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


spunko

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Chewing Grass
2 minutes ago, DurhamBorn said:

This isnt about 15% of the workforce losing their jobs,its about 50% of the workforce seeing their wages and savings inflated away.Reflation cycles favour assets over services and brain jobs.

This is me, have just asked for a formal quotation for taking my old Civil Service type Final Salary Superannuation scheme 3.5 years early, I'm expecting a -12.5% hit but I need to clear the decks (personal loan & 7.9%) to stop taxed income being used to pay it. The small monthly pension it will then generate will be used to offset contributions into another scheme (and pay less tax).

This is all an attempt at inflation proofing as far as possible.

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26 minutes ago, DurhamBorn said:

Where people go wrong with a reflation cycle,is they think there is going to be a big recession and mass unemployment.However this isnt how inflation does its work.CBs and governments are doing everything they can to stop unempolyment with massive fiscal interventions.This isnt about 15% of the workforce losing their jobs,its about 50% of the workforce seeing their wages and savings inflated away.Reflation cycles favour assets over services and brain jobs.

So where the real damage will be done is to service industry workers spending power,and here i mean the middle class range of jobs upwards.

Employers in lots of sectors will have to pay much more,and service sector jobs will pay more,just not as much as inflation thats hitting them on every input cost.

 

The BRC story has made it onto the radio news today, warning to expect higher prices towards the end of this year. Naturally, this is how tangible inflation occurs, cement a sense of inevitably rising prices to change human behaviour. By spreading this story UK wide today and going forward through national radio, TV etc, seems a sure bet. We're now entering the "feeding on itself" phase I think, many prices never to be this low ever again. Start stocking up folks 😂

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2 hours ago, Castlevania said:

I found this article by the former spokesperson for Extinction Rebellion interesting and her conversion to being a champion of nuclear energy. It highlights a lot of themes that have been discussed here in that people won’t give up their use of energy and thus their lifestyles for the environment; how most of the green lobby’s policies are self defeating; and how renewables are fine but you need baseload. 

https://quillette.com/2021/05/31/the-sad-truth-about-traditional-environmentalism/

Yes, i've mentioned Zion Lights on here before, useful borrometer i think. i.e. Contrast her article with the TV interview (below) she did only 18 months ago... something's afoot, though probably just the traditional 'zealousness of the converted' i guess(and hope)? 

Btw GB News starts 13 June, so can look forward to more of these types of truthful interviews on that channel i hope.

Andrew Neil grills XR activst Zion Lights - YouTube

 

 

 

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DurhamBorn
5 minutes ago, Barnsey said:

The BRC story has made it onto the radio news today, warning to expect higher prices towards the end of this year. Naturally, this is how tangible inflation occurs, cement a sense of inevitably rising prices to change human behaviour. By spreading this story UK wide today and going forward through national radio, TV etc, seems a sure bet. We're now entering the "feeding on itself" phase I think,any prices never to be this low ever again. Start stocking up folks 😂

Yep,it sounds crazy,but stock up as much as you can.Its crucial to learn how to cook etc as well because base ingredients are dirt cheap so even big % increases wont hit you hard.

Im buying up as much pizza topping as i can while its on offer in Tesco,plus on days like this plenty of eye candy as well to enjoy .

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On 01/06/2021 at 09:17, Cattle Prod said:

I didn't say you were cherry picking, I said your source was. First figure on that link has callouts cherry picking spots of the world with unusual weather. Totally ridiculous. If you can't see that, please take this up with someone else.

CP, you might be a bit frustrated talking about this?!, but perhaps you know Steve Koonin, the ex BP chief scientist? Hes got a new book out. The interview is a bit dry but balanced. But the thing is he quotes from the IPCC report where it shows how unsettled even they are on the 'wild and exagerated' forecasts/claims made... 'existential threat' my arse!!

Personally it makes me mad when i hear this type of info., because it reafirms to me the sheer waste in effort involved in battling so-called climate change, plus the lost opportunity costs for enacting real beneficial change for the world's poor; However, most of us here know there is Machiavellian politics happening (beneath the science!!) and that is the real driver - and ultimate prize - for the 'climate change' activists/politicians.   

Is Climate Change Really Settled? | Steven Koonin (hiddenforces.io)

 

 

 

 

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Noallegiance
2 hours ago, DurhamBorn said:

Reflation cycles favour assets over services and brain jobs.

 

How does this square with an alleged hit on housing? 

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6 hours ago, Cattle Prod said:

Bought EWZ options when Kaplan pointed the Brazil thing out. A nice contrarian investment so far.

EWZ is available as IBZL in London:  iShares MSCI Brazil UCITS ETF USD (Dist)  in case anyone is interested.  I don't know how this compares with buying EWZ on NYSE.

This is not advice DYOR

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BurntBread
3 hours ago, Noallegiance said:

How does this square with an alleged hit on housing? 

I'm guessing DB primarily means productive assets: manufacturing equipment, infrastructure, mines etc. I would guess that housing would be a mixed basket, treated as an asset which generated yield from rents and ultimately from wages.

For housing stock owned outright in areas where workers' wages increase (industrial areas), then rental values might see some of that up-lift, but it will be one step further away from the inflation compared to wages. For houses in areas that have had the benefit of rents paid by disinflation-loving jobs (e.g. finsec), then it will be the opposite.

Add to that the fact that houses are historically expensive in most places due to the cheapness of borrowed money, so that reversing will create a separate head-wind.

I think DB sees value in some places (NE), and probably very little value in SE & other over-inflated regions.

Sorry for speaking out of turn, but I see the question has ben hanging in the air for a while. I would love for DB to run some numbers on housing in the SE, but I appreciate he has no interest in that area!

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On 31/05/2021 at 13:41, nirvana said:

why is it insane? I was having a really interesting conversation with a very clued up guy yesterday...he says the oceans are warming up because of all the plastic that is being dumped in them! Isn't plastic a byproduct of oil production?

Think of it as a 'polytunnel effect'....and this is going to have a major impact on global climates, melting of arctic ice and probs another mini-ice age. Europe is a bit fucked again lol

I do need to read up on this stuff more. I think @Lokiis clued up in this area.....is there a thread BRO?

Sorry for not replying, I was away.

It is insane for a lot of reasons but the main one from a survival point of view is that the world population needs oil to live. If supply falls more than 10% (could be less) people will start dying in large numbers.

Let's do a thought experiment:

You have 10 chickens producing eggs that your family needs in order not to starve to death

it might be a good idea to look after them. In fact I am sure you would put a lot of effort in to make sure they survived.

You would not start shouting at them, then poking them, then hitting them with a stick, then make a law that says 2 need to be destroyed, then make another law to say they all have to be dead in 9 years.

^This is what we have been doing the last 2 years and it is accelerating. 

 

I am not a denier that we have an effect on the environment [in the up direction]. But like @Cattle Prod said, you need to be very careful with the figures environmental 'scientists' trot out. It has become a religion so data is ignored if it doesn't fit the narrative. If one of them does say something against the prevailing wind, that person is shot down so they can't do it again. This is a very unhealthy situation, almost a criminal cartel. It has also become a big money game, they get hundreds of billions of dollars and the more they shout the more they get. 

It's like the new version of war, politicians can look good and divert attention by chucking money at green projects. Nearly all of that money is wasted and the projects will be white elephants. I am hoping lots of them will be bought up by BP in 5 years time (fits in with @DurhamBorn  funding difficult as they will be burning cash).

 

The worst thing we could do is take everything out on the oil companies, if we do then we will have the deepest depression we can imagine where we can't afford heating in the winter. I don't think it will come to that as it will become obvious we need more oil and the oil bashing will stop. People are missing the fact that the oil companies have all the knowledge and expertise to become the future green energy companies, they are the best option for a fast and safe transition to green.

We have a bit of chicken and egg at the moment with green energy production in that solar panels and wind turbines can't be made without oil/coal/gas so the environmental people need to be more patient. Technology will also catch up (hydrogen/planes etc). It needs more of an overarching plan on moving forward, not chucking billions of dollars at anything with 'green' in the title.

</rant>Sorry @nirvana :)

 

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4 hours ago, Noallegiance said:

How does this square with an alleged hit on housing? 

One look at any inflation article on the FT comments section and most think house prices will continue to rise with inflation. If salaries kept up with inflation too you could argue that maybe the case.

I look at house values as ‘growth’ assets like the FAANGs. They’ve risen into sky high bubble territory with QE since 2008 with asset inflation in a low interest rate environment. But rising interest rates will change the whole ball game, just the same as we’re investing in ‘value’ commodity stocks that will (hopefully) outperform inflation and see the market following shifting allocation away the under-inflation performing ‘growth’ sector that’s already in a bubble.

The housing market is linked to debt. There’s 2.5 million BTL landlords of which 60% are 55 years or older owning multiple properties and have been investing to seek a return in a low interest rate environment. Most will have paid off their own property, but with BTL mortgages if the tide turns their own house would be up for collateral.

The demographic is also a ticking time bomb, as the older generation die out there will be an oversupply of 3/4/5 bed houses. The younger generation are settling down far later in life, due to shouldering the costs of 40 years of disinflation. High housing costs, student debts, minimal savings mean they’re not having kids like their parents would have. Why would they need a 4 bedroom house, with no hope of paying it off on a 35/40 year mortgage, especially with the costs of running it rising with inflation and possible property levy or land value tax?

Rising interest rates will also mean that mortgages rates will be going up and will become harder to fill the requirements to borrow. The myth is that it’s supply and demand behind it all when it’s entirely down to the banks willingness to lend. People will happily borrow themselves into millions of debt if they could, but in an inflationary environment the costs will become increasingly harder to meet the repayments.

The unwind could happen in two ways. Either with declining annual housing value statistics it causes a mass rush for the exits (could also at the same time of the BK). Or a slow stagflation and gradual decline in prices not keeping up with inflation and demand decreasing. Of course this will be area dependant at first, but what happens in the London then ripples out eventually.

London has relatively flatlined now for years, most new build flats have already gone into negative equity with a backlog of cladding and fire safety requirements, and on top of all that it’s lost a million in population which may never come back with WFH. That in itself will have a knock on effect to coffee shops, restaurants and the service industry dependant on traffic.

The annual statistics had already begun to turn at the start of the pandemic, but the stamp duty prop made sure to skew statistics up the higher end nationally and staved off the inevitable, whilst the FTB was priced out even further. With that link now gone it’s only now a matter of time.

I personally think it will be panic stations due to the sheer amount of this countries finances tied up in property. If they see rising interest rates, most will want to sell up to put it in the bank which will be far easier returns than the stress of evicting tenants which will be instilled in their mind fresh from the pandemic.

https://positivemoney.org/2019/09/bank-of-england-confirms-positive-money-analysis-of-house-prices/

why ‘value’ does better than ‘growth’ in an inflationary environment

https://www.investopedia.com/articles/investing/052913/inflations-impact-stock-returns.asp

The below video divergence from ‘growth’ to ‘value’ already happening.

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DurhamBorn
52 minutes ago, BurntBread said:

I'm guessing DB primarily means productive assets: manufacturing equipment, infrastructure, mines etc. I would guess that housing would be a mixed basket, treated as an asset which generated yield from rents and ultimately from wages.

For housing stock owned outright in areas where workers' wages increase (industrial areas), then rental values might see some of that up-lift, but it will be one step further away from the inflation compared to wages. For houses in areas that have had the benefit of rents paid by disinflation-loving jobs (e.g. finsec), then it will be the opposite.

Add to that the fact that houses are historically expensive in most places due to the cheapness of borrowed money, so that reversing will create a separate head-wind.

I think DB sees value in some places (NE), and probably very little value in SE & other over-inflated regions.

Sorry for speaking out of turn, but I see the question has ben hanging in the air for a while. I would love for DB to run some numbers on housing in the SE, but I appreciate he has no interest in that area!

South East i expect to lose 40%+ inflation adjusted over the cycle.North East i expect 0% inflation adjusted minimum,20%+ maximum.

I do very little on house prices s they have no affect on me,i own two outright,could care less if they go up or down.However i am starting to take an interest up here because im starting to see a structural bull market developing.The amount of people moving up here from the south is growing and growing,only today i was talking to an 80 year old lady who had just moved up here from Poole,her grandaughter was already here and told her about the house prices and her daughter was moving up later in the year.

My dad keeps badgering me to go halves with him and buy 3 to let,but im holding off because il end up having to do any jobs on them etc,but im very very tempted.

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20 minutes ago, Loki said:

@DurhamBorn I guess the job situation will be pretty good up North too

DB’s got it all mapped out for us up there and the ladies are goers apparently.
Cheap fish and chips and roast dinners on the ‘first impression’ nights out, then it’s a ‘tactical’ retreat back to the mortgage free home to impress with G3 Ferrari (have a Ferrari key fob for extra cred) pizza making skills. Then it’s off with the M&S alternate season clothes and jobs a goodun.

(P.S no yellow sticker shopping or YRS dumpster diving as that’ll have the reverse effect) ;)

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Thanks DB. Went to Durham before the plandemic and loved the people. Nice place to boot. Making plans to escape the Midlands. Durham bound.

Anecdotal- Speaking to a CoW today in Brum. His mate has a small building company and wanted a pallet of cement to store at his small yard to pick from. Building materials supplier would only give him 5 no bags.

Speaking to a QS ( separate job) saying may not be able to start a few projects due to cost issues regarding materials( steel/copper etc). Same QS ( mid sized co) ordered steel  external fire escape stairs with 7 day quote. Went back on 8th day price had gone up £900.

Who'd a thought. 

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57 minutes ago, DurhamBorn said:

North East i expect 0% inflation adjusted minimum,20%+ maximum.

Got to disagree on this.

The slightly better areas of Newcastle and Northumberland are insanely priced, they are due an epic crash, the marginally better areas such as Cramlington are also vastly overpriced. 

If you go on Rightmove and look at areas such as Cullercoats, Tynemouth and Whitley Bay to see the insanity, i could list other places but this is where i've been looking for my parents at the weekend.

The entire country is one gigantic property bubble. If interest rates ever get over 1.5% this alone could be enough to see a spectacular implosion.

£360k for a 3 bed semi by North Shields that needs money spending on it. These prices wouldnt be out of place in decent areas of Southern England
image.png.902d48fc0bda644a9d73c11fc50e6588.png

 

image.thumb.png.d52339ecf6da3c746c1dbb085a6f9a98.png

image.png.e5cea06436c76ce6f6028c1e8f4fe5ea.png

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5 minutes ago, Phil said:

Let the fuckers burn. 90’s style. 

If Meadow Well ever gets lit up in a 90s style, then those in there 360k 3 bed semis will be able to go and see if they walk 10 minutes up the road!

 

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13 minutes ago, Hancock said:

If Meadow Well ever gets lit up in a 90s style, then those in there 360k 3 bed semis will be able to go and see if they walk 10 minutes up the road!

 

I have lost all hope in Britain. Cesspit. Drove through an area of multicultural diversity today. Once predominantly Irish 30 yrs ago. Looked like Black Hawk down. The housing stock looks great for non kaffers. Then onto the university of Birmingham. I spoke to a yank student 3 yrs ago, who was very happy with the campus, “ I love Britain, it’s lovely “ I advised him to visit Washwood Heath and Alum Rock. Hope he didn’t but fuck it. 

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DurhamBorn
1 hour ago, Hancock said:

Got to disagree on this.

The slightly better areas of Newcastle and Northumberland are insanely priced, they are due an epic crash, the marginally better areas such as Cramlington are also vastly overpriced. 

If you go on Rightmove and look at areas such as Cullercoats, Tynemouth and Whitley Bay to see the insanity, i could list other places but this is where i've been looking for my parents at the weekend.

The entire country is one gigantic property bubble. If interest rates ever get over 1.5% this alone could be enough to see a spectacular implosion.

£360k for a 3 bed semi by North Shields that needs money spending on it. These prices wouldnt be out of place in decent areas of Southern England
image.png.902d48fc0bda644a9d73c11fc50e6588.png

 

image.thumb.png.d52339ecf6da3c746c1dbb085a6f9a98.png

image.png.e5cea06436c76ce6f6028c1e8f4fe5ea.png

True,there are pockets of massive over-valuation north of Newcastle,im thinking more Durham,Hartlepool and Cleveland and South of the Tyne.Id never live north of Newcastle,crazy prices.

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33 minutes ago, DurhamBorn said:

True,there are pockets of massive over-valuation north of Newcastle,im thinking more Durham,Hartlepool and Cleveland and South of the Tyne.Id never live north of Newcastle,crazy prices.

My mam and dad have been looking for the last few years at Newcastle coastal prices, but the last year has been insane ... trying not to exaggerate but its probably 15-20% rises in certain places ... when the average worker in Newcastle area works for the govt in one form or another.

No idea south of the river, but aren't even the better places around Teesside relatively expensive. (i was about to use the word "posh" as opposed to "better", but then realised you're not allowed to put "posh" in the same sentence as Smoggland)

My view is its either got to be a better parts of Durham, York, Newcastle or if you like walking then Northumberland ... everywhere else is crap in Northern England. A southerner would be like a duck out of water if they went to some old pit village/town like Blyth

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DurhamBorn
2 minutes ago, Hancock said:

My mam and dad have been looking for the last few years at Newcastle coastal prices, but the last year has been insane ... trying not to exaggerate but its probably 15-20% rises in certain places ... when the average worker in Newcastle area works for the govt in one form or another.

No idea south of the river, but aren't even the better places around Teesside relatively expensive. (i was about to use the word "posh" as opposed to "better", but then realised you're not allowed to put "posh" in the same sentence as Smoggland)

My view is its either got to be a better parts of Durham, York, Newcastle or if you like walking then Northumberland ... everywhere else is crap in Northern England. A southerner would be like a duck out of water if they went to some old pit village/town like Blyth ... and sooner or later they're bound to bump into some twat who'd have a pop at them for being a cockney (even though they're from Berkshire)

Id avoid the smaller pit villages even though some of them are fine,and even the worse ones are seeing more and more people coming and going,the large towns are fine.Darlington is probably a good bet for southerners,Bishop Auckland,Durham itself and then Chester-le-Street,even Crook.Over Teesside Redcar has a lot of nice bits,Hartlepool has good areas and cheap.Like you say around Newcastle coastal prices are crazy.Id avoid Newcastle itself.

 

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1 minute ago, DurhamBorn said:

 Redcar has a lot of nice bits

I've only been there once, and it was to buy a car .... Got there a couple of hours early and walked around the town on a Friday afternoon ... saw 2 young'ens having a fight, then a while after a couple of old'ens letting the punches fly ... it's scariest place i've ever visited!

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54 minutes ago, Hancock said:

I've only been there once, and it was to buy a car .... Got there a couple of hours early and walked around the town on a Friday afternoon ... saw 2 young'ens having a fight, then a while after a couple of old'ens letting the punches fly ... it's scariest place i've ever visited!

Oldham town center is interesting on Friday evening.

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King of Fools
1 hour ago, Hancock said:

I've only been there once, and it was to buy a car .... Got there a couple of hours early and walked around the town on a Friday afternoon ... saw 2 young'ens having a fight, then a while after a couple of old'ens letting the punches fly ... it's scariest place i've ever visited!

Doncaster. 
Drunken women in their 50s fighting in the middle of the road. It was 10 o’clock on a Tuesday morning.

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