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

[Starsend]

10 hours ago, JMD said:

Whitty is a technocrat and so by definition he will possess no common sense. He seems possessed by having only an 'autistic drive'. And I don't think it unfair to term him a zealot, after all I think he'd be quite happy playing his Covid fiddle (or fiddling with his covid!) while patiently watching our economy burn. Of course I accept I am not qualified to make these judgements about him, but still think the Whitty is weird!!!  ...Just look at how he spent some of his valuable time, I mean fighting a global pandemic obviously wasn't important enough for him to dedicate his time to, he also had time to produce this strange report on coastal town deprivation (his take on why coastal towns are deprived is almost intellectually illiterate, or maybe we are back to him having no common sense!!)...  https://www.bbc.co.uk/news/uk-england-kent-58665313

IYI I believe is the word for these numpties, Intellectual Yet Idiot.

[Starsend]

4 hours ago, Cattle Prod said:

If Whitty was top in is field, he wouldn't be working for the govt. The private sector would have poached him long ago. Without being in a position to judge his expertise or intelligence, I'd bet he's mediocre, like any government scientist in my field I've had to deal with.

I've worked mainly with the private sector in my career but also with Government on a number of occasions. Mediocre is way too generous, I'd say more brain-dead monkey spazzer.  

[Starsend]

1 hour ago, HousePriceMania said:

When you look at this, they are deliberately confusing people.  Why is the question.

1) Is it because they will taper and raise quicker 

2) They will never taper, they are just waiting for an excuse not to.

 

This is with 10% inflation, 20% house price inflation etc etc etc. As I said above, they should be acting responsibly, the fact that they aren't is worrying.

Sven Henrich summed it up nicely yesterday.

 

 

The bankers will never do the right thing. Collapse is nailed on now.  It has been since 2005

Same in the UK as the U.S.  

 

I personally don't believe they will taper. They're between a rock and a hard place, of their own making.

The current situation cannot go on indefinitely, so it won't. something is gonna give. 

Gold miners are very cheap at the moment, one of the few things that are. At some point the Fed are going to lose control or the markets will finally understand big ass inflation is coming and the Fed are going to do nothing but babble. The miners will explode along with gold.

It's almost like a one way bet now. There's nothing the Fed can do to avert crisis.

 

 

[wherebee]

1 hour ago, HousePriceMania said:

i've been thinking of selling out again, 20% on oil shares in the last month has been very welcome but there are plenty headwinds to make it worth sitting and waiting again.

 

 

it's a really tough one, though.  I took a fair whack of profits already, and was happy to do so.  taking everything off the table will look pretty dumb if the keep the shebang going for another 6 months...

[Chewing Grass]

Just had my business insurance broker ring me up as his sneaky auto-renew process had failed, told him I was closing the company as I've been driven out of business by the government (IR35 etc) so had cancelled his DD mandate.

Seems to be a common conversation he is having, looks like he will be getting rid of some of his people as well as the flow of commission money dries up.

[spygirl]

2 hours ago, HousePriceMania said:

When you look at this, they are deliberately confusing people.  Why is the question.

1) Is it because they will taper and raise quicker 

2) They will never taper, they are just waiting for an excuse not to.

 

This is with 10% inflation, 20% house price inflation etc etc etc. As I said above, they should be acting responsibly, the fact that they aren't is worrying.

Sven Henrich summed it up nicely yesterday.

 

 

The bankers will never do the right thing. Collapse is nailed on now.  It has been since 2005

Same in the UK as the U.S.  

 

Too wibble.

Bankers and ther economist trained regulators just dont have a fucking clue about whats going to happen a quarters away.

 

54 minutes ago, Starsend said:

I personally don't believe they will taper. They're between a rock and a hard place, of their own making.

The current situation cannot go on indefinitely, so it won't. something is gonna give. 

Gold miners are very cheap at the moment, one of the few things that are. At some point the Fed are going to lose control or the markets will finally understand big ass inflation is coming and the Fed are going to do nothing but babble. The miners will explode along with gold.

It's almost like a one way bet now. There's nothing the Fed can do to avert crisis.

 

 

Half taper, half inflate, half cross fingers.

[MrXxxx]

13 minutes ago, spygirl said:

Half taper, half inflate, half cross fingers.

Yes, that sounds like their mathematical ability! :-)

[nirvana]

2 hours ago, HousePriceMania said:

Collapse is nailed on now

we've been saying THAT since 2007.....

NOW UNCLE DAVE HAS SPOKEN AGAIN! 50% UPSIDE! Either the fukker is totally bonkers or he's mates with Warren Buffet or maybe both?  what is it? need a vote on this one partisans? lol

 

[nirvana]

1 hour ago, Starsend said:

Gold miners are very cheap at the moment

hmmm, only true if USD collapses, ya?

remember it's a RACE TO THE BOTTOM......YEN is the one getting fukked at the moment....Turning Japanese anyone? 

Have you seen FIGHT CLUB? Actually PIG the new one with Nicholas Cage is quite good too

 

[Harley]

OK, here goes on using DCF (assuming Excel) for some possible planning.

This is not the best format to explain and you can make it as complicated as you like but I'll try with a more basic scenario.  Or you could use one of the on-line calculators, although these are limited to such basic scenarios.

But I must first make a disclaimer that you need to DYOR, accept I may have got this wrong, and accept I assume no liability as it's posted here for discussion and information purposes only - I.e. I produce it here for discussion, comment and validation.  You absolutely must research this stuff and ensure you understand it, or seek professional advice.

Have I got the following correct?

The FV function calculates the future value of an investment/cost assuming periodic, constant payments with a constant interest/inflation rate:  https://corporatefinanceinstitute.com/resources/excel/functions/fv-function-excel/

Example.  I will need to finance living costs of £12,000 pa less a state pension of £8,300 pa (so £3,700 pa net) for 5 years starting now, assuming an inflation rate of 5%:

=FV(rate,nper,pmt,[pv],[type]) or =FV(5%,5,(8300-12000)) or £20,445 is required in total over the 5 years, in today's value of money (i.e. its present value)

To test: 3700+(3700*1.05)+(3700*1.05*1.05)+(3700*1.05*1.05*1.05)+(3700*1.05*1.05*1.05*1.05)=20,455

But you're investing money during this period so how much do you need to start with so you end with zero funds in 5 years time (i.e. break even)?  If your rate of return equaled the 5% inflation rate then you'll need 3700*5=£18,500 now.  The key point here is that if one assumes risk is proportional to the rate of return, then you don't need to chase higher returns and so you can derisk your portfolio by only seeking a 5% pa return.  Or you may have more than £18,500 now so you can derisk even further with the extreme being £20,455 with no return and no (sort of!) compound risk.

So how do you calculate the required starting sum for differing interest rates?  You just re-run the FV formula but use the difference between the inflation rate and your rate of return in the formula.

Example.  Inflation is 5% and my assumed rate of return is 7%:

=FV(rate,nper,pmt,[pv],[type]) or =FV(-2%,5,(8300-12000)) or £17,775 is required in total over the 5 years, in today's value of money (i.e. its present value)

Example.  Inflation is 5% and my assumed rate of return is 2%:

=FV(rate,nper,pmt,[pv],[type]) or =FV(3%,5,(8300-12000)) or £19,644 is required in total over the 5 years, in today's value of money (i.e. its present value)

So now you can start playing with all the variables:

. How much you need pa

. How long for

. The inflation rate netted against the rate of return

. The amount of money you have to invest now (trial and error for now but there is formulaic way!)

Now comes the important bit as you need to do this given you don't know the above variables for certain.  You need to try different likely values to give you ranges of data to test how reliable your core assumptions are (i.e. perform sensitivity analysis).  This bit can be as simple as a table of possible outcomes or some very sophisticated statistical analysis (expected probabilities on up!).  From all that you can choose the variables you are most comfortable with and work on that basis while you have a feel for the possible extremes

One assumption we've made here is that we'll need the money now.  Usually we'd invest towards this point so we would need to first inflate our requirement by the number of years before we need it and then discount it back to today's value, and then discount it forward for the initial investment returns, but that's another chapter!

The key in all such analysis is to first discount the various future flows to their present values and then model from there.  That is, everything has to at first be discounted into today's money so everything is expressed on the same (time) basis.

All this is the tip of the iceberg in terms of analysis.  You can build very complex models.  For example, allowing for a legacy, for a large future spend, or allowing for differing periods of the above variables (i.e. x years with one set of variables followed by x years of another set, and so on).  First you work out your various cash flows and their periods and then you discount them all back to today's money (the present value).  And that's more than just one chapter!

And all this can be applied to the floor and upside models - i.e. higher risk/return for the upside.

This is why I worry about things like chasing returns without thinking through the risks (risking what is enough for more).

Or you could settle for some bloke telling you a 4% withdrawal rate with a 60:40 portfolio will see you good.  Maybe it will.

Again, for discussion and validatory purposes only.  DYOR.

PS:  And now back to some slabbing, not that I need to remind fellow DOSBODers to think twice when you next see a low life scruffy out and about! 

[Starsend]

39 minutes ago, nirvana said:

hmmm, only true if USD collapses, ya?

remember it's a RACE TO THE BOTTOM......YEN is the one getting fukked at the moment....Turning Japanese anyone? 

Have you seen FIGHT CLUB? Actually PIG the new one with Nicholas Cage is quite good too

 

Nope they're cheap based on earnings right now. Only risk to that is the gold price collapsing which doesn't seem a likely long term prospect to me. Many of them are making fecking shedloads of cash.

[HousePriceMania]

1 hour ago, wherebee said:

it's a really tough one, though.  I took a fair whack of profits already, and was happy to do so.  taking everything off the table will look pretty dumb if the keep the shebang going for another 6 months...

6 months, 12 months, matters not, the point is the shebang will go bang and thats the time to re-fill your boots.

[nirvana]

2 minutes ago, Starsend said:

Only risk to that is the gold price collapsing which doesn't seem a likely long term prospect to me. Many of them are making fecking shedloads of cash.

Hmmmm, it's a shit investment compared to the stock market and crypto though......it's all relative 

Bon courage! eye's down for the Yankees......

[nirvana]

4 minutes ago, HousePriceMania said:

thats the time to re-fill your boots

i look forward to you catching the bottom Warren! 

Right no more shite from me....

All I wanna do is-
And a-
And take your money.....

[Starsend]

5 minutes ago, nirvana said:

Hmmmm, it's a shit investment compared to the stock market and crypto though......it's all relative 

Bon courage! eye's down for the Yankees......

It's called rotation. Everything has it's moment in the sun eventually. Gold and stocks take turns to outperform each from one cycle to the next. When you have a monetary system that is clearly close to collapse then cheap gold miners seems a damn good one way bet to me, but each to their own.

Personally I think the value of bitcoin has a good chance of being zero (or close to it) in ten years time and the NASDAQ will drop 80%+ just like it did last time it got so overvalued in 2000ish.

[Chewing Grass]

Just done my irregular first 3 digit postcode search and the number of properties up for sale has dropped to 140, has been around 150 all year and used to be 200.

[sancho panza]

Well worth 29 minutes of anyone's time.George Gammon goes through why there are supply chain problems and why they're not going to get resolved anytime soon.Goes on the assess the probabailityof an economic crisis(high),lays outs a few templates and then concludes that the lockdown template witll be used for climate change purposes in the future when we'll be stopped from travelling to 'save grandma the planet'

Lot of this stuff is already discussed herein,but this is a really decent synopsis and as ever,Geroge puts a lot of the detail within an easy to grasp structure.

 

[nirvana]

14 minutes ago, Starsend said:

Personally I think the value of bitcoin has a good chance of being zero (or close to it) in ten years time and the NASDAQ will drop 80%+ just like it did last time it got so overvalued in 2000ish

on a long enough timeline the survival rate for everyone drops to zero....

The Nasdaq just went up, it was a pretty likely event 

 

[DurhamBorn]

If the BOE increase rates and if they drop QE to £40 billion a year i think sterling / dollar goes to $1.78,thats my target .Now, going through my portfolio most of my assets gain from falling sterling,not rising.Tricky.

[janch]

I had a nice little profit in Thungela Resources (the spin off from Anglo American) which has more or less disappeared in the past few daysI should have cashed it in while the going was good.  They are having problems transporting the coal to the coast but are hopeful of a resolution.:

https://www.moneyweb.co.za/moneyweb-radio/safm-market-update/thungela-cuts-production-guidance-due-to-rail-problems/

[HousePriceMania]

50 minutes ago, Chewing Grass said:

Just done my irregular first 3 digit postcode search and the number of properties up for sale has dropped to 140, has been around 150 all year and used to be 200.

expected at this time of year.  The starting base is so small now the market is non-functioning.

[Harley]

Is Madge correct?  Or rather, how far is she correct?

Dear Madge

I'm a lazy risk adverse guy who wants to spend the next 20 years living on £50,000 a year plus pension.  I'm expecting inflation to be a constant 5% during that time.  I'm so risk adverse, I don't want any return, just put the money under my mattress.  I don't like anyone other than my dog and he'll be gone well before me.  How much do I need to put under my mattress this evening?

 

Dear Lazyboy

=FV(rate,nper,pmt,[pv],[type]) or =FV(5%,20,50000,0) or £1,653,297.71

You're going to need a big mattress and risk back ache with £1,653,297.71 stuffed in it! 

You could however cut back your outgoings or get a part time job so cope with a smaller amount:

£12k => £397k

£20k => £661k

£30k => £992k

£40k => £1.32m

£50k => £1.65m

Or you could invest and take a bit of a risk for say an overall 2% (net -3%):

£12k => £322k

£20k => £537k

£30k => £806k

£40k => £1.05m

£50k => £1.34m

Or you could meet this guy on the internet showing you how to get an overall 10% (net 5%):

£12k => £154k

£20k => £257k

£30k => £385k

£40k => £513k

£50k => £642k

Or you could bug out at 10 years:

£12k => £151k

£20k => £252k

£30k => £377k

£40k => £503k

£50k => £629k

Best you change your name!

 

Dear Madge

Are you sure?  Best I do my own research!

[Chewing Grass]

^^^ that is as good financial advice as you'd get off most financial advisor’s.

[DurhamBorn]

7 minutes ago, HousePriceMania said:

expected at this time of year.  The starting base is so small now the market is non-functioning.

Exactly this.Nobody dare sell as nothing to buy,unless you buy a new build of course.Around me now no family 3 beds come up,or odd ones and all the decent ex council ex and terraces bought by BTL and shipping in loads of southern bennie types.Big house builders should be laughing in this sort of market.

[HousePriceMania]

10 minutes ago, DurhamBorn said:

Exactly this.Nobody dare sell as nothing to buy,unless you buy a new build of course.Around me now no family 3 beds come up,or odd ones and all the decent ex council ex and terraces bought by BTL and shipping in loads of southern bennie types.Big TORY FUNDIING house builders should be laughing in this sort of market.