Deflationary collapse and the Reflation Cycle to Come.

[Will!]

2 hours ago, Funn3r said:

But the real world isn't like that. I don't believe that the UK GDP is directly affected by the number of workers. How do you define a worker, do they have to be in UK, what if a UK worker is working on something which is 100% deliverable in a different country, and so on. 

Also doesn't the GDP calculation involve mindfluff like house values and other non realistic carp. 

 

48 minutes ago, Funn3r said:

A UK guy I know lives in Oxford and works at home full-time (software development/maintenance) for a Finnish firm. Whose GDP needs to account for him when calculating the numbers? There are actually a lot of people these days with some kind of ambiguity like this.

There's a good discussion of that here:

Surplus Energy Economics:  Candyfloss economics

I found the concepts of "globally marketable output" and "internally consumed services" useful.

[Funn3r]

5 minutes ago, Will! said:

There's a good discussion of that here:

Surplus Energy Economics:  Candyfloss economics

A good read. If a dope dealer round the back of a pub in Rochdale manages to double his order book then to me that has no effect on GDP.

[Bricks n' mortar]

Speaking of leverage, and the '29 crash seems to be something of a theme this week...

https://www.cnbc.com/2018/02/26/buffett-says-out-of-the-three-ways-to-go-broke-liquor-ladies-and-leverage-leverage-is-the-worst.html

 

[Maximus Skepticus]

12 hours ago, durhamborn said:

Well the premise is the biggest crash since the war and the first reflation cycle since the 70s.There will be no depression though,the CBs will print eye watering amounts to stop that.

been a depression since 2008....inflation will be the agonal breathing, boy I'm cheery tonight 

must be all these Antonpolous vids I'm catching up on!

 

 

[Slimline]

Was speaking to the old man the other night and he was talking about how in the 80s, they were getting 4 pay increases a year. Could we ever see a return to that sort of thing?

[stuckmojo]

4 minutes ago, Slimline said:

Was speaking to the old man the other night and he was talking about how in the 80s, they were getting 4 pay increases a year. Could we ever see a return to that sort of thing?

Possibly, but that would be after things get really insane on the inflation and economic front. 

[UnconventionalWisdom]

22 hours ago, durhamborn said:

Well the premise is the biggest crash since the war and the first reflation cycle since the 70s.There will be no depression though,the CBs will print eye watering amounts to stop that.

Love the thread DB-definitely worth a hat tip! Pretty much read it everyday. 

I'm a bit if a newbie so trying to get my head around things like QE. As I understand, it's currently done by CBs creating money and buying bonds from banks so end effect is that extra money results in the economy. The banks have more capital so can add to the extra with loans. You suggest that the reflation period will see the money printing bypass the banks and go straight to the real economy- has this been done before? Can the CBs print money for the government to spend? 

Edited February 27, 2018 by UnconventionalWisdom

[durhamborn]

11 minutes ago, Slimline said:

Was speaking to the old man the other night and he was talking about how in the 80s, they were getting 4 pay increases a year. Could we ever see a return to that sort of thing?

Yes,very easily,though i expect yearly increases of 10%+ more likely.People are going to look the wrong way and be shocked at the way things go.Right now everyone thinks rates are going much higher,but long rates have probably topped already and short rates wont be far away.I still expect short rates down below 1% soon and TLT up to $150.

 

[durhamborn]

15 minutes ago, UnconventionalWisdom said:

Love the thread DB-definitely worth a hat tip! Pretty much read it everyday. 

I'm a bit if a newbie so trying to get my head around things like QE. As I understand, it's currently done by CBs creating money and buying bonds from banks so end effect is that extra money results in the economy. The banks have more capital so can add to the extra with loans. You suggest that the reflation period will see the money printing bypass the banks and go straight to the real economy- has this been done before? Can the CBs print money for the government to spend? 

Yes they can.They simply buy back bonds on the market and return the coupons to the government.There are a few ways they do it.

Fed (and BOE) adding to their balance sheets in a substantial fashion will more than offset the massive new supply of paper that we'll see out of the Treasury during the bust.

The inflation will start slow and slowly build through the cycle,but i do see a very real chance it runs too hot they cant stop it and we end up in high double figures with rates at 10%+.The end of that cycle worries me more than anything,but thats for the future and we have a deflationary bust to get through first.

The Fed tightening now will go down in history as the greatest policy error since 37 that prolonged the depression i think.

Edited February 27, 2018 by durhamborn

[Sancho Panza]

http://theconversation.com/huge-pension-fund-deficits-are-a-global-crisis-in-waiting-88420

'In the past decade, the banking industry has been a central focus of attention for regulators, academics and the general public. The 2007-08 financial crisis led to new regulations and institutions to keep things in check.

In contrast, the issues of the pension industry have tended to be swept deep under the carpet. Much the same way that people think about retirement saving – that it can wait for another day – we are now beginning to see how much of a mistake this is.

The pension industry is already in a deep financial crisis and could well be the trigger for another global financial and economic meltdown. This has largely been overlooked. Instead, it has been common to only discuss the pension industry in terms of the problems arising from ageing populations (which is, of course, also important).

While the recovery of many countries’ equity markets from the massive decline in 2007-09 may appear to look like good news for pension funds, it has not benefited the industry anywhere as near as much as you might expect. Many pension funds moved away from equity investments, increased the share of bonds in their portfolios and missed out on high returns. For example UK pension funds decreased their portfolios’ equity share from 61% in 2006 to 29% in 2017 and increased the bond share from 28% to 56% over the same period.

The net effect is that the pension industries in many countries are in a bad way. According to a Citibank report from 2016, the 20 largest OECD countries alone have a US$78 trillion shortfall in funding pay-as-you-go and defined benefit public pensions’ obligations. This shortfall is far from trivial. It is equivalent to about 1.8 times the value of these countries’ collective national debt.

Private pensions are not any more sound. US private pensions, for example, have (across the board) only 82% of the funds necessary to meet their liabilities. That equates to a US$3 trillion shortfall. Given the importance of the US economy and its financial markets to the global financial structure, this should not be taken lightly.

The UK pension industry is in no better position. Its overall funding level was only 67.7% in March 2017, equivalent to a £736.2 billion deficit.

To put these figures in context, let us recall that the market capitalisation of the big banks before the financial crisis was small compared to the size of the pension fund deficits. For example, in 2007, the peak market capitalisation of the Royal Bank of Scotland and of Lloyds Banking Group were £64 billion and £33 billion respectively. Yet by the end of 2009 the British government had to inject £850 billion in a rescue package to save the UK bank sector from collapsing.

A global problem

So why is pension underfunding a global problem, rather than one faced by individual providers or countries? The simple answer is the unprecedented scale of the deficits and the number of economically important countries caught up in the problem.

Scratch a little deeper and there are additional, compounding problems. The pension industry is complex – it is globally interconnected and is tied into very long-term obligations. Yet tackling the problem at a global level is hard because of the significant diversity in countries’ regulatory and political regimes.

Plus, the industry often faces much lighter regulation than the banking and the insurance sectors, although it also suffers from moral hazard and the “too-big-to-fail” syndrome where it won’t have to pick up the pieces if things fall apart.

Making things worse, companies are opting to minimise their risks and are selling their pension obligations to insurance companies. Between 2014 and 2016, in the UK alone, £68 billion worth of pension liabilities were passed from companies to insurers. As this interconnectivity of the pension industry with the global insurance industry grows – the chance of a system-wide collapse increases.

The economic consequences of these sell-offs could be significant. When a company sells its pension obligations to an insurance company, it must pay substantial transfer fees – often exceeding 30% of the fund’s total value. This could otherwise be spent on things such as investment and research and development to improve productivity, which has already been low for years.

It is also not obvious what effect these transfers will have on people’s retirement income, as it is not clear how much regulatory protection they will have once sold off. For instance, the transfer of Barclays’ pension obligations of its 284,000 members to its high-risk division means that the pension assets will not be ring-fenced after 2025. Given that the insurance market already faces huge problems of its own (such as from climate change), this lumps a lot of pensions together with another at-risk industry.

So, this whole issue needs ratcheting up the global regulatory agenda. If regulators do not step in soon and firmly, it will once again be taxpayers who have to come to the rescue.'

Edited February 27, 2018 by Sancho Panza

[TheCountOfNowhere]

4 minutes ago, Sancho Panza said:

 

The pension industry is already in a deep financial crisis and could well be the trigger for another global financial and economic meltdown. This has largely been overlooked. Instead, it has been common to only discuss the pension industry in terms of the problems arising from ageing populations (which is, of course, also important).

'

I've said a few times people are mad giving the spiv in London their pension savings.

People are blindly handing over the cash on promised returns, which IMHO are not achievable.

The government has taken the 1st step to enforced private pensions to keep the game going which should be screaming to people to get out.

If pensions were so great people would be falling over themselves to contribute to them.

The spivery of London needs strict regulation...this wont happens till we see the mother of all collapses.

All pyramid scams collapse in the end, no matter how big, it's a mathematical certainty.

[DoINeedOne]

When buying shares do you guys auto reinvest dividends or not

[stuckmojo]

15 minutes ago, DoINeedOne said:

When buying shares do you guys auto reinvest dividends or not

I buy three types of shares. 

Long term div payers - always reinvest

Mid term earners - 50/50

short term speculative - never. 

[spyguy]

On 2/26/2018 at 9:50 AM, stuckmojo said:

Wow, that is mad. A goldmine in Whitby>? Bloody hell. 

Well they are not goldmine, as theyll find out.

http://www.coliseumcentre.org/wp-content/uploads/downloads/2014/06/WADT-Affordable-Housing-Paper-June-2014.pdf

1,384 hosues buolt 2001->2011.

Only 250 occupied FT.

20% of housing stock in Whitby district is now holiday/2nd/empty.

The report than fannies about affordable housing blah blah.

Wrong thing.

They need to levelling rates on holiday lets, with no small business relief.

2nd homes can taxed @ 2 x Ctax.

The falling employment and wages and local tax take are directly linked ot the rise in 2nd + holiday homes.

 

[durhamborn]

@Sancho Panza .I think pensions are showing what happens at the end of a dis-inflation cycle (consumer driven) .The productive assets of the country cant sustain the demands on it in financial returns.The article is right,but what it misses is how things might be resolved.Massive investment in the backbone of the economy instead of funding consumption through the likes of welfare.

As for the crash,the way pensions are being structured is very very worrying given the systemic risk involved.Insurance companies might do very well in a reflation given rates will be heading higher and most pensions have a 5% uplift limit where inflation will be likely much higher over the cycle.The problem is surviving the credit deflation and i wouldnt want to be owning wondering who the counter party was on lots of the assets.

The next cycle will solve a lot of the problems where promises are far too generous as inflation will do its magic there,but getting there is going to contain huge shocks.

The Fed will print $8 trillion+ to stop a free falling financial system,but not before massive wealth destruction.

 

[Noallegiance]

4 hours ago, stuckmojo said:

Possibly, but that would be after things get really insane on the inflation and economic front. 

Ahhhh! That's why house prices were taken out of inflation statistics! Heap the debt on to pay for infinitely higher houses but it's OK, they don't count toward inflation any more! Carry on!

If it were kept in, inflation and the economy already qualify as 'insane'.

[jimmyblueeyes]

   On 09/02/2018 at 6:00 PM,  Fence said: 

I'm building a list as long term debt v free cash flow v dividends is pretty much my #1 criteria.  Will share if/when done.  

A good source is Hargreaves Lansdown (no account needed).

Here's a link for GSK:

http://www.hl.co.uk/shares/shares-search-results/g/glaxosmithkline-plc-ordinary-25p/financial-statements-and-reports

Just enter each company in the "Enter Name or EPIC" search box (top RHS of page).

I'm thinking the key statistic is "Borrowings" under "Non Current Liabilities".

Anyone know of a list I could download for the FTSE 100, even 250?

I often use ADVFN https://uk.advfn.com/p.php?pid=financials&symbol=LSE%3AAA. as I like having lots of info all on one page and you can download as Excel.  

Check out Gross Gearing for the AA - 200%. Ouch.  

[kidgorgeous]

1 hour ago, durhamborn said:

@Sancho Panza .I think pensions are showing what happens at the end of a dis-inflation cycle (consumer driven) .The productive assets of the country cant sustain the demands on it in financial returns.The article is right,but what it misses is how things might be resolved.Massive investment in the backbone of the economy instead of funding consumption through the likes of welfare.

As for the crash,the way pensions are being structured is very very worrying given the systemic risk involved.Insurance companies might do very well in a reflation given rates will be heading higher and most pensions have a 5% uplift limit where inflation will be likely much higher over the cycle.The problem is surviving the credit deflation and i wouldnt want to be owning wondering who the counter party was on lots of the assets.

The next cycle will solve a lot of the problems where promises are far too generous as inflation will do its magic there,but getting there is going to contain huge shocks.

The Fed will print $8 trillion+ to stop a free falling financial system,but not before massive wealth destruction.

 

Do you know if most public sector pensions have unlimited index linking or not?. 

[durhamborn]

4 hours ago, kidgorgeous said:

Do you know if most public sector pensions have unlimited index linking or not?. 

I think they do have unlimited CPI linking,but they moved to career average,so that would make a big dent.

[Talking Monkey]

10 hours ago, durhamborn said:

Yes,very easily,though i expect yearly increases of 10%+ more likely.People are going to look the wrong way and be shocked at the way things go.Right now everyone thinks rates are going much higher,but long rates have probably topped already and short rates wont be far away.I still expect short rates down below 1% soon and TLT up to $150.

 

If labour starts getting expensive won't there be a massive push for automation and technology to take out labour

[Thorn]

30 minutes ago, Talking Monkey said:

If labour starts getting expensive won't there be a massive push for automation and technology to take out labour

Very likely but it's like electric or self-driving cars. There aren't enough charging or parking points ready for them to take over straight away so there will be a time lag.

[Thorn]

11 hours ago, durhamborn said:

The Fed tightening now will go down in history as the greatest policy error since 37 that prolonged the depression i think.

Is their reason to bring about a deflation and clear out dead wood?

Whether deliberately or not, seems like it's inevitable.

Today I heard an advert for "Vauxhall- Help to Buy" scheme and I had a good stare at the radio.

I reckon the advert wasn't for those of us that read this thread but there must yet be people out there who Desire Help to Buy A Vauxhall.

[Bricks n' mortar]

8 hours ago, spyguy said:

http://www.coliseumcentre.org/wp-content/uploads/downloads/2014/06/WADT-Affordable-Housing-Paper-June-2014.pdf

This is a marvelous piece of work. 

I agree the holiday home issue needs its own thread.  It doesn't affect everyone - but for those who live in one of the areas so helpfully coloured in the report - it's the most important thing in town.

[spyguy]

19 minutes ago, Bricks n' mortar said:

This is a marvelous piece of work. 

I agree the holiday home issue needs its own thread.  It doesn't affect everyone - but for those who live in one of the areas so helpfully coloured in the report - it's the most important thing in town.

Theres literally a handful of areas that suffer.

Whitby district, lakedistrict, devon, cornwall, pembrokeshire, norfolk, cotswolds.

I know some poor fuxxer ho lives between 2 holiday lets. Hes in process of trying to get asbos served on owner.

Holiday lets should pay rates, no relief.

Change to holiday let should require planning permission.

[Majorpain]

http://www.macrotrends.net/2515/1-year-libor-rate-historical-chart

Libor is properly moving, borrowing money is becoming a lot more expensive.  Very very bad news for mortgages, and therefore house prices.