Wednesday 6 June 2007

Tin hats all round?

Well the ECB has raised rates to 4% today, as Euro inflation hit 2% (tell this to the Spanish!).

Morgan Stanley warned today that all its key indicators for a share price crash were flashing red.

The Bank of England is widely expected to hold rates tomorrow as the UK fantasy inflation number of 3% has fallen back to 2.8%. In reality we really still have inflation at nearer 5% once you include the cost of housing and taxes.

My hunch is that they may well stick a .25% increase on the base rates tomorrow, just to be sure of slaying inflation. I also think if they do this it may well be one of the triggers for the collapse that
Morgan Stanley is predicting.

It is always so hard, if not impossible, to predict a crash or decline, thanks to herd behaviour and the irrationality of the markets. However, everything is now in place really and so it will happen. Don't know when, but it will.

Welcome to your world, Gordon Brown!


Anonymous said...

So they kept rates the same! Strange that. CPI's at 2.8%, Mervyn says that they are prepared to do 'whatever it takes' to bring it down to 2%, so whats the problem?
Obviously 'whatever it takes' does not include raising rates.

CityUnslicker said...

anon - I quite agree, this may now mean 2 rate rises later in the year.


Steven_L said...

My new employer has offered me a pension fund where I can choose (between 10 different managed funds, one is UK commercial property, one 'cash', one UK government bonds then ranging up to higher risk funds that invest both in the UK only, a mix or outside the UK only up to Japan only) what percentage of my contributions to distribute between them, if you see what I mean.

I'm not any sort of economist and don't do cityspeak, but I'm interested in financial stuff, like reading wikipedia pages on things like that, the financial press and documents on asset managers websites. So I think I'd rather choose where the cash goes, and hedge my bets, than let them stuff it all in one JP Morgan fund.

What kind of investment should I be looking for over the next few years then?

I'm was thinking about sticking about 35% in UK and world bonds then hedge the rest in equity funds. Is Japan worth a punt?

Now I read this I'm thinking should I putit in cash and bonds only? What about Uk commercial property?

Not looking for a definative answer, just any pro's and cons you might know of.

CityUnslicker said...

Have got to be careful here as there are regs around offering advice.

But basically, in a longet term fund you want things to be balanced, so what you have said makes sense; some high risk assets, some low risk assets, bonds and cash is a good balance.

pommygranate said...


Inflation 'fell back' to 2.8% did it? My my, what's the weather like in the la-la land of the UK Stats Office.

6-8% is the real rate and that's obv not including asset price inflation, which is 12-15%.

thanks for your vote! keep voting!

Anonymous said...

I am that rather rare thing in this Country, a saver with plenty of cash and no debts!!

Therefore an interest rate rise increases my wealth.

I do worry about my son though,because he has loads of debt and has to hold down a job in the real world.

Me? Club Class yet again.

CityUnslicker said...

Pommy - I think the Telegraph has it right. Depending on who you are the inflation rate can be between 1% and 9%. Bascially, the older you are the worse it gets...

CityUnslicker said...

Ken - well good for you. Plenty of options for investment at the moment, some are quite scary though! You always need to understand the underlying risk factors.

As for the youth of today, in whcih I just about include myself. They will be the first generation since the war to have a worse level of living than their parents.

Anonymous said...

i spend all my money on chinese dvd players so my inflation rate is realy
low but ppeople who eat drink and pay council tax are screwed.

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