Further reading

Elsewhere on Thursday,

- Choose your heterodoxy: Farmer vs. Krugman.

- Behavioural econ: it’s about all people being smart some of the time and dumb at other times.

- What caused capitalism?

- Dear Lord… Verizon codename for AOL deal was “Project Hanks”.

- Greece, don’t blame austerity when stagnant exports are the real problemRead more

FirstFT (the new 6am Cut)

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Saudi Arabia claims it has the upper hand in the battle for oil dominance . One of its officials told the FT its strategy of squeezing high-cost rivals by boosting production in order to lower prices is paying off: “There is no doubt about it, the price fall of the last several months has deterred investors away from expensive oil including US shale, deep offshore and heavy oils”. Read more

Another lingering cost of the bubble: weirdly seasonal GDP data?

There’s been much gnashing of teeth in the past few weeks regarding the health of the US economy. The government’s initial estimate GDP growth in the first quarter looked weak on the surface, and private forecasters now expect downward revisions based on unfavourable changes to the trade balance. But, as we noted a few weeks ago, quarterly data are noisy, while the underlying trends are broadly positive.

So it was interesting to read a new note from economists at Barclays (h/t George Pearkes) suggesting that most of the disappointment in the first quarter’s data can be explained by a statistical artifact that disproportionately affects the figures for non-oil construction, exports, and defence procurement. Ever since the start of 2010, spending in these categories has consistently collapsed in the first three months of the year only to rebound in the subsequent nine months. The difference in average annualised growth rates is a whopping 20 percentage points. Read more

The curious incident of the missing super contango in the night-time

A quick post to update readers on an interesting debacle that occurred in the world of oil stock data analysis this week.

Philip Verleger, veteran independent oil analyst, launched a scathing attack on the quality of the EIA’s data on Monday, claiming the agency had been overestimating US output by some 1.6m barrels a day.

The accusations in his note were brutal to say the least:

“The explanation for the mistake indicates a gross dereliction of responsibility on the EIA’s part. Rarely if ever has a US agency charged with collecting data made a miscue of this magnitude. The EIA administrator should be dismissed immediately for gross incompetence.”

 Read more

US telco RAW alert: nTelos targeted by Shentel?

Rumours are reaching FT Alphaville that nTelos, a US regional wireless company, is a takeover target for Shenandoah Telecommunications.

Shenandoah (better known as Shentel) has been putting together a knockout $200m offer for the Virginia-based mobile broadband provider, a nearly 50 per cent premium to Tuesday’s closing value, according to people claiming direct knowledge of the negotiations. A price of around $9.25 a share has been all but agreed, they said, against Tuesday’s close of $6.20. Read more

Bankz in glass houses

From the latest edition of Konzept, Deutsche’s spiffy new monthly magazine:

Much bank reporting has now become so complex it has spiralled out of all control and meaning. Last year’s annual report and accounts for UBS, for example, ran to 868 pages. That is more than a threefold increase on the Swiss bank’s 2006 annual report. What is more, the calculations behind many bank disclosures these days are opaque and mostly useless to an outsider because they are deeply technical. Even professional equity analysts struggle to understand disclosures running across the whole range of banking businesses, from traditional asset and liability management to trading book and operational risk, including different methodologies for valuation, provisioning and so on.

The length of Deutsche’s 2014 annual report? 610 pages.

 Read more

Fear the cheaper

Following up on our volatility has actually been falling post, here’s Alan Ruskin of Deutsche Bank:

The reaction in riskier assets to the recent sell-off in G10 sovereign bonds remains informative. In the relatively illiquid US high yield market, spreads have come in over the past week. Equities have seen some pick-up in volatility, but the VIX at sub 14 is very low relative bond/swaption vol. Gold vol is going nowhere. EM FX would seem to have been very vulnerable O/N and instead most the FX price action seemed to reflect moderate positioning adjustments consistent with limited s/t EM carry exposure, outside the INR. The upshot is most other markets trade with some confidence that the G10 sovereign bond sell-off will not get out of hand.

With the German 10 year bund yield closing higher in 14 of the last 16 sessions, a concentrated pocket of volatility can still be painful for those involved. The outstanding question remains whether sovereign bond market noise is technical and temporary, or the distant but distinct clanging of an alarm. Read more

Markets Live: Wednesday, 13th May, 2015

Live markets commentary from FT.com 

China, when a hot money outflow threatens to become a torrent

I mean, if this is right…

From BNP Paribas’ Richard Iley (with our emphasis):

The release of preliminary data on China’s Q1 balance of payments, while incomplete, nonetheless furnishes us with the hardest evidence yet of the alarming scale of hot money outflows from the mainland.

 Read more

Fed says US wealth inequality hasn’t increased quite as much as you think

Some private equity tycoons may enjoy giving nine-figure sums to their colleges because they had a nice time at reunion the year before, but many of the ultra-rich don’t like flaunting their fortunes. That’s one of many reasons why it’s hard to measure the distribution of wealth.

An innovative way around this problem is to take income tax data on rents, dividends, interest, and proprietors’ income, and then back out the implied asset values based on prevailing yields. When Emmanuel Saez and Gabriel Zucman did this for the US, they concluded that the share of wealth held by the top 0.1 per cent of Americans had increased by about 13 percentage points from its 1950-1980 average by 2013, with most of that increase due to the exceptional rise of the top 0.01 per cent: Read more

FT Opening Quote – Don’t bury Admiral yet

Admiral chief executive Henry Engelhardt says “Don’t bury me yet, guys!”, SABMiller sales and profits lack fizz, Mark Carney speaks at 10.30 on the Bank of England’s quarterly inflation report. FT Opening Quote provides your early City briefing. You can sign up for the email here. Read more

Further reading

Elsewhere on Wednesday,

- Nomura and RBS told a few mortgage fibs.

- Don’t ask what lost, ask what won.

- US lotteries took in $70.1 billion in sales in the 2014 fiscal year — more than was spent on books, video games, and tickets for movies and sporting events combined.

- Why is libertarianism such a target?

- Jobs the robots WILL do: Art expert.  Read more

FirstFT (the new 6am Cut)

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Senate Democrats revolted against President Barack Obama, blocking a Republican-backed bill that would have granted him the necessary “fast track” authority to close a major Pacific trade deal.

The White House played down the defeat as a “procedural snafu”. But it means yet another delay for the mooted Trans-Pacific Partnership with Japan and 10 other Pacific Rim economies.

Are Obama’s efforts to pass the deal worth it? Probably, says Martin Wolf , but the benefits of multilateral deals will be modest and come with risks. “They must not become an alternative to the WTO or an attempt to push China to the margins of trade policy making.” (FT) Read more

How we’ve all been duped into subsidising our employers

Paul Donovan, economist at UBS, is perplexed by cyclically abnormal levels of capital spending relative to borrowing costs in key western economies.

All the more so given that the sluggish capital spending story is also being accompanied by a significant increase in the number of businesses.

Since these two facts don’t logically tally up, what exactly is going on?

One point to consider, Donovan notes on Tuesday, is that capital spending by and large is associated with replacement investment. For new businesses this usually takes the form of start-up capital spending instead. Read more

From $350bn to…

We’ll share this prime piece of pre-nuttiness, if only for those who don’t know what “AOL” is or was.

DULLES, VIRGINIA and NEW YORK, NEW YORK January 10, 2000 – America Online, Inc. [NYSE:AOL] and Time Warner Inc. [NYSE:TWX] today announced a strategic merger of equals to create the world’s first fully integrated media and communications company for the Internet Century in an all-stock combination valued at $350 billion. Read more

This is not the oil rally you’re looking for

Goldman’s commodity analysts are out with their take on last week’s oil price rally, which saw Brent oil trade just shy of $70 per barrel.

But they’re not sold on the idea that the rally has legs, describing it ultimately as self-defeating. Furthemore, they add, the move up to $70 was probably an over-reaction. Read more

This is €1trn less nuts

It took 102 trading days for 10-year Bund yields to rally from 68bp to their all-time low of 7bp on April 20th.

It took just 15 days after that to jump back to 68bp again.

That fact, and many more on our favourite nutty asset, European sovereign debt, via Bank of America’s credit strategists (with our emphasis):

In the volatility of the last week, the backdrop of negative yielding assets in Europe has changed significantly. Higher yields mean fewer negative yields. Chart 5 shows that the peak of negative yielding Eurozone government debt was just over €2.8tr at the end of March. But this has now declined to €2tr. In other words, Europe has “lost” almost €1tr of negative yielding assets in the last month.

 Read more

Markets Live: Tuesday, 12th May, 2015

Live markets commentary from FT.com 

Of negative rates and reserve managers

Might have to pop this at the top, it’s a chart with lots of negative yield stuff on it after all:

Now, as we have said before… friends don’t let friends extrapolate too wildly from the IMF’s COFER data.  Read more

Accretion/Delusion analysis

A Delaware corporate court recently took a dim view of deal analyses that ignore whether the buyer is paying a fair price for the expected cash flows, and only look at whether a company’s earnings will go up or down.

That’s striking, since accretion/dilution analysis has historically been the sine qua non of investor presentations, sell-side research reports, board books, and junior banker job interviews — “hey kid- a high P/E company buys a low P/E company…” (The interview question mostly tests if the future master of the universe read the Vault Guide the night before.)

In last Tuesday’s Inside Business column, I told the story of El Paso Pipeline Partners LP (El Paso MLP), which was rebuked for paying too much for an acquisition. El Paso MLP was a master limited partnership formed by El Paso Corporation to house its midstream assets and take advantage of a potentially lower cost of capital.

 Read more

FT Opening Quote – easyJet first-half profit takes off

EasyJet records a first-half profit – turning round last year’s loss – Just Retirement sales are down 22 per cent and the government has sold down its Lloyds stake. FT Opening Quote provides your early City briefing. You can sign up for the email here.  Read more

Further reading

Elsewhere on Tuesday,

- Folks, interest rates are still very low.

- Felix defends Felix against Barry Ritholtz.

- “Had dissent been allowed, a speech detailing the allegations of corruption during Blatter’s 17-year reign may simply have taken too long.”

- Hersh: Did Obama lie about Osama?

- “Andreessen grinned, appreciating the paradox: the more they paid for Mixpanel—according to Thiel, anyway—the better a deal they’d be getting.”  Read more

FirstFT (the new 6am Cut)

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China’s bourses continued marching higher after the central bank cut rates on Monday to shore up the economy. But other Asian markets slipped down , taking their cue from Wall Street which reversed track after the payrolls report.

The US government bond market suffered its worst sell-off in more than two months as contagion from the European bond rout crossed the Atlantic. US borrowing costs are close to their highest closing levels this year. (FT)

 Read more

Exposing the “If we call it a blockchain, perhaps it won’t be deemed a cartel?” tactic

Why are the great and the good of the banking and financial services world suddenly extolling the virtues of blockchain, the technology that underpins the artificial scarcity of bitcoin?

Possibly because they’ve finally figured out that what the technology really facilitates is cartel management for groups that don’t trust each other but which still need to work together if they’re to protect the value and stability of the markets they serve.

Cartel enforcement, in that sense, appeals to all sorts of financial players from bankers and commodity producers to general asset creators. Read more

New World: from the mother of short squeezes, to someone’s actual mother

Expanded? Loosened? Dumped? A market flooded?

Whatever the opposite of a short squeeze is, it appears to have happened to tiny New World Oil and Gas on Monday. Full backstory here, but it looks like the company’s advisors may have found a way around plans by some shareholders to block a proposed placing.

However, the fun doesn’t stop, as the Takeover Panel has ruled Mrs Judith Williams, a Malvern bed & breakfast proprietor, will soon be required to make a bid for the Belize oil exploration company. Read more

Markets Live: Monday, 11th May, 2015

Live markets commentary from FT.com 

Der Bundschock, revisited

With the 10-year Bund yield just past 0.6 per cent at pixel time (it was just above 0.06 per cent on April 20th)…

Gavyn Davies calls last week’s moves a “Bund tantrum” — recalling the “super taper tantrum” the IMF’s been worrying about in bonds, and which has been foreshadowed perhaps in the April 2013 JGB sell-off. (There’s also the October 2014 flash rally in US Treasuries.)

The theme throughout is sudden breakdowns in liquidity. Niko Panigirtzoglou and team at JPMorgan have attempted to actually put some numbers on the Bund liquidity drain we saw last week. Read more

FT Opening Quote – Lonmin losses, Afren misses payment

Lonmin losses, a missed payment from Afren and an ex-Deutsche Bank banker is tipped to be named as the next Business secretary. FT Opening Quote provides your pre-market briefing. You can sign up for the email here. Read more

Further reading

Elsewhere on Monday,

- “The bund tantrum has been only a minor event so far, but it could be a warning of the shape of things to come, and on a much larger scale.”

- A poignant reminder.

- FAO Paul Murphy.

- Josh Brown, notes from SF.

- “When productivity is flat, “aspiration” is a zero sum game.”  Read more

FirstFT (the new 6am Cut)

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David Cameron will put the finishing touches to his cabinet and address newly elected Conservative MPs today. Campaigning over, he returns to a bulging in-tray: specifically, renegotiating the terms of Britain’s EU membership and of Scotland within the union.

He will this week sit down with Nicola Sturgeon to thrash out the vexed question of how much more autonomy to hand Scotland after the SNP won 56 of Scotland’s 59 parliamentary seats. She has already warned him that it “can’t be business as usual”. Read more