Two Billion Dollars

June 1, 2014

Weekly Market Outlook

By Keith Schneider


outlook20140602Newly retired former CEO of Microsoft Steve Ballmer agreed to purchase the LA Clippers for a measly $2.35 billion dollars, arguably one of the worst performing NBA basketball teams, historically speaking. However, the team has improved recently and home games have been sold out. This multi –billion dollar bid is several multiples of the team’s tangible net worth.  It was clearly not bought as an investment, as any basic calculator would have blown it chipset trying to determine the negative rate of return.  Ballmer’s’ net worth is estimated to be t $23.5, so the purchase price is just 10% of his net worth. There is no telling these days what a trophy or toy is worth to the right buyer.

Also making the news is that the US Government is seeking $10 billion in fines from French bank BNP for doing business with Iran and Sudan. Both countries had been de-friended on Facebook (Sponsors of State Terrorism) by the US State department, which all banks including BNP was supposed to do in kind, but neglected to do so.  Hence the $10 billion slap on the wrist.  If the fine sticks, the once mighty bank might not have enough reserve capital to meet the new banking requirements known as Tier 1 capital. If they do not come up with the fine they could lose their license to do business here in the US, which is not a good thing.

The takeaway is that when a single Individual can over pay a billion or more for trophy, while a fine to a large bank can run into multi -billions, the world is awash with so much liquidity it’s not surprising to see the consequences.  The recent run-up in sovereign junk debt continues unabated.

Meanwhile, US Equity Markets have hit new all-time highs as bond yields dropped to their lowest levels in over a year. All this in the face of negative GDP growth just demonstrates excess liquidity. Gold and Silver dropped and are looking to test recent lows after looking like they were in the mend earlier this year, which might be the only thing really making sense ……slow to negative growth and low inflation which should result in lower prices for precious metals.

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