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


spunko

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48 minutes ago, MrXxxx said:

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?

All companies like them have higher debts due to the nature of the industry.The key is to spot when prices are going to move up ahead of rates and the way the bonds are structured.The idea is to be able to pay some off as they come due thanks to higher cash flow.Vodafone for instance have a lot of debt,but its structured very well coming off slowly over time and fixed at very low rates.That should mean they can retire a lot of it as it comes due and perhaps only roll some over.You dont want to have to roll things over in 2027 at 14% coupons.

Its the one thing i dont like about BAT.They have huge debts and although they are paying them down by £1.5 billion a year they will still have a lot by 2028.Of course given they only make 1/2 cent profit per fag inflation might mean they can get 1 cent a fag.The fact they might have the vaccine for corona would be a contrarian's dream though,imagine the headline "Tobacco saves world lungs" .

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3 hours ago, NogintheNog said:

I'll be surprised if we don't get another leg down. 

Certainly the comments on this week's Financial Sense podcast I'm listening to while shoveling compost and for the reason you cited.

1 hour ago, janch said:

All except for @Harley who is completely off-grid by his description.

Shrinking rather than fully off!  I do think things will get worse generally as part of what this thread discusses (we focus on the financials rather than the other impacts which could be more important).  But I also want to do it becauseI I've always had an independent streak.  We forwent all the trappings and tolerated the peer pressure for many hard working years so we could do what we have done but most can do stuff regardless.  I was normal ok back then but now feel fulfilled and at peace.  I feel 21 again.  In the past I would have cringed at the untidy mess around me.  Now I see signs of progress and life.  Sure, let's get the financials sorted but there is so much more.  And yes, some room as a good bit of gemuetlichkeit around the fire, with a tot or two, is hard to beat.  The more you prep, the more you appreciate the good decent people.

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So BlackRock are now helping (deciding for?) the US government on which corporate bonds to buy and people have been rushing into corporate debt EFTs to frontrun (also causing unintended consequences for other (e.g. junk) debt).  Crony capitalism on steroids?  Another reason to play a game bigger than these rigged markets.  Fair enough to try and get a slice but this will not end well so better have prepped a bit too.

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17 hours ago, Noallegiance said:

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

Just me?!

Mike Maloney produced a whole 10 part 'Hidden Secrets of Money' series, well worth watching the whole series I think.

Part 4 even has a diagram starting at 18:40....but do watch from the beginning as the graphics at the start are great.

https://www.youtube.com/watch?v=iFDe5kUUyT0&list=PLK8aHk5TqClBale3rjOeeQ1wdxZgtiJCA&index=5&t=178s

 

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Noallegiance
1 minute ago, JMD said:

Mike Maloney produced a whole 10 part 'Hidden Secrets of Money' series, well worth watching the whole series I think.

Part 4 even has a diagram starting at 18:40....but do watch from the beginning as the graphics at the start are great.

https://www.youtube.com/watch?v=iFDe5kUUyT0&list=PLK8aHk5TqClBale3rjOeeQ1wdxZgtiJCA&index=5&t=178s

 

Yes I've watched it and do need to rewatch. Great computer illustrations.

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20 hours ago, DurhamBorn said:

Its a guide based on how long industrial cycles tend to last.Its also based on the fact the first few years will simply be repairing some of the damage of the deflation.I dont want to go into too much on the numbers,but its based on models of how inflation works.For instance id expect 6% inflation by 2025,8% by 2026 then the shoot up to 12%/20%.If it was 4% by 2025 the cycle might last a bit longer,or the inflation figure undershoot,say 9% to 16%.

These figures are based on CBs printing 3x what they have so far though.If they kept printing where it is now,we will see systemic collapse.Too much debt out there that needs bringing onto CBs balance sheets and monetized.

Another thing as well is the basis of what popped the deflation, this virus. It might leave parts of the economy hollowed out, so inflation might be even higher in certain areas. Lots of moving part and lots of work to do once things settle down into the cycle. For now its best to sit back and let it begin.

thanks DB, informative as always, and the highlighted part is particularly intriguing...

On this point, I do wonder if the 'environmental threat' to our planet will now be downgraded, and the biggest existential risk to the world will instead become the Corona Virus? After all, in recent years the Corona virus - sars, merrs, etc - has repeatedly jumped the species barrier. I guess if this were to happen it would mean a significant pivot in government policies, spending, and of course (though not to sound too morbid/callous) future investment opportunities? 

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17 hours ago, Harley said:

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.

Yes I agree, writing one's thoughts down helps crystalize and refine your ideas, and having a written reference of your plan helps you check progress of said plan, hopefully preventing confirmation bias, etc.

In regard to the text highlighted, do you still think things will get chaotic, nasty, dystopian even? Or if the UK can become more self-reliant, over say the next 10 years, in energy, food and industry/technology, might these developments not mitigate - to lesser/greater extent - the most harmful effects of any future financial crash?   

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Since Mike Maloney has been cited  (thanks @JMD to remind me of his series Hidden Secrets of Money)

Like or loathe the man, his most recent video has some good points related with this thread - from 4:41 he starts talking about John Hussman comparing Shiller PE Ratio and how much one would had gained (annualized returns) in 12 years if invested on a particular date.

Need some fact checking but interesting nonetheless.

Cheers,

 

MC

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1 hour ago, JMD said:

In regard to the text highlighted, do you still think things will get chaotic, nasty, dystopian even? Or if the UK can become more self-reliant, over say the next 10 years, in energy, food and industry/technology, might these developments not mitigate - to lesser/greater extent - the most harmful effects of any future financial crash?

I'm not necessarily going Mad Max.  That's the trouble, people tend to interpret these comments at the extremes and miss the subtleties.  Obviously not you as you're actually asking!  A lot can happen between here and there which would not be nice.  Perhaps listen to the podcast I just posted for a small taste.  Your savings could easily be taken, directly, not just with the invisible hand of inflation.  The focus on cash is like putting all your eggs in one basket and we investors never do that!

The thing with all this, and what we have now with CV, is our grounding which prevents us from seeing/coping with potentially significant changes.  It's the way we're wired and the way society (e.g MSM) wires us. QE was something that could happen largely unnoticed for the last decade within the current framework.  Boiling frogs.  What has now started cannot.

My upbringing and early career were quite extreme so it comes a bit easier to me, but even I fall foul as I react by hankering after the illusionary safety of the developed world, especially later with my occasional trips into the hearts of darkness.  The bigger world is a cold hard place.  Is oil rich Venezuela Mad Max?  No.  But wives sell their bodies for hard cash, and worse, while others do just fine thanks.  An uneccesarily extreme comment?  I dearly hope so but less could still be plenty painful.  We have been lucky so far thanks largely to heroic work by those who quietly keep us safe.

I extrapolate the scenario painted by this thread into the true economic, social and political realms.  Cash is trash, more so than ever.  It may well have it's day.  It certainly will lose some of the freedoms it has given us and we currently take for granted.  My partner and I ruled our frugal lives by the simple saying that it's primarily what you spend not what you earn that matters. Investing and doing things now that reduce those spends for the times when they become hard seems a sensible task.  Freedom comes from not trying to earn more but by needing less.

Going off grid is about diversifying outside the current monetary world with it's increasingly quaint notions of stores of value, acceptability, divisibility, system of account, and so forth.

We could all benefit from sometimes standing back from this thread an viscerally thinking through what this all could actually mean.

PS:  I bought ("invested") in a bit of productive kit today.  Expensive yes.  But tomorrow I may not have the money (it being taken from me in some way), be able to afford it, or even be allowed to buy it.  But I will also be looking to buy stocks Monday!

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Don Coglione
46 minutes ago, Harley said:

If DB takes his inspiration from David Hunter, then here is mine.  An absolute must listen.  Aligned to this thread but plus a taste of the regulation, repression, etc I so fear.

https://moneyweek.com/economy/global-economy/601106/the-moneyweek-podcast-russell-napier-how-much-debt-is-too-much

 

Thank you, Harley.

Stunning. Terrifying. Essential.

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12 minutes ago, Ponty Mython said:

....Stunning. Terrifying. Essential.

And, after an unbelievable lockdown and more, quite plausible!  The Overton window has just taken a big shift.  Front-run it!  The bills will come due and "they" never pay, we always do!

PS:  Napier has an unassumingly brilliant mind!

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Don Coglione
2 minutes ago, Harley said:

And, after an unbelievable lockdown and more, quite plausible!  The Overton window has just taken a big shift.  Front-run it!  The bills we come due and "they" never pay, we always do!

How?

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5 minutes ago, Ponty Mython said:

How?

He quietly mentioned a few, some the connected rich have already done.  You can also extrapolate some of the things he mentioned.  You can also go partially "off grid" in the modern sense of the word.  Maybe buy his book!!!!!!!!!

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Don Coglione
16 minutes ago, Harley said:

He quietly mentioned a few, some the connected rich have already done.  You can also extrapolate some of the things he mentioned.  You can also go partially "off grid" in the modern sense of the word.  Maybe buy his book!!!!!!!!!

Gold, beans and guns then...

Are you on commission?!

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Forgive the slightly off topic post but in this thread I've read about new build estates either being slums or bulldozed

Staying in a 2 year-old build in Northampton and it sounds feasible.  It has a feel of somewhere that's going to degrade rapidly

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sleepwello'nights
4 hours ago, Harley said:

If DB takes his inspiration from David Hunter, then here is mine.  An absolute must listen.  Aligned to this thread but plus a taste of the regulation, repression, etc I so fear.

https://moneyweek.com/economy/global-economy/601106/the-moneyweek-podcast-russell-napier-how-much-debt-is-too-much

 

I need to listen to it with more concentration. Take aways I got were Japanese equities and ensure any bank deposits are within guaranteed limits. 

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Don Coglione
7 minutes ago, sleepwello'nights said:

I need to listen to it with more concentration. Take aways I got were Japanese equities and ensure any bank deposits are within guaranteed limits. 

But the Japanese equities could be stolen?

Besides, a 2% return is hardly worth the effort. Fuck me, maybe I should just buy a house...

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sleepwello'nights
Just now, Ponty Mython said:

But the Japanese equities could be stolen?

Besides, a 2% return is hardly worth the effort. Fuck me, maybe I should just buy a house...

Yes and you'll have somewhere to live. Just the increasingly high council tax to cope with. 

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6 hours ago, Harley said:

If DB takes his inspiration from David Hunter, then here is mine.  An absolute must listen.  Aligned to this thread but plus a taste of the regulation, repression, etc I so fear.

https://moneyweek.com/economy/global-economy/601106/the-moneyweek-podcast-russell-napier-how-much-debt-is-too-much

 

Really interesting to see a deflationist now seeing the inflation risk.I think the only difference here from a macro strategist is we try to look longer term and not wait for the events,more what has to happen if things continue.Where i dont agree is when they say we are getting 30 years of inflation.Im seeing 8 years,though whats interesting is perhaps we will be getting 30 years of inflation in that 8 years.I agree as well the next cycle will be equity not debt.The bit i would add though is the cycle should be industrial and those areas should manage to increase dividends.

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I was hoping to have a discussion on reflation funds, and a passive approach to investing in the next cycle. I would like to set someone up with a bit of a plan but won’t be able to manage it for them like I would in an ideal world. 

Does anyone think this would merit another thread or shall I stick some ideas in here for feedback when I’ve done some research? Any help will be really valuable to me.

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