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

[Harley]

1 hour ago, DurhamBorn said:

The biggest moments in contrarian macro investing are when you face fully into a narrative storm....

Another one.  Turning into poets here!

Yin-yang.

[Harley]

44 minutes ago, HousePriceMania said:

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

This and more.  Tail ends and "J" curves!  

[HousePriceMania]

7 minutes ago, Harley said:

This and more.  Tail ends and "J" curves!  

I've been a believer for some time in the....low prices + high IRs = crash and high prices + low IRs = crash.

It just needs a tipping point now and if IRs are forced up then you cannot tell me UK house prices are a good store of value.

Best they can hope for is wage inflation to meet the price falls somewhere in the middle, 20-30% down, but with an over shoot you could be looking at 30-40% down.

All depends on what the bankers do and right now, that is nowt.

[DurhamBorn]

This video is a key part for Telcos,they are going to work together more and more,meaning massive barriers to entry and slowly increasing prices.Continental AG are also a very good buy.Iv worked with them and their products and they are key to most of the new tech in cars etc.Most think of the tyres etc,but they are in fact an amazing tech company and will gain from the cycle hugely.Id like pullbacks to add more,but happy to open positions here if i didnt have any.

 

 

[Hancock]

Deflationary for the price of industrial metals.

https://www.telegraph.co.uk/business/2021/09/14/chinas-property-market-runs-steam-millions-investors-demand/

Lets see if China lets their epic property bubble crash.

A line of 60 uniformed security guards stretched across the entrance to ailing Chinese property giant Evergrande’s gleaming Shenzhen tower on Monday as dozens of angry investors demanded answers – and their money – from the company.

The protesters, who claimed they had been “swindled”, represent just a fraction of an estimated 1.5m people who pumped cash into Evergrande to buy apartments which have yet to be built – and may never be.

Evergrande, founded in 1996 by the well-connected billionaire Xu Jiayin, rode an urban property boom now running out of steam and is teetering under a $300bn debt burden. The firm was forced to deny an imminent bankruptcy but ratings agencies predict a default, while domestic banks and foreign creditors are on the hook, prompting fears of a "Lehman moment" for the world’s second-biggest economy.

“Right now, there are an awful lot of people in China paying for a property from a company that looks like it's going down the plughole,” says Mark Williams, chief Asia economist at Capital Economics.

While Evergrande’s crisis has grabbed the headlines, the ingredients of a Chinese property bust have been long in the making. As far back as 2016, Chinese president Xi Jinping warned of a potential crackdown with the phrase that “property is for living in, not for speculation”.

That message belies the wall-to-wall billboards, television and even elevator advertising luring buyers to put their cash into property, a portrayed sure option in an under-developed financial market offering relatively few alternatives for investment. Amid higher savings rates and a population that has lived through an economic boom, cash-buying real estate years in advance is common and owning properties – the more the better – is a status symbol. 

Iris Pang, ING’s chief economist for China, says: “It is a culture deep in the mind of the Chinese, if not all Asians. Look at Hong Kong, look at Macau. Singapore is a little bit different because they have a very generous public housing policy. But across Asia home ownership is a kind of self recognition, a safety net for people's life or retirement.”

A Beijing-fuelled property boom

Strong demand has left average Chinese house prices at an eye-watering 18 times average incomes in a private property market which did not even exist until the eve of the millennium. But this has also been fuelled by Beijing regularly turning to property investment, a sector accounting directly for around 15pc of China’s economy, as a short-term fillip to growth during periods of economic turbulence. Companies have leveraged up with the blessing of the government. 

Despite vacancy rates of over 20pc, the tendency to overbuild in a country of party officials eager to show rapid regional growth – and gain their next promotion – is also behind the phenomenon of “ghost cities”: urban areas filled with half-finished concrete shells. 

The deleveraging drive was slowed down by trade war, and then by the pandemic. Last year it gathered pace with Beijing’s publication of the “three red lines” for developers, imposing strict new limits on liabilities as a share of assets, gearing of less than 100pc and enough cash to cover short-term debts. 

Only a fraction of domestic developers, or just 6pc, complied with the rules at the beginning of 2021, according to ratings agency Standard & Poor’s. Meanwhile this year authorities have stepped up efforts to rein in housing prices with measures such as restrictions on home purchases and higher mortgage rates.

Looming demographic crisis

The move to rein in Evergrande and its peers will only add to downward pressure, all while the Communist leadership keeps an eye on social cohesion and a worsening demographic crisis. 

China’s population grew at the slowest rate since the Fifties in the decade to 2020, according to the latest official census published earlier this year. Meanwhile, the legacy of a rapid economic development and a one-child policy that was abandoned in 2016, means that by 2050 the country is likely to have one retiree for every two workers, compared with a one-in-ten dependency ratio in 2000. 

Jonathan Ashworth, a China economist at Fathom Consulting, says property investment has been a “great tool” for growth in the past but adds: “You've come to a point where prices are just so expensive in the Chinese cities, so that's this big issue about inequality. They’ve felt they’ve had to do something. The fears have really increased among the authorities on the demographic side. It is generally thought that with house prices being so expensive it reduces people's willingness to have children, or more than one child.”

The movement of China’s population to the cities is also expected to slow, catching out the developers who have geared up for further expansion.

Ashworth adds: “The outlook for sales is a lot weaker than [developers] had thought. So they've got all these debts that they've built up on the expectation that they’re going to be able to expand and expand.” 

As the price of new build property slows to its weakest for five months, bad debts from the sector among China’s banks have also grown. That has fuelled concerns over financial contagion as well as the knock-on impact on the world economy from a slowdown in the country’s property sector which consumes around a quarter of the world’s iron ore.

But Williams says a Lehman Brothers style moment isn’t likely, citing the rescue of the failed Baoshang Bank in 2019 by the People’s Bank of China as the “playbook” for a bank intervention: “They've had a chance to look at 2007 and they wouldn’t make the same mistakes. They've sort of had a dry run for how to deal with banking sector stresses.”

A Government restructuring looks most likely for Evergrande, which Pang puts into the “too big to fail” bracket. “It has to be survival,” she says. 

That, however, may be of little consolation to the Chinese buyers who have poured billions into Evergrande, as well as the foreign investors holding more than $7bn of the company’s US-denominated debt. Weaning the Chinese economy off its appetite for property is likely to be a painful experience.

[planit]

2 hours ago, DurhamBorn said:

@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.

I look at it like a flight of stairs, there will be a whole series of energy hits over the next 8 years. They will all look different but the seeds are sown by ESG and the political knee jerk reactions to previous issues. They are like bottlenecks each getting exposed as we try to do 100 years of energy transition in 10 years. (for example it is pretty obvious that we should already have started a huge national grid investment to be able to cope with it being the country's sole main source of energy).

 

55 minutes ago, DurhamBorn said:

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.

 

Putin's play has also been more successful than he himself wanted so he will want to dial it back a bit. There are already protests in Spain regarding the energy prices and Putin will not want to be blamed for creating this crisis. He will want to be out of the way by the time politicians are looking for someone to blame.

I expect Putin to:

Tell EU he is doing them a favour (which he will want payback for in the future)

Sign up to give EU enough gas to cover a coldish winter

Then we can 'expect' an average winter where gas prices are high but nothing like they are at the moment. So the problem will go away for a while, as @DurhamBorn says, the main problem with gas is where it is. There may be gas spikes (LPG) in Feb but they won't be in the EU.

 

Oil is where it is at over the next 2 months, declining inventories meet the shortness of supply. Just depends on how low different countries allow stores to go before they start buying. Like all these things, as soon as one country starts building rather than running down, this will kick all the others off like dominoes. The 1-2mmbpd demand gap suddenly looks like a problem if you expect it to last into the future.

 

[Majorpain]

38 minutes ago, Cattle Prod said:

 

That's great news, now they can rebuild them and add that into the GDP figures, Baijiu's all round! 

[kibuc]

20 hours ago, Loki said:

Hopefully in the future INFA does a McShare 

I could be wrong but I believe the gas storage project is dead and burried. They're fully committed to building and servicing ships at a loss now.

[planit]

13 minutes ago, Majorpain said:

That's great news, now they can rebuild them and add that into the GDP figures, Baijiu's all round! 

Oh yes, the good old broken windows fallacy. I learnt a lot on TOS.

 

On a connected note, I think Xi Jinping might be ill. I was wondering why there is a sudden urgency with the Communist  push, surely it would have been better to spread out the announcements over the last 2 months.

I came to the conclusion Xi is time limited in his legacy plans.

 

Nothing much comes up on Google search.

 

[Loki]

Something just happened the NASDAQ really likes...

[DurhamBorn]

Well iv actually been to sign on JSA today for the first time face to face.Iv got 5 weeks worth left before it stops then il claim none means tested ESA until they boot me off,or for the year you get none means tested.The guy gave me a sheet for a jobs fair with almost every big employer on.He said "we are getting big employers phoning every day asking where all these unemployed people are because we cant get anyone to apply" .Of course i was laughing inside,but i replied that i knew lots of people who would never work because welfare was that generous for anyone with kids,and that unless wages went up 25% minimum,taxes stopped increasing and welfare fell a lot then they wouldnt be getting anyone.

So its obvious this is slamming government in the face now,loads of jobs,those out of work dont want them.Each factory and supply chain pulling back production is walking into a wall.The people arent there to replace the Chinks on those wages.Business will be screaming this at government,we want more EU migrants etc or welfare cutting.

@King Penda would of been pleased though.I was getting the eye off the cleaner, quite tidy and would of only taken a quick "fancy a coffee sometime" comment to bag her number, but given the cost of care im bahaving and sticking with my nurse 

 

 

[Noallegiance]

8 minutes ago, Loki said:

Something just happened the NASDAQ really likes...

US inflation data up but not as much up as expected.

How that's positive, I don't know!

[DurhamBorn]

2 minutes ago, Noallegiance said:

US inflation data up but not as much up as expected.

How that's positive, I don't know!

They think inflation is levelling off.It will be,the first spurt will fall back,then turn up again as lagging inputs like wages take affect.

[Loki]

11 minutes ago, DurhamBorn said:

quite tidy and would of only taken a quick "fancy a coffee sometime" comment to bag her

Inflationary  

[HousePriceMania]

 

Next FED meeting is next week

September

21-22*

 

It either party time of crash time.  My money is on party time

[Loki]

5 minutes ago, DurhamBorn said:

the first spurt

[Loki]

3 minutes ago, HousePriceMania said:

 

Next FED meeting is next week

September

21-22*

 

It either party time of crash time.  My money is on party time

I wish whatever is going to happen would just get on with it.  

Party time gets my vote too, but either way I'm 'Fed' up of waiting 

[CVG]

23 minutes ago, DurhamBorn said:

im bahaving

..thought you had coined a new word here - badhaving

[Mapper]

Evergrande top story on BBC biz page at the moment.

https://www.bbc.com/news/business-58540939

[Mapper]

1 hour ago, Cattle Prod said:

 

Fuck me dead. If there was ever an "I'll grab some popcorn" moment.

 

[Loki]

39 minutes ago, Noallegiance said:

US inflation data up but not as much up as expected.

How that's positive, I don't know!

Out of reps but cheers!

[leonardratso]

1 hour ago, DurhamBorn said:

Well iv actually been to sign on JSA today for the first time face to face.Iv got 5 weeks worth left before it stops then il claim none means tested ESA until they boot me off,or for the year you get none means tested.The guy gave me a sheet for a jobs fair with almost every big employer on.He said "we are getting big employers phoning every day asking where all these unemployed people are because we cant get anyone to apply" .Of course i was laughing inside,but i replied that i knew lots of people who would never work because welfare was that generous for anyone with kids,and that unless wages went up 25% minimum,taxes stopped increasing and welfare fell a lot then they wouldnt be getting anyone.

So its obvious this is slamming government in the face now,loads of jobs,those out of work dont want them.Each factory and supply chain pulling back production is walking into a wall.The people arent there to replace the Chinks on those wages.Business will be screaming this at government,we want more EU migrants etc or welfare cutting.

@King Penda would of been pleased though.I was getting the eye off the cleaner, quite tidy and would of only taken a quick "fancy a coffee sometime" comment to bag her number, but given the cost of care im bahaving and sticking with my nurse 

 

 

was she chinese?

[JMD]

12 hours ago, wherebee said:

Since the enlightenment to now is only 300 years.

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

Yes agreed, society and it's belief systems are fragile (still are). The enlightenment period is a fascinating historical period and which reset human thought for the next four centuries, until those pesky french post war post-modernist types, and their long poisonous march through the institutions, but I shan't bang on any more about them!! The enlightenment battle of ideas was between rationalists (pure reason) and the 'new' empiracists (scientific method).                                                                                                                                                       And that contest was a close run thing - and I still chuckle to think that the medical books, until the late 1700's, were still stating the 4000 year old platonic/rationalist number of teeth that 'should' be 'idealy' found in the human skull (44 I believe they incorrectly conjectured) - rather than the actual number of 32, and which all competant empiracists would discover simply by performing the trial experiment of counting the teeth!!... But I mention this not to tell how stupid 'they were back then', it was after all more about the political battles of the time.... Fortunately for us we have 'progressed' so much since then - can anyone imagine the medical profession of today getting involved in anything remotely so degenerate or machievalian!?!                                                                                                                                                                 (Please forgive my long-winded post. Perhaps I'll leave it to Neil Oliver, yep the BBC Coast presenter, to sum up... He says that he used to trust all doctors, however he now no longer trusts all doctors. Interesting times!)

[Don Coglione]

2 hours ago, kibuc said:

I could be wrong but I believe the gas storage project is dead and burried. They're fully committed to building and servicing ships at a loss now.

I suspect you are correct, the company name-change announced today tends to confirm your view.

My belief is that the marine licence, upon which all rational share-holders (ha!) have been sweating, has been denied, but the politicians have agreed to hold back the news, to give time for the Belfast shipyard to try to generate some work for NI and thus soften the economic blow (I also believe the shipyards are dead, so I really should be selling my holding!).

[JMD]

7 hours ago, jamtomorrow said:

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?

Yes it is scary to predict the future under mass uncontrolled automation. After all it mainly the Protestant work ethic (oh and the enlightenment!) that built the West. Without religion and work purpose we may become like those colonised indiginous tribes (the first ones to have experienced being the 'left behind'?), ie aimless drunkards. In fact the results of our own benefit culture experiment rather points toward this happening. The thing is that most people won't become work-from-home artists and poets!?, instead might the future be nothing more than receiving UBI payments whilst being plugged into the Metaverse?