Credit deflation and the reflation cycle to come (part 8)

[JoeDavola]

11 minutes ago, wherebee said:

cashed out before the collapse to buy real assets like farms and houses with no debt attached

Yes I think this in part is what I feel in my gut - that a huge percentage of what the stock market produces isn't really necessary and/or has a value which is very much or completely sentiment based.

If anyone watches Patric Boyle's YouTube channel you'll know about the billions that were wasted in the recent tech bubble speculating on companies that little fundamental value.

 

[Harley]

58 minutes ago, JoeDavola said:

To be clear I don't think the majority of boomers went out of their way to cause this. They just were in a position to benefit from HPI and generous public sector pensions both of the type that hadn't been seen before and probably won't be seen after.

Noted. 

It's all happened before.  The run up in Weimar, the run up in the 1920s, etc.  But as now, not all benefited, if you look at the data.  The lie of the "average".  On the plus side for now, something else will come along if people set themselves up and are looking (wallowing in a doom loop stops that).  It may not be so passive but it will be there.  

Then there is the Russian doll.  Most of that fake wealth went in to housing (that is, the one they live in).  They might outrun the come to Jesus moment if they die soon.  Meanwhile the others have life on their side and will still be in the game!

My biggest concern is the further inequality (like we don't already have enough), here caused by inheritance.  Assuming it doesn't all go "poof" as it should, housing currently being more like an intangible asset!  Sure, ethical or whatever concerns but also economic ones (increasing inequality being one marker of a dying system).

You're in the game, don't waste it.  I did OK (not particularly financially but there is so much more) but still wish someone had told me that!

Edited February 5 by Harley

[Harley]

11 minutes ago, JoeDavola said:

Yes I think this in part is what I feel in my gut - that a huge percentage of what the stock market produces isn't really necessary and/or has a value which is very much or completely sentiment based.

If anyone watches Patric Boyle's YouTube channel you'll know about the billions that were wasted in the recent tech bubble speculating on companies that little fundamental value.

 

I've studied this sort of thing for so long I no longer know what is up and what is down.  All I can do is retreat to my values and principles and follow them.  I prefer certain assets and if I dirty myself and reach further I do that soley for the price and not the hype.  But that is my life, the credo I aspire to.  Finance can (colaterally) teach so much to an open, inquisitive, and questioning mind.  Tbf, you could probably get the same from a lifelong study of worms!

[Democorruptcy]

2 hours ago, JoeDavola said:

Surely all this leads to a major fall in the wider stock market at some point then - how can it be reaching new highs if more and more people can't afford more and more of what's being produced?

There surely has to be a contraction of demand over time especially as boomers and their money die off?

The stock market is always made up of the best performing companies at the current time. Take the FTSE 100, the constituents are promoted to it or demoted from it (usually to FTSE250), every 3 months. If anybody wonders why the market might be doing better than the shares they had bought, it's because their own share(s) might be losers dropping down a league but they have been replaced by the latest winner.

Also a lot of the FTSE is made up of large firms that make a lot of money outside the UK. Shell, BP and Astra Zeneca are only 3% of the FTSE names but they made up over 20% of the weighting in September.

https://research.ftserussell.com/analytics/factsheets/Home/DownloadConstituentsWeights/?indexdetails=UKX

I think the only change since then was at the end Dec review, Hargreaves Lansdown were demoted and replaced by Intermediate Capital Group.

 

[Harley]

50 minutes ago, DurhamBorn said:

I think you are right that we could be at the start of similar.I dont think Weimar style,not as extreme,but 12% to 25% inflation is still a huge risk.If government broke inflation linking i think we would maybe get away with another 35% to 50% inflation,but if they dont almost complete UK wealth destruction (or really consumption).Im positioned that we dont get that far,just a long way towards it,but im watching and hedged with lots of EM exposure,outside of sterling etc.The huge problem is so many takers now,they wont stop until there is nothing left.

Indeed.  The current "Blob" is an exponential function.  The question is whether other functions can/will outrun it.

Edited February 5 by Harley

[sancho panza]

4 hours ago, Pip321 said:

I am waiting for a dip in gold or miners (hopefully to those Sept 2020 levels) to place one of my house sales into gold and miners…..because (long term) I believe it will be a great hedge against printing. 

SOme are already there. @kibuc (hive mind junior goldie go to) pointed out sometime back,as did ptehrs, that costs have been rising particualrly oil and wanred on AISC rising.I think that needs bearing in mind.

We've stopped buying the junioer goldies jsut too much stress and losses tbh but weve done well with tier 1 and 2s.

Currently,we sold BVN and New Gold a month back giving us a nice war chest.I am tempted by Newmont here which is trading a substantial discount to GDX off the lows in 2020 due ot the newcrest take over.Once that settles,they'll be the first recipient of insto moeny flowing in if it ever does.

GDX low Mar 20(yellow line) vs Newmont

Decl:we have a red running 4.5% position in NEM at $46

2 hours ago, JoeDavola said:

Surely all this leads to a major fall in the wider stock market at some point then - how can it be reaching new highs if more and more people can't afford more and more of what's being produced?

There surely has to be a contraction of demand over time especially as boomers and their money die off?

Inflation inherehently leads to smart moeny hiding in assets which can raise prices with inflation.Stocks are a decent place to go in usch circumstances.This looming recession will be like no other imho.We will see a credit deflation but it may not hit stocks particualrly hard as oilies/goldies rise versus real estate and tech.

S&P Mervel is the big Argentine Index aiui

https://www.investing.com/indices/world-indices

 

[sancho panza]

Piper wants his cash

https://www.telegraph.co.uk/business/2024/02/05/ftse-100-markets-latest-news-inflation-energy-cost-living/

Britain ‘faces record insolvencies’ after years of ultra-cheap debt - latest updates

Britain faces its highest level of corporate insolvencies on record this year as businesses crumble under the pressure of higher interest rates.

An unprecedented 33,000 companies will go under this year, according to the Centre for Economics and Business Research (CEBR), many of which will never have recovered from the impact of the pandemic.

The consultancy increased its estimate for insolvencies from 28,000 as it warned the retail and hospitality sectors “have nearly caught up with construction in terms of insolvency numbers in 2023”.

It said the figures would be a new record since 2013, where comparable statistics are available, although it added that its own analysis suggests insolvencies would have been higher in the 1990s.

As well as the pandemic hit, companies are grappling with increased borrowing costs after the Bank of England raised interest rates to 5.25pc to bring down inflation, which surged after the Covid years.

Deputy chairman Douglas McWilliams said: “The companies going bust in 2024 and 2025 are largely ones that got into financial trouble in the Covid years and have never really escaped.”

He added: “Our model takes account of the outlook for the commercial property sector, which is currently in tougher straits than we thought previously and is likely to push harder for rent recovery.”

Rob Russell, partner, DLA Piper, said: “This is the tip of the iceberg with increased stress forecast in 2024.” 

He added: “After a year of rising base rates and input costs, it is no surprise that this has precipitated a jump in corporate insolvency numbers.”

Edited February 5 by sancho panza

[Loki]

16 minutes ago, sancho panza said:

many of which will never have recovered from the impact of the pandemic government imposed responses to an illness with a 99% survival rate

You can plagiarise my edit if you like DT.  Unless you're scared to

[Long time lurking]

 

[SpectrumFX]

6 minutes ago, Long time lurking said:

 

The state pensions pretty much guaranteed to keep going up at this point. The interesting thing here is what they do with the age that you can access pensions.

It's traditionally run 10 years ahead of the state pension age, but if they push the state pension age to 71 then pushing access out to 61 doesn't really work, as it breaks existing arrangements. For example, I've got an old work pension that pays out at 60.

Edited February 5 by SpectrumFX

[Long time lurking]

13 minutes ago, SpectrumFX said:

The state pensions pretty much guaranteed to keep going up at this point. The interesting thing here is what they do with the age that you can access pensions.

It's traditionally run 10 years ahead of the state pension age, but if they push the state pension age to 71 then pushing access out to 61 doesn't really work, as it breaks existing arrangements. For example, I've got an old work pension that pays out at 60.

On the whole i would bet you are in a small minority on a national scale ,and an even smaller one if it comes to that pension being able to support you in full and that group will be getting smaller every year  

 

[Long time lurking]

The 5g psyop explained, and people thought the sanctions regarding 5G chips were about IPhones/smart phones  ,they are using it in factories right the way across Chania now 

 

Edited February 5 by Long time lurking

[SpectrumFX]

50 minutes ago, Long time lurking said:

On the whole i would bet you are in a small minority on a national scale ,and an even smaller one if it comes to that pension being able to support you in full and that group will be getting smaller every year  

 

It's a tiny pension. I spent circa 5 years in my youth working for the government, and it's my deferred civil service pension. About £2k a year last time I looked.

But a shit ton of people will have an element of their pension provision that's due to pay out at 60. That pension scheme closed in 2002 and pretty much everybody who was in a civil service job prior to 2002 should be eligible to that part of their pension in the old scheme at 60.

Edited February 5 by SpectrumFX

[Joncrete Cungle]

1 hour ago, SpectrumFX said:

The state pensions pretty much guaranteed to keep going up at this point. The interesting thing here is what they do with the age that you can access pensions.

It's traditionally run 10 years ahead of the state pension age, but if they push the state pension age to 71 then pushing access out to 61 doesn't really work, as it breaks existing arrangements. For example, I've got an old work pension that pays out at 60.

That is one reason we tried to mitigate the risk by opening S&S LISA. Hopefully the age to access penalty free will remain at 60, coupled with S&S ISA should be enough to see us home. Should SIPP access age be moved much above 60 over the next 25 years.

[Ash4781b]

2 hours ago, sancho panza said:

Piper wants his cash

https://www.telegraph.co.uk/business/2024/02/05/ftse-100-markets-latest-news-inflation-energy-cost-living/

Britain ‘faces record insolvencies’ after years of ultra-cheap debt - latest updates

Britain faces its highest level of corporate insolvencies on record this year as businesses crumble under the pressure of higher interest rates.

An unprecedented 33,000 companies will go under this year, according to the Centre for Economics and Business Research (CEBR), many of which will never have recovered from the impact of the pandemic.

The consultancy increased its estimate for insolvencies from 28,000 as it warned the retail and hospitality sectors “have nearly caught up with construction in terms of insolvency numbers in 2023”.

It said the figures would be a new record since 2013, where comparable statistics are available, although it added that its own analysis suggests insolvencies would have been higher in the 1990s.

As well as the pandemic hit, companies are grappling with increased borrowing costs after the Bank of England raised interest rates to 5.25pc to bring down inflation, which surged after the Covid years.

Deputy chairman Douglas McWilliams said: “The companies going bust in 2024 and 2025 are largely ones that got into financial trouble in the Covid years and have never really escaped.”

He added: “Our model takes account of the outlook for the commercial property sector, which is currently in tougher straits than we thought previously and is likely to push harder for rent recovery.”

Rob Russell, partner, DLA Piper, said: “This is the tip of the iceberg with increased stress forecast in 2024.” 

He added: “After a year of rising base rates and input costs, it is no surprise that this has precipitated a jump in corporate insolvency numbers.”

Anecdotally I was shopping on Saturday in my area and it was quiet really quiet. Some is specific issues like WHSmith running 50% of greeting cards (some people will be Down sizing to card factory, and with stamp costs rising into orbit). Also alot of people seem to be going on about buying stuff of Temu for pennies and Aliexpress. Never used myself but guess these things go around and the next site appears (shipped from China).

Though i think if I had went to next, M&S it would have been rammed. 

[Hardhat]

49 minutes ago, Long time lurking said:

The 5g psyop explained, and people thought the sanctions regarding 5G chips were about IPhones/smart phones  ,they are using it in factories right the way across Chania now 

 

What's this got to do with 5g or psyops?

Looks like a pretty standard warehouse automation system, we've been using them over here for at least ten years.

 

Edit: e.g. Ocado

 

Edited February 5 by Hardhat
Video

[janch]

This was something I didn't know about how Gordon Brown stopped the tax credit paid to pension funds when they received dividends from companies they were invested in.  Since then the amount of shares owned by pension funds has fallen to an all time low of 4% when previously it was nearly 50% of their assets.  So pensioners lost out big time:

https://www.mailonsunday.co.uk/money/comment/article-13041677/HAMISH-MCRAE-Time-fix-Gordon-Browns-pension-errors.html

It's a really good article so worth a read IMHO

The numbers did not look huge. It raised £5billion a year and, since pensioners did not realise what was happening, Brown slipped it through in his first Budget that summer without much hassle.

Cumulatively, though, the impact was huge. Not only did pensioners lose the income, they lost the growth in funds that would have accrued from reinvested dividends. 

The government could create an incentive for more pension funds to hold shares in British companies but I'm not holding my breath....

Edited February 5 by janch

[janch]

4 hours ago, DurhamBorn said:

lots of EM exposure

One of my current EM holdings is BRFI :

BlackRock Frontiers Investment Trust PLC

LON: BRFI

This IT invests in smaller companies ouside of China and in a lot of EM countries and seems to be doing quite well....I'm just posting in case anyone else is interested...definitely not financial advice.

 

This review from Dec 2023 rate it:

https://www.trustintelligence.co.uk/investor/articles/news-investor-results-analysis-blackrock-frontiers-retail-dec-2023

[Harley]

A timely latest Thoughtful Money given our conversations this morning:

https://anchor.fm/s/eca7b164/podcast/play/82203078/https%3A%2F%2Fd3ctxlq1ktw2nl.cloudfront.net%2Fstaging%2F2024-1-4%2F366159856-44100-2-00cb8fc31f7f7.mp3

I really liked Sven's look a things, but then I would as I agree with him.  Several chords of logs stacked on the back of that! 

Edited February 5 by Harley

[Long time lurking]

1 hour ago, SpectrumFX said:

It's a tiny pension. I spent circa 5 years in my youth working for the government, and it's my deferred civil service pension. About £2k a year last time I looked.

But a shit ton of people will have an element of their pension provision that's due to pay out at 60. That pension scheme closed in 2002 and pretty much everybody who was in a civil service job prior to 2002 should be eligible to that part of their pension in the old scheme at 60.

But it will be irrelevant in the scheme of things,it is a very small percentage of the population that will have anything near enough to retire at that point in time and that number will become smaller  over time 

[SpectrumFX]

5 minutes ago, Long time lurking said:

But it will be irrelevant in the scheme of things,it is a very small percentage of the population that will have anything near enough to retire at that point in time and that number will become smaller  over time 

But it will prevent, or at least discourage, them from pushing pension access north of 60 because they'd face significant difficulties and legal challenge in doing that due to these existing commitments.

[DoINeedOne]

5 hours ago, No One said:

 

Interesting video, showing what most see everywhere the towns that used to be thriving now endless empty shops, that tower block in Harlow is ridiculous the amount of land the carpark was taking up

 

 

Pretty much at the point that everyone is giving up

Edited February 5 by DoINeedOne

[Harley]

3 hours ago, sancho panza said:

SOme are already there. @kibuc (hive mind junior goldie go to) pointed out sometime back,as did ptehrs, that costs have been rising particualrly oil and wanred on AISC rising.I think that needs bearing in mind.

We've stopped buying the junioer goldies jsut too much stress and losses tbh but weve done well with tier 1 and 2s.

Currently,we sold BVN and New Gold a month back giving us a nice war chest.I am tempted by Newmont here which is trading a substantial discount to GDX off the lows in 2020 due ot the newcrest take over.Once that settles,they'll be the first recipient of insto moeny flowing in if it ever does.

GDX low Mar 20(yellow line) vs Newmont

Decl:we have a red running 4.5% position in NEM at $46

Inflation inherehently leads to smart moeny hiding in assets which can raise prices with inflation.Stocks are a decent place to go in usch circumstances.This looming recession will be like no other imho.We will see a credit deflation but it may not hit stocks particualrly hard as oilies/goldies rise versus real estate and tech.

S&P Mervel is the big Argentine Index aiui

https://www.investing.com/indices/world-indices

 

NEM is one we're waiting for.   One other.  Your post reminds me to look at the sector without our financial screens.  We only pulled in two presumably because we filter for things like debt to equity in addition to basic technicals.  A post lunch exercise!

[Long time lurking]

2 minutes ago, SpectrumFX said:

But it will prevent, or at least discourage, them from pushing pension access north of 60 because they'd face significant difficulties and legal challenge in doing that due to these existing commitments.

I don`t think there's enough for them to worry about having to do that ,if they do anything regarding private pensions it will be reducing the untaxed amount ,,it`s all about money now hence the proposal of 71 years of age ,which IMO is purely about trying to  appease the credit ratings agenises at this point in time   

IMO the IMF is now close to being  in view on the horizon

[Harley]

3 hours ago, SpectrumFX said:

The state pensions pretty much guaranteed to keep going up at this point. The interesting thing here is what they do with the age that you can access pensions.

It's traditionally run 10 years ahead of the state pension age, but if they push the state pension age to 71 then pushing access out to 61 doesn't really work, as it breaks existing arrangements. For example, I've got an old work pension that pays out at 60.

I just heard even a normie (i.e. financially illiterate) friend of mine is now worried about that and may at least take the 25% now.  Me, I already did before the last budget, Goes into my ISA.  My only worry is your pension is better ring fenced than other assets (or should that be only the HMG wolf is allowed inside!).

Edited February 5 by Harley