GILTy? Bank of England’s Big Pivot

Bank of England shifts from QT to QE

Sweden & Finland measured 2 explosions on Nord Stream Pipeline - Sabotage?

Would China actually, purposefully devalue?

GILTy? Bank of England’s Big Pivot

October 5, 2022

“We’re in a new stage of instability. You can see it in the frantic behavior of the markets. When I see the markets this week up as much as they were down last week, I don’t see a recovery. I see a frantic and desperate desire for normalcy. The volatility in both directions is so erratic as to be dangerous. When it becomes this volatile, remember that there’s only so much volatility that these risk metrics can handle before they blow up.” — David McAlvany

Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. 

Well, you’re a traveling family. Dave, most often, I talk about your travels and what you’ve learned, but last night, we were talking about Declan, your 16-year-old son and some of the observations he made while he was with your wife at a think tank in Austria. Would you share the thought?

David: Well, it’s fun to see them involved with this global think tank dealing with culture. My wife’s particular interest is in the arts and entertainment, and for my oldest son to see big picture conversations happen about public policy and the way that ideas filter through into communities, very, very healthy for him.

Kevin: These are influencers. What was the percentage of PhDs in this group that your son— He’s 16 years old, but he got to hang with—

David: I think 70, 75% were PhDs. So, that left our family contingent on the undereducated side, which is fine.

Kevin: But we were sitting over a Talisker last night when you brought up what Declan said.

David: Yeah, he said the macro thinkers tend to grab a beer or glass of wine and think expansively about the world, and the micro thinkers prefer a caffeinated beverage to focus the mind and bang out the details.

Kevin: That’s a keen observation. That’s true. I’m not much of a detail person when we have Talisker day.

David: No, it’s true, but we do have very expansive conversations.

Kevin: Yeah, can you believe? Okay, so we went about two years where we couldn’t meet at the restaurant that we’ve met at for years and years and years. It’s called Ken & Sue’s. It’s now called 636 Main. We’re back there, face-to-face meeting, with Talisker. Covid had shut things down for a little while.

David: Back in table 30.

Kevin: Table 30. Can you believe we’re already into the fourth quarter of 2022?

David: As much as investors would hope for an all clear from bear market dynamics, yeah, it’s hard to believe we’ve started the fourth quarter, but we had those bear market dynamics earlier in the year. What materialized through the very end of September was nothing short of ominous. The devil’s in the details they say, and there are more than a few details lurking in the realm of interest rates, interest rate derivatives, and portfolio leverage.

Kevin: Well, if we’re going to get detail oriented, in other words, caffeine rather than alcohol, we’ve got inflation still raging. Look at Germany.

David: That’ll focus your attention. Now, German CPI exceeded expectations in September coming in at over 10%, as did the broader European numbers, also north of 10%, double digit for both. Germany is now committed to 200 billion euros in government borrowing to defray the consumer costs of energy bills in the months ahead. Two hundred billion is a big number. That figure is far more significant from a fiscal standpoint if you’re comparing the 200 billion to the 2 to 3 billion in tax savings which had been proposed by the English Chancellor of the Exchequer last week. Again, it was a tax break for the rich, 40% tax rate instead of 45, and it would’ve saved them 2 to 3 billion in taxes.