Credit deflation and the reflation cycle to come (part 6)

[Yadda yadda yadda]

18 minutes ago, HousePriceMania said:

and IIRC there is a reason for that, no one will buy £s otherwise.

You want a higher rate of return for taking on currency risk.

[Virgil Caine]

57 minutes ago, desertorchid said:

Historically UK rates were always a touch above the US. It just the way it was. This norm broke in 2008

With rare exceptions as when Volcker was crushing US inflation in the early 1980s this was normally the case up until the GFC. Investors demanded an interest rate premium before putting money into Sterling. Same has generally happened with ECB rates since the early 1990s. Sterling was effectively devalued when it was forced out of the ERM so Britain has generally had higher interest rates than the Eurozone to compensate. Current events are in fact a reversion to the state before the GFC. ZIRP and QE were the anomalies.

 

 

 

Edited June 14, 2023 by Virgil Caine

[feed]

54 minutes ago, desertorchid said:

Historically UK rates were always a touch above the US. It just the way it was. This norm broke in 2008

40 year BOE v FED (blue) disinflationary cycle.  Relationship certainly change around 2008, but will an inflationary cycle be the same.  

and not the only thing that changed around 2008,  

https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/timeseries/hf6x/pusf

 

[Ash4781b]

1 hour ago, DurhamBorn said:

100% what they are doing,they are moving the pain onto mortgage holders rather than cut bennies or pensions.Its as simple as that.Like iv always said the roadmap showed them making the less than half contributing take their pain and everyone elses,it really is shocking.

Are the gov’ still freezing the Local Housing Allowance rates? 

[feed]

57 minutes ago, Yadda yadda yadda said:

Time will tell but I think inflation will be too high here to maintain that. The USA can insulate itself from producer inflation to a large extent. They produce oil, gas and even coal, still. They have massive industrial capacity. They have an onshoring policy. They still have the reserve currency.

The UK has very little industrial capacity compared to consumption. I think that UK, and possibly EU interest rates, are going to shift regime from being lower than US to being above. This may take several years as the impact of interest rate increases here will be stronger and depressionary. At least in the medium term. We could have a crisis moment.

I expect interest rate in the UK to be higher than in the US by the end of 2025. I could be wrong.

What change in governance at the boe do you see happening to get them to run higher than the fed. 
You expect Bailey to be removed? 
 

[Virgil Caine]

35 minutes ago, Yadda yadda yadda said:

You want a higher rate of return for taking on currency risk.

You certainly do when currencies float in the open market. Sterling has a long history of devaluations in the past century both before and after the demise of Bretton Woods so you would be crazy not to expect some sort of IR premium. What amazes me is that so many people in the U.K. have such little grasp of recent history. I know I am old but the ERM debacle was only 30 years ago and U.K. interest rates were at 5% prior to the GFC in 2008. Bizarre that the BOE can’t or don’t want to understand that fact. Like most generals they are too busy fighting the last war to realise they are losing the current one.

Edited June 14, 2023 by Virgil Caine

[Virgil Caine]

17 minutes ago, feed said:

What change in governance at the boe do you see happening to get them to run higher than the fed. 
You expect Bailey to be removed? 
 

I would be interested to know what advice Bailey was receiving over the past two years. We already know that the BOE models are effectively broken as they have admitted they were inaccurate. In some ways the mismanagement of the currency mirrors the mismanagement of Covid where the complex computer models also proved to be largely wrong and better predictions could have been made using simpler historical evidence.

Edited June 14, 2023 by Virgil Caine

[DurhamBorn]

22 minutes ago, Ash4781b said:

Are the gov’ still freezing the Local Housing Allowance rates? 

Until next April yes,but Labour are certain to increase them by a lot,and the Tories might next April.Housing wealth needs to be next to go though if policy doesnt change,so i suspect a large chunk of BTL will go under,lots taking their own house with it.Equity release will also be destroyed at high rates and house price falls.

[DurhamBorn]

2 minutes ago, Virgil Caine said:

I would be interested to know what advice Bailey was receiving over the past two years. We already know that the BOE models are effectively broken as they have admitted they were inaccurate. In some ways the mismanagement of the currency mirrors the mismanagement of Covid where the complex computer models also proved to be largely wrong and better predictions could have been made using simpler historical evidence.

He was getting the advice that by monetising for government they could fund bennies etc and that would create a demand pull and companies would expand to fill the demand.They all did the same classical economics courses.The problem with the model was it is the opposite of what happens in a distribution cycle.Increasing demand on none producing while production is falling compared to inflation means everyone else loses their spending power and everyone elses.Its a disaster because they got the cycle wrong.They need a model that gives cross market outcomes in a distribution cycle.

We shouldnt complain on here though,its the fact we were right that we doubled our families capital etc,but i expected them to understand by now,the fact they still dont risks us losing everything we made.

[Yadda yadda yadda]

35 minutes ago, feed said:

What change in governance at the boe do you see happening to get them to run higher than the fed. 
You expect Bailey to be removed? 
 

I expect the market to force their hand.

On that timescale, end of 2025, there is a good chance he will be out. New Government by then, of course.

Edited June 14, 2023 by Yadda yadda yadda

[sancho panza]

37 minutes ago, DurhamBorn said:

Until next April yes,but Labour are certain to increase them by a lot,and the Tories might next April.Housing wealth needs to be next to go though if policy doesnt change,so i suspect a large chunk of BTL will go under,lots taking their own house with it.Equity release will also be destroyed at high rates and house price falls.

Indeed.I expect we'll see a parade of the following themes in the Daily Mail.

'they never told us our own home was in the default chain'

'all we ever did was provide a social service,'

'to protect the tenants,the govt should backstop BTL laons..'  etc etc

 

As I've said before,family friend,25 BTL's hitting the auction in the next few months,inclduing their own home eventually.IO on £150k has gone from £3k p.a. to circa £9k and 91% of Natiownwides BTL mortgage book is IO......................think about that.what were tehy thinking.?

[Virgil Caine]

52 minutes ago, DurhamBorn said:

We shouldnt complain on here though,its the fact we were right that we doubled our families capital etc,but i expected them to understand by now,the fact they still dont risks us losing everything we made.

To misquote the old adage “institutions can remain irrational longer than you can remain solvent”. These people have massive egos and the institutions themselves are heavily invested in the cultural myth of their own omnipotence and infallibility. They probably won’t realise that the gig is up until Threadneedle Street and Westminster are literally in flames. In addition the consequences of their fuck ups tend not to impinge immediately on their lives. It is a situation that encourages complacency and is not designed to promote urgency or forward thinking. People like Bailey are really just time serving place men and these are usually the sort of people who have to be removed as soon as a crisis hits. Few of Britain’s serving Generals in 1914 or 1939 survived in post until the end of the world wars.

[Yadda yadda yadda]

1 hour ago, DurhamBorn said:

He was getting the advice that by monetising for government they could fund bennies etc and that would create a demand pull and companies would expand to fill the demand.They all did the same classical economics courses.The problem with the model was it is the opposite of what happens in a distribution cycle.Increasing demand on none producing while production is falling compared to inflation means everyone else loses their spending power and everyone elses.Its a disaster because they got the cycle wrong.They need a model that gives cross market outcomes in a distribution cycle.

We shouldnt complain on here though,its the fact we were right that we doubled our families capital etc,but i expected them to understand by now,the fact they still dont risks us losing everything we made.

Their model also boosts imports more than it drives domestic production. We're net importers of food, clothing and energy. Services, especially retail, grow but a lot of the stimulus slips out of the economy.

They're fighting the last war. We used to have low inflation due to cheap imports from China, etc. Increasing demand prevented deflation. Now we have expensive imports. Increasing demand makes inflation worse.

[DurhamBorn]

26 minutes ago, Yadda yadda yadda said:

Their model also boosts imports more than it drives domestic production. We're net importers of food, clothing and energy. Services, especially retail, grow but a lot of the stimulus slips out of the economy.

They're fighting the last war. We used to have low inflation due to cheap imports from China, etc. Increasing demand prevented deflation. Now we have expensive imports. Increasing demand makes inflation worse.

Exactly and they missed that turn.I added a multiplier to lots of inputs depending on how far the rubber band was pulled back and it was incredible.I used to use the trampolines in council house gardens on Google Earth as an example,all imported by almost everyone who was on bennies.China knew what was going on,but it suited them for a while.They gave away saved labour to build up industry etc.Now they simply move to who can pay.The UK is one of the most productive countries in the world,its just we carry over 50% who produce nothing.That is the folly that is sinking us now.I dont think anyone understands that every single penny of welfare has been funded with inflation on everyone else.None of it is tax,all QE,until now that is.

 

[sancho panza]

2 hours ago, Yadda yadda yadda said:

I expect the market to force their hand.

On that timescale, end of 2025, there is a good chance he will be out. New Government by then, of course.

I think the shorts and hedgies are putting aiming markers out there right now.There's massive risk/opportunity here.

1 hour ago, Virgil Caine said:

People like Bailey are really just time serving place men and these are usually the sort of people who have to be removed as soon as a crisis hits. Few of Britain’s serving Generals in 1914 or 1939 survived in post until the end of the world wars.

Very true.The failures of peace time generals lieke Percival (in Singapore)/Haig/Redvers Buller(Boer War) when they led troops into battle were analysed by Norman Dixon in  The Psychology of Military Incompetence.An excellent book.

It was ever thus

 

edit to add.

We'll be buying Yara today.it's gone ex D on 13th hence the dsicount. We're circa covid levels

Not  abd time to buy the NOK version either

https://www.investing.com/equities/yara-international-asa

 

Edited June 14, 2023 by sancho panza

[MrXxxx]

1 hour ago, sancho panza said:

IO on £150k has gone from £3k p.a. to circa £9k and 91% of Natiownwides BTL mortgage book is IO......................think about that.

So referencing one of my previous post about a Bank/BS crash Top Ten it looks as though NW will get No1 spot?

[MrXxxx]

1 hour ago, Virgil Caine said:

Few of Britain’s serving Generals in 1914 or 1939 survived in post until the end of the world wars.

Yes, and they got their medals but not the 'spoils' of war...seems 'General are Generals', and 'Privates are Privates, whatever scenario we are in!

[MrXxxx]

39 minutes ago, Yadda yadda yadda said:

We're net importers of food, clothing and energy.

...and Jacuzzis and trampolines as well!

[Axeman123]

32 minutes ago, DurhamBorn said:

.I dont think anyone understands that every single penny of welfare has been funded with inflation on everyone else.None of it is tax,all QE,until now that is.

Also the 2010-2019 portion of that wild handout spree, when the govt foot was merely lightened on the gas pedal, was dubbed "austerity"! It was portrayed as the evil Tories cutting things to the bone etc, for no reason other than spite and avarice.

When real cuts come people are going to squeel, 2008-2010 was "normal" and "2010-19" was satanic in the ordinary voters mind. What is coming now will blow them away.

[Democorruptcy]

4 hours ago, SpectrumFX said:

I thought that the whole point of raising interest rates was to take money off the people paying mortgages. That this fights inflation by reducing demand in the wider economy, because people have had to spend more money on their mortgage.

Now they want to press the "raise interest rates" button, but to also protect everybody from the consequences of pressing the button, when it's those very consequences by which the button achieves their stated goals.

This is proper cargo cult stuff. These people are morons.

 

The most important point about raising rates, might be that the governbankment is paying the base rate to banks, on the £900bn they are parking nightly at the BoE. It's a taxpayer gift to bankers of £40bn a year at 4.5%. Each 1% base rate rise is worth £9bn to banks.

What Hunt might have said to bankers (without wanting to draw attention to said £40bn but using it as leverage), is for them to be kind to borrowers, to reduce the bad press about mortgage holders in difficulty. One favour deserves another?

[leonardratso]

hmm ford money sneakily put up the fixed saver rates without telling me;

 

 

[montecristo]

13 minutes ago, leonardratso said:

hmm ford money sneakily put up the fixed saver rates without telling me;

 

 

[leonardratso]

thungela on a rip;

Edited June 14, 2023 by leonardratso

[leonardratso]

but not so much;

[montecristo]

24 minutes ago, montecristo said:

Gone up another 0.02% in 10 minutes   After next weeks rate rise 1 year savings will be 6% +