FT Alphaville

From the NYT:

“There is so much money looking for a positive return that people get lazy,” said Christopher L. Gillock, a managing director at Colonnade Advisors, a financial advisory firm in Chicago that has worked with subprime auto lenders. “Investors see it is rated triple-A, turn off their brains and buy into the paper.”

Pick your subject with most of that par. This time it happens to be auto-loans:

Ms. Payne went with her daughter to a dealership that arranges loans for Santander and other auto lenders to buy the car. She said an employee at the dealership in Great Neck, N.Y., assured her that, even though she was on food stamps, she could afford the loan. At the time, Ms. Payne said she thought she was co-signing the loan with her daughter.

“I looked him in the eye and said, ‘I don’t have any income,’ ” said Ms. Payne.

One Tracy Alloway has been here before.

Tricky question but one worth attempting to answer now that the Greeks have "defied expectation by choosing not to be beaten like cringing dogs for the next five years."

The long answer depends on what type of valuation you use, but the short one from SocGen's Seb Galy is:

Should Greece leave the eurozone in a well-controlled fashion, a new Drachma (GRD) could fall at least 11% in real terms based on a Natrex model. This drop will depend crucially on the considerable amount of debt that would have to be forgiven/restructured and the credibility of the authorities. 

Emphasis on "well-controlled" and "at least", obviously. 

Via Citi, and fwiw: 

We wouldn’t be surprised to see companies take advantage of deeply-discounted prices through liability management. In addition secured debt issuance is possible, though for E&P credits the issuance would need to be second lien in order to preserve the revolver’s size. Finally, the maturity wall is in energy’s favor relative to the rest of high yield. Less than 8% of the sector matures before 2019, versus 23% for high yield.

As CreditSights notes:

The fall in underlying German government yields, the rally in spreads vs Bunds and the long-duration on euro government bonds helped to make the investment grade euro government index one of the top performing asset classes of 2014.

In other words, changes in global commodity prices are a useless signal of US growth expectations. The recent "divergence" between commodities and equities is just a return to normalcy.

UK passenger car registrations so far this year have soared by 9.4% over the previous period last year. On a rolling 12 month basis, car sales have now surpassed their pre-crisis highs. Chart and table from CreditSights:

By contrast, the other big European car markets are all still below their pre-crisis highs and, with the exception of Spain, are growing less slowly.

From the NYT, via Marginal Revolution:

More permanent changes may be coming. In a report made public last week, a high-level committee assigned to rewrite India’s environmental laws assailed the existing regulatory system, saying it has “served only the purpose of a venal administration” seeking to extract bribes.

To speed up project approvals, the committee recommended scrapping a layer of government inspections; instead, it said, India should rely on business owners to voluntarily disclose the pollution that their projects will generate and then monitor their own compliance, an approach the committee described as “the concept of utmost good faith.”

Environmentalists are worried that the new approach will go beyond cutting red tape and will do away with effective regulation altogether.

“If you’re building something like a brewery or a dam, faith is the last thing you want to think about,” said Leo Saldanha, coordinator of the Bangalore-based Environment Support Group. “Do you have ‘utmost good faith’ in enforcing income tax, or corporate tax law? No. This is a territory on which the government wants to be weak — because they want growth.”

From the SCMP:

Many millions of yuan raised each year by China’s lottery ticket sales are either unused or being spent by officials on properties, cars – even yachts – rather than on social welfare projects, state media reported.

Sales of lottery tickets have raised 1 trillion yuan (about HK$1.2 trillion) since the social welfare lottery was launched in 1987; sales of sports lottery tickets, launched 20 years ago, have generated more than 700 billion yuan, reported Xinhua, the state-run news agency...

One Jiangsu financial official said he had never seen the fund being used, even though rules state that it can used to fund social welfare scheme, such as pensions, and medical and unemployment insurance.

In Shandong province, sports departments had still not used 425 million yuan raised from the sports lottery by the end of 2012; in Shanghai, 80 per cent of funds raised by the social welfare lottery had not been used since early 2010.

However, Xinhua reported that when these funds were finally used, in many cases the money was spent by on things for officials working in the departments.

Wang Zengxian, former director of Qingdao city’s social welfare lottery centre, who has been convicted of accepting more 47 million yuan in bribes, was found to used lottery funds to buy a luxury yacht costing more than 20 million yuan.

Job growth in the US has been relatively robust over the past 12 months. But what's less appreciated is the cumulative impact of the revisions on the final number. CreditSights produced this handy table:

The cumulative impact of these revisions is a whopping 324,000 extra jobs -- even more than were added this past month. That's more than 10 per cent of the current best estimate of total number of jobs added over the period.

From the FT:

A sign in parchment above the locked door of Shanxi Platinum Assemblage Investment, written in calligraphy, reads “Honesty is fundamental”. Until recently a police notice below it directed investors to report to the local station to submit evidence against the company.

With friends and families gathering tomorrow for Thanksgiving, we examine the relative performance of key CPI subcomponents. In this case, we plot turkey, alcohol, baked goods, and airfare against the main CPI. Rebasing the data to January 1998, baked goods, airfare, and turkey prices have all outpaced overall price level growth. Turkey prices, for example, are up 52% since 1998, while the main CPI is up only 47%. But consumers can take solace in relative cheapness of booze, which has lagged overall price growth, only 30% higher in price since 1998.

From Reuters:

"He sits there with these three mobile phones in front of him and sometimes he’s sending text messages or going out to make or take phone calls," one source usually in the room said...

"This has got a bit better. He’s paying a bit more attention now," the source said.

But seriously, we assume Draghi would be a great date. This is Europe's national central bankers getting miffed with his leadership style.

From Reuters again:

National central bankers in the euro area plan to challenge European Central Bank chief Mario Draghi on Wednesday over what they see as his secretive management style and erratic communication and will urge him to act more collegially, ECB sources said.

The bankers are particularly angered that Draghi effectively set a target for increasing the ECB's balance sheet immediately after the policy-making governing council explicitly agreed not to make any figure public, the sources said.

"This created exactly the expectations we wanted to avoid," an ECB insider said. "Now everything we do is measured against the aim of increasing the balance sheet by a trillion (euros)... He created a rod for our own backs."

Irritation among national governors who hold a majority on the 24-member council could limit Draghi's space for bolder policy action in the coming months as the bank faces crucial choices about whether to buy sovereign bonds to combat falling inflation and economic stagnation...

Even members of the ECB's executive board - the six-member inner circle that runs the bank - were not informed in advance about two key recent policy announcements, two sources said.

Those were a key passage inserted into Draghi's speech at the U.S. Federal Reserve's Jackson Hole conference in August, in which he highlighted falling euro zone inflation expectations and vowed to act to counter them, and his Sept. 4 comment during a question-and-answer session that the ECB aimed to expand its balance sheet "towards the dimensions it used to have at the beginning of 2012" at the peak of the euro zone crisis.

Worth reading the whole thing.

(David)

Why activist investors don't like southern Europe. And yeah, you should click to enlarge. From Deutshce:

From Goldman latest Top of Mind on Chinese property:

Various commentators have pointed to China’s cement industry as one indicator of a property bubble, noting that China has produced and used more cement in the last few years than the United States did over the entire 20th century. Data from US and Chinese government sources compiled by the historian Vaclav Smil – and publicized by the blog of Bill Gates – show that China consumed 6.6 billion tons of cement in 2011-2013, vs. 4.5 billion tons consumed by the United States from 1901-2000.

China’s cement market has clearly undergone a very rapid expansion, but the statistic above is a good example of why it is important to understand the features specific to China’ housing market before drawing conclusions:

China’s population in 2012 was 15 times that of the United States in the early 20th century and 9 times that of the United States in 1950.

More important, China has been urbanizing at an unprecedented pace – not only when compared to the United States, but in a global historical context. Around 20-30 million Chinese relocate to urban areas each year, roughly equivalent to one-tenth of the United States’ population from the late 1960s up until the turn of the 21st century.

Unlike US homes, which typically use cement only for the foundation, China’s buildings (and housing in particular) are mainly made of concrete, requiring cement as an input.

Another large source of cement demand – approximately 40% – comes from infrastructure build-out including railroad construction. In April, China announced that it would complete 4,100 miles of new rail lines this year alone.

An estimated 25-30% of China’s cement capacity is low-grade cement not used in other countries (P.C. 32.5 grade). Short- sighted urban planning has led to widespread use of this cement despite its major drawbacks as an energy intensive building material that produces lower-quality buildings. Since cement is not recyclable, this has led to continued reconstruction and propped up overall demand. China announced in 2013 that it would gradually phase out the low-grade cement. Taking that capacity out of the market would lower the country’s cement consumption by 700-800 million tons per year, a level GS analysts consider more reasonable. 

Source: Goldman Sachs Research

One explanation for these moves is that investors in European bonds are shifting away from riskier bonds as the likelihood of another recession outweighs the attractiveness of higher yields.