Harris Tweed’s Sterling Concern Dismissed by Traders – Bloomberg 08-27-14

Salient to Investors:

  • Currency trading suggests traders are dismissing the prospect of an upset “yes” in the September 18 referendum on  Scottish independence. Strategists say the pound’s peaks and troughs in 2014 reflect the prospect of the BOE becoming one of the first major central banks to raise rates.
  • Geoffrey Yu at UBS said traders believe there is a close to zero chance of the vote passing – so small it becomes hypothetical.
  • Callum Henderson at Standard Chartered said the little market reaction to the prospect of the Scotland referendum reflects an assumption that the result will be a ‘no’ vote.
  • Most polls reveal enough undecided voters to suggest that a large swing toward the nationalists could leave them victorious.
  • Nobel economists Joseph Stiglitz and James Mirrlees say an independent Scotland not being able to use sterling is a bluff by UK’s three main political parties. Mirrlees said a formal currency union would be an excellent arrangement, while Stiglitz recommends Scotland retain the pound.
  • Standard Life said in February it was preparing to shift business elsewhere should Scots vote for independence because of risks surrounding the currency and financial regulation.

Read the full article at http://www.bloomberg.com/news/2014-08-27/harris-tweed-s-sterling-concern-dismissed-by-traders.html

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Stiglitz Says Stalling Euro Area Shows Dismal Failure – Bloomberg 08-20-14

Salient to Investors:

Joseph Stiglitz at Columbia said:

  • Euro-area austerity policies have been a dismal failure as growth grinds to a halt.
  • Monetary policy cannot substitute for fiscal union – construction of a European banking union is too slow. Mutualization of euro-area debt – rejected by Germany and others – would mean Europe could borrow as a whole at interest rates at US levels.

Read the full article at  http://www.bloomberg.com/news/2013-09-19/asset-bubbles-found-by-finnish-economist-inspired-by-grandfather.html

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The 1% May Be Richer Than You Think, Research Shows – Bloomberg 08-06-14

Salient to Investors:

  • Philip Vermeulen at ECB and Gabriel Zucman at London School of Economics said the wealth of the super-affluent is undercounted because of tax shelters and non-responses to questionnaires. Zucman said the top 0.1% of Americans with at least $20 million in net wealth owned 23.5% of all US wealth in 2012.  Vermeulen said the 1% held 35%-37% of wealth in 2010.
  • Zucman said financial wealth held offshore costs the US government $36 billion in annual revenue from nonpayment of taxes.
  • Zucman said 10% of the wealth of Europe’s super rich is in offshore accounts versus 4% in the US, and very rich people have wealth in foundations and holding companies that are difficult to calculate. Some European countries, particularly the UK, are actually as or even more unequal than the US, despite data showing they are more wealth-equal.
  • Christoph Lakner and Branko Milanovic at the World Bank said correcting the income data almost erases progress made from 1988 to 2008 in narrowing the gap between the world’s rich and poor.
  • Joseph Stiglitz cites a growing sense that our system is rigged and unfair and said some of the problems in the economy system are related to the true degree of inequality.
  • Carter Price at the Center for Equitable Growth said looking retrospectively, it is hard to assess what the effects of a policy were.
  • Austria’s top 1% owned as much as 36% of the country’s wealth in 2013, when adjusted for Forbes’ data.
  • Tyler Cowen at George Mason University said focusing on the top 1% when looking at income distribution is misguided: the real issue is whether there is opportunity for everyone else.

 

Read the full article at http://www.bloomberg.com/news/2014-08-06/the-1-may-be-richer-than-you-think-research-shows.html

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Another Seinfeld Election for Australia – Bloomberg 09-01-13

Salient to Investors:

William Pesek writes:

If there were ever proof that ex-PM Julia Gillard was not defeated for her performance, this election campaign is it – Abbott and PM Kevin Rudd have offered nothing new or insightful to voters, and neither have come up with a plan to redefine Australia’s economy and its place in the world.

The run-up to September 7 does not bode well for Australia’s future. Chinese demand is slackening, commodity markets are in turmoil, climate change is intensifying.

Joseph Stiglitz has warned about a crisis Down Under, citing deficit fetishism. Australia’s national debt is comparatively tame: if government debt peaks at $330 billion in April 2016, as expected, it will still only be equivalent to South Korea’s currency-reserve holdings.

Australia needs high-return investments in technology, education, broader Internet access, and a state-of-the-art rail and highway system if it is ever to develop a growth strategy that does not depend on selling commodities to China.

Australia is the world’s 12th biggest economy.

Read the full article at  http://www.bloomberg.com/news/2013-09-01/another-seinfeld-election-for-australia.html

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Rogoff Saying This Time Different Calls for Reflation Bloomberg 08-12-13

Salient to Investors:

Kenneth Rogoff at Harvard said:

  • Janet Yellen and Lawrence Summers qualify to replace Bernanke because of their dovishness about placing too much weight on stable inflation when unemployment is far above its longer-run level.
  • Aggressive monetary stimulus is needed, even at the cost of moderate price increases, because with weak global inflation, higher prices may even help the US economy by lowering real interest rates and reducing debt burdens.
  • In more normal times, you want the Fed to be an anchor against high inflation and assure investors that inflation will stay low and stable to keep interest rates down.
  • Many central banks need to convince the public of their tolerance for inflation, not their intolerance.
  • There is little stomach at the Fed for more than 2.5 perrcent inflation.

Joseph Stiglitz at Columbia University said policy makers for the next 3 or 4 years will be focused on reviving the economy, and the likelihood that inflation is going to be a problem is very small.

Ethan Harris at Bank of America said the Fed won’t risk allowing medium-term inflation to deviate above 2.5 percent, even under Summers or Yellen. Harris said once you accept higher inflation, it becomes a slippery slope and eventually you get inflation that hurts the economy – viz 10+ percent inflation in the 1970s and 1980s .

Read the full article at  http://www.bloomberg.com/news/2013-08-12/rogoff-saying-this-time-different-calls-for-reflation-economy.html

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Stiglitz Says Too Soon to Cut U.S. Stimulus as Growth Not Normal – Bloomberg 05-26-13

Salient to Investors:

Nobel laureate Joseph Stiglitz said it is premature for the Fed to reduce monetary stimulus despite little evidence it has helped the economy, which is not back to normal. Stiglitz said the stimulus may have contributed to asset price bubbles and to a weaker dollar.

Zhu Min at the IMF said the US economy is still in the recovery phase, so maintaining the momentum of the growth is still a main issue. Zhu said a slowdown in China is not necessarily bad news as you need to move the growth model from more investments in exports into internal consumption – it is very good that China is not overly emphasizing on the growth rates.

The median economist expects growth to slow to 2 percent in 2013 from 2.2 percent in 2012, and then expand to 2.7 percent in 2014.

Read the full article at http://www.bloomberg.com/news/2013-05-26/stiglitz-says-premature-for-fed-to-reduce-u-s-monetary-stimulus.html

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Joseph Stiglitz attacks US ‘inequality’ – BBC News 01-24-13

Salient to Investors:

Joseph Stiglitz  said:

The richest 1% of Americans have doubled their wealth  since 1980 and now hold 25% of the country’s wealth, yet the median income level in the US had not changed since the early 1990s.

The American dream has gone: the US has one of the worst opportunity rates in advanced economies, and a child’s life chances are more dependent on the income of the parents than most other industrial economies.

A major bipartisan effort over the past 20 years had markedly improved equality in Brazil, while Scandinavian countries were leading the way with the highest levels of equality.

Read the full article at http://www.bbc.co.uk/news/business-21183987

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Euro-Area Unemployment Rate Rises to Record: Economy – Bloomberg 10-31-12

Salient to Investors:

Unemployment in the 17-nation euro region rose to 11.6 percent from 11.5 percent in August, the highest since data started in 1995. Youth unemployment is at 23.3 percent.

Christoph Weil at Commerzbank is now more pessimistic, saying the euro-area economy will only return to growth in Q2 2013 and the jobless rate will increase to 12 percent.

Professor Joseph Stiglitz at Columbia is very pessimistic about the prospects of a European recovery because their austerity packages will almost inevitably weaken the economy – nothing is in place that will promote economic growth.

Read the full article at http://www.bloomberg.com/news/2012-10-31/euro-area-unemployment-climbs-to-record-inflation-slows-1-.html

Euro Strength Seen by Stiglitz Removing Greek Debt – Bloomberg 06-11-12

Salient to Investors:

Greece accounts for just 2.3 percent of EU GDP, and 4.3 percent of EU debt. Without Greece , the EU would have had a trade surplus in 2011.

Germany has posted a trade surplus every month since May 1991 and has avoided recession since 2009.

OECD says the euro is undervalued against 10 of 12 major counterparts.

Predictions:

Nobel laureate Joseph Stiglitz believes losing Greece will strengthen the EU, and expects the euro to rise.

Nomura Holdings’ Jens Nordvig sees a stronger and more stable monetary union if Greece exits if followed by additional integration – with the euro rising as much as 8 percent. But with no additional integration, capital flight would accelerate and the euro would drop significantly. A Greece exit wouldn’t greatly impact the remaining economies.

George Soros said European leaders have a three-month window to correct their mistakes and reverse current trends. He expects the euro to survive because a breakup would be devastating also for Germany.

Harvard’s Martin Feldstein believes a Greek exit would be chaos short-term, but allow Greece to devalue its new currency and return growth and employment.

Berenberg Bank’s Christian Schulz opposes a Greece exit, but if it happens then it is better for the other EU countries because they are more harmonized already.

Eaton Vance’s Michael Cirami said a Greek exit would lead to a stronger and more stable currency bloc in the medium to long-term.

Read the full article at http://www.bloomberg.com/news/2012-06-11/euro-strength-seen-by-stiglitz-removing-greek-debt.html