Tuesday, Feb 06, 2018

The bizarre process of life support being withdrawn from the economy is beginning

Beeb: London shares join market rout

I appreciate that interest rates are inversely related to stock prices, but total salaries are a measure of GDP. The continual cycle of good economic news leads to fears of tightening, leads to markets crashing, leads to further tightening trundles on. However, Trump's hawkish pronouncements on IRs, the Fed, his attacks on Yellen during the campaign, coupled with the new chairman of the fed, not to mention the nature of the news this time (ie consumers are finally benefiting from the recovery) tells me the deadlock is going to break and US (and consequently global) IRs are finally rising.

Posted by reticent @ 11:29 AM (2741 views) Add Comment

7 Comments

1. tenyearstogetmymoneyback said...

Headlines like "FTSE falls to lowest level since April 2017" hardly seem significant.
I'm more concerned that various Brokers want to start charging me to keep shares that I have had for decades.

However, it will be interesting to see whether the realisation that all investments (including housing) aren't a one way bet will stop people from over stretching themselves.

Tuesday, February 6, 2018 10:13PM Report Comment
 

2. jack c said...

Mini Taper Tantrum - coincidental that its on the day the new guy takes the helm at the Fed ?

Wednesday, February 7, 2018 09:33AM Report Comment
 

3. stillthinking said...

@jackc probably, but i think its mainly the inflation data.

Anyway imagine this, if you were trying to edge towards a vicious dog, you would go forward a bit, then stop and see what happened (while you were still a safe distance), then edge forward, stop, edge forward, stop etc.
Or maybe trying to hunt a rabbit, go forward, stop, see if you are seen and the rabbit runs off.
i.e. you want something but you are worried about screwing it up yourself.

So you could imagine that investors -do- want to divest themselves of stocks, but are hesitant to do so because they might immediately lose out if the Fed intervenes. So the sell off and now the pause to see what happens. If thats the case and nothing happens then they continue to sell off presumably.

Wednesday, February 7, 2018 01:54PM Report Comment
 

4. reticent said...

Seems to be more than a mini taper tantrum.

If wages are really increasing, then they will have to tighten far faster than they expected. It's the only bit of positive economic news that suggests stagflation.
Everything else has just been good news through the financial markets' spectrum ("Whose recovery?" etc.). With Brexit and our own tightening schedule, mortgage rates being back to 3-5% within the next 2 years, given that they're still 1-3%, was kind of worst case scenario for over-leveraged borrowers. Now a 2% rise in the base rate doesn't seem that unlikely, let alone market rates. If Brexit goes through, you would expect market rates go up even more than the base rate.

Imagine holding a BTL in London, getting 2-3% yield and finding your IR had gone up by 2%, as well as all the changes in tax liability. Many will find that holding BTL is costing them £200/month per property, just a few years after pocketing £200/month. I can't imagine many of the recent entrants would hold their nerve.

Wednesday, February 7, 2018 02:40PM Report Comment
 

5. icarus said...

One important factor in setting the Fed IR is to keep the dollar down to increase the dollar value of profits from overseas earnings.

Thursday, February 8, 2018 05:49PM Report Comment
 

6. stillthinking said...

last post comes across as though i am explaining.... actually i have no idea. its just my opinion.
Here's another post related to the idea its all from inflation expectations turning quickly
https://www.zerohedge.com/news/2018-02-08/inflation-alert-velocity-money-has-finally-bottomed

Thursday, February 8, 2018 08:07PM Report Comment
 

7. reticent said...

"last post comes across as though i am explaining.... actually i have no idea. its just my opinion."

There's a sentence you don't read enough on the internet, especially when it comes to economic news!

Here's more from the BoE:

http://www.bbc.co.uk/news/business-42986729

Again, we've heard all this before, but because of the stagflationary aspect, this time it probably is different. The graph in that ZH article certainly suggests so, and I think the reasoning in the article is sound.

Friday, February 9, 2018 10:41AM Report Comment
 

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