Wine loans: the curious cases of red inventory

Somewhere, on the shores of Switzerland’s Lake Léman — not far from the famous Geneva jet d’eau — is a high-security warehouse facility so impregnable and so discreet it could easily be used to store large volumes of gold bullion.

Yet for Stephen Burton, the founder of wine brokerage Bordeaux Cellars that’s not its most exciting attribute. He’s keen on the other more bespoke features, like climate control. Read more

Inevitably, eventually, Autonomy

Paging Dr Mike Lynch. Your patient seems to be suffering some nasty post-op complications.

From Hewlett-Packard’s fourth-quarter results:

Fourth quarter and full year fiscal 2012 results include a non-cash goodwill and intangible asset impairment charge of $8.8 billion relating to the Autonomy business within the Software segment.

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“Fiscal cliff” was smart branding until it was stupid; and other stuff

“Under current law, on January 1, 2013, there’s going to be a massive fiscal cliff of large spending cuts and tax increases.”

– Ben Bernanke, first usage of “fiscal cliff”, 29 Feb 2012 (Hat tip Kevin DrumRead more

Case studies in low UK taxes: from lattes to water pipes

Corporations appearing to not pay their fair share of tax in the UK is a running theme. Starbucks, Google, Amazon, and now water companies, are all having their turn in the limelight. Let’s have a brief tour around each.

Firstly, sorry to be the bearer of bad news — but it turns out that you aren’t paying enough for your extra hot single-shot caramel skinny latte (as per a Starbucks press release, emphasis ours): Read more

Bluffer’s guide to China’s regime change

The REALLY easy bluffer’s guide to China’s regime change taking place over the next week: wave your hands airily and declare that nobody knows. Because at this stage nobody does know; at least, no one who does know will tell you anything.

However the 18th Party Congress, which starts in Beijing today, is at least as important to the world economy as the US election was. So we’ve attempted to compile a guide on some of the best sources on the incredibly opaque world of Chinese politics (described as “the shark pool of shark pools” by one diplomat quoted by the FT’s David Pilling). Read more

Haldane, Occupy, and the path to reform

On Monday night, FT Alphaville had the pleasure of chairing a discussion on “Socially Useful Banking“. The key speaker was none other than Bank of England’s executive director for financial stability, Andy Haldane. His speech was entitled “A leaf being turned“.

Since we were there for the evening, and moderating the lively Q&A, it’s been interesting to see what angles the papers have taken on it. Here-under a headline digest: Read more

“Cancelling” QE debt

There’s something we’ve never quite got about this debate on “cancelling” all the government bonds acquired by central banks under quantitative easing, either for helicopter money or for debt relief.

Now the Governor of the Bank of England has weighed inRead more

A tale of two VaRs

Buried in Morgan Stanley’s decent third-quarter results (excluding the absurdity that is DVA of course) is this intriguing footnote:

Morgan Stanley’s average trading Value-at-Risk (VaR) measured at the 95% confidence level was $63 million compared with $76 million in second quarter of 2012 and $99 million in the third quarter of the prior year. The Firm modified its VaR model this quarter to make it more responsive to recent market conditions.

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How to (almost) understand China’s quarterly GDP growth rate

China’s Q3 GDP data is out on Thursday, and there’s naturally a lot of speculation about whether it will show yet another quarter of declining growth (almost certainly) and whether it will even fall below the official 7.5 per cent target, (quite possibly). However the numbers revealed won’t be suitable for an apples-for-apples comparison with most other countries. In fact, they’ll barely be suitable for comparison with previous Chinese GDP numbers.  Read more

The Pandit years

“These are the times that will define us all,” Vikram Pandit told fearful Citi staff on March 10, 2009. They’re certainly going to define him.

Is Citi’s CEO going out on top? (‘Top’ in relative Citi terms)

Getting out now that banking is boring? Or just possibly — board pressure. Compared to Jamie Dimon and Lloyd Blankfein, the only crisis-era survivors left after Pandit (who himself already took over from Chuck Prince, who led Citi into the crisis), the Citi chief never had the chairman’s role. Richard Parsons, who had served with Pandit since February 2009, made plans to step down in March.

As we went to pixel the WSJ was reporting a board clash but what actually happened is still unclear. The Journal says it was “strategy and operating performance at businesses including its institutional clients group, according to people with knowledge of the bank.”

Update – From the FT:

People close to the situation said Mr Pandit opted to leave immediately after a tense board meeting where succession planning was discussed. One said the underlying issues were Citi’s failure to pass stress tests earlier this year, a defeat on a “say on pay” vote and the handling of the sale of the bank’s stake in Smith Barney to Morgan Stanley.

(Felix says in response that on governance, “Citi can credibly claim to be leagues ahead of Goldman.”)

Well, we are going to miss the Pandit years… Read more

On the long-lasting hit to UK productivity

Let’s look at the latest from the UK’s Office for Budget Responsibility (our emphasis):

The combination of more robust employment and much weaker GDP growth than we expected together create a significant ‘productivity puzzle’. Output per hour is much weaker than in previous cycles and than in our June 2010 forecast. Several explanations for the puzzle have been put forward and although we believe that some of the weakness of productivity relative to the pre-crisis trend is likely to be a temporary phenomenon, we also assume that a significant proportion of the hit is likely to be permanent or long-lastingRead more

Assorted thoughts on Altman and the coming (?) US housing boom

We saw some funny and half-mocking tweets in response to this op-ed by Roger Altman, mostly because “A housing boom will lift the US economy” sounds like a headline that was found inside a time capsule packed a decade ago, maybe one you’re not supposed to open because it houses evil spirits, like the Dybbuk box in the new Sam Raimi flick.

Whatever, given our own ruminations on the topic (see the related links below), we think Altman deserves to be taken seriously.  Read more

Ship of Theseus seeks flotation

Those who argue for a further relaxation of the LSE’s listing rules may want to note the following announcement:

Rangers, the Scottish football club, today announces its intention to seek Admission to the AIM market of the London Stock Exchange. Read more

Welcome to the ‘Desert of the Real’ — a postmodern economy

Volatility guru Christopher Cole, who heads up the volatility fund Artemis Capital Management, is known for making interesting arguments when it comes to volatility and risk. Previous philosophical thoughts have questioned the concept of volatility, proposed that risk itself is changing, and that QE and other forms of government intervention are warping volatility beyond recognition.

His latest note, though, takes us to an entirely new dimension of market abstraction. Read more

Rubik’s Revolutions

We introduced our Rubiks QE analogy on Tuesday. This post is a continuation, in which we apply the analogy to the crisis so far.

Before we go on we should point out that the Rubik’s is a simplification, as are the concepts of “tomorrow money” and “today money”. There are and will always be areas that call for further explanation, but which we haven’t covered in this post. If they’ve been left out, it’s mostly due to post-length constraints. It’s not because we are wilfully ignoring them. Read more

A new era for FX

Today carry’s hold on FX has waned as global rates gravitate towards zero, forcing the FX market to react instead to the far more ambiguous implication of QE. By contrast, other asset classes, notably equity markets, provide a cleaner mechanistic link between a given view and a price.

The conclusion is that even if we knew the outcome of future events with certainty, the FX market is not the best place to reflect those views. We have fallen to the bottom of the food chain. Read more

Viva España? Spain’s other crisis

There’s nothing like a financial crisis to bring out a surge of nationalism. In Spain’s case the situation is especially serious and seemingly getting worse. So much so that some argue that the growing constitutional crisis could soon eclipse the country’s fiscal problems. The two, you see, are very closely entwined.

In short, more than half of all Catalan want independence for their region, according to the latest polls. The separatist movement has been around for decades but the levels of support have surged since the start of the financial crisis. Earlier this month between 600,000 and one and a half million people (estimates vary) marched the streets of Barcelona demanding autonomy, starting with control over their tax base (which the Basque region already has). The 7.5m Catalans have an economy roughly the size of Austria’s. Read more

A time of hoarding and inflation fears, 1930s edition

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Commodity encumbrance and Joseph’s storage play

It could be that a major commodity story is about to go mainstream.

We are, of course, talking about the issue of financialised commodity inventory and the impact it has had on the supply and demand picture, by taking inventory off-market and off-balance sheet. Read more

Currency wars redux

QE3 has set the dogs of FX verbal intervention loose (well, looser anyway) and it seems probable some actual shots may be fired in the coming while.

Bank of New York Mellon’s alliterative Neil Mellor pointed to Brazil, where the central bank was the first to pass comment on the Fed’s move (with our emphasis): Read more

What driverless trucks in Oz mean for oil workers in Norway

Norwegian oil workers shut down a chunk of the country’s production for 16 days in July over a pay dispute. With the summer over, further strikes are being discussed.

Being such a wealthy country, and with a robust social safety net, it does make one do a double-take when a strike in Norway is over pay. Is the case of the Norwegian oil workers a textbook study on how labour in the rich world is incentivising companies to deploy more technology in their production processes, thereby inadvertently making itself increasingly redundant? Read more

The day after: lingering thoughts and questions about QE3

What an intriguing day for monetary policy.

Others have rightly noted that this is a step towards the recommendations of Michael Woodford and, perhaps, NGDP level targeting. (And Tyler is right: don’t forget Scott Sumner in all this). Read more

An idea better kept in reserve

Yichuan Wang had a spectacular, wonky post trying to adjudicate a debate about interest on excess reserves that I’ve been having with David Beckworth and Dan Carrol.

I’ve been meaning to write about it for a while, but unfortunately a very lengthy recap is needed first, or it won’t make sense to the new reader. The three of you already familiar with the debate should skip ahead to the next section. Read more

German domino theory and book-cooking

There are two fairly important bits to this story in Der Spiegel.

One, that Merkel wants to avoid a Grexit for the time being and two, that the upcoming Troika report might be massaged to make that a reality. Read more

Time to resurrect the ‘missing variable’?

Anyone who has watched the 2011 Adam Curtis documentary series “All watched over by machines of loving grace” will remember the bit about Alan Greenspan becoming confused about America’s exceptional growth in the 1990s.

At the time, the data didn’t seem to fit the prevailing reality. The incredible and seemingly unstoppable growth Greenspan was seeing on the ground was at odds with his economic models, which instead were signalling an imminent rebalancing on the back of wage pressures and implied inflation. Read more

The rapid march towards urbanisation

In our first post in this series, we examined the widely-held belief that China’s steel demand will continue to rise at a rapid rate. FT Alphaville, along with others, contend that such forecasts are on shaky ground. This is, in part, because of the dubiousness of one of the underlying assumptions: that China will rapidly urbanise more of its population. (Here’s a very recent example of this argument, from Stephen Roach.)

The proportion Chinese living in urban areas just passed the 50 per cent mark in the past year but, the story goes, there is more to come. This will in turn mean more industrialisation, more modernisation, a bigger and consuming middle class and of course more GDP growth. In other words: Read more

CDS end-users, a bit like unicorns

Whenever we come across a really real example of an actual client in the credit default swap market, it can be a little too exciting. Especially if they actually talk! They are ever so shy, you see.

But talk one did! To Nicholas Dunbar at Bloomberg. Read more

Labour productivity vs demographics

To what extent has Japan’s soft growth over the past 20 years been due to its population ageing? And to what extent unfavourable demographics can be offset by increases in labour market participation (especially by old people) and/or labour productivity gains?

Citi’s Nathan Sheets and Robert Sockin have put together a very useful comparison of (mostly supply-side) measures for the US, Japan and eurozone that examine these questions. They’ve “decomposed” real GDP-per capita down into labour productivity, employment rate, labour force participation, and the share of the working-age population. Read more

3D Printing: Rise of the machines

Cheap labour isn’t forever. The act of taking advantage of it enriches the work force over time. At least, that’s what should happen.

As America proved, a work force can, in effect, end up aiding its own overall decline due to a lack of competitiveness on wages and pensions. That sort of rigidity, whether good or bad, isn’t the only thing that can lead to a decline in manufacturing employment. Automation can too. Read more

Poll reveals 28% of finance professionals sick of being asked about Grexit

We asked, and you answered by completing FT Alphaville’s (wholly unscientific) survey on Tuesday.

The hastily put together intricately designed poll reveals that 41 per cent of finance professionals, students, developers, and random people* think that Greece will exit the euro within the next year. Read more