Thursday, June 20, 2013

Draw your own conclusions

Bank of England Chief Makes Parting Plea for More Stimulus

"The Bank of England Gov. Mervyn King made a parting plea for further stimulus for the U.K. economy in his final speech before handing over the reins of Britain's 319-year-old central bank to Mark Carney".

Posted by alan @ 07:40 AM (3037 views)
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31 thoughts on “Draw your own conclusions

  • happy mondays says:

    Mervyn is a fool & puppet.. Carney will slither in & Tony Soprano has died.. Tony would have sorted the lot of them out given the chance 🙂

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  • Another big sell off on commodities right now. Spot silver below $20.

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  • mark wadsworth says:

    And gold is tantalisingly close to $1,300.

    But obviously, like houses, the price of gold can only go up…

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  • So stocks, bonds, precious metals and commodities all being sold. Where’s the money going?

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  • @MW,
    People are buying houses in London (and elsewhere) to secure their wealth. It’s not a home to live in but they don’t want to start up a business with all their hard earned cash and see it ripped away from them (or just plain stolen) or inflated away. Carney will print, for sure.

    If it’s not houses or gold, where does one put one’s money? Santander isn’t paying much, even on ISAs. Where is your preferred choice?

    As the people of Cyprus found out, it’s not a good idea leaving it in the bank when a crisis beckons. Do you REALLY believe that HM government can insure all the money in all the main bank accounts as they promise. Is our national debt headed for a terminal crisis? From the Which? website:

    “The FSCS offers a safety net for savers and investors in order to protect some of their cash if their account provider goes bust. It protects up to £85,000 of savings per individual, per financial institution. If you have savings with a bank or building society authorised by the Financial Conduct Authority (FCA), and which goes under, you will get back the first £85,000 of your savings through the FSCS”.

    If you believe UK PLC can deliver when even 2 banks go down, please raise your right hand!

    OK, now we are past that step, so….where do we keep our hard earned (family silver) savings safe?… should we hoard Heinz beans or buy a gun (currently illegal in the UK). Or what?

    …I’m not trying to catch you out!

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  • The money is no safer in housing as the value of housing is dependent on

    1) Credit being available to the greater fool and
    2) Demand for those houses/credit.
    3) Affordability

    If mortgage rates reach the dizzy heights of 5%, what is your investment worth? I should think much less than a few years of -3% real interest rates.

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  • @alan – if the banks do go down there will be no mortgage lending and then your precious London property is near worthless anyway.

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  • happy mondays says:

    If the banks go down & money disappears that is a leveller on it’s own.. Property will be worthless & probably a free for all with the civil unrest unfolding..So bake beans & gun it is then !

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  • “Mr. King, who stands down at the end of June after 10 years in charge of the BOE, told bankers in London’s financial district Wednesday night that although there are “clear signs” of a modest recovery, economic growth in Britain is still too slow and unemployment is too high.”

    Good of him to see the job through to the end! Worth every penny of that knighthood.

    And as if Carney was thinking about doing something different!

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  • He will want his new employer, probably Goldman Sachs, to get ALL of Britain’s pension funds funneled right into its crotch. Small businesses which provide almost all of the new jobs and research and development get NONE of the bailouts. It all goes to international corporations focused solely on predatory corporate takeovers and outsourcing and off shoring.

    Indeed Mark. What I can’t work out is, whether gold bottoms at $1000, or, has another two decade consolidation. Martin Armstrong is saying that we have deflation because government attempts to tax and confiscate capital have reduced global liquidity by 50%. Cyprus is the model. That speaks of deflation, and now interest rates are rising on US 10yr notes. Again, that is deflation.

    So, whilst the money supply is rising, the velocity of money is falling.

    What people forget, and I did also, is that inflation tends to lead to deflation as it drives an extended, more volatile business cycle. QE could have been the blow off top of the inflationary cycle we have experienced since the 1970’s.

    Deflation does have its benefits. We could see asset prices and consumer prices fall. Many businesses will go under but, small businesses will tend to benefit because they do not have so much leverage. What we are looking at is a corporate collapse.

    Folk will need to protect their capital because government will be confiscating as much of it as possible to keep the sinking ship of corporate and government monopoly and largess. Yes, that may include land value taxes, layered upon other taxes.

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  • Nomad,

    $

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  • mark wadsworth says:

    @ Alan, re bank insurance, the actual facts of the matter are that banks have “assets” and they have “liabilities”.

    The “assets” are mortgages they have lent out (they earn money from these, so they are assets), the “liabilties” are (let’s say) 60% deposits, 35% loans and bonds and 5% share capital and reserves. (they pay money to these people).

    So if the value of the “assets” falls by 35% or less, there is still plenty enough money to repay depositors, shares gets wiped out and the bon holders take the losses (just like at the Co-op bank).

    And that sort of loss is quite simply inconceivable. Northern Rock’s total losses, as a percentage of assets were something like 5%. Even in a fundamentalist full-on LVT world where house prices have halved, bank assets would not fall by more than twenty or twenty five per cent.

    Ergo, the government’s despositor guarantee is easily affordable as it will not cost the government anything.

    The government spent all the bank bail out money on insuring the BOND holders, propping up the SHARE price and paying for BANKERS’ bonuses.

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  • @libertas – Makes sense as the only thing causing inflation at the moment is banks via pumping funny money into various assets. If China is really cooling off then demand will shrink there, so that will put less pressure on inflation.

    The thought that the government are currently involved in making first time buyers highly leveraged in property makes me shudder.

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  • @MW,
    Thanks. I was just reading about the £27bn black hole in the UK banks….that’s before they take losses from the next European bank to fall over.

    You didn’t say where we should put our funds. I guess you are still researching….

    As for Bernanke, Obama says he is retiring soon and simply fabbo. Someone else can tell lies in future. My maths says the Fed can’t stop the printing if it wants to keep rates low. But who bothers with maths and fundamentals these days when Obama’s cronies can fix the numbers for anything they like? The cost of servicing debt is getting out of hand! Same for the BoE, so Carney is already buying the ink.

    Where it ends, I don’t know. but I guess we need to work out the endgame ourselves. Gold is $1298.2 right now, so it did break the $1300 barrier. I suppose if you dump enough “paper gold” on the market it will drop below production prices. However, this game also has it’s limitations….. I don’t think anyone will dampen the enthusiasm for physical in Asia.

    What’s the difference between the Gold price and the price of Gold? 🙂

    Best wishes for the YPP, someone needs to stand up for them. They are getting shafted all over Europe…futures destroyed.

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  • did gold ever break the $2000 barrier as some people thought it would ?

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  • stillthinking says:

    The UK is bust. Just going bust slowly..

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  • Mark,
    No. Only got as far as $1900.

    Some people say it will double and go to $2500, but it would take exceptional circumstances for that to happen, IMHO. You can Google their predictions.

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  • General Congreve, bought physical at $1000 usd. At or about $1900 he said there was no event on the horizon that would make him a seller. He’s getting close to no better than break even now. I miss his daily posts on the topic.

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  • happy mondays says:

    So if Gold hits $1000 would it be a good bet? Again i would only buy Physical & stash it in the boot of my car for safety!

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  • Tick Tock,

    🙂

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  • Check out the Bullion by Post website if you want to buy gold (or check prices). This page (below) is for sovs.

    As you can see, lots of slots have “awaiting stock”.

    http://www.bullionbypost.co.uk/gold-coins/full-sovereign-gold-coin/

    Most coin dealers will sell you sovs but at “collector’s prices”. These are a big uplift on the gold price. Sovereigns weigh 7.98 grams containing 7.31500 grams of fine gold (as they are 22 carat).

    The gold price is not the price of gold, check it out yourself.

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  • As a general guideline 75% of investment returns will come from having the correct asset allocation (Equities, Fixed Interest & Alternatives). Investing in Gold in isolation as advocated by S2r1 and The General was/is a very high risk strategy. Out of Gold months ago and now moving into mining companies (which look good value) is where top fund managers are headed.

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  • mark wadsworth says:

    Alan 14: “You didn’t say where we should put our funds. I guess you are still researching…”

    I’m not recommending anybody does anything, it’s all a wild gamble and my wild gamble of “keeping it all in cash” clearly has not done very well over the past five years, but my losses are manageable (i.e. I’ve lost a bit to tax and inflation), it requires no effort whatsoever and Her Indoors seems happy enough.

    Those who did the wild gamble five years ago that the government will slash interest rates and you can buy a house with a tracker and live for free turn out to be correct – but even with the benefit of hindsight, that does seem like a crazy assumption.

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  • Excellent, Jack C, thanks for the response.

    I can’t see Bernanke or Osborne balancing the books anytime soon, let alone by 2014.
    Can’t see Slovenia lasting another 6 months without a bailout, or the Greek government lasting the summer for that matter, then there’s Spain’s banks….Does anyone believe China’s debt figures anymore….?

    …I could make a list…….

    I’ll believe that QE is stopping when it stops.

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  • @Alan

    “The gold price is not the price of gold, check it out yourself.”

    A lot of dealers are not hedged and thus reluctant to pass on price drops. Bairds hedge their stock and just go for volume and margin. Check Baird’s prices; I think you’ll find their price is the price of gold.

    @Jack C

    “Out of Gold months ago …”

    I don’t recall you talking about this before!? You sly devil 🙂 Well done if you managed to avoid the April slump which was my wake up call.

    @Mark Wadsworth

    “I’m not recommending anybody does anything”

    +1

    I am also happy to sit and wait now.

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  • QG (Thursday, June 20, 2013 10:35PM)

    I’m happy to share that any Gold exposure I have is almost always exclusively via collective investments (Jupiter Merlin Portfolios for example)

    My 2 children are now mid 20’s and I’m still helping them to accumulate as much cash as possible for a deposit on their own homes but with Cash giving a negative return (allowing for inflation) and house prices remaining stubbornly high my strategy doesn’t currently stack up too well. I’m sticking with the strategy however and anticipate a turning point around 2015. Happy to also sit tight and wait.

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  • Jack, If top fund managers are heading into miners then they’re way early and wrong. Of course you sold your gold just in time – we all did.

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  • @MW,
    If you are staying in cash, keep it somewhere safe (like under the bed). See the new EU rules on snatching savers’ money (today’s post).

    Maybe jack c can suggest some safe havens?

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  • What we are seein, after perhaps one more final flurry in the share markets is deflation 2. In my opinion at any rate. This means that commodities along with other risk assets will fall. I anticipate one last hurrah by the bernanke so he can claim that things went wring ONLY after his departure.

    So diversification wont work. Much the same as it didn’t in 2008. Although then there was plenty of ammo to fire at the problem, the question now is how much ammo is left, and how will the market react to it ?

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  • Techie,

    Strong dollar and commodity deflation should be good for US Equities. I don’t therefore see this playing out like 2008. I kind of wish it would though!

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  • Bw. Our last exchange had me saying that I expected at least a decent size pull back in equities. I think we also said that the dollar would strengthen (albeit it thereafter immediately weakened ) and that the gold bugs would be kicking and screaming that comex was the wrong price all the way down.

    I shorted the euro at 13375 and some more this mirning on the retrace. I sold ftse on the retrace at 6228 and just paid 6179 for most of it. I bought sp 500 @1590 against sales @1678. I am expecting sp 500 to find a floor soon whereupon I think it might attack the prior highs. But I am still short just under a qtr of the sp position in case I am wrong.

    Because I lost money on the rally, albeit I was shorting relatively l am seriously considering a different method. This may even make me less stubborn ! So in short I think we disagree on the equities but I will be starting to use some long signals too, so i will probably be going against what I think now and again anyway!

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