Markets Live: Wednesday, 24th September, 2014

Live markets commentary from 

Tech bubble or no tech bubble?

Last Thursday the below snapshot of techies panhandling for funding on the side of the street hit Valley Wag:

This came a few days after the WSJ reported that Bill Gurley, the Benchmark Capital investor who backed Snapchat and Uber warned that in Silicon Valley these days “no one’s fearful, everyone’s greedy, and it will eventually end.” Read more

The (early) Lunch Wrap

Vodafone to invest for growth || German confidence drops || Fonterra flags slowing milk demand || Global repository a dream, says Isda || MPS recalled to debate bombs in Iraq || Samsung shifts software engineers || Stocks down Read more

Coal India, winning by default

The Coalgate cancellation verdict is in.

India’s Supreme Court has decided to go ahead and annul all of the 218 coal licences handed out to businesses over the last two decades, bar a few belonging to state-backed companies.

Sucks for the private players on the receiving end (Jindal is off some 11 per cent at pixel) but apparently a win for Coal India:

It couldn’t have happened to a nicer behemoth.  Read more

The consensus as contrarian

Here’s a neat idea from the Morgan Stanley equity strategy team.

The consensus of fund managers is normally right, in that when most people want to own something it is probably worth owning. Normally being the operative word here, as when markets turn from boom to bust, or vice versa, that consensus becomes very wrong. Hence the common desire to make a reputation as the heroic contrarian who gets it right.

What Krupa Patel and co have done is to look at the performance of european equity funds over time to see if that might help identify the all important turning points. Unfortunately, it turns out not to be much use for market direction, but it may be useful in spotting more subtle changes in the popularity of investment styles, collectives shift from value to growth, for instance. Read more

Further reading

Elsewhere on Wednesday,

- Larry Ellison bought an Hawaiian island for “the satisfaction one day of having made the place work.”

- Handwriting, it seems, is the next Turing Test.

- The rule of law is vastly underpriced by those who benefit most. 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 equities outside of China were subdued following a third day of losses in the US, while Hong Kong and Shanghai stocks rose modestly. The MSCI Asia Pacific index lost 0.2 per cent, placing the regional barometer on track to close at its lowest since June. In Greater China equities were up, a day after state media reported that The People’s Bank of China planned to widen the definition of “first-time mortgage”, enabling borrowers with no outstanding home loans to qualify for interest rate discounts. (FT’s Global Markets OverviewRead more

The Closer


- Brad Delong grapples with the puzzle of how to measure potential output Read more

Fix housing finance, fix the economy?

The vast majority of US mortgages made since the crisis have been guaranteed and securitised by government agencies, while many of the resulting bonds have been purchased by the Federal Reserve and will probably be held to maturity. For better or worse, the US residential lending market has effectively been socialised.

That’s the context for an important piece in today’ FT from former Alphavillain Tracy Alloway on the US government’s attempts to revivify private-label mortgage securitisation. Apparently the Treasury department is unhappy with the current situation:

Authorities are having to walk a fine line between encouraging private capital back into the mortgage market while ensuring availability of credit to less-than-pristine borrowers and simultaneously avoiding a repeat of the subprime bubble that brought the financial system to its knees in 2008…Sales of private-label MBS total just $4.5bn so far this year, compared with $17bn sold last year. Some $726bn worth of private-label MBS was sold in 2007, at the height of the subprime mortgage bubble.

 Read more

Anticipating the quantum computing risk

Last week we attended the SINET conference on cyber-security innovation.

One discussion we didn’t get the chance to follow up on at the time, but which we think is worth coming back to, related to the speed of technological development, and how the invention of quantum computing systems and artificial intelligence could soon pose a serious risk to global cyber defences.

James Mawson, editor-in-chief of Global Government Venturing, wrapped up the key points nicely in an editorial (our emphasis):

The speed of technology change makes the challenge of security an issue. Michael Trevett, senior information risk owner at the UK government’s Cabinet Office, in a networking lunch on risk management in a world of fast-paced technological change, posed a series of questions about how organisations could cope with the speed of change. If technology improves so rapidly, identifying what is important and protecting that rather than everything might be helpful, he said.

 Read more

Peace at last for Prot?

The reference is to Baudouin Prot, who is clearly departing BNP Paribas, where he stepped up from chief executive to chairman three years ago. It gives us a chance to re-share this…

 Read more

Bitcoin business model too good to be true…proves to be too good to be true

After days of speculation, Ars Technica has finally provided confirmation that the business model everyone in the finance world (not suffering from the Dunning Kruger effect) knew to be fantastical was in fact…fantastical.

For more on the greed dynamics that drive perfectly reasonable people to hand over hard-earned fiat cash to strange unregulated companies (with no track record) which promise to use that cash to handcraft depreciating money-printing machines, see our previous post here.

Safe to say, however, that if your business depends on collecting other people’s money to build money-printing devices that depreciate over time, the temptation to use those machines for yourself, rather than to deliver them to customers, may prove rather hard to resist. Read more

Let there be bubbles!

Citi’s Matt King has jumped on the secular stagnation bandwagon with a really nifty collection of charts that ties the whole story of how we got to this point together.

He starts off with the capex issue, noting that despite the cyclical recovery corporates don’t seem to be investing all that much. In fact, according to King, declining capex may be a key aspect of secular decline, which he suggests began in advanced economies and is now spreading to emerging markets as well.

 Read more

Markets Live: Tuesday, 23rd September, 2014

Live markets commentary from 

The (early) Lunch Wrap

Good morning New York,


India: A finite balance

For those who don’t know, India is a big, extremely uneven, place. From HSBC (with our emphasis):

India is a federation, with the central and state governments having both separate and shared responsibilities. While central government policies and transfers shape state policy agendas, states still have a relatively high degree of autonomy. As a result, state policies vary greatly.

The rise of India can be seen in each state, but in some more than others. Between the 1990s and 2000s a handful saw average growth rates jump significantly – Uttarakhand in the north (8.5ppts) and Bihar (5.1ppts), Sikkim (8.4ppts) and Nagaland (4.7ppts) in the east.

 Read more

Further reading

Elsewhere on Tuesday,

- ‘They don’t want moderate Uighurs’.

- Alibaba could buy Yahoo for free.

- Entrepreneurs not having nearly as much fun, or making nearly as much money, as you might think. 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: A first look at China manufacturing conditions in September suggested some expansion, bringing relief to markets in China and Australia. HSBC’s “flash” purchasing managers index gave a reading of 50.5, up from 50.2 in August. Economists were on average anticipating a figure of 50.0, with several expecting contraction. Australia’s mining sector halved a 1.5 per cent loss to 0.7 per cent, but it remains in decline after iron ore, a key export, extended its year-to-date price decline overnight to more than 40 per cent. Japanese markets were closed for a public holiday. (FT’s Global Markets OverviewRead more

The Closer


- There’s more than one kind of credibility.  Read more

Tesco sees you coming

For those who thought Tesco was just an ordinary grocer….

In reality, thanks to the data-gathering power of the clubcard, big data analytics, and an expanding global footprint that provides major leverage with suppliers, Tesco has become a financial trading/commodities behemoth with an edge over any banking commodity trading division thanks to the data it gleans from its customers.

Let’s just say, if the average commodity trading desk had the consumption info and warehouses of Tesco at its disposal it too would be keen to give away points to even out mismatches in supply and demand. Read more

Tesco’s off-balance sheet wheeze, courtesy of Goldman Sachs

This is not new, but bears revisiting, given recent events.

Between 2009 and 2013, as part of its sale and leaseback plan, Tesco used a series of six special purpose vehicles to issue close to £4bn worth of property bonds. Structured with the help of Goldman Sachs, the programme even won Tesco an award — Risk Magazine’s 2010 Corporate risk manager of the year.

But Nigel Stevenson, a former M&A banker at Kleinworts who now runs his own research shop, reckons the effect of this off-balance sheet financing has been to artificially reduce Tesco’s net debt by around £2bn.  Read more

How to (further) spook a grocer, HSBC edition

With one, throwaway line… right at the end of a four-paragraph research note…

Many issues remain unanswered and the possibility of a rescue rights issue should not be ignored.

That’s from HSBC’s David McCarthy.

While we rather doubt that a cash call could be anywhere near to top of Tesco’s to-do list right now, just a whisper of those two words around the London market was enough to send shares in Tesco sharply lower once more (low of 200 at pixel time):

 Read more

Seeking customers for Plus500

The UK’s Financial Conduct Authority has taken an interest in the way Plus500 recruits customers, according to a story in The Times on Monday.

Peers of the Haifa, Israel, based contract for difference company don’t like the way Plus500 does business, you see. We pointed to some oddities in third party traffic stats for Plus500 in August, as well as some of the more aggressive aspects of the way in which customers are recruited, and now this:

The financial regulator launched its review after rival CFD and spread-betting companies raised concerns about how Plus500 acquired its customers.

 Read more

Of Tesco value points and returns

As already noted, the sharp plunge in Tesco’s share price on Monday following news of its profit overstatement comes with just a hint of accounting irregularity at the UK’s largest supermarket chain.

What we couldn’t help but notice, however, is the interesting array of warning signals that have been gathering at the grocer for years, and their similarity to the sort of concerns that today are being readily dismissed by investors when it comes to value debates elsewhere.

In other words, to what degree has Tesco, an omnipresent retail brand in Britain, been overly dependent on the sort of strategy typically deployed by so-called yieldcos? A.k.a the tendency to dazzle shareholders with earnings per share, while hoping to divert investors’ eyes from a diminishing overall return on capital employed. Something that tends, by the way, to be forgiven or ignored, so long as the stock price itself keeps going up. Read more

Markets Live: Monday, 22nd September, 2014

Live markets commentary from 

The (early) Lunch Wrap

Tesco reveals it overstated first-half results by £250m || British Land’s ‘super-prime’ penthouse breaks sales record || Aldermore Bank plans October London offering || China’s war on graft leads to drop in outbound investment || Siemens buys US oil services group Dresser-Rand for $7.6bn || Scots to get more powers regardless of English devolution talks || Blackstone to pull out of Russia || Alibaba boosts IPO size to world record $25bn || Markets Read more

The Tesco value range

So, feeling gutsy, you assume that Tesco is too big and solid to go bust. You remember the Ahold accounting problems that blew up the Dutch grocer a decade ago, but are willing to gamble whatever happened at the UK’s biggest retailer is not terminal.

When, then, do you buy? Read more

Tesco: Every little helped?

A £250m profit overstatement will do that to you… Read more

Further reading

Elsewhere on Monday,

- The political economy of a universal basic income.

- What if counterfactuals never existed?

- That referendum was fun. Shall we do it again?

- Xi who must be obeyed.  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 equities began the new week on a sour note, with all major indices in the red after key commodity prices fell and momentum in US markets stalled on Friday. (FT’s Global Markets OverviewRead more