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Archive for October, 2014

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Posted On 28  Oct  2014  

Longevity risks and how to manage it?

The world is ageing rapidly. The human lifespan will, in our opinion, continue to increase as advances in medicine, diet, genetic engineering, organ replacement, tissue regeneration accelerate. We see natural disasters, climate change and large scale acts of terrorism as the main risks to premature deaths. On the whole, everywhere, people are living longer and we expect that in the longer term the gap in life expectancy between the developed nations and emerging countries will widen, even as life expectancy improves during the initial phase in developing countries. This is largely because prolongation of life using technology advances is costly and will not be widely available, just as the iPhone cannot be afforded by the majority of people in India! For insurance companies getting longevity assessments right is crucial. On the one hand the cost of insurance premium declines if people are not expected to die on schedule and on

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Posted On 06  Oct  2014  

Unconventional monetary policy for unique times

Given that the majority of the world’s population lives in developing countries and the fact that the global economy is going through a deflationary environment is  an unusual condition and shows that the world is split between the problems of the developed economies and the challenges of the developing markets. There is something seriously amiss when we look at the world and measure economic indicators. The deflationary effects of Japan rose from the bursting of the bubble all those years ago and for the West it is due to the the financial crisis of 2008. Both situations show that an economic system that favors the few, but relies for growth on the spending power of the majority is not inherently stable. Given where the stock markets are now, the few are doing very well thank you. In the developed countries the majority are still looking for jobs or wage increases

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Posted On 06  Oct  2014  

Pick a fund, any fund…pick a manager, any manager

Tim Hartford is an economist and a sophisticated thinker. In the Weekend FT Tim writes about fund managers and passive investing and suggests all financial assets have the same expected risk adjusted returns or ‘not far off’ and then way pay for active asset managers. I heard something similar at a presentation in Zurich where a friend of mine compared long term returns from commodities and equities and deduced that they are more of less the same over, say a 30 year, period. There are obvious flaws in these observations and conclusions: 1. The size of each asset class is different and if we were to allocate assets to each class in more equal way, the risk-return profiles of the different asset classes would change., simply because commodities cannot absorb the amount of capital allocated to equities. 2. For the average productive citizen who starts to invest in financial asset

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Posted On 04  Oct  2014  

How the straight jacket of old rules is ruining Europe

If there is anything that Ben Bernanke proved it is that QE has worked. The expansion of money supply when interest rates have been zero has led to rising stock markets and improvement in employment. Britain is experiencing economic revival and as is Japan. The ECB has finally announced a bond buying program to stimulate the economy. This is all good news. But is there any point to sticking to the deficit rules for France, Italy, Spain in the context of deflationary pressures, low growth and high unemployment? The answer has to be no. People ask what will the Fed do with all those bonds they have purchased. The simple answer is nothing. They can just hold them to maturity or use them as a tool if and when the economy heats up. The Fed can start to release some of those bonds and accelerate the required rise in yields