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

[Don Coglione]

24 minutes ago, geordie_lurch said:

I would strongly disagree with you and others on this thread about that We still haven't seen inflation enter the general public's minds here in the West or experienced a true currency collapse. However the recent currency collapses in both Venezuela and Turkey, which have happened since Bitcoin has been available seem to prove to me Bitcoin was the easiest and most secure way for the population to preserve as much of whatever wealth they had

How anything this volatile can be considered an inflation hedge is a mystery to me.

[geordie_lurch]

14 minutes ago, Don Coglione said:

How anything this volatile can be considered an inflation hedge is a mystery to me.

I grant you that Bitcoin is not for everyone currently as most people can't be bothered taking the time to understand it properly but at some point, within the next 36 months maximum, I think a lot of people on this thread will regret not putting just 1% of their savings into it as the ultimate inflation / currency collapse hedge. DYOR etc but personally I'd rather be like those who managed to convert some of their Lira or Bolívar from their local fiat currency into it before their Governments devalued the day to day fiat currency overnight.

[sancho panza]

4 hours ago, DurhamBorn said:

RPI 7.1% ,my roadmap had it at 6.8% from the day this thread started this far along,very pleased with that work.8% price increases for BT etc.

1 hour ago, jamanda said:

Do any of you clever people who can add up know what the inflation rate would be if it used the same calcs as in the 70's or was it 80's?

Lyn Alden said something like 15% but you'd need someone like Shaun Richards to get a better answer.If you go on his blog,ask in the comments,he normally responds.

[sancho panza]

As DDMB said,this is more the Bear Sterns moment than the real thing.

https://www.icis.com/chemicals-and-the-economy/2021/12/time-for-demographics-to-replace-economics-as-evergrandes-bankruptcy-marks-the-end-of-the-central-banks-debt-bubble/

http://new-normal.com/wp-content/uploads/2021/12/debt.jpg

For the past 20 years, the major central banks have fooled themselves, and the public, into believing they could somehow conjure up growth by effectively printing babies.  After the dotcom bubble and the subprime crisis, they simply doubled down on their failed policy. But as Evergrande’s default confirms, they have simply created a massive debt bubble.

As the chart shows for both the USA and China, all this debt has failed to create GDP growth:

• In China, each dollar of debt has created just $0.45c of GDP growth
• In the US, each dollar of debt has created just $0.36c of GDP growth

It has been value destruction on an epic scale.  Finally, though, the European Central Bank’s Isabel Schnabel recognised last week that its:

“Bond-buying policy is inflating asset prices and creating risks of financial instability.”

Coincidentally or otherwise, this late recognition happened just as Evergrande, the world’s most indebted property developer with $300bn of debt, went into its long-awaited default.

As I noted here 3 months ago:

“An Evergrande default could reset the Chinese and global economy”

And I then followed up with further warnings here and in the Financial Times on the likely consequences. It was the most-read letter of the week, noting:

“The bubble was based on China’s massive post-2008 stimulus programme, which essentially became “subprime on steroids”. And unfortunately, it led many suppliers outside China to expand capacity in the belief that China had suddenly become middle class by western standards.

“Investors now risk another acute case of buyers’ remorse, given that real estate is 29 per cent of China’s gross domestic product. Many financial market valuations are, after all, at more extreme levels than in 2008, due to the belief that China’s demand growth is unstoppable.”

The problem is that everyone wanted to believe that economics was a scientific discipline, rather than a debate about different opinions.

The difference is that in science, the same result has to happen every time if the theory is to be proved. But there is no such proof possible with economics. Instead, it relies on a series of outdated computer models for its conclusions.

This is how the US Federal Reserve came to believe that house prices could never fall, and so ramped up the subprime crisis until it almost destroyed the global financial system.

One might have hoped after this, that the central banks would have listened to those of us who warned repeatedly here, and in the Financial Times, that this would happen. But that hope proved naive.

Instead, China was encouraged to launch its ‘subprime on steroids’ programme. , This led to millions of empty apartments being built around China. Importantly, it also led suppliers to ramp up production around the world to supply the speculative bubble.

But now China is rowing back on the policy. President Xi keeps reminding people that “houses are for living in, not for speculation”. And the central banks are suddenly panicking about the debt they have created.

http://new-normal.com/wp-content/uploads/2021/12/spend.jpg

The key issue is that it is people who create wealth, not computer models and debt. And as the chart shows, we are now living in a completely different world from when all the models were created:

• It shows the comparison between 2000 and 2020 in terms of US household age and spend
• In 2000, there were 65m households in the Wealth Creator 25-54 age group, and they spent an average of $65k per year
• There were only 36m in the older Perennials aged 55+, and they spent just $47k
• Fast forward to last year, however, and the number of Wealth Creators and their spend had hardly grown
• But the number of Perennials had soared to 59m, and their spend was still well below that of the Wealth Creators

This was the background against which the Federal Reserve was essentially trying to ‘print babies’ with its stimulus programme. And now, as Evergrande defaults, the debt bubble created by the central banks is highly likely to burst. It is time for the central banks to give up their outdated economic models, and focus instead on the science of demographics.

[Noallegiance]

38 minutes ago, Don Coglione said:

How anything this volatile can be considered an inflation hedge is a mystery to me.

"It's great because it's the most stable one!" I was told, once.

 

"Hi! I'll have a loaf of bread please!"

"Sure that's 0.00000456........no........0.0000032........hang on.........0.00000639.......fuck it you got any silver?"

[HousePriceMania]

28 minutes ago, sancho panza said:

Lyn Alden said something like 15% but you'd need someone like Shaun Richards to get a better answer.If you go on his blog,ask in the comments,he normally responds.

I thought that chart needs some extra context

 

[ThoughtCriminal]

At present crypto doesn't correlate well with inflation. That might change.

 

It correlates pretty well with stocks, which is why I'm holding off selling mine until the final melt-up occurs, if DH is correct.

 

 

[Noallegiance]

US retail sales up 0.3% vs 0.8% forecast.

Considering it's on inflated prices, that's pretty shit.

[Majorpain]

45 minutes ago, sancho panza said:

Lyn Alden said something like 15% but you'd need someone like Shaun Richards to get a better answer.If you go on his blog,ask in the comments,he normally responds.

Seeing lots of comments about 30-40% increases in Gas/Electric and petrol increases, masses are not being fooled by 5% CPI this time.

[sancho panza]

23 minutes ago, ThoughtCriminal said:

At present crypto doesn't correlate well with inflation. That might change.

Nothing has correlated with inflation for a long time.

7 minutes ago, Majorpain said:

Seeing lots of comments about 30-40% increases in Gas/Electric and petrol increases, masses are not being fooled by 5% CPI this time.

Yeah MP,I'm hearing lots of people at work moaning about teh cost of living.History will view the lockdown as the beginning of the end of the biggest debt bubble in history.The policy error to end all policy errors.

I don't think oru political elite have the vaugest idea of the social and economic turbulence that's going to follow now they can't print money without consequence any more

[Axeman123]

I can remember when the scale he used ran from red to blue, but now he keeps having to add darker colours to the right hand end for ever higher prices. Now he has reached black! It seems a very fitting metaphor for the unprecedented nature of these price rises.

[JMD]

2 hours ago, jamanda said:

Do any of you clever people who can add up know what the inflation rate would be if it used the same calcs as in the 70's or was it 80's?

Shadow Stats is US focused but still good for comparisons. Their chart shows the US official figure at 7%, but their own re-based 1980 calculation figure is 15%!! 

Alternate Inflation Charts (shadowstats.com)

 

[Loki]

14 minutes ago, sancho panza said:

Nothing has correlated with inflation for a long time.

Housing

[HousePriceMania]

remember what I was saying yesterday about things not being as rosy as one thinks and the consequences of this.

[HousePriceMania]

I topyed with buying some of these

https://uk.finance.yahoo.com/news/cineworld-cinema-chain-shares-crash-after-700m-court-ruling-124504443.html

 

Cineworld shares crash after £700m court ruling

 

 

 

[janch]

5 hours ago, Loki said:

SEISS bumped my return up too

Quite a bit of government largesse must get clawed back in tax:

 

Anyone with a state pension and a lot of savings who spends more than the personal allowance.

Anyone on a higher tax rate salary who is also eligible for child benefit.

Anyone claiming child tax credits and on a high enough salary etc etc.

 

So quite a lot of the furlough monies will come back to government as tax.  They must know this when the announcements are made so what looks like generosity often isn't so great when the sums are done.

Which is reassuring in one way but it would be better if the government was able to use tax monies to good effect instead of splurging a lot of it on things like track and trace.  No wonder the majority do all they can to avoid paying as much tax as they can.

The only tax I pay at the moment is a small amount of VAT and the stamp duty tax on my share purchases and of course the exorbitant council tax which there doesn't seem to be any way of getting away from.

[Yellow_Reduced_Sticker]

25 minutes ago, Loki said:

Housing

 

Indeed!

 

"UK house prices see third month of double-figure growth"

 

Its MENTAL where i live, houses are NOT even being put on RM, sold to people in the area or contacts in the EA game...

 

My neighbor next door has the identical bungalow to mine, they had it valued in the summer at £380K and ffs it would be a refurb!

 

Once I finish landscaping my garden some mug will pay £400K + for mine!

 

Thinking of buying this Detached Bungalow near Durham for only £80,000:

 

https://www.rightmove.co.uk/properties/110218574#/?

 

Yep, a cemetery lodge has lots of potential for up & coming biz!

 

@DurhamBorn how far is it from you, just asking so i don't have far to follow you around for the YRS bargains!

 

[harp]

1 hour ago, ThoughtCriminal said:

if DH is correct.

 

 

If PM’s are anything to go by…..

[reformed nice guy]

3 hours ago, ThoughtCriminal said:

Or is there an alternative?

I dont think there are many alternatives. I think the best thing is to have a little bit of everything.

I bought a few more gold coins today - it might not make me rich but as insurance against wealth confiscation they are worth it.

I was thinking about productivity today. The government cost for a lateral flow test is 52p. Round it up to at least £1 for postage, handling etc. If they are encouraging EVERYONE to use one of these daily for work then it must be a massive cost. It reminds me of @DurhamBorn saying that during an inflation cycle you want to be at the start of the chain.

Imagine a restaurant - 100 diners over a night all taking a test, the 3 waitresses, 3 kitchen staff, 4 delivery staff that brought fresh grub etc. That is an additional £110 costs for people to have their dinner, paid for by the government. The chain would extend back further when you include those workers in the fresh fruit/veg market, butchers etc If the average person spent £50 then the tests are 2.2% in value!

[geordie_lurch]

So might be nothing or might be an early warning that TPTB have given the nod to BA about new Thai or possibly even new global restrictions - all flights to Thailand cancelled until October 2022 HT to @montecristo mentioning it elsewhere

 

[Presuming Ed]

5 hours ago, ThoughtCriminal said:

This might be a good time to clarify our thinking on inflation and our position in defending ourselves from its effects.

 

Crypto almost certainly isn't a hedge against inflation, gold and silver don't appear to be acting as one YET.

 

Do we just sit in stocks and ride out a BK as and when it happens? 

 

Put large percentage in metals and hope that they manage to break free of the suppression?

 

Or is there an alternative?

I took some profits over the last few months and was holding too much cash. Being worried about inflation, yet not seeing much value in the market currently, as a sort of halfway house I've allocated 25% of my portfolio to a number of 'all-weather' investment trusts that aim to preserve and make money in any environment. The 3 I've invested in are Personal Assets Trust (PNL), Capital Gearing Trust (CGT) and Ruffer Investment Co (RICA).

None of them will make me rich but they have good records and they'll hopefully preserve the real value of my money a lot better than cash will. Personal Assets policy is 'to protect and increase (in that order) the value of shareholders’ funds per share over the long term'. Kinda dull but that's what I want at the moment. 

All 3 have been critical of central bank policy and have been primed for inflation for a long time (many deride them as perma-bears) and all have varying allocations to gold, TIPS, etc. but they all have different slants. E.g. Personal Assets are more into quality stocks whereas CGT are more value-oriented. 

Ruffer's biggest equity holdings are BP and Shell so there's obviously an argument that you could just replicate something like this yourself. But what I like about Ruffer in particular is they have allocations to all manner of financial voodoo listed as 'Ruffer Protection Strategies' and 'Ruffer Illiquid Multi Strategies' that I wouldn't know where to start or have access to. 

But in March 2020 Ruffer were one of the few things that actually went up that month because they had a load of derivative protections that kicked in and blunted equity losses. Their monthly report is always quite interesting too:

https://www.ruffer.co.uk/-/media/ruffer-website/files/fund-reports/ric/2021/2021-11-ric-fund-report-nov2021.pdf

The plan is to hold them until any proper crash kicks in (and they hold up better than everything else) then sell in order to buy all the bombed out stuff. If no crash then they'll probably tick along delivering modest returns above the return of cash. 

DYOR etc. They still come with risk but fucked if I'm sitting with half my money in cash at the moment. 

[HousePriceMania]

37 minutes ago, geordie_lurch said:

So might be nothing or might be an early warning that TPTB have given the nod to BA about new Thai or possibly even new global restrictions - all flights to Thailand cancelled until October 2022 HT to @montecristo mentioning it elsewhere

 

I know a pilot, I'll ask what's going on when I see him next.

[Axeman123]

6 minutes ago, Presuming Ed said:

...fucked if I'm sitting with half my money in cash at the moment. 

Surely by the time the man in the street is discussing inflation the window of opportunity has largely closed?

[Harley]

4 hours ago, HousePriceMania said:

I dont see much value in anything right now so will wait it out till March and see where we are.

Agreed.  Been so for a while.  Maybe some trades but very little value wise. 

I had hoped to see PM miners rally on good fundamentals but they have backed off for now.  I'll start bying more physical gold soon as that could pop (as it does every few years) but more to hold as a safer haven than cash.  It could go lower but is already quite low and it's a long term hold for me.

Unlike you, Ive scaled back many positions to 50% rather than 0% just in case I'm wrong, for the divs, etc.  But not energy as I want to double my current exposure at the right time. 

It all has a lull before the storm feeling but actually things have been worsening for a few weeks so any storm would be more a late stage realisation!

My timeframe is monthly rather than short term.

[ThoughtCriminal]

2 hours ago, Yellow_Reduced_Sticker said:

 

Indeed!

 

"UK house prices see third month of double-figure growth"

 

Its MENTAL where i live, houses are NOT even being put on RM, sold to people in the area or contacts in the EA game...

 

My neighbor next door has the identical bungalow to mine, they had it valued in the summer at £380K and ffs it would be a refurb!

 

Once I finish landscaping my garden some mug will pay £400K + for mine!

 

Thinking of buying this Detached Bungalow near Durham for only £80,000:

 

https://www.rightmove.co.uk/properties/110218574#/?

 

Yep, a cemetery lodge has lots of potential for up & coming biz!

 

@DurhamBorn how far is it from you, just asking so i don't have far to follow you around for the YRS bargains!

 

On a serious note, that's a little cracker at the price. 

 

Bet it's deathly quiet. 😂

 

I'll get my coat...........🙄