Credit deflation and the reflation cycle to come (part 2)

[Majorpain]

25 minutes ago, Bobthebuilder said:

The current guidelines we have been given are for a 20% Hydrogen to 80% Methane mix. No higher ratios are currently in the regulations. Nothing changes at this ratio, flame picture, tightness testing all remain the same.

When they release more info I will of course post it up here.

Which is a sensible starting point to "pad out" the gas, plenty of water and energy in the UK for Hydrogen, and if less gas needs to be important it helps to stop trashing the pound.

[spygirl]

11 hours ago, sancho panza said:

 

I thought it was a really seminal interview that pulled together a fair few of the major themes that have been developed on here by @DurhamBorn & others over the years.It had that big an effect on me that wehn I read @Barnseynailing the 15 year fix,I felt lilke getting a mortgage in the wife's name for the first time.

The one overriding conclusion for me is that if the Fed has two pretty unpalatable options in terms of smashing the dollar or the economy,then the BoE's positon is even worse.

Having been a debt deflationist since way before 2008,it took me a long time to get my head around the fact that CB's pursue policies based more on expediency than what's right.This thread has helped me do that.Gradually,I've been coming aorund to the fact that inflation is the easiest option but that it comes with a price tag.

It's hard to convey without reprinting a lot of text how cornered the Fed is and how through two decades of asset inflation they've basically pimped the US economy to the point where there are no easy chocies left.

The warning signs are there,1)stong dollar phses seeing sales of US assets both stocks and UST's,is a strong one 2)Stocks selling off hits the financialised US economy,same with CRE and real estate.3) Fed buying 100% net issuance 4) outstanding UST's are 9 times tax revenues 5) welfare+Dept of Defence+interest on UST's =130% of tax revenues etc etc...

There was a great discussion on here 100's of pages back re the dollar and the conclusion was iirc that teh dollar had one last crisis in it and this is it imho.

I think of teh 3 ways out that Gromen offers 1+2 are the easiest options via soft default.Losing the role of world policeman would mean the definite end of the $ imho.It'll be the last thing to go imho.

I msut say,like you,the interview did put me off owning UST's.But the overriding thing that it reaffirmed was not to buy any bonds,particualrly corporate.

Quite where this leaves the UK and sterling I'm not sure yet.

 

 

 

Due to the UK's peculiar position, the BoE is not a position maker.

BoE is a position taker.

The reason why the UK had bad Wednesday - or whatever day - was it was trying to align sterling to the DM.

BoE/sterling has never really stood on its own two feet, always getter battered by changes in the FED/$ or DM

 

 

 

[Yadda yadda yadda]

More evidence of telecoms price inflation. I received a letter from Virgin Media this morning telling me my price is rising from 1 March by more than 5%. Ironically my broadband went down for five minutes whilst I was reading the letter. First time in several months and brief so not too bothered.

The letter doesn't detail the price change. Just the amount by which it is going up.  Points me in the direction of the link below. This also has no detail of the price changes. I'll definitely phone them at some point next month to get the fee down. Clearly they think they have pricing power.

https://www.virginmedia.com/shop/PriceChange2020/Broadband

[sancho panza]

 

5 hours ago, DurhamBorn said:

Only a few years with a 78 tag on the dollar.Iv handed my notice in at work and leave next month.Im going to do a lot more work on things like that and will put all my road map targets on here.One thing is for sure,the west is in serious trouble,mainly due to welfare/left woke etc.I need to try to cross market all this onto the road maps and havent got time working.Sterling depends on a couple of things.The first is energy,the UK is best placed for renewables etc,most arent,the other side is welfare/state jobs are out of control.If energy starts to fail and no welfare cuts sterling will start to decline again,though at the moment i dont see much risk.

Good news for the basement dwellers there DB.Dollar roadmap of yours has been pretty darned accurate past few years compared to the competition for sure..

There are a few issues following on from teh Groemn interview that I didn't mention last night.

 

As per @Cattle Prod highlighting the option 2 in terms of fed remontezing gold.It's the first time I think I've read that (well first time that I've read it and it's chimed in with the evidecne).You really can't argue with gromen's logic.The best/route of least resistance way out is to wipe out bond holders/welfare recipients with soft default.

Using a gold standard of sorts/Bretton Woods would kill a lot of birds with one stone,reign in the Chinese,aid the US to soft default via bond holders,possibly extend USD reserve currency status.

However,the underlying problem caused by the unwinding of the Dollar hegemony and US role as world policeman will see geo politics rise and create the background for DH's 'hope it happens when I'm dead' predictions.

 

2 hours ago, Loki said:

Does anyone here follow grain prices and exports? Not ag stocks but the product itself

Inflationtastic

https://www.esmmagazine.com/uncategorized/chinas-corn-wheat-imports-in-2020-reach-record-highs-119403

https://www.esmmagazine.com/retail/wheat-holds-near-6-12-year-peak-as-focus-stays-on-russian-export-tax-119555

https://www.world-grain.com/articles/14759-us-cpi-grain-based-foods-indexes-turn-in-another-solid-year-of-gains

https://www.reuters.com/article/us-china-economy-trade-soybeans/chinas-2020-u-s-soybean-imports-surged-though-likely-missed-trade-target-idUSKBN29P10T

 

Some gtypes of grain are similar price to 25 years ago.

[sancho panza]

Dare I raise anotehr issue ref sterling and that's one that Paul Hughes has been talking about for yearsand Lyn Alden have talked about(think groemn mentioned it too) and that's demogrpahics.UK has seen population rise from 58mn in 2000 to 68mn now.

UK nation debt was circa £400bn in 2000=debt per capita of circa £6890

                                            £1800bn in 2020= debt per capita circa £26,470

 

Now what happens if UK depopulates.Lot of EE homebuyers are underwater on their mortgage and head back to country of birth.

Two thigns will happen,banks will be forced to deleverage into a debt deflation and govt borrowing projections will need drastically redrawing especially as most of our younger popualtion is l;ess tied to the UK.

Huge ramifications for sterling and UK economy given peak spending years are 25-54 age group and they drive economy.

[leonardratso]

1 hour ago, Democorruptcy said:

You're a stats man and you have gone and mentioned getting out of cash. You can run the figures on something that is troubling me. When I thought about it last week it made my sell finger twitch uncontrollably. 

The Oxford/Astra Zeneca vaccine was tested in the UK, Brazil and South Africa. The three new more infections strains are from the UK, Brazil and South Africa. What are the odds of that? What if....? Gulp!

Edit to add:

After I read the article quoted above, I emailed the reporter and said while reading it I had wanted her to ask if the bloke thought there was a link between the new strains and the testing locations. Amazingly just after me posting earlier she replied and she did a follow up article on Monday and asked the question. He doesn't think there's a connection.

 

 

 

 

 

yeah sure.

[Barnsey]

1 hour ago, sancho panza said:

My plan A is to run the family fiances to maximise long term protection against inflaiton/credit deflation and to cover living costs if needed.Hence,I'm extrememly unwilling to surrender oilies and goldies currently.Our average price on BP is circa £3,RDSB circa £11-50 etc.

That gives us flexibility going forward.Ideally I don't want to have to use any of that for a hosue for me and Mrs P,as renting on a gross 3% yield makes a lot of sense given our family situation.

Having said that reading Luke Gromen interview and Barnsey 15 year fix all of a sudden,I'm drawing up a plan B.Hosues in Leicester arent cheap for what you get.If they were 2004 prices then it'd make a lot more sense.

I've said before we'll see a heavy credit deflation in UK banks but mroe and mroe I'm beginning to accept that the UK govt will print with reckless abandon and average Joe's like us have two chocies in that scenario

1) lever up and let inflation deal with your debt

2) run a portfolio of assets that hedge sterling weakness

or both lol..I'd welcome any otehr ideas.

It depends on the banks balance sheet and the mortgagor positon.Low LTV lending may not see that much change due to the fact that these are the assets banks are after.Your IO/high LTV will likely get decimated.

Its a delicate balancing act depending on your finacial postion.15 year mortgages change the maths considerably in a number of ways.

I think if you have a ten/15  year plan with fixes then that opens up some options.

Do as government intends, inflate away the debt. That's my logic right now. They're boxed in.

[geordie_lurch]

29 minutes ago, Cattle Prod said:

Funny you say that, I've been looking at doing the same. At least for some of the time. What I can't figure out is if I will be liable for CGT in the UK only to the point where my residency changes? Per the theme of this thread, I prefer medium to long term investment, will they take the who gain, or just that year's worth, marked to market? Then, if I am NHR, do I still pay CGT in the UK if my accounts are there, or are they still CGT exempt if I move them to Potrugal?

Obviously a mine field, and will need professional advice, so not asking for answers, but that is the key question for me. No way am I handing over 40% of gains. I feel slightly more urgent about it this week, as I was talking to a friend who works in the City. He was talking about the trial balloons they are currently flying. I said 'yeah, but no way can the do it in March, things are way too weak, money will run'. He said 'they could only double CGT with capital controls alongside'. 

Oh sh*t. 

Thought back to Russell Napier and financial repression.

I've travelled and 'lived' in other tax residencies right up to the limits those places say you become liable for tax e.g. 183 days or more in one country I spent a lot of my year (their tax year was between 1st Jan and 31st Dec). A day over this and you are meant to, by law, start declaring ALL your various earnings, properties, investments etc so that other country can possibly get their hands on things. However most countries have what's known as a double-taxation agreement if you end up in this situation meaning you should only pay tax in one of your places of residence but then there are various 'tests' that HMRC apply to decide which country your main tax residency really is and owning a residential property in the UK usually makes people end up being counted as a UK tax resident.

The above is very over simplified and based on my own experiences so if you are serious about trying to leave the UK then you REALLY need to speak to others who have done it ideally - check out expat forums for that place etc then speak to professionals in the UK first if you are currently tax resident here. I never quite got to the point where I needed to bite the bullet to try and navigate the tax system in foreign lands never mind their various company and employment laws and was happier only spending up to 180 days out of the UK at a time keeping everything under the HRMC

[geordie_lurch]

Here is something to get you started @Cattle Prod

https://taxsummaries.pwc.com/portugal/individual/residence

Like many things in life, it's usually cheaper and easier to 'rent' them so in this case renting somewhere abroad via Air b&b or similar and keeping your flexibility unless you really want to sever ties with the UK.

[Democorruptcy]

35 minutes ago, Cattle Prod said:

Funny you say that, I've been looking at doing the same. At least for some of the time. What I can't figure out is if I will be liable for CGT in the UK only to the point where my residency changes? Per the theme of this thread, I prefer medium to long term investment, will they take the who gain, or just that year's worth, marked to market? Then, if I am NHR, do I still pay CGT in the UK if my accounts are there, or are they still CGT exempt if I move them to Potrugal?

Obviously a mine field, and will need professional advice, so not asking for answers, but that is the key question for me. No way am I handing over 40% of gains. I feel slightly more urgent about it this week, as I was talking to a friend who works in the City. He was talking about the trial balloons they are currently flying. I said 'yeah, but no way can the do it in March, things are way too weak, money will run'. He said 'they could only double CGT with capital controls alongside'. 

Oh sh*t. 

Thought back to Russell Napier and financial repression.

There's some links about it in a thread in stealth.

 

[Eventually Right]

Interesting macro article from Ambrose Evans-Pritchard in the telegraph (behind a paywall I think):

https://www.telegraph.co.uk/business/2021/01/20/joe-biden-ushers-keynesian-inflation-era-2020s1/

“Mr Powell reassures them that rates will stay pinned to the zero-floor until inflation tops 2pc and stays there for a year. But this is more hawkish than it sounds. Inflation will hit 2pc by the late spring. The broad M2 money supply has risen 24pc over the last year and while the transmission channel may be blocked for now, it is not broken. It sits there like reflation rocket fuel waiting for ignition.”

 

[Democorruptcy]

1 minute ago, Cattle Prod said:

Where is stealth? I can't see it 

You know the secret handshake

It's the 5th section down in my list but the order could be different if there is a super stealth that I'm not allowed in.

https://www.dosbods.co.uk/

'Living in Portugal'

[Democorruptcy]

24 minutes ago, Cattle Prod said:

What if what?

My understanding of the 'British' strain is that it's not from here, but was just picked up here due to good genome sequencing facilities. Was detected in other countries earlier etc. I don't know about Brazil or South Africa, but maybe they tested the vaccines there because of similiar facilities? Occams razor and all that.

All this talk of mutant viruses is very scary to the uninitiated, but it's perfectly normal really. Think of the finches beaks on the Galapogas, they were all random mutations which offered the birds an advantage, so evolution selected for them. What was their population base, hundreds of thousands? The virus is trillions, there are hundreds of mutations and variants by now, and evolution will select for the weaker variants (i.e. more successful, the ones that don't kill the host). This latest variant looks promising, if that is the right word, defintely seems to be more contagious, anecdotally I know of a good few people whove had it now versus no one who had the first. And they all seem to get over it after a few days. It'll still kill the old and weak though, just as the common cold can. Hopefully it keeps mutating toward the common cold.

I'm not a biologist, and Darwin's finches are A level biology. I am just constantly amazed that no one in the media can seem to remember their A level biology, or first year epidemiology.

Whatever I'm looking at I'm a "what are the odds of that" type chap. It just seemed a big coincidence that the 3 most publicised new more contagious strains are from the same 3 testing countries.

I know there are a lot of strains, I looked at this months ago and it's very colourful

https://nextstrain.org/sars-cov-2/

[Castlevania]

45 minutes ago, Cattle Prod said:

Funny you say that, I've been looking at doing the same. At least for some of the time. What I can't figure out is if I will be liable for CGT in the UK only to the point where my residency changes? Per the theme of this thread, I prefer medium to long term investment, will they take the who gain, or just that year's worth, marked to market? Then, if I am NHR, do I still pay CGT in the UK if my accounts are there, or are they still CGT exempt if I move them to Potrugal?

Obviously a mine field, and will need professional advice, so not asking for answers, but that is the key question for me. No way am I handing over 40% of gains. I feel slightly more urgent about it this week, as I was talking to a friend who works in the City. He was talking about the trial balloons they are currently flying. I said 'yeah, but no way can the do it in March, things are way too weak, money will run'. He said 'they could only double CGT with capital controls alongside'. 

Oh sh*t. 

Thought back to Russell Napier and financial repression.

You’d be liable for UK CGT on any sold positions you held prior to leaving the country and only if you return to the U.K. within 5 years. Anything bought and sold whilst living elsewhere is exempt from U.K. CGT. If you did return to the U.K. you’d be liable for CGT on any positions sold whilst a U.K. resident based on the original price paid even if you originally purchased the position whilst abroad.

I’d look into Portuguese taxation. Whilst you might be able to avoid paying UK CGT you might not avoid the Portuguese equivalent. Also, I don’t think any countries recognise ISA’s as exempt from tax - so chances are you’d need to pay at least one of CGT; dividend taxation; wealth taxes on your ISA.

 

[Talking Monkey]

1 hour ago, sancho panza said:

 

Good news for the basement dwellers there DB.Dollar roadmap of yours has been pretty darned accurate past few years compared to the competition for sure..

There are a few issues following on from teh Groemn interview that I didn't mention last night.

 

As per @Cattle Prod highlighting the option 2 in terms of fed remontezing gold.It's the first time I think I've read that (well first time that I've read it and it's chimed in with the evidecne).You really can't argue with gromen's logic.The best/route of least resistance way out is to wipe out bond holders/welfare recipients with soft default.

Using a gold standard of sorts/Bretton Woods would kill a lot of birds with one stone,reign in the Chinese,aid the US to soft default via bond holders,possibly extend USD reserve currency status.

However,the underlying problem caused by the unwinding of the Dollar hegemony and US role as world policeman will see geo politics rise and create the background for DH's 'hope it happens when I'm dead' predictions.

 

Some gtypes of grain are similar price to 25 years ago.

That Gromen interview was interesting, did I understand correctly its option 1 lots of inflation over 5 to 7 years or option 2 lots of inflation over a couple of years doing the Gold standard thing. Was interesting on his thoughts on treasuries as a safe haven and how they behaved in March last year.

His opinion on a crack up boom I thought gave the impression he doesn't see the likelihood of a near term BK happening.

His views on golds current price chimed with Hunter in seeing limited down side from here no matter the unfolding of events from here.

I wonder if my strategy to start to rotate into treasuries as the s&p increases past 4200 needs a bit of a rethink.

[AWW]

Re hydrogen safety concerns - if H2 molecules are able to leak out through the "gaps" in a metal crystal, they'll have no problem leaking out through the gaps around doors and windows, so it won't be able to build up indoors in enough quantity to cause an explosion.

Methane, on the other hand - well, gas explosions, accompanied by the standard "gap in a row of houses" photo, are a fairly frequent news story.

I'd much rather have a hydrogen leak in my house than a methane leak.

[Castlevania]

1 hour ago, Cattle Prod said:

I am just constantly amazed that no one in the media can seem to remember their A level biology, or first year epidemiology.

I’m pretty sure none of them studied A level biology

[leonardratso]

1 minute ago, Castlevania said:

I’m pretty sure none of them studied A level biology anything.

Just fixing that for you..

[sancho panza]

2 hours ago, Cattle Prod said:

Funny you say that, I've been looking at doing the same. At least for some of the time. What I can't figure out is if I will be liable for CGT in the UK only to the point where my residency changes? Per the theme of this thread, I prefer medium to long term investment, will they take the who gain, or just that year's worth, marked to market? Then, if I am NHR, do I still pay CGT in the UK if my accounts are there, or are they still CGT exempt if I move them to Potrugal?

Obviously a mine field, and will need professional advice, so not asking for answers, but that is the key question for me. No way am I handing over 40% of gains. I feel slightly more urgent about it this week, as I was talking to a friend who works in the City. He was talking about the trial balloons they are currently flying. I said 'yeah, but no way can the do it in March, things are way too weak, money will run'. He said 'they could only double CGT with capital controls alongside'. 

Oh sh*t. 

Thought back to Russell Napier and financial repression.

Difference between domicile and residency.As per @Castlevania says,you may lose your ISA's if you move abroad.

Defo worth spending good moeny on pro advice.

Could be possible to establish domicile elsewhere and then move your tax residency as it suits..?jsut ideas.

https://www.expertsforexpats.com/expat-tax/the-difference-between-domicile-and-residence/

 

Onanotehr matter.Investing.com listing ways Biden may push energy prices higher.

https://uk.investing.com/analysis/8-possible-moves-oil-traders-should-watch-as-biden-administration-takes-charge-200452864

1. Cancelling new offshore drilling projects in federal waters

This would have little immediate impact on the supply-side as offshore drilling projects can take years to get up and running. The market probably wouldn’t react all that much if this occurs.

2. Complicating permitting for fracking or ending it entirely on federal lands

This move wouldn’t impact wells already drilled or permits already in place, so the supply of oil from the U.S. wouldn’t change immediately, but it would hurt future prospects.

This would have a faster impact on oil supply from the U.S. than ending offshore drilling permits. A move like this would almost certainly impact prices, especially WTI, in the short term.

3. Refuse permits or buyback leases to drill for oil in ANWR

This move is likely forthcoming, but it should not impact the market. The Arctic National Wildlife Refuge (ANWR) was only recently opened for drilling permits by the Trump administration, and the lease auction did not generate much interest

4. Limitations on energy infrastructure in the U.S.

Putting in place regulations that limit refinery expansions, pipeline projects or the expansion or upgrade of ports could limit crude oil supplies as well as hit the refined products market. If the government makes it more difficult for crude oil to be transported, refined or exported then traders should expect to see stocks of crude oil in the U.S. grow until producers are forced to curb production.

5. Reverse legislation to allow crude oil exports

At the very end of the Obama administration, the U.S. halted the ban on exporting crude oil. Since then, U.S. crude oil exports have grown from under 1 million bpd to a high of 3.4 million bpd in October 2019. Stopping U.S. crude oil exports would have a major impact on oil prices and would also cause the differential between WTI and Brent to increase significantly.

This move, however, is very unlikely.

6. Limits on LNG export facilities

 If the Biden administration decides to curb the growth of either of these or put restrictions on the places where U.S. facilities can export natural gas, then U.S. LNG exports will be hurt.

7. Regulation on oil and gas production

The Biden administration is likely to increase regulations that govern methane release and flaring. They could also issue new regulations governing water use and seismic implications of fracking.

These kinds of regulations would have an immediate impact on current production and could cut down on output. They would likely have an immediate impact on prices.

8. Environmental regulations on users

The Biden administration is likely to pursue higher emissions standards for cars and other vehicles in the U.S.

The Obama administration promoted EVs with tax incentives, but the Biden administration could try to implement regulations that would push consumers towards EVs in a more aggressive way. These types of policies could change gasoline consumption in the U.S. such that oil prices are impacted.

1 hour ago, Talking Monkey said:

That Gromen interview was interesting, did I understand correctly its option 1 lots of inflation over 5 to 7 years or option 2 lots of inflation over a couple of years doing the Gold standard thing. Was interesting on his thoughts on treasuries as a safe haven and how they behaved in March last year.

His opinion on a crack up boom I thought gave the impression he doesn't see the likelihood of a near term BK happening.

His views on golds current price chimed with Hunter in seeing limited down side from here no matter the unfolding of events from here.

I wonder if my strategy to start to rotate into treasuries as the s&p increases past 4200 needs a bit of a rethink.

I think he sees a crack up boom but wasn't tested on a credit event.The one thing that interview did was make me even more careful with selling PM exposure.

 

[Harley]

https://www.realvision.com/podcast/realvision/episode/f8a0c656-57be-11eb-a006-7375b0abfa21

First part about the further deflationary effects of technology.  Second part is a wider ranging Q&A which provides some food for thought, ending with my burning house simile.

 

[DurhamBorn]

Its pretty obvious bond holders are going to take the pain.Remember all that government debt is someone's assets.My main focus once i get out of work early next month is to look at my inflation targets over the cycle and roadmap that affect onto bonds,and then roadmap the losses from bonds onto stocks and commods.Im going to roadmap as if its a straight swap out from bonds to stocks in the liquidity,but im going to add a multiplier onto our areas as i think they will leverage.

Im a bit worried that in looking for a BK we are perhaps missing the fact that it might be a slow kahuna in bonds and growth stocks.There is massive systemic risk in the system still though but that article does chime more and more with a few maybe's from the macro.

One of the key parts of the roadmap was jobs/manufacture coming back,and id like to see supply chains starting to buckle as lockdowns end.That should give us enough velocity to get M2 moving into the economy.

I think its likely we will see 35% real terms losses in bonds minimum,and thats my roadmap number,so il be using that as the baseline for the liquidity transfer.

Remember,if bonds lose 35%,government loses nothing.If a telcos profits go up 100% due to the inflation government gets a lot more tax.

[Loki]

7 minutes ago, DurhamBorn said:

Im a bit worried that in looking for a BK we are perhaps missing the fact that it might be a slow kahuna in bonds and growth stocks.There is massive systemic risk in the system still though but that article does chime more and more with a few maybe's from the macro.

What would be your most important indicators for a slow-cooked kahuna stew? 

[Yadda yadda yadda]

22 minutes ago, Loki said:

What would be your most important indicators for a slow-cooked kahuna stew? 

Slow-cooked kahuna stew is an acquired taste. Some find it disagrees with them violently and never quite recover. Others can't get enough and will chow down at the all-you-can-eat buffet until it closes.

[DurhamBorn]

35 minutes ago, Loki said:

What would be your most important indicators for a slow-cooked kahuna stew? 

The CBs to keep printing even as inflation starts to move higher.

[Loki]

Just now, DurhamBorn said:

The CBs to keep printing even as inflation starts to move higher.

Thank you, that makes sense. Would that shorten your  SHTF end of decade estimate at all?