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


spunko

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6 hours ago, MrXxxx said:

Well, I would like to know where the money is coming from then...unless of course we scrap our Foreign Aid budget so that India can no longer send rockets to the moon!?

Vehicle Excise Duty will go directly to Highways England, which didn’t happen previously. Guess it just went into ‘the pot’ rather than there being a direct link.

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1 hour ago, ashestoashes said:

years ago people used to heat their shacks by having the animals on the ground floor and the heat would rise to the living accomodation above. Could something like a compost heap be used as a heat source for a heat pump as they produce heat as the matter decays ?

"Your Honor my client's motive with regard to the goat was merely to save energy and keep warm."

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7 hours ago, UnconventionalWisdom said:

Magic money tree. Money is created much faster than that we can create from actual printing. Just 1's and 0's

No problem getting the money,they will be borrowing it on the market at around 0.5% and the BOE will be buying in the same amount from the market.

In other news

https://www.bbc.co.uk/news/uk-politics-49881980

£10.50 an hour minimum wage in 5 years.Theres some inflation right there.Of course  prices will increase to make up for it,and thats all about getting inflation higher,but anyone buying zero rate fixed income etc now is in for a shock.

Government will be running wages higher than welfare increases for the cycle as they need to increase the spread between work and welfare.

Velocity will start to pick up in around 18 months i expect from here,then move higher through the cycle.The cycle ahead is starting to unfold.

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Talking Monkey
47 minutes ago, DurhamBorn said:

No problem getting the money,they will be borrowing it on the market at around 0.5% and the BOE will be buying in the same amount from the market.

In other news

https://www.bbc.co.uk/news/uk-politics-49881980

£10.50 an hour minimum wage in 5 years.Theres some inflation right there.Of course  prices will increase to make up for it,and thats all about getting inflation higher,but anyone buying zero rate fixed income etc now is in for a shock.

Government will be running wages higher than welfare increases for the cycle as they need to increase the spread between work and welfare.

Velocity will start to pick up in around 18 months i expect from here,then move higher through the cycle.The cycle ahead is starting to unfold.

DB do you think we are still on for a huge correction in the stockmarket here and in the US

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22 minutes ago, Talking Monkey said:

DB do you think we are still on for a huge correction in the stockmarket here and in the US

My opinion is that all markets will sell off. The rubbish in the FTSE will take a big hit. Those that are talked about on this thread have already taken a big hit and its were I have been largely investing in my ISA. I split my investing into two parts. My ISA is for uK stock and gambles such as miners. My SIPP are UK stocks steady as she goes good divi payers, with a good cash reserve waiting for oil and gas and international largely US divi stocks that I am hoping will sell off.

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24 minutes ago, Lavalas said:

Urgh it’s ugly out there for the miners.

Brutal

The market is febrile at the moment.  Who knows what happens next.

[except that it probably won't be what the majority expect.  And then they'll readjust, pile in and then the market will readjust]

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26 minutes ago, Talking Monkey said:

DB do you think we are still on for a huge correction in the stockmarket here and in the US

Yes,could be sector by sector though.I ignore the index themselves and set ladders in individual stocks i want.My road map said PE ratios would go well below 9 in most areas and that what i based most of my first buys on.

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Talking Monkey
1 minute ago, DurhamBorn said:

Yes,could be sector by sector though.I ignore the index themselves and set ladders in individual stocks i want.My road map said PE ratios would go well below 9 in most areas and that what i based most of my first buys on.

cheers DB

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1 minute ago, Talking Monkey said:

cheers DB

Main areas im waiting for now is oil and gas,and the service companies like Schlumberger,Halliburton etc.Those will be in my SIPP though so no divi tax to pay.Iv also set up ladders back in the gold miners i sold,most are well back down now and near first buy points again.

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5 hours ago, Lavalas said:

Vehicle Excise Duty will go directly to Highways England, which didn’t happen previously. Guess it just went into ‘the pot’ rather than there being a direct link.

I could never understand why VED isn't just put straight on the fuel, 1. Stops VED tax dodgers, 2. Charges continental haulers, and 3. Charges people on a `use by` basis.

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Talking Monkey
49 minutes ago, DurhamBorn said:

Main areas im waiting for now is oil and gas,and the service companies like Schlumberger,Halliburton etc.Those will be in my SIPP though so no divi tax to pay.Iv also set up ladders back in the gold miners i sold,most are well back down now and near first buy points again.

Though I do wonder if the US rate cuts that are expected will lead to one last hurrah before the falls

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36 minutes ago, CVG said:

Perhaps it's due to this. Errol would be able to advise on whether this is true ...

https://www.zerohedge.com/commodities/gold-prices-plunge-right-cue-china-golden-week-begins

Indeed. If gold were to follow previous Golden week patterns then all the losses we incur now will be made back once China re-opens.

Frankly though I'd be perfectly happy for gold to drop back in Sterling by quite a bit.

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@Cattle Prod paper market could see below $20 for a short period in any big sell off.Im really torn,my road map says sub $20,but very short term then all the way to $270 .However oil should really run at this stage of the cycle before rolling over.Iv got ladders in place to take the emotion out of it.Rising oil prices will drive a lot of the recovery cycle.It will lead to big investment in green energy,energy saving,public transport etc.Portfolios will need a good leaning towards these areas if they are to outrun the inflation ahead.It will be oils last big run,but a hugely profitable one.

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With regard to oil the general sentiment seems to be bearish so the contrarian take is bullish obviously.

I've kept away from oil but really want to get my head around whether I should get some exposure.

Do some people see oil in the medium to long term going down but in the short to med term up??

Was watching a random YouTube vid (well simplified and entereducational - checked out a few of other vids on channel and don't think it rhymes with some of the sentiment here on the main floor forum anyway 🤣) never the less I guess the view espoused is what the market generally is forecasting?  Cars and buses becoming increasingly Ev array from ICE - a period in about 3 to 5 years when people stop buying ICE vehicles saving up for superior but increasingly better value EV.. then EV to the moon or something .

The arguement makes sense to me say in the US but what about Africa SA and other more developing/ poorer countries? Anyway vid below if anyone wants to see source of what I outlined above (they are bearish on oil)

 

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2 hours ago, CVG said:

Perhaps it's due to this. Errol would be able to advise on whether this is true ...

https://www.zerohedge.com/commodities/gold-prices-plunge-right-cue-china-golden-week-begins

I don't get it.  It looks like there's 'always' a plunge before the 'golden week', but that recovery starts during the week.  By their theory the trouble (plunge) should be during the week, not before.

[Oh, they say 'front running' -- but that doesn't make sense -- you don't front-run chaos by making early chaos, only for the thing you were front-running to be benign]

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Well the Elliot Wave way of looking at it would sort of predict a bounce at 4 then work its way up to 5.

DYOR etc folks but I’m reading lots and watching for this next turn. 

 

0EB18C55-1427-41DC-930B-BE04AEF2572D.png

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32 minutes ago, Cattle Prod said:

100%. Quite a few of my colleagues, without any particular knowledge of economic cycles, sense this and are actively planning for alternate careers (as am I) or retirement after the next run. They mainly see the capex gap hitting in the early 2020s as the driver, rather than the wider economy, but they're not far off.

I’m working as a mechanical engineer (albeit quite a junior) and just moved to O&G services as things seemed to be picking up a bit. I’m involved with subsea systems.

I went into it fully prepared to move to another area of engineering altogether as you’ve alluded to above, don’t think it would last what’s left of my working life (although there may be decommissioning work etc.) Fortunately what I’m doing is fairly translatable to other areas as it’s mechanical design/analysis regardless of the O&G side.

Could you elaborate a bit more on the bold part and about the plans for alternative careers ?

How long do you think is left in these sort of engineering O&G services jobs ?

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56 minutes ago, reformed nice guy said:

On the subject of deflation:

https://www.reuters.com/article/us-wework-ipo/wework-says-will-file-to-withdraw-ipo-idUSKBN1WF1NS

If a lot of the unicorns bomb, taking their VC money and defaulting on their bonds, would this be an example of credit deflation?

Just about to watch this myself describing the definitions of Deflation and what to expect

 

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Great lecture and I need to watch it again.

He said when there is an increase in the money supply- the good times- people can bid against each other for stuff and prices tend to inflate.

Then he discussed price deflation from less bidding for things/less demand. This could be from less money in circulation eg with QT, but also from  people nervously hoarding, as well as from oversupply/overproduction.

So price deflation in prices asked means eg an indebted business brings in less, and now can’t service its debts where the loan rates were set back in the good inflationary increasing price times.

The overall deflation scenario means for a business that if the costs of production don’t go down then the business goes bankrupt, the debt disappears, the creditors do not get their money and that debt money they were expecting disappears. Or the debt is negotiated smaller/restructured and again big chunk of their loan money is wiped out because it won’t get repaid. The debt disappears or reduces.

The creditors/new owners then take over and if there is still demand for their product the business might get lucky and start over with less debt.

Deflation can mean prices fall and debt wiped out and assets distributed to new owners.

I think a lot of the Unicorns are just logistics companies and don’t actually have a product. And people are realizing this with WeWork as an example now.

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