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Mulling on Mss Yellens fireside chat. And a large number of FEDs member revving to ditch the embarissing failure that was QE.

For those who have not seen it - and that thing with the 'Doleys for Bankruptcy - north of the border is distracting people - here's a link from FT Alphaville:

http://ftalphaville.ft.com/2014/09/17/1975052/maths-and-the-fomc/

Here's a marked up image of the fot-plot - basically where the FED members think the FED rate will be over the next few years:

http://ftalphaville.ft.com/files/2014/09/dotplot.png

2015 - 2%

2017 - 4%

Now does anyone on here reckon the BoE base rate can bee below the Feds? Anyone??

The UK is not EUZONE - we do not have Germany backing the currency. UK runs verfy high current accoutn deficits - we eat money!

The UK does not offer the USes growth rate. The BoE tends to be above the FED rate. Probably more so as the US have righten off a lot of debt and recaptised their banks. The UK has just shuffled money and debt around and borrowed a lot more money. I would say the UK risk premium must be 1% - 1.5%.

What about the spread between what banks can borrow at vs. the BoE base rate. This self evident - if the BoE/state backs the bank than banks borrowing is going to be higher than the states (yes, i know BoE rate is not bond yield).

What do you reckon - 1%?

What spread do you think banks will lend at - taking into account the losses they have to pay bak., the extra regulation etc etc. Another 1%-1.5%

So, spys rough estimate are:

2015 - 5%-7% mortgage

2017 - 7%-9%

Why Mr Carney, thats your projected future rate.

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The UK is not EUZONE - we do not have Germany backing the currency. UK runs verfy high current accoutn deficits - we eat money!

The only way out for the UK is hpc and loads of new mortgages, imo. I'm not a 'bond' guy, but this seemed to make some sense.

10 September 2014

The value proposition is that all bonds, from global European bonds to US Treasuries are overvalued and mispriced, or in a bubble that the fundamentals cannot possibly sustain. As I said in a previous piece on European bonds specifically, just park money short every single European bond or a basket of these bonds, and over a 10-year period, you are going to make a good sum of money.

All these bond yields are mispriced compared to the risk profile over a 10-year duration period, and since writing that piece, other investors who were short have realized a 15 basis point profit in yield appreciation for those same European overpriced bonds. Some of these European bond yields are going to double sometime over the next 10 years; they just are poorly aligned with the fundamentals of the balance sheets of these governments' spending patterns!

..Accordingly the argument that relative to European bonds... blah, blah, blah... is a complete non-starter for me, because those bonds are overvalued by factors of 3 and 4 times, half those peripheral European countries are going to need to be bailed out like Greece in five years' time. Have you seen their spiraling out of control debt-to-GDP ratios of just the last two years? They are headed in the wrong direction without the robust tax generating capabilities like the United States has with an increased budget margin for error luxury due to being the global leader in many industries, from technology, healthcare, energy, agriculture, resources, research, education and entertainment.

http://seekingalpha.com/article/2484075-10-year-treasury-short-best-place-to-be-in-the-remainder-of-2014

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Mulling on Mss Yellens fireside chat. And a large number of FEDs member revving to ditch the embarissing failure that was QE.

For those who have not seen it - and that thing with the 'Doleys for Bankruptcy - north of the border is distracting people - here's a link from FT Alphaville:

http://ftalphaville.ft.com/2014/09/17/1975052/maths-and-the-fomc/

Here's a marked up image of the fot-plot - basically where the FED members think the FED rate will be over the next few years:

http://ftalphaville.ft.com/files/2014/09/dotplot.png

2015 - 2%

2017 - 4%

Now does anyone on here reckon the BoE base rate can bee below the Feds? Anyone??

The UK is not EUZONE - we do not have Germany backing the currency. UK runs verfy high current accoutn deficits - we eat money!

The UK does not offer the USes growth rate. The BoE tends to be above the FED rate. Probably more so as the US have righten off a lot of debt and recaptised their banks. The UK has just shuffled money and debt around and borrowed a lot more money. I would say the UK risk premium must be 1% - 1.5%.

What about the spread between what banks can borrow at vs. the BoE base rate. This self evident - if the BoE/state backs the bank than banks borrowing is going to be higher than the states (yes, i know BoE rate is not bond yield).

What do you reckon - 1%?

What spread do you think banks will lend at - taking into account the losses they have to pay bak., the extra regulation etc etc. Another 1%-1.5%

So, spys rough estimate are:

2015 - 5%-7% mortgage

2017 - 7%-9%

Why Mr Carney, thats your projected future rate.

Way, way too high. I reckon 4% is too much even for the US to withstand. US banks may be in better shape - 300+ were allowed to go bust, after all - but federal and local govt isn't, and US households are still carrying a massive 175% of GDP (below).

If the US base rate gets over 2% I'll be amazed.

As for the UK? Don't get me started. Even a 0.5% hike might be sufficient to put the UK back in recession unless Osborne (or more likely Balls) opens the QE taps again. And then we'll be caught in a stagflationary vise like Japan.

householdleverage1.png

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Way, way too high. I reckon 4% is too much even for the US to withstand. US banks may be in better shape - 300+ were allowed to go bust, after all - but federal and local govt isn't, and US households are still carrying a massive 175% of GDP (below).

If the US base rate gets over 2% I'll be amazed.

As for the UK? Don't get me started. Even a 0.5% hike might be sufficient to put the UK back in recession unless Osborne (or more likely Balls) opens the QE taps again. And then we'll be caught in a stagflationary vise like Japan.

householdleverage1.png

Yes and no.

Raising IRs takes money from debtors and give its to savers. Rises do not pull money out of the system.

The US problems (and the UK) problems are mainly unfunded commitments - pensions, benefits, public sector workforce.

The problem is that these are too big and unfunded. Tweaking with IRs will not resolved these. Restrucuring and default will.

I mean , how did we ever cope with IRs at 6% 8 years ago.

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