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Anthony Harrington

Anthony Harrington
Anthony Harrington is an award-winning business and energy journalist, writing regularly for the Scotsman newspaper, the Glasgow Herald newspaper, Financial Director magazine, Pensions Insight magazine, CA Magazine, and a number of other publications. He won Business Finance Journalist of the Year 2006, Institute of Financial Accountants, and Journalist of the Year, State Street 2006 Institutional Press Awards, and was runner up in 2007 and 2008.

Tony was joint runner-up in two of the three individual categories for trade media journalists in State Street's 2009 Awards, coming joint second in the Journalist of the Year (Pensions) category, and joint second in the Journalist of the Year (Investor Services) category, behind Philip Coggan of the Economist in the first instance and Natasha de Teran from Financial News in the second.

Recent blog posts

  • Cost overruns and mismanagement threaten world's best hope for fusion power
    Building the multi-billion International Thermonuclear Experimental Reactor (ITER), the world's first near-commercial scale fusion power generator, was never going to be easy.
  • Challenges facing small countries and island nations do not get easier
    The difficulty posed by small states which get into trouble is analogous to the challenge that banks face in backing not particularly brilliant small-to-medium sized enterprises. In a recent IMF publication, the IMF sets out to provide some policy guidelines for its staff when they are faced with evaluating applications for Fund assistance.
  • Angola - moving beyond the resource curse?
    Judging the state of the Angolan economy is a real balancing act. Looked at from the standpoint of a country with enormous agricultural potential and fantastic mineral and oil wealth, one has to say it is failing massively to live up to its potential.
  • Turkey and Erdogan: Back but to what end?
    With some 51% of the vote, the Turkish Prime Minister Recep Tayyip Erdogan emerged the victor in Turkey's first direct presidential election on 10 August.
  • Why coherent communication matters to central banks
    A recent study, by two Bank of Japan specialists investigated the way in which analysts and the media react to Bank of Japan (BoJ) statements about changes in long term interest rates. The study throws up a number of interesting points.
  • US economy - is deflation a "straw man"? Probably not!
    For every optimist on the subject of the US economy you can probably find two pessimists. What is certain is that July saw a sharp upturn in new housing starts.
  • Cheaper, stronger, faster materials from fractal nano-structures
    Disruptive technologies just keep coming. A breakthrough by researchers at CalTech is set to completely revolutionize the way in which manufacturing and engineering uses materials.
  • IMF taps into South American youth to get economies back on track
    In preparation for its annual conference on South America, held in Lima, Peru, the International Monetary Fund (IMF) has launched a 500 word essay competition for graduates and undergraduates at South American universities. Entitled How to build a better future, the results should be fascinating.
  • IPO surge in 2014 matches pre-crash highs
    Encouraged by record highs in global stock markets, companies have been rushing to take advantage of investor enthusiasm while it lasts. The first few months of 2014 were particularly strong in Europe, the UK and the US.
  • The price of adventure - Russia counts the cost
    Events in the Ukraine have taken a rather dramatic turn. Russia has sent a 270 vehicle "aid" convoy to the Ukraine claiming that it is providing humanitarian assistance with the aid of the Red Cross.
  • Developing Asia on track for 6.5% growth
    In an update (July 18th) to its Asian Development Outlook 2014, the Asian Development Bank (ADB) headlines the fact that developing Asia can expect a stable growth outlook.
  • How to view Xi's crackdown on corruption?
    In a country where graft has become so endemic that there are probably very few officials left with clean hands, launching a major anti corruption campaign has multiple meanings.
  • EU and US sanctions on Russia bite both ways
    While there is still no clear public trail of evidence linking Russia to the missile strike on Malaysian Airlines Flight MH17, the E and the US are convinced of Moscow's hand in the affair. Ratcheting up sanctions on Russia makes sense.
  • Malaysian Central Bank governor on global financial crises
    On 29 June, Zeti Akhtar Aziz, the governor of the Central Bank of Malaysia, and one of the central figures in managing the Asian crisis of the late 1990s, gave the annual Per Jacobsson Foundation Lecture at the Bank for International Settlements in Basel.
  • Thailand's military junta on a spending spree
    If and when Thailand's military ruler General Prayuth Chan-ocha finally hands over to a civilian elected government, that government is clearly going to have a debt problem of serious proportions.
  • Raghuram Rajan on why regulators need common sense
    On 17 June, delegates to the First State Bank "Banking and Economic Conclave" in Mumbai heard a speech by the charismatic governor of the Reserve Bank of India, Dr. Raghuram Rajan. The ostensible subject of Rajan's speech was the Financial Sector Legislative Reforms Commission (FLSRC) report, which he calls "one of the most important, well researched and well publicized reports in Indian financial history".
  • Huge $400 billion Russia China gas deal a tough ask
    With its economy flat lining and being held up by oil and gas exports, Russia desperately needs to increase the scale of those exports. On the face of it the massive $400 billion deal Russia signed with China on 21 May, for a 30 year gas supply contract, looks just the ticket to deliver that increase over the long haul.
  • Philippines: moving beyond taper fears
    At a recent conference hosted by the Philippines' Chartered Financial Analyst Society, Amando Tetangco, Governor of the country's Central Bank reminded his audience that despite recent shocks, the Philippines' economy has turned in 60 quarters of consecutive, positive economic growth - something that few (if any) other countries in the world have achieved.
  • BRICS Bank becomes a reality - what next?
    After two years of dogged wrangling, mainly to block China's ambitions for control, the new BRICS bank was announced as a reality at the sixth BRICS summit in the north eastern Brazilian city of Fortazela.
  • ECB’s negative rates hammer savers but will it make banks lend?
    From the standpoint of savers, the ECB’s negative interest rate play simply emphasizes the plain and obvious fact that this whole accommodative monetary policy with its “lower-for-longer” philosophy, has been hammering the living daylights out of savers.
  • Libya's LIA provides another sharp reminder to banks to play it straight
    It is all too easy for international banks who do business with dictators for decades to fall into the trap of believing that their sins, assuming they commit any, will never return to haunt them. The brutal truth, however, is that dictators have a habit of eventually toppling and their corrupt dealings, all of which have to be routed through the global banking system one way or another, suddenly start to come under forensic scrutiny.
  • Rwanda's economic "miracle"
    Paul Kagame has held the presidency of Rwanda since 2000. A soldier and rebel leader who forced his predecessor from office with a string of military successes, Kagame's vision for Rwanda is to make it a lower middle income country by 2020.
  • The Thai military coup and the Thai economy
    Will Thailand's coup be a rerun of the coup in 2006, or will the generals manage to demonstrate that they have learned a few lessons?
  • Trade finance funds boost Africa's GDP
    One of the problems that any industry involved in export faces in Africa is that local banks tend to be cash-constrained, and this lack of liquidity is compounded by the Basel III regulations. They have to hold additional capital reserves for every risky trade they make.
  • Indonesia's political hopefuls play fast and loose with economy
    Having been badly rocked by financial outflows and a falling exchange rate in 2013, as a consequence of the Federal Reserve's introduction of tapering, 2014 saw the Indonesian economy surging. However, with the Presidential elections due to be held on 9 July 2014, Indonesia's two presidential contenders are touting some really hare-brained economic policy schemes in their bid to secure votes.
  • Trade secrets and the coming EU Directive
    The EU has given considerable thought over the last year or so to the puzzle surrounding how best to bring some EU-wide uniformity to providing legal protection for trade secrets. Recently, its efforts on this front have resulted in the publication of a report entitled 'Study on Trade Secrets and Confidential Business information in the Internal Market'.
  • Stuck in transition: Eastern Europe losing traction?
    From its founding in 1991, the European Bank for Reconstruction and Development has had two objectives written into its charter, namely advancing democracy and helping to build robust economies in the nations in which it invests.
  • What does pushing and shoving in the South China sea mean to the global economy? Part Two
    In Part One I touched on Robert Kaplan's thesis, in a talk he gave to the Foreign Policy Research Institute, that China is modelling its actions in the South China Sea after the way the US navy's control of the Caribbean and the Gulf of Mexico gave it domination over the Western Hemisphere and boosted the rise of the US to the status of a global superpower.
  • What does pushing and shoving in the South China sea mean to the global economy? Part One
    In a fascinating recent book, Asia's Cauldron: The South China Sea and the end of a stable Pacific, Robert Kaplan sets out his views on why China and its neighbors abutting the South China sea are getting so militaristic about that stretch of water, and what that might mean for the rest of us.
  • Big pharma looks for new models
    In a position statement on the current state of the pharmaceutical industry, the Royal Society of Chemistry (RSC) points out that there is a growing feeling around the world that the “big” pharma model is broken.
  • OSCE Roadmap points the way to Ukraine resolution: Part Two
    This second blog looks at the downside risks and attempts to form a view of the OSCE's chances of brokering and encouraging a favorable resolution of what is, at bottom, a highly dangerous situation.
  • OSCE Roadmap points the way to Ukraine resolution: Part One
    Almost invisible in the run up to and aftermath of the Ukrainian presidential elections, an obscure European "talking shop" body could well hold the key to a de-escalation and ultimate resolution of the Ukraine crisis.
  • Greek economy picks up but danger still lurks
    In its latest quarterly report on the Greek economy, the Athens-based Foundation for Economic and Industrial Research says that the Greek economy is at a turning point and could finally start to expand during the course of 2014.
  • McKinsey's view of the big themes for China in 2014
    Back in January 2014, McKinsey Director Gordon Orr took a stab at looking at the major trends and pressures on China in 2014.
  • IMF chief warns of endless “slow growth” unless countries act together
    One of the problems with having to give a seemingly endless series of speeches, as the IMF chief Christine Lagarde has to do, is that it is all too easy to end up mired in rhetoric. Lagarde’s recent speech to the School of Advanced International Studies is a case in point.
  • Can inequality be reduced without harming growth? Part Two
    One of the standard left wing answers to the growing gap between the very rich and ordinary households, whose share of the national pie in advanced markets has been trending down since roughly the 1980s, is massive income redistribution. Nobody needs billionaires, the argument goes, so bring on the 100% tax rate for incomes over x, where "x" is defined as whatever earnings rate the speaker feels is likely to hammer the super wealthy while leaving "ordinary households" unscathed.
  • Can inequality be reduced without harming growth? Part One
    Back in January 2012 I wrote a blog headed: Why Income Inequality is Killing the US Economy. Clearly, as I write this two years and a couple of months later, the US economy hasn't exactly died yet, but income inequality in the US continues to sharpen. How does this impact the economy?
  • Leverage revisited: when fortune doesn't favor the brave
    It is amazing how, starting with the simple, practical financial fact that debt is cheaper than equity, the world managed to end up with the world-class financial crash of 2008. What brought the whole house of cards tumbling down was simply the sheer number of organizations, supposedly steered by the brightest and the best, who leveraged themselves to the hilt and took dodgy bets they couldn't afford. Stupid? You bet!
  • Kenya's prospects look good as AfDB boosts funding package
    Following Kenya's peaceful elections on 4 March 2013, which saw the former Deputy Prime Minister and erstwhile Finance Minister Uhuru Kenyatta sworn in as the new President, the country's prospects look bright. In February 2014, the African Development Bank issued a decidedly upbeat Country Strategy Paper for Kenya, in which it made it clear that the country could do a lot better than the modest growth seen over the last decade.
  • China's credit crunch starts to hurt
    The new leadership in the People's Republic of China seems determined to bring some sobriety back to the Chinese credit markets; but, as always when a government or central bank puts the squeeze on, many companies find themselves headed towards a brick wall.
  • Why Willem Buiter believes Japan's economy is unsustainable
    Opinions on the Japanese economy vary wildly, from those like John Mauldin, who is fond of dubbing Japan “a bug in search of a windshield”, to those who think that Japan will muddle through, come what may.
  • Africa's mining sector: forcing change and fairness
    One of the paradoxes of Africa over the last century has been the continuing crushing poverty that has afflicted so many citizens in so many resource-rich African countries. The barriers that prevent the cash raised by the extractive sectors in those countries from genuinely flowing into development projects have been many and various, but chief among them has been the cloak of secrecy that has surrounded deals between African governments and multinational mining companies.
  • Why bringing transparency to mining contracts across Africa matters
    How do you stop corporate and private graft and corruption, when both have become endemic and are regarded as simply a normal way of doing business? You shine a light on the dark places so that misappropriations, under-pricing, outright theft and shenanigans of all descriptions become visible. When the people can see what is going on, they pressure the politicians for action and everyone involved starts to behave themselves rather better going forward than they have in the past.
  • Fed ignores next wave in Emerging Market FX Crisis
    Perhaps the most astonishing thing about the latest Federal Open Markets Committee meeting statement on 29 January 2014 was the blithe and merry way in which the Fed opted to completely ignore the crisis that the expectation of its latest round of tapering had already provoked in emerging markets.
  • Bitcoin and alternative currencies after the Mt. Gox debacle
    Perhaps the most surprising thing about the failure of  one of the earliest and largest bitcoin exchanges, the Tokyo based Mt. Gox, which filed for bankruptcy after admitting it had “lost” some 850,000 bitcoins with a total value of around $480 million, has been the resilience of bitcoins on other exchanges.
  • UK leads search for a pensions plan that works: Part 2
    In November 2013 the UK government issued a consultancy paper entitled: Reinvigorating Workplace Pensions. As I noted in Part 1, the aim was to seek responses to the government's attempts to formulate a "halfway house" between DB schemes and DC schemes. What the government is looking at are various ways of sharing the risk between the two.
  • UK leads search for a pensions plan that works: Part 1
    What to do about pensions? There is something obviously morally reprehensible about a company benefiting from the working life of an employee then punting them out as aged persons without a care in the world about how the ex-employee puts food on their table thereafter.
  • Can Africa hit and hold a 7% GDP growth rate year on year?
    At the recent economic forum to thrash out a new partnership model between Africa and France, Donald Kaberuka, President of the African Development Bank (ADB), said that if Africa could find ways of financing and developing improved infrastructure, the continent could push growth beyond the current year on year average of 5% to 7% and beyond.
  • The Generation Name Game: Baby Boomers to Generation Y, Part Two
    Part One considered the practice of labeling the three generations since the 2nd World War as, in order of sequence, the Baby Boomers, Generation X, and the next generation along, Generation Y or the Millennials, as they are also called. In Part Two, the significance of this "generational thing" on the world of work is up for scrutiny.
  • The Generation Name Game: Baby Boomers to Generation Y, Part One
    Labels are useful organizing devices, good for doing an initial fast differentiation of a mass of "stuff". Which brings us to the generation-name-game, that beloved and much used device of social commentators. It too, has its uses and its decided limitations.
  • The EU looks like winning the unequal tug of war over Ukraine
    There are difficult situations and there are impossible situations. Since November, Ukraine has been squarely in the latter camp.
  • Modern portfolio theory - maligned but still better than active management? Part Two
    Taking it as read that modern portfolio theory (MPT) did not protect investors through the 2008 global financial crash, when many saw their diversified portfolios contracting by 30% to 40%, does this constitute a failure of the MPT approach?
  • Modern portfolio theory - maligned but still better than active management? Part One
    There are many ways to take a fresh look at modern portfolio theory (MPT), but perhaps the most obvious is to tackle the criticism that MPT fell on its face in the 2008 crash, when its balanced portfolio approach conspicuously failed to save investors from taking a caning. First, though, in Part One we will take a brief detour through a little investment history.
  • Patent trolling: is the patent system killing innovation?
    Picture the following. You are a small start up with a wonderful new gizmo which brings significant efficiencies and cost savings to industry X. No sooner do you open your doors when you get a letter from a "patent troll" saying you are infringing their patent (unspecified) and you need to pay them a license fee or be sued. You "know" the claim is spurious, but to prove it in court could cost you anything from a few hundred thousand pounds to a few million.
  • Unlimited oil from sunlight and slime changes the energy game
    It is ironic that just as we are finally saying goodnight and farewell to Peak Oil theory, scientists are poised to bring unlimited quantities of the finest sweet crude oil to market, courtesy of algae and sunlight. Moreover, the algae route to creating oil is said to generate 95% fewer greenhouse gasses than the conventional route of drilling for oil, so even if climate change activists would rather that we stopped using oil altogether, "green oil" goes a long way towards meeting most of their objections.
  • ETFs beat mutual funds to finish near record highs in 2013
    By their very nature Exchange Traded Funds are a beta play. You get the market performance, not outperformance. But that only tells a fraction of the ETF story.
  • Will Bitcoin become the new global reserve currency?
    Ever since advanced market central banks began rolling the printing presses, the warnings from various quarters foretelling the implosion of fiat currencies have been getting louder and louder. The lack of trust in the custodians of fiat money has provided a fertile context for the rise of Bitcoin, the ultimate digital alternative store of value as against mainstream, central bank managed currencies like the US dollar, sterling and the euro.
  • WTO Bali deal set to boost EU chemicals exports
    Until the World Trade Organisation’s (WTO) historic “Accord” in Bali, in November, it had seemed as if the EU’s chemicals sector was doomed to lose more and more market share to emerging market economies in general, and China in particular. The EU’s trade body for the chemicals sector had noted that, although the European chemicals sector consists of some of the biggest names in the industry, it is gradually losing ground to both the Americas and China.
  • Economics: still a pseudo science after so much effort?
    The whole point about quantitative easing (QE), if you read the speeches made by central bankers and the IMF, is that it is an extraordinary policy measure. What makes it extraordinary is that it is not usually done (yes, we are in the presence of a tautology) but it is not usually done because central bankers in an “ordinary” frame of mind, regard it as daft.
  • Transformational technology - 3D printing changes the game
    All the fine financial tinkering and re-engineering in the world counts for very little when disruptive technologies roar in from over the horizon. By now, the pool of people on the planet who have not heard of 3D printers must be shrinking fast. This is not sci-fi but today's lab technology - and tomorrow's front line weaponry.
  • Molten Salt Reactor can transform nuclear power costs
    One of the biggest, most insuperable problems with nuclear power generation, namely what to do with the waste that remains toxic for aeons to come, looks like it has been solved by a US start up. What Transatomic Power’s reactors do that is different to conventional nuclear generators is to use dissolved nuclear waste from conventional nuclear power stations, transformed into a molten salt.
  • Private Equity Endangered by Under-performance
    Private equity (PE) has long been considered to have a vital role in the economy across a wide range of corporate deal making, from mergers and acquisition, to "take-privates" and, of course, buy-outs and buy-ins. However, for investors to keep on coming up with the cash to enable new PE funds to be launched, the returns for this relatively high risk asset class have to be worthwhile.
  • Arctic oil: Russia rules, OK?
    The heavy handed Russian response to Greenpeace protesters' attempts to disrupt drilling by scaling Russia's flagship Arctic Drilling platform, the Prirazlomalay, named after the field the platform is located on, should surprise no one. Oil guru and part time adviser to the Russian Energy Ministry, Dr. Kent Moors notes that the stakes the Russians are playing for are astronomically high, and a handful of environmental activists are not going to stand between Russia and its goal, not if Vladimir Putin has anything to do with it.
  • Could shale oil and gas sink Russia's economy?
    For years now, despite Russia coming a horrible second out of the Cold War, and despite the endemic corruption that led one US Ambassador to call Russia "a Mafia State", the Russians have been able to control the price at which Europe buys its energy. The reason why European gas prices are pegged, quite unjustifiably, to the price of oil, is simply because Russia wills it so.
  • PE finds plenty of risks but also attractive opportunities in Southeast Asia
    Despite looking intensely vulnerable to both economic, political and natural disasters, Southeast Asia is exhibiting the kind of dynamic growth that private equity investors have always associated with above average returns. A recent report reviewed recent deal making activity in the area and looked at what is driving transactions in one of the world's most dynamic and fast-growing regions.
  • Historic WTO breakthrough in Bali: bucking the protectionist trend
    On 7 December, in an historic $1 trillion deal, the commerce ministers from 159 countries took steps to make it easier for goods to flow across borders around the world. This is the first ever tariff-lowering global agreement in the history of the World Trade Organization (WTO), since it was founded on 1 January 1995.
  • What price for the carbon tax now Australia has dumped it? Part Two
    In Part One we looked at the difficulties of both imposing and maintaining a carbon tax on industry, in the light of Australia's initial move towards the tax and its unambiguous rejection of the whole idea of putting a price on carbon. Electing a climate denier as Prime Minister is about as clear a rejection as you can get. The danger, of course, is that other countries might be tempted to follow Australia's lead.
  • What price for the carbon tax now Australia has dumped it? Part One
    One of the saddest things about democracies is that it is extremely difficult for politicians to do the right thing, when the required course of action would create short term pain for large numbers of people. Arguing that we should take some pain now, to avoid much greater and more long lasting pain later, is extremely difficult. People may listen and some may even nod agreement, but they generally end up voting for the other guy. The carbon tax falls precisely into this category.
  • Why South Africa is struggling to match Sub-Saharan Africa's growth
    Given the fact that emerging markets have been whacking advanced markets out the park as far as growth is concerned, it should not be that perplexing that South Africa finds itself lagging behind the continent's emerging market out-performers. Francois Groepe, the deputy governor of the South African Reserve Bank, noted in a recent speech that while Sub-Saharan Africa is expected to grow at 5% in 2013, rising to 6% in 2014, South Africa's growth expectations are far less robust with the IMF predicting growth of 2% and 2.95% respectively.
  • Bill to banks for past misdeeds reaches eye-watering proportions
    With J.P. Morgan setting aside $23 billion to cover legal fees and fines, the incentives being provided to future big bank management boards to get their act together just keep on growing. One can debate whether the cost of punitive actions has yet reached a sufficient level of severity - but it is undeniable that the scale of fines being imposed is heading in the right direction.
  • Economic damage to Philippines from Typhoon Haiyan raises some serious questions
    On 8 November, the Philippines was hit by Super Typhoon Haiyan with winds gusting to a fraction under 200 miles per hour (320 kilometers). The Asian Development Bank puts losses to the Philippines' economy from storm and earthquake damage at an average of US$1.6 billion annually - an astronomical figure for any economy to have to absorb.
  • Turkey: much to ponder as EU restarts membership talks
    The EU - whose most powerful members manifestly do not want to extend EU membership to Turkey - is once again going through the ritual of reconsidering the country's application for membership. There are huge pluses and glaring minuses involved in any future Turkish membership; this dance still has a long way to run, it seems.
  • China and military muscle: a high wire act or a folly?
    When trade moves across borders, armies don't. China is widely regarded as the engine that may yet prove sufficiently powerful to pull Europe out of its slow-to-no-growth quagmire, so, it would seem wildly unlikely that China would pose a military threat to the West, or, indeed, to any region. However, sometimes things just "happen", and not for the better.
  • The UN and FAO ponder food security
    It is perhaps inevitable that when well-meaning bodies like the World Bank and the Food and Agriculture Organisation of the UN (UNFAO) get together to report on where we are going with agriculture, in the light of the world's ever expanding population, the brief they set for themselves will reflect not just on how to create food security for planet Earth, but also on how to achieve food security "sustainably".
  • China's new free trade zone in Shanghai could/should free up the renminbi
    China has a number of free trade zones (FTZ) already, but the one planned for the country's commercial hub in Shanghai is shaping up to be unique. There may be some manufacturing, but what Shanghai's FTZ is all about is financial services and turning Shanghai into a rival to the City of London - well, not overnight, maybe - when it comes to FX trading.
  • US shutdown halts talks with EU on millions of new jobs (Part Two)
    Part One of this blog started with the fact that the US Government shutdown - temporarily we hope - derailed the second round of talks on the Transatlantic Trade and Investment Partnership (TTIP). Then, it homed in on the most intractable area the talks are going to have to grapple with, namely dismantling regulatory barriers to free trade between the US and Europe. At stake are €100 billion worth of additional exports each for the US and Europe and the creation of millions of new jobs.
  • US shutdown halts talks with EU on millions of new jobs (Part One)
    One of the unsung and largely unnoticed casualties of that monumental piece of political idiocy, the US Government Shutdown, was the cancellation of the second round of the Transatlantic Trade and Investment Partnership (TTIP) talks between the US and the EU, which was scheduled to have taken place between 7-11 October. The negotiations have now been shelved until the US can resolve the political gridlock that is paralyzing the country.
  • Indonesian economy hits a few speed bumps
    By the standards of EU markets, the Indonesian economy - despite hitting a few speed bumps lately and thus losing considerable momentum - still has reasonable GPD growth. But Asian economies generally were given a sharp wake-up call by the way their fortunes, and their currencies, nosedived after May 2013 - which is when the US Federal Reserve first started to talk up the possibility of quantitative easing (QE).
  • China edges closer to reserve currency status
    While there are always many currents roiling the waters for foreign currency (FX) traders, two broad trends now heaving up over the horizon are set to change the game fundamentally.
  • IMF gives Reserve Bank of India a B-minus
    In August 2013, the International Monetary Fund (IMF) published its Detailed Assessment Report on the Indian financial sector's compliance with the core Basel principles. It gave India an A+ for running a tight ship with respect to its higher than minimum capital requirements, frequent hands-on and comprehensive onsite inspections, and conservative liquidity risk policy. However, it was less than happy with the fact that the RBI remains tied in part to the Indian government and is not independent.
  • Emerging markets get a contrarian bounce from US shutdown
    It's a topsy turvey world when bad news is good news for emerging markets (EM). The logical expectation for the performance of EM in the face of the US government shutdown (a piece of political foolishness of mammoth proportions) would be that they would plunge as the US government grinding to a halt roils world markets. Instead they bounced, with two of the worst performers, Indonesia and the Philippines seeing the largest upward spike. Why?
  • The Fed and the Emerging Market Crisis - Ignore At Your Peril
    On past form, the US doesn't particularly care if various bits and pieces of the global economy get squished as it rolls over in bed or stretches its limbs. Its key officials are accustomed to doing what they think is best for Uncle Sam and then arguing that, ultimately, what is good for the US economy is good for the world - why worry about a little squealing here and there?
  • Pity the Poor Central Banker who is Running Out of Tools
    Federal Reserve Chairman Ben Bernanke has done much to popularize the idea that providing "forward guidance" on interest rates is a powerful tool in a central bank's armory. The argument he introduced is that, without actually adding more assets to its balance sheet or printing a single note, a central bank can strongly push public and institutional opinion in the "right" direction (i.e. the direction desired by the central bank), simply by giving plain, straightforward long term guidance on interest rates. One of the biggest fears the market has now, after years of quantitative easing (QE) and low interest rates, is that rates will rise unexpectedly and overturn the "loose for longer" environment that has pushed stock markets to record highs.
  • Shock Fed U-Turn Warmly Welcomed by Emerging Markets
    There are a few really good pieces of advice for leaders and politicians. Three of the better axioms are: don't make rules you can't enforce; don't make promises you can't keep; and don't paint yourself into a corner. Federal Reserve Chairman Ben Bernanke ignored all three when he started talking up tapering in May 2013 - however, the shock decision to suspend tapering actions has been met with huge relief across the EM space.
  • Longevity risk could compound state debts says BIS
    One of the most destabilising factors facing the developed world is the thorny question of unfunded state promises to the aged. There is an expectation in many countries that the State will provide a safety net for the aged, ranging from affordable or free healthcare up to and including whatever geriatric and end-of-life care might be necessary, including residency in care homes and so forth. When these promises are quantified and projected forward, the resulting picture looks completely unsustainable.
  • Behavioral economics – new tricks for government financing? Part Two
    In 2010 the UK Coalition Government, impressed by what it knew of behavioral economics, decided to set up a group of 13 academics as an adjunct to the Cabinet Office. Called the Behavioural Insights Team, or the Nudge Unit, this group was given the task of finding smart ways of "encouraging and enabling people to make better choices for themselves."
  • Repent, for the end is nigh: Another crash looming?
    It’s the nature of deepish markets for every buyer to find a seller, and vice versa, so it should be no surprise to find some voices raised predicting that everything is about to drop off a cliff, precisely when everyone else is piling in, boots and all. However, Adam Taggart, a regular contributor to Chris Martenson’s Peak Prosperity site, argues the contrarian view with a greater mastery of detail than most.
  • Behavioral economics: New trick for government financing? Part 1
    Anyone who studies markets, particularly anyone who trades, knows that human psychology plays a huge role in seemingly random market movements. The same line of thinking opens up the possibility that there might be smarter and more cost-effective ways for governments to interact with the general public on a whole range of issues...
  • Safe assets? What safe assets? BIS ponders sovereign risk
    The Bank for International Settlements (BIS) has just released the proceedings of its seminar on sovereign risk, "Sovereign risk: a world without risk-free assets?" held in Basel at the start of January this year.
  • Where have all the good jobs gone? Gone to part-time...
    If you want to experience a real sense of dislocation and dizziness, try focusing one eye on a chart of the S&P 500, marching to ever higher highs, and another on a chart showing full time jobs in the US over time (hint, it goes down, not up).
  • Japanese PM targets deflation as the main battle
    Japan's Prime Minister Shinzo Abe swept all before him in the recent Upper House elections and as reported in the Japanese Times, he lost no time in pledging to focus all his efforts on what has come to be called Abenomics, namely a full-on attempt to create meaningful inflation by throwing everything and the kitchen sink into a sustained wave of Quantitative Easing.
  • EU looks to strengthen anti money-laundering provisions
    The Basel Committee on Banking Supervision recently issued a consultative paper on money laundering, or rather, on the sound management of the risks associated with the possibility of money laundering and the financing of terrorism. The consultation period ends in September 2013 and the point is to devise rules and supervisory strategies that will reduce the possibility of major banks being contaminated by the huge illicit cash flows washing around the system from drug barons and organised crime, as well as from those seeking to fund terrorist groups.
  • Why India's love of gold has its down side
    The coming together of a number of factors has prompted India's finance minister, P. Chidambaram to appeal to his fellow countrymen and women to give gold a rest. Indians annually buy up billions of dollars worth of gold, causing substantial outflows of rupees into US dollars and adding significantly to India's negative balance of payments.
  • EU's carbon pricing strategy takes a potentially fatal hit
    If you believe that global warming is the biggest catastrophe and economic disaster coming our way, then attempts to retrofit measures to contain CO2 emissions onto a global industrial base that has evolved largely without regard to emissions is a hugely important task. Finding a way of putting a price on carbon is the obvious route to go. The EU set itself up to be the global leader in creating mechanisms for carbon pricing but its emissions trading scheme, which has been copied by a number of countries, including Australia, South Korea and some Chinese provinces, is now in disarray.
  • Progress in internationalizing the Renminbi
    In June 2011 there were 900 banks around the world that offered their customers the opportunity to settle transactions with Chinese firms in renminbi. By July 2013 that number had swelled to 10,000. A more than 10-fold increase in two years is remarkable testimony to the speed with which China's "closed" currency is becoming open.
  • Australia's economy: bit of a curate's egg but way better than Europe's
    The Aussies were cock-a-hoop when their currency, the Australian dollar first achieved parity with the US dollar and then, in July 2011 hit an all-time high of 1.1000 on the spot FX market against the US dollar. For much of 2012 the Aussie ranged between 1.02 and 1.05 against the $US, then from April to June 2013 it went on the slide, first giving up parity and then reaching a low of 0.91485 cents to the $US on Friday 28/06, with further lows likely. Just for the record, the all time low for the Aussie against the $US was 0.48 in April 2001, at the height of the crash. So what does the present rather steep decline in the Aussie tell us about the Australian economy?
  • Emerging market bonds in East Asia on a roll
    Back in March this year the Asian Development Bank (ADB) produced a report showing how fast the local currency (LCY) bond markets were developing across Asia. By the end of 2012 East Asia's LCY bond market had reached $6.5 trillion, with the corporate sector bond market growing from 4.2% by value, quarter over quarter, in the third quarter of 2012, to 6.2% in the fourth quarter.
  • Goodbye to limiting climate change to 2°, cue storms! Part Two
    At the launch of its special report on climate change, released on 10 June 2013, the International Energy Agency (IEA) took as its starting point the fact that the Mauna Loa Observatory in Hawaii recently recorded the passing of what the IEA called "a grim milestone", with the concentration of carbon dioxide in the atmosphere topping 400 parts per million.
  • Goodbye to limiting climate change to 2°, cue storms! Part One
    On 10 June the International Energy Agency's latest report, on the World Energy Outlook in effect said goodnight and goodbye to the chances of the concerted actions of the governments of the world succeeding in the stated goal of limiting the rise in temperature through climate change to just 2 degrees Centigrade above pre industrial levels. The goal is still reachable, but, as the IEA says rather wistfully, achieving it would be "extremely challenging, technically". And since it is far easier for politicians to procrastinate than to act meaningfully, particularly when disaster seems distant rather than an immediate threat, we can conclude that planet Earth has missed the bus and will now have to settle for second best, even if this means wild weather, droughts and floods of Biblical proportions.
  • IMF analysis of CDS spreads show them to be well behaved
    In a press conference back in April on the analytical chapters in its latest Global Financial Stability Report, the IMF explained why it had opted to devote a chapter to considering whether or not credit default swaps (CDS) pose any special risk to global stability. The result of the IMF's investigations? Sit back and relax.
  • Forget Greece and Cyprus, Portugal as the next exit candidate?
    It is not difficult in any of the eurozone's struggling peripheral members to find voices raised vehemently against continued membership of the euro. Austerity will do that. Those in power in these countries insist that austerity is the only way forward but that message becomes increasingly untenable when the months keep passing and the situation just gets palpably worse, not better. On or around 9 May Portugal released its first quarter unemployment figures. They did not make for happy reading. Those out of work now amount to 18% of the working population.
  • Latin America benefits from "favorable tailwinds"
    In its latest Regional Economic Report the International Monetary Fund (IMF) sees reasonable cause for optimism about the global economy. World output is expected to rise by around 3.5% in 2013, climbing to 4.0% by 2014, though the uncertainties surrounding advanced market recovery and emerging market strengths continue, according to the IMF. One of the big issues still playing out is sovereign debt and the efforts being made to repair both sovereign balance sheets and bank balance sheets. We are not out the woods here by a long stretch, the IMF reminds us, and these twin, and highly related issues, have the power to ignite new stress moments for the global economy again and again.
  • Central banks in uncharted waters
    In a speech in mid-May, Jaime Caruana, general manager of the Bank for International Settlements (BIS) told a London audience that central banks were now deep in unchartered waters.
  • Which is more open financially, India or China?
    In a working paper from the Bank for International Settlements, Guonan Ma and Robert McCauley consider the relative closure or openness of the world's two largest emerging economies, China and India and conclude that, contrary to the findings of most academic studies, India is actually more open than China right now, but that both countries are progressing towards being more financially open. This is a technical paper and will leave the casual reader scratching their heads, but the authors make a number of interesting observations through the course of their dissertation, and for those of us wondering exactly when, or perhaps if, these two economies will open up fully, it holds much of interest.
  • Japan's economy: pushing stones uphill, the return of Sisyphus
    On 12 June Japan's Nikkei index fell 6.25% to 12,445, it rallied a touch the next day, but that drop was sharp enough to send shock waves through the Japanese political establishment and to put chills into the heart of the global investment community. Just a few weeks earlier, on 22 May, the Nikkei peaked a few points short of 16000 under the influence of bold statements from the Japanese Prime Minister and the Governor of the country's central bank, who said, more or less, that they intended to run the printing presses flat out to get rid of the deflation that has plagued the country for two decades, and to restore a "healthy" rate of inflation, somewhere around 2%.
  • Manipulating the gold price - nice work if you can get it... Part 2
    In Part One of our account of Chris Martenson's anatomization of the way the gold price is manipulated by the bullion banks, we looked primarily at how the manipulation is carried out. In this blog we look at Martenson's rather more far reaching assertion that there is a reason why the authorities turn a blind eye to blatant price manipulation, even though it is technically illegal.
  • Manipulating the gold price - nice work if you can get it... Part 1
    Professional traders and the army of day traders who watch the gyrations of their particular markets day in and day out take it as written that markets are manipulated. Everyone is at it. In a real sense, this is simply how markets work. "Horse trading" where buyers and sellers each try to gain an advantage works if there are enough buyers and sellers out there to create the conditions for a competitive market. Anti-trust and government or pan-national organizations aimed at discovering and breaking up cartel price-fixing activities are all about trying to ensure that markets stay competitive and prices are always under competitive pressure.
  • Regulators investigate second Libor-like price fixing scandal by banks
    A new price fixing scandal involving some of the major banks has come to light, and looks as if it could be on a comparable scale to the Libor scandal. The latter saw at least three banks, and probably an additional ten or more, involved in fixing the daily quoting of inter-bank borrowing rates (Libor) on a market worth upwards of $500 trillion. Like Libor, the interest rate swap fix, known as ISDAfix, is also set by banks through a voluntarily reporting process that has banks phoning through the swap rates they are striking each morning. Like Libor, ISDAfix too, seems to have been manipulated to the benefit of traders at some major banks.
  • Russia's economy - dysfunctional but intact!
    There is no shortage of intelligence in Russia. From chess grandmasters to super scientists, Russians have proved again and again that they love tough intellectual challenges. Their S-400 anti aircraft and anti ballistic missile systems have highly sophisticated radar control technologies that can track large numbers of incoming targets and engage a goodly number simultaneously (exactly how many the Russians, understandably, are not saying). Their top managers and functionaries are well accustomed to navigating their way through political and bureaucratic labyrinths that would leave most advanced market CEOs in danger of stroking out. So why, oh why, is their economy in such a shambles?
  • Taxing questions for multinationals
    The rules of residency for multinationals are extremely complex and not a little fuzzy and getting them wrong could cost big time. Instead of being taxed in what you fondly believe is a low or reasonable corporate tax regime, you could find one of the world's steeper tax regimes claiming that actually, for tax purposes, you are domiciled in their domain. How could such confusion arise? Relatively easily, according to Frédéric Donnedieu de Vabres, Chairman of Taxand, the world’s largest independent global organization of specialist tax advisers to multinational businesses.
  • How rigged are the markets? Libor, ISDAfix, and now the oil price...
    It seems that news about the fixing of trillion dollar markets is becoming, well, rather routine. First there was Libor, then there was the announcement that the Commodities Futures Trading Commission (CTFC) was investigating the possible rigging of the interest rate swap rate, another market in the hundreds of trillions. Then in mid-April the EU announced that it was investigating possible price manipulation in the $165 trillion physical-oil market. That's three price fixing scandals slap bang on each other's heels, all involving trillion dollar markets.
  • Australian trade eyes the renminbi
    What does any nation with a significant amount of trade with China want? Probably many things, but a free floating renminbi exchange rate would be high on the list.
  • ECB rate cut perturbs the euro
    There is a grim inevitability about the way in which analysts pour over every utterance from senior figures at the European Central Bank, weighing every phrase for its dovish or its hawkish qualities. At the time of writing, more than a week has passed since the ECB decided to try to stimulate the flagging EU economy by cutting its main refinancing rate to a record low of 0.5%. Banks and analysts had been on tender hooks wondering which way the ECB will go.
  • Extraordinary times call for... caution?
    Take a lackluster, nay, flat to falling economy in Europe and under-performance in the US and match that with record highs for the S&P, which hit a new all time high on 28 March and may well do so again before this blog appears in print, and you are not alone if you find yourself scratching your head and wondering what, exactly, is driving things? It can't just be all that new money being created, surely?
  • Russian privatization plans in wobbly mode
    Russia's attempt in the 1990s to "leap with one bound" from a Soviet style "ownership of the means of production" to a modern, capitalist, private ownership model for major assets was a huge success, if by success one means the transfer of some state assets at ludicrously low prices to former party bosses and apparatchiks, with the inevitable result of transforming the lucky few into billionaire oligarchs.
  • Developing economies find the capital markets wide open, according to the World Bank
    In its "Global Economic Prospects" report for January 2013 the World Bank has some very interesting figures on the extent to which the hunt for yield in developed markets is opening up the capital markets to even the third tier of developing countries. One has to wonder, with the catastrophic consequences of the last major hunt for yield still vivid in the mind, if this is the start of another binge party that is going to end in tears.
  • Currency wars get a diplomatic make-over from G20
    The phrase "currency war" is undoubtedly an emotive one and the G20 at its February 17th/18th meeting, along with IMF chief Christine Lagrange and the European Central Bank president Mario Draghi, has been doing its best to wrestle this particular bone away from the media and to portray the wild swings in the FX markets seen over the last months as merely the result of domestic governments pursuing domestic issues, no war at all, in fact.
  • Rogoff and Reinhart's little blunder, does it matter?
    Opponents of austerity have no reason to love a couple of high powered economists who seem to be on a mission to convince senior politicians everywhere that too much debt is seriously bad for a country's prospects. The economists in question are MIT's Carmen Reinhart and her "partner in crime", Ken Rogoff, a former chief economist with the International Monetary Fund. Their mission, for some years now, has been to stiffen political resolve to cut debt.
  • Bank of Japan analyses the ageing dilemma and other headwinds
    In his last speech as Governor of the Bank of Japan, Masaaki Shirakawa gave a detailed account of what is required to strengthen growth in Japan - a problem that has plagued both politicians and central bankers for two decades.
  • The RBI view of India's macro challenges
    In a fascinating speech Duvvuri Subbarao, the Governor of the Reserve Bank of India (RBI) talked about the RBI's perspective on the macro economic challenges facing India. First and foremost, there is the fact that where India was averaging 9.5% growth in the three years leading up to the 2008 global financial crisis, today the country faces sharply decelerating growth, high and stubborn inflation and falling investment.
  • The Indian financial sector - pity about the State's thumb on the scales
    The Indian financial sector did rather better through the 2008 global financial crisis than the financial sectors in many western economies. However, as we move into the third month of 2013 all is not entirely well with the sector. As a recent IMF report (January 2013) on the Indian Financial Sector makes clear, there is just too much state involvement in the sector for the IMF or any dispassionate observer to be entirely at ease.
  • World Bank ponders impact of sea level rises on developing countries
    Proponents of global warming have long warned of the potential for sea levels to rise one to three meters over the course of the present century. Now analysts from the World Bank have put together a working paper question what the impact on developing countries would be.
  • Squaring up to a low growth world- Part Two
    In Part Two we take up the two further strands of his argument which basically sees the US struggling to achieve 1% growth into the dim and distant future. These two strands are the additional negative impacts of steadily increasing resource costs, allied to increasing resource scarcity, and the potentially damaging effects of climate change. Both of these have the power, over the next decade or so, to have a tremendous negative impact on growth, Grantham argues.
  • Squaring up to a low growth world- Part One
    There wasn't much of an outcry in the media when the US Congressional Budget Office told the Senate Budget Committee and the House Budget Committee that instead of achieving 3.0% growth in 2013 as had been widely reported, the CBO expected the US economy to grow by no more than 1.5% by the end of this year. That is way below trend for the US economy.
  • Draghi proves masterly at manipulating the euro
    I recently had the pleasure of interviewing a few FX strategists on the theme of making above average returns from currency trading. There was near universal agreement among those I spoke with that as far as currencies are concerned, we have been living in a headline driven world. If you could second guess the next headline you pretty much knew what the reaction of, say, the euro against the dollar was going to be.
  • Pakistan - the glass half full, or more than a bit empty?
    Comparisons between India and Pakistan do the latter few favors, although with the two countries constantly squaring off over issues like Kashmir, making such comparisons is a bit like waving a match in a dynamite factory. The day before this blog was penned, Indian troops shot and killed a Pakistani soldier who had accidentally crossed the line of control that separates the Indian and Pakistani sides of the Kashmir region. That this is a pointless and stupid conflict, as well as one that two regional neighbors can ill afford, is glaringly apparent to everyone except the two countries involved.
  • Every peak has its trough - but have markets peaked?
    One of the things that keeps traders trading - apart from money, of course - is the power the markets have to astonish. For what seems like years now economists and analysts have been predicting that all the Quantitative Easing being pumped into the global economy from the Federal Reserve, the Bank of Japan and of course the Bank of England, was going to cause equities to rise and rise. Equity markets have responded in fits and starts but they have now ignited and sprinted to all time highs.
  • Death of Chavez: Return from la-la land for Venezuela? Probably not...
    Getting at least some of the country's oil wealth to trickle down to the poorest strata of society was something Chavez worked hard at and many will remember him fondly for this. However, his legacy, to any economically literate person, is to have bequeathed Venezuelans an economy that could hardly be in more of a mess. Whoever succeeds him is going to have a Herculean task cleaning it up.
  • Ireland bond deal with its central bank "sets precedent" says Weidmann
    At a recent press conference, Mario Draghi batted away a seemingly endless stream of questions about the European Central Bank's take on Ireland's recent get-out-of-jail-free swap deal, saying only, and repeatedly, that the ECB "took note" of the deal - an opaque statement if ever there was one. However, the Bundesbank President Jens Weidmann was less coy. In an interview with Bloomberg he called the deal "a departure from normal fiscal policy" and said that there was a danger that it would set a precedent for others to follow.
  • EU Budget brings "austerity" home to roost for the EU
    For the first time since its formation in 1957 the European Parliament is being asked to ratify an EU budget that envisages spending less than the previous budget, 3.4% less, to be precise. So will the EU bureaucracy and Member State governments be able to transform all this funding into concrete steps to reduce the continent's unacceptable unemployment levels and generate increased productivity and competitiveness on a global scale?
  • Dismantling universal banks? Bad idea says Deutsche Bank Research
    These days with re-regulation of the banking system being enthusiastically supported by governments across developed markets, it is hard to find anyone outside the banking community to raise a voice against more and tighter regulation. However, this hasn't stopped the research arm of Deutsche Bank from roundly condemning the idea of splitting off so called "casino banking" from traditional deposit taking banking operations.
  • Gulf banks set fair for 2013
    Two reports on the state of the banking sector in the Gulf Cooperation Council (GCC), one from the ratings agency, Standard & Poor's in July 2012 and the other from Deutsche Bank Research (DBR) in November 2012, both see the region's banks as being in considerably better shape than their European or US peers. S&P looked at 26 Gulf banks and found that they were in much better shape to withstand any further shocks, since their risk-adjusted capital ratios were some five percentage points higher, on average than the 100 largest global banks covered by S&P. As such, the agency argued, Gulf banks look to be relatively immune to any further turmoil coming out of the European crisis. That is a fairly bold statement, since if the euro actually went smash there is probably nowhere on the planet that wouldn't feel the shock or see a fairly dramatic setback in profits. However, one takes the point.
  • IMF bumps up against its limits with reserves report
    Sometimes it's just no fun being the International Monetary Fund (IMF). Somewhere around 2009, contemplating the fiasco of the great crash of 2007-2008, IMF fund officials focused on what they politely called "the excessive accumulation of reserves" by some countries. The persistent accumulation of excessive reserves was a threat to the global monetary system, they argued. I took this at the time to be a diplomatic way of telling China that it was not blameless in the events leading up to the crash.
  • DHL's five versions of life in 2050
    All multinational companies should at least try to think beyond their tried and tested rolling three year plans. Attempting to peer too far into the future often looks like an exercise in futility. The future always surprises. However, there is a way to future gaze that may well yield useful results and that is to look at how things might play out given a variety of different scenarios...
  • Telecoms regulation - hidebound and heading for disaster?
    The tremendous strides in technology in the telecoms sector have so far conspicuously failed to be matched by anything like a parallel process of vigorous rethinking by telecoms regulatory authorities. A couple of decades ago the regulatory authorities in the US, the UK and Europe saw that the stranglehold that an incumbent fixed line operator, usually the former state owned monopoly holder in the sector, had on customers, had to be broken if the public was going to reap the benefits of a vigorous adoption of new technology...
  • Is Britain going bust?
    One of the tactics that publishers of wealth management journals like to employ, or deploy, is to shock potential readers with the idea that things are about to go smash and they (the reader) needs to take immediate action to protect their wealth, their families and their future. The action they need to take, of course, is to buy the periodical in question and follow the sound/excellent/knowledgeable/life saving advice of the journal's panel of expert writers. So when you see a headline "The End of Britain", with a tailpiece inviting subscription, you kind of know the road you are on.
  • Capital Flows: too much of a good thing?
    The damage that "hot money", ie surges of incoming capital, can wreak on the fiscal policies of a domestic economy has been proved time and again. Most countries want to attract capital to come to their domestic markets. What they don't want, is to find that the capital comes in like a roaring flood, washing away all in its path.
  • Local Sovereign Bonds in Emerging Markets- a "Safe Haven"?
    Asian bond markets still have some way to go to achieve the levels of the US and European bond markets, but according to a recent paper by three Bank of International Settlements (BIS) economists, they are already being regarded by investors as something of a "safe haven" in difficult times.
  • Davos and dynamic resilience - more opium or a reflection of how things are?
    The slogan for the World Economic Forum Davos 2013 has had a lot of people scratching their heads: "Dynamic resilience" is not the kind of catch phrase that immediately illuminates a great deal. In many ways, however, it is an apt slogan and is perhaps best viewed as an attempt to put a positive spin on the ancient Chinese curse "May you live in interesting times".
  • Retrofitting an exit hatch to the euro
    In an excellent paper pondering how an orderly exit from the euro could be achieved, CASS Business School's Rob Thomas starts from the premise that the euro's problems over the last three years have been caused as much by "the all too apparent failings of the eurozone's political elite as by economic fundamentals". The manic risk on/risk off frenzy that has gripped the markets as they rise and fall by 100 or more points a day in a seemingly random fashion, has made it very difficult for fund managers to do their job of managing client money. These are the people, after all, who, are responsible for seeing that Europe's pension funds have the wherewithal to meet their liabilities to their members.
  • The auto industry and the changing shape of world trade
    One of the major ironies of the aftermath of the great crash of 2008 is the way every major country hit by low to no growth is desperate to export its way out of its problems. What else is the "race to the bottom" in the ongoing currency devaluation saga but an attempt to facilitate the capture of export markets by giving one's own national exporters a price edge over the competition?
  • Crystal ball gazing for 2013
    Penning my last blog for 2012, it seems natural to look ahead rather than behind. After all, who wants to sum up 2012 with its austerity, euro woes, China slowdown fears, and of course, that US fiscal cliff we were all stumbling towards at the end of 2012 as the US political establishment engages in its favorite game of dancing at the edge of the precipice?
  • Gambia: a lesson in not messing with exchange rates via edicts
    Yahya Adul-Azizz Jemus Junkung Jammeh, the President of The Gambia, recently conducted what amounts to a fine object lesson in the futility of politicians trying to stick their fingers in the dyke to hold back currency flows. Confronted with what looked a lot like the onset of hyperinflation, with The Gambian Dalasi leaking value rapidly against foreign currencies in general, the Office of the President issued a decree aimed at preventing the hoarding of foreign currency.
  • Arab countries to be hit hardest by global warming says World Bank
    The World Bank has produced a massive 450 page report on the potentially devastating impact climate change is likely to have on Arab countries. This matters to everyone and not just from the standpoint that we should all empathize with and seek to relief suffering. The harsher the conditions get, the more restive and radical the populations of Arab states are likely to become, with hugely destabilizing consequences for all of us.
  • The global economy and the paradox of snowplowing
    Snowplowing is a classic technique for newbies learning to ski. You put the skis into a triangle, apex forward and get slightly up on the edges. The natural motion of each ski is opposed to its partner, cancelling out any forward movement on a gentle slope. If the slope is too steep, the triangle shape becomes impossible to maintain, the skis naturally tend towards the parallel, and it's goodnight and goodbye to the newbie as gravity takes over.
  • Carbon disclosure: putting a price on sustainability
    In 2008, the Carbon Disclosure Project (CDP), an organisation based in the UK, published a report on the carbon disclosure results from 1550 companies. The CDP  was formed with a view to building a global database on corporate and organisational self disclosure of carbon emissions, and has since moved on to include water resource usage disclosure as part of its remit.
  • Japan - muddling on or growing stronger?
    It is axiomatic that any country with a disproportionately large ageing population has some serious issues to resolve in the medium to long term. Since Japan has more than its share of the over 60s, the country would probably be in some difficulties even if it was not completely bogged down in the aftermath of the bursting of its stock and property market bubble more than two decades ago. As it is, there is a pretty clear consensus among most commentators that Japan's economy is not exactly flying.
  • The mystery of Apple's crashing stock price
    It is not unusual for investors to find the markets moving in ways that seem to defy common sense. Companies often feel the same way. They announce good results, they have a great product pipeline and plenty of cash in the bank and the stock price falls off a cliff. The directors throw up their hands and wonder what on earth the markets expect from them.
  • Microsoft's Windows 8: Is it smart to make an enterprise PC look like a smart phone?
    In October 2012 Microsoft launched its much heralded next generation operating system, Windows 8. For what the new OS does is upend a long and steady evolution of Windows operating systems going back to Windows 95. Instead, it replaces them, at a stroke, with a smart phone or tablet style "tiled" approach that bears little resemblance to the Windows so many business users know like the back of their hands. Gone is the traditional MS Start Button in the bottom left corner, and in the early stages, many newbies to Windows 8 are guaranteed an uncomfortable time as they try to figure out how to access applications without their familiar Start Menu.
  • Indonesia: 10th largest economy by 2025?
    When you are the world's fourth most populous country, with over 238 million citizens, it makes sense to think in terms of lifting your game and moving from being the 16th biggest economy in the world to breaking into the world's top ten. This is indeed the target that Indonesia has set for itself, and it has given itself just 12 and a bit years to achieve its goal.
  • Facing up to the end of 100 years of declining resource pricing - Part 2
    In Part One of my analysis of the McKinsey Global Institute (MGI) Report, "Resource Revolution: meeting the world's energy, materials, food and water needs", I gave a quick sketch of the resource problem as MGI sees it. Part 2 looks at some of the possible solutions MGI sees to the problem of meeting soaring demand for commodities, by which they mean everything from energy to minerals and agri products.
  • Facing up to the end of 100 years of declining resource pricing - Part One
    It will have occurred to many consumers in the colder climates of Northern Europe and North America that heating bills in particular, and energy bills generally - including transport fuels - are increasing considerably faster than average wage growth. There is a simple reason for this, as is made clear in the McKinsey Global Institute (MGI) Report, "Resource Revolution: meeting the world's energy, materials, food and water needs".
  • BP looks for a second bite at the Arctic cherry- Part Two
    The waters have become so muddy in British oil giant BP's long running battle with its troika of oligarch partners in TKN-BP, Russia's third largest oil company - that it is all too easy to allow the details of the coming divorce between the parties to divert attention from the larger move, namely the next phase of BP's long dance with Russia's number one oil company, Rosneft. This move is also likely to put BP, once again, in a favorable position to benefit from the coming lucrative - and highly dangerous - opening up of massive Arctic oil reserves.
  • BP looks for a second bite at the Arctic cherry- Part 1
    Despite the high profile disaster of the Gulf of Mexico spill, BP is one of the cannier and more sophisticated players on the global scene. Yet even a company as sophisticated as BP has so far found doing business in Russia something of a roller coaster ride.
  • Bernanke: redefining "savings" doesn't make savers richer
    One of the painful truths about the Federal Reserve's attempt to stimulate growth in the USA post the 2008 global financial crash, is that it has effected a massive transfer of wealth from savers to spenders. Much the same thing has happened in the UK and Europe, and has been happening for a few decades now in Japan. Sub 1% interest rates do not reward savings, they penalize them. You get back less than you put in, in real terms, once you adjust for inflation, which is still running in excess of 2%.
  • The "Resource Curse", the Australian economy and the growth of Asia
    Australia's economy has boomed on the back of the rise and rise of China over the last decade or so. By driving up commodity prices, investment demand from Asia has supported a very significant increase in the considerable productive capacity and export capabilities of the resource sector. Asia has also boosted jobs, income, tax revenues and wealth generally in Australia, the three admit. Australian citizens have also benefited from the lifestyle effects that come from having a strong currency and being able to import manufactured goods from elsewhere.
  • Singapore and the growing power of Asian finance
    Two recent speeches in Singapore give a pretty good indication of the momentum building up in Asia's desire to become a global financial super center. By comparison with the established centers in the West, such as the City of London or Wall Street, Asia suffers from being a highly fragmented "zone".
  • Digging into the German Constitutional Court's ruling on the European Stability Mechanism
    It has become something of a sport for leading German academics and others who are opposed to Germany handing over largess - as they see it - to their Southern European neighbors, to bring actions before the German Constitutional Court to block bailouts in various shapes and forms.
  • Integrated financial and sustainability reporting flying in India
    One of the largely unreported and unsung triumphs of the British heir to the throne, Prince Charles, has undoubtedly been the success of his "Accounting for Sustainability" (A4S) project started back in 2004. The initial focus of A4S was issues such as the over consumption of the Earth's finite natural resources, climate change and rising global populations. However, it worked from the outset with businesses, investors, the public sector, accounting bodies, NGOs and academics to make the case for integrated thinking and reporting. Its ambition was to develop practical guidance and tools for embedding sustainability into decision-making.
  • The botched Facebook IPO and the dilemma of stock options and falling prices- Part Two
    Stock options have long been seen as a double edged sword, great for young start-ups who can look ahead to a bright future of soaring valuations, rubbish for mature companies who may well find their stock price on a mid to long term slide. In the case of the latter instance, cash beats options hands down. Going back to Facebook, the vast issuance of stock options to employees and the way, so far, analysts have failed to factor the cost of Facebook’s stock options into their calculations about future earnings and future prices.
  • The botched Facebook IPO and the dilemma of stock options and falling prices- Part One
    Two heavyweight journals recently delivered a thumbs down verdict on Mark Zuckerberg’s handling of the Facebook IPO. Forbes tackled the matter head on with an article by one of the journal’s staff writers Nathan Vardi, unambiguously entitled: “The Man Responsible For Facebook's Stock Debacle Is Mark Zuckerberg”. I’ve seen snappier titles, but this one makes its point up front.
  • India's latest FDI measures run into trouble- Part 2
    In December 2011 the Indian government did away with the 51% cap on Foreign Direct Investment (FDI) into single-brand retail chains. From that moment foreign based specialist chains such as IKEA had the right to launch in India, provided they source 30% of their stock from Indian companies. That move did not prove particularly controversial and that seems to have helped the Government to pluck up the courage to reintroduce the idea of allowing 51% FDI in multi-brand retailing.
  • India's latest FDI measures run into trouble- Part 1
    It is no secret that India's retail sector is hugely fragmented, to a degree that would be unthinkable in the UK, Europe or the US, where big supermarket chains dominate the multi brand market. For those in advanced markets who argue that the dominance of the big supermarkets is a bad thing because it hurts small retailers and corner stores, the Indian model should be a salutary reminder that in judging any sector business model, you need to take the whole supply chain into account, not just the model associated with this or that big retailer.
  • India's long, uncomfortable history with FDI
    In an excellent paper, two academics, RamMohan Yallapragada, from the University of Louisiana and Madhu Paruchuri, from Tennessee State University provide some fascinating background to the current efforts of the Indian government to encourage FDI (foreign direct investment) in the country's economy against massive resistance from India's left wing political parties.
  • The HFT challenge to global equity markets
    Two excellent recent commentaries on the High Frequency Trading (HFT) dilemma have shed new light on the problem that is perplexing securities regulators around the world. The fear is that ever faster algorithms and more powerful computers not only will distort, but are already distorting global equity markets. Larry Tabb, found and CEO of the market analysis house, TABB Group, has written an illuminating piece on how markets are being fragmented across multiple dimensions , while Pragma Systems, an electronic trading boutique specialising in algorithms, has produced a paper arguing that a good chunk of HFT profits are paid for by ordinary investors.
  • Delayed EU Parliament vote on MiFID II reinforces House of Lords Report on “fundamental flaws”
    The UK’s upper house, the House of Lords, may not consider itself to be, in any sense, in the pocket of the City of London, but there are many in its ranks who have family, business, or friendship ties to the City. So one would not expect their Lordships to react particularly warmly to moves by Brussels to regulate the City more closely. However, the House of Lords also includes some very fine legal minds and some astute thinkers, well able to parse a text and find its flaws. So when the House of Lords pronounced the EU’s revise of its Markets in Financial Instruments Directive (MiFID II) “fundamentally flawed” it would, one imagines, have given those responsible for drafting MiFID II pause for thought.
  • OTC derivatives prove hard to tame
    On the 10th September 2010 the EU tabled a proposal aimed at making the derivatives markets in Europe "safer and more transparent". This was the beginnings of EMIR, the European Markets Infrastructure Regulation.
  • Restoring confidence in the euro area
    The title of this blog echoes the title of a speech given on 1 June by Benoît Coeuré, a member of the Executive Board of the European Central Bank. The first thing that comes to mind when one sees a title like this is a sense that this truly would seem to be mission impossible at the current time. The only magic wand that anyone could wave over the current mess would be a sudden pledge from the ECB to buy as much sovereign debt as was needed to calm markets. This wouldn't cure anything, but it would "restore confidence", at least for a while.  If it  was allied to a sudden urge by all members of the eurozone to meld together into a fiscal union, then the magic trick would be complete. However this latter point is right up there with "pigs might fly".
  • Thorium reactors could hold the key to safer cheaper nuclear power
    It goes without saying that business needs energy to run. The wheels of industry have to turn and the power that drives them has to be generated. Moreover, business needs energy to be affordable and safe and by safe we mean both safe from a Fukushima type incident, and safe from a Chernobyl type incident. So business has a vested interest in energy generation and particularly in new types of energy generation that hold out the prospect of plentiful cheap energy.
  • Deconstructing bankers' complaints
    With Standard Chartered, one of the few major banking names to emerge with its reputation unscathed from the 2008 crash and the LIBOR debacle, now looking as besmirched as the rest, this is not a good moment for bankers to be complaining about "over-regulation." However, there is a widespread view among bankers that the biggest risks facing the sector going forward are the unintended consequences that are likely to flow from regulatory initiatives like Basel III and political initiatives to curb pay and bonus excesses. No surprises there, of course: after the party comes the clean up, and who enjoys that?
  • The low paid and pensions, an impossible dilemma for governments?
    One of the biggest dilemmas facing governments across the developed world is how to gracefully scale back expectations about the degree and scale of the State's promises on welfare and benefits, particularly pensions benefits. The trick for politicians is to find a way of doing this that does not immediately generate massive popular unrest. As one senior German politician put it recently: "We all know what needs to be done, we just don't know how to get re-elected after we've done it..."
  • The dangers of over regulation in the insurance sector are mounting
    With the LIBOR rigging scandal still very fresh in everyone's mind now is not a good time for anyone to point out that there is a real and growing danger in the current massive political appetite for re-regulation of all parts of the financial sector.
  • Hollande and the French fairyland of 'happily ever after'
    One can easily understand why voters vote for politicians who cut the retirement age and promise the poorer half of the population that the State will love and nurture them forever. This is the perennial appeal of socialism in our day. It brought the previous Greek government into power and it swept Francois Hollande into the Presidency in France.
  • IMF turns euro skeptic: beginning of the end?
    The IMF's job, in its Article IV country reports, is to fact find, then tell things like they are with a view to making recommendations to promote financial stability and growth. That being the case, its latest report on the European Union was never going to be pretty. The facts are too stark for that. Unfortunately the IMF's mission this go round runs directly counter to the desperate efforts of Europe's politicians to put a positive gloss on the unholy mess that the EU has become. Simply telling things "as they are" in the eurozone context is much like approaching a car that is teetering nose first on the edge of a cliff, seizing the back bumper and lifting and pushing instead of pulling.
  • Mario Draghi galvanizes markets with same old same old...
    You have to hand it to Mario Draghi. It takes some nerve after all the empty promises of the "we'll do whatever it takes" variety which the EU political class has trodded out at regular intervals through the sovereign debt crisis, to stand up yet again and say: "We'll do whatever it takes". Quite why the markets chose to believe Draghi this time round (26th July 2012) is wildly unclear. But believe him they did. Wall Street climbed about 250 points almost before Draghi had finished speaking.
  • Abu Dhabi Commercial Bank blows the lid off ratings agency "independence"- Part Two
    The ratings agencies are starting to fail in their attempt to get law suits against them for according Triple A status to rubbish asset backed securitizations, thrown out at the preliminary hearing stage. There is still a long way to go before these cases come to court proper, and in all probability they will get settled out of court anyway.
  • Abu Dhabi Commercial Bank blows the lid off ratings agency "independence"- Part One
    The scandal of the mis-rating of asset backed securities looks like coming back to haunt the ratings agencies in a major way. Up until July this year companies and institutions trying to sue the major ratings agencies for awarding Triple A status to toxic sub-prime mortgage backed securitisation vehicles, had not been having a lot of joy. Case after case was dismissed by the courts, with the judges arguing that it was pointless letting the cases proceed since it would be next to impossible to tell how much of the damage that plaintiffs claim to have suffered as a result of the mis-rating was due specifically to the mis-rating, versus how much of it was due to the general downturn in the global economy.
  • High yield debt defaults rise but performance stays strong
    In its latest reports on US and European high yield corporate debt, the ratings agency Fitch flagged up the fact that the trailing 12-month default rate on this asset class rose above 2% for the first time since October 2010, hitting 2.2%. However, the high yield space continues to provide very attractive returns for investors and Fitch says that the default level remains on track to be between 2.5% and 3% by the end of 2012, despite increasingly difficult trading conditions.
  • China slowdown sends mixed signals
    A hard landing in China has been predicted by "China bears" ever since word of China's property bubble first emerged after the 2008 crash. Those pessimistic about the chances of the Chinese economy overcoming all the challenges facing it have suggested that a failed Chinese economy would be a very substantial check on global growth, possibly plunging advanced economies into a Great Depression style era. However, while the latest statistics to come out of China are disappointing, the signals are at worst mixed, and are a long way off heralding some kind of catastrophe.
  • An Irish view of the ESM
    On 5 April 2012 Brendan Halligan, Chairman of the Institute of International and European Affairs, presented a paper a sub-committee of the Irish Parliament in preparation for the Referendum on the changes to the Treaty. The Irish Referendum produced a "yes" vote for Treaty change, but Halligan's paper provides an outstanding summation of what went wrong with the euro project. He reminded the Sub-Committee that the Stability and Growth Pact, negotiated back in 1996 in Dublin during the Irish Presidency of the Ecofin Council, started life with "an unfinished economic leg". With fiscal union a political non-starter, the Pact tried to make do with a kind of "goodwill and best behaviour" clause, with members agreeing to voluntarily restrict their fiscal deficits to no more than 3% of GDP and overall public sector debt to no more than 60%.
  • EU bank bailout ploy opens up Pandora's box
    With the 500 billion euros of the European Stability Mechanism (ESM) being placed at the disposal of an EU wide bailout of troubled banks in member nations and with it also being readied to buy dodgy sovereign debt that the bond markets won't touch except at exorbitant yields, the ESM has at last been brought squarely into the firing line. "We affirm that it is imperative to break the vicious circle between banks and sovereigns," the eurozone heads of state announced in their post-summit statement. The mechanism to break that cycle, as it turns out, is now going to be the ESM which, to cut a long story short, makes German cash available to bail out Spanish banks (which, of course, will go down like a lead balloon with the German public).
  • What if Germany were forced out of the euro?
    The Summit of European leaders on Thursday and Friday 28th and 29th of June takes place against a backdrop of German intransigence to the one idea that France, Italy and Spain, and probably Portugal, Greece and Ireland as well, feel can save the EU, namely joint guarantees for euro bonds. Germany is also vehemently opposed to the new French President Francoise Hollande's other idea, a joint guarantee of EU bank deposits to stop the mounting capital flight from troubled peripheral states - a flight that is itself ratcheting up bank solvency issues. With Germany being seen as the odd one out GaveKal analyst Anatole Katletsky argues that a staggering but logical outcome of the Summit might well be that Germany is identifed as "the problem" and asked to fall into line or to leave.
  • Euro bonds – Hollande says yes, Merkel says no: impasse or fudge?
    One of the new French President's first statements on the European sovereign debt crisis was to declare his enthusiastic support for the introduction of a "joint and several" euro bond. The appeal is easy to see. If Spain or Italy could issue euro bonds instead of a Spanish or Italian government bond denominated in euros, the debt markets would not penalize them to the extent that they have been doing, or so at least the theory goes.
  • Listed Private Equity: A great example of market innovation?
    Financial innovation got a very bad name following the 2008 crash, when monstrosities such as "CDO cubed" were seen as adding massive toxicity to the huge volume of asset backed securitisations being cranked out by the big US banks. However, it is in the nature of markets to innovate and to reward innovation. One little noticed instance of this is provided by exchange listed private equity (PE) funds. As the trade body for these funds, the LPEQ, notes, what these funds provide to investors is literally private equity-like returns for the price of a share.
  • Reaffirming the role of the Audit Committee
    In the wake of the 2008 crash, with massive public anger over billions in losses caused by reckless trading by bank proprietary desks, the public naturally wanted to see those responsible punished in some way. So far, it has to be said, that hasn't happened, though court actions against some of those responsible may ultimately change this.
  • OECD and IMF studies find their "downside risks" rising to haunt them
    It is not particularly rewarding, being a macro economist when the global marbles really start to roll around. It's even worse when you've just published your detailed, considered study, and the politicians give the wheel of fortune a brisk spin and leave much of your analysis looking pretty irrelevant. Both the IMF and the OECD released their "state of the global economy" reports and found the ground shifting on them dramatically. The IMF's latest "Global Financial Stability Report" came out in April and the OECD's Economic Outlook was published on 22 May. The backdrop to both reports is set by a second Greek election which looks odds on to reject German and EU demands for yet more Greek austerity, and growing concerns over the state of Spanish banks.
  • Hedge Funds and Risk Transparency Make Strange Bedfellows
    Imagine a random collection of hot shot "boutique" (i.e small) fund management houses, each doing its own thing in its own, jealously guarded way. Then, over the top of this, layer two things, the first being the massively increased appetite for regulation from the political class and the second, investor demand for more transparency about risk. The result, from the fund management house's perspective is a very contradictory, but unignorable, confluence of pressures.
  • FDIC report shows US banks on the mend
    The Federal Deposits Insurance Company (FDIC), which insures US commercial banks and savings entities, publishes a quarterly report on the institutions it oversees. Its most recent report gave the markets something to cheer—or would have if the report could have got a hearing over the deafening noise made by an impending Greek exit from the eurozone and by Spanish debt rates climbing into the unsustainable zone...
  • Spain: the property bubble comes home to roost
    Spain is following Ireland in giving a graphic demonstration of just how difficult it is to recover from the bursting of a major property bubble. As Greece edges ever closer to a messy exit from the eurozone, the attention of the markets is moving ever more to the Spanish government's frantic efforts to shore up its tottering banks.
  • Market meltdown in progress?
    One of the more certain facts about recessions is that they are generally spotted only with the benefit of hindsight. You have to wait for the figures to come in, and then you discover, as the official statistics are revised downwards, that where you thought you were enjoying trend growth, the economy had already slid over the fine line dividing forward from backward momentum.
  • Property as a hedge against inflation- Commercial property Part 3 of 3
    One of the more frequently cited arguments for investing in property is that "real" assets like property and say, agriculture commodities, hold their value better than paper assets once paper assets start to have their value eroded away by inflation. Commenting on the reasons why commercial property continues to attract investors in 2012 despite falling commercial property values in some major advanced markets, including the UK, property experts Jones Lang LaSalle points out that at present the attraction of fixed assets is being boosted by expectations that global inflation is going to rise over time.
  • "Secondary" property, the unloved rump- Commercial Property Part 2 of 3
    In Part One we looked at the tribulations of the commercial property market in the light of what is now an entrenched resistance on the part of banks to lend into this market for anything other than absolutely prime locations. One indication of just how severe bank withdrawal of credit to the sector is can be seen from the way two of the biggest lenders, Commerzbank's Eurohypo and Société Générale both decided to cease new lending towards the back end of 2011.
  • Commercial real estate heading for a deep freeze- Commercial Property Part 1 of 3
    One of the clichés of real estate investing is that you can make more of everything but you can't make more land. The implication is that real estate has to be a one way bet. More people competing for a share of an asset that can't be expanded very readily must equate to constantly rising prices, or so the law of supply and demand might seem to suggest. The constantly increasing cost of office and residential property in the world's top cities provided an obvious case in point through the 20th century and for much of the first decade of the 21st Century.
  • Greece - not a hopeless basket case after all?
    One of the astonishing features of the Greek elections on May 6th was the reaction of the markets. The German DAX index crashed from the mid 6600s down to 6370, then, by Tuesday morning, it had shrugged off the election results in France and Greece and returned to the 6600s. This might have been because investors realised that any consequences from the elections would take a while to play out, since forming a Government in Greece from a shower of fragmented parties, looks like being a long job. But it might also have been because the ejection of Greece from the eurozone, as and when it happens - a racing certainty since the election results demonstrate that the Greek population rejects the EU's imposed austerity - is views as a positive thing for the eurozone, if not for Greece.
  • Just another tailspin for the eurozone?
    There can surely be no-one who has not grasped that mid-April 2012 has brought with it not just another bout of euro-jitters, but a serious wobble in one of the eurozone's biggest economies, that of Spain. At the time of writing the rate on Spanish 10 year bonds was creeping up to unsustainable levels and the markets had begun to show considerable unease about the amount of Spanish government debt on the books of Spanish banks.
  • Rain in Spain falls mainly on the banks...
    On 25 April 2012 a team from the IMF issued a report on the Spanish financial sector, following inspections in February and earlier in April. The IMF has a full "Article IV" discussion with Spain scheduled for late Spring 2012. Not surprisingly the IMF found that the Spanish authorities were breaking a leg trying to get on top of the Spanish banking crisis. "A major and welcome restructuring of the savings bank sector is taking place," the IMF says but goes on to issue a restrained comment about the system as a whole being a mix of good and bad when it comes to the capacity to cope with adjustments...
  • Irish Central Banker ponders EU regulatory flaws
    On 26 March 2012, addressing an audience of central bankers at the 4th CDU/CSU Congress at the Bundestag, Berlin, Matthew Elderfield, deputy governor of the Central Bank of Ireland and the Alternate Chairman of the European Banking Authority (EBA) highlighted some of the ironies and flaws of current regulatory efforts.
  • Does income inequality lead to global busts?
    Back in 2010, Raghuram Rajan of the University of Chicago put the spotlight on income inequality as the real villain behind the 2008 global bust in his book, Fault Lines. With almost everyone else looking at global credit imbalances, light-touch regulation of financial services, and dangerous innovation in the derivatives space as the probable causes, Rajan’s proposition seemed less than intuitively obvious...
  • Mario Draghi shows his subtle side
    A recent article on Mario Draghi, the man who succeeded Jean-Claude Trichet as president of the European Central Bank in October 2011, shows that the ECB is on the move. Where it is headed is as yet far from clear, but it is not going to be the same kettle of fish that it was under Trichet, where its main aim in life was to pretend that it was actually the Bundesbank. Draghi talks the Bundesbank talk, and professes huge admiration for German stability—what central banker wouldn’t? But he doesn’t walk the walk, or if he does, he walks it his way, which is not quite the same thing...
  • Shadow banking system to get the regulatory make-over
    The European Financial Stability Board (FSB) has issued a consultation draft setting out the ways it is proposing to extend regulation from the deposit taking banking system to the shadow banking system. In so many ways this was always the inevitable next step for the regulatory machine. The regulators have been gamed again and again by the banking community via the shadow banking system (SBS), through the use of exotic special purpose vehicles and numerous other ploys. So not turning the regulatory spotlight on this area of financial activity would have constituted a gross dereliction of duty.
  • Kahneman’s “fast and slow thinking” sets a puzzle
    The Nobel Laureate Daniel Kahneman is a world famous behavioural psychologist and author of Thinking, Fast and Slow. He won the Nobel Prize for economics in 2002, the only non-economist ever to win that prize.
  • China considers opening up the Renminbi
    Having jealously guarded its currency and manipulated its exchange rate to give itself the best possible environment to grow its massive export surpluses, China, it seems, is at last contemplating loosening its capital controls. A number of moves in the direction of more flexibility have already been made and significant additional moves are planned.
  • Gold: A risk asset?
    After tearing away to the 1900s in September 2011, and making goldbugs everywhere think that the $2000 mark was within reach, the tide turned for gold. In a breathtakingly short period of time the price wandered back down to the low 1500s and at one point the mid 1400s looked on the cards. Now it is back in the 1780s at the time of writing, and somewhat marooned there. However, the kind of sudden drop gold experienced through the  end of 2011 tends to make people think of the 1980s, when gold crashed to sub $300 – precisely the point when former Chancellor Gordon Brown, in a splendid example of how not to time the markets, decided that the moment was ripe to sell off the UK’s gold reserves.
  • Greek deal: Nice, but what about the trade deficit?
    In one of his “Thoughts from the Front Line”, John Mauldin, in speaking of the problem of sovereign debt in the eurozone, reiterates the point he has made many times before, namely that growth is the only solution to Europe’s problems. Moreover, he emphasises that growth can only come when the burden of debt has been shrunk to the level where interest payments on the debt do not cripple the economies concerned.
  • Rise of Asian Middle Classes becomes the New Growth Engine
    A working paper, “The Emerging Middle Class in Developing Countries”, by the OECD Development Centre, produced back in January 2010, set out to test one of the main hopes economists have for a more balanced global economy. This hope rests on the extent to which the emerging middle classes in developed economies can become a major driver for a more balanced global economy.
  • China tacks hard to avoid a hard landing
    On 22 November last year China completely reversed its policy on credit. Where it had been steadily raising bank reserves to soak up excess liquidity and dampen down a credit bubble that was reaching dangerous levels, suddenly in November it lowered the official level for bank reserves.
  • Greek deal is probably undeliverable, warns Pimco
    Finally, after what must have been some of the most painful arm twisting in history, in a historic late night sitting, with the policemen outside the Greek Parliament dodging the flames from Molatov cocktails thrown by seriously angry protestors, the Greek austerity deal got done. And agreement on the additional $320 million of austerity measures demanded by the EU, the IMF and the European Cental bank, the so called “troika”, came in the nick of time, just within the deadline of 15th February set by the EU.
  • Merkel – dithering to destruction?
    It is a sad fact that the wrong leader at the wrong time can massively exacerbate a difficult situation. The German Chancellor Angela Merkel is a past master at postponing decisions and substituting fudges for decisive action. In some circumstances this can work, since by doing nothing politicians often do better than if they had done the wrong thing with great determination. However, this is not one of those times.
  • Markets Rise as Europe Teeters on the Brink
    The behaviour of the major European stock markets has been distinctly odd through January. All through 2011 every time the markets got some forward momentum the eurozone sovereign debt crisis would raise its head, or the ratings agencies would weigh in with a downgrade here and a downgrade there, and the markets would slip back again. In 2012, at least up to the first week in February, it has been a very different story. If you were looking at the markets alone over that period, you could have been forgiven for thinking that the eurozone had solved all its problems, that Greece was back on track and that the euro economies were growing wonderfully.
  • Why Income Inequality Is Killing the US Economy
    One of the more dismal facts about the US economy, right up there with the Gargantuan debt figure, is the shrinking average wage being handing out to Joe Citizen, assuming Joe Citizen is lucky enough to have a job in a country where nominal unemployment is above 9% and real unemployment is probably above 15%.
  • Greek Hardball Game Highlights the Scale of the Euro Problem
    It is a great shame that the logic of human evolution did not require our species to develop a sharper understanding of the fact that short term gains bought at the expense of long term pain are, in reality, no gains at all. If it had, no one would be obese for other than clinical reasons, and certainly not because of a love of Big Macs or a fondness for sweet things. And we would never have had the 2008 global financial meltdown.
  • Why China is changing its Hukou system to allow free movement
    With a potential hard landing in sight for the Chinese economy, particularly if the eurozone implodes, the Chinese government has rather a lot on its mind right now. Amongst the huge tasks facing it – one thinks of the bad debt overhang in Chinese banks, or the almost out of control property bubble, not to mention factory riots when demand from advanced markets slows – one task that Western commentators tend to overlook is the need to fix China’s odd system of linking people’s rights and benefits to their place of abode.
  • BIS rethinks zero risk weighting for sovereigns
    While Basel III, the new regulatory standard for banks has had a great deal of thought put into it, there is one element in it – a legacy from earlier formulations - that many take to be laughably out of whack. Or at least it would be laughable if the consequences were not so serious.
  • A lesson on inflation and debt
    As 2011 closes and the possibility of a recession in Europe remains rather too high for comfort, concerns about high inflation have more or less faded out the picture as far as most market commentators are concerned. Recessions are more associated with deflation than inflation, they argue. However, John Cochrane, Professor of Finance at the University of Chicago Booth School of Business, has produced a compelling paper “Inflation and Debt”, arguing that current thinking on inflation dramatically misses the point and understates the dangers.
  • Is the EU getting a grip? Fitch doesn’t think so...
    With eurozone heads of government meeting on 9 December now fading into history it is already clear that the markets are not particularly interested in German Chancellor Angela Merkel’s call for a new treaty. If there is some easing in the markets, which, after all, did not completely fall off a cliff prior to Christmas, it is because the politicians now seem to be getting it through their heads that bold action is needed.
  • China shale gas changes the global game
    On 6 December, Reuters and several other media sources announced that China was on the cusp of a shale gas revolution that was potentially even bigger than the shale gas boom currently transforming the energy balance in the United States.
  • China bank reserve cut signals deep concern over economy
    On Wednesday November 30, China’s central bank, the People’s Bank of China (PBC) reversed a June 19 decision to raise the amount of reserve capital it requires Chinese banks to hold. The action represents a major shift from the fiscal tightening China had been deploying to combat rising inflation, and signals a move to monetary easing – a clear sign that China is worried that an economic slowdown is starting to get a grip on the country’s economy.
  • BP’s threat to indemnify clauses shakes contract law and, indeed, business itself.
    A court case involving Transocean, BP’s partner in the Deepwater Horizon disaster in the Gulf of Mexico, is causing lawyers across the globe to prick up their ears. This case, which is likely to take years to decide, has huge implications for contract law. It is about the fight to get BP to honour the indemnify clauses in its contracts with Transocean. Why is this so important?
  • OECD weighs in on EU breakup potential
    We live in a time when many possible futures are jostling each other, each striving to be born. The two sharply contrasting possible fates for Europe, united or fragmented like a dropped plate, are one case in point. China growing or China failing and dragging Asia and the West down with it, represents another. After dragging their heels for weeks and getting into a total standoff over whether or not the European Central Bank (ECB) should or should not be asked to print money to bail out the eurozone, European politicians were given a sharp reminder that the future (ie the markets) may not wait for them to resolve their differences at their own glacial pace.
  • Bank of Japan analyzes their macroprudential strategies: need cash? We’ve got cash…
    The Bank of Japan’s recent paper on macro prudential policy and its analysis of how macro prudential strategies are playing and will play in the real world is quite a heartening document. The world needs Japan to find its way out of its lost decades and back to reasonable growth. This being so, there is no doubt that a confident and active BoJ with a firm grip on the tiller as and when growth restarts will be a very good thing. It is impossible to read the BoJ paper without feeling that many of the lessons of 2008 and the global crash have been understood and taken to heart.
  • The death of capitalism has been greatly exaggerated
    The flaws in the eurozone, which as we have all been told with increasing frequency over the last few years, lie in its founding charter, and which are now coming home to roost, are causing some to speculate – yet again – that we are witnessing the last days of capitalism.
  • Quants and FX, a marriage made in heaven?
    Equity fund managers have long had an ambiguous relationship with currency risk. If you are not a diehard FX trader, and sometimes even if you are, currency looks like the trading equivalent of a day at the races. You pays your money and takes your chances, and most of the time you lose...
  • Markets two, European democracy zero – the dawn of the zombie technocrats
    First days are always trying and this is certainly proving the case for ex-European Central Bank Vice President Lucas Papademos in Greece and ex-European Commissioner Mario Monti in Italy. Already, one can hear murmurings of distrust about a “banker’s cabal” and a “banker’s coup” in the heart of Europe as these two technocrats seek to form workable and, of course, un-elected governments in their respective countries.
  • Beware Greeks threatening referendums
    When Greek Prime Minister George Papandreou decided to tweak the noses of the French President and the German Chancellor with the completely unexpected and unlooked for announcement that Greece was to hold a referendum in January 2012 on the EU’s bail-out conditions, what on earth was going through his mind?
  • Yen strength frustrates Bank of Japan but the future looks brighter for Japanese investments
    By common agreement, the Bank of Japan’s intervention in the currency markets on October 27 failed in its objective to weaken the Yen. That was the third time in a year that the BoJ has powered into the markets in day-raider fashion to try to stem the relentless onward and upward march of the yen. However, while it brings tremendous firepower to bear for the short period of time that its intervention lasts, traders have twigged that the BoJ, unlike the Swiss Central Bank, doesn’t have the stomach for protracted trench warfare to defend the yen.
  • Can the SEC be made “fit for purpose”?
    When the UK Government sat down to ponder the performance of its regulator, the Financial Services Authority (FSA), which had conspicuously failed to prevent key UK banks from blowing their feet off through idiotic acquisitions and foolish trading, it decided that the FSA was not fit for purpose and that the simplest approach to reforming regulation in the UK would be to scrap the FSA and hand its duties back to the former regulator, the Bank of England.
  • Slovakia’s ill-conceived moment in the spotlight
    Give politicians a sniff of a chance at grandstanding and they are off and away like greyhounds after a hare. Everything else of importance fades before the glory of dancing in the spotlight that fate has fortuitously caused to shine upon them. We saw it with the US Republicans and Democrats taking matters to the wire and beyond over the raising of the US debt ceiling... Then we saw it with tiny Slovakia...
  • Are ratings agencies brewing up their own destruction or just stirring the pot?
    In a peculiar kind of way the ratings agencies have got themselves trapped on Mailer’s moral ladder and the higher they climb the more dangerous it gets for them – and, incidentally, the sillier they look, which is also dangerous for them. If Moody’s, Fitch and Standard & Poor’s had a decent public relations consultant he/she would advise a calm period of low profile, or, in other words, the exact opposite strategy to the headline-chasing frenzy that appears to have gripped all three agencies. It is as if they are desperate to get the message across that hey, they’re not afraid of downgrading anything any more. If it blinks, downgrade it.
  • Does China want to save the Eurozone?
    China’s Premier, Wen Jiabao, has said on a number of occasions that China is willing to support Europe. To date, however, China has declined to fill in the details as to what the extent of such help might be or how far it may be prepared to go to help Europe’s political elite find a way out of a dilemma that they seem so palpably to be unable to resolve for themselves.
  • The argument over eurobonds heats up
    Whenever the Eurozone’s political masters get together these days on any issue, eurobonds must seem like the elephant in the room. The Germans hate the idea since, logically, a joint and several bond is ultimately backstopped by the strongest member, which puts them squarely in the firing line. The markets love the idea since it looks like an excellent way of providing a solid floor to the sovereign debt crisis.
  • What we've learnt from the markets' reaction to Bernanke, Obama and Trichet
    Markets can be very peremptory. If they are expecting something specific like the introduction of eurobonds, or the start of QE3, or measures that really will generate new jobs, and they don’t get it, they react by shedding value. It is not terribly clear what those at the helm can do when they know they are not going to go in the direction the markets are expecting, yet the occasion calls for them to say something.
  • Are bail-outs inevitable for large European and US banks?
    Amongst all the speculation that is swirling around concerning the fate and future of many large European and US banks, one thing at least is certain, according to management consultants McKinsey. Looking across the global banking sector as a whole, McKinsey analyzed what banks need to make in order to cover their current cost of equity while also matching up to the additional capital requirements that are required under Basel III.
  • The oligopoly that is the US financial sector. Part 2
    In Part One we glanced at the proposition, by the former IMF chief economist, Simon Johnson, now a professor at MIT’s Sloan School of Management, that there were strong parallels between oligarchs of emerging economies and the US financial sector. The second part of this blog series looks at his analysis of how the financial sector has grown disproportionately to other sectors in the economy over the last two and a half decades.
  • You can’t do Dodd-Frank on a shoestring, the SEC warns US Congress
    When Mary Shapiro took on the top job at the Securities and Exchange Commission (SEC) she would have known that it was a job very like the one Hercules looked at when he got his first glimpse of the Augean stables. Nothing but horse manure wall to wall. Ah well, nothing for it but to roll up the shirtsleeves and reach for the shovel…
  • The US Federal Reserve’s Operation Twist may cause significant collateral damage
    On September 21 the Federal Reserve launched Operation Twist, Mark II in what some commentators are already dubbing a disguised QE3. The essence of Operation Twist is that the Fed is going to attempt to push down rates at the mid-to-longer end of the yield curve by swapping short term debt for long term debt, to the tune of $400 billion.
  • The Oil Crunch – is London the only place that cares?
    After penning the final part of my Peak Oil blog series (‘Peak oil and collapse scenarios. Part 3′), I came across a more in-depth audio presentation by the Australian broadcaster, Catalyst, on the theme of the Oil Crunch. I’m adding these excerpts from the broadcast, together with a link to the original, as a rider to Part 3.
  • The oligopoly that is the US financial sector. Part 1
    One of the more damning articles on the US financial sector to emerge lately is a piece by the former IMF chief economist, Simon Johnson, now a professor at MIT’s Sloan School of Management... Johnson, as he relates in the piece, has had a massive amount of experience with emerging market governments and their oligarch friends, coming to the IMF for loans. How is this relevant to the US financial sector? Simple. It presents an intriguingly parallel case, Johnson argues.
  • How buying the competition could kill banks
    There should be a health warning on major banks buying other large banks. The wreckage of such deals litters recent banking history. RBS and ABN Ambro springs to mind, as does the purchase of the hugely toxic HBOS by Lloyds at the UK government’s behest. Then, of course, there is the $4 billion purchase of Countrywide Financial by Bank of America in 2008... If ever there was a deal that any sane bank board should have walked away from, this was it.
  • Peak oil and collapse scenarios. Part 3
    In this final part of my blog series I take a quick look at how the Peak Oilers’ view that all the big oil finds are already banked and only the tiddlers remain, stacks up against the view of the oil optimists that there is still plenty to be found, particularly under the deep oceans.
  • Peak oil and collapse scenarios. Part 2
    Orlov makes the point that you get to the “cliff” approach by realising that the symmetry of the original Hubbert curve is shaped on the upside by the world being energised to discover and exploit more oil, hence its steepness, and on the downside, by the balance between exploitation, new discoveries and depletion (we use as much as we can, so it depletes fast, somewhat ahead of new discoveries, creating the symmetry between the up and down slopes). He argues that the logic that produces this symmetry between the curve’s up and down slopes is badly flawed.
  • Peak oil and collapse scenarios. Part 1
    That fossil fuel is finite is indisputable. That we are using oil - as demand drops through recessions to one side - at an increasing rate, is hard to dispute. After all, the rapid industrialisation of say, a third of the world’s population, has to be fuelled by something. Is there enough oil still undiscovered to carry the process through to completion, with “completion” defined as some sustainable post-oil energy platform capable of meeting global energy requirements? That, my friends, is the question and the nub of the dispute.
  • Dr. Doom’s deathbed prescription for capitalism
    Capitalism, like socialism, is bust. At least, in its present form. So says Nouriel Roubini. It is just as well that the markets do not hang on his words the way they do on Fed Chairman Ben Bernanke’s or we’d be seeing ten percent falls across the board on a daily basis.
  • Did the US Federal Reserve blunder by committing to low rates till 2013?
    In an attempt to calm markets, which were crashing all around him, in mid-August Federal Chairman Ben Bernanke committed the Fed to not raising interest rates until 2013. “Don’t panic – cheap money will be available into the dim and distant future” is the message he clearly wanted markets to get. One can see why. Plentiful, cheap credit had fuelled the boom in the run up to 2007. Why shouldn’t it fuel another boom in 2011? Actually for lots of reasons, as we shall see…
  • Bernanke The Market Magician and his empty bag of tricks
    There comes a point where the markets leave any sensible person scratching their heads and wondering just what is driving the show along. Sure, fear and greed chase themselves backwards and forwards across the zig zags in the chart of any stock market index, and these are not emotions that make for wisdom. But behind all that seemingly random jitter there are very capable traders taking supposedly educated views on whether, in the short term, things are improving or getting worse.
  • Why the US Tea Party dreams of a return to the gold standard are a bust
    One of the sweeping transformations the Tea Party is keen on promoting is a return to the gold standard. Recently, in a penetrating and quite lengthy article, Barry Eichengreen shreds this idea comprehensively. It was, of course, never going to happen, but Eichengreen does a wonderful job of pointing out what is wrong with the idea and why the Tea Party should pick a different drum to beat on.
  • Where’s the bottom for Recession 2011?
    Chief economists at banks, brokerages and academia, along with market analysts and commentators, are swinging en masse towards the idea that Europe and the US are either in or approaching another recession. Anemic, frail growth is sliding towards contraction. Too many shocks have come too quickly and political paralysis in the US has left decision-makers sitting on their hands, waiting for more clarity on the cost of doing business.
  • Collapse scenarios – satire or vision of the future? Part 4
    In Part Three of this blog series I looked at John Michael Greer’s argument in The Wealth of Nature: Economics as if Survival Mattered that natural processes provide three quarters of the input into virtually all industrial outputs... In his final chapter, Greer looks at the road ahead for modern industrial societies. Seen through his eyes, it doesn’t make for a pretty picture.
  • Collapse scenarios – satire or vision of the future? Part 3
    John Michael Greer’s 'The Wealth of Nature: Economics as if Survival Mattered', castigates what Greer perceives as the failure of modern economic thinking and suggests an alternative approach based on the thinking of Ernest Friedrich Schumacher, author of the 1970s bestseller, 'Small Is Beautiful: Economics as if People Mattered'. The echo in the title is clever and is meant to show how far down the road to destruction Greer thinks we have wandered since the 1970s.
  • French German fudge on euro bond issue leaves markets unimpressed
    What was needed to stop European markets from slip sliding their way to a deep recession, once again, was for European leaders to step up and announce that they’d found a way to give the world euro bonds. A single Europe-wide bond backed by everyone, but in reality backstopped by the Germans, would have calmed markets.
  • Collapse scenarios – satire or vision of the future? Part 2
    Part One of this blog series looked briefly at Dmitry Orlov’s proposition in his book, 'Reinventing Collapse: The Soviet Experience and American Prospects', that the US is in the process of following a similar collapse trajectory as its now-defunct superpower rival, the Soviet Union. The book is great value in dozens of different ways, even if you don’t buy into the idea that there is anything inevitable about the demise of America.
  • Collapse scenarios – satire or vision of the future? Part 1
    With the US debt mountain looking increasingly unresolvable and European state debts at levels sufficient to give the markets recurrent panic attacks, the stage is nicely set for authors of collapse scenarios. Their Armageddon visions might not come to pass, but then again, given the way the marbles are rolling around, they just might.
  • The legacy of the US debt ceiling spectacle will live on
    For Gross, the problem with the debt ceiling “agreement” is that it only purports to be an agreement about debt reduction as the price of raising the debt ceiling. In reality the deal agreed by Democrats and Republicans barely scratches the surface of the Budget’s $1.5 trillion of debt.
  • Chinese government gets its pulse taken by the IMF over housing bubble
    Rebalancing, in the sense of moving from being export driven to having a much higher domestic consumption component, is something that it is far harder to say than it is to do. The Chinese authorities can, of course, decree anything they want, but that doesn’t always mean that their decrees will play out in the way that they expect.
  • A wake-up call to the US Federal Reserve from Caruana – Part 2
    In this second part of my blog series we look at Caruana’s comments on the relationship between central bank policies and global commodity prices. He points out that commodity prices inevitably play a very important role in shaping central-bank thinking.
  • A wake-up call to the US Federal Reserve from Caruana – Part 1
    In a speech given at the South African Reserve Bank on July 1 2011, Jaime Caruana, the general manager of the Bank of International Settlements, and a central banker’s central banker if ever there was one, itemized the problems with the current approach to fiscal stimulus as a counter to deflationary pressures... While Caruana did not name names, there can be little doubt that the US Federal Reserve was uppermost in his thoughts as he lectured his audience on what not to do in a post-recession world.
  • The Chinese government, the DTZ and the "property bubble"
    Back in June Naked Capitalism ran a blog asking if the Chinese Real Estate Bubble was finally imploding. We’re now in August and the impending implosion is still impending. Frankly, I wouldn’t hold my breath. It might still happen, but according to property specialists DTZ there are some key statistics about the Chinese property market that inveterate China shorters like Jim Chanos and economists like Michael Pettis (both cited in the Naked Capitalism blog) have overlooked.
  • Rethinking the global system and financial sector reform
    Now that it is close to three years since the demise of Lehman Brothers and the onset of the 2008 global financial crash, senior figures in the central banking community are starting to think beyond “mere” regulatory issues, to consider what kind of financial system we need in the 21st Century.
  • Markets plunge on Obama's agreement to tackle US deficit – what’s wrong with that?
    Agreement was reached and the markets plunged. Why? Because the markets, most of the time, are not stupid... The fact that world stocks hit a two-week low the day after the US finally cobbled together an agreement on the debt ceiling should have surprised no one, and was in fact a perfectly rational response to all that had gone before.
  • Ten good and bad things about banking
    It has not been fun to be a banker since the crash. If the public have come to understand one thing about the global crash of 2008, it is that it was all the fault of greedy bankers... The “greedy banker” story, of course, indiscriminately blends together investment and retail banking and tars everyone with the same brush, the tellers on the counter and the commercial bank manager along with the slick boys and girls on the proprietary trading desk.
  • Why reform of the global monetary system tops the list of 10 impossible things… Part 2
    In attempting to set out some discussion points for a reform of the international monetary system, which is characterised today by national currencies and huge global imbalances, the Palais-Royal Initiative, which I introduced in Part One, is not afraid to sketch out what it would like to see happen, even if the possibility of its suggestions coming to pass is vanishingly small.
  • Why reform of the global monetary system tops the list of 10 impossible things… Part 1
    The current “solution”, which consists of the Chinese recycling their surplus into dollar debts and the US swallowing dollar debt like a drunk on a protracted binge, is clearly no solution at all, merely another bust waiting to happen. As the Palais-Royal document so elegantly puts it, the risk is that these imbalances will “unwind in a disorderly manner”, an understatement if ever there was one.
  • Revitalising the “European dream” according to Trichet
    As Trichet’s lengthy term of office nears its end, scheduled for this October, he has become much more willing to speak of how the “European dream” could be implemented despite the clear desire of the people of Europe to retain their national sovereignty, as demonstrated in poll after poll on the subject.
  • Ben Bernanke on commodities and consumer spending in the US. Part 2
    In Part One we looked at Bernanke’s view of the US jobs market. Here we turn to his view of the impact the boom in commodities pricing is having on the US economy, as set out in his Atlanta Georgia speech. Rising commodity prices go directly to the issue of inflation.
  • Ben Bernanke on the US unemployment rate and consumer spending. Part 1
    June was nothing to write home about, as far as the performance of the US economy was concerned, according to Federal Reserve Chairman Ben Bernanke. Speaking at the International Monetary Conference in Atlanta, Georgia, the bearded academic saw some chance for growth picking slightly in the second half of the year if the price of oil drops back a bit. But so far the best speed the US economy has been able to manage, despite oodles of stimulus, is 1.8% year on year growth.
  • Look how I changed the world, Ma… Ben Bernanke and Moody's on eurozone and US debt
    One of the oddest things about the latest market panic, which saw the price of gold rocket above $1590 for the first time and caused European markets to shed hundreds of hard-won points, is that the whole furore was sparked by probably no more than four or five people in just two organisations.
  • Pondering the premium on Texas Instruments' acquisition of National Semiconductor
    Texas Instruments’ acquisition of rival chip maker National Semiconductor for $6.5 billion is the biggest M&A deal in the chip manufacturing sector for many years and reinforces the dominance, since the 2008 crash, of corporate acquirers over private equity players.
  • Building a European union – the benign crisis theory keeps on trucking
    At the birth of the euro it was plain to all the major players that while there was sufficient will and agreement among the European Community to move to a single currency, there was no such good will or agreement for any move to a single, pan-European government... Instead, what the wiser heads amongst them counselled was patience – a monetary union without a fiscal union would lurch from crisis to crisis...
  • Exchanging fates – why exchanges merge and why it matters
    At the time of writing, the London Stock Exchange’s bid for the Toronto Exchange TMX, which most people, including the LSE and TMX, thought was a done deal, had just collapsed. The LSE failed to secure approval from the necessary 66% of TMX shareholders and that was that. The larger question behind all this merger mania is: why? Why are exchanges all round the world looking to partner up, even if the partner is a continent away?
  • Redefining consumption in the new normal
    Do I believe that Asia will become hugely more prosperous? Certainly. Does it follow that the West must “decline”? If it does, I’ve yet to hear the argument stated in a compelling way. Sure, there is debt enough to sink just about anything, but hey, unlike the Titanic, countries tend to bob back up again.
  • Greek debt “reprofiling” is now a certainty
    Common sense dictates that if a country is saddled with debts it can’t meet at a rate of interest that it can’t afford, something has to be done to address that problem other than simply providing the country concerned with still more debt at even higher rates of interest.
  • Challenges and hopeful signs in the debt market
    European governments need 1.8 trillion of debt funding and roll-over funding in the markets in 2011 in order for everything to stay “healthy”. At the same time, Europe’s banks, for their part, also need to recapitalize themselves, or at least to raise their capital reserves to the level demanded by Basel III. Where is this debt financing to come from?
  • The EU’s attempt to control derivatives runs into criticism and delay
    The Alternative Investment Management Association (AIMA), the trade association for global hedge funds, warned recently that while it is strongly in favour of mandatory central clearing of eligible over-the-counter (OTC) derivatives contracts, the way the EU is going about the drafting of legislation on this theme is plain wrong.
  • Stealth bail-outs – an economist’s furore with a twist. Part 3
    The aim of this concluding comment on the Hans Werner Sinn versus the rest on the subject of Target2 stealth bail-outs is a simple one. It is to persuade the reader who has made it thus far to go and read the “OriginalSinn-target-rebuttal” paper by Citibank chief economist Willem Buiter and his two colleagues, Ebrahim Rahbari and Jurgen Michels.
  • When the bail-outs don’t work, what then? Part 2
    Yes, European banks have a very uncomfortable exposure to Greek debt, but, unlike when Lehman went down, this shouldn’t poison the world’s credit markets and lead to another almighty credit crunch. Why? Because there is total visibility of where the Greek debt sits.
  • When the bail-outs don’t work, what then? Part 1
    At the time of writing Greek default looks just around the corner. This is despite the belated efforts of Europe’s senior political leaders to finally clear the way for a promised 12 billion euro package which will give Athens sufficient funding to get out of its immediate jam. More and more voices are calling for default to be allowed to happen.
  • Greek default: “it’s now or never…”
    The number of prominent market commentators calling for an immediate Greek default as the only sensible outcome of the current crisis continues to rise. The latest luminary to add his voice to the chorus is Mohamed El-Erian, chief executive of Pimco, speaking at a video conference in Taipei.
  • Ratings agencies get into the act once again over Greece
    With the Greek PM fighting off votes of no confidence, the Greek Parliament girding itself for a horrendous austerity pledge, the Germans and the ECB going eyeball to eyeball over private investor participation in any bailout, what better moment for Fitch and Moody’s to announce that any rolling over of Greek debt will be a default as far as they are concerned?
  • Stealth bail-outs – an economist’s furore with a twist. Part 2
    Many commentators on Hans Werner Sinn’s claim, that the stability of the euro is under threat from Target2 trade imbalances between the peripheral European States and the Bundesbank, point to the origins of this thought in a paper in March this year from John Whittaker of the Lancaster University Management School.
  • The return of PE doesn’t necessarily secure the future of PE
    The global credit crunch that led to the recession of 2008 to 2009, and whose consequences global markets are still struggling to shake off, killed off the kind of highly leveraged PE mega deal that had characterized the boom years. That whole model was based on using financial engineering to secure returns of the order of 30% for investors in PE funds.
  • Stealth bail-outs – an economist’s furore with a twist. Part 1
    An extraordinary row is going on over whether the EU settlement mechanism, Target2, which has until now been regarded simply as the plumbing of the EU’s inter-state financial mechanism, is actually the conduit for a stealth bail-out of peripheral states like Greece and Ireland (said stealth bail-out allegedly being on a scale that dwarfs the official bail-out).
  • Why pushing OTC derivatives through central clearing houses still carries risk
    One of the themes of the analysis of the global crash has been the role of derivatives in magnifying losses. Part of the concern here has been a focus on the scale of the derivatives market, which is measured in trillions of dollars, and its opacity.
  • China wobbles spook the markets
    European and US markets, which had already posted getting on for six weeks of losses, went into a tailspin on June 10 when it became clear that China’s growth had slowed. What the markets did not pay too much attention to, as they dived off the price cliff like a shower of lemmings, was that this shock horror slowdown from China was a pull back from the first quarter’s overheated 11.9% growth to a still frenetic 10.3% for the second quarter of 2011.
  • IMF looks ahead to Latin America’s challenges
    In April the International Monetary Fund (IMF) published a “Discussion Note” which looked at the challenges a new era of abundance is already imposing on Latin America. Of course, there has been something of a mood shift in global markets between April and June, with April’s optimism in almost headlong retreat in the face of a spate of bad news from the US and European markets, and continued inflation in emerging markets.
  • Quant funds make up lost ground after the crash, part 2
    With quant funds on the rise again – and this time looking a lot more resilient than they did before the crash of 2008 – what is different this time round? Actually, as Janet Campagna, CEO of QS Investors points out, before we get around to answering this question we should note that it is actually unfair in its formulation. Not all quant funds have had to return to and reinvent their models.
  • GDP – a “damn statistic” if ever there was one
    Imagine that you are an innovative economist back in, say, the 18th century, and you discover a brand new way of measuring private prosperity. You throw out old ideas of valuing a person by what they own, the value of their land, their assured income and so on. Instead, you decide to measure them purely on what they spend.
  • Why geopolitics creates havoc with South Asia’s energy needs. Part 2
    Despite the challenges looked at in Part 1, the potential of an IPI (Iran-Pakistan-India) “peace” pipeline has long generated considerable comment and attention from neighboring countries.
  • Sovereign Wealth Funds: political they are, political they stay. Part 2
    Part 1 covered the origins of the Sovereign Wealth Fund GAPP (Generally Accepted Principles and Practice, also known as “the Santiago Principles”) which was issued in 2009. The opening blog on this theme looked at the pressures on SWFs to present themselves as pure investment vehicles driven by the usual risk returns investment criteria.
  • Why geopolitics creates havoc with South Asia’s energy needs. Part 1
    The role of natural gas in India’s energy mix should, in theory, be a no-brainer – use as much of it as you can get, would be the summary version. The country is the world’s third largest producer of coal and coal currently accounts for 70% of India’s power generation.
  • Sovereign wealth funds: political they are, political they stay. Part 1
    At the height of the last boom, with the coming crash already visible for those who had eyes to see, the activities of several sovereign wealth funds (SWFs) were getting US senators in particular into a tizzy. The funds were clearly on a hunt for yield and had massive fire power.
  • Greek debt restructuring: Junckers says yes, ECB says “Hell, no!”
    For a man who recently rattled more than a few cages around Europe by proclaiming the necessity for “deep dark secrets” and for espousing the value of openly lying to the public and press to keep secrets secret, Jean-Claude Juncker, the chairman of the eurozone group of finance ministers would seem to be an unlikely candidate for blowing the gaff on the EU’s attitude to a Greek restructuring.
  • China watchers envy strong Party control
    When you come right down to it, corporations are not democracies. They may play nicely under the glare of the public spotlight and put a lot of value in being a good corporate citizen, but they are command-and-control structures, run by the Board, with sustainable profit growth as their mantra.
  • Sovereign wealth funds just keep getting bigger
    The aggregate assets of the world’s sovereign wealth funds rose 11% through 2010 to $3.8 trillion according to a report by Prequin. Whether grand totals like that make much sense, of course, is another matter. The funds are not managed as an aggregated total and each pursues its own strategy. Management risk profiles and investment strategies vary hugely.
  • Quant funds make up lost ground after the crash, part 1
    Quantitative managers who rely on mathematical models to assemble investment portfolios, rather than going out to meet company management and “kicking the tyres”, like traditional “long-only” equity analysts, have faced some very challenging times since the great Wall Street meltdown of 2008.
  • What’s ahead for central Europe?
    In a presentation made at the end of 2010, Steven Cecchetti, the Head of the Monetary and Economic Department at the Bank for International Settlements, pointed out that to the surprise of many, the monetary policy frameworks in Central and Eastern Europe held out pretty well through the crash of 2008.
  • 'Accounting for Value': Ignore this at your peril, part 4
    In the closing part of the review of Accounting for Value by Stephen Penman, Professor of Accounting at Columbia Business School, I continue with Penman’s elaboration of the contribution modern financial engineering can make to value accounting, and some of his strictures on its limitations for the value investor. For Penman, the founding principle of financial engineering is the concept of “no arbitrage” that we met briefly in part 3.
  • 'Accounting for Value': Ignore this at your peril, part 3
    In his book 'Accounting for Value' Steven Penman, Professor of Accounting at the Columbia business school, argues that anyone concerned with real value (as opposed to speculative notions of value) should welcome modern advances made in financial models and financial engineering, but should always subject the results of such models to the test of common sense.
  • 'Accounting for Value': Ignore this at your peril, part 2
    In part 1 we looked at the implications of the distinction between price and value made by Stephen Penman, Professor of Accounting at the Columbia Business School. Part 2 concentrates on Penman’s argument that value accounting should not be contaminated with speculation. Here Penman is particularly exercised over the pointlessness of bothering one’s head over moment-by-moment revaluing of the business as the stock charts or asset prices yo-yo about - as is the case with mark-to-market accounting.
  • 'Accounting for Value': Ignore this at your peril, part 1
    How does anyone - analysts or bankers or investors or even regulators, bless them - judge the value of a commercial entity of any scale? Why is this difficult? As Stephen Penman, professor of accounting at the Columbia Business School notes, the difficulty of forming judgements of value is rooted in the limited powers us poor humans have at absorbing and processing large amounts of information. Accounting, seen from this standpoint, is simply a way of consolidating information about an organization and its operations into a few key summary numbers that we can work with. So they had better be the right numbers…
  • Senate report recommendations—Will regulation work this time?
    The US Senate Permanent Subcommittee on Investigations report, Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, came up with a number of very specific recommendations aimed at ensuring that the flaws, mistakes and criminal behaviour that led to the crash will not precipitate a “Mark II” version in a few years time. Many of these recommendations were mirrored in the Dodd-Frank Act which became law in September 2010.
  • The secret behind Russia’s low public debt to GDP ratio
    As a fully paid-up member of the BRIC emerging economies, Russia has long been thought of as a pure commodities play. Oil and gas are the main themes and everything else is second string. It is also, unfortunately, thought of as a kleptocracy, where the power elite at various levels in the hierarchy, from regional mayors and on up the chain, apparently see nothing wrong in profiting personally from their political position, and where private property is anything but safe if someone higher up the tree takes a fancy to it.
  • The FOMC’s first ever press conference has gold setting new records – part 2
    In part 1 we looked at how Federal Reserve Chairman Ben Bernanke’s first ever press conference, following an Federal Open Market Committee (FOMC) rates and policy meeting, sent the price of gold through the roof. Traders dived into gold despite the fact that Bernanke was at pains in the conference to emphasize that the Fed did not intend to continue Quantitative Easing 2 beyond June.
  • Catch 22 snookers FDIC over WaMu failure
    What is to be said of a regulator that sees horrendous weaknesses in an institution it is charged to regulate, and yet is too timid, or worse, for decisive action? Not a great deal, which is why the Office of Thrift Supervision incurred the displeasure of the US Congress and is no longer with us, having been given the proverbial bullet for its lethargic performance in the case of the late lamented Washington Mutual.
  • The FOMC’s first ever press conference has gold setting new records – part 1
    On April 27th the US Federal Reserve held a historic press conference, its first ever such conference after its regular Federal Open Markets Committee rates and policy meeting. The conference consisted of a fairly short and tidy presentation by Fed Chairman Ben Bernanke, followed by a long and rambling press conference in which sensible and nonsensical questions from the press followed each other in short order.
  • The demise of Washington Mutual: US Senate Report into the crash, part 3
    Part 1 looked at the scale of the evidence the US Senate trawled through to compose its 650 page report into the Wall Street Crash. Part 2 looked briefly at the way the report has been received and touched on the attack by the Senators on Goldman Sachs particularly. In part 3 I want to concentrate on the case study the Senate report provides of the demise of Washington Mutual (WaMu).
  • US Senate report on the crash, part 2—“Criminalization” of America’s financial system?
    Part 1 considered the enormity of the scale of the Investigations Committee’s task in sifting the evidence for this report. Now we turn to the broad outlines of the sketch it has produced. As part 1 made clear, the mountains of paper and electronic based documentation generated through the crash is enough to fog anyone’s brain, but the Committee did a fine job of holding to the main flow of the river, as it were, and did not get swept up into cul de sacs or lost in the minutia of it all, tens of millions of pages of evidence notwithstanding...
  • 30% debt “haircut” for Greece now seems a good bet
    Shortly after the World Economic Forum in Davos in February, I highlighted the fact that there was much talk in the corridors of Davos about a deal that would see Greek debt extended for 25 to 30 years, with bond holders taking a 30% haircut. That story dropped out of sight after Davos but it has now resurfaced big time. In the run up to Easter the markets suddenly got the idea that Greece might be about to default over the Easter weekend and the interest on three year Greek debt shot up to 21%.
  • Japan’s nuclear nightmare could be ending at Fukushima Daiichi 2
    Japan’s Tepco (Tokyo Electric Power Company) seems to be on a winning path, finally, in its long struggle to get on top of the nuclear meltdown at its damaged Fukushima nuclear plants. The 45-meter-high tsunami which struck the plant on March 11 rocked the global nuclear industry to its foundations and put question marks over reactor builds across the world...
  • The US Senate report on the crash, part 1
    The US Senate Permanent Subcommittee on Investigations, part of the Committee on Homeland Security and Governmental Affairs, has finally concluded its mammoth investigation into the crash of 2007-2009. Titled Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, the report is a cracking read.
  • China’s renewables strategy annoys the US
    The scale of China’s strategy for renewable power generation is not widely grasped or appreciated in the West. Japan’s horrendous difficulties with the Fukushima nuclear reactors in the wake of the tsunami has made the Chinese government revisit its nuclear strategy, which had been – and still is – a major part of its energy policy.
  • Creative accounting and government debt – another fine mess
    What is it about politicians that makes them think we’re all stupid? Is it because we are? I think not, though taken as that pliable mass, “the general public”, we sometimes act as if we were. But the “public” are, hopefully, becoming a lot less lethargic and a lot more interested in holding governments to account.
  • Why Greek debt spells goodnight to ECB independence
    As the euro sovereign debt crisis continues to gnaw away at market confidence, sometimes fading into the background, sometimes zooming back to centre focus as some funding or political crisis affecting the peripheral countries grabs the headlines, it is worth bearing in mind that all the bailout fund has done so far is to kick the can of a Greek or Irish default further down the road.
  • US deficit finally gets the politicians thinking
    This blog was written just hours before the US government was due to find itself in a total stalemate over President Obama’s 2012 Budget. The Republicans, headed by House Budget Committee Chairman Paul Ryan, want to see more than $6 trillion worth of spending cuts over the next 10 years to pull the US fiscal deficit back to something like a manageable number.
  • Gold sets new highs on investor fears
    If there is anything surprising about gold moving to new record highs on the back of the unrest in North Africa and fears that the Persian Gulf could get drawn in to the changes sweeping autocrats from power, it is that it has taken this long for gold to surge past the highs it set...
  • IMF seeks to define the lessons of the crash – part 2
    Part one considered IMF Chief Economist Olivier Blanchard’s view that one of the central lessons from the global crash of 2008 was the complete discrediting of the idea that all central banks have to do to ensure economic stability is to target stable prices by focusing on a two percent inflation target. Blanchard was speaking at a high-powered two day conference in Washington, entitled “Macro and Growth Policies in the Wake of the Crisis".
  • Spanish banks towing Spain towards the rocks?
    On March 24 Moody’s Investors Services downgraded the senior debt and deposit ratings of the 30 Spanish banks below the big three (Banco Santander, BBVA, and La Caixa). This follows an earlier downgrading of Spanish sovereign debt by Moody's on March 10 and was, in a sense, a logical corollary of that earlier downgrading.
  • The ECB on the brink of another historic blunder?
    A few weeks before the fall of Lehman Brothers precipitated the most cataclysmic destruction of wealth since the Great Depression, the European Central Bank famously raised its base rate, believing that the economy was overheating and inflation was a problem. It then took the ponderous ECB, with its fixation on price stability, months to grasp that it what it should actually be doing under the prevailing circumstances was to cut interest rates to the bone to prevent the EU economy from going into free fall.
  • Why accounting rules and investment logic can, and do, collide
    I am hugely indebted to Jim Fink’s Investing Daily newsletter for picking up on an absolutely daft confrontation between Warren Buffett’s Berkshire Hathaway and SEC accounting branch chief Gus Rodriguez. The nub of the matter concerns an obscure Financial Accounting Standards Board (FASB) ruling, namely Accounting Standards Codification (ASC) Section 320-10-35-33.
  • Japan’s nuclear disaster gives some countries pause
    No one can look on as Japanese nuclear engineers struggle to prevent further radioactive leakage from the damaged reactor cores of the Fukushima nuclear plants without recognising that some serious questions have been raised over the future of nuclear power. Yet for some countries nuclear provides either the dominant base load generation capacity or such a significant portion of it that moving away from nuclear generation risks paralysing their electricity output, with huge potential costs to industry.
  • Libya crisis of 2011 leaves Italy where?
    Enmeshed as he is in present and pending court cases, the Italian Prime Minister Silvio Berlusconi probably doesn’t have that much time to reflect on whether or not his jolly relationship with Colonel Gaddafi – now admittedly soured beyond salvation - was ever altogether wise. What is certain is that the very substantial bet that Italy placed on Libya is in the process of coming spectacularly unglued at a point in time where the Italian economy really does not need further shocks.
  • IMF seeks to define the lessons of the crash – part 1
    In one of the most high powered mini events it has ever orchestrated, the IMF recently brought together four top economists, including Nobel Laureate Joseph Stiglitz, for a two day “group think” session (my term, not theirs). The format was a conference in Washington, entitled “Macro and Growth Policies in the Wake of the Crisis”.
  • Mauldin’s "Endgame" teaches politicians the basics, but are they listening?
    John Mauldin’s blog "Thoughts from the Frontline" is one of the best financial and economic commentaries around, not least because Mauldin is an avid and skilled collector and presenter of good analysis culled from wherever he can find it, with credit always duly bestowed. His latest book Endgame: The End of the Debt SuperCycle and How It Changes Everything, written with Jonathan Tepper, is an absolute must read.
  • China readjusts to address its weaknesses
    The latest Chinese five-year plan recognises that the way the Chinese economy has developed so far, with a massive emphasis on exports, is unsustainable and that things need to change. In a report on China just before the new plan was revealed in mid-March, Deutsche Bank Research restated the point that many western economists have been making, namely that revaluation of the yuan, higher minimum wages and state investment in the healthcare system would be very beneficial in reshaping the Chinese economy.
  • Rethinking risk management – the ECB takes stock
    At a recent speech to delegates at a conference on Risk and Return in South Africa, José Manuel González-Páramo, Member of the Executive Board of the ECB, talked about the lessons learned from the crisis as far as risk management is concerned, and about the way thinking about risk management has changed. The ECB, he told his audience, has always placed a great importance on the design, development and implementation of sound risk management policies.
  • US Affordable Care Health Plan attacked as “unconstitutional”
    US President Barak Obama’s most ambitious legislative venture, the reform of the US healthcare system, is facing legal action from 22 states and from several private individuals or organizations. The Healthcare Bill was passed a year ago, as the Affordable Care Act, on March 23 2010. It introduces a nationwide, universal system of health care.
  • What stops improving living standards for everyone? Answer, interventionist politicians…
    There can be few people who do not grasp that the UK is facing a huge deficit as a result of the stimulus measures undertaken to help the economy recover from the global crash of 2008. Nor is the UK alone. The US, like the UK, is facing the biggest budget deficit in history. And on a like for like scale, so are Ireland and Greece, with Portugal, Spain, Belgium and Italy not far behind.
  • Trichet and the ECB hint at rate rises
    The broad hint given by Jean-Claude Trichet, President of the European Central Bank, during the ECB’s monthly press conference on March 3, that the Bank was actively considering a rate hike in the short term, has prompted astonishment from fund managers and economists. There is no doubt that the ECB’s comments will also be very unhelpful to the Governor of the Bank of England, Mervyn King, who is trying to contain the hawks on the Monetary Policy Committee who are also pushing for a UK rate rise to contain inflation, currently nudging 5%.
  • Economic cost of the Japanese quake and tsunami: $100 billion and rising
    With the damage caused by the fifth largest earthquake ever recorded (magnitude 9.0) still being assessed, the expectation is that the impact on Japan’s economy will follow a similar path to that seen after the somewhat smaller (magnitude 7.2), but still devastating Kobe earthquake of 1995. The human loss, however, will be far in excess of that experienced at Kobe. Initial estimates put the likely death toll at in excess of 10,000. It would be surprising, given the scale of the devastation, if that figure is not revised upwards in the days to come.
  • Commodity prices – just Murphy’s law at work?
    Murphy’s Law says that if something can go wrong, it will go wrong. For the last year it seems that Murphy’s Law has been in full swing in the world’s commodities markets. From droughts to floods, the weather has, to say the least, not been kind to those who rely on the soil. In past decades this might not have mattered as intensely as it does today, but with developing economies demanding more rather than less by way of grains and meat, the pressure on soft commodities has been unrelenting and the least shortage quickly feeds through into price hikes.
  • In an electric world, batteries rule - a revolution to come
    With the threat of the growing build up of unsustainable concentrations of greenhouse gasses ever before them, the world’s governments in both developed and developing nations, are looking increasingly to the electrification of transport as a way of rolling back CO2 emissions. This is the official “Plan B” scheduled to replace our current “Plan A” (briefly defined as 'use fossil fuels until rising costs kill the idea').
  • Bernanke’s analysis of capital flows – does anyone actually know how to invest?
    What happens when country A has a massive and growing current account surplus? The most natural thing to happen is that the people with responsibility for the surplus try to find reasonable rates of return for some of that surplus. If the surpluses are large, then, by definition, you have to find quite a deep, liquid pool of potential investment opportunities to bed that “hot money flow” down safely. The major industrialized countries, in particular the US, stand out as the obvious targets to explore.
  • US subprime saga phase two could be deadly
    The bursting of any major asset bubble leaves ruin and woe in its wake, but few recent bubbles have caused havoc on the scale of the bursting of the American dream. The old market cliché, “the trend is your friend” has a rider to it that every trader knows in his/her bones, namely that trends are trends because they are moving away from a norm, and sooner or later, they flip back.
  • Rising energy prices threaten global recovery
    t was inevitable that as Libya looked to be degenerating into civil war, the price of oil would climb and climb. Already we have had headline-grabbing predictions from Nomura analysts of the possibility of oil costing $220 per barrel. The reality, though far less dramatic, is still deeply worrying, with “sweet” oil flirting with $120 per barrel on Thursday 24 February (a high of  $119.68), a price uncomfortably close to the pre-crash record highs of $140 per barrel last seen two and a half years ago.
  • The future of central banking, part 2
    In his keynote speech to the 9th Bank for International Settlements (BIS) annual conference, Baron Alexandre Lamfalussy, former General Manager of the BIS and Former President of the European Monetary Institute, began from the standpoint that the crash and its immediate aftermath have thrown up “well identified problems for the central banking community which are unlikely to go away – even if we manage to extricate ourselves from our current predicament.”
  • Central bankers on the future of central banking, part 1
    On June 24-25 2010, the Bank for International Settlements (BIS) held its 9th Annual Conference in Lucerne, with the theme being “The future of central banking”. Why this theme? As Stephen Cecchetti, Economic Advisor and Head of Monetary and Economic Department, BIS, noted in his introductory remarks to the conference, no central banker can be unaware that the global crash of 2008 happened on their watch:
  • Fusion power will change everything for business
    Any company that is a heavy user of power, a category that includes the vast majority of manufacturing companies as well as transport and logistics firms, seems to be facing a future where the cost of energy just keeps rising. Even the large scale offshore wind and marine renewable energy projects now in the planning stage do not look as if they are going to drive current prices down, rather the reverse, since alternative energy will need price support for a good few years yet.
  • Colombia: A Chinese alternative to the Panama Canal? Part 2
    Perhaps as little as five years ago the Chinese were gathering an unenviable reputation for themselves as neo-colonialists, charging around Africa buying everything that wasn’t nailed down or state owned, with, so it is said, palpably little regard for the fate or prospects of the locals. That was not exactly a sustainable way of doing business and the penny seems to have dropped in Beijing, which appears to be approaching the task of building relations with Latin America from a rather more mature and thoughtful perspective.
  • The $4 trillion a day FX market keeps on growing
    The scale of the foreign exchange (FX) dealing market is enormous and growing. According to an article in the Quarterly Review of the Bank for International Settlements(BIS), the market grew 20% from 2007 to the end of 2010, to the point where it now regularly trades over $4 trillion a day. This was actually a slowdown in the FX market’s growth caused by the global crash. It grew 70% in the three years prior to the crash, and it is now picking up speed again.
  • Colombia: From failed state to rising star, part 1
    When President Clinton went to Colombia in 2000, the country was a failed state, with the government in charge of less than one third of the country. Drug lords and rebels, including the notoriously violent FARC, controlled the rest of the land. In just over a decade the country has gone from bust to boom and has even managed to turn around a hugely bad-tempered relationship with its neighbour, Venezuela, which was having a severe dampening effect on trade between the two countries, and even teetered from time to time on the brink of descending into outright military conflict.
  • Austerity under the microscope
    It has been said many times that the debt levels being racked up by some governments are simply not sustainable. This anxiety, after all, is the prime and only justification for the swingeing round of public sector spending cuts the UK Coalition Government is currently imposing, and it lies at the heart of the austerity measures being promoted in European countries such as Greece and Spain.
  • Could the crash lead to enthusiasm for central planning?
    China has enjoyed two decades of 10% growth and this has caused some in the West to speculate that perhaps command capitalism, run by an authoritarian central government, is not such a bad thing. After all, the new found appetite for re-regulating the financial sector and for stimulating the economy with billions in new public debt has little to do with laissez faire capitalism.
  • Greece leaves the World Economic Forum in better spirits
    Davos, the Swiss ski resort that played host to the 2010 World Economic Forum, was not notable for any grand final communiqué and it drew to a close with many ordinary citizens in developed and developing economies scarcely aware that it had happened.
  • Stewardship – the “other half of the hinge” in corporate governance
    The UK Stewardship Code was launched by the Financial Reporting Council (FRC) in July 2010 and seemed to promptly vanish, almost without a splash, into that great pool of worthy things that one should do if one ever got around to it. The code - dubbed “the other half of the hinge” by FRC Chairman Baroness Hogg, since it is meant to complement the corporate governance code aimed at corporate board - was widely approved and widely dismissed, though not in public.
  • The Great Depression revisited – some key facts
    As a counterweight to the view of the Great Depression expressed by the Chairman of the Federal Reserve, Ben Bernanke, I recently embarked on a reading of Murray Rothbard’s “America’s Great Depression”, Rothbard being a pupil of Ludwig von Mises, the key figure along with Friedrich Hayek, of the Austrian school.
  • Sarkozy redefines capitalism at Davos
    French President Nicolas Sarkozy’s freehand sketch of a new capitalism for the 21st century astonished more than a few of the delegates at the 40th World Economic Forum held at the ski resort of Davos. What Sarkozy is against came through a good deal clearer than what he is for. He is against rampant “bad” capitalism as epitomised by the greed of global bankers, but then again, who isn’t these days?
  • Sarkozy’s war on commodity speculators – is intervention the way to go?
    French President Nicolas Sarkozy is probably the leading proponent among supposedly free market politicians, of vigorous state intervention in the markets wherever and whenever things do not seem quite “right” to him. In particular Sarkozy has sought to demonise “commodity speculation”, conjuring up images of sharp suited spivs manipulating the price of agri-commodities such as wheat to the detriment of honest French farmers.
  • Casting about for a new economics: rediscovering Hayek, part 3
    For the last of these three blogs on Hayek (last for now, anyway) I want to look at his suggestions for a practical implementation of his ideal form of minimal government. As with the previous blogs, it is worthwhile to set this against our present context of a huge upsurge in state intervention in the markets, via quantitative easing and re-regulation.
  • Casting about for a new economics: rediscovering Hayek, part 2
    On the face of things it might seem odd that the Austrian School, in the shape of Friedrich Hayek and Ludwig Von Mises should be back in the spotlight, if not yet back in fashion, as people search around for a replacement to classical economics.
  • Casting about for the new economics: rediscovering Hayek, part 1
    It is now widely believed that the 2008-09 global crash discredited the classical economic model of efficient markets beyond repair and that what is needed is a new vision. In fact the financier George Soros believes this so strongly that he has almost single-handedly funded a new body, The Institute for New Economic Thinking, or iNet, the governing board of which includes the Nobel Laureate economist Joseph Stiglitz.
  • BP and Rosneft’s Arctic Adventure, part 2
    In part one I looked at the argument that BP’s superior governance and more developed corporate social responsibility could keep its Russian joint venture partner, Rosneft, on the straight and narrow as far as taking an “environmentally sound” approach to drilling for oil in the Arctic is concerned. In part two, I look at environmental concerns and Russia’s track record on this front.
  • BP and Rosneft’s Arctic Adventure, part 1
    At QFINANCE we are always interested in major mergers and joint ventures so the BP-Rosneft deal announced on January 14 is a natural focus, particularly since it throws such a bright light on the issue of corporate governance. This issue has yet to unfold in its full glory, so to speak, but the constituent elements are fascinating from the outset.
  • China and Japan promise help for the euro
    We all knew that there would be many a twist and turn in the Euro sovereign debt crisis before it finally plays itself out, in whatever manner that might be. However, one of the bigger surprises in recent weeks has been Japan’s announcement that it would not only follow China in buying European bonds, but that it was planning to take up to 20% of whatever might be on offer if the European Financial Stability Facility starts to raise new funding.
  • Meteorologists are unsung heroes – La Niña shows her teeth
    Those engaged with the “soft” or agriculture related commodities markets watch the big, global weather patterns more closely than most of us. We’re all, of course, aware of global warming issues and the need for business to green up, but the more immediate weather cycles only impinge on the rest of us when a spate of disasters, such as the January floods in Australia, Brazil and Sri Lanka, hit the headlines.
  • Commodities set to shine in 2011
    The weather has not been kind to global wheat crops through 2010 -so wheat prices have been outperforming all other commodities. And it is not just wheat that is on the rise. By mid-January 2011, rice too was at record high prices and the stock of rice available for export to countries around the world who are net importers of rice was dwindling rapidly.
  • NY Times slams the bankers over “secretive” derivatives meetings
    We’re hunkered down wearing our hard hat writing this, since the writs are bound to be flying shortly. New York Times writer Louise Story has apparently taken the lid off a regular (“third Wednesday of every month”) meeting of nine top bankers, hosted by one of the new derivatives clearing houses, ICE.
  • Betting against China: Part 3
    In this final part we look at two major reports on China, the World Bank’s latest quarterly report (WBQR) on the major economic trends in China, and CSLA’s predictions for China in 2011.
  • Betting against China – Part 2
    One of the key reasons why some fund managers are starting to bet against China is that food prices across the country have surged by between 20% and 35% through 2010, although overall measures of inflation are still modest.
  • Betting against China... Is this wise?
    The investment world always holds a handful of contrarians, those who, seeing the markets surging in one direction absolutely have to go short in the sincere and certain belief that what goes up, must come down. It stands to reason then, that there will be those who find the idea of betting heavily against the world’s biggest growth engine absolutely irresistible.
  • What now for Russia? Part three
    On December 15, a few days after this blog was penned, a judge appointed by the Kremlin and sitting alone is expected to pronounce a verdict in the second trial of Mikhail Khodorkovsky and Platon Lebedev, the former directors of the one time flagship Russian company Yukos Oil.
  • Where does Wikileaks’ description of Russia as a “Mafia state” leave the Russian economy – now it has the 2018 World Cup? Part two
    In Part One we glanced briefly at Russia’s Mafia problem and at the unwholesome blending of Mafiosi with Russian business and political life and posed the question of what this means for the Russian economy.
  • Where does Wikileaks’ description of Russia as a “Mafia state” leave the Russian economy? Part One
    There is a clear trajectory which companies in emerging economies follow when it comes to corporate governance. Many start out barely paying lip service to the concept while others are frankly criminal.
  • Debunking ideas that the US Fed is out of control
    One of the many memorable lines in Casablanca, right up there with Lauran Bacall’s “You do know how to whistle, don’t you? You just put your lips together and blow,” is the policeman’s exclamation: “I’m shocked, shocked to learn that there is gambling going on,” just as his winnings are slipped into his pocket.
  • European pensions see deficits rise despite record contributions
    The pain associated with running a defined benefit (DB) pension scheme could not be more graphically illustrated than it is in the latest survey of European Pension Funds 2010 by actuaries Lane, Clark & Peacock.
  • Trichet calls for tighter fiscal monitoring of EU members
    In an address to the European Parliament on 30 November, Jean-Claude Trichet, the head of the European Central Bank (ECB) warned the Parliament against allowing member states too much leeway when it comes to drafting new “oversight” legislation.
  • IMF gives Hong Kong a lesson in deflating property bubbles
    The IMF country inspection team concluded its visit to Hong Kong at the end of October. It found the People’s Republic of China Special Administrative Region (a committee-inspired name if ever there was one) in high expansionary mode with a property bubble developing thanks to fast-rising credit growth...
  • Spain on the rack: What price facts when hysteria rules?
    The Spanish Government is getting seriously, but rather impotently, annoyed. With Spanish papers running stories saying that the Spanish Government is in secret talks with the EU, the IMF, and the US Treasury about a possible bailout, firefighting is becoming a full-time job for Spanish officials...
  • Asia overtakes US on derivatives trading
    Yet another sign of the irresistible shift of economic power from west to east came in the third quarter of 2010 when, for the first time ever, the volume of derivatives trading in Asia-Pacific surpassed that done in North America.  
  • IMF looks to bounce EU into fiscal union
    Just a day or two before ECB president Jean Claude Trichet sketched out how the embryonic European Systemic Risk Board could be a kind of halfway house to fiscal union (see my previous blog on the EU economy for further analysis), the managing director of the IMF, Dominique Strauss-Kahn launched an even more vigorous proposal.
  • A halfway house to fiscal union in the EU
    Anyone who thinks that the key figures behind the Eurozone, from heads of state, to finance ministers, to the head of the European Central Bank (ECB) are not giving thought to ways and means for getting beyond the EU’s rolling sovereign debt crisis, is dreaming.
  • GM is the second largest IPO in US history – why?
    From needing a massive US taxpayer handout at the height of the crash, on November 17 2010 General Motors successfully rose from the ashes, pushing through a $15.8 billion IPO of common shares, the second largest in US history after the $19.7 billion Visa IPO in 2008.
  • India’s take on the G20: an emerging market view
    With the press in the developed markets now more or less resigned to hearing little of substance from G20 meetings it might be useful to take in an emerging market perspective, as given by the Director General of the Reserve Bank of India in a recent speech.
  • “If you ever go across the seas to Ireland…”
    To twist the words of the old song, if you ever go across the seas to Ireland, you are unlikely to find the population in a very forgiving mood, at least as far as the government of the day is concerned. There is a real anger out and about in Ireland at the way the Celtic tiger has been brought down by foolish bank lending and equally foolish and unsustainable government promises to stand behind that lending.
  • APEC calls for free trade and an end to creeping protectionism
    In a recent interview I had with Kleinwort Benson chief investment officer, Jeremy Beckwith, he remarked that while the mid-term elections in the US might have left Democrats and Republicans gridlocked on the political front, the one thing both embattled parties could agree on was the need to protect American companies and American jobs against foreign, currency manipulating, predatory exporters, aka the Chinese and anyone else engaging in competitive devaluation.
  • Swaps market gets into a spin over Dodd Frank
    By the 1980s people had begun to try to use futures type contracts to take the risk out of many other kinds of price movements over time, including interest rate movements and currency movements. The swaps market had arrived, and with it, the over-the-counter (OTC) derivatives market – the same market that acted as such a catastrophic amplifier of bank bad practices in the run up to the 2008 global crash.
  • China loosens its grip on the renminbi - just a tad
    While it is not yet time for celebrating for those who want to see a free-floating, Chinese currency market with minimal restrictions on capital flows, there are definite signs of development. Two things caught my eye recently. One was an announcement by Singapore’s Central Bank that it had agreed a currency swap with China – a necessary trade enabler between the two countries, making it much easier for Chinese and Singaporean businesses to settle with each other.
  • QE2 and Gridlock in Washington – are we having fun yet?
    Investment managers contemplating the mixed messages coming from US voters in America’s mid-term elections don’t know whether to breath a sigh of relief that the resulting political gridlock is going to make it tough for Democrats to launch new major (unfunded) policies or whether to bemoan the fact that the economy is in far too fragile a position to endure political paralysis. 
  • Gold – pausing, peaking or sliding? A (reverse) indicator for the fate of the West…
    A few weeks ago the price of gold touched $1380. Then, over the week of October 22 to October 28 the lustrous metal has been sliding backwards almost by the day, with a return to the high $1200s looking more and more possible. To be followed by what? The low $1200s? Or a zoom back to the high $1300s and beyond?
  • The Global Economy – a Glass Half Full?
    The famous dictum about the difference between pessimists and optimists seems to apply equally well to views about the global economy. In the eyes of Brian Moynihan, President and Chief Executive Officer, Bank of America, the glass is half full.
  • Subprime debacle – the truth emerges: Part 3
    Clayton Holdings, a US firm based in Connecticut, which scrutinizes home mortgages for a number of clients, including investment banks and government agencies such as Fannie Mae and Freddie Mac, put the US financial press into a tizzy when former Clayton executives testified to the Financial Crisis Inquiry Commission (FCIC).
  • Subprime debacle – the truth emerges: Part 2
    Amongst the real horrors perpetrated during the subprime disaster, such as the many outright frauds practised on US homebuyers who should never have been re-mortgaging their homes in the first place, the testimony of real estate appraiser Karen Mann to the Financial Crisis Inquiry Commission (FCIC) sounds a barely heard note but it is an eloquent account of the law of unintended consequences in full cry.
  • Subprime debacle – the truth emerges: Part 1
    While global liquidity imbalances were, at bedrock, responsible for generating the hunt for yield that pumped up the global asset bubble, subprime residential mortgage securitizations were undoubtedly the vehicle that gave us the 2008 global financial meltdown. The mechanics of this have been gone into at great length elsewhere, but what is now emerging bears further scrutiny.
  • The IMF to Asia: Nice work, but spend more!
    The old exhortation to ambitious youth, “Go East, young man!” has lost none of its potency over the century or so since it was first uttered. Asia now has global growth by the scruff and is running away with it while the West keeps on digging itself into a deeper hole.
  • Fortune continues to smile on sub-investment grade corporate bonds
    With near zero returns for prime sovereign debt, wealth managers and fixed income managers have been pouring money into high yield corporate bonds for more than a year in a search for better rewards.
  • Foreclosure-gate and the US banks
    Watergate seems to have permanently disfigured US English by requiring a mandatory suffix, “gate”, to be appended to every fresh scandal, “just so’s we knows its big”. However, US market commentators and financial bloggers are revving their engines big time on foreclosure-gate, and since I dropped an un-elucidated mention of this into a previous blog, now might be a good time to give the topic an airing.
  • Will the currency wars make nonsense of the IMF’s reforms?
    Speaking at the Canadian Consulate’s “Invest in Canada” luncheon on 6 October, the Nobel Prize winning economist Joseph Stiglitz in effect threw in the towel over the ongoing currency wars. As reported by Reuters Stiglitz said that what the US was involved in amounted to a competitive devaluation of the dollar against other currencies that were also deliberately devaluing.
  • Can Chile follow the miracle rescue of 33 miners with a Chilean economic miracle?
    As the world watched the incredible sight of Chile’s 33 miners emerging, one by one, from what might so easily have been their stony tomb half a mile underground, there was a real sense that this was also the opportunity for the country as whole to shed the darkness of the Pinochet years and to be seen as a modern, democratic country with a thriving economy.
  • Morality, the 2010 Nobel Peace Prize, and the Chinese economy – what does history teach?
    When the Norwegian Nobel Committee decided to award the 2010 Nobel Peace Prize to Liu Xiaobo “for his long and non-violent struggle for fundamental human rights in China”, the members knew, of course, that their decision would not be cheered by the Chinese authorities who regard Liu Xiaobo as a “criminal” and have him locked up and serving an eleven year prison sentence.
  • Bank of Japan explores the difference between nought and nought
    Until its high profile decision on October 5 to cut its overnight call rate from 0.1% to 0.0% plus some fraction less than 0.1%, the Bank of Japan had not altered its rate since December 2008. This was when it reduced the rate to the now superceded 0.1% level, a decision that flipped savings in Japan from massive to under 3%. Why save when you are getting nowt for your money?
  • SEC report into May 6 “flash crash” shows the system creaking
    So now we know that the “Flash Crash” of 6 May, when the S&P plunged almost 1000 points in a few minutes was not caused by a “fat finger” error after all. A fat finger error, we should explain, is where a trader means to sell, say, one billion shares and keys one too many zeros before hitting the “send” button, thus selling 10 billion shares, and in the process triggering a briefly self-sustaining selling wave by both traders and automated trading programmes. 
  • The rise and rise of gold - an enigma or just investor worry?
    Writing about a volatile commodity price always runs the risk of having the markets make nonsense of anything one says by the time the piece is published. However, the awesome rise of the price of gold, which is on a 21 month tear and has been tumbling one record high after another since it went through $1290 on Wednesday 22 September, is worth commenting on in and of itself.
  • Fund managers relaxed about Brazilian elections
    Despite the head start given by Brazil’s thriving economy, the country’s ruling party candidate Dilma Rousseff, was unable to win Brazil’s presidential elections on October 3 by a sufficient majority to avoid a runoff scheduled for October 31.
  • Asia, Europe and the US: not decoupling but recoupling
    In 2008, East Asia accounted for getting on for a fifth (18%) of total global GDP, as against just 9% in 1990. The region’s rapid development and generally high rate of growth, particularly with respect to China, led to the “decoupling” debate.
  • The IMF ponders China’s growth
    A very good working paper from the IMF, which generally does rather good working papers on geopolitical themes, makes the point that China is not “merely” the engine that might yet haul the global economy back onto a growth track.
  • The rise and rise of the Asian middle classes
    With European and US consumers busily engaged in playing down debt and cutting up their credit cards, the great hope for future consumer driven booms could well lie with the rise and rise of Asia’s middle classes. The Asia Development Bank (ADB) publication, Key Indicators for Asia and the Pacific 2010, has an excellent “Special Chapter” on the region’s middle classes.
  • Brazil sees world’s biggest ever share issue
    Until now the record for the world’s biggest ever rights issue has been held by the Japanese telecoms giant, NTT, which raised $36 billion in 1987. This dwarfed even the $24 billion raised by the Royal Bank of Scotland in June 2008 (a controversial issue if ever there was one). However, the Brazilian oil giant Petrobras has just raised the bar with a gargantuan $70 billion issue.
  • Euro repos soar to record heights
    In mid-September the Zurich-based International Capital Market Association (ICMA) issued a very significant press release that went almost unnoticed by the mainstream press. According to the latest ICMA-European Repo Council (ERC) survey, the European repo market has bounced back from the lows that followed the collapse of Lehman Brothers, and has now surpassed peak pre-crisis levels.
  • Regulatory fears and growth expectations dominate derivatives survey
    In its latest survey of the attitudes and expectations of players in the derivatives market, ratings agency Fitch found that while just about all respondents welcomed the central clearing of derivatives (96%), the potential for overregulation was cited as the top challenge facing the market.
  • Venture capital says “Goodbye West, Hello East”
    A survey by Deloitte and the National Venture Capital Association (NVCA) of more than 500 venture capital firms worldwide, finds a surprisingly solid consensus that the future for venture capital deals lies largely in emerging markets.
  • Freddie Mac and Fannie Mae: the mother of all bailouts still to come?
    During a recent interview with Fox News Business Editor Neil Cavuto, the Chairman of the Philadelphia Federal Reserve, Charles Plosser made it clear that in his view the two state sponsored entities, Fannie Mae and Freddie Mac, who between them own or guarantee around 53% of the US $10.6 trillion mortgage market, should be phased out.
  • Rebalancing the global economy – nice if you can do it…
    One of the most interesting studies to come out of the Centre for Economic Policy Research is a tomb aimed at the world’s politicians and fiscal authorities. Entitled "Rebalancing the Global Economy: a primer for policy makers", the study brings together papers from a number of economists.
  • A lesson in economics: How stock markets really work…
    One of the most astonishing articles I have come across in a long time is a piece entitled “How the Stock Market and the Economy Really Work” by former Wall Street trader and research analyst Kel Kelly. For Kelly, while they have a role, consumer confidence and consumer spending are not the drivers of economic growth. What does drive economic growth, then? Simple. Increases in the money supply drive up prices, that’s it. That’s the whole story.
  • Is Japan at the tipping point? Not if China can help it
    Back in early August I wrote a blog which highlighted Edward Chancellor’s excellent account of the global sovereign debt crisis. In recent weeks something happened that made me revisit Chancellor’s paper. In August, Japan, astonished at the amount of Japanese Government Bonds (JGBs) China was amassing asked China to explain its actions…
  • Bernanke's neoclassical planet wanders out of orbit
    Steve Keen, an associate professor at the University of Western Sydney, is well known for his attempts to highlight the failings of classical economics, as evidenced in say, modern portfolio theory (MPT) and the Capital Assets Pricing Model (CAPM). His arguments are many, subtle and various, and also quite often blindingly straightforward...
  • PC shipments bring some cause for optimism
    At the end of August 2010 the technology market watcher Gartner cut what had been a very optimistic forecast for the year-on-year growth of total global PC shipments for the second half of 2010 to just over 15%, down some 2% from its original forecast. That, of course, is still huge...
  • Supply chain financing – why more companies should do it
    One of the well known evils of a deep downturn, though less immediately dramatic than horrors like unemployment, lost homes and blighted lives, is the way so many large companies improve their cash flow by choking their suppliers.
  • China overtakes Japan – so what?
    At the end of July, in the height of the usual summer news famine, the business media leapt with delight on the fact that Chinese economy had, as the story put it, “overtaken the Japanese economy as the world’s second largest economy”.
  • Court actions see subprime carelessness coming home to roost
    It seems that some of the institutions who found themselves on the losing end of US subprime mortgage securitizations want this same standard of commercial logic to apply to transactions in which, by most accounts, no one, including the losers, did anything remotely resembling due diligence...
  • When the ECB looks at itself, what does it see?
    There is no shortage of commentators out there willing to give the European Central Bank a good kicking. The comments have been trotted out many times. Unsurprisingly, perhaps, this is not the picture that ECB insiders see. They hear the noises but to them, what is being described is fictional rather than real.
  • Global demand for food fuels mega merger fertilizer bid
    Agriculture has been the poor cousin to industry for more than a century, but rising population pressures in the developing world are focusing the attention of investors and industry alike on the central role food production is likely to play in the decades ahead. Nothing signals this more vividly than mining giant BHP Billiton’s hostile $39 million bid for the Canadian fertilizer manufacturer, PotashCorp.
  • Fear adds lustre to gold
    On Thursday August 12, after weeks of shall-we, shan’t we, investors finally decided, in large numbers, that equities had reached the point where they were just too scary and that gold was the place to be...
  • Baltic Dry gets the punters in a spin
    Take an index that many of the “smartest” economic commentators like to use as a bell-weather for the coming ups and downs of the next six months and, well, wobble it up and down a bit, and what do you get? The answer, of course, is a good deal of froth and confusion.
  • Globally, mega merger deals are back and doing just fine…
    There was a time at the height of the credit crunch when everyone was convinced that the days of the multi billion pound merger were over. However, while the non-availability of cheap lending from banks means that it remains difficult, if not impossible, for large private equity groups to lead huge mergers, this has simply cleared the field for the large multinationals to pluck the low hanging fruit.
  • China’s green energy drive starts to roar
    The conventional environmental view of the BRIC developing economies in general and China in particular equates high growth with high pollution. However, while coal-fired power stations are China’s main source of energy, and the country is famously said to be building one new coal-fired plant a week, in February this year, according to a Bloomberg report, China overtook the US to become the world’s largest market for wind energy.
  • Asset Protection Agency issues its first report on toxic bank debts
    The UK Asset Protection Agency, the body charged with managing the UK’s acquisition of toxic debts from the state owned Royal Bank of Scotland, issued its first report and accounts at the end of July 2010. The Agency insures some £230 billion of more or less troubled assets held by RBS. According to the “best expectations” of the Agency, the UK taxpayer is likely to...
  • Hedge funds take a punt on Asia
    The second quarter of 2010 has proved something of a disaster for the hedge fund sector, with May and June both recording declines in funds under management, according to the Index maintained by market analyst Hedge Fund Research (HFR). However in early August...
  • Cloud computing changes everything
    If you were the CEO or the finance director of a major corporation, would you feel comfortable betting your business on a cloud? Probably not. Yet cloud computing is starting to transform IT in a way that finance directors are going to love...
  • IMF gives Greece the thumbs up
    For the wealthy in Greece, evading taxes has been as natural as breathing. This attitude, a common strand in all tax-paying economies, but heftily combated by fiscal authorities in most developed countries, has become so much the normal way of life in Greece that successive Greek governments have simply taken it as a fact, rather than something to be fought tooth and nail...
  • Preparing for failure is the answer to too-big-to-fail
    Amongst all the heated rhetoric from politicians and the barbs hurled by commentators of all stripes, the global financial services industry, operating through the Institute of International Finance (IIF), has issued its own view of the solution to the too-big-to-fail dilemma. The optimum solution, it says in a report issued in May this year, is one where no taxpayer bailout money is ever necessary...
  • Sovereign debt—Harder to judge than you'd think
    One of the most comprehensive and best articles to appear so far on sovereign debt is undoubtedly Edward Chancellor’s “Reflections on the Sovereign Debt Crisis,” posted on Zero Hedge. The title is absolutely apt...
  • Mervyn King’s testimony highlights challenges for regulators
    The recently elected Treasury Select Committee were left with much to ponder after hearing testimony from the Governor of the Bank of England Mervyn King on July 28. While several of the proposed provisions of Basel III have taken some stick, King’s chief concern in relation to the proposed new regulatory framework is that it probably won’t be tough enough!
  • China: Don’t look at the dollar, look at the basket—What basket?
    For a wide variety of reasons, the vast majority of which remain diplomatically unstated, China would like to get away from the US dollar as the reference point of choice for measuring the yuan, also known as the renminbi...
  • Singapore—The fastest growing economy in the world?
    While the eurozone waits for the other sovereign debt shoe to drop and US commentators fret over a possible double dip recession, Singapore has revised its growth estimates for 2010 sharply up from its original estimates of seven to nine percent. It now anticipates growth of 13-15% for the year, putting it on track for the title of the world’s fastest growing economy—never mind Asia’s fastest growing economy...
  • Bernanke’s testimony—A lesson in the perils of forecasting gloom
    One expects and values honesty and forthrightness from the Chairman of the Federal Reserve. So when Ben Bernanke told the US Senate Committee on Banking, Housing and Urban Affairs that the outlook for the US economy remained “unusually uncertain” and that the risks were all to the downside, he should have been applauded for not sugaring the pill and for telling it to the Senators like he sees it...
  • A fresh look at bank risk: Too integrated to fail?
    Blessed with a laser-like eye for the weaknesses in the US economy and a neat, dismissive way with the sophisms, empty sound-bites and hollow rhetoric of US politicians, Yves Smith, the founder and author of the Naked Capitalism blog, is often thought provoking. His latest idea is that “too-big-to-fail” is the wrong notion. We should be focusing on the “too-integrated-to-fail” problem...
  • Japan: Short-term wins or long-term losses?
    The Association of Investment Companies (AIC) is the latest organisation to take a stab at anatomising the prospects of Japan’s economy. As the AIC notes in its July 2010 report, “An outlook for Japan and Japanese investment companies”, the country has a really mixed investment history and has been the graveyard of more than a few fund manager reputations...
  • FSA brings an end to “liars loans”
    The Financial Services Authority’s decision on July 13, 2010, to prevent UK banks from accepting self-certified mortgages, conjures up nothing so much as the sound of stable doors slamming long after the horses are over the horizon. Had the FSA come out with this ruling in 2007 we could all have applauded long and loudly...
  • Bank regulation: Firing at the wrong target?
    Few would expect the City of London Corporation to be hugely enthused about the current trend around the world for enacting tough new regulations against banks. So it is no surprise to find a report commissioned by the City of London setting out to do a demolition job on the Basel Committee’s revamp of Basel II. What is perhaps surprising is just how solid and persuasive the arguments made by the report actually are...
  • The new emerging structure for derivatives
    At the end of April, Deutsche Bank Research (DBR) released its briefing paper on OTC derivatives. Without doubt, this is a market that in many ways holds the future health and wellbeing of the global financial system in its shadowy hands. At the peak of the derivatives market, before the crash, gross notional amounts outstanding for over-the-counter (OTC) derivatives amounted to £605 trillion, according to DBR...
  • G20 in June—The subtext: You go your way and I’ll go mine…
    Everyone knows that you can’t impose a stringent new regulatory framework for the banks on a piecemeal, country-by-country basis. That would simply present the banks with endless opportunities for regulatory arbitrage, shifting operations to countries with the lightest-touch regulation. However, there are some near insuperable problems emerging in achieving unified regulation...
  • Dismal news keeps the markets wobbly
    The global stock markets are nervous as kittens these days. Investors seem to cycle between bouts of mad optimism and the blackest pessimism with nothing very much acting as the trigger in either direction. What started markets tumbling this last go round seems to have been a single think tank revising its China growth forecast down slightly. Oops. China not growing as fast? OMG! Sell! sell! sell!...
  • The warning bell on derivatives rang loud in 1994
    There is an elderly document, well, not that elderly—it was written in 1994—that should be mandatory reading for global regulators everywhere. The report, by the then Comptroller General (CG) of the US, Charles A. Bowsher, was the first in-depth, detailed study of the use of and risks posed by derivatives. In the report’s own words, the CG’s office had been asked to look into the dangers of derivatives...
  • Don’t think G20, think G160+, says World Bank
    Inevitably the constant focus in the world’s media on the G20 group of countries puts the world’s richest and most powerful nations so much in the spotlight that the rest of the world is kind of blanked out, as if what poorer countries do economically does not really matter. A salutary antidote to this view was provided by World Bank managing director Ngozi N. Okonjo-Iweala in a speech at the World Bank-Korea Conference...
  • Is corporate culture where the danger lies, and should regulators get involved?
    It seems as obvious as a thumb in your eye that corporate culture can have a real bearing on the risks associated with a particular financial entity. Take Bernie Madoff’s little operation, for example. Although Bernie played his cards close to his chest, you couldn’t be an employee of his long term and not get sucked in to his machinations, either as an innocent dupe or as a compliant collaborator. The rot started at the top...
  • IAS 19 redraft—Tolling the bell on final salary pensions?
    One of the truly weird things about the accounting standard setting process is that with nothing but the deepest respect for God, truth, and the Anglo-Saxon way, successive standards bodies have managed to drive a stake through the heart of UK final salary pension schemes—and, by extension, they’ve killed them off for every other country around the world as well. What the hell was wrong with final salary schemes? They were great!...
  • A lingering touch of old world arrogance at the World Cup
    The World Cup is such a high octane farrago of emotions, ambitions and noise that attempts to get “serious” about the “meaning” of the thing are almost always misplaced. Do World Cups convey a lasting economic benefit on host countries? Not necessarily, but sometimes, yes. Are they important? On what scale? As an aid to global harmony? Possibly. As an exhibition of football? Certainly, but what does that mean outside of football?
  • US and international accounting standard setters rekindle their vows
    On June 2, the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) agreed to sharpen up their efforts to achieve convergence between international accounting standards and US GAAP (generally agreed accounting principles). This follows an earlier announcement back in November 2009 where the two bodies reaffirmed their commitment to convergence by June 2011...
  • Markets ignore ratings agency Greek debt downgrade
    With investors at last disposed to take cognisance of some of the “good news” signals being put out by the US and Chinese economies, and even the German economy, it is perhaps not surprising in the end to find the markets at last showing resilience in the face of ratings agency downgrades. When Moody’s announced in mid June that it was downgrading Greek sovereign debt status by several notches, the market completely ignored the...
  • “Saying no” is the key to central bank independence
    When supposedly independent central banks start buying large chunks of their own sovereign debt, usually, the presumption goes, at the behest of their own Chancellors, does that expose the fact their “independence” is a political fiction? In setting out to address this question in a recent speech, Adam Posen, an external member of the UK Bank of England Monetary Policy Committee (MPC), and Senior Fellow at the Peterson Institute for...
  • ECB ups the ante on “economic government” – Part 1
    Not surprisingly, given the turbulence in the markets over the last month, the European Central Bank (ECB) president Jean-Claude Trichet has been engaged in a fairly hefty speech making “offensive”, explaining the ECB’s view of how things stand and where they should be going. How they stand, according to Trichet, is that the ECB remains focused on price stability above all things (that is its mandate, after all), and that prices remain...
  • No printing of money, not on my watch, says Trichet
    In an earlier blog we looked at the degree to which the European Central Bank (ECB) is throwing its considerable weight behind the idea of a move to create some form of fiscal union in the European Union. However, in addition to addressing what is now widely seen as the fundamental weakness of the eurozone (monetary union without a fiscal union), the ECB has a further dilemma to solve, how to deal with the structural imbalances...
  • A deal too far? Shareholder activism 1, Pru 0
    On the face of it, back when it all started, the Prudential’s $35.5 billion bid for the Asian assets of the troubled US insurance conglomerate AIG must have looked like a career winning move for Pru CEO Tidjane Thiam. Now, with the deal officially dead and the Pru down a reported £1 billion in fees to advisors on both the deal and the proposed $21 billion rights issue it was going to have to do, Thiam’s career prospects seem to be dimming fast...
  • A “Frankendeutsche” European government—A monster by any name?
    With every market commentator now well drilled in the idea that the fundamental flaw in the European Union is that it has a monetary union but no fiscal union, it was only a matter of time before European politicians started to (re)float the idea of a pan-European government. “And not for the first time”, some might say, adding that it is no more “doable” now than it was at the time of the Maastricht Treaty...
  • China: Unrest threatens to spoil the Party
    There is an inevitable trajectory that any successful developing economy has to traverse. How adroitly it does so determines, ultimately, whether the notion of success continues to apply or not. No country can set out its stall to be the beneficiary of wage arbitrage moves indefinitely. The vast base of the population who provide the labour pool for this low wage game have to see their expectations of rising living standards being met over time...
  • New sheriffs get ready to handbag Wall Street
    At a recent presentation, US Treasury Secretary Timothy Geithner began by saying he’d recently seen a headline: “What if Women Ran Wall Street?” If they did, they could hardly do worse, he quibbled. The fact is that following the crash and the US legislature’s new appetite for reform, the number of women in key regulatory positions is on the rise. So much so that Time magazine recently ran a feature by Michael Sherer entitled...
  • Can Greece reduce its debt?
    There are about as many views on Greece’s ability to reduce its huge fiscal deficit as there are commentators willing to speak on the theme. An emerging consensus view seems to be that the scale of the European Union bailout has staved off any chance of a default for probably a year at least, and maybe three if the Government manages to keep order. If the lid blows off as a reaction to the austerity measures being imposed, then all bets are off...
  • The end user’s case against OTT (over-the-top) derivatives regulation
    The European Parliament’s Economics and Monetary Affairs Committee (ECON) is a very well respected body and has little difficulty in getting industry experts in every area to present their views on matters of importance to the Committee. ECON also does a very good job of taking those views into account when it formulates its response to proposed EU initiatives, such as the regulation of derivatives. On 27 April, Richard Raeburn, the Chairman of…
  • Great Depression mark II? The wailing begins…
    Stability seems to hang by the thinnest of thin threads these days. All it takes is a rush of blood to the head afflicting a few German politicians, causing Germany to unilaterally impose a short selling ban, and hey presto, the markets fall over in a faint. The next day the markets shrug their funk off for a few hours then collapse in terror again. This of course causes once-bitten-twice-shy hedge fund managers to start dumping their positions and we’re off again...
  • A strategic look at the euro problem—What if Greece stayed and Germany left?
    With so many economists, market watchers, and foreign currency specialists giving their views on the crisis in the eurozone, it is refreshing to come across a brilliant piece of “what if” analysis from a completely different perspective. STRATFOR Global Intelligence produces strategic briefings and analyses on a wide range of subjects, both military and geopolitical. The ongoing crisis has caught the attention of its analysts and it has a number of...
  • The Europe-wide web of debt
    The hugely interlinked and interwoven nature of the sovereign bond market in Europe was probably always going to suffer exceedingly badly if it ever became the focus of media attention. It is such a tangle of mutual indebtedness that it absolutely begs the comparison with one of those collapsing domino world record attempts one sees on TV from time to time. One suspects that not even seasoned bond traders spend that much time stepping back from…
  • Basel II—The work goes on despite the crisis
    The crisis in the euro and the general anxiety in the markets over sovereign debt issues have caused many market watchers to take their eye off the Basel Committee on Banking Supervision’s work on revamping the Basel II standard. However, the market hysteria over government debt has not deflected the Committee from its efforts to raise the resilience of the banking sector. As the BCBS puts it: “The over-riding objective of the Committee’s reform agenda...
  • Indian economy sets targets Europe can only envy
    With the Indian economy set to grow at an annualized rate of 10% by 2012, according to the Indian Finance Minister, Pranab Mukerjee, the Reserve Bank of India (RBI) is already taking steps to exit from the quantitative easing process it put in place at the height of the downturn. In late April the RBI increased short-term lending and borrowing rates, raising the repo and reverse repo rates to 5.25% and 3.75% respectively. It also told commercial…
  • Is price stability the right target for the EU?
    If ever a man gave a cool and calm presentation at a press conference and got roundly trashed for it later, Jean-Claude Trichet, the president of the European Central Bank is that man. The markets were crashing, European leaders had not yet agreed their $1 trillion support fund for the euro and none of the commentators or assembled press had any idea that a package of this size was on the way. Neither, probably, did Trichet, who was giving…
  • Fat fingers and the log-log law
    On Thursday May 6th the Dow had its biggest ever intraday fall and for 90 seconds the stock market went completely bananas. According to MSNBC, reporting on a blog from the Washington Post, some well known stocks were briefly worth zero, nada, nothing, during that 90 second period of mayhem, while auctioneers Sotherby’s enjoyed a brief stellar moment where their share price translated into market cap would have given them a $6 trillion value…
  • Ratings agencies under notice, part 2
    In Part 1 we looked at EU President Barroso’s warning to the ratings agencies. A day after President Barroso’s speech, Jean Claude Trichet, the President of the European Central Bank faced some hostile questioning from the world’s financial and political press (see the webcast) and the subject of the ratings agencies again came to the fore. Unlike Barroso, however, Trichet did not venture voluntarily into this particular battle. He was pushed and prodded…
  • Ratings agencies under notice from Europe, part 1
    It has been an interesting week, in the full sense of the Chinese curse, for the big ratings agencies. They have had their cages publicly rattled by two European heavyweights, the President of the European Central Bank, Jean Claude Trichet, and the President of the European Union, José Manuel Durão Barroso. Part 1 of this blog focuses on Barroso’s attack. Part 2 will consider remarks made by the ECB president. President Barroso made it quite clear…
  • Whatever happened to CRM and the idea of treasuring the customer?
    Just about the time we were all going through the bubble phase of the era, a time when technology had an extremely favorable wind behind it, a mid to big business IT solution that had been gaining traction for years really took off. This was Customer Relationship Management, or CRM. The basic idea was simple. Small businesses knew their customers. Medium to big business lost touch with customers and tended to focus on…
  • The challenge of longevity
    Big business and governments are already grappling with the uncomfortable side effects of increasing longevity. According to actuaries, the present generation has gained the equivalent of 12 minutes an hour or a 20% increase in average lifespan by comparison with the previous generation. The impact of this is felt first and foremost in the pensions arena, with businesses having to run harder just to stand still as far as their pension…
  • More ratings agency fun, more market crashes…
    It has been said fairly often lately that sovereign debt is the other boot waiting to drop. Greek woes have been largely featured in the press and have not been entirely neglected in these blogs either. So there was a kind of inevitability about it when Standard & Poor’s sent the world’s stock markets into a nosedive on Tuesday April 27th by downgrading Greece’s debt to junk rating and then followed up by slashing Portugal’s rating as well…
  • In case of greed, break glass… a reaction to President Clinton’s latest thoughts on the crash.
    Former US President Bill Clinton’s statement on ABC TV’s “This Week” program that he was wrong in listening to the advice of his advisers to the effect that derivatives did not need to be regulated (see Ian Fraser’s blog post on this) shows that the ex-president has at least an inkling that he had a role in the global crash. However, the interview also shows that he still has some work to do coming to terms with just what his decision to throw out Glass–Steagall really meant…
  • VCT funding for small companies—Will the elections kill a good idea?
    A parliamentary election often generates something of an ideas frenzy and with an incoming government potentially set to either change course on what it was doing before, or to take an axe to the other side’s way of doing things, it is an important time for all kinds of bodies to say, “Hey, look at what we do, and don’t spoil it!” Venture Capital Trusts (VCTs) were a “bright new idea” in the UK back in 1995, providing tax relief for investment…
  • IMF FAT tax—Fat chance…
    It beggars belief that the biggest banks could come through the worst global recession since the 1930s, caused in no small part by their own mismanagement and reckless risk taking, then simply continue where they left off, with, possibly, some minor changes in personnel in key roles and some not-so-minor changes of ownership (including the nationalization of some). Politicians talk a great game when it comes to imposing a tough new…
  • The SEC vs Goldman—to do right, do it right!
    Oh dear! If the SEC had only followed its own best practice when it decided to go after Goldman Sachs how much better things would now be. One could have given a small cheer that the SEC had finally wiped the mud out of its eyes and was now genuinely determined to act like the regulator it is supposed to be. Instead, sensing the opportunity to hog the headlines and strut its stuff in the limelight for a few brief hours, it threw caution to the winds…
  • If it ain’t broke, don’t fix it—Angel financing, part 2
    While there is much to ponder in Senate Banking Committee Chairman Christopher Dodd’s Finance Bill, the fact that Dodd’s drafting team have shoe-horned in a provision to raise the bar as to what constitutes an “accredited investor” (someone rich enough to decide for themselves where to invest their money) is causing a riot in angel investor circles in the US. The Bill wants to raise the stakes for accredited investor from $1 million in assets to…
  • Oops, we just killed angel financing...
    It is one of the facts of business life that one of the prime sources of funding—often the only source of funding—for start-ups is that which comes from family and friends and from business “angel” financing. In this context, angels are simply independent people (i.e. not venture capital funds) who decide to risk some capital on a new venture by third parties. It is extremely hard to overstate the importance of angel funding, both in the UK and Europe and in the US…
  • When push comes to shove, who really defines the green agenda?
    One of the problems with green politics is that for the leading nations it is always so much easier to instruct others on the necessities of cutting emissions than it is to make deep cuts themselves. The unseemly spat over the World Bank’s $3.75 billion loan to the South African power giant Eskom for its Medupi power station, with both the UK and the US initially objecting to the project and blocking the funding, is a prime case in point…
  • Innovation in Europe—Does the ERC hold the key?
    The present and future struggle to be at the forefront of global manufacturing is all about cornering the market for talent and intellectual property, according to Dick Olver, chairman of BAE Systems, the UK’s largest manufacturing company. “This is why the Chinese are trying to build education institutions to rival Oxford and Harvard. And why India and China are working to keep more of their top graduates at home instead of seeing them migrate…
  • Lehman Bros: Repo 105, the case for the defense
    In an earlier blog post on the theme of the Repo 105 accounting gimmick that allowed the failed Lehman Brothers to shift around $50 billion off its balance sheet for three successive quarter end interim reports, we highlighted the apparent abuse of trust involved in pulling the wool over the eyes of stakeholders by window dressing the accounts. However, there is, apparently, another and completely different view to be taken of this, and it is…
  • Asia forges ahead
    According to a recent speech by John Lipsky, the first deputy managing director of the International Monetary Fund, global growth should bounce back to around 4% in 2010, with Asian economies leading the way. That, of course, is old news, but the conference Lipsky was addressing was concerned with finding ways or ideas for ensuring that Asia’s rapid growth translates down to a better life for the poorest in the region. As Lipsky reminded…
  • Blindsided by robots?
    Businesses always have to have one eye on the metaphorical horizon, watching out for that paradigm-busting innovation, that something different that is so much a break from what has gone before that it changes the rules of the game for whole industries. Fortunately for business, most such technologies—the internet, PCs, notebook computers, and mobile phones are obvious instances—take time to gain traction. This gives…
  • Greek tragedy, part 3: Deal? Some deal!
    On the evening of Thursday March 26th, it looked as if the Greek government had been thrown a lifeline supposedly woven out of the combined efforts of the EU and the IMF (in reality comprised of some rather unlikely suggestions by German Chancellor Angela Merkel). The fact that the lifeline had a slab of concrete at the end of it, aimed at the swimmer’s head, possibly detracted from the effort, but it was the nearest thing to a lifeline a stunned Greece has…
  • When the markets doubt government, government loses…
    After the success of its US$600 billion fiscal stimulus policy, the Chinese government (PRC) currently needs to dial down the property boom the stimulus package has inflated. All through 2009, residential developers in cities across China made money hand over fist, filling their coffers as first, second, and third-time buyers all found plenty of cheap mortgages available. This is one direct consequence of the stimulus that the PRC is…
  • What to make of Japan’s record budget?
    It is extremely hard to argue against absolute, in-your-face, common-sense logic, except for those rare occasions when there is some wildly counter-intuitive meta reason that justifies flinging logic and common sense to the winds. On that note, consider Japan. Japan’s outstanding debt is almost 200% of its GDP and two obvious maxims would seem to apply with some force, the first being: “When you are in a hole, stop digging,” and the second…
  • So what if governments spend?
    The scale of government spending in several developed economies has thrown a sharp media spotlight onto the whole topic of government debt. The challenge, however, is to get past or to resist the temptation to indulge in apocalyptic thinking. Instead of trying to imagine the catastrophe if the UK defaults, or euroland implodes, or the US collapses under insuperable debt, we should actually be asking more restrained and sensible questions…
  • Megacities: Onwards and upwards?
    In 2007 an extraordinary fact arose which passed completely unremarked by the media and the vast majority of academics. This was the first year in human history that saw more people living in cities than in the world’s rural areas. Cities constitute hugely important markets and centers of commerce and as such their continued success has immense implications for businesses across all sectors. In an excellent report on the “citification” of the world…
  • Sovereign wealth funds get back to basics
    The financial meltdown did not just devastate Western economies. It also took large bites out of the sovereign wealth funds and inflicted some harsh lessons on those charged with running these funds, many of whom have solid careers behind them as bureaucrats and bankers rather than as mainstream investment managers. In a recent analysis of sovereign wealth funds post the crash, State Street anatomized the funds’ reactions and strategies…
  • Lehman Bros: Just an accounting gimmick?
    Imagine you owe a large amount of money to half a dozen creditors and that you need them to think well of you so that you can continue to borrow from them in order to ply your trade, which, by the way, is your only hope of earning sufficient money to pay off your creditors. Now imagine that these creditors have a definite view of what constitutes a tolerable amount of debt that a serious debtor to them might carry, and what constitutes either an intolerable…
  • UCITS IV adds polish to the brand
    Now that so many of the frauds perpetrated on unsuspecting investors during the heyday of the boom have come home to roost, the unrivalled reputation for high standards of UCITS (Undertakings for Collective Investments in Transferable Securities) funds has given them a tremendous boost in the market. Many hedge funds are now running UCITS-branded funds instead of the more esoteric vehicles they favored prior to the crash. The original UCITS directive appeared…
  • Lehman Bros: The auditor’s dilemma, part 1
    According to Anton Valukas, the examiner appointed to look into the demise of Lehman Brothers, there are “colourable” claims against Lehman’s auditors, Ernst & Young, for allowing the company to “window dress” its accounts using a technique that removed over $50 billion in leveraged debt off Lehmans’ balance sheet for just long enough for it to present its quarter end accounts—a trick it pulled off at least three times in the period before its abrupt demise…
  • China: Delving into the detail
    When Western economists talk about China and the growth of the Chinese economy, they tend to talk about the country as a whole. In a detailed report issued in February 2010, Deutsche Bank provides a study of the dynamic relationships between the coastal regions, long the motors of the Chinese economy, and the inner provinces, most of which have been moving at a far slower pace. However, the report’s authors, Steffan Dyck and Hanna Levinger, argue…
  • Insurance and pension funds “systemic,” says ECB President
    In a speech in November 2009, ECB President Jean-Claude Trichet argued that insurance companies and pension funds are “systemically important” (i.e. key to the smooth functioning of the global financial system) for three main reasons, namely “their size, their interconnectedness and the economic function of insurance.” He pointed out that it is difficult to overstate the scale of these two components of the financial services sector…
  • Update on the Greek tragedy
    One of the most insightful commentators on macroeconomic policy, Joseph Trevisani, chief market analyst for the foreign currency trading house FX Solutions, nailed the eurozone’s “Greek problem” in his latest commentary. At bottom, it is not about whether the Greeks have been too profligate (they have) or whether the Germans and French are being unrealistically hard-nosed (they are). Rather, the real problem Europe has in holding together…
  • SEC on dangerous ground with short selling rule
    Despite all the evidence pointing to the role of the banks and the mispricing of risk as causal factors in the 2008 credit crunch and financial meltdown, some US politicians still can’t resist playing to public opinion and blaming “wicked short sellers” for the crash. “It was the speculators that did it,” is a venerable cry of outrage that dates back to US stock crashes over the last century. Unfortunately, with US regulatory institutions now very much under the microscope, the risk of…
  • US economy, signs of hope?
    The challenges facing the US economy are so large and deep-seated that it is often difficult, in fact close to downright impossible, to believe that all may yet be well. Take a deficit of $1.5 trillion this year, unemployment above 10%, massive surplus capacity and a consumer market that is just not spending and you have all the ingredients for a disaster that could run and run. There are those who are predicting that another huge wave of housing foreclosures is just around the corner…
  • Is the West mispricing emerging market assets?
    While the bottom of a global recession is hardly the moment that companies in developed economies can be expected to go on a worldwide acquisition spree, there is little doubt that we will see acquisitions being made in both directions, from West to East and vice versa in the year ahead. This raises an interesting question. Asian sovereign wealth funds, who are likely to be doing the vast bulk of the East to West buying, enjoy transparent pricing of Western assets…
  • PwC report predicts revival for FS M&A
    There was good news and bad news for M&A watchers in the latest report on European Merger Activity in the financial sector from PwC. The bad news was that 2009 was a year when deal-making in the banking sector dived to its lowest level in the seven years PwC has been compiling this report (excluding deals by governments to prop up failing banks, of course). On the up side, insurance deal values were at a comparable level to 2008…
  • Taking the toxic element out of SPEs?
    One reason why the regulators had no visibility of just how badly the banking sector had over-leveraged itself across the developed world prior to the 2008/2009 crash, was the excessive use of special purpose entities (SPEs) by the banks. The SPEs made many transactions look “arm’s length,” and not part of a bank’s trading book, that were actually nothing of the kind. Inevitably, as part of its “rethink” on the regulatory framework…
  • Western science outgunned by emerging markets?
    With emerging markets expanding the boundaries of the possible at startling speeds, the old defensive mantra which emphasizes Western know-how and innovation over Asia’s ability to out-compete on low-skill manufacturing, is already starting to sound hollow. The plain fact is that while Chinese and Indian students demonstrate a huge hunger for places on science and engineering degree courses, the hard sciences are seen as too hard by too many Western youngsters…
  • Barclays bonuses keep the pot bubbling
    It will be a long time before bankers are forgiven for the excesses that triggered the credit crunch and the global recession so, inevitably, each time the media gets a chance to loudly go on about bankers’ bonuses, they do. The furor over Barclays Bank’s announcement of its bonus strategy almost eclipsed the fact that the bank’s record results were absolutely outstanding. I had a lengthy interview several months ago with Anders Bouvin, general manager for Handelsbanken’s…
  • Basel II Mark II, better for the bruising?
    It has become fashionable to scoff at Basel II, the key regulatory platform for the international banking community, for its failure to prevent or expose the wild excesses of global banks before the sector imploded, triggering the worst global downturn since the Great Depression. The common charge brought against Basel II is that it took far too easy a line in allowing banks to model their own risks, which, as events showed all too clearly, they almost universally massively understated and…
  • Bullish views for 2010?
    Despite severe doubts about the stability of at least a handful of European economies and a stock market that by the end of the first week in February seemed to have stalled, at least temporarily, Bank of New York Mellon Asset Managers have come out with one of the most positive global growth forecasts so far for 2010. However, that forecast, “Global Market Outlook” was published in January, before the Greek sovereign debt crisis boiled up to its current level…
  • Tobin tax? A fine idea for killing the goose…
    There is generally a problem with any idea that mobilizes a pre-existing pool of public emotion against a particular class of persons. The Tobin tax, as mooted by some senior politicians, aims to levy a small tax on all “unnecessary” and “speculative” short-term financial transactions. The losers, in this scenario, are presumed to be fat cat bankers who are thought to be making far too much money anyway, and the winners are the beneficiaries of any Tobin tax raised, who are always extremely worthy…
  • Greek tragedy harrows the euro
    In his blog for, Edmund Conway argues that perhaps the biggest flaw in the European Monetary Union was always going to be the absence of any central European economic government with fiscal powers. There are generally three routes available to a sovereign state when it finds itself with an insupportable deficit, he points out. It can: 1. draw up and implement a sensible austerity plan to cut the deficit, 2. depreciate the currency to inflate the debt away, and 3…
  • XBRL adds universal access to corporate reporting
    One of the annoying things about printed documents in this electronic age is that you have to do quite a lot of work to turn them back into machine useable form. This is particularly true of complex documents like a company’s report and accounts. Analysts and users of accounting information would love to get these reports in a form which makes it really easy for them to strip out the numbers that they want to examine and have these numbers dumped straight into…
  • Transparency could take the heat off tax havens
    On January 19, the OECD released its “background briefing” document ambiguously entitled “Promoting transparency and exchange of information for tax purposes.” Ambiguous because the title adroitly avoids mentioning who the OECD is directing its missive at. The target could be offshore financial centers with a history of banking secrecy, or the OECD’s paper could be construed as targeting politicians in the US and Europe who are failing to get the message that…
  • Who pays when Asian manufacturing falters?
    The reinsurance giant Swiss Re has produced a fascinating study of the dilemma facing US retailers and manufacturers when products they have bought from Asian companies for sale in the US turn out to be defective. In the face of manifest difficulties in terms of cost and complexity in pursuing the Asian suppliers directly, litigants are opting more and more to use the US courts to pursue the US distributors and retailers of these products. As Swiss Re points out, since the retailers…
  • The alternative investment sector: Still nervous over regulation
    The so-called alternative investment fund industry, or AIF, is a broad church, encompassing such diverse activities as private equity investment, commercial property funds, and hedge funds. A few moments of thought should be enough to make clear the huge differences between these disparate investment activities. Buying a stake in a company or helping to fund an acquisition requires rather different skills and experience to those required to…
  • Offshore havens, part 1: Riding out the frenzy
    Two completely different motives, one paranoid and one somewhat justified, seem to have been at work in the outpouring of outrage against offshore tax havens at the height of the 2008/2009 crash. The paranoid line, voiced by a number of European and US politicians, sought to put offshore-based hedge funds, and the supposedly lax offshore regimes that allowed them to operate, at the heart of the disaster. There was an assumption that…
  • Hedge funds back in favour
    Hedge funds had a torrid time through the great crash of 2008/09. Even funds that considerably outperformed the mainstream equity markets (which lost 40% or so of their value) were not immune from investor panic and saw massive outflows as investors became wildly risk-averse, preferring near zero interest on Treasury bonds to any kind of risk-based strategy. Hedge funds that got caught in the sub-prime fiasco, or that had invested heavily in credit default swaps, got caught…
  • A blow for free speech, or the end of free speech?
    On January 21st the US Supreme Court overturned a long-standing ban on corporate entities using their financial muscle to fund prospective candidates to Federal office. Why does this matter? The banks are among the richest companies in the US. Until the Supreme Court decision, they were restricted to making their anti-regulation case heard by funding armies of lobbyists. In future they will be in a position to fund preferred candidates to political office as lavishly as…
  • Cadbury—The chairman’s dilemma
    It is unfortunate, but often unavoidable, that chairmen and CEOs of household name public companies who are put under the spotlight of a contested takeover tend to end up looking to Joe Public like unprincipled hypocrites. Nor is this a minor matter, for it does no good to the business community to have its star figures coming out of these episodes looking a bit like politicians who are past their sell-by date, tatty, chewed to destruction, and with near zero credibility…
  • German economy—Cautious optimism but job losses to 2011
    As one of the major motors of the eurozone, the health of the German economy is of huge significance to businesses in Europe and beyond. In its report for December 2009 the Bundesbank makes what it can of a not particularly pretty picture. The good news is that Germany seems to have turned the corner and got itself back into growth mode—no surprise there, since the emergence of the German economy from recession was trumpeted far and wide in 2009. The bad news is…
  • Banking futures: Smaller and safer? Maybe, maybe not…
    The notion that banks have learned the lessons of the great crash of 2008/2009 is starting to look a little shaky. US players like Morgan Stanley and Goldman Sachs are once again racking up the numbers on the profit front. Plus some commentators are now expressing considerable skepticism that the Banking Bill put forward by the US Congress actually does much to reign in the banks (no mention, for example, of “too big to fail” as an issue)…
  • Mining and insurance—Dialogue or bust...
    Insurance is a vital element of any business’s defense against the unforeseen. For “ordinary” high street businesses protection insurance might have its challenges but it is a game that insurers and many businesses—one hesitates to say “most businesses”—understand. Writing insurance business for mining companies is a different game entirely, and it is one that is fraught with difficulties for insurers. Take 2008 for example…
  • MBOs—Down but not out
    While the MBO figures in the UK for the fourth quarter of 2009 have still to emerge, what is beyond dispute is that the overall value of UK buyouts for the first nine months of 2009 has tanked by comparison with the same period in 2008. According to figures from the Centre for Management Buy-Out Research (CMBOR) at Nottingham University, the numbers are down by more than three quarters (77%), at just £4.3 billion, by comparison with £18.3 billion…
  • Asset bubbles, to act or not to act…
    With the global economy struggling to recover from the implosion of the US subprime real estate bubble and the toxic derivatives that fed off it, there is a growing sense among regulators that asset bubbles need, somehow, to be pricked before they reach Gargantuan proportions. In the teeth of this general clamor for “something to be done,” Adam Posen’s speech on December 1 to the MPR Monetary Policy and the Markets Conference in London sounds…
  • Google in China—A thorny lesson unfolds
    What to do? Doing business with the world’s second largest economy, which looks like it may become the world’s largest economy within the working life of today’s 20-year-olds, is a “no brainer” from a strategic point of view. Granted, China is not a Western democracy, but it is more and more embracing market economy practices, and some economists would argue that you can’t be a little bit pro free market any more than you can be a little bit pregnant…
  • China—Buying, buying, busy buying
    While M&A activity in the US, the UK, and Europe is still way below pre-crash levels, China’s “outbound” M&A activity (acquisitions outside its borders) has ramped up strongly, according to a report by accountants Deloitte, “The emergence of China: New frontiers in outbound M&A.” This will surprise almost no one interested in global M&A, but the Deloitte report is refreshingly free of the hysteria China’s spending spree on foreign assets has generated in some quarters…
  • Catastrophe bonds, part 2: The outlook for 2010
    In Part 1 we looked at what makes catastrophe bonds an interesting investment option for a wide range of investors. The focus in Part 2 is on the prospects for cat bonds post the crash of 2008/2009. The first thing to be said is that, while the cat bond market was rocked back on its heels by the recession, it did not go away. According to the likes of Swiss Re, one of the pioneers of cat bonds, although the first half of 2009 was extremely slow, it now looks likely that…
  • WTO and free trade—Dead as the proverbial Doha?
    On November 20, 2001, the Doha Declaration came into existence. Following the disastrous crash and the ensuing slowdown (which looked bad at the time but wasn’t a patch on the 2008/2009 crash), the countries of the world signed up to an optimistic development agenda. This committed them to work to enhance the global multilateral trading system, as embodied in the World Trade Organization (WTO), which, ministers noted, “has contributed significantly to…
  • Catastrophe bonds, part 1: Bet on a hurricane, anyone?
    Catastrophe bonds are either complete lunacy or an astounding triumph of statistics and probability theory over common sense, depending on your point of view. Either way, they have proved to be a marvelous way for the insurance industry to tap into the deep pockets of the capital markets. How do they work? The basic idea is…
  • FASB chairman hits out at critics
    Speaking at the AICPA National Conference on December 8, Robert Herz, Chairman of the Financial Accounting Standards Board, decided to focus on what he called “a number of very important public policy matters relating to financial reporting and accounting standard setting.” His key focus was to drive home the point to as wide an audience beyond the AICPA membership as possible, that setting accounting standards is one thing, determining appropriate levels of…
  • Dreams of a dollar alternative
    There is nothing surprising about the Chinese getting irritated by the shortcomings of the US dollar as a global reserve currency. If you are a central banker, you don’t have to be Chinese to yearn for a massively deep liquidity pool that offers solid stability in value terms, rather than the high-octane, roller-coaster ride provided by the dollar. And if you happen to have a truly awesome balance-of-trade surplus, your desire for…
  • Sovereign debt: Anxiety levels on the rise
    Dubai jolted the markets. Greece gave the wheel a spin. The ratings agencies joined the game and now everyone is looking at the possibility of sovereign debt downgrades, with the triple-A rating of the US and the UK under fresh scrutiny. Let us remember, the only reason to downgrade debt, be it the debt of a corporate or a country, is because you think the possibility of default has moved a step or two closer. In the last few decades…
  • Chinese banks—Blowing bubbles?
    The Chinese banking regulator, worried by an unprecedented volume of loans by Chinese banks, recently let it be known that it expected the sector to adhere to much more stringent capital requirements. (In typical fashion, the Chinese regulator has since posted a note on its website denying that it was mandating a 13% ratio rather than the present 9 to 11%, and merely stressing the importance of “responsible lending.”) However, China’s banks have got the message and are now…
  • When the Baltic Dry rises, the sun comes out
    Imagine an index that shows you the future of the global economy six months hence, virtually uncluttered by the machinations of speculators. We speak, of course, of the Baltic Dry Index, which right now is on the up and up. The Baltic Dry Index is the Baltic Exchange’s running score of shipping prices on forward freight contracts. If ships are in demand, prices go up. If the global economy is stalling…
  • Make hay while the sun shines
    On November 25, the German central bank, the Bundesbank, fired a warning shot across the bows of the German, and by implication the European financial sectors. The caution came in the Bank’s 2009 Financial Stability Review. In a nutshell, the Bank’s message was a variant of “we’re not out the woods yet, my friends…” Despite some heartening news in recent weeks about various European economies emerging from the recession…
  • Between a rock and a hard place—The cartel’s dilemma
    No one in Europe plays the psychological game better than the EU’s Competition Commission, headed up by Commissioner Neelie Kroes. Imagine you are in a cartel and have been for years. It’s nice. You know your competition are not going to undercut your prices or move in on your turf, and you’re not going to undercut theirs or try to steal their lunch. You know too that price fixing and market fixing is illegal…
  • The only thing left that glitters?
    For the last several months, with some minor retreats here and there, investors—and central banks—around the world have been quietly buying gold, either directly or via a range of possible channels such as Exchange Traded Funds (ETFs), gold stocks, and so on. As one commodities trader cited in a recent CNN story noted: “There is a general flight of money into metal … people feel paper is going to be worth less.” By paper, of course, he means the dollar…
  • IASB grapples with “weapons of mass destruction”
    On November 12th the International Accounting Standards Board (IASB) issued its latest International Financial Reporting Standard (IFRS), IFRS 9 on Financial Instruments. This standard is the first part of a three-phase project designed to replace the now-outdated IAS 30 Financial Instruments: Recognition and Measurement. Why is this significant? Well, …
  • Joining hands across the water
    In early November, the world’s two major accounting standards setting bodies, the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB), publicly renewed their vows in the form of a 23-page joint statement committing both bodies to work towards the Holy Grail of accounting standards convergence. If one asks what has prompted this public reaching out of hands across the water…
  • Dark pools—A dark matter needing light?
    The US Securities and Exchange Commission has been exercising itself in recent months over the topic of “dark pools.” What are dark pools? Let’s take a step back for an instant and approach the definition by way of a brief consideration of the practical reason why dark pools (which have been around, in one form or another, for as long as markets themselves) came into existence. When an institutional investor decides…
  • Manufacturing gets acquisitive—At last!
    On November 10, PricewaterhouseCoopers, one of the big four accountancy firms, announced that the third quarter of 2009 saw the industrial manufacturing sector experiencing an increased level of merger and acquisitions activity. PwC’s report focused exclusively on deals over $50 million in value. It found that although both deal values (the overall size of each deal) and deal volumes (number of deals done) were on the increase…
  • Certain as death and taxes
    Every business that is not operating in some kind of tax-free zone knows that it is going to have to pay business rates on its business premises. This is just an accepted part of doing business. It doesn’t matter if your business premises are in a factory or an empty warehouse. The property will have a ratable value and you will pay tax on it. However, there are business premises and then there are networks…
  • EU derivatives regulation—Papering over the cracks
    The financial derivatives markets, whose instruments were famously labeled by Warren Buffett as “financial weapons of mass destruction,” are now firmly in the sights of the European Commission. Two EU press releases, one issued on July 9th this year and one on October 20th, confirm the Commission’s determination to ensure (and I quote) “safe and sound derivatives markets.” What bothers the Commission, and indeed regulators around the world, is…
  • Carbon trading, a lesson in putting the right people in to bat
    Europe is leading the world in developing a market for carbon trading, using a market formula based on the cap-and-trade technique first developed in the US for air pollution control. According to a report by the World Bank, “State and Trends of the Carbon Market 2009,” the carbon market more than doubled from 2007 to 2008, up from $63 billion in 2007, to $126.3 billion in 2008. It is, of course, a totally contrived market…
  • Straight through processing (STP)—The new “must have” for DC pension schemes
    In late September, Mercer, the pensions administration and employee benefits specialist, fired off a press release that was intended to be a wake-up call to the trustee boards of UK pension funds. “Trustees should demand STP (straight through processing) for pensions administration,” the release thundered. Any number of ordinary folk reading a headline like that—assuming such material ever intruded into their world—would respond with…
  • Japan—More moss or actual green shoots?
    The Japanese economy took a real thumping through the recession. If you are the world’s second largest export engine and global demand for imports contracts to near zero you are going to take some serious pain. That is a given. However, despite the fact that the Japanese are bone weary of green shoots stories, having had more than their fill of such portents over the last two decades, it seems that…
  • Financial regulation and compliance—The EU’s mill starts to grind
    The poet Longfellow once famously wrote: “The mills of God grind slowly, yet they grind exceedingly small.” The European Commission’s regulatory mill generally grinds at Longfellow’s God-like pace, but whether it grinds exceedingly fine or turns out to be grinding not very much of anything remains to be seen. In the days immediately following the demise of Lehman Brothers…
  • Global warming, the challenge for the insurance sector
    The fear that our world will be subjected to increasingly violent weather events is one of the major drivers prompting the nations of the world to work together to mitigate the risks of climate change. That global warming will cause more violent storms and create havoc is also, of course, of major concern to the world’s insurance companies, who write billions of dollars of business in fire and flood insurance. The challenges facing the sector form the subject of…
  • ING splits its banking and insurance arms—The end of the bank assurer?
    One instance doesn’t make a trend, but the decision by the Dutch financial services group ING to separate out its banking and insurance arms in the interests of “transparency” and “simplicity”—both unarguably core values for investors post the crash—will send modest ripples through the bank-assurer sector. As ING chief executive Jan Hommen admitted when he broke the news to press and analysts, ING has been…


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