Thanks Tom. I’m just beginning to learn about this.
(1) “The first weak link is Europe and its debt. On average, across the continent, the debt-to-GDP ratio is about 90%.”
(2) “China has problems. Their debt has just ballooned. Depending on whom you want to listen to, 40% to 80% of the last $6 trillion the Chinese borrowed went to pay interest on the debt they already had.”
(3) “Japan is monetizing its debt and putting it into the central bank. They are going to continue doing this at an astounding rate.”
(4) “Emerging markets are the fourth weak link. How do they dig out? They borrowed $10 trillion in dollars that they have to pay back from income earned in their local currencies. Dollar valuation can create serious problems for their debt.”
(5) “the US dollar is the cleanest dirty shirt in the closet”
We all know the definition of insanity: repeating the same thing over and over again expecting different results. (That is where we are with the Fed Reserve Banks and governments).
Steve
Markets are up. It looks like the Brexit Bump might have passed.
Either that or today is a headfake.
France, Netherlands, and Czechs will be having referendums in the near future.
And now for today’s news:
European SUPERSTATE to be unveiled: EU nations ‘to be morphed into one’ post-Brexit
Now the EU is pushing for full political / economic union. I wonder how that will go over…
Steve
George Soros thoughts:
But timing on these things is very, very hard (and mostly luck). John Paulson has been calling for Euro break-up since at least 2012, and betting on Gold over that time, and getting killed. See for example:
http://www.newsmax.com/finance/StreetTalk/BNALL-BNCOPY-BNSTAFF-BNTEAMS/2012/07/23/id/446271/
He even offered share prices for all his funds priced in gold starting in 2010 or so I think, and they’ve been getting killed.
One of the most interesting questions is what to do with fixed income in portfolios (besides short-term and hi-quality), these days. My Mom is looking at annuities at the moment and they are promising over 6%. Not that bad an investment for healthy 65 year old I think.
My mother has been in annuities for a while and has been very satisfied with the results.
Tom - how do they plan on delivering 6%? Is that realistic in this economy?
I remember insurance companies offering vanishing premiums back in 2000. It wasn’t long before the onslaught of lawsuits…
Steve,
Sadly, they plan on large numbers of people dying. That’s the main way. If they take all my Mom’s money and put it in 3% return AAA, 3 year corporate bonds, they won’t ‘run out’ of her principal until my Mom’s in her 90’s. Most people won’t live that long, so if they sell plans to lots of people, the averages work out and they can hit these numbers - and still have room for profits. For 6+ %, she has to give up any claim to the principle. That’s not the only option, but it’s the most recent one I looked at.
Best,
Tom
The biggest concern that I have with an annuity is who backs it. My understanding is that AIG was the largest issuer of annuities pre-2008. Then the government had to bail them out. If the issuer goes out of business or cannot meet their commitments, is it backed by the federal government in some way?
Tom,
Sounds okay. Now days we do not think of inflation risks. Of course, bonds have inflation risks too. But even a real bond in a safe deposit box is liquid. The fed says they want 2% inflation–more would actually be better for reducing the consumer and national debt. Who knows what they want or will get over a long period.
Just thinking-out-loud of all of the risks.
Best,
Jim
I read Steve’s article with interest. Another link here: “Why I Voted for Brexit”
The author says he originally voted to join the EU because he likes free trade.
He voted for Brexit because of the costs of being part of the EU. These costs include:
-
The EU equivalent of what we call “pork” in the US: “A Portuguese golf resort, a Bavarian hunting lodge, a virtual clone of Malmo, Sweden in the video game Second Life. A hemp farm. Puppet theatre.”
-
Regulations: “…billions it costs British businesses to comply with often bizarre and Byzantine EU directives, such as those enforcing the curvature of bananas, banning diabetics from driving, and making it illegal to sell eggs by the dozen.”
One problem with this argument is that it is hard to quantitate regulatory costs. I am commenting on this because I may have encountered an anecdotal example today.
The P123 computer told me to buy HTZ (Hertz) today at $11 per share. But my broker would not let me buy as many shares as my port suggested. Seems my broker thinks it is now $44 per share. Looks like LYFT may have purchased or made an offer for HTZ.
So to quantitate the cost of regulations around taxi services one only needs to look at the market cap of UBER and LYFT. How much economic activity has been unleashed by the fact that UBER and LYFT have gotten around the regulations?
You could argue that UBER and LYFT are succeeding because they have leveraged smart-phone technology. But how long would it have taken for the taxi monopolies to start using these technologies? Surely competition and regulations have had an indirect affect on the adoption of this useful technology–even if you accept this argument.
This journalist is not an economist. And no doubt Britain will be worse off in the short term. But the author is at least smart enough to not use the term “crony capitalism” (sorry for the political connotation and the generally poor term).
Is this is an opportunity to quantitate the costs of one small regulation? If so, it is one small regulation but is it a small economic impact?
Here is another article: http://finance.yahoo.com/news/brexit-37-year-old-uk-british-finance-european-union-imf-173925088.html
I tell you what will happen 
UK will get out of the EU, but will get into the same relationship as Norway or the Swiss, e.g. the free market between
the EU and an UK will remain.
Euro bonds will come or the euro will die (which would be a great Idea for all countries besides Germany that profits
big time from a low euro (the D-Mark would be trading much higher then the euro today).
it is interesting how all of the EU pronouncements (that matter) really come from Germany. I get the sense that the EU is really all about Germany (for several reasons). I don’t mean that in a negative sense, it is more of an observation.
You hit the nail on the head Andreas. Germany is benefiting greatly from a “low Euro”, while Greece is suffering from a “high Euro”. Meanwhile, the elite hold Greek bonds and receive an incredible return. Greece can’t default on them, or so they are told. Instead they are forced into ever-increasing levels of austerity.
Steve
Can’t speak for the world at large, but for New York city, it’s nearly 100% based on use of technology. NY has always had a second “taxi-like” system licensed as “livery” services. Uber and Lyft cars have to have livery license plates and drivers need appropriate licensing. The idea with Livery is that you call a dispatch office and ask for a car, which is then dispatched under a radio system, like taxis in many places where they don’t cruise on the streets. So here, it’s not really taxi vs Uber/Lyfy – it’s really livery vs. Uber/Lyft and the latter is a huge winner because it’s so much better in every way thanks to the use of technology.
The regulatory edge uber/lyft have come from such things as pooling and surge pricing, but ex the technology, that wouldn’t be enough to get them the strong foothold they have. To the extent uber/lyft are able to capture businesses from taxis, it’s becasue of what any of the old livery services could have done had they been better users of technology.
The regulatory debate per se is actually very complicated. A lot of regulation has nothing to do with government. A couple of weeks ago, my wife’s friend flew in for a visit from China and arrived in Newark Airport. I had them come in to Manhattan via Uber rather than regular taxi because Uber is more tightly “regulated.” There’s an exact computer record of who the driver is and the exact route that was taken, both of which I felt would be safer for passengers who had no idea how to go from point A to point B. I saw the extra layer of regulation as a big plus, especially when crossing a state line – we traded split NY/NJ jurisdiction over problems to a single Uber corporate jurisdiction over problems.
Generally, regulation is a good thing. The pioneering case in the U.S. os McPherson v Buick, an early 1900s case in which the purchaser of a car sued Buick after the car went dead quickly after he purchased it new. Buick won the case saying the customer didn’t buy anything from them and that he had to sue the dealer. The dealer won because it didn’t do anything bad in the making of the car. So in the pure free market setup, the customer was screwed – until Benjamin Cardozo wrote an opinion on appeal imposing liability on Buick and pretty-much inventing product liability law.
That’s an example of how horrible life would be in our complex world be if regulation didn’t exist to fix things that fall between cracks. The problem, though, is regulation that’s run out of control. It sounds like that’s happening in the EU. I know it’s happening here – and elsewhere (“The Mystery of Capital” by Hernando de Soto is a fascinating read; it’s not the quantity of regulation, it’s the type).
Like specifying the curvature of bananas and cucumbers that can be sold in the EU.
Marc,
Thank you for your comments. I had heard that a taxi license in Washington DC cost $250,000: anecdotal and pure memory so I Googled it.
I did not get to Washington DC but found this Reuter’s article on New York Taxis: “Why Taxi Medallions Cost $1 Million”
And another article from The New York Post yesterday: “Medallion Owners find their Dreams Dashed by UBER, LYFT”
Whatever the exact story is $1 million seems like a barrier to entry. And the number of medallions is strictly limited (according to these articles) resulting in an artificially low supply (oligopoly). There may be classic economic costs resulting from this regulation.
Regards,
Jim
Re: Uber
I don’t know if it will be good or bad long-term for the workers / users.
I don’t think driver’s working in Medallion taxis had a great life, but I also don’t think you can have a regulation requiring buying medallions and then allow a company to come in and operate without them - of course that’s unfair and an unfair advantage. So, that’s an issue. Excessive regulation sucks, so does arbitrarily changing regulations.
But in terms of how it works / fees, Uber has raised billions of dollars. They are using that money to ‘buy market share’, through advertising and higher driver salaries and little / no profitability. Once they take over a market and attract the best drivers and put comp. out of business, they will drive down driver rates significantly and raise fare rates. It’s inevitable. If they can claim enough market share.
Once they can eliminate drivers completely with self-driving cars (Lyft is testing this in NYC already), they will be able to be even more profitable.
Uber claims that their drivers make more than Taxi drivers:
https://techcrunch.com/2015/01/22/uber-study/
I have read several other studies claiming that, after expenses, they make less. I can’t find them now, but you can see articles:
https://www.buzzfeed.com/johanabhuiyan/what-uber-drivers-really-make-according-to-their-pay-stubs?utm_term=.qj01G2ezLK#.wxgQX1n2rK
But their drivers are also part-time, younger and many are college educated. They pay for their own cars and insurance, etc.
So, we have taken full time taxi drivers struggling to live and stripped away / increased competition to their jobs in many cases (with no employment options). They are now fighting with college educated kids who are taking ‘freelance gigs’ at hourly part-time work - why? Because those college kids are unemployed or underemployed.
http://www.newsweek.com/2015/06/05/millennial-college-graduates-young-educated-jobless-335821.html
And all the profits accruing to a very small number of people. If you look at the ratio of ‘Market Cap’ to employees, it’s off the charts for Uber. I had this somewhere, but can’t find it right now.
I don’t think these are good trends for many working class people or the economy as a whole.
Some fun reading on Uber:
http://www.businessinsider.com/ubers-revenue-profit-and-loss-2015-8
http://www.businessinsider.com/uber-revenue-rides-drivers-and-fares-2014-11?op=1
Best,
Tom
Yes, that’s an example of regulation at its worst . . . well, maybe a close tie with the curvature of bananas (I’d love to have been a fly on the wall in the conference room when that was discussed).
But actually, Uber can’t compete full fledged. They are not allowed to pick up in response to street hails, and in Manhattan, thaty’s the main way taxis are obtaied. As to the call-in livery version, Uber is under the same regulations as the old liveries. And now, they’ve been forced to accept a quasi union of drivers. Venture capitalists are learning they can’t run things as they like in NYC, or where, in the words of Ted Cruz, there are “New York values.” 
Seems, though, like they understand thius and have read the manyual for doing business in NY (“The Art of the Deal” – actually a better book than many realize since it was written when Trhump was living in a prior incarnation) and are figuring out how to bargain.