Tesco has defied the expectations of analysts, with UK like-for-like sales growing 1.3 per cent over the crucial festive period. There is a ruck of other retailers reporting this morning and the Bank of England gives us its latest decision on rates at noon. 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.
Tips. The ultimate example of “unbundled” costs and discretionary performance-based income. There are service staff who rely extensively on tips (waiting staff, bartenders, hairdressers, shoe-shiners, doormen, taxi drivers, hospitality staff, street entertainers) and then there are service staff which weirdly don’t (handymen, nurses, airline hostesses, Uber drivers, carers and a plethora of others). So what to make of a fintech start-up, Xendpay, which would like to encourage discretionary tipping for foreign exchange services?
A J Sainsbury bear hug on Home Retail Group, the owner of Argos, has proved quite unpopular. News of Sainsbury’s November cash-and-shares offer to buy Home Retail led the grocer’s shares to be marked 5 per cent lower, cutting its market value by £300m — equivalent to nearly a third of the market cap of its target. Jefferies’s James Grzinic sums things up:
Mike Cagney is one of those Silicon Valley entrepreneurs for whom humility is a foreign language. Since raising around $1bn at a $3.8bn valuation for his online lending shop, SoFi — which stands for Social Finance — he has called his peers unambitious dorks for working with Wall Street and told America’s biggest banks to watch their backs, I’m coming for you. All with one key message: SoFi is not a bank. It’s “happily not a bank”. In fact, it’s “better than a bank!”. Or even better still, it’s a way to “un-bank millennials”. One could say, SoFi’s ‘not a bank’ almost to the point that the word ‘bank’ itself becomes entirely meaningless. (The common view is a bank’s a platform which uses network effects to transfer risk from those can’t afford it to those who can.)
UBS looks at the fundamentals of India’s new gold monetisation schemes on Thursday and in the process comes up with one of the best summations we’ve ever seen on why gold investing in and of itself is stoopid — especially when done en masse by a relatively poor economy. Indians directly or indirectly hold an estimated 22,000 tonnes of gold worth USD 800bn or 39% of Indian GDP (banking system credit is c50% of GDP). Gold thus held is problematic to some because unlike most capital goods it derives its expected value not from its ability to produce (directly or indirectly) goods or services that will meet the material demands of consumers. Instead it derives its value from investors’ collective perception of what it is worth. Indeed.
Touting Ponzi schemes, or as the hip and the cool prefer to call them these days ‘mutual aid’ programmes, is so much easier if you have a handy Marxist-esque ideology to hand. The MMM scheme, which we wrote about on Wednesday, has an ideology and it certainly doesn’t disappoint. Some snippets from the imaginarium of Mr. Sergey Mavrodi: The modern world is bad. It is inhumane, unfair and unjust. This is the world of money. It is not for people. It is for those who who produce this money, for bankers and financiers, government and millionaires. And people are mere “pawns” in this game. They just serve them as attendants.
This is for those of you interested in ancient Chinese business cycles. So, everyone, right? From Yaguang Zhang, Guo Fan and John Whalley’s new paper: Where do you think we are now, mid-plenum and all? “Arrogant dragon will have cause to repent”, perhaps? Or “Dragon wavering over the depths”? Certainly not around 7 per cent “Hidden Dragon. Do not act” or “Flying dragon in the heavens”?
As any good Trekkie will tell you, the economics of the 24th century are somewhat different. Why? Because the acquisition of wealth is no longer the driving force in people’s lives. They — Ferengi excluded — work to better themselves and the rest of humanity. Except, the bummer is, that’s probably a major over-simplification. A post-scarcity economy — a.k.a. the economic reality of an abundant system — may not necessarily lead to a utopian world. At least if we go by the meritocratic example of the fictional Star Trek society. In other words, here’s a post about how I attended a New York Comic Con panel on the economics of abundance — featuring Paul Krugman and Brad Delong, Annalee Newitz (i09), Chris Black (Enterprise writer), Felix Salmon and Manu Saadia, author of the new book Trekonomics — and learnt that even if we did have it all one day, chances are, highly-popular cosplaying events would still be capped by the natural limits of space-time.
A record number for bums on seats for easyJet has given it the confidence to lift full-year profit guidance, Barclays is heading towards the exit in Portugal and the Aga saga is simmering. FT Opening Quote, with commentary by City editor Jonathan Guthrie, is your early Square Mile briefing. You can Asian markets
Here follows the second in a series of posts explaining why this week’s RMB depreciation is akin to the Great China Money Market fund breaking the buck. But first a disclaimer! Whilst our analysis errs to the view that the depreciation was driven by market forces and thus inevitable, that’s not to suggest China “the market economy” is bust or about to face a hard landing. We’re very specifically talking about the state-managed part of the external capital account.
To understand what happened in China this week we think the best financial analogy for China’s management of its economy and its external capital account is this: think of it as a giant money market fund. So when the currency was officially devalued three times, it was equivalent to the Great China Money Market (GCMM) fund “breaking the buck”, a rare event when presumed safe investments turn out to not be so safe as thought. We’re going to explain what that means in two posts, the first of which is the extended history of China’s economic management needed to realise how the world got to this point in the first place.
The International Monetary Fund has sent a strong signal that it may walk away from Greece’s new bailout programme, arguing that it will not be able to participate if European creditors do not offer Athens substantial debt relief. The move again raises the pressure on Germany, which has opposed any debt relief, just as it prepares to seek the approval of its parliament to negotiate the details of a new bailout hashed out in a summit at the weekend. Meanwhile, economists remain sceptical that the EUR86bn agreement, which has ensured that Greece remains in the eurozone, will be enough to restore it to good health. (FT) In the news
UPDATING at the top because… well, you’ll see why. From a great Bloomberg piece just out (do read the full thing): So what is Goldin Financial really worth? In his capacious Hong Kong office, furnished with generous touches of faux Louis XV marble and gold, Pan pauses from a game of solitaire and explains… Dealing himself another hand of cards, he said he still might take the company private so he doesn’t have to contend with pressure from minority shareholders. “I am selling performance, not stock price,” he said. And the wealth ranking? Well, that’s just paper. “A genuinely wealthy person would not count his wealth every day,” Pan says. “It’s better if you just leave me off the list.” Easy come, easy go. That’s Goldin Financial and Goldin Properties erasing just some of the 926 per cent and 606 per cent they gained in the past 12 months. And by “some” we mean they have lost more than $25bn from their market capitalisations in under two days.
Two, obviously. Via the Telegraph on a nutty art market and the nutty luxury market more generally: “The prices of so many of these artworks are disproportionate to their art historical importance,” says Josh Spero, the editor of Spear’s, a magazine that caters to the yacht-owning, Picasso-aspiring classes. “It’s all about ‘my Giacometti is bigger than your Giacometti’ now. Will you really get $140 million worth of pleasure from it? I doubt it. But you know you had to outbid three US hedge fund managers and a Russian oligarch to secure it.” What is the point of this, you ask? Is it simply an ironically cheap way to segue into a chunk of BofAML’s belated attempt to create a new asset class called Vanity Capital? Yes.
The biggest news in diamond land is still April’s audacious heist of a Hatton Garden safety deposit company and the theft of up to 70 boxes worth of diamonds. Police by now have a suspect, and parallels between the robbery and the plot of a novel by Michael Connelly are even being noted. What we’d like to draw attention to is something the criminals may not have considered when planning the heist — something that could seriously impede their ability to monetise the loot. Deflation.
You can sign up to receive the email here 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)
FF Group is the Greek listed seller of jewellery, watches and accessories behind the Folli Follie chain of stores you may have browsed in departure zones of the world’s better airports. It also owns the Links of London brand, sells plenty of sparkly goods in Asia, has grown sales at a brisk pace, and was largely untroubled by the disruption to Hong Kong shopping caused by democracy protests last year. A few aspects of the business are curious, however. For all the sales and profits, it has generated little cash. Trade receivables, the accounting line for cash to be collected in relation to sales made, are on the high side. And the auditor for the largest subsidiary of a listed company worth almost €2bn, where most of those receivables are found, is a small Hong Kong accounting firm.
You can sign up to receive the email here. France, Germany and Italy will join a China-led international development bank despite US pressure for them to stay out of it. They follow in the footsteps of Britain, which announced last week that it would join the $50bn Asian Infrastructure Investment Bank, prompting the Obama administration to accuse it of “constant accommodation” of China. (FT)
You can sign up to receive the email here. Greece’s new government outlined its plans to win over its creditors by swapping outstanding debt for new growth-linked bonds, running a permanent budget surplus and targeting wealthy tax-evaders. (FT)
Barack Obama’s State of the Union address sought to capitalise on the resurgent economy to win support for his progressive policies, but Republicans were quick to point out that many Americans have yet to feel the benefits. Pointing out that the president’s overview might not be completely objective, the NYT’s Upshot did their own analysis of the State of the Union – stronger than when Mr Obama took office, but still troubled. (FT, NYT) When a Democratic president talks up “transgender” rights in prime time, you can be sure he does not face re-election. His real game was to set the field for Hillary Clinton’s election victory next year, which is also Mr Obama’s best hope of cementing his legacy, writes Ed Luce. (FT)
You can sign up here to receive the email. Barack Obama called on the US to “turn the page” on an era of war and recession in his State of the Union address. He tried to capitalise on the resurgent economy to win support for his progressive policies, but Republicans were quick to remind Americans that many of them are yet to feel the benefits of an economic recovery. (FT)
Gnostic mystics and Michael Fowke stand aside. A new financial shaman has emerged from the shadowlands of betaville. He is the One whose function it is to return the flock to the alpha source. Long prophesied by the ancients. Incarnated in this latest rendition of the eternal cycle simply as Gross. And it is He who provides us with the following great revelation this Monday: I am a philosophical nomad disguised in Western clothing, a wondering drifter, masquerading in a suit near a California beach. Sand forms the foundation of my being and its porosity is at once my greatest strength and deepest wound. I have become after 70 years, a man who believes that no belief is sacred. I have ideals and moral standards, but I believe them specific to me. Had I inherited your body and ego, “I” could just as clearly have assumed “yours.”
Sometimes it’s all about the ski chalets. On which note, Knight Frank’s latest dive into the world high-altitude snow-dusted living offers some interesting findings. Among them is the fact that putting your investment money in twee wooden cabins is actually becoming a bit of a thing: For the world’s wealthy a ski home is a key component of their global property portfolio, but increasingly it is being bought not just as a lifestyle acquisition but one that can provide an investment return as well. Which is possibly a neutral bet given the poor but not terrible track record of ski chalet prices during the crisis: Bricks and mortar – of the Alpine variety – did not benefit from the safe haven shift that prime property in cities like New York and London saw post Lehman’s collapse in 2008. Prime prices dipped in the Alps but did not plummet like they did in some of Europe’s oversupplied second home coastal markets.
We all know the role played by the vendor financing feedback loop of hell in dotcom bubble mark 1. Quickly summarised, tech equipment suppliers became overly dependent on sales to internet startups funded through vendor financing, a situation which saw them lending money to companies with dubious track-records for the purpose of buying equipment directly back from them. It didn’t end well. Nevertheless, it’s still a model replicated on a consumer level in the west, whether it’s through car company lending money to customers so that they can buy their cars or sofa company loans for purchases of sofas.