In May, we began talking bullishly about European stocks and put a position on for select accounts. As Buffett said about his recent European stock buys, the news hadn't gotten better but the prices sure had.
The valuations were absurdly low relative to what investors are paying for the US and Japan. Price to earnings ratios - on both a trailing-12 months basis and cyclically adjusted over ten years - are substantially lower for Euro stocks than for their US counterparts. At the same time, dividend yields in Europe are significantly higher.
In addition, you'd have to leave earth to find a more hated asset class. Everyone's underweight Europe - they think it's the "conservative" thing to do while they chase the Russell 2000 at 20 times earnings. Meanwhile it's the largest economy on earth - 760 million people in 48 countries producing $16 trillion in GDP. read more on The Reformed Broker
Keywords: Europe, European Economy
Job Curtis, co-portfolio manager of the Henderson Global Equity Income Fund, provides his views on the improving economic background and describes the Fund's positioning both geographically and by sector.
Extremley relevant graph for the judgement of the innovation power of countries.
Keywords: Inventors, Immigrants, Emigrants, Inventors
2013 top ten in Innovation Index Ranking:
1 Switzerland 66.6 (Score)
2 Sweden 61.4
3 United Kingdom 61.2
4 Netherlands 61.1
5 United States of America 60.3
6 Finland 59.5
7 Hong Kong 59.4
8 Singapore 59.4
9 Denmark 58.3
10 Ireland 57.9
"Much attention has been given to the recent growth of the U.S. federal debt. This paper examines the growth of federal liabilities that are not included in the officially reported numbers. These take the form of implicit or explicit government guarantees and commitments. The five major categories surveyed include support for housing, other loan guarantees, deposit insurance, actions taken by the Federal Reserve, and government trust funds. The total dollar value of notional off-balance-sheet commitments came to $70 trillion as of 2012, or 6 times the size of the reported on-balance-sheet debt. The paper reviews the potential costs and benefits of these off-balance-sheet commitments and their role in precipitating or mitigating the financial crisis of 2008."
Read also more on Econbrowser, the blog of the author.
Keywords: US Government Liabilities, Government Debt, Public Off Balance Sheet Commitments
One of the biggest economic stories in the world right now is the sharp slowdown in China’s economy. On Monday, the country reported that it had grown just 7.5 percent in the second quarter of 2013, a worrisome drop from previous quarters.
To get a clearer sense of why China is in such economic turmoil — and whether it could drag the rest of the world down with it — I called up Patrick Chovanec, a longtime China watcher who is currently chief strategist at Silvercrest Asset Management and was formerly an associate professor at Tsinghua University’s School of Economics and Management in Beijing. A transcript of our talk follows. read the whole interview with Patrick Chovanec in the Washington Post
Keywords: China, Chinese Economy
The Economist: Charlemagne Blog on European Politics
The Becker Posner Blog
The Circle Bastiat
Follow the latest discussion in the academic blogosphere (a service rendered by St.Louis Fed):
"This paper develops a new tax measure – the Tax Attractiveness Index – reflecting the attractiveness of a country’s tax environment and the tax planning opportuni-ties that are offered. Specifically, the Tax Attractiveness Index covers 16 different compo-nents of real-world tax systems, such as the statutory tax rate, the taxation of dividends and capital gains, withholding taxes, the existence of a group taxation regime, loss offset provi-sion, the double tax treaty network, thin capitalization rules, and controlled foreign compa-ny (CFC) rules. We develop methods to quantify each tax factor. The Tax Attractiveness Index is constructed for 100 countries over the 2005 to 2009 period. Regional clusters in the index as well as in the application of certain tax rules can be observed. The evaluation of individual countries based on the index corresponds – but is not totally identical – with the OECD’s ‘black’ respectively ‘grey’ list. By comparing the Tax Attractiveness Index with the statutory tax rate, we reveal that even high tax countries offer favorable tax condi-tions. Hence, the statutory tax rate is not a suitable proxy for a country’s tax climate in any case since countries may set other incentives to attract firms and investments."
Below is an excerpt from the paper conclusion, which explains that the statutory tax rate is not a suitable proxy for country comparisons and that special incentives have to be considered. The paper shows that also various EU countries apply aggressive special measures to attract firms. Looking at the tax attractiveness index constructed here one has to recognize that some EU countries such as The Netherlands, Ireland and more and more the UK belong to most aggressive tax jurisdictions. Furthermore, various "black lists" constructed by the OECD and specific countries could have a political element in it and might not be solely based on analytical measures.
Excerpt from paper conclusion:
"This paper develops a new tax measure – the Tax Attractiveness Index. The index co-vers 16 different tax factors, many of which have been neglected in existing tax measures so far. Hence, the Tax Attractiveness Index represents a new approach to measuring the attrac-tiveness of a country’s tax environment and the tax planning opportunities that are offered. We find that off-shore tax havens, such as Bermuda, the Bahamas, and the Cayman Islands provide very favorable tax conditions as reflected by high index values. However, certain Eu-ropean countries, such as Luxembourg, Cyprus, the Netherlands, Ireland, and Malta also achieve high index values. In further analyses, we observe regional clusters in the Tax Attrac-tiveness Index and certain tax rules. Moreover, we show that the index corresponds with the OECD lists of countries and tax regimes that are perceived as constituting harmful tax compe-tition. However, several exceptions can be noticed revealing that certain countries were re-moved from the OECD list although their tax environments did not change significantly. Fur-thermore, we find that the statutory tax rate is not a suitable proxy for a country’s tax envi-ronment in any case. In contrast, countries set incentives other than the statutory tax rate to attract firms and investments. Especially in Europe, many high tax countries offer extremely favorable tax conditions." Source: Keller, Sara; Schanz, Deborah, Measuring tax attractiveness across countries
Keywords: Taxes, Tax Attractiveness
Related: You find on the blog a table with the top 100 list
Keywords: Inflation official, Inflation real
..."That’s one downside: Cheap money is hard to reverse gracefully. The larger problem is that central banks are trying to do things beyond their powers. Says Stephen Cecchetti, the chief BIS economist: “Monetary stimulus alone cannot put economies on a path to robust, self-sustaining growth, because the roots of the problem preventing such growth are not monetary.” In the annual report, he argues that low interest rates might even be counterproductive. They make it easier to finance large budget deficits and may delay needed, though unpopular, cuts"...
Keywords: Monetary Policy, Easy Money
Here is an excerpt about crisis roots in the Euro Area:
..."Recognizing the need to find new sources of growth, the United States towards the end of Jimmy Carter's term, and then under Ronald Reagan, deregulated industry and the financial sector, as did Margaret Thatcher's United Kingdom. Competition and innovation increased substantially in these countries. Greater competition, freer trade, and the adoption of new technologies, increased the demand for, and incomes of, highly skilled, talented, and educated workers doing non-routine jobs like consulting. More routine, once well-paying, jobs done by the unskilled or the moderately educated were automated or outsourced. So income inequality emerged, not primarily because of policies favoring the rich, but because the liberalized economy favored those equipped to take advantage of it.
The short-sighted political response to the anxieties of those falling behind was to ease their access to credit. Faced with little regulatory and supervisory restraint, sometimes based on the faith that private incentives worked best in this best of all worlds, the financial system overdosed on risky loans to lower middle class borrowers, aided and abetted by very low policy interest rates.
Continental Europe did not deregulate as much, and preferred to seek growth in greater economic integration. But the price for protecting workers and firms was slower growth and higher unemployment. And, while inequality did not increase as much as in the US, job prospects were terrible in the Euro periphery for the young and unemployed, who were left out of the protected system.
The advent of the euro was a seeming boon, because it reduced borrowing costs and allowed countries to create jobs through debt-financed spending. The crisis ended that spending, whether by national governments (Greece), local governments (Spain), the construction sector (Ireland and Spain), or the financial sector (Ireland). Unfortunately, spending pushed up wages, especially but not exclusively in the non-traded sectors like government and construction. Without a commensurate increase in productivity, the heavy spenders became increasingly uncompetitive and indebted and started running large trade deficits.
Of course, it did not seem at that time that countries like Spain, with its low public debt and deficits, were overspending. But as Andrew Crockett foresaw, the boom masks lending problems. Spanish government revenues were high on the back of the added activity and the additional taxes, and so spending seemed moderate. However, if spending was adjusted for the stage of the cycle, it was excessive"....
Keywords: Monetary Policy, Financial Crisis
“While financial crashes, recessions, earthquakes and other extreme events appear chaotic, Didier Sornette’s research (done at Swiss Federal Institute of Technology, Zurich) is focused on finding out whether they are, in fact, predictable. They may happen often as a surprise, he suggests, but they don’t come out of the blue: the most extreme risks (and gains) are what he calls “dragon kings” that almost always result from a visible drift toward a critical instability. In his hypothesis, this instability has measurable technical and/or socio-economical precursors. As he says: “Crises are not external shocks.”
Keywords: Financial Crisis, Forecasts, Predictions, Crisis Indicators
Keywords: Self-Driving Cars, Robots
Keywords: Innovation, Technologies, Disruptive Technologies
a must read!
Keywords: Monetary Policy, Central Banking
..."Right now there are 4,062 new regulations at various stages of implementation, of which 224 are deemed "economically significant," i.e., their economic impact will exceed $100 million.
The cost of all this, Mr. Crews estimates, is $1.8 trillion annually—that's on top of the federal government's $3.5 trillion in outlays, so it is equivalent to an invisible 65% surcharge on your federal taxes, or nearly 12% of GDP. Especially invidious is the fact that the costs of regulation for small businesses (those with fewer than 20 employees) are 36% higher per employee than they are for bigger firms.".. Source: Wall Street Journal
Keywords: United States, Regulation, Cost of Regulation
MIT researcher Wei Pan about why many cities grow more than linearly:
..."There have been plenty of theories. Adam Smith famously figured that people become more productive when we’re able to specialize, each of us honing a separate area of expertise. And when lots of us elbow into cities, we’re able to specialize in ways that we can’t when a rural farmer must also double as his own butcher, accountant and milkmaid. Other economists have suggested that cities become great agglomerators of industry when factories cluster together around economies of scale and communal access to transportation.
"We think there’s an underlying completely different way of thinking here, which is very different from the economist’s way of thinking," says Pan, a doctoral candidate in computational social science in the MIT Media Laboratory's Human Dynamics Lab. Previous work by researchers at the Santa Fe Institute has proven the math behind the power of cities: As they grow in population, all kinds of positive outcomes like patents and GDP and innovation (and negative ones like STDs and crime) grow at an exponential factor of 1.1 to 1.3.".. Source: The Atlantic
Keywords: Economic Growth, Growth of Cities, Connected Economy, Innovation
.............. "Many believe that a financial crisis will force spending limits. But those probably won’t come until it’s too late to correct the system. The solution is to rebuild the legal restraints on federal activities using the Tenth Amendment and a rewritten debt limit that forces politicians to make spending choices across both discretionary and entitlement accounts." Source: Forbes
Read full article in Forbes
Keywords: Government Power, Government Spending
"The country's tepid growth in its gross domestic product isn't creating enough good jobs to build a strong middle class, according to a UCLA report released Wednesday.
"Growth in GDP has been positive, but not exceptional," UCLA economists wrote in their quarterly Anderson Forecast. "Jobs are growing, but not rapidly enough to create good jobs for all."
The report, which analyzed long-term trends of past recoveries, found that the long-anticipated "Great Recovery" has not yet materialized.
Real GDP growth — the value of goods and services produced after adjusting for inflation — is 15.4% below the 3% growth trend of past recoveries, wrote Edward Leamer, director of the UCLA Anderson Forecast. More robust growth will be necessary to bring this recovery in line with previous ones.
"It's not a recovery," he wrote. "It's not even normal growth. It's bad." read more in LA Times
Keywords: US Economy, US Recovery
"With public confidence in the European project waning, the idea of initiating a ‘civil dialogue’ with the public emerged in the mid-1990s as a way of bolstering the EU’s democratic legitimacy.
Citizens have not been consulted directly, however. Instead they have been ventriloquised through ‘sock puppet’ charities, think tanks and other ‘civil society’ groups which have been hand-picked and financed by the European Commission (EC). These organisations typically lobby for closer European integration, bigger EU budgets and more EU regulation.
The composition of ‘civil society’ at the EU level is largely dictated by which groups the Commission chooses to fund. There has been a bias towards centre-left organisations, with a particular emphasis on those promoting policies that are unpopular with the public, such as increasing foreign aid, restricting lifestyle freedoms and further centralising power within EU institutions.
The EC’s favoured civil society organisations are also marked by a homogeneous worldview and similarity of jargon. The literature and websites of these groups suffocate the reader with vague rhetoric about ‘stakeholders’, ‘sustainability’, ‘social justice’, ‘capacity building’, ‘fundamental rights’, ‘diversity’, ‘equity’ and ‘active citizenship’.
Many of the groups which receive the Commission’s patronage would struggle to exist without statutory funding. For example, Women in Europe for a Common Future received an EC grant of €1,219,213 in 2011, with a further €135,247 coming from national governments. This statutory funding made up 93 per cent of its total income while private donations contributed €2,441 (0.2 per cent) and member contributions just €825 (0.06 per cent).
There is virtually no funding for organisations which seriously question the Commission’s direction of travel. By contrast, groups that favour closer union and greater centralisation are generously funded. The ‘Europe for Citizens’ programme which ‘gives citizens the chance to participate in making Europe more united, to develop a European identity, to foster a sense of ownership of the EU, and to enhance tolerance and mutual understanding’ has a €229 million budget for 2014-20.
Substantial EU funds are also used to support organisations that share the Commission’s environmentalist agenda. The Green 10 represent the largest of Europe’s environmental lobby groups, but dozens, if not hundreds, of like-minded ecological organisations also receive EU funding. The Commission freely admits that funds are given to environmental groups ‘to support policy development’.
Civil society groups in non-member countries are another funding priority for the Commission. In 2012/13, its Neighbourhood Civil Society Facility had a €22 million budget to be distributed to groups in Eastern Europe, North Africa and the Middle East, later increased to €45.3 million. Many Youth in Action grants have been given to projects in potential new member states such as ‘Unite Unite Europe!’ (Serbia), ‘Be Active, Be European!’ (Albania) and ‘Citizen of my country, citizen of my Europe!!’ (Kosovo).The EC’s policy of picking allies and supporting them with taxpayers’ money has made the system more elitist and less democratic."
Keywords: European Union, EU
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