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

[sancho panza]

Economics professorr from the USA outlines some of the issues the bail out will face,intersting use of the term 'reconstruction'.Also BC/AC which suitably demonstrates the concept that what may have been viable before it,may not be viable thereafter

hattip dimartino booth twitter feed

http://sites.bu.edu/perry/2020/03/26/a-money-view-of-the-pandemic/

The underlying challenge is that the future toward which we were building before the coronavirus is not the future toward which we will be building after the coronavirus (BC and AC respectively).  Businesses and business models that were great BC may not be so great AC, and businesses and business models that did not even exist BC may be great AC.  Same goes for jobs.  We’ve turned off the economy temporarily, in order to fight the public health fight, but turning the economy back on will not be so simple because it will not be simply a return to status quo ante, but rather a process of reconstruction analogous to the aftermath of war.

But in the longer run what is important is reconstruction, which means finding new sources of cash inflow, and in many cases that means reallocation of productive resources.  Crony capitalism is the biggest danger we face, bailing out BC businesses rather than building AC businesses, simply because that is where the pressure and political clout is.  The strength of future economic recovery will depend on how effective is the economic reconstruction today.

After WWII, starting April 1948 the Marshall Plan played a critical role in restarting the economies of Europe.  The legislation approving the Plan took months to prepare, as each European country had to come up with their own plan and then all the plans made consistent and trimmed to the likely size of Congressional appetite.  And once the money was approved, an entire apparatus had to be built to distribute and manage.  That was the OEEC, which morphed in 1961 into the OECD.  It worked.

The Fed’s actions of March 15 and subsequent days have bought us some time, and now the Treasury a bit more.  The challenge will be for each and every one of us, individually and collectively, inside the United States and outside in the global dollar system more generally, to use that time to put in place the foundations of an AC economy.

[TheCountOfNowhere]

8 hours ago, BadAlchemy said:

Count, I think you meant to put that in the off topic Coronavirus forum? I'm trying to listen to what the grown ups here have to say about "Credit deflation and the reflation cycle to come" (it's the thread title). We are fully aware that people are dying. And we know TPTB will never let a good crisis go to waste if it can cover their arses. We know all that. So can we "keep it macro" here please as another poster recently said. Thankyou.

No, I meant to put it here.  The bad news seems to be good news for the money men.

You should act on that, not be a rude twat.

[Don Coglione]

8 hours ago, sancho panza said:

iirc brokers all need to have reisnurance to operate so your cash is coevered by the fscs but your holdings are covered by their reinsurance.If they go under that could take some time.

I'd stay with teh big brokers but we still use a small local one because the serivce is super but it does carry risk.They all do.

MF global took about 2 years and customers got 93% of their moeny back.Generally,brokers that jsut broke shoudl be ok,it's the ones with derivatives trading arms that have the tendency to go pop up boom.DYOR

Thanks, sancho.

[Castlevania]

10 hours ago, sancho panza said:

iirc brokers all need to have reisnurance to operate so your cash is coevered by the fscs but your holdings are covered by their reinsurance.If they go under that could take some time.

I'd stay with teh big brokers but we still use a small local one because the serivce is super but it does carry risk.They all do.

MF global took about 2 years and customers got 93% of their moeny back.Generally,brokers that jsut broke shoudl be ok,it's the ones with derivatives trading arms that have the tendency to go pop up boom.DYOR.

I don’t think the reinsurance part applies to  someone like Hargreaves Lansdown. My understanding is that your assets including cash balances are pooled. If your assets are worth more than £85k then you will end up contributing for any shortfall in the value of the assets held to cover liabilities in the administration.

Ironically, you have better protection with the spread betting companies, who have to hold your funds in segregated bank accounts that they can’t touch.

[Bricks & Mortar]

A bigger OPEC.

Could just be the equivalent of a 'trade talks going well' tweet, I suppose.

https://www.reuters.com/article/us-oil-opec-russia-rdif-exclusive/exclusive-russia-calls-for-new-enlarged-opec-deal-to-tackle-oil-demand-collapse-idUSKBN21E13T

[Don Coglione]

54 minutes ago, Castlevania said:

I don’t think the reinsurance part applies to  someone like Hargreaves Lansdown. My understanding is that your assets including cash balances are pooled. If your assets are worth more than £85k then you will end up contributing for any shortfall in the value of the assets held to cover liabilities in the administration.

Ironically, you have better protection with the spread betting companies, who have to hold your funds in segregated bank accounts that they can’t touch.

Thanks to you too, Castlevania.

In these crazy times, it would seem prudent, in light of the above, to open up S&S ISAs with different platforms, to afford a level of protection, which is a massive pain in the arse.

What happens when the cunningly-selected reflation stocks ten-bag???

[Loki]

5 minutes ago, Ponty Mython said:

Thanks to you too, Castlevania.

In these crazy times, it would seem prudent, in light of the above, to open up S&S ISAs with different platforms, to afford a level of protection, which is a massive pain in the arse.

What happens when the cunningly-selected reflation stocks ten-bag???

I thought you could only have 1 ISA?

[sleepwello'nights]

17 minutes ago, Castlevania said:

 

Ironically, you have better protection with the spread betting companies, who have to hold your funds in segregated bank accounts that they can’t touch.

This is what Vanguard have to say:

Your investments are held separately from Vanguard's own investments and are therefore not part of our balance sheet. All funds are registered in a nominee account and held in accordance with FCA rules. All money we hold for you is held in trust accounts with an authorised bank in accordance with FCA rules.

The segregation of your funds and money from Vanguard's own assets means that, in the unlikely event of Vanguard becoming insolvent, an insolvency practitioner would be able to identify assets held by investors and make sure they are returned to them as quickly as possible or transferred to another provider.

I also had a small balance of investments with a brokerage firm that was ordered to close by the FCA. I had my assets returned in full, it wasn't much. I think my holding was a scrip issue from a holding I'd sold. Anyway from what the deluge of emails from the administrator said there were only a small minority of investors who had any losses. 

[Cosmic]

5 minutes ago, Loki said:

I thought you could only have 1 ISA?

No. You can only fund one S&S ISA per year, but you can open up a new one on April 6th and fund it with that years allowance leaving the previous year(s) as it was, or transfer it (not so easy with S&S).

[sleepwello'nights]

6 minutes ago, Loki said:

I thought you could only have 1 ISA?

You can only open one in any one year. So you can open one with a different provider every year if you want.

[Loki]

1 minute ago, Cosmic Apple said:

No. You can only fund one S&S ISA per year, but you can open up a new one on April 6th and fund it with that years allowance leaving the previous year(s) as it was, or transfer it (not so easy with S&S).

  

Just now, sleepwello'nights said:

You can only open one in any one year. So you can open one with a different provider every year if you want.

 

 

That's really good to know thanks

Nice problem to have!

[Bricks & Mortar]

57 minutes ago, Cosmic Apple said:

No. You can only fund one S&S ISA per year, but you can open up a new one on April 6th and fund it with that years allowance leaving the previous year(s) as it was, or transfer it (not so easy with S&S).

After April 6th, can i still fund last years, if I haven't hit the limit?

[Cosmic]

Just now, Bricks & Mortar said:

After April 6th, can i still fund last years, if I haven't hit the limit?

No if you don't fully fund this years you will lose the excess allowance. Any funds added after the 6th will count to your 20-21 allowance.

[Majorpain]

2 hours ago, Castlevania said:

I don’t think the reinsurance part applies to  someone like Hargreaves Lansdown. My understanding is that your assets including cash balances are pooled. If your assets are worth more than £85k then you will end up contributing for any shortfall in the value of the assets held to cover liabilities in the administration.

Ironically, you have better protection with the spread betting companies, who have to hold your funds in segregated bank accounts that they can’t touch.

Investments and cash are treated separately, II do the following:

Cash is spread across many banks, so you are protected to £85k x Number of banks.  I think its 5 off the top of my head so £425k.

Investments are held in trust in a nominee account sepearate from the actual company, MF Global's crime was they raided the nominee account to pay for their own losses so its not 100% but probably 99% secure.

DYOR as ever as different brokers have different structures.

[Talking Monkey]

12 hours ago, sancho panza said:

iirc brokers all need to have reisnurance to operate so your cash is coevered by the fscs but your holdings are covered by their reinsurance.If they go under that could take some time.

I'd stay with teh big brokers but we still use a small local one because the serivce is super but it does carry risk.They all do.

MF global took about 2 years and customers got 93% of their moeny back.Generally,brokers that jsut broke shoudl be ok,it's the ones with derivatives trading arms that have the tendency to go pop up boom.DYOR

 

Agreed on the MSM setting the pace of change.SOme of the journos have been pushing Boris to crack down since this crisis began.

 

Just watched TV and there's Asst Chief Constables on telling people not to go for dog walks in the countrysdie or face arrest.Neither liberal or libertarian imho.Depends which way this crisis breaks but Boris has ignored some rather well educated advice on the crisis thus far.

That AYn Rand quote is an absolute beauty.

I decided to go with Hargreaves for the SIPP and interactive investor. Hargreaves say they don't trade for their own account which was a big plus point

[TheCountOfNowhere]

https://www.telegraph.co.uk/business/2020/03/27/markets-live-latest-coronavirus-news-pound-euro-ftse-100/

 

Europe slumps after EU leaders fail to agree on stimulus package

[Bricks & Mortar]

1 hour ago, Cosmic Apple said:

No if you don't fully fund this years you will lose the excess allowance. Any funds added after the 6th will count to your 20-21 allowance.

So, if I understand this;
It's the amount of funds you can add, (20,000) - not that you need to have a new ISA for a new year?  If I've added, say 10,000 this year, I can add another 20,000 to the same ISA next year?  Or do I need a new ISA?  Would I still need a new ISA if I only planned to add 5000 next year?

[Cosmic]

4 minutes ago, Bricks & Mortar said:

So, if I understand this;
It's the amount of funds you can add, (20,000) - not that you need to have a new ISA for a new year?  If I've added, say 10,000 this year, I can add another 20,000 to the same ISA next year?  Or do I need a new ISA?  Would I still need a new ISA if I only planned to add 5000 next year?

You can add your new 20-21 allowance to the old ISA. Its generally not going to be a good idea to open new ISAs each year and spread funds around too much if you pay a fixed fee or have a fee structure that is capped (like AJBell is .25% capped at £7.50 a quart), but you should perhaps consider it when you have several years full allowance and are considering your institutional risk.

The whole new ISA each year comes from Cash ISAs where you'd get a nice rate the first year and then they'd drop, so you'd start a new one the next year and roll your old ones in to it. Back when you could get interest on cash and the allowance was £3,600.

[NogintheNog]

https://pensioncraft.com/how-many-isas-can-i-have/

You can open more than one isa in a year, just not the same type twice. You can then transfer in and out of the various isas whilst maintaining the tax advantage.

[NogintheNog]

3 hours ago, Bricks & Mortar said:

A bigger OPEC.

Could just be the equivalent of a 'trade talks going well' tweet, I suppose.

https://www.reuters.com/article/us-oil-opec-russia-rdif-exclusive/exclusive-russia-calls-for-new-enlarged-opec-deal-to-tackle-oil-demand-collapse-idUSKBN21E13T

Who is gonna blink first.....

[janch]

1 hour ago, Talking Monkey said:

Just watched TV and there's Asst Chief Constables on telling people not to go for dog walks in the countrysdie or face arrest.Neither liberal or libertarian imho.Depends which way this crisis breaks but Boris has ignored some rather well educated advice on the crisis thus far.

In accordance with the DOSBODS tight-wad principles I'm in the habit of a daily walk to the shops (obviously no-longer daily) and to pick up a FREE Metro from the station en route.  The police were out yesterday stopping everyone going into the station to see where they were going and to see if their journey was necessary.

I was informed that posting one letter and picking up the Metro did not constitute an "essential journey".  Are we no longer allowed a daily walk?  Does everything we do have to be essential?

This is beyond heavy-handed.

[Bricks & Mortar]

Just now, Cosmic Apple said:

You can add your new 20-21 allowance to the old ISA. Its generally not going to be a good idea to open new ISAs each year and spread funds around too much if you pay a fixed fee or have a fee structure that is capped (like AJBell is .25% capped at £7.50 a quart), but you should perhaps consider it when you have several years full allowance and are considering your institutional risk.

The whole new ISA each year comes from Cash ISAs where you'd get a nice rate the first year and then they'd drop, so you'd start a new one the next year and roll your old ones in to it. Back when you could get interest on cash and the allowance was £3,600.

Thanks.  For a moment there, I thought it was all going to get complicated.  Opened my first in April last year.  And successfully navigated to just above break-even.  For which, given the events of the last month or two, I'd like to thank all contributors to this thread for their opinions, which I've borne in mind when making decisions.

 

[sancho panza]

4 hours ago, Castlevania said:

I don’t think the reinsurance part applies to  someone like Hargreaves Lansdown. My understanding is that your assets including cash balances are pooled. If your assets are worth more than £85k then you will end up contributing for any shortfall in the value of the assets held to cover liabilities in the administration.

Ironically, you have better protection with the spread betting companies, who have to hold your funds in segregated bank accounts that they can’t touch.

I specifically checked this issue with my small broker and they had reinsurance in the case of failure up to £1mn.Having said that,one reason we use them is to certificate all UK based FTSE 100 trades(long term holds),which obviously protects us from their failure.

On the matter of the FSCS it looks like your right in terms of the cash/stocks being pooled.

https://moneyweek.com/488411/paying-to-get-your-shares-back

However, the latest stockbroker collapse has flagged up a risk that many investors may not have been aware of. Broker Beaufort Securities was shut down by the UK financial regulator, the Financial Conduct Authority (FCA), in early March, after the US authorities charged the company with being involved in fraud and money laundering. PricewaterhouseCoopers, the administrator, reckons that in a worst-case scenario it could take up to four years, and cost up to £100m, to return the £550m in cash and assets held by clients of Beaufort. The obvious question is: who foots the bill?

And the answer, at least in part, is Beaufort's private-investor clients. While creditors have no claim on these assets, the FCA's special administration scheme means that administrators can cover their costs out of clients' money. To be specific, around 700 customers (out of 15,000) with portfolios worth more than £150,000 could endure haircuts of as much as 40%.

As for brokers, if yours goes bust (assuming it is based in the UK overseas brokers will fall under different compensation schemes, assuming there is one at all) and there is a shortfall in client assets ie, money that should be in a segregated account turns out not to be then the FSCS will pay out up to £50,000 per client (not per account) to top up whatever can be recovered from the broker.

So if a broker owes you £70,000, but you only get back £40,000, you should be entitled to another £30,000 from the FSCS. However, if you have two accounts with the same broker holding £70,000 and £80,000 and you get back £40,000 in each, the FSCS will pay you a maximum of £50,000 leaving you £20,000 short.

 

[NogintheNog]

Oil back down to $21. Historically inflation adjusted back to late 90's price. I think there is further to go, maybe DB will be right again with his $10 call!

[leonardratso]

yers, might suspend my monthly buy up out another week and roll them on as it gets worse.