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

[sancho panza]

We've had many excelent discussions on here led by @DurhamBorn re council tax being the one tax people can't avoid.Your income drops and your income tax drops etc.But not your council tax bill.

It's coming.Big rises.I was having a discussion with my Mum and saying how they'll leave places like Leicester to slowly choke the taxpayers off with their spending and then leave the tory areas alone.Makes political sense.The Tories will never win Leicester back.

But Leicester council spends with abandon and has a shrinking pool of people paying the tax.

#whatcostoflivingcrisis

https://www.express.co.uk/finance/personalfinance/1512412/council-tax-rise-increase-rishi-sunak-budget-UK-2021

Budget 2021: Council Tax to rise by 6% - Rishi Sunak targets households with tax hike

COUNCIL TAX is set to be raised by a shocking six percent despite the pandemic, according to the latest Government's Budget.

 

During his speech in the House of Commons, the Chancellor failed to mention that Council Tax rates are set to continue to rise throughout the economic forecast period. By the 2026-27 tax year, taxpayers are expected to generate an additional £12.1billion in Council Tax revenue. In context, this represents a 33 percent rise from the tax rate level reported in 2019/20, prior to the pandemic.

 

The move from the Government reflects a conscious effort to allow local councils to raise the adult social precept on taxpayer bills.

Any income raised from this tax charge is ring-fenced which means it can only be used for adult social care services.

Compared to March 2020, tax recipients have been higher over the past year by around £1billion due to local authorities being able to hike council tax rates.

This is yet another tax rise on the working age population by the Government, who are already facing a 1.25 percent hike on National Insurance payments.

On top of these various tax increases, the country is in the midst of a staggering increase in living costs, with food and energy bills rising.

[DurhamBorn]

9 minutes ago, sancho panza said:

We've had many excelent discussions on here led by @DurhamBorn re council tax being the one tax people can't avoid.Your income drops and your income tax drops etc.But not your council tax bill.

It's coming.Big rises.I was having a discussion with my Mum and saying how they'll leave places like Leicester to slowly choke the taxpayers off with their spending and then leave the tory areas alone.Makes political sense.The Tories will never win Leicester back.

But Leicester council spends with abandon and has a shrinking pool of people paying the tax.

#whatcostoflivingcrisis

https://www.express.co.uk/finance/personalfinance/1512412/council-tax-rise-increase-rishi-sunak-budget-UK-2021

Budget 2021: Council Tax to rise by 6% - Rishi Sunak targets households with tax hike

COUNCIL TAX is set to be raised by a shocking six percent despite the pandemic, according to the latest Government's Budget.

 

During his speech in the House of Commons, the Chancellor failed to mention that Council Tax rates are set to continue to rise throughout the economic forecast period. By the 2026-27 tax year, taxpayers are expected to generate an additional £12.1billion in Council Tax revenue. In context, this represents a 33 percent rise from the tax rate level reported in 2019/20, prior to the pandemic.

 

The move from the Government reflects a conscious effort to allow local councils to raise the adult social precept on taxpayer bills.

Any income raised from this tax charge is ring-fenced which means it can only be used for adult social care services.

Compared to March 2020, tax recipients have been higher over the past year by around £1billion due to local authorities being able to hike council tax rates.

This is yet another tax rise on the working age population by the Government, who are already facing a 1.25 percent hike on National Insurance payments.

On top of these various tax increases, the country is in the midst of a staggering increase in living costs, with food and energy bills rising.

My partner works for the council in adult social care.All her bosses are "working" from home ie doing nothing,the front line now has 18% on the sick on full pay.Council tax here is horrific and they dont care.Given you cant really void it it can take all someones capital.Im hedged by my partners council wages and she will have an extra sick day to cover the increase,but in seriously thinking about multi-generation living.My dad also said he could act infirm and claim attendance allowance to cover the family council tax bills.

[DurhamBorn]

Looking at the budget,it was a shocker when adding in the already announced tax increases for working people without children.I think it will increase inflation so likely we are now heading for 5.6% not the 4% they claim ,though fiddling could happen.

The only positive was they didnt increase welfare for none workers,but the inflation will make things really bad for anyone without children on low wages.

Sunak seems to be trying to stop the structural deficit growing,but by massive tax increases and inflation,not spending cuts.

Obvious today he is running out of workers who he can fleece.

[ThoughtCriminal]

Time to sell Shell? 

[HousePriceMania]

1 hour ago, sancho panza said:

First link below is to a discussion on Sky News last night regarding cost of living crisis.

As ever normal parade of people saying Govt needs to do more to help people ,the fact that the country's skint seems to evade most people.I've accepted for some time that we'll end up with a currency crisis in the UK

What's interesting from our perspective is how the discussion is being framed and that it's being had at all.

All the people who spoke put their cases and it's sad to see what's happened.As an example one lady was talking about her heating bill having gone from £80 pcm to £150pcm or so.Another guy was talking about his petrol bill going up 50%+ and his food bill going up a lot.

Add in these price rises together and it'll mean either househoilds make some serious changes to how they live or they need to earn more relatively speaking.Possibly to the tune of £250pcm.Imagine if that happens again next year?

These cost of living crises have a nasty habit of preceding serious political instability historically.

The blame game is already starting between the oldies and youngies...triple lock etc.

I suspect this debate will intensify over the coming years.Interesting times.

 

6

https://news.sky.com/story/the-great-debate-top-economist-worried-increasing-minimum-wage-is-govts-only-tool-to-tackle-cost-of-living-crisis-12444618

 

 

https://www.theguardian.com/commentisfree/2021/oct/26/rishi-sunak-sneaky-budget-cost-of-living-crisis-voters

The cost of living crisis is about to reach into the pockets of most voters. Sunak, in an article for the Sun on Sunday readers, promises, “I know that families here at home are feeling the pinch of higher prices and are worried about the months ahead. But I want you to know we will continue to do whatever it takes, we will continue to have your backs – just like we did in the pandemic.” What can he mean?

Inflation is expected to increase to 5% while wages lag, a real cut. Energy bills could rise 30%, petrol prices hit a record high on Sunday, rents are up by 8.5%, family debts soar, while the Food and Drink Federation tells me food prices will be up 9% by December. The Institute for Public Policy Research says a typical family loses £500 a year in the national insurance levy and an expected 5% rise in council tax.

Any mention of them pushing up interets rates to 10 % to deal with it....

[DurhamBorn]

17 minutes ago, Cattle Prod said:

When we were talking about the risk of systemic collapse, you said you'd get a good singal from Sunak's budget wether he graps the problem or not. Why do you reckon?

I think he grasps the problem of workers being no better off than welfare ,but he seems to want to deal with it by higher in work benefits.I can understand that approach even though its a mistake,but i would say today increased the risk of systemic collapse.The big worry is there was nothing for working people without children.Key now is QE.If inflation goes to 5.5+ as i expect QE will have go,then government has to fund from the market.

 

[Axeman123]

12 minutes ago, Cattle Prod said:

I love playing around with correlations. But of them all, this is the tightest one I've ever seen in markets. Its inverted real yields and gold (again, sorry!). Just check out the two periods where they literally followed each other tick for tick, must be an Rsquared of 98% or something. Then in Apr 14, and Nov 20, gold started to ignore what real yields were doing. In Apr 14, it continued ignoring them for 2 years, before hitting a major bottom, and then doubling. We are now one year into the latest "I'm ignoring you, you're a DOSBOD, lose some weight" phase. Question is, does gold go on ignoring it, or does it snap back to close the gap? The reason I post this is because I think we're about to find out. The 10Y just dumped, at the same time TIPS are breaking out of a bull flag, so real yields are tanking today. 

One interpretation of the below is that by Apr 14, gold became convinced that GFC QE was not inflationary, noticing that is was sitting in bank reserves. Gold was right. That is not the case today, where the fiscal QE clearly is inflationary, so my (substantial) bet is that gold will snap back. Real yields currently price gold at $2070, fwiw. Dyodd as ever.

I hope so. More support for a similar viewpoint here:

 

[jamtomorrow]

19 minutes ago, ThoughtCriminal said:

Time to sell Shell? 

I'm in for the "dirty but cash-rich legacy oil business" anyway, so might as well hang on and then sell "greenish" and buy even more Dirty Gerty when they split.

[JimmyTheBruce]

https://uk.finance.yahoo.com/news/equinor-q3-surges-gas-derivatives-045943213.html

"Norway's Equinor posted its strongest quarterly result in nine years on Wednesday..." ... and is down by 7%.

Odd.

[Loki]

26 minutes ago, jamtomorrow said:

I'm in for the "dirty but cash-rich legacy oil business" anyway, so might as well hang on and then sell "greenish" and buy even more Dirty Gerty when they split.

If we're allowed to...

[working woman]

Been to work this morning, got home and asked my husband what was in the budget.

He is happy as tax on beer is down and apparently less tax on sparkling wine.  He said it was all based on the level of alchohol. 

Ok...................  I thought the UK was about to host an environmental conference soon in Glasgow. COP26.

Hmmmm.........The Budget would have been a great opportunity to show the world that we are creative thinkers and serious about Green issues.

As an example, why not a tax on alcohol based on food miles, or vary the tax depending on the method of production, organic v non organic. Or maybe higher taxes on Chinese plastic tat.

This new green world needs a new way of thinking, not the same old, same old.

A fortnight ago, the company I work for (conservative and traditional but very successful) did an online presentation for all employees, outlining the plan for the next few years. Last year the head of the company retired and his young son (30's) has taken over.  The plan? We are going green. All products will be green, prices will be going up, he acknowledged inflation was on the way as well, maybe he reads Dosbods.  It will be a complete transformation of the company.  Bold and brave, I wish him every success. 

Interesting times ahead.

 

[ThoughtCriminal]

Dave's calling it 🚨🚨🚨

 

[BadAlchemy]

10 minutes ago, ThoughtCriminal said:

Dave's calling it 🚨🚨🚨

 

Not the big one though, just a 5% pullback before continuing to melt up for 'several months' before a BK next year. He's getting a lot of stick on twitter. Ppl see it as him flip flopping. He's not really and I admire his conviction. Hope he's right, long term, as I want some more bargainz!!

[working woman]

11 minutes ago, ThoughtCriminal said:

Dave's calling it 🚨🚨🚨

 

I read this out to my husband. His response? A big smile and "Beers going down".

Rishi, you made someone happy today at least.

 

[sancho panza]

1 hour ago, Cattle Prod said:

I love playing around with correlations. But of them all, this is the tightest one I've ever seen in markets. Its inverted real yields and gold (again, sorry!). Just check out the two periods where they literally followed each other tick for tick, must be an Rsquared of 98% or something. Then in Apr 14, and Nov 20, gold started to ignore what real yields were doing. In Apr 14, it continued ignoring them for 2 years, before hitting a major bottom, and then doubling. We are now one year into the latest "I'm ignoring you, you're a DOSBOD, lose some weight" phase. Question is, does gold go on ignoring it, or does it snap back to close the gap? The reason I post this is because I think we're about to find out. The 10Y just dumped, at the same time TIPS are breaking out of a bull flag, so real yields are tanking today. 

One interpretation of the below is that by Apr 14, gold became convinced that GFC QE was not inflationary, noticing that is was sitting in bank reserves. Gold was right. That is not the case today, where the fiscal QE clearly is inflationary, so my (substantial) bet is that gold will snap back. Real yields currently price gold at $2070, fwiw. Dyodd as ever.

Amazing chart.I'd say this is one of those instances where more would line up if you broke the chart down into peaks and troughs and used monthlies

Peak mid 2012

bottom nov 13

peak feb 15

bottom dec 15

peak june 16

bottom nov 16

peakAUg 17

bottom feb 19

They line up more than you realsie.
I'd be interested to see them run as %age change charts from peak/trough....

 

on anotehr matter,we got long Nov/Jan calls in goldies from a while back(took 100% loss on the octobers).When KGC recently hit 550 I prmosied myself an average in again around the $5-50 level.I snoozed and missed(had a lot going on in the oilies calls at teh time).

 

long story long,this market feels like ti';s ready to rip.My bottom line is I'df love to have anotehr batch but don't see a lot of value there for calls trades.(I'm only on barrick,Anglogold and KGC.

Talking of value,defo tempted to have a butchers at some telco's

[sancho panza]

2 hours ago, DurhamBorn said:

My partner works for the council in adult social care.All her bosses are "working" from home ie doing nothing,the front line now has 18% on the sick on full pay.Council tax here is horrific and they dont care.Given you cant really void it it can take all someones capital.Im hedged by my partners council wages and she will have an extra sick day to cover the increase,but in seriously thinking about multi-generation living.My dad also said he could act infirm and claim attendance allowance to cover the family council tax bills.

I think council tax is the real problem here as central gvot has little control over how the local loons blow their budgets but central govt will get the bill when it goes worng.

We need some of these councils to start going bust soon and give the govt a wake up call.

As the FT chap says,much likely more than 12 in deep trouble.Post below on Croydon council which is in deep trouble having invested in a hotel(in administration) and shopping centres.

https://www.ft.com/content/600882a5-51cd-43bb-8f6f-c8283b4a7000

 

 

https://www.instituteforgovernment.org.uk/blog/croydon-councils-bankruptcy-warning-uk-government

Croydon also invested to buy commercial properties – ranging from a shopping centre to a hotel – in the hope of generating a steady stream of rental income to supplement locally-raised tax revenue and central government grants. While this strategy might have worked prior to coronavirus, closures during the pandemic sharply reduced the income they received from these investments. The Croydon Park hotel, acquired in September 2018, went into administration in June this year, and the Colonnades retail park, acquired in May 2019, closed in March 2020.

[Harley]

2 hours ago, Cattle Prod said:

I love playing around with correlations. But of them all, this is the tightest one I've ever seen in markets. Its inverted real yields and gold (again, sorry!). Just check out the two periods where they literally followed each other tick for tick, must be an Rsquared of 98% or something. Then in Apr 14, and Nov 20, gold started to ignore what real yields were doing. In Apr 14, it continued ignoring them for 2 years, before hitting a major bottom, and then doubling. We are now one year into the latest "I'm ignoring you, you're a DOSBOD, lose some weight" phase. Question is, does gold go on ignoring it, or does it snap back to close the gap? The reason I post this is because I think we're about to find out. The 10Y just dumped, at the same time TIPS are breaking out of a bull flag, so real yields are tanking today. 

One interpretation of the below is that by Apr 14, gold became convinced that GFC QE was not inflationary, noticing that is was sitting in bank reserves. Gold was right. That is not the case today, where the fiscal QE clearly is inflationary, so my (substantial) bet is that gold will snap back. Real yields currently price gold at $2070, fwiw. Dyodd as ever.

A Technical Analyst's porn is that @Cattle Prod, lovely!

PS: Gold likes to snap back and make up for lost ground.  We have a very long cup and handle to help.

PPS:  R barred squared surely?  R squared is a bit lazy! 

[Harley]

59 minutes ago, sancho panza said:

Talking of value,defo tempted to have a butchers at some telco's

Talking of which what happened to Orange's cash flow.  Operating looks fine on the surface but dig down and true operating is well down but compensated by an equal rise in non cash items.  

[Bilbo]

48 minutes ago, sancho panza said:

I think council tax is the real problem here as central gvot has little control over how the local loons blow their budgets but central govt will get the bill when it goes worng.

We need some of these councils to start going bust soon and give the govt a wake up call.

As the FT chap says,much likely more than 12 in deep trouble.Post below on Croydon council which is in deep trouble having invested in a hotel(in administration) and shopping centres.

https://www.ft.com/content/600882a5-51cd-43bb-8f6f-c8283b4a7000

 

 

https://www.instituteforgovernment.org.uk/blog/croydon-councils-bankruptcy-warning-uk-government

Croydon also invested to buy commercial properties – ranging from a shopping centre to a hotel – in the hope of generating a steady stream of rental income to supplement locally-raised tax revenue and central government grants. While this strategy might have worked prior to coronavirus, closures during the pandemic sharply reduced the income they received from these investments. The Croydon Park hotel, acquired in September 2018, went into administration in June this year, and the Colonnades retail park, acquired in May 2019, closed in March 2020

Labour Slough Council Bankrupt and now in special measures due to property purchases.

https://www.telegraph.co.uk/business/2021/10/26/labour-controlled-council-taken-property-bets-leave-100m-black/

 

[DurhamBorn]

51 minutes ago, Harley said:

Talking of which what happened to Orange's cash flow.  Operating looks fine on the surface but dig down and true operating is well down but compensated by an equal rise in non cash items.  

Lots of lumpy payments from people who co fund fibre builds etc.They bought out a telco in Romania as well,could of been some,and they bought out their partner in Orange Bank.Results very decent and fully expect steadily increasing cash from here.

They look in a good place.

[Loki]

1 hour ago, Cattle Prod said:

I'm up to the gunwales in OTM GDXJ Jun 22 calls, FWIW. 

Are you tempted to trade WTI in the bust? 

[Harley]

14 minutes ago, DurhamBorn said:

Lots of lumpy payments from people who co fund fibre builds etc.They bought out a telco in Romania as well,could of been some,and they bought out their partner in Orange Bank.Results very decent and fully expect steadily increasing cash from here.

They look in a good place.

Cash flow TTM net income down yoy from 5bn to 1.4bn!  Compensated by non cash items from -0.7bn to 2.4bn and a swing in working capital so "you" wouldn't notice a change in the summary Funds From Operations figure.  That sort of stuff sets off my alarm.

[Hancock]

You'd think Elon would be aware that he has been getting handed other peoples money via ZIRP and printed money for the last decade or more.

https://www.telegraph.co.uk/world-news/2021/10/27/joe-biden-democrats-vow-make-billionaires-cry-new-tax-super/

[ThoughtCriminal]

3 hours ago, Cattle Prod said:

He's talking about a short term pullback before more melt up.

I know, i wasnt referring to BK. 

 

It was the fact we'd reached one of his long predicted milestones that i thought was interesting. 

[Eventually Right]

30 minutes ago, Hancock said:

You'd think Elon would be aware that he has been getting handed other peoples money via ZIRP and printed money for the last decade or more.

https://www.telegraph.co.uk/world-news/2021/10/27/joe-biden-democrats-vow-make-billionaires-cry-new-tax-super/

 

 

And that’s on top of the government subsidies for electric car buyers, that allowed Tesla to be remotely viable for years…