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


spunko

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For myself im buying potash companies for agriculture focus and il also buy some of the equipment makers if they get smashed in a sell off,but i think the inputs will see the biggest inflation.

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6 hours ago, Talking Monkey said:

Fascinating read, the scale of the reduction in wealth of savers is eyewatering. It definitely points to catastrophe down the road, either you have a very impoverished population and the working folks (blue and white collar) completely destroyed or you have governments collapse under huge debt. The article helps understand the tipping point expected in 8-10 years

In simply terms government have stolen peoples pensions to give away in benefits like tax credits and housing benefit.No wonder capital went into BTL instead.If you stopped giving working age benefits people could retire on a full state pension at around 55.The reason pension age is pushed back isnt because we are living longer,its because Sharon got her 3rd kid down as ADHD and half of eastern Europe is on UK tax credits.

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Talking Monkey
55 minutes ago, DurhamBorn said:

In simply terms government have stolen peoples pensions to give away in benefits like tax credits and housing benefit.No wonder capital went into BTL instead.If you stopped giving working age benefits people could retire on a full state pension at around 55.The reason pension age is pushed back isnt because we are living longer,its because Sharon got her 3rd kid down as ADHD and half of eastern Europe is on UK tax credits.

It can't go on much longer as the cohort who are consuming these benefits is growing and at quite some pace and the cohort paying for it is shrinking, the whole thing must fall over at some point and probably soon

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3 minutes ago, Talking Monkey said:

It can't go on much longer as the cohort who are consuming these benefits is growing and at quite some pace and the cohort paying for it is shrinking, the whole thing must fall over at some point and probably soon

Yeah but...if we were talking about it taking 1 more year of time (And my taxes) then I'll sit poolside happily and watch it fall

25 years of time and taxes? I'll be nearer to death than birth by then. And much poorer.

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AlfredTheLittle
3 hours ago, Talking Monkey said:

It can't go on much longer as the cohort who are consuming these benefits is growing and at quite some pace and the cohort paying for it is shrinking, the whole thing must fall over at some point and probably soon

It can go on forever if they just keep printing the money.... In a way it's a universal basic income while the machines take care of the work

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Just now, StrugglingMillennial said:

Can i ask a quick dummy question, i keep seeing people talking about laddering in.

Anyone care to explain?

 

Rather than just buying when you think the price is low,  you buy maybe 1/4 of your intended holding, then enter a series of buy orders at steadily lower prices for the rest.. I think DB tends to set them at consecutive 8% drops.  The idea is either you don't get all of them filled, but do end up buying what you do get at or near the bottom, or at least you get a better average price than you would have if you bought the whole lot in one go at your original entry price.

It also removes some of the stress, since if the price drops after you buy your first lot, you don't care as you were intending to buy some at a lower price anyway. 

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8 hours ago, DurhamBorn said:

 For myself im buying potash companies for agriculture focus and il also buy some of the equipment makers if they get smashed in a sell off,but i think the inputs will see the biggest inflation.

DB, I think potash is an example of investing 'close to the sources' of inflation? I am a supporter of this strategy. As an avid reader of this blog I have listed the main reflation sectors as mentioned regularly here, along with some of the sub-themes in brackets.

For these reflation sectors would you please be able to give some more 'source' examples for these? Others I hope may also like to comment and I think this would be an interesting discussion.

Agriculture  - source example = fertilizer, potash                                                                                                       Telecoms  -                                                                                                                                                                        Defence/aerospace  -                                                                                                                                                                           Big energy (gas, renewables)  -                                                                                                                                                     Utilities (energy, water, waste management, chemical, steel)  -                                                                              Infrastructure (bus, train, building, construction, solar, forestry)  -                                                                                           Health (big pharma, medical devices)  -                                                                                                                                                                                                                                                            

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7 hours ago, MvR said:

Rather than just buying when you think the price is low,  you buy maybe 1/4 of your intended holding, then enter a series of buy orders at steadily lower prices for the rest.. I think DB tends to set them at consecutive 8% drops.  The idea is either you don't get all of them filled, but do end up buying what you do get at or near the bottom, or at least you get a better average price than you would have if you bought the whole lot in one go at your original entry price.

It also removes some of the stress, since if the price drops after you buy your first lot, you don't care as you were intending to buy some at a lower price anyway. 

Exactly right,and it comes from investing for a very long time.It removes the emotion.So far in this transition it helped me get the bottom in VOD,BT,DRAX and several others.Even Royal Mail was tagged right at £1.89.I find the beauty of this approach is you can also sell out the bottom ladder on a turn I have done that already with a lot of companies where i got the 3rd or 4th ladder in.Royal Mail iv sold bottom ladders twice,Stagecoach twice etc,some like VOD i havent.I think its the right approach for contrarian investors as you are using a road map that could be out by several months.Of course it works best with a balanced portfolio.Once im fully invested i like two months dividends to cover one stock being cut in half.A lot of these things are more about the mental side of investing,but iv found its how you avoid a rush of blood,or lose nerve.

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On 20/10/2019 at 11:33, 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.

This is something I am watching very carefully as I think it is only a matter of time, and like you I believe it will come in very quickly to `wrong foot` many so that they cannot make alternative plans/take an escape route. In addition, I wouldn't be surprised if they also messed around with pension taxation I.e. abolishing the option to reinvest £4k drawdown back into a pension tax free.

In these scenarios above the benefit of drawing a pension early may outweigh the disadvantage of the early redemption penalties that are normally applied.

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On 21/10/2019 at 18:40, Yellow_Reduced_Sticker said:

EAH I did say i always bought at the TOP!

Last week i was checking the area where I've bought in the Cotswold's, and F**** my old boots, a 3 bedroom detached bungalow, with land came up ...reduced to £250K, i  rang the agent and he informed me the family had it on the market at 300K however now wanted a quick sale! (its gone now!)

I planned to buy in this area myself, heard you were buying and so thought it better to wait a bit longer so that I can then pick it up a `rock bottom`...you are kind to all of us YRS, we do appreciate your `sacrifcial lamb` approach to investment you know! :-) :-) :-)

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From listening to a chap from Scottish Power on the radio this morning, it sounds like leccy is going to be the place to be over the next thirty years. He talked of the need to replace 23m boilers with electric heat pumps, plus fitting electric car charging points for those 23m households also.

So that being said, what would be the best options for buying into this? National Grid? SSE? Nuclear? Wind farm manufacturers?

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1 hour ago, Craig said:

From listening to a chap from Scottish Power on the radio this morning, it sounds like leccy is going to be the place to be over the next thirty years. He talked of the need to replace 23m boilers with electric heat pumps, plus fitting electric car charging points for those 23m households also.

So that being said, what would be the best options for buying into this? National Grid? SSE? Nuclear? Wind farm manufacturers?

https://www.ukpowernetworks.co.uk/internet/en/about-us/suppliers-and-partners/

Seeing as their ridiculous ideas mean doubling the capacity of the grid, throw road worker firms and 11kV substation makers in the list.

Heat pumps don't work right when you need them most - cold nights. Cold still nights? That's wind out of the equation.  Solar stopped working at dusk, of course.

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On 19/10/2019 at 16:07, Errol said:

Bearing in mind that according to Reports, Russia is also about to take control of some of the largest oil reserves in the world - in Venezuela:

 

VENEZUELAN GOVERNMENT IS READYING TO HAND OVER CONTROL OVER STATE OIL COMPANY PDVSA TO RUSSIA’S ROSNEFT, A LOCAL NEWSPAPER HAS REPORTED, CITING SOURCES FROM THE INDUSTRY.

I was looking at Gazprom and Lukoil.Any others you know of that I could have a buthcer's at Errol?

On 19/10/2019 at 16:31, JMD said:

 

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 with @kibuc on Sandstrom.Some of teh royalty co.s have had great runs and I would presume as the bull develops,then the miners will accelerate.

We own Sand (0.8%) and Osisko(0.3%) as part of our PM exposure.

 

On 21/10/2019 at 07:14, 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

LSL Acadata reports falling annual prices,the most recent isn't on the page and I can't screenshot it but the charts paint a picture of a market in slow decline in the South East,rising in the north and Midlands.

Worth noting that the count of London Boroughs rising/falling is 25/33.Biggest loser is Cirty of London -28%,3 others with double digit loss,1 with a double digit gain (due to a large new build complex being sold) 13% hackney, 6 boroughs falling between 5%-10%

Also worth noting that 14/19 SE county/unitary authorities going down.

 

It's like watching a glacier slow.

https://www.lslps.co.uk/news-and-media/market-intelligence/house-price-index/england-and-wales-house-price-index

 

On 20/10/2019 at 19:30, Moominpapa said:

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.

 

Super thanks for posting

 

 

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On 22/10/2019 at 03:30, JMD said:

SanchoPanza,  did you buy  CK Hutchison holdings  in the end? Or did the Hong-Kong political situation perhaps put you off?

Its a telecoms, along with energy and infrastructure businesses. Although its HQ is in Hong-Kong, its operations are mostly outside Hong-Kong. 

I'm not buying anythign too exotic in terms of Telecoms until the big kahuna is behind us.Own a few vod,would buy some Western fixed line comms if they were cheap enoguh but as @Democorruptcy alludes,you have to be carefull what you're buying when you venture out there,hence I tend to stick to the ADR;'s.Sing tel remains a vehicle that ticks a lot of asset boxes geogrpahically and for mobile comms(which is where the long term growth is imho)

 

 

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26 minutes ago, sancho panza said:

LSL Acadata reports falling annual prices,the most recent isn't on the page and I can't screenshot it but the charts paint a picture of a market in slow decline in the South East,rising in the north and Midlands.

Worth noting that the count of London Boroughs rising/falling is 25/33.Biggest loser is Cirty of London -28%,3 others with double digit loss,1 with a double digit gain (due to a large new build complex being sold) 13% hackney, 6 boroughs falling between 5%-10%

My target area of Staffordshire has, according to LSL, just rolled over into negative territory Y/Y. Up until recently it had been fluctuating quite a bit on a monthly basis but now the "search for value boom" is definitely running out of steam and incomes-to-prices seem under pressure, along with a significant number of new builds being put on the market. There simply isn't the job growth in the region anymore to justify the number of new builds flying up, lags can be a real bitch when things turn south.

Finally making the move up end of next month so it'll be interesting to see how things play out on a local level.

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22 minutes ago, Barnsey said:

My target area of Staffordshire has, according to LSL, just rolled over into negative territory Y/Y. Up until recently it had been fluctuating quite a bit on a monthly basis but now the "search for value boom" is definitely running out of steam and incomes-to-prices seem under pressure, along with a significant number of new builds being put on the market. There simply isn't the job growth in the region anymore to justify the number of new builds flying up, lags can be a real bitch when things turn south.

Finally making the move up end of next month so it'll be interesting to see how things play out on a local level.

I've been wrong on UK housing for about 16 of the last 19 years,so beware my take dyor etc.ASlo be aware I went short the UK builders last week....... again....

Have to say locally to me (Leicester)they've reducing the build rate on a lot of new sites,the out of town ones are benefiting from the exodus from Leicester .Looking at Leics and seeing it jsut negative yoy is about right.Seeing leicester city at 4% I do wonder what's driving that because it certainly isn't local earnings.

This market once it's properly turned will head down for some years.Local salary in Leicester is £23k(not sure if that's median or mean-I suspect mean and that median will be lower),LSL states average house price £196k (acadata based on sales so much more accurate than Haliwide).

Average hosue/salary multiple=8.5

 

I call that mental.

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Vancouvers chart looks like a genuine turn,not jsut a dip

https://wolfstreet.com/2019/10/19/canadas-most-splendid-housing-bubbles-v-its-other-markets-september-update/

Vancouver house price bubble deflates 14th month in a row. Toronto matches 2017 peak. Calgary, Edmonton beaten up by oil bust. Quebec City flat for 6 years. Montreal, Ottawa hit new highs.

House prices in Greater Vancouver – in its glory days not too long ago, one of the world’s hottest housing bubbles – dropped another 0.5% in September compared to August, the 14th month-to-month decline in a row, and were down 7.4% from the peak last July, according to the Teranet-National Bank National House Price Index. House prices had more than quadrupled over the 16-year boom from January 2002 through July 2018. The index is now back where it had first been in August 2017:

Canada-house-price-Teranet-2019-10-18-Va

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Democorruptcy
20 minutes ago, sancho panza said:

I've been wrong on UK housing for about 16 of the last 19 years,so beware my take dyor etc.ASlo be aware I went short the UK builders last week....... again....

Have to say locally to me (Leicester)they've reducing the build rate on a lot of new sites,the out of town ones are benefiting from the exodus from Leicester .Looking at Leics and seeing it jsut negative yoy is about right.Seeing leicester city at 4% I do wonder what's driving that because it certainly isn't local earnings.

This market once it's properly turned will head down for some years.Local salary in Leicester is £23k(not sure if that's median or mean-I suspect mean and that median will be lower),LSL states average house price £196k (acadata based on sales so much more accurate than Haliwide).

Average hosue/salary multiple=8.5

 

I call that mental.

Are you still looking at it as single income multiples? 

Earlier this week I stumbled across a re-run of Mark Carney at a Treasury Select Committee on 15th Oct. One of the comments from the public was that house prices were too high in relation to incomes. Carney replied he sympathised but the BoE had helped by increasing lending multiples. I kid you not!

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16 minutes ago, Democorruptcy said:

Are you still looking at it as single income multiples? 

Earlier this week I stumbled across a re-run of Mark Carney at a Treasury Select Committee on 15th Oct. One of the comments from the public was that house prices were too high in relation to incomes. Carney replied he sympathised but the BoE had helped by increasing lending multiples. I kid you not!

Yeah,the fall back position for me is single income.Dual income  is a consdieration but worst case scenario,we roughly know where the floor will occur with single income buyers.It's not a science.

Starngely this market has been held up by FTbers /BTLers all helped and willed on by CBers and politicains desperate fro anything but genuine price discovery which would most certainly prompt a reset of most banks balance sheets.

Love the bit in bold and I bet he'll hold his palms to the air when the junk bond market in the US blows up and we all catch a cold-I use the word advisedly(junk that is),givne that there's a lot of AAA I wouldn't touch.

https://www.investing.com/news/stock-market-news/caterpillar-cuts-profit-outlook-as-china-sales-slump-2002051

(Reuters) - Industrial bellwether Caterpillar Inc (N:CAT) fell short of Wall Street estimates for quarterly profit on Wednesday and cut its forecast for overall earnings in 2019, as it reported a 13% slide in Asia sales driven by weakening demand in China.

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https://www.investing.com/news/stock-market-news/boeing-profit-slumps-53-as-max-grounding-takes-heavy-toll-2002108

(Reuters) - Boeing Co (N:BA) cut production of its flagship Dreamliner and delayed the arrival of a successor to its 777 mini-jumbo, piling new pressures on a rejigged senior management team on Wednesday as the continued safety grounding of its 737 MAX sliced third quarter profits.

On Wednesday, the U.S. manufacturer reported a 53% drop in quarterly profit and had a negative free cash flow of $2.89 billion in the quarter, compared with a positive free cash flow of $4.10 billion a year earlier.

 

Semiconductors heading sotuh today

https://www.investing.com/news/stock-market-news/stocks--wall-street-mixed-after-weak-caterpillar-texas-instruments-earnings-2002244

Elsewhere, Texas Instruments (NASDAQ:TXN) was down 8.7% after its forecast for the full year came in much worse than expected, increasing concerns about the global semiconductor industry in light of the long-running U.S.-China trade war.

 

 

 

 

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6 hours ago, Tdog said:

Any thought on First Trust National Gas ETF. Seems to have been hammered over recent years, more so the last 12 months.

https://money.usnews.com/funds/etfs/equity-energy/first-trust-natural-gas-etf/fcg

Tdog, the sector overall is cheap, but I think you'll find on a company basis, reason is most have high debt or are mostly into shale, or both!... However, some in there are 'good', i.e. i've got devon energy and vermillion. Not advice of course, please dyor. 

 

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