2022-09-07
The housing market
Desired saving. Distrust of securities markets. QE and zero interest rate policy driving down returns on money-like assets. Literal visibility of asset class. Obsessive coverage of house price indexes by mass media. High fees and offputting tone of financial advisors. High visibility and faded memory of house prices falling. Diverts savings from productive uses. Calculation that politicians will always step in to prop up a falling housing market in a way that they would not for other asset classes. Broken planning system throttling supply.
Kashkari
Rudy does a good takedown of Neel here.
Kwateng
Kwasi Kwateng, the new Chancellor in the UK wrote an op-ed in the FT a few days ago saying that Truss’s government would be pro-growth. He talked about cutting taxes, as if taxes collected do not get spent into the economy. He talked about the UK having basically negligible labour productivity growth for at least fifteen years (coincidentally, since the Conservatives have been part or all of government, but he didn’t mention that), and that some OECD report had said that financial conditions in the UK were tightening, not loosening.
He seemed to think that loose financial conditions, and growth in the economy were the same as improved labour productivity. Of course, this is nonsense. Often loose financial conditions lead to slack growth, since the pressure on business to produce more with less is relieved by the cushion of cheap debt. Indeed, debt now for many borrowers must carry an interest rate which is negative in real terms. Maybe crashing equity markets account for a notional tightening, but to spike the punchbowl with vodka at this stage in the party seems like a bad mistake to me. Especially if the BoE is frantically trying to take said punchbowl away. Well, we are overdue for a a bit of civil unrest. I await the outcome with interest.
Tweet of the day
I own 17 stocks.
— Olivier Marz 💙💛 (@ReturnsJourney) September 7, 2022
Here's why don't I own each one. 🤡
(COMEDY) pic.twitter.com/MBcYDfCPCc
Basically, trashing a bunch of ARKK-type stocks. Easy to do, but in this case done well.
Wrap
Oil prices crashed horribly as inventory in the US went up substantially. Oilprice.com reports:
The American Petroleum Institute (API) reported a build this week for crude oil of 3.645 million barrels, while analysts predicted a draw of 733,000 barrels.
The build comes as the Department of Energy released 7.5 million barrels from the Strategic Petroleum Reserves in the week ending September 2, leaving the SPR with just 442.5 million barrels.
In the week prior, the API reported a build in crude oil inventories of 593,000 barrels after analysts had predicted a draw of 633,000 barrels.
WTI fell on Wednesday prior to the data release as the threat of a global recession weighed on the market, adding to fears that additional and expanded Covid-inspired lockdowns in China could dent demand for oil. At 2:30 p.m. ET, WTI was trading down 5.44% on the day at $82.18 per barrel—a roughly $10 per barrel dip on the week. Brent crude was trading down 4.96% on the day at $88.23—an $11 dip on the week.
This was all taken to imply that we’re moving towards a recession, and so bonds firmed, DX went into retreat, most commodity prices fell. Stock prices generally rose, presumably on the basis that the increased prospect of a collapse in demand will force the Fed to pivot.
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