Ackman says ICK to ETFs

Like his nemesis Carl Icahn*, Bill Ackman doesn’t like ETFs very much.

In his latest annual letter to investors – where he apologised for losing a lot of their money in 2015 – the head of Pershing Square Capital Management also devoted several sections to blasting the wave towards passive investment strategies. Read more

Why the tables have turned for MLPs

When it comes to the current bonfire of the MLPs, it’s easy to blame the carnage on the end of the commodity cycle, washing one’s hands entirely of the role played by the actual structure and promises of the products themselves.

But that would not be fair. These are and always have been poorly-thought-out high-risk products, with the end of the commodity cycle simply suspending the endless capital inflows which had hitherto disguised the unsustainable nature of the underlying investments in a no-growth environment. Read more

Markets Live: Wednesday, 27th January, 2016

Live markets commentary from 

The Plaza Accord, then and *cough* now?

Which leads us, naturally, to a partial Fed transcript from August 1985:  Read more

What is Hexagon?

A competition: describe in 20 words or less Hexagon AB, the Swedish listed technology group run by Ola Rollén, which has a market capitalisation of €11bn.

To help, here’s what the start of the 2014 annual report has to say (or click on the image for the whole thing).

MISSION: Hexagon is dedicated to delivering actionable information through information technologies that enable customers to shape smart change across diverse business and industry landscapes.

 Read more

FT Opening Quote

It’s a Scottish lament for investors this morning as Aberdeen Asset Management reports another quarter of major outflows and Royal Bank of Scotland announces bilions in charges. 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,

- Oil and stocks, correlations that work until they don’t.

- Robert J Gordon on his own pessimism.

- Krugman on Potemkin ideologies and the possibility that the Fed fumbled.

- @munilass on Flint’s poisoned water.

- Soros hurts China’s feelings.  Read more

FirstFT – The end of the iPhone growth era, explaining the Zika virus and the restaurant keeping 27,000 people waiting

Apple signalled that its flagship smartphone would suffer its first ever decline in sales in the current quarter Read more

High yield bond bears: flee to the hills

(From Gunshow, click through for full comic)

One stereotype of equity investors is that they stay seated and calm long after bond investors have hit the fire alarm and exited the building. It is perhaps a little unfair today, given that everyone is panicking. But two bearish high yield credit strategy notes this week suggest that evacuating one building may not be enough and that it’s perhaps time to flee the entire city and head for the hills. Read more

“Major AMAZE” and other insights from Metro Bank’s chairman

Metro Bank founder and chairman Vernon Hill

Metro Bank’s Vernon Hill is a man of many talents. As well as bank building, he has turned his skills to writing and in 2012 he imparted the secret behind his success – sans any mention of his regulatory trouble in the US — in a book, “FANS! Not customers”.

 Read more

Markets Live borked (updated)

We have a severe problem with our ML comments system. We can’t restart Tuesday’s session of Markets Live until that has been looked into.

The tech team are on the case, but probably best you go make yourself a cup of tea. Read more

FT Opening Quote

Dixons Carphone has raised its profits guidance, Tesco can expect censure for its treatment of suppliers, Chinese markets have slumped again. 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,

- Shkreli is taking on Congress and Ghostface Killah. Or “Ghostface (as he is generally known on second reference).

- Unintentionally hilarious Davos quotes.

- Trump “is posing a new question: to what extent should the G.O.P. be the advocates for those struggling in the modern economy?”

- Tyrone, Cowen’s evil twin brother, on why Democrats should vote Trump.

- Is Cruz a jerk?  Read more

FirstFT – Talk of Fed ‘error’ grows, the world’s most unaffordable property and why you shouldn’t fear robots

Fund managers are now wondering whether the US central bank’s December rate hike was a policy error Read more

DTCC cuts through the blockchain hype

The Sorcerer’s Apprentice is the story of a sorcerer who learns the hard way that it’s probably not wise to leave a young apprentice in charge of your workshop.

Rather than getting on with tasks set by his master, the apprentice grows tired of having to fetch water by pail. To ease his burden, he enchants a broom to do the work for him, albeit with magic he doesn’t fully understand yet. The problem is, the broom ends up being so effective it floods the entire workshop. When he tries to intervene by splitting the broom with an axe, the Apprentice ends up with a decentralised liquidity broomchain nightmare he can’t control. Each piece becomes a whole new broom and begins to fetch water independently, now at twice the speed.

When the master sorcerer gets back he sees the chaos and unleashes his own superior magic to bring things under control.

The moral of the story is that a little knowledge can be a dangerous thing and, of course, to be careful what you wish for. Read more

Davos clickbait is getting worse

Henry Blodget set a high bar in low-grade blogging five years back when visiting the WEF’s annual Alpine outing: he took photos of each bit of junk in his official Davos bag. It made for a 22-page slide show, bringing in 124,481 reader page views — the advertising on which will have helped to pay for his trip.

At Davos this year it fell to Quartz to come up with a fresh way to waste readers’ time, promising this:

We brought an antenna to Davos to track private air travel, and here’s what we found

 Read more

Petrodollars are eurodollars, and eurodollar base money is shrinking

The world is waking up to the petrodollar reversal issue… as well as its significant liquidity impact on EM countries (i.e. NOT oil exporters, but importers). This, as we’ve explained before, is down to the contraction of petrodollar base money in the global monetary system, which acted as a sort of unofficial float for a market-controlled an international fractional reserve system.

There’s also a significant feedback loop connected to what we’ve previously described as the petrodollar vendor financing circle, wherein those who are long petrodollars extend duration by investing them in countries which redeploy them on growth projects, which create demand for commodities. Global growth-based commodity consumption, in this way, is underpinned by the availability of recycled petrodollars. Read more

Markets Live: Monday, 25th January, 2016

Live markets commentary from 

Falling oil prices: good for producers, bad for importers?

The intuitive impact of falling oil prices is that it’s a hammer blow for producers and a gift for countries that are net importers. There is obviously some truth in this. Saudi Arabia, for example, is having to take drastic action to cut its fiscal deficit, while Venezuela is in crisis, with chronic shortages of basic everyday goods.

But as we have written before, falling oil prices also impose discipline on sovereigns who were previously able to use a torrent of petrodollars to cover up economic, political and social fractures. And conversely for emerging market importers, the benefit of lower oil costs is likely far outweighed by the broader carnage created by a collapsing energy industry, reversing petrodollar flows and the decreasing appetite for risky EM assets. Read more

When Novo Banco came to Davos

Izzy is trying to ban any references to Davos on AV from today but we thought we might try to sneak one in under the wire.

This is from Morgan Stanley’s Huw Van Steenis as part of his “What I learned at Davos” note, with our emphasis:

But whilst I saw some progress on Capital Markets Union under, I was struck how much the teething pains of the Banking Union (notably the apparent policy missteps at Novo Banco but also some of the recent issues in Italy) has materially hit the confidence of international investors in some peripheral investments.

 Read more

Further, further Pettis on China’s new “supply-side” reforms

This by Michael Pettis — on Beijing’s belated realisation that it needs to change its definition and reality of reform because the attempts of the last few years look to have failed — is very worth your time this morning.

We still consider Pettis’ framework to be the best way of looking at the Chinese economy and the challenges it faces. Here he runs through the recent shifts in the RMB, the fear that other countries might see that shift as a spur to their own devaluations, the failure of rebalancing so far, what a successful rebalancing must entail and, most importantly, the hope that China’s latest push for “supply-side reforms” will be in the right direction.

It’s pretty thorough. Read more

Further reading

Elsewhere on Monday,

- The “story is not one of political ideology or the corridors of power but of empty bedrooms and broken homes created by Xi’s intensifying assault on anyone his regime deems a threat.”

- The secret history of GM’s China bailout.

- Behind Trump’s attack ads. Spoiler, they’re his work and done “with little research or extensive prep work.”

- Meet Peter Tuchman, the most photographed trader on Wall St.

- Has tech killed the noble bank heist?  Read more

FirstFT – Iran pact bears fruit, Apple’s iPhone problem and Kickstarter’s biggest failure

Tehran plans to sign a contract with Airbus to buy 114 aircraft Read more

Alphachat: cyber-security, Detroit vs Silicon Valley, and markets mayhem

You’ll have a chance to win a Kindle by recommending ways to improve Alphachat at Help us out! Read more

A month of failed rallies in Anglo American

Anyone practicing their knife-catching skills with this particular miner will have replaced their hands with ribbons. Here’s Anglo American of late…

 Read more

Capital flow reversals and the Swiss

There’s been a recurring phenomenon at the World Economic Forum in Davos this week. If the global elite have finally found their way to a particular narrative or viewpoint — this year’s core fascinations being tech disruption, Europe’s existential crisis, the sell-off in markets and commodities and Chinese devaluations — you can be darn sure those topics are peaking.

The uncomfortable undertone to the above is that almost no-one was worrying about any of the above this time last year.

Of particular interest in that context: Why did the global elite miss probably the most significant capital reversal flow story of our time? And its effect on oil producer states and emerging markets? Read more

Guest post: Best practices to resolve Argentina’s debt dispute

Charles Blitzer, an economist, former senior IMF staffer, and expert on sovereign debt management and restructuring, says that talks between Argentina and its holdouts should start with signing a non-disclosure agreement.

_____________ Read more

Markets Live: Friday, 22nd January, 2016

Live markets commentary from 

China and traditional industrialisation-led development: the world was not enough

Earlier this month at the annual meetings of the American Economic Association in San Francisco, Justin Yifu Lin argued that China’s growth slowdown has been mainly the result of external and cyclical factors rather than structural transformation.

His case rests on the idea that other East Asian and emerging-market economies had also decelerated in recent years, some of which — Hong Kong, Singapore, Taiwan — do not have the same structural problems that are thought to plague China’s economy. Furthermore, Brazil’s decline has been much sharper than China’s, while India in 2012 also slowed dramatically before rebounding; China can rebound too. Read more

Further reading

Elsewhere on Friday,

- “Here’s how to survive the coming crash…”

- The hand gestures of Davos.

- Rebranding the Kochs.

- James Montier’s latest on market myths: Debts, deficits and delusions.

- Still just a few questions left for Draghi to answer.  Read more