Sections in
this week’s Trading & Markets-post: Switzerland, Central Banking, China, Banks, Regulation, Risk Markets,
Strategy, The Dark Side and Other.
For weekly
summaries, see Weekly Support (updated), check my yesterday’s Euro Crisis-post and follow ‘MoreLiver’ on Twitter or Facebook.
SWITZERLAND
The Swiss economy and global economic outlook – BIS (pdf)
Thomas
Jordan / SNB 14 June 2012.
The Swiss National Bank's 2012 Financial
Stability Report – BIS (pdf)
Jean-Pierre
Danthine / SNB 14 June 2012.
CENTRAL BANKING
My huge
linkfest to ‘before’ and ‘after’ articles
Diagnosing Liquidity Addiction – ZH
Deutsche
Bank: The structural problems that
encouraged QE were much larger than most believed at the time and QE has
limited power to actually power growth forward in such an environment…Europe
more than anyone is perhaps addicted and in need of constant intervention to
prosper.
The Federal Reserve Extends Operation Twist – The
Big Picture
Summaries
and links to three articles. See also my
Different Views on QE3 Timing – Calculated
Risk
ML, GS,
Krugman.
The munificent seven – The Economist
The Federal Reserve extends Operation Twist
Quantitative easing and the (lack of) responses
in bond yields – ASA
when the Fed was performing quantitative
easing, treasury yields rose as the economy recovered and inflation expectation
rose.
The future of inflation targeting? – BIS (pdf)
John
McDermott / Reserve Bank of New Zealand 19 June 2012.
Strategic Briefing: Debating Monetary Policy
(Still) – The
Capital Spectator
CHINA
Chinese Data Mask Depth of Slowdown, Executives
Say – NYT
prominent corporate executives in China and Western
economists say there is evidence that local and provincial officials are
falsifying economic statistics to disguise the true depth of the troubles.
Is China massaging macro data?
(Ans: Yes) – ASA
Coal inventory in various Chinese ports hit record highs – ASA
Because the demand for coal fell as electricity production dropped, and as coal inventories at power plants level are also at record high levels according to the report, there are only very few buyers for the record stockpile of coal. As a result, despite aggressive price cutting, the inventory level stays high in the port.
Coal inventory in various Chinese ports hit record highs – ASA
Because the demand for coal fell as electricity production dropped, and as coal inventories at power plants level are also at record high levels according to the report, there are only very few buyers for the record stockpile of coal. As a result, despite aggressive price cutting, the inventory level stays high in the port.
'Risks are all to the downside for Asia' is the view of UBS' global macro team. It appears the
markets are pinning their optimism on growth and earnings over the next year on
three hopes: that the US will not fall off its
'fiscal cliff'; that Europe will 'muddle through'; and that China will pull Asia out of the current morass.
BANKS
Moody’s downgrades firms with global capital
markets operations
– Credit
Writedowns
Moody's Cuts Credit Ratings of 15 Big Banks – DealBook
/ NYT
Moody’s ratifies interbank mistrust – Felix
Salmon / Reuters
Quarterly Report on Bank Trading and
Derivatives Activities – OCC
(pdf)
Systemic Banking Crises Database: An Update – IMF
The database includes all systemic banking,
currency, and sovereign debt crises during the period 1970-2011. The data show
some striking differences in policy responses between advanced and emerging
economies as well as many similarities between past and ongoing crises.
REGULATION
FSA regulator: 'No, I don't like being called
an idiot' – The
Guardian
Who works for the FSA? Some say it's those not
good enough for the banks – but a regulator says there are also those for whom
the banks weren't good enough
Countercyclical regulation in Solvency II:
Merits and flaws – voxeu.org
October
2011 saw the latest draft of Solvency II, the European Union’s code for
regulation of the insurance industry. This column argues that the latest
proposals need to be drafted again, urgently.
http://www.voxeu.org/index.php?q=node/8131
Don’t Blame Money Market Funds – The Aleph
Blog
Leverage? What Leverage? A Deep Dive into the U.S. Flow of Funds in
Search of Clues to the Global Crisis – IMF
This paper questions the view that leverage
should have forewarned us of the global financial crisis of 2007-09, pointing
to several gearing indicators that were neither useful portents of the onset of
the crisis nor of its ferocity. Instead it shows, first, that the use of
ill-suited collateral in the secured funding operations of U.S.-based
investment banks was the fatal link between the collapse of structured finance
and the global malfunction of funding markets that turbocharged the downdraft;
and, second, that this insight (and others) can be decrypted from the Flow of
Funds Accounts of the United States.
The worrying decline of the unsecured interbank
market – Deus Ex Macchiato
Benoît Cœuré, Member of the Executive Board of
the ECB, recently gave an important speech. It has quite a lot in it so even
the bullet point version isn’t that short, but I promise you that it is worth
thinking about his essential argument.
RISK MARKETS
Citi Doubles Down Goldman Sell Call, Support
Around 1285 – ZH
Goldman Goes Short The S&P 500: 1285 Target – ZH
Mr. Market's Estimate Of Expected Stock
Returns – The
Capital Spectator
Sorting Country Equity Markets By Value and
Momentum – mebane
faber
Risk Markets Remain Macro-Driven – ZH
Barclays notes that the correlation between
global equities, the USD, emerging market FX, high-grade credit, and
commodities remains near cyclical highs and rising. Furthermore, 'safe haven'
correlations are at record levels relative to risk assets
Summer of 2011 redux? – Sober Look
The Citi Economic Surprise Index continues its
relentless slide.
Dr. Copper says watch out below – Sober Look
The dislocation between US equities and Brent
crude (discussed here) is by no means unique. A very similar picture is
developing between S&P500 and copper.
STRATEGY
The allure of long-term treasuries has been the
reduction in portfolio volatility – Sober
Look
long-term treasuries can significantly reduce
portfolio volatility… It is unclear however whether treasuries will continue
having the same volatility-reducing properties over the long-term.
Damodaran: Passive Value Investing – Screening
for Bargains – Stone
Street Advisors
Are Trading Algos Proprietary? – Points
and Figures
But is trading code a patentable proprietary
thing? When we were in the trading pits, nothing was patentable.
The ever-evolving wall of worry – Abnormal
Returns
Ironically those markets that have performed
the best, that have supplanted whatever worries existed and now seem
invulnerable, are actually the riskiest.
Four Real-World Investing Rules That Should Be
Taught in Schools –
Minyanville
1) what you
know, everyone else probably knows, too. 2) timing is everything. 3) you may be
suffering from confirmation bias 4) in isolation, valuation ratios are useless
It’s All a Big Mistake – Oaktree
Capital Management (pdf)
Superior
investing is about mistakes. For someone to make a big profit, someone else
must make a big mistake.
The Fallacy of Relative Return – Leigh Drogen
If you are investing to beat a benchmark, and
not to make money, or better, not to not lose money, I would take a long hard
look at why that is.
THE DARK SIDE
Keeping up appearances: The Wall Street
marketing machine –
The
Globe and Mail
The Party Indicator – The
Reformed Broker
The idea that bubbles can't be predicted and
measured is one of the biggest lies told by our monetary and political
authorities.
Too Much Finance? – IMF
This paper examines whether there is a
threshold above which financial development no longer has a positive effect on
economic growth. We use different empirical approaches to show that there can
indeed be "too much" finance. In particular, our results suggest that
finance starts having a negative effect on output growth when credit to the
private sector reaches 100% of GDP. We show that our results are consistent with the "vanishing
effect" of financial development and that they are not driven by output
volatility, banking crises, low institutional quality, or by differences in
bank regulation and supervision.
Executive coach: 'Finance is an amoral world,
bordering on the immoral' – The
Guardian
A psychologist compares the 'twisted minds' of
some executives to those of paedophiles he has tried to treat in the past
The Rise of the Ax-Wielding, Market Moving
Analyst – Minyanville
A thoughtful review of both the role and impact
of stock analysts on financial markets.
Investment managers at-risk of disruption: a
debate – Abnormal
Returns
One could characterize the rise of ETFs as a
disruptive force in the world of investment management. By embracing the twin
trends of indexing and lower costs ETFs have shown many investors a new and
better way to invest. Financial advisers are now getting on board this trend
after having sat it out for some time now.
Active Managers Sell Hope, Underperformance – Greenbackd
The empirical evidence that the average fund
manager underperforms and the recent top-performing funds do not outperform
subsequently are irrefutable. Why, then, do investors insist on paying for
investment management expertise, which isn’t all that useful?
So long, suckers — I’m leaving Wall Street – MarketWatch
Commentary: Some lessons from 15 years
observing the industry
OTHER
Top Finance People to Follow on Twitter – market
folly
High frequency trading and the volume clock – Portfolio
Probe
A Survey of Experiences with Emerging Market
Sovereign Debt Restructurings – IMF
Knowledge
of these might become useful in Europe.
The Economic History of the Last 2000 Years:
Part II – The
Atlantic
Daddy’s Home – John Mauldin / The Big
Picture
Long
newsletter on Fed policy, low investor income and Europe: The “smart” money is betting on Germany deciding to bite the bullet and go along
Book Bits – The
Capital Spectator
8 quick
book summaries and links.
Mutual Fund Performance Persistence – CXO
Applied Academic Research, June 2012 – Empiritrage
Julian Robertson on the Hedge Fund Industry
Past & Present
– market
folly
Stabilizing prices is immoral – Interfluidity
The first thing to recognize is that a policy
of enforced “price stability”, whether implemented in terms of levels or rates,
is a form of goverment-provided social insurance, just like unemployment or
disability benefits. (also see FT’s excellent piece
from 8-Jun)
On the varieties of capital arbitrage – Deus Ex Macchiato
There are only a few basic types of capital
arbitrage trade.