Thursday, Sep 24, 2009
Here comes inflation! High time to get out of sterling and cash?
FT: Appetite for UK inflation-linked bonds soars
"Investors overwhelmed the UK with demand for inflation-linked bonds yesterday amid signs that many fund managers are worried about prices surging out of control in the next few years. The UK government sold £5bn of 2050 inflation-linked bonds at a yield of 0.54 per cent with order books two times subscribed as demand rose to £10bn."
Posted by jvm @ 04:35 PM (1323 views) Add Comment
16 Comments
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1. paul said...
I have a feeling there is something very engineered about this inflation scare - the case for inflation taking off is utterly unfounded, but the Bank of England is trying to make it so by trashing the pound?!
2. Tpbeta said...
They know that without economic stimulus only a devalued pound stands between UKplc and recession.
3. Mrperegrination said...
Great, so people with enough wealth to buy these things will have their money protected from inflation by the government with the money they take from me in taxes. How many times can I be shafted by the rich?!
4. paul said...
Hang on:
inflation is of no threat over the next two or three years
Oh. The inflation scare looks as if its cancelled then.
5. stillthinking said...
I am not so sure deflation is averted. "Sell us your gold" adverts are on tv now, the stock market is overpriced, either or both could collapse rather dramatically.
The debt hasn't gone away and borrowing is still in the doldrums, employment is going up and may dramatically rise with government cuts, whether forced or policy based. The BoE have a huge spike of idle cash sitting in reserves. Companies are going bust because of consumer retrenchment. Commercial property losses are on the way.
Where is the pricing pressure to cause inflation?
6. chrisa said...
Every time Sterling shows a small recovery King at the BoE beats it down again DELIBERATELY shortly afterwards with carefully chosen statements about the weakness of the UK economy or the announcement of more QE. The justification for doing this is that 'it will help the UK exporters'! Does anyone really believe this rubbish?
On the one hand promoting the idea that there is going to be massive inflation in the future may get people out into the shops spending their money but on the other hand there is good reason to believe that King and Brown will trash Sterling just to keep the nominal price of houses and assets high and to use QE to cover the budget deficit.
UK consumer debt has not gone away it has merely stabilised at 1.5 trillion. Can anyone see this ever being whittled away except by inflation?
7. tenyearstogetmymoneyback said...
The trouble with these bonds is that inflation is one of the easiest figures to manipulate.
Last thing I heard the calculations included things like Digital Camera Memory Cards
and Flat screen TVs, which as we know have plummeted in price.
8. drewster said...
@tenyearstogetmymoneyback,
I agree, the figures are far too easy to manipulate.
In the short-to-medium term, we're likely to see relatively high CPI inflation (4-6%pa) but 0% wage inflation because wage pressures have vanished. This is very handy for a government which recently promised that pensions would no longer be linked to RPI but instead would be linked to earnings.
9. techieman said...
chrisa that sounds like sour grapes. 11th september there was a bearish Doji on the charts, yesterday there was a shooting star with the high hitting a downward sloping trendline. Its a (very) bearish looking chart. If cable breaks the 1.60 tomorrow and closes below the next stop is 1.58, and after that 1.50.
BUT remember the £ was alot lower v $ and alot lower v Eur (almost par) so it looks like the bulls are tired, whatever Merv does or doesnt say, all he can do is alter the speed of the move, not the direction.
As i said it looks like its going to be an interesting autumn. As for ftse......
10. crash n burn said...
@techieman
I always enjoy reading your comments. You should come along to the Society of Technical Analysts, there are always a lot of great talks - last week we had a guy in from Bloomberg talking about Ichimoku Kinko Hyo. He is also a big fan of Tom de Mark methods.
11. techieman said...
hey crash n burn. Thanks for the compliment. As you know im a bit of a stay at home guy. As for the cloud, i have the book by elliott on that. (http://www.amazon.co.uk/Ichimoku-Charts-Introduction-Kinko-Clouds/dp/1897597843/ref=sr_1_1?ie=UTF8&s=books&qid=1253859781&sr=8-1) in my library and i do have one Tom De Mark book. The clouds are interesting - although i dont use them in case they... wait for it.... cloud my judgement! I know i should stick to the day job!
My method isnt really a method at all... as flash as told me (and i agree) i will get my nose very bloodied if im not careful. But really thats the point i am careful! Now at some time or another soon i will throw some caution into the wind. Ftse is at an interesting level. The only real part of my method that could be defined as a real system is the money management.
The problem with TAs is that they are often wedded to their own methods - to the exclusion of others. I say go with whatever works, and perhaps test other methods at the same time. I have an arsenal of stuff i use, the candlesticks to me are confirmation indicators of the direction i have already decided to take. If it aint break dont fix it....
I hope that makes some sense.
12. uncle tom said...
That's an appalling yield for an ILG - especially as it's got over 40 years to maturity.
Historically, the true cost of government borrowing (nett of inflation) has averaged around 2.5%. Assuming normality returns, the inflation adjusted market value of these Gilts will be below book cost for most of their lifespan.
13. bellwether said...
Hey Techie, how are you doing.
Given my bearish views on the UK showed a bit of conviction and swapped a load of sterling into us and cad $ when pound hit $1.70 - thought about Yen but looks overpriced. Good decision thus far although time will tell. Part of me would actually like Sterling to rally so I could get rid of some more but that is begining to look less likely.
I don't think equities have caught up with the potential for a massive sterling devaluation , so thinking uk based that earn abroad could be an interesting route out.
Dunno your thoughts on equities, thinking we are due a biggish pull back towards 200 ma and then a rally up into the new year and then carnage into spring. Who knows might even get another big rally in spring as stimulus 2 is released!
14. inbreda said...
@5 "Where is the pricing pressure to cause inflation?"
Who needs pricingh pressure? People will get wise to the fact that GBP is as common as dirt and worth about as much soon. Personally if I could operate in a land that used gold as money I would, and I'm sure many others feel the same. I am not comfortable holding GBP and I am aware that its value may evaporate overnight.
Put it this way - if I won the lottery (in GBP) I would of course be happy. Not as happy as I would have been before I started doubting the worth of the GBP though!
Inflation (real inflation) will come from the cost of essentials such as food. Oil is priced in dollars and if the GBP tanks oil will become expensive. Farmers costs will increase and as they operate on thin margins, the cost gets passed straight to the consumer. And the consumer is walking a tight rope at the moment as well. As suggested above wage inflation isn't so likely to happen, and people are already stretched with little to fall back on so it will hurt a lot more and a lot quicker.
15. techieman said...
hi b/w yea i am good . Actually using the mobile to type this . Got woken up over night and got out of a third at one fifty nine seventy . Talk later - nice decision .
16. techieman said...
hi b/w yea i am good . Actually using the mobile to type this . Got woken up over night and got out of a third at one fifty nine seventy . Talk later - nice decision .