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

[sancho panza]

On 13/11/2020 at 09:29, jamtomorrow said:

I understand it in the sense that once a "run" on something or other starts, the run becomes self-sustaining.

It's an expected outcome of a system comprising rational actors if you look at it from a game theory perspective (i.e. per John Nash). IIRC the optimal game strategy (which I'm sure is also a familiar investment trope) boils down to "don't panic, but if you are going panic be sure to panic first".

People who don't understand that tend to get very emotional about the situation, hence all the press and social media hype demonizing stockpilers. Whereas in a sense, they're the ones behaving rationally and "optimally".

Edit to add: why toilet roll? I suspect it's down to shelf space and perception of scarcity. Typical supermarket carries *far* fewer arse-weeks of toilet roll *on the shelves* than mouth-weeks of food in the rest of the store. So in a general stockpiling situation, it will always look like the bogroll has run out first, going by gaps on shelves.

When I finally get the time,I'll invest more time in reseacrhing behaviorual econ and game theory.It fascinates me and I saw extreme herding for the first time in 2000 tech bubble and saw a lot of people make a forutne and then lose it in a year.

I always remember reading Karl deninnger back in 08 and he said that in a crisis it becomes about the return of the money rather than the return of it.Now we've dropped all the samller banks,it's less of an issue but demonstrates the investors conundrum beautifully.

For years I'bve had most of my middle calss friend s telling me to buy a hosue but I've got my own strategy and aren't afraid of being on my own.Finding this palce and the people on it has helped me stay sane though.I won't lie.It's hard when you stay away from the herd.

Takking of panicing,I think this thread came into it's own at the bottom in March/April.They were some hard days to hold your line and to buy

On 13/11/2020 at 09:37, Cattle Prod said:

Here is an example of @DurhamBorn gas market analysis in play right now. Iran has enormous gas reserves, second only to Russia. And China have just pretty much sewn up the entire lot for themselves:

https://oilprice.com/Energy/Natural-Gas/Irans-Mega-South-Pars-Gas-Field-Nears-Completion.html

 

It's hard to understate how big this gas field is, and it's only 40% of Iran's reserves. I have to take his figures with a pinch of salt, because it's about 20% of world production. But the field is the biggest in the world by far (c. 25% of the entire worlds reserves), and the Chinese have apparently secured its Iranian (the other half of the field lies across the border in Qatar) supply, for a bunch of fiat currency from its client states alone the Belt and Road Debt Enslavement initiative. Unintended consquences of sanctions? If this is true, the Iranians have sold their crown jewel. I'm sure their proud and ancient people arent going to be too happy about that, longer term. It's no coincidence that so many military bases have been built in Qatar in recent years.

The other big untapped gas resource is Turkmenistan, believe it or not. I think the Indians, a near neighbour, are going to have to get friendly. Of course in between are Kashmir and Afghanistan, war zones both, with China just to the North. The resources in Turkmenistan have also been known about for a long time, but are landlocked. The obvious route is a pipeline to India, I think this will be an even bigger flashpoint in the coming years.

 

Fascianting as ever CP.As someone who has spent time in Afghan,anythign that requires routing pipes through their jsut isn't worth the risk in terms of people getting killed,pipelines getting drilled and blown up.Even if you put private armies down they jsut wouldn't be able to secure the pipleines to any cost effective degree in dollars let alone the loss of life.

How about a route through Georgia and ROmania into western eauope or would that cost too much?need a higher gas price?

It's also hard to see Pakistan helping the Indians out in that way although I always remmebr being shocked when you told us how the CCCP had suppleid western europe without interruption thru the cold war.Nothing would hsock me after that

[Yadda yadda yadda]

2 hours ago, DurhamBorn said:

I also really love my Morphy Richards 1l soup maker.20 mins press one button and fantastic soup.48p for Broccoli 1 potatoe,1 onion,1 kallo low salt stock cube,black pepper,pink salt,touch of cummin and touch of tumeric and touch of mixed herbs.

4 servings for 85p.Only tip is if anyone gets one is it says use cold water,iv found it doesnt cook enough if you do,so i use half boiled from the kettle.

Of topic i know,but fantastic healthy food dirt cheap means more for investing,or less needed to retire.Thats on topic 

 

Does the soup maker do all the chopping and blending? I quite enjoy chopping stuff up if I stick some music on. It does mean I tend to overdo it and freeze the extra.

I use bouillon powder as the stock. Kilogram tubs for £10-11.

With pizzas I haven't splashed out on the Ferrari but I do use a Panasonic breadmaker to mix the dough.

[sancho panza]

On 13/11/2020 at 10:05, geordie_lurch said:

I'm just about to get the equivalent of a 10% deposit on a basic house around me or that would obviously stretch a lot further on a flat but I like many think house prices will actually fall this time however if they do mortgage rates will be WAY higher than now so the way I see it have 2 options...

1. Stick the cash into next year's ISA allowance to complement my inflation stocks and carry on renting
2. Get somewhere as a fixed base on a 10 year fix etc to hedge in a different way

Thoughts?

I think you have to be careful carrying 90% LTV loans unless you have significant spare capacity.

My thesis is that when I retire,I want to have either  a portfolio that kick out the rents I need or a hosue paid off(or a bit of both).

The opportunity cost of buying a hosue is that you lose that ability to save into other asset calsses.

Having said that we rent on a 3-3.5% gross yield,if I was renting at 7%++ then I'dlikely look to buy somewhere

23 hours ago, janch said:

Yes.  In the 70s it felt like the massive mortgage you took on was quite scary but then after a few years not so bad as long as you could keep up with the rising monthly payments (no fixed mortgage rates then  IIRC).  Wages lagged inflation but what seemed a very large proportion of ones wage at the beginning dwindled quite considerably.  Meanwhile the price of the house was rising steadily.  What people forget though is that most of the housing stock was in a very bad state of repair and all those boomers had to do a lot of DIY to get them habitable.  We were very naive too so had no idea of the cost involved and had made no allowance for it. (No Sarah Beeny types to give some reality).

The takeaway for now is: Don't overstretch with the purchase as the payments will probably rise considerably over the term of the mortgage plus any repairs/improvements allow a realistic amount.  I would get as long a fix on the mortgage as possible and overpay if its feasible. 

In the 70s some people advocated getting as big a mortgage as you could as you were paying back in devalued money but this time other bills will probably rise comparatively more especially council tax and fuel so overstretching with a mortgage is a real possibility.

Just my thoughts DYOR etc

AS per my reply to DB wages actually kept up with HPI in the 70's.

Problem going forward is whether families will see food/fuled prices rising fastern than HPI.My view is that they wil and choices will have to be made.

AS a family I'm far keener to hedge our food and fuel than I am the cost of renting/buying a hosue

 

[DurhamBorn]

15 minutes ago, Yadda yadda yadda said:

Does the soup maker do all the chopping and blending? I quite enjoy chopping stuff up if I stick some music on. It does mean I tend to overdo it and freeze the extra.

I use bouillon powder as the stock. Kilogram tubs for £10-11.

With pizzas I haven't splashed out on the Ferrari but I do use a Panasonic breadmaker to mix the dough.

No you chop it up yourself into small cubes etc,but it does blend it to a smooth soup,it has blend setting or  chunky setting,chunky is good for veg soup/broth etc,i also use mine for pasta cooks perfect and mean to try rice,only tip is put a bit of water in before veg so it doesnt stick to bottom.Great device.

[MrXxxx]

19 hours ago, DurhamBorn said:

Im up 100%+ on them now but i wouldnt be buying more as there are other areas cheaper IMO.I actually trimmed a few ,but only to re-allocate as the holding was top heavy.Really pleased with them though and actually in profit now on Royal Mail,only the Scottish play share now,but i think humans will of visited Alpha Centauri before that happens.

Out of interest and to learn from others, for those who have bought the Scottish play share:-

1. What made you buy them in the first place?

2. How has it changed since?

3. What are you plans to do with them now, and why?

Share as much or a little as you like...

[Castlevania]

33 minutes ago, MrXxxx said:

Out of interest and to learn from others, for those who have bought the Scottish play share:-

1. What made you buy them in the first place?

2. How has it changed since?

3. What are you plans to do with them now, and why?

Share as much or a little as you like...

I sold back at the beginning of April. They’re still on my watch list, and I like the new CEO. The nuclear part is a problem that they really should have offloaded years ago, and now that China isn’t liked finding a buyer looks difficult. I’d say they’re probably worth holding unless there’s something way more compelling to buy.

[Erewhon888]

On 07/11/2020 at 21:01, MrXxxx said:

Just listened to this throughout the day; had to come back a couple of times, and found it really difficult to understand the detail. Can anyone explain the following:-

1. What is long volatility and short volatility?

2. He mentions volatility exposure, what doe she mean by this i.e. is it buying call options when long volatility and put options when short volatiliy?

3 He mentions the tails (of a distribution?) and towards the end an example cites is the "Right tail with the collapse of FIAT, and the left tail with the default of loan"...I cant get my head around this...all I can think of is say a -ve skewed distribution for equities where they steadily climb on the left tail and then suddenly drop after the peak on the the right hand side...how can you get the default crashs mentions above on the left hand side when its climbing?

I also found it very difficult to get my head around. You may find this whiteboard review from Gammon relevant.

 

[arrow]

Martin "Magic Money Tree" Lewis is now covertly attempting to support house prices by getting the government, ie taxpayers, to bail out mortgage owners.

They're not "mortgage prisoners", they're idiots who didn't want to believe low or zero interest mortgages and liar loans would last forever.

Getting renters through their taxes to support this scheme is obscene.

 

https://www.moneysavingexpert.com/news/2020/11/government-must-act-now-to-release-250-000-mortgage-prisoners--s/?utm_source=MSE_Newsletter&utm_medium=email&utm_term=10-Nov-20-50647520-2093&utm_campaign=nt-oneliners-one&utm_content=1

 

 

[arrow]

Looks like Saudi is in a bind, with oil prices this low.

"After the collapse of oil prices this year, oil revenues actually decreased to approximately 410 billion riyals. These revenues alone are insufficient to cover even the salaries bill estimated at 504 billion riyals in this year's budget, not to mention the difficulty of financing other items which include capital spending by 173 billion riyals and social security benefits by 69 billion riyals as well as operation and maintenance bill estimated at 140 billion riyals and others, which means an economic recession and millions of jobs lost."

https://www.spa.gov.sa/viewfullstory.php?lang=en&newsid=2157536#2157536

I wonder how hard they'll push to get oil prices higher.

The next opec+ meeting is going to be interesting

[sancho panza]

On 13/11/2020 at 18:35, DurhamBorn said:

My son bought back in June with a fantastic 10 year fix from TSB,2.6%ish 5 year 10% over pay allowed then last 5 years can over pay as much as you want,no tie in but same rate.Cracking deal.Up here though the nice 3 bed semis etc are still low,some of the lowest in the country.Depends where really.Those 10 year fixes are going to prove fantastic.My son bought £30k of silver as well at $17ish and is going to sell it to pay the mortgage off when they meet,they are already wacking it down anyway,only 22 and 24.Should be mortgage free at 32.

I think anyone who can access these ten year rates,wants to stay in the hosue 10 years + and has an overpayment startegy would be mad not to take it.Mad.....it's hard to envision how mortgage moeny gets cheaper here with some of the data coming out.

Barclays are doing a 10 yr 2% fix at 60% LTV ffs............no wonder they're not making any money.

[sancho panza]

On 13/11/2020 at 19:02, UnconventionalWisdom said:

Over-leveraging. There's a lot of BTL in the UK. That model only makes sense with rising house prices. Most only just make enough from the rent to cover the mortgage and repairs with these low rates. If the rates go up, they are losing money. So the decide to sell, but then everyone else has the same problem, so the prices come down. Domino effect starts. 

People have pushed themselves to the limit and so if rates go up, they might not get good mortgage deals. Prices come down, banks don't lend and domino effect starts again. 

Might be wrong as they have thrown the kitchen sink  at housing in the past so who knows. 

It's already starting

https://www.thisismoney.co.uk/money/mortgageshome/article-8929545/Mortgage-rates-plummet-lots-equity-90-cent-mortgages-expensive.html

A tale of two housing markets: Equity-rich homeowners see mortgage rates plummet as first-time buyers watch rates climb as deals all but vanish

from the article.........yikes.Banks are clearly seeing a two tier market.

'Appetite to lend on 90 per cent mortgages has dropped significantly with Moneyfacts analysis revealing there are now just 56 fixed and variable rate products available, down from 779 in March. 

The average two-year fixed rate 90 per cent mortgage now charges an interest rate of 3.76 per cent, significantly more than the 2.57 per cent available before the first lockdown.'

 

 

I posted that Parliamentary paper on assets a while ago which went into great detail about the BTL market.Truly was eye opening.A lot of the BTLers I know are quite naieve in terms of their financial models and struggle to see past the equity gains 2000-2007 when the market really rocketed up.

You hear stories of BTLers who still didn't know what Section 24 was last year,or others who still operate OO mrotgages,don't declare the income etc.I've even met some who weren't even making a profit on a monthly basis two eyars ago pre covid,let alone now with the eviction ban in place.Beggars belief.

BTL is where the hosuing market is weak.Wehn these guys start getting remo LTV problems,then it's going to open a can of worms and msot likely forced selling into a dropping market.

Persoanlly,I think it could be a good opportunity for young people to own a home.

[DurhamBorn]

3 hours ago, Castlevania said:

I sold back at the beginning of April. They’re still on my watch list, and I like the new CEO. The nuclear part is a problem that they really should have offloaded years ago, and now that China isn’t liked finding a buyer looks difficult. I’d say they’re probably worth holding unless there’s something way more compelling to buy.

I bought expecting the nuclear stake to be sold and then them to be taken over.The management were too slow though and government too hostile to them.I still hold and dont expect to get into profit,but hope they  start divis again and maybe get taken out at some point.That nuclear stake is a problem with China out of the picture.

[Noallegiance]

42 minutes ago, sancho panza said:

I think anyone who can access these ten year rates,wants to stay in the hosue 10 years + and has an overpayment startegy would be mad not to take it.Mad.....it's hard to envision how mortgage moeny gets cheaper here with some of the data coming out.

Barclays are doing a 10 yr 2% fix at 60% LTV ffs............no wonder they're not making any money.

The impact on the pricing of houses will surely be based upon the level of increase in prices for the last 20 years attributable to 90%+ mortgages.

If it's a significant portion the impact on prices could be quite something.

Like I say to my Dad (who doesn't seem to get it) if one cannot borrow £500k, one cannot ask for it.

[Barnsey]

15 minutes ago, Noallegiance said:

The impact on the pricing of houses will surely be based upon the level of increase in prices for the last 20 years attributable to 90%+ mortgages.

If it's a significant portion the impact on prices could be quite something.

Like I say to my Dad (who doesn't seem to get it) if one cannot borrow £500k, one cannot ask for it.

Along with the stamp duty holiday ending in Spring, you've got the help to buy regional price caps coming into force. This will hit higher end property outside of the SE pretty darn hard. At the moment, anyone can use the scheme to buy up to £600k. Here in the West Midlands, in April that's going to become a maximum of £256k (!) and first time buyers only. Huge hit for 20% of the market.

[Sasquatch]

1 hour ago, sancho panza said:

I think anyone who can access these ten year rates,wants to stay in the hosue 10 years + and has an overpayment startegy would be mad not to take it.Mad.....it's hard to envision how mortgage moeny gets cheaper here with some of the data coming out.

Barclays are doing a 10 yr 2% fix at 60% LTV ffs............no wonder they're not making any money.

Barclays are also doing a 7 year 1.61% fix. If we buy a house in the near future that's the one we'll go for (even if we don't actually need it, if that makes sense..)

[sancho panza]

13 hours ago, Majorpain said:

DM isn't the problem, Euro is!

Euro has been the problem for 20 years.

10 hours ago, Democorruptcy said:

I'm in a UK holiday destination and I don't see more UK breaks increasing my chances of affording a nice place here. Quite the opposite, even different planet. I think long term BTL is shifting to holiday lets. £10,000+ covid grants for having an AirBnb closed before the summer season then fully booked doesn't help.

I think there's a real problem for some of these BTLers in that the assumption that underpins their thesis is that if peolle can't hokiday abroad,they'll holiday here.

If IR's rise and people can't afford a holiday here either,most of them will still have rising mortgage payements to make.

Having said that I can see why someone who went into BTL on 4% gross yields would find the holiday BTL game attractive.ANd I can see why they'll eventiully want out ofthat for an easier life as well.

5 hours ago, MrXxxx said:

Out of interest and to learn from others, for those who have bought the Scottish play share:-

1. What made you buy them in the first place?

2. How has it changed since?

3. What are you plans to do with them now, and why?

Share as much or a little as you like...

Personally,I bought the recovery story,still do(three years later...:-)),I didn't dig deep enough into the balance sheet.It's leverage wasnt that out of kilter with the sector,but each bit of bad news got it pummelled and I'm not sure Ian Conn was the man to turn it around tbh

And then I bought the dip.....And then I bought the dip.

These things happen in investing.I've reflected at lenght on it and the human emotions that kept me in the trade.Out of it came the Sancho Coma Scale which has been of benefit to me and I've learned some hard lessons in sticking to buying plans.

Edit to add,jsut read DB's answer,more lucid than mine.We'll be holding and hoping ofr some divis.

[sancho panza]

9 minutes ago, Sasquatch said:

Barclays are also doing a 7 year 1.61% fix. If we buy a house in the near future that's the one we'll go for (even if we don't actually need it, if that makes sense..)

It's worth taking it jsut to give you some breathing space.....in case you need it.Prob won't be avaialble in 2023

[arrow]

7 minutes ago, sancho panza said:

Euro has been the problem for 20 years.

I think there's a real problem for some of these BTLers in that the assumption that underpins their thesis is that if peolle can't hokiday abroad,they'll holiday here.

If IR's rise and people can't afford a holiday here either,most of them will still have rising mortgage payements to make.

Having said that I can see why someone who went into BTL on 4% gross yields would find the holiday BTL game attractive.ANd I can see why they'll eventiully want out ofthat for an easier life as well.

Personally,I bought the recovery story,still do(three years later...:-)),I didn't dig deep enough into the balance sheet.It's leverage wasnt that out of kilter with the sector,but each bit of bad news got it pummelled and I'm not sure Ian Conn was the man to turn it around tbh

And then I bought the dip.....And then I bought the dip.

These things happen in investing.I've reflected at lenght on it and the human emotions that kept me in the trade.Out of it came the Sancho Coma Scale which has been of benefit to me and I've learned some hard lessons in sticking to buying plans.

yes, did similar. it was one of utility sector plays

But. one day took one look at its 50% loss and thought, no

sold it and bought shell/exxon

[Bobthebuilder]

28 minutes ago, Sasquatch said:

Barclays are also doing a 7 year 1.61% fix. If we buy a house in the near future that's the one we'll go for (even if we don't actually need it, if that makes sense..)

I got a offset mortgage, so i had options.

[Yadda yadda yadda]

I'm currently on 2.09% fix. Fix runs out beginning of 2024.

When do we think interest rates will start to rise? I'm thinking 2022. Mortgage rates could drift upwards earlier. If it is a slow grind up I might be looking at a rate not much changed at the end of 2023. 2.5% or less at that point would be a good result. Definitely less than 50% loan even if prices crater.

[leonardratso]

i think cnawas pounded a bit unfairly to be honest Probably didnt help that its retail arm was hated and the most expensive of the competition, mind you a lot of them went bankrupt. I did wonder if british gas might make a recovery, it was starting to appear in the top 10 comparison sites again as a supplier and was becoming a price setter again, dunno what happened to that i havent shifted for a while, i stopped buying them when my average got to 68p, wanted it less than 2x current nav (40p at the time) since i thought they might get taken over at 75-80p a share and so cover me. They didnt, so im gonna pump a little more at it every month and get it down further, at least its shown it can move when the market moves, no doubt it will drop back as quick.  Started a zero commision tranch on t212, and thats actually 4% up, but its not much, maybe £100 total, id like as much back as i can get at this stage to be honest, cant see it suddenly taking off to the moon.

[DurhamBorn]

31 minutes ago, leonardratso said:

i think cnawas pounded a bit unfairly to be honest Probably didnt help that its retail arm was hated and the most expensive of the competition, mind you a lot of them went bankrupt. I did wonder if british gas might make a recovery, it was starting to appear in the top 10 comparison sites again as a supplier and was becoming a price setter again, dunno what happened to that i havent shifted for a while, i stopped buying them when my average got to 68p, wanted it less than 2x current nav (40p at the time) since i thought they might get taken over at 75-80p a share and so cover me. They didnt, so im gonna pump a little more at it every month and get it down further, at least its shown it can move when the market moves, no doubt it will drop back as quick.  Started a zero commision tranch on t212, and thats actually 4% up, but its not much, maybe £100 total, id like as much back as i can get at this stage to be honest, cant see it suddenly taking off to the moon.

You horrible lot are tempting me to pick up a few more 

[leonardratso]

this is it, i was very bored of the constant downs on the oilers, i started newer tranch's on a t212 pie for oil, thats now 5% up and my main portfolio is down much less on the oilers. meanwhile my shuttered sgc and gog parts gained 20% - but are still well under water, you never know whats going to happen short term i had a dabble in some shitty aim stocks - like ufo, that went up like 200% in few days, so that moneys gone into DCA the oilers.

Ive often consolidated but always end up widening out again - usually when i was bored. Anyways ive started to DCA the big losers with profits from the big winners like the gold funds and some energy players. Hence a restart to bring the shitters down on average. Some of it will be throwing good money after bad and will go to seed, but spraying and praying...

[Lightscribe]

We’ll be looking to move in the latter half of next year, so Im hoping the Barclays 10yr 1.99% will still be here by then. I definitely think we’ll see some economic realisation by then that will reflect in houses prices.

Im am genuinely at unease about the global ramifications playing out at the moment. We’ve all prepared financially and discussed it on here for years and I hope everything will play out accordingly and the reflation starts as planned and not take into account the politics.

I just think sometimes however what if all whats happening at the moment is just too much to recover from due to the dire economic state with debt the $ is already in? I know they probably thought the same in 1929 also...

US spiralling into civil war? Resulting economy meltdown? Continued lockdowns? Smaller businesses destroyed leaving only the mega corporations? Forced vaccines and health passports? Forced implementation of UBI and socialist policies? Purged internet and media? Asset seizures? CCP power grab? Major war?

I know all of this is ‘what ifs’ but it does seem to be coming to a head which we’ll most likely see unravel in 2021.

All I wanted was a house at a reasonable price... 

[MrXxxx]

13 hours ago, arrow said:

Martin "Magic Money Tree" Lewis is now covertly attempting to support house prices by getting the government, ie taxpayers, to bail out mortgage owners.

They're not "mortgage prisoners", they're idiots who didn't want to believe low or zero interest mortgages and liar loans would last forever.

Getting renters through their taxes to support this scheme is obscene.

 

https://www.moneysavingexpert.com/news/2020/11/government-must-act-now-to-release-250-000-mortgage-prisoners--s/?utm_source=MSE_Newsletter&utm_medium=email&utm_term=10-Nov-20-50647520-2093&utm_campaign=nt-oneliners-one&utm_content=1

 

 

I `love it` when someone else tells me what my moral responsibility is!...Martin dear boy, its an investment and they screwed up...yes, I agree the government is wrong with their Covid no eviction policy but if they had chosen a more liquid investment they could ha got out at the first sign of trouble!