Last week, the 10-year US treasury bond rate dropped to 1.75%. While it has risen since to about 2%, there can be no denying a basic fact. Government bond rates have dropped in almost all of the developed market currencies: the Euro, the British Pound, the Swiss Franc and the Yen. Since government bond rates are used as risk free rates to estimate discount rates in valuation or hurdle rates in corporate finance, there has been a great deal of hand wringing and angst among valuation practitioners on the consequences. In fact, if you allow for the increase in sovereign risk across the...
Ruminations on Rogue Trading
We are in the midst of a "rogue trading" scandal and the media loves it. It started with this report in the Wall Street Journal about an unnamed trader who had lost $ 2 billion for the Swiss banking giant, UBS. The trader was quickly identified and named as Kewku Abodoli, a director at the UBS Delta One desk (more on that later). Today's story has more details, with a comment from Abodoli's lawyer about how much he regrets his actions (or at least getting caught). If you have a sense of deja vu, it is because you have seen this story play out before. Just to refresh your memory, here are some...
The Buffett Plan: An apt name for a sanctimonious, hypocritical and superficial proposal
At the start of this week, President Obama laid the groundwork for his deficit plan, with one of the proposals being what he termed the "Buffett" tax. Like Bank of America, a few weeks prior, he was perhaps hoping to borrow on Buffett's credibility to increase support for his plan. Put briefly, here is the what the plan is designed to do. Taxpayers who earn more than a million dollars will be required to pay at least as high a tax rate as what the average tax payer pays. What constitutes a average taxpayer (I guess it is a good thing that it is not the median taxpayer; since that would comprise...
Breaking up is easy to do...
Breaking up may have been hard to do for the Carpenters, but it seems to be easy to do for some companies. Here are just a few examples of companies that have announced plans to dismember themselves, in the last few months:Kraft Foods: Kraft Foods split itself into two companies: a division that sells candy and snacks (Oreo, Cadbury, Tang) globally and a division that sells grocery brands in the US (Oscar Meyer, Jell-O). McGraw-Hill: The company responded to demands by investors that it break itself up by dividing itself into two businesses: McGraw-Hill Markets, which includes the S&P...
Operation Twist II: The Fed as Chubby Checker
Since the banking crisis of 2008, neither fiscal nor monetary policy has proved up to the task of rejuvenating the US economy. The Federal Reserve, in particular, has explored almost every tool in its arsenal to increase economic growth. In 2009, there was Quantitative Easing II (QE II), where an influx of $ 600 billion was used to buy long-term bonds and lower long term interest rates. Those lower rates, it was argued, would help get housing back on track and increase real economic growth. At the time, I argued (though I admitted my limited credentials...
Class is in session...
As some of you probably already know, I teach at the Stern School of Business at NYU. Well, summer is officially over and a new semester is beginning. In a rite that I repeat at the start of every semester that I teach, I want to invite you to be part of my class this semester. Note, though, that this invitation is completely unofficial and approaching NYU for credit for taking the class is a definite no no.This semester's class:ValuationThe only class that I will be teaching this fall is Valuation. A little history, though it may bore you, is in order here. I came to NYU in 1986 and the very...
