Western capitalism is no longer working well for most people

Since the collapse of communism, capitalism in its various different flavours is the only realistic option for countries wanting high living standards. But the US/UK variant is failing to deliver mass prosperity, which threatens to undermine it an generate a potentially ugly backlash. * The US, Sweden and Japan are all capitalist societies, meaning thatContinue Reading

The oil price and short and long run supply

The biggest topic in the global economy remains the oil price. It’s notoriously difficult to forecast commodity prices but how can we make sense of what would push the price up or down? A basic demand and supply framework gets us quite a long way * A market consists of demand, supply and some mechanismContinue Reading

Why is it riskier to be a worker than a capitalist?

We take it for granted that capitalists hire workers rather than workers hiring capital, but why? The main reason is the difficulty of diversifying labour, which means that workers ideally require some form of insurance to offset their concentration of risk. But that is only imperfectly available through the market and this is an importantContinue Reading

Letter from Sanya

A group of us from Cambridge visited the resort of Sanya in China’s Hainan province, to take part in the annual Sanya Forum and launch our China Advisory Council * The Sanya Forum can be loosely thought of as a sort of Chinese Davos, though confusingly China has its own official summer Davos meeting. It’s aContinue Reading

The monster returns? The revival of the CDO

CDOs – collateralised debt obligations – were widely seen as the main villain of the financial crisis. CDO issuance peaked in 2007, collapsed in 2008 and is now gradually recovering. Should we be worried? * The latest Bank for International Settlements Quarterly Review has an article about the slow revival of CDOs. The CDO wasContinue Reading

And three more quotations on my birthday

“When I was five years old, my mother always told me that happiness was the key to life. When I went to school, they asked me what I wanted to be when I grew up. I wrote down ‘happy’. They told me I didn’t understand the assignment, and I told them they didn’t understand life.”Continue Reading

Interview in China Daily on the possible Chinese investment in new British nuclear plant

UK nuclear plant may be a game changer  China Daily is an English language newspaper, available in many hotels in China and published abroad. It’s often seen as a window (sometimes a rather opaque one) into Chinese government thinking, as it comments on policy, often in a fairly critical way. I was interviewed in BeijingContinue Reading

The accidental trillionaire

China’s $3.9 trillion foreign exchange reserves were not planned but arose as a side effect of a strategy, now ended, of keeping the RMB exchange rate lower than the market would have set it. * Last week I visited the home of China’s SAFE – the State Administration of Foreign Exchange. SAFE’s reserve management divisionContinue Reading

The changing shape of the asset management industry

The asset management industry is huge, growing in size, especially in Asia, and increasingly dominated by a small number of giant companies. Asset management includes traditional “institutional” investors such as pension funds, insurance companies, mutual funds and money management companies, plus hedge funds. There are economies of scale in asset management: you can manage $1Continue Reading

Why is it so hard to finance new infrastructure?

There is a great need for infrastructure investment in both developed and developing countries. The former need both refurbishment of old assets and additional capacity. The latter need lots of new capacity, mainly arising from rapid urbanisation. There is also a large pool of savings in pension funds, companies and sovereign wealth funds that isContinue Reading

Why MFin students are a good fit with central banks

Central banks, which are the most important financial institutions in most countries, have typically employed lots of economcs graduates in the past. They might benefit from adding a few finance graduates in future. Central banks have responsibility for controlling inflation and influencing the wider economy. In some nations they also have responsibility for regulating the financialContinue Reading

Money, money, money – three different meanings

Money can mean physical cash, or the funds in a bank account or the flows of short term funding used by government and companies. No wonder finance can be confusing. * Finance is a subject bedevilled by jargon – words, phrases and acronyms that are barriers to understanding the relatively simple things that actually go onContinue Reading

Natural gas is not (yet) a global commodity

A global commodity, in economic or investment terms, is a standardised, homogeneous good that sells for the same price everywhere, subject to transport costs and tax. Oil is the classic global commodity. A chart from the IMF World Economic Outlook, just published in October 2014, shows that natural gas isn’t. But it probably will become moreContinue Reading

US inflation: still showing no signs of being a problem, let alone hyperinflation

Every year when the new MFin class starts, there is usually at least one person who asks the question: when will QE cause a big rise in inflation? The person is often from a hedge fund or trading background because that seems to be where this point of view is most commonly found. The assumption isContinue Reading

Financial innovation: peer to peer lending

Peer to peer lending (P2PL) is an old idea given a new twist by the Internet: lending from households to businesses without a bank in between. P2P has flourished in the UK in recent years and is now growing fast in China. Small businesses normally rely on banks for funding because they are too smallContinue Reading