Warren Buffett: A dream deferred

Our colleague Stephen Foley wrote a compelling analysis last year noting how much Warren Buffett’s Berkshire Hathaway Inc had taken advantage of deferred taxes to build its empire:

“In the latest and largest example, Mr Buffett’s Berkshire Hathaway has been able to defer $61.9bn of corporate taxes, the company revealed in its annual report. This figure — about eight years worth of taxes at Berkshire’s current rate — is a reminder that Mr Buffett understands how putting off the moment when taxes are due gives him more money today to invest elsewhere. Read more

Explaining the BoJ’s reticence

You’ll have noticed that the yen and Nikkei were displeased yesterday. Like throw your toys out of the pram because you didn’t get what you wanted displeased. Like one of the worst one day JPY moves in the past decade displeased.

What they didn’t get, and what prompted that tantrum, was any auld bit of easing from the Bank of Japan.

And here are eight potential reasons why the BoJ disappointed, from SocGen: Read more

Further reading

Elsewhere on Friday,

- Zuckerberg gets to control Facebook a while longer.

- ‘Normal America’ is not a small town of white people.

- “Surely no campaign has ever before had a divisive internal fight over whether the candidate should be presidential or not…”

- When Ted Cruz signed a copy of The Communist Manifesto. Read more

US growth slows, Mallya defiant and China’s robot revolution

GDP growth of 0.5 per cent was less than half the rate set in the previous quarter due to tumbling corporate investment and lower exports Read more

Are we over depending on capital gains?

David Levy’s April forecast, by way of Jerome Levy Forecasting Center, presents three notable viewpoints worth sharing this month.

The first is that capital gains are accounting for an increasing share of total investment returns, now making-up probably the majority of them. But, says Levy, it will be challenging to maintain those capital gains from now on.

The second is that whilst there is a popular view that foreign exchange can explain the extreme volatility so for in 2016, this is probably wrong. According to the prevailing view, Davy notes, the stability of the global economy leans heavily on currency stability and especially on a benign set of stable dollar exchange rates. Read more

Markets Live: Thursday, 28th April, 2016

Live markets commentary from FT.com 

Today in disappointed markets…

UPDATE: JPY through Y108 as Kuroda says helicopter money is illegal. Of course, definitions matter where that is concerned.

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FT Opening Quote

Five large companies are expected to suffer big executive pay moans from shareholders today, Lloyds’ bank profits are down 46 per cent, WPP’s billings are up 8 per cent. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here. Read more

Further reading

Elsewhere on Thursday,

- “Venezuela, in other words, is now so broke that it may not have enough money to pay for its money.”

- Meanwhile in Israel: “If someone is over 18 and wants alcohol, cigarettes, a knife, a binary option account, it’s his own responsibility.”

- Your annotated Fed statement.

- Ant Financial, now valued at $60bn apparently, is confusing. As is its relationship to Alibaba. Sorry, we mean its relationship to the Cayman registered derivative contract vaguely related to ecommerce in China known as Alibaba. Read more

FirstFT – Central banks stand pat, Loeb warns of hedge fund ‘killing field’ and the Silicon Savannah

The yen surged 2 per cent and equities slumped after the Bank of Japan keeps policy on hold Read more

Guest post: Toby Nangle on the end of the “Goldilocks slump”

In this guest post, Toby Nangle, the Global Co-Head of Multi Asset & Head of Asset Allocation, EMEA at Columbia Threadneedle, wonders whether rising wages caused by changes in demography could ultimately end the productivity slump.

Weak productivity growth has puzzled economists and policymakers but it doesn’t seem to have hurt investors: the period 2009-2016 might even be called “the Goldilocks Slump”. Ample slack in job markets ensured little bargaining power for workers, whilst central banks battled deflationary impulses with a combination of low (or negative) rates and asset purchases. The net effect has been falling real yields and tight risk premiums.

But productivity growth does matter. And we are nearing the point where its absence will be of overwhelming importance to financial market investors. Read more

When countries go bankrupt

Alphachat is available on Acast, iTunes and Stitcher.

Going bust is painful. But when you are a country it is particularly awful.

While people and companies have recourse to established legal frameworks that govern their bankruptcies, struggling countries have to tackle debts in what is close to a legal limbo.

As a result, both countries and their creditors are uniquely vulnerable. The former have no formal bankruptcy protection that it can use for an orderly restructuring of its debts, but the latter have few ways to compel a stubborn state to heel (at least in the post-gunboat diplomacy era). The result is a delicate balance — and when it breaks down, it can lead to an unholy mess. Read more

Nice fintech startup you got there, it would be a shame if someone sued it

As bank settlements go, last week’s $2.5m payout from online lender SoFi is pretty small.

The privately-owned nonbank for wealthy millennials, which makes a show of being better than traditional banks, was accused of doing unauthorised credit checks on prospective borrowers that damaged their credit score.

Shawn Heaton, the initial plaintiff in the class action lawsuit, claimed that SoFi had performed a “hard pull”, which shows up on a person’s credit report when applying for loans, when it had told him it would only be doing a “soft pull”, which doesn’t show up. Later, Heaton tried to get a credit card from another lender and was rejected, in part because his credit report showed too many inquiries, one of which was SoFi’s hard pull, according to the initial complaint from November 2014. Read more

Markets Live: Wednesday, 27th April, 2016

Live markets commentary from FT.com 

“What if China lands hard?” they asked in 2013

What is a hard landing? Can you re-land hard if you’ve already landed hard? What about just landing harder? Or what about a long hard landing?

The phrasing here is getting awkward, as is the real point, which is the concern that the hardest Chinese landing is yet to come.

You can see why it’s on people’s minds: Chinese reforms have been less than impressive, there’s a general consensus that its record breaking debt load is bad (for a given definition of bad that normally doesn’t include an immediate crisis), and credit growth is still heading up. Take this from Bernstein’s metals and mining team on Monday for example:

The response to the crisis of 2014/2015 appears to be greater than the response to the financial crisis of 2008/9. Between November 2008 and November 2009 total domestic credit expanded from 36.3Trn RMB to 48.4Trn RMB, a change of 12.1Trn or ~34.4% of 2009 GDP. Between February 2015 and February 2016 domestic credit has grown from 111.2Trn RMB to 139.2Trn, a swing of 27.9Trn, or ~40.4% of GDP.

 Read more

FT Opening Quote

Barclays’ profits are down by a quarter, Steinhoff concedes defeat in the battle for Darty, the BHS blame game is heating up. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here. Read more

Further reading

Elsewhere on Wednesday,

- The “areas hardest hit by trade shocks were much more likely to move to the far right or the far left politically.”

- “No matter how high the tariffs Mr. Trump wants to raise to encircle the American economy, he will not be able to produce a manufacturing renaissance at home.”

- Debt-equity conversion and NPL securitization in China, some advice from the IMF.

- The resilient Chinese consumer is still resilient.

- Nestlé’s Maggi health scare in India was not handled… perfectly. Read more

FirstFT – Apple’s iPhone troubles, Twitter’s tumble and sailing the fiscal seas

Apple’s revenues were down 13 per cent from the same period last year while earnings per share fell 18 per cent Read more

The Prince, the Firm, and the Fund

Because if his Royal Highness the prince wants the world’s largest sovereign wealth fund — then who’s to say no?

As for the Arab and Islamic depth, we have the Qiblah of Muslims. We have Medina. We have a very rich Islamic heritage.

We have great Arab depth. The Arabian Peninsula forms the basis of Arabism. The kingdom constitutes a large part of it. That issue has not been exploited in full.

We have a pioneer investment power at the level of the world. Today, you see that many statements are being made, including statements indicating that the Saudi Sovereign Fund will be the largest fund in the world by far, compared to the other funds.

That will be the main engine for the whole world and not only the region. There will be no investment, movement or development in any region of the world without the vote of the Saudi Sovereign Fund.

 Read more

The Priests, the Temples and the Blockchain Clearing Systems

Whilst by no means an entirely undisputed theory, ancient historians generally believe that the emergence of civilised states such as Sumer was closely connected to the centralised role temples played in standardising, clearing and redistributing value in their societies.

Temple authorities, the theory states, kept account of the assets and liabilities of each individual, meaning citizens could only claim as many goods from the temple storage as the records permitted — something based on the amount of provable work they had done. Tangible money was consequently unnecessary. The accounting system was ubiquitous in society and dependable.

As Benjamin Foster, a Yale Assyriologist, has noted before, historians have speculated that the religious complex was essential for spurring the sort of non-rivalrous collaboration that allowed for the cultivation and settlement of land in the first place. Read more

Why you can’t trust people to pay their taxes

In 1995, the Minnesota state government did an experiment on its citizens. As the deadline for filing the previous year’s taxes approached, almost 50,000 people received a letter from the state. Some of those messages talked about the ethical duty of paying tax, other people were offered help with their tax return. But a small subset of the letters carried an ominous warning: “we will examine your 1994 tax return very closely”.

When that subset, 1,724 people, filed their tax return, there was a marked rise in reported taxes than in the previous year. Most people, when told the government would be checking their finances closely, decided to pay more tax. But one group reported less tax: rich people. Read more

Markets Live: Tuesday, 26th April, 2016

Live markets commentary from FT.com 

FT Opening Quote

Whitbread is getting a profit boost from Premier Inn, BP’s profits are down 80 per cent, Luxembourg is where you’ll most likely find the majority of Zaoui’s earnings. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here. Read more

Further reading

Elsewhere on Tuesday,

- Paul Singer on the lessons from his bond (pari passu) war.

- Rogue bonds — from CS which would insure it against its own operation/ fraud/ regulatory/ etc risk — how would they work exactly?

- China, Venezuela and how winning friends can get expensive.

- “The chairman of a Chinese e-financing firm suspected of having fled with 1 billion yuan (HK$1.19 billion) of investors’ money has emerged to say he has not absconded but was merely meditating in the Gobi Desert over the firm’s direction.”  Read more

FirstFT – Saudi vows to end ‘addiction to oil’, remaking China’s military and killer robots

Saudi Arabia unveils a long-awaited plan for a radical transformation of its economy and promising to list 5 per cent of the state oil company Read more

N Brown’s credit addiction (updated)

Last year, retailer N Brown hiked the interest rate it advertised to customers who buy on credit. The move was a fairly large one, from 44.9 per cent to 58.7 per cent, the highest advertised annual percentage rate for any equivalent retailer, but it didn’t get much attention. The London-listed company, which owns brands like Jacamo, J D Williams and SimplyBe, didn’t shout about it in filings or on calls with analysts.

Which might be because nothing had really changed — N Brown had previously been advertising the wrong rate to customers. Read more

Would 11,000 BHS workers still have jobs if Tina Green hadn’t siphoned £1bn out of the business?

Administrators are going in at BHS, the British chain of down-at-heel department stores, best known through the years for its budget lighting department and serving up cheap coffee to pensioners.

The business has been managed for most of the past 16 years by Sir Philip Green, “King of the Shops,” on behalf of his wife Tina, who has spent the period in Monaco, avoiding UK tax. BHS was sold last year to an opaque group of supposed turnaround specialists. But the situation was probably already terminal – hence the sale price of £1.

Here, in very rough terms, is how the finances worked. It’s an open question as to whether, with a little less financial engineering, this business might yet have survived. Read more

Markets Live: Monday, 25th April, 2016

Live markets commentary from FT.com 

Podcast: Jim Chanos on the art of short-selling

Alphachatterbox is available on Acast, iTunes, and Stitcher. Read more

Shockingly, loose credit and moral hazard are to blame for something in China

Right, so we’re going to… grudgingly… allow this Game of Thrones reference from David Cui at BofAML.

We will not be this forgiving again.

In the Game of Thrones, before someone declares interest of entering the game, he or she needs to think carefully because the consequences of losing can be extreme. The same could be said about the latest “game” of trading commodity futures on China’s three commodity exchanges, in our view. We believe that loose monetary/credit policies and moral hazards are the main drivers behind the latest sharp rally, rather than improving fundamentals.

 Read more