House prices
https://www.news.com.au/finance/markets/world-markets/british-pound-hits...
I think (all that follows is my rapidly depreciating 2c, not financial advice) we're due for similar tax cuts in October, Aussie peso here we come. Maybe Holden can remanufacture the VT Commodore again (oh wait), party like it's 1998...
Hey flollo, if the demand is juiced like in covid with the ridiculously low 5000 year low interest rates*, it is neither normal nor healthy. If you juice it further with stuff like tax cuts, your currency will plummet in a world with a hiking Fed, and even more inflation will be imported (most stuff here is imported, not made locally). We've seen that in the US inflation has spread beyond energy into services (rut roh) and the Fed surely must be alarmed by this.
*A few on MB site pointing out that Aussie consumption is driven by house equity rising, eg My House Went Up 100K, I Think I'll Extend The Loan For A Dual Cab Ute.
Thanks for those charts Don, that US 30 year mortgage one is whoa, especially at today's debt levels. Edit, Libor chart tops it.
Yeah, RBA above all needs to defend the currency otherwise we will end up in an even deeper inflationary hole. But in long term, maybe a little bit weaker currency is not that bad. It would benefit the exports and possibly manufacturing. Maybe de-risk some supply chains? Who knows, my whole life I'm seeing these debates. Where is the balance between a strong and attractive (for exports) currency? What is the long-term strategy?
For example, As you probably know ECB is very slow with raising rates which resulted in more or less EUR/USD parity. Quite a different approach, it makes the euro cheap and attractive. A lot of Americans are apparently buying property and tourism was ridiculous this season. But inflationary pressure is out of control, way worse than here. When I was there a few weeks ago I saw prices changing daily, sometimes even in double-digit %. Simple things like ice cream, you come the next day and it's 20% more expensive.
That's not a bad point at all... where is the right level? Avoiding a hyperinflation is probably the best thing for the most people, but long term, how best to lay foundations for an economy that is more diversifed than FIRE and speculation? Check out Australia circa about 1970 - seems quite diversified with a high standard of living from this point of observation.
Spent covid building machines personally, and I've increased my (small) manufacturing capability.
flollo wrote:velocityjohnno wrote:Vale Bond Bubble, you were a very large thing
https://www.bloomberg.com/news/articles/2022-09-24/the-great-bond-bubble...
It’s so bad. The world is still very inflexible in ramping up the supply to match surging demand. So everyone ends up ratcheting the interest rates to bring the healthy demand down. It feels primitive in 2022, I thought there would be better ways to deal with it by now.
I don't get it ...well I kind of get it... why the matching hiking interest rates of other countries to the fed. don't just cancel it out and stabilise other currencies?
seems the genie gets out of the bottle and it just runs away...
the whole thing does seem rather primitive... not least because the lead up to this event was way way different...
seems the leaders - all of em - have literally got nohing, and no idea.. and are now just regressing to learnt behaviours due to being totally overwhelmed
and, seems to me inflation has still got lots of legs to run...
the true costs of much manufacturing moving out of china hasn't even been factored or filtered in yet...
those true costs are yet to be known
Toyota Yaris ZR at 35+K is a hint... (that used to be full size family car XR6 pricing)
flollo wrote:Yeah, RBA above all needs to defend the currency otherwise we will end up in an even deeper inflationary hole. But in long term, maybe a little bit weaker currency is not that bad. It would benefit the exports and possibly manufacturing. Maybe de-risk some supply chains? Who knows, my whole life I'm seeing these debates. Where is the balance between a strong and attractive (for exports) currency? What is the long-term strategy?
For example, As you probably know ECB is very slow with raising rates which resulted in more or less EUR/USD parity. Quite a different approach, it makes the euro cheap and attractive. A lot of Americans are apparently buying property and tourism was ridiculous this season. But inflationary pressure is out of control, way worse than here. When I was there a few weeks ago I saw prices changing daily, sometimes even in double-digit %. Simple things like ice cream, you come the next day and it's 20% more expensive.
My gut feel is we could see the AUD slip to around the 60 cent mark against the USD, before a very good run back up the ladder next year, potentially getting as high as 90 cents when the USD/US Economy shits itself.
Some here might like to read about the impossible trinity. It's a fascinating challenge if you look into it.
That was very good flollo! Off to read link 8 when I get time.
https://www.cambridge.org/core/journals/journal-of-economic-history/arti...
Not your cup of tea maybe but sometimes it is important to pay attention. Summation of the video and many others by Jeff:
- signals of a 2008 type financial market disfunction ahead
- Central Banks focussing on obvious issue - inflation - pulling levers that actually compound the problems (but damned if they don't but potentially damned if they do)
- source of disfunction ?
Jeff Snider in other videos highlights that 2008 GFC was actually primarily kicked off by a collateral shortage issue in the banking / lending system (sub-prime mortgages was more the obvious headline and easily talked about issue).
What is a collateral shortage?
There is a mindboggling amount of short, long, daily, hourly lending / money movements occurring all day long through the incredibly complex and inter-connected financial "irrigation pipes" in the banking system. Each "loan" is backed by collateral - some security in case of default. There is good security and and not so good. Trust in the other party and in the promised security and, accessibility of such if things go pear shaped, required to keep it all going is massively important.
Once fear and breakages in the system and points of disruption and chaos in the economy get too high, the parties start to freak demanding only the best of the best security or they may do nothing - just not do the routine millions and billions of $$$ transactions flashing back and forth we never see or understand. A collateral shortage occurs - not enough good liquid stuff (often US Treasuries) to go around.
The economic irrigation pipes start to fracture or freeze up all over the place hidden from all but those in deep in the thick of the system. Some warning signs emerge - yield curve inversions - caused by those deep in the system, as a group, leaning towards having common concerns, based on what they know and see - invisible too 99.99% of us. They are no certain by any means of event to come but enough make judgement that serve to shift many trillions of $$$s in particular directions to protect themselves or exploit the things they see as probabilities.
Meanwhile, the Central Banks in 2008, and now, motor on fighting the inflation fight increasing tension in the system that has deep problems. The system is hard to understand, monitor, measure and even discuss clearly - the Central Banks have no real idea of what is called the Eurodollar system - like dark matter - they know it is massive and there, but have little data. It is private sector and not really measured. Even private banks in the system only really know that their little parts of the action is somehow not right - that the usual routine transactions have gone cold or the other party is getting picky about collateral and lending risks - the drawbridges are sort of being pulled up. The B grade stuff goes cold.
What, when, if and how this all shows up to affect interest rates, the markets etc is unknowable. Forced upwards for rates are strong. The immediate problem is dealt with by the crude CB levers.
To some extent the issues have been there since 2008 papered over and somehow not breaking down for over a decade. Apparently 2012/13 things almost got nasty but muddled through.
But just now, the few signals we have and even what you and I, just using your own observations of a pretty crazy world at the moment, can see, hint that risks are unusually high of both what is in the headlines (possible recession) and something deeper.
Bankruptcies ahead.
https://www.barchart.com/etfs-funds/quotes/LQD/interactive-chart
Just step out to a 20 year view...lookout below.
monkeyboy wrote:Bankruptcies ahead.
https://www.barchart.com/etfs-funds/quotes/LQD/interactive-chart
Just step out to a 20 year view...lookout below.
Whilst I see the 20yr chart I’m not exactly sure what has been plotted? What is this LQD?
Edit: found this
https://www.investopedia.com/news/get-credit-corporate-bond-etfs-lqd-slqd/
So if you've got money invested in the market, just ride out what could be a very turbulent and red period ahead?
donweather wrote:monkeyboy wrote:Bankruptcies ahead.
https://www.barchart.com/etfs-funds/quotes/LQD/interactive-chart
Just step out to a 20 year view...lookout below.
Whilst I see the 20yr chart I’m not exactly sure what has been plotted? What is this LQD?
Edit: found this
https://www.investopedia.com/news/get-credit-corporate-bond-etfs-lqd-slqd/
The market has gone from "return on capital" to "return of capital" very quickly. I guess if you can get a guaranteed return of 4%+ on a US Treasury then why would you risk it on a company that might not be able to pay interest on its bonds.
Craig wrote:So if you've got money invested in the market, just ride out what could be a very turbulent and red period ahead?
That has worked in the past depending on whether you need the money (eg. to pay off a debt that suddenly costs a lot more or worse...a margin call) and your timeframe. And hopefully whatever your money is invested in doesnt go bankrupt, dilute your holdings too much or stop you from withdrawing your money.
Craig wrote:So if you've got money invested in the market, just ride out what could be a very turbulent and red period ahead?
Pheeww. That is such as complex personal question with consequences. The answer is: - it depends on many things.
Early risk off is best - if it is justified. Late can just lock in losses. Market timing is a lonely decision. People are often happier to lose along with the crowd than lose alone or to lose nothing while others make money ... FOMO!
The "warning" in the video is not early - Jeff's has been discussing softer "signals" since late 2021. That was early for risk off moves. August 2022 interestingly was "late early" - an exit point on a rally. But despite the falls to date the warning may not be as late as it may feel for some type of risk off investment moves for some people.
The signals are not suggesting a near term house price boom! The decade long buy the dip routine that just worked and worked may have hit a pothole or worse.
The wealthion vids give a range of not so technical perspectives and ongoing commentary for the interested.
Serious stuff happening already:
https://www.zerohedge.com/markets/bank-england-capitulates-restarts-qe-d...
Far from business as usual in central bank land or for investors. Experts are guessing from here.
So called experts never do anything but guess. That’s all they can do. They all wanna be Christian Bale.
Meanwhile houses are safe as houses in Australia.
frog wrote:Serious stuff happening already:
https://www.zerohedge.com/markets/bank-england-capitulates-restarts-qe-d...
Far from business as usual in central bank land or for investors. Experts are guessing from here.
Wow!
I called this ages ago, ...not doing an 'I told you so' ...or looking for accolades...
I just think it was pretty obvious the machine wouldn't hold their nerve, when it had become so addicted to the QE 'stop gap' measure that was a 'temporary' fix ...for fifteen years!
didn't think it would happen so soon, and I'm actually pretty ignorant about bigger market theory and trends and stuff.. but this is surely sailing well deep into unchartered waters now?
Thanks guys, appreciate it, I've got no debts to worry about but things don't sound good at all. Might reduce my exposure a little to any major crash.
frog wrote:Serious stuff happening already:
https://www.zerohedge.com/markets/bank-england-capitulates-restarts-qe-d...
Far from business as usual in central bank land or for investors. Experts are guessing from here.
The irony of this is did you see how quickly the market reacted to this "stimulus". S&P daily rise was one of the biggest in the last 6 mths or so. Wait to the US Fed has to pivot from QT to Stimulus. Markets will jump back in for one hell of a ride back up to ATHs. it's coming. Just need Russia to fck off out of Ukraine and Oil to drop for inflation/CPI to dump hard.
A very good read.
https://thenewdaily.com.au/finance/2022/09/29/alan-kohler-rba-done-enoug...
"In 2021, about 600,000 houses and flats changed hands at prices 20 to 30 per cent higher than the year before, most with debt of 80 per cent.
So a 20 per cent fall in values means that hundreds of thousands of families will be living in a house worth less than they paid, for at least five years, possibly 10.
What’s more, many of them will owe more on the house than it is worth, so they’ll have zero equity while scrimping to meet repayments, and worrying about keeping their job."
And the above is where the housing spiral hits hard.
Craig wrote:Thanks guys, appreciate it, I've got no debts to worry about but things don't sound good at all. Might reduce my exposure a little to any major crash.
Craig whilst this isn't financial advice I assume you're young and can ride out some of this storm in the long term. I still think there's one last hurrah in the markets in the coming 6 mths or so, before a major major crash at some point next year. Might be worthwhile not putting all eggs into the conservative basket just yet. Watch the S&P. If it jumps back above 4000, then ride it up to just over the 5500 mark then jump into the most conservative you can find at that point as the dump will hit hard as the S&P approaches the 6k mark.
Again the above is not financial advice. :)
Thanks Don, what makes you think there'll be one last hurrah? This Nord Stream issue could be the catalyst to really set things into a downwards spiral sooner rather than later eh?
Bank of England just announced a “temporary” return to QE. QE is Quantative Easing AKA money printers go brrrrr. This means they will inject billions of more pounds into the British economy thus generating more inflation. The money printed needs to go somewhere and it will go into the stock market sending the market higher.
The assumption is that other countries are in the same position and will follow suit with their own QE.
If you want to understand the effects of money printing, think of the price of houses and the stock market in Australia over the course of time after the covid stimulus…..which was just a form of QE.
Some people suggest that the globsl economy was in such terrible shape a few years ago that the world banks were looking for an excuse to go fucking nuts with the money printing. Then along came covid stimulus…..
Global money printing heads towards asserts that generate a return. Australian housing might get another juice but the sharemarket definitely would if the reserve bank has another go at QE. We will almost certainly get the same result even just from overseas banks doing so.
Agh, gotcha, missed that vital bit regarding the BOE and QE.
Nord Stream 1 has been shut down for almost a month - gas remained in the system under pressure. What I’ve read suggests that global markets had already adjusted to the cessation of gas supply from 1 Sep.
Nord stream 2 wasn’t operational.
Are you suggesting that the (likely) sabotage of NS1 and 2 would contribute to a loss of confidence in markets?
The question I always ask myself in these situations.....are we in a bull or a bear market ? If we are in a bear market are the conditions ripe for a bull market or is it just a short covering rally that will suck everyone in and let the fundies exit (wtf was the BoE doing allowing Pension funds to leverage into Bonds...OMFG).
With QE, just be a bit careful as the simple, almost overwhelming, narrative is that it pumps money directly into the economy and stock markets is not quite right. This has emerged because the central banks like this myth as it turbo charges its effectiveness through psychology. It also sounds sort of right and simple and everyone likes shorthand cause and effect narratives.
In practice, a lot of it gets locked up in bank reserves where in uncertain times banks are happy to leave it rather than lending to crappy businesses or during crappy times and so taking on risk. It is partly "stuck in the pipes" or slow moving.
In the covid panic the QE announced was just massive and had a huge "shock and awe" psychological effect on the markets which, along with probably direct buying of stocks by central banks behind the scenes, stopped the plunge in the early days. It can seem to work "like" money printing for sure.
But the data indicates that in practice most of the real money printing that hit the economy back then was all the stimulus and support money from government direct to businesses and the people. This flowed really quickly into buying goodies and stocks, crypto etc. No-one could travel so why not just buy stuff. It was not so much the "all powerful" Fed.
This time around before a V shaped market dip and recovery surge repeat of 2020 is assumed certain, just consider:
- the different psychology and host of real world problems we now face
- the lack of direct to household and businesses stimulus dollars being sent out (although UK has tax cuts)
- inflation and higher interest rates sucking up spare money.
- cumulated stresses can make things break rather than a single event.
Even so, the whole market has heard someone ring the "QE" dinner in the UK yesterday and will react short term. The market has moved. It may even do another rally (bear market rally?). But I would not expect a neat repeat of the 2020/21 sustained non stop uptrend for a long period.
Interesting but can do your head in. If unsure, doing nothing is a valid strategy.
The long story:
"(wtf was the BoE doing allowing Pension funds to leverage into Bonds...OMFG)."
like in 2007 when my father's broker suggested US office space shares to Dad (I am sure they were exiting their own position...)
never forget
never forgive
September 16 2008
"On September 16, the Reserve Primary Fund, a large money market mutual fund, lowered its share price below $1 because of exposure to Lehman debt securities. This resulted in demands from investors to return their funds as the financial crisis mounted.[21] By the morning of September 18, money market sell orders from institutional investors totalled $0.5 trillion, out of a total market capitalization of $4 trillion, but a $105 billion liquidity injection from the Federal Reserve averted an immediate collapse"
https://en.wikipedia.org/wiki/Global_financial_crisis_in_September_2008
In that ZH article
"Also, a few weeks ago, we said that we are nearing a moment in time when central banks will do QE and rate hikes at the same time."
Considering things have been like the Twilight Zone (or to be topical, Stranger Things) since 2008, QE and rate hikes, I mean why not?
*LAGARDE SAYS TOOL WOULD KICK IN IF SPREADS GO TOO FAR, TOO FAST
— zerohedge (@zerohedge) June 16, 2022
QT on slow and gentle days
QE on fast and furious days
repeat after me: "It's a free market, it's a free market..."
"According to the FT, the "break" in the bond market manifested itself in thousands of pension funds have faced urgent demands for additional cash from investment managers in recent days to meet margin calls, after the collapse in UK government bond prices blew a hole in strategies to protect them against inflation and interest-rate risks."
leverage into a falling asset class?!... facepalm if correct. Holy shit, that's people's pensions, too.
velocityjohnno wrote:"According to the FT, the "break" in the bond market manifested itself in thousands of pension funds have faced urgent demands for additional cash from investment managers in recent days to meet margin calls, after the collapse in UK government bond prices blew a hole in strategies to protect them against inflation and interest-rate risks."
leverage into a falling asset class?!... facepalm if correct. Holy shit, that's people's pensions, too.
I love the "strategies to protect them against inflation and interest-rate risks" - investing in Bonds when interest rates are at all time lows (Bond prices high) does not satisfy that strategy unless you are short them, in which case you'd have got blown up yesterday (unless you knew it was coming). Maybe someone did.
What a balls up. It's pretty shoddy Liz Truss and her government couldnt have seen this coming, bloody politicans.
There is a real possibility that what the BoE are doing will not be enough and some very smart people will force them to a place they doint want to go. This happened with the pound when they tried to "protect it" and Soros came along and called their bluff (famously saying "what will they do tomorrow").
I wonder if any UK pension funds are invested in Australian assets...you betcha, maybe why we saw so much selling last week.
I like to think all those pension funds had no idea what kind of policy Mr Kwarteng would deliver last week lol
fuel meet fire
Sammy J - Pure gold.
Haha, yeah just saw that!
lmao, that was very good!
For anyone who wants a peek into the UK pension fund margin calls & resultant chaos, Wolf Richter writes it up in layman's terms
https://wolfstreet.com/2022/09/28/uk-chaos-economics-fretting-over-finan...
"The bond market reaction represents a colossal and sudden degree of “tightening” of the financial conditions, before the Bank of England’s QT had even started. QT is designed to bring up long-term yields, but they already exploded due to chaos.
It was the market’s backlash against the new government’s reckless plan to cut taxes for the rich and for corporations, funded by new debt, while piling on spending to subsidize energy costs, also funded by new debt, thereby requiring the issuance of large amounts of new debt, even as inflation has already reached to 10%."
velocityjohnno wrote:For anyone who wants a peek into the UK pension fund margin calls & resultant chaos, Wolf Richter writes it up in layman's terms
https://wolfstreet.com/2022/09/28/uk-chaos-economics-fretting-over-finan...
"The bond market reaction represents a colossal and sudden degree of “tightening” of the financial conditions, before the Bank of England’s QT had even started. QT is designed to bring up long-term yields, but they already exploded due to chaos.
It was the market’s backlash against the new government’s reckless plan to cut taxes for the rich and for corporations, funded by new debt, while piling on spending to subsidize energy costs, also funded by new debt, thereby requiring the issuance of large amounts of new debt, even as inflation has already reached to 10%."
I'm certainly no financial expert but reading this below, certainly sounds awfully familiar to what caused the 2008 GFC with banks collapsing?
"Defined-benefit pension plans in the UK that were using an investment strategy, called liability-driven investment (LDI), got hit by collateral calls as long-dated gilts went into the death spiral."
Sure does. Wonder if they do that sht here?
You would think pensions, safe held bonds would be a component, not re-borrowed against and the borrowings punted off for more yield (my reading of the process only).
But then again, when central banks spend a decade grinding interest rate yields into the dust, desperate times call for desperate risk taking, and stupidity reigns supreme. Might be a good time to re-read J K Galbraith's famous work...
It’s a different scenario to the GFC, and I see a lot of (spurious) comparisons are being made between now and theGFC, particularly by the media.
In the GFC the problem was in mortgage backed securities and credit default swaps, which are used to manage to manage risk arising from changing credit spreads (the spread between interest rates on bonds of different credit/default risk).
I’m the current scenario it relates to defined benefit pension funds. They promise a pre-defined pension income upon retirement. To achieve this and manage the risks involved (such as how long a retired person will actually live after retiring) they undertake a form of asset-liability matching kind of similar in style to how a bank manages its capital.
As part of this asset-liability management function in order to meet future promised retirement income obligations, they invest in various assets including stocks, bonds, cash, etc, as well as use derivative securities including plain vanilla interest rate swaps.
The unprecedented movement in bond yields/prices caused these defined benefit funds to sell assets on a large scale including bonds for various reasons including mark-to-market margin calls on their interest rate swap positions.
gsco wrote:It’s a different scenario to the GFC, and I see a lot of (spurious) comparisons are being made between now and theGFC, particularly by the media.
In the GFC the problem was in mortgage backed securities and credit default swaps, which are used to manage to manage risk arising from changing credit spreads (the spread between interest rates on bonds of different credit/default risk).
I’m the current scenario it relates to defined benefit pension funds. They promise a pre-defined pension income upon retirement. To achieve this and manage the risks involved (such as how long a retired person will actually live after retiring) they undertake a form of asset-liability matching kind of similar in style to how a bank manages its capital.
As part of this asset-liability management function in order to meet future promised retirement income obligations, they invest in various assets including stocks, bonds, cash, etc, as well as use derivative securities including plain vanilla interest rate swaps.
The unprecedented movement in bond rates/prices caused these defined benefit funds to sell assets on a large scale including bonds for various reasons including mark-to-market margin calls on their interest rate swap positions.
Parts of the situation are different to the GFC but some of the structural issues are the same.
For example, back in the GFC there was huge concern about the suitability of the Euro as a currency for so many countries and differing economies etc. Greece for example couldn't stimulate exports by currency as it didn't have an individual currency. That problem was never resolved, just the kicked the can down the road.
History doesn't repeat, it rhymes.
https://www.reddit.com/r/Wallstreetsilver/comments/xnuj5z/cds_on_credit_...
take with all caveats on source, topic, even doubt the data if you will but yeah
velocityjohnno wrote:https://www.reddit.com/r/Wallstreetsilver/comments/xnuj5z/cds_on_credit_...
take with all caveats on source, topic, even doubt the data if you will but yeah
Interesting and the graph looks legitimate, see this article, which says:
"Credit Suisse’s 5Y CDS spreads are now at its highest levels since the Global Financial Crisis in 2008. The Swiss-based bank has been facing a lot of flak ever since the collapse of its $10bn supply chain finance funds related to Greensill and $4.7bn writedown tied to the Archegos Capital fiasco in 2021. Further, Credit Suisse has also been under the pump due to money laundering issues and its planned workforce downsizing. It has focused on scaling back its investment bank and reducing more than $1bn in costs. The bank has now reported three straight quarterly losses and due to a drop in its capital, the company has sought to rebuild its buffers. However, this has come at a cost – in June 2022, it raised $1.65bn via a PerpNC5 AT1 issuance at a yield of 9.75%. The bonds were priced at a new issue premium of 81.3bp over its comparable 5.25% Perp callable from February to August 2027 that traded at a yield to worst of 8.937% at that time. Most recently, it announced the sale of its Singapore trust business, among others, and a winding down of its legal entities and “residual businesses” in the coming years. The increased credit risk in the lender is now being seen via rating downgrades and the spike in its CDS spreads (as seen in the chart below). Credit Suisse is currently rated Baa2/BBB/BBB by Moody’s/S&P/Fitch vs. Baa1/BBB+/A- prior to 2021. Its dollar bonds have dropped so far this year. For example, its USD 7.25% Perps are down 27% YTD."
Seems that Credit Suisse has had some problems for a while.
Interesting to see some sovereign CDS rates, all from http://www.worldgovernmentbonds.com/cds-historical-data/:
From these, the implied probability of Aus defaulting is 0.42%, the UK is 0.82% and the US is 0.36%.
Loss-making sales grew the fastest in Melbourne and Sydney, according to CoreLogic data, reflecting the sharper downturns in the major cities.
Home values in the two cities have fallen by 2.8% and 1.8%, respectively, during the same period".
ummm.....excuse me for feeling a little underwhelmed over this house price "crash".
2.8 and 1.8% declines for the June Quarter.
3% per qtr is still 12% for a year. But I’m expecting way more than 3% a qtr for the next 12 months.
Data sets are both juiced and obsolete.
Crew still thought it was a real estate endless summer back in April. Now even the munted general population know that winter is coming.
House prices - going to go up , down or sideways ?
Opinions and anecdotal stories if you could.
Cheers