You’ve no doubt heard.
On Monday, chancellor George Osborne named Mark Carney, governor of the Bank Of Canada, to be Mervyn King’s successor as governor of the Bank of England (BoE).
You might feel that with a package worth £624,000 a year – more than twice as much as Sir Mervyn, and a 50% rise on Carney’s current deal – he’s a little overpaid. You might feel it’s rather hypocritical to appoint a non-national to a position like this, as well as detrimental to national confidence. You might feel that an appointment as significant as this should be subject to some kind of electoral process.
You might, like me, be a little baffled as to why Osborne is making this appointment when the BoE is supposed to be independent. (If you can enlighten me, please do. I’m sure there’s good reason).
But what you or I may or may not feel is irrelevant. There’s not a lot either of us can do. “You should only worry about what you can affect,” runs the sporting psychology. We can adjust our portfolios accordingly to protect ourselves and, possibly, benefit.
So what effect – if any – will Carney have on your investments?
Another Goldman Sachs alumnus takes over a Western central bank
The BBC and others described Carney’s appointment as a “surprise choice”. But ZeroHedge was saying as far back as the summer, even after Carney had ruled himself out, that his appointment was “very likely”. It’s yet another example, if you need one, of why more and more people are shunning the mainstream in favour of the alternative for their news.
The appointment is in a tradition trailblazed by the FA, who appointed Sven Goran Eriksson, and, later, Fabio Capello, as England’s football manager, feeling that no Englishman was up to the job, despite the fact that the English Premier League is the most watched and most lucrative in the world.
London is the capital of global finance, yet again, no Briton is up to the job. Why? I don’t know. ZeroHedge suggested back in July, rather terrifyingly: “There is one problem regarding the domestic candidates: none of them have Goldman Sachs on their resume”.
Now, I’m not about to get into Goldman-Sachs-rules-the-world theories. It’s one of the world’s top investment banks, so it’s inevitable that it will attract top talent, and that this talent will go on to feature in the higher echelons of finance.
But it can’t be denied that Goldman Sachs alumni are amazingly well represented in highly powerful, well-paid, unelected public positions across the West. From Treasury Secretary Tim Geithner and New York Fed president Bill Dudley in the US, to European Central Bank president Mario Draghi and ‘stop-gap’ Italian prime minister Mario Monti in Europe.
Many pundits are excited that the BoE job has gone to ‘an outsider’. And better yet, one who has been running one of the few global economies that seems to have emerged from the financial crisis virtually unscathed.
But what impact will Carney have on your money? My belief is that, just as nothing much changed under Eriksson and Capello, nor will it under Carney. Why do I say this?
There is the signal the markets have given us for one. Sterling was pretty much flat on the day of his appointment, while the FTSE 100 was down about 30 points, in line with other stock markets. There was no “this-is-going-to-save-us!” rally, nor “this-is-the-end!” falls.
And digging a bit deeper, there is also Carney’s record. Carney, we are told, helped to “protect Canada from the worst effects global economic crisis.” (Try telling that to investors in the Canada’s TSX Venture Exchange. It’s currently sitting about 65% off its 2008 highs. Not that it’s the job of the governor of the Bank of Canada to protect Venture exchange speculators, of course.)
But how did Carney actually work this miracle? Well, he added liquidity to the system, and slashed interest rates. In other words, exactly the same as every other central banker.
Carney didn’t save Canada – in fact he may ruin it
The truth is, there are three good reasons why Canada was not hit so hard in 2008, and was among the first countries to recover. First, it’s the only one of the G7 countries to have run a budget surplus for the last 14 years. (One reason for which, incidentally, is that with the US next door, it spends very little on its armed forces). So it was in a stronger position going into the crisis.
Secondly, Canada is extremely rich in natural resources – oil, gas, metal and grain, the prices of which (except gas) recovered very quickly after 2008.
Third, Canada’s banks were not so geared. Part of the reason for this may lie with Canada’s more risk-averse regulatory system, which Carney oversaw during his time at the Bank of Canada. Others would argue that Canada’s banks were simply too late to the securitisation party, and so were able to dodge a bullet.
Of those three reasons, Carney can only really take any credit for the last. Yet as a result of his slashed interest rates, the banking system may not be such a paragon for much longer. Carney leaves behind him high house prices in both Toronto and Vancouver, where, not unlike London, locals complain that housing has become unaffordable to them. Are they bubbles that are set to burst? We’ll see. Carney might be leaving Canada just in time. We shall find out.
So are we going to see real change? I doubt it. Just a few tweaks here and there are more likely, I would have thought – not unlike the change you see after general elections, really, or with the England football team.
Carney only has the same cards as the last head of the BoE – words and the ability, if in doubt, to print as much money as the Treasury wants. So no need to change your investment strategy. There’s no big change of policy coming. We’re likely to remain mired in this stagflationary bog. Stick with income-paying stocks, cheap markets outside the UK, and, of course, plenty of gold to guard against the ongoing devaluation of sterling.
• This article is taken from the free investment email Money Morning. Sign up to Money Morning here .
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