The euro area may be facing renewed deflationary pressures. Inflation measures are now near multi-year lows and falling. see some interesting charts on CPI, French employment, monetary base etc. on Sober Look
Keywords: Europe, European Crisis, European Recovery
Former Morgan Stanley managing director and manager of the Federal Reserve's $1.25 trillion agency mortgage-backed security purchase program, Andrew Huszar, about the backdoor bailout of Wall Street banks:
I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time. read more in the Wall Street Journal
Keywords: Fed, Quantitative Easing, Bank Bail Outs, Bank Recapitalizations, Main Street, Wall Street
Why it is important to look with methodology and persistence to look for the best tier or best quartile private equity funds:
Private-equity investors often enjoy superior returns. But what happens when you account for factors like illiquidity and high fees — both of which make it riskier to invest?
Three academics argue in a new National Bureau of Economic Research paper private equity is basically a wash for the average investor, once you price in the various risks — such as being locked in for years, or not being able to rebalance the portfolio as the years go by
“On average, LPs may just break even, net of management fees, carry, risk, and costs of illiquidity,” write Morten Sorensen of Columbia University, Jinqiang Yang of Shanghai University of Finance and Economics, and Neng Wang of Columbia Business School. “LP” is limited partner, which is the lingo for the high net-worth individuals and institutions who invest in private equity.
Here’s a look at the intuition: read the whole article in Barrons
Keywords: Private Equity, Private Equity Fund, Private Equity Performance
Interesting article and charts by Wesley R. Gray, PhD, on the ratio of GDP growth/Corporate Profits, which seems to be of quite importance to investors such as Warren Buffett:
Keywords: Market Timing, Investor Strategy, GDP Growth to Corporate Profits
McCahery, Joseph A. and Vermeulen, Erik P. M., Recasting Private Equity Funds after the Financial Crisis: The End of 'Two and Twenty' and the Emergence of Co-Investment and Separate Account Arrangements (November 8, 2013). Lex Research Topics in Corporate Law & Economics Working Paper No. 2013-2. Available at SSRN: http://ssrn.com/abstract=2351816
"This article examines the post-financial crisis trends in the private equity industry. Although most research has followed the pre-crisis trends, we show that investors are demanding the inclusion of more investor-favorable compensation terms in limited partnership agreements. Our findings suggest that these new terms not only provide the investors with more favorable management fee and profit distribution arrangements, but also give them more control over the fund’s investment decisions. Importantly, the new pattern also reveals the inclusion of more straightforward co-investment rights. Besides the contractual ‘improvements’, we observe that investors want to see more skin in the game from the managers/general partners."
Keywords: AIFMD, Carried Interest, Co-Investment Rights, Private Equity Fees
This article reviews the mechanics of the Bitcoin currency and offers some thoughts on its characteristics. read the article on the Chicago Fed homepage
Excerpt from the authors conclusion:
..."Some of bitcoin’s features make it less convenient than existing currencies and payment systems, particularly for those who have no strong desire to avoid them in the first place. Nor does it truly embody what Hayek and others in the “Austrian School of Economics” proposed. Should bitcoin become widely accepted, it is unlikely that it will remain free of government intervention, if only because the governance of the bitcoin code and network is opaque and vulnerable. That said, it represents a remarkable conceptual and technical achievement, which may well be used by existing financial institutions (which could issue their own bitcoins) or even by governments themselves."
Keywords: Bitcoin, Private Currency, Alternative to Money Monopoly of Government
A lot of serious stuff explained in a convincing, funny way. Some explanations could certainly be questioned.
Keywords: Europe, European Crisis, ECB Monetary Policy
Keywords: Wealth, Middle Class, Liberalization
Admati, Anat R. and DeMarzo, Peter M. and Hellwig, Martin F. and Pfleiderer, Paul C., Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Socially Expensive (October 22, 2013). Rock Center for Corporate Governance at Stanford University Working Paper No. 161. Available at SSRN: http://ssrn.com/abstract=2349739
"We examine the pervasive view that "equity is expensive," which leads to claims that high capital requirements are costly for society and would affect credit markets adversely. We find that arguments made to support this view are fallacious, irrelevant to the policy debate by confusing private and social costs, or very weak. For example, the return on equity contains a risk premium that must go down if banks have more equity. It is thus incorrect to assume that the required return on equity remains fixed as capital requirements increase. It is also incorrect to translate higher taxes paid by banks to a social cost. Policies that subsidize debt and indirectly penalize equity through taxes and implicit guarantees are distortive. And while debt’s informational insensitivity may provide valuable liquidity, increased capital (and reduced leverage) can enhance this benefit. Finally, suggestions that high leverage serves a necessary disciplining role are based on inadequate theory lacking empirical support.
We conclude that bank equity is not socially expensive, and that high leverage at the levels allowed, for example, by the Basel III agreement is not necessary for banks to perform all their socially valuable functions and likely makes banking inefficient. Better capitalized banks suffer fewer distortions in lending decisions and would perform better. The fact that banks choose high leverage does not imply that this is socially optimal. Except for government subsidies and viewed from an ex ante perspective, high leverage may not even be privately optimal for banks.
Setting equity requirements significantly higher than the levels currently proposed would entail large social benefits and minimal, if any, social costs. Approaches based on equity dominate alternatives, including contingent capital. To achieve better capitalization quickly and efficiently and prevent disruption to lending, regulators must actively control equity payouts and issuance. If remaining challenges are addressed, capital regulation can be a powerful tool for enhancing the role of banks in the economy."
Keywords: Financial Institutions, Capital Structure, "Too Big To Fail"
Nobel Laureate Edmund Phelps, author of the book "Mass Flourishing - How Grassroots Innovation Created Jobs, Challenge, and Change"
Keywords: Wealth, Growth, Mass Flourishing
Keywords: Economy, Economic Basics
"We disaggregate the self-employed into incorporated and unincorporated to distinguish between “entrepreneurs” and other business owners. The incorporated self-employed have a distinct combination of cognitive, noncognitive, and family traits. Besides coming from higher-income families with better-educated mothers, the incorporated—as teenagers—scored higher on learning aptitude tests, had greater self-esteem, and engaged in more aggressive, illicit, risk-taking activities. The combination of “smarts” and “aggressive/illicit/risk-taking” tendencies as a youth accounts for both entry into entrepreneurship and the comparative earnings of entrepreneurs. In contrast to a large literature, we also find that entrepreneurs earn much more per hour than their salaried counterparts."
Keywords: Self-Employed, Entrepreneurs, Earnings
More realistic CBO assumptions show that it is very difficult to get out of the debt trap:
....A very striking feature of the latest CBO report is how much worse it is than last year's. A year ago, the CBO's extended baseline series for the federal debt in public hands projected a figure of 52% of GDP by 2038. That figure has very nearly doubled to 100%. A year ago the debt was supposed to glide down to zero by the 2070s. This year's long-run projection for 2076 is above 200%. In this devastating reassessment, a crucial role is played here by the more realistic growth assumptions used this year.....
Most CBO scenarios do not show how debt can be reduced:
...Only in three of 13 scenarios?two of which imagine politically highly unlikely spending cuts or tax hikes?does the debt shrink from its current level of 73% of GDP...
Keywords: US Government Shut Down, US Debt
..."Study the roots of our new tech economy, and you’ll find that it differs in important ways from the Internet bubble of the ’90s. That blip was fed by the promise of future billions that we were certain to realize from the web economy. Today’s tech industry, on the other hand, feeds off of three megatrends that are already minting billions by revolutionizing every sector of the global economy, including healthcare, manufacturing, energy, media, and advertising. The first of these trends is the transition from hulking desktop PCs to ubiquitous mobile devices that allow tech firms—most notably Bay Area behemoths Apple, Google, and Facebook—to address their customers’ desires at a proximity never before achievable. The second is the rising urge to incorporate software into every corner of our lives: from booking restaurants (OpenTable), to hailing cabs (Uber), to searching for jobs (LinkedIn), to adjusting our home heating and cooling systems (Nest), to paying for everything (Square, PayPal), to finding a room anywhere in the world (Airbnb). Third is our full-throated embrace of personalized services—from algorithmically determined TV programming (YouTube, Netflix) to geographically targeted advertising (Google, Facebook, Twitter)—that are fueled by ever-larger storehouses of data collected through our mobile gadgets. And all of these forces amplify one another. More mobile devices make for more personal data, which allow for better personalized software that we use more often, which in turn makes mobile devices more attractive—and on and on in a gilded upward spiral." Source: San Francisco Magazine
Keywords: Technology, Innovation, Tech Boom
It’s time to gore another collectivist sacred cow. This time it’s the popular idea that the successful are obliged to “give back to the community.” That oft-heard claim assumes that the wealth of high-earners is taken away from “the community.” And beneath that lies the perverted Marxist notion that wealth is accumulated by “exploiting” people, not by creating value–as if Henry Ford was not necessary for Fords to roll off the (non-existent) assembly lines and Steve Jobs was not necessary for iPhones and iPads to spring into existence. read the whole article in Forbes
Keywords: Income, Wealth, Contribution to Society
“‘Your No. 1 client is the government,’ John J. Mack, Morgan Stanley MS +0.75%‘s chairman and chief executive from 2005 to 2009, told current CEO James Gorman in a recent phone call. Mr. Gorman, who was visiting Washington that day, agreed.” – Wall Street Journal, September 10, 2013.
The five year anniversary of the ‘financial crisis’ has predictably generated all manner of commentary about its presumed causes. What’s most unfortunate five years later is that ‘financial’ and ‘crisis’ are still used together. It’s unfortunate simply because despite what you read, the crisis was decidedly not financial, nor was it caused by a crackup in the housing market, nor was it caused by the failure of Lehman Brothers. read more in Forbes
Keywords: Financial Crisis, Great Depression, Government, Banking Sector, Government and Market Distortions
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