Peter Apsden on TV

In the mid-1980s, the entire ninth series of Dallas was revealed to be a bad dream, a twist that might have hinted at Borgesian surrealism but gave every impression of having been scribbled on the back of a spent cocaine packet in a Los Angeles traffic jam.

Gavekal on China

The dynamism of China's industrialization process is such that it is easy to both exaggerate the upsides ("a billion customers") as well as the downsides ("ghost cities abound!"). As we see it, it seems the downsides are currently being exaggerated. This is not overly surprising, because China's policymakers have indeed been fighting the dragon of excessive liquidity creation since 2009, and this has been neither easy nor pretty. But while there are undoubtedly very real financial risks, with some companies and individuals facing very real stress, investors should put the situation in context. Indeed, we refer readers to Joyce's ad hoc published yesterday, The Shadow Knows-Exploring China's Hidden Financial System, which highlights that:

* The unofficial funding channels which have evaded official credit restrictions in the past year, and thus made it harder for Beijing to control inflation, have always existed. Moreover, these unofficial channels are actually a long-term positive: in the state controlled financing sector, credit is not only irrationally (cheaply) priced, but it is often allotted to favored parties (such as state-owned companies). In "shadow financing" activities, we are now witnessing market pricing of both deposits and loans-which is the exact structural direction in which China's financial system needs to move. In the long run, this is a good thing.

* No doubt, however, shadow financing activities have gotten out of hand recently, and have complicated Beijing's effort to fight inflation. We estimate that shadow financing activities made up about 16% of total outstanding credit in the past decade; however credit extended through channels other than the formal bank loans and the bond market reached about RMB17 trillion by mid-2011, or about 25% of the total. Moreover, shadow financing accounted for more than 40% of new credit creation in 2010 and 1H11.

....Our view is that China is likely to continue to tighten shadow financing, but will, in small, quiet ways, such as through open market operations, start to loosen official liquidity conditions.

John Stuart Mill

"Panics do not destroy capital. They merely reveal the extent to which it has previously been destroyed by its betrayal into hopelessly unproductive works." 

Charles Gave on market intervention

Such distortions reverberate throughout the system, affecting every asset class from commodities to real estate. They also create a domino effect of spreading interventions, wack-a-mole style. So to summarize, after ten years of "smart" interventions by astute policymakers we are now left without any proper market pricing mechanism for:

1) US interest rates and exchange rates - both manipulated by the Fed

2) Oil prices - which are manipulated on a second order by the undervalued Dollar

3) The Euro exchange rate - manipulated by the ECB and China

4) Sovereign yields in Europe - manipulated by the ECB and the PBOC

5) The Swiss France and the Yen - now both manipulated by the local central banks.

It is no wonder international liquidity is vulnerable to a squeeze and markets are nervous. Why anybody is surprised that we have been in bear markets for the better part of the last ten years is beyond me. Never in my 40 year career have I seen such a combination of incompetence and intellectual arrogance in the ruling class.

Kwasi Kwarteng on the British Empire from The Economist

In Sudan, a notably snobbish spot, one-third of all colonial political officers were the sons of clergymen and half of those recruited between 1902 and 1914 had a “Blue” (a sporting distinction) from Oxford or Cambridge, leading to the quip that Sudan was a land of “Blacks ruled by Blues”. In the 1930s, only officials able to play polo could hope for advancement in the Sudanese province of Darfur: in the same period, Darfur had just one primary school. In 1916, Mr Kwarteng notes, David Lloyd George, the humble son of a Welsh Baptist minister, could become Britain’s prime minister, but would have stood no chance of being governor of colonial Nigeria.

Merrill Lynch on Eurobond spreads from the FT

The argument goes that with a joint and severally guaranteed Eurobond, the low refinancing cost of Germany would be exported to the periphery, at marginal cost to Germany. The cost would be a function of Germany’s refinancing cost today, relative to the weighted average spread of Eurozone sovereigns either today, or at some arbitrary point in the past.

We find this argument fundamentally flawed: if a Eurobond just mutualises debt issuance, the default probability of a Eurobond is the default probability of the largest country that cannot be bailed out by the core. This is because Germany and other AAA countries alone cannot credibly guarantee the debt of the entire Eurozone. This is the fundamental difference between a Federation, such as the US or Germany, and a Union of sovereign member states, such as EMU.

David Runciman on Blue Labour

As far as I can see there are two basic problems for Maurice Glasman, one related to what liberals never do and one to what they always do. The sin of omission is the inability of liberal politics to resist the depredations of international finance capitalism. This is the real passion that motivates Blue Labour: the sense that the country has been raped by bankers, and all on the watch of a Labour government....All they do is talk about individuals with their rights and responsibilities, their choices and freedoms, without noticing that individuals are like confetti in the face of the whirlwind power of money.....The other problem with liberals...is that liberals have a fatal weakness for abstraction....they prefer nice ideals to real people.