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KDave

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KDave last won the day on September 25 2019

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  1. The above is from a Moneyweek article, they are onto the inflation narrative. This thread is to record and discuss central bank activity over the next few months regarding interest rates, whether they raise or lower, QE or tighten.
  2. Central banks are starting to tighten "Iceland’s central bank raised interest rates this month. If we put aside the pandemic and the post-2008 general fear of tighter monetary policy, and just look at the economic data, it’s very obvious why it did so. Inflation in Iceland is sitting at 4.6%; the bank targets 2.5%. Wages and house prices are rising, half of the adult population has had at least one jab, and the economy is set to grow by 3% this year and 5% the next. Given all that, you can see how even the newly-raised interest rate of 1% might not seem overly restrictive. Of course, Iceland isn’t the only economy which seems to be running hotter than its key interest rate would suggest. In fact, there are a great many such economies, and lots of them are now starting to think about tightening up. So far this week, the central banks in New Zealand and South Korea have both called time on emergency monetary policy. The Bank of Canada did the same last month by scaling back its quantitative easing, and earlier this month, Norway confirmed it expects to raise rates later this year. Our own Bank of England is also forecasting a much stronger economic recovery than it had previously expected, which in turn suggests earlier tightening, although the Bank has also been at pains to emphasise how conditional this all is. Similarly, the bigger central banks are being much more cagey about how they discuss interest rate changes. The Federal Reserve, America’s central bank, has been very keen to emphasise its patience and the importance of employment data, partly because it is worried about a re-run of the 2013 “taper tantrum”. The European Central Bank (ECB) meanwhile has been similarly keen to talk down prospects of higher rates or fewer bond purchases. This makes particular sense in the case of the ECB, as it’s always much harder to get the machinery rolling one way or the other when you have such a diverse group of nations jockeying for attention. However, even in the absence of a clear desire to start increasing interest rates, investors now expect both the Federal Reserve and the Bank of England to raise rates a lot earlier than they did just a few months ago, notes Bloomberg. In fact, markets had expected the Bank of England to be cutting rates in late 2022, whereas now they’re expecting a rate hike. They also don’t see the ECB cutting rates any further. China’s central bank, meanwhile, is indicating that it doesn’t mind the fact that the yuan is sitting at its strongest level against the dollar for years. There are many factors behind that, but it at least partly suggests that the authorities are more concerned about inflation than they are about growth. In short, monetary policy – in terms of expectations – is already getting tighter."
  3. I recall that only 1 in 50 mortgages is longer than 5 years with the majority of those being 2, but most people do fix their mortgage. I know people who have had tracker mortgages throughout this last decade and done very well from it. The 2 year rotation that most do works when rates are falling or stable, saves a few quid per month on the better rates but offers no protection. These people need to change their behaviour ideally in the next 6-12 months, I reckon most won't and will keep opting for the 2 year fix to save pennies and find themselves in trouble later. Ideally people want 10 year mortgages at today's rates, given the inflation figures the system should help pay that mortgage off if pay rises keep pace, house prices don't fall in nominal terms, assets/investments rise with inflation, etc. They will need that fixed out going when food prices are rising 10% a year as well, fuel is up 50%, internet is up 7% a year, etc. Fixing a mortgage now is one less cost that can go up. I was chatting with a colleague who is only 1 year into a 5 year fix and now is wanting to move to longer fix, they don't think 5 years is enough of a fix with the size of the mortgage but its a bit late now. I said have a look at it but talk to an advisor about it, although the ERC is quite high if the interest rate is quite a lot lower it may be worth paying to be better off in the long run and being able to sleep better at night.
  4. Yes I agree perhaps 10 at 2% giving the additional 3 years may turn out to be a better bet, we will see. I borrowed up to the 40% equity on the 7 year fix at 1.49% to invest the difference, not huge amount of money but I think I should be able to make a decent return on that chunk of money over that time frame, say 6% compounding and should be able to clear the mortgage at the end from savings plus returns, mortgage free at 40. The 0.49% on the sum of money is quite a lot of interest saved and will be put to use compounding as well, but as you say if things don't go as planned the additional 3 years may have made a difference, we will see.
  5. Looking at price inflation, CPI for April 1.5% up from 0.7% in March, commodity prices all up, some 2-4 bagged YoY, houses +10% and used car +30%; people are already spending. It takes a while for inflation in commodities to filter through but we are seeing some of that now as expected. The consumer will be hardest hit by this, less money to service debt and standard of living destruction. It will get worse as rates rise to follow inflation and make it look like CB's have it under control, but they are not in control. Inflation is out of the bag now, there is no catching it no matter what they do the cycle will just have to run its course. QE 2020 is not QE 2008. Interesting point on negative rates, in a deflationary scenario it makes sense but when inflation is running hot it would add fuel to the fire, who knows perhaps they want to hyperinflate but I doubt it, not in their interest. More likely they will allow inflation to run and follow it up with rates, the FED said as much last year, people thought it was a bluff but its the only way out other than collapse scenario. Perhaps you are right and end of the year is too soon, keep an eye on CPI for May.
  6. There will be a base rate rise before year end. How this will effect mortgage rates, probably not much. Will these deals be around then, who knows, as said it's a guessing game on the details, house prices probably won't come down for a while. As I said last year, house prices will likely not move much in nominal terms when things get going, but in real terms they will fall a lot. I have sorted my 7 year fix with Barclays, can't see it going wrong at 1.49 percent. No more overpayments now, if I can't get a better than sub 1 percent return from savings that would have been used to overpay, then I'm doing it wrong and deserve to be poorer for it.
  7. The replies to this thread have been interesting and as predicted. Most want charity to exist and for the state to provide it, which means for the tax payer to provide it. This has solidified my view that ubi is the preferred move forward, regardless of the dangers. Ubi will replace state benefits eventually and roll into the state pension. Give it a couple of years, higher interest rates will force government to make cuts and ubi will be the last to go for politicians, but benefits will be far easier to cut them, followed by pensions. Reap what you sow chaps.
  8. I am always in two minds about UBI, previously I would have been with Roy on the issue, but I see how benefits work and if UBI replaces them (I assume that is the intention) then I am all for it. Benefits already keeps my BATS shares paying divis and keeps the off-licence in business, UBI won't make a difference on that front. But it will make things fair, and I am all about that. I have watched my cousin live a life on the tax payer, handed a living for nearly two decades now for doing nothing. Perhaps half a million in sterling by now if not more. One example of millions. While those that work, pay taxes used to fund this waste and often have a lower quality of life due to not having time. Work you give up time for money. Benefits you give up nothing and get money. Seeing others who have made selfish or wrong choices rewarded with time and money, while I must give up my time, it is a killer. It has destroyed altruism and compassion. UBI is a lot more Just than the current system, if it replaces the current system. Everyone gets UBI. Now the worker has UBI plus the wage and is better off for trading his time for money. Work is encouraged and rewarded. Natural order is restored. People who used to cheat and play the system, made a career out of it can no longer do so. I assume the state pension will be paid to everyone now as well, no doubt it will. My major problem with UBI is the government. They will use it as a control mechanism. If you say things against xyz no UBI for you. If you don't vote, no UBI for you. If you do stuff they don't like, attend the wrong meeting, talk to the wrong forum member, no UBI for you. It will usher in Social Credit ala Communist China. Its another step on the totalitarian road - but to be honest we are already at the point of no return. Lets keep going. Its pointless arguing against benefits, I am in the minority on this, most think I am heartless when I discuss social security with them, so instead I will say lets have UBI. Bring it on. If we must have tax payer charity then lets have it in the most Just and fair way possible. It will not end well in either case.
  9. The QE of 2020 was not the same as QE 2008;
  10. Also look to the gold coinage of Byzantium (Rome) for a more complete history of the money, the solidus was consistent throughout Roman history and then into the eastern Roman empire, it was not debased until much later, another 1000 years later, eventually coinciding with the collapse in late middle ages. The fall of Byzantium was the true end of the Roman culture. Silver is quite rare relatively in Byzantine coinage, perhaps because of the stigma associated with late western Roman coinage? From my limited reading the peasants used various bronze coins for day to day trade and exchange, and gold was important for paying the military and civil service, for use in diplomacy and paying mercenaries. It's been a while since I studied or read anything about this time period,very interesting post.
  11. The debasement process then was a way to tax increasing production by the sounds of your description of advances. Inflation uses as a tax, because that's what it is and always had been.
  12. KDave

    its been a while

    I was looking at pre-1920's silver and its no different to buying bullion now, its also hard to find any sterling pieces that don't sell for daft premiums. I'll stick to the paper stuff for now.
  13. Thanks for the comparison much easier to see the potentially huge differences when compared like that. Even though I am expecting higher than 4% rates I think 7 years is enough to accumulate what I need to pay off what is left outstanding. The interest saved over the term is fairly significant and I will add the difference in interest and overpayments to what I already invest. For interest rates to be at 4% in 2028 it means inflation is running well ahead of that, which means good things for metals, value stocks, etc. Best case I am hoping by fixing now, inflation will help pay off the mortgage like in the 1970's; so long as I can position in the right places, if I am completely wrong on this then interest rates are not going to be a problem at the other end because it didn't happen, in which case I should have options. Cheers
  14. That is another good point, there are not many offers above 40% LTV. In the past I recall seeing some banks offering better deals for 50 and 60% LTV on long fixes but it was few and far between, today Barclays offer better rates at 55% LTV but only for 2 and 5 year fixes. In which case increasing LTV further is probably not going to help for what I want to do. The ERC on my current mortgage is roughly a years worth of interest payments, which I can justify paying as I will be going from a 25 year to 20 year mortgage 15 months early. Effectively I am paying a years worth of interest in advance in order to cut a year off, so the money is gone either way I look at it, even if I wait 15 months I will not on paper be any better off. Interest only mortgage makes absolute sense at these rates if investing the money, not hard to get above 1.49% return per year and then pay off the mortgage at the end of the fix, keep the rest. The bank of Englands target inflation rate is 2% a year, borrowing at 1.49% is basically free money no? I will be doing a repayment mortgage but I think I will stop overpayments and invest the difference, seems like the right balance of risk. Then if it goes badly investing wise I will still be safe from historical norm interest rates. The other issue with fixing now for 7 years, 2028 is towards the end of the cycle when things will be getting interesting, peak inflation, peak interest rates potentially, I could be coming out of the fix into high rates on what is left. Barclays 10 year fix at 1.99% might be a better idea but that .50% cheaper over 7 years is very tempting. Not sure how much longer these deals will be on the market.
  15. Price of lumber is one of the big ones running higher, last I discussed it the price had doubled, looks like it hasn't stopped since. https://www.proactiveinvestors.co.uk/companies/news/948056/soaring-timber-prices-are-just-one-more-sign-that-inflation-is-on-the-way-948056.html All related stuff will keep going up as manufacturers try to pass their increasing costs on, consumer will eat most of that. The winner will be the one supplying the lumber.
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