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Gavin

Why Did They Cut Rates Last Month?

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I know a lot of people who read these boards think that the core contributions to this site are a little overzealous with their views.

Well I am pretty frustrated this morning to see that the media (even the Sun) now are doubting Brown's myth of a strong and stable economy with low inflation and low interest rates.

I don't want to massage our egos, but why were we saying this months ago?

Why did we see that with oil and commodity prices so high, we were heading for an inflationary period?

Why could we see that it would be only a short rate term cut, and infact it wasn't needed or justified at all.

What the hell were the MPC thinking to lower rates when they are supposed to be thinking about their 2% inflation target 2 years ahead.

Is it because we are free to comment on the economy without professional constraints?

If the 'experts' get it so wrong about something so overwhelmingly obvious, then why should we listen to them when they talk about the long term trend for house prices and the economy in general.

I can feel a coup coming on.

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I originally posted this on another thread but the questions Gavin asks have been bothering me too:

Why has there been so little serious discussion in the mainstream media over the past few months along the lines of this thread?

I know that this is a question that has been asked on this board many times but I am reminded of it once again today.

Is it:

i) the 'dumbing-down' of media outlets to sell product?

ii) vested interests protecting truly important information and analysis for their own reasons?

iii) the media uncritically buying GB's 'economic miracle' thus inadvertantly proving the existence of a bubble economy?

iv) the trend for media outlets to parrot each other?

v) the desperate need to simply believe everything is OK?

vi) laziness?

vii) incomptence?

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HPC is full of people who as you suggested, “think outside the box”. The problem with thinking outside the box is that although it can make you extremely successful in whatever you do it is a contrarian approach that does not sit well with the establishment. The numbers in the housing market have not added up for sometime. Mathematically there is has been no reason to buy for FTB or BTL in the last few years, therefore the housing market has been on a knife edge for over a year now and hence the sentiment war has become ferocious. The numbers have been missing for sometime now and the only reason to buy would be psychological, i.e. fear or greed. How many times have you read some VI declaring the market has “turned” or the market is “set to boom”? In short although I would certainly say that the market is full of ignorant people, who just happened to be in the right asset class at the right time and have made a lot of money, there is also a calculated and measured nurturing of the economy going on by the mainstream press. The problem is that you can not hold back the numbers forever.

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In short although I would certainly say that the market is full of ignorant people, who just happened to be in the right asset class at the right time and have made a lot of money, there is also a calculated and measured nurturing of the economy going on by the mainstream press. The problem is that you can not hold back the numbers forever.

delite1

Good point and very well put, I will use your words in my signature if you don't mind.

We have heard many complaints (I have made some myself) about poor reporting becasue we want a HPCorrection. In the past poor reporting has triggered economic upsets unnecessarily and a lot of people have been hurt in the process. "nurturing of the economy" is no bad thing, because when it all goes wrong any of us could get hurt in the fall out. We should be careful what we wish for, me included!

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"unanimous"?

It might have been. 

The committee members, while independent, have political "antenna".

If they had ignored the signs of economic deterioration, they would have come

under political fire.  Now that inflation has been announced as being above the

BoE's range, they can revert to a truly independent stance.

Let's hope they do stick to theor brief - otherwise it looks as though they are deliberately devaluing our savings. Oh, and saving the necks of those who are drowning in debt......

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While the mainstream media has dumbed down - it's hard to provide a nice 27min show that covers the whole topic - What's been happening on Bloomberg etc? Are these channels also getting it wrong?

What about the markets in general? - I can't read the markets as well as the good Doctor, do/did then believe GBs economic miracle?

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Slightly off topic, but along the lines of 'how could the experts be so wrong'?

Today I'm seeing 'experts' predict that the rate cut decision earlier this month could well have been  unanimous (Channel4 telextext). Personally I find this hard to believe, but then I'm no 'expert'.

I must admit that I tend to find myself paying far less attention to the opinions of 'experts' than I used to.

5-4 about as un unanimos you could get I'd say....

I have said it before but all you need to become an expert in anything these days is some vauge association with the subject.

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What the hell were the MPC thinking to lower rates when they are supposed to be thinking about their 2% inflation target 2 years ahead.

You said it yourself: 2 years ahead. I understand that they stated in the report they expected higher inflation in the short term, then reducing. I don't personally believe they can predict this very well because no one knows what oil will do, but their reasoning is internally

consistent.

Pent

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You said it yourself: 2 years ahead. I understand that they stated in the report they expected higher inflation in the short term, then reducing. I don't personally believe they can predict this very well because no one knows what oil will do, but their reasoning is internally

consistent.

Pent

Look back at the previous reports, we are at the top end or above all of the previous predictions, including one released last week.

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I must admit that I tend to find myself paying far less attention to the opinions of 'experts' than I used to.

Snap.

Ive been anti - expert most of my working life and this has paid dividends.

When I was employed (yuk) I worked for a corporate. They empoyed an MBA business expert to boost profits and the board adored his every utterance. In his car were dozens of 'business guru' tapes. His office was plastered with corny American guru slogans. He had all the answers and spoke cliche business speak.

He had 'action plans' for everything, which for those of us having to implement the action plans was a real pain that got in the way of actual added value activity.

Anyway, some time later he requested to go into the field to become a regional manager relinquishing his consultancy role.

12 months later he was fired. His regions profits fell, sales fell, staff turnover increased etc. I bumped into him a while later and he was a jibbering shell - sad really.

This is a classic illustration of the danger experts represent. Give me experience over knowledge anyday.

Most new expert opinion I find incorrect.

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The calls of a bottom will be repeated, and repeated, as the market falls...

Until we finally hit bottom, by which time they will not be believed.

I expect that when I buy, whenever that is, if this website is up and running,'many here will think i am wrong and crazy to buy ("doesn't he see how weak the market is"?  "How can he think about buying now, there are forecasts saying this will go on for a decade")  Such comments will not faze me, stubborn and contrarian git that I am.

Charts + Fundamentals + that sort of sentiment understanding

I don't doubt you do very well for yourself good Doctor. Don't doubt it one bit.

.....

Nonetheless, I was rather hoping HPC luminaries would have somehow got everyone here thinking in these terms by the time the proper lows came around. On the otherhand newbs turn up all the time.

It does however rather sound as if you believe there are more prop perma-bears than pure contrarians here. I'm not quite sure that's fair.

Maybe it's just that you know all too well how even those with the best intentions give into fear when it's the least appropriate emotion.

I must admit I find it amusing to be called gutless by prop bulls for being unwilling to commit additional funds to property at these levels. I recall the same folk refering to equities a year back as being "too risky", whilst I was encouraging them to diversify in that direction. Funny how they now seem to find stocks more attractive. Hah! :D

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I originally posted this on another thread but the questions Gavin asks have been bothering me too:

Why has there been so little serious discussion in the mainstream media over the past few months along the lines of this thread?

Is it:

i) the 'dumbing-down' of media outlets .......to sell products

Starcrossed,

A bit OT, but serves to make a point: I turned on the box last night @ 7pm to see this:

Sea Monsters

Time travelling zoologist Nigel Marven goes on his most daring adventure yet as he travels back to prehistory to visit the seven most deadly oceans ever.

Ah thought I, a natural histoire prog in the David Attenborough mould.

Silly me: twas more Dickie than David!

In actuality, I was subjected to half an hour's hopeless hamming by said zoologist, as he pretended to be on the set of Jurassic Park. At one point he even faked an injury, supposedly produced by one of the BBC prehistoric props.

My point is, even educational progs have been perverted so as to make better viewing. One can only imagine how many facts in these progs are similarly tweaked.

Furthermore natural history is fairly watchable to start with. Once you start making progs about finance and investment the spin quotient must necessarily escalate to keep the viewers watching.

Don't ask me who is to blame. Is it the producers or the presenters? If it's the latter, it begs the question why Nigel Marven, Kirstie and the like don't just p!ss off and do panto like the 3rd rate luvvies they are! Then again, headlining "Mother Goose" probably does little to boost your sainsbury ad. appeal. :angry:

Edited by Sledgehead

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What the hell were the MPC thinking to lower rates when they are supposed to be thinking about their 2% inflation target 2 years ahead.

Further to the minutes, in a section describing those in favour of a cut, Merv, after outlining the factors in favour of a cut, describes the following attitude:

"A failure to reduce rates now might damage confidence. Early action would reduce the risk that greater changes in the policy rate would be needed at some point in the future, and would not preclude a rise in rates in the future if the data warranted it. For these members, there was no presumption on the future direction of interest rates."

It's almost as if they considered the factors, which were at best suggestive of a no change policy and then just tacked on this sentiment centred addendum, coupled with a caveat that makes interest rate setting sound more like day-trading than long term policy formulation.

Comments?

august minutes

Edited by Sledgehead

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First of all thanks Sledghead for pulling out these exerpts from the BofE minutes.

It sounds like it was a token rate cut. For whom? I'm not sure. Gordon? Retailers? Who knows. I can't see how that sits with their mandate to control inflation 2 years out. Sounds more like they wanted to get someone off of their backs (can't think who :blink: )

I must say I was surprised that it was a 5-4 vote. I'm probably too cynical.

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While the mainstream media has dumbed down - it's hard to provide a nice 27min show that covers the whole topic - What's been happening on Bloomberg etc? Are these channels also getting it wrong?

What about the markets in general? - I can't read the markets as well as the good Doctor, do/did then believe GBs economic miracle?

Dr Bubb

I know that your name is actually derived from the phrase "Debt Bubble", Dr being shorthand for debit in accounting speak.

Do you think that the common misconception that you are presenting yourself as a Doctor of some sort (which no doubt you are tired of correcting) has contributed somewhat to your elevation to near deity on this website?

After all, the term "good doctor" is associated with the medical profession in this country, and that profession regularly tops the poll of "most trusted professions" conducted annually by Gallup.

Please don't take this the wrong way, as I have a great deal of respect for your posts and you are clearly an lucid, perceptive and individual thinker.

What are your thoughts on the "spin" generated by your title? Do you ever wonder if things would be different if your name was Debt Bubble?

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First of all thanks Sledghead for pulling out these exerpts from the BofE minutes.

It sounds like it was a token rate cut. For whom? I'm not sure. Gordon? Retailers? Who knows. I can't see how that sits with their mandate to control inflation 2 years out. Sounds more like they wanted to get someone off of their backs (can't think who :blink: )

I must say I was surprised that it was a 5-4 vote. I'm probably too cynical.

In an article in today's FT Eurozone faces governance conundrum-Subscription Only Article Paul de Grauwe argues that the US and the Eurozone are using two different monetary policy models.

"The practical men in Frankfurt have become the slaves of a theory telling us that the sources of economic cycles are shocks in technology (productivity shocks) and changes in preferences. There is very little the central bank can do about these movements. If it tries too hard to “fine-tune” the economy it will end up with more inflation. Thus, the best thing it can do is to stabilise the price level. This will not only minimise the effects of these shocks, it is also the best contribution a central bank can make to promote growth. All the rest is the responsibility of governments: if these want more growth let them introduce structural reforms. In this view, there is also no need for an active budgetary policy aiming at stabilising the economy. For the practical men in Brussels the best thing governments can do is to aim for balanced budgets."

"The practical men in Washington are influenced by a very different set of ideas. These are deeply rooted in Keynesian thinking. In this view, there are not only productivity shocks but also demand shocks. “Animal spirits” – that is, waves of optimism and pessimism – capture consumers and investors. These waves have a strong element of self-fulfilling prophesy. When pessimism prevails, consumers and investors alike hold back their spending, thereby reducing output and income, and validating their pessimism. When optimism prevails, consumers and investors spend a lot, thereby increasing output and income, and validating their optimism."

The UK seem to be following the US model, with the recent cut aimed at stirring the "Animal spirits".

Edited by Quanty

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Do you think  that the common misconception that you are presenting yourself as a Doctor of some sort (which no doubt you are tired of correcting) has contributed somewhat to your elevation to near deity on this website?

I find DrBubbs posts excellent, based on the content. I think sledgeheads posts are equally excellent and I picture him having a sledge for a head, so for me, it's nothing to do with the name.

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Hi

Its all a con while we think politician have low trstworthyness, yet we assume there incompetent corrupt behavious is only constricted to part of thier life that dont touch on the things we hold dear to like our self government. They are power brokers and they serve the powerfull. If this bubble was not wantted then rates would not have got belo 4 % previously....so we can assume it has been engineered and they did this to give cridibility to the confidence trick that is our authorites are best serving the intrests of all.

Now they need a scapegoat to divert attention from the ramifications of calculated (IMH View) bad policy. Now oil will become the ccover for higher rate rises when they come they can say we tried to control it by lowering but crazy things happened in the world and oil went through the roof and our hands were tied.

the day they cut the rate i wrote this

ountdown To Boe Mpc ..... 10...

sp1 Posted on: Aug 4 2005, 12:15 PM

This gives credibility to the misinformers and no where will we hear of the stronger medince down the line....

The wool over eyes just got thicker.

Realisations will come...patientley...

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kind of agree Sp1.

US and UK are both trying to get perpetual growth,so that's why we've outsourced,raised lowered IR's created debt bubbles etc.

It's my belief that IR's are INTENTIONALLY going up long-term to provide the stimulus to the economy once the boomers retire,so don't be surprised if you see them going up to 8% again by the end of the decade.

...but it will curb inflation!!!!!!(what it basically means is that UK workers will get paid less and have a profit squeeze on their hands,but the goods imported will be reasonably cheap so it wont feel like we're badly worse off)

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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