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

[Talking Monkey]

7 hours ago, DurhamBorn said:

Yes,but the poorly diversified is most of the population.Leverage is the key like you say.The CBs responded to the macro situation by holding rates low and QE.It was for the governments to keep house prices down through other means,instead they decided to inflate the bubble even more.HTB alongside tax credits probably the worst political policies of the last 20 years.At best going forward people buying them in the last few years will have a long difficult grind ahead,and for a long time.

The BTL Landlords with their portfolios hopefully get disgorged of the properties they are hoarding

[Democorruptcy]

7 hours ago, Cattle Prod said:

Just to clarify my view on timings - I agree fully with @DurhamBorn that we will have a severe sell off before a secular bull. What Ive been talking about is tight supply (or the perception of it) causing a spike with will probanly trigger the stock market crash proper, an a big oil selloff. I was thinking this year or early next year, then planned to exit oil as soon as the dollar bottoms (like 2008). I suspect the market has been waiting for someting like the drone attacks to snap it out of a stupor.

So a black swan yes, potentiallyto trigger a price spike. But not the secular bull to 200 or 300. Yet.

What do you think about holding the large firms like RDSB? This news could push the price up making it a good time to sell, before a larger drop later and buy back in? Or just hold firm for the divis? 

[sleepwello'nights]

On ‎14‎/‎09‎/‎2019 at 15:12, DurhamBorn said:

 

Move north.

Its too fucking cold otherwise I'd already be there!

[Napoleon Dynamite]

8 hours ago, A_P said:

You may want to reconsider the fundamentals. You've taken a bet against the banks (10 year fix for your piece of mind?) but investing in one or two companies at a time. Some what of a contradiction it seems

Could you explain more? I'm interested, but don't fully understand.

Yes, the 10 year fix is piece of mind.  Can't remember the exact specifics but 5 year fix was 0.5% less, ~£60 a month difference in interest. So paying £3600 more for the first 5 years, and hoping to see a pay off in the latter 5 years.  Rates have dropped since and there's a lot of talk of negative interest rates. Not looking too good in the short term, but this thread's all about the long term, so we'll see.

A single company at £1200 is a fair percentage of my liquid/cash, but a fraction of a percent of total net worth (including managed DB pensions).  So in one way (liquid) I'm not diversified , but looking at the whole picture I think I am.

Other ideas on how to do thinks are welcome, I'm still working it out and starting off. Could maybe wait until I had £2400 and split it into 4 companies? But then fees become a higher percentage of overheads.

[Bobthebuilder]

31 minutes ago, Napoleon Dynamite said:

Could you explain more? I'm interested, but don't fully understand.

Yes, the 10 year fix is piece of mind.  Can't remember the exact specifics but 5 year fix was 0.5% less, ~£60 a month difference in interest. So paying £3600 more for the first 5 years, and hoping to see a pay off in the latter 5 years.  Rates have dropped since and there's a lot of talk of negative interest rates. Not looking too good in the short term, but this thread's all about the long term, so we'll see.

A single company at £1200 is a fair percentage of my liquid/cash, but a fraction of a percent of total net worth (including managed DB pensions).  So in one way (liquid) I'm not diversified , but looking at the whole picture I think I am.

Other ideas on how to do thinks are welcome, I'm still working it out and starting off. Could maybe wait until I had £2400 and split it into 4 companies? But then fees become a higher percentage of overheads.

You could look at a portfolio builder account, monthly regular investment charges £1 to £2 per trade depending on what account you have. Its a good way to get started.

[Harley]

2 hours ago, Democorruptcy said:

What do you think about holding the large firms like RDSB? This news could push the price up making it a good time to sell, before a larger drop later and buy back in? Or just hold firm for the divis? 

Question is why do you hold RDSB?  I hold it for its divs so won't be selling it, especially if people think it will go up, down and then up again.  I'm not trading (trying to time things) and if I was, there's far better than RDSB.  I never mix the two objectives.  Both valid but very different.

[Errol]

Goldman Goes "Lehman Weekend" On Oil: Expects Chaos When Trading Reopens

https://www.zerohedge.com/commodities/goldman-goes-lehman-weekend-oil-expects-chaos-when-trading-reopens

[A_P]

29 minutes ago, Napoleon Dynamite said:

Could you explain more? I'm interested, but don't fully understand.

Yes, the 10 year fix is piece of mind.  Can't remember the exact specifics but 5 year fix was 0.5% less, ~£60 a month difference in interest. So paying £3600 more for the first 5 years, and hoping to see a pay off in the latter 5 years.  Rates have dropped since and there's a lot of talk of negative interest rates. Not looking too good in the short term, but this thread's all about the long term, so we'll see.

A single company at £1200 is a fair percentage of my liquid/cash, but a fraction of a percent of total net worth (including managed DB pensions).  So in one way (liquid) I'm not diversified , but looking at the whole picture I think I am.

Other ideas on how to do thinks are welcome, I'm still working it out and starting off. Could maybe wait until I had £2400 and split it into 4 companies? But then fees become a higher percentage of overheads.

There isn't really much more to explain. There is no right or wrong answer and more than one way to skin a cat. Obviously depends on personal circumstances. I just thought it was interesting really

i would perhaps check out the regular savers from some of the brokers or freetrade perhaps (if it meets your needs). Harley has posted some some good stuff on individual share diversification. I myself decided to opt for one of the free lunches in investing and am investing in circa 6000 companies.

[Napoleon Dynamite]

38 minutes ago, Bobthebuilder said:

You could look at a portfolio builder account, monthly regular investment charges £1 to £2 per trade depending on what account you have. Its a good way to get started.

Is that hl? This one: https://www.hl.co.uk/investment-services/regular-investing

I hadn't see that before.  On the surface I would've passed, thinking it cost £25 a month, but upon closer inspection it's exactly what I need (if it's what I think it is).

Say for example over a year I put £500 a month in, in 12 months time I'll have 12 shares and it will have only cost me £22.50.  Is that right?

 

 

[Bobthebuilder]

6 minutes ago, Napoleon Dynamite said:

Is that hl? This one: https://www.hl.co.uk/investment-services/regular-investing

I hadn't see that before.  On the surface I would've passed, thinking it cost £25 a month, but upon closer inspection it's exactly what I need (if it's what I think it is).

Say for example over a year I put £500 a month in, in 12 months time I'll have 12 shares and it will have only cost me £22.50.  Is that right?

 

 

Yes, you could buy 5 companies at £100 per month each, with a £10 fee per month (at £2 per trade).

Its a good way to get started but i use it for regular investments and have been doing so for years.

I still do the occainsional trade at £12 or so but they are more a short term punt.

Loads of platforms offer it, someone on here found one at £1 per trade.

[Bobthebuilder]

While we are talking platforms and divis i would like to ask the more experianced members like Harley and SP if they think automatic dividend reinvestment is a good idea. I do it and my platform dont charge me for it. Do i need to be enlightened?

[dgul]

44 minutes ago, Errol said:

Goldman Goes "Lehman Weekend" On Oil: Expects Chaos When Trading Reopens

https://www.zerohedge.com/commodities/goldman-goes-lehman-weekend-oil-expects-chaos-when-trading-reopens

ZH is being a bit melodramatic -- As far as I can see Goldman didn't mention Lehman in their note.

[DurhamBorn]

2 hours ago, sleepwello'nights said:

Its too fucking cold otherwise I'd already be there!

Honest its not too bad the east side of the Pennines in the South Durham area.You can get houses here 20 minutes from the coast or £60k.Maybe i should scout some land out and we could build a compound ,a sort of time share for DOSBODs

[leonardratso]

i thought HMP durham was that?

[dgul]

I was expecting more action from the currency markets -- perhaps it won't be too big a jump in oil when it opens.

[Loki]

35 minutes ago, dgul said:

I was expecting more action from the currency markets -- perhaps it won't be too big a jump in oil when it opens.

I'm sure they won't let an event like this go to waste - something will be blamed on it 

[dgul]

Opened just over 60.  Let's see what happens now.

[Thorn]

26 minutes ago, dgul said:

Opened just over 60.  Let's see what happens now.

It’s interesting to try and see what others might see- David Hunter said recently to avoid oil stocks...but Kaplan says the opposite it seems for now and I think some gas and the odd oil one  look like they are about to break out. 

DYOR etc.

[Talking Monkey]

26 minutes ago, dgul said:

Opened just over 60.  Let's see what happens now.

Could this effect Powell's upcoming decision, maybe he will do 50 basis points

[sancho panza]

On 14/09/2019 at 22:14, dgul said:

Yes.  We'll have negative equity and it'll have catastrophic effects on the housing economy.

IMO OOs will hang on (helped with legislation).  The killer will be BTL, where banks won't allow refinancing where there isn't sufficient equity, resulting in an avalanche of sells as investors have to sell choice properties and take whatever return they can to try to get their ltv high enough for the remainder of their portfolio.

But, at the same time we've got 'everyone' knowing that there's nothing quite like bricks'n'mortar and we'll have people buying the dips all the way down.  This is why I think that after a quick sharp shock we'll have a slow relentless grind down for 30 years, until there's no housing bulls left.

https://www.ceicdata.com/en/indicator/japan/real-residential-property-price-index

14 hours ago, Cattle Prod said:

Just to clarify my view on timings - I agree fully with @DurhamBorn that we will have a severe sell off before a secular bull. What Ive been talking about is tight supply (or the perception of it) causing a spike with will probanly trigger the stock market crash proper, an a big oil selloff. I was thinking this year or early next year, then planned to exit oil as soon as the dollar bottoms (like 2008). I suspect the market has been waiting for someting like the drone attacks to snap it out of a stupor.

So a black swan yes, potentiallyto trigger a price spike. But not the secular bull to 200 or 300. Yet.

XLE/XOP/XES/OIH went up last week,but they're still very low low historically.If we get a dip down into the year end,then the big oilies will sell off with everything else like last year.

OIl futures up 12% and we're only entering week 4 of our purchase plan in oilies.Interesting times.With a bit of luck the dust will settle.

14 hours ago, Cattle Prod said:

Well events have outpaced me, with the Saudi attacks. I thought there could have been one more flush, leaving a nice weekly or monthly hammer candle, but not likely now.

Ive maintained since I started posting here that spare capacity oil is practically non existent, supply is far tighter than you read about and more recently, this 'glut' narrative doesn't make sense with world inventories dropping. So we're about to find out.

Opec can open taps again like they do just before quotas are set to take the sting out, but that can only be done temporarily as they are damaging their fields. They need to get Saudi online quick. Saudi has been stupidly drawing down it's inventory since 2016 (as they don't want to admit their fields are in decline), so that won't last long either. It was at ten year lows before this. 

OECD storage? Price was ~80 a barrell in 2018 at the same inventory level as today, and ~110 a barrell in 2013 at the same level. The only difference is sentiment, and as I keep saying perception of supply. I mentioned recently that its almost like something needs to "break the spell" over oil markets, and this is probably going to do it. They have been so, so complacent on the supply side.

Always enjoy your insights into the oil market CP.What a murky world it is?

14 hours ago, DurhamBorn said:

Yes,but the poorly diversified is most of the population.Leverage is the key like you say.The CBs responded to the macro situation by holding rates low and QE.It was for the governments to keep house prices down through other means,instead they decided to inflate the bubble even more.HTB alongside tax credits probably the worst political policies of the last 20 years.At best going forward people buying them in the last few years will have a long difficult grind ahead,and for a long time.

It's an absolute tragedy what's happened to a lot of young people overpaying for houses.As @dgul has said,2% on rates now would destroy the housing market.

11 hours ago, DurhamBorn said:

They very well might drop 70% inflation adjusted by 2030,though 50% might be more likely.I think trackers will way under perform over the next cycle.A distribution cycle with inflation will narrow the winners and amplify the losers.You need to remember its inflation adjusted that matters going forward.

In 1929 at the start of the crash it took stocks until May 1959  to pass that peak.30 years.When the markets topped out in 1966 it wasnt until September 1995,29 years, that they regained their worth.Thats regained,zero growth above inflation.A working lifetime,just to get back to the value it was.Now that doesnt count dividends,so the figures would be much better,and anyone averaging in would also see much better returns,but the average stock is a very very poor investment during a deflation event,or an inflation cycle.We could be about to witness both in a short space of time.

Notice the recessions on the graph.The Fed policy mistakes are the same as they were after the GD.That time everything turned south again due to tightening too soon and only war turned things.Very nasty time ahead the next decade or trackers i suspect.

I think the reality of the drops in the south east will be very much like Japan over the last twenty five years.Long slow grind down if they're lucky.Ouright collapse if they're not.Although the latter will work out best for most people.

People,even those of an age,have completely forgotten that credit deflation is part of a normal 50-70 year economic cycle.As we've discussed severally,QE and ZIRP delayed the inevitable and have likely made the top to bottom drop much larger and longer.AS we've also discussed,the worst debt deflations feature both credit deflation and price inflation.

Once the UK husing market turns,especially given the size of it as a proportion of national wealth,then that vicious circle of asset price drops begetting bank balance sheet contraction will begin.

In a way the people to feel bad for aren't the ones who are way out of their depth and will go bust early in the cycle,but rather those that can and will cling on for 20 years.

[sancho panza]

11 hours ago, A_P said:

Somewhat disingenuous. Given the time, the world and all the changes that were going on etc. The stock market returns averaged out certainly weren't that bad. In fact they had a very good ROI. I'm not going to go digging for it, however from memory returns were quite significant by 1933 let alone accounting for total returns over the proceeding years. The average yearly return has been something around 10% (again from memory)

trackers will not underperform the market (bar a nominal tracking error). They track the market by their very nature. as the indices change the trackers will so to match. Only a few will be able to outperform the market. The whole point of trackers is investing in the market long term. Total return is key. i suspect any given year(s) could be nasty any asset class or location, but over years it gets averaged out

I like how you accuse DB of being disingenuous and then without a hint of irony,write the second bit in bold.

9 hours ago, DurhamBorn said:

True,but this thread isnt about tracking the market long term,its about the end of this cycle and the next one,probably a period of around 8 years.Passive investing is easy in a falling rate dis-inflation cycle.However during a full on reflation with rising rates alongside it passive investment should prove a very poor investment,unless you are tracking commods and inflation loving assets of course.The facts remain that after the last big debt deflation cycle,and after the last great reflation cycle it took a combined 60 years to make a profit if you bought at the top.Of course hardly anyone will be investing a big lump sum right at the top,and most will drip feed in and catch bottom,but dividends of 3% from companies seeing profits fall for a whole cycle and their shares with it will be poison in a 5% to 12%+ inflation economy.Inflation adjusted is going to be the test going forward.

Of course that could be wrong and we will only know what the direction of travel was by looking back in about 2028.Lets hope we are all still around to do it.

As you say,anyone who bought at peak and held,got burned big time.If they lived long enough,they might have seen it come back,but likely most didn't.

8 hours ago, Majorpain said:

Both i think!  I still think 50% of UK construction companies are going to go out of business, we are up to about 10-15% at the moment so there is a long way to go.....

In a nutshell, the current market structure, with its focus on passive investing, has never been through a major downturn.  In that situation mechanically plowing money into an index, regardless of company fundamentals, will end badly when zombies start going out of business.   All im saying is there may well be a situation where the Index and its following ETF decouple as bankrupt companies drop out, with the ETF's money in them going to oblivion, whilst new companies join the Index.

Just because its never happened before doesn't mean it cant happen, double whammy of your money is trapped in the ETF whilst holdings within it are going to £0 (see Woodford!).

It probably ETF buyers head for the exits at the same time.A lot of ETF holdings are genereally quite liquid.It's pssobily more the managed end where we could see chunky withdrawals screwing orices down.

5 hours ago, Napoleon Dynamite said:

Could you explain more? I'm interested, but don't fully understand.

Yes, the 10 year fix is piece of mind.  Can't remember the exact specifics but 5 year fix was 0.5% less, ~£60 a month difference in interest. So paying £3600 more for the first 5 years, and hoping to see a pay off in the latter 5 years.  Rates have dropped since and there's a lot of talk of negative interest rates. Not looking too good in the short term, but this thread's all about the long term, so we'll see.

A single company at £1200 is a fair percentage of my liquid/cash, but a fraction of a percent of total net worth (including managed DB pensions).  So in one way (liquid) I'm not diversified , but looking at the whole picture I think I am.

Other ideas on how to do thinks are welcome, I'm still working it out and starting off. Could maybe wait until I had £2400 and split it into 4 companies? But then fees become a higher percentage of overheads.

If you're holding longer term,then the holdings can be even smaller

3 hours ago, Bobthebuilder said:

While we are talking platforms and divis i would like to ask the more experianced members like Harley and SP if they think automatic dividend reinvestment is a good idea. I do it and my platform dont charge me for it. Do i need to be enlightened?

We reinvest in things big blue chips,for sure.Which platform do you use Bob?I've jsut started using online brokers and am here tolearn

 

Also,if anyone knows of nay that allow multple currency accounts other than Intereactive Investors.I would apreciate it.

[Bobthebuilder]

17 minutes ago, sancho panza said:

We reinvest in things big blue chips,for sure.Which platform do you use Bob?I've jsut started using online brokers and am here tolearn

I use Halifax share builder for my regular monthly drips, £2 a pop, free divi re-investment, £12 live trade, no other fees. They also do the account in a ISA that carries a £12.50 annual charge. Works for most of my portfolio but saying that i need to start looking at an ISA for tax reasons, crikey im getting old, never thought i would say that.

[Bobthebuilder]

1 minute ago, Tdog said:

Is there anything similar for SIPPS, my costs are about £12 per deal with AJBell  when i buying somewhere between £600 to £1200 quids worth.

Same costs for my kids Junior Isa ive recently opened, think i need to look for a better deal on this as im only buying £500 worth at a time.

Something i need to look into and cant answer im afraid. I did once type £3000 into my £2 charge monthly builder and it accepted it but i never went through with it so dont know for sure.

 

[Don Coglione]

9 hours ago, dgul said:

I was expecting more action from the currency markets -- perhaps it won't be too big a jump in oil when it opens.

It's my fault, I sold out of PMO last week.

Sorry.

[Barnsey]