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Bull and Bear – an optimistic and pessimistic view of investment news. Today’s stories: More QE? Chinese inflation rises again: is this reason for worry, or just a blip? Why can’t we be more like America, say Japanese economists. Diageo reveals profit increase despite troubles with its black drink. Companies in the news: BHP Billiton.

More QE?

By the time you read this you may well already know. But today is the day that the Bank of England may announce that, once again, it is turning on the printing press and creating money faster than you can say Sir Mervyn Allister King, CBE, FBA.

Expectations are that the bank will announce an additional £50bn worth of QE, or quantitative easing. It doesn’t really involve printing money of course. What the bank actually does is buy government bonds. But we live in a fiat economy, and the broad money supply is determined by things like availability of credit and our appetitive for debt. Despite all that QE, the broad money supply has not been doing very well. In fact, in December it contracted by 1.4 per cent, the biggest month on month drop ever recorded.

And despite QE, banks are still unenthusiastic lenders, and debt satiated Brits are less than keen to increase borrowing. It is as if QE is falling into a bottomless pit.

But what it does, is push down the yield on UK government bonds, making them very expensive. And because of that, other assets look cheap. Hopefully that will mean that equities will rise, property prices will go up, Brits may feel wealthier and, as a result, may be willing to spend more.

Of course, all that hinges on the assumption that borrowing more is a good thing.

Meanwhile, lower interest rates make it very hard for insurance companies to generate a return from their cash, and so insurance premiums rise. QE may have pushed up certain asset prices, but when rising assets include oil, that may not be such a good thing. And when central banks make it clear that rates will stay at near zero for a very long time, bankers wonder how they will make money from lending. After all, the principle of traditional banking is to borrow short and lend long. But when short and long run interest rates start to converge, the margins disappear faster than you can say Dr Ben Shalom Bernanke.

But then again, Dr Adam S. Posen has come up with some good ideas: that QE should be used to buy bonds in institutions charged with providing finance to business, especially entrepreneurs.

Chinese inflation rises again: is this reason for worry, or just a blip?

China needs lower interest rates. It needs lower rates in order to stimulate an economy which is already suffering from the global slowdown, for example, in lower exports.

And since inflation in China has been falling of late, many were celebrating. So that’s good, the economy behind the great wall will suffer only a mild slowdown, and can avoid a hard landing because it can afford to lower interest rates.

And then, this morning, the hammer blow struck.

Chinese inflation rose to 4.5 per cent in January on the year before. That compares with an inflation rate of 4.1 per cent in December.

Don’t worry, be happy. It was the Chinese New Year ‘what done it’, say pundits. It was a one-off. People were so busy celebrating, and being all round cheerful, that prices rose a tad.

Well, maybe. But the fact is that economists had not expected the jump, yet presumably they knew China had been celebrating the New Year, and had historical data to call upon when making their predictions.

Those who say China has avoided the worst case scenario are being too hasty.

That is not to say that China will suffer a hard landing. It probably won’t. It is just that it is not yet out of the danger zone.

Why can’t we be more like America, say Japanese economists

In the US, the target for inflation is 2.0 per cent. As indeed, it is in the UK. But in Japan, the central bank targets zero inflation.

So why can’t Japan be more like the US, ask Japanese economists and politicians, or so suggests an article on Bloomberg. Fed’s Inflation Target Stirs Japan Ire at BOJ

In Japan, prices minus fresh food fell 0.1 per cent year on year in December.

In Japan, deflation has been public enemy number one for a very long time.

So why can’t its central bank be a touch more inflationary in its policies?

Some say that it was errors made by Japan’s central bank – which was too slow to let rates fall to zero, and too reticent with its own version of QE – that led to the lost decades. And that is why the Fed, thinking it has learned the lesson of Japan, is so busy trying to persuade everyone it has no intention of pressing any brakes for a very long time.

Then again, Ben Bernanke’s predecessor at the Fed, Alan Greenspan once said the solution to Japan’s problem was to let bad businesses fail. So the man, who saved the US banking system every few years with a bailout of some sort, reckons Japan needs creative destruction.

Maybe certain other economies could do with some of that too.

Diageo reveals profit increase despite troubles with its black drink

You can have any results you like, or so Henry Ford might have said to management at Diageo, providing the bottom line is black. Or to be more precise, providing the bottom line is not merely black, but a good deal better than last time. And so it was, or sort of was. Operating profits at Diageo in the last six months of 2011 were £1.87bn compared with £1.73bn in the corresponding period in 2010. Net profits, however, were down 20 per cent.

These days, Diageo sales are big in Asia, Africa and Latin America. And that’s good because products such as Johnnie Walker scotch and Smirnoff vodka are hits across the globe.

But isn’t the company’s most famous drink a certain black stout?

Alas, Guinness may be big in Ireland – the land of the troubled economy – and it may be big in Blighty, but you don’t see many Guinness drinkers in Beijing or New Delhi.

Chief exec Paul Walsh said: “We are cautious as to the consumer and economic trends we will face in 2012, but these first-half results have positioned us well.” And so they have, it’s just that these days sales may be booming – up 8 per cent – but Guinness isn’t the star it once was. In the year to June last year, sales of the stout were down 5 per cent.

And don’t you miss its ads? Time was when winning the Guinness account was the pinnacle of achievement for an ad agency. No trip to the cinema was complete without viewing the best that the creative minds of the British advertising industry to conjure up in promoting the drink.

Still, as tick follow tock follows tick, all good things come to an end.

Companies in the news

Bull:  Well, Questor in the ‘Telegraph’, and Sheridan Adnams from The Share Centre have had something in common over the last 24 hours. They have both been busy saying “buy” when talking about a wee mining company called BHP Billiton.

Profits at the company in its latest six month period were down on the same period a year ago.

Questor likes the dividends, and the fact it trades on an earnings ratio of just 9.2. Sheridan focused on the longer term potential. See: Sheridan’s comment at BHP Billiton disappoints the market but investors are not to be alarmed  and Questor share tip: BHP ups dividend 20pc

These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees