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

[wherebee]

22 minutes ago, Transistor Man said:

Having done this, I wouldn’t be that surprised if he buys it outright.

It’s always been his preferred option. If that’s what he does with the Apple money ......

The significant thing is not what he is buying

The significant thing is the hundreds of thousands of small investors that follow his moves and pile in after him whatever he buys.  They think that they might as well ride some of his happy train on the roof if they cannot sit in first class.

So - be prepared for a wave of investors into gold miners.  right or wrong.

[DoINeedOne]

 

[DurhamBorn]

21 minutes ago, DoINeedOne said:

 

I did say they would inject direct into the economy.

Massive inflation building in the system now.Very likely we get a generational switch into commodity companies and cyclicals.The Fed is trying to force people to invest and/or spend savings to get velocity moving by flattening the curve and holding it.Expect them soon to change inflation policy to highlight they are happy for more that 2%.To de-lever i think they plant to run inflation higher than rates for the cycle,chasing,but never quite getting on top of things.

They have printed back over half the dis-inflation since 82 now so my road map is showing 8% inflation peak,but they arent done yet,12% to 17% peak cycle inflation looks a more than 50% chance.Cycle inflation on the road map is at 68%,but over 100% a maybe.40/60 draw down portfolio with 2% fees anyone?

 

[Castlevania]

I give up

[Shamone]

13 hours ago, DurhamBorn said:

And there was us loading up in March on those commod stocks as soon as we saw the dollar bounce off 100 as the Fed pumped enough to remove systemic risk.Its incredible really how few people actually understand lags etc from the CBs.Its almost like momentum and passive are all that counts.Hopefully people on here are up 100% on Mosaic.I love Nutrien for the cycle.Not the massive upside potential of Mosaic,but a quality company in a fantastic niche.We might get 150%+ out of it over the cycle.

Disappointed I missed out on mosaic, might still get a bit. Did get some K+S so fingers crossed they don’t go bust.

[Loki]

Same boat here @Shamone

[Shamone]

1 hour ago, Cattle Prod said:

I'll be interested to see if they keep the CPI element of the pensions triple lock. It's the only element that matters now. I'm guessing that they don't want mass poverty and starvation among pensioners, but after the way they have handled lockdown, who knows?

Im thinking that state pension will be the last to be touched. Means tested possibly? So many easier targets to go for.

[Shamone]

2 minutes ago, Loki said:

Same boat here @Shamone

We will sink or swim together!

[M S E Refugee]

Eric Sprott's investments.

[DurhamBorn]

https://www.thetimes.co.uk/edition/business/shell-looks-to-inflate-case-for-generating-power-offshore-7qkrktcx0

Away from the MSM big oil is dead mantra we are in a once in a generation chance to buy commodity stocks at insane prices just before their biggest bull run in decades,maybe ever.

When oil hits $100 then $200 the big boys will be buying back massive amounts of shares and taking over most of the next gen energy space.

Once people understand what the Fed is actually telling them along the curve there will be a shift to these areas,and then a rush,then a parabolic rise late in the cycle.

 

 

 

[janch]

14 hours ago, M S E Refugee said:

https://www.google.com/amp/s/ca.finance.yahoo.com/amphtml/news/warren-buffett-buy-barrick-gold-201428776.html

Strange move from someone who doesn't see any value in Gold.

Seems he's changed his mind about banks too:

 

Berkshire exited its stake in Goldman Sachs (GS), selling the remaining 1.9 million shares, the filing shows.

During the quarter, slashed its positions in financials, including Wells Fargo.........

 

Yet in the quote further up the page:

 

I think Wells Fargo will be making a lot of money.............

[MrXxxx]

6 hours ago, wherebee said:

The significant thing is not what he is buying

The significant thing is the hundreds of thousands of small investors that follow his moves and pile in after him whatever he buys.  They think that they might as well ride some of his happy train on the roof if they cannot sit in first class.

So - be prepared for a wave of investors into gold miners.  right or wrong.

Exactly, and when enough passengers have joined him on the train he will step off at the last minute, and bid them "Bon voyage" from the platform for a safe journey!

[MrXxxx]

6 hours ago, DoINeedOne said:

 

I hope he`s not sending them through the post :-)

[MrXxxx]

4 hours ago, Cattle Prod said:

I'll be interested to see if they keep the CPI element of the pensions triple lock. It's the only element that matters now. I'm guessing that they don't want mass poverty and starvation among pensioners, but after the way they have handled lockdown, who knows?

Be rather ironic if they have trashed the UK economy via their Covid policy to save them, only to end up starving them to death by such an action!

[Shamone]

36 minutes ago, Cattle Prod said:

Maybe, but it doesn't really need to be touched. Most people don't understand CPI, and will be happy with 2% or wages. Boiling frogs.

In a more general sense, to DBs point, I think most people just won't realise their pensions are dissapearing. They'll see the pot going up a little every year, and not think ahead as to what it might end up buying them. Then they'll cash out their 25% and realise it won't get them a Ford Fiesta, and it'll be too late.

The other element of having 63-100% inflation over the cycle is: will wages keep up this time? You could argue that stronger unions forced them to in the 70s, and I think that's less likely this time around. Unless you're in the public sector of course. There will be a major divide between the public sector "I'm all right Jack" inflation protected wages and pensions, and the private sector, who are going to get even more buggered. Where is the breaking point? I'm already at tax revolt stage myself, like many here, I wonder how many else feel the same way. The about turn in government signals in working from home may be to do with this.

I was talking to a friend in one of the top City investment firms today. Decent level, six figures etc. If he keeps his job after a redundancy round, wfh permanently is going to be the encouraged option. He's busy looking at making himself tax resident in Portugal. Wfh has opened up this option for hundreds of thousands of medium to high earners, previously only available to the private jet types. A fleet of them fly over me every Sunday to Farnborough to get back to the office for Monday. Now, no one of even moderate means has to do that. Getting a Ryanair out on Friday night back on Sunday was always too tight. Heading off on Wed night back to London on Monday evening for 2 days in the office: not a problem. This must be scaring the living shite out of the government: if the top 5% of earners (~ > £80,000) pay half of all income tax, all the ones who can wfh can afford to do what I described. So a huge proportion of the tax base is now a serious flight risk. Its happening right now in New York: the mayor is literally begging for the rich people fleeing the city to come back as his tax base is falling to pieces. 70s all over again. 

So Sunak better be careful about putting up taxes. An increasing number of people are becoming aware that the Covid money was not borrowed from any little old ladys pension via gilts, but just typed out on a keyboard at the BOE. Why the hell should my labour be used to "pay that back"? Being forced on pain of imprisonment to hand over a % of your labour to repay something made out of thin air is indeed a form of slavery. Ill be off to Portugal or Greece before that happens. There is a silent war for taxes going on I think, and is likely to become a noiser feature of this cycle. It's one race to the bottom I wholeheartedly support!

Sorry, bit of a rant, but relevant to the thread I think:  the only solution to keeping taxpayers from fleeing ir downing tools while keeping the public sector up with inflation is to leave tax alone and just get more dosh from the BOE. Sunak has sent up his trial balloon, I'm very interested to see if he follows up with tax hikes.

Edit: 

I just saw that Schroeders has publically announced permanent working from home. I wasnt talking about them, but another bigger firm. So that's two. And if it's two, it's most of them. Big change coming whether they like it or not!

https://www.dailymail.co.uk/news/article-8630359/500bn-city-investment-firm-tells-staff-work-home-permanently.html

Excellent post, sir. 

[Shamone]

39 minutes ago, Cattle Prod said:

Maybe, but it doesn't really need to be touched. Most people don't understand CPI, and will be happy with 2% or wages. Boiling frogs.

In a more general sense, to DBs point, I think most people just won't realise their pensions are dissapearing. They'll see the pot going up a little every year, and not think ahead as to what it might end up buying them. Then they'll cash out their 25% and realise it won't get them a Ford Fiesta, and it'll be too late.

The other element of having 63-100% inflation over the cycle is: will wages keep up this time? You could argue that stronger unions forced them to in the 70s, and I think that's less likely this time around. Unless you're in the public sector of course. There will be a major divide between the public sector "I'm all right Jack" inflation protected wages and pensions, and the private sector, who are going to get even more buggered. Where is the breaking point? I'm already at tax revolt stage myself, like many here, I wonder how many else feel the same way. The about turn in government signals in working from home may be to do with this.

I was talking to a friend in one of the top City investment firms today. Decent level, six figures etc. If he keeps his job after a redundancy round, wfh permanently is going to be the encouraged option. He's busy looking at making himself tax resident in Portugal. Wfh has opened up this option for hundreds of thousands of medium to high earners, previously only available to the private jet types. A fleet of them fly over me every Sunday to Farnborough to get back to the office for Monday. Now, no one of even moderate means has to do that. Getting a Ryanair out on Friday night back on Sunday was always too tight. Heading off on Wed night back to London on Monday evening for 2 days in the office: not a problem. This must be scaring the living shite out of the government: if the top 5% of earners (~ > £80,000) pay half of all income tax, all the ones who can wfh can afford to do what I described. So a huge proportion of the tax base is now a serious flight risk. Its happening right now in New York: the mayor is literally begging for the rich people fleeing the city to come back as his tax base is falling to pieces. 70s all over again. 

So Sunak better be careful about putting up taxes. An increasing number of people are becoming aware that the Covid money was not borrowed from any little old ladys pension via gilts, but just typed out on a keyboard at the BOE. Why the hell should my labour be used to "pay that back"? Being forced on pain of imprisonment to hand over a % of your labour to repay something made out of thin air is indeed a form of slavery. Ill be off to Portugal or Greece before that happens. There is a silent war for taxes going on I think, and is likely to become a noiser feature of this cycle. It's one race to the bottom I wholeheartedly support!

Sorry, bit of a rant, but relevant to the thread I think:  the only solution to keeping taxpayers from fleeing ir downing tools while keeping the public sector up with inflation is to leave tax alone and just get more dosh from the BOE. Sunak has sent up his trial balloon, I'm very interested to see if he follows up with tax hikes.

Edit: 

I just saw that Schroeders has publically announced permanent working from home. I wasnt talking about them, but another bigger firm. So that's two. And if it's two, it's most of them. Big change coming whether they like it or not!

https://www.dailymail.co.uk/news/article-8630359/500bn-city-investment-firm-tells-staff-work-home-permanently.html

Also, FWIW, my wife has been working from home since March. Quite a large environmental company. They don’t want anyone back at the office. Win win.

[DurhamBorn]

@Cattle Prod one of the great social policy mistakes of this cycle,started by the Tories by hollowing out industry and then given rocket fuel by Labour was making welfare equal ordinary job,or in many cases go beyond ordinary job.This was from two massive errors.First by allowing all the £25k to £30k jobs to go that ordinary guys could do.The mistake that compounded that was to give the woman that guy would of been with 30 years ago that very same £25k to £30k by not being with him and working 16 hours somewhere.

That folly is about to come home to roost.It could be the loss of tax from higher earners triggers huge reform,or simply the markets seeing the huge structural deficit.Government will go for easy targets at first,but im fully expecting they will merge NI and tax so they can smash pensioners for tax (and others with income from assets).Thats why i think its vital to structure to take £12.5k a year from a pension,be debt free and the rest from ISAs.

I expect councils are in for a massive shock.Once the cycle settles in people wont accept big council tax increases.How the government deals with that who knows.

What this lockdown has shown is well over half of the jobs being done nobody needs.Thats going to have an incredible affect.Inflation is coming hard.

[Popuplights]

8 hours ago, DurhamBorn said:

Away from the MSM big oil is dead mantra we are in a once in a generation chance to buy commodity stocks at insane prices just before their biggest bull run in decades,maybe ever.

I'm balls deep in RDSB. 20% down on my holding, as I had a tranche I bought at 20 quid, but its a hold for me.

[sancho panza]

On 13/08/2020 at 14:28, sam1994 said:

Thanks to both of you.

I'll do some digging.

I also want to find out  what methods they use to measure inflation.. 

Decnt bit of info here.It's RPI .

I always like to point out that the BoE pension fund is 90% invested in linkers even though they keep telling us inflaiton is behind us.

https://www.vanguard.co.uk/documents/adv/literature/understanding-inflation-linked-bonds.pdf

[sancho panza]

On 14/08/2020 at 09:52, DurhamBorn said:

The nature of the crash hit the sector very hard,i own some in my ISA at £13.50 and Stagecoach at £1.37 so -50%.I did buy Go Ahead and National Express in March though,they doubled and i sold them in my SIPP.Iv several stocks down 50%+,but id take those all day long considering how many +100% we have nailed through this.Its why everyone should always have a maximum sector allocation.Its one reason i sold a lot of silver miners when they ran,i had full allocation in them before they moved so they became far too big an allocation after.

The fact everyone on here should actually be up from before this crisis hit is a stunning achievement really.Very few will be able to say that.Im working with a few guys who have gone back into employment because their pensions in draw down were hit so much in March.That will be a big story of the cycle.Pensions at best standing still nominal with 2% fees and 5% draw down pa,ouch.

We need to be careful with reference to this.I can't bring myself to sell any PM miners(I'm rotating the deck chairs around but that's it) and same with out oilies.Oilies haven't run yet but they will I think.

I currently carry-on my hand written notes- our PM mienrs at 20% roughly of portfolio value but if I actually worked it out,it'd be a lot higher.If I worked it out I'd be forced to sell some and I| probably shoudl.

22 hours ago, DurhamBorn said:

And there was us loading up in March on those commod stocks as soon as we saw the dollar bounce off 100 as the Fed pumped enough to remove systemic risk.Its incredible really how few people actually understand lags etc from the CBs.Its almost like momentum and passive are all that counts.Hopefully people on here are up 100% on Mosaic.I love Nutrien for the cycle.Not the massive upside potential of Mosaic,but a quality company in a fantastic niche.We might get 150%+ out of it over the cycle.

We need to build up our potash more.WE got into ptoash saskatchwan back in 2016/17 on a one off,got a first tranche Oct 2019 then second tranche March 2020.I agree NTR looks great here,MOS has run up a lot already.YARa,SQM,ICL<look good and SDF for the leveraged play of the bunch

[sancho panza]

12 hours ago, Castlevania said:

I give up

Why CV.......?

11 hours ago, Cattle Prod said:

Small and big investors, I think.

I can imagine an institutional investor now being able to say "...but Buffet has gone into Barrick" when his/her committee starts laughing at him for suggesting precious metals.

Agreed.This is a big moment in many different ways and bears with @MvR advice to not trade the PM miners if you can't get back in.We're looking at selling Fresnillo and buying EGO/BVN/NGD/RIO2

Buffet ditching banks incl Goldman,airlines and Occidental......................have you got a view on the latter CP,resoning ,price etc?

https://www.marketwatch.com/story/buffetts-berkshire-buys-gold-miner-barrick-slashes-wells-fargo-and-jpmorgan-stakes-amid-coronavirus-2020-08-14?mod=home-page

Warren Buffett's Berkshire Hathaway Inc. BRK.A, -0.58% BRK.B, -0.48% unloaded more than a quarter of its stake in Wells Fargo & Co. WFC, +1.11% and about 61% of its position in JPMorgan Chase JPM, +0.03%, while acquiring a new position in Barrick Gold Corp. GOLD, -0.55%, according to 13F filings with the Securities and Exchange Commission for the period ended Jun 30, that were released Friday afternoon. Berkshire's moves appeared to reflect a broad lightening of the conglomerates exposure to large-capitalization banks during the worst public health crisis in generations. Berkshire sold 85.6 million shares of Wells Fargo, representing about 26% of its stake and putting its ownership to about 3% from 5.3%. The insurance conglomerate also shed 35.5 million shares of JPMorgan, 61% of its position, which now represents 1% of Berkshire's overall portfolio from 3% in the prior period. Meanwhile, the investment firm acquired nearly 21 million shares of Barrick Gold worth $563 million, representing 0.3% of Berkshire's holding. Berkshire also reduced its holding in PNC Financial Services PNC, +0.66%, selling 3.85 million shares to cut its position to 0.3% from 0.5%. The insurance conglomerate boosted its stake in grocery chain Kroger Co. KR, +2.31% by 15%, purchasing 3 million shares. The report also showed that Buffett's firm dumped its entire stakes in Goldman Sachs GS, -0.20%, Occidental Petroleum Corp. OXY, +0.27%, as well as consummating an exodus of airline companies, including American Airlines Group Inc. AAL, +0.22%, Delta Air Lines DAL, +0.87% United Airlines UAL, +1.03% and Southwest Airlines Co. LUV, +0.54%. Berkshire didn't change its holdings in Apple Inc. AAPL, -0.08%, where the firm owns at 245.156 million shares.

10 hours ago, Shamone said:

Disappointed I missed out on mosaic, might still get a bit. Did get some K+S so fingers crossed they don’t go bust.

K+S offers some serious leverage to the price of fetilizer.We've got some,going to add more with the equity building in MOS/NTR/YARA/SQM/ICL

[Noallegiance]

Forgive me if I'm missing something here, but if I went round telling people that with a potential 100% inflation in the next ten years we should be worried, I'm not sure they'd be bothered. So, a loaf/milk/whatever staple costs up to twice as much in 10 years. I think people would respond with "It goes up anyway. So what?"

I understand the desire to be ahead of it, but most people will bumble along mentally unaffected, won't they? 

It's an important (self horn toot guilt) question as mental application and perception is THE thing in everything.

 

[Majorpain]

4 hours ago, Cattle Prod said:

I was talking to a friend in one of the top City investment firms today. Decent level, six figures etc. If he keeps his job after a redundancy round, wfh permanently is going to be the encouraged option. He's busy looking at making himself tax resident in Portugal. Wfh has opened up this option for hundreds of thousands of medium to high earners, previously only available to the private jet types. A fleet of them fly over me every Sunday to Farnborough to get back to the office for Monday. Now, no one of even moderate means has to do that. Getting a Ryanair out on Friday night back on Sunday was always too tight. Heading off on Wed night back to London on Monday evening for 2 days in the office: not a problem. This must be scaring the living shite out of the government: if the top 5% of earners (~ > £80,000) pay half of all income tax, all the ones who can wfh can afford to do what I described. So a huge proportion of the tax base is now a serious flight risk. Its happening right now in New York: the mayor is literally begging for the rich people fleeing the city to come back as his tax base is falling to pieces. 70s all over again. 

So Sunak better be careful about putting up taxes. An increasing number of people are becoming aware that the Covid money was not borrowed from any little old ladys pension via gilts, but just typed out on a keyboard at the BOE. Why the hell should my labour be used to "pay that back"? Being forced on pain of imprisonment to hand over a % of your labour to repay something made out of thin air is indeed a form of slavery. Ill be off to Portugal or Greece before that happens. There is a silent war for taxes going on I think, and is likely to become a noiser feature of this cycle. It's one race to the bottom I wholeheartedly support!

Excellent post, if i was to play devils advocate and go Malthusian, there are not enough resources to make enough productive work for the 6 Bn odd people on the planet.  Mix that with some automation for the lower skilled and what you should really see is the value of labour (wages) fall dramatically in a simple supply/demand equation, that will obviously go down like a lead balloon.  Its been covered up so far by drawing wealth from the future through debt, but that really isn't going to work forever, the market will eventually have its revenge (see silver).  

I completely agree that if any government doesn't keep an eye on this, they could wake up one morning and find a chunk of their projected tax base has buggered off to another domicile.  Its a risk at the minute so its not new, but if technology has started to quickly change the game then the government needs to act faster or it will end up in trouble.

[DurhamBorn]

23 minutes ago, Noallegiance said:

Forgive me if I'm missing something here, but if I went round telling people that with a potential 100% inflation in the next ten years we should be worried, I'm not sure they'd be bothered. So, a loaf/milk/whatever staple costs up to twice as much in 10 years. I think people would respond with "It goes up anyway. So what?"

I understand the desire to be ahead of it, but most people will bumble along mentally unaffected, won't they? 

It's an important (self horn toot guilt) question as mental application and perception is THE thing in everything.

 

Yes,but the big ticket items become much more expensive.That £250 a month lease car becomes £400 a month as rates increase.The fact they wouldnt be bothered is right,and thats why they are mostly poor/indebted.It matters though to people say 55 who lose their jobs and go into draw down and they are seeing inflation adjusted -4% a year +5% draw down +2% fees.

The fact nobody fears inflation anymore is why its so dangerous.

Plus for us we want to leverage that inflation so we can outpace it for our families.

[DurhamBorn]

@sancho panza i think K+S offers massive upside,but with elevated risk.If they can offload the US salt business and de-lever then they might do a 5x over the cycle.OCI NV is another that could multi bag,though they use natural gas so could be more early cycle than late.