Insight and Intelligence on the London & International Insurance Markets 24 Jan 2018
The Terminator market strikes back
- 19 December 2017
It is a universal rule of cinema that movie sequels are always worse than the original.
They are often rushed through production to cash in on the popularity of the first film while it is still bankable. Often they are produced two at a time for maximum efficiency.
Unfortunately in the unholy gold rush they usually lose the original director, the writing team, some key actors and consequently almost everything that made the original blockbuster a hit in the first place.
They become a pastiche - a vulgar and cheap parody of the original.
Before you spit out your tea or coffee in indignation, there are of course exceptions to the rule. Some of the many Rocky follow-ups are much loved, as of course is the eternally evergreen Star Wars franchise.
But it is extremely rare that a second movie follows the first with wholesale improvements, higher production values and increased critical acclaim.
I can only think of one: Terminator 2.
It wisely waited seven years until popular acclaim demanded its return, reunited its original creative team and actors, had a much higher budget and successfully re-developed the plot of the original.
As with movies so with soft markets.
This soft market sequel is no pale imitation, no B movie. Like Terminator 2 it is in many ways better than the original. It has incorporated exciting and surprising plot developments.
This soft market refuses to die. Like the classic Arnie sequel it sports a new and improved baddie.
You put 12 metaphorical shotgun rounds into its head and think you must have blown it away. But you haven't. The visage soon re-shapes and you have to run.
You freeze it with a $100bn truckload of liquid nitrogen and smash it to smithereens. But still you haven't won.
The mercurial adversary melts and slowly recompiles itself.
It takes an abandoned steel plant and a strategically placed crucible of molten metal to send this shape-shifting android back to its maker.
But this is the real world, not the movies.
Just where is a conveniently abandoned but still-operational metal works when you need one?
Every year the Financial Times runs a competition for chart of the year. Economists and academics vie to describe the major economic trend of the year in a single picture.
This year a major contender was a diagram showing that the European Central Banks's tapering of Eurozone bond repurchases may not make bond yields rise as much as the market thinks.
This is because the rate at which the central bank adds to its holdings only creates a marginal effect - it is the huge amount of sovereign and other debt it already owns that really dictates pricing. The deed is already done.
Similar charts could be constructed around what the Fed and the Banks of Japan and England have done. Their swollen balance sheets are the real villains.
They will take forever to shrink. Then and only then will the superhuman level of capital that is plaguing our industry abate and more normal and rational market behaviour re-assert itself. Blink and the enemy is back and you're on the run again.
Eventually the studios couldn't resist cashing in on and despoiling the Terminator franchise.
Subsequent sequels re-proved the old rule. But audiences still lapped them up and they made good box office returns. More will probably be made.
Until our excess capital is melted down or boiled off by the return of sound money we will be facing the same problem as our plucky Terminator heroes.
For now it is still a case of I'll be back, and back, and back.
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