BearingUp

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  1. Agree
    BearingUp reacted to DurhamBorn in Credit deflation and the reflation cycle to come (part 2)   
    On the politics,the thing to remember is they follow the cycle,they dont drive it,they are a lag on the macro.Governments splash the cash on investment when they fear unemployment,not before.BOE wont he handing the governments a penny once inflation gets over 5%.(apart from their profits)
    Amercians all losing their jobs because of deflation from China is causing the new cold war.Trump didnt cause the deflation,but he was elected because of it,even though 99.9% of the people voting had no idea "why" they voted the way they did.Brexit the same (with tax credits pushing the vote over the line by sucking in Eastern Europe),
    The issue over the next few years is unemployment and deficits,governments have a window to print,monetize,spend.The 70s inflation really got going because political parties feared unemployment more than inflation,we are there again,just its even more pronounced as they have zero fear of inflation,and actually want some as they are thinking they can control it later.Politicians would put another Arthur Burns in charge of the CBs if they could right now.In 2028 they will be digging up Volcker.
  2. Agree
    BearingUp reacted to DurhamBorn in Credit deflation and the reflation cycle to come.   
    Most of my biggest mistakes have been selling,not buying.In the tech boom i sold a company i doubled my money on,within a week my friend phoned me at work with the words you lucky bastard have you seen Staffware.They had gone from £5 to about £45.I felt sick.Selling a week early cost me about £60k.Rolls Royce bought at 80p and sold at £1.40,only to go over £10,Whitbread bought at about £5 and sold half my stake at £8 (kept the rest until last year).
    What iv learned since starting investing at 14 is step back and be patient.Before you understand a company,understand a cycle.Where are we?,more ,where are we going?.Politics and macro conditions go in cycles.The irony is,the longer a cycle lasts,the more people expect it to last,to the point most dont even consider it a cycle.This dis-inflation has been long,very long.1982.People now dont even consider that because they see the ups and downs along the way.They tend to base their thoughts on when the markets go down as a change,it isnt.
    A western market economy doesnt go under,it changes.The last cycle (that is ending right now before our eyes) favoured consumption over investment.Asset companies were not rewarded for investing.They invested to survive.Consumption companies were rewarded.They found a cheap source of products in China and started with 140% margins.Those margins are now about 10% and falling and anyone indebted high is probably already in negative cashflow.People bought houses instead of investing in other real assets and thought themselves experts as houses increased due to rates falling.That will rewind as rates go to new highs in the next cycle.What is old becomes new again.The people buying now on high leverage are making a life changing mistake.Massive interest payments ahead,or they go under and cant buy again.People in their 50s who think houses are pensions are in for a massive shock.There will be no equity release soon outside of maybe the top 10% of houses/values.
    We are at a key inflection point and for myself i think it might be the first of two more i will see if i live to an average age.Debt is going to create so much financial dislocation that very few will be able to take advantage of whats ahead,and even less will understand the cycle coming.
    Asset companies who have managed to stay profitable at the end of this cycle will be huge gainers in the next.Inflation is going to flow direct to their free cash flow and eat away their debts (as long as they have a good maturity profile).Buying is tricky and a stair case is always the best option,but selling for me is probably 7 years+ away.There will be some mistakes along the way of course,some big ones,but i fully expect most people on this thread will come out well ahead of the herd and the general population.If not then its all here in this thread for people to say how wrong we were.Interesting times.