- Our chat with Sebastian Mallaby on Alan Greenspan
- Brad DeLong on Hamiltonian economics and US economic history
- Charles Kenny on trade adjustment, deindustrialisation, development and more (full transcript)
- Inside the Washington Post: a chat with Marty Baron and Shailesh Prakash (plus transcript)
- Clay Shirky and Emily Parker on Xiaomi, technology and information flows in China (updated with transcript)
- Simon Kuper’s panel on the cultural forces of football
- Claudia Goldin on the history of women in the workplace (updated with transcript)
- Our podcast chat with Reihan Salam
- Our chat with Esther Duflo — now with transcript
- Our chat with Esther Duflo
- Our podcast chat with Angus Deaton (updated with transcript)
- Our chat with Angus Deaton
- A chat with Greg Ip about “Foolproof” (and the transcript)
- A wonky chat with Martin Wolf (plus the transcript)
This episode is a two-part chat with Paul Volcker. In the first part we discuss his intellectual influences and early career, during which he shuffled between the New York Fed, Chase Manhattan, and the US Treasury department. We end with his under-appreciated role in the conclusion of the Bretton Woods monetary system during his time as Treasury undersecretary for monetary affairs in the early 1970s.
Here’s an odd argument the Bank of England is somehow to blame for BHS’s massive pension hole. This is the key bit: The investment environment fundamentally changed post-2008. To keep the UK economy liquid in the crisis, between August 2008 and March 2009, the Bank of England cut the base interest rate from 5% to a record low of 0.5%, where it has stayed ever since…The problem arises in the difference between the amount of money set aside to cover eventual pensions and the obligations. The entire DB scheme is a bet that today’s investments will always come good, forever, and cover tomorrow’s guaranteed payments. Schemes had been banking on annual returns from their investments of at least 5%. Suddenly, with low interest rates, and stocks going through the post-crisis trough, it’s down to 0.5% as a base. That means they have to put up a lot more new money to get the returns they need. Contrary to what’s implied in the piece, it’s quite simple to manage a defined-benefit pension properly — especially if most of the beneficiaries are already retired. The level of interest rates only matters if you’re doing it wrong.
Wirecard has issued it’s Q1 results. Turnover at the German payments group jumped from €160m in the first quarter last year to €210m in the first three months of 2016. The results follow a well attended investor day this month, more on which below. While down 2 per cent on Thursday morning, the share price is back above the €40 level it traded at before Zatarra Research & Investigations began publishing on the subject of the company in February. Note too the proportion of shares sold short remains close to a quarter of the market capitalisation, with 12 declared short positions of more than 0.5 per cent even after the annual cost of borrowing stock has touched 20 per cent in recent weeks. The sceptics appear committed to their positions.
Why did Lending Club invest in a fund that bought its own loans? Well, just to spell it out, and via the Wall Street Journal: to juice demand: LendingClub Corp. and its chief executive invested millions of dollars in an outside fund in part to boost demand for the company’s loans at a time of market stress, people familiar with the matter said.
The trick with investing is owning things that go up and not owning things that go down. Unfortunately, it’s really hard to know which is which in advance. For most people, the best choice is to buy lots of different things and hope the stuff that goes up makes more money than the stuff that goes down loses — a strategy that, over time, tends to work pretty well. But if you could somehow avoid buying the worst assets before it’s obvious to everyone else how bad they are, you could do even better. This, in a nutshell, is the appeal of the short-seller.
Elsewhere on Friday, - Michael Lewis on Mervyn King’s book, which will save banking from itself apparently. - At conference of elites, the distress of others is an investment opportunity. - Pity the hated hedge fund managers. - Tom Hayes is crowdfunding his Libor rigging fight. - The new reality of small debt collection.
Alphachat is available on Acast, iTunes and Stitcher. Going bust is painful. But when you are a country it is particularly awful. While people and companies have recourse to established legal frameworks that govern their bankruptcies, struggling countries have to tackle debts in what is close to a legal limbo. As a result, both countries and their creditors are uniquely vulnerable. The former have no formal bankruptcy protection that it can use for an orderly restructuring of its debts, but the latter have few ways to compel a stubborn state to heel (at least in the post-gunboat diplomacy era). The result is a delicate balance — and when it breaks down, it can lead to an unholy mess.
This guest post from Manmohan Singh warns that while QE created excess reserves, removing those reserves from the system will have an important impact on the markets’ financial plumbing – and that will need to be incorporated in monetary policy decision making. Singh is the author of Collateral and Financial Plumbing and a senior economist at the IMF. Views expressed are his own and not of the IMF. ____ Expanded central bank balance sheets that silo sizeable holdings of US Treasuries, UK Gilts, Japanese Government Bonds (JGBs), German Bunds and other AAA eurozone collateral have placed central bankers in the midst of market plumbing. It’s now going to be very difficult for them to walk away from that role.
- Listen - The "gray rhino" theory
- James Heckman tells us why IQ is overrated
- Mihir Desai explains the wisdom of finance — Now with transcript!
- Mihir Desai explains the Wisdom of Finance
- Can we avoid another financial crisis?
- Hirschmania, the final chapter
- The life and speeches of Sadie Alexander
- Kim Rueben on the fiscal impact of immigration
- A sit down with Adair Turner
- Stephen Kotkin explains how Stalin defined the Soviet system
- Richard Florida on geographic inequality
- Further reading
- Jeremy Adelman on Albert O Hirschman’s “Exit, Voice & Loyalty”
- Dan Drezner on the marketplace of ideas
- Robert Lustig on the science behind our addictions
- The economic impact of immigration
- Further reading
- Ricardo Hausmann on the tragedy in Venezuela
- Does Amazon present an anti-trust problem?
- Mary Waters on the integration of immigrants into the US
Alphachat is available on Acast, iTunes, and Stitcher.
In early January, one of the UK’s big three “peer-to-peer” lenders, Ratesetter, began publishing more detailed data on where its loans are going. The company, which is awaiting approval from the Financial Conduct Authority under a relatively light peer-to-peer regulatory regime, said the move would help set “new standards for transparency in financial services”. The new data showed about 60% of loans went to individuals, around 30% to businesses and the final 10% or so to property developers, according to a blogpost by chief executive and cofounder Rhydian Lewis.
While many in the financial advice industry admirably try to help regular folks figure out how much to save and how to allocate their assets, a stubbornly large group is in the business of systematically ripping people off. At first, this might seems strange. Financial advice is a competitive industry and FINRA — the government-sanctioned regulatory organisation — makes it easy to search the records of individual advisers and firms. So, in theory, fraudsters shouldn’t have much staying power. But according to an important new paper from Mark Egan, Gregor Matvos, and Amit Seru, these parasites survive simply because a subset of firms prey on customers, mainly the elderly and less-educated, who don’t know to check their brokers for a history of past misconduct.
One of Europe’s fastest-growing fintech companies plunged by more than a fifth on Wednesday following publication of a highly critical report of its controls by a research group. The crash in the shares of Wirecard, a German-listed payment provider, in a day of heavy trading, highlights a polarised investor debate between investors who have backed a stock market darling and a growing band of hedge funds critical of the company’s accounting practices.
Oil services group Petrofac and equipment supplier Weir have both suffered profit slumps due to the slide in crude, Panmure Gordon’s CEO is stepping down, Aston Martin is opening a new factory in Wales, Nissan has developed self-parking office chairs. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
Right, get your affairs in order, tell your family you love them and take a long walk in a peaceful park, because surely the End of Days is nearly upon us. Go, an ancient Chinese board game and pretty much the last one to resist the onslaught of computers that have already thrashed us at chess, Super Mario and Jeopardy, has finally succumbed. Google’s artificial intelligence outfit DeepMind has developed a computer that last year in secret beat a professional Go player, according to a Nature article released last week. Here’s Deepmind’s Demis Hassabis crowing over his machine’s triumph:
Donald Trump didn’t win Iowa, and it’s anybody’s guess whether his strength in the national polls will translate into actual victories throughout the primary season. Whatever does happen, his candidacy has been fascinating even beyond his manic, hyperbolic utterances and his peculiar mix of toxic and centrist policy ideas. Can anything be learned from his emergence and the surprising resilience of his popularity with a sizable share of Republicans, regardless of whether it continues?
Like his nemesis Carl Icahn*, Bill Ackman doesn’t like ETFs very much. In his latest annual letter to investors – where he apologised for losing a lot of their money in 2015 – the head of Pershing Square Capital Management also devoted several sections to blasting the wave towards passive investment strategies.
Steven Cohen is a changed man according to the description given by Doug Haynes, president of Point72 — the thousand-person operation dedicated to growing the billionaire art collector’s fortune. The Mr Cohen of old was a snarling and aggressive trader who dominated the giant trading floor at the heart of SAC Capital, his Connecticut hedge fund renowned for its unmatched investment performance and fees. His dedication to the desk was stuff of Wall Street legend, at one point causing him to be late to the birth of a child. His was the trading book which mattered, pouring money behind underlings’ bets as the mood took him, the centre through which good ideas must flow. Now though Mr Cohen will regularly take time out of the trading day just to mentor young staff, part of the apprenticeship culture at the firm, according to Mr Haynes: He meets with a portfolio manager and their team three or four days a week usually for breakfast, usually for an hour, an hour and a half, purely to to provide coaching. It’s not an evaluation, its not a review, he just digs in and shares his experience. He probably does that on ad hoc basis two or three times a day, through the course of the day.
Farewell then, David Bowie. A great musician, artist and (this is a compliment) financial opportunist. In 1997 he hit upon a wheeze, he would sell the rights to future royalties from his extensive body of work. Securitisation — effectively a loan backed by the future payments — was in its innovation stage, a more innocent time before finance moved onto mass destruction world tours. Bowie’s was actually the first in a line of “Pullman Bonds”, developed by David Pullman. David Bowie was thinking of selling his masters
Markets: Asian bourses continued their ascent on the prospect of extended monetary stimulus in the US. Investors have been closely watching testimony from Janet Yellen, the nominee for chairman of the Federal Reserve, who has so far stuck to the view the central bank would tie policy changes to underlying improvement in the US economy. (Financial Times) Seven highlights from the Yellen hearing (Financial Times)
Two months to go to year-end, and hedge fund managers are starting to ask their staff for some ideas to get performance up before January rolls around. So how are the still-living ranks of the zombie industry doing? Broad-based gains for October, says industry data provider HFR:
“We are not involved in Icelandic banks,” an Elliott spokesperson said. Yes, that’s an on-the-record statement from the notoriously publicity-shy hedge fund. The Icelandic banks part is going to need some explanation.
What’s the value of a good idea these days? We ask because Institutional Investor has dedicated several pages to considering the imminent death of human insight in finance, as the machines squish take over. (H/T to Climateer.) In this bold future, even your spell checker will be offering stock tips:
We’ve been paying attention to the various ways in which oncoming regulations are likely to crunch parts of the shadow banking system. After the Fed released its notice of proposed rulemaking for its implementation of the Liquidity Coverage Ratio last week, the Citi rates team noted that the matched-book repo market would be unaffected by the LCR but nonetheless should expect future regulations of a different kind.
Hackles were raised across the managed futures industry this month by a Bloomberg exposé of high fees and poor performance. (One we used to riff on diversification as the asset management bait and switch). Attain Capital has taken to its blog to respond. You can read their extensive and detailed response, including rebuffs from the editors of Op-Ed pages here, but we thought we would summarise the main points and then add a few of our own below.
I am shining a harsh light into the murky world of corporate behaviour. Why should good companies be destroyed by short-term investors looking for a speculative killing, while their accomplices in the City make fat fees? -Vince Cable, Secretary of State for Business, Innovation and Skills, 2010