John At The Center

“Peter Kirwan has an interesting article in Wired UK on the emergence of software that automates the collection, evaluation, and even reporting of news events. Thomson Reuters, the world's largest news agency, has started moving down this path, courtesy of an intriguing product with the nondescript name NewsScope, a machine-readable news service designed for financial institutions that make their money from automated, event-driven trading. The latest iteration of NewsScope 'scans and automatically extracts critical pieces of information' from US corporate press releases, eliminating the 'manual processes' that have traditionally kept so many financial journalists in gainful employment.

via Slashdot News Story | The Rise of Machine-Written Journalism.

We have to say we were not familiar with SS&C Technologies until they filed their IPO. SS&C sells software and services that allow financial services companies to automate and integrate front-office functions like trading and modeling; middle-office functions like portfolio management and reporting; and back-office functions like accounting, performance measurement, reconciliation, reporting, processing and clearing.

via alarm:clock: Wall St. Software’s SS&C Files $300M IPO.

High-frequency trading, in which firms trade large amounts in fractions of a second, is largely to thank for the increased connectivity. These traders, which make up roughly 50% of stock trading volume, according to analysts, now engross all types of money managers. Some of the firms use algorithmic trading models to catch fleeting moves in everything from stocks to currencies to commodities and game across each of the asset classes. Even “market makers,” which used to only be found on the floors of exchanges, are dominated by high-frequency, multi-asset class players.

via Technology, Regulation Push Single-Asset Traders Near Extinction – WSJ.com.

In sum, maybe three percent expected inflation conflicts with the desire to rapidly recapitalize banks through maintaining a wide interest rate spread. Maybe we need that zero nominal short rate or at least the Fed thinks we do.

via Marginal Revolution: Why hasn’t the Fed been targeting two or three percent inflation?.

…The problem is that much of the so-called “blind” and “redundant” investment that Beijing would like to eliminate has the strong support of local governments, whose primary concern is with generating GDP growth in their jurisdictions, regardless of whether the means of achieving it make any economic sense.

Consider cement production, where, according to the China Cement Association, 38% of capacity consists of “shaft” kilns. These have been obsolete in most of the rest of the world for over a century, and accounted for less than 3% of production even in 1957, when most of China’s cement plants were imports from Eastern Europe. Nowadays, however, shaft kilns are a favorite of local governments because they can be built cheaply and quickly and generate growth and employment.

via China’s Guy Lafleur Problem: Got ‘Em, Got ‘Em, Got ‘Em, Got ‘Em.

hinese officials misused or embezzled about $35 billion in government money in the first 11 months of the year, according to a national audit released this week.

The announcement is the latest indication of how widespread corruption has become among government agencies and how difficult it will be for Beijing to root it out.

via Audit Found $35 Billion in Fraud Among Chinese Officials – NYTimes.com.

One of the biggest problems smaller banks face is more exposure to commercial real estate, a sector that investors expect has further to fall. That could result in greater asset write-downs for this corner of banking. Losses on real estate could lead to more failures and easily stymie lending, particularly to smaller businesses.

Though they account for less than 12 percent of banking assets, financial institutions with less than $1 billion in assets make nearly a third of all loans of $1 million or less to businesses, the Independent Community Bankers Association says. Less lending could have powerful negative consequences for an economy already struggling to rebound.

via Reuters Breakingviews – Real Estate Could Be a Red Flag for Smaller Banks – NYTimes.com.

One general lesson from his discussion is that it is often hard to distinguish shocks to aggregate supply and shocks to aggregate demand. Policies and events that adversely affect aggregate supply (e.g., trade restrictions) will often reduce the marginal productivity of capital, decrease investment spending for given interest rates, and depress aggregate demand as well. In the short run, the indirect demand-side effects of “supply shocks” could potentially be larger than the direct supply-side effects.

via Greg Mankiw’s Blog: Smoot-Hawley Revisited.

By this metric, popularized by Bob Shiller, the market is now slightly above its historical average valuation.

via Greg Mankiw’s Blog: P/E Ratio.

Adjusted for Inflation, Dow’s Gains Are Puny – WSJ.com.