The Stock Market Can Go Much Higher Before It's A Bubble [View article]
Has created aggregate demand shortfalls, I would say, beginning in the late 1990s. They are likely to continue until wage differentials among nations shrink. Macroeconomic policy can blow a bubble here or there in high-GDP-per-head countries, but it cannot change the fundamental causes of the lack of final demand. What do you think?
The Stock Market Can Go Much Higher Before It's A Bubble [View article]
Very fine article. Thanks.
The change in the relationship between the earnings of labor and capital has been a long-term trend, as you have observed. It seems to have accelerated in the 21st century. The reasons for that, I would argue, are technology and the cross-border competitiveness of labor.
Where Is The Commercial In Commercial Banks: JPMorgan Chase And Wells Fargo First Quarter Reports [View article]
Keep me posted, please, John. We need new thinking. And maybe even it can come from some of us oldsters. By way of background, I was slated to be NY Superintendent of Banks in 1978, but the commercial banks, I guess in typical inbred fashion, blackballed me because I had, as a lawyer. represented the savings banks in a litigation (well, actually two) brought by the commercial banks to restrict the savings banks' powers (to offer checking accounts and debit cards). Seems like awful foolishness at this 30-plus year remove. But such was the world.
Where Is The Commercial In Commercial Banks: JPMorgan Chase And Wells Fargo First Quarter Reports [View article]
John, you are a traditional banker. But don't you think the banking system as the principal transmission mechanism for monetary policy is broken? I mean broken from a theoretical point of view; not repairable.
The data tell us that the transmission mechanism is not working now. The way that commercial banks function vis-a-vis the capital markets tells me that the data are not telling us something temporary.
The Cyprus Bailout Was The Best Thing To Happen To Europe Since Last August [View article]
I wish I knew the answer. Under U.S. law, the deposit and the mutual fund shares would be subject to two entirely different sets of laws. I do not know anything about the laws of Cyprus.
The Cyprus Bailout Was The Best Thing To Happen To Europe Since Last August [View article]
A bankrupt government may be unable to meet its deposit insurance obligations. If that is the case, and there are no European rules for dealing with insolvent banks, then it is true that anything can happen--as it almost did in Cyprus. I think it unlikely that insured deposits will not be paid, but that cannot be ruled out until there is a clear, lawfully adopted European mechanism for dealing the failed banks, preferably including a European insurance fund backed by the ECB (which can lend money to the fund). A mechanism can work without deposit insurance if it states clear preferences for deposits up to a certain amount.
As to deposits leaving weak banks in weak countries, that has been happening for years--and it is likely to continue. IMHO that will bring continuing pressure on the European countries to sever the links between the banks and the sovereigns.
As to a nation leaving the euro, that is possible as a political matter. But my guess is that if one nation did so, the result would be so catastrophic for that nation that other nations would not follow. The euro was indeed badly designed, but the bad design did not include a usable escape hatch.
Is It Better To Bank With Cyprus Than The U.S.? [View article]
If you had $1 million in either restructured Cyprus bank, you would not have lost 10%. You do not yet know what you would have lost. But it most likely will be in the neighborhood 30 to 40%.
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
Ms Brown: The FDIC's insurance obligations are guaranteed by the full faith and credit of the United States of America (which has the right to print dollars), and the FDIC has a line of credit from the Treasury as a liquidity backstop. Insured deposits are never going to be subject to any haircut in the United States. Period. It is extremely irresponsible for anyone who purports to know anything to suggest the contrary.
Cam, please don't forget banking integration through supervision and resolution powers. That is an essential part of the Draghi plan. I believe the Cyprus event will have scared some European governments into supporting true banking integration. It will take time to implement, but it must be done if Draghi is going to succeed.
All deposits are merely loans to the bank. In some places deposits have an official priority, but in many places, they are pari passu with senior debt.
I do not believe that all the European banks are insolvent. Many of the largest are solvent, although most of them are undercapitalized. And most of the large undercapitalized banks could raise adequate capital, at the expense of diluting their current shareholders, which they would have to do because qualifying for zone-wide deposit insurance would be a must in order to be a respectable bank.
As to there being no money to fund a new deposit insurance fund: No money is required. The banks agree to pay into the fund quarterly based on their deposits. Provided that the banks admitted to the fund are in fact adequately capitalized, then the odd failure (a) should not cost a large percentage of the bank's footings, and (b) a liquidity back-up from the ECB would be sufficient to tide the fund over. In this circumstance, the ECB has a proper incentive not to let unhealthy banks into the fund.
Your point about the snow plow is, however, raises a different issue. It raises a point about what governments are for. Governments at all levels are starved for cash to invest. Lower labor earnings make that problem worse, I will grant. But higher taxes have to play a role in keeping infrastructure like snow plows up to date so the private sector can do its job.
International Asset Allocation Revisited [View article]
Good caveats. I happen to think that among large caps correlation is here more or less to stay.Small caps are small caps, I grant, and they do tend to be more local in their markets. I like small caps in general as a part of a portfolio, and from time to time, they have been a material part of mine. Because I see the likelihood of a market event in the next five years, I am in small caps sparingly, but I do have several.
As to Europe: There may well be opportunities in Europe based on valuation. I saw some and recommended them about a year ago--but only for the medium term and I am now out. I am concerned about Europe at this point, so I am not reaching for the potentially higher return there.
A Portfolio For The Next Market Crash [View article]
You have a good point, Rob. As everything becomes more international, it becomes harder to know what has changed and what has not changed. If we look at where U.S. companies expect their grwoth to come from, we find that few think it will come largely from the U.S.
A Portfolio For The Next Market Crash [View article]
I fear that when a market event occurs, it affects all financial asset classes, other than cash, perhaps. If that is correct, then there is no safe place, other than cash or near-cash.
Although it is true that some market sectors tend to perform better than others in down markets, companies that have strong enough balanced sheets to maintain their dividends in periods when earnings suffer are likely to perform better than others.
I think calling Apple and Cisco "tech" stocks is now a misnomer. Apple is a global consumer brand. It happens to use cool technology, but so does a car maker or any other manufacturer of anything except soap or food--and even some of them are technology driven.
Cisco is a supplier to the global internet infrastructure. As such, although it, too, relies on technology, its strength (and weakness) is that the world cannot do without its products, although it can slow down purchases when times are bad.
The Stock Market Can Go Much Higher Before It's A Bubble [View article]
The Stock Market Can Go Much Higher Before It's A Bubble [View article]
The change in the relationship between the earnings of labor and capital has been a long-term trend, as you have observed. It seems to have accelerated in the 21st century. The reasons for that, I would argue, are technology and the cross-border competitiveness of labor.
Where Is The Commercial In Commercial Banks: JPMorgan Chase And Wells Fargo First Quarter Reports [View article]
Where Is The Commercial In Commercial Banks: JPMorgan Chase And Wells Fargo First Quarter Reports [View article]
The data tell us that the transmission mechanism is not working now. The way that commercial banks function vis-a-vis the capital markets tells me that the data are not telling us something temporary.
The Cyprus Bailout Was The Best Thing To Happen To Europe Since Last August [View article]
The Cyprus Bailout Was The Best Thing To Happen To Europe Since Last August [View article]
As to deposits leaving weak banks in weak countries, that has been happening for years--and it is likely to continue. IMHO that will bring continuing pressure on the European countries to sever the links between the banks and the sovereigns.
As to a nation leaving the euro, that is possible as a political matter. But my guess is that if one nation did so, the result would be so catastrophic for that nation that other nations would not follow. The euro was indeed badly designed, but the bad design did not include a usable escape hatch.
Is It Better To Bank With Cyprus Than The U.S.? [View article]
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
You Just Don't Understand Europe [View article]
The Lessons Of The Cyprus Debacle [View article]
The Lessons Of The Cyprus Debacle [View article]
I do not believe that all the European banks are insolvent. Many of the largest are solvent, although most of them are undercapitalized. And most of the large undercapitalized banks could raise adequate capital, at the expense of diluting their current shareholders, which they would have to do because qualifying for zone-wide deposit insurance would be a must in order to be a respectable bank.
As to there being no money to fund a new deposit insurance fund: No money is required. The banks agree to pay into the fund quarterly based on their deposits. Provided that the banks admitted to the fund are in fact adequately capitalized, then the odd failure (a) should not cost a large percentage of the bank's footings, and (b) a liquidity back-up from the ECB would be sufficient to tide the fund over. In this circumstance, the ECB has a proper incentive not to let unhealthy banks into the fund.
U.S. Labor To Get Slammed In 2013 [View article]
Your point about the snow plow is, however, raises a different issue. It raises a point about what governments are for. Governments at all levels are starved for cash to invest. Lower labor earnings make that problem worse, I will grant. But higher taxes have to play a role in keeping infrastructure like snow plows up to date so the private sector can do its job.
International Asset Allocation Revisited [View article]
As to Europe: There may well be opportunities in Europe based on valuation. I saw some and recommended them about a year ago--but only for the medium term and I am now out. I am concerned about Europe at this point, so I am not reaching for the potentially higher return there.
A Portfolio For The Next Market Crash [View article]
A Portfolio For The Next Market Crash [View article]
Although it is true that some market sectors tend to perform better than others in down markets, companies that have strong enough balanced sheets to maintain their dividends in periods when earnings suffer are likely to perform better than others.
I think calling Apple and Cisco "tech" stocks is now a misnomer. Apple is a global consumer brand. It happens to use cool technology, but so does a car maker or any other manufacturer of anything except soap or food--and even some of them are technology driven.
Cisco is a supplier to the global internet infrastructure. As such, although it, too, relies on technology, its strength (and weakness) is that the world cannot do without its products, although it can slow down purchases when times are bad.