Interest rates to stay low for ages

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Interest rates to stay low for ages

Postby Pixel8r » Tue Aug 26, 2014 10:52 am » Safari 7.0.5 Safari 7.0.5  Mac OS X Mac OS X  Screen Resolution: 2560 x 1440 2560 x 1440

Most seem to think that we are about to see interest rates increase as the "recovery" starts to happen. I think we won't see any meaning full rate increase for a long long time.

The CB's know the following;

  • They are cooking the books to make it seem there is a recovery.
  • If they raise rates it will kill the recovery impression created in the publics mind.
  • The trillions of interest rate swaps that the bankrupt banks have between each other.

They like to talk about rate increases to try and appear they are responsible but truly know they have no choice but to continue with their stealth taxing of joe public. So negative rates will continue and it will make gold the best asset to own for the foreseeable future.
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Re: Interest rates to stay low for ages

Postby warpig » Tue Aug 26, 2014 4:11 pm » Google Chrome 36.0.198 Google Chrome 36.0.198  Windows Seven 64 bits Windows Seven 64 bits  Screen Resolution: 1680 x 1050 1680 x 1050

I would say the opposite. I think most people think IR's are going to stay low for quite some time yet. As discussed in the mini-chat window, the market can deal with higher rates, it just a question of how high can they go before they cause problems. I think the real issue is if they raise suddenly and quickly, but they will just test the water first. What's important is that the market knows they're coming and I think that will happen early next year.
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Re: Interest rates to stay low for ages

Postby Pixel8r » Tue Aug 26, 2014 5:34 pm » Safari Mobile 7.0 Safari Mobile 7.0  iPad iPad  Screen Resolution: 768 x 1024 768 x 1024

The market is going up from all the QE cash finding its way into it and off the ZIRP. Rates start to rise while QE is being reduced and we will see how weak the markets really are. I think the markets know how fragile things are which is why they are bidding bond prices are up so far.
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Re: Interest rates to stay low for ages

Postby headmelter » Tue Aug 26, 2014 6:53 pm » Firefox 32.0 Firefox 32.0  Windows Seven 64 bits Windows Seven 64 bits  Screen Resolution: 1366 x 768 1366 x 768

I have to agree with WP. I think IR's will rise marginally next year to test the water. In the UK I would imagine it will be after the election
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Re: Interest rates to stay low for ages

Postby Pixel8r » Tue Aug 26, 2014 8:02 pm » Safari 7.0.5 Safari 7.0.5  Mac OS X Mac OS X  Screen Resolution: 2560 x 1440 2560 x 1440

I don't mean a minor 0.1% added to base rate, that really makes no difference to anything. I am sure they will try but it will have very negative effects and they will soon settle back into ZIRP & QE.
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Re: Interest rates to stay low for ages

Postby Pixel8r » Wed Aug 27, 2014 7:10 am » Safari 7.0.5 Safari 7.0.5  Mac OS X Mac OS X  Screen Resolution: 2560 x 1440 2560 x 1440

The article below shows the general business thinking about rates rises.I am not saying that we won't get any rate rises, think we will get a few minor ones (+0.25%), but when we do the "recovery" will be a fantasy.

BLACKROCK: You May Want To Consider A Few Tweaks Before Interest Rates Start Rising

As my colleague Rick Rieder noted in a post earlier this week, the Federal Reserve (Fed)’s recently released minutes and Jackson Hole Symposium comments suggest that a period of rate normalization is approaching.

In other words, while rates should remain relatively low over the long term and the rate normalization process will be a slow one, the Fed is likely to begin raising rates in the first half of 2015, and the first rate hike could come as early as March, earlier than many market watchers expect...
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Re: Interest rates to stay low for ages

Postby warpig » Wed Aug 27, 2014 8:21 am » Google Chrome 36.0.198 Google Chrome 36.0.198  Windows Seven 64 bits Windows Seven 64 bits  Screen Resolution: 1680 x 1050 1680 x 1050

I think the market could easily go up 2-3+% over a protracted time frame without any sight of the end game. Higher rates will push the stock market higher, as it's seen the economy is healing. I think you're rushing to the last page of a book to see who did it, there's still quite a few chapters to go IMO.
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Re: Interest rates to stay low for ages

Postby Pixel8r » Wed Aug 27, 2014 8:27 am » Safari 7.0.5 Safari 7.0.5  Mac OS X Mac OS X  Screen Resolution: 2560 x 1440 2560 x 1440

For interest rates to start to rise there needs to be an actually recovering economy. The economy is being made to appear to be recovering by the central bank policies of ZIRP and QE, but I think it hasn't changed a thing and actually there is a much more structural problem that can't be addressed simply by changing perspectives. The Keynesian solution is to print enough and ease enough to create the impression in the publics mind that things are going back to normal and that will cause spending to increase which will generate the recovery for real. That worked while we were reaping the benefits of cheap endless energy but I don't think it does in the current situation.

The ZIRP & QE policies have encouraged malinvestment on a massive scale. It has created loads of zombie banks and the central banks have bought loads of toxic assets, corporations are increasing their leverage, investors are buying bonds for virtually zero yield, money is being created and leant on overpriced housing, the list goes on & on.

When it comes down to it everything is now dependant on rates staying low for ever, if rates start to rise the fantasy recovery unwinds rapidly.

Does anyone have any reason to believe what I have said above isn't true?
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Re: Interest rates to stay low for ages

Postby Pixel8r » Wed Aug 27, 2014 8:42 am » Safari 7.0.5 Safari 7.0.5  Mac OS X Mac OS X  Screen Resolution: 2560 x 1440 2560 x 1440

warpig » Wed Aug 27, 2014 9:21 am wrote:I think the market could easily go up 2-3+% over a protracted time frame without any sight of the end game. Higher rates will push the stock market higher, as it's seen the economy is healing. I think you're rushing to the last page of a book to see who did it, there's still quite a few chapters to go IMO.

For base rate to move to 3% you are actually talking about a 600% increase in interest!

Here's a few reasons why I think it won't happen the way you are expecting;

  • Trillions of interest rate swaps
  • Bankrupt zombie banks
  • Mountains of toxic assets on central bank books at 100%
  • Massively increased public debt levels.
  • Massively increased private debt levels.
  • Wage decreases (In the UK a lot more people are now working self employed and wages are dropping rapidly)

You are right the economy is being made to appear to be healing currently, but is it actually? I don't think so, when rates start to rise it will become self evident. I give it a maximum of two 0.25% increases in base rate before reality sets in.

I think we are about to enter the start the last long chapter of the book. If you truly believe that rates are about to start going up and they will end up 3% higher then you should sell all your gold, as the price will drop further as the rates increase.
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Re: Interest rates to stay low for ages

Postby warpig » Wed Aug 27, 2014 9:19 am » Google Chrome 36.0.198 Google Chrome 36.0.198  Windows Seven 64 bits Windows Seven 64 bits  Screen Resolution: 1680 x 1050 1680 x 1050

Oh yeh and I suppose you'll take it off my hands for a princely sum! Scoundrel! I bought my gold for the end game, not the lead up to it.

Well IR derivatives protect businesses from fluctuating IR's, not the other way round. It's sharp unexpected rises that cause problems and the FED will do their best to make sure this doesn't happen. Sharply raising IR's to defend a currency means it's game over, they know that. 600% sounds dramatic, we're only talking 3%, it's nothing. Closer to 5% and I'd say we have problems.

Nothing is marked to market anymore, it's all marked to maturity, so I don't see why varying IR's would effect this. They'll just keep lying and extending the maturity dates...

No private debt has come down considerably, public debt however... This is why they want to increase tax left, right and centre. Pay inheritance tax before I'm dead, really???? Haven't we brought enough of the future in to the current event horizon? The government realises it can't be funded through growth anymore, so it's going after our money now. Rising rates will create more difficult conditions, but <3% won't cause the system to collapse.

Image
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Re: Interest rates to stay low for ages

Postby Pixel8r » Wed Aug 27, 2014 9:41 am » Safari 7.0.5 Safari 7.0.5  Mac OS X Mac OS X  Screen Resolution: 2560 x 1440 2560 x 1440

warpig » Wed Aug 27, 2014 10:19 am wrote:Oh yeh and I suppose you'll take it off my hands for a princely sum! Scoundrel! I bought my gold for the end game, not the lead up to it.

Well IR derivatives protect businesses from fluctuating IR's, not the other way round. It's sharp unexpected rises that cause problems and the FED will do their best to make sure this doesn't happen. Sharply raising IR's to defend a currency means it's game over, they know that. 600% sounds dramatic, we're only talking 3%, it's nothing. Closer to 5% and I'd say we have problems.

Nothing is marked to market anymore, it's all marked to maturity, so I don't see why varying IR's would effect this. They'll just keep lying and extending the maturity dates...

No private debt has come down considerably, public debt however... This is why they want to increase tax left, right and centre. Pay inheritance tax before I'm dead, really???? Haven't we brought enough of the future in to the current event horizon? The government realises it can't be funded through growth anymore, so it's going after our money now. Rising rates will create more difficult conditions, but <3% won't cause the system to collapse.

Image

IR derivatives are supposed to protect businesses from fluctuating rates, but the problem I see is the are now multi trillions of them. If rates start to rise the banks would have to pay out trillions on these contracts which they have been profiting from selling in a decreasing interest rate environment. Imagine the trillions the bankrupt banks would have to pay out if rates went up to 3%!

Base rate is currently 0.5%, so to move to 3% is a 500% increase (my mistake should have said 500% not 600% which would be 3.5%). Any increase from the almost zero rate policy is seen as dramatic due to the effect it has on interest payments, doubling, tripling...
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Re: Interest rates to stay low for ages

Postby Pixel8r » Wed Aug 27, 2014 9:56 am » Safari 7.0.5 Safari 7.0.5  Mac OS X Mac OS X  Screen Resolution: 2560 x 1440 2560 x 1440

warpig » Wed Aug 27, 2014 10:19 am wrote:No private debt has come down considerably, public debt however... This is why they want to increase tax left, right and centre. Pay inheritance tax before I'm dead, really???? Haven't we brought enough of the future in to the current event horizon? The government realises it can't be funded through growth anymore, so it's going after our money now. Rising rates will create more difficult conditions, but <3% won't cause the system to collapse.

Image

Not according to this article in the Independent last year;

£1,430,000,000,000 (that's £1.43 trillion): Britain's personal debt timebomb

Average household debt is now £54,000 - double the level a decade ago, despite record low interest rates, and ministers fear that failure to pay back loans and credit will leave thousands at risk of losing their home...
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Re: Interest rates to stay low for ages

Postby warpig » Wed Aug 27, 2014 10:34 am » Google Chrome 36.0.198 Google Chrome 36.0.198  Windows Seven 64 bits Windows Seven 64 bits  Screen Resolution: 1680 x 1050 1680 x 1050

The percentage increase doesn't tell the whole story. If I owe my son 50p and for late payment he charges me 1000% interest, who cares I can cope with the increased payments. IR derivatives are supposed to have an offsetting position, i.e. they're a zero sum game. Now whilst I fully appreciate the distribution of contracts is critical, with posted collateral that goes some way to paying out and for such a small percentage rise, I think it will be OK. Experts in IR derivatives know increasing IR's are a possibility when tapering goes to zero, I'm sure they've thought about it.

Pixel8r » 27 Aug 2014 10:41 wrote:IR derivatives are supposed to protect businesses from fluctuating rates, but the problem I see is the are now multi trillions of them. If rates start to rise the banks would have to pay out trillions on these contracts which they have been profiting from selling in a decreasing interest rate environment. Imagine the trillions the bankrupt banks would have to pay out if rates went up to 3%!

Base rate is currently 0.5%, so to move to 3% is a 500% increase (my mistake should have said 500% not 600% which would be 3.5%). Any increase from the almost zero rate policy is seen as dramatic due to the effect it has on interest payments, doubling, tripling...
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Re: Interest rates to stay low for ages

Postby warpig » Wed Aug 27, 2014 10:36 am » Google Chrome 36.0.198 Google Chrome 36.0.198  Windows Seven 64 bits Windows Seven 64 bits  Screen Resolution: 1680 x 1050 1680 x 1050

I'll have to read the article later. My only point is that private debt has decreased since 2008, not that it isn't an issue.

Pixel8r » 27 Aug 2014 10:56 wrote:Not according to this article in the Independent last year;

£1,430,000,000,000 (that's £1.43 trillion): Britain's personal debt timebomb

Average household debt is now £54,000 - double the level a decade ago, despite record low interest rates, and ministers fear that failure to pay back loans and credit will leave thousands at risk of losing their home...
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Re: Interest rates to stay low for ages

Postby Pixel8r » Wed Aug 27, 2014 10:58 am » Safari 7.0.5 Safari 7.0.5  Mac OS X Mac OS X  Screen Resolution: 2560 x 1440 2560 x 1440

warpig » Wed Aug 27, 2014 11:34 am wrote:The percentage increase doesn't tell the whole story. If I owe my son 50p and for late payment he charges me 1000% interest, who cares I can cope with the increased payments. IR derivatives are supposed to have an offsetting position, i.e. they're a zero sum game. Now whilst I fully appreciate the distribution of contracts is critical, with posted collateral that goes some way to paying out and for such a small percentage rise, I think it will be OK. Experts in IR derivatives know increasing IR's are a possibility when tapering goes to zero, I'm sure they've thought about it.

Yes derivatives are daisy chained together and the net liability is a lot lower than the gross value. But the problems comes when a bank defaults on payment, as we saw when Lehman went under and all the rest needed bailing out. Experts in derivatives, sounds like any oxymoron to me they have helped to create this massive global financial crisis that there is no escape from and you trust them?

I'm with Jim Sinclair on this one, QE to infinity and ZIRP forever.
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Re: Interest rates to stay low for ages

Postby headmelter » Wed Aug 27, 2014 11:26 am » Firefox 32.0 Firefox 32.0  Windows Seven 64 bits Windows Seven 64 bits  Screen Resolution: 1366 x 768 1366 x 768

My mortgage is fixed until 2017... so, I've been 'overpaying' since 2012...I hope you're right Pix but I think the 'grab' will start before 2017... if it doesn't I'll look to fix for 10 years.
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Re: Interest rates to stay low for ages

Postby Acton Boy » Wed Aug 27, 2014 9:24 pm » Safari Mobile 7.0 Safari Mobile 7.0  iPad iPad  Screen Resolution: 768 x 1024 768 x 1024

Greenspan Put,
Bernanke Put (massive QE),
Now we await the Yellen Put.
If interest rates go up all the share buy backs by listed companies will stop and leveraged trading will become much less attractive for traders. What will that do for stock prices.
All central banks have only (it seems to me) one solution. Low interest rates and print print.
Still amazed at how much US fed Debt Belgium bought..... :liar:
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Re: Interest rates to stay low for ages

Postby Pixel8r » Wed Aug 27, 2014 9:43 pm » Safari 7.0.5 Safari 7.0.5  Mac OS X Mac OS X  Screen Resolution: 2560 x 1440 2560 x 1440

Not forgetting we will get the Draghi Put within the next couple of months.
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Re: Interest rates to stay low for ages

Postby warpig » Wed Aug 27, 2014 11:24 pm » Google Chrome 36.0.198 Google Chrome 36.0.198  Windows Seven 64 bits Windows Seven 64 bits  Screen Resolution: 1680 x 1050 1680 x 1050

Everything was mark to market when Lehman's went under, the rules have changed.

Pixel8r » 27 Aug 2014 11:58 wrote:Yes derivatives are daisy chained together and the net liability is a lot lower than the gross value. But the problems comes when a bank defaults on payment, as we saw when Lehman went under and all the rest needed bailing out. Experts in derivatives, sounds like any oxymoron to me they have helped to create this massive global financial crisis that there is no escape from and you trust them?

I'm with Jim Sinclair on this one, QE to infinity and ZIRP forever.
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Re: Interest rates to stay low for ages

Postby Pixel8r » Thu Aug 28, 2014 7:16 am » Safari 7.0.5 Safari 7.0.5  Mac OS X Mac OS X  Screen Resolution: 2560 x 1440 2560 x 1440

warpig » Thu Aug 28, 2014 12:24 am wrote:Everything was mark to market when Lehman's went under, the rules have changed.

There will come a time when no amount of lying will cover their bankruptcy, others won't trust them because they can see the lies.
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