Home / Tag Archives: Business and finance

Tag Archives: Business and finance

How do you solve a problem like Korea? Investors are unsure

EUROPEAN markets have started the day with losses of 1% or so, following a 2% decline in Hong Kong’s Hang Seng index and the 1% loss in the S&P 500 index on Thursday. The Vix, a much used measure of market fear, jumped to 16, its highest level since the presidential election.

These are significant moves by the standards of recent months but, to anyone who lived through 2008 (or 1987) they are hardly signs of outright panic. Gold is at $1,288 an ounce, up 2% or so over the week. The Japanese stockmarket was barely changed today, and Japan is right in the firing line of North Korea’s missiles. South Korea would suffer terribly in any war but the Seoul market was down just 1.7% today, and 3.2% on the week.

Clearly, the markets are more worried than they were on August 9th, when President Trump warned of “fire and fury” against Kim Jong-Un’s regime. Investors did not take too seriously the statement from the president, who is known for his intemperate (and often factually inaccurate) tweets....Continue reading

Read More »

Research points to a new explanation of “Dutch disease”

IN 1959 geologists discovered 2.8trn cubic metres of natural gas—the largest field in Europe—under the city of Groningen in the Netherlands. Cheap gas and free-spending energy firms were thought to be good news for the entire Dutch economy. But higher gas-export prices in the 1970s raised the value of the guilder by a sixth, hitting the competitiveness of Dutch manufacturing and services. In 1977 The Economist dubbed this economic curse “Dutch disease”.

Other resource-rich countries have tried to avoid this trap. Some have adopted fixed exchange rates to prevent their currencies appreciating. Others save capital inflows in sovereign-wealth funds to avoid distorting their economies. Yet many still have underdeveloped non-commodity sectors. And despite having plenty of cash to invest, banks are particularly affected.

Two recent IMF papers point to a new explanation of why commodity exporters have such stunted banks. The problem, they...Continue reading

Read More »

Australia’s CommBank is accused of abetting money-laundering

WHEN the Commonwealth Bank of Australia on August 9th reported its profit for the year to June—above forecasts and just shy of A$10bn ($7.9bn)—it faced questions about cashflows of another sort. Six days earlier the Australian Transaction Reports and Analysis Centre (AUSTRAC), a regulator charged with gathering financial intelligence to combat money-laundering and terrorism, had launched proceedings against it for “serious and systemic non-compliance”. Citing “collective responsibility” for the bank’s reputation, Catherine Livingstone, its chairwoman, has announced cuts to bonuses for Ian Narev, the chief executive, and others.

Founded 106 years ago, CommBank, as it is known, is one of Australia’s biggest banks. AUSTRAC traces its case to 2012, when the bank started installing “intelligent deposit machines”. They accept cash, let depositors stay anonymous and allow money to be switched to other accounts in Australia and overseas straight away. CommBank sets...Continue reading

Read More »

Investors are not great at predicting politics

FINANCIAL markets are supposed to be the font of all wisdom, weighing up the information available and condensing it into a set of prices. Investors are presumed to have an insight into the future—falling bond yields are seen as a sign that the economy is slowing, for example.

But are investors that clever when it comes to politics? Gambling markets show how they assess political risk. They expected the Remain campaign to win the Brexit referendum and Hillary Clinton to become America’s president, and were proved wrong. Indeed, on Brexit, the mass of gamblers (the general public, in other words) backed Leave, but the odds were skewed by some wealthy punters who favoured Remain. Those rich gamblers were probably people who trade in financial markets; the plunge in the pound after the result suggests that most investors were caught on the hop.

Before the presidential election, most people on Wall Street to whom Buttonwood spoke thought that a victory for Donald Trump would be...Continue reading

Read More »

Why the world’s best footballers are cheaper than they seem

A head for figures

FOR football clubs, August is often the costliest month, when they make vast bids for each other’s players. This year has been particularly lavish. On August 3rd Paris Saint-Germain (PSG), a French team, signed Neymar da Silva Santos Júnior, a Brazilian forward, from Barcelona for €222m ($264m), more than double the previous record price for a footballer.

With three weeks of the transfer “window” left, teams in Europe’s “big five” leagues—the top divisions in England, Spain, Germany, Italy and France—have paid €3.2bn, just short of the record of €3.4bn set last year. The €179m splurged by Manchester City, an English club, on defenders outstrips 47 countries’ defence budgets. Arsène Wenger, a veteran manager of Arsenal, a London team, and an economics graduate, describes the modern transfer market as “beyond calculation and beyond rationality”.

Continue reading

Read More »

Chasing higher yields, investors pile into risky countries

WHERE can you find a 7% interest rate on a sovereign dollar-bond? You would have to take a time-machine to the mid-1990s to find such a yield on a ten-year American Treasury. Alternatively, you could slip back a few days to August 2nd and bid for the $1bn of five-year bonds sold by the government of Iraq. The yield was expected to be 7%, but it was trimmed to 6.75% once orders rose above $6bn.

Such eagerness for hard-currency debt from a country still reeling from a civil war shows just how far bond investors will now go to get a decent yield. Oversubscribed issues for risky sovereign bonds have become almost normal. The Iraqi sale came just a week after Greece (whose privately held debt was partly written off in 2012) raised €3bn ($3.5bn) in its first bond sale for three years. In June Argentina was inundated with bids for its 100-year eurobond, as dollar-denominated bonds are known. Sceptics noted that Argentina had defaulted on its debts six times in the previous century, with the most...Continue reading

Read More »

Investment in American infrastructure is falling

IT IS not a number to tweet about. President Donald Trump plans to plough $1trn of spending into America’s crumbling infrastructure. And a dearth of capital is not a problem: investors are keen on such assets. But investment seems to be falling.

Government infrastructure spending in the second quarter fell to 1.4% of GDP, the lowest share on record (see chart). According to Thomson Reuters, investment by American municipalities in the first seven months of this year, at $50.7bn, was nearly 20% below the same period in 2016. Private-sector infrastructure funds show a similar trend, according to Preqin, another data provider: deal volume in the first half of 2017 fell by 7.5%, year on year, to $36.6bn; the number of deals fell by a quarter.

Not long ago optimists were expecting an infrastructure-spending boom. In May Blackstone, a private-equity firm, announced with much fanfare a new $40bn fund for American infrastructure, with a $20bn investment from one of Saudi Arabia’s...Continue reading

Read More »

Who will be the next chair of the Federal Reserve?

LOOK only at unemployment and inflation, says Peter Conti-Brown, a historian of the Federal Reserve, and Janet Yellen is the Fed’s most successful boss of all time. The second indicator may be below target, but that is a blip compared with the recessions most Fed chairmen have endured. So it is perhaps not surprising that President Donald Trump is openly considering retaining Ms Yellen, a Democrat installed by Barack Obama, after her term ends in February 2018. Nor by historical standards is it odd: the Fed’s past three leaders were all reappointed by presidents from the other party. Yet Ms Yellen, whom Mr Trump criticised on the campaign trail, is not the leading candidate. PredictIt, a betting site, gives her a 28% chance of staying put. In front of her, with a 36% chance of appointment, is someone else Mr Trump is publicly weighing up: Gary Cohn (on the left above).

Mr Cohn was until January the chief operating officer and president of Goldman Sachs. He left that role to become the...Continue reading

Read More »

Where might the next crisis come from?

TEN years ago, BNP Paribas, a French bank, temporarily suspended dealings in three funds, citing “the complete evaporation of liquidity in certain market segments of the US securitisation market”. Many people treat this as the start of the credit crunch but one can trace it back to the need for Bear Stearns to rescue hedge funds that invested in mortgage-backed securities in June, or the signs of home loan defaults and failing mortgage lenders that emerged in late 2006. The subsequent tightening of credit and loss of confidence in the banking system eventually led to the collapse of Lehman Brothers, when the crisis reached its height in the autumn of 2008 (see picture).

The inevitable question on the occasion...Continue reading

Read More »

Capitalism and the absence of creative disruption

NINE straight highs for the Dow Jones Industrial Average might suggest that all is well with capitalism. But on the contrary, they could be a sign that things have been going profoundly wrong with the way the system is working.  

The main driver for the surge in share prices this year has been the strength of profits; second quarter profits for S&P 500 companies are around 12.6% higher than a year ago, according to Andrew Lapthorne at SG, a French bank. As the chart shows, relative to GDP, profits seem to be regaining their levels of recent years. And those levels are much higher than they have been in much of the post-war era (see chart).

Continue reading

Read More »