Evil Diaries: The investment that pays less to the holder than he invested
A few days ago I asked Tom Hayes what he thought of the long gilt as a short. He replied that theoretically the bond to short is the German Bund since, astonishingly, the yield to redemption is negative. This has caused me to wonder whether the UK is missing a trick here.
Debts due by governments in the Eurozone are considerably cheaper in the case of non-German governments’ issues. This is not supposed to be the case since everyone is supposedly lovey-dovey in the Eurozone. Only that investors are less impressed. The reason of course is that investors reckon that the Germans will stand by their undertakings.
The UK government’s liabilities are all expressed in sterling which means that if push comes to shove the chancellor of the day simply prints bank notes thus protecting the government’s name as regards repayment. Such a course of action is not desirable since it can only be done very rarely – possibly once every fifty years. The Labour Party has had a go at destroying the currency to yield spending money, partly as a matter of policy and partly as a response to events – I am here thinking of the Heath Barber boom on the run up to the inflationary phase of the mid seventies.
No such remedy is available to Euro debt obligations. So were the UK to borrow 50bn Euros for, say, ten years it might find the Euro strengthening against sterling with the effect that however cheap this obligation looked at the time of being contracted there could be a major loss to come. However, I reckon that this is worth the gamble. Particularly if Euroland implodes. Which it might.
I had the overpricing of the German Bund pointed out to me by Tom Hayes but he also pointed out that exactly the same situation obtains in Japan. Its debts, known as JGB, have killed off shorters on an heroic scale. Indeed JGB is known as the widow maker. So it is all a case of moderation in all matters.
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This coming weekend should see an article published in The Spectator concerning Tom and the alleged criminal rigging of Libor. Master Investor readers may be surprised by Gerald Frost’s article. And next week at 1.45 p.m. for fifteen minutes on Radio 4, Monday to Friday, it gets even worse. I fancy that a knighthood or two might get stripped away. That’s the fashion these days.
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About 40,000 pigs have been killed off across the country since the cost of feeding them through collection delays renders them uneconomic. Collection has been delayed since there are insufficient staff to handle the abattoirs and carcasses. And it is said that the reason for there being insufficient butchers is Brexit which has led to a visa bottle neck constricting the supply of butchers from their home bases on the Continent. This looks to me to be more like a massive failure by civil servants to plan sensibly. As I type, a further 200,000 pigs are lined up to be slaughtered needlessly.
I took out a profitable long term short position on Italy’s sovereign debt (BTP) approximately 6 months ago because:
1) The debt is so large I cannot see Italy ever being able to repay it
2) The debt’s servicing costs alone are huge
3) The ECB may stop buying Italy’s bonds due to rising inflation, i.e cut off Italy’s life support
4) The single currency/Eurozone is / was a crazy idea and its founders should have been fined/jailed years ago for imposing this ticking timebomb on Europe’s people – Italy using the same currency as Germany and Greece just doesn’t make sense
5) Italy lacks political stability which makes it less investable
6) Italy has lost so much of its industry and employment to Germany, I can’t see how its economy will consistently grow again
It isn’t a question of civil servants failing to process visa applications. The Government decided we no longer needed butchers from the EU as part of it’s taking back control of the borders policy. When it was realised we did need the EU operatives after all a short term fix was introduced which is so unattractive that hardly anyone has applied to come here to help out. The only solution will be to significantly reduce the size of the UK pig sector, and rely on increased imports of ready butchered meat.
” A failure by civil servants to plan sensibly.”
As a species they repeatedly prove themselves totally incapable of understanding “consequences”.
Trust you’re well, and thanks for all the insight.