Markets pricing in 3.5% rates by February

[Bruce Banner]

3 minutes ago, spyguy said:

If the BoE - and UKGOV - had any faith in the ability to maintain prices @ 2% -+1% then the should have capped pension increments at 2%.

AS it stands, UKGOV/BoE have lost control of prices and the large number of people of people whove be paid £££ to regulate banks and prices are getting an expensive bail out of index linked pensions, at the extreme cost of the UK tax payer worker whove had to pay for it all.

 

1 minute ago, spyguy said:

Its as silly as aiming for price stability.

Going forward, UKGOV pension are going ot be massive problem - theyve been grossly underfunded and the actuary behind PAYE pension is nuts.

 

So you're implying that the BoE is not truly independent? Not something that I would argue with.

UK state pensions have never been funded, 'twas always thus. Rightly or wrongly, the current economically active generations have always funded the previous ones' pensions

[PropertyMania]

On 17/08/2022 at 20:50, henry the king said:

Sentance is one of the good guys. 

You could make a good MPC. Haldane as governor. Saunders chief economist. Sentance too. Catherine Mann. Haskel. You can keep Ramsden. They have all shown they are credible about inflation.

The problem is almost entirely Bailey though. The dude just hasn't got a clue. Even if Pill was Governor he would probably deliver more rate rises. But Bailey is such a massive inherent dove that it holds everything back. He is a guy who wanted negative rates. He should be fired instantly.

The biggest clown of the lot is perma dove Danny Blanchflower, who is already calling for a rate *cut* 

[Will!]

3 hours ago, spyguy said:

The BoE has utterly failed.

Since being granted independence, 2008 saw ~80% of banks by lending bow up, followed by the highest inflation in 40 years.

Which raises the question of whether the MPC will have a sudden rush of competence and raise the Bank Rate?  Or will the MPC foolhardily keep it below the Federal Funds Rate, the pound will fall against USD, CPI will rise further, we will go into a CPI-linked benefits-CPI spiral and Andrew "Olly" Bailey will say that there was nothing he could have done.

[spyguy]

22 hours ago, Bruce Banner said:

So you're implying that the BoE is not truly independent? Not something that I would argue with.

UK state pensions have never been funded, 'twas always thus. Rightly or wrongly, the current economically active generations have always funded the previous ones' pensions

The BoE is independent from direct political influence.

The independence given to BoE in 97 was just setting IRs.

Before that, BoE used to follow laws and regulation to carry out regulation.

However ... the BoE is not independent of its own daft models and institutional stupidity.

 

In terms of pensions, a large number of public sector pensions are meant to be fully funded - Teachers (TPS) and LA pension schemes.

Theres nothing wrong with PAYG pensions. However ... youve got to adjust the pension payouts if the number of workers goes out of sync with the number of pensioners. You cannot have a PAYG pension offering (high) fixed benefits.

 

The problem is UKGOV did not adjust when life expectancy rapidly changed - mid 80s to late 90s. Up til then, the typical 10% employee + 10% employee contributions were more or less OK.

The private sector, rightly or wrongly, panicked and shutdown DB as the cost became rapidly clear.

For a public sector pension - say teachers (TPS) -  the contributions needed are ~40%.

Theres a massive panic at t within education as the TPS shortfall become apparent and the catch up payments required are bandied about.

This is causing private (public) schools to close as they are presented with vastly increased subs.

Private sector teachers can join the TPS. Nuts, I know, but it also blocks a UKGOV bail out. Imagine the headlines - UK tax  payer bails out Eton teachers.

 

Pension contributions for the worst (tax payer)/best (employee) are  fire and police, where contributions for, say, a female police officer need to be over 100% of salary.

Not only are the are the newly discovered cost of public sector pensions becoming apparent but the cost of expanding public sector roles with lots of women are coming back to dump on UK tax payer.

This will cause huge political turbulence as well as financial problems - Labour have long changed  from being the party of the working man to the public sector woman.

 

 

In the widest  term - NI contributions are actually accounted separately and used to fund the state pension + NHS -

https://www.gov.uk/government/case-studies/national-insurance-fund

This worked when the number of people drawing the state pension was a fraction of the workforce - and the workforce were mainly working, or at least not sat around on benefits.

 

The equalisation of SRA for men n women, followed by the rapid increase to 67 is probably the most significant acts of sensible public spending policy in the last 50 years.

Less the savings on the state pension, more the delaying of SRA age for a large number of public sector women.

Id also expect UKGOV to play hardball with the new state pension, in regards to NI payments -

https://www.gov.uk/new-state-pension

I expect pension credit to be scrapped/inflated away.

 

[spyguy]

21 hours ago, Will! said:

Which raises the question of whether the MPC will have a sudden rush of competence and raise the Bank Rate?  Or will the MPC foolhardily keep it below the Federal Funds Rate, the pound will fall against USD, CPI will rise further, we will go into a CPI-linked benefits-CPI spiral and Andrew "Olly" Bailey will say that there was nothing he could have done.

Define 'temporary'. Or at least put a number of months to it.

BoE - and the rest - problem is that there models were wrong but giving out he right figures as China flooded the west with goods, keeping prices down.

Now China has changed - too expensive, locked down, etc - its not acting as a massive deflator, rather Chinese demand is creating inflation.

The issue is not that the BoE is suddenly wrong. BoE has been wrong since being granted independence, just the luck of the numbers covered up its cockups.

BoE has to raise rates to get the £ stronger.

Usual chart posting -

The BoE only has independence to set UK base rates higher than the FED.

This is more true now, that China is using the $ by proxy.

The reality for the  UK/BoE is rates need to be a good 2% (200 bps) clear of the FED) - or face higher inflation.

 

 

 

 

[hotblack42]

41 minutes ago, spyguy said:

The reality for the  UK/BoE is rates need to be a good 2% (200 bps) clear of the FED) - or face higher inflation.

This could well happen if the Fed is going for the short sharp shock of several 0.75% then levelling off.  It won't take many BOE 0.5% rises after the Fed stops to overtake the US base rate.

One annoying thing on a personal level - it looks like some youngsters who've had inflation busting raises are increasing their bids for rentals in Bristol.  Well I'd wish they'd stop it until after my lad has secured a tenancy there.

He's finally got a job in IT after trying on an off for 3 years.  Always been a bit of a git to break into IT with no experience.  An upper 2nd Masters in Theoretical Physics is apparently no match for a school leaver whose spent 6 months on a ServiceDesk resetting passwords it appears 🙄

[spyguy]

21 hours ago, hotblack42 said:

This could well happen if the Fed is going for the short sharp shock of several 0.75% then levelling off.  It won't take many BOE 0.5% rises after the Fed stops to overtake the US base rate.

One annoying thing on a personal level - it looks like some youngsters who've had inflation busting raises are increasing their bids for rentals in Bristol.  Well I'd wish they'd stop it until after my lad has secured a tenancy there.

He's finally got a job in IT after trying on an off for 3 years.  Always been a bit of a git to break into IT with no experience.  An upper 2nd Masters in Theoretical Physics is apparently no match for a school leaver whose spent 6 months on a ServiceDesk resetting passwords it appears 🙄

I dont follow your gripe.

IT, as term, is meaningless.

Any physics grad will have a highly numerate degree, involving a *LOT* of computing.

Im going thru this at the mo, with my eldest. Hes been emailing various Phys dept, off his back, asking about what he needs to do to help his studies. Every single one has come back with - 'computation' i.e. learn programming, which is an area that various HE bodies struggle to teach.lack the skills.

 

 

 

[spyguy]

More on BoE/CBs -

Central bank independence is on the decline

If Truss becomes prime minister, she can improve Bank of England accountability and UK monetary policy

https://www.ft.com/content/9bb08941-a091-446b-a048-c6a981af8bea

blah blah blah.

Comments are, better, esp the ones from Tim Young an ex BoE person.

 

 

(Edited)

 

The problem is not the BoE's mandate or even its remit, which the government could easily change if they want, but the people running monetary policy. And it has to be said that senior monetary policy making appointments at the BoE are controlled by the government.

 

First, a problem common to all central banks these days (say, since the 1990s) is that they are dominated by academic-type economists, many of them not even specialists in monetary economics, so that their understanding of monetary mechanisms is weak. One MPC member, who shall be nameless, I recall saying something like "I do not wish to know the details, just implement the interest rate that we set". MPC members seem to see themselves as being above mere technicians charged with running a key economic function, but doing something broader, like managing demand. A hawkish prioritisation of price stability is unwelcome, as revealed by Mervyn King's disdain for "inflation nutters". An F1 analogy might be that MPC members regard themselves as drivers rather than engineers. One way to infuse more knowledge of mechanistic details into the monetary policy setting process might be to appoint some ex-commercial bankers to the MPC, with practical experience of the plumbing of the monetary system. Indeed, some research has suggested that central banks with more policy board members who studied business tend to deliver lower inflation that those with more economists: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=784566 .

 

Second, in my experience, the BoE staff lack something like courage or principle, to assert their independence. This includes independence of the groupthink in the central bank community - by convention, central banks avoid clear criticism of each other. While I never encountered any party political influence at the BoE, there did seem to be a reluctance to take tough action that might create difficulties for the government. The most damaging instance of this has been muted questioning of asset price inflation. Working in financial market operations at the BoE, and therefore a participant in global fixed income markets, it seemed obvious to me as far back as 2000 that refusal to lean against rising asset prices would lead monetary policy into a trap. I did explain this in a note sent to some of the monetary policy makers, but was ignored, partly because this implied criticism of the Fed, and perhaps also because I was not regarded an economic analyst. After I had left the BoE, it went along with the economically perverse help-to-buy scheme without demur. My impression was that the BoE is rather vain about its independence, and reluctant to use it lest public support for independence was lost and it was repealed - independence was like a precious jewel in a display case, to be admired but rarely worn. Some prominent BoE figures, like Paul Tucker, have expressed reservations about unelected officials using powers like limiting mortgage loan-to-value ratios. There is no point having independence if you will not use it.

 

It is not that market ops do not know how to implement monetary policy decisions, but that the view of the economists of how monetary policy works is wrong. In particular, I think that thinking in terms of macroeconomics to define the "neutral" policy rate is barking up the wrong tree - it should be determined by the marginal demand for bank loans, which in the UK looks like being mortgage lending, given that about 70% of bank lending is for house purchase.

 

However central banks address bubbly asset prices, I think that they need to do something to lean against them. The essence of my argument in 2000 was that, while it is theoretically okay to target consumer price inflation (although the ideal would be to target an inflation measure that gives some weight to all items transacted against the blend of money that monetary policy is believed to influence), because ultimately consumption and asset prices are linked, albeit elastically, it is not viable to ignore asset prices, because in practice, when asset prices collapse, the pressure on monetary policy to brake falling asset prices will be irresistible - warnings of Great Depression 2.0 from commentators like Martin Wolf, for example. The result will be a ratchet of ever looser monetary policy, defending ever higher asset prices, ultimately resulting in accepting an overshoot of the inflation target. So, in my opinion, that was like a long leg of the monetary policy transmission mechanism, which justified a consumer price inflation targeting central bank leaning against bubble asset prices.

[hotblack42]

1 hour ago, spyguy said:

Any physics grad will have a highly numerate degree, involving a *LOT* of computing.

Im going thru this at the mo, with my eldest. Hes been emailing various Phys dept, off his back, asking about what he needs to do to help his studies. Every single one has come back with - 'computation' i.e. learn programming, which is an area that various HE bodies struggle to teach.lack the skills.

Sadly not in this case, he focussed entirely on deep theory, grappling with very difficult concepts around matter, forces, the latest research and thinking on subatomics etc.  All above my head really.  Next to nothing practical like programming.

He began looking at computing in the Spring and is now about where I was in terms of comprehension of IT development after 18 months, plus, with some assistance with me, has insights into SDLC, IT security, database technologies, development and operation of web applications, requirements elicitation and management etc.  Just no actual experience.

Find a way to educate your lad about the general operation of an IT department and its relationship with the business, as well as learning programming.  It will make him much more effective.  He'll break in sooner or later if he displays a good general attitude, has the aptitude and a there is an obvious appetite for the work in his eyes and words 🙂

[Will!]

On 22/08/2022 at 10:15, spyguy said:

Define 'temporary'. Or at least put a number of months to it.

BoE - and the rest - problem is that there models were wrong but giving out he right figures as China flooded the west with goods, keeping prices down.

Now China has changed - too expensive, locked down, etc - its not acting as a massive deflator, rather Chinese demand is creating inflation.

The issue is not that the BoE is suddenly wrong. BoE has been wrong since being granted independence, just the luck of the numbers covered up its cockups.

BoE has to raise rates to get the £ stronger.

Usual chart posting -

The BoE only has independence to set UK base rates higher than the FED.

This is more true now, that China is using the $ by proxy.

The reality for the  UK/BoE is rates need to be a good 2% (200 bps) clear of the FED) - or face higher inflation.

 

 

 

 

I suppose Bailey might think that if the pound falls but then stabilises at a new low level then inflation will fall again.

I take your point about China.

Also, didn’t BoE independence to set interest rates end when QE started?

[bearishonhouses]

6 hours ago, hotblack42 said:

Sadly not in this case, he focussed entirely on deep theory, grappling with very difficult concepts around matter, forces, the latest research and thinking on subatomics etc.  All above my head really.  Next to nothing practical like programming.

He began looking at computing in the Spring and is now about where I was in terms of comprehension of IT development after 18 months, plus, with some assistance with me, has insights into SDLC, IT security, database technologies, development and operation of web applications, requirements elicitation and management etc.  Just no actual experience.

Find a way to educate your lad about the general operation of an IT department and its relationship with the business, as well as learning programming.  It will make him much more effective.  He'll break in sooner or later if he displays a good general attitude, has the aptitude and a there is an obvious appetite for the work in his eyes and words 🙂

Is there the possibility of taking a short term programming course? A very good friend of my daughter graduated with a degree in Business and didn't really know what she wanted to do. She took a short course (six months max, maybe four) in programming and very soon found herself with staggeringly good job opportunities. Sadly, the first one involved a start-up where she was not paid for a few months before she finally left, and the firm went bust. But now, 4 years after graduating,  she is earning in excess of what a manager in a professional services/accounting firm would earn. And, while I do not know your son, I would be surprised if a physics grad were not more able than this young woman. (Very nice as she is, and please don't tell my daughter I said this about her friend.) 

[hotblack42]

33 minutes ago, bearishonhouses said:

Is there the possibility of taking a short term programming course?

The firm that's taken my son on in a tech support trainee role are also recruiting developers.  Its likely he'll get an internal transfer and training.   But we will certainly look into this if they don't play ball.

He needs to learn the role he's got, consolidate and prove himself as a solid employee in a tech firm, and settle in Bristol first.  And there's the minor matter of marrying in Oct!

I was just having a moan about kids a rung or 2 up the promotion ladder outbidding him for flats that would have been cheaper and easier to rent even 6 months ago.  Overall though, its very much happy days.

Edited August 23, 2022 by hotblack42

[henry the king]

On 21/08/2022 at 12:44, Will! said:

Which raises the question of whether the MPC will have a sudden rush of competence and raise the Bank Rate?  Or will the MPC foolhardily keep it below the Federal Funds Rate, the pound will fall against USD, CPI will rise further, we will go into a CPI-linked benefits-CPI spiral and Andrew "Olly" Bailey will say that there was nothing he could have done.

The BoE will respond to the data is the most boring and least imaginative way possible.

Right now that means +0.5% rises at every meeting. Previously it was 0.25%

This is a group of people where anyone with any sense of risk taking has been weeded out. 

[fellow]

Bank of England may be forced to raise interest rates to 4% in 2023

https://www.theguardian.com/business/2022/aug/23/bank-of-england-may-be-forced-to-raise-interest-rates-to-4-per-cent-2023-inflation

"The Bank of England could be forced to raise interest rates to 4% from as early as next year to combat soaring inflation, despite the growing risk of recession amid the cost of living crisis.City traders are betting the central bank will more than double the cost of borrowing from 1.75% in response to inflation at the highest levels for more than 40 years.

In a development that will heap renewed pressure on mortgage holders, the Bank’s key base rate is expected to reach 4% by May 2023, according to the path implied by financial markets. The base rate is expected to finish the year above 3% and could peak at close to 4.1% in June 2023, based on interest-rate derivatives linked to the meeting dates of Threadneedle Street’s monetary policy committee.

[Will!]

On 23/08/2022 at 08:57, spyguy said:

Im going thru this at the mo, with my eldest. Hes been emailing various Phys dept, off his back, asking about what he needs to do to help his studies. Every single one has come back with - 'computation' i.e. learn programming, which is an area that various HE bodies struggle to teach.lack the skills.

 

That raises the question of where to learn programming.  FE colleges?  Not your favourite places I seem to recall.

[spyguy]

On 30/08/2022 at 13:11, Will! said:

That raises the question of where to learn programming.  FE colleges?  Not your favourite places I seem to recall.

Well .... compared to when I was his age ... hes got a PC thats about 1000x faster than the crappy old mainframe I learned C on.

Udemy, a couple of  books and the odd youtube video.

I think FE has been pretty much usurped by Youtube.

Theres nothing wrong with FE, as a concept. It used to be good.

Now its dire.

 

[Lagarde's Drift]

5 minutes ago, spyguy said:

Well .... compared to when I was his age ... hes got a PC thats about 1000x faster than the crappy old mainframe I learned C on.

Udemy, a couple of  books and the odd youtube video.

I think FE has been pretty much usurped by Youtube.

Theres nothing wrong with FE, as a concept. It used to be good.

Now its dire.

 

I think so too. The programming world moves far quicker than the trad-ed world and is based in reality not some fairy land theory world. But most of all it's cos you do not necessarily need a degree to get paid.

[Mandalorian]

5 hours ago, spyguy said:

Well .... compared to when I was his age ... hes got a PC thats about 1000x faster than the crappy old mainframe I learned C on.

Udemy, a couple of  books and the odd youtube video.

I think FE has been pretty much usurped by Youtube.

Theres nothing wrong with FE, as a concept. It used to be good.

Now its dire.

 

But these days, what language to learn?

Some say Java, some say Python, some say the language makes no difference and the process matters more.

[andrewwk]

11 minutes ago, Mandalorian said:

But these days, what language to learn?

Some say Java, some say Python, some say the language makes no difference and the process matters more.

Learn C++, language of choice for hard-core applications (gaming, ML etc); Python you can learn in an afternoon afterwards

Edited September 4, 2022 by andrewwk