Category: John Kay

At this season it is customary to look back on the achievements of the year that is past and to consider what may unfold in the year to come. Nate Silver, the young statistician who became an unexpected hero of 2012, is relevant to both exercises.

With gift-giving as with finance, it takes an eclectic approach to understand human behaviour Why do we exchange gifts? I once enjoyed a heated debate with a group of anthropologists. After discussing what we might learn from each other we adjourned to the pub, where the debate continued. We bought rounds of drinks. But why?

A widely noted speech last week by Bob Diamond, chief executive of Barclays, coincided with the 25th anniversary of Big Bang, the great shake-up of the structure of the City of London. The transformation of the man – who had told the world the time for remorse was over – into a figure who pleaded for more public understanding of his industry, was widely noted.

In the 1990s, when European monetary union was a plan but not a reality, I would explain to students that the effect was to replace currency risk by credit risk. With exchange rates free to float, loose monetary and fiscal policies would lead sooner or later to a fall in the exchange rate. That expectation implied higher interest rates. Currency markets would limit the scope for bad economic policies.

I have been studying the prospectus for a “kickout bond”. Many retail investors in Britain may recently have received solicitations for these products, probably with rather more appealing names. The typical structure of a kickout bond is something like this. If the FTSE index is higher in a year’s time than it is today, you receive a 10 per cent return and your money back (no doubt with an invitation to apply for a new kickout bond). If the FTSE has fallen, the bond runs for another year.