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

[Majorpain]

Looks like the rules of the game are changing:

https://www.zerohedge.com/geopolitical/chinese-firms-dump-40-billion-global-assets-turn-net-seller-first-time-decades

Now that China is in deep trouble with its economy, its state owned companies have been banned from going round the world paying massively over the odds for everything.

Thomas Cooks failure to secure more money from its Chinese backers was a good indication IMO, it also ties in with the anecdotal stories of London RE prices which are currently finding out what the actual going market rate for housing is.  I don't think its going to be anywhere near what it is now, but the market can remain irrational longer than most people can remain solvent!

[Harley]

Poo.  Was accumulating TUI since a recent buy signal (funny that) but only got a quarter of my target and they're currently up 6% today, about a year's div.  They could have waited until later this week.  Save any anger for the years of TC mis-management.

[Harley]

13 minutes ago, Durabo said:

https://mobile.twitter.com/JamesChildEG/status/1176041836655403008?ref_src=twsrc^tfw|twcamp^tweetembed|twterm^1176041836655403008&ref_url=https%3A%2F%2Fwww.bbc.co.uk%2Fnews%2Flive%2Fbusiness-49770809

20 mil sq feet of retail space lost since 2018 following the collapse of Thomas Cook. Hopefully not long now!

Who is the landlord, or does it matter and just dump REITs?  I hold LAND and BLND, fortunately bought low but that may not be enough.

[DurhamBorn]

31 minutes ago, Majorpain said:

Looks like the rules of the game are changing:

https://www.zerohedge.com/geopolitical/chinese-firms-dump-40-billion-global-assets-turn-net-seller-first-time-decades

Now that China is in deep trouble with its economy, its state owned companies have been banned from going round the world paying massively over the odds for everything.

Thomas Cooks failure to secure more money from its Chinese backers was a good indication IMO, it also ties in with the anecdotal stories of London RE prices which are currently finding out what the actual going market rate for housing is.  I don't think its going to be anywhere near what it is now, but the market can remain irrational longer than most people can remain solvent!

You would almost think we are in a debt deflation  Classic example today of how a debt deflation leads to a reflation cycle.Debt full company goes bust and removes lots of capacity out of the market,those left can charge more.Consumer has less money now if they want a holiday.That means they have less disposable,so then someone else rolls over in an other industry,car sector?,.

The MSM and pretty much everyone thinks low rates stop this happening and its low inflation forever,they fail to spot even 0.1% interest sinks companies if they need 0.0%.

People will argue the assets are still out there,and they are,but the market is still disrupted.TUI might buy the airline side,they could do with some planes.

This dis-inflation cycle has made companies who dont have robust free cash flow take on far too much debt.They are finding out once they cant borrow more they sink.A holiday company without lots of hotel assets should have very low debts,not massive ones.

[Yellow_Reduced_Sticker]

On 21/09/2019 at 14:21, Errol said:

https://wtfhappenedin1971.com/

GREAT Find!

I particularly like this chart:

 

As per @DurhamBorn leads & lags - ya cunning plan is coming together...

"UK households' financial worries hit five-year high - IHS Markit"

https://uk.finance.yahoo.com/news/uk-households-financial-worries-hit-090117691.html

"One big signal shows why the UK property market is cooling..."

https://uk.finance.yahoo.com/news/one-big-signal-showing-the-uk-property-market-is-cooling-065436108.html

Equity Release & BTL'ers are going to get CREAMED!

I know the housing market is TOAST ...why ? cos i always buy at the TOP!

[Hardhat]

1 hour ago, DurhamBorn said:

You would almost think we are in a debt deflation  Classic example today of how a debt deflation leads to a reflation cycle.Debt full company goes bust and removes lots of capacity out of the market,those left can charge more.Consumer has less money now if they want a holiday.That means they have less disposable,so then someone else rolls over in an other industry,car sector?,.

The MSM and pretty much everyone thinks low rates stop this happening and its low inflation forever,they fail to spot even 0.1% interest sinks companies if they need 0.0%.

People will argue the assets are still out there,and they are,but the market is still disrupted.TUI might buy the airline side,they could do with some planes.

This dis-inflation cycle has made companies who dont have robust free cash flow take on far too much debt.They are finding out once they cant borrow more they sink.A holiday company without lots of hotel assets should have very low debts,not massive ones.

I think the TC crash and this post has finally crystallised the meaning of the debt deflation for me after around 2 years of reading this thread...

[DurhamBorn]

2 minutes ago, Hardhat said:

I think the TC crash and this post has finally crystallised the meaning of the debt deflation for me after around 2 years of reading this thread...

Leads and lags are always the important bits that almost everyone misses.It doesnt matter how low rates go,as soon as the Fed tighten its only a matter of time.Its how much they tighten compared to the size of the market needing that item.In the Feds case the dollar.The rest is all cross market work.A debt deflation isnt the end of the world,the survivors end up seeing margins expand,but it does change where the money goes.The UK government arent interested in bailing out a travel company,there are others,but they will allow the likes of BT to make an extra 1% on top of RPI to roll out fibre if it releases billions in investment.

[Harley]

Finally finished listening to my weekly podcasts and yet another sage saying deflation followed by inflation.  Said everything will go down first so few/no hiding places.  Especially bonds and equity together.  That the old rule of them being inversely related is largely gone in an inflated-everywhere market.  And most pension funds have pushed the risk curve for yield into junk bonds and a high equity to bond mix.   That this is going to be a really hard time to manage and that passive investing won't work.  But also said being right is not enough - timing (watching the indicators) is key.

PS:  Also mentioned universal income, something probably necessary in the coming inflationary period.  I mentioned way back about the supermarkets in Tahiti and the rest of French Polynesia, and it's coming here soon.

[Harley]

3 hours ago, DurhamBorn said:

You would almost think we are in a debt deflation  Classic example today of how a debt deflation leads to a reflation cycle.Debt full company goes bust and removes lots of capacity out of the market,those left can charge more.Consumer has less money now if they want a holiday.That means they have less disposable,so then someone else rolls over in an other industry,car sector?,.

The MSM and pretty much everyone thinks low rates stop this happening and its low inflation forever,they fail to spot even 0.1% interest sinks companies if they need 0.0%.

People will argue the assets are still out there,and they are,but the market is still disrupted.TUI might buy the airline side,they could do with some planes.

This dis-inflation cycle has made companies who dont have robust free cash flow take on far too much debt.They are finding out once they cant borrow more they sink.A holiday company without lots of hotel assets should have very low debts,not massive ones.

A seminal post.  Just read it to my partner who, especially given TC, not only got it but started spotting other companies heading the same way, not based on financial data per se but good sector knowledge.  Looks like we're heading for a bonfire of the PE/debt tainted types.  The financial engineering/debt bubble to go the same way as the dotcom bubble?  Also mentioned some very prescient industry opinions she heard way back about TC.  They seem to have strung things out for quite some time.

[BearyBear]

3 hours ago, Yellow_Reduced_Sticker said:

"One big signal shows why the UK property market is cooling..."

https://uk.finance.yahoo.com/news/one-big-signal-showing-the-uk-property-market-is-cooling-065436108.html

Equity Release & BTL'ers are going to get CREAMED!

I know the housing market is TOAST ...why ? cos i always buy at the TOP!

I can't see it cooling at all here in Edinburgh... 5% up YoY, anything nice or semi-nice advertised o/o £400k or below sells for 5-10% more and it sells very quickly!

https://espc.com/news/post/house-price-report-august-2019

[Dogtania]

15 minutes ago, BearyBear said:

I can't see it cooling at all here in Edinburgh... 5% up YoY, anything nice or semi-nice advertised o/o £400k or below sells for 5-10% more and it sells very quickly!

https://espc.com/news/post/house-price-report-august-2019

Have to say my anecdotal experience too and has been for last few years.

A friend recently sold two bedroom flat (close to Easter road).  Something like 8 viewings booked in first couple of days (and iirc 3 offers one which he accepted same time).  Apparently that's the norm.  Is it the banking sector -as in well paid jobs?- or just historically always been a attractive place to stay?  Or the Airbnb thing? (Which I know of somebody else buying tiny royal mile dwelling specifically for that purpose)  🙁

[Craig]

37 minutes ago, Dogtania said:

Have to say my anecdotal experience too and has been for last few years.

A friend recently sold two bedroom flat (close to Easter road).  Something like 8 viewings booked in first couple of days (and iirc 3 offers one which he accepted same time).  Apparently that's the norm.  Is it the banking sector -as in well paid jobs?- or just historically always been a attractive place to stay?  Or the Airbnb thing? (Which I know of somebody else buying tiny royal mile dwelling specifically for that purpose)  🙁

Not sure there's that many well-paid banking jobs in Edinburgh, most of it is servicing. AirBnB is probably a factor, as areas surrounding the City Centre are inundated with them. The amount of students is also a factor, evidenced by the endless new student accommodation which seems to be getting built.

And as you've stated, it is an attractive place to live, seems to hoover up people from all over Scotland and parts of the south too. Pushing all the locals out to dormitory towns like Dunfermline, Penicuik etc which just seem to grow and grow.

[Bricks & Mortar]

7 minutes ago, BearyBear said:

I can't see it cooling at all here in Edinburgh...

I'm out rural, about 90 minutes from Edinburgh.  Have followed previous downturns in housing.  I'd expect Edinburgh to lag the South-East by some time, and my own wee village to lag behind even Edinburgh.  Sometimes the lag is long enough that a small downturn in the South East of England hardly grazes Edinburgh, maybe doesn't even effect us at all, so far from the hotzone.   Anecdotal from here is everything still going like a fair, albeit on reduced transactions.
But, the prevailing view on this thread, is the housing downturn will be with us for some considerable time.  It'll get to Edinburgh eventually, and finally out here.   Locally, I estimate we've a median wage about £20K, and an average house price at £225K, on account of it being a nice place for cityfolk to buy a holiday home as part of their retirement plan.  When it becomes apparent that 2nd homes are a crap investment, and they all start selling...  I'm expecting a bloodbath.  Presently following the roadmap to try and build a sum to maybe buy one of these chocolate box cottages in several years time.  Bonus, if someone proves sea-level rise, the beachfront ones become unmortgageable, with me a cash buyer, (I believe I've the skills to waterproof it, don't intend selling.)

[ashestoashes]

21 hours ago, Democorruptcy said:

Are you suggesting anything above £1k must be reported? Even if your total income is below the 20% tax threshold?

the interest is reported to the gov and they make a calculation for you or may phone you up

[BearyBear]

22 hours ago, Democorruptcy said:

Are you suggesting anything above £1k must be reported? Even if your total income is below the 20% tax threshold?

If you fill in self assessment you'll be asked how much interest you've received from savings, see the link:

https://www.gov.uk/apply-tax-free-interest-on-savings

If you don't have to do SA, HMRC does the calculation themselves.

btw. having multiple saving accounts I tend to put estimates into my SA and was never questioned... probably because I have never hit the threshold so they don't care.

[Democorruptcy]

8 hours ago, Durabo said:

https://mobile.twitter.com/JamesChildEG/status/1176041836655403008?ref_src=twsrc^tfw|twcamp^tweetembed|twterm^1176041836655403008&ref_url=https%3A%2F%2Fwww.bbc.co.uk%2Fnews%2Flive%2Fbusiness-49770809

20 mil sq feet of retail space lost since 2018 following the collapse of Thomas Cook. Hopefully not long now!

Coinciding with a time that Councils have decided to use our money to buy lots of shopping centres at prices that are probably way too high at the moment.

[Democorruptcy]

2 hours ago, Bricks & Mortar said:

I'm out rural, about 90 minutes from Edinburgh.  Have followed previous downturns in housing.  I'd expect Edinburgh to lag the South-East by some time, and my own wee village to lag behind even Edinburgh.  Sometimes the lag is long enough that a small downturn in the South East of England hardly grazes Edinburgh, maybe doesn't even effect us at all, so far from the hotzone.   Anecdotal from here is everything still going like a fair, albeit on reduced transactions.
But, the prevailing view on this thread, is the housing downturn will be with us for some considerable time.  It'll get to Edinburgh eventually, and finally out here.   Locally, I estimate we've a median wage about £20K, and an average house price at £225K, on account of it being a nice place for cityfolk to buy a holiday home as part of their retirement plan.  When it becomes apparent that 2nd homes are a crap investment, and they all start selling...  I'm expecting a bloodbath.  Presently following the roadmap to try and build a sum to maybe buy one of these chocolate box cottages in several years time.  Bonus, if someone proves sea-level rise, the beachfront ones become unmortgageable, with me a cash buyer, (I believe I've the skills to waterproof it, don't intend selling.)

It's not about "a wage" anymore is it? It's about household income mortgages. The 4.5x Joint Income triples prices compared to 3x Main plus 1x Second. The banks won't be happy until all the houses that were bought with one income are re-sold to people using two incomes.

[Democorruptcy]

Amerman:

The Surprising Advantages Of Investing In Gold, A 50 Year Historical Analysis

 

[BearyBear]

Not sure if it was posted before... back to Repo up to $75b per day

https://www.newyorkfed.org/markets/opolicy/operating_policy_190920

 

[Hardhat]

https://woodfordfunds.com/words/blog/fund-suspension-update-23-september-2019/

Woodford picking up a few reflation faves?

"Progress is being made to reposition the fund into a much more liquid portfolio. To date, 84% of the proceeds from share sales made to reposition the portfolio since the suspension have been reinvested in FTSE 100 companies. As the fund’s interim report to 30 June 2019 highlights, these include new investments into FTSE 100 companies, Imperial Tobacco, BT and IAG."

He also picked up BAT.

Looking through the report he sold over four times the IMB he purchased though...

[Noallegiance]

3 hours ago, BearyBear said:

Not sure if it was posted before... back to Repo up to $75b per day

https://www.newyorkfed.org/markets/opolicy/operating_policy_190920

 

Wow.

This is the kind of signal that tells this internet nobody that shit's about to get real.

What is it about Sept-Nov and calamity?!

[Sugarlips]

Margin debt and recent market peaks:

https://www.advisorperspectives.com/dshort/updates/2019/09/23/margin-debt-and-the-market-down-6-2-in-august

[Errol]

I think there is a big American bank in trouble and we just aren't being told.

[Bear Hug]

3 hours ago, Hardhat said:

https://woodfordfunds.com/words/blog/fund-suspension-update-23-september-2019/

Woodford picking up a few reflation faves?

"Progress is being made to reposition the fund into a much more liquid portfolio. To date, 84% of the proceeds from share sales made to reposition the portfolio since the suspension have been reinvested in FTSE 100 companies. As the fund’s interim report to 30 June 2019 highlights, these include new investments into FTSE 100 companies, Imperial Tobacco, BT and IAG."

He also picked up BAT.

Looking through the report he sold over four times the IMB he purchased though...

Will he be used as a contrarian indicator with someone shorting anything he touches?  I'll then buy some Imperial Tobacco.

[DurhamBorn]

45 minutes ago, Errol said:

I think there is a big American bank in trouble and we just aren't being told.

Id take a guess City Bank.Endeavour Silver put on 10% today.