Hugh Hendry On The "Near Certainty" Of European Interest Rate Rises

Tyler Durden's picture

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asdasmos's picture

Hugh's analysis is always greatly appreciated.


Interesting commentary, but what will the metals do?

JW n FL's picture

metals? if you own metals for an investment... you should sell.

The Talmud Kid's picture

I'm long physical gold and short GLD.



samslaught's picture

metals always trend up when rates are below the real rate of inflation, metals go up exponentially as rates rise but are still below the real rate of inflation.  Once rates surpass inflation metals will trend down.

huggy_in_london's picture

whats the "real rate of inflation"?   hahaha

CrashisOptimistic's picture

That's not important.  What is important is what will oil do?

CPL's picture

I think we are all waiting for the day oil and food prices are included in inflationary rates since both account for a large percentage of how anyone in the first world (soon to be third) spends their money. The interest rate hikes are just a position to increase revenues on the back of food an oil.

Pretty hard throwing double digit interest rates and not expect the market to price it directly into the cost of "soft" goods like oil and food. Mainly because modern farming is an example of how credit is used for cash flow management and the oil industry uses credit for capacity expansion.

Either way, Crash or choke. We will see bad comes from either direction of stagflation or inflation, with or without credit/interest increases.

Like watching someone playing chess and the options are hop around the board like a loon or pick 20 ways to get pushed into check mate.

TheGreatPonzi's picture

There won't be any rate hike, sorry to spoil the party.

Americans have an idealistic view of Europe, which would be less corrupt, wiser, and more inclined to austerity rather than money printing.

The truth is very different. Don't let the words of Trichet or Hoenig fool you. If the Ponzi is at risk, rest assured inflation won't be anymore a problem for them.

Furthermore, the entire financial establishment and the press have engaged a campaign against rate increases:

Phineas Gage's picture

I agree.  A rate hike by the BOE by May seems unlikely.

huggy_in_london's picture

won't matter... the market will do it for them.... Who wants to lend money at zero when inflation running at 5%?  No one... thats part of the reason why banks wont lend.....

Popo's picture

There will absolutely be a rate hike. You're operating under the false premise that central banks control rates over the long term. They can't and they don't. The bond market sets the rate. Period.

When Ireland defaults -- which they will -- rates will jump. Watch.

TheGreatPonzi's picture

I am talking about central bank rates, just like the writer of this article.

"The markets are already pricing in the near certainty of a quarter-point rise from the Bank of England by May with another increase expected before October."

If you want to discuss general bonds rates, there are other articles on ZH for this.

Popo's picture

Uh... Hello? I'm also talking about central bank rates.

Central banks *follow* the market (despite the propaganda that they don't). In terms of raw numbers, international CB's are the weak force and debt markets are the strong force. CB's will always ultimately follow the market because the market forces their hand.

Ie: The Fed didn't "accidentally" raise rates in the 1930's depression as Fed annointed economic historians would have you believe. The market forced their hand. A troubling fact that the man behind the curtain does not want the public to know.

samslaught's picture

Interesting?  Can you expand on this more?  I've never heard anyone say this but it makes sense. 

buzzsaw99's picture

This may sound backwards but my thinking goes like this. Let's say the eu stock markets start to weaken. If the markets crash while rates are at zero there is nowhere left to go and the omnipotence aura loses its mystique. They could raise rates as a cover for some selling, deleveraging, profit taking, whatever. Then, when the selling was done they could lower them again and the tail wagging the dog doesn't show.

Bigger Dickus's picture

Nope, that's not important either.

The real question is "what would Brian Boitano do?"

Dollar Bill Hiccup's picture

I don't think it's a question of forecasting on Hendry's part. Simply that one side of the boat is very crowded, so that if there is a policy mistake and rates rise, then ... whoops. The lower probability event is the event to be concerned about.

The Talmud Kid's picture

Will anyone still care about fake money by then at all?

Mitchman's picture

So nice to hear from Mr. Hendry again.  The Germans will not sit idly by while inflation nips at their heels.

ElvisDog's picture

I don't know, the Germans have rolled over so far, buying into the $750B Euro stabilization fund for instance.

Oh regional Indian's picture

Huge Hendry has it nailed.

Huge, systemic trouble ahead. 

In the big picture though, a UK rate hike makes sense from the controller standpoint.

Money will rush into pounds, which they will promptly use to buy more UST. Perfect. The weird uptrend in UK buying UST is explained AND enabled.

Wheels within wheels. They'll only come off when the track finishes or system goes unstable.


Hephasteus's picture

I like your post but I submit to you a simpler explanation. You are wiped (the amnesia) you speak of to be put through a ringer. A ringer that wants to know how to lie to you and get you to believe it. Continually wiped and lied to and this is why you see so many fooled and idiotic people. They are the successes of the process. But theres obviously quite a few failures going on.

Yes huge trouble ahead. First rush to gold by the insiders and rush out wasn't enough wealth transfer. We are stuck in a well. The powers that be do not have sufficient resources to continue onto their next endeavor (green). They haven't stolen enough. There has to be another big transfer of wealth.  I gotta say I'm really nervous about this one. Not sure if people can be forwarned and forearmed well enough.

Oh regional Indian's picture

;-) Thanks for reading Heph. That ringer is called Maya around these parts (where I live). Delusion!

I like the thought that the green revolution was underfunded from the TPTB side. A whole new spin! The robber barons need a loan!


Hephasteus's picture

Oh regional indian. Yes. I know quite a bit about all things from your country. I know a few astrologers from your parts and a few citizens and all of you're mythology and religion. In fact it's called illusion of maya. ;)

Oh regional Indian's picture

Good to know Heph. Sidereal astrology had the whole precession thing (recently a big fuss) sorted out in its root/start.


ElvisDog's picture

Oh my Lord, a 1/4 point increase now and another in October??? Hells Bells what a dramatic stand by the ECB.

Hephasteus's picture

Replay. They are going to jawbone and jawbone and jawbone raising interest rates to drive people out of precious metals. They are going to raise interest rates and signal to everyone to get out of metal and get back into the fake interest bearing accounts. They are going to drop the interest rates as soon as you do this. This is all happened before. Everybody remember the pivotal "mistake" that the Bernank is focused on. The mistake of raising interest rates 3 times in a week and then crashing them back down pissing everyone off. What is he going to do differently this time? Raise them and hold it for a week or two before crashing them back down. Everyboy pay attention to that particular historical event. The game comes down to that play and how they do it differently this time.

Pay attention.

hammel123's picture

>The mistake of raising interest rates 3 times in a week<

confused here

Hephasteus's picture

Ok here's what happened. Australia was in trouble, big trouble. They raised interest rates and sucked capital into the country. This buckled europe and US a bit. They raised interest rates. US raised interest rates 3 times in a week. This sucked capital back into the US. They then preceed to dump back to zirp. This pissed of EVERYONE they ran right back into gold and set off the double dip.

This moment in history is frozen in Bernanke's mind. He's a robber. He's focused on the big score. The ability to pull off MASSIVE heists. This will give the illusion that downturns are not part of some big scheme and just rare occurances that you don't have to worry about. This is why the 80's crash and the dotcom bust were so small. They stole a little but not enough to make it to end game of the IT revolution. They have to pull the big score that went haywire during the great depression. Bernanke is fixated on this particular point in the strategy of it. Remember during this crash what has been different. Well one thing different is Australia went up a 1/2 percent very very early in the game. To avoid and prolong their necessary alarming defection. Now we get a chance to see bernanke's move. What they do differently this time? Study the great depression. The person robbing you has.

speconomist's picture

With the exception of the latest 3 paragraphs, all was published in his December's Newsletter from Eclectica.

Popo's picture

> "I believe the European bureaucrats have badly misjudged the public mood"

Hendry's analysis of the health of the banking sector is impeccable. But his sentiment analysis is god awful. The reality is that German business confidence just clocked another multi year high. Yes, it means the German public is uneducated (if not outright oblivious) to the problems with the economy. But Hendry is equally oblivious to the business sentiment metrics.

I like Hendry, but he forgets that his perception of the coming storm (which is completely valid and IMHO correct) is not at all widely shared by the general public - at least not yet.

CPL's picture

That's because the human herd is educated with an inner tube and a banana

The Talmud Kid's picture

We're still working under the assumption that gvt numbers are accurate?

Since when?

huggy_in_london's picture

sorry but is there *really* still a need for rates to be at the emergency levels?  No, there isn't ....

Cpl Hicks's picture

Well, folks, there you have it...

"Emotions run high and the term speculator has even become pejorative..."  Big whoooOOOooo!

Then again, maybe that's just speculation.