Posts from Monday Feb 17 2014

Go forth and multiply, London edition

We’ve had a look at the relationship between London houses and their occupants before. But a line from “leading economic forecaster” Harry Dent in a interview with the Guardian made us want to go and check out the stats:

“We’ve had bubbles throughout our time – oil, gold, stocks. But China is the biggest bubble in modern history. It’s 30% overbuilt in everything and has huge over-investment. The housing market is valued at 28 to 35 times income in the major cities. London, by way of contrast, is 15 times”.

That sounds like a lot, and it turns out that Greater London overall isn’t quite that expensive. But if you want to go area by area, what is clear is that some parts of the capital are priced well beyond the incomes of most people who live there. Read more

Guest post: Back to the future with Scottish currency

The following is a guest post from Chris Cook, a senior research fellow at the Institute for Security and Resilience Studies at University College London. His work is focused on a new generation of networked markets – which will, in Chris’s view, necessarily be dis-intermediated, open, decentralised and, therefore, resilient. But his approach is informed by the past, and it is there that he finds a framework for an independent Scotland to use the pound, a Plan A Plus.

The rejection by all the Westminster parties collectively of the SNP’s Plan A for a post-independence UK currency union has elicited a string of possible Plan B solutions, several of them already considered and rejected as inferior to Plan A by the SNP’s expert group of ‘wise men’.

But the current debate is ill-founded, since the UK can have no more control over who uses the £ symbol as a unit of account, than they can have control over the use of metres and kilogrammes. Read more

Don’t blame squids, blame China

Following Matt Taibbi’s “Vampire Squid operates in commodities” exposé, here’s an apropos update on recent LME inventory declines from the evil one itself. As analysts at Goldman Sachs noted on Friday, it looks increasingly like copper inventory is heading off market into completely opaque stores in China as a result of renewed financing deals (CCFDs), rather than being depleted due to true market deficits:

We continue to believe LME inventory declines reflect stocks shifting off market rather than a deficit market, due to CCFDs and the impact of the new LME rules. Spread tightness in our view owes to the fact that CCFDs change copper from a negative carry asset (storage costs, financing costs) to a positive carry asset (where interest rate arbitrate > storage, financing, and hedging costs). Since we do not expect these deals to end anytime soon, LME spread tightness is very likely to persist, with risks that spreads tighten further during the seasonally strong period of demand in 2Q.

Which is a neat way of saying “don’t blame us for tight spreads, blame China”. And … “by the way, new LME rules aren’t working just as we predicted”. Read more

Markets Live: Monday, 17th February, 2014

Live markets commentary from 

The (early) Lunch Wrap

UBS buys China brokerage || AngloGold Ashanti chairman to step down || Essar Energy bid “cynical”, says shareholder || Indonesia taps Hajj down payments || Rupert Murdoch won a $880m tax battle || Italian bond yields to eight year low Read more

The (corporate) pension problem evaporates

Remember how pension deficits were huge and insurmountable? Not so much, any more.

On its way to posing the question, will they be buyers of bonds?, JPMorgan‘s Flows & Liquidity team notes that the funding chasm is now more of a crack:

The funding gap of the 100 largest US corporate defined benefit pension plans peaked in July 2012 at -$546bn and had declined to -$140bn at the end of January. The deficit of UK defined benefit plans peaked at -£293bn in July 2012 and had declined to a low of -£28bn in December.

We could have sworn we were told that paying high-fee alternative asset managers was the only way pension funds stood a chance of meeting their liabilities, but it looks like stocks and moderately higher rates have put in the hard yards instead. Read more

Chinese credit semantics

From SocGen’s Wei Yao

Don’t mind bank lending, credit growth is still slowing in China

From UBS’s Wang Tao:

Don’t worry about aggressive credit tightening

From BoFAML’s Lu Ting:

Now you know the People’s Bank of China is not really tightening

 Read more

Further reading

Elsewhere on Monday,

- The glass bead game, US edition.

- Musk, the rent seeker posing as a visionary.

- Is macro doomed to always fight the last war? Read more

The 6am London Cut

Markets: Momentum from Wall Street and signs of credit growth in China had Asian bourses in an upbeat mood, in spite of underwhelming gross domestic product data out of Japan. (FT’s Global Markets OverviewRead more