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Credit deflation and the reflation cycle to come.


DurhamBorn

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5 minutes ago, Talking Monkey said:

DB I'm guessing if you're in say an industrial firm doing an office job rather than on the shop floor that would still be a halfway ok place to be, rather than an office job in some services firm

Yes i would think so.Of course there is the small matter of getting through the debt deflation.

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22 minutes ago, Harley said:

Just sold the whole lot (ETFs) today as part of my portfolio de-risking.

Done OK even thought they have come down a bit but can't see any sustainable rise at least on the junk stuff.

Looked at the individual ones today but not interested given the yields to redemption, although the Legal and General undated one was tempting.

Sticking to govt bonds (ETFs and maybe ITs or funds).

 

Thanks Harley. Was looking at retail corporate bonds today myself and not much on offer really from what I could see. Imperial Brands existing bond is maturing soon so will keep an eye on the next one. VOD is trading above par so no thanks. The insurers do look to have some value but perhaps a bit more risk with them?

Personally not going to bother with bond funds for now.

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7 hours ago, Cattle Prod said:

I have a 10 year fix at 2.53. I expect to pay the balance off by the end of the fix (2028), thanks to inflation.

got 11 years left on mine and around 25 quid a month is added on interest.i sometimes think about inflation and think should i just chillmore work less hours and pay less tax,and let inflation weave its magic on the 12.5 k left.on the other hand id just get pissed more if i had more time off.

 

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1 minute ago, stokiescum said:

got 11 years left on mine and around 25 quid a month is added on interest.i sometimes think about inflation and think should i just chillmore work less hours and pay less tax,and let inflation weave its magic on the 12.5 k left.on the other hand id just get pissed more if i had more time off.

 

Pay less tax anyway and SIPP everything over £12k stokie.Iv actually got a small amount left on my mortgage,always left a bit as i have a lifetime base rate tracker +0.1% xD.I might actually pay it off in the next year or so as its got 6 years left to go on it.Rent a room scheme is handy £7500 tax free allowance there.Pay it off with that and be a rentier.:ph34r:

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45 minutes ago, Admiral Pepe said:

Personally not going to bother with bond funds for now.

Agreed.  Only reason to go there (for me) is to hold to maturity which maybe an ETF or fund couldn't do.  But then I kept hearing DB's(?) voice about 10%+ interest rates and thought nah, especially as corporate bonds (well the high yield ones) are really just shares on speed, something possibly a bit too wild right now!  Maybe I'll take a look at the US offerings some time, assuming there's a bigger choice.

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Per Buffett and the swimming naked analogy......

A busy day restructuring a number of portfolios but funny how you just know when it feels right, like you've completed the jigsaw.  One interesting piece of ancillary work was looking at how a number of possible candidate stocks, etc had performed when the FTSE dropped last month.  That's the time to see where Mr Market runs from and to and how quickly.  Saw the whole range:

- stock falls in tandem with the FTSE

- stock falls futher than the FTSE but rebounds more

- stock rises as the FTSE falls

- stock initially falls a bit but rebounds sooner (i.e. a true safe haven)

- etc

It's like several stages of DEFCON, with stocks in and out of each stage.

Could also see areas (corrections) where maybe there had been a lot of shorting activity (e.g. emerging markets).

Need to filter out any company specific news but can be a worth while exercise if you have the time.

PS: Some very dubious high div shares out there when you look at trends in debt levels, financing costs, cash flows, levels of intangibles, div cover, etc.

DYOR.

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6 hours ago, Barnsey said:

So are most here expecting CPI linked salary increases through the reflation period?

NHS-no.

ANd without going full Shaun Richards ,CPI is a pretty poor estimate of most peoples living cost increases

 

 

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Talking Monkey
10 hours ago, Majorpain said:

Watch out for automation, its coming for you!  The safest jobs are ones which computers will find difficult to do (reading drawings etc), 90's software packages requiring lots of typing are completely redundant with modern programs which send data between themselves automatically or are auto .csv input.  The progress over the last couple of years has been very rapid.

I hear you Major, looking around at tech taking out jobs in the last 10 years it is crazy, I reckon huge unemployment is not far off, especially if inflation takes off and automation accelerates further. The far end of the next decade is going to be the start of horrible times as we transition to a society where the majority of people are superfluous to requirements

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1 hour ago, Talking Monkey said:

I hear you Major, looking around at tech taking out jobs in the last 10 years it is crazy, I reckon huge unemployment is not far off, especially if inflation takes off and automation accelerates further. The far end of the next decade is going to be the start of horrible times as we transition to a society where the majority of people are superfluous to requirements

Standard 4 day week first step, then a resurgence amongst Western economies of interest/trials involving universal income.

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53 minutes ago, Barnsey said:

Standard 4 day week first step, then a resurgence amongst Western economies of interest/trials involving universal income.

Universal income is certain Barnsey 100% certain.Its just when.The end of the reflation will probably see the biggest crash in history.Iv never feared any cycle,just invested for it,but that i do.Its not the time to get into it now,that is where the thread will go once we are well into the cycle,but one outcome will be a UI.That or the collapse of western democracy.

Notice today even Primark's like for like sales have fallen.Margins are being crushed almost everywhere.Lots of covenants on debt not to go over 3 x EBITDA etc are going to be tested soon.Solid free cash flow is going to be crucial the next 2 to 3 years.Still see gold running to $1500+ and silver $22 area and dollar 86 before they turn as well.

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2 hours ago, Talking Monkey said:

I hear you Major, looking around at tech taking out jobs in the last 10 years it is crazy, I reckon huge unemployment is not far off, especially if inflation takes off and automation accelerates further. The far end of the next decade is going to be the start of horrible times as we transition to a society where the majority of people are superfluous to requirements

Kudos TM.Possibly the most bearish comment the thread has seen,and that's saying something.

For what it's worth,I agree with your line of thinking, the people of the UK are going to be really shocked by what's coming,not just the end of 'free' money,collapse in social care provisions,house price drops taking banks down-again,substantial debt deflation featuring significant reduction in credit creation and high unemployment,social upheavels as various sections of society compete for dwindling social resources/NHS..................................it's going to make the 90's recession look like a walk in the park.

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1 hour ago, Barnsey said:

Standard 4 day week first step, then a resurgence amongst Western economies of interest/trials involving universal income.

even care jobs will be saught after in the future one for extra cash on top of univeral income and another for self esteam and to kill boredom.then in time they will make it compulsory for everyone to do some form of comunity work,big brother is comeing.

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22 minutes ago, DurhamBorn said:

Universal income is certain Barnsey 100% certain.Its just when.The end of the reflation will probably see the biggest crash in history.Iv never feared any cycle,just invested for it,but that i do.Its not the time to get into it now,that is where the thread will go once we are well into the cycle,but one outcome will be a UI.That or the collapse of western democracy.

Notice today even Primark's like for like sales have fallen.Margins are being crushed almost everywhere.Lots of covenants on debt not to go over 3 x EBITDA etc are going to be tested soon.Solid free cash flow is going to be crucial the next 2 to 3 years.Still see gold running to $1500+ and silver $22 area and dollar 86 before they turn as well.

That's a bit of a combat indicator when the pound shop type operations are getting mullered.This is what debt deflations are about-drops in demand forced by unwillingness to get into more debt.Cutting rates now will do nothing to help these people borrow more.

I pulled off my shorts a week or two back and was going to stay out for a while till New Year and then short US stcoks.Having said that,getting some really reliable reports from a good friend who's a delivery driver that construction demand for the plasterboard he delivers is dwindling.Says sites are being run much more slowly,his firm are sending out orders even if builder hasn't asked for it,no second drops for the day etc.And we know that transactions are low,HTB is reducing in impact(I'm going to cross post from another thread some excellent research by Supertramp and Admiral Pepe on the matter)

He aslo said he was speaking to a sales manager at a site recently and they're preparing for a downturn,see it as the only way to get Brickies wages back in line.

Thinking of reshorting Belllway,Bdev,Redrow,Berkeley who've all rallied nicely.And my dear old favourite Wh Smug is back up at £20...

 

 

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2 hours ago, Talking Monkey said:

I hear you Major, looking around at tech taking out jobs in the last 10 years it is crazy, I reckon huge unemployment is not far off, especially if inflation takes off and automation accelerates further. The far end of the next decade is going to be the start of horrible times as we transition to a society where the majority of people are superfluous to requirements

 

39 minutes ago, DurhamBorn said:

Universal income is certain Barnsey 100% certain.Its just when.The end of the reflation will probably see the biggest crash in history.Iv never feared any cycle,just invested for it,but that i do.Its not the time to get into it now,that is where the thread will go once we are well into the cycle,but one outcome will be a UI.That or the collapse of western democracy.

 

23 minutes ago, sancho panza said:

Kudos TM.Possibly the most bearish comment the thread has seen,and that's saying something.

For what it's worth,I agree with your line of thinking, the people of the UK are going to be really shocked by what's coming,not just the end of 'free' money,collapse in social care provisions,house price drops taking banks down-again,substantial debt deflation featuring significant reduction in credit creation and high unemployment,social upheavels as various sections of society compete for dwindling social resources/NHS..................................it's going to make the 90's recession look like a walk in the park.

Well worth 15 mins of your time:

 

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On 05/11/2018 at 00:56, SuperTramp said:

The first of the 5 year, HTB 20% loans are becoming due (40% for London).

I was looking at the statistics for the HTB loans, and it looks like the first few months in 2013 were quite sluggish with just over 800 loans made from October until the end of 2013.

The big year for HTB was 2014, with just over 38,000 sales made, followed by 2015 at just over 34,000 completions,  28,500 in 2016, and just over 3,000 in the first 6 months of 2017 (that's the last breakdown from UK  government figures).

The total number of loans made up until April 2018 has been just over 120,000.

You can see that the scheme has been tailing off (becoming markedly less popular) from 2015 onward.

From 2013 to Jun 2017, 107,000 thousand HTB loans were made.

Therefore, between July 2017, and April 2018, a mere 13,000 loans have been made.

One of the most popular areas for Help to Buy loans has been Central Bedfordshire. In other words Luton and Dunstable. I suspect a lot of those sales would be London commuters desperate to get out of more expensive towns like St. Albans, Harpenden, Hitchin, Welwyn Garden City, and Hatfield, and purchase a property (if I remember correctly there was significant house price inflation in Luton and Dunstable in the last few years, all fueled by the HTB monstrosity).

I wonder if the 38,000 worth of HTB sales made in 2014, will manifest financial problems in 2019?

I also heard of schemes being offered by local council that were similar (or were councils just using the HTB money and dressing it up as there own?). I remember talking to a receptionist at a local sports centre back in 2016, and her expressing unbridled joy at being able to purchase a £300,000 new build rabbit hutch with "a kind loan from the council" (she didn't seem like the sort of person who really understood what she was getting into, and I got the impression she thought it was free money).

If she was representative of the sort of people taking advantage of HTB, then I shall watch to see what happens with interest, particularly in 2019.

From the Gideon HTB thread.Incredible reading.Great research @SuperTramp and   @Admiral Pepe

19 hours ago, Admiral Pepe said:

After five years you will be required to pay an interest fee of 1.75% of the amount of your Help to Buy shared equity loan at the time you purchased your property, rising each year after that by the increase (if any) in the Retail Prices Index (RPI) plus 1%. The loan itself is repayable after 25 years or on the sale of the property if earlier. Other payments and charges You must pay a monthly management fee of £1 per month from the start of the loan until it is repaid

 

19 hours ago, Admiral Pepe said:

I think my sums are correct, but please correct me if wrong. Doesn't take into consideration house value changing. Not life changing amounts but when people are already stretched an extra £100 a month might be all it takes to start the downward spiral

image.png.ba9bbb1237b551721cb0022ef5d42fb2.png

London Isn't looking so pretty xD

image.png.a919bd34c8426051c6dac60a6cb9a153.png

 

17 hours ago, SuperTramp said:

Oh I see, so the percentage interest charge increases by RPI + 1% every year after 5 years.

So, a 1.75% interest rate charge on the HTB equity loan after 5 years, increases by (assuming RPI inflation is 5%) by 6%, to 1.86% in year 6, and so on.

I just had a first read of the HTB small print, and the best is the bit about paying off the equity loan.

Firstly, if the value of the house goes up, then total amount payable on the equity loan goes up at the same rate as the increase in house price (i.e. an initial purchase of a £150,000 property, with a 20% HTB loan of therefore £30,000, will increase to £33,000, should house prices increase by 10%).

Secondly, if someone with one of these loans wants to pay off the HTB equity loan, then the minimum payment is 10% of the current valuation of the property, not 10% of the equity loan (better if house prices fall, not so good if prices rise, which is pretty likely if we accept that HTB loans cause house price inflation).

Even a small HTB equity loan, of say £30,000 (i.e. 20% of a property purchased for £150,000), assuming the price of the house stays the same, the buyer is forced to pay back a minimum of £15,000 on the HTB equity loan, or not at all, and therefore face the full cost of the interest charges.

The London figures look even worse, given the greater sums of money involved (half a million has not been unusual, even just for 2  bedroom flats in Greater London), and particularly if a 40% HTB equity loan was taken "advantage" of.

The fees for missing payments do not look good either, £100 for missing a payment, and £600 for non-payments being passed to a debt collection agency.

Given that everyone seems to live on their credit card these days, and that people will be asked to save large sums of money in order to pay down the HTB equity loan (even on properties at the bottom end of the market), this appears to be a financial car crash in the making.

I've just learned that this crazy scheme is now set to continue until 2023, however, the government have placed absolute caps on the amount they are prepared to lend for each property purchase (a tacit admission from the government that HTB has caused property price inflation, despite previous claims that they would be vigilant for any signs that this scheme would cause prices to increase).

What a mess.

 

15 hours ago, Admiral Pepe said:

No you're not missing something. You were on the ball. For some reason the autosum didn't sum the whole column. My bad, did it in a rush

Correct totals are:

£14,020 and £46,313

 

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Thanks for copying over @sancho panza

Correct Totals included this time. As you can see HTB's equity loan fees are kicking in now and in london they are particulary going to feel the squeeze. An extra £300 a month on a house/apartment bought at £500k. As @SuperTramp dug out missed payment charges are extortionate. Won't take much for debt to spiral out of control

image.png.4ec3a78f8498be232ec97c91d7c58f51.png

image.png.d63aa037749af75efff7f9e146bc9364.png

 

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UBI is an interesting concept in theory, but I don't think it will come into practice.  The current malaise is IMO a result of western populations trying to keep their share of world resources, despite the growing demands of developing markets for the basics like oil, coal, iron and food.  So the choice is the government tries to guarantee the population that it will print money to keep their relative high standard of living compared to Ling in China or Arjun in india, or the standard of living in the west will fall to what the market is able to pay.  They have promised too much to too many people to be able to pay for it out of taxes, and the screams of cuts make it a non starter.  The problem with money printing is of course that it devalues earnings so peoples standard of living will in fact decrease to market value!

The Chinese are well aware of this, which is why the are desperately trying to educate as much of the population in western universities to get the knowledge side of the economy going.  In the long run the robots will take care of the majority of production, the added value will be in the designing phase which cant be automated.  Ripping off other countries IP will only get you so far.

 

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A question about energy sector in reflation.

I've seen you guys talk about bright future for SSE and the likes, mostly due to them being able to benefit from spiking prices while their assets keep depreciating at constant pace. What's your view on smaller, retail-oriented players, like Bulb?

The reason I'm asking is I'm currently working in a fashion industry and it's already cracking at the seams, so I'd like to position myself career-wise to benefit from the next cycle and Bulb actually reached out to me with a nice money+shares offer. While I'm fine with the specifics of the offer, I'd like to learn your view of the company or the sector in general when it comes to reflation.

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1 minute ago, Admiral Pepe said:

Thanks for copying over @sancho panza

Correct Totals included this time. As you can see HTB's equity loan fees are kicking in now and in london they are particulary going to feel the squeeze. An extra £300 a month on a house/apartment bought at £500k. As @SuperTramp dug out missed payment charges are extortionate. Won't take much for debt to spiral out of control

image.png.4ec3a78f8498be232ec97c91d7c58f51.png

image.png.d63aa037749af75efff7f9e146bc9364.png

 

No worries,such an incredible discussion that many might miss if they don't have time to look through all the posts.

This is incredible what they've done to people.

Admittedly small in size compared to annual transactions but 38,000 in 2014 was 3% ot total transactions BUT 12.3% of FTB's.

https://static.halifax.co.uk/assets/pdf/mortgages/pdf/2018-01-27-number-of-ftb-highest-since-2007-HPI.pdf

 

Whilst talking FTB's came across this paper with some interesting data,We're not comparing like with like historically.

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/539256/First_Time_Buyers_and_Potential_Home_Owners_Report.pdf

'The proportion of first time buyers that were single households halved from 29% in 1994-95 to 14% in 2014-15.

• Therefore, 80% of all first time buyers were couple households, a marked change since 1994-95 (63%) and 2004-05 (62%). This may be due to an increasing need for two incomes to be able to buy.

• Among first time buyers that were couples, those with dependent children have increased the most over this time (from 20% to 31%)

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1 hour ago, stokiescum said:

even care jobs will be saught after in the future one for extra cash on top of univeral income and another for self esteam and to kill boredom.then in time they will make it compulsory for everyone to do some form of comunity work,big brother is comeing.

Its no mistake my partner is a nurse in the community who's job is to get people out of hospital quick or that i guided my daughter to be a nurse,a mental health nurse in the community,both areas where demand will rocket.My son is very clever but not the uni type,my mate got him in to Aldi,good money,no debts,saving £700 a month already and if i chuck him some money should be buying a house cash in a few years once they are whacked.My daughter is 26 and will be mortgage free on a nice house by 31.They are saving enough each year to clear it once the next 5 year fix ends they are about to take (paid off 45% at end of fix in lump sum before re-fixing).My youngest daughter is with a gypsy who owns lots of land and is the best person iv ever met for making money.Hes buying up right off 4 x 4s at the moment and selling the engines and gear boxes to Kenya and weighing in the rest.He learned how to take an engine out in a day.My daughter left school at 16,real rebel,but brutal how clever she is,she does all the finances already and can see them thriving the worse the economy gets.

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11 minutes ago, kibuc said:

A question about energy sector in reflation.

I've seen you guys talk about bright future for SSE and the likes, mostly due to them being able to benefit from spiking prices while their assets keep depreciating at constant pace. What's your view on smaller, retail-oriented players, like Bulb?

The reason I'm asking is I'm currently working in a fashion industry and it's already cracking at the seams, so I'd like to position myself career-wise to benefit from the next cycle and Bulb actually reached out to me with a nice money+shares offer. While I'm fine with the specifics of the offer, I'd like to learn your view of the company or the sector in general when it comes to reflation.

100% renewable? Putting the eggs all in one basket it would seem. 'Bulb Energy says it keeps prices low by using ‘cutting-edge technology’ and ‘making lower profits than our competitors’. Interesting thing to say. A lot of risk in my opinion going with any retail focused outfit especially one that is pigeonholing. But if the package is right? You like the company? Undoubtabedly renewables is going to get a lot of money chucked at it

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Two of my daughters friends both went for HTB,one last year,one just signed up O.o.Both could of bought a nice terrace for £80k,or decent semi's for £120k.They could easily of saved deposits.Instead they have lease cars,holidays that make my eyes water and credit cards etc.The 2nd one has bought in Darlington.The estate is shocking.Tiny roads,zero space and 20% already social housing.4 bed £170k+ HTB loan.They will be in negative equity from day 1 and i expect £70k negative soon.No way out.They earn £50k in pretty secure jobs,but a very big chunk of their earnings will be going on mortgage when rates hit 6%+

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35 minutes ago, DurhamBorn said:

Its no mistake my partner is a nurse in the community who's job is to get people out of hospital quick or that i guided my daughter to be a nurse,a mental health nurse in the community,both areas where demand will rocket.My son is very clever but not the uni type,my mate got him in to Aldi,good money,no debts,saving £700 a month already and if i chuck him some money should be buying a house cash in a few years once they are whacked.My daughter is 26 and will be mortgage free on a nice house by 31.They are saving enough each year to clear it once the next 5 year fix ends they are about to take (paid off 45% at end of fix in lump sum before re-fixing).My youngest daughter is with a gypsy who owns lots of land and is the best person iv ever met for making money.Hes buying up right off 4 x 4s at the moment and selling the engines and gear boxes to Kenya and weighing in the rest.He learned how to take an engine out in a day.My daughter left school at 16,real rebel,but brutal how clever she is,she does all the finances already and can see them thriving the worse the economy gets.

i might enquire with some of the african agency lads about the car parts,i know someone who made themselves a millonare out of doing the same thing in reverse with harleys from america.

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13 minutes ago, kibuc said:

A question about energy sector in reflation.

I've seen you guys talk about bright future for SSE and the likes, mostly due to them being able to benefit from spiking prices while their assets keep depreciating at constant pace. What's your view on smaller, retail-oriented players, like Bulb?

The reason I'm asking is I'm currently working in a fashion industry and it's already cracking at the seams, so I'd like to position myself career-wise to benefit from the next cycle and Bulb actually reached out to me with a nice money+shares offer. While I'm fine with the specifics of the offer, I'd like to learn your view of the company or the sector in general when it comes to reflation.

My worry is the big boys will destroy them all.Centrica and the like are much better at hedging than the little guys.In a reflation energy will spike hard and lots of smaller players will be caught out.In a relfation the money will be back along the chain.Distributed energy,production and transmission etc.

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