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Spain Debt Auction Pushes Borrowing Costs To Decade High

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http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8206619/Spain-debt-auction-pushes-borrowing-costs-to-decade-high.html

The government sold €2.4bn of the €3bn of bonds it had hope to sell on Thursday, with the average yield on the 10-year bonds coming in at 5.446pc and 5.932pc on 15-year bonds - around 20pc higher than previous auctions.

“The cost of funding for Spain rose significantly at this auction,” said Luca Cazzulani, a senior fixed-income strategist at UniCredit in Milan. “That reflected perceived deterioration of credit quality of Spain and that’s not going to bode well for their bonds.”

Interest rates at Spanish bond sales have soared in recent months amid market speculation the country may need emergency financial help because of its heavy debt burden and its slow recovery from recession.

The government has continually defended the economy, denied the need for help and says it is taking the necessary measures to handle its debt and trim its swollen deficit.

"When one looks at the bigger picture and considers the small amount sold, with low bid-covers, yet at a high yield, then it seems clear that peripheral markets remain under pressure and in need of support from policy makers," said Peter Chatwell, rate stategist at Credit Agricole in London.

The ECB needs to start buying this crap quickly.

Still bailing out Ireland appears to have contained the problem well.

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http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8206619/Spain-debt-auction-pushes-borrowing-costs-to-decade-high.html

The ECB needs to start buying this crap quickly.

Still bailing out Ireland appears to have contained the problem well.

Did I read somewhere that the Nationwide SVR was 2.5% somewhere?

Meanwhile, the yield on the UK 10 Year gilt now at 3.64%. Nationwide is one of the better institutions, but I am not sure that the are thinking this through properly. Mortgage rates have to be based on the market rate of interest, not the Bank of England base rate. In normal times these two are synonomous, but there is a growing divergence.

There will be little anyone can do to stop mortgage rates rising if the yields on gilts continue to climb. Nationwide will find itself starved of funds if it pays savers too little.

I see yields on German bonds are rising too. I struggle to see how they are as low as are in Germany, given that the nations faces massive borrowing costs, either to bail out other nations, or to bailout their own banks that will fail if they dont bailout the PIGS.

Tis all brewing up nicely.

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There will be little anyone can do to stop mortgage rates rising if the yields on gilts continue to climb. Nationwide will find itself starved of funds if it pays savers too little.

There is plenty they can do. For as long as there is ink in the Lexmark, the BoE can buy up mortgage-backed securities by the £hundred billion. Free cash for banksters, low interest rates for "homeowners", what's not to like? America's already doing it, so they can say they are following global best practice or call it coordinated intervention or some such nonsense.

They have already shown they will do anything they can get away with to prevent house prices from falling. For as long as our politicians and the majority of voters come from the other side of the priced-out divide, that will continue to be the case.

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There is plenty they can do. For as long as there is ink in the Lexmark, the BoE can buy up mortgage-backed securities by the £hundred billion. Free cash for banksters, low interest rates for "homeowners", what's not to like? America's already doing it, so they can say they are following global best practice or call it coordinated intervention or some such nonsense.

They have already shown they will do anything they can get away with to prevent house prices from falling. For as long as our politicians and the majority of voters come from the other side of the priced-out divide, that will continue to be the case.

I am not sure that the Bank of England can do this without consequences.

When you buy bonds as a central bank, that drives up the price as you are buying them.

When you stop though, you have left a market place with more money in it, and that is inflationary. The more money you pump in, the higher inflationary expectations and pressures get. People fear that bonds will provide poor or negative returns, and may chose to hold cash or lend short only, long bonds can plummet. People chose to spend that extra cash too, rather than store it.

And when inflation breaks out, as it is doing now, market rates of interest rise. There is simply nothing that the Bank of England can do on its own to keep interest rates low for any long period of time without causing inflation somewhere, and with it, rising interest rates.

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There is plenty they can do. For as long as there is ink in the Lexmark, the BoE can buy up mortgage-backed securities by the £hundred billion. Free cash for banksters, low interest rates for "homeowners", what's not to like? America's already doing it, so they can say they are following global best practice or call it coordinated intervention or some such nonsense.

They have already shown they will do anything they can get away with to prevent house prices from falling. For as long as our politicians and the majority of voters come from the other side of the priced-out divide, that will continue to be the case.

You're forgetting that since QE2, which should have had the effect you describe, bond yields have been rising.

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There is simply nothing that the Bank of England can do on its own to keep interest rates low for any long period of time without causing inflation somewhere, and with it, rising interest rates.

And when interest rates rise it's goodbye housing market, goodbye banks, goodbye economy, goodbye government's ability to repay its debts, goodbye currency...

HELLO GOLD :D

Edited by General Congreve

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I am not sure that the Bank of England can do this without consequences.

When you buy bonds as a central bank, that drives up the price as you are buying them.

When you stop though, you have left a market place with more money in it, and that is inflationary. The more money you pump in, the higher inflationary expectations and pressures get. People fear that bonds will provide poor or negative returns, and may chose to hold cash or lend short only, long bonds can plummet. People chose to spend that extra cash too, rather than store it.

And when inflation breaks out, as it is doing now, market rates of interest rise. There is simply nothing that the Bank of England can do on its own to keep interest rates low for any long period of time without causing inflation somewhere, and with it, rising interest rates.

Yes, that is the end game, but when they print they are trading short term liquidity gain for long term inflationary pain. As if anybody cares about the long term anymore. It's kicking the can, but each time they kick it it gets a bit harder.

Edited by Dorkins

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You're forgetting that since QE2, which should have had the effect you describe, bond yields have been rising.

QE2 was relatively small compared to QE1. Every time they print, they are going to have to print more to get the same effect. It's the logic of hyperinflation.

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And when interest rates rise it's goodbye housing market, goodbye banks, goodbye economy, goodbye government's ability to repay its debts, goodbye currency...

HELLO GOLD :D

Well it might be HELLO GOLD, but it might not.

It all comes down to a crucial decision. When yields on gilts start rising above 5%, someone might stand up and say, lets end this mess, and defend the currency. A longshot perhaps, but they might. I think that they would be risking their lives if they did this, but it would actually be the right thing to do.

And ending this mess means balancing the budget. Huge cuts to civil service pay, axeing of accrued pension benefits, and swingeing cuts in the welfare budget and pulling out of Europe. That is what you need to do to balance the budget. And balancing the budget means you dont have to print to raise the money to make good on the state's commitments, as you have all the money you need from taxation.

You could even adopt QT, sell bonds in the market, gathering electronic cash, and then cancelling that cash out of existence.

It could be done, someone might actually stand up and do it.

And if they did, Gold might not be such a good buy.

FWIW, the only person I can think of that would stand up and say 'Stop, No More', is me. I get called Fascist for saying this because of the policy implications, which are not pleasant. They are far more pleasant though, than an uncontrolled destruction of the nations currency, something which few outside Zimbabwe can envisage. You probably wouldnt like me as I would cost you and other goldbugs a fortune. You can rejoice in the fact that I am unelectable and have no means of staging a coup.

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QE2 was relatively small compared to QE1. Every time they print, they are going to have to print more to get the same effect. It's the logic of hyperinflation.

That is true. It's a rock and a hard place scenario, the debt load is too great. They either print the currency into oblivion in order to try and keep interest rates down (hyper/stagflationary ending), or they don't print enough, and watch bond yields rise and their economy get toasted in a deflationary depression.

Either way, the currency is toast. However, even in this bleak scenario, for the astute saver, there is still a rainbow though, with a great big pot of gold at the end of it. :ph34r:

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That is true. It's a rock and a hard place scenario, the debt load is too great. They either print the currency into oblivion in order to try and keep interest rates down (hyper/stagflationary ending), or they don't print enough, and watch bond yields rise and their economy get toasted in a deflationary depression.

Either way, the currency is toast. However, even in this bleak scenario, for the astute saver, there is still a rainbow though, with a great big pot of gold at the end of it. :ph34r:

In a deflationary depression, cash is a great investment.

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Well it might be HELLO GOLD, but it might not.

It all comes down to a crucial decision. When yields on gilts start rising above 5%, someone might stand up and say, lets end this mess, and defend the currency. A longshot perhaps, but they might. I think that they would be risking their lives if they did this, but it would actually be the right thing to do.

And ending this mess means balancing the budget. Huge cuts to civil service pay, axeing of accrued pension benefits, and swingeing cuts in the welfare budget and pulling out of Europe. That is what you need to do to balance the budget. And balancing the budget means you dont have to print to raise the money to make good on the state's commitments, as you have all the money you need from taxation.

You could even adopt QT, sell bonds in the market, gathering electronic cash, and then cancelling that cash out of existence.

It could be done, someone might actually stand up and do it.

And if they did, Gold might not be such a good buy.

FWIW, the only person I can think of that would stand up and say 'Stop, No More', is me. I get called Fascist for saying this because of the policy implications, which are not pleasant. They are far more pleasant though, than an uncontrolled destruction of the nations currency, something which few outside Zimbabwe can envisage. You probably wouldnt like me as I would cost you and other goldbugs a fortune. You can rejoice in the fact that I am unelectable and have no means of staging a coup.

And there's the rub.

The drastic monetary and fiscal action needed to put the UK back on track would be so destructive to the house of cards that our economy has become, that if someone tried to implement the needed changes, they'd be out of office in no time. Just look at the response to the paltry cuts they have made, with the student riots etc. Can you imagine the result of 6 million plus unemployed?

If one party tries to implement the changes necessary the other parties will just smell the opportunity for power and promise to turn back on the magic money tap if you vote for them. Welcome to democracy. As Winston Churchill once said, "The best argument against democracy is a 5 minute conversation with your average voter".

And remember this has to happen all over the western world, not just the UK, for golds assent to be arrested/fiats decline to be arrested. Look at the riots in Greece etc, this is a worldwide issue. We need a global depression to sort this debt crisis and no one wants to let it happen.

So, it'll be a case of keep taking those inflationary pain killers until the patient dies of the debt illness, rather than taking the nasty tasting medicine and going through the painful physiotherapy to get better.

Gold, gold, buy and hold. There is only one way this is going to work out.

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In a deflationary depression, cash is a great investment.

When a country's economy crashes and that economy is what is backing your currency, your currency weakens too. Just ask the people in Iceland. Those holding cash saw their wealth cut in 3 on the day they had their crisis, but those holding wealth in gold saw it rise in value over and above the devaluation of the currency. That's if they could avoid the draconian capital controls the b@stards in charge put in place after the crash, they were only allowing gold to be officially exchanged at the old rate and banned holders from taking it out of the country! Of course that situation is a bit easier to avoid here, as we are not stuck in the middle of the Atlantic and small sailing boats are a plenty, also I don't think the ferry ports have sniffer dogs that can detect gold ;)

Edited by General Congreve

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Did I read somewhere that the Nationwide SVR was 2.5% somewhere?

Meanwhile, the yield on the UK 10 Year gilt now at 3.64%. Nationwide is one of the better institutions, but I am not sure that the are thinking this through properly. Mortgage rates have to be based on the market rate of interest, not the Bank of England base rate. In normal times these two are synonomous, but there is a growing divergence.

There will be little anyone can do to stop mortgage rates rising if the yields on gilts continue to climb. Nationwide will find itself starved of funds if it pays savers too little.

I see yields on German bonds are rising too. I struggle to see how they are as low as are in Germany, given that the nations faces massive borrowing costs, either to bail out other nations, or to bailout their own banks that will fail if they dont bailout the PIGS.

Tis all brewing up nicely.

For those who took out a mortgage pre-2008ish, SVR is BOE+2% for the term. I should know..

Strangely enough, if you (re)mortgage with them now then this becomes no longer available - they have a 'BMR' or whatever which they can put at whatever they fell like - currently 3.99%.

I am vaguely wondering what would happen if BoE rates stayed at 0.5% with market rates at 10%. Suspect that Nationwide would be toast..

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For those who took out a mortgage pre-2008ish, SVR is BOE+2% for the term. I should know..

Strangely enough, if you (re)mortgage with them now then this becomes no longer available - they have a 'BMR' or whatever which they can put at whatever they fell like - currently 3.99%.

I am vaguely wondering what would happen if BoE rates stayed at 0.5% with market rates at 10%. Suspect that Nationwide would be toast..

Yes, there were a lot of banks who stupidly lent at rates tied to the BofE Base Rate.

They will be clamouring to get the BofE to raise rates should market rates of interest climb much further.

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And when interest rates rise it's goodbye housing market, goodbye banks, goodbye economy, goodbye government's ability to repay its debts, goodbye currency...

HELLO GOLD :D

You don't think that gold has risen so much because interest rates are low? Then when they rise and offer a better return....

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That's if they could avoid the draconian capital controls the b@stards in charge put in place after the crash, they were only allowing gold to be officially exchanged at the old rate and banned holders from taking it out of the country!

Did they actually do this GC - would love to see a linky...

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Yes, there were a lot of banks who stupidly lent at rates tied to the BofE Base Rate.

They will be clamouring to get the BofE to raise rates should market rates of interest climb much further.

I thought Building Societies were most hit by this? However as the governmint own RBS and Lloyds WTF do they care about BS?

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From Bloomberg today:
9. Spain's Official Home Prices Don't Show Scale of Slump: Chart of the Day
Spanish government statistics on home prices don´t reflect the scale of the market´s decline since 2008 and may be hindering a recovery, according to R.R. de Acuna & Asociados, a Madrid-based property adviser. The CHART OF THE DAY shows prices for Spanish homes excluding social housing have dropped 12.8 percent from the market´s peak in first-quarter 2008, according to government statistics. Irish prices fell 36 percent and U.S. prices 27 percent from their highs. In England and Wales, they fell 16.8 percent from the November 2007 peak to the trough in April 2009.
"Official statistics in Spain have been massaged to create the impression that the prices have bottomed out and the economy isn´t doing so badly,"
Fernando Rodriguez y Rodriguez de Acuna, an analyst at R.R. de Acuna, said by phone. "That only serves to hinder the market´s recovery as no one believes the data." Since the Spanish market´s peak, home prices have dropped 22.5 percent, according to a survey by real-estate website Fotocasa.es and IESE Business School. The analyst said prices will decline by another 20 percent over the next five years.

Spain has been fibbing about quite a lot it seems.

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From Bloomberg today:
9. Spain's Official Home Prices Don't Show Scale of Slump: Chart of the Day
Spanish government statistics on home prices don´t reflect the scale of the market´s decline since 2008 and may be hindering a recovery, according to R.R. de Acuna & Asociados, a Madrid-based property adviser. The CHART OF THE DAY shows prices for Spanish homes excluding social housing have dropped 12.8 percent from the market´s peak in first-quarter 2008, according to government statistics. Irish prices fell 36 percent and U.S. prices 27 percent from their highs. In England and Wales, they fell 16.8 percent from the November 2007 peak to the trough in April 2009.
"Official statistics in Spain have been massaged to create the impression that the prices have bottomed out and the economy isn´t doing so badly,"
Fernando Rodriguez y Rodriguez de Acuna, an analyst at R.R. de Acuna, said by phone. "That only serves to hinder the market´s recovery as no one believes the data." Since the Spanish market´s peak, home prices have dropped 22.5 percent, according to a survey by real-estate website Fotocasa.es and IESE Business School. The analyst said prices will decline by another 20 percent over the next five years.

Spain has been fibbing about quite a lot it seems.

I am sure that the figures are accurate. You have to realise that the figures are an average. Sure, many prices have fallen far more than this headline figure, but the massive amount of unsellable properties on the books of Spanish banks havent fallen in price at all.

Nothing to see here RB.

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You don't think that gold has risen so much because interest rates are low? Then when they rise and offer a better return....

Yep, positive real interest rates (they have to be positive by 6% on balance for gold to go into a decent decline) will be bad for gold, for a couple of months anyway, until all those savers see their accounts go *poof* when banks collapse under the weight of defaulting loans and the currency dives as the economy collapses from all the debt and the government struggles to pay its debts too.

There is more to this than rates, debt is the elephant in the room and the real game changer.

Edited by General Congreve

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Did they actually do this GC - would love to see a linky...

Just did a quick google search, didn't find anything immediately on the implementation, but here is a recent article about how they are maintaining them, after saying they'd relax them earlier in the year. So, as you can see they have imposed them and are keeping them...

http://www.theforextradingsystem.com/fx-news/iceland-capital-control-relaxation-postponed/

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Sorry, hope that didn't hurt too much.

In the very short term positive real interest rates, will be negative for gold, as my last post states.

However, please see the following moneyweek chart on gold price movements and interest rates. As you can see from the historical chart interest rates need to be positive in real terms by 6% before gold moves decidedly downwards. Between 0-2%, they still tend to move upwards, between 4-6% it's fairly balanced, but the tipping point is 6%.

Now can you imagine a world where real interest rates for savers are 6%, that's RPI at 4.7%, but 6% on top, so 10.7%. A more than 20x increase on the base rate, not to mention banks have to give higher rates to debtors than savers to make money, so mortgage rates would need to be at least 12%!

What do you think will happen to our debt ridden economy if rates go that high? I'll tell you, it'll bomb in a debt default mushroom cloud, the currency will be toast.

So, either way you cut it, the future is ultimately bullish for gold. Please explain why I am wrong?

Gold price and interest rates.gif

post-20010-0-00668700-1292513981_thumb.gif

Edited by General Congreve

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  • 312 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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