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

[Virgil Caine]

Just now, Green Devil said:

Id say the odds on cutting are 90%. Highly likely IMO. Can't see a wealth tax as too many tories mates affected. Gotta be a pension grab as that is paid by the squeezed middle not the 1%. 

Unlike a wealth tax cutting pension tax relief requires minimal effort for the government with no new tax computer systems or complex and costly valuations of assets before  assessments can be raised. 

[AlfredTheLittle]

2 minutes ago, Virgil Caine said:

Unlike a wealth tax cutting pension tax relief requires minimal effort for the government with no new tax computer systems or complex and costly valuations of assets before  assessments can be raised. 

It's hugely complicated because how do you withdraw higher rate relief for defined benefit pension? They already had to change the annual allowance because of doctors, this would be a hundred times more complicated, I don't think they'll do it 

[sancho panza]

How do you explain that at first which appears a paradox?

 

https://www.investing.com/news/commodities-news/oil-stockpiles-rose-an-unexpected-152-million-barrels-eia-2365265

Investing.com -- Crude oil stockpiles rose far more than expected in the latest week the Energy Information Administration said on Wednesday.

Crude inventories spiked last week, adding 15.2 million barrels compared with analysts' expectations for a 1.42 million-barrel drawdown.

Distillate stockpiles, which include diesel and heating oil, rose by 5.2 million barrels in the week against expectations for a 1.41 million barrel increase, the EIA data showed.

Refinery crude runs rose by 424,000 barrels in the last week, EIA said. The weekly refinery utilization rate was 1.7%, according to the report.

U.S. gasoline inventories rose by 4.22 million barrels last week the EIA said, compared with expectations for a 2.27 million-barrel build.

 

 

 

versus...

of note OXY has near doubled in a month.

[Castlevania]

56 minutes ago, Virgil Caine said:

Unlike a wealth tax cutting pension tax relief requires minimal effort for the government with no new tax computer systems or complex and costly valuations of assets before  assessments can be raised. 

I don’t think you’ve ever dealt with the U.K. government.

I read that a change to pensions tax relief would take up to three years to implement due to having to update systems.

[Virgil Caine]

Just now, Castlevania said:

I don’t think you’ve ever dealt with the U.K. government.

I read that a change to pensions tax relief would take up to three years to implement due to having to update systems.

I worked for the Inland Revenue for nearly a decade in the 1980s so I know exactly how government works.  In fact I helped write one of the first computer systems for the  Revenues Pension Scheme Office. The issues with Pension Tax relief largely revolve around the computer systems run by Scheme Administrators not HMRC. If you think Pension Tax relief is complicated imagine how difficult a wealth tax would be to assess. For a start HMRC holds no upto date valuation of domestic properties in the U.K. The last one was done over 20 years ago. Then there are the problems with assets which might be double counted as savings  such as Pension Lump  sums. This is without considering things such as the valuation of  shares in non listed companies, capital investments in things like art, Jewellery, antiques etc.

[DurhamBorn]

6 hours ago, Democorruptcy said:

Link https://financialpost.com/commodities/energy/shell-executives-quit-amid-discord-over-green-push

Great news,means they are keeping oil and expanding gas,they can buy all the clean energy companies up with the massive free cash flow mid cycle when they cant re-finance at 7%+

Big oil doesnt need to build it,they can let other build it,then buy it cheap as the only ones with the cash.

[Democorruptcy]

22 minutes ago, Virgil Caine said:

I worked for the Inland Revenue for nearly a decade in the 1980s so I know exactly how government works.  In fact I helped write one of the first computer systems for the  Revenues Pension Scheme Office. The issues with Pension Tax relief largely revolve around the computer systems run by Scheme Administrators not HMRC. If you think Pension Tax relief is complicated imagine how difficult a wealth tax would be to assess. For a start HMRC holds no upto date valuation of domestic properties in the U.K. The last one was done over 20 years ago. Then there are the problems with assets which might be double counted as savings  such as Pension Lump  sums. This is without considering things such as the valuation of  shares in non listed companies, capital investments in things like art, Jewellery, antiques etc.

They could put the onus on people to declare their wealth and do spot checks, with huge fines to deter people from falsifying their declaration.

[Bricormortis]

Maybe a tax on bank and savings balances. I think Norway take 1% of your spare annually.

[Castlevania]

8 minutes ago, Democorruptcy said:

They could put the onus on people to declare their wealth and do spot checks, with huge fines to deter people from falsifying their declaration.

Alternatively charge an imputed rent on housing, based on housing benefit rates. There’s data for that.

[Democorruptcy]

5 minutes ago, Castlevania said:

Alternatively charge an imputed rent on housing, based on housing benefit rates. There’s data for that.

10 minutes ago, Bricormortis said:

Maybe a tax on bank and savings balances. I think Norway take 1% of your spare annually.

There's all sort they could do. They just have to make sure it doesn't apply to assets hidden offshore, so really wealthy people don't have to pay it.

[feed]

So wealth tax in news again a few days after reports of £100bn "excess" savings built up during Covid.
jaw jaw 

 

[Green Devil]

33 minutes ago, Democorruptcy said:

There's all sort they could do. They just have to make sure it doesn't apply to assets hidden offshore, so really wealthy people don't have to pay it.

Couldn't you just open a Ltd as an investment company and lend your 1 million to it to invest. Then nothing to declare for wealth tax. Not sure it even has to be offshore. 

[AWW]

Not sure what they're going to do with people like me who make pension contribs directly from Ltd Cos. We don't even claim tax relief.

[Bandit Banzai]

There's been that many articles on higher rate pension tax relief being scrapped in the last few years - it's obvious that's the one they are going for.

[DurhamBorn]

3 minutes ago, Bandit Banzai said:

There's been that many articles on higher rate pension tax relief being scrapped in the last few years - it's obvious that's the one they are going for.

I cant see how it can last longer term and is certain to go.They might make it 25% for everyone so boosting lower paid.There is a growing part of the population who will get housing benefit as their pensions are so bad,so government lowering living standards of the better paid to life lower paid just above welfare makes sense for them.I still thin income tax and NI will be merged at some point as well so that they can nab NI on pension income above £12.5k.

[sancho panza]

On 07/12/2020 at 11:52, Cattle Prod said:

The words 'parabolic' or exponential get bandied around a lot. And as a stats kind of guy, it really irritates me seeing it applied to, say, cubic or even linear trends. But some of the US indices like the S&P are showing signs of this shape, and Semis have taken off on a real exponential curve:

In fairness to David Hunter, whatever about his timing, he predicted this pretty well, and said semis would lead.

For me, exponential curves guarantee a crash. They are simply unsustainable, you see it everywhere in nature, like say a population of rabbits. It also means you cant call a top, as toward the end of a parabolic run, you can get extreme extensions. Kaplan has tried to describe topping patterns like the RUT, but they haven't worked either. Hunter said this is a once in a 40 year event, and so outside of almost all current market participant experiences. Looks like he's right.

I watch the indices with interest, and hope he's right about gold and silver too.

Edit:

Another interesting observation is that the RUT is up 22% in 5 weeks (semis up 25%), while the S&P was only up 14%, and is now just 22% from 4500.

This could happen quickly.

 

I remember Kaplan saying RUT set the timings in place for the bear market and was running them off the Aug 2018 high,27 months later and it's at a new peak..Difficult game this predicting lark.I'm wary of shorting here but I'd be lying if I said I hadn't been checking the price of QQQ puts a la Kaplan.

Can't see much point buying more oil here,but some downside exposure on big tech looks a good buy.

I'd go futher than Hunter and say it's a once in 80/90 year event,a major debt deflation.

On 07/12/2020 at 17:32, AWW said:

We rent in London and are waiting to buy. It's not so much wanting to time the market, but not wanting to buy when you get ten minutes to look round a place and have to submit a sealed bid. Why people put up with this, I don't know.

Prices would have to drop 40% round us to make me a cash buyer of somewhere I actually want to live. Even then there's a big question mark about committing to London. Feels a bit like committing to Rome in the late fifth century.

Thats a bit like committing to Leicester.I think Londinium has soem distance to fall given the rise of home working/poor transport psot covid etc.

My view is you basically need either  a hosue paid off when you're retired or a protfolio that can pay the rent.

If I could find somehwere we might stay for ten years I'd be more tempted to buy but at these levels,I'd be giving up some prime income stocks bought at good prices for the privilege and I'm jsut not prepared to do it.

[AWW]

3 minutes ago, sancho panza said:

I'd be giving up some prime income stocks bought at good prices for the privilege and I'm jsut not prepared to do it.

Also my view. In London, you're essentially tying that money to the paltry 2% yield that the amateur landlords are happy with. No thanks.

[sancho panza]

On 07/12/2020 at 20:14, sleepwello'nights said:

House prices depend on availability of finance. I wouldn't be surprised to see mortgages provided by the government. There is no reason why they can't just use the endless supply available through Modern Monetary Theory (MMT).

I think thats the only real option for the govt to keep hosue prices insanely high to placate swing voters in key marginals.

They can give the banks loads of near free money but it's doesn't mena the banks will lend it.

Govts lending directly has legs,USA has it.Whther punters will borrow is another matter.

 

On 08/12/2020 at 08:23, Noallegiance said:

 

Calling for Fed tightening after BK.

Is that the bit where they start to chase rates higher?

as per various discussions onhere,the BK will only begin when the Fed can't flood the pipes.It's hard to see a scenario where they can't at the minute,but some of the US m1/2 charts tell us that could change quickly.

[wherebee]

5 hours ago, Democorruptcy said:

They could put the onus on people to declare their wealth and do spot checks, with huge fines to deter people from falsifying their declaration.

I was just going to write this.

 

In a corrupt oligarchy, you make it a self declaration and then use the tax authorities to go after your political opponents whilst leaving your own team alone.

 

Good job the left never think like this, eh?

https://en.wikipedia.org/wiki/IRS_targeting_controversy (and thats wikipedia, which will spin anything to make it look less bad if it criticises Obama.  Imagine what the reality was!)

[Barnsey]

46 minutes ago, sancho panza said:

 

I remember Kaplan saying RUT set the timings in place for the bear market and was running them off the Aug 2018 high,27 months later and it's at a new peak..Difficult game this predicting lark.I'm wary of shorting here but I'd be lying if I said I hadn't been checking the price of QQQ puts a la Kaplan.

Can't see much point buying more oil here,but some downside exposure on big tech looks a good buy.

I'd go futher than Hunter and say it's a once in 80/90 year event,a major debt deflation.

Thats a bit like committing to Leicester.I think Londinium has soem distance to fall given the rise of home working/poor transport psot covid etc.

My view is you basically need either  a hosue paid off when you're retired or a protfolio that can pay the rent.

If I could find somehwere we might stay for ten years I'd be more tempted to buy but at these levels,I'd be giving up some prime income stocks bought at good prices for the privilege and I'm jsut not prepared to do it.

We're almost ready to start making offers here in the West Midlands. A reluctant decision as I really thought things would go out with a bang. I would however stress that the 7+% hpi frenzy headlines are very much to be ignored now, hardly any properties on my watchlist have sold in the past couple months so I think this is all old news, and only for the high end of the market.

I've started to make peace with the reality that the housing market is not as overvalued (inflation adjusted) in much of the UK as it was leading up to the GFC, and there's a risk here that lending remains tight whilst we might start to get some inflationary pressures building later in 2021. I'd imagine any lender offering 10 year fixes might start sniffing this out sooner than later. My base case for assessing properties now is 2011-12 prices plus CPI, RPI at a push.

We've also had quite a significant gap in construction of new properties thanks to lockdowns which will affect supply. Money supply however is out there now, the virus gave them the perfect reason to act fast and very big, and they'll certainly do more if needed. I really thought they'd be slow to react but that was with the expectation of a purely financial based crisis. Every time there's a risk of a cliff edge, they extend, or adapt. This is global, and not something we're necessarily used to. I still fear a deflationary bust @sancho panza in 2021 but to what extent will it hit an already beaten up UK?

Potentially 3 million HKers making their way here, should support regional cities at a time of great need.

I definitely think @DurhamBorn is right to suggest we'll likely see a rebalancing of house prices throughout the UK, as is now underway in the States. Whilst I think the WFH narrative has been a little overdone, I guess this crisis has made many question their life travelling in and out of London, (again strong parallels with U.S. especially NYC, 70's fiscal crisis anyone?). And again sound advice from DB to ideally aim for a market town with a reasonable sense of community.

No doubt I'm conflicted as this has been a long journey but we're staring at both the possibility of a deflationary shock but also a huge inflationary impulse underway, especially towards end of 2021 when virus risk greatly reduced and people desperate to return to normality after a lengthy period which had FORCED saving, truly unique and bizzare.

Can we get there without a huge insolvency crisis to unwind all the incredible leverage out there? I just don't know.

 

 

[feed]

The London / SE price gradient will flatten.  Hybrid working see to that.   I live in Chelmsford, for the first time in my life i'm looking at work in London. I was never going to commute 4~5 days a week.  1 day a week and it's a different story. 

[DurhamBorn]

Interesting to see Davids take on the BK etc that it might be triggered by the Fed tightening too early due to a parabolic melt up.He could be right and its something i didnt have on my road map at all as i simply didnt see the Fed making that mistake.I would agree with him that any tightening in a big run up would be a massive sell signal.The economy needs more fiscal injections,probably just under half what we have had already.

I had road mapped to hopefully make 65%+ during the cycle minimum to outflank inflation.However today im sat on an overall portfolio gain of 37% including dividends for this year.The question now is if we do get another run up do i sell everything?.Or do i sell out anything outside of defensive.Its something i need to consider very hard.

The problem is of course holding your wealth in sterling,because i would hedge with bonds.

[Barnsey]

8 minutes ago, DurhamBorn said:

Interesting to see Davids take on the BK etc that it might be triggered by the Fed tightening too early due to a parabolic melt up.He could be right and its something i didnt have on my road map at all as i simply didnt see the Fed making that mistake.I would agree with him that any tightening in a big run up would be a massive sell signal.The economy needs more fiscal injections,probably just under half what we have had already.

I had road mapped to hopefully make 65%+ during the cycle minimum to outflank inflation.However today im sat on an overall portfolio gain of 37% including dividends for this year.The question now is if we do get another run up do i sell everything?.Or do i sell out anything outside of defensive.Its something i need to consider very hard.

The problem is of course holding your wealth in sterling,because i would hedge with bonds.

I might be wrong DB but I think Dave's stance has always been a "policy mistake" aka tightening due to a huge run up. Thing is, how long will this take to play out, 2-3 months as he's suggested, or much more drawn out. This tweet sums up the paradox. He's essentially now acknowledged that we'll see inflation in 2021. What if policy is right sized and we continue up from there as the virus slows things down and takes the edge off things?

 

[DurhamBorn]

1 minute ago, Barnsey said:

I might be wrong DB but I think Dave's stance has always been a "policy mistake" aka tightening due to a huge run up. Thing is, how long will this take to play out, 2-3 months as he's suggested, or much more drawn out.

Given the fragile nature if the Fed tighten it could be 70% down in two weeks unless they fancy printing $20 trillion in a few days,and if its a derivative unwind doubt they could stop it before massive dislocation.However even then im not sure $450 billion wiped off Tesla's market cap would matter much to the likes of BTs £13 billion market cap.

The key question is the speed and scale.If its a slow unwind other areas could slowly grind higher.We are probably in the most difficult part of the cycle here.Very good profits,great positioning but vulnerable to a sudden BK.

[Loki]

8 minutes ago, DurhamBorn said:

Interesting to see Davids take on the BK etc that it might be triggered by the Fed tightening too early due to a parabolic melt up.

If the Fed don't see the difference between stocks and the economy that has to be wilful ignorance, or negligence?  (Has done nothing to help your example I remember from way back of single working Mum in Detroit, except a few $1200 cheques)