Credit deflation and the reflation cycle to come (part 8)

[JMD]

7 hours ago, Axeman123 said:

Is that the target allocation though, or just a lack of rebalancing?

Once upon a time 10% in primary residence was a "rule" bandied about, since under normal circumstances few people would ever liquidate that voluntarily (and potentially lose social standing).

Apparently it's based on a survey of 500 wealth managers overseeing $2.5trillion of their clients wealth, so assume it is target allocations. Actually I believe that 18% equities is about right for the rich, however I would have expected higher % in gold, and yes less % in private residence.

[Long time lurking]

Harder said than done if you ask me 

https://euroweeklynews.com/2024/01/12/eus-controversial-car-laws-vs-repairing-older-vehicles/

[Loki]

12 minutes ago, Long time lurking said:

Harder said than done if you ask me 

https://euroweeklynews.com/2024/01/12/eus-controversial-car-laws-vs-repairing-older-vehicles/

"This ageing fleet has prompted the European Commission to propose measures aimed at reducing car longevity."

Read that again. Reduce car longevity. To save the planet

[JMD]

43 minutes ago, AWW said:

The local council are on it when it comes to urban regeneration. A 15 minute walk from Terminus House, you'll find:

 

They are 'Azov'ing a laugh aren't they?

[Libspero]

2 hours ago, JMD said:

They are 'Azov'ing a laugh aren't they?

I came here looking for the economics thread..  has Russia invaded it? 

[Lightscribe]

The melt up in the big 7 melt up  may be starting to run out of steam. Question is, how will the stock market look in the run up to the election?

Meanwhile…

 

Edited February 6 by Lightscribe

[ashestoashes]

2 hours ago, Libspero said:

I came here looking for the economics thread..  has Russia invaded it? 

why not start a pro Ukrainion economics thread

[Libspero]

1 hour ago, Lightscribe said:

Meanwhile

I noticed JoeBloggs had been making a big fuss of the Chinese stock market meltdown on his channel. Hard to tell if he was just getting carried away or it really was a big deal..  looks increasingly like it might be the latter.  Especially if Xi is stepping in.

4 minutes ago, ashestoashes said:

why not start a pro Ukrainion economics thread

What’s wrong with an economics economics thread? 

[jamtomorrow]

11 hours ago, MrFanciful said:

Alasdair Macleod just posted this on his Substack. He recommends giving it a watch, not simply because he contributed to it but to help others understand how banks create credit.
 

 

Are we talking "mate, the chart's upside-down" Macleod, or a different one?

[ashestoashes]

8 minutes ago, Libspero said:

I noticed JoeBloggs had been making a big fuss of the Chinese stock market meltdown on his channel. Hard to tell if he was just getting carried away or it really was a big deal..  looks increasingly like it might be the latter.  Especially if Xi is stepping in.

What’s wrong with an economics economics thread? 

you seem to want to police it

[SpectrumFX]

9 hours ago, JoeDavola said:

They can keep raising it all they want; but who the fuck is going to employ all these 65-71 year olds?

Take the decline in health of the average brit, the continual creep of automation/AI in office based jobs in coming decades...most of this demographic wont be able to do physical jobs.

There'll be no jobs for them full stop. So they can deny them a state pension but they'll have to pay them some kind of state benefit instead because nobody else will want to employ many of them.

Most people I've known are pretty much winding down by 55 and lost all enthusiasm for working at that point - no way will most people be any use at 65. Not a chance. You will get people hanging on to cushy jobs and doing fuck all biding their time, but not everyone has the luxury of being in a cushy number.

People in tech are proper fucked if working until 70 is the norm due to it being ageist and ever-changing; a load of them are going to age out of the industry and end up in min wage jobs or unemployed.

There's a lot of moving parts, and many will end up on benefits because their pension has been delayed, but some will work on, some will live off savings, some will take SIPPs to tide them over etc.

But I think that they're focused as much on the effect on the public sector as the private sector.

They've fixed the age that you can take all of the main public sector pensions (civil service, council, NHS et al) to the state pension age. People in those schemes can go up to 10 years early if they take a reduced pension payout. With an increased pension age a fair few will go early for a reduced pension* rather than go on to working into their 70's. Meaning that the net effect is that they just retire when they were going to anyway, and get a lower pension.

*It's complicated because the people approaching retirement will have different tranches of pension on different terms -- because of all of the changes to the terms over the years -- but my understanding is that you can't access the tranches individually so to get at the earlier tranches you have to take the later tranches at the same time.

 

[Pip321]

4 minutes ago, SpectrumFX said:

There's a lot of moving parts, and many will end up on benefits because their pension has been delayed, but some will work on, some will live off savings, some will take SIPPs to tide them over etc.

But I think that they're focused as much on the effect on the public sector as the private sector.

They've fixed the age that you can take all of the main public sector pensions (civil service, council, NHS et al) to the state pension age. People in those schemes can go up to 10 years early if they take a reduced pension payout. With an increased pension age a fair few will go early for a reduced pension* rather than go on to working into their 70's. Meaning that the net effect is that they just retire when they were going to anyway, and get a lower pension.

*It's complicated because the people approaching retirement will have different tranches of pension on different terms -- because of all of the changes to the terms over the years -- but my understanding is that you can't access the tranches individually so to get at the earlier tranches you have to take the later tranches at the same time.

 

Retiring on a reduced pension is an interesting one…..I have seen people working through incredible poor health and way beyond their dream retirement dates rather than take a smaller pension. Once they saw one number they just couldn’t accept a lower one….I saw dozens of people working into their late 60’s and over a dozen never made retirement due to ill health.  Shame because their pensions were really decent even at 55 ie £30k pa, but they wanted the promised £45k (for example). And in a way the closer you get the more it’s worth staying till the end due to the way the accrual deductions work.

However, working into the 70’s feels very different….so I do take your point. 

What I found interesting was when they start messing around with our pension scheme it can have unusual consequences to those watching closely enough.. 

I left work at 50 (at the end of 2019) therefore took a 40% reduction…..and also lost 17 further years of potential pension, so my DB was less than half. But it was available from 50 due to being an old protected scheme. However to take it you had to leave the business. 

Leaving like this and taking the pension was unheard of in our company however this is where it gets interesting.

They froze our pensions based on salaries in around 2012…..literally froze them. So any extra pay awards from that day no longer qualified for the DB scheme…so my pension was set. However once I started to draw it then it went up with inflation (albeit capped at 5%). So they worked out at 67 my reduced pension would have almost been higher than had I carried on working. Okay lost salary and lost DC pension possibilities……but that in theory could have been achieved in another job.

As it happens in Dec 2019 the transfer values were mental……so once I had done the calculation above and worked out I was leaving I then had to THEN decide on whether (based on a crazy transfer value) I would take that instead…..I did take the transfer but that’s kind of another calculation. 

[DurhamBorn]

6 hours ago, AWW said:

The local council are on it when it comes to urban regeneration. A 15 minute walk from Terminus House, you'll find:

 

A few Russian drones will soon take that out.

[SpectrumFX]

13 minutes ago, Pip321 said:

Retiring on a reduced pension is an interesting one…..I have seen people working through incredible poor health and way beyond their dream retirement dates rather than take a smaller pension. Once they saw one number they just couldn’t accept a lower one….I saw dozens of people working into their late 60’s and over a dozen never made retirement due to ill health.  Shame because their pensions were really decent even at 55 ie £30k pa, but they wanted the promised £45k (for example). And in a way the closer you get the more it’s worth staying till the end due to the way the accrual deductions work.

However, working into the 70’s feels very different….so I do take your point. 

What I found interesting was when they start messing around with our pension scheme it can have unusual consequences to those watching closely enough.. 

I left work at 50 (at the end of 2019) therefore took a 40% reduction…..and also lost 17 further years of potential pension, so my DB was less than half. But it was available from 50 due to being an old protected scheme. However to take it you had to leave the business. 

Leaving like this and taking the pension was unheard of in our company however this is where it gets interesting.

They froze our pensions based on salaries in around 2012…..literally froze them. So any extra pay awards from that day no longer qualified for the DB scheme…so my pension was set. However once I started to draw it then it went up with inflation (albeit capped at 5%). So they worked out at 67 my reduced pension would have almost been higher than had I carried on working. Okay lost salary and lost DC pension possibilities……but that in theory could have been achieved in another job.

As it happens in Dec 2019 the transfer values were mental……so once I had done the calculation above and worked out I was leaving I then had to THEN decide on whether (based on a crazy transfer value) I would take that instead…..I did take the transfer but that’s kind of another calculation. 

People working on through ill health, chasing a carrot on a stick that they don't quite reach before they die in harness, is the perfect outcome for the government.

And Boxer can go to the glue factory when they've finished with him.

[Libspero]

2 minutes ago, SpectrumFX said:

People working on through ill health, chasing a carrot on a stick that they don't quite reach before they die in harness, is the perfect outcome for the government.

Probably depends if they are still productive or not.  If they get to the point where they’re just filling a chair on full salary it’s probably not better for anyone.

Will anything change with public sector pensions if Labour reintroduce pension lifetime allowances,  or do those only affect DC pensions?     Looking at the transfer value of some of the DB pensions the pot value can be huge.   

[SpectrumFX]

1 minute ago, Libspero said:

Probably depends if they are still productive or not.  If they get to the point where they’re just filling a chair on full salary it’s probably not better for anyone.

Will anything change with public sector pensions if Labour reintroduce pension lifetime allowances,  or do those only affect DC pensions?     Looking at the transfer value of some of the DB pensions the pot value can be huge.   

I think that we can all agree that the government have stopped paying any attention to actual productivity. The disease of modern politics is that everything is about achieving some sort of tractor production style metric.

I know a few public sector people who've hit the lifetime allowance. For DB pensions they work it out by multiplying the annual pension by 20. The people I know just stopped paying pension contributions. A couple even managed to negotiate a higher salary on the basis that they weren't getting the employer pension contributions anymore.

[JoeDavola]

50 minutes ago, Pip321 said:

Retiring on a reduced pension is an interesting one…..I have seen people working through incredible poor health and way beyond their dream retirement dates rather than take a smaller pension. Once they saw one number they just couldn’t accept a lower one….I saw dozens of people working into their late 60’s and over a dozen never made retirement due to ill health.

I think even having a pension that's good enough that you can afford to take a smaller one earlier is a luxury most won't have.

At the end of the day most people in the west are at heart consumers and have no loftier goal than consumption. It's at the heart of the culture here. And most will literally work themselves to death rather than accept less money coming in and lowering their consumption.

I think the sensible retirement path for upcoming generations might be a phased retirement; pay the house off and then see if you can get by doing say 3 days a week. Being in a financial situation where you can afford to not work at all just isn't a realistic goal for most any more without a hefty inheritence.

[DoINeedOne]

9 hours ago, Bobthebuilder said:

My old man died 6 years ago, I am now just starting to realise how similar we were. The same mannerisms, food, gardening, I even find new things that I enjoy now, only to suss out he was into exactly the same thing, but we never talked about it. Breaks my heart.

Same for me but I was 20 years old, now 42 , things that my dad did that I thought were odd when I was younger, I now do and while we had a rough relationship I honestly think we would be best buddies now as I think I understand him better 

Typical young guy thought I knew everything

 

3 hours ago, Lightscribe said:

The melt up in the big 7 melt up  may be starting to run out of steam. Question is, how will the stock market look in the run up to the election?

Meanwhile…

 

https://pracap.com/the-blowoff/

Do you remember the first quarter of 2000?? Tech screamed. Everyone chased. Sure, there was a bubble in speculative internet stocks. We all remember Pets.Com. What’s less remembered is the mad rush into mega-cap tech names. Plain vanilla funds had spent years ignoring these names as they were overvalued. Eventually, they had no choice but to pay crazy multiples for the big liquid names that dominated the indexes. The underperformance led to redemptions; it became existential to trail the indexes. They had to close their eyes and buy overpriced tech. Cisco, Nortel, Microsoft, Sun Microsystems, AOL, JDS Uniphase, Yahoo, etc. These stocks went up every day, relentlessly. Everything else got sold to fund it. Even the greats of our industry, guys like Druck, got sucked in. He simply couldn’t stand to underperform. That pressure is powerful, and it makes guys do stupid things.

I feel like we’re reliving the first quarter of 2000, but in the narrow world of the MAG7. On one side, capital keeps flowing into a handful of names. On the other side, there is a relentless undertow in everything else—as it’s sold to fund more NVIDIA. I look at my book and feel my names under pressure, names that I think are going to report amazing year-end quarters. These names shouldn’t be getting sold, but they are—guys need to fund more MAG7.

I don’t know when this ends, as these things have a way of feeding on themselves. I just know that it eventually ends. I also know that it usually doesn’t end in a gradual way. Rather, it ends with a violent sector rotation, as capital floods back into the companies that have underperformed, and out of the MAG7. Think back to the first quarter of 2022. I think it’s going to be like that, but even more violent. The catalyst is likely going to be a big break in bonds. They’re starting to leak again. They’re sick, and I think it’s terminal. In that case, I feel like we’re a few points away from bonds infecting other duration assets.

I cannot time when this rotation happens, but I can recognize what’s happening. I’m immune to these performance pressures. If I’m destined to underperform for a period, then I’ll underperform. I’m not going to do something foolish, just to have a few months with better numbers. A lot of portfolio managers do not have that luxury. They’re stampeding in, fully expecting that they can get out in time. They’ll all get trapped.

Edited February 6 by DoINeedOne

[Pip321]

32 minutes ago, JoeDavola said:

I think even having a pension that's good enough that you can afford to take a smaller one earlier is a luxury most won't have.

At the end of the day most people in the west are at heart consumers and have no loftier goal than consumption. It's at the heart of the culture here. And most will literally work themselves to death rather than accept less money coming in and lowering their consumption.

I think the sensible retirement path for upcoming generations might be a phased retirement; pay the house off and then see if you can get by doing say 3 days a week. Being in a financial situation where you can afford to not work at all just isn't a realistic goal for most any more without a hefty inheritence.

Consumers. working to buy shit, I think that's really sad.....I don't disagree but I think its sad.

I remember at work paying into added pensions, buying extra holidays, using share saves and share match scheme etc....and someone saying that they couldn't afford to do that. Bear in mind I was a sole income earner (not pleading poverty...we were all well paid), this person earned what I did and it was their second income because hubby was an accountant. I said 'I cant afford not to'.

During that time (from about age 25) we never really went without.....6/7 Florida holidays, afternoon tea at the Barj Al Arab, Australia twice etc but I was really frugal and always bought value. Furniture etc was always nice stuff but 'antique style' and cheap rather than DFS and expensive. 

Tidied my clothes out recently. Really organised everything in transparent boxes etc and threw some away. I realised my remaining 12 pairs of Levi 511's, my 20 pairs of Vans, my numerous Fred Perry's, 15 jumpers, etc (all purchased as deals or nearly new on ebay) are enough to last my lifetime. It was about 2010 and Vans were $10 for two pairs in Florida, Levis $20 a pair....well we threw away all our clothes and filled our briefcases that year with new stuff 😂

A coat....yep, I could do with a better coat. 

My car was £2.3k ffs (but a decent black A3) and the one before that was a crappy Honda Jazz for £200 which my lad now has. The Jazz looks crap but electric everything and drives round town fantastically and the existing dints mean it worry free.

I know I am not the norm....perhaps I was proud of that in my 20/30/40's but now its a challenge that we just don't consume and it would be sad to get to 75 years old without fully utilising what opportunities I have. Well other than working all your life buying shit you never needed would be sadder I guess. 

So (other than mine and my families health) I am making my biggest challenge is knowing what to spend my money on because we just don't consume. I don't want stuff. I left work early to buy time which was great....but I need to spend more not just earn less.

Travel will be top on that list....but we need to get back on the saddle for that, Convid really took us off stride

I share too much...I know, but its cheaper than a shrink (maybe I need to spend some money on a shrink)  😉

Edited February 6 by Pip321

[Jay]

21 minutes ago, DoINeedOne said:

Same for me but I was 20 years old, now 42 , things that my dad did that I thought were odd when I was younger, I now do and while we had a rough relationship I honestly think we would be best buddies now as I think I understand him better 

Typical young guy thought I knew everything

 

https://pracap.com/the-blowoff/

Do you remember the first quarter of 2000?? Tech screamed. Everyone chased. Sure, there was a bubble in speculative internet stocks. We all remember Pets.Com. What’s less remembered is the mad rush into mega-cap tech names. Plain vanilla funds had spent years ignoring these names as they were overvalued. Eventually, they had no choice but to pay crazy multiples for the big liquid names that dominated the indexes. The underperformance led to redemptions; it became existential to trail the indexes. They had to close their eyes and buy overpriced tech. Cisco, Nortel, Microsoft, Sun Microsystems, AOL, JDS Uniphase, Yahoo, etc. These stocks went up every day, relentlessly. Everything else got sold to fund it. Even the greats of our industry, guys like Druck, got sucked in. He simply couldn’t stand to underperform. That pressure is powerful, and it makes guys do stupid things.

I feel like we’re reliving the first quarter of 2000, but in the narrow world of the MAG7. On one side, capital keeps flowing into a handful of names. On the other side, there is a relentless undertow in everything else—as it’s sold to fund more NVIDIA. I look at my book and feel my names under pressure, names that I think are going to report amazing year-end quarters. These names shouldn’t be getting sold, but they are—guys need to fund more MAG7.

I don’t know when this ends, as these things have a way of feeding on themselves. I just know that it eventually ends. I also know that it usually doesn’t end in a gradual way. Rather, it ends with a violent sector rotation, as capital floods back into the companies that have underperformed, and out of the MAG7. Think back to the first quarter of 2022. I think it’s going to be like that, but even more violent. The catalyst is likely going to be a big break in bonds. They’re starting to leak again. They’re sick, and I think it’s terminal. In that case, I feel like we’re a few points away from bonds infecting other duration assets.

I cannot time when this rotation happens, but I can recognize what’s happening. I’m immune to these performance pressures. If I’m destined to underperform for a period, then I’ll underperform. I’m not going to do something foolish, just to have a few months with better numbers. A lot of portfolio managers do not have that luxury. They’re stampeding in, fully expecting that they can get out in time. They’ll all get trapped.

On average the mag7 are up double plus last year..all had good results..just really Tesla coming off the boil..I would be happy to hold a stock that has doubled and then falls say 30%… i don’t have any nor do I think they fall rapidly.. the fed will increase liquidity due to politics…all these companies have moats and great management..yes the issue is price but could go higher, absolutely..all these companies are delivering shareholder value…Microsoft apple alphabet nvidia meta are companies I will buy at right price…if they fall 30%  will start buying…the reverse repo should run out in couple of months and then we will see if it really was cheap money or they are too big to fail..possibly a bit of fomo on my part…or just a belief in risk taking, moats and great management…be lucky..

[Majorpain]

Readie Construction heading for administration | Construction Enquirer News

Biggest one since Carillion, £421m turnover company going out of business, that going to do some damage.

"Ownership of the business was transferred to an Employee Ownership Trust in March 2021."

Convenient!  Owners were obviously not stupid and saw what was going to happen.

£421m turnover, £356k of fixed assets!  

Those figures are nearly a year old, we will have to see Administrators report to see how badly screwed over supply chain will get, it will be worse.

[JMD]

43 minutes ago, Pip321 said:

Consumers. working to buy shit, I think that's really sad.....I don't disagree but I think its sad.

I remember at work paying into added pensions, buying extra holidays, using share saves and share match scheme etc....and someone saying that they couldn't afford to do that. Bear in mind I was a sole income earner (not pleading poverty...we were all well paid), this person earned what I did and it was their second income because hubby was an accountant. I said 'I cant afford not to'.

During that time (from about age 25) we never really went without.....6/7 Florida holidays, afternoon tea at the Barj Al Arab, Australia twice etc but I was really frugal and always bought value. Furniture etc was always nice stuff but 'antique style' and cheap rather than DFS and expensive. 

Tidied my clothes out recently. Really organised everything in transparent boxes etc and threw some away. I realised my remaining 12 pairs of Levi 511's, my 20 pairs of Vans, my numerous Fred Perry's, 15 jumpers, etc (all purchased as deals or nearly new on ebay) are enough to last my lifetime. It was about 2010 and Vans were $10 for two pairs in Florida, Levis $20 a pair....well we threw away all our clothes and filled our briefcases that year with new stuff 😂

A coat....yep, I could do with a better coat. 

My car was £2.3k ffs (but a decent black A3) and the one before that was a crappy Honda Jazz for £200 which my lad now has. The Jazz looks crap but electric everything and drives round town fantastically and the existing dints mean it worry free.

I know I am not the norm....perhaps I was proud of that in my 20/30/40's but now its a challenge that we just don't consume and it would be sad to get to 75 years old without fully utilising what opportunities I have. Well other than working all your life buying shit you never needed would be sadder I guess. 

So (other than mine and my families health) I am making my biggest challenge is knowing what to spend my money on because we just don't consume. I don't want stuff. I left work early to buy time which was great....but I need to spend more not just earn less.

Travel will be top on that list....but we need to get back on the saddle for that, Convid really took us off stride

I share too much...I know, but its cheaper than a shrink (maybe I need to spend some money on a shrink)  😉

You come here for therapy? 

I hope you appreciate this thread specialises in (fiscal) aversion therapy and that some consider the tratment methods controversial !!...

Edited February 6 by JMD

[JMD]

5 hours ago, Libspero said:

I came here looking for the economics thread..  has Russia invaded it? 

Well I admit Russia has kinda 'occupied'(!?) my mind a lot recently.

But tbc it is the Russian politioco-economic aspect that I am focusing on. You see unlike our politicians I don't view them as a NATO war threat, instead I think Russia and Germany will cosy up (as I've mentioned before - 'mitteleuropa style'). 

Edited February 6 by JMD

[sleepwello'nights]

11 hours ago, Harley said:

I'd give a lot to have that moment.  I owe it to him.  Funny how the apparent age difference does tend to shrink as you get older.  We were miles apart when I was in my twenties, only yards in my thirties, and just feet in my forties.

 

 

11 hours ago, Bobthebuilder said:

My old man died 6 years ago, I am now just starting to realise how similar we were. The same mannerisms, food, gardening, I even find new things that I enjoy now, only to suss out he was into exactly the same thing, but we never talked about it. 

 

11 hours ago, Cawn said:

In my 50’s I realised who my old man was because I was the mirror of him. He was never diagnosed but he had issues.

I find myself doing things and thinking that's my dad. 

 

11 hours ago, Bobthebuilder said:

I think I know now, how lucky I was.

You may now realise, as I did, we grow up by imitating our parents.

[Libspero]

14 minutes ago, JMD said:

Well I admit Russia has kinda 'occupied'(!?) my mind a lot recently.

But tbc it is the Russian politioco-economic aspect that I am focusing on. You see unlike our politicians I don't view them as a NATO war threat, instead I think Russia and Germany will cosy up (as I've mentioned before - 'mitteleuropa style'). 

It was meant to be light hearted, apologies if it sounded like a personal dig at you.. it was quite obvious you were joking.

I just found it funny that I'd come here to take a break from the Ukraine thread only to find it all talk of Russians and Azov last night!     Judging by the reactions there is more sensitivity on the subject than I realised.

Edited February 6 by Libspero