Today’s Spot Markets live session is with Neil Collins, co-host of the A Long Time in Finance podcast and former City Editor of the Daily Telegraph for 19 years.
Comments directed at audience members are highlighted in bold.
Izabella Kaminska 11:57
Hello and welcome to Spot Markets Live, the real-time markets chat that takes you on a whirlwind tour of the markets.
(2 mins early, by design)
(eat your heart out Paul Murphy)
Hello, and a particular welcome to holders of index-linked gilts. They offer protection against inflation, don’t they? What a comfort in these difficult times!
That’s the UK 2016 Index Linked Gilt Price.
I’ve an idea, though.
(yes tin hats at the ready)
The UK government should offer to swap them for conventionals
(Neil has already trademarked Elizabeth bonds to save the UK)
say £50 for each £100 nominal. Think of the impact on the National Debt
Yes, it’s quite the John Law scheme.
A literary allusion
That’s the 2028 gilt yield
Peter: considering the tiny coupons, the yield will still be pretty small
It shouldn’t be a shock, really, because history shows that conventional and linkers move in tandem, rather than in opposite directions
Btw – for those who don’t know Neil is the former editor of well, everywhere in financial media in his time.
He is now fronting the “A long time in finance” podcast.
Neil it’s good to have someone with us today with your pedigree and memories of the war ?
I’m afraid so. I can remember the FT30 index reaching 145 in 1974
This is the sort of expertise you just won’t get on Reddit.
And you just can’t buy (although I’m prepared to consider offers)
But do you know what interest rates were during the vast majority of WW2?
That’s a trick question. Interest rates were administered by the government
Well exactly. Fake rates to go with fake news. And they averaged about 2% but were entirely meaningless really as Neil points out
So the question we want answering is: IS THE UK A BANANA REPUBLIC OR IS SOMETHING ELSE GOING ON?
Yes, we have no bananas today
We’ve already unveiled Neil’s genius plan to save the world. Elizabeth bonds…
Have you changed your stance?
Here’s the plan. National Savings administers them, and we all rush to buy, in memory of our dear queen
I reckon on the right terms, they could raise 20 or 30 billion. Holders could get a tax break for holding long term
I think it’s a great idea personally.
There would be none of this “relying on the kindness of strangers” nonsense since the buyers would be UK individuals
Indeed. Unlike us who are still reliant on the kindness of people with Bloomberg terminals and access to investment research.
Please give generously
Now that the rabble has been rallied… a quick round-up of what’s going on.
FTSE is down about 1.8% …
S&P 500 closed at its lowest since November 2020
The dollar is sweeping to a 20-year high, sterling on the ropes again
And the IMF is back trash-talking Britain.
Only green on the CNBC board is now Russia
Is it the end of the west?
Blood in the streets is always a buy signal
Sterling is now absurdly undervalued, as it was last it traded at this price
(This is what crypto gets right. Bitcoin investors would of course be now rallying everyone to HODL and buy the dip.)
You buy bitcoin if you want. I even prefer the Bank of England.
Yeah yeah. I meant the spirit of bitcoin. Not to actually buy bitcoin.
Rolls Royce, Ocado, and L&G leading the losers….
hearing generally that there is some stress in the LDI market
Know anything about that Neil?
It’s not an area I know well.
The question is what and where is L&G’s liability?
Yeah, another shout-out for the kindness of strangers then.
One thing I’ve heard, but I’m only the messenger
Turns out they matched their liabilities by buying BBB US corporate debt!
If anyone knows anything about that do say. This forum is all about leveraging the wisdom of smart minds.
Are L&G seriously matching liabilities with BBB US debt?
No idea, but I might go and take a closer look at the financials later today. And school up.
Sounds like it could be a big deal
Meanwhile in the corporate debt world…
That’s the itraxx crossover chart, courtesy of some dude on twitter.
Some speculation that marks are not being handled properly
but I think it might still be a question of moral hazard.
@robert that is the assertion. But it’s single sourced.
The rabble is getting exercised about the Bank’s losses on its gilt holdings
and Robert says there is an explicit govt guarantee for the Bank. I think he’s right
The then Gov insisted on it at the start of QE
However, since we are the shareholder in the Bank, guess who pays in the end?
But nobody wants to know about corporate news today. ?
What I want to ask the rabble is how many of you have had friends and family approach you in the last few days about mortgage advice?
Because we have had to open a mortgage clinic.
Are you not getting the same thing?
As I wrote in today’s Blind Spot Wrap:
The mood feels very similar to the weeks just before Covid lockdown. You will remember, we all knew something big was coming. But we were panicking because we couldn’t yet imagine how we could fund or maintain self-isolation. And then… out of the blue, Rishi Sunak introduced a whole new concept and word to us: furlough.
You’re not suggesting another government bailout, are you?
It’s worse I think
There will have to be some sort of mass mortgage holiday instituted. One need only look to Ukraine and Poland for clues about what’s coming.
The evidence from Poland is particularly indicative
That would make this week’s move in the gilts market look like stability
Poland (technically not at war) has already introduced a broad-brush credit holiday for mortgage borrowers underpinned by a law that that will force banks to suspend mortgages or be fined. New mortgages have since collapsed. Ukraine, meanwhile, suspended mortgages when martial law was announced in February. The debt freeze funding that suspension was only finalised with international creditors on September 14.
Has Poland just had a giveaway Budget?
Not sure actually. But I know the mortgage market is completely frozen.
lots of people taking up the offer, and their inflation is worse than ours.
The EU can afford to carry Poland, to keep the goodwill over Ukraine.
Doesn’t stop Radek Sikorski from being happy about this…
What if someone tosses a match into the whirlpool?
Nice one, Carlo
Some BREAKING NEWS
They’re restarting QE it looks like.
The Bank of England has been forced to step into bond markets amid market turmoil that has sent government borrowing costs soaring.
The central bank has delayed plans to sell bonds and will start buying them instead to stabilise what it described as “dysfunctional markets”.
It said: “Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability.”
The Bank didn’t give a figure on the size of the purchases but said they will be carried out on “whatever scale is necessary”.
Please don’t call it panic stations
Also, just before we started.
Sky: Kwarteng to Ask Financiers Not to Bet Against Pound
“It’s so unfair to pick on us because we’ve screwed up”
What the BoE takes away with one hand, it gives back with the other.
But I’m going to be a contrarian on this. I don’t think it’s the end of Britain. I think Britain is just the first domino to fall, and the IMF is being a bit overreactive … because it too might find itself out of a job soon.
Because I’m sticking to the line this is a slow adjustment to a war economy. And that means it’s private-public partnerships from now on. On all fronts. And appeals to public sentiment will actually be quite normal – in line with the Clap for the NHS mentality.
That may be true, but has the public noticed they are all poorer than they thought they were?
No, not yet
As far as I can see, we haven’t moved beyond “the government will step in and pay”
Yes, but that’s kind of how the adjustment to a war economy goes.
If I’m right, what the IMF is saying about Britain DOESN’T matter.
The IMF hails from a post-war consensus on monetary systems.
But if we are in a transition to more of a West vs East + Neutrals system, then the economic crash is not the economic crash you think it is.
Markets are going to move into a permanent public+private partnership.
What do you mean?
I mean that we are going into a general suspension of laissez-faire peacetime economics. And it’s because we are basically at war with Russia, it’s just that nobody has cared to mention it to the British people. (Or the Europeans)
I know what I’m saying sounds nuts but, clearly, somebody thinks I offer some valuable commentary:
It’s for a panel with Adam Tooze FYI, who I might have had a bit of a confrontation with on Twitter not long ago about net zero policy. Though, I have to admit, his books are truly excellent (FYI, that’s how you do an olive branch Vlad).
Sadly can’t go as already committed to something in Amsterdam.
But I will also exclusively share with this chat here that ████████████████████ around June.
So it could have been me being the face of UK decline.
Sounds like a lucky escape to me
Remember going into the last crisis the IMF was almost out of business itself.
This time it’s an entirely different situation.
Which is why we need to view the Nordstream sabotage from this point of view:
After sanctions, came sabotage
And speaking of appeals to the nation:
Carlo: if that’s right, they are even more out of touch than we thought
As we were saying, they should buy in the linkers and turn a book profit. Unfortunately, there’s nobody on the MPC with any real grasp of markets. It’s stuffed with academic economists
The pound is going a bit nuts tho
Doesn’t know quite what to do
We are all cryptocurrency now.
This is not specifically finance news, but it’s a worthwhile snippet nonetheless…
The annual meeting of the UN agency for nuclear stuff opened on Tuesday in Vienna.
Take a gander at the exhibitors
News reaches us that the Ukrainian and Russian stands are about 20m apart.
Have the Russian invaded the Ukrainian stand yet?
Everyone is staying 3 meters away from the Russian stand, except the usual suspects (Chinese delegation, Iranian…)
I just love the idea there’s a small nuclear simulation going on at the UN through exhibit stand wars.
Just wait until they start throwing paper airplanes at each other.
The Russians will have many more planes, but they will all miss
Izabella Kaminska 12:38
Neil – anything else on your mind?
You’ve looked in detail into the 1992 Black Wednesday crisis in your last podcast
any insights you didn’t appreciate at the time?
(ie what did it take you 30 years to learn)
We did. I think the thing that struck me most from our contributors to the podcast was the admission that the civil servants couldn’t prepare any contingency plan
Because if something was in the manifesto (eg stick with the ERM) then that would happen. The smarter people had to prepare a samizdat paper, risking being fired if the politicians discovered it
I doubt whether much has changed since then.
It would certainly explain why policies seem to have had so little thought put into them before launch
That’s amazing Neil.
So what you are saying is that there is a civil servant deep state.
that has to prepare for when the official teams fail
…while pretending they are not.
So. We have 15 mins still to go. Rabble feel free to direct us. Otherwise, I will just point out that Burberry is the top gainer on the FTSE
They’ve appointed an English fashion designer as chief creative officer, which I guess means they get paid in sterling ?. Which must be good for the stock.
I also liked this snap from the Kremlin
Claims Russia Sabotaged Nord Stream Are ‘Stupid’. Nord Stream Situation Requires Dialog, Cooperation.
Neil, people are asking about gold? What’s your take on that? If we’re in a john law economy, that should be a good trade?
Ah yes, the ancient relic
$1,627 per troy ounce,
I found that predicting the gold price is rather harder than the 3.30 at Newmarket. In theory, inflation should be good, as people lose faith in paper currency. In practice, there seems little correlation over time.
(I’m actually on an LBMA panel thing in October I think, so I will bring more gold insight from that)
Instead, we could talk about house prices
Could the great British public really stand a bear market?
based on my mortgage clinic, the answer is definitely no.
Bruce; quite right
And no, it’s not like in the 70s.
because the nominal sums are so much bigger, so the percentages are generating much larger nominal increases, and average wages – despite all the talk about negative real yields – are not generating the same scale of returns.
5% of a large number is much much bigger than 5% of a small number in nominal terms.
That only works if you don’t run out of money while waiting for inflation to destroy the capital liability
@bruce I really think some sort of mortgage holiday is going to have be executed.
And of course, if the govt does that, then what the BoE dishes out in higher interest rates to curb inflation, is offset immediately by the government’s move to stop people from going bankrupt.
So it’s a wash
And inflation won’t get any better
This government is capable of almost anything – the markets are the only restraint
Peter: absolutely right
Before we wrap up, have you heard of Tellurian?
It sounds like a lighter version of kryptonite
Not far off. It’s a gas company. It was supposed to be the next great LNG savior for Europe.
They were supposed to be developing a big new field on the Louisana Coast called the Driftwood project.
But nothing has come of it. They’ve lost financing and Shell and Vitol have suddenly pulled out.
It’s mysterious because on paper it should be a no-brainer.
The LNG arbitrage window to Europe is clearly open, and if now isn’t a time to invest in US LNG it’s hard to know when is.
But the group is not having a good time
It was founded in 2016 by Charif Soukif formerly of Cheniere Energy.
He’s the man who first spotted and executed on the opportunity of the US turning from net gas importer to net exporter.
But Carl Icahn ousted him in a boardroom coup before the group even delivered its first cargo.
Anyway, might be one to watch.
On that cheery note (because Neil seems to be inundated with amazon packages) …
Is it wood? or is it cans of baked beans?
Great for the apocalypse
Sold by my wife as Collins & Green
Ah, very nice plug.
Thank you all for joining me. Remember we are only as good as our sources so do be sure to keep us posted on anything you want to talk about. Especially if it requires prior research or calls.
Don’t forget to listen to A Long Time In Finance, a new edition every Friday
And I can pass stuff on to Neil as well.
We will be back on Monday with Anjuli. Hopefully, the gilt market will still be standing.
It’s goodbye from me!
and goodbye from him
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