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Credit deflation and the reflation cycle to come.


DurhamBorn

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7 hours ago, spygirl said:

Its not foreign, just the following:

- Change to EU student fiannces. At the mo they can turn up to the UK and dump the fees on the UK tax payer. Needs to go back to paying upfront.

- China pulling all its students.

EU + CHinese is over 3/4 of foreign students i n the UK. And bioth are most likely to use halls.

On my earlier Unite comment., I dont know who's on got their neck on theline. Its normally the biggest idiot in the contract, so the HE body rather than the builder.

 

A great way of looking at it.I don't know whther the Uni's rent the blocvks and then rent the rooms or merely serve up the students.I suspect,the lenders will be deep in the hole on these as there's little other use for these buildings.

6 hours ago, MrXxx said:

I had a uni cfo recently explain to me why their accounts looked good but they were cash flow poor, seems that they have to put the current market value of the new residences they are building on to their balance sheet (in the profit column of course) but if they hadn't things didn't look so financially stable...couldn't help thinking how like a leveraged BTL this was!

They've spent a lot on buildings and class these as aassets-balance sheet.But a drop in studetn numbers leaves them cash flow poor.But their assets sans students are worth a lot less.

5 hours ago, Barnsey said:

Nothing can be certain of course, but the contrarian consensus seems to be that this rally will be quite a sizeable one, and really suck the final speculators in before throwing up in the new year. Have seen guesstimates for SPX anywhere between 2900 and 3500 by Jan/Feb, maybe a little further out than that.

You just never know how things will turn out in the end but I have to say that it's been fascinating watching technicals show direction of markets well before Trump tweets, makes you ponder bigger questions about how everything works in the financial world.

You jsut have to be sure you don't get run over by it.Much as I share the santa rally possibility,it's hard to see who'll lead it.AMZN,AAPL,TSLA,NVDA,FB etc would have to take out previous highs.I can see Amazon maybe but the rest....no.

Any ideas on the names that will lead up?What's being bandied about?

4 hours ago, DurhamBorn said:

My stab is 3300 on the SPX or even maybe 3500.Last run should be the miners and industrials and maybe some stunning individual moves.Gold to $1500 and silver $24,dollar down to 87.GDX to $38.Then TLT should run to $160 as the 10 year drops to 1/2% as the debt deflation shows itself in all its glory.

3300.Ballsy call.Miners ramping up today.As per above,any particualr names that will in the indutrials?

 

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20 minutes ago, DurhamBorn said:

I think a lot depends where the markets are once they hear the Fed start to back off from rate increases.Its that short time where people buy due to easier policy before its obvious the easier policy is far too late.The final high doesnt matter to anyone outside of trackers of course.From investing i have no interest in where the S+P goes,up or down,the dollar will drive most of my present investments.

The easier policy is surely indicative of the reason they raised rates in the first place? Powell wants to cut into this recession.

 

PS have to add UK markets is seeing more and more blue chip names roll over long term trend lines.my list grows by the day.

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34 minutes ago, sancho panza said:

chart of doom for teh credit bubble in the UK

https://www.investing.com/equities/restaurant-group-company-profile

The Company's principal trading brands include Frankie & Benny's, Chiquito and Coast to Coast. The Company's Frankie & Benny's brand offers classic Expensive crap microwavable American and Italian style food and drinks.

 

 

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Democorruptcy
42 minutes ago, DurhamBorn said:

I think a lot depends where the markets are once they hear the Fed start to back off from rate increases.Its that short time where people buy due to easier policy before its obvious the easier policy is far too late.The final high doesnt matter to anyone outside of trackers of course.From investing i have no interest in where the S+P goes,up or down,the dollar will drive most of my present investments.

S&P at your 3,500 now would be another +25% from here. I noticed the truecontrarian said he had closed all his shorts.

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7 hours ago, DurhamBorn said:

My stab is 3300 on the SPX or even maybe 3500.Last run should be the miners and industrials and maybe some stunning individual moves.Gold to $1500 and silver $24,dollar down to 87.GDX to $38.Then TLT should run to $160 as the 10 year drops to 1/2% as the debt deflation shows itself in all its glory.

I wonder what $22 silver would do to Tahoe takeover bid. Granted, it's at 55% premium, but with silver rocketing up some shareholders might reconsider.

 

Speaking of devil, Tahoe keeps doing Tahoe things.

https://incakolanews.blogspot.com/2018/12/tahoe-resources-taho-thoto-arrogance.html?utm_source=feedburner&utm_medium=twitter&utm_campaign=Feed:+IncaKolaNews+(inca+kola+news)&m=1

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2 hours ago, sancho panza said:

You jsut have to be sure you don't get run over by it.Much as I share the santa rally possibility,it's hard to see who'll lead it.AMZN,AAPL,TSLA,NVDA,FB etc would have to take out previous highs.I can see Amazon maybe but the rest....no.

Any ideas on the names that will lead up?What's being bandied about?

Nothing in particular Sancho, all up and down together it seems.

3yr/5yr treasury yield curve has just inverted :ph34r:

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1 hour ago, Barnsey said:

Nothing in particular Sancho, all up and down together it seems.

3yr/5yr treasury yield curve has just inverted :ph34r:

Thanks for making me aware.Interesting.I was jsut about to shut my Starbucks short but I might jsut leave it running....

Have to say UK wise,there's loads of oversold builders and assorted otehrs out there.I'm awaiting some sort of decent rally into chriggy for me to realign for teh big push in the NY.

https://www.bloomberg.com/news/articles/2018-12-03/the-flattening-yield-curve-just-produced-its-first-inversion

'The Flattening Yield Curve Just Produced Its First Inversion

By 
December 3, 2018, 8:00 PM GMT+1

One section of the U.S. Treasuries yield curve just inverted for the first time in more than a decade.

 
 

The spread between 3- and 5-year yields fell to negative 0.7 basis points on Monday, dropping below zero for the first time since 2007, in what could be the first signal that the market is putting the Federal Reserve on notice that the end of its tightening cycle is approaching.

 
 
490x-1.png

Some analysts attributed the short-end underperformance to demand for riskier assets as global trade tensions eased following this weekend’s tariff truce between U.S. President Donald Trump and China’s Xi Jinping. Others pinned it to modestly higher expectations for Fed hikes next year after the summit between the two leaders. Either way, the five-year is faring better because investors anticipate the end of the central bank’s hiking path beyond next year.

4 hours ago, Democorruptcy said:

S&P at your 3,500 now would be another +25% from here. I noticed the truecontrarian said he had closed all his shorts.

To be fair to him,he rode Amazon from the top down.Ballsy call.

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On 30/11/2018 at 02:43, Castlevania said:

They've gone into normal administration, not pre pack as nobody wants them.

https://www.thisismoney.co.uk/money/mortgageshome/article-6455219/Emoov-calls-administrators-sales-talks-collapse.html

 

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Talking Monkey
12 hours ago, DurhamBorn said:

My stab is 3300 on the SPX or even maybe 3500.Last run should be the miners and industrials and maybe some stunning individual moves.Gold to $1500 and silver $24,dollar down to 87.GDX to $38.Then TLT should run to $160 as the 10 year drops to 1/2% as the debt deflation shows itself in all its glory.

Would those stunning individual moves be in the miners DB

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7 hours ago, Option5 said:

They've gone into normal administration, not pre pack as nobody wants them.

https://www.thisismoney.co.uk/money/mortgageshome/article-6455219/Emoov-calls-administrators-sales-talks-collapse.html

 

What’s the founder (Russel Quirk) background - estate agency ? Ok was the plan was to offload the thing onto Aim ? Lucky escape I guess. I wonder if that merger got completed - Sarah Beeny laughing to the bank ? (Always comes across as sharp on business)

In April Emoov reported net liabilities of £583,824 for the year to 30 April 2017, up from £275,896 the previous year. 

The group had been loss-making since it was founded in 2009, and had expected to post a profit by 2020. 

In May this year Emoov announced a £100million merger with Urban.co.uk and Tepilo, founded by television presenter Sarah Beeny, in a bid to create a rival to leading online estate agent Purplebricks.

Founder Quirk went on to say in an interview that the business could be capitalised as £500million to £700million in the next two years.  

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Most of you probably know this already, but the US 10yr-2yr treasury yield curve is considered to be THE recession indicator once it inverts, and past couple days it's been in freefall, now close to inversion at 0.13, lowest since 2007.

Once it does invert, usually means a recession is 6-15 months away, 6 months being the lag for the 2000 inversion, quite possible this time around. Of course, we won't find out the recession has begun until many months later.

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12 hours ago, Option5 said:

They've gone into normal administration, not pre pack as nobody wants them.

https://www.thisismoney.co.uk/money/mortgageshome/article-6455219/Emoov-calls-administrators-sales-talks-collapse.html

 

The denial in the High St mob is intriguing.

I maintain all you need to sell a house is access to Rm and Zoop and a decent conveyancer.Quite why these parasites believe they are needed to sit betwixt buyer and seller I'll never know.

The fact they couldn't get enough business through the front door at £895 a pop tells us that the PB model will win.£500 tops for access to RM/Zoopla

https://www.propertyindustryeye.com/eye-newsflash-emoov-administrators-are-appointed/

'smile please

Well we all saw it coming years ago.

Its not viable, the public do not want it.

Lets look at the list Emoov, Tepilo, Urban, Hatached, Countrywide, Easy Property (rehashed) – All failed or failing.

YOPA, PurpleBricks, HouseSimple, and others … Just a matter of time.

LONG LIVE THE HIGH STREET!'

 

WestMidsValuer97

Couldn’t agree more….these hybrids need to sod off so we can get back to normality and make the industry what it used to be with a firm concentration on service.

 

Woodentop

Anyone who thinks they can buy customers in Estate Agency are delusional. We are a SERVICE INDUSTRY, end of chapter, verse and book. It will not be long before the rest will go, as they are all based on cheap fee’s, non-profit making (ALL) and all fail miserably at level of SERVICE and standards. All they have ever achieved is be a disruptor to a profession that has strived to prove its worth to the consumer, while coming under attack from these failing and franking dishonest marketing tactics of online only agents. No sympathy, you have costs misery for many, jobs and viability of many a good business. You didn’t give a damn about these people, so why should we with you? You all knew what you were up to.

 
Lollipop04

You really pay for what you get. Long live the high street! But how about the public? Seriously selling or buying a house is never going to be ‘cheap’ we need a documentary, LouisTheroux anybody? To educate the public of the perils of the online cheap agent world and the ‘too good to be true’. We need a break and some positive angles on why the high street has survived all of these years despite the online fly by nights, we should up our fees to teach them a lesson…ha ha ha

 

 

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15 minutes ago, sancho panza said:

The denial in the High St mob is intriguing.

I maintain all you need to sell a house is access to Rm and Zoop and a decent conveyancer.Quite why these parasites believe they are needed to sit betwixt buyer and seller I'll never know.

 

Sorry, but that's nonsense.  For the most part, people are rubbish at financial negotiation.  For a start they don't understand how to value properly (which itself is dependent on the eagerness to sell) and once negotiations between buyer and seller for the most part people are poor at getting to the 'right' price (ie, the most the buyer is willing to spend / the least the seller is willing to offload for, depending on which side of the equation you're looking at).  Ordinarily an intermediary isn't useful (ie, the transaction value couldn't support an advisor), but in the case of property the transaction will nearly always support an advisor.

In fact, the funny thing about property is that buyers seldom use a trained financial negotiator.

That said, for the most part estate agents don't do that good a job at helping their client -- life's been too easy for them in the boom.  We could do with a decent crash to focus minds again.

Of course, England and Wales would be better off with a less laborious system (sealed bid would be fine), but we are where we are.

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2 hours ago, Majorpain said:

https://www.bbc.co.uk/news/business-46424110

Qatar out of OPEC, gold being well bid, things are getting interesting.

Possibility of a final US Santa share rally is looking up IMO, interesting that amazon is being hit the least of the fangs so at least one has some magic left.

FB, NFLX look spent, AAPL is looking dodgy.

As I was saying yesterday,the list of my FTSE 100 stocks rolling voer their long term indicators grows by the day.Same with the US-although there's already hefty chunks of the S&P that have rolled over ages back and already lost 50% plus.

 

yellow stuff caught a bid as you say yesterday and it's interesting to see HUI/XAU to see the goldies/silvies moving up in tandem with the wider market.

I'm increasingly of the opinion we'll run up to Chriggy but I'm not sure we'll get the exponential moonshot as there's noone left to lead it.

29 minutes ago, Barnsey said:

Most of you probably know this already, but the US 10yr-2yr treasury yield curve is considered to be THE recession indicator once it inverts, and past couple days it's been in freefall, now close to inversion at 0.13, lowest since 2007.

Once it does invert, usually means a recession is 6-15 months away, 6 months being the lag for the 2000 inversion, quite possible this time around. Of course, we won't find out the recession has begun until many months later.

No I didn't barnsey which is why I come here before trying to sift reuters .The problem with the whole recession thing on a tecnical level is that a negative 0.1% print can move recession start dates backward or forward depending and given imputed rents is 12% of a lot of GDP's etc etc.However,as you say,there's still a window beyond which it will likely not move.

 

I think this one will be the first truly global recession(2008 wasn't a recession in my eyes as it never played out) and given the interlinkages,I suspect the froth will pop first in oz/then china.

Unless the itaslians do soemthing daft/sensible(depending on your viewpoint)

 

Interesting times.

 

o/t the UK builders couldn't catch a cold at the minute.They led the recession in 07 and it looks like they've dropped big time.As I said,I pulled my shorts a week or tow back,expecting a rally and never got back on.It looks a bit wiley coyote for them at the mo.

Another lesson in looking behindf the headline FTSE figure at the sectoral stories playing out.They're that oversold,I'm 15% to 20% from re-entry.eg Taylor Wimpey-£1-30.

 

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22 minutes ago, dgul said:

Sorry, but that's nonsense.  For the most part, people are rubbish at financial negotiation.  For a start they don't understand how to value properly (which itself is dependent on the eagerness to sell) and once negotiations between buyer and seller for the most part people are poor at getting to the 'right' price (ie, the most the buyer is willing to spend / the least the seller is willing to offload for, depending on which side of the equation you're looking at).  Ordinarily an intermediary isn't useful (ie, the transaction value couldn't support an advisor), but in the case of property the transaction will nearly always support an advisor.

In fact, the funny thing about property is that buyers seldom use a trained financial negotiator.

That said, for the most part estate agents don't do that good a job at helping their client -- life's been too easy for them in the boom.  We could do with a decent crash to focus minds again.

Of course, England and Wales would be better off with a less laborious system (sealed bid would be fine), but we are where we are.

You can go on any number of websites and get a rough idea of where the price point is.The idea that EA's get a better price is based on the notion that they're honest and capable,two qualities I've generally found wanting during my various transactions with them.The basic tactic most use,is to value 5% above last local price and then await an offer.I can do that myself thank you very much and pocket the fee.

Top end places,homes with businesses attached,I take your point.Bog standard 2 up 2 downs...sorry,can't see it,particualrly where comparisons are easily available.

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5 minutes ago, sancho panza said:

You can go on any number of websites and get a rough idea of where the price point is.The idea that EA's get a better price is based on the notion that they're honest and capable,two qualities I've generally found wanting during my various transactions with them.The basic tactic most use,is to value 5% above last local price and then await an offer.I can do that myself thank you very much and pocket the fee.

Top end places,homes with businesses attached,I take your point.Bog standard 2 up 2 downs...sorry,can't see it,particualrly where comparisons are easily available.

Well said Sancho! Buyers now feel empowered by all the information available these days, we're becoming self sufficient through tech and would rather go it alone whenever possible.

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25 minutes ago, sancho panza said:

Top end places,homes with businesses attached,I take your point.Bog standard 2 up 2 downs...sorry,can't see it,particualrly where comparisons are easily available.

Bought a new car recently, one thing I learned was Dealer prices keenly and wouldn't haggle on price as they know everyone hops onto price comparison websites and can easily find cheaper if its out there.  Equally no discount for taking finance, dealer takes entire commission from the finance company as they know vast majority will want it regardless.

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1 hour ago, sancho panza said:

All they have ever achieved is be a disruptor to a profession that has strived to prove its worth to the consumer, while coming under attack from these failing and franking dishonest marketing tactics

AFAIK Estate agents don't need any qualifications, so how is being one a profession?

 

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Hodges is a great commentator.Follows on from earlier comments re Oz being the canary re China

 

Hodges reporting inventory build up which will only exacerbate credit deflationary pressures as per China's shadow banking system grinding to a halt.

Lots of stuff to hgihlight in this article.

https://www.icis.com/chemicals-and-the-economy/2018/11/asian-downturn-worsens-bringing-global-recession-nearer/

Asian downturn worsens, bringing global recession nearer

SHARE THIS STORY
 

Asia.png

The chemical industry is the best leading indicator for the global economy.  And my visit to Singapore last week confirmed that the downturn underway in the Asian market creates major risks for developed and emerging economies alike.

The problem is focused on China’s likely move into recession, now its stimulus policies are finally being unwound.  And the result is shown in the above chart from The pH Report, updated to Friday:

  • It confirms that the downturn began before oil prices peaked at the beginning of October, confirming that companies were responding to a downturn in end-user demand
  • Since then, of course, the oil price has – rather dramatically – entered a bear market, with prices down by nearly a third

The question now is whether finance directors will choose to aggressively destock ahead of year-end results, to mitigate the volume decline with a decline in working capital. This would be a bold move given continuing geo-political uncertainty in the Middle East, and would also conflict with the more upbeat guidance that was given earlier with Q3 results.

But a review of ICIS news headlines over the past few days suggests they may have little choice.  Inventories are described as “piling up” in a wide range of major products, including polyethylene – the biggest volume polymer.  Indian producers are even offering “price protection” packages on polypropylene, to safeguard customers from losses if prices fall further.

Asian countries and their major partners (eg Argentina, S Africa, Turkey) were, of course, the first to be hit by China’s downturn.  But Q3’s fall in German GDP shows the downturn has now spread to the Western economy that most benefited from China’s post-2008 stimulus bubble.  As The Guardian noted:

“Goods exports make up 40% of German GDP – a much bigger proportion than for the next two biggest eurozone economies, France and Italy.”

OIL MARKETS CONFIRM THE RECESSION RISK

Oil.png

Of course, consensus opinion still believes that the US economy is sailing along, regardless of any problems elsewhere.  But the chart of oil prices relative to recession tells a different story:

  • The problem is that oil prices have been rising since 2016, with the summer proving the final blow-off peak.  As always, this meant consumers had to cut back on discretionary spending as costs of transport and heating rose
  • The cost of oil as a percentage of GDP reached 3.1% in Q3 – a level which has always led to recession in the past, with the exception of the post-2008 stimulus period when governments and central banks were pouring $tns of stimulus money into the global economy
  • In turn, this means a downturn is now beginning in US end-user demand in critical areas such as housing, autos and electronics

Oil markets have therefore provided a classic example of the trading maxim for weak markets – “Buy on the rumour, sell on the news”.

  • Prices had risen by 75% since June on supply shortage fears, following President Trump’s decision to exit the Iran nuclear deal on November 4
  • As always, this created “apparent demand” as buyers in the US and around the world bought ahead to minimise the impact of higher prices
  • But the higher prices also negated the benefit of the earlier tax cuts for his core supporters just ahead of the mid-term elections, causing Trump to undertake a policy u-turn
  • He is now pushing Saudi Arabia and Russia to maintain production, and has announced 180-day exemptions for Iran’s 8 largest customers – China, India, S Korea, Japan, Italy, Greece, Taiwan and Turkey.

Understandably, oil traders have now decided that his “bark is worse than his bite“.  And with the downturn spreading from Asia to the West, markets are now refocusing on supply/demand balances, with the International Energy Agency suggesting stocks will build by 2mb/d in H1 2019. In response, OPEC are reportedly discussing potential cuts of up to 1.4mb/d from December.

CHINA’S SHADOW BANKING COLLAPSE IS CREATING A NEW FINANCIAL CRISIS

lending.png

Unfortunately, as in 2008, the collapse in oil prices is coinciding with the end of stimulus policies, particularly in China, as the chart of its shadow bank lending confirms.  This has hit demand in two ways, as I discussed earlier this month in the Financial Times:

  • Just 3 years ago, it was pumping out an average $140bn/month in mainly property-related lending *
  • This created enormous demand for EM commodity exports
  • It also boosted global property prices as wealthy Chinese rushed to get their money out of the country
  • But during 2018, lending has collapsed by more than 80% to average just $23bn in October

China’s post-2008 stimulus programme was the growth engine for the global economy – with the efforts of the Western central banks very much a sideshow in comparison.  It was more than half of the total $33tn lending to date.  But now it is unwinding, prompting the Minsky Moment forecast a year ago by China’s central bank governor:

China’s financial sector is and will be in a period with high risks that are easily triggered. Under pressure from multiple factors at home and abroad, the risks are multiple, broad, hidden, complex, sudden, contagious, and hazardous.”

As I warned then:

“Companies and investors should not ignore the warnings now coming out from Beijing about the change of strategy. China’s lending bubble – particularly in property – is likely coming to an end. In turn, this will lead to a bumpy ride for the global economy.

The bumps are getting bigger and bigger as we head into recession.  Asia’s downturn is now spreading to the rest of the world, and is a major wake-up call for anyone still planning for “business as usual”.

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9 minutes ago, sancho panza said:

As I warned then:

“Companies and investors should not ignore the warnings now coming out from Beijing about the change of strategy. China’s lending bubble – particularly in property – is likely coming to an end. In turn, this will lead to a bumpy ride for the global economy.

The bumps are getting bigger and bigger as we head into recession.  Asia’s downturn is now spreading to the rest of the world, and is a major wake-up call for anyone still planning for “business as usual”.

This could be why the yield curves are inverting or getting close to inverting with a rather rapid pace vs the plodding along of the past few months, certainly a huge range of factors coming together that we haven't seen for a decade.

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14 minutes ago, sancho panza said:

Hodges is a great commentator.Follows on from earlier comments re Oz being the canary re China

 

Hodges reporting inventory build up which will only exacerbate credit deflationary pressures as per China's shadow banking system grinding to a halt.

Lots of stuff to hgihlight in this article.

https://www.icis.com/chemicals-and-the-economy/2018/11/asian-downturn-worsens-bringing-global-recession-nearer/

Asian downturn worsens, bringing global recession nearer

SHARE THIS STORY
 

Asia.png

The chemical industry is the best leading indicator for the global economy.  And my visit to Singapore last week confirmed that the downturn underway in the Asian market creates major risks for developed and emerging economies alike.

The problem is focused on China’s likely move into recession, now its stimulus policies are finally being unwound.  And the result is shown in the above chart from The pH Report, updated to Friday:

  • It confirms that the downturn began before oil prices peaked at the beginning of October, confirming that companies were responding to a downturn in end-user demand
  • Since then, of course, the oil price has – rather dramatically – entered a bear market, with prices down by nearly a third

The question now is whether finance directors will choose to aggressively destock ahead of year-end results, to mitigate the volume decline with a decline in working capital. This would be a bold move given continuing geo-political uncertainty in the Middle East, and would also conflict with the more upbeat guidance that was given earlier with Q3 results.

But a review of ICIS news headlines over the past few days suggests they may have little choice.  Inventories are described as “piling up” in a wide range of major products, including polyethylene – the biggest volume polymer.  Indian producers are even offering “price protection” packages on polypropylene, to safeguard customers from losses if prices fall further.

Asian countries and their major partners (eg Argentina, S Africa, Turkey) were, of course, the first to be hit by China’s downturn.  But Q3’s fall in German GDP shows the downturn has now spread to the Western economy that most benefited from China’s post-2008 stimulus bubble.  As The Guardian noted:

“Goods exports make up 40% of German GDP – a much bigger proportion than for the next two biggest eurozone economies, France and Italy.”

OIL MARKETS CONFIRM THE RECESSION RISK

Oil.png

Of course, consensus opinion still believes that the US economy is sailing along, regardless of any problems elsewhere.  But the chart of oil prices relative to recession tells a different story:

  • The problem is that oil prices have been rising since 2016, with the summer proving the final blow-off peak.  As always, this meant consumers had to cut back on discretionary spending as costs of transport and heating rose
  • The cost of oil as a percentage of GDP reached 3.1% in Q3 – a level which has always led to recession in the past, with the exception of the post-2008 stimulus period when governments and central banks were pouring $tns of stimulus money into the global economy
  • In turn, this means a downturn is now beginning in US end-user demand in critical areas such as housing, autos and electronics

Oil markets have therefore provided a classic example of the trading maxim for weak markets – “Buy on the rumour, sell on the news”.

  • Prices had risen by 75% since June on supply shortage fears, following President Trump’s decision to exit the Iran nuclear deal on November 4
  • As always, this created “apparent demand” as buyers in the US and around the world bought ahead to minimise the impact of higher prices
  • But the higher prices also negated the benefit of the earlier tax cuts for his core supporters just ahead of the mid-term elections, causing Trump to undertake a policy u-turn
  • He is now pushing Saudi Arabia and Russia to maintain production, and has announced 180-day exemptions for Iran’s 8 largest customers – China, India, S Korea, Japan, Italy, Greece, Taiwan and Turkey.

Understandably, oil traders have now decided that his “bark is worse than his bite“.  And with the downturn spreading from Asia to the West, markets are now refocusing on supply/demand balances, with the International Energy Agency suggesting stocks will build by 2mb/d in H1 2019. In response, OPEC are reportedly discussing potential cuts of up to 1.4mb/d from December.

CHINA’S SHADOW BANKING COLLAPSE IS CREATING A NEW FINANCIAL CRISIS

lending.png

Unfortunately, as in 2008, the collapse in oil prices is coinciding with the end of stimulus policies, particularly in China, as the chart of its shadow bank lending confirms.  This has hit demand in two ways, as I discussed earlier this month in the Financial Times:

  • Just 3 years ago, it was pumping out an average $140bn/month in mainly property-related lending *
  • This created enormous demand for EM commodity exports
  • It also boosted global property prices as wealthy Chinese rushed to get their money out of the country
  • But during 2018, lending has collapsed by more than 80% to average just $23bn in October

China’s post-2008 stimulus programme was the growth engine for the global economy – with the efforts of the Western central banks very much a sideshow in comparison.  It was more than half of the total $33tn lending to date.  But now it is unwinding, prompting the Minsky Moment forecast a year ago by China’s central bank governor:

China’s financial sector is and will be in a period with high risks that are easily triggered. Under pressure from multiple factors at home and abroad, the risks are multiple, broad, hidden, complex, sudden, contagious, and hazardous.”

As I warned then:

“Companies and investors should not ignore the warnings now coming out from Beijing about the change of strategy. China’s lending bubble – particularly in property – is likely coming to an end. In turn, this will lead to a bumpy ride for the global economy.

The bumps are getting bigger and bigger as we head into recession.  Asia’s downturn is now spreading to the rest of the world, and is a major wake-up call for anyone still planning for “business as usual”.

Id not translate any downturn in Asia to the West.

Its all China, and China getting a long deserved kicking.

Bar Aus/NZ, the worse it gets for China, the better itll be for jobs and income in the West.

 

 

I also call BS on Chinas stimulus helping; the West.

Its was the BoC spunking cash mainly internal on whiet elephants.

What luttle that leaked out was into Western real estate, something that really didnt help Western countries.

 

 

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31 minutes ago, spygirl said:

Id not translate any downturn in Asia to the West.

Its all China, and China getting a long deserved kicking.

Bar Aus/NZ, the worse it gets for China, the better itll be for jobs and income in the West.

 

 

I also call BS on Chinas stimulus helping; the West.

Its was the BoC spunking cash mainly internal on whiet elephants.

What luttle that leaked out was into Western real estate, something that really didnt help Western countries.

 

 

China been buying a lot of UST's.Whilst I take your general point,China has been a force for disinlfation so any downturn there could see inflationary p[ressures rise here.There's a lot on here talking deflation(me included) but it could be we get credit deflation alongside price inflation.This isn't a straight rerun on the great Depr

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US hot money real estate going south at the saem time as Sydney and London.Coincidence?

 

https://wolfstreet.com/2018/12/03/bubble-trouble-silicon-valley-san-francisco-housing-markets/

Bubble Trouble: Silicon Valley & San Francisco Housing Markets Head South

by Wolf Richter • Dec 3, 2018 • 23 Comments

The underlying dynamics changed in August and have worsened since. And this is still the tech boom.

It’s high time to unload houses and condos in Silicon Valley and San Francisco, one of the most expensive housing markets in the US. Sellers are now flooding the market with properties. Inventory listed for sale in those three counties that make up the area – San Francisco, San Mateo, and Santa Clara – surged by 102% in November compared to November last year, to 3,931 listings.

In each of the past three months, the number of active listings (new listings plus old listings that have not sold yet but haven’t been pulled from the market) was the highest since August 2014. The chart below shows the year-over-year percentage change in active listings. The red bars in the chart mark the beginning of bubble trouble in this housing market (all data via the National Association of Realtors at realtor.com):

US-Silicon-Valley-San-Francisco-active-l

When inventories are piling up because sales are slowing, sellers have to figure out where the market is, and the market is where the buyers are, but buyers have become listless and refuse to participate in bidding wars. They see the prices and they do the math with higher mortgage rates, and they walk. So, motivated sellers have to do something to move the properties. And they started cutting prices.

In November, the number of properties on the market with price cuts, at 1,038, skyrocketed by over 400% year over year.

The chart of the year-over-year percentage changes in price cuts in Silicon Valley and San Francisco shows that the change of direction in the market occurred around August. By September, price cuts hit the highest level since Housing Bust 1:

US-Silicon-Valley-San-Francisco-price-re

The median asking price for the three counties had peaked in May at $1,369,200 and has since fallen by $132,100 or by nearly 10% from the peak, to 1,237,100. Median asking price means half are listed for more and half are listed for less. It differs from the median selling price at which homes are actually sold. Compared to November last year, the median asking price dropped by $71,200 or 5.4%:

US-Silicon-Valley-San-Francisco-median-a

The chart below shows the percentage change of median asking prices, which clarifies further the underlying dynamics in the market:

US-Silicon-Valley-San-Francisco-median-a

After years of blaming the surging home prices in the area on a shortage of inventory for sale, the industry is suddenly faced with all kinds of inventory coming out of the woodwork, just as sales are slowing and as mortgage rates are rising, while the affordability crisis bites the market.

Buyers have lost their blind enthusiasm. They’re still buying, but at lower prices, and they’re taking their time.

Yet the hiring slowdowns – or worse, layoffs – at area tech companies and the broad wind-down of countless and hopelessly cash-burning start-ups – both a prominent feature of every tech downturn here – haven’t even started yet. The area is still booming and companies are still hiring, and this housing downturn is starting during the tech boom, and not as a consequence of a tech meltdown. Though share prices of local companies such as Google, Apple, Facebook, and many others have taken a big hit since the summer, we’re still far from a classic tech meltdown. That is yet to come.

The Case-Shiller home price index lags by about three months, but it too is now picking up the changes in the market: Seattle home prices dropped at fastest pace since Housing Bust 1, while the first price declines cropped in San Francisco, Denver, Portland, and other markets. Read…  The Most Splendid Housing Bubbles in America Deflate  

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