While I often post highlighting the poor performance of the banking industry the bankers are far from the only poor performers in the world of finance. If you look at hedge funds that charge a standard fee of 2% of assets under management and 20% of profits - then you would expect that they would perform well for those that trust their money with them. However, this is patently not he case as the chart from the economist below shows. The average hedge fund has increased only 17% in the last decade while a simple portfolio of 40% sovereign bonds and 60% tracking the S&P 500 would have increased your money by 90% ! In fact, the S&P 500 has beaten the average hedge fund 9 times out of the last 10 years. Hedge funds seem to spend a lot of time talking about "alpha" (i.e. excess returns) but fail abysmally in practice at achieving it. In fact,  they seem to have generated negative alpha. A 17% return does not even keep you up with inflation !  Some of the richest people are the hedge fund managers themselves ! Either investors and their institutional clients are ignorant of these facts, or just plain stupid, they can easily buy a tracker fund ETFs on the S&P 500 which has minimal fees and outperform the vast majority of hedge funds. Why pay a hedge fund manager a fortune to do what you can do better and cheaper ??

Source: Economist Magazine

The Japanese economy is the world's third biggest economy and the world's largest creditor as measured by its Net International Investment Position (NIIP) of over $3 trillion in 2010. That means the rest of the world owes Japan more than Japan owe the rest of the World. However, its government debt is approaching 240% and luckily it finances this debt at ridiculously low yields. The danger with Abenomics is that Central Bank buying of bonds and a predicted doubling of the monetary base may push up rather than lower the Japanese 10 year bond yield, particularly as the new 2% inflation target means that a bond yield of 0.8% would mean a negative real return of -1.2%. In the short run Abenomics has done wonders for the Japanese stockmarket moving from 8,600 to close to 15,000 in 6 months but the danger is that if bond yields were to rise to say 2.5% then refinancing the national debt as debt matures would become a major problem. It would also mean large losses for Japanese banks and pension funds that are major holders of Japanese Government Bonds (JGBs). Japan has problems like an ageing population and the rise of China to worry about. Abenomics in my view is likely to end in tears as the bond market will start to worry about the new inflation target and the national debt rises above 250% of GDP.

Lets be honest most economists never foresaw the biggest financial and economic crisis that was about to hit the major developed economies starting mid 2007. Too much of economic modelling is an intellectual game and most econometric modelling is a waste of time when it comes to forecasting as a simple random walk forecast is often better than a complicated econometric forecast. Certainly there is a need to look at the way the financial system interacts with the real economy and to stop assuming everyone is behaving rationally and making optional decisions. I personally feel we need to also think about issues of incompetence on the part of both private agents and policy makers, short term thinking, greed and fear which points in the direction of behavioural economics. Hard to do it all formally but some of these elements were present in the crisis to a more or less extent. There is a nice collection of articles on this topic on voxeu blog by Joseph Stiglitz link George Akerlof link David Romer link and Oliver Blanchard link. There is a page with videos of the IMF conference on Rethinking Macreconomics here link.

The current UK recession and "recovery" is by far the worst of the modern era. As the interactived chart below shows the recession has been far deeper and recovery far shallower than the recessions of the 1930s and 1990-92. Output is still 2.4% lower than it was at the start of the recession over 5 years ago. Meanwhile the stockmarket is partying once more as the financial world is enjoying the benefits of free money and record low interest rates and youth unemployment is a shameful 23% in the UK and close to 60% in countries like Greece and Spain. Problem is that interest rates won't stay this low forever 

Must stop complaining about my salary...looks like I have the 14th best job out of 200 in this ranking by Careeercast.com link. The ranking is based upon five criteria: physical demands, work environment, income, stress, and hiring outlook. Interestingly the job an actuary comes in at number 1. I teach quite a lot of actuaries and set the annual exam for the institute of actuaries in economics every year. I have always found them to be a pleasant and bright bunch of students to teach and I enjoy teaching them. They also seem to have chosen a rather satisfying career path, so well done to all my former actuary students on the choice of a great career.