Posts in category FINANCE


ApprovedBusiness and financeFINANCEFinance and economics

The markets believe in Goldilocks

ANOTHER week, another record. The repeated surge of share prices on Wall Street is getting monotonous. The Dow Jones Industrial Average has passed another milestone—24,000—and the more statistically robust S&P 500 index is up by 17% so far this year. Emerging markets have performed even better, as have European shares in dollar terms (see chart).

Political worries about trade disputes, the potential for war with North Korea and the repeated upheavals in President Donald Trump’s White House: all have caused only temporary setbacks to investors’ confidence. No wonder the latest quarterly report of the Bank for International Settlements asked whether markets are complacent, noting that “according to traditional valuation gauges that take a long-term view, some stockmarkets did look frothy”, and pointing out that “some froth was also present in corporate-credit markets”.

The authors of the BIS report are not the only ones to worry that markets look expensive. The…Continue reading

Read more 0 Comments
ApprovedBusiness and financeFINANCEFinance and economics

A full-scale Venezuelan default could push up oil prices

Who believes in Nicolás?

ON NOVEMBER 30th, as oil tsars from the Organisation of the Petroleum Exporting Countries (OPEC) and Russia met in Vienna, Venezuela’s former oil minister, Eulogio del Pino, once one of their number, was seized by armed guards at dawn in Caracas, and taken to jail. His arrest was not publicly acknowledged in Vienna. His replacement, Manuel Quevedo, a general in the national guard, attended OPEC and was received with the usual deference.

Also unmentioned was how Venezuela, embroiled in a massive, messy debt default, is doing plenty of OPEC’s dirty work. Since November 2016, when OPEC first agreed with Russia to cut output to push up oil prices, Venezuela’s has fallen by 203,000 barrels a day (b/d), to 1.86m b/d in October. That is more than twice the cut it agreed with OPEC of 95,000 b/d.

If its production continues to fall—some analysts say it could be down to 1.6m b/d in 2018—it could either drive up…Continue reading

Read more 0 Comments
ApprovedBusiness and financeFINANCEFinance and economics

Hedge funds embrace machine learning—up to a point

ARTIFICIAL intelligence (AI) has already changed some activities, including parts of finance like fraud prevention, but not yet fund management and stock-picking. That seems odd: machine learning, a subset of AI that excels at finding patterns and making predictions using reams of data, looks like an ideal tool for the business. Yet well-established “quant” hedge funds in London or New York are often sniffy about its potential. In San Francisco, however, where machine learning is so much part of the furniture the term features unexplained on roadside billboards, a cluster of upstart hedge funds has sprung up in order to exploit these techniques.

These new hedgies are modest enough to concede some of their competitors’ points. Babak Hodjat, co-founder of Sentient Technologies, an AI startup with a hedge-fund arm, says that, left to their own devices, machine-learning techniques are prone to “overfit”, ie, to finding peculiar patterns in the specific data they are trained on that…Continue reading

Read more 0 Comments
ApprovedBusiness and financeFINANCEFinance and economics

Europe is seeing more collective lawsuits from shareholders

LIKE the ghosts that haunted Ebenezer Scrooge, the scandals of years past—summoned up by angry shareholders—will not let companies rest. In Britain this year, the Royal Bank of Scotland (RBS) paid £900m ($1.2bn) to settle a long-running investor lawsuit related to the bank’s behaviour at the time of the financial crisis of 2007-08. Also in Britain, Lloyds Banking Group faces litigation. And it is not just banks. Investors in Britain sued Tesco, a supermarket chain, for losses caused by an accounting scandal in 2014. In Germany and the Netherlands investors are seeking compensation from Volkswagen (VW), a carmaker, for failing to disclose its manipulation of diesel-emissions tests.

Securities litigation is on the rise in Europe for two main reasons. The first is that America is less hospitable than it was to such cases. Until 2010 harm suffered by foreign investors could be included in American lawsuits. That changed with a Supreme Court ruling on Morrison v…Continue reading

Read more 0 Comments
ApprovedBusiness and financeFINANCEFinance and economics

African countries are building a giant free-trade area

“AFRICA must unite,” wrote Kwame Nkrumah, Ghana’s first president, in 1963, lamenting that African countries sold raw materials to their former colonisers rather than trading among themselves. His pan-African dream never became reality. Even today, African countries still trade twice as much with Europe as they do with each other (see chart). But that spirit of unity now animates a push for a Continental Free-Trade Area (CFTA), involving all 55 countries in the region. Negotiations began in 2015, aimed at forming the CFTA by the end of this year. In contrast to the WTO, African trade talks are making progress.

At a meeting on December 1st and 2nd in Niamey, the capital of Niger, African trade ministers agreed on final tweaks to the text. Heads of state will probably sign it in March, once an accompanying protocol on goods has been concluded (agreement on services has already been reached). But trade barriers will not tumble overnight. The CFTA will come into force only when 15 countries…Continue reading

Read more 0 Comments
ApprovedBusiness and financeFINANCEFinance and economics

As WTO members meet in Argentina, the organisation is in trouble

“EVERYBODY meets in Buenos Aires,” said Cecilia Malmstrom, the European Union’s trade commissioner, days before heading there for the World Trade Organisation’s (WTO) biennial gathering of ministers, which opens on December 10th. Some non-governmental organisations have been blocked by the protest-averse Argentine authorities, but a meeting of people will indeed take place. One of minds is another matter.

Most participants can agree on one thing. The WTO, which codifies the multilateral rules-based trading system, needs help. President Donald Trump has railed against it and threatened to pull America out. Without American leadership, there is little hope of reaching new deals. And even as the WTO’s dealmaking arm is paralysed, the Trump administration is weakening its judicial one by starving it of judges.

Despite Mr Trump’s threats, America does not seem on the verge of crashing out of a system it helped to construct, to rely entirely on bilateral trade deals and…Continue reading

Read more 0 Comments
ApprovedBusiness and financeFINANCEFinance and economics

Are digital distractions harming labour productivity?

FOR many it is a reflex as unconscious as breathing. Hit a stumbling-block during an important task (like, say, writing a column)? The hand reaches for the phone and opens the social network of choice. A blur of time passes, and half an hour or more of what ought to have been productive effort is gone. A feeling of regret is quickly displaced by the urge to see what has happened on Twitter in the past 15 seconds. Some time after the deadline, the editor asks when exactly to expect the promised copy. Distraction is a constant these days; supplying it is the business model of some of the world’s most powerful firms. As economists search for explanations for sagging productivity, some are asking whether the inability to focus for longer than a minute is to blame.

Continue reading
Read more 0 Comments
ApprovedBusiness and financeFINANCEFinance and economics

Contraception does even more good in poor countries than thought

Happier families

FEW tasks in developing countries are as tricky—or as important—as convincing parents to keep their daughters in school longer. One way of doing so is to make contraceptives available, concludes a new working paper by Kimberly Singer Babiarz at Stanford University and four other researchers.

Conducted in Malaysia, the study used a happy coincidence of surveys going back decades and family-planning programmes rolled out in a way that made it possible to measure their effect. Starting in the 1960s, these programmes were introduced in some areas a few years earlier than in others. So researchers could compare what happened to girls in areas where contraceptives became available when they were very young with girls from the same cohorts in areas with no contraceptives.

The girls in places with contraceptives stayed in school six months longer, or about a year longer if they were born after the programmes began. Similar effects have…Continue reading

Read more 0 Comments
ApprovedBusiness and financeFINANCEFinance and economics

What cheese can tell you about international barriers to trade

Slicely does it

BEN SKAILES, a British cheesemaker, is busy as Christmas ripens demand for his Stilton. Foreigners make up a third of demand for his dairy, Cropwell Bishop Creamery. This exporting achievement is not to be sniffed at when one considers the barriers to the cheese trade.

Some are natural. Perishable food goes better with wine than long journeys. At least Mr Skailes’s Stilton can survive the three-week trip to America. (His is best eaten within 16 weeks.) Softer cheeses struggle, giving American producers an advantage.

Other hurdles are man-made. Tariffs and quotas are supposed to support domestic dairy industries, and are more onerous than in other sectors. The European Union protects its dairy industry with a 34% average duty, compared with an overall average of 5%. In America it is 17%, compared with 3.5%. Stilton escapes American quotas, but full “loaves” are taxed at a 12.8% rate, or 17% if they arrive sliced. (Unprocessed…Continue reading

Read more 0 Comments
ApprovedBusiness and financeFINANCEFinance and economics

As bitcoin’s price passes $10,000, its rise seems unstoppable

MOST money these days is electronic—a series of ones and zeros on a computer. So it is rather neat that bitcoin, a privately created electronic currency, has lurched from $1,000 to above $10,000 this year (see chart), an epic journey to add an extra zero.

On the way, the currency has been controversial. Jamie Dimon, the boss of JPMorgan Chase, has called it a fraud. Nouriel Roubini, an economist, plumped for “gigantic speculative bubble”. Ordinary investors are being tempted into bitcoin by its rapid rise—a phenomenon dubbed FOMO (fear of missing out). Both the Chicago Mercantile Exchange, America’s largest futures market, and the NASDAQ stock exchange have seemingly added their imprimaturs by planning to offer bitcoin-futures contracts.

It is easy to muddle two separate issues. One is whether the “blockchain” technology that underpins bitcoin becomes more widely adopted. Blockchains, distributed ledgers that record transactions securely, may prove very useful in…Continue reading

Read more 0 Comments
ApprovedBusiness and financeFINANCEFinance and economics

A flattening yield curve argues against higher interest rates

CENTRAL bankers may control short-term interest rates, but long-term ones are mostly free to wander. They do not always behave. When Alan Greenspan, then chairman of the Federal Reserve, was raising short rates in 2005, he described a simultaneous decline in long rates as a “conundrum”. His successor-to-be, Ben Bernanke, blamed foreign investments in American assets because of a “global saving glut”.

Janet Yellen, today’s (outgoing) Fed chair, faces a similar puzzle. Ms Yellen’s Fed has raised rates twice this year, and will probably make it three times in December. In October the Fed began to reverse quantitative easing (QE), purchases of financial assets with newly created money. Despite all this monetary tightening, yields on ten-year Treasury bonds have fallen from around 2.5% at the start of 2017 to about 2.3% today. As a result, the “yield curve” is flattening. The difference between ten-year and two-year interest rates is at its lowest since November 2007 (see chart).

Continue reading
Read more 0 Comments
ApprovedBusiness and financeFINANCEFinance and economics

India’s new bankruptcy code takes aim at delinquent tycoons

A SMOOTH bankruptcy process is akin to reincarnation: a company at death’s door gets to shuffle off its old debts, often gain new owners, and start a new life. Might the idea catch on in India? A first wave of cadaverous firms are seeking rebirth under a bankruptcy code adopted in December 2016. In a hopeful development, tycoons once able to hold on to “their” businesses even as banks got stiffed seem likely to be forced to cede control.

India badly needs a fresh approach to insolvent businesses. Its banks’ balance-sheets sag under 8.4trn rupees ($130bn) of loans that will probably not be repaid—over 10% of their outstanding loans. But foreclosure is fiddly: it currently takes over four years to process an insolvency, and recovery rates are a lousy 26%. Partly as a result, bankers have often turned a blind eye to firms they ought to have foreclosed on.

This is bad for the banks and worse for the economy, which has slowed markedly, in part as credit to companies has dried up. The problem festered for years, not…Continue reading

Read more 0 Comments