Tuesday, 30 April 2013

Letta's demeaning trip to Berlin

The absurd reality of the Euro-Zone is revealed by the report that the new head of Italy's government is hurrying to make a trip to Berlin (to have his plans approved by Merkel?). Mussolini in his declining years was reduced to a similar humiliation. In the meantime German industry kills off the competition that is locked into the Euro straight-jacket.

Euro-Bonds, Sinn and Soros - the overlooked danger

Always interesting when some heavyweights are fighting it out. My main answer to the problems with the Euro is simple: one should never have embarked on this half-baked - and undemocratic - experiment. But to advocate Euro-Bonds as the solution is overlooking one important risk: what would happen if one of the member countries would want to leave the Eurozone after a large volume of these bonds has been created? Would we see the equivalent of the American Civil War in order to bring a recalcitrant nation to heel if the citizens are unwilling to continue to shoulder the burden created by profligate states?

Monday, 15 April 2013

Bank of England clueless - 'QE does not create asset bubble'

One has to wonder where else all the freshly printed money has disappeared to. It does not seem to go into more bank lending, so where has it gone? Would be interesting to know what level property and share prices - not to mention interest rates - would be without this unprecedented flood of money. May God protect us from civil service economists at the Central Banks - and the international bodies such as the OECD and the IMF.

Wednesday, 3 April 2013

Stock Buy-backs - Poison for the Economy?

There were times and places where companies were not allowed to buy their own shares. This was principally meant to prevent share price manipulation. But 'Modern' Financial Theory has induced company managements, investors and their hired guns in banks to make buy-backs an enormous (and largely unsupervised) activity. One is even left with the impression that share price manipulation has become the main focus of the top echelon of company managements. This should be no surprise as this narrow 'elite' benefits directly from a rising share price. Compensation schemes are also designed to make share speculation a one-way bet for these executives. Any drop in share prices is quickly 'compensated' by a fresh shower of (free) share options and re-priced 'long-term' incentive plans (strictly to the few at the top of course). No wonder that economic commentators wonder why companies do not invest and contribute to economic growth (let alone benefit the other 99.9 percent of the population). Apart from the economic and societal negative effect of unchecked share price manipulation these buy-backs not-too-rarely lead to outright value destruction as many transactions are conducted at price levels that later turn out to have been much too expensive (maybe even due to the fact that the market was expecting managements to perform the role of the 'greater fool', the sucker who buys at the top of the market).