Peter Nolan

The World is Not Flat

According to the Guardian, UK retail bank Lloyds TSB is closing Indian call centre operations:

The bank will even allow its 13.5 million current account customers to ring their local branches instead of a call centre in India which unions claim is unpopular.

Why am I not surprised at this news?  Low-touch banking is fine for call-centres, but nothing more complicated.  Maybe HSBC might follow suit. 

At Foreign Policy this month, Harvard B School professor Pankaj Ghemawat writes, contra Tom Friedman,

Globalization has bound people, countries, and markets closer than ever, rendering national borders relics of a bygone era—or so we’re told. But a close look at the data reveals a world that’s just a fraction as integrated as the one we thought we knew. In fact, more than 90 percent of all phone calls, Web traffic, and investment is local. What’s more, even this small level of globalization could still slip away.

I read Friedman's The World is Flat while in Israel early this year.  Like Ireland, it's a small, globalised country, with its own diaspora of perhaps a million people, a vibrant high-tech economy and a huge amount of cultural interchange.  Still, the state is extremely important, both for facing the security challenges and in anchoring the identity of a country that is culturally very different from the UK or America, never mind its Arab neighbours. 

Irrational Equanimity Revisited

The VIX, the Chicago Board's index of implied volatility of equity options, which provides a handy guage of market expectations for short-term volatility in the S&P 500, touched 19 during the disorderly tumble in global markets yesterday.  This is being ascribed to the fall in Shanghai, a fenced-in market.  It doesn't make any sense to be, but then neither has the  behaviour of the markets in the last few  months.  Still, I'm feeling somewhat vindicated.

Reach out and touch someone

HSBC's motto, "The world's local bank" is turning out to be more appropriate than I might have wished.  For the last two weeks, I've been trying to open a simple business account for a limited company that I run at a city-centre branch of the bank.  The bank doesn't give phone numbers for its staff or branches.  The result is that every time that either they or I have a query, we have to go through the HSBC call centre, rather than contacting the business manager directly, meaning that I'll get a call back the next day, if I'm lucky.  To get any response, I have to take a ten minute tube journey and walk in to seek out the individual concerned in person.  The world is flat? Not with HSBC. 

Building on sand

The FT has been trying to get to grips with credit products in general and this week referenced a report from Creditflux, the bible in this part of the industry.  Don't try and look up the original article - subscriptions cost about eight hundred pounds a year. 

The nascent market in derivatives on the ABX Index, a basket of 25 large issues of bonds backed by US home equity loans (roughly equivalent to the non-conforming mortgage market in the UK) must be the Waziristan of the financial markets - an obscure and distant place where important events go on largely unreported.   However, the market is growing rapidly, one of a third generation of credit derivative products, the first being the single name default swaps and the second the products trading correlation  risk between credits, including baskets of the iTraxx and other credit indices.   

Hedge funds and other active players have been taking big bets against the US housing market using contracts on the ABX since this time last year, traders tell me, which now seem to be paying off. 
The US government statistics have shown the wilting of the US new home sales over the past six months.  The markets have taken note of the knock-on effects on US housebuilders and for the profits of HSBC.  However, the February CreditFlux headline "Liquidity Vanishes at ABX HE crumbles", puts some figures on the underlying market, with the ABX-1 for BBB mortgage backed securities now trading down some 10% from its initial level, equivalent to something over a 2.5% jump in yields for these bonds, depending on your assumption about their average life.  No doubt, this is a strong indication of further trouble to come for the consumer and the US economy as a whole.