Lyons burned in a single night.
The news reached Aebutius Liberalis in Rome, and Seneca wrote to him about the speed of it, because the speed was the thing. Only a single night elapsed, he said, between the city at its greatest and the city non-existent.
His demand of Liberalis ran past consolation. The mind, he wrote, should be sent forward in advance to meet all problems, so that a loss arrives somewhere it has already been.
On Friday afternoon in Jackson Hole, Kevin Warsh spent his debut as Fed chairman declining to say what he would do.
He called the price-stability numbers more concerning. He said that publishing forecasts to illustrate the Fed’s reaction function “works better in theory than in practice, better in the lab than in the field.” Then he left the room with the line he wanted left in it: “I stand here today committed to a discipline, not to a decision.”
By the close, the market’s odds on a 25 basis point hike in September had moved from about 35 percent to more than 57.
The dollar index climbed half a percent. By Monday a basket of developing-nation currencies had snapped a nine-session winning streak.
The range you operate inside moved anyway.
Nothing happened to your business that afternoon. The range you operate inside moved anyway.
For eighteen months you have run one model. Rates come down eventually, so refinance later, stretch the working capital line, take the floating rate.
The man who sets the path has now told you in public that he will not publish the model.
Forecast risk left the central bank’s balance sheet on Friday and landed on yours, and no one will send you the invoice.
That is the transfer. Forecast risk left the central bank’s balance sheet on Friday and landed on yours, and no one will send you the invoice.
The Stoics ran a drill for exactly this, and Seneca ran it hardest. Premeditatio malorum: you rehearse the loss in advance, in detail, with figures, so that when it arrives it arrives at a mind that has already been there.
The drill is arithmetic rather than mood.
So do the arithmetic before Thursday. Bank Negara decides on 3 September and has held the overnight policy rate at 2.75 percent at all four meetings this year. The FOMC follows on 15 and 16 September.
Pull every facility you hold, mark the floating ones, and price what an extra 50 basis points does to the monthly outflow. If that number decides whether you make payroll in the first quarter, the fixed-rate conversation belongs before the 3rd rather than after it.1
If you sell into Indonesia, the rehearsal has already been run for you. Bank Indonesia held at 5.75 percent in August with the rupiah down 7 percent against the dollar this year, and its own statement names global uncertainty as the reason it will not move.
Chinese analysts read the same shift and named the deeper part of it. Luo Zhiheng’s team at Yuekai Securities called it an institutional adjustment of the Fed’s communications paradigm, which is the courteous phrase for a chairman who has withdrawn the forecast you were building on.
You cannot price a path you have not been given. You can price the range, and the range is now a coin flip with a date on it.
Liberalis lost a city he had never imagined losing, which is why Seneca thought he lost it twice, once in the fire and once in the surprise.
Nothing ought to be unexpected by us, Seneca wrote to a man who had just lost a city. You have until Thursday.
Footnotes
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The base case is still that Bank Negara holds on 3 September, and a hawkish Jackson Hole has read as a head fake before now. The rehearsal costs one morning either way. ↩