The following is a guest post by Jaskaran Singh, a risk management professional with over 30 years experience in the finance industry.

 

The majority of the Fund Management Industry identifies the geographic exposure of an entity by headquarter location, place of primary listing or place of incorporation. In a globalized world where a company receives revenue streams from around the world this obscures country risk. This calls into question the reliability of industry asset allocation and diversification strategies and the prediction capability of conventional portfolio risk modelling techniques.

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I was looking through the traffic logs the other day and I noticed that our posts about real interest rates get quite a lot of traffic every day. So I thought it would be useful to set up an interactive, auto-updating real interest rate charts page so that you can always keep up-to-date with them. You can find the page here.

 

Any feedback / suggestions would be happily received as always (you can catch me on aftab@greshams-law.com).

 

Hope you find it useful.

 Real Interest Rates Charts Page Screenshot

The new issue of Standpoint carries an interesting article from Robin Harris – director of the Conservative Research Department from 1985 to 1988 and member of Margaret Thatcher’s Policy Unit from 1989 to 1990 – on the subject of pension reform in Britain. Whoa, don’t all rush for the exit at the same time; this is worth your time – an interesting examination of the tensions that can crop up between free-market capitalism and conservatism.
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Financial warfare

Apr 29, 2014

War is the continuation of Politik by other means.

– Carl von Clausewitz (1780-1831)

 

Regrettable though it maybe, but politics hasn’t died. Which means war hasn’t died either; though the tools of warfare are constantly evolving.

 

Clausewitz’s quote came to mind recently, when I read snippets from a recent interview the BBC’s Robert Peston did with Hank Paulson, US Treasury Secretary during the 2008 financial crisis. Paulson recalls how desperate he was that the Chinese – owners of some $1.7 trillion of mortgage-backed bonds issued by Fannie Mae and Freddie Mac – not start dumping these securities, so potentially leading to an even bigger crisis.

 

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If you measure the laxness of a central bank by the magnitude of its balance sheet expansion then there’s been a clear winner in recent years: the Bank of England (which has quadrupled its balance sheet since mid-2008). This leaves the UK at risk of a huge expansion in the broad money supply if the fractional reserve banking machine were to get going again. This, however, could be some time away and is not the only mechanism in play. Here we’ll look at central bank balance sheet expansions in relation to government accounts. By the end of this piece you’ll have a good understanding of how addicted various governments are to the printing press.

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Addogram.com have come up with a large graphic (an “addogram”) about the evolution of central banking in England and America going as far back as 1640. If you take a look at the zoomable image (click “Explore this addogram in high-resolution” once at the link above) you can see how UK & US central banks affected (and were affected by) equity, bond and gold prices since 1840. Present dynamics in central bank balance sheets and long & short-term yields looks eerily similar to 1930-1950. Interesting stuff.

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