One question for Quindell

Quindell, an unusual collection of loosely related insurance, technological and legal businesses piled on top of a golf club by Robert Terry, can confound attempts to understand it. There is, however, one simple question which gets right to the heart of what has been going on.

What were the cash balances at Ingenie, the associate company it acquired last year?

As we’ll explain, there aren’t clear good answers to this question, just least bad ones. It is something for PWC and the company’s bankers to ask, because the answers should help show whether management of what was once the largest company on London’s junior market, AIM, was disingenuous, profligate, or something worse. Read more

Markets Live: Friday, 13th February, 2015

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This is nuts. Enjoy your trip to the moon.

Rocket Internet, the German-listed ecommerce investment group, has opportunistically raised about €600m in fresh equity at €49 per share.

In case you had forgotten, the collection of investments in more than 140 loss making businesses is valued by the market at about €7.6bn. Read more

Fed up, caption competition

But, for a change, you’ll have to supply the image.

Retiring Federal Reserve Bank of Dallas President Richard Fisher supplies the caption:

Having proven themselves unable to cobble together with colleagues a working fiscal policy or to construct a regulatory regime that incentivizes rather than discourages investment and job creation — in other words, failed at their own job — they simply find it convenient to create a bogeyman out of an entity that does its job efficiently.

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Euro area divergence more about regions than countries

Take a good long look at this map:

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Further reading

Elsewhere on Friday,

- Scamming in the 1800s. Simpler times.

- The austerity con: Simon Wren-Lewis long read.

- Why 500 year old business are going under in Japan.

- Twitter and the shame of public shaming. Read more

FirstFT (the new 6am Cut)

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The European Central Bank extended another EUR5bn in emergency loans to banks in Greece after fears that a spate of bank withdrawals could dry up funding. (FT) Read more


We’re not allowed to do this in the UK, so we’ll let fellow financial bloggers from across the pond take over from here….

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Once you cross-subsidise bank services can you ever go back?

Alternative title: First mover dis-advantage in banking

In early 2013 the Financial Stability Board asked a group chaired by Paul Fisher of the Bank of England and RBA assistant governor Guy Debelle to formulate a set of proposals to improve the FX benchmark process and reduce the scope for manipulation.

Debelle gave an update on progress in a speech this week in Sydney.

As he noted, the group’s work was conducted separately from the investigations into allegations of FX manipulation and group members did not have access to any of the evidence gathered. Furthermore, while the concluding reported outlined 15 recommendations, none of these were explicitly embodied in regulation. The expectation instead was for the recommendations to be voluntarily implemented by market participants, on the basis were they not acted on, authorities could conclude that a regulatory response was necessary to generate the desired improvement in market structure and conduct. Read more

A global, ten year, flow of funds heat map

Click to enlarge…

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Markets Live: Thursday, 12th February, 2015

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The absence of skill

A tongue twister:

Peter Piper picked a peck of stock pickers;
The pick of picking pickers Peter Piper picked;
If Peter Piper picked the pick of stock pickers,
Who’s the pick of picking pickers Peter Piper picked.

The subject is the skill of active investment managers prompted by a GMO white paper which reports 80 per cent to 90 per cent of US equity funds failed to beat their benchmark last year. Do you try to pick stocks, or do you pick stock pickers, or do you pick the picker of stock pickers? Read more


A chart, from Deutsche, of the global pool of funds in 2014:

It’s from their annual Random Walk through the world’s financial markets. The top line: Read more

Further reading

Elsewhere on Thursday,

- What we know about recessions might be wrong.

- We seem to be heading full speed back to the late nineteenth century.

- The Daily Mash guide to the eurozone crisis.

- How a zip’s tiny tab is the difference between full automation and a human having to join millions of sliders and pullers together.  Read more

FirstFT (the new 6am Cut)

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Greek bailout talks broke down in recriminations after six hours. Eurozone finance ministers trying to hammer out a solution in Brussels were not even able to agree a way to take negotiations forward. Read more

“Size Matters, If You Control Your Junk”

That’s the title of a fascinating new paper from AQR’s Cliff Asness and colleagues, and we honestly couldn’t think of a better headline for this post. The authors present us with a fascinating puzzle: shares of smaller companies systematically do better than shares of big ones. There isn’t any obvious reason why this would be true, yet it is.

Long-suffering fans of academic finance theory might wonder why Asness et al wrote this paper, or why we are discussing it. After all, the idea of a “small-cap premium” has been around for decades and it’s one of the three factors in the Fama-French three factor model of stock pricing. Read more

Rebranding Troikas, then and now

While we patiently wait for Wednesday’s late-night Eurogroup meeting to decide nothing about Greece…

Surveillance – the ECB’s role in the Troika has recently been questioned by the ECJ, and so some “rebranding” of the monitoring has looked likely. But the basic structure of program targets and reviews will remain in place. Read more

The new Hanseatica, now with robot dogs

So, Apple has taken advantage of the drop in Swiss funding costs to issue SFr1.25bn of bonds.

A no-brainer funding opportunity for Apple? Or…, alternatively, a sign of things to come: corporates replacing petrodollar and sweatdollar sovereigns as the key accumulators of trade surpluses in the global economy, and issuing debt in a bid to sterilise the effects of too much liquidity on capex they can’t control?

If it’s the latter, we should beware of Andrew Keen’s concerns about the perils of a winner-takes-all tech economy, where a handful of geeks inadvertently become the new masters of the universe, thanks to their cunning monetisation of things Tim-Berners-Lee-types would never have dreamed of rationing to the great tech-ignorant. We’ve dubbed it Silicon Valley’s “god complex” before. Read more

Michael Pettis and perverse monetary policy

A guest post by Simon Cox, Asia-Pacific Investment Strategist, BNY Mellon Investment Management

China’s weak inflation numbers, updated on February 10, underscore why the People’s Bank of China (PBOC) is now easing policy wholesale, after a long sequence of targeted tweaks. (It cut reserve requirements on February 5 less than three months after cutting benchmark interest rates in November.) But does monetary easing work in China the way it works elsewhere? Does it, indeed, work at all? Read more

Markets Live: Wednesday, 11th February, 2015

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The shuttering of China?

This is gonna be speculative, so bear with us.

It’s the idea that China will — as more and more capital threatens to flow out of the country — start to shut its doors and look inwards once again. Read more

Further reading

Elsewhere on Wednesday,

- How a lone hacker shredded the myth of crowdsourcing.

- A lesson from the ibanker on the importance of break fees.

- Of “death derivatives”.

- Dani Rodrik on premature deindustrialization.  Read more

FirstFT (the new 6am Cut)

If you’re trying to keep track of what’s going on in Greece and wondering how it got to this stage, the Peterson Institute for International Economics explains the Greek tragedy in six charts. (PIIE video)

PepsiCo Set to be the latest American company stung by the strong dollarwhen it announces fourth-quarter earnings, traders reckon. The rising greenback has made American goods and services more expensive overseas and eroded sales for the likes of Pfizer and Procter & Gamble. (Bloomberg) Read more

What’s driving the Canadian peso?

Canada is a large, diversified economy in which commodity extraction plays a (relatively) small role. Yet historically its currency, which was once known as the Canadian peso thanks to its 30 per cent devaluation against the US dollar in the 1990s, seems to have been driven by changes in the oil price.

Here’s a chart comparing two-month changes in the amount of US dollars you can buy with a single Canadian dollar against changes in the price of West Texas Intermediate: Read more

Guest post: Deadly euro dances

A standoff continues between Greece and its creditors. Peter Doyle, an economist and former IMF staffer, argues that much more is at stake in the eurozone.

_____________________ Read more

Are we numb to silly valuations again?

This guest post is from Shane Leonard, CFA, CEO and co-founder of Stockflare, a financial data company. Previously he worked as a stockbroker at Citigroup and Credit Suisse.

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The reviews are in for Plus500

In our last post we considered the luck of Plus500, the London listed, Israel based, contract for difference broker. When the Swiss franc moved by a fifth against the euro in seconds, roiling various markets, the company was unscathed as competitors exploded.

We also mentioned the many customer complaints found online, about struggles to withdraw winnings or technological issues when trying to close out trades at a profit. As gamblers are perhaps prone to moaning, let’s consider the obverse: the much, much larger number of positive reviews for Plus500, and what it says about the way the retail trading industry finds customers.

Start with the Google Play store, where Plus500′s Android app has been downloaded more than 1m times. For context, Plus500 reports having about 85,000 active customers, although it churns through large numbers of new customers each year and offers a demo version of its software for traders to try out first. Read more

Markets Live: Tuesday, 10th February, 2015

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Eichengreen: Cassandras and currency wars

A guest post from Barry Eichengreen, a professor of economics and political science at the University of California, Berkeley and author, most recently, of Hall of Mirrors: The Great Depression, the Great Recession, and the Uses — and Misuses — of History.

Economic analysis, it seems, is the art of recycling old ideas under new names. So it is with the debate over currency wars, which parallels exactly the 1930s debate over competitive currency devaluation. David Woo, meet Ragnar Nurkse.

Nurkse, in his 1944 classic, International Currency Experience, argued that reflationary policies following the collapse of the 1920s-era gold standard operated by depreciating the exchange rate. Countries that pushed down their exchange rates had the greatest success at preventing further falls in prices and output, insofar as they substituted external demand, in the form of additional net exports, for deficient demand at home.

But the policy was beggar thy neighbour. Read more

Yes, looser credit — and fraud — drove the housing bubble

There are two basic explanations for the US housing bubble:

  • There was a sudden change in the supply of mortgage credit, which led people to spend a lot more on housing and (more importantly) extract a lot of home equity
  • There was a sudden change in the demand for mortgage credit because people got caught up in a self-reinforcing mania

The disagreement has important implications for policy. If you think the excesses were caused by an insatiable demand for “safe” assets that encouraged lenders to boost volumes by lowering standards so much that you barely needed a pulse to qualify for a mortgage, there is a pretty straightforward list of things you can do to reduce the expected loss from a repeat performance. But if you think the bubble was caused by a temporary period of “irrational exuberance” about future house prices, it’s a lot less obvious what should be done.

We tend to think the supply-side view — excess lending fueled a bubble, rather than accommodated it — makes more sense, and we particularly like Hyun Song Shin’s argument that the big driver was the creation of the euro and the concomitant collapse in risk premia. Read more