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What Was Edited Out Of The Bank Of England’s Minutes Of The Meeting This Month! What They Thought You Didn’t Need To Know

By Andy Shaw | January 23, 2010

Originally Posted 20th December 2007

Picture the scene… Posh surroundings, The Bank of England boardroom, Mr King is sitting there and in walks the Monetary Policy Committee members, they sit down and Mervyn breaks the silence, ‘Right where do we start?’

To which the entire MPC team cries out, ‘Well we cut bl**dy interest rates that’s where we start otherwise the countries sc***ed!’

Mervyn replies, ‘Do you really think it’s actually necessary?’ At which point they wrestle him to the ground and David Blanchflour sits on Mervyn Kings head and says, ‘Look this is going to be bl**dy unanimous so we’re not getting off until you agree!’

Then Mervyn said in a sort of squashed muffled voice, ‘Ok, ok…if we are going to actually run the economy properly and not just all pop in for 30 seconds and vote each month. Then we’d better now actually start to look at some of the factors that actually affect the economy for the first time! Then maybe we’ll actually be better at our jobs next month too. What’s more if we also minute what we are now looking at as well, then everyone will know we are not complete idiots! So would it be possible for you to get off my head now David as we can now start the meeting as we all know the outcome?’

Obviously that was all kept out of the minutes for understandable reasons. So after Mervyn agrees that the current direction is bo**ocks and he really has been heading the country straight towards a mountain, claiming all the way that well, that was our mandate. He and the team have now finally agreed that inflation even though that’s their primary mandate has to play second fiddle to the impending collapse of the countries economy. As Homer’s brain commented one day, ‘Brrravo!’

In the minutes they actually said that a substantial loosening of policy is needed, which is the BOE’s way of saying, ‘Oopps we got it wrong and need to shift direction fast. Or none of us will be getting a peerage chaps!’

They are even contemplating lowering rates at a larger than 0.25% at a time, and possibly putting a 0.50% cut in place. Which of course would return it to where it should have been left about a year ago (Of course I enjoy being an I told you so person, it is one of the fringe benefits of being a good predictor :-) ), the chances are that because they left it too long in the wrong direction that now they’ll have to go below this ideal figure.

Personally I don’t like the thought of too large a rate change in any direction. I personally think 0.25% is too big a figure anyway and it should be smaller corrections and more often of 0.10% (but what do I know). I think any rate change takes so long to show the effect that fast rate changes in any direction are foolhardy from an economic point of view. That is of course on the understanding that you have a competent navigator at the controls. Clearly with this U turn we are not in this fortunate position as I have been saying for quite some time now.

On a quick side track… I think this succession of bloody noses that Merv has taken in the last few months actually means that he could be a good choice to keep in the job as it may have taught him some valuable humility. But they definitely need to replace a fair few of the members of the committee including Kate Barker as they don’t get it. And she should know better after putting that monumental report together.

Back to the point. So for me as a person who has 80% of his portfolio on discounted rates this will obviously be good news for my monthly payments! But I bet they wish they’d cut the rate by 0.25% when the US cut by 0.50%, that would have shown far greater competency.

But the really good thing from our point of view as property investors was that the LIBOR rate dropped from 6.39 to 6.21. This was also due to the Central Banks dropping money into the economy to create a good market sentiment. Well the lower LIBOR rate is a good thing as it means the lenders will have more confidence, but it doesn’t resolve the underlying problem.

The Underlying Problem

The problem is that there is a huge amount of cash out there, but the banks don’t want to lend it to each other, because they do not believe their balance sheets. This is because of the uncertain amount of bad debt that each bank has in its SIV’s. Then when one bank says they lost £9.4 Billion of write downs, the other Banks don’t believe them and they all don’t trust each others statements.

Now the first rule of lending is you have to know what you are lending against is solid, but as they don’t know, and they are worried that when the end of year figures go in, will they then be a) accurate and b) truthful.

This is the long term problem and I think the only way this is going to be resolved is if the central banks keep dropping money into the markets on reduced security criteria until confidence is regained. Once confidence is regained then the SIV’s can unravel with a little more privacy the way the banks got round the third world debt in the 70’s :-)

So what does all this stuff mean to us then?

Basically, what happened in the meeting this month is pretty earth shattering where it comes to the Bank of England, even though they only made a small direction change, they have indicated a substantial course correction over the next few months. This is big stuff but because we’re British it is played out as low key.

So that means to us as Property Investors is that over the next four to six months we will probably have the problem of rent coverage not being enough removed once again, and we will bring in the problem of there not being enough mortgages to go around! However, that is countered by the fact that everyone thinks the Property Market is a very poor investment right now. So the majority of people who would normally eat up the available mortgages are currently hiding in the pub where they can find the real countries experts on property.

When I wrote my last article, I imagined that the MPC would have had a 5 to 4 vote win and therefore lowered the rate to 5.5%. This would have indicated no rate change in Jan, probably not in Feb, but then 1 in March and probably 1 in May. However, what they’ve done is move the goalposts (which is good news, well it’s all good news in property, as long as you’ve got an interpreter), so I think it is likely that we will probably get upto 3 rate cuts in the first 4 months of next year and we may even get 4 or 5 by the autumn (obviously the usual caveat goes with this as I am trying to predict a group of people that don’t seem all that bright).

So I think that it is unlikely now that we will have more than six months to make hay and buy property before everyone else figures out that it’s actually still performing. And the economy has improved for the contrarian investor from a risk perspective since the minutes of the meeting came out.

In conclusion

Get buying, it don’t get much better than this! :-)

:-) ), the chances are that because they left it too long in the wrong direction that now they’ll have to go below this ideal figure.

Personally I don’t like the thought of too large a rate change in any direction. I personally think 0.25% is too big a figure anyway and it should be smaller corrections and more often of 0.10% (but what do I know). I think any rate change takes so long to show the effect that fast rate changes in any direction are foolhardy from an economic point of view. That is of course on the understanding that you have a competent navigator at the controls. Clearly with this U turn we are not in this fortunate position as I have been saying for quite some time now.

On a quick side track… I think this succession of bloody noses that Merv has taken in the last few months actually means that he could be a good choice to keep in the job as it may have taught him some valuable humility. But they definitely need to replace a fair few of the members of the committee including Kate Barker as they don’t get it. And she should know better after putting that monumental report together.

Back to the point. So for me as a person who has 80% of his portfolio on discounted rates this will obviously be good news for my monthly payments! But I bet they wish they’d cut the rate by 0.25% when the US cut by 0.50%, that would have shown far greater competency.

But the really good thing from our point of view as property investors was that the LIBOR rate dropped from 6.39 to 6.21. This was also due to the Central Banks dropping money into the economy to create a good market sentiment. Well the lower LIBOR rate is a good thing as it means the lenders will have more confidence, but it doesn’t resolve the underlying problem.

The Underlying Problem

The problem is that there is a huge amount of cash out there, but the banks don’t want to lend it to each other, because they do not believe their balance sheets. This is because of the uncertain amount of bad debt that each bank has in its SIV’s. Then when one bank says they lost £9.4 Billion of write downs, the other Banks don’t believe them and they all don’t trust each others statements.

Now the first rule of lending is you have to know what you are lending against is solid, but as they don’t know, and they are worried that when the end of year figures go in, will they then be a) accurate and b) truthful.

This is the long term problem and I think the only way this is going to be resolved is if the central banks keep dropping money into the markets on reduced security criteria until confidence is regained. Once confidence is regained then the SIV’s can unravel with a little more privacy the way the banks got round the third world debt in the 70’s :-)

So what does all this stuff mean to us then?

Basically, what happened in the meeting this month is pretty earth shattering where it comes to the Bank of England, even though they only made a small direction change, they have indicated a substantial course correction over the next few months. This is big stuff but because we’re British it is played out as low key.

So that means to us as Property Investors is that over the next four to six months we will probably have the problem of rent coverage not being enough removed once again, and we will bring in the problem of there not being enough mortgages to go around! However, that is countered by the fact that everyone thinks the Property Market is a very poor investment right now. So the majority of people who would normally eat up the available mortgages are currently hiding in the pub where they can find the real countries experts on property.

When I wrote my last article, I imagined that the MPC would have had a 5 to 4 vote win and therefore lowered the rate to 5.5%. This would have indicated no rate change in Jan, probably not in Feb, but then 1 in March and probably 1 in May. However, what they’ve done is move the goalposts (which is good news, well it’s all good news in property, as long as you’ve got an interpreter), so I think it is likely that we will probably get upto 3 rate cuts in the first 4 months of next year and we may even get 4 or 5 by the autumn (obviously the usual caveat goes with this as I am trying to predict a group of people that don’t seem all that bright).

So I think that it is unlikely now that we will have more than six months to make hay and buy property before everyone else figures out that it’s actually still performing. And the economy has improved for the contrarian investor from a risk perspective since the minutes of the meeting came out.

In conclusion

Get buying, it don’t get much better than this! :-)

So what does all this stuff mean to us then?

Basically, what happened in the meeting this month is pretty earth shattering where it comes to the Bank of England, even though they only made a small direction change, they have indicated a substantial course correction over the next few months. This is big stuff but because we’re British it is played out as low key.

So that means to us as Property Investors is that over the next four to six months we will probably have the problem of rent coverage not being enough removed once again, and we will bring in the problem of there not being enough mortgages to go around! However, that is countered by the fact that everyone thinks the Property Market is a very poor investment right now. So the majority of people who would normally eat up the available mortgages are currently hiding in the pub where they can find the real countries experts on property.

When I wrote my last article, I imagined that the MPC would have had a 5 to 4 vote win and therefore lowered the rate to 5.5%. This would have indicated no rate change in Jan, probably not in Feb, but then 1 in March and probably 1 in May. However, what they’ve done is move the goalposts (which is good news, well it’s all good news in property, as long as you’ve got an interpreter), so I think it is likely that we will probably get upto 3 rate cuts in the first 4 months of next year and we may even get 4 or 5 by the autumn (obviously the usual caveat goes with this as I am trying to predict a group of people that don’t seem all that bright).

So I think that it is unlikely now that we will have more than six months to make hay and buy property before everyone else figures out that it’s actually still performing. And the economy has improved for the contrarian investor from a risk perspective since the minutes of the meeting came out.

In conclusion

Get buying, it don’t get much better than this! :-)

Best wishes

Andy

PS When he arrived home that night Mrs King said to Merv, ‘How did your day go dear?’, Merv replied, ‘Would you believe David Blanchflour actually sat on my head until I agreed to vote for a rate cut!’

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