Simon Ward - Money Moves Markets - Comments

Simon Ward comments on Q&A on the global outlook (part 3)

Simon Ward — Fri, 15 Aug 2008 14:15:12 +0000

Yes, assuming the slowdown in monetary growth continues, as seems likely, and the euro does not weaken dramatically further. I think annual M3 growth needs to fall below 8% (currently 9.5%) to be consistent with inflation returning to 2% over the medium term.

Vicente comments on Q&A on the global outlook (part 3)

Vicente — Fri, 15 Aug 2008 11:05:37 +0000

Hi Simon,
do you think the ECB should lower interest rates this year?

Manoj White comments on Are banks suppressing LIBOR fixings?

Manoj White — Wed, 21 May 2008 21:21:12 +0000

The BBA is already planning to restructure the Libor, it is reported by bloomberg and International Herald Tribune. But the important question is: what is the implication of the recast of Libor on other markets, especially the emerging markets. Because, the companies in the emerging markets, which borrow from overseas markets, will have to pay higher borrowing costs. The Libor recast will also result in a hit on the margins of the banks in the emerging countries, which are intermediaries basically.

michael crowley comments on UK inflation overshoot reflects monetary excess not commodity price strength

michael crowley — Mon, 19 May 2008 13:30:16 +0000

Hopefully, the MPC will be as spectacularly successful at meeting its inflation target over the next ten years as it has been over the past decade. Between 1997 and 2003 RPIX inflation averaged 2.4%, in line with its target. Since 2004, incidentally, it has averaged 2.7%, which is in line with the target of 2.8% for RPIX that would be consistent with the current CPI target of 2%.As for the latter itself, it has averaged 2.1% since 2004. To talk of institutional arrangements having failed to anchor inflation is as absurd as it is wrong. There is no reason to doubt the MPC.

Julian D. A. Wiseman comments on Swap scheme details suggest disappointing impact

Julian D. A. Wiseman — Tue, 22 Apr 2008 11:40:29 +0000

The fee is indeed large. So large that the facility will be useful only to banks unable to borrow enough at Libor. Hence market participants will know that those holding lots of T-Bills, whether selling them or using as collateral, are the weak banks unable to borrow. The linked article discusses this possible stigmatisation of UK T-Bills:

http://www.jdawiseman.com/papers/finmkts/stigmatisation_t_bills.html

Simon Ward comments on Suggestions for easing the funding crisis

Simon Ward — Fri, 18 Apr 2008 09:56:41 +0000

There is a chance that Northern Rock could have survived as an independent institution if it had enjoyed access to ECB-type liquidity support or the new Bank of England swap facility currently under discussion. However, Rock’s management should have made plans on the basis of existing UK arrangements. Its business model is widely acknowledged to have been extreme. Access to ECB funds did not prevent the failure of the German banks IKB and Sachsen last year.

Interested comments on Suggestions for easing the funding crisis

Interested — Thu, 17 Apr 2008 09:42:44 +0000

Simon
I wonder if you would comment on the fact that the BOE now seems to being doing for all UK banks what it said it could not do for the then management of Northern Rock two months ago. Namely opening up a brand new line of funding. As I understand it the banks still have access to the lender of last resort at the BOE but they are unwilling to use it as they have seen what happened to Northern Rock.

Could you also comment on the fact that given much of the problem with Northern Rock was caused by the bank being named and it appears it was simply the first UK bank to need the funding and the rest all need it now. If you think it is right that Northern Rock followed the rules and was nationalised yet obviously many banks are now getting extra BOE funding and are not being named? Do you think this will have any affect on possible compensation paid to the then shareholders of Northern Rock?

Thank you

Interested

Simon Ward comments on UK MPC preview: market measures more important than rate decision

Simon Ward — Wed, 09 Apr 2008 08:06:32 +0000

You are right that the authorities are encouraging banks to separate good and bad assets and there is likely to be some element of public subsidy for the latter. For example, the US Congress is discussing a scheme whereby banks write down mortgage loans to eliminate negative equity in return for a government guarantee on the lower principal.

More radical initiatives are possible. After the late 1980s savings and loan crisis, the US government set up the Resolution Trust Corporation to acquire and sell at a discount assets of failed S&L institutions.

However, such solutions are unlikely to involve bad assets coming on to central banks’ balance sheets, to be financed by printing money. The Fed did not acquire assets of failed S&Ls in the early 1990s. Mervyn King has made it clear that, while the Bank of England is prepared to increase its lending to banks against less liquid collateral, the credit risk of the underlying assets will remain with the banks themselves. The Bank has also been “sterilising” the impact of such lending.

Global money growth is currently very strong and is lending support to commodity prices but I doubt there will be a further boost from the mechanism you suggest.

David Jebb comments on UK MPC preview: market measures more important than rate decision

David Jebb — Tue, 08 Apr 2008 08:55:24 +0000

Simon,

From my limited access to information it appears that central banks will "bail out" problem banks by disentanglement of good and bad assets.

Have you any feeling on the amount of money this will take as a percentage of what the central banks holding as reserves. I think this is important because if the central banks are going to have to effectively print money,even if the instuments they buy are not worth very much they are still worth something so perhaps this would reinforce the price trend appearing in food and I can then steer my clients towards a higher inflation environment.You may have allready dealt with this in previous work in which case please refer me but in any event your thougths would be appreciated

Thank you

David Jebb (Chartered Financial Planner)

r swipes comments on Northern Rock: looking on the bright side

r swipes — Sun, 02 Mar 2008 21:19:43 +0000

that means there's plenty of dosh to pay decent compo to shareholders who've had their asset confiscated by hmg.