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Daily Scan: Summer comes to an end and it's time to face the reality of the markets
<p>Good evening,</p> <p>In the U.S. we bid adieu to summer and prepare to return to reality. It doesn't seem all that pretty. China lowered its growth outlook to 7.3% from 7.4%, marginal but psychologically weighty. We also learned that Beijing spent nearly $100 billion to support the yuan last month. China still has plenty of currency reserves. But what a burn rate! European markets were mostly quiet on Monday with the U.S. closed but China closed down for the fourth consecutive day. And the outlook isn't pretty.</p> <p>Here's what else you need to know:</p> <p>Markets closed on Labor Day. If you weren't on the beach in the U.S., you may have been watching this video of President Obama singing "I Can't Feel My Face."</p> <p>British unleash drone attack on Syria. The attack followed word that ISIS terrorists, two of them Britons, were planning an attack on theRoyal Family with a bombing on VJ Day. Three terrorists were killed in an attackon Aug 21. New York Post<br /> N.Y. state lawyer to Governor Cuomo shot in head. The attack took place during an annual celebration in Brooklyn of West Indian American Day. The annual event has been marred by violence in the past. Carey Gabay, 43, was "not doing well," Cuomo told reporters. The New York Times (paywall)<br /> Amazon reportedly set to sell tablet for $50. What will they do on Black Friday, when prices go so low shoppers have been known to stampede stores. Quartz<br /> Apple TV getting a serious facelift. At least that's the buzz. Coming to one of the few sleepy products in the Apple lineup: games.  New product announcements are coming Wednesday. Stay tuned. The New York Times (payall)<br /> Mining giant cuts debt by $10b, issues $2.5b stock. Glencore has announced plans to slash its $30 billion debt by shelving dividends, selling assets and raising fresh equity, as the mining and metals behemoth wrestles with a slump in commodities that has battered its share price. The debt plan underscores the huge pain being inflicted on the mining sector by China’s economic slowdown. Financial Times (paywall)</p> <p>Migrant boat tragedy in Indonesia. Echoing the recent troubles in Europe, 61 bodies have been recovered after an overloaded wooden boat sank off coast of Malaysia carrying dozens of Indonesian immigrants. This follows another crisis in May when boats carrying thousands from Myanmar and Bangladesh were left at sea following a Thai crackdown. ABC<br /> Turkey vows to wipe out PKK rebels. Turkish Prime Minister Ahmet Davutoglu has pledged to "wipe out" Kurdish PKK rebels in their strongholds after a deadly bomb attack</p>
Daily Scan: China has last minute surge, Japan sinks
<p>Disappointing trade data seemed to have less impact than expected as  Shanghai Composite ended the day 3% up, the Shenzhen Composite closed with a 4% gain, and Hong Kong's Hang Seng added 3.6% following a last hour buying spree. If anything this is a sign volatility is going nowhere as investors wonder whether the equity bubble has yet to fully deflate.</p> <p>Markets across Asia ended in positive territory - only South Korea’s Seoul Composite and Japan’s Nikkei 225 ended in the red. The Nikkei took the biggest pummeling, ending 2.43% down after a day of more disappointing figures: its economy shrank an annualized 1.2% in the second quarter despite ongoing government and central bank measures to support growth.</p> <p>Meanwhile, the broader global outlook is still grim with oil prices remained weak today as cooperation between oil producing countries to curb oversupply looking unlikely. Oil prices have fallen almost 60% since June last year. </p> <p>Here is what else to need to know...</p> <p>Chinese stock exchanges to bring in “circuit breakers” Mainland stock exchanges plan to install bourse-wide "circuit breakers" to stop panic selling after botched official efforts to stop plunges in the volatile A-share market. Under the new plan, Shanghai and Shenzhen will halt trading for 30 minutes when the CSI300 index jumps or slumps 5% in intraday trading. They will stop for the day if it soars or dives by 7%. SCMP (paywall)</p> <p>Koreas agree on family reunions.North and South Korea have agreed to hold rare reunions for families separated by the Korean War.The meetings will take place in October at a mountain resort in North Korea.The decision follows an agreement last month that de-escalated tensions sparked by a border mine explosion that injured two South Korean soldiers. BBC</p> <p>MBK-led consortium clinches South Korea Tesco deal. UK supermarket giant Tesco says  it has agreed to sell its South Korea business - Homeplus - for $6.1 billion in cash, the latest in a series of pullbacks by the chain. Tesco will get $5.1 billion after adjusting for tax and other costs. WSJ</p> <p>China foreign exchanges fall by $97b.  The August drop came as the country’s central bank sold down some of its massive stockpile to support the renminbi. It is the sharpest monthly fall in reserves on record, while in percentage terms it represented the biggest decline in more than three years. Reserves fell 2.6%  in August to $3.557 trillion. Financial Times (paywall)</p> <p>Amanda Knox acquitted of Italy murder. American Amanda Knox and her former Italian boyfriend Raffaele Sollecito have been acquitted of 2007 murder of the British student Meredith Kercher, following a botched investigation. Guardian</p> <p>Japan PM Abe secures new term as ruling party chief.  Shinzo Abe has won a second consecutive term as president of the ruling Liberal Democrats' Party (LDP). H</p>
The markets may have a better solution than ‘extend & pretend’ for troubled oil loans
<p>Some bankers would have you believe that as they contend with souring credits from oil and gas issuers, the regulators are putting them in an unnecessary straightjacket.</p> <p>As some bankers have done before, these bankers are taking aim at the Office of the Comptroller of the Currency, the overseer of many of the biggest banks. The OCC appears to be pushing the banks to classify some oil loans as troubled assets. Perhaps some bankers think the OCC shouldn’t remember ‘extend and pretend’, a practice whereby at times of stress in the past, bankers have extended loans in order to prevent them from appearing to require classification or workout. Classification pretty much puts the kibosh on extension without some kind of significant quid pro quo from the borrower.</p> <p>The OCC is just too rigid, some of these bankers say, and isn’t taking into account the possibility (if not, in their view, probability) that oil prices will rally and borrowers will make good on their promises.</p> <p>As oil prices yee and yaw, every day there is a new reason for optimism or pessimism. All that should, of course, be reflected in the futures market. Any banker that thinks he is smarter than the futures market deserves the question “Why aren’t you rich beyond avarice?”</p> <p>The complaining bankers are not wrong about the OCC. But the OCC is not wrong about bankers in general, either. Lenders resist classifying loans as troubled. And they almost always are more optimistic about the chances of recovery than the market is. In the case of oil loans, just look at what has happened to the prices of publicly issued bonds. Large company bonds are okay, but smaller company bonds are selling at prices that indicate default is a material possibility.</p> <p>What should happen in this situation? In my opinion, the market should work to sort the realistic recovery chances from the fairy tales. These situations are perfect for new debt or equity that the capital markets can create.  The new money can take many forms, of course. It could be subordinated debt of the debtor or convertible debt or preferred stock; it could take out part of the bank’s debt, it could provide breathing room to service the debt. Or in some cases, it could be super-senior debt and in other cases, the bank debt might have to take a haircut to induce the new money to come in. Many structures are possible. In a bankruptcy, the full panoply of structures would be on the table. The same should be true when seeking to restructure downgraded credits.</p> <p>Often it is better to face reality and to restructure something early. The new money may have to come ahead of the bank debt (old money), but if there is value in the debtor, the parties can figure out how to enhance that value rather than allowing it to diminish further.</p> <p>Sometimes, of course, the market will, in effect, tell the bank and the debtor that bankruptcy is the most likely future course—the comeback is too improbable.</p> <p>Neither bankers nor debtors like having to listen to the bottom fishing market. But if investment bankers are earning their money, they will be working hard to create competitive alternatives. And they just might do a lot of good in the process. Please ride to the rescue.</p> <p>In my opinion, the best investment bankers will work to set up competitive bidding situations so that debtors and banks have options to choose from. Different investment bankers and different types of investors often see these situations differently from each other. Bringing together disparate views of the market to create the best transaction for the parties is what should get the kudos.</p> <p>Photo: Tim Evanson</p>
Numbers game: China’s essential indicators
<p>All eyes are are on China. Is the country really headed for a historic crash, or is this just a bump in road as the government shepherds China from an investment-led economy to one that is driven by consumer-demand? Investors will be focusing on some key indicators to gauge the country’s prospects:<br /> GDP growth<br /> This perhaps provides the best overall picture. The impact of China’s recent decision to revise down 2014 growth to 7.3%, from 7.4%, raises concerns over the economy’s health. The change is small but nonetheless significant as China  is used to making upward revisions on GDP growth. According to the Financial Times, this revision was largely attributed to the decline in the service sector - the biggest contributor to GDP.<br /> PMI<br /> Representing the health of the country’s manufacturing sector, China’s Purchasing Manager’s Index (PMI) for August slumped to a three-year-low of 49.7 from 50.0 in July, according to the National Bureau of Statistics. But that was still better than the figure given by an independent survey by China media group Caixin: 47.1.  <br /> Retail sales growth<br /> Retail sales growth edged down to 10.5% in July from 10.6% in June - August’s numbers will be released on Sunday. The number is expected to hold at 10.5% for last month. If this turns out to be the case, in the light of everything, the consumer spending has held up quite well.   </p> <p>Exports </p> <p>China’s trade data will be released tomorrow (Tuesday). According to Reuters, China's National Bureau of Statistics expects exports to swing into positive growth for August from an 8.3% drop in July - a possible indication the economy is stabilizing. That said, analysts polled by Reuters expect August exports to drop 6% compared with a year earlier. </p> <p>Debt</p> <p>According to the South China Morning Post, new data shows a surge in the debt run up by regional and local governments (RLGs), and it is worrying ratings agency Moody's. Official data shows RLG debt surged by more than a third between June 2013 and December 2014 to top 24 trillion yuan ($3.7 trillion), or 38% of economic output. Perhaps more than any, this number threatens to undermine China’s growth prospects.<br /> Photo: up to 2011</p>
CSRC to crack down on automated trading
<p>Well, it appears all those rumors were really true.</p> <p>After slamming the volatility it helped create, the CSRC told Xinhua (Chinese) over the weekend that it will indeed tighten its grip on automated trading and curb excess speculation in stock index futures. And not only that, they also plan to add a circuit breaker mechanism to temporarily shut down trading when things start getting hairy.</p> <p>How it defines “excess” and how it plans to regulate a construct of ones and zeroes is currently unclear however, though I did find this earlier tweet about it particularly delightful:</p> <p>CHINA MAY ASK ALGORITHMIC TRADERS TO REPORT IN ADVANCE: CAIXIN - have no idea how this works in principle<br /> — Chris Weston (@ChrisWeston_IG) August 31, 2015</p> <p>Joking aside, this is the nth time China is making a mistake in regards to their stock market, and just goes to show how badly they needed the “sea turtles” – the best and the brightest of the nation’s returnees – who ended up either unceremoniously ousted by the CSRC or forced to return to the private sector.</p> <p>With them gone, the watchdog has done nothing but omnishambolic policies and witchhunts that have sullied its own credibility, from allowing margin lending to grow unhindered to blaming “hostile foreigners” for the market’s crash.</p> <p>In tightening its grip on automated trading, not only has it made itself a laughing stock, it has also built more walls against the once-rushing tide of investments coming in from the outside world. Algorithmic trading adds a massive amount of liquidity in the market, a huge plus for foreign investors seeking to invest, and Peking University professor Christopher Balding also seems to have found another benefit of their presence:<br /> “…given their importance in the market whether it is stocks or currencies, there is evidence that algorithmic trading has played a significant role in stabilizing the markets.  After falling relatively sharply beginning on August 21 for a number of days, major markets outside of China began sharp recoveries that have returned them largely to the point they were on August 21.  While we cannot say with certainty that algorithms are responsible, the rapid rebound from a fear induced sell off would seem to seem to match with how many of those types of programs especially when many of the economic fundamentals of the major markets presented here are better than China.”<br /> And they couldn’t have done it at a worse time; liquidity in the Shanghai Hong Kong cross-border connect is already drying up, CDS’ on China are comparing it to MERS-plagued South Korea, and growth is starting to go the way of the dodo.</p> <p>It’s almost as if someone’s doing this just to get Premier Li out of office. But maybe that’s just me with my tinfoil hat on.<br /> Photo: Edgeworks Limited</p>
China sets its sights on life sciences
<p>Governments and public health policy makers around the world have long struggled with providing access to affordable health care while at the same time promoting life science innovation. China is no different. Its pharmaceutical landscape today has been shaped by the government’s quest to achieve universal health care through a national health care system. And the evolving industry landscape and the government’s pro-innovation policies are driving indigenous innovation in its life science industry.</p> <p>China is a market too large to be ignored—this has long been a saying among those considering doing business in the country. But increasingly, multinational corporations see China as a hub of nascent innovation in life sciences, and have been setting up research and development (R&amp;D) centers for new drug candidates that target global markets. To be sure, there are some challenges. This month’s Asia Insight explores China’s path in this arena.<br /> China’s Pharmaceutical Landscape<br /> It’s hard to overlook China’s pharmaceutical market given its size and growth rate. Public and private expenditure on pharmaceuticals totaled US$76 billion in 2014, and this is expected to reach US$315 billion at a compound annual growth rate of 23% by 2020, which would make it the second-largest pharmaceutical market in the world after the U.S. Both China’s central and local governments have played an integral role in shaping the current landscape of the fragmented pharmaceutical market. The focus on affordable health care has led to the prevalence of generic drugs, which have taken over 80% of the market. Domestic and multinational pharmaceutical companies have pursued very different strategies. Multinational companies have focused on patented drugs and some drug originators that enjoy preferential pricing premiums under the existing drug pricing system. Domestic companies, on the other hand, have not invested much in R&amp;D, and have focused predominantly on making generics.</p> <p>The most successful domestic companies have focused on branded generics, which are generic drugs marketed under a company’s proprietary brand name. This has been a profitable approach due to the limited scope of R&amp;D investment and price premiums. But generic drug makers often have to participate in government tendering, and face intense competition and government price cuts. They rely on their knowledge of tiered markets and extensive distribution networks to achieve economies of scale.</p> <p>Essential Medicines<br /> Essential medicines are defined by the World Health Organization as those that satisfy the priority health care needs of the population. In 2009, China’s Ministry of Health published its first list of essential drugs, which are subsidized by local and central governments. China’s fragmented domestic pharmaceutical industry includes approximately 5,000 drug manufacturers, with the top 100 drug makers comprising just one-third of the market. Going forward, the regulatory environment is increasingly shifting against sub-scale inefficient generic players due to the more intense pricing pressure from the expanding Essential Drug List (EDL) and higher compliance costs.</p> <p>The EDL was initially designed to make medicine more affordable for low income patients, and was implemented at grassroots, mostly rural, facilities. In 2013, the government expanded the coverage of EDL to larger and better-equipped hospitals mainly located in urban areas. It required EDL drugs to reach 40% of Class 2 hospitals and 25% of Class 3 hospitals in revenues to ensure better access to affordable dr</p>
China deserves more credit than blame
<p>The visit to the US later this month by China’s President Xi Jinping comes at a politically sensitive time, with volatility in China’s markets—widely attributed to the effect of policy decisions—rippling globally. In our view, however, China deserves more credit than blame for its recent actions.</p> <p>As China attempts to make the transition to a more open economy, two things are virtually inevitable: market volatility and extremely difficult policy decisions, many of which need to be taken in the heat of the moment.</p> <p>A case in point is the government intervention that followed the initial correction in the A shares market in July. This was widely interpreted outside China as a panicky reaction. But China’s share market is largely retail driven, and the need to maintain social harmony is of paramount importance to a single-party state. In light of this, the government’s response makes sense.</p> <p>But what do we make of China’s decision to devalue its currency last month, just weeks before President Xi was due to make his first official visit to the US? The move was widely characterized as an attempt by China to shore up its sputtering export performance. Given that US politicians have for years accused China of keeping the renminbi artificially low, and that bilateral trade will be a key talking point when President Xi meets President Obama, surely the timing of the move was, at the very least, politically inept?</p> <p>We don’t think so. In our view, the currency adjustment provides another example of how easy it is to misinterpret China’s policy actions.</p> <p>Devaluation? Or a Step in the Right Direction?</p> <p>Describing the move as a competitive devaluation ignores a number of facts—such as that China’s exports, while challenged, have largely performed better than those of its regional competitors. For this reason alone, it’s hard to see why a competitive devaluation would be necessary.</p> <p>Also, China’s trade balance is positive (imports are falling faster than exports) and the country has an embarrassingly large trade surplus. Devaluation would simply exacerbate these issues, and do so at precisely the wrong political moment.</p> <p>Far more plausible, from our point of view, is the explanation by the People’s Bank of China that the adjustment was intended to close an unusually large gap between the currency fix and the spot price. This made sense given that the central bank lowered the fix by just 1.9% and stepped into the market to support the currency when it came under pressure as the devaluation story took hold.</p> <p>It also made sense as a reflection of government policy, which is to modernize and diversify the economy using private capital from inside and outside the country. To do this, China needs a more market-oriented currency—hence the move to align the fix more closely with the spot price.</p> <p>Good News, Mr. President</p> <p>Our research suggests that China is in fact less focused on its currency than on the need to deliver liquidity into the right parts of the domestic economy so that consumption becomes more of a growth driver alongside the traditional engines of exports and investment.</p> <p>President Xi can tell President Obama some good news in this respect: recent data show a convergence in fixed-asset investment and retail sales trends, with the former falling and the latter holding steady (Display). While the figures are not particularly exciting in themselves, they suggest that China’s economic rebalancing is under way.</p>
Weekend Scan: China's central bank chief says worst is over for markets
<p>The migrant crisis continues apace even with Germany and Austria accepting desperate refugees from Syria. Pope Francis  "called on 'every' parish, religious community, monastery and sanctuary to take in one refu­gee family — an appeal that, if honored, would offer shelter to tens of thousands." In the U.S., millions of Americans are bidding a sad adieu to summer over Labor Day weekend. Monday, markets are closed.</p> <p>Here is what else you need to know:</p> <p>PBOC chief says the worst is over. Zhou Xiaochuan said the stock market rout is over and the yuan is heading into a steady state after the surprise devalutation last month.  Zhou made the remarked in Ankara during a two-day G20 meeting.  Surprisingly, world leaders struck an optimistic tone despite data revealing just how how much China's growth is slowing.  For the moment, all is good. The week poses challenges with a slew of data. The fun begins Monday morning when China releades foreign exchange reserves data for August.</p> <p>Asia markets mostly lower. Hong Kong, the Nikkei, Korean and Chinese indices were mostly lower -- 1%-2%. Australia bucked the trend, edging 0.4% as dod the CSI 300 futures market, which gained 0.72%.</p> <p>Pope is nervous about his first ever visit to the U.S., says Cardinal Dolan. The head of the Catholic Church has favored visiting the poor to the rich. Pope Francis has been critical in the past of the political and economic power in the U.S.  New York Times (paywall)</p> <p>Fiat Chrysler, GM merger on “high priority.” Fiat Chrysler CEO Sergio Marchionne isn't taking "no"lying down. GM rebugged Marchionne in a merger bid, but he's at it again because he says the move would “be the best possible strategic alternative for us and for them.” Reuters</p> <p>Falling oil prices hit Saudi Arabia. With crude oil prices practically cut in half, the world’s largest oil producer is currently working on slashing unnecessary expenses and delaying state projects. Which is ironic because they were the ones who opened up the taps to begin with. They have, however, built reserves and decreased public debt to near-zero levels. BBC</p> <p>Nissan to repeat airbag recall. Federal regulators are worried that Nissan’s recall last year of almost one million vehicles did not correct a malfunction of the passenger airbag, meaning the automaker might have to recall the vehicles again. The New York Times (paywall)</p> <p>Euro founder fears a creation of an EU superstate. Almost everyone agrees that there’s just no way a monetary union can survive without a corresponding fiscal union. Well, Professor Otmar Issing, the chief architect of the European monetary union, fears that next step would be “dangerous,” and that an undemocratic political union may be in the works too. The Telegraph<br /> You wouldn’t believe this…<br /> “Resting bitch face” apparently makes women better communicators. While women with cheerful, emphatic facial expressions and body language receive nothing but good vibes, women with “RBF” apparently have to work harder toget their point across – which suppos</p>
Daily Scan: Mainland shares tumble; China FX reserves post largest monthly drop
<p>Updated throughout the day</p> <p>September 9</p> <p>Good evening everyone. PBOC Governor Zhou Xiaochuan may have said that the multi-trillion dollar “correction” is “almost done,” but that doesn’t mean that mainland stocks didn’t want to do some correcting of their own. The SHCOMP lost all of its gains today, finishing the session down 2.52%, while Shenzhen retraced most of its earlier 3.7% rally to close up 0.2%. Even the nation’s forex reserves did some correcting, falling $94 billion to $3.56 trillion to notch up its largest monthly drop on record.</p> <p>Here’s how the rest of Asia is faring:</p> <p> Nikkei 225: +0.38%<br /> Hang Seng Index: -1.23%<br /> Straits Times Index: -0.4%</p> <p>The European market seems to be doing much better though; the FTSE 100 climbed 1.3% to 6,119, the DAX jumped 1.2% to 10,161, while the CAC spiked 1.2% to 4,580. Here’s what else you need to know:</p> <p>Chinese GDP revised lower to 7.3%. In a surprise move, China’s National Bureau of Statistics revised its annual economic growth rate for 2014 from 7.4% to 7.3%, largely thanks to a slowdown in the services industry. The primary (agriculture) and secondary (manufacturing &amp; construction) sectors however still looks pretty good. Reuters</p> <p>Toshiba posts $318m annual loss. Reeling from its recent accounting scandal, the Japanese conglomerate has reported a net loss of 37.8 billion yen ($318 million) for the past financial year, citing asset impairment changes and other losses. The firm had at one time expected a 120 billion yen profit. Nikkei</p> <p>Experts reject official account of Mexico student deaths. An international committee reviewing the case of 43 missing college students in Mexico said there was no evidence to support the official line that the students were executed by a drug gang, fueling suspicion of police involvement. New York Times</p> <p>Fiat Chrysler, GM merger on “high priority.” Fiat Chrysler CEO Sergio Marchionne had some pretty interesting stuff to say over the weekend.  Despite being rebuffed earlier this year by the U.S.’ largest carmaker, Marchionne said that a merger between GM and Fiat Chrysler Automobiles remains a “high priority for FCA,” believing that the move would “be the best possible strategic alternative for us and for them.” Reuters</p> <p>Falling oil prices hit Saudi Arabia. With crude oil prices practically cut in half, the world’s largest oil producer is currently working on slashing unnecessary expenses and delaying state projects. Which is ironic because they were the ones who opened up the taps to begin with. They have however, built reserves and decreased public debt to near-zero levels. BBC</p> <p> Nissan to repeat airbag recall. Federal regulators are worried that Nissan’s recall last year of almost one million vehicles did not correct a malfunction of the passenger airbag, meaning the automaker might have to recall the vehicles again. </p>
What makes a financial center? In one word: Flexibility
<p>I have been mulling a question, prompted by a silly article in the Financial Times. The piece contended that Barclays’ exit from much of investment banking was the end of prominence for London as a financial center. Ridiculous.</p> <p>This got me wondering: What does make a financial center. Why has my town, New York, been a financial center since the 18th century? Why has London been a financial center since long before that? Why were Amsterdam and Venice financial centers for a few centuries but are no more? Will Frankfurt, now the home of the ECB and Europe’s bank regulator, become a real financial center?</p> <p>There are so many tempting issues to explore. Please do not be too critical if I leave out your pet theory.</p> <p>In my opinion, people are what make a financial center. In the U.S., people who want to climb the letter of success head for NYC. People from all over the world who want to get ahead head for NYC. They have done so for a couple of centuries. Therefore NYC has a deeper talent pool that is more motivated than anywhere else. That deeper and more motivated talent pool also creates a place that such people like to live. It has restaurants, theaters, museums, a yoga studio or gym on every corner (it seems)—and high prices that only the successful can afford. If NYC ceases to be a magnet for people that want to get ahead, it will cease to be the world’s financial center. Taxes can be high—but there would be a limit. (Washington also has become a magnet, but for a different type of people.)</p> <p>London has similar advantages. Like NYC, it is exciting, international, intellectually stimulating. That is the source of London’s allure. If London makes living there unattractive, such as by taxing high earners too much, it will wither.</p> <p>Regulation also may play a role. But except at the extremes, clever people adapt to financial regulation. An August 19 comment in the FT by</p> <p>John Authers, a top Financial Times writer, recently cited studies showing that from 2008 to 2013, NYC increased its investment management market share from 12.6% of global assets to 20%. The studies attribute the growth to higher regulatory costs. You read that correctly. Those costs have meant that size has become more important to profitability. The cost of compliance has increased; therefore once the mechanisms are in place, they can cover whatever amount of assets. Maybe so, but to explain New York’s ability to benefit from that, I think we need to look again at talent and incentives.</p> <p>Will Frankfurt become the equal of London or New York? I think not. Flexibility is the key characteristic of successful people in New York and London. That is not yet true in Frankfurt and seems unlikely to be true in the near future. Just contrast the head of the Bundesbank with the Governor of the Bank of England or the Chair of the Fed or compare the German finance minister with a U.S. or British equivalent. I do not see the world’s go-getters going to Frankfurt to get.</p> <p>So what happened to Venice and Amsterdam? Venice and Amsterdam were financial centers because that is where the ships literally came in. Their financial basis was the world trade that their harbors made possible. When communications no longer required that finance and trade be in the same place, their financial prominence withered. Both still are wonderful cities, but they do not attract the world’s go-getters.</p> <p>Venice, Amsterdam, London and New York all have attracted, in their financial heydays, artists from all over the world. Maybe the arttists follow the money, like everyone else.</p> <p>Probably I am preju</p>