Credit deflation and the reflation cycle to come (part 6)

[JMD]

Lyn Alden on interest rates and inflation.

https://www.lynalden.com/july-2023-newsletter/

 

[Noallegiance]

[Sugarlips]

7 hours ago, JMD said:

Lyn Alden on interest rates and inflation.

https://www.lynalden.com/july-2023-newsletter/

 

A good read as usual. If we assume Lyn is right that the US appears to be turning Japanese ie Interest rate settings are becoming less effective, what does that mean? Well Japan had the mother of asset crashes and recessions in the ‘90’s. Presumably that would need to happen in order to come out the other side with a smaller economy?

[crashmonitor]

Don't know whether anybody posted the super hawk's  outlier report from Schroder's of six days ago. 0.5 % raise for August predicted followed by a further 1.0% raise in the autumn, which would put Base Rates at 6.5 %.

 

Asad Zangana's report....

 

https://www.schroders.com/en-gb/uk/intermediary/insights/uk-should-brace-for-6-5-interest-rates-here-s-why-we-ve-raised-our-forecast/

[sleepwello'nights]

11 hours ago, Plan-b said:

Especially when trying to protect it from the Government and the BoE, ironic when in effect we pay their wages to serve us - not to devalue our labour or give it away to anybody they see fit.   

That's the theory but it has never been so. Even Plato recognised it in the days of the Greek civilisation. 

 

11 hours ago, Plan-b said:

Technically I wrote 'County Party' risk so I was in error twice 

Ha ha. When I first read it I thought which counties, Yorkshire maybe, Essex?

[kibuc]

16 hours ago, DurhamBorn said:

the river forms a loop and comes close together forming a high peninsula,fantastic defensive position.

 

Not if you actively fish out the invaders, bring them on-site and provide accommodation. Otherwise yes, a fantastic defensive position indeed.

Edited July 3, 2023 by kibuc

[Cattle Prod]

On 01/07/2023 at 12:12, Calcutta said:

CBDC are a scare story. Maybe tptb could swing it so benefits are paid on a prepay card and only usable with time limits and on certain goods. That's a big maybe tho, they'd spend decades fucking it up and they'd never be able to patch up the holes in the system.

For anything else it's pure fantasy that the government or their representatives could inflict that level of control on the population.

People went along with lockdown because they liked it. Wearing a mask in the shops was a minor inconvenience when considering we all got a few months hanging out with our kids and playing the Xbox.

How many coppers are there on duty in the county at any one time? Most I've seen is about two dozen after a stabbing. One helicopter, few cars, couple of meat wagons.

On a quiet Saturday morning I reckon if the shout went round we could get together a couple of hundred lads ready to fight for a decent reason. 

The police can't control one fucking gypsy camp armed with a couple of shotguns and a few dogs. What chance have they got against a whole town? Never mind when they have to try and deal with the inner cities.

It's not happening. The government and the police have power because they print money and give it to us. They can stop doing that if they want, we'll just come and take their shit. 

"At night we control the land, and that's the same thing as owning it."

Reading that is a great start to the week! Thanks C, I have an urge to stick on some NWA and sit on my porch for the day 

[Errol]

42 minutes ago, kibuc said:

Not if you actively fish out the invaders, bring them on-site and provide accommodation. Otherwise yes, a fantastic defensive position indeed.

Very English. Gives them a sporting chance.

[Long time lurking]

They are really going for shit or bust ,if this is correct and not just an "excuse"  as in look we never allowed it to happen honest gov or a scare tactic  ,her days could well be numbered 

[DurhamBorn]

I have been running numbers, UK v EMs,but mostly Asia and the roadmap is showing some striking direction.It is showing,on present numbers (ie policy) returns from Asia for sterling investors over the next 25 years of 470%.The divergence is huge.The numbers for the UK were so bad i cut them by two thirds,so just steadily falling away,when they showed steep declines.This doesnt mean some UK investments wont do well,some might even match Asia,but it will need to be very selective.

I have been buying a few US companies (Verizon,Walgreens),but really i should be looking for more with exposure to Asia.

In normal reflation cycles,Asia doing so well would also lift the west,as they use their growing savings to buy our goods and services,but it might not be pronounced this time for lots of reasons.Im really running across portfolios here thinking how do i hedge my Asia and EM exposure,not using them as a hedge.Its also making me question if i should lower IMPs and increase BAT because BAT has much bigger Asian exposure.

One thing i did notice is Asia is resource light.So that should mean two things.First they out compete a lot of the west for resources as they will have strengthening currencies,and two they will likely really push tech and productivity growth to get more from less.It should also bode well for resource rich EM countries,not long term,but medium term.Watch for much more Asian activity in Africa.

Its been a little rough since the start of the year,but i think we are very very well positioned.Asia,EMs,companies with big exposure.

Get ready for K pop and Asian trends to become the cool and the very mention of UK BTL not the done thing in civil society.

[spygirl]

3 hours ago, Sugarlips said:

A good read as usual. If we assume Lyn is right that the US appears to be turning Japanese ie Interest rate settings are becoming less effective, what does that mean? Well Japan had the mother of asset crashes and recessions in the ‘90’s. Presumably that would need to happen in order to come out the other side with a smaller economy?

Ine ht 90s slow dfonw - even the 99/00s - a full range of ages were fullyenggaed with the housing market.

By full range, I mean 25 -> 55.

You crank up IRs and mortgage become a lot more exensive, so money drains quickly out ofthe economy.

Ftaqs foeward 20 years i nthe UK and youve the isutation that sod all people under 45 have little to no housig equity.

Youraise rates and you get the povery industry clamourign for more benefits for the doley scum or OAPs, a lot whom own BTLs.

 UKGOV cannot solely rely on rising IRs to drain money out of the system.

They need to cut inwork benfits and OAPs benefots beyond statent pension.i.e pension creditm, free bus pass etc.

As it stands, tryign to raise IR is goign to detryo the poor sods in London/Se whove bough inflammbed HTB flats.

 

 

[Underwhelmed]

11 minutes ago, DurhamBorn said:

I have been running numbers, UK v EMs,but mostly Asia and the roadmap is showing some striking direction.It is showing,on present numbers (ie policy) returns from Asia for sterling investors over the next 25 years of 470%.The divergence is huge.The numbers for the UK were so bad i cut them by two thirds,so just steadily falling away,when they showed steep declines.This doesnt mean some UK investments wont do well,some might even match Asia,but it will need to be very selective.

I have been buying a few US companies (Verizon,Walgreens),but really i should be looking for more with exposure to Asia.

In normal reflation cycles,Asia doing so well would also lift the west,as they use their growing savings to buy our goods and services,but it might not be pronounced this time for lots of reasons.Im really running across portfolios here thinking how do i hedge my Asia and EM exposure,not using them as a hedge.Its also making me question if i should lower IMPs and increase BAT because BAT has much bigger Asian exposure.

One thing i did notice is Asia is resource light.So that should mean two things.First they out compete a lot of the west for resources as they will have strengthening currencies,and two they will likely really push tech and productivity growth to get more from less.It should also bode well for resource rich EM countries,not long term,but medium term.Watch for much more Asian activity in Africa.

Its been a little rough since the start of the year,but i think we are very very well positioned.Asia,EMs,companies with big exposure.

Get ready for K pop and Asian trends to become the cool and the very mention of UK BTL not the done thing in civil society.

well K pop girl band Blackpink (nver heard of them until yesterday) were headlining at Hyde Park BST yesterday

[Eventually Right]

22 minutes ago, DurhamBorn said:

Get ready for K pop and Asian trends to become the cool and the very mention of UK BTL not the done thing in civil society.

Wait, so now the UK is likely to collapse to a soundtrack of K pop?!

I'd mentally accepted the coming crime and political extremism...but this?

[Stuey]

18 minutes ago, Underwhelmed said:

well K pop girl band Blackpink (nver heard of them until yesterday) were headlining at Hyde Park BST yesterday

@Stuey's favourite band 

[Axeman123]

Another day, another bearish Telegraph headline:

Sellers slash asking prices as mortgage crisis hits the housing market

Quote

...Mike Staton, of Staton Mortgages, a broker in Nottinghamshire, said there is also a huge difference between advertised prices and those which sellers are actually able to achieve – even after a cut. Mr Staton blamed “ridiculous marketing valuations” for unrealistic prices that do not reflect the current state of the market. He said: “Many vendors still believe it’s 2018, whilst buyers think it’s 2008. We have seen a lot of down valuations.” In one case, a mortgage lender downgraded a property’s value by £38,000 compared to its agreed sale price, Mr Staton added...

https://www.telegraph.co.uk/business/2023/07/03/sellers-slash-house-prices-mortgage-rates-rises-hits-market/

[JMD]

3 hours ago, Sugarlips said:

A good read as usual. If we assume Lyn is right that the US appears to be turning Japanese ie Interest rate settings are becoming less effective, what does that mean? Well Japan had the mother of asset crashes and recessions in the ‘90’s. Presumably that would need to happen in order to come out the other side with a smaller economy?

Yes I fear world markets tumbling and not recovering for 20 years.

Should we be looking for early warning signs, by say monitoring the 'usual suspects' (I wouldn't know which ones tbh, but how about outfits like JPM?) for them selling significant positions, but perhaps exiting slowly so not to cause market jitters? I wonder did any fund managers do similar 'suspicious selling' last time pre-2007 GFC? 

[JMD]

2 hours ago, kibuc said:

Not if you actively fish out the invaders, bring them on-site and provide accommodation. Otherwise yes, a fantastic defensive position indeed.

Yep, even the RNLI are now fully woke - has anyone heard them prattle on about how rescuing the small boats is core to their mission? Institutional decay is happening everywhere.

[spygirl]

15 minutes ago, Axeman123 said:

Another day, another bearish Telegraph headline:

Sellers slash asking prices as mortgage crisis hits the housing market

https://www.telegraph.co.uk/business/2023/07/03/sellers-slash-house-prices-mortgage-rates-rises-hits-market/

Asking prices are a good 30% more than selling prices.

Teh move from ~2% to ~6% will knock 30% off selling prices.

 

[JMD]

1 hour ago, DurhamBorn said:

I have been running numbers, UK v EMs,but mostly Asia and the roadmap is showing some striking direction.It is showing,on present numbers (ie policy) returns from Asia for sterling investors over the next 25 years of 470%.The divergence is huge.The numbers for the UK were so bad i cut them by two thirds,so just steadily falling away,when they showed steep declines.This doesnt mean some UK investments wont do well,some might even match Asia,but it will need to be very selective.

I have been buying a few US companies (Verizon,Walgreens),but really i should be looking for more with exposure to Asia.

In normal reflation cycles,Asia doing so well would also lift the west,as they use their growing savings to buy our goods and services,but it might not be pronounced this time for lots of reasons.Im really running across portfolios here thinking how do i hedge my Asia and EM exposure,not using them as a hedge.Its also making me question if i should lower IMPs and increase BAT because BAT has much bigger Asian exposure.

One thing i did notice is Asia is resource light.So that should mean two things.First they out compete a lot of the west for resources as they will have strengthening currencies,and two they will likely really push tech and productivity growth to get more from less.It should also bode well for resource rich EM countries,not long term,but medium term.Watch for much more Asian activity in Africa.

Its been a little rough since the start of the year,but i think we are very very well positioned.Asia,EMs,companies with big exposure.

Get ready for K pop and Asian trends to become the cool and the very mention of UK BTL not the done thing in civil society.

In terms of Asia exposure i think you've said before you like Japan Tobacco, would you consider buying JT (although it's SP is up at present) instead of more BAT?

[Cattle Prod]

Nice visual here:

A good visual gets you thinking. What it makes me think is:

- Oil is single use only. Once it's used, it's gone. all the others have a recycling component.

- All the other commodities require crude oil to be extracted. They are dependent on and tied to oil, like the moons around Jupiter.

- The world needs to find 2.1 trillion dollars every year to pay for oil. If they don't, their country rapidly collapses (Sri Lanka for a recent example). They will sell anything to get the dollars for oil in a crunch: gold reseves, national infrastructure, people's futures (via tax or inflation).

- The US deficit is exporting enough dollars at current prices to facilitate this trade, but it needs the dollar recipients (mostly OPEC) to buy US Treasuries in return (essentially the petrodollar deal with Saudi).

- If oil price rises say 2x to $140, and the crude oil market becomes $4.2 trillion, there will be a scramble for dollars to pay for it, and a paradoxical selling of US treasury holdings to get the dollars from the Fed. This started happening last year, eg in Japan, and I think this is why they started dumping the SPR: to protect the treasury market. But as said, oil is 'use once' commodity. They may as well have burned gold in Fort Knox.

- The alternative is to not have to pay for the oil in dollars, and the first moves to this have been well discussed. I think any move away from the dollar will have to have trade balances cleared in gold.

- You could back the oil market with gold if gold was 11x the current price, at current oil prices.

- India's oil demand has risen by 1mbpd yoy, to speak to @DurhamBorns point on Asia. It has a long way to go. 

I think almost everything macro we are trying to figure out here is tied into the above somehow. DB's roadmap of EMs particularly in Asia outgrowing the West mirrors the flow of oil east. They will easily be able to outbid the West if deficit nations printing money are rejected in favour of harder currencies based on commodity production and countries with budget surpluses. Net Zero bollocks fits in too, there are no better cards for western elites to play. It all comes back to energy IMO.

 

[DoINeedOne]

Great discussion about the madness of housing focused mostly on Australia 

But not much different to the UK

https://www.dropbox.com/s/eih2iaysooiyvq3/woooooo.mp3?dl=1

[Axeman123]

36 minutes ago, JMD said:

Yep, even the RNLI are now fully woke - has anyone heard them prattle on about how rescuing the small boats is core to their mission? Institutional decay is happening everywhere.

Pedantic to say but that is institutional capture, not decay. You could argue that unstitutional capture wouldn't be possible if the institutional culture hadn't already decayed, but I still see a distinction.

The whole point of woke/inclusion etc seems to be as a trojan horse to get placemen ready to radically reorient organisations, as has happened with RNLI.

[Axeman123]

We see this headline and similar of late:

Banks pressed by MPs to make further rate hikes for savings customers

Quote

...Treasury Committee member Dame Andrea Leadsom said: “While banks play a vital role in our society, stimulating economic growth and supporting thriving businesses, it’s quite clear they have failed to pass on the rise in interest rates to savers.”...

https://uk.finance.yahoo.com/news/banks-pressed-mps-further-rate-103237922.html

...and that makes no sense as a government priority in the current shitshow. Banks need to build reserves ready to absorb losses, and this is usually done by expanding the margin between deposit and loan rates. Raising loan rates is obviously a very hot button right now, so why block banks only other approach?

You may say it is just boomer-cosseting electioneering. I think there is more to it though. It has been observed that boomer mortgage-free owner-occupiers are immune to rate-rises, and are driving a lot of inflation with their spending. They historically have a high-propensity to save in high-street savings accounts if the rates are attractive. Logically the way to shrink their spending is to entice them back to saving, by pushing banks to pay "attractive" (negative real) rates.

Maybe the plan for the banks is that with enough deposits reserves won't be as important, and the associated requirements can be fiddled with by regulators to extend and pretend.

[DurhamBorn]

1 hour ago, Underwhelmed said:

well K pop girl band Blackpink (nver heard of them until yesterday) were headlining at Hyde Park BST yesterday

Thats cross market right there.I noticed in Durham Asian students everywhere as huge intake to uni and the difference.Smart,slim,clever,then the UK bennie lot in their grey leggings and joggers.Its clear who has the rising culture and who has the collapsing one.Korea looks superb for investing to me,small enough so their cities can go all tech as well.

[DurhamBorn]

1 hour ago, JMD said:

Yes I fear world markets tumbling and not recovering for 20 years.

Should we be looking for early warning signs, by say monitoring the 'usual suspects' (I wouldn't know which ones tbh, but how about outfits like JPM?) for them selling significant positions, but perhaps exiting slowly so not to cause market jitters? I wonder did any fund managers do similar 'suspicious selling' last time pre-2007 GFC? 

Not what my numbers are showing at all.Yes most western are over valued,but there is huge liquidity that can move,and i think will,EMs look fantastic,my worry is making so much i blow up through all allowances and get bent over by the government.