UK Retail Sales Unexpectedly Jump in January — Looking Beyond the Headline Number to Debunk it and Uncover Flawed Methodology Used by the ONS

Optimism reached a new high in the UK on Friday and the UK equity market and the GBP jumped, when the Office of National Statistics published an unexpected jump in the retail sales index:

(The Telegraph) — Official retail sales data for January rose 0.9pc month-on-month, well above gloomy forecasts of a 0.4pc decline, as falling inflation and post-Christmas discounting lured consumers back to the shops. 

Economists said the performance was surprisingly strong because it came on the back of a 0.6pc rise in December, which was itself better than had been expected. 

"It suggests at the very least that we will be growing by 0.5pc in the first quarter and probably faster than that," said Scotia Capital economist Alan Clarke, who was one of the first to warn of a contraction before the 0.2pc decline in the final three months of last year. "This is the third strong indication that the UK economy has turned the corner."

As per usual, economists — this highly (over)paid yet ignorant and incompetent bunch — completely missed their forecast, and then tried to explain a posteriori the reason why sales jumped in January, yet again completely missing the point.

First, here are a couple of other pieces of news that were not making headlines — obviously so because market participants are in über-bullish mode and are only look at the bright side of the news:

(The Daily Mail) — Around 14 shops are shutting every day on the High Street, alarming figures show. 

Last year 5,268 shops were closed by major retailers and only 5,094 opened, according to a study by accountants PricewaterhouseCoopers and the Local Data Company. 

It was the first time since the height of the recession in 2009 that more shops were shut than opened.
[...]
The real number of closures could well be higher as the research only focused on chain stores in the 500 biggest town centres.
[...]
London fared worst in 2011, with 1,084 shops shutting and just 983 opening, according to the study.
[...]

Beyond showing the incompetence of Mervyn King, the following report confirms that debt deflation has started in the UK:

(The Daily Mail) — Bank of England Governor Sir Mervyn King yesterday spoke out against the ‘harsh treatment’ of small companies which are still ‘suffering’ at the hands of the banks.

He said ‘market failure’ meant firms are being starved of the funds they need to grow, create jobs and drive the economic recovery.

The startling statistics emerged in Bank of England figures showing that net lending fell by £10.7 billion in 2011 – in other words, the banks received £10.7billion more in loan repayments than they gave out in new loans. That took the total fall since the end of 2008 to £82.7 billion.

After all the manipulation and fiddling that the BoE is doing, the one thing that is currently working fine — small business not borrowing, and banks not lending to insolvent firms — is considered to be a "market failure". This is the favorite game of central planners and socialists: blame the market for their own failure, and make a bigger mess trying to fix it.

Summary:

• Retail sales as reported by the ONS jumped in Jan
• While business are closing at an alarming rate of 14 shops a day for the whole of 2011
• And debt has been deflating for 3 years in a row, showing that business are not trying to borrow to expand (in obvious contradiction with what would happen if sales were rising).

So, where am I going will all this?

As with any thing reported by the government, one must look a bit further than the headline number — ironically, market participants whose very job is to do so won't do it — and try to find what is really going on.

Looking at the methodology used by the ONS to calculate their retail sales index gives us the answer:

Understanding the data

Quick Guide to the Retail Sales Index (116.9 Kb Pdf)

Interpreting the data
The Retail Sales Index (RSI) is derived from a monthly survey of 5,000 businesses in Great Britain. The sample represents the whole retail sector and includes all large retailers and a representative panel of smaller businesses. Collectively all of these businesses cover approximately 95 per cent of the retail sector in terms of turnover.

There, you have it: they survey 5,000 businesses, completely ignoring the fact that many businesses are closing on a daily basis. This creates a massive survivorship bias and leads to completely distorted numbers.  Could Wikipedia's quote fit more to the ONS flawed methodology?

Survivorship bias is the logical error of concentrating on the people or things that "survived" some process and inadvertently overlooking those that didn't because of their lack of visibility. This can lead to false conclusions in several different ways. 

The survivors may literally be people, as in a medical study, or could be companies or research subjects or applicants for a job, or anything that must make it past some selection process to be considered further. 

Survivorship bias can lead to overly optimistic beliefs because failures are ignored, such as when companies that no longer exist are excluded from analyses of financial performance.

Should someone send this link to the incompetent people at the ONS so that they can fix their methodology?

Finally, not only the survivorship bias make you miss direct losses due to businesses closing, but these failures make the surviving businesses more prosperous, artificially making the retails sales numbers bigger.

Let me give an example to illustrate this last point: imagine your local baker closes down because it wasn't a viable business. Yet, some part of their customers will still want to buy bread and would divert their shopping to another other local baker. The local baker might see it sales raise by say 20%, yet that original baker lost 100% of its sales. So the surveyed shop would report a jump in sale of 20%, but the loss of that 100% from the closed-down baker will not be accounted for in the retail sales number.

Ben Bernanke looks in the mirror and sees Mervyn King [updated twice]

[Update at the bottom of the post]

Just a few minutes after publishing the previous post on Bernanke, Fed says they will keeping on printing, irrelevant of the economy, I realized how much what the Fed was doing reminded me of what the BoE was doing in the UK.

There are quite a few differences between the state of the two economies though, that I would like to remind:

1. The GBP has collapsed by about 20% against the USD or the EUR from its mid-2007 levels
2. The Credit Bubble and real estate bubble are still very much inflated, due the destructive actions of the BoE and the former UK government
3. The new UK government has started reducing the size of its labor and spending.

But nonetheless, you will see that when the central bankers are put in a position where they have to chose between two conflicting policies, they will always go for the politically easy one: money printing. It also shows that even if Bernanke is 100% sure that he will be able to control things, there will always be a good reason for more inflation and for keeping the "stimulus" on: not enough jobs, or not enough inflation, or enough jobs and inflation, but lower forecasts for any of the two, or any other Monetarist or Keynesian nonsense.

Additionally, you will notice that:

• The GBP collapse does not prevent price deflation in the retail market. As recently as last month, I've seen never before seen discounts in my superstores in the UK: "buy one, get two free" offers. I was quite astonished.
• Journalists and economists, two groups of people who are living in an ivory tower, believe that governments create growth, and take a very critical approach to Cameron's government decisions to cut spending and government workforce. The message is transmitted in comments such as budget austerity measures clouds the prospects for the economy or Mervyn King is setting aside his inflation target to protect the economy from the biggest budget cuts. These comments are stated as simple truths which does not require any justifications, and and provided without any explanations. They are extremely insidious.

Here are a quotes from a few Bloomberg reports published back in August 2010.

Aug. 11 (Bloomberg) -- Bank of England Governor Mervyn King said inflation will probably slow below the bank’s target in 2012 and growth will be weaker than previously forecast, signaling the U.K. economy may need more emergency stimulus.

Inflation will be about 1.5 percent in two years, below the 2 percent goal, the central bank said in its quarterly Inflation Report today. Inflation will undershoot the target even if the bank keeps its benchmark interest rate at the current 0.5 percent, the forecasts show.
[...]
U.K. policy makers have split on the outlook for inflation even as the biggest round of budget austerity measures since World War II clouds the prospects for the economy.
[...]
“They still look more likely to loosen policy than to tighten,” said Jonathan Loynes, chief European economist at Capital Economics Ltd. in London. “The Monetary Policy Committee continues to believe that spare capacity in the economy will pull inflation down sharply in the next couple of years.”
[...]
The Bank of England held its bond-purchase plan at 200 billion pounds ($315 billion) and kept the main rate at a record low on Aug. 5. Minutes of the June and July meetings show Andrew Sentance called for higher rates to curb inflation. His colleague David Miles has since argued that the recovery may falter and the bank should be ready to increase stimulus. The minutes of the most recent meeting will be published on Aug. 18.

“If it is necessary to respond, then we are quite prepared to do that,” said King. “It’s much too soon to say that we’re struggling to see a recovery.”

Recent data has painted a mixed picture of the U.K. economy. While a report today showed employers added jobs in the second quarter at the fastest rate since 1989, it also said that jobless claims dropped less than economists forecast in July. Measures of manufacturing, services and construction fell last month and Nationwide Building Society said today that consumer confidence dropped to the lowest in 15 months. The housing market is also showing signs of faltering.

At the same time, economic growth accelerated to 1.1 percent in the second quarter, the most in four years.

While inflation will be faster than previously forecast next year because of higher sales tax, it is “likely to fall below the target as persistent spare capacity weighs on companies’ costs and prices,” the Bank of England said. “There is a range of views among committee members” on the risks.
[...]

Aug. 5 (Bloomberg) -- Bank of England Governor Mervyn King is setting aside his inflation target to protect the economy from the biggest budget cuts since World War II.
[...]
King is tolerating faster inflation just as Prime Minister David Cameron’s push to ax the Group of 20’s largest budget deficit threatens to hurt the economic recovery. Policy maker Andrew Sentance, for now the only advocate of higher rates, counters that growth is solid enough for the bank to withdraw emergency stimulus. Inflation has exceeded the bank’s 2 percent target since December.

“King is willing to take risks with inflation,” Steven Bell, chief economist at London-based hedge fund GLC Ltd. and a former U.K. Treasury official, said in a telephone interview. “He has become the man most determined to get a decent recovery.”
[...]
The combination of persistent inflation and budget cuts has widened the debate about when to raise rates. Sentance voted for higher rates at the last two meetings and Chief Economist Spencer Dale, who favors keeping rates unchanged for now, has said the central bank must be “incredibly vigilant” on prices. On the other side of the debate, David Miles said last month that the BOE must be ready to buy more bonds to help growth.

Inflation was 3.2 percent in June and has exceeded the government’s 3 percent limit since March. King said last week the rate is likely to stay above the bank’s target “for much of next year” because of higher sales tax, though weakness in the economy then risks pushing it “significantly below” the goal.

King “sees no need to try and offset what is likely to be rather a temporary continuing overshoot,” former Bank of England policy maker Charles Goodhart said in an interview.
[...]
The danger of a renewed recession justifies a further expansion of the Bank of England’s bond-purchase plan, according to Alan Clarke, an economist at BNP Paribas in London. He provided the only forecast in the Bloomberg survey for a 25 billion-pound increase in the program today, and predicts another move of the same size in November.
[...]

Aug. 4 (Bloomberg) -- U.K. store prices of non-food items fell at the fastest monthly pace in 1 1/2 years in July as shops offered bigger discounts, the British Retail Consortium said.

The cost of goods such as clothing and furniture dropped 0.6 percent from June, the biggest decline since January 2009, the group, which represents about 80 percent of the nation’s retailers, said in an e-mailed statement today in London. The drop offset an increase in food costs, leaving the pace of overall annual price gains at 1.5 percent, unchanged from June.

The report highlights a divergence between global cost pressures and the weakness of domestic pricing power at a time when Bank of England policy makers are split on whether the economy faces bigger risks from inflation or budget cuts. Economists predict officials will keep emergency stimulus in place at their monthly policy meeting tomorrow.

“Shop prices have remained stable largely due to aggressive discounting,” Stephen Robertson, director general of the BRC, said in the statement. “It’s clear the high street is not the main source of inflation.”
[...]
The pound has declined by about a fifth on a trade-weighted basis since the start of 2007, making imports more expensive, and the government’s planned increase in value-added tax in January will automatically raise the inflation rate. Wheat jumped to a 22-month high earlier this week after the hottest July in Russia in 130 years withered crops.

U.K. annual food-price inflation accelerated to 2.5 percent in July from 1.7 percent the previous month, BRC said. On the month, food prices gained 0.9 percent, the most since January.
[...]
A U.K. index of hiring for permanent jobs fell in June to a nine-month low, KPMG LLP and the Recruitment and Employment Confederation said today in a separate report. The gauge of full-time job placements dropped to 60.2 from 60.7 in June, the groups said in the e-mailed report. A gauge of demand for temporary staff dropped to 54.3 from 57.

Nov. 16 (Bloomberg) -- Bank of England Governor Mervyn King said the risks of inflation slowing below the central bank’s 2 percent goal in two years is “significant” and policy makers can increase stimulus if necessary.

“As we see things at present, there are significant risks to inflation undershooting the target,” King told lawmakers in London today. “At present, the committee would feel that given what is happening to broad money growth, given what is happening in the labor market, given what is happening to the amount of spare capacity in the economy, all of those things make us feel that in the medium term inflation will come down.”

Inflation unexpectedly accelerated in October, forcing King to write to the Treasury explaining how he will bring it back under the government’s 3 percent limit to the goal. Officials have split three ways on whether to raise interest rates to curb consumer prices or add stimulus to aid the economic recovery.

“We could do further quantitative easing if that turned out to be necessary,” King said. “We have a difficult balancing act,” and if the bank’s judgment is wrong, then “we will find ourselves in the position two years from now where we will have seriously undershot the inflation target.”

Inflation accelerated because of increases in costs of gasoline and diesel, overdraft charges and mortgage arrangement fees, and computer games, the Office for National Statistics said today. The result of 3.2 percent exceeded the 3.1 percent median forecast of 28 economists in a Bloomberg News survey. On the month, prices increased by 0.3 percent.

The inflation rate has exceeded 3 percent this year in every month apart from February.[...]“Let me make it absolutely clear that we are focused entirely on the outlook for inflation,” King told lawmakers on the House of Lords Economic Affairs Committee. “On the upside, the major risk is on inflation expectations,” though “given the amount of spare capacity and the other medium term indicators I have described, there is also a risk inflation could fall below the target and that could be just as damaging.”

The governor must write to the chancellor every three months when the inflation rate deviates more than a point from the central target in either direction. King said in the letter that the inflation rate “is likely to remain elevated throughout 2011” and “might rise further” in coming months.

Nov. 17 (Bloomberg) -- Bank of England Governor Mervyn King said officials can expand economic stimulus if necessary as the risk of inflation slowing below the bank’s 2 percent goal in two years remains “significant.”
[...]
The nine-member Monetary Policy Committee this month kept its bond-purchase plan at 200 billion pounds ($320 billion) and its interest rate at a record low of 0.5 percent. In October, Andrew Sentance called for higher interest rates to combat inflation, while Adam Posen pushed for more stimulus to sustain the recovery.

“There are some differences on the committee,” King said. “I don’t think, given the scale of the shocks that we’re confronting, it’s particularly surprising or very large. When the minutes come out tomorrow you’ll see the distribution of views on the committee.”

[Update]
Just a couple of hours after I made this post did this report got published on Bloomberg. It just confirms everything that I stated, and also teaches us another very important feature of the monetary policy and the Grand Experiment: inflation above the so called target is not issue, but inflation below the so called target is very dangerous. For example, it's worth printing 2 trillion dollars if inflation is at 1% below of the so called target of 2%. But, if inflation is 1% above the target, then it's not very important to do anything, because of "underlying inflation". Yet another ridiculous excuse to keep on printing, printing and printing.

Note that I do not believe this will cause further inflation, but just lead to the debt and/or currency crisis sooner, forcing into deflation the culprits.

Dec. 16 (Bloomberg) -- Bank of England policy maker Adam Posen said policy makers shouldn’t “overreact” to inflation, which may slow below 1 percent in two years.

The bank’s Monetary Policy Committee “would only make things worse by making policy looking in the rear-view mirror, trying to make up for past mistakes,” Posen said in a speech today in Billericay, England. “If we allow for even just some exchange-rate pressure upwards on prices over this period as well, underlying U.K. inflation has stayed well below target.”

U.K. inflation has exceeded the government’s 3 percent limit for nine months, and an increase in value-added tax on sales in January may add to prices in 2011. Posen said Britain’s economy still has a “large” amount of slack in the aftermath of the recession and the largest government budget squeeze since World War II will slow inflation.
[...]
Consumer prices rose 3.3 percent from a year earlier in November, the highest since May. Consumers’ inflation expectations reached a two-year high in November in a GfK NOP Ltd. survey for the Bank of England released today.
[...]
The bank’s nine-member committee kept its bond-purchase plan unchanged at 200 billion pounds ($312 billion) this month and held its benchmark interest rate at a record low of 0.5 percent. Minutes of the central bank’s Nov. 4 decision showed policy makers split three ways, with Andrew Sentance calling for higher rates to combat inflation and Posen pushing for more stimulus to sustain the recovery. The rest voted for no change.

BoE governor Mervyn King touting the benefits of eliminating fractional reserve banking

A lot of ink has been spilled on Mervyn King's speech at the Basel III conference, so I decided to go read through it and see for myself, and I admit that I am positively surprised by what has been said!

Sadly, I do not think that he actually means that we should eliminate fractional reserve banking — which, to many Austrian economists is nothing but legalized fraud — but that he merely uses it as a scarecrow... but nonetheless, just the fact that he mentions it as the best solution to the banking crisis is an amazingly big step forward.

In September 2007, everyone thought that the crisis was one of liquidity and as a result there was an expectation central banks could provide the solution. But it quickly became clear that it was in fact a crisis of solvency.
[…] And not only are banks’ assets risky, but banks are highly leveraged institutions. This leaves them heavily exposed – with very high debt-equity ratios, small movements in asset valuations are enough to wipe out their equity and leave banks insolvent. That means the distinction between illiquidity and solvency can be difficult in practice – the difference in timing might be just a few days. If a crisis is in fact one of insolvency, brought on by excessive leverage and risk, then central bank liquidity provision cannot provide the answer. Central banks can offer liquidity insurance only to solvent institutions or as a bridge to a more permanent solution.

It is this structure, in which risky long-term assets are funded by short-term deposits, that makes banks so hazardous. Yet many treat loans to banks as if they were riskless. In isolation, this would be akin to a belief in alchemy[…]For all the clever innovation in the financial system, its Achilles heel was, and remains, simply the extraordinary – indeed absurd – levels of leverage represented by a heavy reliance on short-term debt
[…]
Modern financiers are now invoking other dubious claims to resist reforms that might limit the public subsidies they have enjoyed in the past. No one should blame them for that – indeed, we should not expect anything else. They are responding to incentives.
[…]
Basel III on its own will not prevent another crisis for a number of reasons. First, even the new levels of capital are insufficient to prevent another crisis. Calibrating required capital by reference to the losses incurred during the recent crisis takes inadequate account of the benefits to banks of massive government intervention and the implicit guarantee.
[…]
So, if we cannot rely solely on these types of measures, are there more fundamental directions in which we could move that would align costs and benefits more effectively?
One simple solution, advocated by my colleague David Miles, would be to move to very much higher levels of capital requirements – several orders of magnitude higher.
[…]
Another avenue of reform is some form of functional separation. The Volcker Rule is one example. Another, more fundamental, example would be to divorce the payment system from risky lending activity – that is to prevent fractional reserve banking.
[…]
And eliminating fractional reserve banking explicitly recognises that the pretence that risk-free deposits can be supported by risky assets is alchemy. If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not coexist with risky assets. The advantage of these types of more fundamental proposals is that no tax or capital requirement needs to be calibrated. And if successfully enforced then they certainly would be robust measures.

The £200 billion that Mervyn King didn't get

This is old news, but I still think it's important to keep it in mind while thinking about the future of the GBP: the UK was probably the country were the credit bubble was the biggest (the UK and the US were competing for the title...) and is now probably experiencing the biggest credit deflation as well.

While this deflation is very bullish news for the GBP, the actions taken by the Keynesian Fools are very much likely to destroy the currency: Alistair Darling and Gordon Brown, who already driven the country in the ditch, debt-wise, and are now not only increasing the deficits, but with the help of Mervyn King, they are monetizing the debt.

This is the biggest credit deflation and economic down turn ever, and yet, prices are rising in the UK.

As you can see, they will not end this until they in the war against deflation.

Aug. 19 (Bloomberg) -- Bank of England Governor Mervyn King and two other policy makers were overruled in a push to expand the bank’s bond-purchase program to 200 billion pounds ($329 billion) as the majority favored a smaller amount.

The pound fell after the nine-member Monetary Policy Committee said it voted 6-3 to raise the total they will spend by 50 billion pounds to 175 billion pounds, according to minutes of the Aug. 6 decision released today. King, Timothy Besley and David Miles dissented in favor of a 75 billion-pound expansion.

“All members agreed that substantial further asset purchases were needed over the next three months,” the minutes said.

King, who has now been defeated three times as governor, said last week it’s “likely” that inflation will slow below 1 percent this year and won’t return to the goal until at least the end of 2012. Investors scaled back expectations for interest-rate increases next year after the comments.

“I’m stunned,” said Colin Ellis, an economist at Daiwa Securities SMBC and a former Bank of England official. “This sends a clear message that the bank is willing to do whatever it takes, and that’s encouraging. It’s more likely they’ll make extra purchases than start tightening over the next year.”

An argument for a larger expansion of the bond purchases was that “insufficient stimulatory monetary policy” would harm confidence in the recovery. The risks of “another large stimulus might be less than the possible costs of acting too cautiously,” and the policy could be reversed if found to be “overly expansive,” the minutes said. [...]

Inflation unexpectedly held at 1.8 percent in July, instead of slowing as all economists in a Bloomberg News survey had predicted. Policy makers said that without more purchases, “nominal demand would likely be insufficient to prevent inflation remaining below the 2 percent target, perhaps substantially, throughout the forecast period.”

British Pound rises against common sense and market reality

As I wrote just about a month ago, the UK [is] on the brink of complete collapse and yet, the British Pound has been rising quite substantially against all market reality and expectations. Since I am short the GBP but the size of the position is not big enough because I didn't reject this kind of potential rebound, I am considering this as a good opportunity for shorting a bit more — which I actually did just today.

Here are some news about the UK:

May 21 (Bloomberg) -- Britain may lose its AAA credit rating for the first time as government finances deteriorate in the worst recession since World War II.

Standard & Poor’s lowered its outlook on Britain to “negative” from “stable” and said the nation faces a one in three chance of a ratings cut as debt approaches 100 percent of gross domestic product. The pound fell the most in four weeks versus the dollar before rebounding, the FTSE 100 Index slid 2.8 percent and the cost of insuring U.K. debt against default rose.

Britain needs to sell a record 220 billion pounds ($349 billion) of bonds in the fiscal year through March 2010 as the economy contracts and Chancellor of the Exchequer Alistair Darling predicts that the budget deficit will reach 175 billion pounds, or 12.4 percent of GDP. [...]

“Somebody will have to tackle the finances in the U.K., which has not been done at present,” said David Scammell, a money manager at Schroder Investment Management Ltd. in London, where he helps oversee $158 billion in assets. “The budget that we have is just unacceptable. You need a political will to deal with this enormous problem.”
[...]
Unemployment surged to 2.2 million in March, the highest since 1996, and tax income has dropped 10 percent in the past year. The IMF expects gross domestic product to contract 4.1 percent this year, the most since World War II.
[...]
Brown needs to increase borrowing to pay for rescuing banks that have reported $121 billion in credit-related losses and writedowns since the start of 2007. The government pledged 40 billion pounds to bail out lenders and hundreds of billions of pounds in loan guarantees.
[...]
The government gave the Bank of England authority to purchase as much as 150 billion pounds of assets with newly printed money in an attempt to lower borrowing costs.

Britain’s “balance sheet is deteriorating rapidly,” Moody’s analysts led by Arnaud Mares in London wrote in a report on April 23. “The government is taking risks with public finances.”

May 20 (Bloomberg) -- Delinquencies on some U.K. non- conforming home loans exceed those by subprime borrowers in the U.S., and losses on the securities they back are accelerating, according to independent research firm CreditSights Inc.

Almost 30 percent of non-conforming mortgages made in Britain in 2005 are 90 or more days delinquent, compared with a rate of 27 percent on U.S. subprime loans made that year, analyst David Watts wrote in a report today. Non-conforming loans are similar to subprime in that they typically have low, or no, documentation requirements and may be made to borrowers with poor credit scores.

“The similarity to the U.S. is already reflected in delinquency and repossession rates and we think it will be evident in eventual losses to investors,” London-based Watts said in an interview. “They have all of the hallmarks of the U.S. deals.”

Unemployment in Britain, which rose by 244,000 to 2.2 million in the first quarter and may reach 3.1 million by the end of next year, has coincided with “a sharp rise” in delinquencies, according to the report. Bradford & Bingley Plc, the nationalized U.K. mortgage lender, said in March provisions for bad loans soared 23-fold in 2008 and forecast “further deterioration” this year and next.

There are about 30 billion pounds ($46.5 billion) of bonds outstanding that are backed by non-conforming home loans, according to the report. The rate at which delinquencies are increasing in the securities is “alarming,” Watts wrote.
[...]
“Losses are high and going higher,” said Watts. “The numbers are ugly, uglier than I expected.”

UK overstated retail sales growth by 56%

When a bankrupt country, in the middle of a depression far worse than everything they could have imagined led by corrupt people like Gordon Brown, Alistair Darling and Mervyn King or their Members of Parliament, what are your choices after having done all the of the following in sequential order:

• destroying the value of currency by more than 25% in just about a year,
• massively understating the inflation and yet coming up with high inflation figures,
• denying any inflation even when the manipulated data fail to show anything but high inflation,
• pretending that deflation is what they are worried about.

You can try to fake all the other official numbers that you publish, and ask the others body of the government, like the Office of National Statistics to publish ridiculously positive numbers in a depressed environment:

(Financial Times) One of Britain’s most closely watched economic indicators has heavily overstated the quantity of high street sales over the past two years, the Office for National Statistics admitted on Friday.

Britain’s supplier of official statistics conceded that since the financial crisis began in August 2007, it has overstated the volume of retail sales growth by 56 per cent.

Many economists have been worried for some time that the published retail sales figures were too strong and have always received a furious response from the ONS.

Karen Dunnell, the national statistician, wrote to newspapers last October, insisting that “ONS retail statistics are the best available and are not inaccurate”.

She stuck to the same theme in another article, saying economists who had expressed surprise at the strength of ONS retail figures were upset because “City analysts also have a vested interest in not being proved wrong”.
[...]
Such a large difference in the one indicator that has persistently given a more positive account of Britain’s economy will cause red faces at the ONS, especially as it had insisted on the superiority of its retail data to unofficial estimates.

Trichet is following Ben Bernanke and Mervyn King toward the abyss

I've been quite vocal about Trichet and the ECB since August 2008 when Trichet decided to abandon the Euro and follow Ben Bernanke's and Mervyn King's demagogic, dangerous and destructive policies. I've said it before and I'll say it one more time: Trichet should resign! (recommended read to understand my stance.)

So today Trichet reduced the repo rate of the ECB by 0.25% to 1.00% (which really doesn't have any impact and is really a symbolic act since the mid-March actions when the ECB Stealthly Approaches Zero Rates) but they also announced that they would start Quantitave Easing (which uncyphers into plain English to print money). The good news is that this might be just another symbolic gesture from Trichet in order to please politicians because he is going to print only 60 billion EUR which is a drop compared to the size of the Eurozone economy and also compared to the trillions of USD that Bernanke is printing.

[Update: I just found this report on Bloomberg, which basically confirms my analysis]

(Bloomberg) -- Jean-Claude Trichet has dragged the European Central Bank into a new era by pursuing direct asset purchases over the objections of Germany’s Bundesbank.

President Trichet today announced the ECB will buy 60 billion euros ($80 billion) of covered bonds, taking markets by surprise after Bundesbank chief Axel Weber had campaigned against such a policy.
[...]
Trichet’s policy shift, pushed by smaller nations such as Cyprus, Greece, Austria and the Netherlands, is a setback for the conservative Bundesbank, which provided the blueprint for the ECB at its inception in 1998.
[...]
“It’s a blow to his personal credibility,” said David Tinsley, an economist at National Australia Bank in London. “The Rubicon that’s been crossed is that the ECB will be accepting private credit risk on its balance sheet.”

Weber said on April 15 that “direct interventions, such as the purchase of corporate debt, shouldn’t take priority.” He pushed instead for the ECB to lengthen the maximum maturities on its loans to banks to 12 months from six months, a measure the central bank also announced today.
[...]
The ECB’s bond plan is nevertheless dwarfed by programs in other parts of the world. It is equivalent to about 0.5 percent of euro-region GDP, says Lloyds TSB Group Plc. That compares with debt-purchase programs in the U.K. and the U.S. amounting to 8 percent and 2 percent of GDP respectively.

Here are the previous related posts:

• 2009-14-18 Trichet should resign
• 2009-03-12 ECB Stealthly Approaches Zero Rates
• 2008-10-14 R.I.P EUR
• 2008-08-08 $ up 0.05 € in 24 hours as Trichet abandons war against inflation

UK on the brink of complete collapse

I keep on criticizing very harshly the US for their political leaders and policies of the Fed, but let's not forget that the UK is in a far worst shape than the US, and that Gordan Brown and Mervyn King are far more dangerous than even the Bernanke/Obamas they've got on the other side of the Atlantic.

You want to read these two posts to refresh your memory:

• 2009-03-26 The UK getting closer and closer to collapse
• 2009-03-27 Gordon Brown: The devalued Prime Minister of a devalued Government

Now here are two quite worrying pieces of information published by Bloomberg:

April 23 (Bloomberg) -- U.K. government support for the banking system has risen to 1.4 trillion pounds ($2 trillion) and may climb higher as the financial crisis spreads to building societies and economists warn lenders may need more aid.

Prime Minister Gordon Brown’s government yesterday offered to guarantee some mortgage-backed bonds, adding as much as 50 billion pounds to the bailout that began with the collapse of Northern Rock Plc in 2007. The amount invested in, loaned to or pledged to back bank assets now equals Britain’s gross domestic product, or 22,800 pounds for every person in the U.K.

The 1.4 trillion figure doesn’t count government pledges to stimulate the economy.

April 23 (Bloomberg) -- The U.K.’s plan to sell a record 220 billion pounds ($318 billion) of gilts this year to revive the economy may cause investor “indigestion,” according to some of Britain’s biggest bond traders.

The amount, 50 percent more than the 146.4 billion pounds sold in the fiscal year that ended March 31, may be too much for the market to absorb, according to Royal Bank of Scotland Group Plc.
[...]
“The U.K. is mortgaged up to the hilt,” Paul Day, chief market analyst at MIG Investments SA, said in an interview from Singapore yesterday.

Now, it is fortunately still time to take your side and maybe protecting the remaining little value that is still given by the market to your GBPs. I am short the GBP against the EUR and long Gold and Silver.

The UK getting closer and closer to collapse

Just two days ago, the official CPI figure in the UK came up at 3.2% and both Mervyn King and Gordon Brown where surprised by the numbers. I must admit that it's very surprising that with a currency that's been devalued by about 25% against the Euro and the US Dollar and 50% against the Yen in the past 18 months, plus having M3 figures skyrocketing by about 40% annualized, only the complete idiot and absolute incompetent must be surprised to see prices rise. When you think that the CPI figures are probably way understating what is actually going on in the country, you get somehow a bad feeling about the future of the GBP. From my own experience as a shopper, prices have been rising by much more than just 3%...

March 24 (Bloomberg) -- The U.K. inflation rate unexpectedly rose in February after higher food costs and the weakness of the pound sustained price pressures even as Britain’s recession deepened.

Consumer prices climbed 3.2 percent from a year earlier, the Office for National Statistics said today in London. The median forecast of 28 economists was for 2.6 percent.

Worse, those three idiots (you shall not forget about Alistair Darling!), think that decreasing prices will soon resume and that they must hence inflate even faster and harder.

Bank of England Governor Mervyn King wrote in a letter to the Treasury explaining the increase from the 3 percent limit that a “sharp decline” in the rate is likely to resume.

Chancellor of the Exchequer Alistair Darling replied that he welcomes King’s approach of looking through temporary effects on inflation, which officials say may be volatile because of the currency’s drop.
[...]
“February’s inflation outturn is somewhat higher than expected,” King wrote to Darling. “It is likely that over the next year CPI inflation will move below target, although the profile of inflation could be volatile.”

The Bank of England has to do whatever is necessary to get Britain away from disinflation, policy maker David Blanchflower said yesterday.

So much stupidity is beyond imagination. It can exist only in the real world.

But just when you think you are seeing light at the end of the tunnel, it looks like the light is the train coming fast and that avoiding a complete wreckage is almost impossible. It also shows one more time that trying to micro-manage the economy is bound to failure because of the law of unintended consequences, that I have been talking about in the past:

March 26 (Bloomberg) -- [...] For the first time in almost seven years, the U.K. couldn’t find enough buyers for one of its debt sales when it offered 1.75 billion pounds ($2.55 billion) of bonds yesterday. The yield on 10-year gilts rose after the sale by as much as 20 basis points
[...]
Gilts have “only one buyer and that’s Mervyn King,” said John Anderson, a money manager who oversees about $3 billion in pound-denominated assets at Rensburg Fund Management in London. “You don’t need to look anywhere beyond that. Make your mind up, please, government. Do you want to buy gilts or do you want to sell them? You can’t do both.”

A couple of past posts that might be worth reading again:

• GBP to be devalued by 50%-70% within next 6-12 months
• GBP arbitrage opportunities gone, replaced by very high inflation

(Full disclosure: I have been massively short the GBP for about a month)

Explosive cocktail of fraud, lies and theft in the UK

Following my previous post about the Explosive cocktail of fraud, lies and theft in the US, it wouldn't be fair to also talk a bit about the UK, which is in my opinion in a far worst shape than the US.

Feb. 18 (Bloomberg) -- Bank of England policy makers unanimously agreed to ask the government for authority to create money in an effort to kick start the economy, saying further interest rate cuts may hurt the profitability of banks.

The Monetary Policy Committee, led by Governor Mervyn King, voted 8-1 to cut the main rate to 1 percent, the lowest since the central bank was founded in 1694, minutes of the Feb. 5 decision published in London today show. David Blanchflower, argued for a deeper reduction so rates go as low as possible “without delay.”

I would like to know what kind of outcome they are expecting and the why and how it would help the economy to sink the pound even further?

The minutes suggest rates cuts are becoming less potent, pushing the central bank to use unprecedented means to revive the economy from its worst slump since 1980. King and Chancellor of the Exchequer Alistair Darling will exchange letters about the next steps within a few days, a spokesman for the Treasury said.

I can't wait to see this parody of democracy and their ridiculous letters again... Sad but real... I had a post about that a while ago.

“To the extent that further cuts in bank rate could not inject sufficient stimulus, the committee would need to use alternative policy measures,” the minutes said. “Therefore the committee unanimously agree that the governor should write on its behalf to the chancellor to seek authority to conduct purchases of government and other securities, financed by the creation of central bank money.”

Stimulus = printing money & free money for banks

[...] “The central bank is doing everything it can to boost liquidity,” Bob McKee, chief economist at Independent Strategy in London, said in a Bloomberg Television interview. “It takes some time for lower interest rates to work through.”

Liquidity = printing money & free money for banks

Gordon Brown hails £500 billion bank rescue plan
Gordon Brown has said a £500 billion bail-out of British banks will restore "confidence and trust" in the financial system.

bail-out = printing money & free money for banks
£500 billion bail-out = printing £500 billion & and giving it to banks

Admitting that Government borrowing will have to be drastically increased to fund the package, Mr Brown insisted that "for every family in the country, the stability of the banking system matters."

Government borrowing = printing money & free money for banks

Why does it matter for every family? Why don't you just let the bad banks collapse in order to make the system stable? Why don't you cancel the fractional reserve banking and reckless speculation by banks instead of handing them £500 billion more?

He said taxpayers would "earn a proper return", saying: "This support is on commercial terms. We expect to be rewarded for the support we provide."

Yet another big fat lie... How much is the return so far on RBS, HBoS, Lloyd, Northern Rock, B&B ? About -99%.

Mervyn King's Open Letter to Alistair Darling

Mervyn King, the Governor of the Bank of England has sent yet another letter to Alistair Darling to explain why inflation is about twice as high as the target of the BoE. Darling's ridiculous reply is available here.

He basically states that the rise of the prices is due to the plummeting value of the British Pound, which has lost 15% of its value in the past few months and rising costs of commodities. And that he expects inflation to be out of the target for at least a year.

He fails to point that the falling value of the GBP is due to the cut of the repo rate he made a few months ago and to the fact that investors are expecting further cuts and they know that neither Darling, nor Gordon Brown nor Merving King will have the political courage and the guts to defend their currency and will try to devalue their currency in the hope of getting more votes at the next election and save their own personal political career at the expense of the currency of their country and trading the future of the British citizens against a short sighted target (the ballot).

Merving King writes as if inflation was out of his control and that he couldn't do anything to prevent it, even though the only tool that can be used to fight inflation is the very tool that only the BoE controls: the BoE rate! Just raise the rates!

Darling/Brown and King are just playing a political game and gambling the future of their country. Shame on them!

Here's why cutting rates won't do any help but rather make things a lot worse:

• The very reason why we are in such a mess is that the rates have been kept too low for too long, creating the real estate bubble and the credit binge
• The UK citizens have the sad world records of both the biggest debt per capita across the whole world and the biggest dept per capita in the history. This is a two dimensional record that will hit the economy very hard and which also end in personal disasters.
• The UK imports most of the products and commodities it needs. Reducing rates will make the GBP fall further and hence increase the imported inflation while not having any upside.
• The UK doesn't have any productive force or industry. A falling GBP will not help export anything.
• The UK relies on foreigners across the whole world to do the low end jobs and the top end jobs. Most workers from Eastern Europe for example in the UK don't mind having low end jobs because it pays well compared to the income they have in their home country. Most people in the City are the same, but on the other side of the scale. They are the productive workforce of this country. They are now starting the leave, as I have seen reported many times and experienced among my colleagues/friends. Once it reaches the point very it's too late, the UK will understand how dependent it is the foreigners, but also how important it was to have a strong currency.
• The UK citizens need to save money, not spend more. Raising rates would help that.
• It won't work anyway, as shown in this Bloomberg report (this is a MASSIVE move):
  

  Sept. 16 (Bloomberg) -- The cost of borrowing in dollars overnight more than doubled to 6.44 percent, its biggest jump, according to the British Bankers' Association.

  The London interbank offered rate or Libor, increased 333 basis points from yesterday, the BBA said today.

So why will they lower rates? Because they are trying to reflate a real estate bubble that will only take longer to pop and cause more havoc. They somehow managed to convince people that borrowing for the rest of their lives to live in a one-bedroom flat 50 miles from their workplace is great and that houses should be unaffordable. This is the Great Con of the past several years. And now, people expect help from the government to prevent the house prices to collapse, at their own expense!

Actual people are getting bankrupt. Actual families are losing their homes. King/Brown/Darling are playing with the personal lives of their citizens for the benefit their own personal careers. This is just disgusting and sick.