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

[JMD]

4 hours ago, Starsend said:

What I don't get though is where have all these people gone? I mean presumably they were there and working pre-covid.

Is a combination of things? Brexit and their supply of slave labour being interrupted, older people getting a taste of freedom and deciding to downgrade/retire early? Seems to me that this isn't enough to explain the big labour shortages we're reading about - unless actual millions of EU slaves have gone home.

If it's caused by EU slaves going home then this whole thing is temporary. The Government will be getting angry calls from their mates at the head of big companies demanding they find them some more slaves. The Government will start scouring the world again. I predict that wages will be being screwed down again within a year or two.

 

That is a good question you ask. Its one major part of the 'missing EU workers' quandary that will never be covered or answered by the MSM.

Thing is its that that many EU workers were not only prepared to work for less money because many of them viewed their time here as transitory/temporary, but also the money these workers were regularly sending back home made their 'sacrifice' working away from home well worth it to them.

So partly its because since UK has now left the EU, many EU workers simply don't see a future in working here compared to the other countries in the EU where they can choose to work freely. However, must be said that substantial numbers were also gaming the UK job/benefit/tax system, by for example using self-employed status, cash in hand and other kinda legal tax dodges, etc.

I'm not seeking to blame the immigrants. Mostly its the fault of our feckless government - and for example, now UK has left the EU, IR35 has been implemented - meaning that it is far less attractive for EU workers to work here as they can't escape paying full rates of tax so easily.    

 

[sancho panza]

25 minutes ago, JMD said:

The fall in demand is happening across all sectors - from drivers (due to low pay/conditions), to GP's (female gp's mainly want p/t role; males have big pension pots so retire at 50).

       

Healthcare has major issues going forward.Not least the considerable chunk of healthcare workers who don't want the 'clot shot'.

Carers have been low paid(way underpaid-criminally so for decades,only available to employers due to EU),but for a lot of nurses/paramedics etc the 'pay to sh1t' has jsut got way out of kilter.Once a bunch of twenty somethigns realsie that saving hard for fifteen years to be able to get a 30 year mortgage is a waste of a life,then they reassess priorities.

NHS healthcare jobs are only well paid -suing the Pay/poo ratio- after 6/7 years,by which time you're hacked off with your career choice anyway.

via LS

https://www.theguardian.com/society/2021/aug/24/staffing-shortfall-english-care-homes-drop-in-workers

Volunteers may be required in staffing shortfall at English care homes

‘Alarming’ drop in workers signing up, with many put off by requirement to be fully vaccinated against Covid by 11 November

An army of volunteers could be needed this winter to tackle rising staff shortages in care homes fuelled by the looming requirement for all care home workers to be fully vaccinated against coronavirus, providers have said.

One in five workers on the books of a care worker agency in Sheffield are declining the vaccine, according to Nicola Richards, the director of Palms Row Healthcare. She also reported an “alarming” drop in the number of workers signing up, with many put off by the “no jab, no job” policy. She has been unable to provide temporary staff to some clients in recent weeks.

The government last month calculated that in a worst-case scenario as many as 68,000 care workers – up to 12% – could be lost as a result of the decision to make vaccination a condition of employment in care homes. A more likely prediction is 40,000, but care managers say that even small numbers of people refusing the vaccine will impact services because rotas are already threadbare, with well over 100,000 vacancies in the sector.

A survey at the weekend of care home managers by the Institute of Health and Social Care Management found 58% of operators believed they would have to lay off at least some staff by 11 November based on current rates of vaccination. More than a quarter (28%) of the 681 care operators who responded said they had already lost up to five staff. Three said they had lost more than 20 each.

21 minutes ago, Hancock said:

My brother lives there and its generally the older generation who have the right to come here, but the younger ones come will do so on the basis of the insane cost of living out there. (HK property bubble eclipses ours)
https://news.sky.com/story/a-hong-kong-familys-journey-to-the-uk-to-escape-chinas-crackdown-on-democracy-12324623

Someone doing well over there isn't likely to upsticks and move to Liverpool like the ones in the above article (he is a bus driver), and those who are well qualified and wish to leave will opt for somewhere freer than this totalitarian shithole!

Australia/NZ/Canada are far more likely choices.If they go to Australia/NZ it'll be jsut like life in HK under the CCP.

[Chewing Grass]

9 minutes ago, sancho panza said:

An army of volunteers could be needed this winter to tackle rising staff shortages in care homes fuelled by the looming requirement for all care home workers to be fully vaccinated against coronavirus, providers have said.

Volunteers equals vaxxed and unpaid, a businesses wet dream if there are enough of them you can trust.

[DurhamBorn]

1 hour ago, Barnsey said:

We recently used a very big name rubbish removal firm to take the old kitchen away, lorry driver told me he's going through a new recruit pretty much every week. Workload to pay ratio not worth it Vs benefits of staying at home, on benefits. Disinflation has permitted quite a comfortable lifestyle for many Vs the alternative.

Exactly right and what most miss.If you have two kids and one wage working 40hrs would get you a car payment a month more than someone not working.Dont have a car,pack in work,or have a £700 car.

Its the difference that matters.I have some data iv always kept from the wages in my first ever job.It was actually making lawn strimmers etc.The factory still exists.My first weeks wages at the time were 85% more than a single mother with one child not working.They are now 32% more in that factory.If you take out needing to run a car to get there and the extra expense,less than that single mother.

We have a situation where flogging on gets lots of people £350 a week,doing nothing gets them £280 with housing benefit.So really the NMW is about £1.70 an hour because thats the difference between doing nothing and working.

 

[sancho panza]

h/t kaplan

I saw the other day.Kinross(decl:long) on a P/E of 5

P/E ratios are the last figure in the screenshot.        MC                 Revenue                     Ave vol         EPS             P/E

https://seekingalpha.com/article/4451179-gdx-gold-miners-priced-to-dramatically-outperform

Summary

• Gold miners are extremely cheap relative to the overall U.S. stock market and also cheap relative to the price of gold.
• Taken together, the current gold price suggests that the enterprise value of GDX's underlying NYSE Arca Gold Miners Index should be almost double its current level.
• While this largely reflects the level of S&P 500 overvaluation, it nonetheless suggests the GDX will outperform.
• Furthermore, the bright outlook for gold prices should allow GDX to perform well in absolute terms.

Gold miners are extremely cheap relative to the overall U.S. stock market and also cheap relative to the price of gold. Taken together, the current gold price suggests that the enterprise value of the VanEck Vectors Gold Miners' underlying NYSE Arca Gold Miners Index (GDM) should be almost double its current level relative to the S&P 500. While this largely reflects the level of S&P 500 overvaluation, it nonetheless suggests the VanEck Vectors Gold Miners ETF (NYSEARCA:GDX) will outperform. Furthermore, the bright outlook for gold prices should allow GDX to perform well in absolute terms.

 

The GDX ETF

The VanEck Vectors Gold Miners ETF is the oldest, largest and most liquid gold mining ETF which tracks the performance of the NYSE Arca Gold Mining Index. This underlying index has a market capitalization of over USD280bn, larger than the alternative markets tracked by its peers such as iShares MSCI Global Gold Miners ETF (NASDAQ:RING), allowing investors more diversification. While both GDX and RING are dominated by Newmont (NYSE:NEM) and Barrick Gold (GOLD), their weighting in GDX is a combined 27% versus 39% for RING.

Similarly, GDX's top 10 holdings make up 63% of the index versus 75% for RING. This additional diversification comes at the expense of higher fees, with GDX charging 0.51% versus RING's 0.37%, although the high degree of volatility in both ETFs makes these fees largely immaterial except over the very long term.

Miners' Small Market Cap At Odds With Current Gold Price

The weakness in gold mining stocks over the past few months has seen GDM's market capitalization fall to just 0.83% of that of the S&P 500. This is still above the November 2015 low of 0.58%, but it is almost 50% below its long-term average going back to 2015.

Source: Bloomberg, Author's calculations

This may actually underestimate how cheap GDM is relative to the S&P 500. Gold miners have seen a surge in equity issuance over recent years and have repaired their balance sheets. While the average S&P 500 company has been racking up debt over the past few years, the average gold miner has been repaying it. If we look at enterprise value rather than market capitalization, GDM's share of the S&P 500 is just 0.77%, much closer to its record low of 0.66% in 2015.

 

Source: Bloomberg, Author's calculations

GDM's tiny enterprise value relative to the S&P 500 is at odds with the current gold price, which is now 70% higher than it was at the 2015 low. Even if we adjust the gold price for nominal GDP growth, it is still 35% higher than in 2015. Over the past decade, there has been a very close correlation between the ratio of the enterprise value of GDM relative to the S&P 500 and gold prices adjusted for nominal GDP growth. This should come as little surprise given that S&P 500 earnings follow nominal GDP and gold miners earnings follow gold prices. What is surprising though is the fact that GDM is currently trading almost 50% below the fair value implied by the correlation.

Source: Bloomberg, Author's calculations

Gold Price Outlook Is Also Strong Thanks To Low Real Yields

As I have argued most recently in "SPX: A False Sense Of Security Sows The Seeds Of A Crash," I believe the S&P 500 is to enter a bear market very soon which will see it lose at least 50% of its value. Such a move would be enough to raise the relative enterprise value of gold miners and restore the correlation in the above chart. However, the favorable outlook for gold prices suggests gold miners should perform well in absolute terms, not just relative to the broader market.

 

Source: Bloomberg, Author's calculations

Even after the slight recovery in gold prices seen over the past two weeks, the metal remains 17% below its fair value implied by the price of 10-year bond prices. I fully expect to see real bond yields remain deeply negative and gold prices to rally back to levels implied by the tight correlation with real bond prices, which would put gold at USD2,140 currently. If history is a guide, such a rally would translate into a 40% gain in GDX.

Balance Sheet Repair Pays Dividends

The balance sheet repair efforts undertaken by gold miners that began during the low gold price era of 2015 have paved the way for a recovery in dividend payments. As shown below, the decline in total debt as a share of total equity of GDM has moved inversely with expected dividend payments, which are expected to equal all-time highs next year.

GDM Estimated Dividends Per Share Vs Debt To Equity Ratio

Source: Bloomberg

As a result, GDM now has a dividend yield of 2.0%, which is a record 50% above the S&P 500. Furthermore, unlike the last period of rising dividend yields which peaked in 2012, a firmer outlook for gold prices and stronger balance sheets suggest that dividend payments will continue to rise.

GDM Vs. Dividend Yield Vs. SPX Dividend Yield, %

Source: Bloomberg

[sancho panza]

7 minutes ago, Chewing Grass said:

Volunteers equals vaxxed and unpaid, a businesses wet dream if there are enough of them you can trust.

You'll get a lot of volunteers,you just won't get many who'll last more than a shift when they find out that clapping doesn't magically clean someone up and replace their incontinence pads,or clean/dress/feed/dish out meds/deal with falls of 10-15 patients during the morning routine.

Reality is that care work is the hardest,most demanding work in healthcare(I say that as a paramedic,way tougher than my job) and the govt have created a disaster totally of their own arrogant making.

[JMD]

3 hours ago, DurhamBorn said:

I think its a mixture.The main one is benefits.Universal credit claims nearly doubled during lockdown.People now know why the towns are full of people every day because they dont work.Lots of these people will of decided they dont need to work,or a nice part time job will do.Or one in the couple work instead of two etc etc.

Then Brexit,there are less Poles etc who worked in the factories.

Then selling high value southern houses and retiring further north.Lots doing that.

Then lots of people who had some time off thinking sod it iv got enough im retiring.

In my own town it seems the older workers who were mostly hard working shift work etc are retiring.The young are mostly on benefits with boyfriends who work away sometimes etc but not arsed as they have the welfare backup.

Wages are going to have to go up,and i mean a lot,maybe 30%,and welfare is going to have to come down relative by a lot.There doesnt seem any understanding in government though,so it might need the BOE to stop printing.

DB I agree with all those reasons you mention for people reducing their work/not returning to work.

But i would add that the 18-months Covid(!?) lock-down, did introduce a very-very long thinking-time into peoples lives. Allowing 'thoughts' to maybe transform into actual 'plans' and then 'actions'... allowing dreams to become reality?

...Oh well, perhaps its just me being silly, but its something that i do like to believe happened - that the dreaded lock-down had some positive effect!! 

[No One]

On 13/08/2021 at 16:13, DurhamBorn said:

Not advice and DYOR ,but anyone interested in Brasil power companies, Cia Energetica De Minas Gerais (CEMIG) ADR ticker CIG is now at a ladder buy point.

As always Brasil direct stocks are risky and volatile,but they have been reducing debt,have plenty of cash to keep de-leveraging and have a lot of hydro assets and will gain from a weakening dollar.

 

 

I'm up 13.48%.

 

Mate you are a wizzard, thank you

[DurhamBorn]

25 minutes ago, No One said:

 

I'm up 13.48%.

 

Mate you are a wizzard, thank you

Another stock iv been buying is Subsea 7 ticker SUBC ,,market hates it,but macro is superb for it.Gains from oils cycle from here onwards,also from the closing of wells and also in a superb position to gain from offshore wind,both fixed and floating.Again is a DYOR for everyone and risky and could be smacked lower in a BK,but potential to double at some point during the cycle,plus some divs.

If i buy any more Orange SA etc il be moving in with Nirvana as a French citizen as well 

[Long-game]

1 hour ago, DurhamBorn said:

Exactly right and what most miss.If you have two kids and one wage working 40hrs would get you a car payment a month more than someone not working.Dont have a car,pack in work,or have a £700 car.

Its the difference that matters.I have some data iv always kept from the wages in my first ever job.It was actually making lawn strimmers etc.The factory still exists.My first weeks wages at the time were 85% more than a single mother with one child not working.They are now 32% more in that factory.If you take out needing to run a car to get there and the extra expense,less than that single mother.

We have a situation where flogging on gets lots of people £350 a week,doing nothing gets them £280 with housing benefit.So really the NMW is about £1.70 an hour because thats the difference between doing nothing and working.

 

I will soon be looking to go part time, house paid off money invested, not had a day off whole pandemic to illness, however in terms of life quality will reduce to 3 days , the more you work the more your taxed for increasing authoritarian and unfair principles and money being given to the old chums club.

[Noallegiance]

House of Lords - Quantitative easing: a dangerous addiction? - Economic Affairs Committee (parliament.uk)

[Popuplights]

2 hours ago, Chewing Grass said:

Volunteers equals vaxxed and unpaid, a businesses wet dream if there are enough of them you can trust.

Fucking good luck with that.  I'm sure the kids will be rushing to volunteer to wipe arses and mop up piss. 

[Noallegiance]

2 minutes ago, Popuplights said:

Fucking good luck with that.  I'm sure the kids will be rushing to volunteer to wipe arses and mop up piss. 

They would if it was the only way they could get money.

[MrXxxx]

6 hours ago, DurhamBorn said:

I think its a mixture.The main one is benefits.Universal credit claims nearly doubled during lockdown.People now know why the towns are full of people every day because they dont work.Lots of these people will of decided they dont need to work,or a nice part time job will do.Or one in the couple work instead of two etc etc.

Then Brexit,there are less Poles etc who worked in the factories.

Then selling high value southern houses and retiring further north.Lots doing that.

Then lots of people who had some time off thinking sod it iv got enough im retiring.

In my own town it seems the older workers who were mostly hard working shift work etc are retiring.The young are mostly on benefits with boyfriends who work away sometimes etc but not arsed as they have the welfare backup.

Wages are going to have to go up,and i mean a lot,maybe 30%,and welfare is going to have to come down relative by a lot.There doesnt seem any understanding in government though,so it might need the BOE to stop printing.

 

 

 

Or perhaps some finally realized that the more responsible/morally committed they were to an employer and/or society, the more they took the pi$$...so they have taken the view "If you can't beat them, join them"

[Bobthebuilder]

Just posted a reply to @BurntBread on another thread about the amount of gas boilers in the UK, thought it was interesting so will post here.

In the UK, 85% of homes currently have a gas boiler. The other 15% is made up of LPG, oil, wood, coal, biomass, air / ground source heat pumps, solar, electric and no central heating.

Seems to me, the government has a big job ahead to get everyone to green electric use in 3 years. Another total non-starter from all the environmentalists.

[leonardratso]

2 hours ago, Bobthebuilder said:

Just posted a reply to @BurntBread on another thread about the amount of gas boilers in the UK, thought it was interesting so will post here.

In the UK, 85% of homes currently have a gas boiler. The other 15% is made up of LPG, oil, wood, coal, biomass, air / ground source heat pumps, solar, electric and no central heating.

Seems to me, the government has a big job ahead to get everyone to green electric use in 3 years. Another total non-starter from all the environmentalists.

well, its not as if theyll be around when it comes to the crunch.

[StrugglingMillennial]

It always takes a day or two for the media to catch up with this thread.

Looks like the driver shortage is really starting to bite.

https://www.dailymail.co.uk/news/article-9927671/Whats-really-driving-food-shelves-HARRY-WALLOP-goes-scenes-investigate.html

[belfastchild]

17 hours ago, sancho panza said:

Volunteers may be required in staffing shortfall at English care homes

‘Alarming’ drop in workers signing up, with many put off by requirement to be fully vaccinated against Covid by 11 November

Was talking to a care home area manager a couple of weeks ago over in England. Talking about corona and masks etc as you do and they said they had 5 staff who refused to have the jab. I said I thought that wasnt too bad but they said it was 1/10 of their full time staff and good workers. They said they were having difficulty getting agency staff to cover at the minute due to the sickies so were crapping themselves if they have to sack them (have already drawn up the papers).
Cant remember exactly the date but they said they had been asked to draw the lists up a couple of months ago.
Filling full time workers with part time single mothers on benefits just isnt a goer for them.

Another anecdote. Good restaurant I occasionally frequent out in the sticks in co antrim is now closed for 10 days as they cant get the staff. It hasnt occurred to them that being in the sticks, paying minimum wage, to kitchen staff, unsociable hours, hard work etc etc isnt really that appealing. They do really good food and its not Belfast prices but inevitably they will realise they will have to pay more to attract and retain staff, which means prices will go up.

[No One]

Quote

Meanwhile, driver pay has slipped to the point that they get little more than supermarket shelf-stackers, partly due to the Government blocking a loophole that allowed them to operate as limited companies.

Yup, fucking about with IR35 would have such effects.

[Majorpain]

1 hour ago, belfastchild said:

Was talking to a care home area manager a couple of weeks ago over in England. Talking about corona and masks etc as you do and they said they had 5 staff who refused to have the jab. I said I thought that wasnt too bad but they said it was 1/10 of their full time staff and good workers. They said they were having difficulty getting agency staff to cover at the minute due to the sickies so were crapping themselves if they have to sack them (have already drawn up the papers).
Cant remember exactly the date but they said they had been asked to draw the lists up a couple of months ago.
Filling full time workers with part time single mothers on benefits just isnt a goer for them.

Another anecdote. Good restaurant I occasionally frequent out in the sticks in co antrim is now closed for 10 days as they cant get the staff. It hasnt occurred to them that being in the sticks, paying minimum wage, to kitchen staff, unsociable hours, hard work etc etc isnt really that appealing. They do really good food and its not Belfast prices but inevitably they will realise they will have to pay more to attract and retain staff, which means prices will go up.

Three in four civils firms in materials supply jam | Construction Enquirer News

There is a lot of inflationary pressure building up in multiple areas, when this volcano blows its going to be epic.  Raw materials and labour are spent, and yet more still money is pouring into the economy.

"Just in time" economy doesn't work if you cant get things in time, never mind 3 months for some things at the minute!

[HousePriceMania]

1 hour ago, No One said:

Yup, fucking about with IR35 would have such effects.

Im surprised to one predicted this...

 

https://driverrequire.co.uk/ir35

 

 

[Noallegiance]

1 hour ago, HousePriceMania said:

Im surprised to one predicted this...

 

https://driverrequire.co.uk/ir35

 

 

As I recently wrote here, I've kept my Class II licence in case I have no other viable option for employment, but just let my CPC lapse.

I won't go back for £11-£15p/h 7am-6pm.

[RickyBacker]

Another anecdotal albeit straight from the horses (company) mouth. I can't give too much detail, but ... family business supplies a component for an Apple product. Apple have just contacted to say that they need to reduce their purchase order by 70%. This component cannot be supplied by any other manufacturer as they developed it together. 

[janch]

20 minutes ago, RickyBacker said:

Another anecdotal albeit straight from the horses (company) mouth. I can't give too much detail, but ... family business supplies a component for an Apple product. Apple have just contacted to say that they need to reduce their purchase order by 70%. This component cannot be supplied by any other manufacturer as they developed it together. 

You don't say it outright but are we to conclude that Apple sales are falling?

[Sidd]

Looks like DXY is breaking out again and as usual silver plummeting again much more than warranted. Better hope the Fed announces a delay to the taper talk or could be seeing another sea of red on my screen.