My unpublished (100,000 word) book “The Financial Jigsaw”, is being serialised here weekly in 100 Issues by Peter J Underwood, author
Quote of the Week: “Most people think of viruses as parasites, but they aren’t parasites at all. An organism has to be considered alive to be classified as a parasite. Viruses don’t do any of the things living organisms do. They don’t grow, they can’t move on their own, and they don’t metabolise. They don’t even have cells. But the one thing a virus is very good at is reproducing.” – Christian Cantrell
NOTE – If anyone would like a free updated, 4th edition, electronic copy of the complete book, I should be pleased to email a free PDF on request to: [email protected]. The book has many footnotes linking to relevant and explanatory Appendices, websites and videos.
Here’s an old joke from Sven Henrich, (Northman Trader), who reports on technicals in the markets and is always sensible IMO. “….And the fear is real. It does not help to panic but one must be cognizant of the fear. As I walked into the store today and found shelves empty I was reminded of an old joke: Two guys hike in the woods when they come across a giant grizzly bear. One of the guys suddenly sits down and takes off his hiking boots and puts on his running shoes. His friend says to him: ”What are you doing? You can’t outrun a bear”. The guy putting on his running shoes replies: “I don’t need to outrun the bear, I just need to be able to outrun you”. https://northmantrader.com/2020/03/21/fear/ Looks like I was too late putting on my running shoes going to the store today.”
Maybe Italy’s death statistics are somewhat confusing. “The way Italy registers deaths explains their increased coronavirus case/fatality ratio, according to one expert and a report from Italy’s National Institute of Health (ISS). Citing this report in English: https://www.cebm.net/global-covid-19-case-fatality-rates/ Professor Walter Ricciardi, scientific adviser to Italy’s minister of health said: ” The way in which we code deaths in our country is very generous in the sense that all the people who die in hospitals with the coronavirus are deemed to be dying of the coronavirus […] On re-evaluation by the National Institute of Health, only 12 per cent of death certificates have shown a direct causality from coronavirus, while 88 per cent of patients who have died have at least one pre-morbidity – many had two or three,”
https://off-guardian.org/2020/03/23/italy-only-12-of-covid19-deaths-list-covid19-as-cause/
AND to support this further here is a very revealing article citing professionals who think that the global lockdowns are a gross over-reaction to a fairly normal seasonal influenza bug:
https://off-guardian.org/2020/03/24/12-experts-questioning-the-coronavirus-panic
AND here also is a professor of pathology who is saying similar things. Perhaps governments should be cautious when relying on ‘science’ whose track record is patchy and history shows how wrong they can be: https://archive.fo/oz2IN
Here is the link to last week: Issue 96
I will continue to provide updates this year as Brexit negotiations with the EU progress as well as offering items about Britain generally:
It looks as if Brexit is off the agenda for the time being so with little news to report here is a summary of where we are now in March 2020 and I suppose that an extension to the deadlines will be made after the crisis passes:
https://www.euronews.com/2020/02/11/brexit-draft-deal-first-of-many-hurdles-to-a-smooth-exit
UK has now left EUROPE so I will continue to comment on relevant EU – UK events:
Could the Coronavirus Be Fatal for the EU? For now, the Brussels machine is ploughing on regardless. As the nation-states take the brunt of their economic collapses on the chin, they will begin to realise that the EU superstate is little more than an obstructive and costly irrelevance. Brexit will increasingly be seen as the precedent for others to leave the sinking ship. https://mises.org/wire/could-coronavirus-be-fatal-eu?utm_source=Mises+Institute+Subscriptions&utm_campaign=70b8896ae8-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-70b8896ae8-228270721
Solidarity is supposedly a fundamental principle of the European Union. It is enshrined in the EU treaties and the EU refers to it as one of its goals. This is According to article 222 of the Treaty on the Functioning of the European Union, one of the two principal treaties of the European Union: “The Union and its Member States shall act jointly in a spirit of solidarity if a Member State is… the victim of a natural or man-made disaster. The Union shall mobilise all the instruments at its disposal… to assist a Member State in its territory, at the request of its political authorities, in the event of a natural or man-made disaster.” It doesn’t look like the member states are abiding by their pledge; when the chips are down they will always revert to their national interests. This article explains it all very well and why this coronavirus is the death knell of the EU:
https://www.gatestoneinstitute.org/15774/european-union-the-end
The 4th edition of The Financial Jigsaw issued recently includes a Foreword, Preface, Epilogue and Appendices which I will publish here in advance. Next come the Appendices:
Here is Appendix X – The present crisis is partly fuelled by the relaxation of bank regulations including legalising share buy-backs of which there is over a trillion dollars at this time. Boeing for example is seeking a $60 Billion dollar bail-out from the government but has spent $43 billion dollars on share buy-backs all of which has gone on dividends and enriching senior executives. Wolf explains: https://wolfstreet.com/2020/03/21/its-just-day-22-of-coronacrash-and-its-already-such-a-mess/
This process has been endemic in the whole community of corporations over decades and now the piper has to be paid. But NOT with taxpayers’ funds. They should be made to sell what’s left of their share value, killing the shareholders and unsecured bond holders, and apply for a ‘DIP’ loan (debtor-in-possession) in a Chapter 11 bankruptcy. This is the way capitalism fixes the broken system; but any bets this will not be done? Here’s a short explanation: https://www.investopedia.com/ask/answers/042015/why-would-company-buyback-its-own-shares.asp
Appendix X
SHARE BUY-BACKS
I have introduced this Appendix because the subject is part of ‘financial engineering’ but does not appear in Chapter 8 in this much detail for reasons of understanding and space allowed. This is Part 1 of a two part document.
Share buy-backs have only been allowed under company law in the last 15 years in UK and there are positives and negatives associated with these financial instruments. It is all part of the continued easing of corporate regulation much of which has caused the many distortions in the financial sphere.
This article is from: The Bear’s Lair • 2019-02-25 by Martin Hutchinson
The source post is from: The Bear’s Lair: Senator Rubio’s first good idea appeared first on True Blue Will Never Stain I have added my own edits for clarity and English spelling
Stock buybacks have exploded in volume in the last decade, totalling over $1 trillion in 2018. The 2017 corporate tax cut, which was supposed to give U.S. companies cash flow for capital investment, has instead led to a further upsurge in stock buybacks. For many of the Fortune 500 blue-chips, the volume of stock buy-backs in recent years has far exceeded profits, let alone dividends.
This has led to a hollowing-out in the balance sheets of many large companies, with several of the Fortune 500 now operating without any equity capital at all. This has the potential to turn even a mild recession into a disastrous one, as numerous major corporations find themselves without the equity needed to raise outside money when their cash flow turns negative.
Sen. Rubio’s tax solution addresses the perception that stock buybacks raise the share price, by taxing the notional capital gains of both those who sell their shares into the buyback and those who don’t. Effectively, he would treat any money expended on buybacks as a dividend to shareholders, and tax it accordingly. This brings the problem that an ordinary retail shareholder, who don’t normally get access to the buyback directly, would have to pay tax in cash without receiving any cash benefit.
While unfair in that respect, Rubio’s provision would have the effect of making retail shareholders a strong lobby against buybacks, a useful balance to management with share options, who benefit unfairly from buybacks compared to cash dividend pay-outs, which reduce the value of their options. The economic damage done by buybacks is considerable and hidden until the next recession; it will at least be useful to get an interest group fighting to diminish their volume.
It also won’t hurt that Rubio’s tax provision, unless it kills buybacks altogether, will produce a substantial amount of money for the Treasury. At the upper limit, a tax of 20%, the dividend tax rate, on $1 trillion of buybacks, would produce $200 billion per year. We won’t get as much as that, but any drop in the bucket is worth having.
This is especially true as the Trump tax legislation proved to be a lobbyist’s delight, not only cutting the corporate tax rate to 21% but also allowing full expensing of capital investment. When Amazon, the corporate vehicle of the world’s richest man, pays no U.S. corporate tax in 2017 and 2018, it gives credibility to the Ocasio-Cortezes of this world in their denunciations of capitalism. That policy was not only fiscally damaging, it was politically incredibly stupid – both are unsurprising, as it came from the U.S. Chamber of Commerce, famous for both qualities.
Simple folk among journalists, economists and the Trump administration celebrate stock buybacks, regarding them as equivalent to capital investment. When the tax cut passed at the end of 2017, many commentators celebrated stock buybacks as one of the uses to which companies might put their increased cash flow. After all, shareholders who benefit from selling their shares back to the company in a buyback can re-deploy their money into other shares, thus helping finance further capital investment. That analysis is false; by wrecking corporate balance sheets, buybacks suppress capital investment rather than increasing it.
To be continued next Saturday
“Looks like I was too late putting on my running shoes going to the store today.”
most people don’t realize there’s a bear around.
I thought the pun, Gman, was rather appropriate given the way the market is working; but as you say, most people have no idea about bears – it’s been a long time since the last one appeared!