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

[JMD]

49 minutes ago, M S E Refugee said:

I do find it fascinating that the only way the environmentalists can save the environment with their Green energy is by destroying the environment of a Third World Country. 

Your post has been removed by Farce-book for micro-aggressions, judgmentantalism and implied/unconscious racism/s!!!      Please note that your account has been disabled until you have successfully completed the Harry Windsor well being course.

[DoINeedOne]

 

[planit]

1 hour ago, reformed nice guy said:

I completely disagree. The "white man's burden", now applied to developed Asia, is a load of rubbish.

National interests must come first, so we would take resources that we need in exchange. They would probably decline in population

The west does not 'need' to do anything

 

China would do everything in their own national interest without hesitation, they would even take resources by force if needed.  Not sure the west would but I was not referring to developed Asia.

Thinking again after your post just makes the situation difficult, a conflict is more likely now as China would take a different position to the west making any coordinated plan very difficult. You can't divide everything up in a fair way if someone is stealing whatever they need at the same time. At least China will have enough coal power plants.

 

Hopefully the future will be more visible shortly (without Covid hiding true demand) and we can plan effectively. If the Saudis are lying about their potential continuous oil supply rate it is incredibly irresponsible as the world could be relying on it coming on line.

Banning all crypto mining worldwide should free up some extra energy and solve the problem. 

[Errol]

Largest gold miner has highest weekly close in 34 years:

 

[MrXxxx]

On 10/05/2021 at 12:19, sancho panza said:

 

I don't know about others, but as someone who finds economic theory difficult I just find her so good at explaining concepts that I have struggled with previously...she is such a great communicator.

[DurhamBorn]

3 hours ago, JMD said:

DB, when you say 'own everything that comes after...' are you referring to your thesis that the oilies might buy the energy generation companies? 

Yes,or own the producing assets like hydrogen plants.

[Lightscribe]

1 hour ago, PrincessDrac said:

Seems to be effecting Fres aswell. South/Mid American Miners feeling unloved.

US listed miners seeing 4% uplifts last week. Poly and CEY and Fres in stall mode. Maybe next week we'll see some momentum. Gold charts are looking bullish. Might see 2000 by the summer.

I sold some Fres last week when it went to 940 as I had too much of an allocation so freed up some profit for elsewhere. It has risen from the low 800s last month in which I loaded up so it has been moving along with the silver price.

I don’t think Fres will be affected by politics as much as other South American miners as it’s the largest silver miner in the world, too much money to be made by the government. 

[Bobthebuilder]

On 13/05/2021 at 13:11, DurhamBorn said:

Got some beautiful steak mince reduced in Sainsbury's yesterday,loads of it as well.Only a few in at 2pm,but they all walked past it,no doubt ashamed to be even close to a yellow sticker .Iv gone all upmarket,but its always a happy day when BAT sends me a big fat divi.

Ah see, I knew this was on the cards.

Shopping at Lidl/ Aldi is fine for the bottom feeder but if you want to really cook you need good ingredients. A meal is only as good as the quality you put in. THE INGREDIENTS ALWAYS WINS.

Sold all my Tesco a while back but Sainsbury's I will hold. Flight to quality and all that.

[sancho panza]

On 13/05/2021 at 09:53, planit said:

Look at the oilies, the share prices are half what they were but profits are currently more than they were preceding the crisis. This is without pricing in any boom recovery where everyone has to catch up on 2 years of holidays in one go.

It's hard waiting and I keep revisiting my hypothesis to look for holes but I always come back to the same conclusion that everything will have gone haywire by October.

Also, not saying it will definitely happen but when the dip in prices from last summer comes out of the inflation figures people will likely relax, just at the point they shouldn't. I haven't done any work on the figures but there should be at least 2 months in a row of declining inflation figures. The market crack up boom needs this relaxation.

 

Couple of great lines there P.I was chatting to a frien with a manufacturing/importing business and they were saying sizeable dislcoations occuring in supply chains ie can't get stuff in without big delay and price hikes,can't get it distributed as shortage of pallets/drivers apparently.

Bascually saying if  supply chains get totallyshut down, it's very hard to get them up and running without pricing abnormalities occuring at pressure points and that those pricing quirks in themselves create further instability in the supply chain.

Particualryl think the underlined bit is pertinent here,people will realx at exactly the point they shouldn't.

At the moment all I hear is people saying prices are 'hot,' because theyve had 40 years of disinflation,they're msitaking inflation for reflation.

 

On 13/05/2021 at 09:57, Harley said:

So what's everyone doing?  Me: 35% equity allocation atm.  Will sell a third of each long term hold on a signal from the monthly data (which I watch weekly).  Will buy that back on a subsequent buy signal.

We're about 15% cash,3% options ,80% oil/gold miners/potash/telecoms in that order.

On 13/05/2021 at 12:51, Bobthebuilder said:

It is an estate of 650 homes on hydrogen trails in Gateshead, everything on site I presume. They have been running 80% gas to 20% Hydrogen mix for a while. They now have houses running on 100% Hydrogen using current infrastructure so, the same gas pipes, meters, regulators etc, new boilers though.

Fascianting info there Bob,many thanks for posting.Well signposted for basement dwellers over the last year but nice to see you confirming from teh coal face.

On 13/05/2021 at 19:41, Noallegiance said:

Anybody got any idea what inflation will do to the second hand car market? Mine may soon die. Wanna get an idea if it's worth continually getting repaired or buying another one.

Think we'll see spikes in used as people  move away from the dodgy finance deals and onto cars they will one day own.

I probably need a bew car but given how much time I spend on it(given it's relative lack of importance in my lfie),I'm hoping my 11 plate will do another winter.

Sadly at work,I don't have the oldest car.There's on eyoung lad with a proper beat up 06 plate peugeot while all the other recent grads are PCPed up.

Potential basemnt dweller right there.

[sancho panza]

On 14/05/2021 at 07:18, MrXxxx said:

Well either benefits are too generous or salaries offered are too low...give people an incentive to work, either positive or negative, and they will.

its more that the cost of living is too high and the salaries too low.

I honestly don't know how they find staff for care homes,when teh very act of performing that amazing job puts you on the road to penury.

[wherebee]

2 hours ago, sancho panza said:

its more that the cost of living is too high and the salaries too low.

I honestly don't know how they find staff for care homes,when teh very act of performing that amazing job puts you on the road to penury.

I'm expecting to have to look after my father in law when he gets infirm; one reason we have spare rooms here is for that future.  The model of extended family looking after you in your final years is common in almost every society except the west for the period 1970-2020.

[MrXxxx]

3 hours ago, wherebee said:

I'm expecting to have to look after my father in law when he gets infirm; one reason we have spare rooms here is for that future.  The model of extended family looking after you in your final years is common in almost every society except the west for the period 1970-2020.

`We` don't want the inconvenience of them, but we want the convenience of what they have (inheritance) :-(

[sancho panza]

The headline from Wolf St says it all.It's a symptom .....

#debtdeflationcometh

https://wolfstreet.com/2021/05/13/state-of-the-american-debt-slaves-fed-confounded-as-consumers-pay-down-credit-cards-other-high-interest-debt-and-helocs/

State of the American Debt Slaves: Fed “Confounded” as They Pay Down Credit Cards, Other High-Interest Debt, and HELOCs

The fact that the Fed is trying to sort out this phenomenon of Americans actually paying down their usurious-interest debts and depriving the banks of some serious moolah shows how serious this situation is.

 

[AWW]

I don't have a whole lot of sympathy for the generation currently being stuffed into care homes. Individual cases, yes. As a cohort? They're the ones who voted for policies that made housing unaffordable, that led to their own kids becoming parents in their late thirties or even older. Their potential carers still have kids to look after - adding a couple of sick grandparents to the mix just isn't feasible.

[MrXxxx]

3 minutes ago, AWW said:

They're the ones who voted for policies that made housing unaffordabl

If we had PR that may have been the case, but we don't. Further, these `decisions` result in a larger inheritance...offspring can't `expect their cake and eat it`...on a purely moral stance its part of a social `contract` I.e. they looked after you for the first 20 years, so you should be prepared to look after them for their last 20.

[AlfredTheLittle]

16 minutes ago, MrXxxx said:

If we had PR that may have been the case, but we don't. Further, these `decisions` result in a larger inheritance...offspring can't `expect their cake and eat it`...on a purely moral stance its part of a social `contract` I.e. they looked after you for the first 20 years, so you should be prepared to look after them for their last 20.

I think you follow what you've seen your parents do themselves - my parents certainly didn't take in their parents, it was never even an option as far as I was aware, so it's been happening for a generation already and you'd need to look back if you want to find the reasons for it. Probably when people stopped living in the same town all their lives.

[jamtomorrow]

4 minutes ago, AlfredTheLittle said:

I think you follow what you've seen your parents do themselves - my parents certainly didn't take in their parents, it was never even an option as far as I was aware, so it's been happening for a generation already and you'd need to look back if you want to find the reasons for it. Probably when people stopped living in the same town all their lives.

Mentally, I'm fully prepared for an extended period with either FIL or MIL living with us because I'm determined to break that cycle in our family.

The payoff will be worth it tho - teenagers think I'm joking about having to wipe my arse for me, what a punchline that'll be.

[dnb24]

36 minutes ago, AWW said:

I don't have a whole lot of sympathy for the generation currently being stuffed into care homes. Individual cases, yes. As a cohort? They're the ones who voted for policies that made housing unaffordable, that led to their own kids becoming parents in their late thirties or even older. Their potential carers still have kids to look after - adding a couple of sick grandparents to the mix just isn't feasible.

It’s a story as old as time- cycles and all that, nothing that generation have done is different to human behaviour repeated- we will continue to repeat it as well, what’s happening now is just as bad- wokism etc- but we will repeat that- nowt you can do except look into history and see what you might have to put up with in future. 
I am not sympathetic to boomers but I also don’t blame them, I try and plough my own furrow  for my family and myself.

[AWW]

32 minutes ago, MrXxxx said:

If we had PR that may have been the case, but we don't. Further, these `decisions` result in a larger inheritance...offspring can't `expect their cake and eat it`...on a purely moral stance its part of a social `contract` I.e. they looked after you for the first 20 years, so you should be prepared to look after them for their last 20.

Offspring can't "have their cake and eat it" though. If their parents go into a home, it needs to be paid for. And you can't expect someone with young kids at home to look after a pair of dementia patients. Quite often they don't have enough time after working to look after their own kids, never mind two more.

[nirvana]

Batman gets it...

 

[wherebee]

12 minutes ago, AWW said:

Offspring can't "have their cake and eat it" though. If their parents go into a home, it needs to be paid for. And you can't expect someone with young kids at home to look after a pair of dementia patients. Quite often they don't have enough time after working to look after their own kids, never mind two more.

If I get dementia I trust my eldest is smart enough to kill me in a relatively painless way.  Better all round.

 

Or did I say that already?

[sancho panza]

There's been an excellent discussion on this thread about the inadequacy of inflation measures since it was first started by DB a few years back.Normally centred on Shaun Richards.

I think this piece by Wolf St is about teh best explanation I've read of how poorly CPI actually captures changes in the cost of living.

This is the mechanism by which the political class keep the masses on the debt treadmill -hedonic adjustments,owner occupiers housing costs etc

The only thing I'd add here is that the cost of a pension is excluded from CPI as well ie the cost of buying a dollar of pension income.

Intersting to see the spikes in durable goods/food and energy

Highlights in bold for skim readers

 

apologies to the LPP,this is too good.

https://wolfstreet.com/2021/05/12/its-getting-serious-dollars-purchasing-power-plunges-most-since-2007-but-its-a-lot-worse-than-it-appears/

It’s Getting Serious: Dollar’s Purchasing Power Plunges Most since 2007. But it’s a Lot Worse than it Appears

by Wolf Richter • May 12, 2021 • 308 Comments

Fed officials, economists “surprised” by surge in CPI inflation, but we’ve seen it for months, including “scary-crazy” inflation in some corners.

By Wolf Richter for WOLF STREET.

The Consumer Price Index jumped 0.8% in April from March, after having jumped 0.6% in March from February – both the sharpest month-to-month jumps since 2009 – and after having jumped 0.4% in February, according to the Bureau of Labor Statistics today. For the three months combined, CPI has jumped by 1.7%, or by 7.0% “annualized.” So that’s what we’re looking at: 7% CPI inflation and accelerating.

Consumer price inflation is the politically correct way of saying the consumer dollar – everything denominated in dollars for consumers, such as their labor – is losing purchasing power. And the purchasing power of the “consumer dollar” plunged by 1.1% in April from March, or 12% “annualized,” according to BLS data. From record low to record low. Over the past three months, the purchasing power of the consumer dollars has plunged by 2.1%, the biggest three-month drop since 2007. “Annualized,” over those three months, the purchasing power of the dollar dropped at an annual rate of 8.4%:

Folks in the business of dealing with inflation, such as economists and Fed officials, such as Fed Vice Chairman Richard Clarida, came out this morning in droves and said they were “surprised” by the red-hot CPI inflation.

There was nothing to be surprised about. We have been documenting red-hot inflation boiling beneath the surface for months, with “scary-crazy inflation” in used vehicles and in commodities, such as lumber, and surging factory input costs that are getting passed on because the entire inflation mindset has now changed.

The infamous Base Effect which I discussed over a month ago in preparation, and that now everyone is trotting out to explain away this red-hot inflation reading, was not at all responsible for the 7% annualized rate of CPI inflation over the past three months, or the 8.4% annualized drop of the purchasing power of the dollar. The Base Effect has nothing to do with it.

The Base Effect applies only to year-over-year comparisons. In April last year, CPI had dipped, and comparing today’s CPI index to that dip (the lower “base”) would include the Base Effect. On this year-over-year basis, CPI inflation rose 4.2%. But this has now become a useless number for two reasons: The sharply accelerating inflation in recent months, and the Base Effect that now mucks up the conversation.

That’s why I now use the past three months “annualized.” It gives the current pace of CPI inflation and bypasses the base effect.

But actual inflation is a lot worse.

Two-thirds of the overall CPI is for services. They include many of the big things that are surging in prices, such as housing, healthcare, and insurance. Housing costs – rent and homeownership costs combined – weigh one-third of overall CPI. Housing inflation is the biggest category in CPI.

The rent component of CPI, called “rent of primary residence” (=7.8% of total CPI) ticked up only 0.2% in April from March, and has been ticking up at the same rate all year, for an annualized rate of 2.4%.

The homeownership component, called “Owners’ equivalent rent of residences” (=24.0% of overall CPI), also ticked up only 0.2%, for an annualized rate of 2.4%. But this is based on surveys of homeowners’ estimates of how much their home might rent for. It is essentially a measure of rent, as seen by the homeowner.

But the Case-Shiller Home Price Index, which is based on the sales-pairs method, comparing how the price changed over time for the same house, and is therefor a good measure of house price inflation, soared by 1.1% for the month, and 12% year-over year (purple line).

In other words, nearly a quarter of the CPI is based on this fabrication of “Owners’ equivalent rent of residences” that suggests 2.4% annual homeownership inflation, when in fact, it’s more like 12%.

CPI by major category.

Services CPI. This fabrication of “Owners’ equivalent rent of residences” is also the reason why CPI for services is grossly understated. But still, the CPI for services (less energy services) jumped by 0.5% in April from March (=6% annualized), based on the increases in the other components (purple line in the chart below).

Durable Goods CPI. Prices of durable goods – cars, appliances, consumer electronics, etc. – spiked by 3.5% in April from March (=42% annualized… the “scary-crazy inflation I’ve been talking about). Compared to April last year, durable goods CPI is up 7.3% (red line)

Nondurable Goods CPI. This largely covers food and energy, including gasoline. It jumped 0.6% in April from March, or 7.5% “annualized.” Year-over-year, it was up 6.5% (green line);

But it’s still a lot worse: hedonic quality adjustments.

These three major Consumer Price Indices – CPIs for services, durable goods, and nondurable goods – over the long-term show how much of a twisted political instrument CPI has become.

We already mentioned the economic freak show of the housing component in the services CPI.

For durable goods, there is another mechanism being applied that also makes sense on a conceptual basis: hedonic quality adjustments. But they too have been abused to force down the CPI, thereby turning the durable goods CPI into another economic freak show.

As goods, such as vehicles, are being designed with more features and improvements – such as the move over the decades from a three-speed automatic transmission to a 10-speed electronically controlled transmission – the price increases based on those “quality improvements” are removed from the CPI. The idea is that inflation measures price changes of the same item over time; and when the price change is based on improvements, it is not inflation because you’re getting more as you pay more.

But in practice, these “hedonic quality adjustments” have been stretched to obviously ridiculous levels, as you can see in the chart below, where long-term inflation in durable goods (red line) was actually, you guessed it, negative, when in reality prices have skyrocketed.

The chart shows the three indices set at 100 for 1985 to show how they have diverged since then. That massive spike in durable goods in recent months barely registers in the long-term decline and will soon be whittled back down by hedonic quality adjustments, even if you have to pay 50% more for the product are few years from now:

Used Vehicle prices blow out, despite hedonic quality adjustments. A big driver in the durable goods CPI spike was the CPI for used vehicles, which exploded by 10.4% in April from March, a scary-crazy increase that we have seen for months in used-vehicle wholesale prices, which have blown out.

This chart shows the CPI as an index, not year-over-year percent-change, and so the Base Effect does not apply. Hedonic quality adjustments are heavily applied to used vehicles, as you can see from the astonishing fact that the index in 2020 was below where it had been 20 years earlier, even though actual prices of used vehicles have soared over those 20 years. It took this massive spike in April to put the index above where it had been in the year 2000:

 

[DurhamBorn]

9 hours ago, Bobthebuilder said:

Ah see, I knew this was on the cards.

Shopping at Lidl/ Aldi is fine for the bottom feeder but if you want to really cook you need good ingredients. A meal is only as good as the quality you put in. THE INGREDIENTS ALWAYS WINS.

Sold all my Tesco a while back but Sainsbury's I will hold. Flight to quality and all that.

Sainsbury's have a small section selling Lee Kum Kee products now i noticed when in.Their soy sauces and other jars of pastes are superb for chinese cooking.Small jar of chilli and garlic paste £1.80 for instance,but you would get 7 to 9 meals for two out of that.I made us a chilli chicken mushroom onion stir fry,takeaway standard for £2.30 last night.They also have 5kg bags of Jasmine rice in for a fiver.Bargain,the takeaways tend to use that mixed with some quality long grain.However i try to eat wholegrain rice most of the time.Home Bargains sell a brand called Himalayan at the moment and its top quality,almost exact to Tilda's,but £1.29 instead of £4.99.

[DurhamBorn]

2 hours ago, AWW said:

I don't have a whole lot of sympathy for the generation currently being stuffed into care homes. Individual cases, yes. As a cohort? They're the ones who voted for policies that made housing unaffordable, that led to their own kids becoming parents in their late thirties or even older. Their potential carers still have kids to look after - adding a couple of sick grandparents to the mix just isn't feasible.

I had my first daughter at 21,her mam was 18 by two days,beautiful looking girl,still a fab looking woman now.I had my next two at 25 and 29 .Any one of my kids would move my dad in with them tomorrow as would i or my brother and i know my kids would do the same for me.I dont think people did vote for these policies at least up here.I dont know anyone up north who gave a shit about how much their house was worth up until 2004 and southern BTL moved in buying up all the terrace houses up here. .However,down south my uncle was forever going on about how much his house was worth.Now his two daughters cant afford to buy.

The people who did vote for where we are were welfare scroungers and a large chunk of public sector workers.The worst part is,for now they are the groups protected from rising inflation with inflation linked benefits and pensions.

[Bobthebuilder]

21 minutes ago, DurhamBorn said:

Sainsbury's have a small section selling Lee Kum Kee products now i noticed when in.Their soy sauces and other jars of pastes are superb for chinese cooking.Small jar of chilli and garlic paste £1.80 for instance,but you would get 7 to 9 meals for two out of that.I made us a chilli chicken mushroom onion stir fry,takeaway standard for £2.30 last night.They also have 5kg bags of Jasmine rice in for a fiver.Bargain,the takeaways tend to use that mixed with some quality long grain.However i try to eat wholegrain rice most of the time.Home Bargains sell a brand called Himalayan at the moment and its top quality,almost exact to Tilda's,but £1.29 instead of £4.99.

I think it is really good you are getting into cooking, making your favourite take away for the family must be satisfying as well as saving a decent amount of money you know exactly what's in the meal, quality and healthy.

I had to learn to cook early, left home, and I was skint. Did a brief spell working in kitchens and I learnt a lot fast.

Processing food is where the money is, bacon for example, expensive to buy, but you can make your own easy. Put a pork belly chop in a tub, cover with salt, 24 hours in the fridge, and it's done. Not easy to slice wafer thin, but great chopped up and fried.

Save chicken bones to make stock etc, teaching you to suck eggs I'm sure.

Just want to take this opportunity to thank DB and all other posters. I started my SIPP end of 2019, its looking pretty healthy so far, (last March and October was testing times).

PS. One of my mates told me last week that he is selling up in London and moving to County Durham, it's happening.