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

[Hancock]

1 minute ago, Harley said:

Ah, a new sub thread:  "how I lost my financial virginity"!  Mine was in a hotel room the night of the 2000 crash, getting it off (badly) with my portfolio!

Got a load of compensation in the late 90s and poured a load into 2 x Fidelity Unit Trusts ... didn't make anything!

Prior to receiving it, I planned on spending it buying a 2 bed flat then re-mortgaging it to buy another .... this was before BTL was a known thing! The type of flats would now sell for over 200k each!

[Bobthebuilder]

Barely on topic but. I have just been notified of a 20% pre-order price increase in a model train from China through a UK supplier, I cancelled it. It's about time they brought production back to Margate, I will pay the higher prices then.

[kibuc]

Integrity of people in the PM mining business is on full display again, this time thanks to Fortuna Silver who carefully selected late after-close hours on a Friday evening to inform, in two separate releases, that 1) their gold and silver reserves in Mexico went down by a quarter (!) year on year, and 2) they got an unfavorable court ruling in their dispute about missing royalty payments worth hundreds of millions. I think it's praiseworthy they didn't wait until 11pm on Good Thursday, or perhaps schedule it for the missing hour during the Summer Time switchover. 

[JMD]

5 hours ago, JimmyTheBruce said:

Morning.  Long time lurker breaking cover to express my thanks to all the regular contributors.  I  came over from TOS specifically to follow this thread, and have been feeling increasingly guilty about benefitting from the collective wisdom without ever contributing.

My problem is that, in stark contrast to the experience and knowledge of a lot of you, I have little to offer other than my gratitude.  So thank you all for continuing to make a place on the internet that is welcoming to all, massively informative and, unlike any other I have experienced, appears to have been able to operate for multiple years without any notable bust ups or angry exchanges.  Truly refreshing.

My token contribution, which I recognise is a poor return for everything I have learned here, is to suggest a look at Vale.  They fit the commodities theme, align with the recent move to looking at opportunities in South America and, if you can get past the incredibly woke content about "women in mining" on their website, seem to have good financials, relatively low debt, and a good dividend.  I've dipped a (little) toe in the water, so I'm sure someone will now let me know that they're about to do an Enron.....

Thanks again to everyone.  Having popped my cherry I shall endeavour to contribute whatever I can in future.

Welcome JTB, and yes the commodity play Vale is a good example of a next cycle divi stock, so nectar of the (inflation) god's as far as I'm concerned. We certainly are a well natured happy (through gritted teeth) breed on the whole, but Btw best not express interest or mention BTL or crypto, I did once (maybe more?) but I think I got away with it!!!

[JMD]

48 minutes ago, Bobthebuilder said:

Barely on topic but. I have just been notified of a 20% pre-order price increase in a model train from China through a UK supplier, I cancelled it. It's about time they brought production back to Margate, I will pay the higher prices then.

Couldn't agree more. Margate you say ...so Hornby? Declaration: I still own some HRN ('non rolling', in fact totally decimated) stock!! 

[JMD]

On 24/03/2021 at 10:44, sancho panza said:

I think this issue is on topic because it relates to the sort of institutional decay that normally precedes some seismic changes.With reference to the Western powers that means a decline in their power and influence and aslo most likely some susbtantial societal instability that they won't have the tools at their disposal to deal with or the moral courage to face head on..

Overall,you do get the feeling we're going into a cold war with China with one hand tied behind our backs and our leaders are aware of neither fact.

For what it's worth,I believe women have a vital role to play in our national security and have no problems with a female leader(especially Thatcher) but I'm also aware women generally don't have the capacity for brute force generally that men do.Good leaders would use their resources judiciously not sacrifice them to please the Woke types in parliament

I got sent the following by an ex para mate,also ex copper.Imagine being that lass.

 

 

 

Yes agree that 'Institutional decay' is an 'on topic' thread topic. Baked into our macro future I fear. And is something I have previously passed comment on. Unfortunately that video wouldn't play for me, but I'll just attempt to add a personal - maybe (slightly?) crass - example of BBC institutional failure ...'The Repair Shop' - is a mostly brilliant show, but its host Jay Blades, is a totally inappropriate choice on so many levels. As someone on here said recently about the ex Croydon CEO who for financial irregularities was forced to resign... 'there because they tick boxes'. ...Its all a terrifyingly slow motion train wreck, but anyway enough said.

[DurhamBorn]

42 minutes ago, JMD said:

Yes agree that 'Institutional decay' is an 'on topic' thread topic. Baked into our macro future I fear. And is something I have previously passed comment on. Unfortunately that video wouldn't play for me, but I'll just attempt to add a personal - maybe (slightly?) crass - example of BBC institutional failure ...'The Repair Shop' - is a mostly brilliant show, but its host Jay Blades, is a totally inappropriate choice on so many levels. As someone on here said recently about the ex Croydon CEO who for financial irregularities was forced to resign... 'there because they tick boxes'. ...Its all a terrifyingly slow motion train wreck, but anyway enough said.

An old fella in the club said to me "i hope the BBC never re-make Zulu,the attackers will be blue haired white lesbos and the defenders wont be Welsh Borderers because those lefty cunts dont know what a border is" 

[MrXxxx]

8 hours ago, DoINeedOne said:

People wanna control and micro manage shit all the time leave them to it and the good workers will be productive, happy and feel in contro

A good manager isn't seen to be managing people, they manage work, a insecure/incompetent one is.

[invalid]

23 hours ago, Errol said:

It isn't going to ever go back to what was the old normal. And the old 'normal' wasn't desirable anyway. Anyone who has commuted for years knows that it is hell and a shocking waste of money and time. Nobody wants to go back to that.

The past 12+ months have demonstrated for most London office jobs that people can work from home in many cases even more efficiently than in the office. Nearly all the companies I know have already now moved to at minimum 50% home working. 

So the Government needs to plan for at least 50% less footfall, 50% less use of trains etc etc. That's baked in already. Nobody in their right mind would try to argue that commuting is a sensible or desirable thing to to. 

Pandora's box is open and it's too late. Far too late.

 

I recall many a time sitting stuck in a jam on the M25 thinking this is fucking insane. All these people, just sitting here, not only doing nothing useful but burning fuel at the same time.

[DurhamBorn]

29 minutes ago, invalid said:

 

I recall many a time sitting stuck in a jam on the M25 thinking this is fucking insane. All these people, just sitting here, not only doing nothing useful but burning fuel at the same time.

It really is incredible that our economy is so efficient in many ways that around 20% of people can produce enough for everyone.They are carrying all the none productive from welfare to state workers.I worked it out once that when i was at Glaxo 9 hours production would pay me for 25 years.Ok there were 12 of us in that manufacture stream on shift,then of course lots of other add on services,research etc,but it did show me from a macro side that wages were far too low for people making real things.Of course thats an extreme and if for instance  you went to a place making washing machines it would me much tighter,but even so likely the production operators wages to take home could be double if it wasnt for all the tax sucking into every area.

It was starting to be clear when i entered the workforce in the late 80s,but really started to get worse once Blair got in that for most people effort didnt decide their standard of living.Far bigger was if you could work for the state or get welfare from the state or both.That is why reflation is certain now.They are printing a structural deficit that is masked by covid spending.Once things settle i expect them to see they are £100billion+ short on tax/spend.Private sector wages will have to go up with rising inflation,public sector and welfare will have to lag,by around 20% minimum over the cycle.

Its ironic that the government has given people a taste of what the scroungers have already had.Freedom.That taste will decimate the tax base as it stands.

 

[Froggy2000]

6 hours ago, DurhamBorn said:

Yes agree that 'Institutional decay' is an 'on topic' thread topic.

Me too.  For those interested, the link below gives a very in-depth account of the societal impact of inflation.  Both a sudden catastrophic one, and a slower one.  It's amazing, and scary to see how it can touch us in so many ways.

https://recision.files.wordpress.com/2010/12/jens-parsson-dying-of-money-24.pdf

[sancho panza]

What sub prime?

The problem with forebearance is that it either begets more forebearance or collapse.If I were a mortgage holder watching others get et off not paying,I'd be temtped to stop paying

https://wolfstreet.com/2021/03/24/fha-mortgage-delinquencies-hit-17-5-in-30-metros-over-20-the-other-side-of-the-red-hot-housing-market/

On the other side of the red-hot housing market, a historic delinquency problem has been fermenting since last spring, largely put on ice and on hold by forbearance programs, waiting to be dealt with. The Federal Housing Administration (FHA) which insures nearly 8 million high-risk mortgages, reported that the delinquency rate of its mortgages rose to 17.5% in February, up from 17.0% in January, matching the all-time records of September and November last year, according to the AEI’s Housing Center.

 

Rumors of perma-forbearance are now floating around, given the multiple extensions of the forbearance programs that no one has any political appetite to let expire. But those are just rumors. Eventually, those programs will end, and then the delinquent mortgages will have to be dealt with.

“Seriously delinquent” mortgages – 90 days or more delinquent – in February rose to a record 12.0% for the US overall and to 12.4% for the largest 169 MSAs.

[Hancock]

1 hour ago, sancho panza said:

What sub prime?

The problem with forebearance is that it either begets more forebearance or collapse.If I were a mortgage holder watching others get et off not paying,I'd be temtped to stop paying

https://wolfstreet.com/2021/03/24/fha-mortgage-delinquencies-hit-17-5-in-30-metros-over-20-the-other-side-of-the-red-hot-housing-market/

On the other side of the red-hot housing market, a historic delinquency problem has been fermenting since last spring, largely put on ice and on hold by forbearance programs, waiting to be dealt with. The Federal Housing Administration (FHA) which insures nearly 8 million high-risk mortgages, reported that the delinquency rate of its mortgages rose to 17.5% in February, up from 17.0% in January, matching the all-time records of September and November last year, according to the AEI’s Housing Center.

 

Rumors of perma-forbearance are now floating around, given the multiple extensions of the forbearance programs that no one has any political appetite to let expire. But those are just rumors. Eventually, those programs will end, and then the delinquent mortgages will have to be dealt with.

“Seriously delinquent” mortgages – 90 days or more delinquent – in February rose to a record 12.0% for the US overall and to 12.4% for the largest 169 MSAs.

They just hand the keys back in many US states and walk away from the mortgage, i'd imagine banks are more worried than the person not paying.

Does remind me that i've not seen a repossessed house for sale for several years now. Used to be tell tail signs of taps, toilet etc being tagged ... and also being able to outbid the buyer.

 

 

[sancho panza]

7 hours ago, Hancock said:

They just hand the keys back in many US states and walk away from the mortgage, i'd imagine banks are more worried than the person not paying.

Does remind me that i've not seen a repossessed house for sale for several years now. Used to be tell tail signs of taps, toilet etc being tagged ... and also being able to outbid the buyer.

 

I feel myself going 2008 all over again.

There are 12 non recourse states,which isn't a lot but they contain a few important places from a housing bubble point of view.

Interesign as well that car loans are  non recourse in these states as well.

https://www.creditsesame.com/blog/loans/guide-recourse-non-recourse-loans/

Non-recourse states include Alaska, Arizona, Washington, Utah, Idaho, Minnesota, California, North Carolina, Connecticut, North Dakota, Texas and Oregon.

[Hancock]

48 minutes ago, sancho panza said:

I feel myself going 2008 all over again.

It does have that feeling about it; also a feeling Sunak is going to go to extreme levels for propping up "his" bubble ..... wonder when a new Term Funding Scheme will be along.

[Lightscribe]

15 hours ago, DurhamBorn said:

Private sector wages will have to go up with rising inflation,public sector and welfare will have to lag,by around 20% minimum over the cycle.

Its ironic that the government has given people a taste of what the scroungers have already had.Freedom.That taste will decimate the tax base as it stands.

I envisage there will be a continuation of pay freezes in the public sector or 1% below inflation pay increases just like there has been really since 2008 and the ‘austerity’ years after. The problem is ‘austerity’ is such a dirty word now, managing GDP/deficits/budgets etc is just sooo last decade. We have the NHS, food banks and the teachings of multimillionaire footballers to think about.

An increasingly larger demographic will be reliant on benefits going forward post Covid. Some families will have seen what they can now get compared to working full time in low paid jobs and won’t be going back. Food and energy inflation will be masked somewhat even though benefits themselves may freeze or increase below inflation with the government benefit add-ons i.e. Food vouchers/pre-paid cards and warm home discounts etc.

All this won’t stop the headlines and outcry however. That added on to the PAYE tax base really struggling (and they will be the ones really suffering the most) Private sector costs/salaries may rise, but it’s whether they can be afforded/budgeted for or just be reduced/mothballed. It’s at this point the unrest may start.

Hopefully it will go as we’ve all prepared for on here. The hardship of inflation last seen the 70’s would be the much more preferable outcome compared to the alternative. I personally don’t see a way out other than UBI and continued currency devaluation.

[DurhamBorn]

12 hours ago, Froggy2000 said:

Me too.  For those interested, the link below gives a very in-depth account of the societal impact of inflation.  Both a sudden catastrophic one, and a slower one.  It's amazing, and scary to see how it can touch us in so many ways.

https://recision.files.wordpress.com/2010/12/jens-parsson-dying-of-money-24.pdf

Worth reading for everyone as it shows how these things build with lags.

[sancho panza]

1 hour ago, Lightscribe said:

 Some families will have seen what they can now get compared to working full time in low paid jobs and won’t be going back.

This.I go to a lot of care homes in my work and they're struggling for staff as it is.Quite why the govt is seeking to make that situation worse by insisting on all care workers getting the vaccine despite the fact that the vaccine doesn't affect transmission or prevent infection and loads of them don't want it.

Much like the forebearance issue,when you gone to work throughout this and watched other people sat at home not making mortgage/rent payments,it doesn't incentivize care home workers to do overtime.Anything but.

3 hours ago, Hancock said:

It does have that feeling about it; also a feeling Sunak is going to go to extreme levels for propping up "his" bubble ..... wonder when a new Term Funding Scheme will be along.

Rishi is caught between a rock and hard place.Open up and unemployment will go up,keep the economy shut and unemployment will gradually move up.All the while,the fiscal position is deteriorating to the point that the way out of the hole is just to dig a bigger one.Funding unemployment cheques with debt isn't a plan.

I think the unwind here will be quick and brutal when it eventually comes.

I could say that I feel sorry for Bozza and Rishi but I'd be lying.They've brought this fiasco upon us all.Bungled their way into it,bungled their way through it and look like they're going to bungle their way out of it.

[Yadda yadda yadda]

3 minutes ago, sancho panza said:

Much like the forebearance issue,when you gone to work throughout this and watched other people sat at home not making mortgage/rent payments,it doesn't incentivize care home workers to do overtime.Anything but.

Lack of things to spend overtime wages on must be another factor. Lots have no interest in saving so why work extra hours if that is the only option for the money? Especially when it is all taxed at marginal rate, presumably 32% all in.

Personally I'd gobble up the overtime currently. Swap spare time now when I can't do so much with it for more spare time later when I can.

[sancho panza]

13 hours ago, Froggy2000 said:

Me too.  For those interested, the link below gives a very in-depth account of the societal impact of inflation.  Both a sudden catastrophic one, and a slower one.  It's amazing, and scary to see how it can touch us in so many ways.

https://recision.files.wordpress.com/2010/12/jens-parsson-dying-of-money-24.pdf

I've jsut read the foreword and as DB says that looks like one hell of a read.I'll have to set aside some serious time thsi week for reading the whole of it.

Thanks for psoting.

[Lightscribe]

1 hour ago, Yadda yadda yadda said:

Lack of things to spend overtime wages on must be another factor. Lots have no interest in saving so why work extra hours if that is the only option for the money? Especially when it is all taxed at marginal rate, presumably 32% all in.

Personally I'd gobble up the overtime currently. Swap spare time now when I can't do so much with it for more spare time later when I can.

I don’t doubt there will be a mini boom coming out of all of this once restrictions are lifted (‘lifted’ being the word there, as I think restrictions will be with us indefinitely), although this roaring 20’s boom effect will only effect certain areas.

Pubs, bars, restaurants, holidays, weddings, (all those that haven’t gone bust) will be fully booked and packed to the rafters for the foreseeable. The likes of Saville row, Jermyn street and all the city reliant economy won’t fare so well.

No doubt we’ll see wall to wall media coverage marking it as some sort of VE Day. The nation will pat itself on the back thinking it’s all over and splurge out as a way of ‘treating’ themselves after dealing with Covid hardship for so long. Of course we all know the hardship is still to come, and will make sitting at home drinking wine in the garden for over a year seem like... well erm a picnic.

[Harley]

1 hour ago, sancho panza said:

Rishi is caught between a rock and hard place.Open up and unemployment will go up,keep the economy shut and unemployment will gradually move up.All the while,the fiscal position is deteriorating to the point that the way out of the hole is just to dig a bigger one.Funding unemployment cheques with debt isn't a plan.

The Con(ers) need to get the local and assembly elections out of the way first.

[MvR]

16 hours ago, Froggy2000 said:

Me too.  For those interested, the link below gives a very in-depth account of the societal impact of inflation.  Both a sudden catastrophic one, and a slower one.  It's amazing, and scary to see how it can touch us in so many ways.

https://recision.files.wordpress.com/2010/12/jens-parsson-dying-of-money-24.pdf

Brilliant.  Chapter 11, "Inflationary Syndrome"  is an absolute corker!

[JMD]

3 hours ago, Vendetta said:

I’ll be honest though @DurhamBorn I still am not fully sure, (even now after all this reading)’ on how to ‘position’ myself. There are too many uncertainties.

It is not just what to buy but when to buy. 
 

The new financial year starts on April 6th. Compared to last year I am pretty cash rich. If only I’d been in this position last March and April.
 

12 months later and lots of stocks I had put on my watch list have gone up for 50-300%.

Now I have plenty of liquidity and £58k worth of ISA allowance to invest but think that everything is overvalued. 

I want low risk, high yield diversified funds, stocks across sectors and the globe. 

....the terminal inflation, there is faltering prosperity, tightness of money, falling stock markets, rising taxes, still larger government deficits, and still roaring money expansion, now accompanied by soaring prices and ineffectiveness of all traditional remedies.....

 

I agree, as Harley and others here consistently remind/warn, there is little of value to buy out there. I also have lots of cash to allocate, so if we don't get a BK or similar event, then I'm going to really regret not going more into energy, telecoms, PM's. That's with hindsight of course so am not beating myself up over it.                                                                                                                                                                                        Anyway my strategy is to finalise my BK/dave-hunter-50/80%?-down watch list, but i am also going to return to my funds/etf list (mostly international/Asia/EM sectors), which I stopped part-way through competing last year, as I now figure (because I don't have nesecary skills to analyse company financials or debt profiles) its probably better for me to also use appropriately selected reflation oriented type funds. (....i know we don't do share recommendations here, so not to clutter up this thread with endless stock conversation. But if anyone wants to message me and is up for perhaps swopping their personal standby 'bk stock list' that they have maybe done company financial 'deep dives' into, in return for my fund list/bk stocks, I'd be happy to do that, so please do message if interested.)

[Noallegiance]

1 hour ago, MvR said:

Brilliant.  Chapter 11, "Inflationary Syndrome"  is an absolute corker!

It's pretty much nailed on my thinking that I need to be buying a place within the next 18-24 months so it can be inflated away. If a housing correction happens in the mean time it's a Brucie.

Starting to wish I'd mortgaged myself to the eyebrows a decade ago.