Shane's Feed
Jun 2, 2014
via Data Dive

Low volatility: worrying trend or new normal?

Volatility in financial markets is low, and that concerns New York Fed president William Dudley. Reuters reported he said last week, ”I am nervous that people are taking too much comfort in this low-volatility period and as a consequence of that, taking bigger risks.”

For instance, Treasuries volatility is really, really low:

As is equities:

And foreign exchange:

The Fed is worried that stable prices are encouraging  investors to increase their borrowing and load up on risk, which could end poorly if the economy goes south. But what if this is simply the new normal? Izabella Kaminska has an interesting take:

May 30, 2014
via Counterparties

Right on the euro

The EU has finally wrapped up its parliamentary election results. Discontent in Europe runs high, mostly because of the persistently terrible economy. To the horror of many, populist euroskeptic parties continent-wide — nationalist, anti-immigration, anti-EU, and often openly racist — scooped up roughly 140 of the 751 seats, up from about 60 in 2009. (Here’s a decent rundown of six of the parties).

Voters are tired of austerity, high unemployment, and stagnation. “After five gruelling years, many of Europe’s citizens must wish they could dispatch the entire political class to hellfire and torment”, writes the Economist. Since that isn’t an option, most didn’t bother to turn out for the elections. Many of those who did came to back extremist candidates. Anatole Kaletsky calls it “a perfectly predictable — and justifiable — upsurge of populist anger after the euro crisis”. He says the varied extreme parties are unlikely to work with each other, anyway. Tyler Cowen predicts Europe doesn’t have the political coordination to keep itself from imploding.

May 27, 2014
via Counterparties

Capital debate

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Just in time for the Friday afternoon news dump (on a holiday weekend!), the FT’s Chris Giles dropped a bombshell: Thomas Piketty’s “Capital in the Twenty-First Century,” he alleged, is full of data errors. After correcting the mistakes, he says (in a separate post), “two of Capital in the 21st Century’s central findings – that wealth inequality has begun to rise over the past 30 years and that the US obviously has a more unequal distribution of wealth than Europe – no longer seem to hold”.

Giles’ allegations boil down to three points, detailed in a long blog post: first, Piketty transcribed some numbers into Excel wrong. Second, Piketty made some unexplained changes to the data. Finally, Piketty used questionable methods to arrive at his conclusions. In addition, Giles takes very specific issue with Piketty’s data on wealth inequality in Britain, claiming that “once more reliable British results are included, there is no sign that wealth inequality in Europe is rising again”.

May 19, 2014
via Counterparties

Freddie or not

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The new top regulator of Fannie Mae and Freddie Mac thinks the U.S. needs more mortgages. Mel Watt, the head of the Federal Housing Finance Agency (and ex-Democratic congressman), gave a speech at Brookings this week sharply diverging from his predecessor’s goal to wind down the mortgage giants. The goal going forward is to relax regulation to make it more likely banks will lend to homeowners with less-than-perfect credit. The WSJ has a great chart comparing credit score distribution of people who qualified for loans in 2001 and 2013. Needless to say, it’s a lot harder these days.

“What could go wrong?” the Economist writes, calling Watts’ plan the “return of the toxic twins”, whose risky investments (and loose credit standards) helped inflate the housing bubble prior to 2008. But a Bloomberg View editorial argues that Watt’s proposal makes sense: “It’s unclear how much the changes will boost mortgage lending or the housing market, but there’s no need to worry that they’ll bring back the crazy lending of the boom years”. For one thing, they say, “delinquency rates on loans guaranteed since the crisis have been close to zero”.

May 15, 2014
via Counterparties

Europe’s easing growth

European growth is weak. As a whole, eurozone GDP grew just 0.2% in the first quarter, and no individual economy grew more than 1.1% (Poland and Hungary). Germany, the UK, and Spain all reported modest growth, but Portugal, Italy, and the Netherlands all saw negative growth while France was completely flat. The latest OECD report on the global economy, noted that the euro area is expected to grow by 1.2% this year, but “monetary policy needs to remain accommodative” and “ interest rate reduction is merited, given low and falling inflation”.

At yesterday’s annual SALT conference of hedge-fund investors and managers, David Tepper said the ECB is “really, really behind the curve”, and there is a risk to the global economy if the ECB doesn’t take drastic action. Jennifer McKeown wrote in a note for Capital Economics that she expects “more significant action, including small cuts in the refinancing and deposit rates and quite possibly a full blown QE programme, to come next month or soon after”.

May 15, 2014
via Equals

A lament on the axing of Jill Abramson

Yesterday, the three-year tenure of the New York Times’ first female executive editor, Jill Abramson, abruptly came to an end. No one is quite sure why it happened, but it seems pretty clear that being a woman had something to do with it.

It was either her pay (she found out it was less than her male predecessor, like most female editors, and asked for a raise), her management style (pushy, brusque, a lot of other words that only seem to be attributed to women in leadership roles), her (failed) attempt to appoint Janine Gibson as co-managing editor (which didn’t sit well with the now executive editor Dean Baquet), her proclivity toward giving interviews (as a young female journalist very interested in the Times’ first female editor, I’m offended), or some combination of the four.

May 13, 2014
via Counterparties

Holding banks accountable

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U.S. Attorney General Eric Holder would like you to think that large financial institutions are not “too big to jail”. The Justice Department has been investigating two foreign institutions, France’s BNP Paribas and Switzerland’s Credit Suisse, for months, looking to bring criminal charges against a bank for the first time in decades. This week, it finally seems like they are closing in.

Though the Justice Department is cloaking its investigation in the rhetoric of the financial crisis, Binyamin Appelbaum notes that these cases, in fact, have nothing to do with it. BNP is being investigated for doing business with blacklisted countries like Sudan and Iran, and routing some of the transactions through the U.S. Credit Suisse is accused of helping U.S. citizens evade taxes.

May 9, 2014
via Counterparties

Weathering the economic storm

Photo

A group of scientists, in conjunction with the federal government, released a new assessment this week on the state of climate change in the US, and the news is not good. ”Climate change, once considered an issue for a distant future, has moved firmly into the present”, says the report. Average global temperatures have increased more than 1.5 degrees Fahrenheit since 1880, and the world is likely to see between 3 and 10 degrees of warming by 2100. In April, the levels of carbon dioxide in the atmosphere reached the 400 parts per million threshold for the first time in human history.

The US is already seeing the effects: summers are hotter, winters are rainier, and storms are more intense. All of those things have an impact on the economy. Danny Vinik went looking for estimates of the cost of climate change on global output and found it’s probably going to cost 1-3% of global GDP over the next century, although the cost will vary wildly from region to region. Africa is likely to fare worse, while Eastern Europe may even see a benefit.

May 7, 2014
via Counterparties

Alibabble

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Chinese internet giant Alibaba has finally filed to go public in the US. The initial filing says the company will raise $1 billion, but it will likely be a lot more than that. “There have been some suggestions that this will become the largest IPO of all time, or at least the largest tech IPO of all time”, says Dan Primack. The company announced plans to list itself in New York last March after it failed to meet the criteria for listing in Hong Kong.

Just what is Alibaba? The Wall Street Journal has a graphic-heavy explainer, and Bloomberg has a text-heavy one. The tl;dr version: Alibaba is the internet company in China. B. Riley & Company analyst Sameet Sinha told the NYT that the company is “like an Amazon, an eBay and a PayPal” (plus a variety of startups like WhatsApp and Uber, Quartz adds).  Josh Barro joked that Alibaba’s retail business is “like Skymall on hallucinogens” after Business Insider rounded up a list of bizarre items for sale on the site. The list includes a life-sized, obese statue of Arnold Schwarzenegger, used panties, iron ore, and pure caffeine powder.

Apr 28, 2014
via Counterparties

Really real estate

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The housing market over the last year has been tough. According to the National Realtors Association’s March report, pending home sales are down 7.9% year-over-year. However there are some signs of improvement. March pending sales were up 3.4% month-over-month for the first time since last summer.

Now that we’re at the end of the refi boom and institutional investors are slowing theirreal estate purchases, the current numbers may actually show the “real real-estate market”, Shari Olefson tells the WSJ. The next wave, she says, will be “boomerang buyers” who lost their homes during the crash and are finally returning to homeownership (after helping keep rents high during the recovery).