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

[Hancock]

16 minutes ago, sancho panza said:

The second more important point on furlough, highlighted in bold is really a summary of where we are.Imagine being a brand new paramedic on the bottom of band 5,£25k p.a or net pay £1600pcm.You work weekends,nights,lates etc and you take home the same as you would on furlough...............people are doing the maths and watching as people who do nothing pick up more a month in take home.

Thats a scandal that they only take home such a paltry amount for doing "real" work, where there is no hiding place.

i've always found the less i do at work the more i get paid, which sadly seems to be the way of the nation.

[Hancock]

2 minutes ago, sancho panza said:

Mrs P is a food scientist and she says the own brand supermarket products are really pushing the big boys hard.

I always thought it was all made at the same place. At one time own brand food was disgusting, but now for example the cereals are as good but for 1/3 of the price.

[sancho panza]

10 minutes ago, Hancock said:

I always thought it was all made at the same place. At one time own brand food was disgusting, but now for example the cereals are as good but for 1/3 of the price.

Her company pours a lot of resources into to maintianing their differentials with own brands but it gets harder yoy.Big companies use contract manufacturers and you also get rotations of staff to the own brand manufacturers.The lead gets eaten away at all the time.

I think dispoable income is the biggie.Back in 08 I remember shopping at Aldi and on a saturday afternoon it was me and the staff,now it's rammed.And mainly with working age people.If I was Sainsbury's/M&S I'd be watching the oldies rock through my tills and trying to plan through their demogrpahic problem.Same one the Tories have btw.

[sancho panza]

SOme interesting charts from lyn alden

[sancho panza]

A very similar story to the UK I supect and borne out by the data .

https://wolfstreet.com/2021/07/26/buyers-strike-sales-of-new-houses-plunge-32-in-5-months-unsold-inventory-highest-since-2008-prices-drop-construction-costs-spike-by-most-since-1980/

Buyers’ Strike: Sales of New Houses Plunge 32% in 5 Months, Unsold Inventory Highest since 2008, Prices Drop, Construction Costs Spike by Most since 1980

by Wolf Richter • Jul 26, 2021 • 217 Comments

Bottom falls out at lower end. Fed-enriched high-end buyers doing fine.

By Wolf Richter for WOLF STREET.

The concept of selling overpriced new houses to everyone is running into trouble. Sales of new single-family houses in June plunged by 6.6% from May, and by 32% from the peak in January, to a seasonally adjusted annual rate of 676,000 houses, the lowest June since 2018, according to the Census Bureau this morning. This multi-month plunge brought house sales back to pre-pandemic levels. And given the construction boom in apartments and condos in urban centers over the past decade, single-family house sales remain a fraction of the boom in 2002 through 2007:

Soaring inventories of unsold new houses. Homebuilders are building, that’s for sure, even if more homes are now sitting on the market. Supply jumped to 6.3 months at the current rate of sales, as unsold speculative inventory for sale jumped to 353,000 houses (seasonally adjusted), the most since December 2008:

Prices dropped and unwound the spike of the past few months. The median price of new single-family houses sold fell by 5.0% in June from May, to $361,000, the lowest since March, having thus unwound part of the majestic spike that occurred starting in the summer last year. In April, the median price was up 22% year-over-year; in May it was still up 20%; in June, it was up 6.1% year-over-year:

What’s going on? Practically nothing was sold in the under $200,000 price category. The under $300,000 price category accounted for only 28% of total new house sales, down from 39% in June last year. That’s where the volume used to be, but people willing and able to buy a new house under $300,000 are out of luck – prices have moved away from them. And facing those higher house prices, and already struggling with soaring prices in the goods and services they need on a daily basis, they went on buyers’ strike.

But sales are booming at the high end, in the category of people that have the full and undivided love and support of the Fed through its dogma of the Wealth Effect. Houses with a price of over $500,000 accounted for 28% of total sales in June, up from a share of 23% in May, 15% in June 2020, and 14% in June 2019. At the high end, there was no buyers’ strike in June.

And of course, construction costs spike the most since 1980. OK, you knew this was coming. Lumber costs spiked to ridiculous highs by early May, then plunged but only part of the way, and recently have risen again.

 

Enjoy reading WOLF STREET and want to s

[JMD]

24 minutes ago, sancho panza said:

The second more important point on furlough, highlighted in bold is really a summary of where we are.Imagine being a brand new paramedic on the bottom of band 5,£25k p.a or net pay £1600pcm.You work weekends,nights,lates etc and you take home the same as you would on furlough...............people are doing the maths and watching as people who do nothing pick up more a month in take home.

I agree the point your making SP. But 'deep down', all across this land, lots of cognitive dissonance is  happening, not good for individual mental health, nor for social cohesion. What I mean is - and if you allow me to make some assumptions - I think the example situation you cite might be acceptable to that paramedic if he actually believed there was a dangerous health pandemic (thus requiring extraordinary measures) and that the furlough payment unfairness was temporary (instead of being endemic across many lucky bennies). However, attempting to hold two contradictory thoughts in your head will eventually drive any person mad. 

[JMD]

34 minutes ago, Hancock said:

I always thought it was all made at the same place. At one time own brand food was disgusting, but now for example the cereals are as good but for 1/3 of the price.

Often made at the same factory yes, but the different products are produced on separate manufacturing lines utilising different processes/ingredients.

[JMD]

12 hours ago, Castlevania said:

There are own brand substitutes for most of their products. If your input costs are up by 10% it’s a big ask to maintain your margin and also put the selling price up 10% without taking a sales hit when there are cheaper substitutes available. 

In many cases you’re paying a premium for the perceived quality of the brand. At one time you may well have paid a premium for a much higher quality product. However many consumer goods companies have spent years reforumlating their products by removing ingredients with cheaper alternatives to boost their margins. 

I think you need to pay attention to the brands that dominate a sector and where people are unlikely to seek substitutes when faced with a price hike and so can pass on their higher input costs.

And of course most household cleaning products can be substituted by basic concoctions of vinegar, lemon and bicarbonate of soda... As per Kim and Aggie...                     https://www.amazon.co.uk/Clean-Your-House-Aggie-MacKenzie/dp/0718146999/ref=sr_1_2?dchild=1&keywords=Kim+aggie&qid=1627430636&s=books&sr=1-2                                                                                                       

[Rave]

4 hours ago, ThoughtCriminal said:

Efficacy peaks after only two months, isnt preventing infection or transmission at anywhere near the level trial claimed. 90% efficacy my fucking arse. 

 

Now this. 

 

These "vaccines" are a fucking disaster. 

 

Right so hang on, vaccines are a 'fucking disaster' because they don't provide as much immunity against catching a potentially dangerous disease as catching the disease itself does?

 

Have you had covid yourself, out of interest? Only:

https://twitter.com/chrischirp/status/1418696473177362432?s=20

 

[wherebee]

6 hours ago, DurhamBorn said:

I make all my own home made pies.Mostly chicken and steak mince ones.I get the mince when reduced etc and can make a big pie for around £2.20 with onion,some mashed potatoe nd home made pastry.Works out about 950g with 500g of mince.I wondered how the shops could make a profit selling the 700g ones at £2.20 until i read the ingredients.Beef 18%,so 140g of mince to my 500g and likely terrible quality mince while i use the 5% fat steak mince.

 

how do you store your pastry?  if i freeze it, it's never as good.  and it goes off in the fridge after a week or so even in a container.

[MrXxxx]

7 hours ago, sancho panza said:

That's like arguing that a move to another prison will be a step to freedom.

:-) :-) :-)...true, but there may be a better class of inmates!

[sancho panza]

worth noting a lot of the big boys RDSB,BP,XOM all report Q2 in the nxt few days.

oil demand recovering nicely particularly in jet fuel...sets us up nicely for the run in to Q3

https://wolfstreet.com/2021/07/25/people-sure-drive-a-lot-gasoline-consumption-hits-record-but-flying-mass-transit-lag-way-behind/

[Siggy]

4 hours ago, Rave said:

 

Right so hang on, vaccines are a 'fucking disaster' because they don't provide as much immunity against catching a potentially dangerous disease as catching the disease itself does?

 

Have you had covid yourself, out of interest? Only:

https://twitter.com/chrischirp/status/1418696473177362432?s=20

 

They need to redo that study so that the same cohort have the cognitive test before and after covid (difficult I know, now that it is so prevalent but could have been done over the last year). Merely comparing population level performance of those with and without will be confounded by how well you control for all the variables.

[MrXxxx]

7 hours ago, Hancock said:

i've always found the less i do at work the more i get paid, which sadly seems to be the way of the nation.

And the more you do its (and you) are taken for granted, with it then becoming the norm expectation.

[sancho panza]

Shaun Richards discusses 5% inflation possibility in Euro area

Alludes to the issue that a lot of monetarist economists make assumptions that consumer/banks previous behaviour is a constant that can be replicated out into the future eg on velocity(treating it as a constant and then finding out it isn't in the QE era),here expanding credit and then finding business demand has dropped and isnt showing signs of coming back

Richards is nobody's fool,always stays well short of making outlandish predictions,I find this report fascinating for that reason(especailly given how confirmed a deflationista I was for many years)

https://notayesmanseconomics.wordpress.com/2021/07/27/euro-area-money-supply-growth-suggests-there-is-inflation-ahead/

Euro area money supply growth suggests there is inflation ahead

Posted on July 27, 2021

This morning’s Euro area money supply numbers remind me of this from last Friday. The head of the German Bundesbank Jens Weidmann was interviewed by FAZ and dropped something of a bombshell.

Inflation rates will increase strongly, to begin with. For Germany, say, my experts are expecting rates to potentially go in the direction of the 5% mark towards the end of the year.

This brings me back to the point I have consistently made which is that the money supply push we have seen since last March will have inflationary consequences. In a nutshell higher broad money growth or M3 in the Euro area leads to a combination of higher economic growth and inflation. If we go back to the question we see that a message is being sent because it was implying a different view.

 

Even now they are watering it down via the use of rents ( which is clearly being implied above). How much well take a look.

Over the period 2010 until the first quarter of 2021, rents increased by 15.3 % and house prices by 30.9 %.

 

As you can see from the numbers some of the money supply push is finding its way into house prices and the numbers below coincide with the era of negative interest-rates and ever more QE.

 house prices remained more or less stable between 2013 and 2014. Then, there was a rapid rise in early 2015, since when house prices have increased at a much faster pace than rents.

When we are told QE does not create inflation there is the clear issue of them ignoring where it does. Looking ahead adding Imputed Rents may well be better than nothing but misses out so much as well as being a fantasy as owners do not pay rent.

Today’s Data

The situation starts well from the ECB point of view.

Annual growth rate of narrower monetary aggregate M1, comprising currency in circulation and overnight deposits, stood at 11.7% in June, compared with 11.6% in May.

 

Going to broad money

Things are not going so well for the ECB here.

The annual growth rate of the broad monetary aggregate M3 decreased to 8.3% in June 2021 from 8.5% in May, averaging 8.7% in the three months up to June.

In plumbing terms the narrow money tap is on but there is a leak somewhere as we move into the banking sector response and by that I mean credit and lending.

credit to general government contributed 5.1 percentage points (down from 5.9 percentage points in May), credit to the private sector contributed 3.6 percentage points (as in the previous month), longer-term financial liabilities contributed 0.3 percentage point (down from 0.5 percentage point), net external assets contributed -0.3 percentage point (down from -0.2 percentage point), and the remaining counterparts of M3 contributed -0.4 percentage point (up from -1.3 percentage points).

So the mover was somewhat ironically the government sector which shows how far they have intervened in economies.

 

Another way of breaking down the loans data reinforces my earlier point about housing. Lending growth to households is higher than pre pandemic now but growth in lending to businesses is lower. Is the growth in mortgages?

Among the borrowing sectors, the annual growth rate of adjusted loans to households stood at 4.0% in June, compared with 3.9% in May, while the annual growth rate of adjusted loans to non-financial corporations stood at 1.9% in June, unchanged from the previous month.

Comment

We see that the narrow money or M1 push continues in the Euro area which hints at economic growth continuing in the short-term and this does coincide with the Markit PMI.

The eurozone is enjoying a summer growth spurt
as the loosening of virus-fighting restrictions in July
has propelled growth to the fastest for 21 years.

Central bankers avoid explicit mentions of the money supply these days but in this sense they are monetarists. But there is a payback because should the Bundesbank be correct then the broad money push from starting last March will drive inflation higher in the latter months of 2020. This will start to subtract from the growth push so there could be a fade. Maybe markets are staring to allow for that too.

[Loki]

6 hours ago, Rave said:

 

Right so hang on, vaccines are a 'fucking disaster' because they don't provide as much immunity against catching a potentially dangerous disease as catching the disease itself does?

 

Have you had covid yourself, out of interest? Only:

https://twitter.com/chrischirp/status/1418696473177362432?s=20

 

Potentially dangerous, it's not fucking ebola. Yes I've had it, and it has not effected my intelligence as I knew the link would be some sort of asinine HURR DURR YOU A STUPID comment.

[Sugarlips]

 

What’s going on? Practically nothing was sold in the under $200,000 price category. The under $300,000 price category accounted for only 28% of total new house sales, down from 39% in June last year. 

I was led to believe Blackrock and others were hovering up all the inventory for as much as 50% over asking, do they only buy established homes and if so, why?

[Loki]

8 minutes ago, Sugarlips said:

 

What’s going on? Practically nothing was sold in the under $200,000 price category. The under $300,000 price category accounted for only 28% of total new house sales, down from 39% in June last year. 

I was led to believe Blackrock and others were hovering up all the inventory for as much as 50% over asking, do they only buy established homes and if so, why?

That's what i heard too

[sleepwello'nights]

On 22/07/2021 at 16:46, DurhamBorn said:

Utter cunt.Iv been double jabbed,but il never show anyone any passport.

Good luck.

[Democorruptcy]

20 hours ago, Castlevania said:

There are own brand substitutes for most of their products. If your input costs are up by 10% it’s a big ask to maintain your margin and also put the selling price up 10% without taking a sales hit when there are cheaper substitutes available. 

In many cases you’re paying a premium for the perceived quality of the brand. At one time you may well have paid a premium for a much higher quality product. However many consumer goods companies have spent years reforumlating their products by removing ingredients with cheaper alternatives to boost their margins. 

I think you need to pay attention to the brands that dominate a sector and where people are unlikely to seek substitutes when faced with a price hike and so can pass on their higher input costs.

A few years ago after watching a Fundsmith presentation about how they concentrated on top brands, the rise of own brand substitutes was something I used to talk myself out of buying. It was a big mistake!

[Harley]

IB may have a crap interface but are in every other respect brill.  I just had a well written email about the current US sanctions on some Chinese companies changing.  Note IB only restricts "US persons" to not trading these stocks, unlike our more retail "friendly" brokers!

Basically the term for the sanctioned companies is changing (BFD!), and an assumed smaller group of companies are going to be sanctioned on this new list in August.  However, the OCC, DTCC, and exchanges would have to change their current bans too for this to have any real effect (TBD).

But should I care?  Well, the HK stocks have taken a battering and I may get some buy signals soon, although there is a RealVision podcast ("Are Chinese Stocks Doomed?") I need to listen to first!

 

[Harley]

32 minutes ago, Cattle Prod said:

Another thread prediction hits the MSM:

https://www.telegraph.co.uk/news/2021/07/28/blackout-warning-drivers-must-charge-electric-cars-off-peak/

Blackouts are not difficult to predict, mind you, if you see base load power stations being shut while massively increasing the electrical load on the grid. As I've said before, they will take my wood burner out of my cold, dead hands @Harley 

I'm still splitting logs on and off.  Yep, years of logs.  And I've done carbon offsetting by planting hundreds of trees! 

PS:  I wonder what sized solar array you'd need to charge a car (or electric dune buggy, when someone starts making them!).

[Harley]

Hooray, inflation panic over!

"Charter Savings Bank have just increased their 18-month fixed rate to 1.03% AER*. That's £1,316.63 interest if you deposit the maximum £85,000".

Or I could put the money into a few div shares, etc for a fraction of that time and get four times that.  OK, I risk losing capital value (or increasing it!), but with inflation wherever it really is (pick a number!), 1.03% could guarantee that (only on the QT)!  Not investment advice but does highlight the need for 360 degree vision!

[wherebee]

33 minutes ago, Harley said:

IB may have a crap interface but are in every other respect brill.  I just had a well written email about the current US sanctions on some Chinese companies changing.  Note IB only restricts "US persons" to not trading these stocks, unlike our more retail "friendly" brokers!

Basically the term for the sanctioned companies is changing (BFD!), and an assumed smaller group of companies are going to be sanctioned on this new list in August.  However, the OCC, DTCC, and exchanges would have to change their current bans too for this to have any real effect (TBD).

But should I care?  Well, the HK stocks have taken a battering and I may get some buy signals soon, although there is a RealVision podcast ("Are Chinese Stocks Doomed?") I need to listen to first!

 

Biden took the ball from trump re sanctions on china and ran with it all the way to the end zone.  It's only going to get worse.  I have to be ultra aware because in Australia so many clients clients are in China, and if they get sanctioned overnight, goodbye to all the investment.

I wouldn't invest in any mainland company right now - you could wake up one morning and find the US has sanctioned it.  Even if you don't lose money, you can't get it back.

[DurhamBorn]

6 hours ago, wherebee said:

how do you store your pastry?  if i freeze it, it's never as good.  and it goes off in the fridge after a week or so even in a container.

I use a food processor to make it as very easy and tend to make 3 lots at once,make one pie and freeze the other 2 lumps of pastry.I find pastry is actually as good or better after freezing.I use an egg wash on cooking,or just a brush of water.The only thing is i do sometimes get a few cracks in the top,but thats more because i roll it thin.