Clint Eastwood plays a San Francisco detective in Dirty Harry, the 1971 Hollywood movie, in which he has an unforgettable line towards the end. He has shot and wounded a psychopathic killer and, as the killer is lying on the ground, thinking about making a lunge for his weapon, asks him: “I know what you’re thinking: ‘Did he fire six shots or only five?’ Well, to tell you the truth, in all this excitement, I’ve kinda lost track myself. But being this is a .44 Magnum, the most powerful handgun in the world, and would blow your head clean off, you’ve got to ask yourself one question: ‘Do I feel lucky?’ Well, do you, punk?”
Some truly bizarre things are going on right now in the financial world. And they remind me of Dirty Harry’s words – do we feel lucky? Some of these bizarre things are being touted by very clever people. People who like it to be known that they have a PhD and are “global head” of something are rather special – but they can be as daft as the next person.
Take Jean Boivin, PhD, Managing Director, and Global Head of Research at the “Blackrock Investment Institute”. I am unacquainted with Mr Boivin but I am sure he’s nice to his family, pats dogs and all that stuff. But when it comes to macroeconomics he seems to me to be two sandwiches short of a picnic.
This week he published an extraordinary piece in the Financial Times. There he correctly identified a problem, perhaps the biggest problem of our age: “there is not enough monetary policy space to deal with the next downturn. Conventional and unconventional monetary policy mainly boosts growth by lowering short and long-term interest rates. But this requires rates to go lower, and there is nowhere left for rates to go.” Quite right. Then he goes and spoils it all by saying that central bankers, in order to generate “higher inflation”, need to take an “unprecedented venture” and go direct and set about “finding ways to get money more directly in the hands of entities that can spend it, including consumers.” This kind of suggestion, that central bankers should collaborate and flood the world with cash, in the hope that it will make the next recession less ghastly, is not only out-of-the-box thinking; it’s out of this world thinking.
But of course Boivin has an agenda; there is always an agenda. Blackrock wants more cash to flood the financial system because that cash will have to go somewhere-and some of it will trickle Blackrock’s way.
Onn 22 July this year Rick Reider, BlackRock’s chief investment officer of global fixed-income and a colleague of Boivin’s, published a piece in the FT which called for the European Central Bank to print money in order to buy shares in European companies to “improve European growth prospects”. If you think this idea is obviously a non-starter, think again – the Bank of Japan has been buying share in Japanese companies for years, for all the good it has done Japan’s GDP growth.
Blackrock is the world’s biggest asset manager, with some $4.3 trillion assets under management. What it – and its executives – say, and where they say it (the FT still has a bit of status) carries weight with policymakers. By calling for free money to spend and invest it is serving its own interests. That doesn’t mean that politicians won’t do what it says. For they have no-where else to turn.
With the Bundesbank forecasting that Germany is about to enter a recession, and the USA’s National Association for Business Economics this week publishing a survey in which 38% of economists believing a recession will begin in 2020, and another 34% reckoning a recession will start in 2021, policymakers are indeed worried. They have no more ammo in their locker. This week Germany issued 30 year bonds that pay no interest at all. Imagine that – locking up an investment with no return, for three decades.
Which brings us back to Harry. If you have a Glint card and load it up with gold, you can protect yourself against the storms ahead. And there sure are storms heading this way. The European Union itself is forecasting that the GDP growth for the EU in 2019 is 1.4% and 1.6% in 2020 – figures that are so finely calculated that they are well within the margin of error. In times of recession, gold does well. And in eras of macroeconomic madness (such as now) when central banks hand out free “money”, gold does super-well. So don’t ask yourself “do I feel lucky?” Get a Glint card and know you’re lucky.