Saturday, December 23, 2006

A more isolationist US

These comments from Robert Reich provide some insight into one of the strands that will fight for supremacy in the new Democratic party.
Economist's View: Reich: An Introduction to Economic Populism:
"Or consider trade-opening agreements. They give Americans access to more low-cost products and services from abroad. This makes Americans’ dollars go further. But the agreements especially benefit the rich, who spend more ... because they have more income to spend. The agreements also typically impose a burden on working-class Americans who... lose their jobs to foreigners. These job losers get new jobs, but studies show the new jobs pay 10 to 15 percent less... Even if you assume that access to cheaper goods from abroad adds about 10 to 15 percent to their purchasing power, these working-class wage earners come out about even, at best. That means the overall result of most trade agreements is to widen inequality. Do the efficiency benefits of trade outweigh this result? Maybe a decade ago when inequality was less pronounced. Probably not, now. "

Friday, December 22, 2006

Regulation and governance

Regulation has pushed firms towards private equity. :
"But supporters and critics of private equity agree on one thing: recent corporate governance regulation in the US has given buy-out funds a new edge there over publicly listed companies and their executives. The Sarbanes-Oxley law, passed in 2002 when the scars left by the Enron and WorldCom scandals were still fresh, requires that chief executives and board directors exercise stricter oversight of governance and audit processes.
Corporate executives protest that compliance with the new law, which has increased the risk of legal action against companies and individuals, is an expensive, time-consuming affair that dilutes their focus on company performance and strategy.
For their part, buy-out executives make no secret of their willingness to exploit the current climate to tempt companies and executives away from public markets. “We have a great corporate governance advantage,” says Kevin Conway, managing partner at Clayton, Dubilier & Rice, the buy-out firm. “Our board members are much more focused on driving the performance of the company than looking at processes.”"

Tuesday, December 19, 2006


The JSSM- 2006, Vol.5, Issue 4, 480 - 487 points to research showing that there are inefficincies in the market for betting on cricket matches. Thanks to Paul Kedrosky for the pointer.:
"Using a multiple linear regression model, prediction variables were numerically weighted according to statistical significance and used to predict the match outcome. With the use of the Duckworth-Lewis method to determine resources remaining, at the end of each completed over, the predicted run total of the batting team could be updated to provide a more accurate prediction of the match outcome. By applying this prediction approach to a holdout sample of matches, the efficiency of the 'in the run' wagering market could be assessed. Preliminary results suggest that the market is prone to overreact to events occurring throughout the course of the match, thus creating brief inefficiencies in the wagering market."

Saturday, December 09, 2006


The Economist on the custody business

"Global custodians safeguard and administer securities for banks, mutual funds and other institutional investors. It is an unglamorous line of work, but an important one. It can also be lucrative: BoNY and Mellon made combined net profits of $1.88 billion from servicing others' assets in the first nine months of the year"


An indication of how liquidity in the US market is greater than that in euro area.

Battle over government bonds heats up: "However, the rub is that these bizarre restrictions reflect an even more bizarre political paradox. When the single currency was launched in 1999, European governments hoped this would create a single capital market. However, member states have continued to issue their own bonds. As a result, there are now some 600-odd euro government bonds currently listed on MTS in a dizzyingly fragmented patchwork.

One consequence of this is that small European governments are terrified the market will ignore their bonds, if it was ever left to its own devices. After all, one reason why the US market has liquidity, even without market makers, is that most activity is centred on half a dozen traded Treasury issues, called “on the run”. "

Thursday, December 07, 2006

Is it debt? Is it equity?

The FT on
Hybrid financing motoring along
"This was always supposed to be the year of the hybrid – but the environmentally friendly car’s popularity is being matched by a complex financing tool halfway between debt and stock that companies can use to raise capital cheaply"

A good overview of current market conditions.

Tuesday, December 05, 2006

Lex - Scottish independence & oil / Lex - Scottish independence & oil:

"Nationalists like the example of Ireland’s high growth and euro membership. But economically, Scotland’s ability to stand alone boils down to North Sea energy. Without it, Scotland is dominated by the public sector, and subsidised by England, with a budget deficit of £13bn or 13 per cent of gross domestic product estimated this fiscal year, and public spending at 55 per cent of GDP. But include the North Sea, and GDP and tax revenues leap by at least a quarter, leaving the deficit at just 2 per cent and public spending at about 40 per cent."

Monday, December 04, 2006

Fixed costs

Amazon aims to remove the fixed cost from business making is easy, in theory, for anyone to start up a business.
Amazon's new direction:
"You can rent space on Amazon's computers to run a business, or rent out its transaction capabilities to sell things and collect money, or rent pieces of its warehouses and distribution system to store and ship items — or all of the above.
So, with almost no start-up costs, anyone anywhere could become a retailer. It's not just contracting with Amazon to sell your stuff, the way Target does. It's leasing pieces of Amazon to create something totally unrelated to Amazon.
'We can take all the things that used to be fixed costs and let people pay by the drink,' Bezos says. 'It's letting people create a business by remote control.'"

Friday, December 01, 2006


Booming world liquidity is evident everywhere from the cash available for LBOs, through credit spreads and the price of raw materials. The absence from goods prices seems to relate to the equal abundance of labourm drawn into the global market through the changes in economic policy in countries from China and India, though Russia and the rest of CEE. Samuel Brittan - Money is making a comeback:
"Monetary analysis has recently made a comeback because of many signs that, in their efforts to avert recession early this century, central banks permitted an excessive expansion. One of the best explanations is given by Andrew Smithers, the City of London economist, in his report World Liquidity. He notes that the ratio of US broad money to GDP is higher than at any time, with the exception of the 1930s slump and the second world war. Eurozone money supply growth is well above its “reference range” and UK annual broad money growth is at its fastest since 1990. The Organisation for Economic Co-operation and Development has just published estimates of “global liquidity” based on both money and credit measures that show it is “abundant and continuing to grow”."