At the end of last month, the Mighty Oz’s and Grand Panjandrums of central banking descended upon the rural splendours of Wyoming in order to engage in a very public display of navel gazing and to enact a ritual, group reinforcement of confirmation bias.
There, we heard much nonsense talked about low – even negative -‘natural interest rates’ and of the seeming impossibility of triggering an alchemically meaningful dose of price inflation with which to restore the balance of the humours in the global economy.
It was most timely, then, for the ever-mischievous BIS to publish a paper first presented last year by Charles Goodhart & Manoj Pradhan which challenged much of the received wisdom of our monetary overlords and which broadly affirmed arguments I, too, have long been offering against their approach.
‘Dollar makes worst start to the year since 1985,’ screamed the headlines a few weeks ago in a classic click-bait attempt to get people to read about what they already should know by using a somewhat artificial statistic – after all, since when did the world revolve around what happened specifically between Dec 31st and July 31st?
In an earlier Monitor, we alluded to a possible monetary reason for suspecting that the past year’s spectacular (and inflationary) bounce in Chinese revenues and earnings might have reached its high-water mark.
Here we take a more detailed look at the situation in the Middle Kingdom:-
In her recent set-piece testimony before Congress, Janet Yellen made clear that she is determined to repeat the sort of ‘gradualism’ in raising rates that proved so disastrous after the Tech bust. In other words, that she will not so much boil the frog slowly as encourage him to go out and make a further raft of foredoomed, highly-leveraged investment decisions before he realises he’s been cooked.
The more our would-be Philosopher Kings attempt to display the awesome panoply of their intellectual armour, the more we think, not of the Greek sage from whom they seem to draw inspiration, but of Mickey Mouse’s dopey canine friend.
In bonds, the Bears are mounting another one of their forlorn hope charges against the central bank ramparts which is, in turn, rendering equities a little more expensive in relative, as well as absolute, terms. Commodities, meanwhile, are firmly rooted in mean reversion mode.
No, Mario is NOT about to give up – whatever! China monetary trends might mean the industrial earnings cycle has peaked. US debt levels are still OK, but the low cost is promoting slightly worrisome growth – nor are Tech balance sheets entirely without blemish. Commodities – clueless and friendless.
Please click the link for my latest thoughts, including a look at equity margin debt, the broad symmetry between today’s richest-ever & the 1980s’ cheapest bonds, the new natgas bulls, China, and gold. 17-05-29 M4 No 2