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


spunko

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5 minutes ago, 5min OCD speculator said:

I quite like this one :P

Yes we do. The purchasing power of a dollar was close to 100% prior to 1913. Today it's around 2%. The FED is a private bank that enriches the 1% at the expense of the 99%. It is the greatest wealth transfer machine ever created. It is an abomination and needs to go.

I mean the sort of idiots that just spout braindead replies like "YOUR WRONG ITS GONNA CRASH"

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this is a valid one too - if Jamie Dimon wasn't picking up $30million + per year, there would be more money for true entrepreuneurs rather than this 'cronyism' and 'too big to fail' that is stifling a free market and innovation...

David we criticize relentlessly because a smaller entrepreneur with 80%+ operating margins (me) gets put out of business because unlimited capital that I can’t access is given to zombie companies & not to small companies w vision who could become the next s&p company. THATS WHY.

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@Loki Sorry I've become part of the 'end the fed' massive! This pic is interesting....right I'll be off to to ride a bike and listen to some music and leave you in peace xD

 

Ec8YhzlWoAAnC_I.jpeg

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38 minutes ago, Castlevania said:

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

That's probably why they brought her in, because of her experience of hyperinflation. I mean they appointed Carney for his experience in blowing housing bubbles after all.

 

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reformed nice guy
45 minutes ago, 5min OCD speculator said:

Sure, very valid point that we should all keep reminding ourselves....

I wish I could be so sure that rates WILL go up in the future......they can't can they!? All the countries are bankrupt! (mathematically and morally :P)

if rates tick up how will everyone pay their debts??? O.o

That is probably the big kahuna. When a significant bond coupon is not repaid

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50 minutes ago, 5min OCD speculator said:

Sorry I've become part of the 'end the fed' massive!

Even DH isn't a swooning Fed fanboy - he doesn't think they are blameless.

Quote

Oh it won't end well. My forecast calls for a global deflationary bust in the next year & a depression within the next decade. But there are bigger culprits out there. Others created the problem while the Fed & other CBs help facilitate it.

 

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Castlevania
2 hours ago, Harley said:

I went to an accountant just prior to my return.  Well worth it!  More than just CGT!

I am an accountant

Unfortunately I don’t work in personal tax and they’ve changed the rules quite significantly since I studied...

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8 hours ago, DoINeedOne said:

@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

I clearly should have paid more attention!  Was that the RealVision one or late?  Any others?!

PS: Just finished "the End Game" episode 3 with Mike Green.  Wow! A kindred spirit, although of a far higher order!

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sancho panza
14 hours ago, DurhamBorn said:

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.

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.

I must say,for someone with no financial background whatsoever,some ot the calls you've made have been incredibly good...................and free.:ph34r:.It puts some of the city salaries in perspective.

And some of them were from way out.Mrs P checked her ISAat HSBC the other day and was stunend how well it had done over three years(PM's).Whilst I didn't predict covid,we were positioned for a deleveraging query cause thanks in many respects to this disucssion.

I always steer clear of making timing/pricing calls because it's so very difficult.It jsut gives me aan appreciation for those that do.

12 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.

It really does beg the question doesn't it? How are they going to fill the gaps? Taxes on the ' haves' are certain given the mobility of big capital on the one hand and the gaping mouths in the nest on the other.

7 hours 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?

South Africa have started doing this.Mrs P is on a warning that she may have to ditch citizenship(I can't see many advantages to an SA passport)

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I always meant to ask @DurhamBorn - did you ever see your threads turning into the massive success they are? When you first posted it, was it work you already had in your head or did you formulate it especially?

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8 hours ago, MrXxxx said:

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.

Where did you hear that?

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2 hours ago, DurhamBorn said:

dams never burst when they are empty,look forward to your thoughts as always Harley.

I took the "agree" reps to my post as agree that I should not post, or would that have been a "cheers"?!

PS:  Just a break.  Loving doing this outdoor physical work while listening to these podcasts.  I get better quality thinking done than in front of a screen!

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so is the dollar still at risk of catastrophically mooning or what?

seems like nothing happened other than 1 week of panic in march

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Chewing Grass
14 minutes ago, Castlevania said:

I am an accountant

Unfortunately I don’t work in personal tax and they’ve changed the rules quite significantly since I studied...

You have just remined me about that old venn diagram the careers advice woman had.

I have redrawn it with a marker pen, excuse the speeling mistook.

15072001s.jpg.1c66738e61ca4ddc93f0baa21b034fda.jpg

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sancho panza
7 hours 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.

Without sounding like an A level student from the 80's(and without wishing to insult anyone's intelligence),there are differetn types of inflation which can mix n mathc and cause differing outcomes.

Consumer driven inflation is generally demand pull.

Price infaltion generally stems from rising commodity price s and input (labour) costs=cost push

Moentary inflation from the printing of moeny

asset infaltion-generally leads to rsiing input costs/wages

velocity driven infaltion-occurs as people rush to spend before it becoems worthless

there's more,these are off the top of my head.

 

As I've said previously,I see a 5%-10% chance we end up with a huge long deflation like Japan.The more likely result as per @DurhamBorn 's answer is that it will be govt printing and industrial stimulus packages that drive it this time.Wages will be playing catch up.As you say,tehre's no basis for predicting record levels of employment.There's every chance we may well see declining wages(inflation measurement problems aside) and rising inflation at the same time-particualrly food and fuel.

The disticntion between things purcahsed with credit eg hosues and cars and things purchased with cash is importnant.The main inflation has been in the former over the last twnety years and whilst I won't put figures on it,I think it's highly likely the latter will see the inflation over the next twenty.

 

Worth ntoing as well,that DB's thesis is reinforced by the pitiful state of most commercial banks balance sheets.I'd refer you to that banking paper fifty pages back about how UK banks are more leveraged now than 2006.The transmission mechanism for traditoanl stimulus of credit is broken.The only route open to govts is tehmselves.

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2 hours ago, DurhamBorn said:

......35 years of letting everyone consume,with a smaller base producing is about to hit them hard......

And those prudent types with assets to take to keep the show on the road a bit longer.  Or a debt jubilee where those holding the wrong assets get devalued to naff all.

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3 hours ago, DurhamBorn said:

Agreed,and  communications."Stuff" that already exists.35 years of letting everyone consume,with a smaller base producing is about to hit them hard.Try starting a car with crap jumps leads,this one needs heavy duty liquidity.

And why do I say commodities and currencies?  Because at the moment they are the only markets within the traditional (burning!) financial house that still have an element of price discovery and you don't want to be near the other markets because fundamentals are out the window and you are at significant risk if that ever changed.

When I say currencies I include the master currency, gold, but also other mediums of exchange and stores of value such as loo paper so I end up in commodities by default!  Gold and containers full of commodities would be nice.  Failing that those that produce early in the process chain (what I call "essential first stage producers (or extracters?)"). 

And yes, I think in a way that potentially includes say telecoms, although one could rightly or wrongly progress and include say software companies (but are they really manufacturers and if so what are the investable raw materials?).  Needs more thought.  Maybe something to do with the degree of "leverage" of their output (which has the bonus of consuming the idea of "essential").

 

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33 minutes ago, Harley said:

I clearly should have paid more attention!  Was that the RealVision one or late?  Any others?!

PS: Just finished "the End Gane" episode 3 with Mike Green.  Wow! A kindred spirit, although of a far higher order!

It was on RealVision but also here

 

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3 hours ago, DurhamBorn said:

dams never burst when they are empty

Ah but grasshopper, some structures require constant pressure to retain their integrity!

PS:  How is that Chinese dam doing these days!

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3 hours ago, DurhamBorn said:

.....look forward to your thoughts as always Harley.

Here's one.  You mentioned velocity (presumably of money).  Now we all immediately think of that in terms of the consumer.  But as you say the consumer is not the play here and as I say it has had no money (before Covid and defo in the period afterwards).  But what are the dynamics for velocity for the myriad of non-consumer actors?  How does that fit into an environment where a number of participants are loan dead - i.e. a form of negative velocity (aka a debt sponge)?  Working how that plays out could be very useful for an investment thesis.

Update: Flaw - Debt sponge does not impact velocity!

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sancho panza
3 hours ago, Castlevania said:

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

Her background is very long ivory towers and university final salary pensions and short real world experience

http://personal.lse.ac.uk/TENREYRO/curriculum.pdf

3 hours ago, Chewing Grass said:

I love reading up on people and where they come from and their academic past.

Strange you mentioned Argentina (did you know).

To these people its just a job, they have no interest in anything other than themselves.

https://en.wikipedia.org/wiki/Silvana_Tenreyro

And don't forget the BoE pension which is 90% invested in inflation linked gilts/corporate bonds.Interesting as well that it has longer duration linkers than fixed.....

https://www.bankofengland.co.uk/-/media/boe/files/about/human-resources/pensionreport.pdf

image.png.c03e6f89f99f35658f2c6a542e841c68.png

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3 hours ago, DurhamBorn said:

I cant wait to see them squirm  on rates as it ticks higher and higher.

They will squirm and then pass a law.  The world was always flat don't you know!

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55 minutes ago, sancho panza said:

I must say,for someone with no financial background whatsoever,some ot the calls you've made have been incredibly good...................and free.:ph34r:.It puts some of the city salaries in perspective.

What, you really are a paramedic? Did you not know, we're all masters of finance here acting out fantasy lives.  Honestly, the only JCB I've ever seen is a "Japanese Convertible Bond"!

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3 hours ago, 5min OCD speculator said:

....if rates tick up how will everyone pay their debts??? O.o

Debt jubilee.  How it always ends, just after the pitchfork phase.  Otherwise it's straight to the lampost phase!  As Mike Green just discussed in a podcast, ultimately the most powerful person in the room is not the moneybags but the one with the gun!

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