You might not have found this month particularly interesting so far (unless you have more of a grasp of the details of the customs union than most people). But one way or another, April has come with a good few watershed moments.
The first came from the bond market: this week the US ten-year Treasury yield hit 3% for the first time since 2014. That’s partly about the reversal of quantitative easing (QE). The Federal Reserve, now headed by Jerome Powell, is now selling bonds into the market, the immediate effect of which is to push down prices and raise yields. But it is also about inflation – the oil price has risen sharply in the past couple of weeks, and in the US, inflation expectations are at a four-year high.
This raises all sorts of interesting questions. First, what effect will fast-rising yields have on the stockmarket and the real economy? I’ve written about this before, but it is hard to see how the overall effect can’t be negative.
The second question, then, is what happens if it is very negative. For the past 20-odd years we have all come to rely on the Federal Reserve stepping in to help whenever markets start to fall (the Greenspan put, then the Bernanke put). But when inflation appeared to be vanquished, slashing rates at the drop of a hat was an easy call. Now inflation is a real risk again (note that commodity prices are at multi-year lows relative to equities), it won’t be so easy.
The other watershed moment of the month has to be the resignation of WPP chief executive Martin Sorrell. Shareholders have still not be been told the exact nature of the “impropriety” that prompted his departure. But I think we can be safe in thinking that in some way or another it is connected to the word commentators always use when describing his relationship with WPP: “proprietorial”. Sorrell owns around 2% of WPP, but like many heads of listed firms he has long behaved as though that number was closer to 100%. This is a consequence of the fact that big institutional investors have long failed to step up to the governance plate on behalf of all of us. It is time they did. Sorrell has been a huge figure in our corporate world for decades. But his departure should remind fund managers that shareholder democracy only works when shareholders (or their representatives) act as owners. If they did so more often we might see fewer pay scandals, fewer pointless M&As, less short termism – possibly even fewer non-disclosable improprieties.
Finally, Bill Bonner still thinks gold is as good as it gets as an insurance against pretty much everything. But he is also getting just a little bit excited about bitcoin, albeit in his usual downbeat style. “There is something going on,” he says, “something more than zero.”