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

[sleepwello'nights]

On 10/09/2021 at 10:31, Cattle Prod said:

Lint? Clothes washer? Listen to JD Rockefeller over there with his fancy gadgets, a true DOSBODDER has one of these:

Look at how happy she is! I suggest you all go home and suggest it to your significant others.

Oh, so your suggestion was a wash board, not an au pair.

[M S E Refugee]

5 minutes ago, JMD said:

Yes, for me that 'Polish bus driver phenomenon' back in the early days, plus the media frenzy over how great it all was - was the first signal for me that things just didn't make sense. When employers repeatedly spoke (propagandised) about not being able to hire local people/or that local population were unreliable, i knew somehow that they were lying, and more importantly that social problems were inevitable. However, our politicians - and the media - turned a blind eye, and i won't ever forgive those political parties for doing that.     

 

 

I must admit I got sucked into the lazy Brit and hard working Pole propaganda and I now realise it was just a case of disincentivised Brit and incentivised Pole.  

[DurhamBorn]

20 minutes ago, Talking Monkey said:

DB does the amount of wage inflation you now anticipate feed back into your figures for inflation over the cycle so that cycle inflation would need adjusting upwards, I think you've mentioned 65% for inflation over the cycle. 

Yes,i think wages go up 25% at the bottom end front running inflation.65% stands for the economy over the whole cycle,thats based on the amount of liquidity i think is needed to print back all the dis-inflation.Wages will take more of the pie,distribution cycle.Those with assets will have to sell some to keep up with labour and inflation.

Remember as well that 65% inflation is a long term roadmap call,it could turn higher or lower,but its job is to show direction of travel for asset positioning and so far its been bang on the money.I expected jobs to return a little later in the cycle as work came back here due to inflation in complex supply chains,but its starting earlier.I think thats down to a lot of 55+ leaving the workforce and younger tasting how generous UC etc is during covid and not wanting to work much,or at all.

These are now structural issues,work will have to outpace welfare by a lot going forward,from higher pay and/or lower benefits.Im expecting them to crack down on hours etc next year,maybe forcing more and more onto training etc to make welfare more uncomfortable.

[Yadda yadda yadda]

1 hour ago, spongeh said:

I'm on a 12 month fix with Octopus and I have all my daily useage in a spreadsheet.

Current Deal
Electric Standing Charge 23.18p
Electric charge per Unit 16.03p
Gas Standing Charge 24.82p
Gas charge per Unit 2.76p

New 24 month Fix
Electric Standing Charge 25.08p
Electric charge per Unit 21.98p
Gas Standing Charge 26.59p
Gas charge per Unit 4.92p

Now if I plug these into my spreadsheet

This months combined Gas&Electric bill £87.00
If I was on the new prices £110.00 an extra £23 per month

If I use April 2021 usage when we actually had the heating on, Aprils combined Gas&Electric bill £129.00
If I was on the new tariffs then the bill would have been £180 an extra £51 per month

I'm lucky as I'm financially litterate and able to plan and adjust spending ahead of time, but these increases are going to decimate the finances of alot of people.

My 2nd spreadsheet is working out when PV solar become viable.

Current pricing for a 4kw solar system installed £3600
Current fix engery pricing @ 16.83p gives me a 10.76 year payback on the initial installation cost
June 2021 energy pricing @ 18.28p give me a 9.54 year payback
Current energy pricing @ 21.98p/kWh gives me an 8.03 year payback

It's looking more sensible to install solar as the weeks go on. 

Good to see some maths has gone into that. I'd be tempted to add daily temperatures to the spreadsheet.

Remember the cost of installation will rise.

[Yadda yadda yadda]

59 minutes ago, HousePriceMania said:

That might be correct but if it is it means the overall inflation rate will spike further next month. And the month after that, etc.

32 minutes ago, Majorpain said:

Its all going horribly wrong at the minute, another nail in the coffin of keeping the lights on.

Overloaded or a fire happy electricity trader setting up for a bumper day?

[Yadda yadda yadda]

21 minutes ago, Cattle Prod said:

I put the heating on a couple of times this summer, much to my wifes consternation. We're at a solar minimum here, which could mean an absolutely baltic winter.

If that happens the nightly news will run a daily frozen to death count.

[Talking Monkey]

4 minutes ago, DurhamBorn said:

Yes,i think wages go up 25% at the bottom end front running inflation.65% stands for the economy over the whole cycle,thats based on the amount of liquidity i think is needed to print back all the dis-inflation.Wages will take more of the pie,distribution cycle.Those with assets will have to sell some to keep up with labour and inflation.

Remember as well that 65% inflation is a long term roadmap call,it could turn higher or lower,but its job is to show direction of travel for asset positioning and so far its been bang on the money.I expected jobs to return a little later in the cycle as work came back here due to inflation in complex supply chains,but its starting earlier.I think thats down to a lot of 55+ leaving the workforce and younger tasting how generous UC etc is during covid and not wanting to work much,or at all.

These are now structural issues,work will have to outpace welfare by a lot going forward,from higher pay and/or lower benefits.Im expecting them to crack down on hours etc next year,maybe forcing more and more onto training etc to make welfare more uncomfortable.

On the welfare becoming more uncomfortable that has to be a key plank in the government's strategy. They tend to mess about with the true inflation numbers the average man or woman experiences. So I would expect the benefits life will be made uncomfortable by simply not keeping up with true inflation. Though that could take 3 or 4 years to start biting hard considering how generous benefits currently are for some. 

[Castlevania]

31 minutes ago, Cattle Prod said:

I put the heating on a couple of times this summer, much to my wifes consternation. We're at a solar minimum here, which could mean an absolutely baltic winter.

That’s outrageous. Put on an extra sweater

[Bricormortis]

29 minutes ago, Yadda yadda yadda said:

If that happens the nightly news will run a daily frozen to death count.

 Greta fan club at the BBC does not want the facts so visible, plus we already have many many deaths with fuel poverty as a primary cause each year ( I have no idea how they work that out but maybe something to do with a percentage of respiratory deaths plus some hypothermia. )

 

[JMD]

35 minutes ago, M S E Refugee said:

I must admit I got sucked into the lazy Brit and hard working Pole propaganda and I now realise it was just a case of disincentivised Brit and incentivised Pole.  

Yes, the topic of 'mass immigration' is an interesting one. The US, up to say the 1970's, had its own mass - though both skilled AND unskilled - immigration, and benefited greatly from the network affects, increased gdp, etc. I guess the US is a unique example (more an empire than a country), but the US did operate its immigration policy intelligently and the communities integrated.

However over here, the European (mainly very-very-very!) low skilled mass immigration operated here since the 1990's, has been done to import cheap labor, and without a care that its ultimate effects would pretty much be at a massive social/economic cost to the indiginous populations.

 

...Btw, i have begun describing myself as 'First Nation Anglo-Saxon', after all what's good for other peoples, should also be acceptable here? (naive of me i know!).... Maybe start petition to get the term included on next census form? But by merely posing the question, i bet i am committing one of those 'non crime hate incidents'!? 

     

[belfastchild]

1 hour ago, Majorpain said:

Its all going horribly wrong at the minute, another nail in the coffin of keeping the lights on.

Love that theres a Tesla in the foreground of that pic!

Oh dear... I dare say the fix might take longer, wonder was the fire an accident...
Anyway, folks, get your candles and portable cookers/heaters ready!

[jamtomorrow]

1 hour ago, Yadda yadda yadda said:

Overloaded or a fire happy electricity trader setting up for a bumper day?

Fire and explosion at a substation round here a few years back turned out to be pikeys trying to nick the busbars. Knocked the whole area out for a couple of days. Took them a while to figure out it was an attempted theft, the current surge blew the thieving f***ers to atoms. Nasty.

[Harley]

2 hours ago, spongeh said:

It's looking more sensible to install solar as the weeks go on. 

I'm looking at solar (still!) atm but am looking at storage at home rather than grid tie, or maybe both.  I value the option of energy independence (off grid) quite highly.  That'll probably have to be valued quite highly to make the numbers add up!

[GTM]

11 minutes ago, Cattle Prod said:

@sancho panza per your pre recession spike...

I think there is a case to be made the supermajors are undervalued still. Based on the last Qs results it looked to me like a fair value for Shell was at least in the £15-£16 range. Since then gas has gone stratospheric and since the BG Group acquisition, Shell has significant gas operations. I just don't see the supply pressures for gas easing quickly. So all that extra cash flow is going to be coming out as either divis or buy backs. It's a similar story at BP as well, though I tend to pay more attention to Shell.

We're also seeing supply pressures build in the oil market. But the price of shares of the supermajors seems to have become detached from what is happening in the markets they supply. I suppose there is the BK risk, but on a long term view, a BK would just exacerbate the existing supply problems.

[Harley]

1 hour ago, Yadda yadda yadda said:

Good to see some maths has gone into that. I'd be tempted to add daily temperatures to the spreadsheet.

Remember the cost of installation will rise.

Hmm, good but no cigar.  Even my hairdresser knows you need to net discount back a probalistic simulation of an energy pricing models using a reasoned range of factors to achieve a fan spread of outcomes and then subject that to a second degree proabalistic determination.  I really am so tired of pointing this out to people.

[Yadda yadda yadda]

27 minutes ago, jamtomorrow said:

Fire and explosion at a substation round here a few years back turned out to be pikeys trying to nick the busbars. Knocked the whole area out for a couple of days. Took them a while to figure out it was an attempted theft, the current surge blew the thieving f***ers to atoms. Nasty.

Danger of death. A few quid in scrap isn't worth it 

[ThoughtCriminal]

53% of total demand this morning was Gas. 

[Yadda yadda yadda]

4 minutes ago, Harley said:

Hmm, good but no cigar.  Even my hairdresser knows you need to net discount back a probalistic simulation of an energy pricing models using a reasoned range of factors to achieve a fan spread of outcomes and then subject that to a second degree proabalistic determination.  I really am so tired of pointing this out to people.

Like a boe fan chart. I've not looked at one of those fairy tale publications for a long time.

Ps a barber is generally cheaper. Cutting your hair at home is cheapest, especially if you depreciate the clippers over three years.

[ThoughtCriminal]

"This is fine" 🤡🤡🤡

[JMD]

1 hour ago, DurhamBorn said:

Yes,i think wages go up 25% at the bottom end front running inflation.65% stands for the economy over the whole cycle,thats based on the amount of liquidity i think is needed to print back all the dis-inflation.Wages will take more of the pie,distribution cycle.Those with assets will have to sell some to keep up with labour and inflation.

Remember as well that 65% inflation is a long term roadmap call,it could turn higher or lower,but its job is to show direction of travel for asset positioning and so far its been bang on the money.I expected jobs to return a little later in the cycle as work came back here due to inflation in complex supply chains,but its starting earlier.I think thats down to a lot of 55+ leaving the workforce and younger tasting how generous UC etc is during covid and not wanting to work much,or at all.

These are now structural issues,work will have to outpace welfare by a lot going forward,from higher pay and/or lower benefits.Im expecting them to crack down on hours etc next year,maybe forcing more and more onto training etc to make welfare more uncomfortable.

DB, must say i love it when you include numbers and figures, i know they are approx. and may/will change, but it does help my small brain grasp the big economic concepts more easily.

As for those structural changes you mention, employment, wages (but also including i think infrastructure spending, cbdc's/proxy ID control, etc) - policies we are beginning to hear about more and more, and are seeing happen all around... Well, thing is I personally don't know if Covid was 'a panic or a plan'-demic, but one thing is certain to my mind - 'the event' was definitely very serendipitous to these types of changes which are now being implemented (forced upon us without debate?) very early in the cycle... only saying, but does make you think doesn't it?

...Also i wonder if the (introduced) extra timing might be very beneficial, giving more runway to enable hope of economic-takeoff instead of monetary-crash and burn! 

[Yadda yadda yadda]

4 minutes ago, ThoughtCriminal said:

53% of total demand this morning was Gas. 

As has already been alluded to the winners here are the major suppliers. This includes EDF. They're now the prime suspect, literally blowing up their competitors!

[DurhamBorn]

25 minutes ago, GTM said:

I think there is a case to be made the supermajors are undervalued still. Based on the last Qs results it looked to me like a fair value for Shell was at least in the £15-£16 range. Since then gas has gone stratospheric and since the BG Group acquisition, Shell has significant gas operations. I just don't see the supply pressures for gas easing quickly. So all that extra cash flow is going to be coming out as either divis or buy backs. It's a similar story at BP as well, though I tend to pay more attention to Shell.

We're also seeing supply pressures build in the oil market. But the price of shares of the supermajors seems to have become detached from what is happening in the markets they supply. I suppose there is the BK risk, but on a long term view, a BK would just exacerbate the existing supply problems.

I think BP might return £8 to £9 a share by the end of the cycle including divs,maybe more.If they get wacked il divert all divs to the sector again.They wont make anyone rich due to size etc,the easy trebles that came out way last year arent there now,but some cracking value still id prepared to let value go to where its going in its own time.

My worry at the moment is regulation and systemic collapse and trying to work out this inflation better.Calling the end of the inflation is going to be critical.Out to early or too late wont be pretty.

[Boon]

Would a 25% wage increase make much of a difference at the bottom end?

It would help the inflationary cause for sure, but for those who make a career out of maximising the benefits system, doesn't seem persuasive enough to give that up.

Nevertheless it would be really interesting to see these effects. Employers being in competition means that most would have to raise wages otherwise face everyone leaving. It would be strange if even the jobs at the crappest level paid £12 an hour when minimum wage is £9/hr for instance.

Anoteher effect I thought of is people deskilling themselves. For instance people in jobs which have a lot of sales targets and grief from managers. Even in London you can find a surprising amount of these types of jobs which only pay an equivalent of £15 an hour (that is around £31k). Wouldn't it be easier for one to simply go to stacking shelves or cleaning for £12 and save yourself stress, not having to take work home, etc.

[Harley]

3 minutes ago, Boon said:

Would a 25% wage increase make much of a difference at the bottom end?

It would help the inflationary cause for sure, but for those who make a career out of maximising the benefits system, doesn't seem persuasive enough to give that up.

Nevertheless it would be really interesting to see these effects. Employers being in competition means that most would have to raise wages otherwise face everyone leaving. It would be strange if even the jobs at the crappest level paid £12 an hour when minimum wage is £9/hr for instance.

Anoteher effect I thought of is people deskilling themselves. For instance people in jobs which have a lot of sales targets and grief from managers. Even in London you can find a surprising amount of these types of jobs which only pay an equivalent of £15 an hour (that is around £31k). Wouldn't it be easier for one to simply go to stacking shelves or cleaning for £12 and save yourself stress, not having to take work home, etc.

Excellent last point.  I left my last normy job when they introduced inappropriate financial targets.  To my mind, I'll be a salesman on high risk/reward if I wanted that.  They have pushed this stuff out and about where it never belonged and with nothing like the risk/reward balance of a proper salesperson 

[sancho panza]

36 minutes ago, Cattle Prod said:

@sancho panza per your pre recession spike...

I promised myself I'd have a look at Nat gas in thsi repsect.Here' s a psot from April 2021.I've added in the gas data.Any additons from today are in red.

The only natural gas prices I could get were from 1990 on.

Similar pattern to oil.Although more volatile.I don't think we've seen teh nat gas peak for this recession yet personally.I think we're headed higher this winter.

 

GDP also is rarely quoted per capita but it should be imho,as we'd have a very different outlook on our national wealth if we did.post of mine from

The inflation data is also game able depending which measure they use eg CPI/CPIH/RPI and when it comes to real GDP which deflator they use and what it excludes.

Here are some charts for the recessions concerned using Real GDP measures.You can see that sometimes a quarter or two before the technical recession begins,the weakness is apparent.The crucial aspect in terms of Real GDP is that the implied price deflator used excludes imports which means that it's not particualrly reliable

https://www.bea.gov/data/prices-inflation/gdp-price-deflator

A lot of the following is from a previous post

1990

You can see that in Q4 1989,there was already a likely negative GDP print in real terms or at least sever weakness economically.

Oct 1988 Oil bottoms monthly close $13.58,intraday $12.28

Jan 1990 WTI at $24.20 intraday peak a 78% rise from Oct 1988

Jan 90 S&P 500 first attempt at 360 intraday

Apr 90 Nat gas $1.582

May 90 S&P 500 peaks around 360

July 1990  US recession starts with oil at $20.69

Sept 1990 oil peaks at monthly close $39.51

Oct 1990 oil intraday peak $41.15 Nat Gas peaks at $2.61 a 64% rise from April

Oct 1990 S&P 500 bottoms

March 1991 US recession ends with oil at $19.63

https://www.macrotrends.net/countries/USA/united-states/gdp-gross-domestic-product

 

2000

Dec 1998  Oil bottoms at $10.35,turns up

Feb 1999 Nat Gas bottoms at $1.628

Mar 2000 S&P 500 Intraday peak

Aug 2000 S&P500 monthly peak

Sep 2000 Intraday oil peak at $37.80

Jul-Sept 2000 Real GDP 0.53%-possible start of US recession not using real world view of economy.

Nov 2000 Oil peaks on monthlies at $33.82

Dec 2000 Nat gas peaks at $9.77 a 600% rise from the Feb 1999 low.

Mar 2001 US recession begins

Nov 2001 US recession ends.

Aug 2002 S&P bottoms on the monthlies

 

2008

Jan 2007 Oil bottoms on the monthlies at $58.14

Aug 07 Nat Gas bottoms at $5.468

Oct 2007 S&P peaks on monthlies at 1550

Dec 2007 US enters recession with Oil at $95.98

June 2008 Oil peaks at $140-monthlies Nat gas peaks at $13.53  a 147% rise from bottom

Feb 2009 S&P bottoms around 730 on the monthlies

June 2009 US recession ends with oil at $69.89

 

 

Obviously with any of this you have to apply your own judgement.It's been interesting for me to run back over this stuff from last year.There are obviously many other factors involved in the deciosn to move to cash,UST's or go short.