Video: whilst the market gets excited about unemployment falling to 6.5%, the Fed’s attention is turning to falling inflation

Posted on 17 June 2013 by Jim Leaviss

I spent a couple of days in New York last week seeing economists and academics. The US Treasury market had just seen a significant sell-off, with 10 year yields rising from 1.63% at the start of May, to over 2.2%, with much of the damage done by Bernanke’s surprise talk of QE tapering during the Q&A following his address to Congress’s Joint Economic Committee. US 30 year mortgage rates sold off in parallel, and are now around 4%, potentially damaging the housing recovery.

I came away with two main conclusions. Firstly, given the stuttering nature of the US growth recovery (and the second half of this year could be mediocre, thanks to some back-loading of fiscal cliff tightening) the case for a slowing of QE in the next few months is not at all strong. Economists point out that Bernanke’s prepared testimony to the JEC was very dovish and in no way suggested that tapering might happen this year. His Q&A response appears to have been a communication error, as evidenced by some rolling back over the last couple of days via well connected journalist Jon Hilsenrath in the Wall Street Journal. And secondly, whilst we all focus on the jobs data in the States and try to forecast the timing of hitting the 6.5% unemployment rate threshold, we might be taking our eyes off the Fed’s other concern, inflation. Having spiked higher in 2011/2012, thanks largely to higher commodity prices (cotton, oil), core inflation measures, and particularly the Fed’s preferred Core PCE Deflator statistic, are falling to around 1%. Wage growth is also weak. With inflation 1% below the target level, a Taylor Rule approach would see the Fed easing interest rates by 1.5%, not hiking or withdrawing monetary stimulus! And with rates at the zero bound and a cut impossible, unconventional monetary policy would have to take the strain. More, not less, QE might be more likely than any tapering.

Five reasons why Mark Carney might be short of options when he becomes BoE Governor in July

Posted on 2 May 2013 by Jim Leaviss

Mark Carney, currently Canadian central bank governor, will become the Governor of the Bank of England at the start of July. Handpicked from outside of the official application process by Chancellor George Osborne, he comes with high expectations about what he can do to get the UK economy out of a downturn arguably more severe in GDP terms than was seen during the Great Depression (or The Slump as it was known here). This now famous chart from the NIESR shows the extent of the underperformance of the economy relative to past recessions.

Carney’s stock is high – whilst the UK and the Eurozone remain in, or around, recessions, Canadian GDP is growing at 1.7% year on year, and its growth has outperformed the US economy both during and post the financial crisis. Inflation in Canada has averaged 1.8% over the past 6 years, compared with 3.1% CPI in the UK – perhaps the real blemish on inflation puritan Mervyn King’s legacy.

With Osborne having ruled out fiscal policy as a tool to get the UK out of its current Slump, our hopes now rest on either a significant and speedy recovery of our biggest trading partner, the Eurozone economy (and that looks to be going in the wrong direction), or monetary policy. In other words do the government’s hopes all rest on Carney doing something new and different, or massively increasing the scale of what the Bank of England has done before? If so we might all be disappointed. Here are five reasons why Mark Carney’s degrees of freedom might be fewer than he, and we, had hoped…

1 You can’t cut bank rate in the UK because you hit the building societies.
Easy right, you fly over, cut rates and give a small but welcome boost to the economy. But bank rate has been stuck at 0.5% since early 2009, through double dip recessions and increases in Quantitative Easing. There is clearly scope to cut towards zero (like the Fed) and this would clearly have some benefit to consumers and companies who have mortgages and loans linked to base rate, or Libor. But the Bank has repeatedly rejected calls to cut from here – not because those benefits might be modest (although that was a line at one point) but because the building societies might well become loss making if further cuts were made. And we need our building societies – as banks’ appetite to lend has fallen, the societies now provide 22% of gross mortgage lending compared with 13% in 2009. Why do the societies get hit disproportionately by lower bank rate? The first problem is the amount of tracker mortgages that they sold historically, where homeowners pay interest explicitly based on a bank rate plus (and in some cases MINUS) basis, so revenues fall as rates fall. And at the same time the societies have very little share of the current account market, so to fund mortgage lending they rely on having market leading savings rates to raise deposits. In recent years much of this has been done on a fixed rate basis. The chart below shows that net interest income as a percentage of assets has been falling steadily as bank rate fell from 5.5% to 0.5% over that period. Once costs are taken out (the “net of costs” margin is shown in blue) there is little room for revenues to fall before the sector becomes loss making. As for negative bank rate (mentioned by Paul Tucker as being “unlikely…but we should think about all sorts of things”), that would be even more harmful.

2 You can’t target a weaker £ because the impact on consumption is higher than the boost to manufacturing.
A competitive devaluation of the pound would lead to a windfall for our manufacturing economy as exports become cheaper. Contrary to urban myth and legend, we do make stuff (manufacturing is 12% of the economy and the UK is good at making cars, jet engines, chemicals and military hardware). Carney could use Open Mouth Policy to talk down our Winston Churchill branded currency (slogan “I have nothing to offer but blood, toil, tears and sweat”), or failing that intervene by printing pounds and selling them to buy foreign currencies. We could even end up with our own Sovereign Wealth Fund! Again there is a “but”. It feels like the Bank of England already tried this, and realised that it wasn’t going to work – trade weighted Sterling fell by 7% in January and February this year before Mervyn King stated that “we’re certainly not looking to push sterling down…we’re moving to a properly valued exchange rate. I think we’re probably there”. The problem is that whilst manufacturing is important, consumption is much more so. Morgan Stanley research shows that contrary to popular opinion, UK manufacturing barely benefits from declines in the pound. And rising import prices as a result of a weaker pound mean that inflation rises, which means that real incomes fall, which means that consumption falls. And as the consumption impact is greater than the manufacturing boost impact (negligible), the impact of a weaker pound on the UK economy is negative.

3 You may be the boss, but the only power is in voting last and thus having a deciding vote.
And right now 6 out of the 9 MPC members don’t want to do more monetary stimulus. You could be in the minority forever, although a prudent Governor probably realises that this kind of split might be damaging for perceptions of stability – not what you want when foreigners are net buyers of on average £6 billion gilts every month. The Canadian monetary policy framework is based on “consensus” rather than voting – my gut feel is that this delivers more power to senior Council members in comparison to a straight vote.

4 If there was a chance to review the Bank of England’s remit from the government to make it significantly more pro-growth, it may have gone.
In the March Budget, George Osborne set out a new remit: “the new remit explicitly tasks the MPC with setting out clearly the trade-offs it has made in deciding how long it will be before inflation returns to target”. He is also changing the timing of the exchange of letters between Chancellor and Governor when the inflation target is breached. And he asked the Bank to review its communications policy (it “may wish” to provide forward guidance). But Osborne didn’t wait for Carney to arrive before changing the remit and given the market’s expectations of a much more pro-growth Governor arriving (helped by Carney’s Nominal GDP speech to the CFA Society of Canada in December), these remit changes feel modest. Perhaps the only hope for a more radical Bank comes with that potential change in communications strategy – does that open the way for statements linking future rate hikes to sustained GDP growth rather than just inflation changes?

5 And finally, the UK is not Canada.
Our banks are broken (Canada didn’t even have an official bailout during the credit crisis, although some speculate there was significant support through the state mortgage agency the CMHA). Our biggest trading partner is broken (Canada’s biggest export market is the US, which is far stronger than the Eurozone). Our natural resources are in decline (North Sea oil is producing 1.5 million barrels per day compared with 4.5 million in 1999; Canada is the world’s largest uranium and hydro-electricity producer, and the world’s fifth largest energy producer in total). And most importantly Canada had its fiscal crisis in the 1990s. S&P cut it from AAA to AA+ in 1992 triggering a consensus amongst politicians to reduce the national debt burden. Debt/GDP peaked in 1996 at around 70%, and by 2002 Canada was AAA/Aaa again. The UK is in a very different economic position, and one with substantially greater fiscal headwinds than those experienced by Mark Carney during his time in charge of Canada’s central bank.

But it’s not all bad news. Although there are clear limits to what Mark Carney will be able to do, he might have luck on his side when it comes to timing. To quote Deputy Governor Paul Tucker, who spoke last night, “looking over the past year (the UK economy is) perhaps not as bad as the headline figures suggest…I think there’s a long way to go but there’s certainly reason for hope”.

Bond book competition winners: the UK Exchequer 12% 2017-13 is the highest coupon gilt still outstanding

Posted on 22 March 2013 by Jim Leaviss

Still outstanding, but probably not for long. Although this gilt has a maturity date on 12th December 2017, there is a call option for the government at par (100) on 12th December this year (hence the 2017-13 date), and given the current price of the bond is well above par (108-ish) it will get redeemed, unless they forget. This is what’s known as a “rump” stock. Although it was once a £1 billion issue, most has been bought back over the years by the Bank of England or Debt Management Office, so there’s only £14.5 million left in the wild.

This gilt issue was announced in June 1978, when Rivers of Babylon by Boney M was number one in the UK music charts, and, most importantly Nottingham Forest FC had just won the football league. Forest would go on to win the European Cup two years in a row. And it was a proper competition in those days, not a stupid league like today. Shilton, Anderson, Burns, Lloyd, Clark, McGovern, Needham, O’Neill, Bowyer, Robertson, Birtles. And Clough and Taylor. You can read a bit more about this great team here.

Inflation in 1978 was 8.4%, so 12% was a nice real yield, although inflation had averaged 15.8% over the past 5 years, so it wasn’t a no-brainer. In fact your real return from gilts in 1978 was -20%, and -22.6% in 1979. Ouch. It wasn’t until 1982 that there was a positive real return, a lovely 29.2%. The interesting feature about gilts at the time was that they were issued partly paid, with 15% of the purchase price payable on the 15th June, 30% on 27th June and the rest on 14th July. We’re not really sure what the point of this was? To allow gilt investors to gear? To manage money market flows? Any veterans care to let us know?

Anyway the 20 tweeters who came up with the correct answer were:

@RobinNGhosh
@RichardPhilbin
@peds52
@Invest_Advisory
@Yogi_Chan
@byronburghart
@JeremyBeckwith1
@SeanGConnery
@m1kee123
@Partegas
@adamgrimsley
@DanBland
@Dario_Gainnini
@krista_andria
@hellocanuhearme
@amirriz 1
@EdBagenal
@HarpRob
@ssaxim
@NickRilley

Please DM us with your address so we can send you a copy of Mark Glowrey’s The Sterling Bonds and Fixed Income Handbook. Thanks for all of your entries.

Competition: win one of 20 copies of The Sterling Bonds and Fixed Income Handbook

Posted on 15 March 2013 by Jim Leaviss

Mark Glowrey has written an excellent guide to the UK’s bond markets, covering everything from gilts, linkers, corporate bonds and high yield, to dealing, settlement, tax and covenants. There’s also some great bond market history and anecdote – I like the story of the two brothers who worked as bond brokers at the London Stock Exchange. Both had been awarded the Military Cross in World War 2, but the second brother had been awarded the Military Cross and bar. The nickname of the first brother was “The Coward”.

We have 20 copies of the book to give away. You can win one by tweeting us (we’re @bondvigilantes) the answer to this question. Add the hashtag #BVbook to help us find your entry in our inbox please.

What’s the highest coupon currently available on a UK gilt?

See here for terms and conditions. Tweet us your entries by midday on Friday 22nd March. The 20 winners will be contacted shortly afterwards.

Conference Call replay link: the UK’s AAA White Elephant – thank goodness it’s gone, now we can try to grow again.

Posted on 25 February 2013 by Jim Leaviss

In old Siam (now Thailand), kings would ruin unliked courtiers by presenting them with a white elephant – supposedly a badge of honour, but actually a dung producing money-pit. As Wikipedia describes it, nowadays a white elephant is an idiom for “a valuable but burdensome possession of which its owner cannot dispose and whose cost (particularly cost of upkeep) is out of proportion to its usefulness or worth”. The AAA credit rating that Moody’s gave to the UK was one such white elephant. A nice trophy to have, but one where the government believed that costs of upkeep included extreme austerity, now and into the future. The good news is that Moody’s has downgraded the UK, and best of all, has done so ahead of the Budget in March. The white elephant is dead, and now George Osborne can do a bit of fiscal stimulus – housing and infrastructure spending have huge positive growth multipliers, and can be justified easily, especially whilst gilt yields are so low. And if all else fails, we can always “QE” the yields lower still…

In this conference call from this morning, I look at the downgrade, the UK fiscal outlook, and the implications for the markets. The link below takes you to the slide deck and the audio.

http://www.iviewtv.com/teleconference/uk-downgrade-reaction/

Should Eurozone governments use their gold reserves to lower their borrowing costs?

Posted on 11 February 2013 by Jim Leaviss

Last week we had Marcus Grubb of the World Gold Council come in to talk through the idea that Eurozone countries with high debt burdens and unsustainably high bond yields should unlock the value of their otherwise yieldless gold reserves by using it as collateral, and thereby borrow cheaply for at least that portion of their financing needs. The chart below shows that Germany (obviously one of the lowest yielding European members but here for interest), Italy, France and (to a much lesser extent) Spain have substantial gold reserves that could be used to collateralise European bond issuance.

When we show gold holdings against outstanding levels of government debt we see that Germany has the equivalent of 12% of its debt in gold reserves (and incidentally as has been widely reported is repatriating 674 tonnes of its gold held by at the Banque de France and the New York Fed back to Frankfurt following a public campaign). For Spain though it’s under 2%. For France and Italy around 6-7%.

I think we can agree that issuing a bond backed by gold reserves would lead to lower borrowing costs – BUT only on that portion of the debt. This would effectively subordinate the pre-existing debt, and any future unbacked bonds. If the existing debt is effectively backed by the assets and tax gathering capabilities of the state, then to remove the gold reserves from these assets is reducing the creditworthiness of the outstanding bonds. Their yields should adjust upwards as a result. This is a bit like a bank subordinating senior bond investors by pledging its best mortgage assets to a covered bond programme – the covered bonds may be AAA rated, but the existing senior and sub bonds are jammed down the structure.Therefore, pledging gold assets as collateral might even lead to a ratings agency downgrade for some Eurozone countries – Italy is rated BBB at the moment, so could get downgraded to junk status if it pledges too many assets to a different bond programme. An unintended consequence. Nevertheless, there might be a combination of much lower gold backed bond yields (which might trade as AAA rated?) and higher existing bond yields that delivers an overall lower funding cost.

But how much scope would you have to issue this gold backed debt? To act as proper AAA collateral, the value of the gold asset at the maturity of the bond should be expected to cover the redemption amount, with a degree of over-collateralisation to cope with volatility in the price. You can see from the chart below though that in the past ten years the price of gold has been roughly between $400 and $1800 per ounce. If you took that as a possible range (and you might want it to be wider still), then what you see today as Euro 342 billion of gold reserves might only be able to collateralise Euro 76 billion of gold bonds – almost too small to be significant? At a lower confidence limit for the volatility of the gold you would be able to issue more bonds, but at higher yields.

What other objections might you have against the concept? Well does it seem a little desperate? Unconventional funding methods imply that all is not well (one of the reasons why under Paul Tucker, the Bank of England’s debt issuance department – before that responsibility went to the DMO – made great steps to modernise the gilt market, doing away with gilts with embedded optionality and quirks, and producing a transparent auction calendar). I think you’d want to get a highly rated issuer like Germany to issue a gold backed bond first, to establish a precedent, before the countries that might actually need to borrow like this did so. Secondly, since Draghi’s “whatever it takes” speech, yields for Italy have fallen from 6% to 4.5% at 10 years, and in Spain from 7% to 5.5% – Open Mouth Policy without any real action has done far more for these countries’ borrowing costs than anything practical. Thirdly, having a claim on gold is not the same as having gold. To invest in such a bond you’d probably want the gold backing the instrument to be held outside of the country involved (and probably outside the Eurozone itself), for example in a custodian vault in Switzerland. Why would a country default on its debt but then send out truckloads of gold to bond investors around the world? My guess is that it would be disinclined to do so. Finally, our Central Bank Regime Change thesis suggests that the authorities will use their ability to create fiat money as a means of economic stimulus and (whisper it) debt reduction. A move towards gold, and its historical ties to the 1930s Depression, seems to be a move in the opposite direction to that desired.

So in summary, I don’t think that the Eurozone economies have enough of this shiny metal to make a difference to their funding costs, and given that, why do something that looks desperate that will cause angst for your existing bond investors and possibly raise your overall cost of funding if it goes down badly?

Incidentally, bonds backed by gold are not a new thing, although they have been out of fashion for a couple of decades. In Tom Wolfe’s Bonfire of the Vanities (1987) Sherman McCoy is trying to buy $600 million of the French gold-linked Giscard bond, and it’s also discussed in Michael Lewis’s Liar’s Poker. The French issued four billion francs worth of gold indexed Rente Giscard bonds in 1973 – they were repayable in 1988 at either par, or 95.39 grams of gold for each 1000 franc note if the link between the franc and gold was severed in the lifetime of the bond, which it was. Sadly for the French government the gold price over the period (of high inflation) rose from around $100 per ounce to over $400 per ounce in the late 1980s. Thus the liability for the French rose to 53 billion francs. This was 1% of gross national product and 5% of government spending. This contemporary newspaper account suggests that the cost was £100 for every man, woman and child in France, and that were the debt to be settled in the metal itself it would equate to six months of global gold output. Some emerging market economies have used their gold reserves as collateral against loans before – South Africa engaged in gold swaps in the early 1980s for example. So the idea’s time might come again.

Nominal GDP targeting for the UK, coming sometime, maybe?

Posted on 23 January 2013 by Jim Leaviss

This speech by Mark Carney, incoming Bank of England Governor, to the CFA Institute in Toronto, is potentially very important for UK monetary policy. He appears to suggest that targeting a level of Nominal GDP (NGDP) can be more powerful than an inflation target. Importantly he also emphasises the “history dependence” of such a policy regime, and that “bygones are not bygones”. Central bankers would be compelled to make up for past misses. Holes in growth, caused by recessions and slowdowns, need to be filled in.

George Osborne, UK Chancellor, has appeared to be warm to a discussion about a change in the UK’s monetary policy regime (and he appointed Carney to the Bank). But what would it mean in practice? Nominal GDP targeting means that monetary policy would aim to hit a combination of growth and inflation over time consistent with its trend. In the case of the UK this might be 2.5% real growth and 2% inflation, so 4.5%. But the wonderful thing about nominal GDP targets is that you don’t really care about the mix, so 4.5% inflation and 0% real growth is as good as 4.5% real growth and 0% inflation. Or at an extreme, a fall in real GDP of 10%, and inflation at 14.5%. I think that many of us would regard this indifference between growth (“good”) and inflation (“bad”) as strange. Is this an example of a policy that turns failure (having persistently higher than target inflation rates) into a triumph? Not even, I’m afraid as we haven’t achieved a 4.5% nominal GDP rate in the UK in recent times as real growth has hovered around zero.

I have some other issues about the proposed policy too. The estimation of the trend itself becomes very important. On this chart I show, in green, the level of UK nominal GDP. If we draw a trend line, using the period from 2003 to 2007 and project it forward, it appears that the level of UK growth is still significantly below trend. On my calculations it’s around 12%, but I’ve heard estimates (including from within the Bank) of 15-16% below trend too. You can see that given how weak real growth is in the UK (we may have gone back into recession), we would need to generate a significant amount of inflation to return to the trend level within the next couple of years. After all, the Bank would be “compelled to make up for past misses”.

But what if that trend rate of growth was too high? 2003 to 2007 was in the white heat of the credit bubble, and growth came from all directions, consumer spending and government spending. It seems very plausible that we were growing above our potential at the time, thanks to cheap money and leverage. If we show the same chart with a trend line from the period before credit exploded, say 1997 to 2003, we get a very different gap. In fact the yellow line here shows that the current level of Nominal GDP is bang on where we might expect it be. Perhaps this explains why the UK’s employment situation has been relatively strong in the period since the credit crisis, and perhaps it explains why inflation has been so sticky to the upside – maybe we are operating around full capacity already?

There are other objections of course – inflation data are never revised, whereas GDP numbers are, sometimes drastically. So central bankers could be aiming at a historical number that might change significantly (most economists expect UK GDP to be revised higher for the period since the credit crisis). But perhaps the greatest criticisms are reserved for the damage this might do to monetary policy credibility – does not caring about the mix of inflation and growth increase the risks of inflation drifting further away from 2%? And some have suggested that countries that have followed a NGDP regime have experienced higher volatility of both output and inflation compared to those that target inflation alone.

So on the face of it, I’m not a fan. But I am a pragmatist, and the debt to GDP ratios that we have now (or are baked in the cake for the future thanks to demographic trends) can only be dealt with by either above trend growth (are we going to see 4% real growth in the UK for any sustained period?), or higher inflation. No central banker will ever tell you that this type of regime change is taking place to erode the national debt. But if growth continues to stagnate, and politicians remain reluctant to take difficult decisions on pensions, tax rates and benefits, inflating the debt away looks to be the only option. Outright government bond defaults are unnecessary in countries with their own currencies – but subtler defaults will happen – against populations as we find that the promises made to us about our old age or child benefit no longer apply, and with inflation reducing the real liabilities of the government. This is Central Bank Regime Change, and you won’t like it.

Do Central Banks tell us too much for our own good?

Posted on 16 January 2013 by Jim Leaviss

I read in The Times last week that the Shadow Monetary Policy Committee (a panel of economists and Bank of England alumni) thinks that the Bank of England should announce a freeze on UK rates for an extended period of time. The Federal Reserve also had this policy (now replaced by even more explicit guidance about the unemployment rate and inflation levels), as did the Bank of Canada. In the past few years the Fed has spent weeks debating its communications strategy. Elsewhere we get monthly press conferences (including in Trichet’s time as head of the ECB the use of the explicit codewords “strong vigilance” which meant “rates going up next month”). We also get Inflation Reports and Financial Stability Reports, fan charts and GDP forecasts from which market economists pronounce that the Bank’s two year ahead projection means no more QE just yet. I wonder though whether we’re being given too much information, and that in telling us exactly what they are going to do, central banks risk either a) having to not change their policy even if economic circumstances mean that they should (for example if economic growth comes back strongly yet they’ve promised to keep rates on hold for years), or b) lose face, credibility and trust with the market by going back on their promise. Each of these actions has a cost, and should lower an economy’s potential GDP rate.

Is the promise of low rates forever fuelling the return of those Four Horsemen of the Bondocalypse – CLOs, PIK notes, CCC rated high yield issuance, and mega – LBOs? Does it lead to complacency in investment? To schemes that can only survive if rates don’t ever rise? Is current central bank policy generating asset bubbles? And what are central bankers left with, without the ability to surprise and shock? Worse still, what if “low rates forever” has the opposite effect than intended? Does it say “doomed, we’re all doomed”? Perhaps central bankers should realise that keeping us guessing is their most powerful tool (OK maybe QE Infinity is their most powerful tool, but still).

The clip below is of Diego Maradona, scoring against England in the Mexico World Cup finals in 1986.

I was reminded of it when I picked up a copy of Steve Hodge’s autobiography The Man With Maradona’s Shirt in the sales. Maradona was fortunate enough to swap shirts with Nottingham Forest legend Hodge after that game. Anyway, back in 2005 Bank of England Governor gave a speech in which he said the most interesting thing a central banker ever said.

“The great Argentine footballer, Diego Maradona, is not usually associated with the theory of monetary policy. But his performance against England in the World Cup in Mexico City in June 1986 when he scored twice is a perfect illustration of my point. Maradona’s first “hand of God” goal was an exercise of the old “mystery and mystique” approach to central banking. His action was unexpected, time-inconsistent and against the rules. He was lucky to get away with it. His second goal, however, was an example of the power of expectations in the modern theory of interest rates. Maradona ran 60 yards from inside his own half beating five players before placing the ball in the English goal. The truly remarkable thing, however, is that, Maradona ran virtually in a straight line. How can you beat five players by running in a straight line? The answer is that the English defenders reacted to what they expected Maradona to do. Because they expected Maradona to move either left or right, he was able to go straight on. ”

If Maradona had put out a press release and a booklet explaining exactly what he was going to do, it could never have happened. But by keeping the England team guessing and by shifting his weight from left to right (the footballing equivalent of raised eyebrows) he scored the greatest goal of all time.

Should the people of Middle Earth have done Quantitative Easing to mitigate against Smaug’s tight monetary policy?

Posted on 2 January 2013 by Jim Leaviss

Any blog that begins with the words “Smaug the dragon is typically viewed as a fiscal phenomenon…” has immediately got my attention. Please read The Macroeconomics of Middle Earth by Frances Woolley. Woolley compares the size of the dragon’s hoard with a picture of the gold reserves at the Bank of England – although it is likely that Smaug is the beneficial owner of his gold, rather than a custodian of gold for richer dragons elsewhere in Middle Earth. He concludes by suggesting that the peoples of Middle Earth should have abandoned the gold specie standard and adopted paper currency to reduce the deflationary drag that Smaug’s monetary tightness produced. Unfortunately though “the lack of a central bank, or indeed any but the most rudimentary monetary institutions, was a major obstacle to currency reform”. The comments are worth reading too – was Middle Earth an Optimal Currency Area? Before Smaug arrived, were the the Dwarves running Middle Earth like a petro-state?

*SPOILER ALERT* So Smaug dies in the end, and the gold was released into Middle Earth’s money supply. Was there hyper-inflation as a result? Or did Nominal GDP return to trend (i.e. the “catching up” theory that has been talked about by Central Bankers like Mark Carney lately) without longer term inflation problems? If there was hyper-inflation perhaps the political instability that resulted allowed the rise of Sauron as a leader, and the subsequent world war between Men and Elves, and Orcs?

M&G Bond Vigilantes Christmas Quiz 2012: the winners and the answers!

Posted on 21 December 2012 by Jim Leaviss

It was a tough quiz this year – sorry. Here are the answers for you. The winner was Mike Haslam of Barclays Wealth who scored 20 out of 20. Congratulations – please let us know which charity you’d like to nominate for the £200 donation from us. The nine runners up, who like the winner receive a copy of Philip Coogan’s excellent book Paper Promises are:

Sam Morton, Mizuho International
Matthew Riley, Falcon Money Managment
Paul Amery, Index Universe
Mark Dufton, Charles Stanley & Co Ltd
Nick Tudball, BNP Paribas
Will Lewis, Hansa Capital
Adam Grimsley, Blackrock
Johnny Smith, Nomura
Andrew Woolston, Blackrock

What was created especially for Winston Churchill in 1950 as a brandy-like celebration drink?
Carlsberg Special Brew was created for Churchill’s visit to Copenhagen in 1950, and was originally called V-beer.
“We’re just going to draw the raffle numbers now”. Who and when?
Bradley Wiggins opened his Tour de France victory speech this year with these words, a nod back to the low budget, cash strapped days of UK bike racing where races were organised out of scout huts and village halls.
What’s this called?
This is Ampelmann, the East German pedestrian traffic light symbol.
“Beam me up Scotty”. Why was it third time lucky this year?
James Doohan, who played Scotty in Star Trek, had his ashes blasted into space on a rocket. It was third time lucky because the first two rockets his ashes were on both blew up after takeoff.
How is James Gatz from North Dakota better known?
He is the Great Gatsby from F. Scott Fitzgerald’s novel.
Held in 1994, it is said to be the biggest rock or pop concert ever. Who and where?
Although crowd numbers are difficult to judge when it gets this big, Rod Stewart’s MTV concert on Copacabana Beach probably had around 3.5 million attendees!
Archaeologists recently discovered a mummy in the Valley of the Kings, covered in chocolate and nuts. Who is it believed to be?
Pharaoh Roche.
The winner of this 7.4km race gets a red coat with a silver badge. Which race?
Doggett’s Coat and Badge, the world’s oldest rowing race (run since 1715), held on the River Thames.
What do all the cover stars of this magazine have in common?
This is iD, the style magazine. All of the front cover stars have an eye closed (usually winking).
Which fairground ride’s name derives from a military training game seen by crusaders in Turkey in the 12th century?
Carousel.
The Nike swoosh, a cheap US hipster beer, and a prize for fast ships. What?
The Blue Ribbon/Riband. Nike was originally called Blue Ribbon Sports, Pabst Blue Ribbon is a cheap, ironic hipster lager, and the Blue Riband was a prize for the fastest ship across the Atlantic.
What were bulky, ungainly monstrosities more suitable for the wide open vistas of a Scandinavian airport?
This is how London Mayor Boris Johnson described the bendy bus, replacing them with the new double deckers.
It shows a hundred consecutive pulses from the pulsar CP 1919, but is best known as what?
The image of those pulses was used as the cover of Joy Division’s Unknown Pleasures album.
Coppi was the first, Pantani the last. To do what?
To win both the Giro d’Italia and the Tour de France in the same year. Bradley next in 2013?
Who famously finished the story of Bleak House, and was then sitting down to start Great Expectations that afternoon?
Neville Chamberlain told the House of Commons in 1934 “we have finished the story of Bleak House, and are sitting down this afternoon to the story of Great Expectations”.
Who’s stationary did this logo head up?
This was Captain Robert Scott’s stationary from the doomed Terra Nova expedition to the South Pole in 1911-12.
Following electromagnetic surveys, and eyewitness accounts from elderly locals, it’s hoped that a dig will uncover 36 of them in Burma. What?
It’s hoped that the dig will turn up crates containing RAF Spitfires, buried in the jungle to keep them out of Japanese hands in WWII. They’d be worth many millions of pounds each and could be in virtually mint condition.
Earlier this year, a hedge fund managed to seize an asset as part of its claim against Argentina following the latter’s sovereign bond default. What was it?
Elliott Associates, a hedge fund and owner of Argentinian debt, seized an Argentinian naval ship, the Libertad, docked in Ghana earlier this year. However, it looks as if the government is about to release the ship.
Who is this?
It is Snufkin, from the Moomins.
As he looked through a hole in a wall in 1922, someone asked him if he could see anything. He said “Yes, wonderful things”. Who?
Howard Carter. The archaeologist was the first to peer into Tutankhamun’s tomb through a crack in a doorway. Lord Carnarvon asked him if he could see anything, and this was Carter’s reply.

Congratulations to all the winners. We’ll be in touch shortly. Happy Christmas everyone and thanks for reading the blog in 2012.

Page 1 of 2112 3 4 5...10 20...»Last »

Bond Vigilantes

M & G

Author Archives: Jim Leaviss