Oh well I did say, and I have no idea why commentators in the media expected another small rise of 0.25%. Interest rates are still below the rate of inflation meaning interest rate policy is still too loose, and I predicted that rates will need to be more aggressive and get to a minimum of 5.5-6% before we will see things working. Why many experts thought 4-5% was adequate for this year is quite beyond me. Well here we are - an aggressive 0.5% rise to 5%. Still not aggressive enough to fix the problem in my book, but at least they recognised that 0.25% would have the effect of peeing in the Atlantic.

That was before we saw the higher than expected inflation numbers this week, staying around 8.5% mark. If this inflation number does not drop we may need to see 6.5-8% interest rates over the next twelve months until it works and inflation drops to 2-3%. Given that mortgage rates are driven off swap rates (1-2% spread) and swap rates of interest rates, I think 2-3 year fixed rate mortgages could be 7-9% by year end unless the inflation rate drops.

In the 1990s Norman Lamont was insensitive, but quite correct to say that “If it isn’t hurting it isn’t working”. An awful choice of words, but it proved to be prescient. Until that inflation rate drops below the interest rate ls, or start to come down quick enough, interest rates will keep going north.

The IMF, Treasury, central banks and so called experts have got this wrong all the way. It shows how poor they are. Get a PhD out of academia and straight into an institution. No markets experience at all, or working with money. Just old bunk textbooks that are past their sell by date. In the City of London the truth is that traders and hedge funds have skin in the game and money on the line. They can’t afford to mix social policy and politics with economics and the subjects are best kept apart, or they will get their trading and investments wrong and lose money. The academic economists in institutions such as the OECD, IMF and Treasury mix it with social policy concerns and politics - they can bark off as much as they want an produce reams and reams of “papers” and “publications” that most traders see as free toilet paper. Only the economists employed by hedge funds and investment banks have papers read by traders, and even then they are often treated with an air of scepticism. If academics get forecasts wrong who cares? Jobs are protected and they often move into politics like Rachel Reeves. Get it wrong in a bank, a trading floor or a hedge fund and you get sacked or moved on. No room for error. The media is also all over the place in its commentary and don’t seem to have the practical knowledge nor tools to make sense of what is happening.

As I have highlighted in the threads below the stock market and cyclical industries such as construction, residential and commercial real estate, chemicals sector and estate agents stocks would take a hit. Today it proved to be the case again, looking at the sector charts for the FTSE. Unfortunately, more pain to come.

There seems to be one person that stands out to me that understands what is going on, and I took the hint from her speech this week. She has warned for ages and she has been spot on. Catherine Mann. Old school. Grey hairs. Like Eddie George and Mervyn King - a proper central banker. She isn’t one of these modern plebs who thinks an econometric spreadsheet holds the answers. She goes on history and a monetarist and markets understanding of what was required. Follow her words and she will be a good forecasts as to what is happening. Disciplined, clever and tough character. Watch her words closely as her words have been the best predictor of what the Monetary Policy Committee will do in the last twelve months.

This pain will continue for another 6-18 months as far as I can see. Stick that prediction on a bookmark. Tinhats on please. As they say in boxing, “Gloves up, and protect yourself at all times”.


https://www.ccmb.co.uk/showthread.ph...t-8-7-per-cent

https://www.ccmb.co.uk/showthread.ph...g-of-economics

https://www.ccmb.co.uk/showthread.ph...e-naffed/page3