Tag: FINANCE

“TIME is of the essence,” wrote Sir Anthony Atkinson, a British economist, in a report on measuring global poverty, published in July 2016. His sense of urgency may have been influenced by another constraint. In 2014 Sir Anthony had been diagnosed with incurable cancer. Some might have paused; he sped up. He chaired the World Bank commission that produced the poverty report, and wrote a book, “Inequality: What Can Be Done?”, in just three months. On January 1st, his time ran out.

In his lifetime, he was tipped for a Nobel prize. On his death, fellow economists rushed to describe him as “one of the all-time greats” and emphasised his extraordinary “decency, humanity and integrity”. The two were linked. For him, economics was about improving people’s lives.

A six-month stint volunteering as a nurse in a hospital in deprived inner-city Hamburg was an early influence. He saw poverty, and went on to spend his life combating it. He fought his battles gently—shying away from the adversarial style he experienced as a student at Cambridge—but with rigorous precision and an unfailing sense of social justice.

As…Continue reading

Carrie trade

THE death of Carrie Fisher, a much-loved actor in the “Star Wars” movies, left a hole in the force for fans. It may also burn a hole in the pockets of underwriters, syndicated under Lloyds of London. They may have to fork out as much as $50m to meet Disney’s claim for its loss. The studio, which owns the sci-fi saga, had wisely taken out so-called contractual-protection insurance (CPI) in case death thwarted a contractual obligation: in Ms Fisher’s case to film and promote future “Star Wars” episodes.

Contrary to the headlines, 2016 was not an especially lethal year to be a celebrity. Like the rest of us, they do die. But unlike most of us, their employers can be left with astronomic bills. When Paul Walker, an actor in “The Fast and the Furious”, a series of action movies, died in 2013 while filming the seventh instalment, Universal Pictures had to spend considerable effort (and dollars) to make his on-screen persona live on. This included hiring body-doubles and digitally inserting Mr Walker into the movie with hundreds of computer-generated images.

Most workers are easier to…Continue reading

WHEN investors gathered in Amsterdam in late 2016 for perhaps the largest annual conference on “impact investing”, the mood was upbeat. The concept of investing in assets that offer measurable social or environmental benefits as well as financial returns has come a long way from its modest roots in the early 2000s. Panellists at the conference included, among others, representatives of two of the world’s largest pension funds, TIAA of America and PGGM of the Netherlands, and of the asset-management arm of AXA, a French insurance behemoth. A niche product is inching into the mainstream.

In the past two years BlackRock, the world’s biggest asset manager, launched a new division called “Impact”; Goldman Sachs, an investment bank, acquired an impact-investment firm, Imprint Capital; and two American private-equity firms, Bain Capital and TPG, launched impact funds. The main driver of all this activity is investor demand. Deborah Winshel, boss of BlackRock Impact, points to the transfer of wealth to women and the young, whose investment goals, she says, transcend mere financial returns. Among institutions, sources of demand have…Continue reading

BANKS the world over are wrestling with low interest rates. Nowhere have they grappled for longer than in Japan. Although the Bank of Japan (BoJ) introduced negative rates only in January, almost 20 months after the European Central Bank, its rates have been ultra-low for years: they first hit zero in 1999. In its long battle against deflation, it pioneered “quantitative easing”—buying vast amounts of government bonds—which depresses longer-term rates and thus banks’ lending margins. Since September the BoJ has also aimed to keep the ten-year bond yield at around nought, while holding its deposit rate at -0.1%.

Banks have had some relief lately: since Donald Trump’s election in November, the yield curve has steepened slightly—and share prices have leapt—as American interest rates have risen and the yen has tumbled. But on December 20th the BoJ kept policy on hold.

For Japan’s biggest lenders, negative rates are “an irritant, not a catastrophe”, says Brian Waterhouse of CLSA, a broker. Every tenth of a percentage point below zero, he estimates, shaves 5% from the earnings of the three “megabanks”: Mitsubishi UFJ…Continue reading

IF 2016 was a year of shocks, what will the next 12 months bring? It is time for the annual tradition (dating all the way back to 2015) when this column tries to predict the surprises of the coming year.

By definition, a surprise is something the consensus does not expect. A regular survey of global fund managers by Bank of America Merrill Lynch (BAML) points to what most people believe. Following the election of Donald Trump, investors are expecting above-trend economic growth, higher inflation and stronger profits. They have invested heavily in equities and have a much lower-than-normal exposure to bonds.

So it is not too difficult to see how the first surprise might play out. Expectations for the effectiveness of Mr Trump’s fiscal policies are extraordinarily high. But it takes time for such policies to be implemented, and they may be diluted by Congress along the way (especially on public spending). Indeed, it may well be that demography and sluggish productivity make it very hard to push economic growth up to the 3-4% hoped for by the new administration. Neither fiscal nor monetary stimulus has done much to lift Japan out of its torpor,…Continue reading

WITHIN half an hour of waking up on October 10th 2005, Thomas Schelling received four phone calls. The first was from the secretary of the Nobel Committee, with news that he and Robert Aumann had jointly won that year’s prize for economics. During the fourth call, when asked how winning felt, he answered: “Well, it feels busy.” He was nothing if not truthful. He also confessed to feeling confused about which bit of his work had won the prize.

It might have been his work on addiction—flicked off like ash from his own struggles with smoking. Economists must understand, he wrote, the man who swears “never again to risk orphaning his children with lung cancer”, yet is scouring the streets three hours later for an open shop selling cigarettes. Mr Schelling’s work laid (largely unacknowledged) foundations for future behavioural economists. In his thinking, addicts have two selves, one keen for healthy lungs and another craving a smoke. Self-control strategies involve drawing battle lines between them.

The prize could also have been for his work on segregation, showing how mild individual preferences could lead to extreme group…Continue reading

INSURANCE is banking’s boring cousin: it lacks the glamour, the sky-high bonuses and the ever-present whiff of danger. So European stress tests for insurers, whose results were due to be published on December 15th after The Economist went to press, have attracted far less attention than those for banks in July. Yet insurance also faces a grave threat, from prolonged low interest rates.

Insurers invest overwhelmingly in bonds, so low interest rates make their lives difficult. The last time the European Insurance and Occupational Pensions Authority (EIOPA) conducted an insurance stress test, in 2014, a quarter of participants scored poorly: they would not have met their capital requirements in the test’s long low-interest-rate scenario. The proportion jumped to 44% in an alternative scenario involving an asset-price shock. The new results are unlikely to be better. Each year of low interest rates worsens the problem. Higher-yielding bonds mature and insurers end up with ever more newer ones with low, or even negative, interest rates.

Insurers are focused on the problem. One strategy is to outsource more to external…Continue reading

IN SEPTEMBER 2010 Brazil’s then-finance minister, Guido Mantega, gave warning that an “international currency war” had broken out. His beef was that in places where it was difficult to drum up domestic spending, the authorities had instead sought to weaken their currencies to make their exports cheaper and imports dearer. The dollar had recently fallen, for instance, because the Federal Reserve was expected to begin a second round of quantitative easing. The losers in this battle were those emerging markets, like Brazil, whose currencies had soared. Its currency, the real, was then trading at around 1.7 to the dollar.

These days a dollar buys 3.4 reais, but no one in Brazil or in other emerging markets with devalued currencies is declaring a belated victory. A cheap currency has not proved to be much of a boon. Indeed new research from Jonathan Kearns and Nikhil Patel, of the Bank for International Settlements (BIS), a forum for central banks, finds that at times a rising currency can be a stimulant and a falling currency a depressant. They looked at a sample of 44 economies, half of them emerging markets, to gauge the effect of changes in the exchange rate on exports and imports (the trade channel) and also on the price and availability of credit (the financial channel).

They found a negative relationship between changes in GDP and currency shifts…Continue reading

FROM its headquarters in Brasília, a sterile, technocratic city, Brazil’s federal government doles out money for health, education, generous pensions and artistic awards, among other things. Over the past two decades, this spending has grown by more than 185% in real terms. Over the next 20 years, its growth will be zero.

That, at least, is the intention of a constitutional amendment passed this week by Brazil’s Senate. The measure, which allows federal spending (excluding interest payments and transfers to states and municipalities) to grow no faster than inflation, is an unusually ambitious example of a fiscal rule: a quantitative limit on budget-making, which lasts beyond a single year and perhaps beyond a single government.

The best known, and least loved, fiscal rule is the euro area’s stability and growth pact. But such rules are also now common among emerging economies. According to the IMF’s latest count, 56 developing countries in 2014 had rules of some kind, including 15, like Brazil, that impose limits on the growth of public spending.

The reasons so many emerging-market governments choose to limit their fiscal…Continue reading