Many pundits have noted the Greenspan Put, meaning, every time we have a potential financial meltdown, Greenspan floods liquidity into the markets, bailing out the overextended investors. This sets up the moral risk that investors will be inclined towards speculation over investment, since the Greenspan Put socializes the downside while privatizing the upside. The last time this happened was around the time of the 1987 crash, and was one of the causal factors of the crash. We deregulated the S&L industry but maintained the government guarantee on deposits. This socialized the downside - if the S&L went under, the government would make good on the deposits - and privatized the upside - no longer did S&L's have to engage in safe banking practices. Very quickly they got into the junk bond game, and were one of the instruments of takeovers of major US corporations. You can read about it in dozens of books on the Decade of Greed. Later the US government bailed out the S&L's, an early version of the Greenspan Put.
The new Fed Chairman is known as Helicopter Ben for remarks he made to the effect that the Fed could avoid a Kondratieff Winter by helicoptering in new cash and dumping it on the problem. So far all this new liquidity has sloshed around in financial assets, and not led to any overall inflation. The US Dollar is the world's reserve currency, and as world trade grows, demand for reserves grow. The seniorage of the world currency allows the Fed to dump Dollars and avoid inflation.
What a trick! Print money, no inflation. Hahaha!! Alchemy! The Sorcerer's Stone has been found, finally! Hahaha!!
Yelnick has previously noted that in a low return environment - the Kondratieff Winter - there will come a global scramble for yield. It has started, and it should last for at least a decade.
Where does this money go? In a world with a Greenspan Put, it should go into speculation. Currently we are seeing froth in venture markets, and a rise in m&a activity.
A lot of the recent activity can be called Google Envy. Is it now the fastest growing company in history? Clearly there is a sea change in advertising, and the Lion's share of it is going to Google and Yahoo. Simple story: online browsing time is now equal to TV viewing time, yet in the US TV gets $60B of ads and Internet only $10B - last year. This year, Internet ads have doubled, to $20B, while TV ad spending is flat. No reason why Internet ads couldn't keep going, and even surpass TV ads. This leads to the view that much of the speculation will go to what is sometimes called Web 2.0 or more broadly Digital Media.
The game is afoot. Let loose the dogs of finance! Rupert wants to spend $2B to buy into the Internet. He already spent $1B, buying among other properties MySpace, which has now grown to an astounding 34M members. eBay paid $4B for Skype, a company with almost no revenues! Free phone calls! What a deal! Microsoft wants to buy AOL. Everyone wants to buy Chinese search companies like Baidu. It used to be venture firms only made real returns with a frothy IPO market. Maybe a frothy m&a market can work as well?
Stay tuned - another tech bubble lies ahead. Thank you Alan! Hahaha!! We'll take it.
I find it a great work. Thanks, I hope to see better reports in the future.
Posted by: immo west vlaanderen | Wednesday, March 18, 2009 at 08:31 PM