The Fed is still in conflict
The Fed is still in conflict
Welcome back. Today's letter consists of a draconian (but I think properly) proposal to monetary policy, followed by a slight Bitcoin skepticism. Dreasital bumps, I hope for a sunny autumn weekend. Email to me: robert.armstrong@ft.com
The Fed is still in conflict
It is good that high -ranking officials from the Federal Reserve no longer have individual securities or derivatives or are allowed to actively act their portfolios. The Fed said that on Thursday:
The new restrictions apply to the political decision -makers of the Reserve Bank as well as to the board members and managers and prohibit the purchase of individual shares, maintaining systems in individual bonds, holding systems in securities from agencies (direct or indirect) or completing derivates.
Political decision -makers and leaders must generally announce the purchase and sale of securities 45 days in advance, obtain prior approval for the purchase and sale of securities and keep systems for at least one year. In addition, no purchases or sales are permitted in times of increased financial market stress.
It is a good idea to not let people who know about the Fed's interest policy, since shares and bonds react sensitively to interest policies. It is strange that such rules have not yet existed.
The reason that things have changed is that the bosses of the Fed banks in Dallas and Boston acted very actively with individual shares last year. Eric Rosengren, the President of Boston, had significant investments in mortgage real estate investment trust. This is particularly bad, since the Fed buys exactly the mortgage-secured securities in the context of quantitative loosening in the mortgage-rifts. In general, mortgage-ribs are very sensitive to interest rates that affect the Fed. Worse, Rosengren likes to talk about the real estate market. Both he and Robert Kaplan from Dallas have resigned. All of this looks like hell.
But the new regulation is far from going far enough. Both the investors and the Fed themselves have to think more seriously that the top management positions of the Fed are mainly rich people who have many assets. This fact and what types of assets you have must influence your political decisions.
The possession of certain specific securities-such as mortgage-rises-can lead to particularly outrageous conflicts, but as every investor knows, it is the entire mix of assets that determine the politics that you would like to see.
In this context, four investment classes are important: cash, bonds, stocks and real estate (or other real assets). Liabilities, especially mortgage debts, can also play a role. The ensuring that two of these asset classes, stocks and bonds, about diversified indices are kept and not actively traded, does not change the fact that the composition of the civil servants' portfolios will change their way of thinking. Like most people, they will prefer to get richer than to become poorer.to express it: The Offenmarkt Committee of the US Federal Reserve is composed to discuss when the purchases should be reduced from assets or the interest increases. It is completely obvious that a committee member, whose assets mainly consists in cash, bonds and real estate, has different prejudices than one that invests mainly in shares (such as Jay Powell). Officials who overweight bonds and cash will fear inflation more than those who mainly invest in shares or real assets or have large houses and fixed -interest mortgages. The latter officials will inevitably rely on the mandate's employment side.
The public deserves exactly how high the wealth mix of the senior officials is in real time. In addition, the property mix of all FOMC members should be the same, and they should be chosen so that they are in the long term to the double mandate of the Fed of price stability and maximum employment. The officials of the officials should reflect our national priorities.
I am not sure which mix I would order if I had said that. But I am absolutely certain that we would get a very restrictive Fed if you invest the FOMC members 100 percent in fixed-interest nominal and everyone would force them to finance their houses with variable interest-bearing mortgages. I also think if each FOMC member was completely invested in the S&P 500, you would see a very cautious approach for interest rate increases, no matter what the inflation data looks like.
Now you could believe that the decision-making of the Fed officials-unlike, for example, with every single person I have ever known-is not very influenced by what is probably richer and what is probably poorer. But I don't think that's the case. And if not, and we all agree that the Fed policy is of great importance, the fact that we leave the portfolio composition of these people to their personal discretion is pretty crazy.
blind trusts would not help. The Fed officials will be able to appreciate pretty carefully what is in trust because most of the trusts look the same. It is heavily diversified 70/30 shares/bond portfolios with some minor tendencies. But do we want a 70/30 money policy? I don't know, but I think we should talk about it better. Transparency and predictability would be better served if everyone knew exactly where the interests of the monetary policy mandarins lie.
As the liquid funds of high-ranking Fed officials are created, a political decision should be not a personal one. The only alternative I see is to make monetary policy a regular, non -discretionary matter. Otherwise, we allow our national monetary policy to be largely made by the FOMC members' financial advisors, which seems to be a very bad idea.
Bitcoin, Gold and Inflation
from the FT on Thursday:
investors throw gold for cryptocurrencies while inflation attracts and flee from a metal that is historically advertised as a value -plot to buy digital assets that are hardly more than a decade old.
According to Bloomberg data, the largest stock market-traded gold fund was more than 10 billion.Bitcoin has now doubled to a record high of more than $ 67,000 this week. . .
Experienced gold dealers know that times are changing. "At the moment there is no interest in our strategy," said John Hathaway, Senior Portfolio Manager at Sprott Asset Management, a precious metal investment group. He added: "The Bitcoin crowd sees the same things that I see in terms of inflation risks when printing money."
. . . Paul Tudor Jones, the hedge fund manager, told CNBC on Wednesday that he preferred cryptocurrencies as inflation protection against gold.
I am sure that this article describes exactly how many investors are thinking. But both sides of the argument - that gold was once, but no longer a good inflation protection is and that Bitcoin is a good inflation protection - are wrong. This is worth it to be emphasized, because in the coming months we will probably still hear a lot of this type of gibber. Sun:
point 1. The gold price follows the VPI inflation, if at all, slowly and irregularly. Both rise over time, but the relationship is uneven. Gold is a real asset, and there is a fixed amount of it, and people have liked it for thousands of years, and so it has kept its value. However, it is probably not a reliable inflation protection on the time horizon of most investors.
point 2. What the gold price has been pursuing recently, the real courses are. h. The opportunities for the possession of a non -profitable, inedible shiny metal with limited industrial uses:
point 3 . Bitcoin has not shown an obvious relationship to inflation in his short lifespan (except that both rise), which could be expected from something that could be a currency at some point in the future, but currently a vehicles is mainly to speculate:
point 4. However, Bitcoin is a real asset, and there is a fixed amount of it, and people have liked it for a few years, and so it could keep its value after everything we know. However, there is no special reason to describe it as an inflation protection. If it correlates with anything, it is largely correlated with speculative appetite, as we see it with Meme shares like AMC. AMC will probably not be good inflation protection either:
a good reading
The NBA has a tricky business problem while trying to enlarge her audience in China. His owners and players have opinions and do not always keep their mouths. This story, I predict, will run and run.
Source: Financial Times