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

[JMD]

5 hours ago, Harley said:

Cheers.  A fair bit of work on your part (don't I know!) so all the best.  I note you mentioned the access problem twice.  Going for SIPPS and ISA tax wrappers do limit you, although the most flexible SIPP to me seems II and the most flexible ISA Saxo.  Flexible in terms of market access.  I did this spreadsheet back when I was looking so might be out of date now (so DYOR and please check):

Green cells are the cheapest commissions.  I think I assumed a trade of £5,000 at £10 per share (the table suggested otherwise but certainly not £50k!).  Interactive Brokers (tiered pricing) was the best on coverage and costs.  They don't do Scandinavia but Degiro (lovely interface) do.  Alas none have ISAs or SIPPS (IB can be linked with a SIPP but not for the likes of me).  A few others around but clearly weren't in the running unless anyone has any suggestions. 

The access problem I experienced after doing so much research for the royalty companies did annoy me. But my own fault I suppose for deciding to run just a hl/ISA and ii/sipp. These do provide me with my stock choices 95%+ of the time, Japan/asia being a notable problem area. But as the stocks are all long term holds i initially decided that I should just settle for using the lowest cost/and most tax sheltered way of buying. Your above table however - not meant as advise I know - is showing me that I should/could have had a separate trading account, and perhaps I may give more thought to doing this after all. 

[JMD]

5 hours ago, Cattle Prod said:

Political winds have shifted. Yesterday Keir Starmer hinted he would vote against covid passports, and today, the Tories put forward one of their most prominent politicans to say the following:

Yes, there is a caveat in there, but he well knows that viruses vary toward more prevalence and less lethality. They've lied and lied to us, but the whole thing has sat on Whitty supporting policy, IIRC he threatened to quit early doors. I think this is a real signal. 

Yes, Whitty started saying this back in January at the covid press conferences. Talk about cognitive dissonance?! But on a macro level truly frightening and sinister really - why do I say this? - my take is that this is precisely how beurocratic statist medical professionals think/act/myopically justify things... I shan't say anymore than that, else I run the risk of invoking Godwin's law!?! ...Suffice to say it is simplistic beurocratic policies like lockdown that give me sleepless nights when imagining our future world.

[JMD]

1 hour ago, SpectrumFX said:

One of my first jobs was working for the job centre, and while I was there they were in the process of selling all of their estate and renting it back.

Madness. But I'm sure somebody dressed it up as a good idea and got a fat bonus out of it.

Madness I agree. But it's an example of the 'financialisation' of the economy, whereby long term saving and securing productive assets simply doesn't exist. Instead we have consumer credit and risk assets, and that's just the everyday prosaic stuff. 'Above us' we have the so called 'lords of finance' and their impossibly clever derivatives, mbs, cds, etc. 

[Sugarlips]

6 hours ago, Cattle Prod said:

Super post. I'm trying to bone up on game theory atm, think it's key at major inflection points.

I'm still learning every day so am not 100% convinced it's all inflation next but enjoyed the latest macrovoices podcast where Steven Van Metre spent an hour outlining the science of why it's deflation from here (velocity of money etc) but Erik demolished the whole theory in a few sentences simply by observing inflation is more of a perspective than technicals and logic - if enough people realise the costs are rising it quickly takes hold in the collective and becomes self perpetuating.

[Lightscribe]

8 hours ago, SpectrumFX said:

One of my first jobs was working for the job centre, and while I was there they were in the process of selling all of their estate and renting it back.

Madness. But I'm sure somebody dressed it up as a good idea and got a fat bonus out of it.

I think Right to buy was perhaps the most damaging policy ever implemented, but combined with tax credits it’s actively destroyed a whole productive generation.

RTB enabled a phenomenon of ‘council house millionaires’ for those that took advantage in the 90’s around the likes of London which will never be seen in history again.

Tax credits in principle would have been a sound policy. The downfall was to make it too generous and economically more beneficial the more children you had. The added time bomb which we’ll start to see now (at the possibly worst time) is homelessness of 50+ year old mothers in private rental when their income drops off a cliff when all children are above 18.

In turn, BTL combined with low interest rate policy has enabled 2.5million economically advantaged older generation to feed off the younger generation through taxation supporting benefits, HPI and increasing rents.

These policies have spelled disaster for a whole generation through housing and birth rates. Young professionals struggle to afford a home without massive debt and are having one child if any at late 30s/40s. Those dependent for life on government support were actively encouraged to have multiple children spread across decades up to 40+.

Overall in the councils eyes, whose foresight extends to the next budget/government, it was a short term win. Sell off all the council housing and take the maintenance costs off their books. Looks good on paper, and someone else can deal with the ramifications later down the line.

[wherebee]

41 minutes ago, Sugarlips said:

I'm still learning every day so am not 100% convinced it's all inflation next but enjoyed the latest macrovoices podcast where Steven Van Metre spent an hour outlining the science of why it's deflation from here (velocity of money etc) but Erik demolished the whole theory in a few sentences simply by observing inflation is more of a perspective than technicals and logic - if enough people realise the costs are rising it quickly takes hold in the collective and becomes self perpetuating.

I'm having some work done next year and the builder, who is a mate, is pulling forward the purchase of materials as from June 1st there is an across the board 15% rise for many of the items we need.  we talked about it a lot the past six months, so he called me when his supplier told him.  He'll store it for me, and if I don't use it I can always sell back into the market.  Will save me about 5k aussie overall - not a small amount.

If tradies and working class see inflation hitting in that very visible way, then patterns of spending will change.

[Ash4781b]

41 minutes ago, Sugarlips said:

I'm still learning every day so am not 100% convinced it's all inflation next but enjoyed the latest macrovoices podcast where Steven Van Metre spent an hour outlining the science of why it's deflation from here (velocity of money etc) but Erik demolished the whole theory in a few sentences simply by observing inflation is more of a perspective than technicals and logic - if enough people realise the costs are rising it quickly takes hold in the collective and becomes self perpetuating.

From what I can see there’s definitely short term inflation coming. Once the great opening comes there is going to be a demand issue that distorts the cpi index (flight prices, garden furniture, holiday costs, pub beer prices, restaurant prices,etc). I don’t know whether council tax is in the index but that is pretty much guaranteed to rise at +4% a year( that is with an uplift cap in place god knows what it would be rising at without it). Whether the rises are sustained I’m not sure as I think they will let the cpi rip and then it falls out of the year on year. For some it’s going to be a reduction in living standards - end of overseas holidays for some sadly seems a possibility . It will probably also cause a lot of media anger on need to raise benefits.

[sancho panza]

19 hours ago, DoINeedOne said:

@Harley@JMD @sancho panza @DurhamBorn and others  Whilst we don't seem to be able to access this in the UK, got me wondering

We can create our own versions or see what they are buying selling etc....

How about if i set up some code to monitor these ETF's we all like for changes then i can post what changed if it's actually a decent change not change a small changes

should not be to difficult i have it email me when there's a change to the page

If so what ETF's should i'll add if there's a url to there holdings post it

1st i'll add this one

https://horizonkinetics.com/products/etf/infl/#holdings

I use the below for ETF holdings Dino.My coma score lists are all based on the relevant ETF holdings although there's some crossover once from different sectors especailly media/telecoms.

ALl I obssess with is the sectors I'm into -oil,gold,potash,telecoms

https://www.etf.com/GDX#efficiency

18 hours ago, JMD said:

(whilst i'm freewheeling ideas, i think you have mentioned family trusts before. I'm no expert, but perhaps worth considering to mitigate IHT; plus once in a trust setup, why not buy a dozen houses/flats and pass that real-asset property-wealth down through the generations... you could even put your own name plaque on the buildings, or at least a QR-code linking to this thread!!!... that way you ensure your immortality... well kinda!)   

Trusts are in my expereicne a very tax inefficient vehicle in that they may alleviate IHT but you get whacked with income tax and CGT throughout using them.Their are also legal/accoutning costs that can add up to.Better to think out of the box and move domicile if IHT is an issue.

 

14 hours ago, Cattle Prod said:

Political winds have shifted. Yesterday Keir Starmer hinted he would vote against covid passports, and today, the Tories put forward one of their most prominent politicans to say the following:

Yes, there is a caveat in there, but he well knows that viruses vary toward more prevalence and less lethality. They've lied and lied to us, but the whole thing has sat on Whitty supporting policy, IIRC he threatened to quit early doors. I think this is a real signal. 

Very interesting development there CP.Made me laugh to be honest.The flu deaths tally is a lot higher than 9000 as I understand it

They've basically run out of road.At my work,they've vaccinated all the people who wanted one and have left the refusniks alone.In some hosptial trusts and care homes,there's been significant managment pressure but the level of people declining was forcing them into a conflict with a decent size chunk of the workforce some of whom would likely take legal action where the govt would likely lose.Also,looking at the scenes from the weekend,I think the govt are fearing more trouble in terms of unrest if they don't start easing off.

I like your description of Whitty,the Chief Medical Officer,apt and amusing in equal measure.Sums the situation up well.

Prof John Ioannidis has done some sterling work throughout this mess and has been saying since the Diamond Princess back in Feb/March last year that the then WHO infection fatality rate estimate of 3.4% was way out and that it was more like 0.20% or so (ie Flu levels).WHO are now accepting his IFR.Here's a link the WHO page.You'll see that it was submitted on May 20th 2020..................................................they've known the real postion for some time.

'follow the science,follow the science'......we're led by imeciles.

https://www.who.int/bulletin/online_first/BLT.20.265892.pdf

 

[JimmyTheBruce]

8 hours ago, JMD said:

Yes good spot, I was confusing the debt to equity ratio with ev/EBITDA, or maybe another ratio entirely! As I regularly mention, i am not good at the financials and with hindsight should have paid for a subscription service where I could have made full use of stock screener tech. However think wouldn't be that useful for me now as I am much more allocated.

Harley/JMD, you're both looking into this far too much.  You need to follow Amy Lee, she has a foolproof strategy:

https://reut.rs/3sIDZbe

I started off laughing at the article, but ended up wondering how a Deliveroo rider could afford to lose more than me 😪

[JimmyTheBruce]

Another anecdotal on inflation... I work at a multinational manufacturer which has major chemical input costs.  The purchasing guys are telling all and sundry to tighten their belts because raw material prices are going through the roof.

[DurhamBorn]

2 hours ago, Sugarlips said:

I'm still learning every day so am not 100% convinced it's all inflation next but enjoyed the latest macrovoices podcast where Steven Van Metre spent an hour outlining the science of why it's deflation from here (velocity of money etc) but Erik demolished the whole theory in a few sentences simply by observing inflation is more of a perspective than technicals and logic - if enough people realise the costs are rising it quickly takes hold in the collective and becomes self perpetuating.

Its about politicians as well and what they fear.Iv always said one of the main causes of inflation in an advanced economy is when the politicians and policy makers fear unemployment and unrest more than inflation.Thats what caused the 70s inflation,not oil,unions etc.We have a situation now where they are actually telling  the market they want higher inflation,and where they will run it over the 2% target "for a while".

This thread was all about the end of dis-inflation because thats what we have had.Dis-inflation was really people getting a lot richer in what they could buy,but the flip side of that is that assets get more expensive compared to what they pay out in income.

As with any cycle being in the right place at the start makes a big difference.So for dis-inflation,buying a house in 1982,getting a final salary job in the late 70s,cashing final salary pension in 2020 and converting.

There are business cycles along the way of course where there are chances to get onboard at decent points.

Now,i think there is still a huge risk of an incredible debt deflation and it could drag down everything accept the dollar.Europe,hedge funds,some unknown.However its clear we are at the end of the dis-inflation and we get one last huge whack or we suffer several big whacks,but not systemic as we transition.

As usual the MSM,advisors,funds etc were all looking the wrong way and are only now starting to notice certain sectors might be cheap,after they have gone up 50%,100%,200%.

Velocity is terrible,but its building in the right areas now to unleash.M3.The thing that would stop it is a debt deflation though,because that would suck it back into government bonds.That is the battle they are fighting,and its a monetary battle that needs to be fought on the fiscal side.

[harp]

1 hour ago, Cattle Prod said:

I'm literally sat here looking at lumber merchants to see what need to stockpile for my garden office because prices are going up.

Wickes delivered an order on Thursday to my house. 7 rolls of iko felt and around £500 of wood. I noticed the felt was the wrong colour. I wanted the black but they sent green. I sent the felt back with the driver. Later that day the branch rings up to apologise and arrange order for yesterday. They pitched up with the correct colour felt AND the £500 worth of wood...again! I’ll be keeping that thanks! 

[Shamone]

6 hours ago, Lightscribe said:

I think Right to buy was perhaps the most damaging policy ever implemented, but combined with tax credits it’s actively destroyed a whole productive generation.

RTB enabled a phenomenon of ‘council house millionaires’ for those that took advantage in the 90’s around the likes of London which will never be seen in history again.

Tax credits in principle would have been a sound policy. The downfall was to make it too generous and economically more beneficial the more children you had. The added time bomb which we’ll start to see now (at the possibly worst time) is homelessness of 50+ year old mothers in private rental when their income drops off a cliff when all children are above 18.

In turn, BTL combined with low interest rate policy has enabled 2.5million economically advantaged older generation to feed off the younger generation through taxation supporting benefits, HPI and increasing rents.

These policies have spelled disaster for a whole generation through housing and birth rates. Young professionals struggle to afford a home without massive debt and are having one child if any at late 30s/40s. Those dependent for life on government support were actively encouraged to have multiple children spread across decades up to 40+.

Overall in the councils eyes, whose foresight extends to the next budget/government, it was a short term win. Sell off all the council housing and take the maintenance costs off their books. Looks good on paper, and someone else can deal with the ramifications later down the line.

One of the best posts I’ve ever read.

[Harley]

1 hour ago, harp said:

Wickes delivered an order on Thursday to my house. 7 rolls of iko felt and around £500 of wood. I noticed the felt was the wrong colour. I wanted the black but they sent green. I sent the felt back with the driver. Later that day the branch rings up to apologise and arrange order for yesterday. They pitched up with the correct colour felt AND the £500 worth of wood...again! I’ll be keeping that thanks! 

I had a £400 wood delivery last week.  Can't imagine building much with that at all  Also can't imagine the similar lot I bought a year ago costing more than £250.  I should have planked some of my trees!

[Harley]

5 minutes ago, Cattle Prod said:

As Harley says, cash has its own risks as a safe haven with bail ins. 

I keep hearing this.  I really ought to do something with my cash!

[JMD]

14 hours ago, Cattle Prod said:

Explored in The Mandibles by Lionel Shriver.

I've heard of the book CP and been meaning to read it for while, as the author is interesting for a 'creative type' because she is very anti woke. Would it be off topic to ask you to precis the book in terms of this threads themes, as I am fascinated by your comment?

[jamtomorrow]

17 minutes ago, Cattle Prod said:

Of course the only way I can buy physical gold in my SIPP is behind a level 4 gate which I need the advice of a financial advisor to get through. Has anyone done this? 

I have.

I got my IFA involved to help me shortlist 3 SIPP providers, and after a little back and forth the first-choice provider on my list (the one with the lowest annual fees) went ahead and set up an account with BullionVault.

Definitely seemed like a first for my IFA to have a client wanting to go out of their way to gain gold exposure in a SIPP.

Also worth pointing out IFA didn't do any work for me "on the books" (pretty sure it was because their professional indemnity wouldn't stretch to it) so I went through the whole process "unadvised" as far as the SIPP provider was concerned.

Also pretty sure it was a first for the provider as well - management board had to formally authorise the new investment category, and the process of making purchases typically involves me calling a terrified-sounding adviser and talking them through the steps.

But it's all fine - I can see my holding in the daily audit on BullionVault, and the entertainment value of hearing them laying eggs every time I call up is almost worth it in its own.

[sancho panza]

19 hours ago, ThoughtCriminal said:

I've mentioned before that I'm considering doing the same just down the road from you in teesside, inspired by you and your wrongthink 😂

 

3 bed ex council terraces here for 60k and 500 a month rent. 

 

How would you do it DB? Hypothetically speaking of course. 

 

10-15% deposit then one of those 10 year fixes? 

 

 

That's running a gross yield of 10% which is viable depending on a few things.15% more reasonableMost of the profitable LL's I know have owned the places since they were cheap and either rent to students or yuppies/families.They also have extremely low tentant turnover comparatively speaking.There's a poster on here who's been moved on four times in 5 years.Thats a lot of bad business men and a family that's been damaged by our rental system.

Allowing £15k down plus repayment mortgage circa £200 per month looks like a £300 gross profit.Taking the following costs into accout

1) tax-levied on revenue ie the £6000 per annum depending on your tax rate.If you're a 20% tax payer then thats £1200(I'm not an accountant and there are some things you can write off)

2)safety certificates/licences/insurance- crica £400 per annum.Details here .Less if you ignore the insurance.

3) If you ignore the insurance you're liable for evicting your own tenants which can run to £2500 at best.At worst can be £6000 if you include unpaid rents.If you only have one property,an eviction could cost you your business aas your mortgage still needs paying.

4) Maintenance

5) voids-I probably allow for one or two months a year,so £500.

6) management costs if you use one.

I think DB's startegy is about right in that you need to have 3/4 minimum to make it viable at current yields which allows for non payers/voids across the portfolio.DB's Dad isn't daft though as partnering with someone who can do most of the maintenance makes for huge potential savings on a decade long view.A ten year fix strategy would allow you some room for overpayment to avoid a nasty shock when IR's get hiked.

AS an anecdotal,a good friend's partner is trying to evict a tenant via a section 21 notice and it looks like it'll be upward of a year from the first notice when they get possession back.The tenant is paying though so it's mainly covid and court backlog but I still wouldn't fancy filing a Section 8 on someone with kids.Could take a while.

17 hours ago, leonardratso said:

thought his last BK estimate was Q2 2021, mind you that covers 3 months, i assume end of Q2, but im sure that was Q1 2021 last year in his estimates. His timing is a bit lousy i suppose, but theres little doubt the stuff does look like it gets to where he said it would (or close) eventually i suppose. Thats no consolation though if you are too late or too early, think id rather be early on a BK to be honest, big problem to sit on your hands with a huge wedge of cash burning a hole in your pocket.

And by big i mean 8.32 great british pounds. Yes more than 5.

 

I think a lot of people look to DH for timing which is using him in the wrong way.He understands the macro process but noone and I mean noone can time those moves as there are so many variables in the equation.\i was with DH when he foresaw a Q2 21 BK back in Sept/Oct last year.

But you have to react to the newsflow and alter your timelines as data comes in.If you don't you're going to get hosed.I'm seeing a lot of people deploy into UST's,lot of top people including \Kaplan are calling the top here.Might be right,might be wrong.So you're bang on warning about being too early being sllightly better as a bet than being late.Difficult call though.

For me,I think DH is best used for route/destination plannign on a map ie he picks the roads you use .It's up to us the investors to take that route and decide where to stop off,where to eat,where to sleep and where to refuel.

His melt up call from last year was epic at the time and bang on for what has followed.His daily timing shouts are poor but if you ignore his macro calls because his daily timing is crap then youre throwing the baby outwith the bathwater

[sancho panza]

15 hours ago, DurhamBorn said:

If we bought two it would be cash.If four maybe cash or 50% LTV.My dad has to be careful with inheritance tax though and so do i.Being not married i only have the one allowance and the owner occupier allowance so my SIPP is very important as im on the IHT allowance outside of SIPP.We have a trust set up we can use,but its not tax efficient unless the person taking the income has their tax allowance spare though i have now.

I think the 50% option still leaves you with a lot of room for manouvre cashflow wise.You could also put it into a limited company and then find a way of alleviating the IHT hit possibly via a Trust or moving domicile at some point.

Edit to add:there's some leeway getting valuations for probate as you can imagine but I think it's far better to put something structural in place to alleaviate the hit rather than rely on a couple of low valuations

15 hours ago, Hancock said:

Yes they do.

My friend and his young family became homeless, so the council put them in some shithole half way house that was full of smackheads. It was 2 rooms for a family of 5 with a shared bathroom and kitchen ... it was truly disgusting.

After 6 weeks there, the council then moved them to what is deemed another form of half way house or emergency accommodation .... but to you and I it was a 3 bed council house in a shit estate.

Anyway the person who owned this "emergency accommodation" bought it off the council several years earlier for a fraction of the market price as they were a previous long term tenant ..... Then he was renting back to the council at what would have been about twice the market rate.

In simplistic terms the council sold it to him for £30,000 in the 90s, and were renting it back for £1000 a month in the early 00s.

As it was "emergency accommodation the council were paying far more in rent and far more than they'd normally pay in housing benefit.

Sad reality is that the bulk of council houses sold off by successive govts have ended up in the hands of BTLers costing the councils way more in rent than if they'd jsut been able to hang on.

Shocking failure in govt policy by any measure.

Renting can be dire for people with little money for deposits who end up being at the beck and call of rotten LL's.

[JMD]

6 hours ago, sancho panza said:

I use the below for ETF holdings Dino.My coma score lists are all based on the relevant ETF holdings although there's some crossover once from different sectors especailly media/telecoms.

ALl I obssess with is the sectors I'm into -oil,gold,potash,telecoms

https://www.etf.com/GDX#efficiency

Trusts are in my expereicne a very tax inefficient vehicle in that they may alleviate IHT but you get whacked with income tax and CGT throughout using them.Their are also legal/accoutning costs that can add up to.Better to think out of the box and move domicile if IHT is an issue.

 

Very interesting development there CP.Made me laugh to be honest.The flu deaths tally is a lot higher than 9000 as I understand it

They've basically run out of road.At my work,they've vaccinated all the people who wanted one and have left the refusniks alone.In some hosptial trusts and care homes,there's been significant managment pressure but the level of people declining was forcing them into a conflict with a decent size chunk of the workforce some of whom would likely take legal action where the govt would likely lose.Also,looking at the scenes from the weekend,I think the govt are fearing more trouble in terms of unrest if they don't start easing off.

I like your description of Whitty,the Chief Medical Officer,apt and amusing in equal measure.Sums the situation up well.

Prof John Ioannidis has done some sterling work throughout this mess and has been saying since the Diamond Princess back in Feb/March last year that the then WHO infection fatality rate estimate of 3.4% was way out and that it was more like 0.20% or so (ie Flu levels).WHO are now accepting his IFR.Here's a link the WHO page.You'll see that it was submitted on May 20th 2020..................................................they've known the real postion for some time.

'follow the science,follow the science'......we're led by imeciles.

https://www.who.int/bulletin/online_first/BLT.20.265892.pdf

 

SP, I think it very useful indeed to be reminded regularly of The Diamond Princess, I remember the people being taken strecthered off, and the English couple in particular who survived. The media were all over it at first, then it was totally forgotten. As you imply, the actual death figures didn't fit the narrative of the 'new normal' dialectic.                                                                                                                                                                               ...Anyone have suggestions for a 'Diamond Princess survivor/anti lockdown' humorous skeptical slogan for a t-shirt? Could never be worn in public of course, lest it offend, hate crime charges, etc.

[Barnsey]

Impressive

 

[leonardratso]

one for @Popuplights

My BTC is now up 300% since 25th dec when i bought it, so the £1.50 i put in is now a whopping £4.5, I may well cash it out and spend it on a down payment for a packet of fags, might have to take up smoking again at this rate.

[harp]

2 hours ago, Cattle Prod said:

Do you prefer Wickes to Jewsons?

Not really. Wickes had a deal on. 2 for 1 😉

[DurhamBorn]

@Cattle Prod the sell of in treasuries went in M1,huge jump from April to May,people getting cash on their balance sheets and drawing down credit etc.Some then went into buying commods as they fell.

[JMD]

7 hours ago, JimmyTheBruce said:

Harley/JMD, you're both looking into this far too much.  You need to follow Amy Lee, she has a foolproof strategy:

https://reut.rs/3sIDZbe

I started off laughing at the article, but ended up wondering how a Deliveroo rider could afford to lose more than me 😪

Jimmythebruce, I think I know what you mean. After all discussion posts about  financial value ratios may sound far too pedantic, but to be clear I'm mostly invested in what I believe to be the main reflation sectors - energy, telecoms, PM's, commods. And I bought those sectors without the same amount of financial analysis. However, I think the other reflation sectors, like medical/chemical/construction companies are more tricky so I consider I need to be more careful when selecting them. But if I can't find anything I like, I won't buy, and instead i might just get more energy for example.                                                                                                                                            I think to help derisk investment decisions - Research, research, then re-search again is the sensible approach. But can I ask what criteria you use in your own decision making process before you make the leap to buy or invest?