How much longer will this bear market go on for?

masonic

Type_45 said:

masonic said:

Type_45 said:

masonic said:

Type_45 said:

masonic said:

The plummeting pound and gilt markets give us a pretty good steer as to what investors think about the prospects for the UK following this budget. Our inflation problem was already looking to be the worst in the G7 and this is going to make it a lot worse. Hence the devaluing pound. Holding UK government debt has become more risky, so investors are selling it off and demanding a higher interest rate for the risk they'll be taking if they hold it. This has thrown a spanner in the works for the MPC, who have been trying to get a grip on inflation, and will now have to raise interest rates even higher, which will send the government's borrowing costs sky high just at a time when they are recklessly borrowing without abandon.

All of this to hand out some unfunded tax cuts, which will do the vast majority of people more harm than good and are unsustainable. No wonder the government had to suppress the OBR's impact assessment.

When you look at what they're doing, it's about two parts smoke and mirrors to about one part asset stripping the UK. The majority of people who would benefit from the reversal of the NI levy and reduction in basic rate tax, will already be worse off in real terms due to the inflationary effect of the budget. Those who might have benefited from the stamp duty changes will see any gains pared away by the now even higher interest rates on their mortgages. Businesses with debts are going to be put under further pressure in the same way. Even the roughly half a million people paying additional rate tax, who are the only ones to get a substantial bung, may have more money in their pockets, but will suffer in other ways due to the likely economic decay all around them. That's money the government is supposing will drive growth in the UK economy, but these people will already be living a very comfortable lifestyle, which a few thousand extra isn't going to materially change. So they will likely save or invest it, and if they are not fools, which most aren't, they will not keep it within the UK economy as it goes down the toilet.

Fiscal irresponsibility doesn't get much worse than this, and traditional conservatives must be looking on in disbelief.

On the two points in bold:

1)  They may want and need to raise interest rates.  But they won't be able to do so as the UK economy accelerates into a recession.  There will come a point where the data forces them to change course.  They can either raise rates to fight inflation, or lower rates to boost the economy.  They can't do both.  And in a *stagflationary environment they are snookered.

2)  This is the point of gold, silver and crypto.  They are outside of the UK economy and the financial system in general.

1) What we could see is a damaging war between the Bank of England and the Treasury. Interest rate policy has to reflect what foreign investment requires. Concerns over the depth of recession have to be secondary to that. There's also a huge volume of index linked government debt out there, so failure to continue on their inflation driven mandate will have its own costs. This has painted the UK into a corner, and any thoughts about loosening to take the edge off the current recession can now be put to bed. It is time to adopt the brace position.

2) Any asset that sits outside the UK economy is looking much more attractive today. That includes international bonds and equities, although equities could have further to fall. I think crypto will continue to be correlated with risk-on assets, and so presents an inferior proposition to companies, whose valuations are at least driven by their capability to grow earnings over the longer term. I am certainly not regretting allocating part of my portfolio to gold about a year ago, for the first time ever.

What does the brace position look like to you, regarding the average investor/person?

That's a very tricky question for someone like me to answer, as I'd consider myself to be in a very privileged position compared with the average person. I think those who will suffer the worst of the consequences will be facing some very tough times no matter what they do, but anything they can do to unshackle themselves from our economy could be worthwhile. The brace position is not something that is likely to change the outcome of someone who adopts it. When you hear it called out it is best not to set expectations very high.

There is nowhere to hide, except for the wealthy who can profit (as always).

However, the brace position is clear and I've been trying to tell people this for months. Stock up, keep your fuel tank full, have a large cash allocation, gold/silver. I do not believe equities is any place to be during a global bust. 

It's an insignificance in a global economy of which the UK is a very tiny part. It's pleasing to see that the insanity is not spreading and is being explicitly rejected by most of the rest of the world.

Type_45

masonic said:

Type_45 said:

masonic said:

Type_45 said:

masonic said:

Type_45 said:

masonic said:

The plummeting pound and gilt markets give us a pretty good steer as to what investors think about the prospects for the UK following this budget. Our inflation problem was already looking to be the worst in the G7 and this is going to make it a lot worse. Hence the devaluing pound. Holding UK government debt has become more risky, so investors are selling it off and demanding a higher interest rate for the risk they'll be taking if they hold it. This has thrown a spanner in the works for the MPC, who have been trying to get a grip on inflation, and will now have to raise interest rates even higher, which will send the government's borrowing costs sky high just at a time when they are recklessly borrowing without abandon.

All of this to hand out some unfunded tax cuts, which will do the vast majority of people more harm than good and are unsustainable. No wonder the government had to suppress the OBR's impact assessment.

When you look at what they're doing, it's about two parts smoke and mirrors to about one part asset stripping the UK. The majority of people who would benefit from the reversal of the NI levy and reduction in basic rate tax, will already be worse off in real terms due to the inflationary effect of the budget. Those who might have benefited from the stamp duty changes will see any gains pared away by the now even higher interest rates on their mortgages. Businesses with debts are going to be put under further pressure in the same way. Even the roughly half a million people paying additional rate tax, who are the only ones to get a substantial bung, may have more money in their pockets, but will suffer in other ways due to the likely economic decay all around them. That's money the government is supposing will drive growth in the UK economy, but these people will already be living a very comfortable lifestyle, which a few thousand extra isn't going to materially change. So they will likely save or invest it, and if they are not fools, which most aren't, they will not keep it within the UK economy as it goes down the toilet.

Fiscal irresponsibility doesn't get much worse than this, and traditional conservatives must be looking on in disbelief.

On the two points in bold:

1)  They may want and need to raise interest rates.  But they won't be able to do so as the UK economy accelerates into a recession.  There will come a point where the data forces them to change course.  They can either raise rates to fight inflation, or lower rates to boost the economy.  They can't do both.  And in a *stagflationary environment they are snookered.

2)  This is the point of gold, silver and crypto.  They are outside of the UK economy and the financial system in general.

1) What we could see is a damaging war between the Bank of England and the Treasury. Interest rate policy has to reflect what foreign investment requires. Concerns over the depth of recession have to be secondary to that. There's also a huge volume of index linked government debt out there, so failure to continue on their inflation driven mandate will have its own costs. This has painted the UK into a corner, and any thoughts about loosening to take the edge off the current recession can now be put to bed. It is time to adopt the brace position.

2) Any asset that sits outside the UK economy is looking much more attractive today. That includes international bonds and equities, although equities could have further to fall. I think crypto will continue to be correlated with risk-on assets, and so presents an inferior proposition to companies, whose valuations are at least driven by their capability to grow earnings over the longer term. I am certainly not regretting allocating part of my portfolio to gold about a year ago, for the first time ever.

What does the brace position look like to you, regarding the average investor/person?

That's a very tricky question for someone like me to answer, as I'd consider myself to be in a very privileged position compared with the average person. I think those who will suffer the worst of the consequences will be facing some very tough times no matter what they do, but anything they can do to unshackle themselves from our economy could be worthwhile. The brace position is not something that is likely to change the outcome of someone who adopts it. When you hear it called out it is best not to set expectations very high.

There is nowhere to hide, except for the wealthy who can profit (as always).

However, the brace position is clear and I've been trying to tell people this for months. Stock up, keep your fuel tank full, have a large cash allocation, gold/silver. I do not believe equities is any place to be during a global bust. 

It's an insignificance in a global economy of which the UK is a very tiny part. It's pleasing to see that the insanity is not spreading and is being explicitly rejected by most of the rest of the world.

What insanity is the UK partaking in which is being rejected by most of the rest of the world?

talexuser

What insanity is the UK partaking in which is being rejected by most of the rest of the world?

Maybe borrowing huge amounts of money at increasingly high rates and high inflation to fund tax cuts for the wealthy that are supposed to bring in more tax through growth... which has never worked before without a subsequent bust from inflation and higher interest rates as far as I can see?

masonic

talexuser said:

Type_45 said:

What insanity is the UK partaking in which is being rejected by most of the rest of the world?

Maybe borrowing huge amounts of money at increasingly high rates and high inflation to fund tax cuts for the wealthy that are supposed to bring in more tax through growth... which has never worked before without a subsequent bust from inflation and higher interest rates as far as I can see?

Exactly this. What's really absurd is the debt-funded fiscal loosening introduced at the very same time as the BoE is engaged in monetary tightening, creating an effective tug of war between opposing policies. Not only does this threaten to force us into higher inflation, higher interest rates and a deeper and more prolonged recession, anyone looking towards investment is going to be put off by the complete lack of coherent economic policy. The UK has already been damaged by countless policy U-turns, it looks like elements of this budget will need to be walked back at the very least.

Type_45

How is that different to what the US is doing?

The US is tightening to the same extent as the UK whilst simultaneously throwing it around like confetti.

What is the difference between what the UK is doing and the US?

masonic

Type_45 said:

How is that different to what the US is doing?

The US is tightening to the same extent as the UK whilst simultaneously throwing it around like confetti.

What is the difference between what the UK is doing and the US?

What is it that the US is doing that you think is equivalent to yesterday's UK announcement?

k6chris

I think the BoE may need to raise rates again very quickly, to try and stop a run on GBP.  This will give the government another baddie to blame everything on.  Still calling 3,200 on the SPX as the bottom.

plumb1_2

Silver @£15 per once, will we ever see the 2011 highs ?

Type_45

masonic said:

Type_45 said:

How is that different to what the US is doing?

The US is tightening to the same extent as the UK whilst simultaneously throwing it around like confetti.

What is the difference between what the UK is doing and the US?

What is it that the US is doing that you think is equivalent to yesterday's UK announcement?

I'm a big picture guy. I don't get bogged down in the minutia of unfunded tax cuts in the UK for a few hundred thousand rich people etc etc.

What's the same with the UK and US is that both are engaging at the same time in MMT. Both are engaging in exorbitant borrowing and spending. Both have engaged in a war on domestic energy. Both are engaged in throwing money we can't afford at Ukraine.

Both economies are on the verge of depressions. And they aren't alone in the world on that.

Look at what the bond market is saying. 

If you think you're safe because your global tracker is only 5% UK focused then best of luck with that.  

The US is in big trouble. The strong dollar is due to the rest of the world scrambling for credit. It's USD is simply the tallest dwarf in the circus. It's not an indication that the US economy is doing well at all.

sevenhills

Type_45 said:

What's the same with the UK and US is that both are engaging at the same time in MMT. Both are engaging in exorbitant borrowing and spending. Both have engaged in a war on domestic energy. Both are engaged in throwing money we can't afford at Ukraine.

Both economies are on the verge of depressions. And they aren't alone in the world on that.

Sterling is falling, where as the Dollar is strong. The USA have increased interest rates faster, because UK mortgage holders are used to low rates. Will the government succeed in stopping a housing crash/down turn?
Does the USA have 50% home owners?
The UK government has debt that gets more costly if interest rates increase.