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

[AlfredTheLittle]

1 hour ago, Barnsey said:

Late 90s episode of Bruce's Price is Right on TV at the moment, we really do seem to have forgotten just how lucky we've been during the 20 years of disinflation since.

2 wooden outdoor chairs and a parasol = £500, 7 inch portable DVD player = £900 

Absolutely convinced we're turning back now.

That would suit me if housing came down in the same way. The 20 years since have seen prices of consumables tumble but housing shoot up to compensate. If that now reverses, the people worst hit will be those buying houses now at the top, then paying top prices for everything else in the next couple of decades while also trying to pay off the house.

[DurhamBorn]

38 minutes ago, AlfredTheLittle said:

That would suit me if housing came down in the same way. The 20 years since have seen prices of consumables tumble but housing shoot up to compensate. If that now reverses, the people worst hit will be those buying houses now at the top, then paying top prices for everything else in the next couple of decades while also trying to pay off the house.

Housing  could take up all of a macro strategist's time on its own.Its got so many things cross market that affects it.If there was such a thing as a degree course for macro strategy then setting the students to work on UK housing would be a great subject for them to learn,and also for their teacher to mark them on.

What is obvious from only half an hour looking at things is that people who work and pay tax are actually funding their own destruction through those taxes.

If i just take one little example.

3 bed semi over the road from me.Nice house,needed a bit of work,maybe £10k.Went up for £120k just before Covid.

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 and with a sub from the person who rents it to's mother,her sister.She rents it to her niece who has 5 kids.She gets £700 housing benefit that she gives to her aunty.So her aunty bought a house with taxpayers money,then rents it to her niece who gets £700 in taxpayers money to hand to her aunty.She also gets another £500 a week in benefits,she has exchanged her 3 year old BMW this week for a brand new one.

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

 

[goldbug9999]

1 hour ago, AlfredTheLittle said:

That would suit me if housing came down in the same way. The 20 years since have seen prices of consumables tumble but housing shoot up to compensate. 

Indeed, if a house was to still cost say 100 x the price of a DVD player we'd be laughing. It does make you realise that though that high house prices is not just a "nuisance" its literally soaking up and neutralising several decades of technological and productivity gains which should be benefitting everyone. 

[MrXxxx]

29 minutes ago, DurhamBorn said:

.If there was such a thing as a degree course for macro strategy then setting the students to work on UK housing would be a great subject for them to learn,and also for their teacher to mark them on.

They've not mastered student loans and compound interest yet, can we leave the advanced curriculum for a PhD?! :-)

[Noallegiance]

2 hours ago, DurhamBorn said:

Housing  could take up all of a macro strategist's time on its own.Its got so many things cross market that affects it.If there was such a thing as a degree course for macro strategy then setting the students to work on UK housing would be a great subject for them to learn,and also for their teacher to mark them on.

What is obvious from only half an hour looking at things is that people who work and pay tax are actually funding their own destruction through those taxes.

If i just take one little example.

3 bed semi over the road from me.Nice house,needed a bit of work,maybe £10k.Went up for £120k just before Covid.

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 and with a sub from the person who rents it to's mother,her sister.She rents it to her niece who has 5 kids.She gets £700 housing benefit that she gives to her aunty.So her aunty bought a house with taxpayers money,then rents it to her niece who gets £700 in taxpayers money to hand to her aunty.She also gets another £500 a week in benefits,she has exchanged her 3 year old BMW this week for a brand new one.

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

 

Is this 'business plan' not scuppered when the printing press gets switched off?

[Barnsey]

1 hour ago, Noallegiance said:

Is this 'business plan' not scuppered when the printing press gets switched off?

If it's not them though, it's Lloyds Bank and others which are already starting to buy up housing stock to rent out, any drop in prices and they swoop in 

https://www.theguardian.com/business/2021/aug/19/lloyds-plans-big-move-into-uk-rental-market-with-50000-homes

[Loki]

12 minutes ago, Barnsey said:

If it's not them though, it's Lloyds Bank and others which are already starting to buy up housing stock to rent out, any drop in prices and they swoop in 

https://www.theguardian.com/business/2021/aug/19/lloyds-plans-big-move-into-uk-rental-market-with-50000-homes

Blackrock horse

[DurhamBorn]

This was always likely to happen and its good to see the likes of L+G might be involved.Real asset investment is the right area for pension schemes in a reflation.Its very likely that we will be booming in the north by late in the cycle.Sell energy companies they said last year 

https://www.telegraph.co.uk/business/2021/08/28/investors-race-back-new-brexit-super-port/

[JMD]

4 hours ago, MrXxxx said:

They've not mastered student loans and compound interest yet, can we leave the advanced curriculum for a PhD?! :-)

Ahhh, no longer an issue - you see there will be no actual exams, all shall receive prizes through 'continual assesment'!? Schools have gotten used to this way of doing for last two years and want it to expand. Oh and bye the way, please refrain from using the trigger term 'mastered'?!?                                                                                          Couldn't make any of this crazy stuff up could you? ps I didn't!!!

[Hancock]

5 hours ago, DurhamBorn said:

Housing  could take up all of a macro strategist's time on its own.Its got so many things cross market that affects it.If there was such a thing as a degree course for macro strategy then setting the students to work on UK housing would be a great subject for them to learn,and also for their teacher to mark them on.

What is obvious from only half an hour looking at things is that people who work and pay tax are actually funding their own destruction through those taxes.

If i just take one little example.

3 bed semi over the road from me.Nice house,needed a bit of work,maybe £10k.Went up for £120k just before Covid.

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 and with a sub from the person who rents it to's mother,her sister.She rents it to her niece who has 5 kids.She gets £700 housing benefit that she gives to her aunty.So her aunty bought a house with taxpayers money,then rents it to her niece who gets £700 in taxpayers money to hand to her aunty.She also gets another £500 a week in benefits,she has exchanged her 3 year old BMW this week for a brand new one.

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

 

Tell the local smackheads that they're on holiday for a few weeks and have loads of fancy goods in their house.

Just drive past a housing estate of 3 bed semis in Beverley, and there was 2 next to each other both with "To Let" signs up, fucken joke as these were estates for families to be settled, not for some parasitic cunt to grab someone elses wages.

[King Penda]

5 hours ago, DurhamBorn said:

Housing  could take up all of a macro strategist's time on its own.Its got so many things cross market that affects it.If there was such a thing as a degree course for macro strategy then setting the students to work on UK housing would be a great subject for them to learn,and also for their teacher to mark them on.

What is obvious from only half an hour looking at things is that people who work and pay tax are actually funding their own destruction through those taxes.

If i just take one little example.

3 bed semi over the road from me.Nice house,needed a bit of work,maybe £10k.Went up for £120k just before Covid.

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 and with a sub from the person who rents it to's mother,her sister.She rents it to her niece who has 5 kids.She gets £700 housing benefit that she gives to her aunty.So her aunty bought a house with taxpayers money,then rents it to her niece who gets £700 in taxpayers money to hand to her aunty.She also gets another £500 a week in benefits,she has exchanged her 3 year old BMW this week for a brand new one.

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

 

If it’s a relative renting via hb  a recently bought house they often ask that the house has a history of being rented out before it can be rented to a relitive .

[DurhamBorn]

46 minutes ago, King Penda said:

If it’s a relative renting via hb  a recently bought house they often ask that the house has a history of being rented out before it can be rented to a relitive .

She bought this one to rent to her niece.

[Harley]

On 27/08/2021 at 23:14, sancho panza said:

Another decent size goldie trading on 7 times historic earnings

Decl:long

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

[King Penda]

6 hours ago, DurhamBorn said:

She bought this one to rent to her niece.

That’s a bit naughty I think .but lots do it .I’m not sure how close the relationship has to be before it’s ok.I know parents is a no no but ok if the house has been rented out before

[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.