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


spunko

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13 minutes ago, belfastchild said:

I havent logged in to pof for over a year.
Have had 4 emails since Saturday from women on there. All around my own age.
Curiosity got the better of me as I thought the usual fare but no, apart from one, all late 40s early 50s, milfy, fit, public sector types. All divorced, kids grown up.

Against my better judgement Ive arranged to meet 2 of them later in the week!

Marry one, divorce her and claim half of her gold plated pension. 

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Red Debt Redemption
11 hours ago, sancho panza said:

Was uanaware of thsi story.Shows the growing risks of instability.

This is the stuff of Big Kahunas if it gets traction

https://www.asiamarkets.com/chinese-banks-run/

There’s a run on Chinese banks and it’s being ignored by the world

In Asia, bank runs have also been rare. A run on Japanese banks in 1927 led to the collapse of dozens of institutions across the country. There was a banking crisis in Myanmar in 2003 which the country has never really fully recovered from.

But perhaps since the Great Depression, none has been as significant compared to what is seemingly unfolding in China right now.

The Chinese bank run of 2022

In recent years it has become clear the Chinese people are losing faith in their financial institutions. There’s been anger over harsh COVID lockdowns in Shanghai recently, while the collapse of China Evergrande saw rare public demonstrations as residents faced the prospect of losing their life savings used as deposits for housing.

The song book is eerily similar at bank branches in a number of China’s rural provinces right now.

Multiple sources contacted by Asia Markets, have confirmed deposits at the following six banks have been frozen since mid-April.

  • Yuzhou Xinminsheng Village Bank (located in Xuchang City, Henan Province)
  • Zhecheng Huanghuai Bank (City of Shangqui, Henan Province)
  • Shangcai Huimin Rural Bank (Zhumadian City, Henan Province)
  • New Oriental Village Bank (City of Kaifeng, Henan Province)
  • Huaihe River Village Bank (Bengbu City, Anhui Province)
  • Yixian County Village Bank (Huangshan City, Anhui Province)

It’s understood the banks with branches across the Henan and Anhui Provinces successively issued announcements in April, stating they would suspend online banking and mobile banking services due to a system upgrade.

At the same time, clients reported their electronic deposits in online accounts, mobile apps and third-party platforms could not be withdrawn.

This led to depositors rushing to local bank branches, only to be told they were unable to withdraw funds.

By late May, images emerged on Chinese social media of demonstrations at the front of numerous bank branches. Asia Markets has verified these images with local contacts.

Fraud scheme blamed

Following the public protests and the PBOC statement, the China Banking and Insurance Regulatory Commission revealed it is investigating fraudulent activity carried about by the Henan New Fortune Group – the largest shareholder of the four banks listed above in the Henan Province. It’s understood the commission is working with police to investigate allegations that the Group colluded with bank insiders to misappropriate bank funds.

Bank run contagion to “sweep across China”

Regardless of the cause, the developments raise serious questions about the health of China’s and its regulatory oversight. The more immediate concern, however, is the prospect of contagion, which could see the (so-far) rural-only bank run spread to bigger cities.

There’s evidence this is already happening.

In one of the only mainstream international media articles to report on the unfolding situation, local residents highlighted the seriousness of the situation and the likelihood of contagion.

From the Financial Times on June 9:

Some depositors such as Xu have already lost trust in the system. The 39-year-old said he had withdrawn all of his deposits from 10 other small banks that had promised him an annualised yield of more than 4 per cent.

“Another depositor, a 30-year-old father, said he had placed more than Rmb900,000 in his village’s banks since 2020 at a return of 4.1 per cent. “I felt like being slaughtered,” he said, declining to give his name. He drove overnight to negotiate with the banking regulator in Zhengzhou, capital of Henan, in mid-May. “This is the money my wife and I have saved together since we got married. I had to lie to her that I was away for work
.”

On Twitter, a video of a large line at an ICBC Bank in China (one of China’s largest state-owned banks) posted on Tuesday, June 9, suggest contagion is in progress.

Translated to English, the tweet reads “The bank card system is locked, and these people are here to unlock it. Massive runs are coming.”

Need more lockdowns

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geordie_lurch

BoE trying to keep the housing market propped up :wanker: Maybe the BoE think / know / hope they won't ever reach those old higher stress tested rates :ph34r:

https://www.theguardian.com/business/2022/jun/20/uk-mortgage-lenders-told-they-can-scrap-affordability-rules-for-buyers-bank-of-england

"Lenders will no longer have to check whether homeowners could afford mortgage payments at higher interest rates after the Bank of England ditched a rule originally designed to avoid another 2007-style credit crunch.

The rule, introduced in 2014, was intended to make sure borrowers did not take on more debt than they could afford, and potentially “amplify” an economic downturn and put financial stability at risk.

The decision to withdraw the affordability test comes despite the Bank of England having raised interest rates for a fifth time in a row to 1.25% last week as part of efforts to tackle soaring inflation, meaning some mortgage borrowers could be in line for higher repayments.

The Bank of England, which originally consulted on the changes in February, confirmed that it would scrap the affordability test after determining that other rules, including those that cap mortgages based on the income of borrowers, were “likely to play a stronger role” in guarding against an increase in household debt.

The central bank said in a statement that those other rules “ought to deliver the appropriate level of resilience to the UK financial system, but in a simpler, more predictable and more proportionate way”.

Experts said that while some might find the rule changes “baffling” in light of rising interest rates, the risks were relatively low, given the loan-to-income rules would remain in place."

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geordie_lurch
12 hours ago, sancho panza said:

Was uanaware of thsi story.Shows the growing risks of instability.

This is the stuff of Big Kahunas if it gets traction

https://www.asiamarkets.com/chinese-banks-run/

There’s a run on Chinese banks and it’s being ignored by the world

In Asia, bank runs have also been rare. A run on Japanese banks in 1927 led to the collapse of dozens of institutions across the country. There was a banking crisis in Myanmar in 2003 which the country has never really fully recovered from.

But perhaps since the Great Depression, none has been as significant compared to what is seemingly unfolding in China right now.

The Chinese bank run of 2022

In recent years it has become clear the Chinese people are losing faith in their financial institutions. There’s been anger over harsh COVID lockdowns in Shanghai recently, while the collapse of China Evergrande saw rare public demonstrations as residents faced the prospect of losing their life savings used as deposits for housing.

The song book is eerily similar at bank branches in a number of China’s rural provinces right now.

Multiple sources contacted by Asia Markets, have confirmed deposits at the following six banks have been frozen since mid-April.

  • Yuzhou Xinminsheng Village Bank (located in Xuchang City, Henan Province)
  • Zhecheng Huanghuai Bank (City of Shangqui, Henan Province)
  • Shangcai Huimin Rural Bank (Zhumadian City, Henan Province)
  • New Oriental Village Bank (City of Kaifeng, Henan Province)
  • Huaihe River Village Bank (Bengbu City, Anhui Province)
  • Yixian County Village Bank (Huangshan City, Anhui Province)

It’s understood the banks with branches across the Henan and Anhui Provinces successively issued announcements in April, stating they would suspend online banking and mobile banking services due to a system upgrade.

At the same time, clients reported their electronic deposits in online accounts, mobile apps and third-party platforms could not be withdrawn.

This led to depositors rushing to local bank branches, only to be told they were unable to withdraw funds.

By late May, images emerged on Chinese social media of demonstrations at the front of numerous bank branches. Asia Markets has verified these images with local contacts.

Fraud scheme blamed

Following the public protests and the PBOC statement, the China Banking and Insurance Regulatory Commission revealed it is investigating fraudulent activity carried about by the Henan New Fortune Group – the largest shareholder of the four banks listed above in the Henan Province. It’s understood the commission is working with police to investigate allegations that the Group colluded with bank insiders to misappropriate bank funds.

Bank run contagion to “sweep across China”

Regardless of the cause, the developments raise serious questions about the health of China’s and its regulatory oversight. The more immediate concern, however, is the prospect of contagion, which could see the (so-far) rural-only bank run spread to bigger cities.

There’s evidence this is already happening.

In one of the only mainstream international media articles to report on the unfolding situation, local residents highlighted the seriousness of the situation and the likelihood of contagion.

From the Financial Times on June 9:

Some depositors such as Xu have already lost trust in the system. The 39-year-old said he had withdrawn all of his deposits from 10 other small banks that had promised him an annualised yield of more than 4 per cent.

“Another depositor, a 30-year-old father, said he had placed more than Rmb900,000 in his village’s banks since 2020 at a return of 4.1 per cent. “I felt like being slaughtered,” he said, declining to give his name. He drove overnight to negotiate with the banking regulator in Zhengzhou, capital of Henan, in mid-May. “This is the money my wife and I have saved together since we got married. I had to lie to her that I was away for work
.”

On Twitter, a video of a large line at an ICBC Bank in China (one of China’s largest state-owned banks) posted on Tuesday, June 9, suggest contagion is in progress.

Translated to English, the tweet reads “The bank card system is locked, and these people are here to unlock it. Massive runs are coming.”

Yep been keeping an eye on this and the following video from Twitter is a good one. Also as a few of us noted in the Covid threads, another "conspiracy theory" became true as when the demonstrations got too big a few weeks ago loads of the protesters' Covid apps suddenly pinged and said they needed to return home due to Covid :Old:

 

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3 hours ago, Bricormortis said:

Japan bond market getting stressed now. I mean we knew that but situation has worsened somewhat.

I had Italy and China as being the two countries most likely to financially "go" first, however the Japanese are doing such a good job of printing the Yen into oblivion they are catching up.  They should be careful what they wish for, its 2.5% now but they may end up getting more inflation then they bargained with as imported Oil/Gas feed through.

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Virgil Caine
4 hours ago, DurhamBorn said:

I think Lyn might be right.My interest rate target is showing 3.25% in the UK due to structural issues.The fact that ties in to the 40s is very interesting and i really like it when people who's work i respect get similar results from angles i didnt consider.Id go so far as to say we are right,or will be close.My work is still showing roughly 66% compounded inflation for the cycle,hardly any change from when i started the reflation roadmap.So if we are looking at an average rate of say 2.5% over the cycle about 23% compounded so a rough 43% loss of purchasing power bang on what Lyn shows happened in the 40s.

However ,could it be we get a 40s style monetary policy,but a 70s style fiscal/society environment?.I think maybe yes.

If we roadmap this scenario its pretty obvious value type companies with pricing power and big debts depreciating should do very well indeed.The areas we own.

Growth/bubble areas wont see rates as high so that removes one thing smashing them down,but its still bleak,and bonds could simply give up that 40% purchasing power.

My initial roadmap showed rates could go into double figures,but that ignores the politics of the situation.It is more likely my cycle inflation target needs boosting to around 77% instead.

Could we see the initial falls we are now like in the Vanguard 60/40,but then returns of around 2% after costs?.Housing similar? 

 

I would have thought most of the debt belonged to governments in the 1940s in the wake of the Second World War. There was not the amount of private leverage as now. Currencies were also tied to Bretton Woods. Most of the activity back then was shifting from war production to its peacetime equivalent. There was limited consumption outside the USA as most countries were rebuilding their infrastructure. There was also rationing in a lot of places until the  early 1950s. The latter was employed not just to control the distribution of scarce resources but also to control where money was spent (ie even if you had money you could not spend it on certain consumer items as they were simply not available to most people). Consumer spending did not really take off in Britain post war until after 1955.

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sancho panza
13 hours ago, DurhamBorn said:

Joined a dating site eh,

"yeah he put all our money into crypto.So what is potash,sounds interesting?,and Durham looks lovely ,so yes id love to visit"............

Talking of potash,we sold up a while back.But last night something made me check on this one and I msut say,we'll likely take a first ladder today.

Very much back where it started and substantially below where we sold up.Looking forward to getting the Nutrien/Mosiac/Interpid etc back

image.png.4cce9a8d97f1203a1255865f879b4702.png

4 hours ago, DurhamBorn said:

I think Lyn might be right.My interest rate target is showing 3.25% in the UK due to structural issues.The fact that ties in to the 40s is very interesting and i really like it when people who's work i respect get similar results from angles i didnt consider.Id go so far as to say we are right,or will be close.My work is still showing roughly 66% compounded inflation for the cycle,hardly any change from when i started the reflation roadmap.So if we are looking at an average rate of say 2.5% over the cycle about 23% compounded so a rough 43% loss of purchasing power bang on what Lyn shows happened in the 40s.

However ,could it be we get a 40s style monetary policy,but a 70s style fiscal/society environment?.I think maybe yes.

If we roadmap this scenario its pretty obvious value type companies with pricing power and big debts depreciating should do very well indeed.The areas we own.

Growth/bubble areas wont see rates as high so that removes one thing smashing them down,but its still bleak,and bonds could simply give up that 40% purchasing power.

My initial roadmap showed rates could go into double figures,but that ignores the politics of the situation.It is more likely my cycle inflation target needs boosting to around 77% instead.

Could we see the initial falls we are now like in the Vanguard 60/40,but then returns of around 2% after costs?.Housing similar? 

 

I'm begining to entertain the possibility that we end up with the slow BK hattip  @Joncrete Cungle floated and the more we discuss it the more you can see that they're caught between a rock and hard place.as lyn herself said a few weeks back 'heads:the people lose,tails:the people lose'

Trying to manage the driving of the from the rear of the bus as opposed to the front is one thing that they'd try.It would avoid the need for a crushing lift off in IR's that would do a lot of damage.It would also have the effect of getting the markets that whine the lest to take the pain ie bond holders.Besides,if you rob people of a £1 a day they're less likely to notice the moeny has gone missing.

My big bet is stillt houhg that we hit some sort of big kahuna in the credit markets and we end up getting a credit/debt deflation that the CB's can do little about as it's due to a huge drop in aggregate demand.

Interesting times and not going to be good for the tunnel visioned-something I've often been guilty of in the past

1 hour ago, DoINeedOne said:

Switzerland Imports Russian Gold for First Time Since War

2042234802_Screenshot2022-06-21at12_19_58.thumb.png.8702bbb816c1c2c388e1a31654ba23e3.png

Swiss raising rates ahead of the curve and importing Russian gold.Two massive tells right there.

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sancho panza
7 minutes ago, Virgil Caine said:

I would have thought most of the debt belonged to governments in the 1940s in the wake of the Second World War. There was not the amount of private leverage as now. Currencies were also tied to Bretton Woods. Most of the activity back then was shifting from war production to its peacetime equivalent. There was limited consumption outside the USA as most countries were rebuilding their infrastructure. There was also rationing in a lot of places until the  early 1950s. 

That's a key consideration VC.Govt can't control private demand like it can it's own and private debt is not something that neo classcially trained economsits put in their models according to steve keen.

There's a huge risk that one day,Western consumers jsut pack up their empty bags and go home for a few months/a year.If asset prices particualrly hosuing drop,then it seems a near certainty.

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All manner of countries and institutions are now backtracking on the 'green transition'. Latest bunch are JP Morgan telling it how it is in their 2022 Elephant in the Room, climate report...                                                                                      https://www.jpmorgan.com/wealth-management/wealth-partners/jpm-wm-energy-papers-2022

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Virgil Caine
18 minutes ago, sancho panza said:

That's a key consideration VC.Govt can't control private demand like it can it's own and private debt is not something that neo classcially trained economsits put in their models according to steve keen.

There's a huge risk that one day,Western consumers jsut pack up their empty bags and go home for a few months/a year.If asset prices particualrly hosuing drop,then it seems a near certainty.

It is a interesting article and to be fair to the author she does highlight some of the differences such as demographics.  Wages are also not keeping up with inflation. That is in contrast to the post war era where wages often outstripped inflation. In the U.K. average wages rose approximately 60% between 1950 and 1959 while inflation was about 46%.

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37 minutes ago, sancho panza said:

Talking of potash,we sold up a while back.But last night something made me check on this one and I msut say,we'll likely take a first ladder today.

Very much back where it started and substantially below where we sold up.Looking forward to getting the Nutrien/Mosiac/Interpid etc back

image.png.4cce9a8d97f1203a1255865f879b4702.png

 @Joncrete Cungle

Anyone know why the potash Yara, unlike its competitors, hasn't done much re. it's stock price, during last 2 years?

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Lightly Toasted
25 minutes ago, JMD said:

Anyone know why the potash Yara, unlike its competitors, hasn't done much re. it's stock price, during last 2 years?

A quick glance suggests they're a chemical company specialising in producing fertiliser from purchased inputs; seems to me if you want to be "long potash" you ought to look at a miner.

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4 hours ago, belfastchild said:

I havent logged in to pof for over a year.
Have had 4 emails since Saturday from women on there. All around my own age.
Curiosity got the better of me as I thought the usual fare but no, apart from one, all late 40s early 50s, milfy, fit, public sector types. All divorced, kids grown up.

Against my better judgement Ive arranged to meet 2 of them later in the week!

If i was single id rip through POF again like a hurricane,most blokes our age are scruffy,fat and skint its much easier than when younger,less comp.

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11 minutes ago, feed said:

 

The crazy feckers are gonna print, after all you can't taper a Ponzi!

Especially the biggest ever.

Unless Bullards talking shit again.

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