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

[Talking Monkey]

30 minutes ago, Harley said:

IMO, there will be capital controls (at least in EU land), a wealth tax, the forced buying of government bonds (even direct confiscation), financial repression via regulation as well as the current indirect forms, higher and more window like taxes, graft on the back of govt interventions, bans on holding certain assets, etc.  Nothing, pensions included, will be safe.  CV has released the genie from the bottle. Prepare right now.

Definitely CV has released the genie from the bottle the speed with which governments around the world have ratcheted up draconian powers is astounding, its only going to continue one way

A big chunk of the prep that a fair few here have done is saving into a SIPP and ISA, with those potentially at risk what other steps could we take. 

[DurhamBorn]

1 hour ago, Harley said:

Precisely.  So many easier and more efficient methods such as a tax rebate (why pay if a business is not producing/declaring tax), and many others. 

Its nuts isnt it Harley.Can you imagine a macro strategist sitting there saying,oh we are in the end off a dis-inflation facing the biggest deflation since the GD.Lets make a complex system to get liquidity out there.A simple tax rebate,refund back last years tax (that also helps genuine over fiddling companies).

[DurhamBorn]

It should be remembered the next cycle will likely be equity based not debt based.Companies will have to raise equity,not debt.That changes the rules.Governments will need to encourage private savings while expanding state debt.

Massive changes ahead,but the only real answer is to inflate.Iv already seen government telling councils to set up their work boards again.That means they are going to go for massive social house building.Maybe rent to buy instead of help to buy.

I think they will go nuclear,maybe even building new arc furnace steel works on Teesside and maybe even ship building returning.

 

[JMD]

12 hours ago, DurhamBorn said:

As @sancho panza has put up in that superb post above,the governments handling of this crisis (and im a Tory voter) has been a disaster.Their schemes are the last throws of a dice first rolled in 1982,but they havent ended up with a double six.A deflation on this scale needs a two pronged assault on the enemy lines.First is needs direct central bank action pumping direct into the capital markets.2nd it needs a massive government fiscal liquidity drop and then a longer term (12-18months of continued fiscal action on a slowly descending line.

The crazy schemes they have come up with are laughable.Me myself will probably get the self employed grant as i had my own business until late last year but have the tax all done.June il get something.June.Sending these loans through the banks is again crazy.Why would banks get involved in such rubbish?.The governments should of cancelled VAT payments and refunded last years tax in a direct transfer.If it carries on repeat.

I agree DB, the government rescue plan is far too complex. I had hopes for Sunak but he now looks pure technocrat to me. I suppose we should also remember that 'his' ideas are in fact coming direct from No 10 (its why Jarvid was forced out for not complying).

But I guess an ex-banker would naturally look to the banks for them to ride to the rescue of the economy - though i note that Chancellor Sunak did say early on that he expected the banks to help because of the bailouts they themselves received in 2008. 

So I wonder is this all charade? Setting false expectations, and narratives, etc. Do you think some banks - if they don't do government bidding - might even get nationalized?  ...and will this just be the start of the power grab? ...after all if it weren't so serious, it is reading like a pulp novel (what with Trump nearly giving away the secret that CV wasn't so bad, then doing a 360), and with Boris returning from his own near death battle with CV to save us all!

[JMD]

1 hour ago, Harley said:

IMO, there will be capital controls (at least in EU land), a wealth tax, the forced buying of government bonds (even direct confiscation), financial repression via regulation as well as the current indirect forms, higher and more window like taxes, graft on the back of govt interventions, bans on holding certain assets, etc.  Nothing, pensions included, will be safe.  CV has released the genie from the bottle. Prepare right now.

Harley, when sensible people like you, start saying things like that, I get more than a little worried! ...I know it's very much part of this blog's thinking and future concern, but I thought/hoped we did have say 8 years or so before most of those things were inflicted on us.

[Majorpain]

1 hour ago, reformed nice guy said:

I agree with you Majorpain.

If you were benevolent dictator for the UK, what would you do to encourage UK industry to embrace AI + automation faster?

Thats an interesting question, unfortunately its a lot more complex than that!  IMO the UK isn't currently geared towards enabling the sort of foundations to properly harness the benefits, and its the sort of thing best done in a time of flux.  The problem is less the technology and financing of it, its more what you do with the resulting unemployed?  Since the Tories find themselves in a 1980's scenario (deja vu), only its baristas, dog walkers and part time tax credits not heavy industry, now is not a bad time IMO.

Short term

Dont repeat the mistakes of the 1980's and leave the people who are about to inevitably lose their jobs to fend for themselves, even throwing "the dog walkers a bone" with a VAT refund would at the very least give some political breathing space so they can retrain to something productive.  Its about rebalancing the economy with as little pain as possible and setting as firm a foundation for later

Medium term

Root and branch review of the UK economy, how many people are actually productive and how many are leeches.  Investigate what areas of the UK are and more importantly could be competitive at what industries and how much government support they would require on an "Return on investment" basis.  Im not suggesting Chinese levels of support, but a complete hands off approach hasn't exactly provided a stable base to build on.  Technical colleges and the like are already on the government agenda which is another big part of ensuring people have the skills for the 21st century, not just engineering but also the fundamentals of efficient production etc.  Regarding shipbuilding if you compare Chantiers de l'Atlantique or Hyundai Heavy Industries to Harland and Wolff on a 1950 to now timescale, you get just how badly wrong the UK got it.

Long term

Investment in areas identified, ongoing collection of data to ensure that as many people as possible are productive and contributing to society.  That's the only real way of ensure long term prosperity IMO.

These sort of periods dont come around very often, the rules of the game have been reset for all participants (see 1800's and 1980's) and its important that any benefits can be harnessed if possible.

[Talking Monkey]

38 minutes ago, JMD said:

I agree DB, the government rescue plan is far too complex. I had hopes for Sunak but he now looks pure technocrat to me. I suppose we should also remember that 'his' ideas are in fact coming direct from No 10 (its why Jarvid was forced out for not complying).

But I guess an ex-banker would naturally look to the banks for them to ride to the rescue of the economy - though i note that Chancellor Sunak did say early on that he expected the banks to help because of the bailouts they themselves received in 2008. 

So I wonder is this all charade? Setting false expectations, and narratives, etc. Do you think some banks - if they don't do government bidding - might even get nationalized?  ...and will this just be the start of the power grab? ...after all if it weren't so serious, it is reading like a pulp novel (what with Trump nearly giving away the secret that CV wasn't so bad, then doing a 360), and with Boris returning from his own near death battle with CV to save us all!

That was quite something, it was spun as if he was at deaths door and could potentially cark it, then 4 days later he is back in the public eye, 

[C-gull]

So can I ask a dumb question. If you had 5k to try and buy a bit of the bargains floating around today, how would you allocate it? Oil, telco, PMs seem to be popular but is there anything more specific anyone would be willing to suggest I take a specific look at? I struggle to keep up on this thread but have a horrible sense of fomo

[JMD]

1 hour ago, Long-game said:

Funny how they only went back 5 years, the way they have misused statistics and ineffective modelling which fucked up overestimating with aids, swine flu and new variant cjd has been irresponsible imho. Until unfortunately we have higher herd immunity we are fucked, the elderly and vulnerable should have been sheltered and the rest particularly young kids should have developed immunity. 

Those were my exact thoughts from the start. Oh and hands off the economy. I know it was supposedly all about 'flattening the curve' - but was it really, and the irony(?) is that the exit strategy now looks like it will leave the elderly/vulnerable groups in situ for next 6 months in any case. 

(...and I know I keep banging on about it!, but that clumsy/stupid/non-politician(select which ever fits your sensibilities) Trump did let the cat out the bag early on (before he did a u-turn) when he posited CV was 'not going to be that bad'... I know Trump says plenty of other stupid things all the time, but for the purposes of this blog, lets at least say it was an interesting intervention) 

[Don Coglione]

2 hours ago, Harley said:

IMO, there will be capital controls (at least in EU land), a wealth tax, the forced buying of government bonds (even direct confiscation), financial repression via regulation as well as the current indirect forms, higher and more window like taxes, graft on the back of govt interventions, bans on holding certain assets, etc.  Nothing, pensions included, will be safe.  CV has released the genie from the bottle. Prepare right now.

Shit, I had better buy a house!

[sancho panza]

I'd be interested to know what's happening in the car leasing/PCP market.

https://propertyindustryeye.com/1-2-million-customers-on-mortgage-payment-holiday-from-lenders/

UK Finance, which represents some 250 firms in the finance and banking industries, revealed yesterday that Lenders have provided over 1.2 million mortgage payment holidays to households whose finances have been impacted by Covid-19.

On 17 March mortgage lenders announced they would support customers facing financial difficulties due to the Covid-19 crisis.

This action means that, now, one in nine mortgages in the UK is subject to a payment holiday.

For the average mortgage holder, the payment holiday amounts to £260 per month of suspended interest payments, with many benefitting from the option of extending the scheme for up to three months.

The number of mortgage payment holidays in place more than tripled in the two weeks between 25 March and 8 April, growing from 392,130 to 1,240,680.

 

https://propertyindustryeye.com/could-more-than-2-million-tenants-struggle-to-pay-their-rent/

A survey of over 1,000 renters conducted by flatsharing portal, ideal flatmate, has laid bare a potential collision course set to develop between tenants and their landlords and highlights the vulnerable financial position of tenants across the UK.

According to the poll as many as 40% of current renters have seen their ability to pay rent hit by the coronavirus crisis. There are currently 5.8m households in the private rented sector, implying 2.32m could be struggling to pay their rent in the months ahead. According to the Office for National Statistics, those privately renting spend 34% of their gross household income on rent and with the hit to incomes being experienced by millions across the UK it is perhaps no surprise that housing payments are under threat.

The study found that not being able to keep up with rental payments was the number one concern of current tenants, with the ability to pay council tax, financial instability, and ‘survival’ also being cited as key areas of fear during the epidemic.'

 

 

[JMD]

1 hour ago, DurhamBorn said:

It should be remembered the next cycle will likely be equity based not debt based.Companies will have to raise equity,not debt.That changes the rules.Governments will need to encourage private savings while expanding state debt.

Massive changes ahead,but the only real answer is to inflate. Iv already seen government telling councils to set up their work boards again.That means they are going to go for massive social house building. Maybe rent to buy instead of help to buy.

Very interesting DB, and for me (or is my thinking wrong here?) the introduction of work boards, would imply more local/mid cap company involvement. i.e. the likes of Barrets, etc are frozen out as being too expensive for what they deliver.

I admit I don't really know the housing sector, but might there say be new investment opportunities in the smaller/regional builders? Or would the council work board function be to hire thousands of UK subcontractors/EU skilled labourers and then to project manage the construction work? Any one care to comment as i'd really like to understand how this work board model might work, not only housing of course, but for other sectors as well.

 

[Harley]

1 hour ago, DurhamBorn said:

Its nuts isnt it Harley.Can you imagine a macro strategist sitting there saying,oh we are in the end off a dis-inflation facing the biggest deflation since the GD.Lets make a complex system to get liquidity out there.A simple tax rebate,refund back last years tax (that also helps genuine over fiddling companies).

I seemed to have finally snapped today.  Stuff like this, CV, and now HS2.  At a micro level, add my call to the doctor's yesterday to see what precautions they have in place to collect prescriptions, including whether they are providing more than a month's supply at a time (answer "no").  This country is stuffed with incompetents or graft.  They are not our friends and cannot be relied upon.  What to do?  Get as far out of the matrix as you can.  Leave and/or leave as little for them as possible.

[JMD]

51 minutes ago, Majorpain said:

Thats an interesting question, unfortunately its a lot more complex than that!  IMO the UK isn't currently geared towards enabling the sort of foundations to properly harness the benefits, and its the sort of thing best done in a time of flux.  The problem is less the technology and financing of it, its more what you do with the resulting unemployed?  Since the Tories find themselves in a 1980's scenario (deja vu), only its baristas, dog walkers and part time tax credits not heavy industry, now is not a bad time IMO.

Short term

Dont repeat the mistakes of the 1980's and leave the people who are about to inevitably lose their jobs to fend for themselves, even throwing "the dog walkers a bone" with a VAT refund would at the very least give some political breathing space so they can retrain to something productive.  Its about rebalancing the economy with as little pain as possible and setting as firm a foundation for later

Medium term

Root and branch review of the UK economy, how many people are actually productive and how many are leeches.  Investigate what areas of the UK are and more importantly could be competitive at what industries and how much government support they would require on an "Return on investment" basis.  Im not suggesting Chinese levels of support, but a complete hands off approach hasn't exactly provided a stable base to build on.  Technical colleges and the like are already on the government agenda which is another big part of ensuring people have the skills for the 21st century, not just engineering but also the fundamentals of efficient production etc.  Regarding shipbuilding if you compare Chantiers de l'Atlantique or Hyundai Heavy Industries to Harland and Wolff on a 1950 to now timescale, you get just how badly wrong the UK got it.

Long term

Investment in areas identified, ongoing collection of data to ensure that as many people as possible are productive and contributing to society.  That's the only real way of ensure long term prosperity IMO.

These sort of periods dont come around very often, the rules of the game have been reset for all participants (see 1800's and 1980's) and its important that any benefits can be harnessed if possible.

Majorpain I do agree with what you've said. For some time I've been meaning to research more about how Singapore works - ok, its much smaller - but its also a very tech-driven, with a planned economy capitalist system, and its an ex-British colony.

Perhaps after we trim N. Ireland, Wales and Scotland from the 'United' Kingdom the Singapore model might just scale! Boris has even joked in the past about Britain becoming a Singapore-on-Thames post Brexit. Was that merely jest I wonder?   

[Bricormortis]

1 hour ago, DurhamBorn said:

It should be remembered the next cycle will likely be equity based not debt based.Companies will have to raise equity,not debt.That changes the rules.Governments will need to encourage private savings while expanding state debt.

Massive changes ahead,but the only real answer is to inflate.Iv already seen government telling councils to set up their work boards again.That means they are going to go for massive social house building.Maybe rent to buy instead of help to buy.

I think they will go nuclear,maybe even building new arc furnace steel works on Teesside and maybe even ship building returning.

 

What we need is Durham Born for Chancellor.

[Harley]

2 hours ago, Long-game said:

Funny how they only went back 5 years

What's the difference between an accountant and a bookkeeper?  The bookkeeper gives you the number while an accountant first asks what number you want.  They're all accountants now! 

[JMD]

1 hour ago, Talking Monkey said:

That was quite something, it was spun as if he was at deaths door and could potentially cark it, then 4 days later he is back in the public eye, 

True, but don't get me wrong I do think that Boris was i'll, he certainly looked so in the No. 10 doorway whilst clapping the NHS. It's just that everything seems to be falling into place so very neatly.

But for light hearted comment only, as this is a serious forum, so purely as an after thought - i'd want to know what those two nurses that Boris raved about were doing a few years down the line. The nurses apparently stayed awake by his bedside (were on guard?) for a full 48 hours! One was Portuguese, the other was from NZ. Now if we found out that they ended up running their own care homes, or something else more lucrative, i'd start to become suspicious!

[Harley]

1 hour ago, JMD said:

Harley, when sensible people like you, start saying things like that, I get more than a little worried! ...I know it's very much part of this blog's thinking and future concern, but I thought/hoped we did have say 8 years or so before most of those things were inflicted on us.

8 years?  Alas no way, even without CV.  The start (just the start) is now months away.  It will be CV2.  The dumb and envious will cheer until they then come for them.  The connected spivs will make out like bandits on speed and the last remaining quaint notions of "England" will go the same way as have its bobbies and other institutions.  The middle class will go the same way as their Latin American cousins.  Get an Argentinian pen pal if you are an optimist wanting to prepare, else get a Venezuelan one!

PS:  Before CV, given the decades of under-performance topped off with Brexit, our non performing "democratic" institutions were under threat.  They're now going to fight back.  Our collective dissonance will be like CV.  This is the socio-political backdrop against which this thread may play out.  A Russian doll where this thread sits inside another.

[Sasquatch]

8 minutes ago, Harley said:

8 years?  Alas no way, even without CV.  The start (just the start) is now months away.  It will be CV2.  The dumb and envious will cheer until they then come for them.  The connected spivs will make out like bandits on speed and the last remaining quaint notions of "England" will go the same way as have its bobbies and other institutions.  The middle class will go the same way as their Latin American cousins.  Get an Argentinian pen pal if you are an optimist wanting to prepare, else get a Venezuelan one!

Christ! I just need to get my house sold and then I can move north and live in DB's shed....

[janch]

34 minutes ago, Harley said:

Get as far out of the matrix as you can.  Leave and/or leave as little for them as possible.

Definitely.  I've been doing this for years as far as I can although the ideal would be to go completely off-grid.

I have as little contact as possible with big companies and have cancelled things like contents insurance having paid in for years and never made a claim  (watch me have a disaster now!).

I rarely phone them if it's possible to avoid it.  I pay my bills in arrears as far as possible.  Why pay a direct debit for power when they keep the excess in their coffers rather than mine? Keep everything as simple as possible.  Its so much less stressful apart from anything else. 

 

[janch]

I'm confused..........I was expecting the dollar might weaken after all the FED pumping but DXY is nearly 100 with the pound at $1.24 ish.  Is it because of all the doom and gloom and the dollar is a safe haven?  Or have the FED not printed enough to "right-size" yet?  Or anything else?

What does the road map say for the longer term? I feel all at sea right now

[MvR]

3 hours ago, Harley said:

IMO, there will be capital controls (at least in EU land), a wealth tax, the forced buying of government bonds (even direct confiscation), financial repression via regulation as well as the current indirect forms, higher and more window like taxes, graft on the back of govt interventions, bans on holding certain assets, etc.  Nothing, pensions included, will be safe.  CV has released the genie from the bottle. Prepare right now.

Sensible.

One thing I'd consider for investment shares I planned to hold for the long term would be to convert them to certificated shares and take them out of my broker's hands. My own holdings are too small to be worth it, but if I had say £5000 or more in an individual stock I wanted to keep, I'd definitely get the certificates.

Not that I'm particularly worried about my brokers.. Interactive Brokers seems very stable and secure, and the elites need functioning financial markets ( including brokerage services ) to be able to take advantage of opportunities, but you never know.

In the meantime,  "stuff I'll need anyway" / tools / spares etc, are moving up my list of investment priorities. Some of these things could get very cheap in a debt deflation, but some won't, and I'm at an age where I won't need to buy these things again if I buy quality now. ( currently eyeing up a DeWalt 7492 table saw ).

[Shamone]

5 hours ago, NogintheNog said:

That 'age group' also worked through an era where benefits and tax credits were a fraction of those on offer today, many of them worked through a career on low wages bringing up families and struggled to save much money before retiring. The 'entitled' are the ones sitting on tax credits and benefits now who have never paid a penny into the tax system.

By all means get rid of the triple lock, but get rid of the benefit payments too.

I think that’s a great idea, actually. And means test the state pension, since that is also a benefit.

[Ellandback]

15 hours ago, Loki said:

A 'Dave H' podcast that supports the idea of a crash later this year (I haven't listened yet)

https://contrarianpod.com/content/podcasts/season2/market-melt-up-will-continue-until-late-summer-before-onset-of-global-deflationary-bust/

Cheers, a great listen, he makes a compelling case for the final melt-up, God I hope he's right. First time I've heard him in conversation, comes across rather brusk on Twitter but he seems quite an affable chap.

[JMD]

1 hour ago, Harley said:

I seemed to have finally snapped today.  Stuff like this, CV, and now HS2.  At a micro level, add my call to the doctor's yesterday to see what precautions they have in place to collect prescriptions, including whether they are providing more than a month's supply at a time (answer "no").  This country is stuffed with incompetents or graft.  They are not our friends and cannot be relied upon.  What to do?  Get as far out of the matrix as you can.  Leave and/or leave as little for them as possible.

Your 100% right Harley, but don't beat yourself up. In fact my sister is going though something similar with her serious foot operation being postponed indefinitely due to the CV, so hobbling about with pain for next 6 months probably. The system (in this case the NHS) is run centrally and is just too big to run properly. It reminds me of the massive tractor factories that the old USSR operated...!? 

The situation was that their tractor industry was measured in terms of tractor production, so not only were the tractor factories far too huge and inefficient, vainly dreamt up by Beaurocrats in Moscow, but the whole industry was measured only in terms of the absolute number of tractors produced. i.e. didn't matter how reliable the tractors were, only that the political and centrally set production targets were met. It got so crazy that when a tractor did break down, there were no spare parts to fix it - because having such spares (or operating a spares 'supply chain', hmm sounds familiar?) would detract from producing new tractors. So instead, the farmer would be sent a new tractor, whilst his old tractor was left to rust in the field where it had broken down.

This is the type of story I used to laugh at thinking rather arrogantly that we in the West did things so much better - economically, politically, socially. I guess the more things change the more things (the matrix as you term it) stays the same. Oh dear Harley, the intention was to cheer you up, but not sure now i've written down this rather pitiful story of failed Soviet 5-year plans, how it could possibly have done so!