Almost everything in the world is going up at the moment, apart from interest rates and Joe Biden’s IQ. We posted this chart earlier in the year about professional analysts expectations for rates and how they seem to be perpetually wrong. Everyone thinks they will rise and they seemingly refuse to.
It seems gravity itself is pulling rates downward.
In the Eurozone, interest rates are zero and real rates are negative. Last week the EU released the latest CPI figures and despite the unprecedented interventions of the ECB for 10 years and more, prices in Europe continue to fall, this time by 0.3% year over year. The general price level is taking interest rates with it.
I can’t emphasise enough what a nightmare this is for European policy makers. All their pensioners need interest rates to rise so they can generate the “risk free returns” their pension fund rules demand.
A possible rationalisation of this phenomenon goes like this:
- Nobody wants to hold cash.
- Cash loses value very quickly against meaningful assets that people want (houses for example), they know inflation is a tax.
- To promote inflation, borrowing is made easy and cheap by the central bank in the hope of stimulating spending.
- The borrowing is spent on the “wrong thing”, generally financial assets because….Nobody wants to hold cash.
- Back to square 1.
It is becoming a vicious circle. The faster they give the money away, the faster they need to give it away to generate any effect at all.
In the end, I think the solution will be central bank digital currencies, one form of which will only be available for “consumptive use”. So, the digital Euro can only be used for butter and eggs, not real estate. It sounds crazy, but I do not see many other options because the current policy mix is just making rich people very rich and very rich people, very very rich.
In all likelihood, the new “spending money only” type of money will have the perverse effect of doing the opposite thing that was intended. It will further bifurcate the world into those who only have money for bread, and those who can buy hard assets.
In the United States the situation is rather similar. Monetary policy seems to have become a secondary consideration. Take the narrow money supply, broadly notes coins and deposits at call. It has rocketed this year but more concerning was the jump in November of over $0.5 trillion. This happened in the week 16th – 23rd November, it is the largest one week increase in history.
It happened at a time of great distraction in the US, with a disputed election and pandemic fears dominating the headlines.
To me, this is absolutely wild. Having looked a bit further, I am assured there are a host of “technical reasons” around the behaviour of companies and cash balances at Thanksgiving. Looking back through the chart though, I don’t see any other massive spikes in November, so I’m struggling with that.
Technical reasons are fine, the bottom line is that 35% of the US dollars in circulation were printed since March this year.
In January 1980 US M1 money stood at $380 billion. 12 years later in November 1991 it hit $880 billion. That same increase has just been added in one week.
Maybe it is “technical” but it looks like banana republic stuff.
I do like this kind of headline. The CEO in question is a gentleman called Thierry Delaporte and because of Covid he has never set foot in his new employers offices, which are in Bangalore.
The problem with celebrity CEO’s is that they nearly always make an arse of it in the end. It is extremely difficult to continually stay in front of the market, to maintain energy levels and to generate new ideas for any long period of time.
The new CEO playbook is a well trodden path. If you are ever offered such a job, simply follow these steps to ensure that you are egregiously rewarded with millions of share options.
1. Sack swathes of people
2. Declare the importance of the customer
3. Project enormous confidence in yourself and the future
In Thierry’s case we discover the following from the article.
1. “Delaporte slashed the top ranks of leadership from 25 people to four.”
2. “Mostly, he focused his attention on customers, meeting with 130 over video conference”
3. “We know what we need to do to make it work,” he said, from an office whose walls are adorned with paintings. “In my Year One, we’ll accelerate growth; in Year Two, we’ll be at the growth level of our competitors; and in Year Three, we will outdo.”
I love it. Well played Thierry, three out of three for you.
It simply emphasises that an investment portfolio always has room for something that does not rely on people or personalities. They will make mistakes, they will do stupid things, they will say stupid things and all those things end up costing investors money.
There aren’t many opportunities out there for hundred billion dollar investments that do not rely on staff, or Person A being better than Person B. Or good decisions being made by our brilliant new recruit, Person C.
If only there was something that didn’t have any employees at all, and would deliver on all its promises now and in the future. If only.
“to address racial inequality, gender disparities and the climate crisis”
Like me, you are no doubt upset at the omission of world peace and a new koala colony on planet Mars from this list. An oversight, surely. She is 74 after all, and remembering things does get harder.
Perhaps someone should point out the economic mess that America is in at the moment. Might she perhaps focus on “people having a job” or “helping the economy grow” or “spending less of other people’s money”?
None of it. It’s full blown social engineering with the help of the US dollar, which is perfectly fine by me.
Go for it Janet, please spend as many of them as you can.
Generally when I’m thinking about “energy and drive” I don’t reach for 77 year old failed presidential candidates.