Category Archives: market concentration

13/7/19: Mapping the declines in jobs creation


Increasing market power concentration, falling entrepreneurship, rising concentration amongst the start ups, unicorns and billions in investment, the markets have been rewarding larger companies at the expense of the smaller and medium enterprises for years. And this has had a problematic impact on human capital and jobs creation.

Here is the data on the levels of employment in medium-large companies over the years, based on the U.S. markets data:


In simple terms, per each dollar of investors' money, today's companies are creating fewer jobs - a trend that was present since at least 2000, and consistent with the onset of the Goldilocks Economy. But the most pronounced collapse in jobs creation from investment has been since 2017. Excluding recessionary periods, in 2002-2006 average annual decline in the number of employees per $1 billion in market valuation was 3.45%. Over 2009-2013 this number rose to 4.73% and in 2014-2019 the rate of decrease averaged 8.05% per annum.

7/7/19: Investment for growth is at record lows for S&P500


Interesting chart via @DavidSchawel showing changes over time in corporate (S&P500 companies) distribution of earnings:

In simple terms:

  1. Much discussed shares buybacks are still the rage: running at 31% of all cash distributions, second highest level after 34% in 2007. On a cumulated basis, and taking into the account already reduced free float in S&P 500 over the years, this is a massive level of buybacks.
  2. 'Investment for growth' - as defined - is at 51% - the lowest on record.
  3. Meaningful investment for growth (often opportunistic M&As) is at 38%, tied for the lowest with 2007 figure.
S&P 500 firms are clearly not in investment mode. Despite 'Trump incentives' - under the TCJA 2017 tax cuts act - actual capex is running tied to the second lowest levels for 2018 and 2019, at 26% of all cash distributions.

25/2/19: Europe’s TBTF Banks are only Bigger-to-Fail…


Since the start of the Global Financial Crisis (GFC) and through subsequent Euro area crises, the EU frameworks for reforming financial services have invariably been anchored to the need for reducing the extent of systemic risks in European banking. While it is patently clear that Euro area's participation in the GFC has been based on the same meme of 'too big to fail' TBTF banks creating a toxic contagion channel from banks balance sheets to the real economy and the sovereigns, what has been less discussed in the context of the subsequent reforms is the degree of competition within European banking sector. So much so, that the Euro area statistical boffins even stopped reporting banking sector concentration indices for the entire Euro area (although they did continue reporting the same for individual member states).

Chart below plots weighted average Herfindahl Index for the EA12 original Euro area states, with each country nominal GDP being used as a weight.


The picture presents a dire state of the Euro area reforms aimed at derisking the bank channel within the Eurozone's capital markets:

  • In terms of total assets, concentration of market power within the hands of larger TBFT banks has stayed virtually unchanged across the EA12 between 2009 and 2017. Herfindahl Index for total assets was 0.3249 in 2009 and it is was at 0.3239 in 2017. Statistically-speaking, there has been no meaningful changes in assets concentration in TBTF banks across the EA12 since 2003. 
  • In terms of total credit issued within the EA12, Herfindahl Index shows a rather pronounced trend up. In 2010 (the first year for which consistent data is provided), Herfindahl Index for total credit shows 0.0602 reading, which rose to 0.0662 in 2017.
Put simply, TBTF banks are getting ever bigger. With them, the risks of contagion from the banking sector to the real economy and the sovereigns remain unabated, no matter how many 'green papers' on reforms the EU issues, and no matter how many systemic risk agencies Brussels creates.

25/2/19: Europe’s TBTF Banks are only Bigger-to-Fail…


Since the start of the Global Financial Crisis (GFC) and through subsequent Euro area crises, the EU frameworks for reforming financial services have invariably been anchored to the need for reducing the extent of systemic risks in European banking. While it is patently clear that Euro area's participation in the GFC has been based on the same meme of 'too big to fail' TBTF banks creating a toxic contagion channel from banks balance sheets to the real economy and the sovereigns, what has been less discussed in the context of the subsequent reforms is the degree of competition within European banking sector. So much so, that the Euro area statistical boffins even stopped reporting banking sector concentration indices for the entire Euro area (although they did continue reporting the same for individual member states).

Chart below plots weighted average Herfindahl Index for the EA12 original Euro area states, with each country nominal GDP being used as a weight.


The picture presents a dire state of the Euro area reforms aimed at derisking the bank channel within the Eurozone's capital markets:

  • In terms of total assets, concentration of market power within the hands of larger TBFT banks has stayed virtually unchanged across the EA12 between 2009 and 2017. Herfindahl Index for total assets was 0.3249 in 2009 and it is was at 0.3239 in 2017. Statistically-speaking, there has been no meaningful changes in assets concentration in TBTF banks across the EA12 since 2003. 
  • In terms of total credit issued within the EA12, Herfindahl Index shows a rather pronounced trend up. In 2010 (the first year for which consistent data is provided), Herfindahl Index for total credit shows 0.0602 reading, which rose to 0.0662 in 2017.
Put simply, TBTF banks are getting ever bigger. With them, the risks of contagion from the banking sector to the real economy and the sovereigns remain unabated, no matter how many 'green papers' on reforms the EU issues, and no matter how many systemic risk agencies Brussels creates.