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


spunko

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Just wanted to wish everyone a happy xmas and for all adding their thoughts and knowledge to the thread this year.I think we can safely say without any doubt the thread has proved itself and a lot of the previous hard work paid off in buckets and hopefully helped a lot of people hold their nerve and enter the right sectors in the falls we were waiting for earlier in the year.

Value/inflation sectors will start to feel the liquidity from M2 later in spring as the lag would suggest it will be entering the real economy.Inflation could be around 3% late summer,and the fact it then slowly creeps higher (outside of a BK) will force a massive movement in assets from disinflation loving assets to inflation ones.

The sterling target of around $1.40 looks in play,then later resource currency like CAD and AUS will start their long 8 year increases.

Remember the market isnt linear.It will continue to try to shake out weak hands from the reflation sectors so hardly anyone captures the long upside.

Most people will end up like this turkey here,stuffed.

 

 

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1 hour ago, MrXxxx said:

Eureka moment...why compulsory workplace pensions?...traditionally financial repression (via -ve real rates) was via capping interest rates and so `stealing` from savers. Savers found ways to avoid this either by investing in hard assets I.e property  advent of online brokers/share buying or buying fewer govt bonds. To counter act this make it compulsory for pension companies to buy them, and so compulsory for the general public to buy them without realising....financial repression by stealth...brilliant idea!

This was always my assumption, but probably "wonderful" green/infrastructure/social bonds which in reality are mostly used for revenue expenditures such as paying public sector wages, graft, etc.  Maybe even a ponzi.  Sunak has already issued/announced such a bond?

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4 minutes ago, Harley said:

Sunak has already issued/announced such a bond?

Think it was a thought process offered by Napier in the Moneyweek podcast recently posted above.

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1 hour ago, MrXxxx said:

Think it was a thought process offered by Napier in the Moneyweek podcast recently posted above.

Yes it was but I also thought I heard Sunak say something in his last spending review or whatever it was.  Some sort of bond.

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44 minutes ago, Harley said:

Yes it was but I also thought I heard Sunak say something in his last spending review or whatever it was.  Some sort of bond.

Well if that's the case people can't say they weren't warned...be interesting to see what is in the next budget, think I may be doing some workplace pension `restructuring` before then!

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11 hours ago, DurhamBorn said:

Just wanted to wish everyone a happy xmas and for all adding their thoughts and knowledge to the thread this year.I think we can safely say without any doubt the thread has proved itself and a lot of the previous hard work paid off in buckets and hopefully helped a lot of people hold their nerve and enter the right sectors in the falls we were waiting for earlier in the year.

Value/inflation sectors will start to feel the liquidity from M2 later in spring as the lag would suggest it will be entering the real economy.Inflation could be around 3% late summer,and the fact it then slowly creeps higher (outside of a BK) will force a massive movement in assets from disinflation loving assets to inflation ones.

The sterling target of around $1.40 looks in play,then later resource currency like CAD and AUS will start their long 8 year increases.

Remember the market isnt linear.It will continue to try to shake out weak hands from the reflation sectors so hardly anyone captures the long upside.

Most people will end up like this turkey here,stuffed.

 

 

Add together the views for the two threads here and the other one on ToS and it's prob 3mn views or so(admitedly prob 400k each from me and @Loki) A testament to it's founder and the many contributors.

It's been an incredible journey thus far and hopefully more to come.

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You know when you can be right by being wrong,and they keep knicking out roaring 20s quote xD.I think the FTSE will do well over the cycle compared to many.However unlike this article it will actually be the very stocks he says drag the FTSE down that will do the lifting.Another example of why most people will hold the wrong areas for a reflation.

The comment about shrinking tobacco companies is also incredible considering BAT has delivered amazing returns over 30 years.

https://www.telegraph.co.uk/business/2020/12/24/roaring-twenties-should-finally-propel-ailing-ftse-five-digits/

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Thought I would share this gold quote from a book I am currently reading (Rickards Death of Money)

"Gold standards are disfavoured by those who do not create wealth but instead seek to extract wealth from others through inflation, inside information, and market manipulation"

...that'll be the world banking system then?!

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22 hours ago, MrXxxx said:

Well if that's the case people can't say they weren't warned...be interesting to see what is in the next budget, think I may be doing some workplace pension `restructuring` before then!

Currently optional!!!!

https://www.dailymail.co.uk/news/article-8931977/Rishi-Sunaks-bond-raise-green-cash-Investors-able-raise-money-eco-projects.html

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3 hours ago, Harley said:

Fantastic,a green gilt,more amounts of capital miss-allocated and inflated away.I want zero debt being raised for oil and gas,ziltch.The same as when finance dried up for whaling boats in the 1800s the price of whale oil went to new highs over many years.

There will be a bubble in green energy,hopefully as rates increase mid cycle big oil will get to buy them all up for 10% of the capital invested as they start to default and cant raise new debt.

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46 minutes ago, DurhamBorn said:

Fantastic,a green gilt,more amounts of capital miss-allocated and inflated away.I want zero debt being raised for oil and gas,ziltch.The same as when finance dried up for whaling boats in the 1800s the price of whale oil went to new highs over many years.

There will be a bubble in green energy,hopefully as rates increase mid cycle big oil will get to buy them all up for 10% of the capital invested as they start to default and cant raise new debt.

Unless it's your forced capital!   I was surprised how the likes of TRIG and UKW went down in March.  Presumably related to liquidity and profit taking but maybe also debt profiles?

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On 22/12/2020 at 23:50, M S E Refugee said:

I can assure you they won't be, you have never met a group of spoilt and self entitled lazy so and so's.

Have you mixed with many Teachers?

On 23/12/2020 at 00:29, Cattle Prod said:

Alberta is chock full of oil, its unbelievable how much has been deposited there. There is no real need for fancy angles on it on terms of competitive advantage. Is still, after 50 years, harder to find oil in the North Sea than Alberta. Or Saskatchewan/BC, offshore Labrador has a lot of potential but high risk. Point is, exploiting it us not the problem, exporting it is. Alberta has been boxed in by the Ottowa and DC govts for years, but that'll change. Export routes will open.

So the company you want should be financially selected rather than exposure, territory or skill. I hear good things about Cenovus, but I have no clue about balance sheet.

Canada is the US biggest supplier already, little known fact. Just under 4m bbl/d, or half a Saudi Arabia. I suggest a Sancho Coma Score of the companies that supply that will be useful. But they'll all be paying a tithe to Enbridge.

My thoughts exactly CP.I had a quick look at Cenovus and it looks pretty solid.Full year results will be msotly complete by Mid Feb I'd have thought which will mena we'll have a good idea about who's emerged from Covid in a survivable shape.I think @DurhamBorn point hat debt doesn't matter so much when the companies have huge steady cashflows is true-although somewhat damaging to the wealth if they get sinking momentum as per the Scottish play.

I had a quick look for the pipeline ETF that Kaplan has used in the past but couldn't remember it exactly.Enbridge appears to be a key play in a few.

I think your line of argument that Canada is worth getting exposure to has a strong logic.I can't believe they're supplying half a Saudi already.........low geo political risk,what's not to like.It would also give me soemthing to roll our CAD into when we sell off some of the CAD PM miners we own.

I'll be redoing SCScores in late Jan and will try and find a decent set of Canadian oil/gas plays to start tracking alongside the large players we already hold

On 23/12/2020 at 16:50, DurhamBorn said:

25% fo US energy goes through them,they fund the divi and $3 billion of investment every year from free cash flow now.I expect they could pay down debt quickly if they stopped investing and rising prices would go straight to the bottom line as well.As always id refer no debt,but in an inflation cycle others wont be able to borrow to build at cheap rates,same as telcos.Bond holders funding equity holders returns.

Your right on this DB.They still have plenty of equity even with all the debts they have.Much like some of the eye watering bond deals Vod have struck -2056 3% stylee....

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On 24/12/2020 at 17:09, DoINeedOne said:

The only coal-focused exchange-traded fund is closing at 12 years old, another sign of investors’ desire to withdraw from the industry.

The VanEck Vectors Coal ETF, which went public in January 2008 under the ticker KOL, stopped trading this month and will return investors’ money on Dec. 22. It had about $35 million in assets. At its height in 2011, the ETF had $908 million, said Ed Lopez, head of ETF Product at VanEck Associates.

The move comes as other investment companies withdraw from funding coal businesses.
In January, BlackRock said the firm’s actively managed funds would no longer hold shares of companies that derive more than 25% of revenues from thermal coal. It unveiled a major expansion of its sustainable-investing lineup.

This month, New York state’s $226 billion pension fund set itself the goal of reducing net emissions of greenhouse gases from its portfolio to zero by 2040. It said it is divesting from coal and tar sands and will next review fracking companies, major oil companies, fossil-fuel companies and oil-and- gas transportation and pipelines.

A number of big money managers have also set net-zero targets for their portfolios, as the Paris Agreement to curb the rise in global temperatures marks its fifth anniversary. In such an environment, it’s no surprise that coal’s fans are diminishing.

In a statement, VanEck said it “continuously monitors and evaluates its ETF offerings across a number of factors, including performance, liquidity, assets under management and investor interest, among others. The decision was made to liquidate the fund based on an analysis of these factors.”

VanEck has been adding green offerings in recent years, including the $240 million VanEck Vectors Low Carbon Energy ETF (ticker: SMOG) and the $50 million VanEck Vectors Green Bond ETF (GRNB).

If that isn't a buy signal I don't know what is.Do you remember that chart of commodity usage (featuring each commodity as a %age of world demand over last 50 years or so?)?.Coal had a dip psot 08 but then was back at previous levels by 2020....

If I could get any coal exposure via single company equities,I'd have a go here so any ideas welcomed.

On 25/12/2020 at 09:41, MrXxxx said:

Eureka moment...why compulsory workplace pensions?...traditionally financial repression (via -ve real rates) was via capping interest rates and so `stealing` from savers. Savers found ways to avoid this either by investing in hard assets I.e property  advent of online brokers/share buying or buying fewer govt bonds. To counter act this make it compulsory for pension companies to buy them, and so compulsory for the general public to buy them without realising....financial repression by stealth...brilliant idea!

Indeed,force people to have pensions,force pension companies to follow solvency ratios that heavily favour buying cruddy Gilts even though they're an awful long term investment and then sit back and watch the transfer of wealth begin.

Shocking really, but....exceptionally well covered throughout this thread ..so we're all aware.

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I think the issue on bonds in pensions etc is part of how our system works,and for new readers of the thread perhaps a good time to put it in simple terms.

First the central bank creates new "money",actually just liquidity.They then buy assets with it,thats gilts already in the market,forcing up prices and forcing down yields.Governments then issue lots of debt at the same or similar rates,Central Bank buys a lot of those as well,so directly funding government spending.

Now people who own those gilts from long past dont lose out,the value of the gilt increases mostly making up for the coupon/interest being below inflation.The losers are the people who buy at an INFLECTION point.That is,at the point inflation is going to move up,not down.

So someone 70 who went into a 40/60 fund 10 years ago is fine,for now.They have pulled forward their gains.However someone say 50 whos pension is set to "lifestyle" is going to be the loser as assets are switched into bonds and its likely they will at best return the nominal sum over a decade while inflation goes up 60% (the 70s was 67% over the cycle roughly)

So the people in their 50s now are at huge risk and its their wealth that will be taken to pay the spending.Remember almost all pension funds are set to go into lifestyle ie more bonds 10 years/15 years from retirement.Most people then with the biggest funds are about to transfer them into bonds at an INFLECTION point.

This also stretches past those people to those actually retiring,maybe forced.They tend to use 60% or 80% bond funds when in drawdown,usually 60%.So they are moving 60% of their liquid wealth into an area with zero inflation protection now (well nearly zero) .

The government doesnt need to force anything as most schemes already do this for them,and most workers have zero understanding and most IFAs simply project forward the recent past so will be blindsided by inflation.

10% decade coupon return,60% inflation,state debt cut in half.Private wealth used to pay for it.

No wonder they arent going to be issuing any RPI linkers.

 

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6 hours ago, DurhamBorn said:

The government doesnt need to force anything as most schemes already do this for them,and most workers have zero understanding and most IFAs simply project forward the recent past so will be blindsided by inflation.

10% decade coupon return,60% inflation,state debt cut in half.Private wealth used to pay for it.

No wonder they arent going to be issuing any RPI linkers.

That's about one of the best explanations in laymens terms we'll ever get and why people need to read the thread.

All I would like to add is that the BoE won't be issuing many more index linkers as they're pension pot already has 91% RPI linkers in it.................

Genuinely disgusts me when I hear the BoE apparatchiks telling us plebs not to worry about inflation.....

https://www.bankofengland.co.uk/-/media/boe/files/about/human-resources/pensionreport.pdf

image.thumb.png.6040ab5f640512c99d18dabb6aa6751d.png

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9 hours ago, sancho panza said:

If that isn't a buy signal I don't know what is.Do you remember that chart of commodity usage (featuring each commodity as a %age of world demand over last 50 years or so?)?.Coal had a dip psot 08 but then was back at previous levels by 2020....

If I could get any coal exposure via single company equities,I'd have a go here so any ideas welcomed.

Indeed,force people to have pensions,force pension companies to follow solvency ratios that heavily favour buying cruddy Gilts even though they're an awful long term investment and then sit back and watch the transfer of wealth begin.

Shocking really, but....exceptionally well covered throughout this thread ..so we're all aware.

Maybe check out Westwater, CIL, Arch Coal.

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I've got several small pensions around the world and am slowly moving them back to Oz (hard as nails to work through the barriers put in each country, trust me).  

Then we'll look at a self managed pension scheme here - running costs each year (accountants, etc) means its only worth it once you get over about 250k, but you can invest in whatever the hell you want, including any old shite you can think of.

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1 hour ago, Barnsey said:

If this ain't a tulip mania melt up... 

 

100% bubble.Guy just started at work with an agency,collecting cardboard,that sort of thing.Said he was glad he got paid early as was needing to take out a short term loan for crimbo.He said he was getting a loan and going to buy bitcoin though,make a fortune.

Bubbles are incredible things for people who get in early,and catching one can change peoples lives for ordinary people.However its crucial people see them for what they are and diversify the profits out into undervalued boring areas.

I think whats interesting about the bubbles we are seeing at the end of this cycle is that they seem to revolve around younger people mostly.I think the fact they have yet to see capital wipe outs etc,and how most returns in investing actually come from the dividends/income is driving it.

 

 

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6 hours ago, wherebee said:

I've got several small pensions around the world and am slowly moving them back to Oz (hard as nails to work through the barriers put in each country, trust me).  

Then we'll look at a self managed pension scheme here - running costs each year (accountants, etc) means its only worth it once you get over about 250k, but you can invest in whatever the hell you want, including any old shite you can think of.

We are very lucky in the UK to have SIPPs,the running costs on mine are 0.1% outside of buying/selling,0.7% this year,but iv churned my whole portfolio around nearly.Most people however will have an Independant Financial Advisor doing it for them and they will be looking at fees of between 1.8% and 2.2% including,fund,platform,IFA.

 

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Democorruptcy
46 minutes ago, DurhamBorn said:

100% bubble.Guy just started at work with an agency,collecting cardboard,that sort of thing.Said he was glad he got paid early as was needing to take out a short term loan for crimbo.He said he was getting a loan and going to buy bitcoin though,make a fortune.

Bubbles are incredible things for people who get in early,and catching one can change peoples lives for ordinary people.However its crucial people see them for what they are and diversify the profits out into undervalued boring areas.

I think whats interesting about the bubbles we are seeing at the end of this cycle is that they seem to revolve around younger people mostly.I think the fact they have yet to see capital wipe outs etc,and how most returns in investing actually come from the dividends/income is driving it.

 

 

Tell him about these, he doesn't know he will love it! Just ask for a share of any profits as thanks, for some free exposure!

https://bitcointreasuries.org/index.html

 

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