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

[Majorpain]

Well, is that a viral pandemic black swan thats about to land and kick things off?  With 7 cities and 23 million people quarantined in China, and days away from Chinese New Year when 4 billion journeys worldwide will be made, things are getting very interesting.

Bet China's growth for 2020 is still officially above 6% though!  

[Harley]

4 hours ago, TheCountOfNowhere said:

People have mitigated the food inflation to some extent by changing super markets, I. E... M and S - > waitrose - > sainos - > tesco - > Morrisons - > aldi. 

If you moved like that you're still paying less than you did 10 years ago. I can still buy a bottle of wine for the same price I did 20 years ago and to be honest... Its better quality.

It's when lidl and aldi raise their prices we have a problem. 

Agreed but that's kinda my point.  I'm concerned we're already there with Aldi and co doing everything they can to deal with inflation without increasing the price.  So when they finally have to it'll be really really bad.  I see a lot of inflation to do with the currency (GBP) decline as much as commodity price changes.  I was just looking at gold and was horrified by this chart.  It's not so much the gold story but that gold in GBP has gone up twice as much as gold in USD.  Or, if using gold as a standardised measure of currencies, GBP has halved!  Gold in GBP has appreciated 12.4% on average for the last 15 years.  That's more like 9.4% in USD.  That 3% or so difference adds up over the longer term.  No wonder people in the UK feel poorer, even without stagnant wages.

Your point about people moving "downmarket" (a misnomer as you point out in terms of product, but not status!) is well made for this and other sectors generally.  I was using Aldi well before the Audis, Range Rovers and Waitrose bags turned up!  "Rip off Britain" (which as a returning expat was really noticeable) will increasingly creak under the weight of these price drivers.  It's harder to fool people with little money.  There will however always be a niche for occasional pampering (and sometimes that is just the shopping experience even if it's not the product!) but maybe some companies will need to scale back a lot more.  Invest accordingly?

 

[Harley]

2 hours ago, BoSon said:

Lidl and Aldi base their image on value for money, like ASDA with the 'ASDA price' slogan. So any serious food price inflation will damage them more than the bigger supermarkets as people decide they may as well go back to the bigger supermarkets with more choice if the budget ones aren't that cheap anymore.

All down to public perception and with the relatively small sizes of Lidl and Aldi stores they don't have space to offer a wider range of products to hide the expensive ones like you get in the bigger supermarket stores where there can be three or four grades of price/quality for the same type of food, to cater for those on the breadline all the way up to the brand snobs that pay through the nose at Waitrose.

Agreed and allied to that, I find myself moving back to Morrisons a bit, replacing Aldi for some things.   It's more expensive, quite a lot more in some things, but the quality can be far better.  I fear Aldi has gone through my minimum quality floor in some areas.  Take cubed lamb.  The Aldi version seems to have a lot of gristle(?) which has to be removed to make a pleasant meal.  The Morrisions one (and the Co-op one) has far less.  I'm not even sure the Aldi one is cheaper after I have discarded the bad bits.  Fine if you accept a lowering of standards and use the whole lot (which I think is what's been happening) but not if you want to hold on closer to how it was.  Additionally, the processed food manufacturers may be able to use this lower quality product using special manufacturing techniques not available (or desired) by the home cook.  It really is a time to be looking beyond price as the key determinant in overall value as it once was. 

[Harley]

2 hours ago, Democorruptcy said:

I've seen some people lose a lot of money on betting exchanges, risking a lot on a bet for little upside. It's seemed like risking running in front of a steamroller to pick up a few pennies. Your figures there could be the opposite by not investing. Say you have a £1,000 and are right about 10x, the profit is £10,000. The biggest danger is not investing and waiting to time the bottom. However if prices rise, you might find it harder to buy in at all and it runs away from you without investing. If the biggest downside is -16%, your maximum loss on your £1,000 is only £160 but you could miss out on £10,000 

Aka "money management"!!!!!!

[CVG]

4 minutes ago, Harley said:

Agreed and allied to that, I find myself moving back to Morrisons a bit, replacing Aldi for some things.   It's more expensive, quite a lot more in some things, but the quality can be far better.  I fear Aldi has gone through my minimum quality floor in some areas.  Take cubed lamb.  The Aldi version seems to have a lot of gristle(?) which has to be removed to make a pleasant meal.  The Morrisions one (and the Co-op one) has far less.  I'm not even sure the Aldi one is cheaper after I have discarded the bad bits.  Fine if you accept a lowering of standards and use the whole lot (which I think is what's been happening) but not if you want to hold on closer to how it was.  Additionally, the processed food manufacturers may be able to use this lower quality product using special manufacturing techniques not available (or desired) by the home cook.  It really is a time to be looking beyond price as the key determinant in overall value as it once was. 

I've used Aldi for my main shop for the last 10 years. The shrinkflation is noticable, e.g. larger cardboard rolls on the loo paper. But I really hate the deflation in recipe quality. Custard tarts taste like water and Oatcakes taste like powder. I'm starting to hold my nose and pay Waitrose prices for quality.

[Harley]

5 minutes ago, CVG said:

I've used Aldi for my main shop for the last 10 years. The shrinkflation is noticable, e.g. larger cardboard rolls on the loo paper. But I really hate the deflation in recipe quality. Custard tarts taste like water and Oatcakes taste like powder. I'm starting to hold my nose and pay Waitrose prices for quality.

I caught my local landlord in the Co-op.  Now he is an excellent cook, absolutely brilliant.  So if it's the Co-op for him (at least for emergencies) then so be it for me.  Plus they do yellow sticker well.  I find them expensive, but maybe all that's happened is the culinary "Overton Window" has moved to make it seem that way!

PS:  A big reason I now cook most things myself.  Far better quality, and I'm not convinced more expensive.

[sancho panza]

 

15 hours ago, MrXxxx said:

Exactly, yet however much farmers complain they continue in the same business?!...from this fact I can only assume one of three things...either they are stupid (I don't believe this to be the case), they are lazy/reluctant to change, or its not as bad as they say...I often find those who plead poverty aren't, yet the real ones keep quiet.

A lot of farmers don't own the land but rather have long term leases.They invest in a whole host of capital equipment-fencing,barns,machinery etc.When the profit dissappears they hang in for a host of reasosn,not least that like many they expect an upturn around the corner.

The choice to sell up isn't as black and white as you might think.

Even the ones that own the land may carry some leverage.

I don't really understand the subsisdies side of things as I've only ever farmed outsdie the EU

14 hours ago, Ponty Mython said:

Or they have little choice.

Plus stubbornness and pride.

 

 

[sancho panza]

On 22/01/2020 at 23:09, Bobthebuilder said:

https://www.bbc.co.uk/news/business-51206067

Getting rid of all overdraft conditions and moving to 40%APR, pretty big news imho.

Wow,somethings up....

14 hours ago, Barnsey said:

Just as big is the new approach to persistent debt on credit cards, which could see cards frozen as of next month. The reigning in of easy credit has begun!

https://www.thisismoney.co.uk/money/cardsloans/article-7908411/Lloyds-Banking-Group-credit-card-customers-cards-cancelled-February.html

 

Trade body UK Finance told The Guardian last month: 'In some circumstances, where a suitable repayment option is not agreed, and in accordance with the new rules, cards might be suspended, so it is really important that customers do not ignore letters received.

'They should read them carefully to understand their options and contact their credit card provider at the earliest opportunity.'

 

ANother wow.I had no idea.I wonder why on both counts.

[sancho panza]

14 hours ago, kibuc said:

The Q4 reporting period is slowly passing by and so far there hasn't been too many fireworks. New Gold an absolute disaster as always, Wesdome guidance uber-conservative as per usual, First Majestic yaaawn... A slow season. At least drilling results provide some entertainment.

Starnge,I was wondering when the Q4's would get some coverage and was hping you might do some coverage of the interesting updates as you did from Q3.

I'm thinking of setting up a few lvereage to silver plays based on SILJ.I'll psot it when I've finished.WOuld be itnerested in your take.Just an idea for now and we're already investe in HOCM/FRES/AXU.............but as I've said before,silver will run late and hard.Trying to get the exposure is much more difficult.

[sancho panza]

11 hours ago, spygirl said:

He's fibbing.  Or doesnt know what nominal price means.

Stuff like milk was never sane.

Its also tracked:

https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/cznt/mm23

Heres price of beef, which is less prone to booms n bust like Pork

https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/czpf/mm23

UK farming since the late 70s has been about chasing subsidies, with a bit of farming on the side.

 

 

Id add that Labour input costs for farms has collapsed.

Even in the mid 80s the farms I knew employ farmer family + few people.

Now they barely employ a single farmer, yet produce more.

Wheat price.40 year nominal chart.Price 1974 to 1980 was average around $4.Over the last five year,the average has bounced around the $5 mark.

Second chart is cable.Which has weakend versus $ over that 40 year timeframe.

10 hours ago, spygirl said:

https://www.fwi.co.uk/business/markets-and-trends/land-markets/agricultural-land-values-to-hit-five-year-low

Farmland performance

-1.1% – 3 month change

 

-3% – 12 month change

 

1% – 5 year change

 

45% – 10 year change

 

3,670% – 50 year change

Those arnt the result of falling farm incomes.

 

All good if you own the land.But a lot of leicestershire is owned by OxBridge colleges apparently.

[sancho panza]

8 hours ago, DurhamBorn said:

I said to @sancho panza how much i enjoyed that article and how much it really struck a chord.Id never really considered it in those terms,but in a way a reflation is a decomplexity cycle.You can have the most complex car in the world,with a huge supply chain,masses of parts suppliers etc,but if oil doubles it doesnt care if the punter instead buys a 2nd hand diesel.The liquidity is simply pushed away from the complex to the un-complex.

Like the potash we are looking at right now.It doesnt matter what Tesco or anyone else stocks.What parts of the supply chain change.Who gets squeezed out.If potash doubles,they have to pay.

Its a reason i like the telcos later in the cycle.I fully accept there could be even bigger falls in them yet,but they arent getting the value they should be.I think that will change.Appl and the Chinese can slug it out all they want on the phones,they all use the networks.

Must say that since reading that article and your reply re telcos',all of a sudden I get the reasoning.I was steering us clear of telcos because I'd rather have bought them pot big kahuna.But now I ll reassess.

 

5 hours ago, DurhamBorn said:

Agree 100% on that.My oil target is $43,seems nuts,but heading in the right direction,but im laddering in already to many.Potash iv already got first and second ladders into them all.K+S touched 3rd ladder.Its why i usually use ladders as it removes the human fear and timing.First ladder goes in when i think things are cheap and the rest get set then.Im actually happy then when stocks fall even though im down on some.Iv found most never hit bottom ladder,but if they do i tend to be 15% down before dividends on stocks then down around 80%+ from highs.

Not soe sure it was that far out.Exxon are $66 today.Cheapest since the 09 bottom.

 

I suspect we're possibly headed for a 30-40% position in big oil.Currently at 15% but the more I look at the this trade,the more it has the feel of the Broken Hill trade late 90's.Apple soaring,mild mannered oil co's with huge free cash flows and fat divis going for a song.TSLA at $570 today ie nearly one Tesla share for nine XOM....................

[spygirl]

7 hours ago, sancho panza said:

Wheat price.40 year nominal chart.Price 1974 to 1980 was average around $4.Over the last five year,the average has bounced around the $5 mark.

Second chart is cable.Which has weakend versus $ over that 40 year timeframe.

All good if you own the land.But a lot of leicestershire is owned by OxBridge colleges apparently.

Wheat/grain is one of the exceptionals.

Its abulk commodity and those have become much cheaper as cotnainerisation of other tradef has freed up port capacity, allowing large scale imports.

And is reflects the biggies like Russia and Oz entering the world market.

And ... grain farms are one of the areas where the framing does need subs - see the grain baraons as they are called.

 

 

 

[Ash4781b]

What is the much discussed Intu Plc (commercial real estate) plan? 
 

They talk of fixing the balance sheet so that gives an early indication of full-year look ok the balance sheet. Presumably some interested parties but I can’t think what these large shopping centres will become? Eg. Lakeside, Essex is one of theirs. I suppose investors can get wiped out and someone picks up assets on cheap on a lower rent model? It’ll be interesting who they get onboard-hedge funds ?

https://www.intugroup.co.uk/en/news/news-and-press-releases/market-update/

[MrXxxx]

18 hours ago, Harley said:

On food price inflation, just to repeat what I've said a few times, it has already been ripe with shrinkflation, etc in all stores.   The newer trend has been to go for more "gluppeter" (i.e. processed) stuff where they can change the ingredient mix to take advantage of what ingredients happen to be currently cheaper, but also cheapen the mix overall (e.g. more flour (pastry) than filling).  Some supermarkets do appear to have upped the proportion of such products they sell and they do look to be of very cheap quality. 

Been doing that since the sausage was invented! :-)

[MrXxxx]

17 hours ago, JMD said:

MrXxxx, I had a friend who's parents owned a small farm. His parents were elderly and had eventually, but reluctantly, invested in automation to help keep things going - new tractor/harvester etc - costing well over half a million pounds. The thing is my friend admitted that the farm wasn't really economically viable, more a hobby, yet for example the tractor purchased was an all-singing/dancing and he said he liked visiting so that he could play on it! Special agri. loans funded this.

Most small farms (and lot of the larger ones) are not viable without big farm subsidies, however these subsidies will continue because future subsidies will be less focused on food production and more about land management/growing trees, which will fit with the new agenda for saving the planet.

True, that's where the CAP has slowly been replaced by the Countryside Stewardship scheme...and why the subsidies?...hang over from the war, MAFF, and never having to be reliant on others (I.e USA) for food again/self-sufficiency...CAP now obsolete with us importing so much of our food again, and when/if Brexit happens UK farming is going to be in for a rough time without diversification into petting zoos or holiday lets!

[MrXxxx]

16 hours ago, DurhamBorn said:

ts a reason i like the telcos later in the cycle.I fully accept there could be even bigger falls in them yet,but they arent getting the value they should be.I think that will change.Appl and the Chinese can slug it out all they want on the phones,they all use the networks

So could you use this thesis to say its both ends of the product line (consumer and materials) that boom in this part of the cycle I.e for photos those in the middle are reliant on a) network suppliers, and b) though who mine/supply the rare elements used in mobile phones?

[MrXxxx]

16 hours ago, DurhamBorn said:

Its a work in progress but im thinking 10% potash and related.16% oil and gas and utility linked,8% transports,12% PM miners silver and gold 14% telcos,then 40% a lot of none sector specific stocks that are mostly hated now,il include tobacco etc in there.

My main aim is to lean towards inflation,not go all in though and if im wrong simply underperform,not have to work in B+Q at 65.

And what's your (and others) splits I.e equities, bonds, cash, property?...not looking for advice as I know these % are dependent on several factors I.e financial security, risk attitude, stage of life, just interested.

[MrXxxx]

14 hours ago, Democorruptcy said:

I've seen some people lose a lot of money on betting exchanges, risking a lot on a bet for little upside. It's seemed like risking running in front of a steamroller to pick up a few pennies. Your figures there could be the opposite by not investing. Say you have a £1,000 and are right about 10x, the profit is £10,000. The biggest danger is not investing and waiting to time the bottom. However if prices rise, you might find it harder to buy in at all and it runs away from you without investing. If the biggest downside is -16%, your maximum loss on your £1,000 is only £160 but you could miss out on £10,000 

Housing market?! :-)

[MrXxxx]

9 hours ago, sancho panza said:

 

A lot of farmers don't own the land but rather have long term leases.They invest in a whole host of capital equipment-fencing,barns,machinery etc.When the profit dissappears they hang in for a host of reasosn,not least that like many they expect an upturn around the corner.

The choice to sell up isn't as black and white as you might think.

Even the ones that own the land may carry some leverage.

I don't really understand the subsisdies side of things as I've only ever farmed outsdie the EU

 

 

So basically they are shit businessmen in that:

a) they have allowed themselves to become over leveraged,  

b) in a market where they have little control over the price of their assets,

c) in an asset that cannot be sold quickly/easily

...sounds like the amateur BTL landlord of the Countryside to me!

[DurhamBorn]

28 minutes ago, MrXxxx said:

And what's your (and others) splits I.e equities, bonds, cash, property?...not looking for advice as I know these % are dependent on several factors I.e financial security, risk attitude, stage of life, just interested.

During the next cycle il have two houses paid off,around £30k in cash and everything else in inflation tilted shares (apart from my PMs that i dont count in my calculations).During the next cycle il hold zero bonds.

The biggest risk i see during the cycle is that people close to,or already retired are going to be around 60 to 80% in bonds yielding around 2.5% at best.They will have fees of between 1% and 2.4% depending on what pension platform they have.There is a huge risk those type of set up will see 7% per annum falls in value before fees ,draw down amounts and inflation.

If someone is drawing down 5% a year it could be 14% down a year before inflation.3.5 years would see a pension half.The 7 year cycle would see it pretty much gone to nothing.

Most pensions have reached the stage where the natural yield of the fund is way below whats needed,and in many cases probably just covers the fees.In an cycle that becomes inflationary thats a disaster people are walking into.

There is going to be huge financial dislocation and we dont know how things will play out,but when nobody is hedging for inflation thats usually a good time to do it.

[spygirl]

2 hours ago, Ash4781b said:

What is the much discussed Intu Plc (commercial real estate) plan? 
 

They talk of fixing the balance sheet so that gives an early indication of full-year look ok the balance sheet. Presumably some interested parties but I can’t think what these large shopping centres will become? Eg. Lakeside, Essex is one of theirs. I suppose investors can get wiped out and someone picks up assets on cheap on a lower rent model? It’ll be interesting who they get onboard-hedge funds ?

https://www.intugroup.co.uk/en/news/news-and-press-releases/market-update/

Nothing.

Shove its head up is arse, try and keep borrowing money til it goes bust/took over by creditors.

 

[Castlevania]

11 hours ago, sancho panza said:

Wow,somethings up....

ANother wow.I had no idea.I wonder why on both counts.

Regulation. From April banks won’t be allowed to charge fixed daily fees or have different pricing for arranged and unarranged overdrafts, so my £500 interest free buffer is going. Lloyd’s are going to charge as much as 49.9% if you use your overdraft.

[sancho panza]

29 minutes ago, Castlevania said:

Regulation. From April banks won’t be allowed to charge fixed daily fees or have different pricing for arranged and unarranged overdrafts, so my £500 interest free buffer is going. Lloyd’s are going to charge as much as 49.9% if you use your overdraft.

Bank margins are getting absolutely screwed.Likely people will stop using overdarfts

 

Below from 2017 @Bobthebuilder as welkl

https://www.theguardian.com/money/2017/dec/06/uk-banks-have-2m-customers-stuck-in-permanent-overdraft

More than 2 million people in the UK are stuck with permanent overdrafts, with many trapped in a “vicious cycle” of borrowing, according to a debt charity.

StepChange said it had also uncovered evidence of unaffordable lending in the overdraft market, and cases where banks had failed to offer customers a means to deal with their debt, even when they had made it clear they were in financial difficulty.

 

https://www.bbc.co.uk/news/business-46590724

How do overdrafts work?

There are arranged overdrafts, when current account holders borrow up to a limit agreed with, or offered by, the bank. About 19 million people use one each year.

Some banks also have unarranged overdrafts, with extra or higher charges for going beyond this limit or going into the red without permission, used by 14 million people a year.

 

[Talking Monkey]

12 hours ago, sancho panza said:

Must say that since reading that article and your reply re telcos',all of a sudden I get the reasoning.I was steering us clear of telcos because I'd rather have bought them pot big kahuna.But now I ll reassess.

 

Not soe sure it was that far out.Exxon are $66 today.Cheapest since the 09 bottom.

 

I suspect we're possibly headed for a 30-40% position in big oil.Currently at 15% but the more I look at the this trade,the more it has the feel of the Broken Hill trade late 90's.Apple soaring,mild mannered oil co's with huge free cash flows and fat divis going for a song.TSLA at $570 today ie nearly one Tesla share for nine XOM....................

The big Kahuna SP, makes me wonder when it will come or if it will come, it must though as things look so frothy its nuts

DB in terms of leads and lags is the catalyst for any large correction the impact of all the tightening the Fed did in 18/19 working its way through

[sancho panza]

4 hours ago, spygirl said:

Wheat/grain is one of the exceptionals.

Its abulk commodity and those have become much cheaper as cotnainerisation of other tradef has freed up port capacity, allowing large scale imports.

And is reflects the biggies like Russia and Oz entering the world market.

And ... grain farms are one of the areas where the framing does need subs - see the grain baraons as they are called.

So technically,farmer wasn;t fibbing.Just saying.

I workd on afarm in NZ.dairy farm 25 years ago.150 head .was viable then for a one man band.Now the farms have all gone to 1000's of head.Rotating milking sheds etc.

taking your milk chart then adjsuting for RPI from 1987.

Milk price in 1987 was  25 pence per pint.2019 was 44pence.

RPI 1987=100.2019 =291.

And that's without tkaing into account what a woeful measure of inflation RPI is-but better than CPI/CPIH.

No wonder loads have left the industry.

Food price inflation is coming back.Probably becuase of oil price rises.