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

[Democorruptcy]

20 minutes ago, moneyscam said:

I'm in a similar position although I retired at 44 and am now 50. I'm fortunate in that I own the current home I'm living in outright whilst still trying to sell my previous home which will release a significant amount of cash to be added to the retirement pot. I live a frugal life living on about £700-800 a month so a starting pot of around £250K is I think a minimum and that is without assuming any investment income or counting future inheritances.

As you say the biggest risk to these assumptions is the government but I have planned with my parents who are resident abroad for this scenario at least in relation to IHT such that their assets held here are below the IHT threshold. The country they live in doesn't have IHT and those assets will be kept offshore permanently excepting a few drawdowns on that capital if absolutely necessary.

It's good to see many others on here thinking or planning the same way, it certainly is a blessing and relief to be out of the rat race and mindless consumerist culture which has done wonders for my peace of mind.

 

It's moneyscam, not seen you for ages. Are you playing the markets? Any tips?

[moneyscam]

1 minute ago, Democorruptcy said:

It's moneyscam, not seen you for ages. Are you playing the markets? Any tips?

Hi mate, it's been a long time!

Don't play as much as I used too, since I left working in the market I have lost a lot of interest in it. Am just invested in a few stocks for dividend income, funnily enough the same names mentioned in this thread (BP, VOD).

[Castlevania]

1 hour ago, feed said:

indeed.

The problem with inflation isn’t necessarily insurmountable.  Even if we fall behind 1% or 2%, if we a start with enough contingency.  (I stress test mine to growth 2% behind real inflation)

Taxation isn’t necessarily a problem, if you can optimize the tax thresholds and work within in them

What keeps me up at night, is taxation on the inflation.  Dressed up a wealth tax, the country would cheer it on and there is almost nowhere to hide.   
 

The one thing I worry about is that to try and control inflation they whack up all taxes. So tax on capital gains; income taxes; dividends etc are all absurdly high. It’s what they did in the 1970’s and it follows the MMT playbook. 

[Barnsey]

1 hour ago, geordie_lurch said:

BoE have released the following... info via zerohedge here

 

 

[Harley]

My we may have been shamefully asleep at the wheel talking about silver, GME, etc and shown up by the good folk upstairs - a whole thread on the UK going to negative rates (on the latest bond auction).  Mind, I have no idea how accurate it is until a fellow basement dweller has done the DD!

[JMD]

4 hours ago, CVG said:

Likewise, by operating a 'safer' more balanced portfolio I forgo a lot of the returns that others can make but arguably can sleep sounder in my bed.

I know that I post the same link every few months but it's worth repeating for the newcomers to the thread. This guy's portfolio site is a treasure trove of information including safe historical withdrawal amounts.

https://portfoliocharts.com/commentary-all/page/2/

But that 'difference in return' may not be as large as first assumed, if using a rebalancing strategy as described in link below. Ok he uses a 35/65 gold/stocks portfolio, but the principle remains valid/can be adapted. The content is a bit dry, because the guy sets things out in a mathematical systematic way, but well worth the 10 minute viewing. 

I've posted this before, but whilst we are discussing the topics of withdrawal AND rebalancing i thought i'd repost. He's also got a great gold vs fiat themed channel btw... 

Safe Withdrawal Rates Revisited 2 - YouTube

 

 

[Barnsey]

 

[Harley]

2 minutes ago, Barnsey said:

 

A strong hike in US what?

[Barnsey]

1 minute ago, Harley said:

A strong hike in US what?

US Fixed income

 

[JMD]

5 hours ago, Harley said:

I would also emphasise the need to do all this first as part of a top down exercise before worrying about which stocks to buy, etc, etc.  That's the one area often overlooked in this thread in it's discussion on how to tackle the macro.  Macro to potash, etc with relatively little in between!  Asset allocation has often proven to be the more important factor (although what they are or should be, and how they work together, may need updating).

Agreed. Asset allocation is vital, else your portfolio is a one way bet.

But must re-quote the following, because this is - if you allow me to say so - 'classic Harley' Harley!!!... 'Macro to potash, etc with relatively little in between!' (i agree btw)

[DoINeedOne]

The EU has lost none of its thirst for regulating people’s lives. A new European Commission report proposes clampdowns on smoking, drinking and even vaping. The EU is becoming a vast nanny state

Might buy some BATS

[Starsend]

2 minutes ago, JMD said:

Agreed. Asset allocation is vital, else your portfolio is a one way bet.

But must re-quote the following, because this is - if you allow me to say so - 'classic Harley' Harley!!!... 'Macro to potash, etc with relatively little in between!' (i agree btw)

Hmm, my portfolio is looking a little like a one way bet, I'm nearly 50% physical gold/silver. I bought it all over ten years ago and it's tripled since then. I've thought from time to time if I should rebalance some of it into other stuff but it's the hassle of selling it and I consider it to be pretty safe.

I understand the diversification argument well but I kind of agree with Buffet about there being nothing wrong with going bigtime into one stock (or precious metals in my case) if you are really sure.

I'm sure enough on gold/silver going forward to place that bet but understand that others might not want to take that level of risk.

 

[Hancock]

5 hours ago, Democorruptcy said:

I'd keep on earning a bit to top up if I were you. At first glance your £13,200/5.28% drawdown is too much from a £250,000 pot. Being in your early 50's the chances of you getting the state pension at 67 is slim to remote.

Also if inflation rises, that 3% real return might not be as easy as you think.

Yes thats my way of thinking, i can enough money for 2 weeks work that would last a year if it was only me to sponsor.

In essence I semi retired at 38 as I havent done more than 100 days a year since then.

Finally working for a company that seem sound, and looking to do 50-60 days a year for the next 10 years.

If i had to do 14 days a year for another 15 years once i reach 55 then all is good.

Only thing to get in the way of this cunning plan is life itself, and the fact i manage to fuck everything up and not one plan i've ever made has worked out.

[Harley]

18 minutes ago, Barnsey said:

US Fixed income

 

What, bond rates to go up?

[Harley]

21 minutes ago, JMD said:

Agreed. Asset allocation is vital, else your portfolio is a one way bet.

But must re-quote the following, because this is - if you allow me to say so - 'classic Harley' Harley!!!... 'Macro to potash, etc with relatively little in between!' (i agree btw)

I assume a compliment combined with a good understanding of the real "classic" Harley ethos!

[CVG]

31 minutes ago, JMD said:

But that 'difference in return' may not be as large as first assumed, if using a rebalancing strategy as described in link below. Ok he uses a 35/65 gold/stocks portfolio, but the principle remains valid/can be adapted. The content is a bit dry, because the guy sets things out in a mathematical systematic way, but well worth the 10 minute viewing. 

I've posted this before, but whilst we are discussing the topics of withdrawal AND rebalancing i thought i'd repost. He's also got a great gold vs fiat themed channel btw... 

Safe Withdrawal Rates Revisited 2 - YouTube

 

 

Yep. That's a useful introductory video on the benefits of rebalancing. I bought into that after reading Harry Browne's Permanent Portfolio. If you explore the portfolio link I posted earlier you'll find an awful lot more portfolios and models. I think that you'll love it!

 

[nirvana]

Gold lol

These are my salad days
Slowly being eaten away
Just another play for today 

 

 

[sancho panza]

2 hours ago, Agent ZigZag said:

In my opinion Council Tax wont be stopped and there is nothing we can do about it unless we riot like the Poll Tax. Another tax increase I am expecting is a carbon tax on meat, all for our own good and to save the planet

Council tax will be going up unless some of the councils enter bankruptcy.See Spelthorne-worst of teh lot but still,£1bn in 'assets' sat on top of revenues of £22mn,that yield roughly £11mn.wtf?

https://www.theguardian.com/society/2020/feb/13/english-councils-go-on-commercial-property-spending-spree-to-boost-income

Between 2016 and 2019, councils spent £3.1bn buying office developments, £2.3bn on retail property, including £759m on shopping centres, and nearly £1bn on industrial property – a 14-fold increase on the previous three years.

It said that, in 2010, just 11 councils collectively spent £100m on 13 acquisitions. Local authority commercial property investment took a sharp upturn in 2016, however, and last year 107 councils spent £2.2bn on 221 investment opportunities. Of those, just 49 unnamed councils accounted for 80% of the spending.

One of the pioneers of the commercial property boom was tiny Conservative-controlled Spelthorne district council in Surrey, which has built a £1bn portfolio using cheap Treasury-backed loans as a way of countering £2.5m of government grants cuts.

It said last year that income from commercial property would cover half its £22m annual operating budget, raising more for its coffers than council tax. Without that income it would have had to make cuts to meals on wheels and bin collections.

2 hours ago, AWW said:

I must be missing something here - I don't see how you can have negative interest rates, a currency that is still worth something.

Surely, as soon as rates turn negative, everyone gets out of cash ASAP?

The japanese experience and indeed the evidence post 2008 is that declining real rates beget slumping velocity and stable currencies.Not sure how long it will last.

I suspect once people are seeing their moeny as deflating in value,then we'll see velocity up and currencies down.

[janch]

9 minutes ago, sancho panza said:

Council tax will be going up unless some of the councils enter bankruptcy.See Spelthorne-worst of teh lot but still,£1bn in 'assets' sat on top of revenues of £22mn,that yield roughly £11mn.wtf?

https://www.theguardian.com/society/2020/feb/13/english-councils-go-on-commercial-property-spending-spree-to-boost-income

Between 2016 and 2019, councils spent £3.1bn buying office developments, £2.3bn on retail property, including £759m on shopping centres, and nearly £1bn on industrial property – a 14-fold increase on the previous three years.

It said that, in 2010, just 11 councils collectively spent £100m on 13 acquisitions. Local authority commercial property investment took a sharp upturn in 2016, however, and last year 107 councils spent £2.2bn on 221 investment opportunities. Of those, just 49 unnamed councils accounted for 80% of the spending.

One of the pioneers of the commercial property boom was tiny Conservative-controlled Spelthorne district council in Surrey, which has built a £1bn portfolio using cheap Treasury-backed loans as a way of countering £2.5m of government grants cuts.

It said last year that income from commercial property would cover half its £22m annual operating budget, raising more for its coffers than council tax. Without that income it would have had to make cuts to meals on wheels and bin collections.

The japanese experience and indeed the evidence post 2008 is that declining real rates beget slumping velocity and stable currencies.Not sure how long it will last.

I suspect once people are seeing their moeny as deflating in value,then we'll see velocity up and currencies down.

That income must be pie-in-the-sky from here now a lot of the retail has gone bust.  I can only see council tax going one way and it won't only be for social care etc but to cover the falling income from CRE rents.

I really object to a good proportion of the council tax paid is spent on pensions for ex- council employees.

[janch]

1 hour ago, Castlevania said:

The one thing I worry about is that to try and control inflation they whack up all taxes. So tax on capital gains; income taxes; dividends etc are all absurdly high. It’s what they did in the 1970’s and it follows the MMT playbook. 

Denis Healey in the Labour government tried it but many of the rich fled abroad.  IIRC there was tax of 90% at one point.  Hopefully our present lot won't be that dim.

[Harley]

A top discussion today on planning.  We need the full chain on this thread to fully address the macro.  That is from macro, to asset allocation, to sectors (and other sub-asset classes) to individual investments, all governed by our individual risk-reward profiles based on many things, but including how close we are to drawdown.

I see the point of the macro as more "tilting at windmills" as the saying goes.  It probably won't change my asset allocation model (the Permanent Portfolio (Plus!) in my case) but has great impact on the sub-asset classes (and their holding currencies).  For example, within equity, which sectors, within bonds, which type of bonds (government versus corporate, index or not, etc) and within PMs, maybe a need to consider other "hard asset" categories such as true commodities (where possible) and even crypto.  But in all honesty, that only works for me because most of my bonds portfolio consists of some NS&I inflation linked bonds, which I accept are not real bonds in the Permanent Portfoilo sense (given their fixed price).  It would be a real test of faith to invest all the allocated funds in bonds if I didn't have these.

What kind of asset allocation models are people following and what sub-categories are within them?

Another aspect I follow is the idea of the floor versus upside approach as a means to optimise risk-reward.  See the net for more but the floor portion of your portfolio is to cover essential expenditures (as documented!) so needs to be low risk, so likely a lower return.  The upside portion is whatever is left after the required floor funds and covers more discretionary ("fun") expenditure.  So by it's nature it's OK to take on more risk for higher returns in the upside portion.  So for me this this portion covers trading and more risky total return investments.

The challenge for me is to align a Permanent Portfolio (or whatever) with the Floor/Upside approach.  To me the Permanent Portfolio results say it's a good basis for the floor fund as I approach drawdown - lower risk (standard deviation of returns) and a decent expected return.  I'm currently torn between using funds/ETFs for the equity portion versus individual shares.  I'll probably stick with funds/ETFs for the risk-reward even though I can (for now) perform better but also to cover the risk of me being wrong, rubbish at stock picking, etc.  The real killer has been the whole KID issue which restricts the option to use more sector specific ETFs in my floor fund, again to tilt at the windmills.  I currently follow a more regional split which the available ETFs do support.  The biggest benefit of Brexit to me would be the end of the KID and access to all those lovely worldwide sector ETFs they have in the US!

Again, the whole modeling exercise kicks in on framing the upside portion of things.  I have a reasonable idea of what income I need and my available funds.  From that I get the required risk profile.  That tells me what and how hard to trade/invest.  So again the top down modelling approach gives you the parameters to work to at the lowest (investment) level. 

Finally, a mistake/confusion of mine has been to draw lines according to wrapper/container (SIPP, ISA, Trading Account, etc) as this automatically restricts asset allocations, etc.  I now just see these as wrappers and use each one according to their specific advantages and keep a separate tally of what's invested where (via a simple spreadsheet).

Alternatively, you could just stick your finger up your bum and hope for the best!

[sancho panza]

@Transistor Man or anyone else withknowledge of electricity production.Coal usage in China for the foreseeable.Surprising given that China is building mroe quickly than the West is depleting.

Looking at ANglo Pacific.Intersting play on caol-royalty streamer.Also has some interest in Uranium.Nice spread of assets but coal heavy.Looks like they bought into Uranium at the right time 2017

https://www.anglopacificgroup.com/producing/

https://www.anglopacificgroup.com/wp-content/uploads/2020/05/200527-2020-AGM-Presentation_v8.pdf

 

https://www.voanews.com/science-health/study-chinas-new-coal-power-plant-capacity-2020-more-3-times-rest-worlds

SHANGHAI - China put 38.4 gigawatts (GW) of new coal-fired power capacity into operation in 2020, according to new international research, more than three times the amount built elsewhere around the world and potentially undermining its short-term climate goals.   

The country won praise last year after President Xi Jinping pledged to make the country "carbon neutral" by 2060. But regulators have since come under fire for failing to properly control the coal power sector, a major source of climate-warming greenhouse gas. 

Including decommissions, China's coal-fired fleet capacity rose by a net 29.8 GW in 2020, even as the rest of the world made cuts of 17.2 GW, according to research released on Wednesday by Global Energy Monitor (GEM), a U.S. think tank, and the Helsinki-based Centre for Research on Energy and Clean Air (CREA).   

 

Decl:jsut bought some Anglo Pacific

[Chewing Grass]

1 hour ago, janch said:

Denis Healey in the Labour government tried it but many of the rich fled abroad.  IIRC there was tax of 90% at one point.  Hopefully our present lot won't be that dim.

When I started work in the very early 1980s they had to offer overtime at 1.5x and 2x in the week and at weekend just to get people in due to the level of taxation that was a hangover from the 1970s.

[nomadic]

4 hours ago, Cattle Prod said:

Welcome! You think Portuguese property is rip for a collapse? Interesting. I like the sound of no CCTV very much, says a lot about the government I think.

Thanks! I am seeing quite a lot of price falls on Idealista (main .pt property portal). 

They were going to install a whole lot of CCTV in Lisbon but people demonstrated. I am not under any illusion that Portugal will end up like a China eventually, but there is a lot of resistance here and the traditional way of life is still strong e.g. no Amazon, small grocery stores still popular, people are always nice! 

Govt. seems to genuinely care about the population, without it  feeling like a nanny state. 

Harley mentioned missing the boat? Unless that's a personal thing, no one has missed the boat. Getting residency here is still very straightforward and you only need to show an income of €700* a month to get a 1 year residency visa, then 2 x 2 years and citizenship or permanent residency thereafter.

* Or savings for 12 months expenses.

I don't want to get too far off topic but happy to write a whole load about living here post-Brexit and dealing with paperwork, but will seek another section for that. Any ideas where in Forum?

I am applying for NHR tax regime but it's a shame I can't add investment gains! Hey ho, on balance it's still worth being here with some 20C days in January and barely any rain.

Starsend mentioned about UK getting more unpleasant. I have not spent any serious length of time there for 7 years, but always shocked when I go back and see how things have changed.

Still lots of positives about the UK, but I think it's sensible to have at least residency in one other place. I fear lockdowns and border closures could become regular over the next few years, and having two countries you can always legally enter will be useful.

[JMD]

1 hour ago, Starsend said:

Hmm, my portfolio is looking a little like a one way bet, I'm nearly 50% physical gold/silver. I bought it all over ten years ago and it's tripled since then. I've thought from time to time if I should rebalance some of it into other stuff but it's the hassle of selling it and I consider it to be pretty safe.

I understand the diversification argument well but I kind of agree with Buffet about there being nothing wrong with going bigtime into one stock (or precious metals in my case) if you are really sure.

I'm sure enough on gold/silver going forward to place that bet but understand that others might not want to take that level of risk.

 

Indeed, i agree. The ethos of this thread is we are investing for the macro cycle ahead. So holding gold, especially at 10 year old buy price is eminently sensible thing to do.

I may have oversimplified things. 'Rebalancing' is not really about achieving equal weights across sectors within a portfolio. It is about balancing risk and reward. So for example, it might include (beginning) selling a sector when high (gold in 8 year time?) and using the funds to buy into a undervalued/hated sector. It is also complicated by personal time-horizons, or pension ambitions, or income requirements, etc. Regular rebalancing is still i think a powerful idea, just not a simple mechanistic one.