Elsewhere on Wednesday,
- Eurosystem QE may indeed be close enough to a free lunch.
- Stagnation and intergenerational justice.
- Pocket money in Toby’s house: “So the ledger looks a bit more like an unregulated Defined Contribution pension scheme with a lot of concentrated counterparty risk than a bank.”
- Inflation = corruption? Xi = Volcker? Read more
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US Fed chairwoman Janet Yellen laid the groundwork for the end of zero interest rates yesterday. She said the labour market had improved and the central bank will start tightening monetary policy when it is “reasonably confident” that inflation will move back to its 2 per cent objective. (FT) Read more
Here’s an arresting chart from CreditSights, which shows the face value of all dollar and euro corporate debt outstanding:
Strangely enough, even as the importance of the output gap measure has been increasing the last few years, informed estimates about it have remained few and far between.
As the IMF explains, that’s because potential output by definition is very difficult to measure because it’s something that can’t be observed directly. Statisticians can only make rough guesses about what it ought to be based on other observable inputs. All this generally makes sourcing unbiased estimates problematic even on a national level, let alone on a global one. It also adds to the controversy of the academic debate regarding the significance of such measures. Read more
We think this means the ECB doesn’t want Greece to end up defaulting.
As Fed Chair Janet Yellen prepares to answer questions from members of the US Senate’s banking committee on Tuesday, understanding the background is vital. Here are some charts presenting alternative measures Wall Street (mostly) hasn’t been looking at.
First, if you’re worrying about the deflation in the eurozone, the US is no different. Eurozone inflation is calculated without taking account of housing costs. Put the US on the same basis by stripping out “imputed rent” (calculated by surveys, complex maths and a finger in the air) and the US has exactly the same deflation problem as Europe. Read more
We all know the story of ‘Vivian’, the prostitute with the archetypal heart of gold who falls for the dashing corporate raider Edward Lewis in the Julia Roberts and Richard Gere 1990 classic Pretty Woman.
A love story which would might never have happened had Mr. Lewis not stumbled into Vivian’s patch on Hollywood Boulevard whilst driving himself home. Read more
From the pen of Yanis Varoufakis, do click through for the full thing.
Live markets commentary from FT.com
From Morgan Stanley’s Asia Pacific team (do click to enlarge):
The bigger the bubble the bigger the debt, but more on that near the bottom. Read more
Elsewhere on Tuesday,
- In defence of can kicking.
- Greece, a less simple macroeconomic guide.
- “It would be weird if the White House put out a fact sheet called “Strengthening Retirement Security by Cracking Down on Active Investing.” And obviously that’s not quite what it’s going for with this paper. But it’s close.”
- How patient is Yellen? Read more
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An emergency Opec meeting will be called if the oil price slips any further, according to Diezani Alison-Madueke, Nigeria’s oil minister and president of Opec. (FT) Read more
About 20 years ago or so, it started becoming fashionable to conclude that the Japanese government’s borrowing costs were going to go up a lot.
Demographic changes were going to dramatically increase the share of retirees dependent on the state for income and healthcare at the same time as the working population — and therefore the tax base — would be shrinking. Add in alleged economic stagnation and the result would be a rapidly widening gap between inflows and outflows. The ratio of government debt to GDP would skyrocket. Read more
Peter Atwater, president of Financial Insyghts, sent FT Alphaville the following comments in response to our post on US inequality last week. We pass them along as a guest post.
As someone who spends his day studying decision making and how changes in our level of confidence alter our preferences, decisions and actions, I find the whole debate over the accuracy of the economic data related to income and wealth inequality very amusing. Once again, our economic brethren (and their related pundits) are missing the forest for the trees. Read more
Nigeria’s oil minister Diezani Alison-Madueke told the Financial Times (and FT Alphaville with them) on Monday she was happy with Opec’s decision to keep production unchanged at last year’s November meeting, a move which had shocked the oil market at the time and prompted an extended rout in the price of oil.
To the oil minister’s mind the decision was a “text-book” manoeuvre, designed to help the cartel stand its ground, defend market share in the face of growing international competition and drive inefficient producers out of the market. This to a large part had been achieved, in her opinion.
“I think it’s quite shrewd really,” she said. “If you cede market share continuously you drive yourself into oblivion.” Read more
Worth noting this, since Arthur Leonard Robert Morton (73), commonly known as “Bob,” has been a fixture at the smaller end of the London stock market for as long as anyone can remember…
This is a public statement of censure by the Panel Executive of Mr Bob Morton for his failure to make an offer under Rule 9 of the Takeover Code (the “Code”) in compliance with the Code in connection with the purchases of shares in Armour by Mr Morton’s four sons in June and August 2011, and certain associated breaches of Rule 5 and Rule 2.
Does money have value because the state says it’s money, or because the population trusts that it’s money?
It’s a great, perennial question. It’s also really not one Greece wants to find the answer to right now.
The question comes up reading yet another proposal for Greece to use a parallel currency so it can fight with its creditors without leaving the euro. So, coming fresh after Wolfgang Munchau’s appeal for Greek IOU issuance last week, Paul Mason has resuscitated “future tax coin”: Read more
An update lands from Quindell regarding discussions with Slater & Gordon, the Australian listed law group.
Further to its announcement of 22 January 2015, Quindell Plc (AIM: QPP.L) notes the further press speculation and announces that it has extended Slater & Gordon Limited’s (“SGH”) exclusivity period relating to the possible disposal of the professional services division (“PSD”) of the Group to 31 March 2015. Discussions are progressing with SGH and the indicative terms being discussed would imply a significant premium to the Company’s market capitalisation at the close of trading on 20 February 2015. There can be no certainty that these discussions will lead to an offer for, or the disposal of, the PSD. Further announcements will be made, as appropriate, in due course.
Dear shareholder, no promises, but our stock could be worth more than the short-seller battered share price suggests… Read more
Live markets commentary from FT.com
A rumour started floating around last week that a CNPC-Sinopec merger might, just might, be on the cards with the FT suggesting China’s national planners were “openly discussing the idea of mergers in a number of state-dominated industries, following the $26bn marriage of high-speed rail companies China CNR and CSR Corp at the end of last year to create a more formidable competitor in international tenders.”
Fair enough and we’re not saying this definitely won’t happen, stranger things etc, but there’s something really very funny about the idea. Read more
Elsewhere on Monday,
- Old India meets new via the bouncer caste of Delhi.
- Moar human capital: people aren’t androids and how calling anything “capital” at all requires a simplification and abstraction... demonstrated by arm-attached chainsaws, naturally.
- Greece: a simple macroeconomic guide and how the deal was maybe about trust.
- Silk Road a petty version of the very governments it is fleeing. Read more
Lenders will review Greece’s last-ditch economic reform proposals today amid concerns they were too vague to justify a four month extension on its Eur172bn package with the European Commission, European Central Bank and the International Monetary Fund. The plans have exposed fractures within the ruling Syriza party’s ranks, with one veteran politician saying they did not change the substance of the programme and was akin to “renaming fish as meat”. (FT)
In the news Read more
The straightforward ranking of US states by personal income per person has Washington DC, Connecticut, Massachusetts, New Jersey, North Dakota, Maryland, and New York on top, and Mississippi, Idaho, South Carolina, West Virginia, Utah, Arkansas, and Kentucky on the bottom.
With the exception of Utah, which has the sixth-highest median household income in the country, none of this should be terribly surprising. (We suspect the discrepancy can be explained by the large size of the typical Utah household.)
Among metro areas, it similarly shouldn’t be surprising that the oil town of Midland, TX tops the list, followed by the hedge fund mecca of greater Stamford, CT, followed by Silicon Valley and San Francisco. The lowest-income metro areas are mostly populated by towns and cities along the Mexican border, Indian reservations, and particularly deprived pockets of the old Confederacy.
But the problem with these straightforward rankings is that they ignore the wide variation in living costs across the country. Someone who wanted to buy a modern 1-bedroom apartment in Queens, NY, would have to pay far more than someone who wanted to buy a 4-bedroom house in a nice area of Chicago, for example. Read more
The issue of whether US inequality has climbed since the recession of 2008 has been relitigated this week. A short analysis by Stephen Rose claimed that income inequality had actually fallen, assigning the credit to public policy.
David Leonhardt of the New York Times discussed Rose’s findings, followed by further analyses and critiques from Ben Walsh and Nick Bunker. I’ll present the findings first before adding my own thoughts at the end. Read more
This is Mary Berry. Harmless, innocent, loveable Mary Berry.
Who in the world would want to displace her from her new found perch as Britain’s favourite home-cooking meister? Read more
Compare (a press release from Daniel Pollack, a court-appointed negotiator, on an Elliott offer to talk to Argentina in the pari passu mess):
The invitation by the Bondholders was without pre-conditions and offered the possibility to the Government of Argentina of a settlement without any present payment of cash, details to be negotiated. That invitation was transmitted by me to Counsel for the Government of Argentina, Cleary Gottlieb, on January 30, with follow-up calls by me over the next two weeks. The Government of Argentina has neither accepted nor otherwise responded to the invitation by the Bondholders. Read more
At what point does running out of space to keep all the stuff you want to hold on to stop being prudent risk management and become a compulsive hoarding disorder instead?
It’s a question worth asking in the context of oil surpluses because, according to Citi’s commodity research team, US capacity to store excess crude oil may be about to run out of space. Read more
Fair enough if you want to talk about QE and devaluation but the recently released FOMC minutes really don’t seem to be the place to start building your argument for a Fed jumping into the currency wars.
Bringing us the opposite view, here’s some Bloomberg: Read more
Zoltan Pozsar may have swapped his day job as senior adviser to the U.S. Department of the Treasury to that of a director in Credit Suisse’ global strategy and research department, but that hasn’t stopped him pursuing his favourite subject area: the plumbing of the shadow banking system.
Readers may remember that Pozsar’s last report set out the compelling theory of money hierarchy.
Pozsar is back now with a follow-up to that report, no less compelling, entitled Levered Betas and Wholesale Funding in the Context of Secular Stagnation in which he expands on many of the original themes.
The key proposition this time is that real money investors are being forced to plug asset-liability mismatches — brought on by shifting demographics — with leveraged bond portfolio positions, because this allows them to generate equity-like returns with bond-portfolio levels of volatility. Read more
Another record from the last boom bites the dust — the Shiller PE surpassed its 2007 peak on Thursday, as tweeted by the good (Nobel winning) professor.
US stock investors pay 28 years worth of long run corporate earnings to participate in the market, a greater stretch of time, we suspect, than most professional stock market investor careers. Read more