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QE perhaps won't end (in the immediate future). House prices are up 4 months in a row, stocks well up, business stabilising.

No more banking surprises. The jobless recovery is a miracle. We could be in this twilight zone for sometime.

I'm not holding my breath for a spectacular currency crash, and base rates heading to 10% when everybody else globally is in the same boat relatively - could be a long wait.

Edited by Pseudo Lord Sandwich
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I don't know for how long this position is sustainable, but I just can't see the DMO being able to sell gilts on this scale unless the BoE continues to indirectly monetise some of the issuance as it is doing now. I know we can get blasé about these numbers sometimes, but the sums involved are simply staggering. Add together the annual tax take on VAT, Corporation Tax, Capital Gains Tax, fuel duties, tobacco duties, alcohol duties, betting duties, Stamp Duty, and Inheritance Tax...and you're still short of the amount of gilts the DMO will be trying to hawk to investors in each of the next four years.

UK plc is in a very serious mess, and only one thing is hiding just how bad things really are: Quantitative Easing. When (if?) the programme ends, be prepared for some fireworks in the gilts market.

thanks for the great (if not a wee bit scary!) post ft

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this banking world is like a glider 10 feet off the ground and a nice friendly wind is lowering it slowly to the ground..

sadly, the ground is a cliff face and the glider is over the precipice already.

People thinking Hyperinflation is a way out is a nonsense....war will destroy whats left.

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A new stock bubble - just take a look at this

A number of penny stocks I have are just doing this --->

0.20p to 14p

http://bigcharts.marketwatch.com/quickchar...o_symb=uk%3Apxs

1p to 5p

http://bigcharts.marketwatch.com/quickchar...eq=1&time=8

5p to 30p

http://bigcharts.marketwatch.com/charts/bi...1&rand=9725

Hurrah for QE - we're making a fortune down here!

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FT, would you expect the £ to fall after much the bankholiday or has this been expected and priced in already?

I wouldn't ever dare forecast short-term currency movements (you'd do better asking Mystic Meg), but I'm certainly not expecting any meaningful flight from sterling in the near term. I'm thinking more of relative currency weakness, which is what we've seen since the second batch of QE was announced.

We may get some further weakness towards the end of the year because the CPI numbers are likely to jump, and the BoE is going to have to explain this away as a temporary aberration.

It will get far more serious next year in my view. The markets will be looking to a new government to show a genuine commitment to addressing the fiscal deficit, and I mean serious measures, not the usual "efficiency savings" spin. If they fail that credibility test then I think we'll see gilt yields spike big-time and the currency market will test the BoE's commitment to the inflation target.

I don't know whether in such circumstances we would see a gradual decline in sterling as capital flight builds, or whether we'd see a very fast plunge as traders figure that they can freely short an undefended currency.

Hopefully it won't ever come to that, but I'm more pessimistic than I was six months ago. We have weak politicians and what increasingly appears to be a complicit central bank.

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snip We have weak politicians and what increasingly appears to be a complicit central bank.

whats changed? sitting governments NEVER win elections when the economy is bad...

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whats changed? sitting governments NEVER win elections when the economy is bad...

That dos not explain why the central bank is complicit tho? :blink:

You'd think that Merv would realise that NuLeibor would be yesterdays news and prepare for the admin.

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Hopefully it won't ever come to that, but I'm more pessimistic than I was six months ago. We have weak politicians and what increasingly appears to be a complicit central bank.

Your too polite, far too polite!

We have no central bank, the one eyed Scottish useless ~~~~! He and his partner ;) are running the show, him and old Pete Slime, they hold the reigns, they are riding bareback!

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I wouldn't ever dare forecast short-term currency movements (you'd do better asking Mystic Meg), but I'm certainly not expecting any meaningful flight from sterling in the near term. I'm thinking more of relative currency weakness, which is what we've seen since the second batch of QE was announced.

We may get some further weakness towards the end of the year because the CPI numbers are likely to jump, and the BoE is going to have to explain this away as a temporary aberration.

It will get far more serious next year in my view. The markets will be looking to a new government to show a genuine commitment to addressing the fiscal deficit, and I mean serious measures, not the usual "efficiency savings" spin. If they fail that credibility test then I think we'll see gilt yields spike big-time and the currency market will test the BoE's commitment to the inflation target.

I don't know whether in such circumstances we would see a gradual decline in sterling as capital flight builds, or whether we'd see a very fast plunge as traders figure that they can freely short an undefended currency.

Hopefully it won't ever come to that, but I'm more pessimistic than I was six months ago. We have weak politicians and what increasingly appears to be a complicit central bank.

http://www.ft.com/cms/s/0/694139b4-93c1-11...144feabdc0.html

Sterling fell this week to an 11-week low to the euro and a one-month trough against the dollar as concerns grew over UK finances.

The currency, already undermined by the Bank of England this month announcing an unexpected increase in its quantitative easing programme, suffered as the focus turned towards the rising levels of UK debt.

Analysts said the Bank knew domestic risks to growth were skewed to the downside and was running its monetary policy accordingly. It said the UK’s public debt, set to reach 100 per cent of gross domestic product, according to ratings agency Standard & Poor’s, could lead to a funding crisis if badly handled.

Hans Redeker, at BNP Paribas, said that for years the UK would need tight fiscal conditions to lower debt levels or the risk premiums of sterling-denominated assets would eventually rise resulting in a confidence crisis for sterling: “We believe the UK has only one option left and that is to combine tight fiscal conditions with relatively loose monetary conditions.

“We recommend selling sterling across the board. Sterling could even become the globe’s new funding currency.â€

Obviously for every £ bear there will be a bull but I've never seen this kind of speculation before.

With the UK's % of QE vs GDP way above the levels of the US or Eurozone whilst still experiencing significantly higher levels of CPI, why Sterling hasn't been sold off is a mystery to me.

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Obviously for every £ bear there will be a bull but I've never seen this kind of speculation before.

With the UK's % of QE vs GDP way above the levels of the US or Eurozone whilst still experiencing significantly higher levels of CPI, why Sterling hasn't been sold off is a mystery to me.

where was that line from as I couldn't see it in that link ??

“We recommend selling sterling across the board. Sterling could even become the globe’s new funding currency.†this is utterly delusional....seriously. :blink::blink:

Edited by grumpy-old-man-returns
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where was that line from as I couldn't see it in that link ??

“We recommend selling sterling across the board. Sterling could even become the globe’s new funding currency.†this is utterly delusional....seriously. :blink::blink:

That line isn't in the link GOMR, they are my own observations:

CPI in the US is currently -2.1% and they have supposedly QE'd around 3% of GDP ... fair enough.

UK CPI is +1.8% and QE will soon be 12% of GDP .... panic measures.

My own conclusion is that even in comparison with the dollar, sterling will soon adopt basket case status.

RE the comments from the FT, that might seem a bit extreme but I keep a very open mind at the moment.

Just my opinion.

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That line isn't in the link GOMR, they are my own observations:

CPI in the US is currently -2.1% and they have supposedly QE'd around 3% of GDP ... fair enough.

UK CPI is +1.8% and QE will soon be 12% of GDP .... panic measures.

My own conclusion is that even in comparison with the dollar, sterling will soon adopt basket case status.

RE the comments from the FT, that might seem a bit extreme but I keep a very open mind at the moment.

Just my opinion.

what you think sterling could replace the dollar as a world reserve currency ?

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where was that line from as I couldn't see it in that link ??

“We recommend selling sterling across the board. Sterling could even become the globe’s new funding currency.†this is utterly delusional....seriously. :blink::blink:

I think what they mean is that Sterling may become the currency you want to borrow - not a new reserve currency. In other words, they are suggesting that Sterling may become a heavily carry traded currency.

i.e. Foreign investors go to a UK bank and borrow Sterling (which has a very low interest rate due to excessive QE and other policy measures that force money into circulation). They then exchange it for their local currency which has a much higher interest rate - so they save money on the loan. This is made even more desirable, because as Sterling inflation continues to spiral higher, Sterling is likely to devalue further - making repaying the loan even cheaper still.

The problem with being a victim of carry trade - is that it cripples the currency - as every time someone takes a loan and converts the currency, the exchange rate weakens. This is exactly what happened in Japan in the 90s.

Of course, all major countries have ZIRP, or near enough - but most still have overt deflation. The UK is being very heavily stimulated and the currency weakened by QE - if carry trade takes off, a sterling crisis and catastrophic inflation could easily take off. Fantastic for foreign speculators - bad for anyone in teh UK.

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No, quite the opposite. The way I read it Hans Redeker is implying that Sterling might become a carry trade currency much like the Yen.

ah ok, sorry lufc, I totally misread your reply.

my problem is I have big gaps in my economic & financial knowledge, which leaves interpretation differences in what sometimes may seem standard speak to most. :)

edited to add financial ;)

Edited by grumpy-old-man-returns
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I think what they mean is that Sterling may become the currency you want to borrow - not a new reserve currency. In other words, they are suggesting that Sterling may become a heavily carry traded currency.

i.e. Foreign investors go to a UK bank and borrow Sterling (which has a very low interest rate due to excessive QE and other policy measures that force money into circulation). They then exchange it for their local currency which has a much higher interest rate - so they save money on the loan. This is made even more desirable, because as Sterling inflation continues to spiral higher, Sterling is likely to devalue further - making repaying the loan even cheaper still.

The problem with being a victim of carry trade - is that it cripples the currency - as every time someone takes a loan and converts the currency, the exchange rate weakens. This is exactly what happened in Japan in the 90s.

Of course, all major countries have ZIRP, or near enough - but most still have overt deflation. The UK is being very heavily stimulated and the currency weakened by QE - if carry trade takes off, a sterling crisis and catastrophic inflation could easily take off. Fantastic for foreign speculators - bad for anyone in teh UK.

thanks for that ChumpusRex. so sterling replaces the yen, for carry. h'mmm.......I think sterling will die personally, but you never know. I also try to remain open to all outcomes. h'mmm.......

whilst I am replying to you, can I just say that I think you are really knowledgeable in this area, amongst the best imo. I regularly read your posts. :)

edited for shite grammar

Edited by grumpy-old-man-returns
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I think what they mean is that Sterling may become the currency you want to borrow - not a new reserve currency. In other words, they are suggesting that Sterling may become a heavily carry traded currency.

i.e. Foreign investors go to a UK bank and borrow Sterling (which has a very low interest rate due to excessive QE and other policy measures that force money into circulation). They then exchange it for their local currency which has a much higher interest rate - so they save money on the loan. This is made even more desirable, because as Sterling inflation continues to spiral higher, Sterling is likely to devalue further - making repaying the loan even cheaper still.

The problem with being a victim of carry trade - is that it cripples the currency - as every time someone takes a loan and converts the currency, the exchange rate weakens. This is exactly what happened in Japan in the 90s.

Of course, all major countries have ZIRP, or near enough - but most still have overt deflation. The UK is being very heavily stimulated and the currency weakened by QE - if carry trade takes off, a sterling crisis and catastrophic inflation could easily take off. Fantastic for foreign speculators - bad for anyone in teh UK.

I am puzzled as to why you think that the UK; the only major country which is clearly escaping the deflationary trap, will go the way of Japan; which fell into its own deflationary trap 20 years ago.

A trap to which they are now returning:

http://business.timesonline.co.uk/tol/busi...icle6814280.ece

Japanese Government reels under economic blows

The Japanese economy has plunged into the double nightmare of runaway deflation and soaring joblessness, dealing probably a decisive, fatal blow to the ruling Liberal Democratic Party (LDP) as it fights its most desperate battle for political survival in 50 years..............

.....Consumer prices nosedived 2.2 per cent year-on-year in July, the most acute fall that they have logged, surpassing even the drops endured during the country’s five-year struggle with deflation that began in the late 1990s.........

This is what happens if you don't do QE hard enough and fast enough when deflation appears.

With Japan and Europe firmly in the deflationary trap, and the US teetering on the edge; an alternative possible explanation for the pound's failure to collapse more than it has is that in six months to a year the UK could well be the only major industrialised economy that has meaningful (if low) economic growth.

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ah ok, sorry lufc, I totally misread your reply.

my problem is I have big gaps in my economic & financial knowledge, which leaves interpretation differences in what sometimes may seem standard speak to most. :)

edited to add financial ;)

Trust me GOMR my economic & financial knowledge is limited at best and I spout lager induced [email protected] most of the time, however as with most other posters I do have my own idea of what shape the future might be taking.

My problem is I'm most likely about to be shafted by the powers that be, now what do I do ... do I have the courage of my convictions & short sterling ... or just sit here like a lemon ?????

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Trust me GOMR my economic & financial knowledge is limited at best and I spout lager induced [email protected] most of the time, however as with most other posters I do have my own idea of what shape the future might be taking.

My problem is I'm most likely about to be shafted by the powers that be, now what do I do ... do I have the courage of my convictions & short sterling ... or just sit here like a lemon ?????

I just hope you have, or will be buying some, both varieties. ;)

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I am puzzled as to why you think that the UK; the only major country which is clearly escaping the deflationary trap, will go the way of Japan; which fell into its own deflationary trap 20 years ago.

A trap to which they are now returning:

http://business.timesonline.co.uk/tol/busi...icle6814280.ece

This is what happens if you don't do QE hard enough and fast enough when deflation appears.

With Japan and Europe firmly in the deflationary trap, and the US teetering on the edge; an alternative possible explanation for the pound's failure to collapse more than it has is that in six months to a year the UK could well be the only major industrialised economy that has meaningful (if low) economic growth.

Actual real growth or just a growth in GDP caused by inflation and government spending thanks to magic QE money?

In the early stages, inflation looks like growth. Later on when it is running in double digits, threatening to get out of control and economic confidence is shredded it's a different story.

As others have said, right now the only thing holding the house of cards up is QE and that can't go on much longer without some very nasty side effects.

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thanks for that ChumpusRex. so sterling replaces the yen, for carry. h'mmm.......I think sterling will die personally, but you never know. I also try to remain open to all outcomes. h'mmm.......

whilst I am replying to you, can I just say that I think you are really knowledgeable in this area, amongst the best imo. I regularly read your posts. :)

edited for shite grammar

GOM, I think the way it works is that people short sterling in order to get hold of Aus dollars or whatever currency they want to be in - (the high yield high interest rate currency), so sterling is on the 'SELL' side of the transaction; they sell sterling to raise up some of the other currency.

Imagine you could hold a negative balance of pounds against a positive balance of Aus dollars, then invest those dollars.

PS - how's that French sale doing? hedged yet?

Edited by chris c-t
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GOM, I think the way it works is that people short sterling in order to get hold of Aus dollars or whatever currency they want to be in - (the high yield high interest rate currency), so sterling is on the 'SELL' side of the transaction; they sell sterling to raise up some of the other currency.

Imagine you could hold a negative balance of pounds against a positive balance of Aus dollars, then invest those dollars.

Could be wrong but I see it as slightly different.

For example you would borrow say £500k from a UK bank and exchange it for AUD to invest, effectively shorting the pound against the earning potential of the australian dollars. The problem bit I see is that the UK bank working on fractional reserve principles has lent 50k of 'real' money + 450k of debt. This is then dumped on the market increasing the supply of GBP.

Probably got it wrong though. I hope I have :ph34r: .

Edit: typo

Edited by Kilham
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GOM, I think the way it works is that people short sterling in order to get hold of Aus dollars or whatever currency they want to be in - (the high yield high interest rate currency), so sterling is on the 'SELL' side of the transaction; they sell sterling to raise up some of the other currency.

Imagine you could hold a negative balance of pounds against a positive balance of Aus dollars, then invest those dollars.

PS - how's that French sale doing? hedged yet?

pm'd you.....

Edited by grumpy-old-man-returns
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