To make the most justified choices, now there's a phrase for you.
We love it. But it does raise a few questions: justifiable for whom and for what?
Wouldn't it be a wonderful world if we could all make the most justifiable choices. Don't know about you but my taxes are justifiably way too high and I would love to lower them. Let me add, albeit, legally.
Whenever we talk to the IRS they always seem to settle on the side most justifiable for them. And from most taxpayers we've discussed the issue with they seem to--unless your last name is Warren Buffett, and he pays taxes at the capital gains not income rate--make justifiable choices in their favor.
And that brings up a question or three about the latest overnight economic media sensation, Thomas Piketty, and his Opus Inequality, "Capital in the Twenty-First Century" that had most of the MSM here and abroad writhing in their panties over.
Now we don't have a camel in this race other than the often cited but seldom used abstract notion about fair play.
It's pretty clear what Piketty is and it was pretty clear a while back what those two Harvard economists are who were taken to task for "similar errors." We got to confess, however, Piketty's explanation appears the more slimy of the two.
What we'll find out soon is how many of the carping blowhards back then will step into the fray now.
http://blogs.marketwatch.com/capitolreport/2014/05/23/piketty-appears-to-have-got-his-sums-wrong-financial-times-says/
If you never heard of Robert Citron, you probably won't fully understand James Macintosh's "The Short View" column in yesterday's Financial Times.
Though few parallelisms are exactly the same--that's what ensnares many--it's the concept you have to grasp.
Mackintosh wrote: The good thing about central bankers promising low rates for a long time is it should encourage businesses to take risk and borrow money, without the danger of rate rises pushing up their costs. The bad thing about central bankers promising low rates for a long time is that it encourages investors to take risk and to borrow too.
Robert Citron was a long time Treasurer-Tax Collector of Orange County, California. As Treasurer he controlled several county funds and he consistently earned higher returns than many other government agencies, so much so he at one point had to turn down money that flocked to him from other agencies.
These were school boards, water districts and the like, all located in the county, all wanting higher yields or return on their funds, all wanting their drink from the OC Treasury wizard's investment trough.
In many years Citron's returns were nearly twice what those boys and girls in Sacramento were earning for the state of California. That kind of performance attracts attention. And Citron didn't mind the cynosure a bit.
The only Democrat at the time in a highly Republican area, voters overwhelmingly re-elected him seven times. Citron borrowed short and invested long, at one point borrowing money to use as collateral to borrow more money to invest.
The interest rate needle on the velocity meter back then appeared stuck on stuck. Some call it the carry trade, not too much different from what all those yield-starved investors today who've been piling into sovereign debt bonds of EU peripherals, emerging markets, not to mention longer-dated US Treasuries.
But an unexpected interest rate shift in 1994 caught Citron and his highly levered funds on the wrong side in what developed at the time into the largest municipal bankruptcy in US history and Citron's eventual fall from grace.
There are all kinds of leverage out there and nobody really knows how much and what kinds. If that doesn't frighten you, why would you think one of those vampire movies would? Save your money.
Mackintosh quotes a recent Bank of England statement about investors to increase yields selling options, "betting against market falls," another way of saying wagering interest rates won't surprise and volatility will remain flat.
Here's how the Bank of England stated it, overlook if you can the stilted central banker language.
"To the extent that that might reflect imprudent risk taking, it could be an amplifying channel in the event of a sharp rise in market volatility."
In other words, to quote Mackintosh again: "If something goes wrong it could go very wrong."
In Citron's case liquidity dried up unexpectedly, the banks stopped rolling over the debt so he could take advantage of the higher interest rates and Robert Citron became a chapter in municipal financial history far beyond his fondest imagination.
Just in case Pfizer is considering making still another offer--hostile or otherwise (and we're well aware of UK regulations on M&A activity)--to Astra-Zenica, keep in mind that these mega deals often happen at or near the top of bull markets,
If you're a Pfizer shareholder, large or small, you should let their BoD know such a deal is not in your best interest. Few if any of these big mergers create value for anyone other than investment bankers in exorbitant fees.
Money is cheap. Cheap money is supposed to be for creating value, things like jobs and increased productivity, giving the economy a needed shot in the arm. Most big mergers are job killers of the first degree. Pfizer's track record in these deals when it comes to adding value is pitiful.
But forget Pfizer for now. Check the record of other similar big deals. And like that famous Wendy's commercial some time back, you too will be asking: "Where's the beef?" As we said, what little there is goes to a few higher ups and those greed-driven bankers.
Bankers are not now and never will be your friend, especially if the term is preceded by either investment or central.
As we said before, the tax savings was the best part of this stinker from the beginning. Much of the rest was just made-up-to-look-good sound bites. Now CEO Ian Read's probably a decent sort and his kids most likely love him, but he wasn't putting any money in the majority of shareholder's pockets.
And that, my thirsty shareholders, is supposedly one of the most basic tenets of Business 101.
Like the words of that old Steven Allen classic: "This could be tbe start of something big."
We certainly hope so.
Pfizer sort of kicked the would-be tax-saving party off. And don't look now but there's another one. This one taken up by shareholders of the biggest drug chain in the US, Walgreens.
You want to unchain Prometheus? Forget all that neoclassical Keynesian government spending gibberish. Unleash what you've got. Cut the onerous corporate tax shackles and watch the economy and jobs take off.
Kudos to those investors pushing Walgeens to relocate in Switzerland after the firm's $16B takeover of Alliance Boots recently. Are you paying attention corporate America and all you shareholders concerned about having enough money for your retirement?
Insist on an end to double taxation of dividends. Put your foot down on that big, fat Washington Leviathan. Their tax nonsense and wasteful ways are just an old song nobody's going to sing any more. It won't happen without you.
If you want proof of how effective it would be just check what stock prices of other drugstores did on the news.
Mohammed El-Erian, the ex-Pimco guru, who spends much of his time now writing articles for Bloomberg and the Financial Times, a nice gig if one can get it, in today's FT penned a piece about what seems these days everyone's favorite topic, deflation versus inflation.
To begin with, most didn't expect the flattening yield curve that's been riding herd on the market since the start of the year. Nor did they expect the small cap slowdown, to name just one of many other surprises.
El-Erian lists three things, lack of European and American economic growth; US Fed choosing to ignore jobs and other data, saying they will keep interest rates low for time being and that few traders were ready for these low rates let along a flat yield curve.
With the above in mind here's a quote, noting that the most important sentences here are the first and the last rather tortuous one.
I
n theory, there is little to worry about as lower interest rates should be self-correcting on all three counts. By reducing mortgage rates, they increase house affordability and, for existing homeowners, the incentive to refinance mortgages--both of which support homes prices and housing activity. They also push investors out of bond holdings and into riskier assets.
Indeed, this is the main objective of the 'unconventional policies' pursued by leading central banks, in the hope that the resulting price surge in risky assets makes households and businesses feel better, encouraging greater consumption and higher investments (via energized "animal spirits").
The little to worry about should start you worrying big time. Anytime you hear in theory, it's like when the girl says, "You're a really nice guy, but...." Look out for that but. It's a damage control term as in "Well, we did try to warn you.".
Don't lose any sleep, just be aware that bureaucrats are running this show. Any day now one may be appearing at a theater or VA Medical Center near you saying, "I'm a bureaucrat and I'm here to help you."
In our recent post, "Cooking With Stealth," we wrote the following.
The whole thing smells of an economic scam to keep the eyes of working folks off inflation and declining purchasing power. In some circles it's referred to as highway robbery by stealth.
Now go back and reread Mr. El-Erian's first and last sentences. As we said, it's nice work if one can get it. And you listen carefully you can hear the air being pumped.
Well, they went and did it again.
One could ask what part of rejection doesn't Pfizer's headman, Ian Read, understand.
We've heard he's Scottish by birth. Maybe that explains it.
If you're a PFE shareholder--and we and our clients are--and this last rejection, like a good vaccine, takes, you ought to be thrilled. Vaccines are something PFE and its leader should grasp; it's part of their medical portfolio.
Truth be spread and it seldom is in these big acquisitions (Just ask KKR!) this one smelled from the beginning. Escaping the USA's onerous corporate tax burden, something all big US corporations ought to consider if for no other reason than to get the attention of those Washington buffoons, was the best part of this stinker.
If you were a money manager and your track record was as pathetic as Pfizer's M&A deals when it comes to creating value, you'd been tarred, feathered and left for broke a longtime ago.
And on a synergy basis the two sides had about as much in common as me and my ex-girl friend.
Pfizer should take a hint from Swiss voters who just rejected the highest minimum wage hike in the history of the planet by nearly 74 percent.
When you're not welcome, your not welcome.
Buy backs have been much the rage in this latest bull market charge.
Now there appears to be a new-old kid in town, capital spending. If you're looking for a reliable indicator, you might want to use the old hiker's wind gauge of wetting the tip of your index finger and sticking it in the air, chances are you'll fare just about as well as those with their expensive, convoluted econometric confabulations.
And right now that moist finger seems to be drying in the direction of capital spending. This is not to suggest that capital spending had dried up. Like my old boss, it just wasn't appreciated that much. Buy backs were.
In this weekend's edition of the Financial Times the teaching of the dismal science at the undergraduate level came under some heavy fire: "The world has changed a lot. Economics has changed a lot too. But the curriculum hasn't."
At the center of this controversy is the claim that for the past 30 years teaching quantitative methods have increasingly dominated the courses. This is per se, according to the critics, not a cry against neoclassical or mathematical tenets of the dismal science but a call for the recognition that these are only part of the total.
With all undue respect, we highly recommend the wet index finger wind test. It's right up there with another bete noire of classical economics, anecdotal evidence. And if you're really interested in discovering what's happening, put the two together.
On a performance basis, there's something else in the air. Stocks of companies that have increased capital spending of late have far outperformed those who are using their cash, borrowed or otherwise, for buybacks. The bottom line here is sentiment and perception are cuts from the same investor fabric.
Low interest rates create low funding costs. So you might want to start looking at firms that are putting their money where their future growth is since growth drives earnings. There is, however, just one caveat. But please don't try to tell it to elected bureaucrats.
Some folks are just better than others at managing they're own money.
Well, we've got a new international bureaucratic hero.
He's not an Italian. He's a Frenchman. His name is Arnoud Mounteburg, France's so-called fiery economy minister.
As we stated in a previous post France is considering legislation to block the takeover of French firms by foreigners. In defense of his position on the issue, Mr. Mounteburg recently labeled the decree a "choice of economic patriotism."
If foreign investment in France gets any rarer it'll soon be on the international endangered species list. France already protects from foreign invaders some 11 various industries. The latest move would add health, energy, transport and telecom.
French stocks have been one of the poorest performers over the last four years. That's the good news. The bad news is if adopted the new rule could subject one tenth of the CAC 40 to the law.
Mountebourg is not new to this game. He reportedly is the one who killed Yahoo's bid for Dailymotions, a French you tube competitor. To be fair other countries, including the US, have from time to time fought against foreign takeovers. Quite often it was disguised in the interest of national security.
Mounteburg is particularly bellicose in the eyes of many. He is especially upset about General Electric's bid for the French electrical firm Alstom. Known as "decret Alstrom" or for those with smaller egos "decret Mountebourg," the good economy minister labeled it the end of "Laissez faire economic policy."
Perhaps the rest of the globe, especially those with foreign capital to invest, should issue its own decree. Call it "decret le France go down the economic tubes, a decret of global patriotism."
