The Official Liz Truss no longer PM but still a Clusterfuck thread

[coprolite]

3 minutes ago, aDONisSheep said:

In fairness to the pension funds, by nature they have to invest in order to pay out pensions (both current and future).  The fundamental problem was that they'd taken 'prudent' investments in the UK Gilts (Gov Bonds), these were seen as stable investments with little volatility.  They gave a 'safe' return with little movement in the underlying value of the bonds (so attracted less hedging costs etc).

They (GILTS) were admittedly coming under pressure as inflation picked up and, the US started raising its interest rates, but still manageable, then...  KamiKwasi said "hold my fackin beer" and spooked the market.  Almost immediately rates rose as a 'moron premium' was required by buyers, which meant that Pension funds had to sell at a discount in order to raise the cash required to pay pensions.  The important thing here is that they HAD to sell, which is a terrible position to be in, this then fuelled a downward price spiral until the BoE stepped in and bought the bonds back.

So in summary the problems didn't stem from investing in high risk/high reward start ups or low credit/fast fluctuating markets.  It came from investing in some of the traditionally most stable parts of the economy.

In the long run, those of us with a bit of time to go before we take our pensions might see a bounce, as our money is currently being invested in higher yield bonds.  But in the short term, it's an absolute Trusstastropy.

Yours

aDONis

 

 

Investing the funds directly in the full value of gilts would have been low risk. By investing on margin accounts they've effectively turned their investment into a gilt based derivative with a completely different risk profile- higher yield but with a liquidity risk on the downside that's just not there on unleveraged bonds. 

[Leith Green]

8 minutes ago, coprolite said:

Investing the funds directly in the full value of gilts would have been low risk. By investing on margin accounts they've effectively turned their investment into a gilt based derivative with a completely different risk profile- higher yield but with a liquidity risk on the downside that's just not there on unleveraged bonds. 

Aye, but then the employers wouldnt have been able to take premium holidays saving themselves £millions........................

[Theroadlesstravelled]

16 minutes ago, Clown Job said:

Tory UK

 

Immigants - I knew it was them! Even when it was Labour, I knew it was them!

 

[Detournement]

21 minutes ago, aDONisSheep said:

In fairness to the pension funds, by nature they have to invest in order to pay out pensions (both current and future).  The fundamental problem was that they'd taken 'prudent' investments in the UK Gilts (Gov Bonds), these were seen as stable investments with little volatility.  They gave a 'safe' return with little movement in the underlying value of the bonds (so attracted less hedging costs etc).

They (GILTS) were admittedly coming under pressure as inflation picked up and, the US started raising its interest rates, but still manageable, then...  KamiKwasi said "hold my fackin beer" and spooked the market.  Almost immediately rates rose as a 'moron premium' was required by buyers, which meant that Pension funds had to sell at a discount in order to raise the cash required to pay pensions.  The important thing here is that they HAD to sell, which is a terrible position to be in, this then fuelled a downward price spiral until the BoE stepped in and bought the bonds back.

So in summary the problems didn't stem from investing in high risk/high reward start ups or low credit/fast fluctuating markets.  It came from investing in some of the traditionally most stable parts of the economy.

 

 

 

I don't think that's what happened. The FT said pension funds were doing leveraged derivative trading using UK government gilts as capital. That's clearly not a safe and reliable method of investing. 

What actually happened isn't at all clear but it isn't what you describe. Pension funds don't sell long term government bonds to make their monthly payments. 

I suspect the scheduled end of QE played a big part here and there was effectively a game of chicken between the markets and the BoE about whether the bond buying program would end.

 

[Detournement]

Just looking at it. The day interest rates were put up an extra £80 billion of QE was announced and then the Friday cut off deadline added another £18 billion.

So an extra £98 billion of bond purchases in the space of 3 weeks (15% of total QE) which will result in huge personal payouts for fund managers and bankers. 

The BoE has also delayed beginning Quantative Tightening (again). Which means that the entire program is on repeat so that's billions and billions more free money for the financal sector. 

Edited October 18, 2022 by Detournement

[strichener]

2 minutes ago, Detournement said:

Just looking at it. The day interest rates were put up an extra £80 billion of QE was announced and then the Friday cut off deadline added another £18 billion.

So an extra £98 billion of bond purchases in the space of 3 weeks (15% of total QE) which will result in huge personal payouts for fund managers and bankers. 

The BoE has also delayed beginning Quantative Tightening (again). Which means that the entire program is on repeat so that's billions and billions more free money for the financal sector. 

I am sure that I read that only about £7bln was actually spent before the Friday deadline.

Edited October 18, 2022 by strichener

[Monkey Tennis]

3 hours ago, coprolite said:

 

Radio vox pops are increasingly terrifying. Where do they get these fuckwits. Barely coherent, no apparent understanding of reality but able to vote.

Your last bit is the point.

I constantly find myself shouting at the telly "Why are you asking the opinions of these ignorant fuckwits who never give politics any thought at all?"

The answer of course is that these opinions matter hugely. 

 I don't have a better idea, but it's bloody depressing.

[Detournement]

18 minutes ago, strichener said:

I am sure that I read that only about £7bln was actually spent before the Friday deadline.

 

[aDONisSheep]

18 minutes ago, coprolite said:

Investing the funds directly in the full value of gilts would have been low risk. By investing on margin accounts they've effectively turned their investment into a gilt based derivative with a completely different risk profile- higher yield but with a liquidity risk on the downside that's just not there on unleveraged bonds. 

I can see the argument, but having a margin account in itself is not the issue, it may mean that the pension funds are more highly geared, but it's not that radically different to being self funded.  That said, it certainly didn't help, because it places even more immediate demand on the pension funds to repay the Investment Banks, but at their core margin accounts are a valid source of investment funding.

It still comes back to the fundamental problem,  that the rise in interest rates meant that their bond holdings were worth less, they needed cash for both pensions and to repay their investment banks (who were making margin calls).

 

4 minutes ago, Detournement said:

I don't think that's what happened. The FT said pension funds were doing leveraged derivative trading using UK government gilts as capital. That's clearly not a safe and reliable method of investing. 

What actually happened isn't at all clear but it isn't what you describe. Pension funds don't sell long term government bonds to make their monthly payments. 

I suspect the scheduled end of QE played a big part here and there was effectively a game of chicken between the markets and the BoE about whether the bond buying program would end.

 

They do trade in bonds all the time, bonds are just another investment vehicle, but issued by the government rather than being issued by a company (shares etc).  That's why the BoE stepped in and started buying up the bonds.  The other thing to remember is that although at issue they are seen as 'long term', every day that passes they become shorter term holdings.  If you think inflation is going to rise, why would you hold low yield bonds, over time their underlying value will be eaten away, and new bond issues will offer higher rates.

I thought this was quite a good take on it; https://www.investmentweek.co.uk/opinion/4057865/gilt-charged-pension-funds-margin-sophistication

One of my favourite podcasts is The Bunker and they had an episode; https://play.acast.com/s/the-bunker/c7b47f98-4bd1-11ed-a1b4-b713e67fec96

The problem with all investment markets, is that they are largely built on 'confidence' which is why they bloody spook and crash.  Intellectually and theoretically, the market are supposed to take take in all the information and make a judgement...  but if that worked, nobody would make or lose money on investments because we'd all make the same decisions.   

I'm not excusing the pension funds, they royally fucked up, but I can understand why they were caught out.

Yours

aDONis

[Detournement]

6 minutes ago, Monkey Tennis said:

Your last bit is the point.

I constantly find myself shouting at the telly "Why are you asking the opinions of these ignorant fuckwits who never give politics any thought at all?"

The answer of course is that these opinions matter hugely. 

 I don't have a better idea, but it's bloody depressing.

They need to fill the 30 minute news programs with something and it can't be facts or analysis. 

Having ordinary people parrot the BBC editorial line to millions of viewers must be considered a good propaganda tool.

[Monkey Tennis]

1 minute ago, Detournement said:

They need to fill the 30 minute news programs with something and it can't be facts or analysis. 

Having ordinary people parrot the BBC editorial line to millions of viewers must be considered a good propaganda tool.

It's not just that though.

These profoundly irrelevant opinions are in fact highly relevant. 

It's not a practice confined to the BBC anyway.

[Detournement]

2 minutes ago, aDONisSheep said:

 

It still comes back to the fundamental problem,  that the rise in interest rates meant that their bond holdings were worth less, they needed cash for both pensions and to repay their investment banks (who were making margin calls).

 If you think inflation is going to rise, why would you hold low yield bonds, over time their underlying value will be eaten away, and new bond issues will offer higher rates.

Intellectually and theoretically, the market are supposed to take take in all the information and make a judgement...  but if that worked, nobody would make or lose money on investments because we'd all make the same decisions.   

It's obvious though that what has happened here is that they considered all the information involved and realised that the best thing to do was bet big on margin and if it goes tits up the BoE will bail you out. 

Why they bought the low yield bonds is the same answer. Because if rates go back up then the government will just buy them back. 

Since 2008 the financial markets have been bailed out or floated with QE to the extent of well over a trillion pounds. Milking the government teat is the name of the game.

[aDONisSheep]

3 minutes ago, Detournement said:

It's obvious though that what has happened here is that they considered all the information involved and realised that the best thing to do was bet big on margin and if it goes tits up the BoE will bail you out. 

Why they bought the low yield bonds is the same answer. Because if rates go back up then the government will just buy them back. 

Since 2008 the financial markets have been bailed out or floated with QE to the extent of well over a trillion pounds. Milking the government teat is the name of the game.

I'm not quite that cynical, but I do hear you. 

I do think they went to sleep though on the prospect of our government making an increasingly difficult situation significantly worse.  They obviously had too many eggs in this one basket(case).  See what I did there.

To me this is not like 2007, where an unregulated market had been and still was taking huge lending risks on obviously bad investments, then trying to hide and offload the bodies, in successions of opaque financial instruments, playing pass the shit-bad-debt-parcel.

I'm not close enough to the market to know if we'd have reached a tipping point at some point in the future, but we certainly didn't need some libertarian cuckholds delivering a massive shove over the edge and into an abyss.

Yours

aDONis

[Detournement]

3 minutes ago, aDONisSheep said:

I'm not quite that cynical, but I do hear you. 

I do think they went to sleep though on the prospect of our government making an increasingly difficult situation significantly worse.  They obviously had too many eggs in this one basket(case).  See what I did there.

To me this is not like 2007, where an unregulated market had been and still was taking huge lending risks on obviously bad investments, then trying to hide and offload the bodies, in successions of opaque financial instruments, playing pass the shit-bad-debt-parcel.

I'm not close enough to the market to know if we'd have reached a tipping point at some point in the future, but we certainly didn't need some libertarian cuckholds delivering a massive shove over the edge and into an abyss.

Yours

aDONis

The BoE has been promising to jack up interest rates since before Covid so that doesn't fly.

The funds being stuck with losing positions in shitty bonds no one wants just as QE ends wasn't Kwarteng's fault. 

[Fullerene]

4 hours ago, coprolite said:

Radio vox pops are increasingly terrifying. Where do they get these fuckwits. Barely coherent, no apparent understanding of reality but able to vote.

I thought you were all being very beastly about this whole concept and decided to carry out my own research.

I headed into the centre of Inverness and tried to interview as many people as I could to see if there really was a concern or not.

I asked "Is Vox Pop an acceptable way to judge the mood of the nation?"

The outcome was 2 said Yes and 1 said No.  I think that is fairly conclusive.

[Father Ted]

[Granny Danger]

15 minutes ago, Fullerene said:

I thought you were all being very beastly about this whole concept and decided to carry out my own research.

I headed into the centre of Inverness and tried to interview as many people as I could to see if there really was a concern or not.

I asked "Is Vox Pop an acceptable way to judge the mood of the nation?"

The outcome was 2 said Yes and 1 said No.  I think that is fairly conclusive.

Inverness?  I think that answers @coprolite’s question “Where do they get these fuckwits?”

[coprolite]

22 minutes ago, Fullerene said:

I thought you were all being very beastly about this whole concept and decided to carry out my own research.

I headed into the centre of Inverness and tried to interview as many people as I could to see if there really was a concern or not.

I asked "Is Vox Pop an acceptable way to judge the mood of the nation?"

The outcome was 2 said Yes and 1 said No.  I think that is fairly conclusive.

The real outcome of this survey would be two "don't know"s and one "i liked their first album". 

[aDONisSheep]

41 minutes ago, Detournement said:

The BoE has been promising to jack up interest rates since before Covid so that doesn't fly.

The funds being stuck with losing positions in shitty bonds no one wants just as QE ends wasn't Kwarteng's fault. 

 

I'm not disputing what the BoE had been saying, but they manage messages in coherent way.  Remember if the market is warmed up to something it can make adjustments.  It's surprises that cause the most problems.

As I said in my first reply, the position was worsening, the BoE announced a rise in base rate of 0.5% (which is quite big for the BoE, but not unexpected), the Fed was raising its rates, these both caused a worsening in the Bond Markets, but then the very next day the mini-budget was announced, and the shiiiiiiiiittt hit the fan!  Gilt rates jumped by over 1.0% in a day IIRC, which may not sound like much but is a fukkin huge shock and there was a real fear that worse was yet to come.  That leads to Margin calls, pension funds having to realise cash in very short order, which means they are selling when no-one is buying yadah, yadah, yadah (see my earlier posts).

As I said, I don't know the market well enough to state that none of this would ever have happened without the economic suicide pact mini-budget, but the mini-budget all but guaranteed that we were going over the top into hostile territory.

Yours, mixing my metaphors

aDONis

[coprolite]

47 minutes ago, aDONisSheep said:

I'm not quite that cynical, but I do hear you. 

I do think they went to sleep though on the prospect of our government making an increasingly difficult situation significantly worse.  They obviously had too many eggs in this one basket(case).  See what I did there.

To me this is not like 2007, where an unregulated market had been and still was taking huge lending risks on obviously bad investments, then trying to hide and offload the bodies, in successions of opaque financial instruments, playing pass the shit-bad-debt-parcel.

I'm not close enough to the market to know if we'd have reached a tipping point at some point in the future, but we certainly didn't need some libertarian cuckholds delivering a massive shove over the edge and into an abyss.

Yours

aDONis

It's not like 2007 in scale or degree, but the principle is the same. The cost of misjudged/ mispriced risk which has benefitted the managers that took those risks is being borne by society at large, through inflation and the resulting interest rate rises.