Ackman and the 100 Club

Bill Ackman’s presentation in December 2012 was an attempt to simultaneously teach the world what a pyramid scheme looks like and explain why he thinks Herbalife is a such a diabolic endeavour. What he delivered on Tuesday in New York was very different.

In a presentation targeted squarely at his critics, Mr Ackman attempted to explain how Herbalife works in practice. Drawing on work by undercover teams in several countries, he made the case for how the company has adapted the pyramid scheme model to draw in recruits from the world’s poor. Read more

On Russian sanctions and Belgian beer…

Given that Russian subjects are reportedly being force fed a diet of Putin-esque mis-information over the downing of Malaysia Airlines Flight 17, it seems worth noting what strategists employed by Russian investment banks are saying about the threat of deeper sanctions against Russia.

Here’s Charlie Robertson, global chief economist at Renaissance Capital (emphasis ours)… Read more

A Herbalife Pre-response

Pershing Square, the hedge fund dedicated to the destruction of Herbalife for truth, justice and a tidy profit, will hold a presentation on the subject of Nutrition Clubs run by the multi-level marketing company shortly on Tuesday.

In advance of that Herbalife has released a summary of its own research, a report prepared by a former FTC advisor on the company’s business model. Walter H. A. Vandaele of Navigant Economics:

assessed whether Herbalife’s operations appropriately are classified as a beneficial, legitimate Multi-Level Marketing (“MLM”) firm.

Spoiler: it is legitimate. 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

Exorbitant privilege, meet pari passu

With less than a fortnight until Argentina risks defaulting on its restructured debt, there will be another hearing in the pari passu saga later on Tuesday. After a look at Argentina’s position, now for what Judge Griesa’s hearing will focus on — restructured bondholders who argue that he has no jurisdiction over them…

Notably, local-law restructured bondholders. Read more

The RUFO persecution complex

“Madmen in authority, who hear voices in the air,” Keynes wrote at the end of the General Theory, “are distilling their frenzy from some academic scribbler of a few years back.”

In Argentina, the scribblers are sovereign bond contract draughtsmen. Read more

Markets Live: Tuesday, 22nd July, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Apple eyes return to glory days of $100 share price || US Senate alleges hedge fund and banks avoided $6bn tax bill || Royal Mail struggles to deliver as competition for parcels grows || Credit Suisse quits commodities trading and trims investment bank || Saudi stock market to open to foreigners || Barclays ‘dark pool’ trades dry up after high-frequency suit in US || Markets 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.

——

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

In defence of cows as safe assets

You’ll remember this from last year, we’re sure:

Our main finding is that, on average, [rural Indian] households earn negative returns on their investments in cows and buffaloes if labor is valued at market wages: we estimate average returns of negative 64% and negative 39% for cows and buffaloes respectively. If we value the household’s own labor at zero, estimated average returns increase, to negative 6% for cows and positive 13% for buffaloes… if cows and buffaloes earn such low, even negative, economic returns, why would rural Indian households continue to invest in them?

That, from Anagol, Etang and Karlan, led to a host of speculation about various economic and cultural factors which might explain India’s ability to slide past the “central tenets of capitalism”… h/t’s to the Onion all round. Read more

Further reading

Elsewhere on Tuesday,

- Let them eat cosmopolitanism.

- Russia: not, in reality, as big as it appears.

- Hound Putin not the minigarchs of Belgravia.

- Fiscal deceit and privatising the UK’s student loan book. Read more

The 6am London Cut

Markets: Asian investors brushed aside geopolitical tensions from Ukraine and Gaza, with equities broadly higher across the region. The advances came in spite of a weak session on Wall Street and little fresh news from the region. The S&P 500 ended 0.2 per cent lower in New York and the CBOE Vix volatility index rose 6.2 per cent. (FT’s Global Markets OverviewRead more

The Closer

FURTHER FURTHER READING

- Are labor markets exploitativeRead more

Imminent collapse of gigantic fraud promised (by short seller)

Bill Ackman, who will be making a new Herbalife presentation on Tuesday at 10am EST in New York, has given CNBC a small taste in advance. Well, by taste we mean he predicts ithe company’s rapid and imminent exposure as a fraud.

 Read more

One in four lose some more

The cover of FTfm features some tough Monday morning reading for professionals paid to help investors pick hedge funds:

Roughly a quarter of all hedge funds tracked by Preqin have posted negative returns year to date, though the industry is up 3.2 per cent overall.

 

One in four is pretty bad for an industry with aspirations to asset class status, when the world has largely been calm and markets positive. Indeed, hedge fund managers are braced for their worst year since 2008. Read more

Markets Live: Monday, 21st July, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Good morning, New York,

FT ALPHAVILLE Read more

Flight to a semblance of quality, China property edition

Today in Chinese efforts to shore up the property market, from Bloomberg:

China will revive mortgage-backed debt sales this week after a six-year hiatus, as the government extends help to homebuyers in a flagging property market.

Postal Savings Bank of China Co., which has 39,000 branches in the country, plans to sell 6.8 billion yuan ($1.1 billion) of the notes backed by residential mortgages tomorrow, according to a July 15 statement on the website of Chinabond. The last such security in the nation was sold by China Construction Bank Co. in 2007, Bloomberg-compiled data show.

And from Nomura: 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

Further reading

Elsewhere on Monday,

- Alibaba’s IPO and the scions of Chinese leaders.

- “The purpose of investing… is not to die poor.

- The Fed’s intervention in biotech and internet stocks. Read more

The 6am London Cut

Markets: “Asian stocks rose, joining a global rebound as better U.S. earnings offset the downing of a passenger jet in Ukraine and Israel’s invasion of Gaza. Emerging-market currencies climbed while corn fell to the lowest since 2010. The MSCI Asia Pacific excluding Japan Index advanced 0.3 percent as of 11:44 a.m. in Hong Kong, with three stocks rising for every two that fell. Futures on the Standard & Poor’s 500 Index (SPX) were little changed after the U.S. gauge climbed from its biggest loss in three months. Indonesia’s currency added 0.4 percent versus the dollar before the result of presidential elections is announced. Corn slumped 1.3 percent on U.S. production. Natural gas slid 1.9 percent.” (BloombergRead more

Inverting AbbVie into ǝıVqqA

Over on Lex this week we’ve been pondering the finer points of what shareholders get out of tax inversions.

So… from the text of AbbVie’s planned £32bn merger with Shire, announced on FridayRead more

Markets Live returns on Monday

Full ML service, with Bryce Elder and Paul Murphy, will be resumed after the weekend.

In the meantime, keep an eye here for a promised AbbVie/Shire infographic.

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

Further reading

Elsewhere on Friday,

- We get the fables we deserve: the war for Claridges.

- Do patents stifle cumulative innovation?

- Bridges to somewhere.

- A curious paucity of caliphatesRead more

The 6am London Cut

Markets: Heightened geopolitical tensions sent investors scurrying for safe havens. Overnight, the S&P 500 fell by 1.2 per cent, its biggest daily loss since April, while the Vix rose 32 per cent, spiking the most since April 2013. The price of WTI crude oil climbed 2 per cent. Haven assets rallied overnight, with the price of gold jumping $20 – or 1.5 per cent – before moderating by $3.50 in early Asian trading to $1,315 a troy ounce. (FT’s Global Markets OverviewRead more

Bitcoin, meet Lawsky’s BitLicense

This how the Bitcoin regulator comes, not with a bang but with an AMA.

In accordance with the New York State Administrative Procedures Act (SAPA), the proposed DFS rules for virtual currency firms will be published in the New York State Register’s July 23, 2014 edition, which begins a 45-day public comment period. After that public comment period, the rules are subject to additional review and revision based on that public feedback before DFS finalizes them.

Additionally, DFS is today immediately publishing a copy of the regulations on the website Reddit. Earlier this year, Superintendent Lawsky hosted an “Ask Me Anything” forum on Reddit about DFS’ work on virtual currency regulation, which generated more than 1,200 public comments. Links to the proposed rules are also being tweeted out from the DFS Twitter handle (@NYDFS) and Superintendent Lawsky’s Twitter handle (@BenLawsky).

 Read more

Money Supply: White House on Labour Participation

The White House has joined the debate about declining labour force participation with an excellent report from the Council of Economic Advisers. (The fingerprints of Harvard’s James Stock are in evidence in some punctilious time-series econometrics.)

The CEA reaches similar conclusions to a number of other studies. Most of the decline in labour force participation was demographic, due to an aging population; a modest proportion was due to the recession and its unusual severity. Read more

Because low vol just happens some times

On the search for lost vol, complex systems and the limits of analysis from HSBC:

A curious feature of current conditions is that the explanation for the phenomenon is often taken to be self-evident. It’s caused by QE and low interest rates. It’s caused by lower trading volumes from hedge funds. It’s caused by lower risk appetite (even though risk premia are highly compressed). It’s caused by crisis fatigue and complacency.

 Read more

MoneySupply: Jobs growth is not just a London thing

In an FT.com column today, I highlighted the surprising strength of the UK labour market outside London. This is important, for if London was dominant and overheating, monetary policy might have to tighten too late for London, but too early for the rest of the UK. Fortunately, this is not the case.

But one of the limitations of a column is that, short of boring people to death with written numbers, it is difficult to demonstrate the evidence fully. So here is a chart-based version of the same argument. Read more