Submitted by Michael Every of Rabobank
Great Bu’s Up
Blackadder II is one of the best ever British TV comedies: forget Mr Bean and watch Rowan Atkinson as Edmund Blackadder try to connive his way through the dangerous medieval court of Queen Elizabeth I. Episode 5 (Beer) is of particular relevance today. In it, Blackadder entertains his elderly aunt and uncle, both puritans, in the hope of charming a huge inheritance from them. Yet due to a scheduling mix-up, just down the corridor courtiers have come for an evening of debauched drinking with the alcohol-intolerant Blackadder, and the first to pass out has to pay a fine of 10,000 florins – which Edmund doesn’t have. Our anti-hero sits at the dining table to entertain his tedious relatives…
Edmund: So, how are we all going, then?
Aunt: Not well. Let us discuss your inheritance.
Edmund: Ah, yes, good. Erm, a little drink, first?
Aunt: [stands] Drink?! [slaps him twice] Wicked child!!! Drink is urine for the last leper in Hell!
Edmund: Oh, no, no–this is only water. This is a house of simple purity.
[Drunk monk enters in convulsions. He rushes to the fireplace and vomits, then turns and begins to leave.]
Monk: Great booze-up, Edmund!
[very awkward, long pause]
Aunt: Do you know that man?
Edmund: [looks behind himself as though he didn’t really see] No…
Aunt: He called you `Edmund’…
Edmund: Oh, *know* *him*…oh, yes, I do.
Aunt: Then can you explain what he meant by `great booze-up’?
Edmund: [thinks … thinks … thinks … thinks … thinks … thinks … thinks] Yes, I can… My friend…is…a missionary… and… on his last visit abroad… brought back with him…the chief of a famous tribe… *His* name is Great Bu… He’s been suffering from sleeping sickness…and he has obviously just woken…because, as you heard, “Great Bu’s up”.
What, is the relevance of all this? Yesterday we heard the ECB’s Draghi explain why six months after ending QE and talking of rates going up, he is now open to rate cuts and more QE, and never mind rules that say he can’t buy more bonds. The reason for the complete U-turn? “Great Bu’s up”, basically. Yes, there was technobabble about forward guidance being enhanced by “adjust[ing] its bias and its conditionality to account for variations in the adjustment path of inflation,” which was enough to make anyone suffer from sleeping sickness. But basically, inflation is as down as ‘Bu’ is up, and so are bond yields, to below zero in fact, in new European countries at longer maturities than ever been experienced before. Mr. Draghi – you win a negative-yielding inheritance from those elderly relatives….and an attack from President Trump for allowing too much policy stimulus! This is a “Great Bu’s-t up” that drags us into even weirder places.
Of course, the ECB follow the RBA, who are not even funny because we can see the punchline coming. Their “Great Bu’s up” for another rate cut promised “sooner rather than later” is that unemployment now conveniently needs to be below 4.5%…just as the housing market slumps.
Today we are all going to hear the Fed tell their own “Great Bu’s up” to explain why they are about to cut rates when unemployment is so low; job gains are still reasonable for this stage in the cycle; key data is far from dire on the surface; and equities are close to all-time highs. Yes, they can point to the bond market. However, what “Great Bu” can the Fed offer to explain why for the past 18 months it is *them* who have been suffering from sleeping sickness? And how do they explain it was President Trump–who “twists and turns like a twisty-turny thing” to quote Edmund’s drinking opponent Lord Melchett–who was right about rates when all their models and experts were wrong? Surely it’s all coincidence that yesterday we got a news report that the White House had considered “demoting” Fed Chair Powell in February(?) In short, expect lots of po-faced technobabble, and po-faced copy-and-paste analysts will write up how reasonable it all sounds. Yet the long and the short of it is that this is, like Blackadder II, a classic farce.
It’s even more farcical when one considers Trump is twisty-turny enough that now he will be having an extended meeting Xi at the G20 after a phone call with him. Perhaps Xi, who as we are endlessly told “wants a trade deal”, is visiting North Korea’s Kim tomorrow: will he be putting in a good word on the nuclear front for Trump as a quid pro quo or co-ordinating positions vs. the US? We shall see. (NB, We still deeply remain sceptical of any real trade breakthroughs.)
Trump also managed to twist and turn enough yesterday that recent Iranian attacks on oil tankers aren’t important enough for a US counter-attack on Tehran, only holding nukes is according to Trump – you know, the things that Kim already has. So no bombing in the Middle East today at least, thankfully; but a further sign that Trump, often called dangerous by his critics, is actually more war averse than many past US presidents. (Which will no doubt be noted for future reference by those choking on US sanctions and tariffs, as we mentioned earlier this week).
In short, it’s mainly reasons for optimism in terms of key news–trade, Iran, and even the moderate Rory Stewart is the most likely challenger to Boris Johnson after the second round of the Tory leadership contest!–but nonetheless the backdrop right now is of an underlying central-bank promise of lower, and negative, rates for ever…and a race to who gets there fastest.
Perhaps central banks hope that if they promise markets enough liquidity we won’t ask probing questions about if they really know what they are doing or not or, as Blackadder does when sozzled, to point an accusatory finger saying “*I* know who you are! You are Merlin the Happy Pig!!!” Instead, they hope we will all get completely sloshed, as at the end of “Beer”, and end up in a pile singing “See the little goblin, see his little feet / And his little nosy-wose — isn’t the goblin sweet?”
The equity markets already are!
via ZeroHedge News http://bit.ly/2XipM8x Tyler Durden