Credit deflation and the reflation cycle to come (part 9)

[montecristo]

On 15/04/2024 at 03:44, AWW said:

If you've no more room in this year's various tax shelters, low coupon Gilts issued prior to IR normalisation provide pretty much tax free returns as they are CGT free.

This post sparked my interest.  Doing some research I found this link below.  I don't understand the line "you only pay income tax on the coupon".  

Anyone have an idiot's guide to gilts?

 

"With a gilt, you only pay income tax on the coupon. Gilts issued shortly after the pandemic have extremely low coupon rates and so pay out very little interest. This means the largest chunk of overall returns is likely to come from capital gains as opposed to income.

As of 6 June, a UK gilt with an expiry date of 31 January 2024 had a coupon rate of 0.125% and traded at £97.14. For an additional-rate taxpayer (top rate in Scotland), this equates to a net annual yield to redemption of 4.59%. To achieve that same yield on taxable savings, the savings account would need to pay interest of 8.35% (or 8.65% for a Scottish top-rate taxpayer)."

https://www.brewin.co.uk/insights/why-have-bonds-been-spotlight

Edited April 17 by montecristo

[crashmonitor]

CPI comes in at 3.2%, Core 4.2%. Expected 3.1% and 4.1%. So . coming down more slowly than expected.

Going forward we have a 25% rise in oil prices working its way onto data, 6% wage rises, slightly more on bennies, the 8.5% triple lock. Any dip from domestic energy falls is going to be short lived even if we temporarily dip below 2% in the coming months.

Edited April 17 by crashmonitor

[crashmonitor]

Usual desperation from the Media Commentariat..can we cut, can we cut?

Over the last 20 years CPI has averaged 3% and 5% over the last 4. Imagine you had a reverse of that scenario on the undershoot...20 years of 1% CPI and 4 years of 1% DEFLATION. Now if we were likely to suddenly get over target for a couple of months after 4 years of deflation would we now be saying  ffs raise rates. No we bloody well wouldn't. The bias to loose monetary policy knows no bounds.

No wonder we have no trust in fiat.

Edited April 17 by crashmonitor

[Pip321]

59 minutes ago, montecristo said:

This post sparked my interest.  Doing some research I found this link below.  I don't understand the line "you only pay income tax on the coupon".  

Anyone have an idiot's guide to gilts?

 

"With a gilt, you only pay income tax on the coupon. Gilts issued shortly after the pandemic have extremely low coupon rates and so pay out very little interest. This means the largest chunk of overall returns is likely to come from capital gains as opposed to income.

As of 6 June, a UK gilt with an expiry date of 31 January 2024 had a coupon rate of 0.125% and traded at £97.14. For an additional-rate taxpayer (top rate in Scotland), this equates to a net annual yield to redemption of 4.59%. To achieve that same yield on taxable savings, the savings account would need to pay interest of 8.35% (or 8.65% for a Scottish top-rate taxpayer)."

https://www.brewin.co.uk/insights/why-have-bonds-been-spotlight

Gilts pay a coupon rather than ‘interest’ and it is a fixed amount eg £5. And all gilts have a maturity date….some long some short  

So you buy a gilt for £100 and its coupon might be £5. Effectively it is paying 5% interest rate at that moment. But there is not real interest rate as such (rather it’s a yield)….ie it just pays £5 regardless. 

As interest rates / market demand changes then the £5 coupon remains the same ie £5. However the demand for the gilt alters so the price you would pay for it alters…..eg interest rates fall, so the coupon of £5 looks good so now I might pay £200 for the same gilt. So the coupon stays at £5, the price of the gilt is now £200 and the effective yield is 2.5%.

The increase in the value of the gilt (if you sold) is CGT free. The income tax is charged on the coupon ie the £5.

So short term gilts are interesting because there are some out there paying a low coupon because they were issued in the good old days of low rates. Ie maybe it was £1 coupon on a £100 gilt. But now rates are higher and let’s say the gilt matures in 1 year….the coupon looks crap so the value of the gilt is £96. You can buy it for £96 and in a years time you will get the original value of the gilt back ie the £100 (making £4 capital gain all tax free) and receive the £1 coupon. 

So you get £4 tax free and £1 taxable.

Hope that helps. 

https://www.hl.co.uk/news/what-you-need-to-know-about-buying-government-bonds-gilts

 

[crashmonitor]

2 year swap may hit 5% (for the first time this year) on disappointing CPI data. Markets definitely pricing in autumn for the first cut now.

 

https://uk.investing.com/rates-bonds/gbp-2-years-irs-interest-rate-swap-historical-data

Edited April 17 by crashmonitor

[HousePriceMania]

[Democorruptcy]

13 hours ago, HousePriceMania said:

 

Last weekend was the odds-on favourite, with Ramadan ending last Wednesday.

[DoINeedOne]

Random question for @Bobthebuilder or @Cattle Prod or anyone who knows as I can't find the post was the Guinness Global Energy Fund you where buying in 2020+ this one

Just building a list of funds to add to watchlist

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/w/ws-guinness-global-energy-class-i-accumulation

[Heart's Ease]

FRES top o the table this morning.

Please Telegraph journolurkers - can you put a good word in for VOD? Ta.

 

[Bobthebuilder]

23 minutes ago, DoINeedOne said:

Random question for @Bobthebuilder or @Cattle Prod or anyone who knows as I can't find the post was the Guinness Global Energy Fund you where buying in 2020+ this one

Just building a list of funds to add to watchlist

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/w/ws-guinness-global-energy-class-i-accumulation

I had this one.

Guinness Global Energy Fund (Class Y GBP) Accumulation Fund Price & Information (hl.co.uk)

 

[Castlevania]

15 minutes ago, Heart's Ease said:

FRES top o the table this morning.

Please Telegraph journolurkers - can you put a good word in for VOD? Ta.

 

JPMorgan upgraded it

[Democorruptcy]

I was just wondering how True Contrarian was getting on with all his shorts, so looked for an update. Did we have his April 2nd? Unusually for him he was also negative PMs.

https://truecontrarian-sjk.blogspot.com/

[wherebee]

18 minutes ago, Castlevania said:

JPMorgan upgraded it

shit, i do NOT want JP morgan talking up the PMs.  That means they are going to zero.

[Plan-b]

FFS 

On 14/04/2024 at 21:44, AWW said:

If you've no more room in this year's various tax shelters, low coupon Gilts issued prior to IR normalisation provide pretty much tax free returns as they are CGT free.

Buy Some PMs.

3 hours ago, montecristo said:

This post sparked my interest.  Doing some research I found this link below.  I don't understand the line "you only pay income tax on the coupon".  

Anyone have an idiot's guide to gilts?

Yeah, Don't buy them.

2 hours ago, Pip321 said:

Gilts pay a coupon rather than ‘interest’ and it is a fixed amount eg £5. And all gilts have a maturity date….some long some short  

Buying Gilts, UK government bonds - Giving your own currency to finance the ever worsening UKgov shit-show. Wars, ULEZ, Woke, Public Pensions, Bennies, Tax, immigration, on and on.

After all thats been said on this thread over many years. DB's on here most days telling you how your being totally shafted left right and centre and you wanna talk about financing that? Disingenuous to his efforts is what it is.

Don't gimme the 'Its a way of getting something back' either, shove your coupons.

[JMD]

13 hours ago, Harley said:

I had a social session with some ok and learned Germans the other week.  We got round to Brexit and I suggested it all could have been avoided with a bit of flexibility from Merkel.  Oh no, it was all our fault (it's always someone's elses fault).  Unfortunately, they have a long road to travel.

I wonder how 'transformative' that road journey for Germany might be? I have said before that Germany is a very (ahem) 'fluid and adaptable' nation.

 

(Hope am not taking thread too 'off-piste', as I believe these type of power dynamics will shape the ultimate future of Europe/Russia relations)

I couldn't find the Peter Hitchens article on 'The EU is the Continuation of Germany by Other Means', however I think the following makes a similar(?) alarming point(?!)...     (Btw, am not attempting to merely smeer the Germans, if such events can happen there, they can happen anywhere)

However the below (it's the second entry) is a reply by Peter Hitchens to a history professor who'd criticized an article Hitchens had written regarding the true nature of Nazism, it is very long but does have many fascinating historical insights - plus more importantly I think it contains a very sobering modern day lesson concerning the scarily close parralels between so-called 'far left/right' authoritarian power politics.

https://hitchensblog.mailonsunday.co.uk/first-world-war/

 

 

Edited April 17 by JMD

[sancho panza]

14 hours ago, Axeman123 said:

And "worse" every time they try physical metal goes east.

Soemthings going on @Errol @Lightscribe paritucalrly.

Seems paradoxaical that Gold ETFs are seeing outflows as US/EU instos flee but then the price goes up.10 months of outlfows ffs?

Is this some sort of China coordinated short squeeze that the yanks are trying to end or is the sign of a huge change in dmeand patterns?

what's going to happen when US instos start buying if we're already at $2400?

 

https://www.gold.org/goldhub/research/gold-etfs-holdings-and-flows/2024/04?utm_medium=email&utm_source=newsletter&utm_campaign=GOLDHUB%3A+Your+Weekly+Gold+Market+Round-up%2C+April+12%2C+2024

 

Edited April 17 by sancho panza

[sancho panza]

Sh1t getting real in the land of the rising sun.Chickens are looking for a perch

a roadmap for turning a sov debt crisis into a currency crisis? @DurhamBorn

https://wolfstreet.com/2024/04/16/yen-drops-to-155-against-usd-currency-collapse-at-work-50-against-usd-since-2012-32-since-2021/

Yen Drops to 155 against USD. Currency Collapse at Work, -32% against USD since 2021, -50% since 2012

Turns out, collapse of the currency is the price Japan is now paying for years of crazed monetary policies.

The only thing that is amazing is how long these kinds of crazed monetary policies can be maintained before something breaks, but then something does break, something big, like a currency. And the free-lunch theory that had driven all this turns out to have been fake.

The BOJ has started to react in tiny baby steps, but there is nothing in these tiny baby steps that would stop the destruction of the yen – it’s still destroying the yen, but in slightly smaller increments.

[sancho panza]

[Harley]

36 minutes ago, JMD said:

I wonder how 'transformative' that road journey for Germany might be? I have said before that Germany is a very (ahem) 'fluid and adaptable' nation.

 

(Hope am not taking thread too 'off-piste', as I believe these type of power dynamics will shape the ultimate future of Europe/Russia relations)

I couldn't find the Peter Hitchens article on 'The EU is the Continuation of Germany by Other Means', however I think the following makes a similar(?) alarming point(?!)...     (Btw, am not attempting to merely smeer the Germans, if such events can happen there, they can happen anywhere)

However the below (it's the second entry) is a reply by Peter Hitchens to a history professor who'd criticized an article Hitchens had written regarding the true nature of Nazism, it is very long but does have many fascinating historical insights - plus more importantly I think it contains a very sobering modern day lesson concerning the scarily close parralels between so-called 'far left/right' authoritarian power politics.

https://hitchensblog.mailonsunday.co.uk/first-world-war/

 

 

My one hope/caution is I heard a lot of things about Germany before moving there only to find most of it made sense or did not exist. 

[leonardratso]

was that back in 1940?

Id go for the free uniform, lovely quality. And those hats were to die for.

[Harley]

43 minutes ago, sancho panza said:

Sh1t getting real in the land of the rising sun.Chickens are looking for a perch

a roadmap for turning a sov debt crisis into a currency crisis? @DurhamBorn

https://wolfstreet.com/2024/04/16/yen-drops-to-155-against-usd-currency-collapse-at-work-50-against-usd-since-2012-32-since-2021/

Yen Drops to 155 against USD. Currency Collapse at Work, -32% against USD since 2021, -50% since 2012

Turns out, collapse of the currency is the price Japan is now paying for years of crazed monetary policies.

The only thing that is amazing is how long these kinds of crazed monetary policies can be maintained before something breaks, but then something does break, something big, like a currency. And the free-lunch theory that had driven all this turns out to have been fake.

The BOJ has started to react in tiny baby steps, but there is nothing in these tiny baby steps that would stop the destruction of the yen – it’s still destroying the yen, but in slightly smaller increments.

Yet etf vjpn, etc have been on a bull run since nov23.  That's in gbp and I believe not hedged.  Jpygbp was up then down in that period.  Must have been a strong bull run.  Both currency and etf falling now though.

Edited April 17 by Harley

[feed]

Anyone have IDS take over bid?

Exclusive-Daniel Kretinsky explores bid for Royal Mail owner, sources say (yahoo.com)

[sancho panza]

4 hours ago, crashmonitor said:

Usual desperation from the Media Commentariat..can we cut, can we cut?

Over the last 20 years CPI has averaged 3% and 5% over the last 4. Imagine you had a reverse of that scenario on the undershoot...20 years of 1% CPI and 4 years of 1% DEFLATION. Now if we were likely to suddenly get over target for a couple of months after 4 years of deflation would we now be saying  ffs raise rates. No we bloody well wouldn't. The bias to loose monetary policy knows no bounds.

No wonder we have no trust in fiat.

Agreed.Sh1t getting real this morning for the MSM/Hunt/Sunak/WEF types screaming for IR cuts

Inflation higher for longer as per basement thesis....

 

https://www.telegraph.co.uk/business/2024/04/17/ftse-100-markets-latest-news-uk-cpi-inflation-interest-rate/

Traders think the Bank of England will cut interest rates just once this year after inflation fell less than expected.

Money markets indicate that policymakers could wait as late as November before beginning to reduce borrowing costs.

Traders are now pricing in just one interest rate cut this year, compared to expectations of five cuts at the start of 2024.

Derivatives trades had implied on Tuesday that a first cut would come by September, and indicated there would be at least three cuts this year just a few weeks ago.

It comes after inflation fell to 3.2pc in March, according to the Office for National Statistics, which was a two-and-a-half year low but less than forecasts of a fall from 3.4pc to 3.1pc.

[Royston]

27 minutes ago, feed said:

Anyone have IDS take over bid?

Exclusive-Daniel Kretinsky explores bid for Royal Mail owner, sources say (yahoo.com)

Hes held 29% for a good long time so it was always surely on the cards, unfortunately for now at least it's still not even uplifted the sp back to where it was just a few months ago and still a long way below where I wish I'd sold up at as a long term holder!

Thoughts from @M S E Refugee our only remaining resident postie?

[AWW]

1 hour ago, Plan-b said:

FFS 

Buy Some PMs.

Buying Gilts, UK government bonds - Giving your own currency to finance the ever worsening UKgov shit-show. Wars, ULEZ, Woke, Public Pensions, Bennies, Tax, immigration, on and on.

I was semi nodding along until I got to "ULEZ" and "Woke". As for tax, buying low-coupon Gilts literally IS tax avoidance.  I'll take an easy 5% tax-free return on the small proportion of my wealth that's not in equities or PMs. I wouldn't buy anything longer than 2 years to maturity.

If we get to the point where Gilts go in the toilet, everything else will perform very well against GBP.