The End of an Era

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Several industries have been disrupted by internet commerce over the past two decades. The most prominent casualties were movie rentals and music shops.  The bankruptcy of Blockbuster was the end of an era for video rental stores.  Music shops like HMV have been reduced to the minimum expression, while others have outright closed.  Now the only retail music stores you find are specialized places dealing in vinyl, or old/collectible records.

Everybody blames Amazon (NASDAQ: AMZN), but the truth is there is a lot more convenience in buying a CD online, being able to download the music and listen to it immediately while the CD gets shipped to you, and all of that in the comfort of your own home.

Until recently, toy stores seemed to have an edge.  As a parent of young children, especially those who still can’t communicate properly, finding the perfect Christmas or birthday present can be a daunting task.  Fortunately, our friendly neighborhood Toys’R’Us provided us with a playing field where our kids can go, wander around, play with the toys they like while you just take note of what they liked the most and get it for Christmas.  As they grow, they can explore new toys, and decide which ones they want in their list. Continue reading

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Ahhh… Tariffs (sigh)

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I grew up in Ecuador, in the 80s, at a time where foreign trade was terribly restricted.  Both imports and exports were controlled by the Central Bank, and there wasn’t a free floating currency.  Heavy tariffs were applied to “protect” local industries, while certain imports were outright banned, because they would result in a flight of foreign currency.

In the early 90s, Neo-liberalism took ahold of the economy, and it was liberalized.  The Sucre was allowed to float – not quite freely, but freeishly: upper and lower bands, with a small gradient that would allow for a maximum and minimum level of devaluation (a phenomenon referred to as ‘a snake in a tube’).  Imports were open, and you could buy a plethora of foreign products.  Although tariffs were still in place, the economy looked a lot more open.

The beauty of free trade:

Anybody who is a free-market advocate such as me, would agree that free trade between countries allows for market forces to set prices, and let supply and demand take care of business.  Some of the benefits of global free trade include: Continue reading

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A Guide to Brexiting

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Here is my guide for any country willing to get out of the EU:

  1. Vote to leave
  2. Leave

It shouldn’t be harder than that.

Of course, there are many things that need to be addresses, but they can be addressed at a later stage. Remember that every single country in the world except those in the EU aren’t in the EU, and they seem to get on very well. Countries as small and far away as Singapore manage to trade with the rest of the world and don’t go around whining because they are not in the EU (or the large trade block du-jour).

The truth is the politicians in the UK don’t want to leave the EU (regardless of what was decided in the referendum) and the politicians, bureaucrats and technocrats of the EU don’t want the UK to leave, so they set out a 2 year negotiation period, now they are thinking of a further few years of transition, and keep making it more complicated than it needs to be. Continue reading

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20 Billion, 100 Billion, or more?

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If you read last week’s post: Brexicon, you’d notice I dropped a lot of definitions. Well, today I’d like to elaborate on that of the Divorce deal/settlement. Why divorce? I mean David Cameron wasn’t married to Angela Merkel, they are not deciding how to share custody of their 26 children.  The term divorce implies that there was some kind of marriage of equals, and that it was the UK, and not the remaining 27 that has the largest income and therefore needs to support the party with the lesser income.  That is true neither on an individual, nor on a group level.

The reality is that far away from being a marriage, the true relationship between the UK and the EU is that of a members club.  When you leave a club, you stop paying your dues as of the day in which you leave, and you stop enjoying the benefits of the club. Continue reading

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It’s been a while since my Brexit-Schmexit series in 2016.  Back then, the concept of the UK leaving the EU was as remote as that of President Trump.  Fast forward a couple of years, and we are a bit over 13 months away from Brexit actually happening.

I’d like to revisit some of the current developments; however, I thought I’d devote this post to getting everybody up-to-speed with the new words and phrases coined around Brexit.  Considering that my audience is growing largely outside the UK, I figured a quick refresher won’t do anybody any harm.  So, let’s get to it.

I once read that writers are allowed certain latitude for creating their own words.  Well, here goes mine: Brexicon

Brexicon: /ˈbrɛksɪk(ə)n/

noun: brexicon

  1. The vocabulary of a British member of parliament, member of the public or member of the British or European bureaucracy in regards of the impending British exit from the European Union.
  2. A dictionary of terms regarding directly with Brexit.

I figured, since the Brexit vote in 2016, there have been many Brexit specific words and phrases coined around it, but very few people have stopped and thought about what they really mean, and why where they said in the first place.  Let’s look into some of the most frequently used: Continue reading

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Where did 2018 go?

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Whew, what a week!

On Friday the 2nd, an economic report came out stating that wages were increasing.  That surely was good news for the market… or was it?

Higher wages mean the economy is reaching full employment, which means that in order to hire an employee, you need to lure him away from his current job at a higher salary. This translates into higher expenses for employers, and less profits.  If the employer wants to make up for the shortfall, he needs to raise prices.  And that, my friends, is called inflation.  Inf-what? of course, we haven’t had any inflation for a long time, and all of the sudden, it hits us: It was there, all along, never left, only waiting patiently in the sidelines. Continue reading

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Can Blackstone Take on Bloomberg?

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You may have read on the news last week, before last Friday and yesterday’s market debacle took the headlines by storm, that private equity firm Blackstone (NYSE:BX), along with a couple of investors, made a bid for Thomson Reuters’ (TSE,NYSE: TRI) Financial and Risk business (F&R).

Upon announcement, Thomson Reuters’ stock jumped to $48.09 – over 10% on the previous day’s close of $43.45.  All gains were wiped out by the following day, and by Thursday, the stock had reached 52-week low of $41.41 or a good 13.89% off its highs two days earlier.  The stock closed the week at $42.34, still over one point below the pre-announcement closing price.

What happened? Did shareholders suddenly get cold feet? or was it a case that, as more information was made available, the more unreasonable Blackstone’s game plan seemed.  Let’s check out what was the background to this deal: Continue reading

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Dollar, where to?

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Sitting in my office in Zürich last Thursday morning, my amazing view of the Alps got interrupted by a 7-strong helicopter flight, I realized it was President Trump and his entourage flying to Davos.  The night before, Treasury Secretary Mnuchin had said in an interview: “A weaker dollar is good for us as it relates to trade and opportunities. Longer term, the strength of the dollar is a reflection of the strength of the US economy and that it is, and will continue to be, the primary reserve currency.” The press was quick to report on the first part of the quote, but failed to mention the second.  To that extent, it was made to appear that the Dollar was being manipulated by the top government brass, resulting on the Dollar index dropping 2% on the news. Fast-forward a few hours, and the President gave an interview to CNBC’s Joe Kernan, where he said about Mnuchin’s comments: “I think they were taken out of context…” About the Dollar he said: “I don’t like talking about it because frankly nobody should be talking about it.  It should be what it is, it should also be based on the strength of the country…”, and he concluded with: “…the Dollar is going to get stronger and stronger and ultimately I want to see a strong Dollar.” As soon as these comments was aired, the Dollar recovered most the previous day’s losses.

… the Dollar is going to get stronger and stronger and ultimately I want to see a stronger Dollar. – Donald Trump

But let’s backtrack a bit.  Even before the latest events in Davos, the US Dollar had lost value against all major world currencies, albeit in different degrees of intensity.  When we analyze the major drivers of currency fluctuations, we notice that most drivers actually point towards a higher Dollar as we can see below: Continue reading

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The Emperor’s New Clothes

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We live in an age where everything seems to be open to “self-identification”: Men can identify as women, women can identify as men, and car companies can identify as tech companies.  It is the latter that I would like to discuss today.

Tech or Transport?

Tesla Inc. (NASDAQ:TSLA) with a market cap of around $56B, and privately held Uber, with a valuation of around $61B both claim to be tech companies, whereas Uber is an actual app that connects drivers with people in need for transport, Tesla is in fact a car manufacturer. Continue reading

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Time to Call it a Bubble

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Hindsight is a beautiful thing. I love to see Monday night quarterbacks giving their expert opinions, after the fact. Bubbles are very easy to spot… after they burst! And after the pop, everybody will comment on how obvious it had become.

Anybody who traded the markets in 1999 would remember the dot-com bubble. The time when anything and everything ending in .com would attract outrageous sums of money. At one point, a client of mine, asked me, in no uncertain, terms to invest his money in any company whose CEO appeared on CNBC wearing a turtleneck. I won’t depress you with the outcome of that story.

One thing about bubbles, is they can make even the smartest investors lose their discipline. It happened in the dot-com bubble with people investing in webpages that offered no way of monetizing content, or had no business plan for that matter; it happened to people shorting the market in the housing bubble, where they started longing certain CDOs in order to generate enough cash flow to sustain their short positions; it happened to railroad investors in the 1800s, and it happened to tulip investors in the 1600s.

Today’s bubble is called crypto-currency. It has several similarities to the dot-com bubble: Continue reading

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