Friday bullet points

*  "The governing council is comfortable with acting next time" - Mario Draghi.  Now there is some forward guidance.   Although Super Mario qualified it with the "staff forecast" caveat, the June meeting should prove to be the denouement of the last size months' cycle of serial disappointment followed by just enough heavy hints to keep markets from coming unhinged.    Either the ECB delivers and markets show a pretense of doing what Draghi and co. would like, or their bluff gets called.  Ultimately, however, a more interesting question is what they ECB could or will do should a modest refi/depo rate cut fail to lower either the euro or front end money market yields, an outcome that has a distinct possibility of occurring.

* Although it scuffled a bit early in the year, the buyback outperformance theme has recently regained traction.  Some of this will no doubt be a function of Apple's recent announcement and subsequent jump, but the theme has been entrenched for some time.  Anyhow, the total return of the strategy, which has been profitable every year since 2008 inclusive, is now at its highs.




* Don't look now, but this week's solid Aussie employment number has sent the AUD vs NZD 1y1y rate spread to the verge of breaking out.    Can the FX cross, still within a stone's throw of all time lows, be far behind?



*  The flip side to the issue of persistently low wages is, of course, record corporate profits.  On both a pre- and post-tax basis, these are at record highs as a percentage of GDP thanks to a number of supportive factors- among which is the capacity to impose quasi-frozen wages on domestic labor.  The implied corporate tax rate between those two figures, incidentally, is near record lows at 12.38%.


* Finally, a reader posted this in the comments section a couple of days ago, and Macro Man thought it was worth sharing.  This 20-year old interview with Jimmy Goldsmith absolutely nailed the argument that globalization would eviscerate domestic wages and inflate corporate profits, and anticipated Piketty by two decades.  Readers can form their own judgements as to the desirability of this outcome.


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MC
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May 9, 2014 at 3:37 PM ×

Didn't Ross Perot say similar stuff about NAFTA.
Anyway I am not sure this 20 year old argument is current. From my naive perspective it seems similar to the East India company almost destroying the English textile industry with exports of Indian textiles leading to an ineffective ban on imports. In the end it was India that lost out when British industrial advances turned them into a mere provider of raw materials.
Isn't there at least some chance of that going on now with 3-D printing, robotics and the US dominance of the internet.
MC

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Anonymous
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May 9, 2014 at 3:46 PM ×

Seems the effect of globalization has been to increase inequality within developed countries but to decrease inequality between developed and developing countries.

Most of the commentary on "inequality" seems to focus solely on the first part.

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May 9, 2014 at 9:33 PM ×

I disagree with his idea that global corporations are leading us to some type of homogenous cultural epoch. No, quite frankly I believe that what he's seeing an inevitable feature of progress, where the world is getting smaller, due the increasing availability and affordability of mass transit and the internet. His idea that somehow material things are a western cultural ideal. All I can say is WTF?

MC you're on it. 3D printing, robots, they can and will replace human labor. Why can't we have robots running our farms as well? Sewing our clothing etc? Its almost an inevitability.

These are stressful times for our species. Thousands of years of cultural and geographic isolation, and ignorance are ending at an alarming pace. No one power can control the world's destiny anymore.

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abee crombie
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May 10, 2014 at 2:55 PM ×

That was a great video. Certainly globalization sped up the divide in inequality in developed countries, it's unlikely however the cause of it. The last part is particularly interesting, "what is the point of an economy" progress, and stability. Unfortunately growth has been the main objective for many years and stability was assumed as long as inflation is tame ( rightfully given the horrendous results of hyperinflation ). Now with qe fed and asset price levitation it seems like inequality will be a focus and probably only get worse before it gets better.

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Anonymous
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May 10, 2014 at 6:15 PM ×

Is the graph for buyback vs SPX total return?

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Macro Man
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May 10, 2014 at 10:46 PM ×

@ Anon 6.15, yes it is TR, with dividends included on both sides.

If you watch the series of Goldsmith videos, it is clear that the concern he raises is that multinationals will simply farm production to the lowest cost (or lowest tax!) jurisdiction, eviscerating domestic manufacturing. He also specifically touches on capital taking an increasing share of the the spoils vis a vis labour, which is more or less what has happened.

I do think it is a question worth asking why why the corporate sector pays so little in tax and receives so much in subsidy, all while exercising their rights as 'people' in lobbying/donating/buying votes etc. Capitalism/free enterprise is one thing, cronyism is something else...and there is only one of those systems properly extant today.

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May 13, 2014 at 11:02 AM ×

Innovative IT Solutions Innovative IT solutions helps freshers and experienced graduates and post graduates in getting placed in IT companies.

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Fred Goodwin
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May 18, 2014 at 11:00 AM ×

Sir James was prophetic - end of story

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