Wednesday, January 14, 2009

asset prices look like they will continue to decline

Is there a bubble in gilts?

One argument by John Redwood, who I never liked much but his opinion seems reasonable but he doesn't say all that much, with the opposing argument by "David Kauders, partner in Kauders Portfolio Management" who has the interesting point that savings (I guess he means the coin of savings/debt ! :) ) is low historically. I suppose locking a decade of FTBs out of the market might crimp overall borrowing. Poor old kids have had to borrow 80 quid for an ipod instead of 100K for a normally priced house.

Posted by stillthinking @ 06:30 PM (985 views)
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5 thoughts on “asset prices look like they will continue to decline

  • Gilts will be a terrible investement once inflation kicks in, also they are hardly in any sense a flight to quality or indeed safe. There are far better alternatives.

    Also did you notice that Kauders gives a weird definition of what is a bubble so as to prove that gilts aren’t one

    ” Financial bubbles require total conviction by everyone that “there is no alternative” and in order to produce bubble conditions in the gilt market, extensive recommendation of gilts to the exclusion of most other investment classes is required”


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  • stillthinking says:

    Gilts are the dog that didn’t bark in the night. But gilts can’t bubble like ordinary assets, they can only go to 0% yield, their bubble peak as it were. Which must mean that global deflation is expected to continue.

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  • mark wadsworth says:

    Stillthinking has nailed it.

    Speculating is an incredibly nerve wracking business, and I prefer only to take one-way bets. But once gilt yields have sunk to zero, there is only one way that rates can go, and that is up (and values down). Deflation or inflation has nothing to do with this, gilts are always quoted in £ sterling prices, whether £ sterling is going down in value (inflation, currency devaluation) or up is neither here nor there.

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  • Interesting article. I suppose a turning point may come if an issue of gilts is undersubscribed, as in Germany. But I believe they are still selling okay here. Or if inflation jumps suddenly of course. But are there any one-way bets in investment?

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