Gcp Infrastructure Inves... Share Discussion Threads

[donald pond] 11/7/2023 13:37

I agree linking benefits to inflation was insane. But taxes are rising sharply, economic growth is minimal and while there may be too much money chasing too little supply, it is the lack of supply that is the real problem. And yet it seems people no longer see much point in setting up business in the U.K. As for GCP, if interest rates at 6%, how much would they need to demand for a decent risk adjusted return? 11/12%? Given the amount of infrastructure investment the country needs, high interest rates are going to kill that and any hope of increasing productivity

[stewart64] 11/7/2023 13:23

Dp the economic data is dreadful because we don't produce enough, too much incentive not to work and get index linked bennies, which in themselves embed inflation.

But for what little we do produce ( and import) there is simply too much money chasing too few goods. If we just assume because the economy is rubbish inflation will go away, it won't. Think Turkey..base rate circa 8%, inflation 80%.

[stewart64] 11/7/2023 13:07

Dp..Can't agree that inflation will pass if you take a dovish approach to interest rates. We have still got hundreds of billions of unspent Covid printing, folk are loaded with wonga. If you have been to restaurants lately you will know they are rammed. Seen the price of secondhand cars, previously written off bangers are now worth thousands. Folk are ramming the airports to get away and if you think you can get a tradesperson just like that you are having a laugh.

Interest rates are still at negative 3.7% in real terms, you need to be ahead of the curve to flatten inflation.

[donald pond] 11/7/2023 13:07

And yet the economic data is dreadful. Something doesn't add up.

[spectoacc] 11/7/2023 12:37

@hindsight - apologies, you're right. Still far too many vacancies but they did indeed tick down again.

Tho this caught my eye:

"Real estate activities and other service activities saw the largest growth in vacancies"


@dp - higher rates are to press down on wages, by slowing activity and causing unemployment. Seemingly the only route left to halt the wage/price.

[brucie5] 11/7/2023 12:34

EC211 Jul '23 - 12:30 - 634 of 634
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Good post, EC211. Happy holder since yesterday.

[ec2] 11/7/2023 12:30

I believe investors should be looking beyond current market expectations of base rates going to 6pct in the near term. More important is the average rate during the lifetime of the underlying assets. One of my methodologies for valuing these is by going back to basics and applying a risk premium over the 10y gilt yield. The basic excel model that I use to apply this methodology gives a value of around 90p per share as opposed to the current price which my model is telling me is assuming the 6pct near term rate assumption remains for the next ten years. This is very unlikely to be the case. Price these on where you think yields will average over the lifecycle of the assets and not current six month expectations. Similar rule applies for all long duration assets. There are a number of mis pricings showing up across long duration assets.

[donald pond] 11/7/2023 12:25

If you have a tight labour market and raise interest rates then it will lead to higher wages. If they do nothing inflation will pass

[stewart64] 11/7/2023 11:58

Yes GCP holding up surprisingly well today, as indeed the Market. The 7.3% YOY Wage rise shocker( for May) must have really been a body blow for the hapless Bailey. Schroders outlier 6.5% Base Rate forecast by Christmas looking like becoming the consensus.
Don't think the Market has digested the full gravity of these figures tbh. Inflation is out of control by wage push, external price pressures have about washed through now. The MPC can no longer wait and see what might happen two years hence, their cataclysmic mistake of assuming transitory inflation is now coming home to roost. They have to raise 0.5% in August just to regain credibility. The penalty for their imbecilic decisions in 2021 and being too cautious with rises ever since.

[hindsight] 11/7/2023 11:57

Yes his fund went from $1bn plus in size to 50m and he closed Eclectica in 2017
Like most of them they try raise lot of capital with a good yarn, charge 2+20 and eventually the black swan arrives

[hpcg] 11/7/2023 11:47

I think HH is well past his sell by date. His thesis on Chinese property was completely wrong. He thought they were building ghost cities where there was no demand when what they were doing was building infrastructure before migrating people in from the countryside. He was short for years after the GFC. Like a lot of macro commentators he can spin a good yarn.

It looks like some support, but we've been here before.

[hindsight] 11/7/2023 11:40

"And yet. Average wage increases beat consensus yet again this morning. Sure, unemployment came in higher (4%), but vacancies rose yet again."

Data I read said vacancies fell.

[jonwig] 11/7/2023 11:16

Spec - no apology needed: it's relevant, as the only factor really affecting GCP and a whole host of related companies is the yield on gilts.

How much that will fall depends also on government borrowing requirements and rates. The unusual strength of sterling will help, provided it's not merely "hot" money.

[spectoacc] 11/7/2023 10:59

Very good point re per capita.

Productivity is a puzzle no one has solved. All kinds of things have been tried, including Sunak's Super Deduction.

I love HH, but disagree with him on this:


BoE should have raised sooner.

For my money, you can only solve current inflation by solving tight employment. You should be able to do that by slashing the hugely bloated (~50%) public sector, but that comes up against 2.5m on the sick/c.7.3m NHS op backlog needing more staff, not fewer.

You could resolve it by immigration - but more than we have already?

You could solve it by efficiency savings and perhaps high wages helps with that eventually - but would you, as a co, invest at this point?

Or you solve it with an early-90's recession, which is where I fear we're heading.

(Apologies for OT, for anyone expecting GCP :) I'll try to schtum).

[donald pond] 11/7/2023 10:50

Hugh Hendry was making the point that you increase GDP by increasing population, productivity or debt. With GDP only up 0.1% after a population increase of 700k last year, GDP per capita must be falling. Demographics also change. Could we afford 3-4m unemployed now with so many more pension liabilities to pay? Encouraging investment and productivity gains is surely the only option

[spectoacc] 11/7/2023 10:39

Yes fair point, and I'm sure that figure will be a small negative soon - I should perhaps have said demand is running hot, and prices running hot. Ex-inflation, growth going nowhere because productivity going nowhere (per usual).


@orincor:
No let-up in tradespeople prices either.

The one that gets me is cheap food - yes, food's been rising inordinately, but farm gate prices are now BELOW pre-invasion prices, and the dirt cheap own-brand food at the bottom is often up minimum 100%.

And £1 for a tin of beans? Really? £3.50 for a 4-pack of tinned tomatoes? These were £2 for both x4 only 18 months ago. Proportionately, the cheapest option seems up more in % than branded, perhaps due to increased demand for the lower-priced.

Wandering OT, but the solution as it's always been is employment, and I don't see a fix other than something early 90's.

[donald pond] 11/7/2023 10:33

But specto the economy is not running hot. The last figure showed 0.1% growth in Q1. In normal times rates would be cut when growth is so weak. The figures are definitely not reflecting the lived experiences of many though.

[orinocor] 11/7/2023 10:28

Anyone seen the prices of London hotels. Gone absolutely through the roof. They are 50%-100% more expensive than a couple of years ago before covid.

[spectoacc] 11/7/2023 10:20

And yet. Average wage increases beat consensus yet again this morning. Sure, unemployment came in higher (4%), but vacancies rose yet again.

We all accept the interest rates transmission mechanism has stretched out thanks to more fixed rate mortgages, but in some countries the fixes are even longer - rates also suppress business activity, not just consumer spending.

But just the anticipation of higher rates ought to be having more of an effect by now.

Employment is too strong, demand is too strong, wage rises are too high - I turned dovish on rates, eg 5.5% ish top, held for say a year - but am starting to have doubts. Yes, we don't see the small number in dire straits (presumably not one of the 5 gigs @hpcg? ;)) but we should see them in the overall numbers.

The big rises of a year ago are dropping out, yet we still have c.8% CPI - the economy is running too hot, there's far, far too much money out there, much of it a hangover from Covid reaction, and c.7%+ wage increases are not going to calm inflation down.

It'll fall, but not nearly enough.

Higher for longer may be becoming much higher for longer.

Employment is the conundrum that needs solving.

[donald pond] 11/7/2023 09:49

It's also a question of what you measure. In terms of inflation, an increase in the price of drinks at gigs, foreign holidays or fine dining won't be relevant to the people struggling to pay their mortgage, buy school uniforms or stretch out their weekly shop.But all the global inflation indicators are dropping fast. It is hard to see much rationale for further raises. It is important to remember that our economy is weak and unproductive and nothing reduces productivity more quickly than higher rates: money spent servicing debt is money not spent on improving business

[hpcg] 11/7/2023 09:19

Anecdotal I know, but I've been to 5 large gigs in the last 10 days or so. Concession prices are absolutely eye-watering but I didn't really see people cutting back. If there are queues and servers are transacting continuously there isn't any demand reduction there. People lining up to buy the worlds most expensive T-shirts as well. Note that these all trended old, with Blur and Guns and Roses at the "young" end of the spectrum. Blur didn't sell out their second night at Wembley; I'd estimate 60k there, and Kiss didn't sell out their Wednesday night at the O2, I'd say 17k there, but otherwise all very well attended.

I suspect the mixed signals are coming from a bifurcation. Those with enough money are not cutting back on discretionary spending - or at least the discretionary they prioritise. Those that are struggling aren't in the market place at all and are invisibly absent.

All in all it isn't great for some of my older purchases here, but I still think one has to be putting money to work in decently priced long duration because the dam will burst at some point.

[hindsight] 10/7/2023 19:08

Im hearing of cutting back spending too, its not easy to see 5%/10%
Retail sales grow 1.9% LFL YoY so against wage growth at 6% odd the average person has cut back let alone against inflation
Also my solictor says chains breaking
Like a dam it takes time from the fatal damage to seeing the collapse
Agree on 5% being enough

[kinbasket] 10/7/2023 17:05

Jonwig..

"But to take your view: we were in London last week. Restaurants and events heaving, a lot of value needs to be destroyed! Interestingly, lots of Chinese tourists, many of them young. (Yet RMB weak vs GBP.)"

Saw Tom Kerridge interview on Pesto and he was talking about this. Apparently, even though London is heaving with people, overall spend is down (i think he said 10%) in hospitality. Also the key point was it's the tourists doing the spending. Locals are staying at home.

[cc2014] 10/7/2023 15:41

What we are seeing is imho somewhat of a disconnect between varioius data. Up until recently all the data was fairly in alignment that inflation was going to pull down albeit the speed was open to a wide interpretation.

What we have now is data that does not align. China PPI is indeed negative and Sterling is getting stronger. Fuel and commodity prices suggest lower prices on the horizon, yet discretionary spending like holidays suggest little impact of rate rises on the consumer.

If it were me I'd hold the base rate at 5%, double QT and tell the market that time at a high rate was more important than an excessively high rate which could tip the economy into a serious recession. Only regrettably Bailey has made mistakes of keeping rates too low for too long and printing about twice as much money as was required. Sunak made it worse by handing out too much Covid assistance. I suspect more mistakes are going to be made now by pushing rates too high.

Therefore I am left to trade what I think will happen, which is a terminal rate, maybe 5.5%, but rates higher for longer and not coming down anyway near as far as the market thinks.

The next issue brewing is oil at $70 is now the new baseline for prices. There's some lag which will asist the inflation figures but in a year it will be a hindrance.

My two daughters both got pay rises this month. 4% and 10%. How is inflation supposed to fall to target with those sorts of payrises occuring?

If inflation is to fall to 2% then Sunak/Hunt have to award a 2% rise to pensions, teachers, nurses, police etc. That doesn't seem likley.