And if you don’t believe United Bank of India about the first bit, just browse through F1-owning drink mogul Vijay Mallya’s Twitter feed. Then remember he’s the pioneer of the in-no-way tasteless Kingfisher calendar.
(Do make your own here, if you must.)
Of course, being declared a wilful defaulter due to a failure to pay back loans associated with the grounded Kingfisher Airlines might crimp Mr Mallya’s style somewhat.
Live markets commentary from FT.com
UK manufacturing activity at 14-month low || Factory slowdown heightens concern over China’s economy || Eurozone industrial recovery slows to a standstill || Burgers and BMWs highlight the rise of North Korea’s private economy || Cameron looks to reap dividend from backing Tusk for top EU job || Hong Kong democracy activists vent their anger against Beijing || Citi pays allowances to avoid bonus cap || Markets Read more
Elsewhere on Monday,
- “If Blair was Teflon man, Brown was Bostik man.”
- The ECB and the Bundesbank.
- An Olivier Blanchard mea culpa.
- How should future Argentinas treat future vultures? Read more
Markets: Bourses across Asia began the new month on an upbeat note, despite weak manufacturing data in China where the official PMI fell to a reading of 51.1 for August, from 51.7 in July, while HSBC’s private measure was revised down to 50.2 from a preliminary August reading of 50.3. The upward moves also came after the S&P 500 notched yet another record high close on Friday, rising 0.3 per cent to 2,003. US markets will be shut on Monday for Labor Day. (FT’s Global Markets Overview) Read more
Sam Jones (formerly of this parish) writes in the FT about how the conflict in Ukraine has revealed the capacity for a new type of warfare.
This is one that has “exploded the notion that expansive communications technologies and economic interdependence were fostering a kind of grand bargain.” Against it, the great power arrayed on the other side can do little, despite its considerable conventional might.
Quite so. Take, for example, this story from Bloomberg on Friday… Read more
As a brief follow-up to yesterday’s post on the impact of US trade with China on US employment and incomes, we thought it would be useful to visualize a few interesting facts about the evolution of the bilateral trade balance over time.
First, look at how the deficit in the trade of goods swamps the modest surplus in the trade of services. Whilst the data on services are annual and stop in 2012, the general picture would probably not look much different even if it were more up to date: Read more
We promised some more insights from the UBS report on solar, batteries and electric vehicles. So here goes.
First, a chart showing just how quickly solar costs have been falling since 2007:
In our last post, we referred to John Kemp’s argument that cash-flows in the shale drilling sector are not a good indicator of shale’s long-term commercial sustainability.
This, he argued, was due to the regular conflation of gas and oil in the metrics, justified by the fact that most companies produce some variety of both. In the last few years, however, producers have shifted their efforts increasingly towards oil production — due to the better margins — improving cash-flows as a result.
And that, in some way, is the great thing about the technology. Switching between carbon fuels is much easier than with conventional upstream projects. (Not to put everything in bitcoin terms, but it’s a bit like switching processing power to mine dogecoin instead of bitcoin whenever the margins are more cost effective.)
Nevertheless, peak oilers still contend shale isn’t long-term sustainable because of the rapid decline rates for wells. These, they claim, are being depleted much more quickly than conventional wells, speaking of the problem in hand. Read more
We might just strip out one more thing from Deutsche’s recent report on Bretton Woods 2.o, namely the bit about how the growth of Chinese “reserve holdings associated with export-led growth provided de facto protection for foreign private investors in emerging markets and thereby caused the gross flows” needed for China’s growth strategy.
The point being that private capital flows generate political risk — “haha, all your FDI are belong to us” — and, without some sort of collateral, flows from rich countries to poor countries will be held back. Think of China’s reserves as a $4tn hostage which stops China from throwing its weight around and stands in the way of a geopolitical breakdown. With it in place, foreign capital becomes more comfortable heading into China. The idea from Deutsche is that this was the only way to get China’s development model to work on the scale it has. Read more
The FT’s Ed Crooks reported this week that fears over the long-term health of America’s shale industry could be put to rest thanks to news that independent oil and gas companies have now substantially improved their financial positions.
From the story:
Cash earned from operations by 25 leading North American exploration and production companies is expected in aggregate to exceed their capital spending next year for the first time since 2008, according to an analysis by Factset for the Financial Times.
As Crooks recounts, the longstanding fear was that the industry was shaping up to be a Ponzi scheme, relying on nothing more than excitement over shale to continuously attract new investment, with every likelihood that things would cave in on themselves once the financing for more drilling ran out.
Thanks to a shift to more profitable oil extraction over less profitable gas, however, it now looks like shale companies’ finances have improved enough to make the business sustainable. Read more
Live markets commentary from FT.com
A week ago, Mario Draghi set euro policy-watchers all a-flutter, departing from his prepared remarks at Jackson Hole to issue a kind of blunt confession that he and his colleagues had run out of excuses for the ongoing depressed level of inflation across the eurozone, and that maybe some sort of reaction was required. Cue a quall of ECB QE speculation.
Then, on Wednesday this week, a story appeared on Reuters stating that, according to “ECB sources,” there was unlikely to be any new policy action from the ECB at its September meeting next week unless August inflation figures (published on Friday) showed the eurozone sinking significantly towards deflation.
The story remained exclusive to Reuters. But the message was clear: ECB officials are worried that market participants were reading too-much-too-soon into Draghi ad-libbing. Read more
Nato to hold emergency Ukraine summit || Tesco issues profit warning and slashes dividend by 75% || Japanese economy flounders after sales tax rise || Baidu and Tencent join Dalian Wanda in $814m China ecommerce deal || Eurozone inflation hits fresh five-year low at 0.3% || Markets Read more
In which Citi look for the next Apple, our emphasis:
Apple’s valuation has been through a spectacular round-trip over the past couple of years (Figure 2). Its total market cap first broke through $600bn in August 2012, but then collapsed to $341bn in April 2013. Since then, the recovery has been equally remarkable, moving back above $600bn in the past month. In the process, it has regained the title of the world’s most valuable company ($187bn ahead of Exxon at number 2). To put this in context, Apple has lost and then regained the value of the Russian stock market in just two years.
The narrative associated with this spectacular journey often focuses on the never- ending pressure for Apple management to maintain the company’s product pipeline. A lower share price reflected concerns that Steve Jobs’ midas touch had been lost. The subsequent rebound was associated with increasing conviction that it had not.
Markets: Japanese stocks posted their sharpest declines in three weeks after a barrage of data called into question the prospects for a summer economic recovery. Trading in other markets was subdued – Hong Kong’s Hang Seng and Sydney’s S&P/ASX 200 were both flat – with the worsening situation in Ukraine giving a boost to havens and causing a small retreat from riskier assets. The S&P 500 fell 0.2 per cent from a record high in New York and the CBOE Vix index was up 3.3 per cent late in US trade. (FT’s Global Markets Overview) Read more
FURTHER FURTHER READING
- John Cochrane on IOR, Fedwire, and the size of the balance sheet Read more
Polled in March 2012, top academic economists overwhelmingly agreed that “freer trade improves productive efficiency and offers consumers better choices, and in the long run these gains are much larger than any effects on employment.”
This academic consensus has penetrated popular opinion to the extent that some people believe increasing cross-border trade flows is unambiguously good for everyone. Likewise, there is a relatively common — and wrong — belief that the Hawley-Smoot tariffs were a significant factor in the severity of the Great Depression.
We don’t want to suggest that trade is bad, but it is worth highlighting that the actual views of the experts who study these issues are much more nuanced than what the “pop internationalists” often spew out.
For example, a new paper by Daron Acemoglu, David Autor, David Dorn, Gordon H Hanson, and Brendan Price estimates that the sharp increase in bilateral trade between China and the US cost somewhere between 2 and 2.4 million jobs between 1999 and 2011 — about 1 percent of the entire civilian population in 2011. Less than half of those jobs were in manufacturing sectors that directly competed with Chinese businesses. Read more
David Autor chooses a surprising quote for the start of his latest paper on automation and jobs:
In 1966, the philosopher Michael Polanyi observed, “We can know more than we can tell… The skill of a driver cannot be replaced by a thorough schooling in the theory of the motorcar; the knowledge I have of my own body differs altogether from the knowledge of its physiology.” Polanyi’s observation largely predates the computer era, but the paradox he identified—that our tacit knowledge of how the world works often exceeds our explicit understanding—foretells much of the history of computerization over the past five decades. Read more
The following arrived in our inbox this Tuesday from Hailo, the cabby app which allows you to hail a cab using a mobile:
As of 5pm today you’ll find a free £10 credit applied to your Hailo account which expires at midnight tonight.* Make the most of your evening, stay out late or swap your normal commute with a safe, comfortable and cool cab home. Or why not try our new luxury HailoExec service? Just hit Pick Me Up Here and swipe across to select it. It’s a little post Bank Holiday gift from us to help you enjoy a hassle-free summer with Hailo.
We all know about the amazing diminishing Spanish bond yield.
But have you heard the one about the Spanish recovery having totally viable legs?
Spanish consumer prices may have fallen 0.5 per cent in August, year on year — their sharpest drop since 2009 — but the final reading of second quarter GDP confirmed the economy still grew 0.6 per cent q/q versus 0.4 per cent q/q in first quarter of 2014.
As this chart from Marco Protopapa at JP Morgan shows, that makes for quite a turnaround, deflation or no deflation:
News from the London Stock Exchange, released in deepest August, that it had hired Sharon Bowles, former chairwoman of the European parliament’s economic and monetary affairs committee, as a noddie rather failed to generate much coverage or comment at the time.
But it hasn’t escaped the attention of Sven Giegold, a German green MEP. He’s fired off an angry missive. Read more
Ice Age theologian, Albert Edwards of SocGen, is back from holiday with a new missive warning of imminent equity collapse.
(As a reminder the Edwards’ Ice Age thesis, which has been running since the days of the Asia crisis, predicts a world of very low inflation and near deflation, where equities de-rate both absolutely and relative to government bonds, which also re-rate in absolute terms. This long-term valuation bear market doesn’t end until the S&P 500 hits 400 and bond yields are below 2 per cent and there’s been a deep recession and blow-up in China.)
As Edwards notes, sub 1-per cent 10-year bund yields are testament to at least one part of his theory playing out as anticipated. Read more
This retrospective on predictions made in the 2003 Essay on the Revived Bretton Woods System by Deutsche’s Dooley, Folkerts-Landau, and Garber is brought to you by Deutsche’s Dooley, Folkerts-Landau, and Garber.
Their premise was and is that we are part of an international system characterised by newly industrialised countries pegging their currencies to the dollar at an undervalued exchange rate in pursuit of export-led growth furnished by an excess supply of labour. Those developing countries then ship their gains back to the US et al as a form of collateral against new lending as the net foreign assets of poor countries support the risks taken by their richer brethren.
More so, they suggested that we were in the China phase of this system, that it would last for 10 years-ish… Read more
Live markets commentary from FT.com
Here’s a curiosity. The European consumer staples research team at RBC Capital Markets have taken a detailed look at executive remuneration across the key companies in their sector, with James Edwardes Jones and Mirco Badocco examining the links (or lack of them) between pay packets and shareholder returns, suggesting a few ways executive pay might be better structured.
This is unusual. While the press (and especially the British press) has harped on about executive salaries for a good 20 years, specialist sector watchers in the financial sector have generally ignored the issue, despite the exponential increase in top salaries since the days of Cedric the Pig. Read more
Yes, yes they do.
At least the ones from UBS, who are out this week with a huge report on solar, batteries and electric cars and their capacity to re-shape the current electric system in the next few years.
Case in point, these charts:
Elsewhere on Thursday,
- A resource curse in the Appalachians.
- “Switzerland, Country of Joyce”
- In which Frances Coppola wants to buy breakfast with gilts.
- Empathy, Paul Bloom is against it. Read more