During my career I’ve learnt to be on my guard. I’ve become used to the phone calls and messages. They’re the ones from friends and acquaintances who work in the City wanting to know if I can share some “intel” with them. They’re employed by hedge and investment funds, and they’re seeking information.
What they’re pursuing is the “edge” over their rivals and the market. They don’t say it so baldly. The request is less direct, chattier. “Just wondering what you thought of so and so,” or “Have you heard anything about X” — that sort of thing.
And the time they’re most pressing is if there is a major political story breaking, when there is a rumour of an impending resignation or key economic measure.
Given I’m a journalist and I move in gossipy circles and yes, I meet senior politicians and their advisers, they suppose I might have gleaned something. What they want is anything, any nugget, no matter how small. Put it together with another morsel, build a picture, run the numbers and hey presto, a lightning investment play emerges. It might be enough to move a stock, nudge a currency, to make a killing.
Given that he once worked for Crispin Odey, the rumbustious star hedge fund manager who describes his huge bets against the UK government as the “gifts that keep on giving” (Odey’s main fund is 145 per cent up this year from betting against UK bonds), Kwasi Kwarteng surely knows this. Careless talk costs lives. In hedge fund land, careless talk means profit.
Which is why it is so baffling that on the evening of his mini-budget he should attend a party where at least one hedge fund titan and others with cash tied up in such funds were present.
It's doubtful they approached Kwarteng for a straight, detailed lowdown. He would be on his guard against saying too much.
Equally, though, the chancellor should have realised their antennae would be primed, they would be roaming the room for any glimmer of insight, the tiniest crumb that would help them form a view, enabling them to assess investors’ reaction — in this case to gauge the impact on sterling. It could be a throwaway line, the casual mention of more big plays in the offing — whatever, it would suffice. Even his pumped-up, emboldened body language would provide a clue.
For hedge fund managers and their ilk, information is potential gold. It doesn’t matter where they got it from, where they heard it. Confidences, background, off the record — these can be meaningless expressions to sharks whose primary objective is to make a financial killing.
It’s their duty. Some newspapers and commentators have reacted with shock to the news that hedge funds shorted the pound and that they doubled down after Kwarteng’s public remark that further tax cuts were likely.
But hedge fund managers are charged by their clients with netting the maximum return possible. They’re expected to stay within the law but after that, pretty much anything goes.
They’re not cynically trashing Britain or personally slighting Kwarteng, as some have claimed. They’re taking a view that after what the chancellor has announced, after the shock unfunded tax cuts and the lack of objective analysis from the Office for Budget Responsibility, the currency would fall, that the global financial community would move against Britain.
Going long, going short, this is what they do. If some observers are to be believed, short selling is some sort of crime, deserving of being outlawed. According to this worldview, presumably, there is only room for taking a long position, for believing shares and investments can only move upwards. That leads to inflated, unfounded values. They can’t always rise — they can go down as well as up. For a hedge fund to ignore the probability that they might fall and to ignore the opportunity to make a gain from the drop would be grossly negligent.
Kwarteng’s belief in his own cleverness was his undoing. It was not the energy price cap for consumers and businesses that spooked the City, it was the surprise of the tax cuts. He’s no fool, he was employed by Odey and socially he moves among those who play the markets for a living. He must have known his measures would provoke, as he put it in his conference speech, trying unsuccessfully to play it down, “a little turbulence”. In case he didn’t, he was also warned — at least one senior economist told him privately investors would react badly. Still, he pressed ahead.
Having done so, he went to that soiree. It was part pleasure, part work. Those at the gathering were Conservative donors. This is where the Tories in particular run into a quagmire. They can claim, justifiably, that Labour also holds receptions for its backers. But Labour’s supporters are trade unions and the like, not those who are sniffing for any chance to profit from stock and currency movements.
A Conservative chancellor, therefore, is bound to be drawn into meeting and conversing with such people (doubtless too, several of them are long-time pals from his Eton, Cambridge days).
Throw into the mix his desire to hit the ground running, to go full pelt and his newness to the post, and the ingredients are there for disaster. A wiser bird, a Nigel Lawson or Ken Clarke say, might not have attended — the job comes first, whatever the party fundraisers may claim. But then they would not have sprung Kwarteng’s package in the manner he did and they certainly would not have fuelled the fire with a boastful follow-up comment.
Hopefully, Kwarteng has learnt his lesson. He’s now all too aware that being chancellor is a serious job. Casualness will not do.
The omens are not promising. Dismissing the chaos that he caused as mere “turbulence” might have appeared funny but it suggested indifference, trying to make light of something that was deadly important. That was not a good look. If he wishes to survive, and even after a relatively successful conference address on the back of an embarrassing U-turn, it remains a big “if”.
He should know it’s all about perception. Nothing might have been said at the party but that’s not the point. It gave the wrong impression, of a chancellor favouring his mates, the City slickers. He needs to be more careful in future and that means being more selective with what he says, where he goes and his choice of friends.
Conservative Party conference – in pictures
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British Prime Minister Liz Truss speaks at the ruling Conservative Party's annual conference in Birmingham. Reuters -
Attendees take their seats before the keynote speech by Ms Truss. Bloomberg -
Chancellor of the Duchy of Lancaster Nadhim Zahawi speaks. PA -
Prime Minister Truss and her husband Hugh O'Leary arrive for day four of the Conservative Party conference. Getty Images -
A delegate wears a red 'Make Britain Great Again' cap. Getty Images -
A member of the audience wears socks with Union Jack colours. Reuters -
Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng visit the construction site of a medical innovation campus during day three of the Conservative Party conference in Birmingham. Getty Images -
Foreign Secretary James Cleverly arrives at the conference. Reuters -
Former home secretary Priti Patel speaks in Birmingham. Getty Images -
A delegate is pictured with a bag displaying pictures of former Conservative prime ministers Benjamin Disraeli, Winston Churchill, Boris Johnson and Margaret Thatcher. AFP -
Mr Kwarteng delivers a speech on day two of the annual Conservative Party conference in Birmingham. Getty Images -
Liz Truss, Chancellor of the Duchy of Lancaster Nadhim Zahawi and Secretary of State for Health and Social Care Therese Coffey listen to Mr Kwarteng speak. Reuters -
Ms Truss arrives for the Conservative Party Conference. EPA -
Leaflets with Ms Truss on the cover are seen on the second day of the conference. Getty Images -
A person attending the conference carries a bag from the Taxpayers' Alliance. EPA -
Refugees present Tory delegates with 'one-way tickets' to Rwanda during a protest outside the Conservative Party annual conference. PA -
Business, Energy and Industrial Strategy Secretary Jacob Rees-Mogg laughs as he arrives. EPA -
Ms Truss and Mr Kwarteng chat at the opening session of Conservative Party conference in Birmingham. EPA -
A protester demonstrates outside the annual autumn conference. Bloomberg -
Mr Kwarteng gives a TV interview. Reuters -
Protesters march with placards at a demonstration in Birmingham against the Conservative government as the party's conference started in the city. Bloomberg -
The prime minister and members of her Cabinet sing the national anthem at the opening session. EPA -
Penny Mordaunt, Leader of the House of Commons, pays tribute to Queen Elizabeth II. PA -
Protesters and police clash in Birmingham city centre. Getty Images -
Former British prime minister Boris Johnson is reflected in Mr Kwarteng's glasses. Reuters -
A protester holds a placard condemning the chancellor. Bloomberg -
Ms Truss arrives at the conference. Bloomberg -
Delegates take a break outside the venue on the opening day. AFP
