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Learning From Mistakes Is Over-Rated
Just do the same thing and expect different results
Tim Vollans
January 19, 2024 ⢠Estimated Reading Time: 5 minutes
đ§ The Big Brain
Year of The Donald (again)?
Politics doesn't often matter to markets, except...
Already seeing market moves being attributed to Donald Trump winning in the Iowa caucus.
Insanity.
We donât like politics. We only care because markets care.
Still, this idea that Trump winning another term would be any kind of major shock is outrageous.
Heâs well and truly in the race, and on course to be named the official Republican candidate in mid-March.
Heâs also favourite to win the election on political betting sites like PolyMarket & PredictIt.
Ten months out, itâs still a little early for markets to care.
That said, the dreaded uncertainty that change brings isnât usually good for sentiment.
When will markets begin to panic about Donald 2.0?
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đĄ The Lightbulb
Learning From Mistakes Is Over-Rated
Signed, the UK Government
Long time readers will remember the Drax âscandalâ we covered in âshow me the incentivesâŚâ.
Basically, Drax is a biomass power plant with a massively lop-sided incentive scheme, subsidised by the British government.
Instead of doing what the government wanted them to do (not make money, send savings to consumers), they shut down production, and focused on making money.
Forget about the morals of the case (fundamentally, businesses exist to make money so we shouldnât be shocked when they try to do so).
The real scandal was that the government left such a glaring and enormous loophole in the agreement. Legally speaking, Drax has done nothing wrong.
Which is why the government was left arguing the âspiritâ of the agreement last summer:
Three former energy secretaries previously told Bloomberg that Drax appeared to have violated the spirit of its agreement with the government.
âDrax is making a lot of money from something that with hindsight probably should never have been agreed,â said Jacob Rees-Mogg, a former energy secretary who remains a Conservative member of parliament.
So, obviously theyâve now decided to extend the subsidyâŚ
FT
Under the current subsidy regime, Drax receives a top-up from bill-payers if the wholesale price of electricity falls below a certain level, as well as lump sum payments.
Ember, a non-profit group, has calculated Drax was paid ÂŁ885mn in 2021 and ÂŁ617mn in 2022 under these schemes. Exactly how much it could be paid under any future support package beyond 2027 was unclear.
The government said any new subsidy scheme would âbe subject to a vigorous value for money assessment.â
Ah well, glad thatâs settled thenâŚ
⥠The Spark
House Prices Are Up
Or down. It all depends who you listen toâŚ
If you pay attention to house prices, youâll see all kinds of headlines telling you how much theyâve risen or fallen each month.
Stuff like this:
Youâd be forgiven for asking whatâs going onâŚ
Right now, the storyâs all about mortgage rates falling, mortgage activity picking up, as lenders & agents look forward to a brighter 2024.
ARE THEY LYING?
Errr no. Lower mortgage rates are helping unfreeze the market. The prices mentioned in those headlines are for November.
Irrespective of that, these house price indices are useless to the everyday person. Check this out from Nationwide:
Who believes that UK house prices only fell by 1.8% last year?
Maybe on average, but an average can hide many sins.
These indices all have different methodologies and timing too.
So, be careful interpreting house price trends based on headlines.
They likely represent a fictional average price that existed in a theoretical world many months ago.