Hubris and nemesis: insights into the financial crisis

Ten years ago, the demise of Lehman Brothers marked the height of the financial crisis. At the time, I was an economist at one of the UK’s largest financial institutions. Working there gave me abundant insights into the psychological biases at play, both in that institution and in the companies that it supported. Many of … Continue reading “Hubris and nemesis: insights into the financial crisis”

Doom Loop

The most likely candidate for the next ‘Lehman moment’ is in Europe. In some ways the regulatory response that followed in the years after the collapse of Lehman Brothers has been a success. The days of racy balance sheets chasing outsized profits on wafer thin capital are largely over; replaced by a mantra of prudence … Continue reading “Doom Loop”

How long will the bull market last? Four areas to watch…

The global economy’s ongoing expansion continues to underpin the current equity bull market, which is already one of the longest-running in history. We do not expect this dynamic to change in the short term, but there are shifts occurring within the economic backdrop which warrant monitoring for signs that the investment environment may be beginning … Continue reading “How long will the bull market last? Four areas to watch…”

What does a normal interest rate look like?

Markets have been worried that interest rates in the west are heading back to normal in a hurry. If rates go too high too soon they could damage the recovery and do more harm to shares. As the West agonises over the pace of putting up interest rates and winding down special monetary measures, the … Continue reading “What does a normal interest rate look like?”

UK interest rate rises to be earlier and greater than expected

Latest comments from the Bank of England (BoE) and its governor Mark Carney indicate that UK interest rates are likely to go up sooner and faster than previously expected.  UK policymakers’ concerns about inflation have prompted Schroders’ economists to bring forward to November their expectations of a rise in interest rates. Schroders’ Senior European Economist … Continue reading “UK interest rate rises to be earlier and greater than expected”

Rebuilding macroeconomics: an intellectual revolution in the making

The severity of the global financial crisis, and the weakness of the subsequent recovery, triggered much soul-searching among the economics profession. The global economy may finally be escaping from the long shadow of the crisis, but macroeconomics has continued to undergo a major reassessment in light of its apparent failure to predict and explain the … Continue reading “Rebuilding macroeconomics: an intellectual revolution in the making”

Investors should prepare for a thaw

I was recently in New York. While the snow and freezing temperatures ensured there was a chill in the air, my bigger worry was the air of complacency among investors. Like other stock markets around the world, the S&P 500 and Dow Jones were recording all-time highs. Meanwhile, the much followed VIX index has been … Continue reading “Investors should prepare for a thaw”

Can European politics damage the euro?

It is often fashionable to worry about European politics as newer parties of the right, left and centre emerge to challenge the economic orthodoxy of the Eurozone. We saw this at its most spectacular in Greece, where Syriza swept aside the old parties and gained a majority in a proportional system designed to make that … Continue reading “Can European politics damage the euro?”

Keeping the faith: now is not the time to abandon inflation targets

Monetary policy is at an inflection point. The extraordinary support from central banks is being gradually scaled back as economies improve and financial markets remain calm. Yet investors remain sceptical about how much central banks will raise interest rates by, because inflation remains stubbornly low across most of the advanced world. Historically, declining unemployment has … Continue reading “Keeping the faith: now is not the time to abandon inflation targets”

US tax cuts: do the sums add up?

The US Senate recently passed its tax bill supporting the Trump administration’s tax reform measures, which call for a $1.5 trillion net tax stimulus. Supporters of these tax cuts have argued they will result in stronger economic growth, as did the tax cuts of Ronald Reagan in the 1980s and George W Bush in the … Continue reading “US tax cuts: do the sums add up?”

Budget 2017 predictions

Chancellor Phillip Hammond will present his Autumn Budget to Parliament on Wednesday 22 November. The statement has been widely tipped to contain some concessions to younger voters but this will do little to relieve the pressure on maintaining fiscal targets. The Conservative Party conference in October outlined a number of policies aimed at courting younger … Continue reading “Budget 2017 predictions”

Is this the end of the global cycle?

Markets often have setbacks. There is always plenty to worry about. Recent price falls have not related to any one event or new fact that has emerged. Some people want to take some profits. Some people have become more nervous about how sustainable the recovery might be. Some worry that the Central Banks led by … Continue reading “Is this the end of the global cycle?”

Asian reforms and growth

The Asian economies are growing well, with their stock markets responding favourably to higher company earnings and dividends. Japan in particular has put in a strong performance in recent weeks in the wake of Mr Abe’s victory in an early election. Foreign investors have been keen to back the renewed government as it continues with … Continue reading “Asian reforms and growth”

Jay Powell nominated as next Fed Chair

President Trump has nominated Jay Powell as the next Chair of the US Federal Reserve. This was largely expected, despite Trump’s hosting of a somewhat convoluted selection process (involving a promotional video), which saw numerous candidates briefly take the role of favourite. The official changing of the guard occurs at the start of February next … Continue reading “Jay Powell nominated as next Fed Chair”

Eurozone: Political risk still simmering

The major political obstacles, which had held back European risk assets, have now been overcome. However, events in Austria, Spain and Italy highlight the ongoing trend towards populist, nationalist and now regionalist sentiment. In Austria, although the far right Freedom Party (FPÖ) was recently defeated in elections for the legislative parliament, it could enter government … Continue reading “Eurozone: Political risk still simmering”