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Realistbear

I R Hikes Necessary Not Because Of Cpi But M4

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http://www.telegraph.co.uk/money/main.jhtm...19/cnecon19.xml

Hoards of cash held by funds raises inflation alarm

By Edmund Conway, Economics Editor

(Filed: 19/08/2006)

Experts have warned that inflationary pressures are brewing beneath the surface of the economy, after levels of money took another leap.
The Bank of England, which recently indicated that higher money levels were one of the key reasons for raising interest rates to 4.75pc earlier this month, said the broadest measure of money,
M4, rose by 13.1pc in the year to July
.
Economists said this rapid growth could prefigure higher inflation in the coming months. The Bank's Governor, Mervyn King, has warned there is a 50-50 chance that the consumer price index will rise from its current level of 2.4pc to above 3pc by Christmas.
Of particular concern to the Bank is the rise in money held by non-bank financial firms, known as other financial corporations (OFC). This category of M4, which includes hedge funds, pension companies and investment groups, has grown by 31.5pc in the past year alone.

Gordon must be running the printing presses like a deranged banshee to keep money flooding into the market in the face of higher worldwide IR. No wonder the CML are reporting records levels of indebtedness as thee sheeple re-mortgage and MEW. BUying time in this way will only add to the pain and tears later. Gordon needs to accept that there is a time for boom and a time for bust. We have just had the boom.

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So M4 is pointing to inflation and pumping the economy so why aren't perma bears buying assets?

<_<

A recession is only just building. THe US are entering phase one about 6 months ahead of us. All 3 indicators are firmly in place that ALWAYS cause a collapse in the economy:

1. Inverted Yield Curve

2. Oil price Shock

3. HOuse price reversal

http://www.schwabinsights.com/2006_08/mktoutlook.html

MARKET OUTLOOK
By Liz Ann Sonders
Chief Investment Strategist
Charles Schwab & Co., Inc.
....../
History tells a cautionary tale
More telling than economists’ forecasts is the fact that three of the most common traits leading to recessions historically (seen in the charts below) are all flashing warning signals—an inverted yield curve (when longer-term interest rates are lower than shorter-term rates), an oil price shock and a severe real estate crunch..../
Housing’s crumbling foundation
The latest statistics are numbing: Mortgage application volume was down nearly 30% year-over-year in the week ending July 28; in June, housing starts were down 11% from a year ago, while existing home sales and new home sales were down 9% and 11%, respectively; the inventory of unsold homes was up nearly 40%; and most alarming, the decline in the growth of median existing home prices was the most precipitous since 1981.
With mortgage equity withdrawal having essentially replaced wage gains as the primary source of income gains over the last several years, consumers’ tapping of their home equity has allowed them to withstand the burgeoning cost of the aforementioned “essentials.” Although household net worth remains at record levels, 37% of it is now accounted for by real estate, up from 24% in 2000. The severe weakness in housing unequivocally reduces aggregate demand, has strong direct (home equity drawdowns) and indirect (net worth) effects on consumption, and reduces employment (30% of the growth in payrolls in the last several years was directly or indirectly related to housing). Consumers account for about two-thirds of GDP, and they’re under increasing pressure

IMO, we will go into recession as winter sets in. I believe we will see a sharp and sudden turn in the house market that began in late Spring according to the FT.Index and LR stats. The problem we face in the UK is that wages have not even come close to keeping up with house prices. Multioples are at about 10 X for FTBs which means that the bottom feeders no longer move the chains. People have been MEWing to keep afloat and credit will tighten as the weeks tick by--Mervyn will make sure of that now that Gordon's politcal star is waning.

I am not sure there is any such thing as a "perma-bear." Most, like me, are "Buy low sell high" types who are bullish at the beginning of a cycle and bearish at the end of a cycle. We are at the very end of the HPI-MEW cycle. It was time to sell a year ago at the latest but there is still time to get out with some of your profits if you bought before 2004.

Edited by Realistbear

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RB,

You know there is no Holy Grail when it comes to trading or economics. The indicators you mention do not 100% prove we are on the point of dramatic collapse. If anything, what you are saying will probably lead to a drop in demand, effecting inflation and therefore IRs.

I also believe that the US was lagging the UK in the first place. I reckon most of the talk about IRs shooting up higher and higher is just talk after the event has happened. It actually reminds me quite a lot of the last soft patch (a year or two ago) which which amounted to nothing for the bears (including myself).

Time will tell, of course.

:)

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Another indicator, City-type jobs. When the market turns tens of thousands of highly paid workers in Lodnon will be shown the door. Its happening already in the US. 6 months later and we go down the same road:

http://www.newsfactor.com/perl/story/13262.html

Charles Schwab Shows 2,400 Employees the Door
August 31, 2001 5:46PM
Charles Schwab has announced the layoff of another 2,400 employees, after sending 3,400 workers home last March.

It happened in 1987 when our market tanked. 17 months later and it was all over for HPI for 7-9 years. IMO, the cyle is more advanced this time around with stocks and house prices more closely linked. When the stocks go the house market goes with it in a crisis of confidence. IMO, and its IMO only, I would tend to go to cash, buy a safe currency or two to soften the blow as sterling will tank with the markets and don't buy anything that you cannot afford to pay off with cash! I have put my money where my mouth is and am about 80% in cash with most of it in US$. If I am wrong, I will have just earned myself 5.05% interest on my cash holdings.

RB,

You know there is no Holy Grail when it comes to trading or economics. The indicators you mention do not 100% prove we are on the point of dramatic collapse. If anything, what you are saying will probably lead to a drop in demand, effecting inflation and therefore IRs.

I also believe that the US was lagging the UK in the first place. I reckon most of the talk about IRs shooting up higher and higher is just talk after the event has happened. It actually reminds me quite a lot of the last soft patch (a year or two ago) which which amounted to nothing for the bears (including myself).

Time will tell, of course.

:)

IMO, IR will not need to go up by much more as recession will take care of a lot of the inflation problems. There is a danger of stagflation though and we won't go there.

Another indicator worth mentioning is new car sales. Saw some charts recently and each recession was preceded by a 2.5% or so drop in car sales. The SMMT just reported a 4% drop in July so go figure. It is not looking good.

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It seems likely that the Fed and the Bank of England will cut interest rates once signs of a consumer lead recession become clearer. The question is will increasing liquidity mitigate or avert a recession? Why has Japan struggled with deflation for nearly a decade with interest rates as low as 0%? I think the US and UK have very little capacity to convert increased liquidity into increased productivity.

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It seems likely that the Fed and the Bank of England will cut interest rates once signs of a consumer lead recession become clearer. The question is will increasing liquidity mitigate or avert a recession? Why has Japan struggled with deflation for nearly a decade with interest rates as low as 0%? I think the US and UK have very little capacity to convert increased liquidity into increased productivity.

Capacity is the key !!

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RB New car sales have been falling for a few years. I am in the motor trade and speak regularly with dealers new reg in September should be very busy.

It's not - the orders they have are again down on last year, these guys are pulling their hair out slashing prices every kind of offer you can think of. I find the financial posts very interesting - but as I don't have a full enough understanding of it all, I try to look whats going on around me and work from that.

On Thursday I spoke with the father of a property developer - in three years his son has built a portfolio of 35 properties which he rents out to Students etc in Berkshire. He is trying to get out because return on his investment is no longer worth it - so far he has sold just ten. I did not get a chance to delve into the type of financing he used.

Can you imagine how interest rates will affect him? How many more are like him? I read a thread here about BTL morgages being less then 10% of all mortgages. What about those that fiddled the system to get better IR. My money is on things going pear shaped before christmas - just hope we come though OK.

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It seems likely that the Fed and the Bank of England will cut interest rates once signs of a consumer lead recession become clearer. The question is will increasing liquidity mitigate or avert a recession? Why has Japan struggled with deflation for nearly a decade with interest rates as low as 0%? I think the US and UK have very little capacity to convert increased liquidity into increased productivity.

exactly - and the bond markets agree with you..

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It seems likely that the Fed and the Bank of England will cut interest rates once signs of a consumer lead recession become clearer. The question is will increasing liquidity mitigate or avert a recession? Why has Japan struggled with deflation for nearly a decade with interest rates as low as 0%? I think the US and UK have very little capacity to convert increased liquidity into increased productivity.

Yup, that's the killer IMO. Have we played all the cards? Possibly not, there's always IranSyria to take out and unfortuntaley they are giving the US all the excuses it needs to take them on and move crunch day further back.

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Yup, that's the killer IMO. Have we played all the cards? Possibly not, there's always IranSyria to take out and unfortuntaley they are giving the US all the excuses it needs to take them on and move crunch day further back.

Not just us and the Americans now. Looks like Germany is now fair game in the Islamic uprising. They had better tread carefully in Germany as there is a strong "4th Reich" movement brewing. :o

http://news.bbc.co.uk/1/hi/world/europe/5266752.stm

Last Updated: Saturday, 19 August 2006, 16:42 GMT 17:42 UK
A Lebanese student has been arrested in Germany on suspicion of planting bombs on trains last month which are believed to have been a failed terror attack.
The man, 21, was detained at the main rail station in the city of Kiel.
The arrest follows the release of closed circuit TV footage of two male suspects by police on Friday.
The devices in abandoned suitcases on two trains failed to go off. Police said the bombers had intended to kill large numbers of people.

http://news.bbc.co.uk/1/hi/business/5262120.stm

Last Updated: Friday, 18 August 2006, 17:09 GMT 18:09 UK
Saudi Arabia has confirmed it is to buy 72 Eurofighter Typhoon aircraft from the UK, in a deal that could be worth more than £6bn.
Pressure group Campaign Against Arms Trade criticised the deal, claiming that while it had been subsidised by UK taxpayers, the Ministry of Defence and BAE had "failed to demonstrate any gains for the British public".
"The real beneficiary is the oppressive regime in Saudi Arabia, one of the world's worst abusers of human rights," it added.

http://news.bbc.co.uk/1/hi/uk/5265182.stm

Last Updated: Saturday, 19 August 2006, 03:07 GMT 04:07 UK
Police investigating an alleged plot to bring down airliners have found several martyrdom videos in the course of their searches, the BBC has learned.
An unofficial police source said the recordings - discovered on laptop computers - appear to have been made by some of the suspects being questioned.

With a worldwide uprising by Islam makes you wonder if supplying Saudi with the latest in warplanes was a good idea? Not sure why the potential bombers held in cuystody thought they would be martyrs? :o

:blink:

Edited by Realistbear

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Guest Alright Jack

http://www.telegraph.co.uk/money/main.jhtm...19/cnecon19.xml

Hoards of cash held by funds raises inflation alarm

By Edmund Conway, Economics Editor

(Filed: 19/08/2006)

Experts have warned that inflationary pressures are brewing beneath the surface of the economy, after levels of money took another leap.
The Bank of England, which recently indicated that higher money levels were one of the key reasons for raising interest rates to 4.75pc earlier this month, said the broadest measure of money,
M4, rose by 13.1pc in the year to July
.
Economists said this rapid growth could prefigure higher inflation in the coming months. The Bank's Governor, Mervyn King, has warned there is a 50-50 chance that the consumer price index will rise from its current level of 2.4pc to above 3pc by Christmas.
Of particular concern to the Bank is the rise in money held by non-bank financial firms, known as other financial corporations (OFC). This category of M4, which includes hedge funds, pension companies and investment groups, has grown by 31.5pc in the past year alone.

Gordon must be running the printing presses like a deranged banshee to keep money flooding into the market in the face of higher worldwide IR. No wonder the CML are reporting records levels of indebtedness as thee sheeple re-mortgage and MEW. BUying time in this way will only add to the pain and tears later. Gordon needs to accept that there is a time for boom and a time for bust. We have just had the boom.

M4 is worse even than that RB. The three month rolling average is at 20%. 20% Lord help us!

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That was the glass is half empty version, here's the glass is half full version:

http://news.monstersandcritics.com/uk/arti..._money_decrease

"Growing uncertainty about inflation will be dampened by news about the supply of money in the UK economy released by the Bank of England. "

It also says:

" the Bank of England indicated in its recent inflation report that a series of new interest rate rises may have to be implemented following the first in 12 months three weeks ago, when the monetary policy committee (MPC) increased the base rate to 4.75 per cent. "

So some good news really

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M4 is worse even than that RB. The three month rolling average is at 20%. 20% Lord help us!

Kinda reminds me of monty python for the credit junkies......"just one more waffer thin loan...?"

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I have put my money where my mouth is and am about 80% in cash with most of it in US$.

OH MY GOD!!! Not $ surely! Swiss Francs or gold but not $ FFS!

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Guest Alright Jack

Kinda reminds me of monty python for the credit junkies......"just one more waffer thin loan...?"

:lol: That's absurd but I like it. :lol:

On a more serious note. This ocean of money that is sloshing around the globe propping up stocks, real estate and the derivative casino isn't just going to be 'unprinted'. I really think the 'cash is king' brigade need to take a look at what the consequences will be when this money starts to leave the bubble economies and enters the market place of real goods and services. What's going to happen to the bargain basement price levels today in our supermarkets and big stores? The back side of this inflationary era is coming and we will see the REAL consequences of inflation. Many are priced out of homes right now. Many are going to be priced out of much worse.

I think there is a real danger of people getting really hurt by this thing, getting hammered virtually overnight. Where is your money? Is it safe? What would happen to it if sterling tanks? These are very unconfortable questions that beg answers. I don't know the answers. It is still possible (although I think it is very unlikely) that some sort of global liquidation may create a price collapse in commodities and all asssets. I think exactly the opposite of that is coming. All this money is already here. It's currently 'hidden' in the global casino. But the winners are finishing their drinks and getting ready to come home.

Who are the losers? I honestly cannot say but I don't think those over their heads in debt are going to be the only people hurt. Not by a long chalk.

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:lol: That's absurd but I like it. :lol:

On a more serious note. This ocean of money that is sloshing around the globe propping up stocks, real estate and the derivative casino isn't just going to be 'unprinted'. I really think the 'cash is king' brigade need to take a look at what the consequences will be when this money starts to leave the bubble economies and enters the market place of real goods and services. What's going to happen to the bargain basement price levels today in our supermarkets and big stores? The back side of this inflationary era is coming and we will see the REAL consequences of inflation. Many are priced out of homes right now. Many are going to be priced out of much worse.

I think there is a real danger of people getting really hurt by this thing, getting hammered virtually overnight. Where is your money? Is it safe? What would happen to it if sterling tanks? These are very unconfortable questions that beg answers. I don't know the answers. It is still possible (although I think it is very unlikely) that some sort of global liquidation may create a price collapse in commodities and all asssets. I think exactly the opposite of that is coming. All this money is already here. It's currently 'hidden' in the global casino. But the winners are finishing their drinks and getting ready to come home.

Who are the losers? I honestly cannot say but I don't think those over their heads in debt are going to be the only people hurt. Not by a long chalk.

If we have a bad winter the OAPs will be dropping like flies cos there's no way they will be able to afford the heating bills this year

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If we have a bad winter the OAPs will be dropping like flies cos there's no way they will be able to afford the heating bills this year

funny you should say that, I just spoke to British Gas and they have a six week backlog for dealing with correspondence to their debt recovery arm - I think thousands aren't paying their bills at the moment - and it's summer!!

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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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