Sunday 22 March 2009

Never listen to BNP Paribas

That is what I have decided to do today after reading this load of codswallop in the Telegraph. Apparently the UK is set for over 10% unemployment and to be stuck with deflation for nearly 2 years.

This is all based on RPI dropping fast and the point that it will be negative at the next update on Tuesday.

How can economists be so dim? (Yes, that is a rhetorical question).

BNP Paribas have clearly failed to notice that commodities, petrol, food and other energy costs have started to rise again. They have also failed to notice that interests rates cannot go any lower. There is no way down from here in deflationary terms, this is it. It may take a quarter or two to feed through to the official statistics, but we are here now.

Also BNP Pariabs make no mention of quantitative easing that the bank of England is carrying out. This QE, 10x the size of the US version, has just started this week and will push inflation much higher as the value of money drops due to its over-creation.

There will be technical deflation this week and even this year for a short time, then he odds are inflation and interest rates will pick up quite quickly.

On the employment side, I think they may be close to the truth. The sad fact is we are in for 1970's Stagflation - that is the real decline in incomes that hurts so much - and is that old stable of Labour Government disaster.


Anonymous said...

Agree. There is a current trend to ignore economists as they have either cried wolf too often or not enough.
There are a lot of daft predictions going around too that are contributing to a certain fatalism.
Bad or possibly just plain no decisions are going to be taken.

Anonymous said...

There isn't any single measure of inflation. Housing has dropped, petrol went through a bubble, most imported goods will rise with the decline in Stirling, and that includes much food. Not all of these rises will have filtered through yet.

However, housing went through a bubble and things which are the subject of bubbles are uneasy things to fit in an inflationary model.

For the things I'm interested in, I've seen 20% price rises in the last couple of years and the rises are getting more noticeable.

In many ways, inflation is good for debtors, and that suits the government, because so many are in trouble with mortgages and personal debts. So I expect to see a return to inflation such as we had in the 70s.

As I understand it, QE has to be very carefully applied and is almost impossible to get right, otherwise it's just printing money. It'll inevitably end up as just printing money. The temptation to err by over-printing money is just too great.

Anonymous said...

The problem with QE is that it is possible that the Bof E succeeds in holding down interest rates by buying bonds aggressively at the long end.

Since no sane investor would buy at low rates, fearing currency depreciation, the Bof E becomes the ONLY purchaser.

The currency crashes.

PMs, Commodities, and commodity shares increase, because these reflect world prices, not ours.

But wages, IF they do increase, don't match inflation. A vast reduction in net disposable income follows.

That situation obtains if only the UK were into QE.

However, this is fudged by QE in other nations.

Currently, the US, Japan, UK, and Switzerland are QEing. And the IMF is about to issue Special Drawing Rights, which is merely more Fiat crap, on top of Fiat crap from other Fiat currencies that back the IMF.

Taken together, a global tsunami of Fiat crap, a race to the bottom. Global Inflation, oodles of it, Repudiation of debts, including the value of savings and pensions.


And you think the issuers of Fiat crap have the monitoring mechanisms, or the intelligence to use them?

And the reaction of Creditor Nations?

Watch the G20, - closely!

CityUnslicker said...

nice comments all.

Cosmic - inflation is hard to measure, the only true way is against your own wages!

Anon - G20, hmmmm...

Steven_L said...

In other words - we're bankrupt and we're going to inflate our way out of debt?

Where to put your money then?

I'm watching Tate and Lyle, Northumbrian Water and Pepsico at the moment.

not an economist said...

Its facile in the extreme to be predicting deflation for two years from now when the BoE has just embarked on a policy of monetary inflation, intending to pump £75bn into the economy. Multiply that by a factor 10 or so in order to guage the impact of fractional reserve banking.

While stagflation may result I would expect inflation to be considerably higher than it was in the 70's. Indeed I need to sit down with the wife and encourage her to invest what savings we have in gold 'cos the sterling value of what we have will evaporate in the next few years. Problem is she just thinks I am daft as a brush on these things.

At least in Zimbwabe the locals have the option of going into the hills to dig for gold to use as currency in order to try and exchnage for the essentials of life - bread, clean water, rice. Where I live - Dorset, England - gold deposits are notable by their absence ...

CityUnslicker said...


I am thinking hard on how to make out well from this. At the moment things are not clear. My inner goldbug is resting at the moment as the odd chart I look at points to a huge bubble in gold on any reasonable measure. I have had my fill of bubbles.

initial thoughts are buy solid things, like mining companies and oil companies. Peak oil will still happen so oil will not fall too low overall. Also get into lots and lots of debt at fixed rates. Rates will not be as low as now perhaps for 10-20 years. with the interest rate fixed and inflation coming there should be a big arbitrage opportunity.

Having said all of that, deflation will hit us this year and the deleveraging is continuing. I have no idea whether this is going to last 1 more quarter or one more year.

Anonymous said...

You crossed swords with me in another forum when gold was £400 ish.

Now it is £650 ish.

But it's not a bubble!

Forget technical analysis, elliot waves, head and shoulders, or whatever crap......

In inflation gold acts as a preserver of purchasing power.

That's why it jumped in dollar terms when Bernanke announced QE.

Look at the UK listed gold miners recent price movements.

Centamin, medusa, griffin, peter hambro, solomon (volatility due to business dealings), randgold..........

You've missed a 50% and in some a 100% move!

And on the big boys extractors, bhp, vedanta,rio, .........

They all spell inflation.

CityUnslicker said...


fair do's on gold price movements in shares. i did miss em, but then i missed them on the way down too!

I had nearly 50% of my portfolio in gold until Jan. Then all the MSM started encouraging everyone to buy gold - once this starts it is always a contrarian indicator.

I agree if inflation goes nuts then so will gold, but I would like to buy in at a better price than $958 an ounce. Silver is probably better too.

Anonymous said...

Looking at the UK, we've been having a whale of a time on running up debts and the profits made by The City. There's some, but not much, hi-tech and specialised manufacturing and services. As for the "investment" in education........

In short, the nation's been enjoying a standard of living and expectations not justified by its performance and after the feast comes the reckoning. That looks like inflation to me. Inflation or choices too painful to make at present, like letting house repossessions happen and getting rid of huge numbers of public employees and telling them that their pensions are being reviewed.

The City have been identified as villains, conveniently, or stupidly, throwing out the baby with the bathwater.

Gold, oil shares - it is running out, Far Eastern shares; there's something about them which suggests things people want and making things people need rather than just fancy.

I always thought there was something crazy about gold-bugs, now there's something about their droning about fiat currencies and the New World Order which seems very pertinent.

Place your bets gentlemen.

Steven_L said...

Bets? Don't tempt me.

How about:

Leveraged wheat etcs?

Sept 09 GBP/JPY call warrants?

Short Randgold cfd's?

England to win the Ashes?

I'm trying to be reasonably sensible at the moment though, saving a few hundred quid a month and not giving into the temptation to gear it all up on 'bets'.

Anonymous said...


Today, 24th may be your last chance with gold entry point.

Savonarola said...

Gold/Silver for insurance.

In 70's US printed $ to finance Vietnam war. Inflation?US 10 bonds peaked at Circa 18%. Gold $800. When Volcker advised Carter to close down the printing press, UK followed. That was 30 years ago. A whiff of 70's is about.

Intermediate gold miners offer best value. Hoschild for silver.

John Paulson big holder of CEY/Centamin(AIM).

Conservative investors: Telcos(European) offer sustainable divs around 5%. Also pharmaceuticals. Agri businesses OK.

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