Credit deflation and the reflation cycle to come (part 2)

[Bobthebuilder]

7 minutes ago, sancho panza said:

As an example when I brought my current house in 2010 I went to see loads of local agents, most were idiots but a few seemed decent. I treated them with respect and was clear what I was looking for

That is what i found. Its a good idea to have a mortgage in principle letter from your bank showing your deposit and agreed mortgage amount and show this to the agent on viewing. I am talking probate type properties here not general market.

With the potential inflation DB has just written about, i am at a loss to think what might be best going forward if you are looking to buy a home at the moment. I like DBs sons set up, its a good hedge.

[JMD]

1 hour ago, AWW said:

It won't be long before we see stories in the papers along the lines of "I didn't realise that taking a mortgage holiday meant my term would be extended / my payments increased".

I think this ends with a small debt jubilee for mortgage holders.

Aren't t 'Debt Jubilees' so last century/millennium!

...Why not instead treat all private debtors similarly and fairly - not to mention equitably (the new catchword). So, just like those fines levied in the small-claims courts, or on those charged with benefit fraud, lets just settle for £2/week extra for the next 60 years. (repayments can increase when able, except we all know that they never will)

[Talking Monkey]

1 hour ago, DurhamBorn said:

Just road mapping todays borrowing figures  and projected over a year i think the inflation the printing will cause and the affect down the road is 16% nominal off house price (just government borrowing).In affect £470 billion is going to be moved from housing equity to government.

I cant see any way the government can continue the massive welfare spending long term without a massive increase in inflation and wealth transfer.

The inflation road map keeps moving higher across the cycle and is now showing a top out in 28/30 of 26%.Thats maximum,but expected has moved up to 13%+

The UK is in clown world economics.Inflation assets are going to be critical to protect wealth.The more you road map the numbers and the response its becoming pretty clear housing equity and pension wealth in bonds and a lot of stocks is going to pay for this.The only assets that will come out in front will be ones who can leverage the inflation and pass it on before everyone else.

People 50 who were expecting equity release in 10 years and pension drawdown from their lifestyle type funds are going to be destroyed this cycle.

Clown world has arrived.

 

DB you've mentioned previously that the QE being done over the next 18 months is the last time that it can be done. With the lockdown and the government covering consumption does the fact a large portion of new QE will go to cover consumption mean less for infra spending and in turn the reflation cycle evolving differently than you would have anticipated say a year ago.

[Loki]

4 minutes ago, Talking Monkey said:

DB you've mentioned previously that the QE being done over the next 18 months is the last time that it can be done. With the lockdown and the government covering consumption does the fact a large portion of new QE will go to cover consumption mean less for infra spending and in turn the reflation cycle evolving differently than you would have anticipated say a year ago.

That's an excellent question 

[AWW]

31 minutes ago, Castlevania said:

Or use a buying agent. 

Used one last year, although we didn't end up buying anything. We told him we weren't in a rush, what we were looking for and our budget.  He said it would be tight, the market is turning and only buy something you absolutely love in a market like this one. He also used potential rental yield as a measure of value, which is more sophisticated than the usual "one down the road sold for x, therefore this one is worth x plus 10%" method used by EAs. The phrase that sticks with me is, "If someone outbids you, it just means they love it more than you do". Many of the places we considered are still on the market a year later; some are reduced.

That's the difference between a buying agent and a selling agent. They are paid to advise you and work in your best interests.

[CVG]

33 minutes ago, AWW said:

Used one last year, although we didn't end up buying anything. We told him we weren't in a rush, what we were looking for and our budget.  He said it would be tight, the market is turning and only buy something you absolutely love in a market like this one. He also used potential rental yield as a measure of value, which is more sophisticated than the usual "one down the road sold for x, therefore this one is worth x plus 10%" method used by EAs. The phrase that sticks with me is, "If someone outbids you, it just means they love it more than you do". Many of the places we considered are still on the market a year later; some are reduced.

That's the difference between a buying agent and a selling agent. They are paid to advise you and work in your best interests.

If you don't mind saying, out of interest, how much did that service cost?

[AWW]

8 minutes ago, CVG said:

If you don't mind saying, out of interest, how much did that service cost?

As we didn't end up going down the road of purchasing anything, he only charged £100.  I think if we'd ended up having our hands held all the way through to completion, it was about £500, which I would consider money well spent when spending huge sums in a market that one has little experience of. You can spend a lot more if you want someone to actually search and shortlist properties for you, and deal with EAs on your behalf.

[JMD]

3 hours ago, Alifelessbinary said:

Of course an EA isn’t going to turn down a ‘finders fee’ over rapport built up with a man from the street, but you can build Improve your place in the queue. There is a healthy disdained for EA’s on this thread but you can’t carry that through with your interacts. You still need to know your market and be clear on your maximum bid, but in a sticky market it might take months for the vendor to finally face reality and come back.

As an example when I brought my current house in 2010 I went to see loads of local agents, most were idiots but a few seemed decent. I treated them with respect and was clear what I was looking for,. After a few weeks I started to receive probate and development opportunities. While it was clear these had been turned down by developers, they were still great opportunities. I never saw them come online. 

In a strong market you won’t get a sniff at these opportunities, but in a downturn things change. Just because a developer turns down an opportunity doesn’t mean it is a bad deal.

EAs responsibility is with the vendor and their fee is linked with the sale price so you’re naive if you think they are going to sell less through rapport. Rapport however can open up opportunities and that’s something most people Miss as they lack experience. 

Its an interesting discussion. I'm as cynical as many others here, however I think it should be pointed out that EA's work in sales(!), therefore it follows that there are far too many moral hazard pot-holes for them to fall down.  

A friend once said to me - that regardless of the actual job (whether it be doctor, builder, 'social media mogul'!) - in terms of the individual's approach to their job/decisions and moral judgement calls they make when performing their work - the fundamental difference between so-called (trusted) 'professionals' and (untrustworthy) 'cowboys'... is that when faced with a difficult decision: professionals will usually and vociferously argue amongst themselves if there is any doubt about which path is in their clients best interest; whereas 'cowboys' are just in race-to-the-bottom mode, and will merely favour the option that lets them break for lunch early!!! (apologies to those who read to end, no great moral lesson here!)      

Anyway I guess my personal thinking is that human behaviour is overwhelmingly driven by (human) character (mostly positive) and (systemic/capitalist?) moral hazards (good and bad)... therefore I do fear for the future, so perhaps last words best left to the immortal words of Hill Street Blues, Michael Conrad - 'Let's be careful out there'. 

[JMD]

3 hours ago, DurhamBorn said:

Just road mapping todays borrowing figures  and projected over a year i think the inflation the printing will cause and the affect down the road is 16% nominal off house price (just government borrowing).In affect £470 billion is going to be moved from housing equity to government.

I cant see any way the government can continue the massive welfare spending long term without a massive increase in inflation and wealth transfer.

The inflation road map keeps moving higher across the cycle and is now showing a top out in 28/30 of 26%.Thats maximum,but expected has moved up to 13%+

The UK is in clown world economics.Inflation assets are going to be critical to protect wealth.The more you road map the numbers and the response its becoming pretty clear housing equity and pension wealth in bonds and a lot of stocks is going to pay for this.The only assets that will come out in front will be ones who can leverage the inflation and pass it on before everyone else.

People 50 who were expecting equity release in 10 years and pension drawdown from their lifestyle type funds are going to be destroyed this cycle.

DB, can you comment more about the 'wealth transfer' part? Have you some ideas on the type of policies, etc.

I think pension taxes have been mentioned before. And i suppose residential house equity will eventually be taxed? (i.e. social care costs will be 'capped' in order to 'win gullible votes', but it will just be paid for by other found means)  

I guess it will be the 'easy to reach' assets that will be stolen first. So for example it would be a good idea to move money from a sipp (using tax free sum) and into isa's, because pension wealth is so massive (compared to total isa wealth, actually its quiet a stark difference) it will surely be too irresistible for government not to go after (again, again, again).

[DurhamBorn]

2 hours ago, Sugarlips said:

Thanks for this DB, as far as I can see, the only time inflation has run up like that was ‘72 - ‘82, source: 

https://www.macrotrends.net/countries/GBR/united-kingdom/inflation-rate-cpi

I’m too young to remember that however I do know my parents bought a 2 up 2 down in Botley, Oxford for circa £600 in 1972 and sold it is 1979 for £18,000.

I appreciate history only rhymes but is there not the possibility that lower end but quality freehold housing stock will weather the storm better than the roadmap (which presumably has a catchall formula  for the whole housing market)?

Yes there is,and i admit i do very very little work on house prices because they dont affect me.The only work i do is more low level and out of interest,plus the fact i promised my partner a holiday home on the coast if silver hits a certain level .

The difference with the 70s though is house prices are starting from a much higher level,and we started the 70s as an industrial waged country,so wages grew with the inflation.We arent in that position now.Rates are going to increase faster than wages mid cycle,a 4% SVR might be a 33% increase where wages go up 7%,the next year at 6% is another 50% increase where wages go up 8% etc.Its servicing the debts that will be the problem.

[Talking Monkey]

1 minute ago, DurhamBorn said:

Yes there is,and i admit i do very very little work on house prices because they dont affect me.The only work i do is more low level and out of interest,plus the fact i promised my partner a holiday home on the coast if silver hits a certain level .

The difference with the 70s though is house prices are starting from a much higher level,and we started the 70s as an industrial waged country,so wages grew with the inflation.We arent in that position now.Rates are going to increase faster than wages mid cycle,a 4% SVR might be a 33% increase where wages go up 7%,the next year at 6% is another 50% increase where wages go up 8% etc.Its servicing the debts that will be the problem.

I've thought about the wage inflation a lot and beyond the minimum wage moving up I can't see huge increases on the higher tiers. Automation and tech along with offshoring (I still expect it to continue) will suppress wage inflation. I can't see the white collar worker on say 35K having his wages keep up anywhere near the rate of inflation

[JMD]

2 hours ago, sancho panza said:

Meanwhile one for @Harley s woodshed

 

SP how/where/why did you find that? Damn you (not really) I can't now not unsee it!?

It certainly does make depressing viewing, maybe even inspiration for Wes Craven's next 'nightmare on elm street' film... but surely mainly it is just crammed full of that moral-hazard I was speaking about? i.e. aren't most bubbles aided/abetted by easy lending? 

However, I still agree it can still be taken out to the woodshed for special attention!

[DurhamBorn]

1 hour ago, Talking Monkey said:

DB you've mentioned previously that the QE being done over the next 18 months is the last time that it can be done. With the lockdown and the government covering consumption does the fact a large portion of new QE will go to cover consumption mean less for infra spending and in turn the reflation cycle evolving differently than you would have anticipated say a year ago.

No,i think it will be on top,i think we might get £800 billion now,and remember its not just us,its everyone.China and the US are entering a cold war,massive spending,and other blocks will need to keep up.The aussies will be wanting plenty of submarines etc.A lot of the liquidity from CBs is being monetized for current spending,but a lot is still going through the capital markets.Its also not just governments spending.A simple one is the likes of BT.Government allow them to make x amount more return on building out fiber etc,they will invest.Lots will be driven by government policy,not just money.Likely they seed a lot.Most of the inflation will come when the bond markets start to rotate into assets.That will be the big story of the cycle once it gets going.

[DurhamBorn]

26 minutes ago, JMD said:

DB, can you comment more about the 'wealth transfer' part? Have you some ideas on the type of policies, etc.

I think pension taxes have been mentioned before. And i suppose residential house equity will eventually be taxed? (i.e. social care costs will be 'capped' in order to 'win gullible votes', but it has to be paid for by other means)  

I guess it will be the 'easy to reach' assets that will be stolen first. So for example it would be a good idea to move money from a sipp (using tax free sum) and into isa's, because pension wealth is so massive (compared to total isa wealth, actually its quiet a stark difference) it will surely be too irresistible for government not to go after (again, again, again).

Simply inflation.Printing will force up prices and to pay for that extra cost the capital cost of houses will fall.Governments will use inflation mostly.Merging income tax and NI will likey be the main assault on earnings as that gets pensioners on larger incomes mostly (hence why pension income at 12.5k and the rest in ISAs will matter)

[DurhamBorn]

“Project Defend”: major UK government review looks to end strategic dependencies. The Times reports that “Boris Johnson has ordered civil servants to draw up plans codenamed Project Defend to end Britain’s reliance on China for vital medical supplies and other strategic imports in light of the coronavirus crisis.” The initiative, led by Dominic Raab, the foreign secretary, could lead to the government intervening to support the “repatriation” of key manufacturing capabilities such as pharmaceuticals as part of a new national resilience framework.

https://www.thetimes.co.uk/edition/news/boris-johnson-wants-self-sufficiency-to-end-reliance-on-chinese-imports-bmlxnl8jl

[JMD]

18 minutes ago, DurhamBorn said:

“Project Defend”: major UK government review looks to end strategic dependencies. The Times reports that “Boris Johnson has ordered civil servants to draw up plans codenamed Project Defend to end Britain’s reliance on China for vital medical supplies and other strategic imports in light of the coronavirus crisis.” The initiative, led by Dominic Raab, the foreign secretary, could lead to the government intervening to support the “repatriation” of key manufacturing capabilities such as pharmaceuticals as part of a new national resilience framework.

https://www.thetimes.co.uk/edition/news/boris-johnson-wants-self-sufficiency-to-end-reliance-on-chinese-imports-bmlxnl8jl

UK strategic dependency review is a big story. Australia begun doing this a while back. Taiwan recently stopped supplying Hauwai.  

I wonder how China will react to all this 'divestment' and onshoring ('industrial homebrewing'?, though I do hope for us in the UK it amounts to much much more). Might China go on a charm offensive for next couple years, before that is ColdWar11 begins proper?

I must add that I really admire those young Hong Kong Chinese, after all they are intelligent realists and know exactly what's coming there way. Yet still they attempt to challenge mainland China.

[Talking Monkey]

14 minutes ago, JMD said:

UK strategic dependency review is a big story. Australia begun doing this a while back. Taiwan recently stopped supplying Hauwai.  

I wonder how China will react to all this 'divestment' and onshoring ('industrial homebrewing'?, though I do hope for us in the UK it amounts to much much more). Might China go on a charm offensive for next couple years, before that is ColdWar11 begins proper?

I must add that I really admire those young Hong Kong Chinese, after all they are intelligent realists and know exactly what's coming there way. Yet still they attempt to challenge mainland China.

If China is going to implode I guess it will happen in the next 10 years, I hope it does. Would be shit growing old under world domination by China

[Harley]

3 hours ago, Eventually Right said:

It's the 3 year anniversary of the original thread starting on ToS today-thanks for starting it back in 2017 DB, it's been a hell of a ride so far!

Yes, but when are we going to make money!

[Loki]

Just now, Harley said:

Yes, but when are we going to make money!

Laying the foundations!

[Harley]

2 hours ago, JMD said:

Harley, I like (investment) formulas, purely as a guide of course... after all they can always be 'made to fit' if they don't look right! (or is that just me?!)

But have you modified your thinking on how to achieve a total return? I may be misremembering, but I thought you previously said something along the lines of achieving a total return for a sector (I believe you breakdown many sectors), by selecting 2 'good' (value, reflation) stocks and 2 'good' smart beta etfs/funds (sorry, paraphrasing you).

OK, FWIW and apologies, but one of those posts to help clarify my mind and spur me on to do it a bit more!

I loved ETFs when they first came out.  Way before they became so popular.  So much better for me than the funds, etc.  I traded them quite well (trading sectors) too.  I then got serious about investing/personal finance so set up a floor (SIPP based permanent portfolio) and an upside fund (ISA income).  Both were ETF based.  Then along came the KID nonsense, the relatively poor performance of the income ETFs , and increasing concerns on the unique risks of ETFs (spurred on by one failure).  So I've been moving away from ETFs but still have some and will probably always do so in my SIPP (using a conservative provider who does not lend securities).  My approach to the equity section of my SIPP now is to select target industries on the basis of macro trends (as often discussed here) and identify, through fundamental analysis, the top best three companies in each sector.  These companies have to deliver at least the average dividend of the top 15 or so companies in the sector, but other factors are also important such as debt levels and cash flows.  I use technical analysis to time the purchases.  So this is more of a total return focus.  My income portfolios (I manage a few) are 100% FTSE100/250 high div companies and are down badly.  They also contain companies likely/are cutting dividends under as much political pressure as anything else.  My mistake was to look for so many companies in a relatively small pool so ended up going into sectors I really did not like and should not have done.  I'm now looking at going more global with new ISA cash to provide a geo spread of those sectors I like and hopefully into countries with less pressure to cut the divs.  This will hopefully also enable me to hedge future sterling falls.   

[reformed nice guy]

15 hours ago, DurhamBorn said:

Has anyone ever bought on Hargreaves on the phone for stocks they dont quote for online?

I went to buy Nexa Resources tonight,but not available on the platform yet its quoted on the NYSE.A very big zinc producer that should have a bull run in reflation,but also throws of 6 million oz of silver a year.

I have bought a few on the phone. It is quite straight forward but there is a 1% charge but its £20 minimum, £50 maximum.

[spygirl]

1 hour ago, DurhamBorn said:

“Project Defend”: major UK government review looks to end strategic dependencies. The Times reports that “Boris Johnson has ordered civil servants to draw up plans codenamed Project Defend to end Britain’s reliance on China for vital medical supplies and other strategic imports in light of the coronavirus crisis.” The initiative, led by Dominic Raab, the foreign secretary, could lead to the government intervening to support the “repatriation” of key manufacturing capabilities such as pharmaceuticals as part of a new national resilience framework.

https://www.thetimes.co.uk/edition/news/boris-johnson-wants-self-sufficiency-to-end-reliance-on-chinese-imports-bmlxnl8jl

Note it doesnt say - Non UK suppliers. Just China.

 

 

[BearyBear]

https://www.cnbc.com/2020/05/22/imf-says-banks-will-struggle-to-be-profitable-through-2025.html

KEY POINTS

• In a new report Friday, the IMF said banks across nine advanced economies will struggle to generate profits through 2025.
• Banks’ earnings have already been hit hard by the economic shock of the coronavirus pandemic.
• The IMF said the economic downturn will “test banks’ resilience” as they face loan losses and tighter margins from low interest rates.

[Harley]

3 hours ago, DurhamBorn said:

“Project Defend”: major UK government review looks to end strategic dependencies. The Times reports that “Boris Johnson has ordered civil servants to draw up plans....

Good luck.  They're going to have to fight some powerful paid for vested interests in the Establishment.

[AWW]

2 minutes ago, Harley said:

Good luck.  They're going to have to fight some powerful paid for vested interests in the Establishment.

Cummings does seem to be up for that scrap.