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

[belfastchild]

16 hours ago, DurhamBorn said:

I saw a few young couples,obvious working,who it would of been a great house,somewhere to bring up a family.

They didnt buy it though because a cash buyer came forward.A retired council worker.She used her pension lump sum to buy it

So they are all sitting pretty not working and getting massive mounts of taxpayer money.

 

 

One of the not talked about factors in the NI massive boom (and crash) in 2007/2008 was the amount of ex RUC/PSNI/Prison Officers getting big pensions/buy offs and putting them into property. I know of one development of 18 homes in Ballyclare where 16 of them were bought by ex police/prison officers as their 'pension'. Using their pension to buy houses to provide them with a pension.. hmm...
Mate bought an apartment (yes really) out near Carrickfergus and he was the only one in the block of 8 that was OO, the rest the same as above, big crash, still near half price they paid and massive voids as who the hell wants to live in an apartment in Carrickfergus (well other than the rusting ones near the marina). The only people are on benefits, so if you spent 140k on a 3 bed in carrick, you share your lift (when it works) with doleys...

Most of the big scale hobby businesses in NI are ex peelers and civil servants (anyone part of the security setup calls themself a civil servant!). Organic farms, craft brewers, some hotels, pubs etc etc. Was staying in a pub/hotel in the sticks a few years ago as I had a couple of very early starts local to it and got chatting to a guy in the bar, turns out was the owner, owns a farm, a shop, the bar, ex part time peeler, ex part time solder, ex b special. His pensions (exempt from rules I was told) was enough to buy the pub without leverage... Didnt care if he lost money....

One of the other big factors was co-ownership, buy half, rent half. Young female teacher relative went this way and we had a long chat about it, she couldnt see how it was making things worse and the response was 'sure its the only way I can afford to buy'. Well if everyone else is doing the same, the folk who can afford to buy now cant. If the cost of the house is maximised then theres less for all the rest of the economy, house stuff, garden stuff, having kids etc etc. I dont have kids through choice, every single one of my under 45 cousins doesnt have kids as they cant afford them, all living in rental places subsidising someone else.

Seeing the same again today, its only been 13 years but people dont learn. People taking early retirement due to seeing the waste of time working during covid etc and first thought is property, what can go wrong? Ony 2 days ago had a civil service relative about to retire asking me if I wanted to go halfers on a property... seriously...

Got a couple of flyers through the door the other day from 'investors' wanting to pay cash for my property. Second time thats happened in a couple of months. Last time it happened was 2006-2007.

Wonder what happens when all the public sector pension money goes pop..

[belfastchild]

1 minute ago, belfastchild said:

Most of the big scale hobby businesses in NI

Sorry meant to edit that to 'a fair few' not 'Most' but wouldnt let me edit.

[DurhamBorn]

@belfastchild as you say a huge part of the reason young taxpayers get stuffed on housing is because their tax is being used against them by people getting their money from government.Both pensions and benefits.I know several council workers with BTLs,usually 2 or 3.One of the first lessons i learned about contrarian macro strategy was that any given market will always try to reward the most to the least people and hurt the most people.Its the thing most fail to understand,because evidence from about a third of the way into a cycle until the end is counter to that.

In the UK the cycle has rewarded three sets more than anyone else.Property owners and scaled on how many they buy,government workers and benefit claims with children.

The ending of that cycle,and my work says it ended last winter means the above are certain to feel the most pain from this cycle.How that unfolds,timing,differences etc is cross market work and harder to pin down.

Of course the opposite side to that is hardly any wealth is sat in inflation hedged assets,equity and commods.The market has very few to reward and many to hurt at this stage in the cycle.I love where we are,because the position isnt foggy now,its clear.Inflation is flowing into the cracks like a thousand mountain streams,and trying to dam a few wont stop the lowlands flooding everywhere.The torrential rain has landed and it will reach the sea.

[Don Coglione]

12 minutes ago, DurhamBorn said:

@belfastchild as you say a huge part of the reason young taxpayers get stuffed on housing is because their tax is being used against them by people getting their money from government.Both pensions and benefits.I know several council workers with BTLs,usually 2 or 3.One of the first lessons i learned about contrarian macro strategy was that any given market will always try to reward the most to the least people and hurt the most people.Its the thing most fail to understand,because evidence from about a third of the way into a cycle until the end is counter to that.

In the UK the cycle has rewarded three sets more than anyone else.Property owners and scaled on how many they buy,government workers and benefit claims with children.

The ending of that cycle,and my work says it ended last winter means the above are certain to feel the most pain from this cycle.How that unfolds,timing,differences etc is cross market work and harder to pin down.

Of course the opposite side to that is hardly any wealth is sat in inflation hedged assets,equity and commods.The market has very few to reward and many to hurt at this stage in the cycle.I love where we are,because the position isnt foggy now,its clear.Inflation is flowing into the cracks like a thousand mountain streams,and trying to dam a few wont stop the lowlands flooding everywhere.The torrential rain has landed and it will reach the sea.

Pure poetry at the end there, DB.

[Animal Spirits]

BIS global liquidity indicators have been updated for Q1 2021:

https://www.bis.org/statistics/gli2107.htm

• Foreign currency credit growth, an indicator of global liquidity, held up for credit dominated in US dollars, but weakened for euro- and yen-denominated credit.
• Bank lending declined for all three currencies against the backdrop of strong bond issuance in dollars and euros.

[leonardratso]

i love these allegories and anecdotes, small change the anecdotes may well be, but you can bet that if someones doing it then there will be plenty more under the hood that are doing the same/similar. Theres nothing new under the sun.

[Boon]

I think its pretty easy to see that most people don't have any inflation assets at all.

In fact I reckon there are a lot of people with massive (90%+) exposure to property, either by 'buy the best property you can afford', either as first-time by or recycling house price increases into a new place. 

A lot of people who bought before the GFC might have equity gains but might have spent on extensions. Or saved money into cash or equivalents like premium bonds. Those pre-millenium may be sources of BOMAD.

Question is, will there be actually any pain if interest rates stay where they are? Property prices could even be allowed to have some moderately small growth. Crashing the market would be political suicide as I reckon most of the electorate would use house prices as a proxy for government performance. We have a terrible government now but IMO most of its shortcomings are not being challenged because people have been enrichened (the working class has not, but their opinions are easy to discredit).

For example 1% growth p/a when inflation is 5%, over a decade in simplistic terms is a 40% fall. But slow growth will keep the uneducated happy, as their house price is more in nominal terms. And because it also appreciates relative to cash would allow for a modest ladder effect.

[Mapper]

On 27/08/2021 at 21:46, Harley said:

Shout out to Tom Bodrovics (and Jonathan!). 

Well, there is somebody who is convinced of their positon!

All in on the energy plays.

I agree with what he said about China at the end. Xi is signalling what is in store for anybody that deals with the Middle Kingdom ie. The CCP is in control. The guy is a nut job. He really doesn't like the west.

 

[Hancock]

25 minutes ago, Mapper said:

Well, there is somebody who is convinced of their positon!

All in on the energy plays.

I agree with what he said about China at the end. Xi is signalling what is in store for anybody that deals with the Middle Kingdom ie. The CCP is in control. The guy is a nut job. He really doesn't like the west.

 

He's a HPCer and has been wrong on every claim i've seen him make, i read twitter for a short while the other year and he was claiming interest rates were about to go up.

He was back on HPC at the start of lockdown claiming a HPC had finally arrived.

Was entertaining on that link where he was on GB News though!

 

[Harley]

13 hours ago, Harley said:

Agreed.  Part of a sub-sector to watch as it hopefully bottoms.  DYOR.

And with immaculate timing (even BTO gets a mention as names are named!)...

https://palisadesradio.ca/john-feneck-bullish-signals-all-around-in-the-mining-stocks/

Big moves on my lovelies in mining and O&G at the close.  Busy day for me Monday as I review the technicals.

[RickyBacker]

1 hour ago, DurhamBorn said:

One of the first lessons I learned about contrarian macro strategy was that any given market will always try to reward the most to the least people and hurt the most people. Its the thing most fail to understand, because evidence from about a third of the way into a cycle until the end is counter to that.

Pearls of wisdom in everything you post, can't thank you enough. I wonder if this will play out at the end of the reflation cycle (or maybe before) during a potential rush to precious metals as the FIAT fantasy world crumbles before us. Good to buy insurance before the house is on fire.

[Harley]

Had a flyer through the door looking for skilled workers.  Top quality flyer screaming "help"!  And "desperate" as I live in the middle of nowhere and if it doesn't involve sheep it don't exist!

 

[ThoughtCriminal]

https://www.bbc.co.uk/news/business-58372882

 

Bit of nostalgia for DB

[goldbug9999]

41 minutes ago, Hancock said:

He's a HPCer and has been wrong on every claim i've seen him make, i read twitter for a short while the other year and he was claiming interest rates were about to go up.

 

In fairness the lockdown was the last hurrah for any hope of a "return to mean" - a return to anything approaching sanity in markets. Its didn't happen then and so now it wont ever at least until the major fiat currencies of the world hyper inflate.

[goldbug9999]

 

3 hours ago, DurhamBorn said:

Of course the opposite side to that is hardly any wealth is sat in inflation hedged assets,equity and commods.The market has very few to reward and many to hurt at this stage in the cycle.I love where we are,because the position isnt foggy now,its clear.Inflation is flowing into the cracks like a thousand mountain streams,and trying to dam a few wont stop the lowlands flooding everywhere.The torrential rain has landed and it will reach the sea.

So you are discounting housing as an inflation hedged asset then ?.

[goldbug9999]

3 hours ago, DurhamBorn said:

One of the first lessons i learned about contrarian macro strategy was that any given market will always try to reward the most to the least people and hurt the most people.

The ideal investment is where you start in a minority position which transitions to a majority position. This is how Micheal Saylor has made most of his money and gives some great expiations in some of his interviews. See the "shares you wish you had bought" thread - other people made a profit because you put them in the minority by not buying.

First half is about investing generally, so should be palatable for all you bitcoin sceptics.

[Don Coglione]

2 hours ago, Hancock said:

He's a HPCer and has been wrong on every claim i've seen him make, i read twitter for a short while the other year and he was claiming interest rates were about to go up.

He was back on HPC at the start of lockdown claiming a HPC had finally arrived.

Was entertaining on that link where he was on GB News though!

 

Was that @HousePriceMania / @TheCountOfNowhere ?

[Noallegiance]

4 hours ago, DurhamBorn said:

@belfastchild as you say a huge part of the reason young taxpayers get stuffed on housing is because their tax is being used against them by people getting their money from government.Both pensions and benefits.I know several council workers with BTLs,usually 2 or 3.One of the first lessons i learned about contrarian macro strategy was that any given market will always try to reward the most to the least people and hurt the most people.Its the thing most fail to understand,because evidence from about a third of the way into a cycle until the end is counter to that.

In the UK the cycle has rewarded three sets more than anyone else.Property owners and scaled on how many they buy,government workers and benefit claims with children.

The ending of that cycle,and my work says it ended last winter means the above are certain to feel the most pain from this cycle.How that unfolds,timing,differences etc is cross market work and harder to pin down.

Of course the opposite side to that is hardly any wealth is sat in inflation hedged assets,equity and commods.The market has very few to reward and many to hurt at this stage in the cycle.I love where we are,because the position isnt foggy now,its clear.Inflation is flowing into the cracks like a thousand mountain streams,and trying to dam a few wont stop the lowlands flooding everywhere.The torrential rain has landed and it will reach the sea.

I never thought macro economics could be poetic!

[DurhamBorn]

1 hour ago, goldbug9999 said:

 

So you are discounting housing as an inflation hedged asset then ?.

Yes,in most of the country.In the 70s it started from a much lower base and wages kept ahead.Rates are so low that even small increases are huge percentage increases.

I think housing here in the north might keep up with inflation,but i see no chance at all it does down south.I do little work on it,actually none,but the elastic is so stretched,and almost everyone is invested the risks are huge.

This is  distribution cycle.That is now almost certain,and that means more from wages and/or savings going on the basics.I also see big moves from pension schemes etc into housing for let and the government will squeeze BTL hard.

[Nomad]

1 hour ago, DurhamBorn said:

Yes,in most of the country.In the 70s it started from a much lower base and wages kept ahead.Rates are so low that even small increases are huge percentage increases.

I think housing here in the north might keep up with inflation,but i see no chance at all it does down south.I do little work on it,actually none,but the elastic is so stretched,and almost everyone is invested the risks are huge.

This is  distribution cycle.That is now almost certain,and that means more from wages and/or savings going on the basics.I also see big moves from pension schemes etc into housing for let and the government will squeeze BTL hard.

You would think that, but I'm yet to be convinced. The govt has poured so much support into housing, if it fails then the house of cards begin. Personally, living in the south I have been waiting for a house crash for 20 years, I paid off my mortgage in 2001 on a 3 bed property, and have wanted to move into a bigger property for the last 15 years, I was convinced house prices would decrease or at least remain static, but successive govt policy has ensured that has not been the case. I have now given up hoping and resigned to staying where I am.

Houses are now selling at crazy valuations locally, and they are selling fast.

[King Penda]

2 hours ago, DurhamBorn said:

Yes,in most of the country.In the 70s it started from a much lower base and wages kept ahead.Rates are so low that even small increases are huge percentage increases.

I think housing here in the north might keep up with inflation,but i see no chance at all it does down south.I do little work on it,actually none,but the elastic is so stretched,and almost everyone is invested the risks are huge.

This is  distribution cycle.That is now almost certain,and that means more from wages and/or savings going on the basics.I also see big moves from pension schemes etc into housing for let and the government will squeeze BTL hard.

Will the squeeze be for cash or to remove competition for the pensions to be invested or straight back to there banker chums

[DurhamBorn]

36 minutes ago, Nomad said:

You would think that, but I'm yet to be convinced. The govt has poured so much support into housing, if it fails then the house of cards begin. Personally, living in the south I have been waiting for a house crash for 20 years, I paid off my mortgage in 2001 on a 3 bed property, and have wanted to move into a bigger property for the last 15 years, I was convinced house prices would decrease or at least remain static, but successive govt policy has ensured that has not been the case. I have now given up hoping and resigned to staying where I am.

Houses are now selling at crazy valuations locally, and they are selling fast.

Crazy valuations and selling fast.Thats the end,or close to it of a cycle.Selling slow and cheap is the start.Governments efforts are outliers on housing.The dis-inflation of rates from 1982 is the real macro driver.On top of course you had the cross market affects of mass immigration ,mass single mothers so two house instead of one etc.

Property will always be the end parking spot of wealth over time,but the risks now are huge.I think the most likely pin is the government running out of room on the BOE monetizing the deficit.I think that starts this winter.We will see.

[DurhamBorn]

5 minutes ago, King Penda said:

Will the squeeze be for cash or to remove competition for the pensions to be invested or straight back to there banker chums

I think cash,and also to make the ground more clear for insurance companies and pension funds.CBs have made sure you invest it going forward in real assets,or we inflate it away and hand to government,your choice.That is the clear message from them.They are subtle of course,but gilts/treasuries 1.25% inflation 4% is just transferring savings to government to spend.

[goldbug9999]

14 minutes ago, DurhamBorn said:

Crazy valuations and selling fast.Thats the end,or close to it of a cycle.

I don't think there are cycles anymore, all the major economies have been printing like crazy any time there looks like being a sniff of recession. Its been 13 years now in the UK since an actual recession and I'm seeing no signs of one on the horizon. Governments and CBs now have people convinced there is "no more boom and bust" no reason to take any pain, no creative destruction. A nominal recession just ins't politically acceptable any more. I mean I thought house prices were toppy in 98 fucking lol in hindsight. So ignoring any actually common sense as to why something that costs 30k to build sells for 300k I see no end in sight.

[Hancock]

 

3 minutes ago, goldbug9999 said:

 I mean I thought house prices were toppy in 98 fucking lol in hindsight.

Think it was 1998 when me and my work mate would drive back from the building site discussing how a HPC has to happen soon as prices of 3 bed houses were seemingly rising by 5K every few months.