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@Victor-Meldrew said in British Politics:
@MajorRage said in British Politics:
Complete joke. Absolute banana republic.
Shitty media, corrupt IMF, make the IMF look squeaky clean Moodys / S&P.
Govt pays 100b energy, 45b tax cut for all and the 2b cut to push growth / attract higher earners gets all the talk and must be overturned. All while job vacancies at record highs.
Disgusting, disgraceful, shambolic.
Growth and productivity is too difficult. Let's just have a quiet life, sit back and enjoy our rising house prices and appear virtuous on social issues.
Raising productivity requires higher interest rates and some good old fashioned creative destruction.
Hard to balance against Tory members’ housing and share portfolios?
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@MajorRage said in British Politics:
Complete joke. Absolute banana republic.
Shitty media, corrupt IMF, make the IMF look squeaky clean Moodys / S&P.
Govt pays 100b energy, 45b tax cut for all and the 2b cut to push growth / attract higher earners gets all the talk and must be overturned. All while job vacancies at record highs.
Disgusting, disgraceful, shambolic.
If Credit Suisse goes parts of Europe won’t be looking shit hot.
IMF heads are mouthpieces. More sense from BIS.
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@pakman said in British Politics:
@Victor-Meldrew said in British Politics:
@antipodean said in British Politics:
Done to protect Pension funds with risky hedging strategies from what I've been told. Pension managers haven't factored in risks from anything but small rises in interest rates and gilt yields - despite being warned for some time.
The investment banks have sold UK pensions funds derivatives covering billions of GBP, and charged hundreds of millions in fees. Pension Regulator, who’s about as knowledgeable as a local council treasurer, was entirely on board.
Oh, fucking tell me. I think I was a regulated person when the BoE ran things and my Project Management Office & processes were vetted for compliance by a bloke who knew his stuff and made it clear he was on the end of the phone if I wanted any help or advice in the future.
When the FSA took over, they sent some 22 yr old Big 4 graduate consultant to check and she didn't have a clue.
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@Victor-Meldrew said in British Politics:
@pakman said in British Politics:
@Victor-Meldrew said in British Politics:
@antipodean said in British Politics:
Done to protect Pension funds with risky hedging strategies from what I've been told. Pension managers haven't factored in risks from anything but small rises in interest rates and gilt yields - despite being warned for some time.
The investment banks have sold UK pensions funds derivatives covering billions of GBP, and charged hundreds of millions in fees. Pension Regulator, who’s about as knowledgeable as a local council treasurer, was entirely on board.
Oh, fucking tell me. I think I was a regulated person when the BoE ran things and my Project Management Office & processes were vetted for compliance by a bloke who knew his stuff and made it clear he was on the end of the phone if I wanted any help or advice in the future.
When the FSA took over, they sent some 22 yr old Big 4 graduate consultant to check and she didn't have a clue.
If we ever have a UK Fern hook up I’ll share some of my stories. Suffice it to say, not a fan.
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@MajorRage said in British Politics:
Can anybody translate what this actually means for me? I know nothing of the gilt market and how it really works:
I know the summary that BoE announced 65bln buyback to prop it up, but the fact they only bought 25mil and rejected 1.8bln means what exactly?
It means that pension funds tried to stuff BofE with £1.8bn of bonds at silly prices.
Bank set a price which it saw as reasonable, but only £25m offered at that level.
Pension funds tried it on and got the cold shoulder.
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@pakman said in British Politics:
If we ever have a UK Fern hook up I’ll share some of my stories. Suffice it to say, not a fan.
Oh, I know one bloke who was criticised by the FSA and fined for not following correct procedures on managing Personal Pensions. Only problem was he managed a number of portfolios for corporate pension schemes...
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@pakman said in British Politics:
@Victor-Meldrew said in British Politics:
@pakman said in British Politics:
@Victor-Meldrew said in British Politics:
@antipodean said in British Politics:
Done to protect Pension funds with risky hedging strategies from what I've been told. Pension managers haven't factored in risks from anything but small rises in interest rates and gilt yields - despite being warned for some time.
The investment banks have sold UK pensions funds derivatives covering billions of GBP, and charged hundreds of millions in fees. Pension Regulator, who’s about as knowledgeable as a local council treasurer, was entirely on board.
Oh, fucking tell me. I think I was a regulated person when the BoE ran things and my Project Management Office & processes were vetted for compliance by a bloke who knew his stuff and made it clear he was on the end of the phone if I wanted any help or advice in the future.
When the FSA took over, they sent some 22 yr old Big 4 graduate consultant to check and she didn't have a clue.
If we ever have a UK Fern hook up I’ll share some of my stories. Suffice it to say, not a fan.
I'm washing my hair that night.
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For those who are interested, a good explanation of the market turmoil.
Betting that interest rates would stay low to fund current pension liabilities. What could possibly go wrong?
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@Victor-Meldrew said in British Politics:
For those who are interested, a good explanation of the market turmoil.
Betting that interest rates would stay low to fund current pension liabilities. What could possibly go wrong?
The US accountants in late 90s proposed using A-rated bond yields to value pension liabilities (because it was easy and objective). US companies were pleased to oblige, because their funding regime is quite relaxed.
Then UK jumped on bandwagon.
But pension liabilities are not that bond-like: ask Goldman what rate they would use to value them in a PURCHASE!
The Regs actually say that discount rate ought to be a conservative estimate of the expected return on a scheme’s ACTUAL assets, so can vary quite some way from bond yields.
But critical error is that schemes need a plan for FUNDING expected benefit outflows, which is driven by RETURNS.
Experts/consultants have knowingly confused the issue by advising that the critical focus had to be on mathematically matching assets with pension liabilities, which they (grossly) mischaracterised as the same as bond liabilities.
All hail the MODEL. 🙏🏻
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@Victor-Meldrew I'm letting myself down here, but there are things in this that I simply don't get. I've never traded or risk managed credit but I understand basic bond mechanics & this doesn't make sense to me.
If you are a Pension PM and you buy gilts, you are basically saying to your investors that you are looking to get returns equivalent to BoE. Which is fine. But then you are buying IRS (using Gilts as collateral) to hedge IRS movements. Which I understand. But this line here:
"This is done by using swaps, a complex financial instrument which pay out when the returns on government bonds fall so that the pension fund still has a predictable income and can pay its members."
Why on earth would you hedge returns going down? If you bought Gilts at 0.50% and they then drop to 0.25%, the value of your 0.50% gilt will go up .... so why would you hedge this? And why on earth would you pay to hedge this?
Secondly, this part here:
"There were particularly problems with one index-linked bond which matures in 2073, which was issued last November at £372 with a yield of minus 2.5% and was trading at near £400 not so long ago. But after last week’s events it collapsed to 50p this week. “You can see the problem. The bond lost 90% of its value and was only 1.5% above inflation.”
My maths tells me that (using par 1000) the yield on this at 372 is just under 2%. So where is the -2.5% from? And for this to crash to 50p, that means the market must expect a significant upshift in rates. 50p - 1000 is around 11% yield over 51 years. So does the market now expect this the next 50 years to average 11%?
Either this article is way off with it's maths, or I'm thick as pigshit. I worry it's the latter.
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@pakman said in British Politics:
@Victor-Meldrew said in British Politics:
For those who are interested, a good explanation of the market turmoil.
Betting that interest rates would stay low to fund current pension liabilities. What could possibly go wrong?
The US accountants in late 90s proposed using A-rated bond yields to value pension liabilities (because it was easy and objective). US companies were pleased to oblige, because their funding regime is quite relaxed.
Then UK jumped on bandwagon.
But pension liabilities are not that bond-like: ask Goldman what rate they would use to value them in a PURCHASE!
The Regs actually say that discount rate ought to be a conservative estimate of the expected return on a scheme’s ACTUAL assets, so can vary quite some way from bond yields.
But critical error is that schemes need a plan for FUNDING expected benefit outflows, which is driven by RETURNS.
Experts/consultants have knowingly confused the issue by advising that the critical focus had to be on mathematically matching assets with pension liabilities, which they (grossly) mischaracterised as the same as bond liabilities.
All hail the MODEL. 🙏🏻
The cynic in me says the approach took hold as everyone who benefitted reinforced each others views and wanted a quiet life. The approach (a) allowed the UK government to borrow cheaply, (b) made loads of fees for financial engineers, (c) made the Pension fund managers life easier and (d) allowed the industry regulators to say pensions were invested cautiously is safe government-backed paper.
And where were the Pension Trustees in all of this? Were they sidelined by the above vested interests? (no need to answer the latter)
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@Victor-Meldrew said in British Politics:
The cynic in me says the approach took hold as everyone who benefitted reinforced each others views and wanted a quiet life. The approach (a) allowed the UK government to borrow cheaply, (b) made loads of fees for financial engineers, (c) made the Pension fund managers life easier and (d) allowed the industry regulators to say pensions were invested cautiously is safe government-backed paper.
And where were the Pension Trustees in all of this? Were they sidelined by the above vested interests? (no need to answer the latter)
Indeed. So the 2008 GFC was created by the big banks trading credit and it all went foul ... fucking over US property owners the most who had faith that the system was selling them something they could afford.
2022 is screwing over UK Pension fund investors who have been following all the advice and putting money away for their retirement.
The system doesn't work.
I worry I'm becoming a socialist.
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@MajorRage said in British Politics:
I'm so far away from financial mechanics these days that I struggle to understand stuff that well now - though I once understood Butterfly Swaps...
Why on earth would you hedge returns going down? If you bought Gilts at 0.50% and they then drop to 0.25%, the value of your 0.50% gilt will go up .... so why would you hedge this? And why on earth would you pay to hedge this?
My understanding is they were effectively using the increase in the value of the 0.50% Gilt as collateral to borrow to fund/hedge pension liabilities and offset drops in yields. These would be paid back when yields rose. When yields went up sharply they needed to fund their hedge position more than expected and had to sell gilts to do that - which became a death spiral.
"There were particularly problems with one index-linked bond which matures in 2073, which was issued last November at £372 with a yield of minus 2.5% and was trading at near £400 not so long ago. But after last week’s events it collapsed to 50p this week. “You can see the problem. The bond lost 90% of its value and was only 1.5% above inflation.”
My maths tells me that (using par 1000) the yield on this at 372 is just under 2%. So where is the -2.5% from? And for this to crash to 50p, that means the market must expect a significant upshift in rates. 50p - 1000 is around 11% yield over 51 years. So does the market now expect this the next 50 years to average 11%?
I saw that point in the article as demonstrating just how dysfunctional and almost casino-like the Pensions industry had become
Either this article is way off with it's maths,
It's way better than mine ever was on this sort of stuff. I only ever needed to understand the mechanics and not the detailed engineering data
or I'm thick as pigshit. I worry it's the latter.
I doubt that.
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@MajorRage said in British Politics:
The system doesn't work.
I worry I'm becoming a socialist.The system is corrupt with vested interests cosying up to each other to protect themselves.
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@MajorRage said in British Politics:
....
Secondly, this part here:"There were particularly problems with one index-linked bond which matures in 2073, which was issued last November at £372 with a yield of minus 2.5% and was trading at near £400 not so long ago. But after last week’s events it collapsed to 50p this week. “You can see the problem. The bond lost 90% of its value and was only 1.5% above inflation.”
My maths tells me that (using par 1000) the yield on this at 372 is just under 2%. So where is the -2.5% from? And for this to crash to 50p, that means the market must expect a significant upshift in rates. 50p - 1000 is around 11% yield over 51 years. So does the market now expect this the next 50 years to average 11%?
Like you, I've done some basic stuff on valuing credit and can just about remember how to calculate running yield v yield to redemption but the overriding take away for me was the more variables you add the more difficult it becomes to value a bond. Long duration increases interest rate risk hugely, add in the vagaries of index linking on both the coupon and the redemption together with inflation multiplying four fold in a short space of time and you end up with something that has a large margin for volatility - and this on an instrument that is "defensive".
@MajorRage said in British Politics:
Either this article is way off with it's maths, or I'm thick as pigshit.
@MajorRage said in British Politics:
I worry I'm becoming a socialist
Set together like that, well... just saying like.
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@Catogrande said in British Politics:
the more variables you add the more difficult it becomes to value....and you end up with something that has a large margin for volatility - and this on an instrument that is "defensive".
Which makes you wonder about the real underlying risks of Fund of Funds investments which a lot of Personal pension funds use.
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@Victor-Meldrew said in British Politics:
@Catogrande said in British Politics:
the more variables you add the more difficult it becomes to value....and you end up with something that has a large margin for volatility - and this on an instrument that is "defensive".
Which makes you wonder about the real underlying risks of Fund of Funds investments which a lot of Personal pension funds use.
Not so much, or shouldn’t be. A defined contribution scheme (PPP, SIPP etc) are chasing real returns and will have a greater emphasis on equities and alternatives. A defined benefit scheme is just looking to match liabilities (put simply).
The issue here for DC schemes can come in retirement when taking drawdown, if the adviser is using gilt “strips” to fund the income, they will have some of the same problems that DB schemes are seeing now.
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This person, Miranda Hughes, is an NHS nurse apparently.
"If you have voted conservative, you do not deserve to be resuscitated by the NHS"
British Politics