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

[wherebee]

9 hours ago, nirvana said:

took some profits on da potash, tanks for da tips bros....

And got me some new teeth wif ma gold stash and jiggin wif ma fat ass biatch! yo!!!

 

I really, really hope they are both vaccinated.

[nirvana]

Uncle Dave is playing silly games again, after calling a 50% rally within days he calls a 5% crash

Must be great living in a world where you're always right eh? 

 

[nirvana]

8 hours ago, Axeman123 said:

Wow, five whole grand. Not even four grand in GBP. Always amusing when people think a wodge of physical cash is a lot, when that wouldn't even buy 1% of some grim UK houses. I bet the cheapest driving F150 pickup currently for sale in the US is more than that even.

I reckon that's even fake money lol

BUT you miss the point, they want fame and followers! Maybe they sell a subscription service to other 'young upstarts'

THEY didn't create this environment though, boomer cunts like Pelosi and the bankers did!

AND as ever it's always relative, I can live for a year on 5 grand but I heat my large detached abode for free (virtually...) and I don't live in the same cuntry as you or them!

wooh more coffee dude? lol

[jamtomorrow]

8 hours ago, sancho panza said:

Household goods stores selling furniture and lighting were the main driver of the monthly fall in spending, with a slump of almost 10% in September coming after a decline in sales in every month since a peak in May.

Sales volumes also fell for chemists, toy stores and sports equipment stores.

Look at that, discretionary spending being postponed or abandoned. So how much of that do we have to get through before we finally hook onto that inflationary spiral and see aggregate velocity tick upwards?

Rather a lot I would think, the discretionary part of the economy is enormous compared to the last time we were primed for inflation, and participants are starting from a higher average level in Maslow's hierarchy.

So much more of "let's not get that new sofa" this time round, and much less of "I'm worried we won't be able to afford to eat next month" (*at this early stage*).

While that's the dominant story (and while CBs are still printing faster than prices are rising), I can't see velocity going anywhere. Activity levels can't move until the shrinking of the discretionary economy is overwhelmed by the increase in essential purchases being brought forward.

Which, to my mind, means many households first have to slip down Maslow's hierarchy and experience real economic fear, and CBs have to stop printing (i.e. stable denominator) before we get a velocity uptick.

[MrXxxx]

On 21/10/2021 at 15:22, DurhamBorn said:

If the BOE increase rates and if they drop QE to £40 billion a year i think sterling / dollar goes to $1.78,thats my target .Now, going through my portfolio most of my assets gain from falling sterling,not rising.Tricky.

Akin to what George [and Rickards] said in Jan 2021:

 

[Castlevania]

On 21/10/2021 at 16:22, DurhamBorn said:

If the BOE increase rates and if they drop QE to £40 billion a year i think sterling / dollar goes to $1.78,thats my target .Now, going through my portfolio most of my assets gain from falling sterling,not rising.Tricky.

Wouldn’t EM currencies (especially those that are commodity exporters) also rise versus the dollar? I’m just remembering the Fundsmith annual meeting that someone posted on here earlier this year and both Uncle Terry and his assistant Jules were of the view that a weak dollar is good for PMI as stronger EM currencies boosts their earnings and I would expect similar for BAT (although BAT have a big US business whilst PMI don’t) given both have a huge global footprint.

[DurhamBorn]

2 hours ago, jamtomorrow said:

Look at that, discretionary spending being postponed or abandoned. So how much of that do we have to get through before we finally hook onto that inflationary spiral and see aggregate velocity tick upwards?

Rather a lot I would think, the discretionary part of the economy is enormous compared to the last time we were primed for inflation, and participants are starting from a higher average level in Maslow's hierarchy.

So much more of "let's not get that new sofa" this time round, and much less of "I'm worried we won't be able to afford to eat next month" (*at this early stage*).

While that's the dominant story (and while CBs are still printing faster than prices are rising), I can't see velocity going anywhere. Activity levels can't move until the shrinking of the discretionary economy is overwhelmed by the increase in essential purchases being brought forward.

Which, to my mind, means many households first have to slip down Maslow's hierarchy and experience real economic fear, and CBs have to stop printing (i.e. stable denominator) before we get a velocity uptick.

Its very very fuzzy now as we enter the cycle isnt it.Its been a long cycle,a very long one,so its likely the first drop is in things people are stuffed out with.Inflation is now starting to hand the money that would be spent on a new sofa to energy bill,food bills etc.Its moving its way to our de-complex holdings.People will actually use less of those as well,the difference is the prices will go up more than the consumption falls.

I think your right on velocity here.I dont think we need it for the first run up in inflation because its cost push.Once the cost pull joins in we should see that.The key to stopping runaway inflation is the ending of QE,because then government will have to deal with the structural issues.This budget this week is critical,not for the moves made ,but to see if Sunak gets it.

I think we are positioned well on here mostly,given where we are.

[Axeman123]

1 hour ago, PrincessDrac said:

Link

This has been mentioned before.

The budget next week, how will the market react.

It's been suggested that rates could be aligned more closely with income tax rates, which could mean scrapping the current tax rates of 10% and 20% (or 18% and 28% for property) and instead making everyone pay income tax rates on their gains.

I can't imagine CGT rising to match income tax rates. That just seems like a display of "we really are looking at all options", before doing the obvious like changing NI for very high earners and hikiing sin taxes like road fuel/tobacco/grog. Additionally I doubt there will be a lot of capital gains realised over the next few years. I could see some CGT fiddling, imagine designated ESG investments being CGT free as a nudge or maybe 25% CGT for additional rate taxpayers.

Just imho.

The talk of eliminating IHT of late has been pretty bizarre, being a naked bung to the wealthy. Few Estates pay anything, only massive estates pay a significant percentage. Doing that while screwing Dave from Wigan for double CGT on his lucky Tesla shares punt would be Theresa May levels of "how to lose an election".

[kibuc]

13 hours ago, MrXxxx said:

I contextualize it by thinking about a variable rate mortgage taken out on a property....if I can afford to borrow up to a max sum and then my interest payments change what would I prefer, to have them go up by x3 or by x5?...in the the 70's it was ~x3 [and then only for a sort period of time], going from an all time low of ~1-1.5% at present when they go up the 'new reality' is going to stay with us for a lot longer and this is when those who have bought/overstretched themselves in the last 5-10 years will have no option but to default.

I think I remember saying back on HPC that I'd much rather buy a house in a 10% environment than a 1% environment. While your monthly payments are very likely the same (because that's what really drives house prices imo, not the other way round), the amount of debt you take on is much lower, inflation will... well, inflate away your debt and monthly payments, and the rates have a lot of room to go lower, reducing your payments even further. 

[kibuc]

35 minutes ago, Axeman123 said:

I can't imagine CGT rising to match income tax rates. That just seems like a display of "we really are looking at all options", before doing the obvious like changing NI for very high earners and hikiing sin taxes like road fuel/tobacco/grog. Additionally I doubt there will be a lot of capital gains realised over the next few years. I could see some CGT fiddling, imagine designated ESG investments being CGT free as a nudge or maybe 25% CGT for additional rate taxpayers.

I just had an idea that CGT could actually be aligned with income tax (or perhaps set even higher, why not) as part of a broader plan. 

1. You make CGT unbearable, driving people into highly regulated cgt-free investment vehicles (ISA).

2. Once most of the retail money is there, you change the list of isa-eligible products to fit your policy/agenda. Think "minimum 50% domestic ownership companies", "only carbon-neutral funds" and such. 

3. Profit (financial or otherwise) 

[Castlevania]

12 minutes ago, kibuc said:

I think I remember saying back on HPC that I'd much rather buy a house in a 10% environment than a 1% environment. While your monthly payments are very likely the same (because that's what really drives house prices imo, not the other way round), the amount of debt you take on is much lower, inflation will... well, inflate away your debt and monthly payments, and the rates have a lot of room to go lower, reducing your payments even further. 

Yeah. If you have £100 left over each month in both scenarios that you can use to overpay the mortgage, in a 10% interest rate environment it A) is a larger % of the price and B) you save 10% in interest on the overpayment. Much better in my opinion.

[Axeman123]

2 minutes ago, kibuc said:

I just had an idea that CGT could actually be aligned with income tax (or perhaps set even higher, why not) as part of a broader plan. 

1. You make CGT unbearable, driving people into highly regulated cgt-free investment vehicles (ISA).

2. Once most of the retail money is there, you change the list of isa-eligible products to fit your policy/agenda. Think "minimum 50% domestic ownership companies", "only carbon-neutral funds" and such. 

3. Profit (financial or otherwise) 

I can totally see your logic there, you could well be right. My thought is that all of that would be for us "little people", and not accross the board. So for an example, workplace pensions would be fair game but individual shareholdings not so much.

Perhaps they might  require all ETFs and investment trusts to have ESG components, and prohibit individual shares in ISAs or SIPPs. That would capture the masses, but leave the bulk of the wealthy people's money safe outside these kinds of accounts. Setting eligibility rules on tax priviledged accounts is also much easier than outright co-opting private wealth.

If I am wrong maybe we might see something (that I just made up) like a 20% mandatory ESG allocation on brokerage accounts, but capped at £20k nominal. A typical £40k portfolio would end up with £8k of dross, A million pound one a mere £2k or 2%.

As a cynic I would always expect a backdoor for the wealthy.

[M S E Refugee]

Just received a statement from my works Pension and according to the Trustees the members are now very interested in ESG.

[Loki]

On that basis does it matter if BP etc get massively into hydrogen?  They'll still be classed as 'fossil fuels' unless there is some sort weighting.

[King Penda]

49 minutes ago, kibuc said:

I think I remember saying back on HPC that I'd much rather buy a house in a 10% environment than a 1% environment. While your monthly payments are very likely the same (because that's what really drives house prices imo, not the other way round), the amount of debt you take on is much lower, inflation will... well, inflate away your debt and monthly payments, and the rates have a lot of room to go lower, reducing your payments even further. 

This is another reason I want to buy a larger house soon I know inflation will eat the debt away.if I can get back into work full time I’d even be tempted to go all in .ie borrow has much has I can lay my hands on and watch inflation weave it’s magic and a bonus larger yearly pay rises .those on universal credits could be in for a large shock because whatever they get given will not keep pace

[sancho panza]

4 hours ago, MrXxxx said:

Akin to what George [and Rickards] said in Jan 2021:

 

Interesting discussion of velocity at 22 minutes,aside from the excellent discussion before,and that as per @jamtomorrow was saying.Velocity is the key.When that turns,all hell could break loose.

[MrXxxx]

3 hours ago, DurhamBorn said:

The key to stopping runaway inflation is the ending of QE,because then government will have to deal with the structural issues.

Well its the only thing in the equation [Velocity = GDP/M2] that appears limitless i.e. CBs appear to be printing to oblivion BUT GDP has limits (unless you make it up like the Chinese), and people can only spend x amount of salary and this is capped by employers (and also often lags).

[sancho panza]

23 hours ago, Cattle Prod said:

Chart of the day: US M2 money stock vs Gold.

 

Dyodd, but comments welcome. Does anyone think M2 will change? I think if the Fed does taper, it'll be gentle...

Edit

Time scale bar was wrong, I had to reverse it around. 

A chart for a chart.I've indexed coper,oil,gold,M2 to 1990.There's a lot of upside on all counts imho.

[sancho panza]

5 hours ago, jamtomorrow said:

Look at that, discretionary spending being postponed or abandoned. So how much of that do we have to get through before we finally hook onto that inflationary spiral and see aggregate velocity tick upwards?

Rather a lot I would think, the discretionary part of the economy is enormous compared to the last time we were primed for inflation, and participants are starting from a higher average level in Maslow's hierarchy.

So much more of "let's not get that new sofa" this time round, and much less of "I'm worried we won't be able to afford to eat next month" (*at this early stage*).

While that's the dominant story (and while CBs are still printing faster than prices are rising), I can't see velocity going anywhere. Activity levels can't move until the shrinking of the discretionary economy is overwhelmed by the increase in essential purchases being brought forward.

Which, to my mind, means many households first have to slip down Maslow's hierarchy and experience real economic fear, and CBs have to stop printing (i.e. stable denominator) before we get a velocity uptick.

I think you're right there's a huge overhang in terms of over confidence that will need sweeping away before velocity will start moving inflation forward.A lot of people in the Werst have this mistaken belief that their govt 'is on it','has their back' etc etc.Reality is that they've jsut created GD2 and still didn't see it coming.

 

For me,the phase where velcoity starts koving of it's own accord is the scary phase-that's when people are spending a la Zimbabwwe becasue they know the money will devalue if they don't.

The phase we're still in is where savers see falling IR's and reduce velocity to compensate.At some point the dam will break.

 

3 hours ago, DurhamBorn said:

Its very very fuzzy now as we enter the cycle isnt it.Its been a long cycle,a very long one,so its likely the first drop is in things people are stuffed out with.Inflation is now starting to hand the money that would be spent on a new sofa to energy bill,food bills etc.Its moving its way to our de-complex holdings.People will actually use less of those as well,the difference is the prices will go up more than the consumption falls.

I think your right on velocity here.I dont think we need it for the first run up in inflation because its cost push.Once the cost pull joins in we should see that.The key to stopping runaway inflation is the ending of QE,because then government will have to deal with the structural issues.This budget this week is critical,not for the moves made ,but to see if Sunak gets it.

I think we are positioned well on here mostly,given where we are.

It's strange how we're seeing falling retail sales despite all the sugar rush talk of exiting lockdwon.I think it's a sign that we're in severe trouble.All the lockdown loons are back out there urging the govt to save the NHS but the simple reality is that a quick look under the bonnet and anyone can see there jsut isn't the scope for the furlough this time,let alone the buiness laons that wont get repaid.

If retial sales are falling that's because people are starting to sense/fear trouble looming in the form-primarility initally in terms of higher energy bills.......Boris/Rishi and Hancock stoked the fear out of the bottle and now they can't get it back in.

I couldn't get my head around the retial sales figures last night.Joe Public must be getting the wind up.

[DurhamBorn]

1 hour ago, M S E Refugee said:

Just received a statement from my works Pension and according to the Trustees the members are now very interested in ESG.

They should be,it will mean they work a lot longer  Im retired at 49 and most of my gains have come from the hated sectors over the years.My dad has always maintained that they do it on purpose so they can buy the assets cheap themselves,or in trust funds hidden away from scrutiny.Forcing the worker ants pensions into this crap is clever.Make them work longer,steal of their saved labour etc.

One of the main problems government have,maybe the biggest problem is keeping those who work actually working to fund the rest.It all goes up to the rich anyway so they dont care,just about stopping the bennie class turning up with pitchforks.

High house prices is one big plank,but that only works for two generations because then people inherit,so thats burning out now.

Keeping pensions down seems like the next target,and trying to stop wealth being passed on.Budget might show up some moves from them.

[Chewing Grass]

'Spare capacity is declining fast' is the sort of statement that can be looked at in 2 ways.

[Chewing Grass]

11 minutes ago, Cattle Prod said:

What 2 ways?!

There is either plenty of oil and not enough refining capacity or there is plenty of refining capacity and not enough extractable oil.

[Noallegiance]

1 hour ago, DurhamBorn said:

It all goes up to the rich anyway so they dont care,just about stopping the bennie class turning up with pitchforks.

Interesting point. Makes me think of a conversation I've had with someone who was happy to see some of his tax given to the 'benefit class' no-hopers so they don't come round and nick his shit.

He has a point.

[feed]

Not come across this guy before, but he manages to cover just about everything in under an hour.

 

4:24 - Very Long Cycles
6:32 - Capital/Debt Cycles
9:18 - Rates of Change
11:30 - Supply/Demand
13:23 - Inflation YOY
16:52 - Fed Rates & Debt
18:40 - Dollar Outlook
20:27 - Green Energy & Risks
24:08 - Weather Cycles
28:15 - Energy Inventories
31:50 - China & Coal
35:10 - China & Crypto
37:12 - Nuclear Energy
42:54 - Energy & Metals
46:10 - Golds Importance
48:35 - Trading Timeframes
51:18 - Company Valuations
53:23 - Corn

[Yadda yadda yadda]

9 hours ago, kibuc said:

I just had an idea that CGT could actually be aligned with income tax (or perhaps set even higher, why not) as part of a broader plan. 

1. You make CGT unbearable, driving people into highly regulated cgt-free investment vehicles (ISA).

2. Once most of the retail money is there, you change the list of isa-eligible products to fit your policy/agenda. Think "minimum 50% domestic ownership companies", "only carbon-neutral funds" and such. 

3. Profit (financial or otherwise) 

Most people leave their pensions in the default settings. These will be increasingly heavy on the ESG (sounds like a food additive that I wouldn't want in my pizza). They don't have to make people invest where they want them to. For most it will just happen and they won't know about it. People, generally, are more scared of stocks and shares than I am of the Government.

Only 3% of the population have a stocks and shares ISA. 33% apparently own shares but I wonder how many of those only have shares in their employer?

https://www.finder.com/uk/investment-statistics