Friday, October 26, 2012

Short Debt Long Pay-As-You-Go

borro © fintag

News comments:
History is littered with debt induced booms and busts. Today's lack of debt is breeding a new pay as you go never own anything lifestyle.

For the last few years, low earners have gobbled up debt for the purposes of living a lifestyle they do not deserve. This retail market has enriched banks, brokers and loan sharks alike.

Corporates have levered themselves up for "investment seeking" purposes whereas in fact they were paying staff bonuses (banks especially).

The credit crunch is exposing creditors (Santander et al) and the regulators are making it worse. Liberals don't like bankruptcy so they have crushed yields to nothing and bizarrely when credit is so much in demand made it harder for the lenders to lend. Banks have to hold more capital and are now being told not to lend. People have gotten used to low rates such that a 1% hike will cause untold bankruptcy.

With the shocking bottom feeding off the vulnerable, it is only going to get worse when credit cards and overdrafts are withdrawn and the FSA kills off home ownership for 99% of the younger generation. Apparently only those earning (as certified by an accountant) GBP300k will be able to enjoy a mortgage whilst the rest will have to rent. Sofa surfing is no longer a temporary lifestyle for some; it is now the only lifestyle.

Long accountants, equity rich landlords, and

Many believe there is a global conspiracy to implement the Chicago Plan (the one where banks are no longer allowed to create money but governments are) and it is quite likely this is where we will end up unless someone spoils the funeral. No credit means snail like progress (in 1820 China was one of the poorest countries in the world) and most of us can't wait that long. So where will the new credit come from? Asia.

It is unlikely we shall see a time where a 23 year old graduate starting at Allen & Overtired is on GBP300k so to start a family she will have to encourage her parents to downsize from their house (and why not as they will never pay off their interest only mortgage and with the Clegg wealth tax stripping them of their pension it makes sense to live in a bedsit once again). (telegraph)

What is likely though is a Hong Kong bank offering no restriction mortgages to UK citizens such as a young lawyers with prospects and income. The demand will be huge and the risk will make sense (low rates, young people, time on their side).

Just like the Icelandic banks in the 2000s ripped apart the credit paradigm, Hong Kong banks will do the same. And India. And maybe Brazil too.

Asia is dependent on the West and needs its demand. Asian banks giving cash to consumers in the west who buy Chinese goods is a win win.

You thought the last credit bubble was big. The next one will be a tsunami. Its just that we may all be dead when it arrives.

Today's shorts:
California debt (bloomberg)

South Africa Police (bloomberg)

Greece (reuters)

Today's longs:
Greece lying continues (reuters)

Debtors prison to be created in the Shard.


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