O’Sullivan: US wage income is accelerating

FT Alphaville presents a guest post by Jim O’Sullivan, chief US economist at High Frequency Economics.

The last US employment report featured the usual pattern recently: another decline in the unemployment rate and another month without any acceleration in wages. The bond market rallied. After all, inflation is unlikely to pick up and the Fed is unlikely to start the tightening process if wages are stagnant. If wages are stagnant, there must still be lots of slack. Read more

Guest post: The case for sovereign reprofiling the IMF way, part two

‘Reprofiling’ is a controversial word in the world of sovereign debt at the moment. The IMF is gathering responses on a proposal to extend bond maturities when a country’s debt looks like it might be unsustainable going into a programme.

In this post, having reviewed criticisms of the proposal, Lee Buchheit, Mitu Gulati and Ignacio Tirado discuss how reprofiling can be designed to avoid hostility from creditors. Read more

Guest post: The case for sovereign reprofiling the IMF way, part one

‘Reprofiling’ is a controversial word in the world of sovereign debt at the moment. The IMF is gathering responses on a proposal to extend bond maturities when a country’s debt looks like it might be unsustainable going into a programme.

In this post, Lee Buchheit, Mitu Gulati and Ignacio Tirado review criticisms of the proposal — and suggest some responses. Read more

Guest post: The Riksbank at zero — lessons for others

Sweden’s Riksbank cut its key interest rate to zero last week because inflation was too low. The Riksbank has been noted – and criticised – for raising rates in 2011 to tackle a credit and housing bubble. Peter Doyle, an economist and former mission chief for Sweden for the IMF, argues that the recent experience of the world’s oldest central bank has more to teach policymakers.

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One view of the Swedish Riksbank’s cutting its repo rate to zero is that this is a defeat for the use of monetary instruments to lean against financial fragilities. That conclusion is premature. It misses three more important implications for other monetary policymakers. Read more

The case for quotas in the British judiciary

This guest post is from Jessica Learmond-Criqui, a founder and partner in specialist employment law boutique Learmond Criqui Sokel.

There are three kinds of lies: lies, damned lies, and statistics. While the origination of this phrase is unclear and ranges from Benjamin Disraeli to Arthur James Balfour, 1st Earl of Balfour, there is nothing false about the Council of Europe’s recent figures which demonstrate that the UK courts have fewer female judges than almost anywhere in Europe. Read more

Guest post: One virtual account number to rule them all

By David Birch, a director of the secure electronic transactions consultancy, Consult Hyperion. He is an internationally-recognised expert in digital identity and digital money.

The Financial Conduct Authority (FCA) has just launched an investigation into the Current Account Switching System (CASS) that the UK banks were forced to implement a year ago. Interestingly, though, they are also reviving an idea that the Independent Commission on Banking (ICB) put forward three years ago, that of porting bank account numbers across institutions.

 Read more

Alibaba shareholder disenfranchisement: worse than you think

FT Alphaville presents this guest post by Donald Clarke, professor at George Washington University Law School.

Alibaba shareholders are aware that they can’t elect a board majority even if they hold a majority of shares. But they might be surprised to learn that they can’t even nominate directors—any directors—let alone elect a few to a board minority, no matter how many shares they own. Read more

Guest post: IMF policies in the next crisis – unsuitable with a high probability

It’s that time of year again for the IMF-World Bank annual meetings in Washington – which means time for reflection on the fund’s attitude to changes in sovereign debt restructuring. Gabriel Sterne, Head of Global Macro Investor Relations at Oxford Economics, argues why it might be time for less procrastination, and more ‘forward guidance’…

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Guest post: Time to call in the UK War Loan

This is a guest post Toby Nangle, head of multi asset allocation and co-head of global asset allocation at Threadneedle Investments, a UK-based fund manager.

The UK Government could reduce its debt and save the taxpayer £300m by exercising its right to call the ‘War Loan’ and refinance it with new perpetuals with the same coupon but a thirty-year non-call period or new long-dated bonds.

The War Loan is one of the oldest bonds in the market issued by HM Treasury back in 1932. Read more

Tiger Index: A shaky recovery runs out of steam

The latest release of the TIGER (Brookings-FT Tracking Indices for the Global Economic Recovery) index paints a grim picture, write Eswar Prasad, Karim Foda, and Arnav Sahu in this guest post. The world economy is in a parlous state, with just a couple of bright spots discernible through the gloom.

The global economic recovery has stalled and become unbalanced, with the U.S. now the sole major economy still showing signs of strength. Growth in China and many other major emerging markets seems to be losing momentum. The world economy is now being powered along essentially by one engine, with the U.S. business cycle at least temporarily delinking from the rest of the world. Read more

Brazilian elections: the good, the bad, and the ugly

The first round of Brazil’s presidential elections takes place on Sunday. This guest post is from Jorge Mariscal, emerging markets chief investment officer at UBS Wealth Management…

From a market perspective, Latin American economies can be divided into the good, the bad, and the ugly. Reforming economies like Mexico are good. Crisis-ridden Argentina and Venezuela are ugly. In the middle lies Brazil – slow to reform, but not entirely hostile to investors. Economically, Brazil’s elections are a crossroads: the winner must decide either to join Mexico on the path to reform and long-term prosperity, or remain attached to an approach that threatens eventual bankruptcy. Fortunately for the markets, the electorate seems to be pushing the candidates towards the former approach. Read more

Scotland and Sterling — whose currency is it anyway?

This guest post is from Charles Proctor, a partner at lawyers Fladgate and an acknowledged expert on the legal aspects of money…

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Who “owns” sterling?

With the date of Scotland’s independence referendum fast approaching, the debate over a currency for an independent Scotland has reached fever pitch. Read more

Argentina and Elliott – was it really a bond play?

Pablo Triana, Professor at the ESADE Business School and all round derivatives expert, thinks that the role of CDS deserves consideration in the fight between Argentina and a hedge fund. In this post he explores possible motives for litigation. Elliott Management declined to comment.

Hedge fund NML Capital, a subsidiary of Elliott Management Corporation, has won crucial legal victories in its long search for rightful compensation from the Republic of Argentina. Courts in the United States sided with NML in finding a “creative” way to finally gain some leverage over the South American nation, which had long refused to make good on defaulted debt owned by the fund (along with other so-called vulture investors).

Argentina was found to have discriminated de jure against NML et al, breaching the now famous “pari passu” clause that entitled those creditors to equal rank with similar creditors. As per the remedy ordered by the judge, Argentina can´t pay a dime to those who accepted new bonds in the 2005 and 2010 debt restructurings unless it also pays NML et al in a ratable fashion. Read more

Why capital gain-like revenues are driving financial profits

This is a guest post by Iren Levina, Economist at Kingston University, in which she argues that the rise in financial profits can be explained by capital-gain like revenues which represent very peculiar wealth transfers. Read more

The need for investment-led recovery for Europe

This is a guest post, co-authored by Giovanni Cozzi, economic advisor at the Foundation of Progressive European Studies (FEPS) and Stephany Griffith-Jones, financial markets director, Initiative Policy Dialogue (IPD), Columbia University, in which they are argue that more investment could lead to a significant decline in the government debt ratio of southern Europe.

There is growing consensus that it will prove impossible to restore growth on a sustained basis in the EU without stimulating investment.

The European Council of Heads of Government firmly asserted that the Union needs to take bold steps to increase investments and create jobs. They called for immediate mobilization of the right mix of private and public funding. Read more

How to forward a new golden age

This is a guest post by Carlota Perez, Centennial Professor of International Development at the London School of Economics (LSE) and author of Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages in which she responds to arguments set out by Bank of England chief economist Andrew Haldane at the launch of the Mission-Oriented Finance this week.

Andy Haldane is one of the most brilliant and original minds in analysing the complexity of today’s finance and the policies that could shape it. It is an honour to be his discussant and indeed a challenge. Read more

Patient capital is a virtue

This guest post, part of FT Alphaville’s Mission Finance series, is by William Lazonick, Professor of Economics at the University of Massachusetts Lowell where he directs the Center for Industrial Competitiveness. He argues that stock buybacks and dividends are the mechanism by which financial interests, including top executives, reap gains that should be going to taxpayers and workers.

Whenever financial markets get hyperactive (the norm rather than exception over the past three decades), we hear calls for “patient capital” that can fund long-term investment in the productive capabilities that are essential for a prosperous economy. Read more

‘The Age of Asset Management’ — less risk, not more

This guest post, from Brian Reid, chief economist of the Investment Company Institute, is a response to this speech in April by the Bank of England’s chief economist, Andrew Haldane…

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As banks learn to live under tighter post-crisis constraints, central bankers around the world are worrying about financial risks that could move from banks to capital markets and perhaps trigger the next great crisis. After the experience of 2007–08, regulators rightly should be on guard for sources of weakness in the financial system.

Unfortunately, in their vigour, many regulators are seeing ‘systemic risk’—threats to the stability of the financial system—when the issue at hand is investment risk. Investment risk is a necessary part of a well-functioning economy, attracting investors willing to take known risks in hopes of gaining a reward. Systemic risk occurs when the financial system itself breaks down and is unable to perform its normal functions of matching savings to investment opportunities or facilitating economic activity. Read more

Safeguarding the future with public endowments​ for research

We routinely use our smart phones without realizing the research and development that produced it: the transistor, integrated circuits, wireless communication, the laser and optical communication, the internet, the Unix operating system, and so on. None of these existed during World War II. But four decades of post-war research created the foundation for today’s products (as Mariana Mazzucato has shown in her book The Entrepreneurial State).

Can we learn any principles about research and how it should be funded as a result of this example? Read more

Development banks good in crises, even better all other times

This is a guest post by Luciano Coutinho, CEO, BNDES, Brazilian Development Bank for the FT Alphaville Mission Finance series, in which he argues that development banks act as system stabilisers for the real economy.

The 2008-2009 crisis revealed to the world what was known at a national level: qualified public financial institutions are of extreme importance when private credit slows down. Delicate financial situations require immediate and efficient actions and the recent countercyclical success of development banks (DBs) shows to what extent these institutions behave as system stabilisers in times of credit contraction. Read more

De-financialising the real economy

Mariana Mazzucato organiser of this week’s Mission-Oriented Finance conference in London and RM Phillips Professor in the Economics of Innovation, SPRU, University of Sussex, is attempting to rescue the idea of The Entrepreneurial State, debunking myths about private and public sector innovation. Here is her latest contribution to the Mission Finance series at FT Alphaville.

Today our mission-oriented finance for innovation conference begins at the Houses of Parliament. Vince Cable, UK secretary of state for business, innovation and skills will be kicking off this evening arguing that a serious commitment to funding innovation means doubling innovation spend. Read more

Fighting poverty: how the wealthy can help

This guest post is from Mark Haefele, global chief investment officer at UBS Wealth Management and also chairman of the UBS Global Investment Committee.

Note that Mark will be fielding questions on the topic of poverty during Markets Live at 11am on Tuesday. A UBS white paper on fighting poverty is available here.

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Global economic growth, the rise of China, and the fall of communism have all contributed to lifting hundreds of millions out of poverty in the past 25 years. Unfortunately, the ‘easy gains’ have been made. The aforementioned factors are either one-off in nature, or likely to be less supportive in the future. As a result, private individuals, particularly wealthy investors, have a potentially significant role to play in reducing poverty, through a combination of sustainable and impact investing, and philanthropy. Read more

Mission Finance: why money matters – Randall Wray

The second guest post in this series comes from L Randall Wray, professor of economics at the University of Missouri-Kansas City. If the first was a call to arms for role of the state as entrepreneur, this is another big idea: we need to rethink the role of money in order to recognise the true challenge for finance.

Our Mission Oriented Finance conference explores how to direct funding toward what Hyman Minsky called “the capital development of the economy”, broadly defined to include private investment, public infrastructure, and human development.

But to understand how, we need to understand what money is and why it matters. After all, finance is the process of getting money into the hands of those who will spend it. Read more

Mission Finance: starting to think big again – Mariana Mazzucato

This is the first guest post in a series to coincide with the Mission Oriented Finance Conference starting in London on Tuesday. Mariana Mazzucato organiser of the get together and RM Phillips Professor in the Economics of Innovation, SPRU, University of Sussex, is attempting to rescue the idea of The Entrepreneurial State, debunking myths about private and public sector innovation. It is time, she writes, for big ideas. To think them will require loosening some intellectual chains.

Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. …I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.

Keynes – The General Theory of Employment Interest and Money, 1936 (p. 383) 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

Guest post: Does the VIX really measure volatility?

This guest post is from Peter Cookson, founder of Perels, a consulting firm focused on emerging financial trends.
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The CBOE Vix volatility index fell 12 per cent, closing at its lowest level since February 2007 — FT, June 19th Read more

Guest post: No, you can’t have your risk-free returns back

From Tomas Hirst, editorial director of Pieria, commissioning editor at the World Economic Forum and sometime playwright…

Governor Mark Carney, author and champion of the Bank of England’s Forward Guidance policy, appeared to depart from the usual script in his speech at the Mansion House yesterday. Having downplayed the likelihood of a rate rise any time soon at the launch of the Inflation Report in May many were surprised to hear him caution:

There’s already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced. It could happen sooner than markets currently expect.

The Monetary Policy Committee last voted to move the Base Rate in March 2009 when they agreed on a drop to 0.5 per cent. In the months that followed, however, inflation remained above the Bank’s 2 per cent target for 48 consecutive months: Read more

Smithers: Yellen and hindsight capital

This is an abridged version of a post by Andrew Smithers for his FT blog, one that lays out why using next year’s PE ratio to value the stock market is absurd. Taking the Fed Chair to task for her language, it is also ripost to the critique of long term valuation measures we have also featured.

Janet Yellen, the Fed’s head, rather bizarrely used the prospective price/earnings ratio, one of the weakest of all measures, to justify a statement that Wall Street was not overvalued. (This was doubly strange since her husband, George Akerlof, co-wrote a book with Robert Shiller, who has championed a much better measure…

I quote from a recent Buttonwood column in The Economist. Calling Ms Yellen’s comment “strange” seems very kind. Many people would rate the use of bad data in preference to better as irresponsible rather than strange, particularly when it carries with it the authority of the US Federal Reserve. Read more

Guest post: About that UK property bubble…

From Tomas Hirst, editorial director of Pieria, commissioning editor at the World Economic Forum and sometime playwright…

Commentators have been huffing and puffing themselves breathless with warnings of an imminent market correction in Britain’s property market. Even the European Commission has got in on the act warning policymakers of the risk of “excessive house price rises and increases in mortgage indebtedness”.

What there is no disagreement over is that prices have been rising strongly. According to the Nationwide House Price Index the average UK house price sold for a record £186,512 in May pushing annual pace of price growth up to 11.1 per cent:

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Fordham: Volatile public opinion – Vox Populi – is the new political risk

This is a guest post from Tina Fordham, chief global political analyst at Citi. The full report discussed below is available here.

People power is on the march, for better or worse. Read more