Jump to content
DOSBODS
  • Welcome to DOSBODS

     

    DOSBODS is free of any advertising.

    Ads are annoying, and - increasingly - advertising companies limit free speech online. DOSBODS Forums are completely free to use. Please create a free account to be able to access all the features of the DOSBODS community. It only takes 20 seconds!

     

IGNORED

Credit deflation and the reflation cycle to come.


DurhamBorn

Recommended Posts

DurhamBorn
15 minutes ago, Gordie Lastchance said:

Can't do better than this, a pair of eyes on the ground to get a sense of what's going on across the pond. DB, does this have all the hallmarks of the coiled spring of inflation to you? I get the feeling from Barnsey's trip that the genie is pushing to escape the bottle and the cork's not got long till it gives.

Inflation is already in the system,lots of it,but the debt is front running it,people are borrowing more to keep heads above inflation.The key is cutting liquidity will cause a debt deflation.The size of the debt is so large that it will then cause massive problems.To stop a free fall CBs will again turn on the taps.The demand will come from government,and that will then tip fire onto the underlying inflation.The next cycle is wealth creation,not consumption.Timing this thing is a mugs game,but we are far enough down the line to adjust,where we are going is all that matters in the end.

 

 

Link to comment
Share on other sites

  • Replies 11.2k
  • Created
  • Last Reply
17 minutes ago, DurhamBorn said:

Inflation is already in the system,lots of it,but the debt is front running it,people are borrowing more to keep heads above inflation.The key is cutting liquidity will cause a debt deflation.The size of the debt is so large that it will then cause massive problems.To stop a free fall CBs will again turn on the taps.The demand will come from government,and that will then tip fire onto the underlying inflation.The next cycle is wealth creation,not consumption.Timing this thing is a mugs game,but we are far enough down the line to adjust,where we are going is all that matters in the end.

This and this 100%

The finance deals on cars were outstanding out there, but ridiculously loose lending standards, one advert I saw play regularly on tv 2 nights running (when I was driving around the Carolinas, Charlotte I think) was along the lines of "Debbie is a waitress, with a credit (FICO) score of just 435, but with our help she's got herself a new Hyundai in minutes!". Just for reference, below 670 is subprime. The debt pushing was visible at the top too, many other ads for the Cadillac Escalade on a (very) low mileage lease for $899 a month, and Range Rover Velar at $599.

Just refocusing our attention on the UK for a sec, are there any areas outside of the SE that will be particularly boosted by a reflationary period? Could the Northern Powerhouse actually become a reality? Could the NE see a much needed boost at last?

Link to comment
Share on other sites

I do (somewhat optimistically and naively) wonder if government turning the taps on during a reflation might mean the north gets some infrastructure spending. Favouring the South East for so long means there’s plenty to go at and it would boost productivity.

 

Link to comment
Share on other sites

Chewing Grass
11 minutes ago, Lavalas said:

I do (somewhat optimistically and naively) wonder if government turning the taps on during a reflation might mean the north gets some infrastructure spending. Favouring the South East for so long means there’s plenty to go at and it would boost productivity.

 

The problem with infrastructure is that it generally needs something to fill it; the days of building infrastructure in the hope that business will come in the west are gone.

The UK currently scrapes by on credit and throwing regulations & beauracracy at each other intersperced with lattes.

Link to comment
Share on other sites

13 minutes ago, Chewing Grass said:

The problem with infrastructure is that it generally needs something to fill it; the days of building infrastructure in the hope that business will come in the west are gone.

The UK currently scrapes by on credit and throwing regulations & beauracracy at each other intersperced with lattes.

I think this is a good point....all well building enterprise zones but if you don't have the people with the skill sets to operate within them they become redundant wastelands...and so the infrastructure provided serves no purpose. Our economy is now based on the finance and service industries...finance is (and will always be) based in the SE, and services are based on consumerism, with a recession this will reduce and/or become price sensitive.

Link to comment
Share on other sites

58 minutes ago, Barnsey said:

This and this 100%

The finance deals on cars were outstanding out there, but ridiculously loose lending standards, one advert I saw play regularly on tv 2 nights running (when I was driving around the Carolinas, Charlotte I think) was along the lines of "Debbie is a waitress, with a credit (FICO) score of just 435, but with our help she's got herself a new Hyundai in minutes!". Just for reference, below 670 is subprime. The debt pushing was visible at the top too, many other ads for the Cadillac Escalade on a (very) low mileage lease for $899 a month, and Range Rover Velar at $599.

Wow, sounds just like the mortgage sub prime fniasco.  Americans certainty don't do things half measure.

Link to comment
Share on other sites

There are already some pretty massive enterprise zones in the North (city sized ones) that are terrible to get to and between thus negatively effecting productivity in comparison to similar conurbations in other countries. Don’t need to redesign the wheel here, just provide some infrastructure approaching the quality that allows the South East to prosper. Anyway, probably for another thread...

Link to comment
Share on other sites

6 minutes ago, Lavalas said:

There are already some pretty massive enterprise zones in the North (city sized ones) that are terrible to get to and between thus negatively effecting productivity in comparison to similar conurbations in other countries. Don’t need to redesign the wheel here, just provide some infrastructure approaching the quality that allows the South East to prosper. Anyway, probably for another thread...

It's certainly interesting to currently see transport projects in the South being accelerated whilst projects in the North are being delayed indefinitely...maybe a case of wait and see what pans out with Brexit?

Link to comment
Share on other sites

DonkeyKong

Hi All,

 

Long time lurker on the other site.

Love this thread, lots of great info. I have bought gold  in the past (when gold was £450 oz), but now looking at potentially getting involved in Silver.

 

Thanks to all for your input

 

Cheers DK

Link to comment
Share on other sites

sancho panza
3 hours ago, Chewing Grass said:

The problem with infrastructure is that it generally needs something to fill it; the days of building infrastructure in the hope that business will come in the west are gone.

The UK currently scrapes by on credit and throwing regulations & beauracracy at each other intersperced with lattes.

They might knock the malls down and rebuild them.

https://wolfstreet.com/2018/07/03/why-vacant-stores-zombie-malls-are-much-bigger-than-mall-vacancy-rates-indicate/

'The retail vacancy rate rose to 8.6% in Q2, the highest since 2012, according to data from real-estate research firm Reis Inc., cited by MarketWatch. By comparison, the peak since the Financial Crisis was 9.4% in Q3 2011:

The impact is especially severe among strip malls and other neighborhood and community shopping centers, which suffered their worst quarter in nine years. About 3.8 million square feet of space was emptied from April to June, pushing the vacancy rate for this type of mall up to 10.2%, Reis said.

Note the magnitude: 3.8 million square feet were “emptied out.” This is tiny compared to the 60 million square feet emptied out by just Bon-Ton and Toys ‘R’ Us.

This is why the “vacancy” data, as unappetizing as they may be, aren’t in a steep swoon, though you’d expect them to be, given the rampant store closures.

But these numbers are deceptive – because something counts as “vacant” only when the landlord tries to fill it with another retailer.

Stores that emptied out and became zombie stores in zombie malls, or the Toys ‘R’ Us stores in bad areas with zero hopes of finding another retail tenant, etc. – they’re not being counted as “vacant” retail space because they’re no longer being marketed as retail space, and the square footage of that retail space disappears from the vacant retail space stats.'

Link to comment
Share on other sites

sancho panza

Re previous yield curve discussions on here and toS

 

https://wolfstreet.com/2018/07/05/as-the-yield-curve-flattens-threatens-to-invert-the-fed-discards-it-as-recession-indicator/

'

As the Yield Curve Flattens, Threatens to Invert, the Fed Discards it as Recession Indicator

by Wolf Richter • Jul 5, 2018 • 16 Comments

This Fed is getting seriously hawkish: It revealed that instead of thinking about backing off rate hikes, it’s replacing the yield curve.

In the minutes of the FOMC meeting on June 12 and 13, released this afternoon, there was a doozie, obscured somewhat by the dynamics of the rate hike plus the indication that there would be two more rate hikes this year, for a total of four, up from three at the prior meeting, with more hikes to come in 2019, along with other changes – a phenomenon I called, This Fed Grows Relentlessly More Hawkish, Gone are the Kid Gloves.

But the doozie in the minutes was about the flattening “yield curve.”

The yield curve is formed by Treasury yields of different maturities: normally, the two-year yield is quite a bit lower than the 10-year yield. Over the last several decades, each time the yield curve “inverted” – when the two-year yield ended up higher than the 10-year yield – a recession followed.  The last time, the Financial Crisis followed.

So this has become a popular recession indicator that has cropped up a lot in the discussions of various Fed governors since last year. Today, the two-year yield closed at 2.55% and the 10-year yield at 2.84%. The spread between them was just 29 basis points, the lowest since before the Financial Crisis.

The chart below shows the yield curves on December 14, 2016, when the Fed got serious about raising rates (black line); and today (red line). Note how the red line has “flattened” between the two-year and the 10-year markers, and how the spread has narrowed to just 29 basis points:

US-Treasury-yield-curve-2018-07-05.png

The chart below shows the two-year yield (black) and the 10-year yield (red) going back to 1992. Note how the spread has been narrowing in recent months (click to enlarge):

US-Treasury-yields-10-year-v-2-year_1992

The chart below tracks this spread for every day back to 2008. Today, the spread, at just 29 basis points, is the lowest since before the Financial Crisis:

us-treasury-yields-spread-2_10-2018-07-0

There has been a lot of handwringing about this being an indicator that the next recession is nearing and that the Fed should back off with its rate hikes.

But this Fed is getting seriously hawkish: In the minutes today, it revealed that instead of thinking about backing off with its rate hikes, it’s throwing out the flattening yield curve.

It explained what factors – in addition to the “gradual” rise in the federal funds rate, as per the Fed’s rate hikes – cause the yield curve to flatten that make it unreliable as a recession indicator:

  • A “reduction in investors’ estimates of the longer-run neutral real interest rate”
  • “Lower longer-term inflation expectations”
  • “Lower level of term premiums in recent years relative to historical experience reflecting, in part, central bank asset purchases” – meaning that QE are artificially repressing long-term yields in relationship to shorter-term yields.

And according to “some participants,” these types of factors “might temper the reliability of the slope of the yield curve as an indicator of future economic activity,” the minutes said.

In other words, the Fed’s massive balance sheet, nine years of near-zero interest rate policy, and other factors might be distorting investors’ thinking. And this distorted thinking causes investors to pile into long-term Treasuries at these low yields, and thus push down these yields further.

Hence, the “information content” of the yield curve – the signals of a coming recession – might be distorted.

There was no consensus among FOMC members about the lack of “reliability” of the yield curve as a predictor, but there was a “staff presentation” about a new recession indicator to replace the yield curve:

This new indicator – rather than looking at the spread between longer-term yields of two years and 10-years – is looking at the spread between short-term yields. It’s “based on the spread between the current level of the federal funds rate and the expected federal funds rate several quarters ahead derived from futures market prices.”

The staff noted that this measure may be less affected by many of the factors that have contributed to the flattening of the yield curve, such as depressed term premiums at longer horizons.

This “staff presentation” took place during the meeting on June 12 or 13. On June 28, the Federal Reserve Board published a note  that explained in greater detail why this new recession indicator would be superior to the yield curve.

The note by two staff economists, Eric Engstrom and Steven Sharpe, tracks the market’s expectations of the next rate cut, based on the logic that the Fed will cut rates when the next recession begins.

The note included the chart below that compares the “long-term spread model” (the yield curve, blue line) to the new “near-term spread model” (red line). It shows that the new model accurately predicted the last five recessions, similar to, but perhaps slightly better than, the yield curve. This occurs when the lines drop toward and below zero. The chart also shows that the spread of the new model is well within range of the past few years and pointing in the right direction (up), while the spread of the long-term yield curve is at the lowest point in 10 years and seriously pointing in the wrong direction (click to enlarge):

US-Treasury-yield-curve-v-short-term-spr

To convert this into an indication of recession probability expressed in percent, as the market sees it, the Fed economists offer the chart below (click to enlarge):

US-treasury-yield-curve-short-term-sprea

It shows how the yield curve (blue line) is indicating a rising probability of a rate cut – the sign of a recession – while, according to the new indicator, “the market is putting fairly low odds” on this scenario.

So just in the nick of time, with the spread between the two-year and the 10-year yields approaching zero, the Fed begins the process of throwing out that indicator and replacing it with a new indicator it came up with that doesn’t suffer from these distortions.

And I have to agree that the Fed’s gyrations over the past 10 years have distorted the markets, have muddled the calculations, have surgically removed “fundamentals” as a consideration for the markets, and have brainwashed the markets into believing that the Fed will always bail them out at the smallest dip. And the yield curve, reflecting all those distortions to some extent, might have become worthless as an indicator of anything other than those distortions.'

Link to comment
Share on other sites

sancho panza
15 hours ago, Barnsey said:

I look for patterns, big believer in cycles, despite QE. Yes, I'll always be guilty of a degree of confirmation bias, but lots of cyclical patterns are beyond, at, or very close to the pattern highs.

What's changed recently is the return of China weakness driven by trade war, the flattening of the yield curve, the rapid rise in subprime defaults, record high employment continuing up, stock market now propped up solely by stock buybacks and so on. Over here it's becoming clear that business is starting to trigger contingency plans in the face of no clear Brexit position, just 9 months left.

It's impossible to time it, but I'd rather be a little early than too late. 2020 is being commonly banded about by respected economists in the media, but they would naturally be on the conservative side of estimates as to not cause a panic and jeopardise their customer base.

Market internals flagging some warnings already.

Quite a few big builders are down 20% over the last month-BKG,TW,BDEV.Be interesting to see if they retrace a la 2016 or keep going a la 2007

In 2007,the big builders popped well before Northern Rock did and a year and a half ahead of the wider market.

History doesn't repeat etc

 

I'm still down for big pop up boom 2019>Too many buybacks on borrowed cash this year.

 

Link to comment
Share on other sites

30 minutes ago, sancho panza said:

Market internals flagging some warnings already.

Quite a few big builders are down 20% over the last month-BKG,TW,BDEV.Be interesting to see if they retrace a la 2016 or keep going a la 2007

In 2007,the big builders popped well before Northern Rock did and a year and a half ahead of the wider market.

History doesn't repeat etc

 

I'm still down for big pop up boom 2019>Too many buybacks on borrowed cash this year.

Likewise that's my gut feeling

Link to comment
Share on other sites

Builders are going absolutely balls out knocking up houses where I am. You cannot move for construction sites. It all absolutely screams put it up quick and flog it because we need the cashflow (and because we soon might not be able to sell anything much at all.) 

Link to comment
Share on other sites

8 minutes ago, Funn3r said:

Builders are going absolutely balls out knocking up houses where I am. You cannot move for construction sites. It all absolutely screams put it up quick and flog it because we need the cashflow (and because we soon might not be able to sell anything much at all.) 

And reduce their land bank.

Link to comment
Share on other sites

32 minutes ago, Funn3r said:

Builders are going absolutely balls out knocking up houses where I am. You cannot move for construction sites. It all absolutely screams put it up quick and flog it because we need the cashflow (and because we soon might not be able to sell anything much at all.) 

This is going to work out nicely for those of us still waiting to move into our first home, I assume most of these current developments under construction were planned and budgeted for some years ago. The build quality sounds disastrous from one colleague at work who's bought one in Didcot, no end of issues he's trying to chase up. I'd never dream of going for one, especially as most of them are leasehold (toxic down the line), but the extra supply is more than welcome. 

Link to comment
Share on other sites

33 minutes ago, Barnsey said:

This is going to work out nicely for those of us still waiting to move into our first home, I assume most of these current developments under construction were planned and budgeted for some years ago. The build quality sounds disastrous from one colleague at work who's bought one in Didcot, no end of issues he's trying to chase up. I'd never dream of going for one, especially as most of them are leasehold (toxic down the line), but the extra supply is more than welcome. 

It's weird, they are building about 15,000 new houses spread across a couple of the big names in my smallish middle to low income city and yet the asking prices are astronomical. As in, the asking price for a no land 3-4 bed would get you a 4-5 bed in some of the very nicest established areas of the city.

Who is going to buy them?  I can understand 2000 btl'ers who haven't got the message, 2-3000 desperate htb'ers who have no choice but new builds. But they need to shift 15,000 of these shit boxes

 

 

Link to comment
Share on other sites

56 minutes ago, Barnsey said:

I assume most of these current developments under construction were planned and budgeted for some years ago.

 

The build quality sounds disastrous from one colleague at work 

There's a really huge Redrow one just near my office. It has had a few pallets of construction things and a "coming soon" hoarding for at least 3 years but now they are going at it hell's bells. Amazes me because I know this area well and site always had those marsh grass things which grandma always told me meant it was a swamp. 

Link to comment
Share on other sites

27 minutes ago, afly said:

It's weird, they are building about 15,000 new houses spread across a couple of the big names in my smallish middle to low income city and yet the asking prices are astronomical. As in, the asking price for a no land 3-4 bed would get you a 4-5 bed in some of the very nicest established areas of the city.

Who is going to buy them?  I can understand 2000 btl'ers who haven't got the message, 2-3000 desperate htb'ers who have no choice but new builds. But they need to shift 15,000 of these shit boxes

As @DurhamBorn rightly points out, these folks are going to be stuck for years in their shitboxes. It's all HTB low deposit stuff, like the housing equivalent of Brighthouse, driven by desperation.

Link to comment
Share on other sites

7 minutes ago, Funn3r said:

There's a really huge Redrow one just near my office. It has had a few pallets of construction things and a "coming soon" hoarding for at least 3 years but now they are going at it hell's bells. Amazes me because I know this area well and site always had those marsh grass things which grandma always told me meant it was a swamp. 

Be careful not to let the little un's dig too deep in the newbuild garden sand pit..."why are the worms glowing daddy?" :D

Google maps is your friend, they're usually built as far as possible from a train station, next to a motorway but not easy to access, under power lines and with a sewage works to the west 9_9

Link to comment
Share on other sites

DurhamBorn
5 minutes ago, Barnsey said:

As @DurhamBorn rightly points out, these folks are going to be stuck for years in their shitboxes. It's all HTB low deposit stuff, like the housing equivalent of Brighthouse, driven by desperation.

Exactly.Worse is they will be stuck and unable to move and buy a better house cheaper.They are walking into a disaster.The only hope is go bankrupt,but then they cant buy for 8 years (2 years during being bankrupt,6 after).The ones near me are the worst houses iv ever seen.£130k for a 3 bed where the front room cant even fit a sofa and chair in.Gardens the size of a car,overlooked on every side,doors that open onto the path.Incredible.HTB is the only reason they sell.

Link to comment
Share on other sites

21 minutes ago, DurhamBorn said:

Exactly.Worse is they will be stuck and unable to move and buy a better house cheaper.They are walking into a disaster.The only hope is go bankrupt,but then they cant buy for 8 years (2 years during being bankrupt,6 after).The ones near me are the worst houses iv ever seen.£130k for a 3 bed where the front room cant even fit a sofa and chair in.Gardens the size of a car,overlooked on every side,doors that open onto the path.Incredible.HTB is the only reason they sell.

And yet those very same rabbit hutches fetching 3 times that down south :S

Link to comment
Share on other sites

leonardratso
1 hour ago, DurhamBorn said:

Exactly.Worse is they will be stuck and unable to move and buy a better house cheaper.They are walking into a disaster.The only hope is go bankrupt,but then they cant buy for 8 years (2 years during being bankrupt,6 after).The ones near me are the worst houses iv ever seen.£130k for a 3 bed where the front room cant even fit a sofa and chair in.Gardens the size of a car,overlooked on every side,doors that open onto the path.Incredible.HTB is the only reason they sell.

the new victorian slums, except the victorian slums were built to last.

Link to comment
Share on other sites

Bricks & Mortar

I think the Northern Powerhouse is a possibility, at least.  North England offers short transport distances to 4 corners of our island - and there's a lot of industrial zoned wasteland, and the cost of both transport and industrial land may be going up in a reflation.

It would go something like:  Government does Brexit - puts tariffs on Chinese solar panels - and in a reflation, offer grants to householders wanting to install solar panels, only if choosing UK manufactured.  Some entrepreneur want to build a factory.  It's a factory for the UK market, so;   Why wouldn't it get built in the North?  Same for prefab houses, home battery storage, electric cars.  Maybe even cheap socks from a robot knitter?

Link to comment
Share on other sites

Castlevania

What are your lots thoughts on Political risk? I just read this article (infomercial) https://www.telegraph.co.uk/investing/funds/43bn-global-fund-manager-brazilian-government-screwed-one-investments/?li_source=LI&li_medium=li-recommendation-widget on the Torygraph website but found this quote interesting

The worst (investment) was Cemig, a Brazilian utility. We thought it was a nice defensive play on Brazil, but regulatory change completely killed the stock. Governments always go to these businesses and screw them when they need money.

So, what’s the likelihood of a UK government in the midst of a reflation tapping up your SSE’s; National Grid’s or Centrica’s for example?

Link to comment
Share on other sites

Archived

This topic is now archived and is closed to further replies.

  • Recently Browsing   0 members

    • No registered users viewing this page.

×
×
  • Create New...