Bubble and Squeak - Is the US Bond Market another Bubble ready to burst?

Bond Bubbles and Equity Squeaks


Bubble and Squeak! Yes that sums up the investment markets at the moment.

Here is a Ten Point Guide to what it all means…

1. A Bond is effectively a loan. Governments, Businesses, Local Councils and even Private Contractors need money to pay for projects.

2. They get it by borrowing from investors who get a rate of interest and a date when they will get repaid.

3. These interest rates and dates vary and, of course, the greater the risk of not getting repaid felt by the investor the more generous the interest rate will need to be to tempt them.

4. So, at the moment people are nervous about where to put their money – so are big investment funds like pension schemes and charities.

5. Poor news from the US suggests that there may not be very good returns on stocks and shares or more risky bonds so they are all buying the safest bond of all – US treasuries!

6. However, there are not always US Treasuries for sale – so you may have to buy yours from the market. That will be one where the rate of interest and pay-back date (redemption) is already agreed…and if that rate of interest is good, compared to whatever is on offer now, then you may have to pay a bit more than the owner did for that bond, which means your actual rate of interest may be less than the face value.

7. This is what commentators mean when they say the “yield” on US treasuries has fallen or the “Yield” on Gilts (the UK version) has fallen. They actually mean that the value of these bonds has increased if you want to buy them so what you will receive in interest, as a percentage of what you paid for the bond, has reduced.

8. So Bond values rise and yields fall, Bond values fall and yields rise – simple!

9. Why does the value fluctuate? Well – supply and demand like everything else! When do people want Bonds? Well…when the rates look good, when they need a fixed income (retirement funds etc) or when everything else looks lousy!

10. So is there a Bond Bubble now? Well, anyone buying a US treasury with a yield of 2.8% must expect interest rates to stay low for a while and inflation to be gentle – as well as equities remaining flat. If any of those things change then Bond values will fall very quickly and many investors will lose the capital value of the bonds they have bought. Yes, it probably will happen…

Beware the words that always spell disaster…”This Time It’s Different”

Heard of The Monty Hall problem?

It’s a famous Maths problem that originates from a game show in America. In the game show the contestant is shown THREE doors. He or she is told that behind two doors there is a Goat and behind one of the doors is a brand new luxury car.

The contestant chooses a door. The quiz compere now opens one of the remaining doors to reveal a Goat behind it and asks the contestant whether or not he or she wishes to swap their first choice door for the one remaining door.

What should they do?

Many great minds debated this when it was first publicised and many people still believe that it makes no difference as the odds of getting a goat (to coin a phrase) are now 50:50. Nothing could be further from the truth – the odds are overwhelmingly in favour of changing your decision. Here is why:

Outcome one: You choose the car, get shown a goat, change door and get…the other goat. LOSE

Outcome two: You choose goat 1, get shown goat 2, change and get…the car. WIN

Outcome three: You choose goat 2, get shown goat 1, change and get…the car. WIN

Two Wins to One Lose. So…always change.

Which brings me to Deal Or No Deal. I recently played on one of the games fruit machines at a service station whilst killing time between appointments. I got through to the deal or no deal round…finally ending up with three boxes. They were either: 50p, £10 or £75 and I had the option of changing or taking an offer from the banker of £21. Well my instincts said take the offer but I remembered Monty Hall and I had a “glimpse” button available. The machine showed me the £10 box! I immediately took the option of switching and ignored the bankers offer…

…I won £75!

I now have plenty of cash for car parks!

Why I Love Tom Waits...and you should too.

Why I Love Tom Waits

Ahhh…a musical Blog!

Well, if I want to earn the ire of my family the surest way to do it is put on “Real Gone” by Tom Waits whilst we have supper. My eight year old does a mean version of “Don’t Go Into The Barn” despite my explaining that it tells of the discovery of human remains and slave chains in the newly dug earth of an American Farmstead.

Then again, I can put on “Heart of Saturday Night” and nobody bats an eyelid – they may ask “who is this?” or comment how much more authentic it is compared to Michael Buble or Jamie Cullum but that’s about it.

That is why I love Tom Waits. He has reinvented himself successfully several times in 30 years whilst never compromising on the way. He is an accomplished actor, raconteur, comedian, songwriter and polemicist. He is a beat poet and a country singer, a blues groaner and a bull horn screamer. He whispers poetry and beats car doors, sings of Singapore bars, midgets and prostitutes and of driving home from a girlfriends as it starts getting light.

To me he is even greater than Dylan – his range is greater and he hits the target every time. Whether I listen to the jazz lounge perfection of the early albums or the beauty of Orphans, whether I am transfixed by the story of “9th and Hennepin” or crying to “Johnson, Illinois” and “On The Nickel” - he always touches me in one way or another.

Tom Waits has created a persona and, with Kathleen Brennan his muse and astounding musicians like the angular guitarist Marc Ribot, he has already created a body of work that any genius would look back on with pride...and there's a new album next year! 

Ladies and Gentlemen - Tom Waits.

Current Top 10 (and this changes all the time)

10. Ol’ 55

9. Hoist That Rag

8. Shore Leave

7. Tom Traubert’s Blues

6. Ruby’s Arms

5. All The World Is Green

4. The Briar & The Rose

3. Lie To Me

2. On The Nickel

1. Day After Tomorrow

Discover them if you haven’t already…

Which Investments are worth the risk?

Worth The Risk?

You may not realise this but more people died in the USA, following 9/11, by choosing to drive rather than fly, than actually died in the attack. This is because driving is, statistically, way more risky than flying - but at that particular time people were not convinced and many who had clearly chosen to drive and not fly lost their lives as a result.

As a Financial Planner risk plays a huge role in my career and daily decisions. It also fascinates me how clients and people in general view it, particularly where investments are concerned.

Risk got us out of the caves and into Canary Wharf. One member of Homo Sapiens thought “I wonder what’s over that hill” and ventured forth to begin the progress of humanity. Napoleon took Risks. Churchill took Risks. NM Rothschild took risks. Reward is clearly proportionately linked to risk in every walk of life.

So what do every day people think of money and risk? Here are results of a small (and largely amateur) survey of around 80 people. Each was given this scenario. They had £1000 now and could choose between a 50% chance of doubling their money or a 100% certainty of making 50%. Over 80% of them chose the second option – preferring a guaranteed £500 to a possible £1000.

Then they were told they had £2000 already and were asked to choose between a 50% chance of LOSING £1000 or a guaranteed loss of £500. Nearly everyone now chose the first option!

In fact in each scenario there were the same outcomes…a 50% chance of £1000, a 50% chance of £2000, or a guarantee of £1500 – yet when the emphasis was on a loss people became more inclined towards risk taking. This may be why guaranteed bonds and absolute return investments are so popular…in general people like guarantee returns on the upside but take risks to avoid losses!

Ten Reasons Why I Love Blade Runner

Ten Reasons I Love Blade Runner

Blade Runner is one of the greatest things about the 1980’s along with The Smiths, Boys from the Black stuff and The Rubik’s Cube and I was in my twenties when I first saw it which may have deeply informed my opinion. It remains in my top five movies and has a good claim to be number one.

Like many I caught up with it on Video and only saw it in the cinema during a re-release phase much later, but it first came to life in 1982. We are still nine years from the year in which it is set, 2019, and Los Angeles may not end up quite as the film foretells but nevertheless as a prophetic film noir Blade Runner remains fresh, relevant and never feels or looks dated.

So here they are, the ten reasons I love Blade Runner – hopefully not too obvious reasons!

1. What does it mean to be human? If you have ever known anyone ravaged by Alzheimer’s or another form of dementia you will know how much of a human personality depends on memory. Blade Runner extrapolates this and asks if we perfect the creation of a living organism and pre-programme them with memories that to them are real, what is the difference?

2. Religious Allegory. Most faith leaders will explain number one (above) as follows: Humans have a soul which is only temporarily housed in the body before ascending to heaven and God’s care. Yet here in the film God has been replaced by the Eldon Tyrell of The Tyrrell Corporation and when Roy and Sebastian meet Tyrell they ascend to his heaven, the penthouse apartment atop a great tower, in a great escalator. The chess game that Roy helps Sebastian win is actually a famous win by the Grandmaster Anderssen called “The Immortal Game” – coincidence? Tyrell is creator and Roy his son – but is he Adam or Christ? This is touched on in the final fight scene when Roy plunges a nail through his palm in a biblical allusion to the crucifixion. As Roy dies a dove flies to heaven in slow motion…his soul? Or a reminder that he doesn’t have one?

3. The Visuals. From the very first scene of the film, the Blade Runner world is set. Shortly after the words explaining what the Blade Runner Units do roll up the screen in bold typeface – “This was not called execution. It was called Retirement” – we are given a glimpse of Hades through a petrochemical haze as creaking metal towers belch fire into the skies of LA against the twin towers of the Tyrell Corporation. That attention to visual detail keeps the film within its fantasy boundaries superbly well from then on. The Neon signs, the streets, the empty warehouse apartment block it all exudes Ridley Scott’s genius of creating a world within a world – Alien, Gladiator even Thelma & Louise to an extent.

4. The drop of blood. After Deckard, played by Harrison Ford, has been beaten up good style by Leon and he returns to his apartment there is a scene when a tiny drop of blood runs down his face. The details and mood are second to none.

5. Vangelis’ music. OK its eighties synths and of its time but it never seems like that. Somehow it still sounds like a futuristic score with sweeps and dives that fit perfectly. The solo saxophone playing the love theme is also timelessly beautiful.

6. The ambiguity. Is Deckard actually a Replicant too? This is hinted at throughout and if you watch the film from the perspective that he is it does have a different dimension. In the Directors Cut the famed unicorn dream sequence was inserted when Deckard sleeps at the piano. Later Gaff leaves a tiny model unicorn outside Deckard’s apartment before he flees with Rachael…implying that he knows the unicorn memory has been planted and that Deckard is a Replicant. “It’s a shame she won’t live, but then again who does?” is also highly ambiguous. Ridley Scott has said he thinks Deckard is a Replicant but hey what does he know.

7. Leon. What a performance. What a character. See also Roy...

8. Sebastian’s Toys. “Home again Home again Jiggity Jig”. The toys in J.F. Sebastian’s flat, which he has presumably made in his spare time, seem to underline the horrific potential of advance human engineering and its implications. They also are his only friends as he is clearly a social misfit and is bullied by Roy and Pris as if he were at School.

9. Methuselah Syndrome. The irony that J F Sebastian, one of the chief human engineers, is prematurely ageing like the Nexus 6 Replicants he has created could be clunky but it isn’t. It serves to further amplify the question of the movie – what does it mean to be Human?

10. The different versions. OK so the first cinema friendly version basically expired horribly in that last scene with Deckard and Rachael driving off into a happy sunset but it is not quite as bad as it seemed to me at first. The film is questioning what makes humanity human and also raises questions about the importance of enjoying what little time you have. That final scene does continue that in a way. However I prefer the darkness of the definitive Directors Cut – Ridley Scott’s preferred version, without Harrison Ford’s Deckard voice over explaining everything as if the audience were idiots.

So there it is…ten of many reasons why I love Blade Runner.

How to Win at Monopoly!

How to Win At Monopoly!

As a Financial Planner I should know at least the theory on how to win at Monopoly!

Believe it or not Monopoly began life as a game designed to show the social economic folly of land ownership based on the economic teachings of one Henry George. It was called The Landlords Game in 1903 and was essentially a satirical model.

The Parker Brothers game we know and love began in 1935, presumably offering solace to many dreaming of asset ownership in the Great Depression. It was phenomenally successful of course and is largely responsible for the English-Speaking people’s obsession with home ownership…we all get indoctrinated as kids!

So how can you win? Well it’s all about return on capital – like any investment. The best yield in rents comes from the light blue properties at 159% return, in the UK that’s Angel Islington, Euston Road and Pentonville Road, followed by the Orange Set giving 141% return. That is the return for building hotels on all three sites relative to the cost of acquisition! I always go for Orange because the odds of people landing there are far higher – 7 steps from “Go” for example as well as the fact that the Blues get bypassed often by the “advance to…” cards.

The other rule is once you complete a set...build, build and build again! The cost of mortgaging other incomplete properties will be made up by the returns on your investment… it’s called leverage in the real world. The loss of rent on a Red site will be about £18 but mortgaged it frees up enough to buy a house on one of the Orange sites which more than makes up for it.



Of course any game with die involved is based on luck but there is a large element of skill as well and over time, as in Poker, better players will win more often!

Happy House Hunting!

Great Songwriters Kep Secret

For any of you out there who haven't yet heard one Lucas Renney check him out on Myspace and download his excellent album "Strange Glory" which is just sublime.

You can hear Lucas, along with Tom-Waits-o-phile Simon Schama, on Radio 4 at 6.15 this Saturday on "Loose Ends" no doubt chatting about great music. Has to be better than the pap on TV at that time...

My other great favourite is Boo Hewerdine who is somewhat more accomplished than Lucas having been at it a bit longer but they share that certain spark. If you haven't heard Boo's work directly you will no "Patience of Angels" the Eddi Reader number one and of course you have to hear "Bell Book and Candle" as well.

Third super songwriter is Mr Nick Harper - son of folk legend Roy Harper who jammed with Jimmy Page amongst others. Nick writes fantastic songs andplays guitar like a demon. Check out his fantastic ballad about world leaders "The Magnificent G7" which also showcases his unique detuning technique where he adjusts notes by turning the tuning pegs like a B-Bender on a Telecaster (for guitar devotees)

There - three precious gifts to thos who want them.

Bye for today...

The First - The Very First

A place to share musings and thoughts on the world of Finance and the Buttercase universe...

The big issue for me at the moment is the creeping threat that is the ageing population in Western economies. The first baby boomers are now reaching retirement and this will peak in 2012 when an extra 0.8 million pensioners will have retired - a bigger increase in two years than in all the previous decade. So those in the next wave, Generation X, and to some extent the younger Generation Y will pick up quite a hefty tab in additional tax and lower spending by the Government.

Solution: policies must be redistributive across the generations. The huge asset price increases enjoyed by the baby boomers must be reflected in tax policy - maybe inheritance tax is a good thing after all if it means better hospitals and school buildings (and fewer wars) but maybe there should be incentives for other forms of redistribution. Tax incentives for Grandparents to fund higher education, housing and employment for example. Tax is seen as a bad thing yet hypothecated tax may not be. Encouragement for the baby boomers to support their less fortunate children and grandchildren through the tax system may earn support.

OK - also for my very first blog I will share all that I currently deem wonderful in the world, edited into a Top Ten in true High Fidelity Bloke style (although in no particular order):

1. The Guitar : http://www.prsguitars.com/products/index.html
2. Tony Benn : http://www.tonybenn.com/publ.html
3. Poetry : http://www.poemhunter.com/
4. Tom Waits: http://www.tomwaits.com/
5. Dali Art: http: http://www.dali-gallery.com/   
6. Chess: http://www.chess.com/
7. Popular Science:  http://www.popularscience.co.uk/
8. History:  http://www.bbc.co.uk/history/
9. Christopher Hitchens:  http://www.hitchensweb.com/
10.Politics and Economics:  http://www2.lse.ac.uk/home.aspx

There - it will change I am sure but right now today August 2010 that is the way life is...