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

[DurhamBorn]

38 minutes ago, Yadda yadda yadda said:

The trouble with the one off payments is that they've been in addition to benefits increases rather than in partial substitution. Benefits payments are going up by inflation and they're getting an energy bung of £650, so far.

If September's inflation figure is 11% they won't have the balls to give a 5.5% benefits increase and a 5.5% bonus.

Benefits are running away from earnings in a death spiral.

Rich pensioners are going to get soaked by tax. Merge NI with Income Tax. Increase the tax free allowance to £15k (it should be uprated to about £14k to keep up with inflation anyway) and make pensioners pay.

My roadmap is superb at direction and destination work,very rare its wrong,its only the cross market stuff that moves the dial and as cycles develop the destination can slow and reverse earlier.BUT right now all my roadmap indicators say UK is 100% certain systemic collapse.100%.If i change inputs it does no change.Inflation linking bennies and public pensions is what does it.The only thing that slows the run to the line is taking more wealth not income.Thats why wealth taxes will take everything unless the reform bennies and pensions.

I agree merging NI and tax is certain,its just when.Its why iv structured the family investments into SIPPs and ISAs,im thinking £15k max from pensions after pension age due to the above.

[marceau]

6 minutes ago, DurhamBorn said:

My partner works for the council,this years pay increase is £2k for everyone so 10% for lowest paid,5 to 7% for most,but managers down to 3%.Managers wont leave they are unemployable in the private sector,could be the start of what you say.

Of course this is really Gordon Brown-style equalisation of outcome when you look at it, but we don't have much choice at this point.

The big thing is to get the recapture of pension rises away from those tax bands. No chancellor is going to raise them significantly going forward if it brings a huge increase in overall pension payouts along with it.

[moneyscam]

3 minutes ago, Formerly said:

We already do. Anyone thinking NI is an insurance policy is nuts. It is a general tax on working.

I'd support the suggestion to merge it with income tax (and raising thresholds), thereby removing the special tax band on hard working families.

Yes, it's a form of gaslighting to use the term insurance. If you've only ever worked in UK you wouldn't know any better. When I lived in Switzerland and left my job, I was able to claim unemployment insurance for 18 months. I was paid 70% of my previous gross (which was taxed the same as if I had been working because it was considered income). At the first meeting at the unemployment office it was clearly explained to us that we had 'suffered a loss of income' against which we were insured and now our insurance policy had kicked in.

My obligations were to apply for minimum 5 jobs every month and visit the unemployment office once every 6 weeks for a chat.

By the end of it and before I returned to the UK I was paid a net total of £90K!

[DurhamBorn]

32 minutes ago, moneyscam said:

As I've posted before on this thread, I'm a big fan of Zoltan Pozsar and his missives. Yesterday he released his latest one and as ever is worth the read. Underlined emphasis is mine. @sancho panzafor the Minsky references

https://plus2.credit-suisse.com/shorturlpdf.html?v=5amR-YP34-V&t=-1e4y7st99l5d0a0be21hgr5ht

Some highlights :

…and that’s why forecast s of a rapid deceleration of inflation are naively optimistic: if Pax Americana enabled globalization and globalization underwrote lowflation, the TRICKs trying to poke holes in the Pax means that inflation is a big risk. To understand the path of inflation from here, we will have to read more history and think about trust, trade, and Dale Copeland’s theory of trade expectations: if trust drove globalization, and globalization drove “The Great Moderation”, distrust will drive de -globalization, and de -globalization “The Great Reflation ” …

And:

More broadly, the three “moments” of reckoning we discussed above mean that global supply chains, whether they produce military or civilian goods, are facing a Minsky Moment – a Real Minsky Moment. Paul McCulley’s term referred to the implosion of the long -intermediation chains of the shadow banking system that marked the onset of the Great Financial Crisis. Today, we are witnessing the implosion of the long -intermediation chains of the globalized world order: masks, baby formula, chips, missiles, and artillery shells, for now. The triggers aren’t a lack of liquidity and capital in the banking and shadow banking systems, but a lack of inventory and protection in the globalized production system, in which we design at home and manage from home, but source, produce, and ship everything from abroad, where commodities, factories, and fleets of ships are dominated by states – Russia and China – that are in conflict with the West. Inventory for supply chains is what liquidity is for banks. In 2007 -08, big banks ran on “just -in -time” liquidity: the dominant form of liquidity was market liquidity, for which you could always sell assets into a deep market without moving prices, so you did not have to have liquidity reserves at the central bank. Similarly, big corporations today run “just -in -time” supply chains for which they assume that they can always source what they need without moving the price. But not really: the U.S. military has to wait a little bit as Raytheon “will take a little while”; Taiwan and Saudi Arabia have to wait as well until the conflict in Ukraine is over; and if your washing machine broke recently, you’ll have to wait a bit too until defense contractors are done buying them up to rip chips out to make missiles. We’re borrowing from “here” to make things “there”. Do you remember the three units of Minsky? Hedge units can cover their payments from their incomes. Speculative units have to borrow to be able to make payments. And Ponzi units can make their payments only if they sell some of their assets and are thus the most exposed to rising interest rates. As our chip examples demonstrate, Minsky would classify our military supply chain s as “speculative” units at best, which are exposed to a further escalation of geopolitical tensions that could easily turn them into Ponzi supply chains. We can also apply Minsky’s framework in Europe, where German y can’t cover its payments without Russian gas and the government is asking citizens to conserve energy to leave more fo r industry. Minsky moments are triggered by excessive financial leverage, and in the context of supply chains, leverage means excessive operating leverage: in Germany, $2 trillion of value added depends on $20 billion of gas from Russia …that’s 100 -times leverage (see the last chart here ) – more than Lehman’s.

And:

Today, the assumption among investors is that globalization is Too Big to Fail… …but globalization is not a bank in need of a bailout. It’s in need of a hegemon to maintain order. The systemic event is someone challenging the hegemon, and today, Russia and China are challenging the U.S. hegemon. For the current world order and its trade arrangements and network of global supply chains to survive the challenge, the challenge must be squashed quickly and decisively, in the spirit of the Powell Doctrine. But Ukraine and Taiwan aren’t Kuwait, Russia and China aren’t Iraq, and Top Gun 2 isn’t the same movie as Top Gun …

And:

These are the scary times when the “euthanasia of the rentier” is a risk. To ensure that the West wins the economic war – to overcome the risks posed by “ our commodities, your problem”; “chips from our backyard, your problem”; and “our straits, your problem” – the West will have to pour trillions into four types of projects starting “yesterday ”: (1) re -arm (to defend the world order) (2) re -shore (to get around blockades) (3) re -stock and invest (commodities) (4) re -wire the grid (energy transition) Similar to how Basel III was the “tab ” associated with the Great Financial Crisis, the above list is the tab for the currently unfolding “Great Crisis of Globalization”. The four items on the list are self -explanatory. We read about them every day:

And:

Commodity intensity means that inflation will be a nagging problem as the West executes on the above list. Re -arming, re -shoring, re -stocking, and re -wiring need a lot of commodities – it’s a demand shock. It’s a demand shock in a macro environment in which the commodities sector is woefully underinvested – a legacy of a decade of ESG policies. Underinvestment means supply constraints, and geopolitics means even more supply constraints: resource nationalism – see Russia’s stance or Mexico’s recent decision to nationalize lithium mines – means that the supply you think is there to meet the surge in demand isn’t there: prices can thus surge. Executing on the to -do -list can easily drive another commodity super cycle, like the one we had after China joined the WTO in 2000. But that super cycle happened in the context of a peaceful, unipolar world order in which great powers had positive expectations of the future trade environment (see the “theory of trade expectations” above). But that’s not the case anymore. Capital intensity means that governments and also the private sector will have to borrow long - term to execute the to -do s. Re -arming and re -stocking are the domains of the government, and re -shoring and re -wiring the grid will involve public -private partnership s. Private firms will have to issue debt and raise equity to build things: ships, F -35s, factories, commoditywarehouses, andwind turbines. Insensitivity to interest rates means that the to -do -list will have to be executed regardless of whether the Fed hikes rates to 3.5% or 7%. Hell or high water, executing on the to -do -list is imperative. Industrial sovereignty depends on it.

And in conclusion:

Finally, uninvestability means that for certain large countries in the global East, it makes absolutely and categorically no logical sense to roll their investments in G7 debt claims. Not just because of what happened to Russia’s FX reserves, but also because rolling a $1 trillion portfolio of U.S. Treasury securities means that you will fund the West’s effort to re-arm, re-shore, re-stock, and re-wire… …against the East. And we are back to where we started on the cover page: Dale Copeland’s theory of trade expectations is the right frame to think about world from here, and sadly things make no sense to continue like they used to, be either from a real (trade/production) perspective or a financial (FX reserves) perspective… …which is why Bretton Woods III is destined to happen. It’s already happening, and we will explore the Bretton Woods III topic in detail in our upcoming dispatch: War and Currency Statecraft.

 

Exactly what this thread was started for because the macro showed all the above was coming.Markets are noisy right now and so are we.Although we are on a lifeboat being lowered from the Titanic,we could still be sucked down with the ship unless we get rowing.

I think the big themes are the best way to play this.For me the big certain one is Asian and Bric savings will go into their own markets and debt instead of western debt.So leveraging EM equity and bonds should deliver for us.We are pulling around 30% on out Turkish investment in a month.Those can/will shoot down as quick,but it shows the leverage up if we are right as im confident we are.

The west investments i think we need to continue to look at those who can capture inflation.I still think telcos will once they get going,look at Turkcells results this week,they captured the inflation and it went into profits.In time telcos should do divi + inflation uplift in stock price.

The next set in the west are those who dont have huge cost bases.Insurance fit in there.They will see demand destruction etc but at least they have low staff levels and only a few buildings to heat,that matters hugely.

We made fantastic profits calling this right,and we are now moving onto the next stage.As my mind starts to build the picture of what my roadmap numbers say im starting to feel confident we can profit from this as we move forward.

 

 

[Axeman123]

23 minutes ago, DurhamBorn said:

Its incredible how the left ie the BBC turn around the people helping cause the problems as the victims.

It is funny how their chosen representative forthe case they want to make is easily shown to be a scumbag waster by a cursory examination of the facts.

You woud think they would pick the most deserving example possible for their propaganda, which then leads to two possibilities; 1) this is what they have done and for most claimants it is simply a lifestyle choice, or 2) the BBC is incompetent even as a propaganda outlet. 

[DurhamBorn]

I should add,for the western investments there will be some great ones by doing cross market work.For instance,every item that arrives from China has cardboard packaging.If we onshore lots of production then cardboard box demand will grow here in the west.You dont import that due to transport costs.So the western cardboard makers will likely see long cycle growing demand (after maybe a year down during this initial hit).Not explosive,but if they are hit in a profit warning or anything likely very nice buys to again outrun inflation.div + share price growth.

[M S E Refugee]

1 minute ago, DurhamBorn said:

I should add,for the western investments there will be some great ones by doing cross market work.For instance,every item that arrives from China has cardboard packaging.If we onshore lots of production then cardboard box demand will grow here in the west.You dont import that due to transport costs.So the western cardboard makers will likely see long cycle growing demand (after maybe a year down during this initial hit).Not explosive,but if they are hit in a profit warning or anything likely very nice buys to again outrun inflation.div + share price growth.

Also there could be a huge demand from ex-Btler's for cardboard boxes for their new accommodation.

 

[Boon]

17 minutes ago, Axeman123 said:

It is funny how their chosen representative forthe case they want to make is easily shown to be a scumbag waster by a cursory examination of the facts.

You woud think they would pick the most deserving example possible for their propaganda, which then leads to two possibilities; 1) this is what they have done and for most claimants it is simply a lifestyle choice, or 2) the BBC is incompetent even as a propaganda outlet. 

This is nothing new, and there is some attempt at balance from normal working people:

https://www.bbc.co.uk/news/uk-england-suffolk-62631660

I don't think these people are that badly off though and also must have households which won't have the biggest increases - although some of that because they will reduce usage.

I should add that the BBC never points out the obvious. For that fat benefit claimant who is eating microwave meals, it makes no sense. A slow cooker uses around 1kw for 8 hours, a microwave maybe 0.1w for 10 minutes, so it is correct it is cheaper. But the cost of a microwave meal outweighs the cost of cooking your own food, so entirely a false economy.

[Harley]

2 hours ago, TNS said:

+80% to £3549 #assinvasion

So it's that regardless of what I use?  I might as well start some "indoor cultivation" then!  Utter covidesque wonk! 

[Yadda yadda yadda]

6 minutes ago, Harley said:

So it's that regardless of what I use?  I might as well start some "indoor cultivation" then!  Utter covidesque wonk! 

No, it is a daft way of presenting the data. As they are arrogant and think the plebs are thick it has to be shown as an average total. The cap is actually a unit price. Effectively we have full price controls for everyone not fixed.

I wonder if the current figures for energy usage are being used for forward market purchase. Eg no demand destruction is factored into the price. This the price will fall when demand inevitably falls. Wishful thinking?

[Boglet]

2 hours ago, JimmyTheBruce said:

https://www.bbc.co.uk/news/uk-england-suffolk-62631659

Pretty much ticks all the boxes this one.  On PIP, long covid, can't afford essentials like having hair done, eats salad but 18 stone etc, etc

 

This one ticks a few boxes as well 

If you think you've got it hard now love, let's check back later and see how well you get on as a single mum.

 

https://www.bbc.co.uk/news/uk-england-derbyshire-62124943

 

[Axeman123]

5 minutes ago, Boon said:

A slow cooker uses around 1kw for 8 hours, a microwave maybe 0.1w for 10 minutes, so it is correct it is cheaper. But the cost of a microwave meal outweighs the cost of cooking your own food, so entirely a false economy.

Exactly. £4 doesn't get you much of a ready meal, but that same amount would buy ingredients for at least 4 servings of slow cooker food. Obviously the 3 leftover servings would need warming in the microwave, but the remaining £12 would more than cover it.

[Harley]

1 hour ago, Yadda yadda yadda said:

The trouble with the one off payments is that they've been in addition to benefits increases rather than in partial substitution. Benefits payments are going up by inflation and they're getting an energy bung of £650, so far.

If September's inflation figure is 11% they won't have the balls to give a 5.5% benefits increase and a 5.5% bonus.

Benefits are running away from earnings in a death spiral.

Rich pensioners are going to get soaked by tax. Merge NI with Income Tax. Increase the tax free allowance to £15k (it should be uprated to about £14k to keep up with inflation anyway) and make high income pensioners pay.

Amended.  I might be OK with this personally, although a few years to go.  £15k each for the two of us plus our capital allowances and our low cost lifestyle sounds OK.  But then maybe not after a few years inflation.  Targets higher income pensioners and helps the low paid?  Are bennies taxed too?  Should be. 

[SpectrumFX]

1 hour ago, marceau said:

On the bennies front it seems like a no-brainer for them to go further down the one-off targeted payments route and avoid the indexation hit. Time is running out for this year though.

Pensions in payment is much harder. Just using the tax bands won't really cut it given the amounts involved, and for every public sector fat cat with £40k+ pension, there's hundreds of poor fuckers with less than £10k. Reduce indexation across the board and you'll destroy the second group. Perhaps an indexation taper above certain levels of pension income would work?

An absolute public sector pension cap set at something like the median wage (or lower) would be ideal, but I can't see any government being willing to take the flak you'd get bringing that in. It would start a war with the entire senior civil service.

A big personal allowance with a high income tax rate could work well, if you combined it with a decent lifetime allowance on pensions and decent tax relief on pension contributions so that people in work could dodge the income tax.

They won't make any hard choices though, so currency collapse is the most likely outcome.

[Boon]

15 minutes ago, Boglet said:

 

This one ticks a few boxes as well 

If you think you've got it hard now love, let's check back later and see how well you get on as a single mum.

 

https://www.bbc.co.uk/news/uk-england-derbyshire-62124943

 

I don't know, wouldn't she actually be better off thanks to all the benefits?

At only £300 rent a month it sounds like the husband's brother is a freeloader.

[Yadda yadda yadda]

7 minutes ago, Harley said:

Amended.  I might be OK with this personally, although a few years to go.  £15k each for the two of us plus our capital allowances and our low cost lifestyle sounds OK.  But then maybe not after a few years inflation.  Targets higher income pensioners and helps the low paid?  Are bennies taxed too?  Should be. 

Interesting idea taxing bennies. Could you imagine the media furore if that happened? A lot would lose £100+ per week. They'd be all over the food banks whilst workers on similar incomes would be bemused.

Edit to add that many people on in work benefits will be paying tax on the earned portion of their income.

[AWW]

16 hours ago, Axeman123 said:

Macro-economic indicator of used enthusiast cars losing value:

A long way still to go, based on the white Merc with gullwing doors going 115K to 200k, and now down to ~160k. Anyone buying one at 200k to speculate using a HELOC is in a world of hurt I imagine.

(Probably not worth watching just for that though, but interesting to see normies catching up to thread themes)

As someone who has a couple of nice classics in the garage, I welcome a correction, because the bubble has also driven up parts prices and insurance to such an extent that I don't use them.

[Harley]

25 minutes ago, Yadda yadda yadda said:

No, it is a daft way of presenting the data. As they are arrogant and think the plebs are thick it has to be shown as an average total. The cap is actually a unit price. Effectively we have full price controls for everyone not fixed.

I wonder if the current figures for energy usage are being used for forward market purchase. Eg no demand destruction is factored into the price. This the price will fall when demand inevitably falls. Wishful thinking?

It was in jest!  Maybe a bit of infantile "grounding" by them as in "my bill isn't as bad as that, happy days"! 

[Harley]

3 hours ago, TNS said:

+80% to £3549 #assinvasion

Keep this up and my techosplurge on an ESS may become an "investment"!

[Harley]

15 minutes ago, Yadda yadda yadda said:

Interesting idea taxing bennies. Could you imagine the media furore if that happened? A lot would lose £100+ per week. They'd be all over the food banks whilst workers on similar incomes would be bemused.

Edit to add that many people on in work benefits will be paying tax on the earned portion of their income.

I would love to watch "them" square that circle with the single bloke working all hours in a warehouse (and more) or even a pensioner paying tax (ok on some untaxed income going into the pension but that's similar to the bennies!).

[spunko]

I've started Part 4 of this thread: