Dear readers (both of you)

I’m sorry about the underlined format on this post. I don’t know how it happened, and I can’t remove it (yes, I’ve tried toggling the “underline” icon). The process had also wiped out all the links in the copy..

 

Funny stuff, liquidity. Traders make it and  investors mostly don’t need it. For all the talk of deep two-way markets, liquidity essentially means that there’s someone there to buy when you want to sell, and across a wide range of markets, it’s drying up.

Even the most liquid securities market in the world, that in US Treasuries, isn’t as deep as it used to be. As for the next tier down, the US regulator is worried enough about corporate debt to call a meeting of the banks and asset managers to see what can be done about it.

One proposal is to allow big sales to stay hidden, to allow a trader who takes on the risk more time to work the order. The London stock market, meanwhile, is going the other way, insisting on more transparency rather than less. At present, the broker’s commission covers eveything, but from 2017, the Markets in Financial Instruments directive (Mifid 2) insists that research costs are  unbundled and shown separately.

The big investors who drive the market’s volume may decide that they’d rather not pay for the research, thanks. For the brokers, sell-side research is like advertising – you know half of it is wasted, but you don’t know which half. As with advertising, much of the output is duplicated or commoditised, while original investment ideas are quickly copied. Real added value from an individual analyst is hard to measure.

Transparency is a fine ideal for efficient markets, but there’s a real danger here that brokers’ research will disappear from all but the most heavily-traded stocks. Today’s sell-side research outside the FTSE 100 is already patchy, and beyond the FTSE 250 is almost unknown. The company-funded work from the likes of Edison may draw attention to the company, but is backward-looking and a poor substitute for independent analysis.

Sell-side analysts are there to drum up business, but their insight gives their work value well beyond an instant buy, sell or hold recommendation. Without it, liquidity will go on shrinking. So far, this doesn’t seem to have bothered the authors of the bulldozer that is Mifid2. Its current draft threatens significant damage to London’s markets, and it’s getting very late in the day to stop it.

 Interference on the line

Sir Charles Dunstone is not a happy bunny. He’s noticed the tsunami of mergers and rumours of mergers in telecoms, none of which appear to involve Carphone Warehouse or TalkTalk, the two businesses he built. However, that’s not why he’s concerned. He fears that tf the number of mobile networks shrinks to three (it was five not long ago) one of which is owned by BT, then the dismal state of competition in telecoms will get worse.

Well, he would say that, wouldn’t he, given the clinical way a major competitor, Phones4U, was cut off by the networks. One day they might decide to dispense entirely with the middlemen, which doubtless encouraged him into his own merger to form Dixons Carphone. The proposed consolidations in both fixed line and mobile brings that day closer, as competition dwindles.

All is not yet lost. Margrethe Vestager, the EU competition commissioner, is making combative noises about markets shrinking from four players to three as she decides whether Hutchison Whampoa’s 3 network can do just that in Britain by buying O2. The UK authorities are reviewing BT’s bid to buy EE. BT is responding with talk of creating a UK “digital champion” in telecoms. Ah, those were the days, when good old British Telecom was our national champion…

Time to make a splash

Is Yanis Varoufakis approaching his singing in the bath moment? In 1992, the chancellor whose name escapes me was so happy at Britain’s exit from the Exchange Rate Mechanism that he burst into ablutionary song. After five years of misery and economic squeeze trying to live with the wrong exchange rate, humiliation and devaluation heralded 25 years of continuous growth. Greece has endured more than its five years, misery is widespread and there’s hardly a stuffed olive left to squeeze. Humiliation and devaluation is imminent, so come on Yanis: “Oh we do like to be beside the (Greek) seaside….

This is my FT column from Saturday

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