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

[AWW]

Some wage anecdata for the thread. I've just signed a new contract to year end, day rate is up 5% having not increased for 5 years. I asked why, given that the jobs market has been dead for six months - was told by recruiter (so, pinch of salt) that it's because a lot of EU citizens have gone home due to Brexit, so increased competition for the remaining pool of labour in the UK despite less hiring than usual.

I would be jumping for joy, but IR35 has increased HMRC's claim on my labour from 37% to a frankly ludicrous 55%. So, deflationary overall. And really quite upsetting.

[Bricormortis]

 Notes from video above with Russell Napier posted by Loki as I understood it on a listen through.

1. Yield curve control is on, yields to run behind inflation. ECB has told people it will inflate away debt. yIeld cap and potential for government control ( of savings and investments ) is positive for gold.  Sees ECB ycc as a disaster for Europe.

2.  " inflation at 4 % does not send people rushing into assets. We have had inflation at 4 % three times in the last 30 years and people did not rush into assets." 

3.  Financial repression could entail restricting gold sales and crypto will face equivilant restriction. Too big a threat.

4. CB digital currency could only be introduced gradually to avoid destablising banks. US is intending to remove anonymity from crypto, stated objective now.

5.   Capital controls could happen but we cant know the form precisely. Govts have to have buyers for bonds. ( eg investors, savers ? ) Equities could be going downhill at that point in time.

6. The first rule of repression is get your money out of the country to a country that does not repress. That was Switzerland after 1945 ( they had no debt ).  Mentions gold, possibly real estate as safer havens. Possibly emerging markets for lower dept to gdp ratios. 

[geordie_lurch]

7 minutes ago, AWW said:

I would be jumping for joy, but IR35 has increased HMRC's claim on my labour from 37% to a frankly ludicrous 55%. So, deflationary overall. And really quite upsetting.

Can you not split your work across several clients @AWW over the year to get around Ir35 crap rather than put all your eggs and in this case tax via one

[AWW]

5 minutes ago, geordie_lurch said:

Can you not split your work across several clients @AWW over the year to get around Ir35 crap rather than put all your eggs and in this case tax via one

Unfortunately not, as it's the client who decides whether you are inside or out now, and they who are liable for the tax risk if they declare you outside. So they all say you're in. What's particularly galling is for this to come in after six months of no pay and no furlough, thanks to not being an employee, even though I'm now being taxed as one (in fact, worse).

Very few companies taking on permies at the moment too, due to Covid uncertainty.

[DurhamBorn]

At the time we said the telcos would start to gain from liquidity and bought hard and @sancho panza did his coma score work for us all he highlighted BT as the cheapest on his scores at £1 they are up 50%

Deutsche Bank said sell.

Citi said they would go to £1.10 at best.

Barclays said underweight and worth £1.15 at best.

 

Big brokers and institutions dont use macro strategists anymore because they think/thought its dis-inflation forever.Add on the contrarian angle as well and they would choke on their sniff.

 

 

[geordie_lurch]

Just been told my annual tax summary was available online and the following is how "Income Tax and National Insurance contributions for 6 April 2019 to 5 April 2020 were spent. It does not include VAT, excise or other duties."

I wonder what % some of these will get to over the next 10 years

Description	Percentage of tax
Welfare	22.1%
Health	20.5%
State Pensions	12.4%
Education	11.6%
National Debt Interest	6.9%
Defence	5.3%
Transport	4.3%
Public Order and Safety	4.3%
Business and Industry	3.8%
Government Administration	2.1%
Housing and Utilities, like street lighting	1.8%
Culture, like sports, libraries, museums	1.5%
Environment	1.5%
Overseas Aid	1.1%
UK Contribution to the EU Budget	0.8%

[AlfredTheLittle]

26 minutes ago, geordie_lurch said:

Just been told my annual tax summary was available online and the following is how "Income Tax and National Insurance contributions for 6 April 2019 to 5 April 2020 were spent. It does not include VAT, excise or other duties."

I wonder what % some of these will get to over the next 10 years

Description	Percentage of tax
Welfare	22.1%
Health	20.5%
State Pensions	12.4%
Education	11.6%
National Debt Interest	6.9%
Defence	5.3%
Transport	4.3%
Public Order and Safety	4.3%
Business and Industry	3.8%
Government Administration	2.1%
Housing and Utilities, like street lighting	1.8%
Culture, like sports, libraries, museums	1.5%
Environment	1.5%
Overseas Aid	1.1%
UK Contribution to the EU Budget	0.8%

They forgot covid 5,000%

[dnb24]

1 hour ago, Bricormortis said:

 Notes from video above with Russell Napier posted by Loki as I understood it on a listen through.

Yield curve control is on, yields to run behind inflation. ECB has told people it will inflate away debt. yIeld cap and potential for government control ( of savings and investments ) is positive for gold.  Sees ECB ycc as a disaster for Europe.

" inflation at 4 % does not send people rushing into assets. We have had inflation at 4 % three times in the last 30 years and people did not rush into assets." 

Financial repression could entail restricting gold sales and crypto will face equivilant restriction. Too big a threat.

CB digital currency could only be introduced gradually to avoid destablising banks. US is intending to remove anonymity from crypto, stated objective now.

 Capital controls could happen but we cant know the form precisely. Govts have to have buyers for bonds. ( eg investors, savers ? ) Equities could be going downhill at that point in time.

The first rule of repression is get your money out of the country to a country that does not repress. That was Switzerland after 1945 ( they had no debt ).  Mentions gold, possibly real estate as safer havens. Possibly emerging markets for lower dept to gdp ratios. 

Interesting video- especially his view of the politicisation of central banks. Which seems to extend from his thoughts that democracy and hard money are incompatible, therefore alluding to democracy essentially bringing us to authoritarian government. 
 

[Barnsey]

https://www.iea.org/news/oil-markets-face-uncertain-future-after-rebound-from-historic-covid-19-shock

In the IEA report, the world’s oil production capacity is projected to increase by 5 mb/d by 2026. At the same time, the historic collapse in demand has resulted in a spare production capacity cushion of a record 9 mb/d that could keep global markets comfortable in the near term.

To meet the growth in oil demand to 2026 in the IEA report’s base case, supply needs to rise by 10 mb/d by 2026. The Middle East, led by Saudi Arabia, is expected to provide half that increase, largely from existing shut-in capacity. The region’s expanding market share would mark a dramatic shift from recent years when the United States dominated growth. Based on today’s policy settings, US supply growth is set to resume as investment and activity levels pick up, yet any increase is unlikely to match the lofty levels seen in recent years.

[M S E Refugee]

4 minutes ago, Cattle Prod said:

Fascinating gif (play it). Think it partly explains the disinflation of the last 40 years (more young workers per unit of unproductive old people resulting in stagnant wages and)

Wait until the Vaccine does its thing, it may change our demographics in the West.

[goldbug9999]

1 hour ago, Bricormortis said:

3.  Financial repression could entail restricting gold sales and crypto will face equivilant restriction. Too big a threat.

The US playbook seems clear to me:

1. Create crypto-friendly regulatory environment for exchanges (coinbase kraken etc).
2. Allow financial institutions to directly deal in / take custody of cypto/bitcoin (Fidelity, Gemini, various licenced crypto banks in wyoming).
3. Allow creation of bitcoin derivative infrastructure (CME, BAKKT).
4. Allow general citizenry easy access to bitcoin (square, paypal etc).
5. Appoint MIT bitcoin/blockchain course leader and advocate as head of regulatory task force.
6. Occasionally wheel out Yellen to to warn everyone how dangerous it is in the hope that some other countries are stupid enough to stop/discourage buying so the US citizenry/corporations ends up with ever bigger share of it. UK has already partially taken the bait with the derivative ban.
7. Issue stimulus checks in the full knowledge that a huge proportion flows into bitcoin.
8. Freely print the $ to demonetize gov debt while the citizenry/corporations exit the $ in favour of bitcoin for savings. I think its one in three americans now own crypto/bitcoin.

 The US has worked out how to fully exploit the reserve status of the $ while still keeping most of the worlds wealth in the hands of it citizens and businesses.

 

[JMD]

1 hour ago, geordie_lurch said:

Just been told my annual tax summary was available online and the following is how "Income Tax and National Insurance contributions for 6 April 2019 to 5 April 2020 were spent. It does not include VAT, excise or other duties."

I wonder what % some of these will get to over the next 10 years

Description	Percentage of tax
Welfare	22.1%
Health	20.5%
State Pensions	12.4%
Education	11.6%
National Debt Interest	6.9%
Defence	5.3%
Transport	4.3%
Public Order and Safety	4.3%
Business and Industry	3.8%
Government Administration	2.1%
Housing and Utilities, like street lighting	1.8%
Culture, like sports, libraries, museums	1.5%
Environment	1.5%
Overseas Aid	1.1%
UK Contribution to the EU Budget	0.8%

National debt interest already at approx 7%!!!   I know this debt is mostly debt that government issues-and-owes 'to itself', and that historically the government bonds have been long and of low fixed rate duration (35 years I believe used to be the historical average). This has put us in a good place, comparatively speaking when compared to other Western nation debt.                                                                                                                      So does anyone know how our recent bonds have been setup? Ie if they are not fixed rate of say 2%, and/or not say 20+ years duration, then why wouldn't they be? I guess international finance/market confidence controls to certain extent national government greed/largesse. But if we haven't written ourselves good debt terms, I would be might suspicious, especially if many debts begin to fall due around say 2028!!!

[Barnsey]

 Last week...

MUST. NOT. TAKE. AS. SHORT. TERM. TRADING. ADVICE.

 

[dnb24]

38 minutes ago, Barnsey said:

 Last week...

MUST. NOT. TAKE. AS. SHORT. TERM. TRADING. ADVICE.

 

To be fair to Mr Hunter he stated last June that the 10 year would revisit 1.5% when it was down at 0.6%. Hell of a call really.

[goldbug9999]

45 minutes ago, Barnsey said:

...

 Last week...

...

MUST. NOT. TAKE. AS. SHORT. TERM. TRADING. ADVICE.

 

Truth is he doesn't know shit, nor does anyone who isn't part of determining Fed policy on bond buying. Trying to trade this is blind betting on such policy decisions.

[Barnsey]

31 minutes ago, dnb24 said:

To be fair to Mr Hunter he stated last June that the 10 year would revisit 1.5% when it was down at 0.6%. Hell of a call really.

I can't deny he's made some great calls, I just think he'd be better off tweeting once every 6 months. Problem is most of his followers are impatient retail traders.

 

[DurhamBorn]

8 minutes ago, Barnsey said:

I can't deny he's made some great calls, I just think he'd be better off tweeting once every 6 months. Problem is most of his followers are impatient retail traders.

 

Exactly,hes a roadmap guy and superb at it,especially Fed liquidity leads and lags,not a trader.

[Barnsey]

20 hours ago, Bricormortis said:

Febuary US retail sales down 3%,.... 0.5 was expected. Weather a factor ?

https://www.ibtimes.com/us-retail-sales-plunge-3-february-govt-3163204

Gasoline up 3.6%

And on similar lines, housing starts down 9% on an annual basis due to the storms which will offset higher mortgage rates, although Mr Hunter predicting rates will head back down soon, adding further fuel to the fire as things reopen.

[JMD]

3 hours ago, Cattle Prod said:

Fascinating gif (play it). Think it partly explains the disinflation of the last 40 years (more young workers per unit of unproductive old people resulting in stagnant wages and decling rate of price inflation) and why we are resorting to massive money printing now (pissed off workers having to support and ever growing population of unproductive old people). Of course globalisation over it all was pushed to ensure the pool of young productive workers were available to all countries indirectly, and is now being chucked out the window as populations age. Under it all, fuelling it, was cheap oil. Cheap oil is responsible for the population bubble we see here.

Demographics are a hugely important macro trend I think.

Edit: pause it at 1980, fascinating to see that emerging markets had less than 5% elderly populations. At 2021, none are under 5% and median is somewhere around 12%. Developed countries are passing out 20%. All voters of course, and what happens when we have a mild flu like virus? They shut down entire economies till they get vaccinated, and then dump the costs back on the working populations! This is really not going to end well. No other country has the social cohesion of Japan, at 30% elderly.

On a more positive note, once this population bubble passes away, with no more cheap energy to fuel a new one, the depopulated world might be a better place for our children.

That's a great graph CP. I was aware of the data but I admit I am a sucker for an animated graph!                                          However, i don't understand your comment about a depopulated world being a better place for our children. I think you were framing that specifically in terms of the current Western average age falling over the next decades - So any positive economic effects would not I'd have thought be felt anytime soon? Plus outside of Europe - Africa and Asia will take us slowly upto 10 billion people by year 2100, before the global population starts to reduce. CP I'm not trying to split hairs here, but along with total population increases, you also mentioned having no more cheap energy, which will surely only combine to heighten political tensions? I'm thinking maybe our children's children's children might eventually reap that demographic dividend, but not before?                                                                                                                               Ok, 'full declaration' on my part is that I'm mainly driven to write this because as I have commented  before (though I believe many/most? disagree with me?) - i don't think the subject of 'age demographics' says anything particularly interesting in terms of macro economics. What I mean is human ageing happens at a pace that political leadership intervention could solve any pending long term problems before 'bad consequences' happened. ...Surely it is rather the rapidly expanding total world population - set within the confines of our very finite planet - that must be where the true looming crunch point is? But then this subject is maybe far too scary, and far far too political, so perhaps this is why it is rarely seriously spoken of. I would say that Western age-based demographics is 'statistical noise' compared to the epic fail of world leaders not actively attempting to control the rapid global rise in population. Not easy problem I grant, but I think the current reductions in 3rd world family birth rates (mainly due to decreased child mortality due to increased living standards/vaccinations) could have begun far earlier. The scramble for resources between nations, not just for basic food but also energy, etc, will I fear be very ugly. 

[Talking Monkey]

7 minutes ago, JMD said:

That's a great graph CP. I was aware of the data but I admit I am a sucker for an animated graph!                                          However, i don't understand your comment about a depopulated world being a better place for our children. I think you were framing that specifically in terms of the current Western average age falling over the next decades - So any positive economic effects would not I'd have thought be felt anytime soon? Plus outside of Europe - Africa and Asia will take us slowly upto 10 billion people by year 2100, before the global population starts to reduce. CP I'm not trying to split hairs here, but along with total population increases, you also mentioned having no more cheap energy, which will surely only combine to heighten political tensions? I'm thinking maybe our children's children's children might eventually reap that demographic dividend, but not before?                                                                                                                               Ok, 'full declaration' on my part is that I'm mainly driven to write this because as I have commented  before (though I believe many/most? disagree with me?) - i don't think the subject of 'age demographics' says anything particularly interesting in terms of macro economics. What I mean is human ageing happens at a pace that political leadership intervention could solve any pending long term problems before 'bad consequences' happened. ...Surely it is rather the rapidly expanding total world population - set within the confines of our very finite planet - that must be where the true looming crunch point is? But then this subject is maybe far too scary, and far far too political, so perhaps this is why it is rarely seriously spoken of. I would say that Western age-based demographics is 'statistical noise' compared to the epic fail of world leaders not actively attempting to control the rapid global rise in population. Not easy problem I grant, but I think the current reductions in 3rd world family birth rates (mainly due to decreased child mortality due to increased living standards/vaccinations) could have begun far earlier. The scramble for resources between nations, not just for basic food but also energy, etc, will I fear be very ugly. 

Agree with this, it's the run up in populations in Asia and Africa where the problems are now. Any run towards 10 Billion and the associated fight for resources will be brutal, so I doubt we'll actually get to 10. Along the way I think tech will make more and more people superfluous to requirements. Agree that dividends are a long way out, so will go to our grand children or great grand children, rather than our children. 

[Barnsey]

22 minutes ago, Talking Monkey said:

Along the way I think tech will make more and more people superfluous to requirements. Agree that dividends are a long way out, so will go to our grand children or great grand children, rather than our children. 

Ah the classic argument since the invention of the bow and arrow. I'm just about to start reading a book that suggests the opposite of our ageing population disinflationary fears. Although yes, there will be a bill to pay with those higher wages.

https://blogs.lse.ac.uk/businessreview/2020/09/18/the-great-demographic-reversal-and-what-it-means-for-the-economy/

The lesser availability of labour at home and abroad will serve to restore the (previously diminished) bargaining power of labour. It will also end up raising the equilibrium natural rate of unemployment. Households will save less, and invest more in housing, than some mainstream models suggest.  The non-financial corporate sector may have to invest more to hold down unit labour costs, though we are agnostic about the various causes for recent low investment rates.

[Yellow_Reduced_Sticker]

On 16/03/2021 at 12:24, DurhamBorn said:

Really pleased ,you never moaned on about a few drawdowns as we were positioning  and a prime example to people to let the markets go to where they are going in their own time.As always though we always have to look ahead and try to see through the macro fog.The markets are getting far too excited and im starting to slice off some profits and set ladders over in Brazil  .Thats why i always appreciate Kaplans work because iv been seeing a chance on my currency roadmap that western currencies might flip flop with the next tier and try to think how to position some for that.He put us on to a chance opening up in Brazil.

However the research has to wait as im de-frosting my freezer,i had to leave some 5% steak mince for £1 each,5 of them in Iceland as no room,the ice was taking up 15% of the space and i couldnt sleep thinking about the mince pies i could of made.

"However the research has to wait as im de-frosting my freezer,i had to leave some 5% steak mince for £1 each,5 of them in Iceland as no room,the ice was taking up 15% of the space and i couldnt sleep thinking about the mince pies i could of made."

 

To see stocks DROP swiftly in a matter of days like they did last March was unreal to watch LIVE on SCREEN...and what kept me going was the 'ol BRITISH saying: "stiff upper lip old boy"

 

That's why I kept posting the How to Keep Calm and Carry On video!

 

Here's a better version that was uploaded in Oct 2020...this video will be posted DAILY by me when the BK arrives!!!

 

BTW, I'm tempted to sell EVERYTHING as its nearly 3 years living expenses for me, FFS even Royal Mail UP again today to £5.24! -> BIG FUN @nirvana

 

 

[nirvana]

9 minutes ago, Yellow_Reduced_Sticker said:

BTW, I'm tempted to sell EVERYTHING as its nearly 3 years living expenses for me, FFS even Royal Mail UP again today to £5.24! -> BIG FUN @nirvana

yes I saw that, well done you barsteward! And BT is up again ......if I'd have held on to those 2 I could have bought myself a new 128 TI methinks BUT those sort of cars are for tossers eh? and I'm supposed to be grown up nowadays...  

PS can someone hack my google account and delete RM from my watch list please?

Did you see my Nasdaq call dumped 350 pips? YOLO!!  Need to get the hang of them puts n calls like all the funky young kids do nowadays 

[DurhamBorn]

@Yellow_Reduced_Sticker fully understand,we live working out such things and three years of freedom paid for isnt to be sniffed at.Iv sliced quite a few myself.Im not selling any telcos though because i think they were and are structurally undervalued.Im expecting lots of deal,agreements etc.

Oil will likely pull back,maybe the $60 area on WTI shake out the recent buyers then head much higher with the companies leading the commod.

Fed will back off buying the likes of mortgage bonds now i expect and instead boost the buying of treasuries at the short end.There is plenty of liquidity for the private sector for now,they will force it through government.They will continue pushing for a fiscal led recovery.

[Agent ZigZag]

5 minutes ago, Cattle Prod said:

And when people come out of poverty, they stop having lots of babies. Children are insurance, welfare and labour in poor countries. Just look at Ireland, there were over ten children in each of my grandparents families time, when there was no social welfare and widespread poverty. 4 or 5 in my parents time, and a whole bunch with one or none in my generation. My son has three first cousins, I have about 25. I think the population will naturally decline before political tensions spill over, though of course there will be resource wars along the way.

Exactly. Excellent post there CP