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

[leonardratso]

Just now, Harley said:

Which one is that (i.e. exchange) please?  I get lots listed.

think its lon:agro

 

Company details

ROS AGRO PLC is engaged in agricultural production, including cultivation of sugar-beet, grain and other agricultural crops; cultivation of pigs; processing of raw sugar and production of sugar from sugar beet, and vegetable oil production and processing. The Company has four segments: Sugar, Meat, Other agriculture and Oil. The Company's Sugar segment is engaged in the production and trading operation with white sugar. Its Meat is engaged in the cultivation of pigs and selling of consumable livestock to third parties. The Company's Other agriculture segment is engages in the cultivation of plant crops, including sugar beet, grain crops and other plant crops, and dairy cattle livestock. The Company's Oil segment is engaged in the vegetable oil extraction, production and sales of mayonnaise, consumer margarine and bottled vegetable oil. The Company's subsidiaries include OJSC Rusagro Group, LLC Group of Companies Rusagro and Limeniko Trade and Invest Limited, among others.

[leonardratso]

looks like its in dorrars though

 

[Yadda yadda yadda]

35 minutes ago, Talking Monkey said:

The whole comfortable benefits lifestyle is going away isn't it over the next decade, it'll go back to being a basic safety net as it should be. Have I got that right DB. I see that as the only way to incentivise people to work. 

 

Yes because the country can't afford it. We're already seeing taxes pushed beyond the point of diminishing returns. So there isn't enough money for current expenditure. Paying for it through printing will lead to more inflation. That leads to the other problem that will impoverish benefits claimants plus many pensioners and others, inflation. Energy price rises are already going to cause a lot of people problems.

[DurhamBorn]

1 hour ago, planit said:

 

Universal Credit: Cut is two hours extra work for claimants, says Therese Coffey

Asked about the reduction on Monday, Ms Coffey told BBC Breakfast: "I'm conscious that £20 a week is about two hours' extra work every week.

"We will be seeing what we can do to help people perhaps secure those extra hours, but ideally also to make sure they're also in a place to get better paid jobs as well."

But the Resolution Foundation disputed her figures, as claimants who work additional hours see their benefits reduced - or for each £1 they earn, the UC payment falls by 63p.

The charity said a UC claimant earning the National Living Wage - £8.91 an hour - and with an income of at least £6,100 a year, would take home just £6.60 for two hours work due to the taper in the payment, falling to £4.48 if they pay tax and National Insurance.

And they said the actual take home pay would fall to £2.24 an hour once any pension contributions or additional childcare or travel costs were taken into account.

This would mean they would need to work nine extra hours a week to make up for the removal of the £20 uplift

 

 

Seems to me the Resolution Foundation have actually highlighted the problem by mistake.

Giving people taxpayer money not to work with a framework that takes away any benefit from working more.

 

 

On in my neighbours case over the road get a 1 year old BMW instead of a brand new one.Whats interesting here is what the government are saying.Read through it and they are saying we have created a system where nobody wants to work more than the minimum,this daft £20 extra made it even worse so we are removing it.We are also going to invest instead in getting people extra hours and push them on that.

I dont think after this cut they will cut benefits outright,but they might start to really push people on hours etc and of course inflation will start to bite hard on living costs.Go short brow and nail bars.

[DurhamBorn]

1 hour ago, Talking Monkey said:

The whole comfortable benefits lifestyle is going away isn't it over the next decade, it'll go back to being a basic safety net as it should be. Have I got that right DB. I see that as the only way to incentivise people to work. 

 

It needs to,but im not sure it will.Two child limit was a key move.The other is made up things like ADHD etc where 1 in 10 is likely genuine,but tackling that is very difficult.The NI increase is  direct attack on people just above benefits level etc so the government dont look like they have thought that through at all just like every policy they launch.

[Hancock]

9 minutes ago, DurhamBorn said:

It needs to,but im not sure it will.

There is now a new underclass incapable of working fulltime, there are far too many people under 45 that look as if doing 16 hours a week would be a struggle for them.

The country is fucked.

[reformed nice guy]

4 hours ago, Bobthebuilder said:

I am starting to notice the same in building trades, more people starting to retire / take it a bit easier, etc. The new kids on the block are getting the basics wrong and messing things up from the start, no experience = losing money.

Looked at a kitchen fit for my builder mate today, young kitchen designer had planned it. Doesn't fit, doesn't work, layout all wrong with no allowances for old rooms not being square etc.

Knowledge not shared is lost.

Spoke to a plumber that lives nearby that services kerosene burners, installs kitchens, changes out tanks etc.

His plumbing merchant is only taking payment on order at the moment, said it was unusual

[JMD]

7 hours ago, Cattle Prod said:

Thats a great point. It's really obviously the case, eh? Kind of reminds me about how NASA lost the how-to-do-it manuals of the Apollo programe, big problem in institutions with passing on knowledge. Humans have lost knowledge over and over again. Now only literally a handful of people know wtf is going on in the economy!

At the risk of going off thread, I do concurr with what you say, but really wish that that type of ignorance and lost knowledge was happening only within the realm of economics. But in media, justice system, social theory, science - where for example once we had two biological sexes but now apparently have a spectrum! - everything it seems is now up for grabs... and all pillars of wisdom must fall! (post-modernism is a very slippery concept but has unleashed a great deal of chaos into the world)

[wherebee]

1 hour ago, JMD said:

At the risk of going off thread, I do concurr with what you say, but really wish that that type of ignorance and lost knowledge was happening only within the realm of economics. But in media, justice system, social theory, science - where for example once we had two biological sexes but now apparently have a spectrum! - everything it seems is now up for grabs... and all pillars of wisdom must fall! (post-modernism is a very slippery concept but has unleashed a great deal of chaos into the world)

Since the enlightenment to now is only 300 years.

Throughout 12000+ years of human civilisation, the norm has been ignorance of the scientific method.

[wherebee]

Australian financial review big article on oil and gas sector:

Investors turning their backs on oil and gas stocks risk missing out on an eventual recovery in the sector once the market wakes up to the huge gap that has built between soaring commodity prices, that will boost company profits, and depressed share prices.

Market sources point to a disconnect between share prices and oil and gas commodity prices that has been evident for months but is now becoming “ridiculous” given the buoyant LNG market and continuing robust crude oil prices, which are swelling cash flows for producers.

Big article It's saying basically all the stuff that DB has been saying for a year or more.  Aussie oil and gas stocks up 5% today.

Hinting at the ridiculousness of the 'greeening' of pension funds, but not yet saying it openly - that the climate change lobby is impoverishing millions of future pensioners.

[jamtomorrow]

10 hours ago, Hancock said:

There is now a new underclass incapable of working fulltime, there are far too many people under 45 that look as if doing 16 hours a week would be a struggle for them.

The country is fucked.

Or ahead of the field.

Automation is the slowest of slow fucks, but it is relentlessly fucking all of us. *That's* the real super-cycle.

What makes us especially vulnerable is the centuries-old cognitive bias and/or blind spot that nearly all of us carry with us, namely: equating hard work with moral virtue.

It exists for a reason of course, the reason being that hard work has historically been a pre-requisite for a civilisational grouping (be it a tribe, village, city-state, nation-state) to prosper and flourish.

But there will come a point - and we're not far away now - where automation pulls the rug from under the entire edifice of "the work ethic".

The question then is, how will the productive output of the economy be distributed if there's no meaningful quantity of human "work" available to measure "contribution"? If we're all freeloaders (and we will be), how does the pie get divided?

[planit]

There is a general malaise I am noticing in the O&G industry.

It's not right to ask an oil company to give you petrol for 80 years and then turn around and threaten them with court cases to punish them for climate change. This is just one example of the crap the O&G industry gets every day.

The result of this is "I can't really be arsed to get my production back on line very quickly" or to tell Joe Biden to stuff his request for more oil up his arse.

Some companies are drilling wells - slowly. OPEC+ is raising production - slowly. Others are reducing where it is not profitable on a risk/reward basis and the threats of court cases have shifted the risk very far to the up. The O&G industry don't see it as their duty to supply energy to the world any more, they won't feel bad at the negative effects when oil hits $200.

 

They [blinded ESG crazies] are not letting up and this problem is getting compounded every day. The irony is that the further away the crunch is, the worse it will be for normal people. Covid has created a great veil, behind which the problem has grown more than it possibly could under normal circumstances. Delta came along at just the right time to prolong the build up.

 

The gas squeeze over the last week has been a small sign of what is to come, Putin will be the hero and pull back for a while, taking credit for 'saving' Europe. But he knows he is in control and will tighten the screws again when it suits him (gas won't return completely back to normal levels).

Each squeeze or spike will probably be worse than the last until it has a serious impact on the economy. I still see the only option being an energy induced inflation spike kicking off a bad recession (mainly because they have shown they will print for every other type of recession).

[HousePriceMania]

https://www.ft.com/content/e099e0e3-4fba-45a4-92e2-08891c2f8b0e

 

Evergrande faces investor protests as liquidity crunch worsens

 

 

[HousePriceMania]

17 hours ago, DurhamBorn said:

Inflation is locked in now Harley,its just a question of how high.I expect we might get a sharp quick deflation event though to shake people out.Trillions sat in dis-inflation assets are going to get mullered.Its a beautiful example though of how wealth is moved from one are to another without the people understanding whats going on.

Can anyone tell me/anyone reading, which assets you consider dis-inflation assets ?

 

[DurhamBorn]

1 minute ago, HousePriceMania said:

Can anyone tell me/anyone reading, which assets you consider dis-inflation assets ?

 

Government bonds none inflation protected,cash,long term company bonds,A- rated at 1% coupon will lose you a lot inflation adjusted etc.Highly valued growth shares are mostly dis-inflation loving and once inflation hits,although some like Amazon can increase prices and still grow their profit growth jumps with the first inflation due to stock timing,then falls away,Amazon should see that,big jump this year then a big slow down next.

If you take a typical 60/40 portfolio most have with IFAs etc around 90% will be in dis-inflation areas,and a maximum of 10% in inflation loving areas.Only a small amount of the portfolio will be throwing off decent inflation loving income.So if bonds revert to price in 3% inflation (still half what i expect) i think those portfolios will lose 2% a year minimum after fees for the cycle before inflation.If in drawdown to maintain a set amount of income those are going to empty over 10 years.

The main take on my roadmap is that this is a distribution cycle.Assets etc will need to be sold to buy and maintain a standard of living.The pot is going through a getting smaller cycle.Critical to own the areas who can at least increase prices with inflation without losing customers,or losing few.

[Nomad]

Historically property has been a good hedge against inflation, however with interest rates and affordability being so low I wonder if that will be the case this time round. I'm still sitting on a large amount of cash hoping for some sort of property correction, but can't see it happening now, so think I need to put my cash somewhere else, or even into property. Very unsure what to do

[Democorruptcy]

15 hours ago, Bobthebuilder said:

I am starting to notice the same in building trades, more people starting to retire / take it a bit easier, etc. The new kids on the block are getting the basics wrong and messing things up from the start, no experience = losing money.

Looked at a kitchen fit for my builder mate today, young kitchen designer had planned it. Doesn't fit, doesn't work, layout all wrong with no allowances for old rooms not being square etc.

Knowledge not shared is lost.

Friend of a friend just had a kitchen done. Wickes came and measured up and did a quote. The friend thought it was a bit steep, so got a young lad in for a quote. He undercut Wickes and has just finished the job using their measurements. The Wickes measurements were wrong and one of the units he'd made up didn't fit. The friend and him are now arguing about who has to pay for it! He could have a great future fitting kitchens without taking his own measurements!

[DurhamBorn]

2 hours ago, wherebee said:

Australian financial review big article on oil and gas sector:

Investors turning their backs on oil and gas stocks risk missing out on an eventual recovery in the sector once the market wakes up to the huge gap that has built between soaring commodity prices, that will boost company profits, and depressed share prices.

Market sources point to a disconnect between share prices and oil and gas commodity prices that has been evident for months but is now becoming “ridiculous” given the buoyant LNG market and continuing robust crude oil prices, which are swelling cash flows for producers.

Big article It's saying basically all the stuff that DB has been saying for a year or more.  Aussie oil and gas stocks up 5% today.

Hinting at the ridiculousness of the 'greeening' of pension funds, but not yet saying it openly - that the climate change lobby is impoverishing millions of future pensioners.

Sometimes things inspire me to work at this and not just lay back and relax.The big one in the opening of this cycle was when i was working.The guy bringing me my parts etc in the factory worked for an agency on £10 an hour.His pension was in NEST.He rented a little flat and was one of the white working class who keep this country going and are fucked over at every turn.That woke bit of dirt in charge of NEST sold his BP shares in his pension at £2 each and was proud of that fact.He doesnt know of course,he just knows his life is shit,will remain shit and his pension will be shit.

The biggest moments in contrarian macro investing are when you face fully into a narrative storm, but you have the knowledge and skills to of done the graft,done the work to focus on the real numbers and the real truth.

As @Harley said the other day,and i think an amazing way to see this.Everyone has become a tracker due to the long dis-inflation.They are all in the same trades,the same path,even the same wrong headed beliefs and lies that they see as truths.

 

 

 

[DurhamBorn]

@planit my work says the real supply v demand crunch starts to really hit in gas in 2023.The lags really turn the screw then,so if we get a sharp deflation between now and then the sector should be bought hard again.The key isnt the gas,there is plenty,its that its not where its needed and there is a huge lag between fixing that,even if the green lobby werent around.

Of course its likely the greenies will end up making sure China burns a massive amount of extra coal than it intended to and do massive damage to the planet.

[CVG]

16 minutes ago, Nomad said:

Historically property has been a good hedge against inflation, however with interest rates and affordability being so low I wonder if that will be the case this time round. I'm still sitting on a large amount of cash hoping for some sort of property correction, but can't see it happening now, so think I need to put my cash somewhere else, or even into property. Very unsure what to do

I took a half-way house (sic) approach because I too have no idea how things will pan out.

I have bought the cheapest comfortable home available in a place I would be happy to see out my days whatever happens. But I'm also saving each month in silver in the hope of a 12-fold increase in silver and a 50% crash in housing so that I can benefit from that possible double-whammy in 5 or 10 years time.

[Noallegiance]

41 minutes ago, DurhamBorn said:

As @Harley said the other day,and i think an amazing way to see this.Everyone has become a tracker due to the long dis-inflation.They are all in the same trades,the same path,even the same wrong headed beliefs and lies that they see as truths.

 

 

 

Only yesterday it struck me that anyone under the age of 57 hasn't been an adult in an inflationary environment. 

That takes being an adult as 18. I knew sweet FA about any of this until I was over 30. If I assume most people are similar, then most folk under 70 aren't prepared in the slightest.

That's a lot of people with no idea.

[Popuplights]

15 hours ago, Talking Monkey said:

The whole comfortable benefits lifestyle is going away isn't it over the next decade, it'll go back to being a basic safety net as it should be. Have I got that right DB. I see that as the only way to incentivise people to work. 

 

I fucking hope so. 

[HousePriceMania]

58 minutes ago, Nomad said:

Historically property has been a good hedge against inflation, however with interest rates and affordability being so low I wonder if that will be the case this time round. I'm still sitting on a large amount of cash hoping for some sort of property correction, but can't see it happening now, so think I need to put my cash somewhere else, or even into property. Very unsure what to do

That's one I've been weighing up for sure

Here's the house prices versus wages in the 70-80s...

 

 

Here's now...

 

 

 

Here are the interest rates 

 

it's difficult to see housing as a safe bet in an inflationary environment right now. 

Price inflation could cause peoples ability to service their debts to collapse.

I am still of a mind though that the BoE will introduce -ve rates with inflation at 10%, that's the point a revolution should start

 

[DurhamBorn]

54 minutes ago, Cattle Prod said:

A question, DB. We're finally seeing the high energy prices long predicted on here. Current gas prices are going to affect industrial use, home heating, electricity, ag inputs etc as we know. What do you think the lag time is before these prices show up in official inflation figures? Bearing in mind that they do their best to hide energy inputs. Are current gas prices higher than your roadmap assumptions? This is of course alongside oil which has been in the 60-75 range for a while now.

Id expect the lag on energy prices to lag around 6 months but between 4 months to 8 months for certain.There are a lot of things affect the lags,for instance most factories etc will be hedged and its as those hedges run off things change.There is also a lag between stock on shelf and stock to be made.We should now be entering the stage where inflation feeds itself.Each part of the chain increases prices as its affected.Mosaic and BP get the prices in first ,the guy selling the tin of beans in the corner shop last.He gets everyone in the chains  inflation,where Mosaic and BP mostly just get their own.

On gas its running ahead of where i expected.I expected these prices from 2023 onwards so there is more going on here.It could be we get a classic head fake where it turns down,shakes everyone out,then a long structural bull market.

For anyone reading the thread who is newish,or trying to get their heads around this distribution cycle,the above bean example is a simple way of seeing it.

Each stage in a reflation/distribution cycle ADDs their own inflation through energy use,wages,tax,inputs etc and along the line it gets harder and harder to pass those increases on.The easiest place is at the start,the de-complex,the boring wrote off stuff.The other areas to be positioned in are ones who can increase price direct to the consumer without losing too many sale,and where their main costs arent inflating.The classic example is telcos.A lot of their costs are debt payments that are fixed etc.Baccy is the same,very low input costs,but wage inflation means they can increase prices in tandem.

[DurhamBorn]

Who outside of macro strategy would of predicted this?.A 100% bullseye for the thread.Everyone always looks at whats happening,not at what happens due to whats happening and what that reaction creates.Lots more to come yet,25% increase in wages at the bottom,or a mix of that and cuts to welfare,or systemic collapse.

https://www.bbc.co.uk/news/business-58543554