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


spunko

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geordie_lurch
12 minutes ago, NogintheNog said:

I agree. I always say to my friends who really don't delve into this that there isn't a pile of cash stored in their bank that's theirs to come and collect. Cash is effectively just a token that represents that bank ledger.

However a Central Bank Digital Coin could effectively kill off the banks. Just recently the Goverbankment talked of being able to get cash from shops;

https://uk.reuters.com/article/uk-britain-economy-cash/uk-aims-to-make-it-easier-to-withdraw-cash-via-shop-tills-idUKKBN26Z39S

Maybe the banks as we know them are toast??

From other internet readings the banks would be toast in the new system for sure - they would just be there to help people get on and off the central bank's ledger so even less than the branches that are left do now.

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3 hours ago, janch said:

Putting this another way they are worried by two developments. One is Bitcoin which potentially challenges the monopoly power of central banks and also the demand for cash is rising not falling. In the Euro area it was 1.33 trillion Euros in September as opposed to 1.2 trillion a year before.

Those pesky people wont go along with the economists models, that must mean the people are wrong!  

The problem is that even if you get rid of cash/PM's and other non digital stores of wealth, i think that if interest rates go negative enough barter will return.  It would probably be high demand goods only, but its one easy way to hide your wealth outside the system.  Good luck applying a negative interest rate on someone hoarding toasters.

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As i said back in the thread China's main industrial factories are running at 100%

https://uk.reuters.com/article/china-economy-pmi/chinas-factory-activity-rises-to-near-decade-high-in-october-caixin-pmi-idINKBN27I04Y

The factories leading the way are the ones producing other production machinery,the lag on them should be around 3 months and then they get moving dirt in the economy.

 

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On 01/11/2020 at 10:03, Harley said:

This is something I have been wrestling with or at least have to keep telling myself.  I bought some shares (in my income portfolio) for dividends to replace an annuity (with its dire rates).  So I care about the div income rather than capital.  Sure they cut the divs back, but so have most so why dump the shares, to do what with?  And, as we saw with RDSB, the divs may come back.  What things have shown is that I stayed div hunting in the FTSE too long as bough stuff I should not have.  I should have been looking internationally when the obvious FTSE candidates were bought.  I didn't because the broker I had was really UK only.  I had some regional ETFs but IMO such trackers are not good enough and I need to stock pick a broad base of stocks.  I've changed all that but now need to decide what to do with the legacy ones I should not have bought.  I'll leave them on the "naughty step" and sell out if they recover more in a few years.  But regardless, I'm now looking at a total return rather than a pure income focus to harvest a mix of divs and gains.  This maybe was always the best approach but certainly more so now as we see the end of cycles and trends play out.  And where do my screeners show the majority of value?  Asia, etc.

Look on the bright side, all part of the learning experience...and being honest enough to share it is helping others/newbies like myself to avoid the same mistake.....but no, I don't want to buy them now! :-)))

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On 01/11/2020 at 15:28, JMD said:

They all look good to me - apart from the utilities, I think they have had their time in the sun and are ripe for political interference or even nationalisation. In fact it is part of my next cycle risk factors that sectors like water, power companies,etc, will be regulated/nationalised by governments in search of votes.

Blimey you guys must be psychic as last night I was doing a review of potential candidates. I saw the Utilities and was going to post asking you all your opinions as a long-term hols...on the positive side they should provide constant/reliable divis, my only concern was government interference with them being essential necessities so capping etc...agree?..disagree?..other thoughts?

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1 hour ago, Cattle Prod said:

India oil consumption now at 2020 highs, I think people forget that cheap oil is a stimulus direct to the economy, and that it's a disproportionatly large stimulus im emerging markets as a % of GDP. It's no wonder they are buying it and burning it hand over fist, while stupid governments in Europe subject us to more enforced stagnation. Its f'ing maddening.

Its insane whats going on in the west,but is one of the reasons we will get high inflation.The state has captured far too much of the economy now and people have forgot that private sector wealth creation matters.They will find out later though once CBs cant QE due to rising inflation.Government then will have to tackle the structural deficit and it wont be pretty.

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7 hours ago, Castlevania said:

Shell and BP are up

Yep, cursed over the weekend knowing that I had a full on day at work today...couldn't believe it though every time I checked it was going in the opposite direction...at one stage I tried turning the mobile upside down thinking that was the issue!

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6 hours ago, Panda said:

Cheers Bud.

Looking at the SP. Went completely the opposite way to what I imagined. 

Certainly won't be buying anymore BP.

Got enough to sail a fleet of U boats.

Love to see 2.34 cum Friday. Be blue first time ever.

Can't see it myself. Big ask.

What after the ex-divi date?!...although the way the markets are behaving I wouldn't be surprised of anything now.

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geordie_lurch
36 minutes ago, DurhamBorn said:

Its insane whats going on in the west but is one of the reasons we will get high inflation.The state has captured far too much of the economy now and people have forgot that private sector wealth creation matters.They will find out later though once CBs cant QE due to rising inflation.Government then will have to tackle the structural deficit and it wont be pretty.

Thanks for all you have posted here @DurhamBorn
but just thinking out aloud... have you entertained the thought that this time could really be different and instead of a 'normal' cycle we are about to enter something truly different?

What if we in the west are all forced into using central bank digital currencies and they are running up all this debt as they know they are all going to default on it together as part of a coordinated world 'reset' :/

This whole Covid thing makes so little sense on so many levels but when the debt levels are increasing so fast then Legard and others are talking about digital Euros and the cashless future and the level of tracking, inflation controls and negative interest rates such digital state currencies could create I can't help think that maybe I'm planning for the wrong future :(

As you say above, the state has captured too much of the economy already in normal times and the current rules but imagine if this is only the start of what's to come and all your 'wealth' will be digitally tracked to the penny and every digital £ spent could carry a (variable) transaction fee?

 

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17 minutes ago, geordie_lurch said:

Thanks for all you have posted here @DurhamBorn
but just thinking out aloud... have you entertained the thought that this time could really be different and instead of a 'normal' cycle we are about to enter something truly different?

What if we in the west are all forced into using central bank digital currencies and they are running up all this debt as they know they are all going to default on it together as part of a coordinated world 'reset' :/

This whole Covid thing makes so little sense on so many levels but when the debt levels are increasing so fast then Legard and others are talking about digital Euros and the cashless future and the level of tracking, inflation controls and negative interest rates such digital state currencies could create I can't help think that maybe I'm planning for the wrong future :(

As you say above, the state has captured too much of the economy already in normal times and the current rules but imagine if this is only the start of what's to come and all your 'wealth' will be digitally tracked to the penny and every digital £ spent could carry a (variable) transaction fee?

 

No,its never different,history proves that.We wont be forced into digital currencies,at least for a long time.There will be no reset,just that old tax inflation.This isnt the end of of a business cycle,its the end of the long dis-inflation,thats why it feels like the end of things,and scary.Trump winning again will help things along.

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21 minutes ago, DurhamBorn said:

No,its never different,history proves that.We wont be forced into digital currencies,at least for a long time.There will be no reset,just that old tax inflation.This isnt the end of of a business cycle,its the end of the long dis-inflation,thats why it feels like the end of things,and scary.Trump winning again will help things along.

I agree but i haven't ruled any of it out for 2030ish!

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1 hour ago, DurhamBorn said:

No,its never different,history proves that.

If it's genuinely 'never different' we are almost certainly headed towards a cataclysmic war, the death of several paper monetary systems and Empire collapse.

These things always happen and have happened at similar junctures throughout all human history.

If it didn't happen, we would be the odd one out.

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22 minutes ago, Errol said:

If it's genuinely 'never different' we are almost certainly headed towards a cataclysmic war, the death of several paper monetary systems and Empire collapse.

These things always happen and have happened at similar junctures throughout all human history.

If it didn't happen, we would be the odd one out.

Certainly a trade war. 

this is an interesting read, anti CCP sentiment is rising down under to the point that the few non-captured media outlets are starting the say stuff it, let’s bite the hand that feeds us and see what they do next...

https://www.macrobusiness.com.au/2020/11/time-australia-kicked-china-right-where-it-hursts/

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Talking Monkey
3 hours ago, DurhamBorn said:

Its insane whats going on in the west,but is one of the reasons we will get high inflation.The state has captured far too much of the economy now and people have forgot that private sector wealth creation matters.They will find out later though once CBs cant QE due to rising inflation.Government then will have to tackle the structural deficit and it wont be pretty.

DB whats your timeframe for when QE as an option gets removed for the UK and when the government is forced to address the structural deficit/welfare bill. 

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Talking Monkey
51 minutes ago, Errol said:

If it's genuinely 'never different' we are almost certainly headed towards a cataclysmic war, the death of several paper monetary systems and Empire collapse.

These things always happen and have happened at similar junctures throughout all human history.

If it didn't happen, we would be the odd one out.

I just cannot see the cataclysmic war due to nukes, they will act as mutual deterrent. Everything else you mention defo agree with. Just those bits happening would cause hundreds of millions of deaths from famine etc as supply chains collapsed

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7 hours ago, Errol said:

If it's genuinely 'never different' we are almost certainly headed towards a cataclysmic war, the death of several paper monetary systems and Empire collapse.

These things always happen and have happened at similar junctures throughout all human history.

If it didn't happen, we would be the odd one out.

I think the war will be a new cold war Errol and economic war.There is a risk of proxy hot wars,even China/India.I think a lot of the real pain will come after the reflation.Losing the ability to print will be the killer.I think its the end of the reflation cycle we see a lot of Fiat go down.

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8 hours ago, DurhamBorn said:

No,its never different,history proves that.We wont be forced into digital currencies, at least for a long time. There will be no reset,just that old tax inflation.This isnt the end of of a business cycle,its the end of the long dis-inflation,thats why it feels like the end of things,and scary.Trump winning again will help things along.

I can't see the whole world going digital at the same time, but Europe definitely looks to be heading in that direction

https://www.armstrongeconomics.com/markets-by-sector/foreign-exchange/euro/europe-preparing-to-cancel-all-paper-money/?utm_source=Newsletter&utm_medium=Email&utm_campaign=RSS

'Europe is moving full speed ahead to cancel all outstanding paper money and move to a digital euro. They are doing this to force all money back into the banks and to end the hoarding of cash. I strongly recommend anyone looking to keep cash around swap to the US dollar ASAP.'

 

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6 hours ago, Talking Monkey said:

DB whats your timeframe for when QE as an option gets removed for the UK and when the government is forced to address the structural deficit/welfare bill. 

Probably around 23,maybe 24.Inflation will start slowly and build through the cycle.They might keep printing once it gets towards 3% (official) but in much smaller amounts.It wont look so bad at first because inflation in the 3%/5% range will lift tax and lower the deficit in the short term.As it moves higher though and the government needs to refinance gilts with the BOE not at the table it gets interesting.

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37 minutes ago, Barnsey said:

Am I mad for thinking it might be a good time to start laddering into ABF? 

No, you're not mad. Also think about Unilever (nice quarterly divs) and Tate&Lyle. DYOR.

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I'm not sure everyone is all in. There are plenty of people even on this thread who have a good proportion of their wealth still in cash, just in case. Myself included.

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Just now, AWW said:

I'm not sure everyone is all in. There are plenty of people even on this thread who have a good proportion of their wealth still in cash, just in case. Myself included.

Yep. I always aim for 20% cash. Always ready for an opportunity. Always have a portion of (any) profits off the table.

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Democorruptcy

Morgan Stanley upgrades RDSB and BP

Quote

 

Morgan Stanley upgraded its recommendation for shares of Shell from 'equalweight' to 'overweight', telling clients that the oil major's new distribution policy revealed insiders confidence in the firm's ability to throw off cash.
"With a dividend yield of 5.4% and new guidance for annual dividend growth of 4%, Shell shares offer a steady-state total return of ~9.4% per year," they argued.

Was it just over confidence on the part of management? No, they said.

Projections for 4% annual growth were likely feasible, a 9.4% rate of return was higher than its cost of capital and its dividend yield might compress, and in so doing front-load some of those future returns.

All in all, they also bumped up their target price from 991.0p to 1,180.0p, adding that like sector peer Total's, shares now offered more than 20% potential upside.

Within the same research note, they upgraded BP from 'underweight' to 'equalweight'.

Yes, there were question marks around the firm's earnings and cash flow outlook - even if its strategy succeeded - and lack of dividend growth.

Nonetheless, "following underperformance and its yield expanding to 8.1%, we suspect these factors are also discounted."
 

 

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