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

[reformed nice guy]

41 minutes ago, wherebee said:

I suspect Bill Ryder has never worked through inflationary times at the pointy end.

I suspect your correct:

https://www.hl.co.uk/__data/assets/image/0010/16790239/William-Ryder.JPG

 

[ThoughtCriminal]

In case anyone had forgotten (as if), Dave's taking us to hell in an elevator. 

 

80% bear market baby! 

[Yadda yadda yadda]

2 hours ago, DurhamBorn said:

This line from HL shows how little people understand inflation,brand power will be worth nothing.They will need to produce closer to the consumer.In an inflation cycle all parts of the chain inflate so you need to remove parts or shorten them,the opposite of a dis-inflation cycle.

Hargreaves Lansdown's William Ryder said that "in an inflationary environment brand strength will be more important than ever" for Heineken.

If brand strength was that important the large lager brands wouldn't have cut alcohol percentage. Beer brands, in the UK, have always had a shelf life. Other than Guinness almost all the brands are different now to 20 years ago. Or they've changed market position. Carling was advertised on TV and was mid-market now it is down-market. Caffreys was popular until they reduced the ABV.

[Yadda yadda yadda]

4 hours ago, Hancock said:

This DT comment sums the UK up -

Obviously gets appointed for that purpose. Should probably keep an eye on where he ends up next.

[DurhamBorn]

2 hours ago, wherebee said:

I started working in pubs just after the last inflationary madness in the 70's.  Punters didn't give a fuck about brand names.  cheap and got you drunk was what mattered.  Even with whisky, the cheap ones were drunk more than the brand posh ones.  Old punters would come in for half a mild and nurse it for two hours.  

I suspect Bill Ryder has never worked through inflationary times at the pointy end.

Exactly and very few understand how inflation works.It destroys margins for those type of companies.Thats why i like the telcos,something with growing demand and only a few players.They can leverage inflation to free cash,most companies cant.

[SpectrumFX]

3 hours ago, Yadda yadda yadda said:

If brand strength was that important the large lager brands wouldn't have cut alcohol percentage. Beer brands, in the UK, have always had a shelf life. Other than Guinness almost all the brands are different now to 20 years ago. Or they've changed market position. Carling was advertised on TV and was mid-market now it is down-market. Caffreys was popular until they reduced the ABV.

I still don't understand what they thought they were doing dropping the ABV on Caffreys. It flipped it straight away from a popular drink amongst my friends to something nobody was interested in drinking.

[Democorruptcy]

4 hours ago, ThoughtCriminal said:

In case anyone had forgotten (as if), Dave's taking us to hell in an elevator. 

 

80% bear market baby! 

Buying now then is risking running in front of a steamroller, to pick up a few pennies?

[M S E Refugee]

19 minutes ago, Democorruptcy said:

Buying now then is risking running in front of a steamroller, to pick up a few pennies?

I'm waiting for Hunter's Precious Metals targets to met, then I'm out.

[ThoughtCriminal]

27 minutes ago, Democorruptcy said:

Buying now then is risking running in front of a steamroller, to pick up a few pennies?

I would say so. 

 

Its probably a minority opinion on here but i keep seeing so many markers that havent been hit for 20,30,40 years etc.

 

Then i see everywhere, and i mean 95%, people saying interest rates won't be raised for 10-15 years or maybe ever. I mean, how the fuck does that kind of talk not make you nervous? 

 

DH says there's probably one last run up before the gates of hell open, but how many more puffs dare you risk before the balloon bursts? 

 

Then again im cautious by nature so wtf do i know? 

 

 

 

[sancho panza]

On 01/08/2021 at 10:43, Castlevania said:

I’m up to 40 stocks which from a keeping track of results etc makes it difficult. Conversely, my main aim is to be in the correct sectors, and have some diversification so that I don’t have too many cases of having more than a year’s savings in a particular company. So at present I’m allocated:

40% - PM miners (14 companies)

25% - Energy (10 companies)

15% - Agriculture (6 companies)

12% - Telcos (6 companies)

8% - Other (2 gambling, 1 tobacco, 1 cinema chain)

I’m getting bummed on Foreign exchange fees

Interesting to see both these lines of attack .I'm very much with you CV but I don't really follow the per centages too clsoely.I think we're roughly 40% big oil& gas(8% in XOM) by entry value,15-20% cash,15-20% PM miners,10% Telecoms(will go hgiher ),10% baccy,potash,scottish play.About 45 stocks in all but I'm a confiremd spray n prayer psot scottish play.I spread the love where I can.

On 29/07/2021 at 19:11, Harley said:

We hold no more than 0.5% of total portfolio value (so the total of all asset classes) in any one stock!

 

[sancho panza]

19 hours ago, Hancock said:

Bangkok ... they've missed out on this global house price boom, and their currency is about 12% weaker v the pound .... they've not done any QE!

Good luck H,keep psoting.

I went travelling theremany eyars ago.Super place.

 

11 hours ago, Castlevania said:

I missed this on Friday, but ENI have hiked their dividend for the next year back to pre-Covid levels at €0.86. Also announced €400m of share buybacks.

https://www.eni.com/en-IT/investors/shareholders-remuneration.html

Maybe explains why the oilies aren't down today (much anyway) despite oil tanking.

Super news anyway and jsut as per @Cattle Prod predicted with $60 ++ oil,although ENI has hit the target a bit erlier than RDSB/BP etc.

6 hours ago, Harley said:

 

126% Debt to Equity.  Net intangibles exceed net equity.  0.83 Current Ratio.  Negative ROx yet 30% gross margin.  Funds from Operations half of 2019.  2.32b debt issuance in 2020.  0.71% yield.  Yet up 31% from the Sep20 low on the monthly and up 419% from the 08 low on the weekly!  What do I know!

Incroyable......!!They sell beer ffs,can't imagine there's many patents in that lot.

[sancho panza]

Here we go...

No surprise amongst the basement dwellers.

https://uk.finance.yahoo.com/news/uk-inflation-gdp-growth-rate-pandemic-recovery-niesr-150111593.html

UK consumer price inflation has been forecast to hit 3.9% next year, a think tank said on Monday. 

The National Institute of Economic and Social Research (NIESR) said that inflation would soar to almost double the Bank of England's (BoE) target rate in early 2022, before falling back to 2% in 2023 following a bank interest rate hike. This would be the highest rate of inflation since late-2011. 

The growth forecast for the UK was also revised up for the year by 1.1 percentage points to 6.8%. 

[Yadda yadda yadda]

26 minutes ago, ThoughtCriminal said:

I would say so. 

 

Its probably a minority opinion on here but i keep seeing so many markers that havent been hit for 20,30,40 years etc.

 

Then i see everywhere, and i mean 95%, people saying interest rates won't be raised for 10-15 years or maybe ever. I mean, how the fuck does that kind of talk not make you nervous? 

 

DH says there's probably one last run up before the gates of hell open, but how many more puffs dare you risk before the balloon bursts? 

 

Then again im cautious by nature so wtf do i know? 

 

 

 

Yes but where to put the money? Cash is going to continue to lose value. Slowly for now but could it then be all at once?

[sancho panza]

Shaun Richards nailing the issues again...HPI and inflation measures....if only we had someone like this inside the govt.....

apologies to the LPP.Highlights for skim readers

https://notayesmanseconomics.wordpress.com/2021/08/02/even-the-financial-times-is-now-worried-about-house-prices/

Even the Financial Times is now worried about house prices

Posted on August 2, 2021

Sometimes things emerge which make you rub your eyes just to make sure you have read them correctly. An example of this emerged over the weekend as the Financial Times produced this as its lead article to start the week.

Pandemic fuels broadest global house price boom in two decades

The reason for this is that I have spent the last decade making the case for house prices to be in inflation measures and for that reason supporting the UK Retail Prices Index which includes them via the depreciation measure which is around 9% of it. On the other side of the argument has been the economics editor of the Financial Times Chris Giles who has criticised the use of house prices and argued for the use of Imputed Rents. This is also called Rental Equivalence and involves assuming that home owners pay themselves rent which,of course, they do not. So we have house prices soaring whereas the official inflation measures we have do this.

CPI ( the Euro area standard) ignores the issue completely as owner occupied housing is not included but remains the measure used for the Bank of England target. So it is aiming to raise inflation whilst house prices are soaring which is insane. Also the ECB has been found out in the Euro area.

 However, the Governing Council recognises that the inclusion of the costs related to owner-occupied housing in the HICP would better represent the inflation rate that is relevant for households.

CPIH ( the new UK official measure) uses the fantasy Imputed Rents I mentioned earlier to give a completely different answer to using house prices. This is how they come to owner occupiers housing costs rising at 1.6% when there is a house price boom.

How Much?

Quite a lot in fact.

Annual house price growth across the OECD group of rich nations hit 9.4 per cent — its fastest pace for 30 years — in the first quarter of 2021, as economies rebounded from last year’s severe coronavirus-triggered recessions……..National data suggest that the broad-based trend continued in the second quarter. In the US, house prices rose at their fastest annual rate in nearly 30 years in April.

 

The Cause

Things get a bit awkward as these are the things that the FT and BIS have been cheerleaders for.

“Extremely accommodating financial conditions” with record-low interest rates had helped boost house prices at an unusually fast pace during a period of weak economic activity, Borio said.

Also the article ends up unwittingly provides a critique of the campaign of one of the authors in favour of Imputed Rents.

Low borrowing costs make house purchases more affordable relative to rent and to other investments.

Exactly, and this was the central banking plan all along. Also you may note that all the explanations here are coming from central bankers as the next bit comes from the Dallas Fed.

In addition, many households, particularly those that were already better off, have accumulated large savings since the start of the pandemic as lockdowns limited spending while some jobs were protected. “A lot of this additional income has been allocated to the housing market,” said Martínez-García.

So it was official policy to create this and as it happens it got a boost as well from this.

At the same time, more people decided to move house, often to larger properties in quieter places, following long hours spent at home during lockdown.

A Bubble

It is hard not to laugh at the poor level of analysis here.

Adam Slater, lead economist at Oxford Economics, said properties in advanced economies were about 10 per cent overvalued compared with long-term trends. That makes this boom one of the biggest since 1900, he calculated — although nowhere near as big as the run-up to the financial crisis.

The long-term trend includes a lot of over valuation as we recall a major cause of the credit crunch. Thus long-term trends are a bit of a chocolate teapot.

As to this.

Credit growth is lower than before the global financial crisis, suggesting “a lower risk of a bust compared to, say, 2006-2007”, he said.

Well in the UK we only need to go back to last week.

Net mortgage borrowing hit a record of £17.9 billion in June. The previous record, in March 2021, was £11.5 billion, and borrowing has averaged £5.4 billion in the 12 months to May 2021 ( Bank of England)

So all-time records so far this year….

I did not know the FT did comedy. At least I think it is humour.

One key factor is different from the situation nearly 15 years ago: central banks scarred by the previous housing bust are now more vigilant.

For new readers it is a bit like including arsonists in your definition of the fire brigade.

Also the bit about the ECB below is Fake News or if you prefer untrue.

The Reserve Bank of New Zealand has added house prices to its mandate and the European Central Bank has asked the EU statistics agency to include house prices in its headline inflation calculation.

Here is Christine Lagarde being interviewed by the FT on July 11th.

The cost of owning a house, not house prices, right? 

We will include the consumption part of owning a house. So we will not include the investment part.

Comment

The present situation was the plan all along. What I mean by that is central bankers wanted to keep the option of pumping up house prices for the next economic crisis and that is what they have done. My argument has been that as well as winners there are losers. The article makes the case for wealth effects but underplays the fact that for first-time buyers there has been a lot of inflation. The next swerve is to claim that mortgages are cheap in terms of interest-rates. But this is also misleading because whilst it is true now we find that mortgages are getting ever longer due to the higher prices, we simply do not know what they will be in the future. Some relief is provided by the increasing number of fixed-rate mortgages but the vast majority only last for a few years.

So there is a distributional impact as some get what are windfall gains but others end up paying ever higher prices. Also we should not forget those who are now excluded from the market due to the price level.

This is why the inflation debate has mattered because a proper measure including house prices will limit the freedom of manoeuvre of central banks. The FT arguments for Imputed Rents so forcefully argued by its economics editor Chris Giles have failed utterly. Just as I predicted they would.

Let me provide another warning as this from Gertjan Vlieghe of the Bank of England shows they intend to do it all again next time.

I would be comfortable with cutting Bank Rate to -0.5% or even -0.75% the next
time monetary stimulus is required.

Or if you prefer The Eagles got it right about this policy.

“Relax, ” said the night man,

“We are programmed to receive.

You can check-out any time you like,

But you can never leave! “

[King Penda]

1 hour ago, SpectrumFX said:

I still don't understand what they thought they were doing dropping the ABV on Caffreys. It flipped it straight away from a popular drink amongst my friends to something nobody was interested in drinking.

Did it a few times with Stella 

[Hancock]

1 hour ago, Democorruptcy said:

Buying now then is risking running in front of a steamroller, to pick up a few pennies?

Depends how high his long predicted crack up boom takes us .... I wouldn't take his views as gospel, he's another of the Twitterati that make so many predictions that some have to come true.

Though he could have owned the March 2020 crash as his own to prove he was right but decided against it, so if he is correct in the coming months then hats off to him.

80% seems a rather large drop, if the FTSE went down to where it was in March 2020 which is circa a 30% drop then i'd be throwing every penny i have into the stock market .... and thanking my lucky stars i didn't offer in excess of £270k for this - 

[Hancock]

47 minutes ago, sancho panza said:

For new readers it is a bit like including arsonists in your definition of the fire brigade.

His ability to knock up these stories every day is remarkable, pity he doesn't use this ability to take the fight directly to TPTB instead of throwing mud from the sidelines.

Its folk from working class backgrounds like him that should be in positions of power, you'd think one of the main political parties or MSM would give him a more prominent role to out the crooked charlatans in govt and at the BOE.

 

[ThoughtCriminal]

1 hour ago, Yadda yadda yadda said:

Yes but where to put the money? Cash is going to continue to lose value. Slowly for now but could it then be all at once?

Agreed.

 

This is the dilemma as this run up could go on for 3 months, 6 months or a year or more.

 

Its the classic return on investment Vs return OF investment. 

 

Wish i had an easy, clever answer but i dont. 

[Noallegiance]

1 hour ago, M S E Refugee said:

I'm waiting for Hunter's Precious Metals targets to met, then I'm out.

Your post caught my eye.

This isn't a pedantic retort but just to bring to your attention in case you've missed it; DH has mentioned a few times that the PM markets and other markets won't peak simultaneously. He expects the PM peak after the equities peak.

DYOR obvs, but due to this I'm waiting for the hockey sticks and perhaps 3 massive broad up days in a week before I shave my stocks down to a minimum, move some more cash into PM miners for a couple of months and then sell out a lot of those too to go around 50% cash.

Then I can merrily sit on the sidelines and watch as I miss out on another 15% because I'm a cautious mofo, and spend the remainder of the year straining to convince myself that it's better to be sweating but not going backwards rather than sweating and panicking.

[ThoughtCriminal]

Another canary in the coalmine........ 

[Hancock]

16 minutes ago, ThoughtCriminal said:

This is the dilemma as this run up could go on for 3 months, 6 months or a year or more.

Wish i had an easy, clever answer but i dont. 

Isnt the easy answer the run up ends when the stops printing and/or raises interest rates to tell those in the market they no longer have their back ... and with inflation rocketing that has to happen sooner rather than later.

[ThoughtCriminal]

16 minutes ago, Hancock said:

Isnt the easy answer the run up ends when the stops printing and/or raises interest rates to tell those in the market they no longer have their back ... and with inflation rocketing that has to happen sooner rather than later.

How do you time it though, H? 

 

It can all go south before you know what's happening. 

 

I think you either have to sit out and accept the inflation hit or follow DB's advice and ride it out. 

 

I think this tweet sums it up quite well. 

[ThoughtCriminal]

Lyn makes a good point here based on that charts past performance. 

 

[Hancock]

18 minutes ago, ThoughtCriminal said:

How do you time it though, H?

Sit and hope until Xmas ... but will start buying BP in big chunks if it goes to 250p ... and some Vodafone/telcos.

If it doesnt crash then i've lost another calculated gamble, but will still be alive.

My worst case scenario is when my kid hits 18 in 7 years time (i'll be 53), having to work full time somewhere shite for a year and a half, and make circa £150k .... that'd more than see me through another 20 years on planet earth with what i currently have.

Too edit, this topic was about a deflationary bust and credit tightening, now i know the rules of the game have changed since @DurhamBorn wrote the post below, but we've not had a credit deflation or a deflationary collapse as of yet.

 

[JMD]

1 hour ago, Hancock said:

Depends how high his long predicted crack up boom takes us .... I wouldn't take his views as gospel, he's another of the Twitterati that make so many predictions that some have to come true.

Though he could have owned the March 2020 crash as his own to prove he was right but decided against it, so if he is correct in the coming months then hats off to him.

80% seems a rather large drop, if the FTSE went down to where it was in March 2020 which is circa a 30% drop then i'd be throwing every penny i have into the stock market .... and thanking my lucky stars i didn't offer in excess of £270k for this - 

Ok, I'll take the bait?!... but please be gentle! What can you get in Bangkok for that type of money?