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


spunko

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sancho panza
23 hours ago, Errol said:

ENxDg-7WsAAc3Pc.png

nice graph.compelling.

21 hours ago, BurntBread said:

Agree Agre  is there a published statistic of dry shipped volumes out there - in other words the thing that people hope BDI to be measuring?

think there's an issue as per sugarlips comment re ship numbers.

for decent data Aussie iron ore/coal exports are a relaible but backward facing obviously.not sure on the shipping.

https://dfat.gov.au/trade/resources/trade-at-a-glance/Pages/top-goods-services.aspx

Talking of Oz

https://wolfstreet.com/2020/01/07/australia-new-vehicle-sales-drop-for-2nd-year-in-a-row-11-from-2017-lowest-since-2011/

Australia is next as we’re tracking the decline in global new-vehicle sales that started in the US in 2017 and took on serious dimensions in 2018 with vehicles sales falling for the first time in modern China, the largest auto market in the world.

New-vehicle sales in Australia fell 7.8% in 2019 to 1,062,867 units, the lowest since 2011, after having already fallen 3.0% in 2018, for a combined decline from the historic peak in 2017 of 10.8%. The sales declines in 2019 got worse all year, well before the horrific wildfires began. And December, when the wildfires were raging, new vehicle sales actually fell “only” 3.8% year-over-year. Soley blaming the wildfires would miss the target:

Australia-auto-sales-2019.png

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3 hours ago, janch said:

Card Factory isn't looking too clever today:

www.sharesmagazine.co.uk/news/shares/card-factory-folds-on-christmas-disappointment-and-dividend-concerns

<humour mode defo on>

I hold it because someone said so!  I am a victim!  It's not my fault.  I want someone else's money!

<humour mode off, back to normal!>

2 hours ago, lid said:

I can see them folding 

Oh stuff it!

2 hours ago, sancho panza said:

I'm now starting to use the mponthlies for timing sales.Just cuts out a lof the nosie.

#MeToo

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1 hour ago, sancho panza said:

We're buying for a year now(already hold 15% in big oilies),if we get a run up,quick move to cash,then get ready for a decade watching it grow.

What watch grow?  Your money?  Or re-invest (i.e. are you expecting a run up and then fall and then another run up)?

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TheCountOfNowhere

I read that carnage says we are facing a liquity trap days after the cons say their budget will focus on infrastructure spending.

I read on investorpedia there are 3 ways out of the trap... 1) raise interest rates. 2) a big drop in prices and 3) infrastructure spending. 

 

It looks go me they will continue to refuse to raise rates, hell will freeze over before the let poor people see lower prices... So they will try and spend and inflate. 

 

Is that about right? 

 

In this case DB is right about which stocks to hold but will we see lower prices in anything? 

 

This is one fine mess. 

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Luckily I don’t own much Card Factory but what a crucifixion today, mine are down 41%. Retail in general being hammered, looks like John Lewis “partners” won’t be getting their bonus for the first time since 1953! This ain’t just an online shopping story, verge of recession if not already in one, hence Carney’s clumsy speech this morning about likely lowering lates very soon, GBP down.

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5 hours ago, sancho panza said:

Thanks for the uopdates MP.Keep em coming.

 

How bad are things at the moment in the trade?Are these isolated incidences or is fear starting to spread amongst those smaller construction co.s?

Turn of the year nearly every competitor had a new website, by itself its interesting but 10 years after 2009 and a deflationary crash somewhere in the near future its red alert time. 

Credit insurer wanted more money to renew but would insure less companies compared to Jan 19, the must have been stung massively already so can see the writing on the wall for the weak.

Construction is also generally poor these days, all price and no quality, loaded with debt and finance, my prediction that 50% of the sector wouldnt survive is looking very good right now.  Even simple things like providing a size has a 25% chance of going wrong which is mad, thats before you get to the more complicated end of the spectrum.

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I confess card factory was one I just couldn't convince myself to buy.  The same thought process has cost me hypothetical profits before of course.  Win some, lose some.

 

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TheCountOfNowhere
15 minutes ago, Barnsey said:

Luckily I don’t own much Card Factory but what a crucifixion today, mine are down 41%. Retail in general being hammered, looks like John Lewis “partners” won’t be getting their bonus for the first time since 1953! This ain’t just an online shopping story, verge of recession if not already in one, hence Carney’s clumsy speech this morning about likely lowering lates very soon, GBP down.

Carneys leaving... He's doing but that evil little shit in the EU did... Forced the hand of his successor. 

Anyways... 

 

Screenshot_20200109_205128.jpg

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5 hours ago, sancho panza said:

It's a real dilemma barnsey.Youre one of the forewarned with that comment.Best go for the likes of HSBC if you can.Some of the smaller BS's are working off minimal net interest margins.Wouldn't want to see a 10% drop in prices.

Worth noting as ever that London appears to be deflating.Do you follow the LCP and LSL acadata series.?Has Leicester leading the pack in the east mids.Average hosue 10 times the average salary here.I jest not.

I've said to mrs P if we ever buy anywhere it's for 10+ years-buying costs/maintenance otherwise too much.But my problem is that I'm becoming obsessed with buying loads of commodity stocks and using them to pay the rent wherever we are.It's a very difficult call.But if you can get 15 years fixes out of HSBC then I'd be tempted to get one.

Spot on, big banks only. I can get a decent rate on a 10 year fix with 75% LTV, a 15 yr one would be much better though but maybe they’d charge a much higher rate for the certainty.

London certainly is deflating, most other places flatlining. Leicester is an oddity along with Nottingham, but then I saw this:

https://www.moneyadviceservice.org.uk/en/corporate/a-picture-of-over-indebtedness-in-the-uk
 

Both right near the top of the list

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30 minutes ago, Loki said:

I confess card factory was one I just couldn't convince myself to buy.  The same thought process has cost me hypothetical profits before of course.  Win some, lose some.

 

  On 29/07/2019 at 00:04, Castlevania said:

I did find Tui an odd choice. I’m glad your Dad agrees with me ;)

Yup, not an area I have any interest to invest in, as well as card factory, but I’m sure there’s value to be found. Obviously it’s a more shorter term, so is more at odds than the rest of us looking towards a lifetime portfolio.

I held a similar view on here as above in the last thread.

Retail isn't area in general that I'm interested in, the same as many on here would view my investment choice in crypto. I view retail generally with far too much uncertainty in any financial instability going forward. All the open discussion is greatly appreciated however and the ideas is what makes this thread what it is. Investment has to be a personal choice based on time frames, capital and risk etc so everyone will be different.

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21 minutes ago, Green Devil said:

Anyone got their eyes on any solar or wind investments? 

My understanding is that the cables, distribution and metering side of things is where investment is best as China has the manufacturing side of things tucked up

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I wanted to ask the members so far, can someone explain to me, in a more dumbed don version, what the original post of this thread "Credit deflation and..." on TOS means? It was the post by some bloke in Duhram back in 2017. Was he right?

Quote

My thoughts are these.

The great deflation cycle that started around 35 years ago is about to end with a deflationary collapse.During those 35 years interest rates have fallen to lower lows and made investing in equity/property very easy (they have always gone to higher highs).However that has also caused people to go way way along the risk curve for yield.The leverage on the system is beyond extreme.

The Fed (and other central banks) missed out an entire tightening cycle,and in doing so have already made sure the recession dead ahead will see massive un-voluntary debt liquidation,a financial system in free fall and wealth destruction on a scale few can even imagine.Leverage is going to destroy business and individuals on a scale not seen since the late 1920s.Once this does hit the central banks will be slow to react with the right response as they themselves will be shocked at the speed and scale.

They will panic and print direct into the economy by passing money/debt to governments at 0.1% or zero coupons.This is what will kick in the first reflation cycle since the 70s. Inflation will appear,rising slowly at first but increasing for perhaps a decade until it reaches double figures.Interest rates will follow,but being behind the curve perhaps through the whole cycle.The leveraged who survived the deflationary collapse will then suffer increasing interest rates for a decade.

Before this i see gold,silver and the miners maybe having a run up through summer.The dollar index might keep falling (with a bounce or two for noise) to the 88 area.

What did he mean by a deflationary collapse.

I know that inflation @2% means 100 pounds today will be worth 98 in a year, and so deflation means 100 pounds today will be <100 worth in a year. How does this cause a deflationary collapse, and how/why will there be inflation coming about later?

"The Fed (and other central banks) missed out an entire tightening cycle" at this point the Fed missed/suppressed two tightening cycles.

"The great deflation cycle that started around 35 years ago" where does this figure come from?

"Inflation will appear,rising slowly at first but increasing for perhaps a decade until it reaches double figures.Interest rates will follow,but being behind the curve perhaps through the whole cycle." I don;t get it.

 

I've been following this thread , and the original, for over two years but this post always puzzled me.

 

anyone would like to explain it to me?

 

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@DurhamBorn Hello mate.

Can you explain in a bit more depth your OP.

Also, in your June 5 2018 post you said:

Quote

At the moment we havent been doing any work on currency because all our currency work hit 100% correct.Our dollar index and £/$ calls were the best in the market.Nobody got close.I do think the 95 area should be a top for the dollar though and it should then turn down again (for now).

who is "we"* do you work in finance? Do you run a fund, and is it open to chuck some money in? (Disclaimer, I'm skint at the moment due to a very bad 2019, I'm working hard to eliminate all my debt this year)

Quote

We have been doing a lot more work on the PM area,as we think that might be where we get the hints and although we got the direction right we were only 40% along the range we expected.Gold has outperformed the $ since late 2015 and remains in an uptrend.It seems to be giving a repeat of the 1999-2001 action.This points to the $1620 area.Other work points to the $1400 area or more likely the $1540 area perhaps by late this year.There could be some more small downside in the miners into the FOMC meeting,but then the road is open.

That post is from J5 2018, at the time gold was @1281usd p oz, today is @1552usd p oz. You where right on the money.

Quote

Platinum also looks like it might be getting ready to move out of the FOMC meeting.Retail (dumb money) is very bearish and commercial very bullish and have those positions.SBGL seems to be trying to buy up most of the platinum/palladium production outside of the likes of Anglo American.They have taken a big risk to do so taking on a lot of debt,debt that could prove a big problem if the rand stays strong.However,maybe they see what we see ahead and are playing the longer term.?

Platinum was @ 888 p oz, today is @967 p oz, not bad but not great, not like gold anyhow.

Anglo American was @1760 and its now @2150.

*never mind, I found my answer

Quote

A friend Count who is probably one of,or the best macro guys in the US,i met him when i worked for Glaxosmithkline when they hired him for a few months for the pension scheme to consult on some big changes in the 90s..He is retired now (70s) and only works for a few select institutions and a couple of charity accounts close to his heart.The work he did and evolved in the 70s saw him call the deflation cycle in the early 80s and he positioned the pension funds he ran into bonds and consumer staples.His pension funds were top  1 percentile over the full term he ran them.We became friends when i offered him to join our table and then a day out to the horse racing of all things.(he always was sat on his own in the staff canteen).He knew i came from a very working class town and left school at 16,but saw i had the 3rd highest maths score among Glaxo employees who had taken the tests (around 4000 people) and gave me some figures ,graphs etc and asked me to tell him what i saw.We have been close ever since.

Most trading houses dont even use macro work now like his.They used to forward to the trading teams and they would stock pick on how he saw the cycle working out.Now they pretty much just momentum trade.He sees massive dangers ahead.

 

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You are thinking of the overnight rate,thats all central banks set.Long rates are set by the market.The Fed has done massive amounts around the short end,but nothing around the long end.They can do funding for lending like in the UK of course,but in the scheme of things they are tiny.Rates are low because velocity is low and we are at the end of a deflation cycle.Once we move to an industrial cycle velocity will start to move,and inflation and rates will be following with a lag.I think rates will be minimum 6% by 2025,likely 9%,or maybe 15%.This is why gold and PMs should move higher after the Fed increase (if they do) in June.The Fed moving the short end means they are behind the curve,or too far ahead of it.

@DurhamBorn do you still believe this?

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11 hours ago, Barnsey said:

Luckily I don’t own much Card Factory but what a crucifixion today, mine are down 41%. Retail in general being hammered, looks like John Lewis “partners” won’t be getting their bonus for the first time since 1953! This ain’t just an online shopping story, verge of recession if not already in one, hence Carney’s clumsy speech this morning about likely lowering lates very soon, GBP down.

I own a few Card Factory (0.2%) of portfolio and picked up a few more,and might get a few more (up to 0.5%)The markets will hate them for a while yet though.

They are actually a great example of how the end of a disinflation cycle plays out mostly.

First they are well run.The city will blame management,but actually give or take a few things like they are behind on like click and collect,the quality,range and price is about the best in their sector.

Input price increase though are getting harder to manage.Sterling falling is reducing margins.Less people on the high street means less passing trade.Its a terrible brew.

However as things play out its likely competitors will go under,or pull out of the market.Then others will increase prices,and they will follow.A 10% increase in prices would see a 36% increase in cash flow.Given footfall is down about 4%,but their sales down only 0.6% i suspect this process has begun.Thats also a very good performance given the macro environment.

Retail is struggling because there is simply too much of it after this long cycle.A lot needs to go,and it will.Lots more houses/flats and entertainment and government/offices etc.

Card Factory is actually a people puller in that a lot of its sales are where people set out to go there for something.I would expect they might look to some new routes to market through concessions etc.

Given Card factory is nearly always busy,imagine how some other retailers are going to do going forward.The sector is a huge employer and the government will likely act in the budget somehow.

8 hours ago, No One said:

@DurhamBorn do you still believe this?

Yes,the cycle is ending,no doubt about that,and no doubt the next one will be a reflation.The only question is the extent.That doesnt matter though as long as the direction of travel is right.

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9 hours ago, No One said:

I wanted to ask the members so far, can someone explain to me, in a more dumbed don version, what the original post of this thread "Credit deflation and..." on TOS means? It was the post by some bloke in Duhram back in 2017. Was he right?

What did he mean by a deflationary collapse.

I know that inflation @2% means 100 pounds today will be worth 98 in a year, and so deflation means 100 pounds today will be <100 worth in a year. How does this cause a deflationary collapse, and how/why will there be inflation coming about later?

"The Fed (and other central banks) missed out an entire tightening cycle" at this point the Fed missed/suppressed two tightening cycles.

"The great deflation cycle that started around 35 years ago" where does this figure come from?

"Inflation will appear,rising slowly at first but increasing for perhaps a decade until it reaches double figures.Interest rates will follow,but being behind the curve perhaps through the whole cycle." I don;t get it.

 

I've been following this thread , and the original, for over two years but this post always puzzled me.

 

anyone would like to explain it to me?

 

In simple terms,from this,

https://www.nytimes.com/1982/02/05/business/record-set-on-30-year-us-bonds.html

to this,

https://www.bloomberg.com/news/articles/2019-08-28/there-s-less-panic-but-bond-yields-just-sank-to-records-again

 

 

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2 hours ago, DurhamBorn said:

I own a few Card Factory (0.2%) of portfolio and picked up a few more,and might get a few more (up to 0.5%)The markets will hate them for a while yet though.

I hold 4% so you can have some of mine, at purchase price of course!  I've not even looked because I guess I'm not bothered as long as the divs keep coming.  Maybe I'm wrong but I see my income portfolio more as the annuity I could never afford.  It's for income and plenty of other holdings have done well enough to compensate.  I may check their financials but the last time they were surprisingly good (oddly, the same with a few other retailers).

PS: OK, looked at the chart.  Something up.  Divergence between price and technicals, especially in 2018.  2019 could be the correction or something else going on.

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Card Factory are too cheap i believe , they are selling the same cards at 99p (about 1 share at todays price!) as the supermarkets knock out for £3.

 Staff will be the problem , my local shop had 4 people working in their throughout December , i've spent decades in retail and thought if i owned the shop i'd staff it myself , you have to shift a lot of cards to cover the £35 ph wages of 4 people , yes you will lose a bit more in theft and people will have to queue a bit longer but you'd lose the headache of having to manage 3 member of staff. The mark up on a greetings card is huge , a pack of 12 will cost about £2 wholesale , the gift wrap and bags a similar type of margin.

 

The rise in minimum wage is going to be the killer for Card Factory , plus the fact that the people who spend the most on cards are old people , youngsters just don't seem to bother. I expect the dividend to be suspended when they announce their next results.

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17 hours ago, Green Devil said:

Anyone got their eyes on any solar or wind investments? 

Check the clean energy thread in Investing & Money, we're tracking a few there.

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