A week ago the Bank of England’s Monetary Policy Committee chose not to extend their programme of quantitative easing. For those of you that were uncertain, quantitative easing (QE) is the central bank euphemism for the policy of printing money. In essence it was a policy born of desperation: with economic growth collapsing, once interest rates had been cut to (near) zero, it was the only option still open to the UK’s central bank. Now that the policy has ended it might be reasonable to assume that it has been a success. However, I have real doubts about the impact of the UK’s dalliance with this unconventional monetary policy measure. On the whole I think it has probably been almost entirely ineffective. First, the UK economy is smaller than it was when the crisis began – and lately has been getting smaller. Second, although inflation has been high, it has been driven largely by factors outside the influence of the Bank of England’s printing presses ...
6 years ago today, Dawid Konotey-Ahulu and I incorporated Redington as a company with one mission: To shape and influence the future of pensions. In our original business plan to the FSA we stated that we wanted to do to pensions what Jamie Oliver had done to school food! Redington started life in Dawid's attic and the first few months involved opening bank accounts, buying furniture from IKEA and computers from Dell. The major priority was to complete our FSA registration and to build Redington's brand. We decided to name the company after an outstanding Br ...
In Manchester, they know a lot about volatility - or they do after yesterday. In the space of 13 seconds, the red half of Manchester saw a year’s work snatched away as the blue half put two goals past an overwhelmed Queens Park Rangers in injury time. In Sunderland, where Man United had just beaten the home team 0 – 1, there was already jubilation. They’d done it! They’d beaten their oldest foe, there was no way Man City could come back from 1 – 2 to grasp the win they now needed! The title and trophy was heading back to their rightful home at Old Trafford ...
The double-dip recession so dreaded last summer has happened, but not where investors had expected and certainly not with the predicted market results. The announcement of a -0.2% fall in UK GDP (against the expectation of an 0.1% increase) confirmed that Britain is now the largest economy officially in recession, having suffered GDP declines in two consecutive quarters, averaging an annualised rate of -1.0%. Yet sterling did not budge from its strongest trade-weighted level since August 2009 and its best level against the dollar since the US double-dip scare last summer. The sto ...
Yesterday, the Pension Protection Fund published its latest monthly estimate of the aggregate assets, liabilities and deficits of the c6,500 private defined benefit pension schemes in the UK (the “PPF 7800 Index”) as at the end of April 2012. Some of the headlines are predictable and I will admit that “Pension scheme deficits jump £10.6bn in a month” has a lot more impact than “Pension scheme funding ratio decreases from 83.4% to 82.6%”. I am actually really grateful that the PPF provides this monthly update as it gives a useful ...
Last week we got the shocking news that Spanish unemployment is close to one in four. According to official figures at the end of March there were 5,639,500 unemployed people in Spain, representing 24.4% of the registered working population. These figures are very hard to digest. Anyone from Britain that remembers the early eighties when UK unemployment reached one in ten, will recall that it felt at times like the fabric of British society was collapsing completely. The Spanish unemployment rate today is far, far worse and it is frankly a wonder that Spain is not experiencing violent and ...
“He that hath ears to hear, let him hear.” - Mark 4:9 (Image by Danilo Rizzuti) At first glance, recent economic news seems to strike a series of discordant notes and as a result, markets have been trading in a volatile and directionless way. Yet beneath the surface there are connections that provide pointers for investment markets for the remainder of the year. In his influential 1959 essay, “The Two Cultures and the Scientific Revolution”, C. P. Snow proposed that the divide between science and the humanities had resulted in poor communication, misun ...
“So you interview old people?” someone asked me at a friend’s birthday party recently. “Erm, no,” I replied. “Well they’re older than me generally – tho alarmingly I seem to be catching them up!” He didn’t get it. I like to think he didn’t believe my advancing years, but really he thought writing about pensions meant I wrote about pensioners. About people who are drawing a pension, you know, the only people that the term ‘pensions’ covers. In fact, pensioners are the people I write about the least, but you can ...
The Pensions Regulator published its eagerly awaited statement on funding last Friday. In amongst the reminders on prudence, affordability etc, there was quite a bit of expectation around what they would say about the current “low” level of gilt yields. Here are some of my initial thoughts: The statement says that even if you have a strong view on “reversion” of gilt yields, you cannot allow for it in the calculation of Technical Provisions. But paragraph 20 (implicitly, if not explicitly) says that you could allow for such a view in t ...
Last week we learned that the UK has fallen into a second recession. Growth over the first three months of this year was -0.2% which followed a contraction of -0.3% in the last quarter of 2011. Two or more consecutive quarters of contraction is the ‘official’ definition of a recession. To misquote Oscar Wilde – to fall into one recession is unfortunate, but to fall into a second is sheer carelessness. The arrival of the dreaded double-dip, has spurred on the bad news hungry media to make dire comparisons with the UK economy in the 1930s. Some economists have estimated t ...
Moving to the next level of investment governance, version 3.0, is a move from doing things right to doing the right things, to thinking the right way. With ever greater complexity surrounding investment decision making, investment committees need to adopt an advanced level of governance to secure their scheme’s long-term financial health. Thinking the right way is not only instrumental to quality decision making but highly dependent on the size and composition of the scheme’s investment committee. The problem is most investment committees reflect the worst of both worlds: t ...
We may have our doubts about Ben Bernanke’s skills in monetary policy, but he certainly has a yen for memorable phrases. The latest term he has coined — the “fiscal cliff”—describes what would happen to the US budget if current law played out with no political intervention. On January 1, 2013, the Bush tax cuts expire, the 2% payroll and other tax holidays expire, and at the same time as these effective tax hikes, automatic spending cuts are scheduled to kick in as a result of last year’s Budget Control Act and the failure of the committee to produce a ...
What do you do when you’re caught between a rock and a bigger rock? Most likely, you choose to chip away at the smaller rock until there is a way out, however long it may take. And that seems to be the case with the global economy today, at least within many developed markets – policymakers are chipping away at the small rock in order to avoid being hit by the bigger rock. So what are the rocks and why are policymakers (arguably) choosing this option? The smaller rock is better known as ‘Financial Repression’ – a term which is receiving more and more airpla ...
“Look, if you had one shot, or one opportunity to seize everything you ever wanted, in one moment... Would you capture it or just let it slip?” 'Lose Yourself' As I wrote in a recent blog, investment markets have been friendly lately, providing some pension schemes with an opportunity to de-risk at improved levels. This week has seen a turnaround in market sentiment, with scares in the Spanish and Italian government bond markets, softer US data and disappointing Chinese growth numbers sending Gilt yields and equity indices lower. ...
I’m on a train to the Lake District. A return ticket from London has cost me £88 and for that I get to go somewhere fairly near my final destination with a bunch of people I don’t know. It’s a bit hot in the carriage, I’m not massively keen on changing at Warrington Bank Quay and I had to leave work an hour early, but hey it’s good enough and more importantly, it’s not costing me that much to visit my mum for Easter. Imagine, for a minute, that I am a pension fund investor and I’m in a passive or index tracking fund - It’s the same hy ...
Pension scheme deficits on corporate balance sheets are facing increased scrutiny by creditor banks and ratings agencies. This scrutiny stems from a mixture of ongoing economic malaise, tighter capital regulations, bank deleveraging and rising pension deficits. The impact has been severe, for example, with some banks writing clauses into loan agreements forbidding firms from acquiring subsidiaries with DB schemes. Bank refinancing of corporate sponsor loans and scheme contribution schedules have also been negatively affected. A few recent cases highlight the depth of this iss ...
Investors continue to have some strange obsessions when assessing the outlook for growth, inflation and resulting US policy responses. Ben Bernanke’s fairly anodyne comments in a TV interview last week on the need for harder empirical evidence to verify that the US economy is on a sustainable growth track sparked the markets into a renewed obsession with QE3. The dollar fell and bonds rebounded on speculation that the Federal Reserve would soon print even more money. These fairly self-evident remarks persuaded investors that 10-year bonds were a bargain at yields of about 2.25%. An ...
Years ago a friend of mine in New York told me about his massively overweight neighbour who took to wearing a black t-shirt with “I beat anorexia” printed on it. I think that is how our central bankers look at the wonderful job they are doing. Since the last link to gold was severed in August 1971, the dollar has lost 82 percent of its purchasing power and the global economy is more geared than ever and now in the death throes of a four-decade leveraging bonanza but our central bankers proudly tell us, hey, at least we beat deflation! Image by scottchan ...
Last week the UK’s Chancellor, George Osborne, unveiled his latest budget. Never has so much media attention been focussed on an event of such economic insignificance … well, not since last year’s budget anyway! The brutal truth is that while the UK’s coalition government insist on sticking to ‘plan A’, that is their deficit reduction plan, the Chancellor has almost no room for fiscal manoeuvre. And besides, I suspect that deep down this Chancellor believes that fiddling about with the tax system is not the answer to the UK’s problems anyway &nda ...
Yesterday’s budget in Britain was treated by the markets as a non-event --and that was a correct assessment of its macroeconomic impact. But George Osborne’s package of tax and spending changes, which was presented as more or less fiscally neutral, could nevertheless turn out to be a political and financial milestone. The good news is that, by cutting Britain’s top rate of income tax from 50% to 45%, with hints that it would be further reduced to its pre-Lehman level of 40% before the end of the present parliament, Osborne was trying to send the signal that Britain was o ...
Markets are friendly. Collect 200bp. Do not go directly to the PPF. There is some good news for pension schemes as investment markets have performed well in recent months: - Equities higher: MSCI +20% from start of rally in November - Gilt yields higher: 30 year is 3.41%, up 44bp from December low - Real yield positive in longer-end: 30 year currently +0.10% having reached -0.22% - Credit spreads lower: GBP corporate bond spreads have reversed upward momentum - Volatility ...
Charles Dickens is in the news as we mark the 200th anniversary of his birth and investment markets seem to be following a rather Dickensian narrative at present. As we reflect on two months of positive returns the question is what happened to the pre-Christmas gloom? Is it just a matter of New Year optimism that will subside along with emptying gyms and filling bars or have we seen the start of a trend that will last for the remainder of the year? The buoyant mood has been driven by a combination of good news and the absence of any serious new problems. It has been a reluctant low ...
In a recent report by the National Association of Pension Funds (NAPF) it was estimated that the Bank of England’s QE programme had caused the aggregate Defined Benefit pension fund deficit to rise by approximately £90bn. Of course it was not the intention of the Bank of England to impoverish the elderly – that is normally the preserve of Chancellors – however the NAPF argued that the Bank’s gilt purchasing programme had pushed the yields on gilts lower than they would otherwise have been. Falling gilt yields, and yields on other related instruments, causes t ...