MacNicol’s Quarterly Commentary – October 2022


With this commentary, we plan to communicate with you every month about our thoughts on the markets, some snapshots of metrics, a section on behavioral investing, and finally an update on MacNicol & Associates Asset Management (MAAM). We hope you enjoy this information, and it allows you to better understand what we see going on in the marketplace.

“Disciplining yourself to do what you know is right and important, although difficult, is the high road to pride, self-esteem, and personal satisfaction.”
– Margaret Thatcher

It’s a matter of Truss

Former Bank of England (and Bank of Canada) Governor Mark Carney accused Liz Truss’ government of “undercutting” the nation’s economic institutions recently. In a radio interview, Mr. Carney went on to suggest that Truss’ fiscal free-for-all, a £45 billion tax cut mostly to people who were already successful and assembled by Chancellor of the Exchequer Kwasi Kwarteng, was to blame for the nosedive in sterling and gilts. The basic mechanics of what happened was simple. Truss promised enormous tax cuts to get elected, Kwarteng figured out it would be done, and bond investors decided that they had it with British Treasury securities or “Gilts” as they are known with demand essentially disappearing overnight. The ensuing malaise saw gilt prices crash and yields soar.

Running Britain is expensive and since 1970 the country has only brought in more money than it has spent six (6) times. That’s an 11% success rate that, by definition, demands a stable bond market. Tax cuts certainly can be used to juice the economy occasionally, but the simple mathematics around Truss’ numbers didn’t work…not even slightly. Rising yields on gilts signaled to the world that foreign investors like large pension funds, foundations, and groups like us were not interested in picking up the tab for such obvious nepotistic profligacy at a time when the average Brit is feeling the pinch of higher prices and a shifting economy………

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The Quarterly October 2022