Recession incoming?

 It is amazing really how long the Government and the media take to cotton on to real world events. 

As readers here will know, as soon as the Ukraine war broke out and sanctions were applied to Russia, an economic disaster was set in train. 

There was no hope of controlling the oil price, a weak pound and strong dollar has accelerated the damage. Then we have China with a frankly insane covid-zero policy that has hugely derailed their economy and will continue to do so. 

The effects of the above are galloping inflation, a huge excess of supply over demand across the West and energy input costs up nearly 300%.

With all of this a recession is to be expected, indeed the Government must want the demand destruction of a recession to help reduce inflation. 

The idea that a -0.3% read, hugely impacted by the reduction of spend on test and trace, is only a passing feature is for the birds. 

More likely this summer is petrol and diesel at well over £2 per litre and a further big drop in the stock markets. Until the global supply chain is sorted out, there will be no let up to the economic stress. 

As for our Government, they continue to profiteer from energy prices via VAT. They are not alone, much of the inflation now is profiteering with suppliers sensing they can push up prices if they want too. 

The inflation genie will be very difficult to control now. However, time also to keep an eye on sovereign bond yields across the EU. As we know from the 2011 Euro crisis, Italy and other economies cannot withstand inflation pressures in the Eurozone when devaluation is not an option. Germany may find itself bailing out the Euro as well as Russia. 

A Blizzard of Straws in the Wind

A month ago I wrote, rather unoriginally, that Recession is a-Coming, and mused on the prospects for property prices.  Lots of people pitched in BTL: well, it's a subject that affects most of us, one way or the other (or both).  Some even wondered if property might be counter-cyclical ...

Yesterday I met with an old friend, a solicitor who's semi retired.  His staple line of business these days is advising employees on settlement agreements (formerly 'compromise agreements') which when you think about it is a nice speciality:  you get paid for by the firm that is making your client redundant, so credit risk is almost zero.  And I rather imagine the content of said agreements and the issues they address are fairly standard, too.

Anyhow, for quite a while now his average throughput has been a congenial 2 or 3 agreements a week.

Last week he was sent 82 (eighty two) ...  I believe this is what is called a leading indicator.

Oh shit.

ND

Recession predictions post Osborne plans

From various sources:

RBS economists: 2017/18

RBC Capital: 2018

Jones Lang Lasalle: 2017

HSBC Economist forecast: 2018/19

Of course economics forecasts are tomorrow's chip paper. But the UK Government has staked its financial credibility on their being no recession.

With one, the Country's finances will be very quickly back in the mire of 2008/12 in terms of its overall deficit.

Considering the Tory domination of the political stage, why did they make such a bold gamble that could well lose them the next election with the economic credibility in ruins a la 1997?

The markets fixed; UK banks forced to bet on Government

As the current market rally continues, many of the share prices recovering quickly are the same stocks which took big hits. Banks like LLoyds and RBS, property companies like Taylor Wimpey and Minerva.

Clearly, from the G20 and all the QE jazz, we know the Government has been working hard to ensure a pain-free recession. However, as time passes, this is looking more and more like the UK edition of the Greenspan put. Where the US put off disaster for 4 years, but which has now cost it an even deeper recession.

Many of the fundamentals remain in deeply dark territory as regards the economy and even the Chancellor sees no hope of the recovery starting before next year.

However, Public spending is the real albatross in the situation, with Gilts sales failures and a set of accounts that would have a public company calling in administrators, such is the parlous state of cash flow.

Into this market, the Government has sent its newly owned banks. Here is a link which tells you how much the Government is ordering RBS to lend to the UK market this year. Where can they find enough demand in a stagnant market to meet this criteria?

What will the solution be, well, qui bono? The solution will be to pour money into PFI schemes and social housing schemes. Anything which the Government underwrites is both less risky and of political benefit to the bank, to say nothing of the Government.

The UK will though then have a nationalised banking system built partly on printed money lending to chosen government projects that produce a return for the Government. The wheel of the State is complete. How much PFI finance will Barlcay's and HSBC back in 2009/10?

Then we have the Bank of England asset finance scheme, which will lend more money to banks to take a chunk of the risk away. I 'wonder' what asset classes the Bank of England will choose to participate in?

The Government is making a huge leveraged play on itself. This will all end in tears, it seems as if no one can remember the 1970's when various governments applied all these same ideas on industrial policy rather than financial. This time, the mistake could be even more expensive.