It’s happened. No sooner had Amer Bisat, a New York-based portfolio manager with Blackrock confided to Bloomberg that fear of quantitative easing coming to an end keeps him awake at night, than Janet Yellen set a date for it happening. – October. Bisat, we assume, now faces at least 10 nights of cold sweats and trepidation.
As Peter Hooper, Deutsche's chief economist said in a note yesterday, Yellen's announcement was largely "expected." The fact that Yellen plans to raise interest rates once more this year and three times in 2018 came as a bit of a surprise (50% were expecting it, 50% weren't). And her announcement that the "tapering" of "reinvestment" will begin in October, barring big negative changes to the economy, wasn't that revelatory. However, there's still uncertainty. As Markit economist James Bohnaker says in the Telegraph, Yellen's rate increases and coming reduction in the Fed's balance sheet all depend upon whether inflation rises as expected. In the short-term at least, this isn't assured - although Deutsche notes that Yellen and her team were more hawkish in their inflation forecasts in 2018 and 2019.
On balance, therefore, Bisat's nightmare is about to unfold. A generation of traders who've grown up with quantitative easing and historically low rates are about to experience a new reality. As Deutsche Bank's strategists pointed out this week, the situation is extremely delicate and unwinding the Fed's balance sheet into a world where debt is at an all-time high risks causing a crisis as rates rise. Alternatively, as Bloomberg pointed out, the Fed's unwinding could even have the effect of depressing bond yields further as the market digests the Fed's lack of further stimulus. No one really knows what will happen.
Bisat’s particular concern is the effect of Yellen's activities on emerging markets, which have benefited as investors search for yield in different places. The good news is that Yellen is expected to shrink the balance sheet slowly, so that yields elsewhere shouldn't rise too quickly. The other good news is that the whole process might re-inject volatility into the fixed income markets, will had been languishing and preparing for a dull end to the year.
Separately, Quartz has assembled a handy list of the various benefits and side-effects associated with smart drugs. It notes that Adderall, the traditional drug of choice of young bankers working 18 hour days, is associated with psychosis, loss of libido, loss of weight, loss of sleep and loss of life – among other things.
Ex-Tudor quant is launching a new hedge fund in London. (HFMGlobal)
Ex-Tudor macro fund manager is also launching a new hedge fund in London (next year). (Hedgeco)
How to live like Ray Dalio: 1. Put your honest thoughts out on the table, 2. Have thoughtful disagreements in which people are willing to shift their opinions as they learn, and 3. Have agreed-upon ways of deciding if disagreements remain so that you can move beyond them without resentments. (Forbes)
Bridgewater seems to be less radically transparent about its investment decisions. (Bloomberg)
Citi hired Arnaud Marès, a former economic advisor to Mario Draghi, to head its European economics team. (Financial Times)
Credit Suisse has got a new head of its important global securitized products business. (Reuters)
Nomura hired the head of real money FX sales from SocGen. (FXWeek)
Male British banker says Australian female banker stole his job. (Telegraph)
Flight of the Developers. pic.twitter.com/nRZPzu62V8
— Mahdi Yusuf (@myusuf3) September 20, 2017
Anyone lost a hawk in the city of London. Been sat on ledge of office in cannon st for an hour or so. pic.twitter.com/DButzzYCEa
— hove49 (@gecbrand) September 20, 2017
Linking state maternity pay to salaries persuades highly-educated, high-earning women to procreate. (NBER)
The new trainers to wear when you're being smart-casual. (Business Insider)
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