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

[Harley]

1 hour ago, ThoughtCriminal said:

I feel as though this may not end well.......... 

Epic.  Democrats with a short memory of what Democrats did last time!

[Harley]

2 hours ago, Democorruptcy said:

I've not been following stuff recently, have I missed something?

" in next year's global bust. "

Is that his global bust delayed a year? I thought he was a 2021 Autumn bust man?

Timing!  Gotta watch the data with these macro boys in the back of your mind.  They choose the song, Mr Market the speed!

[Harley]

2 hours ago, HousePriceMania said:

Should we be buying TIPS ?

 

 

 

 

Nah, the BoE pension fund bought the right ones at the right time!

[Harley]

7 hours ago, DurhamBorn said:

He said: “Alison made a very important point about cost inflation. We need to secure the supply chain and have it close by.

Shouldn't we all.  I'm trying with my allotment, etc!

[planit]

The short term volatility on oil is crazy, market doesn't know where to go and I guess there are people just taking profits after a good ride.

All the OPEC school children squabbling in public added to their version of 'forward guidance' is amusing but the fundamentals behind have not changed.

They would be stupid to start a trade war now since they are all making a lot of money. They have complete control of the market which still has ~$2mbpd deficit, a long way off their expected $500kbpd increase for August (when demand is also expected to be $500kbpd higher).

So whilst this drama goes on it takes attention away from the fact that reserves are dwindling fast. Biden stuck is ore in today which is a bit desperate after he has done everything he can to increase his own oil supply slowdown. US now insignificant to the posturing going on, Biden will have to sit on the side-lines and take his fate.

 

For the above I want to disagree with David Hunter even though he is way better than me (I have to hand it to him proclaiming the exact day of the rollover). There have been a few people predicting $100 oil but not the panic or general consensus of a problem I would expect at a top. I would like to predict a nice quick move higher in the next 3 weeks followed by a fast drop.

Not sure what could trigger this as on the demand side nothing seems to be on the horizon and on the supply side I am not sure who has $3mbpd spare to suddenly start pumping. Perhaps it will be some kind of economy/Covid slowdown combined with an Iran deal.

Just my useless 2p worth.

[23rdian]

Notice my IBTL holding is now up 5pc for anyone keeping an eye on this one.

[Hancock]

1 hour ago, No One said:

Yes it's 9.95 per holding but if you close account before 1 year fro opening there's an extra £250 charge.

Its a scandal, if i want to move bank accounts, utility provider etc etc... they would never get away with such charges.

Got you by the balls.

[Castlevania]

2 hours ago, Democorruptcy said:

I've not been following stuff recently, have I missed something?

" in next year's global bust. "

Is that his global bust delayed a year? I thought he was a 2021 Autumn bust man?

He’s been a global bust in the next year man for at least the past 6 years

[Harley]

51 minutes ago, 23rdian said:

Notice my IBTL holding is now up 5pc for anyone keeping an eye on this one.

Yep, I had a buy signal this week but am worried it's a fake one.  Maybe some more basing yet to go before any sustainable uptick, or it's a goodun.  Nothing's guaranteed.  Also factor in the exchange rate move. 

[Harley]

23 hours ago, DurhamBorn said:

...iv also been buying a few Takeda Pharma ,TAK ,big Jap pharma company.

I bought the other one!  You got TSE market access or some sort of ADR/CDI?  Oh, I see its on the NYSE.  Looks like a bit more to go but may well pop one way or the other (but often up) as there's a healthy divergence there between MACD and momentum.  Good luck.  

PS: Suggests maybe pharma on the up in Asia?  I've also noticed growing strength in fundamentally sound auto in HK and Japan.  No idea why, I just follow the charts. Malaysia taking a hit so looking forward to scooping some plantations in due course.

[DurhamBorn]

13 minutes ago, Cattle Prod said:

On oil, most of what you're hearing is noise. Oil is very short term overbought atm, and as I said a week or so ago, badly needs a 10, maybe 15% correction. Opec is just the narrative to fit that fact, their actions are actually bullish. I hope today is is the start of it, loads of Johnny come latelys hopping on board for the train to $100 oil need to be thrown off. They didn't put in the 3 year grind we did to get here, so Mr. Market will cut off their weak hands.

I'll be interested to see the market reaction to Thursdays inventory report.

I want the oilies to stay down as long as they can and just hope BP start the share buybacks quickly.Im not sure what the hell they arewaiting for.They will be printing cash at the moment,but looks like they havent started yet as no stock exchange notices etc.Results arent until August so i hope they arent waiting until then to get started.

Iv seen no mention from Repsol etc about more buybacks,but expect Shell will start as well soon.

[reformed nice guy]

13 hours ago, RJT1979 said:

What is your conclusion 

It possibly suggests decreased disposable income but also a reduction in credit since so many new cars (the majority?) are bought on finance

[No One]

2 hours ago, Hancock said:

Its a scandal, if i want to move bank accounts, utility provider etc etc... they would never get away with such charges.

Got you by the balls.

Make no mistake I'll be switching SIPP to FREETRADE once the year term expires as I can slice my portfolio into tiny pieces at no cost per trade and half the FX. 

The only issue is Frettrade don't have the option of employer cont atm, so I will use AJ to fill it in cash (except my three positions) and in the new year do the swap.

[Hancock]

2 minutes ago, No One said:

Make no mistake I'll be switching SIPP to FREETRADE once the year term expires as I can slice my portfolio into tiny pieces at no cost per trade and half the FX. 

The only issue is Frettrade don't have the option of employer cont atm, so I will use AJ to fill it in cash (except my three positions) and in the new year do the swap.

Its got horrendous reviews, fraud is rife and 18% of its customers dont seem happy.
https://uk.trustpilot.com/review/freetrade.io

[Hancock]

https://www.telegraph.co.uk/business/2021/07/06/soaring-covid-costs-rate-rises-put-public-finances-peril-obr/

Rishi Sunak has been warned by the fiscal watchdog that soaring Covid costs threaten to make Britain's debts "unsustainable" if interest rates rise to curb inflation.

In an assessment of the triple threat facing the Chancellor as he battles to steady the public finances, the Office for Budget Responsibility said that borrowing costs could surge if persistently higher prices force the Bank of England to act or international investors suddenly lose faith in the UK.

It added that the Government's carbon net-zero agenda will also push up borrowing by £469bn over the next 30 years.

Ministers will spend another £10bn a year dealing with the fallout from lockdown as they seek to help children catch up on lost learning and clear a backlog of untreated hospital patients, the OBR said.

The watchdog's warning threatens to heighten tensions between No 10 and Mr Sunak, who is already said to be resisting Boris Johnson's spending plans.

Britain has racked up a record peacetime deficit in the fight against Covid, but the cost of servicing the country's debt mountain has fallen to a record low 0.9pc of GDP because of ultra-low interest rates.

However, inflation is starting to rise as the global recovery takes off and if this continues, central banks may be forced to draw the sting by increasing interest rates. This in turn would increase the cost of state borrowing.

Any significant rate rise could also cause serious damage to the wider economy by triggering a drop in house prices, by leaving borrowers unable to pay their mortgages following a scramble to buy in a red-hot market.

The OBR painted a scenario where the Bank of England is forced to act in response to “persistent inflation” of 4pc over three years, and the UK is charged more to borrow in debt markets due to fears over inflation running out of control.

It said this higher inflation scenario could eventually push debt servicing costs up from 1pc to 4pc of GDP by 2050 - around £80bn in today’s terms - a level not seen since the aftermath of the Second World War in 1948.

The OBR said: "Were rates to return to levels that were more normal in the past, it would raise the cost of servicing a given stock of debt and could – in extreme circumstances – push the debt-to-GDP ratio onto an unsustainable path."

The warning follows public clashes between Bank Governor Andrew Bailey, who insists inflation risks will be “transitory”, and its outgoing chief economist Andy Haldane who has pressed for the Bank to act now to counter the threat.

The lingering inflation scenario pushes the UK’s debt as a share of its economy to 107pc by 2050, 10 percentage points or £200bn above the watchdog’s central forecast.

The OBR also warned that unfunded Covid-19 legacy spending of £10bn a year on health, education and transport presents a “material risk” to the public finances.

It stressed that current plans take no account of pandemic spending beyond the end of the financial year, while departmental spending has been cut by £14.5bn a year from 2022-3 relative to pre-virus plans.

The watchdog forecast an extra £7bn a year in health spending alone to deal with catching up on lost treatments and revaccinations, as well as billions more on education spending and transport to make up lost fare revenues.   

Ministers will be forced to choose between squeezing budgets or raising taxes or borrowing to increase spending, putting the Government’s aim of balancing current spending by the middle of the decade at risk, the OBR said.

Richard Hughes, the OBR’s chairman, said: “Going into the next spending view this autumn, these pressures look particularly challenging.”

Mr Sunak said: “The risks discussed in today’s report underline the importance of returning our public finances to a more sustainable path over the medium term, which is why we made difficult choices at the last Budget and why this Government is committed to fiscal responsibility.”

The OBR put the cost of hitting net zero targets at £469bn over the next 30 years, swelling debt by 21 percentage points as fuel duty revenues fall drastically and the Government foots more than a quarter of the estimated £1.4 trillion in investment needed.

But it stressed that the impact on the UK’s debt mountain of going green was less than the £520bn or 23pc of GDP added as a result of the Covid-19 crisis.

Rishi Sunak, a Chancellor who considers sound public finances a “sacred duty”, will have found ammunition aplenty against his spendthrift Downing Street neighbour in the latest verdict from the Government’s fiscal watchdog.

The Office for Budget Responsibility’s (OBR’s) Fiscal Risks report, alongside its assessment of the “potentially catastrophic” threats to the Treasury’s coffers, lands amid Whitehall tensions over curbing Covid-19 largesse months before an autumn spending round.

Sunak has been keen to burnish his cautious credentials against a Prime Minister who cannot even bring himself to utter the “A-word” - austerity - as debates rage over the future of a pensions “triple lock” artificially inflated by the pandemic. 

The expensive risks to the nation’s finances from the aftermath of the pandemic, the transition to net zero and the possible impact of a rise in debt interest flagged by the watchdog offer succour to Sunak’s cause - as well as signalling the painful choices ahead.

Among advanced nations, only the US and New Zealand spent more on tackling Covid-19 as a share of GDP than the UK’s 16.2pc. The figure throws up headaches for the Chancellor and puts his fiscal ambitions under heavy pressure.

While the deficit will fall this year from its war-time high, the public finances are facing a bout of long Covid, which the OBR points out the Government is yet to get to grips with.

There are big holes in spending plans beyond March next year in the shape of unfunded legacy costs of the virus which pose a “material risk” to the public finances, the watchdog says. 

In recent months the Chancellor cut spending plans relative to pre-pandemic ambitions by £14bn a year, which was only partially made up by moves such as trimming foreign aid. 

The uncomfortable dilemma for Sunak as the spending review approaches is where to find an extra £7bn for health next year, including catching up on treatment backlogs, spending on revaccinations as well as building in spare capacity for future outbreaks.

Meanwhile, schools may need an extra £1.25bn a year for catch-up learning. There could also be a lingering £2bn hole in the fare box of Great British Railways and Transport for London as businesses move towards remote models. 

The Chancellor will either have to tax more or cut elsewhere - or risk ambitions to balance the current budget by the end of the decade. The autumn spending review looks “particularly challenging” according to the watchdog’s chairman Richard Hughes.

Other risks include the estimated £29bn cost of Covid loan defaults - almost a third of the total - as well as the impact of the pandemic on existing commitments.

The ‘triple lock’ on pensions raises them annually by the highest of average earnings, inflation or 2.5pc: but average earnings will be artificially boosted this year by the effect of the furlough last year. 

The OBR says that could cost £3bn a year extra relative to its March forecasts. “Because of the way the triple lock operates, the more volatility there is in the macro economy, the more expensive it's likely to be,” says Hughes. 

Another clear message of the report is that going green is not going to be cheap even if the UK acts fast - a point likely to be made to the Prime Minister by his Chancellor.

Under the OBR’s central scenario of early action to achieve net zero by 2050, an additional £469bn - or 21 percentage points - is added to the public debt burden by 2050 as some £1.4 trillion is spent across the economy to meet climate goals.

In the watchdog’s central estimate, the Government meets 27pc of that transition spend, or £344bn, over the next 30 years. 

Although the OBR expects the Treasury to tax carbon more heavily from the middle of the decade, as electric vehicles pay no vehicle excise duty or fuel duties, revenues from these sources all but vanish. 

The biggest cost to the exchequer could come from decarbonising buildings and ripping out the gas boilers of millions of households across the country. The OBR expects this to cost around £400bn, with the state picking up almost half the tab. 

The watchdog admits the scale of any subsidy is “unknowable” but assumes the Government picks up the entire cost of “greening” the poorest 15pc of households, while the middle 70pc pay half and the richest 15pc foot the entire bill. 

Hughes adds: “In some sectors of the economy decarbonisation pays for itself as improvements in battery technology drive the lifetime cost of electric vehicles below that of petrol. But in other areas, such as the replacement of household gas boilers with zero carbon alternatives there are significant net costs, which society will need to bear.”

Acting late on climate change or ignoring it altogether makes the fiscal news even worse, however. 

By the end of the century the OBR estimates debt would almost triple to 289pc of GDP if the Government did nothing.

Despite the national debt more than doubling as a share of GDP over the past 40 years, the cost of servicing it has plunged four-fold to 0.9pc of GDP. 

This is partly driven by secular trends such as an ageing population and higher savings, but as the OBR has pointed out previously, the higher stock of debt makes the UK vulnerable for a sudden rise in interest rates.

The watchdog points out that almost 30pc of the UK’s debt is now held by overseas investors, compared with just 10pc in the 1980s, making the nation more vulnerable to a sudden change in sentiment. 

Meanwhile the Bank of England’s quantitative easing operations, which were ramped up by £450bn following Covid-19, effectively swap longer-dated debt for reserves funded at the overnight rate of 0.1pc. This means that the Government is more vulnerable to a sharp rise in interest rates.

The Bank has announced £450bn of QE since Covid struck

In the admittedly unlikely scenario of a total loss of confidence in UK gilts, the OBR models a Bank of England rate hike to 4pc,borrowing reaching 15pc of GDP by the end of the decade and an average gilt rate of 10pc, last seen in 1991. 

Meanwhile the nation’s interest bill reaches 9.5pc of GDP - above any previous level seen in war or peacetime. 

Hughes added: “Shorter debt maturities render the public finances more vulnerable to extreme scenarios, such as the loss of investor confidence in which rising interest rates and debt feed each other in a self reinforcing spiral, causing debt servicing costs to rise prohibitively.” 

Certainly food for thought for a Chancellor with a wary hand on the nation’s purse-strings.

[DoINeedOne]

Interesting interview been meaning to read his book for a while

 

Not 100% sold on the Bitcoin part though

https://youtu.be/cgatlkw02kc

[Loki]

13 hours ago, DurhamBorn said:

expect Shell will start as well soon.

Shell second quarter 2021 update note

7 July, 2021

The following is an update to the second quarter 2021 outlook. The impacts presented here may vary from the actual results and are subject to finalisation of the second quarter 2021 results, which will be announced on July 29, 2021. Unless otherwise indicated, all outlook statements exclude identified items.

Strong cash generation supports additional shareholder distributions in the second half of 2021 
----------------------------------------

As a result of strong operational and financial delivery, combined with an improved macro-economic outlook, Shell will move to the next phase of its capital allocation framework and, subject to final Board approval, increase total shareholder distributions to within the range of 20-30% of CFFO, starting at the Q2 results announcement. The level of additional distributions will be determined with full visibility of the Q2 financial results.

In the second quarter, Shell expects to have further reduced its net debt, although the extent of the reduction will be moderated by working capital movements. In conjunction with the increased distributions, Shell will retire its net debt milestone of $65 billion and will continue to target further strengthening of its balance sheet and AA credit metrics. 2021 cash capex will remain below $22 billion
 

[Bricormortis]

https://www.howestreet.com/2021/07/the-peak-of-the-sp-500-stock-market-rally-are-we-nearing-the-top/

Technical Analysis from Chris Vermuelen presented in a written article. Bearish. But he is on a Kitco video saying he is 100% in the market right now. His time horisons are shorter than ours though. He updates his clients daily.

[Majorpain]

2 hours ago, Loki said:

Shell second quarter 2021 update note

7 July, 2021

The following is an update to the second quarter 2021 outlook. The impacts presented here may vary from the actual results and are subject to finalisation of the second quarter 2021 results, which will be announced on July 29, 2021. Unless otherwise indicated, all outlook statements exclude identified items.

Strong cash generation supports additional shareholder distributions in the second half of 2021 
----------------------------------------

As a result of strong operational and financial delivery, combined with an improved macro-economic outlook, Shell will move to the next phase of its capital allocation framework and, subject to final Board approval, increase total shareholder distributions to within the range of 20-30% of CFFO, starting at the Q2 results announcement. The level of additional distributions will be determined with full visibility of the Q2 financial results.

In the second quarter, Shell expects to have further reduced its net debt, although the extent of the reduction will be moderated by working capital movements. In conjunction with the increased distributions, Shell will retire its net debt milestone of $65 billion and will continue to target further strengthening of its balance sheet and AA credit metrics. 2021 cash capex will remain below $22 billion
 

Fab, RDSB/BP are turning back into cash cows as predicted here!  They are not the highest gainers in my portfolio, but they are ones I'm happiest to hold and not sell.  Low average helps. 

Uranium is starting to interest me, unusually it didn't dip last year so appears to be BK resistant, price is historically on low end and green nonsense/money printing are not going to stop for the moment.

Sadly I don't think the government are going to approve of me storing yellowcake barrels in the garden....

[planit]

10 minutes ago, Bricormortis said:

https://www.howestreet.com/2021/07/the-peak-of-the-sp-500-stock-market-rally-are-we-nearing-the-top/

Technical Analysis from Chris Vermuelen presented in a written article. Bearish. But he is on a Kitco video saying he is 100% in the market right now. His time horisons are shorter than ours though. He updates his clients daily.

The Kitco video is worth watching, Chris is knowledgeable and has cool charts (does anyone know what the red indicator he uses is, looks proprietary).

Link: Kitco Vermuelen

I mentioned yesterday I thought the oil drop was caused by profit taking and Chris says $77 was a Fibonnaci target level which might explain it. He thinks oil will move higher after a couple of weeks sideways.

Like @Cattle Prod said yesterday, the market will have to face reality tomorrow with the US EIA crude oil inventories release. Nearly half the drop has already reversed.

[Noallegiance]

19 minutes ago, Bricormortis said:

https://www.howestreet.com/2021/07/the-peak-of-the-sp-500-stock-market-rally-are-we-nearing-the-top/

Technical Analysis from Chris Vermuelen presented in a written article. Bearish. But he is on a Kitco video saying he is 100% in the market right now. His time horisons are shorter than ours though. He updates his clients daily.

It will be interesting to see if the contrarian mindset plays out over the coming months i.e. when there's open worry the market will climb, but a sentiment of "...this is great and will continue!" is a sign of the end.

[planit]

21 minutes ago, Majorpain said:

Fab, RDSB/BP are turning back into cash cows as predicted here!  They are not the highest gainers in my portfolio, but they are ones I'm happiest to hold and not sell.  Low average helps. 

Uranium is starting to interest me, unusually it didn't dip last year so appears to be BK resistant, price is historically on low end and green nonsense/money printing are not going to stop for the moment.

Sadly I don't think the government are going to approve of me storing yellowcake barrels in the garden....

FT article today saying that Boris wants to agree "at least one nuclear plant" before the next election. I feel there will be a rush to nuclear once peoples negative perceptions are overcome.

 

Quote

FT Article: UK households face energy bills surcharge to fund nuclear plants

Ministers aim to unveil legislation in the autumn that would enable Sizewell C, a £20bn nuclear power plant proposed by France’s EDF for England’s east coast, to go ahead through a financing model called the regulated asset base, said several people briefed on the government’s thinking.

This model would mean that energy bill payers start contributing towards the cost of the plant at Sizewell in Suffolk long before it generates any electricity.

Boris Johnson has said he wants the government to reach a final investment decision on “at least one” new nuclear power station before the next general election as the UK strives towards a 2050 net zero emissions target

 

 

The  decisions are made worldwide so when a country commissions a nuclear plant  and starts promoting positive propaganda other governments will gain confidence and jump on the bandwagon.

I would like to invest but this will take some patience as the ups and downs will be months/years in the making.  

[DoINeedOne]

12 minutes ago, Majorpain said:

Fab, RDSB/BP are turning back into cash cows as predicted here!  They are not the highest gainers in my portfolio, but they are ones I'm happiest to hold and not sell.  Low average helps. 

Uranium is starting to interest me, unusually it didn't dip last year so appears to be BK resistant, price is historically on low end and green nonsense/money printing are not going to stop for the moment.

Sadly I don't think the government are going to approve of me storing yellowcake barrels in the garden....

I did wonder if Sprotts Uranium Fund would be available on HL as his others are

Quote

Take note of the fact that Uranium Participation Corp shareholders vote today as to whether they want Sprott taking the fund over and converting it to the Sprott Physical Uranium Trust.

 

When it will be available who knows

[Chewing Grass]

6 minutes ago, planit said:

FT article today saying that Boris wants to agree "at least one nuclear plant" before the next election. I feel there will be a rush to nuclear once peoples negative perceptions are overcome.

 

 

The decisions are worldwide so when a country moves and starts promoting positive propaganda other governments will gain confidence and jump on the bandwagon.

I would like to invest but this will take some patience as the ups and downs will be months/years in the making.  

More pressure for home as opposed to office working as employer sees a huge reduction in their energy use and Carbon Emissions.

[Talking Monkey]

43 minutes ago, Noallegiance said:

It will be interesting to see if the contrarian mindset plays out over the coming months i.e. when there's open worry the market will climb, but a sentiment of "...this is great and will continue!" is a sign of the end.

That interview with the Grantham bloke a few pages back said similar about the sign of the end same for Dave Hunter.