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

[Harley]

9 hours ago, DurhamBorn said:

He let himself be a victim.Why?,mostly because not being is hard.Very hard,it takes time,it take a certain mindset,that you are prepared to think outside the box,learn to be frugal,not go without,but live smarter and healthier.Train your mind to be brutal so that is sees through the fog,sees through the bullshit.

Anecdote.  So today I chased a heating oil delivery.  Getting low and they had exceeded the last delivery date they even previously told me they would most likely beat.  Suffice to say they were repeatedly out of order in how they dealt with my call. 

Oh so unfair but I must sit there and take it because what can I do.  Sure, bitch a bit but effectively just take it.  Just add it to the last time when their delivery driver was one rude SOB.  Er no.  Thanks oil company, sure I'm going to give you all grief about this but big deal, there's more and it's better.  It's my money and I don't have to spend it with you or ideally anyone.  You had your chance. 

But far more importantly, thanks for highlighting a dependency that ain't good for me.  So thanks for giving me the bloody minded incentive to reduce my oil consumption with better insulation, increased use of alternatives (like that nice log store I built), and so on.  I also spent my bitching time looking at the newer meters to see if I could better monitor and control usage.  I also found a great small quantity supplier so I could do a small top up and move my orders to the cheaper and quieter summer.  I learnt how to forecast consumption by converting detailed estimated kwh to litres.  And so on.  It became a very productive day.

I try to use the negativity in a positive way.  The "Art of War" and all that.  I also learnt to cook well when I noticed I was being ripped off for rubbish in most restaurants.  And so on.  I've saved so much and improved the quality of so many things in my life by not sheepishly accepting the script, by harnessing apparent set backs, and creatively seeking alternatives. 

I still remember the scream during my basic training: "never sit down or you'll never get up".  I'm no victim because I choose not to be.  The rest just happens, usually!

[Castlevania]

6 hours ago, DurhamBorn said:

Out of the big ones i think Telefonica has a lot to put right and might cut the divi,but also might have good potential in the longer term.I also like Telia.The key to them all isnt the consumer,thats bread and butter,its connecting up everything else.They should be able to skim a lot of free cash off the extra connections,plus they should start to see cap ex/op ex fall as depreciation tops out.

The sector is carrying too much debt,but the good thing about that is that its all of them,and so they will all cut it slowly.The next stage of the internet should see things being needed much closer to the network,so a lot of the cloud stuff might move onto the networks.They have a chance again to get a bigger bit of the pie.

The good thing is it wont take much for them to be trading around 6 times cash flow,so they might be able to return 12%pa over the cycle as an industry.There might not be many sectors get near that.

Of course rising rates will hit them being so indebted,so there are risks in the sector.They might get smacked down again as well in a sell off,hence crucial to have ladders in place.I think mergers are certain in the sector,its just when.

I compared Vodafone and Telefonica’s debt profiles earlier in the year. It’s not an exact science but buried in the financial statements you’ll find details of their borrowings. Vodafone have been pushing their debt to have a longer and longer duration (a sensible move at a time when debt is cheap). Telefonica’s debt has a much shorter maturity profile.

[Harley]

34 minutes ago, Castlevania said:

I compared Vodafone and Telefonica’s debt profiles earlier in the year. It’s not an exact science but buried in the financial statements you’ll find details of their borrowings. Vodafone have been pushing their debt to have a longer and longer duration (a sensible move at a time when debt is cheap). Telefonica’s debt has a much shorter maturity profile.

Indeed.  Morningstar.co.uk ages, at least for UK companies, their long term debt profile for the last 5 years.  One of my go to data sets which I additionally marry up with the cash flow statement.

Been particularly good for my income portfolio where I then look at the  dividend data and read up on their business investment activity.  There are even some real zombies out there effectively paying dividends with borrowed mony but also some working to protect themselves or, although I'm very cautious about this, using debt productively.

[MrXxxx]

9 hours ago, Harley said:

Anecdote.  So today I chased a heating oil delivery.  Getting low and they had exceeded the last delivery date they even previously told me they would most likely beat.  Suffice to say they were repeatedly out of order in how they dealt with my call. 

Oh so unfair but I must sit there and take it because what can I do.  Sure, bitch a bit but effectively just take it.  Just add it to the last time when their delivery driver was one rude SOB.  Er no.  Thanks oil company, sure I'm going to give you all grief about this but big deal, there's more and it's better.  It's my money and I don't have to spend it with you or ideally anyone.  You had your chance. 

But far more importantly, thanks for highlighting a dependency that ain't good for me.  So thanks for giving me the bloody minded incentive to reduce my oil consumption with better insulation, increased use of alternatives (like that nice log store I built), and so on.  I also spent my bitching time looking at the newer meters to see if I could better monitor and control usage.  I also found a great small quantity supplier so I could do a small top up and move my orders to the cheaper and quieter summer.  I learnt how to forecast consumption by converting detailed estimated kwh to litres.  And so on.  It became a very productive day.

I try to use the negativity in a positive way.  The "Art of War" and all that.  I also learnt to cook well when I noticed I was being ripped off for rubbish in most restaurants.  And so on.  I've saved so much and improved the quality of so many things in my life by not sheepishly accepting the script, by harnessing apparent set backs, and creatively seeking alternatives. 

I still remember the scream during my basic training: "never sit down or you'll never get up".  I'm no victim because I choose not to be.  The rest just happens, usually!

The problem is Harley you (and me) are an exception to the rule, and many whilst bitching/accepting bad service then use the same bad supplier out of laziness or lower price...just look at the budget airlines and the `open` contempt that they have for their customers who continue to come back!

[Harley]

1 hour ago, MrXxxx said:

The problem is Harley you (and me) are an exception to the rule, and many whilst bitching/accepting bad service then use the same bad supplier out of laziness or lower price...just look at the budget airlines and the `open` contempt that they have for their customers who continue to come back!

Indeed.  What I meant by not sitting down.  I did and it just got worse, like a bully coming back for more.  Getting up is not even so much about outcomes, but about a feeling of control and self determination.  As is this thread!

PS:  Yes, also one of the reasons I avoid flying these days and am happy to pay top dollar the rare times things are worth it.  I realised cheap can be below bear acceptable these days, as can expensive be overpriced tat.  Like in so many areas these days (e.g. investing), price is no longer such a good signal.  I find the old put down "if you have to ask the price, you can't afford it" hilarious now!

PPS:  I've mentioned before I'm an Aldi shopper and how I've noticed IMO a subtle change given presumably food price inflation.  More processed food where they can alter the ingredients to meet that all important price point.  Another reason I carefully buy the raw ingredients and cook my own.  It'll be excellent once my partner has the allotment up and running.  Real tomatoes and all the rest.  It's more than a question of cost.  That focus is leading us all to ruin.  Again, parallels to investing.

I'm going on because after all this time this new way of thinking is relatively new and exciting.  I'm like a kid.  Maybe just part of growing up, a road well travelled.  Oh well, back to the topics in hand.....investing......!

[DurhamBorn]

@Harley learning like you say how to do the things you mention is investing in my book.Its as crucial as the rest.I can run a house,car and food on about £600 a month.Thats the number i look at more than any other.Of course i much prefer say £1000 a month as that means i have more disposable than i need,but the £600 figure is where i move forwards not backwards.

 

 

[Napoleon Dynamite]

A relative works for the AA I think a few on here have (probably rightly) warned against investing in them.

He was on a final salary pension scheme. That was closed and he was moved on to a (still generous) scheme where he contributes 10% then the company adds 22%.  Now he's being moved onto a contribute 5% and the company adds 7%.

That's one heck of a pay cut.

These things aren't usually isolated.  One by one all the big firms closed off final salary schemes, wonder if they'll all start reducing their defined contribution schemes too?

[DurhamBorn]

56 minutes ago, Napoleon Dynamite said:

A relative works for the AA I think a few on here have (probably rightly) warned against investing in them.

He was on a final salary pension scheme. That was closed and he was moved on to a (still generous) scheme where he contributes 10% then the company adds 22%.  Now he's being moved onto a contribute 5% and the company adds 7%.

That's one heck of a pay cut.

These things aren't usually isolated.  One by one all the big firms closed off final salary schemes, wonder if they'll all start reducing their defined contribution schemes too?

That is what most companies pay now 5% and them 7% .Its worth about 25% of what companies used to pay in on final salary schemes.

[Democorruptcy]

21 hours ago, DurhamBorn said:

I see the sector as structurally undervalued,though it might get cheaper yet.The key is they dont get the benefit for their capital investment and others use it.I expect we will see mergers though and a much bigger move to cloud based services on the edge of the networks.It could also see something like a big tech company move on a telco.Thats not as far fetched at it seems.Another big one for them is IOT as we could be about to see an explosion in devices.Risks are mainly around debt and satellites.Interesting sector and one im aiming for around 15% of my LNW in.

 

The Telia bit was interesting?

Quote

The Swedish company has sold off its international operations but it still owns a 65,000km-long fibre network covering 115 countries that is used by 900 other telecoms operators to transmit data globally.

 

[DurhamBorn]

24 minutes ago, Democorruptcy said:

The Telia bit was interesting?

 

Funny enough thats exactly what i was thinking when i read it.I think the UK/Sweden has a tax agreement so its only 5% dividend tax (someone might confirm).Thats a hell of an asset isnt it.Im going to start adding some of them.They have done a share buy back lately and debt doesnt look too bad at all.They could be a takeover target as well at some point.

[Castlevania]

47 minutes ago, DurhamBorn said:

That is what most companies pay now 5% and them 7% .Its worth about 25% of what companies used to pay in on final salary schemes.

Mine used to match zero.

[MrXxxx]

2 hours ago, DurhamBorn said:

That is what most companies pay now 5% and them 7% .Its worth about 25% of what companies used to pay in on final salary schemes.

And give it time and they will get closer to the minimum legal percentage that they have to pay (4%)...the problem is that people do not take pensions seriously, and look on them as a bonus in addition to their salary...

...I had a similar conversation with someone at work when they started adjusting our pension scheme, he said he couldn't understand why I was getting upset, so I asked if they started paying him less each month than what was in his contract that he would be happy with that?...needless to say he got the point.

[Thorn]

20 hours ago, Harley said:

I still remember the scream during my basic training: "never sit down or you'll never get up".  I'm no victim because I choose not to be.  The rest just happens, usually!

Bloody brilliant Harley. bloody brilliant.

Inspirational attitude this. The spirit of this thread. Thanks so much Spunko  DB Sancho Harley and everybody for this place. 
Happy New Year everybody 

[Harley]

I'm a boomer/Gen X so been at it a while but I've never had access to a defined benefit scheme at any time.  Same for my partner.  I've had one good contributory scheme % wise but that's it.  Surely mainly a public sector thing for a long time?

[Ellandback]

11 hours ago, MrXxxx said:

And give it time and they will get closer to the minimum legal percentage that they have to pay (4%)...the problem is that people do not take pensions seriously, and look on them as a bonus in addition to their salary..

Isn't the legal minium 3% now, that's what my lot contribute and I have to put in 5%. 

[MrXxxx]

27 minutes ago, Ellandback said:

Isn't the legal minium 3% now, that's what my lot contribute and I have to put in 5%. 

Stand corrected, you are right...and I have fat fingers! :-)

[DurhamBorn]

9 hours ago, Harley said:

I'm a boomer/Gen X so been at it a while but I've never had access to a defined benefit scheme at any time.  Same for my partner.  I've had one good contributory scheme % wise but that's it.  Surely mainly a public sector thing for a long time?

I had one for 10 years at GSK and didnt even have to pay into it,when the redundancies came on they decided to boost the pension pots by 40% if you took redundancy.I knew that was a fantastic deal,the redundancy money was crap (£12k for 10 years),but i took their hands off due to pension.Roll forward to now and the transfer value is 43 times yearly pension,crazy numbers,im doing the transfer now (15 year gilt rates should be close to bottom fof the cycle).One guy i worked with there did 25 years and got the boost back then,he has just done the transfer and got half a mill.He worked on a packaging line.

I can see the door being slammed shut soon on transfers because the numbers are crazy.

DB pensions were never that common really,though if you got in a blue chip company you got one,they seemed to end new people joining in the mid 90s,Brown killed them off though with his massive tax raid to fund tax credits.

[spygirl]

20 minutes ago, DurhamBorn said:

I had one for 10 years at GSK and didnt even have to pay into it,when the redundancies came on they decided to boost the pension pots by 40% if you took redundancy.I knew that was a fantastic deal,the redundancy money was crap (£12k for 10 years),but i took their hands off due to pension.Roll forward to now and the transfer value is 43 times yearly pension,crazy numbers,im doing the transfer now (15 year gilt rates should be close to bottom fof the cycle).One guy i worked with there did 25 years and got the boost back then,he has just done the transfer and got half a mill.He worked on a packaging line.

I can see the door being slammed shut soon on transfers because the numbers are crazy.

DB pensions were never that common really,though if you got in a blue chip company you got one,they seemed to end new people joining in the mid 90s,Brown killed them off though with his massive tax raid to fund tax credits.

I know someone who worked at a LI company.

He was totally shit, drifted into the job from someone in the pub in the late 80s.

God knows who, as the company managed to go bust (took over) in the late 80s)

Stuck there as it was convenient, just by being on there and being slightly more reliable and more numerate then the waves of useless employees, he ended up being a manager (I have a key to safe was his explanation) ended up on 45k with a DB pension.

Single (divorced), no kids.

His pensions entitle with ~30k/y from 60.

Made redundant at 52ish, pension paidup  til 60, 90k payoff.

Hes just cashed his pension to a DC at ~45 times.

45 x 30 = 1.3m pension pot.

 

 

 

UK is never going to see this sot of madness again.

~20 years ago I resolved never to work for a company with a large pension deficit. Thinking was no matter what I earned, all the extra effort will be swallowed by the pension fund.

Ex public sector on civil service type pension are to doubly avoided - think Serco, BAE and the like.

 

 

[DurhamBorn]

11 minutes ago, spygirl said:

I know someone who worked at a LI company.

He was totally shit, drifted into the job from someone in the pub in the late 80s.

God knows who, as the company managed to go bust (took over) in the late 80s)

Stuck there as it was convenient, just by being on there and being slightly more reliable and more numerate then the waves of useless employees, he ended up being a manager (I have a key to safe was his explanation) ended up on 45k with a DB pension.

Single (divorced), no kids.

His pensions entitle with ~30k/y from 60.

Made redundant at 52ish, pension paidup  til 60, 90k payoff.

Hes just cashed his pension to a DC at ~45 times.

45 x 30 = 1.3m pension pot.

 

 

 

UK is never going to see this sot of madness again.

~20 years ago I resolved never to work for a company with a large pension deficit. Thinking was no matter what I earned, all the extra effort will be swallowed by the pension fund.

Ex public sector on civil service type pension are to doubly avoided - think Serco, BAE and the like.

 

 

The numbers really are insane.Of course its mostly down to the fact rates are floating around 1% on the 15 year gilt.Once rates get back to 6% transfer values will likely come down 60%.I think one of the big reasons shareholders in the UK havent done very well at all is due to the amounts sucked up by employees in pensions.Of course they are all running through the system now and in many cases as they kick the bucket as many are the costs come down.

The sweet spot is to transfer now i think because the trustees have to give you what buying what you have would cost in the market.I also still know a lot of people who have no idea they can even transfer.I have a friend who could get half a mill,but i havent told him simply as he loses everything he gets gambling and would lose the lot,hes far better with the £800 a month pension coming.I also knew a guy who could of moved a mill,didnt then died,lost the lot.

My last jobs pay was roughly the same pay as my job at GSK in real terms,slighlty less maybe.10 years in their new pension would get you roughly £55k if markets do ok.10 years in the GSK one then gets you a £180k transfer value now.Thats the difference,pensions now are worth about 25% of what they were.

 

[spygirl]

6 minutes ago, DurhamBorn said:

The numbers really are insane.Of course its mostly down to the fact rates are floating around 1% on the 15 year gilt.Once rates get back to 6% transfer values will likely come down 60%.I think one of the big reasons shareholders in the UK havent done very well at all is due to the amounts sucked up by employees in pensions.Of course they are all running through the system now and in many cases as they kick the bucket as many are the costs come down.

The sweet spot is to transfer now i think because the trustees have to give you what buying what you have would cost in the market.I also still know a lot of people who have no idea they can even transfer.I have a friend who could get half a mill,but i havent told him simply as he loses everything he gets gambling and would lose the lot,hes far better with the £800 a month pension coming.I also knew a guy who could of moved a mill,didnt then died,lost the lot.

My last jobs pay was roughly the same pay as my job at GSK in real terms,slighlty less maybe.10 years in their new pension would get you roughly £55k if markets do ok.10 years in the GSK one then gets you a £180k transfer value now.Thats the difference,pensions now are worth about 25% of what they were.

 

Minor compared to how poorly uk taxpayers are going to do....

I agree the low gilt yields makes the numbers more nuts.

One of my (many) objections to Cuntbin was his banging on about public sector workers.

To keep the uk solvent is going to require a massive facedown and cutting of public sector pensions.

Thus was another thing that sent me up the wall with that one eyed cunt Brown, claiming to be prudent whilst adding 2m to the public payroll.

 

[Harley]

Cheers guys, nice way to start the New Year!  I've worked my rocks off with contributory schemes, the rip off pension funds (which only went up because of my contributions!), and been totally exposed to the vagaries of the markets.

But I'm an entitled boomer/gen X who should be racking it in!  I could have just cruised in the right job and let the company/public sector org and its shareholders/taxpayers do all the hard work.  Just think what the execs have creamed in.  I'm wrong, I'm a victim, it's unfair.  I should be able to have (take) some of it!  

But then who knows what will happen.  How secure are those pensions?  At least I have some actual money, I hope!  And I'll work double time (smart wise) this year to start closing that gap.  Right guys, a bit of charity please, which mining stock will make me £500k this year?

So @DB not a good time to be buying 15 year gilts then?  

PS:  My public sector friends stay sturm now.  No more bleating about how bad things are.  And they've made it quite clear, conversation closed.  They finally know and are keeping their heads down.  Not that I'm engaging in envy politics or divide and rule.  Good luck to 'em, just nice to stop hearing the bleating.  Sounded like farmers for a while there.

PPS:  Will the last productive mug please turn the lights off!

[DurhamBorn]

3 minutes ago, Harley said:

Cheers guys, nice way to start the New Year!  I've worked my rocks off with contributory schemes, the rip off pension funds (which only went up because of my contributions!), and been totally exposed to the vagaries of the markets.

But I'm an entitled boomer/gen X who should be racking it in!  I could have just cruised in the right job and let the company and its shareholders do all the hard work.  I'm wrong, I'm a victim, it's unfair.  I should be able to take some of it!  

But then who knows what will happen.  How secure are those pensions?  At least I have some actual money, I hope!  And I'll work double time this year to start closing that gap.

So @DB not a good time to be buying15 year gilts then?  

Well i waited until now (last year actually, but its taken a long time to get the transfer sorted) to transfer because i think gilts are about bottom.In a big sell off they might go negative for a while,but i wouldnt want to transfer then anyway because for one the door might get shut,but two the time it takes to transfer with market dislocation going on would be a nightmare.

What i would say though is a lot of people who do transfer dont understand the risk of draw down.Most doing it go in those 60/40 type funds,and although on the surface that seems conservative and a good idea inflation will be a nightmare if shares end up level inflation adjusted,bonds go down 60%+,fees equal 1.2% a year and draw down is 5% a year.I think some of those pensions will empty over 10 to 15 years if a reflation cycle is stuck in the middle.

Of course all of these things are due to the great dis-inflation cycle since 1982/83,my road maps are pointing to a full reverse as possible,maybe 12% rates,double digit inflation etc.Not certain of course,but the direction is changing and i doubt many will notice until its done massive damage to their wealth.

[Harley]

18 minutes ago, DurhamBorn said:

...fees equal 1.2% a year and draw down is 5% a year.I think some of those pensions will empty over 10 to 15 years if a reflation cycle is stuck in the middle.

I'm plan to crystallise my drawdown from my SIPP next week.  Not because I want it or indeed could afford to do it but because I fear they'll start making it harder.  Not sure which type though.  I doubt I'll earn much going forward given my current comfortable life mix and I'd rather play with ISAs and my annual CGT allowance first.  And if I did go back to proper work (if they needed me) it would be something exotic overseas so not sure a SIPP would work anyway.  I'm with one of the big boys like HL, AJ Bell, Interactive.  Are the drawdown fees really that much (1.2%)?  And do they only apply on drawdowned amounts?  And the quoted 5% - that's the amount drawn down not a fee, right?  I'm being a bit lazy but will obviously find out.  Just nice to get that and any other perspectives first.

[DurhamBorn]

14 minutes ago, Harley said:

I'm plan to crystallise my drawdown from my SIPP next week.  Not because I want it or indeed could afford to do it but because I fear they'll start making it harder.  Not sure which type though.  I doubt I'll earn much going forward given my current comfortable life mix and I'd rather play with ISAs and my annual CGT allowance first.  And if I did go back to proper work (if they needed me) it would be something exotic overseas so not sure a SIPP would work anyway.  I'm with one of the big boys like HL, AJ Bell, Interactive.  Are the drawdown fees really that much (1.2%)?  And do they only apply on drawdowned amounts?  And the quoted 5% - that's the amount drawn down not a fee, right?  I'm being a bit lazy but will obviously find out.  Just nice to get that and any other perspectives first.

Im talking about most people Harley who use IFAs for their pensions/draw down they tend to have platform fees of 0.2% and then ongoing fees of 1% and thats at best,there could also be fund fees on top.Given i expect a 60/40 portfolio will lose money nominal over the next cycle 15 years looks like a very real possibility for a lot of people.

SIPPs for us have tiny charges,i think HL is £200 max +fund fees so if you had say £200k in individual shares its tiny.Of course the added bonus is US shares that you get the dividend tax back on,even in draw down.

HL dont charge anything on draw down amounts,AJ Bell do,but then i think AJs costs are slightly lower and it all evens out roughly the same.

Im pretty convinced the problem most people will have is inflation cutting the values of bonds heavily and stocks maybe holding there own at best.If those sort of funds even manage to stand still nominal they are toast over 15 years of draw down.The irony is if they just contained 10% silver they might hold their own.

[Harley]

15 minutes ago, DurhamBorn said:

....The irony is if they just contained 10% silver they might hold their own.

Many thanks Zero, and all the best to you and the crew, or should I say "troop" (you elite bunch of toerags)!

So I'm gonna cream it with me 25% PM allocation!!!!!  Done fair so far over the long term.  As they say, gold for the cautious, plus a bit of silver if you want some adventure!

The stuff I hear coming from the Financial Advisory community sounds like mustering for a fight back, hence my desire to move on the SIPP.  I could be well wrong but, as an on-paper oldish fart, have little to lose!

PS:  I'm gonna wait out on the bond purchases.  They'll have their day again some time.  Maybe 5 years or so?