23 Sept

Collapse in US lending

Various reflation skeptics, such as Lacy Hunt, Harley Bassman, Jeff Snider have been saying that inflation is going to crater. As I blogged a while ago, the increasing inequality in the US and elsewhere has caused the propensity to spend to plummet. In my day job, I’ve been trying to borrow, and even for a (private) company with a balance sheet which is as solid as a rock, the longer-term rate I was quoted was a spread of ~5% above LIBOR. To me, this tells me that nobody wants to lend to such a company. Presumably, they’d prefer to buy gilts at 85bp.

Anyway, I thought I’d check out exactly bad things are. Well, FRED told me, and I think it’s pretty bad. - [ ] You can take a closer look here but the chart below clearly shows that although this trend has been going on since Greenspan’s day, it’s got worse and worse. Of course, the banks are being stuffed with deposits, because of QE, but this shows how little of the money created ever gets put to productive use. If nobody is spending, it seems likely that price pressure will remain muted.

I always struggle to get these sorts of charts from the BoE website, but I’d be surprised if it’s very different. Countries have to keep their monetary policies in line, if they have a hope of avoiding letting their currencies rise against the dollar. Maybe Evergrande is an example of what this leads to.

Techie note

I’ve taken to using Windows Powershell recently. It’s a learning curve for me, but it seems to work OK. What’s really annoying, though, is that it doesn’t use UTF8 encoding by default. This, specifically, means that if I capture stdout to a file, it’s not UTF8 and it will spook a program that expects such an encoding as input.

This can be fixed in something like Notepad++ or by using out-file with an -Encoding parameter, but it’s niggling. Anyway, the fix is to install Powershell 6 or 7 on windows. This is very easy, and fixes the problems at a stroke, because its default text encoding is UTF8.

If you are an American, you probably don’t care, but if you are a European and you want to use symbols like £ and € you might.

I hit this problem specifically when using hledger but I now realize that it had tripped me up before when using command line programs. Hledger is a fab system, if you like doing things in text on the command line.

I used this page to find out how to upgrade my powershell, but there are many with similar instructions. If you are feeling brave, you can just paste this into PS5 and click “OK” a couple of times:

iex "& { $(irm https://aka.ms/install-powershell.ps1) } -UseMSI"  

It seems perverse that MS are so slow in making this the default that ships with Windows 10.

Image: Hayley Eichenbaum

Wrap

Pretty much a standard risk-on day. 10Y yield now hitting 1.4%, DXY weak (back to 93), stocks generally up. Commodities strong, oil up 1.3%, Brent > $77/barrel. Markets don’t really believe that the Fed will ever taper. Someone pointed out that Pfizer is the sixth most widely held stock by members of Congress.