Trading Floor

Daily Brief

2008-12-02T19:07:53+00:00

If I should die, think only this of me:
That there's some corner of a foreign field
That is for ever England.

-- Rupert Brooke

In the debt market, there is a corner that is for ever England.

Britain has £1.9 billion (about $2.8 billion today) in bonds from World War I, otherwise known as the Great War, still outstanding. They have no maturities and pay a rate so low that there is little incentive for the British government to redeem them.

At least one investor, however, is putting on his tin helmet and marching down to the trenches. Hugh Hendry, the co-founder of Eclectica Asset Management in London, is buying the 91-year old war bonds, Bloomberg News reports. Hendry's bet is that deflation will eventually grip Britain and make the bonds pay off. The British inflation rate is currently 4.5 percent, while the bonds have a couple of 3.5 percent.

"If you have a deflationary shock, the only instrument that will perform will be government debt," Hendry tells Bloomberg.

The 1917 bonds were first sold with a coupon of 5 percent; during the Depression, the coupon was cut to 3.5 percent where it

Greenberg's Chutzpah

2008-12-02T19:06:10+00:00

Hank Greenberg didn't like AIG Bailout I, not AIG Bailout II. So he's pushing for AIG Bailout III, which will be even nicer to AIG's shareholders, such as Hank Greenberg.

More needs to be done to save AIG. A new plan needs to be drawn up to allow private capital to replace the government's capital. And the company itself cannot be so burdened with interest payments that it is forced into effective liquidation, making jobs impossible to keep and decreasing the likelihood taxpayers will be repaid.

There is a plan to allow private capital to replace the government's capital. It's called selling off assets, and it's going to take a while. As for "effective liquidation", I don't think that Greenberg or anybody else needs to worry about that, so long as the government owns 80% of the company. Hank should ask one of his German friends what Anstaltslast means.

Greenberg says that he wants the government to "apply the same principles it is applying to Citigroup to create a win-win situation for AIG and its stakeholders" -- but on closer examination, he really doesn't. He writes:

First and foremost, the government should provide a

Banning criminal memoirs

2008-12-02T12:12:52+00:00

Sam Leith is pretty straightforward in his condemnation of this silly idea:

In addition to banning happy hour, free drinks for women, and big glasses in pubs, the government has made it known that Wednesday’s Queen’s Speech contains notice of legislation to prevent criminals profiting from their crimes by writing memoirs. Sounds well and good. Lot of cobblers, though.

The silliness is here:

Then you think: Jeffrey Archer, Nick Leeson, Howard Marks, Jonathan Aitken. You say: "hmmm." Then again, you think: conscientious objectors, metric martyrs, foxhunting men, repentant members of the Weather Underground or former Islamists like Ed Husain. You say: "hmmmm" with even more "m"s. And then again, you think, Jean Genet. You think William Burroughs. Perhaps if you have that cast of mind, you think Aung San Suu Kyi or Nelson Mandela.

You think... well, you end up thinking that this is a law – or a provision in law – designed to sound good and serious, but whose implementation is so impossible, whose ambition so fuzzy, as to be no more than a calculatedly fatuous electoral gesture.

I would actually go a little further. OK, this is dystopian in the extreme, fuelled

Solving the pensions problem

2008-12-02T12:01:06+00:00

Leave aside for a moment the differences between private and puclic sector pensions and concentrate instead on the State pension. The two sets of numbers used here don't quite accord with each other but there is an underlying truth.

Second, we are living longer and the increase in global life expectancy since 1840 of roughly two years per decade shows no sign of abating.
...
He notes that if, in 1950, 65 was the age at which people could no longer reasonably be required to work, then on the basis of healthy life expectancy data, today that age would be about 80. And rising.

Using the first number on the second actually gives us an age of 77. But the basic point stands, we are living longer so expecting the pension age to stay the same is rather odd.

Working for 45 years to fund a 5 year pension (imaginary numbers) is clearly a different matter from working 30 years to fund a 20 year one.

It was actually Bill Clinton who pointed out the obvious. That we can either raise the taxes we use to fund pensions, cut the amount of each individual pension or shorten

Daily Brief

2008-12-01T18:15:11+00:00

The Huffington Post has closed its third round of funding at $25 million -- $10 million above previous estimates. The single investment from Oak Investment Partners was led by venture capitalist Fred Harman, who will now sit on the company's board.

That will put the site's valuation at just "south of $100 million," according to a source of Kara Swisher's at All Things D.

The money will be used to grow the site's advertising capabilities, expand its local coverage and reporting capabilities as well as make strategic acquisitions.

The extra financial backing will also help HuffPo in the fight for dwindling ad dollars, which Harman, who is in Palo Alto, California, says has become more of a priority with the dwindling economy:

"Much of the news media business needs to be reassembled online around an ad-supported model and the timetable for this has been accelerated, not slowed, by this economic down cycle.

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Credit card crunch

2008-12-01T18:11:21+00:00

Meredith Whitney has a piece in the FT which is full of extremely large numbers:

Capital destruction has been so intense that multi-trillions in capital raised by institutions through both private and public capital has gone to plug holes and not stabilise the effects of shrinking liquidity to corporations and consumers. More than $3,000bn of available credit has been expunged from the markets and therefore corporate and consumer borrowers so far this year...
Expect more broad-based credit contractions but, specifically, more than $2,000bn in credit lines to be cut in reaction to risk aversion, constrained capital and regulatory change...
Amend the proposal on Unfair and Deceptive Lending Practices that is set to be adopted in 2010. The proposal includes one major change that will lead to a severe unintended consequence - pulling credit from consumers. Restricting lenders' ability to reprice an unsecured loan will cause them to stop lending or to lend less. This change could cut over $2,000bn in unused credit card lines, or over 40 per cent of unused credit lines.

Where do these numbers are come from? What does Whitney mean when she talks about $3 trillion of credit as having

Us and them

2008-12-01T16:23:04+00:00

Two little stories which do rather highlight the divide between us and them. Those who assume to rule us and we those being ruled.

First up today is Sr. Barroso on the matter of Britain joining the euro.

"I'm not going to break the confidentiality of certain conversations, but some British politicians have already told me, 'If we had the euro, we would have been better off'," Mr Barroso said. "I know that the majority in Britain are still opposed, but there is a period of consideration under way and the people who matter in Britain are currently thinking about it."

That's after he says that a majority here don't want to join the euro. Which gives us an insight into his view of democracy really...the people who matter are not the people and their will.

It also makes me doubt slightly for his sanity. The only person I can recall arguing in favour of the euro recently is Will Hutton and if he's one of the "people who matter in Britain" then either we're all entirely doomed or Sr. Barroso is deluded. Hopefully the latter.

But for the sheer disconnect between presumption and the desired reality you can't

The valuation of work

2008-12-01T16:09:44+00:00

I just can't seem to work up the required indignation at this story of a nurse who makes £100,00 a year.

For it's clear to me that we've enjoyed a huge subsidy in both nursing and teaching over the decades. It really wasn't all that long ago that they were the only two career options open to a "respectable" woman. Sure, there were the occasional highflyers who broke through in other fields but those societal restictions did mean that a large number of women who wanted to work had to work in those two fields and thus depressed the pay available to them all.

Changes in the relative pay of nurses and teachers over the decades that those restictions have lifted is nothing to get all that surprised about.

However, I can work up the required indignation about this:

But at its heart it makes us ask of ourselves and our politicians: what should be considered valuable? Only those things that add to economic growth? And if only these then over what time frame? A quarter? Clearly too short. One year? Two? Three? And what about those who help growth indirectly, those who stay at home and look after

The blame game

James Forsyth — 2008-11-29T18:32:09+00:00

Few people write more engagingly about finance than Michael Lewis; Liar’s Poker is one of the best books about Wall Street ever written. In an essay over at The Daily Beast introducing a collection of essays on the financial crisis that he has edited, Lewis writes:

“The 1987 stock market crash was blamed on program trading; the Asian currency crisis was blamed on some combination of hedge funds and IMF-induced policies; the Internet bubble was blamed on Wall Street analysts. The subprime-mortgage panic has yet to find its one big culprit, and I’m not sure it ever will.”

The question of who emerges as the principle villain will determine what the political legacy of this crisis is. If the consensus is that the guilty men are, as Dennis Sewell argued in The Spectator a while back, the politicians who pressured banks to lend to people who weren’t really creditworthy then we will see a very different response than if people decide that the problem was an under-regulated financial sector.

PS If you have time, do read Greg Mankiw’s Keynesian analysis of the current situation and Arthur Laffer on

Government controlled interest rates

2008-11-28T14:15:37+00:00

This has to be one of the stranger ideas floating around at the moment:

One option being considered by officials is a proposal first made in the 2000 report into the banking industry by Don Cruikshank, which suggested that banks could be constrained with a cap, pegging them to setting interest at no more than one or two per cent above the bank rate.

What? Have these people entirely lost their minds?

So long as you have a competitive market (and there's no sign at all that we have a monopoly in the UK banking market) then prices are best discovered by such market. What makes anyone at all think that Don Cruikshank or anyone else knows better what are the best prices to balance the supply and demand for savings?

There's another more utilitarian point to make as well. Such a rule would mean that finance to business entirely dries up. It's one of these irrefutable laws of economics d'ye see? If you set the price of something below the market clearing price then you will reduce the supply of that something.

So, currently a bank manager thinks that Joe's Pie and Mash shop should be