China and a short nuttiness debate

We assume we’ve made our position on this pretty clear… but apparently Citi remain unconvinced.

To wit: “If the Chinese market were to double from here it would indeed be in bubble. The same is true for Asia, a doubling would put us back at 3x book which over the last 40 years has been the peak – four times. When we get close to those levels we will be in a bubble, till then it’s a bull market.”

From their GEMs team, which has been preaching China equities for quite a while (with our emphasis): Read more

Further reading

Elsewhere on Tuesday,

- “As with sex in Victorian Britain, there is a double standard with capitalism in North Korea: everybody does it, but few publicly admit to its existence.”

- A $70,000 min wage?

- “Bonds are like houses” says metaphor trashing man in piece about bond market liquidity fears.

- Your Russian rebound.  Read more

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Russia lifted its self-imposed ban on selling an advanced air-defence systems to Iran, irking world powers thrashing out ways to limit the nuclear programme in the country. The decree, banning delivery of the S-300 system to the Islamic Republic in September 2009, had been imposed under intense diplomatic pressure from the US and Israel. (FT)

The move comes at a sensitive point in the negotiations over the nuclear programme, with the White House attempting to sell a framework agreement with Tehran to a highly sceptical US Congress.

Secretary of State John Kerry raised the matter in a phone call with the Russian foreign minister, Sergey Lavrov, the White House said. (BBC) Read more

No super-contango this time around

Oil prices, both Brent and WTI, remain depressed:

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Deutsche Bank and a rocky path to GoldmanSachsism

Deutsche Bank has long been an unloved stock.

Not only does it trade stubbornly below book-value, a bleak revenue outlook in January led to the promise of a major strategy rethink for the group, including the prospect of job cuts, asset sales and the streamlining of investment banking divisions.

Among options on the table is a sale of the group’s Postbank retail business — a division it acquired in 2008 in the hope of bringing deposit funding to the aid of its investment banking arm. Read more

This is nuts. When’s the crash?

From Blackrock on Monday:

BlackRock launches its first China A share ETF for international investors London, 13 April 2015 – BlackRock has today listed the iShares MSCI China A UCITS ETF on the London Stock Exchange, giving its international institutional and retail clients direct access to China’s A share equity market. A shares are mainland China incorporated companies listed on the Shanghai and Shenzhen Stock Exchanges and represent the largest single segment of the Chinese equity market.

They were amongst the best performing equities in the world in 2014, when the Shanghai Composite Index rose 58%. However the direct purchase of A shares is open only to Chinese nationals plus foreign investors able to access a limited number of tightly controlled and regulated channels, restricting access to the market for many.

The iShares MSCI China A UCITS ETF provides investors with exposure to China A shares through BlackRock’s own Renminbi Qualified Foreign Institutional Investor (RQFII) quota. The ETF is the only UCITS fund to track the MSCI China A International Index. This index represents a broad and diversified basket of over 300 large and mid cap stocks.

But you know what they say about ETFs… Read more

Markets Live: Monday, 13th April, 2015

Live markets commentary from 

Markets Live returns at 11am

The Markets Live server hamster is back from Spring Break, refreshed and ready to roll.

ML server

Join Bryce and Murphy at 11am BST for a stroll around Chinese trade data, big oil, phantom Irish corrugated packaging M&A and all the usual nonsense. For newcomers, here’s the explainerRead more

Further reading

Elsewhere on Monday,

- The Federal Reserve on avalanche patrol.

- “Couldn’t we say that a tie is really a symbolic displacement of the penis, only an intellectualized penis, dangling not from one’s crotch but from one’s head, chosen from among an almost infinite variety of other ties by an act of mental will?”

- GE and the not so attractive SIFI label.

- The declining demand for skill, or why income inequality isn’t all about education.

- There is no sticky wage puzzle. Read more

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Who saw that coming? Hillary Clinton on Sunday fired the starting gun on her second bid for the US presidency, ending two years of speculation and opening another chapter in a rich political life that has already spanned more than two decades. In a low-key video message posted on her new campaign website, Mrs Clinton set her stall as a champion for everyday Americans, who would put tackling inequality and boosting opportunity for middle and low-income families at the heart of her agenda. (FT and BBC)

The New York times has deconstructed the announcement video. (NYT$)

Political strategists rate her chances highly given the absence of any strong Democratic rival – unlike 2008, where Mrs Clinton’s candidacy was swept aside by the phenomenal rise of Barack Obama. If she can win the female vote, as her campaign aims to do, the White House is hers to lose argues the FT’s Ed Luce – he notes that women vote in higher numbers than men. (FT)

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Tiger Index: A stop and go recovery is in danger of another stall

The latest release of the TIGER (Brookings-FT Tracking Indices for the Global Economic Recovery) index suggests stunted growth prospects for both advanced and emerging market economies, write Eswar Prasad, Karim Foda, and Arnav Sahu in this guest post.

A stop and go global recovery seems at risk of stalling again, with only isolated pockets of strength evident in the world economy.

A modest reversal of fortunes between the advanced and emerging market economies belies the fact that both groups still face stunted growth prospects.

The latest update of TIGER (Brookings-FT Tracking Indexes for the Global Economic Recovery) reveals a somber picture characterized by stagnant low growth, risks of deflation, and weak consumer and business confidence. Read more

The financial sector’s diamond age

In Neal Stephenson’s 1995 sci-fi novel Diamond Age — a story that explores how the world might be set up if nanotechnology and replicators make everything abundant — there is still room for commercial banking.

But banks don’t operate as they do now.

Take as an example Stephenson’s imagineered Peacock bank.

This is an institution where a line of credit can be secured only if a credit card is implanted directly into the borrower’s body directly. Different banks in Stephenson’s book vary on what part of the body they use, but embedded somewhere it must be. Once in place the borrower can “buy” anything he wishes just by asking it because the bank can monitor them diligently and share that information. Read more

This is *really* nuts. When’s the crash?

The China stock bubble is getting more and more bonkers. This from Deutsche Bank:

Bubble watchers point out median earnings multiples for Chinese technology stocks are twice US peer valuations at their peak. More worrying perhaps is a health-goods-from-deer-antlers producer on 70 times, the seamless underwear manufacturer on 90 times or those school uniform and ketchup makers on 330 times!

It seems everyone in the country is racing to open a brokerage account – 1.67m new accounts in the latest week, according to the China Securities Depository and Clearing Co. That sounds a lot, although it is growth of only about 1 per cent a week in the total of new accounts: China, remember is big.

But a quick bit of Excel work shows just how silly the bubble in Chinese domestic stocks, known as A shares, has become. Read more

Don’t blame the locals too much for the Danish krone

You may remember that the smaller corners of the European currency markets were unexpectedly interesting at the beginning of the year.

For those who don’t, the fun started in January, when the Swiss National Bank announced that it would stop suppressing the value of the franc against the euro. That quickly led to big flows of money into Denmark as traders bet that its peg might also break:

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Guest post: Getting Ukraine’s bondholders from B to A

The English-law bonds in Ukraine’s debt restructuring are a bit more local-law than bondholders might realise. How can Ukraine use that to get a deal? Here’s an interesting idea… Read more

European stocks and not-so-record highs

European stocks as measured by the Stoxx 600 index finally passed their March 2000 high this week. As measured by the FTSE Eurofirst 300 they are set to pass their 2007 closing high if they can hold on to today’s gains.

Great news for investors in Europe, right? Well, sort of.

First off, record highs for shares are only good news if you are selling: investors should care about the future, and the higher the price, the lower the future returns, so record high prices are not obviously good news for buyers.

Second, these are capital only measures, which exclude dividends and take no account of purchasing power. Third, share prices are not a great guide to economic performance for all sorts of reasons, but most obviously because multinationals garner much of their income from outside their listing location.

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A little Ukrainian bond list

There have been a few doubts lately about whether Ukraine was going to include that $3bn Russian bond, issued in 2013 and maturing this year, in its debt renegotiation with private creditors.

Well, over to a resolution by the embattled country’s Cabinet of Ministers… Read more

Guess the chart, pick your rally carefully edition

Answer below the break, courtesy of BofAML’s Michael Hartnett: Read more

Buiter on the death of cash

We’ve spilt a fair few pixels on the potential limits of negative rates and proposals to get around the pesky zero lower bound. Citi’s Buiter has weighed in on this for some time and has done so again on Thursday.

To wit:

We present three practical ways to eliminate the ELB: i) abolish currency, ii) tax currency or iii) remove the fixed exchange rate between zero-interest cash currency and central bank reserves/deposits denominated in a virtual currency.

There’s more in the usual place for those who want it but, for now we thought we might just pull out his list of disadvantages to getting rid of cash Read more

Further reading

Elsewhere on Friday,

- More on the Kremlin’s hall of mirrors.

- The simulation game.

- “For like a colossus is our Abe, perhaps hollow inside but hard without, standing aloof and tall, way above all who surround him. Damn.”

- Oil wells in England’s green and pleasant land. Read more

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Ayatollah Ali Khamenei, Iran’s supreme leader, has accused the US of distorting the nuclear framework agreed with world powers. Washington‘s fact sheet about the framework, agreed last week after months of negotiations, was “mostly against reality” and contained a “narrative … [that] is distorted … to save face”, he charged. (FT and BBC)

Iran’s main gripe is that it wants sanctions lifted “on the first day” of the final deal’s implementation. That’s not what the US wants, but are the interests of Tehran and Washington closer than many think? (FT)

In the news Read more

We ate the fees and now we hate the fees – Update

The five New York city pension funds, managing almost $160bn, appear to have just noticed quite how much they pay in fees to money managers, and the number of elderly teachers, fire fighters, police and civil servants that money might help support.

The New York Times reports the funds paid more than $2bn over the last 10 years, and got little in return, according to city Comptroller Scott Stringer:

“We asked a simple question: Are we getting value for the fees we’re paying to Wall Street?” Mr. Stringer said. “The answer, based on this 10-year analysis, is no.”

 Read more

This is nuts. When’s the crash?

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A simpler JPMorgan

We have meaningfully simplified the company…

– Jamie Dimon’s 38-page letter to JPMorgan shareholders, April 8 2015 Read more

Shell, BG and a stamp duty bill

One small detail in Shell’s £47bn takeover of BG Group to consider: Stamp Duty. HM Treasury can look forward to a £235m windfall once the deal concludes.

Corporate buyers used to avoid the 0.5 per cent tax by using schemes of arrangement, where shares in the target company would be cancelled, followed by the issue of new shares by the bidder. However a change to company law last month closed the loophole.

The measure was announced in December’s Autumn Statement, but hasn’t attracted much attention since, possibly because it was only forecast to bring in about £65m per year. Read more

Spotting lies, and the lying liars who layer them

Can you spot a lie? What about a half-truth, a sin of omission or the telling smirk of someone who thinks they got away with it? How about the grand lie, so big it has pillars and caverns of mis-truth, or the subtle wave of misdirection?

Short sellers like to look for lies, in company accounts or in what management say. Find one, stick a red flag in it and go looking for more, on the basis if there’s one there’s several: lies multiply. There is also a small cottage industry in the art of deception, from books of facial expressions to help you play poker all the way to ex-CIA consultants offering interrogation advice.

For instance, the latest report from Muddy Waters on the commodity trading group Noble, which includes some “third party behavioural analysis” of management statements. Read more

Oil under the Weald

David Lenigas has struck oil under Gatwick, or at least one of his companies has.

London quoted UK Oil & Gas Investments PLC (LSE AIM: UKOG) is pleased to announce that US-based Nutech Ltd (“Nutech”), one of the world’s leading companies in petrophysical analysis and reservoir intelligence, estimate that the Horse Hill-1 (“HH-1″) well in the Weald Basin has a total oil in place (“OIP”) of 158 million barrels (“MMBO”) per square mile, excluding the previously reported Upper Portland Sandstone oil discovery.

The Horse Hill licences cover 55 square miles of the Weald Basin in southern England in which the Company has a 20.36% interest.

158m x 55 x 0.65 x 0.2036 = a more than quadrupling of the share price for UKOG on Thursday morning. Read more

Further reading

Elsewhere on Thursday,

- A cynic’s guide to Fintech.

- Predictions to remain hard.

- Algorithms will make JPMorgan less bad.

- Almonds less evil than assumed.

- DeLong weighs in on John Taylor.  Read more

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Tsarnaev guilty of Boston Marathon bombings Dzhokhar Tsarnaev was found guilty of all 30 counts against him for his role in the April 2013 bombings at the Boston Marathon, including charges of using weapons of mass destruction. The attack, which killed three people and wounded 264 others, was the worst terrorist incident on US soil since September 11 2001. (FT and Reuters) Read more

Iceland’s grand monetary experiment?

One of the oddest things about the aftermath of the financial crisis is the extent to which things haven’t changed.

Yes, there are plenty of new rules, and stress tests, and of course there are more fines for wrongdoing, but the basic structure of the financial system doesn’t look much different from before it blew up. There is still plenty of money to be made (and lost) issuing short-term “safe” debt to buy long-term, illiquid, risky assets. Lenders still exacerbate the cycle by increasing their leverage when asset prices rise only to cut back on lending when the economy sours. And everyone knows that taxpayers are still on the hook when things go bad, which acts as a massive subsidy for the financial industry. Read more