Asset prices are high across the board. Is it time to worry?

With ultra-loose monetary policy coming to an end, it is best to tread carefull

IN HIS classic, “The Intelligent Investor”, first published in 1949, Benjamin Graham, a Wall Street sage, distilled what he called his secret of sound investment into three words: “margin of safety”. The price paid for a stock or a bond should allow for human error, bad luck or, indeed, many things going wrong at once. In a troubled world of trade tiffs and nuclear braggadocio, such advice should be especially worth heeding. Yet rarely have so many asset classes—from stocks to bonds to property to bitcoins—exhibited such a sense of invulnerability.

.. Rarely have creditors demanded so little insurance against default, even on the riskiest “junk” bonds. And rarely have property prices around the world towered so high. American house prices have bounced back since the financial crisis and are above their long-term average relative to rents.

.. If today’s asset prices have been propped up by central-bank largesse, its end could prompt a big correction. Second, signs are appearing that fund managers, desperate for higher yields, are becoming increasingly incautious. Consider, for instance, investors’ recent willingness to buy Eurobonds issued by Iraq, Ukraine and Egypt at yields of around 7%.

.. But look carefully at the broader picture, and there is some logic to the ongoing rise in asset prices. In part it is a response to an improving world economy.

.. A widespread concern is that the Fed and its peers have grossly distorted bond markets and, by extension, the price of all assets. Warren Buffett, the most famous disciple of Ben Graham, said this week that stocks would look cheap in three years’ time if interest rates were one percentage-point higher, but not if they were three percentage points higher.

.. But if interest rates and bond yields were unjustifiably low, inflation would take off—and puzzlingly it hasn’t. This suggests that factors beyond the realm of monetary policy have been a bigger cause of low long-term rates. The most important is an increase in the desire to save, as ageing populations set aside a larger share of income for retirement. Just as the supply of saving has risen, demand for it has fallen. Stagnant wages and the lower price of investment goods mean companies are flush with cash.

Jeff Sessions is in peril; so is America

What could happen if Donald Trump sacks his attorney-general

.. PERHAPS the only reason to doubt Donald Trump is contemplating sacking his attorney-general, Jeff Sessions, in order to protect himself and his associates from the counter-espionage investigation being run by Robert Mueller, is that the president has been so astonishingly upfront about it.
.. Yet Mr Trump’s history of rule-breaking suggested he was indeed weighing a measure that would pitch his scandal-plagued presidency into its biggest crisis yet.
.. it is also reasonable to assume that the president’s problem with Mr Sessions does not really concern the fact that he let the probe happen so much as that, because of his recusal, he cannot end it.
.. The president has suggested some members of the counsel’s team of a dozen top-notch investigators are “conflicted”, perhaps because of past donations to Democrats (though Mr Trump was once a donor to them too).
.. the president will understand that sacking Mr Mueller, after first sacking Mr Sessions, would spark a backlash. How seriously he is contemplating it must therefore depend on how worried he is about what Mr Mueller might find.

If Borders Were Open: The $78 Trillion Free Lunch

Yes, it would be disruptive. But the potential gains are so vast that objectors could be bribed to let it happen
.. Workers become far more productive when they move from a poor country to a rich one. Suddenly, they can join a labour market with ample capital, efficient firms and a predictable legal system. Those who used to scrape a living from the soil with a wooden hoe start driving tractors. Those who once made mud bricks by hand start working with cranes and mechanical diggers. Those who cut hair find richer clients who tip better.
.. “Labour is the world’s most valuable commodity—yet thanks to strict immigration regulation, most of it goes to waste,” argue Bryan Caplan and Vipul Naik in “A radical case for open borders”.
.. The potential gains from open borders dwarf those of, say, completely free trade, let alone foreign aid.
.. the reason why migration is so attractive is that some countries are well-run and others, abysmally so.
.. Workers in rich countries earn more than those in poor countries partly because they are better educated but mostly because they live in societies that have, over many years, developed institutions that foster prosperity and peace. It is very hard to transfer Canadian institutions to Cambodia, but quite straightforward for a Cambodian family to fly to Canada. The quickest way to eliminate absolute poverty would be to allow people to leave the places where it persists. Their poverty would thus become more visible to citizens of the rich world—who would see many more Liberians and Bangladeshis waiting tables and stacking shelves—but much less severe.
.. Gallup, a pollster, estimated in 2013 that 630m people—about 13% of the world’s population—would migrate permanently if they could, and even more would move temporarily. Some 138m would settle in the United States, 42m in Britain and 29m in Saudi Arabia.
.. migration is, in the jargon, “path-dependent”. It starts with a trickle: the first person to move from country A to country B typically arrives in a place where no one speaks his language or knows the right way to cook noodles. But the second migrant—who may be his brother or cousin—has someone to show him around.
.. When the 1,000th migrant arrives, he finds a whole neighbourhood of his compatriots.
.. in America the foreign-born are only a fifth as likely to be incarcerated as the native-born. In some European countries, such as Sweden, migrants are more likely to get into trouble than locals, but this is mostly because they are more likely to be young and male.
.. Immigrants are more likely than the native-born to bring new ideas and start their own businesses, many of which hire locals. Overall, migrants are less likely than the native-born to be a drain on public finances, unless local laws make it impossible for them to work
.. A large influx of foreign workers may slightly depress the wages of locals with similar skills. But most immigrants have different skills. Foreign doctors and engineers ease skills shortages. Unskilled migrants care for babies or the elderly, thus freeing the native-born to do more lucrative work.
.. mass migration would make the world as a whole less crowded, since fertility among migrants quickly plunges until it is much closer to the norm of their host country than their country of origin.
.. If the worry is that future migrants might not pay their way, why not charge them more for visas, or make them pay extra taxes, or restrict their access to welfare benefits? Such levies could also be used to regulate the flow of migrants, thus avoiding big, sudden surges.

This sounds horribly discriminatory, and it is. But it is better for the migrants than the status quo, in which they are excluded from rich-world labour markets unless they pay tens of thousands of dollars to people-smugglers—and even then they must work in the shadows and are subject to sudden deportation.

Economist: Trump: Will the West Survive

In Warsaw, America’s president barely mentions democracy

 Earlier American administrations defined “the West” with reference to values such as democracy, liberty and respect for human rights. Mr Trump and many of his advisers, including the speech’s authors, Stephen Bannon and Stephen Miller, apparently see it as rooted in ethnicity, culture and religion.
.. When George W. Bush visited Poland for his first presidential visit, in 2001, he referred to democracy 13 times. When Barack Obama spoke in Warsaw in 2014, he mentioned democracy nine times. For Mr Trump, once sufficed.
.. Mr Trump invoked the “blood of patriots”, and the ties of family and God. The rhetoric sounded strikingly similar to that used by the nationalist Law and Justice (PiS) party that governs Poland, and its leader, Jaroslaw Kaczynski.
..The crowd hurled insults at opposition politicians, booing when Lech Walesa, the anti-communist hero and a critic of the current government, left the square.
.. According to polling by Pew, just 23% have confidence in America’s president to do the right thing, down from 58% under Mr Obama.
.. At a news conference, he insisted that no one knows for sure whether Russia interfered with America’s presidential election (contradicting the conclusions of his own intelligence agencies).
.. Still, Mr Trump did unambiguously endorse NATO’s Article 5
.. But the greatest reason for Poland’s government to be delighted with Mr Trump was what he did not mention: PiS’s undermining of democratic institutions to entrench its own power. The party has stuffed the civil service and the diplomatic corps with loyalists and has weakened the independence of the judiciary. It has transformed the national broadcaster into a mouthpiece of the state. Independent journalists face new restrictions. The European Commission has warned the government that its reforms pose “a systemic risk to the rule of law.”