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Negative Interest Rates – Central Banks’ Next Bullet and Why It Makes Investing in Gold Essential

The ECB’s recent decision to lower the deposit rate – the rate it pays to commercial banks for excess reserves – to 0% marks a new chapter in the developed world central banks’ response to the ongoing financial crisis. The EUR dropped over 4% against the USD in the following days as international investors switched out of euro-denominated reserves. Soon after the ECB’s announcement there were reports speculating that the Fed would consider lowering the IOER (the rate it pays to banks for excess reserves, currently 0.25%), and that the Bank of England would lower its deposit rate too. Moreover, the Bank of Japan lowered the floor, from 0.10%, it pays to purchase government bonds in its so-called Rinban operations. The world of competitive devaluations is alive and well, and being played out in the arcane world of central bank deposit rates.

 

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Fund Manager Jonathan Tepper Commended for Wolfson Prize Entry

Hinde Equity Fund portfolio manager and Variant Perception Chief Editor, Jonathan Tepper, was today commended for his entry for the Wolfson Economics Prize.

The competition invited entrants to attempt to answer the question: “If member states leave the Economic and Monetary Union, what is the best way for the economic process to be managed to provide the soundest foundation for the future growth and prosperity of the current membership?”.

The initial submission was shortlisted and finalists were asked to resubmit their entries, taking account of comments and questions from the judges.  You can find the final report here.

UK Mortgage Rates: The Slow Drift Higher and the Impending Danger for UK House Prices

Today’s blog is an excerpt from our forthcoming May HindeSight, Eyes Wide Shut, which we will release later this week.  The report discusses the UK, its soaring debt burden, how it is impacting the economy, and how the government is moving towards financial repression in order to deal with the problem.  The following excerpt is about the parlous state of UK property, and the growing likelihood of another sharp dive in UK house prices.

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Pension? What Pension?

Recent news that British Telecom (BT) is paying £2bn into its pension fund to help cover its deficit is a fitting reminder of the shortfalls facing many pension funds.  The crux of the matter is that many funds are still living in the past.  The falling nominal interest rates and cheap equity valuations that were redolent of the 1980s led to exceptionally favourable conditions for bonds and equities.  The standard pension fund portfolio of 50% bonds and 50% equities fared very well.

(click on chart for better viewing)

 

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