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


spunko

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7 hours ago, Barnsey said:

I would think not, the debt deflation is global and pretty much guaranteed now, Trump played a part in foolishly keeping things going with his tax cuts, if he allowed things to collapse he could have lay blame at the door of the previous administration AND had ample opportunity for a recovery into the 2020 election. Now it seems along with his trade war (necessary long term) that he's carved his own political coffin.

If the bust occurs at the very start of 2020, and is perceived to be a mix of Fed over tightening and foreign factors, Trump may just be able to have the time in which to see some resemblance of a recovery, but unfortunately by then so many Americans will have been utterly traumatised by the wealth and social destruction, that I think the Dems (Warren?) will sweep up.

I think we see dollar down short term, then up strongly in the bust, and then a gradual decline over several years. God knows where the £ will be by then (especially with recent events), the one prediction I simply cannot make as have seen so many others either avoid at all costs or folks get it so wrong.

I believe Schiff is probably referring to what we might see rather soon before the bust, remember he's of the belief we go straight to stagflation/hyper inflation and don't have a deflationary bust first (because that would put a heck of a dent in his various Gold businesses).

thanks Barnsey, to be honest I have trouble gauging the Schiff character, is he mostly super smooth snake-oil, or does he earnestly believe his own forecasts (rhetorical question). Yes he is a bit like a broken record, but I just keep getting the thought that he was spectacularly right 12 years ago... and a stopped clock and all....? 

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Schiff was as good as me on his market calls, and thats not saying very much. Very few people understood what QE was or the implications of it in 2008 and 2009,  I do not remember reading many commentators saying sell gold 2012, and get into residential property as this is were the money will flow. The best I have read is that guy on twitter David Hunter and our own Durham Born. At least they are nailing their opinions to the mast with a reasoned explanation behind their thought process.

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57 minutes ago, JMD said:

thanks Barnsey, to be honest I have trouble gauging the Schiff character, is he mostly super smooth snake-oil, or does he earnestly believe his own forecasts (rhetorical question). Yes he is a bit like a broken record, but I just keep getting the thought that he was spectacularly right 12 years ago... and a stopped clock and all....? 

I've got a huge amount of respect for him, and think he's ultimately right, but he's not great on detail and shorter term trends, he just keeps shouting about the eventual outcome. So yes, broken clock but ultimately right in the end. I'd possibly be able to take him more seriously if he wasn't in the gold business, but much of what he says is bang on. This is by far my favourite speech of his from 2006 just as US house prices started to tip downward, makes for great viewing and demonstrates his foresight, the guy has balls trolling 2000 mortgage bankers in the audience. The meaty housing stuff starts around the 28:00 mark:

 

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1 hour ago, kibuc said:

Fill your boots :)

Me being me,I'm sat here looking at the sea of red on XAU and thinking I'll give it another dayB|.Every time I've thought this thought over the last two months,it's rocketed back the next day.

But we are due a decent sell off.SAND/GUY/HOC/IAM/FRES all in the -5%+ club today.

 

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Just now, sancho panza said:

SAND/GUY/HOC/IAM/FRES all in the -5%+ club today.

SLP not far behind. I know a few people on here have mentioned they were waiting for a pullback on that one.

Yamana down 6%.

Agreed, don't know whether to wait until tomorrow. Would like GDX, GDXJ, SLP, HOC. Perhaps a small punt on Yamana.

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Dont try and catch a falling knife and all that Sancho. Pull the trigger get some skin in the game on silver especially as I will assume you are in it for the long haul. Look at the  big picture were silver potentially is going. £15 ounce. Thats cheap

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My silver/golds are down but not all one way traffic. Chesapeake Energy (CHK) up 7.5% today. Mosaic Co (MOS) also up over 6%.....

I'm in for the long haul on gold and silver and will continue to buy stocks and physical for the next 12 months or so. Order in for some more VAT free silver britannias today. 

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24 minutes ago, Agent ZigZag said:

Dont try and catch a falling knife and all that Sancho. Pull the trigger get some skin in the game on silver especially as I will assume you are in it for the long haul. Look at the  big picture were silver potentially is going. £15 ounce. Thats cheap

Agreed AZ.Already own a few batches of Fres averaged around the 720 mark.Any furhter purcahse will lift it's weighting ahead of Newmont/Barrick for us ie our biggest holding,but when it dropped to 800 the other week,we started to ladder in.Before then ,it had jsut been too expensive for me and not on my horizon.Had a small holding in HOC too .Problem is the US silver miners are already too high for what they are imho,althought we own Alexco.

 

I've done some research-have to be quick got to pick kids up-but basically,looking to time our exit from the PM's off both DXY and gold/silver ratio.I did some research the other day and each generational high in silver has been met by a bottom on the GS ratio.This peaked my interest in Ssilver and hence we've added.Sold some yaman/EGO/detour friday and looking to deploy that into the ones I lsited.

I'm obviously speaking to a kindred spirit but silver is beginnign to grip me more than the yellow stuff,it runs late but very hard.Have you got a selling strategy at all AZ?

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Sancho

 

I took about £10k profits (see post when I asked the forum their opinion) and redeployed them into yielding shares in my ISA. I am up a further £15k and will let them run towards yr end then take profits keeping my original outlay. If there is a big sell off then come next April 2020 I will acquire more in my ISA. I bought Alexco on Monday down 10% approx and bought more today. This is a short term trade as I am confident there is still alot of wind behind silver. As long as I make on profit on this trade I am happy

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Democorruptcy
6 hours ago, DurhamBorn said:

My recent re-flation stocks having a good day.Going to have to be very careful here though and stick to strict ladders.Easy to get sucked in to buying more into strength only for a smack down when the markets wake up to the fact the easy money coming is too late.

 

I thought RMG might have got a mention!

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5 hours ago, Agent ZigZag said:

Those figures are scary. If that is the case my gold and silver will return me a significant seven figure sum. Sounds alot today but if my council tax say runs to say £8,000PA and a loaf of bread is say a £5 then will I have only really stood still?

So in theory buy a fuck off house get a 15 year fix and let inflation weave its magic ..?  Or am I being silly,

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Democorruptcy
6 hours ago, sancho panza said:

And that DM is the question.

If it looks and smells like a dog poo sandwich,then it's a dog poo sandwich.

The problem (for those wanting to go short) is that lots of companies don't smell like dog poo because the gold coating created by the Ponziness of share buy backs by firms in debt, hides the odour. 

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Democorruptcy
2 hours ago, JMD said:

DM, I was aware of corporate share buy-back manipulation, but $10Bn for Starbucks in one year using borrowed money - wow, I mean wow!! Ok, perhaps shouldn't be surprised given the information and wisdom regularly contributed to this thread but these figures are truly the stuff of the Twilight-Zone. I'm assuming the loans were short duration ones (stupid ceo), and not 0.0005% 20 year sbux corporate bonds (clever ceo?).       

Another thing to consider about share buy backs is that executives secure bonuses based on the performance of their shares. In the UK lots of companies have a share comparator group in their Annual Report. These are supposed to made up of similar firms by market cap, type business etc. The executives can get huge bonuses if the performance of their shares just beats the comparator group, not the market overall i.e. the more 'dogs' they put in their share comparator group, the more money they make. I haven't bothered for ages but I used to compare Annual Reports to see which 'dogs' kept cropping up the most. I always thought Next did well at putting 'dogs' in theirs, so when the dogs go down it's more bubbly in the Next boardroom.

Just had a quick look who Next compare their share performance with in 2018 (page 85)
 

Quote

 

Performance measures

The    LTIP    performance    measures    are    detailed    on    page    90.    

The    companies    in    the    TSR    comparator    group    for    awards    granted    during    the    financial    year    are:  ASOS, B&M    European    Value    Retail,  Burberry,  Carpetright, Debenhams, Dixons,    Carphone,    Dunelm, Halfords, J    Sainsbury, JD Sports, Kingfisher, Marks    &    Spencer, Morrisons, Mothercare, N Brown, Pets    at    Home,    Superdry, Ted Baker, Tesco, W H  Smith 

 

 

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Bobthebuilder
43 minutes ago, stokiescum said:

So in theory buy a fuck off house get a 15 year fix and let inflation weave its magic ..?  Or am I being silly,

Inflation wont reduce the debt, you may make shit loads in either wage increases or investments over the 15 years though.

If you know for sure that you could pay it off over the fifteen years it might make sense, but if the house is only worth 50% what you paid for it 15 years ago then double whammy.

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Bricks & Mortar
1 hour ago, stokiescum said:

So in theory buy a fuck off house get a 15 year fix and let inflation weave its magic ..?  Or am I being silly,

Yes, I think that's silly.  We're expecting inflation.  But, just as a low inflation environment has been great for house prices over the last... nearly 4 decades - a high inflation environment is likely bad news for house prices.  People find their electric, council tax, petrol and food bills doubled, and they haven't got so much ability to borrow.  Add in banks that don't want to lend, and offer steadily increasing interest rates and...
Well, you could say the outlook isn't good for property speculators.

Oh!  and don't forget tradesmans rates probably double as well, so hope the roof doesn't need fixing or owt.

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Democorruptcy
21 minutes ago, Cattle Prod said:

I'm doing that @stokiescum except modest house and 10yr fix. But as bob points out you need to set something against it that will run with inflation. For me, its physical silver. My physical stash will currently pay off my mortgage balance at £87 an oz, which I will add to substantislly if silver gets sold off, and my £ per oz number will drop. I love knowing I'll have the same mortgage payment through all this craziness to come. I'd have taken a 15yr if they were available.

Any CGT to consider?

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20 minutes ago, Cattle Prod said:

An important point to discuss I think. Houses are, to me, a long term inflation hedge, because along with the repairs you mention, the bricks and mortar ;-) themselves along with all the other building materials also inflate. I agree you have to maintain it, but if you can do this sensibly (like replace you boiler now while its cheap and make sure your roof and windows are tip top) it won't stay below replacement cost for long.

I'd say that interest rates dropping for the last 40 years are more responsible for house price rises in a low inflation environment than anything else.

Absent that crutch, I'd say house prices naturally inflate at the cost of the materials to build one (assuming land prices are more or less static). A few % a year. Thoughts?

It's an interesting dilemma, I absolutely buy into the sideways theory after initial declines to come, losing their value in real terms just like the 1970s, but like you say, what's the timeframe? What happens to house prices at the end of the 2020's? What happens to rental prices until then?

The irony is that after commodities, REITs are the seen as the second (?) best inflation hedge, but i guess that's more the retail/commercial side?

Will we really not see wages keep up? Annual wage growth was above 10% for all of the 1970's, peaking at 29.4% (!) in 1975.

linechartimage.png.9a43a613141a50f0b5e5f4a9e86cd4c6.png

https://www.ons.gov.uk/economy/grossdomesticproductgdp/timeseries/kgq2/qna

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Bricks & Mortar
6 minutes ago, Cattle Prod said:

What circumstances caused employers to willingly hsnd out 10 or 20% payrises? I doubt it was for labour competition, but I don't know. Before my time.

In red-hot areas like construction, it was exactly labour competition that caused it.  Businesses were making good money from their contracts, as long as they could keep their workers on the books to carry them out.  (I wasn't there myself, but the period is remembered fondly by the older workers i've talked to).   Wasn't nearly as much union power in construction as other industries, even way back then.
Government workers would get what they're given, and that might be good wage rises when the government is intent on inflation.
The rest, the other employers, can try to keep up or lose workers.

This time round, for construction, the key, as far as I can see, is whether we're still in the EU.  I can't imagine we'll be able to increase wages the same, unless the workforce is limited.

 

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UnconventionalWisdom
45 minutes ago, Cattle Prod said:

Absent that crutch, I'd say house prices naturally inflate at the cost of the materials to build one (assuming land prices are more or less static). A few % a year. Thoughts?

My opinion is that you are somewhat right. It will go up as the cost of building houses from scratch goes up. 

But, if we have the situation where credit has been so easy, there isn't correct price discovery. This pushes the price well above fair value as people are happy to extend themselves, or worst leverage up, the cycle become self-fulfilling  with people continuously bidding the prices up even further. Eventually, there is the realisation that theres not enough credit for future gains and people sell to ensure they get a sale. This leads to further declines as everyone is worried the prices will continue to decline. This reduces the available credit and leverage, leading to further price reductions. 

This could go on for years. Ultimately, if prices hadn't got so out of whack, I would expect them to increase as home materials increase.  

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57 minutes ago, Cattle Prod said:

 

Absent that crutch, I'd say house prices naturally inflate at the cost of the materials to build one (assuming land prices are more or less static). A few % a year. Thoughts?

Houses always cost about the same -- all of your money, and then a little bit more.

The actual price you pay depends on the availability of credit, and interest rates (assuming you can get credit).

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10 minutes ago, Bricks & Mortar said:

This time round, for construction, the key, as far as I can see, is whether we're still in the EU.  I can't imagine we'll be able to increase wages the same, unless the workforce is limited.

Seems a limited workforce is already an issue, for which preparations are already underway. Time for that part-time brick laying course methinks :D

Investing in infrastructure is 'not enough', experts warn

Quote

Brian Berry, chief executive of the Federation of Master of Builders, also raised concerns about the sector's health and ability to deliver major programmes within its current constraints.

He said: “An upgrade of our infrastructure, including building new world-class schools and hospitals, will require a strong construction industry. The skills shortage is highly concerning in this respect, with just under two-thirds of builders struggling to hire bricklayers and more than half of builders struggling to hire carpenters.

“The announcement for an additional £400m to be pumped into further education is a welcome boost to giving colleges and employers the resources they need to train more apprentices, and make T Levels – which will become the vocational counterpart to A Levels – a success.”

https://www.building.co.uk/news/investing-in-infrastructure-is-not-enough-experts-warn/5101468.article

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Bricks & Mortar
59 minutes ago, Cattle Prod said:

I'd say house prices naturally inflate at the cost of the materials to build one (assuming land prices are more or less static).

Land prices are anything but static.  I'd say wildly elastic.  Land price is basicly selling price - labour, material and reasonable developer profit.  Been made considerably less elastic in recent years, by the invention of 'developer contribution' to the local authority.  But I'd just consider this contribution as part of the land price, since it is itself even more elastic than the land,

2 minutes ago, dgul said:

Houses always cost about the same -- all of your money, and then a little bit more

Yup.  and its the land price, inc developer contribution that fluctuates.

 

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Just now, Barnsey said:

Seems a limited workforce is already an issue, for which preparations are already underway, training locally. Time for that part-time brick laying course methinks :D

Investing in infrastructure is 'not enough', experts warn

https://www.building.co.uk/news/investing-in-infrastructure-is-not-enough-experts-warn/5101468.article

The problem is we still make houses like they did in 1900.  It is about time there was some proper innovation in the sector.

[I know, non-conventional construction / crappy fall-apart houses / etc -- the industry should just solve those problems.  To continue making houses (and other infrastructure) using labour-intensive methods is crazy]

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Bobthebuilder
2 minutes ago, Barnsey said:

Seems a limited workforce is already an issue, for which preparations are already underway. Time for that part-time brick laying course methinks :D

Investing in infrastructure is 'not enough', experts warn

https://www.building.co.uk/news/investing-in-infrastructure-is-not-enough-experts-warn/5101468.article

No shortage of unqualified workers on the domestic side.

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