Europe heading into recession
Discussion
Digga said:
PPI was, in a small way (aside form the legal/moral obligation issue of lenders) exactly this sort of stimulus. Give money to those feckless enough to have been sold PPI in the first place and you just knew they would spunk spend it.
Well if someone in HMT put that plan together on purpose, maybe they're not as dumb as we think. We maynot be f**ked yet. I'd (they) probably also stick BJ on the election trail promising to legalise wacky backy too. Coulple of extra yards in the bank; and pulls some (alot) of Momentum supporters.I'm gonna go out on a limb on PPI. Lots of people took out PPI as or redundency or income protcection. The fact the policies would or rarely pay out WAS and should have been punishable. I'm not sure it was feckless (the act of maxing you credit limit would be) to have PPI. It's showing intent to pay it back. Anyways.
Doing helicopter money, or public access to Central Bank is interesting IF done properly BUT a lot of scope to go badly. It desintermediates the banks (which is a good / bad thing depends where you sit). Giving every economically active person a 60k interest free credit facility to invest in certain things (like education, training or business) could be a good growth shot. It certainly upskills UK Plc. Its not unlike the new rules on using your private pensions to fund business. It does add about 2trillion to BOE balance sheet though. This is the monetary shot that seems favoured by many.
I still don't think you can NOT do targeted fiscal spend though. Not the rounding errors announced thus far, but 100bn here; 100bn there.
fesuvious said:
I'm favouring QE direct to coffers to fund the raising of income tax thresholds.
It won't be given to everyone.
Means Tested Helicopter Money? Ohhh, that's interesting. Depends on what end you give it, results in 2 very difficult outcomes.It won't be given to everyone.
BTW, the 0 Coupon 30 yr Bund was a flop. Failed to meet its 2bn target; only EUR824m done.
All this talk of inflation ignores those on fixed incomes, a large and growing sector of society. People are living longer, social care isn’t fixed or even affordable, and inflation will make matters worse when the (index linked) state pension is not the dominant income for so many.
Collapsing asset prices in 2008 was a very viable answer, but it was eschewed for short term political reasons. IMHO true leaders would have recognised it as a golden opportunity to position us for ferocious post-crisis growth.
Collapsing asset prices in 2008 was a very viable answer, but it was eschewed for short term political reasons. IMHO true leaders would have recognised it as a golden opportunity to position us for ferocious post-crisis growth.
loafer123 said:
Don't get me wrong, I am not advocating Japanese stagflation, I just think that is where we are heading. We do have the advantage of a more flexible economy and one of the best demographics in the western world as well.
I do think, however, that you are wrong on housing. I see no difference between crazy prices in London and Tokyo and free houses in rural Japan and Liverpool.
You can buy a decent house in alot of the UK for less than £300 psf which is perfectly affordable by most households who look to buy. Don't mistake the craziness of London and the South East for reality in the majority of the country.
I don’t think there’s all that much competition between a trad Japanese house in a beautiful village and a ghetto in Liverpool I do think, however, that you are wrong on housing. I see no difference between crazy prices in London and Tokyo and free houses in rural Japan and Liverpool.
You can buy a decent house in alot of the UK for less than £300 psf which is perfectly affordable by most households who look to buy. Don't mistake the craziness of London and the South East for reality in the majority of the country.
In Japan the issue is demographics, not economic disaster areas or slums. Very different situations.£300psf is about the U.K. average by the way, not a cheap area. But given average household earnings, an average household would need about 2x gross household earnings as a depoait to afford an average U.K. house of less than 900 sq ft.
fesuvious said:
Bottom end Stongle.
Those more likely to receive a bigger percentage uptick in take home pay. They'll feel richer. The reaction is likely to be greater
Thats what scares me. The facetious response is Its going on beer, fags and a trip to Malia. Sure it is inflationary, but its nothing for future growth / sustainability. Ok, the cynic in me says you are correct, but I'm to shush that given the week I'm having.Those more likely to receive a bigger percentage uptick in take home pay. They'll feel richer. The reaction is likely to be greater
Possibly we are super obsessed with inflation, its relatively easy to understand why we want it and how to generate it. The problem its too simplistic measure and you end up in a slightly odd position. The market starts to dictate policy decision. Goldman calls the "Hall of Mirrors". Basically the market dictates the rate setting / monetary actions and then the Central Banks do it. We see the market fully expects 2 more Fed cuts this year. If they don't deliver it, you get a panic. Interesting piece on Bloomberg about it.
Its the same situation in Europe Juncker, Barnier, Tusk, Macron etc will all crow on about European solidarity, but when backs up against the wall the Germans don't give a flying f
k. The 55bn figs they do in fiscsl stimulus is going to have mininal spillover if any - and its deployed as and when German rules dictate it. Europe just isn't a single economy its 28 all at different speeds. They are also wiping out reunification tax in 2021 for all bar 10%. Minor stimulus action there.markcoznottz said:
all the retards who overleveraged buying btls................have been subsidised until thier mortgages have been cleared. No thanks for anyone who was prudent, you can have zero interest in your savings.
Surely successfully predicting future returns & investing in them with the benefit of leverage could be described as prudent? Arguably more so than effectively stuffing the mattress with banknotes.Agammemnon said:
markcoznottz said:
all the retards who overleveraged buying btls................have been subsidised until thier mortgages have been cleared. No thanks for anyone who was prudent, you can have zero interest in your savings.
Surely successfully predicting future returns & investing in them with the benefit of leverage could be described as prudent? Arguably more so than effectively stuffing the mattress with banknotes.Agammemnon said:
markcoznottz said:
all the retards who overleveraged buying btls................have been subsidised until thier mortgages have been cleared. No thanks for anyone who was prudent, you can have zero interest in your savings.
Surely successfully predicting future returns & investing in them with the benefit of leverage could be described as prudent? Arguably more so than effectively stuffing the mattress with banknotes.For a whole generation of Brits, you don’t make money off of good ideas and building businesses; you leverage to the hilt and trust the government to make sure house prices continue to rise.
It’s *incredibly* hard to make as much money in business as it has been to wallow in asset value increases. Yet all those landlords think they’re “shrewd negotiators” (to borrow a phrase).
It *must* be made more profitable to employ people and build a business than simply to get a mortgage. If it isn’t, we have only ourselves to blame.
Agammemnon said:
Surely successfully predicting future returns & investing in them with the benefit of leverage could be described as prudent? Arguably more so than effectively stuffing the mattress with banknotes.
Banknotes? That’s another of their wet dreams, do away with cash so the option of withdrawing your funds from the bank when interest rates go negative no longer exists. Also stamps completely on the black economy that allows tax to be dodged. And they can save money not having to mint coins that cost more than their nominal value.That’s one of the reasons that I make a point of using cash as much as possible, just trying to keep it alive!
skwdenyer said:
loafer123 said:
Don't get me wrong, I am not advocating Japanese stagflation, I just think that is where we are heading. We do have the advantage of a more flexible economy and one of the best demographics in the western world as well.
I do think, however, that you are wrong on housing. I see no difference between crazy prices in London and Tokyo and free houses in rural Japan and Liverpool.
You can buy a decent house in alot of the UK for less than £300 psf which is perfectly affordable by most households who look to buy. Don't mistake the craziness of London and the South East for reality in the majority of the country.
I don’t think there’s all that much competition between a trad Japanese house in a beautiful village and a ghetto in Liverpool I do think, however, that you are wrong on housing. I see no difference between crazy prices in London and Tokyo and free houses in rural Japan and Liverpool.
You can buy a decent house in alot of the UK for less than £300 psf which is perfectly affordable by most households who look to buy. Don't mistake the craziness of London and the South East for reality in the majority of the country.
In Japan the issue is demographics, not economic disaster areas or slums. Very different situations.£300psf is about the U.K. average by the way, not a cheap area. But given average household earnings, an average household would need about 2x gross household earnings as a depoait to afford an average U.K. house of less than 900 sq ft.
As for affordability, don't forget the average household isn't the average housebuyer....
fesuvious said:
Japan is indeed where we are heading.
Quietly mortgage terms have been extending, out to 72yrs of age and easily over 45 years. Plenty of studies/papers into 'family mortgages' exist.
That though is why I don't think it will happen.
If you play it out to the conclusion countries are going majorly bust. The borrowing levels are monstrous. US isn't far off having 5% of it's taxation revenue swallowed by debt interest. That's foreseeable. It cannot continue. It won't.
EU, UK, Japan, US - if we all woke up tomorrow and the price of everything (from labor to condoms) had trebled then government debt would be no issue as gov revenues would triple, outgoings would triple, but the debt would be 1/3 in relative terms to now.
That's ridiculously simplified but it tells you in essence how to fix the issue.
Japan style 'economic suspended animation' isn't an option. Inflation will have to be stoked.
Either that is drastic cuts in spending and taxes increasing. Find me the politicians who will sanction that! Despite the fact it is the sensible response.
What got us into this st storm 20-25odd years ago was optimism/greed/free and easy credit. What kept the ball accelerating was asset price growth allowing further credit to already indebted nutballs keen to buy the latest shizzle, fly first class and regale friends with stories of their BTL portfolio growth.
asset growth made the room to make debt smaller proportionately giving the room to borrow more.
Govs/Central Banks and Planners realise that this needs to happen again, only without the second part. They can't borrow more.
Stimulus isn't working as people just don't want to borrow and spend.
Take away the borrowing
Give them the money, have rates at banks that low they can't hoard it/save it and hey presto, we're off to splurge.
Inflation .
QE direct, it's mad, it's bad but we're even more fked if we don't.
We are already nearly a quarter of the way through the solution, without the pain you suggest.Quietly mortgage terms have been extending, out to 72yrs of age and easily over 45 years. Plenty of studies/papers into 'family mortgages' exist.
That though is why I don't think it will happen.
If you play it out to the conclusion countries are going majorly bust. The borrowing levels are monstrous. US isn't far off having 5% of it's taxation revenue swallowed by debt interest. That's foreseeable. It cannot continue. It won't.
EU, UK, Japan, US - if we all woke up tomorrow and the price of everything (from labor to condoms) had trebled then government debt would be no issue as gov revenues would triple, outgoings would triple, but the debt would be 1/3 in relative terms to now.
That's ridiculously simplified but it tells you in essence how to fix the issue.
Japan style 'economic suspended animation' isn't an option. Inflation will have to be stoked.
Either that is drastic cuts in spending and taxes increasing. Find me the politicians who will sanction that! Despite the fact it is the sensible response.
What got us into this s
t storm 20-25odd years ago was optimism/greed/free and easy credit. What kept the ball accelerating was asset price growth allowing further credit to already indebted nutballs keen to buy the latest shizzle, fly first class and regale friends with stories of their BTL portfolio growth.asset growth made the room to make debt smaller proportionately giving the room to borrow more.
Govs/Central Banks and Planners realise that this needs to happen again, only without the second part. They can't borrow more.
Stimulus isn't working as people just don't want to borrow and spend.
Take away the borrowing
Give them the money, have rates at banks that low they can't hoard it/save it and hey presto, we're off to splurge.
Inflation .
QE direct, it's mad, it's bad but we're even more f
ked if we don't.The Bank of England holds 23% of Gilts. If I were the UK government, I would be encouraging the BoE to buy more new issuance as a further round of QE...
Competitive currency devaluation, infrastructure spending splurge, low rates and not adding to the net balance sheet...
YankeePorker said:
Agammemnon said:
Surely successfully predicting future returns & investing in them with the benefit of leverage could be described as prudent? Arguably more so than effectively stuffing the mattress with banknotes.
Banknotes? That’s another of their wet dreams, do away with cash so the option of withdrawing your funds from the bank when interest rates go negative no longer exists. Also stamps completely on the black economy that allows tax to be dodged. And they can save money not having to mint coins that cost more than their nominal value.That’s one of the reasons that I make a point of using cash as much as possible, just trying to keep it alive!
stongle said:
Means Tested Helicopter Money? Ohhh, that's interesting. Depends on what end you give it, results in 2 very difficult outcomes.
BTW, the 0 Coupon 30 yr Bund was a flop. Failed to meet its 2bn target; only EUR824m done.
A question if I may. I’ve never understood who buys bonds with close to zero coupon, but a zero percent bond lgives you nothing for 30 years. It’s literally the same as sticking your money in a metal box, giving someone else the key and saying “see you in 2049”. There is no reason for its value to rise or fall - unless you believe that the ECB is going to cancel all it’s banknotes and reissue, it seems pointless.BTW, the 0 Coupon 30 yr Bund was a flop. Failed to meet its 2bn target; only EUR824m done.
824 million sold suggest that some people (with quite a lot of money) don’t think its pointless ..... any idea why?!
skwdenyer said:
I’m all for ditching cash; I’m so heartily sick of the cash scams all around me. Cards are not immune of course - my local corner shop has 2 card machines, one for daytime and one for evening... they also sell under the counter duty free cigarettes, do all the “void” tricks with the till, are well over the VAT limit but not registered, and so on. I know they’ve been reported to HMRC many times over the years, but nothing ever happens...
You mention yourself (1) void tricks on the card machine and (2) the authorities doing nothing. So how could going cashless change that?The people who would decide whether we go cashless are not interested in a little bit of dubious activity at a small corner shop. Even if they were it would take too many resources for such small fish.
Analogy - speed cameras / VOSA etc. The drivers who speed, use false plates, have no insurance etc, will always do that regardless. They are thankfully a minority, and the spread of number plate recognition cameras is not intended for the minority. Going cashless would not be about small time crooks - your sense of injustice at them gaming the system would remain, but you would at least then have bigger things to worry about
rxe said:
A question if I may. I’ve never understood who buys bonds with close to zero coupon, but a zero percent bond lgives you nothing for 30 years. It’s literally the same as sticking your money in a metal box, giving someone else the key and saying “see you in 2049”. There is no reason for its value to rise or fall - unless you believe that the ECB is going to cancel all it’s banknotes and reissue, it seems pointless.
824 million sold suggest that some people (with quite a lot of money) don’t think its pointless ..... any idea why?!
https://www.proactiveinvestors.co.uk/companies/news/901231/why-might-investors-buy-negative-yield-government-bonds-901231.html824 million sold suggest that some people (with quite a lot of money) don’t think its pointless ..... any idea why?!
in a nutshell:
"In times of uncertainty, demand for bonds increases, which, as explained earlier, drives their prices higher, meaning there could be a profit to be made by buying and selling government debt.
Should traders be of the view that this current period of volatility will last for a while longer yet, they might buy bonds now in the hopes that more investors flock to them further down the line.
It might not even need fellow investors to buy in – the central banks have been doing a pretty good job of buying plenty of bonds as they look to stimulate the economy".
Edited for not being able to put in a quote table, doh!
rxe said:
A question if I may. I’ve never understood who buys bonds with close to zero coupon, but a zero percent bond lgives you nothing for 30 years. It’s literally the same as sticking your money in a metal box, giving someone else the key and saying “see you in 2049”. There is no reason for its value to rise or fall - unless you believe that the ECB is going to cancel all it’s banknotes and reissue, it seems pointless.
824 million sold suggest that some people (with quite a lot of money) don’t think its pointless ..... any idea why?!
Stuckmojo's answer is pretty good. 824 million sold suggest that some people (with quite a lot of money) don’t think its pointless ..... any idea why?!
The cash in a box analogy is pretty good, as whilst you are exposed to inflation; you don't carry -'ve rate risk. Basically, if the rates are negative you should be paying to depot your cash in a bank. The fact banks don't pass -'ve rates through hollows out their profitability (at retail anway, wholesale funding is negative), it probably costs 10-15bps in deposit taking costs so Eurozone retail customers should be depoting at -60bps really. So at the wholesale end of the spectrum a zero coupon bond eliminates a lot of opportunity cost (not seen by retail).
The low subscription level is indicative that there is just isn't enough appetite yet for returns that low - even if its in the most risk free asset class and issuer on the planet. Bundesbank took the remainung 1.4bn, so not as though the Govt didnt get there money. They will probably tun them back into the repo market, where you have to pay even more to give your cash away.
stongle said:
Stuckmojo's answer is pretty good.
The cash in a box analogy is pretty good, as whilst you are exposed to inflation; you don't carry -'ve rate risk. Basically, if the rates are negative you should be paying to depot your cash in a bank.
Where is the benefit compared to stuffing cash in the mattress where it's immediately accesible?The cash in a box analogy is pretty good, as whilst you are exposed to inflation; you don't carry -'ve rate risk. Basically, if the rates are negative you should be paying to depot your cash in a bank.
Agammemnon said:
Where is the benefit compared to stuffing cash in the mattress where it's immediately accesible?
Because you'd need a bed the size of the square mile for 824m.Edit, ok technically you wouldnt more like couple of tennis courts if in 20's- but the rational for retail and wholesale are different.
On a day to day basis you could possibly make 20-25bps on the repo market (before costs). I.e. lend bunds @ - 65bps, depot at ECB @-.40. Crystalise 25bps in the middle. Repo is a wholesale product though, not even doable by corporates (well thats a whole another issue they might technically be able to do it but with zero liquidity).
Edit to add, actually if you borrowed the money from ecb ti buy the bunds in the first place you'd make 45bps+. Not bad for a round robin cash & carry trade. Almost riskless too (except for duration).
Edited by stongle on Thursday 22 August 11:32
Edited by stongle on Thursday 22 August 11:50
Agammemnon said:
Where is the benefit compared to stuffing cash in the mattress where it's immediately accesible?
the bonds are traded, so the "sell" value could be nominally higher than the issue value. Or - as in any investment - it could be lower. They are in theory quite liquid. The opposite would be true of - say - Argentinian bonds"Argentina Government Bond 10y increased to 6.22 percent on Wednesday November 8 from 6.17 percent in the previous trading day. Historically, the Argentina Government Bond 10y reached an all time high of 6882.86 in July of 2019 and a record low of 1358.50 in November of 1992."
In other words, they Yield (return interest) quite high percentages but are worth f
k all compared to the issue price. Note, I am not from the industry so I don't use the lingo.
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