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

[Chewing Grass]

22 minutes ago, DurhamBorn said:

Government worried that their EV stance means companies pull out early and dont bother investing.

https://www.telegraph.co.uk/business/2021/07/18/ministers-seek-unprecedented-powers-shore-fuel-supplies/

Some parts of the media are catching on 

https://www.telegraph.co.uk/business/2021/07/18/inflation-may-sluggish-ftses-unlikely-saviour/?li_source=LI&li_medium=liftigniter-rhr

And yet inflation hits different companies in different ways. Just take a look at a few of the major sectors. Telecoms and utilities are among the best protected industries. BT for example has already linked broadband prices, its key revenue source, to the Consumer Price Index. When it rises, so do its prices, and since very few of us can contemplate a life without broadband anymore, there won’t be much choice but to pay up.

The same is true for most regulated utilities, which have the flexibility to raise their charges as inflation rises. Next up, take a look at the oil giants. From a low of $16 last year, the price of a barrel of oil has climbed back above $70. Of course, that is contributing to the general rise in inflation, but it is also great for the London-based oil majors BP and Shell, two of the biggest energy companies in the world.

Chinese Style Communism.

[leonardratso]

i still dont see many out and out electric cars on the road, i expect its the sheer cost of them to begin with, but maybe also range anxiety, i dont use my own car very much these days, but id be really pissed off at having to top it up every day if i was using it. Plenty of hybrids around, and plenty of cats being stolen there as well, mainly toyota and honda, but there again i cant see the point of lugging all that extra stuff around, i even didnt want to by a dsg last time because of the extra weight (70kg?) and having to change the oil in the gearbox more often.

I suppose it could all change, and quickly as well, i remember the transition from petrol to diesel, but that was more like for like i suppose and in terms of range and cost it was actually a step up (maybe no so much in emissions), so your average diesel might have been a couple of grand more than the petrol equivalent but you got better mpg and general longevity out of it plus diesel used to be cheaper to buy per litre. (until all the emissions shit and electronics arrived that is).

[DoINeedOne]

 

[JMD]

23 hours ago, Harley said:

Nobody of any note visits this social media backwater where paramedics, builders, number monkeys, boilermen, and purveyors of fire pits imagine themselves to be, just for one moment, oracles of the financial age!  And why should we not.

Hmmm, me thinks 'you doth protest too much'!?

[JMD]

9 hours ago, Cattle Prod said:

This does seem to be the nuts of it.

If CBs stop QE, and govts face up to structural deficit, is this where Napier sees govts 'forcing' savers to buy their bonds? I take your point about SIPPs, but I think the key word us 'force'. They won't have to: they have just manipulated ~75% of the people to give up their freedom! A chunk of their pensions will be a walk in the park. A bunch of them will happily hand it over for the virtue signalling alone.

- Green bonds, as Napier says. National ad campaigns, on bus stops. Get the Nudge Unit working hard on it. 

- Most people don't know what they are invested in anyway. They only need 'encourage' institutions buy their bonds (cleverly packaged and marketed of course). They are already voluntarily buying ESG crap, and losing their clients money. It doesn't matter, most of them underperform the market anyway. As long as most of then do, and no one sticks their head above the parapet, no one loses their jobs.

- Could just do it by government guarantees, institutions would hand over their money tomorrow for a small guaranteed yield. Its a choice, right? No coercion needed.

One thing I've learned from actively managing my own pension and the head scratching by my large provider at me is that hardly anyone does it. I think we'll be able to side step it all, but most people just won't care.

It's almost like lockdowns were a test of how manipulatable the public is. Its clear now it'll be a walk in the park. Let's think of a slogan...how about "Build Back Better?"

The total pension pot is £2.5tn, I reckon they could take a third of that without the masses noticing. Not enough on its own to cover the deficit for 7 or 8 years, but in combination with upping the mandatory % contribution, along with some equity growth, the rest of the bond market, and more help from the BOE at the hint of a market crash, maybe there are ways to finance the deficit if QE stops.

Would having access to say a third of the UK pension pot affect you road map?

 

 

CP, thanks for the useful comments re Napier (Napier is more 'retail friendly' nowadays since starting his retail sub service, ie until 6 moths ago he was purely for the institutional investor), useful I think for all here attempting to strategize.                                                                                                                                                                  Just to add that Napier also makes the prediction that mass bond buy-ins by the institutions will necessarily mean them first having to sell (25%+?) of their equities, and this will probably crash the markets. His time frame is qe/infastructure spending until approximately mid decade then bond buy one, though he comments that legislation will need passing so some advance notice will be given.             Also really glad to read that @DurhamBornbelieves sipps may escape the dreaded bond buy-ins, as I had previously missed DB saying this. 

[JMD]

7 hours ago, DurhamBorn said:

That all seems likely.We should sidestep it though because the government already has enough useful idiots.The worry for us though is they legislate us out.Most ordinary peoples wealth,and the thing that will help most 50 year olds retire early is inherited housing wealth.That would seem an area for government to target,but its difficult outside of inheritance tax.

QE and forcing bonds on people of course is communist because the market isnt able to allocate the capital.However its our job to spot who that helps.

I thinka third is exactly what they are after,through tax or more likely 30% inflation over the cycle above coupons.Tax take should increase ahead of spending at that point and stave off government collapse.

The worry is though the amount of state claims from welfare to workers to pensions etc who want more and more.The government are in a huge mess,but seem intent on making it worse and worse.Maybe a sterling crisis would focus their minds.

And wealth taxes are more and more being casually thrown about in political arguments, only today I heard a Labour MP saying school bus services could be secured by implementing new wealth taxes.

[sancho panza]

On 17/07/2021 at 13:50, arrow said:

Looting is violent. I don't believe they did an oceans 11 style operation. During the riots eight lfb fire engines had their windscreens smashed, two fire cars were attacked, ten firefighters injured, police were shot at,  186 police officers were injured, 14 people were injured by rioters, and there were murders. Richard Mannington Bowes was murdered. The people convicted had their convictions overturned.

https://en.wikipedia.org/wiki/2011_England_riots

There were other deaths as well,5 in total.4 buses burned.Some clsoe misses too.I laways remember the following photo

23 hours ago, Hancock said:

He's been wrong for a very long time

https://moneyweek.com/361388/russell-napier-on-deflation

Alogn with a lot of other deflationistas-myself included-we had a shocking 2010 to 2020.Being right early is saem as being worng.

[sancho panza]

10 hours ago, Cattle Prod said:

This does seem to be the nuts of it.

If CBs stop QE, and govts face up to structural deficit, is this where Napier sees govts 'forcing' savers to buy their bonds? I take your point about SIPPs, but I think the key word us 'force'. They won't have to: they have just manipulated ~75% of the people to give up their freedom! A chunk of their pensions will be a walk in the park. A bunch of them will happily hand it over for the virtue signalling alone.

- Green bonds, as Napier says. National ad campaigns, on bus stops. Get the Nudge Unit working hard on it. 

- Most people don't know what they are invested in anyway. They only need 'encourage' institutions buy their bonds (cleverly packaged and marketed of course). They are already voluntarily buying ESG crap, and losing their clients money. It doesn't matter, most of them underperform the market anyway. As long as most of then do, and no one sticks their head above the parapet, no one loses their jobs.

- Could just do it by government guarantees, institutions would hand over their money tomorrow for a small guaranteed yield. Its a choice, right? No coercion needed.

One thing I've learned from actively managing my own pension and the head scratching by my large provider at me is that hardly anyone does it. I think we'll be able to side step it all, but most people just won't care.

It's almost like lockdowns were a test of how manipulatable the public is. Its clear now it'll be a walk in the park. Let's think of a slogan...how about "Build Back Better?"

The total pension pot is £2.5tn, I reckon they could take a third of that without the masses noticing. Not enough on its own to cover the deficit for 7 or 8 years, but in combination with upping the mandatory % contribution, along with some equity growth, the rest of the bond market, and more help from the BOE at the hint of a market crash, maybe there are ways to finance the deficit if QE stops.

Would having access to say a third of the UK pension pot affect you road map?

 

 

Solvency ratios possibly a factor in suppressing yields is that funds have been forced to buy them whatever the rate or risk.I'm keen to know if anyone has any specialist knowledge here @moneyscam. The possiblities are endless....govt leans on regulator,change life expectancy guidleins,funds buy more bonds...can it work like that?

Can't think of an instance where  private ratings agencies have got it worn in the last 15 years........

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

For pension plans, the solvency ratio is the ratio of pension plan assets to liabilities (the pensions to be paid). Another measure of the pension plan's ability to pay all pensions in perpetuity is the going concern ratio, which measures the cost of pensions if the pension plan continues to operate. For the solvency ratio, the pension liabilities are measured using stringent rules including the assumption that the plan will be close immediately so must purchase of annuities to transfer responsibility of the pensions to another party.

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

Criticisms

Think-tanks such as the World Pensions & Investments Forum have argued that European legislators pushed dogmatically and naïvely for the adoption of the Basel II and Solvency II recommendations. In essence, they forced private banks, central banks, insurance companies and their regulators to rely more on assessments of credit risk by private rating agencies. Thus, part of the public regulatory authority was abdicated in favor of private rating agencies

[sancho panza]

from 2017.I can only imagine the situation ahs got worse.Of course DB schemes have no market risk ....well except to taxpayers.

https://ec.europa.eu/finance/docs/policy/191216-insurers-pension-funds-investments-in-equity/pension-funds/factsheet-uk_en.pdf

1.1GeneralIn the United Kingdom, there is one main type of occupational pension scheme falling under the scope of the IORP Directive (Directive 2008/41/EC). They offer defined benefit(DB),defined contributions (DC),and hybrid plans(HY). Members of the DB plan have no exposure to market risk. Members who have a DC plan, however, arefully exposed to market risk.

The United Kingdomoccupational pension funds are largelyfocused on defined benefit and hybrid pension schemes, which account for 79,1%2oftotalpension fundassets, while the remainder focuses on defined contributions schemes.

1.2Balance sheet

Asof end 2017 (2017 Q4), the Britishpension funds market rankedfirstin the EU in terms of assets, reportinga total of 1 757billion EUR.With regards to investments, the United Kingdomis ranked number 1in absolute amount reaching1 553billion EUR. 

As a result, Britishpension funds hadadeficitof assets over liabilities equalling 184billion EUR,corresponding toapproximately 10,5% of the balance sheet total.Hence, in terms of ranking, United Kingdomis among the lowest ranked in excess assets over liabilities in the EU.

 

2.1Asset exposureFrom an asset exposure perspective, the pension funds market in the United Kingdomismostlyinvested in bonds (debt and other fixed income securities account for63,0% of total Investments), followed by equities and other variable-yield securities that also constitute a substantial part of the investments (32,8%).Within the bond categories, the pension funds market isprimarily exposed to sovereign securities (43,2%) with the remainderin financial debt (19,2%), both categories for which United Kingdom isrankedfirstin the EU.

[macca]

10 hours ago, leonardratso said:

i still dont see many out and out electric cars on the road, i expect its the sheer cost of them to begin with, but maybe also range anxiety, i dont use my own car very much these days, but id be really pissed off at having to top it up every day if i was using it. Plenty of hybrids around, and plenty of cats being stolen there as well, mainly toyota and honda, but there again i cant see the point of lugging all that extra stuff around, i even didnt want to by a dsg last time because of the extra weight (70kg?) and having to change the oil in the gearbox more often.

I have a plug in hybrid, it only does 35 miles on electric but that's enough to get me to work and back everyday.

My company have banned diesel cars and give us extra cash to lease hybrids. I would say nearly all new cars turning up at work are hybrid.. If you can get them as waiting times are quite long. 

I only put about £30 a month in my tank,, if I go away then obviously I run on mostly petrol.. but about 75% of my cars running is electric even with a small range.. 

It does not seem much, but for the daily commute its actually perfect..

[BurntBread]

9 hours ago, DoINeedOne said:

 

Another interesting point about that plot is that US household exposure to stocks fell precipitously through the 1970s, reaching its lowest point about 1982. From what I understand of this thread, that means people were selling a key asset class that could have protected their wealth, which I am guessing is an example of a distribution cycle?

Since the blue curve is a percentage of total financial assets, I wonder what they were accumulating? Pensions, perhaps? The red curve is percentage of total assets, so presumably the difference is related to domestic real estate, but there is not a huge divergence between the two.

I think wage-earners who didn't have accumulated wealth to protect did relatively well in the 70's ... certainly over here, but I'm not so sure in the US.

[MrXxxx]

18 hours ago, DoINeedOne said:

Thoughts?

Be interesting to know what those 25% stocks are i.e. companies, markets, region...I suspect they are either FANGS or Junk bonds, Tech, and predominantly US markets.

[No One]

Just read on this is Money that Sunak is going to address the nation about interest rates and debt

[Barnsey]

16 hours ago, leonardratso said:

i still dont see many out and out electric cars on the road, i expect its the sheer cost of them to begin with, but maybe also range anxiety, i dont use my own car very much these days, but id be really pissed off at having to top it up every day if i was using it. Plenty of hybrids around, and plenty of cats being stolen there as well, mainly toyota and honda, but there again i cant see the point of lugging all that extra stuff around, i even didnt want to by a dsg last time because of the extra weight (70kg?) and having to change the oil in the gearbox more often.

I suppose it could all change, and quickly as well, i remember the transition from petrol to diesel, but that was more like for like i suppose and in terms of range and cost it was actually a step up (maybe no so much in emissions), so your average diesel might have been a couple of grand more than the petrol equivalent but you got better mpg and general longevity out of it plus diesel used to be cheaper to buy per litre. (until all the emissions shit and electronics arrived that is).

Cost parity coming around 2025, hopefully with 400 mile range being pretty standard by then. I'm keeping hold of my Euro 6 Fabia 1.4tdi for as long as possible. Also interesting to note that they're already looking into how to tax EV cars in future when traditional road tax receipts fall dramatically. Also not giving up on Hydrogen yet either.

On another topic of fuel use change, had the boiler serviced, chatting away about how he'll have to retrain for heat pump installation, and interestingly (as some of you may already know), Worcester boilers already being made with hydrogen retrofit capability.

[wherebee]

1 hour ago, No One said:

Just read on this is Money that Sunak is going to address the nation about interest rates and debt

"well, yer see, it's all gawn, the ain't nuffink left, so I'm gonna go away for a bit"

 

you mean that sort of address?

[Harley]

2 hours ago, No One said:

Just read on this is Money that Sunak is going to address the nation about interest rates and debt

And so it begins?  The circus moves on to the financial world?  Are you ahead and ready?

[Harley]

Just following my monthly technicals this morning and selling down final ladders of several stocks.  So now out by two thirds of such positions.  Got stung where I was too slow or clever.  Will need to do similar later for North America and maybe Asia after that.  Already have high bond and PM exposure so tricky atm.  Hopefully a few equity buy signals later to offset the sells.

[HousePriceMania]

Just had another look at BP today then say the FTSE had gone down 2%.

 

I text someone on Saturday and said.."The vaccines clearly don't work, time to sell your shares?" 

 

Boris and his cronies re making a right pigs ear of everything.

 

 

 

Market Summary > BP plc

281.75 GBX−10.50 (3.59%)today

19 Jul, 11:18 BST ·Disclaimer

LON: BP

 

Then

[geordie_lurch]

2 hours ago, No One said:

Just read on this is Money that Sunak is going to address the nation about interest rates and debt

Where is this as I can't find it anywhere?

[HousePriceMania]

2 hours ago, No One said:

Just read on this is Money that Sunak is going to address the nation about interest rates and debt

Let me guess....they wont put up interest rates under any circumstances so please take on more debt to buy houses...he'll sell you his 9.

[Loki]

Everything is getting hosed today

[Noallegiance]

1 hour ago, Barnsey said:

Cost parity coming around 2025, hopefully with 400 mile range being pretty standard by then. I'm keeping hold of my Euro 6 Fabia 1.4tdi for as long as possible. Also interesting to note that they're already looking into how to tax EV cars in future when traditional road tax receipts fall dramatically. Also not giving up on Hydrogen yet either.

 

Chemicals giant seeks taxpayer cash for hydrogen car parts plant (msn.com)

[geordie_lurch]

7 minutes ago, Loki said:

Everything is getting hosed today

Yep - I've taken some more profits out of my Potash companies and wondering if I should top slice some Shell  If the 'vaccines' are failing as badly as I'm now also hearing anecdotally from friends who have been double jabbed but getting ill then we could be back to March 2020 pretty quickly at minimum but IMHO there's quite a high possibility the West is going to have many millions of cases of ADE and deaths in the next 6 - 12 months

[Loki]

On 16/07/2021 at 17:44, Castlevania said:

Uh oh

 

WHY THOUGH

[Boon]

TBH if most people are selling, the contrarian should be thinking of buying? 

The whole thing is a shitshow as far as I'm concerned. The case numbers isn't the right metric for it, but it's the easiest to use to scaremonger people, as hospital admissions and deaths have lost their punch.

Correct me if I'm wrong, we have the same amount of cases as we did in December, but we are also running 3 x the amount of tests?