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RichM

Compare And Contrast

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OK, typical confusion from the media this morning.

On the one hand we have: Thousands of firms holed by slowdown

Figures from business rescue and restructuring specialists Begbies Traynor show 6946 companies ran into 'critical' financial problems in the third quarter, a 20% increase on the same period last year.
All rather grim.

And then, on newlabour.co.uk: UK economy 'stronger in New Year'

UK businesses are set to prosper during the New Year after having weathered the storm of a consumer downturn and rising oil prices, a report suggests.

Now the current consumer slowdown is widely recognised, and was widely predicted on here: vast debts + slight increase in IRs = no money to spend on stuff (as well the other noted formula of "uncertainty about house prices + terrorism + high taxes = unwillingness to splash out"). So, exactly how are the boom times (3% growth) going to return? Where is all this money going to come from?

Very interesting times. This is definitely unlike1989-1995, but that doesn't mean it is going to be easier on this country. IMO high IRs accelerated the HPC last time around, whereas this time we will go through the stages more carefully and slowly, but no less painfully. Rather than turning on the panic more or less overnight (and quickly bringing home realisation that all was not good), this HPC will build up over time. Rather than a shock wake up like the suddent IR increases in '89, this downturn will grind people down at first; they'll try to hang on to their BTL empire, their overpriced house, their solvency. But eventually they'll be overwhelmed in an unpleasant war of attrition, with jobs going more and more, credit becoming harder and harder to obtain, more and more gloom seeping through, private squalor vs public wealth, the inevitable quarter finals knock out in the World Cup...

I guess it can be summed up in the phrase, "boiled frog". Thoughts?

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Now the current consumer slowdown is widely recognised,

Care is needed with regard to the consumer slowdown.

I recall many a news article declaring this on the run - up to Xmas in the last few years, then miraculously at the last minute the consumer returned.

The great Brittish consumer always (annoyingly) seems to start spending just as things get interesting. Is this time different or will he once again lash the plastic?

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Care is needed with regard to the consumer slowdown.

I recall many a news article declaring this on the run - up to Xmas in the last few years, then miraculously at the last minute the consumer returned.

The great Brittish consumer always (annoyingly) seems to start spending just as things get interesting. Is this time different or will he once again lash the plastic?

"Well you can't see the kiddies go without can you".

"You gotta cheer yourself up a bit, you only live once".

"It's Christmas afterall".

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Very interesting times. This is definitely unlike1989-1995, but that doesn't mean it is going to be easier on this country. IMO high IRs accelerated the HPC last time around, whereas this time we will go through the stages more carefully and slowly, but no less painfully. Rather than turning on the panic more or less overnight (and quickly bringing home realisation that all was not good), this HPC will build up over time. Rather than a shock wake up like the suddent IR increases in '89, this downturn will grind people down at first; they'll try to hang on to their BTL empire, their overpriced house, their solvency. But eventually they'll be overwhelmed in an unpleasant war of attrition, with jobs going more and more, credit becoming harder and harder to obtain, more and more gloom seeping through, private squalor vs public wealth, the inevitable quarter finals knock out in the World Cup...

I guess it can be summed up in the phrase, "boiled frog". Thoughts?

it is frustrating, but so long as my deposit keeps building up and prices keep coming down then the longer it goes on the better for me, I suppose.

Although I do hope you're wrong and I wake up tomorrow to find a selection of "dream houses" up for sale at £50k each.

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But eventually they'll be overwhelmed in an unpleasant war of attrition, with jobs going more and more, credit becoming harder and harder to obtain, more and more gloom seeping through, private squalor vs public wealth

It will be a bit like watching John Cleese in The Holy Grail where he's had his legs and arms chopped off but is still claiming that he can fight.

holy_grail.jpg

post-852-1130778537.jpg

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... the inevitable quarter finals knock out in the World Cup...

. . . as usual, after a barrage of unwarranted nationalistic, bigoted hype has brought an expectant nation to foaming, seething climax - believing the cup to be already won ('it's coming home') but for the pesky johnny foreigners standing in the way . . . only for the moment to pass as some poor unfortunate puts the ball into orbit over Germany (and, with any luck, against Germany) causing a long, slow deflation and all the bitter feelings of self-recrimination so well-known to the serial premature ejaculator . . .

(oh, and house prices will crash)

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I wouldn't be too sure about this death by 1000 cuts scenario

I've been wrestling with the inflation v deflation argument and i think this atricle sums it up perfectly

THE TROUBLE WITH ZEROES

by Paul Tustain

The number of zeros on formal statistics sometimes

disguises their real meaning. The US government, for

example, currently borrows $5,000 a year on behalf of

each US family, which it dares not tax for electoral

reasons. This is the source of the budget deficit.

That uncollected money remains in the hands of each

family, which currently prefers buying foreign goods and

spends $5,000 on them, thus producing the trade deficit.

The foreign supplier lends the $5,000 back to the US

government by buying bonds. This loan from abroad is the

source of the fine-sounding US capital inflow.

Give or take $1,000 this same $5,000 triangle is

completed for each of about 100 million US households

every year, and that is why there is a $500 billion

budget deficit, and similar trade deficit and US capital

inflow. It is tempting to assume that this is the way it

has always been and that somehow it must be stable, but

that is wrong. This is a new way of arranging things.

The last four-year administration ended having increased

the average US family's gross future tax debt by about

$19,000. The family's total accumulated uncollected tax

- i.e. its share of the country's public debt - grew by

that $19,000 to about $74,000, three quarters of which

has been built up since 1985. The demand which has

sustained a growing economy for twenty years has arisen

from this money being spent twice, and this duplicated

spending is the only explanation that is needed to

understand the remarkable strength of the USA's economy.

But the legacy of it is this $74,000 tax debt for each

of 100 million families.

How serious is a $74,000 tax debt? We don't know because

it has never happened before, but we do know that in

Argentina in 2001 their sovereign public debt was about

$12,000 per family, and it triggered the capital flight

which was the direct cause of their debt default and

subsequent economic crunch.

To resolve the US public debt problem safely is very

difficult. Raising taxes to the required level is

unthinkable - both electorally and because it would hurt

domestic spending and feed back into a deflationary

spiral of declining output and demand. Formal default is

unnecessarily dramatic as it can be effected without the

national loss of face by a policy which allows the

dollar to bleed value: so serious inflation seems much

the most likely result.

Assessing how severe the coming inflation might be is

also difficult, but it is possible to get an idea by

looking at the bond market. For twenty five years the

bond market has been growing fast, to about 40 times

what it was in the early eighties. Through most of that

time interest rates and inflation were falling, so

fixing a rate of return with a bond was an attractive

option for a saver. As a result while borrowers were

spending savers were diverting their cash out of the

economy and freezing it in bond portfolios, until

eventually US dollar bond markets have grown to contain

50 times all the dollars in current circulation.

This frozen money is up for redemption over the coming

years so it will turn back into cash, and little of it

can sensibly be re-invested in bonds with inflation

threatening and rates turning up from long cycle lows.

In any event much of it must be returned as consumable

cash to the retiring boomer generation.

This suggests a possible cash glut in the medium term,

and that indicates inflation too. Aggressive inflations

do tend to follow an accumulation of official

indebtedness. It would be unusual if the current US

situation did not result in something similar.

Fear of this should have already caused a correction in

the US dollar as investors switch into alternate

currencies, but this has not happened because the

alternates have similar problems. The Yen is afflicted

by an equally difficult sovereign debt problem, while

the Euro looks politically unstable. Commodities on the

other hand have been rising in price - and gold

particularly so.

Gold is famously useless in almost everything except

that it cannot be made, and is reliably difficult to

find. Even now if all the gold ever produced on Earth

were formed into a single cube its edge would be less

than 20 metres - 2 metres shorter than a tennis court.

Annually mined production grows that cube by about 12

centimetres a year, and more than each year's production

is used up by jewellers such that now 75% of that cube

is fabricated in an art form worth several times its

bullion value. Meanwhile after 15 years of consistent

selling into private demand central bank ownership is

now down to about 20% of the world's gold.

That 20 metre cube of gold would weigh about 140,000

tonnes and each tonne is worth about 15,000,000 dollars.

So all the gold in the world is currently valued at $2.1

trillion, which compares to a US public debt of $8

trillion, and an unreserved US generational debt of $44

trillion. By contrast the US has the biggest gold

reserve in the world which at 8,000 tonnes is worth only

$0.12 trillion, enough, were it all sold, to stop the

deficits growing for about 10 weeks.

Arising from this there are powerful fundamental forces

at work on the gold price which savers understand

intuitively - even if some cannot put their finger on

what those forces are. The value of anything reflects

its utility at the margin, which means it only needs a

slight shortage to create price surges and a slight

surplus to create price slumps. The utility of gold is

that it is rare, and for 5,000 years people have used

reliably rare stuff to store value.

Often because of a local shortage of gold (which they

might prefer) most human societies have been able to

arrange and enforce a respectable rarity of artificial

forms of money, and so long as savers have been able to

trust in this artificially created rarity the marginal

utility of gold's natural rarity stays low.

Paradoxically rarity is in surplus wherever artificial

money is being reasonably well managed, and this makes

gold's natural rarity less valued in those times.

But what savers are now realising is that official money

is not being well managed and cannot in future be relied

upon for rarity. With justification they believe their

governments will soon be forced to create in very large

quantities what has previously been scarce. Even if the

underlying demand for rare stuff stays the same then the

value of the few naturally scarce things will go up.

Much more likely is that the underlying demand for

rarity will increase, and it's utility at the margin,

where diminishing supply meets increasing demand, will

increase dramatically.

This is what is starting to happen to gold now. The

scale of forced monetary issue which is being

anticipated by savers is causing them to value the

unimpeachable rarity of gold higher. More and more

people no longer believe that the artificial rarity of

bonds, or bank-notes, shares, or even houses are

offering that same assurance of future scarcity, and

until responsible fiscal and monetary management returns

to government the outlook for gold will remain

resolutely positive.

Regards,

Paul Tustain

for The Daily Reckoning

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"Well you can't see the kiddies go without can you".

"You gotta cheer yourself up a bit, you only live once".

"It's Christmas afterall".

What about:

"Cheap and cheerful"

"The best things in life are free"

"Let's 'ave a night in"

etc.

frugalista

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What about:

"Cheap and cheerful"

"The best things in life are free"

"Let's 'ave a night in"

etc.

frugalista

Oh dear, you seem to have missed some of your indoctrination lectures.

How can you be happy?

:)

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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