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  • FIRST POST
    • MatthewAinsworth
    • By MatthewAinsworth 13th Oct 16, 10:16 AM
    • 2,243Posts
    • 908Thanks
    MatthewAinsworth
    Hooray for savings rates cuts
    • #1
    • 13th Oct 16, 10:16 AM
    Hooray for savings rates cuts 13th Oct 16 at 10:16 AM
    I figure you wouldn't need to hold many shares in a bank to benefit more than you lose from any cuts they make to current account rewards and savings interest

    Question is how much would you need invested?

    How much would the banks dividends improve for these rate cuts?

    Some of you probably would be net beneficiaries
Page 1
    • Biggles
    • By Biggles 13th Oct 16, 12:46 PM
    • 6,971 Posts
    • 4,409 Thanks
    Biggles
    • #2
    • 13th Oct 16, 12:46 PM
    • #2
    • 13th Oct 16, 12:46 PM
    It doesn't work like that.

    To start with, they're not cutting interest rates to make more profit, they're cutting them to avoid making a loss.

    And, if they did end up making more profit, they might increase their dividend, paying you more income, or maybe their share price would just increase, providing you with a capital gain.

    But they might well make a loss and cut their dividend, making you a loser on both counts.

    At least you can't lose money in a bank account. Usually.
    • MatthewAinsworth
    • By MatthewAinsworth 13th Oct 16, 3:01 PM
    • 2,243 Posts
    • 908 Thanks
    MatthewAinsworth
    • #3
    • 13th Oct 16, 3:01 PM
    • #3
    • 13th Oct 16, 3:01 PM
    I suppose I just mean the shares are better than the otherwise would have been for that action being taken

    How invested would someone need to be that that improvement in the shares compensates for the loss as a customer?
    • bowlhead99
    • By bowlhead99 13th Oct 16, 3:29 PM
    • 5,144 Posts
    • 9,074 Thanks
    bowlhead99
    • #4
    • 13th Oct 16, 3:29 PM
    • #4
    • 13th Oct 16, 3:29 PM
    I suppose I just mean the shares are better than the otherwise would have been for that action being taken

    How invested would someone need to be that that improvement in the shares compensates for the loss as a customer?
    Originally posted by MatthewAinsworth
    Well if they didn't cut their offered interest rates when base rates fell, while their workforce still wanted paying the same salary and their buildings and systems and infrastructure costs still existed, and the amounts they could charge on mortgages and loans had to fall in line with the competition... then they would be out of business and the shares would be worth 0p. And the shares are about 50p, which is infinity times 0p.

    So, while you may "suffer" as a customer who gets fewer pounds of interest income (maybe a percent worse off after a year), the investor has shares which are infinity percent more valuable than if Lloyds kept paying high rates and went out of business.

    If you are looking for a more accurate answer to your dumb hypothetical question, why not run the numbers and tell us what you think the answer is?
    • badger09
    • By badger09 13th Oct 16, 3:40 PM
    • 4,266 Posts
    • 3,480 Thanks
    badger09
    • #5
    • 13th Oct 16, 3:40 PM
    • #5
    • 13th Oct 16, 3:40 PM
    If you are looking for a more accurate answer to your dumb hypothetical question, why not run the numbers and tell us what you think the answer is?
    Originally posted by bowlhead99
    Please sir, is the answer 42?
    • bowlhead99
    • By bowlhead99 13th Oct 16, 3:59 PM
    • 5,144 Posts
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    bowlhead99
    • #6
    • 13th Oct 16, 3:59 PM
    • #6
    • 13th Oct 16, 3:59 PM
    What do you get if you multiply six by nine?
    • MatthewAinsworth
    • By MatthewAinsworth 13th Oct 16, 6:06 PM
    • 2,243 Posts
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    MatthewAinsworth
    • #7
    • 13th Oct 16, 6:06 PM
    • #7
    • 13th Oct 16, 6:06 PM
    Assuming it didn't mean completely going out of business? I just want to know when I can feel good about these events

    I don't know how much they plan on saving or what their current profitability is
    • coyrls
    • By coyrls 13th Oct 16, 6:20 PM
    • 597 Posts
    • 549 Thanks
    coyrls
    • #8
    • 13th Oct 16, 6:20 PM
    • #8
    • 13th Oct 16, 6:20 PM
    Assuming it didn't mean completely going out of business? I just want to know when I can feel good about these events

    I don't know how much they plan on saving or what their current profitability is
    Originally posted by MatthewAinsworth
    Just keep taking the happy pills if feeling good about these events is what you want because you're going to need them, as this is just the start. Now we have low interest rates and low inflation but low interest rates and high inflation is around the corner. As a confirmed Brexitier, I guess you think this is part of the price that is worth paying anyway.
    • MatthewAinsworth
    • By MatthewAinsworth 13th Oct 16, 9:09 PM
    • 2,243 Posts
    • 908 Thanks
    MatthewAinsworth
    • #9
    • 13th Oct 16, 9:09 PM
    • #9
    • 13th Oct 16, 9:09 PM
    Well hypothetically if you had shares with improved profitability over before that'd be a good thing - I don't relate those market conditions to brexit, they could've made those cuts before and rates have been low for years

    We do really need some inflation, then wages might increase eventually after years of stagnation under the previously strong pound, the weaker pound will allow our wages to compete with foreign workers without lowering our wages, it'll bring jobs here as we'll buy more locally and export more to the world. Maybe if inflation creeps in the BoE will finally see fit to raise interest rates, then we might begin to see more controlled house price growth too
    • coyrls
    • By coyrls 13th Oct 16, 10:37 PM
    • 597 Posts
    • 549 Thanks
    coyrls
    Well hypothetically if you had shares with improved profitability over before that'd be a good thing - I don't relate those market conditions to brexit, they could've made those cuts before and rates have been low for years

    We do really need some inflation, then wages might increase eventually after years of stagnation under the previously strong pound, the weaker pound will allow our wages to compete with foreign workers without lowering our wages, it'll bring jobs here as we'll buy more locally and export more to the world. Maybe if inflation creeps in the BoE will finally see fit to raise interest rates, then we might begin to see more controlled house price growth too
    Originally posted by MatthewAinsworth
    What a load of nonsense.
    • Gadfium
    • By Gadfium 13th Oct 16, 11:10 PM
    • 545 Posts
    • 989 Thanks
    Gadfium
    . Now we have low interest rates and low inflation but low interest rates and high inflation is around the corner. .
    Originally posted by coyrls
    Low interest rates and high inflation will just add to the complete and utter clusterf*ck that the UK has created for itself.
    • Ashen
    • By Ashen 13th Oct 16, 11:19 PM
    • 297 Posts
    • 172 Thanks
    Ashen
    The topic starter is the guy who claimed that investing is more ethical than charity, and that "its in the 99%'s interests to make tax cuts for the 1% to allow growth of this money that props up the employers of the 99%". In short, ignore.
    • Pincher
    • By Pincher 13th Oct 16, 11:43 PM
    • 5,860 Posts
    • 2,143 Thanks
    Pincher
    It might make sense if you think in twelve dimensions.
    Or he just skipped his anti-psychotic medications.

    I have always thought care in the community could be extended to care on the internet. Keeps them from wandering the streets, bothering people.
    What happens if you push this button?
    • MatthewAinsworth
    • By MatthewAinsworth 14th Oct 16, 4:50 AM
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    MatthewAinsworth
    Gadfium - [QUOTE]Low interest rates and high inflation will just add to the complete and utter clusterf*ck that the UK has created for itself. [/QUOTE

    The solution to that is simple, raise interest rates. Its when you have low inflation despite low rates that you're skirting deflation and unable to do much about it, which had previously been the case. I believe that the extra inflation will allow rates to rise again and our economy to return to some sort of post 2008 normality. Inflation, and wage inflation for that matter used to be a normal part of our experience

    Others - please may you explain why you disagree?
    • bowlhead99
    • By bowlhead99 14th Oct 16, 8:14 AM
    • 5,144 Posts
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    bowlhead99
    BoE already announced that for the time being they are NOT going to raise interest rates to counter inflation as the state of the economy was too precarious. Raising rates makes it difficult for business to invest because they can't borrow to support their activities, and if they raised rates significantly it would crash the housing market not to mention people having less cash to spend in shops because of either paying more interest cost on mortgages, loans and cards or because of being inspired to put money on deposit. BoE saying they were not going to put interest rates up any time soon despite imported inflation was one of the reasons the pound fell further over recent days.

    In your earlier post you said we need inflation because that will increase wages. Perhaps that is because you have seen high wage increases when inflation is high and assume the companies want to pay more wages because of high inflation. That is just you seeing those things (high inflation and high wage increases) at the same time and not thinking through how it works.

    It is usually the other way around, that high wages cause high inflation - if companies have to pay an extra pound an hour they put all the prices up so people have more pounds in their pocket but have to pay more pounds for their weekly shop.

    What we are looking at here is inflation being caused by prices of imported materials, goods, fuel etc which are priced globally in currencies other than sterling while sterling does not buy as much of those other currencies. So there is no reason for UK workers to magically be paid more money just because it costs companies more to bring bananas in from Brazil or onions from France or ipads from China or USA. How does the importer or retailer afford to pay british workers more, on top of those cost increases? Unless all the UK workers in all the business sectors just all down tools and walk out, there is little bargaining to be done.

    I believe that the extra inflation will allow rates to rise again and our economy to return to some sort of post 2008 normality. Inflation, and wage inflation for that matter used to be a normal part of our experience
    Do you mean pre-2008 normality? Post 2008, the aftermath of the global financial crisis, was characterised by low growth, low productivity, artificial support to the markets through money printing etc.

    Others - please may you explain why you disagree?
    There are multiple schools of thought between economists on how best to stimulate economies from differing models - monetary policy, fiscal policy etc. If you are curious, you could get an economics A-level at your local college and then go on to do university courses in it to understand more about how in theory the world works and what evidence there is for it over the last 150 years. There is loads of free published material on the internet. To expect us to give you that education in a quick forum post is optimistic.

    Particularly as when you are given advice or explanations on the forum you typically ignore them, argue against them, or move on, and then go start some other random topic elsewhere, for which the purpose seems to get your name up in lights on the internet in as many separate posts as possible regardless of quality of content. Sorry if that sounds harsh.
    • talexuser
    • By talexuser 14th Oct 16, 11:22 AM
    • 2,095 Posts
    • 1,559 Thanks
    talexuser
    Let alone many reports that people have overborrowed in the artificial low interest rate environment, and that is why the BOE is scared ****less of raising rates, it will cut off any semblance of recovery and could well lead to a return to the negative equity and repossesions of the Major era.
    • MatthewAinsworth
    • By MatthewAinsworth 14th Oct 16, 3:14 PM
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    • 908 Thanks
    MatthewAinsworth
    Bowl - if costs of living go up, the government usually increases its benefits payout to maintain life

    If it does that, then it would have to raise minimum/living wage to keep people out of benefits

    So at the bottom of the employment market it doesn't follow free market prices, people are artificially paid more, and its more rooted in cost of living, there isn't the same wriggle room for low paid employees taking the hit

    I dare say the boe would be cautious about rate rises

    I expect owning shares would be a good hedge to that inflation

    And the weaker pound is the reason why now suddenly companies will be able to pay us more, because British labour will be relatively cheaper

    I just enjoy discussion. Saying the equivalent of 'go read a book' isnt clarifying what I'm looking for

    I do listen, but the freedom to reserve from complete agreement at will, until convinced, is what makes me an independent person
    • bowlhead99
    • By bowlhead99 14th Oct 16, 4:31 PM
    • 5,144 Posts
    • 9,074 Thanks
    bowlhead99
    If costs of living go up, the government usually increases its benefits payout to maintain life
    The government does usually increase benefits for welfare and pensions after there has been some inflation. But not in real time. If things cost 3℅ more next Christmas than this Christmas, then there will be calls to increase benefits by 3%. But that is a year after the prices started going up (eg Jan when they were 0.3% more expensive than December and Feb when they were 0.5% more expensive etc etc).

    And the weaker pound is the reason why now suddenly companies will be able to pay us more, because British labour will be relatively cheaper
    Relatively cheaper than suddenly going abroad and recruiting a Chinaman in a factory overseas who wants paying in Yuan. But not relatively cheaper in pounds than it was to employ the same British worker yesterday.

    Say I run a business in the UK making sweets. Due to forex rates and inflation, my sugar costs went up, chocolate costs went up, foil wrappers went up, aluminium baking trays went up, the cost of a delivery van went up, and the cost of petrol for the delivery van went up. So if you want me to make you some sweets and get them to your house it will cost more per sweet, yet I can't necessarily increase the cost of the sweets because you don't magically have more money with which to pay me. So as a business I will lose money.

    The guy working the caramel station melting sugar at one end of my factory is not going to want to take any less pay because all his costs of living his life just went up too. But your suggestion is that the British company can pay the caramel station worker more somehow, because "British labour will be relatively cheaper"?

    Relatively cheaper than moving production to China, perhaps, but maybe not absolutely cheaper than doing that, and there is no more money in the bank to pay the worker, there is less, unless I can somehow go into the export business and break Nestle and Mars's market dominance.
    • jimjames
    • By jimjames 14th Oct 16, 4:49 PM
    • 10,849 Posts
    • 8,919 Thanks
    jimjames
    Despite some of the bits posted above, it is a good point that many people who want a decent income from their money would be better off investing it than leaving money in cash paying a pittance.

    The yield on the FTSE is about 3.5%, that's about 3.5x the income you'd get from a cash ISA. Yes the capital isn't guaranteed but for most people wanting high income and not touching their money that's pretty irrelevant anyway.
    Remember the saying: if it looks too good to be true it almost certainly is.
    • veryintrigued
    • By veryintrigued 14th Oct 16, 5:18 PM
    • 1,702 Posts
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    veryintrigued
    Its a no brainer that people already invested in markets want others to join them and hence hike up their pots too.
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