There is no doubt David Cameron dodged a bullet last month when the House of Commons was called to vote on the referendum on Britain’s membership of the European Union. The vote only concerned a belated expression of regret that a bill to make a referendum possible had not been included on the current parliamentary timetable. Yet, although he professed to be ‘profoundly relaxed’ over the vote, Cameron must be able to see himself being painted into a corner by Eurosceptics in his own Conservative Party. These days, MPs think nothing of revealing their intention to vote for a ‘Brexit’ if a referendum should ever be held. The anti-EU UK Independence Party is snapping at the Tories electoral heels. And even Nigel Lawson, a Tory peer and former chancellor, has publicly called for the UK to exit the EU. So one surely has to expect a renewed attempt by eurosceptic backbenchers to rattle the prime minister in the coming weeks and months

Much attention was drawn to Barack Obama’s concern about a possible UK exit from the EU last month, but how many people noticed the rise in gilt yields relative to their major EU counterparts? For a few days while the Brexit was in the headlines, ten-year borrowing costs in the UK even climbed above the French equivalent. Bond investors were certainly not indifferent to the prospect of a referendum even if it is a distant one. Remember, bond investors around the world already have a finger poised just above the sell button just in case the long-heralded bond market crash actually starts to unfold.

Imagine a situation, say, a few weeks from now: Japanese bonds continue to sell-off, sending a shiver down the spine of bond holders around the globe; anti-EU backbench Tory MPs have come up with another scheme to force their recalcitrant leader to cede more ground on the EU referendum issue; Mervyn King is already out of the Bank of England, his deputy, Paul Tucker, is a lame duck after having submitted his resignation, and Mark Carney is not yet settled in. What better an opportunity for an aggressive hedge fund to test the robustness of demand for UK gilts by selling short a huge quantity of them?

A price slide would confirm for bond investors that the much-feared trend reversal had finally begun. It would be too late to silence the anti-EU backbenchers, and any hurried response by the Bank of England would seem like a panic move, perhaps even worsening the situation. It has been 20 years since George Soros made a billion dollars in a single day at the Bank of England’s government’s expense. Perhaps the wily speculator might sense that Nigel Lawson has set the stage for yet another profitable opportunity.

Read more at Boerse Frankfurt’s website

After my wife and I saw a TV report on this year’s La Biennale, we got Venice fever. It was so fascinating that even before the emission was over our minds were made up: we had to go back. All the memories of our previous trip came flooding back – Giardini della Biennale, the old Arsenale shipyards – like it was yesterday. But would a trip to the Venetian Lagoon be possible at such short notice – right in the middle of the summer holiday season? We were lucky as there were many affordable family apartments still available for rent. Also the flights, despite the short notice, were reasonably-priced.

I found a flight with Lufthansa and took advantage of the admittedly pricey option to hold the reservation for 48-hours because I was still waiting for a confirmation on the accommodation. For €30, I was able to secure a ticket price per person of €258 as well as specific seats on the aircraft. All I had to do was to complete the booking within the guarantee period otherwise the conditions could not be assured. The alternative would surely have been an even higher price.

On the next day the agreement with the Venetian landlord was made so I was in a position to complete my Lufthansa booking. However, it would be poor businessman who didn’t check the latest prices before going ahead. Maybe they had become cheaper. Lufthansa makes the task very easy; one only has to click on the most recently-searched flight and ‘voila’.  But they were no cheaper.  Quite the opposite, in fact; airline prices had undergone a veritable price explosion overnight. The same flight, on the same day, was now more than double the price. Good thing I had bought that price guarantee, I thought to myself, and just at the right time. I’d better get it booked while there was still time. All the same, I couldn’t help but feel something was fishy – the cynicism that comes with studying behavioural finance, no doubt. Lufthansa just seemed to have pushed all the right behavioural buttons: I now perceived the guaranteed ticket price as a real bargain because of the new reference point, and I even saw the €30 fee for the option to hold the reservation as a good deal. So I asked by blogger-in-crime, Herman, if he too thought something stank.

I asked Herman to check the same flights on his computer to see whether he got the same Lufthansa prices. We guessed it: the flights when seen from another machine had not doubled. In fact, they were a little cheaper than they were on the previous day. What was going on? Did my PC have a Venice virus? Was some kind of computer worm preventing me from getting cheap flights now? I emptied my browser’s cache to rid myself of any nosey cookies, then recommenced my flight search, step-by-step. Suddenly, I too was able to find cheap Lufthansa flights. From the airline’s perspective my IP address was like a blank page, fresh, without doubt, for a new manipulation.

Poor Warren Buffett (that sounded odd); the bidding on eBay for a place at his annual charity lunch table was so tame the auction was ‘won’ for only one million dollars. Compare that to the bidding wars of the previous two years: in 2011 a lunch with the Oracle of Omaha cost the winner $2.63 million; and the entry ticket to his table at New York’s Smith & Wollensky steakhouse went for $3.46 million. So this year’s lunch was a veritable bargain. Alternatively, one could see it as a price crash of 70 percent.

It is a little worrying that the world’s wealthy decided to spurn Warren’s charitable intentions in this way. Even if the goal of the bidders might not be totally selfless, they could still have spent a little more. This is, after all, the chance to grill an investing legend while the chef does the same to a juicy T-bone: a rare opportunity indeed (or, at least medium-rare). What’s more, according to Reuters, Buffett’s lunch partner last year was served an unexpected dessert: a top job as an investment manager at Berkshire Hathaway. Perhaps, this time around, they were more anxious about overpaying for lunch and suffering the winners’ curse.

On the very same day I learned about the lunch auction, I read about the annual report of the Federal Reserve Bank of St Louis. According to the Fed statisticians 62 percent of the recovery of private wealth up to the end of last year was due to rising stock prices. Given that, in 2010, 91.4 percent of stocks and stock funds were owned by the wealthiest decile in the population, the riches rebound certainly resulted in an even greater concentration of wealth in society.  This news didn’t surprise me because this trend towards greater wealth inequality had been in place for the past 30 years. However, the must-read study by Edward Wolff, revealed that the financial crisis might have even reinforced inequality in US society. It reports that real median wealth has actually sunk to the lowest levels since 1969.The gap between median incomes and top incomes has also widened in recent years. So it seems that the wealthiest households have disproportionally profited from the Fed-fuelled recovery in stock prices. The most recent US payrolls number merely confirms the development: more than a half of the new jobs created in May were in sectors where the pay is the lowest.

So it is somewhat puzzling why the wealthy are unwilling to spend more on a charity lunch with Warren Buffett – they can certainly afford to pay. Are the wealthy trying to cut costs? Or have they decided that they can do without any investment advice because, in anticipation of another huge stock market decline, they are already resigned not to make any new stock purchases.

The Occupy movement was out in full force in Frankfurt again last week. From an impromptu camp near the city‘s exhibition centre, a sizeable and surprisingly well-organised crowd embarked on two days of protest and disruption around Germany’s financial capital. The banks were obvious targets, but in the light of the clothing factory disaster in Bangladesh, Primark also considered it prudent to keep its doors locked and shuttered.

“STOP THE AUSTERITY,”’ they howled. “NO TROIKA!” These were sentiments I could sympathise with. “STOP EXPLOITATION.”’I nodded my head again in silent approval. “DOWN WITH CAPITALISM.”’ Wait I minute. Do they mean the capitalism where the price of capital is determined by the forces of supply and demand in a free market? Do they mean the capitalism where interest rates, for example, are determined by the wishes of savers to earn a return and the needs of households and firms to borrow? If this is the case, Occupy has already scored a victory because this capitalism ceased to exist when the world’s major central banks embarked on indefinite quantitative easing and other non-conventional monetary policy measures.

Precisely in Germany, cheap and disproportionally abundant central bank money is fuelling a property boom. Admittedly, the boom is partially fuelled by the feverish desire of crisis-wary Germans to park their cash in a safe place, but it is facilitated by the cheapest mortgage rates in living memory. Despite the country’s appalling demographics – more people die in Germany each year than are born, and the 2012 census revealed far fewer people living in the Bundesrepublik than previously thought – a construction explosion is underway. This activity is in principal great for growth and jobs, but sadly only in the construction industry. So much household wealth is now being diverted into property that other sectors are suffocating. Car sales in Germany have plunged, for example. Retail sales have also disappointed since the start of the year. Now, the formerly positive employment trend has reversed as German firms reassess their future perspectives less favourably. If the new buyers of suddenly more expensive German properties suddenly find themselves out of work because nobody is buying anything else, a new crisis could unfold within the country’s own borders. The next Occupy action could be calling for a return to good old capitalism.

There has been so much talk recently about the possibility of the Fed reining in its policy monthly asset purchases, the so-called ‘tapering’ (Word of the Year?). Yet, it shouldn’t have escaped investors’ attention that any official mention of the policy shift is invariably wrapped in pre-conditions: if employment continues to improve; if economic activity is sustained; if inflation doesn’t fall. It should also not have escaped attention that in recent months the improvements in all of those measures appears to have stalled.

The plateau visible in recent economic data comes as no surprise to the international bank, HSBC. Its index of the global business cycle peaked at a three-year high some two months ago and has since turned downwards. The tailwinds of a positive economic cycle have now subsided, argues the bank; there will be headwinds from here on. If the pre-conditions for tapering get even farther away, one can hardly reckon with any change in Fed policy. If anything, the central bank might decide to step up its asset purchases.

In all fairness to the Fed’s policymakers, immediate economic outcomes were not their only pre-occupation. Many members of the policymaking committee feared the longer-term risks of Fed action might ultimately outweigh the near-term benefits. Those voices ought to be getting very loud about now. This is because not all of the incoming data has rolled over: the stock market has continued to do well, as has the US housing market. However, these are precisely the markets that have been doped by abundantly cheap Fed money and are, therefore, the least representative of any underlying economic recovery.

Investment funds have been very active in the US residential real estate market in recent years. This demand helped to reverse the decline in house prices and to push them higher at the fastest rate in seven years. However, for a broad sustainable recovery, it would certainly be preferable to have 10,000 families take mortgage loans to buy ‘homes’ than to have some hedge fund borrow cheap Fed money to take a long position in 10,000 ‘single-family rental units’. Similarly, in the stock markets, it would be preferable to have millions of small investors put their savings into enterprises that subsequently spend it on capital and on people, than to have firms (even those with poor credit ratings) issue bonds at record low yields and use the cash to repurchase their own stock or to pay dividends. Instead, if viewership figures of the financial TV network CNBC is a guide, small investors’ interest in the stock market is at its lowest since 2005.

If the Fed policy of quantitative easing is merely blowing bubbles in various asset prices without having any useful impact on consumer prices or on employment, shouldn’t it simply stop? The easy answer would be: yes. After all, central bankers know there are suddenly an awful lot of all-cash buyers in the US real estate market; they can see a record volume of share buyback announcements; and they are aware of record borrowing against the value of stock portfolios. If they keep on doing more of the same it is because they just have no better idea. More than likely then, the recent rise in US Treasury yields is not because investors fear Fed tapering, but because they recognise that when the new bubbles burst the central bank will be powerless to do anything about it.

Read more at Boerse Frankfurt’s website

Whenever a Japanese finance minister chooses to remind investors and consumers that his department is “watching [x, y or z] market very closely”, we know an early step has been taken in an escalating rhetoric that typically ends with massive intervention in the financial markets. Formerly, such fighting words were reserved for the foreign exchange markets. The Bank of Japan, bankrolled by the Finance Ministry, has waged a multi-year battle to reverse the direction of a supposedly overvalued yen. More recently, however, this notorious warning  has been directed at the bond market: beware all those who dare to sell the Japanese sovereign debt short, you risk a bloodied nose.

Does Finance Minister Aso’s latest verbal intervention mean bond vigilantes are cruisin’ for a Japanese bruisin’? One cannot ignore the goal of Japan’s current economic policy in this debate, namely to hoist the consumer inflation rate to a two-percent target. Such a bold objective can hardly be achieved without bond yields rising and their prices falling – unless the good minister genuinely believes bond investors will be satisfied with a miserly return of 30bp per annum for ten years when inflation is running at seven times that level. This means intervention in the bond market would be counter-cyclical. In the era of currency intervention, actions to weaken the yen were at least consistent with the objectives of boosting domestic exports, and importing a little foreign inflation. This time around, though, bond market intervention could never be intended to do more than delay the inevitable. Perhaps investors should pay more attention to BoJ chief Koruda’s judgement of the equity market, namely that stocks are not over-valued. If the central bank were to buy stocks aggressively, it might ruffle a few feathers, but at least it would be pro-cyclical.

Maybe there won’t be any inflation in Japan after all. Although the prospect of future inflation appears to have taken hold among consumers and firms – by lifting inflationary expectations, Abenomics has already done half the job – it has not escaped the attention of the banks either. Japanese bankers will not be motivated to lend money at today’s low rates if an inflationary surge is on the horizon. So the freshly-printed yen might simply get stuck in the banking system. Without the loans to realise potential borrowers’ post-deflationary ambitions, the dream of a two-percent inflation rate might remain out of reach.

Abenomics will remain at least a psychological success, a demonstration of a how a bold programme from a credible leader can change popular beliefs from one day to the next. The only real danger here is that the intervention policy of the Bank of Japan wrongly conveys the impression the authorities can control everything: inflation, bond yields, exchange rates, stock markets, growth, exports, etc. It cannot. Financial markets have a habit of exposing the weakest point in a strategy and using this as a valve to release the pressure built up by all the other constraints. Often, this valve proves to be very expensive. The economist Paul Krugman reckons a successful Abenomics policy could serve as a template for western economies. As an investor, I struggle to share this optimism.

Read more at Boerse Frankfurt’s website