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

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9 minutes ago, Plan-b said:

I'm sure you noticed It's a report from America, where most mortgages are fixed for thirty years and underwritten by the Fed and ultimately the US government, through entities Like Fanny Mae and Freddie Mac.

For us here in the UK we can't really perceive what that means given our predatory and hostile housing and mortgage and rental industries that have been allowed to go rogue for over 25yrs with no UkGov legislation or oversite so now we're in a position where the whole shit-show is able to crash and create great mass homelessness and job losses and loss off assets.

Indeed it could be argued the UkGov has actually encouraged and nurtured the housing shit-show.

Fucking disgusting out of control grifting is what it is.

We do, it'll go back to pre 80s.  Where most people lived in multi-generational rented properties.   i don't think it should come as much of a surprise that the ability of ordinary working people to own properties coincides with the 40 year disinflationary cycle  / cheap abundant energy.  

And I do find it somewhat ironic, that the leftists in wanting to destroy the family unit have created a situation where most people are going to go back to living in extended family units. 

[NogintheNog]

12 minutes ago, DurhamBorn said:

Once they fall with elevated input costs,although there is huge demand you wont be able to build at the price needed.

Yes. I'm a good example of this. Own my property outright, but as it is 65 years old more maintenance is required. Currently has a leak on the chimney stack that possibly needs new lead flashing, and really roof needs replacing. I won't get any help from UK plc for that, while the benefits brigade over the road have no concerns when their roof starts leaking.....

12 minutes ago, DurhamBorn said:

Likely very few single people will have their own homes for instance.So many huge problems in the economy thanks to 30 years of welfare splurging.

£800 billion of QE spent on bennies and borrowers

[NogintheNog]

16 minutes ago, Stuey said:

I called this in July or August while it was all Moar Rate Rises here (and elsewhere ). 

They are rightly looking 12 months ahead. Next move should be a cut. 

You might be right Stuey, even though in reality this inflation is likely to be very sticky due to the costs of using different supply chains as the global economy rebalances.

So 12 months ahead where do you think will rates be? My guestimate is 5%????

Edited October 21, 2023 by NogintheNog

[Plan-b]

6 minutes ago, feed said:

And I do find it somewhat ironic, that the leftists in wanting to destroy the family unit have created a situation where most people are going to go back to living in extended family units. 

I'm seeing this happen in real time, skilled and qualified twenty/thirty somethings with careers shattered because of the cost of very basic housing close to their jobs in the big cities having to move away.

This in itself is creating family friction and further disruption to already strained family life.

Stable parents that have been very tolerant through the onslaught and cost of bringing up kids the 'Right way' to have careers and professional qualifications to now see them in huge debt and homeless and back at home are very pissed off. 

People can put up with a lot but hurt their kids - see what happens.

[crashmonitor]

9 minutes ago, NogintheNog said:

You might be right Stuey, even though in reality this inflation is likely to be very sticky due to the costs of using different supply chains as the global economy rebalances.

So 12 months ahead where do you think will rates be? My guestimate is 5%????

Yes in the 8 months from January 23 to September 23, the CPI has increased 4.4%, averaging nearly 0.6% MOM..totally incompatible with a 2% target. Next month will be the last drop out of the 21/22 hyperinflation ( the aforementioned 1.6% monthly increase in October 22). Thereafter inflation looks set to be stuck at about 5% for the first half of 24 with no significant inflation falling out of the 12 month rolling.

Touch and go if Sunak will hit his 5% target come January ( the December CPI release).

 

 

 

Edited October 21, 2023 by crashmonitor

[NogintheNog]

12 minutes ago, feed said:

 i don't think it should come as much of a surprise that the ability of ordinary working people to own properties coincides with the 40 year disinflationary cycle  / cheap abundant energy.  

Yes, the interwoven 40 year disinflation cycle. A combination of fiat monetary policy, outsourcing of G7 industry to a 'friendly' CCP, the re integration of Oil/Gas Rich Russia into the European Block and ensuring that in the UK people who can't work (?) are paid for their efforts.

What could possibly go wrong.....

[Stuey]

17 minutes ago, NogintheNog said:

You might be right Stuey, even though in reality this inflation is likely to be very sticky due to the costs of using different supply chains as the global economy rebalances.

So 12 months ahead where do you think will rates be? My guestimate is 5%????

On the way down. 

It's obviously highly dependent on events we can't foresee but I'd say 4.25%, yet with a longer tail risk to much much lower. 

Absolute upper max is 5.75%. We can't hold 5.25% for very long imo. 

[Harley]

Upon reflection my last post stopped before the killer point.  That's the risk, if things continue as they have, people's capital bases are bled dry.

As mentioned, it's facilitated by the nature of the beast.  We could well get a melt up with great amounts of yap, backslapping, effort, etc but if not timed there's a fair chance of a correction ending up with nothing or even less.  Better to have stayed in cash if you don't have the capability or don't want to gamble?  A question mark because who knows - IMO the important bit is the second derivative:  regardless, you need to start looking.  That's a prime place for people's energy, well for those where this is more than a spectator sport.

At best, captial bases erode with a softening to the blow from some dividend income.  OK, it's my book, but this stresses the need for proper allocation both by asset class and time and maybe by other things.

The traditional allocation concept needs a review to ensure it remains current.  It's not quite like it was: asset classes like bonds v equities have not been inversely related and I mentioned a new idea of time (timing).  There's probably more to consider.

I can hear comments about "but..." which I'll preempt (and move on) with a "that's because you're "doing" allocation already but, dangerously, you don't realise it!".

This thread, being social media with all the distracting flashing lights, bells, whistles, bare reposts, etc can contribute to keeping us blinded to the elephant(s) in the room. 

Play at your own risk.

PS:  For us, that means atm (asset, etc allocated) core portfolios topped up with (timely bought) value stock portfolios and trend following portfolios.  Essentially, everything underpinned by a intermediate term (weekly/monthly based) trend following approach.

Edited October 21, 2023 by Harley

[feed]

26 minutes ago, Plan-b said:

I'm seeing this happen in real time, skilled and qualified twenty/thirty somethings with careers shattered because of the cost of very basic housing close to their jobs in the big cities having to move away.

This in itself is creating family friction and further disruption to already strained family life.

Stable parents that have been very tolerant through the onslaught and cost of bringing up kids the 'Right way' to have careers and professional qualifications to now see them in huge debt and homeless and back at home are very pissed off. 

People can put up with a lot but hurt their kids - see what happens.

People will get use to the idea that low waged workers don't have a right to own property.  Or not.  Doesn't matter, nothing is going to change.  The people most effected are the most disenfranchised and we've at least a decade of something must be done.  By someone else, of course.  

 

[Sugarlips]

55 minutes ago, NogintheNog said:

Yes. I'm a good example of this. Own my property outright, but as it is 65 years old more maintenance is required. Currently has a leak on the chimney stack that possibly needs new lead flashing, and really roof needs replacing. I won't get any help from UK plc for that, while the benefits brigade over the road have no concerns when their roof starts leaking.....

 

Agree, no roof and chimney schemes that I’ve found but there is this, for 90% off roof insulation, might help..?

 

https://www.struttandparker.com/knowledge-and-research/the-great-british-insulation-scheme-is-live-what-is-it-and-what-does-it-mean

[Yadda yadda yadda]

1 hour ago, Harley said:

Some times it's worth taking a step back.  The TradingView app enables you to scroll through multi-term charts for a watchlist.

I just scrolled through my currency watchlist of GBP pairs for the last year.  I was surprised how little GBP had deteriorated overall.  For example, USDGBP is down 7.15%.  That is, sterling is up.  Over five years USD is up 4.96%.

Sure there's been some moves within the year but how many trade that and how many are any good at doing so.

Lots of accompanying noise and yap over that time but probably very few did anything so more of a consuming spectator sport.

Looking at other assets (via ETFs) provides some further grounding.  Very little has gone anywhere.  At least Gold in GBP is up 11% this last year and 71% over the last five.  It's been a great backbone for our portfolios.

So maybe the best approaches would have been to sit back for the divs (only a few of what I look at pay divs though) and/or trade the swings.

Looking ahead, as you must, offers another fascinating set of insights........

PS:  Ya need to look but the div option at the ETF level is suspect as most ETFs have moved more than their div.  Of the bad, IBZL (Brazil) has a current yield of just under 7% but is down about 14% for the year.

For me for ETFs, hide in interest bearing cash, pop out for a good intermediate term trade (better risk/reward over that term), and treat any div as a bonus.

PPS:  All without even mentioning inflationary debasement.

Probably a good idea to compare against a basket of commodities rather than the USD. I don't know if that is possible and haven't got time to investigate as I'm waiting for a train. The point being, as you know, both Sterling and USD have lost a lot of purchasing power. Your charts are like one of those old seaside arcade machines where the horses trade positions. The destination is zero.

[Yadda yadda yadda]

1 hour ago, Plan-b said:

I'm sure you noticed It's a report from America, where most mortgages are fixed for thirty years and underwritten by the Fed and ultimately the US government, through entities Like Fanny Mae and Freddie Mac.

For us here in the UK we can't really perceive what that means given our predatory and hostile housing and mortgage and rental industries that have been allowed to go rogue for over 25yrs with no UkGov legislation or oversite so now we're in a position where the whole shit-show is able to crash and create great mass homelessness and job losses and loss off assets.

Indeed it could be argued the UkGov has actually encouraged and nurtured the housing shit-show.

Fucking disgusting out of control grifting is what it is.

The big difference in the UK is that many existing mortgagees will be forced to sell because they cannot afford new rates. An increase in supply as well as a decrease in demand. There are schemes to delay the need to sell as rate rises hit but ultimately there will be a double whammy for UK house prices.

[Yadda yadda yadda]

1 hour ago, DurhamBorn said:

Cross market the macro on this what does it tell us?.

It tells us house prices must fall BUT it also tells us the thing everyone will miss.Once they fall with elevated input costs,although there is huge demand you wont be able to build at the price needed.Its saying we must use our housing stock much better.I think the economy will force this over time.Likely very few single people will have their own homes for instance.So many huge problems in the economy thanks to 30 years of welfare splurging.

The signal is that importing migrants causes a reduction in the standard of living for citizens. Especially when costs for land and construction are high.

[Sugarlips]

18 minutes ago, Harley said:

 

This thread, being social media with all the distracting flashing lights, bells, whistles, bare reposts, etc can contribute to keeping us blinded to the elephant(s) in the room. 

 

Obv I’m sometimes guilty here. I’d say it’s part of the human condition to try to balance the reality of very real, dark and ever-worsening living conditions.

In the same way that the best British comedy often came out of the darkest times, it’s a coping mechanism.

The inclusion of the odd pin up or quip is not to make light of grave situations, it’s to encourage a bit of hope here, given not everyone has the confidence or funds to act on the priceless advice and knowledge in the same way you or I can but still want to be abreast of what’s happening.

[Plan-b]

15 minutes ago, feed said:

People will get use to the idea that low waged workers don't have a right to own property.  Or not.  Doesn't matter, nothing is going to change.  The people most effected are the most disenfranchised and we've at least a decade of something must be done.  By someone else, of course.  

 

From my post and In my experience it's not just the low waged, these are the well paid people in good jobs, not for example nail technicians and baristas, even they cannot afford a simple studio accommodation in say London or Bristol or the surrounding areas never mind owning anything especially a property.

[onlyme]

2 hours ago, ThoughtCriminal said:

This is an interesting way to view the interest rate increase: number of people who can afford the average priced US house, more than halved in the course of a year.

 

Similar effect in the UK?

The upper earning ranges of that group will almost certainly nearly all already own. Don;t know whether mortgage products are transferrable in the US but with fixed term rates who would move from a mortage at say sub 3% to one double that? 

So what number of new potenital buyers are there out of that 20 odd million that can afford a $400K huose at 8% is the real issue.

[feed]

13 minutes ago, Plan-b said:

From my post and In my experience it's not just the low waged, these are the well paid people in good jobs, not for example nail technicians and baristas, even they cannot afford a simple studio accommodation in say London or Bristol or the surrounding areas never mind owning anything especially a property.

What's a well paid / good job?

Because nail technicians and baristas and other zero hour contract types aren't part of the low waged, they part of the benefits class.  They don't exist without state subsidy. 

 A lot of people who think they in a good job, with good pay, aren't.  Maybe they were decade or so ago, but not today.  

[Errol]

The main thing people need to learn is to live well below their income. 

[Castlevania]

1 hour ago, DurhamBorn said:

Cross market the macro on this what does it tell us?.

It tells us house prices must fall BUT it also tells us the thing everyone will miss.Once they fall with elevated input costs,although there is huge demand you wont be able to build at the price needed.Its saying we must use our housing stock much better.I think the economy will force this over time.Likely very few single people will have their own homes for instance.So many huge problems in the economy thanks to 30 years of welfare splurging.

It’s depressing though. The above has been the norm in London for a while. People in their thirties flat or house sharing is normal. It just seems like it’ll be rolled out across the country.

[Harley]

54 minutes ago, Yadda yadda yadda said:

Probably a good idea to compare against a basket of commodities rather than the USD. I don't know if that is possible and haven't got time to investigate as I'm waiting for a train. The point being, as you know, both Sterling and USD have lost a lot of purchasing power. Your charts are like one of those old seaside arcade machines where the horses trade positions. The destination is zero.

I think you misunderstood.  That (USDGBP) was just an example.  We don't compare against any one such standard.  Far more sophisticated: n asset classes, n dimensional, n relational, n derivative, n value.  A huge topic.

Edited October 21, 2023 by Harley

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2 minutes ago, Errol said:

The main thing people need to learn is to live well below their income. 

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/bulletins/earningsandemploymentfrompayasyouearnrealtimeinformationuk/october2023

75% of PAYE earn less than £3569 a month.  £43k a year before deductions.  

2 decades of wage suppression and we're all low waged workers.   

The main thing is pay to too low.  

 

[Harley]

45 minutes ago, Yadda yadda yadda said:

The signal is that importing migrants causes a reduction in the standard of living for citizens. Especially when costs for land and construction are high.

To clarify, importing net with-drawers into a pool which is already net with-drawing.  Bleeding the social capital base some more, if you account for that properly rather than just the fiat "precious" bit "they" look at.  It's simply accelerating the end state.  Maybe "they" are just impatient!

Edited October 21, 2023 by Harley

[Plan-b]

11 minutes ago, feed said:

What's a well paid / good job?

Because nail technicians and baristas and other zero hour contract types aren't part of the low waged, they part of the benefits class.  They don't exist without state subsidy. 

 A lot of people who think they in a good job, with good pay, aren't.  Maybe they were decade or so ago, but not today.  

It used to be around 70k and beyond but that's no longer any good in the cities mentioned coupled with student debt and high living costs.

The fact is western prosperity is dropping, particularly in the UK, and it's accelerating and no amount of financial engineering is going to do anything to stop it

[Harley]

35 minutes ago, Errol said:

The main thing people need to learn is to live well below their income. 

Indeed.  Always was!  Was always the only way out.  What we've always done.

Related, marginal utility (units consumed or units earned, etc):

The limitation is this is for one thing ("one thing at a time" being the curse of basic economics).  You need to inter-relate multiple things as in "when do you hop".  A tangent example is an owner run business seeking growth through making the existing business larger rather than looking to grow through creating new but tangential businesses.  Cookie cutter versus indigestion.  See it a lot in the building trades.  There's an optimal size where is makes better sense to diversify for growth.  Pareto.

If you live below your income you have optionality.  Optionality to diversify, to hop.  The other way round you become a slave.  Those that say that's fine for some, etc are denying the reality.  If you are living beyond your means, you have a compounding problem, end of.  Now your utility function may say enjoy the ride because that will, in total, be worth more than the eventual crash.  Fair enough (rational if calculated properly), although you would have lacked optionality (implying higher risk).

Unbelievably now, my "O" level economics teacher (who doubled as my metalworking teacher) used to talk to us about the rudiments of this stuff.  A hero, WWII and beyond.

Edited October 21, 2023 by Harley

[DurhamBorn]

41 minutes ago, Yadda yadda yadda said:

The signal is that importing migrants causes a reduction in the standard of living for citizens. Especially when costs for land and construction are high.

Yes,one of the huge obvious things.I know a few Asian migrants,legal route ones and how they do it.They simply find a UK bloke who no woman here wants,then go to work.He gets married to them in their country,then brings them here on a 2.5 year partner Visa,she blows him every night until she gets the right to remain one,then leaves him the day after to date someone better.I have a good friend who is doing this right now to her "husband" and she even hooks up lonely single blokes with women from her village to repeat.Then the kids come over on 6 month tourist Visas,then go for right to remain once the mother gets hers.There are routes like this everywhere and they are exploited .She even had a false company so the girls have employment history rather than Go Go dancer .Most do end up working,but very low end jobs like cleaning etc,jobs our bennie claiming single mothers should be doing.

The irony is a lot of them end up with worse lives.Boring jobs,shitty little rental houses etc,it doesnt work for anyone really.