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- U.K. Said to Eye Law to Block Online Extremist Videos: Telegraph

- Trump Says Tax Reform Up Next, Warns Obamacare Will ‘Explode’

- Italy in Talks With EU Over 2018 Deficit Flexibility: La Stampa

- Iran Sanctions 15 U.S. Companies Over Human Rights Abuses: Mehr

- U.K.’s May to Give Details of Law Changes for Brexit: Telegraphmut

Keep an eye on :

- AIR FP : China’s C919 Passes Aviation Tests; Nears First Flight: Xinhua

- AKZA NA : PPG Fails to Get Meeting With Target Akzo During Dutch Trip

- AKZA NA : Akzo Nobel investor Elliott Advisors discloses 3.25% stake

- NDA GY : Aurubis Doesn’t Rule Out Large Takeovers, Euro am Sonntag Says

- BKIA SM : Bankia Wins Iberdrola Claim Relating to 2011 IPO: Expansion

- BAYN GY : Monsanto India Says Unaware of Rejection of Bayer Deal by CCI

- BLVN LN : BowLeven Holder Crown Ocean Opposes ‘Fire-Sale’ of Company

- MPIO PL : Caixa Montepio’s Full-Year Loss Narrowed to EU80m, Expresso Says

- DAI GY : Daimler to Acquire 15% of Lei Shing Hong: Automobilwoche

- DBK GY : BOE Asks Deutsche Bank to Draw Up Plans for Co-Op Bank: S. Times

- EEFT US : MoneyGram Enters Confidentiality Pact With Euronet Worldwide

- EXO LN : Exova Confirms It Has Received a Cash Offer, Says in Talks

- FB US : U.K. Tells WhatsApp to Open Up to Intelligence Services

- GLPG NA : Galapagos wants to remain as stand-alone business

- HUR LN : Hurricane Energy makes oil discovery west of Shetland Islands, Find adds to series of wells that may be biggest beneath UK waters this century - FT

- ISP IM : Intesa Board to Weigh Plan to Divest EU15b of NPLs: Sole

- IG IM : Italgas CEO says interested in Gas Natural Italian assets

- LSCC US : Lattice Semi, Canyon Refile to Allow More Discussion With Cfius

- LIN GY : Praxair Named New Best Idea Long at Hedgeye on Linde Merger View

- LSE LN : LSE Investors Seek to Keep Xavier Rolet as CEO: Sunday Telegraph

- MC FP : TAG Heuer CEO Sees Swiss Watch Industry Improving in 2017: T-A

- MGI US : MoneyGram Enters Confidentiality Pact With Euronet Worldwide

- NYR BB : Och-Ziff Mgmt Europe Expands Nyrstar Short Position to 1.24%

- OCI NA : OCI Reports 2016 Profit; Year Revenue, Adj. Ebitda Fall

- OML LN : HNA Capital to Buy 25% Stake in Old Mutual’s OMAM for $446m

- PLT IM : Lactalis Owned 89.6% of Parmalat Shares After Buy-Out Offer

- CFR VX : Richemont’s Rupert Says China Situation Has Normalized: FuW

- SKY LN : Fox-Sky Deal Said to Stay With EU After U.K. Skips Deadline

- SN/ LN : Smiths Group may consider selling uncompetitive businesses

- SNAP US : Snap Shares Slip Ahead of Analyst Quiet Period Expiration

- TSCO LN : Tesco Said to Face ‘Large’ Fine as U.K. Probe Nears End: Sky

- TSLA US : Tesla to Start Taking Solar Roof Orders in April, Musk Says

- HO FP : Thales Canada In: Thales to sell identity management business to Imprimerie Nationale Group - 24.03.2017

- TCG LN : Thomas Cook Won’t Separate Condor, CEO Says: FAZ

- TOM2 NA : TomTom Options Volume at 2015 High With Stock at 10-Week Peak

- FP FP : Total Emerges From Oil Slump in Growth Mode, company has been restructuring and cutting costs. Now it’s cherry-picking productive projects from still-struggling rivals. - Barron's

- VOW3 GY : Volkswagen’s Internal Probe by Jones Day Has Ended, Bild Reports

- VOW3 GY : Volkswagen Diesel Probe by Jones Day Continues, Company Says

- WFT US : Weatherford Venture is ‘Innovative’ Move by Schlumberger: Piper

- ZURN VX :Zurich Sets Stage for $8.6 Billion Capital Increase, Sole Says

Obscure M&A clause has become an element of a proxy fight

The “Secret August Voting Lock-Up” is not an upcoming thriller at the cinema. Activist investment fund Elliott Management may soon pen that screenplay, however.

It is currently in a heated proxy fight hoping to dump Klaus Kleinfeld, chief executive of Arconic, the former Alcoa affiliate separated last November. Elliott’s intrigue-filled title spices up the situation, highlighting an odd corporate arrangement at Arconic.

A vagary of buying private companies is that payments owed to the seller can be complicated to settle.

When Alcoa bought aerospace parts business Firth Rixon from private equity firm Oak Hill in 2014, it agreed to settle the working capital levels in the business later. It turned out that Firth Rixon owed Alcoa on that working capital claim.

Last August, before the Alcoa separation and Elliott agitation, the parties settled. Per the compromise, Oak Hill agreed to vote its 2 per cent stake in Arconic in support of management’s candidates for the board for two years. Those votes could matter. Elliott is putting up its own candidates against the company’s.

The arrangement was only disclosed in Arconic’s recent proxy filing. Elliott refers to it as a “vote buying” plot and demands an investigation about who at Arconic/Alcoa knew what and when.

It makes sense for Elliott to appear as indignant as possible given the governance fight raging. Its underlying concern remains reasonable, however.

While the benefit of the voting agreement accrues to the incumbent board of directors, not shareholders, what was given to Oak Hill to secure those votes belongs to the company’s owners.

Arconic now says that it has waived the voting agreement. It also claims that the voting agreement was added only after the financial terms of the working capital adjustment were resolved.

No value was given to Oak Hill in exchange for their voting support it asserts. Private equity firms are, however, notorious negotiators so that would be an extraordinary achievement.

Still, there may be an innocent explanation for Arconic’s voting agreement which would add another plot twist. In the context of who should run Arconic it may simply be a sideshow.

Regardless, it would do well to offer a fuller explanation of the arrangement. Until then Elliott will write this damaging narrative solo.

The Passive Investing Bubble Could Soon Pop

Ned Davis thinks the next five years will present great opportunity for active managers to outperform passive indexes.

The bill to overturn the Affordable Care Act wasn’t the only thing tested lately. As labels go, “America first” is coming under some strain, at least in the stock market.

The U.S. stock market has been the undisputed world heavyweight champ: Since the 2009 bear-market low, the SPDR S&P 500 exchange-traded fund (ticker: SPY) has shimmied up 244%, outgunning the 96% gain in the iShares MSCI All Country Ex-U.S. ETF (ACWX), and 93% for the iShares MSCI Emerging Markets ETF (EEM). Yet so far this year, and for all the noisy attention commanded by the melt-up of U.S. stocks, it’s other markets that are zipping ahead. The emerging markets ETF is up 13%, and the All-Country Ex-U.S. ETF is up 8%, versus 5% for U.S. stocks.

Why are investors shopping abroad? The synchronized global expansion suggested by brightening economic data ought to lift many markets, but especially smaller, volatile ones most sensitive to a cyclical upswing. Earth’s postcrisis recovery began in the U.S.—and is longer in the tooth here. Valuations are cheaper abroad—emerging markets trade at 12.8 times projected earnings and boast faster, albeit riskier, growth. Quite tellingly, the dollar has failed to rally further even after an interest-rate hike this month, and has retreated to the levels just after the U.S. election, alleviating concerns, at least for now, about emerging markets’ ability to repay dollar-denominated loans. And with the 11% correction in Brent crude oil, chances have increased for a Goldilocks expansion with not-too-hot, not-too-cold inflation.

AT THE SAME TIME, GREAT EXPECTATIONS of what a Republican-controlled government could do to goose U.S. growth are moderating. Bank stocks are off 8.5% since March 1. Financial and industrial stocks led the market levitation last November but have trailed lately, up just 1.2% and 3.1%, respectively, this year. Since March 1, the 50 biggest stocks in the Standard & Poor’s 500 index are off 1.8%, but the 50 smallest have lost 5.4%, according to Bespoke Investment Group. The 50 stocks with the most overseas revenues have gained 0.1%, but the 50 with the most domestic sales are off 4.2%. You can blame the weakening dollar, but investors also are flocking to the perceived safety of big blue-chip stocks.

For investors banking on Trump’s pro-growth promise, last week’s pulled health-care vote matters as much as the governance it reveals. “The market’s dramatic run-up post-U.S. election has been fueled by fiscal optimism stemming from a view that bipartisan gridlock in Washington will wane,” notes David Lafferty, chief market strategist at Natixis Global Asset Management. But markets “are waking up to the reality that gridlock within the Republican Party is nearly as bad.” Lafferty sees “a looming showdown between deficit hawks in Congress and Trump’s growth agenda. Given fiscal limitations, both cannot be satisfied.”

Bulls need economic momentum to continue until Trump can deliver. Yet used-car prices fell 3.8% in February from January. Sure, tax refunds are running late, and competition from heavily discounted new vehicles is stiffening. But car makers are pushing discounts because auto assembly and production have started to slow and are now 7% below their 2015 peak, even as the ratio of inventory to sales climbs. Ford Motor (F) last week trimmed its profit forecast.

Meanwhile, Ned Davis of Ned Davis Research thinks we’re in the late stages of a bubble in passive investing. “Not only have index funds outperformed, but the crowd has noticed,” he writes. Over the past year, investors have yanked billions from actively managed funds and plowed more than $234 billion into U.S. stock ETFs.

“When one buys an S&P 500 index fund, one buys all the stocks in the index—whether cheap or expensive,” Davis writes, and today the price-to-sales ratio of the median stock has surpassed its level in 2000 and 2007. Trillions pumped by global central banks have lifted assets in tandem and made everything look more attractive relative to cash. But lately that correlation is fraying, a sign that “the trend toward passive investing is overextended.” Davis thinks the next five years will present great opportunity for active managers to outperform passive indexes.

FOR ALL ITS MARKETING MUSCLE, Nike (NKE) has had a hard time impressing investors lately. Shares skidded 19% in 2016, their worst year since the financial crisis, and were the Dow’s weakest performer. Last week, despite beating earnings forecasts for a 19th straight quarter, Nike suffered its worst one-day stumble since 2012 when sales narrowly missed their mark.

Shareholders are sweating for a reason: Profits were helped by expense control, and future orders scheduled to ship declined 4% from a year ago (although just 1% after adjusting for currency swings). Nike’s hefty overseas production could be hurt by border taxes that Republicans are mulling, and its overseas sales suffer when translated back into a strengthening dollar.

But shares had already declined 20% since late 2015 and reflect such concerns. They now fetch just 23.2 times fiscal 2017 expected earnings—below their median of 25.5 times and peak of 34 times over the past five years. Nike’s brawn lets it outspend competitors on marketing and development, and revenues, profits, and return on capital are still growing. The swoosh remains a recognizable brand hitched to the planet’s swelling middle class and its quest for Instagrammable abs. With the dollar’s rise stalling and Americans balking at potential border adjustments that make imports pricier, investors looking to walk back their Trump trades could find Nike an increasingly comfortable fit.

Among liquid-alternative investments for retail investors, long-short equity mutual funds have performed relatively well over the past 12 months. They’ve returned 6.7% during that stretch, beating categories such as multicurrency (5.1%) and market neutral (about 2%), among others.

But it’s important to dig deeply when considering whether to invest in these funds, whose assets under management totaled about $35 billion as of Feb. 28, according to Morningstar.

The first order of business is to understand how these funds work. “There’s a lot of confusion,” observes Robert Doll, portfolio manager of Nuveen’s Large Cap Equity series, a group of nine funds. One of the portfolios he oversees is the $93 million Nuveen Equity Long/Short (ticker: NELAX). Doll points out that a strategy that combines long and short holdings isn’t the same as market neutral.

BarclayHedge, which researches hedge funds, explains on its Website that market-neutral funds attempt to limit “general market exposure through a combination of long and short positions.” Long- short mutual funds, however, are typically net long, meaning their long positions outweigh their short ones, providing exposure to the market’s direction, up or down.

The Nuveen fund’s beta—essentially its correlation with the broader stock market—is about 0.7. In theory, that means that if the market goes up 10%, the portfolio’s value should rise about 7%, or even more with some smart stock-picking and portfolio construction. Also in theory, such a fund should lose less than the broad market in downturns.

THE NUVEEN FUND’S FIVE-YEAR annual return of 8.48% is about two-thirds of the S&P 500’s 13.37%. Doll says that stock-picking is part of the formula for success in running one of these funds. Another is portfolio construction, in particular avoiding concentrations in geographies, market-cap ranges, or other areas. Let’s say that a manager has a large long position in mid-cap stocks, and a big short position in mega-caps. “If mega-caps significantly outperform mid-caps, I get destroyed. You have to manage your risk,” says Doll.

Josh Charlson, director of manager research for alternative strategies at Morningstar, calls long-short funds’ three-year annual average return—just 2.05%—disappointing. Their five-year return of 4.66% is better, but nothing to crow about, even after factoring in the hedging embedded in them.

One culprit here, Charlson says, is “poor timing decisions on adjusting beta.” In other words, it’s very hard for managers to discern how closely correlated a fund should be to the broad market.

For many investors, this is a moot point. “With the market going up so much in the last few years, it’s harder for people to make the case for more of a hedged-equity approach,” adds Charlson. Indeed, the funds now have about $35 billion of assets, 26% below the $45 billion they had at the end of 2014.

Another hard part of running these funds is successfully shorting stocks, which entails betting that a particular issue will lose value. With many stocks generally moving higher, “managing the short positions has been very difficult in the environment we’ve seen in the last few years,” Charlson observes.

The Nuveen long-short fund’s return of 13.15% over one year and 6.43% over three places it in the top 15% of its peers in both spans. But in 2016, it stumbled a bit, up just 4.5%. Last year, some of its long picks hampered performance, particularly in sectors such as consumer discretionary, health care, industrials, and energy. And some of its short bets didn’t pan out either. In mid-2016, Microsoft (MSFT) announced that it would acquire LinkedIn, one of the fund’s short positions, at a significant premium. Ouch.

ON THE PLUS SIDE, the Nuveen fund and others like it offer daily liquidity, given they are 1940 Act Funds. Hedge funds usually have long lockups. And expenses at long-short mutual funds are mostly lower than those at hedge funds.

In 2016, the Nuveen fund’s expense ratio was 1.62%, below its long-short equity peers’ average of 1.94%. The hedge-fund model of charging a 2% management fee and taking 20% of annual profits has come under pressure, with weaker performance. Still, the mutual funds do look cheaper.

Ken Heinz, president of hedge-fund research firm HFR, says there has been some convergence between hedge and mutual funds in recent years. Some hedge funds offer long-only products, while more mutual funds have entered the alternatives space. However, asserts Heinz, “There is a core base of expertise that the hedge fund is going to have with long-short trading” that mutual funds might not have.

Indeed, investors should realize that mutual funds can’t always hedge away subpar returns.

In China, Syngenta Deal Feeds Local GMO Fears

Acquisition is expected to bring more genetically engineered products to China, but many consumers are resisting

ZHAODONG, China—The Huiji Hotpot restaurant is a local favorite here, where diners boil meat and vegetables in cauldrons of broth—comfort food to gird against the subzero winter in this far northern farming community.

A couple of years ago customers started to quiz manager Wu Xiaofeng: Did his restaurant use oil made with genetically modified soybeans in its kitchen? He hung a sign next to Huiji Hotpot’s cash register, pledging no.

“We felt it was better just to tell them not to worry,” Mr. Wu said.

Such worries aren’t going away soon.

The opposition to genetically altered food and grains in China has been brought to the forefront by China National Chemical Corp.’s $43 billion deal to buy Swiss agro-giant Syngenta AG, a leading producer of genetically engineered seeds. The ChemChina deal would be by far China’s biggest-ever foreign acquisition.

While China doesn’t currently allow planting of such seeds for grains like soybeans, many in the agriculture business expect that to gradually change once the Syngenta acquisition clears regulatory hurdles, expected later this year.

Any changes could face resistance from local farmers and other Chinese. “All we know is that it’s not natural,” said Li Shubin, who grows corn on his family’s 3-acre plot in Changfu village, near Zhaodong. His farmhouse is heated from an oven that burns dried cobs from the field. “There could be problems with the food’s safety, so if that’s the case we wouldn’t dare use it.”

Fear of genetically modified grains stems in part from wide distrust of China’s food industry, where scandals killed or sickened thousands. In one of the worst, tainted milk and baby formula sickened nearly 300,000 children, and killed six, in 2008.

The U.S. government, the National Academies of Sciences, Engineering and Medicine, and even some Chinese leaders say GMO crops are safe. Such products have become common in the U.S. and other countries.

Proponents say the high-tech seeds boost farm yields—a priority for the government as it looks to feed a billion-plus population. Industry executives say they’re needed as part of broad reforms to boost harvests and avoid more imports.

“You don’t bring Syngenta to China and leave biotechnology out,” said William Niebur, president of Origin Agritech Ltd., a Nasdaq-listed seed research company.

That may be the plan, but it’s complicated by resistance in rural communities like Zhaodong in China’s northern Heilongjiang province. The region—on the border with Russia—looks like Iowa with its fields of corn and soybeans. Its farmers produced 10% of China’s total grains last year, more than any other province, according to government data.

Mr. Li and many others want China to continue to bar growing genetically modified staples. Currently China only allows planting genetically modified cotton and papaya, but allows imports of some genetically modified grains.

A survey in Heilongjiang last year found over 90% of respondents opposed genetically modified crops. A nationwide poll by a government think tank found less than 20% would eat genetically modified food, commonly known as GMOs.

Even some farmers in Zhaodong—who could end up with higher yields and incomes by using genetically modified seeds—say they’re wary about safety.

For years, China has been an elusive Holy Grail for the global seed industry. While Western giants including Syngenta, DuPont Co. and Monsanto Co. are active in the world’s most populous country, the restrictions on genetically modified seeds makes it harder to set themselves apart from local competitors. China’s seed market has been valued as high as $17 billion—a tantalizing market that could help the Swiss company grow its nearly $13 billion in annual sales.

China’s seed industry is diffuse and highly competitive, agriculture executives say, with thousands of small companies vying to sell to farmers. Introducing high-tech foreign seeds would likely squeeze many of them out of business, and many will likely fight to keep the status quo.

Chinese government officials appear mindful of the need to turn around public opinion. Asked about GMO grains at a media briefing this month, vice minister of agriculture Zhang Taolin said in principle the government believed they were safe, but didn’t give a timeline for when they’d be grown domestically.

In a statement, Syngenta noted that China’s government endorsed significant research into GMO, and viewed it as a key part of modernizing China’s farms.

“Agricultural biotechnology can improve productivity, secure yields and improve quality of crops while minimizing the environmental impact of their production,” the company said.

ChemChina didn’t reply to requests for comment.

Jian Wu, China business director at DuPont’s seed development unit, said altering perceptions on GMO could take years.

In earlier years, the government didn’t do a good job “to educate the general public about the real benefits of GMO,” he said.

All that means more sales for Zhang Xiufang, who makes cooking oil from non-GMO soybeans at her home near Zhaodong. Over the past decade, she gained a following for her fragrant soybean oil. Customers drive two hours from the provincial capital of Harbin to fill their jerrycans, preferring what they see as her more natural oil to the mass-produced types, which may include imported GMO soybeans, sold at Chinese groceries, she said.

Sensing opportunity, her family bought new equipment to increase production, hired workers, and registered a brand name.

“The people all like it,” she said of her oil. “They think it’s healthier this way.”

Oil Exporters Nearly Back to Square One on Deal

OPEC, Russia could feel pressure to cut output further now that most of the post-November gains have faded

You don’t need a fancy degree in petroleum engineering to figure out what has been weighing on oil prices—grade school math will do the trick.

U.S. benchmark prices rallied from around $47 a barrel before the late November meeting of oil exporters to more than $54 a month ago on two perceived successes: First, Saudi Arabia and Iran, rivals in the Organization of the Petroleum Exporting Countries, managed to make a compromise while others, notably Russia, pitched in. Second, compliance within OPEC is surprisingly good.

But if one subtracts the number of barrels taken off the market since the November meeting and adds back growth in output from the U.S. and elsewhere, the market is hardly being squeezed. Prices have nearly fallen back to their pre-agreement level.

Russia’s oil production is down by a little over 150,000 barrels a day since November, about half of the amount it agreed to cut by June. But it set the starting bar as high as possible, at a post-Soviet record for output. A year ago Russian output was around 150,000 barrels a day lower than today, or right around the level it has pledged to reach as part of the agreement.

Meanwhile, U.S. oil output is rising rapidly, led by shale producers that responded to last year’s price recovery. Production most recently was about 440,000 barrels a day higher than in mid-November. Meanwhile, Nigeria and Libya, OPEC members exempted from cuts, also have seen output rebound.

By the time the agreement’s renewal is debated at OPEC’s annual meeting in May, the celebratory mood may have shifted to a debate over more and deeper cuts.

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One of the most dramatic monetary interventions in recent years has been the unprecedented surge in global central bank balance sheets. This form of “money printing” has not had the inflationary effect predicted by pessimists, but there is still deep unease among some central bankers about whether these bloated balance sheets should be accepted as part of the “new normal”. There are concerns that ultra large balance sheets carry with them long term risks of inflation, and financial market distortions.

In recent weeks, there have been debates within the FOMC and the ECB Governing Council about balance sheet strategy, and it is likely that there will be important new announcements from both these central banks before the end of 2017. Meanwhile, the PBOC balance sheet has been drifting downwards because of the large scale currency intervention that has been needed to prevent a rapid devaluation in the renminbi. Only the Bank of Japan seems likely to persist with policies that will extend the balance sheet markedly further after 2017.

Globally, the persistent increase in the scale of quantitative easing is therefore likely to come to an end in 2017, and it is probable that central bank balance sheets will shrink thereafter, assuming the world economy continues to behave satisfactorily.

Investors have become accustomed to the benefits of “QE infinity” on asset prices, and are cynical about the ability and desire of central bankers ever to return their balance sheets to “normal”. They will have to adjust to a new reality fairly soon.

The Federal Reserve is the most advanced of the major central banks in its thinking on this topic. It released a statement in September 2014 that explained the likely approach to balance sheet shrinkage. Essentially, this said that shrinkage would occur only when the normalisation of interest rates was already “well under way”, and they suggested that the initial stages of the reduction would be accomplished passively and predictably, by allowing debt to run off when it matures, with little appetite for active asset sales into the bond market. This implied a slow and steady reduction in the balance sheet, with minimal shocks to markets.

Ben Bernanke, who experienced a balance sheet shock under the “taper tantrum” in 2013, has recently assessed the debate within the FOMC, and argues that the slow and steady approach should, and probably will, be maintained.

He argues that the steady state level of the balance sheet, abstracting from the needs of monetary policy, should be about $4 trillion in 2027. This is much larger than in 2007 because of the increase in the public’s demand for currency and banks’ holdings of liquid balances at the Fed under the new monetary arrangements. He implies that the FOMC should approach this path extremely gradually, perhaps over a decade.

Meanwhile, in a recently published projection, the Fed staff reckons that the balance sheet could be reduced to about $2.7 trillion by 2025, a level that would be slightly below the path implied by Bernanke. This path would reduce the balance sheet from 23 per cent of GDP to 10 per cent over 8 years.

The Fed staff’s downward path is in line with that predicted by market practitioners, assuming the economy performs well in the meantime.

Janet Yellen has not seemed to be in any great hurry to start the balance sheet shrinkage. However, several members of the FOMC (see for example John Williams and Patrick Harker) have recently indicated that they are more impatient to start the process and Congressional Republicans have repeatedly demanded a much lower balance sheet. The FOMC probably accepts that the realities of political economy mean that they will have to start the shrinkage soon.

Goldman Sachs economists believe that the FOMC will begin to reduce the balance sheet at the end of 2017, because they will want to lock in the principles of the strategy before potential new appointments to the leadership of the Fed take office next year. They assume that the Fed will allow two thirds of the maturing debt to run off in 2018, with all of the maturing debt running off in 2019.

If the Fed starts to run down its balance sheet in this more hawkish manner, it would probably mean that the total balance sheet assets of the global central banks – often known as “global QE” or “global liquidity” – will start to fall as a percentage of world GDP for the first time since the Great Financial Crisis in 2009.

In the appendix, we take the Goldman Sachs path for the Fed balance sheet, and present some assumptions about the balance sheet policies of the other major central banks to the end of 2019. Obviously, these assumptions become fairly speculative as the period progresses, because none of the central banks has made any firm statements after the end of 2017. Nevertheless, these numbers can be taken as a broad guesstimate, assuming no major change in economic performance.

The graph below shows the level of central bank balance sheets as forecast. Note that the total balance sheet is set to stabilise this year at about 35 per cent of global GDP, having risen continuously from 20 per cent before the GFC. The aggressiveness of the rise in the BoJ balance sheet under Governor Kuroda is dramatic, though the economic effects have been disappointing:

The next graph shows the 12 month change in central bank balance sheets, expressed in percentage points of global GDP. This figure has often been used as a measure of the change in the thrust of global QE from one year to another:

There are several features of these projections that are worth highlighting:

* The global central bank balance sheet is likely to continue rising throughout this year, though only at about 1 per cent of GDP, or roughly half the average liquidity injection since 2011;

* All of the increase in the global balance sheet in 2017 will be driven by the ECB and the BoJ, while the Fed and the PBOC might subtract small amounts;

* During 2018, the global balance sheet might shrink by about 1 per cent of GDP, because the implied shrinkage in the Fed’s balance sheet might be larger, on our assumptions, than the continuing, but falling, injections from the BoJ and ECB;

* During 2019, the rate of shrinkage of the global balance sheet might increase to about 1.3 per cent of GDP, as the Fed allows all of its maturing debt to run off, the ECB stops its QE, and the BoJ reduces bond purchases further.

The main conclusion is that the huge expansion of global balance sheets may be coming to an end in the next year or two, and there could be a modest shrinkage in the aggregate if the Fed pursues the path that it is now debating, and if the ECB begins to withdraw support next year. Markets will have to learn to get along without massive bond purchases from their friends in the central banks. The consequences of this major change in central bank support will be discussed shortly in an upcoming column.

Appendix

I am grateful to my colleagues Alberto Donofrio and Yad Selvakumar for the following assumptions about balance sheet policy of the major central banks up to 2019:

PharmaBro Martin Shkreli was making enemies on Wall Street well before his drug-price hiking infamy, according to a book out this month.

In “Confessions of a Wall Street Insider,” convicted insider trader Michael Kimelman describes meeting Shkreli in late 2008. Shkreli, a 25-year-old “freakishly skinny, on-the-spectrum biotech trader” at the time, was just as brash then as when he infamously hiked up the price of Daraprim 5,000 percent to $750 per tablet in September 2015.

Shkreli was tied to Royal Bank of Canada at the time and was called in to vet the trading prowess of Franz Tudor, one of Kimelman’s colleagues at the now-closed hedge fund Incremental Capital. Despite having nearly 10 years on Shkreli, Tudor was torn apart by Shkreli’s rapid-fire questioning and “psychopathic level of statistical recall and brainpower,” Kimelman writes.

Kimelman eventually intervened to slow the blood-letting and give his colleague a break. Despite Shkreli’s seeming victory that day, his fortunes soon changed. RBC fired Shkreli months later after some of his trades cost the firm millions, Kimelman writes.

Then, of course, Shkreli was arrested and charged with securities fraud in late 2015. Kimelman predicts that if Shkreli is convicted, he will be sentenced to 10 years, he told On the Money.

Kimelman, meanwhile served nearly two years in federal prison for insider trading, and his colleague Tudor, who wore a wire to tape colleagues’ conversations, got three years probation.

Shkreli did not respond to requests for comment.

Todd Rome, of private jet firm Blue Star Jets — named after Gordon Gekko’s Blue Star Jets in “Wall Street” — has just acquired US rights to the electric car, still popular in the south of France and St. Barts.

The model eMOKE will sell for $15,975. It’s a “LSV” — a low-speed vehicle that travels up to 35 miles per hour — that is “perfect for the Hamptons,” Rome told On the Money.