On The Limited Issuers Of Inflation-Linked Bonds

Published by Anonymous (not verified) on Mon, 14/01/2019 - 1:00am in



This article is an excerpt from my latest book on inflation-linked bonds -- Breakeven Inflation Analysis. It describes one of the peculiarities of the inflation-linked bond market, which is the dominance of central government issuers.

One of the key economic problems facing inflation-linked markets is that central governments tend to be the major source of net supply of these bonds. This is very much unlike the case for conventional bonds, where non-central government supply is significant. If there is a shortage of private sector duration, it is in the 30-year part of the curve, as the credit analysis of such debt is tricky for most issuers. (Utilities and similar would be the most natural fit, but as the telecom industry showed, even apparently stable business models can be greatly disrupted by new technology, or by CEOs with grandiose schemes.)

The qualifier “central government” is important in this context. In Canada, the provinces are a major source of conventional bond issuance; they supply a good deal of long-dated paper that few people trust the private sector to supply. The U.S. municipal market is segmented because of its tax treatment, but those issuers are soaking up some of the domestic demand for duration. (Foreigners have little incentive to look at that market, other than via derivatives.) However, these sub-sovereigns are not significant sources of net supply of inflation-linked bonds.

The next qualifier to discuss is the concept of net supply. It is possible that an issuer could emit an inflation-linked bond and trade some inflation swaps (technically, an asset swap) with dealers to hedge the inflation risk. I believe that this was the practice for the few inflation-linked bonds issued by Canadian provinces. The supply of inflation protection by the bond is cancelled out by the inflation swap activity, as dealers would probably be forced to buy inflation-linked bonds to hedge their asset swap positions.

Such a pattern of trading probably appears unusual – why bother with swapped issuance if the inflation exposure is just being hedged out by an existing bond? Although I never worked for an investment bank, I believe that it is a straightforward result of market structure. There are dedicated inflation-linked bond funds that are unable to engage in derivatives or leverage. The asset-swapped bond provides them with credit risk exposure that they could not get if they are confined to owning Government of Canada Real Return Bonds. Therefore, this captive audience creates a pricing advantage for such deals – the province can squeeze out paper at a tighter credit spread than it could in the conventional markets.

Nevertheless, so long as the central government remains the main supplier of unhedged inflation-linked bonds, the volume of this asset-swapped activity is constrained by its issuance.

The only other obvious sources of supply are public-private partnerships that have a revenue guarantee that is linked to inflation. In such a case, inflation-linked bonds are a natural hedge for their risks. Nevertheless, the key to such deals is that governments are backstopping the indexation in the contract, and so it is not a purely private sector phenomenon. Since these public-private partnerships are taking over long-term projects for the governments involved, one could argue that they effectively substitute government issuance that would have happened in the absence of the public-private partnership.

The central government is a natural issuer of inflation-linked bonds since tax revenues are set as a percentage of nominal incomes (or sales) in the national economy. An increase in inflation – with real GDP unchanged – implies that nominal revenues would be higher. Although one can debate whether the central government needs to worry about matching revenues to expenses, it is clear that inflation-linked bonds achieve this.

The only risk to the government is these bonds increase the weight of expenditures that are indexed to inflation. Indexed expenditures create a self-reinforcing feedback loop with inflation. Nevertheless, the size of inflation-linked issuance is generally small relative to the size of GDP, so this risk is presumably limited.

If we step away from the central government, even sub-sovereigns have concerns with issuing inflation-linked bonds. For example, Canadian provinces have relatively large governments when compared to states in the United States, and the larger provinces have sophisticated issuance programmes. (For example, they have international issues that they hedge into Canadian dollars with cross-currency basis swaps.) Even so, they have tended to shy away from inflation-linked bonds. Their concern is economic. Unlike the federal government, they do not have a central bank as a subsidiary of their finance ministry. Default is a real risk. Furthermore, the geographical dispersion of Canada shows up in economic performance as well. It is relatively common for one province to be in recession while others are growing. Although an oil-producing province like Alberta is hedged against a spike in oil prices, a province like Ontario is an importer, and a rising oil price is a drag on the provincial economy. Therefore, a rise in national CPI-linked payments could hit at the worst possible time for the provincial government. (The natural fix would be to issue bonds indexed to provincial inflation rates. These would be of less interest to institutional investors with national CPI-linked liabilities, but it might be useful for retail investors, and possibly as a trading vehicle.)

The situation is worse for private sector firms (except for public-private partnerships with explicit indexation of contracts). Most firms have a very narrow focus. Although an oil-producing firm is hedged against oil price rises, it cannot do anything about the cost of tuition. If energy firms issued U.S. CPI-linked bonds at the beginning of the 1990s, they would have been crushed by the divergence of oil prices (which suffered a secular bear market) and the steady rise of inflation, which was largely in the service sector.

Some firms have a wider focus, such as grocery firms or large discount retailers. However, even these firms do not supply college education or most medical services (at least not yet). The tendency for the retail sector to drift towards conglomerates may allow such firms to issue inflation-linked debt in the future.

Otherwise, there are no natural payers of inflation. Asset managers have inflation-linked liabilities, nobody wants to have “inverse inflation protection” for their pension. Textbooks may quaintly suggest that there are “speculators” that might pay inflation in the inflation swap market, but such firms have a very limited balance sheet capacity. No derivatives dealer is going to rely on a firm with $100 million in capital as a long-term hedge on a 30-year $1 billion inflation swap. Even if the failure of the counter-party is covered by collateral, its demise opens up the dealer’s inflation exposure. Since the counter-party’s failure would most likely be linked to higher-than-expected inflation, being able to find a new counter-party for a swap of that size might be a challenge. Since the potential gains on receiving inflation dwarf that of paying inflation (the CPI can only go to zero!), the tail risk for inflation swaps goes entirely in the same direction. The fact that there are no intermediate cash flows in a zero-coupon swap to reset the value of the position makes the counter-party risk situation worse.

The general lack of other sources of net supply limits the growth of the inflation-linked market and hangs over the questions about the long-term risk premium. Many institutional investors would like to match the inflation exposure of their liabilities, creating an obvious source of demand that is not completely price sensitive, whereas the net supply is largely the unilateral decision of the central government. It would not be difficult to make an a priori argument that inflation-linked bonds should be expensive because of this fundamental supply/demand argument (and I believe that I did as some points of my career). That said, this factor is largely dependent upon the views of government debt managers. Although I never paid much attention to central government issuance patterns for conventional bonds as a fundamental pricing factor, this does not apply to inflation-linked debt. For example, if the government pushes for fundamentally incompatible policies – regulators demanding inflation-risk matching, while the debt office cuts inflation-linked issuance – the result could be absolutely ridiculous pricing (in either direction)*. Since everyone involved knows that this is the case, there are many parties making sure such incompatible policy stances do not happen.

* The yield curve in the United Kingdom was a horror show in the 1990s because of liability-matching regulations. That case demonstrates that we cannot completely ignore supply and demand factors, even though I generally downplay its effects.
Breakeven Inflation Analysis is available at online booksellers, including (affiliate link).
(c) Brian Romanchuk 2018-2019

Lafcadio the Greek: The Man Who Dreamed Japan

Published by Anonymous (not verified) on Fri, 11/01/2019 - 7:57am in


Books, culture

Introduction to the Greek edition of  The Life and Letters of  Lafcadio Hearn by Elizabeth Bisland and  Remembering Lafcadio Hearn by Setsuko Koizumi

“Pray remember that your ancestors were the very Goths and Vandals who destroyed the marvels of Greek art which even Roman ignorance and ferocity had spared… You cannot make a Goth out of a Greek, nor can you change the blood in my veins.”

These half-jesting words appear in a letter that Lafcadio Hearn wrote to his Cincinnati friend, the musicologist H. E. Krehbiel, in 1880. They attest, as does much else in this fascinating volume of memoirs and letters, to the fundamental importance of Hearn’s Greekness to his life and work.

Ten years later Hearn was sent on a journalistic assignment to Japan. He never returned. He married a Japanese woman within nine months of his arrival, took Japanese nationality and the Japanese name of Yakumo Koizumi (“Eight-clouds Little-spring”).

For the remaining fourteen years of his life, Hearn favoured traditional Japanese clothes, ate mostly Japanese food – though he enjoyed the occasional steak –  and lived in Japanese-style houses. His funeral took place at a Buddhist temple in the Ichigaya district of central Tokyo. By then, Hearn had earned international fame as an interpreter of Japanese culture – indeed, he remains the most celebrated “Japanologist” of all time.


In the early decades of the twentieth century, Hearn’s influence spread far and wide. Irish poet W. B. Yeats corresponded with him. Novelist E.M. Forster listed him as one of “ten great minds” in his S-F story “When The Machine Stops.”

Another early Hearn fan was future Indian independence leader Jawaharlal Nehru. Albert Einstein visited Japan hoping to find the picturesque Japan he had read about in Hearn’s books, as did Charlie Chaplin. In 1921, German philosopher Theodor Adorno wrote a play based on a Hearn short story.[1]

The key to the story of Lafcadio Hearn’s engagement with Japan lies in his origins. What entranced him about Japan, to the extent that he merged himself into the culture as completely as he could, was that it reminded him of Greece, more specifically of the mental picture of ancient Greece that he had constructed over the decades.

Looking For Penelope

Patrick Lafcadio Hearn – he was to dump his first name fairly promptly – spent most of his life as an Odysseus-like wandering exile. Appropriately, legend associates the island of Lefkada, where he was born and from which his middle name derives, with Homer’s Ithaca and Odysseus’ palace.

His father was an Anglo-Irish army surgeon, his mother a striking local beauty. The family left Greece when Hearn was six and relocated to his father’s home under the not-so-blue skies of Dublin. The marriage failed and his mother soon returned home. Hearn’s father married again and put out his two sons for adoption with separate relatives.

The seven year old Lafcadio never saw his mother, father or younger brother again.

Even worse, his new home in the English countryside exposed him to a harsh brand of Roman Catholicism. Sermons about wickedness and the torments of hellfire were regular fare. In reaction, Hearn gravitated towards atheism, aestheticism and Hellenic art, later to become the pillars of his identity as a man and a writer.

Hearn’s friend and long-term correspondent Mrs. Bisland quotes this reminiscence –

“I have a memory of a place and a magical time when the sun and moon were brighter than now. Whether it was of this life or some life before, I cannot tell, but I know the sky was very much more blue and closer to the world…  Everyday there were new pleasures and new wonders for me. And all that country and time were ruled by One who thought only of ways to make me happy.”

“The One” is, presumably, Hearn’s Greek mother, to whom he ascribed all his virtues, even his command of language, although she spoke very little English.

“My love of right, my hatred of wrong, my admiration for what is beautiful or true… my sensitiveness to artistic things which gives me what little success I have – even that language-power whose physical sign is in the large eyes of both of us – came from Her. It is the mother who makes us.”

Arriving in Japan, Hearn finally came home. Waiting for him was a Japanese Penelope, a Mama-san who reminded him of his own long-lost Mama-san. In a conversation recalled by his widow, he described his real mother as follows –

“She was of little stature, with black hair and black eyes, like a Japanese woman. How pitiable a Mama-san she was! Unhappy Mama-san – pitiable indeed.”

Setsuko Koizumi (Mrs. Hearn) was seventeen years younger than her husband, but he was dependent on her as language teacher, guide to Japanese customs and, not least, provider of material for his books. In her memoir, she describes how Lafcadio would ask her to tell him stories, insisting that she use her own words.

“After lowering the wick of the lamp I would begin to tell ghost stories,” she recounts. “Hearn would ask questions with bated breath, and listen to my tales with a terrified air.” Presumably, some of these spine-chilling yarns later appeared in Kwaidan and other works.



Down and Out in London and New York

Before his arrival in Japan, Hearn had been a journalist whose specialty was lushly-written travelogue and arts pieces. A small, slight man of fragile health, he had lost the sight of one eye in a sporting accident while at boarding school in England and the sight in the other was poor. With no family or connections, he had been on the breadline in London before moving to New York at the age of nineteen.

Eventually, he found newspaper and magazine work in Cincinnati. There he showed his courage and disdain for convention by marrying a black woman in defiance of the local miscegenation laws.

The marriage did not last and Hearn drifted down to New Orleans which provided a more congenial environment for his artistic knowledge and sophisticated pen. It is likely he would have passed his days in obscurity if he had not been sent to Japan. Only after becoming Yakumo Koizumi did Lafcadio Hearn become Lafcadio Hearn.

Japan and Hearn made an odd couple. During Hearn’s time there, Japan was engaged in a supercharged “catch-up-with-the-West” modernization project that has only been topped in speed and magnitude by China in the twenty first century. In 1904, the year of Hearn’s death, Japan declared war on Russia and was to score a stunning victory the following year, marking the first defeat of a Western power by Asians since the time of Genghis Khan.

Hearn was out of sympathy with modernization and industrialization. While Japan was moving in one direction, he was moving in the opposite way – back into the ancient past. The modern world appalled him, whether in New York or Tokyo, both of which he considered to be “hells.” He preferred to travel by rickshaw than train, refused to have a telephone installed and disliked Japanese people speaking English. Despite being an enthusiastic proponent of Herbert Spencer’s extension of Darwinism, he was more conservative about Japanese culture than most Japanese of the era.

 Commemorative stamp issued on the 100th anniversary of Hearn's death
Commemorative stamp issued on the 100th
anniversary of Hearn’s death

There are many beautiful things in Japan,” he told his wife. “Why do they imitate Western things?” The answer, as he well knew, was in order not to be invaded, exploited or treated as “backward.”

What Hearn saw in rural Japan was a tribal society where social morality was so engrained that it did not have to be codified in laws or holy books; where, in the ultimate egalitarianism, all the dead became gods; where the people were “as primitive as the Etruscan” before the founding of Rome.

In other words, he was back in the Greek island of Lefkada with his long-lost mother, not in the 1850s, but in the era of Homer’s Ithaca, when the sun and moon were brighter than now and there were new pleasures every day.

Hearn’s Warning

Hearn’s ability to cross borders emotionally and intellectually was extraordinary in his own time and remains inspirational today. His collection of Japanese ghost-stories, Kwaidan, has received the compliment of being filmed by one of Japan’s leading post-war directors, Masaki Kobayashi. Hearn’s Japan: An Interpretation is a remarkable analysis of the spiritual roots of Japanese culture.

From the "Hochi the Earless" section of the film Kwaidan. From the “Hochi the Earless” section of the film Kwaidan.

Furthermore – and this is often overlooked –  the last section, entitled Industrial Danger, contains a clear-eyed warning of the risks of Japan’s headlong rush to modernize, .

“Should wretchedness be so permitted to augment that the question of how to keep from starving becomes imperative for the millions, the long patience and the long trust may fail….the Primitive Man, finding that the Moral Man has landed him in the valley of the shadow of death, may rise up to take the management of affairs into his own hands and fight savagely for the right of existence.”

This is more or less what happened in the 1920s and 1930s when Japanese democracy collapsed and the Showa Depression ushered in a period of “government by assassination” and, eventually, militarist control. Hearn was fully aware that Japan’s vulnerability was political.

“The absence of individual liberty was the real cause of the disorders and the final ruin of the Greek societies…The absence of individual freedom in modern Japan would certainly appear to be nothing less than a national danger. For those very habits of unquestioning obedience and loyalty and respect for authority which made feudal society possible are likely to render a true democratic regime impossible.”

Hearn’s acuteness extended to the international situation. He was intensely anti-imperialist, alluding to events such as the Boxer rebellion as follows.

“Ancestor-worshipping people have been slaughtered, impoverished or subjugated in revenge for the uprisings that the missionary intolerance provokes. But while Western trade and commerce directly gain by these revenges, Western public opinion will suffer no discussion of the right of provocation or the justice of retaliation…

Then, in a critique of what today might be called moral imperialism –

“The whole missionary system, irrespective of sect and creed, represents the skirmishing force of Western civilization in its general attack upon all civilizations of the ancient type… The conscious work of these fighters is that of preachers and teachers; their unconscious work is that of sappers and destroyers.”

Christian missionaries are not the force they were; today the Western impulse to preach and teach manifests itself through other channels.

In her memoirs, Mrs. Hearn observes of her husband “I think he liked always Japan better than the West and a dream-world better than this world of reality.”

 Hearn with his wife, Setsuko
Hearn with his wife, Setsuko

Lafcadio Hearn knew all about “this world of reality” at an early age – family disintegration, religious fanaticism, physical handicap, being down-and-out in Victorian London, racism in America.  He was well aware of what human beings are capable of, hence the warnings.

The dream-world he described was as mythic as the Middle Earth of J.R. Tolkien – who fought in the Battle of the Somme –  or King Arthur’s Camelot or Odysseus taking the long way home. That is why his books continue to be read today, while so many dry-as-dust academic studies are quickly forgotten.

[1] See Rie Askew, “The Reception of Lafcadio Hearn Outside Japan”, New Zealand Journal of Asian Studies, (December 2011), pp 44-71.



At Bertram’s Hotel

Published by Anonymous (not verified) on Thu, 10/01/2019 - 5:21am in



I really enjoyed this John Lanchester essay on Agatha Christie, which came out a little before Christmas. I thought it was even better after watching John Malkovich play Poirot in the new BBC version of The ABC Murders. The essay explains in advance why the adaptation failed. Poirot is not so much a character as a bundle of mannerisms. To provide him with an interior life, much less a Secret Wound that drives his quest for justice, is to miss the point completely.

I’ve been listening to Agatha Christie adaptations a lot over the last several months. If you have a ten year old and a twelve year old, they turn out to be an admirable introduction to beginning-to-be grown up fiction, as well as an excellent way of keeping them quiet in the car. Christie is a much better prose stylist than people give her credit for being and is often deft and funny. It certainly helps that several of the Miss Marple audiobooks are narrated by Richard E. Grant.

But what’s original about Lanchester’s essay is his argument that Christie is best thought of as an exponent of formalist modernism.

Her career amounts to a systematic exploration of formal devices and narrative structures, all through a genre with strictly defined rules and a specified character list: a murder must happen, it must be solved by a detective, there must be a murderer, a victim, a set of characters who might be the murderer but turn out not to be, a number of possible motives, most of which turn out to be misleading; the setting must be circumscribed, the list of suspects finite, the motive and crucial evidence something disclosed to the reader but preferably not shown to be significant. And it must come in at around 50,000 words – that’s not a genre rule, it’s just how long Christie thought a murder story should be. From within this narrow framework, Christie produced a range of formal experiments so extensive that it’s quite difficult to think of an idea she didn’t try, short of setting a Poirot novel in a school for wizards.


The least believable detective of all is in numerical terms the most successful. Readers understand and resonate to the profoundly artificial, conventional nature of Christie’s fictions; Poirot is understood and accepted, indeed actively enjoyed, as a formal device, an almost Brechtian reminder of the artifice in which we are being invited to participate. He’s the most popular detective because he is the least plausible.

As Lanchester notes, what Christie is good at is not character, but social setting.

She isn’t thought of as a realist writer, and with good reason, but the 20th century is one of the main characters in her books: she turned ten in its first year, and was well placed to notice the many changes in manners, mores and styles of life that happened throughout the five and a half decades of her career. You can trace it in the buildings, from the ‘fine old house’ of Styles Court in 1920, with two wings and a gallery and a separate set of servants’ quarters, to the ‘modern bungalow of the better type’ in 1934, to the millionaire-built ‘luxurious modern house’ of 1939 and the cottage of 1942, which ‘consisted of all modern amenities enclosed in a hideous shell of half timbering and sham tudor’, sited on a ‘new building estate’; by 1961 we’re in a world of rented flats and espresso machines and ‘refrigerators, pressure cookers, whining vacuum cleaners’, where ‘the girls looked, as girls always looked to me nowadays, dirty.’ Social and economic change of this type isn’t one of Christie’s subjects, not directly, but it is something she never fails to register, and like Miss Marple, she misses very little.

Lanchester only mentions Christie’s “strange self-pastiching late novel At Bertram’s Hotel” in passing. Given his thesis, it deserves further discussion. Not because it’s a good detective novel. Indeed, it’s actively bad. It has a large scale criminal conspiracy, the kind of thing that Christie was never much cop at (her proper murders are small time affairs, carried out for money, vengeance or petty personal motives). The book is full of loose ends. But it feels all the more weirdly modernistic for it. Why does the gang of thieves impersonate respectable members of society, complete with similar cars with fake license plates, while carrying out their crimes? By the standards of the crime novel, or indeed ordinary common sense, it is ridiculous. But if it had appeared in a book or film by Alain Robbe-Grillet, it would seem appropriate amidst all the other incongruities.

The difference though is that Christie was not looking to explore the possibilities of the form. Instead, she was trying to make a point, albeit somewhat clumsily. The book centers on Bertram’ Hotel, which appears to be a post-war survival from the old pre-war regime. It makes all of the delicious food that one can’t get elsewhere: proper seed-cake, delicious buttered muffins (the word ‘muffin’ appears 23 times in the text). The “real chambermaid [looks] unreal, wearing a striped lavender print dress and actually a cap, a freshly laundered cap. A smiling, rosy, positively countrified face. Where did they find these people?”

It turn out that none of this is real at all (the real-unreal chambermaid turns out to be a paid actress and a gang member). Bertram’s Hotel isn’t economically viable any more as a hotel. It’s a front; a means for a highly organized criminal conspiracy to organize and launder its crimes. The old world of charm, comfort and convenience that Bertram’s seemed to preserve is an artifice, hiding something very different.

On one possible reading, this is a meta-commentary on the entire old fashioned society described in so many of Christie’s books. The country houses, the libraries in which bodies were so awkwardly discovered, the resorts and Nile cruises; all those too depended on one or another form of looting. I don’t know whether Christie completely intends this – she was probably politically quite conservative. Still, she seems at least to be playing with the idea. After all, a world in which it is easy to mistake criminals for “a High Court judge, an archdeacon, an admiral, a major general,” is plausibly a world in which the high court judge, the archdeacon, the admiral and the major general themselves had criminal qualities. At Bertram’s Hotel is not, under any reasonable definition, a good book or a good detective story. But precisely because it isn’t good, it’s easier to see the artifice, and think about what it might be supposed to do.

New discoveries: Ali Smith

Published by Anonymous (not verified) on Thu, 03/01/2019 - 12:14am in


Books, Literature

The most welcome change in our local area in the last few months is that we now have a local bookshop, Storysmith Books, and no longer have to traipse into town to Waterstones or Foyles or give our money to Jeff Bezos. I’ve always loved hanging around in bookshops (and record shops) since I was teenager, browsing, discovering new things, and that has become so much harder to do since the internet started killing the high street.

A couple of weeks before Christmas I was browsing in Storysmith, not very sure of what I wanted, and came across the first couple of volume’s of Ali Smith’s in-progress Seasons quartet Autumn and Winter. When things are in a sequence it is helpful to know what’s first, so I had to check that I wasn’t supposed to start with Spring or Summer (and indeed they’re still being written). Actually, though Autumn is first, the novels are quite independent (so far) and I could have read them in either order. Both Autumn and Winter are set in post-referendum Britain and the plots unfold against its division and dysfunctionality, but neither is didactically political. Each has at its centre a disruptive character who serves as a kind of moral and aesthetic exemplar: in Autumn it is Daniel Gluck, dying in a care-home at the age of 101 and the history of his friendship from her childhood with Elisabeth Demand a precariously employed young art historian, and his role in awakening her aesthetic sensibilty (and more broadly sensibility to life, nature). The Profumo Affair and the almost-forgotten British pop artist from the sixties, Pauline Boty, thread through the novel. In Winter, the action is centred around Christmas, a nature-blogger called Art who is a bit of a fraud and his trip home to see his entrepreneurial Leaver mother. Here the key relationship is between mother and her estranged sister (formerly of Greenham Common) and the disrupter is a young woman, Lux, hired by Art to impersonate the girlfriend who just dumped him. Both are wonderful books, and reminders that even against grey political skies, we can catch glimpses of beauty and spirit.

Having consumed these, and facing a wait till March for the next installment, I went looking for earlier work and finished The Accidental, yesterday, in which a middle-class English family, spending the summer in Norfolk, find their sense of themselves transformed by a mysterious visitor, Amber, who challenges each of them with a Nietzschean playfulness that is by turns benign and malevolent. It is a long time since I was twelve, but Smith’s imagining of the inner monologues of Astrid, the daughter and her elder brother Magnus is transporting. The theme: a family that is unhappy in its own way disturbed and changed by a chance encounter is very Anne Tylerish. But whilst Tyler’s prose is unshowy, Smith plays with language the whole time, punning, rhyming, even having characters think in sonnet form at one point. And she does this lightly and unpretentiously so that you are delighted rather than irritated. (The lightness and playfulness coupled with deadly seriousness about life and history also reminded me a lot of Pauline Erpenbeck.)

I can see that reading more Smith will take up quite a lot of the year to come.

The Myth of Reform

Published by Anonymous (not verified) on Tue, 01/01/2019 - 8:00pm in

This is our second extract from Darren Allen’s book 33 Myths of the System. The first extract can be read here, while the full work is available as a free download here. A protest march is one of Gemma Arterton’s favourite things. ‘Oh, I love going on marches,’ she beams. ‘They’re such an amazingly galvanising, brilliant community.’ She brought her mum along on a women’s march recently, ‘and she loved it, too. She just loved the energy you get off it. It’s like carnival, people really together, and they’re singing and they’re chanting.’ She throws her head back, exhilarated by the memory. ‘It’s like, you feel power!’ Interview in The Guardian Reform is the lightning rod and pressure relief valve of the system. Reform deflects desire for a different system into negotiations for changing the scenery, the actors and the script of the current system · · · The key player in reform is the professional, or ambitious, stagversive, the proto-typical example of which was Karl Marx · · · Stagversives may be good people, …

New Terayama / Moriyama Publication: “Japan, A Photo Theater”

Published by Anonymous (not verified) on Sun, 30/12/2018 - 9:04pm in


Books, culture

A new Terayama / Moriyama publication is now available from online store

You can look into the book and buy it here.

“Japan, A Photo Theater” is a meticulous recreation of  a 1969 collaboration between poet-cineaste-provocateur Shuji Terayama and trail-blazing photographer Daido Moriyama.

Terayama’s text ranges from a sexual fantasy involving his mother to a prose-poem dedicated to 1960s screen goddess Ayako Wakao. There is also a naniwa bushi narrative poem based on the story of Edo era arsonist O-Shichi – but transposed to the era of teenage delinquents and radical students.

Moriyama’s images, in his famed are, bure, boke (“rough, shaky, blurry”) style, depict strippers, vaudevillians, freak shows and other sights of the 1960s Shinjuku streets.

This is a limited edition publication,  with each copy signed by the legendary Daido Moriyama himself.

The English translation is by me, Peter Tasker. Once again, you can look into the book and buy it here.

And here is a taster of the text in English.

FOURTH SONG:  The Yakuza Code of Honour – Shinjuku Version

 I once received a severed pinkie finger in a bottle.  A symbol of Masa’s friendship, the finger pickled in alcohol gradually went as pale as wax. “Couldn’t find any medical alcohol, so I just went and used booze instead. I went the extra mile and got some VSOP brandy.”

If you take a husband, make sure he’s on the straight

A yakuza is sure to bring you trouble

 These words from Taro Shoji’s “The Traveller’s Sedge Hat” are not strictly accurate, but Masa had lived half his life enduring yakuza woes, finally ending up in the slammer for grievous bodily harm. After that, for some reason, he could never forget the fact that he suffered from the same illness as I did during my long spells in hospital. Obsessively, like someone going through a book of passionate poetry page by page, he worked at developing the friendship, which was the only thing that mattered to him. When I visited him in prison and brought him his favourite salmon slices, he was deeply moved.

“Is there anything I can do for you?” he said. “Just name it!”

“Really?” I said. “Well, there is one thing. I’m interested in the graffiti on the prison walls. Do you think you could copy some and send them to me?”

And indeed after a week or so, the Kokuyo student notebook I had given him came back filled with graffiti copied from the walls. Call it “a jailhouse guest-book” or “an anthology of lived experience”. It occurred to me as I read it that prison is another form of ‘theatre’.

Here I would like to introduce some parts of it, stage directions for a spontaneous drama that will never be performed again. I’d like to dedicate this documentary to my friend Masa, still sleeping behind bars, to his fellow-inmates who might have some pangs of nostalgia if they read it, and to other outlaws of the era…

“The detectives are all twats. Arresting us queers is totally pointless. I’m never going to change. I’ll do you until you’re senseless, you bastards!”

“My name is Goro Matsushita and I’ve been crazy about women since I was a kid. Such was my talent that I was known as Clit-licker Matsushita by the age of fifteen. I’m going to carry on following the Way of the Clit.”

“The glow of fireflies, the gleam of snow on the window.”


If you want to read more, buy the book here.

Doctor Who: Rose Tyler – The Woman Who Saved the Doctor (VIDEO)

Promoting the book Doctor Who: The Women Who Lived, an illustrated history of the women of Doctor Who, the BBC is releasing narrated featurettes about the lives of the most important women in Doctor Who lore. The first highlighted – appropriately enough – Susan Foreman, the Doctor’s first companion and granddaughter. The second edition was released on December 19th and focuses on the first and arguably most famous companion of “New  Who“: Rose Tyler.

Portrayed by former child star and pop idol Billie Piper, Rose was the local shop girl: she talked to her friends on her mobile, she had a boyfriend named Mickey, and a mother she loved.

“For the first nineteen years of her life, nothing happened. And then she met a man who could change his face and took her away from home in his magical machine.”

From the moment she first took the Ninth Doctor’s (Christopher Eccleston) hand in the basement of a Henrik’s Department Store and ran from attacking mannequins, the wide eyed, smart mouthed, and warm-hearted Rose Tyler became a fan favorite and a Doctor Who legend. Piper’s youth, energy, and humanity smoothed out the rough edges of Eccleston’s lonely, war-weary Doctor. Rose traveled with the Doctor for two seasons, sacrificing herself to save the lives of the Doctor and Captain Jack Harkness (John Barrowman). It was this sacrifice – and the Doctor’s effort to save her – that led to his eventual regeneration into David Tennant‘s Tenth Doctor. The chemistry between Tennant and Piper was consuming, and the relationship between their on-screen characters transformed into an epic love.

Finally, when the Doctor was faced with a human version of himself who was angry and unpredictable, he knew just what to do. Rose had made the Doctor love again, so it was only natural that the Doctor would turn to her when his human doppelganger needed the same humanizing influence. Leaving Rose and “Tentoo” on a beach that was the gateway to another dimension, the Doctor sacrificed his own happiness for Rose’s future.

Featuring the art of Mogamoka (0:00), Caz Zhu (0:22), Tammy Taylor (0:46), Katy Shuttleworth (1:19), Natalie Smilie (1:53), Sophie Cowdrey (2:37), Jo Be (3:10), and Kate Holden (3:42), the video is beautiful and made me incredibly nostalgic.

I ended up going down a rabbit hole on Doctor Who‘s prolific YouTube channel, viewing clip after clip of Rose and the Doctor. Watching Piper and Eccleston (and later Tennant) on screen I realized that Rose saved the Doctor in many ways. On the show she saved his life, his soul, and his faith in humanity. In the world of television, Piper’s portrayal of Rose was a boost for the show and drew in additional viewers, making future seasons and companions possible. And for fans like me who joined the Who-niverse in 2005, Rose taught us to love the Doctor as she did. It makes sense that her featurette would be second only to The First Doctor’s granddaughter.

Because together, they made all of the future companions possible.

doctorwho rose tyler doctorPenguin Group UK

Meet the women who run the Whoniverse.

From Sarah Jane Smith to Bill Potts, from Susan Foreman to the Thirteenth Doctor, women are the beating heart of Doctor Who. Whether they’re facing down Daleks or thwarting a Nestene invasion, these women don’t hang around waiting to be rescued – they roll their sleeves up and get stuck in. Scientists and soldiers, queens and canteen workers, they don’t let anything hold them back.

Featuring historical women such as Agatha Christie and Queen Victoria alongside fan favourites like Rose Tyler and Missy, The Women Who Lived tells the stories of women throughout space and time. Beautifully illustrated by a team of all-female artists, this collection of inspirational tales celebrates the power of women to change the universe.

Christel Dee and Simon Guerrier‘s Doctor Who: The Women Who Lived is on sale now.

The post Doctor Who: Rose Tyler – The Woman Who Saved the Doctor (VIDEO) appeared first on Bleeding Cool News And Rumors.

Inflation-Linked Bonds And Portfolio Allocations

Published by Anonymous (not verified) on Wed, 19/12/2018 - 11:52pm in


bond market, Books

One of the difficulties with inflation-linked bonds is finding space in a portfolio for them. Very simply, most risk assets appear to offer a good long-term inflation hedge, and equity returns are typically expected to be higher. This article is an excerpt from my latest book, Breakeven Inflation Analysis. It is the second half of Section 4.8; the first half (on hedging efficiency) was previously published as an except here. Breakeven Inflation Analysis is available in paperback and electronic book editions at online retailers (link to the book page which provides links to supported retailers).

Book Excerpt (from Section 4.8)
These concerns about hedging efficiency [discussed in the previous article] will then rebound to how inflation-linked bonds fit into portfolio allocations. Since a full overview of portfolio allocation strategies is well beyond the scope of this text, I will confine my attention to classical non-levered portfolio allocations. By contrast, if we are willing to use leverage, inflation-linked bonds are more interesting and are used in constructions like risk parity strategies.

The following discussion is based on conventional portfolio principles. The idea is that we are not going to try to shift our portfolio in an erratic fashion in order to optimise returns. Instead, we assume that markets are somewhat efficiently priced, and we are trying to find a default portfolio mix that best fits our investment objectives. For example, in personal finance, a 25 year-old is typically assumed to be aiming at achieving high long-term returns (at the cost of higher portfolio volatility), whereas an 80-year-old retiree is presumed to be aiming to achieve a steady income stream. We then attempt to find a benchmark weighting for a number of asset classes. We can then vary our actual portfolio based on market views, but our risk is measured relative to our deviations from that benchmark weighting. For our discussion here, we are interested in what the benchmark weighting for inflation-linked bonds should be.

I will start with a standard baseline portfolio strategy: the 60/40 construction – 60% equities, and 40% fixed income. This was a good approximation for many institutional portfolios historically, and a common recommendation for middle-aged individuals. (Now that many pension funds are in run-off mode, I assume that there is a greater variety of investment stances.) We then want to adapt the portfolio to include inflation-linked bonds.

In a 60/40 portfolio, equity risk dominates. Not only do equities feature higher raw returns volatility, the equity weighting is 150% of the fixed income weighting. Prospective returns are heavily dependent on the equity market performance.

From an active bond manager’s perspective, inflation-linked bonds provide an amazing expansion of the set of opportunities for outperformance. It might be possible to build an entire investing platform around using inflation-linked bond relative value trades to beat a conventional bond index. However, the usual target for outperformance for an active non-levered fixed income manager is typically on the order of 20 basis points per year. From an asset mix perspective, adding 20 basis points of outperformance on 40% of your portfolio is nice to have, but it is laughably small influence on overall returns when compared to equity market risk. (The 60% equity weighting might gain or lose the same dollar amount within 20 minutes when the exchanges are choppy.)

The question from an asset mix perspective is: what weighting should we give to a dedicated inflation-linked bond holding? Unfortunately, there are difficulties in trying to carve away assets from the other asset classes.

  • If we reduce the conventional fixed income weighting in an inflation-linked portfolio, we are reducing the limited ability of our bond portfolio to diversify the risk asset exposure of equities. As we saw in the Financial Crisis, inflation-linked bonds can fall in price at the same time as equities; only conventional government bonds unambiguously did well during the repricing. Furthermore, conventional bond indices typically have a weighting to corporate credits that are expected to outperform government bonds over the long term (since corporate spreads have been historically wider than default losses).*  As noted in Section 4.6, inflation-linked bond indices are weighted towards central government issuers, and so the credit exposure of the portfolio would drop (without making changes to the indices used).
  • If we carve out the equity weighting, we would very likely be reducing expected returns on the portfolio. So long as we assume that inflation breakevens are not totally mispriced, an inflation-linked portfolio would be expected to have a return within 100 basis points of a conventional bond portfolio with a similar duration (based on prospective inflation volatility being close to historical averages). Meanwhile, asset allocators generally expect equities to outperform bonds by hundreds of basis points. (Historically, they were too optimistic in that regard, but the bull market in bonds has largely crashed into the zero bound in rates.) Under such a return assumption, the prospective return of the portfolio would drop markedly and would be resisted by most asset allocators.

Given the trade-offs noted above, one can see that it will be a tough sell to get a benchmark inflation-linked weighting much greater than 10%. Even at just a 10% weighting for inflation-linked bonds taken out of the bond weighting, we might lose about one quarter of our risk asset diversification (depending upon our assumptions on how returns will be correlated in a crisis). However, as noted in the discussion of hedging efficiency, that only provides a hedge against inflation for 10% of the portfolio. Although that is a step in the right direction, it is certainly not going to result in being completely unconcerned about future inflation trends.

Of course, if one is somewhat more risk-seeking, one might replace the conventional bond portfolio by inflation-linked bonds based on the view that inflation-linked bonds are fundamentally cheap. However, in an institutional setting, it would be necessary to convince an asset allocation committee to make a big bet based on a relative value view, which is often quite difficult. In any event, it is hard to describe such a stance as a baseline portfolio construction, as it is unclear why one should believe that inflation-linked bonds are always going to be structurally fundamentally cheap. (Risk assets are presumed to have higher prospective returns to compensate for illiquidity or volatility.)

Commentators of a more bearish temperament may view the higher returns expectations for equities with derision. However, if one is managing a portfolio for retirement purposes (either as an institution, or for yourself), there is a cost to using low returns expectations. In order to meet retirement income targets with lower expected returns, it is necessary to raise contributions. Workers might not be happy with extremely large obligatory deductions from their pay. For an individual, a high implied contribution might lead to disenchantment with financial planning and instead lead to speculative activities. (One standard depressing result of personal financial surveys is the percentage of people that indicate that they expect to fund their retirement with lottery winnings.)**

It is much easier to find a place for inflation-linked bonds when the default bond/equity weighting is tilted more towards bonds. This might be the stance of a closed pension fund, or the recommended asset allocation for a retiree. For example, if the default bond weighting is 60%, we would have a 150% relative weighting towards bonds over equities. We no longer need to prioritise controlling equity returns volatility. Meanwhile, since the role of equities in a bond-heavy portfolio is presumably to hedge against inflation risk, inflation-linked bonds may be a better hedge vehicle.

In summary, inflation-linked bonds seem best suited as a vehicle for making relative value trades (breakevens are cheap/expensive), or as a fixed component of portfolios that are already heavily weighted towards bonds. The evaluation changes if we are willing to build our portfolio strategy around derivatives or leverage, but we would then need to understand the issues raised by such investment structures.

Breakeven Inflation Analysis is available at the stores linked here.

* Actual corporate bond relative performance has been underwhelming in practice. My reading of the data was that credit products tended to have embedded calls that ended up being a major performance drag in a secular bull market in interest rates.
** My discussion of returns expectations is following conventional logic. I am unconvinced that this is the best strategy for personal finance. My preference is to follow the “pay yourself first” strategy, and immediately save a decent chunk of each paycheque. You will find out what your sustainable retirement income is the hard way – when you retire, you see how large your portfolio is. However, such a viewpoint cannot be translated into an institutional framework. It is essentially equivalent to saying that we should fire all the actuaries, and set pension contributions by instinct. Although I believe that we cannot avoid fundamental uncertainty, we still have to pretend that we can forecast the future when setting pension policy.
(c) Brian Romanchuk 2018

Not How the Internet Happened

Published by Anonymous (not verified) on Sat, 15/12/2018 - 4:21am in

A new history of the internet succumbs to hagiography and subservient yarn-spinning.

Reading Beyond the Code

Published by Anonymous (not verified) on Sat, 15/12/2018 - 1:03am in


Literature, Books

A Book at Lunchtime Seminar with Terrence Cave, Deirdre Wilson, Ben Morgan (Worcester College, Oxford), Professor Robyn Carston (Linguistics, UCL). Chaired by Professor Philip Bullock (TORCH Director). Is language a simple code, or is meaning conveyed as much by context, history, and speaker as by the arrangement of words and letters?

Relevance theory, described by Alastair Fowler in the LRB as 'nothing less than the makings of a radically new theory of communication, the first since Aristotle's', takes the latter view and offers a comprehensive understanding of language and communication grounded in evidence about the ways humans think and behave.

Reading Beyond the Code is the first book to explore the value for literary studies of relevance theory. Drawing on a wide range of examples-lyric poems by Yeats, Herrick, Heaney, Dickinson, and Mary Oliver, novels by Cervantes, Flaubert, Mark Twain, and Edith Wharton-nine of the ten essays are written by literary specialists and use relevance theory both as a broad framing perspective and as a resource for detailed analysis. The final essay, by Deirdre Wilson, co-founder (with Dan Sperber) of relevance theory, takes a retrospective view of the issues addressed by the volume and considers the implications of literary studies for cognitive approaches to communication.

Edited by Terence Cave, Emeritus Professor of French Literature, University of Oxford and Emeritus Fellow, St John's College, Oxford, and Deirdre Wilson, Emeritus Professor of Linguistics, UCL and Research Professor in Philosophy, IFIKK, University of Oslo.

Terence Cave is recognized as a leading specialist in French Renaissance literature, but has also made landmark contributions to comparative literature and the history of poetics. His most recent work focuses on cognitive approaches to literature.

Deirdre Wilson's book Relevance: Communication and Cognition, co-written with Dan Sperber, was described in Rhetoric Society Quarterly as 'probably the best book you'll ever read on communication.' Translated into twelve languages, it has had a lasting influence in philosophy, psychology, and linguistics and is now regarded as a classic.

Contributors: Kathryn Banks, Elleke Boehmer, Guillemette Bolens, Terence Cave, Timothy Chesters, Neil Kenny, Raphael Lyne, Kirsti Sellevold, Wes Williams, Deirdre Wilson.