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 [1] 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 [2] 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 [3] is beyond everyone’s pay grade.
At least if the bond rout [4] 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 [5] any better!
Related reading:
- Is the long gilt sell-off an opportunity? – Interactive Investor [6] [Affiliate link]
- Europe can escape a bond doom loop. The US, not so much – Reuters [7]
Have a great weekend!
From Monevator
Decumulation: year two for the No Cat Food portfolio – Monevator [8] [Members [9]]
FIRE-side chat: Accelerating to escape velocity – Monevator [10]
From the archive-ator: You need a plan, not predictions or platitudes – Monevator [11]
News
Contactless payments could become unlimited under new plans – BBC [12]
Shopper confidence falls as Brits expect food inflation to climb – City AM [13]
Car finance compensation should be paid next year, says FCA – BBC [14]
House prices could fall as Budget fears [15] spook buyers – This Is Money [16]
Ministers must do more on Lifetime ISA reform, say MPs – BBC [17]
It’s a tough time to be job hunting in America… – Washington Post via MSN [18]
…while in the UK, ‘job hugging’ is a thing – Yahoo Finance [19]
Farmers feel abandoned as thousands of contracts cut – BBC [20]
Is Britain a good place to retire? – This Is Money [21]
[22]
How Boris Johnson’s Brexit opened the door to the biggest wave of migrants in history – Telegraph [23] [Or Sky [24] with no paywall]
Products and services
Three in four savings accounts pay less than the base rate of 4%… – This Is Money [25]
…though Nationwide’s regular savings account pays an attractive 6.5%… – via Yahoo Finance [26]
…so should you fix your savings for five more years? – Which [27]
Get up to £200 cashback when you open or switch to an Interactive Investor [28] SIPP. Terms and fees apply, affiliate link. – Interactive Investor [28]
Co-operative Bank switch offer: £100 + £75 – Be Clever With Your Cash [29]
Vanguard 2.0 – Morningstar [30]
How to avoid overpaying on your car insurance – Which [31]
Supermarket Christmas savings scheme hack – Be Clever With Your Cash [32]
Get up to £100 as a welcome bonus when you open a new account with InvestEngine via our link [33]. (Minimum deposit of £100, T&Cs apply, affiliate link. Capital at risk) – InvestEngine [33]
Why trading apps are going social – Blockworks [34]
Tudor homes for sale in villages, in pictures – Guardian [35]
Comment and opinion
Charles Ellis’ very short guide to very long-term investing – CFA Institute [36]
Inventing problems – Humble Dollar [37]
Just how bad would an ‘AI bubble’ be? – The Atlantic [38]
Yes, a stock market crash is coming – Our Tour [39]
Should you make tax-free pension withdrawals before the Budget? – Which [40]
The ‘vinyl rule’ of retirement: plan for two sides in your next act – Kiplinger [41]
Why don’t even the well-off feel rich? – This Is Money [42]
Active versus passive is a false dichotomy – Alpha Architect [43]
The goldilocks financial plan – The Purpose Code [44]
Capital gains tax Hokey Cokey – Simple Living in Somerset [45]
FIRE may make multi-generational wealth impossible – Financial Samurai [46]
Keeping up with the Joneses mini-special
The bar only gets higher – Of Dollars and Data [47]
All the things you need a billion dollars to buy are bad – How Things Work [48]
How to avoid First World problems – A Teachable Moment [49]
Naughty corner: Active antics
The hypocrisy of avoiding defence investments – Institutional Investor [50]
Extreme concentration in the S&P 500 [Charts, PDF] – Axios [51]
Bloomberg deep dive on crazy high-yielders – Random Roger [52]
Where to? The story of Uber – Quartr [53]
Equity duration and predictability [Research] – Alpha Architect [54]
Kindle book bargains
Flash Boys by Michael Lewis – £0.99 on Kindle [55]
Alchemy by Rory Sutherland – £0.99 on Kindle [56]
The Green Budget Guide by Nancy Birtwhistle – £0.99 on Kindle [57]
Techno Feudalism by Yanis Varoufakis – £0.99 on Kindle [58]
Or grab one of our all-time favourites – Monevator shop [59]
Environmental factors
Back to petroleum: BP’s backpedaling – The Observer [60]
How France built 40 nuclear reactors in a decade – Works in Progress [61]
The plastic recycling changes coming to England in 2027 – Yahoo News [62]
New Zealand looks to kill to conserve – NPR [63]
UK battery firms aim to unlock the path to net zero – Guardian [64]
Corals growing on North Sea oil rig re-homed to artificial reef – BBC [65]
Oysters on a mission to save the North Sea – Fakenham & Wells Times [66]
Protect Arctic from ‘dangerous’ climate engineering, warn scientists – BBC [67]
Robot overlord roundup
Techno-pipe dreams – Aeon [68]
Geoffrey Hinton: AI will make a few rich but most poorer… [Paywall] – FT [69]
…but anyway, AI won’t make you rich – Colossus [70]
Your brain on ChatGPT – Klement on Investing [71]
Evidence from Brazil on the impact of AI in the workplace – CEPR [72]
AI and the breaking of Silicon Valley’s social contract [Podcast] – Odd Lots via Apple [73]
Not at the dinner table
Killing of Trump ally lays bare America’s bloody and broken politics – BBC [74]
The era of a step-on-a-rake capitalism – The Atlantic [75] [h/t Abnormal Returns [76]]
Wealth taxes are making Norway poorer – Unherd [77]
America is getting the economy it voted for – Noahpinion [78]
Ken Griffin: Trump’s risky game with the Fed – Wall Street Journal [79]
New UK Green leader talks to Nigel Farage’s constituents – Guardian [80]
America’s Perón – The Atlantic [81] [h/t Abnormal Returns]
Israel’s war in Gaza and proportionality – BBC [82]
Historical perspectives mini-special
The lost art of thinking historically… – Noema [83]
…or maybe it’s all quite simple (and dark) – Ryan Holiday [84]
Off our beat
Never bet against America – Unchartered Territories [85]
Mike Lynch’s last night: a wildly improbable storm of coincidences – Wired [86]
The school shooting industry in the US is worth billions – NPR [87]
Sicker and stupider – Klement on Investing [88]
On commitment – Adam Singer [89]
Wild running: freedom, but also looking over your shoulder – Independent [90]
Thank you, Melvyn Bragg – Defector [91]
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 [92]
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