If you ever needed proof that California-based techies live in a bubble of self-deluded superciliousness, where (to their minds) nothing of any value ever happened until Silicon Valley or Ayn Rand ideologues came along, look no further than the following article from Techcrunch posted this weekend. As the opener paragraphs report (our emphasis): Money is pouring into fintech. In 2014, global investment in financial technology startups spiked to more than $12 billion. That’s three times what it was just a year prior, according to Accenture. There have also been some huge funding wins this year. Most recently, zero-commissions trading app Robinhood announced $50 million round and financial education site NerdWallet attracted $64 million in funds. Those are big, headline-grabbing numbers.
Camp Alphaville reminder: Tickets to nerdstock available here. Markets: Asia-Pacific equities fell back from Tuesday’s six-month highs as investors adopted a cautious stance ahead of a key meeting by Europe’s central bank on Thursday and influential jobs data from the US. Wall Street’s session overnight added to the subdued tone. The S&P 500 was flat, after striking new record highs in each of the three prior sessions, as signs of rally fatigue emerged. The CBOE Vix volatility index – Wall Street’s “fear gauge” – was up 2.4 per cent in late trade, but still at a historically low level. (FT’s Global Markets Overview)
Markets: Global markets maintained a broadly positive tone as investors digested the US Federal Reserve’s decision to start withdrawing economic stimulus measures while strengthening forward guidance on interest rates. On Wall Street, the S&P 500 equity index slipped less than 0.1 per cent cent from Wednesday’s record close, while the Dow Jones Industrial Average finished marginally higher. (Global Market Overview)
- Jim Millstein discusses the financialisation of America
- Alphachat is on hiatus this week
- Benn Steil explains the Marshall Plan
- Marcel Fratzscher on the dark side of the German economy — now with transcript!!
- Marcel Fratzscher explores the dark side of the German economy
- Emi Nakamura on calculating inflation
- Stephanie Kelton explains how the government budget affects the economy and the mechanics of student debt forgiveness
- Jonathan Knee explains 25 years of Wall Street’s evolution
- Marcus Noland explains the North Korean economy
- Brad Setser explains how corporate tax policy affects the balance of payments
- Michele Wucker explains “Gray Rhinos”
- 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
In this edition of Alphachat, Michael Pettis, Professor of Finance at Peking University and the original Alphachat guest, joined Cardiff, Kate and David to discuss China and its apparent drive to reorient the economy.
ECB and Draghi day || France is threatening to upstage talks on the EU-US trade pact || The ESM will likely have a €50bn-€70bn limit on direct investments in banks || London should hand Libor supervision to EU, says Brussels || Pro-austerity Finland falls into triple-dip recession || Gabon seeks to reclaim Chinese oil assets || IMF admits to errors in international bailout of Greece || NSA collecting Verizon customer data, Guardian says || FBI and Microsoft take down botnet criminal network || SAC Capital told employees it expects to stay open following a wave of client redemptions || Finra in the US has increased its scrutiny of dark pools || Markets roundup || FTAV’s latest
Asian shares fell back towards their 2013 lows. The MSCI Asia Pacific index fell 0.7 per cent, towards its level in January. Japan’s Nikkei swung to a loss from a 1.7 per cent increase earlier, and the Topix fell more than 1 per cent, down 15 per cent from the five-year high it set in May. (Bloomberg) The ESM will likely have a €50bn-€70bn limit on direct investments in banks. The condition on the bailout fund’s draft direct recapitalisation tool was outlined in a policy paper following six months of talks on breaking the “vicious circle” between sovereigns and banks. The limit to recapitalisation funds reflects the higher provisions on this kind of investment compared to the ESM’s more normal practice of lending to governments. (Reuters)
Abe unveils ‘third arrow’ reforms and Nikkei slumps again || China takes tit-for-tat move against EU wine exports || Apple could face a US import ban on certain iPhone and iPad models || Brazil got rid of its tax on foreign investment in domestic bonds || Australian growth disappointed in the first quarter || Japanese hedge funds have ploughed into the country’s small-cap stocks || More signs of ECB wariness ahead of Thursday’s meeting || Tesco recovery stalls as sales fall || JPMorgan and Morgan Stanley are designing new synthetic CDOs || JPMorgan’s Alabama debacle set to cost bank $1.5bn || HSBC has been landed with a civil lawsuit from the state of New York || MF Global is effectively out of bankruptcy || IKEA founder steps aside || Markets wrap || FTAV’s latest
China targeting 7% growth, says Li || Five Star Movement flops in Italy’s local polls || Investors pour big sums into US biotech || The American energy boom is deepening splits within the Organization of the Petroleum Exporting Countries || China solar fight || European lenders draw down on central bank reserves || Osborne agrees spending cuts with seven departments || New Co-op Bank chief warns of ‘no quick fixes’ to capital black hole || Valeant in $8.7bn Bausch & Lomb deal || Club Méditerranée is to be taken over by its biggest shareholders || Cov-lite loans rise || Markets roundup || FTAV’s latest
FT ALPHAVILLE Spanish auction – damned if you do/don’t: Madrid has tipped a toe into the 10yr debt market and found the water isn’t as cold as it once was. It managed to get away a larger-than-planned issue of €3.9bn 3yr and €859m 10yr paper on Thursday with borrowing costs on the longer-term paper falling markedly alongside decent demand. However, as David’s post notes, the 3yr stuff was a new issue with the yield coming in near enough to this year’s average while the offering of the 10yr paper was small and oh-so-cautious.
Asian stocks fell as investors awaited Ben Bernanke’s speech later on Friday, and reports showed an unexpected decline in Japan’s industrial output and manufacturing activity contracted to the lowest level in 16 months. South Korea’s second consecutive month of decline in industrial output also dampened exporters there (Bloomberg, Financial Times). The ECB would have sweeping powers over all eurozone banks under draft plans drawn up by the European Commission, although Germany and the ECB itself have urged more decentralised steps towards a eurozone banking union. The EC plan, which is still being drafted and will be unveiled on September 12, would strip national supervisors of almost any authority to shut down or restructure their countries’ failing banks, handing this power to a new ECB board separate to its governing council (Financial Times).
China will impose retaliatory duties on US car imports in the latest sign of trade friction between the world’s two largest economies, the FT reports. In a statement, China’s commerce ministry said on Wednesday that it was taking action in response to damage to its car industry from US “dumping and subsidies”. The move will affect several larger vehicles popular in China, including sport utility vehicles made by Germany’s BMW and Mercedes-Benz brands at their US plants. Shares of BMW and Daimler, which owns Mercedes, fell 5 per cent and 3 per cent respectively on Wednesday. China overtook the US in 2009 as the world’s largest vehicle market, and sales there account for a substantial chunk of profits for BMW and Mercedes, who build the SUVs they sell globally in North America. In addition to the two German premium brands, the ministry is also targeting models manufactured by General Motors, Ford Motor, Chrysler and Honda’s US unit. The individual duties will range from 2 per cent to 21.5 per cent and be imposed for two years on imported cars and SUVs with engines larger than 2.5 litres.
China will impose retaliatory duties on US car imports in the latest sign of trade friction between the world’s two largest economies, the FT reports. In a statement, China’s commerce ministry said on Wednesday that it was taking action in response to damage to its car industry from US “dumping and subsidies”. The move will affect several larger vehicles popular in China, including sport utility vehicles made by Germany’s BMW and Mercedes-Benz brands at their US plants. Shares of BMW and Daimler, which owns Mercedes, fell 5 per cent and 3 per cent respectively on Wednesday.
Three bilateral trade agreements passed the US House of Representatives and Senate on Wednesday. But the votes came with a sense of relief rather than celebration from their supporters, and resignation rather than anger from their opponents, the FT says. A serious lobbying effort for the pacts with South Korea, Panama and Colombia, formally called “free trade agreements” (FTAs), has been mounted over the years by business organisations, particularly those representing multinational firms, who professed themselves delighted. Bloomberg reports that the agreement with South Korea is the biggest for the U.S. since the North American Free Trade Agreement in 1994, removing duties from almost two-thirds of American farm exports as well as phasing out most tariffs on industrial and consumer exports within five years.
China has warned that the US could plunge the global economy into a 1930s-like depression if it passes a bill that aims to punish Beijing for holding down the value of its currency, reports the FT. With the Senate set to vote on Tuesday on legislation that would impose tariffs on imports from countries that manipulate their exchange rates, China has said that the consequences of such a move could be dire, leading to a trade war. In a commentary just hours ahead of the vote, the official Xinhua news agency took the warnings a step further, saying the proposed legislation in the US was reminiscent of the Smoot-Hawley tariffs in 1930 that worsened the Great Depression.
An exasperated Michael Pettis always makes for an enlightening Michael Pettis column. This time he trains his eye on the possible implications of the recent announcements by China that this time it means what it says about diversifying its reserve holdings out of USD assets. Sure.
The World Trade Organisation on Tuesday ruled against China’s practice of limiting its exports of raw materials, handing a victory to the US and the European Union in a closely watched trade dispute, the FT writes. The edict from a WTO judicial panel, responding to a complaint from the EU, US and Mexico, said China’s imposition of export duties and quotas on a variety of metal ores and other materials were illegal under WTO rules. By setting a precedent, the decision also strengthens the hand of the EU and US in their related campaign to prevent Beijing restricting the exports of rare earth materials, which are vital components in a number of high-tech products and are produced almost exclusively in China. Karel de Gucht, Europe’s trade commissioner, said the verdict would help to create a more level playing field for raw materials. “I expect that China will now bring its export regime in line with international rules. Furthermore, in the light of this result China should ensure free and fair access to rare earth supplies,” Mr De Gucht said.
UBS senior economic adviser George Magnus addresses the issue of Washington’s budgetary crisis on Monday. As he points out, to some there is a major fiscal imbalance that has to be addressed, but no crisis — while to others the US is bust and nothing short of an immediate downsizing will neutralise a looming austerity crisis.
A report Wednesday morning from Reuters, which spots an article in a Chinese-language newspaper: China will let the yuan rise about 5 percent against the dollar in 2011 to combat inflation, an official newspaper said on Wednesday, while a former central bank adviser said the country needs to free up the currency. …
We expected little progress to be made at the G20 summit, and little is what we got. We also happen to agree with this NYT article that given the remarkable period of contentiousness just before the summit, things could have been much worse. Reading the political tea leaves after such an event is always a precarious endeavor, but did any countries gain something from the outcome? Over to the researchers at Tullett Prebon G7 Economics (our emphasis):
Comment, analysis and other offerings from Tuesday’s FT, Gideon Rachman: The G20’s seven pillars of friction As the leaders of the world’s biggest powers gather for a Group of 20 summit, their South Korean hosts talk hopefully of the organisation as a “steering committee of the world”. But there are so many different hands grabbing for the steering wheel that the G20 will be lucky to survive without a serious accident, notes the FT columnist. In the immediate aftermath of the fall of Lehman Brothers, the world’s leaders pulled together. President Nicolas Sarkozy of France even enthused: “The G20 foreshadows the planetary governance of the 21st century.”
Regular FT Alphaville readers will be familiar with Albert Edwards’ post bubble Ice Age thesis of Japanese style deflation writ large across the globe. In this week’s Strategy Weekly, Edwards looks at the end game for his theory and it’s pretty apocalyptic stuff (again).