It's a happy holiday for the financial world.
Ben Bernanke, chairman of the US Federal Reserve, has turned down the throttle on quantitative easing and calm has prevailed. As the Fed said, monthly purchases of assets will be reduced from $85bn to $75bn (£46bn), stock markets rose and bond markets helpfully went sideways.
The baby-steps nature of the Fed's action was one reason. Another was the assurance that interest rates will stay at next to nothing for ages – or "well past the time that the unemployment rate declines below 6.5%". It's a long way from the terrors of the summer, when markets worried that even a modest reduction in the dosage of printed money would cause the recovery to falter.
A lot of jobs have been added since then, and the US economic data is strong. So confidence in a self-sustaining recovery is more robust than in the weeks when a shutdown in Washington was leading the financial news.
All the same, the route to the exit from quantitative easing looks hellishly tricky. The undertaking itself can be deemed a success in the sense that a great global depression may have been averted. And, if the recovery continues to be strong, there's no problem. Janet Yellen, Bernanke's successor, would be able to accelerate the tapering of quantitative easing and be applauded.
But what if – next May, say – the Fed's monthly habit is down to $45bn, but the employment numbers are softening, growth in the US is weakening and the housing market is faltering? What would be the correct response? In theory, it might be time to hit the accelerator again, perhaps returning to $65bn-a-month. But an about-turn – halfway through a taper programme – would send an incredibly weak message. The Fed would stand accused of misjudging the underlying strength of the recovery. Sceptics of quantitative easing would have a field-day, arguing that another increase in an ineffective medicine would be the very worst prescription.
Credibility, then, rests on the single premise that the US recovery will continue to be strong and allow a full, gradual and uninterrupted reduction in the asset-buying programme. Life may indeed turn out so sweetly. But a weak patch for the US economy – not the consensus view, but obviously a possibility – would test faith in central bankers' magic.
The UK form of quantitative easing involved fixed amounts and an imprecise deadline: when the quota was filled, no more gilts were bought until the Bank's monetary policy committee gave a new mandate. The UK design looks superior to the US version, which uses a rolling monthly programme, thereby creating the illusion that this experimental monetary machine is a finely calibrated instrument.
In truth, it's nothing of the sort, and that fact may cause trouble on the way out. Nobody can really know whether $5bn, $10bn, or $20bn, is the right pace of reduction for the US; or, indeed, whether an immediate halt would produce very different results. Nevertheless, markets will obsess over every tweak of the dial. Yellen is up against it.
Last-minute promotional games
December 21: time to start the Christmas shopping. It's only now that retailers display their real prices, as opposed to those they offer suckers who think Christmas starts in mid-November with the blitz of sugary TV adverts. Once again, half the retail industry is surprised that many shoppers are waiting for "sale" stickers to appear before buying. What did they expect? If they play the "last-minute bargains" card year after year, the punters will adapt.
Marks & Spencer is where the City analysts have turned their spotlight. The group has been running promotions with increasing intensity all week, heightening the worry that M&S is on course for another seasonal shocker.
Surprisingly, perhaps, there's sympathy for the chief executive, Marc Bolland. The mild winter hasn't helped clothing retailers; the new, revamped, clothing ranges were never likely to provide instant salvation; and M&S, even in Sir Stuart Rose's day, played last-minute promotional games.
Come on, though, part of the skill in retailing is matching supply and demand. The only certainty about pre-Christmas sales is that customers who paid full-price in recent weeks will be irritated. On M&S's latest promotion, analyst Nick Bubb says: "Whether it will turn out to be worth doing in the short-term, just to try to save the CEO's job, remains to be seen, but the M&S brand will suffer long-term damage."
Fair comment. To be fair, M&S shareholders should reserve judgment on Christmas trading until the hard profit numbers are in. But, if it's bad news, investors should not accept slippery excuses. Arch-rival Next (now worth £1bn more than M&S in stock market value) seems to be able, consistently, to start its sales on Boxing Day without suffering problems with excess stock. Why can't M&S?
Hunting for a deal
Atlas Mara Co-Nvest, an adventure into banking in Africa (probably, but nothing is guaranteed), raised $325m this week and can now start hunting for a deal. The founders, led by Diamond, are putting up $20m for a slice of the cake but, naturally, they hope their portion will yield extra cherries.
Here's the formula: after a deal, holders of "founder preferred shares" will collect 20% of the increase in Atlas Mara Co-Nvest's value provided the gain is at least 15%. This 20% cut will continue to be paid, in shares, every year for seven years so long as the company's value passes the previous year's peak.
The 20% structure is no more greedy than those demanded by top-end hedge fund managers and private equity principals. And, yes, there's an alignment of interest of sorts. Even so, it's remarkable that Diamond can command such a price. It's not as if Barclays Capital, the investment bank he built, has created much long-term sustainable value for Barclays.
A time for calm?
Aberdeen Asset Management is in the middle of a big deal: the £550m purchase from Lloyds Banking Group of Scottish Widows Investment Partnership. A moment, you might think, for directors to calm investors by refraining from selling shares. Not a bit of it.
Andrew Laing, deputy chief executive, cashed in £5.3m this week. Chief executive Martin Gilbert sold shares worth £8.6m at the start of the month. Hugh Young, star fund manager in Singapore, banked £5.5m at the same time. The disposals all flowed from the multi-year bonus and incentive schemes. And sales in December, we are told, are a regular practice at Aberdeen, a company that rewards its board with shares. All the same, a display of directors' greed for the long-term prize would have gone down better.
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