Note the frightening effects of financial glyphosate*


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Slater & Gordon were sold a pup, watch this space…

Slater & Gordon, the Australian listed law group, will report full year results on Friday, the first since buying almost all of the UK listed basket case Quindell for A$1.2bn.

Presentation of the figures had been set for the 24th, but was pushed back four days. The reason, Slater & Gordon told us, was “to provide our shareholders with the fullest update possible on our FY15 results and our FY16 outlook”.

One risk here is that a full update will include the admission it bought a billion dollar basket case. We’ll consider that and other issues below, in search of an answer to the underlying question: why did Slater & Gordon get suckered by Quindell? Read more

China’s ‘asset bubble’ growth solution hangs in the balance

Whether the yuan is technically or fundamentally overvalued doesn’t really matter. China has reached the point in its growth cycle where it can no longer defend the yuan’s valuation against the USD without shedding reserves, something FT Alphaville readers may have heard us warning about since 2012. That was the moment it became obvious (to us at least) that something had changed in China. Enough external private debt had built up in the system to compromise the pegging regime unless it was accompanied with offsetting FX reserve dumps, or new capital inflows.

While it’s true FX reserves continued to build (chart below from Kit Juckes at SocGen), what was of greater interest was the overall UST position which — a better proxy for how many dollars are in the system — and the theoretical portion of those FX inflows which are coming into China on essentially leveraged terms: Read more

Markets Live: Wednesday, 26th August, 2015

Live markets commentary from 

Making China’s FX reserves feel inadequate

Things that are not infinite include… China’s FX reserves. Even at $3.7trn.

It’s an obvious point, but maybe the point is worth remaking.

From Soc Gen’s Wei Yao: Read more

China’s ‘major correction’, charted and extrapolated

It’s indeed a major correction, say Goldman, surprising precisely nobody:

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FT Opening Quote – Betty Power takes on Coral Lad in £6.5bn merger

Paddy Power said it was merging with Betfair and calling itself Betty Power in a spoof tweet last month, but it’s not joking now. 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,

- It’s getting tighter.

- Nathan Rosenberg and the innovation system.

- Balding on China contagion and that rate cut.

- A 21st-century migrant’s essentials: Food, shelter, smartphone.  Read more

FirstFT – Chinese stocks gyrate after rate cut, Ashley Madison sued and the new banking landscape

The Shanghai Composite drops as much as 2.3 per cent in the opening minutes of trade Read more

Why China’s stock market implosion might not be very meaningful

Whilst there’s nothing like a Black Monday bloodbath in China to invigorate the bear case, it is worth bearing in mind that the Chinese stock market isn’t quite the NYSE.

Yes, Chinese investors have been turning to stock market investing at accelerating rates over the past decade, but despite all that growth, stock ownership is still the exception not the norm in China. And because it isn’t the norm, the feed through to the real economy is unlikely to be as significant as it would be in say, America, where every man and his dog is taught from birth to watch CNBC and to own a portfolio. Read more

Alphachat podcast: Joe Stiglitz on minimum wage, monetary policy, TPP and more

We recorded this podcast on Tuesday, August 18th. Alphachat is on iTunes and Stitcher, and to give us feedback you can email us at or call us at 917-551-5012. Read more

Putting China’s cuts in some context

As you’ve surely just seen, China has cut its reserve requirement ratio, by 50bps with effect from Sept 6, and its 1yr lending rate by 25bps to 4.6 per cent with immediate effect.

Markets will like this. And the timing suggests that the ongoing stock market puke did have something to do with the decision.

But there’s also certainly a broader rationale to these moves. Read more

Markets Live: Tuesday, 25th August, 2015

Live markets commentary from 

Myths and facts about “risk parity”

Companies often denigrate products sold by competitors, so it isn’t surprising that Alliance Bernstein is warning that the growth of so-called “risk parity” strategies is akin to the growth of the dreaded “portfolio insurance” in the 1980s — and could similarly make “the system more fragile”.

We’re sceptical. Ben Inker of GMO wrote up a more thoughtful critique a few years ago, although it also contains some important errors. More broadly, there is a common misconception that these investment products are uniquely vulnerable to rising interest rates, relative to more traditional portfolios. Our colleagues in the Markets section have a good overview.

While we don’t want to defend every investment product that markets itself as “risk parity”, since there are plenty of differences between them, we think we can usefully clear up some misconceptions and explain why these strategies make sense for certain kinds of investors. Read more

Offshore repo, capital charges and petrodollars

Repo expert Scott Skyrm at Wedbush warned last week that August 24 could be a date to watch because it’s a GSIB surcharge calculation day, along with July 31 and September 30.

As he stressed:

Taking that one step further, traders are even thinking about September 30 quarter‐end Repo rates. And here’s another date to watch ‐ August 24th, which is the second G‐SIB capital surcharge calculation date (in addition to July 31 and September 30) We should expect some type of funding pressure and/or Repo market distortion on Monday. If there is no obvious change in GC rates, it could be that cash is permanently gone from the market through early October, or maybe even forever. With the GSE cash in the market this week and slight soft funding, it’s a good time to finance long positions through month‐end and into September.

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China, so…. what now?

China, walloped again — Shanghai is off another 7.6 per cent and below 3000 points — even if the rest of Asia the world doesn’t seem to care quite as much as it did on Monday.

Have a compulsory longer term, context heavy, chart which shows that the index is still well up over 1yr but down 8 per cent YTD and 42 per cent since June:

The obvious question now is, what’s next? For the stock market and for the economy. The actions taken with regard to the former will contain a non-zero amount of information about the latter — which, to be extra obvious, is the important bit. After all, for EM at least, China matter thiiiiiis much according to BofAML Read more

FT Opening Quote – Zurich tables £5.6bn RSA offer

RSA seems willing to accept Zurich’s latest offer in turbulent markets and Poundland faces no quid pro quo for its 99p Stores takeover. 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,

- Some good things about crashes.

- Official Russian cheese attacks, an attempted historical perspective.

- How Google could … COULD … rig the US election.

- I knew Black Monday. Black Monday was a friend of mine. This was no Black Monday.  Read more

FirstFT – Chinese stocks sink again, the carbon credit con and the key to weight loss

Chinese stocks falls to as much as 6.4 per cent at the open to 4.3 per cent at lunch Read more

Morgan Stanley: ‘Buy! Buy! Buy! Buy! Buy!’

Corr! It’s almost like Teun Draaisma, FTAV’s favourite quant during the proper crisis, was suddenly back in action.

Clock this from Morgan Stanley’s Graham Secker and Matthew Garman: Read more

“Overall, we think this global bull market is ageing but not finished”

A calming checklist from Citi’s Robert Buckland. Click to enlarge…

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So this is how internet liberty dies? With thunderous spam filters

Twitter has a problem.

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Markets Live: Monday, 24th August, 2015 — second session of the day

Live markets commentary from 

Snap Markets Live — starting shortly

Footsie smacked; currencies are going loopy…

Click here. Read more

Bloodbath, charted

From on high, via Alberto Gallo and RBS:

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Guest post: The importance of credibility in capital markets, China edition

By Christopher Balding, Professor of Economics at Peking University, HSBC Business School, and blogger at Balding’s World.

The job of the modern economic and financial policy maker is a difficult one. Markets are being created at breakneck pace to trade incredible varieties of financial products and the complexity of major modern economies is dizzying. Considering the constraints of managing enormous economies and financial products, the most important asset of the economic regulator is not perfect decision making but credibility.

As China has battled a variety of financial pressures this year — from a falling stock market to capital outflows pressuring its US dollar peg — Beijing’s lack of a credible coordinated policy response worsened their public reception. Rather than articulate a clear vision of how to address a falling stock market and slowing economy and proceed to methodically execute that plan, Beijing swerves between conflicting announcements and less than credible positions that the market discounts. Read more

Markets Live: Monday, 24th August, 2015

Live markets commentary from 

Surprise! — Markets Live returns a day early

The weather in London is so bad, Bryce and Murphy assumed their holiday must be over.

Oh, and there’s events in China… Read more

China’s Black Monday… and the Fed

Xinhua’s words, so it’s official:

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Further reading

Elsewhere on Monday,

- The future under Corbyn — totally barmy, not to be taken seriously, Mad-Max-like, prophecy edition.

- Questioning China’s reserves with Charlene Chu.

- On the internal turmoil at the top of the CCP.

- People are worried about EM bond liquidty.

- Bansky’s Dismaland, where Cinderalla dies and no one gives a toss. Read more