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


spunko

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22 hours ago, Tdog said:

Your link seems rather different to Googles tracking of the share price ... was thinking how why would you put a ladder in at a higher price to yesterday. 

WTF am i missing.

https://www.google.com/search?ei=20cfXvS_HJSrgAb-l4KIDQ&q=telia+share+price&oq=telia+share+price&gs_l=psy-ab.3..0i71l8.0.0..3921...0.2..0.0.0.......0......gws-wiz.kIFHxkkLJ74&ved=0ahUKEwi0mdLxjIbnAhWUFcAKHf6LANEQ4dUDCAs&uact=5

Hmm, not sure what company the google link you have is showing, but must be for a different stock as the price chart action is different from the link I posted. Confusing as same name, but the new ceo is Alison Kirkby (ex BT) and that checks out for the link I posted. 

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23 hours ago, DurhamBorn said:

ref Telia...

Iv started buying them as well. Only small at the moment,telcos are selling off due to recession worry in the EU etc.They will all get hit,but i think the whole sector is hugely under valued and happy to have ladders in a lot.Vod im already full,but got the last ladder at £1.24.I think Telefonica will cut its divi,but iv started to very slowly buy them as well with ladders down to 5.10.

DB, do you plan to buy any Telefonica AG -  the German counterpart (tef) - or are you only buying the Spanish SA which I think holds most of the assets (whereas the German part is just Germany I assume).

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On 15/01/2020 at 16:28, spygirl said:

The original budget was 4m, which is beyond a joke for small town show house. To blow that out to £25m is beyond a joke. The theatre is just a crappy little town show house.

High streets wont regenerate, theyll change.

I accept that the over spend on that project is wild. But tbh I don't understand your comment above - how will high streets 'change', if not regenerated by council spending? After all approx. half (if retail trends continue for next 10 years) of current high street is pretty much defunct in terms of shop space overcapacity. I anticipate local authorities being given more control of their own revenues in future and will spend/borrow. Im not saying all such spending will be wise spending (let alone profitable) but the highstreets need sorting out, and to take advantage when retail property became 'cheap' seems to attractive for councils not to resist doing. Surely every 2nd shop cant merely just be boarded up/left to dilapidate?   

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2 hours ago, Tdog said:

I agree.

But the point i made about this topic being called "credit deflation" which most on this topic seem to agree with.

Hence if there is a credit deflation, then surely a HPC happens ... or is the credit deflation so brief due to more QE, more Funding for Lending etc ... that a HPC does not happen?

Views appreciated.

When central banks start printing they can not stop, therefore in my opinion there is an inflation mega trend in place. Phase one was property and may continue to do so. Phase 2 -  I guess this thread is all about were the next big tranche of money is going to go in order to keep the game going. This is what we are listening out for through shared ideas. In my opinion the market thinks it will be back to the races as before. This thread takes a contrarian view and is saying otherwise. The bottom line is no one knows we can only attempt to position ourselves.

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2 minutes ago, Tdog said:

Thats definite ... but if there is credit deflation part as this topic suggests then surely a HPC is baked in. 

Otherwise there is no credit deflation and we just go to more HPI.

Sure companies are going bust but so far thats more to do with them being shite companies and times changing, and these companies go bust all the time ... nothing to do with deflating credit.

Depends on how big a window deflation is allowed to take hold and for how long.

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1 hour ago, Tdog said:

OK it would seem theyre going to lower interest rates in 2 weeks, lets say they go back to 0.25%.

Currently the banks are awash with cheap money thanks to the BoE so another bout of FFL and TFS will make little difference.

So i just cant see how that is going to cause inflation, and as govts are now going to go for big infrastructure they seemingly think this.

I accept the govt paying us people who get our hands dirty 100s of billions between us to dig holes and then to fill them will cause inflation ... but that takes years to get off the ground, especially in the NIMBY paradise which is the UK.

So that is the time-frame of the window, is it not?

 

Banks are not awash with money.

Try borrowing some.

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TheCountOfNowhere
3 hours ago, Tdog said:

OK it would seem theyre going to lower interest rates in 2 weeks, lets say they go back to 0.25%.

Currently the banks are awash with cheap money thanks to the BoE so another bout of FFL and TFS will make little difference.

So i just cant see how that is going to cause inflation, and as govts are now going to go for big infrastructure they seemingly think this.

I accept the govt paying us people who get our hands dirty 100s of billions between us to dig holes and then to fill them will cause inflation ... but that takes years to get off the ground, especially in the NIMBY paradise which is the UK.

So that is the time-frame of the window, is it not?

 

See my post about liquity trap

They have no intention on raisng rates. 

However, they might have no choice. 

Otherwise, this'll be the first central bank in history not to cause damaging inflation with insane money printing. 

 

All that fls cash is now tied up in housing... No one can spend it unless the cash in. That's rare. It might go for end of life care, equity withdrawal pension top ups and ponzi inheritances that go straight back into the pyramid. 

It still leaves the bottom of the pyramid reliant on wages versus debt. 

They can help people buy all they want but when a loaf of bread = half your monthly wage then no ones paying their mortgage. 

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3 hours ago, Tdog said:

Thats definite ... but if there is credit deflation part as this topic suggests then surely a HPC is baked in. 

Otherwise there is no credit deflation and we just go to more HPI.

Sure companies are going bust but so far thats more to do with them being shite companies and times changing, and these companies go bust all the time ... nothing to do with deflating credit.

I think it’s worth thinking about credit as an organism. In a similar way to how the body deals with blood loss by cutting the supply to the extremities to protect the core, credit deflation starts in the less important parts of the economy (as the central bank/government sees it). So I think we will see it in business lending and consumer credit first. The BoE will do what it can to avoid it in housing because that’s what governments don’t want (HPC that is). 
I think it will still hit housing but you just know they will pull out all the stops to minimise it.

 

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Bobthebuilder
12 minutes ago, Wheeler said:

I think it’s worth thinking about credit as an organism. In a similar way to how the body deals with blood loss by cutting the supply to the extremities to protect the core, credit deflation starts in the less important parts of the economy (as the central bank/government sees it). So I think we will see it in business lending and consumer credit first. The BoE will do what it can to avoid it in housing because that’s what governments don’t want (HPC that is). 
I think it will still hit housing but you just know they will pull out all the stops to minimise it.

 

I posted the other day about banks getting rid of free overdrafts and starting charging 40% on balances. I saw this and thought about this thread, credit is drying up.

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On 15/01/2020 at 14:12, DurhamBorn said:

You can get houses in my home town (2 up 2 down terraces) for the same price as 1992.

The nice 3 bed semis where i live are going for 2004 prices.Back then they doubled in price in around 18 months,then never moved again.

I was on a just finished new build site yesterday,its looking crap already and people were paying £140k there for a 3 bed shoe box.One couple said they wanted to get away from the scum,i didnt have the heart to tell them 20% of the houses on the estate were HA and another 15% BTL.There are more social/free rent people on that estate than on the council estate near me (most RTB,only 28% council left)

Unbelievable amount of new houses going up around here (Herefordshire). My wife and I looked at one a year or so ago. The extremely bored office guy let us wander around a 3 bed one. I swear they had like mini furniture and a mini computer keyboard on the home office “desk”.The desk was like a wood strip. Wish had taken photo now but I hadn’t inherited my smartphone yet:Old:

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TheCountOfNowhere
Just now, Tdog said:

But theyll only be raising rates once the money is flowing into the pockets of us hole diggers and hole fillers, which causes the type of inflation they're no longer able to ignore (whatever that is) ... and that could be a few years down the road.

But the credit drying up should be enough to crash it, which could well be pretty soon ... just that seems too simple in this world of 3d chess.

As if by magic

https://www.telegraph.co.uk/business/2020/01/16/banks-crack-lending-fears-dangerous-debt-bubble/?WT.mc_id=tmg_share_tw

Banks crack down on lending over fears of a dangerous debt bubble

 

🤣🤣🤣🤣🤣🤣

 

 

 

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5 hours ago, JMD said:

DB, do you plan to buy any Telefonica AG -  the German counterpart (tef) - or are you only buying the Spanish SA which I think holds most of the assets (whereas the German part is just Germany I assume).

They have a crest version 

https://www.hl.co.uk/shares/shares-search-results/t/telefonica-euro-1

Iv started to buy that.I will probably hold 4 telcos and Telefonica will be the smallest holding.

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On 15/01/2020 at 17:16, DurhamBorn said:

Iv started buying them as well.Only small at the moment,telcos are selling off due to recession worry in the EU etc.They will all get hit,but i think the whole sector is hugely under valued and happy to have ladders in a lot.Vod im already full,but got the last ladder at £1.24.I think Telefonica will cut its divi,but iv started to very slowly buy them as well with ladders down to 5.10.

As SP showed above blue chips can still see very big falls in a sell of,but most telcos are already down 50%/75% from highs within 3 years.

I psoted in the Big Short thread that it's worth noting that the March 2000- Sept 2001 bear market (based on the S&P) there were a lot of big blue chip shares that moved the other way to the wider market and actually went up either slightly or a decent per centage.Few posted here.

Just to make the point that the large internal changes are masked by headline drops and rises...I can see the likes of the big Techies dropping 75% plus .I can see RDSB rising.

 

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On 15/01/2020 at 16:10, sancho panza said:

 

Blue Chip Performance: 2000-2002
Cisco Systems -89.3%
Microsoft -65.2%
JP Morgan -76.5%
Intel -82.3%
McDonalds -74.4%
EMC -96.2%
Disney -68.4%
Oracle -84.2%
Merck -58.8%
Boeing -58.6%
IBM -58.8%
Amgen -66.9%
Apple -81.1%

 

 

On 15/01/2020 at 17:49, Democorruptcy said:

I felt like that in Yorkshire living just down the road from the 7/7 bombers. I'm renting a cottage on a farm in Wales now, quiet area, up a private road and only surrounded by fields and sea views. I feel safe from chaos but if it ensues all I have to do is youtube how to prepare very fresh lamb. I think I'll be able to do some milking and my host already gives me plenty of freshly caught fish, bartered for beer! I might be able to get you a deal on one of the other cottages if you have to flee speedily!

 

 

Sounds both beutiful and ideal DM.

Mrs P would love it.We'd definitely like to lead a semi rural life when the kids are older either here or in SA

14 hours ago, DoINeedOne said:

Mentioned this before here, had a friend who bought a nice townhouse but used to comment on how he goes to work everyday gets home about 6-7pm has dinner puts the kids to bed then does the washing up only to overlook neighbours who are on benefits have same home as him, better car, ordering takeaways most nights 

"why do i bother" is exactly what he thinks and i think most people are starting to feel this way

When i lived on a new build estate like you didn't take long to notice 

Personally i would never buy on a new build and because most are also BTL so your neighbours are changing every other year, unlike when i was a kid knew everyone on the street because they live there for so long

Think there's a lot of people beginning to question why they bother

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They saw a foot off the beds usually.They also place mirrors all over the place to make them look bigger.The ones near me now all have ^ shaped gardens,about 12 foot long with a bit of false grass and two paving slabs for the bins.Utter shit they are.

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You guys should really consider moving up here.Newcastle airport 30 minutes,Kings Cross 2hrs 10 mins from Darlo mainline station.Coast 20 minutes away,Lake District 1hr 20,Scotland the same.Its very safe (apart from Boro).Just avoid the small ex pit villages and stick to the bigger market towns.Durham itself is on the east coast mainline.

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7 hours ago, Tdog said:

I agree.

But the point i made about this topic being called "credit deflation" which most on this topic seem to agree with.

Hence if there is a credit deflation, then surely a HPC happens ... or is the credit deflation so brief due to more QE, more Funding for Lending etc ... that a HPC does not happen?

Views appreciated.

Credit deflation is the the natural result of the fractional reserve system imploding.Lower hosue prices would be a logial result.

Extend and pretend can last a long time,but all it does is make the eventual reversion to mean even more brutal.

The prices of a lot of things will collapse as credit gets reined in.

We do knwo the govt will try and prop it up but a key feature of debt deflations is that interest rates don't need to rise to cause.It's al about confidence drops causing drops in aggrgate demand.

When it happens is anyone's question but the certainty of it's coming is why I joined Errols merry band of goldbugs.

Look at Deutsche banks share price and compare it to the bloated ECB balance sheet.Thats all the evidence I need for my position

1 hour ago, Wheeler said:

I think it’s worth thinking about credit as an organism. In a similar way to how the body deals with blood loss by cutting the supply to the extremities to protect the core, credit deflation starts in the less important parts of the economy

 

nice expalantion if i may say

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TheCountOfNowhere
12 minutes ago, sancho panza said:

 

Think there's a lot of people beginning to question why they bother

I've noticed that people I've spoken to know house prices will keep going up.... While telling me house insane house prices are in area x y and z. 

It's eitger 2005, 2006 or 2007 again.... Not sure which. 

People know something is wrong but can't put their finger on it.... 

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1 minute ago, Tdog said:

Pretty much all my family are there ... hence not too fussed in going back in life. But places like Cullercoats are absurdly priced and is full of people who drink wine ....Whitley Bay is very expensive.... even North Shields is trendy ... as if getting battered on a night out is trendy.

Best place to live in the North is York, lively nightlife ... and the natives of York are not your hardcore Yorkshiremen types.

 

Yes i liked that, always good to get an analogy and a nice little story all in one!

Yes York is a decent place and you have the coast in easy access.I dont like Newcastle,much prefer Durham.Cheap houses over on the coast in Cumbria,but its a bit boring really.

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1 hour ago, TheCountOfNowhere said:

As if by magic

https://www.telegraph.co.uk/business/2020/01/16/banks-crack-lending-fears-dangerous-debt-bubble/?WT.mc_id=tmg_share_tw

Banks crack down on lending over fears of a dangerous debt bubble

 

🤣🤣🤣🤣🤣🤣

 

 

 

I can't see the whole article but the last paragraph that I can see is:

Quote

The figures will intensify speculation that an interest rate cut is needed to boost the flagging economy.

That wouldn't be my first choice of method for deflating the bubble but what do I know.

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On 15/01/2020 at 10:20, spygirl said:

MMR hammering prices in the South as they are getting realigned to earned money. Asking isnt getting.

Southern employment and wages have dropped off a cliff.

Unless you have a large deposit/ sub 60%LTV, then mortgage SVR are around 4%.

If you need 5+ LTI then you are not getting a mortgage.

Most of the Nprth - at least the various areas I follow - have been stuck at 2004ish prices.

If mortgages rates go up, say, ~6%/8% then theyll go back to late 90s.

Basically, there will be *no* Northern HPI for over 20 years.

Both South n North face a massive demographic lump of property coming to the market over the next 20 years. Already started in alarge number of areas.

Horrendous in the South as the over 50s tend to have been well paid and property owners.

Yes the under 40s tend to much lower paid and renters.

The only way this market can clear is for prices to drop to under 40s earnings - the 80% of the property market has always been under 50s buying houses to live in.

Im still waiting for  the dawning of reality of mass IO BTL to dawn on property owners - its destroyed OO equity as the person buying your house will have been milked by a leverage LL and has no equity.

 was chatting to a EA who ive known for 20 years. Hes basically admitted thats what hes seeing - under 40s have been milked by IO BTL banks, with LL skimming tiny money. No equity , MMR, kids so only 1 income - ~4x that income minus expenses.

BoE needs to push to get all IO loans off regualted banks and into the specialist i.e.expensive finince providers.

 

 

 

 

 

 

 

 

This

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On 16/01/2020 at 08:22, feed said:

How do you find those places.  I'm about 18months - 2yrs from FIRE.  And potentially looking to do something similar.   

Rent there a while and drive a lot.  Renting can be relatively cheap if you're FIRED.

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Felt like punishing myself the other day so watched Kirsty and Phil’s love it or list it, middle aged couple with a VERY modest terrace (done up nice like) with no garden in Cullercoats, £375k FFS!!!

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TheCountOfNowhere
13 minutes ago, Barnsey said:

Felt like punishing myself the other day so watched Kirsty and Phil’s love it or list it, middle aged couple with a VERY modest terrace (done up nice like) with no garden in Cullercoats, £375k FFS!!!

Could the afford, or want to, pay that? 

 

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