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

[Harley]

42 minutes ago, AyrshireBoy said:

Suppose we always take the hit for RUK, Poll tax, vaccine passports, shitty heating 😂 

If youve not got gas then good insulation and a log burner are the way to go IMO, solar panels and battery storage if you want to get fancy. 

That's my route.  With a legacy oil boiler for backup, hot water, etc.

[sancho panza]

Bits of Londinium appear to be in early crash mode.Updating more in property thread.Too early to short the banks imho ,we need to see more data.But teh set up is there.Low transactions,lots of overleveraged sweatboxes up for 30 times local salaries.

let's remember Barclays leveraged at 50/1 using Dowd Buckner ratio.HSBC was the least leveraged iirc at about 30/1....................

 

 

cross psot from property thread

SW19 675 for sale/58=11.6 months inventroy

here's a funny one.5 bed house.Didn't sell through 2020 and first half 2021,so put the price up £250k

Price Change History

15/06/2021	Price changed from £2,500,000 to £2,750,000
19/11/2019	Initial entry found: £2,500,000

 

 

Some eye watering losses coming in Lodon

1 bed flat SW10

Price Change History

15/09/2021	Price changed from £790,000 to £650,000
28/08/2021	Initial entry found: £790,000

 

SW10 446 for sale/12=37 months inventory.

SW8 761/14=54 months inventroy

Edited just now by sancho panza

[sancho panza]

3 hours ago, Majorpain said:

https://www.telegraph.co.uk/property/uk/supply-chain-crisis-destroying-britains-home-renovation-boom/

Telegraph had an interesting story on that, because people who are looking at moving cant get it renovated, due to shortage in contractors/materials, its depressing demand.  

Lockdown boom has given way to energy crisis boom for construction raw materials!  Coupled with 5% (and increasing....) inflation that the BOE is going to have to deal with, its hard to see exactly what is going to be positive for house prices for the next few years.

Sorry MP jsut playing catch up.Kids have been sick.

I think there's a whole host of issues.I hadn't thought of this angle.I come at it mainly from a bankign leverage point of view and will look too short banks if there's a decent value way to do so at the right time.

Appreciate your knowledge construction sector gives you an insight that NHS workers wouldn't have.Have you noticed whether the sugar rush after lockdown to do up hosues,renovate etc has eased off in the face of raw material crucnh? @Bobthebuilder too?

Next question:Still seems busy to my untrianed eye but then is that people renovaitng hosues because they're not going to move?

London appears to be undergoing an inventroy build process in housing marekt-although I have no mechanims but memory tot rack the for sale data.

I agree,hosuing looks to have peaked adjsuting for volume.There looks to be some genuine fear building in some of teh rpice drops in the smoke

[JMD]

Gavekal newsletter on coming oil crunch, prices, etc. Its mostly in agreement with the thread.

But it also takes opportunity to highlight how energy demand never goes down (ie biomass, coal consumption, etc, merely flat-line, then are replaced by the 'new' fuel energies)...  especially as it relates to the example given regarding Norway - a country which ironically is propagandised as one of those 'forward-thinking' ultra-green type countries that the rest of the world should emulate...  

'While almost two-thirds of Norway’s new vehicle sales are EVs, a remarkable market share gain in just over a decade... despite this extraordinary push into EVs, oil consumption in Norway has been stubbornly stable.' 

Green energy: A bubble in unrealistic expectations? - Evergreen Gavekal

[Bobthebuilder]

4 minutes ago, sancho panza said:

Appreciate your knowledge construction sector gives you an insight that NHS workers wouldn't have.Have you noticed whether the sugar rush after lockdown to do up hosues,renovate etc has eased off in the face of raw material crucnh? @Bobthebuilder too?

I often quote the thoughts of a builder/ developer that I work with. He is 65, been in the trade since 15 years old, proper old Sun newspaper reader and buys all the lads a bacon sarnie on site. He has quite a good insight into economics but he doesn't know so himself. His latest thoughts with the cost of materials, is that people will now start to move rather than extend, reversing what he has been saying  for the past couple of years, he has been run off his feet doing extensions in those 2 years.

[Noallegiance]

I'm putting this here purely for the popularity of the thread.

Am I the only one that thinks WTF??????

[Bobthebuilder]

3 minutes ago, JMD said:

But it also takes opportunity to highlight how energy demand never goes down (ie biomass, coal consumption, etc, merely flat-line, then are replaced by the 'new' fuel energies)...  especially as it relates to the example given regarding Norway - a country which ironically is propagandised as one of those 'forward-thinking' ultra-green type countries that the rest of the world should emulate...  

A few months ago there was an article in the monthly gas safe magazine, it showed a graph of different fuel use going forward to 2040 or so. Matched what you are saying, with gas use staying at the current level, with renewables/ nuclear taking up the future additional demand.

[JMD]

22 minutes ago, Bobthebuilder said:

A few months ago there was an article in the monthly gas safe magazine, it showed a graph of different fuel use going forward to 2040 or so. Matched what you are saying, with gas use staying at the current level, with renewables/ nuclear taking up the future additional demand.

Yes i think saw that Bobthebuilder (you posted it i believe?)... anyway i find the whole topic so very illuminating, yet MSM strangely never mention it - Funny that!

But the Norway (of all countries?) and the EV (of all 'sainted' sectors?) green mashup did have me chuckling... i assume they had to put poor Gretta into a darkened room!! 

[Bobthebuilder]

17 minutes ago, JMD said:

Yes i think saw that Bobthebuilder (you posted it i believe?)... anyway i find the whole topic so very illuminating, yet MSM strangely never mention it - Funny that!

But the Norway (of all countries?) and the EV (of all 'sainted' sectors?) green mashup did have me chuckling... i assume they had to put poor Gretta into a darkened room!! 

It is quite amazing isn't it? The whole MSM and even a lot of posters on this forum discussing gas not being used in a couple of years, when the Government own figures say the opposite.

[JMD]

This article (part a and b) relate to the author's prediction/fear of a bond market crash. He is a former self declared 'fan' of bonds, but now sees it as a massive bubble (among other bubbles i think, as explained in his new forthcoming book).

The Anti-Bubble Years (Part I) - Evergreen Gavekal

The Anti-Bubble Years (Part II) - Evergreen Gavekal

Would be interested to hear the thread's opinion, and @DurhamBornin particular, who i think has written before about the (existential?) risk of the bond markets blowing up.

 

[DurhamBorn]

47 minutes ago, Noallegiance said:

I'm putting this here purely for the popularity of the thread.

Am I the only one that thinks WTF??????

I wont have a car unless it costs me around £400,,,,,,,,,,,,a year.,,funny enough my 16 year old Pug needs some money on it next month for test,new spring,new caliper,leaking brake fluid on other caliper and maybe other bits.Im hoping i can get it through for around £400 to £500,but over the last 23 months its only cost £220.11 year ownership £5300 bought cost, £2400 spent on it so far so its cost £700 a year depreciated to zero value.

[jamtomorrow]

33 minutes ago, JMD said:

But the Norway (of all countries?) and the EV (of all 'sainted' sectors?) green mashup did have me chuckling... i assume they had to put poor Gretta into a darkened room!! 

This is what makes me chuckle about EVs - love them or loathe them, most people think they're "about" the environment (depending which side of the culture war they've fallen for).

Which of course they are not. What they're really about:

- long term structural change in energy delivery/transmission. You could put a diesel genny on the grid, charge ypur EV and get similar effective MPG to a modern ICE

- auto mfrs "resetting" margins, per DB's lament about EVs being an unaffordable luxury, which of course is merely returning us to how things used to be - it's only the decades of disinflation makes us think we're all entitled to a car

- decomplexification - the modern ICE is an over-engineered joke in a world where supply chains are falling apart (and don't get me started on hybrids, sorry "self charging")

[DurhamBorn]

53 minutes ago, Bobthebuilder said:

A few months ago there was an article in the monthly gas safe magazine, it showed a graph of different fuel use going forward to 2040 or so. Matched what you are saying, with gas use staying at the current level, with renewables/ nuclear taking up the future additional demand.

My world gas use shows a 35% increase minimum to 2050,oil use down 14%,gas price treble minimum from where they were over the last period and oil to average $70 later,but much higher average for the first bit to 2030.Oil will leverage the inflation first but then fall away at a decent price,gas will equal or beat inflation all the way to 2050,the big gains in gas should start late 23 to late 24 then rise slowly after that,i dont count the present very high prices.

[sancho panza]

On 09/10/2021 at 02:09, DurhamBorn said:

Its incredible isnt it how all of a sudden its inflation everywhere and the public are like rabbits in headlights.Utter cunts they are the lot of them at the BOE.Boris pretending the shit show is fantastic for rising wages,ignoring the fact without productivity gains those workers will be getting poorer.Its a distribution cycle upon us and they aint pretty.They never expected cost push inflation because velocity was so low,but they filled the M2 bucket so full it was certain.I notice today they think RPI might hit 7% and i had 6.7% on my inflation roadmap from 2016.BOE think they can sit keep rates on the floor,but the US long bond will force their hands.Love how they keep saying its all fine and the war will be over by xmas.Same old same old.

 

My dear old Mum, as part of her efforts for our investmetns,has collected me a few articles from the Daily mail.Nothing that would surprise your average basement dweller but the fact that's it's in the Mail is what's significant to me in that it's the msot read news website in the world.AS @Cattle Prod has said about the 2008 oil spike,it was all aout perception of supply.Same here.I'm beginnign to wodner if the fundamentals are being marginalsied as govts start panicking about oil supply.

Anne Ashworth 9/10/21

Beware a 1970s-style inflation flare-up: As energy prices soar and the recovery falters, it could be time to put your portfolio on the defensive

Sean Poulter 9/10/21

Factories are 'days away' from stopping production due to energy crisis as business secretary Kwasi Kwarteng prepares to ask Rishi Sunak for BILLIONS in subsidies to keep plants open

Martin Robinson 6/10/21

Britain faces bleak winter of soaring energy costs: Gas prices rise by 37% TODAY pushing more firms to brink of collapse, National Grid boss warns of electricity shortages and experts predict bills will soar to £1,700 a year

 

Sue Reid 9/10/21-DM campaigning to bring back fracking.Reinforcing the 'cold shower' theory.

Frack us back from the brink! Boris Johnson wants to level up Blackpool. It's sitting on a goldmine of shale gas we've never needed more.
 

 

On 09/10/2021 at 11:18, DurhamBorn said:

Telcos are the only real struggle.The market simply doesnt like them because there has been little profit growth for a long time and they mostly have too much debt and very poor ROCE and the big one their returns on cost of capital are very poor.However on the plus side even the indebted have very good debt structures.Some are getting debt down to low levels (Tef Germany,Tef Brasil) and the big ones like Orange SA and even TEF have made good progress.

I see telcos right now as i saw tobacco back in the late 90s.A boring sector that was structurally undervalued about to consolidate.I dont expect the gains tobacco delivered,bit i do think as a sector they will provide nice returns.The key is they keep consolidating,(i think Orange might make a move in Belgium next after the recent Romania move) and that they all increase prices with or above inflation.As TEF Brasil's acounts showed their costs only increased at 40% of the inflation rate and until depreciation laps in 10 to 15 years that should mean much higher free cash.I would expect that to start feeding in from around now,so VOD should see a 5% increase in free cash for instance in its next results.

It's weird,I've got a couple of portfolio builds coming up for two people in the family and I've been really open about how there's little value out there now the oilies have moved up using RDSB as a benchmark from the 1300-1450 range to 1500-1650 range currently.I'm not sure we're going back down.

I'm being honest with people that the only sector screaming great value that brings an income is telecoms and with less uspide in terms of growth tobacco(BAT's/Jpan Tobacoo).Goldies are reasonable but yields are poor.

Looking at the sector this morning 18/28 I've coma scored have scores >17 which is a buy for me.And crucially they've loaded their debt onto bond holders with nominal yeilds in low single figures and the baility to price at inflation+

 

[Majorpain]

1 hour ago, sancho panza said:

Appreciate your knowledge construction sector gives you an insight that NHS workers wouldn't have.Have you noticed whether the sugar rush after lockdown to do up hosues,renovate etc has eased off in the face of raw material crucnh? @Bobthebuilder too?

General construction has gradually slowed down over the year, from the subcontractors point of view the main contractors have the contacts with the right people and financial firepower to be at the front of the queue for goods.  I hear reports from site about slow deliveries/timetables but it keeps going.  

Bob is better placed to say what's going on with the small builders, i cant imagine its much fun trying to source materials at the minute and anecdotally people have either done work on the house over lockdown or been put off by the price hikes over the last 6 months.  That should be ideal conditions for stocks to be rebuilt over Christmas, but energy looks to be throwing a spanner in the works for that.

[DurhamBorn]

11 minutes ago, JMD said:

This article (part a and b) relate to the author's prediction/fear of a bond market crash. He is a former self declared 'fan' of bonds, but now sees it as a massive bubble (among other bubbles i think, as explained in his new forthcoming book).

The Anti-Bubble Years (Part I) - Evergreen Gavekal

The Anti-Bubble Years (Part II) - Evergreen Gavekal

Would be interested to hear the thread's opinion, and @DurhamBornin particular, who i think has written before about the (existential?) risk of the bond markets blowing up.

 

I think the main capital transfer to consumption and reflation areas will come from bonds,houses and tech/crypto.Bonds i see giving a 37% to 55% real terms loss over the cycle.Not nominal.Real terms i see bonds in a 60/40 portfolio losing 3.5% a year compound against inflation.

I see fees and bonds losing those type of funds around 5% a year against inflation compounding over the cycle,so a 50% loss needing equities to cover.I think someone going into drawdown today with a 60/40 set up and an IFA taking 4% a year will empty their pensions to a very low level over 10 years .

[Harley]

1 hour ago, sancho panza said:

Didn't sell through 2020 and first half 2021,so put the price up £250k

Housing as a Giffin good?......Scratches head as he goes off to find his copy of "Positive Economics" (Lipsey et al).

[Harley]

My electricians and plumbers are busy until Q2 next year.  Gave up on roofers.  Lazy buggers!

[Harley]

28 minutes ago, jamtomorrow said:

long term structural change in energy delivery/transmission. You could put a diesel genny on the grid, charge ypur EV and get similar effective MPG to a modern ICE

Red of course.  Domestic seems to be still in scope come next year's rule changes.

[sancho panza]

On 09/10/2021 at 13:21, Cattle Prod said:

I'm convinced its the currency. In work, when I'm struggling with a geological problem, at a scale of say 10km, I zoom out to 100km or even 1000km, and study the patterns. Then zoom back in, and boom, problem solved. Most people are just stuck in the weeds the whole time, and cannot zoom out. That's why I love Luke Gromen's stuff, he's zoomed way out. Zoom out of money, currencies, and it starts to look faintly ridiculous. Why do we value bits of paper or digits on a screen that were once receipts for gold deposits? Because the government says they are valuable? That's fine when you trust the government. When I see people fighting in petrol stations because the government told them not to panic, I see that trust is gone. Zoom out to 1000km scale, all I see is gold.

Here's a simple fact: most gold ever mined sits in bank vaults. If you were ever in doubt that it is a currency, just think about that.

Gromen has really puts some gems out there of late.2 that stick in my mind

1) 'Fed is trying to ride two horses with one ass' ref QE and it's inflation mandate

2) 'gold is final payment'...and has been for centuries.I could write a 15,000 word essay and still not explain it that well.

On 09/10/2021 at 13:54, belfastchild said:

Sorry to zoom in on just one comment but years ago I bought and read Dimitri Orlovs 5 stages of collapse. He describes it mostly in terms of the collapse of the soviet union. Heres a summary if readers havent already read it.
https://cluborlov.blogspot.com/p/the-five-stages-of-collapse.html

Im already past number 3 ;-)

 

Jsut wanted to past his 5 stages here for posterity.Fella makes me look like and optimist.Clearly lives below basement level..If Mrs P could meet him,it would put me in perpsective.I wish.

Stage 1: Financial collapse. Faith in “business as usual” is lost.

Stage 2: Commercial collapse. Faith that “the market shall provide” is lost.

Stage 3: Political collapse. Faith that “the government will take care of you” is lost.

Stage 4: Social collapse. Faith that “your people will take care of you” is lost.

Stage 5: Cultural collapse. Faith in “the goodness of humanity” is lost.

[jamtomorrow]

10 minutes ago, Harley said:

My electricians and plumbers are busy until Q2 next year.  Gave up on roofers.  Lazy buggers!

Same. I don't want remote-control anything, just a garden wall that isn't falling down. Can't even get someone out to quote. Might have to do it myself. Which would be no bad thing, in terms of learning a new and useful skill

[Lightscribe]

1 hour ago, Noallegiance said:

I'm putting this here purely for the popularity of the thread.

Am I the only one that thinks WTF??????

Peak consumerism, the signs are so thick in the air you can almost cut it with a knife.

https://www.thetimes.co.uk/article/pandemic-pushes-cost-of-comfortable-retirement-to-50-000-a-year-xghj2l63z

The above article states that now you need £50k a year for a comfortable retirement, so matter of fact, with absolutely no comprehension of how possibly that would be sustainable. 

My nan used to get by on the state pension of £70 a week (IIRC) back when I was young in her council flat.

The great reckoning that inflation will cause will send shockwaves reverberating through the core of society. Short memories combined with those that have never experienced a cycle, only way is up etc.

Disbelief, confusion, incomprehension, the masses will go through the whole kubler-ross scale.

 

[Chewing Grass]

1 minute ago, Lightscribe said:

Peak consumerism, the signs are so thick in the air you can almost cut it with a knife.

https://www.thetimes.co.uk/article/pandemic-pushes-cost-of-comfortable-retirement-to-50-000-a-year-xghj2l63z

The above article states that now you need £50k a year for a comfortable retirement, so matter of fact, with absolutely no comprehension of how possibly that would be sustainable. 

My nan used to get by on the state pension of £70 a week (IIRC) back when I was young in her council flat.

The great reckoning that inflation will cause will send shockwaves reverberating through the core of society. Short memories combined with those that have never experienced a cycle, only way is up etc.

Disbelief, confusion, incomprehension, the masses will go through the whole kubler-ross scale.

 

Only yesterday in comparison the BBC said you needed £10500 to retire, I was going to read the article to see what it was based on but forgot.

Big Difference.

[Noallegiance]

1 hour ago, DurhamBorn said:

My world gas use shows a 35% increase minimum to 2050,oil use down 14%,gas price treble minimum from where they were over the last period and oil to average $70 later,but much higher average for the first bit to 2030.Oil will leverage the inflation first but then fall away at a decent price,gas will equal or beat inflation all the way to 2050,the big gains in gas should start late 23 to late 24 then rise slowly after that,i dont count the present very high prices.

So oil companies need to buy gas infrastructure over the next few years, including hydrogen, I assume?

[feed]

20 minutes ago, Chewing Grass said:

Only yesterday in comparison the BBC said you needed £10500 to retire, I was going to read the article to see what it was based on but forgot.

Big Difference.

it's not that different.  the £50k is for a couple and it goes on to say.    

Approximately £30,600 a year would give a couple a moderate living standard, allowing them to afford a two-week holiday in Europe and eat out a few times a month, whereas to cover a couple’s basic needs would cost £16,600.