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The Masked Tulip

Europe Risks Getting It Wrong Again On Rate Rises

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This article by Hugh Hendry appeared in the FT a few days ago - call me stupid, but I have read it several times and I still am unclear whether he thinks raising IRs is good or bad.

Perhaps I am missing the obvious.

http://www.ft.com/cms/s/bcea0282-23bf-11e0-8bb1-00144feab49a,dwp_uuid=3b87e184-9789-11dc-9e08-0000779fd2ac,print=yes.html

I believe the European bureaucrats have badly misjudged the public mood. Perhaps they are too closely aligned with the plutocracy of the financial and banking sector. Contrast the mood of the ordinary household with that of my rich hedge fund friends. Today the average European long/short fund is running its most bullish risk exposure in many years and is feeling ebullient regarding the rising tide of corporate profitability as businesses pare back employment levels. My grumble is that I suspect the omnipotent powers of my peers’ central bankers might be found wanting just when they are needed most.
The markets are already pricing in the near certainty of a quarter-point rise from the Bank of England by May with another increase expected before October. But perhaps not wanting to be left out, the zealous guardians of Europe’s monetary system, who measure inflation rates across the 17-country bloc to the second decimal point, have recently raised their rhetoric to such an extent that investors are openly speculating that in spite of the continent’s tight fiscal policy European rates are now likely to rise before the end of summer. As they say in the land of macro investing, the cycle isn’t over until the Europeans lift rates. Just don’t bet on money staying tight for long.

Edit:

The article is reposted over on zerohedge and judging by the comments below I am not the only one who is confused.

http://www.zerohedge.com/article/hugh-hendry-near-certainty-european-interest-rate-rises

Edited by The Masked Tulip

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I interpret his views as follows: although the central banks may feel obliged to respond by raising IRs in the coming months there are still huge systemic problems which are unresolved and which would be exacerbated by such rises; hence his final comment "Just don’t bet on money staying tight for long".

I think he's right; despite all the optimism that's around I don't see that the systemic problems have been resolved at all and putting up IRs will not help; you are between the Scylla of inflation and the Charybdis of asset values.

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For the shadow of policy error lurks once more. The European Central Bank’s president even proclaimed his satisfaction with his bank’s decision to raise rates back in the cauldron month of July 2008. I salute him for his willingness to subject the bank’s decisions to open scrutiny. But tightening monetary policy amid the deepest economic crisis of the past 50 years was perhaps not his institution’s finest hour. And with headline inflation rates being boosted by relative price rises in the commodity sector, as Chinese policymakers continue to plug 10 per cent into their GDP calculators, another poorly-timed rise in European rates cannot be so easily dismissed.

This paragraph seems to imply he thinks the ECB raising rates is an error but he makes not comment on the BoE raising rates.

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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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