Credit deflation and the reflation cycle to come (part 6)

[Axeman123]

Starmer on Sky news, when put on the spot about mortgage help he wouldn't comit to anything (even though he couldn't be held to it as leader of the opposition for over a year). His weasel answer was tightening loopholes in the energy widfall tax would help mortgage holders indirectly by lowering energy bills. Also tried to link windfarms to mortgages(!), just total deflection. Mentioned vaguely about looking at long-term stuff.

The fix is in, mortage help is toxic and not happening IMO.

(~4 minutes in, the rest is energy and honours stuff)

[DurhamBorn]

2 minutes ago, azzuri82 said:

Yeah it's just one anecdotal of a tiny business, but how many other people are thinking/considering the same extrapolated across the economy, and what does this do to government revenues?

I suspect most people in our position would limp on for another 6-9 months before being forced to throw in the towel, but who is going to work for fuck all?

My missus is a paediatric nurse that specialises in theatre work, and going back to work 2 days from November (mostly just to get her out the house and away from the kiddos for a bit), top of her band so she'll end up with approx. £1,500 net/month for 2 full days, but again, almost zero taxes contributed from her as well.

We're going from massive tax contributors over the last 5 years or say (I reckon we've paid approx. £300k when you tot it all up) to zero.

Making our world smaller, focusing on kids/family, and only doing 'easy' work with little to no stress. We're in the fortunate position to be able to do this - I actually don't know how folk on the treadmill do it - working 2 FT jobs with £400/500k mortgages etc. and looking after kids - these people must be due a mental breakdown of some sorts pretty soon due to debt stress/load.

Like you show,the problem is its the very people packing in who have worked hard etc,the ones who grow economies.Every policy move or 20 years has been to hit those very people.I think there are four people in my close now who work,and two of them work for the government,the rest are mostly retired public sector,two bennies.Most of the governments tax comes from big employers though,but freezing tax allowance and ramping up bennies will make those employers look for more and more ways to do things without staff.UK is bankrupt,my model shows that,far better to do as little as you can and look after health etc.Just this weekend i fixed my sons boot on the car,not a hard job,but saving him a few hundred and of course no VAT,wages etc.More and more will remove themselves,thats why they want to kill cash and get digital IDs.

[Long time lurking]

 

[Onsamui]

1 hour ago, Axeman123 said:

The chances for and scale of embezzlement are both probably higher overall for the SA elite than here.

I have watched one go up, the rooms were prefab with all the internal fittings and then stacked on site like shipping containers. A Brick and render facade was added (and presumably connecting up the pipes/wires etc) then it was all done within a few weeks.

I assume they are ~50 year lifespan and have little scope for redevelopment without starting over, but they must not care.

Armstrong Economics The push for the 15-minute city is underway. Accessory Dwelling Units (ADUs) are becoming increasingly popular as cities across the globe are rezoning neighborhoods to permit additional properties to be built on the same land as existing homes. Some are now referring to these units as “backyard homes” as they are becoming a normalized part of life amid the housing crisis.

[HousePriceMania]

Is it time to start buying yet ?

[Onsamui]

1 hour ago, leonardratso said:

im always quite surprised at how quickly things turn to shit, its as if the normal or good times were operating on a razors edge between being 'normal/good' and being complete shit, a bit like a bank balance that hovers at £1 and varies little, then suddenly its -£1 then -£2 etc etc. Getting it back to that +£1 always takes massively longer than getting it to -£19.8Billion.

Agree. My husband's parents had a 40 bed hotel in Newquay on a busy input road and great for passing trade.  Then came black Wednesday and the tourists stayed home. We are slowly entering this same scenario imo.

[Axeman123]

7 minutes ago, HousePriceMania said:

Is it time to start buying yet ?

That is contrarian thinking!

If the dollar weakens and our politicians actually do anything sensible Gilts could appreciate quite easily. Its still up in the air IMO whether we get systemic collapse or clear-headed action to avoid it, but we should find out fairly soon - the country is definitely at a cross-roads. 

The unified front (barring some "Tory mortgage penalty" carping from Starmer) both parties are presenting on "no direct mortgage help" looks like clear-headed action is at least a possibility.

[Calcutta]

1 hour ago, azzuri82 said:

Long-time lurker.

This thread, if you're not actively reading it every few days at most becomes too much to actually catch up on.

I think since the last time I've properly been active on here we've had another couple of kids, so life is very busy, but having caught up with the last 30-40 pages or , I thought I'd post our anecdotal.

Just turned 40 tail end of last year, 3 kids under 6 years' old, life is pretty busy. Sold off some business interests and have a fair chunk of cash just sloshing about in savings accounts and NS&Is PBs.

My other little business (it's part-time hours to me, but 4 staff, turnover approx. £250k), sales/margins have dropped like a stone over the last 3-4 months. It's like someone has just turned off a tap re: customers. We're in the furniture repair/upcycling business.

For such a small enterprise, we are taxed to the absolute hilt.

 

The tax/es we pay/contribute every month are/were as follows: 

 

VAT: Approx. £2.5-3.0k (or around £8k'ish every quarter)

Business Rates: £1k (12k/year)

Corp.: £700 (8k/year)

PAYE/NIC: £1k (£12k/year)

 

Totals around £60k/year

 

Not to mention personal taxes on tax return like dividend tax etc.

 

So with things the way they are in the business, keeping payroll records, tax/vat records, I/we are just throwing in the towel.

Two of our staff have gone off on MAT leave, so decided its a good time to just shutter everything and make everyone redundant, scale things right back to bare minimum and run high margin work only to suit ourselves.

We're getting rid of the expensive commercial property and just going to scale back below the VAT limit because for me anyway, managing the staff etc. just isn't worth the hassle - and with every increasing interest rates on the horizon, savings interest is going to be hitting £40-50k plus per year, so it's not worth maxing out income by any other means.

So our tiny biz is going from a net contributor to the government of around £60k per year, to an effective zero over the next few months. 

Inflation is destroying everything - so I'm deciding to just put my feet up at home for a few months with the kids and see what happens. And I'm someone that actively ENJOYS working/running a business. But it needs to make sense/pay. And it hasn't for the last 3-6 months.

We had saved up enough until retirement - but if the gov is going to just destroy everything we've worked for through inflationary means, what is the purpose in continuing to work and pay tax - unless you absolutely have to?

 

 

[Plan-b]

28 minutes ago, Axeman123 said:

That is contrarian thinking!

If the dollar weakens and our politicians actually do anything sensible Gilts could appreciate quite easily. Its still up in the air IMO whether we get systemic collapse or clear-headed action to avoid it, but we should find out fairly soon - the country is definitely at a cross-roads. 

The unified front (barring some "Tory mortgage penalty" carping from Starmer) both parties are presenting on "no direct mortgage help" looks like clear-headed action is at least a possibility.

But aren't the value of Gilts (UK Gov. Bonds)  inverse to the yield (interest) paid on them? So in effect Gilts already in existence are worth less as new Gilts issued pay a better return and so are worth more as a result.

So that chart represents the value of Gilts in existence falling in price, It was around 2 Trillion total gilt value last year.

So if we expect interest rates (Gilt Yields) to fall) then the price goes back up.

Do we expect interest rates (Yields) to fall any time soon?

Edited June 19, 2023 by Plan-b

[desertorchid]

8 minutes ago, Plan-b said:

But aren't the value of Gilts (UK Gov. Bonds)  inverse to the yield (interest) paid on them? So in effect Gilts already in existence are worth less as new Gilts issued pay a better return and so are worth more as a result.

So that chart represents the value of Gilts in existence falling in price, It was around 2 Trillion total gilt value last year.

So if we expect interest rates (Gilt Yields) to fall) then the price goes back up.

Do we expect interest rates to fall any time soon?

It is entirely conceivable that cost push inflation pressures continue to ease and alongside credit deflation causes a significant fall in CPI over the next few months. In fact, this is what the CB's keep telling us will happen.

If this is true they will jump at the chance to pivot on rates and these gilts then become a one way bet. Indeed today could be the best opportunity this decade to capture almost risk free gains and a decent long term yield.

Or maybe not

 

 

[Joncrete Cungle]

1 hour ago, DurhamBorn said:

Has anyone had the Telefonica SA divi land yet?,i thought it was due friday,but nothing yet.

Nothing showing in our HL accounts.

[Plan-b]

9 minutes ago, desertorchid said:

a significant fall in CPI over the next few months. In fact, this is what the CB's keep telling us will happen.

Indeed they have been telling us a lot of things that have turned out to be wrong 

[Cattle Prod]

US onshoring of manufacturing isn't just talk, it's happening:

To be clear, this is construction spend in the manufacturing sector. This kind of stuff:

In other words, building factories. Isn't it amazing how a market will respond to well targeted government incentives ... and the indirect crushing of European industry. No wonder the EU are in a panic about it. What is the UK doing about it?

I was musing the other day of the need to get Manhattan project scale brains and resources concentrated again to move forward, so I was shocked to see this:

 

I had no idea that there has been a Manhattan Project sized Federal support to US manufacturing already. I wouldn't bet against the US for a while yet. As I said, if they are going to produce stuff that the EM world wants or needs, they will keep going for some decades yet I think.

 

Edited June 19, 2023 by Cattle Prod

[Axeman123]

17 minutes ago, Plan-b said:

But aren't the value of Gilts (UK Gov. Bonds)  inverse to the yield (interest) paid on them? So in effect Gilts already in existence are worth less as new Gilts issued pay a better return and so are worth more as a result.

So that chart represents the value of Gilts in existence falling in price, It was around 2 Trillion total gilt value last year.

So if we expect interest rates (Gilt Yields) to fall) then the price goes back up.

Do we expect interest rates (Yields) to fall any time soon?

If yields eased off gilt prices would rise, as per the bold above.

I feel like yields will either fall or rise significantly from here. I know that sounds like the most hedged non-statement ever, but what I mean is they won't stay at this level for long. Current yields are IMO pricing in the non-zero chance of systemic collapse, and bond-traders are said to be the smartest guys in the room. The nature of the systemic collapse IMO would be a spiral, rising yields crush the economy and tax take leading to increased defecits feeding back in to yields.

TL:DR up or down, not sideways for long IMO.

UST yields and the dollar look to have peaked, and that would also likely give a tailwind to any such move. Such a move might be something like 10 or 20 % on a long duration Gilt fund in a few weeks or months, so not huge but potentially attractive to some.

[Majorpain]

1 hour ago, DurhamBorn said:

Has anyone had the Telefonica SA divi land yet?,i thought it was due friday,but nothing yet.

Yes, ii landed today.

[Castlevania]

4 hours ago, Wight Flight said:

Agreed.

And when a landlord has 200 properties in a complex to rent they care very much about their reputation, and the reputation of that complex.

From my experience of a corporate landlord who owned several blocks in London, they were much better than your average BTL muppet or an accidental landlord. They had a plumber; handymen etc on the payroll. Any issues got sorted quickly and they didn’t seem averse to repainting between tenancies. 

[Long time lurking]

That`s a big move in one day 

 

[Long time lurking]

1 hour ago, Axeman123 said:

The unified front (barring some "Tory mortgage penalty" carping from Starmer) both parties are presenting on "no direct mortgage help" looks like clear-headed action is at least a possibility.

To announce mortgage help will just compound the problem even further

Extend and pretend looks very much like it`s turning into put up or shut the fuck up 

[HousePriceMania]

55 minutes ago, Plan-b said:

But aren't the value of Gilts (UK Gov. Bonds)  inverse to the yield (interest) paid on them? So in effect Gilts already in existence are worth less as new Gilts issued pay a better return and so are worth more as a result.

So that chart represents the value of Gilts in existence falling in price, It was around 2 Trillion total gilt value last year.

So if we expect interest rates (Gilt Yields) to fall) then the price goes back up.

Do we expect interest rates (Yields) to fall any time soon?

That is correct.

If you expect inflation to fall and rates to fall then you should buy these at some point.

I have always planned to buy into it, but I am waiting for rates to hit 10% first.

[Castlevania]

2 hours ago, DurhamBorn said:

Has anyone had the Telefonica SA divi land yet?,i thought it was due friday,but nothing yet.

There’s usually a couple days lag on foreign shares

[Plan-b]

36 minutes ago, Cattle Prod said:

US onshoring of manufacturing isn't just talk, it's happening:

To be clear, this is construction spend in the manufacturing sector. This kind of stuff:

In other words, building factories. Isn't it amazing how a market will respond to well targeted government incentives ... and the indirect crushing of European industry. No wonder the EU are in a panic about it. What is the UK doing about it?

I was musing the other day of the need to get Manhattan project scale brains and resources concentrated again to move forward, so I was shocked to see this:

 

I had no idea that there has been a Manhattan Project sized Federal support to US manufacturing already. I wouldn't bet against the US for a while yet. As I said, if they are going to produce stuff that the EM world wants or needs, they will keep going for some decades yet I think.

 

   I wonder if Biden Stopped the Canadian Keystone XL oil pipeline for a reason - perhaps saving it for the future?

The US is certainly going to need huge energy supplies in the future if they want to onshore massively.

[Axeman123]

4 minutes ago, HousePriceMania said:

That is correct.

If you expect inflation to fall and rates to fall then you should buy these at some point.

I have always planned to buy into it, but I am waiting for rates to hit 10% first.

My thought is that the UK has features of an EM country, and yet also of a DM one. If you wanted the "security" of DM while betting on falling UST yields you could go directly to a UST ETF. If you wanted the supercharged returns of EMs response to the same you could go for an EM govt bond fund. The UK Gilt seems to sit in the middle right now IMO, certainly the big boys will want to diversify their govt bond holdings but should an individual investor?

[Long time lurking]

3 minutes ago, Plan-b said:

   I wonder if Biden Stopped the Canadian Keystone XL oil pipeline for a reason - perhaps saving it for the future?

The US is certainly going to need huge energy supplies in the future if they want to onshore massively.

They are not going to onshore jack shit and they know it ,that`s why Blinken just went begging to China without them even inviting him,the most senior person to greet him when he landed was the US ambassador to China 

 

[Long time lurking]

56 minutes ago, Cattle Prod said:

US onshoring of manufacturing isn't just talk, it's happening:

To be clear, this is construction spend in the manufacturing sector. This kind of stuff:

In other words, building factories. Isn't it amazing how a market will respond to well targeted government incentives ... and the indirect crushing of European industry. No wonder the EU are in a panic about it. What is the UK doing about it?

I was musing the other day of the need to get Manhattan project scale brains and resources concentrated again to move forward, so I was shocked to see this:

 

I had no idea that there has been a Manhattan Project sized Federal support to US manufacturing already. I wouldn't bet against the US for a while yet. As I said, if they are going to produce stuff that the EM world wants or needs, they will keep going for some decades yet I think.

 

It`s strange how this is being pushed hard by the like of Peter Zeihan et al ,the very same people that pushed .......

[Cattle Prod]

19 minutes ago, Plan-b said:

   I wonder if Biden Stopped the Canadian Keystone XL oil pipeline for a reason - perhaps saving it for the future?

The US is certainly going to need huge energy supplies in the future if they want to onshore massively.

Yes I've suggested here that Canada is the real strategic reserve for the US.