Buy when there is blood in the streets is the famous 18th Century dictum of Nathan Rothschild. Today the financial and political equivalent is plain to see. A government with no clue how to finance its tax cuts, a Bank of England reduced to crisis intervention almost daily, and a tightening liquidity squeeze with double-digit inflation is about as bad as it gets. No wonder the markets took fright last week, and were hardly reassured this. Buying long-dated UK government securities at almost any time since 1976 had produced a handsome dividend alongside a tax-free capital gain as the prices rose and the corresponding yield fell, finally to below one per cent. This was widely considered the new normal in an era of plentiful capital and perpetually low interest rates. Governments everywhere could borrow as much as they needed, almost interest-free.
Neil Collins’ Notebook: The LDI gamble comes to a head, and it’s time for the pompous OECD to savage the UK once again.