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


spunko

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53 minutes ago, planit said:

Part of the shortages are caused by companies [and Dosbodders] over-ordering and stockpiling supplies.

Could find that in some sectors it suddenly reverts to oversupply once the orders catch up and no one needs to do another order for a while.*

This was one of the contributory factors (in a way) to the telco part of the dot.com crash.
Forgive me on the actual figures (been 20 years) but they are roughly right. At about 93% utilisation most telco networks (and I mean country/company wide) become almost unuseable so we would always recommend implementation of upgrade/replacement to happen around 83% (again growth dependent).
The late 90s was the wild west for telco growth so we generally went to upgrading at around 17% to allow for supply/growth/massive profit etc etc. Nobody thought to think what happened if the growth in utilisation stopped for 6 months and nobody ordered anything and I mean phones stopped ringing etc. Meanwhile you had stockpiles of kit to be tested, production lines growing, new products in development and had hired a shitload of people to cope with the growth that you maybe wont see the return on all that training/mgmt overhead for another year or two. Alarm bells went off with me when someone Id turned down at interview (worst candidate Id ever interviewed) ended up working for me when I came back from holidays (Id missed the meeting where they were divvied up!). I was told that we needed the bodies and nobody was available.

What if you have stockpiled stuff that nobody wants or more importantly from anecdotes Ive seen locally, nobody can afford.

Rumours of government agencies going round auction houses/house clearance companies asking if they would take complete offices of equipment. Most telling them to sling their hook because the boom in desks, chairs, monitors etc for home working was last year, you cant give them away now. More landfill.

The conspiracy nut in me cant help but think this was a great way to zoom up all that qe cash (that and crypto, faang stocks) for it to be wiped out in a controlled way.

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sleepwello'nights
15 hours ago, DurhamBorn said:

I think they must of been on about something like a sit on car or something,,anything bigger than say 30cmx30cmx50cm will of seen costs explode.Its shocking actually how high costs have gone,im really pleased i saw half of what was coming and got out.It was really stressful as well,you get some customers who you would rip there faces off if they were in front of you.The problems i had to firefight tested me thats for sure.

How many of your firepits came in a single container and were you ordering a container load at a time?

I don't see how costs have increased that much without someone along the line pushing prices up to met demand and making larger profits. 

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5 minutes ago, sleepwello'nights said:

I don't see how costs have increased that much without someone along the line pushing prices up to met demand and making larger profits. 

I spent a bit of time temp working about the place a long time ago and one was selling small value items to the general public (single note stuff). Mon-weds was tumbleweeds, weekends were busy but the busiest day was Thursday.
I spoke to my boss about it and asked why and he said Thursday is dole money day. Spend it all as soon as you get it then have nothing for later in the week.

Furlough/self employment/covid freebies are all spent. People on fb marketplace looking more for inflatable hot tubs with holes in them than I bought new 5 years ago.

At some point, every item becomes too expensive.

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HousePriceMania

Was going to post this in the house price thread but I think it might show the US recovery is not all it's cracked up to be

 

 

so maybe more useful here.

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It's hit me this morning how well 'our' sectors are doing when they aren't market leaders. Considering this is the start of the inflationary cycle and momentum stocks are still leading, even if everything goes down 50%+ at some point, I think this thread has proved itself. 

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3 hours ago, sleepwello'nights said:

How many of your firepits came in a single container and were you ordering a container load at a time?

I don't see how costs have increased that much without someone along the line pushing prices up to met demand and making larger profits. 

I brought in the 40 foot high cube containers,the real big ones,i got 620 firepits on one,used to cost £2k +VAT for the sea shipping so £4 a unit shipping,its now £15k +VAT £30 a unit.The units were £24 each including onto the ship (FOB),they are now £29.The VAT on top.The lorry charges here were around £500,they are now £1000.

The selling prices have gone up of course,but not covering all the increase,but,and this is critical,making £25 on £80 outlay is not the same as making £25 on £35 outlay a unit.You have other costs like returns,damaged goods etc etc.A net margin of 25% is not sustainable.I could use £80k a year capital to make £50k profit,now you need double to triple.

Importing bulky low to mid price goods is finished,and most small sellers will stay in the game too long and lose most or all of their built up,or worse borrowed capital.

 

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3 hours ago, belfastchild said:

I spent a bit of time temp working about the place a long time ago and one was selling small value items to the general public (single note stuff). Mon-weds was tumbleweeds, weekends were busy but the busiest day was Thursday.
I spoke to my boss about it and asked why and he said Thursday is dole money day. Spend it all as soon as you get it then have nothing for later in the week.

Furlough/self employment/covid freebies are all spent. People on fb marketplace looking more for inflatable hot tubs with holes in them than I bought new 5 years ago.

At some point, every item becomes too expensive.

The firepits i sold looked lovely,but were really utter shit,id need to get £120 each for them now,when before i needed £70ish,i would be getting mass returns from people making it even more unviable.

 

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49 minutes ago, ThoughtCriminal said:

The new normal. 


A not-quite-off-topic: Glencore announced sale of their Bolivian zinc assets (both producing as well as exploration) to Santacruz for $20m upfront and then $22.5m annually for 4 years, for a total of $110m. There are various considerations, including the necessary financing as well as 1.5% royalty included in the deal, but on the high level Santacruz will be producing some 13moz of silver equivalent (or 50% of First Majestic's production) while sporting a $100m market cap. Not an advice, and shares are currently halted since Monday anyway :)

 

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Not sure this belongs on this forum but i'll try anyway given how much people on this forum know about investing.

 

At what age do you think you should start drawing down on the capital sum (ie SIPP, ISAs and any other assets) as opposed to limiting spending to the income you earn (eg dividends, final salary pension, interest etc). I'm 55 in good health, have a good understanding of current income from shares etc and my expenditure today and what I will get from state pension etc. However although I'm really close to putting my SIPP into drawdown I've not yet pulled the trigger as I dont know how quickly the capital sum will erode if you start taking a bit more than the annual income each year. Does anyone have a ready reckoner or a rule of thumb they use?

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AlfredTheLittle

https://www.forbes.com/sites/maddieberg/2019/02/19/the-greatest-investor-youve-never-heard-of-an-optometrist-who-beat-the-odds-to-become-a-billionaire/?sh=2add1b5822e8

 

"He recently doubled down on British energy giant BP and now owns over one million shares. But rather than dwell on its sagging, crude-dependent stock chart, he’s betting on its hydrogen fuel cells and enjoying its 6% dividend yield while he waits for the company to recover."

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1 hour ago, Festival said:

Not sure this belongs on this forum but i'll try anyway given how much people on this forum know about investing.

 

At what age do you think you should start drawing down on the capital sum (ie SIPP, ISAs and any other assets) as opposed to limiting spending to the income you earn (eg dividends, final salary pension, interest etc). I'm 55 in good health, have a good understanding of current income from shares etc and my expenditure today and what I will get from state pension etc. However although I'm really close to putting my SIPP into drawdown I've not yet pulled the trigger as I dont know how quickly the capital sum will erode if you start taking a bit more than the annual income each year. Does anyone have a ready reckoner or a rule of thumb they use?

You might find this useful

 

https://engaging-data.com/will-money-last-retire-early/

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1 hour ago, Festival said:

Not sure this belongs on this forum but i'll try anyway given how much people on this forum know about investing.

 

At what age do you think you should start drawing down on the capital sum (ie SIPP, ISAs and any other assets) as opposed to limiting spending to the income you earn (eg dividends, final salary pension, interest etc). I'm 55 in good health, have a good understanding of current income from shares etc and my expenditure today and what I will get from state pension etc. However although I'm really close to putting my SIPP into drawdown I've not yet pulled the trigger as I dont know how quickly the capital sum will erode if you start taking a bit more than the annual income each year. Does anyone have a ready reckoner or a rule of thumb they use?

Similar boat to yourself.

I've tracked my expenditure for the last three years so I have a very good idea of how much I need each month.

I worked out what sum I needed to start with to draw my monthly amount and not run out until I'm 85.

I've based it on beating inflation by 1% each year. If I achieve more than that then I'm laughing.

I've assumed that I'll get the state pension kicking in at 67.

Easy to model this stuff in an excel spreadsheet.

There are obviously risks, out of control inflation, Government theft, removal of state pension, but you have to start somewhere.

I've assumed 85 as most people don't live a lot longer than that. If I do then I'm planning on robbing a bank as I'm pretty sure they don't lock up 85 year olds, they just kind of give you a slap on the wrist and let you go.

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2 hours ago, Festival said:

Not sure this belongs on this forum but i'll try anyway given how much people on this forum know about investing.

 

At what age do you think you should start drawing down on the capital sum (ie SIPP, ISAs and any other assets) as opposed to limiting spending to the income you earn (eg dividends, final salary pension, interest etc). I'm 55 in good health, have a good understanding of current income from shares etc and my expenditure today and what I will get from state pension etc. However although I'm really close to putting my SIPP into drawdown I've not yet pulled the trigger as I dont know how quickly the capital sum will erode if you start taking a bit more than the annual income each year. Does anyone have a ready reckoner or a rule of thumb they use?

Is it possible to live off the dividends, and just draw them from the SIPP?

If my SIPP has the 2031 equivalent of £200K, i was hoping to just live off divis and do about 10 days work to get to £13k PA.

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Updated anecdotal. I flagged up early doors at the beginning of the year with shipping container costs rising with my brother’s company. My brothers manufacturing is now 90% based in the UK.

Well now units on his industrial estate are going bust at the pace of knots. The guy opposite my brothers unit which employed 26 staff for years and he paraded around in ever new R8’s, has just gone down the pan today. He was importing everything from gym equipment to phone covers from China yet he blames Brexit for the collapse of the whole company.

I can’t stress enough that this is the level of the economic illiteracy we are dealing with. This is still at the supplier side of costs and businesses going bust. Once this reverberates out to the consumer end it will be carnage. A 40 year disinflation cycle ending won’t leave many companies surviving.

 

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1 hour ago, Hancock said:

Is it possible to live off the dividends, and just draw them from the SIPP?

If my SIPP has the 2031 equivalent of £200K, i was hoping to just live off divis and do about 10 days work to get to £13k PA.

I have lived on divis from my ISA over the years and i am now.I always found keeping 3 years living expenses in cash meant i was never forced to sell assets if divs were cut.Key to SIPPs though is also tax.If you have your full allowance you can do UFPLS lump sum withdraws of £16700 a year tax free,allowance plus 25% tax free cash.Il only put my SIPP into full drawdown one week after im getting state pension and then take the full 25% tax free cash and feed into my ISA over the years.However there is a chance i might not do that if im in inheritance tax as its shielded in the pension.Im skirting on the edge at the moment and my SIPP might get close to the lifetime allowance.The inheritance tax threshold is getting really low now,especially for single people.

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DB. Top bloke for me. Drax, BP. Thumbs up. Wondering if Harland and Wolff have legs. Only £650 in. If the legs fall off, no worries as I’m absolutely minted… hahahaha. I wished.

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21 hours ago, wherebee said:

yeah.  I'm up 40k on a 200k pot since about a month ago. 

 

That's not right.  As in, seriously not right.

and @Hancock  I think if you're exposed to oilies as a lot are on here,then that will explain.I'd be careful reading a sell signal into price moves that are actually a thesis coming good.See recent discussion about platts and the 2.5 mbpd spare capacity that the airlines will chew up.

13 hours ago, ThoughtCriminal said:

Shipping and energy shortages might be the BK initiator?? 

Oil has risen into the beginnign fo teh recessions in 1990,2000 and 2008.By the time oil is peaking qutie often the recessions have begun but there are warnings that need stressing with regard to GDP delaftors etc so timing not exact but nromally within 3 or 4 months.we'll see this time.

personally,I think when teh 2.5 mbpd is realsied to be not enough we could get a really vicious spike.

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30 minutes ago, sancho panza said:

and @Hancock  I think if you're exposed to oilies as a lot are on here,then that will explain.I'd be careful reading a sell signal into price moves that are actually a thesis coming good.See recent discussion about platts and the 2.5 mbpd spare capacity that the airlines will chew up.

Think about 1/3rd of the SIPP is in oil shares, which wont be getting sold.

But i just don't see flying getting back to the levels it was at for a long time, as business travel has changed forever.

If my flying experience of yesterday is anything to go by, it seems govts are intent on destroying that industry.

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4 hours ago, Starsend said:

Similar boat to yourself.

I've tracked my expenditure for the last three years so I have a very good idea of how much I need each month.

I worked out what sum I needed to start with to draw my monthly amount and not run out until I'm 85.

I've based it on beating inflation by 1% each year. If I achieve more than that then I'm laughing.

I've assumed that I'll get the state pension kicking in at 67.

Easy to model this stuff in an excel spreadsheet.

There are obviously risks, out of control inflation, Government theft, removal of state pension, but you have to start somewhere.

I've assumed 85 as most people don't live a lot longer than that. If I do then I'm planning on robbing a bank as I'm pretty sure they don't lock up 85 year olds, they just kind of give you a slap on the wrist and let you go.

Over cautious buddy. You'll probably have no quality of life post 78. Post 72 you'll see your spending habits severely decrease. I sometimes cannot believe the over estimation some folks make on retirement cash flow needs. As a species up to 100 years ago we never lived past 50. Now folks plan for good health and active life styles post late 70's. 

I always say, give up work for a year in your 40's, see how your spending habits change. Then do it again in your 50's coinciding with ailments and niggly health issues. Next stop 60's, lack of sleep, feeling drained. 

I think many overly compensate for retirement that they never actually realise, it's why the city spivs drive Italian cars and us mere mortals fret and worry whether we have enough to stop contributing to their tax take.

Take a year off work, see how you fill your time, watch what you spend. The shit the BBC tell you, what you need is nothing like reality.

I've been retired a year, your whole mindset changes. 

If you're a champaign Charlie you'll work till you drop. If you've never been a Champaign Charlie then when your retired you'll live within your means and not require funds to match a life style you've never had and probably never wanted.

Looking back, if I were 66, house paid for, full state pension, no savings, no council tax, full pension priveledges, I'd take that without working my bullocks off for a private pension which I could not spend.

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