Who’s talking to who?

Those of us who sit with our heads immersed in financial markets can sometimes feel as if we are the centre of the world. It all meets here, the hopes and fears of all the years; the conflagration of politics and economics; the constant and ongoing setting of prices. But oh dear, doesn’t it also lead to the worst kind of bubble. The kind of bubble that leads to an arrogance to mock all other bubbles, with City people talking about the Westminster Bubble, or Main Street vs Wall Street, and so on. For a long time it didn’t really matter, as all bubbles were engaged in the biggest of all debt bubbles, and reaping the rewards. When it burst, everyone was hurting at the same time. And everyone relied on the same source for absolution, with central bankers thrust front and centre as our only Obi-Wan Kenobi hope. Only they could deliver the monetary medicine to keep the system going. No wonder that the actions of Mervyn, Ben, Mario and co were followed so closely.

But then something happened. The monetary policy drug went into overdrive, as its effects became less and less powerful. Doing QE? Well I’ll see your QE of government bonds and raise you with equities or mortgage bonds! Fine, I’ll beat that with my Rubicon-crossing into Alice in Wonderland negative interest rates! Stick that in your proverbial pipe and smoke it! Ah, but all that smoking… all that cheap money… all that lower-for-longer that eventually became lower-forever…The medicine kept getting jacked up but the patient still had fundamental problems.

Our dearly beloved unreliable boyfriend Mark Carney tried to point this out with a rather ambitious speech yesterday, arguing:

‘Monetary policy has been keeping the patient alive, creating the possibility of a lasting cure through fiscal and structural operations. It has averted depression and helped advanced economies live to fight another day, so that measures to restore vitality can be taken’

 

Surely no coincidence that just a few months ago, QE was flagged up by the new PM Theresa May for creating further inequality – and now the BOE Governor pops up to argue passionately that it does not. In fact, here’s a ruddy chart to prove it Theresa:

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Yeah! Take that (and party)!

Carney went on to point out that people felt “isolation and detachment” and there were 3 ways to tackle this:

“First economists must clearly acknowledge the challenges we face, including the realities of uneven gains from trade and technology,” he said.
“Second, we must grow our economy by rebalancing the mix of monetary policy, fiscal policy and structural reforms.
“Third, we need to move towards more inclusive growth where everyone has a stake in globalisation.”


Then, almost laughably, he goes on to say that many solutions lay “outside the Bank’s remit”. Oh thanks Mark… we just spent all that time listening to you, with your charts and your bullet points, and your answers… only to say, you personally couldn’t actually do anything about it. Aye here’s the rub. Central bankers are no longer talking to us, the investors. Or even us, the consumers or business people. He’s talking to the politicians. Meanwhile the politicians are trying very hard to talk to The People, but continually getting it thrown back in their face. The careers of Cameron, Clinton, and now Renzi demonstrate that. SOME politicians, of course, are getting it bang on – only many of them are not actually known as politicians (step forward never-held-elected-office-before Donald J Trump). No wonder career politician Tony Blair has popped up to give his opinion, declaring it all very ‘troubling’.

This all matters because it means that the sources usually relied upon to deliver a vision for the future are absent. No more 25bps here or there, a smidge of QE or a taper there – central banks are done. Monetary policy is dead. All we are waiting for with the ECB this week is whether the hawks managed to nobble the doves or do we get a “holding” press conference until they manage it in January? No, the central bankers aren’t talking to us. The politicians don’t know how to talk to us. The populists really aren’t talking to us.

Blondemoney had to smile at the comment from City attendees at a meeting with Chancellor Hammond and Brexit Minister Davis:

“There was quite a blunt warning that politically the Government does not want to be seen to do a deal to favour rich bankers, if it doesn’t comply with Brexit voters’ wishes – that there is more to the negotiation than just the City”

Horror! Telling people that the negotiation might not be all about them! Or what if in actual fact, they were telling the truth, with the emphasis on the words “does not want to be seen to do a deal”. Yes, doesn’t want to be SEEN to do it. Might actually do it, but it won’t look like that. Come on people, this is basic politics! The reason no one is getting it is because we are all like strangers, meeting on a train, speaking different languages. Just as the train is about to career of the tracks and we don’t know if there’s any emergency equipment on board.

Yes, it’s time to look outside of the bubble and figure out who is talking to who and why. Sadly that doesn’t fit into a quant model or a spreadsheet, but good old fashioned human contact might just be the order of the day.

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