Raven Prop P Discussion Threads

[kenny] 19/8/2020 17:26

The coming surprise may be a counter-attack by the forces of deflation

Central banks are low on usable ammo and will struggle to create any inflation, unless they escalate to the next stage of fiscal dominance

AMBROSE EVANS-PRITCHARD 18 August 2020 • 3:20pm

Talk of resurgent global inflation is mostly noise. Powerful deflationary winds continue to blow through the world economy. The jump in US Treasury yields over the last two weeks contains the seeds of its own destruction and will not get very far in this twisted, broken cycle.

The great inflation hypothesis now in fashion rests on mechanical monetarism. It assumes that the fastest peacetime growth of the "broad" M3 money supply since the American Revolution lays a bed of inflammatory tinder that will catch fire once a match is lit: that is to say, when the velocity of money reverts to mean and collides with the enlarged stock of money.

Liquidity creation has been less extreme elsewhere (the Federal Reserve front-loaded $3 trillion in March and April) but there has still been an eye-watering jump in "narrow" M1 money across the OECD bloc – ie, a surge in bank deposits due to hoarding of saved money through the lockdowns.

Monetarists say inflation did not take off when QE was first launched a decade ago because the western banking system was crippled. The stimulus offset the destruction of money by banks as they slashed lending in order to beef up capital buffers. This time banks are in better shape (in Europe, really?) and the transmission channel is intact. That at least is the argument.

The monetarist school has claimed victory already, quick to suggest that a V-shaped recovery in asset prices implies a V-shaped recovery in the real economy as well.
The Federal Reserve does not believe a word of it. Nor does the International Monetary Fund, nor the OECD, nor the global professoriate, nor the prophets of modern economic orthodoxy, loosely known as the New Neo-classical Synthesis. Their collective view is that central banks are low on usable ammo and will struggle to create any inflation, unless they escalate to the next stage of Weimar fiscal dominance.

It is now a pitched battle between two incompatible economic models. One side or the other is going to emerge looking bruised, and I suspect that it will be the monetarists. The velocity of money will indeed recover in the long-run but in the long-run – pace Keynes – we are all dead.

One thing that is not happening right now is a pre-inflationary surge in raw material prices, let alone an oil shock, though you might think otherwise after the wild moves in gold and silver. The Bloomberg all commodity index has recouped just half of its losses since the pandemic began and remains at near depression levels.
The rally in Brent crude has leveled off at $45 a barrel, despite painful cuts in output by OPEC and Russia, fruit of a political deal that is fraying at the edges. A Biden administration would rejoin the nuclear accord with Iran and lift oil sanctions, leading to a supply surge of 2m barrels a day (b/d) on world markets.

Analysts at JP Morgan have cut their oil forecasts, conceding that the global economic recovery has run out of steam and looks like a truncated "V". Consumption will be down 7pc from a year ago at 94m b/d as far out as December, if all goes well.

We are at a crunch point where fiscal fatigue is setting in across the West but the virus is still with us, and will remain with us through the next winter.

The US went over a fiscal cliff at the end of July after Congress failed to reach a deal to extend payments of $600 a week to those unable to work. The Senate is now in recess. It may be several weeks before a compromise emerges, if it is still possible to reach any accord in the febrile pre-election atmosphere.

The federal moratoria on evictions has also lapsed. Rents are buckling. RealPage says they dropped 12pc in San Francisco in June. The Aspen Institute estimates up to 23 million people could face loss of their homes within a month. It won’t happen, because it cannot happen, but pervasive fear may drive up precautionary savings and stifle demand on a macroeconomic scale.

Donald Trump has ordered stop-gap support by executive "memoranda". These are flimsy, lack funding, and are probably unconstitutional. Chuck Schumer, the Democrats’ Senate leader, said the measures are put together with “spit and glue” and “so unserious as to be pathetic”.

This fiscal cliff has hit before the economy regains more than 42pc of the jobs lost during the pandemic. There are currently 28m people in the US on some form of unemployment relief or Covid support, and precious few job openings. Retail sales have recovered but the economy has not. Industrial output – the component that should rebound fastest – is still 8.4pc below February despite the rebuilding of inventories.

Catherine Mann from Citigroup says the next shoe to drop is a capex squeeze as firms try to repair their battered balance sheets. “Business investment is likely to post a dramatic contraction through 2020 and only gain momentum in the second half of 2021. As currently projected, the collapse in advanced economies is about on par with that of the Global Financial Crisis,” she said.

Dr Mann, who used to be the OECD’s chief economist, also takes a swipe at Milton Friedman’s Counter-Revolution in Monetary Theory (1970), deeming the doctrine obsolete. “The macro theory has been overtaken by micro foundations where inflation is a function of inflation expectations, commodity prices, and wage and price setting behavior of workers and firms,” she said.

Last month’s spike in US core inflation to 0.6pc caught markets by surprise and has fed the new reflation narrative but be careful. Albert Edwards from Société Générale says the long delay in sampling for the large ‘shelter’; component of the index has distorted the headline reading. Core CPI will fall back again as data catches up with reality in the rental market.

The more relevant gauge in any case is core inflation in China. There is now such a phenomenon as the world inflation rate – which didn’t really exist in Friedman’s day – and it is set by globalised East Asia, not by the US internal money supply.
Chinese core CPI has dropped to a ten-year low of 0.5pc. China’s GDP deflator has fallen below zero. Factory gate inflation is running at minus 2.4pc. China has recovered but it is not firing on all cylinders. Import growth contracted in July. Retail sales have leveled off before reaching their pre-Covid level.

Do not count on Europe to reflate the world either. The EU Recovery Fund will not kick in until mid-2021 and is then spread thinly until 2026. The stimulus is too little, too late. Bank of America says the aggregate shortfall in eurozone fiscal support is 10pc of GDP, assuming that a second wave of Covid-19 is avoided over the winter. Wait for that shoe to drop too.

"The Great Demographic Reversal" by ex-Bank of England guru Charles Goodhart and Manoj Pradhan argues that the deflationary impetus of the last four decades is giving way to a new supercycle of structural inflation. Aging societies will increasingly draw down on their savings and whittle away the global savings glut. We are entering a period of capital scarcity and higher interest rates.

I think they are right but these are glacial historical effects that will not kick in on any investable time-horizon. The surprise over the next two years may well be the final tenacious counter-attack by the forces of deflation.

[montyhedge] 19/8/2020 16:42

Unfortunately we can't read the article.

[kenny] 19/8/2020 15:42

"The coming surprise may be a counter-attack by the forces of deflation"

[ramellous] 14/8/2020 21:08

Yeah, I paid 126 on the 12th before ex div.. it hasn’t budged so nice divi to come..

[nerja] 14/8/2020 14:21

Monty I think it’s more like 122.5 to sell 126 to buy

[montyhedge] 14/8/2020 13:51

You can buy at 122p sell at 119p if you have a good broker, online you pay whatever.

[gary1966] 12/8/2020 11:51

Real spread nothing like that. When it is bad real spread is 3p.

[ramellous] 12/8/2020 11:45

Is this 10p spread normal on these?

[igbertsponk] 11/8/2020 11:02

Essentially, rents didn't change in the 6 months.
By the end of 2020 the vacancy rate will only continue to decline to 2.1–2.2%.
The warehouse real estate market is currently one of the most stable market segments, rates lease on which, due to the low volume of new construction and the low vacancy rate, have high growth potential. But the current macroeconomic uncertainty will constrain significant growth.

[king suarez] 11/8/2020 11:01

The comments here are very divisive..

[igbertsponk] 11/8/2020 10:52

Knight Franks have published their H1 Russia Warehouse report

You'll need to translate!

[montyhedge] 11/8/2020 09:29

Hope your not going senile.

[gfrae] 10/8/2020 21:51

After your ex divides you on the on the 13th you probably won't be in a fit state to care about more divisions.

[zangdook] 10/8/2020 12:07

You only get divided if your ex-wife catches up with you with the hatchet.

[eeza] 10/8/2020 07:36

You have to hold at close of business (1630hrs) on Wed 12th to be eligible for div.
You can sell after open on thurs 13th and get dividend. They are then Ex dividend, so if you buy them back they won't be eligible for this dividend, but eligible for the next div in December.

[cwa1] 08/8/2020 12:18

Monty!! Cast thine eyes a whole two posts above and it tells you!!

[montyhedge] 08/8/2020 10:51

Is pay day 2nd Oct?

[montyhedge] 07/8/2020 09:34

Another 3p in the bag, in these troubled times, a safe haven.

[cwa1] 06/8/2020 07:26

Announcement of dividend data:-

6 August 2020

Raven Property Group Limited ("Raven" or the "Company")

Preference Share Dividend (RAVP)

The Directors of the Company confirm that the quarterly payment of the preference dividend in respect of the preference shares of 1p each with ticker RAVP (the "Preference Shares") will be made, in accordance with their terms, on 30 September 2020 in respect of the period from 30 June 2020 to (but excluding) 30 September 2020. The record date for the payment of the preference dividend for the Preference Shares is 14 August 2020 with an ex-dividend date of 13 August 2020.

The Preference Shares will be entitled to a gross dividend of 3 pence per Preference Share.

A scrip dividend alternative (to be settled in Preference Shares) will also be available for all preference shareholders in respect of the preference dividend.

[igbertsponk] 06/8/2020 07:24

Preference Share Dividend (RAVP)The Directors of the Company confirm that the quarterly payment of the preference dividend in respect of the preference shares of 1p each with ticker RAVP (the "Preference Shares") will be made, in accordance with their terms, on 30 September 2020 in respect of the period from 30 June 2020 to (but excluding) 30 September 2020. The record date for the payment of the preference dividend for the Preference Shares is 14 August 2020 with an ex-dividend date of 13 August 2020.The Preference Shares will be entitled to a gross dividend of 3 pence per Preference Share.A scrip dividend alternative (to be settled in Preference Shares) will also be available for all preference shareholders in respect of the preference dividend.

[kenny] 05/8/2020 13:07

"How low can the Bank of England go? Six considerations for negative interest rates"

[kenny] 04/8/2020 15:12

Some persistent selling of the ordinaries; which I assume is one or more institutional holders selling part of their current holdings in advance of receiving more ordinaries together with preference, RAVP, in exchange for the convertible preference. Also, Schroder’s has been selling before the voting date – in the period since 31 March, a total of about 12.6m ordinaries, albeit they do not hold either of the preference classes.

To date, the same does not appear to be happening with RAVP. There could still be some selling of RAVP by current or new holders. However, the yield in excess of 9% is surely attractive in current markets and likely to remain attractive for a long time. Interest rates will surly stay below 2% for the next decade, if not longer. For these reasons, it is likely that the bulk of new holders will wish to retain the RAVP element they receive in exchange.

Based upon the above logic, I have recently been topping up with money I don’t need to touch for the next decade. In other words, I am ignoring likely price fluctuations and contenting myself with the yield: currently 9.6%. The share price will go up and down over the next 10 years and I do not know where it will be 10 years hence. However, I am certain that the coupon will be paid.

As always, DYOR and do not rely solely upon anyone’s opinions, including mine!