FT Alphaville


How many damn arrows does this guy have again?

Abe, that is. He’s definitely got three, probably got four, and some might say five if you allow them to include the Olympics. But let’s ignore them (because it’s irrelevant) and allow Citi’s Buiter et al the use of “fourth” to discuss why “the fourth arrow of Abenomics will be fired belatedly and awkwardly, but it will hit its target, and in a way that ought not to re-open the old wounds of persistent deflation and excess capacity.”

If, as we expect, the scope for financial repression may also become more limited as Japan becomes a current account deficit country and its vast stock of private wealth is gradually diminishing because of an aging and declining population, balancing the fiscal equation will either have to come from sovereign debt restructuring or from fiscal austerity.

In our view, it is unclear whether it will be the former or the latter, or in fact a combination of the two. Our base case is that eventually austerity will do the heavy lifting. This is based on the view that, first, there is plenty of private wealth, as noted above, and, second, that the willingness to pay taxes (once they are on the statute books, that is tax compliance) will remain very high. After all, the incidence of sovereign debt restructuring is not simply a function of the debt burden, but usually requires a breakdown in social cohesion as well, and there are few signs of that in Japan.

But there are risks.

The full note makes for thorough reading.


Armed with these data, Mr. Connor is comfortable espousing some truths about global cartels. They require a limited number of market players, homogenous products, few individual conspirators, and the opportunity for face-to-face meetings every three months or so, possibly to deal with currency changes.

They rarely last longer than a decade, often torn apart by internal instability, as one firm tries to cheat the others. (The Justice Department banks on that suspicion, granting leniency to the first company to defect from a cartel.) The government also punishes price-fixing against itself more severely than such offenses against the private sector, he has found, and its sanctions result in a net benefit to national accounts.

- "An Economist Corners the Market on Global Cartels"

FT Alphaville meets mathbabe to talk Occupy Finance

After reading Occupy Finance, the book launched by Occupy Wall Street’s Alternative Banking Group on the second anniversary of OWS’ formation, we were curious about some of the motives and mechanics behind it. FT Alphaville went to our usual point of contact, Cathy O’Neil, aka mathbabe, to ask a few questions.

AV: How did the idea for the book come about?

We wanted to turn our conversations that we’d been having in our group on Sunday into something we could share with the wider world. In particular we know a bunch of people we consider “occupy friendly” who don’t have time to come to the meetings but want the understanding that we’d come to as well as the ammunition to debate the issues in a conversation about the financial system.

AV: Writing by committee and forming a consensus on the content must be very hard, how did the group manage that?

Lots of meetings, DropBox, and massively large email chains.

AV: Sometimes when I read the book I found myself wanting more evidence to be provided for some of the claims made, or for more links to original sources in the notes rather than links to popular media articles. What sorts of discussion did the group have around this?

We were pretty proud of getting in as many footnotes as we did, but it’s absolutely true that it’s not comprehensive. It’s the beginning of a much-needed conversation. We’d love you to be part of it.

AV: Some of the members of the group work in finance. Do people at their places of work know about their involvement with the group? How do they square their involvement with their employment?

Some people use pseudonyms for this reason. Also the book was authored by 25 people but nobody’s name will appear on it.

AV: What was the role of some of the group’s more famous supporters, such as Yves Smith and Neil Barofsky?

They were certainly with us in spirit, but this book was made by the humbler elements of our group. Probably the most famous contributor is Akshat Tewary of Occupy the SEC, who helped us with the chapter on the history of regulation.

AV: What are you realistically hoping for in publishing this book?

A continuing discussion of too-big-to-fail and part in the evolving understanding of how finance touches the average person.

AV: Imagine you had a budget of $1m for the third anniversary. What are some suggestions you can think of for how to use it if the group had it?

Produce educational materials on finance, including improving our web presence so that people outside New York could be more involved with the group. You know, some people have suggested we become lobbyists. That’s one thing I can promise won’t happen. But it would be nice to be able to afford to spend more time writing and promoting public commenting letters on current regulation.

AV: As I understand it, you’re also a mum and work at City Hall. What proportion of your life does being involved in the group take and why do you do it?

Yes I have three sons, ages 13, 11, and 4. I spend Sunday afternoons at the meetings, and I often work on it when I can during the week. I do it because it’s important to me. I consider myself incredibly lucky that I get to do things that are important to me essentially every minute of the day, sleep included.

Related link:
FT Alphaville’s blog post on Occupy Finance


China’s July flash PMI at 47.7 vs 48.2 in June. Not much to be bullish about in the components. Press release is here.

Equity risk premium and term premium sound like sophisticated economic concepts, but in reality they are statistical junk yards into which economists toss stuff they can’t explain with fundamentals.


Greg Ip at Free Exchange


Well, *something* about this is embarrassing anyways

"It’s embarrassing," said a senior Crédit Agricole investment banker.

"We have to stay in hotels in the city’s outskirts and waste hours in the train to go to Amsterdam or Switzerland because we can no longer fly there," he said. "If I’m not taking clients out, I can barely afford an entree and a glass of wine in the evening."

"Crédit Agricole Bids Adieu to Pricey Lunch"


Brains vs beauty: Merrill Lynch edition

However, 1970s sexism in banking is best illustrated by an interview question which was then included in Merrill Lynch’s broker trainee programme. “When you meet a woman, what interests you most about her?,’’ it asked. The correct answer, for which trainees received the most marks, was ‘her beauty.’ Trainees who responded with, ‘her intelligence,’ were penalized and awarded the fewest points of all. One applicant successfully sued Merrill Lynch for sexism on this basis.

From eFinancialCareers.


Finding content on the Web is not a serious problem. It’s a leisure problem – as in, it’s only really applicable to someone who has too much leisure time. If someone ever comes to me to say, “Oh, I can’t find anything decent to read on the Internet while I’m killing time waiting for my Uber,” I’m just going to slap them.

- Enough with the news-reader apps – it’s time to support media that really matters | PandoDaily (via wonklife)

Across the five industries that are most sensitive to changes in military spending, employment fell at an annual rate of 2.5 percent in March and stayed flat in April, the latest month for which seasonally adjusted data are available. In all other sectors, by contrast, employment grew at annualized rates of about 1.6 percent in March and 1.7 percent in April.


Catherine Rampell on the impact of the sequestration cuts


Governor Zhou: just deal with it.
(Thanks to Melvin Backman.)(See also) - Kate. 

Governor Zhou: just deal with it.

(Thanks to Melvin Backman.)(See also) - Kate. 

Is it policy? China edition #x

From Lombard Street’s Diana Choyleva:

China’s banks are operating in an environment where overall liquidity pressures are going to mount further, not just as a result of the current policy action, as I analysed in the Note mentioned above. The likelihood is that there will be a required reserves ratio cut by the end of the year as growth slows further below trend and the authorities will have to start easing monetary policy.

Some have argued that the PBoC staying pat suggests the authorities have faith in the economy and want to show that they remain in control. But given the carnage in the corporate sector, with profits down and the squeeze on margins still on, the economy is in fact in for rising unemployment and a faster build-up of bad loans.

China has made very few meaningful reforms since the previous leadership took office in 2003, instead spawning ever bigger financial imbalances, not just in terms of overinvestment at home, but also the excessive build-up of debt abroad. But if the current PBoC response, together with Li Ke Qiang’s bold statement about capital account opening do indeed mark the start of substantial financial market reform, the long-term future of China just got brighter. Unfortunately, any long-term gain will only be possible after significant short-term pain.

More background here.


Japan ‘facts’

H/t Ben McLannahan, the FT’s man in Tokyo.



That’s normal diapers on the top, large at the bottom. Apparently the adult diaper in Japan myth is just that. Data here. What may be the original story here.


When to catch a falling knife: EM edition

From Nomura’s Nordvig and Sahni:

There are probably two conditions needed for the EM sell-off to halt. First, we need US rates to stabilize. Second, we need redemptions to work their way through the system. Now that US equities are showing signs of turning, it is possible that US rates are going to stabilize. However, we worry that the EM flow story could have momentum of its own (and there could be a wave a further equity outflows too). For context, high-frequency EPFR mutual fund data show that, as of last Wednesday, we had only unwound a very small portion of the cross-border flows into EM from the US and eurozone that occurred between September 2012 and May 2013 (i.e., since the OMT announcement). Specifically, only 10-20% of post-OMT EM equity flows from the US and eurozone, and less than 5% of the post-OMT EM bond flows have been unwound so far (Figure 2). In addition, the absolute scale of these flows can be very large, as overall BOP data show that there have been a total of more than $250bn portfolio outflows from the eurozone and almost $150bn outflows from the US during this period (Sep 2012 – Mar 2013). The BOP numbers include DM flows as well, but we estimate that a sizeable 40% of the eurozone flows were to EM. Thus, we are wary of catching the falling knife by trying to time the end of this position washout.

That said, it is difficult to compare EM sell-offs with past blowups given that reserve positions are generally bigger, and funding has increasingly been in local currency, along with the fact that inflation risks (and pass-through) are smaller. Hence, we would not want to extrapolate the EM weakening into infinity (although quite a bit of commentary is now in this direction), and will look to use these moves as entry points to add to our preferred EM exposure, once markets settle.


Jun 9

Drunk Swiss bankers? (and the CIA)

He described as formative an incident in which he claimed CIA operatives were attempting to recruit a Swiss banker to obtain secret banking information. Snowden said they achieved this by purposely getting the banker drunk and encouraging him to drive home in his car. When the banker was arrested for drunk driving, the undercover agent seeking to befriend him offered to help, and a bond was formed that led to successful recruitment.

From the Guardian’s revelation of its Prism whistleblower, Edward Snowden.

Jun 6
Tech sector industrial production since the recession.

Tech sector industrial production since the recession.