Credit deflation and the reflation cycle to come (part 9)

[AWW]

17 minutes ago, sancho panza said:

Traders think the Bank of England will cut interest rates just once this year after inflation fell less than expected.

We've quite a few what could be called contrarians on the various FICC desks at work. In reality, they've just experienced a wider range of economic conditions than your average Brit, being Russian, Polish, Iranian plus a few others. None of them expect a rate cut from the BoE this year and all expect the BoE's next move to be an increase, potentially as early as Q4 this year.

[Yadda yadda yadda]

12 minutes ago, sancho panza said:

Agreed.Sh1t getting real this morning for the MSM/Hunt/Sunak/WEF types screaming for IR cuts

Inflation higher for longer as per basement thesis....

 

https://www.telegraph.co.uk/business/2024/04/17/ftse-100-markets-latest-news-uk-cpi-inflation-interest-rate/

Traders think the Bank of England will cut interest rates just once this year after inflation fell less than expected.

Money markets indicate that policymakers could wait as late as November before beginning to reduce borrowing costs.

Traders are now pricing in just one interest rate cut this year, compared to expectations of five cuts at the start of 2024.

Derivatives trades had implied on Tuesday that a first cut would come by September, and indicated there would be at least three cuts this year just a few weeks ago.

It comes after inflation fell to 3.2pc in March, according to the Office for National Statistics, which was a two-and-a-half year low but less than forecasts of a fall from 3.4pc to 3.1pc.

We talk about the inflationary effect of wage and benefits increases. The increase in retirees is also inflationary. More Government spending, fewer workers and less saving. As an example I know someone who retired a few years ago. He reached State Pension age at the weekend and will soon receive his first payment. This will double his income. Good for him.

There is so much inflationary pressure that it cannot be brought down without increasing domestic production massively or cutting state spending. Probably both. It just isn't happening.

[Alifelessbinary]

3 hours ago, Jesus Wept said:

S&P reached an ATH of 5268 on March 28th 2024 - it will fall back to around the Covid low. 

The Covid low was 2304pts in March 2020.

S&P is currently 5051pts.

I reckon 2500 or thereabouts is fairly likely.

The crash started in March - you just don’t know it yet. 

Protect yourselves….

 

 

Would you short the market based on this call?

While it’s agreed that the S&P 500 is looking expensive based on historic metrics it’s not the only market you can invest in.

The biggest drag to my performance over the last 5 years has been my overweight position in UK stocks. I thought that the commodity, oil  and dividend payers at sensible valuations would provide a hedge against over priced US stocks but the market decided differently.

The simplest thing to predict in investing is a crash, most people on Twitter have predicted 50 of the last few downturns. 

Protecting capital is more important than going for growth for most people. 

[AWW]

1 hour ago, sancho panza said:

Yen Drops to 155 against USD. Currency Collapse at Work, -32% against USD since 2021, -50% since 2012

Same as happened here post-GFC. Yet no mainstream news outlet reporting on GBP collapse due to terrible monetary and fiscal policy, it's all the usual "Putin's war" and "Kwarteng's disastrous budget" tripe.

[AWW]

4 minutes ago, Yadda yadda yadda said:

We talk about the inflationary effect of wage and benefits increases. The increase in retirees is also inflationary.

Brother in law is an ex Met copper (one of the good ones, sadly not many left) and retired as soon as he could because the pension is inflation linked, but wages aren't.

[Yadda yadda yadda]

1 hour ago, sancho panza said:

Sh1t getting real in the land of the rising sun.Chickens are looking for a perch

a roadmap for turning a sov debt crisis into a currency crisis? @DurhamBorn

https://wolfstreet.com/2024/04/16/yen-drops-to-155-against-usd-currency-collapse-at-work-50-against-usd-since-2012-32-since-2021/

Yen Drops to 155 against USD. Currency Collapse at Work, -32% against USD since 2021, -50% since 2012

Turns out, collapse of the currency is the price Japan is now paying for years of crazed monetary policies.

The only thing that is amazing is how long these kinds of crazed monetary policies can be maintained before something breaks, but then something does break, something big, like a currency. And the free-lunch theory that had driven all this turns out to have been fake.

The BOJ has started to react in tiny baby steps, but there is nothing in these tiny baby steps that would stop the destruction of the yen – it’s still destroying the yen, but in slightly smaller increments.

This is the big risk for for the likes of @Jesus Wept. Currency decline could smash much of any market crash. I also expect markets to crash at some point but that doesn't mean they will fall much in sterling. Especially as any crash could be largely in real rather than nominal terms. If I was going heavily into cash I would hedge through several currencies. I do have just over 20% in cash.

[AWW]

4 minutes ago, Alifelessbinary said:

Would you short the market based on this call?

Exactly, surely it's an easy trade to put on when one expects -50% with such conviction.

[AWW]

2 minutes ago, Yadda yadda yadda said:

This is the big risk for for the likes of @Jesus Wept. Currency decline could smash much of any market crash.

Exactly. This isn't the 1920s, or even the 2000s. The Pandora's box of QE has been opened, and the public have handily been convinced that inflation is nothing to do with QE.

[Mandalorian]

5 hours ago, Jesus Wept said:

S&P reached an ATH of 5268 on March 28th 2024 - it will fall back to around the Covid low. 

 

 

Will it really...?

[AWW]

10 minutes ago, Mandalorian said:

Will it really...?

Of course not. People forget that the Covid low was 4 years ago. How much inflation have we had since then? 25%, 30%, more? Plus the employment element of the Fed's dual mandate that will see them hitting ctrl+P in the face of the sort of economic conditions that would threaten a return to anywhere close to those levels.

[DurhamBorn]

These metals seem to be determined to go up,they could be a coiled spring.Its funny seeing the MSM almost begging for rate cuts,you suspect they are up to their neck in property leverage.They need to campaign for massive bennie and spending cuts,because without a huge cut in consumption by the none producing AND a long big ramp up in production,including energy,food,etc etc this inflation will be rising again soon enough.

[Yadda yadda yadda]

7 minutes ago, DurhamBorn said:

These metals seem to be determined to go up,they could be a coiled spring.Its funny seeing the MSM almost begging for rate cuts,you suspect they are up to their neck in property leverage.They need to campaign for massive bennie and spending cuts,because without a huge cut in consumption by the none producing AND a long big ramp up in production,including energy,food,etc etc this inflation will be rising again soon enough.

If they are leveraged on rental property they're fucked either way. Rate rises, fucked. Bennie cuts means rent freezes so fucked. Good.

[honkydonkey]

Getting back into HBRL today.

[Castlevania]

1 hour ago, sancho panza said:

Agreed.Sh1t getting real this morning for the MSM/Hunt/Sunak/WEF types screaming for IR cuts

Inflation higher for longer as per basement thesis....

 

https://www.telegraph.co.uk/business/2024/04/17/ftse-100-markets-latest-news-uk-cpi-inflation-interest-rate/

Traders think the Bank of England will cut interest rates just once this year after inflation fell less than expected.

Money markets indicate that policymakers could wait as late as November before beginning to reduce borrowing costs.

Traders are now pricing in just one interest rate cut this year, compared to expectations of five cuts at the start of 2024.

Derivatives trades had implied on Tuesday that a first cut would come by September, and indicated there would be at least three cuts this year just a few weeks ago.

It comes after inflation fell to 3.2pc in March, according to the Office for National Statistics, which was a two-and-a-half year low but less than forecasts of a fall from 3.4pc to 3.1pc.

Rental inflation at 9.2% annual to March. That’s before they bang up housing benefit by a lot more in April.

[afly]

Interesting scheme that follows DB's more with less prediction

https://www.shareandcare.co.uk/sharers/

Youngsters living with oldies for very low rent in exchange for jobs/upkeep/company

Mentioned in todays telegraph as it seems to be getting popular in pricier parts of the country.

https://www.telegraph.co.uk/money/property/house-share-with-pensioner-cheap-rent-social-benefits/

I can see some default family inheritors getting a bit twitchy!

[Axeman123]

1 hour ago, AWW said:

We've quite a few what could be called contrarians on the various FICC desks at work. In reality, they've just experienced a wider range of economic conditions than your average Brit, being Russian, Polish, Iranian plus a few others. None of them expect a rate cut from the BoE this year and all expect the BoE's next move to be an increase, potentially as early as Q4 this year.

Interesting. IMO US govt interest cost is getting systemic, so they are going to do something soon. Maybe they will make "the rest of us" hold even after they cut though - a weaker dollar would see increased demand for USTs.

 

[baffledbyzirp]

2 hours ago, sancho panza said:

Sh1t getting real in the land of the rising sun.Chickens are looking for a perch

a roadmap for turning a sov debt crisis into a currency crisis? @DurhamBorn

https://wolfstreet.com/2024/04/16/yen-drops-to-155-against-usd-currency-collapse-at-work-50-against-usd-since-2012-32-since-2021/

Yen Drops to 155 against USD. Currency Collapse at Work, -32% against USD since 2021, -50% since 2012

Turns out, collapse of the currency is the price Japan is now paying for years of crazed monetary policies.

The only thing that is amazing is how long these kinds of crazed monetary policies can be maintained before something breaks, but then something does break, something big, like a currency. And the free-lunch theory that had driven all this turns out to have been fake.

The BOJ has started to react in tiny baby steps, but there is nothing in these tiny baby steps that would stop the destruction of the yen – it’s still destroying the yen, but in slightly smaller increments.

Thanks for the post SP. Very interesting. I have observed on Chrono24, an international website for luxury watches, that the cheapest examples of all Rolex models are heavily skewed towards Japan. By contrast the models available in the UK are on the right hand tail of the distribution. I realise this is anecdotal, however metrics that are largely ignored by the MSM, including, cost of shipping containers, energy use, traffic volumes, amount of waste, Baltic Dry Index etc. are far more revealing than the conventional tropes beloved of Bloomberg such as GDP, unemployment rates, inflation, deficits etc.

Tracking data of prices relative to location and changes over time would allow insight into where people are really feeling the pinch and having to sell their favourite toys together with relative currency strengths. You can already track used prices on the site and I believe there is a Birkin Bag Index. 

It looks as though people who bought high end watches in Japan, when the Yen was comparatively stronger, are now taking the profit resulting from currency devaluation and the watch market in general. What next? What is the last asset you sell when you are skint?

[DurhamBorn]

52 minutes ago, afly said:

Interesting scheme that follows DB's more with less prediction

https://www.shareandcare.co.uk/sharers/

Youngsters living with oldies for very low rent in exchange for jobs/upkeep/company

Mentioned in todays telegraph as it seems to be getting popular in pricier parts of the country.

https://www.telegraph.co.uk/money/property/house-share-with-pensioner-cheap-rent-social-benefits/

I can see some default family inheritors getting a bit twitchy!

Those schemes popping up are interesting,its starting.One of the best things ever for me was drinking late teens early 20s with the old fellas in the workmans club.Great laugh and taught me more than i would ever learn in school,could be great for both parties.Like you say inheritors who do very little for older family members but expect the inheritance might start to worry.

[M S E Refugee]

2 hours ago, Royston said:

Hes held 29% for a good long time so it was always surely on the cards, unfortunately for now at least it's still not even uplifted the sp back to where it was just a few months ago and still a long way below where I wish I'd sold up at as a long term holder!

Thoughts from @M S E Refugee our only remaining resident postie?

He probably needs to merge Royal Mail and Parcelforce,it's daft having two companies doing essentially the same work.

Also the vehicle fleet urgently needs replaced.

As always Royal Mail had plenty of unrealised potential.

[Festival]

2 hours ago, Alifelessbinary said:

Would you short the market based on this call?

While it’s agreed that the S&P 500 is looking expensive based on historic metrics it’s not the only market you can invest in.

The biggest drag to my performance over the last 5 years has been my overweight position in UK stocks. I thought that the commodity, oil  and dividend payers at sensible valuations would provide a hedge against over priced US stocks but the market decided differently.

The simplest thing to predict in investing is a crash, most people on Twitter have predicted 50 of the last few downturns. 

Protecting capital is more important than going for growth for most people. 

 Couldn’t agree more with this. I run two portfolios one is overweight UK stocks (baccy, commodities, telcos gold etc) and the other for Mrs F is broadly invested in global equities low cost trackers. She is beating me comfortably over last 5-7 years. Both have protected capital to a greater or lesser extent compared to 60/40  over the same period, but low cost accumulating funds in US, Jap, even EU has won hands down total return wise to this point. Maybe the cycle will turn now decisively towards commodities in a second wave of inflation and I’ll keep some weighting for this but I won’t be the house on any outcome and I expect many won’t either unless they are either quite new to the investment game or have little to lose and much to gain. 

[DoINeedOne]

25 minutes ago, M S E Refugee said:

He probably needs to merge Royal Mail and Parcelforce,it's daft having two companies doing essentially the same work.

Also the vehicle fleet urgently needs replaced.

As always Royal Mail had plenty of unrealised potential.

Honest question, why are RoyalMail so bad at scanning parcels or tracked letters, laziness or just a shit system

Edited April 17 by DoINeedOne

[Lightscribe]

15 minutes ago, Festival said:

 Couldn’t agree more with this. I run two portfolios one is overweight UK stocks (baccy, commodities, telcos gold etc) and the other for Mrs F is broadly invested in global equities low cost trackers. She is beating me comfortably over last 5-7 years. Both have protected capital to a greater or lesser extent compared to 60/40  over the same period, but low cost accumulating funds in US, Jap, even EU has won hands down total return wise to this point. Maybe the cycle will turn now decisively towards commodities in a second wave of inflation and I’ll keep some weighting for this but I won’t be the house on any outcome and I expect many won’t either unless they are either quite new to the investment game or have little to lose and much to gain. 

Because commodities don’t go up in a straight line in a series of inflationary cycles.

In 2022 it may of been the other way around when tech and the Mag 7 sold off.

Taking the last window of 7 years you’ve mixed up both disinflationary and inflationary period (I was 100% in a passive US/developed world/EMs weighted 60/30/10 up until 2019)

2020 was the start of an inflationary cycle. I also sold off commodities as they reached peaks in the first inflationary wave and have rebought in the deflationary stage when the markets expected rate cuts and the it looked like inflation was dropping.

It’s like gold/silver, they are cylindrical. Now during this secondary inflationary wave onwards would historically be bearish for growth stocks for the rest of the decade. Weighted in commodities historically in similar circumstances would outperform.

Basically your window of reference does not allow enough correlation. The last time we faced similar circumstances was in the 1970’s.

Edited April 17 by Lightscribe

[AWW]

8 minutes ago, Lightscribe said:

It’s like gold/silver, they are cylindrical.

Nah, they're trapezoidal prisms.

Unless you only stack coins.

[M S E Refugee]

14 minutes ago, DoINeedOne said:

Honest question, why are RoyalMail so bad at scanning parcels or tracked letters, laziness or just a shit system

Much of it is still done by hand with a finger scanner.

But in general our systems are antiquated.

[nirvana]

alright bruvs........anyone wanna buy any sovs? cushty

have I missed much? got bored upstairs......