Interest Rates Could Stay 'Glued' to the Floor, Admits Bank's Chief Economist

Photo: CHRISTOPHER PLEDGER

Interest Rates Remain Glued to the Floor – Andy Haldane-Chief Economist

Reports have come in from the Bank of England’s chief economist, that the interest rates would remain glued to the floor for the instant future. It has been stated by Andy Haldane who sits on the Bank’s committee of interest rate setter that inspite of strong attempts in dislodging them; rates tend to remain stuck at unprecedentedly low levels across major economies.Presently the financial markets are speculating that the UK rates would rise from their lows of 0.5pc to around 2,5pc ten years from now which according to Mr Haldane implies an extraordinarily slow pace of monetary tightening at least by historical standards.

He suggested that policymakers, in trying too hard to raise rates would make the situation even worse, but on the contrary with in due course, they could come free of their own accord. He further stated that it is one reason why the glue holding interest rates to their floor has stayed so strong and feels no immediate need to loosen that glue.Mr Haldane has earlier considered himself as one of the Bank’s most dovish interest rate setters, indicated that he would prefer rates to be lower, instead of being higher. He comments that the Bank should be prepared to cut interest rates if it looks like low inflation and tends to become entrenched in the UK.

Interpreted Downward Drift as Evidence of Secular Stagnation

He has said that the glue holding rates low is remarkably resilient and could have been aggravated by deficient western investment together with additional savings in the east. While in conversation with Milton Keynes, Haldane has stated that `some have interpreted their downward drift as evidence of secular stagnation’, which is a concept that economies tend will grow slowly than in the past and this fear is an echo of concerns raised after the Great Depression. Consumers and businesses now are concerned that what is a reasonable recovery may not be permanent. Consumers are pleased that their glass is now less than half empty but they are no more willing to drink it and this cautious behaviour is to a degree, mirrored also among companies’.

Wage Growth Causing Fluttering 

Inspite of encouraging signs of wage growth during the year right up to April, together with rise in pay with its fastest pace from the time of the crisis, Mr Haldane had cautioned using the phrase `one swallow does not a summer make’. Analysts had informed that the pay growth could be even stronger after accounting changes in the UK’s workforce like the changing mix of employee ages, occupation and job tenures.

However, Mr Haldane has criticized the idea stating that `the wage growth is causing some fluttering though not in this dovecote’. It is now a matter of time to wait and watch for the outcome of the prevailing scenario on the interest rates in the near future.

How Crowdfunding is Exposing Bad Professional Investors

Crowdfunding Platform – Exposes Business

Crowdfunding is getting popular in the present world as an innovative method in which companies could generate funds and presently North America market is far advanced followed by the European market. Crowdfunding is the concept which comprises of funding a project or a business done through a number of individuals who tend to invest small amounts generally through a web-based platform.

Presence on a crowdfunding platform enables people to expose their business ideas to a large number of potential investors as well as business professionals. Fully funded crowdfund indicates that the group of investors and business professionals have faith in an idea and not just one investor. There is Equity Crowdfunding which involves a company offering equity share capital in return for the funding of cash which is not different with that of a Public Limited Company having share issue.

 But Private Limited Companies do not have access to Stock Market and the cost of going Public in most cases will be prohibitive for smaller or new companies. Crowdfunding thus, enables private companies with the benefit of raising capital from a number of investors through a share issue, minus the cost, regulations as well as reporting implications of being a Private Limited Company.

Google Search – Rise of Crowdfunding

Loan Crowdfunding on the other hand does not need any issue of shares by the company wherein one can just apply for a loan from investors at the agreed rates and the repayment terms. Instead of an individual or a fund provide offering the total amount of the loan needed, the business receives loads of small loans which could have various interest rates.In recent years, Google search has provided some data supporting the rise of crowdfunding and one that stems out from a study done by the World Bank, indicates that the global crowdfunding market would touch between $90 and $96 billion towards 2025.

Till recently, the number given on investing in start-ups and entrepreneurs was only reachable to people with deep pockets and the democratization quests is the major benefits of the rise of crowdfunding. The development of renowned platforms in the world, such as Kickstarter and Indiegogo, has provided many non-professional investors with the opportunity to back start-ups which tend to be appealing. Moreover, it could also provide a previously untapped way of capital for start-ups while acting as a competition for angel investing community and possibly also for the larger investment institutions.

Innovative Idea- A Game Changer 

Jeff Lynn, CEO of Seedrs, one of UK’s leading crowdfunding platforms had a discussion with Hot Topics on the factors behind the rise of crowdfunding, on his thoughts on professional investor as well as his advice on building a successful crowdfunding campaign.

Crowdfunding tends to be an innovative idea; however like anything which promises to be a game-changer, it also has its benefits as well as drawbacks that have to be measured. Several individuals would want to assist their colleague or neighbour in launching a new business, an idea or a product, help someone in need or pre-purchase some of the latest innovative product and crowdfunding could have the potential to do so.

Equity crowdfunding via a portal tends to expose many individuals to investments in start-up business through the internet and with crowdfunding; investors send money in exchange of intangible right without being aware of what happens to their funds invested. Recent investor survey carried out by the Ontario Securities Commission indicated that people in favour of equity crowdfunding were not aware of the risk. More disturbing was the fact that 12% of those identified as low risk tolerance were strongly interested in equity crowdfunding.

Implementation of Equity Crowdfunding Model 

Advocates recommend that the crowd would be capable of identifying fraud and weed out bad actors Experience together with research demonstrates that this is not the case; on the contrary investors tend to turn out to be victims of fraud at a shocking rate.Officials are probably proceeding in implementing an equity crowdfunding model and though the Canadian Foundation for Advancement of Investor Rights does not back an equity crowdfunding exemption individual could limit themselves to fraud and probable losses.

According to Jeff Lynn, `crowdfunding tends to be hard work and one of the issues which people always misunderstand is that you don’t just put up the listing and then wait for people to come and fund you. It is a tool for you to go into your networks and the public and get them excited about the deal’. They often inform the entrepereneurs that if they come there expecting that they will have to find the majority of the investments then a lot can be found from the network.

Crowdfunding tends to be useful in various ways, providing opportunities in fundraising for creative projects or for any start-up projects. It is a platform which enables the user to market their project, generate interest as well as receive funds. Its supporters could provide valuable feedback about a project and once the individual has settled with a stabilised support, there is no limit to the volume of projects one can fund.

How Much Cash is Too Much for Your Portfolio?

Cash Position – 6% - 30% Based on Age/Risk Appetite

As per Charles Schwab Corpn’s – SCHW robo-advisor, Schwab Intelligent Portfolios, the cash position of an investor should be between 6 and 30 percent based on age and risk appetite. If one would be looking for a precise percentage, advice from financial experts will inform the individual to focus on capital allocation of 60 percent stock, 30 percent bonds and 10 percent in cash.

Investors though who are more likely to take risk are the younger generations who don’t necessarily need a stable income and could have more capital allocated to stocks. Cash is king as well as trash and nowhere is cash said to be more controversial than using it by way of investment, where too much of it is considered to be a risk but how much could be `too much’?

The debate came up when Charles Schwab had launched Intelligent Portfolios which is an algorithm based platform that automatically builds and rebalances portfolios like the asset-management services of robo-advisors and his treatment of cash in platform had many eyebrows raised, leading to criticism of allocation to cash, depending on the investor’s risk profile.

How Much Cash an Investor Should Hold …?

Charles Schwab replied that there seems to be no right or wrong answer as to how much cash an investor should be holding as an investment and that it is a strategic decision. He further added saying that it is easy to question cash in the 6th year of a bull market and when the Federal Reserve is artificially suppressing interest rates, but they did not invest based on the last six years.

Investment was based on what can be expected in the future. Bull market end and interest rates increase and when they do, a little cash will feel pretty good’.The question raised was, how much should one hold in their brokerage account to which both sides seemed to agree and there was not a single answer that fits all circumstance. When people tend to discuss their investing portfolios they usually refer to the stocks, commodities, bonds and real estate that they own. Regarding cash and how much to hold in a portfolio is based on who you are and how you are investing as well as your investment perspective.

Cash Not As Asset Class – Call Option Which Can Be Priced

When Warren Edward Buffett an American business magnate, investor and philanthropist and the most successful investor of the 20th century had patiently held around $20 billion in cash, he thought of cash not as an asset class which is returning next to nothing but as `a call option which can be priced, relative to ability of cash to buy assets.’ He put in good use at the time of the financial crisis gathering deeply discounted bargains. Most of the investors, lack the discipline of Buffet.

When the market is rallying, cash in the portfolio tends to drag on performance, returning to around zero. The debate for cash in the portfolio is that it does not go down at the time of market crashes but enables the purchases of cheap assets like Buffett, at smart prices. However, investors rarely tend to buy when markets are crashing and are simple apprehensive, to take the plunge. Those who avoided the 2008 crash were stuck with too much cash in their portfolios as the markets recovered.

New Pensions Crisis as Thousands Can’t Get At Their Own Money

Pension Crisis – Problems at Financial Firm

Problems at the financial firms have left people intending in getting access to their retirement cash under new rules which has become effective in April, blocked by companies’ lack of readiness for the this change. Investigation published in recent Daily Mail conveyed that people have been charged for withdrawals or for changing to rival companies.

To add further to the problem they are also made to wait longer for their pay-outs, in some cases to around three months. Some others state that they have been forced to pay for financial advice up to £1,000 if they say they want their own money. Pension companies in the first month of the alterations, had to handle unprecedented 1.13 million phone calls from individuals intending to take advantage of the new freedom which was an 80% increase in the usual activity leaving several with the inability in coping with the demand.

Besides this, many were caught by the speed of the introduction of the improved rules together with the uncertainties on various aspects of the freedoms leaving them unprepared in dealing with the requests.

New Rule – Individuals Aged 55 Onwards – Distinct Contribution Pension Withdrawal

The head of pension research at Hargreaves, Lansdown, Tom McPhail commented that `given the speed with which the reforms were introduced, it was always likely that some companies would struggle to be ready in time. Investors with these companies should be given the freedom to transfer their money elsewhere without having unnecessary barriers put in their way’.

He further stated that it would be unacceptable for some of the firms in charging people or put barriers to stop them in making use of the new freedoms. He said, `insisting that investors pay hefty exit penalties, use a financial adviser that some may not need or jump through bureaucratic hoops is simply not reasonable or fair’.

The new rule enables individuals aged 55 and above, with a distinct contribution pension for withdrawal if they intend to, though there are massive tax implication if they intend taking it in one go, in other words it is wise for people to get advice before rushing to get hold of their cash. FCA spokeswoman informed that they were monitoring how the firms would be implementing the changes and how it would impact consumers.

Reform Purpose – More Control on Money

Most of the people have been capable of taking advantage of the new rules without much problem thought they were talking to those firms where the problems have come up as the reforms bed in. It is in the interest of everyone to make a note that consumers utilise the new options available to them with confidence. Recently David Cameron indicated that he would be keeping a `careful eye’, on the treatment of companies to pension savers, on receiving rising complaints that the customers have been denied the new freedoms.

He informed that the purpose of the reforms was to give people more control on their money and not to have a new way to charge them and that the need for great transparency in pensions industry is essential. Pensions giant Friends Life, which is now part of Aviva, was forced to apologise recently, to around 1,300 savers who had asked to withdraw an amount of their cash and had informed them that it could not offer them this choice. On the contrary, the savers were told that they could cash in the whole amount which would leave them with a huge tax bill and use the fund to buy an annuity or transfer their money to another company. Friends Life had stated that they would be offering partial withdrawals in due time

India's May Month Iran Oil Imports Hit Highest Since March 2014

India’s Import – Increased to Highest Level – May 2014

Last month, India’s imports of Iranian crude oil increased to its highest level since May 2014 as the refiners enhanced the purchase ahead of a final push by the international negotiator in order to reach a deal on Tehran’s doubtful nuclear program by the end of June.

The increase to a 14 month high just two months after India, dropped its import on crude from Iran to zero under the pressure of U.S. to limit the purchases of the Islamic republics’ oil.For the first time, India did not take any Iranian oil, in at least a decade in March this year. Several analysts state that the United States, Tehran, Britain, China, France, Germany and Russia would be reaching an agreement by or littler later after June 30 deadline for a deal, though the sanctions which have cut Iran’s oil exports to less than half of pre-2012 levels are probably not likely to be lifted till next year.

United States along with its five partners have approved a way of restoring U.N. sanctions on Iran should the country tend to break the terms of any future nuclear deal, clearing a major problem of an agreement ahead of the deadline, though there are several other issues that need to be resolved.

India – World’s Fourth Biggest Oil Consumer

India, being the world’s fourth biggest oil consumer and Tehran’s top consumer after China, had shipped in about 367,900 barrels per day-bpd in nine vessels of Iranian crude in May, up 39% over April, as per preliminary data from trade sources as well as a report compiled by Thomson Reuter Oil Research and Forecasts. The data also indicated that the May imports surged by two-thirds from last year.

Between January to May, India had taken 203,100 bpd from Iran which is about 33% less oil than in the same period of last year, since the nations’ refiners had cut imports in the first quarter. This was to maintain the overall imports from the OPEC producers to a 2013/14 level of around 220,000 bpd. Private refiner Essar Oil was the biggest Indian client of Iran in 2014 which was followed by Mangalore Refinery and Petrochemicals Ltd and India Oil Corp.

Iran – Nuclear Programme – Peaceful/Rejects Accusations

The data also indicated Iran’s biggest Indian client in May which was Mangalore Refinery and Petrochemical Ltd – MRPL.NS that shipped in around 207,400 bpd from Iran. Purchases had been stepped up in May ahead of a three month shutdown by MRPL, during the coming monsoon season of a one point mooring site which enabled it to import oil in large crude carrier, according to a source.

The data also revealed that Indian Oil Corp. – IOC.NS, the country’s largest refiner, received around a million barrels of Iranian oil in May. The data also showed that India’s Iran oil imports surged by 43% to 316,800 bpd, in the first two months of the fiscal year being in April.

According to Iran, it states that its nuclear programme tends to be peaceful and rejects accusations from the Western countries that it wants the possibilities in producing atomic weapons. The data indicated that Iran was the seventh biggest oil supplier to India in 2014 and its share in the overall purchases rose to 7.3% last year when compared with 5.1% in 2013.