Archive | February, 2013

Real returns and market timing

20 Feb

No rest wicked“No rest for the wicked”, as my (Catholic) grandfather used to say – or as the latest evidence from the famous LBS stable of Elroy Dimson, Paul Marsh & Mike Staunton shows, no rest for those trying to earn a “decent” (5% real?) return from their savings. They foresee a world of virtually zero real rates on “safe” bonds and an equity risk premium of 3 to 3.5% on a “long” (20-30 year) view. This is all set out with impressive academic rigour in the excellent (and free, as far as I can see) Credit Suisse Global Investment Returns Yearbook for 2013 (

They also pretty effectively dish “market timing” strategies in favour of buy and hold – for those of you with access to the FT, there is an excellent video of an interview with Elroy by John Authers which is also a must see.

The only saving grace I can see in this is that we should, on this basis, expect a boom in capital investment, especially in long-lived capital investment projects, which should now require lower real returns. So now should be the time for new water ring mains, Crossrail Mark 2, third London Airport et al. The trouble is, I cannot see our crotchety Coalition government and rather antique planning laws delivering on this in the foreseeable future.

Banking reform – Southwold shows the way!

19 Feb

Whack a banker v2

I see the FT on Monday morning was announcing that Britain had been “outgunned” on EU bank curbs – a proposal from the European Parliament to limit bankers’ bonuses to twice base salaries looked likely to go through. However, a visit to Southwold Pier on the east coast of England at the weekend showed an alternative approach to the banking crisis – one that so far seems to have escaped the notice of the Basel Committee, the EU, the Obama administration, and the Financial Stability Board.

The picture gives a clue – it’s simply a “whack the banker” pier game, where, putting your 40p in the slot, you get the pleasure of whacking bankers for 60 seconds, with an accompanying audio commentary about your role as a taxpayer in funding their pensions and bonuses.

Of course, this may be dangerous territory for Southwold, as one suspects that some of the mouth-watering property prices in the vicinity may owe just a tad to – yes, you’ve guessed it, bank bonuses!

Obama & Stiglitz on inequality and the power of the state

11 Feb

I first saw clips of Obama’s second inaugural speech (see on newsroom reports – and was so encouraged by the clips that I thought I should listen to the whole twenty minutes. It doesn’t disappoint.

In parallel with this I’ve been reading Stiglitz’ book on Inequality. He documents clearly the rising levels of inequality in income & wealth in the US since the Reagan years. While not all of this increase has been driven by policy (globalisation has played a major part), there is no doubt that the favourable treatment of non-labour income is a a major culprit.

How do these inequalities stand up against the Declaration of Independence’ “self evident” truth that all men are created equal?  Obama is clear: “..while these truths may be self-evident, they have never been self-executing; .. the patriots of 1776 did not fight to replace the tyranny of a king with the privileges of a few or the rule of a mob. They gave to us a Republic, a government of, and by, and for the people, entrusting each generation to keep safe our founding creed.”

He goes on “ But we have always understood that when times change, so must we; that fidelity to our founding principles requires new responses to new challenges; that preserving our individual freedoms ultimately requires collective action.”

The collective action he envisages turns on using the power of the state to provide (cost effective) safety nets, education and opportunity – “we must harness new ideas and technology to remake our government, revamp our tax code, reform our schools, and empower our citizens with the skills they need to work harder, learn more, and reach higher”.

And it isn’t all “socialism” – there are references to initiative and enterprise, hard work and personal responsibility, and America’s prosperity “resting upon the broad shoulders of a rising middle class”.

Stiglitz may have done the analysis – but it will take all of Obama’s campaigning skills to do something about it.