Raphael Stevens

Sod’s law, the axiom that if something can go wrong then it will, is about as British as it gets. But traders around the world have their own version: that markets will move in whatever direction causes the most pain to the most people. This year, they have been vindicated by a soaring stockmarket that few saw coming, in which the biggest winners have been the shares that were already eye-wateringly expensive to begin with. In April fund managers told Bank of America’s monthly survey that “long big tech” was the most faddish trade going, making it an obvious one for the professionals to avoid. Over the next few months shares in the biggest big tech firms duly left the rest of the market in the dust.Other than simply pay up and pray for the run to keep going, what is a value-conscious investor to do? The pluckiest option—calling the market’s bluff and betting on a crash—has left many of the hedge funds that tried it running for cover. In June and July, say Goldman Sachs’s brokers, such funds abandoned their positions at the fastest pace in years. Those looking on may not thrill at the prospect of recreating their experience. But if you don’t think stocks can rise much more yet can’t stomach the risk of shorting them, logic dictates a third option. You can try to profit from them not moving much at all.A growing number of investors are doing just this—or, in industry jargon, selling volatility. The trade-du-jour is the “buy-write” exchange-traded fund (etf), a formerly obscure category that is now hoovering up capital. Since the start of 2023, buy-write etfs have seen their assets balloon by 60%, to nearly $60bn.In practice, such investors are buying baskets of stocks while selling (or “writing”) call options on them. These are contracts that give the buyer the right (though not the obligation) to buy the stocks for a set price (or “strike price”) in the future. Usually the strike price is set “at the money”, or at whatever level the stocks are trading when the option is written. If they then rise in price, the buyer will exercise the option to purchase them at the below-market value. Conversely, if they fall, the buyer will let the option expire unused, not wanting to pay above-market value for the stocks.The original investor, who sold the call option and bought stocks, is betting that share prices stay precisely where they were. That way, they get to pocket the option price (“premium”) without having to sell the stocks for less than they are worth. If prices instead increase, the option seller still keeps the premium, but must forgo all the share-price growth and sell the stocks for their original value. If they fall, the investor takes the hit as the option will not be exercised, meaning they will keep the shares and their losses. This is at least cushioned by the premium they received in the first place.To those marketing them, buy-write etfs are more than just a punt on placidity. Global X, a firm that offers 12 such funds, lists their primary goal as “current income”. Viewed in this light they might appear like a dream come true, because regularly selling options can generate a chunky income stream. One of the more popular vehicles is the Global X Nasdaq 100 Covered Call etf, with assets worth $8.2bn. Averaged over the year to June, each month it has collected option premiums worth 3% of assets and made distributions worth 1% to investors. Even in a world of rising interest rates, that is not to be sniffed at. Ten-year Treasuries, by comparison, yield 4.2% a year.Readers who do not believe in free lunches may sense a rather large catch coming. Yet it is not the familiar one applying to bets against market turbulence, which is that years of steady profits can be followed by a sudden, unexpected shock and a total wipeout. A buy-write etf may well fall in value, but in this respect it is no riskier than a corresponding “vanilla” fund that just owns the underlying stocks.The real hitch is that while such etfs offer equity-like potential losses, their profits can never exceed the monthly income from selling options. Those profits thus resemble the fixed-income stream generated by a bond. They also up-end the logic for buying stocks in the first place: that a higher risk of losses, compared with bonds, is worth the shot at wild, uncapped returns. The nightmare scenario is that stocks go on a blistering bull run that buy-write investors miss out on, followed by a plunge that hurts them almost as much as everyone else. This year has already had the bull run. If Sod’s law continues to hold, buy-writers should watch out.■Read more from Buttonwood, our columnist on financial markets:In defence of credit-rating agencies (Aug 10th)Meet America’s disguised property investors (Aug 3rd)Investors are seized by optimism. Can the bull market last? (Jul 25th)Also: How the Buttonwood column got its name More

China’s economic problems are distinctive. Inflation is too low, not too high. Many cities have too much housing, not too little. The country’s unmatched saving rate suggests it is, if anything, making excessive provision for its future.China’s response to economic difficulties is also—how to put this politely?—idiosyncratic. Consider the way it handled a barrage of bad news this week from the National Bureau of Statistics (nbs). The bureau reported retail sales and industrial production were both worse than expected in July. Property sales slumped again. Urban unemployment rose. And this data followed earlier releases showing declining consumer prices, a precipitous drop in exports, vanishing foreign-direct investment and weak demand for credit. To soften the blow, the People’s Bank of China (pboc) duly lowered interest rates, as other central banks would do. But it reduced its medium-term rate by only 0.15 percentage points and its one-week rate by even less—not so much a cut as a nick. What explains its restraint? The pboc used to rely on loan quotas, money-supply targets and jawboning to make its monetary policy work; the bank’s former governor would say his benchmark for policy rates was the economy’s underlying “potential” growth rate. That might contribute to its inertia, as potential growth is a slow-moving variable, governed by fundamentals like productivity and demography. Other central bankers would say their job is to change interest rates as much as necessary to keep an economy’s actual growth close to its potential. Although the pboc is making the transition to a new set of levers and dials, it still seems to lack confidence in interest rates as a stabilisation tool. The idiosyncrasies of China’s policymaking do not end there. Indeed, the official response to bad news includes failing to report it. Since China’s economy reopened, the unemployment rate among urban youth (aged 16 to 24) has been rising conspicuously, leading to uncomfortable headlines. In June the rate reached 21.3%. Analysts expected it to rise again in July. Rather than face embarrassing figures, the nbs decided to stop publishing them.This decision invited ridicule. One online commentator feigned gratitude that the bureau buried the figures, rather than fiddled them. Another offered an analogy: “A tv advert said to quit smoking, so I quit tv.” A third invoked a line from “Creation of the Gods”, a recent film: “What a horse sees is decided by the man who rides it.”In explaining its decision, the bureau said it needed to review its methods. Measuring youth unemployment is undeniably difficult, because youngsters juggle studies, work and job-hunting. To count as unemployed, a person has to be looking for work. Many jobless youngsters are not, because they are concentrating on their education. In the first quarter of the year, for example, two-thirds of China’s 96m urban youths were neither in work nor looking for it. Of the remaining third, a little over 6m were both searching for a job and failing to find one. It is this subgroup of 6m who count as unemployed. There are other subtleties. In most big economies, such as America and the euro area, a person can count as unemployed only if they have taken steps to find a job in the past four weeks. China casts a wider net. Its unemployment figures include those who looked for work in the past three months. If China adopted the four-week standard, its youth unemployment rate could drop by seven percentage points, according to calculations using 2020 data by Zeng Xiangquan of Renmin University.The right response to such difficulties is, of course, to air them. China has hidden other data, too. Its publication of the Gini coefficient, a measure of income inequality, has been stop-start. There is still no figure for 2022. It released a measure of consumer confidence every month for more than 30 years, until confidence fell sharply in April. None of these responses to China’s problems will help solve them. The country’s statisticians lack confidence in their methods, its central bank lacks confidence in its tools and the country’s consumers lack confidence in the future. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

The 2010s were Germany’s decade. A Jobwunder (employment miracle) that began in the 2000s reached full flower, largely unimpeded by the global financial crisis of 2007-09, as labour reforms introduced by Gerhard Schröder, chancellor from 1998 to 2005, combined with China’s demand for manufactured goods and a boom in emerging markets to add 7m jobs. From the mid-2000s to the end of the 2010s, Germany’s economy grew by 24%, compared with 22% in Britain and 18% in France. Angela Merkel, chancellor from 2005 to 2021, was lauded for her grown-up leadership. Populism of the Trump-Brexit variety was believed to be a problem for other countries. Germany’s social model, built upon close relationships between unions and employers, and its co-operative federalism, which spread growth across the country, wowed commentators, who published books with titles such as “Why the Germans Do It better”. Germany’s footballers even won the World Cup.The 2020s are shaping up to be very different, and not just because the national football team is faltering. Alternative für Deutschland, a far-right populist party, is polling at 20%. Germans are unhappy with their government. Most worrying, Germany’s vaunted economic model and state look unable to provide the growth and public services people have come to expect. This is partly a story of a country uncomfortably exposed to circumstances, not least war in Europe and slowdown in China. According to imf forecasts, Germany will be the only g7 economy to contract this year. Less widely appreciated, though, is the fact that the country’s long-term prospects have dimmed. Germany is exposed to a triple whammy: its industry looks vulnerable to foreign competition and geopolitical strife; its journey to net-zero emissions will be difficult; and its workforce is unusually elderly. To make matters worse, the German state appears ill-prepared for these challenges.Interest rates have risen rapidly in the euro zone, as they have across the rich world, to deal with the inflation unleashed by covid-19 and Russia’s war in Ukraine. Higher rates are starting to hurt German construction and business investment. Yet the country tends to be less sensitive to rate increases than most. Far more difficult are changes wrought by external factors. More than any other major European economy, Germany depends on China (see chart 1), meaning the Asian giant’s slower than expected recovery from zero covid is proving painful. Meanwhile, the gas-price shock of last year still reverberates—and gas futures signal that prices will remain roughly double their pre-pandemic level in the coming years. Energy-intensive industrial production has yet to recover from last year’s lows. And the country’s consumers are struggling: real wages have only just started to grow, having fallen to levels last seen in 2015. Ministers are mulling how to respond. The Greens, part of a coalition government with the Social Democrats and fdp, a pro-business party, want to spend €30bn ($33bn, or 0.7% of gdp) on subsidising electricity for industrial use and funding green building and social housing. “The current weakness of the construction sector could indeed be used by the public sector to build more instead,” agrees Monika Schnitzer, head of the German Council of Economic Experts, an official body. The fdp, for its part, would like to cut taxes and create incentives for the private sector to invest, such as by allowing faster depreciation of investment goods. Both plans would lead to a wider fiscal deficit, and thus involve accounting trickery to get around the country’s strict deficit limits. Whatever response politicians eventually agree upon, Germany’s problems seem likely to last for a while. The purchasing-managers’ manufacturing index is at its lowest since the early months of covid. Surveys such as the ifo index show that German business leaders are gloomy about the future. Expectations for the next six months continue to deteriorate. The imf reckons that the country’s economy will grow by only 8% between 2019 and 2028, about as fast as Britain, the other European struggler. Over the same period, France is forecast to grow by 10%, the Netherlands by 15% and America by 17% (see chart 2).Mein GottThe first challenge Germany faces arises from geopolitics. Both America and Europe want to re-engineer supply chains in order to be less reliant on any single non-Western supplier, in particular China. The world order that emerges will provide some benefits for Germany. Firms seeking to “re-shore” production of crucial inputs, such as semiconductors, or build factories for new products, such as electric vehicles (evs), may be lured to its shores. Tesla, an ev-maker, has already built a factory near Berlin, and plans to expand it to create Germany’s biggest car plant. Intel has agreed to create a €30bn chipmaking hub in Magdeburg, central Germany. On August 8th tsmc and three other chipmakers More

China’s Ministry of Commerce signaled Thursday it would respond, if needed, to the Biden administration’s executive order to restrict U.S. investments in advanced Chinese technology.
When asked about U.S. Commerce Secretary Gina Raimondo’s plans to visit China, the ministry’s spokesperson declined to confirm a time, but said the two countries remained in close communication.

Chinese and U.S. flags flutter near The Bund, before U.S. trade delegation meet their Chinese counterparts for talks in Shanghai, China July 30, 2019.
Aly Song | Reuters

BEIJING — China’s Ministry of Commerce signaled Thursday it would respond, if needed, to the Biden administration’s executive order to restrict U.S. investments in advanced Chinese technology.
China’s Ministry of Commerce has met with businesses to understand the order’s impact, spokesperson Shu Jueting said in Mandarin, translated by CNBC.

“On that basis, we are making a comprehensive assessment of the executive order’s impact, and will take necessary countermeasures based on the assessment’s results,” Shu said.
U.S. President Joe Biden last week signed an executive order aimed at restricting U.S. investments into Chinese semiconductors, quantum computing and artificial intelligence companies over national security concerns.

The Treasury is mostly responsible for implementation, and is currently gathering public comments in order to form a draft regulation.
When asked about U.S. Commerce Secretary Gina Raimondo’s plans to visit China, Shu declined to confirm a time, but said the two countries remained in close communication. More

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Don’t count out additional interest rate hikes, according to former Federal Reserve governor Randall Kroszner.
Kroszner, who’s now a University of Chicago economics professor, believes rates are staying high into well next year.

“I don’t see how they can be comfortable to say, ‘okay we’re not going to be raising anymore’ if the labor market is as strong as it is now,” Kroszner told CNBC’s “Fast Money” on Wednesday.
His comments came after the Fed released the minutes from its July policy meeting. Fed officials indicated “upside risks” to inflation could push them to raise rates further.
Kroszner, who helped lead the response during the global financial crisis, thinks the Fed won’t officially put the brakes on rate hikes until they “see some of the heat coming out of the labor market.” He also believes Fed members will be at odds at what they need to see.

‘Makes the Fed’s job a little bit harder’

With student loan repayments set to resume in the fall and the back-to-school season kicking off, consumer confidence is another area the Fed is watching, Kroszner added.
“The consumer has been pretty resilient and that’s great, but it also makes the Fed’s job a little bit harder,” he said. “They’re going to want to see a little bit less strength there before they’re going to be able to to feel comfortable to say okay, no more hikes.”

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A runner jogs past the Cisco Systems headquarters in San Jose, California, Feb. 8, 2021.
David Paul Morris | Bloomberg | Getty Images

Check out the companies making headlines in extended trading.
Cisco Systems — Shares of the computer networking giant gained about 2.5% after posting fiscal fourth-quarter earnings that beat Wall Street’s expectations. The company posted adjusted earnings of $1.14 per share, while analysts had forecast $1.06 per share, according to Refinitiv. Revenue came out to $15.2 billion, exceeding expectations of $15.05 billion.

Synopsys — The stock advanced 2.3% after the electronic design automation company beat fiscal third-quarter earnings expectations. Synopsys reported adjusted earnings of $2.88 per share, which was 14 cents per share higher than analysts’ expectations, according to Refinitiv. Its revenue of $1.49 billion also came out just above expectations. The California-based company on Wednesday also announced Sassine Ghazi as its CEO and president, effective Jan. 1.
Wolfspeed — Shares plunged 13% after hours following Wolfspeed’s fiscal fourth-quarter earnings report, which missed expectations on the bottom line. The company posted an adjusted loss of 42 cents per share, while analysts called for a loss of 20 cents per share. Wolfspeed reported $236 million in revenue, however, surpassing analysts’ expectations of $223 million, according to Refinitiv.
Amcor — The packaging stock added 2.5% after the closing bell. Amcor, which hit its 52-week trading low Wednesday, reported adjusted earnings per share of $0.19 for its fiscal fourth quarter. That exceeded the $0.18 forecast from analysts surveyed by FactSet. Amcor’s revenue failed to meet expectations, however, coming at $3.67 billion while analysts had forecast $3.79 billion.
Hawaiian Electric Industries — Shares of Hawaiian Electric slipped nearly 2% after hours Wednesday. The action followed a report in The Wall Street Journal that said the company is in talks with firms that specialize in restructuring. The stock’s losses, now about 55% this week, continued amid Wall Street’s ongoing concerns about the company’s potential liability in the deadly Maui wildfires. 
VinFast Auto — Shares of the Vietnamese electric vehicle maker fell about 5%. Its shares jumped more than 250% Tuesday after VinFast went public through a SPAC deal, but the stock gave back some of those gains Wednesday and dipped 18.7%. More