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


spunko

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Bricks & Mortar

Beware of inflation indicators, such as "company X has announced a 15% rise for all its products from April the umpteenth"
(think we've had a few in this thread, and seen more on twatter).

Tell you a story from my time as a desk jockey materials buyer...
They do that every year.  EVERY.  SINGLE.  YEAR.  Even 2008 and 2009.  Sometimes twice a year.
And, the first day of the first week after the price rise, everyone gets offered that price.
But, by day two, the larger customers, with professional desk jockey materials buyers are asking, "is that your best price?"  "Company Y is 10% cheaper than you,"
On day 3, the orders are pulled from company X and placed at company Y.
Day 4 commences sit-down meetings between company X sales manager and the purchasing managers of their larger customers.  Special terms are agreed. 
I was in the job from 2000 to 2009.  There really wasn't any inflation at that time.  The price * never changed much.  But the game was always played.

* Price for most materials.  Sure, things like aggregate tax, and underlying commodity prices caused huge price changes over the time.  Just wanted to show that a suppliers 15% rise announcement isn't actually a 15% rise, even though the letter says it was. 
This is not to say no inflation exists, (it didn't then, but suspect it will now, or sometime soon).  Just that company anouncements of price changes are not to be relied on.

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21 hours ago, Castlevania said:

In the big cities prices are eye watering.

And is the tax take on their salaries higher thus leaving them less net to service a mortgage?

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17 hours ago, ThoughtCriminal said:

But you're missing the point stokie, like for like it's 4 times the price in England. 

 

The only reason southerners don't move north here is inertia. 

 

Logically you could sell up down south and be mortgage free in a nice 3 bed semi for 150k in the north. 

 

Tge quality of life impact and options you create are immeasurable. 

 

Instead it's a life of woe trying to buy the same house for 500k

 

 

Agree, can never understand why Southerners are so `locked` into this, can only assume its something to do with `keeping up with appearances`/with what others think.

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15 hours ago, ThoughtCriminal said:

I'd like to listen in on that call to the broker: "Hello. I'd like to short western civilisation please". 

 

🤣🤣🤣

Be like Burry`s one with GS in The Big Short.

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Chewing Grass
9 minutes ago, Barnsey said:

F***ING hell here we go, now I'm convinced he wants inflation. INCOME TAX THRESHOLD FROZEN FOR AT LEAST 3 YEARS.

Aaah well, I will have to double down on plan B which is a bit tiresome but doable.

My mission should I choose to accept it is to deprive the exchequer of all means, by all means possible.

https://thequotes.me/2017/08/15/your-mission-should-you-choose-to-accept-it/

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ThoughtCriminal
1 hour ago, MrXxxx said:

Agree, can never understand why Southerners are so `locked` into this, can only assume its something to do with `keeping up with appearances`/with what others think.

I get it to an extent as we all have a natural bias to stay close to where we know (I'm a professional northerner myself!), but if I could buy a nice rural property for a third of the price down south I'd be off like a shot. 

 

We dosboders of all people should appreciate that very little is as life changing as an affordable house. 

 

As it is I'm saving like a bastard and scouting Europe for my exit. 

1 hour ago, MrXxxx said:

Be like Burry`s one with GS in The Big Short.

Yeah, that's a classic. 

 

Big short and margin call should be mandatory at school. 

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43 minutes ago, Barnsey said:

F***ING hell here we go, now I'm convinced he wants inflation. INCOME TAX THRESHOLD FROZEN FOR AT LEAST 3 YEARS.

 

That'll be regressive, hitting the worst off the hardest.  Going to hit the well paid another way or just seeking to sow more discord?

So much he can do to target where the money is and is being drained from society - the wealthy and the public and third sectors - above all just less governance - so not going to happen!

We get more of this BS instead.

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Yadda yadda yadda
1 hour ago, Barnsey said:

F***ING hell here we go, now I'm convinced he wants inflation. INCOME TAX THRESHOLD FROZEN FOR AT LEAST 3 YEARS.

 

Looks like there are enough figures in the article to calculate the expected inflation rate. Although there are likely to be two sets of books. A base/official/publicised case and a bullish/extreme/hidden scenario. So perhaps not worth the effort.

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Yadda yadda yadda
1 minute ago, Harley said:

That'll be regressive, hitting the worst off the hardest.  Going to hit the well paid another way or just seeking to sow more discord?

So much he can do to target where the money is and is being drained from society - the wealthy and the public and third sectors - above all just less governance - so not going to happen!

We get more of this BS instead.

It is going to hit the upper middle income earners hardest.  5% inflation salary increase at £50k is an extra £2,500 but taxed for £1,000. Even if they keep up with inflation they're losing buying power. Best put it in a pension and spend less. Many on that salary won't as they need to maintain their lifestyle.

Tax credit recipients will be cushioned.

Young single workers, who probably do count as the poorest, will get stung for 20%. So 20k to £21k they get stung by £200 in income tax. Less than 1% of their new salary. Compared with almost 2% of the higher earner's salary. More significant still as a percentage of take home.

Obviously I've made assumptions here of the inflation rate and that wages uniformly match it. Also that tax credits remain as generous. Three years of this would hurt. If inflation spikes higher it would hurt a lot. I foresee union strife in the public sector.

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They also seem to have snuck in a change to shared ownership rules. Minimum share you can buy has dropped from 25% to 10%, with as little as 10% deposit. People who actually sign up for this will own 1% of their property, but be liable for 100% of the costs.

Lambs will still attend the slaughter though, because owning (1% of) your own home is a "dream".

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1 hour ago, Barnsey said:

F***ING hell here we go, now I'm convinced he wants inflation. INCOME TAX THRESHOLD FROZEN FOR AT LEAST 3 YEARS.

 

Surely making people poorer is disinflationary.

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Hold on, who has been getting %5 pay rises.

EARN02 Average Weekly Earnings - Not Seasonally Adjusted - Growth Excluding bonuses, Including arrears                    
All figures are percentages (%)                    Growth Rates : per cent change year on year

 

       
  Whole Economy Private Sector Public Sector
  Single month growth Single month growth Single month growth
2019 Jan 3.7 3.9 2.7
2019 Feb 3.2 3.5 2.2
2019 Mar 3.3 3.5 2.8
2019 Apr 3.9 3.7 4.7
2019 May 3.8 3.8 3.8
2019 Jun 4 4.1 3.4
2019 Jul 3.7 3.8 3.2
2019 Aug 3.3 3.6 1.8
2019 Sep 3.7 3.6 3.7
2019 Oct 3.3 3.2 3.4
2019 Nov 3.2 3.1 3.2
2019 Dec 3.1 3.1 3.3
2020 Jan 2.8 2.8 3
2020 Feb 2.8 2.6 3.5
2020 Mar 2.3 2.1 2.9
2020 Apr -0.2 -0.9 2.8
2020 May -0.3 -1.4 4.4
2020 Jun -0.2 -1.4 4.5
2020 Jul 1 0.2 4.1
2020 Aug 1.9 1.5 3.7
2020 Sep 3.1 2.5 5.2
2020 Oct 3.8 3.5 4.6
2020 Nov (r) 4.4 4.2 4.8

 

If we do get price inflation its going to take 18 months for that to flow through to wages and frankly once furlough ends and we start to see the real job loses and redundancy.  I don't imagine many people in the private sector will be seeing much of an pay rise.  

Put it another way, i'm well inside the 40%.  This is going to make sweet fa difference to the 1.6% for 2 years i just received.  

Public sector, that may be different story  

 

data source: ttps://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/latest

 

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3 hours ago, MrXxxx said:

Agree, can never understand why Southerners are so `locked` into this, can only assume its something to do with `keeping up with appearances`/with what others think.

As a southerner I have a strong affinity for 'my town' and having lived here all my life my friends and family are here. Part of my identity is here.

To be forced into buying a box with windows 300 miles away just so I've got my own box with windows doesn't compensate.

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1 hour ago, Harley said:

That'll be regressive, hitting the worst off the hardest.  Going to hit the well paid another way or just seeking to sow more discord?

So much he can do to target where the money is and is being drained from society - the wealthy and the public and third sectors - above all just less governance - so not going to happen!

We get more of this BS instead.

This budget is going to be total bullshit going by most of the details released early as per usual.

As a labour hater, anyone else wish Corbo would have gotten in than these lot last time?

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18 minutes ago, Noallegiance said:

As a southerner I have a strong affinity for 'my town' and having lived here all my life my friends and family are here. Part of my identity is here.

To be forced into buying a box with windows 300 miles away just so I've got my own box with windows doesn't compensate.

Add;

Finding a job, or more likely finding two.  Possibly needing to find a school.  And finding that property with decent access to work and schools still commands a premium.  As well as the transaction costs of selling, buying and moving.  

i've no kids, grew up in yorkshire and moving from essex to n yorks is something i'll ultimately do, but it's not particularity easy. 

 

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Personal Allowance - £12500

CGT Allowance - £12300

Dividend Allowance - £2000

Total Tax free income - £26800

You can earn currently £46300, and pay only £3400 in tax; so you tax rate is 7.35%

Income from work, savings interest and dividends combined must not exceed £16000, and you then can earn £30300 in capital gains from shares and only pay £3400 in tax.

Income combined from work, savings interest, dividends and capital gains above £46300 is taxed at 20%.

If your income from work, savings interest and dividends combined does exceed £16000, all income from capital gains on shares up to and beyond is taxed at 20%.

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4 hours ago, Heart's Ease said:

 

Not yet listened but for those who are up and at em this morning.

Ok so here's my take on this.

1. DH's view is a deflationist, so  Melt up>Deflationist bust>Inflation period withing 2020's and then long drawn out depression in 2030's onwards. The only difference here between the 'other camp' is that they go straight from Melt up into Inflation.

2. 22.40min - he implies that governments/CB's wont be able to maintain/control continual printing/inflation; I assume due to mounting debt servicing and eventual loss of confidence in gilt buying, but others argue that they could by CB's controlling lower end of curve, continually reservicing their debt as short duration, and solving the confidence issue by making gilt buying/holding compulsory for pension industry.

3. 25.20min - Totalarian/'Apocaliptic'?...doesn't 'paint a rosy picture' of things post 2030 :-(

4. 31.10min - implications of government going bankrupt?....some may be planning private pensions based around state pension/private pension and getting under Personal Tax Allowance, but if SP is scrapped and you have a fixed figure for your PP you may find you have left yourself short. Also, will/what if PP [DB/DC] go bankrupt...there is a government backed insurance that covers this [100% if draw, 90% if undrawn] but will this be honoured if the government itself has fallen on 'hard times'? Finally, what if 'Save the NHS' fails...increased medical insurance that hasn't been accounted for in pension planning.

5. 44min - Whatever way things go in 1. above gold, silver [and commods?] will be the go to investments as FIAT will be worthless,and stock will drop 80% from current values. Predicts initial recovery for L2022 with gold=2500 and silver=$45-50, with both dropping 30-40% from current levels in the deflation. This would suggest a lower ladder point of gold=$1500-1750 and silver=$27-35, with both going ballistic 2030's onwards [gold=$10k, silver=$300].

Just my understanding so please feel free to correct.

 

 

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1 hour ago, Noallegiance said:

As a southerner I have a strong affinity for 'my town' and having lived here all my life my friends and family are here. Part of my identity is here.

To be forced into buying a box with windows 300 miles away just so I've got my own box with windows doesn't compensate.

As a Southerner I don't, but perhaps that is because I have moved around a lot/worked overseas...all I know is given the choice of living at the same level but having an extra 10 years retirement 'up North' or retiring 'down South' at late 60's and getting at best 10 good years I would opt for the former, but everyone to their own........must admit I couldn't be 'doing' with any of that gravy on chips nonsense thought! :-)

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3 hours ago, Barnsey said:

F***ING hell here we go, now I'm convinced he wants inflation. INCOME TAX THRESHOLD FROZEN FOR AT LEAST 3 YEARS.

 

Exactly as its the best way to inflate debt away.More and more on benefits above the tax threshold paying no tax.The incentive to work being destroyed more and more.

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Yadda yadda yadda
36 minutes ago, Cattle Prod said:

I watched the Blues Brothers last night. It was filmed in Chicago in 1979, and it struck me that cities really do look different after years of high inflation. Everything was run down, it wasn't the director making it that way. Grass growing up though the pavement, litter, stray dogs, rusty cars, decayed buildings. We all know these scenes of the 70s/early 80s, but the simple thought hit me "who spends money on maintenance when prices are rising 10% a year?". The tin of paint, the weedkiller, the car service. All get pushed put as you're going to buy inflated food first.

Conversely our cities look positively polished and gleaming in comparison now. But isn't that easy to do in a disinflation? Maintenance got cheaper, year on year.

Things fall apart quickly when you don't maintain them and of course @DurhamBorn was way ahead in buying up tools while they are still cheap. It wasn't just Chicago either, New York looked like it had been carpet bombed in places, and my city was much the same. I think our cities are going to decay again over the next ten years as entropy is allowed do its thing again and "everything trends toward disorder".

This is an opportunity for a person with a stock of good tools of course, but the people with no memory of this are in for a shock. It also means that council tax could become very dangerous, they will keep jacking it up and up even as the stuff you are paying them for falls apart. Likely to be a source of conflict, it wasnt around in the 70s. 

I saw a program on 1970s New York. The Bronx was burning down day by day. There was a clip of a cop being asked if he thought the Bronx had a future. No was the answer. Probably the perfect time to buy, from an investment point of view. There literally was blood on the streets.

Major cities were depopulating through the 70s. Certainly New York and London. Could well get a repeat.

 

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