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

[DurhamBorn]

4 minutes ago, Hancock said:

Wonder why the BBC didn't use house prices to explain what inflation is.

Its great news that the licence fee is about to be finished, just a pity that its a couple of decades too late.

Tories will likely back out of scrapping it,but the BBC is the enemy of the people now,but they arent alone in that.I watched an old Dr Who the other night,fantastic story,acting etc,then the new one just on,utter woke garbage.Frightening how biased the BBC is and how it supports everything that hurts the British people the most.Evil.

[Axeman123]

4 hours ago, Cattle Prod said:

If you can figure out the 'why' to this, you'll figure out all the crazy shit going on right now.

(Assuming that wasn't rhetorical): It really is just that 1984 quote. If we had too much security and free time, we might realise that we don't need elites. An endless war (this time on climate change) is needed to waste all the surplus production and keep us busy working.

5 hours ago, DurhamBorn said:

Frightening how biased the BBC is and how it supports everything that hurts the British people the most.Evil.

It has always been a condescending institution, but it used to at least be beneavolent about it.

Once upon a time it's high production value nature documentaries enabled ordinary Joe to watch the mating dance of Birds of Paradise in the wild from his terraced house to elevate his mind and soul. Now they just want to sneer and abuse us, even the nature documentaries are turning into Greta lectures. Way back when they wanted to introduce the masses to French cooking and fine wine etc, now it's all sodomy and broken families.

My theory is that this change reflects the elites losing power and hence becoming resentful.

[Libspero]

6 hours ago, Cattle Prod said:

Thing is, there is enough hydrocarbons and nuclear left to bridge us to a better energy source, like maybe nuclear fusion. Plenty of time to put together a "Manhattan Project" to solve this. But for some reason, they don't want to.

Regardless the scientific arguments,  the perception of fusion is that it is, and always will be “this time next year Rodney”.  I presume the technical challenges make it too uncertain to plan around..  so instead they will just keep dripping money to UKAEA etc until eventually they have a eureka moment.  Maybe.

[CannonFodder]

8 hours ago, Cattle Prod said:

But for some reason, they don't want to. The best current energy sources are being starved of capital and demonised. If you can figure out the 'why' to this, you'll figure out all the crazy shit going on right now.

I think they want to get population growth under control. world population has increased so much from cheap oil energy and the standard of living has been so high that population has rocked over the last 50 years.

This is leading to trouble with environment. Fusion will pour petrol on the fire if i can use than pun. We cannot keep doubling world population.

Higher energy costs will encourage smaller families as people will not be able to afford children.

There are other things too, polices to encourage people away from the two parent hetrosexual traditional boring household. Policies not to have lots of children due to education costs and social care provided by state instead.

Polices to delay having children till later in age. Education that humans are bad for the environment.

I.ve seen interviews of woke young people who say they will never have kids due to carbon footprint.

World fertility rates are dropping nicely but at different rates in different countries, immigration needs to balance this.

This dropping in fertility widely cheered as a good thing for planet.

A near Free and near limitless energy source such as fusion would upset this 

[jamtomorrow]

8 hours ago, Cattle Prod said:

And if you have to add storage to cover the intermittency problem, it's bugger all EROEI.

Always love seeing EROEI come up on the thread.

On the one hand, EROEI seems fundamental to everything we discuss here, in terms of representing the "true" economic mean which everything will tend revert to over the *very* long run (like if we could somehow remove the effects of capex cycles, fads like ESG, monetary debasement etc).

On the other, it's hard finding solid and trustworthy EROEI figures. I keep half an eye out for EROEI studies in the literature, and the disagreement between different studies and methodologies is tiresome to say the least.

A recent example (this one attempting to forecast future NG EROEI):

Source: https://www.mdpi.com/1996-1073/14/16/5112

This one uses EROEI-stnd, which as I understand measures raw calorific output at the well head. So shove that through a CCGT (typical 65% thermal efficiency) and you get an EROEI of 13:1 for NG electricty generation.

To be clear, I'm not saying "this one is right". It's more: CP how do you go about making sense of all the EROEI literature? Do you deal much/at all with EROEI in your work?

[CannonFodder]

Agreed with the education of women but i feel it is connected , too many people, too many cars in way of elites, too many chavs on their ski slopes brought there by cheap oil 

Still once Liz Trus is PM for her speeches, we can go back to plan A. Needs sound.

 

[DurhamBorn]

Most of what you see is driven by the economy,not the other way around.Wokeness etc wouldnt exist without high bennies and high government/quango wages and pensions.In affect it is funded from dis-inflation.The reason its so fierce now is because the cycle has ended,so its peak wokeness etc as they try to defend their worldview and life.This stage is the distribution part of the long cycle.At first governments have the QE still running,but as it slows the state and other parasites dont want to suffer from the inflation so they try to tax more,control more,and sadly towards the end take more assets away.They will defend the single mother who works 16 hours by doubling the pain on the white male warehouse worker on £11 an hour.They will also take from those retired from the private sector.

The public in their wisdom actually understand this without understanding it.Thats why they gave the Tories such a big win,to confront these issues,but Boris has done nothing and has made it much worse.The NI increase on low paid who actually work one of the worst policies iv ever seen.Disgusting.

The cycle will wander around the roadmap as lots of cross marker issues appear,some expected,some not,but its critical to try to leverage the inflation even if only slightly.

The areas we own are hardly owned,and the capital in them is tiny compared to the inflation headed their way.

There is and will be a massive theft from the workers to the scroungers,working and not,but all of that inflated currency/liquidity will find its way to our de-complex areas.Passengers can get on and off a train ,but the train itself is going to where its going.

The wealth transfer will be by inflation mostly.

If growth companies stand still even for the cycle from these bubble highs owners will still see 60% losses of buying power and thats before any fund/platform fees.

Its likely the BTL market goes into reverse now as well.I dont spend much time on houses,but even a quick macro look says the model has no chance unless you own outright,or very low leverage.Expect lots to come on the market this year.

 

[DurhamBorn]

It will be interesting to see who makes the first move in the telco sector.It will be obvious now to big capital that their free cash is undervalued in this cycle.Vod would of been a target,but the debt might mean they have a little time to merge areas themselves.I think its obvious now they are going to go down the tobacco route where there are only 3 players per market who only semi compete.If a big US telco tried to buy one it might force the hand of governments here to allow friendly mergers.Orange with Vod could be the outlier deal,but country by country deals might be more likely.

EU/British governments have a choice now.Allow mergers and accept prices drifting up or see big US companies,maybe even big tech buy up the industry.We just need the first trigger.

The debt isnt the main issue for the sector,its ROCE,that needs to be moving higher because that will show the inflation is slowly helping them.Watch for the figures in the telcos next results as it should be starting to feed in a bit now,much more next year.They can then start to de-leverage and slowly increases divs.

[Lightscribe]

https://www.dailymail.co.uk/news/article-10431571/amp/Cruise-ship-700-passengers-crew-onboard-diverts-Bahamas-avoid-arrest-warrant.html

I knew things in the cruise line industry were bad, but….

 

[Chewing Grass]

5 minutes ago, Lightscribe said:

https://www.dailymail.co.uk/news/article-10431571/amp/Cruise-ship-700-passengers-crew-onboard-diverts-Bahamas-avoid-arrest-warrant.html

I knew things in the cruise line industry were bad, but….

 

Probably just to avoid the hassle whilst somebody whistles up the cash, now if they haven't paid the crews wages that would be a better story.

[Hancock]

38 minutes ago, DurhamBorn said:

Most of what you see is driven by the economy,not the other way around.Wokeness etc wouldnt exist without high bennies and high government/quango wages and pensions.

I'd say so many young people being indocrinated at university over the last 20 odd years, aligned with having social media to spread their drivel and look "nice" is the no.1 factor.

[Castlevania]

48 minutes ago, DurhamBorn said:

It will be interesting to see who makes the first move in the telco sector.It will be obvious now to big capital that their free cash is undervalued in this cycle.Vod would of been a target,but the debt might mean they have a little time to merge areas themselves.I think its obvious now they are going to go down the tobacco route where there are only 3 players per market who only semi compete.If a big US telco tried to buy one it might force the hand of governments here to allow friendly mergers.Orange with Vod could be the outlier deal,but country by country deals might be more likely.

EU/British governments have a choice now.Allow mergers and accept prices drifting up or see big US companies,maybe even big tech buy up the industry.We just need the first trigger.

The debt isnt the main issue for the sector,its ROCE,that needs to be moving higher because that will show the inflation is slowly helping them.Watch for the figures in the telcos next results as it should be starting to feed in a bit now,much more next year.They can then start to de-leverage and slowly increases divs.

News coming out that Vodafone discussed buying Three’s UK business. Came to nothing, but would have been interesting to see if the competition commission would have allowed.

[Pip321]

21 hours ago, Cawn said:

I’d like to ask the forum a generic question, not specific to me or anyone; just some variables which could act as pointers.
You wake up Monday morning with the clothes on your back, a laptop, a phone and one million pounds in your bank account. You are 50 years of age, no partner, no ex, no kids.
You must live in the UK, you could buy a house, you can invest in shares on any exchange which your platform allows. You can remain in cash by any amount up to 50% of the pile. There is no hurry is buying the shares, but you must allocate at least 50% of the cash to shares/assets by the end of 2022.
What and when would you buy?
 

I have just begun catching up on this forum because I am re-evaluating my assets and meeting my IFA next week. So answering this question may help me understand some of my own thoughts.

Buy a home but not a ‘stepping stone’ or an ‘investment’…modest but enough to live in for 15 years. And buy something that is relatively good value….ie might be a bit shabby. I see the same type of house for sale, one at £200k and another at £275k and the only difference is a fire place, light fittings, blinds and maybe kitchen colour. So that means waiting for a local market seasonal dip when buyers aren’t queuing up. £200k max. 

I follow about 10 shares…all massive companies and all paying between 4 - 9% dividends. I switch between them depending on the market. Oil and mining at the moment and I bought well but that might change in 3/4 months. I don’t chop and change a lot but I never get attached to a particular share. I tend to see a stock fall out of favour then jump in…usually a little too early but most £50billion dollar firms that then ‘slowly and discretely float back up’ and I make a profit. So I would be looking at big companies, earning real money and paying real dividends but currently out of favour.

I would possibly have a £20k flutter on a more speculative punt. Maybe if a tech if it keeps dropping but buy much much lower level than today…and sell if you make big money on it ie if it doubles.

My biggest issue is I want value. And I would do nothing rather than over pay…so often I do nothing. 

So I would keep a chunk in cash…inflation is killing cash but we could see some huge opportunities in the stock market. Buying in a 10/15%/25% or even 50% dip won’t make you money but it’s improved the position you would have been in buying at the top. In the event of a huge crash (like we saw in March 2020) I would then move into a tracker and follow a long term growth back up. 

[Joncrete Cungle]

While inflation is painfully reducing cash purchasing power in terms of investing would it be better to view it as an opportunity cost? Keep some powder dry and inflation eats away at it. But the powder is there when a good buying opportunity presents itself?

[Pip321]

On 18/01/2022 at 09:39, DurhamBorn said:

I worked from 18 to 30 had 6 years off,i then worked from 36 to 49 with 7 years of that self employed,never earned much over £36k a year and retired at 49 pushing the lifetime allowance in my SIPP,house paid off etc,big ISA.Anyone can do it,you need to focus,learn how to invest (crucial) and get rid of expenses.Nobody gave me anything.Move north,rent a room,live frugal,invest everything,then buy a house up here,rent a room to a lodger,use that to finish off the mortgage,if your with someone claim your not,let her get bennies etc.Its not for everyone,some prefer to consumer through life and work until mid 60s,nothing wrong with that,but FIRE is easy for someone at say 55,50 do-able on average wages.Down south could be a different story,but i wouldnt live there for anything,lots of family there and hate it.

Trying to catch up on this site and thread because I have become more interested in investing safely whilst beating inflation. I didn’t mind losing 2% a year in cash but it’s beginning to be too expensive to stay in cash. 

Your story is ‘similar’ to mine in terms of result…I worked hard with same employer for 33 years, spent very little (other than nice but great value family holidays) and invested well. However some good luck with timing of a house sale, then renting, then buying in the 90’s plus a little leveraging in the early 2000’s to develop properties also gave me a boost.

At 40 I almost retired but waited until 50 to effectively provide significant contingency and some legacy for kids, grandkids.

I rejoin this forum because of inflation. I have a massive cash pile but it is offset by debt which has a low interest rate of 1% fixed and tax deductible. So my cash just has to keep up with the debt…or I just repay the debt.   

I now am looking to be more adventurous and invest so as not to just ‘keep up with the debt’ but to start to beat it. 

Unilever in the dip was nice and I bought a few and even a long term hold but I am watching that closely. It could be a take over target itself, or the board could he removed which may boost the price…but I am ready to sell if need be. 

A lot of newly printed cash around going into property, Labrador puppies, US shares, Crypto…so things are seemingly doing well in the economy. However businesses on the ground don’t mirror that at all… inflation bubbling, the US can’t really put up rates to fight it due to a worsening economy, some really poor employment figures, furlough stopped and now commodities starting to rise…interesting times.

Thanks for the thread….watching to see what people are thinking, where they might be investing and also keeping one eye on the markets because I think we are going to see volatility soon.

[Libspero]

1 hour ago, Joncrete Cungle said:

While inflation is painfully reducing cash purchasing power in terms of investing would it be better to view it as an opportunity cost? Keep some powder dry and inflation eats away at it. But the powder is there when a good buying opportunity presents itself?

Someone may be able to read the tea leaves for you..  certainly a few here seem to have the knack* for it.
 

If the markets panic and everything sells off (as seems to be happening a bit at the moment),  then picking the bottom would mean needing some money ready to invest.   Opinion is usually split,  timing is tricky,  but the rewards can be worth it.  Or as others will say,  only monkeys pick bottoms.

*the knack

 

[JMD]

14 hours ago, DurhamBorn said:

We told them here what would happen didnt we.Sometimes things are so obvious almost everyone misses it.Where they have contracts to supply x amount of turbines at a certain price,big oil supplied at a floating price after hedges.

This is amazing to see as well,youngsters having to be taught what inflation is,

https://www.bbc.co.uk/news/av/newsbeat-60085274

Of course being the BBC it has to mention Brexit,and of course no mention of the fact one of the big drivers of the inflation is the BOE printing money to fund the working age welfare budget so when the woke young cheer those dover boats and welfare increases they are inviting government into their pockets,but at least its a start.

I should add,the Siemens story is why i banged on and on about it being crucial to own companies with very high fixed assets even if they were funded with a lot of debt to equity as long as coupons were fixed etc and depreciating at a set rate because people adding assets now will have to pay much more for the assets themselves and the debt to fund them.Bullseye.

 

Thanks DB for hammering home this whole vital topic. I bought lots of energy and telecoms 'big fixed asset' type companies. I suppose miners, pm/commods/forestry (I own lots of those also) don't fit strictly into the fixed asset category(?) because many of their assets actually need to be found and extracted, but I'm thinking still kinda fits the broad categorisation?                                                                                                                  Anyway I wonder if there are other inflation loving type sectors which have large fixed assets that should be on our watch list, their stock prices may have run up now, but maybe still worth monitoring in case future market corrections?

[JMD]

17 hours ago, Hancock said:

Depends if your buying and holding or trading.

I've done rather well out of being in cash for the last crash and holding, believe someone named this strategy as "crocodile investing"!

If you set 3 ladders at 30p, 20p and 10p ... then you might as well just go all in at 20p on the basis it might not hit 10p ... though of course it may not hit 20p so you miss out.

 

Yes, I've mentioned on here before the Marin Katusa strategy-analogy of investing like a crocodile - by patiently waiting in the reeds for his (personal target stock price) 'prey' to come to him before striking/hitting the buy button, and not to go chasing the market!

[Noallegiance]

5 hours ago, DurhamBorn said:

Most of what you see is driven by the economy,not the other way around.Wokeness etc wouldnt exist without high bennies and high government/quango wages and pensions.In affect it is funded from dis-inflation.The reason its so fierce now is because the cycle has ended,so its peak wokeness etc as they try to defend their worldview and life.This stage is the distribution part of the long cycle.At first governments have the QE still running,but as it slows the state and other parasites dont want to suffer from the inflation so they try to tax more,control more,and sadly towards the end take more assets away.They will defend the single mother who works 16 hours by doubling the pain on the white male warehouse worker on £11 an hour.They will also take from those retired from the private sector.

The public in their wisdom actually understand this without understanding it.Thats why they gave the Tories such a big win,to confront these issues,but Boris has done nothing and has made it much worse.The NI increase on low paid who actually work one of the worst policies iv ever seen.Disgusting.

The cycle will wander around the roadmap as lots of cross marker issues appear,some expected,some not,but its critical to try to leverage the inflation even if only slightly.

The areas we own are hardly owned,and the capital in them is tiny compared to the inflation headed their way.

There is and will be a massive theft from the workers to the scroungers,working and not,but all of that inflated currency/liquidity will find its way to our de-complex areas.Passengers can get on and off a train ,but the train itself is going to where its going.

The wealth transfer will be by inflation mostly.

If growth companies stand still even for the cycle from these bubble highs owners will still see 60% losses of buying power and thats before any fund/platform fees.

Its likely the BTL market goes into reverse now as well.I dont spend much time on houses,but even a quick macro look says the model has no chance unless you own outright,or very low leverage.Expect lots to come on the market this year.

 

Very hopeful that the swing-o-meter starts to move the other way back toward private productivity before my nippers get less nippery.

[JMD]

14 hours ago, DurhamBorn said:

Tories will likely back out of scrapping it,but the BBC is the enemy of the people now,but they arent alone in that.I watched an old Dr Who the other night,fantastic story,acting etc,then the new one just on,utter woke garbage.Frightening how biased the BBC is and how it supports everything that hurts the British people the most.Evil.

The only satisfying thing Is that the Dr Who viewing figures are going down-down-down, along with their other main program EastEnders.                                                                                                                                                     Talking of figures, I expect that BBC News hasn't reported that GBNews got their foi request last week, where the ONS released/admitted that the actual number of people in UK dying OF covid (ie not with covid) since March 2020 was 17,000!    ...I didn't know this statistic was even maintained, but it took a non-BBC organisation to obtain it - and puts I think the whole MSM to shame.

[DurhamBorn]

4 hours ago, Hancock said:

I'd say so many young people being indocrinated at university over the last 20 odd years, aligned with having social media to spread their drivel and look "nice" is the no.1 factor.

They are connected,state loans from printing allowed unis to be money sinks.

[JMD]

10 hours ago, Axeman123 said:

 It has always been a condescending institution, but it used to at least be beneavolent about it.

Once upon a time it's high production value nature documentaries enabled ordinary Joe to watch the mating dance of Birds of Paradise in the wild from his terraced house to elevate his mind and soul. Now they just want to sneer and abuse us, even the nature documentaries are turning into Greta lectures. Way back when they wanted to introduce the masses to French cooking and fine wine etc, now it's all sodomy and broken families.

My theory is that this change reflects the elites losing power and hence becoming resentful.

Apparently it is also very 'end of cycle' (social breakdown) stuff that's happening, ie a pre-occupation with celebrity chefs and of sexual deviancy, a mixed bag I know!!... anyway Camille Paglia (once a celebrated, but now shunned feminist) warns and talks about this.

[Bobthebuilder]

1 hour ago, JMD said:

Talking of figures, I expect that BBC News hasn't reported that GBNews got their foi request last week, where the ONS released/admitted that the actual number of people in UK dying OF covid (ie not with covid) since March 2020 was 17,000! 

With the average age of death at 82.5 years old.

[Hancock]

1 hour ago, JMD said:

Yes, I've mentioned on here before the Marin Katusa strategy-analogy of investing like a crocodile - by patiently waiting in the reeds for his (personal target stock price) 'prey' to come to him before striking/hitting the buy button, and not to go chasing the market!

https://katusaresearch.com/the-way-of-the-alligator/

Most people who have earned enough money to invest have the natural urge to “do something” and “stay busy.” That’s how we got the money in the first place.

But unless you’re a skilled, lightning-fast day trader, the market does not reward frequent activity. In fact, it penalizes it.

The urge to “do something” leads you to be impatient and less selective with your investments. It forces you into mediocre opportunities. Said another way, the quality of your investments typically moves inversely to the quantity of your investments.

For investors who look to hold positions for months and years, the market simply does not serve up truly great opportunities every day.

Sometimes, we only get two or three per year. Just like doing nothing and waiting for a great opportunity is often the right move for an alligator, it’s also often the right move for investors.

To many investors, having a large cash balance in an investment account feels like having a wad of cash in a casino. Why let it sit there and do nothing when you can “play” with the money? Why not at least take a shot at something?

This amateur thinking is why casinos earn billions of dollars in profit at the expense of impatient, probability-ignorant gamblers. Doing nothing, staying patient, and waiting for a no-brainer opportunity is often the right move.

[JMD]

6 hours ago, Hancock said:

I'd say so many young people being indocrinated at university over the last 20 odd years, aligned with having social media to spread their drivel and look "nice" is the no.1 factor.

Excuse me going bit off thread(?), but you mentioned social media and the young.                                                                I agree, but also think social media/internet in general are huge disruptive technologies which society as a whole has not slightly begun to come to terms with, in regard to meaning, manipulation, etc.                             ...Anyhow i was recently struck by an old JG Ballard (author) interview from 1990. He spoke about what he referred to as '...a map in search of a teritory' and was talking about the MSM of his day which back then was really only film, TV, newspapers. His thesis was the media were providing a harmful and false 'world-map' perspective to people - harmfully focusing on catastrophising problems, debasing human relationships, etc, and he was very negative about the eventual outcomes of doing this, because the 'information' being imparted had no relevance for people in their physical world. I immediately thought crikey, If he were alive today, what would he think about our internet!! The thing is that his own books, Crash, etc, were themselves delving into the themes of violence and of subversive behaviour, and nor was he being anti-commercialism - but his main argument was that context is vital, and that the media were guilty of not providing any proper context, explanation or balance, instead they focused mainly on 'selling' simplistic and fleeting entertainment 'values'. ...whether or not this has been willfully done, it is a downward spiral that has tragically continued into our present day.                                                   (I've blathered on for far too long, thanks for indulging me!)