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Credit deflation and the reflation cycle to come.


DurhamBorn

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16 minutes ago, DoINeedOne said:

November may be an interesting date for Vodafone not sure on others views on this

The head of Telefonica Deutschland called on Monday for EU regulators to block Vodafone’s planned acquisition of Liberty Global, saying it would lead to a “quasi-monopolisation” of the German cable TV market.

The EU antitrust regulator set a Nov. 27 deadline for its review. It can either clear the deal with or without concessions or open a full-scale investigation if the companies fail to address its concerns.

What they mean is Vod is much better placed than them to clean up.Vod has the parts they dont have,and can buy the parts it needs.Telefonica has banked on mobile only and made a huge mistake (as have other telcos).Vod has invested assuming converged networks will be the future and they will be proved right for me.If they block the deal Liberty and Vod will simply offer joint services and crush their rivals that way.Once/if they get Liberty they will be best set in Europe.That will then focus their rivals eyes on Openreach and BT.If Vod does get Liberty expect a big German bid for BT.Hot sector for the next cycle.

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15 minutes ago, DurhamBorn said:

In stock markets everyone thinks the tech companies will take over the world,and passive investing is the certain way to go.Again they will learn the fallacy of that.



3

Can you explain further your reasoning and rationale behind this in regards to passive investing? Passive is a fraction of the total market, although is gaining ground, the general opinion I read is that certainly isn't the way to go.

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UnconventionalWisdom
19 minutes ago, stokiescum said:

not sure if its fake news or not but i heard the eec had drawn up proposals for bail ins from the public if needed,any idea if this is true or a myth.

This isn't fake news and bail-in powers have been passed. Once you deposit money in a bank, they legally own it. 

https://www.gov.uk/government/consultations/bail-in-powers-implementation-including-draft-secondary-legislation/bail-in-powers-implementation

Cyprus implemented bail-ins a few years ago. 

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8 minutes ago, UnconventionalWisdom said:

This isn't fake news and bail-in powers have been passed. Once you deposit money in a bank, they legally own it. 

https://www.gov.uk/government/consultations/bail-in-powers-implementation-including-draft-secondary-legislation/bail-in-powers-implementation

Cyprus implemented bail-ins a few years ago. 

Above the FSCS limit i hasten to add, all the banks have the FSCS logo sprayed all over the branches for some reason!

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8 minutes ago, Admiral Pepe said:

Can you explain further your reasoning and rationale behind this in regards to passive investing? Passive is a fraction of the total market, although is gaining ground, the general opinion I read is that certainly isn't the way to go.

Where i work everyone invests into a DC pension.That pension is 100% invested in a Legal and General world wide tracker.By design those trackers will be buying more of the companies in a bubble and less of the hated companies.Worse they move people into bonds once they get to about 55.So a 53 year old now might see 30%+ wiped off his equity fund,then have that moved into bonds just as they enter a long bear and lose another 30% of what left before he/she retires.

Passive investing was a great idea in a falling rate dis-inflation cycle (why try to pick winners when the macro picture ensures assets go up) but not in a rising rate one where only certain sectors do very well.If i had to track any developed world market though it would be the UK after the falls.The FTSE 100 has a decent amount of companies who should do fine during a reflation.

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13 minutes ago, Admiral Pepe said:

Can you explain further your reasoning and rationale behind this in regards to passive investing? Passive is a fraction of the total market, although is gaining ground, the general opinion I read is that certainly isn't the way to go.

Not speaking for DB, but I would say that a lot of passive investment funds blindly invest in big name ‘in favour’ stocks that have gone into bubble territory over the last 10 years. FANG stocks will see some of the worst falls in a downturn, and some funds are too heavily weighted in these areas. Actively managed funds at least will be able to change investments to more defensive and infrastructure stocks that have been out of favour but will do well in the next cycle.

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9 minutes ago, Sideysid said:

Not speaking for DB, but I would say that a lot of passive investment funds blindly invest in big name ‘in favour’ stocks that have gone into bubble territory over the last 10 years. FANG stocks will see some of the worst falls in a downturn, and some funds are too heavily weighted in these areas. Actively managed funds at least will be able to change investments to more defensive and infrastructure stocks that have been out of favour but will do well in the next cycle.

By their very nature, they are weighted as per the index they're tracking. So if FANGs individually or as a whole fall, they will be replaced by the ones that they take their place. In regards to UK pensions are they not heavily focused on the UK? My employers DC pension is heavy in FTSE100 focused if choosing their lifestyle fund. However, I can manually weight mine, but my options for equities are FTSE 100, Developed Word-Ex UK or US Equities. So I get no FTSE 250, and I could manually skew to a bigger US exposure.

Have you dug through the actively managed portfolios to see what they're made up of? There are some real gems in them that are heavily weighted in particular companies leaving them mightly exposed. Yes they could switch up now but are they going to? I only posted a few pages back about a leading IT that was 7% Alibaba. My exposure to an individual FANNG in my Global-All Cap is no more than 1.99%. Now obviously If I was to take an active role and choose my own weightings whether, through individual stocks or buying specific index funds to weight eg S & P 500, exposure is going to be very different.

I think you chaps need to be a little careful about talking about passives. There seems to be a cross-over with terminology and understanding. A UK pension maybe in passive funds, but are being actively weighted

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3 hours ago, BurntBread said:

Thinking about the reflation on the other side, now: R4 this morning said that it was virtually agreed that the government would support the re-opening of the Oxford/Cambridge rail line, the construction of an express-way covering the Oxford/Northampton/Cambridge arc, and the building of a million homes in the area.

Ah, so this must be the Northern Powerhouse they make so much mention of?...well, North of London anyway...where the rest of the development money is spent!

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2 hours ago, DoINeedOne said:

Just some notes i've saved also knew someone who was in Cyprus 

Digital wealth is easier to seize

IRELAND 2009: Took Eur4.4bn National Pension Reserve Fund assets to bail out banks.  The Fund was established in 2001 to ensure the Government could pay pensions in 2025-2050

 

PORTUGAL 2010:  Nationalised pension assets of Portugal Telecom

 

IRELAND 2010: Took remaining Euro 2.5bn National Pension Reserve Fund assets

 

FRANCE 2010: Took Euro33bn from its National Reserve Pension Fund that was intended to fund pensions in 2020-2040 but used the money to fund today’s pensions instead

 

HUNGARY 2010: Nationalised $14bn of individual private pension accounts which had been set up in 1998 to limit state pension liabilities and used the money to reduce state debt

 

PORTUGAL 2011: Confiscated pension assets of its largest banks which comprised around three-quarters of private pension assets

 

POLAND 2011:  In 2011, Poland reduced the mandatory contributions into its second pillar privately-managed pension funds from 7% of salary to 2.3%, with the balance being paid into the state pension system

 

UK 2012: Transferred £24bn of Royal Mail pension assets to the Treasury and used the funds to reduce the current budget deficit

 

POLAND 2013: Nationalised half private pension assets by confiscating bond holdings

 

Also reminds me of this

Cyprus end up taking / frooze 47.5% of people's money as a bail in to start with the above screenshot was posted by a business based in Cyprus at the time, remember him posting that he will be sacking something like 10+ people and moving his business out of Cyprus

 

wbpomEF.png.11e08ec6fad5a39a5692f43d51fb49dc.png

 

Also had a friend who's aunt had just sold her house where she lived in Cyprus and had the money blocked last I heard she was living with her sister (my friends mum) as she lost money

 

 

All from the pensions...I think it was DB who mentioned about taking a private pension early and suffering a penalty rather than waiting for the 100% at 65 and finding its no longer there (or has had a `haircut`).

This made me think about the State Pension and additional contributions if you need to pay them...whilst it offers good value for money/return, I would suggest that it is only wise if you are close to retirement rather than a long way off.

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1 hour ago, UnconventionalWisdom said:

This isn't fake news and bail-in powers have been passed. Once you deposit money in a bank, they legally own it. 

https://www.gov.uk/government/consultations/bail-in-powers-implementation-including-draft-secondary-legislation/bail-in-powers-implementation

Cyprus implemented bail-ins a few years ago. 

 

1 hour ago, Majorpain said:

Above the FSCS limit i hasten to add, all the banks have the FSCS logo sprayed all over the branches for some reason!

I'm not so sure about the FSCS limit, a quick google and this comes up;

https://truepublica.org.uk/united-kingdom/grand-theft-auto-uk-eu-bank-depositor-bail-regime-implemented/

Quote

Paul Tucker, Bank of England Deputy Governor stated that ‘it is not enough to have just a Deposit Guarantee Scheme’ to save a major bank. He went on “if the losses are vast enough, then the haircuts imposed by the resolution authority can in principle permeate to any level of the creditor stack. In the case of insured deposits, that means Deposit Guarantee Schemes (DGS) suffering losses”.

The truth be-told, we won't know until it happens...

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1 hour ago, DurhamBorn said:

Where i work everyone invests into a DC pension.That pension is 100% invested in a Legal and General world wide tracker.By design those trackers will be buying more of the companies in a bubble and less of the hated companies.Worse they move people into bonds once they get to about 55.So a 53 year old now might see 30%+ wiped off his equity fund,then have that moved into bonds just as they enter a long bear and lose another 30% of what left before he/she retires.

Passive investing was a great idea in a falling rate dis-inflation cycle (why try to pick winners when the macro picture ensures assets go up) but not in a rising rate one where only certain sectors do very well.If i had to track any developed world market though it would be the UK after the falls.The FTSE 100 has a decent amount of companies who should do fine during a reflation.

OK, but could these people not be `active` passive investors?...many company DC pension schemes offer a `leave it to us` option where bonds are tapered in, or DIY where you can invest in a number of index ETF with various elements of risk/return.

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reformed nice guy
1 hour ago, DurhamBorn said:

Worse they move people into bonds once they get to about 55.So a 53 year old now might see 30%+ wiped off his equity fund,then have that moved into bonds just as they enter a long bear and lose another 30% of what left before he/she retires.

So if we are entering a significant bear market, would we expect to see a reduction in bond yields for safe havens like US treasury bonds?

Would there be an opportunity to buy longer dated bonds now and sell them during the depths of a downturn, or would this be priced in already?

I know that yield curve inversion usually indicates a recession but it still looks normal to me

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1 hour ago, DurhamBorn said:

Where i work everyone invests into a DC pension.That pension is 100% invested in a Legal and General world wide tracker.By design those trackers will be buying more of the companies in a bubble and less of the hated companies.Worse they move people into bonds once they get to about 55.So a 53 year old now might see 30%+ wiped off his equity fund,then have that moved into bonds just as they enter a long bear and lose another 30% of what left before he/she retires.

Passive investing was a great idea in a falling rate dis-inflation cycle (why try to pick winners when the macro picture ensures assets go up) but not in a rising rate one where only certain sectors do very well.If i had to track any developed world market though it would be the UK after the falls.The FTSE 100 has a decent amount of companies who should do fine during a reflation.

Luck of the draw on that front though. Conversely, someone already entered into retirement would have shaved off their equity exposure and could now be sat in a less volatile portfolio laughing all the way to the bank. Additionally, someone starting out work now could do very well in the long run from funds that have just taken a big hit. There's no doubt people will get hurt, two sides to the coin though.

22 minutes ago, MrXxx said:

OK, but could these people not be `active` passive investors?...many company DC pension schemes offer a `leave it to us` option where bonds are tapered in, or DIY where you can invest in a number of index ETF with various elements of risk/return.

That's the way I see it. More like semi-active. Just the funds trying to find a balance so they can charge the fees. There is no way this with such home bias could be considered "passive" in my eyes. Someone has specifically chosen those allocations for whatever reasons. The UK should be somewhere around 6%

image.png.b126b455fe3d861f20158a8fdaf14f9e.png

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2 hours ago, UnconventionalWisdom said:

This isn't fake news and bail-in powers have been passed. Once you deposit money in a bank, they legally own it. 

https://www.gov.uk/government/consultations/bail-in-powers-implementation-including-draft-secondary-legislation/bail-in-powers-implementation

Cyprus implemented bail-ins a few years ago. 

Just an utterly infuriating passage:

"In other industries, when a business fails, it enters insolvency. Its creditors have a claim in that insolvency. How much they recover is determined by their position in the creditor hierarchy and the amount of losses in the firm (i.e. how much money there is available to pay creditors, and should creditors be paid in full, return to shareholders). For large banks and other large financial institutions, it is not in the public interest for them to enter insolvency due to the interconnectedness of the banking system (the insolvency of one bank can cause wide spread problems in financial markets) and the range of essential services they provide to customers and other industries. Disruption to these services could have serious repercussions for the economy."

AKA - do what you want, you won't ever go out of business because we've ensured that you're tentacles are dug in to so much that you won't be allowed to suffer for your mistakes. We'll pass that on to the little people.

Makes me want to set up my own political movement to shred these fuckers.

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1 hour ago, MrXxx said:

OK, but could these people not be `active` passive investors?...many company DC pension schemes offer a `leave it to us` option where bonds are tapered in, or DIY where you can invest in a number of index ETF with various elements of risk/return.

My choice with Glaxosmithkline was UK tracker,world tracker (50% us),bond,cash.Thats with a company of GSKs size.About 3% of people moved from the default settings over 20 years.I think all employer pensions should offer default or payment into individual SIPP.There is simply no reason why they cant offer this.Bonds will see a severe bear market in the next cycle.I see 1982 as the roll back date.They may stop before that level,but a long way towards it.If someone is 53 now they might see big falls in the trackers,then be moved into bonds in two years as the "lifestyle pensions" all do only to then see bonds enter a long bear.

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1 hour ago, Admiral Pepe said:

Luck of the draw on that front though. Conversely, someone already entered into retirement would have shaved off their equity exposure and could now be sat in a less volatile portfolio laughing all the way to the bank. Additionally, someone starting out work now could do very well in the long run from funds that have just taken a big hit. There's no doubt people will get hurt, two sides to the coin though.

That's the way I see it. More like semi-active. Just the funds trying to find a balance so they can charge the fees. There is no way this with such home bias could be considered "passive" in my eyes. Someone has specifically chosen those allocations for whatever reasons. The UK should be somewhere around 6%

image.png.b126b455fe3d861f20158a8fdaf14f9e.png

The problem is the lack of fund choice in most employer pensions.Another problem is most people have no understanding.I would say in my new employer on the shop floor hardly anyone will even consider their pension.They just see £300 a month go off their pay each month.The problem for me is the lifestyle options.£100k pot can become £50k very easily if we see an equity hit followed by a bond bear as i fully expect.

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16 minutes ago, DurhamBorn said:

The problem is the lack of fund choice in most employer pensions.Another problem is most people have no understanding.I would say in my new employer on the shop floor hardly anyone will even consider their pension.They just see £300 a month go off their pay each month.The problem for me is the lifestyle options.£100k pot can become £50k very easily if we see an equity hit followed by a bond bear as i fully expect.

I thought I remembered you DB saying, a couple of years ago on ToS, that if we do see equities fall hard then there will be a recovery which will tempt buyers to scoop up for cheap, but then there will be another and much more severe drop which will feel like a depression. Did I understand that correctly and is it still your feeling if so?

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4 hours ago, DurhamBorn said:

The big banks/investment houses etc dont use real macro strategists anymore. My friend said his reports would sit on desks,where in the past they were the first thing the traders read to decide asset allocation in the longer term.People want things now these days.

Exactly this. I implement algorithmic trading platforms for a living.  The algos trade purely on momentum over very short timescales - the longest measured in seconds.  The aim is to get in and out of a trade as quickly as possible, nicking a tiny profit each time.  Making $100,000 from billions of traded volume is a very good day.

One interesting study I worked on this time last year was an attempt to identify exactly how liquid the FX market is by a major market maker surprised at the size of the market reaction when the SNB removed the EURCHF peg. There are very few true market makers in the FX market, but tons of agency players. While there might well be plenty of depth in a given market, most of those bids and offers are simply recycled. So, when TSHTF, it only takes one participant to pull a quote or order and all that lovely liquidity dries up instantly. I won't divulge the method used, but it gave very reliable results and indicated that, even in major pairs, up to 80% of the liquidity available to the bank was actually its own liquidity being quoted back to it. I discussed the results with some HFT equities guys who indicated that they regularly undertook similar studies, with similar results.

I don't think the above points to a slow grind down. If the market gets through the first week of November relatively unscathed, I think it's oversold enough for a Santa rally, then some very steep drops in the first half of 2019. The algo traders won't care; they make money regardless of market direction. The pension funds are holding the bag this time.

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2 hours ago, Funn3r said:

I thought I remembered you DB saying, a couple of years ago on ToS, that if we do see equities fall hard then there will be a recovery which will tempt buyers to scoop up for cheap, but then there will be another and much more severe drop which will feel like a depression. Did I understand that correctly and is it still your feeling if so?

I see the US markets going down heavy,15% down,then perhaps a bounce then down again.The UK is tricky because we already have many stocks down 50%+.It might be we lose 1% for each 3% in the S+P from here in.I stair case in to shares i want.Some are already down over 50% from highs,some perhaps 30% when i start buying.That means id be very happy if the stocks im after go down 70% from highs as thats my last buy in level.Id be very happy if my portfolio ended up showing -15% to -20% when things turned.Perfect for myself would be for the PM stocks to run while the rest go south.Iv already top sliced a few of the PMs that ran early.In these turns im not expecting to make big profits,or perhaps any profit at all.The hope is the sectors that run up make up for the positioning into the stocks i want for the longer term.

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1 hour ago, AnythingWithWheels said:

Exactly this. I implement algorithmic trading platforms for a living.  The algos trade purely on momentum over very short timescales - the longest measured in seconds.  The aim is to get in and out of a trade as quickly as possible, nicking a tiny profit each time.  Making $100,000 from billions of traded volume is a very good day.

One interesting study I worked on this time last year was an attempt to identify exactly how liquid the FX market is by a major market maker surprised at the size of the market reaction when the SNB removed the EURCHF peg. There are very few true market makers in the FX market, but tons of agency players. While there might well be plenty of depth in a given market, most of those bids and offers are simply recycled. So, when TSHTF, it only takes one participant to pull a quote or order and all that lovely liquidity dries up instantly. I won't divulge the method used, but it gave very reliable results and indicated that, even in major pairs, up to 80% of the liquidity available to the bank was actually its own liquidity being quoted back to it. I discussed the results with some HFT equities guys who indicated that they regularly undertook similar studies, with similar results.

I don't think the above points to a slow grind down. If the market gets through the first week of November relatively unscathed, I think it's oversold enough for a Santa rally, then some very steep drops in the first half of 2019. The algo traders won't care; they make money regardless of market direction. The pension funds are holding the bag this time.

Thankyou for adding that for people as it shows just how things have changed.In the past my friend would forward a macro road map to his clients.He made no trading calls at all.They would then forward that to the equity traders team who would study it.It was then up to them to build the portfolio and buy the stocks around the macro picture.His job was to point the traders in the right direction for the long term.In the 70s and 80s the pensions he advised were top percentile over the cycle.His call now is that the next cycle will be a full scale reflation.He has no doubts on that at all.Already baked in he says.The debt deflation ahead will mean governments have no choice,but to invest hard direct into the economy.Perfect political and economic storm as he puts it.He isnt worried though,he just says keep averaging into silver if it goes to $8 because its going to $200+ in the reflation and some of the miners will 100 bag.Old becomes new,as ever it was.

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2 hours ago, AnythingWithWheels said:

The pension funds are holding the bag this time.

UK or US?

Seems like in the US the biggest bag holders at nearly 40% of the market are household direct holdings.

equity-ownership.png

WtsbW6k.png&key=483f2efaad54df49818eb35e

BN-QB950_HOUSEH_G_20161003092901.jpg

 

Data is in Fed Res Z1 package if you anyone can be arsed to wade through it

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https://www.pionline.com/article/20181022/ONLINE/181029990/oecd-countries-retirement-assets-surpass-43-trillion-in-2017

Funding levels for DB funds improved in the U.S., to 59.6% at end-2017 from 56% a year earlier; but worsened from 2007 figures of 68.6%. The funding ratio was calculated as the ratio of total investment and net technical provisions for occupational defined benefit plans using values reported by national authorities in the OECD template.

U.K. funding levels improved to 90.5% as of the end of 2017, up from 85.8% a year earlier, but down from 108.8% as of the end of 2007.

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Talking Monkey
52 minutes ago, DurhamBorn said:

Thankyou for adding that for people as it shows just how things have changed.In the past my friend would forward a macro road map to his clients.He made no trading calls at all.They would then forward that to the equity traders team who would study it.It was then up to them to build the portfolio and buy the stocks around the macro picture.His job was to point the traders in the right direction for the long term.In the 70s and 80s the pensions he advised were top percentile over the cycle.His call now is that the next cycle will be a full scale reflation.He has no doubts on that at all.Already baked in he says.The debt deflation ahead will mean governments have no choice,but to invest hard direct into the economy.Perfect political and economic storm as he puts it.He isnt worried though,he just says keep averaging into silver if it goes to $8 because its going to $200+ in the reflation and some of the miners will 100 bag.Old becomes new,as ever it was.

Hi DB do you still see a short term uptick in silver to about 20 before it drops towards 10 or 8,

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10 hours ago, stokiescum said:

not sure if its fake news or not but i heard the eec had drawn up proposals for bail ins from the public if needed,any idea if this is true or a myth.

I believe true in the UK.  That depositors are now classed as creditors so would need to queue in line with the window cleaner, HRMC, etc.  Bail ins are also more of a government dictat so could take many forms.  Whatever, things have been tightened up since 2008/9, at the depositor's expense.

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