Posts tagged 'Capital gains'

Are we over depending on capital gains?

David Levy’s April forecast, by way of Jerome Levy Forecasting Center, presents three notable viewpoints worth sharing this month.

The first is that capital gains are accounting for an increasing share of total investment returns, now making-up probably the majority of them. But, says Levy, it will be challenging to maintain those capital gains from now on.

The second is that whilst there is a popular view that foreign exchange can explain the extreme volatility so for in 2016, this is probably wrong. According to the prevailing view, Davy notes, the stability of the global economy leans heavily on currency stability and especially on a benign set of stable dollar exchange rates. Read more

On the art of creating value from nothing

Bitcoin does it. Dogecoin does it. Gold miners do it. And now Kinder Morgan does it too.

What we’re talking about is the amazing ability to create value out of nothing.

The Kinder Morgan self-acquisition deal, which effectively found $12bn of shareholder value from a paperwork reshuffle, is probably the most high-profile example of mining shareholder value from good old fashioned financial ingenuity, even when it involves some finance reverse-engineering. Read more

Why capital gain-like revenues are driving financial profits

This is a guest post by Iren Levina, Economist at Kingston University, in which she argues that the rise in financial profits can be explained by capital-gain like revenues which represent very peculiar wealth transfers. Read more

The curious case of capital gain-like profit

Iren Levina, economics lecturer at Kingston University, brings to our attention a fascinating, if under-appreciated, phenomenon in finance.

She describes this as the “puzzling rise in financial profits and the role of capital gain-like revenues” throughout most of the 2000s, which were totally delinked from real economic growth during the period.

Okay. Why so puzzling you ask? Don’t we know these profits were the result of too much risk taking? And haven’t there been hundreds of papers about this sort of thing?

Well, yes. But this isn’t quite Levina’s argument.

In a paper published in April this year she instead argues that the reason financial profits became disassociated from real economic growth was because of the way they were formed and the way they were transferred through the financial system consequently.

More to the point, because they were enabled by the very phenomenon of “capital gain-like revenues’.

Unfortunately, the monetary assets which facilitated these revenues have been incorrectly understood by the financial system. In Levina’s eyes they are not, as many believe, borrower liabilities matched by real assets at financial institutions, but rather borrower liabilities matched by something altogether different. Read more