Monetary paranormal (according to Bill Gross/ Alphaville)

Wookster

There is an outstanding article on Alphaville. It is Bill Gross' take on depreciating money, deficit spending, credit expansion and the old normal vs new normal.

Article here:

http://ftalphaville.ft.com/blog/2012/01/04/817281/the-gross-paranormal-a-k-a-the-time-depreciation-of-money/

Key points of the article:

Conceptually, when the financial system can no longer find outlets for the credit it creates, then it de-levers.

Now, the global economy’s appetite for more debt, which is already well over and above its ability to produce real assets, is sated. That means there is more debt in the world than there are real assets to back that debt. That in itself is a scary thought.

In normal circumstances, such debt would have been written off as bad, but not anymore, now it has been bailed out. Nowhere is the build up of excess debt more evident than commercial & residential property in the UK.

Thrugelmir

Wookster wrote: »

In normal circumstances, such debt would have been written off as bad, but not anymore, now it has been bailed out. Nowhere is the build up of excess debt more evident than commercial & residential property in the UK.

HBOS is heading for a £60 billion loss/write down/provision on assets since it was part nationalised in 2008. So the wind has changed direction.

Generali

Perhaps I should resurrect the Deflation Watch thread. Apparently, and I've not checked the figures, money supply (M3) is falling fast in the Eurozone.

Thrugelmir

Generali wrote: »

Perhaps I should resurrect the Deflation Watch thread. Apparently, and I've not checked the figures, money supply (M3) is falling fast in the Eurozone.

Interesting story today.

Unicredit shares fall on rights issue concerns

http://www.bbc.co.uk/news/business-16406972


Seems as if investors are shunning bank shares. Making harder for the European banks to recapitalise to comply with the stress tests.

UK banks need to refinance around £160 billion of maturing debt this year. So inter bank lending drying up won't help them achieve this.

Generali

UK M4 (the broadest measure of the money supply) has been falling year-on-year since October 2010. The rate of decline seems to me to be accelerating too (link - opens in Excel)

PaulF81

Printy printy then. BOE will target m3 before rate rises from now on and look for stricter regulation to prevent future dangerous asset bubbles.

Generali

PaulF81 wrote: »

Printy printy then. BOE will target m3 before rate rises from now on and look for stricter regulation to prevent future dangerous asset bubbles.

The trouble is, printing money is effectively being done by giving banks 'free money' (or at least a low risk carry trade). It's having little impact as people don't want to borrow and banks don't want to lend.

vivatifosi

Thrugelmir wrote: »

Seems as if investors are shunning bank shares. Making harder for the European banks to recapitalise to comply with the stress tests.

Which makes wearing my pension trustee hat very interesting at the moment. Seriously, you've got your fund, probably with some sort of deficit, you as a trustee are bound by law to have a duty to your pensioners, you know banks are in a mess but you are supposed to invest in them. Meanwhile - ironically - the same banks (or possibly other ones) are your advisors. Plus there's a nagging thought in your mind that the government (the same one who will come down on you like a ton of bricks if you don't show suitable prudence) is about to do something that will either raid your fund (again) of force you to invest in them, even though they've got no money. Oh happy days. And they wonder why DB schemes are closing down.

Thrugelmir

vivatifosi wrote: »

Seriously, you've got your fund, probably with some sort of deficit, you as a trustee are bound by law to have a duty to your pensioners, you know banks are in a mess but you are supposed to invest in them.

Danger if you paint all banks with the same brush. Standard Chartered has proved a reliable long term investment. Around a 40% increase in share price in past 10 years plus an increasing dividend.

PaulF81

Generali wrote: »

The trouble is, printing money is effectively being done by giving banks 'free money' (or at least a low risk carry trade). It's having little impact as people don't want to borrow and banks don't want to lend.

I was talking about the sort of printy printy that ends up with Governments owning 90% of a banks preference shares in return for taking off their books the large amount of !!!! they have on their books. To then be paid for with quantitative easing.

Which would bondholders prefer? a 50% instant haircut or QE paying off bad debt?

I really dont understand how printing away the losses could be perceived as a bad thing, its the less of two evils when you consider writedowns imho.

vivatifosi

Thrugelmir wrote: »

Danger if you paint all banks with the same brush. Standard Chartered has proved a reliable long term investment. Around a 40% increase in share price in past 10 years plus an increasing dividend.

I don't set out to paint all banks with the same brush and to be fair we don't make any investments without advice (I'm sure that's the same of all trustee boards). However I'm sure across the country trustees fear what's going to crawl out of the woodwork next. Too many previously well-run banks have been taken down too many pegs by overly complex deals, being in the wrong market at the wrong time and even fraud. However you have piqued my interest so I will check out whether we have a holding in Standard Chartered.