GDP, M&A, EBITDA, P/E, NASDAQ, Econo-thread Part 11

[Colon™]

Well, if you care about an answer, you'll have to clarify.

[Ecthy]

I was talking about the next years not about major market indices

[Roland]

Thanks Wraith.

GP:

"I actually found that it worked pretty well. At least with a young female analyst. Some wine and steaks..."

Agh. Some colleagues start work-talk during or after dinner. Does that mean they're hitting at me ? Somehow I fail to get the erotic appeal of discussing the qualified breach of law under state liability regarding procurement directives.....

"Consultants are supposed to be impervious to alcohol..."

Crazy americans. Here only lawyers are supposed to be impervious to alcohol.

" guess my next step is to offer reading it to her in the tub..."

Who would be more qualified for that than a submarine guy ?

[Saras]

Q.What's long, hard and full of semen.

























A. Submarine

[TCO]

Saras, heard it. It's "long, hard, black and full of semen."


Hey Econ-weenies,

I'm reading a book about the LTCM failure. Called: When Genius Failed. Pretty interesting. Mildly disagree with the author on his indictment of quant models. The failure (as in Enron) was more due to trying to make something look more scientific than it was...kind of a subtle disagreement. Pretty interesting reading about thre further adventures of the Liar's Poker king, John Meriwether.

[DanS]

Periscope Up!

[Colon™]

What's more fun than spending your morning reading commentaries, statistics and other econ-junk, whilst crunching a bag of nuts?

First I read a piece by Roach, defending the case for a double-dip in US (ie 1 or 2 quarters of growth followed by a relapse into contraction) and an outlook by
Kasriel stating the opposite. (a sustained recovery, say at least a year or two)
Of the two I felt Kasriel to be more convincing, Roach's points are valid but they don't prove there will be a relapse this year (I don't see why consumers couldn't run up debt for an additional year or two, for instance). Kasriel's writing style is more engaging as well.

Then I dived into that eternal quagmire statistics is, and I discovered a-productivity-per-hour-worked-in-purchasing-power-standard-table (*phew*) showing that with the EU being 100, US stood at some 114 in 1992 and 103 in 2001.
I have to admit this sounds a little incredulous (maybe some quirk in methodology) but the least you can say is that Eurostat is gaining the upper hand in the Great Wars of Statistics against the motley crowd of US agencies. Surely this will make up for the lack of military cohesion.

Also interesting that unit labour costs (wages growth minus productivity growth, or vice versa, can’t remember) has been falling much of the period since ’92, including a minimal 0.3% rise in ‘01. (compared to +1.6% in US) And then the markets are whining about a 4% raise in the German metallic industry that could well be justified, sheesh.

Eurostat does need to improve on its R&D statistics, how can you expect the world to convince EU dynamicalness (or whatever) when their data show EU’s level of business R&D to be nearly half of US’? (maybe they should give a big funds raise to Eurostat and account that as R&D spending)

The latest statistical titbit I want to share is that of capital raised on the bourses: 4.5% of GDP in the EU in ’00, compared to US’ paltry 3.6% that same year. Job well done Eurostat, showing that the EU actually beat US in the latest boursemania.

[TCO]

Originally posted by Colon
What's more fun than spending your morning reading commentaries, statistics and other econ-junk, whilst crunching a bag of nuts?

First I read a piece by Roach, defending the case for a double-dip in US (ie 1 or 2 quarters of growth followed by a relapse into contraction) and an outlook by
Kasriel stating the opposite. (a sustained recovery, say at least a year or two)
Of the two I felt Kasriel to be more convincing, Roach's points are valid but they don't prove there will be a relapse this year (I don't see why consumers couldn't run up debt for an additional year or two, for instance). Kasriel's writing style is more engaging as well.

Then I dived into that eternal quagmire statistics is, and I discovered a-productivity-per-hour-worked-in-purchasing-power-standard-table (*phew*) showing that with the EU being 100, US stood at some 114 in 1992 and 103 in 2001.
I have to admit this sounds a little incredulous (maybe some quirk in methodology) but the least you can say is that Eurostat is gaining the upper hand in the Great Wars of Statistics against the motley crowd of US agencies. Surely this will make up for the lack of military cohesion.

Also interesting that unit labour costs (wages growth minus productivity growth, or vice versa, can’t remember) has been falling much of the period since ’92, including a minimal 0.3% rise in ‘01. (compared to +1.6% in US) And then the markets are whining about a 4% raise in the German metallic industry that could well be justified, sheesh.

Eurostat does need to improve on its R&D statistics, how can you expect the world to convince EU dynamicalness (or whatever) when their data show EU’s level of business R&D to be nearly half of US’? (maybe they should give a big funds raise to Eurostat and account that as R&D spending)

The latest statistical titbit I want to share is that of capital raised on the bourses: 4.5% of GDP in the EU in ’00, compared to US’ paltry 3.6% that same year. Job well done Eurostat, showing that the EU actually beat US in the latest boursemania.

If we had "won" that capital-raising competition, you would just accuse us of having irrational markets (umm...even if net capital was flowing in from the EU...seems like you are willing to accept that EU money managers are complicit in the evil Amie machinations...)

I've learned how this worm turns...

[Colon™]

Andy, whilst explaining your question to me again (thank you ) you asked whether we are in a recession or not. That depends on how you define a recession. You could use a very strict definition, namely that of two subsequent quarters of contracting GDP, or a broader one, that of decline or stagnation of activity in a wide arrange of industries, falling profits and asset prices, a drop in investment, rising unemployment etc. By that definition the US and the EU have definitely been in a recession but a light one, generally speaking. (the overall unemployment rate in the EU didn’t budge, for instance)

Regarding the future, in my previous post I already mentioned the views of Kasriel and Roach. The former believes there will be a real recovery in US (GDP growth for at least a year or two) but that it won’t last because of rocketing inflation and economic imbalances (high debt, large current account deficit, still overpriced stocks etc). The latter believes the recent upsurge in GDP growth in US will be very temporary because it’s the result of little more than firms restocking their depleted inventories (the economy will contract again the this quarter or the next one).

Both seem to agree that US won’t see a return to the roaring 90’s however, with the recent recession being nothing more than a lull in the new economy. The bubble encouraged business and households alike to borrow a lot and save little, and now they’re up to their chin into debts, which they need to correct sooner or later. Traditionally such corrections have gone hand in hand with poor growth.

GP,
If we had "won" that capital-raising competition, you would just accuse us of having irrational markets

Get a sense of irony, sailor.

[TCO]

Colon, you macro-weenies are too subtle for me. hard to tell when you're joking or just using flawed thinking....

[Colon™]

Hey, confusion is the only weapon we posses against micro-economists.

[Colon™]

Please enlighten me on this issue. When a heavily indebted company spins off a division to cut its debts is the seller then making use of a market inefficiency? In principle the value of the division should reflect its performance, but if that’s the case, shouldn’t it be totally irrelevant which bit the parent spins off? After all, the more profitable it is, the more it will receive to slash its debts, but the less its ability to finance the remaining interest and repayment costs.

[TCO]

Colon, you are right to analyyze it this way. And that is why this really ISN'T done so much. (The market is probably NOT inefficient in valuation of debt laden spinoffs...) Can't help it if stupidos on CNBC talk this way though. Also, sad to say, there are some executives who actually think this (flawed) way...but the boards usually can constrain them...

A few cases where there may be real value:
-tax considerations (more likely for selling a division to another company versus a spinoff to IPO). Ability to use a loss for tax sheild.
-getting out of pension claims
-getting out of legal liabilities.

For all 3, there are legal constraints to try to prevent abuse of these features, but it still sometimes makes sense.

I would say biggest reason for a spinoff, though is to enable the spun off company to operate more efficiently. Good example might be a commodity chemical company portion of a specialty chemical company. If you spin off the commodity company, you might oiperate it differently (leverage it up*, cut costs, run for cash). This might be harder to do (culturally) within a company that has lots of R/D, services etc. for their specialty side. Also, seems silly but is sometimes true, that accounting issues with overhead, etc. can make it hard to operate different divisions in best manner. Basically just the standard argument for single focus companies versus conglomerates.

There is also an argument that the market values focused companies better because they are easier to evaluate. I don't really believe this, but lots of people do. (I do sometimes buy the actual operational reasons above.)

*Some of what you may be seeing is just the natural differences in leverage for different businesses. A chemical company has more stable cash flows than a pharma company so it can be leveraged more heavily. If you split Bayer into a pharma and a chmical company, the "best" capital structure for each company will be different. When together, of course, the best capital structure is a weighted average of the two pieces.

[Colon™]

GP, I was particularly thinking about spin-offs in which a division is floated on the stock market or sold to private-equity firms.
It seems to me that financially troubled corps selling of a loss-making bit are actually outsourcing the work of fixing its profitability, pointing to a weak or unimaginative management.

[Sten Sture]

or busy, or lacking specialty expertise, or lacking the necessary time horizon.... From a consultancy standpoint I would assume that GP will say there are an almost infinite number of solutions to address a business deficiency.

GP - Morton Salt?