Nearly missed posting the open thread... that's what you get when you spend the day eating cheese washed down with copious amounts of Sauvingnon Blanc.
14 comments:
CJ
said...
I was convinced the Argus food basket would blip down this week after rocketing up 20% in 4 months. But no, it is still motoring up, increasing another 3 % this week. So present food inflation is 23% over 17 weeks instead of the official annual figure for Feb of 2% for food and 5.8% overall.
I am sensing that this is a pre warning that inflation might be coming back with a vengeance and no one has noticed yet. Which will mean serious interest rate increases later on in the year.
Which will hurt the already seriously indebted owners. Which will cause house price decreases. So high inflation, house prices falling ... and voila, there's the 40 - 50% real price fall we need to get the balance returned to norms.
If you look at Argus Food Basket's analysis, the rise was due the end of special on one or two items - it's quite a sensitive index. However, it gave an excellent early warning of food deflation over a year ago, and I think CJ has it right - it is showing incipient inflation, which looks to be quite vicious, about to hit. Supermarkets are in a bind - increasing rates, Eskom prices are going to bite soon. For homeowners, punishing rates increases (especially for the retired), eskom increases and inflation are really going to hurt. The next crises for the domestic economy and housing market may be a lacklustre world cup with low demand for goods and services, a falling rand as the US starts to raise rates and the carry trade evaporates - with pressure on interest rates. It's a toxic cocktail reminiscent of early 1990's
The Triton in Bantry Bay, originally on the market for 25m for one of the three, went to bank auction this week and fetched 6,7 & 9m apiece. All 3 went for less than the asking price of 1.
A well-know national estate agency has dropped their commission to sell a house in Sea Point to 3.5% Does not sound like the new nirvana that they are pitching in the newspapers?
Crops are seasonal and whats grown this year must last through to next year unless grown in the northern hemisphere (which will cost more as imported)
Secondly SA is no longer food or fertilizer secure due to the ANC's disastrous land policies, hence imported food and fertilizer which has helped drive food price inflation since circa 2000.
Thirdly the global financial crisis has affected loans to farmers and the crops from last year are diminished.
Fourthly the big freeze in Europe and the States was catastrophic for many crops, never mind the floods, quakes, droughts etc due to climate change (which isnt going to go away by taxing carbon emissions)
Food shortages are coming down the pike and what you see is likely the leading edge. Everybody needs to eat.
On the other hand all residential property is by and large an unproductive and useless asset; its not a farm. A farm if not worked is much the same. As Harry Oppenheimer famously said to Cyril Ramaphosa when informed that once the ANC was to come into power they would nationalize the mines:
"Mr Ramaphosa, a mine is just a hole in the ground."
It is clear: Deflation for what isnt needed and inflation for what is needed. The roaring noughties and the global property boom are over, there are much bigger things in the world today.
"A sentiment of trust in the legal money of the State is so deeply implanted in the citizens of all countries that they cannot but believe that some day this money must recover a part at least of its former value. To their minds it appears that value is inherent in money as such, and they do not ...show more apprehend that the real wealth, which this money might have stood for, has been dissipated once and for all. This sentiment is supported by the various legal regulations with which the Governments endeavor to control internal prices, and so to preserve some purchasing power for their legal tender. Thus the force of law preserves a measure of immediate purchasing power over some commodities and the force of sentiment and custom maintains, especially amongst peasants, a willingness to hoard paper which is really worthless... If, however, a government refrains from regulations and allows matters to take their course, essential commodities soon attain a level of price out of the reach of all but the rich, the worthlessness of the money becomes apparent, and the fraud upon the public can be concealed no longer." John Maynard Keynes, Economic Consequences of the Peace, NY, 1920, p. 239-40 .
Inflation, for the most part, is caused by the creation of too much money by governments. It is a hidden tax. Adjusting the inflation basket is just another way of hiding this expenditure. Apparently the South African financial media is too uneducated to write about this as it is a fraud.
"Meanwhile deflationists persistently and continually argue the case that the financial crisis MUST mean that over leveraged economies MUST deleverage and hence DEFLATE. That is what the ivory tower economic models suggest 'should' happen. But what the deflationists are clearly forgetting is that there are two sides to the leverage equation, i.e. the ratio of debt to capital. Therefore rather than decreasing debt what we are seeing is the INFLATION of Capital asset values that delivers DELEVERAGING without DEFLATION as the ratio of debt to capital goes DOWN. Asset price inflation results in much stronger than expected economic growth as it allows for new collaterisation of securities which demand greater source material i.e. loans to be issued to enable packages to be sold onto investors and so begins a new cycle that perpetuates economic growth into a boom that off course will again eventually go bust."
“When prices are going up faster than the money supply, the people begin to experience a severe shortage of money, for they now face a shortage of cash balances relative to the much higher price levels. Total cash balances are no longer sufficient to carry transactions at the higher price.”
As the Globe & Mail observes, these circumstances prevail today. Prices of goods and services are rising, but as it warns, the quantity of dollars in circulation is “shrinking, after taking into account inflation.” This “shortage of money” is being widely misinterpreted as deflation, which is exactly what happened in Weimar Germany shortly before the Reichsmark was swooped up in its hyperinflationary whirlwind.
Rothbard provides his usual brilliant insight to explain what happens once the “Havenstein moment’ is reached. There are two alternatives.
“If the government tightens its own belt and stops printing (or otherwise creating) new money, then inflationary expectations will eventually be reversed, and prices will fall once more – thus relieving the money shortage by lowering prices. But if government follows its own inherent inclination to counterfeit and appeases the clamor by printing more money so as to allow the public’s cash balances to ‘catch up’ to prices, then the country is off to the races. Money and prices will follow each other upward in an ever-accelerating spiral, until finally prices ‘run away’…[i.e., hyperinflate]”
And just to show that a lot sellers and estate agents are in fact astronauts, this home was advertised last month for 4.4 Million, a thatched home in Barrydale.
This week I see it has dropped to 2.95 Million
The blurb on Gumtree says:
VERY NICE THATCH HOUSE IN BARRYDALE/KLEIN KAROO FOR SALE! GREAT VALUE SERIUS SELLER OWNER MOVED BACK TO EUROPA!!
..definitely from another planet, very sirius seller.
14 comments:
I was convinced the Argus food basket would blip down this week after rocketing up 20% in 4 months. But no, it is still motoring up, increasing another 3 % this week. So present food inflation is 23% over 17 weeks instead of the official annual figure for Feb of 2% for food and 5.8% overall.
I am sensing that this is a pre warning that inflation might be coming back with a vengeance and no one has noticed yet. Which will mean serious interest rate increases later on in the year.
Which will hurt the already seriously indebted owners. Which will cause house price decreases. So high inflation, house prices falling ... and voila, there's the 40 - 50% real price fall we need to get the balance returned to norms.
It's hard to tell what's inflation and what's vendors putting up there prices prior to the world cup.
So what is the consensus on this board in terms of the SWC impact on overall inflation? Are shops and vendors going to jack up prices?
If you look at Argus Food Basket's analysis, the rise was due the end of special on one or two items - it's quite a sensitive index. However, it gave an excellent early warning of food deflation over a year ago, and I think CJ has it right - it is showing incipient inflation, which looks to be quite vicious, about to hit. Supermarkets are in a bind - increasing rates, Eskom prices are going to bite soon. For homeowners, punishing rates increases (especially for the retired), eskom increases and inflation are really going to hurt. The next crises for the domestic economy and housing market may be a lacklustre world cup with low demand for goods and services, a falling rand as the US starts to raise rates and the carry trade evaporates - with pressure on interest rates. It's a toxic cocktail reminiscent of early 1990's
@Anon
An interesting read of the situation which I concur with on most points.
I think that the fuel price increase in May can only fuel the pressure for an int rate rise.
Maybe Marcus tries to keep it at the present rate to mitigate and is then forced to raise it quite drastically later this year.
Oh and other property news:
The Triton in Bantry Bay, originally on the market for 25m for one of the three, went to bank auction this week and fetched 6,7 & 9m apiece. All 3 went for less than the asking price of 1.
A well-know national estate agency has dropped their commission to sell a house in Sea Point to 3.5% Does not sound like the new nirvana that they are pitching in the newspapers?
Guys, a few things to remember...
Crops are seasonal and whats grown this year must last through to next year unless grown in the northern hemisphere (which will cost more as imported)
Secondly SA is no longer food or fertilizer secure due to the ANC's disastrous land policies, hence imported food and fertilizer which has helped drive food price inflation since circa 2000.
Thirdly the global financial crisis has affected loans to farmers and the crops from last year are diminished.
Fourthly the big freeze in Europe and the States was catastrophic for many crops, never mind the floods, quakes, droughts etc due to climate change (which isnt going to go away by taxing carbon emissions)
Food shortages are coming down the pike and what you see is likely the leading edge. Everybody needs to eat.
On the other hand all residential property is by and large an unproductive and useless asset; its not a farm. A farm if not worked is much the same. As Harry Oppenheimer famously said to Cyril Ramaphosa when informed that once the ANC was to come into power they would nationalize the mines:
"Mr Ramaphosa, a mine is just a hole in the ground."
It is clear: Deflation for what isnt needed and inflation for what is needed. The roaring noughties and the global property boom are over, there are much bigger things in the world today.
"A sentiment of trust in the legal money of the State is so deeply implanted in the citizens of all countries that they cannot but believe that some day this money must recover a part at least of its former value. To their minds it appears that value is inherent in money as such, and they do not ...show more apprehend that the real wealth, which this money might have stood for, has been dissipated once and for all. This sentiment is supported by the various legal regulations with which the Governments endeavor to control internal prices, and so to preserve some purchasing power for their legal tender. Thus the force of law preserves a measure of immediate purchasing power over some commodities and the force of sentiment and custom maintains, especially amongst peasants, a willingness to hoard paper which is really worthless... If, however, a government refrains from regulations and allows matters to take their course, essential commodities soon attain a level of price out of the reach of all but the rich, the worthlessness of the money becomes apparent, and the fraud upon the public can be concealed no longer." John Maynard Keynes, Economic Consequences of the Peace, NY, 1920, p. 239-40 .
Inflation, for the most part, is caused by the creation of too much money by governments. It is a hidden tax. Adjusting the inflation basket is just another way of hiding this expenditure. Apparently the South African financial media is too uneducated to write about this as it is a fraud.
"Meanwhile deflationists persistently and continually argue the case that the financial crisis MUST mean that over leveraged economies MUST deleverage and hence DEFLATE. That is what the ivory tower economic models suggest 'should' happen.
But what the deflationists are clearly forgetting is that there are two sides to the leverage equation, i.e. the ratio of debt to capital. Therefore rather than decreasing debt what we are seeing is the INFLATION of Capital asset values that delivers DELEVERAGING without DEFLATION as the ratio of debt to capital goes DOWN.
Asset price inflation results in much stronger than expected economic growth as it allows for new collaterisation of securities which demand greater source material i.e. loans to be issued to enable packages to be sold onto investors and so begins a new cycle that perpetuates economic growth into a boom that off course will again eventually go bust."
in more prosaic news, work has started again on the Ballinrobe. A coat of white paint is appearing and the top floor building seems to be progressing.
Propxchanga, have a Havenstein Moment
“When prices are going up faster than the money supply, the people begin to experience a severe shortage of money, for they now face a shortage of cash balances relative to the much higher price levels. Total cash balances are no longer sufficient to carry transactions at the higher price.”
As the Globe & Mail observes, these circumstances prevail today. Prices of goods and services are rising, but as it warns, the quantity of dollars in circulation is “shrinking, after taking into account inflation.” This “shortage of money” is being widely misinterpreted as deflation, which is exactly what happened in Weimar Germany shortly before the Reichsmark was swooped up in its hyperinflationary whirlwind.
Rothbard provides his usual brilliant insight to explain what happens once the “Havenstein moment’ is reached. There are two alternatives.
“If the government tightens its own belt and stops printing (or otherwise creating) new money, then inflationary expectations will eventually be reversed, and prices will fall once more – thus relieving the money shortage by lowering prices. But if government follows its own inherent inclination to counterfeit and appeases the clamor by printing more money so as to allow the public’s cash balances to ‘catch up’ to prices, then the country is off to the races. Money and prices will follow each other upward in an ever-accelerating spiral, until finally prices ‘run away’…[i.e., hyperinflate]”
http://www.fgmr.com/hyperinflation-looms-dollar-arrives-at-its-havenstein-moment.html
And just to show that a lot sellers and estate agents are in fact astronauts, this home was advertised last month for 4.4 Million, a thatched home in Barrydale.
This week I see it has dropped to 2.95 Million
The blurb on Gumtree says:
VERY NICE THATCH HOUSE IN BARRYDALE/KLEIN KAROO FOR SALE! GREAT VALUE SERIUS SELLER OWNER MOVED BACK TO EUROPA!!
..definitely from another planet, very sirius seller.
http://johannesburg.gumtree.co.za/c-Flat-House-Real-Estate-vacant-land-properties-for-sale-THATCH-HOUSE-FOR-SALE-R-2-95-MIO-GREAT-VALUE-FIX-PRICE-W0QQAdIdZ201614523
Post a Comment