Daily Picks Wednesday: The Macron-Merkel Euro Plan
June 20, 2018
4 Mins Read
The Macron-Merkel Euro Plan Is Released. Here's How It Stacks Up
- The two sides agreed to set up a euro-zone budget and beef up the role of the European Stability Mechanism.
- However they postponed decisions on some elements including specifics on the size and conditions of the euro-area budget and on whether countries need to adhere to strict conditions to be eligible for funds.
- The euro-zone budget should promote competitiveness, convergence and stabilisation in the euro area, with resources coming from national contributions, Europe and revenue from taxes including a financial transactions tax or a levy on digital companies.
- The budget aims to help investment in innovation and human capital while other options examined include allowing nations in trouble to suspend their contributions, or establishing a European unemployment stabilisation fund.
- France and Germany agree to maintain a decision-making process where national government have a say on whether the ESM can be made available for a bank resolution.
- The two sides seem to open the door to some upfront debt restructuring facilitated by the ESM, although the wording seems vague enough to leave room for handling on a case-by-case basis.
Germany will offer to scrap the EU's 10% tax on US autos: Report
- The U.S. ambassador to Germany has been in talks with the chief executives of German car makers BMW, Volkswagen and Daimler, where they pitched the idea of ending car tariffs between the U.S. and the EU.
- It would mean an end to the EU's 10% tax on U.S. made cars.
- However, Europe also wants the U.S. to scrap the 25% tax on imported pickup trucks, SUVs and big vans.
- That tax has been in place since the Johnson administration and scrapping it could alienate U.S. auto workers; a key constituency for President Donald Trump.
EU to impose duties on U.S. imports Friday after Trump tariffs
- The EU will begin charging import duties of 25% on a range of U.S. products on Friday, in response to U.S tariffs imposed on EU steel and aluminium early this month.
- The move confirms a tit-for-tat dispute that could escalate into a full trade war, particularly if U.S. President Donald Trump carries out his threat to penalise European cars.
- The tariff will target $3.2 billion worth of U.S. goods, including steel and aluminium products, farm produce such as sweetcorn and peanuts, bourbon, jeans and motorbikes.
- Some of the products chosen products are designed to target the states of Republicans, who are seeking to retain control of both chambers of Congress in November elections.
Powell Says Solid Economy Supports Further Fed Rate Increases
- Fed Chair says sturdy U.S. economic growth has built a strong case for gradually lifting interest rates, but warned against policy complacency now that employment and price goals have nearly been achieved.
- Powell sees few risks of bubbles but flagged how the prior two U.S. expansions ended after the eruption of financial imbalances (in tech and then housing), rather than the economy overheating from excessive inflation.
- The Fed faces uncertainty due to limited sample of episodes resembling the current economic situation. 1960s and 1970s aren't as good of a guide as hoped.
- Fed officials follow the Phillips curve (inverse relationship between inflation and unemployment), but this framework hasn't performed well for the past 20 years. Big swings in unemployment haven't significantly affected inflation.
Ten Lessons from Michael Batnick's Book 'Big Mistakes'
- Most of the mistakes revolve around the same themes: being too overleveraged and building big positions, venturing outside expert zone when managing a bigger amount of capital, overconfidence, normal mistakes and fear of missing out.
- Once something belongs to us, objective thinking flies out of the window.
- Professionals win points, amateurs lose points. So professionals should play to win and amateurs should play not to lose (try to make fewer mistakes).
- “The most disciplined investors are intimately aware of how they’ll behave in different market environments, so they hold a portfolio that is suited to their personality. They don’t kill themselves trying to build a perfect portfolio because they know that it doesn’t exist."
Hedge Funds' Best Ideas? Those Are Just Stocks They're Dumping
- Hedge fund managers often get on stage to strategically share the stocks they're invested in.
- This boosts demand and leads to them selling the stock to clear room for better investment opportunities.
- On average, a hedge fund manager that pitches a stock at a conference cuts its weighting in its portfolio within the first quarter after praising it.
- Investors can earn 1% in the first two days after a pitch by running with the advice while simultaneously selling the market.
- This suggests the pitched stock was their best idea, but isn't any longer.