The Closer


- A guide to skivingRead more

Scoping market liquidity, with stick figures

Behold the current market liquidity debate as heard at a leveraged loan conference panel in New York today and illustrated with stick figures.* The debate rages outside the confines of the loan industry in the pages of Fortune, Euromoney and yes, the FT. Read more

Now that everyone’s a volatility seller…

In February 2012, Macro Risk Advisors drew our attention to an explosion in the market cap of the TVIX ETP, the 2x Vix exposure ETP offered to the market by Velocityshares, but backed by Credit Suisse.

As it happens, that fact turned out to be a perfect forward indicator to a whole sequence of shenanigans and suspensions to come in the ETP, confirming a general rule in our minds that whenever ETP market caps explode, beware, there’s probably someone somewhere (not the dumb money, of course) unearthing an arbitrage at the expense of the vanilla investor.

Well, more than two years later — perhaps because 2x Vix exposure isn’t quite as sellable as it used to be — the recent volatility spike has flamed another curious explosion in market cap. But not in volatility hedging instruments that reward when volatility spikes up, but rather, their exact opposite: inverse volatility ETPs, which reward when volatility reduces. Read more

Beware the Chinese FX reserve fall

The latest from SocGen’s Albert Edwards features this eye-catching chart:

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Markets Live: Thursday, 23rd October, 2014

Live markets commentary from 

The (early) Lunch Wrap

Good morning New York,


That was nuts, what’s next? Goldman edition

Unless we’re mistaken, Goldman has come up with its own “This is nuts” top ten. Decent effort:

1. Since the low in the global equity market on March 9, 2009, the MSCI The World index has risen roughly 180% in total return terms, generating an annualised return of a remarkable 20%.

2. 2013 was one of the strongest years on record for the equity markets. The US managed a price return of 30% and the Sharpe Ratio of the S&P 500 ranked in the 98th percentile since 1962.

3. Perhaps even more striking is that bond markets have continued to perform strongly. Since the 2009 low in equities, the JP Morgan GBI global bond index has risen 24%.

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The ECB has good news for French households

The European Central Bank is set to release the results of its latest stress tests on euro area banks this Sunday. Those more interested in the fragility and resilience of euro area households should focus instead on a new working paper from ECB researchers.

The economists first looked at income after taxes, debt service, and basic living costs across and within countries. As long as this number is positive, a household is not in distress. Even when it is negative, people with sufficient liquid savings are not considered to be in trouble as long they can hold out for a certain amount of time. And even some households that don’t have enough emergency cash may avoid defaulting on their debts for various reasons. Read more

Further reading

Elsewhere on Thursday,

- A simple guide to helicopter money.

- Civil service regulatory capture and the Fed, as told through AIG testimony.

- “‘Track 3,’ the latest release from Taylor Swift’s 1989, explores the dropped pin, uniting the past and present—the now, the then—with the sharp pangs of its own absence.”

- China’s imperial president.  Read more

The 6am London Cut

Markets: Asian bourses barely reacted to fresh data showing that Chinese factory growth for October had ticked up, while Wall Street ended the US day slightly lower. The closely watched HSBC/Markit Flash China Purchasing Managers’ Index showed a slightly better-than-expected reading, edging up from September’s 50.2 to 50.4 in October to date. (FT’s Global Markets OverviewRead more

Burn rates, oil sovereign edition

How long does it take for an oil-exporting nation to burn through its cash reserves as it waits for oil prices to turn around?

Naturally, it depends on which oil exporter we’re talking about and the size of their existing cash-pile. Differences between countries can be monumental.

The Oxford Institute of Energy Studies picks up on the theme by citing a chart from Deutsche Bank which shows the varying cash buffer rates between Saudi Arabia, Russia and Nigeria (H/T Marc Ostwald). Read more

Markets Live: Wednesday, 22nd October, 2014

Live markets commentary from 

The (early) Lunch Wrap

Good morning New York,


Chinese deposit growth, but not as we knew it

Chart du jour from BCA Research:

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Just the minutes

The last Monetary Policy Committee meeting was on October 7 & 8, and much has happened in the last two weeks.

Volatility has stirred, and the market-implied timing for the first UK rate rise has been pushed out by about three months, from May to August, according to Citi. So the MPC minutes may not be the most relevant discussion for today, but in light of recent speeches, read on in search of a more doveish tone.

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Fed talk, inequality, and the lawless border town between fiscal and monetary responsibilities

It’s hard to say which was more surprising — the passages in Janet Yellen’s inequality speech last week that appealed to American values, or the topics she chose to omit entirely.

To start with the latter, the interdependent relationship between inequality and economic growth has become a mainstream topic of economic debate in recent years, and a very contentious one. Read more

Further reading

Elsewhere on Wednesday,

- Regulating variable pay is a world beater of a terrible idea…

- Of Rony Abovitz, CEO of Magic Leap:“In 2013, Abovitz gave a very bizarre speech at TEDxSarasota during which he wore a space suit while two giant furry creatures danced around a box of fudge.”

- Arkansas has completely surrendered to Bill Clinton… and a 404 page work keeping.  Read more

The 6am London Cut

Markets: Bourses in Asia-Pacific were mostly positive, taking their lead from gains on Wall Street and better-than-expected Japanese export data. The Nikkei 225, which lost 1.5 per cent on Tuesday following the release of sluggish Chinese gross domestic product data, reversed with a gain of 1.6 per cent following the healthy rise in exports. The Japanese market also benefited from positive news in the US, notably strong earnings from Apple and US home sales data, which helped the S&P 500 to its biggest one-day gain in the past year, closing up 2 per cent at 1,941. (FT’s Global Markets OverviewRead more

The Closer


- Martin Wolf castigates the German economic model, which has produced zero productivity gains since 2007 Read more

Rally Monkey is back from vacation to celebrate biggest 1-day S&P gain of the year

After a few weeks of plummeting bond yields, crashing stock markets, and panicked calls for additional asset purchases by the Federal Reserve, an old friend returned:

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Why would the ECB buy corporate bonds?

Reuters is reporting that the European Central Bank might be willing to purchase corporate bonds as part of its €1 trillion effort to restore “the size of [its] balance sheet towards the dimensions it used to have at the beginning of 2012.” The story has also been picked up by the FT and WSJ.

We didn’t immediately get why the ECB would decide to do this, especially since spreads on even the junkiest of junk debt are still quite narrow. (Lufthansa’s recent 5-year note yielding just 1.1 per cent at issuance comes to mind.)

One explanation is that the size of the markets the ECB has already agreed to target — asset-backed securities and covered bonds — is too small for the central bank to achieve its objectives. Read more

London Whale — some NY Fed blubber

Since it’s curiously hard to find on the NY Fed’s home page, given the prominence of Bill Dudley’s recent firebreathing speech warning against complexity and cultural dysfunction in US banks…

Click for the Federal Reserve inspector general’s account of how the NY Fed failed to follow up on the early signs it had uncovered of risks in JPMorgan’s Chief Investment Office. Read more

FREE e-book offer for FT Alphaville readers

Numbers are limited, so no more than 6 downloads per registered user please. (Before you click, it’s an 8meg file.)

 Read more

Markets Live: Tuesday, 21st October, 2014

Live markets commentary from 

Update: moles still largely unwhacked in China

If there’s one sure bet in China it’s that money, uh, finds a way and that shadow banking (or whatever less objectionable name you wish to apply) will do its damndest to help. Otherwise, what’s the point?

In this episode, crowd funding. Read more

The (early) Lunch Wrap

Total chief dies in Moscow air crash || China GDP growth slowest since global crisis || Apple smashes through forecasts || UK public finances deteriorate || Facebook’s new board member apologises for harassment || Libya-Goldman clash sheds light on formerly secretive fund || Asos profits dip unstylishly by 14% on strong pound || Mark Carney launches review after BoE payment system crash || Markets Read more

On the subject of Buffett favourites

After Tesco and IBM, Coca-Cola earnings are out on Tuesday.

You’ll likely have more luck trying to prise a Cherry-Coke from Warren Buffett’s grasp than get him to sell his stake: a favourite since 1988, Coca-Cola is worth multiples of what he paid for it and the Sage is not one for selling much of anything.

Still, Wintergreen Advisors is not going to stop agitating at the soft drink maker. David Winters was a strident critic of the 2014 pay plan for executives that has since been revised, and ahead of Coke’s results he has 12 questions for the company that are worth a read (with our emphasis). Read more

New York Fed taking cues from Occupy on banker pay

That was our takeaway from reading Bill Dudley’s speech at the “Workshop on Reforming Culture and Behavior in the Financial Services Industry”.

His thesis is that skewed incentives in banks and other financial firms encourage excessive risk-taking and even outright illegal behaviour. Losses from wild bets that go badly tend to be borne by shareholders and the rest of society, while the gains are often hoarded by the mid-level individuals making the trades. There is also a timing issue, where a trader can collect a bonus today for engaging in an activity that appears profitable in the short-term but has a high likelihood of catastrophic failure in the medium term. Read more

Further reading

Elsewhere on Tuesday,

- Inside the Ebola wars.

- Insider traders mostly keep their tipping within their ethnic groups, except Western Europeans, who tip and are tipped promiscuously.

- The wiki story.

- Sovereign-debt relief and its aftermath: The 1930s, the 1990s, the future? Read more

The 6am London Cut

Markets: Bourses around Asia were mixed following news that China’s gross domestic product expanded at its slowest pace since the first quarter of 2009, and after a choppy session on Wall Street. The figure raises concerns about global growth prospects, and increases the likelihood of Beijing introducing more stimulus measures. The latest quarterly numbers mean China’s economy this year is almost certain to register its slowest annual growth pace since 1990. However, the reading beat analysts’ consensus estimate of 7.2 per cent, prompting bourses most exposed to the country to heave a sigh of relief. Japan’s Nikkei fell, having on Monday risen nearly 4 per cent – its biggest one-day gain since June 2013 – following local media reports that Japan’s $1.2tn public pension fund was likely to increase its holding of domestic stocks.(FT’s Global Markets OverviewRead more