I'm not sure there is any real point of contact between the topics covered by this post, other than the fact that both were provoked by articles in the New York Times. First up, is an article titled For Bond Investors, Ignoring Expert Advice Has Been Profitable.
The initial paragraphs point out that the experts have cautioned against investing in government bonds for years because they've been insisting that inflation is just around the corner. As the article puts it:
OVER the last three or four Januarys, the advice for investing in bonds has been remarkably consistent. It’s gone something like this: Beware of them, because inflation is going to rise, interest rates are going to spike and bond holders are going to lose enormous amounts of money.
Fans of Dean Baker and Paul Krugman knew otherwise, but then, in this country experts are people who are always wrong and never learn from their mistakes, or acknowledge them. I won't belabor the point that people who knew what they were talking about were saying years ago that high inflation was not in the cards.
But this is the part of the article that puzzled me. The article points out that U.S. borrowing costs are actually slightly higher than rates in Spain and Italy:
But seen from another angle, the interest rate the United States has to pay to borrow money for 10 years is far higher than that paid by economies that are not as solid. This shouldn’t be. Germany and France both pay less than 1 percent on their government bonds; even weak economics like Spain and Italy have been paying less to borrow money, with both under 2 percent.
“People at this point are incredibly confused,” said Heather Loomis, director of fixed income at J.P. Morgan Private Bank. “This is the point where people are at risk of throwing in the towel.”
Ms. Loomis said there were at least three reasons for this situation. First, the global recovery hasn’t been consistent. Those low European borrowing rates have pushed investors in those countries to put their money into United States Treasuries, driving down the yield.
Okay, maybe I'm missing something. I thought that the “market” was largely driven by supply and demand. If investors are unwilling to invest in Spanish and Italian bonds, shouldn't that be driving their borrowing costs higher? After all, no one is claiming they can't borrow all the money they need, so someone is lending to them at those low rates. And if those anxious investors are seeking shelter in the warm embrace of the strong dollar, shouldn't that put the U.S. government in a position to charge a premium for that safety in the form of lower interest rates? Isn't Ms. Loomis saying that investors are paying less for a higher quality product when they buy U.S. bonds? How is this consistent with our official religion of capitalism in which the market knows all and always behaves rationally?
Now, for something completely different.
The always excellent Gretchen Morgenstern tells us that the SEC is aiding and abetting yet another device to keep corporate boards safe from their shareholders. You may recall that, in theory, shareholders own the corporation, and they get to do things like vote to decide who runs the corporation, how much they get paid, and who is on the board of directors, etc. In practice, of course, corporate boards are self-perpetuating entities that are chosen to rubber stamp executive decisions and divert corporate profits and employee pay into the pockets of the top executives. The SEC, under the courageous leadership of Mary Jo White, is determined to make sure things stay that way.
It seems that some pushy stockholders at Whole Foods are asking that they be allowed to vote on a proposal by shareholder James McRitchie to enable stockholders with a 3% stake in the company to nominate candidates for directors. But the SEC says no, because the proposal would be confusing, in light of a similar proposal put forward by Whole Foods Management:
The company’s lawyers wrote to the S.E.C., asking to exclude Mr. McRitchie’s proposal from its proxy. Under S.E.C. rules, companies can exclude a shareholder proposal from their proxy filings if it “directly conflicts with one of the company’s own proposals to be submitted to shareholders at the same meeting.”
Whole Foods made this argument, saying that it planned to put its own shareholder nomination proposal on the proxy and that Mr. McRitchie’s would conflict with it. Whole Foods said that including both proposals would “create the potential for inconsistent and ambiguous results.” A spokeswoman for Whole Foods declined to comment further.
But Mr. McRitchie’s proposal posed a direct challenge to Whole Foods’ version. The ownership hurdle for an investor under Whole Foods’ planned proposal was a whopping 9 percent. Not only was that three times Mr. McRitchie’s threshold, but no outside investor holds such a stake in the company. The biggest outside shareholder owns just over 5 percent.
Note this especially: Whole Foods was merely saying that it planned to introduce a proposal. That means that any company wanting to use this dodge need not even anticipate shareholder action. All it need do is introduce a competing proposal that suits management's interests after a shareholder proposal comes in. In other words, the company can always and easily block shareholder initiatives.
As a lawyer, I must say how jealous I am of the Wall Street lawyers that represent companies like Whole Foods. Life is easy for them. Only they could expect to win on such transparent nonsense. If you tried anything similar to this on behalf of a human being, you'd be laughed out of court. But, when you own the court, everything works out so well.
Bear in mind, this is an SEC supposedly run by Democrats. Imagine what a job they'll do if Republicans take charge. Then again, it's hard to see how anyone could do worse.
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