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

[Yadda yadda yadda]

7 minutes ago, Hancock said:

And Infrastrata are still waiting to find out if they're allowed to build some caverns.

Seems as if this supply issue could simply be resolved by the Germans opening Nord Stream 2 a few months early ... every weld will be inspected and passed not long after its been welded, so it should be good to go as it is.

Though the Americans don't want that to happen.
https://www.rferl.org/a/nord-stream-us-congress-sanctions-russia/31474034.html

I saw somewhere, might have been this thread, that there was an EU rule that the owner of the pipeline, Gazprom, couldn't utilise more than 50% of capacity. The easy win would be to let Rosneft use the other half. However, Putin might see the opportunity to force the EU to allow Gazprom the monopoly.

[Hancock]

4 minutes ago, planit said:

Good luck everyone on here.

Hoping for one more dip then i'm going balls deep in oil, can't believe i held the other week.

 

[Hancock]

14 minutes ago, Yadda yadda yadda said:

I saw somewhere, might have been this thread, that there was an EU rule that the owner of the pipeline, Gazprom, couldn't utilise more than 50% of capacity. The easy win would be to let Rosneft use the other half. However, Putin might see the opportunity to force the EU to allow Gazprom the monopoly.

Think thats the plan

https://www.euractiv.com/section/energy/news/russia-to-break-the-gazprom-gas-export-monopoly-via-nord-stream-2/

[HousePriceMania]

if anyone likes a gamble...

Mosman Oil and Gas Ltd

 

The lse rampers are on it.

[JimmyTheBruce]

21 hours ago, sancho panza said:

Hard to get exposure to coal but anglo pacific are something we're looking at again.Any ideas welcomed...

Here's the ones I've taken a little flutter on.  Be aware Peabody is already up massively over the past 6 months.

[JimmyTheBruce]

16 hours ago, Yadda yadda yadda said:

I try to keep myself motivated. Workload also varies a lot and I'm confident I'll kick into top gear when it gets busy next month. I've got pride.

I've come to realise that conscientiousness/pride/work ethic or whatever you want to call it, is what companies take advantage of to shit all over you.

It's difficult, because nobody wants to spend 8 hours a day filling time, but I'm done with caring about top notch delivery until I'm properly recompensed for it.

[Yadda yadda yadda]

9 minutes ago, JimmyTheBruce said:

I've come to realise that conscientiousness/pride/work ethic or whatever you want to call it, is what companies take advantage of to shit all over you.

It's difficult, because nobody wants to spend 8 hours a day filling time, but I'm done with caring about top notch delivery until I'm properly recompensed for it.

I realise that too.

[Noallegiance]

41 minutes ago, JimmyTheBruce said:

I've come to realise that conscientiousness/pride/work ethic or whatever you want to call it, is what companies take advantage of to shit all over you.

It's difficult, because nobody wants to spend 8 hours a day filling time, but I'm done with caring about top notch delivery until I'm properly recompensed for it.

That's been the way of things for my lifetime. But I'm telling my kids to be the sort of person they want to see in the world.

I'm getting the impression that at these points in history, what was 'ceases to be', and what isn't becomes 'what is'.

And not just economically.

[wherebee]

18 minutes ago, Noallegiance said:

That's been the way of things for my lifetime. But I'm telling my kids to be the sort of person they want to see in the world.

I'm getting the impression that at these points in history, what was 'ceases to be', and what isn't becomes 'what is'.

And not just economically.

I suspect you are right.  The future, I suspect, will be a lot different in terms of useless bottom feeders being able to get someone else to pay for their Xbox

[sancho panza]

19 hours ago, Cattle Prod said:

Sancho, your question prompted me to look at my own charts. It's commercial plus SPR crude. I have tended to model commercical crude only, but crude plus SPR is quite revealing. Possibly revealing a complaceny in the market. I mean the SPR is onoy released in extremis, and the govt are stupidly selling it down at the moment, but if there is a supply problem, the market may again look at both together. Basically, the combined inventory is heading toward levels that the 2010-2015 $100 oil era hung off:

 

(black box is your ycharts time series to help get your eye in).

We're there already in fact. So that's the main fundamental that underpins price, the rest is sentiment. My first post on here I spoke about the 'perception of scarcity/supply'. There was a perception of scarcity from 2010-2015, there has been a perception of supply since then. Inventories almost hit my crudely drawn median line in 2018 and 2019, the market is expecting inventories to bounce back up like that again, I suspect. If inventories don't, we are back to $100 oil.

Why is the run down fast historically? Because all of what we have discussed on here. No investment in supply, bounce back in demand. Historically there has been projects on the shelf, or in the pipleline to add to supply. Not this time, and it's structural. BK may gives us another downdraft, but this is baked in.

Edit: to add a text box to annoy the people out there who nick stuff off this forum. Anyone here, do what you like, and dyodd

 

Appreciate that chart there CP.Uncanny the relationship and interplay between price and inventory.I'd love to see that split down into separate parts,say sept/nov 11-sep-14-sep18-sept 2021.It's a bit weird but key turning appear to my untrained eye at those points.i've foudn in the past that this can make the correaltion more compelling.Weird how there's a few septembers there but it msut be the end of the driving season.

There does appear to be a lag between price move and inventroy build/draw which I think you or @DurhamBorn have highlighted before.

The drawdown between about Nov 20 and now has been virtually non stop and with the issues you've highlighted particualrly the 6 years of exploration udner funding only points one way.

Having said all that,I sold our BP/RDSB Oct calls this morning.This run up has converted some humdinging losses into profits and I need to warchest if oil does move higher and we get a few more ticked off the BK checklist of mine,then I'll need the risk moeny for the puts.

18 hours ago, dnb24 said:

Is systemic collapse the plan all along?

CBDCs discussed this week with “programming” part of their qualities

From the telegraph 

https://archive.ph/740Rb

I find paragraph 3 rather chiling dnb old chap.....I can't believe the public wish to place themselves in the hands of the hancocks of this world even more than they already have.

He's ex BoE iirc......says a alot .

[sancho panza]

2 hours ago, planit said:

Great figures and analysis.

You are correct, we are already half way down into the Nov 2008 - Feb 2015 Range.

 

Looking at those figures available here, the last time "Stocks of Crude Oil (Including SPR)" went below the psychologically significant billion barrels of oil was Dec 16th 2011.

If the current draw rate continues (Apr 30th - now)  we would be below a billion within 8 weeks. I am sure the draw rate can slow down but it seems a big ask to reverse it with Delta receding.

The hedgies and other funds will be aware of this and the more confident they become the more the oil price will rise. I still think focus will shift from gas to oil before the end of the year.

 

I doubt the current views and plans on renewables/ESG will still be standing in 18 months. Remember the market will react a long time before the actual real squeeze in oil and nat gas supply (which is probably 2-3 years away).

Good luck everyone on here.

 

Interesting analysis there Planit.It does look like a long steady decline doesn't it?Hard to see what will stop it.

I thinke ven here some of the oilies look criminally undervalued to the underlying and once they start running those hedgies will pile on.

 

ref ESG I always remember someone on here talking about how they'll all lose their green tendenceis when they start having to tkae cold showers.never a truer word said in jest.Slightest bit of hardship and they'll fold.

1 hour ago, JimmyTheBruce said:

Here's the ones I've taken a little flutter on.  Be aware Peabody is already up massively over the past 6 months.

Thanks for that

You looked at Anglo Pacific

https://www.investing.com/equities/anglo-pacific-group

Coal and Uranium...

 

[sancho panza]

He's back spreading the darkness as ever....Nice to see him using aggregate debt for his SEEDS model for de growth as opposed to ye olde Keynesian trick of focusing on govt debt alone.

It's always reassuring to read his work given that he accepts the possibility that GDP can be gamed higher by credit creation in the FRB system

 

in bold for skimmers

https://surplusenergyeconomics.wordpress.com/2021/09/19/211-the-case-for-contingency-planning/

 

An intelligent investor – as distinct from a gambler – doesn’t put all his or her money on a single counter. He doesn’t stake everything on a single stock, a single sector, a single asset class, a single country or a single currency. The case for portfolio diversification rests on the existence of a multiplicity of possible outcomes, of plausible scenarios which differ from the investor’s ‘central-case’ assumption.

This isn’t a discussion of market theory, even though that’s a fascinating area, and hasn’t lost its relevance, even at a time when markets have become, to a large extent, adjuncts of monetary policy expectation. The concept of ‘value’ hasn’t been lost, merely temporarily mislaid.

Rather, it’s a reflection on the need to prepare for more than one possible outcome. Sayings to this effect run through history, attaining almost the stature of proverbs. “Hope for the best, prepare for the worst” is one example. Others include “strive for peace, but be prepared for war”, and “provide for a rainy day”. There’s a body of thought which has always favoured supplementing hope with preparation.

Dictionaries might not accept the term “mono-scenarial”, but it describes where we are, working to a single scenario, with scant preparedness for any alternative outcome. The orthodox line is that the economy will carry on growing in perpetuity. Obvious problems, such as the deteriorating economics of fossil fuels and the worsening threat to the environment, will be overcome using renewable energy and the alchemy of “technology”, with “stimulus” deployed to smooth out any economic pains of transition.

The alternative scenario is that “growth” cannot continue indefinitely on a finite planet, that there’s no fully adequate replacement for the fading dynamic of fossil fuel energy, that the capabilities of technology are confined by the limits of physics, and that stimulus is a form of tinkering which can, at best, only bolster the present at the expense of the future.

There’s a duality of possible outcomes here, where we can indeed “hope for the best” (meaning continuity of growth) but should also, to a certain extent at least, be “prepared for the worst” (the ending and, by inference, the reversal of growth).

Those of us who understand the accumulating evidence favouring de-growth have a choice. We can act as latter-day Cassandras, predicting collapse, or we can think positively, contributing to the case for a “plan B”. The latter is the constructive course.

The centrality of growth   

This won’t be easy. The ‘D-word’ – de-growth – is the great taboo. It’s the one contingency for which we have no preparedness, and of which we have no prior experience.        

There’s a reason why, in the story by Hans Christian Andersen, only one small child blurts out the reality that the Emperor’s new clothes don’t exist.

Nobody else wanted – or was prepared to risk – challenging the collective mind-set, however mistaken that mind-set might have been. If the child had possessed wisdom beyond his years, he might have presented a solution (perhaps a better tailor) at the same time that he laid bare – so to speak – the problem of the imaginary garments. 

The idea that growth might have ended is one of the most emphatic ‘no-go areas’ of our times.    

Everything else, you see, is manageable. Incumbent governments might be replaced, large parts of the financial system might swoon into crisis, and the fashionable industrial sectors of the day might become old-hat. All of this has happened many times before, and we’ve coped. So, for that matter, have we emerged from those temporary interruptions to growth that we know as ‘recessions’ and ‘depressions’.

What hasn’t happened before is the cessation and reversal of economic growth.   

Economic growth is the universal panacea. It pays off our debts, holds out hope for a more prosperous future, builds investment pots for retirement, bails us out of our own collective follies, keeps the public happy, allows new governments to promise success where old ones have failed, and creates new commercial titans to replace those whose day in the sun has passed.

Collectively, we pride ourselves on our ability to handle change. We can indeed cope pretty well with linear change, so long as the economy’s secular trajectory remains one of growth. Ideology is flexible, and has moved through feudalism, mercantilism, imperialism, socialism and Keynesianism in a sequence in which ‘neoliberalism’ is but the most recent fashionable “-ism”. In business, as on the catwalk, fashions change, and there’s no reason why the current ascendancy of “tech” should prove any more permanent than the earlier pre-eminence of textiles, rail, steel, oil, petrochemicals and plastics.

There’s nothing here that can’t be managed.

The ending of growth, on the other hand, is the one twist that invalidates assumptions, and wrecks systems.

It’s been said that ‘if God didn’t exist, we’d have to invent Him’. Theology is way off-topic here, but we can say, in a similar vein, that ‘if growth didn’t exist, we’d have to invent It’.

It’s arguable that, for more than twenty years, we’ve been doing exactly that.

The end of growth – breaking the taboo

If we look at situations objectively and dispassionately, the case that growth is ending is persuasive. It’s certainly a scenario against which it would be wise, if it’s possible, to ‘hedge our bets’.

The Limits to Growth (LtG), published back in 1972, made the lines of development clear, reaching the rational conclusion that there’s only so much energy use, so much resource extraction, so much pollution and so many people that a finite Earth can support.

Subsequent evaluation of intervening data underscores the prescience of this analysis, and suggests that the hundred-year window suggested in the original LtG may have narrowed to the point where barely a decade, if that, separates us from the ending of growth.

We might think of the time-scales like this. LtG gave us, as an approximation, a century-long window in which to adapt. Almost half of that – nearly fifty years – has passed since that projection was made. It was, and has remained, easier to dismiss or ignore this thesis than to respond to it.

There’s a strong case to be made that about half of that intervening fifty years has been spent in a precursor zone in which, though growth has continued, the economy has decelerated, a process that was always much more likely than a sudden, out-of-the-blue collision with finality.

In the narrower sphere of the economy, there really are no excuses for our failure to get to grips with the factual. The fact that the economy is an energy system is surely obvious, since nothing of any economic utility can be supplied without it.

So, too, is the operation of an equation which sets absolute energy access against the proportion of accessed energy – known here as the Energy Cost of Energy, or ECoE – that is consumed in the access process.

The idea that, far from being material and subject to physical limits, the economy might instead be immaterial – and governed by the monetary artefact created and controlled by us – has never been more than an illogical conceit, tenable only whilst another dynamic (that of energy) kept the growth process rolling.

History, and the laws of physics, combine to demonstrate that the dramatic growth in the size and complexity of the economy that has occurred since the 1770s was entirely a property of the use of fossil fuels. If we look, not at the finality of quantity but at the limitations of the value capability of that resource, it was only a matter of when, rather than if, we would reach the limits of that growth-driving dynamic.

The equation that determines the way in which we turn energy into economic prosperity has become constrained, both by the finite characteristics of fossil fuels and by the limits of environmental tolerance.

The solutions offered conventionally for this predicament are, to put it very mildly, far from wholly persuasive. Essentially, we’re told that REs can take over from fossil fuels, with any associated problems overcome by the relentless power of technology.

Far from being assured, this transition is very far from proven. The efficiencies of wind and solar power are governed by laws which set limits to their capabilities. Best practice is already pretty close to these physical limits to efficiency.

Renewables, though important, seem unlikely to repeat the fossil fuel experience by giving us quantum changes in available energy value. Their expansion makes vast demands on natural resources which, even if they exist, can only be accessed and put to use using legacy energy from fossil fuels. Most of this legacy energy is already spoken for in a society that insists on channelling the vast majority of it into consumption, rather than investment.

We’re unable, albeit for wholly understandable reasons, to redeploy much legacy energy from consumption into investment. We seem similarly unable to accommodate our practices to the intermittency of energy supply from renewables.

The resource demands of batteries are the additional weight that could break the back of the feasibility camel. Batteries are never going to give us the energy density – if you prefer, the power-to-weight ratios – of fossil fuels in general, or petroleum in particular. Storing petroleum energy in a fuel tank is cheap, reliable, and needs only steel. No amount of extrapolation from positive trends is going to assure the same result for batteries.

The difficulties with REs mean that we might need to ‘think the unthinkable’. It might transpire, for example, that cars and trucks are products of the fossil fuel economy, and that a society powered by electricity must develop alternative modes of transport.

An economy based on electricity is certain to be different from one powered by fossil fuels.

There’s a strong likelihood, too, that it may be smaller.

A case-study

We can hope, then, for growth in perpetuity, but this outcome isn’t guaranteed, or even particularly probable. There’s a compelling case for preparedness for the alternative outcome of de-growth.

What, then, could or should we be preparing for?

The best way of answering this question is to explore what de-growth would mean.  The following analysis looks, as an example, at a single economy. The methodology is the SEEDS economic model, which is based on the principles of (a) the economy as an energy system, (b) the critical role of ECoE, and (c) the subsidiary status of money as a ‘claim’ on the output of the ‘real’ (energy) economy.

At the level of the national economy, explaining this requires two sets of charts. The example used here is the United Kingdom, but it cannot be stressed too strongly that this interpretation is in no way unique to Britain. Similar patterns – differing in detail and timing, but not in broad thrust – show up in SEEDS analyses of other countries. 

Starting with conventional aggregates, we can see how a big wedge has been driven between GDP and aggregate debt (which includes government, businesses and households). Stated at constant 2020 values, British GDP increased by £400bn (24%) over two decades in which debt increased by £2.8tn (196%).

Because GDP, measured as activity, is inflated by credit creation, this process has driven a corresponding wedge between GDP as it’s recorded, and underlying (credit-adjusted) economic output (C-GDP). The gap between C-GDP and prosperity, meanwhile, has widened as ECoE – which makes a prior call on economic resources – has increased.

Switching from aggregates to their per capita equivalents, we can further see how prosperity per person, again expressed at constant 2020 values, has deteriorated since an inflexion-point which occurred in 2004, when British trend ECoE was 4.7%.

This deterioration in prosperity per capita has been comparatively gradual, such that the average British person was £4,300 less prosperous in 2020 (£23,900) than he or she had been in 2004 (at 2020 values, £28,200). That’s a 15% decline, spread over sixteen years, which might not sound too bad.

But the big leveraging factor in play is that, whilst top-line prosperity has been decreasing, the estimated real cost of essentials – combining household necessities with public services – has been rising. This increase can be expected to continue, not least because many essentials are energy-intensive, which ties their costs to the rising ECoEs of energy.

The result is that discretionary (ex-essentials) prosperity is falling a lot more rapidly than its top-line equivalent. On this basis, the average British person became poorer by £5,300 (32%) over a sixteen-year period in which prosperity itself declined by £4,300 (15%).

The middle chart below compares deteriorating discretionary prosperity per capita with an inferred measure of actual discretionary consumption. This shows a widening gap, indicating that a large and growing proportion of discretionary spending has become a function of credit expansion.

Finally, this trend can be tied back to the aggregates by comparing prosperity with total debt, and with the broader measure of financial assets, essentially the liabilities of the non-financial sectors of the economy (government, businesses and households).

Questions and scenarios

This interpretation raises some obvious questions.

First, will there come a point when it’s no longer feasible to use credit and broader liability expansion to support discretionary consumption in excess of prosperity?

Second, could prosperity per person fall, on average, to the point where it no longer covers the cost of essentials? And, given that these are per capita averages, are poorer people already experiencing this squeeze?

Third, are there steps that could be taken to prepare for these eventualities?

This, of course, is energy-based analysis, “should you choose to accept it”.

If you – or we – choose not to do so, however, we’re left in need of other explanations for the first chart (which shows each £1 of “growth” accompanied by £6.80 of new debt), and the sixth (which sets out ongoing – rather than simply projected – exponential rates of expansion in financial commitments). 

Here’s the scenario as SEEDS describes it. The fossil fuel dynamic fades out, and we can’t provide a complete replacement using REs. Wind and solar power hit the physical limits to their efficiencies, and we don’t have the resources to provide complete solutions to intermittency. We over-strain battery capability by trying to replace conventional cars and commercial vehicles with EVs as well as using batteries to manage grid intermittency.  

Fundamentally, ECoEs carry on rising, and prosperity continues to fall. This results in supply shortfalls which financial stimulus can’t fix. The expansion of aggregate financial claims hits limits which threaten the credibility of fiat money. The financial system is shocked by the discovery that its central predicate – growth in perpetuity – is turning out to be invalid.

Meanwhile, discretionary prosperity falls, discretionary consumption corrects back to this level in the absence of perpetual stimulus support, and an increasing number of people struggle to afford the combined essentials of household necessities and public services.

Not unthinkable, not impossible  

At this point, anyone interested in these issues – and this includes decision-makers – has a choice to make. We can believe that continuity of growth is a valid theory. The choice is whether we wholly rule out the de-growth alternative, at levels of confidence which make it unnecessary to plan for this contingency.   

Surprising as it may seem, adapting to the consequences of de-growth is by no means impossible. The public around the world have coped with considerable privations during the coronavirus crisis. Historically, people have been driven into revolt by food shortages, but deprivation of smart-phones and cheap holidays – and even, perhaps, of cars – is unlikely to provoke a similar response.

Preparedness for physical problems requires planning, and can have substantial lead-times, but there’s no reason why, for example, trains and trams shouldn’t replace most petroleum-powered vehicles. Pressing ahead with plans for EVs doesn’t prevent us from developing trains and trams as well.  

Our definition of “essential” is likely to change, but this has never been a static concept. Ensuring that essentials are available and affordable for all would be a worthy political objective. Job losses, most obviously in discretionary sectors, could be offset by the trend towards a greater requirement for human skills as supplies of high-value energy inputs decrease. If removal of the growth predicate reduces asset prices, the problem of inequality might have a self-correcting dynamic.

Above all, ideas and values are likely to change.

To be sure, few will welcome trends such as deteriorating discretionary prosperity, and very few might choose de-growth as a preferred outcome. Consumerism can be expected to fight a robust rear-guard action. What de-growth means, though, isn’t that we choose to retreat from consumerism, but that economic realities compel us to do so.

If, then, energy and environmental pressures impose de-growth, there’s no reason to believe that we can’t adapt to it. Preparation – involving consideration of scenarios other than ‘growth in perpetuity’– could make the process of adaption a great deal less difficult.

[sancho panza]

I know @DurhamBorn has previously said there was scope for a downleg in DXY to the 87 level iirc,although not set in stone.It does seem as if the oil price might get a second wind from another source besides demand/supply imbalance.

This Wolf piece nicely rounds up the newsflow on thread from last couple of days.

Bold for skimmers.

https://wolfstreet.com/2021/09/23/10-year-yield-jumps-to-1-43-as-bond-market-reacts-to-what-the-fed-said-yesterday-about-tapering-rate-hikes-and-inflation/

10-Year Yield Jumps to 1.43% as Bond Market Reacts

The Fed is getting nervous about inflation. “Temporary” doesn’t cut it anymore. And the bond market is getting a whiff of it.

By Wolf Richter for WOLF STREET.

The 10-year Treasury yield jumped 11 basis points today to 1.43% at the moment, the highest since early July, and the biggest jump since February. Apparently, it sank in today what the Fed had said yesterday afternoon. It placed the beginning of the Big Taper into November to be done with by mid-2022, which would then pave the way for rate hikes. Fed officials keep moving the first rate hike closer and closer. And they expressed their nervousness about the red-hot “temporary” inflation lasting a disturbingly long time.

Tapering the asset purchases and ending them in mid-2022 would remove the single biggest and most relentless buyer of Treasury securities, mortgage-backed securities, and Treasury Inflation Protected Securities (TIPS) from the bond market. QE was designed to push down long-term yields; and it did so with marvelous success. The end of QE is going to take that massive force off the market.

Bond yields rise as bond prices fall, so for holders of long-dated Treasuries, this was not a good day.

Over the past 12 months, the Fed officials’ median projections of inflation at the end of 2022, as measured by the lowest lowball index that the US has, core PCE, has steadily increased from 1.8% a year ago to yesterday’s median projection of 2.3%, the highest inflation projection since 2007. Core PCE inflation is currently 3.6%.

Fed officials have been saying that the “temporary” factors would recede by late this year and early next year, but these projections are for the end of 2022, long after the “temporary” elements have faded.

And there is a message in these projections: “Temporary” isn’t going to cut it anymore. There is durable inflation being figured into the equation now.

It’s clear that this Fed is getting nervous about inflation that has been spreading far up the supply chains, with companies paying higher prices and being able to pass on those higher prices to the next entity in line, and finally to consumers, for all to see.

The US has the highest consumer price inflation among major developed economies, with CPI-W for urban and clerical workers at 5.8% and CPI-U for all urban consumers at 5.3%. Producer price inflation is much hotter, indicating what is coming down the pipeline, with PPI Final Demand at 8.3%, and PPI Intermediate Demand in the double digits.

This inflation is occurring even as the Fed is still stomping with its iron boot on the insane accelerator, doing $120 billion a month in QE and repressing short-term interest rates to near 0%, with real yields now being negative for nearly everything except the riskiest junk bonds.

This is truly a crazy situation, and even the Fed is getting nervous about it.

Other central banks – including the Bank of Japan, the Bank of Canada, the Bank of England, the Reserve Bank of New Zealand, and the Reserve Bank of Australia – have already either ended or throttled back their large-scale QE operations. The ECB has announced that it would “recalibrate” its QE. The process of ending massive money printing has started.

And the first rate hikes have started trickling in among developed economies: The Bank of Norway today raised its policy rate by 25 basis points to 0.25% and put another rate hike on the table for December. The Bank of Iceland hiked its policy rate twice already this year, by 25 basis points each, to 1.25%. The Czech National Bank has also hiked its policy rate twice this year, to 0.75%. The Bank of Korea hiked its policy rate in August, by 25 basis points to 0.75%.

They’re all worried about inflation getting out of hand, but none of these countries faces the type of red-hot inflation that the US is now afflicted with.

But the Fed is ever so reluctantly getting the memo that “temporary” doesn’t cut it anymore, that the enormous amounts of monetary and fiscal stimulus have created the most overstimulated economy ever, that has outrun supply, and that even if the Fed ends the stimulus now, the stimulus already washing through the system, including the ridiculously deeply negative real interest rates, will continue to push up inflation. And the bond market might have gotten just a whiff of it today.

[HousePriceMania]

14 minutes ago, sancho panza said:

I know @DurhamBorn has previously said there was scope for a downleg in DXY to the 87 level iirc,although not set in stone.It does seem as if the oil price might get a second wind from another source besides demand/supply imbalance.

This Wolf piece nicely rounds up the newsflow on thread from last couple of days.

Bold for skimmers.

https://wolfstreet.com/2021/09/23/10-year-yield-jumps-to-1-43-as-bond-market-reacts-to-what-the-fed-said-yesterday-about-tapering-rate-hikes-and-inflation/

10-Year Yield Jumps to 1.43% as Bond Market Reacts

The Fed is getting nervous about inflation. “Temporary” doesn’t cut it anymore. And the bond market is getting a whiff of it.

By Wolf Richter for WOLF STREET.

The 10-year Treasury yield jumped 11 basis points today to 1.43% at the moment, the highest since early July, and the biggest jump since February. Apparently, it sank in today what the Fed had said yesterday afternoon. It placed the beginning of the Big Taper into November to be done with by mid-2022, which would then pave the way for rate hikes. Fed officials keep moving the first rate hike closer and closer. And they expressed their nervousness about the red-hot “temporary” inflation lasting a disturbingly long time.

Tapering the asset purchases and ending them in mid-2022 would remove the single biggest and most relentless buyer of Treasury securities, mortgage-backed securities, and Treasury Inflation Protected Securities (TIPS) from the bond market. QE was designed to push down long-term yields; and it did so with marvelous success. The end of QE is going to take that massive force off the market.

Bond yields rise as bond prices fall, so for holders of long-dated Treasuries, this was not a good day.

Over the past 12 months, the Fed officials’ median projections of inflation at the end of 2022, as measured by the lowest lowball index that the US has, core PCE, has steadily increased from 1.8% a year ago to yesterday’s median projection of 2.3%, the highest inflation projection since 2007. Core PCE inflation is currently 3.6%.

Fed officials have been saying that the “temporary” factors would recede by late this year and early next year, but these projections are for the end of 2022, long after the “temporary” elements have faded.

And there is a message in these projections: “Temporary” isn’t going to cut it anymore. There is durable inflation being figured into the equation now.

It’s clear that this Fed is getting nervous about inflation that has been spreading far up the supply chains, with companies paying higher prices and being able to pass on those higher prices to the next entity in line, and finally to consumers, for all to see.

The US has the highest consumer price inflation among major developed economies, with CPI-W for urban and clerical workers at 5.8% and CPI-U for all urban consumers at 5.3%. Producer price inflation is much hotter, indicating what is coming down the pipeline, with PPI Final Demand at 8.3%, and PPI Intermediate Demand in the double digits.

This inflation is occurring even as the Fed is still stomping with its iron boot on the insane accelerator, doing $120 billion a month in QE and repressing short-term interest rates to near 0%, with real yields now being negative for nearly everything except the riskiest junk bonds.

This is truly a crazy situation, and even the Fed is getting nervous about it.

Other central banks – including the Bank of Japan, the Bank of Canada, the Bank of England, the Reserve Bank of New Zealand, and the Reserve Bank of Australia – have already either ended or throttled back their large-scale QE operations. The ECB has announced that it would “recalibrate” its QE. The process of ending massive money printing has started.

And the first rate hikes have started trickling in among developed economies: The Bank of Norway today raised its policy rate by 25 basis points to 0.25% and put another rate hike on the table for December. The Bank of Iceland hiked its policy rate twice already this year, by 25 basis points each, to 1.25%. The Czech National Bank has also hiked its policy rate twice this year, to 0.75%. The Bank of Korea hiked its policy rate in August, by 25 basis points to 0.75%.

They’re all worried about inflation getting out of hand, but none of these countries faces the type of red-hot inflation that the US is now afflicted with.

But the Fed is ever so reluctantly getting the memo that “temporary” doesn’t cut it anymore, that the enormous amounts of monetary and fiscal stimulus have created the most overstimulated economy ever, that has outrun supply, and that even if the Fed ends the stimulus now, the stimulus already washing through the system, including the ridiculously deeply negative real interest rates, will continue to push up inflation. And the bond market might have gotten just a whiff of it today.

Is the "bond market" thick ?

[JimmyTheBruce]

1 hour ago, sancho panza said:

You looked at Anglo Pacific

https://www.investing.com/equities/anglo-pacific-group

Coal and Uranium...

 

Yep, got a bit of that too, didn't realise they did coal.

I'm taking spray and pray to a whole new level.  I think at the last count I had over 120 different shares.  Got a bit worried at the talk on here about having 30 to 50 max, but I can't help having a little dabble if something looks nice.  I'm reassured by the fact that the bulk of the value is concentrated in the usual suspects discussed here.

[JimmyTheBruce]

2 hours ago, Noallegiance said:

That's been the way of things for my lifetime. But I'm telling my kids to be the sort of person they want to see in the world.

I'm getting the impression that at these points in history, what was 'ceases to be', and what isn't becomes 'what is'.

And not just economically.

 

1 hour ago, wherebee said:

I suspect you are right.  The future, I suspect, will be a lot different in terms of useless bottom feeders being able to get someone else to pay for their Xbox

I sincerely hope so.  I'm sick and tired of being gobsmacked at the price of things and then walking through the council estate and discovering that I'm the only person who can't afford it.

[MrXxxx]

3 hours ago, JimmyTheBruce said:

I've come to realise that conscientiousness/pride/work ethic or whatever you want to call it, is what companies take advantage of to shit all over you.

It's difficult, because nobody wants to spend 8 hours a day filling time, but I'm done with caring about top notch delivery until I'm properly recompensed for it.

You've just described my employer...well, until recently!

[TNS]

Vodafone nearing 7% div yield !

[CVG]

23 minutes ago, TheNickos said:

Vodafone nearing 7% div yield !

Funny that. For me, it's vying with RIO for receipt of the RIO/AAL dividends and a top slice from BP. Sell High, Buy Low.

[JMD]

3 hours ago, sancho panza said:

You looked at Anglo Pacific

https://www.investing.com/equities/anglo-pacific-group

Coal and Uranium...

 

Yes, I bought some Anglo Pacific. Always looking for different ways to get exposure to uranium. I don't have enough uranium exposure so always on lookout to get more at hopefully a decent price, particularly since it's run up.

[JMD]

4 hours ago, sancho panza said:

Appreciate that chart there CP.Uncanny the relationship and interplay between price and inventory.I'd love to see that split down into separate parts,say sept/nov 11-sep-14-sep18-sept 2021.It's a bit weird but key turning appear to my untrained eye at those points.i've foudn in the past that this can make the correaltion more compelling.Weird how there's a few septembers there but it msut be the end of the driving season.

There does appear to be a lag between price move and inventroy build/draw which I think you or @DurhamBorn have highlighted before.

The drawdown between about Nov 20 and now has been virtually non stop and with the issues you've highlighted particualrly the 6 years of exploration udner funding only points one way.

Having said all that,I sold our BP/RDSB Oct calls this morning.This run up has converted some humdinging losses into profits and I need to warchest if oil does move higher and we get a few more ticked off the BK checklist of mine,then I'll need the risk moeny for the puts.

I find paragraph 3 rather chiling dnb old chap.....I can't believe the public wish to place themselves in the hands of the hancocks of this world even more than they already have.

He's ex BoE iirc......says a alot .

The programability of cbdc's are why government's like them. To pretend there is a debate going on here about these control features is quiet simply a lie.

[Shamone]

5 hours ago, JimmyTheBruce said:

I've come to realise that conscientiousness/pride/work ethic or whatever you want to call it, is what companies take advantage of to shit all over you.

It's difficult, because nobody wants to spend 8 hours a day filling time, but I'm done with caring about top notch delivery until I'm properly recompensed for it.

I’ve found hard work only ever brings more hard work and often other people’s too.

[Shamone]

41 minutes ago, CVG said:

Funny that. For me, it's vying with RIO for receipt of the RIO/AAL dividends and a top slice from BP. Sell High, Buy Low.

I bought a little bit of vod today.

[Loki]

9 minutes ago, Shamone said:

I bought a little bit of vod today.

Same here.

 

Hic. 

 

I ARE MACROSTRATYJIST NOW

[MrXxxx]

1 hour ago, TheNickos said:

Vodafone nearing 7% div yield !

Yes, assuming we don't have a BK and they all freeze their dividend payments...one thing I learnt from the last two years is that dividends are not guaranteed.