Commment, analysis and other picks from Monday’s FT,
Wolfgang Münchau: Trichet’s real motives
If you take your inflation target seriously and literally, as the European Central Bank does, the decision to pre-announce an almost-certain rate increase is internally consistent, writes the FT columnist. I had expected the ECB to raise its short-term refinance rate in June, but it is now aiming for April. This two-month gap has nothing to do with unexpected price developments. The decision to jump early is political, there are three possible reasons, and one speculative theory.
Tony Jackson: Treat hard and fast rules with caution
If there is one investment proposition that rational observers can agree on, it is that bonds should do less well over the next 30 years than over the past 30, writes the FT columnist. The circumstances that produced that golden age for bond returns – falling inflation, surplus savings and the rest – will not be repeated, or not all at once. It might seem to follow that equities will do better than bonds in the coming decades. Certainly, their dreadful performance in recent years is at odds with the long-run record. If the old pattern recurs, it will doubtless bring a revival of that rather battered concept, the equity risk premium. I for one would rather regret that, for it is a theory I have some difficulty with.
Peter Mandelson: UK was right to do business with Libya
The stigmatisating of every business leader, academic, politician and public servant who has had anything to do with Libya in the last seven years has been taken to ridiculous lengths in some quarters, writes the former UK business secretary, who was EU trade commissioner 2004-08. Spurred by universal disgust with the Gaddafi dictatorship’s recent outrages, sense and judgment have flown out of the window as normally intelligent commentators vie in their denunciation of anyone who acted in the public interest in deepening ties with Libya’s people, institutions or economy.
Clive Crook: Politics is pulling America back down
The US economy is showing signs of life but the expansion is still tentative, writes the FT’s US columnist. That is the message of the most recent economic indicators. Congress and the White House have no intention of improving the country’s prospects and might choose to make things worse. That is the message from Washington, DC.
MoneySupply: Mervyn King and the banks
Bank of England governor Mervyn King sparked another firestorm at the weekend with his interview with the Daily Telegraph, writes the FT’s economics editor Chris Giles. Banks and bankers have been licking their wounds after his rather unflattering remarks. Although it must be noted that very little in the interview was new, the governor’s use of much more colourful language for financial regulation than for monetary policy, suggests he knew and wanted his remarks on banking to make a splash.
Analysis: US military spending, a question of scale
Over the past decade, grand US defence budgets have faced little opposition, passed by Congress as part of the price for global leadership and the prosecution of the war on terror, write the FT’s Richard McGregor and Daniel Dombey. But with Washington in a fever over the country’s record budget deficit and weary of foreign wars, Pentagon spending is now causing deep fissures across the political spectrum.
Vincenzo La Via: Financial rules should do more
Overhauls of global financial rules typically take years to put into action and rapidly lose relevance, writes the chief financial officer of the World Bank Group. The Basel I and II accords succeeded one another, and took roughly a decade each to implement. The global financial crisis abruptly ended implementation of the latter. Basel III may be no different. The risk is that today’s proposed fixes address the problems of yesterday. If these fixes look outdated now, then they will look even more irrelevant by 2018 – the deadline for full implementation.
GavynDavies: A week in global macro, GDP growth
This week, the oil shock continued to build, but financial markets still viewed it as insufficient to puncture the upswing in the global economy, writes the FT commentator. Business survey indicators in America and Europe hit new peaks for the cycle, but China continued to lag. The ECB responded by pre-announcing its intention to raise interest rates next month – the first of the major central banks to do so in the developed countries. But the Fed remained determinedly dovish. The extent of this continental drift between the big two central banks is quite unusual.
FTfm: End of the currency war?
The “currency war” is over, thanks to rising food price inflation and the uprisings in the Arab world, according to BNP Paribas Investment Partners, writes FTfm’s Steve Johnson. Guido Mantega, the Brazilian finance minister, attracted global headlines in September when he said the world was in an “international currency war” as governments fought to weaken their currencies to promote economic competitiveness. Now, surging food price inflation and new-found willingness by disaffected populations to confront even seemingly well-entrenched governments means politicians are rapidly changing course, notes Sergio Trigo Paz, BNP’s chief investment officer for emerging market debt.
Lex – Apple: iPad 2 winners and losers
If every component supplier that was rumoured to be supplying the iPad 2 ended up doing so, the latest tablet from Apple would be the size of a house, notes Lex. That is why tech boffins are quick to whip out their screwdrivers to see which names are stamped on to the bits inside. Once again, many of the biggest links in the iPad supply chain can be found in Taiwan. While there are many Taiwanese winners in the iPad bonanza, a boost to top line revenues is one thing, profitability quite another.
BeyondBrics: Aoifinn Devitt – Asia’s hot and cold markets
Capturing the growth potential of Asia’s promising but immature markets is a process plagued by inflation fears, volatile fund flows and other bumps in the road – not to mention investor flight when global political risk spikes and jitters run high, writes Devitt, portfolio manager of the City Financial Asian Absolute Growth fund, a fund of hedge funds focused on Asia. Winning funds focused on broader Asian growth will be those that embrace the less sensational, mature, economies, which present a counterbalance to the adolescent frenzy of their emerging neighbours.
FTTechHub – Sony makes most game moves
The 2011 Game Developers Conference, one of the “majors” in global video game events, has just wrapped up in San Francisco after five days of events and announcements surrounding new games, technologies and services. The FT’s Chris Nuttall recounts the highlights and assesses what it all means for the big game makers.