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Is this the end of the ultra-low interest rates era?

Discussion in 'Property Market Economics' started by spark, 10th Jan, 2016.

  1. spark

    spark New Member

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    Is this the end of the ultra-low interest rates era?
    Capital flight pushes China to brink of devaluation

    If the chinese "glut" of savings is depleting, wouldn't it put an international higher price (that is higher interest rates) on available funds?
    What happened to IRs worldwide during the Asian Crisis of 1997?
     
  2. Ted Varrick

    Ted Varrick Well-Known Member

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    A difficult decision could be necessary.

    I genuinely have no idea, but maybe if you liquidate and hide all your cash under the bed, some extra security may be a good idea.

    Alternatively, if you buy whatever Warren is buying, then that may not be a bad idea either.

    On the other hand, given a bunch of oil and iron ore stocks seem to be classified by others as 'toast', then in the "buy low and sell high" point of view, some prudence could prevail.

    Or not. Who can tell?
     
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  3. Graeme

    Graeme Well-Known Member

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    I heard a prediction that the market turbulence caused by China might slow the Fed in raising rates. That would mean two or three quarter point increases rather than the predicted four.

    Since the US rate tends to be what everything else is priced off, that would suggest there might be an extension to ultra-low rates.

    However there's also the chance that lenders will become more cautious, and raise rates on their own to cover their risk.
     
  4. wogitalia

    wogitalia Well-Known Member

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    I think the Fed realises they've printed just about as much money as they can and they've used inflation for about as long as possible to contain their debt. Should be interesting because economics doesn't really cover what the world is currently doing with any kind of certainty!
     
  5. MarkB

    MarkB Some guy on the internet Premium Member

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    They didn't actually "print money" - but they did purchase some (admittedly questionable) assets that were sitting on banks balance sheets.

    (It had the same effect as increasing the money supply since it flushed some much needed liquidity into the system, but it was not as nefarious as literally running the printing presses).

    The inflation rate (and hence interest rates) have been low of late, so that has helped their debt in that sense.

    But - if they can balance or just about balance their books (a big "if" I admit) - then higher inflation isn't that bad for them since it reduces the real value of the debt (it is the "inflate the debt away" school of thought).

    Like what we property investors do... take out an IO mortgage for $300k against an asset that keeps pace (and then some) with inflation.... fast forward a few years and your $300k mortgage isn't as big a deal as it used to be.

    Though it could take some time to inflate away an $18+ trillion debt.

    Indeed.
     
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  6. Kangabanga

    Kangabanga Well-Known Member

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    Hong Kong Yuan Interbank Rates Jump by Records to All-Time Highs
    [The overnight Hong Kong Interbank Offered Rate surged 939 basis points to 13.4 percent on Monday, the highest since the Treasury Markets Association started compiling fixings in June 2013. The one-week rate jumped 417 basis points to 11.23 percent.]

    [The offshore yuan’s 1.7 percent decline last week pushed its discount to the Shanghai price to a record, prompting the International Monetary Fund to say that it will discuss the widening spread with the authorities. The gap was last at 1.4 percent.]

    --- with a interbank rate of 13.4% when everyone else is doing very low single digits interest rates, something must be going on in their economy that's either very right or very wrong.. Yuan is probably gonna get shorted way down once they start floating it proper.
     
  7. Speede

    Speede Well-Known Member

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    RIP China.
     
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  8. Omnidragon

    Omnidragon Well-Known Member

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    Meh scare mongering as always. In 10 years time people will be talking about how they can buy baba at $60.
     
  9. Graeme

    Graeme Well-Known Member

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  10. wogitalia

    wogitalia Well-Known Member

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    In short... the reserve banks around the world have broken the core mechanism of monetary policy and we are now wading blindly into the great unknown of what comes when you meddle so deeply with the free market that it becomes a broken mess operating outside it's understood parameters.

    From a purely economic theory position it's going to be fascinating to watch.

    In a lot of ways it's a microcosm of our society in general. We can't have people fail, feelings hurt or endure any difficulty and this has expanded to the economy, we can no longer have natural recessions because the reserve banks refuse to allow the free market to act naturally and avoid it at all costs (in this case they've broken off the steering wheel). Gone are the days of the "recession we have to have" and we're now in the "avoid it at all costs because it isn't "good"" mode.
     
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  11. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    I'll just leave this here.

    curve.png
     
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  12. wogitalia

    wogitalia Well-Known Member

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    What's that one actually showing?
     
  13. MarkB

    MarkB Some guy on the internet Premium Member

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    The title says it all... the yield curve for the cash rate as currently implied in the futures market. The graph is updated daily and can be viewed here.

    More specifically it could be read as there being the expectation that the OCR will be at or below 1.75% by July 2016 (or 50% chance of 1.75% by March / April).

    The graph has been more or less consistent in its negative yield for the last 6 months or so.

    The RBA is still sitting on 2% though, isn't it.

    (What people expect isn't always what they get - not even in economics).
     
  14. MarkB

    MarkB Some guy on the internet Premium Member

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    And I see that Bill Evans at Westpac (my personal fave AU economist) continues to stick with his 2% cash rate forecast (see p. 7 - Economic & financial forecasts).

    Onya Bill.
     
  15. monty

    monty Well-Known Member

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    Just heard HSBC chief economist Paul Bloxham on the radio saying that he thinks a rate cut is a possibility later this year and that we can be fairly certain interest rates aren't going up any time this year or even further.
     
  16. MarkB

    MarkB Some guy on the internet Premium Member

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    See what he did there?
     
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  17. Omnidragon

    Omnidragon Well-Known Member

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    I guess that's why he's an advisor rather than a billionaire
     
  18. MarkB

    MarkB Some guy on the internet Premium Member

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    The CPI figure for the December 2015 Quarter is due to be released in a couple of hours -

    Stephen Koukoulas ‏@TheKouk 19h19 hours ago
    Inflation data for Dec Qtr tomorrow. Will be low enough to keep rate cut flunkies on edge. But RBA too wise to cut given the growth outlook.
     
  19. Speede

    Speede Well-Known Member

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    What will / is going 2 push rates up down under? mining boom now over and china tanking...I can't see any higher rates for a very long time.
     
  20. Ted Varrick

    Ted Varrick Well-Known Member

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    Maybe it would be traders in the corporate bond market who reassess the definition of risk?

    ie. You like me to buy your corporate bonds at 2.5% but I'd really like to buy them at 5% yield.

    Given we are ways apart maybe it's time to defer to Andrew O'Keefe and ask "Deal or no deal?"

    The latter sounds more logical.