Stagflation in the UK — Not Transitory — Bitcoin Futures ETF — Covid versus Antibody Dependent Enhancement [10-24-2021]

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THIS WEEK’S EDITORIAL

INFLATION IN THE UK — NOT TRANSITORY — STAGFLATION HITS  Many BOOM readers have expressed concern about the UK economy. Stagnant economic growth combined with rising CPI inflation are their major worries. If this is happening, then it is a classic situation of what is known as Stagflation — the worst of all economic worlds. Last week, BOOM looked closely at the economic indicators coming out of the US Economy. The conclusion was that the US economy is suffering from some CPI inflationary pressures but that those pressures have slowed over the last 3 – 4 months and appear transitory.

Let’s take a look at the recent UK economic stats and make a comparison with the US. In the latest figures, the annual inflation rate in the UK in September was 3.1 %. That does not sound alarming but it is important to note that it has been rising very sharply indeed from around 0.3 % just ten months ago.

The Consumer Price Index in the UK has sharply increased over the last 6 months by about 3 %. If that rate of climb were to continue over the next 6 months then it would show a 6 % annual rise. That would certainly be an increase of deep concern to the Bank of England.

The Core Consumer Prices have risen worryingly by 2.5 % over the last 6 months. These exclude energy, food, alcoholic beverages and tobacco. Again, if the rate of climb in those prices were to continue for the next 6 months, it would ring alarm bells.

Input Producer Prices in the UK have risen strongly by 11 % over the last 12 months.

Cost of food in the United Kingdom has not increased by any significant margin over the last 12 months. That is reassuring but housing utility costs have risen by almost 4 % in the same time frame.

The transportation sub-index of the CPI basket in the UK has increased by 8.2 % over the lasst year. That is another worrying figure along with the Retail Price Index which has risen by almost 4 %. And inflation expectations have increased rather sharply over the last 6 months after falling into a deep trough in April.

So, it is clear that the UK economy is suffering from significant CPI inflationary pressures that are showing no signs of stabilization (unlike the US).  Let’s look at the Money Supply.

Loans to the Private Sector in the UK have risen by 8.7 % over the last 12 months which is a good sign but they have stagnated over the last 6 months. However, that rise is not happening in the most critical sector, in mortgages. Mortgage approvals for house purchases have fallen by almost 30 % over the last 10 months. This rate of decline indicates a dramatic fall. Housing Starts and Home Ownership rates are both static but the M3 Money Supply is steadily rising. The real economy garden is being flooded with water but it is being diverted. It is not being put to work by willing workers and willing entrepreneurs. If BOOM was advising the Bank of England, it would be time to hit the “alert” button.

In other words, the UK is seeing CPI inflation that does not look like it is transitory at the same time as the supply of fresh new money is not being put to productive use in the real economy. Money is stagnating in the financial system instead. That starts to strongly suggest STAGFLATION in BOOM’s assessment.

Meanwhile, the highest GDP on record measured in US Dollar terms for the UK is way back in 2007 — 14 long years ago.  What about wages?  Wages growth on an annualized basis is necessary for sustained CPI inflation in an economy that is predominantly services based. In the United Kingdom minimum wages are rising. Labor costs are rising. Job Vacancies are rising but the Participation Rate is static. Full Time Employment numbers have been moribund for almost 2 years. Part time workers seem to be demanding higher wages. With an apparent labor shortage, this adds up to a scenario of persistent wages growth which will contribute to sustained CPI Inflation.

Consumer Confidence in the UK has fallen dramatically since July. It has been terrible for the last 10 years with only a small window of confidence in 2015 — 6 long years ago. The last time consumers were reliably confident in the UK was around 20 years ago. Retail sales are flat. Disposable personal income is flat. Personal spending is flat. Savings are falling. Consumer credit growth is flat.

Faith in Boris Johnson and his Chancellor of the Exchequer, Rushi Sunak, will soon begin a sharp decline — even moreso than is the case already. It appears that Johnson has bungled just about everything as Prime Minister. Abundant self confidence is one thing but if nobody believes it then the path forward is guaranteed to be difficult.

What about the currency? Currency is always the next piece of the puzzle. The British Pound is not showing any significant weakness at present. That may change soon as confidence in the UK economy erodes. If so, a sliding Pound would add to CPI inflationary pressures already apparent inside UK borders. Worth watching closely.

BITCOIN FUTURES ETF — BITO:  The Bitcoin Futures ETF — coded as BITO on the American Stock Exchange — launched last Tuesday and rose 4.85% on that day. The Grayscale Bitcoin Trust GBTC, traded on the OTC market, rose by 6.94 %. But towards the end of the week, both started falling. At the close on Friday, BITO fell 1.23 % for the week. GBTC held its rise of 2.83% for the week.

However, BITO fell 11.3 % from its high price on Wednesday to its lowest price on Friday. Volumes traded were from 10 – 30 million per day — above US$ 1 Billion on the Wednesday. On the unregulated Crypto markets, turnover is supposedly $ 38 Billion per day — but who knows if that number is reliable? Nobody. It could easily be much less.

Bitcoin has fallen from $ 66,909 on Thursday to $ 60,986 on Saturday on the unregulated markets as quoted at Coinmarketcap.com. A fall of 8.8 %. It will have to rise by 10 % to reach back to its high that it made on Thursday.

Some are predicting that the BITO ETF can be manipulated down via well known pathways of manipulation that exist in a cash settled futures contract listed on a futures exchange. That may well be true which would allow speculators to drive the price towards the Zero point in their algorithms while making steady profits. Time will tell. Note that BITO will never invest directly into Bitcoin.

It will be worth watching BITO versus GBTC as this is where the financial institutions will play the game — in regulated markets. Their fiduciary duty compels them to avoid the unregulated Wild West markets.

The Grayscale Trust is not an ETF but the issuers have applied with the New York Stock Exchange to register it as one. It apparently holds over $ 40 Billion of Bitcoin. Grayscale takes a 2 % annual fee as sponsor. They have 14 other investment products exposed to the world of Crypto. Currently, if you buy GBTC you are buying shares in the Trust. Because Grayscale manages the token themselves, investors gain exposure to digital currency investing without the challenges of buying, storing, and safekeeping digital currencies directly.

The Bitcoin Futures ETF is quite different. You are buying shares in an open ended fund — an ETF (Exchange Traded Fund) — if you buy BITO on the American Stock Exchange. Both products carry significant risk of capital loss. Investors must be aware of this.

WHAT’S NEXT? — COVID VERSUS ADE:  The future may well bring a battle for understanding between Covid being attributed as a cause of death versus ADE (Antibody Dependant Enhancement) from the vaccines as a cause. Without autopsies, we can only guess at the cause of death in such situations.

Avoiding the (complex and challenging) issue of co-morbid illnesses, deaths at present from the Delta Variant in unvaccinated people are probably related to the virus (unless a comorbid illness is the cause). However, deaths from the Delta Variant in vaccinated people may be due to ADE (Antibody Dependant Enhancement) or, more precisely, vaccine associated disease enhancement (VADE). If the latter is the case, then we will have entered a very sinister situation indeed. Autopsy reports and analysis in large numbers will be the only way to determine what is really happening. Autopsy is the ultimate arbiter of causation of death.

The summary in Wikipedia — Quote: “Antibody-dependent enhancement (ADE), sometimes less precisely called immune enhancement or disease enhancement, is a phenomenon in which binding of a virus to suboptimal antibodies enhances its entry into host cells, followed by its replication. The suboptimal antibodies can result from natural infection or from vaccination. ADE may cause enhanced respiratory disease and acute lung injury after respiratory virus infection with symptoms of monocytic infiltration and an excess of eosinophils in respiratory tract. ……. Some vaccine candidates that targeted coronaviruses, RSV virus and Dengue virus elicited VADE, and were terminated from further development or became approved for use only for patients who had those viruses before.” Unquote:

It is important to compare deaths from all causes data and deaths attributed to Covid as the future unfolds. And we desperately need multiple autopsy studies in (1) deaths following soon after vaccination with no Covid infection present and in (2) deaths with/from Covid in vaccinated and unvaccinated groups. Then we need to establish what exactly is happening as quickly as possible. This work is critical to understand whether the mass vaccination programs should be called to a halt if VADE becomes a dominant cause of death in the vaccinated group.

In the UK, for example, cases, hospitalizations and deaths are now rising sharply despite over 80% of people being vaccinated above age 12 years — as reported by the official UK Government website for data and insights for Coronavirus (COVID-19). Cases in the last 7 days have risen by 18.1 %. Hospitalizations are up by 19.1 %. Deaths have risen by 15.8 % in the same time frame. If that rate continues, the numbers will double within a month.

Another complicating factor here is the fact that whatever protection is generated from the vaccines has now been proven to decline significantly after 4 – 6 months (in Israel for example). There is a very long way ahead of us to get clarity in this environment where politicians and academic epidemiologists have effectively over-ridden clinicians in the medical profession who usually manage illness.

It is akin to having such people fly jumbo jets full of passengers during a serious storm with two engines in failure while pushing the experienced pilots aside. Computer models run by desk jockeys can never replace the experience of seasoned pilots in a crisis in BOOM’s humble opinion.  Reference: https://coronavirus.data.gov.uk/

In economics, things work until they don’t. Until next week …………  Make your own conclusions, do your own research.  BOOM does not offer investment advice.

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Author: Austrian Peter

Peter J. Underwood is a retired international accountant and qualified humanistic counsellor living in Bruton, UK, with his wife, Yvonne. He pursued a career as an entrepreneur and business consultant, having founded several successful businesses in the UK and South Africa His latest Substack blog describes the African concept of Ubuntu - a system of localised community support using a gift economy model.

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Anonymous
Anonymous

If there is nothing in the stores to buy, does inflation really matter?

Iska Waran
Iska Waran

You need a 2nd mortgage to buy raw chicken wings these days.

BL
BL

AP- Are the shelves getting thin in the UK? There were large blank spots in the frozen food, coffee aisle, and other areas at the store today where I live.

KaD
gatsby1219
gatsby1219

I’m in MD, we have a port in Baltimore. I own a place at the beach also, so I have to cross The Bay Bridge. 8/9 ships parked every time I travel over to Eastern shore. Every time…

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