Today’s Image

Men in a street of Napoli 1950s Fosco Maraini

https://twitter.com/louise43678507/status/1458332674435735557?s=20

Modern Treasury

Working for a bank is boring. Banks just don’t understand software. They are run by people who have contempt for IT. They spend a lot of money on it, and they have some systems that work. But these systems are ugly, rigid, barnacled and boring. They are made up of bits and pieces of code that were written by long-dead programmers in even longer-dead languages. Nobody dare touch these systems because they are so cross-linked nobody can really tell what the knock-on impact of a seemingly minor change might be. And, in any case, they’ve lost the source code.

Well, it probably isn’t quite as bad as that, but it’s not good. Which is why Modern Treasury sounds such a great idea. Read more about it on Not Boring. This is Not Boring Capital talking its own book, but it does sound like an idea whose time has come.

Week in review

Basically, the only game in town is inflation. Some commodities are crashing down: iron ore is around 92 vs. well over 200 a few months ago. But wage pressure and rents are really picking up. The US shelter index (rents) went up by 0.5% in October alone. Rents in the UK have been static for a long time, mainly because there is a very low turnover of tenants. As commercial mortgage rates go up, and regulation of the sector becomes stricter, and compliance costs go up, the supply of rental housing will decrease, with a short-run result of increasing rents. Obviously, the overall housing stock doesn’t change, and it’s not clear that falling rents will reduce supply, but for tenants who are not in a position to get a mortgage, and this is a quite a large proportion of them because they have poor credit scores, this will be bad news.

El-Erian is saying that the Fed’s “Team Transitory” defence is laughable, and that companies costs, both of goods and labour, are going up steeply. Willem Buiter makes a very strong attack on the policy of FAIT (“Flexible Average Inflation Targetting”). He argues that the policy rates should be set by forward looking metrics.

From what I can tell, no clear trend developed this week. The main event next week is the announcement of the new chair of the Fed.