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Every Piece Of Bad News Is Good In The Long Run

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Everyone losing the faith but what I see is that every time a piece of bullish news comes out interest rate rises come a step closer:

http://www.futuresource.com/quotes/quotes.jsp?s=LSS

If a quarter point cut can make the market boom a quarter or half point raise can surely help it along in the other direction. Roll on the autumn, higher interest rate expectations will slow things down, can't understand why anyone would buy in the spring!

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Guest wrongmove

I hope you are right, but the title of the thread is a bit silly IMHO. If the Autumn brings news of rising rates and falling HPs, will you start a thread entitled "Every piece of good news is really bad news" ? I think not....

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Everyone losing the faith but what I see is that every time a piece of bullish news comes out interest rate rises come a step closer:

http://www.futuresource.com/quotes/quotes.jsp?s=LSS

If a quarter point cut can make the market boom a quarter or half point raise can surely help it along in the other direction. Roll on the autumn, higher interest rate expectations will slow things down, can't understand why anyone would buy in the spring!

I agree with you. In my area house prices are already going down. Let the national averages rise and so the IRs. Tha will bring a further correction.

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Sorry to tell you all guys but the trend looks to be getting more hawkish by the day. This is very, very bad news for the housing market. I think we could be seeing fundamental limitations in the CPI model. Central banks are turning to commodities (Au, Cu, Oil) to see where inflation is heading.

I have been saying on this forum that we have been on the cusp of interest rate rises for a year now.

I actually posted comments from the BoE regarding the posibility of a rate cut before Christmas. This was a real threat at the time, but personally, I never believed it based on looking at the stats.

It turns out that Merv was correct in voting against the last 25BP cut in IRs. Our economy is starting to reach capacity and overheat. The heat has been turned up and the pot is about to boil over. That is going to require some serious adjustments in IRs in the near future. I can see 5.5% by middle of next year and 7% the year after. Bonds will price this in very soon and that will kill the housing market. Banks will be forced to up their provisions for bad debts and credit tightening will have to happen quickly.

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Sorry to tell you all guys but the trend looks to be getting more hawkish by the day. This is very, very bad news for the housing market. I think we could be seeing fundamental limitations in the CPI model. Central banks are turning to commodities (Au, Cu, Oil) to see where inflation is heading.

I have been saying on this forum that we have been on the cusp of interest rate rises for a year now.

I actually posted comments from the BoE regarding the posibility of a rate cut before Christmas. This was a real threat at the time, but personally, I never believed it based on looking at the stats.

It turns out that Merv was correct in voting against the last 25BP cut in IRs. Our economy is starting to reach capacity and overheat. The heat has been turned up and the pot is about to boil over. That is going to require some serious adjustments in IRs in the near future. I can see 5.5% by middle of next year and 7% the year after. Bonds will price this in very soon and that will kill the housing market. Banks will be forced to up their provisions for bad debts and credit tightening will have to happen quickly.

You always seem to know what you are talking about and it all seems to make sense.

I hope you are right. :D

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Central banks are turning to commodities (Au, Cu, Oil) to see where inflation is heading.

I know an IR rise this year is likely, but this sentence looks to me to be complete balderdash... Any evidence that the MPC is ignoring CPI inflation and focussing on these for instance? I get the argument that CPI "should" be ignored, but I don't see any evidence that it is happening.

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I believe Greenspan used to say that he used gold as an indicator of the real value of the dollar. I'm sure it can't have escaped the BoE's notice that gold has doubled in price and oil gone up far more during the time the MPC has been controlling interest rates and while inflation has been 'low'.

I don't think it's a coincidence that only the MPC idiot has been voting for a rate cut for the last few months.

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I believe Greenspan used to say that he used gold as an indicator of the real value of the dollar. I'm sure it can't have escaped the BoE's notice that gold has doubled in price and oil gone up far more during the time the MPC has been controlling interest rates and while inflation has been 'low'.

I don't think it's a coincidence that only the MPC idiot has been voting for a rate cut for the last few months.

You're right they have to be aware of that, and it's important that they look at that amongst a range of other indicators. Maybe gold and oil are high for different reasons - geopolitical for oil, maybe (or maybe not) a general asset bubble for gold. But both being so high does say something about money supply, inflation etc.

But I still think Karhu was overspinning by a long way in claiming that central banks are actually starting to base their inflation estimates on commodities. There I think he drifted into wishful thinking.

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You're right they have to be aware of that, and it's important that they look at that amongst a range of other indicators. Maybe gold and oil are high for different reasons - geopolitical for oil, maybe (or maybe not) a general asset bubble for gold. But both being so high does say something about money supply, inflation etc.

But I still think Karhu was overspinning by a long way in claiming that central banks are actually starting to base their inflation estimates on commodities. There I think he drifted into wishful thinking.

What I'm worried about is that CPI may have a highly nonlinear response in the current climate (hardest to model), i.e., it stays constant for several months and then starts a formidable upward trend that will be difficult to shake off. Commodities suggests that central banks need to make a preemptive strike before wage inflation starts to get out of control.

Let's get the MPC minutes and make an assessment then to see if the committee members are starting to think the same way ....

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What I'm worried about is that CPI may have a highly nonlinear response in the current climate (hardest to model), i.e., it stays constant for several months and then starts a formidable upward trend that will be difficult to shake off. Commodities suggests that central banks need to make a preemptive strike before wage inflation starts to get out of control.

I agree - you're quite right to worry about that aspect of CPI, it's possibly quite misleading, and I think real inflation is already outstripping CPI by some distance, resulting in real wage deflation.

Commodities are one of the things they should take into account, at least on a general level - though I'd be concerned at a central bank building a model that relied too closely on commodities as they do get dragged up and down by asset bubble and crashes.

I think it may well be something they mention in the minutes - it's just how central a part of their decision it will be I was doubting.

Edited by Magpie

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What I'm worried about is that CPI may have a highly nonlinear response in the current climate (hardest to model), i.e., it stays constant for several months and then starts a formidable upward trend that will be difficult to shake off.

Uh, yes. Once the huge inflation in the cost of commodities starts being passed on to customers rather than swallowed by manufacturers, it will be impossible to stop with a few 0.25% increases. I'd say we'll see rates over 10% before this is over.

You simply can't stop _inflation that's already happened_ by raising rates after it feeds through the system. You need to stop it before it happens, which the BoE have refused to do.

Edited by MarkG

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Uh, yes. Once the huge inflation in the cost of commodities starts being passed on to customers rather than swallowed by manufacturers, it will be impossible to stop with a few 0.25% increases. I'd say we'll see rates over 10% before this is over.

Ah, you're good with the doomsday predictions aren't you...

You may be right. I hope not. But I do think there are some quite big pressures in the system that are being suppressed at this stage. Honestly I agree that a rate rise sooner rather than later might be smart as it may be the best way to head off more rises later. But I'm not sure the MPC are there yet.

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I agree - you're quite right to worry about that aspect of CPI, it's possibly quite misleading, and I think real inflation is already outstripping CPI by some distance, resulting in real wage deflation.

Commodities are one of the things they should take into account, at least on a general level - though I'd be concerned at a central bank building a model that relied too closely on commodities as they do get dragged up and down by asset bubble and crashes.

I think it may well be something they mention in the minutes - it's just how central a part of their decision it will be I was doubting.

I really think that inflation is "pent-up"and ingrained into our economy. This is not reflected in CPI at the moment and one has to question why. Some people on here have been cynical and put it down to manipulation. I take a different view - that the CPI model is, for whatever reason, not perfect and if is is relied on soley then that would incur rapid adjustements in interest rates over a short time period that would be devastating. To improve forecasting of this, M4 and Au prices are a good place to start.

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I really think that inflation is "pent-up"and ingrained into our economy. This is not reflected in CPI at the moment and one has to question why. Some people on here have been cynical and put it down to manipulation. I take a different view - that the CPI model is, for whatever reason, not perfect and if is is relied on soley then that would incur rapid adjustements in interest rates over a short time period that would be devastating. To improve forecasting of this, M4 and Au prices are a good place to start.

It's an interesting point. I prefer it in some ways to the conspiracy theory - I know they do tinker with the basket in dodgy ways, but what you're saying is something more fundamental.

I'd be deeply sceptical of using the gold price as any kind of long term marker though. It's simply too subject to speculative swings and to the impact of specific news regarding supply. It's not "real money". It's a commodity amongst other commodities.

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I'd be deeply sceptical of using the gold price as any kind of long term marker though. It's simply too subject to speculative swings and to the impact of specific news regarding supply. It's not "real money". It's a commodity amongst other commodities.

Yes, you'd be right IMO. We have to look at both Au and Cu. The latter is interesting because demand is outstripping supply. In other words the rises in its price are not purely speculative. Cheap money, though, seems to have corrupted the prices of everything and driven them away from fundamentals - another sign of inflation problems ahead. House prices are just one manifestation of particular interest to this board.

Edited by karhu

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Ah, you're good with the doomsday predictions aren't you...

Since when did 10% interest rates become 'doomsday predictions'? I've lived most of my life with interest rates around that level... ten years ago the idea of rates below 4% would have been laughed at (if only things had stayed that way).

Artificially low rates cause high inflation which causes a rush from fiat money to commodities as people lose faith in currency, which takes high interest rates to stop. What's so hard to understand about that?

Honestly I agree that a rate rise sooner rather than later might be smart as it may be the best way to head off more rises later.

It's way, way too late now. The inflationary pressures have been building up for years, most of the easy ways to reduce costs (e.g. sacking British workers and moving the jobs to China) are done, and the dam is leaking around the edges.

Cheap money, though, seems to have corrupted the prices of everything and driven them away from fundamentals - another sign of inflation problems ahead.

Bingo. Cheap money has caused massive inflation and massive malinvestment. If you want to bring prices down you need to suck up all that cheap money, which means high interest rates.

I'm not sure about the UK, but I believe US rates peaked at over 20% before they brought an end to the last commodity bubble in the 70s.

Edited by MarkG

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I believe Greenspan used to say that he used gold as an indicator of the real value of the dollar. I'm sure it can't have escaped the BoE's notice that gold has doubled in price and oil gone up far more during the time the MPC has been controlling interest rates and while inflation has been 'low'.

Surely a significant moment will be when gold falls, and currency begins to appreciate in value? Will this only happen with interest rate rises? It doesn't look like it: america's interest rates have been going up at the same time gold has been leaping through the roof, I think it's all down to the quantity of money being created. While money is printed in massive quantities as it has been, house prices will keep going up until ordinary people can no longer afford it and the returns on investments are zero. Both of which we are seeing now, not in all cases but a majority of the cases.

It's interesting that gold bars have no real value that is they don't provide any benefit to the world. Granted you can use it for jewelry, medical uses, some industrial processes. But we're talking about the stuff that just sits and does nothing in a bank vault and acts as a marker of how valuable currency is.

High gold prices are a statement the world has so much money it no longer wants to employ it doing something useful AND/OR economic activity has reached capacity and is about to turn, there is no more real money to be made from "investment" in the economy. It's a vote of no confidence in money and the returns of the economy.

Ask yourself the question: why would you buy gold?

If the answer is that it's just a speculative bubble and not related to anything and could go bang any minute, then why would people put their money there instead of some other solidly performing investment like property??? Think about it. The market is shouting loud and clear. When money is not going into things of real value like housing and into something inert and useless thing like gold, something is up.

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Since when did 10% interest rates become 'doomsday predictions'? I've lived most of my life with interest rates around that level... ten years ago the idea of rates below 4% would have been laughed at (if only things had stayed that way).

Artificially low rates cause high inflation which causes a rush from fiat money to commodities as people lose faith in currency, which takes high interest rates to stop. What's so hard to understand about that?

MarkG. You make a good point. I remember only about 6 years ago having a discussion and nobody could dream of interest rates being as low as they are now (it was commonplace to anticipate 8-10% interest rates into your variable rate mortgage at that time). It's amazing how short our memories are. I suspect that some of the people on here are too young to have been interested in these phenomena 10 years ago. Trends of the last 5 years, especially following the dot com and Sep 11 catastrophies do not make a new paradigm in world economic. I, for one, have no reason to believe that we have entered a new low inflation environment and that interest rates will not go up. In fact, I believe the very opposite.

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Ask yourself the question: why would you buy gold?

Equally, why would you want to hold paper money if it is depreciating in value?

A quantity of gold will still purchase the same as it did 80 years ago. Meanwhile the US$ has been devalued by 98% over the same period.

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Since when did 10% interest rates become 'doomsday predictions'?

I just mean that when there is a range of possibilities you tend to go a long way down the spectrum and look back with disdain on anyone who suggests that there may be other possibilities. I seem to remember you suggesting new-builds will be selling for 10-20% of current prices. Now I'm against new-builds too, but I can't help thinking that's a bit over-egged.

10% IRs or more is certainly feasible but it's a long way from where we are now. It is at least possible we could stop well before that point, and even rates in the 6-8% range might make a lot of difference simply because of the shift in expectations.

I do take your (and Karhu's) point that I may just be suffering from the delusion that low IRs are here to stay. I'm old enough to remember some pretty different interest rates, though I wasn't really thinking about mortgages at the time so it may not have imprinted itself so forcefully on me.

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some other solidly performing investment like property???

Hmm....

Solid performing? Depends when you buy and when you sell.

Talk to my father who bought his present house in 1988. By 1994 it had dropped 30% in value and it wasn't until 2000 that the value (real) was restored to its 1988 price. In my book that's a pretty poor investment compared to the returns he might have made elsewhere.

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Hmm....

Solid performing? Depends when you buy and when you sell.

Talk to my father who bought his present house in 1988. By 1994 it had dropped 30% in value and it wasn't until 2000 that the value (real) was restored to its 1988 price. In my book that's a pretty poor investment compared to the returns he might have made elsewhere.

I was taking on the bulls view, just for the sake of this argument albeit slightly tongue in cheek :P

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  • 301 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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