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

[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.

[nirvana]

1 hour ago, Craig said:

I could probably survive quite happily on £15k pa. 

Exactly young man! £15k was the figure I had in my head for £100k SIPP worth of RDSB.......

When it was sub £10 the divi was 15% ie that's £15k there alone.....bollocks to your £1 million pension pot 

[nirvana]

2 hours ago, JMD said:

I cant recall reading a discussion here concerning future investment decision making re. investment returns correlated against those big anticipated currency devaluations

I think the algo to work this out is far too complicated......you can nearly always counter with another POV

ie. markets crash, the rich have lost money, less dollars in USA lets say BUT then them being rich they have foreign assets which they sell, so they are repatriating dollars through foreign asset sales and the $ amounts even out for them! of course this only works for the 1%ers, us plebs just have to try and 'follow the money' as best we can.......

PLUS they are adding dollars to the US supply in their own country so it gets even more complicated 

[nirvana]

1 hour ago, Loki said:

And then look what arrives...synchronicity 

Blimey mate that takes me back....outlook? What's wrong with a web browser? In fact get rid of Windows completely and use linux!

Which reminds me, these FAANG stocks, my God!!! Actually I call them MAFANG now, not to be confused with Bafang who make electric motors for bikes 

The extra M is for Microsoft, I used to love all these technology guys, now I just think they're are bunch of corporate cunts, yes they produce some interesting software but none of it is needed, you can live with FOSS, the propaganda nuts just convince you otherwise 

Also check out the percentage of the US stock market that these 6 behemoths now have, above 20% I think it is

Enough flannel from me today, I need to lie down  

[AWW]

58 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.

I sold quite a few 1oz silver Brits on eBay before CV hit. I'd made a decent profit and wanted to get a bit more space back in the place where I stored them. I then dealt directly with several buyers now that contact details were shared. Those days are indeed gone, as I've only got a few tubes of 2 oz Queen's Beasts left, which I will keep hold of for now.

[Bricks & Mortar]

A road and rail tunnel between Germany and Denmark.  Near as I can gather, worth about 52 billion DKK - or £4.5 billion at present rate.  EU signed off on the funding last month.

https://femern.com/en/News-and-press/2020/April/Activation-contracts

 

[DurhamBorn]

3 hours 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. 

Exactly the same as me.I live very very well on £15k a year.I actually spend about £9k.Mortgage free of course,fix most things myself,old cars.My partner does work though and she pays me £300 towards bills.She also rents her house out,its fully paid for.My bills excluding car and food are £274 a month.Since January iv averaged spending £530 a month including those bills.Full state pension isnt far off enough for me.I reckon £100 a week short,so in theory £5k a year would do me from 67.Since 18 iv worked until 30,then 5 years off,worked 6 years then 8 years off,worked one year and now packed in.I made sure i had lots of years not working when younger to enjoy myself.

Its ironic given my passion is investing and cycles etc,but i dont actually give a toss about money apart from enough for the basics.

[sancho panza]

 

9 hours 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!)

Something like 35% of uk total wealth is in the hosuing market.Hence the importance of marginal pricing.Most people's welath is in their hosue.Doesn't take much of a loss of credit down the food chain and some excess supply at the top and you've got a building society crisis.

Especially as most LL's are boomers accroding to that govt paper I psoted.

Edit to add correct figures

https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/totalwealthingreatbritain/april2016tomarch20

7 hours 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.

key thing Sas is that you're asking questions.Not enoguh people do.It's why they get shafted more than the ones who ask questions.

[sancho panza]

7 hours ago, Dogtania said:

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.

I think that's more the point.No estate agent wants to see lots of people heading for the exit at the same time.Reality is that a good few poeple I know all have that 'my property's my pension,only ever goes up,' type attitude....I suspect 90% will hit the wall of disappointment at the same time .

[sancho panza]

6 hours 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. 

I jsut like being able to go to Aldi and the market and not look at the prices.

My car's worth £500 and I should replace it but can't face the stress.Mrs P was yesterday urging me to treat myself to a new hoodie.I am pathetically tight but I find no real comfort or pleasure in spending money on things I don't need.The Mrs and kids is different.I have found a great deal of pleasure this last 6 months studying at the gardening school of @Bobthebuilder and doing our own spuds,carrots.It's been amazing.

3 hours ago, DurhamBorn said:

Exactly the same as me.I live very very well on £15k a year.I actually spend about £9k.Mortgage free of course,fix most things myself,old cars.My partner does work though and she pays me £300 towards bills.She also rents her house out,its fully paid for.My bills excluding car and food are £274 a month.Since January iv averaged spending £530 a month including those bills.Full state pension isnt far off enough for me.I reckon £100 a week short,so in theory £5k a year would do me from 67.Since 18 iv worked until 30,then 5 years off,worked 6 years then 8 years off,worked one year and now packed in.I made sure i had lots of years not working when younger to enjoy myself.

Its ironic given my passion is investing and cycles etc,but i dont actually give a toss about money apart from enough for the basics.

It's funny isn't it.I jsut enjoy finacial security nad not worrying about the price of food.

My interest has always been in the state of the nation my kids will inherit and I'm keen to have enough to help them on.