Quantitative easing

When I pick the right share, I shout about it. And here’s what I do when I get it wrong…

I have a confession to make. I earn my living advising my readers whether particular companies’ shares are going to go up or down. I have no idea whether an individual share will go up or down. Fortunately, nor does anyone else. That goes for the analysts, investment bankers, fund managers, accountants and other professionals who work in the City and earn a great deal more than I do. As the scriptwriter William Goldman said, no one knows anything. My abject failure to predict the future has two consequences. One: I am sitting here typing this, rather than being on a beach somewhere, counting my yachts. Two: the best I

The American economy vs gravity

The American economy always feels better when the Super Bowl is on. Ads for trucks and beer fill the airwaves. It’s steak and cigar season for the corporate bigwigs, not a time for the calorie conscious. For a few days, they can forget about foreign labour and cratering emerging markets and wallow in the fantasy that America is still about men in faded jeans and worn baseball caps, doing practical things with their hands. Now the pigskin has been locked away until autumn, however, one can take a colder look at the behemoth. No doubt, it has been a fine few years to be rich in America. The crash of

Women think that David Cameron is out of touch for good reason

Well, the great breadmaking debate hots up. David Cameron neatly sidestepped the heffalump trap that Nick Ferrari put in his path in an interview on LBC when he asked him the price of a Value Loaf in Tesco or Sainsbury. As you and I know, dear reader, Mr Cameron would no more eat that stuff than his own fingernails, and I for one applaud his good sense. If you can afford not to, don’t. But his elegant solution to the problem of not knowing that loaf-shaped carbohydrate costs 47p (he thought bread costs ‘north of a pound’, which is true of the kind he eats, only double that) was to

While Britain stagnates, America is roaring back

Predicting the decline of the United States has been in vogue since the birth of American hegemony. Sputnik, Vietnam, stagflation, budget deficits, trade deficits and even the end of the Cold War all triggered predictions of the end of America. With the 2008 financial crisis, however, there seemed to be a sense that this time was different. Tomes with titles like The Post-American World and The End of Influence began to appear on bookshelves. Germany’s finance minister confidently predicted that the United States was entering its last days as a financial superpower. Serious commentators spoke about how a ‘Beijing consensus’ would supplant the ‘Washington consensus’. America looked as if it

Investment special: How Shinzo Abe has revived Japan

Thank goodness for Shinzo Abe. Back in 2007, I wrote here that ‘over the next two to five years Japan will turn out to be one of the best investments UK-based investors can make’. By the middle of 2012, nearly five years on, that wasn’t looking like much of a prediction. Then prime minister Abe appeared on the scene. Since his election in November the yen has fallen 20 per cent against the dollar and the Japanese stock market has risen not far off 50 per cent. Phew. So what’s so great about Mr Abe? The short answer is that he has promised to do something about the Japanese economy

Budget 2013: How George Osborne ran out of ideas

Before every Budget, George Osborne always seeks the advice of various MPs. He usually doesn’t heed it but it’s a good way, he thinks, to keep the troops happy. As the economic headwinds have strengthened, this advice has tended to be increasingly radical and in a recent meeting with the Free Enterprise Group of Tory MPs, the Chancellor made clear he was in no mood for it. ‘Look,’ he told them, ‘I tried radicalism in last year’s Budget, and I had blowback for it. So I’d take quite some persuading to do something radical this time.’ The MPs left with the clear impression that he is now preparing what will

Isabel Hardman

David Cameron DOES have a magic money tree

So David Cameron says there is ‘no magic money tree’. In his big economy speech today, the Prime Minister said:  ‘Now of course there are plenty of people out there with different advice about how to fix our broken economy. Some say cut more and borrow less, others cut less and borrow more. Go faster. Go slower. Cut taxes. Put them up. We need to cut through all this and tell people some plain truths. So let me speak frankly and do just that. ‘There are some people who think we don’t have to take all these tough decisions to deal with our debts. They say that our focus on

Osborne’s coup: Mark Carney is the new Bank of England Governor

Hiring Mark Carney may just be George Osborne’s best move since becoming Chancellor. Britain badly needed a break from the failed economic consensus which still hangs around the Bank of England like a bad smell. In August, The Spectator implored the Chancellor to mount a global search. When Carney ruled himself out, I gave up hope and resigned myself to Paul Tucker, who would be likely to keep Britain on its current Faustian monetary path paved with freshly-minted banknotes. Instead, Osborne has succeeded in hiring one of the best-qualified of all the Queen’s 137 million subjects — from a country that knows a thing or two about economic crises and how

George ‘Masterchef’ Osborne spices up the accounts

Fresh from his success nationalising the Post Office pension, which artificially knocked £23 billion off the national debt, the Chancellor has come up with another manoeuvre which effectively adds £35bn to the total of QE – and analysts think this just save him from having to tear up his fiscal rule in next month’s mini-Budget. CoffeeHousers may remember that two years ago, Osborne said that the debt-to-GDP ratio would be falling by 2015/16. But the outlook between his first budget and his last one has deteriorated rapidly. But help may be at hand. There is a lot of spare cash from debt interest hanging about in the Asset Purchase Facility: the

Sir Mervyn King: Quantitative easing is reaching its limit

Quantitative easing isn’t an eternal elixir of economic health. That was the admission from Bank of England Governor Sir Mervyn King last night at a speech in Cardiff. Sir Mervyn said there were limits to the BoE’s policy of printing money to buy bonds, which could not ‘continue indefinitely’: ‘One thing we can see clearly is that the recovery and rebalancing of the UK economy are proceeding at a slow and uncertain pace. At this stage, it is difficult to know whether some of the recent more positive signs will persist. The Monetary Policy Committee will think long and hard before it decides whether or not to make further asset

The poverty of economics

The IMF’s growth downgrades will make tomorrow’s newspaper headlines but the more striking point is its decision to massively rewrite British economic history. As Citi’s Michael Saunders notes (PDF), the IMF now believes that UK economy was massively overheating in the boom. What we had thought was normal growth was, in fact, crazy exuberance.  Britain’s economy was more overheated by any in the G7, the IMF now tells us. Things were worse in 2007 than in the ‘Lawson boom’. Had we known about this overheating, of course, it ought to have been remedied by an interest rate rise. The asset bubble might never have been blown and the cheap debt party

QE — the ultimate subsidy for the rich

It’s official: Quantitative Easing has marked the biggest transfer of wealth to the rich of any government policy in recent documented history. The Bank of England released an analysis today, which was rejected as being an underestimate by the former government pensions adviser Ros Altman. But it was shocking enough, and the strongest point was made by the brilliant Ed Conway, economics editor of Sky News, who put it into a graph who would benefit from a QE-inspired boom in asset prices described by the Bank of England  today. “10th” means the richest tenth of the population, and so on. This is our new graph system: hover your mouse over each

QE is no substitute for a growth strategy

So the Bank of England is firing up the presses again, and injecting another £50 billion of Quantitative Easing (on top of the £325 billion we’ve had so far), in a desperate bid to get the economy moving. The Bank’s certainly right that growth’s not forthcoming. GDP in the first quarter of this year was 0.2 per cent below where it was in the first quarter of 2011, and the prospects for Q2 aren’t looking too bright either — especially with the extra Jubilee bank holiday. Some are hoping that the Olympics will help brighten the picture in Q3 — David Cameron says he’s ‘confident that we can derive over

Meryvn has his case for more QE

Last Thursday Mervyn King said ‘the case for further monetary easing is growing’, and today’s surprise inflation figures give the Governor and his policymakers more leeway to introduce the next round of QE, probably as early as next month. Consumer price inflation fell to 2.8 per cent in May from 3.0 per cent in April, below analysts’ average forecast of a flat reading. It’s the weakest monthly inflation since November 2009, with the main contributors being falling food and oil prices. This is good news indeed, especially given that inflation has been – and still is – eroding savers’ earnings by about 8 per cent over five years. Let’s not

The IMF says it’s the Bank’s economy now

When the IMF published a report into the UK economy last year, I wrote a blog post detailing how it managed to please everyone: George Osborne, Vince Cable, Mervyn King, Ed Balls, everyone. This morning, I’ve been tempted to just publish that post again — because the IMF’s latest report is basically the same. Osborne will be pleased with its emphasis on deficit reduction, including the line that ‘Strong fiscal consolidation is underway and reducing the high structural deficit over the medium term remains essential.’ And he’ll also want to draw attention to its suggestion that the UK’s weak growth is largely down to ‘transitory commodity price shocks and heightened

Metaphorical Merv

Mervyn King unfurled a mast of metaphors this morning. ‘We are navigating through turbulent waters, with the risk of a storm heading our way from the continent,’ he said. ‘We don’t know when the storm clouds will move away.’ The eurozone, he said, is ‘tearing itself apart’.   So poetic was his language — a rare gift in a central banker — that it almost made one forget the painfully prosaic nature of his facts and figures. Inflation, already at target-busting levels, will be much stronger than the Bank initially envisaged, remaining above 2.5 per cent for the rest of the year. That’s almost a whole percentage point higher than

QE is a government hijack, says King

While Mervyn continues to inflate our universe via Quantitative Easing, another Mr King — Stephen, the chief economist of HSBC — has issued a report saying QE is a way for governments to ‘hijack the credit system’. ‘The financial system is being rigged via acts of financial repression as governments look for new ways of funding excessive debts,’ says King in his bluntly worded report. While he doesn’t cite the UK or Sir Merv by name, it’s clear that reference is being made to QEs I and II, the government’s preferred means of stimulating lending through lowering borrowing costs. Financial repression — basically, when governments fund their borrowing through imposing

QE comes to the fore

It’s roughly seven months until George Osborne’s Autumn Statement, so no better time to consider which political issues will come to the boil ahead of it. Fuel costs, I’m sure, will be one if them; because they never really go away, and the 3p rise in fuel duty will have just been implemented in August. But I’d say the safest bet is the finances of the elderly. If the furore over the frozen income tax allowance for pensioners didn’t put that voting bloc at the forefront of Osborne’s mind, then the demographics behind UKIP’s poll jump will surely do the trick. He will be under severe pressure to act. Actually,

Right to reply: Why QE isn’t a disaster for pensioners

The best of all possible worlds for the pension industry is a buoyant economy. Workers have enough money to save, share prices rise and dividend growth is robust. Interest rates are positive in real terms so annuities are good value. The economy ground to a halt in 2008. The overwhelming priority for everyone is to get growth going again. Without growth the services that pensioners depend on — such as the NHS — will struggle. Traditionally, governments cut interest rates and raise spending to get the economy moving. The Bank of England has cut interest rates as much as possible and the government deficit remains very high. We have exhausted

Osborne accidentally makes the case for more savings

Rhetoric aside, what’s the difference between left and right in British politics? You won’t catch either party quantifying it, because the answer embarrasses both. The ever-cautious George Osborne is cutting just 0.6 percentage points a year more from government departments than Labour planned to (see table, above). The great joke is that the difference between the two parties is actually within the margin of error. Government is a gargantuan machine that just can’t be controlled to that degree of precision: a billion quid is, to Whitehall, a rounding error.   Today’s public finances have demonstrated that. The UK government had actually intended to borrow around £102 billion at this stage