One of the supposed “lessons” of Japan’s post-bubble experience is that steady grinding deflation is the worst fate that can befall a rich country. See, for example, Ben Bernanke’s classic speech from November, 2002, or this scary-looking visual from Nomura:
Commentators, academics and policymakers often assert that Japan’s economic performance since the 1980s is one of the worst fates a rich country can endure. While this has become somewhat less common since 2008 — Paul Krugman even apologized for his earlier criticisms — concerns about the “Japanification” of the euro area have become particularly intense as inflation has slowed and government bond yields have converged towards zero.
In a new note, economists at Nomura suggest that Europeans should only be so lucky. After all, Japan endured its supposedly “lost decades” with grace. The euro area has not, and things could end up getting even worse.
Before we dig into the meat of their arguments in a follow-up post, we can’t stress enough how important it is to adjust aggregate economic data for demographic differences. Read more
Jens Nordvig of Nomura reports a frequent question from clients: can the recent dollar rally turn into a big change in the currency’s value, similar to those that occurred in the 1980s and 1990s?
Answer: maybe, but it is worth remembering just how big those dollar moves were. See if you can spot them in the long term dollar index chart:
Nomura, as part of an excellent report looking at various aspects of active versus passive investment management, have considered Warren Buffett’s famous bet that an index fund will beat a fund of hedge funds over ten years.
Buffett is winning, and the bank’s conclusion is that this is very far from a fluke:
In our view, alternative assets as a group show consistently poor performance. Beta is high. Alpha is near zero, if not negative. Correlation with standard asset classes is high. Return and diversification benefits are negligible.
More on that below, but first note the proportion of pension fund fees going to the alternative investment fund managers. Never have so few been paid so much by so many for doing so little. Read more
According to the FT, Bulgaria’s political leaders held emergency talks on Sunday following Friday’s bank run, the second in a week to be blamed on “attempts by unidentified people to destabilise the financial system.”
The run on First Investment Bank and previously on Corporate Commercial Bank, both owned by Bulgarian businessmen with political connections, came as the socialist-led coalition government, weakened by allegations of corruption and a poor showing at last month’s European parliamentary elections, was preparing to resign. An early election is expected to take place on October 5. Read more
How quiet is too quiet?
A reaction we keep hearing to the fact that volatility has seeped out of a lot of markets is that comparative calm should be expected. The supportive actions of central banks fit with the encouragement to keep taking risk, at least for now, as the unconventional easing policies should persist for a while. Read more
It’s well known that Japanese society is ageing, rapidly. Here’s the trend charted, by Nomura’s Kyoichiro Shigemura. Click to enlarge,
Just in case you haven’t been able to review the full 21,500 word “Decision” by the CPC’s Central Committee, covering 15 areas of reform and 60 concrete tasks, here’s a summary of the key measures, with commentary from Nomura’s Zhiwei Zhang:
1. State-ownership and monopolistic industries reform Read more
…do you think that now is the right moment for people to make major purchases such as furniture, electrical/electronic devices, etc.?”
Nomura posed the question. Here’s the answer: Read more
Nomura carries out an annual survey on individual investors’ voting intentions and this year’s results suggest 43.8 per cent of respondents plan to exercise their rights — a a 5.1 percentage point jump from 2012. That compares with a record activism reading of 45.1 per cent in 2010, but it’s also worth noting that those investors saying they would not use their voting rights dropped from 30.6 per cent to 25.8 per cent. So engagement is clearly on the rise.
What are they likely to vote on? Directors pay, of course (34.5 per cent) – and retirement bungs (37 per cent). Read more
It’s a big theme: investors of all colours have reportedly been pouring money into equity funds of late. In fact, over the past week money has been flowing into stocks at the fastest rate since September 2007, according to EPFR.
Which should give all investors pause for thought. Read more
That would be straight-talking Nomura strategist Bob Janjuah. Just a small taste of his latest missive to clients…
We are four S&P closes away from being stopped out on the bearish call outlined in my August note . It seems – let’s see how this week plays out – that we were wrong to believe that central bankers would not become so “political”. As we have captured around 300 S&P points in the sell-off that began in early April (1422 to 1275) and the rally that began in early June (1275 to 1425), and as the S&P traded at 1425 on the day my August note with its 1450 S&P stop was released, the extraordinary central bank actions of the last few weeks has resulted in a very small hit to „our year to date‟. As said, however, my stop loss will be triggered on this Friday’s close if the S&P is still above 1450. So my stop-loss and I are at the mercy of the next four days’ price action. Real-world risk takers/investors may choose to exercise any such stop sooner but I will wait/accept the risk. But to reiterate, if the S&P closes above 1450 on Friday, the bear call of August is closed and initially at least I‟d choose to go flat/neutral on a tactical basis. If my stop-loss is NOT triggered by this Friday’s close – a possibility, but not a probability – then I will write again, but my initial sense in such an event would be that the half-life upside cycle is even shorter then I currently think and has already played out. Let’s see. Read more
Just in case the real trophies never get cast, here are the advisers to the
$90 $80 $70 $60 $55(?)bn putative merger between Glencore and Xstrata. Click to enlarge.
First there was the foul-up over competition issues. Unbelievably, Glenstrata had not factored in the likelihood of a referral to the European authorities. Read more
This novel proposal is from a concerned Nomura shareholder (h/t to reader JZ):
Proposal 12: Amendment to the Articles of Incorporation (Regarding overhaul of basic daily movements) Details of Proposal: It should be stipulated in the Articles of Incorporation that all toilets within the Company’s offices shall be Japanese-style toilets, thereby toughening the legs and loins and hunkering down on a daily basis, aiming at achieving 4-digit stock prices. Read more
Live feed via Fox NY of the downtown evacuation of World Financial Center 2 (‘cos of a suspect package) at pixel time. Click image for more:
Serious equity grief in Milan, where the FTSE MIB fell 5 per cent late afternoon on Tuesday…
Nomura’s Richard Koo has been banging on about the similarities between Japan’s balance sheet recession and the current financial malaise for a long while.
His main point has always been that the financial system won’t recover unless corporates and households complete their deleveraging journey. Read more
Let’s start with four graphs from Nomura. Click to enlarge.
Nomura has reported a surprise 33 per cent gain in the fourth quarter compared to a year earlier, reports the WSJ. Part of the gain, however, was due to one-off events such as the sale of the company’s stake in Japanese restaurant chain Skylark Co. While Nomura’s fixed income and investment banking businesses reported increased reviews, the bank is still under review by Moody’s for a possible downgrade. Nomura cited cost-cutting measures amongst the reasons for its turn of fortune.
Nomura has appointed Steve Ashley, a former head of rates at RBS, as its global fixed income head and Georges Assi as his deputy, the WSJ says, citing an internal memo. The appointments follow news recently that Jasjit “Jesse” Bhattal, Nomura’s highest-ranking foreign executive and joint deputy president, had resigned as had the head of the global markets division, Tarun Jotwani.
In part one, the appetizer, we quickly looked at whether the US banking sector is stronger than it was in 2008, as Lewis Alexander, the new Nomura chief US economist, argues. On the face of it, he’s right — balance sheets appear stronger, but we can’t be sure.
In part two, the main course, we look at what would happen if a crisis was to hit again. Read more
Lenders to Battersea Power Station have moved to take control of the building, drawing an end to months of speculation about the latest plans for the derelict London landmark, the FT reports, citing people familiar with the situation. Lloyds and Ireland’s National Asset Management Agency will on Thursday notify Battersea Power Station Shareholder Vehicle (BPSSV), the holding company behind the Grade II listed building, that they intend take the site into receivership. Real Estate Opportunities, the majority owner of BPSSV, has been seeking a partner to help develop the site, which it bought for £400m five years ago. Recent rumours have included takeover bids from Roman Abramovich’s Chelsea Football Club and a £262m offer from Malaysian property developer SP Setia to take over the senior debt. However, Lloyds and Nama, the Irish bad bank, which hold almost equal shares of a total £325m of debt on the site, are understood to have tired with REO’s failure to find a buyer, and plan to run an open-market auction process to try and offload the development.
European sovereign debt, that is.
And the answer is over €500bn, according to Nomura, which has pieced together data from the IMF and national sources to come up with an updated picture of foreign exposure globally to the Eurozone. Read more
Nomura has reduced its self-reported net exposure to countries in the eurozone periphery by 75 per cent in the past two months in a move that highlights concerns about the growing risk of holding eurozone periphery government debt amid the region’s crisis, reports the FT. The Japanese investment bank said it had cut its country exposure to Greece, Ireland, Italy, Portugal and Spain from $3.55bn at the end of September, to $884m by last Thursday. Nomura said it had slashed its exposure to Italy, in particular, by 83 per cent from $2.8bn to $467m.
Say what you like about Bob Janjuah (and plenty of readers have – Ed) but he always has a view.
And Friday’s report — an appetizer for his 2012 outlook piece — is no exception. A hard default is probable in Europe, the US fiscal/debt problem is about to flare up again and the improvement in growth data is about to be exposed as a post-Japan tragedy cyclical bounce. Read more
Nomura on Tuesday said it would slash costs by US$1.2bn after suffering a bigger than expected net loss of Y46.1bn (US$590m) in the second quarter, the FT reports. Japan’s leading investment bank posted its first quarterly loss since the global financial crisis, when it lost Y216bn in the first three months of 2009. Analysts had expected a Y35.6bn net loss for the latest quarter, according to Reuters. The latest cost cuts include US$400m Nomura unveiled in the previous quarter and highlight the difficulty the bank faces generating profits overseas. The bank said the cuts would be focused on its wholesale division. The results make it more difficult for Jesse Bhattal, chief executive of the global wholesale division, to achieve his stated mission to return the business to profitability. Nomura’s weak performance overseas also raises questions about its ambition to become a leading global investment bank, following its acquisition of Lehman Brothers’ European and Asian operations in late 2008.
Nomura is considering a major cost-cutting drive that will likely see its European operations hit hardest, says the WSJ, citing people familiar with the matter. Some executives are arguing to cut back by as much as $1bn a year, the story says, although others in the Japanese brokerage are opposed to such dramatic action. The plans are expected to be unveiled as soon as November 1, when Nomura announces what analysts expect to be a quarterly loss.
Bain Capital may reach an agreement this month to buy family-restaurant chain Skylark from Nomura’s private equity unit, for about 250bn yen ($3.3bn) including debt, Bloomberg says, citing two people with knowledge of the matter. Nomura led a management and employee buyout of Skylark, which has about 3,700 restaurants, in 2006. It has already told two of its private equity assets this year, to focus on expanding in overseas markets.
Thought the recent pick-up in trading volumes would be good news for the big investment and universal banks?
Think again. Read more