able to swap them into securities governed by Argentine law in a bid to prevent payment disruptions from a U.S. court ruling in favor of the holdouts.

We first looked at the why and how of using a local-law swap to get round the pari passu problem which Argentina has made for itself — back in November. That’s how interminable this pari passu saga has been.

Much more in CFK’s speech. Come for the baldly disingenuous assertion that calling Argentina a “uniquely recalcitrant” debtor is “un poco injusto”; stay for confirmation that the new bonds would be paid through Caja de Valores, the local clearing house. Surely it’s not about showing credibility to the Supreme Court by reopening the swap to holdouts: the actual plaintiffs won’t take the offer, and the judges haven’t considered Argentina’s petition directly yet.

FT Alphaville’s considered take on all this? It’s pretty nuts. Read more

What is the value of unique?

In Star Trek: the Next Generation there is an episode in which Fajo, a member of the Stasius Trade Guild, kidnaps and imprisons the Enterprise’s Lieutenant Commander Data, a sentient android, due to his complete uniqueness in the galaxy.

Fajo, it turns out, is an obsessive collector of all things one-of-a-kind. He values Data because there is only one of him in the universe. And unlike one-of-a-kind human beings, Data’s android status in Fajo’s mind allows him to objectify him and treat him as private property. Read more

The (early) Lunch Wrap

MPs step up campaign for break-up of RBS || India’s reserves squeezed as investors shun rupee assets || Blavatnik wins $50m in JPMorgan lawsuit || US Treasury to hit debt limit in mid-October || Nationwide steps back from SME loans || Ackman puts JC Penney stake up for sale || Foxtons sets out plans for IPO || HKEx picks Garry Jones to head LME || Emerging Europe resists EM sell-off || Markets ||  Read more

Will this be the ZLB/repo/collateral-scarcity solution we’ve been waiting for?

If implemented, it has the potential to alter the way future monetary policy is conducted; change the fundamental structure of short-term lending markets; alleviate the collateral scarcity in these markets and others; reinforce the push for simpler bank capital regulation; and approximate a Fed backstop for big swaths of US money markets.

Or it could be no big deal. Read more

Nothing screams shadow banking quite like a leveraged loan ETF

They are billed as a quick and easy way for investors to gain access to higher-yielding assets while still providing some protection if interest rates start to rise. They are ETFs which track portfolios of (floating-rate) bank loans.

And they are on fireRead more

Further reading

Elsewhere on Tuesday,

– Argentina tries to make a pari passu runaround.

– The truth about Marissa Mayer: don’t be a loyal Yahoo shareholder?

– What kind of title is Stress Test, seriously.

– Can Tesla crack China? Read more