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Archive for the ‘Eurozone crisis’ Category

Rich valuations for the stock market’s global elite

The news that Paul Walsh, the CEO of Diageo, has unloaded a huge amount of stock (£16m) after exercising a raft of share options draws attention to the extent that the prices of high quality companies with strong global business franchises and the ability to generate cash have been bid up to very rich levels. The veteran market-watcher Richard Russell has observed something similar on the other side of the Atlantic.

What do billionaires Warren Buffett, John Paulson, and George Soros know that you and I don’t know?  I don’t have the answer, but I do know what these billionaires are doing.  They, all three, are selling consumer-oriented stocks.  Buffett has been a cheerleader for US stocks all along. But in the latest filing, Buffett has been drastically cutting back on his exposure to consumer stocks.  Berkshire sold roughly 19 million shares of Johnson and Johnson.  Berkshire has reduced his overall stake in consumer product stocks by 21%, including Kraft and Procter and Gamble.  He has also cleared out his entire position in Intel.  He has sold 10,000 shares of GM and 597,000 shares of IBM. Read the rest of this entry »

Cyprus and beyond: more thoughts

As usual it will take a day or two for the markets to decide which of their initial reactions to the Cyprus bailout – relief that a deal has been struck, or concern at the implications of the terms imposed by the troika – will prove dominant. Some things do seem clear from what we have learnt already:

  • This was the most acrimonious bailout negotiation yet, with little love lost between the Cypriot negotiators and the troika representatives on the other. Talks came close to breakdown on several occasions over the course of the past week. Apparently tipped off in advance that the Russians would not come riding to the rescue, the troika played hardball – and eventually won, although not before the Cypriot President had threatened to resign and/or take Cyprus out of the euro – a desperate course of action which the influential Archbishop of Cyprus, for one, has openly advocated.
  • Although the deal will avoid the outcome of Cyprus leaving the euro for now, that still remains a possibility. The bailout creates a number of important precedents, raising the possibility that bondholders and depositors in troubled banks elsewhere in the Eurozone could be forced to pick up the tab if their bank needs to be rescued in future. The Dutch finance minister who now heads the Eurogroup said as much yesterday, and subsequent attempts to smooth over his remarks – which were remarkably explicit – have been less than convincing.

Read the rest of this entry »

Written by Jonathan Davis

March 26, 2013 at 2:01 PM

Cyprus: new fault lines in the Eurozone

What to make of the Cyprus rescue deal announced this morning? Is it necessary? Absolutely: the Cypriot banking system is insolvent, and has been ever since the Greek rescue deal last year, if not before. Is it fair? Probably not. Knowing how weak the Cypriots’ bargaining position was, the troika (EU, ECB and IMF) has played hardball with one of the EU’s smallest member countries, which makes it certain that for every irate mobster or money launderer who loses a chunk of their capital, there will also be many hard luck cases.

The deal administers rough and ready treatment to bank depositors in the country’s two largest banks, while preserving – belatedly, and at the second attempt – the general principle that depositors with less than $100,000 euros are still protected from loss by state guarantee. (Important to note that while the EU has enshrined this principle as a political objective, the guarantees are only as good as the individual state that provides them. Cross-border deposit insurance, under which the EU would collectively guarantee bank deposits in all member states, is necessary if the banking union which the EU is trying to edge towards is ever to become a reality, but it remains so electorally toxic that it won’t be introduced any time soon). Read the rest of this entry »

Written by Jonathan Davis

March 25, 2013 at 4:12 PM