Credit deflation and the reflation cycle to come (part 2)

[leonardratso]

16 minutes ago, JMD said:

 

But nope - I never believed in that!!

i find it hard to believe that a successful entrepreneur such as sinclair would spunk it all away on a piece of crap, even back in the day they were a laughable vehicle, no more than a kids toy, actually they werent even as good as a rich kids toy, i think id rather risk it in a go kart;

 

[DurhamBorn]

JP Morgan need to stop pinching all out macro work from this thread,or at least pay us,i have $190 in 2027,but il take it early 

“Supercycle on the Horizon.” 

“The combination of the supply and demand side dynamics suggests that the global oil market could move into large and sustained deficits past 2022, reaching an extreme 1.7 mbd by 2025. Running this scenario through our pricing model suggests these balances would lead to Brent oil prices rising steadily from 2022 onwards, averaging around $80/bbl in 2023, $100/bbl in 2024 and $190/bbl in 2025.”

 

[Agent ZigZag]

1 hour ago, JMD said:

SP, I don't understand the Germany/Russia reference you are making, please can you explain bit more?

Whilst a different time the economic and political storey is the same today except in a different place with different actors. All part of life's cycle. Nothing ever changes and there is nothing new under the sun.

[Harley]

4 hours ago, Knickerless Turgid said:

Do you believe?

I'm not living that remote thanks!

[Harley]

4 hours ago, jamtomorrow said:

You're trying to get me killed!

[Harley]

4 hours ago, Innkeeper said:

Electric tuk tuk. Surely the way to go  😀

 

 

Better, a bit of cash on the side too!

[Cosmic]

5 hours ago, Harley said:

My lovely polo blew up at 80K.  Very annoyed.  Hyundai on 150k though.

Fairly easy engine swap out, my first foray in to anything more involved than brake discs was to put a 1.8T engine in to a Fabia (same chassis as the Polo), they are really easy to work on as the whole front end comes off, gearbox is a sealed unit etc. I know you have tools etc. You should have a go if you are ever faced with the situation again

[Harley]

3 hours ago, DurhamBorn said:

Big end Harley or the belts snapping?

Never found out.  Gave it to charity.  Just had a service but I had hit a pothole too so maybe the engine got hit.  Or do you mean me?  Keeping the weight down atm but the big end is a worry at my age!

[Harley]

4 hours ago, sancho panza said:

Gotta love this list of recipients of cheap UK taxpayer loans. Lufthansa????

Presumably it'll all come out of our foreign aid budget!

[sancho panza]

 

2 hours ago, JMD said:

SP, what is your and others view?

...Will these loans be paid back, or will the governments simply take part (and ever growing, if more loans follow) ownership of these companies?

AS per CP it's a mix of understandable opportunism and balance sheet buffering.I do however,fail to see the reasoning behind lending moeny to foreign companies and retialers like John Lewis-£300mn???? M&S £300mn???,they're some big chunks of cash.

2 hours ago, Chewing Grass said:

WTF would you loan Wizz Air £300M.

Quite..................

1 hour ago, JMD said:

SP, I don't understand the Germany/Russia reference you are making, please can you explain bit more?

as per @Agent ZigZag different actors,differnet facrtors,different timing,similar themes.

I always remember hearing Steve Keen say back in 2009,

'the last time we had a deleveraging like this,it ended after ten years with World War 2'.

We didn't really get the deleveraging in 2009 so it's been delayed.In a way it jsut allowed the ruling politcal elites to become even more isolated from teh masses in their ivory towers.

I'm still trying to work out the ramificatiosn but I think DB's US-Sino cold war thesis is suitably compelling

The end of the dollar hegemony will have massive repercussions

 

 

[sancho panza]

1 hour ago, Cattle Prod said:

My view is that that list looks opportunistic! Most of those companies are viable and healthy, I mean, BASF, Ryanair?! Nissan??!!  It's a bit like some of our fellow posters here taking the opportunity to take 50k at 2.5% and stick it in an account for a rainy day. Cheaper than redundancy insurance, and I suspect the companies are just bolstering credit lines. Yes, I think they will be paid back, none of those companies will want government interference in their business. The vast majority won't go bust.

What I can't really see is how this is fullfilling any of the BOE/Govt goal of getting money out into the economy. It'll just sit on the balance sheet.

I msut say,I have my doubts on a few of those,not least Westfield,WIzz and John Lewis.

Quite what we're doing lending CHanel £600mn I don't know.Do they manufacture here??

[sancho panza]

18 minutes ago, Cosmic Apple said:

Fairly easy engine swap out, my first foray in to anything more involved than brake discs was to put a 1.8T engine in to a Fabia (same chassis as the Polo), they are really easy to work on as the whole front end comes off, gearbox is a sealed unit etc. I know you have tools etc. You should have a go if you are ever faced with the situation again

We could do with a car maintenance thread.I'd love to have a go but have no understanding.

[sancho panza]

I knwo there are many on here running a weak dollar thesis,not least DB with his DXY 90 call.

Here's some reasoning from an experienced player.The reference to trump and protectionism is particularly pertinent given the @JMD @Harley discussions on politcal economy.Just like the 1930's.

 

worth a read

 

https://www.bloomberg.com/opinion/articles/2020-06-08/a-crash-in-the-dollar-is-coming

A Crash in the Dollar Is Coming

The world is having serious doubts about the once widely accepted presumption of American exceptionalism.

By

Stephen Roach

8 June 2020, 22:00 BST

The U.S. government needs to take better care of the dollar. 

Stephen Roach, a faculty member at Yale University and former chairman of Morgan Stanley Asia, is the author of "Unbalanced: The Codependency of America and China."

 

 

The era of the U.S. dollar’s “exorbitant privilege” as the world’s primary reserve currency is coming to an end. Then French Finance Minister Valery Giscard d’Estaing coined that phrase in the 1960s largely out of frustration, bemoaning a U.S. that drew freely on the rest of the world to support its over-extended standard of living. For almost 60 years, the world complained but did nothing about it. Those days are over.

 

 

Already stressed by the impact of the Covid-19 pandemic, U.S. living standards are about to be squeezed as never before. At the same time, the world is having serious doubts about the once widely accepted presumption of American exceptionalism. Currencies set the equilibrium between these two forces — domestic economic fundamentals and foreign perceptions of a nation’s strength or weakness. The balance is shifting, and a crash in the dollar could well be in the offing.

The seeds of this problem were sown by a profound shortfall in domestic U.S. savings that was glaringly apparent before the pandemic. In the first quarter of 2020, net national saving, which includes depreciation-adjusted saving of households, businesses and the government sector, fell to 1.4% of national income. This was the lowest reading since late 2011 and one-fifth the average of 7% from 1960 to 2005.

 

Lacking in domestic saving, and wanting to invest and grow, the U.S. has taken great advantage of the dollar’s role as the world’s primary reserve currency and drawn heavily on surplus savings from abroad to square the circle. But not without a price. In order to attract foreign capital, the U.S. has run a deficit in its current account — which is the broadest measure of trade because it includes investment — every year since 1982.

 

Covid-19, and the economic crisis it has triggered, is stretching this tension between saving and the current-account to the breaking point. The culprit: exploding government budget deficits. According to the bi-partisan Congressional Budget Office, the federal budget deficit is likely to soar to a peacetime record of 17.9% of gross domestic product in 2020 before hopefully receding to 9.8% in 2021.

A significant portion of the fiscal support has initially been saved by fear-driven, unemployed U.S. workers. That tends to ameliorate some of the immediate pressures on overall national saving. However, monthly Treasury Department data show that the crisis-related expansion of the federal deficit has far outstripped the fear-driven surge in personal saving, with the April deficit 5.7 times the shortfall in the first quarter, or fully 50% larger than the April increment of personal saving.   

In other words, intense downward pressure is now building on already sharply depressed domestic saving. Compared with the situation during the global financial crisis, when domestic saving was a net negative for the first time on record, averaging -1.8% of national income from the third quarter of 2008 to the second quarter of 2010, a much sharper drop into negative territory is now likely, possibly plunging into the unheard of -5% to -10% zone.             

And that is where the dollar will come into play. For the moment, the greenback is strong, benefiting from typical safe-haven demand long evident during periods of crisis. Against a broad cross-section of U.S. trading partners, the dollar was up almost 7% over the January to April period in inflation-adjusted, trade-weighted terms to a level that stands fully 33% above its July 2011 low, Bank for International Settlements data show. (Preliminary data hint at a fractional slippage in early June.)

But the coming collapse in saving points to a sharp widening of the current-account deficit, likely taking it well beyond the prior record of -6.3% of GDP that it reached in late 2005. Reserve currency or not, the dollar will not be spared under these circumstances. The key question is what will spark the decline?

 

Look no further than the Trump administration. Protectionist trade policies, withdrawal from the architectural pillars of globalization such as the Paris Agreement on Climate, Trans-Pacific Partnership, World Health Organization and traditional Atlantic alliances, gross mismanagement of Covid-19 response, together with wrenching social turmoil not seen since the late 1960s, are all painfully visible manifestations of America’s sharply diminished global leadership. 

As the economic crisis starts to stabilize, hopefully later this year or in early 2021, that realization should hit home just as domestic saving plunges. The dollar could easily test its July 2011 lows, weakening by as much as 35% in broad trade-weighted, inflation-adjusted terms.

The coming collapse in the dollar will have three key implications:  It will be inflationary — a welcome short-term buffer against deflation but, in conjunction with what is likely to be a weak post-Covid economic recovery, yet another reason to worry about an onset of stagflation — the tough combination of weak economic growth and rising inflation that wreaks havoc on financial markets.

Moreover, to the extent a weaker dollar is symptomatic of an exploding current-account deficit, look for a sharp widening of America’s trade deficit.   Protectionist pressures on the largest piece of the country’s multilateral shortfall with 102 nations – namely the Chinese bilateral imbalance — will backfire and divert trade to other, higher-cost, producers,  effectively taxing beleaguered U.S. consumers.

Finally, in the face of Washington’s poorly timed wish for financial decoupling from China, who will fund the saving deficit of a nation that has finally lost its exorbitant privilege? And what terms — namely interest rates — will that funding now require?

Like Covid-19 and racial turmoil, the fall of the almighty dollar will cast global economic leadership of a saving-short U.S. economy in a very harsh light. Exorbitant privilege needs to be earned, not taken for granted.

[Harley]

3 hours ago, JMD said:

Harley, others have re-used 'your' phrase 'political economy', but what did you originally mean by it? I took it to mean manipulation/propaganda wars (re. Chomsky?); i.e. that the economics can be usurped by the political. Am I wrong? Only the sense in which others have used it, it seems to me anyway, to have drifted away from the 'manipulation' point. 

I agree and am not trying to be partisan, just trying to read the situation like you. 

I mean it in the sense I studied it (politics) at college and (economics) at uni.  Economics is too siloed for practical purposes.  For example, it often assumes optimality and rationale economic actors amongst much else.  Behavioural economics (the incorporation of psychology into economics) has holed this in a practical and progressive way.  The political economy is another key area.  Governments are political so to understand things on the ground, one needs to account for that in their decision making.  And politics is not limited to governments!  

Keynesianism is an interesting area given it's ingrained in Treasury and other thinking.  It provides, if read and interpreted badly (e.g. learnt second hand), cover for essentially politically motivated behaviour arguably not supported by Keynes' original writings.

But it also goes back further to the writings of Smith, Locke, and so on as they first grappled with the industrialisation underway and sought a philosophic basis which evolved into modern day economics.  This is the area that fascinates me the most atm because we are near at least a cycle end where much we have assumed (e.g the principles of money such as a store if value in the face of rapid debasement) are called into question.  We have to go back to these first principles to make sense of today and tomorrow.

Essentially Oxford intellectually has it bang on offering PPE rather than pure Economics.  Just a shame they seem to turn out such dire practicioners!

I'm maybe being loose with some definitions but I have applied my economics in many ways in my life to good effect and not merely as a source of £9,000 pa per head!

[Harley]

1 hour ago, JMD said:

I have always thought the astronauts were taking an extroadinary risk (ripped space suit) when they did those exaggerated hops across the moon surface. Or am I just exhibiting the difference between my British 'sensibilities' and the American 'cowboy spirit'?

I think not.  I have ripped the crotch area of many a work overall!

[Harley]

42 minutes ago, Cosmic Apple said:

Fairly easy engine swap out, my first foray in to anything more involved than brake discs was to put a 1.8T engine in to a Fabia (same chassis as the Polo), they are really easy to work on as the whole front end comes off, gearbox is a sealed unit etc. I know you have tools etc. You should have a go if you are ever faced with the situation again

Interesting.  Happened away from home and I thought the economics wouldn't stack up, but could be wrong (feared a dud replacement).  Bought a Dacia!  Will service my own now I have little to lose! 

[Harley]

26 minutes ago, sancho panza said:

I knwo there are many on here running a weak dollar thesis,not least DB with his DXY 90 call.

Hugh Hendry (he's back!) made an interesting comment that the USD is the reserve currency like gold once was and is in danger of there not being enough of it just like gold, which forced people off the gold standard.  At least I think that's what he said!  I see what DB was getting at.

PS:  He also said no to future inflation but we know he's a naughty boy and loves it! 

[Majorpain]

45 minutes ago, Harley said:

Hugh Hendry (he's back!) made an interesting comment that the USD is the reserve currency like gold once was and is in danger of there not being enough of it just like gold, which forced people off the gold standard.  At least I think that's what he said!  I see what DB was getting at.

PS:  He also said no to future inflation but we know he's a naughty boy and loves it! 

That is the problem with the lack of Dollar's in the world IMO, US share of GDP is shrinking and there is really is a lack of dollars!

[Castlevania]

1 hour ago, sancho panza said:

I msut say,I have my doubts on a few of those,not least Westfield,WIzz and John Lewis.

Quite what we're doing lending CHanel £600mn I don't know.Do they manufacture here??

Wizz is worthwhile. They’ll survive. The RyanAir business model but with the customer service level of Communist Eastern Europe.

[Majorpain]

5 hours ago, sancho panza said:

The Bank of England (BoE) published a list of the 53 companies to whom it has lent more than £16 billion, at absurdly low rates, as part of its Coronavirus Corporate Financing Facility (CCFF). Launched on March 20, the scheme enables the BoE to buy short-term corporate debt (“corporate paper”) of up to one-year maturity from companies at interest rates of between 0.2% and 0.6%.

About £0.5bn of interest from reasonably solid companies with money magicked from thin air, its not a bad rate of return if it helps the economy not to collapse and they all pay it back.  Playing at investment fund is catching on!

[janch]

In line with Harley's political economics thesis:

https://www.bbc.co.uk/news/science-environment-52906551

Green business

On Monday, more than 200 chief executives of some of the UK's top firms - including HSBC, National Grid, and Heathrow airport - signed a letter to the prime minister asking him to use the Covid-19 lockdown as a springboard to "deliver a clean, just recovery".

Many people may be surprised how similar the recommendations of these two very different interest groups are.

• Both Greenpeace and the chief executives are asking the government to prioritise investments in low carbon technologies and calling for the decarbonisation of the British economy to be speeded up
• Both say they want to see a focus on sectors that best support the environment
• Both are demanding that financial support for ailing businesses must come with a requirement for them to commit to take action to reduce their impact on the environment.

 

Meanwhile, the European Union has unveiled what it called the biggest "green" stimulus in history.

 

[Popuplights]

6 hours ago, Harley said:

I still want my cheap electric buggy for nipping into town.

I could build a solar charge station.

Someone make one please!

PS: No golf cart pictures please!

 

[spygirl]

4 hours ago, JMD said:

Harley, others have re-used 'your' phrase 'political economy', but what did you originally mean by it? I took it to mean manipulation/propaganda wars (re. Chomsky?); i.e. that the economics can be usurped by the political. Am I wrong? Only the sense in which others have used it, it seems to me anyway, to have drifted away from the 'manipulation' point. 

You might query why even bother asking such a granular question. And to be clear its not the political element I'm interested in. The reason is that I have posted recently about political decisions that'll have far wider economic consequences: e.g. the Boris' HK Chinese immigration offer; Covid-19 political uber-response.

Plus the other background to this is that I am questioning my own portfolio choices in terms of potential future political decisions/dimensions/risk, so I think the discussion is relevant to this forum. i.e. I see it as another macro/trend to aid/focus investment, rather like the excellent decomplexity concept.

Political economy comes from the original word/term for what we now call economists.

A lot of economics is just politics with numbers.

A lot is just made up, wishful thinking bullshit.

 

[Cosmic]

36 minutes ago, Popuplights said:

 

What's its NCAP rating? No... Ok then

[Popuplights]

17 minutes ago, Cosmic Apple said:

What's its NCAP rating? No... Ok then

I have just watched a review, and it doesn't have front brakes...😂