Growing Evidence That The Upturn Is Upon Us

[Flying Squid]

Can't see it happening. Sure they'll be a slow down in holidays but I bet they'll be more holidays taken in 2009 than 2008 despite the economy getting worse overall.

2008 has been a year of uncertainty....we've all had theories about where the eceonomy has been going but now we know. 2009 will indeed be ****! I rekon people will be less inclined to dine out at the weekend and save the money for a summer hols. I read somewhere the other day that the all inclusive package holiday is set to make a comeback in 2009....largely due to people being fed up with uncertainty and they want to know how much they're going to spend, especially with the Euro getting stronger against the £ by the day.

Here's hoping!!! But I've sat here today applying for Cabin Crew jobs whilst I finish my training and looking for flight deck job's....says it all doesn't it!

[ChrisLKKB]

Here's hoping!!! But I've sat here today applying for Cabin Crew jobs whilst I finish my training and looking for flight deck job's....says it all doesn't it!

It certainly says a lot about you.

[Flying Squid]

What's that meant to mean???? If it's a good thing then cheers......but if it's a derrogatory comment then would you like to explain the negative point's to applying for Cabin Crew jobs and at least getting some operational airline experience whilst looking for flight deck jobs?????

[helimutt]

Anyone who really really believes 2009 will be a better year for holiday makers heading abroad? Cuckoo!
Wake up and smell the coffee. I bet this year a whole load of people went on holiday and paid on a credit card. Next year that option doesn't look so rosy. More people out of work. Unless the cost of these holidays drops considerably, (my Maldives holiday looks out of the window as can't find a decent deal to be had yet) then maybe people might think about it.

Deeper and deeper we will spiral into this recession. But hey, keep positive guys, it should end sometime in the future!

[biaeghh]

Flying Squid,


Don't be to surprised about the response you got from ChrisLKKB, both him and WWW are the grim reapers of the world, don't recognise anything that might be connected with positivity and would only be happy if everyone else wasn't!!!

[student88]

To become cabin crew before being a pilot is great experience.

However, I'd be really cheesed off if I ( a person who wants to be CC with only an interest in working the cabin) goes for a job and someone who is only going to be there until something better comes along gets it over me. Especially if he's going to be in the flight deck every 10 minutes not interested in what he's really doing. If I was you I'd keep quiet about the whole flight training thing which will be hard. As soon as airlines recruiting CC hear anything along the lines of pilot training big red warning lights start flashing which lead to you probably not getting the job. It's not worth running the "they cant do that it's discrimination"line because if they have a reason to not want to give you the job they'll find an excuse.

There are so many experienced CC out there looking for jobs - every assessment day for positions with various airlines recently have been rammed with them. You'll have a lot of competition against you.

Recession aside, people spending money like it's going out of fashion this Christmas. I'm glad my family are going for the present free option this year! None of us actually want anything so it seems like a good idea. Saves on the awkward moments like when you open your velour pyjama set from your aunty.

What a positive post. Merry Christmas!

[Flying Squid]

Bottom line....of course I want to be flying but until this pants economic situation sorts itself out that seems fairly unlikely so all I'm saying is that I am going to get my foot in the door that way for a while.

Student88 - I take your comments on board, I'm certainly not going to walk in and say look at me with my CPL/IR.....any airline is going to think what a tosser (and rightly so)....I'm not going to lie to the recruiters either because ultimately that looks ALOT worse than being upfront and honest. If I got a job as CC then for the time I'm doing that then it will receive my undivided attention, of course I'll be looking towards the flight deck longingly but that's life. The jobs arent there so (for the time being) I can't have one. Simple. Surely they can see some positive's to someone that get's off their arse and does something productive with their time until they can get a RHS...beats sitting on here whinging about how bad the world is!!!The jobs I'm looking at CC wise are only temporary contracts for 2009 anyway and there aint much chance of a RHS next year so.....

[heli_port]

Zeitgeist

Toyota braced for historic loss

[Sciolistes]

I suspect that this government will attempt to artificially prevent a serious recession by fiddling with interest rates and the reserve ratio. I think there is a good possibility that the bottom of the downturn is not that far away. If this is the case then I think we'll be hit by a second wave that will much worse than predicted in another couple of years hence.

I also think that the banks can see the second wave coming hence the reluctance to pass interest rates on or ensure that people can pay back at least 7%, they sense that a recovery will be stimulated.

We really must take the pain now - recessions are necessary economic tools for long term stability, but they don't sit well with UK style populist democratic politics.

What I think this means is if you train now you are taking a risk that you will have to service a large debt with no flying job during the recession. If you don't train now and the recession is not as deep due to artificial tinkering (as mentioned above) then you run the risk of getting caught by the second wave and never make to the flight deck. There is no way to quantify the risk and the latter scenario is vague at best. Difficult times.

If you do train now, it maybe with an eye to working abroad to help mitigate the risk. Learn another European language (my gut feeling is that Euro land will be much more stable than the UK), perhaps do your research and use a school that has links or approvals with foreign airlines and/or authorities.

[getoffmycloud]

They have already cut rates to close to zero and playing with bank reserve ratios will make bugger all difference (do you even know what a reserve ratio is??). Even jobs in the middle east (that bastion of aviation) are starting to dry up.

Banks are not passing base rate cuts on because no banks prices mortgage loans off base rate... they use the SWAP curve which reflects their cost of funding the loans. if the SWAP curve doesn't shift 3-4 years out which is the average duration of a UK mortgage product (before refinancing) then they do not change rates... simple as that. Base rate is irrelevent for pricing new mortgages... unfortunately our retarded government and press have not worked this simple fact out despite having over 12 months to work it out.

We have a government that is desparately trying to generate inflation to inflate its way out of this debt mountain but with asset prices falling eveywhere it cannot even do that (well not for at least another 12 months). First glimmers of recovery are 2010 at the earliest. Plan for recruitment to returns 2012 earliest.

2009 is going to be a bloodbath. We are probably 75% of the way through the financial crisis but on 25% max of the way through the economic recession. Your talk about "artificial tinkering" is off the mark... the bank of england and government have not "tinkered"... they have thrown absolutely everything they have at this and frankly are now just resorting to printing money hence the collapse in sterling and the German Finance minister calling Gordon Brown an idiot (which is something I think most people would agree with).

[Re-Heat]

Come on - you are arguing for the sake of it, and your knowledge is dodgy.

Sciolistes has some astute points, and is a sensible post.

Banks are not passing base rate cuts on because no banks prices mortgage loans off base rate... they use the yield curve which reflects their cost of funding the loans. if the yield curve doesn't shift 3-4 years out which is the average duration of a UK mortgage product (before refinancing) then they do not change rates... simple as that. Base rate is irrelevent for pricing new mortgages

So what do you say to all those people on UK Base Rate tracker mortgages then? Admitedly, you won't find many new deals on such a basis, but UK base rate deals existed.

The pricing of the margin is based upon (a) competition and (b) cost of capital. A bank's cost of capital is determined by funding in interbank markets (LIBOR) and bond & equity financing. I have never seen pricing off government bond yields.

A loan is priced as Margin over an index (base rate, LIBOR, EURIBOR, or sometime CDSs of the borrowing company), and mandatory costs (compensation for BoE requirements). A mortgage is little different - all these are lumped into the "standard variable rate".

[Re-Heat]

And going back to the topic (aviation training) - loans have become scarcer as banks continue to hoard capital.

The government would be foolish to dole out free capital to anyone, and where they do will simply be starving more worthwhile opportunities of capital by using up a limited resource.

Preservation of jobs in itself is not sufficient reason to lend - capital allocation to profitable opportunities is what drives long-term growth.

We truly are witnessing a creative destruction of capital at present: destruction of the dead wood and a rebirth of the new, better, more worthwhile opportunities.

[getoffmycloud]

Re-heat you are wrong... plane and simple... and I know.... it is my job (c15yrs 60-70 hours a week analysising bank balance sheets should put me in a position to know... and yes before you ask I was negative on Northern Rock)... you price a mortgage loan AT ORIGINATION off the yield curve. This determines your cost of funding the mortages. If you move base rate you do not necessarily change a banks cost of funding.

What you link the mortgage rate to post origination via a SWAP or whatever else is up to you. Why do you think there is not just 1 LIBOR rate but overnight, 1 month, 3 month, 6 month, 12 month etc etc... all those different durations till you have built up a yield curve (Base rate you might notice is just 1 rate... not a curve). Here is a beginners guide to how you price a mortgage in an ideal world....

Step 1) Assume duration of the mortgage you want to write e.g. 2-3 years
Step 2) Fund mortage with liability of similar duration e.g. 2-3 years (e.g. securitisation was one method of duration matching).
Step 3) Price mortgage based of cost of raising 2-3 year money i.e. the 2-3 year interbank rate/yield curve whatever you want to call it.
Step 4) Add your spread to the 2 year cost of money
Step 5) Write the mortgage.

Base rate does not come into it unless post writing the mortgage you want to link price moves to it (I guess you could use a simple swap to do this).

The initial pricing is done off the yield curve/inter-bank rates to make sure you are duration matching... is part of bank asset and liability management.

A banks equity captial is typically only c5% of its total funding in the UK so cost of equity is not that relevent. Cost of term wholesale funding is everything once you have more loans than deposits like most UK mortgage banks.

so why no mortgages at the moment?? Well we have more loans than deposits and people are not prepared to lend banks money in wholesale markets for more than 1-2 months at the moment hence you cannot fund a mortgage product with and expected life of 2-3 years without taking unacceptable risk of the funding being pulled before the mortgage martures (this is a small part of a complicated funding issue).

But this is beyond most everyday armchair economists (understandably) but an important part of why base rate is not important for pricing mortgages when you ORIGINATE them.

So Re-hear your comments are not accurate... what are you equity sales with 2-3 years experience??

[Re-Heat]

On the contrary, I quite agree with you, as my post refects. You rather dismissively referred to the yield curve, introducing technical concepts of duration that are unlikely to be understood on this forum. It was without introducing that detail, as you have now done, along with unwarranted aggression that caused your post to be described by myself as dodgy (particularly as the yield curve usually refers to UK gilts).

If you wish to construct a yield curve from LIBOR rates (commonly known as the swap or money market curve), and use those to fund mortgages, then as per my explanation, that is exactly the same as what you are pricing from - ie. your cost of funds.

The mechanism for policy rates is not to alter the interbank rates though as you suggest, but to alter the attractiveness of saving vs lending; thus by reducing rates, saving becomes less attractive, and demand for borrowing tends to rise in the long-term: something that the BoE and government well knows.

There is little need to aggressively shout people down if you want to explain something here - everyone is willing to listen.

I do not care to divulge my background but would rather let my opinions stand on their own.

[getoffmycloud]

geez mate this is getting boring for everyone and don't be such a pendant. this is direct copy from the BoE website...

What are Yield Curves?

The Monetary Instruments and Markets Division of the Bank of England estimates yield curves for the UK on a daily basis. They are of two kinds. One set is based on yields on UK government bonds (gilts) and includes nominal and real yield curves and the inflation term structure for the United Kingdom. The other set is based on sterling interbank rates (LIBOR) and on yields on instruments linked to LIBOR, short sterling futures, forward rate agreements and LIBOR-based interest rate swaps. These commercial bank liability curves are nominal only.

But of course the BoE has been known to be wrong... you clearly know more about it than them and I am not getting into a willie waving contest with you.

Bottom line is lowering base rate does not necessarily impact on the price of originating a new mortgage... full stop..... my knowledge is not "dodgy" and I don't give a monkey's if I come across rude... anyone who thinks the BoE is "artificially" going to get us out of this mess have a issue with either basic English or economics.

[Sciolistes]

Thanks chaps and interesting stuff. I am purely amateur in this respect, I'll make no bones about it. The detail you guys are getting into certainly provides further food for thought. But I think my basic concern remains. Accept that a deep recession as necessary and beware a premature recovery.

[Re-Heat]

Yes I am being pedantic, precisely as you insisted on being such. Common City parlance of "the yield curve" refers to Gilts - that does not prevent you creating a yield curve from any set of rates, the latter of which mentioned by your quote is referred to as "the swap curve".

I still fail to see what is so wrong with Sciolistes' post. Manipulation of reserve requirements, while uncommon in the UK (as there is no target ratio here), is common overseas, and artificially low rates stimulate an economy out of recession.

The common perception of the man on the street of "passing on interest rates" directly is indeed flawed as you helpfully point out, but as an end result of increased demand for borrowing and lower saving, it is the indirect consequence of policy rate changes as savings and borrowings even out across banks and the economy.

The BoE themselves seek to influence mortgage rates through this mechanism (more effective in nature than European countries whose mortgage and borrowing demand is limited by culture), not in monthly changes to rates, but in the long-term indirect effect on aggregate borrowing.

[getoffmycloud]

No worries scolistes but don't put you cash on the line betting on the government or BoE getting us out of this mess in a painless fashion. There is no "tweaking to be done"... they have already thrown the kitchen sink at it and are now scrabbling around for another plan.

Geeez re-heat you are something else.... so where exactly do you disagree with my original post... is it that you cannot build a yield curve from the interbank rate (even though the BoE does it every day and posts it on their website/Bloomberg etc etc)??? You seem to agree on everything else but still deem my original post " dodgy".... or are you just being "argumentative"

P.S. I have changed the wording in my original post to SWAP curve from Yield curve to make it sooooo much clearer for the armchair economists amongst us.... . I apologise to all those who require a distinction between the different type of yield curves the BoE publishes be it gilts or SWAPs.... but many funnily enough won't give a cr*p about the distinction...

P.P.S. there are many different types of yield curve... those interested can have a look here... mortgages in the UK typically price of the rate 3-4yrs out... hence not base rate like I said originally... hence you can cut base rate to zero but cost of funding new mortgages and hence their prices may not change.
Yield curve - Wikipedia, the free encyclopedia

[Flying Squid]

Now now ladies........

I'm sure I'm not the only one that has absolutely no idea what you're talking about so back to something more relevant????? (when I say relevant I actually mean something which I and everyone else can comprehend!!!)

[Wee Weasley Welshman]

No, this is all very relevant. Its also remarkably difficult to find this sort of material on the web outside of certain economics forums. I welcome it. I find it frankly sinister that not even the very basics of banking, finance and money is taught in the education system. When it is the force that determines so much of our lives.

I've stopped trying to decide to be scared about deflation or hyperinflation and instead now worry about devaluation!

WWW