Supplement 22 Sep 24 - Spotlights in the wrong places

“Stay true in the dark, and humble in the spotlight.” - Harold B. Lee, religious leader/educator

Before we get started, it’s basically last call time for the final Property Business Workshop of 2024 - Tuesday 1st October is the one! It’s almost eerie how when we first planned this workshop some months back, we chose this one as the one to cover EXITS. Firstly, planning your own - which people do very poorly, in our experience - and secondly, so that you can understand other people’s exit plans (or lack of them) and assist with them when looking to buy a portfolio, or a business. Help the vendor get what they want, need and deserve - and work towards true win-win situations. As always it will be an action-packed, content-filled day which will stand alone in helping to advance your understanding as a Property Business Owner!

The link is LIVE and there’s a week left to buy tickets: bit.ly/pbwfour ?

Welcome to the Supplement, everyone. It’s one of those weeks where I’ve cracked. I often flirt between mentioning certain things “in dispatches”, in passing, and then shouting about other things in a rather ranty fashion. Occasionally, I’ve been mentioning something for a long time and then the dam breaks, and I have to go into “beast mode” and talk at more length. That’s what’s happened this week around the amount of highlighting - either cynically and deliberately in order to confuse or obfuscate - but mostly due to ignorance or laziness - of completely the wrong areas, statistics, risks, and data points in general.

I’ve also read the vast majority of the headlines from a media that is mostly - note, mostly - controlled by Republican/Conservative voting near-oligarchs regarding the Labour party, Starmer being a Trotskyite/Communist/Krypto-socialist etc. with a large pinch of salt. I ALMOST exclude them as of right, but actually, this week with the scandal which will soon, surely, be widely known as “Gift Gate”, I’ve seen their point. The problem is simple. It doesn’t need to be the same as Boris’ rotten-to-the-core incestuous inner circle. Nowhere near as bad. Boris never ran on a ticket of being a “good guy” - and certainly not one with moral superiority - he just chatted well, wrote well, and people liked his hair. It’s really their (our) fault that he got voted in.

I think it is relatively simple really. If you are going to throw stones - no matter how small - don’t live in a glass house, right? The more the days roll on, the more and more I recall the genius of George Orwell who was just so far ahead of his time. Malcolm Tucker and the “Thick of it” are the other parallel you can’t help but draw,

Rant over - temporarily. That’s set the scene for WHY on the deep dive this week. Before we tuck in, though - we crack on with the macro, after the real-time market info.

The weekly credit to Chris Watkin who delivers week in, week out on these real-time market insights, with some bonus content too sometimes.?

Listings still ploughing on - 38k across the UK - back to 2024 business as usual after reporting on the Bank Holiday week. Big numbers. Now nearly 8% higher than pre-pandemic listings numbers, this year.

Net sales still also outperformed - 29% higher than the equivalent week in ‘23 and nearly 16% higher than the market for last year.?

Mid-Sept sales agreed figures now see SSTC figures above the year’s high in July. It looks like a summer lull in terms of prices paid is well and truly over and the active market is seeing the direction of travel move upwards. I’m still not seeing anything to change my 5% prediction for 2024 by the time the dust settles on the ONS figures.

Listing prices were right back up, to a number vastly above the 2024 average. This is an annual phenomenon - Central London homes go on the market in this fortnight each year. (remember we are going back a week, so this is reporting on the “back to school” fortnight as a whole).

Price reductions really moved over the last two weeks to one in 6.5 properties per month being reduced - with such high stock levels, that’s a lot of reductions…..>100,000 a month! (710,000 houses for sale). Nothing to change our conclusion of the moment on this market as yet:

Houses are selling, but they need to be fairly priced and have something to make them stand out.

Moving to the macro - this week was another biggie. Inflation - my mastermind specialist subject. The Bank of England MPC meeting and the interest rate decision. The GfK Consumer Confidence figure for September’s survey - plenty to say here. The “saver” of the gilts and swaps markets with, again, plenty of commentary - although don’t get too excited there.

I then want to press on with some FCA mortgage lending data for the quarter, and also with the REAL parts of interest and importance in the Bank of England meeting agenda for this month, which was not a “main” quarterly meeting with full inflation report, but did contain something which I have talked about with regularity as being extremely important - not just for moral reasons but also for economic reasons.

Inflation. Once more we dance, friends. Less vigorously than in recent years, but still, we dance. The important decisions are made at the forecast stage, and then how far we miss, and in which direction, in terms of those forecasts, then determine the momentum and direction of the gilt markets for the following week(s) - until something else happens, of course.

On the headline number - CPI - we hit consensus, and stayed at 2.2%. A few months back, I would have expected this to tick up a bit at this point - so I’d see that as good news. Good news that was already priced into LAST week’s gilt prices, though. You know by now as well though that we have to go deeper. MUCH deeper.

Core inflation - a more reliable measure, and less volatile, was predicted to tick up from 3.3% to 3.5% - and tick up it did, but to 3.6%, so an “upside miss”. Bad news for gilts.?

The ONS - largely on their own - prefer all these measures ended with an “H” - to incorporate housing costs. I think this is giving us a much better picture of “real” wage rises - adjusted for CPIH, rather than CPI - with volatility and upwards pressure on housing costs that hasn’t really been seen since the 1980s.?

For the record I think they are right with their emphasis, but they don’t do “marketing for statistics” or whatever you would call it - so it must feel like shouting into the void, sometimes, for them.

When you wheel out the “H”s, Core goes to 4.3% from 4.1%, and services goes to 5.9% from 5.7% last time out. The direction of travel looks all wrong. Without the H services inflation went back to 5.6% having recently calmed down to 5.2%.

Now - let’s be clear. All looks “reasonably well” although it still looks like 2% inflation, in the US or the UK, is more of a “floor” than a target. Pandemics do this - I’ve cited many times in the past several years. An extra 0.5 - 1% of inflation is not uncommon in the aftermath which, in old money terms, lasted 20-40 YEARS. The world is a bit different - although not as different as we might think, when it comes to economic phenomena. Still - that’s the best data we have.

Then it would take a real shift of mindset - something I started advocating for a few years ago. Move the inflation target on the back of this. The logic - there’s this excess inflation in the system for potentially a couple of decades - target 3%, plus or minus 1%. Radical. Not the sort of thing a public sector employee would do - why raise your head above the parapet, for what reward? VERY risky from a career perspective. This is why I don’t work in a large organisation - I wouldn’t be able to resist just doing it, and putting myself out there to be shot at, because I’m strongly convinced that it is the right thing to do, having done the research.

We also always need to remember that this really shouldn’t be a huge influence on the monetary policy committee decisions to lower, raise, or cut the base rate. The feeling very much these days, though - more in the US than the UK, but still in the UK - is that the Central Bankers are far too knee-jerk. That always makes me chuckle because of course the BoE only meets 8 times a year to discuss rates (unless there’s an emergency, such as a vegetable-esque decision made about who should run a governing party) - and the vast majority of the time, the Bank votes not to move rates.?

Rate rises and cuts take 6-24 months to make a real impact, according to those who make up the Bank of England MPC. Their independence should, theoretically, allow for apolitical decisions that protect the best interests of the people, and the economy. Some more on that, though, in the deep dive.

Back to the inflation metrics - when we are talking above 4%, the Bankers really don’t like it. Above 5% - there’s a risk that people start using phrases such as stagflation, hyperinflation, and similar. Not good for business overall. Not bad for Government debt, of course - fixed in nominal terms, the vast majority of the time (not index-linked stuff, for example).?

Each month that goes on, one more screw is tightening. This is the first concrete example this week of the torch being shone in the wrong place. CPI is important - because it is what the Bank of England is tasked with controlling. It’s also - 90% of the time - the wrong metric for them to be concentrating on.?

CPIH is better, really, because everyone needs “H” - if they aren’t paying, we are all paying. OOH is drastically undermentioned - I don’t think I’ve heard even one other individual, commentator or journalist even mention it. OOH is synthetic - made up, for want of a better word - but a proxy for an index which measures how much it costs an owner occupier for their housing compared to 12 months ago.

The metric has reached 7.1% - the highest ever, once again, a new higher high. This goes back to March 1992, from a history perspective. Biggest inflation, of course, since before 1992 - that’s all happened in the past couple of years, and so the biggest number for OOH isn’t in and of itself a surprise. However - you’d think this would get more airtime, because this squashes confidence, decision making, risk taking, and overall investment - because everyone ends up too scared of their own shadows.?

OOH being so much higher than the other headline metrics explains why, when we add that “H” to the inflation metrics as described above - they go up, not down. Record levels of OOH on the upside are only incorporation including co-partnership on the loan agreement with the SPV.?

My feeling last month was that we were really approaching the high in this metric for a few reasons. Firstly - as of about now, perhaps a month further on - we would see the end of all the 2-year mortgage deals which, before the Truss debacle, were still pretty popular. The inverted yield curve, making them much more expensive per annum than the 5-year deals - plus the overall “once bitten, twice shy” feeling meant they’ve got a lot less popular in the interim, of course. They would and could still have been completing until December 2022 or perhaps even later, but the number of them would be tapering off fairly quickly - so we aren’t quite there yet.

Also - after a charge up to about the 4.25% or a little higher level on the 5-year in around April 2024, the yield curve had fallen right back meaning that anyone dropping off 5-year 2019 mortgages - which were at a very nice low rate, although not as low as we got to in 2020 and 2021 - were not paying quite as much of a different rate as they were in mid 2023 (where yields were 5%), or mortgages from April 2024. People also - as a rule - can start switching sometimes 6 months in advance, and anyone with a modicum of financial sophistication (which is really the entry level criteria for having a mortgage) will have been looking at rates for some time, gaming the system where they can, shopping around etc. etc.?

So - I haven’t changed my mind about us being “near the top” but I don’t have a strong conviction on calling the actual top in this metric quite yet. As usual, as well - just like when it came to the base rate - whilst it is “nice” to call the top, and shows you are on top of your numbers, the really important metric is how long you stay near the top, or how slowly it takes for the metric to recede. Look at metrics like wage increases (without bonus) or services inflation - services CPIH back up to 5.9% this month shows just how sticky that’s been at what anyone with a clue would call an excessively high level.

Overall - my sense would be that this metric is going to stay “stickily high” and the reality of the Renters’ Rights Bill, as discussed in detail last week, is that rents are likely to be pushed higher by a combination of further reduction in stock and affordability, outside of the larger metro areas, still being there in spite of the fact that rents are taking a higher percentage of earnings than they have done for a decade or more.?

There was an acceptance or even an entitlement to the fact that rents moved below inflation, and were steadily for 15 years taking a LOWER percentage of a household’s income - but, of course, this was not a right, just a symptom of a moderately functioning housing market, which is at this point in time a thing of the past - without a credible path to working again, unless these 300k/370k+ homes per year actually start being delivered, with a very healthy slice of affordable in the “right” locations.

It’s also worth noting that oil dropped right back below $80 a barrel in August, and carried on nearly down to a recent low of $66, although it has bounced back above $70 now. That helped with motor expenses and might well have been worth the 0.1% that I was expecting to go on this month’s figure, when looking at it a couple of months ago. The consensus on a poll I ran on LinkedIn is that thus far, we are not going to see inflation go back above 2.8%, and a decent percentage believe we aren’t going back above 2.5%. The base effects dropping right off mean that I definitely want to see October’s figure (released November) before anything quite THAT positive, but I’m very happy when we are arguing over 0.25% or so on the inflation rate because that suggests a functioning and under-control inflation rate.

My feelings that we would go back over 3%, at this point, look too bearish but we do need to see how energy prices (and indeed demand) play out this winter; rather than the Daily Express or similar clickbaitery, I prefer to take a look at the Met Office and also the long-term forecasters - all we see at the moment is more of the same of 2024 - temperatures slightly above average, and wetter than average conditions, but the Met Office only go 28 days ahead anyway. 6-month forecasts from third parties that use the Climate Forecast System v2 (CFSv2) model suggest that temperatures will stay above zero as a rule with the winds really picking up in late December until mid-January - that’s their best stab at “storm season” for this winter. Take that 6-month prediction with the same pinch of salt that you would a 5-year interest rate forecast, though!

What we do know is the warmer it stays, the wetter it tends to get, from recent experiences. The run of milder winters, if 24/25 is included, has been incredibly timed given what’s happened with gas supplies and prices overall since early 2021. As usual, though, when you get lucky, no-one talks about it - the news and the revolving doors of “crisis” make their money and get your eyeballs by being reactive, rather than proactive or calm and collected.

OK. Inflation looks calmer, but with those various caveats and a slew of measures still far too high for comfort. That perhaps explains to some why the Bank of England DON’T act faster. However, back on my soapbox of the week, everyone looks, cares and reports on the decision to cut or hold the rate. There really wasn’t a lot of thought that the rate would be cut here - going back a month or so there was in some corners of the economic commentary space, but I did tell you back then there was no chance. Once we feel we “know” where we are going the thoughts can go to the way the vote is going to go - the next level down.

If you are getting this right, then you have a real handle on the way that the committee is thinking. I felt quite strongly that Dave Ramsden would stay in the “cut” camp, particularly, and that there was a chance of a 6-3 vote (because of the new member of the committee) or a 7-2 vote. Instead, the 8-1 vote - in the face of a Federal Reserve cut of 50 basis points - was a surprise to the city. I say on a regular basis that I don’t think the Bank of England are anywhere near as influenced by what the Fed do as the markets seem to think - but to an extent, we are price takers in the market and so knowing what the market is GOING to do is as valuable as knowing what the market SHOULD do.?

Most sensible consensus also thought Ramsden would stay across the floor (i.e. vote to cut again). This put doubt on the cut in November which - although I’ve stated my position on this several times - was being priced at nearly 100% before Thursday’s MPC meeting. Now we are back to a point where it is perfectly viable to believe we need that 7-2 or 6-3 meeting (voting hold) before we have another cut.

In this part, I’m focusing on the high level meeting only. The REAL news of this meeting is going to wait until the deep dive. The gilt markets had already reacted to the Federal reserve 50 basis points cut, which was followed by a very hawkish conference afterwards saying that rates would stay higher for longer by Jay Powell - and so the Bank meeting result did very little to move the needle - even though it was the opposite result (so much for “follow the Fed”, eh?). No cut, but more calming words (or attempted calming words) from Andrew Bailey, the governor.

We then had what is the most frustrating news of the week. The GfK consumer confidence release on Friday - a nasty -20 print. Consensus was that things would remain the same but you know what - who’d have thought it - create a bunch of miserable headlines about how much everyone in the middle class (and everywhere, frankly) is going to get absolutely shafted in the upcoming budget, and people will start saving even more, cut spending, and sit and wait like powerless victims for the almighty beating they are going to take.

So will businesses. Go figure, Kier - one thing you need to learn is that you need to LEAD with INSPIRATION, not with misery. It isn’t OUR fault that the Conservatives did what they did - OK, we elected the idiot with the funny hair but that whole lettuce thing - that really wasn’t our fault, so making us feel like naughty schoolchildren really isn’t on. The -20 print is nearly back to the lowest print of this year, and fits more with an “end of 2023” approach.?

We will see the impact on consumption and spending on September’s figures, of course - August’s were actually fairly good for the retail sales sector and were above consensus. But “feeling” is what will persist and define economic activity over the next couple of months - and just when we were on the right track this negative rhetoric has started to derail the train from the tracks. It is surely self-evident to say that, after a pandemic, and not THAT long after a global financial crisis, confidence is fragile and also - guess what - you need to EARN the respect and trust of the British public, rather than assume it is coming because you are “better” than the other side - even if your sleaze and corruption is at a lower level, but still very much “there” for us in the general population to see.

It beggars belief how naive they can be; although I guess that given none of them have done one of these jobs for at least 14 years (and most never before, of course - and most never in business, or similar, before) - perhaps we shouldn’t be surprised. I had high hopes for a Government that would appoint a James Timpson - it seemed like a positive, progressive move and a statement for the future. The statements at the moment are “leave me alone, I’m allowed a free holiday from people with money” (how can they not see that it is so obvious to all of us that there are no free lunches and we are left wondering what is expected in return) - when politicians go around saying “nobody does it for the money” and then getting the trappings of wealth showered upon them by third parties - this is no hatchet job, it is simply calling out hypocrisy.

Back to the data, calming down from DefCon 1 to about 2.5. GfK themselves said it was a “big fall” this month - there have been “major corrections” in the outlook for our personal financial situations over the next year (also down 9 points, the overall index was only down 7) - views on the economy for the coming year (the self-fulfilling prophecy of ALL self-fulfilling prophecies) - down TWELVE points - and the major purchase index, which of course is down ten points because everyone thinks they will be skint.

This is a cockup in expectations management beyond all belief. This has even impacted the OBR report, PROBABLY, although they might well not be looking at this data and instead looking at older data, which might save Rachel Reeves. It is probable at this point that a more-positive-than-it-should-be forecast will emerge from the OBR - remember, it is from this forecast that the Chancellor will base her fiscal manoeuvres and policy (read - tax rises).?

Winter fuel axing is seen as a thing to come - pensioners are quaking over the removal of the single person’s council tax allowance, which will only hurt the old and the single parents (mostly mothers) - the hardest groups to “pick on”.?

The story from the GfK barometer is that this has nearly undone 9 months worth of positive economic work. I’m raging because if this has cost 0.2% in growth (and when we see PMIs and the likes, next week, we will know more) that’s a couple of billion in tax revenue that has to come from elsewhere, at some point. The communications people - whoever they are - in number 10, and number 11 for that matter, want to give their heads a wobble.?

OK. Extra blood pressure tablet taken for good measure. On with the gilts - which will cheer no-one up. We opened at 3.498% - the bottom of my range for the year, and to quote Yazz once more - the only way was up. When the Fed cut by 50 bps this was seen as a “front end only” benefit by the yield curves around the developed world, cutting the short-term rate (of course) but raising longer-duration yields, including the 5-year. That cut was announced when our markets were closed and so instead, on Wednesday, after closing at 3.527% on Wednesday we opened straight away at 3.664% and simply trended upward throughout the rest of the week, nudging up more on Thursday when the 8-1 vote was revealed. We tested 3.8% and closed at 3.752%, a straightforward quarter point on, losing all those lovely gains from last week.

You know it’s a bad sign when it’s a busy one and a long paragraph, is all I will say.

The swaps - we closed Thursday at 3.752% as well and - incredibly - the last swap traded on Thursday was at 3.514%. This huge level of discount won’t last, but we can hope some lenders in the past week have taken a nice slice at 3.5% which will allow them to continue being competitive on mortgage rates as the next few months play out. For context, it all still looks pretty sweet compared to the swap rate 12 months ago of 4.4%, which was effectively unworkable for vanilla buy-to-let in more than 50% of the country, if you seek 75%+ LTV mortgages.

So - bad news overall, but with limited effect on the mortgage pricing for the moment. Let’s reserve judgement for another week on that swap market.

OK. The Macro is wrapped. Let’s get on to the meat. Firstly, the quarterly FCA lending data has been available for nearly a couple of weeks, but the last 2 weeks have had some “drop everything” Supplements as you will appreciate. I didn’t want to wait any longer because the data is already a bit stale, but very important and the most accurate numbers we get out of the lending market - so here we go.

Total mortgage sector - back to ￡1.661 trillion - 0.3% higher than a year earlier. Shows what’s still been a tough 12 months for the sector, but at least it is growing again. It grew 0.4% last quarter alone (this is Q2s data, to be clear) - so the “mortgage recession” is, as we knew, over now. Lending to be advanced in the coming months was up 11.3% QoQ and 12.5% YoY, showing further improvement which will have already filtered through into the housing market for Q3 2024.

House purchases by percentage of debt increased - and likewise, for remortgages they decreased. The BTL number - which is the one that I always watch - stayed at 9% or 1 in ￡11 if you prefer - for a sector that houses just under 1 in 5 of the population, I believe this speaks volumes. The downwards trend HAS been snapped off - as we suspected - but there’s no way replacement in this sector is keeping pace with organic and inorganic dropoffs (deaths and sales, basically, from exiting landlords). The 9% number is historically very low, and the 10-year average around 13% puts things into context I believe.

Other good news, both directionally and absolutely, was that new arrears cases decreased by 0.5% from Q1, and that’s 5.3% lower than one year ago. That recessionary side of the market is now firmly behind us, and whilst lenders will want arrears balances downwards, the direction will stop concerning anyone.

That only speaks to new cases though, of course. Balances with arrears are up 2.9% from the previous quarter and are 32% up on a year ago. Basically - fewer people are starting to get into trouble, but those who are already in trouble are struggling to get out of it and the situation is getting worse. We went from 1.29% total balances with arrears to 1.32% - not a meteoric rise, but a rise that nonetheless will see lenders starting to take more aggressive action against long-term arrears in the near future, you’d think. I’ve used the arrears balances as the visual, because as so often, the picture says 1000 words - still just about rising, but the pace of the rise looks very manageable.

Higher LTV mortgages - above 75%, and indeed above 90%, are higher in percentage terms than they have been for years. Incomes are stretching, clearly, and high rents are pushing those who DO have to stretch more to buy, into buying properties - I’m constantly surprised, anecdotally, at how many renters are making a choice to buy when they were making a choice to rent - the Government told me that I only imprison people into rentals and they “can’t buy”, so if someone can explain to me how this is happening, I’d love to be educated. That is sarcasm, of course. It is an interesting trend to 42.8% of mortgages exceeding 75% LTV. Perhaps this is also a sign that people are confident in pricing right now, and can take a bigger percentage mortgage because the lull in prices for the past 2 years does look like it might well be over, to the average viewer of the market.

Of the basically ￡22 billion in arrears (oh - where have I heard that number before!) - ￡5bn is non-regulated i.e. mostly buy-to-let. The result of these rising arrears - new possessions are down 5.6% QoQ but up 33.2% YoY, and the number of stock possessions at the end of Q2 was 6,480 - up 34.5% on a year ago. Expect some more repos - but also appreciate that at 2,000 per quarter across the country, that it isn’t exactly raining repos down from the sky.

OK. Mostly good news, there, with the upward trends that we didn’t want to see coming to an end. However, if sub-10% of new mortgage money being for BTL is the new normal - that’s the 6th quarter in a row under 10%, with the low of 7% being Q4 2023 - then the stock issues in this rental market aren’t being sorted on a supply side any time in the near future.?

Now onto the real meat of the Bank of England meeting. I’ve been on this soapbox for what feels like forever, but it is actually about 18 months since my first musings on the subject. The subject being Quantitative Tightening, and how best to go about it. Before I get into it - there are a few things to draw from the minutes of the meeting - this is a “non-full-report” meeting but does contain these important points around QT and some other factors.

The Bank talks about three possible scenarios they’ve looked at:

1. Global shocks dissipating mean weaker pay and price-setting dynamics. It is what’s played out so far, but it is fair to say that it has played out SLOWLY. Inflation persistence fades away allowing rates to be cut. The base case, if you will.
2. GDP falls below potential and the labour market eases (maybe because some Charlie runs his mouth about how much trouble we are all in, and how we will all be paying for it, whilst he gets his clothes for free. OK, enough). Inflation fades away because consumption drops (further than it already has, note) - and rates get cut.
3. The economy has structurally shifted thanks to supply shocks over the past few years. This is the “stronger for longer” case - rates stay higher for longer (not going up, but staying higher).?

You will note these three cases are not mutually exclusive. I’d argue there’s been plenty of 1) and 3) already, and 2) seems to be unfortunately occurring (but if it drops interest rates, perhaps I should be all for it since I can’t control what these fools say to the economic actors of the nation). I’m weak on “brutal self-interest”.

The big takeaway to take from the summary, though, really:?

“In the absence of material developments, a gradual approach to removing policy restraint remains appropriate. Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further. The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting.”

This should be taken at face value. THIS is why I’ve been saying that a cut in November is not guaranteed.?

Now - into the full minutes. Don’t panic - not a line-by-line - in the intra-quarterly meetings, there’s rarely much of substance and they don’t use updated forecasts compared to the ones they used for the last meeting (in August).

At this one, there is now the “annual decision on the pace of reduction in the stock of UK government bond purchases held for monetary policy purposes”. Snappy, eh? What does this mean?

It means that, since no-one else was stupid enough to buy the debt at ridiculous yields, we bought it from ourselves (yes, really) and from an accounting perspective, the Treasury borrows it from the Bank of England. We still, quaint people that we are, prefer to call it “money printing” - in reality, it is digital movements on ledgers and registers, primarily. We were easing from 2009 - because the interest rate was so low it wouldn’t attract too many lenders, and we also didn’t want to go negative and felt we had nowhere else to go.

It’s always a bit of a chuckle, as well. The Bank goes about this first of all by marking their own homework. In a surprising move, they start by offering themselves full marks for their efforts. Near-genius, if you listened to them. My assessment is far more scathing.

Here’s the rub. They could do three different things really:

1. Hold this debt that was created forever. Then, the money we are paying out on the national debt - some of it - would be going back to ourselves. I know, this is confusing and sounds a bit like a scam. If it wasn’t at Government level, that’s exactly what it would be. Plenty of people do call it out AS a scam, of course, but many are a bit too woo-woo for my liking. Ponzi scheme isn’t a bad assessment, but if we were to keep rotating the debt for all time, that really would take us into choppy waters. Not really an option - but we could wean ourselves off it very, very slowly over the course of decades (for example) on the basis that a financial crisis comes along once every 75 years and a pandemic once every 100, and so a 30-50 year unwinding wouldn’t actually be unreasonable. But what do I know?
2. Let the debt that we did “print” in this situation expire organically. The Treasury “pays back” the Bank of England. They don’t, though - more accurately, loans given get removed from the system when they are repaid and expire. The money supply therefore goes down - not a bad thing in times of excess inflation. The perfect idea, you’d think, if you are a regular supplement reader - and guess what, you are right. However, with it being the public sector and all, this overall dominant strategy does not get enough airtime because people are boxed in to a tighter remit, which leads to us all being worse off. TENS OF BILLIONS worse off, as it goes - oh dear, the shouting has started.
3. Let some of the debt organically expire, and sell the rest into the secondary market. So - let’s be clear - we “bought” at very low yields, which meant high bond prices. Yields are now acceptable again - and in many circumstances over the past 2 years, have been investment grade, for Government debt - if you ever listen to any of the Rodcast episodes that I feature on with Manish Kataria and Rod Turner on a quarterly basis, you’ll note that I’ve recommended Government Gilt purchases twice in 5 episodes, I’ve been so convinced of their long-term value. So - the “logic” goes - we buy high and sell low. Oops - even Samuel told me that wasn’t the way to go. So what’s going on here? Well, the best logic I’ve ever extracted from the Bank of England here - not for want of trying - is that they’d like to start from a lower base if we need to use QE again, and should unwind the position because the interest rate is “back in play” as a fiscal lever. And the cost to this to the public purse is indeed tens of billions. Who is establishing the value - or not - to the taxpayer, then - you would be entitled to ask, you would hope? Ah, no - this is the public sector. That’s not the Bank’s remit.?

If you can’t see the smoke coming out of my ears - believe me it is there. I’ve seen some idiocy in my time - indeed, I’ve even participated in some on a far-too-regular basis. However, this really takes the biscuit.

How 3) is in any way dominant to 2) I do not know. 1) hasn’t even had airtime, which is ridiculous. To remind you we are talking about TENS OF BILLIONS of taxpayer money here.

Anyway. The scene is set. Let’s see if the Bank marks their own homework with full marks once again, completely glossing over these smaller matters that run into the 10 figures before we get to the “pence” part.

The top level decision is that they want to reduce the APF - the overdraft if you like - by another ￡100 billion, over the next 12 months. They refer to continuing to reduce risk of the Bank having a bigger balance sheet over time, without quantifying it or measuring the benefit in terms that they share with us (perhaps they do privately, but you’d hope this would make the minutes).

Their plan to use the interest rate, and then to not disrupt markets, and then to be gradual and predictable sounds a lot more like my 1) (to me) than their 3). Their lack of understanding of the “right” timescale is likely the biggest issue here.?

They now, every time, wheel out the fact that there’s been “no negative impact on gilt sales” - well, that’s not really a surprise when now they represent a real return, AND are trading a “bit” higher in yield terms - the Bank guesses 10-15bps, I would suggest more - thanks to these sales. It beggars belief, almost.?

The Bank then goes on to say that what they’ve done hasn’t affected the path for Bank rate. Well, that’s good - but doing it more slowly ALSO wouldn’t have affected the path.?

Now - the only bit of good news, really. Of this ￡100 billion clipping over the coming year, ￡87 billion is maturing bonds. We can live with that. No losses booked anywhere, no third parties involved. The Ponzi is healthy, the loop remains closed.

The other “trifling” ￡13 billion will be sold at a big loss, of course. Nobody worries enough about that to say just how many hundreds of millions and billions that that DOES cost, of course - because “it’s not my job, mate”. And that’s that.

Onto their evidence for their own excellent work, then. This was actually set out in last month’s report, but in the overall excitement for our first base rate cut for some time, I focused my efforts elsewhere. All we really get is how they’ve measured it perfectly, it hasn’t affected anything, and - in not so many words - how clever they are. There’s no point going any deeper than that. It is the question that doesn’t get asked - or, indeed, once again the spotlight not being shone on the right thing - that winds me up so very, very much.

We have to refer to the OBR or other bodies to tell us just how much it all costs. This - you might remember - was one of the policies that Reform almost stumbled upon by accident - although they preferred to concentrate on not paying banks interest on deposits and “saving ￡40 billion” - which would instead have destabilised and crippled the sector, and completely wrecked margins on mortgages. Go easy on them - they don’t, yet, understand economics and as mega-populists, they don’t really seek to.?

One klaxon from Box A in August’s report, though. It did identify the ￡87 billion that was coming up for maturity this coming year. For 2025-6, that will be ￡50 billion or thereabouts. For 2026-7, it looks like ￡33 billion or thereabouts. Those on their own won’t get the Bank of England to where they want to be. That probably means MORE wasted money in future years on their current preferred way to “manage this risk” and I’m just not at all convinced of their risk pricing, and their lack of cost-benefit analysis is, straightforwardly, a CRIME. I don’t hold the Bank accountable for this - I hold the Government accountable, and particularly the Chancellor and the Treasury. This is disgusting and can only mean one or a combination of the following:

1. Weak leadership in the Treasury
2. Chancellors who don’t understand Economics (oh and yes, we’ve had some - RR is NOT one of those, but isn’t doing anything here either)
3. A sickening mindset around public funds
4. A lack of competent advisors to get stuck in where there are BILLIONS to be gained, and saved.

I hope you can see just how frustrated I am about this, and I do thank you for listening to what is, let’s face it, a niche rant that borders upon the ramblings of a madman. However - if we don’t care, then who does?

This is why I end up telling you - and myself - every week that the only way is - of course - to Keep Calm and Carry On.

Before I go, don’t forget you can still BOOK your last minute tickets for the fourth Property Business Workshop of the year at https://bit.ly/pbwfour on Tuesday 1st October!! If you miss it you will regret it, there are no recordings………

There’s only one way to deal with all of this emotional barrage of rhetoric - Keep Calm, ALWAYS read or listen to the Supplement, and Carry On! The future is seriously bright on the investment side of the sector; for the wrong reasons, primarily mismanagement - but if you know how together we can fix that, let me know. I’m going to be around in Liverpool tomorrow for the Labour Party conference - any interested readers and listeners who’ve got to the end, I might see you there!