PMI
Yesterday’s January PMI from Germany and
the euro-zone confirmed our views – held since September, for those who care –
that the European recession is likely to end within a couple of months, and Germany
may avoid recession altogether (recession defined as two consecutive quarters
of negative growth). Today’s IFO indicator from Germany will show whether we
are moving further in that direction.
Help!
In the UK, a new consumer protection
watchdog wants to protect “irrational investors” from dangerous
financial products, as such investors cannot be relied upon to find out
what is in their own interest. Well, given the amount of brainpower the
financial sector has poured into making their products completely impenetrable,
it would be about time. At the same time the UK government is finally flexing
its muscle when it comes to greedy bank chiefs. Equipped with a clearly
conservative government, UK is establishing itself as the leader in how to
change the ground rules for the financial sector.
PE
Before you shake your head at those poor
private investors who now have to be protected from their own ignorance, a
fresh study commissioned
by Financial Times from Yale and Maastricht universities shows that there
is no conclusive evidence that Private Equity creates
value for the investors. It is, however, established beyond any doubt that
substantial wealth is created for the owners of the Private Equity firms. New
compulsory reading for pension fund managers, I guess.
Probably it is with Private Equity as it
is with hedge funds. The early movers have earned fabulous returns, primarily
because of their ability to fly under the radar and outside of prudential
regulation. With huge money to be made, more people and more investors move in,
and after a while the average return falls towards market returns. The only
thing that proves a remarkably resilience is the ability of the investment
managers to shroud themselves in a cloak of invincibility and keep their own
remuneration up.
FT reports that US pension funds have had
an average 4.5% return on their investments in PE over the past decade. But
management fees have been on average 4%. Add all the other fees and received by
the PE firms.
Davos
For once, this year’s World Economic Forum
in Davos seems to be a place where serious things are discussed. In the
running-up to the conference, Lagarde of IMF and even Zoellick of the World
bank joined forces with 4 other leaders of international institutions issued a
statement about the international economic situation.
Despite the more urbane wording, it was
another rebuke to the German belief that austerity-based programmes can save
the world in the short term. Zoellick – a man of impeccable conservative
credentials, then went on to explain that Germany
has to transform herself from a participant in Europe to a political leader.
It means to resume responsibility for all of the area, and not, NOT, think of
their own domestic situation first. Interesting, and very much in line with
former Chancellor Helmut Schmidts insightful comments from 2010.
Consensus
It is equally interesting to see that some
of the leading consensus-makers, UBS and Citi, are now joining Origo in
pointing out that a risk-on rally is ongoing. Citi even jokes that ECB has
created “artificial life”. Whatever! It probably means that they had not seen
it coming. I do not care as long as it works. Now we wait for all the other
major banks to join.
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