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The Trump Shock

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Patrick Kelliher

I write this just after the second presidential debate between Donal Trump and Hilary Clinton. With sordid details emerging of Trump’s attitude to women, his odds of winning have drifted out from 6/4 to 4/1 [1]. However, I don’t think Trump is out of the race yet. I think we will see more revelations about Hilary Clinton’s private e-mails which could yet turn the race on its head. I also think polls understate his vote as he is more popular with elderly voters who are more likely to vote on the 8th November. We could still see a shock win for Trump.

I have therefore been trying to think what risks President Trump may trigger. It is probably fair to say that his election will lead to increased US protectionism. TTIP and TPP will be dead in the water (if they are not already!). NAFTA could be scrapped, with adverse consequences for Mexico and Canada – as well as the US. As it takes a tougher stance on trade, there is a real risk of retaliatory tariffs and...

QE – fuelling the downturn

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Patrick Kelliher

The announcement of a further £60bn of Quantitative Easing (QE) by the Bank of England (BoE) on Thursday 4th August [1] has been welcomed as A Good Thing, but is it ?

The markets certainly thought so. The FTSE100 has risen by 3.5% since [2]. Bond prices have risen on the back of QE together with £10bn of Corporate Bond purchases also announced.

However the corollary of higher bond prices is lower bond yields. 20-year Gilt yields have fallen by nearly 40bps from 1.65% p.a. on the 3rd August to 1.27% on the 10th August. Index-linked Gilt yields have fallen similarly – the 20-year index-linked Gilt yield has fallen from -1.40% p.a. to -1.70% p.a.[3].

These falls in yields have pushed up the value of defined benefit pension scheme liabilities more than the rise in scheme assets. Hymans Robertson, a leading pensions consultancy, has estimated that the fall in yields has increased pension scheme liabilities by £70bn to £2.4 trillion (compared...

The ghost of 1938

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Patrick Kelliher

Since the financial crisis of 2007/09, economic growth in the UK and the rest of the EU has been patchy but the US has generally been posting steady if unspectacular growth figures. Were it not for dips in Q1 2011 and Q1 2014, it would be entering its 26th quarter of real growth since the trough of the downturn in Q2 2009 to the end or 2015 [1]. This is on a par with the expansion in the US economy in the run-up to the financial crisis, which begs the question: how long can this growth last ? and what would be the impact when the recovery falters ?

An uncomfortable precedent if it falters is the US recession of 1937/38. As at present, the US was recovering from a balance sheet driven recession, though the depression of 1929/33 was much worse the financial criis of 2007/09, with GDP falling 45% in nominal terms between 1929 and 1933. After that fall, GDP recovered strongly, growing by 63% in nominal terms between 1933 and 1937, partly on the back of President Franklin D. Roosevelt’s...

SERPS mis-selling

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Patrick Kelliher

In recent weeks, ads for a SERPS misselling claims company have popped up frequently on my Facebook page [1]. Not content with mortgage endowment and PPI misselling, ambulance chasers are also looking at contacting-out sales as a source of claims and fee income. Just how serious a threat is this ?

At the heart of the misselling claims are appropriate personal pensions (APPs) used to contract out of SERPS [2]. The government paid National Insurance rebates into the APP but in return, a deduction would be made from SERPS benefits in respect of the period contracted out. When contracting out through APPs was introduced in 1988, the rebate did not vary by age, whereas the value of SERPS benefits foregone increases with age, so contracting out was generally expected to be beneficial for younger people below a “pivotal age”. Although rebates were then changed to be age related, the expectation, based on assumptions for investment returns and life expectancy, remained that...

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