Good morning

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The headlines:

  1. Black Friday.

    Link: we are not serious.

    Online sales on Black Friday were 26% higher than last year. But we should all look out for Cyber Monday (today) – which has been historically famous as the biggest e-commerce day in the US*.

    Mr Bernanke must be excited. Nothing like an annual day of spending to start everyone back on a concerted drive for consumer credit. After all: it’s a slippery slope to over-spending. And just like any diet – everything stops once the mince pies arrive.

    *How many years does something need to be in existence before you can talk about it “historically”?

  2. Catalan votes.

    Link: let’s secede.

    Catalan has started voting – and it’s expected to give a majority to the nationalist parties pushing for secession referendum from the rest of Spain.

    Catalonia accounts for 16% of the Spanish population and 19% of Spain’s GDP. It is also the Spanish region with the highest debt – a somewhat dubious title. The regional president, Artur Mas, says that the debt is a result of “tax transfers” (ie. Catalonia’s tax revenues being spent on the rest of Spain), which is an even-more dubious assertion.

    Any votes on a secession contagion? The Scots are apparently perking up and taking notice…

    And it wouldn’t be that surprising. The end of each World War changed countries and created new ones. So did the collapse of the Soviet Union and the progressive independence of Africa. Why can’t an enormous economic crisis in Europe?

  3. Europe meets again.

    Link: the third attempt at Greek aid.

    The finance ministers are meeting again to decide whether or not they’re going to let Greece have some money, after having made them make some extremely unpopular reforms.

    There’s really nothing more to say until they come back with a decision. (For a summary of the issue, I wrote about the current unfairness last week Wednesday and the Tuesday of the week before last).

  4. An IFRS complaint.

    Link: the problem with agricultural assets.

    A short-selling firm called “Muddy Waters”** has short-sold*** the stock of Olam International Ltd, a “commodities” trader (which is a fancy way of saying that they grow stuff on farms).

    Having short-sold, the Muddy Waters traders have announced that believing the Olam International accounts requires a “leap of faith” because the current IFRS (International Financial Reporting Standard) that deals with biological assets requires that they be “fair-valued” at each reporting date. And by “fair value”, we mean that the company needs to get a valuer in to estimate how much the biological assets are worth.

    And Muddy Waters is saying that these valuations are “riddled with assumptions”. Well obviously. But what would you rather have – an estimate of how much the cows are worth, or just a blank space captioned by “some cows could die so we’re not telling you anything in case you get confused”?

    And even if we avoid the rhetoric, the accounting argument is inconsistent. Do we (the investing public) tell companies not to measure the value of their pension plan because we don’t know what they will actually pay out because some people may die before they retire? Of course not. We tell them to give us an estimate, and tell us how they got their estimate – and then we can all decide to keep it in or kick it out when we do our own valuation.

    To me: it sounds like the voices in question have a deeply vested interest in the value of the share price going down (they did short the stock, after all). So they criticise the accounting, and heavily imply that it is more likely to result in losses (when actually, because it’s the future, up or down is a 50-50 chance). And what happens?

    At worst, the stock price remains the same. At best, it influences potential buyers not to buy (lowering demand), or potential sellers to try sell (increasing supply), or both – which results in the lowering of the share price.


    **OMG – this borders on parody.

    ***This is short-selling.

That’s all for now.

Have a good day.