Guido is one of the small number of British market commentators who does not buy into the deflation scenario – Liam Halligan is another – it is just too convenient an excuse for politicians to print money.
The Bank of England pension fund is managed on behalf of a very select and savvy group of people with access to a lot of market insight – the employees of the central bank. With great market timing the fund sold out of equities entirely at the end of 2006 cutting a 21.6% holding down to 0.1%, thus avoiding a 35% drop in UK equities since that time. Awesome market timing, the fund was consequently up 12% last year when all around markets crashed.
The fund’s holding of Index Linked Gilts has shot up from 25.6% of assets to a 70.7% proportion of assets during the same period. That is a big bet of the pension pot owned by everyone who works at the Bank of England. Index Linked Gilts are linked to RPI – the inflation rate – you buy them if you are worried about inflation. They are a hedge against inflation.
Hold on, if deflation is (as the political elite and their client media commentators claim) the big threat, why is the Bank of England’s pension fund betting 3/5 of the £2.2 billion pot on hedging against inflation? This is their personal pension fund. Money talks.
Source : Bank of England Pension Report [pdf]
Hat-tip : Peter Oborne