On private equity

Most big companies naturally belong in liquid public markets. This is because investors value shares they can sell easily more highly than shares they cannot freely trade. It should not be easy for private equity firms to find big, undervalued targets. If investors think listed shares are cheap, they can buy them without paying a private equity firm to do the job for them. Alternatively, undervalued companies can be taken over by other listed companies able to extract synergies from merging their operations. Private equity firms have no synergies to offer. Small companies may not be valued correctly because there is not enough public information about their prospects. The same could be true of emerging markets. The problem here is that in markets with weak regulation and corporate governance, private equity firms may not enjoy full information either. They tend to go for bigger, not smaller, companies

The FT on why Buffett was successful

One of the reasons why the bets have worked, and why Berkshire has since stopped making them, is that it was able to agree very large derivative contracts where it received all the premium up-front, and then did not have to post collateral. Any payment only comes due when the contracts are unwound or expire.

Simply stated, Berkshire appears to have enjoyed tremendous, and perhaps unique, advantages when it came to selling the derivatives from which the float (and thus the edge’s foundation) comes. Without those advantages in place, the whole thing may not have been possible to begin with. And the true key is that those advantages may be reserved for Buffett and, maybe, just a handful of other people. Enjoying those advantages , in other words, can lead to vast competitive benefits.

Those three key factors that may not have been available to all market players are:

(1) very soft collateral requirements,

(2) utter disregard for quarterly earnings volatility, and

(3) the ability to find buyers of sizable and often heterodox contracts.

Other players may have faced much more stringent collateral requirements. Other players may care much more about cont inuous earnings turbulence. Other players may not be able to sell such contracts. Buffett is very clear about it: If he had to face “normal” collateral rules, he would not have entered into the trades.

Kingsley Amis

Elizabeth Jane Howard: Bunny, do you have to have a drink?

Kingsley Amis: Look, I'm Kingsley Amis, you see, and I can drink whenever I want."

Flaubert on art

The more words there are on a gallery wall next to a picture, the worse the picture.

Robert Buckland says equities are the new bonds

Buckland has a suspicion that QE is doing the exact opposite of what polcymakers intended. It’s destroying jobs, rather than creating them. Theory: QE is forcing bond investors out of fixed income into equities, where they are demanding income rather than capital growth. This, in turn, is pressing corporates into boosting dividends and share buybacks. Example: Pfizer closed its Viagra lab in the UK, sacked more than 2000 white-coat workers, announced a buyback and watched its share price spike 7 per cent.

Henry Steele Commager on Gone With The Wind

On Scarlett: She had no mind, but she had a mind of her own; she had no subtlety but she had a genius for getting below the surface of things and knowing their reality; she was full of pretense and wile, but she was impatient of all sham, convention and shibboleth...She was not a lady, though she wanted to be, but a magnificent woman, a vital, proud, passionate creature...sentimental but without nonsense, deeply rooted in the soil of Tara, but uprooted too, and lost. 

Ian Penman on Mods

Rockers had shivs, skinheads had bovver boots, hippies might dose you - what was a Mod going to do? Make you listen to Otis Redding? Force you to buy a decent pair of trousers?

Seamus Perry on Ted Hughes

All of which implies cultural history painted with the broadest of brushes: the villain of the piece is the Renaissance, that catastrophe of individualism, which gave birth at once to the hubris of the scientific mind and the desiccated spiritualism of reformed Christianity, both of which involve getting our relationship with nature wrong.  "The story of the mind exiled by nature is the story of Western Man," wrote Hughes..."Our civilisation is an evolutionary error." 

Is the RMB overvalued?

If the Chinese continue with their efforts to open up the capital account — which increasingly suits them if these pressures are indeed boiling over — there is a growing risk that the capital flight might accelerate, triggering a major financial crisis. Not only that, those foreign investors and trading counterparties who have bought into the idea that settling in RMB is a good idea, could find themselves holding a much less valuable currency than they originally expected.

When the Chinese themselves are putting their money in anything but RMB — London, Canadian property, gold, luxury, commodities, equities — you have to wonder does it really make sense to buy into the hype about RMB settlement. 

Is it really the hot new currency that will change global settlements, or are the Chinese perchance looking for as many ways as possible to recycle RMB into currencies that will genuinely protect purchasing power?

On which note, the following comment from Euromoney is worth a read.

As they note, while speculating that the renminbi could be overvalued by as much as 30 per cent.:

The evidence that RMB is overvalued is the deflationary effect it is exerting – seen in exporters cutting prices to compete, causing a profits squeeze, which in turn impacts investment. The transition requires careful management because if export- and investment-led growth fall away before domestic consumption is sufficient to fill the void, economic growth could fall sharply. The trade surplus bottomed out at 2.1% of GDP in 2011 rebounding to 2.8% last year, according to official figures. It has continued to widen this year, hitting $20.4 billion in May – not so much because exports are surging but because hoped for growth in imports has faltered, in line with a slowdown in consumption growth.

And the most important views of all may be those by Lombard Street’s Hong-Kong based economist Freya Beamish. As Euromoney reports:

Lombard Street Research’s Hong Kong-based economist Freya Beamish believes the exchange rate is a smokescreen and that RMB could be overvalued by as much as 30%. “Because China hasn’t been willing to allow the currency to appreciate nominally, it’s happened through a back-door way of inflation and that has persisted for a number of years, driving up the RMB,” she says. “Overvaluation of the RMB is now exerting a deflationary force on the economy and that’s causing a profits squeeze, which is the main factor curtailing growth.

“The symptoms are the product price deflation that China’s facing. If you look back to mid-2011, product prices went from inflation of about 7% annually to deflation of about 2% to 3% and that situation has persisted for the six intervening quarters, which strongly suggests there is some kind of overvaluation force from the RMB.”

Beamish adds: “So you have hefty product price deflation and it also makes sense from the macro story because adjusted unit labour costs of productivity have been inflating at about 11% in dollar terms since 2005 but that’s not the case for the major trading partners that China faces. “If a currency can’t appreciate in nominal terms, it will appreciate in real terms. So either you’ll have nominal appreciation of the RMB, or you’ll have prices in China inflating at a far greater rate than in, say, the United States, which is what we’ve seen. RMB has appreciated much more in real terms than in nominal terms.”

The Guardian on Scientology

Scientology is a neat reflection of the worst aspects of American culture with its repulsive venaration of celebrity; its weird attitudes toward women, sex, healthcare and contraception; its promise of equality among its followers but actual crushing inequality...It is, in its own dark way, the inevitable religion to emerge from 20th century America.

Yikes!

Economically suicidal statistic of the day: the EU accounts for 9pc of the world's people, 15pc of its GDP and 50pc of its welfare payments.

Lorrie Moore on Homeland in the NYRB

"Danes nonetheless has put vanity aside for this performance. Compare her with the always pretty analyst played by Jessica Chastain in Zero Dark Thirty.) 

"The main problem with Homeland is not even the writers taking Adderall or whatever they did in the second season that eliminated suspense and brought instead an unhinged intensity of movement that barely allowed space and time enough for the cast members to occupy their roles.