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

[sancho panza]

Grest thing with Shaun Richards is that he can understand BoE speak and throw it back at them with stats and methodolgy questions.Shaun is a politcal but is one of the few in the media who can cover the problems with housing in CPI and also lack of a long term energy policy in the same article.Wish he was at the boE.

The inflation is clearly not transitory and whoever was psoting about margin compression in branded goods a few pages back ?  @Castlevania? looks bang on.Gonna be a tough decade with rising transport costs and rising costs of production.

 

https://notayesmanseconomics.wordpress.com/2022/01/19/uk-inflation-surges-to-thirty-year-highs-creating-a-cost-of-living-crisis/

UK inflation surges to thirty-year highs creating a cost of living crisis

Posted on January 19, 2022

We are in a run of UK economic data and we can review this morning’s via the lens of Bloomberg.

U.K. inflation surprises, with a jump to the highest level in 30 years.

The “surprises” bit is rather curious considering it is the main economic issue right now as they demonstrate an inability to see the wood from the trees. Let us start our analysis by looking at this via the target of the Bank of England.

The Consumer Prices Index (CPI) rose by 5.4% in the 12 months to December 2021, up from 5.1% in November.

On a monthly basis, CPI increased by 0.5% in December 2021, compared with a rise of 0.3% in December 2020.

The first thing to note is that this is 3.4% over the 2% annual target that the Bank of England is supposed to aim at. No amount of “in the medium-term” weaseling will let them dodge that. Next comes that fact that the monthly rise reinforces this so there is no sign of slowing. Also on this measure this is the highest it has been in its life of a couple of decades or so.

What Drove It?

The first perspective is that this is being driven by goods rather than services.

The CPI all goods index annual rate is 6.9%, up from 6.5% last month…..The CPI all services index annual rate is 3.4%, up from 3.3% last month.

So there is an element of the supply chain crisis at work. We start to break that down here with the main risers.

Price rises in transport, food and non-alcoholic beverages, furniture and household goods, and housing and household services were the largest contributors to the monthly rate in December 2021.

 

We can stay with the Bank of England and its acolytes because they describe the category below as non-core, whilst for the rest of us it is vital.

The largest upward contribution to the change in the CPIH 12-month inflation rate came from food and non-alcoholic beverages, which increased the rate by 0.14 percentage points between November and December 2021.

Even the humble spud gets a mention.

Amongst the food groups, the largest contributions came from bread and cereals, meat, and vegetables, potatoes and other tubers, which each contributed 0.04 percentage points to the increase in the CPIH 12-month inflation rate.

Actually that list seems to cover most food! Also I did not realise the price of fish usually fell at the end of the year.

change from fish, where price falls in December 2020 were larger than they were in December 2021.

Next came a category driven no doubt by the supply chain problems.

Rising prices for furniture and household goods led to an increase of 0.06 percentage points in the overall CPIH 12-month inflation rate in December 2021. Prices rose 2.0% on the month, compared with a smaller rise of 0.9% a year earlier.

It was broad-based here.

The effect was spread fairly evenly across the spending groups within this division, most of which contributed 0.01 percentage points to the change, the exceptions being a slightly larger contribution to the change of 0.02 percentage points from major household appliances, including fittings and repairs, and a negligible contribution to change from tools and equipment for house and garden.

s

Have we gone off gardening a bit? I recall the lockdown phase when the garden centres saw a rush of demand.

Even getting dressed is rising in price these days.

Clothing and footwear also provided a large upward contribution (of 0.04 percentage points) to the change in the headline rate. Prices rose in December 2021 by 0.7%, which was larger than the rise in the previous year of 0.1%.

The Retail Prices Index

The RPI recorded a much stronger move than the above.

The all items RPI annual rate is 7.5%, up from 7.1% last month.

Indeed if we return to the perspective of the Bank of England its old targeted measure ( it aimed for 2.5% back then)went even higher.

The annual rate for RPIX, the all items RPI excluding mortgage interest payments (MIPs), is 7.7%, up from 7.2% last month.

No wonder it got dropped!

Owner Occupied Housing

A major factor in the differences above is the cost if housing and in particular for owner-occupiers who represent more than 60% of us. The CPI inflation measure completely ignores it on the grounds that two decades have apparently not been enough time to include it. Whereas the RPI includes house prices via a depreciation component.This means that housing contributed some 0.5% monthly and also 0.5% to the depreciation component in December so there is difference here leading to a higher number. The higher number is being driven by this.

UK average house prices increased by 10.0% over the year to November 2021, up from 9.8% in October 2021.

The average UK house price was £271,000 in November 2021, which is £25,000 higher than this time last year.

House price rises have been pretty consistent through the pandemic and they are a cost for anyone purchasing property. As it is often the largest expenditure category it is a disgrace to ignore it as CPI does.

There is another mess here if I switch to our new inflation measure which is supposed to include all housing costs.

The OOH component annual rate is 2.2%, up from 2.1% last month.

Yes they have managed to get owner occupiers housing costs rising by a mere 2.2% at a time where even those living under a stone will know that prices have surged. They do this by assuming that those who own a property and therefore do not pay rent make a mythical payment.

Thus on that road the UK’s overheated housing market reduces the rate of inflation as the 5.4% of CPI becomes this/

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 4.8% in the 12 months to December 2021, up from 4.6% in the 12 months to November.

I would say that you could not make it up but of course they have.

The Trends

There was hope of a slowing of the pressure in the producer price numbers.

On the month, the rate of output inflation was 0.3% in December 2021, down from 1.0% in November 2021….The annual rate of output inflation decreased by 0.1 percentage points from 9.4% in November 2021 to 9.3% in December 2021; this is the first time the annual rate of output inflation has slowed since May 2020.

The move from the input numbers was even stronger.

Comment

The main point here is that younger people are experiencing an inflationary burst of this size for the first time in their lives. The RPI has not been at these levels for thirty years and it is our only inflation measure which existed back then.So people well into their forties and nearly fifty will be experiencing it for the first time as an adult. We have had sectors of inflation at times such as house prices but this is the strongest broad based push.It will get worse in April when the energy price cap is lifted by around 50%. You do not need to take my word for that as the debate in government about what to do about it confirms that something seismic is on the way.

This matters because the present cost of living crisis will sadly mean that some will have to choose whether to heat or to eat. Indeed it is life’s essentials such as shelter, food and energy which are rising in price and making us worse off. Some of these issues can be dealt with by the Bank of England which has been asleep at the wheel.Some of them are caused by a deeper government malaise such as an energy policy which has made it more expensive when the UK has gas and coal resources but has chosen not to use them. I have nothing against renewables in their place but with both existing and likely technology a power grid cannot be based on them or you end up where we are now.

[Yadda yadda yadda]

2 hours ago, Cattle Prod said:

Good reminder, spy. This ensures a future generation of crushed productivity. Students will be incentivised to work in another country or work part time to stay below threshold. It goes without saying that 10.3% interest without repaying principal compounds rather badly:

If inflation stays around here for the next 7 years averaged, a student running up say 75k in student debt will double it within 7 years of leaving university, not enough time to get up the pole far enough to pay it off in almost all professions. Why bother? Imagine having £150k around your neck at 28 years of age? Sod that, off to Australia.

The other likely outcome of course is "Sod University" which would be  good thing. Let it go back to 10/15% of school leavers and let of the polys and paper mills die off.

Of course that curve explains it neatly: it's exponential. Exponential curves are unstable, something has to break.

I know a woman in her early 20s doing a master's degree in some sort of writing course. I have no idea how much debt she is in. She has worked retail jobs, presumably for pocket money as part time. There is a small chance that she will become a successful author or playright. Much more likely is that she marries a rich boyfriend (she moves in affluent circles) and never repays a penny of her student loans.

We will return to a time when most people attending university are wealthy. Probably to a greater extent than when Grammar Schools offered a route up to university for some of the working class. Education seemingly worse than ever for most children.

[Bricormortis]

My mystic meg moment....S and p wont go above 4995 this year. up but choppy then falls in summer possibly as low as 3700 then rebounds.

Info from sub service that forcast  2021 pretty close. Please do not take as financial advice.

[BadAlchemy]

I thought this was worth a screenshot... BP £4.00 just now.

[Majorpain]

1 hour ago, Cattle Prod said:

I wouldn't trust them to leave that threshold where it is, more likely to drop it to minimum wage! And the whole point of going to uni is to hopefully get a better income. 

It's scandalous, because the government borrows at 0.25%, and could pass this on tomorrow. Did they sell off the loan book or something?

They have definitely sold off parts of it, I've seen people saying that they started getting letters from other companies after their loans were sold on.

My degree was worth the £9k i paid for it, would i want to pay the £27k my relatives did?  No chance.

[Don Coglione]

19 minutes ago, CannonFodder said:

I view the tax system as very unfair.

Anyone with knowledge of it doesnt have to pay tax if they use isa sipp and vct appropiately.

Any normal working people get absolutely exploited.

I would suggest that this is a result of a failure of education.

Entirely deliberate, of course.

[Yadda yadda yadda]

22 minutes ago, CannonFodder said:

I view the tax system as very unfair.

Anyone with knowledge of it doesnt have to pay tax if they use isa sipp and vct appropiately.

Any normal working people get absolutely exploited.

Key thing is the requirement to pay for housing. If you have to do that then it is much harder to avoid tax. Unless you're on benefits, which can land you in poverty once children hit 18.

The wealthy are in a much better position to avoid tax as they can take income from other sources and need less of it for essentials as they're already paid for.

Clearly you can get out of the trap with determination.

[dnb24]

43 minutes ago, DurhamBorn said:

Does anyone know who is involved in the LNG pipelines etc in the US?.I think most growth in LNG will come from the US to Europe,but trying to figure out who leverages it.Repsol is an easy one,maybe smaller companies who own LNG plants terminals?

pipeline owners 
Kinder morgan (kmi)

energy transfer (et)

 spectra energy (se)

williams (wmb)

boardwalk (bwp)

enable (enbl)

dominion (d)

transcanada

Enbridge

pembina (pba)

plains all American (paa)

tc energy (trp)

mplx

 

Terminals

cheniere energy (cdi)

dominion (d)

sempra (sre)

exelon (exc)

kinder morgan (kmi)

 

[Axeman123]

Has no one else mentioned the 10 yr German Bund yield going (just barely) positive? Seems like a real watershed.

6 minutes ago, Don Coglione said:

I would suggest that this is a result of a failure of education.

...and deliberate design. Ordinary Joe is PAYE and has no easy way to move his income offshore, so gets treated as cattle and hence clobbered. Wealthy people with internationally mobile capital have a choice of where to base themselves and said capital, so are treated as customers and incentivised with loopholes etc.

[BadAlchemy]

9 minutes ago, Bricormortis said:

My mystic meg moment....S and p wont go above 4995 this year. up but choppy then falls in summer possibly as low as 3700 then rebounds.

Info from sub service that forcast  2021 pretty close. Please do not take as financial advice.

Sounds similar to Felix Zulauf prediction? There at least seems to be some concensus among several 'experts' of a pull back first (slight or severe) then a 'meltup' ( this year or next), then a BK (later this year or as far away as 2024). Who knows... other than it could get volatile. And where there's volatility there's wealth to be made (or lost)!

[Democorruptcy]

2 hours ago, DurhamBorn said:

And they will lose zero sales and they are depreciating assets at set rates and the debt part of the balance sheet is mostly fixed at 2.5%.Example of how in an inflation wealth is passed from debt to equity in inflation loving areas.Risk governments legislate,but doubt it as prices are low and they want telcos investments.If net neutrality goes in any form telcos will double,or treble in the cycle i think.

Where do you get 2.5% from, is it some sort of an average you have done from here or is it a reported figure?

https://investors.vodafone.com/debt-investors/bonds-outstanding-eu-and-us

 

[Democorruptcy]

2 hours ago, sancho panza said:

Something's happening at my work with people suddenly just handing their notice in and leaving-Ambulance service.It's not vaxx related but jsut a lot of people unhappy with their pay/poo ratio I guess.Trainee Para starts on £20k plus unsocial.For that they're working weekends/nights and dealing increasingly with people who have completely lost their moral compass through either drink/drugs or isolation from society.Paras first two years start at £25k plus unsocial and for that they're dealing with all the same things as the trainee para except the legal responsibility is with them if someone dies/sues and they also have to oversee the trainee.

Hearing anecdotally as well that lots of GP's are going part time too.Boris has really f***ed this up.He thought he was Churchill fighting a war on covid and yet actually he was Neville Chamberlain starting one with his own taxpayers.Words genuienly fail me with regard to this govt.

GP's pay has gone up so much they can afford to reduce hours? Plus they have sidelines in the private sector?

Freeze GP to pay paramedics more?

[The Bear of Doom]

27 minutes ago, BadAlchemy said:

I thought this was worth a screenshot... BP £4.00 just now.

 I wish I had bought more now when it was below 250 

Still as, I think @DurhamBorn said, I should wait for the market to come to me, so hopefully it will return toward 300 in the near future.  I suppose it's a bit like a Bear waiting at the rapids for a nice juicy Salmon to jump into view and be caught! 

[Juniper]

1 hour ago, DurhamBorn said:

Does anyone know who is involved in the LNG pipelines etc in the US?.I think most growth in LNG will come from the US to Europe,but trying to figure out who leverages it.Repsol is an easy one,maybe smaller companies who own LNG plants terminals?

Enterprise Product Partners? One I’ve been meaning to look into after seeing some recommendations from decent people on twitter.

[moneyscam]

1 hour ago, Harley said:

Yep the weekly in particular is textbook.  BP is doing me head in.  Sanity says it's getting toppy for now so could pull back.  It's hitting it's Feb20 dead cat bounce zone, daily MACD started to weaken this week, the weekly is still on the up but has filled the Mar20 gap (down), and monthly momentum is weakening (but the MACD still rising but usually follows momentum).  Yield is now only 2.89%.  IMO (DYOR)a tight trade at best from here.  But this is clown world! 

Where you get 2.98% from? I make it 4.5% at trailing dividend / current price. At my average price purchased it's 4.36%. 

https://www.dividendmax.com/united-kingdom/london-stock-exchange/oil-and-gas-producers/bp-plc/dividends

[spygirl]

1 hour ago, CannonFodder said:

Yes student loan tax is very unfair as rich pay fees upfront so only middle and poor get stuck in web.

Didnt buy more poly in end, silly me , was hoping that tensions increased.

Looks like Blinken blinked, his latest speeches about finding a diplomatic solution rather than standing firm with ukraine. Few comments about ecomonic sanctions, which is akin to saying we wont help in battle, we.ll sanction them after 

Germany says it wont support sanctions, guess they rather continue to buy gas to stay warm.

With canada and uk sending material, US now needs to spend troops or equipment too to look like that they as comitted as uk and allies. If they do that will increase the tension, if they dont then theycome across as all talk no trousers

Its all fun and games poking the Russian until the tanks start amassing on the border 

Time to sh8t or get off the pot for the US methinks

I thought US have a bit more in them but look like folding their hand. The high oil prices created by this tension cant be helping US recovery. An extra 10 dollars a barrel on Russians 10 mbpd is 100 million dollars a day for Mr Putin to buy himself something nice. I.ld be happy to park my tanks on border for as long as needed for 100 million a day, got to be parked somewhere. Could even buy some new tanks from that. Some more gold reserves. Buy an election or two 

I feel oil could pull back quickly if ukraine resolved. Strangely more drone attacks on ME oil yesterday .

Almost see oil and russian shares as a counter play

Its uinfair as only the people who put in the effort to earn after a degree are paying  for their education and the other 50% who basically go back to doing a job they could have done at 16.

UK HE spend needs cutting by about 50%.

I mention that as similar cuts are required in education, healthcare and working age bennies spend.

Its that high as theres so many people and orgs involved that the core promise - health and education is being lost in the pointless jobs and make work schemes.

 

 

 

[WICAO]

12 hours ago, JREWING said:

@WICAO

I jumped ship on BP today. £150k at 2.52 sold at 3.62. Bought back in at 3.2 sold at 3.98 today. I'm coming back to Oz. I'm a citizen so makes life easy. Got a big chunk of Ozzy dollars now. Guys can you access HL portal in Australia. Or does the Australian IP address get blocked by the HL portal. Can I trade while in Australia via the HL portal. Just thinking out load.

@WICAO what visa you on? Business investment. I'm thinking of Fremantle in Perth. 

I have no trouble accessing my UK SIPP online portals from Australia.  I've also had no trouble reinvesting dividends.

[WICAO]

11 hours ago, wherebee said:

be aware that WA (Perth) is about to go full on communist re vaxx mandates.  You'll be locked out of almost everything unless you get jabbed every time sneakers tells you to.  The WA health system also WILL collapse once COVID gets there - it's been run into the ground for years, and it's going to be a shitshow.

At the moment, in terms of freedom NSW, SA, and Queensland are a bit better (but not by much).  Vic is equally mental as WA but has more resistance growing, politically and otherwise.

If I had the cash as a new entrant, I'd buy somewhere away from the cities and see which ones burn and which ones do not.

TBH I'm amazed at the extreme behaviour differences between all the states given they've all supposedly bought into the "National Plan".

[Harley]

28 minutes ago, moneyscam said:

Where you get 2.98% from? I make it 4.5% at trailing dividend / current price. At my average price purchased it's 4.36%. 

https://www.dividendmax.com/united-kingdom/london-stock-exchange/oil-and-gas-producers/bp-plc/dividends

TradingView.  These numbers are often a mystery to me!  Dividenddata says 3.89%.  Simply Wall St says 3.91%.  investing.com says 4.72%.  IB says 3.91%.

[Starsend]

3 hours ago, spygirl said:

Cost of living: 'I only put heating on when my grandkids visit'

https://www.bbc.co.uk/news/uk-wales-59987507

Money has been so tight for grandmother Judith Criddle, she only ever puts her heating on when her six grandchildren visit - despite the cold weather.

Even then, Judith can only afford to put it on for an hour so she wraps her grandchildren in a blanket on the sofa with hot water bottles to keep warm.

"To them it's a movie night, cuddling in to nan - but to me, I'm doing it to save the money," said the 51-year-old.

Judith is one of the millions affected by the UK's cost of living crisis.

Prices are rising at the fastest rate in more than 10 years and one think tank has warned it could get worse with predictions that higher energy bills, stagnant wages and tax rises could leave households with an extra £1,200-a-year hit to their incomes.

Judith, who is on universal credit, said she was trying to cut back on using energy as much as she can, but "if it goes up any more I can't afford to live".

She coudl go out and get a FT job - or 2 -  FFS. Shes almost 20 years before she can reitre.

 

They had this woman on. She had a Caribbean accent - 

https://www.bbc.co.uk/news/uk-59980760

Every night, Thelma Spalding goes round her house trying to switch off every appliance.

It's not an easy feat for the 54-year old, who relies on carers and walks with a stick.

But she's following the advice given to her by her energy company as she desperately tries to keep her fuel bills down.

Thelma had to leave her job as an NHS support worker a year ago after being assaulted at work. Since then, her monthly gas and electricity bill has shot up from £44 to £99, meaning she can afford to heat only one room.

She has burns on her arms from trying to keep her wood burner going and has started using food banks to make ends meet.

She says: "I live in this one room. There's only me and the dogs, so why am I being charged this much for electricity and gas?

"In bed you're so cold that it's like you're sleeping outside. My carer gets me dressed and I wear two pairs of leggings, a pair of trousers, a vest, a T-shirt and a dress - and I'm in the house. It's so cold in the kitchen and the bathroom."

 

Judith and Thelma should get a fucking job instead of poncing off of everybody else.

If you can't use a wood burner without covering your arms in burns you're a fecking spazzer. Thelma, you're a fecking spazzer.

God these whining cunts wind me up. Can't wait for harder times when people have to look after themselves again.

[moneyscam]

7 minutes ago, Harley said:

TradingView.  These numbers are often a mystery to me!

That tradingview number can't be right and just realised my 4.5% is wrong. Last dividend was 4.105p : multiply by 4 = 16.42p /400p = 4.1%  assuming FX £/$ remains stable - still not bad but this is more about the capital gain for me now unless there is a restoration of the dividend back to historical levels. I think it can reach £6 if our macro call is right and will be selling it there.

[Yellow_Reduced_Sticker]

"UK Interest rates to double next month!"

Read all about it... Read all about it..!

 

Meanwhile in the good 'ol USA

 

[Harley]

10 minutes ago, moneyscam said:

That tradingview number can't be right and just realised my 4.5% is wrong. Last dividend was 4.105p : multiply by 4 = 16.42p /400p = 4.1%  assuming FX £/$ remains stable - still not bad but this is more about the capital gain for me now unless there is a restoration of the dividend back to historical levels. I think it can reach £6 if our macro call is right and will be selling it there.

Mystery.  I've wasted too much time in the past trying to make sense.  Lots of methods.  TradingView apparently uses FY.

[Starsend]

39 minutes ago, Harley said:

TradingView.  These numbers are often a mystery to me!  Dividenddata says 3.89%.  Simply Wall St says 3.91%.  investing.com says 4.72%.  IB says 3.91%.

And HL says something else! I take a mean average, seems to broadly work ok. It's whether they've included specials or not that fecks things up.

[Harley]

1 hour ago, dnb24 said:

pipeline owners 
Kinder morgan (kmi)

energy transfer (et)

 spectra energy (se)

williams (wmb)

boardwalk (bwp)

enable (enbl)

dominion (d)

transcanada

Enbridge

pembina (pba)

plains all American (paa)

tc energy (trp)

mplx

 

Terminals

cheniere energy (cdi)

dominion (d)

sempra (sre)

exelon (exc)

kinder morgan (kmi)

 

Ta.  I can't find some such as BWP and ENBL.  Are they valid?  Here is a list of common stock based on my tradeable markets pulled from the "Oil & Gas Pipelines" industry with some key financial metrics (USD).  TRANSNEFT is not shown as that's apparently a preference share.  I own some!  Anyone know if the LPs are (still?) a no-no from a US tax on a UK resident POV?