WHAT EXACTLY HAPPENED IN ENGLAND ON SEPTEMBER 4? WHY IMPORTANT?
A classic PIVOT! But worse: A Black Swan! Totally unexpected and a preview of things to come?
The Bank of England (was forced to) pivot on its obligation to fight inflation. Promising to lower taxes and not increase corporate taxes – they did a PIVOT. This followed a sell-off of long-dated government bonds that led the Bank of England to intervene in order to save Pension funds from collapse. Result? A spike in mortgage rates for prospective homeowners. A huge crisis resulted and is still going on.
Super investor Stanley Druckenmiller believes that the Bank of England is making a terrible mistake by pivoting during a time of inflation.
MAJOR POINT 1: It is clear the BOE wanted to take a hawkish stance and engage in quantitative tightening to curb inflation. However, the totally unexpected Black Swan of a possible Pension fund crisis forced the BOE to shift unbelievably back to quantitative easing to salvage UK’s monetary crisis. They went impossibly back to QE while having inflation around 10%! The UK remains in turmoil. Today Finance Minister and Treasurer were fired.
MAJOR POINT 2: Our lesson? Our Pension funds could be in trouble too. Or any of the myriad of financial derivative instruments could create a ‘rush out’ of investors. Which one? No one knows. A Black Swan can happen at any time… Stay vigilant and mostly in cash.