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If I Were You, I Would Not Start From Here...

Updated: Sep 21, 2023

BentinPartner Weekly

US inflation accelerated at the fastest rate in more than a year last month with August inflation rising 0.6% MoM (+3.7% YoY vs. 3.4% in July) and the PPI showing the largest increase in 15 months, adding 0.8% MoM, led by a recent resurgence of energy inflation. Oil prices crossed USD90 last week with USD100 in sight as global oil markets face a supply shortfall of more than 3mbd next quarter, potentially the biggest shortfall in a decade, the International Energy agency warned.

This might keep the Fed in a tightening mode for longer than hoped for. Expectations for this week’s FOMC are for the Fed to stay pat with a 50/50 chance currently priced in of another rate hike in October.

Stocks traded marginally lower last week, led by tech stocks as inflation and other data (including jobless claims and stronger than expected (inflation led?) retail sales and empire manufacturing index) gave signs of a resilient US economy. Still, overall, the markets took these data and the ECB 25bps tightening mostly in stride, supported by a 10% rise of Tesla on Monday (after Morgan Stanley upgraded the stock on optimism about its super computer), a 25% gain on ARM’s IPO which revived global risk appetite on Thursday and several easing actions by the PBOC.

However, the week ended on a sour note following triple witching, the announcement of a first ever simultaneous strike at three US car producers in Detroit and Taiwan announcing delays in chip production which cast a shadow on the chip sector.

The BoJ initiated some scare tactics last Monday, saying ZIRP could be scrapped this year (if…), leading to a small bounce on JPY which was unwound later in the week as the dollar also appreciated sharply vs. other DM currencies, starting with EUR which weakened after what the market read as a dovish last hike by the ECB.

In this context, it came as no surprise that XAUJPY printed a fresh all-time high.

More surprisingly perhaps, Gold on China’s exchange traded at an historic premium of USD120 on Thursday, the largest premium to “international” gold prices since the Shanghai exchanged was founded 20 years ago, showing aplenty where gold flows are headed for.

Other EM currencies stayed strong, including vs. the USD.

As China continues to be bad mouthed, to a large extent for the purpose of labelling the country as un-investable and deprive it from international equity flows, former UBS Chief Investment Strategist (L. Hatheway from Jackson Hole Economics) wrote an enlightening article on the China “Thrashing” contest going on…

In a wide-ranging interview with Financial Sense, B. White, the former BIS Chief Economist (and a former distinguished colleague) discussed a recent paper he wrote on Why the monetary policy framework in advanced countries needs a fundamental reform.

He reminded a well anchored conviction that “we” (the community of economists and policy makers) know and control less than we think we know, that hubris is a problem for us, giving plenty of examples of what seemed to matter over his 50 years career to guide monetary policy that in actual fact, turned out to be a false or in constant need of revision compass, going from the need to have a fixed exchange until 1972, to the fashion of the natural rate of unemployment, before moving to targeting monetary aggregates, then controlling inflation in the late 70’s, before noticing the boom and bust in Japan that suffered no inflation or current account deficit, cementing the idea that perhaps we did not know what was going on.

This is bringing about the need for economists still in denial, to recognize that we do not understand that the world, the economy and markets are not linear but rather a complex adaptative system which needs to be governed in light of this reality.

B. White’s main message this time is to focus policy on the financial system and the credit system rather than the Philips curve and near-term inflation numbers.

From the late 80’s till today, we witnessed a litany of financial bubbles that monetary policy has failed to consider, being run by false beliefs that led to bad policies over the years.

The list of unintended consequences includes first-hand, the excess of debt that central banks policies have enabled to accumulate and which will likely become impossible to sustain (service) in good (with rising rates) and all the more so, in bad times when those will return and the increase in inequality and financial instability linked to a reckless search of yields.

Bill was among the first to flag the excesses that led to the Great Financial Crisis (which did not make him too popular at the Fed) and opined that the old beliefs have been largely maintained, referring to what Central Banks have done ever since, which is just more of the same policies that led to the crisis at the first place including with the response to the pandemic and the total miscalculation of the supply side of the equation that culminated with the equally wrong belief in the temporary nature of the ongoing inflationary push.

There is the beginning of a rethinking he said because Central Banks got their inflation forecast so wrong … and it is now becoming only too obvious that the contained inflation and decent growth had nothing to do with successful anti-inflation policies and much if not all to do with the merits of globalisation (cheap Chinese and Indian labour markets), a reality that was never properly recognized.

Asked what needs to be done to get out of the situation we are in B. White referred to the old joke of the Gentleman erring on the twisting lanes of Ireland, who is totally lost, meets an old man in the field and asks “How do I get to Dublin?”. Only to hear the old man say….” If I were you I would not start from here”.

B. White still gives some paths of reflection including with the need for “narrow money” and a more “Hayek-like” response consisting in bringing the creation of money in more direct control of central banks (from the commercial banks sector which is currently the largest creator of money via the money multiplier effects of deposits). US Banks are clearly in retrenchment mode, showing little to no growth in lending (seen by some as another sign of a coming recession) and what comes next with the planned adoption of CBDC’s a step in that direction…

B. White also recently published an interesting article in “The International Economy” on “The coming age of scarcity” which supports the idea of interest rates to staying “higher for longer” with inflationary pressures “proving more persistent than currently anticipated”.


Over the past week, the S&P500 dropped -0,5% (15,9% YTD) while the Nasdaq100 dropped -0,5% (39,3% YTD). The US small cap index dropped -0,2% (5,3% YTD). AAPL dropped -1,8% (34,7%).

Cboe Volatility Index dropped -0,4% (-36,4% YTD) to 13,79.

The Eurostoxx50 gained 1,4% (16,5%), outperforming the S&P500 by 1,9%.

Diversified EM equities (VWO) gained 0,8% (4,0%), outperforming the S&P500 by 1,3%.

The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,3% (5,8%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,7% (1,0%).

10Y US Treasuries underperformed with yields rising 7bps (46bps) to 4,33%. 10Y Bunds climbed 7bps (10bps) to 2,68%. 10Y Italian BTPs underperformed rising 11bps (-26bps) to 4,46%, underperforming Bunds by 4bps.

US High Yield (HY) Average Spread over Treasuries climbed 2bps (-95bps) to 3,74%. US Investment Grade Average OAS dropped -1bps (-15bps) to 1,28%.

In European credit markets, EUR 5Y Senior Financial Spread dropped -3bps (-20bps) to 0,79%.

Gold gained 0,3% (5,5%) while Silver gained 0,5% (-3,8%). Major Gold Mines (GDX) rallied 4,9% (3,7%).


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Marc Bentin serves as Economic Advisor to Blue Lotus Management,

a specialist multi-manager investment firm, which seeks to provide investors a compelling alternative to the traditional 60/40 equity and bond portfolio by targeting higher returns without amplifying equity risks.

BentinPartner GmbH is Advisor to the Phi Funds AIF, an umbrella Alternative Investment Fund registered and regulated in Lichtenstein, specializing in the management of Funds focused on physical precious metals.


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