The last sketch was perhaps a tad brief by the way of explanation.
Most of us understand that although central bank generosity - in the form of so-called QE- may have been necessary in ’08 and ’09, that now, after repeated doses, financial institutions / equity types have become addicted; the Fed and the Bank of England at this point are mere enablers. This is a deleterious situation.
Journalists too argue as to the wisdom of these measures, some pointing out correctly that QE, both in the US and UK represents simply a stealth variety of bank recapitalization. The banks can postpone writing down the garbage they own. Also in the US and UK, QE represents fiscal-policy making by the central bank because rock bottom, sovereign-debt interest rates allow the key fiscal decisions, which should be made by the elected body, to be kicked down the road.
But alas, we are not journalists. Our job is not to be depressed or buoyant about any economic policy or outcome, not to judge it but to anticipate it and its impact. And this is exactly why any sober FI trader wants to look for a further expansion of the UK curve. This is because the time has yet come when the Bank of England will see the error of its ways. Plus of course part of the deal is that the Bank will provide monetary cover for the administration’s fiscal consolidation. The correct approach (for both central banks) is to sit on their hands but that suggestion falls of deaf ears. Thus, given the weak Manufacturing print on Friday and then the National Institute’s grim prognosis for Q4, the mkt view will grow for the Bank to intervene yet again, and key - doing so in the face of building price pressures. This means an expanded term structure.
Keep it simple.
Robert Craven
Most of us understand that although central bank generosity - in the form of so-called QE- may have been necessary in ’08 and ’09, that now, after repeated doses, financial institutions / equity types have become addicted; the Fed and the Bank of England at this point are mere enablers. This is a deleterious situation.
Journalists too argue as to the wisdom of these measures, some pointing out correctly that QE, both in the US and UK represents simply a stealth variety of bank recapitalization. The banks can postpone writing down the garbage they own. Also in the US and UK, QE represents fiscal-policy making by the central bank because rock bottom, sovereign-debt interest rates allow the key fiscal decisions, which should be made by the elected body, to be kicked down the road.
But alas, we are not journalists. Our job is not to be depressed or buoyant about any economic policy or outcome, not to judge it but to anticipate it and its impact. And this is exactly why any sober FI trader wants to look for a further expansion of the UK curve. This is because the time has yet come when the Bank of England will see the error of its ways. Plus of course part of the deal is that the Bank will provide monetary cover for the administration’s fiscal consolidation. The correct approach (for both central banks) is to sit on their hands but that suggestion falls of deaf ears. Thus, given the weak Manufacturing print on Friday and then the National Institute’s grim prognosis for Q4, the mkt view will grow for the Bank to intervene yet again, and key - doing so in the face of building price pressures. This means an expanded term structure.
Keep it simple.
Robert Craven
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