Wednesday, Apr 08, 2009
Fixing the gilt market
FT Alphaville: Fixing the gilt market
Article pointing out that the costs of borrowing are about to rise as the government pushes up the yield through excess borrowing.
Posted by stillthinking @ 12:56 PM (487 views) Add Comment
3 Comments
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1. stillthinking said...
What really gets my goat about this, apart from the fact that increasing borrowing costs are a death blow to the UK, is that as was pointed out at the time by so many, we needn't have got into this position.
Back in 2007, when the banks started keeling over, the UK government could have allowed partial defaults, made social exceptions for those inbetween house prices etc, and stuck to the 50K banking guarantee. Further, they could have immediately slashed the state sector and taxes, while maintaining an appropriate level of interest for the existing measure of inflation. And then cross fingers.
What they in fact did is a failure on pretty much every single level. The have opened up the UK taxpayer to enormous losses from the banks, and lest we forget, if the moneyed classes aren't taking the hit, then the un-moneyed classes are going to be redistributing wealth the wrong way.
The state sector continued to expand ! Considering that cutting the size of the state is unavoidable thowing an additional 1+ year of spending down the drain while tax revenue is shrinking was f*cking insane ! State employees are now going to have to be cut loose in a much worse employment environment.
By devaluing in a country dependant on imports and marginal prices due to exports (for food example), the cost of living soared killing what little disposable cash remained.
The very worse aspect is that everything that should have been done before is not a choice, it is an absolute necessity which we are now going to have to implement -anyway- with high borrowing costs. Bad management has just made a bad situation umpteen times worse. The tragedy of this is that there is genuinely a section of the electorate who seem to think that GB has come into his own and showing capability handling the crisis, when every single action, whether large or small, digs a deeper grave for the UK.
What a g*t, and what a pathetic reflection on the UK population. Class ridden football supporting idiots with their hands out.
2. jack c said...
SOURCE - INVESTMENT WEEK - www.investmentweek.co.uk/public/showPage.html?page=850803
Inflation concerns see managers up index-linked gilt weightings - By Hysni Kaso
Cautious Managed heavyweights Alastair Mundy and Chris Burvill have built up weightings in index-linked gilts on concerns the UK faces a strong inflation spike over the medium term.While index-linked gilts have performed poorly compared to conventional Government debt in recent months, the managers expect efforts such as quantitative easing combined with a weak currency to add to inflationary pressures going into 2010. Mundy's £1bn Investec Cautious Managed fund has 14.7% invested in index-linked gilts, while the portfolio contains 11.1% in another inflation hedge, gold shares. The manager has held the position for as long as nine months and while he cites inflation as the key medium-term concern, he believes the QE measures could have additional "unintended consequences" for the economy.
"A number of events are possible – inflation, deflation, instability, unrest, recession and depression," Mundy says. "We have used the index-linkers and gold shares as a sort of safety net."
Burvill, who runs Gartmore's £649m Cautious Managed fund, recently boosted exposure to index-linked gilts to about 12%.
"The market appears to be discounting deflation in the near term and is only allowing for inflation of around 2.5% over the medium term. These assumptions entail considerable risks," he says.
"The Government will act vigorously to prevent deflation, even though it is arguable whether it should.
"We have had a one-off fall in the prices of food and energy, meaning that like-for-like comparisons later this year will look far less favourable. On top of this, we have to consider the impact of sterling weakness on import prices."
Meanwhile, Axa IM's Richard Marwood has built up a 45% exposure to index-linked gilts in his Distribution portfolio.
"There are a lot of people out there who think we are going into deflation but I just do not subscribe to that," he says.
3. inbreda said...
stillthinking - I agree entirey. Some time ago there were a few chats on this blog that pondered what the government might do, and the resounding conclusion was that - whatever it did - it would make the situation worse. I am still very grateful for the existence of this blog as means of thinking how to protect my savings from the idiots in charge until this has all died down and life can progress. Scarey times, but as long as wwe can all stay one step ahead of the one eyed scottish idiot, all will be well.