The OECD is warning that “sweeping reforms are urgently needed to boost productivity and lower barriers to trade if the world is to avoid a new era of slow growth and stubbornly high unemployment.” Countries with aging populations (eg. Germany, Japan, South Korea) are encouraged to attract more women to the workforce, while others (UK, Australia, Canada, US) should focus on improved access to education, lowering healthcare costs and lifting barriers to foreign investment. Meanwhile, inflation in the United States is diverging between goods and services: “goods inflation is exposed to global trade” (eg. slowdown in emerging markets and China forces commodities prices down, imported goods down etc.) whereas “services inflation is highly exposed to domestic housing and the cost of domestic labor.” So while services inflation has stabilized around 2.5%, we probably won’t see any significant headline inflation gains until global growth accelerates. Also, Michael Spence argues that investors are overshooting the downward “correction” in emerging markets and that “downside risks are becoming the consensus forecast.” He defends China and other emerging markets with a current-account surplus, suggesting they “will experience a transitional growth slowdown but will not be derailed by shifts in monetary policy in the West, with high growth rates returning in the course of the coming year.” Furthermore, investors should really start paying attention to the beginning of a vast middle-income transition to take place over the next 20 years; Kandeh Yumkella argues such a transition will be focused around the integration of renewable energy sources and Internet connectivity (“The Third Industrial Revolution”). Finally, don’t worry be happy! Gloominess about the economy is a choice: “just as little fishies evolved out of the oceans, grew feet, and went to work on Wall Street, our economy is evolving now and we are creatively adding new capabilities.”
Non-Banks Making Strides In Online Banking; Spanish Bank Buys Portland, OR Online Banking Startup
“As banks recover from the downturn, non-banks are taking advantage by proceeding aggressively with digital innovations and capturing more and more of the banking value chain. Accenture estimates that competition from non-banks could erode one-third of traditional bank revenues by 2020…To be a profitable sector, banks cannot simply rely on providing accounts and access to funds. The future of the sector will depend on its ability to provide services that help customers save and better manage money in their everyday lives.” Meanwhile, Spanish bank BBVA has purchased the Portland,OR-based online banking services startup Simple. “Simple will remain a separate brand within BBVA and will retain its Portland headquarters. The deal comes with an additional, undisclosed financial commitment to expand the operation, and Simple said it is seeking bigger offices in Portland to accommodate anticipated hiring.” Also, Royal Bank of Scotland Group is pulling out of investment banking and the United States to focus on “U.K. retail, business and corporate banking segments, while also allowing for significant cost cuts and reinvestment in new technology.”
Global: Plain Vanilla Strikes Again
“Vanguard Group published an interesting study last month on the phenomenon of ‘go anywhere’ funds, whose managers are freed from the usual constraints of style, asset class and so forth…From 1998 through mid-2013, the majority underperformed a plain-vanilla passive portfolio of 60% stocks and 40% bonds.” Meanwhile, hedge funds are testing the
advertising branding waters.
Here’s a really fun to read history of one historical example (other than the 2008 subprime mortgage crisis) in American finance where bundling securities led to financial ruin. In other news, Wall Street is charging ahead with rental property based mortgage-backed securities.
It’s here, finally. Thank you Winklevoss Twins.