The 6am London Cut

Markets: Asian markets were muted after another solid session on Wall Street and Japan’s trade deficit unexpectedly swelled. Market sentiment had been upbeat initially after a New York session in which the S&P 500 climbed 0.5 per cent to 1,981, leaving the US equity benchmark less than 0.4 per cent shy of the record closing high it struck three weeks ago. The US dollar rose 0.4 per cent to a fresh 11-month high against a weighted basket of currencies as housing starts jumped 15.7 per cent last month to their highest level since November. (FT’s Global Markets OverviewRead more

The Closer


- The Bulgarian banking disaster Read more

Kinder Morgan, the actual tax cost

Matt Levine at Bloomberg has already explained how the $12bn surge in the value of Kinder Morgan Inc. following its self-acquisition is mostly due to the tax savings brought about by the deal:

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QE for me but not for thee, Switzerland vs Eurozone edition

Governments need to reform their labour markets, reduce taxes that weigh on business, free companies from red tape and continue to repair their public finances. Merely talking about such reforms is not enough…QE would merely enable governments to borrow even more cheaply, giving recalcitrant politicians an easy way out.

[...] Read more

Apple watch watch: wrist excitement delayed

The lack of smoke signals and reports of millions of wearable devices actually going into production have led KGI Securities to declare:

We believe the launch of iWatch could be postponed to 2015.

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Reform vs seasonality in Chinese GDP stats

We had feared that one of most famous of Chinese statistical quirks might have abandoned us forever.

The reported combined GDP of China’s provinces came in only slightly above its national GDP in the first quarter, amid reports that more than 70 smaller Chinese cities were dropping GDP as a performance metric.

Perhaps as China stopped evaluating its local government officials on a narrow GDP basis, the officials would stop doing the obvious and fiddling their GDP numbers.

That would in turn stop the sum of China’s regional GDPs always coming in ahead of the national figure… as well as helping with things like unequal income distribution, problems with the social welfare system and environmental costs. Read more

The (early) Lunch Wrap

Inflation fall reduces chance of rate rise || Kurdish forces wrested control of Iraq’s Mosul dam from jihadis || Maersk targets first share buyback as it upgrades profit forecast || China’s property slump worsened in July || Chinese President Xi Jinping plans to regulate income distribution in state-owned companies || RBA warns over significant uncertainties on growth || Obama sends attorney-general to Ferguson, Missouri || Rabobank trader pleads guilty to conspiring to manipulate benchmark rates || Rosneft is about to start drilling its first oil well in Norway || Dollar General bids $9.7bn to buy Family Dollar || Appnexus cracks a valuation of over $1bn || Markets  Read more

Al Gore and the escrow

It is ‘seller beware’ in private company M&A as, apparently, former US vice president Al Gore is painfully discovering.

Mr Gore was a significant shareholder in the former Current TV cable network. Current was purchased last year for $500m by Al Jazeera, which then recast the network into Al Jazeera America. Mr Gore and his shareholders are reportedly seeking to recover $65m that they believe they are owed as a part of their sale proceeds. Read more

“People want money”

“Money,” we were once told, “is whatever you can use to pay your debts.”

That definition is both precise and slippery, since much of what can be used as “money” during good times is prone to losing its money-ness precisely when the need to repay debt is greatest.

Think of someone in the days before deposit insurance trying to pull cash from a failed bank to cover expenses after losing a job — or, for a more recent example, a hedge fund attempting to cover redemptions from panicked investors only to find that the prime broker responsible for holding its cash had blown up and the collateral it had provided was worthless.

The only kinds of money that reliably hold their value are the ones explicitly backed by a strong government*. Unfortunately, there isn’t nearly enough available to satiate the total demand for cash. Financial firms fill the gap by creating products that often offer many of the conveniences of money but that lack government guarantees, thereby rendering them inherently unstable and prone to crises.

These products are “mostly money” in the way that Westley was only “mostly dead.” They were also the topic of the “Workshop on the Risks of Wholesale Funding,” which we attended last week at the Federal Reserve Bank of New York. Read more

Taking the Billiton out of BHP (and UK shareholders) – Part II

We have no idea if Andrew Mackenzie, the Scottish-born chief executive of BHP Billiton, is favour of independence.

But UK shareholders will certainly get the rough end of the pineapple if the FTSE 100 mining giant goes ahead with its proposed demerger of non core assets, announced on Tuesday: Read more

Further reading

Elsewhere on Tuesday,

- “The Oakley Country Club would seem to be the biggest hotbed of alleged insider trading since SAC Capital.”

- Chinese myths of social cohesion.

- Regulating infinity.

- Secular stagnation, meet data. Read more

The 6am London Cut

Markets: A rally on Wall Street lit a spark for equities across Asia, and strong earnings in Australia and deal chatter in Japan fanned the flames. In New York the tech-heavy Nasdaq Composite rose 1 per cent to a 14-year high and the S&P 500 added 0.9 per cent. (FT’s Global Markets OverviewRead more

The Closer


- The economics of Burning ManRead more

Kinder Morgan, MLPs and the sell case

The $44bn self-acquisition of Kinder Morgan has been heralded by some as a great deal for shareholders.

But is it? Is it really? At least for the ordinary investors?

We’ve already wondered about the motivation for the deal.

Among our initial thoughts: Kinder Morgan MLP units trading under the KMP ticker had got expensive due to the heavy promotion of MLP structures as a safe-ish and yieldy investment at a time of low interest rates.

But we now think there may be more to it than that. Read more

A Bitcoin flash crash

Bitcoin has been on a sharp course downwards for a few weeks now (chart courtesy of Bitstamp).

But on Monday, the unthinkable happened.

Bitcoin prices on the BTC-e exchange suffered a flash crash that took the price as low as $309 per bitcoin from a day high of $497.79.

Here’s the damage:

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The (early) Lunch Wrap

Fed blow to banks over ‘living wills’ || Smartphone owners’ appetite for new apps wanes || Bovis pre-tax profit surges on robust property market || Chinese banks step up lending to housing || US banks plan ahead for UK exit from EU || Markets Read more

Before Jackson Hole, roundup of Yellen’s quotes on the labor market

Janet Yellen’s speech this Friday at the annual Jackson Hole symposium is titled, with understated simplicity and brevity, “Labor Markets”. The wider symposium is itself themed, “Re-Evaluating Labor Market Dynamics”.

And it’s no wonder. Even now, after more than a year of monetary policymakers and academics arguing about the amount of labour market slack and how much it should matter, most of the known unknowns in the debate remain, well, unknown.

In anticipation of the speech, the economics team at Credit Suisse has rounded up some of Yellen’s quotes on the labour market since she became Fed chair earlier this year (emphasis in the original, and my own thoughts follow the excerpt):
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That was nuts. Is this the crash?

From Bloomberg:

London home sellers cut asking prices by the most in more than six years this month, adding to signs that the property market in the U.K. capital is coming off the boil.

London values fell 5.9 percent from the previous month to an average 552,783 pounds ($922,300), the biggest drop since December 2007, property website Rightmove Plc said today. Nationally, prices declined 2.9 percent, a record for an August.

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Taking the Billiton out of BHP

Nothing has been decided yet, but it looks increasingly like BHP Billiton is going to spin off its unwanted smaller assets in a new company — effectively undoing another dud mining industry deal what’s left of its 2001 merger with South Africa’s Billiton.

But lots of questions remain unanswered. Two stand out in particular: What does this mean for a share buyback and what will PLC shareholders get out of it? (Remember BHP is a dual-listed company with Ltd shares in Australia and PLC shares in the UK). Read more

A new secular stagnation e-book

Click the image for a link to the pdf of a new secular stagnation e-book, which features entries from Summers, Krugman, Blanchard, and many others, including some critics:

Earlier this year we wondered if perhaps Janet Yellen was thinking of secular stagnation as one of the potential reasons for the Fed’s recent, if slight, downgrading of US potential growth. Read more

“Humans need not apply”

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Further reading

Elsewhere on Monday,

- Under what circumstances should you worry that the stock market is “too high”?

- Serried Yuppiedromes.

- Don’t bank on Europe’s banks.

- Nationalise the clearinghouses? Read more

The 6am London Cut

Markets: Asian markets were mixed following a broad rebound last week, with some housing-related stocks under pressure after an index of mainland property prices fell for a third straight month. (FT’s Global Markets OverviewRead more

Fantex puts points on the board

Buck French just may spike the ball this Monday.

Mr French is the CEO and co-founder of Fantex Holdings, the company that made a splash last October when it unveiled its comprehensive apparatus for trading shares in professional athletes. The details around the establishment and trading of its athletes’ “tracking stocks” were complex and ultimately controversial (for mostly practical but also some ethical reasons). And just as those questions were raised, its first IPO, for Houston Texans’ star running back Arian Foster, was pulled after he was seriously injured in a game. Read more

Ukraine, war, and sovereign default

Ukraine claimed at pixel time to have fired on a number of Russian tanks crossing its borders.

Being invaded by Russia is not very conducive to a country’s GDP. But also, bizarre as it seems if its armour really is aflame in the Donbas, Russia is also the owner of Ukrainian sovereign debt. This has some precarious terms (for the borrower) restricting growth in debt to GDP to below 60 per cent. Read more

Valeant and the IRS

Buried in page 27 of Valeant’s recent quarterly regulatory filing was some potentially significant news: the pharmaceutical company, currently pursuing a $53bn hostile takeover of Allergan, is under investigation by the Internal Revenue Service.

According to people familiar with the situation a number of individuals, including former senior executives, have raised concerns with the IRS, which has been holding an inquiry into the company for the last two years. The probe by the Large Business and International division of the agency has included an examination of Valeant’s tax arrangements following the 2010 merger with Canadian Biovail, a so-called “inversion” deal that enabled the former US company to dramatically reduce its tax bill. Read more

The (early) Lunch Wrap

Russian convoy at Ukraine border || Alibaba reports accounting regularities at film unit || China banks raise capital || Markets: stocks and bonds rise Read more

The leverage clock tolls for thee

If you buy this…

… keep reading. Read more

Further reading

Elsewhere on Friday,

- Let’s Gowex: How a Spanish tech star fooled the world.

- The ECB is not doing its job. Again.

- What should the ECB actually do, the Tyler Cowen solution

… with a Sumner critiqueRead more