Tuesday, 27 February 2018

Tide Going Out: Nude Bathers At Risk

Nothing quite brings home the end of cheap money like noticing that I am now getting 4.12%  -  tax-free and "risk-free"  -  on my NS&I index-linked certificates.  Has anyone been talking about this? 

In my business sector (energy) there are a heap of players - renewables, small suppliers - who have only been in existence in the era of cheap money.  Boy, are they going to come unstuck soon.  Elsewhere on the horizon, John McDonnell's plans might come in a bit pricier than he was anticipating.

And then there's all those leveraged B-T-L players, often the subject of our btl commenters.

Where do we think the serious chaos will start first?



Demetrius said...

Houghton Street by Aldwych.

andrew said...

Greenwich or some other zone 4 recently gentrified ( so full of BTL ) area.

DJK said...

The NS&I index (RPI) linked savings certificates were a real steal a few years ago. I filled my boots and have kept rolling them over.

The end of cheap money will, at least, solve the housing crisis. Not without a lot of pain, but proper interest rates will eventually get house prices back to a sustainable multiple of incomes.

Electro-Kevin said...

Not just BTL but highly leveraged home owners too.

And those who bought crypto on tick.

Electro-Kevin said...

Vehicles bought on finance as well.

dearieme said...

On t'other hand, higher interest rates will reduce the present values of the liabilities of DB pensions.

Maybe they'll also reduce the values of their assets too?

John Miller said...

The BTL lot are being hit right now, HMRC beginning to disallow interest as a business expense, so change there will happen before the disappearance of cheap money.

CityUnslicker said...

Well spotted Nick.

The end of cheap money in 2007 was the starting era of this blog and of course also the Financial Crash.

This time, the banks have managed to not really lend any money for a few years so it will be different - it wont be Lloyds, RBS in bother this time.

The car finance mainly sits with the large car companies so it maybe they will be whacked when this end - but still, I am not so worried here as there are very liquid assets here and the finance itself is cheap but the depreciation is such that people will keep paying or else will be very out of pocket.

The BTL's as noted are already in trouble and try getting a mortgage today, near impossible. So the credit impact on the economy will I think coming from stagnant or falling house prices. Given how many of us live by re-mortgaging the value gains to pay credit card debt etc this will be very painful - especially for me! When private sector demand drops then the usual suffering will start - see retail and restaurants that already are buckling.

In the world of finance it will likely be the alternative lenders and new businesses like Zopa and funding circle that suddenly experience a big drop in their repayments and so the easy time they have had attracting funds will end and there could be a run on the alternatives. It will really depend how good their new whizzy credit systems are. Northern Rock said they had amazing new systems too!

Nick Drew said...

@ whizzy credit systems ...

I have seen under the bonnet of many a company's financial risk management systems (in fact, I've implemented more than a few)

Market Risk (Price, Basis etc) is usually handled pretty well. But the very same companies are often crap at Credit RM (it's often a completely different department). Never quite understood why.

Charlie said...

Quite amazing that zombie companies have been able to soldier on for ten years on cheap credit, despite having business models that make them uncompetitive in the modern economy. So long, Maplin. Nice attempt to blame Brexit, when the real problem is that everyone goes into their shops to look at stuff, then orders it on Amazon Prime:

"The business faced the slump in the pound after the Brexit vote, weak consumer confidence and a withdrawal of credit insurance.

These factors made it "impossible" to raise capital, boss Graham Harris said."

rwendland said...

I'm still getting plenty of "0%" credit card transfer offers. Best for Feb was 1.9% fee for 15 months. When they stop issuing those that will be a sign of things to come.

I wonder what % of people are dependent on rolling over large credit card debts every 15 months or so? That will be tough on them.

Anonymous said...

CU: "it wont be Lloyds, RBS in bother this time."

Point of order. RBS has never been out of bother since it got into bother.

rwendland: "I'm still getting plenty of "0%" credit card transfer offers. Best for Feb was 1.9% fee for 15 months."

I get those all the time, 0% credit transfer but 1.9% transfer fee. lol!

Anonymous said...

Why does everyone use Amazon when you can usually get a better price on ebay? Is it the lure of Prime?

Anonymous said...

Anon: " Is it the lure of Prime?"

Prime has no attraction to me. I buy stuff from Amazon occasionally, but I don't need it tomorrow, I can wait for the low / no cost post delivery option.

They keep trying to con me into taking up Prime but I'm not interested.

It's just an attempt to generate revenue. Their margins on everything else they sell are wafer thin. If they get hit by a couple of US fines and tax federal tax evasion fines. Things may change for Amazon quickly.

Charlie said...

"Why does everyone use Amazon when you can usually get a better price on ebay? Is it the lure of Prime?"

Yes. This and easy returns.

On eBay you have to be sure that the seller is genuinely in the UK if you want your goods soonish, they all have different return policies, usually returns are at your cost etc. Half the stuff I've asked to return to Amazon, they've refunded me and told me to keep it. They are usually there or thereabouts on price; yes, stuff can be found cheaper, but not usually by much and you have to take time to shop around, so if you value your time at all, it's Amazon all the way.

To be honest, I don't see the use case for eBay when buying new. If I need something cheap and don't mind when it comes, I'll use AliExpress.

rwendland said...

Charlie, ebay is great for couple of quid stuff from China. Last thing I bought was a stainless steel oven thermometer for 99p, including postage from China or Hong Kong. It works well. I have no idea how they do the postage side of that for so little. Anything posted from the U.S. seems at least £6.

It takes 2 or 3 weeks to arrive, but it seems reliable in the sense it always arrives. Occasionally the item quality is a touch off, but mostly it is fine, and for 99p or so not a big upset. Return hassle is irrelevant as you don't return 99p-ish stuff. Don't think Amazon does that kind of thing.

Anonymous said...

the lure prime?
you can sell bitcoin for vouchers and turn your ill gotten gain into physical stuff.

its not even small beans you can do 2k gbp at a time. try doing that at maplins.