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…private sector balance sheets will always fail at internalizing systemic risk. The official sector will always have to step in to help.
This is one of the conclusions of a New York Fed paper (PDF) on the shadow banking system, which provides a good overview and definition of the sector.
The Economist‘s Buttonwood notes that NS&I have just withdrawn their index-linked savings certificates. Like Buttonwood, my wife and I hold these products. Buttonwood thinks that “the government is preparing the ground for a round of debt-eroding inflation.” It’s hard to disagree – NS&I product offers can be treated as revealed preferences, and they now look as if they prefer paying (much) larger nominal rates than (much) smaller real rates. I can think of no other reason why this should be the case, other than inflation expectations. This is likely to be good for the dollar, good for gold and good for UK exporters. But my 2011 ski season may need to be scaled back – perhaps I should have bought slightly more of the certificates.
During the Peterborough Prison pilot, experienced social sector organisations, such as St Giles Trust, will provide intensive support to 3,000 short-term prisoners over a six year period, both inside prison and after release, to help them resettle into the community. If this initiative reduces re-offending by 7.5%, or more, investors will receive from Government a share of the long term savings. If the SiB delivers a drop in re-offending beyond the threshold, investors will receive an increasing return the greater the success at achieving the social outcome, up to a maximum of 13%.
A colleague told me about these bonds (pdf) this afternoon. They are designed by Social Finance. Bonds with coupons linked to policy outcomes appear to be experiencing a surge in interest at the moment – note also the World Bank’s 2009 Green Bonds and US’s Qualified Green Building and Sustainable Design Project Bonds.
I like the idea of green financial products, but why stop at bonds? Going further in this direction could get us all the way to a Hansonian Policy Analysis Market.
Charlie Munger advises small investors:
Don’t go after large areas. Don’t try to figure out if Merck‘s pipeline is better than Pfizer’s. It’s too hard. Go to where there are market inefficiencies. You need an edge. To succeed, you need to go where the competition is low.
More here.
Why the museum of arbitrage? Well, because if arbitrage existed now, I would be doing it rather than writing this.
In 1999, UC-Davis civil engineer David Phillips was grocery shopping when he noticed something peculiar. Healthy Choice Foods was offering frequent-flyer miles to customers who bought its products. But a 25-cent pudding would bring 100 miles — the reward was worth more than the product itself.
Recognizing a good thing, Phillips bought 12,150 servings of pudding for $3,140, claiming he was stocking up for Y2K. Then he enlisted the Salvation Army to help him peel off the UPC codes, in exchange for donating the pudding.
He mailed his submission to Healthy Choice, and to their credit they awarded him 1.25 million frequent-flyer miles, enough for 31 round trips to Europe, 42 to Hawaii, 21 to Australia, or 50 anywhere in the United States.
There’s no downside. Phillips also got Aadvantage Gold status for life with American Airlines, which brings a special reservations number, priority boarding, upgrades, and bonus miles. And he got an $815 tax writeoff for donating the pudding.
Lifted wholesale from Futility Closet.
No doubt there are more pressing problems in the world, but the other night some friends and I were grappling with what a hedge-fund manager of mutual acquaintance should call his new yacht, currently on order from Princess.
I suggested various epithets, from the funny to the lame (Bailout, Liquidity, Too Big to Sail, Floating Charge) but the winner was a banking friend, with the inspired Quantative Ease.
I sold out of Tesco in October at 407, having bought them at 321 exactly a year previously and enjoyed two dividends in addition to the 26% rise in share value. It was my first investment. Of course, commissions took their toll from my profit: although I try to keep these as low as possible, I’m playing with hundreds rather than thousands, so it’s hard not to lose a few points to the brokers. However, perhaps that’s a good thing as it discourages frequent trading, a sure fire way of making brokers rich at your expense. The asymmetric brokerage costs that I now have arranged (£1.50 flat to buy, £10 flat to sell) are a good incentive to stay in the game too. Despite this, not staying in the game is my first investment mistake. Tesco passed 420 today, making 321 seem even more of a steal.
Very slowly, I am learning about investment and investing. I do believe that investing requires learning: I am firmly in the ‘value’ school. From the various books I have read and people to whom I have spoken, this is the wisdom I have distilled to date, with sources and my subsequent embellishments.
I hope to learn much, much more, but this isn’t a bad start.
…it is impossible to read this year’s text without coming to the conclusion that microfinance is at a crossroads, and that it might do the industry a power of good if it was able to call a “time-out” to reassess its role. In the popular press, microfinance is still very much the developmental flavour of the month – and even the most battle-hardened aid veteran has to acknowledge its appeal as an alternative to the conventional ‘top down’ model for wasting taxpayers’ money. But… microfinance currently faces serious challenges – challenges that have been exacerbated by the global crisis. Should microfinance institutions shift from their essential social role to a (perhaps) more sustainable profit-seeking model? Can they go on relying (as they have done) on subventions of one sort or another from Western investors? Should they develop into more or less full service financial institutions, and become part of the formal financial sector?
That’s from the CSFI‘s Microfinance Banana Skins 2009, available as a free PDF. My answers would be yes, no, more, and yes, respectively.
On the back of a general crackdown on credit card benefits, American Express have just changed the cashback rates on their Platinum credit card. Running the numbers, the new rebate schedule looks like this:
You now need to spend £4.5k per year to make the card pay. This is quite difficult if you play multiple cards off against each other, especially given that AmEx are probably the least widely accepted (after Diners’ Club?). I think that these changes will lose them a lot of smarter customers: good for them, bad for me. Note also the new £20 dormancy charge. Putting the card in the back of the wallet is not an option.
