Hi,
In today’s live session I looked at how the Bond Markets nearly broke the British Pension Industry and as a result, the UK economy last week and how this massive worldwide debt mountain could bring EVERYTHING tumbling down.
At the start of the webinar I looked into a style of trading that I wish I could have done in the past, but psychology was the main challenge of it. Also I had a family of four to look after and the forex market was my bread and butter back in the day.
The style I’m talking about is position trading. This can be highly profitable if you get into the trade and hold it for a long period of time. You start off with the bias of whether the pair will go up or down. then you look for an entry and you will likely need to have a bigger stop to allow space for the trade to breathe. Then it’s all about the psychology and whether you have the cohonies to hold on to the trade.
I will be making another post on this topic in the future as I would like to go into more detail.
Earth and Sky
Ashley reviewed the Earth and sky pairs. But the pairs didn’t look great this week on this strategy as he mentioned in the last part of the video. Most of the pairs have not respected the zone and you would have lost had you taken them. As Ashley advised focus on M2 for this week as it has a much better setups.
The Bond market
The main topic of the webinar was the bond market. So what’s going on here and how did it nearly break the British Pension Industry risking 10 million people’s pension?
It all sparked when UK chancellor Kwasi Kwarteng’s mini-budget plan of further tax cuts by removing the 45p tax band for people earning 150k or more in the UK. This was not taken well by millions of people and backfired because it would benefit the rich and affect the poor as they would be paying a larger proportion of the tax.
But that is not it, It nearly collapsed £1trillion pension bonds risking 10 million people in the UK. The Bank of England had to step in to buy £65million of government bonds known as gilts. Bonds have been considered one of the safest investments, which is why many investors have a portion of their portfolio in it. Investors also add their money into it during times of financial crisis to protect their capital. The website below explains really well what the role of a Bond is in the market
To keep it simple let me just summarise what just happened.
The Bank of England bought government bonds which are known as gilts. It is the first time in history the bank had to step in to bail out pension funds from going bust. They had to do this because there was a huge sell-off in the gilts which as I mentioned are considered one of the safest investments. Pension funds own around £1trillion worth of government bonds. With rising concerns the value of the pound dropped, the value of the gilt dropped which left pension funds at risk of going bust.
A halfling in value of the gilts meant they were suddenly worth much less than they were valued at in agreement between banks and the pension funds themselves, breaching their contracts. This left the pension funds trying to find the cash to pay the difference. The danger was pension funds didn’t have enough funds to sell their assets further to cover these losses. Hence why the Bank of England had to step in to buy their own debt to stabilize the market.
If BOE had done nothing this would have destroyed millions of pensions but more importantly also increased mortgage rates at an unfordable rate. A member of the public on a show made their views clear about how she was affected by this. Her rate went from 4.5% to 10% within a day, adding hundreds of pounds to her mortgage.
So did the BOE intervention in the market work? Yes, it did, it bought back the pound rate back up to 1.15 almost as I write this article. However, it has disrupted their QE plan for a short period of time. Also, they might now not raise interest rates as much as they had predicted and might have to slow down to give the market some breathing space.
Anyone with a private pension is not directly affected by BOE bond buying. It has stepped in to ensure that the way pension cash is collectively invested remains stable — and is not affected by dramatic movements in the markets after the Pound plunged.
But regulators are now bought in the spotlight and will be questioned as to how this could have happened despite huge volatility in the market. Chaos in the pension sector could resume when the Bank’s £65billion bond-buying plan ends in two weeks, industry figures warned. Here are some links below related to what I just explained above.
Gov policy is almost unthinkable
Not one that I normally read from but the Sun has explained what just happened pretty well.
Regulators at spotlight after pensions at risk
Here is a chart showing how much the GBP lost value against the USD in the last four months! from 1.30 to almost parity!
Here is also a guy I have been recommending you to follow for the past few months now on Twitter. Alf has worked previously in the bond market for a big company managing billions worth of bonds. He explains what is going on in the market daily and also gives out free articles.
Below is the link to his latest article where he has summarised what’s happening around the world.
Now I would definitely recommend you to read this article. Alf has written what is going on in the UK pension market. How bonds nearly caused a collapse in the UK economy and how it could be the US or EU next.
His Twitter page
You can also follow me on Twitter
https://twitter.com/marcwalton
Some more links
Here is an article that was written 3 years ago. The US could be next if the FED starts ignoring it.
$5.2 trillion government pension debt
Here is another article showing how the US pensions are currently underfunded and are at risk of payout when they are due.
Pensions underfunded in the US
The below article shows the worst-funded pension funds across the US states and which states are ranked the top in the years to come
Worst funded pensions according to region
Here is an article that shows how the US could solve its $5 trillion pension debt by following in the footsteps of its neighbour Canada. They can follow the five steps but US politicians won’t do it
how to solve the US pension debt
Everyone should have some real estate in their portfolio (not just their own house). For years the Real estate has been also considered one of the safest investments and a good hedge against inflation. An article below explains just that and why its important you have some in your portfolio.
We are NOT a “tipping service” our aim is to teach you how to trade for yourself.
Below is the full webinar video, click the box at the right-hand corner for a full view:
Kind regards,
Marc
