Credit deflation and the reflation cycle to come.

[Democorruptcy]

9 minutes ago, UnconventionalWisdom said:

I'm feeling the same about giving up. How can this continue? FTBs are priced out and there's a massive downturn in BTL due to the tax changes. How are prices still going up? 

House prices are all about availability of credit. If you were a banker wouldn't that Mansion House speech in June with the BoE leveraging £1.2bn to £180bn and up to £5bn to up to £750bn, have given the confidence to lend? It means no credit crunch, a mechanism in place to lend £5bn at 150x leverage that could then be increased again. We have gone banana.

[A_P]

7 minutes ago, UnconventionalWisdom said:

I'm feeling the same about giving up. How can this continue? FTBs are priced out and there's a massive downturn in BTL due to the tax changes. How are prices still going up? 

Banks lending more? I'm not really convinced by this MMR stuff in all honesty. I think it's more lipservice. I recently got a mortgage in principle and the bank where willing to go near to 5x if I needed it. Perhaps in part because of the deposit I have. Given that a lot of purchasers are either using HTB or inheritance/BOMAD the banks I assume are quite happy to allow borrows go to the max

[DoINeedOne]

1 hour ago, Barnsey said:

In other wonderful news, Halifax just released house prices figures for Dec, up a whopping 2.2% on Nov vs much lower estimate 

Do I just give up? In the face of huge disruption and uncertainty the british people are still fully behind insane house prices.

Whats strange is from me to almost all my friends who have trades and earn a decent wage are all struggling with house prices and wanting more for our money or because of being self employed struggling to get a mortgage 

Im in a position where i dont know if i will end up moving out of london or abroad but in my late 30's and wanting kids but feel its best to know where i going be living or settled before that as i want a home to be a family home not somewhere i rent and wonder if the landlords going be selling or increasing rent next year

Everybody should be able to afford a simple terrace house or something similar easily as a starter home

Then whilst i know gold has its bad years and its good years this from a book made me think a bit

 

 

But regardless i still need a home thats mine

[sancho panza]

15 hours ago, macca said:

https://www.theguardian.com/uk-news/2019/jan/03/uk-train-overcrowding-highest-level-in-years-labour

Well population goes down or capacity will have to go up.. 

I agree that the debt concentration must be spread across a smaller percentage of the population.. So individual debt must be massive! I bet renters are among the top percentile due to the huge costs of maintaining rent payments and having some sort of life.. 

with low interest rates most owners with mortgages have never had it so good so should not really be struggling.. 

The council tax on a 3 bed semi in leicester is nearly £2000 nowadays.Average salary around £20,000.Mortgages aren't the problem.

17 hours ago, Harley said:

SP's right about the benefits of the odd walkabout (including long periods of people watching over endless coffees).....

Just back from a long weekend in Bristol, somewhere I used to live many years ago.  Seems to be booming with entertainment, mainly food related everywhere.  Massive shoebox development had taken place a few years ago.  Not the sleepy anti development place I remember. 

Three demographics now in abundance - students and young British couples with babies doing the entertainment and young foreign couples with kids in IKEA.  Collectively, they seem to be fueling the apparent boom, or at least activity. Certainly student numbers have rocketed over the years.  The malls were pretty dead though, with rubbish sales.  And cash strapped friends from the suburbs were time limited (read fearful) due to the parking costs.

But the student spend is all debt based, something no doubt the tax payer will need to pick up the tab for in the future.  Plus child benefits.  Sure, some development, but it seemed to be mainly debt and welfare based.  I just couldn't stop imagining how very different the place would be should (when) such stimulus ends.  Tumbleweed rolling down the streets and all.

Seemed to exemplify the UK as a whole.  Really internalised the data and desktop analysis at a more personal level.  This really is the end game.  OK, January, but there is a smell of decay and death in the air.

  

I love ye olde footfall research Harley.Tells us a lot more than headline GDP figures.People who open their eyes walking around UK cities have been avoiding commercial real estate for a long time.

As I've said before,a lot of people are looking at their 80's/90's CB playbooks for the direction on when rates will rise.They're missing two things

1) that-as in Australia- a debt deflation restricts availability of credit and by implication,borrowers willingness to take out credit.

2) it's more than likely that the BoE will be raising rates to defend sterling than fight inflation.Ergo,people may have bigger problems generally than worrying about their mortgager payments given we import something like 50% of our food.

 

11 hours ago, SillyBilly said:

I called peak "experience" when the Bryon burger chain started unravelling last year, lots more following. People are up to their eyeballs in it, any slight downward pressure on incomes/jobs and it will cause carnage for the trendy eateries, cafes and other activity based outlets (escape rooms etc.). 

Brings back memories SB.Mrs P took me there a year or two back.Being a tight git,I was livid as I rememebr the burger was nearly £8 and the fries were extra iirc.The burger wasn;'t that great either.

When these places are busy,you know an economy is buzzing.

I look at restuarant group-Frankies and Benny's/Chiquitos etc and wonder when the fairytale will end.

 

1 hour ago, Barnsey said:

In other wonderful news, Halifax just released house prices figures for Dec, up a whopping 2.2% on Nov vs much lower estimate 

Do I just give up? In the face of huge disruption and uncertainty the british people are still fully behind insane house prices.

When the last bear turns bull Barnsey.This will be a slow motion car crash in my opinion.But there's no way out.

26 minutes ago, Democorruptcy said:

House prices are all about availability of credit. If you were a banker wouldn't that Mansion House speech in June with the BoE leveraging £1.2bn to £180bn and up to £5bn to up to £750bn, have given the confidence to lend? It means no credit crunch, a mechanism in place to lend £5bn at 150x leverage that could then be increased again. We have gone banana.

DM,the credit is exteneded on a fractional reserve basis.Losses taken out of capital.I hear what you're saying but the amount of leverage you're implying would be fiscally and financially suicidal.

[sancho panza]

Revenues up 14% but still issuing a profit warning.Margins on the High st are getting mullered.

https://www.retailgazette.co.uk/blog/2019/01/footasylum-suffers-christmas-margin-hit/

 

Footasylum has issues a profit warning after it suffered a hit to its margin during the crucial Christmas trading period.

The footwear retailer said it was cutting costs as profit margins are set to miss forecasts due to the higher-than-expected levels of promotional and clearance activity.

It said that stiff market conditions meant “promotional activity and discounting across the retail sector were higher than anticipated, with the result that Footasylum’s levels of promotional and clearance activity were greater than expected”.

Despite this, Footasylum’s total revenue went up by 14 per cent to £102.3 million in the 18 weeks running up to December, and an increase of 16 per cent in the year-to-date to £200.8 million.

 

[eek]

1 hour ago, sancho panza said:

The council tax on a 3 bed semi in leicester is nearly £2000 nowadays.Average salary around £20,000.Mortgages aren't the problem.

 

Last year when working in Glasgow I saw some decent city centre flats for £180,000 or so (2-3 bedrooms decent locations). Downside was council tax is £3500+ a year before any other costs.

[sancho panza]

https://www.bloomberg.com/news/articles/2019-01-08/german-industrial-output-unexpectedly-records-broad-based-slump

 

German industrial output unexpectedly fell in November, putting the economy at risk of slipping into a technical recession at the end of 2018.

 

 

The 1.9 percent drop followed a 0.8 percent decline in October and extends a run of disappointing numbers from Europe’s largest economy. The decline in November production was broad-based and led by consumer goods and energy. Output was down 4.7 percent year-on-year, the most since 2009.

[Majorpain]

https://www.zerohedge.com/news/2019-01-08/shocking-german-industrial-production-drop-raises-possibility-recession-europes

The fed starting withdrawing liquidity at the start of 2018, the drop in German factory orders at the time was probably a big coincidence!  If that's how Germany is faring in the new paradigm I think its fair to say that the rest of Europe is well fecked.  Moar QE Mario?

[sancho panza]

32 minutes ago, eek said:

Last year when working in Glasgow I saw some decent city centre flats for £180,000 or so (2-3 bedrooms decent locations). Downside was council tax is £3500+ a year before any other costs.

Given average working household incomes pretty stagnant around £38,000 level pre tax,there's less and less fat on the bone to cover rising social care/pension/welfare costs that a lot of working age hosueholds will never enjoy.

1 minute ago, Majorpain said:

https://www.zerohedge.com/news/2019-01-08/shocking-german-industrial-production-drop-raises-possibility-recession-europes

The fed starting withdrawing liquidity at the start of 2018, the drop in German factory orders at the time was probably a big coincidence!  If that's how Germany is faring in the new paradigm I think its fair to say that the rest of Europe is well fecked.  Moar QE Mario?

Pshychic moment MP.....posted the same at the same time.

[kibuc]

NewGold Q4 production numbers just in.

It's the first full quarter under the new CEO and after the mill re-setup at Rainy River, and the mine finally delivers as expected, producing 77k oz at an average grade of 1.42g/t. It should do wonders to AISC for the quarter and I wouldn't be surprised if it fell into the early-year estimate bracket of $1000-$1100/oz  (as opposed to a horryfying $1500+ achieved in Q3). These are all REALLY good numbers, and they can still be improved. From operational perspective things are moving in the right direction, and at a solid pace too.

Balance sheet is, of course, still FUBAR.

[Lavalas]

5 minutes ago, kibuc said:

NewGold Q4 production numbers just in.

It's the first full quarter under the new CEO and after the mill re-setup at Rainy River, and the mine finally delivers as expected, producing 77k oz at an average grade of 1.42g/t. It should do wonders to AISC and I wouldn't be surprised if it fell into the early-year estimate bracket of $1000-$1050/oz  (as opposed to a horryfying $1500+ achieved in Q3). These are all REALLY good numbers, and they can still be improved. From operational perspective things are moving in the right direction, and at a solid pace too.

Balance sheet is, of course, still FUBAR.

Encouraging to see that the past 4 months contributed 45% of the (revised) annual guidance for Rainy River. Encouraging if you’re holding a bag and currently unwilling to take a loss, that is. Still no idea how they solve the balance sheet but I’m along for the ride and the new guy seems to be living up to his billing. What the fuck were the last lot playing at though.

[Lavalas]

Although I am beginning to consider at what point I might bail out of NGD. It’s not that I think it can’t do well in a reflation... there’s just so much out there! 

For now, it broke a 4 month high yesterday so hopefully the right direction for all.

[kibuc]

11 minutes ago, Lavalas said:

Encouraging to see that the past 4 months contributed 45% of the (revised) annual guidance for Rainy River. Encouraging if you’re holding a bag and currently unwilling to take a loss, that is. Still no idea how they solve the balance sheet but I’m along for the ride and the new guy seems to be living up to his billing. What the fuck were the last lot playing at though.

I'm warming more and more to NGD at the current price point, but it's tightly coupled with the predicted gold rush.If it goes according to plan, then the 350mln maturing in 2025 won't be a problem and it's only about how well can they reduce and refinance their 500mln maturing in 2022. 

It's a different story if gold stays range-bound but with Rainy River finally delivering and most likely turning profit, I can easily see NGD being taken over by a bigger player if they cannot fix their finances themselves. The risk of going bust got reduced significantly with this update IMO.

[Lavalas]

18 minutes ago, kibuc said:

I'm warming more and more to NGD at the current price point, but it's tightly coupled with the predicted gold rush.If it goes according to plan, then the 350mln maturing in 2025 won't be a problem and it's only about how well can they reduce and refinance their 500mln maturing in 2022. 

It's a different story if gold stays range-bound but with Rainy River finally delivering and most likely turning profit, I can easily see NGD being taken over by a bigger player if they cannot fix their finances themselves. The risk of going bust got reduced significantly with this update IMO.

Yeah agreed. All my thoughts on the miners are based on a gold rush, which may be foolish, who knows. I’d be looking at NGD much more favourably if I was in your position of just having bought/considering buying. It could be a hugely profitable leveraged play at this price but we’ve all got different portfolios and I wonder if (even at a loss) I could position myself better elsewhere for what is hopefully to come. Even considered cashing in half my Wesdome the other day when profit briefly reached 100% but bottled it. I must spend some time pondering the pitfalls of becoming too attached to a stock 😀

It’s interesting though and I’ve learnt much more from this NGD trade than any of my successful ones.

[Democorruptcy]

3 hours ago, sancho panza said:

DM,the credit is exteneded on a fractional reserve basis.Losses taken out of capital.I hear what you're saying but the amount of leverage you're implying would be fiscally and financially suicidal.

They don't even have to lend it all, they just need to increase sentiment. Making the banks aware that they are tooled up stood behind them.

Capital, how quaint Last month the BoE said they were ready to reduce the counter-cyclical capital buffer from 1% to 0% to give a £250bn boost to lending and enable banks to absorb £11bn of losses.

 

[sancho panza]

1 hour ago, kibuc said:

NewGold Q4 production numbers just in.

It's the first full quarter under the new CEO and after the mill re-setup at Rainy River, and the mine finally delivers as expected, producing 77k oz at an average grade of 1.42g/t. It should do wonders to AISC for the quarter and I wouldn't be surprised if it fell into the early-year estimate bracket of $1000-$1100/oz  (as opposed to a horryfying $1500+ achieved in Q3). These are all REALLY good numbers, and they can still be improved. From operational perspective things are moving in the right direction, and at a solid pace too.

Balance sheet is, of course, still FUBAR.

Always enjoy your erudite posts on specific miners K.I hold(and am nursing a big loss on New Gold) and won't be selling,was recently tempted to average down a little but held back.Fingers crossed.

Luckily our Saffer miners are making me feel better.It's a sector where you have to spread yourself to hedge the volatility in individaul firms.

 

1 hour ago, Lavalas said:

Yeah agreed. All my thoughts on the miners are based on a gold rush, which may be foolish, who knows. I’d be looking at NGD much more favourably if I was in your position of just having bought/considering buying. It could be a hugely profitable leveraged play at this price but we’ve all got different portfolios and I wonder if (even at a loss) I could position myself better elsewhere for what is hopefully to come. Even considered cashing in half my Wesdome the other day when profit briefly reached 100% but bottled it. I must spend some time pondering the pitfalls of becoming too attached to a stock 😀

It’s interesting though and I’ve learnt much more from this NGD trade than any of my successful ones.

Certainly seems to be pointing that way.But we're early in the bear.

35 minutes ago, Democorruptcy said:

They don't even have to lend it all, they just need to increase sentiment. Making the banks aware that they are tooled up stood behind them.

Capital, how quaint Last month the BoE said they were ready to reduce the counter-cyclical capital buffer from 1% to 0% to give a £250bn boost to lending and enable banks to absorb £11bn of losses.

 

Live and learn,wasn't aware of that.Didn't even know it existed.Having said that,if banks take losses,they have to rein in credit that's how fractional reserve lending works.

I'm intrigued by the figures £11bn and £250bn.That's a lot of leverage and very little room for error.If we go the way of Oz,it's not going to matter what the BoE does and I think consumers will start to turn soon.

[DurhamBorn]

4 hours ago, sancho panza said:

Revenues up 14% but still issuing a profit warning.Margins on the High st are getting mullered.

https://www.retailgazette.co.uk/blog/2019/01/footasylum-suffers-christmas-margin-hit/

 

Footasylum has issues a profit warning after it suffered a hit to its margin during the crucial Christmas trading period.

The footwear retailer said it was cutting costs as profit margins are set to miss forecasts due to the higher-than-expected levels of promotional and clearance activity.

It said that stiff market conditions meant “promotional activity and discounting across the retail sector were higher than anticipated, with the result that Footasylum’s levels of promotional and clearance activity were greater than expected”.

Despite this, Footasylum’s total revenue went up by 14 per cent to £102.3 million in the 18 weeks running up to December, and an increase of 16 per cent in the year-to-date to £200.8 million.

 

Iv been busy on Ebay SP buying my summer clothes (second hand of course),it takes me a while as i only go for the quality stuff and will only pay peanuts so miss a lot of the auctions,but iv spent £160 and if i had bought it all new about £1000.As you mention Footasylum i got a lovely pair of white trainers,almost new,£49 in there,got them for £12 delivered.I always go for the ones with womens names on account,and who havent a lot of feedback,and start auctions at 99p no reserve.I find these tend to be people with an ex just getting shot of his gear, ,i check every day an never ever bid more than a few £ plus postage,lose 8 for every 2 i get,but amazing the savings.People really are crazy.

[sancho panza]

41 minutes ago, DurhamBorn said:

Iv been busy on Ebay SP buying my summer clothes (second hand of course),it takes me a while as i only go for the quality stuff and will only pay peanuts so miss a lot of the auctions,but iv spent £160 and if i had bought it all new about £1000.As you mention Footasylum i got a lovely pair of white trainers,almost new,£49 in there,got them for £12 delivered.I always go for the ones with womens names on account,and who havent a lot of feedback,and start auctions at 99p no reserve.I find these tend to be people with an ex just getting shot of his gear, ,i check every day an never ever bid more than a few £ plus postage,lose 8 for every 2 i get,but amazing the savings.People really are crazy.

That's brilliant,I'll have to have a butchers. @Yellow_Reduced_Sticker should be told. I got loads of decent food half price Christmas Eve at Aldi,but mrs P won't let me have a huge freezer in the garage,so sadly couldn't do the opportunity justice.

Makes it harder to explain why some retialers are rallying.Curently only one tiny short on Anglo Am.But getting more tempted as the market rally I predicted in early dec(wrong),mid dec(wrong again) late dec (wrongagain again) finally arrives and lifts builders and the likes of card factory.

 

 

[Democorruptcy]

1 hour ago, sancho panza said:

Live and learn,wasn't aware of that.Didn't even know it existed.Having said that,if banks take losses,they have to rein in credit that's how fractional reserve lending works.

I'm intrigued by the figures £11bn and £250bn.That's a lot of leverage and very little room for error.If we go the way of Oz,it's not going to matter what the BoE does and I think consumers will start to turn soon.

It was an FT article:

"BoE ready to loosen bank ‘rainy-day’ buffers"

Another interesting figure tied to the £250bn released was:

It pointed out that in the past year there has been £65bn of net lending, “so the released capital could sustain this level of net lending for several years”.

 

[sancho panza]

27 minutes ago, Democorruptcy said:

It was an FT article:

"BoE ready to loosen bank ‘rainy-day’ buffers"

Another interesting figure tied to the £250bn released was:

It pointed out that in the past year there has been £65bn of net lending, “so the released capital could sustain this level of net lending for several years”.

 

Thanks for the heads up.Some interesting comments in the article-particualrly the normal EU shills in the comments below.

1) 'would allow banks to lend £250bn'-underwritten by the presumption that consumers will want to borrow.

2) ALL banks passed November stress tests-which feature -4.7% GDP/-33% in house prices

The stress tests make me wonder how much counterparty risk is assumed in them and do they factor in risks such as Deutchse Bank/Most Italain banks going under? As you know I like a punt but I jsut don't trust the BoE on this one.I look around High St's and wonder how many CRE laons are being marked to model(as long as repayments are being made) rather than marked to market.

There was anb excellent rhread on this on ToS-Neverwhere/Bland Unsight etc.

My issue isn't that there isn't credit available,there clearly is.I think we're going to run out of borrowers and I think we're going to run out of solvent banks willing to extend it

 

Edit-also jsut listening to an excellent Wolf St podcast.Worth considering how stresss tests can be accurate when risk pricing has been distorted by CB policies

https://wolfstreet.com/2019/01/06/the-wolf-street-report-nothing-goes-to-hell-in-a-straight-line-not-even-on-wall-street/

[Majorpain]

2 minutes ago, sancho panza said:

My issue isn't that there isn't credit available,there clearly is.I think we're going to run out of borrowers and I think we're going to run out of solvent banks. 

Possibly, if consumer credit is growing at 7-8% a year and wages growing at 2-3%, then how many years can you kick the can before you start having "problems"?  There appears to be no downside to taking out credit at the moment, even in 2008 the bank gave me as a young adult a credit card.  Saying that it seems that generic consumer credit is the one bit of credit that the BOE is trying to dampen.  I have zero sympathy, they let everyone know that in the event of trouble they will start hosing money around so they can hardly complain when everyone parties like its 2007.

http://www.p2pfinancenews.co.uk/2018/11/29/consumer-credit-cools-while-mortgage-approvals-hit-9-month-high/

[M.C. UK]

On 22/11/2018 at 21:42, M.C. UK said:

I was on that long mad queue (waiting behind more than 40k people  ) then, for my surprise, yesterday I've got invited to "join the club and start trading"

I am very suprised indeed...  but for now they are indeed very limited  on shares (UK only and not everything) - lots of future expantion on their road map - just went on their site to check since i was in the queue for so long i even forgotten about them

They "seem" very competitive, even on the "instant transactions" that are not free - £1 it seems

(Hummm , on second thoughts.... sorry , maybe  I should had posted the above in a different thread  )

M.C.

 

p.s. i am not promoting and deffo not affiliated with them - just curious realy (why i signed for it and maybe soon will dip my toes)

Right ... freetrade.io

They now have ISA available (not free but seems cheap enough).

I didnt have the “courage” to go for it, howerver:

 

 

Traded,i’ve got 3 VOD shares ... and the miracle of the centure : they are up!

(refarding freetrade , well tooearly to say ...)

[UnconventionalWisdom]

7 minutes ago, M.C. UK said:

Right ... freetrade.io

They now have ISA available (not free but seems cheap enough).

I didnt have the “courage” to go for it, howerver:

 

 

Traded,i’ve got 3 VOD shares ... and the miracle of the centure : they are up!

(refarding freetrade , well tooearly to say ...)

Let us know how it goes. Maybe one for the isa next year. The costs put me off frequent trading so I wait ages to put a load in. This could be handy. 

Their homepage has examples of: rightmove, amazon, Netflix and tesla. Moths to a flame, right?

[Democorruptcy]

32 minutes ago, sancho panza said:

My issue isn't that there isn't credit available,there clearly is.I think we're going to run out of borrowers and I think we're going to run out of solvent banks willing to extend it

I used to think we would run out of borrowers but when RPI hit 5.2% in 2011 and the base rate stayed at 0.5%, I gave up on that idea. A lot on here and ToS seem to have a few quid and for £100k in the bank the interest is down about 5% since the FC and with mortgage rates going down, each saver is gifting a debtor about £100 every week. I suppose it would be worse, having to stand at a restaurant door gifting 4 couples £25 cash.

Re solvent banks the "living will" palaver is pencilled in for 2022, so plenty of lobbying time left to scupper that. In November 2009 the BoE disclosed they had done £62bn in secret loans to RBS and HBoS at the height of the crisis.

Quote

The Bank said it did not give details of the loans in its annual report published in May because of fears of the impact on confidence in the banking system. It said it now felt there was no longer any need for secrecy, with the two banks on a sounder financial footing.

They have such a huge carpet now they seem to be able to sweep anything under it.

 

[M.C. UK]

1 hour ago, UnconventionalWisdom said:

Let us know how it goes. Maybe one for the isa next year. The costs put me off frequent trading so I wait ages to put a load in. This could be handy. 

Their homepage has examples of: rightmove, amazon, Netflix and tesla. Moths to a flame, right?

That is their free option and how it  worked for me:

"We also execute our free trades in batches to cut operational costs.  We collect orders and execute them in bulk at a given time of the day."

I couldn't see the paying option - perhaps because even though we were on trading hours for the US, here the markets were closed AND no US stocks are present as per yet on their platform.

I've checked few times during the day  and saw it processed today (Tuesday and order put "late" Monday) at/just after 16:00.

I've made the mistake of not taking note of the price I had "reserved" the shares and the end price I've paid - I will do it properly to report accordingly.

The issue I had was adding money into the trading account: I've added the trial value (just £10) to see if would reach my account.

This was late on Sunday - as per their rules, this wouldn't appear on the account until Monday before noon.

Monday afternoon arrived and I've opened a call/chat with support : very good chaps in there (took about 3 or 5 minutes to get help).

They've said they were experiencing issues with accounts top up, but would be resolved soon and they would contact me when the money reached the account.

They've kept their word, message and email sent to me when the money was on my trading account, however, it was to late to get into Monday's "batch" processing window - what happened next day (Tuesday at 16:00 in this occasion).

 

And that has been my experience so far - I hope the above info is of any help  :-)