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

[Castlevania]

2 hours ago, 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.

Telco results good today from BT and TEF,exactly what you would want at the turn to inflation.Debts should be down to a range where they can pay off 10% a year for TEF by mid year.They might launch share buy backs though instead as their debt profile looks ok over an average of 10 years and 2.98% average coupons.

BT producing around £1.3billion free cash after nearly £5 billion of infrastructure spending is a great place to be as inflation ramps.They should be able to self fund from here in,though they might sell a stake in Openreach at some point.

I think BT will be producing £3 to £3.5 billion free cash minimum by the end of the cycle and will be paying a 20p divi.

TEF was interesting as well on the bits about Brazil.It looks like Vivo has a growing digital payments system.VOD are the same in Africa and thats going under the radar.

Hopefully oil can shake down a bit more and keep weak hands out of the oilies,the longer they are down the better.It will mean much higher gains down the road,much higher.

 

 

Airtel Africa recently sold a stake in their mobile money business to MasterCard. The big boys are sniffing around.

[nirvana]

FED is insistent on ignoring inflation, wey hey!

FED'S WALLER SAYS DON'T WANT TO MOVE TOO QUICK CHASING INFLATIONARY GHOSTS

[Innkeeper]

11 hours ago, Green Devil said:

Surely you buy new shirts when theres a sale on at debenhams. I do. Why not apply the same model to cryptos or other investments? 

Btc on sale😂😂 

Of course!  But it’s a bummer when you walk past a few days later and see the Final Reductions.  But will they still have what you want and in your size?

Final reductions coming for crypto?   Or not 

[Noallegiance]

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.

[Loki]

9 minutes ago, 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.

Might be worth waiting for the BK, I bet the market will be swamped.

That said I finalised on a vehicle back in April as I was starting to think inflation was on the way, but what I bought probably wouldn't have benefited from the BK - more likely to become unavailable.

[DurhamBorn]

6 hours ago, Harley said:

?  I read that as: TEF debt is to go down to a level (presumably through paying some back out of cash flow) where the next payment reduces debt by 10%.  And the next payment after that is less so that that it still equates to 10% of the outstanding debt, and the next payment after that is even less to still equate to 10% of outstanding debt, etc, etc?    

 

Yes ,10% a year from mid year,though i dont expect them to pay down much more after that,share buybacks probably.

[MrXxxx]

7 hours ago, DurhamBorn said:

,though they might sell a stake in Openreach at some point.

I thought they were doing a deal on this with the unions so they could absolve themselves of the DB pensions liability?

[Hancock]

Im starting to like Doombrose

6 hours ago, Adarmo said:

 Can't see a crash happening. Only three blips from where I'm sitting which is:

 

Inflation (more interest rates rising to stop that)

 

We have a winner.
https://www.telegraph.co.uk/business/2021/05/13/markets-losing-faith-federal-reservescredibility/

 

The US is engaged in an astonishing monetary experiment. The Federal Reserve is still conducting quantitative easing even as the rate of headline inflation hit 4.2pc.

Core inflation has risen to a 25-year high of 3pc, recording the biggest jump in a single month since 1981. Factory gate inflation has been running at a 7.1pc annual growth rate over the last six months even before full reopening.

The Biden administration is running a budget deficit of 13pc of GDP this year even though the output gap closed in April and large parts of the economy are overheating. Small firms cannot find workers. Unfilled job openings have reached a record high.

Yet interest rates are zero and the Fed is still buying $120bn of bonds each month, directly financing part of Washington’s "war economy" debt issuance. It is persisting even though the broad M3 money supply has grown at 24pc over the last year. It is downplaying all evidence of pent-up inflation as "temporary".

“What the Fed is doing is a pure drop of helicopter money. Inflation could be headed for double-digits by the end of the year,” said Lars Christensen, founder of Markets and Money Advisory and author of a book on Milton Friedman.

“The economy is at full capacity and the money stock has grown by a fifth at a time when everybody was locked down and unable to spend. There is going to be a big one-off jump in prices, and it could happen very fast if the Fed allows the liquidity to feed through.

“They’re ignoring all the warning signs just as they did in the 1970s. At some point markets will stop believing that the Fed is behaving like a credible central bank,” he said. 

Former New York Fed chief Bill Dudley said his old alma mater has fallen behind the curve, and the longer it delays, the more brutal it will be. “Once they start, they’re going to be late,” he told Bloomberg Surveillance.

“The thing that people don’t fully appreciate is that when they catch up, the level of short-term rates are going to climb much higher than currently priced by financial markets. People need to be cognisant of those risks,” he said.

The Fed insists that the inflation spike is “transitory”. Vice-chairman Richard Clarida, the high priest of policy, nevertheless confesses that the latest surge has caught the institution off guard. “I was surprised. This number was well above what I and outside forecasters expected,” he said.

The benign view is that inflation is distorted by “base effects” and by a handful of “reopening” items such as the 10pc jump in airline fares, or an equivalent surge in used car prices – linked in turn to the semiconductor crunch in the car industry. Clarida says Covid has “torn up the playbook” on the business cycle, turning the post-pandemic phase into a rollercoaster ride.

Yet one might ask what will happen when the 11pc rise in US home prices over the past year – greater the subprime peak in 2006 – filters into the “shelter” component making up a third of the inflation index. Shelter costs typically lag property prices by 12 months.

The other “benign” argument is that yields on 10-year US Treasuries remain calm and have not "confirmed" inflation angst. Unfortunately, there is a technical reason for this. Matt King from Citigroup says the US Treasury is running down its huge “TGA” account held at the Fed to cover spending needs. 

This fund amounted to $1.4 trillion in March. The frozen liquidity is now being released at a torrential pace and is flooding into the bond market.

“Over the last eight weeks or so we got, literally, a $700bn of boost to US bank reserves. It has almost tripled the effect of Fed asset purchases. It’s a QE-like effect, a whoosh of liquidity, with too much money chasing too few safe assets,” King said. Bond yields could spike this summer as the TGA drawdown peters out.

The Fed follows a New Keynesian lodestar and no longer pays attention to monetary data. We will find out soon enough whether this matters.

The elephant in the room is the bloated stock of money sitting in bank accounts. The excess savings of US households have reached $2.3 trillion. The New York Fed said people have been using a third of their unspent holdings to pay off debt. But that does not mean they will continue to do so. They may go on a spree instead as the country reopens.

This extra money is inert as long as "velocity" of circulation remains at record lows. Andrew Harris from Fathom says velocity typically reverts to its trend level at a pace of 10pc a quarter after a period of divergence. If that were to happen in this case, it would imply an inflation peak of 8pc. 

It is true that velocity kept falling after the Lehman episode. But that occurred in radically different circumstances. The credit channel was broken and banks were being forced by regulators to raise their capital buffers. Emergency QE was required to prevent a contraction of the money supply and a slide into deflation.

American banks are in rude good health today. The latest Fed survey suggests that credit standards are starting to ease again after tightening during the pandemic. If loans pick up rapidly, the banking multiplier will set off an explosive inflationary boom under current policy settings.

Christensen said that once people see prices rising all around them, velocity could take off very fast. This would ignite the excess stock of money. “For the last 30 years, people have been used to inflation being well-anchored. When they realize that it isn’t any more, there could be a rush to spend,” he said.

He compared the Fed’s insouciance to the onset of the 1970s. Others see echoes of the 1940s when the Fed was co-opted by the Roosevelt and Truman administrations to ensure cheap funding for federal programmes. It capped yields by means of financial repression. The aggregate price level rose by 50pc over five years. It was a haircut for creditors.

Ultimately the bond vigilantes may cease to believe assurances that inflation is under control and take matters into their own hands, imposing monetary tightening on a reluctant Fed. Rather than a taper tantrum, it would be a data tantrum.

Dudley said 10-year yields could hit 4pc in short order once the process begins. This would be an earthquake for the global currency system and for an edifice of inflated asset prices built on assumptions of near zero-borrowing costs. We have been warned.

[Noallegiance]

2 hours ago, Loki said:

That said I finalised on a vehicle back in April as I was starting to think inflation was on the way, but what I bought probably wouldn't have benefited from the BK - more likely to become unavailable.

Well this was my concern.

I have my eyes on a 2017 Suzuki Vitara for £9k. Cheap to run and insure, reliable Jap stuff, would be the newest car I've ever owned, bought on a fixed rate 2 year loan with a bit of my own cash chucked in to minimise the borrowing but get the best interest rate. 

I can't help but think cheap motoring will become popular and jack up the price.

[Loki]

5 minutes ago, Noallegiance said:

Well this was my concern.

I have my eyes on a 2017 Suzuki Vitara for £9k. Cheap to run and insure, reliable Jap stuff, would be the newest car I've ever owned, bought on a fixed rate 2 year loan with a bit of my own cash chucked in to minimise the borrowing but get the best interest rate. 

I can't help but think cheap motoring will become popular and jack up the price.

That is a very good price.  If you want it, go for it.  After this year some purchases need to be made with the heart not the spreadsheet. Mine certainly was, partly. Inflation and availability tipped my hand

[23rdian]

1 hour ago, Noallegiance said:

Well this was my concern.

I have my eyes on a 2017 Suzuki Vitara for £9k. Cheap to run and insure, reliable Jap stuff, would be the newest car I've ever owned, bought on a fixed rate 2 year loan with a bit of my own cash chucked in to minimise the borrowing but get the best interest rate. 

I can't help but think cheap motoring will become popular and jack up the price.

The best cars I have had have been Vauxhalls and Jap stuff (Hondas and Nissans). 

[wherebee]

4 hours ago, Loki said:

Might be worth waiting for the BK, I bet the market will be swamped.

That said I finalised on a vehicle back in April as I was starting to think inflation was on the way, but what I bought probably wouldn't have benefited from the BK - more likely to become unavailable.

I thought this, but then realised that actually the demand for second hand cars might go up if people are not able to get the cars on HP any more from the dealer?

[nirvana]

10 hours ago, 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.

probs a bit rad for you and depends if you like to get your hands dirty but if you have a local copart near you I'd grab something like this https://www.copart.co.uk/lot/41775541/clean-title-2016-peugeot-308-active-westbury

that's a much better car than a Vitara, the 308 has a really big boot and they're good to drive, those jacked up things are for poofs and women  that 308 will probs sell for less than £2k....I know it's a bit fooked but that's throw away money for what it is really....

again it's actually really cheap to service and fix cars yourself if you 'have a go'.....I just replace some pads and front discs on a BM mini and it cost 55€ delivered including a half litre of brake fluid, which was nearly as expensive as one disc!

PS never ever ever take out a loan to buy a car, and dealers are rip off cunts, buy private with cash if you don't like the auction approach, there'll be plenty of supply with WFH and convid methinks

[Lightscribe]

6 hours ago, wherebee said:

I thought this, but then realised that actually the demand for second hand cars might go up if people are not able to get the cars on HP any more from the dealer?

But at the same time look at all the cars on the road in the UK. It never ceases to amaze me that you rarely ever see one over 3 years old. This isn’t prime London I see this, it’s down and out London suburbs. Either they’re on finance, or lease.

If all finance credit goes pop, they’ll be swathes of used cars and bankrupt company stock either in auctions or on the forecourt of big dealers like Car Giant.

[MrXxxx]

9 hours ago, Hancock said:

Small firms cannot find workers. Unfilled job openings have reached a record high.

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.

[Lightscribe]

I think the indebted masses will have to be looking at the much lower end of the scale when actual ownership comes back into reality. Anything cheap with an MOT will be in demand. Arthur Daley will be quids in, £500 bangers for the win.

[nirvana]

1 hour ago, Lightscribe said:

If all finance credit goes pop

i'm not sure it ever will...TPTB will be offering shitty electric things on 30 years interest free credit, with the promise of renewing your batteries every 10 years....only £399/month for the fatties  

[JimmyTheBruce]

This touches on a lot of the themes mentioned here (carbon capture, hydrogen, etc):

https://reut.rs/3htk2lQ

It appears that we have one lot of moronic bureaucrats making it impossible to build gas infrastructure, whilst another lot of bureaucrats try to figure out how to stop the lights going out because of the actions of the first lot.  And meanwhile, the Chinese crack on with securing their energy requirements.

I can't help but think we're doomed when I read stuff like this.

[Ma2]

19 hours ago, Cattle Prod said:

I have fix envy!

ha ha I feel the same about @jamtomorrow ploughing his fantastic deal into silver

[planit]

From the article:

 

"It also does not address mounting concerns that leaks of planet-warming methane from gas infrastructure may cancel out the benefits of switching to gas from coal."

 

You couldn't make this shit up could you.

 

And this:

"The European Commission's executive vice-president Frans Timmermans told an industry event in March that there will only be a "marginal role for fossil gas" on the path to net zero emissions by 2050"

Obviously they don't need power. And in 5 years when Germany has no manufacturing, they will wonder why.

 

ACTUALLY, I SUGGEST EVERYONE READS THAT ARTICLE - the climate targets are now more important than feeding the population to the politicians.

[leonardratso]

3 hours ago, nirvana said:

probs a bit rad for you and depends if you like to get your hands dirty but if you have a local copart near you I'd grab something like this https://www.copart.co.uk/lot/41775541/clean-title-2016-peugeot-308-active-westbury

that's a much better car than a Vitara, the 308 has a really big boot and they're good to drive, those jacked up things are for poofs and women  that 308 will probs sell for less than £2k....I know it's a bit fooked but that's throw away money for what it is really....

again it's actually really cheap to service and fix cars yourself if you 'have a go'.....I just replace some pads and front discs on a BM mini and it cost 55€ delivered including a half litre of brake fluid, which was nearly as expensive as one disc!

PS never ever ever take out a loan to buy a car, and dealers are rip off cunts, buy private with cash if you don't like the auction approach, there'll be plenty of supply with WFH and convid methinks

cant see much wrong with it, just a few bits of cosmetics. Ive driven worse and not bothered about it to be honest.

[geordie_lurch]

I'd say those who chose to sit tight with their shares have been proved right so far today since UK opening. BK postponed again... for now

[Hardhat]

2 minutes ago, geordie_lurch said:

I'd say those who chose to sit tight with their shares have been proved right so far today since UK opening. BK postponed again... for now

If there's one thing I've learnt from this thread it's to set long term targets and ignore the daily noise. 

[Cosmic]

14 minutes ago, leonardratso said:

cant see much wrong with it, just a few bits of cosmetics. Ive driven worse and not bothered about it to be honest.

You have to be very careful with the classifications and damage with Copart (or anything similar). I purchased  a Cat N that had a bent chassis leg with stress signs showing in to the A pillar, ended up breaking for parts.

You can get good ones though, my current car is a Cat N I purchased from Copart before its first MOT, I replaced the front end (no airbags deployed luckily) from a donor I'd purchased. Nearly 3 years on, no issues and its worth more still than I paid for it all told. Very cheap motoring...

I'd avoid anything with a reserve, pure sale only. These, from experience, are less likely to be doctored/messed with and are more likely to be what they appear to be. (I've bought probably 20 cars from copart, most with the intention to break. 3 were intended to go back on the road, only 1 was successful... the 2 that were not were reserve purchases rather than pure sale which the insurance company ones mostly are).

 

And fuck me the gouging on the delivery! £399+VAT to West Yorkshire on that Pug, last car I had from there pre Covid using a 3rd party was £250inc.

[jamtomorrow]

11 minutes ago, Hardhat said:

If there's one thing I've learnt from this thread it's to set long term targets and ignore the daily noise. 

Yup - I find having a few different  interests and/or a massive f***ing DIY TODO list works wonders for any portfolio-fiddling tendencies