Current Topics

China's Devaluation of the Yuan

Topic: Emerging Markets, 8/12/2015

The Chinese government announced on August 11th that it raised the daily "fixing" on the yuan (renmimbi) relative to the dollar to Rmb 6.23, effectively depreciating the currency by 1.9%. The fixing was raised another 1.6% in August 12th. Headlines decried the action as the largest daily move on record, but that is a byproduct of the managed nature of the yuan--other major currencies can and do move 2% in a single day. Speculation of the motivation behind the move ranged from stimulus prompted by weak trade and credit data to political wrangling with the International Monetary Fund (IMF) for inclusion as a Special Drawing Rights (SDR) currency.

A Lesson Learned From the Greek Selloff

Topic: Europe, 8/6/2015

On August 3rd, the Athens Stock Exchange (ATHEX) reopened after a five week closure and Greek stocks promptly underwent their worst selloff in history, opening down about -23% from their previous June 26th close before regaining some ground to finish -16.2% lower. There are clear lessons to draw from this--Greece is still in turmoil, investors are still concerned, "Grexit" remains a risk and political uncertainty abounds. A more important but mostly overlooked lesson from the ATHEX closure is that markets are efficient. Comparing the ATHEX composite and a globally traded ETF of Greek stocks demonstrates markets' ability to discount widely discussed events and information.

The Stock Buyback Myth

Topic: US, 6/15/2015

Some feel that firms are returning too much cash to shareholders and not investing enough in the future--particularly in research and development (R&D). Those who share this opinion believe that without R&D, there is less innovation, and we risk falling into "secular stagnation." Despite concerns, stock buybacks have not detracted from investment, which is higher than most suggest.

Assessing Puerto Rico's Debt

Topic: US, 6/15/2015

Greece's debt issues have dominated media lately, however Puerto Rico has its own financial crisis coming into the spotlight. Some call its fiscal situation worse than Detroit. Others see Puerto Rico as "America's Greece," an economy plagued by structural issues, too much debt and in need of deep reform. We believe Puerto Rico-Greece comparisons are apt from this perspective: Greece is mostly a political issue at this point, lacking size and surprise power to cause broad economic or market issues; the same can be said of Puerto Rico.