London Calling – Guest Post By Brian Kelly

by Brian February 14, 2013 12:24 pm • Commentary

What’s the MOST important thing for investors for watch right now? Fund Flows? The Fed? Corporate Balance Sheets? Europe, Japan?


Correct Answer: United Kingdom

  • The economy is entering a triple dip recession, which under the current central bank/investor paradigm would mean more QE
  • BUT inflation AND importantly inflationary expectations are skyrocketing
UK inflation BE
UK 10 yr Inflationary Break Even from Bloomberg
  • capital is fleeing the UK – FX down, Bonds down, FTSE down, CDS up
  • the UK has run into the inflationary boundary of QE
  • the economy is still weak, but inflation is preventing the BOE from easing further….checkmate
  • the UK is the test lab for the nefarious impact of QE…the world should be watching
…and just in case your wondering what their debt level looks like and why they might be vulnerable to rising interest rates, here is debt to GDP…
Trades: short GBP, GIlts and FTSE100