Inflation

[divs4ever]

Well as we said a few years ago, the Government can only inflate away its debt and it looks like it's working.
Poor old fall guy Phil, takes one for the team. ?
While Jimbo explains how inflation is bad and we must get a handle on it.
Keep pumping those prices baby. ?

Economy could shrink under interest rates and tax: RBA

The economy is facing its worst non-pandemic year since the 1990-91 recession as high interest rates, inflation and taxes hit the nation’s consumers.

www.smh.com.au

From the article, when you cut the bloatware and the fan club fluff out: ?
The Reserve Bank has conceded there is a chance the economy could shrink this year under the weight of inflation and its string of interest rate rises, as households struggle to pay their mortgages and increasingly large tax bills.

As Westpac economists predicted Treasurer Jim Chalmers was on his way to delivering the first back-to-back budget surpluses since 2007-08, the RBA said households were likely to pay $1 of every $10 of their disposable income covering the interest bill on their home loans.

Consumers are also being hurt by a surge in tax, partly due to higher wages growth, the end of the federal low- and middle-income tax offset and the effect of inflation on goods and services.

“Real incomes have been weighed down by continued high inflation, strong growth in tax payments and higher net interest payments, as well as declines in small business incomes,” it said.
It noted the stage three tax cuts, due to start from July 1 next year, would “support income and consumption”.
Loading
All of that extra tax is helping governments cover the deficits left by the pandemic. The biggest winner is shaping to be Chalmers, who has already confirmed a surplus of more than $20 billion is likely for the 2022-23 budget.
But Westpac senior economists Bill Evans and Andrew Hanlan said the revenue stream, and lower than expected spending, would result in Chalmers delivering a surplus for the current financial year as well.

They said the 2023-24 budget, rather than showing a deficit of $13.9 billion, was on track to be in the black to the tune of $11 billion.
In the following year, the budget would return to deficit, but was likely to be around $16 billion rather than the $35.1 billion Chalmers had forecast in May.
Evans and Hanlan said Chalmers was facing a “combined improvement in the cumulative budget positions over the three years of $62 billion”.

i heard a commentator on 'our' ABC saying the government were on the verge of getting a double dissolution trigger , would they go to the pools early , or use the threat ( of a double dissolution ) as 'leverage ' .

good luck guessing what happens next

 

[sptrawler]

i heard a commentator on 'our' ABC saying the government were on the verge of getting a double dissolution trigger , would they go to the pools early , or use the threat ( of a double dissolution ) as 'leverage ' .

That wont happen, you can take that to the bank. ?

 

[Smurf1976]

I see the retail price of diesel is rapidly increasing.

Was 174.9 for quote a long period at the servo I go past most days and it was still at 179.9 as recently as 11 days ago but since then it's been going up literally on a daily basis, latest being 201.9 today.

Assuming that's widespread (?) it's another thing that'll affect business and household expenses.

 

[wayneL]

I see the retail price of diesel is rapidly increasing.

Was 174.9 for quote a long period at the servo I go past most days and it was still at 179.9 as recently as 11 days ago but since then it's been going up literally on a daily basis, latest being 201.9 today.

Assuming that's widespread (?) it's another thing that'll affect business and household expenses.

HO - Diesel proxy on the futures markets

 

[divs4ever]

That wont happen, you can take that to the bank. ?

i see it as an attempt to pressure the minor parties that would be light in the donations and volunteers department , but we have have a procession of short-term governments before and in my lifetime as well

extra point of consideration ... have the LNP a viable Prime Minister candidate at the moment ??

 

[sptrawler]

I see the retail price of diesel is rapidly increasing.

Was 174.9 for quote a long period at the servo I go past most days and it was still at 179.9 as recently as 11 days ago but since then it's been going up literally on a daily basis, latest being 201.9 today.

Assuming that's widespread (?) it's another thing that'll affect business and household expenses.

Same here in W.A.

 

[over9k]

Recessions can be deflationary though. It's why the PPI has been falling in Germany and China (although the latter isn't yet officially in recession). It's why commodities have been slammed for the past year.
Furthermore, the Fed has cut in the past despite CPI being high or trending upwards, only for it to fall following a recession - probably because it's backward looking data, e.g. 1990, 2000, 2019.

Correct - hence the mention of the balancing act between supply vs demand side. Too much demand resulting in inflation is a very different thing to too little supply resulting in it.

Pumping rates does not improve the supply side, in fact it actually makes it even worse. It just hits the demand side more. Hence the comments about rate rises being a blunt instrument.

View attachment 160524

As for what's breaking, I would say there are many parts of the economy (US included) that are impacted by the rate hikes but have not yet been demonstrated in data:

1. Q4 2022 we saw multiple tech companies commence job cuts that are still occurring albeit at a slower rate
2. 1Q 2023 we saw two US banks (SVB & signature) fail
3. 2Q 2023 we are companies continue to report missed earnings and dismal outlook. Tech companies are reporting relative improvements compared to a crap Q4 '22. AAPL revenue down for 3 quarters. PYPL & SQ with poor guidance. Oil majors with poor profits!

Banks yes (this was due to holding bonds that were pummeled), but tech is still doing quite well and the oil majors are making a motza, not sure where you got that from?

True, but everyone has a vested interest in maintaining political and societal stability. It was only last year that we had several labour unions striking due to wages not keeping up with inflation. That was mild compared to the events overseas where inflation was truly out of control e.g. Sri Lanka.

Yes but if your profits are greater than the losses you incur from instability then you're in front. So you might set up convenience store in a really sketchy neighbourhood and just eat the losses from all the shoplifting if you still continued to make serious bank from your regular sales.

Take and apply at a societal level and create a system where there's actually very little that can be done by those getting squeezed and voila, an extremely rich elite and everyone else bled dry.

We can see this through the hollowing out of the middle class of the west over the past ~30 years but especially the last 20.

I personally think they know a recession is the only way to truly "reset" this - i.e. get the world off of ZIRP. Force a recession with higher rates, then cut back to some sort of mid level and restart QE + government spending for the "new green economy". The US already has a bunch of infrastructure spending ear-marked.

Good luck getting a recession past the ballot box though.

Politically and economically.

Why can't we just keep kicking the can down the road, as we've been doing since the 80s? ZIRP forever, baby.

Well politically it depends obviously on who votes for what but in a purely economic sense we simply run out of borrowing capacity. Even 0% interest rates can be maxxed out eventually.

@over9k is this you?

Bill Ackman says he's shorting 30-year Treasury bills, and yields could hit 5.5% 'soon'

Billionaire investor Bill Ackman says bond market may reprice the long end of the curve "in a matter of weeks."

www.cnbc.com

I could only dream of still looking that good at 57. Bill Ackman is my spirit animal.

 

[over9k]

Agreed, this reads like Australia. I'm having flashbacks to the early 2010s when Sydney property prices kept booming despite the threat of a double dip recession and the EU looking like it were about to blow up.
Anecdotes and newspaper articles reported on several auctions where Chinese buyers would turn up with suitcases of cash to buy property and push out local. This was hushed by government, stating that the Foreign Investment Review Board was tasked with stopping this therefore it couldn't happen.
Turned out that the FIRB was asleep at the wheel and those buyers were cashed up foreigners trying to flee a shitty government and gain Aus citizenship by making a significant investment...

And just read the comments on reddit:

"I did not have the space to get into the topic of how the 800k+ international students we import annually represent a nearly $10 Billion industry for degree mills and recruitment firms. It’s seriously big business, outside of the crippling effect it has as wage suppression in the service and labor industries where these poorly qualified students will end up taking jobs. Strip mall degree mills take their families life savings in return for a worthless piece of paper, so that they can live in pseudo indentured servitude as service workers for middle class Canadians. Brutally exploitative."


"The medical profession in Canada is a cartel. The College of Physicians dictates how many students are admissible to med school annually, the near-decade length of schooling now required for a GP, and is responsible for the extreme limitations on foreign certifications - in many cases requiring complete retraining at extreme cost.

The COP is about protectionism for the eye-watering wages physicians collect in the industry, not about ensuring we have a “standard of care”. Did you know it is impossible to sue for Malpractice in Canada? Barely a dozen such cases have succeeded in decades, because the College of Physicians throws a massive war fund at any such case to make it impossible for your average victim to see through to the end."


"We've known for years that we were facing doctor shortages and that we weren't training enough new doctors or retaining enough existing doctors or licensing enough foreign doctors to keep up with the growing demand. If we'd started programs like this years ago, we could have the bones of the program already established and ready to scale up as needed. Instead we're now rushing to play catchup when things are already mid-collapse."

"I was born in Canada and have a dual Canadian/US citizenship and have long been operating under the delusion that I can flee to my homeland if the US gets too bad. The reality is that every developed nation is a capitalist nightmare and we’re all heading for collapse together... truth is there's no place to run to"



"In practice we export very raw materials and buy them back later as finished products at an obvious premium.

There's very little manufacturing or production. So everything is shipped in, at great cost the further North/rural you are.

To take chicken as an example. We grow the birds, but many of the carcasses are exported for 90% of processing. We them import the chicken nuggets. It's a huge loss of potential jobs and economic gain, that is instead outside the country.

It's lead to a hollowing out of the economy. Service jobs you can't pay rent from on one hand, and lots of remote jobs in resource extraction on the other. Better hope your parents own several properties, or the future is pretty bleak".

Significant number of people I know IRL cannot parse this sequence of events and just fall back on the old reflex of suggesting all this is “racist” to even talk about, despite the impact on wages and housing having been immediately visible. It’s insanity.

"This is so frustratingly accurate I can't even begin to describe it. You can't just bring in people faster than we build houses for them and expect prices to remain stable. That's like one of the most basic principles of economics. But people have been so thoroughly conditioned to think "more immigrants = good" that even mentioning these things automatically leads to the assumption that "oh, so you just hate brown people?"

No, this is a very serious and legitimate problem that we've been facing for a number of years now, but it's so unpalatable to discuss that even the Canadian media shies away from talking about it".



Again, they're describing australia to the letter if you didn't know any different.

 

[over9k]

Bill ackman's tweet about shorting US30Y:

I have been surprised how low US long-term rates have remained in light of structural changes that are likely to lead to higher levels of long-term inflation including de-globalization, higher defense costs, the energy transition, growing entitlements, and the greater bargaining power of workers. As a result, I would be very surprised if we don’t find ourselves in a world with persistent ~3% inflation.

From a supply/demand perspective, long-term Treasurys (T) also look overbought. With $32 trillion of debt and large deficits as far as the eye can see and higher refi rates, an increasing supply of T is assured. When you couple new issuance with QT, it is hard to imagine how the market absorbs such a large increase in supply without materially higher rates.

I have also been puzzled as to why the
@USTreasury
hasn’t been financing our government in the longer part of the curve in light of materially lower long-term rates. This does not look like prudent term management in my opinion.

Then consider China’s (and other countries’) desire to decouple financially from the US, YCC ending in Japan increasing the relative appeal of Yen bonds vs. T for the largest foreign owner of T, and growing concerns about US governance, fiscal responsibility, and political divisiveness recently referenced in Fitch’s downgrade.

So if long-term inflation is 3% instead of 2% and history holds, then we could see the 30-year T yield = 3% + 0.5% (the real rate) + 2% (term premium) or 5.5%, and it can happen soon. There are many times in history where the bond market reprices the long end of the curve in a matter of weeks, and this seems like one of those times.

That’s why we are short in size the 30-year T — first as a hedge on the impact of higher LT rates on stocks, and second because we believe it is a high probability standalone bet. There are few macro investments that still offer reasonably probable asymmetric payoffs and this is one of them.

The best hedges are the ones you would invest in anyway even if you didn’t need the hedge. This fits that bill, and also I think we need the hedge.

 

[waterbottle]

Banks yes (this was due to holding bonds that were pummeled), but tech is still doing quite well and the oil majors are making a motza, not sure where you got that from?

They're still making money, but not like 2022

BP Earnings Fall 65% With Surplus Cash Turning Negative

BP earnings were much worse than expected. But crude is rebounding.

www.investors.com

Warren Buffett Stock Occidental Reports Q2 Profits Off Nearly 80%

Occidental Petroleum Q2 earnings fall farther than expected, amid oil prices trading near three month highs.

www.investors.com

Yes but if your profits are greater than the losses you incur from instability then you're in front. So you might set up convenience store in a really sketchy neighbourhood and just eat the losses from all the shoplifting if you still continued to make serious bank from your regular sales.

Take and apply at a societal level and create a system where there's actually very little that can be done by those getting squeezed and voila, an extremely rich elite and everyone else bled dry.

We can see this through the hollowing out of the middle class of the west over the past ~30 years but especially the last 20.

True, but there's a tipping point. It's why IMO Trump took office in 2016. It's why we have the emergence of crypto. The boiling frog can only stay in the pot for so long.

Good luck getting a recession past the ballot box though.

I don't think the electorate has a choice

Well politically it depends obviously on who votes for what but in a purely economic sense we simply run out of borrowing capacity. Even 0% interest rates can be maxxed out eventually.

Would they though? What other options are there in the world? I think if everything else looks crap, then 0% may not be so bad. ECB still managed to sell bonds when it had negative lol!

I could only dream of still looking that good at 57. Bill Ackman is my spirit animal.

Wow, didn't know he was 57! Beast.

 

[waterbottle]

Bill ackman's tweet about shorting US30Y:

I have been surprised how low US long-term rates have remained in light of structural changes that are likely to lead to higher levels of long-term inflation including de-globalization, higher defense costs, the energy transition, growing entitlements, and the greater bargaining power of workers. As a result, I would be very surprised if we don’t find ourselves in a world with persistent ~3% inflation.

From a supply/demand perspective, long-term Treasurys (T) also look overbought. With $32 trillion of debt and large deficits as far as the eye can see and higher refi rates, an increasing supply of T is assured. When you couple new issuance with QT, it is hard to imagine how the market absorbs such a large increase in supply without materially higher rates.

I have also been puzzled as to why the
@USTreasury
hasn’t been financing our government in the longer part of the curve in light of materially lower long-term rates. This does not look like prudent term management in my opinion.

Then consider China’s (and other countries’) desire to decouple financially from the US, YCC ending in Japan increasing the relative appeal of Yen bonds vs. T for the largest foreign owner of T, and growing concerns about US governance, fiscal responsibility, and political divisiveness recently referenced in Fitch’s downgrade.

So if long-term inflation is 3% instead of 2% and history holds, then we could see the 30-year T yield = 3% + 0.5% (the real rate) + 2% (term premium) or 5.5%, and it can happen soon. There are many times in history where the bond market reprices the long end of the curve in a matter of weeks, and this seems like one of those times.

That’s why we are short in size the 30-year T — first as a hedge on the impact of higher LT rates on stocks, and second because we believe it is a high probability standalone bet. There are few macro investments that still offer reasonably probable asymmetric payoffs and this is one of them.

The best hedges are the ones you would invest in anyway even if you didn’t need the hedge. This fits that bill, and also I think we need the hedge.

Equities going to get slammed if true. Pension funds would leave shitty dividend stonks for a fat and juicy 5.5% taxpayer guaranteed divvy. And I'd bet that this'd probably be legislated too (if not already?) - it'd be unamerican/unaustralian for funds to NOT buy a proportion of their own nation's bonds.

 

[mullokintyre]

That wont happen, you can take that to the bank. ?

I may have suggested this already, but never underestimate the stupidity of politicians.
Mick

 

[qldfrog]

I see the retail price of diesel is rapidly increasing.

Was 174.9 for quote a long period at the servo I go past most days and it was still at 179.9 as recently as 11 days ago but since then it's been going up literally on a daily basis, latest being 201.9 today.

Assuming that's widespread (?) it's another thing that'll affect business and household expenses.

Same here in Qld above $2 in most places around

 

[qldfrog]

And just read the comments on reddit:

"I did not have the space to get into the topic of how the 800k+ international students we import annually represent a nearly $10 Billion industry for degree mills and recruitment firms. It’s seriously big business, outside of the crippling effect it has as wage suppression in the service and labor industries where these poorly qualified students will end up taking jobs. Strip mall degree mills take their families life savings in return for a worthless piece of paper, so that they can live in pseudo indentured servitude as service workers for middle class Canadians. Brutally exploitative."


"The medical profession in Canada is a cartel. The College of Physicians dictates how many students are admissible to med school annually, the near-decade length of schooling now required for a GP, and is responsible for the extreme limitations on foreign certifications - in many cases requiring complete retraining at extreme cost.

The COP is about protectionism for the eye-watering wages physicians collect in the industry, not about ensuring we have a “standard of care”. Did you know it is impossible to sue for Malpractice in Canada? Barely a dozen such cases have succeeded in decades, because the College of Physicians throws a massive war fund at any such case to make it impossible for your average victim to see through to the end."


"We've known for years that we were facing doctor shortages and that we weren't training enough new doctors or retaining enough existing doctors or licensing enough foreign doctors to keep up with the growing demand. If we'd started programs like this years ago, we could have the bones of the program already established and ready to scale up as needed. Instead we're now rushing to play catchup when things are already mid-collapse."

"I was born in Canada and have a dual Canadian/US citizenship and have long been operating under the delusion that I can flee to my homeland if the US gets too bad. The reality is that every developed nation is a capitalist nightmare and we’re all heading for collapse together... truth is there's no place to run to"



"In practice we export very raw materials and buy them back later as finished products at an obvious premium.

There's very little manufacturing or production. So everything is shipped in, at great cost the further North/rural you are.

To take chicken as an example. We grow the birds, but many of the carcasses are exported for 90% of processing. We them import the chicken nuggets. It's a huge loss of potential jobs and economic gain, that is instead outside the country.

It's lead to a hollowing out of the economy. Service jobs you can't pay rent from on one hand, and lots of remote jobs in resource extraction on the other. Better hope your parents own several properties, or the future is pretty bleak".



"This is so frustratingly accurate I can't even begin to describe it. You can't just bring in people faster than we build houses for them and expect prices to remain stable. That's like one of the most basic principles of economics. But people have been so thoroughly conditioned to think "more immigrants = good" that even mentioning these things automatically leads to the assumption that "oh, so you just hate brown people?"

No, this is a very serious and legitimate problem that we've been facing for a number of years now, but it's so unpalatable to discuss that even the Canadian media shies away from talking about it".



Again, they're describing australia to the letter if you didn't know any different.

And even being an immigrant does not allow you to speak against immigration..because you are white, or privileged..aka had a good job and some $, etc
Yet immigrants are the first ones to go against uncontrolled immigration as they understand the risks even better than "natives"

 

[over9k]

And even being an immigrant does not allow you to speak against immigration..because you are white, or privileged..aka had a good job and some $, etc
Yet immigrants are the first ones to go against uncontrolled immigration as they understand the risks even better than "natives"

About the only one that I've managed to get them with is to let them know that I moved away from a white country so no, it isn't about race.

 

[mullokintyre]

In a bit of a surprise (for me at least), container rates seem to have taken off again.
From Zero Hedge

Spot rates for shipping containers have been rising for four weeks. The latest data from the Drewry World Container Index composite shows the most significant weekly gain in the index in more than two years. The 23-month slump in ocean-freight costs appears to be ending.

The Drewry World Container Index jumped 11.79% to $1,761 for a 40-foot container, the largest weekly gain since June 24, 2021 -- or the period when shipping costs worldwide were sky-high because of snarled supply chains.

When you look at that it kinda makes you think, thats a big increase, perhaps we are seeing a new trend.
But if you actually go and look at the chart from Drewery UK Index , its but a small blip.



The index is still but a third of what it was this time last year.
Don't think I need to worry just yet.
Mick

 

[over9k]

Same with oil. I reckon the next 1-2 CPI numbers will come in quite good and then they'll rebound again

 

[divs4ever]

In a bit of a surprise (for me at least), container rates seem to have taken off again.
From Zero Hedge

When you look at that it kinda makes you think, thats a big increase, perhaps we are seeing a new trend.
But if you actually go and look at the chart from Drewery UK Index , its but a small blip.
View attachment 160635


The index is still but a third of what it was this time last year.
Don't think I need to worry just yet.
Mick

getting in early for Xmas and the usual holiday season disruptions ?

 

[Telamelo]

Hi

View attachment 160355

The rba SHOULD be hiking, but whether it does or not is another question entirely.

Hiking rates doesn't curb inflation whatsoever - it only impacts those struggling to make ends meet. If RBA was serious about getting inflation under control then they'd pressure Federal Government to control prices - "freeze prices" simple as that (not allowing anyone to price gouge etc.)

 

[Telamelo]

Received the council rates notice today.

Up 9.03% year on year.

Just another data point about inflation in the real world.

Exactly.. as council's are raking in billion's (at the expense & demise of rate payers)