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

[Bricormortis]

1 hour ago, eek said:

A Morrison's supermarket with a petrol station attached or a Morrisons Daily inside a Esso garage.

Mind you Morrisons do charge different prices based on local competition but our local one is £1.06 and the other one across town is probably £1.07

The former. Supermarket with a petrol station.

When you look at the oil price....

[reformed nice guy]

1 hour ago, DurhamBorn said:

Too much debt out there that needs bringing onto CBs balance sheets and monetized.

Sorry if Im being a daft bastard, but what do you mean by monetized? When I google it, I get confused. I thought a debt is already tradeable and when I read what I find on google it suggests you take something that isnt sellable, package it up and sell it.

Can you explain it like im the slow cunt in the pub?

[DurhamBorn]

39 minutes ago, reformed nice guy said:

Sorry if Im being a daft bastard, but what do you mean by monetized? When I google it, I get confused. I thought a debt is already tradeable and when I read what I find on google it suggests you take something that isnt sellable, package it up and sell it.

Can you explain it like im the slow cunt in the pub?

All the gilts already issued by the government are owned by someone and the government pays interest on it.The CB expands its balance sheet by creating fresh currency and buying up those gilts on the open market.The people who sell them then have currency to buy more gilts or other assets.The government then issues more gilts to make up for the ones gone from the market.The government still has to pay the coupon on the gilts the BOE has issued,but the BOE returns all profits to the government,so in affect they only pay for the running of the BOE.As the gilts mature and the government has to pay the principal the BOE simply buys the same amount of gilts again on the open market and the government issues new ones.Government debt is never and will never be re-paid.The day it is,even a big part our economy would go to the stone age.In a Fiat money system credit must slowly grow over time.

 

[Noallegiance]

2 minutes ago, DurhamBorn said:

All the gilts already issued by the government are owned by someone and the government pays interest on it.The CB expands its balance sheet by creating fresh currency and buying up those gilts on the open market.The people who sell them then have currency to buy more gilts or other assets.The government then issues more gilts to make up for the ones gone from the market.The government still has to pay the coupon on the gilts the BOE has issued,but the BOE returns all profits to the government,so in affect they only pay for the running of the BOE.As the gilts mature and the government has to pay the principal the BOE simply buys the same amount of gilts again on the open market.

 

Fuck me. Anyone else need a diagram to go with this?

Just me?!

[StrugglingMillennial]

In a simpler form isn't this what quantative easing is? Just printing money that hasn't been earnt and buying up goverment or company debt.

Obvious downside of QE is currency devaluation and the accompanying inflation.

[DurhamBorn]

Just now, StrugglingMillennial said:

In a simpler form isn't this what quantative easing is? Just printing money that hasn't been earnt and buying up goverment or company debt.

Obvious downside of QE is currency devaluation and the accompanying inflation.

Yes,and if we werent in a Fiat debt based system you could just let things get cheaper and cheaper.However we arent,and our system runs on debt,so the money supply needs to slowly increase over time,forever.At the end of a dis-inflation though,like where we are now debt destruction speeds up and the CBs arent sure of the scale,so it takes them time to get their response right sized.Governments will fear the costs of unemployment over the costs of inflation and so the CBs will expand their balance sheets until they turn things.Given the lag at play they will over cook the pudding and the money supply will pull away from the production capacity of the economy and inflatio takes hold.Once that happens it becomes like the Belstone Fox,you can see it,you can smell it,you can get close to it,but you can never catch it until it runs its natural life.

[Harley]

7 hours ago, JMD said:

thanks Harley, great post and also the previous stock table one.

Ta, I was wondering if I was being a bore, but then I also write stuff to help clarify my thinking to myself.  Harder to write stupid stuff than to think it, but not impossible!  I'm amazingly busy right now between getting prepped for this financial stuff and the myriad of non-financial stuff I'm up to with my partner.  A mammouth amount of work being done but highly productive as we've been in lock down for well over 4 weeks now and prepping well before that.  But tbh that's almost been a way of life for a while.  No time for telly or anything, just learning stuff.  Masses more to do.  Our place is just littered with building materials and unfinished projects.  And now I have a full engine rebuild to do asap.  Tried some local volunteering but no demand!  So pleased to have moved out of normality all those years ago even if our place is a bit of a dump.  But our move was part of a strategic vision far worse than the current reality, combined with realising how much better things can be disconnected from the matrix.  Not sure everyone can do it though so we'll be pleased if people got plugged back in soon and went back to chasing happiness!  I do hope everyone here is holding up well but assume the types who come and stay here have a bit of a twinkle in their eyes!

PS:  We rented a 1.5 bedroom starter home for nine years prior to this gaff, with garage and a small garden.  We would be doing the same on a smaller scale right now if still there.

[StrugglingMillennial]

9 minutes ago, DurhamBorn said:

Yes,and if we werent in a Fiat debt based system you could just let things get cheaper and cheaper.However we arent,and our system runs on debt,so the money supply needs to slowly increase over time,forever.At the end of a dis-inflation though,like where we are now debt destruction speeds up and the CBs arent sure of the scale,so it takes them time to get their response right sized.Governments will fear the costs of unemployment over the costs of inflation and so the CBs will expand their balance sheets until they turn things.Given the lag at play they will over cook the pudding and the money supply will pull away from the production capacity of the economy and inflatio takes hold.Once that happens it becomes like the Belstone Fox,you can see it,you can smell it,you can get close to it,but you can never catch it until it runs its natural life.

Not that i was alive at the time but from talking to people of my parents generation this sounds like the end of the 70's and into the 80's.

Scares me to think how much wealth could be destroyed if you are holding the wrong assets.

[Bricks & Mortar]

25 minutes ago, DurhamBorn said:

Yes,and if we werent in a Fiat debt based system you could just let things get cheaper and cheaper.However we arent,and our system runs on debt,so the money supply needs to slowly increase over time,forever.At the end of a dis-inflation though,like where we are now debt destruction speeds up and the CBs arent sure of the scale,so it takes them time to get their response right sized.Governments will fear the costs of unemployment over the costs of inflation and so the CBs will expand their balance sheets until they turn things.Given the lag at play they will over cook the pudding and the money supply will pull away from the production capacity of the economy and inflatio takes hold.Once that happens it becomes like the Belstone Fox,you can see it,you can smell it,you can get close to it,but you can never catch it until it runs its natural life.

Yes!
This is my favourite, of all your comments, DB.  I think it's a personal thing.Something just clicked into place with me, with the link between the debt-based money system, debt destruction, and the money printing.

[Harley]

35 minutes ago, StrugglingMillennial said:

Scares me to think how much wealth could be destroyed if you are holding the wrong assets.

Indeed.  My target assets are physical PM's, a bore hole, a solar array, a generator, fuel stores, allotment, community, security systems, machinery (while we can still afford it), etc.  Oh, plus a few financial investments, them being at the risky end of my portfolio!

[DurhamBorn]

45 minutes ago, StrugglingMillennial said:

Not that i was alive at the time but from talking to people of my parents generation this sounds like the end of the 70's and into the 80's.

Scares me to think how much wealth could be destroyed if you are holding the wrong assets.

Very similar to the inflation of the 70s.However where as the 70s inflation ended up destroying factories and outdated production,this one will fire up production and transfer wealth and spending power from consumers,to producers.Instead of consumers consuming,the economy will be being built.The engine.Dis-inflation is cruel to asset heavy companies,but inflation is like nectar to them.

[StrugglingMillennial]

The last few years has been like building a large jigsaw puzzle and its only now we are getting near the end that the picture is beginning to show.

Once again DB thankyou for your input, it has been outstanding!

[DurhamBorn]

23 minutes ago, StrugglingMillennial said:

The last few years has been like building a large jigsaw puzzle and its only now we are getting near the end that the picture is beginning to show.

Once again DB thankyou for your input, it has been outstanding!

We can never know what sets off the end of a cycle,just that we are close and the tinder is dry.Wild fires dont start when its hossing down and damp,but when its tinder dry.Nobody would want one to end like this,with death and loss of loved ones.However,it might be brutal,but as iv always said the market hurts the most possible.I guess in a way its an education.It seems as a species we only learn from pain and hurt.

The greatest book ever written on contrarian thinking had this to say.It could of been wrote today,it was published in 1841.

 

“During seasons of great pestilence men have often believed the prophecies of crazed fanatics, that the end of the world was come. Credulity is always greatest in times of calamity. Prophecies of all sorts are rife on such occasions, and are readily believed, whether for good or evil. During the great plague, which ravaged all Europe, between the years 1345 and 1350, it was generally considered that the end of the world was at hand. Pretended prophets were to be found in all the principal cities of Germany, France, and Italy, predicting that within ten years the trumpet of the Archangel would sound, and the Saviour appear in the clouds to call the earth to judgement.”

Charles Mackay, Extraordinary Popular Delusions & the Madness of Crowds

[MrXxxx]

6 hours ago, DurhamBorn said:

During seasons of great pestilence men have often believed the prophecies of crazed fanatics, that the end of the world was come. Credulity is always greatest in times of calamity. Prophecies of all sorts are rife on such occasions, and are readily believed, whether for good or evil. During the great plague, which ravaged all Europe, between the years 1345 and 1350, it was generally considered that the end of the world was at hand. Pretended prophets were to be found in all the principal cities of Germany, France, and Italy, predicting that within ten years the trumpet of the Archangel would sound, and the Saviour appear in the clouds to call the earth to judgement.”

Charles Mackay, Extraordinary Popular Delusions & the Madness of Crowds

This has got to win the award for the most apt posting on Dosbods surely?...this and my first cup of coffee started my day off well! :-)

[M S E Refugee]

Has anybody any thoughts about the Utility companies?

I bought some SSE on Friday and I am quite interested in National Grid and United Utilities.

[Hardhat]

6 minutes ago, M S E Refugee said:

Has anybody any thoughts about the Utility companies?

I bought some SSE on Friday and I am quite interested in National Grid and United Utilities.

Centrica look cheap 

I hold both SSE and NG ... Drax also gets discussed on here quite often. They have hydro plants in Scotland and some biomass.

It makes sense to me to hold NG as everyone needs to use the power grid, whatever their industry. SSE are typically a good divi payer and have exposure to wind power and natural gas.

[Bobthebuilder]

48 minutes ago, M S E Refugee said:

Has anybody any thoughts about the Utility companies?

I bought some SSE on Friday and I am quite interested in National Grid and United Utilities.

I own some NG, they have held up well in this sell off mine down 2% at the moment.

[DurhamBorn]

2 hours ago, M S E Refugee said:

Has anybody any thoughts about the Utility companies?

I bought some SSE on Friday and I am quite interested in National Grid and United Utilities.

Iv been buying Drax,and SSE ,i bought some SSE late Friday,i already owned a few bought years ago.Drax is a bit risky given they could suffer supply chain distribution and also have a business supplying to small companies,but they own great assets in the hydro plants and look like they will become the biggest grid balancing company in the UK.That will be a nice place.They also have the potential to be a hydrogen play.They are right next to where the Dogger Bank wind energy comes ashore and could easily convert one of their Drax power plants to hydrogen.They are linked to the national gas grid as well there.Equinor have joined them in looking at hydrogen.

SSE have a little bit too much debt and their earnings arent much higher than the divi.However they have the cabling in now to bring most offshore wind onshore and could become another big player in hydrogen.Not making it,but providing the electricity to produce it.Over night their wind farms pretty much make no money,but if/when hydrogen gets going they will sell the night energy,probably at a low cost to hydrogen production.

The UK has the chance to be the front runner in hydrogen production in the next cycle,and if it does then companies like Drax and SSE could become hot property and be re-rated a lot higher.

Im happy to add them both to my portfolio.SSE is one il look to add to below £12 as divis come in.

Luckily it should take a couple of years before the cycle starts to unfold,so many areas that will profit ahead will lag.

 

 

[NogintheNog]

3 hours ago, M S E Refugee said:

Has anybody any thoughts about the Utility companies?

I bought some SSE on Friday and I am quite interested in National Grid and United Utilities.

I've owned NG, UU, SSE, and PNN for a few years now. They've held up pretty well and I'm probably about even with the holdings overall despite some high price ladder points. Plus, I've had the dividends. Be interesting to see how they hold up on a potential further leg down!

Also own CNA, which has turned £5K into £1K! My view now is that it just needs to collapse so that everyone else can eat the scraps, I'm sure some of my other holdings would benefit!

Just bought DRAX last week, seems a bit volatile so will be keeping an eye on that.

The parts of my portfolio that have held up are basically the sound utilities, big pharma, and the goldies and silvies. Everything else has become pants and the oilies aren't helping!

PS. I appreciate we are not at an end point, so I won't sell any of the crap I do hold. Need to let the cycle turn and so far I have the liquidity to stay in the game. The longer this lockdown goes on the greater the already unseen damage and I'll be surprised if we don't get another leg down.

[StrugglingMillennial]

11 hours ago, DurhamBorn said:

We can never know what sets off the end of a cycle,just that we are close and the tinder is dry.Wild fires dont start when its hossing down and damp,but when its tinder dry.Nobody would want one to end like this,with death and loss of loved ones.However,it might be brutal,but as iv always said the market hurts the most possible.I guess in a way its an education.It seems as a species we only learn from pain and hurt.

It has certainly come about in a way that i dont think anyone thought it would and it is without a doubt a tragedy.

I just hope that the number of deaths remain as low as possible and the coming years dont give way to any form of conflict that may see a further loss of life.

[Democorruptcy]

3 hours ago, Hardhat said:

Centrica look cheap 

I hold both SSE and NG ... Drax also gets discussed on here quite often. They have hydro plants in Scotland and some biomass.

It makes sense to me to hold NG as everyone needs to use the power grid, whatever their industry. SSE are typically a good divi payer and have exposure to wind power and natural gas.

Re wind power TRIG temporarily dropped below the NAV

 

[janch]

4 hours ago, Hardhat said:

It makes sense to me to hold NG as everyone needs to use the power grid

All except for @Harley who is completely off-grid by his description.  Are you planning for the complete collapse Harley and will you have room for a few Dosbodders at your gaff?

Seriously it seems a very wise move to me.

[MrXxxx]

2 hours ago, DurhamBorn said:

SSE have a little bit too much debt and their earnings arent much higher than the divi.H

As a novice I find posts like this with these small details on what to look for really helpful.

[MrXxxx]

4 hours ago, Hardhat said:

5 hours ago, M S E Refugee said:

Has anybody any thoughts about the Utility companies?

I bought some SSE on Friday and I am quite interested in National Grid and United Utilities.

Centrica look cheap 

But cheap doesn't always equate to good value! :-)

[MrXxxx]

2 hours ago, DurhamBorn said:

SSE have a little bit too much debt and their earnings arent much higher than the divi.However they have the cabling in now to bring most offshore wind onshore and could become another big player in hydrogen.

But this is not always necessarily a bad thing is it, as long as its not sustained I.e maybe they are currently in this position due to recent Capex from the infrastructure/cabling investment?...anyone know if this is the case here?