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


spunko

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1 hour ago, Fully Detached said:

Yes, exactly - the bit in bold is the bit we don't know about yet. Common sense would say that nobody in their right mind would borrow in the upcoming climate, but given the covid-19 forgiveness trend and the never ending capacity for joe public to completely bewilder me, I'll be keeping a close eye on take-up.

This is less about debt, certainly consumer debt.  They will just give people money under various covers.  That £50k will be written off.  More to follow.  The justifications will be as fake as that one but money will get to those who will spend it rather than hoard it in assets.  And if they try to hoard then there is repression, regulation, and religion (pot banging, clapping social nudging). 

But personal debt is not where the real action is.  That's corporate debt.  The government, etc are shite scared of unemployment more than ever.  Personal spending does relatively little if what people buy is foreign made.  Companies will continued to be supported by similar scams. We may get a few public assets of dubious worth in both cost and function/quality but that'll be a bonus. Just look at new builds.  The government, etc don't care as long as the activity happens.  Government, etc all have process driven mindsets, they have never built anything in their lives and eff up when they try.

And low rates are dubious as that depends on credit spreads which could be massive.  So the government will either have to bypass the institutions and/or underwrite all the risk.  A bank is currently boasting about the amount of funds it is using to support business ATM.  Surely a complete joke.  It's underwritten so not really their money but ours through taxation and/or printed inflation.

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Fully Detached
2 minutes ago, Harley said:

This is less about debt, certainly consumer debt.  They will just give people money under various covers.  That £50k will be written off.  More to follow.  The justifications will as fake as that one but money will get to those who will spend it rather than hoard it.

But personal debt is not where the real action is.  That's corporate debt.  The government, etc are shite scared of unemployment.  Personal spending does little if what people buy is foreign made.  Companies will continued to be supported by similar scams. 

And low rates are dubious as that depends on credit spreads which could be massive.  So the government will either have to bypass the institutions and/or underwrite all the risk.

A bank is currently boasting about the amount of funds it is using to support business ATM.  Surely a complete joke.  It's underwritten so not really their money but ours through taxation and/or printed inflation.

Apologies if I'm slow to catch on to your meaning, but it's Sunday and I had a good night last night :D

Does that mean then that we're looking at wage inflation, which will surely speed the velocity of all this giveaway cash still further? If I am understanding your comments on corporate debt, then the govt will support zombie businesses via shall we say, encouraged bank loans, perhaps particularly those manufacturing in the UK, so that unemployment remains low and people have money to spend. And in a world where globalisation has taken a sudden and perhaps irreversible hit, that all spells wage inflation to me, although on that I can see the time frame being years rather than months.

Couple that with banks that - according to James Ferguson - have a need to lend to create profitable assets, and we're looking at one bloody nasty genie coming out of the bottle, but this time with zombie businesses being an additional middle man, instead of it being the just banks like last time, when they went balls deep into mortgage lending?

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jamtomorrow
25 minutes ago, sleepwello'nights said:

This is the reason why most of us go to work; human nature. I cannot see any alternative. Currently those that go to work are supporting more and more who have no work available or who choose to rely on the support of the taxpayer. This is breeding resentment. Hence the disparagement towards the benefit classes. It is also becoming recognised that benefits aren't just paid to the low skilled, the lazy or those gaming the system but also to the owners of capital. The complaints against BTL owners on here and TOS are recognition that housing allowances ostensibly paid to the benefit classes are in effect being paid to landlords, many of whom were wealthy in their own right long before the legislative changes to the rental sector in the 1990s.

The nature of work has changed in that there are more and more "service sector" non-jobs growing to fill the vacuum the disappearance of real jobs has left. 

Economists promoting a citizens income (CI) hypothesize that it can be achieved by making the population owners of shares in the productive companies and industries and that the CI is their dividend receipts. It might sound theoretically possible but history shows us that it doesn't work. The aristocracy in Rome grew their wealth from the exploitation of the populace. The widows of soldiers killed in wars couldn't survive on the land they owned and had to sell it and find other means of support. Over time two classes emerged the plebians and the patricians.

Communism was another attempt more recently that failed as we know. You pretend to pay us and we pretend to work. Money is an illusion but one we need.

I'd be interested to hear of a conceptual leap that overcomes the problems inherent in devising an alternative to exchanging your labour for compensation.

Couldn't have put it better @sleepwello'nights

I added the "then reconfigure anyway" bit in brackets mainly because I'm an optimist. But you're right, history is littered with failed attempts, so maybe things just get nasty, The End. It would explain the Fermi paradox.

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1 hour ago, Fully Detached said:

Apologies if I'm slow to catch on to your meaning, but it's Sunday and I had a good night last night :D

Does that mean then that we're looking at wage inflation, which will surely speed the velocity of all this giveaway cash still further? If I am understanding your comments on corporate debt, then the govt will support zombie businesses via shall we say, encouraged bank loans, perhaps particularly those manufacturing in the UK, so that unemployment remains low and people have money to spend. And in a world where globalisation has taken a sudden and perhaps irreversible hit, that all spells wage inflation to me, although on that I can see the time frame being years rather than months.

Couple that with banks that - according to James Ferguson - have a need to lend to create profitable assets, and we're looking at one bloody nasty genie coming out of the bottle, but this time with zombie businesses being an additional middle man, instead of it being the just banks like last time, when they went balls deep into mortgage lending?

I'll talk softly then!  Pretty much yes, except maybe wage inflation.  Inflation is a monetary phenomenon.  Increases in money supply without commensurate increases in productivity (real per capita growth not our phoney stuff) means more money chasing the same goods.  So the unit value of money falls.  That may cause wage inflation where people have jobs and power.  There has been no power for over a decade and real wages have suffered.  There will be no jobs soon unless the government does more of what it has been doing with corporate benefits.  The gatekeepers and owners of capital will do well though but are few in number.  This is Imperial Rome.  Bread and circuses into destruction.  And as an aside, if there was any time a virus should have a latin name it is now!

PS:  And not years.  Serious stuff will start to happen in months.  "Years" is our coping strategy. 

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16 hours ago, Errol said:

People will be saving more now, not spending.

The three R's - regulation, repression, religion.  People will only save if they are allowed to, can afford to, and are not socially nudged and outed if they do.

  

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jamtomorrow
3 minutes ago, Harley said:

The three R's - regulation, repression, religion.  People will only save if they are allowed to, can afford to, and are not socially outed if they do.

  

A BIP39 crypto seed is only 12 everyday words and can be carried in your head (and the heads of your nearest and dearest). Just sayin

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Fully Detached
37 minutes ago, Harley said:

I'll talk softly then!  Pretty much yes, except maybe wage inflation.  Inflation is a monetary phenomenon.  Increases in money supply without commensurate increases in productivity (real per capita growth no our phoney stuff) means more money chasing the same goods.  So the unit value of money falls.  That may cause wage inflation where people have jobs and power.  There has been no power for over a decade and real wages have suffered.  There will be no jobs soon unless the government does more of what it has been doing with corporate benefits.  The gatekeepers and owners of capital will do well though but are few in number.  This is Imperial Rome.  Bread and circuses into destruction.  And as an aside, if there was any time a virus should have a latin name it is now!

PS:  And not years.  Serious stuff will start to happen in months.  "Years" is our coping strategy. 

Hmm, interesting - thanks. Seriously considering this morning releasing wife's pension and buying more gold with it, potentially adding another 10k from ISAs. That would take us to approx 25% of our total in gold, with 50% in index linked savings certs and 25% in land and crypto. Apart from the land that would leave us quite liquid and ready to buy a house in the next few months. Then the strategy would be to offset the land and the gold against a mortgage so we hold some debt in the portfolio as well. Which hopefully would be paid off by increasing value of gold and land when the inflation kicks in.

I fucking hate this economy. All I wanted was a quiet life where I could save and live responsibly in peace and quiet. Instead I'm faced with the choice of becoming a gambler or just dropping my trousers and take a butt-fucking.

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15 minutes ago, Fully Detached said:

I fucking hate this economy. All I wanted was a quiet life where I could save and live responsibly in peace and quiet. Instead I'm faced with the choice of becoming a gambler or just dropping my trousers and take a butt-fucking

Amen bro

This shit that is really kicking off in the 'land of plenty' has been brewing since 2008 and they bailed out the bankers imo.......eat the rich anyone? xD

 

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42 minutes ago, jamtomorrow said:

BIP39 crypto...just saying.

Well said!  I want as many tools as possible in my currently bare toolshed!  Surely Bitcoin is not a question of if but how much in asset % terms.

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Just now, 5min OCD speculator said:

This shit that is really kicking off in the 'land of plenty'

Interesting comments I saw on ZH

Quote

 

Let me tell the average ZH poster what is going on, from my own experience. I was 16 when the Tottenham riots erupted. I lived in Hackney, the neighbouring borough. The local burglars, thieves, and the smarter guys who robbed warehouses etc, were talking.

They said "there is no police about, as they are all in Tottenham" The penny didn't drop at first until one of them said "Matt, you want to make some money? We're going to rob the Rumbelows warehouse(electronic goods), then the lead from the scrap metal, and builders yard" 

Me being a *****, I said no, because that was not my scene. Other guys were preparing to go Hampstead, and Bishops Avenue to do burglaries they've planned, and agrivated burglaries if necessary, because some of them were home alarm fitters, and new the antiques, and wealth was placed. This group thought warehouse robbery was beneath them, as far larger sums were to be made from antiques.

Behind the world TV images of the USSA burning, there are a whole host of opportunists, and professionals taking advantage. Only idiots will be looting Footlocker, and Target stores. Believe me, the real stealing is not being done by rioters.

 

Quote

Stupid rioters. They are being set up and encouraged to commit acts of violence. Seriously a pallet of bricks was left on the street in Atlanta. Get ready for lockdown 2.0 people.

 

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The government, etc must look at the US riots the same way they looked at Ferguson's data.  They will splash the cash to those able to cause the most problems.  The poor, feckless, and reckless.  Stolen from the others, the silent minority, bar the insiders of course.  Fairness and tomorrow be damned.  

PS:  It's the number of rioters holding phones taking videos that stood out to me.  Says a lot.  This is funfair time still, even if a man is dead.  Senselessness needs no sense.

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10 hours ago, DurhamBorn said:

My prediction is that a 40/60 or 20/80 pension entering drawn down from next year with 2% fees and 4% draw down will empty to nothing over 10/12 years.

Please could you give me your thoughts on this.  Obviously I will take it as information only, not advice.

https://www2.trustnet.com/Factsheets/FundFactsheetPDF.aspx?fundCode=Q6F48&univ=U

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51 minutes ago, Fully Detached said:

Hmm, interesting - thanks. Seriously considering this morning releasing wife's pension and buying more gold with it, potentially adding another 10k from ISAs. That would take us to approx 25% of our total in gold, with 50% in index linked savings certs and 25% in land and crypto. Apart from the land that would leave us quite liquid and ready to buy a house in the next few months. Then the strategy would be to offset the land and the gold against a mortgage so we hold some debt in the portfolio as well. Which hopefully would be paid off by increasing value of gold and land when the inflation kicks in.

You hit my current nail on its head.  What asset portfolio model to go for?  I'm a fan of the Permanent Portfolio for wealth preservation but the 25% bond allocation is an issue.  As is just 25% precious metals and 25% cash.  A voice is telling me I need to be a bit imaginative about how I look at things and go back to the core principles behind the model to work that one through  I already see the precious metals allocation as more "hard assets" so that could include land (but not your house which is a chattel not an investment).  I also see the cash allocation as including Bitcoin and other currencies but need to think of others.  The equity allocation is fine as long as the right sectors (no indexing, although with this portfolio that eases somewhat).  But bonds?  A few would be OK given the other allocations and risk I'm wrong but surely not 25%.  I need to think some more.  Plus in all this I'm running a risk of remaining in the burning building with notions that one asset class will compensate for another - nothing is necessarily written regardless of the past!

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3 hours ago, sleepwello'nights said:

Can't square that with the turmoil the US created in the Middle East.

Does anyone hear anything about Bush and co anymore?  Is Bush still alive and has he retreated to that massive ranch in South America with the rest?  Wars go on but lower key through proxy and more clearly directly for economic/business ends (no need to BS when it's all covert).  Not so much the old nation proxy but the private security, cyber, and economic proxies.  Some people are making some serious money right now while some monkeys are doing it for peanuts.  Depends on who you are and who your client is.

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Talking Monkey
11 hours ago, Harley said:

They will go fiscal mad.  They started with the £50k loans (to be written off), etc and do not care about fairness, winners, losers or the principles on which a lasting currency is based (store of value, etc).  They just want to pump money into the system, increase velocity, and have inflation.  They will continue their new regulatory zeal to make people spend until almost Weimar like, people need no encouragement.  Cash, Sterling particularly, is trash.  Has been particularly since 2008 but this is an escalation.  They will have inflation and yes, soon.  But liquidity is not solvency and this money printing virus will rip through the economy destroying good and bad.  I last felt like this in 2009 and with QE.  I said then cash was trash and I was right but stupid not to act enough.  I face this same danger again.  It's hard to act but at least, having already suffered this last decade, I'm totally clear.  This is the end of "money".

I look at it as less Sterling is toast more all currencies are toast. I too wish I had got my act together after GD1

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21 hours ago, MrXxxx said:

Exactly what I did..never ending reading rather than starting to invest..."Just one more article/book"..you only really start learning when you have `skin in the game`!

I seem to be on the upside of a U curve!  Or it could be that we are at a critical juncture where we need to step back and do some strategic thinking so all good views welcomed.  Sometimes "More money is made in the thinking than in the doing" is true.  For me, needs a dual and balanced approach, as with most things.   

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DurhamBorn
42 minutes ago, Loki said:

Please could you give me your thoughts on this.  Obviously I will take it as information only, not advice.

https://www2.trustnet.com/Factsheets/FundFactsheetPDF.aspx?fundCode=Q6F48&univ=U

Its pretty much a 40/60 lifestyle type fund.Only difference is they seem to hold a decent wedge of cash and a few other assets.I worry that these funds will struggle in an inflation cycle.They might manage to stay level,but with fees and a draw down amount of 4% they will still empty quite quickly.Most people hold them through IFAs and they tend to charge between 1.5% and 2.2% fees on top.2.2% fees on a fund holding over half in bonds yielding less than that doesnt look a good idea to me.

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Fully Detached
21 minutes ago, Harley said:

You hit my current nail on its head.  What asset portfolio model to go for?  I'm a fan of the Permanent Portfolio for wealth preservation but the 25% bond allocation is an issue.  As is just 25% precious metals and 25% cash.  A voice is telling me I need to be a bit imaginative about how I look at things and go back to the core principles behind the model to work that one through  I already see the precious metals allocation as more "hard assets" so that could include land (but not your house which is a chattel not an investment).  I also see the cash allocation as including Bitcoin and other currencies but need to think of others.  The equity allocation is fine as long as the right sectors (no indexing, although with this portfolio that eases somewhat).  But bonds?  A few would be OK given the other allocations and risk I'm wrong but surely not 25%.  I need to think some more.  Plus in all this I'm running a risk of remaining in the burning building with notions that one asset class will compensate for another - nothing is necessarily written regardless of the past!

I think for me I need an allocation that I can understand and interpret reasonably well, which in reality for me means simple shit. I've spent so much time in the past trying to "get" stocks and bonds etc, but I know that I don't have the interest or skills to keep an appropriate eye on them or possible warning signs that I need to get out.

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Talking Monkey
11 hours ago, DurhamBorn said:

Yes,they are simply pumping liquidity.Those £50k loans free money to any Ltd are the real disgusting bit.A factory worker might get that in his pension after 15 years of graft.They are destroying the connection (what was left of it) between working and not.Im thinking 25% inflation is now a real risk by 2028/30 and above 12% almost certain.The key is though that they are walking into a trap.As soon as inflation gets over around 4% the BOE will stop printing.The FED will likely stop when around 3%.Thats the point the squeeze starts to bite on the government.They have a 12 month window on a lag.

For myself iv got the whole family covered now and have been very happy with the turn so far,though any messing with the pension age for SIPPs would hurt going forward as my assets are now weighted to my SIPP.

We have a situation where the half of the population who are fleeced to pay for the other half are about to be rinsed.The government will simply ramp spending up and up.There is no other way out for them.

My prediction is that a 40/60 or 20/80 pension entering drawn down from next year with 2% fees and 4% draw down will empty to nothing over 10/12 years.

Commods will keep up and more with inflation due to the structure of the coming cycle,and its critical for people to own the areas that can leverage those assets.

Im really missing being able to buy the likes of SILJ and URA as well.Mid cycle is going to get very interesting as mortgage rates get to 5%+,every HTB without over payments is in negative equity and on SVRs and the CB are trying to pull back inflation,but due to massive leverage in the economy are behind the curve all the way.

Sterling could put on 10% though before it heads lower again.Never linear.

DB are those 50K loans really free loans surely they have to be paid back and simply winding up the ltd company cant mean they get out of repaying. 50K is a huge amount of money thats half an ok 3 bed semi in Yorkshire

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Talking Monkey
11 hours ago, DurhamBorn said:

Yes,they are simply pumping liquidity.Those £50k loans free money to any Ltd are the real disgusting bit.A factory worker might get that in his pension after 15 years of graft.They are destroying the connection (what was left of it) between working and not.Im thinking 25% inflation is now a real risk by 2028/30 and above 12% almost certain.The key is though that they are walking into a trap.As soon as inflation gets over around 4% the BOE will stop printing.The FED will likely stop when around 3%.Thats the point the squeeze starts to bite on the government.They have a 12 month window on a lag.

For myself iv got the whole family covered now and have been very happy with the turn so far,though any messing with the pension age for SIPPs would hurt going forward as my assets are now weighted to my SIPP.

We have a situation where the half of the population who are fleeced to pay for the other half are about to be rinsed.The government will simply ramp spending up and up.There is no other way out for them.

My prediction is that a 40/60 or 20/80 pension entering drawn down from next year with 2% fees and 4% draw down will empty to nothing over 10/12 years.

Commods will keep up and more with inflation due to the structure of the coming cycle,and its critical for people to own the areas that can leverage those assets.

Im really missing being able to buy the likes of SILJ and URA as well.Mid cycle is going to get very interesting as mortgage rates get to 5%+,every HTB without over payments is in negative equity and on SVRs and the CB are trying to pull back inflation,but due to massive leverage in the economy are behind the curve all the way.

Sterling could put on 10% though before it heads lower again.Never linear.

DB  other than moving the age when one can access the SIPP, what are your opinions on other shenanigans that the government could do eg dictating what one can hold in a SIPP or ISA to outright confiscation of part or all of the SIPP via taxation to nationalisation

 

10 hours ago, JMD said:

I thought the Money Week James Ferguson podcast was excellent. Perhaps Ferguson is right and CV19 was a black swan type event that the CBs didn't let go to waste. It struck me as curious how that from the start the Italian doctors referred to the CV19 epidemic as them fighting a 'war'. I have mentioned several times here, my own cynicism and alarm over CV19, the over-the-top government policy responses, etc. However, if this pandemic 'is the war' (figuratively speaking), as opposed to having to endure a real hot war (re 4thTurning theories, etc, i.e. catastropihic event in order to generate mass social disruption, inflation), then I think I'd gladly take it!                                                                                                                                                                                                                                                                       And no, I don't think I'm being callous here as I believe that the so called excess deaths statistics will show that CV19 is no more serious than other Corona viruses. But if any of this is even part true, then I think it would be wise to spend much time anticipating the type of unique future societal effects, government policies, financial costs, geo-political/macro trends, that are sure to result from this health crises. 

This whole thing seems like a very sophisticated manipulation using a cascade effect where a handful of people have nudged the next layer down but also sowed the seeds in that first layer down on how to nudge the next layer down. The thing was peaking before lockdown and has been nothing more than a bad flu year

The ridiculous use of war language really hit me as totally strange. 

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DurhamBorn
3 hours ago, Fully Detached said:

Yes, exactly - the bit in bold is the bit we don't know about yet. Common sense would say that nobody in their right mind would borrow in the upcoming climate, but given the covid-19 forgiveness trend and the never ending capacity for joe public to completely bewilder me, I'll be keeping a close eye on take-up.

Doesnt matter.This isnt a consumer driven cycle coming,its an industrial one.Government will seed the spending then velocity will do the rest.Its like the people calling for the death of oil/energy because we will see less car use.That is tiny compared to the amount of energy going into the industrial side of the economy.

Worldwide we are going to see countries doing the same.China has started already,iron ore is moving and the stocks are going down.They are allowing local government to issue massive amounts of bonds,those tend to be for infrastructure.

Here government is borrowing for consumption at the minute,and thats why i expect we have only seen half the printing coming.

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29 minutes ago, Talking Monkey said:

DB are those 50K loans really free loans surely they have to be paid back and simply winding up the ltd company cant mean they get out of repaying. 50K is a huge amount of money thats half an ok 3 bed semi in Yorkshire

You cant "wind up" a Ltd company without clearing any debts owed, the only way you can do that otherwise is bankruptcy.

Problem with that is the Administrators are tasked with finding out if the Directors did any wrongdoing in the run up to going bust, this would most definitely include £50k of taxpayers money making its way into their bank account and being converted in a Range Rover!  I haven't seen the terms and conditions, but i'm willing to bet the only way to really get away with the £50k in the long run is move all assets out of the UK and never return for the rest of your life.  Lot of people are going to find they owe HMRC a lot of money....

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DurhamBorn

 

 

47 minutes ago, Talking Monkey said:

DB are those 50K loans really free loans surely they have to be paid back and simply winding up the ltd company cant mean they get out of repaying. 50K is a huge amount of money thats half an ok 3 bed semi in Yorkshire

My uncle owned/director of a building company.He paid himself a big salary and paid massive amounts into his pension.At 49 he put the business into liquidation and all the suppliers he owed etc got about 4p in the £1.A year later he could access his pension and has lived the high life ever since .A lot/most of those loans will end up never paid back and likely inside peoples pensions.At every turn the government are stealing from ordinary workers/savers.

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14 minutes ago, Majorpain said:

Lot of people are going to find they owe HMRC a lot of money.

Aka their house!  And it takes a Liquidator/Administrator to tell you what your house and other assets are not worth!

But that assumes HMG wants the money back.  I doubt they care as they just want to spunk money right now.  Maybe they'll just roll the debt forward until it's not worth enough to chase.  It certainly won't be worth much in a few years time, even in sterling terms. 

Same with student debt and all the other schemes to come.

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1 hour ago, Fully Detached said:

I think for me I need an allocation that I can understand and interpret reasonably well, which in reality for me means simple shit. I've spent so much time in the past trying to "get" stocks and bonds etc, but I know that I don't have the interest or skills to keep an appropriate eye on them or possible warning signs that I need to get out.

That is more sane, clever, and robust that most appreciate.  Decomplex, at least in part, off the financial grid.  Even Jim Rogers said only invest in what you understand but that approach is even more robust.

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