28 Sept
What Kaplan did next
Wall St on Parade has done a thorough job of eviscerating Rob Kaplan. To quote Ben Hunt, they are not even pretending any more. It just seems insane that someone in his position was trading futures, in large size, while being in possession of inside information. Not just some tit bits of gossip. The actual decision making of the Federal Reserve, the institution whose actions have more impact on the prices of global assets than any other, by at least an order of magnitude. But, of course, he did nothing against the rules. It’s just the rules that were insane. And, presumably, still are. Unless you think hard about for whose benefit they were drafted.
The Road Ahead is a rocky one, for Sir Keir
I just skimmed The Road Ahead by Keir Starmer. It’s a Fabian essay by the leader of the UK Labour Party. Lots of people have been very rude about it. I think the best line was “I’ve read the document. It looks like the Sermon on the Mount written by a focus group, to be honest,” by John McDonnell.
I don’t know who it was written for, or what it was expected to achieve. It has a list of principles, which do seem pretty wishy washy. The first is We will always put hard-working families and their priorities first. I am not sure what the governments existing set of priorities are, or even whether there is official list, and what exactly having such a list would mean, in terms of actual actions and laws. The principle implies that hard-working families should be given a higher priority than those who work less hard. A hard working member of a lazy family might feel discriminated against. I am sure that hedge fund general partners work incredibly hard: do they and their families get priority over the feckless and indolent? What if if the top priority of most hard-working families is to elect a Conservative government?
I know that politicians always shy away from actually announcing what they will do. I get it that they much prefer to talk about existing problems, and how if they get elected they will take action to solve them, without being at all explicit as to how they will go about this task. We all largely agree on what we want, so making statements of this sort minimizes alienation. Almost all actual policy choices create winners and losers, but losers care much more about losing than winners care about winning. Voters are much more convinced that the downside of change will affect them than that the upside will.
I am sure that Sir Keir is a nice chap and jolly clever to boot, but this document is unlikely to persuade anyone that he’s worth voting for. Labour, like every party, needs a sloganeering extrovert who can connect with the electorate. It probably helps not to think too deeply about policy matters, but you have to be sincere or, like Tony Blair, be able to fake sincerity convincingly.
One disappointing aspect of the essay was that it was devoid of anything that could be said to be economic policy. It talked about inequality, about how it was so expensive to buy a house now. But there was no mention of the central bank policies that have resulted in this situation and whether a new government would change the BoE mandate in a way which would reduce inequality. Although it was not universally popular, Jeremy Corbyn did propose a land value tax.
Angela Rayner has survived an attempt by Keir to remove her from contention as a contender to be the next leader. Even with his changes to the party constitution, I think she still has a chance. I have no idea what she stands for, but eventually people will vote for someone completely different. Well, the US electorate got such a person in the shape of Donald Trump. Sometimes change is not for the best.
Wrap
J Powell is testifying before the US Senate. He seems to have said that the US economy had met the tests to permit the Fed to begin tapering (i.e. reducing the $120B per month net purchases of bonds: not actual reducing aggregate assets). This sent the NDX down nearly 3%. What happens if the Fed actually started to sell bonds is hard to know. Even wondering about the question feels like asking about a state of the world that can never exist.
The dollar spiked, to 93.7 (DXY). This knocked all commodities down, except iron ore, which jumped from a very low level, possibly because of signs of China stimulus measures.
Evergrande bounced a bit, presumably on hopes that the China govt. will not let it fail. It met coupon payments on its RMB bonds (having missed them on at least some of its dollar bonds last week). This seems a sketchy justification for getting bullish on iron ore again, but maybe it’s enough.
The FAANG were all down, at least the US members. $BABA was up: presumably Jack Ma has licked Xi’s boots for sufficiently long.
Bond yields were all up, as one would expect with demand for bonds dropping (yields up, bond prices down). Central banks now are nearly always by far the biggest buyers of their governments’ bonds.