Opinion

Ben Walsh

from Counterparties:

Citi-wide failure

Ben Walsh
Mar 27, 2014 21:22 UTC

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Citigroup can now claim worst-in-class stress test performance. For the second timein three years, the Federal Reserve rejected the bank’s capital plan. Citi proposed raising its dividend from a penny to 5 cents and repurchasing up to $6.4 billion in stock. However, the Fed rejected the plan, saying it doubted the “overall reliability of Citigroup’s capital planning process”.

Embarrassingly for Citi management, Bloomberg’s Michael Moore and Elizabeth Dexheimer write that the Fed found issues in planning areas it had previously flagged. These include the bank’s “ability to project losses in ‘material parts of its global operations’ and to reflect all business exposures in its internal stress test”. In February, Citi announced it had uncovered $400 million in loan fraud in its Mexican subsidiary, forcing it to restate its 2013 earnings.

While Citi passed the Fed’s quantitative hurdles, it failed on qualitative grounds. Matt Levine explains:

The stress test is not just a test of capital; it's a test of morality. And that's the test that Citi failed... Citi thinks that it would have enough capital in a crisis, even after raising its dividend and doing a $6.4 billion stock buyback. The Fed also thinks that. But the Fed worries that Citi's thought process to get to that result was wrong, even though the result was right, or at least right enough.

The FT says that Citi, and in particular CEO Mike Corbat, has put a lot of time and resources into not just improving that thought process, but explaining it. Corbat has focused on “cultivating close relationships with regulators in Washington”, report Reuters’ Emily Stephenson and David Henry. Nevertheless, the WSJ says Corbat was surprised by the decision and forced to hold an emergency board and management meeting.

from Counterparties:

Recovery-lite

Ben Walsh
Mar 26, 2014 21:55 UTC

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The Great Recession ended in June 2009. The average post-war recovery, Jared Bernstein notes, lasts just 58 months before there’s another recession -- and this recovery is now 57 months old. But even as the recovery enters its statistical autumn, most Americans haven’t noticed that it ever happened at all. A recent NBC/WSJ poll found 57% of respondents thought the US economy was still in a recession.

Josh Barro points to barely-there wage growth to explain the disconnect. Between 2009 and 2012, real incomes of the 99% grew at a meager 0.1% annually. The longer term trend, he points out, is clear:

from Counterparties:

Alibaba’s New York debut

Ben Walsh
Mar 19, 2014 21:57 UTC

Alibaba, the Amazon, eBay, and Paypal of a country with 618 million internet users, is going public. The company will raise around $20 billion at an approximately $150 billion valuation, with the roadshow scheduled to begin March 25; the underwriting banks are expected to make $400 million in fees on the deal.

That valuation is built in part on assumptions about the future growth of Chinese ecommerce. China already buys more by dollar value online than the US does, and KPMG estimates that by 2015, online transactions in China will hit $540 billion, up from $190 billion in 2012.

The market isn’t without competition. Alibaba is currently in the midst of fighting for payments and messaging users with Tencent, a gaming and social media company. Forrester Research's Bryan Wang calls it “one of the most expensive competitions in online history”.

from Counterparties:

McCarthyisms

Ben Walsh
Mar 18, 2014 21:37 UTC

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Ryan McCarthy has decided to leave the world’s most prestigious Canadian-British news agency to join the local paper of a small, disenfranchised mid-Atlantic district.

Before he goes, we wanted to remind you all what we’re losing. For starters, the person who wrote headlines like “950 shades of grey”, “MOOC ado about nothing”, “Aging bull”, “Madvillainy”, “Beef Rogoff”,  “Where synergies go to die”, and “Our sweet creamy center cannot hold”.

from Counterparties:

Take that, copper!

Ben Walsh
Mar 13, 2014 22:26 UTC

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In the last week, the price of copper on the London Metal Exchange has dropped 9%, to its lowest level since 2009. The start of the decline coincided with China’s first corporate bond default. BofA analysts called the default China’s “Bear Stearns moment” -- the first major event of a what could be a severe financial crisis. With China consuming 40% of the world’s copper, a Chinese crisis would be trouble for global copper prices (among other things).

The FT’s Jamil Aderlini called BofA’s characterization a “bold, attention-seeking call that is also patently ridiculous”. Aderlini points out that the default was by a small Chinese company in the always-on-the-verge-of-crisis industry of solar panel manufacturing. It’s rare for a single analyst note to cause an extended sell-off, and Joe Weisenthal points to two more plausible reasons for the decline: “Copper has a reputation for being a good global economic bellwether... Copper also plays a role in the Chinese financial system (as collateral)”.

from Data Dive:

America’s job market: still not good enough

Ben Walsh
Mar 11, 2014 21:23 UTC

On Tuesday morning, the most recent Bureau of Labor Statistics Job Openings and Labor Turnover (JOLTs) data showed that the rate of hiring, turnover, and the number of open jobs was basically flat.

A little explanation: The hiring rate is the number of peopled hired as a percent of total employment. The JOLTs report also tracks the quits rate, which is the number of people who have voluntarily quit as a percent of total employment. Taken together, the quit rate and the hire rate represent a good proxy for the level of choice workers, particularly the already employed, have in the job market.

This chart shows that the level of choice in the job market within the workforce plummeted during the Great Recession. It has gradually improved over the last four years, but is still at right around 2008 levels. And this is likely still not fully representative of the job market: because it tracks quits, and there is a bias to hire the already employed, this chart more accurately reflects job choice among the employed than the unemployed.

from Counterparties:

The London Eye

Ben Walsh
Mar 10, 2014 22:06 UTC

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“In their capital city, the English are no longer calling the shots. They are hirelings”. That’s Ben Judah’s description of present day-London, in a NYT op-ed which went viral over the weekend. To Judah, London is a place filled almost exclusively with Russian oligarchs, Qatari princes, tottering post-colonial diplomats, Eastern European laborers, skyscrapers, and slums. Its mission is to placate Russians and their money, most recently in the form of Ukraine policy. Judah sees the Shard -- which is Europe’s tallest building and will be filled with offices, Michelin-starred restaurants, and mega-residences -- as an emblem of London’s decline. As it seems he intended, Judah elicited strong feelings by lacing his piece with hyperbole and caricature.

The Telegraph’s Sean Thomas skewers Judah’s Shard-as-symbol thesis:

What did you do over the sunny weekend? If you are a Londoner, you probably drank a crate of champagne with your best friend Ivan and several nude escorts, in your flat on top of the Shard. Or so the New York Times would have us believe, according to a rhapsodically stupid article published on Friday.

from Counterparties:

Finding Nakamoto

Ben Walsh
Mar 6, 2014 22:48 UTC

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Satoshi Nakamoto invented bitcoin in 2008.

Who is he? In the past few years, there have been no shortage of theories:

Tatsuaki Okamoto, a researcher at NTT, the Japanese telecom company.

Micheal Clear, a 23-year old graduate student at Trinity College, Dublin.

Vili Lehdonvirta, a Finnish programmer.

Shinichi Mochizuki, a math professor at Kyoto University.

Neal King, Vladimir Oksman, and/or Charles Bry, whose names were on a 2008 patent application for “updating and distributing encryption keys”.

Jed McCaleb, the co-founder of now defunct bitcoin exchange Mt Gox.

Dustin Trammell, a security researcher.

Or, Satoshi Nakamoto, a 64-year old, LA-area, Prius-driving model-train enthusiast, who Newsweek’s Leah McGrath Goodman tracked down with the help of forensic researchers.

from Counterparties:

How Mt Gox died

Ben Walsh
Feb 28, 2014 23:01 UTC

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Mt Gox is filing for bankruptcy. CEO Mark Karpeles says that the nearly $500 million in bitcoin held by the company are gone. The four-year-old Mt Gox, which was the oldest and largest bitcoin exchange, has $63.7 million in liabilities, $37.6 million in assets and 127,000 creditors, Reuters reports.

The problem appears to be in part because of something called transaction malleability attacks. Those attacks work like this: each bitcoin transaction has a unique, individual -- and theoretically impossible to fake -- ID code. The problem is that the user digital signature (the part of the transaction code that shows which user the transaction came from) was vulnerable. That signature could be altered and still potentially accepted. As a result, the same transaction could be sent into the system multiple times: once as a valid transaction from a valid user, and other times as an invalid transaction that looked like a valid transaction.

from Counterparties:

Griffindor

Ben Walsh
Feb 20, 2014 22:30 UTC

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Harvard, a $33 billion hedge fund with a university attached, has received the largest donation in its history. Citadel founder Ken Griffin has pledged to give the university $150 million.

The donation will support 800 eponymous scholarships, and a new business professor. The office of financial aid, along with its director, will also be renamed in his honor. Harvard already employs need-blind admissions, and has made no indications that it is under any financial pressure to end that policy. 60% of its students receive financial aid.

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