search.noResults

search.searching

dataCollection.invalidEmail
note.createNoteMessage

search.noResults

search.searching

orderForm.title

orderForm.productCode
orderForm.description
orderForm.quantity
orderForm.itemPrice
orderForm.price
orderForm.totalPrice
orderForm.deliveryDetails.billingAddress
orderForm.deliveryDetails.deliveryAddress
orderForm.noItems
While it may be something of an unfair comparison, given the 50% increase in US share buybacks in 2018 due to Trump’s corporate tax cuts, the fact is that 2019 share buyback volumes will be lower, and that this will also act as a liquidity drain. The fact that this comes at a time, when US Treasury issuance is skyrocketing and will continue to do so and the Fed is struggling to manage USD money markets, in no small part due to its incessant piece meal tinkering with ‘procedures’ over recent years, underlines why rather belatedly, the likes of the IMF issued the relatively stark warnings on debt levels in its latest Financial Stability Report.


To be fair, the IMF is something of a ‘latecomer’ to this party, the BoE, Fed’s Brainard, ECB’s Lautenschlaeger and BoC’s Wilkins (amongst others) have all spoken or written about these risks over the past 12 to 18 months. But the most erudite and prescient exposition on the topic was BoE’s Andrew Haldane in his speech ‘Half Way Up The Stairs’ back in August 2014, when he was still director of financial stability. He noted that ‘one of the likely consequences of the crisis, and the resulting regulatory response, is that the financial system will reinvent itself. Financial activity will migrate outside the banking system. And with that move, risk may itself change shape and form. What previously had been credit and maturity mismatch risk on the balance sheet of the banking system may metastasize into market and illiquidity risk on the balance sheets of non-banks.’ He continued: ‘Risk, like energy, tends to be conserved not dissipated, to change its composition but not its quantum. So it is possible the financial system may exhibit a new strain of systemic risk – a greater number of higher-frequency, higher-amplitude cyclical fluctuations in asset prices and financial activity, now originating on the balance sheets of mutual funds, insurance companies and pension funds.’


WHILE IT MAY BE SOMETHING OF AN UNFAIR COMPARISON, GIVEN THE 50% INCREASE IN US SHARE BUYBACKS IN 2018 DUE TO TRUMP’S CORPORATE TAX CUTS, THE FACT IS THAT 2019 SHARE BUYBACK VOLUMES WILL BE LOWER, AND THAT THIS WILL ALSO ACT AS A LIQUIDITY DRAIN.


The question would then appear to boil down to ‘when’ not ‘if’, both in terms of a renewed crisis, and the end game of some form of ‘debt jubilee’, i.e. debt repudiation. The broader perspective point is that the central bank regime of financial repression (which is in part also cyclical due to demographics and the vicissitudes of the technological or fourth industrial revolution) was only ever going to work if accompanied by government legislation to limit corporate ‘financial engineering’, and force investment in structures, research and product development and workforce re-education/re- training - but that would have been heavily opposed by the defenders of ‘laissez-faire’ and vested interests. As noted earlier, procedures would appear to have divorced or distanced themselves from an understanding of how processes are evolving, and if policy makers fail to grasp this nettle, then the potential for a crisis will only escalate.


It may indeed be the case that if political and trade risks were to dissipate sufficiently (not a forecast), then the potentially euphoric reaction could be the tripwire.


Marc Ostwald E: marc.ostwald@admisi.com T: +44(0) 20 7716 8534


7 | ADMISI - The Ghost In The Machine | November/December 2019


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32