Kommentator: Markedet har allerede festet i forventnng om rentenedsættelse

At Last We’ll FOM See

This is what President Donald Trump’s administration wants, and eases financial conditions for anyone around the world who needs to finance in dollars. Now the paradoxes start. Investors expect a cut, and they’re buying risk assets on the back of it, but also expect inflation. The latest survey of global fund managers by Bank of America Corp. shows the biggest gap between rate and inflation expectations ever:

A record 58% of those surveyed also now believe that global equities are overvalued. It’s not so long since an over-juiced stock market was reason for the Fed to hike — most famously after Alan Greenspan warned of “irrational exuberance” in late 1996 — but this time the Fed can go right ahead and cut:

Fund managers are, to be clear, fully mindful of the dangers. They now perceive a “second wave of inflation” as the biggest tail risk to the rosy scenario, followed by dollar debasement and a disorderly rise in bond yields — all of which are more likely if this rate cut proves irresponsible. A potentially damaging trade war seems to have vanished from the equation:

If this were to happen — and it’s not a base case yet — then there is still much room for capital to flow out of the US. Contrary to perception at the time, foreign investors increased their holdings of US stocks in the second quarter, according to Deutsche Bank AG. With foreign ownership at a record, the scope for a big run on the dollar if inflation were to return in full force is real:

BofA’s research suggests that the fun on the dollar earlier this year was driven more by foreigners hedging the risk of a weaker greenback, which can be a self-fulfilling prophecy, rather than full-blown capital flight. Almost nobody now sees any reason to hedge against a stronger dollar, even with the currency at its weakest in almost four years:

In the shorter term, there’s a chance of a dollar rebound, particularly if the Fed is more hawkish in its projections than expected. Longer term, rate cuts when inflation is not beaten and equities look too expensive is a hazardous proposition. People seem wide awake to those dangers, but for now they’re still filling their boots with stocks.

Spare Us the Quarter

It would also help the rest of the world. The US is quite unusual in requiring quarterly accounts, which are optional in most other large jurisdictions. However, as executives want to attract investment, they often feel obliged to publish every three months. This could be an opportunity for American leadership to take the world in a more long-term direction.

The argument against quarterly earnings is that it tends to degenerate into a game of expectations management, and often prompts executives to make short-sighted decisions on matters like capital expenditures to ensure they beat targets. It also, as Trump says, takes up time that might be better spent elsewhere, and acts as a disincentive to companies to go public.

The argument in favor concerns transparency. In principle, companies should be required to come clean with their shareholders on a regular basis. Lightening that requirement would carry risks. In particular, it would create wider windows and greater opportunities for insider trading, as the imbalance of knowledge between businesses and their shareholders would widen.

To counter this, Sarah Williamson of FCLT Global, a coalition of companies looking to promote long-termism, argues that the rules on when firms issue what are known as 8-Ks need to be revised. The bar for announcing between quarterly reports a significant change to a company’s prospects would need to be lower. For example, winning a big new contract might henceforward require a special announcement to the stock exchange when under current rules it can wait until the end of the quarter. What really matters, as Williamson puts it, is the materiality of what to tell investors, not the periodicity.

If it hastens the end of quarterly guidance, in which companies set targets that they then feel obliged to meet at whatever long-term cost, so much the better.

Any reform will need to be done carefully. But it’s a good idea, and it now behooves the Securities and Exchange Commission, and the administration behind it, to get it right.