American stock markets have been disconnected from events for too long and a reckoning, which may come soon, is likely to burn those ordinary investors simply trying to grow their nest eggs.
It is a dangerous time. Despite the volatile and uncertain environment, US stock market indexes continued to climb following a short and sharp blip in February. After that, shares had their best period in more than 20 years in the second quarter.
Money is pouring into growth stocks like the big technology companies, a New York hedge fund owner told me, with little going the way of the "old economy". The millions of people in the US using the Robinhood app to invest for the first time in shares have also skewed the market.
All of this is related to the actions of the Federal Reserve, the central bank of the US, which has since March pumped trillions of dollars into securities to ensure that borrowing rates remain low and that there is enough liquidity in the financial system to give confidence to businesses and people to keep spending.
It seems, however, as if the rally has finally lost some momentum as the coronavirus pandemic has been gathering steam in the US with a spike in new infections. According to some opinion polls, Americans' confidence in the government's ability to handle the crisis - in areas such as getting children back to school - and the Fed's ability to handle the economy is weakening. The price of gold is up nearly 30 per cent this year, hitting another record this week. An investor friend of mine explained to me that this can be viewed as a sign of waning confidence in governments.
Still, a reckoning has been coming for some time, even before the coronavirus hit.
Under Jerome Powell, the Federal Reserve has pumped trillions of dollars into securities to ensure that borrowing rates remain low. Reuters
Nearly a year ago, Michael Burry, who made a fortune predicting the last financial crisis, as depicted in the film The Big Short, warned that the $4 trillion or so of passive money tracking American stock markets was creating a new bubble. The principles behind passive investing – which are sensible – are that over a long period of time you will get better returns by tracking an index, or an entire sector, rather than by trying to pick individual stocks. This strategy tries to account for the boom and bust cycle of markets.
But Mr Burry said in August 2019 that those people investing in tracker funds were not doing so based on the kind of "analysis that is required for true price discovery”; such analysis is based on using the future cash flow or current assets of a company to place a value on it.
Mr Burry warned that this was no longer happening and, as a result, huge amounts of money have been flowing into funds in an unsustainable manner, echoing what happened more than a decade ago when very risky assets became outlandishly popular with investors who didn't fully understand them.
When it came to light that they weren’t worth anywhere near the levels they had reached, it was a swift and brutal ride to the bottom for anyone holding the securities these assets were backing. Confidence evaporated.
Nearly a year ago, Michael Burry warned that the $4 trillion or so of passive money tracking US stock markets was creating a new bubble. AFP
Michael Burry has warned that huge amounts of money have been flowing into funds in an unsustainable manner, echoing what happened more than a decade ago
Today, the investors who use these low-cost and highly efficient passive strategies now make up nearly half of the money in US stocks and have become a risk to the system in recent years.
Yet the concern right now isn't just about how passive investors might impact markets. The broader worry is why American stocks remain attractive during the worst crisis in a century. It is frightening to consider that so much money is being put at risk like this when it is so obvious that there is a disconnect.
Yet, we are even more in the dark about what the true value of financial assets should be in July 2020 than we even were in 2008. The risk profile of US stocks cannot be accurately measured. There are too many unknowns about how the pandemic will unfold and what the actual impact will be on businesses and economies. What the share price of a company should be right now will be not much more than a guess. There should be a deep discount on share prices, not a premium.
At some point, investors will realise that current valuations do not match reality and the race for the exit will be far uglier than what we saw in the last financial crisis.
That awakening could come very soon too, with earnings season under way. We will gain some much-needed clarity about the scale of the damage that was wrought by the coronavirus on corporations in April, May and June, as well as receive some guidance about what the rest of the year could look like.
Confidence is a fragile thing. Once it is lost, getting it back is expensive and time-consuming.
The experience since the last financial crisis a decade ago is ample evidence of that, with central banks around the world unable to wind down their support without severe consequences.
Perhaps that is what many investors currently believe too, that they can always rely on the backing of the US government, no matter the events playing out on the ground, to keep stock markets chugging along.
Yet can the Fed step up its support from these already heady levels if there is another market crash? How long can it continue to pour trillions of dollars into the system after having done so for much of the past decade?
Even if it can meet such expectations, it might be too late by then for badly wounded investors.
Mustafa Alrawi is an assistant editor-in-chief at The National
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What the law says
Micro-retirement is not a recognised concept or employment status under Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations (as amended) (UAE Labour Law). As such, it reflects a voluntary work-life balance practice, rather than a recognised legal employment category, according to Dilini Loku, senior associate for law firm Gateley Middle East.
“Some companies may offer formal sabbatical policies or career break programmes; however, beyond such arrangements, there is no automatic right or statutory entitlement to extended breaks,” she explains.
“Any leave taken beyond statutory entitlements, such as annual leave, is typically regarded as unpaid leave in accordance with Article 33 of the UAE Labour Law. While employees may legally take unpaid leave, such requests are subject to the employer’s discretion and require approval.”
If an employee resigns to pursue micro-retirement, the employment contract is terminated, and the employer is under no legal obligation to rehire the employee in the future unless specific contractual agreements are in place (such as return-to-work arrangements), which are generally uncommon, Ms Loku adds.
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
All matches in Bulawayo Friday, Sept 26 – First ODI Sunday, Sept 28 – Second ODI Tuesday, Sept 30 – Third ODI Thursday, Oct 2 – Fourth ODI Sunday, Oct 5 – First T20I Monday, Oct 6 – Second T20I
Brolliology: A History of the Umbrella in Life and Literature
By Marion Rankine
Melville House
Groom and Two Brides
Director: Elie Semaan
Starring: Abdullah Boushehri, Laila Abdallah, Lulwa Almulla
Rating: 3/5
Day 5, Abu Dhabi Test: At a glance
Moment of the day When Dilruwan Perera dismissed Yasir Shah to end Pakistan’s limp resistance, the Sri Lankans charged around the field with the fevered delirium of a side not used to winning. Trouble was, they had not. The delivery was deemed a no ball. Sri Lanka had a nervy wait, but it was merely a stay of execution for the beleaguered hosts.
Stat of the day – 5 Pakistan have lost all 10 wickets on the fifth day of a Test five times since the start of 2016. It is an alarming departure for a side who had apparently erased regular collapses from their resume. “The only thing I can say, it’s not a mitigating excuse at all, but that’s a young batting line up, obviously trying to find their way,” said Mickey Arthur, Pakistan’s coach.
The verdict Test matches in the UAE are known for speeding up on the last two days, but this was extreme. The first two innings of this Test took 11 sessions to complete. The remaining two were done in less than four. The nature of Pakistan’s capitulation at the end showed just how difficult the transition is going to be in the post Misbah-ul-Haq era.
Why does a queen bee feast only on royal jelly?
Some facts about bees:
The queen bee eats only royal jelly, an extraordinary food created by worker bees so she lives much longer
The life cycle of a worker bee is from 40-60 days
A queen bee lives for 3-5 years
This allows her to lay millions of eggs and allows the continuity of the bee colony
About 20,000 honey bees and one queen populate each hive
Honey is packed with vital vitamins, minerals, enzymes, water and anti-oxidants.
Apart from honey, five other products are royal jelly, the special food bees feed their queen
Pollen is their protein source, a super food that is nutritious, rich in amino acids
Beewax is used to construct the combs. Due to its anti-fungal, anti-bacterial elements, it is used in skin treatments
Propolis, a resin-like material produced by bees is used to make hives. It has natural antibiotic qualities so works to sterilize hive, protects from disease, keeps their home free from germs. Also used to treat sores, infection, warts
Bee venom is used by bees to protect themselves. Has anti-inflammatory properties, sometimes used to relieve conditions such as rheumatoid arthritis, nerve and muscle pain
Honey, royal jelly, pollen have health enhancing qualities
The other three products are used for therapeutic purposes
Is beekeeping dangerous?
As long as you deal with bees gently, you will be safe, says Mohammed Al Najeh, who has worked with bees since he was a boy.
“The biggest mistake people make is they panic when they see a bee. They are small but smart creatures. If you move your hand quickly to hit the bees, this is an aggressive action and bees will defend themselves. They can sense the adrenalin in our body. But if we are calm, they are move away.”
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
CHELSEA'S NEXT FIVE GAMES
Mar 10: Norwich(A)
Mar 13: Newcastle(H)
Mar 16: Lille(A)
Mar 19: Middlesbrough(A)
Apr 2: Brentford(H)
The candidates
Dr Ayham Ammora, scientist and business executive
Ali Azeem, business leader
Tony Booth, professor of education
Lord Browne, former BP chief executive
Dr Mohamed El-Erian, economist
Professor Wyn Evans, astrophysicist
Dr Mark Mann, scientist
Gina MIller, anti-Brexit campaigner
Lord Smith, former Cabinet minister
Sandi Toksvig, broadcaster
Quick pearls of wisdom
Focus on gratitude: And do so deeply, he says. “Think of one to three things a day that you’re grateful for. It needs to be specific, too, don’t just say ‘air.’ Really think about it. If you’re grateful for, say, what your parents have done for you, that will motivate you to do more for the world.”
Know how to fight: Shetty married his wife, Radhi, three years ago (he met her in a meditation class before he went off and became a monk). He says they’ve had to learn to respect each other’s “fighting styles” – he’s a talk it-out-immediately person, while she needs space to think. “When you’re having an argument, remember, it’s not you against each other. It’s both of you against the problem. When you win, they lose. If you’re on a team you have to win together.”
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