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Weekend reading: the end of the beginning for rate rises

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What caught my eye this week.

Last week we lamented how much poorer we feel than a few years ago.

Inflation has watered down the real terms value of our investment portfolios like a cheap nightclub barman diluting away our drinks. It’s reduced the potency of every pound we spend.

Nevertheless it was still quite a bender we went on.

So we knocked back higher rates to sober us up. But that in turn has given us an almighty hangover.

The typically steadier bond market has looked particularly sickly. Watching bonds puke for the past 18 months has been akin to learning the day after a wedding why your prim parents don’t usually drink anymore.

The good news is that the sickness of inflation and the cure of higher rates could now both be at the point of not getting any worse.

Inflation actually turned a while ago. Meanwhile the Bank of England just held rates at 5.25%. Its mandarins are mostly confident this level should be enough to keep bringing inflation down:

Source: Bank of England

But who among us can live on good news alone?

Hard miles ahead

It’s worth noting that Bank officials are still saying rates might have to rise further.


Besides, rates not rising doesn’t change the fact that they’ve already soared:

Source: Bank of England

Much of this dose of what’s good for us is yet to work through the economy.

For example, Labour cited research this week saying that another 630,000 homeowners will remortgage on to much higher rates between now and May alone.

The Financial Times has been running lots of stories about weak companies limping along on cheap debt that’s similarly due for refinancing.

And that’s not to mention entire shaky investment categories like private equity, which grew complacent and fat on nearly-free money.

With buyers for its portfolio companies drying up, some of those companies requiring more cash, and debt far more expensive than it was, private equity managers are having to get ‘creative’.

Which is a label in finance that typically only gets more specific when we discover how the wheels have come off.

Mapping out the future

Of course none of this is bad news, exactly, for central bankers.

In doing their calculations that rates are probably high enough, central bankers are presuming things will continue to slow down in housing and employment and with pay rises and the rest of it. And that this will continue to curb inflation.

It’s an obvious point, but enough punditry misses it to make it worth restating: you can’t look at the inflation chart above and say, “The Bank of England has done enough, inflation is already coming down, rates are too high!”

The forecasted fall in inflation is predicted on the current forecast for interest rates – which is that they will eventually go lower, but not next month and not back to zero.

Whereas if rates were to be cut prematurely because inflation is sliding, then the resultant pick-up in activity could arrest that slide, putting rate rises back on the table.

Along for the ride

For now though, the Bank of England seems to believe it has probably done enough.

Definitely maybe, as the world’s greatest pub rock band put it.

Similar narratives being told this week in central bank press conferences in the US and the Eurozone – plus some weakness at last in the hitherto unstoppable US jobs market – were enough to trigger heady gains for stocks and bonds.

So if you resolved not to look at your portfolio in the midst of the recent despond, be comforted it’s probably gone up a bit now.

Indeed a few more weeks like the last one and emotions could swing back to the fear of missing out.

Pretty hard to imagine from the vantage point of a fortnight ago, but markets are like that because people are like that.

Sitting out the guessing game and investing passively is much less stressful than riding this rollercoaster and trying to guess in advance its twists and turns.

For most people far more profitable, too.

When markets are down, just keep saving to take advantage of lower prices. When they rise, remember they’ll probably go down again, sooner or later.

Keep on keeping on.

We missed the last turn

Does that sound defeatist to you?

Well, recall that even central bankers were wrong-footed by the inflation shock – and looking out for that sort of thing is literally their day job!

Check out this graph of missed expectations from the Financial Times [Search result]:

Source: Financial Times

In sporting terms bankers whiffed it – the equivalent of sending a penalty kick high into the stands above the goal, or delivering a second serve into a ballboy.

And don’t think they have it easy now, either.

Raising rates to catch-up with suddenly-runaway inflation was a no-brainer.

Deciding when enough is enough is borderline guesswork.

From the same FT article:

Joseph Gagnon, a former senior staffer at the Fed who is now at the Peterson Institute for International Economics, says central banks are now at an ‘inflection point’ and that this is a point of minimum — rather than maximum — confidence in the outlook.

“When you know you’re behind the curve and you better raise rates fast to catch up, you have a lot of confidence that you’re doing the right thing,” he says.

“But then as you approach where you think you might have done enough, that’s when you’re less certain about the next move. That’s where they are.”

For market watchers this sort of thing is incredibly fascinating.

Not least because, as I wrote last week, asset prices will surge when investors are convinced inflation is beaten and rate rises are done.

As I say we got a taste of that with the strong rally of the past five days.

Finding our feet again

From a personal finance perspective though, whether the Bank of England keeps its Bank Rate at 5.25% or ultimately takes it to say 5.5% or even 6% is pretty irrelevant.

The journey has already taken us to a different reality. Arguably a saner one, but very different from where we began – one where you get interest on safer assets and there’s a real cost to borrowing money.

We’re nearly there yet, to answer the calls from the back.

But it will take us a while to get used to it.

Have a great weekend!

From Monevator

Low-cost index funds – Monevator

When growth goes wrong – Monevator [For Mogul members]

From the archive-ator: How scary can investing be? – Monevator


Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.

Bank of England holds Bank Rate at 5.25% – Investment Week

Early retirement in UK more the preserve of the wealthy, study shows… – Guardian

…as the number of over-65-olds still working soars – This Is Money

Private equity: higher rates start to pummel dealmakers [Search result]FT

Workers in four-day week trial in Valencia less stressed, more social – Yahoo

London’s Square Mile to have 11 more towers by 2030 [Interactive pic]Guardian

LinkedIn passes a billion members, launches AI chatbot – CNBC

China’s billionaires looking to move their cash, and themselves, out… – Guardian

…while Vanguard has just completed its own China exit – PI Online

Degrees don’t pay in the UK because our low-skills economy has too few graduate jobs – FT Via X

Products and services

Is there any point in a 4.85% fixed-rate savings account that lasts 30 days? – This Is Money

How to get £175 by switching to Barclays – Be Clever With Your Cash

UK mortgage borrowers can expect better rates, but higher fees – Guardian

Charles Stanley Direct’s new cash savings platform – This Is Money

Get £50 free trading credit when you open an account with Interactive Investor. Terms apply – Interactive Investor

How to invest in whiskey with just a few hundred pounds – This Is Money

Home insurers are denying too many claims – Which

Open an account with low-cost platform InvestEngine via our link and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine

How will leasehold reform affect existing homeowners? – This Is Money

Homes for sale in historic castles, in pictures – Guardian

Comment and opinion

Asset allocation isn’t magic – Oblivious Investor

Disciplined in the little things – Novel Investor

Six lessons from The Four Pillars of InvestingHumble Dollar

Emotions and market timing attempts are likely to cost you – The Financial Bodyguard

Look for financial big wins – The Art of Manliness

How and why you can join the army of digital nomads – Guardian

How do you walk away from good money? [Podcast] – Examined Life via Spotify

Inflation – Indeedably

My happy retirement – Humble Dollar

The Trussquake: one year later [Podcast, few weeks old]A Long Time in Finance

Yet another bonds mini-special

Bonds look attractive again [Search result; rally since publication date]FT

Why many don’t have the balls to buy bonds now – Behavioural Investment

A sea change for bonds? Really? – Humble Dollar

How to more than beat inflation, risk-free, with TIPS [US but interesting]ETF.com

Naughty corner: Active antics

A long podcast interview with Charlie Munger [Podcast]Acquired

Total shareholder return [PDF]Morgan Stanley

11 things learned about investment… – Alchemy of Money

…and 12 predictions on the future of investing in music – The Honest Broker

An update on Tesla’s valuation in November 2023 – Musings on Markets

‘We’ve missed earnings forecasts lol’ [Search result]FT

Kindle book bargains

I Will Teach You To Be Rich by Ramit Sethi – £0.99 on Kindle

Poor Charlie’s Almanack by Charles T. Munger – £0.99 on Kindle

The New, New Thing by Michael Lewis – £0.99 on Kindle

The Epic Rise and Fall of WeWork by Reeves Wiedeman – £0.99 on Kindle

Environmental factors

Boom in unusual jellyfish spotted in UK waters – BBC

Scientists start returning rescued Florida corals after heatwave – Axios

The Danish island aiming for zero waste – BBC

Robot overlord roundup

How AI chatbots like ChatGPT or Bard work [Visual explainer]Guardian

Elon Musk sees a future where AI eliminates all jobs – CNN

Is Big Tech inflating AI risks to achieve regulatory lock-in? – Yahoo Finance

AI makes people more effective if they embrace it – Klement on Investing

Off our beat

Colonoscopy effectiveness: or how reading statistics is hard – Asterisk

What drives the racial wealth gap in America? – Of Dollars and Data

Britain’s housing crisis [Video series]BBC iPlayer

Marvel has lost the plot – Variety

27 nuggets of wisdom from 300 hours of interviewing – Ryan Holiday

Moving to Arizona – Mr Money Mustache

Keep your phone out of your bedroom and read books instead – Emily Gorcenski [via A/R]

The good side of social media – Spilled Coffee

And finally…

“Spend each day trying to be a little wiser than you were when you woke up. Day by day, and at the end of the day – if you live long enough – like most people, you will get out of life what you deserve.”
Poor Charlie’s Almanack

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{ 27 comments… add one }
  • 1 tetromino November 4, 2023, 1:12 pm

    No comment on the Bankman-Fried case? It was interesting to see that he really couldn’t come up with a defence any better than ‘I don’t recall’ or blaming the rest of the team. Amazing that the facade lasted so long, and I’m not sure what to make of Michael Lewis from here

  • 2 The Investor November 4, 2023, 1:24 pm

    @tetromimo — For me that was a 2022 story. You never know what can happen with enough money with the US courts, so I haven’t particularly followed the trial closely, and I don’t think I’ve anything particularly useful to add. I should have popped a link in though I agree. 🙂

    Here’s one for readers:


    As for the guilty verdict, I don’t think it’s particularly meaningful from ‘our’ perspective. If they’d found him innocent the whole story would have been just as bonkers but simply ended in another way! 😉

  • 3 tetromino November 4, 2023, 1:37 pm

    @TI – yes, I see what you mean, and I realise it doesn’t fall under the passive investing topic. Still, I was interested to see the court found things really were as much of a shambles as we thought a year ago. Got to be some lessons in there, even for people who would only ever have a small amount of money in something like this, being so far from the mainstream options.

  • 4 Time like infinity November 4, 2023, 2:45 pm

    @tetromino: SBF / FTX lessons = value of: (1.) maintaining low credence for bold, unproven claims; and,
    (2.) having a well founded understanding of probability and risk management.

    As regards (2.):

    On Kelly criterion:

    On Kelly as applied to SBF by Bogleheads:

    And as applied to him by Nick Maggiulli of Dollars and Data:

    And as applied to him by others:





  • 5 B. Lackdown November 4, 2023, 7:42 pm

    Colonoscopy article is dangerously incomplete. It suggests the only outcome of a routine colonoscopy is finding and snipping off polyps. In my case the camera went round a corner and bumped into a stage 3.5 tumour which was already into 3 lymph nodes and weeks away from being terminal. It seems important to flag this up as a possible outcome. In monevator terms it’s like holding premium bonds in the hope of picking up £100 a month, and ignoring the possibility of hitting the jackpot.

    Colonoscopies write off 3 days and are very literally a pain in the arse. Pro tip: insist on sedation and never believe anyone who tells you you’re fine without it.

  • 6 Algernond November 4, 2023, 8:07 pm

    Poor Charlie’s Almanack has been on my wish list for quite a while. 2nd hand they go for quite a bit.
    Just paid the 99p for Kindle version – thanks for highlighting. Roll on 5-Dec…

  • 7 Gentleman's Family Finances November 4, 2023, 8:19 pm

    It’s funny how a decade or two of negative real interest rates can make you complacent…

    I remember reading how after 9/11 interest rates (US but UK too) were lowered to not let the terrorists win.

    That lead to (in part) the house price bubble that never really popped – although depending on where you live, house prices are either higher than ever before or frozen at 2007 prices.

    Most peoples finances are crap – over exposed to their job, anchored by their house, weighed down by their mortgage and their DC pension is slowly drifting them to the rocks.
    And they are the lucky ones.

    So, I don’t fear the rate rises – I feared the drops 20 years ago when I wasn’t earning and had a lifetime of living expenses to pay for.
    Now, (with the benefits of http://www.monevator.com ‘s and others’ wisdom) a return to normal doesn’t worry me one bit – and if anything (like infrastructure funds being valued at around a 10% discount rate) higher rates help.

  • 8 Time like infinity November 4, 2023, 9:03 pm

    Above linked Monevator QT piece (on 14/2/2022): “Meanwhile in the UK [the] bank rate is expected to be above 1% by the end of 2022, peaking in 2023 at around 1.5%”. And today: “whether the Bank of England keeps its Bank Rate at 5.25% or ultimately takes it to say 5.5% or even 6% is pretty irrelevant”. Anything’s possible in the markets and the economy. Things that haven’t ever happened before then just go and happen for a first time. It’s a question of odds and outcomes. If rates go from 5.25% now all the way up to 8% or higher in a couple of years then they’ll be a sizeable haircut to fixed income assets for sure, but not nearly as big as the boost to gilts and corporate bonds if rates fall to 2% or below. I would caution against dismissing either eventuality on the basis that we haven’t seen the like of it yet.

  • 9 Jonathan B November 4, 2023, 9:06 pm

    @B.Lackdown, I thought the colonoscopy article interesting and attempting to be fair (and credit to @TI for the range of links each week).

    The question isn’t whether full colonoscopy (not nice without some sort of sedation) finds potentially nasty cancers in some patients, it is whether it is better as a screen for cancer in asymptomatic patients or whether the occult blood test (used in the UK) or a sigmoidoscopy (less invasive than full colonoscopy and doesn’t need sedation – trust me, I have experienced both) are as good. The analysis has to consider overall effectiveness taking into account the proportion of people who don’t take up the offer of screening which not surprisingly is highest for colonoscopy because, as you say, it is unpleasant. I thought the article did well in trying to make the most of the findings in the article to reach tentative conclusions, but ultimately the only way to know would be to test all three against each other on an “intention to treat” basis with large samples.

  • 10 B. Lackdown November 4, 2023, 9:18 pm

    Yes, I understood all that from the article. In the real world there are plenty of people like me who are not making a 3 way choice, it’s a binary colonoscopy yes/no question or possibly colonoscopy now vs one of the other two as soon as our program is in place. In either case if I got the wrong answer today would be about the 10th anniversary of my funeral. It’s therefore important in writing an article which might influence that choice (whether or not that’s the author’s intention) not to understate the potential benefits of the procedure.

  • 11 Jonathan B November 5, 2023, 12:10 pm

    @B.Lackdown, out of interest, was your colonoscopy done as a screen without any reason to suspect early cancer – which is the case for public health screening – or because there was a specific reason to do it (e.g. symptom or family history)? The article was purely about strategies for population screens as part of public health.

    My colonoscopy was triggered by some rectal bleeding. I had thought it was probably a haemorrhoid of no significance, the doctor thought otherwise and indeed a large polyp was found and excised. I then had follow-up by sigmoidoscopy.

    Apologies to other readers, for whom this will be too much information!

  • 12 Barney November 5, 2023, 1:35 pm

    @B Lackdown @ Jonathan B. Ive had both sigmoidoscopy and colonoscopy without sedation, initially because I wanted to know and hear what was going on, and be able to ask questions too, and sometimes watch it in progress. It’s such an important and reliable examination, it outweighs the slight discomfort, and it’s life saving too.

    For that reason I would always encourage everyone concerned in that particular area to have/insist, on a colonoscopy. It could be better than winning the lottery. And for the same reasons, I would urge everyone to make use of the free stool test kits, and don’t wait the three years before a follow up, cancer doesn’t use a calendar.
    And if you are over eighty and told that you no longer qualify, remind them that eighty plus year olds get colon cancer too, and insist on your rights.

    I realise that for those who have lost family and friends, I’m pushing at an open door, but please encourage others.

  • 13 windinthefens November 5, 2023, 3:10 pm

    Re colonoscopies- you have to say it’s ironic that this study finds that the benefits of hind sight aren’t clear!

  • 14 B. Lackdown November 5, 2023, 4:43 pm

    @Jonathan B much the same for me. @Barney it’s sedation not anesthesia. I follow everything on screen in real time (every time, I’ve had 4 or 5 now), and was very much awake when the doctor operating the probe said “Hmm, I’m not sure what that is but I’m pretty certain it’s not meant to be there.”

  • 15 dearieme November 5, 2023, 6:53 pm

    I had symptoms and the GP said you need an upbumoscope. Depolyped the first time and the second. The third time, and perhaps a fourth (I can’t remember), was all clear and the surgeon reckoned the risk of further inspections was greater than the risk of cancer.

    Quite different from the time they changed my pacemaker and cocked up the anaesthetic: I awoke with them still guddling around in my chest. Envy of the world, innit?

  • 16 Barney November 5, 2023, 8:11 pm

    @Barney it’s sedation not anesthesia

    Yes I’m aware, but it’s still sedation, thats why you have to wait until they think it’s ok to let you go. Although these days anything goes.

  • 17 Al Cam November 5, 2023, 8:49 pm

    @dearieme’s story re his pacemaker opp (#14) is yikes!
    All the talk about colonoscopy, sigmoidoscopy, poop test, etc was very surprising. But it was kind of reassuring too as a few years ago I bought my wife a colonoscopy for her birthday – her mother had colon cancer that in spite of all her previous poop tests saying she was clear had progressed to stage 3 before it was detected in a manner not dissimilar to what @Jonathan B describes at #11. For info, my wife’s recommended colonoscopy repeat interval is five years.
    To more mundane matters: it is interesting to note that the BoE still seems to forecast inflation returning to around the 2% target level albeit this has now slipped to 2025Q4. I am personally far from sure if this really is the UK’s likely inflation destination, but what else can the BoE say, given that achieving this target is their responsibility. The latest BoE Monetary Policy Report (Nov 2023) from which you have culled most of the graphics used above is the most recent in a sequence of BoE reports where the inflation recovery [to target] just slips farther to the right. This delay, amongst other things, increases the insidious pain of stealth taxes.
    On the inflation theme, the post by Indeedably is IMO a very good read!

    P.S. your comment clock/time-stamp has not be reset to GMT.

  • 18 Curlew November 5, 2023, 10:34 pm

    @Al Cam
    I’ve been reading Monevator for about 4 years now: it’s always been at GMT+1. 🙂

  • 19 The Investor November 7, 2023, 1:42 pm

    @all — Thanks for the comments everyone, and for the candid reflections/input on a difficult subject! Very glad those procedures worked out sufficiently well to keep you all commenting here.

    @Al Cam @Curlew — Yes, many years ago this GMT issue cropped up and for some reason I decided not to change it; possibly even a good one at the start, related to something technical.

    Now I sort of feel it’s traditional! But perhaps it does convey a crappy impression to the average reader who comments I suppose.

  • 20 Ducknald Don November 8, 2023, 3:14 pm

    @Al Cam I’m also doubtful we can get inflation that low again without a lot of pain. For the last couple of decades inflation was artificially low thanks to ever cheaper imports from China. That was never going to last forever.

    I’m assuming we won’t get below 3%.

  • 21 Al Cam November 8, 2023, 8:11 pm

    @Ducknald Don:
    About seven years ago I had a go at estimating the average inflation for the probable duration of my retirement. Amongst other things, I used historical UK monthly inflation data stretching back to 1915. FWIW, the figure I finally arrived at was 3.5% PA; which I thought seemed fairly conservative at that time. To date, however, it has not been a bad estimate. Time will tell if this continues to be the case.

  • 22 Gerard Foley November 10, 2023, 9:39 am

    I signed up for your paid site but now I cant access it.

  • 23 Time like infinity November 10, 2023, 10:48 am

    I have absolutely no idea which way rates and inflation are going, nor a strong prior for either narrative…but there’s perhaps an emergent theme in some financial (and popular) media commentary that maybe market interest rates could stay higher in the US than in the UK, notwithstanding a possibly/arguably more benign current inflation environment in the US, because of the American economy seeming now to be powering ahead (4.9% annualised real GDP growth on last quarter’s figure), whilst at the same time the British economy falters again and might be going into stall speed.

    On this view, the UK is now either going full stagflationary or is heading into disinflation (towards possible deflation); whilst our Atlantic cousins need higher long term real market rates to help stop their economy from overheating.

    I don’t know yet if I actually agree with any of that line of reasoning, but it does at least seem to me to be more than faintly plausible.

    Although not quite on this point per se, the Guardian has a (IMO) good piece this morning from Barry Eichengreen on “Certain uncertainty in the US bond market”. Worth a read.

  • 24 The Investor November 10, 2023, 11:28 am

    @Gerard — Thanks for signing up, sorry for the access problems.

    Access issues are pretty much always today with cookies/ad-blockers. Could you please ensure you have third-party cookies enabled and you are not visiting our site with any sort of ad-blocker installed? (As a logged in member the ads disappear anyway 🙂 )

    You might also try clearing your cache. In a worst case, could you try a different browser, though this isn’t usually required.

    The membership software uses cookies to ‘know’ that a member is logged-in, hence why third-party cookies are required for browsing.


  • 25 Al Cam November 10, 2023, 2:19 pm


    As Eichengreen says: “In these circumstances, only one rule applies: one should never take investment advice from a professor.”

  • 26 Time like infinity November 15, 2023, 10:41 pm

    Excellent article in the DT (not paywalled) today by Ambrose Evans-Pritchard on the Wicksellian “natural” rate of interest (R*) not having permanently risen, and on the likelyhood of near future global falls in rates, esp. in US, because of the natural rate actually being set by private credit aggregates which are now contracting at a fast rate.

  • 27 Time like infinity November 17, 2023, 10:24 pm

    OTOH the Alpha Architect site has a summary of a paper just out on why recent history (from 14 OECD economies over Jan 1970 to Sep 2022) suggests that the median and mean base cases are that it could take a long time for inflation to fall to a 2% target. If inflation were to be persistently high then it’s harder to see rates not being elevated for some time to come as well. Link below:


    Obviously, the past is not prologue. But it does give a frame of reference of sorts.

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