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

[wherebee]

7 hours ago, sancho panza said:

IPersonally,my near term target for XOM is $66,and I think we kight well see that in the next few weeks.Time will tell.

The big challenge we will have now is - do we sell our oilies once they have doubled, plan for a BK, and pick up on the drops, or do we hold and not worry about bail ins, capital loss, and timings?

I have already topsliced about 30k of profit (think of that!) but am torn between the two routes above.  Same with GDXJ - I topsliced when it hit 57 (good timing) but if it hits 75 I will be seriously tempted to take it all.

[Barnsey]

On the mortgage front, looks like I did well to fix for 15 years as all products withdrawn now, and rates on 10 year fixes now higher than what I secured.

Yet another subtle but key signal regarding long term inflation expectations.

[Lightscribe]

https://bitcoinist.com/sp-launches-first-ever-crypto-indices-for-bitcoin-and-ethereum-why-it-matters/
 

Right @nirvana I take it back! The SP500 has more to go, melt up confirmed. 

The point I was making was that when we spiral upwards towards the breaking point, money would flow into increasingly more and more speculative assets, hence crypto, NFTs etc have been taking some of that flow rather than just the FAANGs.

By the SP now launching crypto funds, looks like it may take some of this flow back from mainstream investors.

[Ellandback]

It looks as though my first direct 10 yr fix has been pulled. 

Francis Hunter (aka market sniper on YT) always stresses the importance of having a professional check over mortgage small print as contacts will go out the window following the crash he's predicting. He's a bit of a nutter but it does makes me worry I'm not as secure as I think I am with 10 years @ 2.39%.

[DurhamBorn]

1 hour ago, Barnsey said:

On the mortgage front, looks like I did well to fix for 15 years as all products withdrawn now, and rates on 10 year fixes now higher than what I secured.

Yet another subtle but key signal regarding long term inflation expectations.

Exactly,my sons 10 year fix was perfect timing,just need to keep them motivated to pay it down over the time.

[JimmyTheBruce]

44 minutes ago, Ellandback said:

It looks as though my first direct 10 yr fix has been pulled. 

Francis Hunter (aka market sniper on YT) always stresses the importance of having a professional check over mortgage small print as contacts will go out the window following the crash he's predicting. He's a bit of a nutter but it does makes me worry I'm not as secure as I think I am with 10 years @ 2.39%.

What's the implication?  Is the suggestion that the lenders will unilaterally decide to change the agreed rates if market rates rise?  Wouldn't they have done that previously if it was feasible? I know people still paying 0.49% because they were "fortunate" enough to be on trackers prior to 2007.

[Lightscribe]

1 hour ago, JimmyTheBruce said:

What's the implication?  Is the suggestion that the lenders will unilaterally decide to change the agreed rates if market rates rise?  Wouldn't they have done that previously if it was feasible? I know people still paying 0.49% because they were "fortunate" enough to be on trackers prior to 2007.

The implication is that the retail banks may start pulling their low rate long term fixed deals in anticipation of longer term rate rises by the central banks (after all banks don’t want you paying 1.99% fixed for 10 years while central bank rates are 5% in 2023 etc)

First Direct has been a bit of a flag bearer for the 10 year fixed rate deals (no restrictions on overpayments etc). If they pull, others will follow. 

Trackers have been a great option after 2008, but have lulled everyone into a false sense of security and ‘0% forever, they won’t ever raise interest rates’ mentality. 

The bigger implication is for the overheated property market bubble for the next decade in the face of slow (or most likely rapid) steady rate rises. The bubble bursting would have effected mostly BTL, London and the south. But over this last year the stamp duty saving and WFH has caused massive bubbles in rural and costal hotspots as well as up north.

This Bank of England paper says the following in regards to stress testing:

“We stress that the decline over 35 years in real interest rates is not a reflection of loose monetary policy. The central bank controls the level of short-term nominal interest rates – not the level of medium and longer term real interest rates. Nor is the sustained decline in real yields unique to the UK – it is a global phenomenon and one which long pre-dates quantitative easing operations. What is striking about this decline in real yields is its consistency over the last 35 years, and how (relatively) similar it has been across countries.
From a policymaker’s perspective, these findings add context to how an organisation may plan for, and test, financial stability. In the 2018 Financial Stability Report, the Bank of England’s stress test assumed a nominal house price fall of 33%. According to our results, a 33% real house price fall could be an effect of an unanticipated - but sustained - rise in medium-term real interest rates of slightly less than 2 percentage points from the real rate observed at the end of 2018. Such a rise would only take the level of real yields to around zero.“

https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/uk-house-prices-and-three-decades-of-decline-in-the-risk-free-real-interest-rate.pdf

[wherebee]

23 minutes ago, Lightscribe said:

The implication is that the retail banks may start pulling their low rate long term fixed deals in anticipation of longer term rate rises by the central banks (after all banks don’t want to be losing money, when you’re paying 1.99% fixed for 10 years while central bank rates are 5%)

First Direct has been a bit of a flag bearer for the 10 year fixed rate deals (no restrictions on overpayments). If they pull, others will follow. 

Trackers have been a great option the since 2008, but have lulled everyone into a false sense of security and ‘0% forever, they won’t ever raise interest rates’ mentality. 

 

1 hour ago, JimmyTheBruce said:

What's the implication?  Is the suggestion that the lenders will unilaterally decide to change the agreed rates if market rates rise?  Wouldn't they have done that previously if it was feasible? I know people still paying 0.49% because they were "fortunate" enough to be on trackers prior to 2007.

It has happened before that banks have rewritten the rules when they find themselves locked into a financially negative deal, and the courts have sided with them.  I can't remember the examples but there were a lot in france about 20 years ago re currency option agreements.

[dnb24]

25 minutes ago, Lightscribe said:

First Direct has been a bit of a flag bearer for the 10 year fixed rate deals (no restrictions on overpayments). If they pull, others will follow. 

what’s the view on here with regard mortgages- I’m split between waiting for the melt up to end and a correction occur to jumping in at low rates now- of course dyor and natch - but appreciate other peoples views.

 

1 hour ago, DurhamBorn said:

Exactly,my sons 10 year fix was perfect timing,just need to keep them motivated to pay it down over the time.

 

[MrXxxx]

23 hours ago, Yellow_Reduced_Sticker said:

 

I fluked it on Sibanye and got in near the BOTTOM, though I only put in a grand it's UP 327% !  My Top performer in my portfolio, can someone message Mr Hunter and ask when his Crystal Ball thinks the TOP is for Sibanye?!

 

Actually all joking aside, if my portfolio hits + 70% (its up 40% now) in the next few months of the MELT-UP...I'm flogging the lot ...other than the telcos!

 

Its only a 327% GAIN if you sell it now....tomorrow it could be down 327%!....but only a LOSS if you sell it then .....and on that 'bright note' I wont say anymore :-)

[Ellandback]

49 minutes ago, JimmyTheBruce said:

What's the implication?  Is the suggestion that the lenders will unilaterally decide to change the agreed rates if market rates rise?  Wouldn't they have done that previously if it was feasible? I know people still paying 0.49% because they were "fortunate" enough to be on trackers prior to 2007.

He prefers fixed rate over variable but long term he sees a hyperinflationary environment where banks could trigger obscure clauses to break mortgage contracts, above video is set to him answering a question about the benefit of long term fixes.

I was reluctant to post this on the thread but I recommend watching the whole thing - prior to CV I would have dismissed this guy as peddling blackpilled bollocks - but not anymore.

[Lightscribe]

33 minutes ago, dnb24 said:

what’s the view on here with regard mortgages- I’m split between waiting for the melt up to end and a correction occur to jumping in at low rates now- of course dyor and natch - but appreciate other peoples views.

 

 

It’s a double edged sword. You would of had to get the best of both worlds long term fix somewhere cheap like DB son has. Personally I have no mortgage currently but need to move in the next year or so. I live in in a flat in zone 3 (will be very difficult to sell once everything hits) my partner bought it long ago, so hopefully will be able to undercut the market.

But whatever comes out of that will be going with the rest of my assets, ISA portfolio, crypto etc (which I will sell in the next few months melt up) The inflation stocks I’ll rebuy after the BK (gamble but I’m willing to risk it).

My aim as it stands is to buy outright with no mortgage at all. Or else the backup plan is to join DB and buy in Durham! 

[Lightscribe]

26 minutes ago, Ellandback said:

He prefers fixed rate over variable but long term he sees a hyperinflationary environment where banks could trigger obscure clauses to break mortgage contracts, above video is set to him answering a question about the benefit of long term fixes.

I was reluctant to post this on the thread but I recommend watching the whole thing - prior to CV I would have dismissed this guy as peddling blackpilled bollocks - but not anymore.

To be honest it doesn’t surprise me and certainly rings true to form of ‘you will own nothing’. The house always wins. That’s why my aim is to buy outright or not at all.

[MrXxxx]

22 hours ago, JimmyTheBruce said:

Only 327%?  It's my best performer by a country mile at 384%!!!  And it's bunging chunky dividend payments my way too 😃

And I'd never even have heard of them if it wasn't for this thread.  Thanks DB!! Sorry for rubbing it in. 😉

Here we go, now we are all going to start 'willie waving'.....and unfortunately with only 149% being my best, I am Mr Underaverage once again!

[MrXxxx]

21 hours ago, Castlevania said:

@nirvanais shorting it

or @YRS bought it!

[Stinky Wizzleteats]

12 hours ago, sancho panza said:

I've been speaking to a lot of people I know and all are saying the exact same thing about the costs of commodities from copper to wood to steel......loads of stories .

I think we're in for a real run up here.

Lots of memes about the price of wood on reddit, stuff like demolishing your house and selling the lumber for a profit.

Folks... I think we might be living in interesting times 😳

[M S E Refugee]

29 minutes ago, Ellandback said:

He prefers fixed rate over variable but long term he sees a hyperinflationary environment where banks could trigger obscure clauses to break mortgage contracts, above video is set to him answering a question about the benefit of long term fixes.

I was reluctant to post this on the thread but I recommend watching the whole thing - prior to CV I would have dismissed this guy as peddling blackpilled bollocks - but not anymore.

I have watched Francis for 2 or 3 years on and off and I have been impressed with his calls.

Never really believed much of his conspiracy stuff until the Rona changed everything and made his conspiracy stuff look scarily plausible.

[MrXxxx]

1 hour ago, wherebee said:

 

It has happened before that banks have rewritten the rules when they find themselves locked into a financially negative deal, and the courts have sided with them.  I can't remember the examples but there were a lot in france about 20 years ago re currency option agreements.

Was it not the West Bromwich building society in the UK?

[jamtomorrow]

4 hours ago, wherebee said:

The big challenge we will have now is - do we sell our oilies once they have doubled, plan for a BK, and pick up on the drops, or do we hold and not worry about bail ins, capital loss, and timings?

I have already topsliced about 30k of profit (think of that!) but am torn between the two routes above.  Same with GDXJ - I topsliced when it hit 57 (good timing) but if it hits 75 I will be seriously tempted to take it all.

If ever there was a time to hedge your bets, it's now. The system is on a knife edge, one wrong move by CBs and down she comes, and there's no knowing which way she'll fall.

I'm still 50/50 on equities (effectively) - 50% deployed in inflation stocks, 50% in cash on standby until I see signs of system stability, or BK happens.

[MrXxxx]

2 hours ago, dnb24 said:

what’s the view on here with regard mortgages- I’m split between waiting for the melt up to end and a correction occur to jumping in at low rates now- of course dyor and natch - but appreciate other peoples views.

 

 

OK, here is my 'ten pence worth'...

1. People have stretched themselves payment-wise at very low interest rates i.e. 2-4%, compare this to the 1980's where market rates were 8-16%

2. Now, if interest rates go up only 1% people mortgage payments go up 50%, this would be the equivalent of 10% to 15% in the 1980's, and when this happened there were lots of defaults and so 'fire sales'

3. Buy now to lock in a rate of say 3% and if they increase by 50% [see 1. above], and you have 'saved' 1.5% BUT bought at a market high/near high point OR wait for an interest rate hike and subsequent property price drop....I think if mortgage rates increased by 1.5% property prices would drop by a lot more than that.

4. The last 10 years the government have used a whole variety of props to keep the property market high i.e. BTL favourable taxation, HTB etc...over the last year some of these have started to disappear, and with the pandemic spending and the need to inject further fiscal stimulus I think I feel it would be a) be difficult for them to find money for further support, and b) with the inevitable 'end of furlough' job losses, difficult to justify.

But then what do I know, I work on a logical approach, have been saying the property market will correct for the last 10 years, and the markets seem to have given up on logic a long time ago!

[Castlevania]

7 minutes ago, MrXxxx said:

OK, here is my 'ten pence worth'...

1. People has stretched themselves payment-wise at very low interest rates i.e. 2-4%, compare this to the 1980's where market rates were 8-16%

2. Now, if interest rates go up only 1% people mortgage payments go up 50%, this would be the equivalent of 10% to 15% in the 1980's, and when this happened there were lots of defaults and so 'fire sales'

3. Buy now to lock in a rate of say 3% and if they increase by 50% [see 1. above], and you have 'saved' 1.5% BUT bought at a market high/near high point OR wait for an interest rate hike and subsequent property price drop....I think if mortgage rates increased by 1.5% property prices would drop by a lot more than that.

4. The last 10 years the government have used a whole variety of props to keep the property market high i.e. BTL favourable taxation, HTB etc...over the last year some of these have started to disappear, and with the pandemic spending and the need to inject further fiscal stimulus I think I feel it would be a) be difficult for them to find money for further support, and b) with the inevitable 'end of furlough' job losses, difficult to justify.

But then what do I know, I work on a logical approach, have been saying the property market will correct for the last 10 years, and the markets seem to have given up on logic a long time ago!

Almost all mortgages are repayment ones nowadays. So the delta isn’t one to one. An increase from paying 2% to 3% on an interest only mortgage is indeed a 50% increase in payments. On a repayment mortgage it depends how many years you have left to pay, with a longer term meaning less of an impact as lower capital repayments will offset some of the pain. 

[Lightscribe]

https://www.economist.com/leaders/2021/05/08/the-digital-currencies-that-matter

The digital currencies that matter

Get ready for Fedcoin and the e-euro

Technological change is upending finance. Bitcoin has gone from being an obsession of anarchists to a $1trn asset class that many fund managers insist belongs in any balanced portfolio. Swarms of digital day-traders have become a force on Wall Street. PayPal has 392m users, a sign that America is catching up with China’s digital-payments giants. Yet, as our special report explains, the least noticed disruption on the frontier between technology and finance may end up as the most revolutionary: the creation of government digital currencies, which typically aim to let people deposit funds directly with a central bank, bypassing conventional lenders.

These “govcoins” are a new incarnation of money. They promise to make finance work better but also to shift power from individuals to the state, alter geopolitics and change how capital is allocated. They are to be treated with optimism, and humility.

A decade or so ago, amid the wreckage of Lehman Brothers, Paul Volcker, a former head of the Federal Reserve, grumbled that banking’s last useful innovation was the atm. Since the crisis, the industry has raised its game. Banks have modernised their creaking it systems. Entrepreneurs have built an experimental world of “decentralised finance”, of which bitcoin is the most famous part and which contains a riot of tokens, databases and conduits that interact to varying degrees with traditional finance. Meanwhile, financial “platform” firms now have over 3bn customers who use e-wallets and payments apps. Alongside PayPal are other specialists such as Ant Group, Grab and Mercado Pago, established firms such as Visa, and Silicon Valley wannabes such as Facebook.

Government or central-bank digital currencies are the next step but they come with a twist, because they would centralise power in the state rather than spread it through networks or give it to private monopolies. The idea behind them is simple. Instead of holding an account with a retail bank, you would do so direct with a central bank through an interface resembling apps such as Alipay or Venmo. Rather than writing cheques or paying online with a card, you could use the central bank’s cheap plumbing. And your money would be guaranteed by the full faith of the state, not a fallible bank. Want to buy a pizza or help a broke sibling? No need to deal with Citigroup’s call centre or pay Mastercard’s fees: the Bank of England and the Fed are at your service.

This metamorphosis of central banks from the aristocrats of finance to its labourers sounds far-fetched, but it is under way. Over 50 monetary authorities, representing the bulk of global gdp, are exploring digital currencies. The Bahamas has issued digital money. China has rolled out its e-yuan pilot to over 500,000 people. The eu wants a virtual euro by 2025, Britain has launched a task-force, and America, the world’s financial hegemon, is building a hypothetical e-dollar.

One motivation for governments and central banks is a fear of losing control. Today central banks harness the banking system to amplify monetary policy. If payments, deposits and loans migrate from banks into privately run digital realms, central banks will struggle to manage the economic cycle and inject funds into the system during a crisis. Unsupervised private networks could become a Wild West of fraud and privacy abuses.

The other motivation is the promise of a better financial system. Ideally money provides a reliable store of value, a stable unit of account and an efficient means of payment. Today’s money gets mixed marks. Uninsured depositors can suffer if banks fail, bitcoin is not widely accepted and credit cards are expensive. Government e-currencies would score highly, since they are state-guaranteed and use a cheap, central payments hub.

As a result, govcoins could cut the operating expenses of the global financial industry, which amount to over $350 a year for every person on Earth. That could make finance accessible for the 1.7bn people who lack bank accounts. Government digital currencies could also expand governments’ toolkits by letting them make instant payments to citizens and cut interest rates below zero. For ordinary users, the appeal of a free, safe, instant, universal means of payment is obvious.

It is this appeal, though, that creates dangers. Unconstrained, govcoins could fast become a dominant force in finance, particularly if network effects made it hard for people to opt out. They could destabilise banks, because if most people and firms stashed their cash at the central banks, lenders would have to find other sources of funding with which to back their loans.

If retail banks were sucked dry of funding, someone else would have to do the lending that fuels business creation. This raises the queasy prospect of bureaucrats influencing credit allocation. In a crisis, a digital stampede of savers to the central bank could cause bank runs.

Once ascendant, govcoins could become panopticons for the state to control citizens: think of instant e-fines for bad behaviour. They could alter geopolitics, too, by providing a conduit for cross-border payments and alternatives to the dollar, the world’s reserve currency and a linchpin of American influence. The greenback’s reign is based partly on America’s open capital markets and property rights, which China cannot rival. But it also relies on old payments systems, invoicing conventions and inertia—making it ripe for disruption. Small countries fear that, instead of using local money, people might switch to foreign e-currencies, causing chaos at home.

New money, new problems

Such a vast spectrum of opportunities and dangers is daunting. It is revealing that China’s autocrats, who value control above all else, are limiting the size of the e-yuan and clamping down on private platforms such as Ant. Open societies should also proceed cautiously by, say, capping digital-currency accounts.

Governments and financial firms need to prepare for a long-term shift in how money works, as momentous as the leap to metallic coins or payment cards. That means beefing up privacy laws, reforming how central banks are run and preparing retail banks for a more peripheral role. State digital currencies are the next great experiment in finance, and they promise to be a lot more consequential than the humble atm. 

 

 

[JimmyTheBruce]

1 hour ago, Ellandback said:

He prefers fixed rate over variable but long term he sees a hyperinflationary environment where banks could trigger obscure clauses to break mortgage contracts, above video is set to him answering a question about the benefit of long term fixes.

I was reluctant to post this on the thread but I recommend watching the whole thing - prior to CV I would have dismissed this guy as peddling blackpilled bollocks - but not anymore.

Cheers Ellandback.  Somewhat worrying.  I thought I was a suspicious, cynical, pessimistic bastard, but I'm clearly still an amateur compared to those guys.

I'm trying to get the Barclays 7 year fix at 1.49% that was mentioned here a while back (thanks whoever it was!).  I don't want them wriggling out of that once I'm signed up.

[JimmyTheBruce]

1 hour ago, MrXxxx said:

Here we go, now we are all going to start 'willie waving'.....and unfortunately with only 149% being my best, I am Mr Underaverage once again!

Bit concerned that the size of my willy is mainly attributable to the people on this thread....

[MrXxxx]

21 minutes ago, JimmyTheBruce said:

Bit concerned that the size of my willy is mainly attributable to the people on this thread....

I suggest you 'go long' on Viagra!