At the Financial Times, Henry Kaufman suggests an answer to the question, "what comes after capitalism?" He writes: American capitalism is rapidly disappearing. Its demise has been under way for some time and the economic devastation wrought by the Covid-19 pandemic is the latest blow to our political economy. Adam Smith remains a useful guide to the hallmarks of capitalism. In 1776’s The Wealth of Nations, he argued that humans innately strive for material progress and the best way to get there is through unfettered competition, the division of labour and free trade. Smith wrote that … [Read more...]
Why Is This Professor so Terrified of Low Cost Online University?
Michael D. Smith, a professor at Carnegie Mellon University, shares in The Atlantic, why he is both afraid and invigorated by America's recent experiment with online learning. He writes: I need no convincing of the value of campus life and in-classroom education. I recognize that online platforms can’t perfectly replace what we deliver on campus. But they can fulfill key pieces of our core mission and reach many more students, of all ages and economic backgrounds, at a far lower cost. What online services lack in quality, they make up for in convenience—and as they get more popular, they’re … [Read more...]
Free Trading Comes at a Cost
Retail investors flocked to markets during coronavirus volatility. Many were lured to trading by platforms like Robinhood, offering "free" trades. It turns out that trading still comes at a cost. Richard Henderson reports for the Financial Times: Citadel Securities and its majority owner Ken Griffin are among the big winners from a boom in retail investing, cashing in on the zero-fee trading that has lured huge numbers of first-time investors to the US stock market. Chicago-based Citadel Securities accounts for 40 of every 100 shares traded by individual investors in the US, making it the … [Read more...]
Trading App Throws Jet Fuel on the Speculative Fire
The trading app, Robinhood, which has become a sensation among young (and some old) retail investors, is "throwing jet fuel on the speculative fires of coronavirus-era equity markets." That's according to Annie Mass and Sophie Alexander who write in Bloomberg: Rich hedge fund managers are talking about it. So are not-so-rich millennials. And fast-twitch gamers, and bored sports fans and -- in all likelihood -- some 15-year-olds you know. The “it” is Robinhood Financial’s trading app, which is throwing jet fuel on the speculative fires of coronavirus-era equity markets. Not since the … [Read more...]
Is World’s Biggest Stock Set for a Bust?
For all practical purposes, Apple is the world’s biggest stock. (Saudi Aramco is technically larger, but the float is small). Since year-end 2015, Apple’s sales have increased at a compounded annual rate of about 3.5%. Net income has increased at a compounded annual rate of about 1.5%. Massive stock buybacks have inflated the annual growth rate in per-share earnings to 7.9%. How has Apple’s share price performed since year-end 2015? The shares have risen at an unimaginable compounded annual rate of 31% per year. Unimaginable for a large company whose sales and earnings have grown at … [Read more...]
The Seeds of the Next Big Bust are Being Sowed
What are the consequences of repeated bailouts from the Fed and other policymakers? More risk-taking, more leverage, a less stable financial system, and the risk of a future systemic crisis of such a magnitude that even a printing press won’t be able to fix it. That’s for starters at least. “Lever up and lobby for a bailout” is how I’ve described this new paradigm in American capitalism. It was tongue in cheek to some extent, but it seems that the California Public Employees’ Retirement System (CALPERS), America’s largest pension fund, is taking the idea to heart. The Chief Investment … [Read more...]
A Harbinger of Things to come in other Emerging Markets?
Is Lebanon's currency collapse a harbinger of things to come in other emerging markets? Chloe Cornish reports for the FT: A dramatic collapse in the value of the local currency sparked protests across Lebanon on Thursday night, as the government and central bank struggled to stem the country’s worst economic crisis since its civil war. The Lebanese pound, which has officially been pegged at L£1,500 to the dollar for two decades, fell to L£6,000 to the dollar on the parallel market on Thursday. Local media reported prices as low as L£7,000 to the dollar in some places, amid panicked … [Read more...]
Investors Devour Bonds
Joe Rennison and Eric Platt report for the Financial Times on investors' demand for bonds from blue-chip companies. They write: Bonds sold since March by blue-chip US companies including Northrop Grumman, Intel and Coca-Cola have surged in value, as investors scrambled to get hold of the unusually high coupons offered during the most intense phase of the pandemic. Intel’s $1bn bond maturing in 2060, launched just before the US Federal Reserve announced sweeping measures to support the corporate bond market, has soared to more than 144 cents on the dollar from its sale price of just over 98 … [Read more...]
The Hubris Indicator
Those of you who have been active in the markets for more than a couple of months will get a chuckle out of this. When all of the newly minted stock market geniuses start boasting that Warren Buffet is washed up, it's not a bad idea to approach the markets with a little more caution. Shawn Langlois reports at MarketWatch: Did we just witness “an epic signal of a blow-off top” ... ? Yes, says Gary Evans of the Global Macro Monitor blog, who pointed to the recent action on Barstool Sports founder Dave Portnoy’s Twitter feed as the reason. On Monday, Portnoy slammed Berkshire … [Read more...]
The Electric Vehicle Bubble
If you needed any confirmation that the speculative fervor ignited by trillions of dollars of money printing and government handouts has gone to extremes not seen since the height of the dotcom bubble, look no further than Nikola. Nikola is an electric truck startup with no revenue that now has a market value greater than Ford Motor company. The WSJ has the story. The market value of Nikola Corp., NKLA -8.03% a little-known electric-truck startup that went public last week, has surged past that of Ford F -4.14% Motor Co. and other car companies in recent days, as investors continue to bet on … [Read more...]
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