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5 "Tells" that the Stock Markets Are About to Reverse

Bank of England Interest Rate Indecision, UK Rates Held at 0.5% for 2 Years

Interest-Rates / UK Interest Rates Mar 10, 2011 - 08:20 AM GMT

By: Nadeem_Walayat

Interest-Rates

Best Financial Markets Analysis ArticleThe Bank of England again decided to do nothing by keeping the UK base interest rate on hold at 0.5% for now 2 full years whilst the inflation fires are burning out of control, rapidly consuming the purchasing power of workers and life time accumulated value of savings. The Bank of England exists purely to service the interest of the bankster elite as evidenced by the fact it funnels cash to the banks at 0.5% to buy government bonds at 3.5% (on leverage) and thus make an instant profit of 60%, whilst the clueless in the mainstream press continue to wonder why the Banks are not lending, they are not lending because they are making risk free profits due artificially held low interest rates, a normalised base interest rate should be north of RPI (5.1%).


The last MPC Minutes showed that 3 members voted for a rate rise, against 6 on hold, the MPC is populated by academic economists who are just as clueless as those that only saw the financial crisis in a rear view mirror. Therefore the Bank of England will again be dragged kicking and screaming by the market into a series of rate hikes during 2011 and several years beyond as bond market investors literally puke under the weight of the issuance of new debt against surging inflation.

The MPC appear confused in that they appear to have long since forgotten that their primary remit is for keeping CPI inflation at 2% and under any circumstances below 3%, instead it has spent the whole of 2010 above 3%, and now stands at 4% on a path towards 5%+.

UK Interest Rate Forecast 2011

My recent In-depth analysis concluded in the Bank of England acting on only 1 or 2 token rate rises during 2011, as any more would put their bankster brethren under pressure. The first rate hike will probable take place in June or July 2011.

The lengthy analysis has been condensed into an interest rate forecast matrix for 2011:

UK inflation Forecast 2011

UK Inflation for January 2011 leapt to CPI 4% from 3.7%, leaving the Bank of England Governor, Mervyn King to press print on another letter full of worthless excuses as to why high Inflation is still temporary more than a year on. The facts are that the Bank of England via its policy of HIGH Inflation is destroying a lifetime of accumulated capital of savers, as interest earned on savings after tax will be lucky to be at HALF the official inflation rate, never mind the actual inflation rate that is nearer to 6.6%, all as part of the continuing programme for the transference of wealth from tax payers and savers onto the balance sheets of the bailed out banks that generate fictitious profits on the basis of which billions are paid out in bonuses.

The more widely recognised measure of Inflation RPI stood at 5.1% and real inflation at 6.6%, as the official inflation indices have been systematically doctored to under report real inflation by successive governments for several decades resulting in serious and compounding under reporting of the real rate of inflation as experienced by the British population.

The updated in-depth analysis and forecast for UK inflation for 2011 (17 Jan 2011 - UK Inflation Forecast 2011, Imminent Spike to Above CPI 4%, RPI 6% ) concluded in UK inflation spiking to a high of 4.2% early 2011, and thereafter trend lower towards 3% by the end of 2011 and therefore remaining above the Bank of England's 3% upper limit for the whole of 2011. The Bank of England's most recent Inflation Report forecast UK CPI of 1.7% by the end of 2011, however the BoE had forecast UK CPI of just 1% by the end of 2010 (Feb 2010), which is inline with the Bank of England's permanent mantra of near always imminent deflation so as to better manage the populations inflation expectations in their favour.

UK Inflation Forecast 2011

The UK government continues to stealth default on its government debt at a real inflation rate of at least 6% per annum, a price that is being paid for by all workers and savers. The population of Britain has been successfully conditioned by successive governments deploying the pseudo science of economics that appears to exist purely to enable governments to psychologically manage the expectations of their populations such as coming to believe that the stealth sovereign debt default trend is good for them.

INFLATION is pure and simple THEFT by the government for the primarily purpose of enabling governments to exist in ever expanding size and scope of interference in everyday lives for without INFLATION i.e. in a normal deflationary world, in which big governments would not be able to exist because accumulated debt would INCREASE in value, thus ensuring that large long-term borrowings could not be entertained in an 'normal' deflationary environment.

Source and Comments: http://www.marketoracle.co.uk/Article26832.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-11 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market and he is the author of the NEW Inflation Mega-Trend ebook that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

nathan Davis
10 Mar 11, 14:59
silver in pounds

hi nadeem

if the pound rises to 1.80 - 1.90 against usd then should we not buy anymore silver or gold right now or will the rise in these metals be bigger than the currency change.

thanks


John
10 Mar 11, 18:13
Derivatives

In your article yesterday you located the major problem as derivative bets by the banks amounting to many times global GDP.

Can you explain what this means in specific terms eg what sort of bets are we talking about, and how when these bets (assuming they exist)are presumably 2 sided do they not simply cancel each other out.

This is an important thread in your overall thesis and clarification would be appreciated.


ac
12 Mar 11, 12:48
earthquake and tsunami

Nads,

It was so overwhelming to see the Japanese disaster unfold.

Our prayers to the victims of this tragedy.

How do you reckon its going to impact the market psychology when they open on Monday. How do u think its going to impact the stocks and oil.

Regards,

AC


Bruce
12 Mar 11, 15:18
Japanese earthquake/tsunami

I hope you don't mind me posting a link, but what do you think about this?

http://www.zerohedge.com/article/will-japanese-earthquake-be-straw-breaks-europes-back

I am usually sceptical about these type of predictions, but for some reason, it caught my eye.


Nadeem_Walayat
12 Mar 11, 18:51
Japan quakes and factors

Hi

zerohedge - it does not mean anything of any significance, the ECB can press print and cover anything that the quake selling can throw up by many times over.

The main driver of what japan does or does not do is demographics.

Now watch how the markets react to the prospects for an infrastructure rebuilding boom !

Factories, roads, houses, - whole towns need to be rebuilt.

Though the big picture is not the tsunami damage but the nuclear plants, cos if they go chernybol then there IS a VERY BIG problem ! Does not look too clever building nuclear plants in an earthquake zone,

Best

NW


Ian
13 Mar 11, 11:02
fTSE

Hi Nadeem,

I would be most interested on your view on the FTSE.

Is this the bull market correction you forecast a few months' ago?

Or is it indicative of a more substantial move downwards?

I am interested in your view, as the FTSE has reacted as you said, but the DOW has not YET done so!

Best wishes,

Ian


Nadeem_Walayat
14 Mar 11, 05:37
Zero hedge wrong as usual

The zero hedge bond crash story as speculated upon during the weekend above proved to be wrong as usual and illustrates the dangers of running with just one element of a market to then magnify it to encompaass the whole!

This is repeated time and time again across the blogosfear, where the CRASH and BURN NEVER PANS OUT !!! EVER ! NEVER EVER ! Not ONCE!

Until there is a Flash Crash, when everyone in hundsight saw it in the rear view mirror and then run for months and months about the always imminent next flash crash that NEVER HAPPENED !!!!!!!!!!

There was no european bond market crash on monday, in fact european bonds rose !

But it won't stop zerohedge from reguritatign the story every other day for the next few months or longer!

Best

NW


Dan Caruso
14 Mar 11, 20:26
Gilt Yields & BOE Interest Rates?

Hi Nadeem

Please can you explain the link between Government bonds and BOE Interest rates?

I do not understand why the BOE would need to raise rates if bond yields rise?

Thanks

D C


Nadeem_Walayat
14 Mar 11, 21:15
Base rate, Bonds and future Inflation

The link ?

Bond Market future inflation expectations / sentiment.

To swallow ever more supply of government bonds, investors need reassurance that they are NOT going to see high future inflation, to enable this governments send a signals to the bond markets that they will act to prevent high inflation by raising short-term interest rates that has the effect of flattening the yield curive i.e. base interest rates rising to 5%, would probably translate into long yields rising by 2.5% as 5% base rate implies lower future inflation.

if base rates go significantly above 5%, then the yield curve may invert as the market will start discounting far lower future inflation as a consquences of high base interest rates.

Currently UK government bond yields have risen by 1% despite the fact that the base interest rate is unchanged, this is as a consquence of high inflation. For the governemtn to reduce its borrowing costs it needs to start raising the base interest rate else government bond yields 9 months from now may have risen by another 1% because of inaction.

i.e. raising the base interest rate to say 1% from 0.5% reduces future inflation expectations and therefore adds to downward pressure on long yields, and thus results in lower borrowing costs for the government than if it had left the base interest rate at 0.5%.


Dan Caruso
14 Mar 11, 22:53
Base rate, Bonds and future Inflation

Hi Nadeem

I see your point. However, in these extraordinary times, it is the banks which are borrowing from the BOE to to buy government bonds.

by raising base rates, is it not possible demand for bonds will be reduced as it costs more for the banks to finance these bond purchases?

Also, is it possible for bonds yields to fall below BOE base rates?

Thanks

DC


Nadeem_Walayat
15 Mar 11, 06:35
bond market

Hi

The bond market as a whole is total outstanding government bonds that trade in response to future inflation expectations and new supply as well as many other economic factors.

Yes the yield curve can go negative, but rates would have to rise a lot to get to that point, far higher than 1%.


SC
16 Mar 11, 17:42
Gilts

Nadeem,

Given what we are seeing in the gilts market re safe haven would you agree that in effect this will give a window of opportunity for the FED,ECB and probably BOE to hold rates at current levels even beyond recent expectations?

Appears to me the Japanese crisis may have given them a get out jail card on inflation.Negative real returns for even longer


Nadeem_Walayat
16 Mar 11, 19:16
uk rates

Hi

I don't see any reason to amend my forecast for 1 or 2 token rate rises this year.

The black swan of Japan Tsnumai would be factor 23 for rates being kept on hold, but it is still only 1 of 23 and not a very strong one at that.

Best

NW


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