Where to Find Value in Today's Bond Market


Mohamed El-Erian, Pimco's CEO and Co-CIO, advises fixed-income investors to focus on shorter-maturity bonds, five years and under.


Mohamed El-Erian, the CEO and co-chief investment officer of Pimco, is often sought out for his thoughts on the world, particularly when it comes to the confluence of geopolitics, central-bank policies, and investing. Part of his allure stems from a broad background in asset management. In addition to working at Pimco, the $2 trillion global asset manager known for its expertise in bonds, El-Erian has put in 15 years at the International Monetary Fund and two years overseeing Harvard University's endowment. Trained as an economist, he earned a master's degree and doctorate in that subject from Oxford University. But for all of his training and experience, El-Erian hasn't encountered anything like today's markets. "The most important thing to realize is that we haven't been here before and that we haven't had this degree of experimental policies before by central banks," he says. To find out how he's proceeding, Barron's recently spoke with El-Erian by telephone.

Barron's: Earlier this month, Federal Reserve Chairman Ben Bernanke caught markets by surprise when he said that he wasn't ready to start cutting back, or tapering, quantitative easing. What's your assessment?

El-Erian: The first thing is the extent to which markets are sensitive to different signals out of the Fed. Hyperactivist and experimental Fed policies have resulted in a disconnect between fundamentals and the prices of financial assets. The policy view is relatively simple: Artificially elevate financial asset prices in order to trigger the wealth effect, animal spirits, and financial engineering, which in turn help lift fundamentals and validate the high asset prices. It's a win-win situation—or that's the hope. The reality is that the Fed has repeatedly succeeded in lifting asset prices, but it hasn't succeeded in getting the economic fundamentals to "escape velocity." So, with such a persistently large gap, the markets have become more sensitive to every indication of whether Fed support will remain strong for asset prices.

What do you mean by "escape velocity"?
Tim Wegner/Redux
"Low growth contributes to political polarization, and that not only limits the tail winds to our economy but also creates head winds." -- Mohamed El-Erian
Since 2008, Pimco has maintained that, unfortunately, after the economy recovered from the immediate impact of the global financial crisis, it is likely to operate in a new normal. And that new normal was characterized by unusually sluggish real growth of about 2% and persistently high unemployment, and this is exactly what has occurred. So, for the past four years, the economy has been stuck in second gear, and there are a few issues with that. First, that kind of growth has a small impact on the unemployment problem, as reflected both in a 7.3% unemployment rate and a participation rate that has fallen to levels not seen in 35 years.

Second, lower growth discourages companies from investing, because they need to have some assurances of buoyant demand for their products. Otherwise, they will not expand capacity aggressively. So, despite very low interest rates, companies have been very hesitant to deploy that cash. Third, low growth contributes to political polarization. We continue to see this, and this particular polarization not only limits the tail winds to our economy but also creates head winds. So, for example, we are going through, yet again, a congressional drama over the funding of the government and the debt ceiling.

What are your takeaways about interest rates?
More than ever, rates todayparticularly the 10-year Treasury and even more so the 30-year bond, but anything with a maturity beyond, say, five years—are a function of four things: the outlook for the economy, policies, risk preferences, and market technicals. So today, with the 10-year at around 2.7%, [the valuation] is fairif not somewhat attractiverelative to an economy with an outlook of just 2% growth and inflation that is stubbornly stuck for now well below 2%. It would also be relatively fair if a Fed taper, which means less balance-sheet support for the 10-year Treasury, is effectively countered by more-aggressive forward guidance policy that succeeds in convincing the marketplace that interest rates will remain low for a long time.

What could hurt the performance of Treasuries?
The 10-year bond is vulnerable on the third and fourth factors that I mentioned. After a massive inflow into fixed incomein fact, the highest inflows were in the first quarter of this year when the 10-year yield reached as low as about 1.7%—there were significant outflows from fixed-income.

This reflected a change in asset preferences that had overshot in favor of fixed income, pushing up prices and lowering yields. In addition, there were a number of unfavorable market technicals that usually eventually prove temporary and reversible, but they tend to amplify the effect of outflows.

So, for example, the shorts positions during the summer were the highest they had been in the past three years. Higher volatility forced ruled-based risk-parity investors to delever their fixed-income holdings, triggering a lot of sales. There was also selling on the part of foreign central banks that were forced to defend their currencies using international reserves. And limited appetite on the part of broker-dealers to accumulate inventory further amplified the price moves. So all of this is why fixed-income investors should be concentrating on shorter-maturity bonds, five years and under. These holdings are anchored well by the Fed's low policy rates and its forward guidance; they are also consistent with the sluggish economic outlook.

What else besides the shorter end of the yield curve makes sense for bond investors?
There are three characteristics that are particularly attractive in the bond market, and you find them in different places. As I mentioned, the first is the relative attractiveness of shorter-dated, high-quality bonds, including Treasuries as well as Mexican sovereign debt denominated in the local currency.

These holdings are anchored by central-bank policy rates that aren't going anywhere. The roll down [whereby the price of a bond increases as it approaches maturity] is very attractive. Also attractive, though volatile, are parts of the bond market that have been technically damaged. So, for example, you can find triple-A, very high-quality municipal bonds that are tax exempt. And yet their tax-equivalent yield is priced at 110% to 120% compared with Treasuries. So they are cheaper than the Treasury equivalent, even though they have a tax benefit. And they are considerably cheaper; these ratios should be more like 80% to 90%, not 110% to 120%. That is because the sector has been damaged by talk about Detroit and Puerto Rico, the backup of rates, and patchy liquidity.

Any other good opportunities in fixed-income?
This environment of artificially depressed rates by the Fed encourages a lot of financial engineering, and investors will have opportunities like Verizon [ticker: VZ], which recently raised $49 billion in what turned out to be the largest corporate-debt offering in history. You can just see how well the Verizon bonds have done to show you how powerful these opportunities can be. The prices on that debt have moved up significantly.

Will rates stay low for the foreseeable future?
The immediate future is particularly uncertain, given the range of confusing and conflicting signals from Fed officials and the volatile technicals. We've had different types of statements that are not consistent. At his press conference on Sept. 18, Bernanke came out ultradovish and gave the impression that the taper would not occur until the end of this year or even next year. But other Fed officials have made conflicting statements. So there is a lot of confusion, and I suspect the Fed will try to regain control of its narrative.

What should investors be focusing on right now?
The fundamental question is: How long are they comfortable riding the liquidity wave? It has been a very profitable trade because, as I mentioned, the Fed has been able to disconnect financial markets from underlying fundamentals. As a result, the price/earnings multiple of the Standard & Poor's 500 has gone all the way to 16½, and people expect it to go up even further. So even though earnings are facing head winds, people are putting that aside, because the liquidity wave has been so profitable as an investment strategy.

So what should investors be doing?

If I may, because I live in California, let me use a surfer analogy that Bill Gross came up with. If you are in a surfing competition, the key thing is to take the right wave and ride it safely, which means don't bump into people riding the same wave. It also means you have to kick out before the wave hurts you, and then go back and ride another wave. There are two types of errors you can make. The first error is never taking a wave because it is not perfect, which is the equivalent of staying in cash.

Staying in cash, with a negative real rate, eats away at your principal. The other mistake is to take a wave that is too crowded and you are not able to get off it safely. For the past few years, we all have been riding the central-bank liquidity wave, and as investors we need to figure out how to safely continue to do that, because it is a very crowded wave. So if there are any signs of weakening, there will be a lot of people rushing to the door, as we saw last May and June [when stocks sold off].

And what are you advising your clients to do with their surfboards?
First of all, we are trying to focus on those parts of the liquidity wave that are more robustly anchored. So I spoke about shorter-dated debt in certain sectors. Second, there are sectors that are not being embraced because of liquidity issues. So I mentioned certain municipals and certain emerging-market bonds, especially in local currency. We are also focusing on companies that have very solid balance sheets and are generating a ton of cash, because they are giving that back to the equity investors. So, dividend-paying companies likely to increase their share buybacks are attractive. An example of that is Microsoft [MSFT].

With rates rising, it's put pressure on bond investors, often leading to losses. How has that affected Pimco?
After a record first quarter of inflows, we experienced three things. First, we had outflows, which is unusual for Pimco. The last time we experienced outflows was in the fourth quarter of 2008. And we've experienced negative total returns in our core bond products because of the selloff in the bond market, and we've experienced a series of critical articles in the financial press.

Because we are such a large part of the bond market, we are used as a benchmark for what has happened in the bond market. We've been here before, most recently in the fourth quarter of 2008, and our focus was then—and is nowon safeguarding and enhancing our clients' assets.

Are there any particular countries that look appealing?
We are attracted to sovereign debt of Mexico first and then Brazil issued in local currencies. In equities, we would recommend a diversified approach that emphasizes countries with strong international reserves, low debt vulnerability, and growth. Those are the three factors investors should screen for.

What looks attractive in international markets?
At current prices, we have reduced our exposure to European peripheral bonds. So we were able to take advantage of the normalization in the European bond market. That includes sovereign debt issued by Italy and Spain, in particular, where valuations are now fair to rich.

What's your assessment of opportunities in emerging markets?
Any investor in emerging markets has to take the technicals very seriously. It has to do with what we call the tourist dollars. Emerging markets, just like some other asset classes, have a very small dedicated investor base, relative to what is called the crossover investor base, or the tourist dollars.

Like a tourist who visits a developing country, the minute there is some instability, the inclination of the tourist, as opposed to the resident, is to go immediately to the airport and fly out. They lack an understanding of the asset class, and it isn't a core holding. So the result is that the emerging markets tend to overshoot on the way up and on the way down. On the way up, they attract way too many tourist dollars. And on the way down, the tourist dollars flee very quickly, with limited liquidity.

Right now, when you look at the performance of emerging markets relative to the U.S. and Europe, we have reasons to believe that emerging-market equities and fixed-income have overshot on the way down. However, you have to take into account that there are still further bad technicals ahead of us. So we'd recommend a very gradual scaling in to emerging-market holdings.

Do you have any closing thoughts?

Investors have to ask not just the comfortable question, but also the uncomfortable question. The comfortable question is: How well can I do? The uncomfortable question is: If I end up making a mistake, even though I'm trying my utmost not to make a mistake, how quickly can I recover? And that is a really important question to ask yourself when you look at asset allocation and your risk tolerance. This past May and June should serve as a reminder of how quickly things can change, and nothing actually happened in May-June, other than a different narrative out of the Fed.

Thanks, Mohamed.    
Copyright 2013 Dow Jones & Company, Inc. All Rights Reserved

Z1 and the Doves

by Doug Noland

September 27, 2013


With taper worries out of the way for now, the markets will watch to see if Washington can avoid a government shutdown.

From the Federal Reserve’s Q2 2013 Z.1flow of fundsreport, Total (non-financial and financial sector) System Credit increased $176bn during the quarter to a record $57.563 TN. Total Credit jumped $1.971 TN over the past year.

Non-Financial Sector Borrowings increased at a 3.1% rate, down from Q1’s 4.5%. Corporate borrowings accelerated to an 8.4% pace, up from Q1’s 6.8%. Federal borrowings expanded at a 2.5% rate, slowing sharply from Q1’s 10.1%. State & Local debt growth slipped from Q1’s 2.4% to 1.1%. Total Household Sector borrowings expanded at a 0.2% rate compared to Q1’s 0.5% contraction. Non-mortgage Consumer Credit grew at a 5.6% pace, down slightly from Q1’s 6.2%. Surprisingly, mortgage Credit still hasn’t been able to turn the corner. Household Mortgage Debt contracted at a 1.7% pace, somewhat less than Q1’s 2.1% rate of decline.

Total Non-Financial Debt (NFD) expanded at a seasonally-adjusted and annualized rate (SAAR) of $1.251 TN (down from Q1’s SAAR $1.974 TN) to a record $40.938 TN. During the past year, NFD expanded $1.678 TN, or 4.3%. Despite all the talk of “de-leveraging,” NFD has inflated $6.679 TN, or 19.5%, over the past four years. While Household Sector Liabilities declined $686bn in four years, during that period outstanding Treasury securities jumped $5.550 TN.

Already strong business Credit growth accelerated. Total Business borrowings increased SAAR $742bn during Q2, up from Q1’s $594bn. Though little changed for the quarter, Corporate bonds were up $879bn, or 7.2%, over the past year to a record $13.026 TN.

Financial Sector borrowings increased at a 0.5% rate to $13.902 TN during the quarter. With the Federal Reserve’s balance sheet excluded from Financial Sector tabulations, the rapid expansion of Fed holdings continues to restrain overall Financial Sector growth. And chiefly because of Fed balance sheet inflation, Financial Sector borrowings remain today significantly below the $17 TN level reached back in 2007.

Financial Sector Credit market borrowings increased only SAAR $63.6bn during the quarter. As for detail, GSE securities jumped SAAR $137bn and Other Loans and Advances gained SAAR $126bn. Corporate (financial sector) Bonds declined SAAR $250bn. MBS increased SAAR $40bn and Depository Institution (bank) Loans gained SAAR $28.1bn.

Meanwhile, Federal Reserve assets expanded SAAR $1.116 TN during Q2, with holdings of Treasury Securities growing SAAR $548.5bn and GSE-backed Securities expanding SAAR $548.7bn. In nominal dollars, Federal Reserve assets increased $283bn during the quarter to a record $3.526 TN. Fed assets were up a whopping $571bn in two quarters. In five years, Fed assets have inflated $2.574 TN, or 270%.

Bank (“Private Depository Institutions”) assets increased nominal $351bn during the quarter to a record $15.595 TN, a notably strong 9.2% growth rate. However, over half of this expansion is explained by the ballooning of reserves held at the Fed. Yet Bank Loans did expand SAAR $206bn and Consumer Credit SAAR $47bn. Mortgages contracted SAAR $16bn, while Miscellaneous Assets expanded SAAR $436bn.

There continues to be scant evidence of a general upswing in traditional lending. Beyond slow growth in Bank loans, Credit Union liabilities were little changed during the quarter (up $54bn, or 5.8% y-o-y) to $997bn. Finance Company assets were down slightly for the quarter and shrank $39bn, or 2.6%, from a year earlier.

Elsewhere, Security Credit expanded at a 5% rate during the quarter to $1.512 TN, with year-over-year growth of $101bn, or 7.2%. Funding Corps were little changed during Q2, with assets up $101bn y-o-y, or 4.7%, to $2.232 TN. Real Estate Investment Trust (REIT) liabilities were down slightly during the quarter, yet jumped $69bn, or 9.5%, from a year ago to $794bn. Security Broker/Dealer assets declined slightly during the quarter to $2.083 TN, although assets were up $30bn, or 1.5%, from Q2 2012.

Despite the ongoing contraction in mortgage Credit, the GSEs continue to grow. Agency Securities (debt and MBS) increased a nominal $58bn during Q2 to $7.648 TN. Agency Securities increased $107bn over the past year.

Rest of World (ROW) holdings of U.S. assets increased (nominal) $216bn during Q2 to a record $21.437 TN. Interestingly, Interbank Assets increased $267bn (to $588bn). Treasury holdings declined by $121bn to $5.601 TN. Uncharacteristically, “official” (central bank) Treasury holdings declined $81bn (to $4.009 TN) after having increased $368bn during the previous four quarters. ROW Agency Securities holdings dropped $65bn during the quarter to $876bn, with a two-quarter decline of $130bn.

Belying weakened Credit growth, National Income increased $123bn during the quarter, or 3.4% annualized, to a record $14.448 TN. Total Compensation increased $63.4bn, or 2.9%, to a record $8.812 TN. On a year-over-year basis, National Income gained 4.1% and Total Compensation rose 3.0%. It is worth noting that National Income increased about 50% in the 10 years leading up to the 2008 crisis. National Income dropped 3.8% in 2009 only to then fully recover in seven quarters.

While Credit and economic growth may be relatively restrained, perceived Household wealth is going gangbusters. Household Sector Assets increased another $1.343 TN during Q2 to a record $88.369 TN. Household Assets were up a notable $7.692 TN, or 9.5%, over the past year. Over two years, Household Assets inflated $13.389 TN, or 17.9%. Since the end of ’08, Household Assets have jumped $16.921 TN, rising from 498% of GDP to 530%. Meanwhile, Household Liabilities were little changed both during the quarter and over the past year at $13.548 TN. Since the end of 2008, Household Liabilities have declined $686bn, or 4.8%.

Household Net Worth (assets less liabilities) has become a focal point of my Macro Credit Analysis. For the quarter, Household Net Worth inflated another $1.342 TN, or 7.3% annualized, to a record $74.821 TN. At 449% of GDP, Household Net Worth is within striking distance of the record 470% of GDP back at the 2007 peak of the mortgage finance Bubble. Over the past year, Household Net Worth jumped $7.690 TN, or 11.5%. Net Worth rose a notable $13.388 TN, or 21.8%, over two years. In arguably the single most pertinent macro data point, Household Net Worth has surged $17.607 TN, or 30.8%, since the end of 2008.

It’s worth our time to dig just a little into the composition of Household Assets. At the end of Q2, Financial Assets accounted for 70%, and Non-Financial Assets 30%, of Total Assets. This compares to a 65%/35% split at the end of 2008. In nominal dollars, Financial Assets increased $15.237 TN, or 33%, since 2008, while Non-Financial Assets gained $1.684 TN, or 7% to $26.516 TN (Real Estate, at $21.123 TN, comprises about 80% of Non-Financial Assets).

Even more striking is the growth divergence between Household Financial Assets categories since 2008. In particular, safer money”-like holdings have notably lagged the historic expansion in “risk assets.” Total Deposits (bank and money market), the bedrock of perceived safe and liquidmoney,” increased $982bn since the end of 2008, or 12%, to $9.026 TN. Treasury holdings rose about a Trillion to $1.2 TN, and agency securities increased $597bn to $1.65 TN. In total, deposits, Treasuries and agencies rose $2.58 TN, or 28%, to $11.865 TN.

Meanwhile, since ’08 Household holdings of mutual funds and equities have surged $10.640 TN, or 85%, to $23.191 TN. Pension Fund Entitlements jumped $4.675 TN, or 33%, to $18.737 TN. It’s no longer true that American households have the majority of their wealth in savings and real estate. These days, and much the product of experimental monetary policy, Household perceived wealth is wrapped up in the risk markets.

Post-crisis Macro Credit Analysis has provided myriad curious anomalies. Incomes have grown steadily in the face of stagnant Household debt growth. Real estate price inflation has reemerged despite an ongoing contraction in mortgage Credit. Household Assets and Net Worth have surged in the face of ongoing weak private-sector debt growth. In sum, there’s been a resurgent Bubble Economy in the face of relatively modest overall system debt growth. This is definitely not how it traditionally works.

Those of a bullish persuasion would argue these dynamics confirm the underlying strength and stability of the U.S. economy. I’ll counter with the view one supported by Fed data - that massive federal deficits and Federal Reserve monetization have created unprecedented and deeply systemic financial and economic distortions.

An economy on firm footing would be one demonstrating at least a reasonable balance within the real and financial sectors. One would hope to see sound money and productive Credit financing capital investments throughout the economy - liquidity/spending power entering the system primarily in the process of financing economic wealth creation in the real economy (as opposed to financing consumption and asset speculation).

We instead these days see unprecedented government liquidity injections directly into securities markets, with resulting asset inflation and myriad distortions. In the real economy, massive federal deficits and ultra-low interest-rates have inflated incomes, corporate cash flows and earnings. Inflating asset markets and Household Net Worth drive sufficient consumption to sustain a deeply imbalanced economic structure.

Not unpredictably, after about five years of unmatched debt monetization and liquidity injections, the Federal Reserve today struggles with even the most timid reduction of monetary inflation. Perhaps Fed officials appreciate the dependency U.S. and global economies have developed to speculative and inflating securities markets, along with the dependency inflated markets have to ongoing Fed and central bank liquidity injections.

September 27, 2013 7:11 pm
A new populism is shaping politics in Britain and beyond
There is a profound ignorance among the powerful as to the depth of anti-elite feeling
When Isaiah Berlin said “there is a shoe – in the shape of populism – but no foot to fit”, he was probably not thinking of a cowboy boot.
This week Ted Cruz, a Texas Republican with a love of buckaroo heels, stood on the Senate floor for more than 21 hours decryingObamacare”. The marathon session was futile. But it was a sign of the Tea Party darling’s ascent and of the cantankerous movement’s influence over both houses of Congress. Five years after the financial crisis, Mr Cruz’s brand of populism threatens to shut down the US government.
The Texan, like his colleagues Rand Paul and Marco Rubio, espouses the anti-elitist rhetoric that since the crash has largely been the preserve of the right. Last year Francis Fukuyama wrote: “One of the most puzzling features of the world in the aftermath of the financial crisis is that so far, populism has taken primarily a rightwing form, not a leftwing one.” This is true in the US, in most of Europe and in Australia, where this month Tony Abbott surfed a populist wave to electoral victory.
There has been little in the way of durable leftwing populism. The Occupy movement briefly captured the imagination and US President Barack Obama selectively channelled its sentiments in his re-election campaign. The botched attempt to nominate Lawrence Summers as US Federal Reserve chairman showed that some Democrats have had it with finance-friendly faces making economic policy. However, few progressives would contest Mr Fukuyama’s depiction of “an absent left”, unable to formulate a populist or intellectual response to the crisis.

Enter Ed Miliband. In his speech to the Labour party conference, the UK opposition leader articulated what could be considered a new populism. Of course, he did not use the P-word.
It is a loaded term, deployed more by its enemies than its advocates. And as Berlin implied in his shoe metaphor, it is hard to define. In essence, though, it refers to the idea that unscrupulous elites are hurting the interests of a virtuous majority.
The public seems to think there is something rotten in the establishment. In 2010, a Policy Exchange poll found that 81 per cent of Britons agreed with the statement: “Politicians don’t understand the real world at all.” 
This month the British Social Attitudes Survey reported that only 18 per cent trusted governments to put the nation’s needs above a party’s, down from 38 per cent in 1986. Banks fare worse. In 1983, 90 per cent thought they werewell run”, compared with 19 per cent today, perhaps the most dramatic attitudinal shift in the report’s 30-year history.
Britain’s views of its institutions wax and waneask Her Majesty. But the successive scandals hitting banking, parliament and the media have the feel of an almost operatic collapse of faith in those who exert power in the country.

The link between the Tea Party, the Five Star Movement in Italy, Germany’s Pirates, the Freedom party in the Netherlands, the UK Independence party and Mr Miliband’s speech is anti-elitism.
However, what constitutes the elite varies. The Tea Party targets the federal government, whereas Ukip’s Nigel Farage turns his ruddy ire on the EU and Westminster. Mr Miliband has a different enemy: the oligopolies ruining British capitalism. He also has a different remedy: the state. These are his new populism’s distinguishing features. (And never underestimate how much of it comes from the Labour leader himself.)

In adopting Benjamin Disraeli’sone nation”, he is commandeering a Tory concept. This is a clever slogan. But the bigger intellectual influence, as the historian Ben Jackson has observed, is Disraeli’s great rival, William Gladstone. In the late 19th century he defined politics as “the masses against the classes”. Mr Miliband wants to fuse the Tory unicorn’s patriotism with the populism of the Liberal lion. Red Ed becomes Red, White and Blue Ed.
Some headlines in the conservative media suggested Mr Miliband’s speech notably his pledge to freeze energy prices – was a call to return to the bad old statist days. But this is simplistic. He has come to share the public’s grudging acceptance of austerity. And he is under few illusions about voters’ scepticism of the merits of a bigger state and of his party’s economic competence.
However, the Labour leader believes there is a case for a more active state. Energy markets were only the start. His defining purpose is fast becoming the spotting and smashing of “vested interests”. Mr Miliband seems to think this suits the public mood – and gets to the heart of Britain’s economic problem.

The most revealing part of this week’s Labour conference speech was not about gas and electricity bills. It was when Mr Miliband said: “Somewhere along the way that vital link between the growing wealth of the country and your family finances was broken”. Resolution Foundation, a think-tank, has shown that real median incomes stagnated from 2004-08 and have fallen since the crash. This, not the financial crisis, is the main context for the new populism.
Sane Tory politicians understand this context. Where they differ is that they see the immediate answer to market failures as more market forces. They also point out that the state is the biggest vested interest of all. This remains a problem for Mr Miliband – a member of the political elite who has spent nearly his entire professional life in Westminsterhowever much he parses the role of government in a new populism.

Moreover, an attack on oligopolies, real or imagined, does not address deeper causes of declining average incomes, such as technology and globalisation. And it is a fine line between sharing the electorate’s fears and scaring it with radicalism.

It is often said that Mr Miliband wants to shift the political centre to the left. But this is to mistake his strategy, which assumes a receptive audience already exists. There is a profound ignorance among the powerful as to the depth of anti-elite sentiment, in Britain and beyond. It transcends a crude left-right distinction. The Labour leader has outlined the most articulate version of a new populism to date – but he will not have the political space to himself. For, as next week’s Conservative conference may show, we are all populists now.

Copyright The Financial Times Limited 2013.