The belated Michael Lewis effect?

The five and a half months since this book was published have not been an easy one for the high frequency trading community, certainly in the US…

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The (obscene) cost of hedge funds [Update]

With back of envelope in hand, lets estimate what the world’s pension funds have paid its hedge fund managers, and what they got back in return.

First we need an idea of how much cash pension fund trustees have placed with hedge funds. Here’s the breakdown of estimates given to us by Preqin, a data provider (click to enlarge):  Read more

The fatal flaw that could doom the European project

There have been many failed attempts to unify the European continent by force.

More recently, politicians have tried to do it peacefully, with some limited success. The European Union has an elaborate bureaucracy and an elected parliament that together oversee everything from cheese names to foreign affairs. A majority of the EU shares a currency and monetary policy, as well as a common banking regulator.

But these supranational institutions are becoming increasingly unpopular among actual Europeans. Moreover, new research presented at the semiannual Brookings Papers on Economic Activity by Luigi Guiso, Paola Sapienza, and Luigi Zingales suggests the traditional strategy for promoting integration has reached a dead end. Instead of “more Europe”, the trend in the near future may be the revival of nationalism.  Read more

Markets Live: Wednesday, 17th September, 2014

Live markets commentary from FT.com 

Tokyo on Thames

Older readers may remember the property boom which engulfed Tokyo from about 1986 to 1991. The apocryphal statistic was that land under the Imperial Palace was worth about as much as the state of California.

The bursting of that bubble — as well as one in the stock market fuelled by loose monetary policy, financial speculation, corporate cross-holding and dodgy accounting — was followed by the Japanese economic stagnation that persists to this day.

What many readers may not realise, however, is that housing in parts of London is now more expensive than for Tokyo at the peak of that boom. Read more

The (early) Lunch Wrap

Sony warns of $2bn loss || Russian Oligarch under house arrest || Polls put Scottish “No” ahead || Sky Deutschland boards reject deal in motion || JD Sports profits up || Stocks rise Read more

Reminder: US Macro Live, FOMC presser edition

A potentially pivotal FOMC meeting wraps up today, after which Janet Yellen will take questions from the media.

Over at the usual place, Matt and I will be providing commentary in real time during the presser in addition to cheering on the FT’s man in Washington, Robin “Hip Specs” Harding. We’ll start at 2:25pm EST (7:25pm in London). Read more

Sony, 56 years later

Yup. That’s what you get when your expected annual net loss looks set to come in at nearly five times your initial prediction at some Y230bn ($2.14bn). Read more

Video: Calpers and hedge funds, the end of the affair

Joseph and Dan discuss the decision by the largest US public pension fund to ditch hedge funds, on the set of mastermind.*

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Further reading

Elsewhere on Wednesday,

- Timothy Geithner’s revenge: A broken bond rating system.

- The overpaid CEO.

- “The trend seems to be that more people are insider trading than you’d think… The strange thing is that they’re always doing it so badly.”

- How the free rider idea evolved. Read more

The 6am London Cut

The Cut, The Survey: The 6am Cut, Lunch Wrap and Closer emails will soon be relaunched in enhanced form. We want to ensure we’re providing only the most useful data, news and views — taking this short 2 minute survey would help us do that.

Markets: Central bank activity fuelled market action, with China spurring a rally in bank stocks with another move to prop up growth, while emerging market stocks climbed on hopes that the US Federal Reserve would stick to its dovish language in this week’s policy update. The recipient banks led the rally, with shares in Bank of Communications climbing 3 per cent in Hong Kong. The index of H shares – those of China-based companies traded in Hong Kong – rose 1.7 per cent. (FT’s Global Markets OverviewRead more

BuzzBaba

Is there evidence that Chinese/Cayman froth-float Alibaba has hired Buzzfeed to advise/train for a pre-IPO social media puff push? If so, should this be disclosed SEC-style?

On the first, maybe, on the second, dunno. You decide. Read more

The Closer

FURTHER FURTHER READING

- The best solution for homelessness: give homes to the homeless. Read more

Changes in the US regional income distribution

The US Census Bureau has just released its latest data on median incomes by state, which can be found here in table H-8. We looked at these data and would like to share a few interesting charts.

First, look at the gap between the states with the highest and lowest median incomes. Read more

Money Supply: A “considerable” challenge

Since I wrote about the Fed debate ten days ago, the market consensus has moved rapidly towards a change in the Fed’s “considerable time” language this Wednesday. I was cautious about the timing, however, because this is not straightforward – coming up with new language is quite a challenge.

This is a (very long) attempt to think through the Fed’s options. The bottom line is that “considerable time” may survive in some form on Wednesday, but if so, I’ll be surprised if there is not a significant change to the statement that sets up its eventual departure. Read more

An oligarch arrest in Russia…

And so to the website of the Investigative Committee of the Russian Federation:

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Upon failing to read the F1, Alibaba edition (tweaked)

Back in 2007, during the early months of that year, before the financial crisis broke, there was a particularly comic rush-to-market amongst the alleged new breed of financial firm, eager to IPO before reality dawned.

It was a time when Fortress Investments floated — at circa 40 times prospective earnings, four times Goldman Sachs’ valuation multiple. Blackstone joined the market as a “limited partnership,” offering ‘units’ rather than stock. And a Wall Street old-timer called Thomas Peterffy took Interactive Brokers public with a calculated snub to the industry that had made him risk: sure, investors could put a value on his business, but a dual-class share structure would leave outsiders with just 5 per cent of the voting power. Read more

Cybersecurity dispatches: Managing the IoT poltergeist threat

Imagine the scene in the not too distant future.

An Uber self-driving electric car has just dropped you off home. Your front door has recognised your face, and your fingerprint has authenticated that it’s definitely you. You get into your house, not a key in sight, kick off your shoes, and happily discover that the 3D printing feature in your fridge has already printed the food you plan to consume for dinner. All the appliances you need are on. And everything you don’t need is off, nice and efficiently saving power.

You decide to treat yourself to a quick 30-minute Netflix holographic update, only to get a nudge from your wearable tech that you’ve still got a 10 minute exercise deficit to meet your daily activity quota. It’s a problem because you happen to have signed up to the extreme health management option which shuts down your ApplePay access — without which Netflix won’t work — if you fail to meet your objectives. You quickly get busy on your smart-grid connected treadmill (which conveniently sells off the energy produced by your system back into the grid) and focus on the prospect of an autonomously prepared calorie efficient meal.

When all of a sudden… your utility door flings open and your iRobot Roomba begins singing Daisy, Daisy. Read more

Brent weakness is now a thing

This little chart is becoming a major headache for the world’s biggest oil producers:

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No, Betfair has not just called the Scottish Referendum

Doing the rounds on Twitter this afternoon ….

Betfair advert

The important word there is “sportsbook”.

Betfair’s exchange has become a much-watched sentiment indicator for the Scottish vote. This is where gamblers bet against each other directly and the house extracts a rake for providing the market. At pixel time, £8.8m has been matched on the punter-to-punter exchange. Read more

SOE you think you can reform, the optimists’ roster

Evidence of something — even if it’s not necessarily reform — from Deutsche:

Noteworthy announcements about SOE reform and deregulation have appeared about every two days since the Third Party Plenum in November 2013…

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Dispatches from the cyberwar frontline with a horrified Vince Cable

Speaking on the sidelines of the SINET cybersecurity conference being held in London on Tuesday, UK Business Secretary Vince Cable expressed concern over the average age and quality of some of the IT systems of British banks.

As Cable commented to FT Alphaville:

“I’m always horrified when I discover just how ancient the technological infrastructure of the banking system is, a lot of it comes from the 60s and banks are still operating this. One of the reasons why it hasn’t been possible to get proper competition — for example when breaking up RBS –is because the banking infrastructure is just so ancient that they can’t spin it off. And it’s a massively costly business. The financial sector, although in some ways it’s one of the most advanced parts of the economy, it’s often decades not just years behind.”

The comments followed the announcement of a £4m competition for UK cyber businesses to develop ideas to tackle cyber security threats, and initiatives aimed at raising corporate and public awareness of cyber-security risk. It is hoped, in particular, that other mission-critical businesses such as utilities will come together in a collaborative process to spearhead fresh approaches to the problem of cyber crime and resilience. Read more

Markets Live: Tuesday, 16th September, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Good morning New York,

ALPHAVILLE Read more

Markets Live Special — Donovan of UBS joins to discuss the Scottish vote

Tuesday at 11am.

Click here.

Paul Donovan, global economist at UBS, will join Bryce and Murphy for our regular Markets Live session. Extracts from his latest note on the Scottish independence vote below… Read more

Structured Scottish independence

There is a paper to be written on how UK structured finance nomenclature borrows from the topography of a Britain which is sort of (but not quite) familiar, and which feels reassuringly permanent. We suppose it’s like the Shipping Forecast.

Aire Valley, Arkle, Arran, Brass (that one’s from Yorkshire), Darrowby, Granite (famously), Lanark, Leofric… Read more

Calpers ditches hedge funds [Update]

The message is starting to get through. Calpers, the largest US public pension fund, has said that it will stop investing in hedge funds.

It took a while. The $300bn California Public Employees’ Retirement System rejigged its portfolio of hedge funds at least three times since it became one of the first pension funds to embrace the fee structure in 2002. The previous decision had been to halve exposure, rather than elimininate it entirely.

Still, public pension fund trustees now have a very visible example to follow. If the largest and best resourced US pension system found the cost and complexity of investing in hedge funds too much to make it worth while, why should they think they can do better? Read more

Further reading

Elsewhere on Tuesday,

- The case for open borders with Bryan Caplan.

- Replaying the 30s in slow motion.

- Why the economic gender gap will eventually close.

- David Cameron (from Wikipedia 2100). Read more

The 6am London Cut

The Cut, The Survey: The 6am Cut, Lunch Wrap and Closer emails will soon be relaunched in enhanced form. We want to ensure we’re providing only the most useful data, news and views — taking this short 2 minute survey would help us do that.

Markets: Asia-Pacific trading was downbeat as investors awaited key events later this week, including a monetary policy update from the US Federal Reserve. In Hong Kong, the morning session was cancelled due to Typhoon Kalmaegi, but trading is to resume in the afternoon following the lowering of the No. 8 storm signal. Futures indicate a slight uptick in the Hang Seng Index, after it slipped 1 per cent to a five-week low on Monday. (FT’s Global Markets OverviewRead more

This is BABA. When’s the crash?

This of course is Alibaba, the Cayman e-commerce site. Click the image above for the SEC filing; click the image below for the corporate structure. Read more