James Mackintosh

Jim Rogers

EDIT: Please note that Jim Rogers denies making this comment. Please read this post for his response.

The pound could collapse “within weeks”, says Jim Rogers (right), co-founder with George Soros of the Quantum Fund which took down the pound in 1992 (he is also a currency trader, presumably short the pound).

“Other currencies aren’t strong and the Euro has real problems, with cracks much wider than Greece beginning to show,” Rogers continues, “but it’s the Pound that’s most vulnerable. In real terms, it’s already devalued against virtually every currency barring the Zimbabwean dollar and it’s especially exposed over the weeks running up to the UK election. In a basket of currencies, the Pound is potentially a basket case. And that will put Britain in an extremely bad position for the shakedown.”

It is worth pointing out that it is almost exactly 13 months since Rogers said this:

“I would urge you to sell any sterling you might have,” said Rogers. “It’s finished. I hate to say it, but I would not put any money in the U.K.”

That isn’t to say he’s wrong; the British economic position is dire, the Bank of England might resume printing money, and both Labour and Conservatives are desperately avoiding spelling out cuts for fear that they will lose votes. But just because he’s a “financial guru”, doesn’t mean he’s always right, either.

Ian Holdsworth

It is counterintuitive but sometimes a logjam is just what you need to get things done. On my way to Liverpool Street station last night, for example, I couldn’t cross a busy road for ages – until the traffic went into gridlock.

Might the same principle apply to the UK government’s ablity to cut the UK deficit in the not unlikely event of a hung parliament?

If, after the general election expected in May, no party has enough MPs to form a government, we could end up with a coalition of ministers forced to sit and reflect on each other in a cross-party traffic jam. Traditional opponents, under pressure to interact constructively, might just conceive the best of all possible plans to cut the deficit.

Well … we can all dream. But the City isn’t quite so upbeat.

James Mackintosh

The start of work on an expensive new headquarters often marks the high tide for a company, from Time Warner and the New York Times through Volkswagen (with its VW Autostadt) and others.

So it is appropriate that it was only in December that the European Central Bank announced plans to press ahead with a new €500m HQ. The headquarters curse has already hit: the break-up of the eurozone headed by the ECB has become the subject of frenetic discussions following the financial crisis in Greece and the spread of worries to Spain and Portugal. The value of the single currency has plunged from an 18-month peak of $1.50, almost exactly on the day of the HQ announcement, to $1.37. Hedge funds have record levels of short positions betting on further declines, as the Greek financial crisis infects Spain and Portugal.

Euro decline

Many outside the single currency region are gloating, highlighting the unsustainable pressures caused by putting countries with such different performances as Greece and Germany under the same monetary regime. They are wrong to do so: the crisis may be bad for the euro but that is bad news for competitors, such as the US and UK, too.

In effect, prices of exports to the eurozone countries have risen about 9% since December. The new weakness of the euro will hinder the growing US export machine, and stamp on the green shoots of manufacturing confidence in Britain. In the race to export themselves back to health, Britain and America just lost their advantage. The only consolation is that the euro is reversing some of its gains, and had been a lot weaker a year ago.

Kiran Stacey

For days, columnists have been positing their own questions for Blair to answer about the invasion of Iraq. Today, for six hours, the five members of the Chilcot Inquiry have been asking the ones Blair actually has to answer.

For the latest events, see our Westminster team’s live blog. On this blog we will be summing up the reaction, which, unsurprisingly, started hitting newspaper websites and other blogs almost as soon as Blair sat down.

Anthony Seldon, Blair’s biographer, set the stage well for today’s drama in this morning’s Times, in which he argued Iraq was “this country’s Watergate”. There has been a tendency for observers to be cynical about Blair’s appearance today, saying that nothing new will be learned. But Seldon makes the valid point that it is an important moment in British political history, if nothing else. “We have never seen a day like this in British history, with a former Prime Minister being publicly questioned about such a contentious policy,” he writes.

But has it turned out to be more than just a symbolically important occasion, and has it told us something new?

James Mackintosh

Barack Obama is finally taking on Wall Street, apparently prompted to action by the voters of Massachusetts. But he’s taking the wrong approach.

There are hundreds of competing ideas on how to stop the banks needing trillion-dollar bail-outs. Obama has chosen three, but they are the wrong three:

1. No proprietary trading
2. No owning or “sponsoring” hedge funds or private equity
3. A cap on size for deposit-taking banks

This is not to defend the banks: they made some stupid decisions, helped out by an unending appetite for cheap debt from consumers and a global debt bubble created by China’s surplus, America’s over-consumption and Alan Greenspan’s Federal Reserve. It is right that the banks should be reformed, to prevent future bail-outs.

But these actions fail to get to the root of the problem. The banks had acted just like any other borrower when presented with cheap debt (and dumb regulators): they borrowed as much as they could (often leaving them an astonishing 50 times geared), and found ways to use it from which they thought they could make money. Lenders to the (big) banks exercised no control, because they thought – correctly – that they would be bailed out if the banks failed.

The best way to fix this problem is to find a way to allow the banks to fail. If this can be put in place, the market will itself control the banks, by increasing their cost of borrowing when they take bigger risks (more transparency may be required). If investors fail to control the banks they invest in, the bank can be left to go bankrupt – as smaller banks already do. Bondholders would lose the bulk of their money, as their bonds convert into equity, either by making all (or perhaps just most) bonds explicitly convertible, or through laws requiring conversion if a bank fails.

James Mackintosh

Excellent rant by Pimco’s Bill Gross today against the broken Washington political system. Gross, who runs the world’s biggest mutual fund and whose words on government solvency are closely watched by the markets, loses his rag over the failure of politicians to pass sensible legislation, overcome special interests or do anything other than raise money for their own campaigns. A selection:

Our government doesn’t work anymore, or perhaps more accurately, when it does, it works for special interests and not the American people

What most politicians apparently are working for is to perpetuate their power – first via district gerrymandering, and then second by around-the-clock campaigning financed by special interest groups

What amazes me most of all is that politicians can be bought so cheaply. Public records show that combined labor, insurance, big pharma and related corporate interests spent just under $500 million last year on healthcare lobbying (not much of which went to politicians) for what is likely to be a $50-100 billion annual return

He’s not wrong. The system is clearly fixed to ensure representative democracy works for the benefit of the representatives, rather than the voters. But it has been ever thus; remember, before 1974 there was no Federal Elections Commission. The Union Pacific Railroad and Credit Mobilier offered straight bribes to Congressmen to grant land for the first transcontinental railway, 140 years ago; today the healthcare lobby has to channel its payments through PACs, but the outcome is much the same (potentially the regulation actually makes it cheaper to bribe Congress, by reducing the competition!).

Gross, though, is not one of the world’s premier money managers for nothing. After his extended rant at the deficiencies of Congress, he moves on to a sober discussion of government borrowing. He predicts the Fed could “exit” from its quantitative easing moves by March – following the partial exit already agreed – and that over the next several years, the US, UK and Japan will see rises of about 1 percentage point in interest rates relative to Germany. Conclusion? Buy bunds and sell gilts sounds like the obvious answer. But Gross goes a lot further – and it is doesn’t make for a nice vision for investors:

if exit strategies proceed as planned, all U.S. and U.K. asset markets may suffer from the absence of the near $2 trillion of government checks written in 2009. It seems no coincidence that stocks, high yield bonds, and other risk assets have thrived since early March, just as this “juice” was being squeezed into financial markets

Perhaps the answer is for Gross to put some money into K Street lobbying. After all, according to a study reported by the Washington Post last year, corporate “investments” in lobbying yielded returns of 22,000 per cent – not bad, if you can overcome your moral scruples.

James Mackintosh

The questions just won’t go away. The City had a go at George Osborne, the Tory bloggers erupted in defence of the shadow chancellor and now he’s in doubt again. This time, it is Steve “shagger” Norris, twice Conservative candidate for London mayor, pointing out the obvious: David Cameron might prefer experience over friendship when it comes to filling number 11 Downing street after the election.

Osborne “hasn’t quite sealed the deal with the electorate in the way Ken Clarke [shadow minister for business and former chancellor] and William Hague [shadow foreign secretary] have”, he told a breakfast meeting this morning. “I think George has enormous value but I think David Cameron will speculate as to whether a switch of roles might be appropriate at this time.”

Appointing a more experienced hand – such as Clarke – would go down well with many in the City, who have been privately, and not so privately, worrying about Osborne’s combination of populism (on bonuses) and youth.

But many of those who have met Osborne, including several senior hedge fund managers regarded as City opinion formers, believe he is being underestimated. “He’s very impressive in person and he is advised by some of the smartest economists out there,” one told me.

Still, when it comes to winning the confidence of the public and the – vital – confidence of the bond markets, it is hard to disagree with Norris that Cameron is likely to keep this “an open issue right up to election day”.

FT dot comment

FT dot comment is no longer updated but it remains open as an archive.

Politics, economics, high finance and morality – this blog addresses the issues being considered by the FT’s comment team, and their thoughts.

FT dot comment: a guide

Christopher Cook is an FT editorial writer. Before joining the FT in 2008 as a Peter Martin Fellow, he worked for three years for the Conservative party.

Lorien Kite is deputy comment editor, a post he took up in 2009 after four years as a commissioning editor on the analysis page. He joined the FT in 2000.

Ian Holdsworth became assistant features editor in 2009 and was previously chief production journalist for the features pages.