My reading today is about the future of public debt: prospects and implications.
This paper was prepared for the Reserve Bank of India's International Research Conference "Challenges to Central Banking in the context of Financial Crisis", Mumbai, India, 12-13 February 2010
http://www.bis.org/publ/othp09.pdf
Monday, February 22, 2010
Wednesday, February 17, 2010
Greek drama: Default or not
I can see the rational for letting Greece default to face up the consequences of their fiscal irresponsibity – One would argue the same for letting Lehman Brothers collapse, even though it’s in a different context.
So I can’t see the default happen because it is not in anyone’s interest except those hedgefund speculators, especially when the financial world is too fragile after the GFC to stomach any more catastrophic event.
I don’t underestimate the role of the financial speculators in the Greek drama. If Greece succumbs to the eventual default, others in PIGS will be next in line for the speculators’ attack, possibly Italy since its problem is worse than the others with much higher debt and weaker growth.
The creditors of the Greek public debt happen to be the institutions, the pension funds and the like, of the bigger European countries, namely Germany and France. Default or not becomes a choice between whether the cost of the Greek drama is born by the shareholders of these institutions or wider European tax payers. Similarly to the moral hazard in the bailout for GFC, the Euro will likely bailout to spread the cost of the Greek problem.
One would not discount the bailout from the IMF but it’s too humiliating for the European for that to happen.
So I can’t see the default happen because it is not in anyone’s interest except those hedgefund speculators, especially when the financial world is too fragile after the GFC to stomach any more catastrophic event.
I don’t underestimate the role of the financial speculators in the Greek drama. If Greece succumbs to the eventual default, others in PIGS will be next in line for the speculators’ attack, possibly Italy since its problem is worse than the others with much higher debt and weaker growth.
The creditors of the Greek public debt happen to be the institutions, the pension funds and the like, of the bigger European countries, namely Germany and France. Default or not becomes a choice between whether the cost of the Greek drama is born by the shareholders of these institutions or wider European tax payers. Similarly to the moral hazard in the bailout for GFC, the Euro will likely bailout to spread the cost of the Greek problem.
One would not discount the bailout from the IMF but it’s too humiliating for the European for that to happen.
Monday, January 26, 2009
My First Blog - Investment "risk"
I use this blog as a collection of my short notes about life, investment, business and travels. This includes extracts from my reading which I think is useful to point out.
Warren Buffet’s view on the investment risk:
“The risk that an investor must assess is whether his after-tax return will give him at least as much purchasing power as he had to begin with, plus a modest rate of interest on that initial stake. The primary factors bearing this evaluation are:
1. The certainty with which the long-term economic characteristics of the business can be evaluated;
2. The certainty with which management can be evaluated, both as to its ability to realise the full potential of the business and to wisely employ its cash flows;
3. The certainty with which management can be counted on to channel the reward from the business to the shareholders rather than to itself;
4. The purchase price of the business
5. The levels of taxation and inflation that will be experienced and that will determine his purchasing-power return.”
Equating the investment risk with beta (i.e. relative volatility) of a stock or portfolio of stocks is absurd.
Warren Buffet’s view on the investment risk:
“The risk that an investor must assess is whether his after-tax return will give him at least as much purchasing power as he had to begin with, plus a modest rate of interest on that initial stake. The primary factors bearing this evaluation are:
1. The certainty with which the long-term economic characteristics of the business can be evaluated;
2. The certainty with which management can be evaluated, both as to its ability to realise the full potential of the business and to wisely employ its cash flows;
3. The certainty with which management can be counted on to channel the reward from the business to the shareholders rather than to itself;
4. The purchase price of the business
5. The levels of taxation and inflation that will be experienced and that will determine his purchasing-power return.”
Equating the investment risk with beta (i.e. relative volatility) of a stock or portfolio of stocks is absurd.
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