by The Investor
on April 14, 2010
There’s a long, ongoing battle between so-called Keynesian economists, who follow the writings of John Maynard Keynes, and those of the Austrian school, which was exemplified by Friedrich von Hayek.
- Keynes believed Governments and central banks can and should intervene to stave off the worst excesses of the economic cycle in capitalist societies
- Hayek wasn’t Keynes alter-ego exactly, but he was a full-on proponent of free markets and liberalism. Essentially he believed that meddling made things worse.
Over the past two years, what was a nerdy debate has taken center-stage, as Keynes and Hayek’s different theories have been put forward as the best guide to the financial crisis.
Overwhelmingly, the Keynesians have won the day – partly because his interventionist stance fits with a politician’s desire to be seen ‘doing something’.
But as this amusing Keynes Vs Hayek rap shows, there’s two sides to the story.
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by The Investor
on April 12, 2010
As of April 6th 2010, income tax in the UK has effectively gone up. But a straw poll of my friends over the weekend suggests most people haven’t noticed.
It’s easy to see why:
So where’s the tax rise?
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by The Investor
on April 10, 2010
My weekly roundup of the week’s posts and links.
With the first sunny spell here in the UK since, oh, 2008, I don’t expect many of my British readers to tune into this installment of Weekend Reading until Monday morning.
If you’re reading this at your desk after a great 48 hours (or even your Easter holidays), my commiserations. Hey: you’ll always have the sunburn!
Anyway, there’s no doubt many of us are spoiled with our modern burdens, whereby a hard day at the office means slumping in a meeting with a bunch of clueless bosses, eating digestive biscuits and being simultaneously annoyed at not being able to speak, yet dreading being held accountable in a system where we have no control (or was that just me? 😉 ).
My article of the week brought this home very strongly.
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by The Investor
on April 9, 2010
When government bond yields are too low to be attractive and investment grade corporate bonds are no longer cheap, ever-greedy investors often look to high-yield (junk) bonds as a way of getting more income for their money.
In early 2010, for example, junk bond sales were at a record high:
Companies worldwide issued $38.3 billion of junk bonds in March, passing the previous high of $36 billion in November 2006, according to data compiled by Bloomberg.
Yields fell 0.95 percentage point to within 5.96 percentage points of government debt, the narrowest gap since January 2008.
Most of that buying will have come from specialist funds and institutions. But plenty of those funds will be driven by private investor demand – and some private investors may also be buying junk bonds directly.
Investing in junk bonds is a dubious idea at the best of times; personally, I think most of us should skip corporate bonds and stick to Government bonds and equities, although that’s hard when Government bond yields are very low.
But certainly, investing in junk bonds when everyone else is doing so has to be a recipe for potential disaster.
Bond default risks are very real
Corporate bonds can and do default. The probability of a bond default is strongly reflected in the credit rating assigned to the bond by the rating agencies.
Non-investment grade bonds – the less scary name for high-yield or junk bonds – have seen pretty high default rates in the past.
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