The Whipping Boy

By | 2013-03-29T10:30:41+00:00 March 29th, 2013|Global Market Update|

Does Europe have its own Tim Geithner? In January I asked rhetorically whether Jeroen Dijsselbloem was up to the task of leading the Euro Stability Group during these tumultuous times. It turns out we may have an answer, and it isn’t good. To deal with its banking crisis, the President of Cyprus proposed taxing all deposits—even small deposits. Over Dijsselbloem’s objections, this plan was aired last week. After being voted down, it was back to the drawing table—this time directly with Europe’s “troika,” cutting [...]

Acq-ward (Part 2)

By | 2013-03-28T09:00:46+00:00 March 28th, 2013|Global Market Update|

So when are acquisitions justified? We’ve all seen the compulsive, serial acquirer. Sometimes they’re justified—like when they’re in a disaggregated, fragmented industry with small, inefficient players. By rolling these up, the acquirer can offer better prices to customers, a simpler outlet for suppliers, and a growing revenue stream, earnings yield, and stock price. Such Borg-like M&A machines plow through an industry saying, “You will all be assimilated.” But more often than not serial acquirers are serial value-destroyers, who need to be stopped before they [...]

Acq-ward (Part 1)

By | 2017-07-17T12:34:40+00:00 March 27th, 2013|Uncategorized|

Why do companies acquire other companies? Imagine this: you’re CEO of a fairly successful company. Your cash-flow margin is solid, and your sales are growing. You’re hiring new people, integrating them into your culture, increasing your dividend, and gradually expanding. Life is good. You only have one problem: your cash-hoard keeps growing. Normally, that’s not a problem, or at least, it’s better than the alternative. But eventually that cash calls to you, telling you that it wants a new home. What do you do? [...]

The Color of Money

By | 2017-07-17T12:34:41+00:00 March 26th, 2013|Global Market Update|

Is gold money? That’s the question Ron Paul asked Ben Bernanke a couple years ago when he testified before the House Banking Committee. Rather than lecturing the congressman on the proper role of a central bank in a modern welfare economy, Dr. Bernanke punted, feigning surprise at the question, graciously letting Dr. Paul pontificate on the manifold virtues of the yellow metal. In any economy, money serves three functions: a store of value, a medium of exchange, and a unit of account. In the [...]

Cyprus in the Caribbean

By | 2017-07-17T12:34:42+00:00 March 25th, 2013|Global Market Update|

Could Cyprus happen over here? Many folks look at their problems and say, “Nah.” We don’t have an outsized banking system mostly funded by foreigners, and we’re working with our worst problems. Meredith Whitney was wrong; the muni market didn’t see dozens of major bankruptcies with hundreds of billions of losses, right? Well, maybe. One glaring issue in an otherwise sound municipal credit universe is Puerto Rico. The Commonwealth has a population of 3.7 million, of which only about a million have jobs, and [...]

A Most Excel-lent Whale

By | 2013-03-22T09:01:14+00:00 March 22nd, 2013|Global Market Update|

Is there a whale in your future? Recently JP Morgan released its internal investigation of what went wrong with its “London Whale” trade—the ill-conceived credit “hedge” that cost the bank between 5 and 10 billion dollars. Buried on page 127 of the 132 page document is this nugget: Risk was monitored “through a series of Excel spreadsheets, which had to be completed manually, by a process of copying and pasting data from one spreadsheet to another.” A couple of simple errors in this process [...]

The Bitter Lemons of Cyprus (Part 3)

By | 2017-07-17T12:34:42+00:00 March 21st, 2013|Global Market Update|

Where do we go from here? Is Cyprus another Greece, threatening the Euro? Or is it a special case, with an outsized banking system that needs propping-up from outside the system. Like most things, it’s a little bit of both. Ironically, an answer can be found in the title to this commentary. The Bitter Lemons of Cyprus is a personal memoir of the author’s time on the island in the mid-‘50s during the run-up to violence between the Greeks, Turks, and British. In the [...]

The Bitter Lemons of Cyprus (Part 2)

By | 2013-03-20T10:49:30+00:00 March 20th, 2013|Global Market Update|

So what’s the big deal? The leadership of the EU has proposed that Cyprus dun its bank depositors by $5.8 billion in order to qualify for a bailout that will recapitalize their banks. And banking is a big deal in Cyprus. Because of lax money-laundering rules, it’s become the Cayman Islands of the Mediterranean But 6.75% was too much of a hit on small deposits for lawmakers to accept. Never mind that bank deposits in Cyprus pay almost 5% and inflation has averaged about [...]

The Bitter Lemons of Cyprus

By | 2013-03-19T09:30:33+00:00 March 19th, 2013|Global Market Update|

The Euro-crisis has reached a new level. The country of Cyprus is tiny. Its $25 billion economy is smaller than Vermont’s, but it has bank deposits of $56 billion. In this it resembles Switzerland, whose $660 billion economy supports a banking sector with $1.2 trillion in deposits. The banking sector has grown because Cyprus has liberal money-laundering rules and extensive ties with Russia. It has been estimated that over a quarter of all bank deposits originated there. Limassol, the financial center, has three daily [...]

Shoe-shines and Wunderkinds

By | 2013-03-18T09:55:34+00:00 March 18th, 2013|Global Market Update|

Have we reached the silly season? The news is filled with movie starlets discovering the stock market and 16 year-old actresses day-trading from their iPhones. Are these signs of a bubble? An old market saying goes, “When even shoeshine boys are giving stock tips, it’s time to sell.” The market is a discounting mechanism that incorporates not only the latest news, but our sentiments about the news. So big, emotional events like Pearl Harbor, 9/11, Neil Armstrong’s walk on the moon, or the Lehman [...]