First the venerable Queen dies, but before she does she gives her blessing to the newly appointed PM Liz Truss who took over just before the queen’s passing. After 44 days Liz Truss is out and people are calling her the worst Prime Minister in the history of the UK. But, what did we really expect her to do?
Good Morning, I’m Austerity Jones and I’m here with C Thomas Printer.
C Thomas: Good Morning, Austerity. Before we begin, I want to share an anecdote with you. Remember on September 11, 2022 when we talked about Aircrewman 1st class Cale Foy and how the Navy swimmer jumped into the water and by swimming out into the ocean he helped save lives on a shipwrecked boat? I want to share the heroism of Kendell Cummings. This past week two college wrestlers at Northwest College in Powell, Wyoming were hiking outside of Cody, Wyoming. One of them, Brady Lowry, was attacked and mauled by a grizzly bear. Kendell Cummings, his friend, rushed in and tried to pull the bear off him. The bear turned and mauled Cummings, the bear left briefly and then came back and mauled Cummings again. Both wrestlers sustained serious injuries but were helped to their vehicles by other teammates and life flighted to Billings, MT where both underwent multiple surgeries. Both are expected to live. We here at the C Thomas Printer Cooperative are cheering for you boys to make a speedy and full recovery and Mr. Cummings, we salute your courage. I’ve said it before and I will say it again, a legend is doing something when no one asks you to do it, and doing it well, and at considerable peril to yourself. Well done legend.
I have to admit something to you Austerity. When I clicked on the link and read the heroic tale of Kendell Cummings I had clicked on a link because I saw bear mauling and I was expecting a stock market article. It just reminds me that you can be walking along, smooth sailing on calm seas if you will, and then a bear attacks and before you know it you are fighting for your life. Just when you think you have survived the attack, the bear returns with even more force. This is what has happened to the UK in the last 60 days.
First the venerable Queen dies, but before she does she gives her blessing to the newly appointed PM Liz Truss who took over just before the queen’s passing. This was the only time in the Queen’s long reign that she appointed a PM from Balmoral versus Buckingham Palace and I don’t think it will happen again. After 44 days Liz Truss is out and people are calling her the worst Prime Minister in the history of the UK. While her time at the top will be remembered and rightly so as one of the ignominious leaderships in history, I find the criticism interesting and thought provoking. What did you expect her to do? Their country is in tatters: trains, ports and garbage workers have all staged strikes to demand higher wages. Why? To keep up with inflation. Millions more including the overworked and understaffed nurses in a broken health care system are threatening to strike because they can’t pay their heating bills in a country that has cold winters. Inflation is now double digits again and Liz Truss came along with a plan that was based on successes of Margaret Thatcher who she both admired and was hoping to emulate as a successful leader of the UK. However, Truss’ plan for cutting taxes and subsidizing energy bills and paying for it by selling the government was met by a grizzly bear with bad intentions. In sharp contrast to Margaret Thatcher who cut income taxes but paid for those taxes with an increase in the value added tax to make sure the tax cuts didn’t become inflationary, Truss was planning to cut taxes and increase spending which would have added lighter fuel to the already white hot inflation flame. This woke up the bear and the bear was the bond vigilantes. Bond yields on UK debt spiked as they said no thanks and in a matter of days rising gilt yields threatened the pension plans of 90% of the country by one account which would have dropped the entire nation into financial collapse had they been allowed to go broke. Now, no one is talking about how the pension fund managers got into so much trouble by overleveraging the pensions in a desperate search for yield when interest rates were negative not so long ago. If you don’t lever up and produce a return you are out of business. If you lever up and interest rates rise, you almost break the finances of a nation. Having Liz Truss shoulder the blame of the central banks and fund managers seems more than a little unfair. But while her plan might have been sensible in a vacuum or academic theory, in the real world with a large group of bad actors it produced systemic risk. The Bank of England stepped in and reversed course, but the most interesting thing was what they said, “this is temporary.” That’s right, they went away. The market has calmed down and now the country thinks that it is in the clear. That’s why I’m watching for when the bear returns to maul them again. This time they won’t be able to blame Truss, but they will have to find another scapegoat and they will, I’m sure. Rushi Sunak was the former chancellor who was pilloried while campaigning because he dared to raise taxes. He lost to Truss because what he suggested was hard, it wasn’t popular, and it was the opposite of the easy money approach that the entire world has been experiencing for the last 3-4 decades. Sunak might be the new replacement, but he can hardly want the job, remember this.
Has the energy situation gotten any better? Gilt yields that were less than 1% at the beginning of the year are still over 4% down from approaching 5% when the BOE stepped in, but they are still 4%! The people are still striking due to being unable to pay their bills. Inflation is in double digits and 1/3 of the British people are saying that they are skipping meals to save money. In addition, if things are bad enough, 20% of the UK mortgages are variable rate and rates have almost tripled in the UK. The UK might be rid of Truss, but their economy is still as fragile as Jordan Poole’s jaw when Draymond Green hit him last week. They are both centimillionaire basketball players and in America media our coverage was of this catastrophe of a dynasty.
Meanwhile outside of La-La land, the Bank of England is saying that they are committed to going back to quantitative tightening, but here is a fun little nugget for you. George Gammon from Rebel Capitalist, who has a very informative channel and you should check out by the way, showed how the Swiss National Bank was now using swap lines again. These swap lines were used during the Great Financial Crisis and also during the Covid sell off. It seems that the stress isn’t limited to just the UK. Liz Truss may have left 10 Downing Street and her country bleeding, but the bear is still out there, and if history is any guide, he is coming back.
Sincerely Yours,
C Thomas Printer
This week’s financial tip
Austerity: How is that savings account? Is it a bank, an old coffee can, a Roth IRA? Just keep saving a little and remember if it is earning interest that is even better now that we are able to earn a little interest.
C Thomas: I got another email saying my savings account rate had gone up 5/100 of a percent this time. Every little bit helps. This week’s tip- If you have a job and your employer offers a retirement plan, do they offer matching funds? Many employers offer up to 5% match on any contributions to the plan. This is the best way to save to start out. If you save, your company will match up to a certain level. This is free money with an instant 100% return and you have it in an account that is usually a tax free vehicle so it is even better. If you aren’t sure, ask your HR representative and take advantage of it if you can. If you don’t have a job, but are trying to get a job, look at the benefits section of the companies to which you are applying- it is often listed or ask the hiring manager. Get that job, and start saving.
On this date in history
C Thomas: 21 years ago to be exact, the Ipod was introduced. I have been meaning to get one, but my Sony Walkman still hasn’t let me down.
Also born on this date
Austerity: Ryan Reynolds, the mother of dragons Emilia Clarke, Pele, the King of Late-night, Johnny Carson, and Gertrude Ederle, the first woman to swim the English channel.
Link to the news