‘You Had One Job’

The absence of a governor didn’t stop South Korea from hiking rates on Thursday, when the BOK joined New Zealand and Canada in the club of central banks leaning harder into the inflation fight this week.

“The existing inflationary pressures could go on longer than expected due to the Ukraine situation,” acting chairman Joo Sang-yong, who’s standing in for the unconfirmed Rhee Chang-yong, said.

It was Korea’s fourth hike of the current cycle (figure below). The decision was unanimous. The policy rate is now the highest since 2019.

Singapore dialed up its own tightening efforts on Thursday, employing two tools at once for the first time in a dozen years.

Incessant documentation of central banks’ efforts to rein in price pressures likely seems a bit tedious at this juncture, just as highlighting each and every easing measure taken to combat the pandemic in its early stages probably came across as unduly pedantic to some readers. Obviously, I’m apprised that Bank of Korea meetings and MAS tweaks don’t make for the most compelling reading.

But this is a pivotal moment in the history of modern monetary policy. An epochal shift in the macro environment is putting the idea of inflation targeting to the test. Success or failure will determine the future of central banking and, quite possibly, be the deciding factor for many governments when it comes time to assess the desirability of preserving central bank independence. “You had one job!”, as the quip goes.

The fact is, this is infinitely more important than any twists and turns in the Elon Musk-Twitter saga, although Musk’s efforts to commandeer the platform speak to my longstanding “Gods” thesis, something I’ll return to over the long weekend in the US. Note that the financial media is just like any other media — a profit-maximization machine. Once they’ve squeezed what they can squeeze out of a given story (in this case monetary policy tightening to combat inflation), the “old” story gets pushed further and further below the fold, irrespective of how important it may (still) be. Musk’s offer for Twitter on Thursday likely supplanted even Ukraine coverage for Bloomberg and CNBC, for example.

By contrast, I try to stick assiduously to the script. I want readers to know precisely what they can expect to read here. The news cycle flavor du jour is irrelevant to me. If it was important yesterday, it’s probably still important today. What Elon Musk is trying to buy doesn’t diminish the gravity of the unfolding macro shift, for example.

Tedious though it is, I’d recommend that anyone who avoided reading about 50bps moves from New Zealand and Canada on Wednesday take a few minutes to dive in. The upsized hikes, documented here, should have a signaling effect.

We’re witnessing peak inflation panic and some of the ensuing price action suggests markets are inclined to view central banks’ belated efforts to catch up to price pressures as a reason to skate ahead of the proverbial puck. The kiwi fell hard after the RBNZ hike on Wednesday and Korean bond yields initially dropped a half-dozen basis points on Thursday following the BOK move.

Last week, I endeavored (again) to suggest the Fed is fully-priced. That’s been a fool’s errand since December, but fifth time’s the charm. US two-year yields are on pace for a large weekly decline (figure below).

Admittedly, some of that looks like a squeeze and/or a mass unwind in crowded flatteners. It’s probably too early for the post-inversion re-steepening.

“The 30bps rally [in 2s] in the course of just three days speaks to the fluidity of the market’s current interpretation of the Fed’s reaction function,” BMO’s Ian Lyngen and Ben Jeffery remarked. “Recall it was not so long ago that investors were debating the likelihood that the Fed would deliver an emergency rate hike, or if the discount rate meeting would be utilized as a venue to adjust the target,” they added. “Just as that represented hawkish assumptions pressing too far, we’re of the mind pricing out the chance of a 50bps move in May represents a too-dovish response to a single CPI print.”

Certainly, Wednesday’s PPI scorcher suggested that consumer prices in the US, “peaking” or not, aren’t poised to converge to target anytime soon. Still, markets do tend to bring forward future outcomes. And given the panicked nature of the global policy tightening push, which continued on Thursday, it’s not too much of a stretch to suggest that at least some traders are already pricing the policy-induced downturn many pundits claim is inevitable.

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12 thoughts on “‘You Had One Job’

  1. H-
    One of the best things about ‘The Heisenberg Report’ is that ‘the author’ uses his vast experience, knowledge, insights and beliefs (not his profit motivation) to determine the top three, or so, issues of the day.
    My virtual knowledge of your beliefs and where you have come from in life (I miss, yet at the same time, do not miss your SA scorching missiles) has led me to the conclusion that you would rather be true to your beliefs than earn another dollar. That keeps me subscribed- my beliefs of what are your beliefs. Crazy.

    1. Yeah, you don’t have to apologize for covering the dry stuff. The colorful articles are fun, but the macro is what we came for originally.

      1. Maybe it’s just me, but when I go to the handful of non-mainstream finance/econ sites that I used to read in 2010/2011/2012, I can’t even navigate them now. Literally. I can’t find my way around. The ones that are still publishing regularly are now publishing so rapidly that the dilution is unbearable (e.g., 10 posts in 10 minutes) and often, the content is totally off the wall and/or so poorly written that I can’t suffer it. And then there’s a handful of what I’ll call “sane” sites that get a lot of favorable mentions from finance-focused social media, but some of them are only updated once or twice a week. That’s not a “site.” That’s a straight blog. I don’t know why anyone would pay $35/month (or whatever) to read someone’s random musings on Substack five times a month.

    1. I don’t know if you’re being sarcastic or not (it’s certainly fine if you are), but that’s actually the irony here. I’ve (accidentally) predicted nearly everything he’s done for two straight years. I’d emphasize accidentally. I’m no prophet, I’m just a good social critic.

  2. From the title, I expected an article beginning with Putin saying to his generals “You had one job” followed by mass arrests as a segue to a central bankers story. As always, your articles are well worth reading; thanks.

  3. You nailed it, H. Now we are facing another “Murdoch Moment”, like when Old Rupe got permission to control media outlets in the US. Musk can buy and sell Rupert and Trump several times between now and lunch without denting his checking account. The question is how he will use his concentration of power. I don’t feel good about it.

  4. Musk is regularly described as a man of “vision.” When I was teaching and consulting about strategic management two words on my black list were (and still are) vision and mission. CEOs love to create vision and mission statements (having both at once is just too much). They are always useless and rarely if ever contribute to success. Musk is not really a visionary, he is just a guy with “ants in his pants,” as my sainted grandmother used say. He wants to say everything that goes into his brain, and even act on it when he thinks it will be fun and disruptive. Sadly, he is easily bored, overly entitled, and not really fond of self-control, discipline, or responsibility, in short, an aging teenager who will never actually grow up. He bought all that Twitter stock because the SEC is back on his butt and he just wants to say whatever he wants when he wants, period. He thought he could buy that kind of control for $3 bil and soon found that he couldn’t. The only way he gets to have a say at Twitter is to take it private. It’s ironic, isn’t it, that to turn it into his vision of free speech he must take away the company’s freedom.

    1. Well put, Mr. Lucky. I believe the $Fifty-“Four-Twenty” per share price offer tells exactly where Mr. Musk is coming from,

  5. I would be lost without the Heisenberg Report, so thank you H. Not only do I gain a little understanding of the markets but also of the world in general. I had thought the last few years were crazy, apparently we ain’t seen nothing yet.

    Musk seems to be getting weirder every day.
    So a little history review is due:

    There was NO electric vehicle market before Musk created one. Now every single car company is shifting to EVs. It will be a while before any of them catch up. Functionality wise, a Tesla is to a gasoline car what a smart phone is to a flip phone.
    Since the end of the Space Shuttle program, the US has been relying SOLELY on Russian RD-180 rocket engines to get us to the Space Station. For some reason we’ve been incapable of building our own. That is, until Musk started SpaceX and designed Falcon 9 rockets that could be REUSED (for heaven’s sake) and cost a fraction of the Russian rockets. He also had to wrestle/sue the current ULA monopoly ( Lockhead Martin/Boeing/DoD alliance) to get NASA and the military to start using SpaceX’s completely US designed and built rockets instead of Russian based ULA rockets. And look how good that timing turned out.

    Musk does stuff that no one in their right mind would do. He’s building a Starship to land and take off from Mars.
    Who does that? Genius or nutcase?

    I don’t understand his Twitter thing but based on his credentials so far I’m willing to give him some rope. He’s worried about the state of the world, is intensely pro-humanity (yeah go ahead and roll your eyes) and he is a man of action – amazing, crazy, impossible actions. Now you can laugh 🙂

  6. I still don’t know what to make of Elon: entrepreneurial genius, visionary, narcissist, a modern day P.T. Barnum, or perhaps all of the above?

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