Yesterday

The NDX is going parabolic again. It’s hard to know why, but a big factor must be $AAPL’s reveal of its 5G phones. Apple is an extraordinary company. It is an object lesson in how good investor relations and marketing generally, and massive share buybacks, can totally neutralize Apple’s failure to innovate technologically for the last thirteen years.

Today

Another bullish article about natural gas has come onto my radar. These days, it’s so hard to avoid ending up in an echo chamber where everything we see confirms our priors that I am not sure if this is representative of the general view on NG. It certainly hasn’t has a strong trend recently. My view is that as the cleanest standby fuel it’s very complementary to wind and solar and so should be in high demand. The market doesn’t seem to agree, and generally is marking down all conventional energy assets. As a sector, energy has practically disappeared in terms of its weighting in the SPX. At some point I think it must come back, but the march of technology now seems unstoppable. Just as it did in 1999.

The FT seems to think that the risk-off tone of the markets was triggered by the nearness of the earnings season. The only US equity market to be up is NDX (what else?). Oil was up, but most everything else down in the commodity space. Global equity markets generally down. 10 year govt. yields were up globally, with the exception of Germany, which is quite odd on a risk off day, but consistent with a looming inflation risk scenario.

I added a few ‘interesting’ energy stocks into a portfolio on unhedged. I’ve only just started using unhedged, but it looks as though it has a lot of handy data. It seems to be good on 8-Ks and 10-Ks. I am not sure it has much macro content.

I like Koyfin, but it does not seem to offer any ability to keep notes or see financials in a sensible layout. I’m sure both services have their value. The charting on Koyfin is amazing.

Sam Brittan

I was very sorry to read that Sam Brittan had passed away. He became the first economics correspondent of the FT in 1960. You can see an article about him here. I read a great deal by him, and it stimulated my subsequent interest in the subject. He was a liberal, in the classical sense, as most people with an economics training tend to be. He sensibly wanted to avoid going into politics. I am sure he had a more benevolent effect on the UK than his younger brother, who did go into politics and ended up in Mrs Thatcher’s cabinet.

It seems to me that whatever the label people choose to attach to their political beliefs, if they have any sort of exposure to economics as an academic subject they tend to agree with each other more than they disagree. I have always wondered why economics has never been a mainstream school subject, unlike music, art, geography or woodwork for example.

I didn’t realize that he was quite so shambolic in his dress and behaviour. He would not have made it today, where there is so much emphasis on looking good on screen.

Macro Corner

Lyn Alden does some interesting historical trend analysis.

See this tweet for the background (sorry, Twitter makes it too difficult to hotlink images).

The chart seems to show that the money multiplier: the ratio of broad money to narrow money, but generally a measure of real money creation (by private banks) is spiking up, as it did in 1940. The result then was a rapid rise in prices (which had, in any case, been artificially repressed by rationing and price controls during the war years). There was something of a spike, although much less pronounced in the 1970s. The takeaway, as far as I can discern, is that inflation will finally take off. However, the authorities talk up inflation, but the political realities of having higher inflation, and therefore higher nominal interest rates, could be utterly catastrophic for government spending. It is for this reason that I am not yet convinced that inflation will take off. It’s one thing to create (false) expectations of higher inflation. It’s quite another, as the US Treasury, to cope with the financing consequences of such a thing. Of course, over the longer run, a purging dose of inflation is precisely what a government wants to avoid paying the real cost of its borrowing. High nominal interest rates are often accompanied by negative real ones. This has consequences for precious metals and the dollar, obviously.

In the caption to the chart, Lyn Alden states that when the long term debt cycle has ‘reached an apex’ (which, presumably, we have reached now, although there seems to be no pause in issuance), fiscal policy has to take over. Central bankers around the globe have been calling for this for several years. Presumably, the unstated implication is that the CBs are standing ready to monetize the spend. This, surely, is what will trigger inflation, not simply allowing private banks to swap long-dated Treasurys for reserves (which they refuse to lend out).

The problem is that an exploding monetary base does not translate into inflation. This blog post demonstrates that Switzerland has been growing the money base constantly and the last time I looked Switzerland didn’t have a problem with inflation. In fact, they are constantly buying US assets to try to keep their currency down to avoid it going through the roof, something that certainly would kill inflation stone dead.