mfioretti: speculation*

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  1. Right now, it’s Bitcoin. But in the past we’ve had dotcom stocks, the 1929 crash, 19th-century railways and the South Sea Bubble of 1720. All these were compared by contemporaries to “tulip mania”, the Dutch financial craze for tulip bulbs in the 1630s. Bitcoin, according some sceptics, is “tulip mania 2.0”.

    Why this lasting fixation on tulip mania? It certainly makes an exciting story, one that has become a byword for insanity in the markets. The same aspects of it are constantly repeated, whether by casual tweeters or in widely read economics textbooks by luminaries such as John Kenneth Galbraith.

    Tulip mania was irrational, the story goes. Tulip mania was a frenzy. Everyone in the Netherlands was involved, from chimney-sweeps to aristocrats. The same tulip bulb, or rather tulip future, was traded sometimes 10 times a day. No one wanted the bulbs, only the profits – it was a phenomenon of pure greed. Tulips were sold for crazy prices – the price of houses – and fortunes were won and lost. It was the foolishness of newcomers to the market that set off the crash in February 1637. Desperate bankrupts threw themselves in canals. The government finally stepped in and ceased the trade, but not before the economy of Holland was ruined.

    Yes, it makes an exciting story. The trouble is, most of it is untrue.
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  2. From next year, developers will be charged a tax for unsold units that haven’t been occupied for over a year, Nidhi Adlakha writes

    In the Union Budget 2017, it was announced that the IT department will soon levy a tax on unsold apartments, which have been vacant for more than one year. With industry sources anticipating the order will be executed as early as April 2018 onwards, industry players are in a fix.

    A. Shankar, National Director, JLL India, says certain builders adopt the ‘hoarding’ strategy to create artificial scarcity and this leads to inflated prices. “The fresh tax would be applicable from the next financial year and will be levied on properties held under ‘stock-in-trade’ by developers. The tax rate could be anywhere between 8% and 10% of property's total value,” he says.

    It’s evident the government wants developers to stop hoarding apartments in anticipation of price appreciation, but there are a number of practical issues with the new tax regime, feels Niranjan Hiranandani, President, National Real Estate Development Council (NAREDCO). He says buyers do not wait in line and buy housing units as and when they are available. There are market forces which impact the sale of ready units and most importantly, the prevailing economic conditions affect buyer sentiment. “Developers have no control over any of these aspects and cannot ensure that ready possession units get sold within this one year deadline,” he says.


    Developers might be significantly impacted by the move but consumers have a lot to look forward to.

    With the current vacant supply hitting the market soon, buyers can expect a reduction in prices. In cities such as Delhi-NCR and Mumbai, unsold inventory levels are very high and the new tax could result in a steep price correction, says Shankar. Other benefits include: a reduction in unsold inventory, lower prices, increased government revenue, opportunity for alternate asset classes such as co-living and rental housing and overall price corrections.


    Most players believe that the timing for such a move is unfortunate. Contrary to the belief that developers are hoarding, they say, they are struggling to sell properties even at reduced prices. “Builders are making a loss in whatever they are selling today and are struggling to pay back the loans with high interest rates,” says R Kumar, Managing Director & Chairman – Navin’s.

    If unsold properties are going to be taxed, developers will hesitate to launch new projects unless there is a sale guarantee. RERA stipulates that properties cannot be sold without all approvals in place and even after getting all the necessary documents, if only a few units are sold, the builder has to complete the entire project. Added to that is the pressure of paying tax on the unsold units. How is this fair? asks Kumar.

    Speaking on similar lines, Hiranandani wonders that if builders are unable to sell at prevailing points, are they expected to sell at a loss? “If such a scenario is envisaged, will developers want to build housing units unless they have committed buyers?”

    Given the new rule, developers may slowdown their construction speed to match with the sales velocity. At the onset, such an IT directive may not be completely in favour of the free-market regime that the government intends to achieve within the sector. “In the short run, this could result in a price correction but in the long run, developers might be hesitant to undertake large township-style projects,” adds Shankar. Also, new supply will be only bought-in once demand for it has been registered.

    More competitors

    Instead, the entry of more competitors should be encouraged (many weak/fraudulent ones have been wiped out post-RERA). The consistent release of land parcels and faster project approvals to create supply is crucial. Ravi Ahuja, Senior Executive Director, Mumbai & Developer Services, Colliers International India, says in most cases, any additional outflow from the developer’s end on any project, ultimately impacts the buyer. In the current scenario, however, where the residential sector is reeling under pressure, he feels the new move will not result in any price increase.

    Trends indicate that apart from affordable units, the luxury segment witnesses maximum launches. But given this new tax segment, one can expect fewer launches and perhaps an invite-only sale process. The luxury sector, the most impacted asset class, will see few takers in the coming months.

    Data suggests that a considerable portion of unsold units currently lie in the premium and luxury segment. The tax initiative will impact new supply to a great extent as developers will be wary of constructing prior to witnessing healthy demand.
    Tags: , , by M. Fioretti (2017-12-28)
    Voting 0
  3. Yaroufakis agrees that there are numerous design flaws with the currency. Not least, he adds, “the fact that there are no controls, no democratic checks and balances of a bit issue and no way of back-stopping financial transactions by means of some kind of insurance policy for those that get defrauded.” Yet his central criticism focuses upon what he refers to as “the fantasy of apolitical money.”

    To Varoufakis, money is inherently political. The decisions regarding whether money is produced or not, how it is distributed and who receives it, all have significant political consequences, benefiting certain social groups over others. Bitcoin’s central design feature, that it is not governed by a central bank or decision-making authority, means that responsibility for its distribution is forfeited. This can have profound social and political implications in times of crisis.

    To understand what Varoufakis means by the political nature of money, consider how governments respond to financial crises. When a major financial crisis occurs, it is usually caused by the failure of widespread and interconnected debts. Once these debts fail, what happens is that a large part of the money supply effectively disappears. With this money gone, governments have a choice whether to replace it or not. Choosing not to replace it through the creation of new money (inflation) becomes a political decision with political repercussions. As Varoufakis suggests, “effectively you are choosing to shift the burden of a crisis onto the debtors and usually the weakest and poorest of debtors. So effectively you are redistributing power and wealth against the weaker members of society.”

    If the decision is made to replenish the money supply, like it was in 2008 through Quantitative Easing (QE), then how this money is channeled through the economy will also influence the political economy. In Varoufakis’ opinion, QE was engineered in a way to benefit large corporations.
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  4. For many startup employees, the reward system doesn’t work like it used to. Back then, you would take a meager salary and work long hours with the hope that your employer would go public and your stock options would become valuable. It was risky. Plenty of startups failed, but employees would quickly move on to the next venture.

    That stopped being true awhile ago as companies chose to stay private longer. For startups, an initial public offering once brought better access to capital, stronger branding opportunities, and a broader group of shareholders, but many businesses can now access capital and marketing attention without going public. The JOBS Act amendment to the 500-shareholder limit allows them to stay private longer. And the demands of quarterly reporting, along with the transparency it requires, don’t seem worth the trouble. On average, companies wait 11 years to go public. Thus employees began to be faced with longer timelines before they could cash in their options.

    that earlier in the year, NASDAQ conducted a third party tender, in which outside investors got to set the share price, for Pinterest.

    It’s a smart way for companies to help their employees insure against an uncertain future. If employees do get burned, its tempting to let them take the blame. Startups are risky businesses! And likely, they’ll be able to find work someplace else. But there’s a danger for the larger economy here as well. Talented people may be more risk averse next time—less willing to take a chance on the next big thing. And that affects all of us.
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  5. For all the happy talk and rising valuations, Silicon Valley VCs are in the midst of a pretty troubling trend.

    I spent a good chunk of last week in Silicon Valley, speaking to venture capitalists who mostly wanted to regale me with tales of their portfolio prowess. Sunshine and unicorns all over Sand Hill Road.

    When will these folks start getting nervous? Not about rising valuations, per se, but about their inability to get liquidity?

    all this could all just be a coincidental calendar blip that presages a post-Labor Day gold rush. But strong public market conditions+high-value portfolio companies should equal big exits. And it isn’t.

    If I’m a venture capitalist, it might be time to stop staring at the sun and take a peek at the darkening clouds.
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  6. This bubble is bound to burst. While there is a current mega trend of mega private financings and almost preposterous valuations, this time private markets shall take the hit. Unlike the 2000s, VCs will not be in the line of fire. Employees and founders would take the fall. And quite a bad one, perhaps.

    To understand this, let’s analyze some of the top billion-dollar tech valuations closely:
    Source: VC Experts

    Source: VC Experts

    While the implied valuation for all the above companies is north of $1 billion, it’s clear that the actual money invested is merely a fraction of that. When the liquidation preferences kick in, VC investors always have a great chance to recover their money. And then some.
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  7. No person under the age of 35 will be allowed to work on Wall Street.

    Upon leaving school, young people, no matter how persuasively dimwitted, will be required to earn their living in the so-called real economy. Any job will do: fracker, street performer, chief of marketing for a medical marijuana dispensary. If and when Americans turn 35, and still wish to work in finance, they will carry with them memories of ordinary market forces, and perhaps be grateful to our society for having created an industry that is not subjected to them. At the very least, they will know that some huge number of people -- their former fellow street performers, say -- will be seriously pissed off at them if they do risky things on Wall Street to undermine the real economy. No one wants a bunch of pissed-off street performers coming after them. To that end ...

    3. Women will henceforth make all Wall Street trading decisions.

    Men are more prone to financial risk-taking, and overconfidence, and so will be banned from even secondary roles on Wall Street trading desks -- though they will be permitted to do whatever damage they would like in their private investment accounts. Trading is a bit like pornography: Women may like it, but they don't like it nearly as much as men, and they certainly don't like it in ways that create difficulties for society.
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  8. A growing minority of investors and regulators are probing the possibility that untapped deposits of oil, gas and coal -- valued at trillions of dollars globally -- could become stranded assets as governments adopt stricter climate change policies.

    The concept gaining traction from Wall Street to the City of London is simple. Limits on emissions of carbon dioxide will be necessary to hold temperature increases to 2 degrees Celsius, the maximum climate scientists say is advisable. Without technologies to capture the waste gases from combusting fossil fuels, a majority of known oil, gas and coal deposits would have to stay underground. Once that point is reached, they become stranded.

    A Global Push to Save the Planet

    With representatives from more than 190 countries gathered to discuss climate rules in Lima, the argument that burning all the world’s known oil, gas and coal reserves would overwhelm the atmosphere is moving beyond the realm of environmental activists.
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  9. Divesting and investing is a wonderful, practical example of the kind of repentance from an oil economy,” says Wallis. “We could create some moral space if business people and others are going to churches where this is being talked about.”

    And even impartial observers agree that it can have an effect. Bullard says that by raising awareness of the risks for fossil fuel companies, divestment campaigns might lead major institutional investors to reduce the size of their fossil fuel investments. “Big investors in a sense divest all the time but they would call it reallocation,” says Bullard. “A large investor might reweight a portfolio down from 12 percent fossil fuels to 8 or 9 percent. None of the groups that have divested » have enough capital in play to have an impact, but the institutional investors that might reweight risk certainly do. The purpose of the divestment movement in some cases is to draw attention to the risks of investing in fossil fuels — issues such as the changing nature of consumption of fossil fuels and increasing cost of extracting them.”

    Divestment campaigns can also force concessions from large institutional investors that help the transition to a clean energy economy.
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  10. the huge amount of capital pouring into startups—and the great expectations all that money represents—is forcing new companies to spend more, and faster, than they have in 15 years. So much spending sets companies up for a fall if the funding dries up and they still have big bills to pay.
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