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

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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

On the hypothetical eventuality of no more petrodollars

Imagine the scenario. It’s 2025 and the volume of home-produced oil is so great that the US is near energy independent as far as crude imports are concerned.

With that energy independence, the amount of dollars flowing out of the US and over to net energy producers (and traditional dollar reserve hoarders) such as Saudi Arabia, Russia and Mexico has come crashing down.

So how would such a dollar-flow contraction affect the global economical and political balance?

According to Citi’s credit team, it would likely affect things a lot. Especially so in the credit markets. Though, what’s really interesting … they believe the effects of a petrodollar shortage may already be showing up in credit markets. Read more

Further reading

Elsewhere on Monday,

- Misunderstanding reserve currencies and the gold standard.

- The Streetwise Prof swats goldbugs.

- A defence of multi-billionaire hegde fund inflation truthers.  Read more

FirstFT, the email briefing formerly known as The 6am Cut

This is FirstFT, the FT’s new email briefing written by Amie Tsang in Hong Kong which is replacing the Lunch Wrap and the Cut. All Cut subscribers should now be receiving it in their inboxes. If that isn’t happening do please email or

If anyone reading this is not yet subscribed do please click here. Read more

The economic effects of the Obama immigration order

The first thing to be said about the macroeconomic impact of Obama’s executive order on immigration is that it will be small but not trivial.

The second thing to be said is that although the impact will be small, it will also be positive. Read more

Private money vs totally-public money, plus some history

Let’s close the week off with little bit of “history is just repeating itself” education for both the champions of private cryptocurrency, unaware of the private origins of evil fiat currency, and the “take away the banks’ power to create money!” Positive Money campaign in light of the recent deluge of historically myopic press releases in our inbox.

As the BoE’s historical timeline helpfully points out, the BoE came into being when a private syndicate decided to risk all in 1688 by providing the UK government with funding when no-one else was prepared to do so. This ultimately proved to be a very good decision. It turns out lending money to government on terms you can enforce and control can be very profitable, especially if it leads to wise public investments that improve the wealth of the nation and make it easier to collect taxes as a result. Read more

Halliburton: good things come to those who wait

Apparently, Halliburton’s $34.6bn acquisition of Baker Hughes was a blundered — and costly — deal by the oil services company.

The business press (the FT included) have been brutal in their assessment. My colleagues on Lex, with characteristic subtlety, rebuked Halliburton for creating a bad acquirer template. Others simply said the price, which represented a 54 per cent premium, was too high. The smack-down seemed to top out on Wednesday, when the Wall Street Journal declared Halliburton’s as the worst received deal of the year. Read more

No-one ever expects the PBOC

The People’s Bank of China likes to act unexpectedly. And Friday’s surprise announcement of a Chinese rate cut only confirms that being unexpected is indeed the PBOC’s preferred communications strategy.

As Reuters noted, this is the first Chinese rate cut in two years and lowers the benchmark lending rate by 40 basis points to 5.6 per cent. One-year benchmark deposit rates were lowered by a smaller 25 basis points.

But, as Marc Ostwald at ADM Investor Services International commented in an email, the timing of this move looks to be as much about the sharp appreciation of the Chinese currency versus the yen as the fact that China’s economy is experiencing difficulties, with both Chinese CPI and PPI remaining very benign. Read more

The liquidity monster that awaits

Fears are growing that the next crisis, if it should manifest, won’t come from any of the areas that spawned the 2008 crisis. To the contrary, it will emerge from areas we’ve not really had to worry about to date.

The key areas those in high places are now worrying about: the taken-for-granted presumed liquidity of the system.

This is an easy assumption for the asset management industry to make. For years investment banks have made a business of carrying liquidity risk on their balance sheets, mainly by internalising the inventory nobody else is prepared to hold. This sort of “we’ll buying anything just to make money from making markets” service as a result conditioned the buy-side to presume liquidity risk is something that just doesn’t really manifest anymore. Read more

Markets Live: Friday, 21th November, 2014

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Further reading

Elsewhere on Friday,

- The Karl Marx credit card.

- The un-wisdom of crowding out against Keynes.

- Scrutinising Zerohedge.

- Uber investor Ashton Kutcher defends digging up details on “shady” journalists. Read more

Questions from last night’s New York pub quiz

Thanks so much to everyone who attended last night’s pub quiz at Ainsworth Park in New York. Below we post all the questions we used. The winning team, which styled itself Lower Expectations, scored 45/60 in the first three rounds, and then 7/10 in the tie-breaker.

See if you can beat them! The questions without the answers are first, followed by both the questions with the answers further down. Read more

Roble unmasked (along with Fest, Blau and Fresco)

The Financial Times can reveal that Roble is one of a clutch of shell companies based in the Cayman Islands created by Tiger Global, one of the world’s largest but lowest profile hedge funds. Tiger Global used a series of these structures to bet against at least a dozen European companies, including Quindell.

Terrific gumshoe work by the FT’s Miles Johnson, who has identified Tiger Global as the big US investment company using Cayman-registered special purpose vehicles to short European stocks without attracting attention.

One of them is the Spanish-sounding but Cayman-registered Roble SL, which held the biggest short position in Quindell this year as the controversial law firm and technology company’s stock collapsed. Read more

Fed of mystery and supplementary normalisation tools

If analyst comments in our inbox are anything to go by, the latest FOMC minutes, released on Wednesday, provided nothing much to write home about. Everything revealed was pretty much as expected.

One thing did prompt our eyebrows to raise, however. More on that below, but first here’s some of the reaction. Stephen Lewis at Monument Securities wrote:

The minutes of the FOMC meeting on 28-29 October sprang few surprises. Compared with earlier meetings, FOMC members gave more prominence to the risks stemming from worsening conditions elsewhere in the world but ‘many participants’ expected the impact of foreign developments on US growth to be limited.

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Markets Live: Thursday, 20th November, 2014

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ECB QE and the prospect of gold purchases

One of the problems with ECB QE, as we all know, is the lack of a collective eurobond or sovereign-neutral asset to target, which would make asset purchasing less, you know, subjective vis-a-vis the assets you choose to support and those you don’t.

It is for this reason that analysts are divided about the type of assets Draghi may or may not be inclined to target.

There is, after all, a delicate balance between targeting ETFs or real-estate trusts neutrally and buying corporate stock or housing, which can evoke the start of quasi nationalisation of the economic system, if not government favouritsation of specific sectors, corporations or industries. Read more

You are not experienced

Statistically speaking.

Pieria has some stats from Citywire on the tenure of fund managers in its database of 17,000 funds, judged to be one of the important factors that financial advisors say they consider when choosing funds for their clients.

The advisors averaged about two decades worth of experience. The fund managers, not so much. Read more

Further Reading

Elsewhere on Thursday,

- The effect of oil price declines on consumer prices.

- The macroeconomics of the Death Star, redux.

- Objects can lie about their identity too. Read more

On the pluses and minuses of paying employees in non-cash instruments

On Monday Mark Carney, Bank of England governor, injected fear into the hearts of highly paid bankers everywhere by stating…

Standards may need to be developed to put non-bonus or fixed pay at risk. That could potentially be achieved through payment in instruments other than cash. Bill Dudley’s recent proposal for certain staff to be paid partly in ‘performance bonds’ is worthy of investigation as a potentially elegant solution. Senior manager accountability and new compensation structures will help to rebuild trust in financial institutions. In a diverse financial system, trust must also be rebuilt in markets.

His comments came on the back of growing regulatory concerns that banks avoid bonus caps by boosting fixed salaries and so offer less variable pay, weakening the link between performance and compensation. Read more

Markets Live: Wednesday, 19th November, 2014

Live markets commentary from 

The sun also sets

… That proved to be correct, if you will, and that was my last moment, really. I have to say when I look back in the last three years it feels as if the sun only rose each day to humiliate me after that point.

Hugh Hendry, manager of the Eclectica hedge fund there, talking about his investment decisions back in 2010-11 in the first of a three part interview in Money Week.

The no-doubt galling part is that he was right, to a degree, identifying deflation as the central risk while many of his peers worried about the opposite — central bank measures sparking inflation. Hendry had also been a celebrated contrarian who made a ton of money in the disaster year of 2008.

Still, he too felt the pull of the siren song:

I luxuriated in the polemics of Marc Faber and James Grant and Nassim Taleb, in our own country, Albert Edwards, et al. I luxuriated as they ranted and it was fine for them to rant. But I am charged with the responsibility of making money… *

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The costs of offshore tax avoidance, part 2

In our previous post, we looked at the ways that global corporations minimise their tax burdens by routing income through offshore tax havens and transfer pricing. The ultimate beneficiaries of these shenanigans, of course, are actual people rather than legal entities. Many of these people also take advantage of offshore tax havens to avoid reporting capital income to local authorities. In this second post, we will look at how Gabriel Zucman tracks this hidden wealth and his suggestions for governments to capture missing revenue.

According to Zucman, at least 8 per cent of global household financial assets — a figure that doesn’t include bullion, art, real estate, jewelry, and other physical stores of value — are held in tax havens, although he suspects that this is a lower bound. Switzerland alone is home to about $2.5 of non-resident holdings, while Luxembourg has about $370 billion attributable to foreign households and another $350 billion held by “family offices and other intermediaries.” (More on the exact methodology can be found here.) Read more

The costs of offshore tax avoidance, part 1

Nobody likes paying taxes. The rich, however, can reduce the burden more easily than others because capital is more mobile than labour.

A clever new paper in the Journal of Economic Perspectives by Gabriel Zucman attempts to measure how much government revenue is lost because of the careful re-routing of capital income into tax havens. He also suggests ways that governments can crack down on tax minimisation strategies, even in the absence of international coordination. Read more

Further Reading

Elsewhere on Wednesday:

- The lonely, eccentric life of bond villains

- All the earth orbiting sattellites

- Just you wait till that exam is over, professor. Read more