tag:blogger.com,1999:blog-8152901575140311047.post5690464888482957704..comments2024-03-29T07:41:47.433-04:00Comments on Musings on Markets: The Brexit Effect: The Signals amidst the NoiseAswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-8152901575140311047.post-47031755131690714292016-07-10T17:08:27.950-04:002016-07-10T17:08:27.950-04:00Dear Aswath,
Your video shows a slide with the fo...Dear Aswath,<br /><br />Your video shows a slide with the following assertion: “Britain joined the European Common Market (the precursor to the EU) in 1975 in a referendum, where two-thirds of the voters voted yes.”<br /><br />This is not correct. <br /><br />The UK became a member country on 1 January 1973, the same date as Ireland, see http://europa.eu/about-eu/countries/member-countries/index_en.htm. <br /><br />The referendum was held on 5 June 1975, that is, two year later to determine if there was enough support to remain, see https://en.wikipedia.org/wiki/United_Kingdom_European_Communities_membership_referendum,_1975.<br /><br />I. M. YoungAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-66913077854802955292016-07-04T01:10:05.528-04:002016-07-04T01:10:05.528-04:00Thanks Aswath. Thanks Aswath. Anonymoushttps://www.blogger.com/profile/10152491213561417107noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-56592807571683626252016-07-03T17:43:57.702-04:002016-07-03T17:43:57.702-04:00Chris,
It is true that low growth companies will h...Chris,<br />It is true that low growth companies will have high FCFF but they will have low growth and the net effect will be that they are worth a lot less than high growth companies that have low FCFF as long as the growth is being generated efficiently. Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-8703759219737489492016-07-03T12:54:38.833-04:002016-07-03T12:54:38.833-04:00Dear Aswath, thank you for your quick response. I ...Dear Aswath, thank you for your quick response. I think now I have to disagree to agree to disagree, as I agree with what you stated on the index funds. Thanks for that insight. Also thanks for the explanation on CDS and bond rates.<br />I would like to ask you one more question if you allow me. I know this is not the subject you are talking about in this blog, so perhaps I should pose my question on a different platform(?) The question is about valuation and relating to your (free and priceless) webcasts on valuation. Is it not true that using FCF to value a company often favours the companies that do not spend money on growth capex, and it favours companies that have stable revenues (not increasing working capital). Perhaps there is an interesting article/webpage that you can refer me to, so I don't take up much of your time.<br />Regards Chris<br /><br />Anonymoushttps://www.blogger.com/profile/10152491213561417107noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-26993601215361511182016-07-03T11:07:57.095-04:002016-07-03T11:07:57.095-04:00Chris,
I think that we have to agree to disagree. ...Chris,<br />I think that we have to agree to disagree. One of the criticisms of corporate democracy is that so much money is held in index funds now that most investors in companies today know very little about the companies they invest in and care even less. In fact, am willing to argue that the average voter in Brexit had more information about its consequences (though they might have chosen not to believe it or trust it) than the average shareholder has about the directors he or she is asked to vote for at an annual meeting. <br />On the question of the link between higher CDS and lower rates, it is worth remembering that while the two may not be linked, they are both driven by investor fears and expectations. In a crisis, investors seek out safety (hence lowering government bond rates in what are perceived to be safe markets) and raising risk premiums on risky assets. Ironically, during the 2008 crisis which may have had its origins in the US, the US government bond rate dropped but emerging market government bond rates soared.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-11037135657671837522016-07-03T06:46:24.920-04:002016-07-03T06:46:24.920-04:00Dear Aswath,
Three comments:
(1) Thank you for al...Dear Aswath,<br />Three comments: <br />(1) Thank you for all your free lessons that you provide to the world.<br />(2) Your comment : "As someone who has argued strongly for corporate democracy and against entrenching incumbent managers, it would be inconsistent of me to find fault with the British public for voting for Brexit." I think this comment is debatable as most investors (at least the ones that own majorities of shares in large companies) are conversant in the subject they need to make decisions on, such is not the case for the people voting in the referendum in the UK. By the way, I'm not judging any decisions people made, whether it is good or bad, I'm just stating that I think that the majority of the voters do not fully understand the consequences or impact of a YES or a NO. Let me put it this way, I don't find myself fit to make such a decision, I think there are more people like me. And as such is different from giving more power to shareholders opposed to people in general on politics.<br />(3) Now, for my real question. Probably a basic fault I'm making here, but I don't understand the relation between an increasing CDS and lowering of the Government Bond rates. To me it sounds counter intuitive. The risk of the government defaulting is higher, but the bonds they provide become more expensive and/or give less return.<br />Kind regards Chris<br />Anonymoushttps://www.blogger.com/profile/10152491213561417107noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-13310895692834518562016-07-01T09:51:05.205-04:002016-07-01T09:51:05.205-04:00Sean,
It is not only possible but likely that both...Sean,<br />It is not only possible but likely that both polls and markets have biases built into them. That said, my point was that the betting markets were tilted towards those who were pulling for remain and who were therefore making the adjustments they needed to make to the poll numbers to get to their desired outcome.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-3700008022263446472016-07-01T00:28:28.408-04:002016-07-01T00:28:28.408-04:00Aswath. This is only my second post of yours I'...Aswath. This is only my second post of yours I've read and I really enjoyed it. On your Polls vs Implied Probability section, is it also possible the polling numbers are also biased and may be an accurate outcome indicator? In an article on June 22 from Wharton Finance, one of their economics fellows mentioned the polled UKer's may have leaned more towards "Leave" on issues like immigration, health, and education. However, he believed that when it actually came time to vote, they could switch back, with their vote relying on the economic issues instead. Is it possible the odds had this delta baked in somehow, a sort of (Remain +10%) vs. (leave - 10%) while we were still a few weeks out?<br /><br />As you said in another comment, this may have turned out to be a political vote instead of an economic oneSean Rooneynoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-43309270125001426032016-06-30T14:14:08.283-04:002016-06-30T14:14:08.283-04:00What I am learning from Brexit and its aftermath i...What I am learning from Brexit and its aftermath is that England, in the EU, had an economy that seemed to benefit primarily those who work in downtown London. It may have maximized GDP for England, but what is the point if it leaves out the rest of the country outside London? If London and Cameron had resisted austerity and instead used some of the gains from EU involvement to boost the English economy outside London then Brexit would probably never have happened. Free trade has winners and losers. The winners have to share or they will find resistance. <br /><br />I suspect that England will develop an economy that is more balanced and that has more winners outside London and more losers in London. Not much of an impact for America except cheaper tourism costs. I was a buyer on Tuesday, but I can understand why a London banker might proclaim it will be a systemic meltdown. For his own personal affairs - it might be.Dajo9https://www.blogger.com/profile/06951721841447196001noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-33843218413681124062016-06-30T12:11:30.066-04:002016-06-30T12:11:30.066-04:00Anonymous,
It is not the currency level that the F...Anonymous,<br />It is not the currency level that the Fed uses to influence economies. It is interest rates and once they get close to zero, the central bank loses its power. Witness what the Japanese central bank has done to try to get the Japanese economy for close to 25 years now and look at how helpless central banks have become in making economies respond to their commands in the last six years.Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-10103468222601749462016-06-30T11:55:18.506-04:002016-06-30T11:55:18.506-04:00"If that slowdown happens, the central banks ..."If that slowdown happens, the central banks of the world, which already have pushed interest rates to zero and below in many currencies will run out of ammunition."<br />Is there an ink shortage? A limited number of 1's and 0's?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-80403308957942894032016-06-30T11:31:14.665-04:002016-06-30T11:31:14.665-04:00The brexit vote was a social vote, with economic c...The brexit vote was a social vote, with economic consequences. The capitalists tried to make the referendum about economics, which is to their benefit. Europe is full of revolutions against the elite/rulers, etc when the economics get too one sided. The difficulty with finance theory is that it is the attempted quantification of behavioral / psychological study of humans handling money. Humans are notoriously unpredictable, and therefore do not strictly adhere to any laws or equations.<br /><br />So ask yourself, do you make all decisions via economic theory of attempting maximum wealth, if that is the definition of economic success? and then do you when you vote? or are there other intangibles / non economic that get into your head?<br /><br />Humans love seemingly rational and definitive explanations, and laws and rules and equations. However, remember this, business, capitalism and beauracracy don't all scale linearly and don't scale well. all of these have issues when the sizes get big. .. and on a big enough scale, some of these can't even be well measured. There is too big to fail with banks, but with humans, there is too big to manage, both politically and economically. TBTM is what you are seeing at the moment, and the governments of the people need to protect the people from economic abuse as well as social abuse, otherwise, there will be physical chaos, which is evident at the micro level in the US and Europe, and more so elsewhere.<br /><br />The economic issue is that there is not enough money to go around, and the corporate incentive plans are causing layoffs of customers, in the form of employees, as domestic employees are the capitalists ultimate customers, and if the trend continues, all the cash in the real economy will end up in the corp accounts, just like a caymen island economy, where there are banks with lots of cash, and the citizens trade wares for food in the service economy, just like the 1930s in the USA.Anonymoushttps://www.blogger.com/profile/16893975615087024796noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-89888337835785945132016-06-30T02:12:00.073-04:002016-06-30T02:12:00.073-04:00I look forward to your analysis of the UK and Germ...I look forward to your analysis of the UK and German ERP. Would be interesting to see whether or not there are significant differences to your S&P analysis, i.e. whether one can apply the US ERP to other AAA rated countries.Ralf Hafnernoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-87823618985544295692016-06-29T14:37:59.485-04:002016-06-29T14:37:59.485-04:00You continue to inspire me! Well said, systematic ...You continue to inspire me! Well said, systematic failure is not currently seen but trade terms that'll be decided in the next two years will have a great impact. Hopefully they don't deter the ongoing liquidity in the marketAnonymoushttps://www.blogger.com/profile/11874344300531632840noreply@blogger.com