I’m Sorry, I Haven’t a Clue

There is a long and glorious history of transatlantic cross-fertilization when it comes to television programs and other forms of entertainment. Staples of the US television landscape such as Sanford and Son (Steptoe and Son), American Idol (Pop Idol), and The Office (The Office) all started life on the British airwaves.

I'm Sorry, I Haven't a ClueIt appears as if US policymakers have seized on the idea, re-incarnating the popular UK radio show I’m Sorry, I Haven’t a Clue.

How else are we to interpret Hank Paulson’s admission that the TARP will not be used to purchase dodgy mortgage assets, the rationale for its passage way back in….last month?

Macro Man couldn’t see any way to interpret this other than as an admission that they’re making this up as they go along- not exactly a reassuring methodology for policymaking.

Meanwhile, it looks like we’re about to embark on the unedifying spectacle of a land-grab for the remainder of the TARP cash. OK, the Treasury will spend some of the money on asset-backed turds (as opposed to mortgage-backed turds)….but yesterday’s post looks to be sadly accurate.

Strangely absent from the photo above is the president-elect and his new Treasury Secretary….the latter, of course, because he does not currently exist. Mr. Obama seems content to allow the current administration to bury itself until he takes office on January 20. Politically astute, of course, but not exactly an act of leadership. Obama will be conspicuous by his absence from the weekend G20 meeting, which is ostensibly set to discuss a coordinated response to the crisis and the framework for a new global financial architecture. Again, politically expedient…..but it sort of renders any near-term attempts at a policy prescription irrelevant.

Macro Man’s moles in the media industry suggest that the BBC is in negotiations to license I’m Sorry… elsewhere in Europe as well. In Germany, for example…where the ECB is located. This morning it was confirmed that Germany has entered the popular definition of a recession, as Q3 GDP growth came in at -0.5% q/q, considerably worse than expected.

The ECB, of course, hiked rates at the start of Q3, despite a severe downturn in leading indicators, evidence of significant financial distress, and a complete absence of domestically-generated inflation pressures in Europe. (Those commenters who spring to Trichet’s defense and/or claim that interest rates are irrelevant should consider their views as already noted for the record.)

German GDP

The BBC may also wish to create a celebrity version of I’m Sorry…, featuring the Bank of England. This is a trifle unfair, given that the BOE has (belatedly) realized that the circumstances have changed, and radically adjusted their policy orientation as a result.

Where they can come in for some criticism, however, is their failure to anticipate the requirement for substantially easier policy earlier. Mervyn King was pretty eloquent in the Bank’s defense yesterday, basically saying that “no one could have forecast this.”

But this ignores the fact that a member of the MPC itself, David Blanchflower, did indeed forecast it. Mr. Blanchflower has been arguing for a number of months that the situation was dire, underlying inflation pressures were likely to recede, and that the Bank was grossly underestimating the likely pace of the slowdown. He voted for rate cuts in every single meeting this year. But one MPC member (the future star of the show), Tim Besley, voted for rate hikes as recently as August.

Is it any wonder that sterling has been pummeled, taking the pound to (gasp!) the cheap side of fair value against both the euro and the dollar, according to Macro Man’s metrics? Yesterday saw the single largest rise in EUR/GBP since the advent of the single currency (helped on by Merv the Swerve’s “blue horseshoe hates sterling” comment) , which necessitates dusting off the old GBP/DEM charts to get a flavour for how far things can go.


Technically, there isn’t really anything between current levels and the old lows in GBP/DEM, equivalent to roughly 0.9000 in EUR/GBP. This winter’s ski trip is shaping up as being eye-wateringly expensive.

Will sterling trade all the way to 0.90 against the euro, thus rendering the pound bum-clenchingly cheap? Having whiffed on sterling this year (short when it went nowhere, flat when it collapsed), Macro Man can only say “I’m sorry, I haven’t a clue.”

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About Macro Man 245 Articles

In real life, Macro Man is a global financial market trader at a London-based hedge fund. The Macro Man blog is a repository of his views, concerns, rants, and, on occasion, poetic stylings.

His primary motivation for writing is to hone his own views and thus improve his investment performance; however, he welcomes interaction with informed readers.

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