Credit deflation and the reflation cycle to come (part 5)

[M S E Refugee]

 

 

[Democorruptcy]

BoE Asset Purchase Facility report

https://www.bankofengland.co.uk/asset-purchase-facility/2023/2023-q1

It mentions an Equilibrium Interest Rate from a 2018 Inflation Report, that's in here

 

[Pip321]

35 minutes ago, M S E Refugee said:

 

 

To be fair, this is sounding an awful lot like the nutter conspiracy theorists in 2006/7…you know that Dr Michael Burry etc. 5 banks in 50 days and I would absolutely guess from experience if you ask any employee who works for any UK bank what they think they will all say their bank is too well managed and too big to fail. 

I think increasingly Gold is no longer an asset to make a few pound on…..but literally a 10% total asset hold to ensure should things get really bad at least we still have something in my pockets left.

If I can sell two properties this year…..one goes into stocks as per this thread (well technically repays debt which then allows me to be more aggressive and place my ‘offset cash’ into stocks). If I manage to sell a second it goes into a few tubes of coins.⚱️⚱️⚱️💰💰

Hopefully as predicted by some of the great links on this thread we make get a few bites of the cherry before PMs take off.🤔

[Long time lurking]

 

[MrXxxx]

3 hours ago, Kevin Redshaw said:

They're Keynesians - only Keynesianism is taught at university, so only Keynesianism is taught in the macro side of the A Level Economics course.

I think this is the issue with a lot of universities now post-expansion, gone are the 'Hallowed halls' of critical thinking/thinkers. Now it's more about regurgitating the dogma, and any academic who tries to extend research thinking outside of this fails to get funding, as the funding panel if full of academics that uncritically follow the dogma and so refuse/reject the funding application.

Edited April 29, 2023 by MrXxxx

[No One]

23 hours ago, MrXxxx said:

1. Sunak’s inflation pledge

QUOTE: “New projections on Wednesday from both Capital Economics, the consultancy, and Citigroup, the investment bank, respectively put the rate for December 2023 at 3.7 per cent and 3 per cent, easily meeting the prime minister’s target.

In the Treasury’s monthly round-up of economic forecasts, also published on Wednesday, only four of 27 UK forecasters predicted that CPI inflation would exceed the government’s pledge and be above 5.4 per cent by the fourth quarter of this year.

The reason behind the rapid fall in the inflation rate is that by this summer, gas and electricity prices are set to be lower than last year, with wholesale gas prices falling almost 85 per cent since their peak last August"

So what does this mean going forward [and what is the government hoping/potentially ‘pushing’ for]?

CPI will be 5.4% by the 23Q4......but from what date?
On the ONS site the use 2015 as the point is Rishi Sunak measuring against? 2015 like the ONS, or form this time last year.

If he is saying CPI is going to be 5.4% in 2023Q4 compared to 2022Q4, all it means is the rate of inflation is less steep, but still going up. If it's using 2015Q1 as =100 like the ONS then we have delfation.

I think, can some one correct me if I'm wrong?

 

	Inflation Rate	2015 = 100
2020Q1	1.8%	101.8
2020Q2	0.9%	102.7
2020Q3	1.1%	103.8
2020Q4	0.9%	104.8
2021Q1	0.9%	105.7
2021Q2	1.6%	107.4
2021Q3	2.1%	109.7
2021Q4	3.8%	113.8
2022Q1	4.9%	119.4
2022Q2	7.8%	128.7
2022Q3	8.8%	140.1
2022Q4	9.6%	153.5
2023Q1	8.8%	167.0
2023Q2
2023Q3
2023Q4	5.4%

[One percent]

1 minute ago, No One said:

CPI will be 5.4% by the 23Q4......but from what date?
On the ONS site the use 2015 as the point is Rishi Sunak measuring against? 2015 like the ONS, or form this time last year.

If he is saying CPI is going to be 5.4% in 2023Q4 compared to 2022Q4, all it means is the rate of inflation is less steep, but still going up. If it's using 2015Q1 as =100 like the ONS then we have delfation.

I

Nah, it means things will become cheaper again. At least that’s what the great unthinking will believe 

[F150]

Found a US divi type mutual fund in my 401k and no fee to purchase so going for this

https://investor.vanguard.com/investment-products/mutual-funds/profile/veirx#portfolio-composition

Top 3 holdings are Pfizer, Johnson & Johnson and Merck

Im starting to think Covid wasn’t a scam after all

make sure you get your vaccines and finasteride bodders!

keep up the good work

[ashestoashes]

6 minutes ago, F150 said:

Found a US divi type mutual fund in my 401k and no fee to purchase so going for this

https://investor.vanguard.com/investment-products/mutual-funds/profile/veirx#portfolio-composition

Top 3 holdings are Pfizer, Johnson & Johnson and Merck

Im starting to think Covid wasn’t a scam after all

make sure you get your vaccines and finasteride bodders!

keep up the good work

you could get money off your jabs, well done

[Sugarlips]

No source link unfortunately. Self explanatory though.

 

Edited April 29, 2023 by Sugarlips

[DurhamBorn]

58 minutes ago, F150 said:

Found a US divi type mutual fund in my 401k and no fee to purchase so going for this

https://investor.vanguard.com/investment-products/mutual-funds/profile/veirx#portfolio-composition

Top 3 holdings are Pfizer, Johnson & Johnson and Merck

Im starting to think Covid wasn’t a scam after all

make sure you get your vaccines and finasteride bodders!

keep up the good work

Fin is off patent so big pharma makes nothing from it,bodders buy the cheap generic versions.Plus if it gives us erection problems sildenafil is off patent as well .

[Joncrete Cungle]

Martin Armstrong on Palisades Gold radio, I am only a couple of minutes in so far. Usually find MA interesting, covering Ukraine, International trade, inflation, war and energy scarcity and recession.

[M S E Refugee]

 

He may not be everyone's cup of tea but I find Jim Willie entertaining.

 

[Virgil Caine]

4 hours ago, Pip321 said:

To be fair, this is sounding an awful lot like the nutter conspiracy theorists in 2006/7…you know that Dr Michael Burry etc. 5 banks in 50 days and I would absolutely guess from experience if you ask any employee who works for any UK bank what they think they will all say their bank is too well managed and too big to fail. 

 

The failure of First Republic was triggered by the usual bank death spiral scenario seen in 2008 of an institution borrowing short at higher rates and lending long at lower rates. The Fed move in interest rates fucked the strategy particularly as First Republic seems to have failed to hedge the risk. The scenario caused a bank run in deposits and a collapse in share price which left the bank undercapitalised. I am not sure how far that runs across the entire banking system but in so far as bank withdrawals go people may potentially run out of institutions to where they can flee and US authorities have past form on making life difficult for the public to own physical gold. One thing to note is that all these Californian banks appear to have been doling out large loans in highly favourable terms to certain high net worth clients. Two thirds of its depositors had accounts worth above the FDIC limit which meant they were likely to run for the exit more quickly at the first sign of trouble than smaller deposits below the FDIC limit.

Edited April 29, 2023 by Virgil Caine

[Long time lurking]

 

[King Penda]

2 hours ago, Sugarlips said:

No source link unfortunately. Self explanatory though.

 

That looks good we are in front 

[King Penda]

19 minutes ago, Long time lurking said:

 

Ironicly I’m watching 1922 the film is set during a depression 

[One percent]

1 minute ago, King Penda said:

That looks good we are in front 

Leading the way.  

[Long time lurking]

12 minutes ago, King Penda said:

That looks good we are in front 

It`s called winning 

[sancho panza]

On 28/04/2023 at 19:02, Castlevania said:

I think the listed house builders learnt their lesson from the GFC. They have minimal debt nowadays. I think the margins will be crushed - a few years ago Persimmon were making 30% gross margins which is ridiculous.

I always find it amusing that of the listed house builders the one that built the nicest houses and operationally seemed to be the best run was Berkeley a company set up by a gypsy.

I'm not so sure.Here's their balance sheet from the 22 full years and you'll see they're sat on £3.5bn in inventory.I think there are issues with this in that they're not that liquid and they will liiekly already have booked substantial costs in building that inventroy(could aslo be building land but iirc building land moves at 3x the rate of change ot hosue prices).

ALso shifting it on at booked price coudl be difficult without the UK govt running its various stimulus packages

https://www.persimmonhomes.com/corporate/media/wiydfzzr/persimmon-annual-report-2022.pdf

Edited April 29, 2023 by sancho panza

[sancho panza]

Just adding to @Virgil Caine psot above

https://uk.finance.yahoo.com/news/signs-mounting-debt-crunch-looming-193203890.html

(Bloomberg) -- Just when it seemed the US regional banking strains were starting to ease, First Republic Bank has leaped back into headlines, reigniting concerns of rising pain in the lending system.

Banks increased emergency borrowing from the Federal Reserve for the second week in a row in a sign of the ongoing stress in the system. Last week, the New York Fed reported that financial conditions in its region had deteriorated sharply.

Below are six charts that help explain why and how borrowing is getting harder in vast parts of the economy:

Lending Contraction

“Lending from U.S. banks is poised to contract over the next few quarters,” Amanda Lynam, head of macro credit research at BlackRock Financial Management wrote in a note on Thursday. Headwinds to profitability including higher deposit costs have seen bank spreads underperform relative to non-financials, she wrote.

 

Money Supply

The blow to credit availability comes as the money supply shrinks, a sign that the spike in interest rates by the Fed is causing money to exit the banking system, shrinking the availability of loans. That could slow the economy, with monetarist economists suggesting it could herald a crash and deflation.

The Dallas Fed and the San Francisco Fed last week reported pressure on funding in their geographic regions, with projects being canceled and nonperforming loans expected to increase.

 

 

Consumer Headwinds

Banks that posted quarterly results this month said they boosted provisions on bad consumer loans to levels not seen since the early days of the pandemic. For example, Capital One Financial Corp. increased its provision for credit card losses by more than 300% to $2.26 billion compared with a year earlier. The firms have generally said the rising provisions are just consumers returning to pre-pandemic norms.

 

Office Woes

Capital One also set aside more money to cover souring office loans, as vacancies rise and many workers choose to work from home. Morgan Stanley has previously estimated that office property valuations could fall as much as 40% from peak to trough, increasing the risk of defaults.

Another emerging source of stress in credit is the leveraged loan market as corporate borrowers with floating-rate debt struggle to keep pace with higher borrowing costs.

Higher Defaults

The amount of loans trading at distressed prices, defined as below 80% of face value, has jumped 26% to about $127 billion since the end of February, according to data compiled by Bloomberg. That compares with a 10% increase for bonds to about $488 billion.

“We believe the loan market, which has historically had a lower default rate than the high yield bond market, will record a higher rate during this cycle,” Armen Panossian and Danielle Poli, managing directors at Oaktree Capital Management LP, wrote in a memo last week. “This is due to the covenant-lite nature of most loans and the rising prevalence of loan-only capital structures.”

Credit Chatter

Company executives worldwide, meanwhile, are talking about credit on conference calls at the highest rate since the pandemic hit, according to data compiled by Bloomberg News. Some mentions include Evercore Inc.’s Chief Executive Officer John Weinberg noting an increase in restructuring and liability management business and Peabody Energy Corp. investor relations vice president Karla Kimrey saying the company has positioned itself to avoid uncertain credit markets.

 

©2023 Bloomberg L.P.

Edited April 29, 2023 by sancho panza

[Harley]

11 hours ago, MrXxxx said:

I think this is the issue with a lot of universities now post-expansion, gone are the 'Hallowed halls' of critical thinking/thinkers. Now it's more about regurgitating the dogma, and any academic who tries to extend research thinking outside of this fails to get funding, as the funding panel if full of academics that uncritically follow the dogma and so refuse/reject the funding application.

It was like that decades ago.  Mostly Keynes, a bit of monetarism, no Austrian. 

[wherebee]

3 minutes ago, Harley said:

It was like that decades ago.  Mostly Keynes, a bit of monetarism, no Austrian. 

I had to attend some economic lectures as part of my courses (like a crossover thing).  The lecturer got very annoyed when I was asking questions which basically showed the theories were full of shit as far as the real world and human behaviours went.  I can't imagine it got better over the past 30 years.

[Froggy2000]

1 hour ago, wherebee said:

I had to attend some economic lectures as part of my courses (like a crossover thing).  The lecturer got very annoyed when I was asking questions which basically showed the theories were full of shit as far as the real world and human behaviours went.  I can't imagine it got better over the past 30 years.

This is one of the reasons im so glad i found this thread. Ive always been someone who likes to get involved and understand things properly and i tried taking that approach with my investing but i found it completely impossible to get any logical sense from economic textbooks, ft etc. It was obvious i was being bullshited. Imprecise language, obvious logical fallacies, key points ignored or glossed over. Its all Keynesian crap designed to keep us ignorant and poor. 

[Castlevania]

2 hours ago, Harley said:

It was like that decades ago.  Mostly Keynes, a bit of monetarism, no Austrian. 

I studied at the business school as opposed to the economics department and they absolutely loved both the Austrian and Chicago school. I learnt a lot about Friedman, Schumpeter, Hayek etc. Not much on Keynes or monetarism.