If you have stocks or bonds then you should be acutely interested in the FED right now

Time for an exit strategy?

Last Wednesday’s prepared testimony by Fed Chairman Ben Bernanke to the Joint Economic Committee of Congress seemed to start with an effort to silence recent chatter about the Fed’s so-called "exit strategy", i.e. the "tapering" off of its quantitative easing program.

"A premature tightening of monetary policy could lead interest rates to rise temporarily, but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further". Obviously. Pretty much an undeniable truism.

But then, in response to a question from the Committee, he stunned the markets with what seemed like a complete volte face, when he commented that the Fed could cut the pace of asset purchases,"in the next few meetings", sending 10 –Yr US Treasury yields through the 2 per cent barrier for the first time since they fell through the floor on 15th March on news of the first, ill-conceived version of the Cypriot bail-in.

Then, later that evening, the minutes of the most recent meeting of the Federal Reserve’s monetary policy committee, the FOMC, informed us that, "…. a number of participants favored tapering, (of Quantitative Easing), as early as June if incoming information suggested sufficiently strong and sustained growth at the time", although "views differed on the likelihood of that outcome".

It’s certainly the case then that the FOMC as a body has tilted towards removal of the "punch bowl’", as evidence that the "party" is hotting up becomes more widespread. Sure,  the big-guns, Bernanke, New York Fed President Dudley and Vice-Chairperson Yellen are inveterate doves, but there is a vociferous contingent of more-hawkish voters, (and non-voters), and when the Committee undergoes its annual rotation of regional Fed President voters next January, the balance will become distinctly more "hair-shirt"; if you assign a rating to each voter using a scale with 0 for dovish, to 5 for hawkish, and aggregate the changes, then I’d say it’s 10 "out"and 16 "in". Markets will begin to discount this soon.

This may all seem pretty arcane stuff and you may think that unless you’re a bond trader you needn’t really pay too much attention to such detail. ABSOLUTELY NOT; if you have investments of any sort in stocks, bonds, (of course), or commodities, then you should be acutely interested, as there is nothing which has contributed to rallies since March 2009 so much as the Federal Reserve’s largesse.

So what is the Fed up to? My view would be that they know QE has played a highly significant role in powering markets higher, they fear bubbles, they fear the reaction when they start to tighten, but they know it’s much like a visit to the dentist-the longer you put it off, the more painful the consequences.

Above all perhaps, they fear a repeat of 1994, when unexpected tightening caused a bond market rout.

So they’re trying to let us know as subtly as possible that they’re thinking about making a dentist’s appointment, and that means the rallies probably only have a month or two to run.

Photograph: Getty Images

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

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The strange death of boozy Britain: why are young people drinking less?

Ditching alcohol for work.

Whenever horrific tales of the drunken escapades of the youth are reported, one photo reliably gets wheeled out: "bench girl", a young woman lying passed out on a public bench above bottles of booze in Bristol. The image is in urgent need of updating: it is now a decade old. Britain has spent that time moving away from booze.

Individual alcohol consumption in Britain has declined sharply. In 2013, the average person over 15 consumed 9.4 litres of alcohol, 19 per cent less than 2004. As with drugs, the decline in use among the young is particularly notable: the proportion of young adults who are teetotal increased by 40 per cent between 2005 and 2013. But decreased drinking is not only apparent among the young fogeys: 80 per cent of adults are making some effort to drink less, according to a new study by consumer trends agency Future Foundation. No wonder that half of all nightclubs have closed in the last decade. Pubs are also closing down: there are 13 per cent fewer pubs in the UK than in 2002. 

People are too busy vying to get ahead at work to indulge in drinking. A combination of the recession, globalisation and technology has combined to make the work of work more competitive than ever: bad news for alcohol companies. “The cost-benefit analysis for people of going out and getting hammered starts to go out of favour,” says Will Seymour of Future Foundation.

Vincent Dignan is the founder of Magnific, a company that helps tech start-ups. He identifies ditching regular boozing as a turning point in his career. “I noticed a trend of other entrepreneurs drinking three, four or five times a week at different events, while their companies went nowhere,” he says. “I realised I couldn't be just another British guy getting pissed and being mildly hungover while trying to scale a website to a million visitors a month. I feel I have a very slight edge on everyone else. While they're sleeping in, I'm working.” Dignan now only drinks occasionally; he went three months without having a drop of alcohol earlier in the year.

But the decline in booze consumption isn’t only about people becoming more work-driven. There have never been more alternate ways to be entertained than resorting to the bottle. The rise of digital TV, BBC iPlayer and Netflix means most people means that most people have almost limitless choice about what to watch.

Some social lives have also partly migrated online. In many ways this is an unfortunate development, but one upshot has been to reduce alcohol intake. “You don’t need to drink to hang out online,” says Dr James Nicholls, the author of The Politics of Alcohol who now works for Alcohol Concern. 

The sheer cost of boozing also puts people off. Although minimum pricing on booze has not been introduced, a series of taxes have made alcohol more expensive, while a ban on below-cost selling was introduced last year. Across the 28 countries of the EU, only Ireland has higher alcohol and tobacco prices than the UK today; in 1998 prices in the UK were only the fourth most expensive in the EU.

Immigration has also contributed to weaning Britain off booze. The decrease in alcohol consumption “is linked partly to demographic trends: the fall is largest in areas with greater ethnic diversity,” Nicholls says. A third of adults in London, where 37 per cent of the population is foreign born, do not drink alcohol at all, easily the highest of any region in Britain.

The alcohol industry is nothing if not resilient. “By lobbying for lower duty rates, ramping up their marketing and developing new products the big producers are doing their best to make sure the last ten years turn out to be a blip rather than a long term change in culture,” Nicholls says.

But whatever alcohol companies do to fight back against the declining popularity of booze, deep changes in British culture have made booze less attractive. Forget the horrific tales of drunken escapades from Magaluf to the Bullingdon Club. The real story is of the strange death of boozy Britain. 

Tim Wigmore is a contributing writer to the New Statesman and the author of Second XI: Cricket In Its Outposts.