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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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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A Tale of Two Currencies

Friday, February 13, 2015

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January 19, 2015 This is a tale of two currencies, the Swiss franc is a real currency and the Greek drachma is a virtual currency. The price of the Swiss franc increased by more than twenty percent last week and the price of the virtual drachma also declined by thirty to forty percent. The virtual drachma will become transformed into a real currency when the banks in Athens run out of euro currency notes in response to a run prompted by the anticipation that Syriza will gain more votes than any of the other parties in the parliamentary elections…

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Financial crises are caused by cross-border investment flows, not misbehavior, says economist Robert Aliber

Friday, October 31, 2014

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Financial crises are widely believed to be caused by greed, corruption, or lack of regulation. But what if the cause is simply the variability of cross-border investment inflows? That’s the model developed by Robert Aliber, professor emeritus of international economics and finance at the University of Chicago Booth School of Business. Aliber, editor and co-author with Charles P. Kindleberger of the 1978 classic Manias, Panics, and Crashes: A History of Financial Crises, predicted the Icelandic banking crisis 18 months before it happened. In an interview with CFA Institute Magazine, Aliber offers a different view on the cause of financial…

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Thomas Piketty and the Long-Term Investment Outlook

Wednesday, August 6, 2014

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Thomas Piketty’s Capital has been one of the best selling books by an economist, the timing of the publication was propitious, since there is a lot of angst that the distribution of income and wealth has become more unequal. His central argument is that the share of income and wealth accruing to the top one percent, the top 0.1 percent, and the top 0.01 percent has been increasing because the rate of return on capital is higher than the rate of growth of GDP. He implicitly assumed that the rich reinvest most of their income from capital. That’s a…

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Ukraine and Russia – Assessment and Portfolio Adjustments

Tuesday, March 11, 2014

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Ativo has taken steps to reassess the exposure of our portfolios to Russia and Eastern Europe in light of the developments over the last few months in Ukraine. We had an overweight in Russian equities when the crisis in Ukraine escalated on February 22nd, as Ukrainian President Viktor Yanukovych fled the country to Russia after a political coup and Russia subsequently occupied the Crimean region in southern Ukraine. Since then we’ve cut down our exposure to a slight underweight in Russia with the sale of Sberbank and Sistema JSFC from our portfolios. We’ve maintained our exposure to other Russian…

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THE CUBAN REVOLUTION, R.I.P.

Tuesday, December 17, 2013

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A revolution is like a rashomon, individual observers have their own visions. “The  Cuban revolution is about providing justice and full stomachs for the downtrodden.” “The revolution is about providing dignity to the oppressed, who had been marginalized by the capitalists and American business.” “The revolution is about introducing socialism and displacing the inequities that developed from private ownership of the means of production.” Cuba is shrinking; its revolution has hit the end of the road.  Its population growth is stagnant at the rate of 0.1 percent a year.  The female reproduction rate is 1.7, or 0.5 percent below…

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