This past June 19th, George Soros published a note with Project Syndacate (https://www.project-syndicate.org/commentary/brexit-in-reverse-by-george-soros-2017-06) where he goes back to the british pound stage. The intention is to talk about Brexit, its real meaning, the coming effect and the personal hope for the next future. In Soros text, there is no hint to the memory of what happened 25 years ago, within the European monetary system and the British pound. Memory goes to September 16th 1992, when Mr. Soros made 1.5 billion dollars in profit and sunk the pound, shaking Europe for some years.
We are getting closer to the quarter century anniversary and recent coincidences might let us think that celebrations are dutifully planned on both sides.
On June 19th Soros describes his conviction about the year after the Referendum and what he expects next. Mass media reported abstracts of Soros’ thought, his name is known to the mass as much as show business celebrities. The coincidence that pushes us to dream about a common plan in the coming celebrations, originates from the side of finance that still keeps a more traditional attitude in front of mass media. Bank of England’s Ms Kristin Forbes (member of the board in charge of deciding about monetary policy) gives a speech on June 22nd, published on the Bank internet site (http://www.bankofengland.co.uk/publications/Documents/speeches/2017/speech985.pdf), where she nearly literarily confirms the expectations described by Soros three days earlier.
Very shortly, Soros describes today’s financial situation in the United Kingdom as too levered at the private sector level, the positive economic environment that dominated the period after the choice to leave the European Union was supported by final consumption of households financed by debt. The consequent economic growth, together with the weakness of the pound, pushed the inflation rate to 3%. Salaries have not kept up to consumer price inflation, real available income is today smaller than one year ago, together with a larger debt, it looks inevitable for the British family to adjust their spending. In these conditions, the normal expectation should be for a more moderate level of household expenditures, together with a growing preference to deleveraging.
Even if Mr Soros writes mainly about the choices available for Ms May, he does not forget to express his worries about a much more direct subject for financial markets. Bank of England, in his words, seems to have committed the same mistake as the consumer, they both underestimated inflation, the next mistake could be following a pro – cyclical behavior after having missed the opportunity to be anti – cyclical.
What is the Central bank saying? Here we have a rare example of fine tuning in the planning of the coming celebration: Ms Forbes firmly declares that the necessity to act on rates is coming and soon, right in the moment when the citizen is starting to appreciate that his debt is too large and his purchasing power is low.
Are we really moving towards the moment when “reflexivity” (in the words of Soros, the moment when cause and effect shape each other) happens?
September 16th this year is on a Saturday (markets are closed), the calendar for the Bank of England shows a meeting on September 14th, other important central banks have their meetings around those days, we don’t know the date for the Soros Family Office investments committee, but if September 16th were confirmed as the date of “reflexivity”, a toast to the quarter century would be fully in tune with the whole organization.