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


spunko

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2 hours ago, Yellow_Reduced_Sticker said:

@DurhamBorn Just a quick question if I may, does your market/road map work show anything in regards to when interest rates are likely to start rising? OR I'm i right is saying the rate rises will arrive when inflation finally hits HARD in say 3 to 5 years...?  CHEERS!

About 16 months after the printing begins above debt liquidation.I would expect mid 2021 for the US,we might get some token increases before that.As ever the first increases will be small,as will the inflation increases.The thing is though the rates will always be behind and playing catch up.Im seeing inflation 8% to 16% by 28.Rates might see double figures .A lot depends on the scale of printing.

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Democorruptcy
3 hours ago, DurhamBorn said:

About 16 months after the printing begins above debt liquidation.I would expect mid 2021 for the US,we might get some token increases before that.As ever the first increases will be small,as will the inflation increases.The thing is though the rates will always be behind and playing catch up.Im seeing inflation 8% to 16% by 28.Rates might see double figures .A lot depends on the scale of printing.

 That's a sobering thought after reading something like this:

http://danielamerman.com/course/a/qdSEVENTEENbc.html

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18 minutes ago, Democorruptcy said:

 That's a sobering thought after reading something like this:

http://danielamerman.com/course/a/qdSEVENTEENbc.html

Superb article.Here in the UK what the above explains is the transfer of wealth from people who work (mostly private sector) to people who dont work (through massive welfare spending) and public workers (through wage increments and DB pensions).The pension age being pushed back is simply to keep the workers working to pay for those who have never worked,worked very little etc.

People who work feel a deep fury burning inside.They know they are being fleeced.

All we can do is try to navigate the outcomes and protect and grow our families wealth.

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7 hours ago, Democorruptcy said:

Democorruptcy, thanks for above info. - so looks like my earlier post is incorrect and in fact Kinder Morgan Canada tse:kml owns the Canadian pipes and terminals? 

Do you know why the share price dropped from CAD$50 to $15 on Jan 4th, was this when they did the share buy back?

 

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12 hours ago, JMD said:

Harley, that's very interesting because this has been a focus for me in recent months. I recall your recent discussion about what constitutes a reflation stock which I found useful. So would be very interested in hearing about your model you mention when its done.  

In terms of definitions and investing 'closer to the sources', I assume commodities and energy - but would you include IP as well? My thinking is 'real' (not nebulous stuff) intellectual property is a company asset so 'yes', and example companies might be chip/medical device manufacturers with protected patents/high expertise. But would transports/telecoms be included?

Excellent questions.  I started to think about such practicalities when considering telecoms.  Clearly resource producers could be in (the commodities themselves are probably a different game).  But other sectors are attractive but is that because they have other attractions such as a moat or can they be brought into the thesis by some lateral thinking?  Need to think about it. 

PS: Thinking about it, maybe we should be talking about "unregulated pricing power".  That is price givers rather than price takers.  That could then include some commodity producers, transports (necessity benefitting from a substitution effect), telecoms (now a "necessity"), etc but at the same time cautious about some utilities, etc. Somewhat tangentially, I do wonder if governments will more likely subsidise things than control prices.  A move closer to their favourite QE/money drop approach.   Even then, maybe better to be further upstream.

PPS:  Maybe "nearer the sources" (plural) still works, including IP and telecoms, etc.  Maybe though such choice of wording is just semantics, all elaborating a central point.

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11 hours ago, DurhamBorn said:

I think thats a great idea.Perhaps a simple list of ETFs in the sectors we can track against the index (100,250,S+P,DOW,Nasdaq) to see if they do indeed firstly outrun the cycle inflation rate and then outperform the indexes.Dividends will be key though as well as i see the inflation sectors handing back a lot of cash towards the 2nd half of the cycle.We could then actually look at allocation more for part of a portfolio.For instance i think 30% to 40% of a portfolio leaning towards inflation loving sectors should mean a good out-performance over the cycle.It should be easy enough to split that 30/40% into sectors and then companies to replicate the sectors with the KID rules as they are.Easier for bigger portfolios of course.Iv actually got about 50% to invest now as like yourself my income/UK cyclical/reflation portfolio is nearly complete.I had around 10% more to invest at ladder points,but most of the stocks are way above them now.BT for instance was bought in the low £1.60s and last ladder was £1.43ish.The only areas left were the big oil companies here.Im waiting still on those.Most of the capital now is heading for other areas,ladders mostly in place and some bought in potash,oil services etc,but much more work to do in the sectors there.I also need to do some more cross market work in several areas,though iv done a lot of that already and was the reason behind a lot of my UK cyclical buys.A lot of people think the big jump in a lot of them is due to "value" buying that will reverse and growth will continue up.They will have that view tested when velocity shows up.

Yes,just to confirm for everyone the US treats SIPPs as pensions so they are taxed the same as the US pensions ie all dividend withholding tax can be re-claimed.The beauty is this remains the case in draw down because its still classed as a pension.So it goes without saying that if you have ISAs and a SIPP then you should structure your direct US assets into the SIPP.Its a huge plus to be able to get all the income,especially as we can access SIPPs at 55 (for now).I think Canadian stocks are the same,but that needs confirming.

Here below is the direct message i got from HL on the subject.

"I can confirm that yes, any dividends are free of income or capital gains tax in an HL SIPP, and we claim back withholding tax on US shares so long as you've completed a W-8BEN form, which I can see that you did"

 

Brilliant because I am in an almost indentical position in everything you say!  Plus many thanks on the SIPP confirmation.

I use the Permenant Portfolio allocation model for my SIPP but changed what I hold in the equity bucket to be regional ETFs.  Thinking about your comments, I'll reallocate to individual reflation stocks in a similar percentage to what you mentioned, with the remainder in regional stocks, as adjusted for the regional spread of the reflation stocks.

Yes, a list of ETFs with KPIs such as divs and sector leaders.  I like the idea of tracking against the broad indices.  Some sector performance data too, maybe even monthly, as I found this really useful back in the day I could invest in any ETF my adult brain wanted!

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8 hours ago, DurhamBorn said:

About 16 months after the printing begins above debt liquidation.I would expect mid 2021 for the US,we might get some token increases before that.As ever the first increases will be small,as will the inflation increases.The thing is though the rates will always be behind and playing catch up.Im seeing inflation 8% to 16% by 28.Rates might see double figures .A lot depends on the scale of printing.

The central banks will love inflation when it starts and devalues debt but will like it less so as it gets out of hand, especially if people start pointing fingers at them.  They're already more exposed than is maybe realised as it only takes a bit more pain and an  ambitious articulate to kick things off.  Maybe not a bad time to move on if you were a CB governor.

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5 hours ago, DurhamBorn said:

Superb article.Here in the UK what the above explains is the transfer of wealth from people who work (mostly private sector) to people who dont work (through massive welfare spending) and public workers (through wage increments and DB pensions).The pension age being pushed back is simply to keep the workers working to pay for those who have never worked,worked very little etc.

People who work feel a deep fury burning inside.They know they are being fleeced.

All we can do is try to navigate the outcomes and protect and grow our families wealth.

They're going to have to increasingly tax things other than income, such as wealth and "environmental" activities (one reason I think the administration seems quite relaxed about XR).  That may be a bit of a leveller across sectors, even those on benefits.  Then there is the possibility of subsidies on food, etc which would operate the wealth/trickle down falicy effect in reverse - how much cheap food can the rich eat!

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Democorruptcy
9 hours ago, JMD said:

Democorruptcy, thanks for above info. - so looks like my earlier post is incorrect and in fact Kinder Morgan Canada tse:kml owns the Canadian pipes and terminals? 

Do you know why the share price dropped from CAD$50 to $15 on Jan 4th, was this when they did the share buy back?

 

It was a stock split and $11.40 special dividend.

A bit more about them here.

Disclosure: I don't own any.

 

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4 hours ago, Harley said:
9 hours ago, DurhamBorn said:

Superb article.Here in the UK what the above explains is the transfer of wealth from people who work (mostly private sector) to people who dont work (through massive welfare spending) and public workers (through wage increments and DB pensions).The pension age being pushed back is simply to keep the workers working to pay for those who have never worked,worked very little etc.

People who work feel a deep fury burning inside.They know they are being fleeced.

All we can do is try to navigate the outcomes and protect and grow our families wealth.

At what point does the government say you can't take your private pension at 55? Instead it will be 60! (Or higher>:()

4 hours ago, Harley said:

They're going to have to increasingly tax things other than income, such as wealth and "environmental" activities (one reason I think the administration seems quite relaxed about XR).  That may be a bit of a leveller across sectors, even those on benefits.  Then there is the possibility of subsidies on food, etc which would operate the wealth/trickle down falicy effect in reverse - how much cheap food can the rich eat!

That sounds like a plausible way forward for them, but what/where? Higher council tax for larger properties/rented properties. Higher stamp duties on equities maybe, road taxes increased, CO2 emitter taxes.

All of those will have deflationary side effects for sure!

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27 minutes ago, NogintheNog said:

At what point does the government say you can't take your private pension at 55? Instead it will be 60! (Or higher>:()

That sounds like a plausible way forward for them, but what/where? Higher council tax for larger properties/rented properties. Higher stamp duties on equities maybe, road taxes increased, CO2 emitter taxes.

All of those will have deflationary side effects for sure!

Its a very good question.The government needs to keep the workers working to pay for the shirkers (both at the top and bottom).However they did push through pension freedoms,and the big winners are them and their mates.We just happen to be able to use it as well.Its already going up to 57 although they havent put legislation in place yet,and it might be done as a knife edge rather than eased in.If it is i can get mine at 55.I think the governments aim is to get it to 60 in the end.They will stick to 68 area for state pension and arent too bothered if people fund themselves from 60.They introduced a rule earlier this year on pension credits.Before you could claim pension credit for a couple when the first one reached state pension age.So if 65 and 59 once first is 65 £250 a week guarantee.Now you cant,you have to claim Universal Credit.Universal Credit is avout £117 for a couple,so way below the new state pension at about £169,so youd get nothing i think and have to live of the £169 a couple pension of the oldest.Im not quite sure on the interaction of how that works and needs checking.

Council tax is already a shocking tax and im not sure they can push it much more.BTL etc is a sitting duck though.

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Talking Monkey
40 minutes ago, NogintheNog said:

At what point does the government say you can't take your private pension at 55? Instead it will be 60! (Or higher>:()

That sounds like a plausible way forward for them, but what/where? Higher council tax for larger properties/rented properties. Higher stamp duties on equities maybe, road taxes increased, CO2 emitter taxes.

All of those will have deflationary side effects for sure!

If people are under 10 years away to the private pension age that would be very unfair if the date moved, in the past when the date has moved have people closer to the retirement age been exempt

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Talking Monkey
6 minutes ago, DurhamBorn said:

Its a very good question.The government needs to keep the workers working to pay for the shirkers (both at the top and bottom).However they did push through pension freedoms,and the big winners are them and their mates.We just happen to be able to use it as well.Its already going up to 57 although they havent put legislation in place yet,and it might be done as a knife edge rather than eased in.If it is i can get mine at 55.I think the governments aim is to get it to 60 in the end.They will stick to 68 area for state pension and arent too bothered if people fund themselves from 60.They introduced a rule earlier this year on pension credits.Before you could claim pension credit for a couple when the first one reached state pension age.So if 65 and 59 once first is 65 £250 a week guarantee.Now you cant,you have to claim Universal Credit.Universal Credit is avout £117 for a couple,so way below the new state pension at about £169,so youd get nothing i think and have to live of the £169 a couple pension of the oldest.Im not quite sure on the interaction of how that works and needs checking.

Council tax is already a shocking tax and im not sure they can push it much more.BTL etc is a sitting duck though.

Those BTL portfolios need to be disgorged as they were built mainly using very unfair tactics and at the expense of young people starting out. I guess the government could use some additional council tax type thing that the owner would pay

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Mervyn here doesnt say it,but its about monetary stimulus being used as direct fiscal stimulus.That is what he alludes to here.The rule changes he talks of will be so they can direct fund government projects,probably dress them up as the government taking a stake,or oiling the private sector.The west will also start to increase by huge amounts the investment to counter China.As iv said from the start,high cost fixed assets that are almost depreciated away already,or are being slowly will be worth much more going forward.Bonds probably have one more last day in the sun,but after that might reverse all the way back to 1982 levels.

https://www.theguardian.com/business/2019/oct/20/world-sleepwalking-to-another-financial-crisis-says-mervyn-king

“There has been excess investment in some parts of the economy – the export sector in China and Germany and commercial property in other advanced economies, for example – and insufficient in others – infrastructure investment in many western countries. To bring about such a shift of resources – both capital and labour – will require a much broader set of policies than simply monetary stimulus.”

Congress would be confronted with a choice between financial armageddon and a suspension of some of the rules that were introduced after the last crisis to limit the ability of the Fed to lend.

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2 hours ago, Talking Monkey said:

If people are under 10 years away to the private pension age that would be very unfair if the date moved, in the past when the date has moved have people closer to the retirement age been exempt

I think they will stick to 10 years notice.They have said its 10 years behind state pension age,but i think they might drop that to 8 years and make it 60.Im 48 now and if the move to 57 is a knife edge il be ok and can go into draw down at 55,but if its tapered il be about 56.When they moved it from 50 to 55 it was a knife edge move,no taper.

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Thought i would post a clip of ray dalio of the general theory of where we are and where are going  over the long term that seems to echo the thoughts on these forums (Dalio provides great macro insights and and more importantly an education). You probably only have to watch the first 15-20 minutes.

 

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23 hours ago, Democorruptcy said:

 That's a sobering thought after reading something like this:

http://danielamerman.com/course/a/qdSEVENTEENbc.html

I've read a lot of his stuff and it's very good. His central premise is that they (Fed) cannot raise rates due to the size of the debt - so they won't as it they won't be able to make the interest payments. We live in unprecedented times where the mental actions of central banks could throw everything completely off for many years yet - in fact he thinks they will.

I'm unclear as to how this is going to pan out with DB's double digit inflation. Could they really have double digit inflation and keep rates on the floor? Nothing would surprise me anymore.

The only thing I know for certain is that this will all end in a gigantic clusterfuck with gold and silver going through the roof. When, fark knows!

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18 hours ago, Harley said:

Excellent questions.  I started to think about such practicalities when considering telecoms.  Clearly resource producers could be in (the commodities themselves are probably a different game).  But other sectors are attractive but is that because they have other attractions such as a moat or can they be brought into the thesis by some lateral thinking?  Need to think about it. 

PS: Thinking about it, maybe we should be talking about "unregulated pricing power".  That is price givers rather than price takers.  That could then include some commodity producers, transports (necessity benefitting from a substitution effect), telecoms (now a "necessity"), etc but at the same time cautious about some utilities, etc. Somewhat tangentially, I do wonder if governments will more likely subsidise things than control prices.  A move closer to their favourite QE/money drop approach.   Even then, maybe better to be further upstream.

PPS:  Maybe "nearer the sources" (plural) still works, including IP and telecoms, etc.  Maybe though such choice of wording is just semantics, all elaborating a central point.

So is it about identifying those 'industrial/productive assets' that will come to dominate, as in DurhamBorn's predicted upcoming distribution cycle, and where consumer/ism becomes insignificant part of economy? What constitutes an asset is maybe semantics, but I would include corporate differentiators/monopoly powers such as 'moats', etc, particularly as the time horizon for this source strategy would I think be 'only' 2030 (isn't that when the next tipping point happens?). Politically all governments will double-down to support/subsidise their own, so German chemical industries will fly (by all means possible and in spite of any 'inconvenient' EU anti-competition rules).   

I prefer 'nearer the sources' as it is less 1980's sloganeer sounding (unlike 'unregulated pricing power'), and sits better with some of the upcoming sources/or basic human needs - infrastructure sector (jobs), health sector (bread...), environment sector(...and circuses/new religionism a la extinction rebellion). I know 'themes' don't help nail down a definition but all ripe for massive subsidies for sure. 

 

 

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3 hours ago, JMD said:

So is it about identifying those 'industrial/productive assets' that will come to dominate, as in DurhamBorn's predicted upcoming distribution cycle, and where consumer/ism becomes insignificant part of economy? What constitutes an asset is maybe semantics, but I would include corporate differentiators/monopoly powers such as 'moats', etc, particularly as the time horizon for this source strategy would I think be 'only' 2030 (isn't that when the next tipping point happens?). Politically all governments will double-down to support/subsidise their own, so German chemical industries will fly (by all means possible and in spite of any 'inconvenient' EU anti-competition rules).   

I prefer 'nearer the sources' as it is less 1980's sloganeer sounding (unlike 'unregulated pricing power'), and sits better with some of the upcoming sources/or basic human needs - infrastructure sector (jobs), health sector (bread...), environment sector(...and circuses/new religionism a la extinction rebellion). I know 'themes' don't help nail down a definition but all ripe for massive subsidies for sure. 

 

 

There are lots of ways to transfer for governments.Military hardware spending,pushing money to councils to pay for lots of care in the community workers.People make much different choices during an inflation cycle.I doubt the people in the line at work staring into their phones will get shot if the price goes from £20 a month to £35,but they might/some will change their car use if it goes from £100 a week to £200 all in costs.The telco will see a lot flow direct to free cash flow due to the way depreciation works (most of that extra money is using assets already priced.The car showroom wont.

We will see situations where use is falling 5% a year but prices going up 12%.A bit like the tobacco industry has been for 15 years.People think inflation only comes from rising demand,when often it comes from falling demand in industries that have huge moats,or massive capital needs to compete against.

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UK property asking prices show weakest October rise since 2008 - Rightmove

https://uk.reuters.com/article/uk-britain-economy-houseprices/uk-property-asking-prices-show-weakest-october-rise-since-2008-rightmove-idUKKBN1WZ0RY

Quite the headline. I know it's asking prices only, but this is the first mention I've seen of "worst since 2008", more to come.

Anyone else noticed the recent barrage of TV ads from Halifax and Barclays pushing parental guarantor mortgages?

https://www.barclays.co.uk/mortgages/family-springboard-mortgage/

Family Springboard mortgage? More like diving board xD

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42 minutes ago, Barnsey said:

UK property asking prices show weakest October rise since 2008 - Rightmove

https://uk.reuters.com/article/uk-britain-economy-houseprices/uk-property-asking-prices-show-weakest-october-rise-since-2008-rightmove-idUKKBN1WZ0RY

Quite the headline. I know it's asking prices only, but this is the first mention I've seen of "worst since 2008", more to come.

Anyone else noticed the recent barrage of TV ads from Halifax and Barclays pushing parental guarantor mortgages?

https://www.barclays.co.uk/mortgages/family-springboard-mortgage/

Family Springboard mortgage? More like diving board xD

Driving into work yesterday and one of the Radio News items was "highest number of distressed businesses since 2008".

UK should be in recession now, but as ever its highly dependent on how many sheep are buying things on credit they cant afford.

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Democorruptcy
6 hours ago, JMD said:

thanks Democorruptcy, their chart has been dead as a Do-Do since, yet seemingly 'only' 70% of stock owned by parent... i know you don't own it but weirdly behaving more like 100%?   

The Canadian subsidiary was supposedly set up largely to handle the Trans Mountain project that they later sold. The share price is probably static because they have cash but not many projects in the pipeline as suggested in the second link.

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On 19/10/2019 at 15:31, JMD said:

Kibuc, thanks for your earlier reply. To get my asset allocations correct I wonder if you could aid me with the following (to be clear am not requesting investment advise - DB has posted about this recently re. messages he has received - rather for me, calculating risk and balance is as crucial as selecting the right stocks, etc).  

Personally, I  would like to get exposure to royalty/streaming companies by owning some for the medium term, say to 2025 approx. Your comments regarding gold reserves make me think it would be good to at least tilt toward ones holding contracts with junior gold miners. I am aware of the main ones below, I wonder do any of these have good interests in the juniors?   

Established ones (>$1bn cap) - Franco-Nevada, Royal Gold, Wheaton Precious Metals                                                                       Medium size 'younger ones' ($100m-1bn cap) - Osisko Gold Royalties, Sandstorm Gold, Maverix Metals                                           Small 'new' players (<$100m cap) might be good, although don't know names, especially if these ones are focused exclusively on the juniors 

Kibuc, in regard to my junior miner bias/strategy are there some royalty/streaming companies that you would look at?

I'm afraid I cannot help you with that as I know just as little as the next man about royalty companies. However, a few people whose opinion I learned to value seem to be positive about Sandstorm, for whatever it's worth.

Personally, I find the roller-coaster of investing directly in a few selected juniors much more exciting :)

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