As we prepare for the possibility of another Trump presidency in the US, it’s probably a good idea to look back at his trade war with China. After all, it seems highly likely that if Trump gets back into office, he will once again ratchet up tariff barriers for Chinese imports and China will retaliate with tariffs on its shores. So, who won last time? First, let’s be clear about one fact. On average, there are only losers in a trade war. Back in 2019, I discussed how increased uncertainty about future trade led to less investment and lower GDP growth. Back then I cited a study that indicated t ..read more

In theory, inflation should be good for public finances. At least in the short-term tax revenues and revenues from sales taxes and VAT should increase as the prices of goods and services and wages rise. This should reduce budget deficits, but in the long term the government must pay higher wages to civil servants and purchase goods and services at higher prices as well, negating this short-term boost. That is theory. In the real world, it is not so easy, and stock market investors should know that because the same applies to equity returns. One of the common misconceptions about stocks is that ..read more

Living in the UK, there is strong support for low tax policies and US style tax cuts to boost growth. But as the disastrous mini-budget by ex-PM Liz Truss has shown, such an economic policy is unachievable in the UK at least when it is done by increasing budget deficits. A couple of recent studies show why the US is in a privileged position vs. the UK and can get away with reckless budget deficits like no other country can. The key difference between the US and the UK is, of course, the currency. The US Dollar is the world’s reserve currency and everyone who is involved in international trade ..read more

Earlier this year, we had motivational posters in the elevators of our office building, reminding us that 19 February 2024 is national random acts of kindness day, and we were supposed to engage in random acts of kindness to make us and others happier. Every time I got into the lift, I wanted to rip these motivational posters off the wall. Not because I am German and cynicism is a birth right to me, but because there is no evidence that random acts of kindness make you happier. As many people who know me are aware, I like to investigate happiness research partly because it is fun and partly be ..read more

Everybody loves to complain about their taxes. But could you lower them? The Institute for Fiscal Studies has created a magnificent tool where you can play Chancellor of the Exchequer (Treasury Secretary of the UK for readers abroad) and try to come up with a long-term budget. Try it out, it will give you an idea of how difficult it is to be in charge. The tool allows you to adjust taxes and spending (within limits) and calculates the impact it has on government borrowing in five years. Hence it is a long-term spending plan for the five years after the upcoming general election in the UK. Here ..read more

It is Fed Day (again) and investors around the globe are eagerly expecting the decision and forward guidance on interest rates. Is today the day when the Fed will cut interest rates or will they wait some more? You can be sure that there have been lots of rumours going round in recent days (I don’t know because I write these lines several weeks in advance). But should you pay attention to such rumours? Research by the ECB indicates that rumours and leaks may better be ignored. The research carefully sifted through news reports by Reuters, Bloomberg, and Market News International to look for le ..read more

One of my favourite sayings is from the inimitable Lily Tomlin: “The trouble with the rat race is that even if you win, you're still a rat”. This is true for investors as it is in life in general. The classic ‘rat race’ in the investment world is the performance league table and the comparison of a fund’s performance vs. a benchmark. If you beat the benchmark or beat most of your peers, it’s all fine, but what do you do if you are behind? Most studies have shown that investors who are at the bottom of a performance league table or who trail their benchmark tend to increase risk in their invest ..read more

Tax havens, man. There are plenty of legitimate reasons for people to move their money to offshore tax havens, for example to protect their assets from an autocratic regime or potential expropriation. And of course, there is nothing wrong with legally reducing your tax burden. But when tax havens help criminals and people subject to international sanctions hide their money it crosses a line. And unfortunately, that is what they are doing. A new analysis from Bocconi University and Newcastle University shows just how much people who are subject to international sanctions for corruption, drug tr ..read more

A key driver of the equity risk premium is compensation for the possibility that a company can go bankrupt and shareholders can lose all their money. But there are a few stocks out there that allow investors to own stakes in companies that cannot go bankrupt. Ever. What a great investment they would be. The companies I am talking about are central banks. While the vast majority of central banks are owned by the government, a precious few are publicly listed and allow everyone to take a stake. Mind you, the public is allowed to only take a minority share so if you work for an activist hedge fun ..read more

I make no secret of the fact that I dislike investment consultants. But I probably will never write what I really think about them here because if I ever lose my job and move back to the asset management world, I might have to work with them again. And if they know what I think about them, I probably would be black balled by pension funds and their investment consultants everywhere. Because if there is one truism that every asset manager knows it is that investment consultants have enormous influence over the pension funds they advise. Investment consultants are the gatekeepers that can preven ..read more