Despite the ideation of free markets as the key to a successful economy throughout the western world, both the private and public sector are becoming progressively centrally planned, according to Premier Miton Investors’ Anthony Rayner.
Rayner said this was seen clearly in the global financial crisis, as central banks used “unprecedented tools” such as quantitative easing (QE). While Rayner, who is a multi-asset manager on the macro thematic team, acknowledges there was a “good case at the time for this action”, he also points out that many central banks continue to hold those government bonds now.
“Perhaps it isn’t surprising that the authorities didn’t give up their new QE powers, power tends to be quite addictive after all, but government bond markets are still very manipulated and are not operating in a free market,” Rayner said.
“This is important as the actions of bond vigilantes, through the transmission mechanism of government bond markets, were a way that some discipline was applied to government spending.”
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The influence of governments on markets was exemplified for a second time during the Covid 19 pandemic, yet in this case added on government spending as well as monetary policy.
“Again, this might well have been the sensible response at the time,” Rayner said.
“However, the lockdowns are long gone, and the rule book has since been rewritten for fiscal spending, in part because the lockdown shock changed the narrative around government spending but also because bond vigilantes have had their wings clipped by previous government action.”
Rayner pointed to the US Inflation Reduction Act and CHIP Act, which total near $400bn. The Japanese Ministry of Finance has also stepped in to maintain value of the yen, which Rayner notes has seen “few objections from free market proponents”.
Within private markets, debate has centred around monopolies specifically in areas such as technology.
“There is a debate around whether or not these companies are in fact monopolies, some are clearly more so than others. They have sometimes avoided accusations of monopoly as they are offering cheaper, or optically free, services or demonstrably better services, such as faster delivery,” Rayner said.
“In addition, monopolies are often accused of stifling innovation and, while that may well be true, it’s also easy to argue that these companies are also innovating, even if they are smothering competition in some cases too.”
Regardless, companies in this area do hold lobbying power and high barriers of entry, which has caused a disruption in price discovery. Rayner said this has led to traditional fund factors such as supply and demand and stockpicking to be only part of a larger picture.
“Going forward, it seems unlikely that these new powers will be voluntarily given up and indeed, come the next crisis, arguments will no doubt be made for new powers.
“As a result, it’s difficult to argue that there will be a return to anything that resembles free markets in the short to medium term.”
