The sharemarket speaks

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Does Eating Breakfast Really Help You Lose Weight?

What if plastic was never invented @GreenpeaceNZ @GarethMP

When will @AnnPettifor found a hedge fund to profit from putting other’s money where her mouth is rather than just her own retirement savings portfolio, which I am sure she did

Creative destruction in the 5 largest companies

largest-companies-by-market-cap-chart

Source: Chart: The Largest Companies by Market Cap Over 15 Years.

Has the Vice Fund ever not outperformed the share market?

The Vice Fund is a mutual fund investing in companies that have significant involvement in, or derive a substantial portion of their revenues from the tobacco, gambling, defense/weapons, and alcohol industries. A primary focus of stock selection is the ability to pay and grow dividends.

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Source: VICEX USA Mutuals Barrier Investor Fund VICEX Quote Price News.

Paul Samuelson on everything you need to know about the efficient markets hypothesis

Saving Ocean Fisheries with Property Rights

How much do you get paid if you can pick winners? @JulieAnneGenter @simonjbridges

Electric cars have joined the long list of mendicant mendicant businesses that have been backed by the New Zealand government of late. Picking winners again.

The payrolls of entire government departments in New Zealand are not enough to hire a single successful hedge fund manager to pick winners for their political masters. To get on the list of the top 25 hedge fund managers, you need to earn at least $300 million a year.

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The 25 highest-earning hedge fund managers and traders made a combined $12 billion in 2015, slightly less than the $12.5 billion the 25 top-earning hedge fund managers together made in 2014.

Why do investment advisors sell and often give away their sage advice? If their insights were any good, they could trade on the share market before others caught on and make a killing!

I will give a personal example based on the skills of bureaucracies in picking winners. The test of my hypothesis is based on the transferability of human capital across jobs.

My graduate school professors in Japan included many retired bureaucrats from the Ministry of Finance and MITI. These agencies were heralded by Joe Stiglitz and others for picking winners and guiding Japanese companies to choose the right technologies and what to export.

The skills that my graduate school professors learned at picking winners over their careers with the Ministry of Finance and MITI in the high-growth years in the 1970s would now be available to them in their retirements to trade on their own account.

My graduate school professors should quickly become very rich after retiring because of the skills they learned in picking winners while at the Ministry of Finance and MITI, which should cross over into their private share portfolios. The rich lists world-wide should be full of retired industry and finance ministry bureaucrats.

Instead, my graduate school professors took the train and bus to work and their families lived off their salaries in standard sized Japanese government apartments. All looked forward to their annual bonus of 5.15 months salary.

If governments are any good at picking winners, people should be willing to pay big time to get jobs at ministries of finance and ministries of international trade and industry to get access to their unique and highly secret skills they learn therein on how to pick winners.

I am still waiting for that tell-all book by an insider on these skills. Why is there no Picking Winners for Dummies on Amazon kindle as yet?

How profitable are the tech giants?

I did not know Yahoo was still in business.

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Share market losses during previous financial crises in the USA and UK

Are CEOs denied their labour surplus?

Bang Dang Nguyen and Kasper Meisner Nielsen looked at how share prices reacted to 149 cases of the chief executive or another prominent manager dying suddenly in American companies between 1991 and 2008.

If the shares rise on an executive’s death, he was overpaid; if they fall, he was not. Only 42% of the bosses studied were overpaid. Those with the bigger pay packages gave the best value for money as measured by the share-price slump when they passed away unexpectedly.

Share prices do speak to the value of the company and the contribution of its CEO. The share price of Apple went up and down by billions on the back of rumours about the health of Steve Jobs.

In terms of splitting of what some call the labour surplus increase from a firm hiring an executive, these employees retain on average about 71% and their employer keeps 29%. Others call this rent sharing.

71% going to the CEO might initially sound high, “but it’s not like he’s taking home more than he produced for the company,” says Nguyen.

The exploitation of CEOs gets worse when you consider the extensive use of promotion tournaments by their employers when setting their wages. They are thrust into rat races. Promotion tournaments are an integral and often invisible part of their workplaces.

Executive level employees are often ranked by their employers relative to each other and promoted not for being good at their jobs but for being better than their rivals. These promotion tournaments sent one employee against another – one worker against another – to the  profit of the owners of the firm.

The rat race set up by the owners of the firm are so cutthroat that in competitions to determine promotions the capitalists who own the firm may find that their employees discover that the most efficient way of winning a promotion is by sabotaging the efforts of their rivals.

Lazear and Rozen’s tournament theory of executive pay has stood the test of time. The key to this rat race is the larger is your boss’s pay, the bigger the motivation for you as an underling to work for a promotion. As Lazear wrote in his book, Personnel Economics for Managers

The salary of the vice president acts not so much as motivation for the vice president as it does as motivation for the assistant vice presidents.

The tax rates of the top 1%

Why Greece joined the Euro

The roots of Greece’s crisis are simple. Before Greece joined the Eurozone, investors treated it as a middle-income country with poor governance — which is to say, a credit risk.

After Greece joined the Eurozone, investors thought that Greece was no longer a credit risk — they figured, if push came to shove, other Eurozone members like Germany would bail Greece out. They were wrong.

Michael Dooley put forward a theory of speculative attacks on currencies as insurance attacks on currencies for emerging markets after the East Asian financial crisis:

First generation models of speculative attacks show that apparently random speculative attacks on policy regimes can be fully consistent with rational and well-informed speculative behaviour.

Unfortunately, models driven by a conflict between exchange rate policy and other macroeconomic objectives do not seem consistent with important empirical regularities surrounding recent crises in emerging markets. This has generated considerable interest in models that associate crises with self-fulfilling shifts in private expectations.

In this paper we develop a first generation model based on an alternative policy conflict. Credit constrained governments accumulate reserve assets in order to self-insure against shocks to national consumption. Governments also insure poorly regulated domestic financial markets.

Given this policy regime, a variety of internal and external shocks generate capital inflows to emerging markets followed by successful and anticipated speculative attacks.

We argue that a common external shock generated capital inflows to emerging markets in Asia and Latin America after 1989. Country specific factors determined the timing of speculative attacks. Lending policies of industrial country governments and international organizations account for contagion, that is, a bunching of attacks over time.

His model was not within the context of a currency union but his basic theory is correct.

There are speculative attacks on a currency or a bank run after foreign markets revises their estimates of the available central bank reserves and international lines of credit to bail out the banking systems and/or foreign debt.

Michael Dooley was dealing with the emerging economies of Southeast Asia and their official lines of credit that insure their foreign exchange liabilities and domestic banking system. Greece is about lines of credit for similar purposes to other European union member states.

via 12 charts and maps that explain the Greek crisis – Vox and The Most Important Graphs of 2011 – The Atlantic.

Déjà vu all over again: Sovereign Funds, a History of Bad Timing Version

Shara funds under active and passive management

Josh Lerner analysed about 2,600 sovereign fund investments over the last 25 years, to find that:

these funds are “trend chasers” rather than good market timers — they are likely to invest at home when domestic equity prices are higher, and invest abroad when foreign prices are higher. This tendency to shun assets when their prices are low has taken its toll on the returns at these funds…

sovereign fund investments made in a fund’s home country tend to do worse than foreign investments, at least in the short term. Industry price-to-earnings ratios of domestic investments tend to drop in the first year, while international investments have a positive change in the first year. Moreover, when politicians are involved in sovereign funds’ decision-making, more money is funnelled to poorly performing domestic deals

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