MPC may raise Interest Rates to 6% in August!

dolce_vita

RHemmings wrote: »

This is very interesting. Can you tell us more or give references that would allow us to find out more.

Here's an example

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/07/22/cnmanu122.xml

Generali

RHemmings wrote: »

This is very interesting. Can you tell us more or give references that would allow us to find out more.

For example this from Pimco, a big bond fund manager. The final 2 paragraphs make the key point.

More generally on appetite for credit, this from Bloomberg, this from Reuters, this from the WSJ, this from the Trib. There's masses out there.

The concensus, in public at least, is that while a possible credit crunch is a concern, all we are seeing is a repricing of risk from previously very low levels. When Iraqi goverment bonds did't even pay 10% risk was clearly being priced at very low levels. This was always going to happen at some point and isn't necessarily a cause for alarm. It's where we go from here that is more problematical.

But once the waters go down, won't many people be spending a lot of money to replace things that have been lost/damaged?

Correct and that shows very neatly a limitation of GDP as a measure of financial well being.

Anyway, a cold pint and the train beckon...

free4440273

...call for desperate measures (e.g. inflation).
i would say no rise in august but almost certainly one in september. this might sound superficial but raising in october/november might kill any xmas joy (that which is out there) amongst joe public. that being the case, a .50 increase in september is not out of the question. that would (being selfish for a moment) be good for me as my three-year bond expires in october and i am still looking for the best possible rate (at the moment, that looks like leeds BS at 6.70 gross)
question is 5.75 plus .50 equals 6.25 ~ the straw that breaks the camel's back?

ManAtHome

I think a hold in August, up 0.25% in September.

Wouldn't rule out another quarter-percent increase in November - when the waters go down, the price of plenty of stuff will go up due to reduced supply and/or increased demand.

Generali

RHemmings wrote: »

This is very interesting. Can you tell us more or give references that would allow us to find out more.

There are all sorts of knock on effects that are starting to become felt due to the falling desire to take on risk.

Ford are trying to sell Jaguar and Land Rover. They need the money and need to stop the losses. The buyer will almost certainly want to pay using borrowed money which means that bonds will have to be issued. In the current climate where credit markets seem to be very jittery, would you lend money to someone to buy 2 luxury marques that have been making losses for years? Perhaps you would but you'd want a pretty decent rate of return.

20 US companies have cancelled bond sales (link). That's 20 companies that won't be borrowing money to invest in the future and presumably taking on people as a result (even if it's just to pick up the phone and order more stuff from China).

Fundraising by KKR to buy Boots is becoming complicated, much more expensive and may not happen at all (link). If you worked for Boots would you be buying a more expensive house right now or a big car or a flashy holiday? I wouldn't.

The point I'm trying to make is that the current reassessment of risk that investors are prepared to take on has effects in the real economy not just in the arcane worlds of finance.

In the past on this forum BTL investors that have said that any price falls would just result in them buying more properties. I have asked where they would get the cash from. I don't get taken seriously when I ask but the examples above are a prime example of what I mean.

If a well respected Private Equity firm can't borrow money to buy Boots (a company with a proven and reliable income stream) what chance do you think that some bloke with half a dozen flats and a load of debt has got of extending his borrowings?

nelly_2

Generali wrote: »

How do you spell that noise Homer makes when a shiver goes down his back?

.

hwer-bu-hur-hur-hur

buglawton

To balance what Generali was just saying, there's a Great Wall of Chinese Money on it's way to the UK to acquire anything in sight. China realizes it's got too many safe but low yielding bonds and wants to get into higher return (and it knows, more risky) things.

http://www.bbc.co.uk/blogs/thereporters/robertpeston/2007/05/china_buys_i_sell.html

Generali

buglawton wrote: »

To balance what Generali was just saying, there's a Great Wall of Chinese Money on it's way to the UK to acquire anything in sight. China realizes it's got too many safe but low yielding bonds and wants to get into higher return (and it knows, more risky) things.

http://www.bbc.co.uk/blogs/thereporters/robertpeston/2007/05/china_buys_i_sell.html

This is true. I believe that the total amount put aside is $300,000,000,000. I also believe that they are looking to borrow to increase their potential returns.

My understanding is that this is likely to be used to buy strategic assets (e.g. commodities suppliers like miners, oil companies etc) rather than being put into the credit market.

buglawton

One of the very first things they are buying is a chunk of Barclays bank. The UK is apparently one of the easiest countries for foreign investor to enter, hence I suspect they'll buy anything - retail chains next?

Generali

buglawton wrote: »

One of the very first things they are buying is a chunk of Barclays bank. The UK is apparently one of the easiest countries for foreign investor to enter, hence I suspect they'll buy anything - retail chains next?

My guess is commodities producers (e.g. miners and oil cos) and techs. They'll buy what they don't have.

You can buy 5% of a company in most companies in just about any developed country. It is probably easier to buy 51% in the UK than any other though. FWIW, I reckon that's a good thing.