Good morning
The headlines:
- Carson Block is a hero.
Link: turning it around.
The founder of Muddy Waters LLC is actually a martyr for shareholder activism, it seems.
For a martyr, he’s doing a great job of winning. Even though he’s given up trying to manipulate/expose Chinese companies because his firm was targetted by “tattooed gangsters” in the aftermath of his Sino-Forest “exposure” (read news item 5 for a very basic summary of the Sino-Forest issue).
To quote someone who’s clearly a Carson fan: “To give him credit, it is certainly providing a service to investors by highlighting [the accounting problems with US-listed Chinese companies] and saying that it is something that needs to be dealt with.”
My question: how does one separate his “professional opinion” from his clear and profiteering self-interest?
And then I thought about it a little more, and really, how different is his opinion from that of an outwardly-independent ratings agency that publishes ratings that turn out to be quite biased in retrospect… And if they’re not biased, they’re late.
At least Carson Block draws our attention to a potential issue and his self-interest is self-evident. It’ll make your own assessment more critical. And it’s certainly more timely.
- Google does something entirely rational.
Link: and there’s outrage.
Wrote about it here.
- Hugo Chavez cancer = demand for Venezuelan bonds.
Link: I’d be hurt.
Hugo Chavez appoints a successor as he heads off for cancer surgery. And the price of Venezuelan bonds rises, driving down yields, as the markets hope for bad news for Chavez. The quote I really appreciated: the market is treating the Chavez successor nomination/recommendation as “a de facto admission of near term incapacitation”.
Not exactly comforting for him, though, is it?
- King says we must return to managing exchange rates.
Link: and the winner is.
Mervyn King, the outgoing governor of the Bank of England, has said that the G20 should be doing more to address global imbalances by using exchange rates as their key policy tool.
This is interesting old-new territory. As most first year macroeconomics students will tell you, there is the unholy trinity of macroeconomic choices: exchange rates, interest rates, and freedom of capital flows. You can only do two out of the three:
Since the end of the Bretton Woods agreement, the world has been a giant fan of using interest rates as the primary tool of policy. Exchange rates have been allowed to float relatively freely, and capital has moved around with relative ease. The Bretton Woods agreement was all about managed exchange rates and interest rates.
The reason that this is so interesting: every time we’ve had a major world calamity that has resulted in debtor and creditor nations (think end of the World Wars), the economic policy of the creditor nation(s) has set the economic policy trend for the debtor countries. So at the end of World War II, America was the great creditor nation for the world powers in Europe, and set the economic policy of the world in general (through Bretton Woods).
Here we sit in a similar situation of debtor and creditor nations. Who are the debtor nations? Europe and the US. Who is the main creditor nation? China. What economic policy does China favour? Managing exchange rates and flows of capital.
We should all be getting ready to bid inflation-targetting regimes farewell.
That’s all for now.
Have a good day.
