This is just an excercise, but I'm going to be right, so there. I'd trust me.
Gilts are going to get a shooing, and it's going to set off a UK death spiral much like that of Greece. Especiallyif Labour hang on to power at the election, as no one trusts them to actually reduce the deficit till forced to.
What will happen?
Not sure the exact mechanics, and it might take some time, but my guess is it will go a little something like this (with apologies to RUN DMC);
Gilt yields are already near all time lows. Gilt issuance is running near all time highs. Inflation is a mixed bag, but could easily spike. Base rate is as low as it can go, so there will be no help there for a long Gilt position. QE has been spent, and at some point will need to be unwound.
Unsurprisingly, many players have already been unloading their Gilts - before QE started 10y were at 3.70%, and now, despite the BoE buying the entire years issuance and more up, they've still managed to sell off...they now trade 4.05%. The money these guys have liberated from their Gilt positions has gone straight into equities. Why the hell do you think they were rallying so much - it's not because the world is suddenly a pretty place. It's jsut asset allocation.
So here's the rub. We now have a situation where governments worldwide are issuing huge amounts more debt, yet pension funds are being more selective about what, and the amounts they buy. For some countries, with sound economies and decent deficit reduction plans, this won't prove a problem. Germany comes to mind, and many of the EM countries.
But for some countries, it will. Greece is the current ongoing example, but I think the UK could easily fall victim as well. People jsut aren't really taking the problem seriously enough, as the general public haven't felt enough pain yet, and there is an election on. Portugal, SPain and Italy could also fall, though I think the Baltic states, Ireland, Iceland and Hungary have all had to take their medicine early, with either internal or external devaluations. Which make people a lot poorer.
So, back to the UK. If the deficit isn't brought under control rapidly, this is what I think will happen. Gilt yields will start to drift up, until there is some kind of market reaction. The market doesn't have the same fear about the UK as it does Greece, but that isn't really the dangerous part. Nor is that the UKs national debt will have tripled, and interest payments will hit around £75bn in 2015 from £35bn now.
What will cause the problem, is that politicians, especially Labour, would try to issue more debt to cover existing debt, to maintan spending, whilst the interest payments are going up, and growth hasn't yet picked up enough. It's called a debt trap.
In itself, the UK will never go bankrupt, and the increase in interest payments is manageable. That isn't where the danger lies though. Rates will start to go up, as investors demand more risk premium, and it's the secondary market where the real crisis is brewing.
I'm not sure what the trigger will be. It could be the Chinese bubble bursting. My guess though, is that rising rates, and large mortgage resets will cause a nasty shock to the £1300bn of outstanding mortgages we have in the UK. If times aer already tough, and disposable incomes are reduced, having 10y rates creep up by 1-2% will push mortgage rates up by roughly double that.
The intial effects will be more saving (as people store up cash to get through hard times ahead. We are already seeing this), then squeezed disposable incomes leading to lower sales figures, and then finally we'll see a flurry of defaults on home lending. Basically a smaller version of the US subprime collapse.
This will in turn depress house prices and stocks, and growth will get smashed hard. All the spending to get the economy out of recession will have actually mired it in something worse, as there will be no room to really manouver. Tax reciepts will drop, and budget deficits will again explode, forcing Gilt yields again higher.
The great deleveraging will have begun. it won't be pretty.
So, to my absolute predictions.
10y Gilts will sell off. Whatever happens. I expect them to trade to 6.50-7.00% at least in a crisis, or 5.50% if things don't go so badly.
Sterling will probably trade up to 1.60 vs $ intially, but I don't give it much room to go past that (unes sthe US debt balloon bursts first, at which point I'd go and invest in a generator, barbed wire, tinned food, a water purifier, shotgun and some big angry dogs. When the looting starts, you'll be ready). If the Uk does death spiral, I can see Cable as low as 1.25.
FTSE will probably trade up to around the 6100 mark. I'd look for a couple of false tops followed by quick reversals as part of my group of indicators. A selloff could go anywhere, but through 5000 is probably a given. If it is really bad, and it looks liek we will have a full on delever, or worse still, a situation like Japan, it could go to 3500.
So, I'm a bear.
Where would I invest? I'd look at things from a fundamental point of view. Look for countries with low debt stocks, smaller budget deficits and room for real economic growth. Ideally with relatively low tax burdens as well. Effectively look for places where there is enough room for manouver should things go wrong again. Some of Latam, non-Japan Asia and South Africa are good places to start. India as well, though I would avoid China. It's too opaque, and I think that there is a huge bubble being blown up there.
I'll finish here. This is Tyler prediciting the future, it's not investment advice. Though I think I'm going to be proved 90% correct over the next 2 years or so.
You read it here first people.
Tyler out.
Thursday, 8 April 2010
Tyler vs QE. Tyler wins.
Not many people seem to understand Quantative Easing (QE).
Tyler will now do his best to explain it all for you, in language that you can mostly understand. Keep up, you hear?
QE is essentially printing money. We all know that, right? But what you probably don't know, is that it really is Debt (in the shape of Gilts). More accurately, it is forward starting debt (for those of you with more financial engineering experience, it's the equivalent of a forward starting interest rate swap).
Let Tyler take you by the hand and guide you through it.
1. The DMO issues Gilts to the market via an auction. For arguments sake let's say they are 10y maturity.
2. The BoE electronically "prints" money, and buys those Gilts from the market. The market now has more cash. Thats the Quantative easing bit out of the way.
3. 10 years roll by, and the bonds come up for maturity. The BoE now has one of two choices;
4a. It removes money from the system, undoing the electronic printing it did in step 2. This money is transferred to the DMO, which then can pay it right back to the BoE for the maturing bonds.
4b. It can ask the DMO to issue more bonds, then use the cash from the sale of those bonds to pay for the maturing bonds. It has effectively "rolled" the cash position, but has done so at the cost of issuing more bonds. This is where the forward starting debt bit comes from.
So, QE in effect is adding money into the system now, but at the cost of removing it later. It is debt, albeit kind of odd looking debt. Many lefties don't seem to have any kind of sccoby doo what it really means. To be fair, some governments don't either, but that isn't an excuse.
The UK QE was particularly cheeky - it was just used to by government debt, and pay for the massive deficit, so the government could keep spending high as they went into an election year. In the US QE was partly used to by lower grade credit from banks, which allowed the banks to clean up balance sheets and get lending again. That said, it looks like the US is now buying their own debt, as there is so much of it that foriegn governments can't keep up.
Nice.
Tyler will now do his best to explain it all for you, in language that you can mostly understand. Keep up, you hear?
QE is essentially printing money. We all know that, right? But what you probably don't know, is that it really is Debt (in the shape of Gilts). More accurately, it is forward starting debt (for those of you with more financial engineering experience, it's the equivalent of a forward starting interest rate swap).
Let Tyler take you by the hand and guide you through it.
1. The DMO issues Gilts to the market via an auction. For arguments sake let's say they are 10y maturity.
2. The BoE electronically "prints" money, and buys those Gilts from the market. The market now has more cash. Thats the Quantative easing bit out of the way.
3. 10 years roll by, and the bonds come up for maturity. The BoE now has one of two choices;
4a. It removes money from the system, undoing the electronic printing it did in step 2. This money is transferred to the DMO, which then can pay it right back to the BoE for the maturing bonds.
4b. It can ask the DMO to issue more bonds, then use the cash from the sale of those bonds to pay for the maturing bonds. It has effectively "rolled" the cash position, but has done so at the cost of issuing more bonds. This is where the forward starting debt bit comes from.
So, QE in effect is adding money into the system now, but at the cost of removing it later. It is debt, albeit kind of odd looking debt. Many lefties don't seem to have any kind of sccoby doo what it really means. To be fair, some governments don't either, but that isn't an excuse.
The UK QE was particularly cheeky - it was just used to by government debt, and pay for the massive deficit, so the government could keep spending high as they went into an election year. In the US QE was partly used to by lower grade credit from banks, which allowed the banks to clean up balance sheets and get lending again. That said, it looks like the US is now buying their own debt, as there is so much of it that foriegn governments can't keep up.
Nice.
Tuesday, 16 February 2010
The AGW religion
I noticed a few weeks ago that AGW really has become a religion for some. Let us compare it to a traditional religion;
1. It requires belief or faith. AGW hasn't been proved, the science isn't settled (whatever believers say) so most of them eventually have to fall back on pure faith.
2. It has a heaven and a hell, and tells us if we don't follow a certain path the whole world is doomed to "hell".
3. It has priests and organised "worship". Al Gore, Pachauri, Mann, Jones to name but a few.
4. It has unbelievers, sinners or heretics. Aka the "denial" lobby.
5. It extracts tithes. However, religions only extract tithes or donations from believers - the AGW religion extracts money in the form of taxes from us all.
6. It has a sacred text (IPCC AR4). Much like we are told that some passages in the bible are not meant to be taken literally, and do not damage the maessage of the bible as a whole, errors in AR4 are not meant to damage the credence of AR4 or AGW.
Scary, huh?
1. It requires belief or faith. AGW hasn't been proved, the science isn't settled (whatever believers say) so most of them eventually have to fall back on pure faith.
2. It has a heaven and a hell, and tells us if we don't follow a certain path the whole world is doomed to "hell".
3. It has priests and organised "worship". Al Gore, Pachauri, Mann, Jones to name but a few.
4. It has unbelievers, sinners or heretics. Aka the "denial" lobby.
5. It extracts tithes. However, religions only extract tithes or donations from believers - the AGW religion extracts money in the form of taxes from us all.
6. It has a sacred text (IPCC AR4). Much like we are told that some passages in the bible are not meant to be taken literally, and do not damage the maessage of the bible as a whole, errors in AR4 are not meant to damage the credence of AR4 or AGW.
Scary, huh?
Tyler vs.....Joss Garman
Joss Garman is a Greenpeace member, and was heavily involved in the Plane Stupid campaign of a short while back (which has basically disappeared). He writes profusely about global warming, and how it definately most absolutely is 100% true and real, and more so, if we don't cut C02 and more importantly, tax it hugely, we're all going to die.
I'm sure his degree in politics has led him to that conclusion. My degree in physics is not needed to tell me the man is a cunt.
Let me just say again: AGW *may* be happening. It would be foolish to believe that man is not having an effect on the environment. HOWEVER blaming it all on C02 is more foolish. I won't go into the science now, but even Arrhenius (the father of all this C02 nonsense) calculated that a DOUBLING of C02 in the atmosphere would only lead to a 1.5C rise. Which is nothing in the grand scheme of things. (C02 has gone from about 280ppm to 380ppm in the last 100 years, and the rate of increase has fallen significantly)
Cunts like Joss firstly try to stifle debate if it runs against their creed. Recently his articles have been more shouty and panicked, as AGW has been broadsided. Surprised? Hardly. C02 based AGW is the main belief of their religion, and it has subsumed all else. Other environmental projects are being squeezed out both in publicity and funding terms. Scientists are finding it harder to get funding into research which isn't climate related. Isn't it right to have a discussion, at the very least, about where limited resourrces should be spent? There are millions of people in the world in poverty and in need of food yet we spend billions on AGW through the CDM/carbon credits.
That really is the crux of the matter. I'm sure mypoic little Joss honestly thinks he is going to save the world. The problem is, his religion has been subverted. The biggest proponents of CDM/carbon credits and the research behind it are now governments (who are set to make huge sums in tax) and big business. Oil companies are well ahead of the game, as are heavy industrials. Financial companies are genuinely rubbing their hands with glee at the prospect of an increasing carbon credit market. Al Gore is already fantastically rich thanks to his eco investments....as is Pachauri.
The economic firepower of the pro-AGW lobby is enormous, and that money isn't being put to saving the world. Think about that next time you go on one of your little rants, Joss.
I'm sure his degree in politics has led him to that conclusion. My degree in physics is not needed to tell me the man is a cunt.
Let me just say again: AGW *may* be happening. It would be foolish to believe that man is not having an effect on the environment. HOWEVER blaming it all on C02 is more foolish. I won't go into the science now, but even Arrhenius (the father of all this C02 nonsense) calculated that a DOUBLING of C02 in the atmosphere would only lead to a 1.5C rise. Which is nothing in the grand scheme of things. (C02 has gone from about 280ppm to 380ppm in the last 100 years, and the rate of increase has fallen significantly)
Cunts like Joss firstly try to stifle debate if it runs against their creed. Recently his articles have been more shouty and panicked, as AGW has been broadsided. Surprised? Hardly. C02 based AGW is the main belief of their religion, and it has subsumed all else. Other environmental projects are being squeezed out both in publicity and funding terms. Scientists are finding it harder to get funding into research which isn't climate related. Isn't it right to have a discussion, at the very least, about where limited resourrces should be spent? There are millions of people in the world in poverty and in need of food yet we spend billions on AGW through the CDM/carbon credits.
That really is the crux of the matter. I'm sure mypoic little Joss honestly thinks he is going to save the world. The problem is, his religion has been subverted. The biggest proponents of CDM/carbon credits and the research behind it are now governments (who are set to make huge sums in tax) and big business. Oil companies are well ahead of the game, as are heavy industrials. Financial companies are genuinely rubbing their hands with glee at the prospect of an increasing carbon credit market. Al Gore is already fantastically rich thanks to his eco investments....as is Pachauri.
The economic firepower of the pro-AGW lobby is enormous, and that money isn't being put to saving the world. Think about that next time you go on one of your little rants, Joss.
Thursday, 4 February 2010
Tyler vs.....Sunny Hundal (part 1)
The man is a cunt. There. I've said it.
I can't stand his holier than thou attitude, and more than that, I can't stand the way that he is unable to actually debate anything, despite perporting to run a politcal debate website. For example, one of his posts following his article on CiF today;
"The article isn't about climate science because I'm not interested in what the deniers have to say"
Pretty much sums him up in one go. Well Sunny, turns out that Tyler isn't very interested in what you have to say, you disgusting, self-important little trot. Though he'd happily give you a smack in the chops.
I can't stand his holier than thou attitude, and more than that, I can't stand the way that he is unable to actually debate anything, despite perporting to run a politcal debate website. For example, one of his posts following his article on CiF today;
"The article isn't about climate science because I'm not interested in what the deniers have to say"
Pretty much sums him up in one go. Well Sunny, turns out that Tyler isn't very interested in what you have to say, you disgusting, self-important little trot. Though he'd happily give you a smack in the chops.
Monday, 25 January 2010
Tyler vs....the Civil Servant
OK firstly this;
Civil servants don't pay tax. They are paid for by taxpayers. Some *think* they pay tax, like Gace Fletcher-Hackwood, but they are deluded. Or delusional. Or both. Their pay is effectively recieved net of tax, deducted at source.
A good way to spot a civil servant is the univeralsity test: Can you move abroad yet RETAIN your current employer? Anyone in the private sphere can do this. No-one in the public pay can (other than diplomates I guess, if you fancy being difficult).
Under Labour, we've seen a massive explosion in the number of civil servants. Almost a million in fact. Their levels of pay have also massively shot up, now overtaking the private sector, which has to foot the bill for them. One would think that this is a good thing - more people in work, and more Doctors/Nurses/Policemen/Teachers etc. And it would be, if Labour had actually hired proffessionals.
Its now hard to see a GP out of hours, and much of that is covered by foreigners working for private firms. Nurses are increasingly being recuited from abroad, we have about 20,000 new police over the last 10 years, but thanks to paperwork burdens the time spent actually on the beat has decreased. As for schooling, Labour spews out tractor production statistics but in real terms, we are falling down international league tables in all areas, and basic numeracy and literacy is falling.
Anyhow, back to the point. We have lots more civil servants now, mostly involved in ever increasing layers of box ticking. Labour loves targets and it's box-ticking culture, but that is only partly the reason for the explosion in their numbers.
If you are beholden to someone for your existence, and if you vote for the other guy your job may disappear, you are likely to vote for the former, right? Brown knows this, and a lot of Labour votes would go the way of the Dodo is he suddenly turned round and said thats whats going to happen.
But, unfortunately for all you civil servants out there, this is what is going to happen. The budget deficit is so huge that it will have to be cut massively under any future government. The deficit is £175bn, of which something like £110-120bn is structural (i.e. not caused by Bank bailouts or the recession directly).
The government has to cut its wage and pensions bill...so paycuts are going to happen, and I expect heavy job cuts in the civil service will also follow. Councils have already started. Just to put it into perspective, if you cut 1 million civil servants jobs, assuming they earn £30k PA, you will still only save £30bn a year. At best.
So, when all you lefties out there start crying about job losses after the election if Cameron is in charge remember this - it was Brown who created the problem in the first place.
Civil servants don't pay tax. They are paid for by taxpayers. Some *think* they pay tax, like Gace Fletcher-Hackwood, but they are deluded. Or delusional. Or both. Their pay is effectively recieved net of tax, deducted at source.
A good way to spot a civil servant is the univeralsity test: Can you move abroad yet RETAIN your current employer? Anyone in the private sphere can do this. No-one in the public pay can (other than diplomates I guess, if you fancy being difficult).
Under Labour, we've seen a massive explosion in the number of civil servants. Almost a million in fact. Their levels of pay have also massively shot up, now overtaking the private sector, which has to foot the bill for them. One would think that this is a good thing - more people in work, and more Doctors/Nurses/Policemen/Teachers etc. And it would be, if Labour had actually hired proffessionals.
Its now hard to see a GP out of hours, and much of that is covered by foreigners working for private firms. Nurses are increasingly being recuited from abroad, we have about 20,000 new police over the last 10 years, but thanks to paperwork burdens the time spent actually on the beat has decreased. As for schooling, Labour spews out tractor production statistics but in real terms, we are falling down international league tables in all areas, and basic numeracy and literacy is falling.
Anyhow, back to the point. We have lots more civil servants now, mostly involved in ever increasing layers of box ticking. Labour loves targets and it's box-ticking culture, but that is only partly the reason for the explosion in their numbers.
If you are beholden to someone for your existence, and if you vote for the other guy your job may disappear, you are likely to vote for the former, right? Brown knows this, and a lot of Labour votes would go the way of the Dodo is he suddenly turned round and said thats whats going to happen.
But, unfortunately for all you civil servants out there, this is what is going to happen. The budget deficit is so huge that it will have to be cut massively under any future government. The deficit is £175bn, of which something like £110-120bn is structural (i.e. not caused by Bank bailouts or the recession directly).
The government has to cut its wage and pensions bill...so paycuts are going to happen, and I expect heavy job cuts in the civil service will also follow. Councils have already started. Just to put it into perspective, if you cut 1 million civil servants jobs, assuming they earn £30k PA, you will still only save £30bn a year. At best.
So, when all you lefties out there start crying about job losses after the election if Cameron is in charge remember this - it was Brown who created the problem in the first place.
Back
From Whistler. Some lacerations from the fight club out there and a swollen knee but otherwise ok.
Am wondering why the hell I came back from a place where people are nice, crime is low and the girls are pretty, to London, where we are ruled more autocratically every day by some one eyed maniac, taxed to pay for others not doing anything other than funding a lifestyle of petty crime and half the popel you meet don't even speak english any more.
Am wondering why the hell I came back from a place where people are nice, crime is low and the girls are pretty, to London, where we are ruled more autocratically every day by some one eyed maniac, taxed to pay for others not doing anything other than funding a lifestyle of petty crime and half the popel you meet don't even speak english any more.
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