Any Brits here?

Louis Cypher

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So, you brits just had your fx and sovereign markets get REAL interesting, real fast.

tl;dr for those of you who aren't in England, or don't follow this stuff:

*Inflation in England is, as in much of the world, high, with demand significantly outstripping supply.
*The BOE is hiking short term rates, something that's supposed to provide monetary tightening by making it more expensive to borrow, to respond to high inflation.
*The incoming British government releases a budget thats all fiscal stimulus, notably with significant tax cuts. Fiscal stimulus puts more money in tax payers' pockets, allowing them to spend more, boosting demand.
*This is a problem - see point 1. The government and BOE are working at cross purposes.
*Markets also see this is a problem. The pound tanked, as @Louis Cypher notes... but yields on UK sovereign bonds also surged.
*a weakening currency and surging yields are something you normally don't see in developed market currencies, only in emerging market ones. This is because higher sovereign yields usually attract buyers, which strengthens the currency. When the currency weakens and yields rise, that usually means the market expects runaway inflation, sovereign default, or both.

Here's where things get fun:
*As higher yields lead t bond price losses, and as the stock market was freaking the fuck out at this time too, lots of investors lost money. Notably, a number of large UK pension funds lost money, and a good number of them were engaging in liability driven investment strategies, matching bond maturities to known liability needs, with leverage, to allow them to hedge liabilities. When these funds lost money in abnormal and unexpected ways - because no one expects the pound to behave like an emerging markets currency - they suddenly found themselves facing large margin calls. To raise funds to meet these margin calls in a challenging market, they had to sell whatever had the best liquidity, which means sovereign bonds (and, with liability-hedging strategies, you usually want extremely low risk bonds anyway, which until this week these were).
*A whole bunch of people selling sovereign bonds at once also causes prices to fall and yields to rise, leading to further losses in pension funds, and further margin calls.
*faced with the prospect of a death spiral, the BOE stepped in and started buying U sovereigns, to help stabilize their prices and stop yields from spiraling out of control.
*while this worked, and yelds are falling today... normally we call bond buying by a central bank "quantitative easing," and it's a form of providing added stimulus to an economy. This time last week the BOE was talking about their plans to begin quantitative tightening in response to high inflation, and throwing even MORE money into the monetary supply isn't going to help the inflation picture or weakness in sterling one bit.

I have my own thoughts on the efficacy of tax cuts vs other forms of stimuus spending, but that's neither here nor there - the Truss government badly needs to blink here, and back away from tax cuts and other forms of fiscal stimulus, or they're going to risk blowing up the pound.

Like, more than it already has.
Awesome reply!
Explains the situation better than any of the British media currently is
 

StevenC

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In the middle of this, I'm trying to get a mortgage. Literally submitted an application yesterday.

This is fine.
Good luck, buddy!

I'm hoping to buy a house next year when the clot stuff comes through, so slightly hoping for a crash.
 

StevenC

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I don't know about you guys, but I keep track of the strength of the pound via Reverb listings. Guitars are getting really expensive.
 

Drew

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Awesome reply!
Explains the situation better than any of the British media currently is
I sit in front of a Bloomberg terminal all day so I see a LOT of economic commentary, so it's just assimilating what I'm seeing and spitting it back out in plain english.

It's a proper mess, though. It's funny, we got a client question the day before on the BOJ's currency intervention, the UK government and the Bank of England's committment to fight inflation, and the US situation, and while I'm less worried about the US directly (market reaction is pretty rational so far), looking at the other two about the best I could say is that with the UK pound and sovereigns trading like an emerging market economy and with the BOJ staving off a weaker yen with direct interaction, which they hadn't done in 23 years and which strongly suggests we're approaching a pain point, well... about all I could say was it really looked like we're starting to see cracks in the fundation, can't say where, but something's under a lot of stress somewhere. Better to be lucky than right, as they say.

Now the concern is, is the BOE legitimately trying to stave off a crisis, or are they just giving Truss enough political cover to pass her economic suicide pact by staving off the worst of the carnage that might otherwise force her to stand down?
 

Louis Cypher

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So according to reports today inc an interview with the new Levelling up minister the £45b in tax cuts is just the start and to pay for it, Britain needs to prepare for a new age of austerity, aren't we actually 12 years in to an age of austerity from Cameron and Osborne?

Also the new Home Secretary has confirmed that huge cuts to welfare budget are overdue to also help pay for the tax cuts as there are apparently far too many healthy people of working age who have "decided" to live on benefits.

Huge tax cuts for the wealthiest and big business - paid for by making the poorest even poorer. Its disgusting, and I am someone who is lucky enough in life right now to be in a position that im going to benefit from some of those tax cuts. Unlike most tho I am all too aware of how easy and quickly that can change and anyone could become the poorest through no fault of their own. But being poor according to Right Wing torys and their supporters is a choice or just laziness.... obviously....
 

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Its supposed to be comedy but its just tragic
 

Drew

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Truss's government blinked, sort of. The elimination of the 45% bracket is "a needless distraction" that is now cut, but the government's credibility is shot, and they're still advocating a stimulative, debt-fueled tax cut budget, while the BOE is likely to still need to continue to engage in bond buying to keep debt manageable.
 

Louis Cypher

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10 days of economic collapse and political farce and it took senior torys going public to say they would vote it down to get them to u turn. No contrition or apology for the billions lost tho, basically Truss and Kwarteng has said we are dropping it because you're all too stupid to understand what we are trying doing....
Tuffton St extremists are running the country
 

nightflameauto

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10 days of economic collapse and political farce and it took senior torys going public to say they would vote it down to get them to u turn. No contrition or apology for the billions lost tho, basically Truss and Kwarteng has said we are dropping it because you're all too stupid to understand what we are trying doing....
Tuffton St extremists are running the country
Consider it a sign your country is ultimately healthier than the US. In the US a tax cut for the rich makes Wall Street rally in orgasmic glee, before it all crashes later from the peons not being able to afford to buy anything because we just shoveled more money out of their pockets into people's that won't spend it on anything but their own concentrated power.
 

StevenC

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Consider it a sign your country is ultimately healthier than the US. In the US a tax cut for the rich makes Wall Street rally in orgasmic glee, before it all crashes later from the peons not being able to afford to buy anything because we just shoveled more money out of their pockets into people's that won't spend it on anything but their own concentrated power.
We're in the middle of a historic cost of living crisis, have massive inflation and the pound hit its lowest ever.

This was all a play to let billionaires bet against the pound, in the mean time they're cutting welfare.
 

Louis Cypher

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‘Not a nanny state’: minister says Britons will not be told to use less energy



Apparently Liz Truss is "..ideologically..." opposed to public information campaigns..... you know she is a hardcore fcuking lunatic when she is now even harder right than someone like Jacob Rees Mogg, who had already signed off on thie £15m campaign to off help to everyone on ways they can save money over winter on their energy bills, when the last few days charities and the National Grid has said the likelihood of 3 hour a day blackouts over winter is a very real possibility. For example I am not stupid (I like to think!) but I had no idea at all that if you keep the back of your fridge free from dust etc you use less energy as the motor doesn't have to work so hard. simple easy way to save a few quid. But apparently Liz Truss doesn't give a fcuk. But thats pretty obvious since the day after the Brexit vote in 2016.

Also, you know again Truss is mental and driving the country and the tory's off a cliff for the sake of her libertarian free market beliefs when Nadine Dorries, Nadine fcuking Dorries, is stating in interviews that she thinks the party under Liz Truss has "..lurched to the right..."??
"
Ms Dorries, who supported Liz Truss during the leadership election, told the Times: "You don't win elections by lurching to the right and deserting the centre ground for Keir Starmer to place his flag on.
"If we continue down this path, we absolutely will be facing a Stephen Harper-type wipeout. I'm sure [the prime minister has] listened and will stop and rethink."

"
Love she thinks that the Boris Brexit gov was holding the political Centre ground! LOL!
 
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Drew

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you know she is a hardcore fcuking lunatic when she is now even harder right than someone like Jacob Rees Mogg, who had already signed off on thie £15m campaign to off help to everyone on ways they can save money over winter on their energy bills, when the last few days charities and the National Grid has said the likelihood of 3 hour a day blackouts over winter is a very real possibility.
To be fair, of all the MANY thinga you can fault Truss for, the prospect of rolling blackouts this winter has almost nothing to do with Truss, and everything to do with Putin trying to make energy as uncomfortable a topis as possible for Europe this winter.

It's going to almost certainly happen regardless of what Britons do, and pressuring them to conserve, right after passing a bill to help cap energy costs, is going to both send a very confusing message, and be politically very unpopular.
 

Louis Cypher

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Taken a little while but the Government and their attack dogs in the right wing media have finally found a scapegoat to blame all everything that's happened in the last few weeks on..... apparently none of it is anything to do with the mini budgets £45bn unfunded tax cuts, or as Rees Mogg called it, "...a minor part of fiscal policy..."

It's all the fault of the BoE, and global interest rates, not the government or the budget and taxcuts funded by thin air. Nothing to do with Truss and Kwarteng at all, whats so ever, nothing to see here, move along, move along.... funnily this new line of attack started when the BoE said its help to sure up the economy would end on the 14th October....
 

Louis Cypher

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Looks like project Save Little Liz has started today. Kwarteng sacked. Hunt (one of the worst Health Secretary's ever and repeated leadership loser) is the new Chancellor and more U-turns on that mini budget that wasn't anything to do with the financial meltdown the UK has experience since the mini budget announcement......
 
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StevenC

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Looks like project Save Little Liz has started today. Kwarteng sacked. Hunt (one of the worst Health Secretary's ever and repeated leadership loser) is the new Chancellor and more U-turns on that mini budget that wasn't anything to do with the financial meltdown the UK has experience since the mini budget announcement......
You love to see it.

Never thought I'd see competition for "Worst Female Prime Minister", but here we are.
 


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