Carney the Clown | Avem Capital
Why does the Chairman of the Bank of England (BOE), Mark Carney, hate the £ so much? Every opportunity he gets, he knocks the currency, lambasting the British population for voting Brexit. The £ immediately tanked after ‘Carney the Clown’ continued his verbal attack on the UK’s economic policies after the rate decision on Thursday. If this Canadian clown does indeed like the UK, then his outward comments are a peculiar way of showing it.
The Monetary Policy Committee (MPC), as expected, voted 6-2 to hold rates at 0.25%, but unfortunately Carney threw in a lower growth forecast of 1.7% from 1.9%. Coupled with which, he then added that ‘normalisation’ would take at least 2/3 years. As you can imagine, the £ tanked on both of those comments.
Carney’s arguments are beginning to seriously affect our markets. If we begin to form an inflation bubble, his policies are doomed as he does not appear to have left any room for a Plan B. In simplistic terms, he has basically told investors not to save for two years, to invest in the stock market and carry on spending, spending, spending!
What’s slightly ironic is that our pensioners were raised on a tonic of save, save and save again for a rainy day. Now however, we are being instructed to do the opposite, the rainy day isn’t due for at least a couple of years apparently! Worryingly, the danger with this approach is that people are adding to their debt as it is cheap. So cheap it is, it’s almost free, with nothing to pay for two years. The experienced amongst you will remember what happens when rates turn and we have a nation of no savers or spenders and an economic downtown on the horizon.
So why am I worried?
Investors are racing to borrow cheap money against their portfolios and buy even more stocks as rates are cheap as chips. Investors see it as free money, even more so as Carney has now told them that rates will not rally for two to three years. There are rumours that these leveraged trades account for over $500billion on the New York Stock Exchange (NYSE). Scenes reticent from the 1929 stock market crash, the dot com boom and the 2008 financial crash, it appears investors have become immune to the risks of borrowing against their investments.
Why is the fact that investors are borrowing against their investments such a worry? Well, if the market turns and investors cannot keep up their margin calls then the Banks will immediately demand repayment and the market will carry on downwards until it finds some buyers.
One must remember that all of these managed trading funds are index linked and locked into the same main shares. Facebook, Apple, Netflix, Google, Amazon etc. If a downturn happens again all the lemmings would press the exit button at the same time.
Do I think it will happen this year? I believe it can, but more worrying is the fact that the clowns at HQ are not issuing the warning signals about this bubble…scenes similar to what happened in 2008.
All we can do however is Keep Calm and Carry On – Long Live the Clown!
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