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

[dnb24]

for anyone interested in geopolitics and the movement of the US out of Afghan and China moving into Afghan - an interesting piece -
https://www.9dashline.com/article/will-china-get-embroiled-in-the-graveyard-of-empires

[Yadda yadda yadda]

9 hours ago, DurhamBorn said:

On welfare it needs to be remembered though that massive welfare spending and the printing to go with it is a disaster for single unemployed.£74.70 a week £117.40 for a couple.The massive amounts for children and made up disability is where the money is.Most of the single mothers raking the money in get a huge shock once the child bennies stop.

Inflation is rampant in the basics and will be a disaster for those on those rates above.The woman over the road from me getting £500 a week + selling balloons on the side,+ two of the childrens dads there regular handing over money is laughing and forcing other welfare claims into massive poverty.

The left are squealing for the £20 covid uplift to be kept,but so far Sunak looks to be saying no,time will tell.

 

The idea that welfare was to help people through tough times has been lost. Even my lefty work colleagues* believe benefits should not be a lifestyle choice. Yet they'd parrot the BBC line if someone considered cutting welfare. If we end up in a prolonged recession people will want to see benefits overall cut but a realignment where the unemployed without children get more. Right now anyone who really wants a job can get one. If that changes then the benefit reform wil be high up the agenda.

I support retaining the extra £20 per week for the unemployed who claim no other benefits. Paid for by cutting, or at least freezing, the various family benefits.

* Work colleagues obviously work so they're not a representative sample of the population. They have some 'old fashioned' views that people who can work should work. Amongst the women that men should provide for their families. The men think this too but it is more notable amongst the women. That benefits, excluding those for serious disabilities, should be for the short term whilst people find a new job. That work should pay a lot more than welfare.

1 hour ago, Boon said:

I know nothing about the benefits system.... but googling it Child Benefit is £21.15 a week - is that correct? 

It seems to have gone up pretty crappily over the years.... ie in 1995 a lone parent would have gotten £16.70.

In real terms (not the official inflation figures) I'm guessing it should be over double that to have the same purchasing power.

In 1995 there was not a plethora of other benefits for parents. Non-working or low hours, low wage parents now claim tax credits and other extras. So those in the middle get less and those at the bottom, often through choice, get a lot more. The purpose of the tax and benefits system is to take from the middle to give to the bottom. The bottom them spend the money so that it flows to the top.

[JoeDavola]

7 hours ago, wherebee said:

I've said to my kids that our house is big enough for them to live in long term.  The future (assuming no end of world vaxx holocaust) is one of back to the 20's and 30's - the vast majority will rent, middle class will erode, and home ownership will be dependent on generational wealth, not work.

Yay for globalisation.

Yes I've completely changed my opinion on kids livng at home long term. I used to think they were 'losers' but now I actually think it's the smart thing to do and should be what any healthy family does. I think the cultures and families that do that are actually being smart and keeping wealth in the family rather than driving the kids out asap to make some other landlord rich.

The family that live next door to my folks have a grown up son early 30's who still lives with them and has moved his hot girlfriend in too - he only needs to work part time. My folks continually slag him off for being so pathetic as to be living at home but he's got the right idea - no rent to pay, low stress work life flash car and a hot girlfriend more fucking power to him.

My brothers best mate same thing his parents let him live at home throughout his 20's didn't charge him a penny and even welcomed two long term girlfriends in over that decade to live with them treated them like family members. Again much mockery from my folks but it sounds very healthy to me.

None of the folk I grew up with rented; never gave a penny to a landlord - they all went from living with their parents to buying their marital home or in one case a bachelor apartment and lucked into buying after the NI crash. I know some people in their early to mid 30's who never met anyone and just never moved out of their parents house ever and they seem happy enough.

I had to move out because home life was so unpleasent for various reasons. I was also paying £250 a month house keeping from the day I graduated on a shitty grad salary that was about £1100 take home pay whilst having bills waggled in my face as they came in "will I get this one will I, Joe?!" as if I was still a freeloader.

In the unlikely event that I have kids I'd want them to stay at home and keep money out of the hands of landlords for as long as possible. Part of the problem these days is that what people are paying top dollar for a 'family' home is often tiny - 80-90 square meters i.e. 870-970 square feet. It's getting very very expensive to get any decent space these days.

My folks have, through sheer luck, ended up in a house that's quite big - about 160 square meters and basically is like owning two houses in one. A massive living room, massive bedroom, even a utility room that could be set up as a kitchen all not in use - they literally never get used and are just sitting empty. Easily enough space for me to move back and have as much space... actually more than I do in this flat. I do sometimes think I should have moved back especially when the lockdown happened but the risk wasn't worth it in terms of finding out it was still a crap environment to live in.

They're wanting to sell it to downsize but I actually think it's a terrible idea as they have a great asset that is in increasingly short supply, space. I hope they don't find anywhere as they'd basically be swapping one house for a smaller older house in a worse location, or even having to spend money for the privilege.

[sancho panza]

7 hours ago, wherebee said:

I've said to my kids that our house is big enough for them to live in long term.  The future (assuming no end of world vaxx holocaust) is one of back to the 20's and 30's - the vast majority will rent, middle class will erode, and home ownership will be dependent on generational wealth, not work.

Yay for globalisation.

The middle class has already been hollowed out,msot of them jsut don't know it yet.

The amount of people I know-including msyelf- on decent salaries courtesy of a permamnent 5%++ fiscal deficit is incredible.County council workers,Leicesterhsire has something like 9 dsitrcit councils plus Leicester city council,NHS,Uni's......................I jsut can't believe how many politicians think hope is a strategy.

 

6 minutes ago, JoeDavola said:

Yes I've completely changed my opinion on kids livng at home long term. I used to think they were 'losers' but now I actually think it's the smart thing to do and should be what any healthy family does. I think the cultures and families that do that are actually being smart and keeping wealth in the family rather than driving the kids out asap to make some other landlord rich.

The family that live next door to my folks have a grown up son early 30's who still lives with them and has moved his hot girlfriend in too - he only needs to work part time. My folks continually slag him off for being so pathetic as to be living at home but he's got the right idea - no rent to pay, low stress work life flash car and a hot girlfriend more fucking power to him.

My brothers best mate same thing his parents let him live at home throughout his 20's didn't charge him a penny and even welcomed two long term girlfriends in over that decade to live with them treated them like family members. Again much mockery from my folks but it sounds very healthy to me.

None of the folk I grew up with rented; never gave a penny to a landlord - they all went from living with their parents to buying their marital home or in one case a bachelor apartment and lucked into buying after the NI crash. I know some people in their early to mid 30's who never met anyone and just never moved out of their parents house ever and they seem happy enough.

I had to move out because home life was so unpleasent for various reasons. I was also paying £250 a month house keeping from the day I graduated on a shitty grad salary that was about £1100 take home pay whilst having bills waggled in my face as they came in "will I get this one will I, Joe?!" as if I was still a freeloader.

In the unlikely event that I have kids I'd want them to stay at home and keep money out of the hands of landlords for as long as possible. Part of the problem these days is that what people are paying top dollar for a 'family' home is often tiny - 80-90 square meters i.e. 870-970 square feet. It's getting very very expensive to get any decent space these days.

My folks have, through sheer luck, ended up in a house that's quite big - about 160 square meters and basically is like owning two houses in one. A massive living room, massive bedroom, even a utility room that could be set up as a kitchen all not in use - they literally never get used and are just sitting empty. Easily enough space for me to move back and have as much space... actually more than I do in this flat. I do sometimes think I should have moved back especially when the lockdown happened but the risk wasn't worth it in terms of finding out it was still a crap environment to live in.

They're wanting to sell it to downsize but I actually think it's a terrible idea as they have a great asset that is in increasingly short supply, space. I hope they don't find anywhere as they'd basically be swapping one house for a smaller older house in a worse location, or even having to spend money for the priveledge.

Joe,I'd agree wholeheartedly,my kids are welcome to stay with me and Mrs P as long as they want.I see kids at work,grad job £25k plus unsocial,£300 pcm lease car,35 year mortgage,by the time they start eating away at their student debt it will have grown to £70k+ and they'll spend the next 30 years servicing the interest till the taxpayer gets the bill when they're 55.

Shocking what they've done.

I live in Leicester,grew up with a lot of Asian families,multi genereational living is normal and encouraged.

When the tide washes out and sterling tanks,the chickens will come home to roost

[JoeDavola]

5 minutes ago, sancho panza said:

I live in Leicester,grew up with a lot of Asian families,multi genereational living is normal and encouraged.

Yes I almost mentioned this - the people who want to by my parents house are Indian and the other interested party are Asians.

Because they're smart and see that they'd be buying enough house for 3 generations (there's 3 fucking bathrooms in the place). No landlords to pay; only one council tax bill and you could easily have 7 or 8 people living there.

That's how these communities are building wealth faster than the average white person. They aren't kicking the kids out to a landlord, and once they do buy that house they'll keep it in the family.

As I say I hope my parents don't find a house as I think they'd be trading down from what they have.

[sancho panza]

2 hours ago, dnb24 said:

for anyone interested in geopolitics and the movement of the US out of Afghan and China moving into Afghan - an interesting piece -
https://www.9dashline.com/article/will-china-get-embroiled-in-the-graveyard-of-empires

A few piccies that show some of the highways there.And these are the main roads through Helmand.Helmand wasn't too rocky compared to where the US was.Impassable in places if you stick one bloke with a rocket launcher behind a bush.Unrepressible in other ways as the local people will fight,they don't care how big your gun is compared to theirs.

I think the Chinese will learn the lesson the Russians/Yanks/we did.No matter what I may think of the Chinese,I spare a thought for their Toms.

Great article.

[Harley]

22 hours ago, DurhamBorn said:

I like high debt to equity on the telcos because i think the bond holders will end up funding the equity holders through inflation in that fixed coupon low rate debt funding infrastructure that will depreciate at a fixed rate while prices increase is  a way to leverage inflation.If this dis-inflation carries on though and this inflation is just a blip then a high DTE would be nasty.Macro call is key on it and a close eye needed on the cycle as always.

Fixed rate bond maybe but unfortunately I lack the time to delve down to that detail, and inclination if I can find enough others with better fundamentals.  I had another look at the chart and am more bullish on the monthly than weekly, although the weekly seems to be set to do OK for now.  Maybe that portends to the stair step you mentioned, like during Jul12 to Jul15.  The July21 pullback obscured current things a bit.  A break above the c4.2 zone would be useful.

[sancho panza]

Holger offers some thoughts on what will ahppen to the bond holders who are currently buying 30 year Bunds with a negative yield.

get ready to get reamed is the main message I think.

and @DurhamBorn ref the Euro telco's.Frightening what's coming to your 60/40 funds

Inedtifying the problem

and the root of it.

[Harley]

1 hour ago, JoeDavola said:

Yes I've completely changed my opinion on kids livng at home long term. I used to think they were 'losers' but now I actually think it's the smart thing to do and should be what any healthy family does. I think the cultures and families that do that are actually being smart and keeping wealth in the family rather than driving the kids out asap to make some other landlord rich.

Agreed, back to the extended family under one roof.  Everything is driving towards it from house prices to day care to NHS treatment to living costs (e.g. utilities, council pension tax, etc) to new builds getting so small, etc.

[Yadda yadda yadda]

18 minutes ago, Harley said:

Agreed, back to the extended family under one roof.  Everything is driving towards it from house prices to day care to NHS treatment to living costs (e.g. utilities, council pension tax, etc) to new builds getting so small, etc.

Was this ever common in the UK? Just thinking of my family I don't think so. My Mum left home at 16 to join the RAF (might have been a year or two older than that). My Dad went to University at 17 and never returned home permanently. My Gran stayed at home until married. That was common but so too was getting married young. Go back much further and there weren't many elderly relatives to have multigenerational living. They were mostly dead. The nearest I found, looking at my family tree, was a mid-thirties gran where one of the teenage daughters had a baby. I didn't investigate further because it got to the point where I'd have to pay.

I do have relatives who used to have two neighbouring houses and now have one large one. There really aren't many in my family who lived very long until the 20th century. Although it would be interesting to do more research.

[DoINeedOne]

1 hour ago, JoeDavola said:

Yes I almost mentioned this - the people who want to by my parents house are Indian and the other interested party are Asians.

 

1 hour ago, sancho panza said:

I live in Leicester,grew up with a lot of Asian families,multi genereational living is normal and encouraged.

 

When i was a carpenter there was a asian family that my boss used to do alot work for in a beautiful huge house in a nice area everyone seem to have their own parts of the house and all working good jobs

 

Actually a great family very close and like you say all the money came into the house 

[Don Coglione]

2 hours ago, JoeDavola said:

Yes I've completely changed my opinion on kids livng at home long term. I used to think they were 'losers' but now I actually think it's the smart thing to do and should be what any healthy family does. I think the cultures and families that do that are actually being smart and keeping wealth in the family rather than driving the kids out asap to make some other landlord rich.

The family that live next door to my folks have a grown up son early 30's who still lives with them and has moved his hot girlfriend in too - he only needs to work part time. My folks continually slag him off for being so pathetic as to be living at home but he's got the right idea - no rent to pay, low stress work life flash car and a hot girlfriend more fucking power to him.

My brothers best mate same thing his parents let him live at home throughout his 20's didn't charge him a penny and even welcomed two long term girlfriends in over that decade to live with them treated them like family members. Again much mockery from my folks but it sounds very healthy to me.

None of the folk I grew up with rented; never gave a penny to a landlord - they all went from living with their parents to buying their marital home or in one case a bachelor apartment and lucked into buying after the NI crash. I know some people in their early to mid 30's who never met anyone and just never moved out of their parents house ever and they seem happy enough.

I had to move out because home life was so unpleasent for various reasons. I was also paying £250 a month house keeping from the day I graduated on a shitty grad salary that was about £1100 take home pay whilst having bills waggled in my face as they came in "will I get this one will I, Joe?!" as if I was still a freeloader.

In the unlikely event that I have kids I'd want them to stay at home and keep money out of the hands of landlords for as long as possible. Part of the problem these days is that what people are paying top dollar for a 'family' home is often tiny - 80-90 square meters i.e. 870-970 square feet. It's getting very very expensive to get any decent space these days.

My folks have, through sheer luck, ended up in a house that's quite big - about 160 square meters and basically is like owning two houses in one. A massive living room, massive bedroom, even a utility room that could be set up as a kitchen all not in use - they literally never get used and are just sitting empty. Easily enough space for me to move back and have as much space... actually more than I do in this flat. I do sometimes think I should have moved back especially when the lockdown happened but the risk wasn't worth it in terms of finding out it was still a crap environment to live in.

They're wanting to sell it to downsize but I actually think it's a terrible idea as they have a great asset that is in increasingly short supply, space. I hope they don't find anywhere as they'd basically be swapping one house for a smaller older house in a worse location, or even having to spend money for the privilege.

How will you explain the shit-stained bed-sheets to your mum?

[Lightly Toasted]

2 hours ago, JoeDavola said:

...

I had to move out because home life was so unpleasent for various reasons. I was also paying £250 a month house keeping from the day I graduated on a shitty grad salary that was about £1100 take home pay whilst having bills waggled in my face as they came in "will I get this one will I, Joe?!" as if I was still a freeloader.

In the unlikely event that I have kids...

Q: Where are my grandkids, son?

A: You ate them before I was out of my teens, Dad.

Not sure if that applies to you but it was certainly a subtext applicable to my own father. Taking it to a broader cultural context, it's the people that support and nurture their young, that will be the ones turning up for the future.

[JoeDavola]

1 minute ago, Lightly Toasted said:

Q: Where are my grandkids, son?

A: You ate them before I was out of my teens, Dad.

Not sure if that applies to you but it was certainly a subtext applicable to my own father. Taking it to a broader cultural context, it's the people that support and nurture their young, that will be the ones turning up for the future.

To be fair neither of my folks seem to give a toss that me or my brother have ever given them grandkids; neither of us have ever been nagged about it.

They do seem more surprised that my brother is chronically single; I think they expected it with me

[janch]

17 hours ago, Yadda yadda yadda said:

A friend of mine is about your age. Took redundancy from a well paid but stressful job around five years ago. Hasn't worked since apart from a small amount of online selling. Now he has sold up down here and is moving his family to the small northern town he grew up in. No intention to ever work again.

I did this in 2006 and luckily had a house I could downsize from to move close to my daughter.  I lived on some of the capital until my state pension kicked in.  I always got really depressed when working but never went to the doc about it as I knew it was the awful jobs I was doing which caused it.  I've never been happier than when I gave up the daily grind even though I will be poor as a churchmouse for the rest of my days (although I am making a bit from the investments but I'm in different league from most of you guys!)

[Sugarlips]

Is Israel/Iran the black swan?

https://twitter.com/disclosetv/status/1422896735446355968?s=20

[Barnsey]

Pullback of taper talk underway...

 

[janch]

Looks as if I sold my IBTL much too early.  I was taking DH's word on the bond price rally but it seems they haven't finished rising yet.....especially seeing that chart @Barnsey

[JoeDavola]

I'm reading through the original 'deflation' topic from 2018 in preparation for a longer post here regarding what to do with my savings but it's interesting to see things that were thought to be over-values in 2018 and have doubled since...

Here's a perfect example - can someone tell me why the fuck Netflix is worth 60 times what it was in 2012??

[Harley]

1 hour ago, janch said:

Looks as if I sold my IBTL much too early.  I was taking DH's word on the bond price rally but it seems they haven't finished rising yet.....especially seeing that chart @Barnsey

Only just got going on the monthly chart about 2 months ago and looking ok atm but the weeklies have topped though and are currently staying overbought.  I'm not being funny at all but IMO it's best to read the charts than take trading cues from folk, however good or not they are macro wise.  I used to do that long ago and it never worked that well for me.  No need for "clever" technical analysis, just KISS it.

[sancho panza]

2 hours ago, Cattle Prod said:

It is an excellent point, those fields will not be there. Look at what BP has just said, no investment this cycle. XOM production at 20 year lows. Trust me, if those guys are not going to explore and use their R&D to push the exploration boundaries and tech, no one else will. I'm watching Total and ENI closely, they are better explorers now, but there is just nothing much of size coming through.

And remember, if they found one tomorrow, we won't see the oil from it for 5,7 or even 10 years.

Funnily enough,I was having a long chat with my Ma yesterday about what we're going to do with our oilies.The oringial plan was to trade the BK but the more I look at what's happening,the more I think you could be playing with fire selling out if you never get back in and they do a BATs/BHP/AAL etc from 2000.Hence I'm looking at possibly a sale and then calls or a hold with some puts funded by the divis.

The main reason is that they more I learn(mainly from your good self on the black stuff I msut admit),the more I think we're looking at market that will be bouyed by the demand/supply imbalance rather than finanical demand fro the futures as in 2008.

I know DH and a few learned deflationistas but this is a very different oil market from the one that dropped hard into Mar 2020.

I have probably near zero understanding of the exploration issues themselves,but just running with the statements from people like Looney/the ESG crowd,there's a long running cognitive dissonance developing between their never ending narrative regarding the death of oil and the price of oil itself.We know they won't be investing in exploration,we know demand is returning and that the Eastern half of the world contains 2 billion people waiting to consume the stuff in greater proportions whilst the Western half grows old and plateaus demogrpahically.

There is a potential here for nasty shock to the Western world from the very market that they believe to be dead in the water-oil.

Interesting what you say about XOM(our largest holding btw)

1 hour ago, janch said:

I did this in 2006 and luckily had a house I could downsize from to move close to my daughter.  I lived on some of the capital until my state pension kicked in.  I always got really depressed when working but never went to the doc about it as I knew it was the awful jobs I was doing which caused it.  I've never been happier than when I gave up the daily grind even though I will be poor as a churchmouse for the rest of my days (although I am making a bit from the investments but I'm in different league from most of you guys!)

There are some on here with a lot,some with very little,what binds us all is a desire for enlightenment and to use what we learn to make a better future for ourselves.

I did a lot of crummy,crappy jobs in my 20's and it was crap at the time but it humbled me.I'd have been an arrogant little turd otherwise I reckon.

Another good thing this thread has taught me, is to focus on what really matters and brings happiness ie friends and family.Yeha we talk money but a) you can't eat grass b) you've got to know how to cook to have people around.

[sancho panza]

55 minutes ago, JoeDavola said:

I'm reading through the original 'deflation' topic from 2018 in preparation for a longer post here regarding what to do with my savings but it's interesting to see things that were thought to be over-values in 2018 and have doubled since...

Here's a perfect example - can someone tell me why the fuck Netflix is worth 60 times what it was in 2012??

I remember shorting them at 400...................the art of good speculating is to know when to stop a bet.

It's priced at 9 times 2020 revenue...

Intangibles are 2.5 times shareholder equity....

 

[planit]

2 hours ago, Cattle Prod said:

I still don't trust the BP CEO. In 2020 he was calling for peak oil demand, now he's saying new highs 2022. I think he's just said he's not investing for this oil cycle and intends to return cash to shareholders, and this is backed up by him getting rid of his exploration team. BP have good assets, can sweat them this cycle and do well, but I suspect they will be a laggard. They won't be able to source more reserves when prices are higher and shareholders are screaming at him.

Just had a look:

May 2020 -   Mr Looney told the Financial Times “it was very difficult to know” how the oil market trajectory will bear out, but it was possible that demand had hit its maximum level. “Could it have happened? It could have,” he said
https://www.ft.com/content/7a6d5cb2-0e7e-4ea5-8662-5ac75c4c0694

Sep 2020 - BP warns of oil demand peak by early 2020s

https://www.ft.com/content/7a6d5cb2-0e7e-4ea5-8662-5ac75c4c0694

Hard to say what he really feels as he is fronting the company line and has huge amount riding on whether people believe his plan. He is foremost worried about getting kicked out of his job before he has a chance to deliver.

I agree that a CEO who is unsure is scary.

 

I feel all the western oil majors (not just BP) have a serious problem with exploration, there is too much pressure to stop them doing it. Add to that the long time to realise returns and Looney's plan to ditch the lot doesn't seem like such a bad choice.

If the returns on exploration that starts in 2022 are not significantly higher than renewable investment at the same time then Looney is correct. If the price of electricity trebles in the next 5 years, does this affect the decision?

 

Because of the difficulties affecting western fossil fuel companies, I would rather invest in places that do not have to deal with the same scrutiny like Russia.

 

@Starsend said this in June which seems spot on:

"Rosfnet/gazprom is a good oil bet as they will continue to explore, need to switch some of BP to a company that is still exploring at some point, perhaps in 2023, before the lack of oil is a problem for BP"

 

Regarding the transition to Looney's integrated energy company, I feel stealing a march on your competition is really important (because these assets will cost way more in the future) so BP has the highest chance of pulling it off successfully.

[Bricormortis]

2 hours ago, Sugarlips said:

Is Israel/Iran the black swan?

https://twitter.com/disclosetv/status/1422896735446355968?s=20

No....... but a Chineese currency devaluation might be.

[nirvana]

1 hour ago, Barnsey said:

Pullback of taper talk underway...

 

did you buy the dip Lisa?