Drawdown to what?

Oh look, vol…

Here’s Nomura’s Jens Nordvig charting the drawdown in risk assets since early September with the Vix up to 24.6 late on Monday, its highest since June 2012:

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Further reading

Elsewhere on Wednesday,

- The risks of cheap water.

- In defence of Cosplay and in search of lost satire.

- Why are economists in denial about the eurozone?

- The mythical Phillips curve?  Read more

The 6am London Cut

Markets: Asian equities drifted up as investors opted for the safety of US government debt following disappointing European economic data. China-sensitive markets clocked up minor gains as weak inflation data spurred predictions that Beijing would step up monetary stimulus efforts. In the New York session a solid early rebound for the S&P 500 largely evaporated with energy stocks under pressure as concerns about the global growth outlook helped underpin a renewed slide for oil prices. The S&P 500 closed less than 0.2 per cent higher at 1,877. The CBOE Vix index fell 6.9 per cent from a 28-month high but remained well above its long-term average. (FT’s Global Markets OverviewRead more

The Closer


- New empirical paper from Emmanuel Saez and Gabriel Zucman on the US wealth distribution over time Read more

How will EMs be affected by commodity price declines?

Credit Suisse has a new report out on the winners and losers of the recent rout in global natural resource prices. While everyone has been paying attention to the remarkable decline in the value of oil, agricultural commodities and industrial metals have also become a lot cheaper recently:

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And the special Credit Suisse wealth topic this year is…

Inequality. Obviously.

The CS annual Wealth Report is now in its fifth year. Click the pyramid to read. Read more

“Nine out of ten clients lost money”

We’re talking retail forex trading here — through legitimate, authorised forex trading houses, not fraudsters.

Do places like the UK need hard leverage caps — like those imposed in the US — to cut the abuse of naive speculators?

The stat in the headline is from the Autorité des Marchés Financiers, the French regulator, which has made rather more effort than others in Europe in trying to combat online financial spivvery. Read more

Undershooting unemployment is the new overshooting inflation

(The chart frames the upper and lower forecasts of the central tendency, which removes the highest three and lowest three forecasts of the FOMC as a whole. The red line is the midpoint between the two.)

Starting in 2009, the midpoint of the central tendency projections for the long-run unemployment rate climbed from 4.9 per cent to 5.6 per cent during the next three years. Read more

A Chanos chart (and chat)

It’s from the second installment of The New House of Money, which is being published chapter-by-chapter by Drobny Capital’s Steve Drobny. Read more

Welcoming The People’s Operator, a £100m+ MVNO

No — we don’t yet have the prospectus for The People’s Operator, a mobile firm that has announced plans to list on Aim with a reported market value of more than £100m. But we do have its most recent accounts, which make it possible to back engineer what the prospectus might say. Read more

When the cartel bursts, Brent edition

When you look at things hard enough you realise almost everything in society can be reduced to a cartel, monopoly or perfect (and chaotically disruptive) competition model.

While cartels come in many shapes and forms, the purpose is common: stability.

In other words, as long as everyone plays by the rules of the cartel, what’s best for that particular participatory group can be guaranteed.

On which basis, government itself can be reduced to a cartel-type system. As can central banks. Read more

The (early) Lunch Wrap

JP Morgan profits rebound || UK inflation at five year low || Luxury warnings || Afren fires CEO || How the ECB ended up in court || Stocks down for sixth day Read more

Markets Live: Tuesday, 14th October, 2014

Live markets commentary from FT.com 

This is nuts. When’s the crash?

A competition. What is the portfolio with the greatest hope to value ratio?

To start you off, here are the top ten holdings of the Edinburgh Worldwide Investment Trust plc, managed by Baillie Gifford. (Click to enlarge):

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Vol and the perma-damned market-makers

From the Reserve Bank of Australia’s assistant governor, and eminent CampAV robot attendee, Guy Debelle in a speech on Tuesday:

When volatility returns, for a number of reasons, including those I have already mentioned, it may well rise quite rapidly. One thing I am sure of is that the spike in volatility will be blamed, rightly or wrongly, on regulation-induced reductions in market-making.

But if we look back at previous market sell-offs, when market-making capacity was larger, we see that they were often quite violent too. Market-makers can pull back in an environment of rapidly falling prices, either directly, or indirectly by significantly widening bid-offer spreads. Market makers generally have just as much reluctance to catch a falling knife as any other market participant. They are after all intermediators of risk, looking to lay it off quickly, rather than being a warehouser of risk.

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Further reading

Elsewhere on Tuesday,

- The Gandhi now embraced by Mr. Modi is an edited version.

- The genetics epidemic.

- The representative agent does not know what he is doing.  Read more

The 6am London Cut

Markets: “Asian stocks fell, with the regional benchmark index heading for a six-month low, extending a rout in global equities after the Standard & Poor’s 500 Index capped its biggest three-day loss since 2011.” (BloombergRead more

The Closer


- Lovely reflection by Josh Gans about the influence of Jean Tirole on his life and career. Read more

Why Janus, what big ETPs you have!

“Why, all the better to see and hear you coming with my dear!”

Little Red Riding Hood is the cautionary tale of what happens to the naive and gullible if they trust or listen to strangers. Specifically, it’s the story of a little girl who gives away too much information to the Big Bad Wolf who then uses it to create a situation where he can much more easily eat her up for lunch — by masquerading as her loving grandmother — out of sight of the regulatory oversight of the local woodcutter enforcement committee.

Or, as the Charles Perrault version of the story goes:

As she was going through the wood, she met with a wolf, who had a very great mind to eat her up, but he dared not, because of some woodcutters working nearby in the forest. He asked her where she was going. The poor child, who did not know that it was dangerous to stay and talk to a wolf, said to him, “I am going to see my grandmother and carry her a cake and a little pot of butter from my mother.”

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Quindell writes

John Aglionby, who spoke to Quindell chairman Robert Terry for this FT story on Monday’s trading statement, asked a follow up question. Would it be wrong to say that Quindell revised downwards its revenue guidance, but still expects to hit targets for key performance indicators?

Their answer… well, here it is in full:

The Company does not use Revenue as a Key Performance Indicator or provide guidance on the levels of revenue it will do, only on what level is needed to achieve current market expectations for its KPI’s based on its current EBITDA margin guidance and its confidence in hitting these levels.

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If you’re not paying for it, you are the market, Nobel edition

The 2014 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel has been awarded to Jean Tirole, a French professor of economics at the Toulouse School of Economics for his analysis of market power and regulation.

As the release from Nobelprize.org explains, Tirole’s contribution comes in figuring out the costs of information asymmetry and regulatory arbitrage : Read more

Markets Live: Monday, 13th October, 2014

Live markets commentary from FT.com 

The (early) Lunch Wrap

Indian car sales drop || GDF Suez expects Russian gas to flow || Covered bond yields at record low || Thornton sales drop || EU plans carbon market revival || Aussie dollar bounces || Stocks flat Read more

Quindell’s third quarter [Update]

A third quarter trading statement arrives from the UK’s largest listed law firm. The board remains confident of hitting its targets for this year, while generating revenues of £750m to £800m, a lower level than previously forecast.*

All that work has again produced de minimis cash flow, however.

Adjusted operating cash flow1,4 for Q3 significantly ahead of expectations and guidance with c.£9.4m inflow compared to original guidance of breakeven (H1 2014: £51m outflow also £9m ahead of expectations) which includes c.£3m of business integration activities which were planned and included in prior guidance

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Further reading

Elsewhere on Monday,

- It’s the “new mediocre”, not a global recession.

- Sorry, “Amazon being a shitty, vicious competitor and Amazon being a monopoly are hardly the same thing.”

- Greenberg, Spitzer and the Fed’s “Doomsday book”.  Read more

The 6am London Cut

Markets: Asian markets were in the red as concerns about a eurozone slowdown and the effect on equities once the US central bank concludes its monetary stimulus this month continued to bite. As investors retreated from risk the US dollar dropped, the price of oil fell and demand rose for haven assets such as gold and the Japanese yen. Japanese markets were closed for a public holiday. (FT’s Global Markets OverviewRead more

Draghi’s true alternatives

Mario Draghi has been very clear about what would push him into the full-blown QE of buying government bonds. He faces some serious opposition from German monetary conservatives even to the less whizzy QE he’s unveiled so far, though — that of buying asset-backed securities.

Full-on QE faces legal difficulties from the ban on financing eurozone governments, as well as deep-seated opposition within Germany and major issues about which government bonds it should buy, and in what proportion. (Italy has the most in issue, so buy mostly Italian debt? Or buy in proportion to shares in the ECB? Or to economic size, meaning the biggest share would be German? Or in proportion to the size of the banking system?).

So it feels like time to explore some alternatives that have been, inexplicably in our view, ignored. Read more

Just click here for the cheese eating North Korean fatso who may well be dead already

Journalism today, courtesy of the Telegraph. A n0te to staff aimed at improving online readership…

Good morning. Kim Jong Un has been rolling his way into the news recently, and google trends shows people love searching for him at the weekend… so I’ve prepped some SEO advice. Read more

Penny delusions

We take much stick on here for pointing out the bleeding obvious to people seemingly blind to the speculative risks they are taking in certain corners of the equity market.

But we’ll persevere. Here’s the Friday afternoon investor bonfire in iron ore prospect London Mining…

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Red October

Looking at the sea of red in the markets over the past two days, it is easy to be disheartened. The Dow Jones Industrial Average fell 334 points and the broader S&P 500 was down 2.066 per cent, matching the fall in Germany’s Dax 30 at pixel time.

It is worth putting the fall into context, even if valuation, complacency and the scale of crowded trades all suggest good reasons for concern. Over the past 50 years, the market’s been down this far in a day 289 times, or almost six times a year. It is nasty, but on this basis it looks normal. Read more