David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Why Central Banks Like Canada's Are Finding It Hard to Get Home

    This article by Theophilos Argitis for Bloomberg may be of interest to subscribers. Here is a section:

    Poloz counters by pointing out that the leverage already out there makes tightening risky too. Plus, he sees potential long-term benefits from frontloading demand.

    Exports and investment remain below pre-crisis levels as a share of the economy, leaving Canada reliant on consumption and housing. Wage gains are smaller than in the past. The number of new firms being created, an important metric for Poloz, is lackluster. What if Canada’s economy is on the cusp of an investment boom that may not be detectable yet, and companies are holding back because they lack confidence? Productivity typically picks up late in the business cycle, and policy makers shouldn’t get in the way of that by removing stimulus too quickly.

    Yet, if the purpose of low rates has been to nurse the economy back to normal, then the ability to raise them should be the ultimate gauge of health.

    With the jobless rate at four-decade lows, and underlying inflation back near the 2 percent target, there were signs that the economy was nearing its capacity -- which is why Poloz began to hike.

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    Old allies turn tough: How the EU will react to Theresa May's request for a Brexit extension

    This article by James Crisp for The Telegraph may be of interest to subscribers. Here is a section:

    One senior EU source predicted that the leaders would be uncompromising and some, if not all, would lean on the prime minister to extend Article 50 as long as possible.

    “Every time Mrs May has spoken to the leaders, their final decision has been tougher than was predicted by their officials,” the source said, pointing out the prime minister’s dismal record at the European Council.

    “None of the leaders want to be blamed for a no deal Brexit," said one EU diplomat, “but they know that if they will be by their businesses if there is one.”

    It is up to Donald Tusk, the president of the European Council, to broker a consensus between the EU-27.  On Thursday morning, he made it clear he would ask the heads and state of government to look favourably on a request for a long extension, understood to be between nine months and a year, which opens the door to a general election or second referendum.

    Meanwhile influential MEPs such as Guy Verhofstadt and Manfred Weber are adamant that a British extension cannot hijack the European Parliament elections.

    Broadly, countries with socialist governments hanker for a longer extension in the expectation of more left-wing British MEPs being elected in upcoming European Parliament elections, while centre-right governments fear a Eurosceptic surge if Britain is forced to run the vote in May.

    Officials in Brussels, veterans of many marathon late night summits, are fond of saying, “you can never predict what will happen when the leaders get together”.

    But here is a look at the EU’s movers and shakers on Brexit stand on extension today.

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    DHFL, Wadhawans And Ownership Webs

    This article by Aman Kapadia for Bloomberg Quint may be of interest to subscribers. Here is a section:

    This story started with the loans made by DHFL to four developers. When the developers bought a stake in Darshan Developers, the money moved to Kyta. Kyta used most of the proceeds, Rs 1,324 crore, on a joint venture, details on which are not available in the company’s filings.

    The remaining Rs 100 crore was used to repay unsecured loans it had received from unknown sources.

    In February, BloombergQuint asked DHFL about the use of its loan funds by these developers and the connection with Wadhawan entities. The company said it was awaiting the outcome of an internal investigation into the Cobrapost allegations.

    "You are aware that over the last two weeks, we have issued various media statements as also clarifications. The clarifications issued by us clearly sets out the motivation of the complainant, and also states that statements, allegations and accusations contained in the complaint are utterly false and baseless.

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    A quantum experiment suggests there's no such thing as objective reality

    This article from the MIT Technology Review may be of interest to subscribers. Here is a section:

    They use these six entangled photons to create two alternate realities—one representing Wigner and one representing Wigner’s friend. Wigner’s friend measures the polarization of a photon and stores the result. Wigner then performs an interference measurement to determine if the measurement and the photon are in a superposition.

    The experiment produces an unambiguous result. It turns out that both realities can coexist even though they produce irreconcilable outcomes, just as Wigner predicted.  

    That raises some fascinating questions that are forcing physicists to reconsider the nature of reality.

    The idea that observers can ultimately reconcile their measurements of some kind of fundamental reality is based on several assumptions. The first is that universal facts actually exist and that observers can agree on them.

    But there are other assumptions too. One is that observers have the freedom to make whatever observations they want. And another is that the choices one observer makes do not influence the choices other observers make—an assumption that physicists call locality.

    If there is an objective reality that everyone can agree on, then these assumptions all hold.

    But Proietti and co’s result suggests that objective reality does not exist. In other words, the experiment suggests that one or more of the assumptions—the idea that there is a reality we can agree on, the idea that we have freedom of choice, or the idea of locality—must be wrong.

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    China's economy is 12% smaller than official data say, study finds

    This article by Gabriel Wildau for the Financial Times may be of interest to subscribers. Here is a section:

    For years, the sum of China’s provincial GDP has exceeded the national figure, a clear sign of statistical inflation at the local level. The National Bureau of Statistics (NBS) has previously acknowledged that “some local statistics are falsified”, and in 2017 the central government accused three provinces in China’s north-east rust belt of fabricating data. 

    The Brookings paper highlights how the NBS in Beijing struggles to make adjustments to the inflated data it receives from local officials. The analysis finds that the central government’s adjustments to local data are mostly accurate before 2007-08 but “after this date no longer appear to be accurate”. 

    The NBS said last year that it would assert greater control over provincial data collection beginning in 2019 to eliminate discrepancies between local and national data. 

    “NBS has done a lot of work to weed out the fake numbers added by local government, but it just doesn’t have enough power and capacity, nor the right incentives,” Michael Zheng Song, economics professor at the Chinese University of Hong Kong and a co-author of the paper, told the FT. “It would be unfair to blame NBS for fabricating GDP numbers.”

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    Brookfield to Buy Marks's Oaktree to Make Alternatives Giant

    This article by Gillian Tan and Scott Deveau for Bloomberg may be of interest to subscribers. Here is a section:

    As the private equity industry gathers near record sums of assets, institutional investors aim to make big allocations to fewer firms with a wide range of products. Today’s deal creates such a one-stop-shop: it bolsters the credit business of Brookfield, which has traditionally focused on real estate, and provides Oaktree, a specialist in distressed debt, exposure to assets that thrive outside turbulent economic times.

    “We had difficulty, up until now, meeting the strict terms of some of those mandates,” Brookfield Chief Executive Officer Bruce Flatt said in a phone interview. “Very few firms in the world are able to do that.”

    Oaktree co-Chairman Howard Marks said in the interview that the two firms mesh “culturally and in terms of product lines without competing and overlapping.”

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    Investors Are Still Waiting for a Gold-Mining Merger Wave

    This article by Alistair MacDonald and Ben Dummett for the Wall Street Journal may be of interest to subscribers. Here is a section:

    Miners and bankers give a variety of reasons for why the gold mining merger wave hasn’t come. The poor performance of gold miners’ shares means that sellers want to hold out for better valuations and buyers are reluctant to use shares they believe are undervalued for acquisitions.

    The S&P TSX Global Gold Index is down 51% since its 2011. The S&P 500 has doubled in value in that time.

    The industry as whole has a poor record in M&A. Miners overspent during the decadelong bubble that ended in 2011. That put off investors and made some executives wary of doing deals.

    In 2016, PwC calculated that big miners had written off $200 billion of the value in acquisitions and projects over the previous five years.

    Executives may be reluctant for another reason, investors say. They don’t want to put themselves out of a well-paid job by merging or selling their mines.

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