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Britain Triggers Global Inflation Alarm

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Some of the world’s leading investors have turned bearish on government bonds from developed countries as they warn of the growing danger of inflation.

Data this week showing the UK’s consumer price index hit 3.7 per cent in December fuelled that concern and sent benchmark British borrowing costs to an eight-month high of 3.72 per cent.

In Europe, inflation has risen above the European Central Bank’s target for the first time in more than two years, leading investors to bet on interest rates rises in the eurozone and UK this year.

The trend has caused homeowners to rush to fix their mortgage rates as lenders withdraw their cheapest fixed-rate deals.

“Why would you want to be a bondholder with bond yields so low and that sort of inflationary trend,” Bill Gross, who runs the world’s largest bond fund at Pimco, told the Financial Times. “If CPI continues above 3 per cent in the UK and 2 per cent in the US, then we are accepting negative real interest rates, and that is not an attractive investment.”

Jim Rogers, a veteran investor based in Singapore, said western governments were concealing the extent of inflation. He would avoid bonds and continue his long-held preference for commodities.

“There has been inflation but the US and UK governments lie about it ... Money all around the world is becoming more and more debased so you need to own real assets.”

Markets have been pricing in higher inflation expectations since the summer. Break-even rates, which measure investors’ expectations for inflation, have risen steadily since August in the US, UK and Germany to 2.2 per cent, 3.1 per cent and 2 per cent respectively, but they are still reasonably subdued.

UK mortgage brokers have reported a surge in demand from private clients for fixed-rate deals in the past week, spurred by the shock rise in inflation. “We’re getting more and more enquiries from clients wanting to fix their mortgage for five years,” said Simon Gammon of Knight Frank Finance.

First Direct, Halifax, Yorkshire Building Society and Barclays Wealth became the latest lenders to pull their most competitive fixed-rate products and increased rates by as much as 0.5 percentage points.

A survey by Northern Trust found 62 per cent of investors thought global inflation would rise in the next six months, while 53 per cent thought market interest rates would rise this quarter. But their concern was tempered by faith in strong economic growth.

Inflation has been strongest in emerging markets such as China, where inflation was 4.6 per cent in December, just below a two-year high, and economists expect strong price increases early this year.

However, other well-known investors are sanguine about the inflation outlook. Anthony Bolton, the Fidelity stock-picker who deferred his retirement to invest in China, said: “I don’t think inflation is going to be a major problem ... In this two-speed world, I expect that, despite the higher inflation in emerging markets, the flow of money will still be from the developed world into the emerging one.”

Bankers said there was increasing demand among investors for floating-rate debt, where interest payments increase as rates do.

But borrowers such as companies are rushing to lock in cheap fixed-rate deals. “There is a big battle brewing here,” said one senior debt banker in London.

Edited by pandora's box

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A cut'n'paste would be gratefully received.

Someone posted a cheat for FT articles a while back - click on link, get first few lines of article. Copy title, paste into Google, then click on article as it comes up there. By-passes the FT cookie on your machine, you get the whole article. Seems to work every time.

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Many, many people in this country are further away from owning tangible assets than they have ever been. Debts, wages stagnating, prices rising, mortgages at threat of going under. It's a hollow warning for many because they are just passengers now.

This is really a call out to those who have some capacity to act to secure what they can while they still can.

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Someone posted a cheat for FT articles a while back - click on link, get first few lines of article. Copy title, paste into Google, then click on article as it comes up there. By-passes the FT cookie on your machine, you get the whole article. Seems to work every time.

nice tip.

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Someone posted a cheat for FT articles a while back - click on link, get first few lines of article. Copy title, paste into Google, then click on article as it comes up there. By-passes the FT cookie on your machine, you get the whole article. Seems to work every time.

Also to stop that pop up launching and preventing you from even getting a glimpse of the headline to Google - hit ESC several times as soon as you see the headline as this prevents the JS pop up kicking in :D

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The plan by the Bernanke and his puppet boy King is to inflate the debt away and play a game of trashing the currencies forcing inflation onto other countries - mainly China - in order for the US and the UK to recover.

Both the above will talk the talk about raising IRs but have no intention of doing so for a good 12 months if not much longer.

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Whilst scareing those into fixed rate mortgages through the media.

Yes the propaganda machine regrding fixed rate mortgages etc is cranked to full at the moment in the media it seems however if the banks are pulling their deals how can people get them?

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Also to stop that pop up launching and preventing you from even getting a glimpse of the headline to Google - hit ESC several times as soon as you see the headline as this prevents the JS pop up kicking in :D

Never seen that pop-up, thanks to Firefox, NoScript and AdBlock. Works a treat in cutting out the "you've just walked into a strip mall" effect.

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I dont think the BoE can put rates up too high as it will kill the economy in lots of ways becuase we've all seen those stories of the many households that cant afford a 1% rise in base rates like this one.

http://www.thisismoney.co.uk/news/article.html?in_article_id=517533&in_page_id=2

You're falling straight for it. Such stories are of course propaganda designed to put pressure on TPTB and lay the ground for the meeja to tear into them if&when rates do rise.

Zimbabwe's inflation was only temporary, doncherknow? Just stay vigilant.

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Many, many people in this country are further away from owning tangible assets than they have ever been. Debts, wages stagnating, prices rising, mortgages at threat of going under. It's a hollow warning for many because they are just passengers now.

This is really a call out to those who have some capacity to act to secure what they can while they still can.

Too true.

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The BoE is split on whether we are heading towards higher inflation or deflation. No one has perfect foresight, but after quantitative easing continued higher inflation is a real possibility. When QE was launched, this was accepted as a real, but justifiable risk by policy makers.

The question I have is if we have a situation where inflation rises to moderately high levels (say 10%), what will the consequences be? Would we get a wage hike spiral? Will interest rates go up or will we keep negative real interest rates? Would this make property more affordable or will it keep up with inflation?

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There has been inflation but the US and UK governments lie about it. Money all around the world is becoming more and more debased so you need to own real assets.

Jim Rogers

FT link

Totally agree, I have been thinking for a while that any serious investor will get out of cash fast. Inflation is clearly going to be let rip as the amount of debt accumulated will never be paid back any other way.

There is a reasonable chance of massive commodity inflation if this goes in to an upward spiral. Central banks need to keep currencies credible or there will be big trouble.

No doubt this will be weighing on the MPC's minds, surely the inflation we are experiencing make more QE completely impossible. The loss of inflation fighting credibility would probably force a currency and bond rout. The yanks may be able to get away with it, we would be stuffed.

Ironically this is probably also the only positive I can think of for the housing market. Makes more sense to invest in B&M than have your wealth in cash which is being printed at a rate of knots.

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The BoE are pushing on string at the moment.

The damage has been done to the economy so they & the Govt need to wait for people to adjust/desensitize to their new lower living standards which will dominate this economy for the next few decades before we start to see some real growth. When the UK becomes cost effective to produce and export from not just in hitech arenas, then you will see improvements.

It wont matter if the BoE raise rates now for savers becuase many savers are losing on a daily basis anyway as they gradually become extinct or an even greater minority.

At best all the BoE can do is hold a steady course maybe notch up rates a bit but wait for everyone to adjust to the Govt cuts becuase no-one knows how many businesses will be able to change course and seek revenue from abroad and how many will be going down the pan, thus reducing the tax revenue even more for Govt which could rinse and repeat for sometime to come.

this is true

However we do not actually have a real economy as such and haven't done so for 30 years. We have spent borrowed money on imported stuff that is now in land fill sites. While paying shop assistants and financial advisers.

The 'economy' as it is will collapse around their ears while inflation marches on upwards. The QE and low interest rates are just a further extension to the debt driven economy. What 'they' do is irrelevant, the economy will not grow without being massively rebalanced first.

The problem is that TPTB will desperately try to keep the old system going, but in the end they will fail.

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Totally agree, I have been thinking for a while that any serious investor will get out of cash fast. Inflation is clearly going to be let rip as the amount of debt accumulated will never be paid back any other way.

There is a reasonable chance of massive commodity inflation if this goes in to an upward spiral. Central banks need to keep currencies credible or there will be big trouble.

No doubt this will be weighing on the MPC's minds, surely the inflation we are experiencing make more QE completely impossible. The loss of inflation fighting credibility would probably force a currency and bond rout. The yanks may be able to get away with it, we would be stuffed.

Ironically this is probably also the only positive I can think of for the housing market. Makes more sense to invest in B&M than have your wealth in cash which is being printed at a rate of knots.

Wow, what a confused post.

Putting your cash into into assets that have already hyper-inflated just at the make or break point for central banks seems a very strange tactic.

You only have to look back to 08 to find out how they can control inflation expectations with out touching interest rate.

Ben Bernanke openly admits the fed is targeting the equity markets and using them as a monetary tool.

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Wow, what a confused post.

Putting your cash into into assets that have already hyper-inflated just at the make or break point for central banks seems a very strange tactic.

You only have to look back to 08 to find out how they can control inflation expectations with out touching interest rate.

Ben Bernanke openly admits the fed is targeting the equity markets and using them as a monetary tool.

Hmmm, it depends really. To buy outright a property right now that could be an attractive option, for me anyway. I've been pondering this myself with my current property. I paid down the mortgage to about £40k but I'm substantially more cash-rich than that, the idea being that the (liquid) cash will be used to move quickly on a property purchase (if the prices would ever fall enough :( ) to trade-up from my current property. But if we have any real signs of an inflationary shitstorm my cash is going into assets. Outright ownership of this house first then I'll take it from there. I think to dismiss outright B&M as an option is a bit strange because some people have quite a short path to achiving a good position with B&M - I could only understand your argument if it related to a new purchase at an inflated price.

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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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