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.

Photo: Getty
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The beggar used to be friendly – now he was ranting at everyone

What was I doing, dismissing him with maximal curtness – and not caring?

The first beggar was walking but still wretched. Probably in his early twenties, clearly ravaged by more than just alcohol, he made a beeline for me, as if he had an appointment. He was not to know that I was in a mood from hell, though the look on my face would have told him, if he’d been in any kind of state to register it.

“Excuse me, have you got 10p for…”

“No.” And I walked on.

Why? I am almost invariably a soft touch for this kind of thing. But as I said, I was in the foulest of tempers.

Also, this was East Finchley. For those who do not know London, East Finchley is a northern suburb, which at one end hosts the wealthiest street in the country – the Bishops Avenue, where multimillionaires tear down houses and erect new ones even uglier than those they have replaced – and at the other end a typically seedy, dull collection of terraced houses.

The main supermarket is Budgens, a name so ungainly that it could only have belonged to a real person, either too proud or unimaginative to think of something else.

But what, I asked myself, was someone this wretched doing in East Finchley? And what was I doing, dismissing him with maximal curtness – and not caring?

The second beggar, further up the street, I met the next day: much older and clearly mad, rather than chemically poisoned. He asked how I was doing.

“Not so well, as it happens,” I replied.

“Would you like me to say a prayer for you?”

“Why not?” I said, and he placed a clenched fist to my forehead and made a brief incantation, something like an exorcism, and then kissed the large white plastic crucifix hanging from his neck.

I half-expected to feel a jolt of faith, some kind of divine restructuring. This time I gave him money: a pound coin and a 50p coin. But then later I thought: why didn’t I give him more? I’d been doing some tidying earlier and had retrieved a heavy pocketful of change; I could have given him a generous handful.

The third beggar was in Shepherd’s Bush. I knew him from the days when I lived there: a skinny, middle-aged guy who would occasionally stop and rant in a friendly way at me, just sane enough not to ignore. That was ten years ago. Now he was raging at everyone, accusing the teenagers queueing in the kebab shop of being batty boys and saying “bloodclaat” a lot. (Batty boy: homosexual. Bloodclaat: tampon.)

The people he was addressing knew perfectly well what he was saying. They shrugged it off. I got on the bus; so did he, and the whole bus knew about it. There was nothing friendly in him now, and I wondered through which hole in the increasingly threadbare welfare safety net he had been allowed to slip.

That’s it, I thought. I’m getting out of London, its pampered core oblivious to the surrounding anguish. The world in a nutshell. Luckily, my great friend S— had asked if I could cat-sit for her in Brighton. I know her cat, and I know Brighton. Also, I know about a dozen people there who I keep meaning to see, so why not? London was making me ill, and possibly a bad person. So S— invited me down a couple of days before she was due to go on her holidays, and I took the first train I could.

And now I find myself sitting on a sunlounger in a tiny backyard, in a charming house just abutting the North Laine, and the mood is palpably different to the capital’s. It is like a city ought to be: compact, diverse and funky. There is no reek of High Capitalism. It is healthily decadent. It would appear to be full of people who have rejected the idea of London. It still has an enormous number of beggars, but more people were dropping money for them than I ever saw do so in W1, W12 or N2.

So this is what it’s like to fall out of love with the city of one’s birth. What most surprised me was the speed and force with which it happened. I’d made my mind up over a nice lunch that my friend N— was buying me, to cheer me up.

“Don’t you have to stay in London? You know, for book launches and things like that?”

“I don’t go to fucking book launches any more,” I said. I was taken aback by the vigour of my reply. I’m only here for ten days but I have plenty of people to see and dozens of memories, all good, to bump into. I’m already feeling better. 

Nicholas Lezard is a literary critic for the Guardian and also writes for the Independent. He writes the Down and Out in London column for the New Statesman.

This article first appeared in the 14 September 2017 issue of the New Statesman, The German problem