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

[Boon]

One thing about tulips v housing is that at least with housing if you make a bad purchase you have the option of staying put until the currency depreciates enough so you can get out.

So that to me provides some kind of barrier against housing crashing under its own weight, it would require additional factors such as increased interest rates and unemployment.

It does seem to me that the average person in the UK has 90%+ of their wealth associated with their property, either by equity or having a house but no savings. This may be the same for other countries as well. So a massive crash could still be on as the elites that may gain would be much more diversified.

[HousePriceMania]

[wherebee]

30 minutes ago, Boon said:

One thing about tulips v housing is that at least with housing if you make a bad purchase you have the option of staying put until the currency depreciates enough so you can get out.

So that to me provides some kind of barrier against housing crashing under its own weight, it would require additional factors such as increased interest rates and unemployment.

It does seem to me that the average person in the UK has 90%+ of their wealth associated with their property, either by equity or having a house but no savings. This may be the same for other countries as well. So a massive crash could still be on as the elites that may gain would be much more diversified.

a huge house price crash/deflation is not a problem if you are not leveraged.

if you are leveraged with debt you can't service, you are fucked.

 

[sancho panza]

 

18 minutes ago, HousePriceMania said:

I have to ask....

does anyone think there will be any sort of deflation or BIG KAHUNA now or are the people in the know just piling into any old asset they can get their hands on ?

I think you have to be careful with the notion that hosue prices are rising.there are caveats.I've made the following point before so sorry if I'm boring on.

Basically,at the moment,we have an equity swapping market where people who are well off are swapping houses.The bottom end is really struggling.

See below,data for LE2 sales up to feb(virtually 100% of all registrations will have occurred by now).It's a psotcode with 44,000 hosueholds,likely 15,000 -20,000 terraces.Look at the volumes in terraces....some recent months,you've had as many detached selling as terraces.

The simple reason that hosue prices are rising is that they're not mix adjsuting the figures adequately.Volume is anaemic.

These are illiquid markets and the pricing isn't likely that representative of where reality is.

longer term context:

8 minutes ago, Boon said:

One thing about tulips v housing is that at least with housing if you make a bad purchase you have the option of staying put until the currency depreciates enough so you can get out.

So that to me provides some kind of barrier against housing crashing under its own weight, it would require additional factors such as increased interest rates and unemployment.

It does seem to me that the average person in the UK has 90%+ of their wealth associated with their property, either by equity or having a house but no savings. This may be the same for other countries as well. So a massive crash could still be on as the elites that may gain would be much more diversified.

sort of true if you don't need to work as long as your income can cover the costs of carry.

Otherwise you need to let it out-associated costs and hassle-and hope the net rental income covers the mortgage costs.

average person does have the bulk of their savings in property,the problem is that they can't all get out of the exit at the same time.In fact very few likely will if they need to sell in market where there aren't many buyers.

UK property has all the hall markets of a huge ponzi scheme.Didier Sornette was writing that in 2003/4 and 17 years latert,there's even more people stacked on one side of the trade.It won't end well.

5 minutes ago, wherebee said:

a huge house price crash/deflation is not a problem if you are not leveraged.

if you are leveraged with debt you can't service, you are fucked.

 

beautifully placed in a nutshell there WB

[sancho panza]

Just psoting some thoughts on where we are.Thniking about signals the hot moeny sectors send.

XLK Tech Sector ETF peaked in Mar 2000,big drops began in Sep 2000.XLK currently showing no signs of weakness on the monthlies same as SOXX/SMH/QQQ.The bubble being in Tech right now in terms of stocks.Property more fundamentally in terms of leverage per capita population.

 

dyor natch

XLF(financial sector ETF) peaked in May 07,big drops began

QQQtech Sector ETF

 

[sancho panza]

Looking at real Estate,depsite all the canaries dropping in teh CRE coal mine,they're holding up well.

Extend and pretend working well it seems.

DYor natch

ETF holdigns here

https://etfdb.com/etf/XLRE/#holdings

https://wolfstreet.com/2021/06/14/third-publicly-traded-mall-reit-files-for-bankruptcy-in-8-months-washington-prime-group-the-simon-property-spinoff/

The brick-and-mortar meltdown for mall landlord started years before the Pandemic. For WPG, it started in 2016.

By Wolf Richter for WOLF STREET.

Washington Prime Group and certain of its subsidiaries filed for Chapter 11 bankruptcy protection on Sunday, the third publicly-traded mall landlord in the US to file for bankruptcy in eight months, following the bankruptcy filings of CBL & Associates Properties and Pennsylvania Real Estate Investment Trust in November 2020.

The bankruptcy filing had long been in the cards. The company, in its announcement, blames the Pandemic, but the difficulties of the Pandemic just pushed the REIT, which had already been teetering, off the cliff.

Back in May 2014, when Simon Property Group [SPG], the largest mall REIT in the US, spun off Washington Prime Group, its shares [WPG] were initially trading in the $190 range, and for the suckers that bought them early and held on to them, it has been one heck of a punishment, as those shares have relentlessly dropped, interrupted only by false-hope sucker rallies. By February 2020, before the Pandemic plunge began, the shares were trading in the $25 range, down 87% from their early days. Now they’re down about 98% (data via YCharts):

In terms of revenues, the year 2015, the first full year as independent company, was the peak year, at $922 million. Revenues then declined every year. By 2019, they’d dropped by 29% to $656 million. In 2020, they plunged another 25% to $491 million.

 

[jamtomorrow]

Per recent discussions on the rise (or not) of China, this cracking thread on the Credit Suisse global wealth report:

And this chart is my favourite from the thread:

[Castlevania]

1 hour ago, HousePriceMania said:

 

 

I have to ask....

does anyone think there will be any sort of deflation or BIG KAHUNA now or are the people in the know just piling into any old asset they can get their hands on ?

 

 

In the Netherlands you have negative interest rates on balances above a couple hundred thousand euro, plus a wealth tax of ~1.5% per annum. So if you have a reasonable amount of money in the bank you’re down 2% a year. Any yield will do. So the money has been flowing into housing, which also reinforces the speculative mania. Northern Europe has definitely caught the Anglo Saxon property disease.

[sancho panza]

On 22/06/2021 at 10:11, Cattle Prod said:

Fact of the day: Gold went up 40% after the S&P peaked in Oct 07.

Oil looks like it needs a cool off, I think. I said that the perception of tight supply would creep into the mainstream narrative, and that's happened now. I see calls for $100 oil from the same banks that were shorting it at $35. Paper market is too far ahead of the physical at the moment, I think. I don't think it's done yet, but a nice correction here would be healthy, get rid of the johnny come latelys.

DYOR

It's interesting to hear you say that.

I saw last friday,that the oilies dropped heavily and Brent didn't follow,which has been my measure of late.If we weren't already loaded with call options to our risk level,I'd have had a few more over the weekend which I'd be selling today.

I jsut can't figure this oil market out because with Brent at $74 the big oilies should be higher.like you say it's most likely paper running ahead of physical.Below is teh latest EIA figuresshowing a steady drop since last year but doesn't seem unduly large in the cirucmstances.

your prediction on US shale drop was pretty much spot on from last year iirc.

the trend in oil stocks is defnitely down and is it right to read into the third chart that it represents US demand rising but not massively so?

I'd imagine teh return of PCR test free flights will see aero demand rocket

https://www.eia.gov/petroleum/weekly/crude.php

[sancho panza]

23 minutes ago, Cattle Prod said:

Secular bull market in oil and gas in one chart:

In other words, capex has not responded to price since 2016. I saw the gap widening in 2018 which is I think when I started posting about it on here. It is simply staggering that not along did capex not respond, it actually took another leg down due to Covid. As we've said, supply problems are now baked in. We have now used up the last of the projects invested in the pre-2015 period (e.g. Guyana and Johan Sverdrup), and if we suddenly started investing tomorrow, and found some new ones, it would take 4-7 years to get them up and running. OPEC knows this of course, they have been playing the long game fairly patiently (MbS hissy fits aside), while large listed oil companies have set about castrating themselves. 

Enjoy the run.

Thanks for psoting there CP.You were psoting this as I was asking questions.

that chart is staggering.Likely a mirror of what happened to gold during the post 2011 bear,where capital starvation baked in future price risis.

Just incredivbel to see that capex drop from 2014...............this environment likely favours the big oilies that have kept running as big oil eg XOM,are there any others that have kept runnign as oil companies-ENI?Total?

makes BP hiving off it's explroation look like an awful msitake.

[Harley]

On 17/06/2021 at 15:43, JMD said:

Harley, i tried to take a look at that Morning Star aged long term debt balance, but couldn't find it on their site - i guess you need to be a subscriber to see all of their data/maybe they have now moved this data into their subscription service? If however you can still see this data, would it be possible for you to post a link to it to help me locate where it lives? 

Sorry for the delay.

Try this as an example: https://www.morningstar.com/stocks/xnys/apd/financials then click on "Balance Sheet" and then scroll down to the "Debt Maturity Schedule".

[reformed nice guy]

3 hours ago, sancho panza said:

Looking at real Estate,depsite all the canaries dropping in teh CRE coal mine,they're holding up well.

Extend and pretend working well it seems.

Maybe the larger real estate ETFs are being boosted by their holdings of warehouses. From talking to some people I know that use warehouses, even the cheap and poorly connected ones are going up in price

[leonardratso]

hmm whats changed since the update

 

[janch]

I am now the proud owner of a (very) few shares in a coal miner...Thungela Resources courtesy of Anglo American and so far they are climbing nicely. 

Considering the likely imminent shortfall in oil supplies,  I may even buy a few more.  I expect others are thinking the same as even with the price rise it would still cost me more than they are worth to sell them

DYOR

[Loki]

20 minutes ago, janch said:

I am now the proud owner of a (very) few shares in a coal miner...Thungela Resources courtesy of Anglo American and so far they are climbing nicely. 

Considering the likely imminent shortfall in oil supplies,  I may even buy a few more.

Same here 

[leonardratso]

2 hours ago, Loki said:

Same here 

i got 4 for free, didnt have much AAL, but i thought what the hell, i read a trader/ifa reckoned they were worthless, and on that advice i bought a shit ton at about £1.30. A soon as i hear an expert paid shill speak, i do exactly the opposite that they say.

[Loki]

4 minutes ago, leonardratso said:

i got 4 for free, didnt have much AAL, but i thought what the hell, i read a trader/ifa reckoned they were worthless, and on that advice i bought a shit ton at about £1.30. A soon as i hear an expert paid shill speak, i do exactly the opposite that they say.

I sold out of the Ninety One Enhanced Natural Resources fund as it's now Ninety One Global Environment and full of green energy crap (It'd gone up by 20% so not too bad.), and put some of into Thungela, and some into Gazprom. 

Peabody is on a mad one too. 
 

[leonardratso]

when i say shit ton, i obviously mean up to 22.00 great british pounds sterling.

[Loki]

Just now, leonardratso said:

when i say shit ton, i obviously mean up to 22.00 great british pounds sterling.

What are you paying for trading fees?

[leonardratso]

2 minutes ago, Loki said:

What are you paying for trading fees?

well varies.

zero on t212 - although i reckon they scrape it on the spread/order flow.

£1.50 per trade in lloyds on funds (all the time).

£1.50 per trade in lloyds on regular ordinary trades (up to 4 times a month i think i can do)

£11 on equity trades for first 8 trades in a quarter (i think)

£8 on equity trades after 8 trades in a quarter.

i tend not to use the last 2 too much, forced to on selling i suppose, but thats a long way off.

 

[leonardratso]

to be honest, the one thing i hardly ever look at and is currently running at +110% is fundsmith.

Im so glad ive been buying that for maybe a couple of years, and its basically the whole 'no list' here.

[leonardratso]

this is extemely slow to post on now

[No One]

Maybe time for a new thread?

@spunko part 3?

[sleepwello'nights]

On 20/06/2021 at 22:09, King of Fools said:

Thanks DB, good information. I’m currently working my notice, I’m effectively retiring at the end of July ( long story short, I had a bad dose of Covid  which turns out to have damaged my heart. I’m OK now, but It’s made me rethink my priorities). I expect  I’ll get sanctioned for 3 months, but I’m going to claim anyway. 

I'd be interested to hear how you coped with the infection and how it affected you. There are covid related threads that would benefit from a first hand account of your experiences. 

[sleepwello'nights]

On 21/06/2021 at 09:55, DurhamBorn said:

.BTL has been a huge cancer on our society,that and mass immigration is what has done most damage to our society.The worst part of BTL is that a very large part of it is council and government workers using their fat lump sums from taxpayer funded pensions to buy rentals.

 

Interesting that you dislike BTL but have mooted the idea of buying a couple of houses to rent. 

Pragmatism?