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Posts Tagged ‘WSJ’

Gold May Not Be the Safe Haven Investors Think It Is

Posted by hkarner - 5. August 2016

Date: 04-08-2016
Source: The Wall Street Journal

Investors talk of gold as the ultimate asset for stashing wealth in uncertain times. But two Harvard researchers say they’ve got it wrong.

Professor Robert Barro and PhD student Sanjay Misra argue in new research that gold is not the hedge investors believe it to be.

That’s a key thought at a time when gold is rallying, partly as investors use it as a safe haven amid an uncertain global economy. Gold is up by almost 29% so far this year.

Gold RushBut Mssrs. Barro and Misra say they’ve been crunching the numbers and found gold moves independently from whatever the economy is doing.

Were gold to be a good hedge against recessions, its price would shoot up as economic growth and consumption plummet. Yet, between 1836 and 2011, they showed no correlation.

The two researchers also looked at how gold fared during a series of “macroeconomic disasters” in advanced economies, when a country’s real per capita gross domestic product fell by 10% or more over an average period of three to four years. Disasters considered included the Great Depression in the U.S. and the experiences of Germany and Japan during the Second World War.

They found that during the 56 disaster periods investigated between 1880 and 2011, gold price gains—after inflation is taken into account—averaged 2.1% a year, not much better than in normal periods, when it rose 1.5%.

In fact, Mssrs. Barro and Misra’s figures show that gold prices swing around almost as much as stock prices—meaning it isn’t the stable investment many think it to be—and yet their return is much closer to what ultrasafe U.S. Treasurys offer.

From 1836 to 2011, the standard deviation of annual gold returns, which gauge how much prices swing compared to their average, was 13.7%, just 3% short of the temperamental U.S. stock market.

And yet, it offered little to compensate investors for that: During the same period, the average growth rate of the price of gold in the U.S. was 1.1% a year, only marginally higher than the 1% average real rate of return on three-month U.S. Treasurys, according to the research.

All in all, maybe not such a good deal, even if Donald Trump is elected. Den Rest des Beitrags lesen »

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Tech Sector’s Profits Are Fueled by Mobile, Cloud

Posted by hkarner - 2. August 2016

Date: 01-08-2016
Source: The Wall Street Journal

Facebook, Google surge on mobile revenue; Cloud businesses boost Amazon, Microsoft

Facebook CC1Facebook’s profit was boosted by a rise in mobile advertising.

The latest batch of tech-industry earnings show how two technology trends—mobile and the cloud—are taking root and delivering big profits for the companies that bet on them.

Facebook Inc. and Google parent Alphabet Inc. last week both reported surges in their quarterly profits, fueled by users spending more time on their smartphones and advertisers spending more money to reach them there.

Meantime, Amazon.com Inc. and Microsoft Corp. beat Wall Street estimates with results that were lifted by the strength of their businesses hosting other companies’ data on their computer servers, also known as the cloud.

The big are getting bigger,” said Ben Schachter, an analyst at Macquarie Group Ltd.People are using the internet more and more. They always have it with them because of smartphones, speeds are getting better…and all that information has to come from somewhere, and it comes from the cloud.” Den Rest des Beitrags lesen »

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In Derivatives Trading, London is King

Posted by hkarner - 30. Juli 2016

Date: 29-07-2016
Source: The Wall Street Journal

The city’s dominant position in derivatives may be difficult to undo in the event of Brexit

Of the $9.4 trillion in daily global derivatives trades tracked by the Bank for International Settlements, 43% take place in the U.K.

London is a player in the markets for gold, oil and bonds. But in derivatives, it is king, and that is what Brexit will put to the test.

Of the $9.4 trillion in daily global derivatives trades tracked by the Bank for International Settlements, 43% take place in the U.K. That isn’t because they are denominated in pounds—the U.K. handles four times as much trading in euro-denominated derivatives as France and Germany combined.

Britain’s vote to leave the European Union threatens to challenge a position built up over 50 years, in which the U.K. convinced the world to trade and settle its financial transactions in London, no matter the currency. Den Rest des Beitrags lesen »

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Why Europe’s Biggest Economy Is Stirred, Not Shaken by Brexit

Posted by hkarner - 26. Juli 2016

Date: 26-07-2016
Source: The Wall Street Journal

Reichstag CCThe shock result of Brexit so far is that there is little sign of shock in Germany, Europe’s powerhouse economy

Brexit hasn’t gone global. Indeed, European data are suggesting it is staying surprisingly local so far.

Monday’s reading for the widely watched German Ifo business climate index—which covers manufacturing, construction, wholesale and retail companies in Europe’s biggest economy—is a case in point.IFO Business Index Germany

The headline index dipped to 108.3 in July from 108.7 in June. But that was both better than expected and still the second-highest outcome this year. Business expectations slid, but only marginally.

The Ifo index echoes Friday’s Markit purchasing managers index. The U.K. measure recorded the biggest one-month drop on record. But the German composite reading advanced to a seven-month high of 55.3.

Focusing too much on Brexit might be a mistake for investors looking at Europe. Hopes are building for a recovery in emerging markets, and the U.S. economy is continuing to grow. Meanwhile, domestic demand has been the linchpin for eurozone economies such as Germany. Notably, service-sector expectations rose to a six-month high in July, a separate Ifo survey shows. Den Rest des Beitrags lesen »

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Europe Faces Dilemma Over Fiscal and Banking Rules

Posted by hkarner - 25. Juli 2016

Date: 25-07-2016

Source: The Wall Street Journal By SIMON NIXON

 

A crisis of legitimacy lies at the heart of two major EU standoffs coming to a head this week, Simon Nixon writes

The European Union’s central crisis is one of legitimacy. The EU is primarily a system of legally binding rules agreed among governments and enforced by a supranational court. But what happens when a sizable number of citizens decide EU rules are harmful to their interests—or worse, prevent national governments from fulfilling their duty to protect their citizens?

This crisis of legitimacy lay at the heart of the Brexit referendum, particularly regarding EU rules that require the U.K. to allow any EU citizen to live and work in Britain. It also lies at the heart of two major standoffs due to come to a head this week concerning three countries still grappling with the effects of the eurozone debt crisis: What sanctions should the EU impose on Spain and Portugal for flouting the eurozone’s fiscal rules; And should Italy be allowed to inject public money into its banking system without applying EU bail-in rules to bondholders? Den Rest des Beitrags lesen »

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The Closing of the American Mind

Posted by hkarner - 24. Juli 2016

Date: 23-07-2016
Source: The Wall Street Journal By CHARLES KOCH

There are dangerous signs that the U.S. is turning its back on the principles of a free and open society that fostered the nation’s rise.

I was born in the midst of the Great Depression, when no one could imagine the revolutionary technological advances that we now take for granted. Innovations in countless fields have transformed society and radically improved individual well-being, especially for the least fortunate. Every American’s life is now immeasurably better than it was 80 years ago.

What made these dramatic improvements possible was America’s uniquely free and open society, which has brought the country to the cusp of another explosion of life-changing innovation. But there are dangerous signs that the U.S. is turning its back on the principles that foster such advances, particularly in education, business and government. Which path will the country take?

When I attended the Massachusetts Institute of Technology in the 1950s, I quickly came to appreciate that scientific and technological progress requires the free and open exchange of ideas. The same holds true for moral and social progress. I have spent more than a half-century trying to apply this lesson in business and my personal life. Den Rest des Beitrags lesen »

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The U.K.’s Big Brexit Test: Holding On to London’s Financial Crown

Posted by hkarner - 20. Juli 2016

Date: 18-07-2016
Source: The Wall Street Journal by Simon Nixon

Much of the success of Britain’s giant financial services industry is relatively recent and owes a lot to the U.K.’s EU membership, Simon Nixon writes

The political crisis that engulfed the U.K. after its decision to quit the European Union in last month’s referendum may have come to a remarkably swift conclusion. But the political challenges facing new Prime Minister Theresa May are awesome. She must now fashion a new foreign, commercial, security, scientific and agricultural strategy for the country that meets the high expectations of those who voted for Brexit and her own promise upon taking office to “make a success of it.”

One of her biggest challenges is to find a Brexit deal that preserves the success of the U.K.’s giant financial services industry, which is so central to the country’s economic fortunes. Much of this success is relatively recent and has owed much to the U.K.’s membership in the EU. For several decades after World War I, the City of London was primarily a domestic capital market. Its modern revival only began in the late 1960s with the creation of the Eurobond market, which recycled offshore U.S. dollars, and the Thatcher reforms of the 1980s, which swept away restrictive practices, abolished exchange controls and exposed domestic firms to foreign competition. Den Rest des Beitrags lesen »

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In Advanced Economies, Two-Thirds of Population Have Seen Incomes Stagnate, Study Shows

Posted by hkarner - 15. Juli 2016

Date: 14-07-2016
Source: The Wall Street Journal

Report underscores damage done by financial crisis to economic advancement for half a billion people

The fallout from the financial bubble and global crisis has had far-reaching impact on income advancement for more than half a billion people.

Across 25 of the world’s advanced economies, about two-thirds of the population—more than half a billion people—earn the same as or less than their peers did a decade ago.

Between 540 million and 580 million people in 2014 had lower or stagnant incomes than similarly situated people in 2005, according to a new study from the McKinsey Global Institute, the research arm of the global consulting firm McKinsey & Co. The finding presents a break from the trend in advanced economies during the post-World War II era when, throughout twists and turns, most families ended up improving on the standard of living of their predecessors. Den Rest des Beitrags lesen »

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Brexit Counterrevolution Is Risk to London

Posted by hkarner - 15. Juli 2016

Date: 14-07-2016
Source: The Wall Street Journal

Though likely to remain Europe’s financial hub, it faces home-grown political uncertainty

Three weeks after the Brexit vote, a consensus is emerging that the U.K.’s decision to quit the European Union was primarily a revolt against globalization by “left behind” voters registering their anger at excessive immigration, which they blamed for driving down wages and putting pressure on public services.

There is plenty of evidence to buttress this thesis. Support for Brexit was strongest in areas that tend to be the most economically disadvantaged and where average levels of education are low, according to Professor Matthew Goodwin of Kent University.

But this “left behind” narrative hardly tells the whole story. It doesn’t explain why 75% of Conservative-held constituencies voted for Brexit, or nearly half of Tory MPs, or 58% of Conservative voters. Nor does it explain why support for Brexit tended to be higher in areas where immigration was lowest or highest among pensioners, while younger voters who are more exposed to globalization backed staying in the EU. Den Rest des Beitrags lesen »

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Why Ultralow Interest Rates Are Here to Stay

Posted by hkarner - 15. Juli 2016

Date: 14-07-2016
Source: The Wall Street Journal

While central-bank bond buying is the proximate cause of a plunge in U.S.
Treasury yields, the drop represents the cost of economic and political choices made over decades

AmplifiersYields on 10-year debt issued by the U.S. Treasury, shown, hit a record low this month.

Ultralow interest rates are here to stay.

Central-bank bond buying is the proximate cause for the plunge this month of the 10-year U.S. Treasury yield to its all-time low of 1.366%. But it would be a mistake to single out central bankers.

Slumping rates represent the cumulative cost of economic and political choices made over decades, ranging from an overreliance on debt-financed growth to creeping regulation. This sclerosis is the major driver of lower and lower interest rates, and the signs of it are evident just beneath the glossy surface of record stock and bond prices.

Companies have been borrowing at a record clip, thanks to low rates. Yet capital investment is sagging, while share buybacks have flourished in a return to the financial engineering that we were supposed to have forsworn. The Dodd-Frank financial overhaul shored up U.S. banks, but at the expense of tighter credit that has hampered recovery.

A longstanding decline in business formation has intensified in recent years, crimping new jobs and underscoring the sense that the postcrisis pursuit of stability is lulling the economy into prolonged stupor. While the U.S. is still a far cry from Japan, locked into a decades-long struggle to escape deflation, it is becoming clear that embracing risk aversion has its price.

“What we’ve got now is a more-stable, more-boring economy,” said Steven H. Strongin, head of global investment research at Goldman Sachs Group Inc. “The question is whether that’s where you want to end up.”

Amplifying these problems is the steady accumulation of debt. The financial collapse was supposed to presage an era of deleveraging that would result in a more balanced global economy. Instead, global debt levels are higher now than they were in 2007—a chronic problem that makes economies and markets everywhere less resilient. Den Rest des Beitrags lesen »

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