Author: Arminius

24 July 2019

Countless tech visionaries have talked about the potential for “disrupting” the banking industry. Some have even started companies which competed with traditional banks. (Despite his words, Gates himself never did so.) To date, none of these companies has had much impact on the incumbent banks, who have done a far better job of disruption by shooting themselves in the foot. (Honourable mention to Deutsche Bank, which since the GFC has managed to lose over 95% of shareholder value.) This is not to say that banking is immune from tech-based challengers, just that – so far – none of the challengers has succeeded… [read more]

22 July 2019

Last month, with a great fanfare and many pious platitudes, Facebook announced its proposed global cryptocurrency, Libra. We, along with many others, expressed doubt that Libra would meet the regulatory standards which are mandatory in developed countries, particularly the anti money laundering and “know your client” rules. (See https://arminiuscapital.com.au/geld-zug-commentaries/  28 June 2019)… [read more]

19 June 2019

It is natural to assume that a country’s share market performance is driven by its economic performance, and therefore that a country with high GDP growth will generate high equity returns. Unfortunately, completely the opposite is true. For most countries over most periods, equity returns are negatively correlated with economic growth. How could this happen?

We have known for four decades that share markets are much more volatile than they ought to be if their price movements were driven by changes in economic and business fundamentals alone. Robert Shiller pointed out in 1981 that, based on price and dividend data since 1871, share price volatility was more than five times the level you would expect if prices responded only to new information about future dividends or real interest rates. This conclusion suggested that more than 80% of share price movements were mere noise, unrelated to fundamental information. Or, as Paul Samuelson joked, “The share market has predicted nine of the last five recessions.”… [read more]

21 May 2019

As we watch the US and China heading enthusiastically into a full-scale trade war, it is worth taking a step back from President Trump’s daily squabbles via the Twittersphere with the rest of Planet Earth, and focusing on the policy areas where the Republicans and the Democrats do already agree.

Infrastructure is one of the obvious areas. Both parties agree that the USA needs to spend more on maintaining its existing roads, bridges, canals, tunnels, pipelines, etc., as well as building new ones. The American Society of Civil Engineers produces a four-yearly report card on the nation’s infrastructure, covering roads, bridges, aviation, ports, schools, public transport, drinking water, waste water, and solid waste management. The 2017 report card graded most categories as D or D+, with an overall rating of D+, i.e. “Fail”… [read more]

12 May 2019

Since the GFC, the world’s central banks have got into the habit of publishing regular Financial Stability Reports (FSR). These documents are intended to function as an early warning system, by monitoring financial markets in order to identify risks as they appear and grow, so that the regulators can take action before the crisis actually occurs – unlike in the GFC.

The US Federal Reserve publishes its FSR twice a year, and many investors read each FSR not only to assess the current risk level but also get see what the Fed might do next. The May edition is just out, and it identifies two serious risks… [read more]

8 March 2019

China’s equivalent of Parliament meets in Beijing every year for a few days in March. This august body, officially called the National People’s Congress, always passes every item of legislation put in front of it by the Communist Party leadership… [read more]

22 February 2019

After a decade of pointing out that China was not heading for a financial crisis, we have changed our minds. Recent trends suggest that problems are building in China’s corporate bonds, small banks, and consumer loans. We think that a crisis is likely in the next two years… [read more]