Fixed Income?

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Traditionally, fixed income was a boring asset class; limited to widows, orphans, and the elderly who are looking for a steady income that they could rely on.  Over time, investment banks turned it into one of the most exciting asset classes in the market.  Today I wonder if the term “fixed income” is at all appropriate to describe an investment that costs you money instead of earning you some. Continue reading

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Driverless Cars?

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While UK politics are in turmoil, with all major parties having leadership crises, and no major steps in the pursuit of economic stability – bar a lukewarm indication to eventually lower corporation taxes some time in the future – are being taken, I thought it wise to give Brexit a rest, and my faithful readership a break from it.  Today we are going to discuss driverless cars.

Bill Gates when still at the helm of Microsoft (NASDAQ: MSFT), was reportedly quoted having a go at General Motors (NYSE: GM) at a computer expo, by saying “If GM had kept up with technology like the computer industry has, we would all be driving $25.00 cars that got 1,000 miles to the gallon.” At the time I laughed it off by saying that such car would, while in the middle of the highway, turn the windscreen blue and ask you to abort, retry or fail…

But jokes aside, the technology for driverless cars is there.  I have no doubts that any major car manufacturer could produce a fully automated driverless car on a moment’s notice.  So what is holding them back? Continue reading

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Brexit, Schmexit! Part 5: The Aftermath

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What a week! The Brexit win took everybody by surprise, including yours truly. Even those who voted leave were surprised at the result.  I thought it to be a done deal – especially after hearing Nigel Farage concede defeat the night before, went to sleep and when I woke up, the wold was collapsing around me…

Pound Sterling at 30 year lows; Asian, European, and American indices significantly lower; gold hitting 52-week highs; and to spice things up a bit, throw in a Prime-Ministerial resignation, an opposition coup, and threats from Scotland and Northern Ireland to leave the United Kingdom. And it all happened within 24 hours of the polls closing.  But how come nobody called it? Continue reading

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Brexit, Schmexit! Part 4: Europe

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So, four months have passed since the British Prime Minister, David Cameron announced the in-or-out referendum from the EU.  Over that period of time, the Pound Sterling has been all over the place, first dropping to lows not seen since the height of the sub -prime crisis in 2008/09, recovered all of its losses and then some, dropped back to the $1.4 level on fears that the leave camp was gaining on the remain side, only to bounce yesterday back to $1.46.  The uncertainty is not confined to the Pound, but also pushed the FTSE 100 has also had a roller-coaster ride.

On the previous blog posts in the Brexit, Schmexit series  Brexit, Schmexit! Part 1: The Pound, Brexit, Schmexit! Part 2: The Banks, and most recently Brexit, Schmexit! Part 3: The Economy I took a deep look at the effects that a potential Brexit could have on the UK currency, its banks and economy.  However, what to many seems to be UK-centric affair, is in yours truly’s humble opinion, going to affect Europe more that it will affect Britain in the longer run.  This seems like a pretty bold statement, so let’s analyze it in detail.

For starters, Angela Merkel, François Hollande, Mateo Renzi, Mario Draghi, Christine Lagarde, Wolfgang Schäuble, have all endorsed the remain camp… wonder why? Continue reading

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Brexit, Schmexit! Part 3: The Economy

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When I started The Barker Report, I made a conscious decision to keep it a financial/economics blog, and to steer clear from politics, but the upcoming EU referendum is hardly an economic decision on its own.  Over the last few months politicians from both ends of the spectrum have said the most outrageous things about the fate of the UK in the aftermath of the referendum: High pound, low pound; inflation, deflation; war, peace; more money, less money; businesses staying, businesses leaving; more expensive vacations, cheaper vacations… you get the idea.

The fact that the vote on the 23rd is as much a political decision as it is economical is undeniable; what needs to be decided is who’s telling the truth, and who is lying.  Seeing through the noise and zeroing in what really matters to each one of us, is the hardest part. Continue reading

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Emerging Markets: 30 Years of Crisis. Part 3: The 2000s and beyond

The 2000s

Dollarization

After several failed attempts of convertibility and currency pegging in Latin America and Asia, a new attempt at FX stability was taking place in Ecuador, out of all places.

The main reason that convertibility had failed in Mexico, Brazil, and several times over in Argentina was that while the currency was pegged to the US dollar, the central banks had not lost their ability to print money, and the international reserves could get depleted faster than the authorities could suck dollars out of the economy.  Central banks often gave into the temptation to print out more money creating implicit devaluations to a point where they could not cope and were forced to devaluate. Continue reading

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Emerging Markets: 30 Years of Crisis. Part 2: The 1990s

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The 1990s

Hyperinflation and Mega-Devaluations of the Early 90s

The first years of the 90s saw several center or right-of-center Social Democratic and Christian Democratic parties take power (Carlos Salinas de Gortari in Mexico, Cesar Gaviria in Colombia, Carlos Andres Perez in Venezuela, Alberto Fujimori in Peru, Sixto Duran-Ballen in Ecuador, Patricio Aylwin in Chile, and Fernando Collor de Mello in Brazil), the exceptions were Argentina, where Carlos Menem was part of the populist Peronist party; and Bolivia, whose president Jaime Paz was part of the Revolutionary Leftist Movement.

Despite this political shift to the right the economic problems dragged on from the 80s were still hurting the economy: empty treasury coffers, hyperinflation, negative trade balances, fiscal deficits and collapsing GDPs, which resulted once again in mega-devaluations seeing Peru devaluate its currency by 1 million, Argentina by a further 10,000 and Brazil by an eye-watering 2.75 million in two different devaluations. Continue reading

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Emerging Markets: 30 Years of Crisis. Part 1: The 1980s

The recent news of Argentina’s deal with holdout hedge funds has prompted me to put together a three-part series on Emerging Markets, and analyze this crises struck asset class.  Enjoy!

Sovereign Debt

In the 70s, international organization such as the International Monetary Fund (IMF), World Bank (WM), International Development Banks (IDB), and other bilateral or multilateral development organization began lending money to third world countries in order to develop infrastructure projects, and thus began the Sovereign Debt Market for developing economies.  Of course, sovereign debt didn’t quite start in the 70s; war bonds were issued by countries like Britain and the US to finance conflicts in their own soils or abroad, as well as allowing Britain, France, Portugal, and Spain to finance purchases of new territories during the colonial expansions of the XVI to XIX centuries.  But the sovereign debt market brought with it a new type of investment: local market risk on hard currency.  In one swift motion, the sovereign debt market had disposed of the foreign exchange risk while keeping the regional risk on the books.  This worked fine until it stopped working Continue reading

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A Submerging Economy

I attended an Emerging Markets conference in London in 2011, and one of the topics was the Greek crisis du jour.  During the presentation, the speaker (whose name I can’t remember to save my life), wondered why Greece was being discussed at an emerging markets conference, since it wasn’t an emerging economy at all, but a submerging economy.

Fast forward 5 years from that conference, and 7 years since the first Greek crisis struck, and we haven’t moved an inch in either direction.
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Countries and multilateral organizations keep pouring money over to Greece in the hope that they might eventually pay back their debt. Continue reading

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May the Fourth be With You!

First of all, Happy Star Wars Day to everybody out there, and May the Fourth be with you.

Having said that, I’ve been wondering for a while what value has the Star Wars franchise brought to Disney (NYSE: DIS) since it was purchased in 2012.  Off the bat one would argue that the purchases of Star Wars and Marvel were brilliant moves by Disney from a business strategy perspective, although many Star Wars fans doubted the “purity” of the movies to come, and were worried that the quality would decrease, and movies would be commercialized (even more than by George Lucas, if that is even remotely possible).

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After Episode VII was released last December, the stock tanked 25%.  Of course, most of that was driven by a whole market contraction during the first couple of months of 2016; however, the S&P 500 dropped 11%, and the Dow Industrials 11.5% during the same period.  So Disney under-performed the two major indices by nearly 15% on the months following the release of the seventh installment of Star Wars.  Why? Continue reading

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