- Sarkozy is no longer: enter Hollande and the French Socialists. So the Socialists have won, and Hollande rides into French Presidential power on the back of “No to austerity”, “I’m not Sarkozy” and “No more presidential bling-bling”. Actually – that’s not entirely accurate. The parliamentary elections still need to take place – so Sarkozy could still wield power from the back. But that seems like a long shot. So what does it mean? Well it means that the Merkozy alliance is now a party of one; although the Germans have said that they will allow Hollande a chance to “save face”. Which I find ambiguous – does that mean that he can continue to advocate growth in public as long as he supports Merkel in private and the Germans will keep it hush-hush; or does it mean that they’ll let him keep his stance on growth and Germany’ll ignore it? On an internal front – Hollande proposes tax increases, including a 75% levy on incomes higher than 1 million euros! If my tax rate suddenly leapt to 75%: I’m sorry man, but that would make the French Government a daylight robber and tax evasion my lifestyle choice. Farewell to tax revenues, hello to more government borrowing. I think that we should probably brace ourselves for a French debacle a la Greece. Link: Farewell Sarkozy.
- Buffett announces that he abandoned a $22 billion deal. Berkshire-Hathaway has been sitting on a cash pile of some many billions of dollars. More than $22 billion, but not enough to make a payment of $22 billion and keep the standard historical cash pile of $20 billion (for short-term liquidity purchases). Buying would have meant selling something else, so WB passed. I think that the real question is: who was the target? Link: Buffett stands by his securities.
- The Greeks vote anti-austerity. With the votes partially counted, the election results look like a giant tossed village salad with too much cheese and not enough lettuce-agree. First-pro-austerity-then-not-(now-who-knows) New Democracy looks to come first with around 19% of the vote. Very-much-anti-bailout Syriza are coming second. Pro-bailout Pasok are coming third. This means that New Democracy leader Antonis Samaras has primary responsibility for forming a coalition government, and he says that he’d like to build it based on two pillars: “staying in the euro” and “changing the economic policies of the bailout”. I believe that those two pillars belong to two very different buildings. What happens next? Well how do you continue spending whilst continuing to be in the Euro? You need a new currency. Does that mean abandoning the euro? Not necessarily. Let’s say that the Greek Government starts paying its employees with IOU notes (like cash cheques of some kind). The state employees will then have to use those IOUs to pay for things. The market will then decide how much those IOUs are worth in relation to euros. And voila – new currency. Which can then happily inflate as the government continues to issue them. And Merkel will tear her well-coiffed hair out. Better that, however, than the Golden Dawn party: who want to lay land-mines across Greece’s borders to prevent illegal immigrants from entering. Who ARE these people? Link: The Greek Split.
- The EU will be flexible in applying budget rules. Yes – I think they have to be. Particularly when most of its key members are not meeting those rules. Link: Enforcement ain’t easy.
- Facebook gets its first “buy” rating after setting its price range. Which amazes me. The implied valuation at the top-end of the price range ($96 billion) would mean that the market is valuing Facebook at almost 100 times its earnings ($972 million for the 12 months ended March 31). Madness. That implies a growth rate virtually equivalent to a required rate of return. So hypothetically, let’s say that I want a return on my investment similar to the return that Google has generated since its listing (about 38% compounded annually). That implies a long-term growth rate assumption (into infinity) of 37%!! Madness. Link: Who are these people?
- Citigroup says that a ratings cut would require it to come up with $4.7 billion in cash. If rated down by two-steps by all three ratings agencies, that is. The money would have to be used to meet derivative requirements and margin calls. If just Moody’s makes the call, that would require raising $1.1 billion (so Citigroup says). Moody’s announced that it is reviewing the credit ratings of the banks, and indicated that it is considering a two-level ratings cut of Citi. Link: The Awkward Moment.