The Closer


- The week in four charts, via Fast FT. And what’s coming next week.  Read more

Larry Summers on forwarding the Doozer economy

Larry Summers was interviewed by Chrystia Freeland at the INET conference in Toronto last week, in a conversation that very usefully expanded upon his thoughts about secular stagnation. (H/T Interfluidity)

It’s a reassuring interview for us because so many of the statements he made echo what we (and other bloggers such as Steve Randy Waldman) have been saying for some time. Namely, that there’s something more significant going on in the industrialised global economy than the effects of a banking crisis per se, and that that *something* is probably related to technological abundance. More so, that this phenomenon is having strange macro effects on capitalist incentives.

There was also a nod to the point we’ve made for a long time, that the financial intermediation industry loses its raison d’etre in such an environment, and worse than that, potentially becomes a malignant rather than constructive force on development and growth. In short, that negative rates are hardly the solution. Read more

Bonds for the long run

If we know one thing about investing, it’s that time and the power of compounding make stocks an essential holding for savers, right?

Well, maybe not, at least when the choice is to hold bonds with a reasonable yield instead and the excess returns from stocks have been on a long term downward trend, something suggested by this presentation from Claude Erb, the West Coast based manager of TR.

Which is going to take us on a mostly chart based and, we hope, relatively painless tour of a wonky concept — the equity risk premium. But it’s also a way to come at those arguments about long term measures of stock market valuation, the Cape ratio and Shiller PE, from another direction. Read more

Constructing negativity and the ECB

We wonder if, after a brief blaze of real scrutiny, people have started to look past the imposition of a negative deposit rate by the ECB in favour of the more seductive and mysterious ECB QE and how it might be constructed. And we wonder if that is something of a mistake.

How a move to negative is constructed will, of course, have much to do with what it is intended to achieve — a weaker euro at last check — but we also can’t help but think it would be cool to make sure it won’t cause too much harm either. Herein lies a plan. Read more

Markets Live: Thursday, 17th April, 2014

Live markets commentary from 

Leasing out mutuality

Sale and leaseback transactions represent an expensive addiction the cost of which does not appear, even now, to be fully appreciated by the Board.

– Lord Myners, update on review into the Co-operative Group Read more

The (early) Lunch Wrap

IBM hit by costs of restructuring || Google shares dip as earnings disappoint || Yahoo brings co-founder and Schwab on board ||
Diageo, the maker of Johnnie Walker scotch and Smirnoff vodka, on Thursday posted a sales drop of almost a fifth in Asia-Pacific in the third quarter, pushing the company to an overall 1.3 per cent decline in organic net sales || China’s Weibo raises a less than planned $285m in US IPO || Yellen warns inflation may lag recovery || American Funds warns on ‘Heartbleed’ bug || Markets Read more

China in gold collateral financing shock

This Reuters story about China having up to 1,000 tonnes of gold tied up in financing deals is doing the rounds, courtesy of information out of the WGC.

But it’s hardly a revelation.

We’ve known that China has been using gold (and almost everything else under the sun) for financing purposes for ages.

Goldman even blessed us with a more recent update about the shenanigans in March: Read more

Further reading

Elsewhere on Thursday,

- UK job market turning more American.

- The gritty reality of politics in India.

- Russian diplomats are eating America’s lunch.

- Secular stagnation or secular boom? Read more

The 6am London Cut

Markets: Asian markets are struggling to maintain an upbeat tone in spite of solid gains on Wall Street, but Hong Kong stocks were outperforming as Beijing cut the reserve requirement ratio for some rural banks. Wall Street prospered as a decline in the US dollar lifted the yen and hurt Japanese exporters. (FT’s Global Markets OverviewRead more

China’s FX grip is not what it seems

The influence of the ‘China factor’ on currency markets is waning.

That at least is the view of HSBC’s FX strategy team, headed by David Bloom. Read more

Yellen’s speech

Janet Yellen’s speech on Wednesday repeated some of her earlier points about labour market slack — she thinks there is plenty left and hasn’t followed the shifting centre of gravity within the FOMC — and also included remarks on her inflation outlook and the Fed’s new, qualitative forward guidance.

On inflation: Read more

Tesco’s lost decade – AV vs Lex

Some experimental video. This Alphaville blogger joined Lex’s Joseph Cotterill on the set of mastermind in the FT studio to debate exactly what is up with Tesco.

 Read more

Spot the difference, Tesco edition

Here is the Tesco share price, which you might notice is getting into lost decade territory.

Here meanwhile are Wednesday’s results: Read more

The linguistic verdict: Dorian is probably not Satoshi

Everyone has a linguistic signature (apparently).

Luckily for Bitcoin sleuths trying to determine the real identity of Satoshi Nakamoto the existence of *that* Bitcoin white paper provides everyone with some valuable clues. Read more

Capital controls, Ukraine style

From the National Bank of Ukraine:

15.04.2014 press release

The National Bank has passed the decision to temporarily disconnect 14 banks from the System of Confirming the Agreements in the interbank foreign exchange market. The regulator resorted to this measure given the actions undertaken by these banks in the foreign exchange market that have a destabilizing effect on of the hryvnia exchange rate and create negative expectations about the future hryvnia exchange rate dynamics.

 Read more

Markets Live: Wednesday, 16th April, 2014

Live markets commentary from 

Construction vs manufacturing re(-re)visited, and the US labour market

The graph above from CreditSights, which shows cumulative net job changes by industry since the start of the recession, can be used to tell a general story about the US economy and a more specific story about the current labour market recovery. Read more

The (early) Lunch Wrap

Ukraine tensions rise || Tesco profits drop, but shares bounce after long decline || Starbucks moves offices to London in reputation rebuilding exercise || Burberry sales jump, but currency to hit profits || European stocks rise Read more

When will the primary party end?

Actually, the way Creditsights frames the question about credit issuance is “can it continue?” which points to their answer: probably, even if not at peak levels.

Speaking of which, if you have an investment grade credit rating, you must have been enjoying the party.

USD fixed-rate investment grade corporate issuance totaled $265 bn in the first quarter, which was a $75 bn increase over 4Q13 numbers and $30 bn greater than the amount seen in the first quarter of 2013. The 1Q14 tally only trails two prior periods: the $285 bn in 1Q09, when issuance was boosted by the TLGP program, and the $278 bn seen in 1Q12.

 Read more

Further reading

Elsewhere on Wednesday,

- The problems of HFT, Joe Stiglitz edition.

- Defending kickbacks.

- Failure is not precisely the goal at Google X.

- Abenomics and doing more with less. Read more

The 6am London Cut

Markets: Asia-Pacific bourses were on the rise, led by Japan, but Greater China equity markets pared gains after the world’s second-largest economy reported its slowest quarterly growth since late 2012. The tone across the rest of the region was broadly positive after the S&P 500 swung out of negative territory early in the New York session to close 0.7 per cent higher. Forecast-beating earnings from Coca-Cola and Johnson & Johnson helped the mood. (FT’s Global Market OverviewRead more

The Closer


- How much trading should there be? Read more

Putin’s gold level: $1300/oz

Not much market reaction yet to reports of an “anti-terrorist operation” in Ukraine apart from gold, which had broken through a key resistance level before Russia said that its neighbour is close to civil warRead more

The remarkable productivity stagnation of the US construction sector

For the nearly half-century through 2012, annual labour productivity growth in the US construction sector averaged close to zero, and it has been negative for the past two decades.

Here’s a graph constructed last year by Paul Teicholz, a civil engineer who has been working on construction technology issues for a long time and who produced the best concise analysis of the sector’s productivity that I’ve come across: Read more

Markets Live: Tuesday, 15th April, 2014

Live markets commentary from 

The (early) Lunch Wrap

Ukraine raises rates as west discusses more sanctions || Diageo offers $1.9bn for greater stake in United Spirits || Google swoops on dronemaker Titan || AngelList sees $25m investor fund || ‘Heartbleed’ steals social security and mums’ messages || Hong Kong regulators move to safeguard bank liquidity || Copper miners look past present pain to future gain || UK inflation falls to 1.6% || Markets Read more

A brief history of M&A

SocGen are at it again, and this time they appear to be mid-thrust:

Disappointingly, there’s no introspective mention of value destruction to be seen, but we do get price defense as the main justification for M&A activity: Read more

Further reading

Elsewhere on Tuesday,

- The Mystery of the Dots, Part II.

- Three expensive milliseconds.

- Live a modern life while frustrating the NSARead more

The 6am London Cut

Markets: Japanese stocks were on pace to end a seven-day slump after Wall Street stocks rebounded from a two-month low, although Chinese equities faltered as the central bank signalled concerns over the boom in lending. (FT’s Global Market OverviewRead more