Thursday, November 13, 2008

I'm Sorry, I Haven't a Clue

There is a long and glorious history of transatlantic cross-fertilization when it comes to television programs and other forms of entertainment. Staples of the US television landscape such as Sanford and Son (Steptoe and Son), American Idol (Pop Idol), and The Office (The Office) all started life on the British airwaves.

It appears as if US policymakers have seized on the idea, re-incarnating the popular UK radio show I'm Sorry, I Haven't a Clue.

How else are we to interpret Hank Paulson's admission that the TARP will not be used to purchase dodgy mortgage assets, the rationale for its passage way back in....last month?

Macro Man couldn't see any way to interpret this other than as an admission that they're making this up as they go along- not exactly a reassuring methodology for policymaking.

Meanwhile, it looks like we're about to embark on the unedifying spectacle of a land-grab for the remainder of the TARP cash. OK, the Treasury will spend some of the money on asset-backed turds (as opposed to mortgage-backed turds)....but yesterday's post looks to be sadly accurate.

Strangely absent from the photo above is the president-elect and his new Treasury Secretary....the latter, of course, because he does not currently exist. Mr. Obama seems content to allow the current administration to bury itself until he takes office on January 20. Politically astute, of course, but not exactly an act of leadership. Obama will be conspicuous by his absence from the weekend G20 meeting, which is ostensibly set to discuss a coordinated response to the crisis and the framework for a new global financial architecture. Again, politically expedient.....but it sort of renders any near-term attempts at a policy prescription irrelevant.

Macro Man's moles in the media industry suggest that the BBC is in negotiations to license I'm Sorry... elsewhere in Europe as well. In Germany, for example...where the ECB is located. This morning it was confirmed that Germany has entered the popular definition of a recession, as Q3 GDP growth came in at -0.5% q/q, considerably worse than expected.

The ECB, of course, hiked rates at the start of Q3, despite a severe downturn in leading indicators, evidence of significant financial distress, and a complete absence of domestically-generated inflation pressures in Europe. (Those commenters who spring to Trichet's defense and/or claim that interest rates are irrelevant should consider their views as already noted for the record.)

The BBC may also wish to create a celebrity version of I'm Sorry..., featuring the Bank of England. This is a trifle unfair, given that the BOE has (belatedly) realized that the circumstances have changed, and radically adjusted their policy orientation as a result.

Where they can come in for some criticism, however, is their failure to anticipate the requirement for substantially easier policy earlier. Mervyn King was pretty eloquent in the Bank's defense yesterday, basically saying that "no one could have forecast this."

But this ignores the fact that a member of the MPC itself, David Blanchflower, did indeed forecast it. Mr. Blanchflower has been arguing for a number of months that the situation was dire, underlying inflation pressures were likely to recede, and that the Bank was grossly underestimating the likely pace of the slowdown. He voted for rate cuts in every single meeting this year. But one MPC member (the future star of the show), Tim Besley, voted for rate hikes as recently as August.

Is it any wonder that sterling has been pummeled, taking the pound to (gasp!) the cheap side of fair value against both the euro and the dollar, according to Macro Man's metrics? Yesterday saw the single largest rise in EUR/GBP since the advent of the single currency (helped on by Merv the Swerve's "blue horseshoe hates sterling" comment) , which necessitates dusting off the old GBP/DEM charts to get a flavour for how far things can go.
Technically, there isn't really anything between current levels and the old lows in GBP/DEM, equivalent to roughly 0.9000 in EUR/GBP. This winter's ski trip is shaping up as being eye-wateringly expensive.

Will sterling trade all the way to 0.90 against the euro, thus rendering the pound bum-clenchingly cheap? Having whiffed on sterling this year (short when it went nowhere, flat when it collapsed), Macro Man can only say "I'm sorry, I haven't a clue."

13 comments:

t said...

"This winter's ski trip is shaping up as being eye-wateringly expensive."

Next week I'm going to Reykjavik instead.

Anonymous said...

Hank has on place for that money and that is for the benefit of his buddies and to make sure the check book is overdrawn by the time "O" gets in office and all that is left is deposit slips left to write the checks on.

Don Alphonso said...

Sitting beneath the first 3000-ft mountain of the alps, everything turned beautiful white outside in the last five hours. However, I think that heliskiing in the russian mountains might be quite inexpensive even for those poor guys across the channel. And I really enjoy finding new sterling teapots for my collection of british silver at silver plated prices. Or maybe those neat little british roadsters all those triple garage seven bedroom victims of the crunch can´t afford anymore. Der Bentley ist nicht verloren, es hat ihn nur jemand anderes, as we used to say in Germany.

Richy Rich said...

I think that comment on the ski trip hit a nerve with us all. I've bypassed the usual bells and whistles family trip this year and instead I am gunning for a "last minute take what we get" cheapy. Chaletsdirect.com have a solutions board where you post what you are after and wait for the owners to come to you. And funnily enough, this week has I have suddenly had a rash of emails re availability over xmas and New year due to "sudden cancellations" .. I don't think the three valleys are going to ring of the trill of "Fulham English" this year, are they Daaaahling .. or even russian ..

Do Lidl or Aldi do ski holidays? Or is that Andorra?

Richy Rich said...

Oh , and "I'm sorry, I havent a clue" is the best kept secret gem of British humour. I really don't know how they could ever americanise it.

RIP Humph .. +

Anonymous said...

times online says Hedge funds lost $100 bln in assets during October. One analyst in the story suggests six more months of redemption. Story says US fund managers to lose 15% of assets, while European manages will shed as much as 25%...
amazing that 30 year swap spread is -8.9 today...
some think next leg down in euro currency will coincide with next leg down in emerging market equities..
-deac

Anonymous said...

And the question is....

http://www.frbsf.org/publications/economics/letter/2006/el2006-28.html

mstr.blissett said...

MM, anyone wanting to surmise the tactics & motives of Mr.O might find it helpful to read this from poker author James McManus:

http://tinyurl.com/69q3nn

remember he's said many times pre- and post-election: "There's only one president at a time."

possible translation: i'm waiting for a stronger hand?

maybe he's sending madame albright in to play a bluff?

maybe he's waiting until after the 11:00 news is over when benny hill comes on?

http://tinyurl.com/6oypvs

meanwhile, we can all watch bloomberg play a little friar tuck on the FED over on channel 9.

when there's many channels on simultaneously, no need to be on just the most obvious one.

...just another possibility to consider...

patrick said...

Ok, so now my pro Canada comment. Spend those EUR/GBP/CHF in the interior of British Columbia. Thats my ski vacation destination of choice (from Vancouver, can spend my rapidly depreciating CAD$ domestically) . Of course its only 65$ for gas to drive there but maybe not as little for you poor sods having to pay airfare... but still, 250$ for a ski in ski out and 70$ for a lift ticket. Is CAD$ cheap then ?

Anonymous said...

naive question: if the Congress somehow stops the banks (american one) from paying bonuses this year, shouldn't their shares go up? if so, shouldn't the bankers buy their own companies' stock to hedge?

spagetti said...

re Trichet ... would have made my year so much better, if he hadnt turned the Schatz into a 'widowmaker' around mid-year

but c'est la vie ..

Robert Nabloid said...

The "policy makers" are the problem. Of course they make it up as they go! People now cry to the government when they lose their job! So they want the government to do something, so the government does something - not that it works or makes any economic sense...

Perhaps debt and interest rates shouldn't be core objective - An economy financed on debt will ultimately fail. It is unsustainable. So anything to do with interest rates is just a futile effort to get people to take on extra debt to mask the true problem with the economy, competitiveness.

Fredrik said...

paulson is definately making it up as he goes, he even said to the press that during the two weeks whilst they were trying to pass TARP thorugh congress he was starting to have doubts because the markets were moving against him, surely that would mean he already knew before it was passed that it wasnt right?? the basic problem is the complete inability to take a more medium term view on policy change, during the time when TARP was going through congress the voting politicians took a stance on how to vote based on the daily swings of the equity market!! there really is no plan behind this, its all reactive, for those who have had the misfortune of dealing with a goldman sachs market maker will see the exact parallells....