What caught my eye this week.
I admit that marking the work of the Bank of England is probably above my pay grade.
However listening to this week’s episode of A Long Time In Finance didn’t exactly have me reaching for gold stars for the Old Lady.
The title – The Great QE Rip-Off – sets the tone for where the podcast is coming from, as does the show’s blurb:
Christopher Mahon of Columbia Threadneedle talks to Jonathan and Neil about how the Bank of England bought government stocks and sold them back at a loss.
One example: paying £101 (QE) and later selling it for £28 (QT).
The cost of this insane behaviour to the taxpayer? Probably over £115 billion.
It’s an interesting listen for sure. However I’d suggest the podcast makes things harder to follow than they need be.
That’s because it’s only at the end of the episode that Mr. Mahon explains how the Bank’s chosen course of action is directly costing the taxpayer.
Mahon’s contention is that by dumping long duration gilts into a pretty illiquid market that doesn’t hugely want them, the Bank is putting upwards pressure on yields.
This is increasing government (/taxpayer) borrowing costs – and at a time when we can ill-afford the extra burden.
Cue poor returns
Such market timing and yield curve distortion issues aside, it seems to me the BoE bought its expected returns when it made its gilt purchases, just like any of us do when we buy a portfolio of bonds.
And those returns were never going to be pretty, given it was buying near-zero yield bonds in 2020, for instance.
However QE1 was done for a reason.
You remember? It was to ward off a depression during the financial crisis years, and to support an economy that was all but switched off at times with Covid.
Hence any proper accounting of ‘the cost to the taxpayer’ from the BoE’s profit and loss agnostic bond trading strategy should take into account what would have happened if the Bank had bought different bonds or assets. Or even if it had done nothing at all.
Who knows? £115bn might be a snip compared to the cost of going into a depression.
Perhaps with all the unknowns, working out the true cost and benefit of QE and QT2 is beyond everyone’s pay grade.
At least if the bond rout of 2022 left you feeling bruised and befuddled then you might be comforted to hear the Bank of England doesn’t seem to have gotten through the regime change any better!
Related reading:
- Is the long gilt sell-off an opportunity? – Interactive Investor [Affiliate link]
- Europe can escape a bond doom loop. The US, not so much – Reuters
Have a great weekend!
From Monevator
Decumulation: year two for the No Cat Food portfolio – Monevator [Members]
FIRE-side chat: Accelerating to escape velocity – Monevator
From the archive-ator: You need a plan, not predictions or platitudes – Monevator
News
Contactless payments could become unlimited under new plans – BBC
Shopper confidence falls as Brits expect food inflation to climb – City AM
Car finance compensation should be paid next year, says FCA – BBC
House prices could fall as Budget fears spook buyers – This Is Money
Ministers must do more on Lifetime ISA reform, say MPs – BBC
It’s a tough time to be job hunting in America… – Washington Post via MSN
…while in the UK, ‘job hugging’ is a thing – Yahoo Finance
Farmers feel abandoned as thousands of contracts cut – BBC
Is Britain a good place to retire? – This Is Money
How Boris Johnson’s Brexit opened the door to the biggest wave of migrants in history – Telegraph [Or Sky with no paywall]
Products and services
Three in four savings accounts pay less than the base rate of 4%… – This Is Money
…though Nationwide’s regular savings account pays an attractive 6.5%… – via Yahoo Finance
…so should you fix your savings for five more years? – Which
Get up to £200 cashback when you open or switch to an Interactive Investor SIPP. Terms and fees apply, affiliate link. – Interactive Investor
Co-operative Bank switch offer: £100 + £75 – Be Clever With Your Cash
Vanguard 2.0 – Morningstar
How to avoid overpaying on your car insurance – Which
Supermarket Christmas savings scheme hack – Be Clever With Your Cash
Get up to £100 as a welcome bonus when you open a new account with InvestEngine via our link. (Minimum deposit of £100, T&Cs apply, affiliate link. Capital at risk) – InvestEngine
Why trading apps are going social – Blockworks
Tudor homes for sale in villages, in pictures – Guardian
Comment and opinion
Charles Ellis’ very short guide to very long-term investing – CFA Institute
Inventing problems – Humble Dollar
Just how bad would an ‘AI bubble’ be? – The Atlantic
Yes, a stock market crash is coming – Our Tour
Should you make tax-free pension withdrawals before the Budget? – Which
The ‘vinyl rule’ of retirement: plan for two sides in your next act – Kiplinger
Why don’t even the well-off feel rich? – This Is Money
Active versus passive is a false dichotomy – Alpha Architect
The goldilocks financial plan – The Purpose Code
Capital gains tax Hokey Cokey – Simple Living in Somerset
FIRE may make multi-generational wealth impossible – Financial Samurai
Keeping up with the Joneses mini-special
The bar only gets higher – Of Dollars and Data
All the things you need a billion dollars to buy are bad – How Things Work
How to avoid First World problems – A Teachable Moment
Naughty corner: Active antics
The hypocrisy of avoiding defence investments – Institutional Investor
Extreme concentration in the S&P 500 [Charts, PDF] – Axios
Bloomberg deep dive on crazy high-yielders – Random Roger
Where to? The story of Uber – Quartr
Equity duration and predictability [Research] – Alpha Architect
Kindle book bargains
Flash Boys by Michael Lewis – £0.99 on Kindle
Alchemy by Rory Sutherland – £0.99 on Kindle
The Green Budget Guide by Nancy Birtwhistle – £0.99 on Kindle
Techno Feudalism by Yanis Varoufakis – £0.99 on Kindle
Or grab one of our all-time favourites – Monevator shop
Environmental factors
Back to petroleum: BP’s backpedaling – The Observer
How France built 40 nuclear reactors in a decade – Works in Progress
The plastic recycling changes coming to England in 2027 – Yahoo News
New Zealand looks to kill to conserve – NPR
UK battery firms aim to unlock the path to net zero – Guardian
Corals growing on North Sea oil rig re-homed to artificial reef – BBC
Oysters on a mission to save the North Sea – Fakenham & Wells Times
Protect Arctic from ‘dangerous’ climate engineering, warn scientists – BBC
Robot overlord roundup
Techno-pipe dreams – Aeon
Geoffrey Hinton: AI will make a few rich but most poorer… [Paywall] – FT
…but anyway, AI won’t make you rich – Colossus
Your brain on ChatGPT – Klement on Investing
Evidence from Brazil on the impact of AI in the workplace – CEPR
AI and the breaking of Silicon Valley’s social contract [Podcast] – Odd Lots via Apple
Not at the dinner table
Killing of Trump ally lays bare America’s bloody and broken politics – BBC
The era of a step-on-a-rake capitalism – The Atlantic [h/t Abnormal Returns]
Wealth taxes are making Norway poorer – Unherd
America is getting the economy it voted for – Noahpinion
Ken Griffin: Trump’s risky game with the Fed – Wall Street Journal
New UK Green leader talks to Nigel Farage’s constituents – Guardian
America’s Perón – The Atlantic [h/t Abnormal Returns]
Israel’s war in Gaza and proportionality – BBC
Historical perspectives mini-special
The lost art of thinking historically… – Noema
…or maybe it’s all quite simple (and dark) – Ryan Holiday
Off our beat
Never bet against America – Unchartered Territories
Mike Lynch’s last night: a wildly improbable storm of coincidences – Wired
The school shooting industry in the US is worth billions – NPR
Sicker and stupider – Klement on Investing
On commitment – Adam Singer
Wild running: freedom, but also looking over your shoulder – Independent
Thank you, Melvyn Bragg – Defector
And finally…
“Our earth is degenerate in these latter days: bribery and corruption are common; children no longer obey their parents; every man wants to write a book, and the end of the world is evidently approaching.”
– Assyrian tablet, c. 2,800 BC., Devil Take The Hindmost
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