Apr 1, 2014 22:00 UTC

High-speed traders just latest market rent-seekers

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By Martin Hutchinson
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

High-speed traders are just the latest to earn opprobrium as market rent-seekers. In his new book “Flash Boys,” Michael Lewis claims they are rigging U.S. equity markets. Even Goldman Sachs Chief Operating Officer Gary Cohn acknowledges concerns. New rules, taxes or structures could reduce the high-frequency traders’ unfair advantages.

Apr 1, 2014 06:29 UTC

OCBC’s Chinese ambition comes with hefty price tag

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By Peter Thal Larsen

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Oversea-Chinese Banking Corp is paying a hefty price to expand in the People’s Republic. The Singaporean group is realising a long-held ambition by splashing out almost $5 billion for Hong Kong’s Wing Hang bank. But the deal looks expensive at a time when growth on the mainland is slowing and the U.S. Federal Reserve’s tapering is threatening to push up deposit costs.

Mar 31, 2014 17:51 UTC

Official attention will make or break bitcoin

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By Daniel Indiviglio
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Official attention will make or break bitcoin. Scrutiny from tax authorities like the U.S. Internal Revenue Service and financial regulators around the world may deter off-the-grid types from using the digital money. Yet interest from investors and even creators of derivatives could start drawing bitcoin into the mainstream.

COMMENT

There is a dual flaw at the heart of the Bitcoin episode that won’t go away. At its core it is a speculative digital commodity, aspiring to be a currency. To be a currency it needs to be a unit of account, a store of value and a means of transaction. On the surface it appears to be all three, and that has prompted the speculative market in the Bitcoin. It has also attracted a hoard of “fellow traveler” Bitcoin community service providers, doing much as Levi-Strauss did supplying rivet pocketed pants to gold miners in the California gold rush. The gold rush is history but Levi-Strauss sails on. Some of those services providers are looking to what they can learn, and how they can position themselves in online financial services, in the next big thing after the demise of the Bitcoin.

So, what are the flaws in the Bitcoin. They are two, they are very simple. They do not prevent a short term speculative market in Bitcoins. As economist John Maynard Keynes said about successful speculation: “All you have to do is out speculate the speculators”. This is as true in Bitcoins as it was in the Dutch tulip bulb bubble.

The Bitcoin flaws are not the imposition of government commodity market regulations, or taxation schemes. Neither of those has killed markets or speculation in other commodities. The first flaw is that the Bitcoin is nowhere legal tender. This looks minor but it is not. Even the weakest of national currencies has a legal standing for payments somewhere in the world. In the absence of hyperinflation that puts a floating bottom (albeit a weak floor) on the currency’s exchange value in foreign markets. The other flaw is that there is no outside Bitcoin value barometer that traders (those using it to buy/sell goods and services) can look to as they can with legal tender currencies.

Contrast this with: What is the Botswana Pula worth and where is it likely to go? Exchange rate markets look at national trade balances (imports/exports), capital flows, and central bank foreign reserves (or gold holdings), as well as national monetary policy with regard to interest rates and money supply. Other than a short term speculator trying to outguess other speculators, where is that barometer?
There is nothing other than speculative expectations to give the Bitcoin an exchange rate. When the press reports that someone bought a fancy car or expensive apartment with Bitcoins one can be assured that the other side of the transaction has already arranged to Bitcoin-fiat currency swap that follows in nano-seconds. The Bitcoin has assured acceptance, and no floor. Those are fatal flaws.

Is there a future for digital currencies? Yes, but it will travel a path more like that of the U.S. Dollar in the 20th Century, as it went from being a national currency to a global fiat commodity. One might speculate that China is in a position to mount a digital currency backed by gold (given its gold reserves). Consider what could but won’t happen here. China could peg central bank purchases and sales of Bitcoins to 10 grams of gold (today about $450US) and the Bitcoin would have a reference price – the price of gold. In time China could move the peg over to the Yuan, and (as per Nixon) drop the link to gold. It could of course do this without the Bitcoin. There is a hole in the Bitcoin bubble, and there is no way to plug that hole.

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Mar 31, 2014 11:07 UTC

Companies risk changing euro view at wrong time

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By Swaha Pattanaik

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

A rising single currency has confounded and hurt European exporters. An increasing number are becoming euro bulls, but their conversion could be ill-timed. While the currency’s rally may not be over, the ECB seems too unhappy with euro strength for it to last past autumn.

Mar 31, 2014 06:04 UTC

Triple defence will shield Japan from tax burden

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By Andy Mukherjee

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

If history is a reliable guide, the Japanese economy will wilt when the country raises its sales tax on April 1. When Japan last increased the levy in 1997, consumer spending collapsed. But the three-pronged defence Prime Minister Shinzo Abe is putting in place makes a repeat doubtful.

Mar 28, 2014 18:26 UTC

Review: Moneyball flaws can be found in finance

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By Martin Hutchinson

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Moneyball flaws can be found in finance. “The Sabermetric Revolution,” a new book just in time for the start of the Major League Baseball season on March 30, debunks some of the numerical craze sweeping the sport. Two Smith College professors expose how many of the statistics rely on poor measurement, dodgy theory and over-extrapolating small data sets. Even good metrics tend to get arbitraged quickly. Just like on Wall Street.

Mar 28, 2014 04:39 UTC

China index: growth cannot cloud judgment on smog

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By Katrina Hamlin

The author is a Reuters Breakingviews columnist.  The opinions expressed are her own.

Smog in China is losing its silver lining. Bad emissions were once associated with economic growth, since they meant power plants and factories were active. Citizens broadly accepted the trade-off. But the relationship may be changing. Breakingviews’ latest Tea Leaf Index reading shows growth prospects are the worst since July 2009 – even though the sub-index for pollution is at its second highest average level monthly in six years.

Mar 27, 2014 14:37 UTC

Ukraine bailout can work if politics are fixed

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By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The International Monetary Fund has just invented delayed shock therapy. Its bailout package for Ukraine will help the country deal with financial emergency. The Fund hasn’t given up on conditionality, but it has been clever enough to recognise that political turmoil and the transitional nature of the Kiev government don’t allow for the type of tough love that could backfire. Ukrainians won’t have a credible administration capable of making long-term pledges until they choose a president on May 25.

Mar 27, 2014 07:37 UTC

CITIC’s $41 bln mega-merger needs fancy footwork

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By Una Galani

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

CITIC’s $41 billion mega-merger will need some fancy footwork. The Chinese state-owned conglomerate wants to reverse most of its assets, which include stakes in banks, brokerages and resources, into Hong-Kong listed subsidiary CITIC Pacific. There’s something in it for both sides, but the deal will require creativity to ensure it looks good financially for both the Chinese state, and CITIC Pacific’s minority shareholders.

Mar 26, 2014 14:53 UTC

Roman corporate governance purge could backfire

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By Neil Unmack

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Rome’s corporate governance purge could backfire. The Italian Treasury wants state-controlled companies to force anyone under criminal investigation for financial crimes off boards of directors. The intention is laudable, but the plan is ill-conceived.