Buttonwood’s notebook

Financial markets

  • The last post

    So long, farewell

    by Buttonwood

    IT IS an enormous privilege, and responsibility, to write for The Economist and capture a small sliver of readers’ attention. All told, there have been well over a thousand posts on this blog (the site history runs for 98 pages) as well as 546 print columns (the last will appear at the end of the week). The first post, back in February 2009, was written in the depths of the crisis and “was looking for signs of hope, although without any confidence it can call the bottom exactly.” In fact, the market bottom occurred only a few weeks later. There have been a few wobbles along the way but that bull run is still going.

  • Overpaid, over-important and over-geared

    The flaws of finance

    by Buttonwood

    BUSINESS school graduates do not all want to work in investment banking these days. The industry does not have the same kind of cachet it did before Lehman Brothers went bust. Still, 31% of those who left Harvard Business School last year went into financial services. That made it easily the most popular sector, as it has been in each of the previous four years. It is hardly surprising. In London, for example, the average pay for a finance worker is around £72,000, twice the level earned by other workers in the British capital.

    Is this high pay justified? The finance sector has four key functions. The first is to operate the payments system, without which the economy could not function.

  • Affording retirement

    Hope I save before I get old

    by Buttonwood

    IF YOU reach the age of 65 in the OECD, you can expect to live for another 19 years  or so (more if you are a woman, less if you are a man). If you stop work earlier than 65, and live a bit longer than average, you could easily be retired for 25-30 years, almost as long as you were in work. But people find it very hard to get interested in pensions (even Mrs Buttonwood), even though their financial future depends on them; retirement is too distant a prospect and the issue seems too complicated.

    This blog has written a lot on the subject so it is time to summon some farewell thoughts.

  • Black and white and read all over

    The best books on finance and economics

    by Buttonwood

    THE late Hans Rosling is best known for his Ted talks (here is one on the wonders of the washing machine). Sadly he died last year. But before he did so, he worked with his son and daughter-in-law to write “Factfulness: Ten Reasons Why We’re Wrong About the World—And Why Things Are Better Than You Think.” It is a wonderful book, full of humour and humility, and it paints an optimistic picture of progress.

    Take his 13-question test and you will probably be surprised. For example, has the proportion of people in the world living in extreme poverty over the last 20 years almost doubled, stayed the same, or almost halved?

  • Long-term investing

    Six precepts every investor should remember

    by Buttonwood

    SIR ELTON JOHN has a three-year farewell tour planned. This columnist has only a few weeks to go, before heading off to a new Economist beat. So it seems like a good idea to summarise some of the themes which have dominated this blog. 

    To start, long-term investing. Here are a set of precepts every investor should remember.

    You can't start too early. Albert Einstein may not have said that compound interest is the eighth wonder of the world but it is a good motto to remember. Buttonwood started a pension plan for his daughters when they were three years old. Let us assume a return of 4% a year.
  • Technology and the economy

    The smartphone and the toilet

    by Buttonwood

    THE impact of technology on the economy is one of the most-debated issues of the moment, whether it is the potential for automation to cause unemployment, boost long-term productivity, or widen inequality. A good deal of the annual Barclays Equity-Gilt Study, published yesterday, was devoted to the subject. But one section caught my eye; the idea that technological change was making GDP a less useful measure.

    The report says that

    When GDP was first introduced, manufacturing accounted for a large share of the core advanced economies, and the (system of national accounts) was designed primarily to measure physical production.

    But the modern economy is dominated by services and

  • The market outlook

    An update from Jeremy Grantham

    by Buttonwood

    JEREMY GRANTHAM is an investor with 50 years of experience in the markets who is known for his caution about the outlook for long-term returns (he works for the GMO fund management group). But he caused a stir earlier this year when he said the chances were high of a melt-up in the markets this year. 

    Buttonwood caught up with him when he visited London this week and asked whether the recent volatility had changed his view. He does think that the odds of a melt-up have fallen. The acceleration stage of a bull market, as in 1928 and 1999, tends to be smooth and quick. The trade tensions evoked by President Trump could be very damaging.

  • Fixing America's pensions

    A plan that needs more money

    by Buttonwood

    AMERICAN private-sector workers face a problem. Too few of them have private-sector pensions, and the government scheme, Social Security, set up by Franklin Roosevelt (pictured) is less generous than it used to be. One study estimated that 20m elderly Americans will be living in poverty or near-poverty by 2035.

    A new book* by Teresa Ghilarducci and Tony James has a plan to deal with the problem. It comes complete with a foreword and endorsement by Timothy Geithner, a former treasury secretary who had to battle the financial crisis.

    The authors set out the problem in admirably clear fashion.

  • Democracy and economics

    We have seen the future and it twerks

    by Buttonwood

    CYNTHIA NIXON is the latest celebrity to run for office in America; the “Sex and the City” star is trying to be governor of New York. If she succeeds, she will follow in a long line of celebrities-turned-politicians including Sonny Bono, Arnold Schwarzenegger, Jesse Ventura and most notably, Presidents Ronald Reagan and Donald Trump.

    This may not be a uniquely American phenomenon. Beppe Grillo, a comedian, launched the Five Star movement, now Italy's biggest party. Silvio Berlusconi cultivated the celebrity style. George Weah, a footballer, has just been elected president of Liberia. Joseph Estrada, a movie star, was president of the Philippines.

  • Godzilla escapes

    Markets think trade war is good for “absolutely nothing”

    by Buttonwood

    IN THE original Godzilla movie, made in Japan back in 1954, the testing of American nuclear weapons leads to the creation of a giant dinosaur that threatens to destroy not just Japan, but the rest of the world. Now Asians face another American creation that seems to be laying waste to all around it.

    President Donald Trump has already pulled out of the TPP (the Trans-Pacific Partnership) and the Paris climate change agreement.

  • The mulligan rule of investment

    Beware of performance figures

    by Buttonwood

    GOLFERS are familiar with the concept of a “mulligan”—the chance to retake a shot. Give an averagely talented player enough mulligans and he or she will get one close to the hole. And a version of the mulligan exists in fund management too.

    Readers will be familiar from past blog posts with the idea that actively managed funds cannot be relied upon to beat the index. Many of these studies are conducted in the US market, which is probably the most efficient (and thus hardest to beat) in the world. But the same is true in Europe.

  • The soaring cost of old age

    The real problem with pensions

    by Buttonwood

    PAYING for pensions is like one of those never-ending historical wars; a confusing series of small battles and skirmishes that can obscure the long-term trend. The latest conflict is in Britain where university lecturers are indulging in strike action over changes to their future benefits.

    Let us start by making the long-term trends clear.

    1. People are living longer and retirement ages have not kept pace. This increases the cost of paying pensions 

    2 Interest rates and bond yields have fallen. This increases the cost of generating an income from a given pension pot

  • A message from the future

    A history of the Trump slump

    by Buttonwood

    LOOKING back from the vantage point of 2025*, economic historians are starting to write their analyses of the Trump slump. It seemed to appear from nowhere with the economy growing at around the trend rate (2.3% in 2017) and the stockmarket booming. The abrupt change came in March 2018 when President Donald Trump decided to impose tariffs on steel and aluminium imports. "Trade wars are good and easy to win" he said. Both China and the European Union (EU) retaliated in kind without trying to escalate the tensions. It might have ended there.

  • The Fed and the markets

    Jerome Powell's game of Kerplunk

    by Buttonwood

    THERE is an old children's game called Kerplunk. It is similar in concept to Jenga. Marbles are poured into a plastic tube through which sticks have been threaded. The players take it in turns to remove the sticks with the aim of avoiding the fall of marbles. The normal pattern is for a few marbles to drop until the unlucky player removes the strut that keeps up the rest. A noisy crash ensues.

    Jerome Powell (pictured), the new chairman of the Federal Reserve, may be that unlucky player. Janet Yellen, his respected predecessor, managed to pull out five sticks (ie, raised rates five times) before she departed, leaving both the economy and the markets in fine shape.

  • The billion-dollar tweet

    Snap, chatter and pop goes the share price

    by Buttonwood

    KYLIE JENNER, a model and reality TV star best known for being the, er, second most famous Kylie in the world, managed to cause a stir on Wall Street. With this idiosyncratic tweet

    sooo does anyone else not open Snapchat any more? Or is it just me...ugh this is so sad

    she knocked back the share price of Snap, the parent company of the video- and picture-sharing app. Ms Jenner’s influence in the target market is deemed to be huge; she has 24.5m Twitter followers, and her message has (at the time of writing) been retweeted 58,000 times and “liked” by 310,000. 

    Snap’s share price fell 6%, reducing the company’s market value by $1.3bn.

About Buttonwood’s notebook

Analysis of the ever-changing financial markets (Wall Street trades used to take place under a Buttonwood tree)



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