The Only Way is UP!

Generali

chucknorris wrote: »

I just don't buy it, I don't believe that the base rate will go back up to 5% until our economy is ready for it. I just can't see it happening, I think a 5% base rate won't happen within 5 years, probably nearer 10 years, feel free to quote me on this later.

5-10 years is very different to never.

michaels wrote: »

Isn't the current BoE policy that only internal excess demand inflation is worth worrying about and external commodity price inflation (like the 5.5% we had a few years ago) does not merit an interest rate response?

I very strongly suspect that depends on circumstances. A little unexpected inflation is sometimes very helpful but sometimes very unhelpful.

chucknorris

Generali wrote: »

5-10 years is very different to never.

I'd never say never (doh! Apart from saying that I'd never say it of course).

I'm afraid I am working on only 28 years left (bloody hell!), so never for me is only 28 years away when I (statistically) die aged 86.

Generali

westernpromise wrote: »

I see no event on the horizon likely to trigger a return to 5% base rates, frankly - that would imply an inflation rate of 2 or 3% which is also not looking probable. Therefore this would happen in consequence either of an event not on the horizon, and by defintion unforeseable, or because the consequences of something we do know about turn out to be unexpectedly different to what we anticipated.

The obvious candidate is Brexit; perhaps too obvious. A sterling collapse would make imports dearer and trigger inflation; a sterling rally would make exports expensive just as our right to export tariff-free to the EU becomes problematic.Neither looks encouraging. Either could trigger some sea-change.

I am with Lord Salisbury on this: "Whatever happens will be for the worse, and therefore it is in our interest that as little should happen as possible."

RPI is 1.3% which isn't that far short of 2%. The target might be CPI but that isn't the single measure of price changes in the economy.

westernpromise

chucknorris wrote: »

I think a 5% base rate won't happen within 5 years, probably nearer 10 years, feel free to quote me on this later.

If you made a spread of 6 to 6.3 years I would buy (not sell).

Chuck, I agree, on balance. I've been thinking for a while that we are probably not yet even half-way through the era of low rates.

For rates to go from here to 5% in the usual quarter-per-cent increments would require 18 consecutive rises. That feels like something that would take five years to play and nothing of the kind looks likely to start tomorrow, unless there's some sort of genuinely unforeseen systemic shock.

The thing about shocks is that in some cases what is often described as unforeseen actually was both foreseeable and foreseen. The problem was that nobody knew when the completely predictable shock would eventuate - which, constructively, plays out the same as nobody seeing it coming at all.

I'll give three examples. The disintegration of the Soviet Union as soon as severely tested was predicted decades before it happened. Germany thought the test in question would be its invasion of 1941. General Sir John Hackett predicted in the 1970s that it would happen. Professor Norman Stone predicted it would happen in the pages of The Times throughout the 1980s. The CIA did not predict that it would happen in 1989 and nor did anyone else. It was expected and duly happened, but nobody was expecting it when it did.

Next, the internet bubble. Internet shopping was being predicted as something that would change the world in 1999. It has made a difference, and created some mega players, but it has taken a lot longer and more gradual to become as significant as the dot-com bubble zealots claimed. Right call, broadly, but wrong time and hence wrong investment decisions made.

More recently, some people foresaw the collapse of CDOs and placed their bets accordingly but did so too soon. Some of those bets went out of the money before they went into it, and had to be cashed out. Right call, wrong time.

Rates will return to 5% but I've no idea when. Absent a triggering event I say not soon, but I think that's all one can say.

Generali

chucknorris wrote: »

I'd never say never (doh! Apart from saying that I'd never say it of course).

I'm afraid I am working on only 28 years left (bloody hell!), so never for me is only 28 years away when I (statistically) die aged 86.

As JM Keynes famously said (my second favourite quote of his), "In the long run we're all dead."

chucknorris

Generali wrote: »

As JM Keynes famously said (my second favourite quote of his), "In the long run we're all dead."

I needed to accept my death so that I could ensure that I make the most of my remaining years. If I live longer great, but I don't want to be on my deathbed in 28 years time and I wish that I had done (significantly) more. I don't think many people approaching death wish that they had worked longer and/or stayed at home more.

I retire this December, I spoke to the vet yesterday about my dog's pet passport, and it looks like I can get it for him in time for us to be exploring the Tabernas desert in Spain this January. He is a Labrador and will be 6 in November, so I want him to get the most out of his last 6 years too.

Generali

westernpromise wrote: »

Rates will return to 5% but I've no idea when. Absent a triggering event I say not soon, but I think that's all one can say.

I argue that a return to rates of 5% isn't a shock at all, it's just a return to normality. The shock comes when (base) rates return to 8% or 10%.

HAMISH_MCTAVISH

Generali wrote: »

I argue that a return to rates of 5% isn't a shock at all, it's just a return to normality. .

Given that....

1) The primary function of base rates is to control inflation via reducing or increasing debt service costs and thus liquidity (demand) within the economy

2) The more debt you have within an economy the smaller the movement in base rate required to achieve changes in liquidity and thus demand

.... It's little wonder the last two BOE governors have noted the "new normal" or neutrality point for rates is likely 2% to 3% instead of the 5%-6% it was previously.

mwpt

“On a long enough time line, the survival rate for everyone drops to zero.”

Thrugelmir

economic wrote: »

the only "safe" places to invest are in equities .

Not cash. Equities aren't performing particularly well. Plenty of dividend cuts / reductions.