Monday , March 27 2017
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David Keohane

David Keohane

(Spending some time as FTAV’s Bombay wallah. Noticeably sweatier but not much else has changed.) David studied economics, politics and journalism before joining the FT in 2011 as a Marjorie Deane fellow. He covered emerging markets, equities and currencies before making the jump over to FT Alphaville in May 2012. In between his degree and masters he wandered into the real world of business where he learnt how to manipulate a spreadsheet and organise meetings where nothing gets decided.

Articles by David Keohane

Snap AV: Your week in weakening USD

15 hours ago

Plenty of USD notes coming in following the healthcare vote debacle, so here are some representative words from Simon Derrick at BoNYMellon as the dollar falls (against the euro, JPY and GBP) and US yields slip… a bit (with our emphasis):Since the President’s inauguration in January, however, the relative attractiveness of US yields has faded somewhat thanks to a variety of factors including signs that concerns about inflation are quietly on the rise. The implication of this was clear enough: for the USD to resume its rally in a meaningful way (barring something truly radical happening) it would take a serious rise in yields to emerge. Given that the most likely driver of such a shift in yields would be a significant pick-up in economic growth this focused the thinking of investors on how

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Further reading

16 hours ago

Elsewhere on Monday, – Trump vs Congress. Including “memorably bad chicken Parmesan” and the central role of Bannon.– Gavyn Davies: The end of global QE is fast approaching.– This new era of populism (discussion) continues with GMO’s Montier. Including bonus swipes at Greenspan and a suggestion to “replace the NAIRU – the Non-Accelerating Inflation Rate of Unemployment – with the NAIBER – the Non-Accelerating Inflation Buffer Employment Ratio.”– A trap for a trader, a WSJ longread based on David Enrich’s new book on Libor mastermind Tom Hayes. And here’s a Bloomberg review for those who want more: Hayes deserves a lot of company in prison.– Measuring the highly unequally distributed wealth of China’s 1.4bn people is no easy task: “After finishing a household, we had to walk a long way

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Snap AV: Goldman calls peak cash

3 days ago

To conclude, we would argue that as a ‘medium of exchange’, cash has peaked. Why is this? We see three key reasons: (1) increasing ubiquity of technology; (2) the willingness of consumers to use less cash and most importantly (3) policy action. We believe recent government action (for example in India and Europe) demonstrates the rising importance of supportive policy in accelerating the shift away from cash. The benefits for policy makers are clear – electronic transactions allow for greater transparency and better control over monetary policy transmission mechanisms. But the paradox of banknotes means that the decline in cash payments does not imply the death of cash. Cash’s other primary function as a store of value implies that the future path of inflation, interest rates and trust in

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For the brave China SOE reform optimists out there

4 days ago

Do you believe in Chinese state owned enterprise reform?Do you believe that deeds straightforwardly follow words in Chinese policy circles?Do you believe that cash being shifted off the books of SEOs and on to its parent company/the state is in itself a thing worth applauding?Well, actually, the last bit probably doesn’t matter that much if you’re just looking to buy up the stocks that might benefit, as opposed to looking at it from an economic rebalancing point of view. Until we know what happens to the cash — and it has been largely recycled to SOEs as subsidies in the past — we should probably lay off the reform emphasis a bit.Therefore, the less-judgemental questions are simply: Are China’s SOEs being directed to pay back more cash? And are they actually doing it?Our inboxes certainly

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Further reading

4 days ago

Elsewhere on Friday, – Scott Alexander: “If you want people to be right more often than chance, you have to teach them ways to distinguish truth from falsehood.”– A Bloomberg longread on a Wall St informant who double-crossed the FBI and, charmingly, wants a F—YOUDOJ license plate. It includes this immortal line: “In his red SUV, he put on a techno version of the James Bond theme and puffed mint-infused smoke from a vape pen.”– The art of (illiquid) securities pricing.– Learn what (else) Bill Ackman is losing money on this year May 8.– The WSJ is saying that one, Theranos is planning to give some of Elizabeth Holmes’s shares to investors who pledge not to sue and two, that “Theranos reached a separate agreement to buy back the shares purchased in early 2015 by Rupert Murdoch for about $125

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Further reading

5 days ago

Elsewhere on Thursday, – Bridewater’s Dalio on populism. Including this:– Cowen on the war between authoritarianism and human capital.– From DeLong: “Now you can complain that the benefits from international trade are inequitably distributed. And they are. But they are less inequitably distributed than what we produce here at home: serous worriers about economic equity do not start with foreign trade, only non-serious worriers do.”– What jobs would be doable under a Job Guarantee program?– Buiter: Exchange rate implications of border tax adjustment neutrality.– Venture default swaps or… how to short Uber.– Bombardier Sweden investigated for alleged bribery in Azerbaijan.– Oscar D Torson on core banking platforms.– A day in the life of a 28-year-old CS private banker. There is an unusually

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Further reading

6 days ago

Elsewhere on Wednesday, – Wall Street Bull artist calls BS on ‘Fearless Girl’ statue.– Blackstone sends a warning to illiquid debt funds.– Guardian longread on whether it’s too late to save Hong Kong from Beijing’s authoritarian grasp.– Meanwhile in China: “If the credit enhancement services are all offered by local governments, what is the difference between a CDS and a government bailout?” the fund manager said.– Also, from George Magnus: China has regained economic stability, but clues are in the weeds of finance.– Le Pen, no longer enemy of the euro?– Jason Furman: Why US growth of 2 per cent is plausible — and unlikely to get much higher.– The building blocks for Trump’s border wall are being laid.– “Fukuyama might have done a better job of predicting the political turmoil that

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Further reading

19 days ago

Elsewhere on Thursday, – Jonathan Alger with some more qs for Draghi.– Lorcan Roche Kelly on how Germany’s central bank is by far the biggest issuer of cash in the bloc… and how that might end up costing it.– Peter Stella on “how easy it would be to condense the Fed’s balance sheet provided the US Treasury adjusted its debt management strategy accordingly.”– The IMF revisits the paradox of capital: The reversal of uphill flows.– From the NYT: ‘Superstar firms’ may have shrunk workers’ share of income.– From the NYT again: “The teachers’ pension fund in Puerto Rico looks very much like a legalized Ponzi scheme — one that might hold a warning for teachers across America.”– Pimco doing some painfully unsubtle rebranding.– Also, names matter in bond ETFs as Gundlach clobbers Gross’s old fund.–

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Snap AV: Le Pen and euro redenomination risk, charted

19 days ago

That’s from Alberto Gallo at Algebris.His basic point is… don’t stress. With our emphasis in the bottom par:Even if Ms Le Pen wins, redenomination risk is low. In the FN’s Les 144 engagements présidentiels, Le Pen details her ambitions to target 2% GDP growth by 2018 partly through tax cuts to SMEs and individuals in lower-income brackets. More importantly, she also plans to renegotiate EU membership and to break the single-market with a tax on imports.We see a very low probability (14%) of Le Pen progressing on her Euro-exit agenda, even in the unlikely event of her winning both rounds of elections. For Le Pen to deliver on Frexit, she will need approval from France’s bi-cameral parliament. France’s parliament is split between the Assemblée Nationale and the Sénat. In theory, both houses

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Snap AV: The SNB and Le Pen

20 days ago

Credit Suisse ask an interesting question: What lies in store for the Swiss Franc if a President Le Pen were to emerge on May 8th?Volatility in polling alone has to make the question worthwhile, particularly since Switzerland is once again, in the words of CS, feeling a bittersweet pinch from the franc’s reputation as a relative ‘safe haven’ currency.Do remember the SNB let their currency floor go in 2015 and as the FT noted on Tuesday, FX reserves have hit a fresh record high after two months of declines. Chances are, if Le Pen wins and risk spikes, that will only get more… painful? As CS argue:Although recent political surprises like the UK referendum and Trump’s election come to mind, a more appropriate episode for comparison might be fears of Eurozone breakup between 2011-12. At that

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Further reading

20 days ago

Elsewhere on Wednesday,– Further watching: the NYT sat down with Bridgewater’s Ray Dalio. It starts out about Bridgewater’s “radical transparency” policy, moves to Dalio’s suggestion that the NYT was less than honest in its reporting on his company’s culture, and then to the role and accuracy of the media more generally.– Guess the recently IPO’d company time: “By Monday, five of the seven analysts who cover the company had a sell rating on it while two said hold.” Spoiler: It’s Snap.– “The first thing to understand about not just the current Uber controversy (controversies), but all Uber controversies is that while it not usually articulated as such, in fact there are multiple questions being debated.”– Time to come clean about health spending.– Of Kenneth Arrow and how “individual

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Knowing Me Knowing You, as seen in Indian bank lending

20 days ago

Ah, I see we share many of the same social characteristics?So yeah, my subconscious is giving you a fast track to validation. Or, perhaps more charitably, I am simply better able to gauge your creditworthiness via “soft” private information? Either way, you can have a loan.That’s a crude summary of a recent paper by Raymond Fisman, Daniel Paravisini, and Vikrant Vig which looked at a large state-owned bank in India where they had access to caste and religious affiliation data, and where, crucially, an “explicit officer rotation policy among branches provides variation in the matching between lenders and borrowers”.With our emphasis:We find strong evidence of preferential in-group treatment. In the baseline results we define two individuals as belonging to the same group when both are

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Further reading

21 days ago

Elsewhere on Tuesday, – The London Whale resurfaces: Bruno Iksil speaks out. And from the last par:Iksil is writing a book about the affair. He has written at least three drafts. The latest includes his allegations that senior executives at JP Morgan should take more of the blame for the losses. He has no publishing contract. “I’ve been waiting now for [almost five] years,” he says. “I think it’s time to say the things. The truth has to be told.”– Brookings: Credit rating reform is incomplete.– European buyout firms head for the exit.– From Noaphinion: “But as important as the border adjustment is, it might not be the most significant change in the tax reform plan. The House plan would also fundamentally change the way that U.S. corporations finance themselves, wreaking huge changes in

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Citi’s Matt King says “sell”

22 days ago

And quite bluntly at that. With our emphasis:What’s a manager supposed to do when by early March your asset class has already exceeded your expectation for full-year returns? Take profit and take the rest of the year off, of course! And if it carries on rallying, go outright short! Yet somehow nobody seems to want to.Part of the reason is that the rally owes more to inflows and short covering than to institutional investor exuberance. And part is that the economic data do seem genuinely to be improving. But sell we think you should, not only in € credit (as we advised a couple of weeks ago) but also more broadly.He suggests seven reason not to trust your “inner Trump”, here so bullet pointed and slightly fleshed out:1. The Fed may stop the inflow party — as mentioned up top “the principal

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Further reading

22 days ago

Elsewhere on Monday, – Gavyn Davies: Why the Fed means business this time.– China’s state of the nation contained “30 references to the ‘party’ — more than in any year since the launch of reforms under Deng Xiaoping in 1979. Mr. Xi, who is also the party’s leader, was name-checked eight times, more than any serving leader since Mao Zedong racked up 17 work-report mentions in 1975.”– Tapping Trump? A recap of what we know.– An NYT longread on Jeff Sessions and the Department of Justification.– Ouch: “PwC’s Oscars blunder is a good opportunity to look at the cases where PwC and the other Big Four really failed, at times when there was a good reason for their reputation to be clobbered.”– DeLong: Rethinking productivity growth.– The limits of knowledge and what economists know.– The Fed’s

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The beginning of a blueprint for a bad bank in India

24 days ago

If we were betting types we’d have already put good money (Rs2000 notes, naturally) on the idea that a bad bank will eventually be set up in India.We don’t say that because the Economist has just covered the topic. Or because India’s bad loan/ twin balance-sheet problem is widely known and so far intractable.We don’t say it because the idea has been floating around in India for a while. Or because ex-central bank governor Raghuram Rajan, who was against the idea, has left the picture.We don’t say it because both the government’s chief economic advisor and the central bank’s new deputy governor have come out with their own plans recently.We don’t say it because it just feels inevitable. Or based on the pros and cons of the situation.We also don’t say it because China makes such a handy

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Further reading

25 days ago

Elsewhere on Friday, – This sentence from Bloomberg on the pet leasing world of Dusty Wunderlich is quite something… “There is just no way I should pay over $5000 for a $2000 puppy,” wrote one customer in an April 2014 complaint collected by the Federal Trade Commission after financing a Yorkshire terrier from a Kennesaw, Georgia, pet store with a lease from Wags Lending.– On Snap’s securities, as “calling them shares would be a crime against the Old English etymology of the word… For now, they really should be considered rights to participate in Snap’s losses”– Also, might just reheat this Damodaran blog from Feb 17 valuing Snap pre-IPO.– From Harvard Law: The 100 most overpaid CEOs.– From the WSJ: Was Aubrey McClendon a billionaire, or broke?– KPMG offshore tax dodge a ‘facade’ designed

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Snap AV: This inflation is headline, the other one is far away

25 days ago

From Capital Economics, with our emphasis:February’s rise in euro-zone consumer price inflation put it in line with the ECB’s 2% price stability ceiling for the first time since January 2013, but underlying price pressures remain subdued. The increase in headline harmonised CPI inflation, from 1.8% to 2.0%, was in line with the consensus forecast and left the rate at its highest in over four years. But the pick-up entirely reflected higher energy and food inflation while the core rate was unchanged at just 0.9%.And from ING:Eurozone inflation is making a come-back. HICP inflation came out at 2% in February, after 1.8% in January. This was in line with consensus. The main culprits for the higher inflation figure are the usual suspects: energy (+9.2% YoY) and fresh food (+5.2% YoY). Bear in

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Further reading

26 days ago

Elsewhere on Thursday, – From the NY Fed: When debts compete, which wins?– Krugman on Trump and coal being a state of mind.– In which DeLong is annoyed at being paired with John Taylor.– David Andolfatto vs Lawrence White on the Fed’s balance sheet/duration risk.– Company insiders are dumping stock at levels ‘rarely seen,’ report indicates.– From the StreetwiseProf: “Glencore and Ivan Glasenberg were (and are) just along for a ride on the commodity price roller coaster, which is located at a Chinese amusement park.”– Target Inc. blows up, Florida man not involved.– Kenneth Arrow, Robert K. Merton and reigns of error.– If you want a dramatic example of the extreme environmental challenges facing India… this is it.– “Having dominated the Democratic Party for years, the meritocrats now find

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India’s cash crunch, GDP data and “negative speculation”

27 days ago

India’s economic growth estimates for the final quarter of 2016 have landed with a thud of vindication for backers of demonetisation — the shock overnight decision to ban 86 per cent of India’s cash on November 8.As has been fulsomely documented, the move was made with little preparation. Despite claims to the contrary, there wasn’t anywhere near enough replacement cash available after the decision was announced.But it seems, at first blush, that this monetary experiment has made far less of a dent in economic growth than many had thought would be the case.Included in the growth realists dilettantes sceptics were… you will be unsurprised to learn… some journalists. It’s a fact not lost on India’s policymakers. “The number completely negates the negative speculations you have made about the

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Further reading

27 days ago

Elsewhere on Wednesday,– Uber CEO on video arguing with driver over falling fares. Fair warning: In the vid “Maroon 5’s ‘Don’t Wanna Know’ plays, and Kalanick shimmies.”– Mike Mayo doesn’t need a job to f*ck with JPMorgan.– Harvard endowment to lay off 57 staffers as overhaul begins.– Caruana: “Analysis of BIS international banking and securities data suggests that global financial integration has not peaked.”– Bubbles for Fama.– A peer city identification tool from the Chicago Fed.– “’Big Government’ in America today is both debt-financed and proxy-administered.”– The BBC on whether the UK has fallen out of love with experts.– Branko Milanovic treading on potentially dangerous ground: “There is a clear affinity between economists and political scientists in the Machiavelli tradition.”–

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Snap AV: Brexit, and Trump and Le Pen, oh my!

27 days ago

No, but seriously, this time is different. Polling wise, that is.Probably.Some more Deutsche to put Le Pen’s polling gaps into a Brexit/Trump context. With our emphasis:In the US, polls underestimated Trump support in the popular vote over Clinton by 1.9pp. In the case of Brexit, in the week before the referendum, polls’ average margin of error versus the final result was 6.2ppThe following graphs trace the history of polls in the six months prior to the vote for Brexit, and from the day Trump and Clinton were the official nominees in the US. The solid lines represent actual polling data. The dotted lines adjust for the margin of error. We apply the Brexit and Trump margins of error to the Le Pen-Fillon gap and the Le Pen-Macron gap in the French second-round polls. For example in the

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Further reading

February 21, 2017

Elsewhere on Tuesday,– Gavyn Davies: How will President Trump reshape the Fed?– DeLong vs Rodrik: Twenty-first century American nationalism needs to be profoundly cosmopoiltan.– BoE: Is economic uncertainty holding back growth in the euro-area?– Liquidity transformation and open-ended funds.– A strong precis from a new paper: We find that deviations from the covered interest rate parity condition (CIP) imply large, persistent, and systematic arbitrage opportunities in one of the largest asset markets in the world. Contrary to the common view, these deviations for major currencies are not explained away by credit risk or transaction costs. They are particularly strong for forward contracts that appear on the banks’ balance sheets at the end of the quarter, pointing to a causal effect of

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Snap AV: European stress, mapped

February 17, 2017

From Nomura, a heat-map and an attempt to assess Europe’s deleveraging efforts. In particular, “relative to the pre-crisis years of 2007 and 2010”.The headline is that things are obviously better even if there are pockets of equally obvious concern. Namely, France…… there are still several obstacles that need to be overcome before the eurozone can seamlessly break free from its long-standing troubles. Those obstacles include a notable lack of space for fiscal stimulus amidst still-high sovereign debt levels and relatively large Target 2 imbalances in the periphery. Creeping capacity constraints are moreover a concern for Germany. And France’s worsening levels of fiscal and external stress are a concern not least if – against our view – a new government were not strongly inclined to

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Further reading

February 17, 2017

Elsewhere on Friday,– From the BoE: Low real interest rates and depression economics, not secular trends.– Dan Davies: What lettuces tell us about deregulating Britain.– Is the chicken industry rigged? A longread into what Matt Levine calls “chicken Libor”.– NY Fed: Total household debt nears 2008 peak but debt picture looks much different.– When the IMF evaluates the IMF.– Italy’s struggle with the euro straitjacket.– The acting SEC chair is using his temporary powers.– Catalyst plays down its own importance: “Our exposure was greatly exaggerated, and our impact on the market was greatly exaggerated,” said Szilagyi by phone. “Comments that we were forced to short cover are not correct. We haven’t been forced to do anything.”– Something must give in oil, charted.– Central bank goldbug du

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Snap AV: One of these is not like the other, global inequality edition

February 16, 2017

Some inequality clickbait from a new Piketty paper:And this par, with our brief emphasis:We observe a clear pattern of rising inequality: top income groups enjoyed relatively more growth, while the situation has been very different for the bottom. In China, top groups have enjoyed very high growth, but aggregate growth was also so large that even the bottom 50% average income grew markedly by +401% between 1978 and 2015. This is likely to make rising inequality much more acceptable. In contrast, in the US, there was no growth left at all for the bottom 50% (-1%). France illustrates another type of situation. Very top incomes have grown more than average, but this pattern of rising inequality happened only for very high and numerically relatively negligible groups, so that it had limited

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It’s the ‘Indian IT will be fine’ hope that kills you

February 16, 2017

An occasional series about the distant possibility that Donald Trump does not in fact herald the apocalypseFrom Ambit’s Sagar Rastogi and team:It is difficult to forecast the exact legislation, but the intent of the US government appears to be preventing visa abuse not killing Indian IT. So in our base case scenario, we assume that over FY19 and FY 20 the cost per onsite worker for an Indian IT company will rise to a minimum of US$100,000 p.a. from ~US$50,000 now. We are different from consensus in that we estimate the cost of all onsite workers to increase instead of only the H-1B visa-holders. We estimate that this would no impact revenue growth of Indian IT but hurt margins by 350-730bps over FY18-20.Poor Indian IT. Not only do they have to deal with the harsh reality that their

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Further reading

February 16, 2017

Elsewhere on Thursday, – Chinese hedge funds have their own private village.– Bernanke on the Fed and fiscal policy.– Kashkari: Make big banks put 20 per cent down — just like home buyers do.– NYFed: Houses as ATMs no longer. Including:– “And while some French voters are wary of this extremism, riots in neighborhoods with heavy immigrant populations could be the nudge these voters need to pull the lever for Le Pen.”– Tax and the growing ranks of the self-employed.– Greenwald on the Flynn leakers: “What matters is not the motive of the leaker but the effects of the leak. Any leak that results in the exposure of high-level wrongdoing — as this one did — should be praised, not scorned and punished.”– Predictable but notable: Mary Jo White to rejoin Debevoise & Plimpton as senior chair.–

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What Chinese monetary tightening?

February 15, 2017

The headline is courtesy of the UBS note quoted further down. But to get to that we’re going to need some compare and contrast time.First, Goldman Sachs outlining what is a fairly standard fear amongst those who think China is not on the surest path to sunlit economic uplands, even if concerns about an imminent crash have moderated over the past year or so:The biggest vulnerabilities to unintended tightening are probably in the less formal areas of off-balance sheet spending (on the fiscal side) and non-bank credit extension (on the monetary side). On-budget fiscal policy is relatively transparent and controllable, but how local governments will respond to changing incentives—including anticorruption efforts, shifts in performance criteria, and changing availability of credit—is harder to

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Further reading

February 15, 2017

Elsewhere on Wednesday,– Stephen Williamson on the Fed’s balance sheet blues: “It’s hard to make a case that QE is a big deal, or that stopping the Fed’s reinvestment policy is risky or harmful – indeed it might improve economic welfare.”– Beckworth: The monetary superpower is as strong as ever.– “First, kill all the economists” sounds great to some, but it won’t fix monetary policy.– Nickel-and-dime socialism… or “1) the management of social wealth funds, and 2) the transferring of private wealth into social wealth funds.”– Little late to this but worthwhile: Amazon’s antitrust paradox.– Mastering the art of the dividend recap… and picking up a shed load of art and property as you do.– Snap’s Apple strategy.– AirBnB wants to spend some of the $3bn it’s sitting on.– Lyon, the capital of a

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