Monday, Apr 06, 2009
Destroying UK savings: Get rid of sterling now!
FT: UK is urged to print money
''The government will have to print money to finance public spending, moving quantitative easing to a new level, according to the manager of one of London’s biggest hedge funds. Mike Platt, co-founder and chief executive of BlueCrest, Europe’s fifth-largest hedge fund, had been predicting quantitative easing in the UK for six months before it was adopted by the Bank of England last month.
''
Posted by hpwatcher @ 06:38 AM (3150 views) Add Comment
44 Comments
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1. paul said...
I think the media's quiet cover up of the threat of inflation rather than deflation (Liam Halligan from Telegraph leading that charge) is reaching a turning point - further printing of money now will start to look like inflation is being sealed in, and won't be taken well by the public.
2. Iblewitlasttime said...
The more I think about this particular type of gilt-buying QE, the more I think that it was always just an emergency measure to finance the deficit that Brown thought he could rectify quickly. Can anyone explain why this is not Zimbabwean economics?
3. paul said...
@Iblewitlasttime
The difference is an academic one to do with how the assets can be repurchased when the recovery starts to remove the excess liquidity.
The problem is that inflation will likely take off as a consequence much sooner than the recovery. Even if the recovery does come sooner, who in their right mind will withdraw the extra credit and stifle the recovery? Lastly, M4 money supply is increasing at a breakneck speed of 16% per annum - as much as when the credit boom was in full swing.
There is an unseen spanner in the works - one that has been lurking which no-one has yet foreseen. To understand it, one must look to Japan's credit bust. It is the Transmission Mechanism. You can print money all you like but if people don't want to take on more debt (because of say, rising unemployment), all your money printing is in vain (or is used at best to shore up bank balances).
This is what the short-sighted policy makers are about to find out.
4. Angry From Tunbridge Wells said...
Yes but can any one suggest where to move savings to get out of sterling? Like many others I did the prudent thing and saved, I have been looking at HPC for years and although I have wanted to buy a house I knew that a greed fest of borrowing had caused a housing bubble and it would be a matter of time before she blew. Now when there appears to be a glimmer of hope with prices dropping the Government starts raiding our savings, has anyone got any ideas because I do not want to be forced into buying property by this cynical, printing money policy aimed at rewarding all the rash borrowers who got us into this mess?
5. sold 2 rent 1 said...
Paul
"I think the media's quiet cover up of the threat of inflation rather than deflation (Liam Halligan from Telegraph leading that charge) is reaching a turning point."
That'll be the Armstrong turning point on 19 April 2009 then.
Gold/silver putting in lows this week for a buying opportunity of a lifetime. Trying to solve a debt crisis with more debt is a guaranteed way having currency destruction.
Also, see Obama's speech yesterday; he talked about a potential nuclear bomb in a major city. They are preparing us for the next false flag operation. IMHO this won't happen until next year with 16 April 2010 being a massive low on both the Armstrong and Calleman models
6. refusetobuy said...
... says hedge fund manager who is (probably) long index linked gilts and short sterling.
7. greytornado said...
As sold 2 rent 1 says above - this is the gold buying opportunity of a lifetime - the IMF announced it is selling several hundred tons a few days ago - it's all part of the ploy to keep gold down, but this can't last as the supply of gold is infinite. A lot of serious people planning ahead believe that they will easily double their money. I think they are being conservative....................
8. greytornado said...
Comment 6 - I should have used the word 'Finite'. Typo glitch !!!!!
9. Iblewitlasttime said...
@paul
I know that in theory they can unwind the QE by buying short-dated gilts in the first place and then tear up the repayment when it comes.
But I still think that its very convenient that of all the instruments they could have purchased as QE they chose the one most useful for the government.
I think we all agree that so many spanners are going to fly around this works that non-one had better be standing near it when it goes!
10. inflation is eating my savings said...
s2r1- I am also concerned about false flag ops. I hope we are both wrong.
11. 51ck-6-51x said...
greytornado said "supply of gold is infinite" -
Could you clarify this statement?
12. 51ck-6-51x said...
greytornado -
Ah, I see you have reported a typo.
How does the fact that supply is finite imply the price must rise? You must look at both sides. Do you think demand is ever-increasing?
13. sold 2 rent 1 said...
inflation is eating my savings,
For me, it is inevitable we will probably go to the brink of WW3 before the masses take back their freedom from corrupt corporations/governments.
95pc of the population are still completely oblivious to the reality of world they live in. 2010 will not be easy and will make 2008 look like a picnic.
When doing K-cycle research in 2007 I found this article on LewRockwell.com and one paragraph has stuck in my mind ever since
http://www.lewrockwell.com/rothbard/rothbard44.html
“A few years ago, I sat on a panel where one of the speakers, with absolute authority and self-confidence, announced that his "researches had shown" that nuclear war would arrive in the summer of 2010. A gasp, a frisson of delighted fear, went through the large and intent audience. But, when the year 2010 comes around, will any of us still here remember, much less bother to call this man on his prediction?“
2010 is nearly here.
14. bluebeach said...
After a nuclear war......" I will give you one bar of gold for your tin of beans and rotting cabbage" nowt else will matter much.
15. crunchy said...
8. inflation is eating my savings said...s2r1- I am also concerned about false flag ops. I hope we are both wrong.
crunchy- Some things are more obvious to some than they are to others. Wrong will be within the event itself.
16. japanese uncle said...
Wage and slary are certainly going south while daily commodities are more and more expensive. (Cheaper rents is a good news, but cannot be felt unless you are prepared to move). A perfect recipe for the 'Great Summer of Discontent, 2009'. Although agent provocateur seems to have been behind the violence in the City last week, people on the street will be facing deserate situation.
17. crashpad4me said...
So Mike Platt was predicting QE six months ago? Big deal. So were a number of people on this site. And I seem to remember Alistair Darling saying as recently as last December that printing money was not on the agenda. Call me cynical, but at that point it seemed to me that it was inevitable.
18. penbat1 said...
OK OK gold is likely to do well thanks to inflation. But surely there is much greater potential on oil. thanks to peak oil and supply destruction. There is almost unanimous talk of a spike to $200 or more in a few years time which means a 400% plus increase. So how can gold beat that ?
19. bluebeach said...
Gold at $879 this morning..... why?
20. mountain goat said...
Bluebeach - Gold is falling because speculators are selling gold to buy shares. They are buying shares because the economy is in great shape now that it has been nationalised. The market is handing you a gift. Don't look a gift horse in the mouth.
21. icarus said...
QE is the purchasing of assets by the BoE. It's not the simple printing of money in the sense that the govt effectivly sends everybody in the country a cheque for £1,000 and finances the operation by issuing gilts that are bought by the BoE, thereby increasing the fiscal deficit. QE is not a direct boost to spending in the economy.
QE is a method of increasing liquidity and bank deposits. The BoE buys assets (with a cheque from the BoE - it IS money-printing in that sense) such that the sellers of those assets increase their deposits within the UK banking system. The hope is that this increase in commercial banks' reserves with the BoE will increase lending to cash-strapped households and non-finance companies.
Will it work? Well, the BoE's buying of gilts, especially short-dated gilts, for cash won't help liquidity much because that's simply the swapping of one (fairly) liquid asset for another (cash). Pension funds, insurance cos and hedge funds won't sell gilts and then use the cash to put into less liquid assets such as corporate bonds or mortgage-backed securities. There's also substantial overseas holdings of UK gilts, so the sellers of these may hold their cash in sterling offshore or in foreign currencies, thereby failing to find its way into UK lending.
Furthermore financial corporations - the ones who sell most of the assets under the QE scheme - were already reluctant to lend to the non-finance sectors (and overstretched borrowers were unwilling to borrow more) and there's no reason to think QE will change that. The extra money is likely to be parked, risk-free but low-yielding, with the BoE.
There's also the problem that QE increases the money supply, but which signals will indicate that QE should be curtailed? If there's no recovery then the message is that we need more QE. If there's some recovery the message is that more QE will strengthen the recovery, as Paul points out @3.
22. shipbuilder said...
10. 51ck-6-51x said...
"How does the fact that supply is finite imply the price must rise? You must look at both sides. Do you think demand is ever-increasing?"
18. mountain goat said...
"Bluebeach - Gold is falling because speculators are selling gold to buy shares. They are buying shares because the economy is in great shape now that it has been nationalised. The market is handing you a gift. Don't look a gift horse in the mouth."
It is these contrasting views that always worry me. like the inflation/deflation debate, I don't think it's clear cut - we are trying to judge what a large number of people will do. If they are selling gold to buy shares, who is going to buy the gold to cause the upturn?
Why wouldn't the people considering gold pick any number of other assets to invest in that would be boosted by inflation? Such as oil, as mentioned? With the internet, it's much easier now to invest in whatever you want. Will this dilute the appeal of gold when other alternatives are readily available?
23. shipbuilder said...
Having said that, my money is to buy a house. If the 'return' on my cash caused by falling prices beomes less than the potential invested elsewhere I might consider something else, or more likely just buy. Living in NI, house prices are falling by 30-odd% yoy.
24. matt_the_hat said...
When the economy does 'recover' and inflation is the problem how is the BOE going to suck this new money back, surely the fixed income 'assets' it has bought will go down in value in an inflationary environment. So the BOE will have to suck more out than it put in via printing!
25. titaniccaptain said...
@shipbuilder 20.
"Why wouldn't the people considering gold pick any number of other assets to invest in that would be boosted by inflation? Such as oil, as mentioned? With the internet, it's much easier now to invest in whatever you want. Will this dilute the appeal of gold when other alternatives are readily available?"........I think this is due to the golds historical position as a fall back in hard times and post people are betting on the herd mentality reverting to gold from cash...also it is in the public conciousness with all the adds to buy gold off you and this is making Joe Public who has no idea where to invest (This has been proven by those invested in property enmass over the past few years) look at one last investment after seeing everyone getting their fingers burnt with property. So Joe Public may be thinking he has got to secure his sterling somewhere but is too scared to invest in oil or anything else that is out of his depth or rather what he perceives as bring out of his depth
26. crunchy said...
16. penbat1
Yep, you are right. How anybody did not get in @ $35 beats me. Talk about risk to reward ratio. Go figure.
They don't call it black gold for no reason.
27. bluebeach said...
I like the idea of the Black stuff.... how best to invest?
28. crunchy said...
25. bluebeach
If you dont know how to trade something, seriously you should not be trading it.
Do some research on ETF's or speak to a local stock broker for some advise.
29. drewster said...
bluebeach,
Invest at your own risk. Caveat emptor. That said, here are a few ways to invest in oil:
1) Buy a pure oil ETF through your broker; symbols are USO (in New York) and CRUD (in London).
2) Buy shares in an oil producer like BP or Shell or BG Group
3) Buy shares in an oilfield service company like Schlumberger or Halliburton
4) Buy shares in picks & shovels - drill bits, well-heads, machinery, etc.
I'm uncertain about oil right now. In the recent boom, a lot of investment was made in new drilling rigs and new wells. A lot of that new supply is only just coming on stream now. Certainly there's little demand for new rigs or wells at present, so service companies probably look a bit ropey. Majors like BP and Shell look safer, but their supplies are dwindling and production rates are falling.
Natural gas seems like a better bet than oil right now. The price has fallen very low, yet the structural demand is still strong. However I can't emphasise enough: do your own research.
30. bluebeach said...
Good cautious advice chaps...
31. amjidk said...
i am thinking about investing a few grand in ETFSGOLD and ETFSCOMMODITIES, but having never invested in ETF's before, i am an bit nervous, are these ETF's straightforward in that they follow the price of oil or commodities (i.e similar to shares) or is there anything i should be aware about???
Advice will be much appreciated...
32. crunchy said...
28. bluebeach
You are welcome. Caveat emptor, even when you know what you are doing. It takes on average about a year but some will never learn how
to trade successfully. All the best!
33. george monsoon said...
I have an old ford fiesta and about 300 quid to spare.. how much gold could I get for that?
34. crunchy said...
31. george monsoon
Hold on to your ford it may end up the only one left! lol
35. drewster said...
amjidk,
ETFs are not as straightforward as they sound.
ETF/ETC:
ETF = Exchange Traded Fund - these are straightforward, a symbol which tracks a group of shares.
ETC = Exchange Traded Commodity - these *should* be straightforward, a symbol which tracks a particular commodity. However these have problems. (Note that often these are called ETFs to keep matters simple.)
Fees:
Fees are rolled into the price of the ETF / ETC. For example in the first year when an ETF is launched, the price of gold is e.g. $900 and the price of the ETF is $900. However in the second year assume the price of gold is still $900, then the ETF will only be $895 because the operators have taken $5 in fees.
Counterparty risk:
ETFs are generally managed by large banks (Barclays do most of the UK ones through their iShares brand). If the bank collapses then the ETFs could be in trouble too. However I would say the risk of that is small enough to not worry about.
Tracking error:
The physical gold ETF, symbol PHAU, stores actual gold in a vault. There is also a physical silver one, PHAG. ("ag" and "au" are the chemical element symbols for gold and silver respectively.) The fees are basically the vault storage fees. This is perfectly safe and sound, and there is no tracking error.
However for most other commodities (oil, copper, lean hogs, etc.) there is no physical product - instead it's all based on clever workings of the future markets. It's a bit lengthy to explain here, but basically they don't work nearly as well as advertised. More details available at summary of ETFs that don't work. The way I see it, any system which relies on bankers being too clever for their own good, is likely to fail.
Liquidity risk:
Big ETFs have enough buyers and sellers to keep the market liquid. However some of the smaller, newer ETFs are thinly traded. This widens the spread (the difference between the buying and selling price) and is bad news for the little guy.
Bottom line is avoid ETCs, and go for companies (or ETFs of companies) which have exposure to whatever commodity you're interested in. The exception is gold & silver, where buying the ETC is safe.
36. holding out said...
amjidk - I am the proud owner of a PHAU ETF. I have this within my shares ISA and have bought and sold it a number of times. It couldn't be easier. As I understand it, It holds actual physical gold. I used to have a number of ETFs through ETF securities (PHAU was one) another was AIGC(which was soft commodity one) and this involved AIG as a counterparty even though it was bought through ETF securities. When AIG were first in trouble this ETF became untradeable. After they were bailed out I managed to unload it and wouldn't touch one that uses a counterparty as it's something else to go wrong.
37. japanese uncle said...
Businesses can test the patience of consumers, raising the price of their goods and servivces. But for how long, I wonder, as people will be quickly running out of money, as jobless population is boosting. The cry of 'when the money is gone, it's gone' is just around the corner. I think after all the deflation will prevail.
38. mountain goat said...
Shipbuilder @20 perhaps my irony was not clear. Market players are selling gold and buying stocks because the economy is in such great shape... right? If you believe in gold or silver as an investment then the price has come down and who really cares why? By the time we find out why the price will be back where it was last week probably. Not idle speculation on my part because I bought some more silver today in my GoldMoney account. And if it falls or stays where it is I will probably buy more this week.
39. 51ck-6-51x said...
Crunchy said, "If you don't know how to trade something, seriously you should not be trading it."
- Not exactly IMO. Better would be, "If you do not understand an asset don't trade it."... I may know more than anyone in the world about the quality of bird's eggs*, but have no idea where to trade them.
That said, energy markets are notoriously volatile - I'd steer clear until you have done some serious research.
* I don't know much about bird's eggs just came to mind as an example.
40. titaniccaptain said...
Is there an English teacher out there I can't spell.....AAaaaaggggghhhhhhh....
I just read my above post it reads like Les Dawson's piano playing
Goes to show that public school is a load of cr@p...........at least spelling didnt stop me from being a genius............
But forgetfulness has prevented me from fulfilling my true potential seeing as I have forgotten what I am a genius at...
41. crunchy said...
38. titaniccaptain
Was it you that wrote some blogging advise on your site about using a word processing package and spell checking before pressing the big red button? lol
By the way Les Dawson was a great piano player, RIP. Doing things badly can be mastered, it just takes a little more efort.
42. titaniccaptain said...
@crunchy 39.
Word processing packages are the devil's work.....perfection for the imperfect.......I on the other hand am perfectly wrong on most occasions
43. crunchy said...
Crunchie 39, I like it! : )
44. mander said...
Mike Platt should wait for new European regulations to come before suggesting printing money is the only solution. Inflation will not help indebted people and it will only make everyone poorer and Kings knows very well that inflation is not the way...