tag:blogger.com,1999:blog-8764541874043694159.post8249485402128194688..comments2024-03-28T12:23:39.665+00:00Comments on Coppola Comment: A dent in the surface of timeFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger18125tag:blogger.com,1999:blog-8764541874043694159.post-90443133621762720632016-10-05T10:49:02.826+01:002016-10-05T10:49:02.826+01:00Indeed...
George Osborne: «A credible fiscal plan...Indeed...<br /><br />George Osborne: «A credible fiscal plan allows you to have a looser monetary policy than would otherwise be the case. My approach is to be fiscally conservative but monetarily active.»<br /><br />D Cameron: «It is hard to overstate the fundamental importance of low interest rates for an economy as indebted as ours… …and the unthinkable damage that a sharp rise in interest rates would do. When you’ve got a mountain of private sector debt, built up during the boom… …low interest rates mean indebted businesses and families don’t have to spend every spare pound just paying their interest bills. In this way, low interest rates mean more money to spare to invest for the future. A sharp rise in interest rates – as has happened in other countries which lost the world’s confidence – would put all this at risk… …with more businesses going bust and more families losing their homes.»<br />Blissexnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-36215920630545812022016-10-05T10:38:22.574+01:002016-10-05T10:38:22.574+01:00Low nominal interest rates have disappointed only ...Low nominal interest rates have disappointed only those boomers who have gone long cash; those who have invested in property in the south east and in shares and long term bonds have seen fantastic profits from the fall in interest rates. Property in the south east has been returning 100% profits on cash invested for decades, thanks to government-sponsored leverage. Plus low interest rates and government sponsored leverage have pushed stocks higher too. So if people suffered from low interest rates because they stayed long cash it was entirely their problem in a thatcherite approach, which they no doubt endorsed.<br /><br />Plus the switch from "final salary" (DB) company pension funds to "money purchase" (DC) individual pension funds did not just pass investment performance volatility from the company to the individual, which was a relatively small deal: contributions to "money purchase" individual funds are usually one third (8-10% of headline wage instead of 25-30%) of those that were made to "final salary" company funds, and thus (but for volatility) they will result in pension that are on average 1/3 of those from defined benefit funds. That before any consideration of impact of low interest rates on those who went long cash or long property/shares.<br /><br />Another point is that there are attempts to reproduce the demographic boom of the 1970s by high levels of immigration of large numbers of young, cheap workers from eastern Europe (and after Brexit from third world countries as "temporary indentured servants").<br />Blissexnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-37856244406137550352016-10-05T10:30:18.223+01:002016-10-05T10:30:18.223+01:00«doubt that the relationship between demographics ...«doubt that the relationship between demographics and gilt yields was causal»<br /><br />Well, scottish oil exports also helped quite a bit. But asset prices are influenced by demographics, just like GDP is; for example there is a good argument that stock prices are driven by the ratio of middle aged to younger workers:<br /><br />http://economistsview.typepad.com/economistsview/2010/04/demographics-and-stock-market-fluctuations.htmlBlissexnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-81009099296517512612016-10-04T18:20:37.252+01:002016-10-04T18:20:37.252+01:00The most likely reason that the model broke down i...The most likely reason that the model broke down is that the relationship was not causal.<br /><br />james chttps://www.blogger.com/profile/13785095987685681356noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-87144937722153364022016-10-04T18:17:40.571+01:002016-10-04T18:17:40.571+01:00Frances,
I seriously doubt that the relationship ...Frances,<br /><br />I seriously doubt that the relationship between demographics and gilt yields was causal.<br /><br />james chttps://www.blogger.com/profile/13785095987685681356noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-71984047276727866572016-10-03T17:59:15.671+01:002016-10-03T17:59:15.671+01:00There is a lot of interesting story and data here ...There is a lot of interesting story and data here but there are some aspects that are really disagreeable, and mostly to do with interest rates and pensions.<br /><br />The first thing is that low nominal interest rates have disappointed only those boomers who have gone long cash; those who have invested in property in the south east and in shares and long term bonds have seen fantastic profits from the fall in interest rates. Property in the south east has been returning 100% profits on cash invested for decades, thanks to government-sponsored leverage. Plus low interest rates and government sponsored leverage have pushed stocks higher too.<br /><br />Plus as to south-east property, every time it doubles in price, the current owner gets in effect the property free, as a the CEO of a mortgage lender pointed out a while ago. For example those who bought a £100,000 property in 2001 with a £10,000 deposit, and saw its price zoom to £200,000 in 2011 got the £90,000 mortgage paid back by the £100,000 capital gain, plus a £10,000 extra profit. Property in the south-east has doubled in price at least twice since 1980.<br /><br />So if people suffered from low interest rates because they stayed long cash it was entirely their problem, because in a thatcherite model people who make investment mistakes lose.<br /><br />The other big problem is that the switch from "final salary" (DB) company pension funds to "money purchase" (DC) individual pension funds did not just pass investment performance volatility from the company to the individual, which was a relatively small deal.<br /><br />The big deal was that contributions to "money purchase" individual funds are usually one third (10% of headline wage instead of 30%) of those that were made to "final salary" company funds, and thus (but for volatility) they will result in pension that are on average 1/3 of those from defined benefit funds. That before any consideration of impact of low interest rates on those who went long cash or long property/shares.<br /><br />The other point is that there are attempts to reproduce the demographic boom of the 1970s by high levels of immigration of large numbers of young, cheap workers from eastern Europe (and after Brexit from third world countries as "temporary indentured servants").<br />Blissexnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-22716469681898016172016-10-02T02:54:40.428+01:002016-10-02T02:54:40.428+01:00Jim Leaviss offers 5 reasons for the breakdown of ...Jim Leaviss offers 5 reasons for the breakdown of his long-dated gilt model in the noughties.<br />What would the model predict were it adjusted for the absence of the “credit impulse” following the GFC?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-73772008171224514382016-09-30T14:22:24.652+01:002016-09-30T14:22:24.652+01:00I really enjoy this blog and have a lot of respect...I really enjoy this blog and have a lot of respect for the author.<br /><br />One tiny bit that I don’t understand:<br /><br />“Note also the divergence of long-term and short-term interest rates. This is encouraging, since it suggests that investors view future prospects as brighter, though hardly scintillating.”<br /><br />Is some other explanation possible, like investors chasing bigger returns, or just taking a bigger risk (we never know what future holds), or if they are repaying debt just trying to stay afloat?<br /><br />As a matter of fact, if future is bright, then the investors should buy short term, thus losing a bit of the rate, but then profit on the expected higher return in the future?<br /><br />Anyone?<br /><br />Thanks, and kind regards to the author.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-82879891021593035912016-09-26T23:22:41.898+01:002016-09-26T23:22:41.898+01:00Low interest rates are tied to the too much debt p...Low interest rates are tied to the too much debt problem. In the UK's situation the 'too much debt' is not UK debt, but debt in exporting countries, especially China. The real value of the money we pay for our imports is declining,even without devaluation, but this cost is carried by Chinese workers and firms, who now need to increase productivity to stand still rather than to grow. Once China has its over due debt crisis, everyone else can complete their debt crisis too and when the dust settles interest rates will pick up and go positive again. Do we have any genius economists who can tell us what we need to do to make the global money system fit for purpose so this doesn't happen again?21st Century Peasanthttps://www.blogger.com/profile/04406069742196382442noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-37362242703850241102016-09-26T23:05:52.771+01:002016-09-26T23:05:52.771+01:00Private-sector pension plans are assets that centr...Private-sector pension plans are assets that central banks ought seriously consider buying as a form of QE. <br /><br />Right now companies must pay relatively large amounts per job to their pension plans, as interest rates are so low, and companies expect them to remain low: lower than the central banks' targets in most western economies. Furthermore, due to low rates, and people living longer, company pension plans are often technically underfunded, leading to more investment by companies into pensions, rather than investments in other, perhaps more productive, users. This is especially the case with defined benefit plans.<br /><br />The present expected value companies place on their plans in the "real world" would be lower than a central bank would place on those same plans, assume the central banks own interest rate targets are met. Central banks should offer to buy shares in company pension plans at a price premium to the companies' valuations: a midpoint perhaps, between companies' real valuations and expected valuation the CB would calculate assuming their own inflation targets were met.crfhttps://www.blogger.com/profile/10726414637021391906noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-9829540320931969982016-09-26T14:21:00.844+01:002016-09-26T14:21:00.844+01:00"1. Why would they want low interest rates?&q..."1. Why would they want low interest rates?"<br /><br />Because recession. After monetary action became the only game in town, base rates have come down sequentially with each recession. Low bond rates have been the next step, supposedly to "encourage" money into other parts of the economy to boost activity.<br /><br />"2. Why would they want people and companies in debt?"<br /><br />Because recession. In the absence of fiscal action, the only way to boost the economy is to push people into debt.<br /><br />"Taxes are very high ..."<br /><br />Really?<br /><br />gastro georgenoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-36367615941208390692016-09-26T12:37:11.800+01:002016-09-26T12:37:11.800+01:00None of this seams very surprising to me. Indeed m...None of this seams very surprising to me. Indeed my head is hurting from banging against the wall while shouting "of course". Can we please include in the discussion the extraordinary growth in productivity in manufacturing and agriculture?<br /><br />My grandad told me that cost-price to retail margins in his department store in the 50s were around 5%. You added 5% to the cost price. Now, from what you can glean in a lot of sectors, cost price is 5% of retail price. Corporate shills will tell you that the incredible rise in margins for distribution represent "onshore value added", in design, advertising etc. I see just sticky prices, money pissed against the wall through an assortment of parasitic industries, avaricious bosses and offshore tax scams, and a huge potential for deflation. We're in an era of protecting your market share while you can, cashing in your chips when you can't. Who would invest? In the torrent of ideology that pours out of employer groups, I've yet to spot the recognition that their collective interest (in a strong national market, ie secure well paid employees) is different from their individual interests (in cheap labour). That the crunch arrives through retirement incomes shouldn't be surprising. We can always put off worrying about tomorrow.<br /><br />In France, retirement income is still seen as a present-time obligation of the currently working to the currently retired. Perhaps this very old and basic formula will not look so silly in the future. Sorry for ranting. One day I'll tell you what I really think. I'm off to have a beer with Philip Green.Simonhttps://www.blogger.com/profile/00633666632568203068noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-73782003352330533852016-09-26T11:14:04.907+01:002016-09-26T11:14:04.907+01:00Low interest rates are politically popular, especi...Low interest rates are politically popular, especially in debt fired consumerist economies propped up by fake money from QE. We could all soon get a nasty pain in the equilibrium. Demetriushttps://www.blogger.com/profile/17198549581667363991noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-83778959838427949792016-09-26T09:44:40.341+01:002016-09-26T09:44:40.341+01:00Those boomers who could afford to buy property at ...Those boomers who could afford to buy property at the then prevailing high interest rates also benefited from high inflation effectively diminishing their debt.Tim Blackwellhttps://www.lampfrey.netnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-15771664964247953642016-09-26T07:59:22.548+01:002016-09-26T07:59:22.548+01:00"Globalisation: offshoring of jobs to cheaper..."Globalisation: offshoring of jobs to cheaper locations and competition from cheaper imports, putting downwards pressure on wages and prices. In the UK, this was compounded by immigration from the EU."<br /><br />Heresy!<br /><br />Aside from that, Japan has the same problems we have yet their interest rates are totally flat and have been for what, two decades?theamblerhttps://www.blogger.com/profile/01842086380447890404noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-58232929367545030412016-09-26T03:37:55.871+01:002016-09-26T03:37:55.871+01:00Sense sovereigns are running this their show, I ha...Sense sovereigns are running this their show, I have a few questions.<br /><br />1. Why would they want low interest rates?<br />2. Why would they want people and companies in debt? What's it to them?<br />3. Is all this private borrowing a reaction to money printing. If it is a loss over time to save and a gain to borrow, are people, companies, and finance acting on it?<br /><br />But, given that prices of assets, and things are actually going up. If more than than stated, are sovereigns talking about low interest and low inflation a misdirection from actual price increases? <br /><br />Taxes are very high, maybe high enough for sovereigns to actually be running surpluses. Could many be running surpluses but saying other wise and buying stocks and bonds?<br /><br />Or, if many of the sovereigns are taxing high, borrowing at negative real interest rates, spending high, buying assets do we have a huge crowding out effect?<br /><br />I really do not know what is actually going on. It is confusing. <br /><br />I have seen a large run up in grocery prices. Looks like more than or equal to 5-7% per year. I read Greenspan mentioned stagflation recently. I remember that in the 1970s U.S. Is that what is going on?<br /><br />If the price increases are due to a big credit bubble, oh boy. What then?<br /><br />(In the 1970s stagflation the silver coins left circulation, and dollars could not be redeemed for gold by other sovereigns.) <br /><br />What happened after stagflation, the US raised interest rates near 1980 in an attempt to end the 1970s stagflation. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-57251288225580561282016-09-26T03:00:59.574+01:002016-09-26T03:00:59.574+01:00Great graph.Great graph.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-47882377689863803242016-09-25T22:26:56.155+01:002016-09-25T22:26:56.155+01:00Thank you for this excellent article.Thank you for this excellent article.Michael Rhttps://www.blogger.com/profile/10045827917076142231noreply@blogger.com