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


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2 hours ago, DurhamBorn said:

dont actually think this is the right thread for people who worry about being down 10%/20% etc on individual stocks.I

Yep, some people fret too much or maybe like to moan. If one has done their homework, developed a strategy, they can be play the long game and do better things with thier life than constantly worry about not timing correctly. Even if they are basing it on themes of this thread, the homework needs to be done.

I read the posts and think, may be time to add more oil stocks.

This thread has never said it would go one way. An inflecting cycle isn't going to be a smooth change. We are talking huge changes in both monetary and fiscal policy. 

Keep up the good work DB

Edited by UnconventionalWisdom
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@Cattle Prod i think i speak for everyone when i say how thankful we are to have your superb knowledge of the oil sector on this thread and the way you gladly share that knowledge. The irony is m

Iv had a lot of direct messages lately asking what shares to buy etc and how to position.I simply havent had time to reply to them,and am unable to.Im not a financial advisor and to do it properly you

I knew the site had free thinkers and different skills.I hoped it would attract them to share their knowledge.I hoped it could be a place where everyone was welcome and could enjoy,learn and grow.I se

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3 hours ago, DurhamBorn said:

I dont actually think this is the right thread for people who worry about being down 10%/20% etc on individual stocks.I also cant understand how people can be down on portfolios here when silver miners trebled,as did most gold miners on here.Im only down 4% on BP after divis,12% on Shell 8% on Repsol etc,nothing.There are many stocks that have gone up over 100%.Mosaic nearly 200% for instance,DRAX 100%+,Playtech +200%,William Hill +200%,look at harmony Gold up 300%.Markets arent linear and sectors will run in their own times.

For myself i road map a cycle,and this one ahead is probably ending around 2028/30.My portfolio is designed to out run inflation.I see roughly 69% inflation over the cycle and i hope to match and outperform that.

Im hoping sectors like oil and a few others can stay down,or drift down more because divis are flowing in and i prefer to pay less for things i want,not more.

Are the goldies still good value, i missed alot of the cheaper stocks in march due to hopeless isa provider i had at the time.

Interested to know how you feel about GE energy stocks, they're very cheap at the moment.

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I will happily admit when i started on this journey of learning and following this thread on the other site i was of the mindset 

I have bought shares in XYZ now i want it to go to the moon (Quick Profits)

The price of something not going anywhere or dropping and @DurhamBorn talking about hoping the prices stays low for abit longer always makes me think of this part of the interview i always mention, not sure if he reinvested those dividends but the fact people were questioning why he owned it because the price did nothing

I know oil stocks have dropped but this part of the interview was a penny drop moment for me, maybe not others as i focused on the prices alot back then and sometimes still catch myself doing it working online doesn't help O.o

I just hope these prices stay like this so  i can add ISA money too in April

 

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17 hours ago, Transistor Man said:

@JMD

Plans for a £15-£20bn nuclear power plant in Wales have been scrapped.

Work on the Wylfa Newydd project on Anglesey was suspended in January last year because of rising costs after Hitachi failed to reach a funding agreement with the UK government.

https://www.bbc.co.uk/news/uk-wales-54158091

 

What happens next? I think the UK knows it needs this. It’s popular locally (very good jobs, in an area without many). And what’s 15 bn?

I can see Wylfa from my window.

I'm not convinced it really is scrapped. It could just be some Tory cronies who want the governbankment money instead of Hitachi.

 

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11 hours ago, Bus Stop Boxer said:

Im getting rinsed. Bought in early May. Went away. Was £2k up across the piece, briefly. No No this is long term i said...

Currently down.... actually i daren't look. Prob at least £2-3k on £10k in.

BP

Shell

Occidental

Pioneer

EOG

Wisdom Tree Crude

Amongst others....

Have to sit tight.

 

No surprises!

I'm down 20 to 30% on my FTSE income portfolio but that's on stuff bought 2018 and 2019.  Some dogs at one end and stars at the other with mostly poo in the middle because I bought into sectors I should have known better about, regardless of CV.  Seduced into chasing yield.  But then that's a mixed bag with some cutting and some not. 

Also, the FTSE stands out across the markets as the dog.  It may well have its day but I'm going more international now, although I can use the FTSE for some Crest International stocks where the "underlying" is in peripheral markets such as Scandinavia (which seems to hold a lot of attractive stocks).

But overall I'm up given my somewhat overall (WIP) balanced portfolio thanks to mainly PMs.  I'm underweighted in bonds and equity.  I have a plan for equity but bonds are tough.  Still some strength there in some (I do see negative rates at least in the UK) and maybe good to hold to cover any upcoming turbulence but long term structurally that class is an issue.  I've allocated NS&I bonds to this class even though I know it's a bit of an iffy move but just to get the allocation percentage up and because I'm trying to redefine the bond asset class given what it has morphed into.

Your list is very concentrated on oillies.  I bought a little bit more Shell and BP at various times since Feb and am of course down.  Not bothered.  But I'm waiting for a bottom in the oil sectors which may be close, possibly with one more leg down.  But it could be easy for me to miss the turning here.  There seems to be a battle ATM between supply reductions biting in Q4 and reduced consumption but I'm still looking for higher prices in the intermediate term.  Best I buy some stakes now but a wide spread, four or five stocks in each industry.  The really interesting thing here is what the oil sector is morphing into.  This story has a long way left to run and these are historically tough SOBs.  Oil was my life for a long time.  I even lived on a refinery.  This ain't over!

I was up to the early hours reviewing the markets.  Took a while because we are now seeing some real chart patterns and technicals.  I too have missed action as I have been too busy working and focussed on some admin, including divesting out of the system.  I need to be more disciplined or, TBF, get back to the grunt stock work.  I could have made some coin by staying in on my computer but I've achieved so many other things and TBF, should treat short term gains like short term losses!  The short term is for traders and I've got other all consuming jobs and priorities right now!  Maybe when it gets dark, cold, and wet!

Excellent times, if only here and for now!

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5 hours ago, DurhamBorn said:

I dont actually think this is the right thread for people who worry about being down 10%/20% etc on individual stocks.I also cant understand how people can be down on portfolios here when silver miners trebled,as did most gold miners on here.Im only down 4% on BP after divis,12% on Shell 8% on Repsol etc,nothing.There are many stocks that have gone up over 100%.Mosaic nearly 200% for instance,DRAX 100%+,Playtech +200%,William Hill +200%,look at harmony Gold up 300%.Markets arent linear and sectors will run in their own times.

For myself i road map a cycle,and this one ahead is probably ending around 2028/30.My portfolio is designed to out run inflation.I see roughly 69% inflation over the cycle and i hope to match and outperform that.

Im hoping sectors like oil and a few others can stay down,or drift down more because divis are flowing in and i prefer to pay less for things i want,not more.

Oh, sorry for opening my trap. Must have been awful for you.

 

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2 hours ago, crashmonitor said:

Lol the BBC claimed builders would be idle at the start of lockdown and when the economy reopens you would have the whip hand on home improvements. The roads are clogged with white van men serving the idle furloughed on their mountain of Sunak billions. Try and get a tradesperson and you are lucky if they will deign to answer the phone just now.

To be honest, we're considering getting some work done on the grounds that it'll be cheaper to do it now than in the future if massive inflation kicks in, and would also be a good opportunity to lock in the remortgage at low rates for a 10 year fix.

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2 hours ago, DoINeedOne said:

I will happily admit when i started on this journey of learning and following this thread on the other site i was of the mindset 

I have bought shares in XYZ now i want it to go to the moon (Quick Profits)

The price of something not going anywhere or dropping and @DurhamBorn talking about hoping the prices stays low for abit longer always makes me think of this part of the interview i always mention, not sure if he reinvested those dividends but the fact people were questioning why he owned it because the price did nothing

I know oil stocks have dropped but this part of the interview was a penny drop moment for me, maybe not others as i focused on the prices alot back then and sometimes still catch myself doing it working online doesn't help O.o

I just hope these prices stay like this so  i can add ISA money too in April

 

But these are just two old boomer white men.  What could they possibly offer us as we dance the dance, following the Pied Piper to Nirvana!

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5 hours ago, DurhamBorn said:

I dont actually think this is the right thread for people who worry about being down 10%/20% etc on individual stocks.

For myself i road map a cycle, and this one ahead is probably ending around 2028/30.My portfolio is designed to out run inflation. I see roughly 69% inflation over the cycle and i hope to match and outperform that.

Excuse this long post, its a 2-parter, here it goes...

DB, yep i agree too many 'armchair tacticians' popping up to comment when this thread is all about 'surviving the strategic war'. So for those with a gentle disposition, best not listen to below podcast, the guest is very insightful about past market bubbles, but he also gets very dark and contemplative toward the end. Well worth listening to as i think it puts many (current crazy issues) moving parts into (scary) context. 

https://ttmygh.podbean.com/

(its the ed chancellor, grant williams, episode 7 one)

 

 

DB, i admit that i didn't really appreciate the inflation strategy that you mention above when i first begun visiting here. But i am now a convert, and personally I find it helps to keep that 2030 marker-post (finishing-post?; see end-game podcast!) in mind when investing - it helps keep me fretting about the intervening noise of the market up-downs. To help stay focused, i find it useful to understand, or at least guestimate, the possible risk/reward of holding long term.

This brings me (eventually!!) to my question and would be very grateful if you could help answer this for me. You have mentioned before that silver could 10x/oil could 5x etc (depending on personal buy/sell price of course). I understand the maths element i think, but does this translate into - very approx. - investment gain comparisons? i.e. Would those figures allow me to make very crude comparisons between say a possible oil 5x, which equates to a 400% gain and the 69% cycle inflation you mention above? It would of course be a fantastic gain, but i can't help thinking there are other elements to consider; to be clear i am just looking for a 'back of envelope' type calculation.

Edited by JMD
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45 minutes ago, Harley said:

But these are just two old boomer white men.  What could they possibly offer us as we dance the dance, following the Pied Piper to Nirvana!

Harley, i posted above about a Grant Williams End-Game podcast, where that same old boomer talks to yet another stale-male-pale boomer. So of course nothing to see - or listen to - here; No knowledge, experience, or dare i say wisdom to learn from...!!!

This is the one.. https://ttmygh.podbean.com/

The thing is that the discussion with Ed Chancellor is quiet light and jokey until the last 30 minutes or so. Ed doesn't take himself (or the investment world) too seriously, but then toward the end his thoughts about the future turn really quiet stark. He also mentions some other interesting source material that i will endeavour to track down. Anyway i mention it because i think Ed's thinking chimes very much with your posts, particularly in the 2nd half of the interview. I'd be interested in your thoughts after listening.

  

   

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28 minutes ago, Gin said:

Inflation is going down....today that is...o.O:)

https://www.bbc.co.uk/news/uk-54173658

One thing that I can never understand about inflation calculations is the imputed rent part. It seems like an economic indicator that is a leveraged bet on housing!

I cant remember the exact number, but lets say 10% of GDP is imputed rent (imaginary payments that people that own a house without a mortgage make to themselves aka economic wankery).

If house prices fell even slightly then GDP would fall, even though there is no difference in national output.

Madness!

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32 minutes ago, JMD said:

DB, i admit that i didn't really appreciate the inflation strategy that you mention above when i first begun visiting here. But i am now a convert, and personally I find it helps to keep that 2030 marker-post (finishing-post?; see end-game podcast!) in mind when investing - it helps keep me fretting about the intervening noise of the market up-downs. To help stay focused, i find it useful to understand, or at least guestimate, the possible risk/reward of holding long term.

That's the critical bit IMO, i spent many hours of research on potential investments, and the best way to value them in the circumstances, towards the back end of last year to the extant that i've made 3-4 trades so far this year whilst being nicely in profit.  That said, its one thing knowing whats likely to happen, its useless info if your unable to take advantage of it!  Lots of practice on timing and research is the only way, things (unfortunately) don't fall into your lap with zero effort.

There is still plenty of time and money on the table to be made, little bit more research on my shortlist and ill start to make my first oil investments this week.

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8 minutes ago, reformed nice guy said:

One thing that I can never understand about inflation calculations is the imputed rent part. It seems like an economic indicator that is a leveraged bet on housing!

I cant remember the exact number, but lets say 10% of GDP is imputed rent (imaginary payments that people that own a house without a mortgage make to themselves aka economic wankery).

If house prices fell even slightly then GDP would fall, even though there is no difference in national output.

Madness!

If house prices fell then they'd change the formula so that GDP didn't follow.

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45 minutes ago, reformed nice guy said:

One thing that I can never understand about inflation calculations is the imputed rent part. It seems like an economic indicator that is a leveraged bet on housing!

I cant remember the exact number, but lets say 10% of GDP is imputed rent (imaginary payments that people that own a house without a mortgage make to themselves aka economic wankery).

If house prices fell even slightly then GDP would fall, even though there is no difference in national output.

Madness!

It’s imputed rent. So house prices falling doesn’t directly impact GDP. Rents falling on the other hand does. Any guesses as to why Rishi Sunak banged up Housing Benefit rates in March?

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17 hours ago, DoINeedOne said:

Fun chart from a book in the chapter about why you should ignore the news 

295355890_Screenshot2020-09-15at19_39_59.thumb.png.858f5194e6a0571bd48d5df2dc11cbf0.png

One of the best charts I've seen on here in sometime.And possibly one of the reasons why following a marco roadmap makes more sense than trying to steer a safe course throuhg the hysteria the MSM classes as news these days.

 

6 hours ago, Castlevania said:

It’s a strange market. Half my stocks are below where they were at the start of the year. A lot of my stocks are hovering +/- 10% of where they were in March when the market threw up (Vodafone, BT and Telefonica are lower for example, RDSB and BP are up 10% if you got in at the low). Then there are those stocks that have absolutely flown and dragged overall performance up with them. Petropavlovsk is up 200% YTD; the additional shares I bought in William Hill a day after they bottomed in March are now up 400%. Harmony is up 150% from when I dumped my Centrica and put it in here. My first tranche of Mosaic is up over 100% but at the same time I bought K&S which has gone nowhere.

I do agree that being down 20% in an individual stock is for me at least nothing to be worried about.

A fellow POG holder.I bought some in Nov 2018 at 6 pence ....

More broadly we're a mish mash like you CV,oilies down,Goldies/potash up.Ref the bit in bold I only have a real hard rethink at 50% down.The thesis is the thesis and mine are all roughly pitched around an economic timeframe.

It's been said many times on here by a good few poeple about different shares that have dropped 50% from the off then multi bagged.

4 hours ago, jamtomorrow said:

Given this is a macro thread, I'm constantly surprised by the amount of discussion around what I would consider "trading" (from a macro perspective).

Like: in the time it's taken just to fill my oil/telco ladders, several on here have traded in *and* back out of the jump in silver miners. I see that as trading a macro turn, as opposed to investing a macro trend, but then I'm *definitely* more tortoise rather than hare.

I think there's a real danger of trying to trade the PM's that you sell and never get back in.I do some portfolio steering,ie sell a few stragglers/winners and redeploy and did so recently.In the end there'll always be a pull back that doesn't come.

4 hours ago, jamtomorrow said:

Not just me then. Got various jobs I want to get done on the house before the reflation really get going, but trades are just stupid busy. Planning to leave it until spring, see if things have calmed down a bit

Talking to a couple of friends wih small businesses,looks like things will get interesting psot furlough.They're already weighing the cost of the extra money to keep people on now that it's 70% which says a lot in itself.

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1 hour ago, reformed nice guy said:

One thing that I can never understand about inflation calculations is the imputed rent part. It seems like an economic indicator that is a leveraged bet on housing!

I cant remember the exact number, but lets say 10% of GDP is imputed rent (imaginary payments that people that own a house without a mortgage make to themselves aka economic wankery).

If house prices fell even slightly then GDP would fall, even though there is no difference in national output.

Madness!

SHaun Ricards has written extensively on this over the years but has a piece on this very matter today

Eating out/Clothes/Air tickets all down but not enough that it's bad savers.Also rents rising which is great for the economy .....exceptt they're not....

https://notayesmanseconomics.wordpress.com/2020/09/16/welcome-news-from-uk-inflation/

Welcome news from UK Inflation

Posted on September 16, 2020

This morning has brought some good news for hard pressed UK consumers and workers from the Office for National Statistics.

The Consumer Prices Index (CPI) 12-month rate was 0.2% in August 2020, down from 1.0% in July…….The all items RPI annual rate is 0.5%, down from 1.6% last month.

As you can see there has been quite a fall which will help for example with real wages (which allow for inflation). After yesterday’s figures which showed us we have been seeing wages falls this is helpful. Although it would appear that someone at the BBC is keen to pay more for everything.

Before the latest figures were published, there had been fears that the UK inflation rate might turn negative, giving rise to what is known as deflation.

Economists fear deflation because falling prices lead to lower consumer spending, as shoppers put off big purchases in the expectation that they will get cheaper still.

What is happening?

Here is the official explanation.

“The cost of dining out fell significantly in August thanks to the Eat Out to Help Out scheme and VAT cut, leading to one of the largest falls in the annual inflation rate in recent years,” said ONS deputy national statistician Jonathan Athow.

“For the first time since records began, air fares fell in August as fewer people travelled abroad on holiday. Meanwhile. the usual clothing price rises seen at this time of year, as autumn ranges hit the shops, also failed to materialise.”

As you can see we have a market effect in travel and also a result of a government policy. It looks as though the latter was pretty successful.

Last month, discounts for more than 100 million meals were claimed through the Eat Out to Help Out scheme.

In terms of the inflation data it had this impact.

Falling prices in restaurants and cafes, arising from the Eat Out to Help Out Scheme, resulted in the largest downward contribution (0.44 percentage points) to the change in the CPIH 12-month inflation rate between July and August 2020.

As you can see they are desperate to try to push their CPIH measure. We can deduce from that number that the impact on CPI will be a bit over 0.5% via its exclusion of the fantasy imputed rents in CPIH.

If we switch to the RPI we see this.

Catering Annual rate -7.0%, down from +3.4% last month
Never lower since series began in January 1988.

In fact the catering sector reduced the RPI by 0.52%. There was also another significant factor in its fall.

Fares and other travel costs. Annual rate -8.4%, down from +0.9% last month
Never lower since series began in January 1957.

That sector resulted in a 0.33% fall in the index.

 

Owner Occupied Housing
I

It was hard not to laugh as I read this earlier.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 0.5% in August 2020, down from 1.1% in July 2020.

Why? This is because the imputed rents used to keep the number lower have ended up producing a higher number than CPI.This is because they are smoothed are in fact on average from the turn of the year rather than now.

Private rental prices paid by tenants in the UK rose by 1.5% in the 12 months to August 2020, up from 1.4% in the 12 months to July 2020.

Quite a shambles may be building here because Daniel Farey-Jones has been following rent changes in London and here is an example from the last 24 hours.

Bloomsbury 1-bed down 21% to £1,300……….Waterloo 2-bed down 16% to £2,000……..Shoreditch 1-bed down 23% to £1,842.

Here is how this is officially reported.

London private rental prices rose by 1.3% in the 12 months to August 2020.

Whilst Daniel’s figures started as anecdotes he has built up a number of them which suggests there is something going on with rents that is very different to the official data.

Switching to house prices the official series is way behind so here is Acadata on the state of play.

In August, Halifax and Rightmove are showing broadly similar annual rates of price growth of 5.2%
and 4.6% respectively, with Nationwide and e.surv England and Wales reporting lower figures of 3.7%
and 1.5%

Comment

The lower inflation news is welcome but a fair bit of it is temporary as the Eat Out To Help Out scheme is already over. There is a feature in the numbers which is something that has popped up fairly regularly in recent times.

The CPI all goods index annual rate is -0.2%, down from 0.0% last month….The CPI all services index annual rate is 0.6%, down from 2.1% last month.

Goods inflation is lower than services inflation and in this instance went into disinflation.

However I think we are in for a period of price shifts as I note this.

The annual rate for CPI excluding indirect taxes, CPIY, is 1.8%, up from 1.0% last month.

So once the tax cuts end we will see a rally in headline inflation. Some places will need to raise prices but it is also true that others are cutting. For example Battersea Park running track and gym has just cut its monthly membership fee.

 

 

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1 hour ago, dgul said:

If house prices fell then they'd change the formula so that GDP didn't follow.

Which is why they use imputed rents rather than hosue prices.

Until a couple of years ago they sued different rental data to calcualte imputed rents and the rental equivalnece figure used in the calcualtion of CPIH according to Shaun Richards.One had the effect of bumping higher and the other lower.Guess which was which?

Apparently now they use the same data for both.

Edit to add-I find it sad that I know that.

Edited by sancho panza
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3 hours ago, Democorruptcy said:

I can see Wylfa from my window.

I'm not convinced it really is scrapped. It could just be some Tory cronies who want the governbankment money instead of Hitachi.

 

Cemaes? Nice today, I’m sure.

No third bridge either.

It will be interesting to see what happens. 

I read that the cost of Hinkley Point C would have been halved (or more) if the UKGOV had borrowed the money, instead of EDF.

Instead, HPC is going to end up being “the world’s most expensive power plant”.

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27 minutes ago, Transistor Man said:

Cemaes? Nice today, I’m sure.

No third bridge either.

It will be interesting to see what happens. 

I read that the cost of Hinkley Point C would have been halved (or more) if the UKGOV had borrowed the money, instead of EDF.

Instead, HPC is going to end up being “the world’s most expensive power plant”.

 

3790A4FA-C919-4F92-B82E-1897DA126DFA.jpeg

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