Posts from June 2014

The Closer

FURTHER FURTHER READING

– Why are the super-rich so angryRead more

Camp AV: your nearly-final warning

Okay. So you already know that Camp Alphaville is on Wednesday, July 2. And you know we have Carson Block, George Magnus, Andy Haldane and loads of other serious people, some of whom are so astonishingly serious we’re not even allowed to name them. But it wouldn’t be an FT Alphaville gig if we didn’t bring along a few mavericks as well.

To that end:

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Pari passu: AV vs Martin Wolf

In the Alphaville corner… 64 posts and counting of the saga:

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Bulgaria couldn’t be better, thanks for asking [Update]

According to the FT, Bulgaria’s political leaders held emergency talks on Sunday following Friday’s bank run, the second in a week to be blamed on “attempts by unidentified people to destabilise the financial system.”

The run on First Investment Bank and previously on Corporate Commercial Bank, both owned by Bulgarian businessmen with political connections, came as the socialist-led coalition government, weakened by allegations of corruption and a poor showing at last month’s European parliamentary elections, was preparing to resign. An early election is expected to take place on October 5. Read more

Markets Live: Monday, 30th June, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Eurozone inflation unchanged at 0.5% in June || BNP Paribas board approves record $8.9bn settlement || Sex tape adds to murk of GSK China scandal || ‘Euphoric’ capital markets are out of step with reality, warns BIS || Tax windfall boosts Shire shares || Markets Read more

I’m shocked, shocked, to find us in a low vol environment

Or, a history of vol, courtesy of Goldman:

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ALL-CAPS PARI PASSU

Dear Cleary Gottlieb (Argentina’s lawyers): good luck defending this one.

From page 7 of Monday’s dead-tree FT — Argentina’s announcement that it is about to default. Naturally, given the bizarro world of the pari passu saga, this announcement is headlined ARGENTINA PAYS. Click to enlarge: Read more

Further reading

Elsewhere on Monday,

- Paupers and richlings.

- “What, you want me to hire you and pay you $20 million, but your damn Managing Director can’t be bothered to attend the pitch meeting in person?”

- New York’s very own empty apartment melancholy.

- Dissidents forced on holiday in China. Read more

The 6am London Cut

Camp Alphaville reminder: It’s on Wednesday (Details here)

Markets: “Asian share markets edged cautiously higher on Monday while the dollar stayed under pressure ahead of packed week of economic data that will test investor hopes for a pick-up in the U.S. and global economies… Bulls are hoping to see evidence of an economic rebound in the United States in this week’s busy calendar of data that includes the June payrolls report on Thursday, a day early due to the July 4 holiday.” (ReutersRead more

The widowmaker doesn’t care if this is nuts

Japan is the home of the “widowmaker” trade: the obviously mispriced Japanese government bonds (JGBs) which keep getting more and more mispriced until all the short-sellers have gone out of business.

JGBs claimed victims in 1993, 2003 and 2013, when yields plunged in the face of all the arguments presented by the bond vigilantes worried about the slow economy and government debt at levels unheard of elsewhere in the world.

This year was meant to be different. Frantic money-printing by the Bank of Japan last year weakened the yen and so pushed up the price of imported goods, particularly energy, while signs of consumer spending allowed shops to push through price increases. Read more

Do private sales affect public prices?

It’s a tricky question for the Bitcoin community this morning, who just can’t decide.

From the Bitcoin reddit: Read more

Markets Live: Friday, 27th June, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Ukraine, Georgia and Moldova agree closer ties with EU || Italy leads calls to slow sanctions against Russia || Merkel to limit Juncker fallout || Berlin drops Verizon over US spying fears || Banks start to drain Barclays dark pool || NYSE has won the coveted listing of Alibaba || The World Bank has issued its first ever catastrophe bond || Wall Street banks create corporate bond trading platform || GoPro Shares Jump 31% in Debut || American Apparel faces loan repayment || Markets Read more

Calm ain’t bad, necessarily

A counterpoint to worries about the stuffy air of silence settling on markets arrives from Citi. Fear not the market calm, it is an unreliable sign of things to come.

There is little relationship between market volatility and future equity returns over any time horizon. Current low levels should not be seen as a clear sign of investor complacency and an imminent market correction.

Pickers of stocks cannot relax, however, because while market level volatility is low, it turns out that “style volatility” is up. Read more

US inflation has climbed. Now what?

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Because sometimes the Indian central bank needs table tennis players, that’s why

Central bank posts du jour, courtesy of the Reserve Bank of India and Tom Bowker, do click through for the full ad:

Applicants should note, though, that according to the RBI they’ll have to keep up regular office duties to some vague extent while, say, playing carrom in MumbaiRead more

Further reading

Elsewhere on Friday,

- The problem of Pablo Escobar’s hippos.

- In China, it’s the information contagion that’ll get you.

- Inequality begins at birth.

- Sahara, Subrata Roy and shadow banking in India. Read more

The 6am London Cut

Camp Alphaville FAQ continues: Will Cardiff have a megaphone? Yes. Will that be his only crowd control tool? No.(Details and tickets here)

Markets: Asian stocks are ending the week on a downward note after Japanese data indicated that the country’s efforts to kick-start higher inflation had stalled. The BoJ estimates that the April 1 consumptin tax increase added 1.7 percentage points to the core CPI data in April and 2 percentage points for May. That means that core annual rate of inflation was 1.5 per cent in April, and dropped to 1.4 per cent in May. “Virtually the entire surge in the CPI over the past two months can be attributed to April’s consumption tax increase,” said Capital Economics. (FT’s Global Markets OverviewRead more

Your move, Argentina

Judge Griesa has denied Argentina’s request to stay the pari passu order beyond June 30 (below).

Argentina has said that it’s deposited enough money to pay the restructured bonds on that date. Read more

Camp AV quiz team alert

Ok, we’re almost at capacity. We have room for just one or two more teams of 4 or 5 to enter the end-of-day quiz at Camp Alphaville next Wednesday.

Medals are being specially minted for the winners. We’re due to pick these up on Monday from Hatton Garden. We’ve even secured lovely salmon pink ribbon. Read more

This is nuts. Where’s the liquidity?

We’ve been worried about the lack of liquidity in the bond market for yonks. Some at the Fed (though not Janet Yellen) share the concerns, and have been talking about whether to add exit charges to bond funds to prevent a potential run on the market.

Now the Bank of England has weighed in, warning investors that they are paying more and receiving less when it comes to liquidity, particularly in bonds.

Here’s a few choice comments from the Bank’s Financial Stability Report today: Read more

HFTs dark materials

Fans of schadenfreude may enjoy the following press release from Barclays, dated February 26, 2013, to publicise that …

Barclays LX now #2 US dark pool

LX is what Eric Schneiderman, the US state attorney-general, describes as a “dark pool full of predators – there at Barclays’ invitation”. His lawsuit alleges that Barclays was putting high-frequency traders in front of institutional investors, while sending bumf to the institutions that claimed the HFTs were being weeded out. Read more

Bonfire of the bond funds

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Let the generational war begin

(Disclosure: the author is 27… and renting.)

From the UK Prudential Regulation Authority’s consultation paper on the loan-to-income cap… Read more

Guest post: RRP and the rusting of the financial plumbing

An earlier guest post by Manmohan Singh, senior economist at the IMF, argued that it is not likely that the market will be allowed to bid for the entire Fed balance sheet, as repo rates need to be contained before lift-off. In this follow-up he suggests that the Fed’s RRP (reverse repo program), if done in size, will rust the market plumbing. Views expressed are his own and not that of the IMF or IMF policy.

Think of the bilateral repo market via the analogy for old clothing trade: Typically, merchants in developed countries shrink wrap old clothes in shipping container sized bundles (under pressure) and send the plastic wrapped block to poor countries. There, a clothing broker buys it, and resells it by weight to jobbers. So if the block weighs 500 pounds and they sell it in 10 pound lots, all 50 people gather around. But some people pay slightly more to be at the front of the crowd, and some pay slightly less to be at back. Then the jobber pops the bundle open with a big knife and the shrink wraps literally explodes; everyone gathered around jumps for the best pieces. Read more

Markets Live: Thursday, 26th June, 2014

Live markets commentary from FT.com 

London gets a monetary policy

The PRA and the FCA should ensure that mortgage lenders do not extend more than 15% of their total number of new residential mortgages at loan to income ratios at or greater than 4.5. This recommendation applies to all lenders which extend residential mortgage lending in excess of £100 million per annum. The recommendation should be implemented as soon as is practicable.

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The (early) Lunch Wrap

BoE moves to cool housing boom || Top New York securities regulator sues Barclays over ‘dark pool’ || Google spreads its Android net in digital empire building || Walmart wins China labour dispute || Glencore appoints first woman director || Markets Read more

When commodity collateral shenanigans go wrong

We’ve long reported about China’s amazing commodity collateral shenanigans, featuring almost every commodity or physical good under the sun.

None of which was a problem for the financing side of the equation as long as the deals could be rolled over and for as long as the collateral did not have to be liquidated.

A few bad loans later, however, and suddenly the need to check in on the underlying collateral has exposed a small problem with relying on commodity collateral to de-risk trade finance. So intense was the demand for cash financing in China that it seems the greatest shenanigan of all was rehypothecation — multiple use of the same collateral many times over for many different loans. Read more