Random Musings on Markets 2019: Countdown to Musing

This Friday, our not-weekly-on-Friday collection of randomness features the new UK Prime Minister’s unusual victory speech, some questions and counterpoints on research showing the Fed should have had a higher inflation target prior to 2008, a look at how citizens are engaged in the Japan/South Korea trade spat and real-life Jaws creating winners and losers. We hope you enjoy it!

Dude, That Victory Speech Was a Dud

Before we get into this, and as frequent Random Musings readers^[i] likely know, we are politically agnostic around here, favoring no politician nor any political party. With that out of the way, we will get started.

As we discussed here Tuesday, Boris Johnson (BoJo) won the UK Conservative Party’s leadership contest, meaning he is the UK’s new prime minister, succeeding Theresa May. While we didn’t listen to his entire victory speech,^[ii] there was one highlight we found tremendously amusing. In reference to Brexit, BoJo tried to channel his inner Winston Churchill and inspire confidence over fear:

Well I look at you this morning and I ask myself: Do you look daunted? [Crowd: “No.”] Do you feel daunted? [Crowd: slightly louder “No.”] I don’t think you look remotely daunted to me. And I think that we know that we can do it. And the people of this country are trusting us to do it. And we know that we will do it. And we know the mantra of the campaign that has just gone by. In case you’ve forgotten it … you probably have … it was a couple [unintelligible] … it was, Deliver Brexit! Unite the country! And defeat [Labour Party Leader] Jeremy Corbyn! And that is what we’re going to do.

That is all fairly standard political speech, which is typically nauseating. Rallying the troops, self-aggrandizement, yada. Here comes the fun part, we promise.

And I know, I know some wag who has already pointed out that Deliver, Unite and Defeat was not the perfect acronym for an election campaign since unfortunately it spells DUD.^[iii] But they forgot the final E, my friends! E for energize! And I say, I say to all the doubters, Dude! We are going to energize the country!

Hahahaha! Dude, how’s that for a Brexit tagline? It’s like BoJo went from channeling Churchill to invoking Keanu Reeves.^[iv]

We Are Sort of Fed Up

According to a gang of economists we are sure are quite smart, this expansion could have started a whole lot faster if the Fed had a higher inflation target before the financial crisis, which supposedly would have enabled them to cut rates farther and faster when times got tough. We are sure they have crunched many numbers to support their many claims and charts. But … we have some questions and counterpoints. Like:

• The Fed didn’t have an inflation target until 2012.
• If the Fed did have a target before then and set it at 4%, the hypothetical optimal rate explored in the paper, then would that not have meant a lower fed-funds target rate throughout the 2000s? Theoretically giving them less room to cut rates when times got tough?
• Is there any evidence a massively sub-zero fed-funds target rate would do anything other than discourage lending and wreck banks’ profits? (See Japan with any questions.)
• Based on Fed transcripts from 2008, they didn’t cut much because they thought the economy was doing ok—inflation had little to do with it.
• Is there any evidence a higher inflation target would lead to more sensible monetary policymaking than we have seen from the Fed over the past decade-plus?
• If the Fed can’t hit a 2% inflation target, how can we expect it to hit a 4% target? It is a little like asking a baseball player averaging below the Mendoza Line to magically become Ted Williams.
• Maybe the philosophy and people, not the inflation target, are the problem?
• Why is everyone so obsessed with central bankers anyway? Like, they are sort of boring in interviews, use big words and don’t wear much color. Even Neel Kashkari, who made all those entertaining commercials when running for California governor, has gone all milquetoast since taking over the Minneapolis Fed.
• Speaking of which, can the Minneapolis Fed please shoot videos of Kashkari explaining monetary policy while chopping wood, like his hilarious campaign ads?
• Pretty please?
• With a cherry on top?

How to Do a Trade War

Internationally, America has a reputation for doing everything BIG. But there is one thing our country does quite small: trade wars. Not only are President Trump’s tariffs kinda dinky—far too small to wallop global stocks, in our view—but normal folks aren’t getting in on the fun.

South Korea, on the other hand, has gone all in on its new trade spat with Japan. Protestors are destroying Japanese cars with baseball bats, pouring Japanese beer down the sewer drains and, for good measure, cutting up pictures of Japanese Prime Minister Shinzo Abe.

This is actually fairly normal citizen behavior during trade wars and other diplomatic spats in East Asia. When China and Japan were fighting over disputed islands a few years back, Chinese protestors vandalized Uniqlo stores and Japanese car dealerships. A Chinese dispute with South Korea over US missile defense systems saw protestors boycott Korean department stores like Lotte.

We have to tip our cap to this level of patriotism, considering about all Americans could ever muster was trying and failing to rename french fries in 2003. Then again, when normal people draft-dodge a trade war, it helps limit the local economic impact, so that is a nice silver lining. All those boycotts in China did have a very small and temporary effect on retail sales.

So, we have a suggestion for those angry South Koreans! Instead of feeding all the Asahi, Kirin, Sapporo and Hitachino to the fishes, please export it to us. We will pay handsomely and hoist a pint to you as we wash down our freedom fries with our favorite Japanese white ale.

Real-Life Jaws Creates Winners and Losers on Cape Cod

Friday, Bloomberg ran a very interesting piece discussing the (seemingly increasing) number of shark encounters off Cape Cod, Massachusetts—including sightings of great whites hunting seals. It is straight out of the pages of Peter Benchley’s classic Jaws, with some folks worrying over the tourism impacts (just like town leaders did in the fictional version).^[v] We are sure that watersports rental companies are among the losers and feeling a pinch, as the article notes. Also losing: the seals.

However, the article documents another angle: Other businesses are benefiting from increased ecotourism, with some folks flocking to the Cape to board 28-foot boats to see great whites in action (eating seals). These tourists are paying big bucks for an up-close view. Heck, if popularity grows, these companies are going to need a bigger boat.^[vi] T-shirts featuring catchy phrases like, “SEALS TASTE LIKE CHICKEN” dot small shops. License plates. Keychains. Trinkets galore, we are sure. Further, you can even download a new app—Sharktivity—to track sightings.

This is a rather different outcome than town leaders feared in Jaws, and a much more balanced one at that. It also speaks to how humans can adapt to what many would see as an economic challenge. So this weekend, inspired by this and Shark Week, maybe a viewing party featuring the Jaws movies is in order? Just skip Jaws 4: The Revenge, which is awful. On IMDb, 37,641 viewers’ ratings average 2.9 stars (out of 10), which leads us to wonder who thought that highly of it? Consider the plot: The shark follows Chief Brody’s widow to the Caribbean where it continues to plague her. Come on.^[vii]

Anyway, avoid Jaws 4^[viii] and have a great weekend!