Bank of England

Chart of the Year – CAPE Index signals negative S&P 500 returns to 2030

Each year, it seems there is only one candidate for Chart of the Year. And 2020 is no exception. It has to be the CAPE Index developed by Nobel Prize winner, Prof Robert Shiller.  As the chart shows, it is nearly at an all-time high with Tesla’s addition to the S&P 500. Only the peak

Debt, deflation, demographics and Brexit set to challenge London house prices

London property websites haven’t used the word “reduced” for many years. But it’s starting to appear again on homes for sale and rent, even in core city postcodes. And in another sign of the downturn, homes can now be on offer for months without moving. The problem is that prices were already ready to tumble

London house prices edge closer to a tumble

After the excitement of Wimbledon tennis and a cricket World Cup final, Londoners were back to their favourite conversation topic last week – house prices. But now the news has become bittersweet as the price decline starts to accelerate. As the London Evening Standard headline confirms: “The London property slump has dramatically accelerated with prices

The BoE’s pre-emptive strike is not without risk

The Financial Times has kindly printed my letter below, arguing that it seems the default answer to almost any economic question has now become “more stimulus” from the central bank. After 15 years of subprime lending and then quantitative easing, last week’s warning from the Bank of England suggests there are fewer and fewer economic

London house prices slip as supply/demand balances change

London house prices are “falling at the fastest rate in almost a decade” according to major property lender, Nationwide.  And almost 40% of new-build sales were to bulk buyers at discounts of up to 30%, according of researchers, Molior.  As the CEO of builders Crest Nicholson told the Financial Times:  “We did this sale because we […]

The post London house prices slip as supply/demand balances change appeared first on Chemicals & The Economy.

London house prices risk perfect storm as interest rates rise

2000 should have been the natural end of the BabyBoomer-led economic SuperCycle. The oldest Boomer (born in 1946) was about to leave the Wealth Creator 25 – 54 age group that drives consumer spending and hence economic growth.  And since 1970, Boomer women’s fertility rates had been below replacement level (2.1 babies/woman).  So relatively fewer young people were […]

The post London house prices risk perfect storm as interest rates rise appeared first on Chemicals & The Economy.

Interest rates and London house prices begin return to reality

Global interest rates have fallen dramatically over the past 25 years, as the chart shows for government 10-year bonds:   UK rates peaked at 9% in 1995 and are now down at 1%: US rates peaked at 8% and are now at 2%   German rates peaked at 8% and are now down to 0%: […]

Debt, demographics set to destroy Trump’s GDP growth dream

Unsurprisingly, Friday’s US GDP report showed Q1 growth was just 0.7%, as the New York Times reported: “The U.S. economy turned in the weakest performance in three years in the January-March quarter as consumers sharply slowed their spending. The result fell far short of President Donald Trump’s ambitious growth targets and underscores the challenges of […]

US GDP growth stalls with participation rates near all-time low

US GDP growth is slowing, again, as the chart of the Atlanta Federal Reserve’s “GDP Now” forecast shows:    Forecast Q1 growth has slipped to just 0.6% from an initial 3.4% at the end of January    Consensus economic forecasts are still much higher, but even they have fallen to 1.7% from 2.2% […]

UK consumers face difficult times as Brexit unwinds the housing bubble, and financial services de-cluster out of London

Brexit negotiations are likely to prove a very uncomfortable ride for UK consumers as Russell Napier of Eric, the online research platform, warned last week: □  ”Public sector debt remains at near-historic highs (in peace time!) and for the first time this public sector debt comes with a private sector bubble □  Credit card debt […]

London housing market hit by Brexit, China’s capital controls

London’s housing market was always going to have a difficult 2017. As I noted 2 years ago, developers were planning 54,000 new luxury homes at prices of £1m+ ($1.25m) in central London, which would mainly start to flood onto the market this year. They weren’t bothered by the fact that only 3900 homes were sold […]

Monetary policy reaches sell-by date for managing the economy

Monetary policy used to be the main focus for running the economy.  If demand and inflation rose too quickly, then interest rates would be raised to cool things down.  When demand and inflation slowed, interest rates would be reduced to encourage “pent-up demand” to return. After the start of the Financial Crisis, central banks promised […]

“Demographics in mainstream economics has been under-emphasized for too long” – Andy Haldane, Chief Economist, Bank of England

“Will economists start to consider demographics when making their forecasts and developing government policies?” This was the question on my mind at a recent discussion on the topic of “An economy that works for everyone” at the UK’s Institute for Government.  The speaker was the Chief Economist of the Bank of England, Andy Haldane, and the Institute’s […]

Recession the base case scenario for 2017

It is hard to be optimistic about the outlook for 2017. The good news is that policymakers are finally giving up on the idea that stimulus can somehow return us to the growth levels seen when the Baby Boomers were young.  As the Bank of England note in a new Report:   ”Economic theory suggests that a […]

London house prices start their collapse

London’s house market has been slowing for some time, as I noted last year.  The issue is affordability.  Artificially low interest rates make the monthly payment seem cheap.  But the key question is whether your salary will allow you to repay the capital borrowed over time. Sadly, this has become increasingly impossible for many actual […]

Bank of England’s new stimulus policy creates bankruptcy risk for corporate pension funds

The Western BabyBoomers (born between 1946-70), have been one of the luckiest generations in history.  By and large, they have escaped the major wars that have plagued society down the ages.  They have also lived in a world where living standards and material wealth have made astonishing gains.  Equally priceless has been the rise in […]

Brexit a disaster for the UK, Europe and the world

First, the good news.  It has long been recognised that the UK economy is over-dependent on financial services, and that its housing market – particularly in London – is wildly over-priced in relation to earnings.  The Brexit vote should ensure that both these problems are solved: Many banks and financial institutions are already planning to […]

Oil market speculators profit as central banks hand out free cash

Oil markets are entering a very dangerous phase.  Already, many US energy companies have gone bankrupt, having believed that $100/bbl prices would justify their drilling costs.  Now the pain is moving downstream. The problem is the central banks.  Hedge funds have piled into the oil futures markets since January, betting that there would be lots […]

If only the central banks could print babies

The Financial Times has kindly printed my letter below, arguing that central bank stimulus can’t restore growth to previous Super Cycle levels. Sir, John Plender’s excellent analysis “Central banks’ waning credibility is the real threat to confidence” (Insight, February 17) highlights the need for a new narrative to explain the economic slowdown of recent years. […]

Tokyo, Shanghai stock markets crash; yen rises 8% in 2 weeks

Pity poor Janet Yellen, you might say.  The head of the US Federal Reserve told the Senate this week that she had been “quite surprised” by the collapse of oil prices since mid-2014.  And she added that the rise of the US$ was similarly “not something that we had expected” (you can see the testimony […]

Great Unwinding sees oil fall 65%; US$ rise 22%; US 10-year rates rise 25%

The Great Unwinding of policymaker stimulus was the major issue in financial markets in 2015.  And it is set to have even greater impact in 2016 once Phase 3 begins.  The chart above highlights the astonishing changes that have taken place since the Unwinding began in mid-August 2014; Phase 1 has so far seen Brent […]

Shiller warning suggests S&P 500 bubble coming to an end

Nobel Prizewinner Prof Robert Shiller correctly forecast the dot-com collapse in 2000, and the 2008 financial Crisis, using the chart above.  Now he is warning we risk a 3rd collapse. The problem is that Western central banks have undertaken the largest financial experiment in history.  Their policy has been to boost financial markets, particularly the US S&P 500 – the world’s […]

US dollar rises as investors worry low-cost money may disappear

Nobody knows how the Great Unwinding of central bank stimulus policies will develop.  The world has simply never been in this position before.  Thus the senior economics and business correspondent of the Financial Times, John Plender, began an article this week: “In a market where asset prices are comprehensively rigged by central bankers, rational investment […]

Bond investors embrace the 3 Normals

Sometimes the blog gets lucky with its timing.  That was certainly the case when it spoke to the world’s leading bond investors last week.  Just an hour before, they had been shocked by news that US GDP had fallen by 2.9% in Q1, far worse than earlier estimates.  And nobody believed the official excuse that […]

“Reservations are no longer necessary at many high-end restaurants”

Think back a moment to September 16 2008.  Newly released transcripts analysed by the Wall Street Journal and Financial Times reveal for the first time what was really going on that day at the world’s most important central bank. Lehman Bros, one of Wall Street’s largest investment banks, had just gone bust.  Merrill Lynch, another giant, had […]

“Bad news barrage sinks New Year consensus”

Markets stopped operating in their true role of providing price discovery sometime ago.  Instead, they became dominated by the central banks, determined to prove their theory that increased asset values can stimulate sustained economic recovery. They, of course, have the firepower to bend markets to their will.  Nobody else could have spent $16tn in this manner […]

You can’t print babies to create new demand

What would you have done 5 years ago, in 2009, if you had been given $16tn to restore global economic growth? Would you have boosted spending in areas such as education, health and infrastructure in the belief this would create a sustained boost to economic capability?  Would you have cut taxes in order to encourage entrepreneurs to develop new businesses and promote […]

Central banks pop champagne corks as stock markets soar

Central bankers mean well. But, of course, good intentions do not guarantee good results.

Their intention since the start of the 2008 crisis has been to boost financial markets. They have therefore provided $tns of liquidity, which has indeed produc…

Barclays CEO finally resigns

Bob Diamond, Barclays CEO, has finally resigned this morning. It is a scandal that he, or any of the Bank’s Board, ever thought that he could hold onto his job. He was, after all, head of Barclays Capital when the fixing of LIBOR rates took place.

I…