Thinking back through other crises that have occurred since I started my career in 1988, I realised my favourite was my first: 1997/98. It was a world entered into peril, a peril that started in Asia and headed West, to LTCM, Russia, etc., etc. For a Macro risk-taker, what wasn’t to like?
While contemplating the past, my instinct is to recapture memories by listening to music from that period. Glancing at my Spotify downloads from that year I saw the Manic Street Preachers (MSP) and regretted not listening to them in many, many years.
I don’t see any explicit lessons to be learned from the specifics of the crisis of 1997/98, but the title of the MSP’s best album, This Is My Truth, Tell Me Yours, inspired this chain of thought. Funny old world…
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Thinking back through other crises that have occurred since I started my career in 1988, I realised my favourite was my first: 1997/98. It was a world entered into peril, a peril that started in Asia and headed West, to LTCM, Russia, etc., etc. For a Macro risk-taker, what wasn’t to like?
While contemplating the past, my instinct is to recapture memories by listening to music from that period. Glancing at my Spotify downloads from that year I saw the Manic Street Preachers (MSP) and regretted not listening to them in many, many years.
I don’t see any explicit lessons to be learned from the specifics of the crisis of 1997/98, but the title of the MSP’s best album, This Is My Truth, Tell Me Yours, inspired this chain of thought. Funny old world…
You don’t need to be a viral specialist to recognise the global tragedy that is unfolding. Obviously, the virus is now the trigger of a global economic crisis. Finally, it is entirely appropriate to use the words ‘exogenous’ and ‘existential’. And as with almost every historic event, it is mandatory to quote Winston Churchill: ‘you must never let a good crisis go to waste’.
So I am going to concentrate on some things I do know a little bit about, while attempting to be clear. Let’s cut to the chase.
This economic and financial markets crisis has arisen as a consequence of policymakers’ inability to use their imagination. They oversee and monitor governance; their prudential responses were supposed to provision a healthy economic environment within an increasingly complex system. And yet they have failed to accept the need to modify their cosy policy shibboleths which have been palpably less effective year by year, quarter by quarter…and now day by day. They have clung on for too long.
Central bank mandates must change, NOW.
Here is what they must do and why… Of course, I have no idea how, but they must. They can do this. They just need to recognise the need.
Central bank mandates must target positively sloped real yield curves.
They must do this to bring in order to stop the endless cycle of misallocation of financial resources.
Absurdly low volatility and high correlations across asset classes are consequences of the ‘Market of 1’. Flat nominal yield curves are inevitable if you feed the markets a diet of irrational certainty about term premium. But can that be maintained in the massive fiscal expansion which is now actually happening?
But nominal rates are not the problem. Ask any long-term investor. Ask any pension fund. Ask any insurance company. Ask any endowment.
The driver of grotesquely high levels of widespread investment ‘tourism’ has been the desperate hunt for real returns. Investors have unflinchingly foregone liquidity with close-to-zero (or negative) real yields for illiquidity with the promise of a positive real yield. And now we have a gigantic global bubble burst in returns AND illiquidity and the consequences of decades of accumulated inappropriate investment choices.
Given the debt tsunami that has just started its journey and will wash over future generations, I leave the Manic Street Preachers to bookend this economic cri de cœur:
‘If you tolerate this, your children will be next’.
The Macro Dilettante spent 6 years as a Physicist. He has worked in financial markets since 1988. His experience incorporates fixed income and foreign exchange in Global Markets. His roles have included Head of Global Foreign Exchange at an asset manager , Head of Euro Liquidity at a UK bank, Portfolio Manager for several Alternative Asset managers. Most recently as Head of Market’s & Investment Director responsible for Fixed Income at a UK Pension Fund.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)