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Money And Markets : Interest Rates About To Soar!

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This would cause an HPC!! :ph34r:

"Let me make my main point up front: Right after this Memorial Day weekend, interest rates could start rising again. And this year, we could see a vertical ascent not seen since 1980.

That’s when the Federal Reserve last lost control over interest rates, and the 3-month Treasury-bill rate soared from 6% to 17% in less than six months.

Unbelievable, isn’t it? But I was there, watching it as it happened. And the Fed's own data documents the phenomenal rise: On June 13, 1980, the T-bill rate was 6.18%; on December 11, 1980, it was 17.14%. It’s an irrefutable historical fact.

This time around, I don’t expect rates to surge that far or that fast. But history shows they can shock you and move a lot faster than most people dream possible. A move that normally takes years could happen in just months.

Why I Believe Interest Rates Are

About to Rise Much More Quickly

I count 19 central banks around the world that have raised their interest rates in the last two weeks, including the Bank of Canada, which raised rates on Thursday.

But right now, our own Fed Chairman Ben Bernanke is asleep at the switch, doing nothing more than raising rates at a very gradual pace.

He’s ignoring this year’s huge surges in gold, copper, platinum, silver, tin, zinc, aluminum, and oil. He’s apparently blind to the plunging dollar and soaring consumer prices.

Who the heck does he think he’s kidding?

My view: Either Bernanke is going to have to jack up interest rates a lot more ... or bond investors are likely to push interest rates up on their own, with or without him.

Right now, bond investors overseas are sitting on over $2.2 trillion in U.S. Treasuries. U.S. investors have another $2 trillion.

And they’re not blind. They’re seeing roaring inflation in commodity prices. They’re watching the plunging dollar. And they know that inflation and the falling dollar are already killing their bonds. So they’re not waiting around for Bernanke.

They’re getting the heck out of their bonds while the getting’s good. And as they do, that automatically drives down the price of the bonds and drives UP interest rates.

Bernanke is going to have to play catch up. Starting sometime this year, he’s going to have to jack up official rates a heck of a lot more quickly.

This Is the First Time in Nearly 30 Years

That I’ve Seen So Many Powerful Forces

Behind Surging Interest Rates!

Indeed, when I compare what’s happening today to what was happening 30 years ago, the uncanny similarities pop into my mind almost as clearly as A-B-C:

A. In 1980, like today, a showdown with Iran was a major trigger for surging interest rates, especially when the U.S. embassy in Tehran was taken over by student mobs led by radical Shiite revolutionaries.

Investors feared the crisis would remove millions of barrels of Iranian oil from the world markets.

Ironically, it seems one of the student leaders taking over the embassy was the very same man who is now Iran’s president — Mahmoud Ahmadinejad.

Oil, gold, inflation and interest rates skyrocketed.

B. When the Fed lost control over interest rates in 1980, gold had recently surpassed $700 — just as it did this month.

Bond investors took one look at surging gold in 1980 and gasped. They were scared skinny that soaring gold prices signaled runaway inflation ... that the inflation would destroy the value of their dollars ... and that the falling dollar would gut the value of their bonds.

Pullbacks in the price of gold — similar to those we saw last week — didn’t stop them. They continued to dump bonds by the truckload. Bond prices plunged and interest rates surged still further.

C. To help convince investors to start buying U.S. bonds again, President Jimmy Carter had to offer the most attractive interest rates in the history of our country — even more than the rates offered by President Abraham Lincoln during the Civil War.

So Fed Chairman Volcker drove up the official rate (on Federal Funds) by as much as two full percentage points at a time — all the way up to 22%.

Why? He had no choice. That was the only way he could persuade investors he was serious about fighting inflation and the only way he could get them to buy bonds again.

But today, Fed Chief Bernanke is asleep at the wheel. The bond market is going to pay the price. Investors who are holding those bonds are going to dump them like crazy, sending rates exploding higher in a series of firework explosions

http://www.MoneyandMarkets.com © 2006 by Weiss Research, Inc. All rights reserved."

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This would cause an HPC!! :ph34r:

"Let me make my main point up front: Right after this Memorial Day weekend, interest rates could start rising again. And this year, we could see a vertical ascent not seen since 1980 . . . But history shows they can shock you and move a lot faster than most people dream possible . . . Why I Believe Interest Rates Are About to Rise Much More Quickly . . . I count 19 central banks around the world that have raised their interest rates in the last two weeks . . . This Is the First Time in Nearly 30 Years That I’ve Seen So Many Powerful Forces Behind Surging Interest Rates! . . . major trigger for surging interest rates . . . Oil, gold, inflation and interest rates skyrocketed . . . Bond prices plunged and interest rates surged still further . . . sending rates exploding higher in a series of firework explosions

No risk of understatement here. RealistBear's agent on earth?

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What goes up must come down, and go up again, and come back down. That has been the story of the financial markets over the past few weeks, suggesting that, in the spectrum of greed and fear which drives investors, most do not know which way the pendulum will swing next.

But now we have a dilemma. The central bankers realise that the impact of pricking the bubble now on jobs, incomes and politics could be so debilitating that, every time there is a scare in the markets, they react by cutting interest rates and injecting more cash. This simply re-rates upwards all prices and we are back into the same cycle of greed and fear - but at higher starting prices. The champagne glasses start to fill up one more time.

So the world’s central bankers are caught in a new type of liquidity trap. As long as traditional inflation does not rise too much, they can’t puncture the asset price bubble, and are condemned to inflate it. But if inflation were to pick up, the bankers could aggressively raise interest rates with a clear conscience, which would be akin to hurling a bowling ball at the champagne pyramid. Party over!

These are the stakes in the global financial markets. The central bankers find themselves in an intellectual cul de sac; investors are trapped by the flawed logic of the last throw of the dice and, all the while, the markets yo-yo up and down. In the absence of a logical and painless exit strategy from this volatility, the only thing people can think of doing now is fastening their safety belts and bracing themselves.

Global liquidity feeds off climate of uncertainty

http://www.sbpost.ie/post/pages/p/wholesto...qn=1-qqqx=1.asp

Edited by Green Bear

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Ironically, it seems one of the student leaders taking over the embassy was the very same man who is now Iran’s president — Mahmoud Ahmadinejad.

Interesting association, when you need a man to provoke, arm him and pay him to protect against the guys they know are armed and payed by you.

Very conspiratorial.

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The other articles on the site don't get any better.

Try this

http://www.moneyandmarkets.com/press.asp?r...d=284&cat_id=7&

Gold is still so grossly undervalued, it's a joke.

In terms of today's dollars, gold reached $2,176 in 1980. And that was at a time when the demand for gold was far less sustainable than it is today ... and the supplies far more abundant.

In other words ...

Gold will have to nearly triple — to more than $2,100 an ounce — just to regain the same purchasing power it had 26 years ago!

Gold hit $800 an ounce for the space of a few weeks in 1980, driven by speculative mania.

He's using the very tip of a bubble to justify that gold is now somehow "cheap".

Now I'm a bit of a gold bull, I won't be surprised to see it over $1000/oz within a year or two, but the reality is that it only costs about $300 an ounce to dig the stuff out of the ground (I appreciate that costs vary according to mining depth, yields etc).

And the large bulk of money spent on finding new commodity reserves is spent on finding Gold.

At current prices there's a very big incentive to find new supplies.

And at current prices, jewellery demand has fallen off completely, it's just not worth it.

I'd take the interest rate story with the same proverbial pinch of salt.

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Cash under the mattress is going to be king!

Pablo Silver or Lead?

Surely you jest?

As Wuluf suggests could it actually be a good time to buy, fix your mortgage and then watch inflation eat your debts away?

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Surely you jest?

As Wuluf suggests could it actually be a good time to buy, fix your mortgage and then watch inflation eat your debts away?

If inflation is going to eat anything away it will be the standard of living in overpriced countries that are still hell-bent of sprucing up their cost of living compared to other countries in the world. People will have materially less net income to pay over the odds for housing - either to rent or to buy as their wages are devalued in real terms.

If you are expecting inflation then buy things that are going to inflate in price not existing debt bubble inflated instuments that are going to get clobbered.

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This would cause an HPC!! :ph34r:

"Let me make my main point up front: Right after this Memorial Day weekend, interest rates could start rising again. And this year, we could see a vertical ascent not seen since 1980.

That’s when the Federal Reserve last lost control over interest rates, and the 3-month Treasury-bill rate soared from 6% to 17% in less than six months.

Unbelievable, isn’t it? But I was there, watching it as it happened. And the Fed's own data documents the phenomenal rise: On June 13, 1980, the T-bill rate was 6.18%; on December 11, 1980, it was 17.14%. It’s an irrefutable historical fact.

This time around, I don’t expect rates to surge that far or that fast. But history shows they can shock you and move a lot faster than most people dream possible. A move that normally takes years could happen in just months.

Why I Believe Interest Rates Are

About to Rise Much More Quickly

I count 19 central banks around the world that have raised their interest rates in the last two weeks, including the Bank of Canada, which raised rates on Thursday.

But right now, our own Fed Chairman Ben Bernanke is asleep at the switch, doing nothing more than raising rates at a very gradual pace.

He’s ignoring this year’s huge surges in gold, copper, platinum, silver, tin, zinc, aluminum, and oil. He’s apparently blind to the plunging dollar and soaring consumer prices.

Who the heck does he think he’s kidding?

My view: Either Bernanke is going to have to jack up interest rates a lot more ... or bond investors are likely to push interest rates up on their own, with or without him.

Right now, bond investors overseas are sitting on over $2.2 trillion in U.S. Treasuries. U.S. investors have another $2 trillion.

And they’re not blind. They’re seeing roaring inflation in commodity prices. They’re watching the plunging dollar. And they know that inflation and the falling dollar are already killing their bonds. So they’re not waiting around for Bernanke.

They’re getting the heck out of their bonds while the getting’s good. And as they do, that automatically drives down the price of the bonds and drives UP interest rates.

Bernanke is going to have to play catch up. Starting sometime this year, he’s going to have to jack up official rates a heck of a lot more quickly.

This Is the First Time in Nearly 30 Years

That I’ve Seen So Many Powerful Forces

Behind Surging Interest Rates!

Indeed, when I compare what’s happening today to what was happening 30 years ago, the uncanny similarities pop into my mind almost as clearly as A-B-C:

A. In 1980, like today, a showdown with Iran was a major trigger for surging interest rates, especially when the U.S. embassy in Tehran was taken over by student mobs led by radical Shiite revolutionaries.

Investors feared the crisis would remove millions of barrels of Iranian oil from the world markets.

Ironically, it seems one of the student leaders taking over the embassy was the very same man who is now Iran’s president — Mahmoud Ahmadinejad.

Oil, gold, inflation and interest rates skyrocketed.

B. When the Fed lost control over interest rates in 1980, gold had recently surpassed $700 — just as it did this month.

Bond investors took one look at surging gold in 1980 and gasped. They were scared skinny that soaring gold prices signaled runaway inflation ... that the inflation would destroy the value of their dollars ... and that the falling dollar would gut the value of their bonds.

Pullbacks in the price of gold — similar to those we saw last week — didn’t stop them. They continued to dump bonds by the truckload. Bond prices plunged and interest rates surged still further.

C. To help convince investors to start buying U.S. bonds again, President Jimmy Carter had to offer the most attractive interest rates in the history of our country — even more than the rates offered by President Abraham Lincoln during the Civil War.

So Fed Chairman Volcker drove up the official rate (on Federal Funds) by as much as two full percentage points at a time — all the way up to 22%.

Why? He had no choice. That was the only way he could persuade investors he was serious about fighting inflation and the only way he could get them to buy bonds again.

But today, Fed Chief Bernanke is asleep at the wheel. The bond market is going to pay the price. Investors who are holding those bonds are going to dump them like crazy, sending rates exploding higher in a series of firework explosions

http://www.MoneyandMarkets.com © 2006 by Weiss Research, Inc. All rights reserved."

Funny you should pick up on that article. Reuters has this today:

http://today.reuters.com/business/newsarti...D-YELLEN-DC.XML

Weak dollar could mean tighter Fed policy: Yellen

Sun May 28, 2006 3:33 AM ET

By Ros Krasny

SANTA CRUZ, California (Reuters) -
Depreciation in the U.S. currency could increase the need for tighter Federal Reserve monetary policy, San Francisco Federal Reserve President Janet Yellen said on Saturday
.
The Fed is watching the U.S. dollar's depreciation for its possible impact in raising import prices as well as boosting export demand, Yellen said in answer to a question after a speech at the University of California Santa Cruz on "Monetary Policy in a Global Environment."
A depreciating dollar could stimulate aggregate demand and raise inflation somewhat, and "would appear to call for a response of tighter policy," Yellen said.
In keeping with Fed tradition, Yellen -- a voting member of the policy-setting Federal Open Market Committee in 2006 -- declined comment on the appropriate level of the U.S. currency, but said Fed policy impacts both interest rates and the dollar.
"The tendency of the dollar to appreciate in response to a tighter monetary policy also creates a direct link to inflation via lower import prices," she said.
Yellen said an increasingly globalized economy did not damage the Fed's ability to attain its inflation objectives.
"From the perspective of monetary policy, globalization does matter ... even so, globalization does nothing to imperil the Fed's ability to attain its inflation objectives," Yellen said at a conference on "The Euro and the Dollar in a Globalized Economy."
Yellen's speech did not directly address the current U.S. economic or monetary policy outlook.
Financial markets lean toward a 17th consecutive quarter-point interest rate hike by the FOMC at its June 28-29 meeting, which would take the benchmark federal funds rate to 5.25 percent from a low of 1.0 percent.
GLOBALIZATION EQUALS RECALIBRATION?
Yellen said globalization may force a "recalibration" of Fed policy.
For example, the level of labor market slack associated with price stability -- NAIRU, or the non-accelerating inflation rate of unemployment -- could be affected by global issues, she said.
"Globalization may have an effect on wage/price dynamics and, as such, may require that monetary policy be recalibrated to take these changes into effect," Yellen said.
A similar tweaking took place in the latter half of the 1990s in response to a surge in U.S. productivity growth, she noted.
Many economists view 5 percent as the jobless rate below which U.S. wage pressures can start to build. The U.S. unemployment rate has been below that mark for five months.
By contrast, Yellen said the impact on U.S. prices from the surge in cheap imports from China in recent years was "only modest" and not a major source of disinflation.
At this point Chinese imports pull U.S. consumer prices down by about 0.1 percentage point, Yellen said. "A rise in China's share of imports in a particular sector lowers U.S. import prices, but this effect is not substantial."
Overall, "some very tentative evidence supports the proposition that increasing global capacity has, on balance, held inflation down over the last decade," she said.
That evidence includes the direct effect of reductions in the prices of imported goods and services, and also indirectly through wage demands and the way they are influenced by prices of imported consumer goods, Yellen said.
"Lower import prices could reduce workers' demand for nominal wage increases," she said. At the same time, globalization may be undermining U.S. workers' bargain power by making them fearful of job loss -- thus lowering wage demands and holding inflation down.
"It could be that global, not domestic, labor market slack explains changes in U.S. wages and inflation," she said.
Yellen said Fed action -- "a credible commitment to price stability consistently backed by actions to anchor inflation to price stability" -- could help stop supply shocks from the energy market becoming embedded in inflation expectations.
Credibility remains key to the Fed's effectiveness
, she said, adding the Fed has established "a strong and credible record" as an inflation fighter.

It looks like IR are only just beginning to gain some momentum. My money market account in the US is up to 4.68% and has been rising faster in the last few weeks than during the last several months.

I like this quote from the article:

When money is too easy to get, too easy to spend and too cheap to borrow, it creates economic bubbles that inevitably burst: Bubbles in stocks and bonds ... bubbles in
real estate and housing
... plus bubbles that are not always visible to the naked eye
.

It sums up Gordon Brown's "Miracle Economy" and the basis upon which it was created. Cheap money and the consequential bubble that will burst (is bursting).

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hmmm :mellow:

I wonder how many BTL's David Smith is sitting on?

Another Champion of the "lower interest rates will save us" brigade.

His warning was perceptive. Not only have risk premiums dramatically “decompressed” but the Organisation for Economic Co-operation and Development, in its twice-yearly Economic Outlook last week, warned of a further significant rise in rates, which could put pressure on house prices, notably in America, France and Spain. It noted, however, the “good chances for soft landings” in Britain and Australia.

Just as well he forgot to add this

Confidence in the market could be undermined further by comments last week by Mervyn King, the Bank’s Governor. He said: “Relative to average earnings, or incomes, or anything else you could look at, house prices do seem remarkably high.”

http://business.timesonline.co.uk/article/...2180745,00.html

Edited by BandWagon

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The bank’s monetary policy committee has to decide in the next few weeks whether to ratchet up interest rates for the 17th consecutive time, to above the 5% level that analysts have until recently seen as the natural end point of the rate-increase cycle. It would have good reason to heed the crowd who plead “stop the ratchet, I want to get off”.

Bond-market interest rates are rising in belated response to the Fed’s tightening of short-term rates. The housing market shows signs of cooling. There are so many unsold homes that builders are offering free golfclub memberships to entice newly reluctant buyers to sign on the dotted line.

Orders for durable goods — those that last more than three years — fell 4.8% in April, surprising economists who had been predicting a more modest decline of only 0.5%. And the rise in inventories of durable goods leads economists at Goldman Sachs to reiterate their forecast of “a deceleration in factory activity in coming months”.

To these signs of slowdown add mounting uncertainty. Financial markets are in turmoil, with investors unable to decide whether the recent drop in share prices is a bump on the road to further long-term rises, or a sign that the bears have finally vanquished the bulls. The looming congressional elections in America just might result in the Democrats taking control of Congress, and a period of legislative gridlock as the president and his sworn enemies square off for a bitter and paralysing battle just as tough decisions need to be made about Iraq and Iran. July’s G8 meeting in Moscow is likely to reveal just how vulnerable Europe’s fledgling recovery is to Vladimir Putin’s willingness to continue supplying natural gas. And Latin America’s newly belligerent radical leaders are threatening the steady flow of the region’s oil onto world markets by engineering government takeovers of important oilfields.

The housing data are also a bit more ambiguous than they seem at first sight. Yes, markets are cooling and, yes, that will knock perhaps one percentage point off the growth rate. But sales of new homes rose 4.9% in April, surprising economists who had pencilled in a 5% decline. And the average price of new homes rose

When the first oil shocks hit America some 30 years ago, the response was to raise interest rates and clamp down on credit so that high oil prices would not trigger general inflation. The result was stagflation — rising prices and a failing economy that led to high unemployment.

Even bankers can learn, it seems. Greenspan did not panic, and Bernanke has not panicked when oil and petrol prices hit headline-making highs. Instead, they stuck to their programme of raising interest rates slowly and deliberately, in search of that elusive “neutral rate” that would sustain job-creating growth without unleashing inflation. If the Fed’s hunt succeeds, the bulls might once again gore the bears.

Fed will stick to its guns to keep inflation down

http://www.timesonline.co.uk/newspaper/0,,...2199861,00.html

Some confusing signals this week.

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Guest Riser

Some confusing signals this week.

The only reason that sales appeared to increase this months was that they revised the figures massivly down for the previous two months. No doubt next month they will also revise this months figures down, nice way to put a possitive spin on a falling market, no doubt we will see it here in the UK soon. Remember the ONS did the same to the UK growth figures to make them look good before the last election :ph34r:

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It sums up Gordon Brown's "Miracle Economy" and the basis upon which it was created. Cheap money and the consequential bubble that will burst (is bursting).

Amazing isn't how so many have been taken in, by having equated massive house price inflation with "economic stability". That simple lie will hopefully be exposed in the not too distant future, and Gordon Brown will be out on his ear.

Hopefully he won't sack Mervyn first.. at least he's on our side .. I think.

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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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