In order to redress the balance of negative sentiment, combined with a political(ly) charged environment with electioneering by all major political UK parties posturing new populist policies (say that fast a few times); we thought it a good idea to put a little perspective on the matter of #Tax avoidance (tax planning we prefer to call it). Remember this is #Election2015 coming up on 7 May 2015.
We are picking up on a theme we have been experiencing and confirmed by this HBR article published in 2012:
Job and Career seeker’s unfulfilled EXPECTATIONS
The word expectation has several meanings, amongst them words like hope, belief, prospect and even probability. It is interesting that if you were to consider these four other words it is almost a continuum, stretching from the vague hope frontier and uncertainty right through to probability which is calculus driven and at least more certain statistically then mere hope…
However, the real focus of our analysis today is the mis-sold or rather mis-aligned expectations gap.
Factors driving the Expectation Gap in our opinion include:
- Disruptive Technologies versus Organisational Structure and Strategies
- A lack of understanding and appreciating decision-based risk
- Improvisation parallax
We will begin to unpick each one of these factors or drivers (reasons why) in a multi-part series of articles to see how, why and if we can help ‘plug the Expectations Gap’.
Today we will begin to briefly cover the top item on our list:
Disruptive Technologies versus Organisational Structure and Strategies
Agile and Adaptive seem to be the new buzzwords in the corporate planning landscape and lexicon. But how do we change entrenched processes and ways of working to align to an agile and adaptive mindset?
Let us turn to certain inhibitors first. Processes like preferred supplier lists, supply chain or other framework procurement agreements, Service Level Agreements and other longer-term contractual arrangement all help create the illusion of certainty and stability; yet are they? Sometimes this flies in the face of agile and adaptive planning and operational processes.
Maybe the gap exists between a process reality and a mindset aspiration. Flexible organisational structures, including resource pools like labour still have a long way to “move” in order to create the conditions in which agile planning and aligned to adaptive process realities.
How are our own personal aspirations and understanding of the current market aligned to the Shamrock Organisation mindset?
- Is Your Company Ready for an Agile Process? (slalom.com)
Part 2 – Revelations
Reflections on 2014
As a behaviourally focused economics publication we have been very quiet and inactive during 2014. A year of reflection and introspection, however, we are ready to resume service, with vigour. And what better way to start than with a reflective piece and thoughts on the biggest risk we believe are developing under the surface without warning. Our concluding theme of 2014 is that of moral hazard.
As Margaret Thatcher once said: “There is no society”; we state today that there is ‘No Moral Hazard'; in fact there is only Moral Hazard PLUS.
We believe that there is a strong correlation between QE (Quantitative Easing) and economic moral hazard developing a new strain, mutating like an unseen virus.
QE might have saved the financial system of the developed world, but it it only provided a shot in the arm and acted as a stimulus for sustaining moral hazard.
Economics follow a flow and cyclical pattern, as discussed in our article entitled ‘Information Age Irony‘. These patterns and flows weave themselves into the fabric of our lives and affect individual economies in different ways.
It is important to understand where and how economic cycles develop and flow and how much influence they have on our general economic activities on a day to day basis, but we should not become overly obsessed by them, as they can be short-circuited from time to time by policy and policy-maker’s actions, wherever individually or collectively.
In part 2 of this article we will focus on the revelations of QE and the underlying threat of moral hazard returning on a grander and more catastrophic scale, if it goes unchecked and misunderstood.
© theMarketSoul 2014
The real challenge and issue:
The US Debt default that is looming ever larger with each passing day that the US Congress, Senate and White House seem to treat as a brinkmanship fatigue challenge will have a specific default structure or process attached to it, that the rest of the world needs to get to grips with very quickly.
What are the consequences:
Because, if Americans are willing to engage in quasi-negotiations with each other on this acrimonious level; then world beware, they will treat you with even more disdain and petulance than they have been treating each other.
This is commercial war on a scale we have not experienced for quite some time.
And the most disparaging part of this process or potential risk is that no commentator has yet stood up and called time on this challenge or at the very least attempted to pull the veil from the threat and fall-out the rest of the world will experience.
Of course 17 October 2013 is a technical default breach days only; because as most business people who experienced bankruptcy will attest to is the fact that you can continue to trade (on the goodwill of your creditors) beyond the point of being solvent, so long as those creditors continue to good-naturedly extend some further credit or payment terms to you.
- The Myth that U.S. Has Never Defaulted On Its Debt (ritholtz.com)
- VIDEO: Fed’s Williams: U.S. Debt Default Would Be ‘very, Very Dangerous’ (marketcurator.com)
- 12 Very Ominous Warnings About What A U.S. Debt Default Would Mean For The Global Economy (thesurvivalplaceblog.com)
- Shutdown bad; default crazy… and catastrophic for the economy (prairieweather.typepad.com)
- Hope? Shutdown/debt talks but no resolution yet (bigstory.ap.org)
- “Risky Business”: Corporate Leaders Bemoan Tea Party Default Crisis Created By Their Own Donations (mykeystrokes.com)
- White House Rejects Latest House GOP Proposal to End Shutdown, Avoid Default (ktla.com)
- Obama says defaulting on bills ‘dramatically worse’ than shutdown (abc.net.au)
- The U.S. Has Repeatedly Defaulted: It’s a Myth that the U.S. Has Never Defaulted On Its Debt (rinf.com)
- The default has already begun (blogs.reuters.com)
1. The Yield Curve at 30 September 2013 – The day before the US government shutdown officially began
What can clearly be observed from the Yield Curve for Treasury Bills (T-Bills) dated 30 days is that the spread between 30 September 2013 (at 0.10%) to the rate at 11 October 2013 (0.26%) has significantly increased and that the Yield Curve has become inverted. Normally the sign of a recession or other financial calamity to come.
Will Thursday 17 October 2013 be D-Day (for Disaster or Domino-day) when the whole lot starts tumbling down again?
- Inverted Short-Term Yield Curve – Problem? (macroeconomicvolatility.wordpress.com)
- Inverted Front End of the Yield Curve – Markets Showing a possible recession? (macroeconomicvolatility.wordpress.com)
- The US needs to start encouraging saving – even if it means raising interest rates (qz.com)
- Yield Curves “Rate” your “Interest” (getdowntobusiness.typepad.com)
- Prospect for quick end to shutdown is remote (bigstory.ap.org)
- Republican Budget Brinkmanship Leads to Inverted Treasury Yield Curve (thestreet.com)
- Four Interest Rate Scenarios We Could Face (followpioneer.com)
- 1 Mo. Treasury Jumps from 10 to 27 bps in 7 days (treasury.gov)
- Yields On Short-Term US Debt That Matures Right Around The Debt Ceiling Are Blowing Out (businessinsider.com)
- US Treasury Yield Curve – The Shutdown Analysis (Part 1) (themarketsoul.com)
The problem of getting too distracted by constantly fire-fighting in business settings
We might have heard it referred to as phrases such as “blinkered vision, short-term thinking”, possibly even “tunnel vision” or something similar; however the challenges of Immediacy is (1) the hidden cost and (2) damage it does to our organisations and culture within those organisations.
This is a behavioural consequence of a much more deep rooted problem. It could possibly be insecurity or ‘over’ control, mistrust or some other behavioural issue.
However, we would like to make a bold statement that the problem is one of an over commented emotional connection to what we do. Too much passion and care in other words. This is not a bad thing in itself, but it must be tempered and balanced by its opposite twin, namely logic and deliberation.
Too often we let the Emotional Intelligence (EI) side of our personalities or just pure emotions (if we lack in the finesses of EI) rule the roost and we park logic and Business Intelligence (BI) at our peril.
What to do, in order to balance the equation:
When faced with the typical flight or flight scenario of a mini crisis at work or during a project;, stop or pause for a little while in order to achieve two very important objectives:
- Calm down the emotional roller coaster.
- Take stock in order to appraise and assess what would be the most logical course of action to take next.
As an experiment in BI versus EI today and over the course of this week, just think and apply these two simple steps and monitor and evaluate the outcomes and consequences.
You might be pleasantly surprised…
Feedback most welcome.
theMarketSoul © 2013
- Emotional Intelligence Is My BFF – Queendom Study Shows That Strong EQ Leads To A Better Social Life (prweb.com)
- Emotional Intelligence testing in the workplace – not so intelligent? (comensense.net)
- Developing Emotional Intelligence in Corporate Leaders (commandposttech.wordpress.com)
- The MBTI Test INTP Personality Type and Emotional Intelligence (careerassessmentsite.com)
- Can Emotional Intelligence Be Taught? Yes, and it should shape all our interactions with kids. (kchapmangibbons.wordpress.com)
- Is it Poor Communication or Emotional Intelligence that impacts on your performance? (rspad.wordpress.com)
- Emotional Intelligence is Critical for Leaders to Make an Impact (newspodge.wordpress.com)
- How Does Emotional Intelligence Increase Power? (6seconds.org)
- Emotional Intelligence and Agile (managedagile.wordpress.com)
- EQ – Emotional Intelligence and Its Shameful Absence From the Modern Curriculum (thesunnysidemusic.com)
A walk back in time. #Thoughts from 2010. The #Value of #Synthesis versus #Analysis. #Tyranny and #Innovation
Originally posted on theMarketSoul ©1999 - 2015:
We had some very rewarding conversations recently with business partners and peers regarding the Value of Synthesis versus Analysis.
Synthesis we believe to be a ‘higher level’ skill and experience set than traditional analysis. Synthesis requires a natural ‘incubation period’. Very few people are natural ‘synthesists’. You grow and mature into a ‘natural Synthisist’.
Analysts can be taught. In fact a very lucrative business education industrial complex has been built on the back of ‘creating a production line of analysts’. We call them Business Schools churning out master’s level analysts with the three-letter MBA title behind their names.
Don’t get us wrong on this one. We are not criticising MBAs or the Business Schools that produce them. Far from it; because we believe that part of the ‘evolutionary process’ of ‘incubating a mature synthesist’ is having a deep and fundamental understanding of analysis and the factors that contribute to making…
View original 796 more words
We wrote about a particular economic phenomenon referred to in this post about economic cycles and particularly the Kuznets swing; which we find the most interesting and thought provoking cycle. The reason for this is that it is a generational cycle, only lasting or more accurately stated lasting anywhere between 15 – 25 years.
So where are we on this cycle and what does it mean for me, should be the two most obvious questions to answer?
Lets address both separately below.
Firstly we believe we are now around seven years into a downward phase of the Kuznets cycle, therefore to some analysts it would mean that we are either almost half way or to others around a third of the way through this cycle.
Secondly, and more importantly, the impact it has on market participants like all of us:
We believe that the downward phase of a Kuznets swing is the ‘exuberance‘ correcting phase; when markets and other factors of productions contributing to mostly normal market clearing activity ‘got slightly out of kilter’. The Kuznets swing is always there to bring these factors of production into alignment. It is a consolidation phase of the cycle and interestingly for this particular phase, it coincides with disruptive technological advances around Cloud Computing, dis-aggregation of intermediaries, especially in labour markets with labour or skills exchanges appearing everywhere. Examples include, Elance, oDesk, PeoplePerHour, etc..
Furthermore, and this is the most import action point for our readers to understand and appreciate, this consolidation and technological advance has a severe impact of wages levels and the distribution of where actual ‘work’ is being performed.
Hence headlines like the one we spotted this morning regarding real wages in Britain declining relative to other (very unproductive EU cousins) are not helpful without the pundit exploring and engaging n deeper analysis of the underlying drivers for the pressure.
Understand that the world of work is changing much faster than we had ever become used to in previous generations. As active able and willing participants in this market for labour and skills we have clear choices: Up-skill, be competitive appreciate and plan for volatility in the labour supply market, by ensuring flexibility in location, skills and prices. It is especially painful to suffer real wage declines, but remember this is the market’s subtle way of signalling a problem or challenge in that particular market and a way of adjusting in order to restore the natural balance and clearing prices.
We believe every interfering politician and educating commentator should always bear this in mind.
- Companies hire foreigners as British workers ‘unwilling to move’, says Chris Bryant (telegraph.co.uk)
- Opinion: On Immigration Labour Must Do Better (leftfootforward.org)
- Labour backs down over Tesco and Next row (theguardian.com)
- Tesco criticised over cheap labour (belfasttelegraph.co.uk)
- Tesco criticised over cheap labour (standard.co.uk)
- Pony ponderings… (themarketsoul.com)
- Bryant: ‘Employers recruit from low-wage EU countries’ (itv.com)
- Now Labour backtracks in immigration row and PRAISES Tesco and Next for ‘going the extra mile’ to hire British workers (dailymail.co.uk)
- Recent studies show the future of the European labour market are part-time jobs and project work (prweb.com)
As economists (assuming that most of our readers have a vague interest in the subject matter we keep on harping on about most of the time) we should all be aware of, if not au fait with Opportunity Cost.
As a one line refresher: Opportunity Cost is the cost or value forgone by choice. Choosing one option or outcome over another, automatically leads to an alternative opportunity forgone, hence the cost element.
So the real challenge is to extract the ‘right’ amount of value or benefit from the chosen option versus the forgone option. This is the real difficulty when the counter-party does not share the same or a similar risk profile.
What is the answer then?
Well as vaguely competent economists our stock answer is: It depends!
Lets peal this back one level and start with the this position: the very fact that you had a choice in the first place is a very good thing. A lot or market participants are never really afforded the luxury of this or any choice. They just have to lump it and get on with whatever activity keeps them sustained. Therefore, from this extreme position an answer might be that we should count our blessings and just accept the inevitable and get on with choosing and working through the consequences.
However, in a world driven by value maximisation, the fact that we have to make the optimum choice does become more significant and important. What tools can we employ in a world of Information overload, yet still Information Asymmetry to come up with the optimal solution?
Answer on the back of a postcard please…
- The Opportunity Cost of Streets (marginalrevolution.com)
- Alex on “The Opportunity Cost of Streets” (priorprobability.com)
- Opportunity Cost: Snowden and the NSA Leak (bigthink.com)
- Opportunity Cost of Doing My Homework (parishgov.wordpress.com)
- Is Learning About Investing Worth It? How About $224,000 or $320,000 Worth? (latticeworkwealth.com)
- Does It Matter If Your Bank CD Rates Aren’t the Highest? (ally.com)
- Scarcity and Opportunity Cost (khookimlingmicroeconomics.wordpress.com)
- Thank goodness for opportunity cost (sabrinacarvalho.wordpress.com)
- The Opportunity Costs of “Free” (financialsurvivalnetwork.com)
- Opportunity cost (alexn.id.au)
It is a timing thing
When the Euro zone Debt driven financial crises – yes, it has been dragging on for a little while now; lurching from one convulsion to the next tremor – is headline news across most traditional newspapers in Britain, it is worth pausing briefly to consider the overall ‘management efforts’ of the European leadership and senior bureaucratic establishment and the potential outcomes.
The interesting point to observe today is the development of the crises from one of ‘consolidated rhetoric’ to save the Euro zone and Euro project, to a slow and it now seems inevitable conclusion that certain ‘none performing’ members will have to leave the Euro monetary union. This ‘orderly exit’ is now overdue because the political will, fiscal consolidation and Euro zone wide risk sharing necessary to ensure continued membership, on an equal footing, has been and is being rejected by the electorate as incumbent political leaders and governments stumble and fall as each political reflection point at the ballot box looms.
What is not being openly discussed?
What is currently not part of the popular discourse is the fact that the risk has moved on from a political, credit and market risk to one of a social or socio-economic dimension. Because ‘austerity proper‘ has not yet begun to bite and embed itself firmly in the economies of most European countries, as part of the process of climbing the stairway on the upward leg of addressing the mountain of sovereign debt built up over the last few years, nobody has really, except for Greece (and a blip in August 2011 in Britain), had to deal with large-scale and continued civil unrest. Yet, this is exactly the scenario we need to prepare for as a few conversations we have been having with analysts and pundits has openly started raising this spectre as another risk factor to add to the volatile cocktail we are already expected to swallow.
The next step?
Is a full-scale exit by the weaker Euro zone nation states on the cards and the possibility of a wholesale devaluation of the Euro? Well, that depends on where the financial and fiscal power and discipline lies and we believe that most observers of the European Debt Crisis known the instinctive answer to that question…
A final thought is to start preparing yourself for debates and contingency planning around a disorderly exist by weaker Euro zone members. And have large-scale civil unrest as part of the scenarios you need to consider…
- Lagarde says orderly Greece euro exit possible..bank withdrawals surge (seeker401.wordpress.com)
- Greece On The Brink Of Collapse As Bank Runs Hit Athens (blacklistednews.com)
- AUDIO: ‘Sheer chaos’ if Greece leaves euro (news.bbc.co.uk)
- “Engineering an Orderly Greek Debt Restructuring” (marginalrevolution.com)
- IMF: Exit from euro could be orderly (ekathimerini.com)
- IMF chief raises possibility of Greece’s ‘orderly exit’ from eurozone (business.financialpost.com)
- Eurozone finance ministers to meet amid Greek and Spanish crises (telegraph.co.uk)
- Greece Run on its Banks on the Brink of Collapse (doctoramarthacastro.wordpress.com)
- Greece could exit eurozone – IMF chief (rt.com)
- Pound to Euro, US Dollar exchange rate: Sterling is currently holding above 1.2500 on interbank against the Euro (torfx.com)
- EURO GOVT-Bund yields edge up as euro zone avoids recession (vancouverdesi.com)
- Euro zone finance ministers dismiss Greek exit “propaganda” (vancouverdesi.com)
- Euro Markets (todayonline.com)
- Economic Scene: Leaving the Euro May Be Better Than the Alternative (nytimes.com)
- Eurozone in turmoil: Chaos is good for the man in the strasse (dailymail.co.uk)
- Greece faces stark election choice – in or out of the euro (guardian.co.uk)
- Greece on brink of collapse (refreshingnews99.blogspot.com)
- Cameron: eurozone must make up or break-up (timesofmalta.com)
- The final death throes of the euro (todayonline.com)
- Euro zone finance ministers dismiss Greek exit “propaganda” (news.yahoo.com)
- Greek default and exit from Eurozone impacting markets and Eurozone strategy (worldviewtonight.com)
After the conclusion to what some pundits called a ‘tumultuous week’ for Europe (week ending 11 May 2012), we still find ourselves asking some important questions.
We all know that the question is not around what growth, where growth or why growth. The fundamental question in Europe now is:
For way too long Europe and its leadership had taken its eye off the growth ball. They had taken their eye off that ball focussing instead on creating the conditions for a ‘stable’ internal market, forgetting that it was all actually centred on competitiveness and growth creation!
Too much needless bureaucratically driven regulation, not creating the sustainable conditions for growth, but rather the spiral into debt driven oblivion…and therefore leading to the volatility and the instability we currently experience!
So the choice now comes down to how do we drive growth, in the face of an electorate that favours public sector driven growth, rather than private sector led growth.
It must make common (or at the very least common enough) sense for private sector growth incentives being created, rather than debt fuelled public sector or even Keynesian focused supply side stimulus. But no, the discourse in Europe has not been around stimulating demand by creating the conditions for competitive led export fuelled growth! Instead, the in-fighting and constant politicking around balanced budgets and debt to GDP ratio targets and endless pacts to patch the patient with half-baked policy sticky plasters has contributed to exactly the opposite outcome the leadership tried to create in Europe, namely a stable platform for internal market competitiveness. They forgot about the world changing outside the ‘Chinese wall’ of an expanded 27 member union.
And now the electorate has firmly rejected the austerity programmes, in both Greece and France, because they have not been educated in the dangers of public sector excesses. Nobody in Europe (except for maybe Sweden) realised that giving the “Engine of Growth”, namely enterprise and entrepreneurs an incentive to create businesses and employment opportunities, is actually tax reductions and not increases, combined with tempering public sector growth and reducing labour market inflexibility. Most European countries have youth unemployment; the hungry, tech-savvy and street smart under 25’s, running in double digits, of anywhere between 15 – 50%, depending on which country or statistics you want to believe…
We beg you Europe
For the sake of yourselves and the rest of the world, we beg you Europe (and off course we mean the leaders of Europe) to think about the following key growth criteria, as part of any ‘Growth Pact’ you might negotiate in the coming months:
- Reduce the size of your bloated public sectors
- Introduce private property ownership incentives and pension reforms
- Lower your punitive tax rates
- Reform your burdensome and needless regulation, opting for streamlined market driven regulatory stabilisers
- Introduce labour market reforms and encourage flexibility and mobility
- Encourage and actually treat your citizens like the responsible ‘conduits of growth’ and employment creators they are and can be
- Encourage personal and community based accountability
- Be tough on crime, but fair on punishment and reform
And above all believe, think, do, act and (if you must) enact economic GROWTH!
- Public sector protests – in pictures (icrindia.wordpress.com)
- Q&A: End of austerity? (bbc.co.uk)
- Given the unrelenting stream of negative domestic economic news and the crisis of confidence in Europe, it is reasonable to ask where UK growth is going to come from in the coming years. (lloydsbankwholesale.com)
- The Left’s anti-austerity message is delusional (telegraph.co.uk)
- Europe’s delusional search for growth (telegraph.co.uk)
- Is this the end of ‘1 Europe’? (wnd.com)
- Is This the End of ‘One Europe’? (lewrockwell.com)
- Europe’s Voters Say “No” to Economic Reality (whiskeyandgunpowder.com)
- Draghi’s “growth pact” = Internal devaluation (superbullinvestor.com)
- Is This the End of “One Europe”? (theamericanconservative.com)
- The Insanity of Austerity (counterpunch.org)
Or is this the beginning of what we will call ‘Austerity Anarchy’?
As a case study in behavioural economics goes, the last week in March 2012, in the UK must go down as a classic…
What sparked the ‘run on petrol and filling stations’ is not the aim of our analysis, but rather the deeper underlying cultural psychosis affecting Austerity Britain. However, the austerity is not driven by the current revenue expenditure austerity, but rather the culture of Investment Austerity over many decades that has created a supply chain time bomb in the UK.
There is generally a severe lack of investment in any form of storage capacity. Not as a risk management concept, but rather as a pure short sighted cost management issue.
Yes, land capacity is limited on a small (in places patchily overcrowded; especially down in the South East of England) island and the cost of owning a vast storage network must seem prohibitive; yet having so little risk management or rather ‘buffer’ and shock absorption capacity available must be the vast hidden opportunity cost ‘time bomb’ waiting to derail a sustained or sustainable short run upturn in the economy?
Hidden or in the economists parlance ‘Opportunity Cost’ is generally not an item on any policy maker’s agenda, yet in it lies the ‘unintended consequences’ element that so seldom gets factored into the equation. Yet opportunity cost highlights the risk element we have to factor in. And in this sense we use the word RISK in its proper intended format, namely a quantifiable probabilistic evaluation of the downside of a transaction. Yes, threats are more closely aligned to ‘unintended consequences’ and are the issues we can only subjectively be aware of, but cannot quantify with any degree of accuracy.
Hence, ‘Austerity Anarchy’ is what we believe an angst and siege mentally is, when decision-making (or rather calculus driven decision-making) gets ‘suspended’ and the irrationality of “mankind’s mind” and the mainstream misinformation distribution takes over, creating PANIC in Little Britain and the commentators at theMarketSoul ©1999 – 2012 ask themselves:
“I wonder to myself; could life ever be sane again?” – with thanks to The Smiths
- Don’t Panic! Don’t Panic! (1stepup2stepsback.wordpress.com)
- Fuel Frenzy: Petrol pump panic grips UK drivers (1oneday.wordpress.com)
- Petrol panic buying… Complete morons (nickspearing.wordpress.com)
- United Kingdom petrol panic over? (davidwestern.wordpress.com)
- Running on Empty: Petrol Panic in UK (markamerica.com)
- Gas stations close in UK after fuel panic-buying (seattletimes.nwsource.com)
- English police ask gas stations to close amid panic-buying (ctv.ca)
- | UK Panicking over petrol: The silliest country in the world! (truthaholics.wordpress.com)
- Anger erupts as drivers queue for hours in sweltering heat… and the strike hasn’t even begun yet! (dailymail.co.uk)
- Government under fire over panic buying of petrol (guardian.co.uk)
No investor can or should trust institutions without conducting their own due diligence and risk profile / risk appetite assessment first. In the past investors could possibly rely on professional ‘trusted’ advisors to help then navigate the due diligence part, at least in theory. Risk and risk appetite assessment was the more tricky part and not even the professionals had sophisticated enough tools to help their clients through this quagmire landscape.
We believe this is the unintended consequence of over regulation or an over regulated environment. Relational trust has been eroded in favour of ‘legislative trust’ and therefore the impersonal ‘hand of public scrutiny’ is supposed to protect the innocents.
We need to ensure the pendulum swings back to a happy balance between relationship and legislative trust, unburden ourselves from the over regulated and expensive compliance environment we have allowed to engulf and overwhelm us, not adding any value, but stifling innovation instead.
- David Hunter: From Roman market to flea market, caveat emptor (knoxnews.com)
- Q & A: How Do I Evaluate This Business? Real-World Due Diligence (upandrunning.bplans.com)
- What Do You Call A Salesman You Can Trust (frontofficebox.com)
- Buyer Seller Beware (madhatters.me.uk)
- Due Diligence Training Course (sellingprivatecompanies.com)
- Start-up due diligence is not mysterious (finance.fortune.cnn.com)
- Rumour helping improve general risk appetite a little (forexlive.com)
- What is Due Diligence? (sellingprivatecompanies.com)
Today’s brief analysis of US Treasury Yield curves and the Debt profiles of both the USA and Italy highlights the enduring question in the title of this post.
The first graphic highlights one important issue. We chose 2 August 2011 versus 17 February 2012 as key dates to compare the US Treasury Yield curve. If we cast our minds back to 2 August 2012 two key facts emerge:
- This was the D-Day of the US Debt Ceiling vote
- The US still had a Triple A credit rating
The key take-away from the Yield Curve comparison is that even with a ratings downgrade, the US is actually able to borrow new capital at a lower rate of interest 6 months on.
However, to pour a bit of realism into the analysis, we highlight two interesting Debt profile graphics below.
The first one is the USA Treasury Maturity curve (admittedly 6 months out of date), highlighting when the current debt will need to be redeemed or rolled over. The second is the Italian Bond Maturity curve. You will notice just how similar the USA and Italy Debt Maturity profiles are.
From this comparison, the critical question currently for us is:
Where will all the new money come from to roll over the debt maturing during the next 3 – 12 months? QE is one option, but investors still need to be convinced that their capital is safe and relatively risk-free. It is the Risk-free equation (or investor risk appetites) that needs to be explored in more detail.
- Raymond James Weekly Bond Market Commentary (learnbonds.com)
- The Fed’s Undistinguished Macro Discussions Circa Jan 2006 (wallstreetpit.com)
- S&P on Italy: Borrowing is Going to Be Tough for a While (blogs.wsj.com)
- Not Making Sense Of The Economy (lezgetreal.com)
- The Italian Yield Curve Vs The Euro Basis Swap (zerohedge.com)
- Bond Report: Treasurys stay down after 10-year auction (marketwatch.com)
- Bill Gross Exposes “The New Paranormal” In Which “The Financial Markets And Global Economies Are At Great Risk” (zerohedge.com)
- Are western central banks having an existential crisis? (ftalphaville.ft.com)
- Vickers: Italy’s Debt Looks More Sustainable (businessweek.com)
- PIMCO’s Bill Gross’ New Bet On Treasuries: Roll Down The Yield Curve (forbes.com)
Doing business anywhere, anytime is never easy!
That is a stark commercial reality, that most business people will accept as a given. But how? now? does is work in a climate of AUSTERITY???
(Apologies for the blatant confusion and poetic licence taken in the previous sentence).
Public and private sectors mostly have an uneasy symbiotic relationship with each other. If the public sector cannot deliver a solution, they have to procure it from a private provider and a private provider (generally, but not always) rub their hands with glee, as it is relatively speaking ‘easy money’ provided you meet and exceed certain framework thresholds.
All nice and cosy, when we are in a growth cycle of the economy; yet ever so tricky when those Framework Procurement Agreements come up for tender during the down slope side of the cycle…
It is odd how the ‘staccato’ relationship between private and public sectors work at different periods during the business cycle. And this is exactly where the public sector, with an astute “commercial hat” on, can take advantage of it’s perceived negotiating strength during the down cycle agreement drafting / tendering process.
Yet, do they take advantage of this?
Our view is that any Public Sector Procurement Framework Agreement with private sector providers will always be a FLOOR, thereby setting the minimum expectations and requirements, without ever really driving proper continuous INNOVATION and COMPETITIVE DYNAMICS to ensure players with ‘skin in the game’ continue to understand and manage their businesses with the proper risk attitude (never mind risk appetite). Rather than act as a (“floor price”) barrier to entry, they should act as ceiling, or rather more ‘bluish sky’ REACH or STRETCH agreements, setting the rules of the game, but not acting as the default pricing mechanism , meaning that the private sector provider must continue to be innovative, rather than wait and ‘cream-off’ the best bits whilst seeing out the agreement time period until the next time anyone bothers to ‘tamper with the height’ of the limbo bar…
Our summary take away from this article:
The Public Sector Procurement Framework Agreement therefore should act as an incentive to compete and have fair access, but never as the default pricing mechanism.
- Austerity budget is coming, but is this the right time? (theglobeandmail.com)
- Keynesians on austerity – predictably wrong (samizdata.net)
- Government outsourced more than 1,100 jobs to private sector in 2011 (guardian.co.uk)
- Unemployment likely to worsen as private sector resorts to redundancies (guardian.co.uk)
- UK | Public sector workers ‘would sacrifice pensions for private sector security’ (skillsinfo.wordpress.com)
- IMF’s Lagarde: Equilibrium between private and public sector in Greek debt negotiation is a “concerning question” (forexlive.com)
- Pension gap increases between private and public sector (moneyexpert.com)
Are the European and more specifically the Euro-zone problems purely a matter of cultural differences, engrained in generations of ‘Nation Staters’ or something deeper in each nation-people’s psychology?
It cannot purely be a difference of political ideology between the leaders and individual nations of Europe that has lead us to the brink of the Euro abyss. But, yet maybe the way the debate and challenges facing Europe are being framed, has a great part to play in it.
Europe always seemed to be a halfway house between cultures, trade, ideologies, beliefs and norms. And the fact that the Euro single currency zone was stitched together based on these ‘halfway house’ ideas should therefore not have been a surprise.
How long does it take to build a vision? Or rather, why did Europe take so long to get to the chasm, build a rickety Monetary Union bridge, without firming up the foundations that holds together the infrastructure once the traffic crossing that bridge started increasing in volume?
If there is something Trade theory should have taught us, it must be that once opportunity (to trade and create wealth) is established, the trickle would eventually turn to a steady stream and the steady stream to an eventual throng. Yet not one European leader or institution foresaw this? Takes us full circle to the original question, namely: “How long does it take to build a VISION?”
The truth might lie somewhere in the nature, establishment and deep rooted psyches of the Europeans themselves. Europe might be the collective noun; yet staunch nation state individualism (the communities we all hunker after) is the actual bedrock and foundation of the people who live in Europe. Unlike the USA, with a common language, full monetary and federal fiscal union, Europe is and will always remain a loosely led together community (but not a collective) of nation states and peoples.
Fairness, freedom, equality and openness, some of the most fundamental tenets of a market and community to function properly, are not necessarily on the agendas when ideological political, rather than economic (for the greater good), issues are considered by both politicians, technocrats and bureaucrats in the institutions and fabric at the heart of a (dis)United Europe.
Therefore, until and unless we can prize Europeans from there deeply held ‘national interest’ debates and frames of reference, in terms of establishing a common and united front; we feel that there is no hope of sustainably solving the Euro-zone sovereign debt and monetary union problems.
A possible mechanism might have to be the establishment of a ‘fourth branch’ of governance, outside the Executive, Legislature and Judiciary, being an outside force or rather an Adjudicator comprised of non dominant European member countries and quite possibly with an Advisory Board consisting of non Europeans themselves, to allow for the establishment of a fair, free and an open implementation of the Legislature’s policy decisions, hence and overseer of the Executive, but an equal to the Judiciary, with a final veto by the citizenry of Europe themselves, as a balancing mechanism, should a stalemate ever arise.
The enabling driver of such an European Adjudicator must surely be the Digital Economy with its various platforms and reach extending now and in the future across the ‘Net’ that is European integration.
- Crisis On The Continent (thedailybeast.com)
- What S&P’s Downgrades Mean for the Euro’s Future (curiouscapitalist.blogs.time.com)
- No Country Will Exit the Euro Zone This Year: Jim Rogers (wallstreetpit.com)
- “Euro Zone Crisis is Germany’s Fault” (twistedeconotwist.wordpress.com)
- Euro zone jobless hits highest level since birth of euro – Reuters (reuters.com)
The team at theMarketSoul have not been busy enough putting blog article out during January 2012; however, it has given us the opportunity to reflect on the goings on in the various regions around the globe.
The themes of this article are:
The only great point of interest was the State of the Union address by President Barack Obama. Again as a liberal statist the theme of taxation and MORE taxation to come down the road for the ‘more’ well-off in society raised its ugly [spectre] head again.
Oh dear! Let us think very hard about something positive to reflect on this month during the kick-off to 2012…
Enough said. Unfortunately the Eurozone crises (yes, several on different fronts) are still dragging on.
We see yet again how difficult it is to undo a few decades worth of the nation state experiments in Europe and bring everyone together under the guide of collaboration, but with no formal overall governance framework in place. The Eurozone crisis, as well as being one of sovereign over indulgence, is also one of a twisted underground power struggle between the European traditional heavy weights.
But, alas, it is all politics in the end and with Standard and Poor and Fitch getting on the downgrade bandwagon during the month, angering politically challenged politicians like Monsieur Sarkozy (French presidential elections coming up in April and May 2012 [two rounds scheduled, if necessary]).
The Middle East
One matter of interest raised during a panel discussion on the BBC programme DateLine London on 28/01/2012 regarding the tension in the Straits of Hormuz, by Adbel Bari Atwan, is the fact that the entire Iranian issue around nuclear armament is a ‘manufactured’ threat by the USA and Europe. True, with Pakistan, India, Israel, China and Russia being nuclear enabled nations in the region, what difference will one more nation make to this perilous equation? Perception seems to be everything, both in the discourse and actions taken in reshaping the Geo-political order of the post ‘Arabian spring’ Middle East.
Please, just keep collaborating in OPEC; pumping the Black Gold and thus keeping prices lower and stable, for the sake of a stable Global Economy!
- Fitch downgrades Italy and Spain (bbc.co.uk)
- Brussels takes control of taxation and spending in eurozone countries (telegraph.co.uk)
- Roundup: Obama’s address focuses on the economy (globalpublicsquare.blogs.cnn.com)
- Middle East Presidential Advisor To Four Presidents Bruce Riedel: Iran Is Not an Existential Threat to Israel or the United States! (politicalvelcraft.org)
- What Eurozone Crisis? (ritholtz.com)
- Report: US to Send “Mothership” to Middle East – Voice of America (blog) (blogs.voanews.com)
- Eurozone crisis: ratings agency downgrades nine countries (newstatesman.com)
It is with a little amusement that we scanned through the Economic headlines today, following Standard & Poor’s decision to finally downgrade France’s and other Eurozone nation’s Sovereign Debt rating. France lost its prestigious triple A (AAA) grade to AA+.
Sarkozy and French anger? Indeed!
But the problem is timing as far as Mr Sarkozy is concerned. This is a Presidential election year in France, so this comes as a slight humiliation to Mr Sarkozy. And so it should be! He should be shamed out of office! Therefore, hopefully S&P’s decision will help the voters and tax payers of France sit up and realise that incompetent leadership and decision making in the Eurozone economies now urgently needs to be ‘punished’.
Thank you S&P, for taking this action, because the actions (or rather inaction) of the Eurozone bureaucracy and leadership so far in addressing the root causes of the multiple crises, is continuing to drag the global recovery off course.
Decisions to circumvent exiting (inadequate) European Institutional frameworks and pulling the wool over European Citizens eyes over the inadequate administrative burdens the bureaucrats have imposed on its Citizenry must finally come to an end.
Hopefully, we’ll see some slightly more competent new faces in the Eurozone leadership pool and summit photo call line ups very soon… Innovation in Europe might have to start with a new set of leaders?
- Eurozone crisis: ratings agency downgrades nine countries (newstatesman.com)
- French president Nicolas Sarkozy sends his PM to face cameras after credit rating is downgraded (dailymail.co.uk)
- French PM vows reforms after ratings downgrade (ctv.ca)
- It’s Official: S&p Announces Mass Downgrade of Eurozone Countries (tarpon.wordpress.com)
- France to pursue reforms after downgrade (thehindu.com)
- AAA No More: Credit Downgrade Hits France (npr.org)
- Credit rating slashed, France promises reforms (csmonitor.com)