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Credit deflation and the reflation cycle to come.


DurhamBorn

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10 hours ago, Green Devil said:

I can see the way this one is going..UK official.."`Mr G, keep your gold in our vaults and we may be able to help you in your `rightful` claim"...Mr G "OK"...UK official "President M is a despot who eats children and rapes women, we cannot morally support him"...or am I just a cynic?...they should have kept their gold in a Swiss vault as I understand they are less morally bothered when it comes to the financial matters of despots! 

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Democorruptcy
9 hours ago, zugzwang said:

Carney could catch a bullet for that.

Fingers crossed. :D

It's a sobering thought that the BoE are confiscating Gold in London already. They let Chavez have some back.

It might amount to regime change in Venezuela.

 

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Napoleon Dynamite
On 25/01/2019 at 14:14, kibuc said:

Good people of dosbods, I need a little bit of financial education here.

I might be buying a used car this year which would set me back around 12-13k. Now, while I could just cough it up, I've got far better ideas about what to do with such sum, so started looking into hire pruchase agreement instead. A "representative example" on the dealer page indicated 7.7% fixed percentage, presumably secured against the car although I'm not at the stage of reading into fine print yet.

The thing is, every time I log into my bank account I get a big banner about being pre-approved for up to 15k personal loan at fixed 3.3%. "Click here and get money in your account in an hour" kind of thing. How come such an unsecured loan is twice as cheap as a car hire-purchase, which is probably secured with a car that has already taken the biggest depreciation hit? Are there any obvious catches I should be looking for?

Pre Approval for a loan is just a marketing tactic.  Makes you feel special, chosen, obliged almost.  They've done something for you now you have to reciprocate.

That's said it's pretty impressive (or scary) how fast banks can approve you for a loan these days.  I'm with Lloyds TSB and I'm just a few clicks away being able to open an unsecured loan account for tens of thousands, and the money would be accessible pretty much immediately.  I think a lot of that comes down to the data they have on me from holding my account.

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30 minutes ago, Napoleon Dynamite said:

Pre Approval for a loan is just a marketing tactic.  Makes you feel special, chosen, obliged almost.  They've done something for you now you have to reciprocate.

That's said it's pretty impressive (or scary) how fast banks can approve you for a loan these days.  I'm with Lloyds TSB and I'm just a few clicks away being able to open an unsecured loan account for tens of thousands, and the money would be accessible pretty much immediately.  I think a lot of that comes down to the data they have on me from holding my account.

 

No you're not ;)

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1 minute ago, harp said:

No you're not ;)

TSB part wrong, or do you you have a deeper meaning?  'lloyds allow me to keep my money with them for a cost' etc?

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Napoleon Dynamite
1 hour ago, harp said:

No you're not ;)

Yep, sorry meant Lloyds.  I'm turning into my parents calling things by their old name 6 years after they've changed.

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sleepwello'nights
On ‎25‎/‎01‎/‎2019 at 20:40, null; said:

The ones on MSE you can use the eligibility check for (most of them anyway). I don't want to risk applying for one and getting a decline on my credit score. My credit score is excellent.

I've been running 0% cards for many years. Use it for normal expenditure and keep an equal amount in premium bonds. Get the odd £25 win which I think of as money for nothing and get some satisfaction from effectively borrowing at 0%. When interest rates were better (long time ago) I used to put the money into a savings account.

Lately I use the MSE credit club/experian credit score website. It does what they call soft searches and lists cards you will get or a percentage chance. It's completely dried up despite my balance reducing as I've not been able to get any more and the older ones come to the end of the term and get repaid.

I had put it down to getting flagged up as a card whore who never pays them any interest. Not so sure now.

 

I just tried it, listed a few cards that said  would be accepted at 0%. I've kept 0% offers running for a few years now. Switching to a new one when an existing one expires.

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Used to stooze, but for the last 10 years I haven’t found that it’s been worth it. I go for airmiles/hotel points instead. I rotate Amex gold/platinum charge cards in my and my partners name (as once cancelled you have to wait 6 months to be eligible for the point bonus again). I refer when the membership year is ending (bonus points), renew (more points), and then cancel and get a pro-rata fee refund. Anywhere that doesn’t except Amex I use a Hilton visa.

All this jiggery-pokery enables us to have our holiday flights sorted each year in business (although this isn’t much short haul), lounge access etc. Also have the odd night or so staying in a hotel on points, free brekkie, lounge access, room upgrade with status etc.

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45 minutes ago, Sideysid said:

Used to stooze, but for the last 10 years I haven’t found that it’s been worth it. I go for airmiles/hotel points instead. I rotate Amex gold/platinum charge cards in my and my partners name (as once cancelled you have to wait 6 months to be eligible for the point bonus again). I refer when the membership year is ending (bonus points), renew (more points), and then cancel and get a pro-rata fee refund. Anywhere that doesn’t except Amex I use a Hilton visa.

All this jiggery-pokery enables us to have our holiday flights sorted each year in business (although this isn’t much short haul), lounge access etc. Also have the odd night or so staying in a hotel on points, free brekkie, lounge access, room upgrade with status etc.

I do the same in the us. The sign up bonuses can be great. For one card, which costs around $450 a year, I got $300 refunded on travel spending per calendar year, 100,000 points to spend on travel ($1,500) and lounge access. If I’d cancelled the card in the first year I’d have got the $300 twice due to dates, so +$1650 for nothing. I keep the card for the lounge access and 4.5% back on travel and dining though. Never paid any interest of course

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8 hours ago, Sideysid said:

Used to stooze, but for the last 10 years I haven’t found that it’s been worth it. I go for airmiles/hotel points instead. I rotate Amex gold/platinum charge cards in my and my partners name (as once cancelled you have to wait 6 months to be eligible for the point bonus again). I refer when the membership year is ending (bonus points), renew (more points), and then cancel and get a pro-rata fee refund. Anywhere that doesn’t except Amex I use a Hilton visa.

All this jiggery-pokery enables us to have our holiday flights sorted each year in business (although this isn’t much short haul), lounge access etc. Also have the odd night or so staying in a hotel on points, free brekkie, lounge access, room upgrade with status etc.

Yeah we do similar but it's got to the point now where we're not really travelling as much and are awash so many reward/avios points now I think it's time to stick the £20k or so on a 0% and let inflation eat away at it. As others have said I also wouldn't be suprised at some form of debt forgiveness in the future too.

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2 hours ago, A_P said:

As others have said I also wouldn't be suprised at some form of debt forgiveness in the future too.

I've heard this. It sounds too fair. The only people let off will be those in charge.

Everyone else will be told to suck it up. Said approach has a successful track record.

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1 hour ago, Noallegiance said:

I've heard this. It sounds too fair. The only people let off will be those in charge.

Everyone else will be told to suck it up. Said approach has a successful track record.

That's ok if they don't. I'll have the cash on the side in case they call the debt in otherwise inflation can eat away at it. But I can envisage some form of scheme where debt will be written off after a certain amount of time. Who knows though. I'm certainly not advocating people max out credit with no backup in the hope one day that debt may be written off. 

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2 hours ago, A_P said:

That's ok if they don't. I'll have the cash on the side in case they call the debt in otherwise inflation can eat away at it. But I can envisage some form of scheme where debt will be written off after a certain amount of time. Who knows though. I'm certainly not advocating people max out credit with no backup in the hope one day that debt may be written off. 

The threat of debt write-offs raises risk for lenders, who will want a higher interest rate in future to compensate (unless they're 100% sure it's a one-off ... but who would trust a government to never try it again if it achieves its purpose?). Also, a jubilee is a big risk for the currency. If America is raising rates now to protect dollar hegemony, that's not a route they'll want to follow ... and, as @spygirl keeps pointing out, we can't make our own weather independently of America.

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15 hours ago, Sideysid said:

Used to stooze, but for the last 10 years I haven’t found that it’s been worth it. I go for airmiles/hotel points instead. I rotate Amex gold/platinum charge cards in my and my partners name (as once cancelled you have to wait 6 months to be eligible for the point bonus again). I refer when the membership year is ending (bonus points), renew (more points), and then cancel and get a pro-rata fee refund. Anywhere that doesn’t except Amex I use a Hilton visa.

All this jiggery-pokery enables us to have our holiday flights sorted each year in business (although this isn’t much short haul), lounge access etc. Also have the odd night or so staying in a hotel on points, free brekkie, lounge access, room upgrade with status etc.

My experian credit score just updated, its perfect - 999 out of 999. Yet only one 0% card coming up and its one I already have. I think they allow mulitple accounts but split credit limits across the cards. It may just be that I've had most of the 0% cards and need to wait a bit longer before they let me have another.

So I may have to change tactics and start collecting points instead.

Some of you may want to look into the Amazon/Newday card. You get points that convert into amazon gift vouchers.

As for debt forgiveness, I think there is a good chance of something being introduced by a Labour/socialist government as a means to buy votes. Might not be a write off on the debt but a replacement with a government long term loan at 0%. A sort of debt scrappage.

I'll always take as much 0% as I can get my hands on. As A_P said - always, always make sure you have the means to repay it.

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Just been taking a look at energy prices.

Gas futures peaked in Sept last year and have been on a steady path down since with prices back down to where they were in December 2017.

Similiar story for Brent crude futures, peaked in Oct 2018 and steady drop until December 2018 and has come back up a bit since then.

Being honest, I'm not sure of this means anything or fits with anything related to this thread so sharing in case anyone has any thoughts on this.

Data source (the graphs don't always display, you may need to click on product specs then back on data then select 2 year view):

https://www.theice.com/products/910/UK-Natural-Gas-Futures/data?marketId=142402&span=3

https://www.theice.com/products/219/Brent-Crude-Futures/data?marketId=222469&span=3

 

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Interesting podcast about corporate bonds possibly becoming the new sub-prime:

https://www.financialsense.com/podcast/18915/approaching-debt-tsunami

Key points:

o Investment grade is AAA to BBB rated bonds but BBB looking suspect:

o Loosening of covenants reducing collateral backing

o PE setting up complex arrangements which effectively remove assets from the company/give them first call

o CDO swaps back in the frame!

o Bond funds (retail investors) holding these suspect BBB bonds

o Possible big price drops if BBB bonds derated due to little market liquidity

o etc

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1 hour ago, Harley said:

Interesting podcast about corporate bonds possibly becoming the new sub-prime:

 

https://www.financialsense.com/podcast/18915/approaching-debt-tsunami

Key points:

o Investment grade is AAA to BBB rated bonds but BBB looking suspect:

o Loosening of covenants reducing collateral backing

o PE setting up complex arrangements which effectively remove assets from the company/give them first call

o CDO swaps back in the frame!

o Bond funds (retail investors) holding these suspect BBB bonds

o Possible big price drops if BBB bonds derated due to little market liquidity

o etc

Bonds will be paying coupons of 8%+ in the next cycle and thats quality stuff.A lot of companies wont be able to roll over debt at all.Thats why free cash flow is key.Worst case they can cut dividends and focus the free cash on paying off the bonds as they come due (structure will be key here).On the flip side this also means much less competition for companies who have already done their investing for the cycle,and they should be able to increase prices in an inflation cycle while de-leveraging.

Its an area that would need pages and pages on it,but some companies who do well in the cylcle will have large debts now,the key is that those debts are due to investment in assets that become worth much more in a reflation,while bond holders are sat getting 2% coupons.Those companies must start to de-leverage from here on in though,as by 2028 you dont want to be having to re-issue bonds at the scale a lot of companies are holding now.

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4 hours ago, DurhamBorn said:

Bonds will be paying coupons of 8%+ in the next cycle and thats quality stuff.A lot of companies wont be able to roll over debt at all.Thats why free cash flow is key.Worst case they can cut dividends and focus the free cash on paying off the bonds as they come due (structure will be key here).On the flip side this also means much less competition for companies who have already done their investing for the cycle,and they should be able to increase prices in an inflation cycle while de-leveraging.

Its an area that would need pages and pages on it,but some companies who do well in the cylcle will have large debts now,the key is that those debts are due to investment in assets that become worth much more in a reflation,while bond holders are sat getting 2% coupons.Those companies must start to de-leverage from here on in though,as by 2028 you dont want to be having to re-issue bonds at the scale a lot of companies are holding now.

I was focussing on the bond holder side but should we have another sub-prime style collapse in corporate bonds, just through de-rating if not default (note investment grade bond funds can only hold BBB and above), then things will become toxic and demand would be hit hard.  Seems a number of bond funds may now be holding "fake" BBB rated bonds.  Oh dear, not another rating agency discussion?

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