Jump to content
DOSBODS
  • Welcome to DOSBODS

     

    DOSBODS is free of any advertising.

    Ads are annoying, and - increasingly - advertising companies limit free speech online. DOSBODS Forums are completely free to use. Please create a free account to be able to access all the features of the DOSBODS community. It only takes 20 seconds!

     

IGNORED

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


spunko

Recommended Posts

1 hour ago, sancho panza said:

Without sounding like an A level student from the 80's(and without wishing to insult anyone's intelligence),there are differetn types of inflation which can mix n mathc and cause differing outcomes.

Funny, I wrote a treatise on this this morning but resisted posting as it failed the "'so what' in less than x words test".  Agreed, plus some"new" stuff to cope with the current interventionist situation like it is the manner in which monetary supply is delivered (e.g. monetary versus fiscal) that has differing impacts.

Link to comment
Share on other sites

  • Replies 35.1k
  • Created
  • Last Reply
2 hours ago, DurhamBorn said:

Consumer isnt the driver of inflation in this cycle ahead,thats why everyone is missing whats coming.Governments will drive an industrial recovery cycle and that will cause the inflation as the massive amounts of liquidity in the plumbing starts to move sectors etc and force up velocity.The 5G Huawei was a prime example as blocks pulls things back and all chase the same goals.100% certain BT,Vod and Telefonica told government if they had to replace kit they would need to increase prices and government nodded.The economy simply cant sustain our way of life much longer as far too much investment has flowed east and been consumed.Most economists miss the fact that inflation doesnt tend to run during a consumer cycle,it runs in the rare times between consumer cycles where economies re-tool,re-invest,upgrade capital assets.The consumer will gain from cheap energy in a few cycles time when the capital invested in this one depreciates.

DB, i think it interesting that you flag up inflation causes - as so many podcasters are doing the 'why/where/how' will inflation be generated. Mostly, they see it as a low risk of happening. But as you say they are incorrectly thinking in terms of consumer inflation. 

I agree, however, i am still some what doubtful about the overall size and therefore the impact of the coming industrial cycle. e.g. the Hauwei decoupling may take us up to 7 years, HS2 is not due to arrive until 2030-2035, and Hinkley Point is under a 10 year construction - all very slow. I get it that crucially government this time will be spending direct into the economy - but if the new projects took even half as long, they still probably wouldn't start for several years, so surely the resulting jobs/increased wages will therefore also arrive very slowly. 

I know you don't predict high inflation until later this decade, 2025-28 i think, but for inflation to run hot surely it will take much more than industries re-tooling or upgrading, even with the added fuel of the reshoring of many jobs. I think you have mentioned green infrastructure/housing before and i am not discounting those projects, but don't we instead need mammoth projects, such as an Indo-British space mission... and other ones our new Covid-Command economy government can now very conveniently instigate, fund and control? (no conspiracy, instead just a dose of fortuitous sychronicity in action)

...In terms of mammoth projects perhaps we won't now get that Singapore-upon-Thames that Boris raved about pre-Brexit, but might we get a FreePort 'Hong-Kong upon Kingston-upon-Hull !!' (including a new mega-city for all those highly qualified migrants)... an easy political sell i think given the geo-politics.

 

Link to comment
Share on other sites

3 hours ago, reformed nice guy said:

That is probably the big kahuna. When a significant bond coupon is not repaid

ie when the US defaults on their debts? What's the collective's thoughts on that one?

If Trump gets re-elected maybe that's his master plan? O.o

Link to comment
Share on other sites

re inflation, it's a red herring and it won't happen, why? well here's a recent transcript between a 'FED rep' and some 'financial guru'......:P

Hi.

Hi.

Inflation is <2%.

Huh?

Inflation is <2%.

WTF is wrong with you?? No way in hell inflation is <2%!

I am a Fed President.

So the f*** what? You're still full of shit.

But I can go on CNBC anytime I want and spread my bullshit. How about you?

No, I can't.

OK then.

Link to comment
Share on other sites

Well call me a macro strategist! 

Yet another one.  At the start of the year I was talking about Locke and co and the Social Contract.  Just listened to the following April podcast with Pippa about this (at the end) and other things (like the inflationary expectations we just talked about).  

The Grant Williams Podcast: 001 - Hmmminar Series - Dr. Pippa Malmgren (2 April 2020) https://mcdn.podbean.com/mf/web/eyp9gb/HMNR_0101.mp3

Very comforting to know I'm not alone in my ramblings!

However, I don't care for the corporate debt jubilee type solution she proposes but I'm too much a Calvinist at times!

Also some very dark themes also discussed which alas I do see coming.

Link to comment
Share on other sites

1 hour ago, 5min OCD speculator said:

ie when the US defaults on their debts? What's the collective's thoughts on that one?

If Trump gets re-elected maybe that's his master plan? O.o

Listening to an earlier podcast where effective default was discussed.  The BOJ now owns 90% of its bonds so can effectively default by issuing say 200 year zero coupon paper as a replacement.  The EU is on the way but the US has a ways to go.  Another reason negative rates would currently be difficult for them.  Not the main reason though (that is another fascinating story).   

Link to comment
Share on other sites

1 hour ago, 5min OCD speculator said:

But I can go on CNBC anytime I want and spread my bullshit. How about you?

Until the day his way to the studio is barred by the mob with pitchforks!

Link to comment
Share on other sites

3 hours ago, Castlevania said:

A very good catch there.  I love this:

"The letter asked whether the current CGT rules are ‘fit for purpose’ and could be simplified".

It's already been simplified to an inch of its life!  So that only leaves...

We'll see.  Currently it's known as the voluntary tax!  Love to see it levied on your home (PPR) but I dream. 

Time to generate some gains before the Budget though?!

PS:  Hah, just read the first comment to the article.

PPS:  Come on, sort out CGT if you must but also the PPR exemption, Inheritance Tax exemptions, pension allowances,  VCT exemptions, non ordinarily resident exemptions, corporate interest relief (read private equity), etc exemptions, etc.  Burn it all!

Link to comment
Share on other sites

Transistor Man
7 hours ago, PaulParanoia said:

So which companies are likely to benefit from the Huawei 5G ban?  Nokia?  Any others?

Ericsson 

there’s a fair amount of talk about US companies wanting to take a stake in both. They are cleaning up between them.

Link to comment
Share on other sites

4 hours ago, sancho panza said:

outh Africa have started doing this.Mrs P is on a warning that she may have to ditch citizenship(I can't see many advantages to an SA passport)

You never know what the future may hold!...at least as a spouse it gives you another option.

Link to comment
Share on other sites

4 hours ago, Harley said:

Where did you hear that?

One of the media outlets, can't remember which one...probably FT a couple of days ago.

Link to comment
Share on other sites

Castlevania
1 hour ago, Harley said:

A very good catch there.  I love this:

"The letter asked whether the current CGT rules are ‘fit for purpose’ and could be simplified".

It's already been simplified to an inch of its life!  So that only leaves...

We'll see.  Currently it's known as the voluntary tax!  Love to see it levied on your home (PPR) but I dream. 

Time to generate some gains before the Budget though?!

PS:  Hah, just read the first comment to the article.

PPS:  Come on, sort out CGT if you must but also the PPR exemption, Inheritance Tax exemptions, pension allowances,  VCT exemptions, non ordinarily resident exemptions, corporate interest relief (read private equity), etc exemptions, etc.  Burn it all!

Simplified? It’s a mess.

Link to comment
Share on other sites

4 hours ago, sancho panza said:

Without sounding like an A level student from the 80's(and without wishing to insult anyone's intelligence),there are differetn types of inflation which can mix n mathc and cause differing outcomes.

Consumer driven inflation is generally demand pull.

Price infaltion generally stems from rising commodity price s and input (labour) costs=cost push

Moentary inflation from the printing of moeny

asset infaltion-generally leads to rsiing input costs/wages

velocity driven infaltion-occurs as people rush to spend before it becoems worthless

there's more,these are off the top of my head.

 

As I've said previously,I see a 5%-10% chance we end up with a huge long deflation like Japan.The more likely result as per @DurhamBorn 's answer is that it will be govt printing and industrial stimulus packages that drive it this time.Wages will be playing catch up.As you say,tehre's no basis for predicting record levels of employment.There's every chance we may well see declining wages(inflation measurement problems aside) and rising inflation at the same time-particualrly food and fuel.

The disticntion between things purcahsed with credit eg hosues and cars and things purchased with cash is importnant.The main inflation has been in the former over the last twnety years and whilst I won't put figures on it,I think it's highly likely the latter will see the inflation over the next twenty.

 

Worth ntoing as well,that DB's thesis is reinforced by the pitiful state of most commercial banks balance sheets.I'd refer you to that banking paper fifty pages back about how UK banks are more leveraged now than 2006.The transmission mechanism for traditoanl stimulus of credit is broken.The only route open to govts is tehmselves.

Thank you for `insulting` my intelligence, you pitched it at just the right level so that I could understand :-)

Link to comment
Share on other sites

24 minutes ago, Castlevania said:

Simplified? It’s a mess.

If it's a mess now, what did you call it back in the indexing days!

Agree, the transitional stuff was a ballache but that's history for most.

Even back in the day, the easiest tax I ever learnt!  And very productive to do so!  

Just roll it all into income like many other countries.  All the real money is well out of it now, leaving just Mr & Mrs Average.

But no more PPR relief?  Yes!  Well, you people mouthing off about propertee should not have treated your home as your #1 (fake) investment!

Link to comment
Share on other sites

Castlevania
14 minutes ago, Harley said:

If it's a mess now, what did you call it back in the indexing days!

Agree, the transitional stuff was a ballache but that's history for most.

Even back in the day, the easiest tax I ever learnt!  And very productive to do so!  

Just roll it all into income like many other countries.  All the real money is well out of it now, leaving just Mr & Mrs Average.

But no more PPR relief?  Yes!  Well, you people mouthing off about propertee should not have treated your home as your #1 (fake) investment!

When I studied it, it was taxed as income but with taper relief which reduced the rate you paid the longer you’d held an asset. If you sold and bought back the next day you’d crystallise a gain or a loss. If you only sold a portion of your shares your gain or loss was calculated on a first in first out basis. Easy.

Link to comment
Share on other sites

1 hour ago, Castlevania said:

When I studied it, it was taxed as income but with taper relief which reduced the rate you paid the longer you’d held an asset. If you sold and bought back the next day you’d crystallise a gain or a loss. If you only sold a portion of your shares your gain or loss was calculated on a first in first out basis. Easy.

Oh dear, it's more complicated than that now?  I don't think I'm ready for the exam then!  Admittedly it was a while ago that I had a taxable charge and the bf losses sorted that out nicely! 

Link to comment
Share on other sites

7 hours ago, Loki said:

I always meant to ask @DurhamBorn - did you ever see your threads turning into the massive success they are? When you first posted it, was it work you already had in your head or did you formulate it especially?

I knew the site had free thinkers and different skills.I hoped it would attract them to share their knowledge.I hoped it could be a place where everyone was welcome and could enjoy,learn and grow.I see the success as due to everyone who comments.I often go away and look at things again myself due to the superb people on here.Above all im very grateful to everyone that it has remained a welcoming place where everyone is welcome and it has avoided turning into slanging matches.

I already was doing the work and the road map i was seeing was extreme,so i questioned it myself and the thread helped me trust it,because we kept lining the ducks up and hitting them.Lots of mistakes of course,but overall,very happy indeed.

Link to comment
Share on other sites

5 hours ago, JMD said:

DB, i think it interesting that you flag up inflation causes - as so many podcasters are doing the 'why/where/how' will inflation be generated. Mostly, they see it as a low risk of happening. But as you say they are incorrectly thinking in terms of consumer inflation. 

I agree, however, i am still some what doubtful about the overall size and therefore the impact of the coming industrial cycle. e.g. the Hauwei decoupling may take us up to 7 years, HS2 is not due to arrive until 2030-2035, and Hinkley Point is under a 10 year construction - all very slow. I get it that crucially government this time will be spending direct into the economy - but if the new projects took even half as long, they still probably wouldn't start for several years, so surely the resulting jobs/increased wages will therefore also arrive very slowly. 

I know you don't predict high inflation until later this decade, 2025-28 i think, but for inflation to run hot surely it will take much more than industries re-tooling or upgrading, even with the added fuel of the reshoring of many jobs. I think you have mentioned green infrastructure/housing before and i am not discounting those projects, but don't we instead need mammoth projects, such as an Indo-British space mission... and other ones our new Covid-Command economy government can now very conveniently instigate, fund and control? (no conspiracy, instead just a dose of fortuitous sychronicity in action)

...In terms of mammoth projects perhaps we won't now get that Singapore-upon-Thames that Boris raved about pre-Brexit, but might we get a FreePort 'Hong-Kong upon Kingston-upon-Hull !!' (including a new mega-city for all those highly qualified migrants)... an easy political sell i think given the geo-politics.

 

I think the key is its not just us,its everyone.Remember as well,im looking at this as a macro strategist.I simply look at the liquidity and do the cross market work.How it plays out cant be certain,but the liquidity in the pipes is certain.In a reflation inflation tends to just jump and nobody knows why.The west is standing on the edge of revolution and a massive cold war with China.Governments will inflate,99% certain.

Link to comment
Share on other sites

sancho panza
6 hours ago, Harley said:

Funny, I wrote a treatise on this this morning but resisted posting as it failed the "'so what' in less than x words test".  Agreed, plus some"new" stuff to cope with the current interventionist situation like it is the manner in which monetary supply is delivered (e.g. monetary versus fiscal) that has differing impacts.

Publish and be damned Harley.

Ref CGT I do wodner how many people pay it.WIth ISA allowances and SIPPs you do wonder how mch you'd ned to have to make it worht colecting.A bit like inheritance tax,very few actually pay it but it costs a fair bit to collect.

Link to comment
Share on other sites

sancho panza

My daily wolf st lift.Be interesting to see if the non recourse states lead the way.8% of US mortgages in forbearance.........

#deflation cometh

https://wolfstreet.com/2020/07/14/it-starts-mortgage-delinquencies-suddenly-soar-at-record-pace/

It Starts: Mortgage Delinquencies Suddenly Soar at Record Pace

by Wolf Richter • Jul 14, 2020 • 179 Comments

And this is just for April, the very beginning of the Pandemic’s impact on housing.

By Wolf Richter for WOLF STREET.

OK, it’s actually worse. Mortgages that are in forbearance and have not missed a payment before going into forbearance don’t count as delinquent. They’re reported as “current.” And 8.2% of all mortgages in the US – or 4.1 million loans – are currently in forbearance, according to the Mortgage Bankers Association. But if they did not miss a payment before entering forbearance, they don’t count in the suddenly spiking delinquency data.

Transition from “Current” to 30-days past due: In April, the share of all mortgages that were past due, but less than 30 days, soared to 3.4% of all mortgages, the highest in the data going back to 1999. This was up from 0.7% in April last year. During the Housing Bust, this rate peaked in November 2008 at 2% (chart via CoreLogic):

From 30 to 59 days past due: The rate of these early delinquencies soared to 4.2% of all mortgages, the highest in the data going back to 1999. This was up from 1.7% in April last year.

From 60 to 89 days past due: As of April, this stage had not yet been impacted, with the rate remaining relatively low at 0.7% (up from 0.6% in April last year). This stage will jump in the report to be released a month from now when today’s 30-to-59-day delinquencies, that haven’t been cured by then, move into this stage.

Serious delinquencies, 90 days or more past due, including loans in foreclosure: As of April, this stage had not been impacted, and the rate ticked down to 1.2% (from 1.3% in April a year ago). We should see the rate rise in two months and further out.

Delinquency Hotspots:

The overall delinquency rate rose in every state. But there were some real hotspots, in terms of the percentage-point increase in the delinquency rate in April, compared to April a year ago:

  • New York: +4.7 percentage points
  • New Jersey: +4.6 percentage points
  • Nevada: +4.5 percentage points
  • Florida: +4.0 percentage points
  • Hawaii: +3.7 percentage points.

The worst hit metros are tourism destinations and New York City where the most devastating and deadliest outbreak of the Pandemic in the US occurred. These are massive increases in the delinquency rates in April:

  • Miami, FL: +6.7 percentage points
  • Kahului, HI: +6.2 percentage points
  • New York, NY: +5.5 percentage points
  • Atlantic City, NJ: +5.4 percentage points
  • Las Vegas, NV: +5.3 percentage points.

With over 8% of the mortgages now being in forbearance, there is a lot of uncertainty about them as well – how many of them can exit forbearance or the extension and return to regular payments, and how many of them end up exiting forbearance and becoming delinquent.

 

Link to comment
Share on other sites

5 hours ago, sancho panza said:

My daily wolf st lift.Be interesting to see if the non recourse states lead the way.8% of US mortgages in forbearance...

My canary just pegged it. :)

The liquidity phase, then blow off phase, now the solvency phase commeth, starting with the upstream consumer.  But how will "they" deal with this, especially in an election year? Time for something new and new normal "kind"?  Jubilee, bad bank, etc?

Link to comment
Share on other sites

jamtomorrow
1 hour ago, Harley said:

My canary just pegged it. :)

The liquidity phase, then blow off phase, now the solvency phase commeth, starting with the upstream consumer.  But how will "they" deal with this, especially in an election year? Time for something new and new normal "kind"?  Jubilee, bad bank, etc?

 

20200716_070205.jpg

Link to comment
Share on other sites

For my sins i am a P2P investor - although hasten to add i am no longer active and am now divesting. My 'excuse' is i wasn't confident with equities, but as a longtime onlooker to the socio-political-economic nightmare happening all around in the West, i was drawn to this blog's thesis and then the opportunity to - intelligently - invest for the next cycle (obviously i do my own research!).

Anyway the reason for posting is that i notice many of my loans are being repaid early, far more than is usual, and this began shortly after lockdown/furlough started. I mention this because it links with other stats for household credit being repaid, etc. I think it perhaps particularly interesting that P2P borrowers - maybe not the most financially responsible bunch - are also themselves deleveraging... big disinflation incoming(?), which i think is the consensus here, before inflation turn.  

Link to comment
Share on other sites

12 minutes ago, JMD said:

For my sins i am a P2P investor - although hasten to add i am no longer active and am now divesting. My 'excuse' is i wasn't confident with equities, but as a longtime onlooker to the socio-political-economic nightmare happening all around in the West, i was drawn to this blog's thesis and then the opportunity to - intelligently - invest for the next cycle (obviously i do my own research!).

Anyway the reason for posting is that i notice many of my loans are being repaid early, far more than is usual, and this began shortly after lockdown/furlough started. I mention this because it links with other stats for household credit being repaid, etc. I think it perhaps particularly interesting that P2P borrowers - maybe not the most financially responsible bunch - are also themselves deleveraging... big disinflation incoming(?), which i think is the consensus here, before inflation turn.  

Exactly,when consumers re-trench governments have to step in and governments drive inflation much more than consumers.

Link to comment
Share on other sites

Archived

This topic is now archived and is closed to further replies.

  • Recently Browsing   0 members

    • No registered users viewing this page.

×
×
  • Create New...