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

[nirvana]

AHA I can rename jpegs to png and post piccies, what joy!

 

[JMD]

3 hours ago, CVG said:

Posted before. Love this guys site:

https://portfoliocharts.com/

For sure CVG, I think that site piqued my initial interest in the topic. Its just that portfolio ideas from investors who are actively positioning for the next cycle add so much extra information, especially if the investor explains their decision making.  

[Dogtania]

22 hours ago, Democorruptcy said:

Try to do folk a favour and you get kicked in the balls!

I'm going to have a look for pizza bases (dry) in sainsburys today or tomorrow.  The way the count makes definitely makes sense and probably healthier tastier but I liked the ease of having a ready to go pack with hardly any prep too.  Both beat buying a ready made - so seeing all this pizza chat think I'm going to go for olives spicy sausage meat red onion and whatever else I can find in the cupboard to add to my abomination.   Weird but I'm a partial to cold pizza too (same as cold sausages) so may make extra.

[Loki]

10 hours ago, whocares said:

But frightening? I am a bit of a pessimist but I look cheery compared to what he can see ahead for us all?! Gulp.

Yes, I just meant from both a technical aspect (Satisfying to read it all so well detailed and explained) and seeing some sense written down.  It is worrying.

[JMD]

1 hour ago, confused said:

BUT I will observe that the £ has already collapsed against the three biggest currencies in the world ie $ € and yen 

ie £ to $ was 2.2 now 1.2

£ to yen was 236 about 20 years ago, now 132 (and if you look at what Wilson did to the £ since 1968 you'll get an even bigger shock....)

£ to € was 1.4 just three years ago before Brexit, now 1.15............actually 1.4 to the £ gives you massive purchasing power on the continent....

Confused, I understand the currency risk point you make, and it is an important one to consider. However, (...and this is where I hopefully don't embarrass myself if i've got this wrong) aren't the currency swings you show above actually 'in favour' the UK investor once/if they sold their foreign stocks/assets at the end of the periods you mention - because the investor would effectively be receiving 'more pounds'.

I realise that you had to use historical data to help make your point, and grateful for the examples, but is my thinking correct?

Isn't the big risk going forward one of foreign governments massively devaluing their currencies - looking at you America! Meaning UK investors would receive potentially 'less pounds' after selling their foreign currency denominated stocks?

[reformed nice guy]

9 minutes ago, JMD said:

Isn't the big risk going forward one of foreign governments massively devaluing their currencies - looking at you America! Meaning UK investors would receive potentially 'less pounds' after selling their foreign currency denominated stocks?

Will they not all try to devalue as much as possible to sweeten exports?

[nirvana]

@JMD yes it favours the foreign investor but in effect you've screwed over all the natives cos their buying power has been decimated......doubley so when you've misreported inflation and made things like houses totally unaffordable for the young uns........

add in the fact that the governement have turned a blind eye to all the russian and chinese mafia money buying multi million pound pads in London.....

All governments are now devaluing their currencies, that's where the expression 'race to the bottom' comes from methinks

7 minutes ago, reformed nice guy said:

Will they not all try to devalue as much as possible to sweeten exports?

YES EXACTLY! I believe that was Wilson's excuse in 1968.....it's been getting worse ever since!

EDIT: UK has nowt worth exporting nowadays so not sure how it works currently lol....o hold on, UK PLC (aka 51st state of the USA ) is world leader in 'financial services' aka DEBT!!! And warmongering ie selling guns n ammo 

[JMD]

37 minutes ago, Loki said:

Yes, I just meant from both a technical aspect (Satisfying to read it all so well detailed and explained) and seeing some sense written down.  It is worrying.

Agreed.

Can any one comment on Raul's theory/concern about how/where the boomers will find ready buyers for their over-priced assets? Is he only talking about houses here, or is it a wider thing he's talking about?

I may have misunderstood him, but surely the institutions will always be buyers of assets? Or is he simply describing/underlining the future trend of low growth for most assets? (...i.e. not the type of 'reflation assets' we are focused on here of course!)

[DurhamBorn]

2 hours ago, Fully Detached said:

I appreciate you guys are more into profit making than wealth preservation but hope it's ok to post for some opinions here on my proposed strategy as you sure as hell know a lot more about it than I do.

My current split is approx 60% NS&I index linked savings certs, 15% land, 12% pms, 10% cash and dribs and drabs of crypto and investment funds. I'm happy with that split up until the point unless at some stage we're looking at currency collapse, in which case the index linking on my GBP is not going to be much good to me. So at that point I'll want to rotate all of that into shares.

My current plan is to go all large cap defensives, focussing on the products people will need regardless of how badly the shit hits the fan - food, utilities, pharma and defence. To that end I've identified a number of stocks in each sector (including the unmentionable one), and I'll be researching them over the coming months to identify which have lower debts because I assume that's going to be a major impediment going forwards.

Does that sounds like a reasonable strategy for preservation? I'm a little unsure whether debt would be such an issue in a highly inflationary environment, so maybe I'm barking up the wrong tree there, but I guess buying companies with less debt can't be a bad thing if you're looking at preservation rather than profit. The other thing that's bugging me now is that if I bought shares to ride out massive inflation then presumably there'd be a CGT liabiity on the "profits", so I guess there's an argument for maxxing out share ISA allowances asap and every April in the meantime. On the cash it makes sense to do that because I'm getting bugger all interest on it, but the index linked certs give a decent return because they still use RPI not CPI.

Apologies if this risks derailing the thread here - if so let me know where to post it instead and I'll delete this one.

Debt isnt the problem in some companies.Building long term assets with borrowed money at 2% coupons is fantastic if demand isnt going to collapse and you can increase prices over the cycle.However you need the right balance sheet and the debt spread out over the years.They key will be paying it down as it comes due with free cash flow.Rolling it over in a rising rate cycle would be terrible.

[DurhamBorn]

29 minutes ago, JMD said:

Agreed.

Can any one comment on Raul's theory/concern about how/where the boomers will find ready buyers for their over-priced assets? Is he only talking about houses here, or is it a wider thing he's talking about?

I may have misunderstood him, but surely the institutions will always be buyers of assets? Or is he simply describing/underlining the future trend of low growth for most assets? (...i.e. not the type of 'reflation assets' we are focused on here of course!)

They will get buyers,but slowly falling prices and inflation means a smaller pot.In a distribution cycle more are selling than buying,so the price falls.Only companies who can leverage inflation will outperform.Equity release is a prime example.Once rates get to 6% and houses are down 30% nobody would tough equity release outside of really high end houses with huge equity.That market is finished going forward.

Most financial advisor pensions are in 60% bonds 40% equity or 80% bonds when in or near pension age.Locking in rates of 0.8% on the bonds and slowly falling equity prices and a smaller dividend pool means at best the pension might stand still.Take 2% fees and 5% draw down and things start to get messy.In 5 years even in that scenario a pension would fall around 40%.10 years its pretty much gone.If as is almost certain bonds fall as inflation rises and the equity markets only cover some of that then pensions could fall 4% a year +2% fees + 5% drawdown.Pension gone in about 8 years.

[nirvana]

Anybody want to play? 

 

[Sasquatch]

42 minutes ago, DurhamBorn said:

They will get buyers,but slowly falling prices and inflation means a smaller pot.In a distribution cycle more are selling than buying,so the price falls.Only companies who can leverage inflation will outperform.Equity release is a prime example.Once rates get to 6% and houses are down 30% nobody would tough equity release outside of really high end houses with huge equity.That market is finished going forward.

Most financial advisor pensions are in 60% bonds 40% equity or 80% bonds when in or near pension age.Locking in rates of 0.8% on the bonds and slowly falling equity prices and a smaller dividend pool means at best the pension might stand still.Take 2% fees and 5% draw down and things start to get messy.In 5 years even in that scenario a pension would fall around 40%.10 years its pretty much gone.If as is almost certain bonds fall as inflation rises and the equity markets only cover some of that then pensions could fall 4% a year +2% fees + 5% drawdown.Pension gone in about 8 years.

I've already had chats with two old friends who were bemoaning the direction their pensions are heading. However, they will not do anything about it, I'm fairly sure of that. It's always amazing to be reminded of how narrow people's world views are (in all areas). I might not have all of the answers but I do my very best to read around all the important matters of our times. For example. the latest Michael Moore documentary which I watched yesterday. It confirmed a lot of what I suspected but with the tentacles of power and money going further than I'd realised. I've recommended to my two daughters but warned them that it's hard hitting but essential viewing.

[leonardratso]

2 minutes ago, Sasquatch said:

I've already had chats with two old friends who were bemoaning the direction their pensions are heading. However, they will not do anything about it, I'm fairly sure of that. It's always amazing to be reminded of how narrow people's world views are (in all areas). I might not have all of the answers but I do my very best to read around all the important matters of our times. For example. the latest Michael Moore documentary which I watched yesterday. It confirmed a lot of what I suspected but with the tentacles of power and money going further than I'd realised. I've recommended to my two daughters but warned them that it's hard hitting but essential viewing.

yes, i saw the falls on my company pension, i scrambled to go to cash asap, then shifted some back into equities/trackers as it came off the bottom. As a result im down 10-12%, had i left it be id be down 25%, in fact looking at another guys amount, he is indeed down 25%, i said at the time he should try and protect it - blank look - can you do that? no action=-25%, belated action=-10-12%.

[nirvana]

22 minutes ago, leonardratso said:

yes, i saw the falls on my company pension, i scrambled to go to cash asap, then shifted some back into equities/trackers as it came off the bottom. As a result im down 10-12%, had i left it be id be down 25%, in fact looking at another guys amount, he is indeed down 25%, i said at the time he should try and protect it - blank look - can you do that? no action=-25%, belated action=-10-12%.

Lump sum needed for £33k PA pension = £1.1million  - source https://www.ft.com/content/a5a6532e-f731-11e9-bbe1-4db3476c5ff0 (and will be out of date by now)

 I remember a few years ago a friend frantically working to get his pension pot up to £1million.....he's still at it and probably will be for some time 

[Dogtania]

1 hour ago, JMD said:

Agreed.

Can any one comment on Raul's theory/concern about how/where the boomers will find ready buyers for their over-priced assets? Is he only talking about houses here, or is it a wider thing he's talking about?

I may have misunderstood him, but surely the institutions will always be buyers of assets? Or is he simply describing/underlining the future trend of low growth for most assets? (...i.e. not the type of 'reflation assets' we are focused on here of course!)

Haven't read the whole paper yet but I thought he was talking about assets that the boomers or older may have and if they are dying more often then there would be increased sell off into a dropping/ bear market making it a vicious cycle.  Not sure if he means this but sort of made sense to me.

[JMD]

47 minutes ago, reformed nice guy said:

Will they not all try to devalue as much as possible to sweeten exports?

Yes i think they will all devalue. And America being America, they will probably 'go large' and super-size their own devaluation.

I have put my thoughts/strategy below. I cant recall reading a discussion here concerning future investment decision making re. investment returns correlated against those big anticipated currency devaluations. But this must be something others have considered and then adjusted their own portfolios for?

I Would welcome comments. Its a complex area and many experts appear to say just let things 'average out over time'. But in terms of this blog, I do think its worth at least attempting to predict the net effect of all that future currency see-sawing for us living here in the UK if investing in foreign markets.

My two main foreign markets are the US and the Asian EM's+Japan. I have formulated a guestimate for this decade (2020's). I think on balance UK investments in the US will 'suffer' due to massive US currency devaluing, so I will only buy US stocks only when there is a very good reason to, i.e. exposure to good PM miners, commodities, oil co's, etc.

For the EM's the calculation is more nuanced because i'm hoping to buy high growth stocks that may well neutralise the effects of any foreign currency fluctuations. In fact, it might be that our own UK devaluation (if v. big) could ironically hurt me more.

For Japan in terms of its devaluation effect on UK investors, I find it hard to even make a stab at a prediction, so would very much welcome others thoughts.

[JMD]

2 hours ago, DurhamBorn said:

They will get buyers, but slowly falling prices and inflation means a smaller pot. In a distribution cycle more are selling than buying, so the price falls. Only companies who can leverage inflation will outperform. Equity release is a prime example. Once rates get to 6% and houses are down 30% nobody would tough equity release outside of really high end houses with huge equity. That market is finished going forward.

thanks DB, I remember you talking way back about (our coming) accumulation cycle vs (the previous) distribution cycle.

Very sad to hear about equity release, but makes perfect sense now you say.

DB, on a lighter note (not really!), what would you say were 'The Three Horsemen of the Distribution Cycle'... i'm thinking along the lines of... inflation, consumerism, forced sellers (bit clumsy sounding that one? can anyone improve on these?)

...and maybe a bit premature this type of talk, as I believe you think any (potential) apocalypse isn't due until sometime around 2028/29!

[Craig]

1 hour ago, confused said:

Lump sum needed for £33k PA pension = £1.1million  - source https://www.ft.com/content/a5a6532e-f731-11e9-bbe1-4db3476c5ff0 (and will be out of date by now)

 I remember a few years ago a friend frantically working to get his pension pot up to £1million.....he's still at it and probably will be for some time 

If there's one thing the last five weeks have taught me, it's that I don't need a huge amount of money to get by, and that if I were mortgage free in retirement I could probably survive quite happily on £15k pa. 

[Loki]

If we get the crash in everything (inc PMs) I am starting to wonder if PMs will still be available for purchase to the public, let alone at anywhere near spot.

 

[Loki]

And then look what arrives...synchronicity 

[AWW]

14 minutes ago, Loki said:

If we get the crash in everything (inc PMs) I am starting to wonder if PMs will still be available for purchase to the public, let alone at anywhere near spot.

 

I don't think you need to wonder - have you tried to buy 1oz silver coins recently?

EDIT: Ah, you have...

[Loki]

6 minutes ago, AWW said:

I don't think you need to wonder - have you tried to buy 1oz silver coins recently?

EDIT: Ah, you have...

I don't think they even have any, they must be doing a just in time system at the moment...wouldn't mind but if they wanted a line of credit they should have gone to the bank, not my debit card.  They were shown as 'in stock'.

It doesn't take a week to work through a backlock of bullion after a shortage, with some stuff still not available (So they still won't be dispatching all orders)

[Sasquatch]

I've bought britannias via ebay before now for good money (more or less the same as silver-to-go) but chose my seller very carefully. I think those days have probably gone. There's a bloke in Leeds who has been trying to sell a monster box on ebay for at least 6 months. It was about £8,800 before, now on at £19,000! No takers yet!

I've bought sovereigns off ebay before now but again by being very careful with the seller. 

[TheCountOfNowhere]

48 minutes ago, Craig said:

If there's one thing the last five weeks have taught me, it's that I don't need a huge amount of money to get by, and that if I were mortgage free in retirement I could probably survive quite happily on £15k pa. 

British pension's near to half that, less council tax of course

[Cosmic]

16 minutes ago, Sasquatch said:

I've bought britannias via ebay before now for good money (more or less the same as silver-to-go) but chose my seller very carefully. I think those days have probably gone. There's a bloke in Leeds who has been trying to sell a monster box on ebay for at least 6 months. It was about £8,800 before, now on at £19,000! No takers yet!

I've bought sovereigns off ebay before now but again by being very careful with the seller. 

Surprised noone has 'bought' that and then just robbed him when they go and collect

I've bought coins from eBay before - mostly when eBay handed out 20% for all sellers. Just pick your seller carefully, but tbh eBay will shaft the seller dry before even considering the seller may be in the wrong, so you are protected if something goes amiss.