Yes it is an end to 2014 and welcome to 2015. I have noticed a large increase in daily visitors to over 1500 a day and also people seem to spend more time on the site which is pleasing to see. The success of our awards was probably the highlight of the year and we already have thousands of nominations for next year's awards - you can nominate here LINK1. At times I think I am a bit too cynical and negative about the way the world works. Nonetheless, sometimes one needs to take a longer run perspective and when one does this there is no doubt that the human race has made outstanding progress particularly in reducing poverty and improving health and education. I am an unapologetic fan of the process of globalization and the benefits it brings so here are 26 charts that should be reason to cheer up! LINK2. Or just view the video below. There is an excellent website that also track Human Progress financed by the Cato Institute HumanProgress.org
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How things have changed for Japan in the late 1980s its economy was at its peak as was its sctockmarket the Nikkei 225 index moved from 7500 in 1985 to a peak of 38,916 on December 29th 1989 LINK1. I also love the fact at how the market analysts failed to call the top predicting a rise to 45,000 in the Nikkei LINK2 The stockmarket boom was also accompanied by a massive surge in property prices. A lot of the boom was financed by bank loans and borrowed money. So long as stocks and property prices kept going up everyone was happy. The problem was that eventually property and stock prices made no economic sense. The cost of buying a flat in Tokyo was something like 50 times a person's annual salary and the price to earnings ratio on stocks was around 60 times projected earnings. In 1990 the bubble started to burst in a big way and Japans property and stockmarket have never really recovered.
The central bank slashed interest rates to virtually zero and the government ran massive fiscal deficits year after year with huge bailouts of the banking system leaving Japan with the highest national debt of 250% of GDP. There may be lessons of the Japanese problems for the US and the UK as the financial crisis of 2007 has led to a very similar policy response. Interestingly to date the policy response has inflated stockmarkets and property markets in the US and UK and also of coure increased the national debts of both countries. The increase in sovereign indebtness worries me as the younger generation will have to pick up the tab and at some points and we may well be heading to a sovereign debt led crisis in the future. Government bond yields remain near record lows despite the record printing of money and record rises in national debts. That does not make much economic sense to me...will the bursting of the bond bubble be the big issue for 2015??? The S&P500 stock index is one of the most watched indices in the world and the compnaies that are included in the index have to have a market capitalization of at least $4 billion. The futures and options on the index are heavily traded by hedge funds and ETFs that aim to track the index. What is less known is that each year around 9 to 10 companies are are removed from the index because they are in financial distress. They are replaced by other companies that meet the criteria to be included in the index. It is different than the Fortune 500 list of companies which included both private and public companies based merely on the value of their turnover which have headquarters in the USA. As the following article makes clear the additions and deletions to the S&P500 are just part of the ever changing world in which we live in LINK1.
Yep that's a big figure, but 6 major US banks have had to cough up some $128 billion in fines and settlements since 2010. In fact as the following Walls Street Journal article makes clear LINK1 the Department of Justice and Securities Exchange Commission have been actively targeting the banks for cash in relation to wrong doings in the lead up to the financial crisis and during the crisis. Bank of America leads the way with $73.5 billion followed by JP Morgan $26.4 billion, Citigroup $13.1 billion, Wells Fargo $9.5 billion, Goldman Sachs $4.1 billion and Morgan Stanley $1.9 billion. It seems to be high but the mess that these banks inflicted on the rest of us makes the fines seem appropriate in my book. Of course,it is the shareholders who ultimately suffer but I reckon it must be painful for some of the bankers to see that cash leaking away from their potential bonus pool !
The current Russian crisis is partly of Putin's own making the invasion of Ukraine and subsequent economic and financial sanctions have taken time to hit the economy but slowly and surely are resulting in problems. But it is the collapse of the oil price that is doing much of the harm a fall from $115 to $60 in just a few months is putting large pressure on the Russian economy as it remains too heavily dependent on the oil and gas sectors.The collapse of the Ruble on the foreign exchange market despite the recent rise in interest rates shows that confidence is rapidly waning. But like most storms this one will likely pass once the oil price stabilizes in the next couple of months. Putin seems to have too strong a political base to be unseated by the crisis.The more interesting question is to what extent the Russian crisis will expose weaknesses in other emerging market economies as the period of record low USA interest rates comes to an end over the course of 2015. 
There is no doubt that google is an outstanding company which now has a market capitalization in excess of $350 billion LINK1. Most of its revenues are derived from people clicking on the ads it displays and it displays millions of ads per day across the globe. What some people do not realise is just how much money it can make from a single click. As shown below the highest paying generic search term in the US was insurance generating an average of $54 per click not bad ! No wonder it is a cash generating machine ! Of course, most ads do not generate that much but its typical click can still generate around $2 and it manages to charge a premium over its much smaller rival Bing LINK2. I don't see any serious competitors undermining its lead anytime soon. By the way there is an interesting value investing talk by Whitney Tilson that uses Google stock price as a case study LINK3.  |
AuthorThe author of this blog is Keith Pilbeam who is currently Professor of International Economics and Finance at City, University of London. 
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