much as i hate to agree with red ed.. he is correct on this point..
UK ECONOMY
(266 posts) (11 voices)-
Low hanging fruit.. So much easier than competing on the world economic stage. A credit fueled house building program. A perfectly timed strategy at the dawn of the uk baby boom explosion. Well done our great political leaders for their inspired insights. How much evidence do we need that the very best government is tiny,microscopic, almost non existent government. Always.
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Good nos from the uk on services and the manufacturing spare capacity below long term averages issue. Services, already booming, expanding very rapidly. GDP growth estimates of 2.8% likely to be too conservative given the expansion. Services reaching 77.8% of gdp and growing, adding 150k jobs q1.
https://mninews.marketnews.com/content/uk-services-output-growth-slows-slightly-still-strong-cips
ECB tomorrow, will be interesting and possible response to Lagarde's panic memo. Lots of data from the us today and tomorrow.
Rich
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Starting to move to targeted currency levels. "If the pound rises this would stop us raising interest rates'.
To be clear. The BOE has said it will raise interest rates when 'slack' in the uk economy has been reduced. What if the uk economic boom is about domestic consumption and not about exports? Then what? If you keep interest rates low you will only further stimulate the domestic boom. You will create a super bubble. The policy challenge will become dampening the domestic boom whilst keeping interest rates at zero. Possible options inc fiscal policy.. ie higher taxes.. hugely unpopular, especially pre election! Or, increasing capital ratios for the banks to try and stop them lending so freely. Difficult as maybe they stop lending to business and keep lending to consumers. Or some other new targeted policy tool ie LTV or LTI ratio limits.. But again, all you do there is limit lending to the rich and prevent access to housing for the majority. A good policy pre election? Ouch indeed. Withdrawing the help to buy scheme would work but again, pre election? Unlikely. Its a mess.. a big old "shoot your foot off" mess.
Good fun, from a distance, this.
http://uk.reuters.com/article/2014/02/25/uk-britain-economy-housing-idUKBREA1O0FM20140225
30 year fixed rates mortgages or even 10 year fixed rate would be a wonderful structural thing to see in the uk as she is the only dm nation to have such a high degree of variable rate interest loans. She is badly exposed on this front and policy makers know it. How to implement such a move. Who carries the interest rate risk? Does the uk embark on a fannie and freddie guarantee scheme? Expensive potentially down the road but not initially so i suggest its very likely. The more you meddle the more you must meddle and the more you depend on housing as the engine of growth and tax revenues the more you must meddle and ensure it keeps running.
I also want to say, take a step back here. Look at the history and the policy moves. You don't need to be a rocket scientist or even an economist to know how this story will end. This has an inevitability about it that is crystal clear. The issue is timing and how to monetize these events. If i can take a moment here this is the challenge for investors and traders. Understanding high probability macro direction and then pin pointing the tactical trends that will run and run from these macro moves. And one more thing here. The issue is made more complicated than pure direction as we live in a fiat monetary world. Ie prices can fall even as they are nominally rising. In our centrally planned world nominal prices rarely fall for long. They always rise but real terms and currency adjusted they can collapse even as they rise.
Once you understand these basic principles you will at least stop making nominal loses.
Relative loses are a different thing of course and that is a more complicated thing to 'nail' consistently!
All the best
Rich
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Paper paper everywhere and yet thee public finances improve not.
http://uk.reuters.com/article/2014/02/21/uk-britain-borrowing-idUKBREA1K0J820140221
Rich
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Yes, thanks Wild. And its something i see anecdotally. My friends that live and work in the uk are following the money. They are moving jobs to focus on software for finance and others interior design for londoner's pads. Another is expanding his residential construction co (not construction more remodeling. The British economy is concentrating in every way on finance and housing. The tax revenue system is entirely geared to these two areas.
Its been a wonderful bet for the uk but at looking forward how will this story end? And what systemic risks does such a concentration carry?
All the best
Rich
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London and everyone else Bubble Bubble Bubble.
http://www.zerohedge.com/news/2014-02-20/uks-2-tier-economy-london-and-everyone-else
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The magic of seasonal adjusting statistics. Latest unemployment beats estimates as 27,000 fall in jobless claims ahead of 20,000 prior. And dec joblessness revised down. Unemployment falls again in the Uk.. for the 15th month BUT.. hang on.. Seasonally adjusted its rising. Call me a cynic but it seems to perfect that just when we get to that magic 7% level seasonal adjustment comes to the rescue. Perhaps im too cynical but it is intriguing.
One thing never changes however - real wages declined, again, as they have done for the last few decades of these failed neo keynesian policies. Welcome to a centrally planned economic system. Or crony capitalism. Its the future..
Marketwatch
"The claimant count dropped for the 15th consecutive month in January, falling by 27,600. The fall in December claimants was revised to show a drop of 27,700 from the orginally-reported fall of 24,000."
Reuters:
The ONS said the number of people claiming jobless benefits fell by 27,600 in January, compared with a forecast for a fall of 20,000 in a Reuters poll. Average weekly earnings growth rose by 1.1 percent in the three months to December 2013 compared with the same period in 2012, the ONS said. Excluding bonuses, average weekly earnings growth rose by 1.0 percent by the same comparison.
That was lower than an annual inflation rate of 1.9 percent in January - below the BoE's target for the first time in over four years. Wages have struggled to keep pace with inflation even as Britain's economy in 2013 posted its fastest growth since the financial crisis. The lag has squeezed household incomes, a key engine of growth, casting falling living standards as a key political issue before the 2015 elections".
And ive just noticed this an hour after posting this above..
Here market watch presenting a very bias report on the data.
This is spin. This is "ramping" of the data presenting one nominal side to mislead readers. Its the only interpretation of this article or the journalist has absolutely no economic training and the editor is asleep today. Possible but, call me a cynic, again and i think its a ramp article.
Rich
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Construction looks good.
Watched Alex last night. He is like the cat that has got the cream. I think he realizes he has the uk team flat footed as they shift their stance. He replayed the if out of pound that how can i have pound debt issue perfectly. And he also picked up that the BOE holds a third of the UK's debt so he wants a share of assets and share of liabilities. Ie to net off the boe's holdings as the interest is paid straight back to the treasury.. hahahha, yes indeed Alex. Yes indeed.
Alex knows the lie. What is happening here. Decoded what is he saying? He is saying he will expose the lie to all its worth across the globe unless the uk rolls over. 'Cameron, he says, cut me a deal here. We all know you have printed and nationalized your debt. There is no way the BOE can ever unwind this balance sheet. All pound holders have been diluted and the interest goes in the front door of the boe and out the back straight back to the treasury. We all know this so come on, cut me a deal and lets get back to our comfortable lives on top of this wonderful paper system we have created."
And to be clear, the uk policy team are uncertain. Carney is being dragged in as are other central banksters as this is an expose of their system. The logic of Alex's position is perfect. In truth win or lose here he is showing himself to be quite a canny political leader. He is playing the game. Rightly or wrongly the Scots have a reputation for being clever with money and Alex is no stranger it seems to this trait. He is playing his hand to the best of his ability. Again, to be clear, i make to judgement on the rights and wrongs of independence. To me im an observer of a game of poker and for now Alex is close to a winning hand.
And so all roads lead to gold. Even Scottish nationalism. I wonder if Buffet still believes gold is a worthless cube of metal? Im pretty sure if you had him by himself with no recording devices around he would tell you half his personal wealth is stored in the ground somewhere in that worthless cube of metal. I would say that is a conviction call!
Its simply wonderful this gradual exposing of reality. And its interesting how public the sham of our fiat system is becoming. Gold is money paper is trust. Trust in the political and bankster money printers? = Zero trust. And zero is being generous my friends.
Rich
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Awkward position here brewing for the uk policy team. How do you reduce the pounds value when you are already monetizing debt, gov guarantees, off balance sheet pfi galore and deficits roaring away. Tricky situation but not today and not next week or month either. It is good to consider where this is heading however. The hope would be that this is cyclical pound strength and if inflation shows the pound would rapidly come back down to earth. The worst case is inflation declines and uk growth rockets upwards. Ironically as this might sound. If higher interest rates come soon the pound would see even more inflows initially. Export businesses would be in big trouble and the economy will be concentrated even more sharply on domestic consumption. This is the problem brewing. Its not a new problem for sure as policy makers keep following the same game plan of simulating demand via uk asset bubbles. This time its occurring in a partial vacuum by itself which makes it all the more pronounced.
A good answer is.. who cares! We make a turn on the ups and downs. We should be happy for the volatility and bank the proceeds.
I have some sympathy now for this approach. Shut up, bank it and let others deal with the mess.
Which makes this quote probably perfectly correct:
“The few who understand the system, will either be so interested from it’s profits or so dependent on it’s favors, that there will be no opposition from that class.”
Rich
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On Scottish independence..
Dear oh dear.. appears to be getting messy.. recall 2 weeks ago the uk said to debt markets that the uk underwrote all uk debt no matter what agreement with scotland was struck.
Now imagine if scotland is refused from using the pound by the uk how can she honor her uk pound debts? haha, this is a mess indeed. In terms of a negotiation, thus far the scots are in the driving seat. I make no judgement here on the worthiness or other of independence. I merely observe the hand of cards that each holds. Thus far the scots are winning this negotiation. I suggest that says more about the ability of the uk's negotiating team than it does the scot's abilities. This is all self imposed poor play by the brits thus far. The spanish are doing a much better job of thwarting the Catalans attempt at democracy in action. The EU card is played to perfection by Rajoy. A lost decade outside of the free trade EU would decimate Catalan industry so as to totally destroy her economy. Its a real threat as many blue chip cos have said if catalonia is not in the EU then they will be forced to leave. Its a stale mate unless the EU relents on her policy re Catalonia. The EU here is basically Germany and France. The Catalans are in a legal no mans land which could last for decades which is a disaster for their independence wishes. Certainly game set Madrid thus far. The Catalans are having to work hard to get their deals done whereas the scots are being handed this on a plate by the inept flat footed UK government.
http://uk.reuters.com/article/2014/02/12/uk-britain-scotland-osborne-idUKBREA1B0EQ20140212
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Its about as dovish as he could be but still pound supportive as growth steepens.
http://uk.reuters.com/article/2014/02/12/uk-britain-boe-idUKBREA1B00D20140212
I find it fascinating that Carney provides some long term forward guidance here.
He says, and think about this, that even when raising rates post h2 2015 the "ultimate level" rates will get to will remain well below the 5% pre the 2008 crisis.
Think about that. What does this mean? He seems to be suggesting that we have moved into a perpetually low rate environment. That negative interest rate returns are likely to be a bank policy strategy all through this decade.
To me this is clearly 1) a policy of redistribution (old news) but 2) giant sized hubris. Of the two this issue is the more dangerous.
The history of capital and economies is littered with central bank broken promises. The plain crystal clear truth is that no central banker, even ex goldman bankers cannot direct capital in the way they suggest.
I have logged this para into the memory banks as I'll make a bet with anyone that this will be a broken promise within the next 3 years!
All the best
Rich
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Better retail data from the uk..
https://mninews.marketnews.com/content/brckpmg-uk-jan-retail-sales-growth-best-march-2010
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Well, i agree but i think its worse that this. I would question whether it is a "recovery" at all. Yes GDP has recovered but clearly GDP is a meaningless nominal constructed number. We could all agree probably that we have a "recovery" back to the 00s "growth" model. So in this sense yes we have a "recovery" back to what went before.
The question should be is this regression to what went before, sustainable or desirable? I suspect its neither. That the lesson of the prior period's of growth was that this housing related asset boom did not lead to UK competitiveness increases and skilled job creation. It merely supported an explosion in public sector job creation buoyed up by the mirage of wealth and gdp created by asset bubbles. In short, the strategy is a structural imbalance supportive strategy. By the end of this process of 'recovery" to what went before the misallocation of labor and capital will be unimaginable.
This represents decades of misjudged policy layered on top of itself. The unwinding of this is likely to be extremely messy, unfortunately.
Rich
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Lots of highly skilled jobs being created in the uk as she adapts to the changing world economy..? An investment boom.. but in what?
Rich
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The UK is the stand out (almost alone) alpha performer from an economic and currency perspective. She is on fire here "to infinity and beyond'. Today the pound rose vs the nok to 10.2. When I left the long nok trade last year 1 pound bought 8.6 or so noks. The pounds rise is squeezing out UK private sector. The only boom is the domestic consumption boom. The UK desperately needs higher rates and yet higher rates will send the pound off to pluto, well past mars where she is now. I guess he will refrain from higher rates for this very reason and therefore the UK is likely to be the inflation alpha proxy. Things could rapidly get out of control in the UK.
Oh the messes these central bankers and political leaders make. If you want to destroy your economy completely and as quickly as possible let central bankers and political leaders direct your economy. They will do such a job that they will manage to convince the majority that up is down and down is up.
They will also ensure their friends do very nicely from the swings!
Luck to all
Rich
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Allan, i think you are probably spot on the money there..
http://www.bloomberg.com/news/2014-01-23/carney-sees-no-need-for-boe-rate-increase-bbc-reports.html
Rich
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It's a shame I could only give your post one thumbs-up, Rich, I totally agree.
The question is, how much longer will Carney be able to resist putting interest rates up?
Given the fact that the UK banks still have a huge amount of bad debt on board, and given the political pressure on Carney (independent my @rse) I suspect there would have to be a full-on inflationary boom before he even thinks about it.
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As we forecast a year or so ago, the uk will inevitably boom due to monetary and fiscal policy guarantee measures.
This boom is an asset price boom (again) and is successfully creating lots of part time and low paid service jobs. But this time the uk is going it alone leading the entire globe in terms of growth.
As an aside, I cant recall in my life time this mono line uk boom ever occurring quite like this. The spread of uk growth to the rest of the world (US aside) is quite something to behold. My Dutch, Spanish, French, etc friends are scratching their heads and ask me regularly questions like this:
"Can you please explain to me why the UK is booming when we are struggling so badly?"
Is the UK very efficient and productive? And if so how did they achieve this?
Is the UK experiencing a hi tech boom or finance boom or what sector is it that is creating this booming economy?" We want a part of this also so please explain?
Is the British education system better? What can we learn from the uk strategy?
And so the questions run on..
I want to say yes my neighbors learn this from the uk please.
Its a mix of low taxes, small government creating an investment boom in tech and industry. The UK model of liberal economics is why. Liberal states will always defeat socialist centrally planed states in terms of economic progress. We reward savers to sustain investment. We have a transparent model of capitalism where there is no room from crony insiders. This is the reason for the divergence.
Alas the truth is somewhat different.
The truth is that the uk has adopted a banana republic model of fiscal and monetary policy. The history of banana republics is a history littered with massive booms and massive busts. For now the UK is experiencing the massive boom.
The lesson is that if you adopt banana republic methods of stimulating your economy you will create booms and busts. When experiencing the boom it feels like a good idea.
This is the lesson.
All the best
Rich
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Rate divergence.. this is typical 1970s price behavior that is more what we would expect.
Ie the uk needs higher rates quickly to stop things from getting out of control whereas the euro area needs lower rates to stop things from grinding to a halt and going backwards. This is perfect for investors and traders. Such divergences are margin! they enable beautiful trades and investments. It is the perfect scenario for us guys.http://www.marketwatch.com/story/uk-house-prices-surge-in-january-2014-01-19?link=MW_latest_news
Rich
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The British Are Shopping
Sam Ro
Jan. 17, 2014, 6:50 AM
http://www.businessinsider.com/uk-december-retail-sales-2014-1 -
This is a amazing opportunity for scotland.
http://uk.reuters.com/article/2014/01/13/uk-britain-scotland-debt-idUKBREA0B0N820140113
If they want independence they wont get better terms than this. The UK is stating that they will honor all uk issued debts irrespective of the end deal with Scotland on what is their portion of the debt. The 'negotiation' on their portion of the debt is a huge can of words that a decent (and astute) political leader and financial team could run rings around. If Scotland votes for independence i volunteer myself (for a fee) to assist with that negotiation with the uk government. It would be a pleasure as the uk would be on the back foot completely following this statement! Im not a separatist as im not a great one for national boundaries and yet more political leaders and duplication of tasks. However, when i see a deal i struggle to walk away and miss the opportunity presented. Purely on an deal making opportunistic basis, following this statement, I'd press the button if i were Scotland!
But id run a very super tight control of costs and mirror the Irish low tax strategy etc.
Anyway good luck to the scots that check this board.
All the best
Rich
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"Cameron today guaranteeing state pensions to increase until 2020 at 2.5% or wage increases which ever the greater"
I have a spreadsheet containing projections of what income my various private pensions will buy me at retirement.
There are two boxes at the bottom, the first entitled "Projected income excluding state pension" and the second "Projected income including state pension".
I only ever look at the first box. I simply don't believe a) any current politician's promises about pensions and b) that there will be any money left to pay me a state pension by the time I retire.
Not only that, but in spite of the many unknowns I can have a stab at estimating, like future income, future contributions, future inflation, future investment growth etc, there is one huge unknown and that is: what new way will future governments think of to f@ck up private pensions in the UK ?
It's enough to make you want to withdraw all your pension contributions and spend it all on a yacht.
Oops, maybe this should have gone on the Rants board... sorry.
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Cameron today guaranteeing state pensions to increase until 2020 at 2.5% or wage increases which ever the greater. A booming economy and yet 7% deficits and now bad poll results. Cameron must be wondering what he has to do. Win a war perhaps? http://www.independent.co.uk/news/uk/politics/half-of-defecting-tory-voters-would-go-to-ukip-says-poll-9039197.html
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UK unemployment falls to 7.4%:
Sterling up 0.6% vs US$ on the news.
BoE previously said that interest rates would rise if unemployment fell below 7%. I'm guessing they didn't expect it to happen soon.
I can imagine the phone call from Osborne to Carney... "When you said interest rates would rise when unemployment fell to 7%, did you really mean after the election... err...err.. sorry I mean 6.5%" ?
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Structural deficit this year of 5.7%. Greece's is down to zero. Structural deficit is the term given to deficit ex interest payments on existing debt. As the BOE owns 40% of the UK's debt and pays the interest back to the treasury and qe has brought down the interest payable on new credit the deficit will only be around 7% this year in total. Tax receipts are booming up 4.5% or so. But its reasonable question to ask what will happen to growth of tax receipts and what will happen to interest payments once interest rates rise. Ie this is the boom time and the uk is still recording a -7% deficit. And a structural of 5.7%. Ouch. The uk is doomed im afraid so buy as in the short term the boom is the last throw of the dice attempt to grow out of debt via money printing, public off balance sheet guarantees and anything else they can throw at the problem. Even with this effort so far its hardly tenting the scale of the problem.
Print more Carney? Or increase private sector banking balance sheets to more than 400% of gdp.. perhaps the 900% he advocated recently?
Rich
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