2022, inflation++, retrograde wages and B&O

Here the UK, wages have been shrinking relatively, price of energy expected to double next year and house prices have surged, unemployment is on its way. I’m sure the UK is not unique in this economic state. Let’s not forget chip shortage which will last several years. This seems like a first world problem but I can’t see myself buying anything new (even if it is exceptional in build and functionality) for sometime. Worrying for B&O, who have tried their hardest with one new headphone or sound dock after another. Just when there was some glimmer of recovery for B&O and now this. I hope B&O can ride this storm out.

STU

Good Days greetings. 

Personally, I would not worry about B&O. I would worry about your ability to put food, shelter and warmth to you and you nearest.

Simply put, inflation is not caused by people putting up prices of their goods. It is caused solely by Governments and their masters (Central Banks) printing more and more faux currency. 

In essence, CBs can issue money digitally - at no cost to themselves (and ironically charge you and I interest on it) into circulation. The value of money (err sorry, I mean currency - as money retains its store of value, currency does not) decreases. Thus, with more and more money chasing the same hard assets, the price is seemed to increase of said asset. When in reality you are throwing more and more worthless currency at an asset.

Example: UK housing. Price is going up - often many times above real wages, because banks through digital currency printing and fractional reserve banking (10 to 1 ratio) make "us" chase assets with worthless currency. When we fall - and a lot of us will fall, who defaults.

You will own nothing and be happy.

what we will all soon come to realise:-

1. How Magic money making is a monopoly (un-natural law) business practice on a select few can participate in (me and you go to jail if we try)

2. Fractional reserve banking. Lending out more money than you have deposits/assets against (me and you would be called bankrupt)

3. How we foolishly paid interest (payable/saleable as real assets/work effort) to people who divvid-up currency from not even fresh air

4. How the rules are stacked against you and I that any trip, stumble of fall, these institutions can forcibly relieve you of real-world useful assets for defaulting on their monopoly-currency-out-of-fresh-air ponzi scheme. 

 

all very sad reading and I would say this is a-political but I suspect in a few months we will see real hungry desperate people struggle to breathe with what is coming down the pipeline.

 

Regardless, I wish everyone here the very very best for 2022 and hope to see you in better fettle on the other end.

Buckle-up.

10

 

 

Here in Netherlands economy is soaring, I assume that is elsewhere also the case.

Help to buy and other misguided policies (such as the stamp duty holiday) also have their share of blame. The truth is the policy makers - many of which are landlords - really don’t care if house prices are affordable, they want them to keep increasing. Estate agents that consistently overvalue properties and stall when they think they can find a buyer that will pay a bit more are also part of the problem. Really it comes down to incentives, as it always does.

While I agree the way the global economy is run encourages volatility and bubbles, I'd be wary of predicting imminent gloom.

We've had one extended period of money printing, in the aftermath of the Financial Crisis of 08-09, that did not push up inflation for goods / services. This second period of money printing, since the start of the pandemic, has obviously coincided with a much more serious rise in goods / services inflation.

So 2 episodes, one which was accompanied by high inflation, one which wasnt. That suggests there are other things going on, w.r.to higher inflation. Much of that obviously has to do with lean just in time production models, which have not been able to cope with the staggering rise on aggregate consumer / business demand, and a problem made worse by Covid production disruptions.

As for imminent gloom, certainly another year of cost / price rise and rising inflation will pressurise consumers more so than the last 18 months.  However, household savings balances (from the measured numbers) are still historically pretty high, so consumers have very decent cushions, at least by the standards of the last couple of decades.

And in quite a few western economies wages have been rising, especially for some in demand and lower skilled jobs - thats the first time we've seen this in a long long time.  Some of these higher wages will get eaten up by higher inflation of course, but big picture the real wage picture looks as ok as it has for a while.

Anyway, much as central banks printing money is odd and slightly uncomfortable, its real downside is seen in how damaging it has been for inequality. Central banks printing money and buying govt / corporate debt has just encouraged risk taking, and inflated assets incredibly - great for better off asset owners, does zero for lower income classes.  Thats the real crime of QE - its less obvious that its caused goods / services inflation.

Anyway, when it comes to B&O sales, I'll repeat what I've said here before - especially in response to those who have posted enthusiastically after the recent return to profits - the improvement in B&O's financial prospects has been very modest against a background of a staggering rise in consumer home spending. That's why the stock markets keep B&Os stock price pretty low - they are not overly impressed by the sales rise, and are unconvinced that higher and growing sales can be projected much into the future.

Sandyb:

Anyway, much as central banks printing money is odd and slightly uncomfortable, its real downside is seen in how damaging it has been for inequality. Central banks printing money and buying govt / corporate debt has just encouraged risk taking, and inflated assets incredibly - great for better off asset owners, does zero for lower income classes.  Thats the real crime of QE - its less obvious that its caused goods / services inflation.

The risk taking is not the problem. The inequity is. 

There are a certain group of people (or industry) that can get the people to bail it out, can get the money produced out of nothing at the source and ensure first use to buy hard tangible assets. Copper, gold, food supplies, housing, fuel etc....

Then down at the financial bottom of life there are millions and millions of people when they spend and borrow via credit cards get charged 30-35% interest. Get it? - from an industry which basically gave it to themselves for free.

I believe what we will see in the next 12 to 24 months will not be the same as previous recessions, corrections etc. What used to happen is when people/company's foreclosed, the Banks would put those assets up for fire-sale to the best readily available Buyer. Now, I fear today, as people foreclose etc, the Banks will keep the assets and lease those assets out. That leads to a very very dangerous path which none of us here should consider to be a good and righteous place to want to go to.

 

It’s very difficult to know what will happen and won’t happen and even more difficult to know when. Through all my research: a third the worlds famous billionaires/economic giants predicted a crash this year, a third next year and a third sometime between 2022 and 2026 when 18-year property cycle ends. The bubble will burst but how and when I’m not sure. Some say the recession will be apocalyptic with an end of the West’s financial supremacy whilst others say it will like be like past recessions, no worse etc… Where B&O will stand is not promising but history says that B&O have survived since 1920 so will be ok.

Agreed, as I said in my post "the real downside is how damaging its been for inequality"

As for your assertion that money printing causes high inflation, well my response was that it didn't the first time around, and while it did the second (i.e. now), strong causality has not been borne out judging by the last 10 years.  As such, some of your initial post is somewhere between speculative and inaccurate.

The risk taking is actually also a problem too, albeit secondary perhaps to the inequality issue. Central banks printing money, and buying low risk (i.e government bonds) and even medium risk assets (corporate and high yield bonds) acts as an artificial price floor, some kind of vague partial insurance on risky assets.  Not only does that compress risk premiums, it will most likely have driven borrowing costs below their (risk adjusted) normal levels. That promotes inappropriate risk taking from investors, and likely a misallocation of funds towards uneconomic projects / companies.  Those will get exposed in a serious downturn.

So yes, quantitative easing has been brutally bad for inequality, though the mis-pricing of risky investments will also have longer term consequences.

As for banks leasing out assets? Interesting, but I'm not sure. The banks packaged up and sold off quite a lot of distressed assets in the years post Lehman Brothers, to special purpose distressed funds. The regulatory requirements on banks are so much more onerous and expensive these days, and leasing out assets doesn't reduce the regulatory capital they will need to set aside very much I think. Asset sales I think remain the first option.

Mr 10Percent:

Sandyb:

Anyway, much as central banks printing money is odd and slightly uncomfortable, its real downside is seen in how damaging it has been for inequality. Central banks printing money and buying govt / corporate debt has just encouraged risk taking, and inflated assets incredibly - great for better off asset owners, does zero for lower income classes.  Thats the real crime of QE - its less obvious that its caused goods / services inflation.

The risk taking is not the problem. The inequity is. 

There are a certain group of people (or industry) that can get the people to bail it out, can get the money produced out of nothing at the source and ensure first use to buy hard tangible assets. Copper, gold, food supplies, housing, fuel etc....

Then down at the financial bottom of life there are millions and millions of people when they spend and borrow via credit cards get charged 30-35% interest. Get it? - from an industry which basically gave it to themselves for free.

I believe what we will see in the next 12 to 24 months will not be the same as previous recessions, corrections etc. What used to happen is when people/company's foreclosed, the Banks would put those assets up for fire-sale to the best readily available Buyer. Now, I fear today, as people foreclose etc, the Banks will keep the assets and lease those assets out. That leads to a very very dangerous path which none of us here should consider to be a good and righteous place to want to go to.

 

 

It is difficult of course - and barely anyone really predicts severe events (market crashes / recessions) accurately.

That all said, you point about retrograde wages is not borne out by the data.

If anything, it is the opposite.

Of course, and as I said above, the recent rise in nominal wages may get eaten up by another 12 months of inflation - but we're not there as we speak. And wages may continue to rise to cushion some / all of the blow. 

I say this with all due respect of course - and in spirit I understand concerns about the path forward - but I spent 20+ years running funds / market strategy, so I do regularly look at the data both in some detail and holistically.

 

seethroughyou:

It’s very difficult to know what will happen and won’t happen and even more difficult to know when. Through all my research: a third the worlds famous billionaires/economic giants predicted a crash this year, a third next year and a third sometime between 2022 and 2026 when 18-year property cycle ends. The bubble will burst but how and when I’m not sure. Some say the recession will be apocalyptic with an end of the West’s financial supremacy whilst others say it will like be like past recessions, no worse etc… Where B&O will stand is not promising but history says that B&O have survived since 1920 so will be ok.

seethroughyou:

It’s very difficult to know what will happen and won’t happen and even more difficult to know when. Through all my research: a third the worlds famous billionaires/economic giants predicted a crash this year, a third next year and a third sometime between 2022 and 2026 when 18-year property cycle ends. The bubble will burst but how and when I’m not sure. Some say the recession will be apocalyptic with an end of the West’s financial supremacy whilst others say it will like be like past recessions, no worse etc… Where B&O will stand is not promising but history says that B&O have survived since 1920 so will be ok.