A copper bullion story

A tip of the hat to John Kemp for drawing our attention to the latest from Reuters’ base-metals’ reporter Andy Home, who provides some much needed perspective on the nature of cartels in commodities. Namely, the fact they’re probably endemic.

Case in point, in December 2010 when the copper market was booming, LME reports showed that a single entity controlled over half of all eligible LME stocks, leading to speculation that someone was squeezing the market.

When JPM was outed by the media as the likely holder immediate connections were made with the fact that it was also the bank that was planning to launch an exchange-traded fund backed by physical copper. Read more

Welfare spending across the OECD

The Organisation for Economic Cooperation and Development has a new report out summarising data from its “social expenditure database,” which tracks government spending on public health, pensions, and other forms of welfare, as well as private forms of social spending such as group health insurance and non-government pensions. (Thanks to Sky’s Ed Conway for pointing it out to us.)

The first thing that struck us is that we can’t think of anything that explains why some OECD countries (excluding the poorer ones) spend a larger share of GDP on welfare than others. Contrary to stereotypes, the US consistently spends more than Canada, while Germany spends more than Greece and the Norwegian government is stingier than most of Europe. Iceland’s ranking also surprised us. On the other hand, it should surprise no one that France, Belgium, Finland, and Denmark are in the top spots: Read more

Opec non-cut, the press release

Those looking to intensively scrutinise and analyse Opec’s non-cutting decision would do well to check out the public statement from the cartel which can be found here.

In any case, here is the key par to take note of (our emphasis): Read more

No cut!

As per Opec tradition, the cartel’s decision on Thursday has been leaked to wire reporters from Bloomberg and Reuters who are citing delegates stating…


Buiter on gold, Bitcoin and subjective value

Someone once wisely said, “if you love something, let it go. If it returns, it’s yours; if it doesn’t, it never was.”

But as Willem Buiter, chief economist at Citi, points out on Thursday, that’s not the message those with a tendency for passion investments seem to have ever received. They want to imprison the thing they love most and keep them in a dark dingy basement.

In a note on the non-virtues of gold and bitcoin investing (and the upcoming Swiss gold referendum), Buiter notes:

  • Gold is a fiat commodity currency (with insignificant intrinsic value).
  • Bitcoin is a fiat virtual peer-to-peer currency (without intrinsic value).
  • Gold and Bitcoin are costly to produce and store.
  • Gold as an asset is equivalent to shiny Bitcoin.
  • Central bank fiat paper currency and fiat electronic currency are socially superior to gold and Bitcoin as currencies and assets. There is no economic or financial case for a central bank to hold any single commodity, even if this commodity had intrinsic value.
  • Forbidding a central bank from ever selling any gold it owns reduces the value of those gold holdings to zero.

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Markets Live: Thursday, 27th November, 2014

Live markets commentary from FT.com 

The graphic Juncker

That clickable to enlarge chart (which allowed us to experiment with our shiny new anti-clickbait header format) is from EC president Juncker’s investment plan for Europe and shows how leverage is going to be achieved as he aims to support investment projects totalling at least €315bn over the next three years.

That, according to RBS’s Gallo, is relative to the decline in Euro area investment of more than €330bn every year btw. Read more

Further reading

Elsewhere on Thursday,

- Keynes is slowly winning and losing.

- Understanding George Osborne.

- “For two days only, your new Buick comes with what is essentially a weather derivatives contract.”

- “Gross vs. Gundlach: Who has more skill?”  Read more

FirstFT (the new 6am Cut)

The drop in oil prices has hit the energy sector and national budgets – now it’s affecting banks too. Barclays and Wells Fargo face huge potential losses on a USD850m loan to help fund the merger of two US-based oil companies. Investors balked at buying the loan when oil prices were slumping and credit markets were volatile. (FT)


Opec convenes in Vienna today – with the price of oil now under USD80 a barrel, some countries will want to cut output to boost oil prices but others will push against that to maintain their market share. Meanwhile the International Energy Agency is reassessing its expectations of crude supplies because Isis has deterred investment in Iraq’s production. (WSJ $, FT) Read more

Something to be thankful for: the US government has finally stopped holding back the recovery

It’s no secret that spending cuts (and tax hikes) have retarded America’s growth for the past four years. But data from the Bureau of Economic Analysis suggests that the era of austerity may finally have ended.

The following chart shows the contribution of government and private spending to annual GDP growth, since the start of 2005:

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Opec price wars, then and now

Some wise comments from our esteemed FT colleagues on Opec’s price war:

Cutting production only makes sense if there is strong reason to believe that the glut is temporary; and even then it makes better sense in low-cost fields, where not too much capital is tied up, than in high cost ones. Unless, of course, the oil price falls below the operating cost of a high cost field. That is thought to be about $7 a barrel in the North Sea. That is the economic reason why everything depends on Opec, which still controls much of the low-cost oil in world trade.

For the moment, most observers are betting that Opec is bluffing about a price war (which would in any case be the correct strategy) but this begs the question of maintaining internal discipline which is already frayed. Gulf peace and the addition of 2m barrels a day of Iranian supplies, could be the last straw.

 Read more

FirstFT (the new Lunch Wrap)

Missouri’s governor ordered 2,200 more guardsmen into Ferguson after a night of violence in several US cities sparked by a decision not to indict Darren Wilson, the white police officer who shot Michael Brown, an unarmed black teenager. (FT, NYT)

The decision made this a rare case – grand juries nearly always choose to indict in cases that don’t involve police officers. The Washington Post visualised what happened based on the scenario laid out by St Louis County Prosecuting Attorney Robert McCulloch. (FiveThirtyEight, WaPo $)

In the news

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Markets Live: Wednesday, 26th November, 2014

Live markets commentary from FT.com 

ECB, QE and so long to that damn negativity

On the potential death of that long awaited negative deposit rate, interesting thoughts from HSBC’s Steven Major below if sovereign quantitative easing does eventually raise its head in Europe.

But first, a necessary nod to QE skepticism from Peter Stella:

Rather amazingly, a crude quantitative measure of ECB stimulus—the sum of refinancing operations and securities held for monetary policy purposes—peaked the very month of Dr. Draghi’s [whatever it takes] speech. Those who are now seeking QE apparently believe that, despite the inverse correlation between quantitative stimulus and actual results, an increase in the size of the ECB balance sheet will lead to an outcome superior to that associated with the increase in policy “size” evident above during the 14 months prior to the Draghi speech. During that time, the sum of ECB monetary operations instruments expanded by 168 percent without any discernible palliative impact on markets. So if the definition of insanity is repeatedly trying the same behavior and expecting different results, the market would appear slightly insane. Or perhaps it is simply guilty of failing to fully comprehend the complexity of monetary operations, and more specifically, which monetary medicines work and which do not.

 Read more

Further reading

Elsewhere on Wednesday,

- The story of the first painting to sell for over £1m. Simpler times.

- The day I lost a sh*t-ton of money.

- Economists aren’t in the prediction business.

- Is Uber really in a fight to the death?  Read more

FirstFT (the new 6am Cut)

Missouri’s governor ordered 2,200 more guardsmen into Ferguson after a night of violence. The decision not to indict Darren Wilson, the white police officer who shot Michael Brown, an unarmed black teenager, led to protests in several US cities. (FT, NYT)The decision not to indict made this a rare case – grand juries nearly always choose to indict in cases that don’t involve police officers. The Washington Post visualised what happenedbased on the scenario laid out by St Louis County Prosecuting Attorney Robert McCulloch. (FiveThirtyEight, WaPo $)

In the news

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Baltia: the oldest, newest, airline that isn’t

In the first of what may be an occasional series on the wonderful world of stock promotion, meet Baltia, which describes itself as “America’s newest airline”.

Airline may be stretching the term, however. The company has one aircraft, an ageing Boeing 747 sitting in a Michigan hangar.

The newness is also suspect, given that the company has been in an almost perpetual state of preparation to fly for 25 years. It was first organised in New York on “August 24, 1989 to provide air transportation to Russia and, the then, Soviet Union countries”. It hasn’t sold a ticket since, but it has sold a lot of stock. Read more

Crystal balls

Late November brings widespread publication of methods for roasting turkey and predictions for the year ahead. You probably won’t spatchcock your bird, but it can be fun to entertain the idea of something radical.

So, submitting to the tyranny of the calendar, here is a sample of the themes set to shape the world from banking’s prognosticators and their attempt to make them new and interesting.

Cheaper oil and economic divergence feature, as well as politics and stake in the ground contrariness, but there is also considerable low-ing: low volatility, low returns and even “lowflation”… Read more

FirstFT (the new Lunch Wrap)

A grand jury decision not to charge a white police officer who shot and killed an unarmed black teenager in Ferguson, Missouri, unleashed a wave of violent protests in the St Louis suburb. The Federal Aviation Administration diverted St Louis-bound flights because of reports of gunshots fired into the sky. This timelineruns through the investigation and events since the August shooting. (FT, Washington Post $, NYT $)

Hagel steps down Chuck Hagel has stepped down as defence secretary as Barack Obama moves to shake up his national security team but few believe this will quell criticism of his foreign policy. Among possible successors is Michele Flournoy who would be the first woman to run the Pentagon. (FT, Foreign Policy, The Atlantic) Read more

Jim Rogers’ contrarian view on Russia

The rouble may be down more than 25 per cent versus the dollar this year, but the currency’s recent slide won’t be enough to dissuade legendary investor and author Jim Rogers from adding to his Russia investments.

Rogers told the Financial Times on Tuesday his bullish case was based on the view there had been a fundamental change in the Kremlin’s mindset when it came to the treatment of foreign investors. This, he said, had led him to about-turn on his previous scepticism about the country’s potential and views he had set from the moment he had first visited the country over 46 years ago. Read more

Markets Live: Tuesday, 25th November, 2014

Live markets commentary from FT.com 

Wriggle room, the CNY, and the PBoC

More on that Friday PBoC rate cut — and just as China goes ahead and cuts its 14-day repo operation rate by another 20bp to 3.20 per cent too. That move on Tuesday, according to Nomura, suggests that the PBoC will continue to ease monetary policy… which would be true to form.

As Barc note, “the policy rate cut suggests that China is once again following the typical sequence in a monetary easing cycle – the pace of CNY appreciation is often slowed in advanced, followed later by the same directional moves in the policy rate and banks’ required reserve ratio.” Read more

Further reading

Elsewhere on Tuesday,

- Citi analysts thought everyone knew ‘Hold’ meant ‘Sell’.

- “Merkel is obsessed with demography and economic competitiveness. She loves reading charts.”

- In defense of John Hussman.

- Fatas on McCloskey on Piketty. Read more

FirstFT (the new 6am Cut)

A grand jury has decided that a white police officer who shot and killed an unarmed black teenager in Ferguson, Missouri, should not face charges. The decision unleashed a wave of violent protests in the St Louis suburb, which has seen unrest since August when the shooting happened. This timelineruns through the investigation and events in Ferguson since the shooting. (FT, Washington Post $, NYT $)

In the news

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Are some workers “slacker” than others?

We don’t really understand why inflation-targeting central bankers closely monitor the job market.

For starters, there is something unseemly about connecting consumer price inflation to theories of labour market “slack”. The implication of ideas such as the “non-accelerating inflation rate of unemployment” is that innocent people should lose their jobs if the weighted-average nominal cost of goods and services rises a bit faster than an arbitrary target. Read more

Oil-price decline: the bank-exit liquidity theory

We’re all about unexpected consequences of “liquidity illusion-syndrome” these days, so it was exciting to discover a liquidity-focused assertion from Citi’s Edward Morse and team on Monday about the recent oil price decline, one that ties together a few ideas about how commodity markets relate to bank intermediation.

As a reminder, we have postulated that much of the decline is less related to sudden spot imbalances as it is to the curve’s “definancialisation”. The connection Citi has now made is between the commodity sell-off and regulatory burdens placed on banks’ commodity operations.

It adds to a discussion developed in an April paper by David Bicchetti and Nicolas Maystre, which questioned whether the recent correlation reversal in commodities was indeed connected to the closure of banks’ commodity departments. Read more

Lies, damned lies, and liquidity expectations

Last Friday we warned about the “liquidity illusion” in the market, and the degree to which it becomes part and parcel of regulatory efforts to bring the concept of caveat emptor back to the marketplace.

Which leads us on Monday to flag a paper the Committee on the Global Financial System (CGFS) published on the same day, focusing on similar themes, rubber-stamped by William Dudley of the New York Fed.

Entitled, market-making and proprietary trading: industry trends, drivers and policy implications, it notes (our emphasis): Read more

FirstFT (the new Lunch Wrap)

Asian stocks surged on China’s interest rate cut last week, which renewed hopes of faster growth in the region’s biggest economy or at least a slower decline in GDP. Analysts see this as the first in a run of easing measures as it is more likely to provide debt service relief than boost GDP growth. There is also some doubt whether the People’s Bank of China’s first cut in two years will actually cut financing costs for smaller companies or whether it will continue to channel loans to big state-owned firms. (WSJ $, Bloomberg)

The easing measures in China and Japan have raised expectations that neighbouring Asian central banks will follow suit. (FT) Read more

Markets Live: Monday, 24th November, 2014

Live markets commentary from FT.com 

Signal vs noise from the PBoC

Indeed, nobody expects the PBoC…

But, despite Friday’s surprise announcement, as SocGen’s Wei Yao says: “due to the further rate liberalisation announced at the same time, there is actually no de facto rate cut.”

She continues, (with our emphasis): Read more