It just keeps coming.. To infinity and beyond..
http://www.marketwatch.com/story/uk-services-pmi-jumps-to-more-than-six-year-high-2013-09-04
UK ECONOMY
(266 posts) (11 voices)-
The UK is off like a rocket here. Unfortunately she is the only rocket that is leaving the earth's gravity. Such a mono approach is doomed to a horrid end. Such concerns of the future should not trouble us for now. The uk is forming a wonderful bubble. This is a time to buy not sell.
http://uk.reuters.com/article/2013/09/03/uk-construction-pmi-idUKBRE98208U20130903
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The UK is leading the world in terms of economic performance here and now.
The UK as the alpha trade is in motion.
http://www.bloomberg.com/news/2013-09-01/london-job-vacancies-jumped-16-last-month-survey-says.html
US, Europe, China, Brazil, Russia, Singapore, HK all lagging the UK. The UK is expanding the most quickly of any of the above countries. London residential house prices lead the world in values only pipped by Singapore and Monaco. Whats more London values are rising the most quickly world wide. And even better the government is relasing yet more fiscal incentives in the next few months. Its beautiful this, for speculators. The UK PMIs at 57 beat even the US at 55. Its boom time.
Impressive stuff from UK plc this. There is nothing like a consumer boom on zero interest rate and government debt incentive programs to boost economic production in the short run. Never mind the hangover enjoy this bubble. Make hay whilst the sun shines. Print pump dump is a beautiful system.
We must not get too greedy, as the mean will inevitably (and tragically) revert in a spectacular way soon. Then we must rebuy when the assets have halved in price, in dollar terms. This really is a wonderful system for nimble speculators able to take advantage of these rapid shifts in asset values.
I'm enjoying this so far.
Rich
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Just watched Carney. All very cozy there with his city mates. A bit too cozy and back slapping for my liking but its heady days for banking profits (surpassing their prior all time highs) And the bonuses are surging again so i guess a time to be happy in the sq mile.
And dovish stuff from Carney here, inc super low rates to continue for next three years & more easing if rates continue to defy where the boe want them.
The squeeze on savers to continue and possibly intensify according to Carney. Spend it or lose it.
Rich
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Markets have uk rates wrong at present according to the boe. The issue is more the fed. You cant fight the fed (or at least its unwise to yet) but you can fight the boe. The fed is the lead.
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More on the FED minutes.. key passages.. Really ready to taper or more???
http://www.zerohedge.com/news/2013-08-21/what-bernanke-really-said-hilsenraths-fomc-cliff-notes-under-4-minutes -
What started out as just another post has developed into something meaningful here.
Please have a read and re-read and consider the concluding comments.. very happy to critic and discuss as what follows is meaningful.
The 2014/15 budget projections are in and its a forecast of a -7.5% public deficit of gdp and consumer's once again accumulating debt beyond inflation and wage growth at a rate of between 3 to 5%. These consumer and government deficit spending programs (lets call them what they are! spending beyond income growth funded by debt) come at a time of 2% to 2.5% real growth and 4.5% nominal growth in gdp. Close to boom conditions due to a domestic boom in asset prices in the main stimulating consumer spending/ services spending.
We all understand that near term this is extremely bullish for nominal asset prices and the correct way to play that is via leverage to hold liquid domestically exposed assets. Understood.
But what of the medium term and longer term issues? How vulnerable is this strat? And what are the indicators to watch that might show us when the tipping point is likely to come?
This is the meat of what i wanted to say.
The UK's public deficit has been funded to a large degree in recent years via qe. A third of the uk's entire public debt is owned by the BOE and each month the income from these debt assets is passed back to the treasury which is a wonderful thing indeed. The UK's debt average maturity on gilts is long at around 14 yrs. Ie the uk public purse is reasonably and relatively strong. Off balance sheet and future unfunded commitments are a disaster but ignoring these its not too bad and much of the debt on fixed rates extending well into the future. Debt continues to be accumulated at an alarmingly fast pace outstripping most of her developed neighbors inc the US, France, Germany, Italy and possibly even Spain in 2013/14 which is remarkable when put in black and white, especially so when the uk's + growth rate is considered. But its the consumer debt profile which is more worrying and i address below, stay with me pls.
The UK, like most dm countries, has enjoyed 6 structural secular tail winds in the last 3 to 4 decades. All of which have come to an end or are in the process of ending.
1) Consumer debt accumulation from low levels. Debt to income in 1973 was around 40% to
GDP. Now it is 110% or so.2) Public sector debt accumulation, unfunded and off balance sheet deficits.
3) 33yr secular bull market in bonds. Ie lower interest rate cycle 1980 to May 2013.
4) Savings rate decline yoy from 1980 to 2013.
5) Demographic tail wind to 2010. Baby boomers now starting to retire.
6) Lower refinancing rates for corporates as nominal interest rates decline year on
year over the last 33yrs.Five out of the six structural tailwinds are generated by low (importantly falling) interest rates. If interest rates simply stop falling or plateau here growth will be negatively impacted. If interest rates rise the structural tail winds will become headwinds and gdp and debt will present many problems ahead especially as unfunded public commitments fall due.
Whats true for the UK thus far also applies to most of the DM world and explains why, over time, the DM currencies will be debased relative to hard assets and EM fx.. over time! Rates will need to be held down and debt monetized for longer in dm countries than many forecast simply due to the maths of historic headwinds vs tailwinds as above.
I think we pretty all get that and its a widely understood point in the market that few would argue with anymore. They are longer term structural issues that are historic and entrenched and will take decades to work off rather than any short term miracle cure.
More interestingly what are some more unique problems faced by the uk consumer.
The UK consumer debt profile is a very interesting issue as its profile maturity structure is almost entirely on a variable rate. Most uk mortgages are, unlike france and germany and the US and sweden etc funded via variable rate mortgages. This makes the uk almost uniquely exposed to changes in her variable rates in an economy that is heavily reliant on its housing asset market.
During the tailwinds of the last 30 years or so the uk's exposure to variable rates assisted greatly. Whereas in 1995 some US consumers where still on 30yr fixed rate mortgages taken out in 1975 perhaps UK consumers had long ago experienced the upside of lower rates via their variable rate mortgages.
In economic terms, the price elasticity of mortgages in the uk is much more elastic than experienced by their dm neighbors. Lower rates lead to an immediate upturn in consumer consumption, decline in savings, house price appreciation etc in the uk vs other dm nations. In trading terms, the UK is likely to be the alpha inverse proxy instrument to nominal interest rate movements. Ie the UK should provide the inverse alpha response to rates e.g. rising interest rates = alpha fall in Uk economic activity.
This is pure maths and logic thus far. What we cant predict is when interest rates will rise and by how much etc. Irrespective of these issues its very reasonable to state the above as an trading/investment thesis. That the UK is a good alpha inverse proxy to interest rate direction. And the history confirms this statement.
Enough for now. This could equally go in trading practice, again.
I think this may be useful in the coming months years for global investors traders as it informs strategy and allocations. There is nothing specially new here but to make the statement that the uk is the DM inverse alpha on interest rates is meaningful.. and scary, looking ahead!
All the best Rich
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One UK export is booming.. GOLD!
http://www.ft.com/intl/cms/s/0/876af37c-08dd-11e3-ad07-00144feabdc0.html#axzz2cVV0yRL0
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Viz increase in UK Retail Sales. Anne Pettifor on the "Alice in Wongaland" economy.
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In real terms disposable income per head in the uk is in a disastrous and falling trend.
http://www.bbc.co.uk/news/business-19060716
The most recent data even worse.
Whats more there is no solution to this compression on living standards as the public sector off balance sheet obligations and on and unfunded as well as current acc deficits mean the squeeze must continue relentlessly for many years ahead.
A good savings position or a disastrous savings position given the demographic profile of the uk population as well as the state of public finances as well as the unfunded forward commitments? The Uk consumer's main financial asset is his highly illiquid home. To sell this asset there has to be a buyer. There needs a constant stream of new buyers to the housing market to sustain the exit for the demographic time bomb that is ticking. These new entrants are not occurring as prices are too high to allow them entry.
http://www.capitalsynthesis.com/wp-content/uploads/2013/08/uk-savings-80-13.jpg
And here we see total uk mortgage and unsecured lending. Debt repudiation? I think not.. simply no increase and so inflation does its job to reduce the relative debt burden as the pound is debased. Unfortunately real incomes have declined as well and not kept pace with inflation which is an unintended consequence. You cant create wealth from issuing more debt or printing money. You simply re-distribute existing capital and in this case from workers and savers to leveraged up asset speculators.
The perfect recovery.
I write this in response to a credit suisse pdf which ill post up a little later.. Got my goat a bit as you can probably tell!
Rich
p.s the debt profile another issue here..
http://calumjc.blogspot.com.es/2013/07/does-uk-have-household-debt-problem.html
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Zero-hours contracts and other 'flexible' arrangements are, he argues, one reason why predictions that unemployment would hit 3.5 or 4 million during the current recession have not come true.
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The UK is booming. A consumption lead boom off the back of the housing atm. Carney today pledging to keep rates low until unemployment below 7% which according to forecasts is q3 2016. Also pledging to increase asset purchases if the recovery loses traction.
Here a good comment..
I agree the ftse250 a good call and if u recall the GS top option call pick from 4 weeks ago!
Rich
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UK economy close to 'escape velocity', say top economists
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this is more like the real fig imho, what growth there is, is not coming from peoples pay packets its coming from more debt ,people using up savings ,this is only short term gain , true growth comes from fatter pay checks not bigger credit card bills.
http://moneyweek.com/merryns-blog/the-secret-deflator-used-to-fiddle-the-gdp-figures/
good luck
busmaster.
PS, that's all from me for a while should have placed a trade on that oil call, have a great what's left of summer everybody. -
A bearish article, but noteworthy for the manner in which the author sets out the argument against just repeating the mistakes of the noughties.
If you think Britain is on its way back to prosperity, think again, it's a mirage
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Yep, this is the problem. Its not what you would expect to see as policy makers let rates rise!
And check page 17 showing the table of pmis in the jpm commodity briefing. Its a heat map and nicely illustrates the weakness here. A weakness that is apparently strength and needs higher rates and less stimulus? Far from it. If i were a neo keynesian i would be reaching for bazookas with both arms here. The US recovery looks better than the world recovery its true and the US can mono line easily as she did post the asian crisis due to her consumer but its a one trick pony that is hugely unsustainable so structurally this is not good. Rates are key to keeping this one engine going so all eyes on US consumer rates. IMO..
Back to the uk. Carney has an itchy trigger finger this is clear. Any excuse. Higher rates were concerning him at the last meeting ie indicating more qe to lower rates! Exactly here now he has low manufacturing and weak trade nos. Ie more qe would lower rates so stimulate more housing appreciation and therefore consumer demand and so more manufacturing demand also lowering the pound so better exports. Its starting to point to a gbp bloodbath. The euro cyclical bear vs the gbp could be done as saddening as this is.
But every cloud has a silver lining. The circus moves on and where better than the gbpnok. The gbp bear looks supremely healthy here with lots of support oil thrown in! A feeding frenzy could occur. GBP carry trade is possibly about to run and run thanks to the new governor.
Rich
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MPC Set the Stage for Guidance
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BBY moving in the opposite direction due to a sell note from a broker on the co.
Tech wise she is weak so any sell note like this and the day's sell liquidity will drive her lower. Nearly 4% off here today. Ive picked up a few more as, like BAe, she is a neo keynesian (PFI) government sponsored enterprise. Long term hold waiting for stimulus to turn her around. Limited medium and long term downside in spite of the poor technicals.RESEARCH ALERT-Balfour Beatty: Liberum cuts to sell, July 1 (Reuters) - Balfour Beatty PLC <BALF.L>:
* Liberum cuts to sell from hold; target price to 190p from 210p
& GFS gets better to the downside. Like BBY she is a government sponsored co. Governments like to hide their policing and 'defense' initiates behind private enterprise if they can so the private government sector spread looks good. GFS is a great vehicle to hide the growth in government so tech aside as a long term company she is a nice co. ratios are good and nice international spread in a business that should see significant growth in the coming years. Right place right time on the medium longer term but short issues and horrid tech makes me seek value and the turn around here. And importantly, paid to wait.
Rich
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The headline is inline but the detail is really ominous..
"The final reading of Q1 GDP confirmed the UK avoided slipping back into recession as growth was confirmed at 0.3% quarter-on-quarter.
However, the detail of the report revealed real disposable incomes fell by 1.7% q-o-q, the largest quarterly fall since Q1 1987, this was offset by a significant drop in the household savings rate. While the data confirms the UK grew during the quarter, the recovery could run out of steam as falling incomes cannot be offset by lower savings indefinitely".
Its the same old same old. Savings falling to historic low levels again, like the US, more debt and consumption as real disposable incomes fall as house prices and rents rise to new extremes as multiples to incomes and especially disposable incomes. Its a totally unsustainable model. Meanwhile the UK gov forecasts stellar growth but even with this growth is forecasting a 2013/2014 7.5% deficit.
Its just appalling. For now lets enjoy the asset price appreciation ride but we must all appreciate the wheel has to mathematically fall of this quite soon unfortunately. And in spite of the above, Germany and US aside the UK still looks ok-ish on a relative basis.
When the world economy takes a knock all hell will break lose imo. A hell we have never seen in life times. Physical bullion is a must given where we are heading. The time line as always is very tricky to judge as always.
Rich
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Foreign Aid lol Read a book called Confessions of an Economic Hitman to get an Idea what really goes on with aid.
http://amateurearthling.org/2009/03/24/confessions-of-an-economic-hit-man-by-john-perkins/
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I have to say that I am at a loss as to the use of the word "proud" by media personalities.
Here Osbourne contends he is proud to be giving away £11.1 billion in foreign aid while more cuts are to come on the domestic front.
Absolute madness IMHO.
JMK
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Absolutely but check the infrastructure spending.. Hence BBY and MGNS have done very nicely in the last few weeks. Both are struggling with lower margins and falling demand from the real economy so why have stocks out performed of late? Because mr market knows that these are state sponsored companies now. They are the chosen vehicle to pump prime the economy. In a way the government may as well nationalize them as both are on the chosen supplier list for gov spending they will prosper and the owners will prosper. Crony capitalism is alive and well it seems under labour and conservative parties alike.
http://www.telegraph.co.uk/news/politics/spending-review/10142706/Spending-Review-2013-live.html
And.. we need protection from the 'evil' shadowy wrong doers.. SPECTRA must be watched.
Rich
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George Osborne's Spending Review is based on already obsolete assumptions about the world economy
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