All Articles Finance Modern Money While You Were Working - April 20

While You Were Working – April 20

Basel talk in Washington, bond markets like dictators, a Chinese market that never fails and college kids jump into dark pools

5 min read

Modern Money

European Commission Vice President Valdis Dombrovskis

This Latvian is ready for some help from Mark Carney - Photo credit: Dan Kitwood/Getty Images

A man in Washington touted global collaboration on financial rules!

Granted, that man is Latvian.

European regulators are continuing the show they are a wee bit nervous about what the Trump administration has in mind for international financial regulations. They are so nervous they are even coming to Washington to voice their concerns. In a speech this morning at the American Enterprise Institute in Washington, European Commission Vice President Valdis Dombrovskis repeated his call for continued collaboration between the US and the EU.

Dombrovskis focused his comments on three topics:

  1. A new frame work for derivatives markets
  2. Capital ratios being negotiated by the Basel Committee
  3. Crisis management in the form of the Orderly Liquidation Authority in Title II of Dodd-Frank

Dombrovskis repeatedly referred to proposals put forth by the Financial Stability Board. This is a good tactic. In fact, in a world where semantics matter and the US is helmed by an administration that claims to be “America First,” it would be wise from a strategic communications perspective to let the FSB be the voice for continued international collaboration on financial regulation, rather that the VP of the European Commission. Especially since the FSB is headed by Bank of England Governor Mark Carney. If you have a “special relationship,” you might as well leverage it from time to time.

Bond markets figured out something Big Oil has known for a long time

When it comes to reliably making bond payments on time, it appears markets prefer the performance of autocratic regimes over developing democracies. To highlight the point, Bloomberg notes how Venezuela made good on $2.5 billion in debt payments last week even though President Nicolas Maduro is struggling to drum up with enough money feed his people.

“Investors typically view the bonds of an autocratic regime very negatively and assign a very high default probability,” said Victor Fu, the director of emerging-market sovereign strategy at Stifel Nicolaus & Co. But “in an autocratic regime, the government remaining in power is considered more important than people’s welfare. Since a bond default likely will raise the risks for the government to be thrown out, the ruling party will do its best to prevent a credit event.”

I am in the middle of reading a book about the history of Exxon-Mobil. There are numerous chapters dedicated to the oil giant’s adventures and misadventures in Third World countries. What oil giants realized long ago – and apparently bond markets are figuring out now – is that autocrats have a pretty strong record of staying in power for extended periods of time. There is always going to be some reputational risk in dealing with leaders who might not place too high a value on things like human rights or the welfare of their people, but when you are looking to invest tens of billions of dollars in a country, knowing you will be dealing with the same leader for years and years makes things a lot easier.

And as the quote above explains, when a leader is getting rich and/or staying in power because of business deals they do with you, they are very incentivized to keep those deals afloat and maintain the status quo.

Cannonball coming!

This is a pretty funny story about a niche stock exchange that is targeting college kids.  Tony Weeresinghe, the CEO of Ustocktrade, says it targets college kids because, “The younger generation is much more adventurous.”

The exchange is also being touted as a way to pay off student loans. But then again, so is … you know … getting a job doing a little thing called work.

My favorite part is that the exchange is really just a tiny little dark pool. Seeing as how most college kids probably think a “dark pool” is the dodgy body of water they know they shouldn’t be jumping in at their one-star Spring Break hotel, I can’t imagine what could possibly go wrong.

Fun with Chinese markets

I have a lot of fun in the space making light of the magnificent opacity in Chinese markets. It’s not all that hard. After all, stories like this make it pretty easy.

Bank hiring news?

I know I poked fun at a Brexit chart yesterday. And I have previously ridiculed how low the “news” bar seems to be when it comes to talk of jobs leaving the UK as the Brexit clock ticks. If some bank threatens to move thousands of jobs, I guess that is news (even if it is thus far just a threat). If the same bank threatens to move a couple hundred jobs, I am not so sure that is newsworthy.

The same can be said for hiring. If a bank is hiring thousands of new people, that sounds like news to me. Perhaps a couple hundred new hires is worthy of an optimistic press release. But 20?

How bored must a reporter be to write a story about that?

WYWW Appetizers

  • Tesla repaid some bonds early.
  • A podcast on how surfing can be an economic indicator.
  • At some point regulators will put Ocwen Financial out of business, right?
  • The student loan market is getting… ummm .. interesting.
  • And finally … the right and left can agree that there is at least one thing the private sector does better than the government.