Archive Page 3

Going to Imperial College Business School

Imperial College Stone Lions at Queen's TowerI will be studying for an MSc in Finance at Imperial College Business School (ICBS) in London from September 2012. Therefore, I’ll be moving to London in a few days (now that the busiest part of the Olympics is over) and, in an effort to revitalise this blog, I’m going to write about both the programme itself and life in London. For example, the application process I went through at several universities almost one year ago was certainly challenging, so I’ll be writing about that to give future students at European business schools an idea of what they might be up to, how to go about applying etc. Since the student body at Imperial is really diverse, life at the university should be quite interesting as well. I will therefore not only comment on the course contents, but also on the everyday goings-on at ICBS.

Hopefully, you’ll find my reports useful or at least enjoy them. If there is anything in particular that you’d like to read about, please let me know.

Factors Of Gold Investments

The following is a guest post by

Among investors and traders, one of the most interesting products in which to consider placing your money is gold. Gold operates, to some extent, separately from other investment markets, and is often considered apart from overall investment and value trends. However, the decision of whether or not to invest in gold is one that depends on a number of factors that you may not be used to considering with other investments. Invest in gold is definitely an idea to consider, however, if you do the proper research and find the market to be agreeable with regard to your specific situation. So, if you are new to this sort of investment, here are some of the most important factors to keep in mind as you begin considering.

• To begin with, always keep in mind that gold is a backing to monetary value all over the world. Essentially, gold equals money to the exact extent dictated by each individual economy. However, on a global scale, gold theoretically equals out to the same value everywhere (with regard, of course, to monetary conversions across different currencies). This means that the total global economy may dictate the value of the gold you invest in, while sways in an individual economy will have less impact.

• Also keep in mind that gold has an inherent edge over many other investments merely because of the psychological impact it has on people. Gold has very little practical use in the world, but is instead regarded as an article of wealth and an object in which we essentially store value. However, more or less because we have decided it holds a certain value over other metals and products, and because this value tends to be relatively stable, gold tends to be a reliable investment even in times of turbulent economies.

• Do not make the mistake of considering gold as currency, merely because gold does hold monetary value. While there have been periods of history during which all currency was backed exactly by stores of gold, gold itself can still not be considered as currency, except on a government and banking level. Thus, when you consider whether or not you would like to invest in gold, pay more attention to gold as a store of value, and as it relates to world economies, rather than as an everyday instrument of monetary value. This can help you to have the right mindset as you go about considering gold investments.

“Super Committee” fails to agree on deficit-reduction plan

As reported by Reuters, the so-called congressional “Super Committee” failed to reach a deal on reducing the federal government’s deficits today. Following similar events at the end of July, when the American government came close to defaulting on part of its debt due to a deadlock in negotiations over a new debt ceiling, the US credit rating was downgraded by S&P from AAA to AA+ on August 5th and markets all over the world took a plunge.

Today international stock markets closed down already, probably because the bad news from the Congressional Budget Office have been anticipated. This won’t stop markets from also opening down tomorrow, however.

Pivotal moment for the euro zone

Stock markets in many parts of the world closed higher on semi-positive news from the US labour market yesterday. However, the rise in stock prices over the past few days does not signal the beginning of a recovery at all. I have no doubt that stocks will plummet again in the short run. The downgrades of Italy (Moody’s, Fitch) and Spain (Fitch), the dismal situation of several European banks (most prominently, Société Générale and Dexia) as well as the ongoing foot-dragging of the ECB and European politicians all add up to what I consider a pivotal moment in the short history of the euro zone. As Robert J. Shapiro, an adviser to the IMF, and Gerhard Bläske of the German financial newspaper Börsen-Zeitung (“Flächenbrand verhindern”, 06/10/2011) recently put it, the euro zone is at the risk of finally breaking apart, if no solution will be found in the nearest future. The AAA rating of France is already being reviewed by many, and it is not impossible that Germany’s rating will come under fire, too, when ever more money will be spent on bailing out European banks and sovereigns.

How did we get here? In June, I wrote in the comments to an article that Greece should be allowed to default on its debt in an orderly way or otherwise the can, which politicians and central bankers had already been kicking down the road for much too long at that time, would get heavier by the day. Well, it certainly is heavier now. I understand that the ECB wants to buy time for the government officials to find a way out of their countries’ miserable situations by purchasing ever more sovereign bonds. But that’s all it is: Buying time. It has been clear from the beginning of the debt crisis that simply pumping money into the markets would not be a solution to the problem. Unfortunately, not much has happened since then. Instead, we had to learn that the stress tests conducted to test the soundness of Europe’s banks failed: Dexia performed very well on the test, but in reality it will have to be bailed out now. As a result, France and Belgium will have to provide financial guarantees for tens of billions of euros, which comes with a risk that rating agencies will be taking into account. We will probably know more after the weekend. I am afraid, however, that too much time has gone by and that decisions will have to be made very quickly now, not leaving enough time for a thorough analysis of both the old and new problems Europe is having.

Markets await Greek Vote on Austerity Plan

As Greek unions continue their 48-hour general strike before the vote by lawmakers on the proposed five-year austerity plan on Wednesday, markets have been slightly optimistic today. Given that European stock indices are up today (with banking stocks particularly strong), Greek 10yr bond yields are at a three-week low and CDS spreads have tightened, it looks as if the market is quietly betting on Greece’s Prime Minister George Papandreou to gain lawmakers’ support in tomorrow’s vote. The decision on whether or not to pass Papandreou’s €28bn austerity measures is a crucial one that will likely have a significant impact on the financial markets, considering that a failure to pass the plan could result in the euro area’s first sovereign default. After all, Greece will only receive the fifth €12bn installment of the €110bn bailout from the EU and the IMF if its parliament will vote in favor of Papandreou’s plan. The tranche will ensure that Greece will be able to pay creditors through mid July. After that, the country will be dependent on a new EU/IMF bailout package believed to be worth €120bn that, too, is conditional on the passage of the austerity program and the laws needed for its implementation.

Meanwhile, European banks are discussing ways of contributing to this second rescue package for Greece. French institutions announced they would be willing to roll over 70% of their Greek debt maturing between 2011 and 2014. Apparently, 50% of the proceeds from those bonds would be reinvested in new 30-year bonds with the remaining 20% to be invested in zero-coupon AAA bonds with deferred interest. It is possible that the new bonds will be placed in a special purpose vehicle (SPV) backed by the European Financial Stability Facility (EFSF) so they won’t show up in the banks’ balance sheets anymore. According to Deutsche Bank’s Josef Ackermann, German banks are looking into the French model as well as other possiblities, too. Although it was Germany’s Angela Merkel who first proposed a private sector participation, again it is Nicolas Sarkozy who seems to be getting things done. Mrs Merkel continues to appear indecisive when it comes to actually closing deals instead of merely coming up with possible strategies. Anyway, France has a special interest in Greece not defaulting on its debt, because French banks have the biggest exposure to Greek debt with €65bn in liabilities. Next in line is Greece itself with around €59bn, followed by Germany (€40bn) and the UK (€19bn). The ECB remains the largest single creditor with €49bn worth of Greek bonds on its balance sheet.

The private sector’s search for a good strategy for helping with the rescue of Greece is also made difficult by the fact that rating agencies could classify such an undertaking as a default event, depending on how it were to be executed. Fitch already said it was likely that the company would cut Greece to default if the EU were to go through with its plan to have private investors roll over their Greek debt. In any case, it is very important that the Greek parliament will back its Prime Minister on Wednesday. This will send positive signals to investors worldwide. I am not sure anymore whether Greece can be saved from defaulting, though. It is important for the EU to have a strategy in place for such a scenario. An orderly default of Greece might be unavoidable in the long run if the EU’s other member states do not want to throw ever more good money after bad.

 Subscribe to this blog:

 Subscribe in a reader

or, Subscribe by Email

or, Follow me on Twitter


View Dominik Mueller's profile on LinkedIn
Follow dominikmueller on Twitter