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

[BearyBear]

7 minutes ago, Agent ZigZag said:

The price of a house for me irrelevant. The amount of debt one takes on is and the ability to deal with it is key

That's true, monthly payment is more relevant than the principal. Of course we don't know what the future brings in terms of interest rates but that's a different story. (they may as well convert pounds into some sort of digital currency and introduce negative rates, who knows)

[headrow]

1 hour ago, DurhamBorn said:

Its like energy now.Everybody hates it because we are going green.To get green demand for other energy will go up by a lot,just after nobody has invested.Oil will be $250+ by 2027/28.

 

 

I value your opinion on the oil sector and i've got quite a large part of my portfolio in BP & Shell.

I've been watching bloomberg quite a bit today and an analyst was on earlier saying that Shell isn't breaking even with the price of Gas below the point of the cost to get it to market.

I was going to keep adding to my positions on any weakness in BP & Shell but it has surprised me how unloved the energy sector is , the talking heads on bloomberg don't rate it all. 

Going to keep my powder dry for a few months , though BP at 400p and Shell at 1500p would be too hard to turn down.

[sancho panza]

1 hour ago, BearyBear said:

I don't think it's that simple, for a wealth destruction like that we need more than just one forced sale... Aberdeen is a good example, the city is a total disaster now and it took 5 long years for the prices to go down 40-45%.

We need higher rates or some sort of property tax (eg. high tax on second homes, empty properties etc) for prices to crash.

 

Disclaimer: I don't own a property, I wish I could afford the one I like...

Of course it's not that simple.banks mark loans to model not the market.I was jsut giving a simple demo of how wealth destruction works and the obvious knock effect on credit growth in a fractional reserve system.One swallow doesn't make a winter.but normally in debt deflations because the banks are marking to model when they finally start to factor in price changes over loan length then it's way too late.That's when they reduce credit growth massively/disproportionately to makew up for previous mistakes.Rather like whiplash injuries in car accidents,it's not the inital bump that does the damage.

8 minutes ago, headrow said:

I value your opinion on the oil sector and i've got quite a large part of my portfolio in BP & Shell.

I've been watching bloomberg quite a bit today and an analyst was on earlier saying that Shell isn't breaking even with the price of Gas below the point of the cost to get it to market.

I was going to keep adding to my positions on any weakness in BP & Shell but it has surprised me how unloved the energy sector is , the talking heads on bloomberg don't rate it all. 

Going to keep my powder dry for a few months , though BP at 400p and Shell at 1500p would be too hard to turn down.

issue is that while prices are low investment and exploration get stopped which ends up with a whiplash effect on price down the line.then shell will shine

I'm on a real RTC payth today

[sancho panza]

dare i float kraft here.having lots of troubles.

https://www.investing.com/equities/kraft-foods-inc-financial-summary

[Democorruptcy]

18 minutes ago, headrow said:

I value your opinion on the oil sector and i've got quite a large part of my portfolio in BP & Shell.

I've been watching bloomberg quite a bit today and an analyst was on earlier saying that Shell isn't breaking even with the price of Gas below the point of the cost to get it to market.

I was going to keep adding to my positions on any weakness in BP & Shell but it has surprised me how unloved the energy sector is , the talking heads on bloomberg don't rate it all. 

Going to keep my powder dry for a few months , though BP at 400p and Shell at 1500p would be too hard to turn down.

Along those lines I posted last week that given the oil price, the big oilies, even though they had dropped, should be even cheaper. Does it just take time for the low oil price to feed into the big oilie's price because they haven't reported their reduced profits yet? It would be lovely if we had a big dip down on AGM day or something? Of course that cannot be relied upon! 

[Loki]

@DurhamBorn i know you're an investor not a trader (so long term hold) but in your opinion is SSE still a good buy after such sustained increases in share price, or is it worth waiting for a drop before adding to portfolio?

[Castlevania]

3 hours ago, DurhamBorn said:

Markets always hurt the most people possible.The fact "everyone" will pay whatever for a house shows who will be hurt hard.

As for a HPC, its ongoing.My son is looking at a house tomorrow,3 bed semi,built early 2000s sold for £139k then,its up for £110k.Add the inflation from 2002 ,18 years inflation + £29k nominal down thats a hell of a fall.It it has kept up with inflation it would be £227,827.Its down by over 50%.Now i dont expect that house to go up in price,i expect it to maybe hold steady and fall against inflation,maybe another inflation adjusted 50% over the cycle.However my son has £8k in silver.He can fix at 2.14% for 5 years with 10% over payments.Him and his partner will overpay by around that each year so as rates rise at the end of the 5 year fix they would owe half.If rates are 7% by then silver will likely of 400% up,he will sell the silver and clear the mortgage.Is so he will be mortgage free on a decent 3 bed semi at 28 years old.

The fact nobody cares about shares is true,its always like that just before that asset class delivers the goods.

Its like energy now.Everybody hates it because we are going green.To get green demand for other energy will go up by a lot,just after nobody has invested.Oil will be $250+ by 2027/28.

 

 

Using PM’s to hedge mortgage interest rate risk was my plan!

I’m still renting.

[DurhamBorn]

1 hour ago, Loki said:

@DurhamBorn i know you're an investor not a trader (so long term hold) but in your opinion is SSE still a good buy after such sustained increases in share price, or is it worth waiting for a drop before adding to portfolio?

I wouldnt chase it at these prices,but i wouldnt sell.Maybe set some ladders with first one at £15 down to £12.Could be a big winner though if hydrogen wins out in the green energy space given the amount of windpower going to waste over night.

[DurhamBorn]

5 minutes ago, Castlevania said:

Using PM’s to hedge mortgage interest rate risk was my plan!

I’m still renting.

Yes,my son wanted a plan and thats what i came up with.If rates are a lot higher in 5 years then inflation is running and silver should leverage up.Seems like a cheap way to do it.Hes not into finance,very sporty,but sensible.

[Loki]

33 minutes ago, DurhamBorn said:

I wouldnt chase it at these prices,but i wouldnt sell.Maybe set some ladders with first one at £15 down to £12.Could be a big winner though if hydrogen wins out in the green energy space given the amount of windpower going to waste over night.

Thanks mate.  I think you have called hydrogen well.  I never saw how an all electric car fleet could work and  I'd forgotten about hydrogen completely. I remember Honda had a prototype car that seemed to work well (As in, just like a car) years ago but never heard any more

[DurhamBorn]

Just now, Loki said:

Thanks mate.  I think you have called hydrogen well.  I never saw how an all electric car fleet could work and  I'd forgotten about hydrogen completely

I think its deliberate.Big oil will control hydrogen,they wont control electric/battery.I think they are letting lots of capital go into electric before making the big moves in hydrogen to kill the companies fully invested in battery/tech etc.The key is cheap electric and thats becoming a reality now.I think we will see them slowly build up hydrogen assets without making much noise about it.Then see buses and trucks go hydrogen,then cars.Its not certain,but i think its much more likely than the market expects.Big oil will get a couple of decades where they can move most capex spending to other products and/or dividends.They will only need to spend production capex and close down capex on basins.I have a feeling DRAX will add hydrogen production.

https://www.drax.com/press_release/energy-companies-announce-new-zero-carbon-uk-partnership-ccus-hydrogen-beccs-humber-equinor-national-grid/

 "we believe CCS and hydrogen must play a significant role in this.”

[JMD]

1 hour ago, DurhamBorn said:

I think its deliberate.Big oil will control hydrogen,they wont control electric/battery.I think they are letting lots of capital go into electric before making the big moves in hydrogen to kill the companies fully invested in battery/tech etc.The key is cheap electric and thats becoming a reality now.I think we will see them slowly build up hydrogen assets without making much noise about it.Then see buses and trucks go hydrogen,then cars.Its not certain,but i think its much more likely than the market expects.Big oil will get a couple of decades where they can move most capex spending to other products and/or dividends.They will only need to spend production capex and close down capex on basins.I have a feeling DRAX will add hydrogen production.

https://www.drax.com/press_release/energy-companies-announce-new-zero-carbon-uk-partnership-ccus-hydrogen-beccs-humber-equinor-national-grid/

 "we believe CCS and hydrogen must play a significant role in this.”

DB, I agree with the theory and understand how it may work out for 'Big Oil'. But if correct, I guess this does mean staying away from US mid-cap explorers/producers if they are mostly oil/shale oil, etc as they are not big enough to change their business model and pivot away from oil?

However, co's like Vermillion are still good I think because they are mainly gas producers?

But where does this leave the oil/gas service co's - I own some of these so I'm thinking only safe to stay invested in the big ones such as Halliburton? 

 

[mh9000]

3 hours ago, DurhamBorn said:

Yes,my son wanted a plan and thats what i came up with.If rates are a lot higher in 5 years then inflation is running and silver should leverage up.Seems like a cheap way to do it.Hes not into finance,very sporty,but sensible.

Thanks for sharing that. I’m tempted by a similar plan myself. I could really do with buying a place as sick of renting, and have a big enough deposit but been reluctant to as don’t want to miss any potential opportunities from the next cycle as it’s all tied up in a house. I could stick a chunk in silver, keep some aside for reflation shares and the rest for 40% deposit.

what would you actually hold the silver in?

something like SSLN or actual sovereign/coins?

 

[DurhamBorn]

21 minutes ago, mh9000 said:

Thanks for sharing that. I’m tempted by a similar plan myself. I could really do with buying a place as sick of renting, and have a big enough deposit but been reluctant to as don’t want to miss any potential opportunities from the next cycle as it’s all tied up in a house. I could stick a chunk in silver, keep some aside for reflation shares and the rest for 40% deposit.

what would you actually hold the silver in?

something like SSLN or actual sovereign/coins?

 

My sons is in Bullion Vault,and some SSLN.I think its a good approach.Lock in low rates,give enough runway (5 year fix) and then some silver.If silver hasnt moved,rates havent moved,simply re-fix another 5 years with 10% over payments allowed and repeat.It makes sure if inflation is raging and you come out of a fix at say 7%+ rates,silver should of trebled and protects you.

[Bobthebuilder]

24 minutes ago, mh9000 said:

Thanks for sharing that. I’m tempted by a similar plan myself. I could really do with buying a place as sick of renting, and have a big enough deposit but been reluctant to as don’t want to miss any potential opportunities from the next cycle as it’s all tied up in a house. I could stick a chunk in silver, keep some aside for reflation shares and the rest for 40% deposit.

what would you actually hold the silver in?

something like SSLN or actual sovereign/coins?

 

If you have the cash to hedge yourself like that and still have a 40% deposit, then all i can say is well done, sounds like you are doing ok.

[DurhamBorn]

2 hours ago, JMD said:

DB, I agree with the theory and understand how it may work out for 'Big Oil'. But if correct, I guess this does mean staying away from US mid-cap explorers/producers if they are mostly oil/shale oil, etc as they are not big enough to change their business model and pivot away from oil?

However, co's like Vermillion are still good I think because they are mainly gas producers?

But where does this leave the oil/gas service co's - I own some of these so I'm thinking only safe to stay invested in the big ones such as Halliburton? 

 

Funny enough iv been thinking long and hard over the service companies and the mid caps for that reason.I think it will be best to sell them at some point during the next cycle and no buy back.I think gas has a long term future though,at least 40 years.

I will have much more in the big oilies,because they suit my profile and age,but a scattering of mid caps that might give us some 10 baggers.

[Alifelessbinary]

I’ve recently finished  a brilliant book called, Prisoners of Geography by Tim Marshall, which explains of a lot of the geopolitical points covered in this thread.

The section on China is particularly fascinating and throws up some interesting investing ideas. Apparently 40% of arable land is either too polluted to sustain crops or the top soil is so thin the land is unviable for farming. While this is terrible for the planet it is good news for Potash/fertiliser producers. 

China has pretty much gone all in for growth, if they win they rule the world, if growth slows and unemployment kicks in we’ll likely see civil unrest never seen before. 

At least the overall view of the geography of Britain was positive,. It’s just essential that any infrastructure spent enhances our geographical competitive advantages.

[Long-game]

On 12/02/2020 at 12:34, DurhamBorn said:

Its very tricky,but firstly you do the things you want doing.New boiler,windows etc,do it now while its dirt cheap.Next you get rid of all debts,while beans might go up 10% a year mortgages might go up 40% a year 2% to 2.8% in a year then 3.2%,4.7% etc.

Then a broad spread of investments in things that cost massive amounts to build,but everyone needs/uses.Inflation means building expensive capital assets with debt is off the table.You want companies who have the assets,but arent getting the return at the moment.At this stage of the cycle you want to be buying a companies assets,not its profits.Cycle turns see a massive miss-pricing as investors price growing earnings (that are about to turn south) at huge multiples,but high asset,slow growth dirt cheap.

The other thing with that sort if capital for me is have £50k in silver and gold.See it for what it is ,real insurance against inflation getting so hot even inflation assets cant keep up.

Its very tricky at the moment,but my key thought after maybe one last hurray from bonds is avoid fixed interest.I see terrible returns over the next decade.

Sound plan. How much is reasonable say for 10 upvc windows fiited by a local chap? 

[Barnsey]

2 hours ago, DurhamBorn said:

My sons is in Bullion Vault,and some SSLN.I think its a good approach.Lock in low rates,give enough runway (5 year fix) and then some silver.If silver hasnt moved,rates havent moved,simply re-fix another 5 years with 10% over payments allowed and repeat.It makes sure if inflation is raging and you come out of a fix at say 7%+ rates,silver should of trebled and protects you.

Must admit we’re now looking at increasingly cheaper houses, with the aim to pay off in 7-10 years. Having that certainty and a roof over your head well before retirement age is perhaps much better than being a slave to a dream home.

The only thing that we must consider as a potential spanner in the works for mortgage  rates heading skyward is the return of yield curve control that the Fed and others are looking to implement due to success in Japan:

https://www.google.co.uk/amp/s/www.wsj.com/amp/articles/fed-officials-weigh-new-recession-fighting-tool-capping-treasury-yields-11580050800

 

[DurhamBorn]

51 minutes ago, Cattle Prod said:

A little anecdotal - I had the pleasure of using a brand new Dodge Ram 2500 heavy duty with a 6.7 L V8 Cummins turbodiesel in my last trip up to the wastes of the white north. It was slow in the uptake, but Jesus when the injectors kick in....I managed a 0-60 in 9.4 seconds on a gravel road...temperature outside was -39C! That engine is an absolute beast.

You want to see the ones for Dennis for fire engines.The torque in those is insane,flywheel is huge.They drive a lot of pumps etc and full of water some weight in them.That Dodge Ram engine is where you arrive when you have been  making something for 100 years.You need perfect crank machining etc when engines are running in -39c,its an alloy crankshaft and forged connecting rods on those,no big ends going under pressure.800+lb-ft torque on them.Holset turbocharger is what gives it the kick,they have a compressor side housing,it gets over 30psi air into the engine and the fuel pump isnt far off 30,000 psi.Thats serious power and pick up.

[Castlevania]

14 hours ago, sancho panza said:

Of course it's not that simple.banks mark loans to model not the market.I was jsut giving a simple demo of how wealth destruction works and the obvious knock effect on credit growth in a fractional reserve system.One swallow doesn't make a winter.but normally in debt deflations because the banks are marking to model when they finally start to factor in price changes over loan length then it's way too late.That's when they reduce credit growth massively/disproportionately to makew up for previous mistakes.Rather like whiplash injuries in car accidents,it's not the inital bump that does the damage.

issue is that while prices are low investment and exploration get stopped which ends up with a whiplash effect on price down the line.then shell will shine

I'm on a real RTC payth today

Banks mark loans on an accrual basis. They don’t present value. If they did all the ones balls deep in buy to let would probably be insolvent.

[MrXxxx]

21 hours ago, BearyBear said:

I don't think it's that simple, for a wealth destruction like that we need more than just one forced sale... Aberdeen is a good example, the city is a total disaster now and it took 5 long years for the prices to go down 40-45%.

We need higher rates or some sort of property tax (eg. high tax on second homes, empty properties etc) for prices to crash.

 

Disclaimer: I don't own a property, I wish I could afford the one I like...

I don't think Aberdeen is a representative example as prices are so heavily tied to the `wax and wanes` of the oil industry...where else in the UK is so heavily tied to one industry/sector nowadays?

[DurhamBorn]

17 minutes ago, MrXxxx said:

I don't think Aberdeen is a representative example as prices are so heavily tied to the `wax and wanes` of the oil industry...where else in the UK is so heavily tied to one industry/sector nowadays?

Probably places like Barrow with BAE building subs there.Most of the UK economy now is based around benefits.A very large part of the population get tax credits or universal credit on top of part time wages.Browns big idea was instead of trying to keep well paid steel works etc,they would shut them,put a Tesco on the land and top up all the wages to 2/3s of a steel workers with tax credits.I kid you not.It was policy.I knew Blairs agent.Of course the problem is not everyone can get tax credits,it means women dont need men etc and it meant all wages went down to the minimum because there was no need or point in an employer paying more.It also sucked in mass immigration.Im not sure on the exact numbers,but several years ago when i was a councillor my local town got something like 57% of income from welfare and 14% from public sector employment.Private sector was only 29% of the economy.Incredible numbers,and one of the reasons so much will be pumped into the north in the next cycle.

[onlyme]

11 hours ago, Long-game said:

Sound plan. How much is reasonable say for 10 upvc windows fiited by a local chap? 

Base cost of UPVC window very approx £200 a pop for window itself for reasonable spec, supposed to have FENSA fitter (another bollocks regulation) fitter. About an hour to two for each window would guess, rip out old, clean up, fit, re-seal.

[Democorruptcy]

One for Errol:

https://www.bbc.co.uk/news/av/uk-51416500/bank-of-england-gold-rare-look-inside-the-vaults

I like the little flags for different countries and that it was shown to someone in a wheelchair, so he couldn't run off with any!