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

[sancho panza]

18 minutes ago, Harley said:

Sorry about that:

Rebel Capitalist: https://feeds.simplecast.com/xOsRQ_c8

 

Cheers Harley.

Very much so.Harks back to the comment that CP made a while back that it was a 2% drop in supply that led to the spike in 2007/8 but rather the perception of it.SImilarly,like Williams is saying,it's the perception with regard to price inflation.People have had a taste of the hard choices pertaining to scarcity and likeyou,I think that whilst it's not been the suoer tanker hasnt competed it's eight mile turn,it's defin itely begun it.

Very much the same with job insecurity.MRs P 12 years younger than me,never known a time for unemployment like the 1990's .This covid epsiode has given people the realistic prospect of seeing people close to them lose their income.Game changer imho.

[DurhamBorn]

https://www.dailymail.co.uk/money/markets/article-8523327/Budget-defecit-400bn-year-cost-pandemic-spirals.html

I think it might of been at the start of this thread or just after i said i expected £700 billion+ from the BOE to be printed to make up for the dis-inflation since 1982.

Roll to today and now the OBR is saying it might be a deficit of £660 billion.

So its looking like my macro numbers on this before any of this happened were bang on the money for the scale.

It should be noted that £700 billion is the dis-inflation printed back,thats the tipping point for a reflation to really go full on.

A few bad hits mixed in but portfolio is flying now with the profits far outweighing the laggards and whacks in some areas.I keep tilting towards the areas to soak this inflation ahead.

As Harley says,value is hated and such a small part of the markets,but inflation will unleash it and remember this.Liquidity simply moves.There is a massive amount of liquidity in big tech and gilts/treasuries etc.When it smells inflation the scale of buying in inflation assets will create a bubble in many areas.

Potash 5x

Oil 5x

Silver 10x

Gas 4x

Telcos 3x+divs

Government is in a huge hole.They have taxed the decent to death and allowed a massive client state to develop that now can not be paid for.Not even close.The structural deficit is probably £160 billion and growing.

[Harley]

2 hours ago, DurhamBorn said:

Government is in a huge hole.They have taxed the decent to death and allowed a massive client state to develop that now can not be paid for.Not even close.The structural deficit is probably £160 billion and growing.

That leaves, apart from the printing, pensions, negative rates and other financial repression, wealth (ISAs, second homes, etc), and bust ups with the public sector and client state.  Maybe even a tax on world income regardless of residency like for the Americans.  Not a nice place to be living in terms of service delivery, standards of living, security, and manipulated social and intergenerational strife.  Hopefully the music will be good though like last time, indeed better as this will be worse.

[wherebee]

4 hours ago, Harley said:

That leaves, apart from the printing, pensions, negative rates and other financial repression, wealth (ISAs, second homes, etc), and bust ups with the public sector and client state.  Maybe even a tax on world income regardless of residency like for the Americans.  Not a nice place to be living in terms of service delivery, standards of living, security, and manipulated social and intergenerational strife.  Hopefully the music will be good though like last time, indeed better as this will be worse.

The first sniff of this and my British passport goes in the bin.  I was expecting it at some point, but not yet....

[MrXxxx]

4 hours ago, Harley said:

apart from the printing, pensions, negative rates and other financial repression, wealth (ISAs, second homes, etc),

Yes, my `ears pricked` last night when I heard mention of CGT being a target...makes S&S ISAs even more valuable, until they stop them.

[MrXxxx]

2 minutes ago, wherebee said:

The first sniff of this and my British passport goes in the bin.  I was expecting it at some point, but not yet....

Can someone explain this tax implication...is it that you get taxed regardless of where you are domiciled, and so based on your citizenship?....if so, any other nations have  this policy?

[nirvana]

2 minutes ago, MrXxxx said:

is it that you get taxed regardless of where you are domiciled, and so based on your citizenship?....if so, any other nations have  this policy?

yup.apparently the Yankees go after you for tax anywhere in the world if you're a US citizen! you can run but you cannot hide 

[Castlevania]

3 minutes ago, 5min OCD speculator said:

yup.apparently the Yankees go after you for tax anywhere in the world if you're a US citizen! you can run but you cannot hide 

Yeah. Boris Johnson ended up having to pay CGT on the sale of his main home to Uncle Sam.

[nirvana]

there's an interesting debate about whether 'personal tax' is legal is the US......it's all to do with the 16th amendment.....

watch Aaron Russo's 'Freedom to Fascism' it's a good watch...

quote 'Through interviews with various individuals including former IRS agents, Russo sets forth the tax protester argument that, "there is no law requiring an income tax", and that the personal income tax is illegally enforced to support the activities of the Federal Reserve System'

[sleepwello'nights]

14 minutes ago, MrXxxx said:

Can someone explain this tax implication...is it that you get taxed regardless of where you are domiciled, and so based on your citizenship?....if so, any other nations have  this policy?

Its complicated, in essence if you are a UK resident you may be liable for CGT on the disposal of overseas assets. Non-residents are liable for CGT on UK assets. You also have to grapple with the concept of "Domicile".

https://www.litrg.org.uk/tax-guides/other-tax-issues/capital-gains-tax/capital-gains-tax-individuals-not-resident-uk#:~:text=CGT generally only applies if you are resident,may be liable to CGT when you return.

[DoINeedOne]

@Harley I think i posted it before but the interview with Grant Williams and Anthony Deden was one i ended up saving a interesting guy not all doom and gloom either

[jamtomorrow]

11 hours ago, Harley said:

Just back from a back breaking day of ground clearance in which one of the podcasts I listened to was:

The Grant Williams Podcast: The End Game Ep. 2 - The Lord Of The Dark Matter:

https://mcdn.podbean.com/mf/web/ep7h9i/TEG_0002.mp3

"The End Game" series of podcasts is, as implied in the title, trying to explore the same themes as this thread!

Thanks @Harley, just caught the first 20 minutes whilst making porridge for the fam, will catch the rest later. A really good listen so far.

I found the bit where they try to reason through how inflation takes off in the *consumer* economy really interesting - it sounded to me like they were standing right next to the door marked "it might not" but didn't see it or want to see it. In particular, why employers will decide to increase wages when there's a glut of employees - that seemed really sketchy to me.

That's not to say I'm an inflation-denier, I just think it's tempting to "fight the last war", which in this case means planning for inflation across most sectors of the economy like before, whereas I see reasons to think it might be anything-but.

Looking forward to hearing the rest, very thought-provoking.

[DurhamBorn]

22 minutes ago, jamtomorrow said:

Thanks @Harley, just caught the first 20 minutes whilst making porridge for the fam, will catch the rest later. A really good listen so far.

I found the bit where they try to reason through how inflation takes off in the *consumer* economy really interesting - it sounded to me like they were standing right next to the door marked "it might not" but didn't see it or want to see it. In particular, why employers will decide to increase wages when there's a glut of employees - that seemed really sketchy to me.

That's not to say I'm an inflation-denier, I just think it's tempting to "fight the last war", which in this case means planning for inflation across most sectors of the economy like before, whereas I see reasons to think it might be anything-but.

Looking forward to hearing the rest, very thought-provoking.

Consumer isnt the driver of inflation in this cycle ahead,thats why everyone is missing whats coming.Governments will drive an industrial recovery cycle and that will cause the inflation as the massive amounts of liquidity in the plumbing starts to move sectors etc and force up velocity.The 5G Huawei was a prime example as blocks pulls things back and all chase the same goals.100% certain BT,Vod and Telefonica told government if they had to replace kit they would need to increase prices and government nodded.The economy simply cant sustain our way of life much longer as far too much investment has flowed east and been consumed.Most economists miss the fact that inflation doesnt tend to run during a consumer cycle,it runs in the rare times between consumer cycles where economies re-tool,re-invest,upgrade capital assets.The consumer will gain from cheap energy in a few cycles time when the capital invested in this one depreciates.

 

[jamtomorrow]

28 minutes ago, DurhamBorn said:

Consumer isnt the driver of inflation in this cycle ahead,thats why everyone is missing whats coming.Governments will drive an industrial recovery cycle and that will cause the inflation as the massive amounts of liquidity in the plumbing starts to move sectors etc and force up velocity.The 5G Huawei was a prime example as blocks pulls things back and all chase the same goals.100% certain BT,Vod and Telefonica told government if they had to replace kit they would need to increase prices and government nodded.The economy simply cant sustain our way of life much longer as far too much investment has flowed east and been consumed.Most economists miss the fact that inflation doesnt tend to run during a consumer cycle,it runs in the rare times between consumer cycles where economies re-tool,re-invest,upgrade capital assets.The consumer will gain from cheap energy in a few cycles time when the capital invested in this one depreciates.

 

It's almost behavioural-science-interesting how economists want to "play" consumer/wage inflation into the game.

Consumer looks perma-screwed to me - when/if b2b velocity takes off, wages are going to be left standing on the tarmac wondering what just happened.

[Majorpain]

Quote

Average realisable precious metal prices in Q2 2020 (which are reported before the deduction of commercial discounts) were $1,826/ounce for gold and $19.8/ounce for silver (Q2 2019: $1,346/ounce for gold and $14.8/ounce for silver). For H1 2020, average realisable precious metal prices were $1,701/ounce for gold and $16.2/ounce for silver (H1 2019: $1,329/ounce for gold and $15.0/ounce for silver).

From the Hochschild Q2 production report, miners which were able to continue producing and are unhedged should have had a bumper quarter.

[Castlevania]

3 hours ago, sleepwello'nights said:

Its complicated, in essence if you are a UK resident you may be liable for CGT on the disposal of overseas assets. Non-residents are liable for CGT on UK assets. You also have to grapple with the concept of "Domicile".

https://www.litrg.org.uk/tax-guides/other-tax-issues/capital-gains-tax/capital-gains-tax-individuals-not-resident-uk#:~:text=CGT generally only applies if you are resident,may be liable to CGT when you return.

It’s a mess. I spent a large chunk of yesterday afternoon trying to interpret the rules and calculate how much CGT I’d owe if I return to the U.K.

[nirvana]

my bullshit detector has been quivering a bit this morning......there's a new bitch at the BOE, well new to me just heard about her 

She's been gassing to the LSE this am...

“Behavioural responses mean that the UK economic outlook will continue to depend on the global and domestic spread of COVID-19,” Tenreyro said.

“Assuming prevalence gradually falls, my central case forecast is for GDP to follow an interrupted or incomplete ‘V-shaped’ trajectory, with the first quarterly step-up in Q3.”

 

 

[nirvana]

8 minutes ago, Castlevania said:

calculate how much CGT I’d owe if I return to the U.K

FUCK EM! don't pay anything....keep a foreign bank account......

Anybody think this is unreasonable watch that movie...errr, what's it called again....THE SPIDER'S WEB 

[PaulParanoia]

So which companies are likely to benefit from the Huawei 5G ban?  Nokia?  Any others?

[Loki]

1 minute ago, PaulParanoia said:

So which companies are likely to benefit from the Huawei 5G ban?  Nokia?  Any others?

Ericsson got the contract I believe  

[DurhamBorn]

9 minutes ago, PaulParanoia said:

So which companies are likely to benefit from the Huawei 5G ban?  Nokia?  Any others?

Telefonica,they dont have their kit in their networks,though all will gain as they push prices up above what the actual cost is and government orders the regulator behind closed doors to go easy.Government has just said how crucial their telcos are,telcos will of told government or margins are too low.

[DurhamBorn]

1 hour ago, 5min OCD speculator said:

my bullshit detector has been quivering a bit this morning......there's a new bitch at the BOE, well new to me just heard about her 

She's been gassing to the LSE this am...

“Behavioural responses mean that the UK economic outlook will continue to depend on the global and domestic spread of COVID-19,” Tenreyro said.

“Assuming prevalence gradually falls, my central case forecast is for GDP to follow an interrupted or incomplete ‘V-shaped’ trajectory, with the first quarterly step-up in Q3.”

 

 

Incredible really.So she is saying mid case we have done enough and the economy recovers just fine.She is wrong,they will be printing £700billion all in,maybe more before this is over.She thinks they just need to stave off deflation,as most CBs do right now,they dont know governments have other ideas.This is a new cycle Silvana and you have no control over the US long bond,prepare to spend the next bit of your career chasing inflation,trying to slow it down.

[DurhamBorn]

Just now, Cattle Prod said:

Covid has just shown the government that the country can run fine without roads or transport, but broadband and 5G are absolutely essential. This has never happened before in all history. The Romans built roads as absolutely essential conduits of commerce, trade and war. All those things are now in a tiny glass tube.

Telecoms is second only to energy as essential infrastructure imo. We might have seen that a long time ago, but now, more importantly, the government sees it too. Banning Huawei is a serious signal IMO, it is no longer about the cheapest supplier. It's now about our own 'Roman roads'.

100% right.Like iv been saying for a long time those assets once depreciated are worth much more.They are going to allow them higher margins so they can invest and they are going to allow mergers between trusted parties.Telcos will do a tobacco i think over the cycle.I think VOD can double free cash flow with a 13% price increase and a slowly deflating depreciation charge.

BT stopped its divi to buy favour with the government.We will do this but we are a sitting duck to be taken over unless we can get better margins.

Iv been buying the sector and am really happy at the prices,lower than i expected by a long way.

Last cycle tech went over the top of the networks and made the money,this cycle tech needs to sit on the edge of the networks,and they are going to have to pay for it.

[Castlevania]

6 minutes ago, DurhamBorn said:

Incredible really.So she is saying mid case we have done enough and the economy recovers just fine.She is wrong,they will be printing £700billion all in,maybe more before this is over.She thinks they just need to stave off deflation,as most CBs do right now,they dont know governments have other ideas.This is a new cycle Silvana and you have no control over the US long bond,prepare to spend the next bit of your career chasing inflation,trying to slow it down.

You’d think an Argentine would be aware of the risks of inflation

[Harley]

3 hours ago, DurhamBorn said:

....that will cause the inflation as the massive amounts of liquidity in the plumbing starts to move sectors etc and force up velocity....

I'm not sure I quite see it that way but am being challenged!  Money supply, liquidity, and velocity are each towers in their own right but your comment has stimulated my thinking.  For example, we are now operating and extremes away from normal so the classic economic constructs and relationships are being stressed into a possible "unnatural" world.  That is, systems behaving differently at the extremes.  Without going into the details (I just wrote a massive piece but sat on it!) your comment has generated many other such fertile (and more concrete) thoughts which I think are incisive in the way I will act going forward.  Funny, it's usually these little "innocent" asides that are the most important!