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

[Talking Monkey]

2 minutes ago, MrXxxx said:

Why am I always `in the wrong place at the wrong time`?!

Or maybe the last 30-50 years in this country was an aberration in terms of  plenty (or enough at least) for all. Before that it was poverty for the majority of the population and maybe we are heading back to that

[CVG]

59 minutes ago, MrXxxx said:

...and also those on DB pension, where many policies only cover upto 5% in full, half to 10%, and then nothing after that, so when rates go above 5% their buying power will start eroding!...

I should be so lucky! The main part of my DB in payment now is capped at 5% and the rest is on discretionary increases - for which my company has used its discretion to make no increase in the last 5 years! LOL!

So I'm forewarned and, by this thread, forearmed.

[DurhamBorn]

2 hours ago, MrXxxx said:

So if my understanding of this is correct... the inflation loving stocks due to their strength in having either:

a) the ability to increase prices above inflation due to being consumer essentials, or

b) a foundation of depreciation assets (such as vehicles for bus companies) that were bought in a low interests environment allowing them a greater profit margin,

...means that they will be able to offer more reliable and higher dividends than other areas of the market/stocks?

...and your move of focus from growth to income is due to retirement, so needing a regular/reliable above inflation income, rather than the more volatile `roller coaster ride`/cyclical nature of growth shares?

There are lots of moving parts and all companies are hit in some ways,or do well in others.Its the scale of each that matters.

If we take a telco company.It owes £10 billion in debt,its assets to build today would cost £20 billion.Now rising rates will increase its debt payments,so in the past telecos havent liked rising rates.However that was in an age where telco was mainly a land line and a mobile for calls.Their main input costs are building assets and the wages of employees to maintain them.Competitors can enter the market and roll out networks by borrowing for almost free.Roll forward to a reflation as rates are rising and things change.The incumbent sees its interest rate bill increase,but its debt has a long profile,new entrants have to borrow at much higher rates,and cant compete.This then means slowly prices can be pushed up,and due to the assets already depreciating at a set level then most of the extra flows to free cash.

Because of the above i think the telcos are structurally undervalued.

Transport companies are another.Although depreciating their assets doesnt help cashflow as much as telcos they also hedge oil 4 years out.This will give them a very sweet spot as oil shoots higher mid cycle.They might see falling demand at first though as less people work/travel into town,but government is likely to help here as well with perhaps discounted travel for younger people etc.There is also the fact more people will go down to one car instead of two etc.

Its never certain of course and thats why people still need a balanced portfolio across plenty of sectors and companies,but tilted towards areas that can at minimum increase their prices with inflation.

 

[DurhamBorn]

2 hours ago, MrXxxx said:

...and also those on DB pension, where many policies only cover upto 5% in full, half to 10%, and then nothing after that, so when rates go above 5% their buying power will start eroding!...

...also be interesting to see how the Govt manages the Pensions `Triple lock promises`...if they follow through with all of their development promises that will need printing inflation will go up, and then they will need to find even more money to service both public service DB pensions AND triple lock State pensions...oh, and they are going to reduce the taxes as well...yeah right!

Yes,and remember most are funded with 15 year gilts at 1% interest at the moment.The government is going to have massive problems with its wage bill and benefits and pensions.They are already about 30% too generous,but cutting them will prove very difficult.Likely they will tighten criteria instead and keep pushing the ages back.I think state pension age will go to 69 and move when you can take a pension to 59.

[DurhamBorn]

1 hour ago, CVG said:

I should be so lucky! The main part of my DB in payment now is capped at 5% and the rest is on discretionary increases - for which my company has used its discretion to make no increase in the last 5 years! LOL!

So I'm forewarned and, by this thread, forearmed.

Mine is 12.5% cap,but my partners is 2.5%.

 

1 hour ago, Talking Monkey said:

Or maybe the last 30-50 years in this country was an aberration in terms of  plenty (or enough at least) for all. Before that it was poverty for the majority of the population and maybe we are heading back to that

I can remember being very poor when i was a kid in the 70s and when i left school in the 80s it was brutal,everything had shut.We used to go over the landfill and dig up all the dumped reject ciggies from the Rothmans factory and sell the baccy (after we took our own).They used to dump porn mags there as well and we used to get the ones that werent mush and sell them to fellas coming out of the workmans club.A few of the lads in our group from back then are dead now and im not even 50.

[BadAlchemy]

54 minutes ago, DurhamBorn said:

Mine is 12.5% cap,but my partners is 2.5%.

 

I can remember being very poor when i was a kid in the 70s and when i left school in the 80s it was brutal,everything had shut.We used to go over the landfill and dig up all the dumped reject ciggies from the Rothmans factory and sell the baccy (after we took our own).They used to dump porn mags there as well and we used to get the ones that werent mush and sell them to fellas coming out of the workmans club.A few of the lads in our group from back then are dead now and im not even 50.

My small DB pension is all capped @ 5%. It would be just enough for me to live on but with mega inflation would probably fall short. Luckily I have other funds/resources and I take a keen interest in this thread and elsewhere as to how to best develop them...

@DurhamBorn your stories are always a joy to read but this one of digging up free ciggies and porn mags takes the biscuit. Sounds like you hit the jackpot in your younger days there 

[DurhamBorn]

56 minutes ago, BadAlchemy said:

My small DB pension is all capped @ 5%. It would be just enough for me to live on but with mega inflation would probably fall short. Luckily I have other funds/resources and I take a keen interest in this thread and elsewhere as to how to best develop them...

@DurhamBorn your stories are always a joy to read but this one of digging up free ciggies and porn mags takes the biscuit. Sounds like you hit the jackpot in your younger days there 

It was a big quarry right near where we lived.Lots of limestone dug out and was being used for landfill.Wonderful place to play as young lads.One side had a wood/copse/scrub area and a few ponds.We used to make camps there.The amount of fags dumped was huge,we knew the lorries who worked for Rothmans and worked out when they dumped.Usually they were where the filter was 3 quarters of the fag and so a reject.We simply cut the end off and put the baccie in a bag.Sometimes though you got longer ones and my mate found one once over 2 feet long  he took it to school and decided to prank the teacher.We told him Blacky was smoking behind the maths block.When teacher got there Blacky had his back to teacher facing wall and smoke coming up.Teacher shouted at him and he turned around and the 2 foot long fag was in his mouth ,teacher pissed himself laughing,still whacked him on head with his cup though.

The porn must of been from a local printers or wholesalers as it was always mixed with Smash Hits mags and Jackie etc.Usually they were wet and mush,but if you stripped the bundles down you got a lot in the middle ok to sell.We used to pin the centrefold pages where a woman had legs spread wide on the canyon wall and use our air rifles to see who could get one between the lips,.Only problem was all the rats over there,thousands of them and big as well.One lad had a couple of jack russels though and they used to kill them one after another.Tough times really,but learned how to make a bob or two.As i say some of those lads are dead now and there is many a time i drive past places we used to play and it brings a tear to my eye.Thick as thieves we were.

[Loki]

2 minutes ago, DurhamBorn said:

.Sometimes though you got longer ones and my mate found one once over 2 feet long  he took it to school and decided to prank the teacher.We told him Blacky was smoking behind the maths block.When teacher got there Blacky had his back to teacher facing wall and smoke coming up.Teacher shouted at him and he turned around and the 2 foot long fag was in his mouth ,teacher pissed himself laughing,still whacked him on head with his cup though.

[Talking Monkey]

1 hour ago, DurhamBorn said:

Mine is 12.5% cap,but my partners is 2.5%.

 

I can remember being very poor when i was a kid in the 70s and when i left school in the 80s it was brutal,everything had shut.We used to go over the landfill and dig up all the dumped reject ciggies from the Rothmans factory and sell the baccy (after we took our own).They used to dump porn mags there as well and we used to get the ones that werent mush and sell them to fellas coming out of the workmans club.A few of the lads in our group from back then are dead now and im not even 50.

Being raised in the north I was a kid in the 80s  we were poor but it didn't seem like it as all the kids I went to school with were all from similar backgrounds so we didn't realise we didn't have anything, we didn't realise we were poor. I got lucky as I pissed about in education long enough to avoid coming out to no work although I grafted in factories and warehouses during the summers. In the years since that northern simple living has stayed with me to a certain extent, if I get booted back to poverty (some times I run thought experiments in my mind) I know I have the hustle and grit to grind through and that is what my northern upbringing instilled in me. The years of plenty post education where I got to do some fantastic things will be pleasant memories I'll get to keep. I won't be scared to go back to graft hard again for little money.

Some of the lads a couple of years older than me who came out of education to no work developed a despondency that never left them, they aged at an unbelievable rate and were old men by 40. Some of them had great potential but that setback early on derailed them for life. There were probably thousands of young people who were derailed in the 80s, thousands more in 2008/9 and there will be thousands more young people who will be derailed in the next couple of years, their lives taking a completely different trajectory to what they had hoped for.

[Shamone]

3 hours ago, DurhamBorn said:

Mine is 12.5% cap,but my partners is 2.5%.

 

I can remember being very poor when i was a kid in the 70s and when i left school in the 80s it was brutal,everything had shut.We used to go over the landfill and dig up all the dumped reject ciggies from the Rothmans factory and sell the baccy (after we took our own).They used to dump porn mags there as well and we used to get the ones that werent mush and sell them to fellas coming out of the workmans club.A few of the lads in our group from back then are dead now and im not even 50.

I'm a very similar age to you and I remember my older brother stashing his porn in the park bushes and the boot of my three-wheel tricycle! We grew up without much (no car, holidays, no new clothes and trainers boo-hoo) BUT I'm so glad of these experiences making it relatively easy to live on little. My wife and I both work part-time and barely pay any tax. Being content with very little is worth a 50k job a year to me. 

[janch]

46 minutes ago, Simon said:

Being content with very little is worth a 50k job a year to me. 

Ditto

[MrXxxx]

5 hours ago, DurhamBorn said:

Yes,and remember most are funded with 15 year gilts at 1% interest at the moment.The government is going to have massive problems with its wage bill and benefits and pensions.They are already about 30% too generous,but cutting them will prove very difficult.Likely they will tighten criteria instead and keep pushing the ages back.I think state pension age will go to 69 and move when you can take a pension to 59.

So inflation=pension reform=strikes?

[MrXxxx]

5 hours ago, DurhamBorn said:

We used to go over the landfill and dig up all the dumped reject ciggies from the Rothmans factory and sell the baccy (after we took our own).They used to dump porn mags there as well and we used to get the ones that werent mush and sell them to fellas coming out of the workmans club.A few of the lads in our group from back then are dead now and im not even 50.

Its all that nicotine.....or too much wanking! :-) :-) :-)

[DurhamBorn]

3 hours ago, MrXxxx said:

Its all that nicotine.....or too much wanking! :-) :-) :-)

Suicide actually took 3 of them.One of them through probably too much drinking and smoking over the years.He worked etc,his diet was very poor as well.The suicides all due to women in one way or another,though not the womens fault.One simply had an argument with his wife and snapped,one never got over his wife leaving him and he ended up an alco smack head living with a woman the same.Ropes those two.The other was having an affair and it all came out.Blew his brains out in his shed.A few of the lasses from our group back then have died as well,cancer mostly,and a few have been very ill.

The irony is the lads were as tough as youd meet.They would jump in a scrap with 20 lads and crawl home laughing with broken bones,yet some scars go too deep i guess.

For all our towns been rough ,The Smiths were the most popular band at the time.Some of the most romantic moments in life often happen in the most melancholy of places.

 

[DurhamBorn]

4 hours ago, Simon said:

I'm a very similar age to you and I remember my older brother stashing his porn in the park bushes and the boot of my three-wheel tricycle! We grew up without much (no car, holidays, no new clothes and trainers boo-hoo) BUT I'm so glad of these experiences making it relatively easy to live on little. My wife and I both work part-time and barely pay any tax. Being content with very little is worth a 50k job a year to me. 

Very true.I would suspect i have more net assets than 95% of the people i know,yet drive the oldest car,take the least holidays etc.Not because im greedy,simply as i find no pleasure in such things.Luckily my partner is similar,and loves not having to worry.The tax allowances in this country are now so generous you can really structure to have a great income with very little tax.£12.5k x 2 from income or SIPPs etc,£20k a year in an ISA for the tax free divis and capital gains.Most things bought 2nd hand to avoid the VAT,only really council tax that whacks you hard.

[CVG]

3 minutes ago, DurhamBorn said:

£12.5k x 2 from income

And if you're married then don't forget to transfer that extra 1K allowance between you as necessary.

[Dogtania]

@DurhamBorn only read couple of your posts immediately above but really emotive and interesting to hear.

I was totally born into different set of circumstances even further north (Scotland) As a kid through the 80s there were various moments you pick up on and threads etc but don't really understand until later (I remember for some reason saying in front of friends patents something about Thatcher in as positive light and being shot down(Def no interest in politics then and now only at a distance as in very sceptical and apolitical)  You would be closer to age with my brother who was 9yrs senior.  Both him and my sister slightly older again but not by as much would I guess be seen as being born with silver spoons by somebody born in different part of country.  Anyway for whatever reason he was rebel from birth, left school for all intents and purposes from senior school, driving on motorways age 12 etc never in serious trouble say with law or drugs but definitely used up a few of his 9 lives during teenage years.  Sister totally different social class from then on - don't know how this turned into biatribe as such, just saying I remember him wearing fuck the poll tax caps and his friends around back then who I guess were to greater lesser degree totally part of this generation you so succinctly worded

Anyway to the point and why I'm writing is just curious your take on Thatcher and the 80s.  I thought the Tories in the 80s hollowed out the North, not sure if there was any other option or maybe just it was being in wrong place wrong time (ie like say being born in poor village in Nepal or whatever)

Sorry if thread derailment but it's the weekend after all

[Bricks & Mortar]

12 hours ago, MrXxxx said:

Any one else like to give their perspective on this, as mine is a similar scenario?

Note, as always I reserve the right to completely ignore your `financial advice` and lose what little money I have ! :-)

I'll have a go.

Cash is my plan for the deflation.  I'm holding on to pm stocks for the moment.  But looking to sell and go into cash over the next few months, (as and when I think investments have run their course, or at the first sight of a dramatic drop if I time it wrong).  I'm holding on in the short-term, for the possibilities of QE, or a commodities led melt-up, or the China trade deal going bad - any of which might lead to a last hurrah for the metals.
I think cash will be a great place to be in the deflation, while anything and everything else might be going downward.
Not a problem of mine, but if you have more than £85,000, spread it around in multiple banks, for the government guarantee.
I don't particularly like the idea of being all-cash, for all the reasons you stated.  I'll spread mine around in a variety of places, including under the mattress, buying a USD ETF, some in my HL account, bank account, business bank account, or in my Royal Mint account.
Will look at the TLT ETF (US government bonds), and possibly put some in that, as the only non-cash thing I'd be holding - depending on if it looks cheap at the time.

Timing the start and end of the deflationary period is of course, the tricky bit.

[Majorpain]

China cant ride to the rescue this time by printing more money, the African Swine virius sweeping the country and killing off the main source of protein is feeding directly into food inflation and a rising CPI.  The last thing the communist government needs right now with Hong Kong bubbling is food riots on the mainland.

[MrXxxx]

2 hours ago, DurhamBorn said:

Suicide actually took 3 of them.One of them through probably too much drinking and smoking over the years.He worked etc,his diet was very poor as well.The suicides all due to women in one way or another,though not the womens fault.One simply had an argument with his wife and snapped,one never got over his wife leaving him and he ended up an alco smack head living with a woman the same.Ropes those two.The other was having an affair and it all came out.Blew his brains out in his shed.A few of the lasses from our group back then have died as well,cancer mostly,and a few have been very ill.

The irony is the lads were as tough as youd meet.They would jump in a scrap with 20 lads and crawl home laughing with broken bones,yet some scars go too deep i guess.

For all our towns been rough ,The Smiths were the most popular band at the time.Some of the most romantic moments in life often happen in the most melancholy of places.

 

The `problem` is you can see broken bones, you can't usually see mental well-being until it's too late to offer help :-(

[DurhamBorn]

3 hours ago, Dogtania said:

@DurhamBorn only read couple of your posts immediately above but really emotive and interesting to hear.

I was totally born into different set of circumstances even further north (Scotland) As a kid through the 80s there were various moments you pick up on and threads etc but don't really understand until later (I remember for some reason saying in front of friends patents something about Thatcher in as positive light and being shot down(Def no interest in politics then and now only at a distance as in very sceptical and apolitical)  You would be closer to age with my brother who was 9yrs senior.  Both him and my sister slightly older again but not by as much would I guess be seen as being born with silver spoons by somebody born in different part of country.  Anyway for whatever reason he was rebel from birth, left school for all intents and purposes from senior school, driving on motorways age 12 etc never in serious trouble say with law or drugs but definitely used up a few of his 9 lives during teenage years.  Sister totally different social class from then on - don't know how this turned into biatribe as such, just saying I remember him wearing fuck the poll tax caps and his friends around back then who I guess were to greater lesser degree totally part of this generation you so succinctly worded

Anyway to the point and why I'm writing is just curious your take on Thatcher and the 80s.  I thought the Tories in the 80s hollowed out the North, not sure if there was any other option or maybe just it was being in wrong place wrong time (ie like say being born in poor village in Nepal or whatever)

Sorry if thread derailment but it's the weekend after all

I loved Thatcher.It was brutal what happened,but certain.Instead of been a victim i decided to get on in life.I left school with ungraded in my Maths GCSE,the lowest mark you can get.4 years later i applied for a job with Glaxo and took their tests.My maths test i came 3rd out of 5000+ who took it.The mechanical i came 4th.Reason was i didnt give a toss at school and fell asleep during the exam as the night before i was smashed drunk on Merrydown cider and Clan Dew and rattling a girl from the Catholic School.

The north lost massive amounts of industry and it was industry that employed a lot of people.The problem was for every 3 who deserved the job and were good,7 were lazy and useless.Iv always thought you need to look at the big picture and understand it.The reforms Thatcher did took a lot of pain,but by the mid 90s we were in a great position again.Labour came in and wrecked it all as usual though.Brown was the biggest disaster to hit this country in politics since the reformation.

[Dogtania]

Thanks @DurhamBorn interesting to hear I'm still at a loss as to political direction past, present or future.  Think partly was due to fact never really discussed politics in family when young ie my dad wouldn't answer who he voted for.

Anyway you seen to have a real natural affinity for maths there, impressive stuff and esp when you put your mind to it.. but definitely sounded like you were one of the lucky or just plain talented ones.

The 80s politic scene remains so desisive and I honestly don't know if I'll ever have a true opinion but what you say makes sense.  Same today with things like trump going on, I honestly can't take one side or the other.  Maybe because I don't like being told what is right or wrong in such black and white terms and I like debate and dialogue (or maybe just contrarian shade).   Never liked labour especially (or not) but when I Corbyn first came on the scene and the left mainstream were denouncing I actually thought about joining in order to keep him leader. 

Hindsight has changed things now things but selfishly I do enjoy the popcorn, just like I do with trump shaking things up a bit.  A bit of a wrong attitude to take and if I had children I would likely take a more serious stance.

Anyway food for thought as always ta

 

Merrydown I remember that and bit of white lightning and 20/20 for the girls 🤪

[Majorpain]

 

7 hours ago, DurhamBorn said:

The north lost massive amounts of industry and it was industry that employed a lot of people.The problem was for every 3 who deserved the job and were good,7 were lazy and useless.Iv always thought you need to look at the big picture and understand it.The reforms Thatcher did took a lot of pain,but by the mid 90s we were in a great position again.Labour came in and wrecked it all as usual though.Brown was the biggest disaster to hit this country in politics since the reformation.

The last ship to be built on the Tyne was one of the Bay Class at Swan Hunters, having completed the Hull of the ship it was time to flood the dock and let her float for the first time.  Would it be a good idea to double check the valves on the bottom of the ship are closed?  Nah....

Result: One flooded brand new ship later, other ship transferred to Glasgow for completion and shipyard closed.

[MrXxxx]

6 hours ago, Dogtania said:

Thanks @DurhamBorn interesting to hear I'm still at a loss as to political direction past, present or future.  Think partly was due to fact never really discussed politics in family when young ie my dad wouldn't answer who he voted for.

Anyway you seen to have a real natural affinity for maths there, impressive stuff and esp when you put your mind to it.. but definitely sounded like you were one of the lucky or just plain talented ones.

The 80s politic scene remains so desisive and I honestly don't know if I'll ever have a true opinion but what you say makes sense.  Same today with things like trump going on, I honestly can't take one side or the other.  Maybe because I don't like being told what is right or wrong in such black and white terms and I like debate and dialogue (or maybe just contrarian shade).   Never liked labour especially (or not) but when I Corbyn first came on the scene and the left mainstream were denouncing I actually thought about joining in order to keep him leader. 

Hindsight has changed things now things but selfishly I do enjoy the popcorn, just like I do with trump shaking things up a bit.  A bit of a wrong attitude to take and if I had children I would likely take a more serious stance.

Anyway food for thought as always ta

 

Merrydown I remember that and bit of white lightning and 20/20 for the girls 🤪

I think the political situation (and whom is wrong/right/bad/good) in my lifetime comes down to two questions and a single statement:

1. Why do we still have such great disparity in wealth?

2. Why is there such little incentive/reward for people to better themselves through hard work?

...perhaps these continually fail to be addressed by any political party/politician as they themselves benefit massively whilst they remain unanswered.

[Loki]

14 minutes ago, Tdog said:

Ive been inspecting those great big offshore windmills built in the Middle East by Indians and folk of such nations flown in to make them. I'd back 1980s North Eastern tradesmen over them any day of the week.  7 years ago worked on a rig they built that got scrapped as they Jinglys fucked it up so badly.

You must have some stories.  What was up with the rig they scrapped?