Global Bytes

Splendid Reforms

Very happy that Modi’s government is bringing in more accountability and reforms for credit ratings and boosting the municipal bond market. Pune municipal had raised about INR 300 Cr/$46.2M by today’s exchange rate. India needs to pump up the bond market, and listing of muni bonds will bring in more accountability and liquidity. One point to be of caution is not to encourage a lot of buyback among companies. We can learn from the mistake in the US. Companies need to focus on creating intrinsic shareholder value esp. through increased expenditure on research & development, innovation, etc. for boosting both topline and bottom line.

Time to buy a house in Europe

Bloomberg recent estimates put $17T bonds globally as negative-yielding. This is a gloomy scenario. According to a report by World Economic Forum, a Danish bank is charging -0.5% for a 10Y housing mortgage implying that customers pay back $99500 on a $100000  loan or is paying $500 to customers for the loan. However, remember there are other charges, including the cost of sanctioning loans, etc which the customer pays.

Such scenarios are usually prevalent during deflation. Although the US is yet to touch negative-yielding, there are no signs of an imminent deflation cycle in the US. There are a couple of reasons for the scenario. First, the job growth rate is robust in the US. Second, the wage growth in recent years has been above average in a few sectors esp. technology, which is not sustainable. The current 10y-2Y US treasuries brief inversion is overdone on the part of bond traders and a play to force FED to cut rates.

I had predicted the US yield curve would invert in my article titled Man of the Year: Jerome Powell published in Dec 2018. Only a handful of economist saw what I saw the structural risks in the US economy. Today the world has by far more risk coming from the downturn in Europe than in the US.  In many ways it’s not a good idea of reducing rates when Fed meets in September. It’s going to do more harm than good to the US economy instead, its time to boost the supply side of the US economy through increased infrastructure spending. In a nutshell its great time to buy a house in Europe. So are you buying one?

 

GreatSchools For American Parents

GreatSchools funded by the Gates Foundation, the Walton Family Foundation, and the Robertson Foundation provides school information and parenting resources to help millions of American families choose the right school, support learning at home, and guide their children to great futures. GreatSchools, a leading national non-profit empowering parents to unlock educational opportunities for their children, is one of the most read sites by American parents in the US. It provides information on finding the right schools based on location, talents, rankings etc.

US Treasuries and GE update

Japan surpassed China as the largest holder of US treasuries. Japan holds $1.12T to China’s $1.11T. Further, in a piece of distressing news reminiscent of Enron, Madoff whistleblower Harry Markopolos alleges that GE accounting problem amounts to $38B or 40% of its market value. The point to be noted is that Harry Markopolos, along with a hedge fund, has a bearish position on GE stock. The report if true, has a substantial global implication on accounting standards and due diligence. The article on GE can be read here.

Automattic Inc. buys Tumblr

Automattic Inc. bought Tumblr for less than $3M a stunning drop in $1.1B price paid by Yahoo in 2013. The move will be a shot in the arm since Tumblr was hugely influential in blogging, and Automattic Inc. owns WordPress, the most popular web management system in the world.

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