FirstFT — China stock market rout resumes, Biden’s bid and Canadian English

Chinese equities fell more than 8 per cent in early trading Read more

More on questioning China’s weirdly stable unemployment rate

Some thought-provoking paragraphs on China this Friday from Stephen Lewis, chief economist, at ADM Investor Services International, regarding the reliability of the country’s jobs data. He starts with this useful reminder:

Of the ten conflicts in human history with the highest death tolls, five were civil wars in China. Chief among these was the Three Kingdoms War (184-280 CE) when up to 40 million are reckoned to have perished in military operations and from the destructive consequences of warfare. This is an enormous number, considering that the global population at that time is unlikely to have exceeded 400 million. More recently, the Taiping Rebellion (1850-1864) claimed more than 20 million lives while the civil war that brought the Communist Party to power in 1949 resulted in 7.5 million deaths, over and above the 20 million estimated to have been killed in the roughly contemporary Japanese invasion. This is not the history we were taught at school but Chinese leaders are well aware of these facts. When disorder breaks out in China, things turn very nasty indeed. It is best, therefore, to avoid disorder at almost any cost.

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Cultural learnings of stock market valuation for make benefit glorious commodity trader Glencore

When people start worrying about commodity traders in bear markets, the commodity traders themselves tend to reassure the market with comments like: “Ha! This clearly demonstrates you don’t understand our business at all. Lower commodity prices are GRRREAT for us. They liberate our balance sheet on a working capital basis and allow us to focus on our real value add, which is… spread trading.”

Though, if you’re Glencore, you tweak the comment so it goes something like:

“Prices are still not making sense where they are … it’s the funds driving it where it is today, not the actual demand,” Mr Glasenberg argued. “They believe demand for commodities is going to fall and continue to fall and that’s their view. Our view is what we see on the physical movement of commodities and it’s not too bad. We see the flows are still pretty strong.”

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Of China’s “dirty peg” and spreading EM pain

Jim Reid at Deutsche assesses the damage so far. As he says, this has something of a taper tantrum feel to it but seperating out China from Fed fear is a tough job even if given “that the odds of a September hike are fading again (32% this morning, down 16% over the last 48 hours)” it seems “China and the impact on EM is the overriding driver”.

With our emphasis:

One of the big problems with China’s FX move is that although they’ve ‘only’ seen a 3% currency fall (in the onshore Yuan) since their announcement last week, others have subsequently followed suit either deliberately or via market [and oil based] pressure. The following countries have seen their currency depreciate at least 4% since last Monday (and using last night’s closing prices): Kazakhstan (leading the way with a huge 26% devaluation following the removal of the trading band), Russia, Ghana, Guinea, Colombia, Belarus, Turkey, Malaysia and Algeria. In fact, if we extended the analysis to include those that have seen at least a 3% depreciation then the number of countries hits 17 and unsurprisingly all sit in the EM bracket.

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Alphachat: the Chinese economy, and the dodgy Flibanserin (fine, the “female Viagra”)

We recorded this podcast on Thursday, August 20th. Alphachat is on iTunes and Stitcher, and to give us feedback you can email us at or call us at 917-551-5012. And here are today’s two topics: Read more

Opening Quote: Beware China’s bemused markets

July 8… now why does that sound significant? [updated with a China victory... of sorts]

Oh yes, that was when the Shanghai index hit its “nadir of 3,507 points” and “when the government announced measures to prop up a market that had collapsed more than 30 per cent in less than a month.”

And oh look. We’re back there again. Well, a bit lower actually: Read more

FirstFT – Greece calls snap elections, three-day weekends and the ‘sixth man’

Prime minister Alexis Tsipras calls for snap elections and asks people to pass judgement on new bailout deal Read more

Further reading

Elsewhere on Friday,

- Musings on Thomas Malthus, the Hellenistic Age, the loyal-spirit great kings of Iran 550-330 BCE, and other topics.

- Are hedge funds fake?

- Finland considering a basic income.

- China’s dodgy credit guarantee firms are very US 2008.

- Dear early stage tech stocks, think you can get to profitability on your final round? Read more

Productivity polarisation in our ‘Modern Times’

About a month ago, Citi’s Disruptive Innovations report revived the debate over the cause of slowing productivity in Western economies.

One insight related to how modern technology encourages smarter distribution rather than outright production growth. You don’t need to produce as many spoons because, well, in the digital age less is more and everyone drinks Soylent. You probably don’t need a big house either, because, hey virtual reality.

But if true, why does it not feel like quality of life is improving in many corners of the developed world? Perhaps there is something more to it. Read more

Solera – PE’s next software buyout?

Shares in Solera Holdings, a provider of software to insurers and car companies, closed at $48 in New York on Wednesday.

That might change soon. A trio of private equity funds are weighing bids for Solera Holdings that would value the company at over $6bn including debt, according to usually well informed people. Read more

Summer thunder [now with answers]

It’s August. Less quiet that usual but still August. Have a quiz.

Courtesy of BofAML’s Michael Hartnett, of the Thundering Word: Read more

What’s the deal with Belgium?

Suppose we told you to think of a country in the euro area with chronically dysfunctional politics, anaemic productivity growth, excessive unit labour costs, and a staggeringly high — and rapidly rising — public debt burden. Oh, and most people retire before the age of 60. Perhaps you think of Italy or Greece.

Then we tell you to think of a country in the euro area that, before 2008, grew faster than average for the bloc, had a huge increase in house prices, an uptick in domestic investment, banks engorging themselves with cheap debt, and a deterioration in its external balance. Maybe you think of Spain or Ireland.

We’re actually describing Belgium, a rump of the former Hapsburg empire stuck between the Netherlands and France. Read more

Opening Quote: Co-Op Bank- still more challenged than challenger

Greece is due to make a payment of €3.2bn to the European Central Bank as part of the  €86bn re-drawn bailout package agreed with eurozone finance ministers, which was approved the the German parliament on Wednesday. 

The Big Read China: Weakened foundations "Why did China decide last week to break the great taboo and devalue its currency when there was no apparent crisis? The answer is that China is already in the midst of its own creeping economic crisis and does not have enough tools to deal with it."
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Kazakhstan and keeping up with Russians

An unspecified number of tenge (not excluding zero) to those who can spot when Kazakhstan decided to let go of its currency band:

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Further reading

Elsewhere on Thursday,

- The creative apocalypse that wasn’t.

- Russia vs the cheese mob.

- Levine line du jour: “I suppose because diversification is not at all bae.”

- China’s building a huge canal in Nicaragua, but we couldn’t find itRead more

FirstFT – Fed ‘approaching’ lift-off, Audi takes on Tesla and missing Nazi gold

Conditions for rate rise are approaching, says the Fed Read more

China: Uber but for countries

A unicorn is a legendary mystical animal with a single spiralling horn that is both highly sought after and impossible to find.

In techland, however, it represents the hunt for something even more elusive: a start-up with the potential to become a multi-billion dollar company on the back of the winner-takes-all monopolistic eco-system superpower effect.

Given that unicorns are supposed to be rare, it’s weird there are so many of them these days. Read more

Finally, some action from the Finanstilsynet…

That’s the Danish financial regulator, of course, which has belatedly closed what had become a European scam-central for listed small-caps.

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DIY private equity

Or, a coda to our recent post on hacking the world’s most expensive asset class.

If investors locking up their money in leveraged buyout funds really could have gotten the same aggregate return all along simply by buying the right, leveraged stocks in the public market — then there’s an interesting implication.

Why isn’t everyone already doing it? Read more

Smoking African Pot

We should know better than to write about a company that currently ranks as the No1 topic of investor bulletin board discussion in the UK, but here goes…

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Pettis explains why the RMB is not fundamentally overvalued

Nobody knows China like Michael Pettis, and his latest post on the RMB doesn’t disappoint.

Before we get to the crux of his argument we should point out that FT Alphaville has long argued that the RMB was probably over rather than under valued, based on its capital account position.

Understandably we were feeling a bit chipper with our analysis following last week’s depreciation, until we read Pettis this morning.

The Beijing-based academic argues convincingly that the RMB is still under valued because there’s a big difference between a technical misvaluation and a fundamental one. Read more

Approaching the acceptance phase of liquidity’s repricing

Do remember that, generally, many people are worried about people being worried about bond market liquidity.

This time we shall kick off with a very good note from Jim Croft at Standard Bank.

First, on why what’s changed is really just the cost of getting your trades done — which is going to anger those coddled folk used to abundant liquidity just being shoveled into their paths — with our emphasis:

In our world it’s the ability to swap a series of highly uncertain future cash flows for a payment two or three days later of hard cash. It’s a pretty cool service when you think about it (and not guaranteed by any bond prospectus that I have read.) But like any service that is provided, it has an associated price. So in my thinking what people really mean when liquidity has got “worse”, is that the price of liquidity has gone up. You can still get most trades done if you are willing to pay the new price.

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Opening Quote: Weaker China takes toll on Glencore

The Big Read Eurozone: The case against ‘cash for reform’"The eurozone establishment has largely internalised the idea that “cash for reform” is necessary to keep the euro together. The most direct challenge to it, from Greece’s Syriza party, was defeated when other countries — most notoriously Germany — made clear they would rather force Greece out of the euro than consider alternatives to offering refinancing in return for control over fiscal and reform policies."

The Short View 
China’s gloom overshadows global outlook"A depressed outlook is being priced into everything from economically-sensitive cyclical stocks in developed countries to the bond market’s long-run inflation expectations and emerging market currencies."
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Further reading

Elsewhere on Wednesday,

- Pettis on the RMB and why market exchange rates don’t always reflect fundamentals.

- On the quantity and quality of Chinese GDP.

- BNY Mellon had some v special interns.

- Amazon and a reminder that there is no right to an upper middle class lifestyle.

- London’s black cabs vs the (uber) tide. Read more

FirstFT – Emerging market exodus, Ukraine on the brink and an exit route for smokers

Nearly $1tn has gushed out of emerging markets in the past 13 months Read more

Someone didn’t read Santiago Principle No. 14…

That would be the Santiago Principles signed up to by sovereign wealth funds in 2008, regarding good governance — including via-a-vis the custodians of SWFs’ often-plentiful assets.

While it was BNY Mellon who paid nearly $15m on Tuesday to settle SEC charges that it handed out internships to the family of a SWF client’s official, in order to retain the fund’s business… Read more

Dear China, we can think of at least one job that needs filling

Wanted: A go-getting, self starter with no appetite for tautology and with a mandate to fully count unemployment in the world’s second largest economy. Must leak to press if not allowed to report findings.


Remember Xi who must keep you employed? The idea that social stability, rather then employment per se, is what the Party really cares about. Remember also how the unemployment stats we and, very possibly, they are working with are a bit rubbish? And that it’s possible the Party will be reacting to problems rather than preempting them?

Well, an attempt by Shuaizhang Feng, Yingyao Hu and Robert Moffitt to add some clarity to China’s dodgy unemployment numbers raises some fresh questions about the Party’s control of the economy. Read more

Why Soylent is a dangerous cult

There is so much wrong with Soylent, the meal replacement slop, it’s hard to know where to begin.

I mean you could start with Rob Rhinehart, the 26 year old boy wonder who “invented” the goo.* He’s got a wonderful habit of saying profoundly annoying things like:

Kitchens are expensive and dirty. This home manufacturing center has been by far the most liberating to eliminate. They are the greediest consumers of power, water, and labor and produce the most noise and garbage of any room. Moreover, they can be made totally unnecessary with a few practical life hacks.

Nevermore will I bumble through endless confusing aisles like a pack-donkey searching for feed while the smell of rotting flesh fills my nostrils and fluorescent lights sear my eyeballs and sappy love songs torture my ears.

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There really isn’t such thing as a policy independent exchange rate anyway

Sensible sentences from Citi’s Buiter et al on China’s valuation shock (with our emphasis):

This decision by the PBOC is a significant event, even if its implications and motivations are not yet fully clear. It appears that the Chinese government has moved from operating a pretty stable peg to something closer to a managed float, raising questions about how strongly it will manage it. As liberalization proceeds, (sterilized) foreign exchange market intervention will effectively only work through signaling and announcement effects. However, ‘domestic’ interest rate policies, credit and other financial and/or fiscal policies are likely to gain strength as well as they affect the ‘market-determined’ exchange rates. As such, monetary policy and exchange rates will work in tandem as there is no such thing as a policy independent exchange rate, regardless of how freely it floats…

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