UK's Economic Crisis 2022 - What Happens Next?
Sterling and the UK bond market have been in meltdown as a result of the government’s September 2022 mini-budget. In this video, we look at the market reaction and the reasons behind it and consider how bad this economic crisis could get.
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Timestamps
00:00 Introduction
00:21 Mini Budget
01:51 Double Deficit
05:41 Markets
10:21 Energy Price Guarantee
12:29 Bank of England vs Government
15:16 Tax Cuts = Growth?
16:52 Conclusion
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DISCLAIMER
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#UKEconomy #Investing #PensionCraft
This guy is one of the only intelligent commentators on finance on the net.
Martin Lewis is definitely a name that has a lot of respect too.
@@cooper8t Ramin is like 1000 levels above him mate =) , is like a Padawan vs a Jedi Master
Martin Lewis is definitely an expert lol
@@rafavaliente741 In all fairness, this isn't quite true, they're just different. Ramin focuses on economy and investing whilst Martin Lewis is more personal finance focused.
@@cooper8t yes you are right they have very distinctive focus
Inflation hits people a lot harder than a crashing stock or housing market as it directly affects people's cost of living that people immediately feel the impact of. It's not surprising negative market sentiment is so high now. We really need help to survive in this Economy. The fin-Market;s have underperformed the U.S. economy as fear of inflation hammers the prices of stock;s and bonds. My portfoliio of $250k is down to $192k any recommendation;s to scale up my return;s during this crash will be highly appreciated.
You have to get a financial-advisor/broker to aid you diversify your portfolios to include commodities, inflation-indexed bonds and stocks of companies with solid cash flows, as opposed to growth stocks where valuations were based on future potential earnings.
@@chrisbluebird5037 that's impressive!, I could really use the expertise of this advisors , my portfolio has been down bad....who’s the person guiding you?
I've read the FT, the Economist and other broadsheets this week, as I've tried to make sense of what has happened. This video blows them all out the water. This is first class content, independent thought and research. I love the variety of sources you pull from and the conclusions you draw from analysis.
What I like about this channel is the use of data, everything is backed by facts. Ramin is a true voice of finance on KZhead
Great video, Ramin! Congratulations for breaking it down so clearly. Keep it coming
This is definitely the channel I have been looking for since a considerable amount of time.
Thanks for being calm and objective.
Great summary of the last few days.
thanks Ramin, this is the best content you put on KZhead. I am glad you've been doing this for a while and I hope you will keep the news commentary coming in the future!
Glad you enjoy it @AIFX
I find so much value in your videos !!!
I appreciate that @Battery Powered
Ramin, you are truly a gift from financial heaven. Thank you for the education 🙏
This video is super well made, I tried understanding bonds, their yields and effect on the market recently. This video really brings it all together. Thank you so much!
Glad you enjoyed it @Robin Müller
Great stuff! Would love to see a video on the Plaza Accord and if you think we'll have another one with these currency runs.
Thanks for the clear and cogent explanations and interpretations - really excellent content.
Glad you liked it @Firs Argentum
Ramin, I think 11 Downing St needs you! Thanks for showing all these hard facts I would have no idea of knowing where to find.
Excellent.Thanks
Thanks as ever for your very helpful remarks Ramin. However, I think you meant to say the BoE were dovish, not hawkish - the markets were definitely expecting firm intent to raise interest rates quickly and I think they got anything but that.
Thanks for the simple explanation.. Cheers
Glad it was helpful @Robert Parrott
Great content, thanks!
Thank you @Matt! Ramin
Well presented by a very knowledgeable presenter. Thanks for making financial markets more enjoyable 😊
Our pleasure! @Wila Simps
This is quality very well explained
Thanks @Bilal
Ok good TNX brother
WOW😍 GUD NEWS👍️
Great summary, TQ
Glad it was helpful @Paul Holdstock
Thanks for this Ramin! Just one little thing: @16:25 you mentionned "the top 20% of households" while this should be "the top 5% of households".
Also, they don't have the greatest wealth. They have the greatest income. Big difference.
"make a hedge fund blush." best line evar. we're done for!
Excellent
Outstanding review of the situation and the consequences; whether UK equities are a good bet is a different issue. It is hard to see how the Tory party can survive unless they abandon Truss; listening to her this morning, she would not confirm that there would not be spending cuts or failure to keep benefits in line with inflation. Vague references to focus on outcomes as opposed to inputs?? Another NHS review - just as we go into winter?? The next few weeks will be very interesting!
Just superb!
Glad you like it @Michael Delisieux
excellent as always..tks
Thank you @Alison Wang
top top top video. You are good sir !
Glad you liked it @realmadridvideos
Very good video. thanks
Glad you liked it @Jose Santos
Excellent review
Thank you kindly @Olito Nottero
You are a treasure sir❤
Thank you so much 😀 @mohamed hossein
It will be helpful If you can explain the effects of us fixed market or world fixed income markets.
A great explanation of the effects of the mini budget. I feel the government have made a monumental mistake with the energy price cap and should have had something more like a fixed rebate on householder fuel costs to target fuel poverty rather than bail out millionaires heating their mansions. Stagflation coming!
one direction of thinking!
This could be the end of this government. How can the Tories have confidence in this debacle? Rumblings must be heard even at this early stage, in constituencies across the nation. The deal on the energy has been signed, it's binding on successors. No doubt it could be unwound at great expense, but the short- term thinking is breathtaking.
well explained
Thank you @Aditthiyan SA
Thank you
You're welcome @Arda Güney
The energy price guarantee could be very tricky. The messaging needs to be very precise. Otherwise it can easily spin out of control for the UK economy putting far more pressure on the Pound. In the short term, I would not be surprised if the Pound would slide to $0.80 before recovering.
I agree with all you have said. The message needs to be very precise or it can easily spin out of control. What I mean is stating that Asia enters into price competion with the European Union and mentioning that internal bussiness will instead hoard cash is better left unsaid. Because what he has done is alert Asia and British business what can be done to damage British FINANCIAL MARKETS EXTERNALLY AND INTERNALLY..
Thanks Ramin, great video at confusing times. What I'd like to know is how to maximize extra bits of cash, now we won't be investing in US currency as much. Invest in FTSE100? Pay off mortgage? Keep buying global index funds?
Would you buy GLTL now ? What are your views on the long end curve yield interval in %?
There are no income tax cuts in Scotland, isn’t that figure wrong at 16:38? I see the note below the figure, but I think Scotland have made the decision to keep current rates. Great video though, thank you 😊
They have
Thanks for another timely update. Just wondering if mortgage rates rise and it puts pressure on the housing market, what would happen to the rental market? Would first-time buyers be better off to rent for longer, or the house price drop could offer a good entry point?
Would think getting a mortgage at a good rate will be the issue .
ramin can you make a video about the british pound and wherher it will go to zero.....what does this mean for the normal person living in the uk in terms of day to day living
Glad I swapped from Target Retirement to Global all cap in December, vanguard need to smarten their act up.
Why, what's it got to do with Vanguard. The Vanguard target date retirement funds strategies are in line with a lot of similar retirement funds. Nobody has a crystal ball, and if I did I would already be more than set to retire in comfort
I went to USD, completely, 5 months ago
Hi Ramin, thanks for another great video. Would you be able to comment on what factors would make bond funds such as VGOV to rebound from the current lows? Do you think the current 40% slide of VGOV is already pricing in the interest rate rise to the level of 6%?
It's a safe assumption that the market prices everything in (and even if it didn't, we have no way of knowing so why worry ?)
Ma I thought if we get a recession that could cause the UK gilts to go back up in value, as they will surely have to put interest rates back down again if we enter a recession.
@@fredatlas4396 thanks for your comment. If Bank of England followed the approach of fed then I guess they would only reduce interest rates if there is a recession and they are confident that inflation is under control. I worry that hitting a recession may not be enough for boe to reduce rates.
@@chrisf1600 yes, good point. I would still like to have a better knowledge about factors that could drive VGOV up or down.
I will rephrase my question. What would make VGOV go to zero? Would that happen only if UK defaulted on its debt? Any other possibilities?
The GBP has been falling against the $ gradually for a century or more
Love it😍
I don't understand why the price of UK Gilts goes down when they yield higher interest. Surely something that gives a higher rate of return is worth more?
Am I right in thinking that if the UK goes into Recession then Mortgage interest Rates will go down ?
I can understand why new mortgages are applied at the current interest rate. But why do existing loans increase too? That deal is done, the bank borrowed the money at 1% and sold it to me at 2%. Why do existing loans get affected (mortgages)….
How much houses drop which areas are more exposure
Im a funded trader and I am also guilty of short selling the pound. 😭sorry. Especially Sunday at 8 PM est. that candle was insane.
The government has only capped the unit rate of a flexible tariff - NOT capped the max you will have to pay regardless how much energy you use….if you use more energy you pay more.
I am an ex pat pensioner living on Bulgaria totally reliant upon my State Pension. This morning changed into Euro and Bulgarian Lev!
There's obviously a lot of doom and gloom at the moment - from an investment stand point I'd love to see some videos on good investments to make in this bear market. Energy has probably already done its biggest run. Should we just be shorting?
With FED on 3.0% and BoE on 2.25%. If the FED goes for another 0.75% BoE will need to go 1.5% in November to match them at 3.75%.
A country and people should live within their own means to avoid any disaster.
Isn't the truth of this problem is that it has been building for 25 years. the fed, bank of england, the ECB monetising excessive government spending, keeping interest rates artificially low for years, creating economies addicted to low interest rates (Like a drug addicted economy) etc. Like the bond market bailout was a result of risky strategies due to artificially low interest rates? All of that combined with the fact the UK is not energy self-sufficient, this along with the inflation issues has exacerbated everything? And then politicians and central bankers will not take the blame for anything, its never their fault, its an act of god?
Why did the GBP fall when BoE signalled a higher interest rate? Shouldn’t the value have gone up? I’m confused😅
I have been delaying getting solar panels and battery fitted but due to increasing interest rates, inflation at an all time high…I’ve decided to go ahead and get solar installed taking advantage of 11 year interest free government loan of £11k (Monthly payment of £77) ….is it correct to assume due to interest free rate…my loan is a no brainier as the value of the loan will actually decrease due to high inflation?
Only have to look at the awful year to date performance of UK gilts and compare them to EM Local Currency Bonds (these have performed far better than UK gilts this year) to realise that there is something very, very wrong with the economics of the UK these days.
Physical gold linked to the British Pound is doing just fine
This is irony, right? Physical gold 'in pounds' rather than 'linked to the pound' is only doing ok because the pound is tanking! Why didn't you get it 'linked to the Zimbabwe dollar'? Then it would be doing amazing!
Nice one Ramin. The good news is that Nat Gas is well down from it's peak price in June. Oddly, a higher base rate would be popular with many Brits because they want to see house prices crash andf savings rates go up. Strange world we live in. The BoE say they are determined to keep inflation at 2% ??? Not much sign of that so far.
Because house prices here in the UK are way over priced, and an awful lot of people can't afford to buy a home. Plus a lot of people don't understand investing, and don't want to risk their money in the markets, so they want higher interest on savings accounts
I agree with Fred Atlas; house prices need to cool down and savings rates need to go up When there are people (with decent jobs) in their 40s still waiting to buy their first homes, something needs to change!
I think there’s more of a global issue with USD being the reserve currency. It holds every other country to a sword and the US just exports all their problems.
Exactly its the common denominator. Issue is theres no alternative fiat currency people will trust.
yeah but their day of reckoning is coming it will just be a slower burn. All this downturn is the result of years and years of poor fiscal and monetary policy and finally the shit is hitting the fan... the poorest will suffer
I agree. Can onyone explain why the dollar is surging when it should be on a downward slide. Reasons why? Continuously signing blank checks. Funding an anti energy that is destroying agenda that destroys USA energy independence. Driving up the price of goods, gas, electrity. Weakening the energy grid. Lastly Leaving Billions of dollars of weapenry in Afganistan. I am sure you can mention many other reasons that makes the dollar surge very suspicious???
Increasing money in the economy increases inflation which leads to higher interest rates. The budget did not encourage industry to invest - when the cost of borrowing is up!!
Rishi knew this would happen. But Truss had a flowery way of speaking.
I simply can't put my finger on why the Tories chose her instead of Sunak - there must be some reason though.
@@JohninRosc i think it might have been his tan 👔suit
@@JohninRosc I think it was because she has made a lot of them much richer over night, they have been shorting the pound. And she's scrapping the 45% tax rate for people on more than £150000 gross per annum
@@fredatlas4396 she only told a select handful what the budget would contain (allegedly) - they chose her before they knew she’d make them rich. There must be something surely that they disliked most about Sunak - or is it a pigment of my imagination?
@@JohninRoscwhat do you mean? They have been choosing the worst candidate for the last 5 years. We went from Cameron to May then Johnson and now Truss...
The energy price cap is a sledge hammer that benefits all whether they need it or not and at the same the tax cuts have done nothing for any one earning much below median wage.
Anyone earning a wage below the median effectively doesn't pay tax: the benefits they receive such as UC are greater than the tax they pay. The solution is to cut taxes and cut the cost of benefits so that the government doesn't subsidise low paying employers such as Tesco, who currently get away with paying less than a living wage.
Never want to hear again that the economy is safe in Tory hands
Sounds very scary hopefully the market recovery is sooner than later
for the uk it wont, it will likely take a decade
When you say at the end 'UK equity is looking like a bargain right now', is that for overseas purchasers due to Pound weakness or all purchasers, including those in the UK, due to valuations being at 'bargain' levels? I'm guessing the former?
FTSE 250 perhaps
You need to pay him first to get response. No free lunch from Ramin, he needs to feed Teddy. Ask Sven Carlin, he responds to anyone!
Yes the former
@@mikemike5973 I disagree, I think it's both. And it's really only dollar holders (who don't have to be yanks), Euro and Yen holders are basically in the same position as GBP holders: but I think GBP will rebound much more quickly because the source of the GBP drop is basically a temper tantrum.
@@edwardkenworthy7013 well you can't really disagree as its a fact that for dollar holders UK ftse represents better value. On a Cape ratio basis I'm sure the ftse would be better value than US major markets but haven't checked recently but it has had dismal performance in recent years basically going nowhere
because of all the unbacked debt used for the uk housing boom is causing rapid inflation, the uk cannot raise rates. so it can only deflate the currency worth. your pensions are to be sacrificed to inflation.
Dollar will always be strong that’s when it’s the reserve currency of the world. Everything is priced in dollars. Gov’t need to stop QE, raise interest rates to head inflation off over the longer term. Kicking the ‘can’ down the road isn’t an option. Bonds down, housing down, stocks down. Only save haven gold and silver?
VGOV was supposed to be my bad times hedge. Currently VGOV has sold off harder than VMID. Is VGOV a meme stock yet?
I have the Acc version of vgov and I was expecting it to give some stability, down side protection to my portfolio. I guess the only upside might be when I come to rebalance, as if the gilts are stil way down or even further down I will be buying gilts at a much lower price point. Which I hope will then produce better returns in the future
What about the cost of war in the Ukraiňe? How much does war cost?
One part of the analysis I disagree strongly on: The markets didn't dislike the BOE's tweet because it was "hawkish", they disliked it because they were hoping/expecting an emergency rate rise of 1% or more and Andrew Bailey ruled it out. He's the most dovish BOE Governer ever, an utter disgrace who has not even attempted to fulfill his remit of limiting inflation, and the statement "we won't hesitate to act" when followed by the unspoken "at our next meeting in NOVEMBER" is an absolute joke, to be quite honest.
BOE do not care about the value of the Sterling, Bailey is talking to Kwasi twice a week, it is all coordinated. If they raise the rates too much and too fast the housing market will collapse and the banks will follow. The UK is f....d. As FT article states today: The UK has confused itself with the States...huge mistake.
Yes, the BoE decisions are deemed untouchable by financial critics…
Yes the BoE should have reacted much sooner and long before Liz Truss became Prime Minister and in fact months sooner.
The UK banks and economy is better position than Germany, France and Italy. If the BOE hold firm the pound will rise up steadily back to $1.20. In 2020 the U.K. financial industry was worried that the pound would bounce up to over $1.60 or worse.
they are not xD because the uk also have brexit to deal with
Yeah and the EU/Euro has so many countries tied up together. Italy is a ticking time bomb for them. 10x the debt of greece.... If they go, the money will have run out, theres only so much propping up the german taxpayer can do. I get what the EU/Euro was trying to accomplish, but i think in the end it will fail
PensionCraft should be an advisor for the Tories.
The Tories get all this advice and more. They just don’t listen
My pension provider actually increased UK gilt exposure in July which flabbergasted me at the time as clearly UK yields had much further to rise than were already priced in, even before the shenigans of the latest airheads in Downing St.
Suppose they couldn’t have predicted thick liz getting power.
Why did UK leave The European common market?
@15:39 weird assumption!
Sorry, the currency didn’t fall in response to a BoE threat to raise interest rates; it’s probably because markets sense they’re not in control..
Not so much that they are not in control but because they don't have the will. The one thing the BoE is good at is acting too late.
The UK economy is in a worse state than my gusset after a nasty follow through from last night's Vindaloo.
Nah. That's just what the "liberal" "elite" want you to believe: the state of the UK economy isn't great but it's better than many, EU and USA. But then they're led by idiot "liberal" "elite" mouth breathers. The UK at least is starting to climb its way out of the enormous hole that the idiots leading us for the last 20 years dug.
WoW😍 GUD NEWS👍️
@@RogerYeahmon Couldn't comment!
What about the solvency of the BoE? Their bond assets must have been destroyed over the last few months and they also pay an overnight rate on the gilts!
So is a UK gilt a good investment now?
No
Yes.
Keep up the good work really good news , now we see the real price of a council house , was never worth £400k, first time buyer here very very happy, the gift that keeps on giving, hoping the conservatives stay in forever
I thought Bailey's comments helped £ recover. Did I misunderstand?
Thanks Government for tanking my house builder stocks.
@richard chapman With Persimmon yielding something like 20% i'm happy to just ride it out :)
good money is the root to all evil,,,
Thanks for your well balanced take on this subject. I wish I hadn't listened to nutty commentators before this 🤔
You and me both @Gary Durn
The lemmings effect?
Have Truss' government screwed it up for us?
the Tories have screwed the uk for decades.
@Pensioncraft Around 15 months back (when i was a Pensioncraft member) I did suggest inflation could exceed 7% for a prolonged period of time and the BOE would need to raise the base rate to 4% ish. At the time Ramin i remember you poo poo'd that idea. Seems to be come true now? Just call me Nostradamus 😉
I had some zoom calls great at talking but didn't get much from it whilst he doesn't advise in videos going back his portfolios were focused on bonds did he sell them?
Of course: you predicted the Russian invasion and then the gas price escalation. You were wrong in your thinking - but you just got lucky.
@@danguee1 who here has mentioned anything your referring too?
@@danguee1 No just the unprecedented money printing, historically low interest rates, shut down of industry etc... The west were always more likely to come out of the Pandemic compared to other parts of the world. The west generally consume, the east generally produce & export. Supply & demand inbalance. Gas & oil were heading up in price before any war. Energy prices always drive cost through all other sectors. Markets are cyclical. Oh and i listened to Ray Dalio ( a guy who is fairly well informed) and was already talking about these risk over 2 years ago. At worst i stole his idea.
@@danguee1 btw Gas prices were significantly higher in 2005 & 2008
The Bank of England and the chancellor’s policies seem to be at loggerheads.
This is exactly the problem. The BoE should be implementing Government policy, not creating their own.
@@edwardkenworthy7013 we need an adult in charge though otherwise inflation will go through the roof
They are pulling in different directions. Bailey should have increased interest rates earlier. Now his hand has been forced and the interest rate increase is a bit of a shock. Hopefully France will get their nuclear plants back in service soon.
👍
UK is following Sri Lanka and Greece footsteps to bankruptcy. High government spending = increase government debt. Lower tax = reduce government income. When both policies are implement, it is the first step to bankruptcy. The currency will lose its value and UK will default on its debt.
The chart at16.28 shows the wealthiest 5% of households receive virtually all of the gains while the poorest 5% get nothing.
Here - let's fix that: 16:28
With ALL these negative news; Why UK stock market not going down ???
Mainly because the adults know this is just a temper tantrum by the "liberal" "elite" children.
I think you are too positive about it. The whole thing was a disaster and I wouldn't be surprised if they take it back altogether or we soon will have general elections.
Call UNICEF to help feeding your kids😂😂