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

[Barnsey]

2 hours ago, DurhamBorn said:

In the north i think yes,but the older ones,the HTB crap will be hammered i expect,50% off likely on a lot of those.I could see northern quality semis seeing 10% off then getting that 10% back then probable going up about half of inflation.Some houses up here are back to 1991 prices already,the crapper terrace houses.I could see the 4 bed £220k area coming down 20%.The north has some bubbly prices in places,but is nowhere near the south,and the north will see much more investment this cycle.

This is the best resource for following prices

https://builtplace.com/subscribers/local-markets/la-reports/

County Durham -5.3% in 10 years

About +25% where I am, and +55% in SE

 

[sancho panza]

On 19/05/2020 at 15:47, DurhamBorn said:

No because for everything the Fed prints assets that other people own go up in price,with a lag.I dont agree or like the system,but it is what it is.My unborn grandchildren wont say im really pleased  you hated that system grandfather and didnt take part in it,we like living in this rented hellhole.My job is to protect my family in every way i can.

The CBs are simply doing their job within the system we have.Its hyberbole that they only care about the rich.They dont actually give a toss about them.They actually care more about the poor because if we get systemic collapse its not the elite that suffer the most.Most of our problems are governments over spending on welfare,the CBs aided that by printing,but they only really did so during collapse events.In a way they were stuck.If you read the comments though,its obvious they are telling governments you are going to get one chance to invest here,dont come back with the bowl later because we will be fighting inflation.We will flatten the curve so you can borrow very cheaply,but its the last time we can on this scale.

 

I'm not sure how forward looking CB's are?If they had any sense they'd be saying what you are here DB.MY worry is that quite simply they believe the dollar hegemony will last forever.

I well remember that excellent dollar discussion earlier in thread and remind myself that we generally agreed the dollar had one last crisis left as world reserve.I hold out that Jay Powell,as the first non neo classical economist has the guts to do what needs doing but time till tell.

The reality is that given the multitude of variables the Fed has to consider and regulate,and their record,then it seems highly unlikely they will be able weigh velocity and money supply as astutely as needs be meaning eventually,that printing will lead to inflation long term.

 

 

 

Ref the first bit in bold,that what gets me coming on here every day for my varied education.It's sad that it's so true.

[sancho panza]

20 hours ago, Barnsey said:

They’ll come roaring back, they’ll do anything to prop up the housing market, won’t work of course in the short term.

EDIT: just noticed 15 year fix with YBS (75% LTV) has just dropped this week from 2.76% to 2.45%. Product fee of £495 remains the same.

There are issues with counterparties like YBS.They're the sort who will be invoking their margin call clauses come 2022.

18 hours ago, DurhamBorn said:

South might go down 60% or more inflation adjusted over the cycle.I think the cycle will play out by deleting a lot of equity,then holding steady while inflation and rates increase.The market will do two things before the next cycle ends.First it will destroy the idea of equity release because rates will be too high to justify it.2nd bonds will lose value over the cycle after another year or so and that will see pension pots close to and in drawdown go down to nothing over the decade.In a 60% and 80% bond weighting pension i expect -3% a year returns + 2% fees + draw down amounts say 5%,so down and out over 9ish years.Thats at best.

The wipeout of bond holders will be epic.I can't say we own a single one.The market and 95% of traders are geared for more of the same disinlfaiton of the last forty years.

Gonna be disappointed.

8 hours ago, Alifelessbinary said:

Building a rapport  with some local agents can go a long way especially if you can prove you are a good buyer. Auctions are also a good option, but you ideally need a friend whose a Building Surveyor to avoid the hidden stinkers. Although hard you just need to be polite to the EA and try to avoid the idiots who talk up the market. If unemployment hits the figures predicted they will be desperate for sales. 

That's a bit like saying if you make friends with a used car salesman they won't shaft you either the 3 month warranty or the car itself.If you cuddle wild dogs,they'll either give you ticks or bite you.

First things first,remember EA's/car salesmen/IFA's will generally sell you what suits them and their interests best at a price that suits them and their interests best.

If it suits them to sell you a house a decent price for you,it's because it suits them.no more no less.

[Barnsey]

19 minutes ago, sancho panza said:

I'm not sure how forward looking CB's are?If they had any sense they'd be saying what you are here DB.MY worry is that quite simply they believe the dollar hegemony will last forever.

I well remember that excellent dollar discussion earlier in thread and remind myself that we generally agreed the dollar had one last crisis left as world reserve.I hold out that Jay Powell,as the first non neo classical economist has the guts to do what needs doing but time till tell.

The reality is that given the multitude of variables the Fed has to consider and regulate,and their record,then it seems highly unlikely they will be able weigh velocity and money supply as astutely as needs be meaning eventually,that printing will lead to inflation long term.

 

 

 

Ref the first bit in bold,that what gets me coming on here every day for my varied education.It's sad that it's so true.

This is what makes me think it might be necessary to have another, and much greater deflationary shockwave, possibly later this year. The great “insolvency” crisis as Dave Rosenberg calls it. He points out that REITS and Utilities are still down heavily as “the bills aren’t being paid”. Comes right back to our much earlier discussion that the Fed won’t be able to prevent the carnage as they have managed to do relatively well so far. If we don’t get that next sharp leg down then do we just bump along?

[Barnsey]

1 minute ago, sancho panza said:

There are issues with counterparties like YBS.They're the sort who will be invoking their margin call clauses come 2022.

That does make me a little nervous but surely the fixed debt would just be sold on or bought by Gov?

[sancho panza]

7 hours ago, Democorruptcy said:

I think it will run at least a year. It's win win for banks by adding interest/extending mortgage terms on existing mortgages. The MMR enabled them to do that with new mortgages. The other win for them is that avoiding repos helps to prevent price discovery and so protects the value of their other mortgages. Re HTB the governbankment will be loathe to allow banks to repossess because they know they are on the hook for 20% or 40% in London. First tranche was £12bn, second was £10bn, not sure how much they added on the most recent extension. Avoid repos and push more mortgages into more years at higher rates, what's not to like? All under the guise of "helping" the mortgagees who will be lumbered with more years of debt at higher rates.

It's winwin for banks in the shrot term,in the longer term it damages their interests no end if it serves to reinforce the deflationary asset price/wage spiral.

History shows us they don't think long term.

[DurhamBorn]

59 minutes ago, Barnsey said:

This is the best resource for following prices

https://builtplace.com/subscribers/local-markets/la-reports/

County Durham -5.3% in 10 years

About +25% where I am, and +55% in SE

 

Fantastic resource that Barnsey.Exactly what you see on the ground here.Many terraces are near 1991 levels.So 60% difference on the South East.Incredible.

[Starsend]

1 hour ago, DurhamBorn said:

Welfare spending has caused most of the problems as the rich have used that to suck assets and tax from the working working class and middle class and run it through welfare to themselves.This coming recession would be the perfect time to reform welfare,but with the left crying for all the wrong people governments avoid it.I see it as a duty to only earn the minimum now and lawfully avoid paying tax.Only council tax gets me.The government will use inflation to try to get on top of things,and thats why the young have a chance here to get themselves back into the game.

Can't disagree with any of that. The problems are so many and so deep now. I also now only work up until the point I pay tax, partly because I'm semi-retired now but also partly because it wasn't really worth working for the money on offer any more. I'm also see paying the minimum into a corrupt system as almost a moral duty.

[Sasquatch]

1 hour ago, Barnsey said:

This is the best resource for following prices

https://builtplace.com/subscribers/local-markets/la-reports/

County Durham -5.3% in 10 years

About +25% where I am, and +55% in SE

 

Thanks for the link. Up 38% where we are in the last 10 years. We'd drop at least 10% off our current asking price to get the house sold.

[Bobthebuilder]

1 hour ago, sancho panza said:

That's a bit like saying if you make friends with a used car salesman they won't shaft you either the 3 month warranty or the car itself.If you cuddle wild dogs,they'll either give you ticks or bite you.

First things first,remember EA's/car salesmen/IFA's will generally sell you what suits them and their interests best at a price that suits them and their interests best.

If it suits them to sell you a house a decent price for you,it's because it suits them.no more no less.

While that is true for the wider market readers on this thread must know what they are up against. The houses that estate agents know can be bought cheap and easily extended, land to build on, etc always go to builders/ devolopers that they are pally with. Lots of brown envelopes changing hands of course. Some estate agents have there own builders who do the work and they fund it themselves,sad but has always been the way.The places they want are ones that can extend to the side, back and loft conversion. Worked on many myself i have to admit.

[nirvana]

The UK has sold bonds with a negative yield for the first time as a drop in inflation has highlighted how the Bank of England may need to take further steps to revive price growth back to its 2 per cent target. 

The country sold £3.8bn of three-year gilts at a yield of minus 0.003 per cent, according to the Debt Management Office. The slightly negative yield suggests investors who hold the debt to maturity will get back less than they paid, when accounting for regular interest payments and the return of principal. 

The UK had sold a one-month bill at a negative yield in 2016, but this represents the first time it has sold a conventional longer term bond at yield below zero.

Data released on Wednesday showed annual UK consumer price inflation nearly halved to 0.8 per cent last month — the lowest level in almost four years. Much of the decline was due to a plunge in the price of petrol, but some economists have warned the shock to demand caused by lockdowns could cause a wider disinflationary trend. 

The UK drew orders of £8.1bn in Wednesday’s auction, 2.15-times the amount the DMO was looking to sell. The robust demand underscores the appeal of gilts, long considered to be a haven due to the UK’s strong creditworthiness. It also suggests any fears over the large increase in borrowing the UK has undertaken due to the Covid-19 pandemic has not yet weighed on investor appetite for the debt. 

Wednesday’s auction comes during a growing debate into whether the BoE will need to reduce its main interest rate from its already historic low into negative territory, as policymakers attempt bring inflation back towards its target of 2 per cent and shield the economy from coronavirus-induced ructions. 

Moyeen Islam, rates strategist at Barclays, said the auction was a “symbolic hurdle”.

“Given recent comments from monetary policy committee members, the question of negative policy rates is far from settled,” he said.

The European Central Bank and Bank of Japan have already utilised negative rates, but they have faced criticism, especially from banks since it weighs heavily on the profitability of their traditional lending operations. 

“I can’t think of an economy where negative rates are a worse idea than the UK,” Kit Juckes, a strategist at Société Générale, said.

“The economic benefits are dubious but the power of a cocktail of negative rates and massive quantitative easing to weaken the currency seems clear and if the pound falls enough, it will make QE harder,” he said.

[Democorruptcy]

1 hour ago, sancho panza said:

It's winwin for banks in the shrot term,in the longer term it damages their interests no end if it serves to reinforce the deflationary asset price/wage spiral.

History shows us they don't think long term.

I don't want to think long term either. I'd like a deflation in house prices a.s.a.p.

[Democorruptcy]

2 hours ago, Barnsey said:

This is the best resource for following prices

https://builtplace.com/subscribers/local-markets/la-reports/

County Durham -5.3% in 10 years

About +25% where I am, and +55% in SE

 

England only? Is there a similar Wales and Scotland version?

[Barnsey]

 

[Sugarlips]

@DurhamBorn do you have any thoughts on the ongoing rumors that JPMorgan manipulates the Silver market and can smack down prices when it feels the need to? It’s a small enough market for them to play to their advantage if true?

[Jesus Wept]

37 minutes ago, Sugarlips said:

@DurhamBorn do you have any thoughts on the ongoing rumors that JPMorgan manipulates the Silver market and can smack down prices when it feels the need to? It’s a small enough market for them to play to their advantage if true?

 

https://news.goldcore.com/ie/gold-blog/silver-prices-physical-silver/

 

“Dimon has even admitted that the trigger for the next crisis may not be the same trigger as the last one – but there will be another crisis”

This was written in Jan 2020 - it’s as if they had a crystal ball.... 

 

The ability to accumulate so much physical silver whilst at the same time sell short huge quantities of paper derivatives or futures contracts could be the poster child for market manipulation. After all, the selling results in lower prices which then paves they way for more physical buying by the bank.

Butler again:

It couldn’t possibly be legitimate and that makes JPMorgan a market crook and manipulator. It also makes the federal regulator, the CFTC, and the self-regulating CME Group, incompetent, corrupt, or both. This takes a special kind of market manipulator, one most likely operating under some type of agreement with the regulators.

To what end are JP Morgan pursuing this path of silver hoarding?

That intent is to sell at as large a profit as possible. No one buys any investment asset with the intention of losing money, least of all JPMorgan. They didn’t spend the last seven years accumulating physical silver to sell that silver at anything but the highest price possible. I can’t tell you when JPM will let the price of silver fly, but I am certain that that day is coming.

 

[Jesus Wept]

https://gsiexchange.com/with-jpmorgan-back-in-the-mix-the-hammer-is-now-about-to-fall/amp/

[Hardhat]

17 minutes ago, Vendetta said:

https://gsiexchange.com/with-jpmorgan-back-in-the-mix-the-hammer-is-now-about-to-fall/amp/

 Very interesting. 

Hope it's right, as I'm sure many of us here are well positioned for a PM bull. 

[DurhamBorn]

1 hour ago, Sugarlips said:

@DurhamBorn do you have any thoughts on the ongoing rumors that JPMorgan manipulates the Silver market and can smack down prices when it feels the need to? It’s a small enough market for them to play to their advantage if true?

Yes,as others are saying,they have simply ended up owning massive amounts of physical for very cheap prices.With everything going on its very likely they will now let the PMs rip because they wouldnt be able to hold back the liquidity entering anyway.They know silver needs to nearly 20x to reach fair monetary price.We cant buy 1 billion ozs of silver like them,im just hoping Endeavour can hit half a billion oz at their Aida prospect 

39 minutes ago, Vendetta said:

https://gsiexchange.com/with-jpmorgan-back-in-the-mix-the-hammer-is-now-about-to-fall/amp/

 

[Loki]

11 minutes ago, DurhamBorn said:

With everything going on its very likely they will now let the PMs rip because they wouldnt be able to hold back the liquidity entering anyway

 

[Democorruptcy]

Sunak planning to extend UK mortgage relief scheme

Chancellor said to be in discussion about how to continue helping borrowers

[DurhamBorn]

One part of the reflation cycle ahead that we have ignored for a while due to the obvious shorter term need to focus on positioning etc is the fact we are entering a new cold war and spending on military (and military reach) is going to increase.This is a long,but very interesting article on whats ahead.

https://quillette.com/2020/05/17/cold-war-now-or-hot-war-later/

[Shamone]

6 hours ago, Loki said:

@DurhamBorn and the contributors to his threads have taught me more about finance than all of my friends and family put together.

I've given up trying to talk to my folks about it.  The old man won't even contact his pension company to see how much is in bonds.  Neither of them have shown any inclination to open a S&S ISA despite me talking them through what I'm doing and why.

Well done for trying, though. I gave up on financial talk with anyone but my wife a long time ago.

[Shamone]

5 hours ago, DurhamBorn said:

Welfare spending has caused most of the problems as the rich have used that to suck assets and tax from the working working class and middle class and run it through welfare to themselves.This coming recession would be the perfect time to reform welfare,but with the left crying for all the wrong people governments avoid it.I see it as a duty to only earn the minimum now and lawfully avoid paying tax.Only council tax gets me.The government will use inflation to try to get on top of things,and thats why the young have a chance here to get themselves back into the game.

100% absolutely spot-on. 

[Transistor Man]

42 minutes ago, DurhamBorn said:

One part of the reflation cycle ahead that we have ignored for a while due to the obvious shorter term need to focus on positioning etc is the fact we are entering a new cold war and spending on military (and military reach) is going to increase.This is a long,but very interesting article on whats ahead.

https://quillette.com/2020/05/17/cold-war-now-or-hot-war-later/

As I wrote on another thread: yesterday, under massive pressure from the US, the world’s leading contract chip maker — the Taiwanese TSMC — said they would no longer process orders from Huawei. 

This is hugely significant. You can’t make leading-edge network, 5G, or handset equipment without access to this technology. Phased array radar, avionics, control systems — same. 

At the same time,  TSMC will build a new $12 billion fab in Arizona. DARPA has a Trusted Foundry programme: chips for US national security applications have to be manufactured by a trusted partner.