Trends in today’s news.
Financial Reform:
A group of Singaporean investors have won the right to sue Morgan Stanley in the USA, claiming they were sold investment products that were designed to fail. Morgan Stanley had asked for the case to be dismissed. The investors claim that the instrument they were sold was “specifically designed to wipe out [their]… investment.” At the same time the chief executive of Barclays has reversed his position stated earlier this year, now saying that banks must accept responsibility for what went wrong during the financial crisis and restore public trust.
Realisation is also growing around another set of financial instruments where risk is higher than stated in the sales prospectus: government debt is not ‘risk-free’. This has implications not only for individual holders of government debt but also for banking regulation, and correction of the assumption would likely raise the costs of government borrowing, and force banks to hold more capital. The realisation would also affect the $500,000bn derivatives market in which governments have until now not been required to post collateral — and “there might not be enough collateral around” to cover the true risks involved. The likelihood is that regulators know this and so will avoid making addressing the problem because this would make it explicit. However, just because nobody talks about the bomb in the corner does not mean it is not there. Nicholas Gilani is right when he says of the ‘regeneration of capitalism‘ that “No one can say what is next in the sequence.” but the direction of motion is certainly currently headad in this direction.
Currency Moves:
Within this context, the dollar is looking weaker than the euro. “The eurozone crisis is not really about the currency, it’s more a reflection of the internal imbalances between [member] countries.” The prospect of a third round of QE in the USA is seen as inflationary.
World Shipping in Crisis:
World shipping is in crisis as overcapacity and high operating costs hit profits. Deliveries of ships ordered before the 2008 financial crisis have continued to worsen the supply/demand balance and shipbuilding is now hit hard as “rates in nearly all shipping sectors are too low to cover costs” of existing ships, let alone new ones. To an extent this is a scenario that has played out in all the world’s industries, but shipbuilding investments are larger and have bigger time-lag than most, so like the supertankers they launch, the industry also takes a long time to change direction.
Cyber-Espionage
Seems to be an ongoing theme with US officials saying bluntly that massive cyber-espionage by China and Russia poses a significant and growing threat.