Category: Finance

The Fable Of The Unicorn

Yet in other ways Theranos evokes a central theme in today’s tech industry: start-ups which promise to disrupt lucrative businesses and become valued on the basis of fantasies about their potential, rather than present reality. Investors are so keen to get a piece of any sexy-sounding startup that they lap up entrepreneurs’ hype—and anyone who asks awkward questions risks being cut out of the funding round in favour of someone more trusting.

All this helps to explain the inflation of valuations among unlisted technology companies. Today there are 142 unicorns, more than three times as many as in 2013. Many of them are growing quickly. But in terms of reaching profitability, they are often far behind the stockmarket-listed competitors they are seeking to displace, and thus are burning through cash. Theranos, for example, is not believed to have any significant revenues or profits, yet it is valued about as highly as Quest Diagnostics, a listed laboratory company, which achieved $7.4 billion in revenues and nearly $600m in net profits in 2014.

→ The Economist

Lunch with the FT: Ben Bernanke

Martin Wolf :

I ask him whether he is confident that the improvement in the resilience of the banks is adequate. “It’s a fool’s game to predict that everything is going to be fine, because either it is fine, in which case nobody remembers your prediction, or something happens, and then … ” They remember your prediction, I interject.

Bernanke continues: “My mentor, Dale Jorgenson [of Harvard], used to say — and Larry Summers used to say this, too — that, ‘If you never miss a plane, you’re spending too much time in airports.’ If you absolutely rule out any possibility of any kind of financial crisis, then probably you’re reducing risk too much, in terms of the growth and innovation in the economy.”

→ Financial Times

The Trouble With Financial Bubbles

Follow-up on macro-microprudential policies :

Industrial quantities of research, analysis, and debate have been devoted to the causes of the 2008 crisis and its consequences; so it seems odd that senior central bankers are still so sharply divided on the central issue of financial stability. All those days spent in secret conclave in Basel, drinking through the BIS’s legendary wine cellar, have apparently led to no consensus.

→ Project Syndicate

The Macro-Micro Conflict

Crisis, financial policy was dominated by microprudential regulations, the implicit assumption being that a successful micro policy was sufficient to maintain the efficient operation of the financial system, just as a successful anti-inflation policy was all that was required from monetary policy.

The limitations of both approaches became very clear during the Crisis and since then, macro has been a major part of financial policy. However, while the ultimate objectives and implementation tools of macro and micro are closely aligned, their intermediate objectives are not, setting the scene for conflict.

→ VoxEu

Regulators Bring a Strange Spoofing Case

When spoofing isn’t really spoofing :

One possibility is that Oystacher saw that the market didn’t look especially weak, and switched to being a buyer instead, betting that the price would go up. This story would not be about spoofing; it would be the opposite. In this story, Oystacher put in a big sell order, and then switched to being a buyer not because he saw tons of other sellers come in behind him, but because he saw so few sellers come in behind him (and so few buyers clear out in front of him). There weren’t that many sellers at the current offer (other than him), and there were a lot of buyers at the current bid, so he figured the price would go up.

→ Bloomberg View