Jump to content


Photo
- - - - -

How To Hedge Against Financial Repression .....


  • Please log in to reply
96 replies to this topic

#1 LuckyOne

LuckyOne

    HPC Fundi

  • Members
  • PipPipPipPipPipPip
  • 7,300 posts
  • Location:Surrey / California

Posted 25 April 2012 - 06:09 PM

Financial repression is essentially the planned theft of savings through central bank actions which result in negative real government bond yields across much of the yield curve after losses through default and eventual inflation.

There is an old adage in financial markets which advises participants to "not fight the Fed". These days "the Fed" is simply shorthand for central banks.

What the Fed are telling us to do via their actions is to become rent seekers and to take on long term fixed rate debt as this is the only way to protect ourselves.

Savers using traditional vehicles will see their wealth being massively eroded. People attempting to seek rent using floating rate leverage will be wiped out when the Fed eventually succeeds in creating inflation with rising nominal yields due to timing problems. People attempting to seek rent and paying cash for assets will also suffer as the discount rate applied to their rents will rise with inflation while rents will lag inflation reducing the real value of their assets.

The only hedge that I can see is to buy rent seeking assets and fund them with long term fixed rate deals. 20 year German mortgages are available at mid swaps + 130 bps or somewhere near 4%.

You can't beat them so you may as well join them.

#2 24gray24

24gray24

    HPC Veteran

  • Members
  • PipPipPipPip
  • 1,188 posts
  • Location:uk

Posted 25 April 2012 - 06:28 PM

Barter only.
2012 prediction:

banks fall like dominoes in 2013, as funds are withdrawn into PMs.

Sarkozy, Obama and Merkel all fall from power.

the british housing crash is not gradual and slow, it drops like a stone on the day interest rates rise.

#3 bmf

bmf

    HPC Veteran

  • New Members
  • PipPipPipPip
  • 2,510 posts

Posted 25 April 2012 - 06:29 PM

I've posted this as a reply to about 5 different questions now:

emigrate

#4 JimDiGritz

JimDiGritz

    HPC Regular

  • Members
  • PipPipPip
  • 536 posts

Posted 25 April 2012 - 06:44 PM

I've posted this as a reply to about 5 different questions now:

emigrate


Well, as a family with higher than average incomes, good qualifications and 15+ years each in our respective fields we have been turned down by NZ, Canada and Australia.

It is a myth that you can just 'emigrate' these days. If you happen to have a long standing career as a Petro Geologist or a Heavy Crane Operator or indeed have a Phd and a job offer then you are fine. Otherwise, forget it.

So stuck in f*#%king Blighty it is.
Face the facts. Then act on them.

It's the only mantra I know, the only doctrine I have to offer you, and it's harder than you think, because I swear humans seem hardwired to do anything but.

Face the facts. Don't pray, don't wish, don't buy into centuries old dogma and dead rhetoric. Don't give in to your conditioning or your visions or your ******ed up sense of... whatever.

FACE THE FACTS. THEN ACT.

#5 Ah-so

Ah-so

    HPC Senior Veteran

  • Members
  • PipPipPipPipPip
  • 3,904 posts
  • Location:South London

Posted 25 April 2012 - 07:02 PM

The only hedge that I can see is to buy rent seeking assets and fund them with long term fixed rate deals. 20 year German mortgages are available at mid swaps + 130 bps or somewhere near 4%.

You can't beat them so you may as well join them.

What is a "rent seeking asset"?

I consider myself fairly financially literate but you have bamboozled me. :wacko:

#6 zugzwang

zugzwang

    HPC Guru

  • Members
  • PipPipPipPipPipPip
  • 5,516 posts

Posted 25 April 2012 - 07:36 PM

Gold loves financial repression

All of a sudden, everyone's talking about financial repression, the capture and torture of domestic savers with below-inflation rates of interest, so that banking and government debt shrinks in real terms.

"Such policies," explains economic historian and author Carmen Reinhart for Bloomberg, "usually involve a strong connection between the government, the central bank and the financial sector." Check.

Given the post-war size of our debts, she goes on, "financial repression…with its dual aims of keeping interest rates low and creating or maintaining captive domestic audiences… will likely be with us for a long time." Check.

"[It's] equivalent to a tax on bondholders and, more generally, savers." Check.

Now if, like me, you already gave, then you might want to look for the exits – and you really don't need to look very far. Yet to date, this sudden burst of comment on financial repression can only counsel despair, despite the greatest liberty of capital movement in 100 years. More oddly still, the classic escape-route of buying gold – an escape-route blocked worldwide when governments wore down their 20th century wartime debts – has scarcely been mentioned.


"In [our] age of free capital movement, financial repression is still possible," reckons another historian, Edward Chancellor, in the FT, "Negative real interest rates are to be found not only in the US, but also in China, Europe, Canada and the UK."

But so what? No one's yet forcing U.S. citizens to keep their money inside the States, and no one's forcing them to choose a euro, loonie or sterling savings account if they go elsewhere either. Which is lucky, with rates at 1%, 2% and 3% below inflation respectively.

Yes, the finance industry is paying the price of getting bailed out, with the world's $30 trillion in pension funds forced to hold ever-greater quantities of sub-zero-yielding debt. But outside the still-repressed East, private savings today enjoy unheard of freedom to go where they wish and do as they please. And even there, in India and China most notably, the freedom to buy gold – the universal financial escape – is similarly at a 100-year peak.



"In [our] mildly reflating world" however, advises
Bill Gross of Pimco, "unless you want to earn an inflation-adjusted return of minus 2%-3% as offered by Treasury bills, then you must take risk in some form." And buying gold is just such a risk – a uniquely simple and obvious one, offering a stateless escape to a borderless market. But make no mistake: Swapping the credit and inflation risk of cash and bonds for physical gold means exposing yourself to price risk.

It's not a recovery, it's a relapse.

 

The trouble with capitalism is that eventually bankers end up with everyone else's money.

 

It's the debt interest, stupid.


#7 concerned_money

concerned_money

    HPC Regular

  • New Members
  • PipPipPip
  • 429 posts

Posted 25 April 2012 - 08:40 PM

Well, as a family with higher than average incomes, good qualifications and 15+ years each in our respective fields we have been turned down by NZ, Canada and Australia.

It is a myth that you can just 'emigrate' these days. If you happen to have a long standing career as a Petro Geologist or a Heavy Crane Operator or indeed have a Phd and a job offer then you are fine. Otherwise, forget it.

So stuck in f*#%king Blighty it is.


system is tuned for illegal immigration NOT little englander trying to make a better life leaving the farm immigration

you can go to any country; My link

#8 Panda

Panda

    HPC Veteran

  • Members
  • PipPipPipPip
  • 2,120 posts

Posted 25 April 2012 - 10:18 PM

Well, as a family with higher than average incomes, good qualifications and 15+ years each in our respective fields we have been turned down by NZ, Canada and Australia.

It is a myth that you can just 'emigrate' these days. If you happen to have a long standing career as a Petro Geologist or a Heavy Crane Operator or indeed have a Phd and a job offer then you are fine. Otherwise, forget it.

So stuck in f*#%king Blighty it is.


NZ, Canada and Australia. This is not personal, not directed at you....... but these places are not what London offered Dick Whittington.....

Believe me there are many in as much sh!t as we are, as much debt, a bigger housing bubble, the grass is not greener.......just a different pile of sh!t......maybe warmer, but as for NZ and OZ, the cost of living is crazy, the wages do not add up for mere mortals who don't "dig up sh!t".....and sell it to the chinks.......
As Sir Mervyn - One Of The Greatest Financial Incompetents Ever said to the incompetent politician at the enquiry "Why don't you just listen you dolt and one of these days between us we might just get it right - or not"

Now these rolled up debt thingy's and the banks that hold them are pretty much worthless, how much would you pay for a case of wine knowing that one of the bottles contained poison? Game Over.

#9 AC44

AC44

    HPC Poster

  • Members
  • PipPip
  • 229 posts

Posted 25 April 2012 - 10:23 PM

I would instead think going to
-Germany. Low unemployment, logical house prices and growth. If they ditch the euro they will even do better..
-Norway. Petrol.

Regarding the long seeking assets please do give more examples..

For my perspective have decided that $/Euro is more safe than £.

#10 bland unsight

bland unsight

    HPC Veteran

  • Members
  • PipPipPipPip
  • 1,776 posts
  • About Me:Formerly CotB

Posted 25 April 2012 - 10:29 PM

The only hedge that I can see is to buy rent seeking assets and fund them with long term fixed rate deals. 20 year German mortgages are available at mid swaps + 130 bps or somewhere near 4%.

You can't beat them so you may as well join them.


Counterparty risk?

buy a BTL with a long term fixed mortgage or maybe ag land with a long term fix.

but after the recent warning shot fired by Manchester BS wiht their trackers niot really being trackers after 5 years,I'd read the small print and hoep the bank doesn't go bump.


+1

(Counterparty risk)

Good luck with your money for nothing plans. Meanwhile, back in the real world, work is your wealth.

The real hyperinflation hedge - learn how to farm, buy a farm, farm.
Wendell: It's a mess, ain't it, sheriff?
Ed Tom Bell: If it ain't, it'll do till the mess gets here.

#11 Traktion

Traktion

    I live on HPC!

  • Members
  • PipPipPipPipPipPipPip
  • 11,278 posts
  • Location:County Down

Posted 25 April 2012 - 10:35 PM

I'm hedging with Bitcoins, mostly. I've been watching the Bitcoin community and I think it has the potential for massive growth. The volatility seems to have died down and the value is steadily growing again now.

I also hold some gold and silver as insurance, should government fiat money start to implode.
Hayek: Denationalisation of Money - Competing, alternative currencies and breaking the money monopolies.
Bitcoin - Free market, distributed, open source, e-currency.
Against Intellectual Monopoly - Stop the rent seeking through legal monopoly.
Freedomain Radio - Philosophical commentary and debate.
Khan Academy - Free market education, funded by voluntary donations.
Community Land Licencing - A distributed, non-state, alternative to land value taxation.

#12 200p

200p

    I live on HPC!

  • Members
  • PipPipPipPipPipPipPip
  • 10,429 posts
  • Location:Scotland

Posted 26 April 2012 - 06:38 AM

I have £1000 in a safe, that is burried under ground, surrounded by 10 foot concrete walls,and barbed wire. An army stands outside armed with aK-47's, RPGs, tanks, SAMS, attack dogs, and the area patrolled with AWACs, F22s.

They can still steal the £1000 without physically going into the safe! That is the work of the devil!

shark.PNG


#13 200p

200p

    I live on HPC!

  • Members
  • PipPipPipPipPipPipPip
  • 10,429 posts
  • Location:Scotland

Posted 26 April 2012 - 06:41 AM

As with any trade, it comes with a risk to obtain a reward. If one cannot see the risk, then there must be a miscalculation in the trade. I refer to LTCM's downfall.

shark.PNG


#14 8 year itch

8 year itch

    My member's title is Rodney.

  • Members
  • PipPipPipPipPipPipPip
  • 12,969 posts

Posted 26 April 2012 - 06:42 AM

I have £1000 in a safe, that is burried under ground, surrounded by 10 foot concrete walls,and barbed wire. An army stands outside armed with aK-47's, RPGs, tanks, SAMS, attack dogs, and the area patrolled with AWACs, F22s.

They can still steal the £1000 without physically going into the safe! That is the work of the devil!

All that for a grand?

Methinks you're a little paranoid

There is no ladder.

JY


No need to sell up, the next phase of the economics cycle is going to be very positive for anyone that owns property.

All I'm sayings is, don't listen to the property bears people, they are wrong.


#15 200p

200p

    I live on HPC!

  • Members
  • PipPipPipPipPipPipPip
  • 10,429 posts
  • Location:Scotland

Posted 26 April 2012 - 06:45 AM

All that for a grand?

Methinks you're a little paranoid

I've left £1000 of baked beans in the shed, it is unprotected but priceless when the time is right!

shark.PNG





0 user(s) are reading this topic

0 members, 0 guests, 0 anonymous users