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

    Italy lawmakers approve 20 billion euro plan to prop up banks

    This article by for Reuters may be of interest to subscribers. Here is a section:

    If Monte dei Paschi's capital plan fails, Prime Minister Paolo Gentiloni's new government is likely to meet this week to issue an emergency decree to inject capital into it.

    But that could prove to be politically explosive given that investors are required to bear losses under EU bailout rules.

    Parliamentary approval for the 20 billion euro government plan was needed to allow the state to take on new debt. Italy's debt burden, at about 133 percent of annual output, is already the second highest in the euro zone after Greece.

    The measure approved by parliament on Wednesday says the state can borrow money to provide "an adequate level of liquidity into the banking system" and can reinforce a lender's capital by "underwriting new shares".

    The failure of Monte dei Paschi, the world's oldest bank, would threaten the savings of thousands of Italians and could undermine confidence in the country's wider banking sector, saddled with a third of the euro zone's total bad loans.

    Before the vote, Economy Minister Pier Carlo Padoan vowed to shield retail bank investors from losses.

    "The impact on savers, if a (government) intervention should take place, will be absolutely minimised or non-existent," Padoan told parliament.

    Italy Senate also approves government request to lift debt to help banks
    Monte dei Paschi said it expected its net liquidity position, now at 10.6 billion euros, to turn negative after four months.

     

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    How One Huge American Retailer Ignored the Internet and Won

    This article by Kim Bhasin and Lindsey Rupp for Bloomberg may be of interest to subscribers. Here is a section:

    But don’t expect a trend heading back in time. This is a difficult system to replicate, said Simeon Siegel, an analyst at Instinet. TJX boasts a wide net of inventory buyers who find small batches of desirable clothing, then make a small bet on those goods. This is unlike the traditional department store model, where buyers look at runway trends and make large orders of a few items, hoping that they’ll be the winner for the season.

    “You’re buying closed-out product and you’re buying samples,” said Siegel. “You have to be very attuned to the numbers and very attuned to the fashion. The vendor base that you need to be plugged into and the intelligence that goes into buying the product is the most important asset they have. You need to find the most compelling stuff.”

    When stores like T.J. Maxx do it right, they leave their shoppers filled with feelings of adventure and serendipity, says Jordan Rost, vice president of consumer insights at Nielsen, a research firm. Even an unsuccessful trip to a discount store can reinforce the thrill of the hunt. The instincts driving customers into parking lots is similar to those shopping online, Rost says. They’re searching for deals and the best item to fill some broad want or need without a target in mind.

    As shoppers across generations and demographics become more focused on value than ever before, the excitement of finding something on sale has an even broader appeal. Millennials who grew up relying on e-commerce for all their needs are coming through the doors, too.

    “Younger consumers are really open to that kind of open- minded approach to shopping, not necessarily coming in with a specific brand or product in mind,” says Rost. “Discovery is part of the experience.”

     

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    The US is Crying Out for Donald Trump Economic Tonic

    Starting on January 20 2017, the United States will be a very different place to the one it has been for decades. President Donald Trump, who is an unconventional Republican, will control the Senate (52 Republicans to 48 Democrats); the House of Representatives (241 Republicans to 194 Democrats); 34 Republican Governors (out of 50) and the largest Republican control of the state legislatures ever. He could well appoint three new Supreme Court Justices and reform monetary policy from A to Z as well. 

    In 2009 when President Obama took office, the political world in Washington was the opposite. Times have changed.

    The defining issue in the US (and everywhere else) is the economy. America has had the single worst recovery in the past 70 years and there’s little improvement in sight. Government over the past eight years has doubled down on stimulus spending, taxes on the rich, regulations, dirigiste low interest rate monetary policies and failed trade initiatives. 

    Unfortunately, these policies do work – but in the opposite directions to the ones their proponents hoped. Somehow most western governments have conflated helping the poor with hurting the rich. We’ve found out once again the hard lesson – that if governments tax those who work and pays those who don’t work, there will be lots of people not working.

    Stimulus spending, meanwhile, is analogous to asking a poor man to spend himself into wealth. It just doesn’t happen.  And then again, whoever heard of an economy that’s been taxed into prosperity? Not I. 

    Government-mandated low interest rates guarantee that no one will lend either to risky borrowers or to working-class homebuyers, and low interest rates will also destroy the lives of retirees and pensioners. And then there are trading blocs like the European Union, where the likes of Ireland are joined at the hip with countries they don’t trade with and held at a distance from countries they do trade with (such as the US and the United Kingdom).

    Recognising that the future is more difficult to forecast than the past, I believe the new administration in the United States will reduce the corporate tax rate from 35 per cent (the highest in the OECD) to 15 per cent (the 3rd lowest); replace depreciation schedules with 100 per cent expensing of capital purchases in the year of purchase for tax purposes; eliminate the estate tax and repeal ObamaCare and replace it with common-sense health care savings accounts. 

    Tax legislation will also proceed to reduce personal income tax rates, undo many executive orders that over-regulate our economy, increase needed infrastructure projects, negotiate fairer trade agreements and increase economic efficiencies in government purchases.

    The nicest part of America’s checks and balances on government is that the House and the Senate will provide wonderful guidance to the administration and vice versa. The resultant policies will be first class, and I believe these policies will be supported on a bipartisan basis, just as they were when Reagan was president.

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    European Stranglehold Over the IMF Has Become a Curse

    The International Monetary Fund seems cursed. One managing-director embroiled in scandal is perhaps unlucky: to suffer three in a row starts to look serious.

    First it was the Spaniard Rodrigo Rato, now awaiting trial for embezzlement for allegedly running a "corrupt system" at the helm of Bankia.

    Then it was France’s Dominique Strauss-Kahn, accused of louche conduct in a New York hotel room.

    Now it is the turn of Christine Lagarde, inheritor of the French fief and today convicted of criminal negligence by a top French court in a case that has strange whiffs of political chicanery.

    The guilty verdict certainly calls into question her full fitness to lead a financial superpower with resources of $668bn, and vice-regal dominion over whole countries and societies.

    All three are European, the only race able to compete for the post under the Bretton Woods carve-up that has prevailed since the end of the Second World War. The fact that this has led to trouble is not accidental.

    “European politics has become very corrupt. It is almost inevitable that the European system will throw up people who have done something that will later be construed as having crossed the line, and who are therefore tainted,” said Ashoka Mody, the IMF’s former deputy-director for Europe.

    “My reading is that Europe is in very long-term decline from political and economic pre-eminence, and there is a great temptation to cut corners as they try to face these challenges,” he said.

    This European stranglehold over the Fund is now over. It is inconceivable that the next IMF chief will be chosen in the old cosy way.

    The Asian powers will not tolerate it any longer. If nothing is done they will walk away from the Fund entirely and create their own financial structures, probably revolving around China.

    The Fund mishandled the East Asia crisis in 1998, imposing fiscal retrenchment that went far beyond the therapeutic dose, and dished out the same medicine to countries as starkly different as Korea and Indonesia.

    It was bad economic science. Asia’s rising powers concluded that the IMF system was stacked against them. The Class of 1998 turned instead to “self-insurance” by building up such vast foreign reserves that they would never again be at the mercy of the Fund.

    This accumulation of excess savings led to the pre-Lehman capital glut and is a key reason why the world economy has been so far out of kilter for the last fifteen years, ending in a global liquidity trap.

    When the European crisis blew up, the Fund was suddenly all too willing to bail out countries - and on terms that were not available for the Asians, or the Latin Americans before them. The IMF was in effect hijacked by its European masters for a series of rescues that used up 80pc of its total lending between 2011 and 2014.

    The terms violated cardinal rules. Greece, Ireland, and Portugal were each allowed to borrow 3,000pc of their quotas, triple the normal limit. In the case of Greece, the Fund’s management violated their charter by lending to a state known to be insolvent rather than demanding a debt restructuring. An internal probe has since shown that they pulled the wool over the eyes of the IMF board.

    Some shortcuts can perhaps be justified given the real danger of contagion to Italy and Spain at that moment, and given fears of a global financial melt-down. Yet what emerges from the board’s probe is that the eurozone political class treated the Fund as their tool. The US went along with this in tacit collusion, but that is surely about to end under the Trump White House.  

    The IMF remains vital to the global financial system but it is clearly an organisation that has lost its way. Cleansing must begin from the top down. This could start with the appointment of former Indian central bank governor, Raghuram Rajan, or the Korean chief economist of the Bank for International Settlements, Hyun Song Shin. George Osborne's moment has passed.

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    The Emerging Markets Hat Trick: Time to Throw Your Hat In?

    This article by Rob Arnott and Brandon Kunz for Research Affiliates may be of interest to subscribers. Here Is a section:

    A common link between EM equities and EM local debt is the currency exposure. Based on our relative purchasing power parity (PPP) model, EM currencies tumbled from 25% above fair value in 2011 to 30% below fair value in January of this year. Even after this year’s rebound they remain about 19% cheap to the US dollar. If EM currencies’ relative valuations strengthen just halfway back to historical norms, such a move would translate into a near 1.0% tailwind to yearly returns over the next decade.

    Although EM currencies, represented by the JPMorgan Emerging Local Markets Index Plus, have rebounded since January 2016, they continue to trade near the discounts associated with the 1997 “Asian Contagion” and 1998 Russian debt default. EM currencies can certainly get cheaper before they revert toward historical norms, but they might just as easily snap back quickly to fair value. Our relative PPP reversion expectations with high EM cash rates, a faster growing working-age population, and continued productivity growth as EM economies “borrow” technological advances from developed economies, all support our projected real return for EM currencies of 3.9% a year over the next decade.

     

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    China Throws Out South China Sea Rule Book

    This article by Andrew Browne for the Wall Street Journal may be of interest to subscribers. Here is a section:

    During the Cold War, rules of the road, diligently adhered to, prevented accidents that might have brought the U.S. and the Soviet Union to war. China and the U.S. have been working on similar protocols. Last week’s apparently calculated act of lawlessness, though, changes the game.
    Between Mr. Trump’s cavalier approach to China’s sacred cows, and China’s new disdain for legal niceties, expect regular eruptions. China is clearly testing U.S. resolve.

    A shift in strategy assumes of course that the decision to snatch the drone came from the top rather than a rogue commander, though the latter possibility is just as ominous: It would raise questions about Mr. Xi’s sweeping reorganization of the armed forces designed to impose greater Communist Party control.

    Mr. Xi’s administration has declared “maintaining stability” to be its top task for 2017 as the economy sputters. Now, the challenge from Mr. Trump to Beijing is forcing both countries into uncertain waters. Mr. Xi’s navy has just literally and figuratively rocked the boat.

     

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    Email of the day on back pain, biotech and 'overall'

    Disc issues are a pain (pun intended), fear not, take a serious peak at regenexx.com they use you're own blood platelets and, or stem cells. Having taken a few biff's over the years, I've successfully used them for ACL repair (5 doctors said the only option was surgery), disc bulges, shoulder and wobbly ankle type stuff. I've been to the doctors only twice in the past 12 year's, both times for vaccine's only, so you can imagine that I did not walk through Regenexx's door on a whim. Although I've no social network footprint (neanderthal), there was no hesitation when asked if I'd appear in a testimonial video for the ProActive section of their website. Both physically and, cost effective, this is one of the good direction's the medical world is moving in. Dr Centeno has written some book's 'The Spine Owners Manual' may be of special interest to Mrs Treacy, all free download's. 

    For exorcise...Dr Kelly Starrett is turning the longevity of movement in physical activity on it's head. He's written book's too and, has a plethora of YouTube material, for efficiency just type in his name and the body part that interests you. 

    Changing tack, two weeks ago I tuned in to one of your 'comment of the day' following a break of some three/four years or so and was mightily impressed by the delivery and quality of information. Having attended your first Chart Seminar, it was very nice to hear once more your insight's delivered with the occasional colloqualism to keep it real in your delightful Irish lilt. One throw away...'overall' appears to be a keen favourite word, a week last Sunday it was used 41 times during a 56ish minute presentation, the previous Thursday 14 times in 23 minutes. This is not a bad thing per se, I just wondered if you are aware of it. Eoin, you and David have played lead roles in teaching me a whole new language over the past years, seriously, so I very much hope you will at worst have a chuckle. Good health to you and yours, The fun continues,

     

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    Email of the day on wool prices

    I was looking for the up to date fine wool chart in the soft commodities section of the chart library. It seems that it has stopped updating in February 2014? Is it possible to rectify this please? Thank you and Happy Christmas

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