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Credit deflation and the reflation cycle to come (part 3)


spunko

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20 minutes ago, ThoughtCriminal said:

"Grand Theft Auto-maker Take-Two Interactive has agreed to buy mobile gaming company Zynga for $12.7 billion."

Yeah, we're in a bubble.

Hmm, I seem to remember reading that mobile gaming is the most profitable for studios, way more than console etc. 

Zynga is one of the big boys in that space. 

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Accept its a good return, a very good return.

My thoughts is as a holder of capital, why would I pay this ceo a huge amount of renumeration to buy cryto with the balance of my capital.

I could buy cryto directly rather than buy shares or lend the company money. Cut out cost of middle man.

You raise a good point that he could panic the market, what a mess he is in. He needs to offload quietly and quickly as much as he can. Lol, i actually find it hard to think through this scenario due to the level of wtf, he.s turned his company into some de.facto btc etf where future  ROCE depends on btc price appreciation due to size on balance sheet.

And the board let him lol. Oh well, each to their own i suppose

 

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Just now, Hardhat said:

Hmm, I seem to remember reading that mobile gaming is the most profitable for studios, way more than console etc. 

Zynga is one of the big boys in that space. 

AAA console games are hugely expensive to make. Mobile games can be incredibly simple and still make bank.

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1 hour ago, Axeman123 said:

The tweets about contributing to important projects and networks being more important than price represent the bargaining stage of grief, I think. If BTC doesn't rally soon I think we will see real selling start.

A fascinating question is what happens in that scenario with all the listed companies that have huge ammounts of BTC in their treasury. Microstrategy (NASDAQ: MSTR) for example holds 124,391 BTC, with an average purchase price of ~$30k. Their CEO Michael Saylor is a full on Bitcoin maximalist, with a laser eyes profile picture on social media etc. Where it gets really interesting though is that he doesn't have a majority shareholding. Clearly, on the way up his large shareholders have tolerated this lunacy so far.

If BTC ever drops much below $40k the next obvious level of support would be ~$32k, which would bring eye watering potential losses of the 3.7 billion actual dollars spent into play. Will Saylor be allowed to continue holding BTC under those circumstances, and for that matter could they even liquidate that much if they wanted to? Legally speaking officers of a listed company have responsibilities to shareholders, and can be held liable for not discharging them. Even if the shareholders go mad, will they even have a board of directors willing to take the risks?

Interesting times.

Sources:

https://coincodex.com/article/13311/microstrategy-finished-2021-with-another-bitcoin-investment/

https://www.msn.com/en-us/money/stockdetails/ownership/nas-mstr/fi-a1y1qh?ownershipType=institutional

I find BTC and ETH relatively easy technical plays (they follow the "rules") which says something about the majority playing in the market!  Right now I'm not seeing a solid bottom, even short term after quite some falls, so this could well get really ugly and interesting.  I'm still not certain of the impact of the options trading but I can't see it being good for the market.

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ThoughtCriminal
13 minutes ago, Hardhat said:

Hmm, I seem to remember reading that mobile gaming is the most profitable for studios, way more than console etc. 

Zynga is one of the big boys in that space. 

Their farmville days are a distant memory. They've done nothing for years.

 

If they're worth 12.7 billion then I'm the pope.

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29 minutes ago, ThoughtCriminal said:

Their farmville days are a distant memory. They've done nothing for years.

 

If they're worth 12.7 billion then I'm the pope.

do you shit in the woods?

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On 10/01/2022 at 03:43, Axeman123 said:

I think this is a marker of a top of some kind, an unsustainable extreme at the end of a long term trend of some sort, in the same way Argentina being able to sell century bonds a few years ago was. The vast majority of people will always need to exchange a significant part of themselves for financial sustenance one way or another; whether that is a significant % of their waking lives to toil, a few years of absolute max effort to get a scalable business of the ground and then personally throttle back, or their total focus on acquiring and maintaining a specialised and highly valued skill to enable part self-employment. The future isn't legions of self-sufficient dog-walkers etc, IMO.

I agree with what you say but I think we need to also keep in mind that those that opt out of consumerism, practice some stoicism and/or live a minimalist life which includes treading a little lighter on the planet are going to need a lot less financial resources over their lifetime.  By then needing less resources they'll need to work a lot less, though as you say still need to work in some way whether higher earnings/short time or lower earnings/longer time, meaning they'll also be contributing less to the tax take whether via income tax or VAT or...

I know my life has improved significantly from the day I opted out of consumerism and practiced some of these things.  If that becomes known by the masses and enough of them stick with it then we end up with quite a different world including one where heavily indebted countries have a big problem.

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14 hours ago, DurhamBorn said:

The huge problem in the west is that some people work 40 hours plus the travelling,getting ready etc etc for £450 a week and others work no hours for £450 a week in bennies.The system actually needs the first person to work 28 hours for £450 a week and the other person to work 20 hours for £300 etc.The system is collapsing because people are fed up being no better off working full time than people who dont work.

How we get there who knows,but the idea 40% of working age adults will give up their lives so the other 60% can swan around is at breaking point.The government cant tax them anymore to give to the rest,but inflation means they need to.

People will find a way themselves,multi generation living,working up to tax allowance,downsizing etc etc.

... or no work for £450 in dividends :)

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13 hours ago, working woman said:

...

Re Increasing energy price rises, one consequence may be a change in how people cook and eat. Maybe more salads, quick stir fries. brick built BBQ's in the garden. Maybe running a fridge/freezer will become too expensive. 

*Using my extra free time to help look after my sick MIL and  useful Dosbodder activities such as researching new meal ideas as per the above - salads and stir-fries.

My fridge/freezer at current prices costs me £31 a year to run.  But then again energy efficiency was the driving factor when I had to buy a new unit.  If prices doubled from here it'd be a meh for me.  Is running a fridge/freezer really a significant cost for many...

But it goes deeper than that.  My total electricity bill (no gas where I am) for 2021 came to £548.  So even if that doubled I'd moan a bit but not much more than that.  Particularly as it'll only be for a short while given our new home build includes solar panels and thoughtful design for passive heating/cooling along with decent levels of insulation.  Again though for me it's about everything I now do involving thinking how I can still very much enjoy life but tread a little lighter on the planet.  If others stopped playing the victim card and just thought about how to solve the problem I'm convinced energy use could plummet per household as I've lived the story.

For too long people have used cheap energy as a reason to be wasteful.  I remember visiting an old boss at home where upon entry I was confronted with sub-tropical conditions but yet all the windows were open (pre-Covid).  A life like that is about to get really expensive.

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5 hours ago, DurhamBorn said:

Im tracking this compared to my portfolio over the cycle.Need to remember as well most have this through an IFA so there are between 1.2% and 2% fees to come off each year as well.Those in drawdown tend to use this fund,or very similar,so with a 4% drawdown they need at least 5.2% a year to stand still nominal.Most with platform fees etc and Vanguards own fees will need 1.5% before they start.My roadmap is saying someone using an IFA and those 1.5% fees and a 5% drawdown might see the pension empty over 12 years,if they increase drawdown amounts with inflation even quicker.Worst affected will be those just retiring,but those say 10 to 15 years away will also suffer,mainly from a big undershoot to inflation.Most of the population from 45 to 80 has their assets in the wrong investments for a distribution.Houses,bonds and growth,ouch.

 

Eyeballing that Vanguard chart and it's close to what I achieved for 2021 which was 8.3% or 1.2% after inflation.  For me I do it because I know I won't be able to pick the winners every year for the next 40 or so years and so I've made average work by doing a number of other things with my life not just focusing on investing returns.

For example, even if my portfolio just matched inflation my wealth at current spending rates would last more than 40 years.  It's not just about investment returns but spending, expenses and taxes also play a big role.  Anybody paying an 1.5% in expenses needs there head read.  I'm at 0.26% currently and I'm trying to reduce that.

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8 hours ago, CannonFodder said:

Accept its a good return, a very good return.

My thoughts is as a holder of capital, why would I pay this ceo a huge amount of renumeration to buy cryto with the balance of my capital.

I could buy cryto directly rather than buy shares or lend the company money. Cut out cost of middle man.

You raise a good point that he could panic the market, what a mess he is in. He needs to offload quietly and quickly as much as he can. Lol, i actually find it hard to think through this scenario due to the level of wtf, he.s turned his company into some de.facto btc etf where future  ROCE depends on btc price appreciation due to size on balance sheet.

And the board let him lol. Oh well, each to their own i suppose

 


I’ve said on here many times that I expect crypto and the FAANGs (and Tesla) to drag each other down in the BK. Crypto will survive long term however as it’s intrinsic to CBDC intergration (ISO 20022 approved tech etc).

https://www.bankofengland.co.uk/news/2021/november/statement-on-central-bank-digital-currency-next-steps

But for now

*) BTC = FAANGs

*) Speculation doesn’t like inflation and raising interest rates

*) Inflation is now cemented, but many still think it’s transitory. Many still think the Fed is bluffing in regards to IR rises.

*) All that speculation will need to find return and value once they find out the Fed isn’t bluffing.

*) Flood of QE money after the BK into value and divi stocks to protect against inflation .

Come the new financial year, many business will be pricing inflation in, businesses competing in wages to secure staff, higher supply costs, logistics etc. That’s when the end consumer will finally feel it and it becomes more than just a bit of a nuisance paying a higher heating bill. That’s when the realisation hits when all the higher costs combine and suddenly the monthly income isn’t covering the usual costs anymore.

(Tesco lunch time meal deal from £3.00 to £3.50-£4.00 anyone? :))

That’s why if it isn’t Evergrande that proves to be the catalyst then inflation will do the job regardless.

FC017D45-ABF3-45A2-8B7F-1D2BFF266C7D.thumb.png.01299b2d90b983281f1adce33c991de6.png

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11 hours ago, DurhamBorn said:

The youngsters are getting a big lesson as well,the likes of Dogecoin getting slammed.Im still seeing hundreds of to the moon tweets,fill up,they just want our coins cheap,buy the dip etc and most telling seeing tweets creep in about how price isnt everything and they still have such a great community and friendships,group hug etc.

The only coins worth holding are the ones I'm thinking about creating.

ProVax Coin and AntiVax Coin.

Show where you stand on the issue by owning the amount equal to the strength of your conviction.

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On 09/01/2022 at 23:03, MrXxxx said:

P & P...Pensions and Property as they are the two 'investments' in the UK where a) the majority don't have any choice, the majority are highly invested, and they are both iliquid so difficult to 'get out of' quickly!

https://www.msn.com/en-gb/money/other/pensions-now-a-bigger-store-of-wealth-than-property-official-stats-show-as-younger-people-struggle-to-afford-homes/ar-AASEl9g?ocid=mailsignout&li=BBoPWjQ

well here's one piece of the jigsaw, another was the previous tax changes to BTL, and the final piece will be tax changes on property now they have 'sucked in' the last few punters with the recent HTB and Stamp Duty 'offers'.

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Grabbing a pension is quite overt, there were bails ins in Europe and they could sieze their 20 % tax relief back in a crisis. I dont think this is the preferred route though. It would not be popular.

More likely the means tested pension credit will become more dominate and the non means tested fade away with the result that most private  pension owners actually fund their state pension rather than have extra monies on top. Key to this tactic is raising the age to access private pensions so it is not all gone before state pension age.

On proptery IHT and BTL tax and CGT have begun that appropiation of private wealth. 

There are ways around but the majority of mom and pop individuals will be caught. Selling for care home costs will also deplete wealth.

The challenge for all of us here is to detect and avoid the wealth traps that will be set and are already set.

 

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1 hour ago, CannonFodder said:

Grabbing a pension is quite overt, there were bails ins in Europe and they could sieze their 20 % tax relief back in a crisis. I dont think this is the preferred route though. It would not be popular.

More likely the means tested pension credit will become more dominate and the non means tested fade away with the result that most private  pension owners actually fund their state pension rather than have extra monies on top. Key to this tactic is raising the age to access private pensions so it is not all gone before state pension age.

On proptery IHT and BTL tax and CGT have begun that appropiation of private wealth. 

There are ways around but the majority of mom and pop individuals will be caught. Selling for care home costs will also deplete wealth.

The challenge for all of us here is to detect and avoid the wealth traps that will be set and are already set.

 

Inflation.Thats all,they need nothing else,just fiscal drag.

IHT freeze is huge when you have high inflation.Im not married so my 3 kids only have £325k between them from me.I have the £175k house allowance as well,but without SIPPs being outside IHT id be stuffed,and thats before any family money from my dad comes to me.One reason i retired at 49,i can help my kids more looking after grandkids,fixing their cars,houses etc.My dad has a will trust for 49% of his assets,so my brother cant lose it all in a week,if my brother goes before me id likely use that to open SIPPs for all the grandkids and run them down because i dont want it for tax reasons.

Pension lifetime limit also.Just ok now for most people,but another decade of freezes,maybe two decades.Thats the big one for me if they count that to your estate.They tax it anyway if you die at 75 or over,but you can still withdraw at your marginal rate so can be used to retire early for the kids.

There is a very good chance il buy a load of woodland if that stays outside IHT at some point.Id rather Charlie has somewhere to live.Plus iv always had the urge to pull one of those hunter gentry types off their horse and give them a good kicking if they wandered on my land ,strange bucket list i have xD

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@DurhamBorn I have no wish to interfere with your bucket list but have a watch of this please, an isa can be made IHT exempt in certain circumstances. Dyor of course.

OF course there are some things more important than money such as your roll in the hay with the gentry dream. For everything else there is mastercard.

 

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Anyone interested in adding some South America exposure mostly tilted to Brasil might be interested in this investment trust iv been buying lately.

Blackrock Latin American Investment Trust plc (BRLA) 

Its full of inflation loving assets,trades at a discount,costs are reasonable considering and it pays out 1.25% of net asset value a quarter in dividends etc.Could be a 6% to 7% yield a few years into the cycle.

Investment trusts also have no platform fees unlike unit trusts.

For anyone starting out,or indeed with much bigger portfolios investment trusts can get you some nice diversity and income in areas its difficult to access yourself.Also very useful if building portfolios for children etc.

 

 

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2 hours ago, DurhamBorn said:

There is a very good chance il buy a load of woodland if that stays outside IHT at some point.Id rather Charlie has somewhere to live.Plus iv always had the urge to pull one of those hunter gentry types off their horse and give them a good kicking if they wandered on my land ,strange bucket list i have xD

Just a note of caution on woodland... any land, but especially woodland where you might have trees overhanging or leaning towards neighbour's property. What if your neighbour suddenly goes psycho on you and/or takes a jealous eye to your nice bit of woodland? They could put you in a very difficult position, for example a need to seek an 'Access Neighbouring Land Act' court order just to do essential maintenance on some of your trees!

Or... what if the neighbouring land suddenly starts to be used for something which either: impacts the value of your land, or makes it difficult for you to sell your land, or is a nuisance / makes it so you cannot enjoy your land anymore? Want to ask the local council for help with that? Then wait 12 months for a response because they're all useless and slacking off 'covid isolating'/WFH etc. And when you do get a response, will they give a shit about your views on appropriate use of neighbouring land anyway? The same councils that made those terrific decisions/investments in shopping centers etc...

My life in a house in Suburbia is boring but fairly predictable. Youngsters are out at school , oldies at the shops and on the buses, those in between mostly busy at work. I could not say the same about my land in the countryside. My house in Suburbia is, of course, a sitting target for more taxation as someone recently pointed out, and may not be so predictable and pleasant if it all goes a bit 'Mad Max'. Which is one of the reasons I bought a woodland... somewhere to 'escape' to. That would work if you can fully secure the boundary... During lockdown we had all the furloughed from the towns, with their new dogs, come walking through our woodland leaving dog shit and litter... You see litter and trespass in many private woodlands and it may not bother some owners but it really, really bothered me. Could you put up a good enough/long enough/high enough fence to counter that? Could be expensive... If/when it all goes proper Mad Max I now think I might actually prefer to be one of those rampaging across the countryside  rather than one of those trying to defend their little piece of it.

Anyway, long post but just wanted to say we had some (though not all) of the above things suddenly happen to us after many years of quietly enjoying and using our land. We decided to sell up rather than take any more of it. We have been unlucky and I believe woodland ownership works out fine for most people and is a good inflation proof asset... *as long as nothing goes wrong*. xD

Maybe it is a north/south thing. Down here people can be particularly nasty fuckers. I mean truly eye-opening, evil bastards. We may get land again in the future but I think size, location, population (lack of), security, topology, tree and hedge layout would need to pass some very stringent criteria if we do.

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7 minutes ago, BadAlchemy said:

Just a note of caution on woodland... any land, but especially woodland where you might have trees overhanging or leaning towards neighbour's property. What if your neighbour suddenly goes psycho on you and/or takes a jealous eye to your nice bit of woodland? They could put you in a very difficult position, for example a need to seek an 'Access Neighbouring Land Act' court order just to do essential maintenance on some of your trees!

Or... what if the neighbouring land suddenly starts to be used for something which either: impacts the value of your land, or makes it difficult for you to sell your land, or is a nuisance / makes it so you cannot enjoy your land anymore? Want to ask the local council for help with that? Then wait 12 months for a response because they're all useless and slacking off 'covid isolating'/WFH etc. And when you do get a response, will they give a shit about your views on appropriate use of neighbouring land anyway? The same councils that made those terrific decisions/investments in shopping centers etc...

My life in a house in Suburbia is boring but fairly predictable. Youngsters are out at school , oldies at the shops and on the buses, those in between mostly busy at work. I could not say the same about my land in the countryside. My house in Suburbia is, of course, a sitting target for more taxation as someone recently pointed out, and may not be so predictable and pleasant if it all goes a bit 'Mad Max'. Which is one of the reasons I bought a woodland... somewhere to 'escape' to. That would work if you can fully secure the boundary... During lockdown we had all the furloughed from the towns, with their new dogs, come walking through our woodland leaving dog shit and litter... You see litter and trespass in many private woodlands and it may not bother some owners but it really, really bothered me. Could you put up a good enough/long enough/high enough fence to counter that? Could be expensive... If/when it all goes proper Mad Max I now think I might actually prefer to be one of those rampaging across the countryside  rather than one of those trying to defend their little piece of it.

Anyway, long post but just wanted to say we had some (though not all) of the above things suddenly happen to us after many years of quietly enjoying and using our land. We decided to sell up rather than take any more of it. We have been unlucky and I believe woodland ownership works out fine for most people and is a good inflation proof asset... *as long as nothing goes wrong*. xD

Maybe it is a north/south thing. Down here people can be particularly nasty fuckers. I mean truly eye-opening, evil bastards. We may get land again in the future but I think size, location, population (lack of), security, topology, tree and hedge layout would need to pass some very stringent criteria if we do.

Thanks for that, those are the exact concerns I have, as working in construction I am aware of how land can be a tricky asset.  Would love to own just a field, not for building, or speculation, or anything like that, just somewhere to go.  But even that seems complicated.

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40 minutes ago, DurhamBorn said:

Anyone interested in adding some South America exposure mostly tilted to Brasil might be interested in this investment trust iv been buying lately.

Blackrock Latin American Investment Trust plc (BRLA) 

Its full of inflation loving assets,trades at a discount,costs are reasonable considering and it pays out 1.25% of net asset value a quarter in dividends etc.Could be a 6% to 7% yield a few years into the cycle.

Investment trusts also have no platform fees unlike unit trusts.

For anyone starting out,or indeed with much bigger portfolios investment trusts can get you some nice diversity and income in areas its difficult to access yourself.Also very useful if building portfolios for children etc.

 

 

I've always used the ETF LTAM.  But investment trusts are different animals and may generate decent alpha for the added cost over such a tracker so could be a useful complement. The same with Japan, AsiaPac, Europe, emerging markets, etc.

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