Election grinds on

Nobody really knows who will be the next president. Whatever happens, Trump-like policies will continue to find support, amongst Republicans, and amongst the population. The years of wrangling over Brexit is a template for what will come. Only Covid could stop Britons arguing about it. I wonder what will bring the arguments over Trump to an end.

Markets

The Bank of England is sounding ultra-dovish, about to buy an additional £150B of gilts. ECB forecasts now incorporate a no-deal outcome for the UK. UK gilt yields didn’t blink. They are obviously waiting until they see the whites of the eyes of inflation. Gold has caught a bid, stocks are up. The market seems ultra-relaxed about a Biden presidency, presumably on the assumption that all those campaign contributions from the bulge-bracket banks have done the trick, and that all that tough talk about actually taxing corporate America was a bluff got collect votes.

This post, another from Wolf Richer, points out the absurdity of every outcome for the US elections being more positive for stocks. So much for the Efficient Market Hypothesis, which would day that prior prices would have fully discount the expected outcome.

UK Lockdown

The UK is experiencing it’s own Groundhog Day purgatory. The (supposedly finished) furlough scheme has been disinterred (maybe actually on Halloween!) and will pay millions of bar staff to sit at home playing video games. It’s lucky that that Andrew Bailey, that nice BoE Governor, is willing to pick up the tab. Nobody actually uses the words MMT, but surely that’s exactly what we’re doing.

Interesting reads

I am a huge fan of Scott Sumner. He has been saying that monetary conditions are too tight for a long time, and I believe he’s spot on. He has written a blog post, where he disagrees with Arnold Kling. It’s about monetary policy and the Modigliani-Miller theorem, two of my favourite things. I have no idea who is right, but it’s worth reading. Money is odd stuff. Sumner gives an analogy where he compares it to platinum. I am not totally sure that this works, but maybe in the short run his analysis is correct.

Zoom a digital alternative to transport infrastructure

This post gives a lot of stats about how rents in the most crowded, expensive cities have come down but those in the secondary and tertiary cities have jumped up. Rents and transport costs are substitutes: you can pay a lot and live in the Square Mile, but have no travel costs or you can pay much less and spend a fortune on railway season tickets. Now there is another competing service that has basically killed TfL: Zoom (and all the familiar apps that we use to communicate).

It’s often hard to see what underlying need something like a transport network is serving, but it is still communication, just like in Roman times where the roads were built so that messengers could carry scrolls back to Rome.

Of course, Zoom has no deep moat, and although it’s share price has, well, zoomed, it can’t last for long as there are too many well-established competing products. It’s not as though Skype ever made any money for anyone apart from the original developers.

Wrap

Quite an exciting day. Very risk on.

• Banks up across the board,
• Bubble stocks up almost across the board, except $SNAP and $TWLO,
• Frauds up generally, with a few egregious frauds down,
• Commodities up a lot,
• Dollar heavily down ($DX down 0.82%),
• bonds pretty flat (spookily so, given what happened to the dollar),
• gold up a lot, oil down.

J Powell gave a presser where he didn’t really say anything new, but somehow calmed the markets.

Chart for the day

Hourly wages, deflated by the gold price. I would have liked to see a longer series.