Monthly Archives:

May 2011

More on the impact of inflation on equities



A few months ago, Anthony wrote about inflation hedging (see here) and referred to an IMF paper which suggested that ‘traditional asset classes’, most notably equities, don’t fare well if inflation increases, which is something to bear in mind when trying to protect a portfolio against increases in the level of prices.

Francesco Curto at Deutsche Bank recently released a research piece that c…

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High Yield On Course for Record Issuance in 2011. Are lenders already repeating the mistakes of 2006/7 ?

It has been almost three years since the collapse of Lehman Brothers back in September 2008. The High Yield market has staged the sort of recovery few imagined possible, with each recent month bearing further witness to increased risk taking, evidenced by falling risk premia, record issuance and ever looser lending standards. With dividend transactions (Ardagh Glass), portable cap structures (H…

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A Pyrrhic victory for the ECB

Pyrrhic victory is a term that is used when you win the battle but lose the war. In this case, the battle as defined by the ECB is maintaining price stability at or just below 2 percent. This battle – as happily stated by the President of the ECB, Jean-Claude Trichet in a recent press conference – has been won in exemplary fashion with average yearly inflation in the EMU being 1.97 percent over…

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UK inflation shocking?

UK CPI inflation jumped from 4.0% to 4.5%, versus expectations of only a slight increase to 4.1%.  Core CPI, which strips out food and energy prices, soared from 3.2% to 3.7% and is now at easily a record high (data goes back to 1997).  One bank called the inflation numbers shocking, arguing other economies aren’t seeing anything like this surge in core inflation, UK monetary policy is too loos…

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NS&I Index Linked Certificates – a government subsidy for rich savers

Get `em while they’re hot.  The new National Savings inflation linked certificates were launched on Thursday last week, to great rejoicing on the money pages of the newspapers.  And rightly so – these are a gimme.  Although the rate of interest (RPI + 0.5%) is lower than on the similar certificates withdrawn 10 months ago (RPI +1%), this is still attractive compared to the market rate for 5 yea…

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Career opportunities – the ones that never knock. With youth unemployment rising steadily in the UK, where are the protest songs?

“Wham, bam – I am, a man
Job or no job, you can’t tell me that I’m not.

Hey everybody take a look at me
I’ve got street credibility
I may not have a job but I have a good time
With the boys that I meet down on the line.”

“Wham Rap” by Wham!, 1982

My mate told me recently that the first Wham! album was surprisingly good, so I bought it.  It is good, and I am surprised.  I was also surprised to f…

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Borrowing costs (or κόστος δανεισμού if you’re Greek)

Following on from last week’s ECB press conference, on Wednesday this week we had the quarterly Bank of England Inflation Report. Amongst the questions asked at the press conference were a couple on the serious issue of the stability and future of the Eurozone. Mervyn King refused to be drawn into commenting though, saying that “the problems are very difficult, they are very challenging, and I …

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So we’re all being financially repressed in the developed world – but does that really mean poor bond returns? (+ competition time)

I attended an interesting lecture last year by Carmen Reinhart (hosted by RBC) where she predicted an era of negative real returns for investors in developed market sovereign bonds.  This was due to what she termed ‘financial repression’, as the authorities in richer countries struggle with the huge debt burden.  Financial repression is loosely taken to be things such as greater financial regul…

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ECB, ‘No problem’

As fund managers we sift through a huge amount of information, in the desire for finding good and avoiding bad investments. Writing these blogs entails a further distilling of these ideas into a single point.

One of the things we do regularly is to listen to the ECB press conference, held following their rate decision. Most of this is the usual mix of diplomatic, repetitive, and instructive dia…

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