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

[DurhamBorn]

27 minutes ago, jamtomorrow said:

Seems obvious enough now that the disretionary economy is about to get smashed to bits - that's where demand destruction will happen first as households draw in their horns. Maslow's hierachy and all that (good to see that pop up again in recent posts). Short mobile dog-groomers etc

Question is, how does that affect macro aggregates? Do aggregates even matter in situations like this?

Take velocity.

In the discretionary part of the economy, volume is about to be wiped out because stagflation hits discretionary spend twice - households have less disposable income to spare on discretionaries *and* input costs for suppliers of discretionaries are rising. Velocity here will plummet, and fast.

Whereas essentials: harder to trim, so households will trim last here. Volume holds up, prices inflate, velocity up.

The effect on *aggregate* velocity will then be the sum of these kinds of component effects.

Now the trouble with dynamical systems is that maintaining system stability in the presence of large (or worse: ever-larger) competing component effects is difficult, and at some point impossible. A small change in one of the components can produce an extremely large change in aggregate behavior (a form of leverage or amplification or positive feedback). Systems in this state quickly swing out of control or shake themselves to bits. If you've watched the TV series Chernobyl, voiding coefficients are a good example.

What makes the macro situation explosive is that the monetary gauges, dials and policy levers all measure or operate on *aggregates* - it's "que sera sera" for the component effects.

(This is why I think Gromen is on the right track when he refers to monetary policy levers as now operating more like an on/off switch)

In summary: it's not just a question of up or down - it's going to get bumpy. *Very* bumpy.

The thing to remember is its the whole chain inflates,so the reverse of the last 40 years.I can get veg still for roughly the same price as before,parsnips 42p.Yes they will increase a little,lets say 10% so 46p.The real pain is where multiple inputs get added.Take a fridge.Lots of transport of parts,workers,heating for the workers,energy to make the parts etc etc.In this cycle,sell parsnips,not fridges etc.

I look at my investments now how de-complex they are.I want as few inputs as i can,so less inflation injections.Thats why i like fags etc,very few inputs.Insurance,asset managers etc.

Notice today government sent the signal they wont allow BT to be taken over.They know with a trashed sterling our assets are sitting ducks.

[Noallegiance]

[Hardhat]

1 minute ago, Noallegiance said:

I was just about to post this! Madness

[feed]

Lot of doom on here recently guys.  We’ve a melt up, crash and recession to navigate yet. 

Of course the state has to keep with the handouts.  We’ve a population that’s weak and vulnerable.  They have no resilience and have never experienced inflation.  And in the face of a melt up, or If inflation rolls over, then it will have been “the right thing to do”.  The real crash and recession will hopefully wake people up.    

This was always going to be ugly.  
 

[Democorruptcy]

I had to laugh today at United Utilities. Early 2020 they took some debt on at 0.1% + CPI to the year 2040. I emailed them and said it was a huge mistake. While interest rates were so low they should be doing a long term fixed rate, not index linked when inflation was going to rocket. They replied and said they always did part fixed and part index linked.

They maintained the dividend but what an incredible waste of money!

Quote

 

Water supply company United Utilities has reported an 8.3p loss per share for the year ended 31 March, down from earnings of 66.5p per share a year earlier, as higher finance charges offset modestly improved annual revenues.

The underlying net finance expense of £306 million was £174 million higher than last year, mainly due to the non-cash impact of significantly higher inflation on our index-linked debt.

The indexation of principal on index-linked debt, excluding the impact of inflation swaps, amounted to a net charge in the income statement of £228 million, compared with a net charge of £53 million last year, resulting in an increase of £175 million. Interest on non index-linked debt of £110 million is consistent with last year, while various smaller year-on-year increases and decreases broadly offset against one another when considered together.

https://www.hl.co.uk/shares/shares-search-results/u/united-utilities-group-plc-ordinary-5p/share-news

 

 

 

[Plan-b]

10 minutes ago, Democorruptcy said:

I had to laugh today at United Utilities. Early 2020 they took some debt on at 0.1% + CPI to the year 2040. I emailed them and said it was a huge mistake. While interest rates were so low they should be doing a long term fixed rate, not index linked when inflation was going to rocket. They replied and said they always did part fixed and part index linked.

They maintained the dividend but what an incredible waste of money!

 

 

Brilliant - With your intuitive correct guidance perhaps you should ask them for a job as head of finance - I'd expect it pays well

[Gin]

On 24/05/2022 at 07:19, Cattle Prod said:

About right

 

They cannot sleep at night looking at the writing on the wall .

[Democorruptcy]

13 minutes ago, Plan-b said:

Brilliant - With your intuitive correct guidance perhaps you should ask them for a job as head of finance - I'd expect it pays well

That extra £175m charge is a sobering thought. Whether firms have too much index linked or fixed rate debt could be the difference between making lots of profit or going bust. Presumably if UU have paid out a lot of extra money for debt, then their lender is doing well out of it. One of the reasons why banks like interest rates increasing, i.e. there's inflation so any index link debt makes them more and there's better margins between loans they make and saving rates they pay.

[M S E Refugee]

Food crisis not linked to sanctions – US https://www.rt.com/news/556113-russia-sanctions-grain-ukraine/

The Democrats are tying themselves up in knots.

[Pip321]

6 minutes ago, M S E Refugee said:

Food crisis not linked to sanctions – US https://www.rt.com/news/556113-russia-sanctions-grain-ukraine/

The Democrats are tying themselves up in knots.

I think the West are tying themselves up in knots. The outcome for East and West is looking increasingly negative....no winners only the protection of jobs for those in power. 

Such a shame I cant see rt new anymore. However, this one appears to be a song I know from My Fair Lady....

The Grain in Ukraine fails mainly on the Plain. 

(I will let myself out)

[HousePriceMania]

10 hours ago, sancho panza said:

US housing market could be roling over

Sales down,inventory up,median price spikes on lower vol......looks like the boat's taken on some water,can they bail fast enough?

 

 

News from ground zero in Oz is that the bubble has burst, the pin that pricked it was a tiny IR rise and the promise of 2% rates by the end of the year. The thinking is that prices are going back to 2019 levels pretty sharpish.

That's optimistic I think.

I've had a good couple of years spreading the house price mania word, so might get to quit by the end of the year.

It's exhausting.

[snaga]

6 minutes ago, Democorruptcy said:

That extra £175m charge is a sobering thought. Whether firms have too much index linked or fixed rate debt could be the difference between making lots of profit or going bust. Presumably if UU have paid out a lot of extra money for debt, then their lender is doing well out of it. One of the reasons why banks like interest rates increasing, i.e. there's inflation so any index link debt makes them more and there's better margins between loans they make and saving rates they pay.

on the flip side, if those companies go bust, the debts go bad, the banks take a hit? same for personal debt?

Higher rates will ultimately lead to higher margins, but lower volume? and the transition is going to hurt.

[stoobs]

Just opened an in-date Morrison's 6 pint milk carton and it's on the turn. Same thing happened with Asda a few weeks ago.

We've never had a problem with supermarket milk, and now twice in a couple of weeks.

This is probably just bad luck, but wondered if those on the thread with farming links might have insight into something going wrong with the dairy supply chain?

[Democorruptcy]

26 minutes ago, snaga said:

on the flip side, if those companies go bust, the debts go bad, the banks take a hit? same for personal debt?

Higher rates will ultimately lead to higher margins, but lower volume? and the transition is going to hurt.

Yes, what banks need is a governbankment like ours that shifts the liabilities of a lot of the worst debts onto taxpayers through such as guaranteed covid loans, help to buy and now the mortgage guarantee. Then today under the pretence of helping people, they hand out free money so they can ultimately pay their debts.

 

[snaga]

3 minutes ago, stoobs said:

Just opened an in-date Morrison's 6 pint milk carton and it's on the turn. Same thing happened with Asda a few weeks ago.

We've never had a problem with supermarket milk, and now twice in a couple of weeks.

This is probably just bad luck, but wondered if those on the thread with farming links might have insight into something going wrong with the dairy supply chain?

warmer weather, and somewhere in the supply chain (common to both supermarkets) someone is cutting back on power by not keeping the milk as chilled as they should?

[JMD]

10 hours ago, sancho panza said:

Another Rishi/Bozo/Mogg/Cameron/Gideon etc etc.Probably explains why he's a decent shot at 80/1.....

I'd honestly(and I say this as Ukip voter 2006-19) rather vote for Corbyn and jsut get the total societal collapse over with.Death by a 1000 Etonian cuts is a crap way to go.

Bold is mine

https://en.wikipedia.org/wiki/Kwasi_Kwarteng

Early life and education

Kwarteng was born in the London Borough of Waltham Forest in 1975,^[1] to parents Alfred K. Kwarteng and Charlotte Boaitey-Kwarteng, who had emigrated from Ghana as students in the 1960s.^[4][5] His mother is a barrister^[6] and his father an economist in the Commonwealth Secretariat.^[5][7]

After starting school at a state primary school, Kwarteng attended Colet Court, an independent preparatory school in London, where he won the Harrow History Prize in 1988.^[8] Kwarteng then went to Eton College,^[1] where he was a King's Scholar and was awarded the prestigious Newcastle Scholarship prize. He read classics and history at Trinity College, Cambridge, achieving a first in both subjects^[9] and twice winning the Browne Medal. He was a member of the team which won University Challenge in 1995 (in the first series after the programme was revived by the BBC in 1994).^[5][10] He attended Harvard University on a Kennedy Scholarship, and then earned a PhD in economic history from the University of Cambridge in 2000.^[11]

Early career

Before becoming a member of parliament, Kwarteng worked as a columnist for The Daily Telegraph and as a financial analyst at JPMorgan Chase and other investment banks.^[12] He wrote a book, Ghosts of Empire, about the legacy of the British Empire, published by Bloomsbury in 2011.^[5] He also co-authored Gridlock Nation with Jonathan Dupont in 2011, about the causes of and solutions to traffic congestion in Britain.^[13]

Yes agreed, (and perhaps this is far too political/granular for this thread but I think I need to declare) I've been voting ukip/brexit/reform parties since 2001 and would never vote for a main party again because mainstream politics is a manipulated game. At same time I am under no illusion that mine is just a protest vote, but better than not voting at all, so to that end I now vote SDP.                                                                                                                                              Didn't mean to imply KK would be much improvement, but i can see a concerted attempted internal conservative putch to remove Johnson (replace with Hunt, etc), and with the MSM not able to hide their glee at the prospect, so any step in the opposite direction is a good thing imo, but again this is mere comment as I don't vote for that tribe....     However, in terms of 'political games' i may place that paddy power bet if I can get those odds!

[Loki]

Just watching a latest David Hunter vid and he now has a $3000 target for gold this cycle

[Boon]

To me I think Boris is a good aspirational figure of many of the Tory voters, hence his popularity. 

I think even getting a black PM like Kwasi would be an even harder one than an Asian one like Sunak, irrespective of competence. That seems about a generation away.

Jeremy Hunt will cause voters to get amnesia because he kinda looks like what a Tory leader should look like. Or for someone untainted by the recent years, Tugendhat.

 

[JMD]

11 hours ago, sancho panza said:

US housing market could be roling over

Sales down,inventory up,median price spikes on lower vol......looks like the boat's taken on some water,can they bail fast enough?

 

https://wolfstreet.com/2022/05/24/housing-bubble-getting-ready-to-pop-unsold-inventory-of-new-houses-spikes-by-most-ever-to-highest-since-2008-sales-collapse-below-400k/

 

 

Unsold inventory of new houses spiked in a historic month-to-month leap of 34,000 houses, and by 127,000 houses from April last year, to 444,000 unsold houses, seasonally adjusted, the highest since May 2008.

In a recent Wealthion, I was surprised to hear - because I thought Wolf had been predicting a US housing crash - to see Wolf Richter instead saying that US house prices would trend down over time, some bumps maybe but no market crash. This is part 2 of that interview where he comments about housing... Has he recently changed his forecast?             https://m.youtube.com/watch?v=tmCJPMJd3y4

[belfastchild]

27 minutes ago, stoobs said:

Just opened an in-date Morrison's 6 pint milk carton and it's on the turn. Same thing happened with Asda a few weeks ago.

We've never had a problem with supermarket milk, and now twice in a couple of weeks.

This is probably just bad luck, but wondered if those on the thread with farming links might have insight into something going wrong with the dairy supply chain?

Saw this the other day in action in a supermarket.
Pallets of frozen food on the shop floor with only one person stacking the freezers. Watched them lift a couple of things at a time, walk to freezer, put in, walk back, repeat with the food getting warmer and warmer and the walk to the next freezer getting longer and longer. IIRC it used to be done by 3 people with motorised pallet trucks.

Probably not a major issue with frozen but I have warned people before about yellow sticker stuff that has been well in date, its the stuff thats been sitting out in the sun for a while perhaps.

All this is usually fine in winter...

[Democorruptcy]

5 minutes ago, belfastchild said:

Saw this the other day in action in a supermarket.
Pallets of frozen food on the shop floor with only one person stacking the freezers. Watched them lift a couple of things at a time, walk to freezer, put in, walk back, repeat with the food getting warmer and warmer and the walk to the next freezer getting longer and longer. IIRC it used to be done by 3 people with motorised pallet trucks.

Probably not a major issue with frozen but I have warned people before about yellow sticker stuff that has been well in date, its the stuff thats been sitting out in the sun for a while perhaps.

All this is usually fine in winter...

Well that's a sobering thought for @Yellow_Reduced_Stickerheading into the summer.

[working woman]

11 hours ago, HousePriceMania said:

Was it always like this or was life once predictable, decent and sane? 

I know what you mean, it can feel like being in a washing machine,  not looking forward to the spin cycle ahead. 

I have decided, I cannot control what goes on in the outside world, but I can control what goes on in my home. I am focusing on cultivating a calm and happy life at home. Yes I have to venture out into the outside world to go to work, but home is now where it's at for me. A complete turn around from my work/career focused self in my 20-40's.  

Peace and quiet, minimal TV, home cooked meals, books to read, creative hobbies, occasional trips out to natural places.

That is my self-prescribed antidote to the world's madness. 

“Ah! There is nothing like staying at home, for real comfort.” Jane Austen

[Bus Stop Boxer]

I see Sovs at Baird have dropped about 8-9 quid in last 2 days. Quite a big drop this am it seems.

Are we going to see a drop in gold price due to selling to cover stock losses/obligations as markets fall?

Isn't that what happened in 08?

Bearing in mind todays Sunakshitcast it would have been reasonable to have expected a rise? Esp in sterling?

It cant be just reacting to higher expected rates.

At some point gold must surely fly to the moon Rodney.

Just knowing when to back up the truck.

[Bus Stop Boxer]

5 minutes ago, working woman said:

I know what you mean, it can feel like being in a washing machine,  not looking forward to the spin cycle ahead. 

I have decided, I cannot control what goes on in the outside world, but I can control what goes on in my home. I am focusing on cultivating a calm and happy life at home. Yes I have to venture out into the outside world to go to work, but home is now where it's at for me. A complete turn around from my work/career focused self in my 20-40's.  

Peace and quiet, minimal TV, home cooked meals, books to read, creative hobbies, occasional trips out to natural places.

That is my self-prescribed antidote to the world's madness. 

“Ah! There is nothing like staying at home, for real comfort.” Jane Austen

Don't forget the gun turrets, vats of boiling oil, and a moat.

[belfastchild]

2 minutes ago, Bus Stop Boxer said:

Don't forget the gun turrets, vats of boiling oil, and a moat.

cheaper to get two horses heads on the gateposts and an old caravan in the drive.
Nobody comes near you then.