Credit deflation and the reflation cycle to come.

[Game_of_Homes]

3 minutes ago, DurhamBorn said:

I agree,this thread is really about surviving and doing well out of the cycles we will see in our lifetimes.Part of that is indeed about lifestyles and skills.Living frugal while still enjoying life is a fantastic skill.Its also about actually looking at things with fresh eyes.

It sounds simple,but i look at it like this.I can live very well on £300 a week debt free,very well.So i need £15k a year.If i get £12k from the tax allowance i need £3k from investments.If get £8k from investments i need £7k from working/taxable incomes like pensions/self employed.

Pay house off,build investments in tax free wrappers,go from there.I see working your guts out to pay for government to hand out to other people as a mental illness.

Isn't it - the tax threshold ie. currently £11,500 + £2,000 dividend allowance + £1,000 tax free savings allowance, so = £14,500 until any tax needs to be paid?

[DurhamBorn]

5 minutes ago, Game_of_Homes said:

Isn't it - the tax threshold ie. currently £11,500 + £2,000 dividend allowance + £1,000 tax free savings allowance, so = £14,500 until any tax needs to be paid?

Exactly,and dont forget ISAs.£20k a year makes it easy to get a nice dividend portfolio built up.The key though is no debt.When i see youngsters buying £120k rabbit hutches with HTB and then sticking two lease cars on the drive i just know they have already ruined things for themselves.

[Cosmic]

27 minutes ago, Game_of_Homes said:

It says on their site that if you hold silver in their vaults, you don't have to pay VAT. So how does that work. Do you pay VAT when you sell (and is it unavoidable)? Are there any coins that are VAT free and if so, does it make sense to buy coins rather than other forms of silver? What would you recommend? Also, what happens in the event that any stored PM is stolen? Is it insured for the whole value? (I am reading through the website now, but there is a lot in the FAQ). Thanks Durhamborn, you are a fount of knowledge (I've just bought some Centrica shares thanks to your advice!).

VAT free in in their vaults, no VAT due when you sell. If you go for Brits then no CGT either. Not sure the exact rules, but I'd guess that given they are stored in vaults around the world, any attempt to apply VAT by a jurisdiction would lead to no one buying the silver and storing it in that jurisdiction.

You can get VAT free coins delivered from Europe, iirc its a 'loophole' of the EU setup? Again no CGT on the Brits.

If the vault is 'done over' you're insured to the full value.

[afly]

38 minutes ago, Game_of_Homes said:

Isn't it - the tax threshold ie. currently £11,500 + £2,000 dividend allowance + £1,000 tax free savings allowance, so = £14,500 until any tax needs to be paid?

NI to pay on sums over about £8500 isn't there?

[DurhamBorn]

Just now, afly said:

NI to pay on sums over about £8500 isn't there?

Yes there is,and i dont mind that at the moment as i need four more years NI for a full 35 year record (i paid stamp from 16).Once i have the full record i might drop my business down even more,though its probably better to keep it at the tax allowance and pay the NI,they might increase the years needed to 40 at some point.Il get the NI back once i stop my business.Il go on six months none means tested job seekers allowance,then none means tested ESA until they boot me off it,or i make it to a year before the means test kicks in.I can get 10 years NI back with 6 months JSA and 6 months ESA,both none means tested.

 

[Game_of_Homes]

32 minutes ago, afly said:

NI to pay on sums over about £8500 isn't there?

Pretty sure NI is only payable from income from work/self employment and not from savings and investments income. @DurhamBorn can you confirm?

[DurhamBorn]

Just now, Game_of_Homes said:

Pretty sure NI is only payable from income from work/self employment and not from savings and investments income. @DurhamBorn can you confirm?

Yes only from earnings,so if you have a full NI record you can drop your earnings below £8.5k and take more from investments and no NI.Crucial you have a full record first though.You can claim years if your short for looking after grandchildren while son/daughter at work as long as they pay NI.

[Game_of_Homes]

2 minutes ago, DurhamBorn said:

Yes only from earnings,so if you have a full NI record you can drop your earnings below £8.5k and take more from investments and no NI.Crucial you have a full record first though.You can claim years if your short for looking after grandchildren while son/daughter at work as long as they pay NI.

I'm not convinced that by the time I get my state pension they will pay it. They will move the goalposts (either make it means tested or the age so high that nobody gets it). I have a few missed years and am never sure whether to pay towards them or not. I guess it is a bit of a gamble. 

[Game_of_Homes]

Would you recommend silver coins over silver bullion? What's the difference (if intending to buy through Bullionvault and keep there)? Is it simply the CGT advantage with coins or do they have value beyond their weight in silver (i.e. are certain coins more collectible than others)?

[DurhamBorn]

Just now, Game_of_Homes said:

I'm not convinced that by the time I get my state pension they will pay it. They will move the goalposts (either make it means tested or the age so high that nobody gets it). I have a few missed years and am never sure whether to pay towards them or not. I guess it is a bit of a gamble. 

I dont think they will ever means test it.They will keep increasing the age though.I wouldnt buy missed years as long as there are plenty left to get a full record.Im pretty much there now,im hoping they change things so people who started paying NI from 16 can claim earlier though.I think there might be some changes on that,or at the least stop pushing the age back for people who started NI early.You can get 12 months ESA none means tested and 6 months JSA so anyone can retire 18 months before the official date anyway.

[DurhamBorn]

2 minutes ago, Game_of_Homes said:

Would you recommend silver coins over silver bullion? What's the difference (if intending to buy through Bullionvault and keep there)? Is it simply the CGT advantage with coins or do they have value beyond their weight in silver (i.e. are certain coins more collectible than others)?

Its down to each person.Probably best to have most in Bullionvault etc and then some coins as well.

[Inoperational Bumblebee]

59 minutes ago, Cosmic Apple said:

You can get VAT free coins delivered from Europe, iirc its a 'loophole' of the EU setup? Again no CGT on the Brits.

To clarify, they aren't VAT-free. VAT must be charged everywhere within the EU, but due to Customs agreements there is no Import Duty from intra-EU deliveries, and the VAT is assumed to have already been paid.

What the difference amounts to is what VAT is charged on. In Germany, I believe the VAT is charged at a lower rate (7%-ish? on this), and only on the dealer's profit (which I assume will be the difference between what you pay and the spot price). In the UK, you get charged 20% on the full whack, hence the considerable difference in price, and perfect legality in importation.

[Game_of_Homes]

5 minutes ago, DurhamBorn said:

Its down to each person.Probably best to have most in Bullionvault etc and then some coins as well.

But Bullionvault only offer bullion storage so if you sell you have to pay CGT as they don't store coins. If you buy the coins (Britannia's) you don't pay VAT but pay shipping charges and have to store it yourself and sell it yourself, is that correct?

[DurhamBorn]

Just now, Game_of_Homes said:

But Bullionvault only offer bullion storage so if you sell you have to pay CGT as they don't store coins. If you buy the coins (Britannia's) you don't pay VAT but pay shipping charges and have to store it yourself and sell it yourself, is that correct?

Yes,thats right.I have most of my UK investments in ISAs and SIPPs so a free capital gains allowance every year.

[Game_of_Homes]

5 minutes ago, DurhamBorn said:

Yes,thats right.I have most of my UK investments in ISAs and SIPPs so a free capital gains allowance every year.

Damn. Have already maxed out mine for the year...

[Game_of_Homes]

On 04/06/2018 at 22:26, DurhamBorn said:

I have just moved over onto here and hoped to carry on the conversation about what i think is ahead.A credit deflation followed by a full on reflation cycle.Leveraged assets will be hit very very hard,in the UK that means houses (BTL will see huge pain).

My thoughts on this playing out are,and remain these,

The great deflation cycle that started around 35 years ago is about to end with a deflationary collapse.During those 35 years interest rates have fallen to lower lows and made investing in equity/property very easy (they have always gone to higher highs).However that has also caused people to go way way along the risk curve for yield.The leverage on the system is beyond extreme.The Fed (and other central banks) missed out an entire tightening cycle,and in doing so have already made sure the recession dead ahead will see massive un-voluntary debt liquidation,a financial system in free fall and wealth destruction on a scale few can even imagine.Leverage is going to destroy business and individuals on a scale not seen since the late 1920s.Once this does hit the central banks will be slow to react with the right response as they themselves will be shocked at the speed and scale.They will panic and print direct into the economy by passing money/debt to governments at 0.1% or zero coupons.This is what will kick in the first reflation cycle since the 70s.Inflation will appear,rising slowly at first but increasing for perhaps a decade until it reaches double figures.Interest rates will follow,but being behind the curve perhaps through the whole cycle.The leveraged who survived the deflationary collapse will then suffer increasing interest rates for a decade.

I look forward to anyones thoughts on this,for,against,anything,and its great to of been directed to the forum,thankyou.

@DurhamBorn What do you think will happen to welfare/benefits if this scenario plays out? There will be huge pressure on the Government to increase benefits in line with inflation and there will be loads of negative press about how people can't afford to feed their children etc. Those not claiming would have to compete with those getting inflation linked benefits. I suppose it depends who is in Government at the time but if it is Steptoe, then I can see the welfare bill rising drastically and huge tax increases to cover this. 

[MrXxx]

1 hour ago, DurhamBorn said:

I dont think they will ever means test it.They will keep increasing the age though.I wouldnt buy missed years as long as there are plenty left to get a full record.Im pretty much there now,im hoping they change things so people who started paying NI from 16 can claim earlier though.I think there might be some changes on that,or at the least stop pushing the age back for people who started NI early.You can get 12 months ESA none means tested and 6 months JSA so anyone can retire 18 months before the official date anyway.

Just 'for the record' for every missed year you will get £244 less per year...weight this up 1. Against how much it will cost to buy additional years, 2. How long you plan to live after retirement age, and 3. How you think they might 'fiddle' with the system before you get to claim it!

[Game_of_Homes]

On 07/06/2018 at 16:58, DurhamBorn said:

An easy answer to that is this.There is a place on the coast where i would quite like a holiday home.They go for £300k at the moment.I think by 2025 i might be able to buy one with 750 ounces of silver,so bought today about £10.5k.

Those numbers are at the extremes of what i think might be possible,but even without that i think silver (and its miners) might be the buy of a lifetime.I do think it might go $22/23 down to $10 then up and away though.However id simply average down if it does do the dip.

There is a very real chance the PM miners might be to the next cycle what the .com's were to this last one.

@DurhamBorn Sorry to be asking you so many questions but I wanted to bring you up on this. You say you can conceive 750 oz silver (at current price) being able to buy a £300k (current price) holiday home by 2025. I am just wondering if you are saying that the silver price will go up so much that 750 oz would be worth £300k (ie. approx £400 an oz) or whether you think that house prices will fall so much and silver prices rise so much that you would be able to buy the equivalent of what today would cost £300k. Can you clarify?

[Lightscribe]

3 hours ago, DurhamBorn said:

I dont think they will ever means test it.They will keep increasing the age though.I wouldnt buy missed years as long as there are plenty left to get a full record.Im pretty much there now,im hoping they change things so people who started paying NI from 16 can claim earlier though.I think there might be some changes on that,or at the least stop pushing the age back for people who started NI early.You can get 12 months ESA none means tested and 6 months JSA so anyone can retire 18 months before the official date anyway.

This is my view as well. I think the pension age will continue to rise and they’ll continue to pump the ‘people living longer’ line. Ironically the younger generation could live even shorter lives, due to growing up with increased childhood obesity, highly processed foods and chicken shop diets.

I’ve come out of the civil service pension scheme - it changed to Alpha in 2015 which meant pension scheme age is linked with your state pension age. It’s ridiculous that so many are completely oblivious to this and will be in for a nasty shock.

I’ve moved to the Partnership pension where my employer gives an age related contribution of my salary (13% currently and matches my contribution up to 3% in addition) The key factor is I control my retirement age and the funds it’s invested in.

[sancho panza]

On 15/06/2018 at 10:24, DurhamBorn said:

They killed M3 because it was the most broad and tended to work towards "money" as a store of value rather than a medium of exchange.They didnt want to track it as a store of value,they only wanted to track it as a medium of exchange because they dont use store of value for money in their models.That tells you what you need to know about what CBs see their currency as.They base no weight to it being a store of value,only as a medium of exchange.M2 provides everything M3 does without worrying about a workers wages being a store of value.

I think they ditched it in the mid 2000s,but they didnt take much notice of it before that.

The US still publishes M3,though I'm not sue why teh UK and Eu countries killed off M3.We aslo used to have a broader measure,Sterling M4 that bit the dust sometime ago.

On 15/06/2018 at 12:50, ThoughtCriminal said:

I'm primarily thinking of

 

Gazprom

Lukoil

Novatek

Rosneft

Norilsk Nickel

Rostelecom

Rushydro

 

I think the perception of Russia as high risk is primarily due to the media noise. The economic fundamentals of their economy are superb, especially compared to western basket cases.

 

 

 

I think increasingly they'll come into the fold.Especially with trump pushing for that.

It's strange watching generally left wing parties exhort the MSM to blame everything on Russia.I'm agnostic on that,it's politics.But you're absolutely right that Russia offers great value in terms of some shares.

Thanks for the thought rpovoking posts.

[Inoperational Bumblebee]

5 hours ago, Game_of_Homes said:

Damn. Have already maxed out mine for the year...

Your ISA or your CGT allowance? Either way it shouldn't be a worry - you haven't made the capital gains on any gold sales yet!

[EDIT] If ISA, you know you can transfer cash ISA to S&S, don't you?

[Game_of_Homes]

Just now, Inoperational Bumblebee said:

Your ISA or your CGT allowance? Either way it shouldn't be a worry - you haven't made the capital gains on any gold sales yet!

My ISA. I can only wish I needed to pay CGT!

[sancho panza]

On 16/06/2018 at 10:12, DurhamBorn said:

I actually think this is going in the right direction.South Africa does its mining different in that the mine rights are simply a lease from the people to mine for a certain length of time in an area.The last government nearly killed mining,but this new president understands how important it is for the country and for black workers.They want to attract investment and know they need to get this right.The likes of Harmony Gold already have the quota met as their biggest shareholder is African Rainbow Minerals.Deep level mining in SA is expensive,but the grades are the best in the world.When the days come (as they will) when gold is going up in the $50 a day range the leverage will show itself.

There is also a lot of Greenstone belt in SA (and next door in Zimbabwe) and this hasnt really been explored mostly hidden under sand,but from drill results from Harmony it looks like there is big potential for open pit mining,much lower cost mines than the 2000m deep level mines.

This is the very recent drill result.

https://www.harmony.co.za/invest/presentations/2018/send/131-2018/3486-kalgold-greenstone-exploration

 

SA miners really need a weak rand due to their high costs,but over time if they can add a lot of cheaper open pit production to lower their average AISC,they should be able to expand margins.

There is big risk in most gold mining areas,and a spread is needed,but im very happy to risk having a couple of SA miners due to their leverage to the gold price.

 

 

Cheers DB.

The devil is in the detail and the companies that have been operating in SA for some time are well ahed of this.

It's worth noting that Impala/Amplats have carreid on operating in ZIm even through all the troubles with Mugabe.I think there's realisation that there has to be some sort of quid pro quo for the locals and the best way is to give equity which is much more prefereable for both sides to handouts.

 

Thanks for the heads up on African Rainbor minerals....is there any signifcance to this group -are they well connected?

https://en.wikipedia.org/wiki/African_Rainbow_Minerals

On 16/06/2018 at 10:24, Talking Monkey said:

That last bit did cross my mind, there are multiple benefits to be had. Tightening will finally clear out the zombie companies, but it also would give a clear signal that $ is still king and extend that for another decade or so. Eventually the Chinese currency will replace the dollar that is an inevitability I think, but a well timed crises might delay it by a decade

This was the end of the debate on why the Fed was conducting QT on ToS.Dollar hegemony.

I'm not sure on the yuan due to..leverage/accountability/accounting/political/free float reasons

I think we may end up with a period where there is no clear reserve currency of choice.

On 16/06/2018 at 10:51, darkmarket said:

There's a lot that could go wrong on the way to the Yuan, or even a currency basket, ending dollar hegemony. For the short-term risks of uncontrolled deflation or inflation, the Yuan dwarves the Dollar.

Agreed.

On 16/06/2018 at 10:54, Democorruptcy said:

Which means that wealthy Americans and/or banks can buy assets around the world more cheaply.

Germany obviously has a big say in what goes on in Euroland. However if Germany exited the Euro the other currencies would devalue and the Germans could buy the rest of Europe on the cheap instead of paying for an army to invade it. Years ago when Greece was tipped to be the first country to leave the Euro, I backed Cyprus at 50/1, the bet is still running but their bail-in stuffed it for me. I suppose Italy might be favourites now but I'd be tempted at a big price to go for Germany. 

This was the old red kharma theory on the Euro,that Germany would leave first.It actually makes a lot of sense.Unlikely.But there's a striking logic to it.

[Yellow_Reduced_Sticker]

23 hours ago, DurhamBorn said:

No dont sell the dollars,sterling hit my target of $1.41 and i dont think it will go back to that.Your PM holdings will outperform the dollar weakness anyway.The balance is what counts.I also wouldnt sell IBTL,its a hedge against a big deflation.I am going to pick up some Sibanye again myself this week,and i already own Harmony,both risky,but im happy to hold them through things like you say.I think il get some more silver in Bullionvault myself as well.Political risk is a problem with them,but SA needs miners to expand again,and the new mining charter looks ok to me and fair to the companies and the local communities.The rand price is always the worry for them both,550k a kilo and they will be at around 16% margins.At 650k their share prices would treble id expect.

 

Good Evening Mr DB,

 

Which broker are you buying Sibanye & Harmony with?

 

As i checked HL ...AND they don't quote 'em they ONLY quote the ADR (American depositary receipt)

 

http://www.hl.co.uk/shares/shares-search-results/h/harmony-gold-mining-adr-each-rpr-zar.05

http://www.hl.co.uk/shares/shares-search-results/s/sibanye-gold-ltd-adr-representing-4-shares

 

I do assume you are talking about these below:

 

http://www.sharenet.co.za/v3/quickshare.php?scode=HAR

 

http://www.sharenet.co.za/v3/quickshare.php?scode=SGL

 

I'm sure its the above as they both went up today near on 5% !

 

AND ADR's ...ah they went down lol!

[sancho panza]

On 16/06/2018 at 20:00, Orpington_Madness said:

I was talking to my FD the other day and asked him if there was any macroeconomic contingency contained within the companies strategic planning. He asked me what I mean't and I floated a scenario where interest rates and inflation were to be getting on for double figures at which point he looked at me as if I had just landed from outer space. I am amazed at how unprepared the world is going to be for this, particular those professionals who should be prepared (just like 2008, i suppose though).

Just like it amazes me how many LL's I know that hadn't heard of S24 before I mentioned it.

On 17/06/2018 at 01:32, PatronizingGit said:

Main difference this time, as I see it, is that China will not be in a position to take the baton and go on a yuge credit splurge. Who will instead (if anyone)...beats me.

 

Paul Hodges has some excellent charts on how China 'saved the world ' a la Gordon Brown post 2008.The reality is that they can';t do it again as each batch of stimulus created less and less growth

On 17/06/2018 at 09:51, Clueless Imbecile said:

Thanks to all who've posted their opinions on here. Fascinating thread!

I'm in a right dilemma at the moment...

I'm in my forties, been saving & investing in stockmarket index trackers for a while. Living cheaply at my parents' house (yeah, I know, sad at my age!). No idea when I'll want/need to buy a house. I don't fancy BTL because I don't want hassles with managing it. I don't fancy living on my own nor taking in a lodger. I don't fancy leaving a house empty. It just doesn't suit me to buy a house right now, although that might change in future.

 

 

Don't think it's sad at all.It's a reflection of how obssessed our society has become with the appearance of wealth rather than the maintenance of financial and familial security.

If there's no pressing need,I'd stay put as long as you can.There's nothing more depressing than paying £300,000 for a 3 bed semi in Leicester or £400pcm for a one bed flat in a run down part of town.