David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Buy Gold "At Any Level" Mobius Says as Central Bankers Ease

    This article by Ranjeetha Pakiam and Haslinda Amin for Bloomberg may be of interest to subscribers. Here is a section:

    Veteran investor Mark Mobius gave a blanket endorsement to buying gold, saying accumulating bullion will reap long-term rewards as leading central banks loosen monetary policy and the rise of cryptocurrencies serves only to reinforce demand for genuinely hard assets. Prices climbed.

    “Gold’s long-term prospect is up, up and up, and the reason why I say that is money supply is up, up and up,” Mobius, who set up Mobius Capital Partners LLP last year after three decades at Franklin Templeton Investments, told Bloomberg TV. He added: “I think you have to be buying at any level, frankly.”

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    Italian Premier to Resign After Condemning Salvini's Rebellion

    This article by Chiara Albanese and Lorenzo Totaro for Bloomberg may be of interest. Here is a section: 

    While Conte’s resignation adds to the uncertainty, bond investors welcomed the fact that an alternative coalition is still on the table, while the chance of snap elections in the fall diminished somewhat. Yields on 10-year Italian bonds touched 1.31%, the lowest level since 2016, while the spread over German bonds -- a key gauge of risk in the nation -- dropped to 200 basis points for the first time in nearly two weeks.

    Salvini pulled his support from the governing alliance with the anti-establishment Five Star Movement this month, saying the coalition no longer has a working majority. The 46-year-old anti-immigration hardliner has been seeking to cash in on strong poll ratings and upended the political establishment with a mid-summer power grab while parliament was in recess.

    At stake is whether Italy’s mountain of public debt -- a chronic concern for both European officials and international investors -- will be managed by a right-wing ideologue set on confrontation with Brussels. Salvini on Tuesday promised Italians 50 billion euros ($55 billion) of tax cuts and public spending if he can take control of the government.

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    The WeWork IPO

    This article by Ben Thompson for his Stratechery blog may be of interest. Here is a section:

    Frankly, there is a lot to like about the WeWork opportunity. Yes, a $47 billion valuation seems way too high, particularly given the fact the company is on pace to make only about $440 million in gross profit this year (i.e. excluding all buildout and corporate costs), and given the huge recession risk. At the same time, this is a real business that provides real benefits to companies of all sizes, and those benefits are only growing as the nature of work changes to favor more office work generally and more remote work specifically. And, critically, there is no real competition.

    The problem is that the “unsavoriness” I referred to above is hardly limited to the fact that WeWork can stiff its landlords in an emergency. The tech industry generally speaking is hardly a model for good corporate governance, but WeWork takes the absurdity an entirely different level. For example:

    WeWork paid its own CEO, Adam Neumann, $5.9 million for the “We” trademark when the company reorganized itself earlier this year.

    That reorganization created a limited liability company to hold the assets; investors, however, will buy into a corporation that holds a share of the LLC, while other LLC partners hold the rest, reducing their tax burden.

    WeWork previously gave Neumann loans to buy properties that WeWork then rented.
    WeWork has hired several of Neumann’s relatives, and Neumann’s wife would be one of three members of a committee tasked to replace Neumann if he were to die or become permanently disabled over the next decade.

    Neumann has three different types of shares that guarantee him majority voting power; those shares retain their rights if sold or given away, instead of converting to common shares.

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    Dealing with the next downturn: From unconventional monetary policy to unprecedented policy coordination

    Thanks to a subscriber for this report from Blackrock which may be of interest. Here is a section:

    A soft form of coordination would rely on monetary and fiscal policy both providing stimulus when needed. Looking at the policy response during and after the crisis, and as we discussed earlier, there was room for a better policy mix with less reliance on monetary policy and more emphasis on fiscal policy. This is, in principle, a fruitful avenue to explore. Yet there are reasons why that better policy mix was not achieved – chiefly that it is practically and politically easier to resort to monetary policy. These forces are likely to keep prevailing in the future – and those simply hoping for a better form of soft coordination will probably be disappointed.

    The charts below highlight how major economies are on a path of neutral budgets or mild deficit consolidation over the next five years based on IMF forecasts as of April 2019. This comes as their debt servicing costs have declined relative to growth – and given the recent plunge in interest rates those debt servicing costs have likely fallen further. See the expected change in the interest bill in the chart on the left below. This implies that fiscal policy is currently not pulling its weight.

    This means that in a downturn the only solution is for a more formal – and historically unusual – coordination of monetary and fiscal policy to provide effective stimulus. Already many of the monetary policy tools adopted since the crisis – QE including private sector assets – have fiscal implications. Special facilities such as the eurozone’s Outright Monetary Transactions (OMT) during the sovereign crisis also show how the central bank can throw its balance sheet behind fiscal solutions.

    Any additional measures to stimulate economic growth will have to go beyond the interest rate channel and “go direct” – when a central bank crediting private or public sector accounts directly with money. One way or another, this will mean subsidising spending – and such a measure would be fiscal rather than monetary by design. This can be done directly through fiscal policy or by expanding the monetary policy toolkit with an instrument that will be fiscal in nature, such as credit easing by way of buying equities. This implies that an effective stimulus would require coordination between monetary and fiscal policy – be it implicitly or explicitly.

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