Credit deflation and the reflation cycle to come (part 3)

[HousePriceMania]

Guess what time the latest lies were announced ?

 

[Noallegiance]

12 hours ago, Transistor Man said:

Always worth a listen ...

 

In 18-24 months this man could be a genuine genius.

[stoobs]

3 hours ago, Presuming Ed said:

Isn't that article a year old??

Oops! 

Groundhog Day.

[BWW]

2 hours ago, Hancock said:

Ive just flown to Tenerife and there was about 20 people on the plane.

You can book a 1 way flight for £12.

What seems to be going on is tourism is being decimated.

Is the 12 quid inc taxes.

Plus 80 or so for tests ?

and the vague risk of red list 2000 quid a head welcome-home-jail fee.

I thought spain do not accept pure bloods or are the canaries different?

[sancho panza]

Some wise words from Dr Tim Morgan.

Bold for skim readers

https://surplusenergyeconomics.wordpress.com/2021/12/10/217-no-soft-landing/

#217. No ‘soft landing’

Posted on December 10, 2021

68

MODELLING THE RETURN OF EQUILIBRIUM

 

If we deduct ECoE from total energy available, we’re left with surplus energy, which is the direct material correlate of prosperity.

If we further divide this aggregate surplus energy prosperity by population numbers, the result is prosperity per capita.

Measuring prosperity

The SEEDS economic model – the Surplus Energy Economics Data System – has been designed to interpret the economy in this way. Expressed (for convenience) in financial terms, global aggregate prosperity grew by slightly less than 1.4% annually between 2000 and 2020, meaning that it increased by a total of 31% between those years. 

Over that same period, world population numbers increased by 25%. This means that the average person was slightly less than 5% better off in 2020 than he or she had been back in 2000.

The question here isn’t the feasibility of quantitative conversion to REs. Rather, what we need to know is whether this transition will drive ECoEs back downwards. The hierarchy of challenges involved in transition make this improbable. Even if REs can usher in an era of lower ECoEs, they certainly can’t do so now.    

This interpretation points unequivocally towards further deterioration in prosperity. The average Westerner will carry on getting poorer, whilst prior growth in prosperity per capita in EM countries will go into reverse.

Within this broad projection of eroding prosperity, we also know that the real cost of essentials will carry on rising, not least because most necessities are energy-intensive.

What results is a leveraged equation in which prosperity net of essentials falls more rapidly than top-line prosperity itself. This means that essentials will account for a steadily rising proportion of total prosperity.

It follows from this that both capital investment and the scope for the consumption of discretionary (non-essential) goods and services will be reduced.

None of this constitutes a prophecy of ‘collapse’.

Rather, it poses the challenge of adaption to lower prosperity after more than two centuries in which, thanks to the supply of ultimately finite low-cost fossil fuel energy, world prosperity has expanded very rapidly.  

A process of denial

Conventional interpretations of economics do not recognize the analysis sketched out here. The economy is presented, not as an energy dynamic, but as a system that is wholly financial.

Energy and other resource constraints are dismissed with the nostrum that [financial] demand produces [material] supply.

This nostrum can be described as the systemic fallacy of conventional economics. The reality, of course, is that no amount of monetary demand can create resources (such as low-cost energy) that do not exist in nature.

By the same token, we cannot “stimulate” our way to greater material prosperity, “grow out of” debt and other financial commitments to the future, borrow our way to financial solvency, or “invest” (meaning monetise) our way to economic and environmental sustainability.

Things being as they are, conventional economic interpretation continues to insist that infinite economic growth remains a plausible outcome on a planet that, ultimately, is finite. Nowhere in classical economics will you find any recognition of the concept of ECoE. The word ‘prosperity’ is sometimes employed, but not in the precise and material sense in which it is used here.

This ‘money-only’ fallacy applies, not just to projections for the future, but to interpretation of the recent past. For the period between 2000 and 2020, for example, we’re told that the economy enjoyed “growth” averaging 3.4% annually, and expanded by 94% over that period as a whole.

In pursuit of reconciliation

Here, then, are two contradictory statements. The first is that the economy ‘grew by 3.4% annually’ between 2000 and 2020.

The second is that prosperity ‘expanded by less than 1.4% per year’ over that same period.

We could reconcile these two statements by asserting that the rate of inflation used in the measurement of ‘real’ (ex-inflation) GDP has been understated.

The SEEDS model makes this calculation by calibrating RRCI (the Realized Rate of Comprehensive Inflation). If you took out official inflation (of 1.5%) between 2000 and 2020, and used instead an RRCI rate of 3.5%, reported growth in real GDP would align with growth in real prosperity, as calculated on an energy basis.

There seems little doubt that inflation has been understated – routinely and significantly – in official numbers. This suggests that energy-based analysis can improve our understanding of the economy through the measurement of RRCI.

Measuring difference

Quantitatively, debt expanded by $216 trillion (190%) between 2000 and 2020, a period in which GDP increased by only $64tn (94%). Broader financial liabilities, which include the unregulated shadow banking system, have grown even more rapidly. The same is true of unfunded pension commitments, where we have seen the emergence of enormous “gaps” in the adequacy of provision.

Colloquially, we know that millions of Americans have been described, persuasively, as “debt slaves”, and that millions of people in Britain now use various forms of ‘BNPL’ (meaning “buy now, pay later”), even as more traditional forms of credit-funded consumption have continued to expand.

A growing proportion of the corporate sector has transitioned towards a model based on streams of income, in which the ‘signing up of’ customers is regarded as more significant than actual levels of current sales.

Evidence of the financialization of the economy is, of course, to be found in the prevalence of negative real interest rates, a product of policies which, when first introduced more than a dozen years ago, were presented as “temporary” expedients.

The negative real cost of capital has inflated the prices of assets to levels far beyond anything that can be justified using traditional measures of value.            

From here, where?

Our attention now needs to be devoted to the mechanisms by which equilibrium is restored.

A recent SEEDS project has involved the calibration of a potential ‘soft landing’, by which we manage the restoration of financial and economic equilibrium.

You will not be surprised that the engineering of a ‘soft landing’ is both (a) mathematically feasible, and (b) politically almost impossible.

Essentially, economies would have to accept now adjustments that will, in any case, be enforced upon them at a later point by economic, material, political and environmental trends.

The key word here is “later”. Where unpleasant realities are concerned, ‘never accept today what you can put off until tomorrow’ is an axiom, not just of politics, but of society more generally.

Moreover, there are structural factors – most obviously in America, Britain and the Euro Area – which make the adoption of ‘soft landing’ policies virtually unthinkable.   

In the absence of a soft landing, what lies ahead is a scenario in which we are forced to adjust to ‘prosperity reality’. The likeliest mechanism is inflation and, specifically, escalation in the cost of essentials.

As what is called colloquially ‘the cost of living’ accelerates beyond the affordability of millions, the authorities are likely to be dragged, with the utmost reluctance, into a situation where inflation has to be tamed.

That’s the point – and it’s likely to be very soon – at which equilibrium is restored between an inflated financial system and an eroding underlying economy.

There is analytical value in the modelling of what a soft-landing would look like, even though we know that this course of action isn’t going to be adopted. 

Essentially, a conceptual soft-landing gives us a template against which to measure what actually happens, much as the measurement of prosperity provides a benchmark which can be used to quantify the difference between the economy as it appears and the economy as it is. 

[sancho panza]

6 hours ago, Harley said:

I had hoped to see PM miners rally on good fundamentals but they have backed off for now.  I'll start bying more physical gold soon as that could pop (as it does every few years) but more to hold as a safer haven than cash.  It could go lower but is already quite low and it's a long term hold for me.

It all has a lull before the storm feeling but actually things have been worsening for a few weeks so any storm would be more a late stage realisation!

 

added some alexco,minera alamos and kinross calls tonight.There may be a deeper bottom but the value is compelling here in PM miners.

[Hancock]

33 minutes ago, BWW said:

Is the 12 quid inc taxes.

Plus 80 or so for tests ?

and the vague risk of red list 2000 quid a head welcome-home-jail fee.

I thought spain do not accept pure bloods or are the canaries different?

£25 return. No PCR test needed.

I was merely asked if i had my vaxx at checkin (no one checked), and then i didnt upload my covid vaxx cert for getting the QR code to get into Spain and they just scanned it anyway and let me in.

No more red list countries.

https://www.momondo.co.uk/flight-search/LON-TCI/2021-12-20/2021-12-27?sort=bestflight_a

[MrXxxx]

Question: DGE [Market cap £91.5b, current yield 1.85%, PE=33.4] are partway through a share buyback [£4.5b total, done £450m, aim is £1b by end of 2022] and share price is understandably appreciating to an all time high. When would you consider the idea time to trim holdings OR would you keep long-term?

My thoughts/points to consider are as follows, and suggest soon:

 

+ve for share price

1. Christmas is a good time for profits.

2. Additional buybacks will add value month on month.

 

-ve for share price

1. Ex div is Feb 2021 so they will drop a little then [as always].

2. Post Christmas consumer budgets will be tight after Xmas spending.

3. Post Christmas increased taxation i.e NI, Council Tax etc  will have impact.

4. Post Christmas inflation will increase so greater impact.

5. BK more likely?

 

Thoughts?

[Harley]

1 hour ago, sancho panza said:

added some alexco,minera alamos and kinross calls tonight.There may be a deeper bottom but the value is compelling here in PM miners.

May I ask why those and also why not just say GDX?

[BWW]

1 hour ago, Hancock said:

£25 return. No PCR test needed.

I was merely asked if i had my vaxx at checkin (no one checked), and then i didnt upload my covid vaxx cert for getting the QR code to get into Spain and they just scanned it anyway and let me in.

No more red list countries.

https://www.momondo.co.uk/flight-search/LON-TCI/2021-12-20/2021-12-27?sort=bestflight_a

Yeah that doesn't work if you're a worrier.

a. local cops are OK but Guardia Civil generally regarded by some as fascist cunts - take a look what they did in Catalunya around people wanting to cast a vote aranged by their regional gov not long back.

b. red lists didn't exist the day before they put SA and Botswana on one. It's always a risk as they give very little notice. Surprised no-one has started selling an insurance product to cover this. Against the mood of the day but surely there's money to be made. For me cover would need to be cost of a return before the cut off or cost of 2 week stopover repeated if the stopover country was red listed too.

c. as I recall you've taken the jab so whilst you've played fast and loose with correct paperwork [well done], if they get antsy you'll come out clean and get a slap on the wrist. Different if you're not jabbed ... serious shit ... and I suspect Spanish jails are not like the holiday camps we have in N Europe.

I'd love to go to Spain [increasing dislike for blighty] but think I'll pass for now.

[Eventually Right]

2 hours ago, sancho panza said:

added some alexco,minera alamos and kinross calls tonight.There may be a deeper bottom but the value is compelling here in PM miners.

Sold my Argonaut Gold today (🤮) and added to Minera Alamos, as well as some NXE for uranium exposure.

[jamtomorrow]

7 hours ago, MrXxxx said:

Question: DGE [Market cap £91.5b, current yield 1.85%, PE=33.4] are partway through a share buyback [£4.5b total, done £450m, aim is £1b by end of 2022] and share price is understandably appreciating to an all time high. When would you consider the idea time to trim holdings OR would you keep long-term?

My thoughts/points to consider are as follows, and suggest soon:

 

+ve for share price

1. Christmas is a good time for profits.

2. Additional buybacks will add value month on month.

 

-ve for share price

1. Ex div is Feb 2021 so they will drop a little then [as always].

2. Post Christmas consumer budgets will be tight after Xmas spending.

3. Post Christmas increased taxation i.e NI, Council Tax etc  will have impact.

4. Post Christmas inflation will increase so greater impact.

5. BK more likely?

 

Thoughts?

Love my DGE. It's almost like the BATS of booze, they own some lovely global brands, and the pricing power that comes with that. I've not thought of it as a reflation stock (it's in my "global exposure" fund) but it's starting to perform like one.

Long term hold for me.

[HousePriceMania]

Weird confusing covid message from the French, banning people going to France AND BACK

 

https://news.sky.com/story/covid-19-british-tourists-to-be-banned-from-france-amid-rise-in-omicron-cases-12497105

 

Must be rate decision day

[leonardratso]

7 minutes ago, HousePriceMania said:

Weird confusing covid message from the French, banning people going to France AND BACK

 

https://news.sky.com/story/covid-19-british-tourists-to-be-banned-from-france-amid-rise-in-omicron-cases-12497105

 

Must be rate decision day

theyll be ok, theres a dinghy back every hour they can take, and a free taxi half way.

[Noallegiance]

Bank of England to scrap interest rate rule for mortgages to help first-time buyers (msn.com)

[Craig]

10 hours ago, MrXxxx said:

Question: DGE [Market cap £91.5b, current yield 1.85%, PE=33.4] are partway through a share buyback [£4.5b total, done £450m, aim is £1b by end of 2022] and share price is understandably appreciating to an all time high. When would you consider the idea time to trim holdings OR would you keep long-term?

My thoughts/points to consider are as follows, and suggest soon:

 

+ve for share price

1. Christmas is a good time for profits.

2. Additional buybacks will add value month on month.

 

-ve for share price

1. Ex div is Feb 2021 so they will drop a little then [as always].

2. Post Christmas consumer budgets will be tight after Xmas spending.

3. Post Christmas increased taxation i.e NI, Council Tax etc  will have impact.

4. Post Christmas inflation will increase so greater impact.

5. BK more likely?

 

Thoughts?

Definitely a long-term hold. They are the dictionary definition of a defensive stock, but as mentioned above do seem to be hitting a bit of a stride right now. Major focus on China and India at the moment, if they can crack even a tiny portion of those two markets, then the floodgates will open in a massive way.

[HousePriceMania]

Here's the truth behind the Omicron variant me thinks. 

 

https://news.sky.com/story/sunak-urged-to-get-on-a-plane-to-deliver-fresh-support-for-omicron-hit-businesses-12497096

 

There is no recovery, there is only a money printing pyramid scam

[HousePriceMania]

46 minutes ago, Noallegiance said:

Bank of England to scrap interest rate rule for mortgages to help first-time buyers (msn.com)

I despair, I really do.

There will be no rate rises, there will be more helicopter money.  Covid will be used as an excuse for several years to "help" people. We'll have -ve rates next year as house prices start falling.

 

Where will it all end, big ****ing war.

 

[DoINeedOne]

52 minutes ago, Noallegiance said:

Bank of England to scrap interest rate rule for mortgages to help first-time buyers (msn.com)

 

3 minutes ago, HousePriceMania said:

I despair, I really do.

There will be no rate rises, there will be more helicopter money.  Covid will be used as an excuse for several years to "help" people. We'll have -ve rates next year as house prices start falling.

 

Where will it all end, big ****ing war.

 

The last two family members who got mortgages last year got the maximum they could even though it was not needed and both bought average houses with more bedrooms than they needed, so if they are scraping the rule that a borrower needs to be able to afford a 3% point rise in interest rates, They could have borrowed more and they would of

If im understanding it correctly

Im sure that will end well, as one of them keeps moaning about how expensive it is running a home now

 

I can see myself moving abroad not only to buy a home but for the weather too 

[harp]

can I just ask. IF cable does turn against the usd, would getting shares in companies that predominantly get their earnings in sterling be a better bet? 

 

 

[HousePriceMania]

4 minutes ago, harp said:

can I just ask. IF cable does turn against the usd, would getting shares in companies that predominantly get their earnings in sterling be a better bet? 

 

 

Sterling Silver or Sterling FIAT ?

 

 

[DurhamBorn]

25 minutes ago, HousePriceMania said:

I despair, I really do.

There will be no rate rises, there will be more helicopter money.  Covid will be used as an excuse for several years to "help" people. We'll have -ve rates next year as house prices start falling.

 

Where will it all end, big ****ing war.

 

Ignore the BOE watch US long bonds.Inflation will stay way higher than rates as they try to take private savings to fund government,but rates will go up.If long bonds rise and BOE doesnt increase inflation will go higher and higher.They are lagging the long bond now by extreme levels.Long bond yields fall or BOE increases rates.I think rates are a side show though in the UK,QE is the big one as its funding a £200 billion structural deficit.They are trying to increase everything 30% with government costs lagging,but structural problems in the economy are stopping it.

[Bricormortis]

Wood pellet burning as at Drax is getting some stick for climate crimes. The charge is it creates 18 % more co2 than burning coal .

The jist of the objection is it zero's itself out on the carbon cycle, but unfortunately this happens over 190 years.  Caroline Lucas is one of various sources of objection. No pleasing her then.

This isn't going to go away either. 

Edit to say it guarantees nuclear, if there was any remaining doubt.

[Craig]

24 minutes ago, Bricormortis said:

Wood pellet burning as at Drax is getting some stick for climate crimes. The charge is it creates 18 % more co2 than burning coal .

The jist of the objection is it zero's itself out on the carbon cycle, but unfortunately this happens over 190 years.  Caroline Lucas is one of various sources of objection. No pleasing her then.

This isn't going to go away either. 

Edit to say it guarantees nuclear, if there was any remaining doubt.

I'm with Lucas on this one, as those wood pellets should be getting bought by me for use as cat litter...

[HousePriceMania]

33 minutes ago, DurhamBorn said:

Ignore the BOE watch US long bonds.Inflation will stay way higher than rates as they try to take private savings to fund government,but rates will go up.If long bonds rise and BOE doesnt increase inflation will go higher and higher.They are lagging the long bond now by extreme levels.Long bond yields fall or BOE increases rates.I think rates are a side show though in the UK,QE is the big one as its funding a £200 billion structural deficit.They are trying to increase everything 30% with government costs lagging,but structural problems in the economy are stopping it.

This you mean

 

I kind of get what you are saying but I am say here wondering if the system is so broken the old rules don't apply and or there is a conspiracy and "you will own nothing" etc is their aim. Look at the Omicron bollocks over the last week or so just as the BoE have no choice but to raise rates, this thing feels as corrupt as f**k to me. 

The uncertainty is the problem for me and the unfairness of the system they have created, this is proper totalitarian shit and it's been coming since Bliar took over, grabbing little bits of freedom and control with each passing year.  I thought Brexit might wake them up but it's full steam ahead with Banker Sunak in control.

Will they raise IRs, yes at some point, but as you say it'll be 5% below inflation so they can rob people and it'll only be when they think their asset bubbles can be supported by the wage rises.  They want a permanently high plateau, max debt in effect.

Is there any way to protect yourself from this, probably not, at least not that I can see.

Out best bet is a proper BK and fill your boots but when the people at the top are willing to rob 70 million people and inflation is immaterial to them then I think that's becoming more and more unlikely without some sort of once in a 200 years type collapse, which I am not ruling out, the US stock market looks bat shit crazy.

So basically, I have no idea what to do now to protect my family and children from the systematic onslaught on our freedoms and finances.