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Video: Jim & Mike go to NY to ask the big question. Will the Fed hike in 2015?

Have you seen the film The Day After Tomorrow? The one where U.N. officials foolishly ignore climate scientist Jack Hall (Dennis Quaid) and a super-storm plunges New York into a new Ice Age? Well it was colder than that last week when Mike and I made a research visit over there. With wind-chill it was a billion below. I was only able to survive by laughing at Mike forgetting to wear a hat and g…

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Operation normalise

The Fed has basically used three major themes in response to the financial crisis from a monetary point of view:

  1. Lower short term rates
  2. Quantitative easing
  3. Operation twist – an attempt to flatten the yield curve

The Fed has communicated that it now expects the first move in normalising rates as the economy recovers will be to increase short term rates. Personally I think there are other alter…

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The greater the income share of the rich, the lower the savings rate

If you want to generate economic growth then encourage the rich to spend

In 1714, an Englishman called Bernard Mandeville published his poem entitled “The Fable of the Bees: or Private Vices, Public Benefits”. The satire was about a hive of prosperous bees that were living a life of luxury. One day, some of the bees began to grumble that their lifestyle lacked virtue and the bees subsequently turn away from greed and extravagance. This leads to a rapid loss of prosp…

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Banks oiling the wheels with liquidity

An overriding theme for U.S. high yield energy companies in the current oil price environment is having sufficient financial liquidity (cash, bank credit, etc.) to cover their obligations as earnings come under pressure due to low oil prices. Maintaining liquidity until oil prices recover will be paramount for energy companies to survive, even for those names that aren’t especially levered. It …

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Competition winners: 10 copies of Diane Coyle’s GDP: A Brief but Affectionate History

Diane Coyle came in to talk about her study of the history of Gross Domestic Product a couple of weeks ago. You can watch a short interview we did with her here. We also offered you a chance to win a copy of her book, and we had over 60 correct answers to this question: he’s regarded as one of the creators of modern GDP statistics, but in 1934 he told Congress that “the welfare of a nation can …

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Hybrid debt – another beneficiary in the hunt for yield

The rapid growth of the hybrid corporate capital market (non-financial) over the last few years has provided fixed income investors with an opportunity to access a quasi-equity income stream. Much like equities, hybrid bonds are perpetual in nature (though an option to call exists), and allow the issuer a degree of discretion over coupon payments. And, whilst they rank ahead of common equity in…

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An interview with Diane Coyle: GDP A Brief but Affectionate History. And win a copy of the book.

One of my favourite economic reads of 2014 was Diane Coyle’s book about an economic statistic – GDP. Whilst monarchs had been trying to take inventories of the national wealth since the Doomsday Book and earlier (so they could tax it!), the idea that you should rigorously measure economic activity is under one hundred years old. But the concept of Gross Domestic Product has now become central …

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The zero bound debate – are negative rates a tightening of policy?

Matt’s and James’s recent blogs outlined some of the issues markets face when rates go negative. This is obviously no longer just a theoretical debate, but has real investment implications. Why do investors accept sub-zero rates when they can hold cash ?

To recap using Swiss Francs for example, it makes sense for a saver from a purely economic view not to deposit a Swiss Franc note into a negat…

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Coming to a bond market near you: “A Brave New World: Zero Yield Corporate Bonds”

Picture the scene: a meeting room, 40 floors up, plate glass floor-to-ceiling windows with views of central London in the background. At the polished mahogany table sits Hans Schmidt, the CFO of a major consumer global goods company. In walks Chad “Ace” Jefferson III, the latest in a long line of investment bankers assigned to cover his company. Behind Chad follows an entourage of five impeccab…

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Demurrage – a tale of gold, cash and mercenaries

Historically I’ve struggled with the concept of gold as an investment. Presumably if you bought gold for this purpose you would want to store it somewhere safe and insure it. However, investors in gold should account for the fact that there is a cost to sleeping well at night. Vaults and insurance don’t come for free, and that cost can be thought of as a negative yield or the demurrage of gold….

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