interest rates and the economy

• In November 2003 the Bank of England’s monetary-policy committee (MPC) raised interest rates by 0.25%, the first increase in almost four years. With hindsight, it seems a straightforward decision. The economy was growing steadily, unemployment was low, house prices were shooting up and banks were lending freely. Yet at the time there was great anxiety about the change. The fear was that the increased burden of consumer debt would make even a small rise in interest rates bear down heavily on spending.
• That worry is all the greater now, as the bank contemplates a similar move. As The Economist went to press on April 7th the MPC was expected to keep its benchmark rate at 0.5%—but a quarter-point increase seems likely as soon as next month. Debt is worse, relative to incomes, than in 2003 (see chart). Other pressures on household finances are greater now than then. Wage growth is sluggish; inflation is far higher; job prospects are poorer. And taxes are going up. In the circumstances, an increase in interest rates could easily provoke a damaging cutback in spending by nervous consumers. One big, if subtle, reason for concern is the stark polarisation between the cash-rich and the debt-poor.
• If each household had an equal share of the cash and debt held by all, there would be little to worry about. True, personal debt is around 1.5 times post-tax income, which means that a percentage point increase in interest rates, if fully passed on by lenders, would take up 1.5% of income in higher debt-service costs. On the other hand, the income effects of interest-rate changes do not work in only one direction. Households in aggregate also have large cash deposits, and higher interest rates raise the income that is earned on them. The stock of cash is a bit smaller than the stock of debt, so the overall effect of interest-rate increases would be to depress household income. But as long as deposit rates rise in tandem with borrowing costs, the cost of a percentage point rise in rates would be less than 0.3% of incomes.
• That reckoning, however, understates the likely impact. Analysing the debt and cash holdings of all consumers lumped together reveals little about the effect of interest-rate increases on spending. That actually depends on how the aggregate cash hoard and debt burden is divided.
• People typically do not have both large debts and piles of cash, since it would make sense to use the latter to pay off the former. Rather there is a financial spectrum with, at one end, debt-laden householders, usually young, who have recently taken on a hefty mortgage and have little spare cash; and at the other end, older savers who have paid off their mortgages, or who have traded down to smaller homes and banked the proceeds.
• These different sorts of consumers will respond to interest-rate increases in ways that are unlikely to be neutral for the economy. The indebted will cut their spending to free up the extra cash to service their loans. Once rates start to rise, those with the biggest debts might be anxious to save harder to pay down those debts at a faster pace. At the other financial pole, the cash-rich and debt-free (by definition savers not spenders) might well spend little, if any, of the extra income they gain from higher deposit rates.
• Any squeeze on debtors’ incomes might be mitigated if banks chose not to pass on any increase in funding costs stemming from higher base rates. That scenario is optimistic. The gap or “spread” between the Bank of England’s rate and the average interest rate on mortgages (which account for four-fifths of household debt) has narrowed a bit recently, though it is much higher than before the financial crisis. This narrowing owes little, it seems, to banks competing more vigorously for mortgage business. Rather it reflects lower rates for borrowers whose fixed-rate deals had expired and lapsed into cheaper variable-rate mortgages.
• In one sense, this is helpful: it has lifted the incomes of some borrowers at the banks’ expense. But it has also made the economy more sensitive to changes in short-term interest rates. Before the crisis, around half of mortgages were at variable interest rates; by the end of last year, the share had risen to 69%. This greater sensitivity is heightened by the fragile state of Britain’s housing market. Higher rates will crimp the already-weak demand for homes and weigh on house prices—perhaps spurring anxious borrowers to spend less and pay off their mortgages quickly.
• A big enough interest-rate shock would start a downward spiral in debtors’ finances, spending and house prices. Rising defaults would exacerbate the damage. For this reason, the MPC is likely to tread carefully. The “glacial pace” at which interest rates are likely to rise—perhaps 0.25 percentage points every three months or so—is unlikely to be dangerous, reckons Kevin Daly of Goldman Sachs. If spending suffers unduly, “the MPC would be able to deal with it,” he says.
• The polarisation of household finances that makes the impact of a rate rise so uncertain also helps to explain why some MPC members feel the need to act. Debtors are hoping that interest rates stay low, but savers and bondholders need to be reassured that today’s high inflation won’t be allowed to persist. A small rate increase would be a victory for savers. The needs of the economy mean that, overall, monetary policy will continue to favour debtors.

falling public support for capitalism.

• Rising debt and lost output are the common measures of the cost of the financial crisis. But a new global opinion poll shows another, perhaps more serious form of damage: falling public support for capitalism. This is most marked in the country that used to epitomise free enterprise. In 2002, 80% of Americans agreed that the world’s best bet was the free-market system. By 2010 that support had fallen to 59%, only a little above the 54% average for the 25 countries polled. Nominally Communist China is now one of the world’s strongest supporters of capitalism, at 68%, up from 66% in 2002. Brazil scores 68% too. Germany squeaks into top place with 69%.
• France, one of the world’s strongest economies, continues as an anti-capitalist outlier. Only 6% of French “strongly” support the free market, down from an already puny 8% in 2002. Add those who “somewhat agree” with capitalism’s superiority and the figure is 30%, down from 42% in 2002. Turkey (another free-market success story) had the same level of support then, but it has dropped even lower, to a mere 27%. In Europe only Spain seems to buck the trend, rising from 37% in 2002 to 51% . Indians, on paper big winners from free-market reforms, appear unimpressed: support has dropped to 58% from 73%.
• Capitalism’s waning fortunes are starkly visible among Americans earning below $20,000. Their support for the free market has dropped from 76% to 44% in just one year. The research was conducted by GlobeScan, a polling firm. Its chairman Doug Miller says American business is “close to losing its social contract” with average familie

Big oil firms are offloading their refineries to different kinds of buyer

• The twinkling lights of an oil refinery at dusk show the potential for beauty in industrial landscapes. But the dramatic silhouettes, part ocean liner, part funfair, disguise the difficulties within. Decades of poor returns from turning crude oil into petrol, diesel and other fuels have convinced the Western oil giants to get out of the business. In their place come mainly state-run oil firms from Asia, the Middle East and Latin America, and private equity
• Essar, an Indian conglomerate, this week paid Shell $1.3 billion for the Stanlow refinery in north-west England. In February, state-owned PetroChina paid $1 billion for a half-share in Scotland’s Grangemouth refinery and in another at Lavéra in the south of France. Many more refineries are for sale in Europe and America. Britain’s BP, which is raising cash to pay the bill for the Deepwater Horizon oil spill, wants to sell two huge ones in America. Valero, an American refiner, may show interest, though it has just bought a plant in Wales from Chevron for $1.75 billion.
• American private-equity firms may also be taking a look at BP’s plants. According to FACTS Global Energy, a consultancy, over the past two years private-equity buyers have snapped up refining capacity of around 1m barrels of crude a day (b/d). State-backed oil companies, such as PetroChina and Russia’s Rosneft, have bought nearly the same amount.
• The refining business has suffered from chronic overcapacity, and thus weak margins, since the 1970s oil shocks, which led to a slump in the use of oil-based fuels for generating electricity and heating homes. A respite came in 2005-07, as a buoyant rich world and increasingly thirsty emerging economies boosted demand. But that was a high point that the rich world may not hit again. Demand for petrol in America has fallen, and may never regain its previous peak. Refining margins, having touched $4.50 a barrel, are down to one-tenth of that and still falling.
• It makes sense for big Western oil companies to get out of such an unprofitable business and put the capital into exploration and drilling. But refineries’ weak margins are not deterring oil firms from emerging economies from buying them. One reason is that they are going cheap. This gives the buyers access to declining but still sizeable rich-world markets. Such access is especially useful for those with ambitions to become global oil traders.
• As they buy refineries abroad, emerging-market firms continue to build them back home, where demand is still booming. For those firms owned or backed by their home governments, there are other considerations besides commercial ones. China, although it is set to remain a big importer of crude, is desperate to become at least self–sufficient in refining. By 2015 it will boost its domestic capacity by 20%, taking the total to 12m b/d. Middle Eastern oil producers are also building refining capacity to add value to the crude that they pump out of the ground.
• All this extra capacity will keep global refining margins under pressure for at least another five or six years, believes Francis Osborne of Wood Mackenzie, a consultancy. That may not bother state oil companies much, but it ought to worry private-equity firms. So why are they buying? First, because prices are so low. Second, because they are looking optimistically to the long term. Martin Brand of Blackstone, a private-equity giant that has bought three refineries in America in recent years, thinks margins will have recovered in ten years’ time, and in the interim there will be plenty of efficiency gains to be made.
• Others are sceptical. The European and American refineries’ new owners will be far less likely to close them than their old ones. In the absence of such a rationalisation of capacity, thinks Gemma Gouldby of FACTS Global Energy, margins will stay poor indefinitely. If so, the Western oil majors will be glad they got rid of them.

struggle of sense to get out of negative bias

• The markets continue to trade volatile in the negative terrain, but above their intraday lows. At 11:05 a.m., the Bombay Stock Exchange’s Sensex was at 19,555.70, down 56.50 points or 0.29% from the previous close, while the National Stock Exchange’s Nifty was at 5,874.30, down 17.45 points or 0.3%.
• Indian shares eased a tad on Thursday as investors were in consolidation mode after a big rally in March, while underlying sentiment remained upbeat following a spurt in foreign fund buying.
• Maruti was trading down 1.3 percent at 1,277.95 rupees after the company said it would recall 13,157 diesel engine cars.
• Foreign funds have pumped around $2.8 billion into equities since the start of March, after being net sellers in the first two months, on hopes a market correction made the market attractive given economic growth was still robust.
• Global demand for dairy products will jump in the next decade, led by surging consumption in China and India, according to Fonterra Cooperative Group Ltd, the world’s largest exporter.
• Oil dropped from the highest in 30 months in New York after China raised domestic fuel prices and U.S. stockpiles climbed, stoking speculation demand may falter in the world’s biggest energy users.
• Gold declined on speculation that investors are locking in gains after the price rose to a record earlier, and as central bank efforts to combat inflation curbed demand for precious metals.
• Asian stocks rose as the yen weakened against all of its most-traded currencies and after gold prices rose to a record for a second day in New York on demand for the precious metal as a hedge against inflation.
• Indian imports of power-station coal rose by 33% to 65.7 million metric tons in the year ending March 2011 from 49.4 million a year earlier, India Coal Market Watch said, citing estimates based on port data.
• World trade will grow faster than the 7 percent long-term average rate for a second successive year in 2011 but fall short of last year’s dramatic rebound, the World Trade Organisation is likely to forecast on Thursday.
• China may be heading for a pause in its half-year cycle of monetary tightening, raising interest rates just once more this year as its moves so far start to slow inflation and economic activity.
• The U.S. economy remains too fragile for the Federal Reserve to begin raising interest rates, the president of the Atlanta Fed, Dennis Lockhart, said on Wednesday.
• Portugal’s decision to seek international aid removes a cloud of uncertainty over the euro zone and has a good chance of ending the spread of debt market crises to fresh countries in the region.
• Chinese economy probably grew less quickly in the first quarter of this year than the final quarter of 2010, dovetailing with the government’s efforts to shift more emphasis to the quality rather than the pace of growth.
• Portugal’s caretaker government, fighting to avoid a bailout, said on Wednesday a political crisis had caused “irreparable damage” after borrowing costs rocketed as it sold a billion euros in short-term debt.
• The euro will steadily lose the recent ground it has gained against the dollar in the coming year as the U.S. Federal Reserve plays catch-up to the European Central Bank’s interest rate hikes, a Reuters poll found.
• India’s record grains output in 2011 may prompt the government to allow wheat exports, Farm Minister Sharad Pawar said on Wednesday, boosting the prospect of overseas sales of the grain from the world’s second – biggest producer.
• Some of Asia’s emerging economies are showing signs of overheating, underscoring the need for further policy tightening and more flexible foreign exchange rates to tackle growing inflationary pressures, the Asian Development Bank said on Wednesday.
• U.S. congressional negotiators on Wednesday raced against a looming deadline to agree on billions of dollars in spending cuts and find a budget deal that keeps the federal government operating beyond Friday.
• Europe has opened flat and is trading mixed. The Indian market is now in the green but still in flat territory with the heavyweights proving to be a drag in today’s trade. Sensex is trading at 19624, up 12 points from its previous close, and Nifty is at 5896, up 4 points.( 01:23 pm,india).
• Leading India Inc representatives today made a strong plea to the Reserve Bank to review its rate tightening policy, saying the high cost of credit is having an adverse impact on growth.
• Cairn Energy and Vedanta Resources on Thursday extended the deadline for a $9.6 billion deal for Cairn’s India assets, reflecting optimism the deal will get done a day after the government deferred a decision. Both companies have extended the date by which all conditions must be completed or waived to 20 May 2011 to accommodate the completion of the open offer for Cairn India shares, Cairn Energy said in a statement.
• Food inflation fell to 9.18 per cent for the week ended March 26, the lowest level in almost four months, on the back of a decline in the prices of pulses.
• The European Central Bank is poised to raise interest rates from a record low 1.0 percent on Thursday and more is likely to follow but, fearful of heaping more pain on the euro zone’s stragglers, it will give few clues about when the next move will come.
• Maruti Suzuki India (MSIL), the country’s largest car maker, on Wednesday said it wouldrecall 13,157 diesel cars manufactured between November 13 and December 4, 2010, to examine a possible faulty engine part.
• The foreign institutional investors (FIIs) were net buyers of Rs 150.85 crore in futures and options segment on Wednesday.According to the data released by the NSE, FIIs were net sellers of index futures to the tune of Rs 117.33 crore, while they sold index options worth Rs 587.96 crore.They were net sellers of stock futures to the tune of Rs 305.01 crore and sold stock options worth Rs 14.77 crore.
• Oil producing countries that have surplus production capacity provided international oil companies with additional quantities of crude, UAE Energy Minister Mohammed bin Dha’en Al Hameli has said.Addressing the 12th International Oil Summit in Paris on Wednesday, Al Hameli said that OPEC members are not the only producers that are providing additional supplies, noting that non-OPEC supplies were expected to reach 500,000 barrels a day this year.
• The Union government has slapped an excise duty of 10% on jute products that constitute about 80% of the Rs 6,000 crore industry and threatens to cripple the fate of 2.5 lakh workers.

euro-zone crisis: Greece, Ireland and Portugal should restructure their debts now

• It is a measure of European politicians’ capacity for self-delusion that Angela Merkel, Germany’s chancellor, called the euro-zone summit on March 24th-25th a “big step forward” in solving the region’s debt crisis. Something between a fudge and a failure would be more accurate. The leaders fell short on almost every task they set themselves. They agreed on a “permanent” rescue mechanism to be introduced in 2013, but couldn’t fund it properly, because Mrs Merkel refused to put up money her finance minister had pledged. The Brussels gathering did little to help Greece, Ireland and Portugal, the zone’s most troubled economies. Their situation is getting worse—and Europe’s leaders bear much of the blame.
• Portugal’s prime minister resigned on March 23rd after failing to win support for the fourth austerity package in a year. The country’s credit rating was slashed to near-junk status on March 29th, while ten-year bond yields have risen above 8% as investors fear Portugal will have to turn to the European Union and the IMF for loans. The economies of both Greece and Ireland, Europe’s two “rescued” countries, are shrinking faster than expected, and bond yields, at almost 13% for Greece and over 10% for Ireland, remain stubbornly high. Investors plainly don’t believe the rescues will work.
• They are right. These economies are on an unsustainable course, but not for lack of effort by their governments. Greece and Ireland have made heroic budget cuts. Greece is trying hard to free up its rigid economy. Portugal has lagged in scrapping stifling rules, but its fiscal tightening is bold. In all three places the outlook is darkening in large part because of mistakes made in Brussels, Frankfurt and Berlin.
• At the EU’s insistence, the peripherals’ priority is to slash their budget deficits regardless of the consequences on growth. But as austerity drags down output, their enormous debts—expected to peak at 160% of GDP for Greece, 125% for Ireland and 100% for Portugal—look ever more unpayable, so bond yields stay high. The result is a downward spiral.
• As if that were not enough, the European Central Bank in Frankfurt seems set on raising interest rates on April 7th, which will strengthen the euro and further undermine the peripherals’ efforts to become more competitive . Some politicians are still pushing daft demands, such as forcing Ireland to raise its corporate tax rate, which would block its best route to growth. Most pernicious, though, is the perverse logic of the euro zone’s rescue mechanisms. Europe’s leaders won’t hear of debt reduction now, but insist that any country requiring help from 2013 may then need to have its debt restructured and that new official lending will take priority over bondholders. The risk that investors could face a haircut in two years’ time keeps yields high today, which in turn blights the rescue plans.
• This newspaper has argued that Greece, Ireland and Portugal need their debt burdens cut sooner rather than later.That case is stronger than ever, not only because today’s approach is failing but because the risks of restructuring are falling. The spectre of contagion is receding. Spain, whose bond yields have fallen and whose spreads with Germany have tightened, has distanced itself from Portugal. Behind the scenes, sovereign-debt specialists are devising ways to minimise the impact of an “orderly restructuring” on banks. Most banks in the core of the euro zone can withstand a hit from the three small peripherals.
• The big obstacle is not technical but political. Since many at Europe’s core, particularly the ECB, remain implacably opposed to debt restructuring, the pressure has to come from elsewhere—not least from the peripheral economies themselves. Ireland’s new government is talking about forcing the senior bondholders of its bust banks to take a hit. Greece should stop pretending that it can bear its current debt burden and push for restructuring. But the best hope lies with the IMF. Its economists have the most experience of debt crises. Some privately acknowledge that debt restructuring is ultimately inevitable. It is time the Fund’s top brass said so publicly and, by refusing to lend more without a deal on debt, pushed Europe’s pusillanimous politicians into doing the right thing.

15 points were less in overall sensex

• The markets were quite volatile today and both the benchmark indices closed flat. Textile, brokerage, midcap banks and sugar remained the star performers of today’s trade and infra stocks also registered strong buying. The Sensex closed at 19687, down 15 points from its previous close, and Nifty shut shop at 5910, up 2 points.
• From the Sensex stocks on the losing side, Tata Power declined by 1.77 per cent, M&M (1.49 %), HUL (1.45 %), L&T (1.34 %), HDFC (1.03 %), Bajaj Auto (1.02 %), REL Infra (1 %), ICICI Bank (0.83 %), RIL (0.47 %) and ITC (0.38 %).However, gainers were Sterlite Ind rose by 2.83 %, REL Com (2.79 %), TCS (2.30 %), Tata Motors (2.04 %), BHEL (1.64 %), Hero Honda (1.61 %) and SBI (1.14 %).Among sectoral indices, BSE-CD firmed up 1.72 per cent, BSE-Metal by 1.33 per cent and BSE-Realty by 0.74 per cent.
• The total market breadth remained strong as 1,985 stocks closed in the green, while 994 ended in the red on the BSE. The total turnover improved further to Rs 3,698.77 crore from Rs 3,212.45 crore yesterday.
• The Indian rupee raced to a five-month high on Tuesday, the first trading session of the new fiscal year, driven by robust dollar inflows, but gains were capped by weakness in most regional peers.
• High oil prices have raised concerns about a higher subsidy bill for the government, inflationary pressures and high interest rates, marketmen said.
• For May delivery, crude oil settled yesterday at the highest level since September 22, 2008 and was close to USD 109 a barrel in New York.
• Selling in heavyweights like L&T, ICICI Bank, HDFC, RIL, M&M, HUL, Tata Power and ITC weighed on the market.
• A recent increase in U.S. inflation is driven primarily by rising commodity prices globally, and is unlikely to persist, Federal Reserve Chairman Ben Bernanke said on Monday.
• The Supreme Court lifted a ban on iron ore shipments from Karnataka on Tuesday, freeing up about a quarter of supplies from the world’s third-largest exporter as strong demand from China keeps prices firm.
• The United States will hit the legal limit on its ability to borrow no later than May 16, Treasury Secretary Timothy Geithner said on Monday, ramping up pressure on Congress to act to avoid a debt default.
• Had there not been a rise in TCS, Tata Motors, SBI, Sterlite Ind and BHEL, the fall in the Sensex would have been much more pronounced.
• “The subdued price action in today’s session was in sync with the lacklustre global cues as investors turned a little wary over rising crude oil prices,” said Amar Ambani, Head of Research (India Private Clients) – IIFL.
• Portugal’s biggest banks will stop buying government bonds and are urging the caretaker administration to seek a short-term loan to secure financing until a June 5 election, business daily Jornal de Negocios reported on Tuesday.
• In Asian markets, China, Hong Kong and Taiwan were closed for public holiday. The key indices from Japan ended down by 1.06 per cent, although Singapore and South Korean markets finished better.
• European stocks, however, were trading lower in their mid-sessions. The CAC was down 0.61 per cent, the DAX and the FTSE by 0.31 per cent each.
• The prospect of a good winter harvest is likely to bring down food inflation in India to about 8 percent by end-March, a senior government adviser said on Monday.
• Sales of small cars raced ahead in March as buyers flocked to more fuel-efficient vehicles, a trend major U.S. automakers expect to persist if gasoline prices continue to rise.
• The United States will hit the legal limit on its ability to borrow no later than May 16, Treasury Secretary Timothy Geithner said on Monday, ramping up pressure on Congress to act to avoid a debt default.
• U.S. inflation is likely to remain low for now, but policymakers will keep a close eye on potentially self-fulfilling consumer expectations for higher prices, a top Federal Reserve official said.
• Japan’s nuclear crisis is likely to lead to one of the country’s largest and most complex ever set of claims for civil damages, handing a huge bill to the fiscally strained government and debt-laden plant operator, Tokyo Electric Power Co.
• Credit rating agency Fitch downgraded Portugal on Friday saying the debt-laden country needed a bailout, while rival agency S&P cut Ireland’s rating after bank stress tests revealed another black hole.
• Nasdaq OMX and IntercontinentalExchange bid $11.3 billion for NYSE Euronext in an effort to trump Deutsche Boerse’s deal, and pushed their case with an appeal to U.S. patriotism.
• European banks heavily supported by the U.S. Federal Reserve at the height of the financial crisis have since weaned themselves off these loans, even as the struggle for funding in Europe gets tougher.
• Standard & Poor’s stripped Ireland of its last major ‘A’ rating on Friday, citing future risks to bondholders, but the 1 notch cut and stable outlook was less severe than feared and gave the thumbs up to the state’s bank bill.

Growth of tail risk ,hedging of investors interest

• “TAIL-RISK” hedging was the talk of Wall Street in 2008 after global markets nosedived and traumatised investors tried to figure out how they could protect themselves from extreme or “black swan” events—those well outside an ordinary distribution of outcomes—that cause massive losses. Interest is revving up again as revolutions in the Middle East and Japan’s earthquake have destabilised markets and increased volatility, leaving battered investors searching anew for protection.
• Peddlers of tail-risk products like to compare them to insurance: investors pay premiums every year to avoid financial catastrophe later. Some even get philosophical. Vineer Bhansali of PIMCO, a big fund manager, has likened tail risk to Pascal’s wager—the argument that you’re better off believing in God than suffering the consequences of being wrong. The same is true with drastic dives in markets.
• Tail risk is technically defined as a higher-than-expected risk of an investment moving more than three standard deviations away from the mean. For mere mortals, it has come to signify any big downward move in a portfolio’s value. There are different ways to hedge tail risk, but a popular one is to create a basket of derivatives that will perform poorly during normal market conditions but soar when markets plunge. These include options on a variety of asset classes, such as equity indices and credit-default-swap indices.
• Some banks have started to sell tail-risk products. Deutsche Bank has created the ELVIS index, which generates returns when stockmarket volatility increases. Big asset managers like BlackRock and PIMCO have made a business of advising customers on managing for the worst case. Hedge funds have also got in on the act. Several “tail funds”, which invest in assets that should rise in bad economic times, have started up in the past few years. These funds tend to lose around 15% each year when the market is normal but can return 50-100% when the market dives. Or more: 36 South, a hedge fund, saw its tail fund gain 234% in 2008. According to Gaurav Tejwani of Pine River, which launched a tail-risk fund last year that now manages over $200m, “It costs money in most good years or average years, but it makes you a fairly large return when all your other assets are performing very poorly.”
• Sellers naturally claim it is worth the cost. Mr Bhansali of PIMCO, which offers several tail funds, estimates that it costs investors between 0.5% and 1% of assets to hedge against tail risk, but that investors will break even in three to five years. That is partly because the market does not have to crash in the way that it did in 2008 for hedges to pay their way. PIMCO now oversees around $30 billion in tail-risk products, mostly in separate accounts. Other funds have also seen inflows. Take, for example, Universa Investments, a tail fund advised by Nassim Taleb, author of “The Black Swan”, which has grown from $300m in 2007 to around $6 billion today.
• Even so, Mark Spitznagel, the boss of Universa, complains about complacency among investors. Demand is very uneven. The price of hedging varies, rising when markets are volatile and investors most need it, and declining during bull markets. It is difficult, after all, to keep stomaching losses from hedged positions as markets rise: “The kids outside playing in the snow without sweaters and scarves seemed to have much more fun than those of us who were bundled up,” says Steven Englander of Citigroup.