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

[wherebee]

So I go to bed and wake up and everything has shit the bed.  What did I miss?  Some announcement from the FED that they are going to stop propping the market up?

[Sugarlips]

1 hour ago, wherebee said:

So I go to bed and wake up and everything has shit the bed.  What did I miss?  Some announcement from the FED that they are going to stop propping the market up?

This?

 

[Castlevania]

13 hours ago, sancho panza said:

another UK bank ratio's for consideration

market cap £24bn total assets £800bn

Dowd Buckner capital ratio=24/800=3%

 

What's really interesting to me is that the market's view of RBS is that it's worth £24bn and yet shareholder equity is stated at £43.86 bn.

How do we explain that which at first appears a paradox?Clearly,the accountants have a rosier view of RBS's position than market participants.Would welcome the views of the resident accountants @Castlevania @sleepwello'nights

Deposits are up £44bn in 4 years,that's nearly two times market cap......

Net loans up £39bn in 4 years ramping up alongside the bubble in the housing market.

It's as if they learned nothing from 07/08.

A 20% drop in UK real estate and a few loans going sour and Tommy the taxpayer will be getting tapped up again methinks.dyodd natch

https://www.investing.com/equities/royal-bank-of-scotland-balance-sheet

 

 

Loan book accounting for distressed debts is very backward looking. The market seems to be pricing in significant write downs. I haven’t checked in a while but Barclays used to trade at a discount to RBS, despite having a stronger presence in credit cards (the high interest rates charged, more than cover the credit risk over the cycle) and a big investment bank that should make money regardless of the credit/economic cycle.

[wherebee]

31 minutes ago, Castlevania said:

Loan book accounting for distressed debts is very backward looking. The market seems to be pricing in significant write downs. I haven’t checked in a while but Barclays used to trade at a discount to RBS, despite having a stronger presence in credit cards (the high interest rates charged, more than cover the credit risk over the cycle) and a big investment bank that should make money regardless of the credit/economic cycle.

I'm still of the view that almost all banks globally are fucked at a fundamental level, due to the massive zombification of the global economy for 20 years, which means most debts could never be paid back unless the wheels of the zombie cart keep spinning.  Moreover, if inflation really lets rip, and interest rates follow, you'll see events which bank risk models have simple not been designed for for 40 years being acted out.

I can't tell you which country, but I was in a meeting a good few years ago where a Bank was pitching a REIT to do with hotels.  I happened to know that airbnb was mushrooming in that country and undercutting the hotel industry massively, plus demographic/crime changes in the cities meant tourism was sure to decline.  I asked a few simple questions and the answer was 'we don't think that is a risk'.  Not 'we've look at long tail risks and we think the risk is minimal but have priced accordingly' but 'we don't think that is a risk'.

I wonder how those REITS are performing now with COVID and AirBNB shotguns to the head?

Anyway, my point is that I suspect strongly most bank leadership know this and just hope to get out with their bonuses after a few years before it all collapses.  Pass the parcel.

[wherebee]

https://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm

a good read.  Several similarities to much of the 'wealth' in the western world today, in my view.

[MrXxxx]

15 hours ago, sancho panza said:

.

How do we explain that which at first appears a paradox?Clearly,the accountants have a rosier view of RBS's position than market participants

Intangible assets I.e. the RBS brand name (yes I know!)

15 hours ago, sancho panza said:

It's as if they learned nothing from 07/08

They didn't have to as the tax payers footed the bill for their lack of business  acumen!

[MrXxxx]

10 hours ago, Cattle Prod said:

Boris is just a (very) useful idiot

Well you got half of that right! :-)

[MrXxxx]

10 hours ago, Cattle Prod said:

How do you escape this madness??

Well I believe the French had the right idea about 200 years ago :-)

[MrXxxx]

1 hour ago, wherebee said:

Anyway, my point is that I suspect strongly most bank leadership know this and just hope to get out with their bonuses after a few years before it all collapses.  Pass the parcel.

You can understand why politics and finance are bedfellows, and a position in one leads to a position in the other.

[Onsamui]

Cargill Taps Startup Producing Smart Cow Masks To Trap Methane Burps  | ZeroHedge  Gates is heavily invested in Cargill who are putting Indian farmers out of business.  More people are starving to death than dying from the virus in India because they have no work.

[Bricks & Mortar]

Interesting set of tweets.  This guy seems fairly sure deflation will happen, but presents 3 hypotheses about the manner in which it will occur.
I think his hypothesis (1), the Beautiful Deleveraging is for the birds.  To much leverage.  Too much much depending on the leverage - like businesses, homes, jobs, capital investment, etc.
Hypothesis (2) OMG What a Mess Deleveraging:  The David Hunter Hypothesis.  I need say no more.
Hypothesis (3) Awkward Deleveraging.  A series of short deflationary events over the decade, with the Fed intervening quickly each time.

I think I'm still in David Hunter camp for US and most of the world, as I don't think their money distribution pipelines go direct to business and jobs, but more through the consumer.  So, I think there's still too much leverage, and insufficient capability for central banks to get cash where it needs to go in a bk.  Here in the UK, the BoE put in the plumbing to quickly pass cash to business, which could help us ride a global bk event without the mass bankruptcies, redundancies, and repossessions.
But, I'm not so sure that'd be good for the UK in the longer term.  If the rest of world is cleaning out their Augean Stables, it might be better not to remain up to our armpits in shit.

But, for the first time, I now see that (3) is a possibility.
 

 

[M S E Refugee]

Russia to complete Pakistan Stream gas pipeline in 2025 – energy minister https://www.rt.com/business/525664-russia-pakistan-gas-pipeline/

[JMD]

23 hours ago, Cattle Prod said:

Not going to happen, it's a fundamentally racist society in the truest sense. They believe the Han Chinese are above all other races. Their name for China is the Middle Kingdom, i.e. between heaven and the rest of us plebs. Us whites were called routinely called laowai (hairy monkeys), I supect other races will have a pretty hard time of it. Japan is similar in that they don't want immigration to help their demographics, and social cohesion is more important. Fair enough, but Japan still earns plenty of dollars, and didn't cover up a likely virus leak that destroyed word economies.

Chinese also believe they evolved from a different species of human. Interesting theory but the discovered bone genetics doesn't back them up, though they are very reticint to give West proper access to run scientific tests. It all goes back to the 'Peking'(Beijing?*) Man discovery in the 40's, but last couple decades have seen Chinese scientists really 'stretching the fossil science'.                                                                                      *Actually much of Europe never adopted the 1990's Chinese name changes, the UK did so eagerly (of course!), but interestingly Germany have resisted to this day. But the real interesting thing for me is that foreign countries, including China, don't reciprocate when referring to UK towns, etc. Just a small, inconsequential indicator perhaps?, of how different nations think/behave/engage (watch this space I guess!!).                                                                                                                             https://www.scientificamerican.com/article/how-china-is-rewriting-the-book-on-human-origins/#:~:text=Studies of Chinese populations show,such as Neanderthals and Denisovans.

[jamtomorrow]

Put this together with the small/modular concept being pushed by the Rolls consortium, might make 2030s interesting from an energy policy perspective. And if one or more of these technologies comes to maturity just as we're in the throes of the brewing energy crisis, I can see a *lot* of nuclear generating capacity getting commissioned in a short space of time by panicked governments.

https://www.world-nuclear-news.org/Articles/Pilot-Natrium-plant-to-be-built-in-Wyoming

Pilot Natrium plant to be built in Wyoming

Plans to construct a Natrium reactor demonstration project at a retiring coal plant in the US state of Wyoming were announced yesterday by TerraPower, PacifiCorp and Wyoming Governor Mark Gordon. The companies are evaluating several potential locations in the state for the plant, which will feature a 345 MWe sodium-cooled fast reactor combined with a molten salt energy storage system that can boost the system's output to 500 MWe for more than five-and-a-half hours when needed. They expect to announce the selected site by the end of 2021.

[JMD]

1 hour ago, jamtomorrow said:

Put this together with the small/modular concept being pushed by the Rolls consortium, might make 2030s interesting from an energy policy perspective. And if one or more of these technologies comes to maturity just as we're in the throes of the brewing energy crisis, I can see a *lot* of nuclear generating capacity getting commissioned in a short space of time by panicked governments.

https://www.world-nuclear-news.org/Articles/Pilot-Natrium-plant-to-be-built-in-Wyoming

Pilot Natrium plant to be built in Wyoming

Plans to construct a Natrium reactor demonstration project at a retiring coal plant in the US state of Wyoming were announced yesterday by TerraPower, PacifiCorp and Wyoming Governor Mark Gordon. The companies are evaluating several potential locations in the state for the plant, which will feature a 345 MWe sodium-cooled fast reactor combined with a molten salt energy storage system that can boost the system's output to 500 MWe for more than five-and-a-half hours when needed. They expect to announce the selected site by the end of 2021.

Interesting that these pilot schemes are beginning so soon. And when the increasing costs of oil and renewables becomes terrifyingly real this type of nuclear infrastructure will become the only economic option. Just hope that the oil companies can benefit, but perhaps their business model means they will always be a competitor to nuclear? In which case I assume that  I/we will need to pivot from oil and into nuclear over the next decade. That would be a pity as I had wanted to keep my oilies for longer term, but maybe nuclear will provide even greater investment gains for us if played correctly? ...Decisions for the future I guess.

[Loki]

33 minutes ago, JMD said:

Interesting that these pilot schemes are beginning so soon. And when the increasing costs of oil and renewables becomes terrifyingly real this type of nuclear infrastructure will become the only economic option. Just hope that the oil companies can benefit, but perhaps their business model means they will always be a competitor to nuclear? In which case I assume that  I/we will need to pivot from oil and into nuclear over the next decade. That would be a pity as I had wanted to keep my oilies for longer term, but maybe nuclear will provide even greater investment gains for us if played correctly? ...Decisions for the future I guess.

Does it get geopolitical though with some countries not being "allowed" nuclear and being forced to use oil/gas?

[Bobthebuilder]

1 hour ago, JMD said:

Interesting that these pilot schemes are beginning so soon. And when the increasing costs of oil and renewables becomes terrifyingly real this type of nuclear infrastructure will become the only economic option. Just hope that the oil companies can benefit, but perhaps their business model means they will always be a competitor to nuclear? In which case I assume that  I/we will need to pivot from oil and into nuclear over the next decade. That would be a pity as I had wanted to keep my oilies for longer term, but maybe nuclear will provide even greater investment gains for us if played correctly? ...Decisions for the future I guess.

I think it would be wise to have some exposure to nuclear. RR maybe? Uranium miners another?

[M S E Refugee]

19 minutes ago, Bobthebuilder said:

I think it would be wise to have some exposure to nuclear. RR maybe? Uranium miners another?

https://en.wikipedia.org/wiki/Fortum

This company is worth a look if you want exposure to the Nuclear industry.

[Transistor Man]

2 hours ago, Bobthebuilder said:

I think it would be wise to have some exposure to nuclear. RR maybe? Uranium miners another?

Engineering Service companies are a possibility. Jacobs? Many serve oil & gas, and nuclear. 

[Chewing Grass]

If you are looking for a good long term bet Nuclear is yesterdays problem and is viewed as an expensive overhead.

The big money will be who (Engineering Company) gets first dibs and the knowledge of building this.

https://www.bbc.co.uk/news/uk-england-nottinghamshire-56256144

[Transistor Man]

20 minutes ago, Chewing Grass said:

If you are looking for a good long term bet Nuclear is yesterdays problem and is viewed as an expensive overhead.

The big money will be who (Engineering Company) gets first dibs and the knowledge of building this.

https://www.bbc.co.uk/news/uk-england-nottinghamshire-56256144

That is nuclear! Just fusion, not fission. Worth doing. But I won’t be holding my breath.

The accelerator-driven sub-critical reactor hasn’t gone anywhere yet (Energy Amplifier). Seems like quite a good idea to me. 

[Barnsey]

Had dinner with sister's other half working in oil and gas, absolutely convinced this inflation spike we're seeing will be temporary. Transitory complacency is very real out there.

[AWW]

Commercial nuclear fusion has been just ten years away for the last forty years.

[goldbug9999]

14 hours ago, Bricks & Mortar said:

Interesting set of tweets.  This guy seems fairly sure deflation will happen, but presents 3 hypotheses about the manner in which it will occur.
I think his hypothesis (1), the Beautiful Deleveraging is for the birds.  To much leverage.  Too much much depending on the leverage - like businesses, homes, jobs, capital investment, etc.
Hypothesis (2) OMG What a Mess Deleveraging:  The David Hunter Hypothesis.  I need say no more.
Hypothesis (3) Awkward Deleveraging.  A series of short deflationary events over the decade, with the Fed intervening quickly each time.

I think I'm still in David Hunter camp for US and most of the world, as I don't think their money distribution pipelines go direct to business and jobs, but more through the consumer.  So, I think there's still too much leverage, and insufficient capability for central banks to get cash where it needs to go in a bk.  Here in the UK, the BoE put in the plumbing to quickly pass cash to business, which could help us ride a global bk event without the mass bankruptcies, redundancies, and repossessions.
But, I'm not so sure that'd be good for the UK in the longer term.  If the rest of world is cleaning out their Augean Stables, it might be better not to remain up to our armpits in shit.

But, for the first time, I now see that (3) is a possibility.
 

 

All these historic comparisons aren't worth shit though because hand over fist money printing wasn't seen as acceptably prudent for a central bank in those days. Now its been completely normalised and further more all the mechanism are in place to do it quickly and at what ever scale is needed to bail out all the rich asset owners.

Fed has printed 30% of all $ in existence ever in the last year - no one can seriously think they are suddenly going to reign that in.

 

[Green Devil]

15 hours ago, Bricks & Mortar said:

Interesting set of tweets.  This guy seems fairly sure deflation will happen, but presents 3 hypotheses about the manner in which it will occur.
I think his hypothesis (1), the Beautiful Deleveraging is for the birds.  To much leverage.  Too much much depending on the leverage - like businesses, homes, jobs, capital investment, etc.
Hypothesis (2) OMG What a Mess Deleveraging:  The David Hunter Hypothesis.  I need say no more.
Hypothesis (3) Awkward Deleveraging.  A series of short deflationary events over the decade, with the Fed intervening quickly each time.

I think I'm still in David Hunter camp for US and most of the world, as I don't think their money distribution pipelines go direct to business and jobs, but more through the consumer.  So, I think there's still too much leverage, and insufficient capability for central banks to get cash where it needs to go in a bk.  Here in the UK, the BoE put in the plumbing to quickly pass cash to business, which could help us ride a global bk event without the mass bankruptcies, redundancies, and repossessions.
But, I'm not so sure that'd be good for the UK in the longer term.  If the rest of world is cleaning out their Augean Stables, it might be better not to remain up to our armpits in shit.

But, for the first time, I now see that (3) is a possibility.
 

 

Deflation. 🤣

All i can see is rampant inflation leading possibly to hyperinflation (but unlikely imo).