2022-09-29

Wrap

All risk assets are down today, including longer-dated bonds. Even stocks that never go down, like $AAPL and $TSLA are affected. Supposedly, the UK’s government’s woes are the cause of some of this mayhem. It seems unlikely, somehow, that this wet and windy island can cause so much global mayhem. Fed presidents continue to make hawkish noises. I am increasingly convinced that their bark is worse than their bite. Falling stock and bond markets will naturally tighten financial conditions. High energy prices will damp demand, since most of the extra income goes to the Middle East and other places not know for their vibrant consumer economies. Exploding mortgage financing costs will surely drain more demand from the economy. Can the central banks really be hell bent on continuing to tighten? It seems particularly odd that the BoE says that it needs to bring down inflation, but is at the same time buying lots of long-dated gilts: i.e. doing more QE, which works via signalling, if it works at all.