Posts in category Buttonwood’s notebook


Business and financeButtonwood’s notebook

Why a Labour government might mean a fall in sterling

THE British Labour Party is in buoyant mood at its annual conference, expecting to be in power very soon. And it has already started to think about the consequences, including a possible run on the pound if it takes office. But not everyone thinks this is likely; Simon Wren-Lewis, an economist, challenged people to think of “a serious economic reason why stering would fall on the election of a Labour government”. Well, this blogger can think of several. 

1. Labour plans to increase the rate of tax on corporate profits from (what will be) 17% to 26%. That means the profits available to overseas investors will be reduced accordingly. They will demand a lower price to compensate for this lower return—this will either come in the form of a fall in the stockmarket or in the pound, or probably a bit of both.

2. Labour plans to nationalise various utilities (railways, water, the Royal Mail and some energy) and to cancel some private finance initiatives…Continue reading

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Business and financeButtonwood’s notebook

Picking a fund manager? The odds aren't great

WHO wants mediocrity? That is what a lot of people say when the subject of index-tracking, or passive fund management, comes up. They would rather choose a fund manager (an active manager in the jargon) who tries to beat the market by picking the best stocks. It does sound like a good idea.

The tricky bit is finding the right manager. The temptation is to look at past performance but fund managers rarely beat the market for long.

The average fund manager is always going to struggle to beat the market (this is a separate argument from whether markets are “efficient”). That is because the index reflects the performance of the average investor before costs. In a world dominated by professional fund managers, there aren’t enough amateurs for the professionals to beat. Even the hedge funds, those supposed “masters of the universe”, haven’t been able to do it; Warren Buffett looks set Continue reading

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Business and financeButtonwood’s notebook

The bond market defies the doomsters

THE yield on the ten-year Treasury bond fell to 2.13% on August 28th, after North Korea fired a missile over Japanese territory. Investors tend to buy government bonds when they feel risk-averse. That will have come as a surprise to those commentators who have called the bond market a “bubble” that is sure to burst; one British magazine made this a cover story back in September 2001. Every time the ten-year yield falls close to 2%, press references to a bond bubble seem to increase (see chart; the yield is inverted).

It is not just the press. Investors have been cautious about bonds for a while; the vast preponderance of fund managers polled by Bank of America Merrill Lynch in January had a smaller holding than usual in the asset class, just as they did in January 2016. But while inflation stays subdued, and central banks maintain short-term rates at historically low levels, government bonds seem able to attract buyers. Japan’s government bond yields have been very low since the start of the millennium; those…Continue reading

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