Credit deflation and the reflation cycle to come (part 3)

[jamtomorrow]

Lyn Alden just dropped an absolute banger on the nature of money. Long read - far too long to paste much here - but here's a taster:

This article looks at the history of money, and examines this rather unusual period in time where we seem to be going through a gradual global transformation of what we define as money, comparable to the turning points of 1971-present (Petrodollar System), 1944-1971 (Bretton Woods System), the 1700s-1944 (Gold Standard System), and various commodity-money transition periods (pre-1700s). This type of occasion happens relatively rarely in history for any given society but has massive implications when it happens, so it’s worth being aware of.

https://www.lynalden.com/what-is-money/

[Barnsey]

2 hours ago, King Penda said:

Seriously? On my Facebook the yanks are going nuts about fuel prices particularly my republican friends

Dropping this morning 

[Chewing Grass]

2 hours ago, King Penda said:

Seriously? On my Facebook the yanks are going nuts about fuel prices particularly my republican friends

Do they know its because they voted in a senile old bloke in with dubious family financial arrangements, an Obama stooge.

[King Penda]

3 minutes ago, Chewing Grass said:

Do they know its because they voted in a senile old bloke in with dubious family financial arrangements, an Obama stooge.

Yes

[Froggy2000]

I agree with others on this thread that housing is where the govt will go for shaking down wealth.  Simply because its the only reservoir big enough to count. 

https://www.finder.com/uk/stocks-and-shares-isa-statistics#:~:text=In total there is £22.6 billion in adult,of which cash ISAs made up £5%2C114 (80%)

Only 22.6bn in S&S ISAs.  Barely 2 months NHS spending if they took the lot.

I think we sometimes forget in this thread how much of a rarity we are in the scheme of things.  Hopefully that and keeping our ear to the ground helps us duck under the radar.

I have DB to thank for joining the club!

[reformed nice guy]

2 minutes ago, Froggy2000 said:

I agree with others on this thread that housing is where the govt will go for shaking down wealth.  Simply because its the only reservoir big enough to count. 

https://www.finder.com/uk/stocks-and-shares-isa-statistics#:~:text=In total there is £22.6 billion in adult,of which cash ISAs made up £5%2C114 (80%)

Only 22.6bn in S&S ISAs.  Barely 2 months NHS spending if they took the lot.

I think we sometimes forget in this thread how much of a rarity we are in the scheme of things.  Hopefully that and keeping our ear to the ground helps us duck under the radar.

I have DB to thank for joining the club!

The issue is not seizing the money as it is just the output of production.

By taxing it heavily you ensure that those productive enough to fill ISAs are forced to continue producing, allowing the state to milk more from them for longer.

[DurhamBorn]

1 hour ago, Plan-b said:

The whole house is my pension and you cant loose on property is very ingrained in the attitude of the UK. A mid 30s couple I know have a 3 bed house in a good area and are having a large 2 storey extension built to add 2 bedrooms and a another room downstairs with a large breakfast kitchen across the back, costing around the £100k mark. Strongly No intention of ever having any kids, also talking about BTL like its the holy grail. The vast majority in the UK think the same.

I have no idea if this attitude can ever change. 

@DurhamBorn while we are on the subject I have been putting off asking you this for a long time - You've said many times over the years that you have not done the work on housing because your not interested in it, well how about it? will you do it for those hopefuls amongst us that still look to maybe getting a place of our own someday. Please. 

The problem with UK housing to roadmap is the massive government intervention.Housing benefit alone.If they froze housing benefit and immigration prices would collapse.However what is certain is the rubber band is pulled to extremes.Southern prices are almost certain to fall.My worry for my grandkids etc is that our northern prices might keep going up as southern people flee here to escape immigrants and releasing equity etc.3 bed semis for instance are snapped up as soon as they come on the market now here.Plenty of new builds going up of course.

Should add that couple sound terrible,big house for no kids,a real man will come along and knock her up when she gets shot of him i expect,or she will end up too old and he will knock a young lass up.

[Lightscribe]

2 hours ago, marceau said:

They've just pulled the rug from under SWIFT over some corrupt backwater half way around the world, and you think they give shit about ISA?

Here's my assesment on ISA. The vast majority of real wealth (ie claims on actual assets) that was ever going in to the ISA system is already in there. Nothing going forward is going to rival what the boomers put in. It's all stock, no flow; an ever-tempting hoard that the treasury simply won't be able to keep its hands off.

Oh I agree about them coming after everything in the long run, pensions, ISA, SIPPS etc. Force the boomers out of 4/5bed homes through energy costs and property levies/council tax. You will own nothing and be happy after all.

Big houses may as well be bulldozed or split into flats as the younger generation will never have the children to fill them. We are on a steep road of population decline now however way you look at it.

But I was referring to the immediate few years. If all those boomer ISA years accruals suddenly left the accounts due to loss of trust (if the government started putting in commodities dividend confiscations) it would flow into physical assets instead and that’s what they would want to avoid at all costs whilst gold/silver are at current low levels.

[marceau]

2 minutes ago, Lightscribe said:

Oh I agree about them coming after everything in the long run, pensions, ISA, SIPPS etc. Force the boomers out of 4/5bed homes through energy costs and property levies/council tax. You will own nothing and be happy after all.

Big houses may as well be bulldozed or split into flats as the younger generation will never have the children to fill them. We are on a steep road of population decline now however way you look at it.

But I was referring to the immediate few years. If all those boomer ISA years accruals suddenly left the accounts due to loss of trust (if the government started putting in commodities dividend confiscations) it would flow into physical assets instead and that’s what they would want to avoid at all costs whilst gold/silver are at current low levels.

The boomer cliff edge is going to affect every aspect of our society, imo there is simply no way to manage it.

[DurhamBorn]

1 hour ago, Boon said:

Personally, like a lot of things I think the trajectory of change will be slowly, then quickly.

At the moment there are very few scare stories regarding property, thus most people can write off anything they hear as specialised, isolated cases. Additionally, the quite cheap cost to kick the can down the road also has prevented more coming to market.

But that seems to be ending. I do know several people who have rented out their properties because they cannot sell without taking a 10% loss. Having looked at the numbers it doesn't really add up to me unless leverage is low. It is viable now, but if interest rates go up by 2% the resulting rent needed to break even appears to be too much for the market to pay. A lot of landlords seem to think that rents can go up to absorb any costs but in every local market there will be some kind of ceiling.

So I think we could have a case shortly where these accidental landlords realise their investment is not worth it because of the increased rates. So they'll look to quit, but because of the increased rates, that 10% loss now ends up being 15-20%.

I do think once they become more numerous then sentiment will shift quite quickly, ie within a couple of years.

Agreed,my friend who is selling all his houses right now ,6 i think is what i would call an expert on BTL.Been in the game since 91ish,builder,does the work himself etc,does it right,knows all the regs,has hardly any leverage,i think only one has a small mortgage on,the best one a 4 bed detached.He told me BTL is finished for anyone outside of big corps or dirty money.The regs alone are cutting the margin,repairs can wipe out two years rents now,voids,the lists is endless.This guy is no shrinking violet,capable of extreme violence if pushed yet he cant sleep sometimes due to crap tenants etc.He said if prices flatline then there will be just loads of stress for hardly any profit,or maybe even losses.

I dont give a crap what i read,MSM etc,the fact he is selling the lot and the reasons he states are good enough for me.

[Pip321]

2 minutes ago, DurhamBorn said:

The problem with UK housing to roadmap is the massive government intervention.Housing benefit alone.If they froze housing benefit and immigration prices would collapse.However what is certain is the rubber band is pulled to extremes.Southern prices are almost certain to fall.My worry for my grandkids etc is that our northern prices might keep going up as southern people flee here to escape immigrants and releasing equity etc.3 bed semis for instance are snapped up as soon as they come on the market now here.Plenty of new builds going up of course.

You are right.

In 2000 a terrace in our town was the same price as a mini flat in Nottinghill. Now that house in our town is £200k but that flat is £650k. It was never sustainable…particularly London prices.

I worked for a national firm and whist the London team earned 40/50% more for the same job as mine….they were a million miles behind us re their standard of living. Genuinely felt sorry for them with daft house prices and silly commuting costs.

An aside, I too worry that one of my grandkids marries one of these southerners, starts drinking watered down lager and supporting Manchester City (or United depending on who is doing well at the time). 

Sorry, I think anxiety is turning to dark humour. I am off for a walk.🤦🏻‍♂️

[Plan-b]

1 hour ago, Boon said:

Personally, like a lot of things I think the trajectory of change will be slowly, then quickly.

At the moment there are very few scare stories regarding property, thus most people can write off anything they hear as specialised, isolated cases. Additionally, the quite cheap cost to kick the can down the road also has prevented more coming to market.

But that seems to be ending. I do know several people who have rented out their properties because they cannot sell without taking a 10% loss. Having looked at the numbers it doesn't really add up to me unless leverage is low. It is viable now, but if interest rates go up by 2% the resulting rent needed to break even appears to be too much for the market to pay. A lot of landlords seem to think that rents can go up to absorb any costs but in every local market there will be some kind of ceiling.

So I think we could have a case shortly where these accidental landlords realise their investment is not worth it because of the increased rates. So they'll look to quit, but because of the increased rates, that 10% loss now ends up being 15-20%.

I do think once they become more numerous then sentiment will shift quite quickly, ie within a couple of years.

Absolutely, on the face of it interest rates are remaining low. Not for mortgages they aint last summer I got 1.39% fix with Barclays - done dusted all I had to do was sign the last piece of paper, that was still good to be signed for till Jan this year (it then fell thru). Now the 100% same product is 2.30% thats as close to a 1% rise in about 6 months. Times are changing fast it seems.

[jamtomorrow]

3 hours ago, ThoughtCriminal said:

If Russia is now getting 2.7 times rubles from selling oil (due to currency fall against dollar), is there any downside to this for them?

 

All I'm seeing is wages and other government spending just got a lot cheaper for them.

 

I'm sure I'm overlooking something though.

Access to technology? Access to energy and resources are of course essential to making the geopolitical sausage, but so is access to advanced manufacturing. 

One of the conspicuous structural failures of the post-Soviet period has been lack of investment in top-to-bottom advanced manufacturing.

Machine tools are a good example - nice long read here: https://bne.eu/long-read-russia-s-sanctions-soft-underbelly-precision-machine-tools-213024/?source=russia

So something to watch on machine tools is the extent to which China fill the void, either by supplying their own or by fronting for German or Jap suppliers.

But the story is the same in all sorts of other areas of technology (semiconductors, aviation): Russia has about as much hope of quickly rebuilding indigineous capability in all those sectors as the West has of quickly finding alternative sources of energy and other natural resources.

China do seem to be sitting very pretty indeed in the middle of all this as a future clearing house for technology and natural resources.

[Lightscribe]

6 minutes ago, DurhamBorn said:

Agreed,my friend who is selling all his houses right now ,6 i think is what i would call an expert on BTL.Been in the game since 91ish,builder,does the work himself etc,does it right,knows all the regs,has hardly any leverage,i think only one has a small mortgage on,the best one a 4 bed detached.He told me BTL is finished for anyone outside of big corps or dirty money.The regs alone are cutting the margin,repairs can wipe out two years rents now,voids,the lists is endless.This guy is no shrinking violet,capable of extreme violence if pushed yet he cant sleep sometimes due to crap tenants etc.He said if prices flatline then there will be just loads of stress for hardly any profit,or maybe even losses.

I dont give a crap what i read,MSM etc,the fact he is selling the lot and the reasons he states are good enough for me.

BTL is done for. (My brother ever the BTL evangelist is now in the process of selling up his properties)

All the pieces are now in place. Mass voids and regs will ensure any existing profit margins are evaporated. 2.5million BTL landlords selling up will not be good for house prices.

But yes as you say the south will go through it first and feel it hardest in the reversal. Everything will ripple out northwards from there just as the rampant speculation did.

[JMD]

2 hours ago, Pip321 said:

I am looking to put about £120k into 4/5 big companies with dividends and growth to help protect against inflation which is why I joined this thread. Disclosure it’s not very diverse but it’s part of my assets which includes cash and a managed fund but it’s a first step of taking more control.

I am increasingly thinking that one of those shares may infact be directly into gold coin ie £30k. I avoided coins in the past because I imagine they are messy to trade (well to sell) and I imagine the bid offer spread is quite high. But increasingly I am thinking a Britannia coin may change from £1.5k to £5k or at the very least offer some protection against a a wild world . 

A family member has some Britannia  coins and lots of silver. I used to think he was mad and I called him a pirate 🏴‍☠️😆😆

Gold coins are good, premiums on them are usually low... btw confession - I'm already a (pm) pirate, I was just wondering if i should go full Cap'n Pugwash!!

[JMD]

6 hours ago, marceau said:

Given how western governments have behaved over the past few years (and particularly the past few months with the Canada protests & Ukraine war), I'd say it was near 100% that they will tax the living shit out of any precious metals & miner gains if they run hard. Nothing Sprott does will protect against that.

Even outright seizure, which I previously dismissed entirely, now seems possible if they get desperate enough for assets and/or scapegoats.

I get what your saying about recent events and Sprott/Canada, etc. But that was really the basis of my question, ie reducing portfolio systemic risk, counterparty risk, etc. Can I ask what you do to mitigate these risks, especially in regard to holding precious metals?                                                                                                                                 But like many on the thread I'm here to learn, so if you have good ideas that you are maybe in a position to share, i for one would love to hear them.                                                                                                            It's just that seems to me that PMs were/still are one of the pillars of this thread? So might be an opportune time to revisit them - what I mean is many on here, including myself, have a decent PM allocation - and early doors there was much discussion on thread about the PM space. So was just wondering - particularly given recent risk-on events, ie Canada, Ukraine  - how others were intending to manage their PM's - physical and mining stocks - going forward?                                                                                                             ...plus another reason for my original post questions was that economic/political 'events' appear to be happening faster and sooner than expected. For example, I had 2028+ penciled in for the massive systemic changes, but this cycle seems already to be 'on top of us', or am I wrong?

[marceau]

26 minutes ago, JMD said:

I get what your saying about recent events and Sprott/Canada, etc. But that was really the basis of my question, ie reducing portfolio systemic risk, counterparty risk, etc. Can I ask what you do to mitigate these risks, especially in regard to holding precious metals?                                                                                                                               But like many on the thread I'm here to learn, so if you have good ideas that you are maybe in a position to share, i for one would love to hear them.                                                                                                          It's just that it seems to me that PMs were/still are one of the pillars of this thread? So might be an opportune time to revisit them - what I mean is many on here, including myself, have a decent PM allocation - and early doors there was much discussion on thread about the PM space. So was just wondering - particularly given recent risk-on events, ie Canada, Ukraine  - how others were intending to manage their PM's - physical and mining stocks - going forward?

The portfolio mixes suggested on here seem good. Putting too many eggs in one basket is never a good idea, and will be even less of a good idea as the system gets more volatile.

It's been said on here many times before - miners are terrible companies, juniors are outright fraudulent. I think that even in the 'best' of times for them, there are risks that put an absolute hard cap on how much you should have tied up there. Same for physical PMs, it doesn't take much for their 'ideal' scenario to turn into one where they effectively become unusable. I know the likes of Errol would disagree, however.

If you think the PM price is going to rise long term (I do) it strikes me that the most mainstream and liquid options are the safest. Buying anything with gold/silver in the name might pay off massively, but I wouldn't bet the house on it.

Edit: And be sure to stay away from all the 'Silver squeeze/Silver ends the fed' shit, it's fkin stupid.

[JMD]

6 hours ago, dnb24 said:

Which seems to fit in with the Geopolitics of the USA having less influence globally in their pulling out of Afghan, shafting Poland over Ukraine, reducing their visibility in Central Asia and stirring up NATO to essentially become less reliant on the USA. How do the above Fed actions affect the UK? Do we join the scramble to determine what we take in payment? 

Not sure about the fed/economic ramifications. But maybe we should apply for honorary 51st state membership?                        ...but seriously, the US withdrawing from its former 'world policeman' role - in order to operate a purely transactional foreign policy in future, is a scary prospect. 

[DurhamBorn]

4 hours ago, marceau said:

They've just pulled the rug from under SWIFT over some corrupt backwater half way around the world, and you think they give shit about ISA?

Here's my assesment on ISA. The vast majority of real wealth (ie claims on actual assets) that was ever going in to the ISA system is already in there. Nothing going forward is going to rival what the boomers put in. It's all stock, no flow; an ever-tempting hoard that the treasury simply won't be able to keep its hands off.

I disagree on that,i think boomer wealth from housing will go into ISAs through inheritance.Hard to judge how much,but only 13% of UK wealth is in cash,ISAs and investments.42% is in pensions,4th to 9th deciles have very little in investments,most assets are in houses and pensions,only the top 1% have large investments outside of pensions and property.

Main way for the government to get more tax is hit pensions and housing.Pension the lifetime allowance and the big one would be stop allowing them to sit outside inheritance tax.As pension age is moved back i think more will use ISAs rather than just pensions.

[Yadda yadda yadda]

4 minutes ago, DurhamBorn said:

I disagree on that,i think boomer wealth from housing will go into ISAs through inheritance.Hard to judge how much,but only 13% of UK wealth is in cash,ISAs and investments.42% is in pensions,4th to 9th deciles have very little in investments,most assets are in houses and pensions,only the top 1% have large investments outside of pensions and property.

Main way for the government to get more tax is hit pensions and housing.Pension the lifetime allowance and the big one would be stop allowing them to sit outside inheritance tax.As pension age is moved back i think more will use ISAs rather than just pensions.

If house prices are falling people will think twice about buying the biggest house they can. Ditto hoarding property from inheritance and couples keeping the other halves' home when they move in together. Lots of money looking for somewhere else to go. ISA is obvious if interest rates rise (cash ISA) or if the stock market remains high. Stupidly a lot of people won't invest in shares after they've crashed.

Utility bills and council tax will push people towards smaller homes. Could be the price difference between small and large homes reduces.

[JMD]

5 hours ago, Lightscribe said:

In the US yes. Here as I said we have hardly any physical to worry about, it’s been manipulated out of the average pleb mind. Like that video someone posted a while back they wouldn’t even know what a gold ounce coin was. Why would we? We have never ending HPI, everyone knows you can’t lose, bricks and mortar innit?

I think that if they moved the goalposts on existing investment in an ISA, then people would lose faith in it all together because what would be next? People would just withdraw their money and buy physical instead to keep under the mattress.

Yes that was my vid post, that guy couldn't give his 100oz gold bar away to the American passersby!!                           Your right to draw distinctions between 'investment pots', and characteristics of different countries, in terms of evaluating confiscation risk (in medium term anyway). I think DB has said previously that it is pension/sipp wealth that's in danger of government tax raids, etc, mainly because of the huge sums involved. ISA's not so much focus by government because small in comparison.

[DurhamBorn]

Just now, Yadda yadda yadda said:

If house prices are falling people will think twice about buying the biggest house they can. Ditto hoarding property from inheritance and couples keeping the other halves' home when they move in together. Lots of money looking for somewhere else to go. ISA is obvious if interest rates rise (cash ISA) or if the stock market remains high. Stupidly a lot of people won't invest in shares after they've crashed.

Utility bills and council tax will push people towards smaller homes. Could be the price difference between small and large homes reduces.

Agree,big houses will become what they really are, a depreciating asset.Some people have shit parents,but there are huge numbers who get help from parents because they have final salary pensions etc.That will be cut off as they die.The war being fought is how to pass one family wealth so your descendants are not just work and tax drones.Taxing assets while pushing welfare higher and higher enslaves everyone in the end.

[marceau]

19 minutes ago, DurhamBorn said:

I disagree on that,i think boomer wealth from housing will go into ISAs through inheritance.Hard to judge how much,but only 13% of UK wealth is in cash,ISAs and investments.42% is in pensions,4th to 9th deciles have very little in investments,most assets are in houses and pensions,only the top 1% have large investments outside of pensions and property.

Main way for the government to get more tax is hit pensions and housing.Pension the lifetime allowance and the big one would be stop allowing them to sit outside inheritance tax.As pension age is moved back i think more will use ISAs rather than just pensions.

I just don't see them unfreezing the allowance. It puts a hard cap on how much can be put in in real terms going forward. There's only so much inherited housing wealth that can move into ISA in each year and a lot will be kept liquid to deal with increased cost of living.

ISA as it stands is a bottleneck for large wealth movement and a govt that's hungry for cash may squeeze it further, particularly if it starts to see the sort of mass adoption you are suggesting.

 

[DurhamBorn]

2 minutes ago, JMD said:

Yes that was my vid post, that guy couldn't give his 100oz gold bar away to the American passersby!!                           Your right to draw distinctions between 'investment pots', and characteristics of different countries, in terms of evaluating confiscation risk (in medium term anyway). I think DB has said previously that it is pension/sipp wealth that's in danger of government tax raids, etc, mainly because of the huge sums involved. ISA's not so much focus by government because small in comparison.

Exactly,and look at the inheritance tax level,its small when you consider inflation running hard.£325k if your single,some football players get that a week,yet the government want 40% above that in tax,from your lifetimes graft.SIPPs are the only way to plan around it without giving it away,counting them towards IHT would be a huge hit,and yet could go under the radar if it is done the same time they give fat Shaz another £20 a week bennies for her nails (electric)

[DurhamBorn]

2 minutes ago, marceau said:

I just don't see them unfreezing the allowance. It puts a hard cap on how much can be put in in real terms going forward. There's only so much inherited housing wealth that can move into ISA in each year and a lot will be kept liquid to deal with increased cost of living.

ISA as it stands is a bottleneck for a large wealth movement and a govt that's hungry for cash may squeeze it further, particularly if it starts to see the sort of mass adoption you are suggesting.

 

I agree they will leave the £20k allowance,they might even introduce a £1mill cap or something as well.Pensions and housing will be the targets though i suspect.If any polos knock on my door im going to pick them up and chuck  them off my drive into the road.