Familiarity breeds what again?

A chart from Citi on the occasionally epic length of some auditing relationships on the back of the Tesco messiness:

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Further reading

Elsewhere on Friday,

- It’s a mirage, not an oasis.

- “There are manipulative strategies, and there are good strategies, and it is not easy to tell them apart.”

- The four Italians sketch.

- Monetary policy with interest on reserves.

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The 6am London Cut

Markets: Asian equities were mixed following another choppy day on US markets, with the price of oil rebounding and a flight into the safety of US government debt also easing. The US dollar was largely steady against major rivals and Asian currencies were mixed. In the New York session the S&P 500 fell as much as 1.5 per cent before closing virtually unchanged at 1,862, regaining some poise in the wake of this week’s asset sell-off. That left it 7.4 per cent beneath a record closing high struck four weeks ago but well clear of Wednesday’s six-month low of 1,820. Encouragement for US equity bulls also came from a further retreat for the CBOE Vix volatility index from a three-year intraday high struck on Wednesday. (FT’s Global Markets OverviewRead more

The Closer


- Anti-Semitism is bad for your investment portfolio and interest rates don’t affect business investment Read more

The real reasons why the US Treasury’s debt maturity has been rising

Depending on whom you ask, the lengthening maturity of US government debt is either a smart response to unusually loose financial conditions or an unhelpful countervailing force to Federal Reserve policy.

Either way, the assumption is that the chart below (from page 23 the Treasury’s most recent Quarterly Refunding Report) reflects the deliberate choices of policymakers rather than anything else: Read more

Bullard: FOMC should consider “a pause on the taper”

From the transcript of St Louis Fed president James Bullard’s interview with Bloomberg Television:

I also think that inflation expectations are dropping in the U.S. And that is something that a central bank cannot abide. We have to make sure that inflation and inflation expectations remain near our target. And for that reason I think a reasonable response of the Fed in this situation would be to invoke the clause on the taper that said that the taper was data dependent. And we could go on pause on the taper at this juncture and wait until we see how the data shakes out into December. So… continue with QE at a very low level as we have it right now. And then assess our options going forward. …

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This is nuts. When’s the real crash?

Alibaba this week…

The calm after Wednesday’s one-day storm is downright weird. No?

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The real disruption at the heart of banking

The FT’s John Gapper follows up our mythbusting finance 2.0 post with some extremely wise points on what technology land is missing when it comes to “disrupting” banking.

The key point being, banks have already been disrupted! There’s not much positive value left to transfer, unless, of course, you’re prepared to work in the shadows or outside the regulatory climate that has been especially devised to segregate the sort of risk that is still intolerable to the system:

Mr Andreessen believes non-banks will manage to work around regulations. There may be something to this – it is striking that my energy supplier offers a higher rate of interest on deposits than my bank – but neither regulators nor the public will tolerate shadow retail banking for long if something goes wrong, as it tends to do

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The “I told you so” trade in credit is to wait and see

Who doesn’t like to start the day with a nice hot cup of vindication? There will be plenty of time to recognise those who have been warning about a lack of real liquidity and the chance of real volatility later. For now the question is what to do?

Credit strategist Alberto Gallo of RBS, who has been on team no-liquidity for a while, says wait and see.

What do we do now? We wait a bit longer. Our high yield macro-spread model shows cash should trade at around 500bp in € vs 400bp currently. European high yield spreads are still below last year’s tantrum levels, while US HY spreads are just getting there (508bp). Compared to previous bull market selloffs, this isn’t a short one – but could still last for a while longer.

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QE4? Nah, time to look elsewhere.

Deutsche’s George Saravelos isn’t entirely convinced by the calls for QE4/QEmore rattling through our inbox from those on the receiving end of this correction.

Those looking to the Fed to save the day are looking at the wrong place. First, unlike the September 2013 non-taper, US rates have rallied and American data surprises are close to their highs. Second, this is not about the US but the rest of the world. Bunds and gilts have rallied 9-10% this year compared to a 6% rally in USTs. This is about global, not American fears. It is about how the world transitions away from Fed-driven liquidity (QE winds down this month) to the rest of the world.

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Markets Live: Thursday, 16th October, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Good morning New York,


That was nuts. Is this the crash?

Eight minutes of wonder for the S&P 500.

Let’s call it the Alibaba indicator, with thanks to BofAML’s Thundering Word:

The S&P500 index peaked at 2019 roughly 8 minutes after the Sept 19th launch of the Alibaba IPO.

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Or QEinfinity continued we suppose.

From Deutsche’s Jim Reid the morning after the liquidity crisis before:

With all this going on one wonders what probabilities you’d get that the Fed actually does QE again before it raises rates. I’m sure if you’d have suggested this a month ago many would have thought that there was more chance of Elvis being found living a relaxing retirement on the moon.

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Could the liquidity crisis be back?

So says, at least, Sebastien Galy from SocGen on Thursday.

As he notes: Read more

Further reading

Elsewhere on Thursday,

- “Because banks are magic, and if you look too hard at how the magic happens, you might stop believing in it…”

- The risk that will bite you next is NOT the one that bit you last.

- A market postmortem and a view of the afterlife.

- Gates on Piketty. Read more

The 6am London Cut

Markets: The global equity market rout spread to Asia, driving Japanese stocks to their lowest level in six months, although declines elsewhere in the region were more muted. The Nikkei 225 sank 2.3 per cent, dropping below the 15,000-mark to hit 14,724 before coming back a touch. The yen was steady at Y106 against the US dollar. Concerns about the global economy sparked a “flash crash” in New York trading, driving US 10-year Treasury yields below 2 per cent for the first time since May 2013 as trading volumes soared — a record $924bn in US government debt changing hands throughout the session, according to ICAP data.. The S&P 500 lost as much as 3 per cent before closing the session down 0.8 per cent. “The liquidity crisis many had waited for is unfolding. Theoretically it is an absence of speculators willing to absorb risk,” wrote Soc Gen’s Sebastian Galy. (FT’s Global Markets OverviewRead more

The Closer


- Diane Coyle on how to teach economics to undergradsRead more

GS on its recommended Treasury short: cut your losses, time to get out

By Camilla Hall and Stephen Foley

The Treasury market melt-up earlier today does not mean that everyone who believed higher rates are coming have stopped believing. Some investors just wanted to cut their losses, not willing to wait any longer. Read more

What does the case for calm look like?

The abundance of worrying news continues growing — the collapse of bond yields and equity markets, falling inflation and inflation expectations all across the developed world, the ongoing slump in commodity prices.

Whether such tumultuous activity in markets accurately reflects the updated prospects for the real economy is a difficult question. The doom-iest news has been coming out of Europe (ex-UK), where concerns of a triple-dip recession do appear warranted given the latest economic indicators from — not to mention the intransigence by policymakers in — Germany. But the prospects for Japan and emerging markets, many of whose fortunes are tied to commodity cycles, have also become more disquieting. Read more

US investors “rotating” back into bonds

In 2013, US mutual fund investors started moving money out of bonds and into equities. Some thought that this was the beginning of a “great rotation” in asset allocations that would undo the changes that have occurred since the crisis. That might happen eventually but the trend has gone into reverse this year.

Chart via CreditSights: Read more

A fresh session low for the S&P 500…

1,823.06 -54.64 (-2.91%)

- at pixel. DJIA off by a similar margin. What to say? Let’s fall back on charts…

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When a man cannot choose, is he still a consumer?

Supermarket price wars, as we all know, are beginning to weigh on the bottom lines of the nation’s top grocers. [Err, surely they been weighing for a long time no - ed?]

So what’s a grocer to do to raise margin?

Here’s an idea: accelerate the rollout of the personal pricing revolution and get even bolder with your customer entrapment policies, also known as loyalty programmes.

You see, if you thought your local supermarket was just a goods dispensing intermediary whose model depended on pooling suppliers in one convenient location and attracting customers conveniently to that location, you’d be gravely mistaken. Most of the country’s biggest supermarket brands don’t see themselves as plain old grocers anymore. Rather, they like to think of themselves as technology firms. Read more


Had to share. It’s doing the rounds by email…

The original title of this post read: What do you call a stock market crash that only lasts half an hour? Read more

Nobody could have predicted…

At the end of 2013, the CFA Institute surveyed its members on a range of topics, including the asset classes they thought would do best in 2014. The year isn’t over, but we thought it would be fun to update you on the status of those predictions.

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Nu Skin and a Material Definitive Agreement – Update

Nu Skin, the multi-level marketing company, announced some new debt arrangements on Wednesday. More on those below, but it looks like it has announced something else shareholders might be interested in.

See if you can spot it in the list of covenants to the new credit agreement: Read more

Eggbanxx benefits!

No, it’s not a new cryptocurrency initiative focused on exploiting the naturally occurring phenomenon of “coin eggs”, which are capped at a limited number due to the protocol laws of nature, bestowed in decentralised mode to every woman on earth and mined by the laborious process of “childbirth”, handily encrypted via the wonder of the DNA blockchain.

No, it’s EggBanxx! A company providing cheap egg-freezing services to female workers at Silicon Valley companies everywhere, and now available through company benefit packages alongside company pension plans. (H/T Emma Jacobs at the Business Blog). Read more

Markets Live: Wednesday, 15th October, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

UK unemployment falls to near 6-year low of 6% || Aldermore scraps IPO as listing markets sour || BG Group poaches Statoil’s chief executive || Amazon launches same-day delivery service in the UK || UniCredit turning to private equity to enable loan detox regime || Cameron signals inheritance tax cut | Markets Read more

Shire-AbbVie: arbitrage against the machine

Cold feet or negotiation tactic? No one knows. And the people prepared to guess were 25 per cent wrong about Shire’s price this time yesterday, so their views should be taken with a degree of caution.

Nevertheless, here are the basics on the potential collapse of Abbvie’s $54bn takeover of the UK drugmaker.

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