Shameless plug

If you enjoy this content, don’t forget to sign up for my newsletter here. Thanks!

Wrap

Markets have been marking time for a month or so. The important prices have all been directionless for a month: the 10Y yield, the dollar index, LIBOR (via the Eurodollar futures contract), even broad commodity indexes like GSCI. Even the ACWI global equity index is only 1% up on a month ago. Everyone is waiting for the Fed to tip its hand. The one price that is moving is oil. This is steadily moving up, as demand picks up, but supply is taken out because of pressure from green activists and governments looking to secure the youth vote.

The one equity market that is moving is Europe, via the DJ600, although it is only crawling up the hill.

The FOMC is batshit crazy!

Alex Manzara again. Takeaways:

• the economy is a car that has the handbrake off, and has started rolling down the hill. The FOMC is in the driver’s seat pressing the pedal to the metal,
• ED futures hit all time high, 3M LIBOR now at under 12bp,
• asset managers are less exposed to commodities than they have ever been,
• Greek bonds are paying negative interest rates. People are paying money in order to lend money to serial defaulter Greece, where not paying your taxes is a patriotic duty!
• this FOMC is the most important ever. We might see tapering, or at least evidence that Powell is thinking about thinking about tapering.

The Paul Tudor Jones interview is here, complete with helpful transcript. My reading (of the transcript) is that he wants to keep some inflation hedges in his portfolio, even if the currently neutral or deflationary environment endures and the Fed’s rhetoric about ‘transitory’ inflation is believed or turns out to be true.

UK rental costs vary by a factor of two

This post shows that if you wish to live in central London, you’ll be paying double the rent in some of the less fashionable parts of the country.

These are room rents. To pay £900 pcm for a room needs a salary of at least £30K. This is miles above min wage.

The government drone on endlessly about “levelling up.” People who are forced to work in London, because that’s where their industry is based, are getting a terrible deal compared to those who can work from the periphery. I can’t help wondering whether the red-listing of European holiday destinations is not a cunning plan to curry favour in the Skegnesses of this world. UK seaside destinations have been hammered by the rise of Benidorm and Ryanair. Boris doesn’t lose any votes to speak of by sticking it to these two, but will earn gratitude in Jaywick and Margate and even Southend on Sea.

But think of all that money that cuddly Mr Buffett gives away

I’m not convinced that Warren Buffett is the benign grandfatherly figure that he appears to be. Neither is Anand Giridharadas. The background is that Warren Buffett pays no tax. Well, a negligible amount, in terms of his wealth, and annualized increase in wealth. Hicks, the famous economist, once defined income as that amount of money that you can spend in a year without being worse off at the end of it. On this definition, Buffett has plenty of income, but they tax system doesn’t recognize the Hicks definition. Instead, it taxes the sort of income that wage slaves receive from their employers.

Anyway, I urge you to read the article. Nothing will change, though, as the Warren Buffetts of this world are much too influential. No matter how electorally popular, political parties cannot survive without plutocrat donations, so we are in a sort of Mexican standoff.

Will things change? It seems unlikely. It seems more likely that the West will follow Latin America, where whoever you vote for, he is on the payroll of the 0.1%. I might sound like a batshit crazy Marxist conspiracy theorist, but a lot of damaging policy choices made by governments throughout the world can be perfectly explained by the idea that they are in the pocket of billionaires.

Inflation, Part 94: Interest income channel: why QE is deflationary

Edward Harrison argues that by the Fed (and other central banks) buying up all the yielding assets (longer dated govt. bonds), the interest income to the private sector is squashed, thereby draining demand out of the economy.

This is certainly consistent with what happened in Japan. The collapse in yields lately points to a similar process. Will the impact be limited to a collapse in yields, or will it collapse the price of real assets too? Maybe it’s too soon to say.

This chimes with what I heard on this podcast. I haven’t listened to the full podcast, but this one argues that inflation in the 1970s was caused principally by the OPEC oil shock. This argument doesn’t seem to explain Turkey, S. Africa, Zimbabwe or Wiemar, but I haven’t listened to the full thing.