Ativo Capital

Rigorous Thinking


Financial and economic commentary reflecting Ativo’s world view:

Oil, China and Prospects for the US Economy

Thursday, May 12, 2016

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April 15, 2016 Global stock markets were off to a rocky start in 2016. Was the sharp decline in U.S. stock prices early in the year a signal that the economic expansion that began in 2009 is about to end, or is the canard “The stock market has predicted five of the last three recessions” again relevant? The dramatic decline in petroleum prices has contributed to the malaise of the residents of the ten U.S.states that produce 80 percent of domestic crude oil. The prices of oil company stocks are down sharply.  Real GDP and household incomes have declined…

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Does the Stock Market Really Ruin the Economy?

Wednesday, February 10, 2016

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Last week’s Wall Street Journal (2/1/2016) featured an article (Does the Economy Ruin the Stock Market Or Does the Stock Market Ruin the Economy, gated) citing recent work by UCLA economist Roger Farmer questioning whether the recent market rout simply reflects the economy, or whether a weak stock market is crashing the economy. After summarizing the conventional perspective that discounted future earnings determine market pricing, the article conceded that maybe, just maybe, stock market patterns could be influencing the real economy. Our reaction? What took you so long?! We’ve been making that case for more than thirty-five years. Of…

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Ativo Capital Recognition at NAA’s 15th Annual Wall Street Summit

Monday, November 2, 2015

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Ativo Capital Management, LLC Joins the ‘Billion Dollar Circle’ of New America Alliance (NAA) Ativo to be recognized at the NAA’s 15th Annual Wall Street Summit as one of 10 member firms with more than $1 billion in assets under management October 29, 2015 01:52 PM Eastern Daylight Time CHICAGO–(BUSINESS WIRE)–Ativo Capital Management, LLC (Ativo), announced this morning its recognition by the New America Alliance (NAA) into the ‘Billion Dollar Circle,’ comprised of 10 firms owned by NAA members, each with more than $1 billion in AUM. The NAA, a national collective of influential Latino business leaders driving empowerment and…

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Capital Gains and the Candidates

Friday, September 4, 2015

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Alan Reynolds’ piece in the Wall Street Journal (September 2, 2015) reminded us of recent internal discussions regarding the link between Presidential campaigns, tax proposals and equity prices. These deliberations centered on the degree to which recent market turmoil could be attributed to talk of substantial increases in capital gains tax rates. Ativo has long believed that the interaction between inflation and taxes strongly influences the real cost of equity capital and therefore stock prices. Briefly, stock prices reflect investor expectations of a relatively stable real after-tax return. The cost of capital adjusts to offset the effect of inflation…

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Ativo’s Summer Reading List

Tuesday, July 28, 2015

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In recognition of a summer vacation tradition, we’re taking a break from serious commentary to share what the Ativo team has been reading.   As this reflects our personal summer reading, it is furnished “as is,” without warranty of any kind. Ram Gandikota, Senior Portfolio Manager & Associate Director of Research, is reading Steve Pinker’s “The Better Angels of Our Nature: Why Violence Has Declined” and “Business Adventures” by John Brooks, which he describes as “a collection of fascinating stories” that are “still relevant today in understanding how corporations function.” Senior Performance Analyst Amanda Dice is busy studying for her…

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China’s Andy Warhol Moment

Wednesday, July 22, 2015

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A brief visit to Beijing last month. The conference organizers had provided a plane ticket to Hong Kong and a stopover in Beijing added $100 to the plane ticket. Great weather in Beijing. No smog. Few traffic jams. And the boulevards were lined with billions of roses. Visits to Tsinghua and Peking Universities for presentations. The fit and finish of the academic buildings are superb. The quality of the autos in the parking spaces on both campuses was impressive. Faculty offices spacious. The lunch at the restaurant at faculty club at Peking University was superb. The Chicago center in…

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Currency Wars

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One of the most memorable phrases in the literature on international finance is “beggar-thy-neighbor”–a term used by a distinguished British economist in the mid-1930s to describe the declines in the prices of the British pound, the U.S. dollar and several other currencies in terms of gold from 1930 to 1937. Supposedly each country reduced the price of its currency in the effort to increase exports, and hence employment in its manufacturing sector at the expense of its trading partners. The declines in the prices of individual currencies occurred over a six year period, much like a slow motion version…

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A Catechism on the Greek Tragedy

Friday, July 10, 2015

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Q: What do Bernie Madoff and Alexis Tsipras have in common? A: Both have been involved in Ponzi finance. But there is a difference, the Government of Greece has been involved in Ponzi finance since Greece joined the Euro in 2002. A variant on the Willie Sutton line, “If the money is there, take it.” Q: What do you mean when you say “Greece has been involved in Ponzi finance?’ A: Sure, for most of the last thirteen years until 2014, the purchases of the IOUs of the Government of Greece by various banks and government agencies in Northern…

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Continuing Evolution of the Greek Crisis – June 30, 2015

Wednesday, July 1, 2015

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The next few developments in the unfolding of the tragedy in Athens are predictable. The Tsipras government is lefty and spastic; its response to a problem will be more controls. There are controls on cross border payments and apparently there are controls on withdrawals from ATMs. These controls will enable the banks to delay the dates when they can no longer run replenish the Euro notes in the ATMs. But the planes that have brought these notes from Frankfurt to Athens are no longer flying. Why will anyone accept the limits on their choices that the government proclaims? There…

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The Resolution of the Crisis in Athens

Friday, June 26, 2015

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Last week I visited Reykjavik to present the draft of a chapter on international monetary reform to the Department of Economics at the University. The city is booming, the cranes have returned and the restaurants are full. The country is more or less at full employment. Ironically, the crisis in Iceland and then the volcanic eruption has put the country as a mecca for tourists. The global financial crisis impacted Iceland in 2008 and 2009 at about the same time as it hit the United States, Britain, Ireland, Spain, Portugal and Greece. The United States is at full employment….

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