Credit deflation and the reflation cycle to come.

[Bear Hug]

On 29/10/2018 at 11:51, DurhamBorn said:

Nice to see someone spotting that inflation might be coming Barnsey.My roadmap points to double digit inflation,double digit rates (maybe) and a cycle thats shocks almost everyone.The dis-inflation is over as the west looks to invest to counter China etc.

Iv been trying to work out the affect of a huge bond bear on the insurance companies given they are taking on lots of final salary pension schemes.Will it mean windfall profits or massive losses etc?.

 

This is going back a bit but I saw this FT article today 

FT: Insurers gain extra £1.5bn as customers die earlier than expected. Changing life expectancy is set to provide more upside to groups in coming years

Such upside potentially implies improvements in funding position of DB schemes as well (BT for example). 

 

[Bear Hug]

21 minutes ago, Cattle Prod said:

I hadn't seen that, and I've been waiting to see such a signal. Huge, huge implications.

 

There is another (indirect) way to monitor overall pensions funding: pension protection fund very approximately monitors funding position across UK pension schemes here:

https://ppf.co.uk/ppf-7800-index

Last update:

https://ppf.co.uk/sites/default/files/file-2019-03/ppf_7800_at_28_february_2019_for_march_update.pdf

Indirect, because this values reduced PPF benefits, rather than scheme benefits, so actual position is worse.  However, demographic and economic assumptions may not be that far off from the insurers.  Disclaimer - I have no idea how they compare to insurers' assumptions now but they were sometimes used as a proxy years ago when I looked at this.

Note, funding has been improving since end of 2016.  But some of that is possibly due to rising gilt yields

[DurhamBorn]

36 minutes ago, Cattle Prod said:

I hadn't seen that, and I've been waiting to see such a signal. Huge, huge implications.

Life expectancies are projected based on who is dying today, i.e. people born pre/during/early postwar.

Tell me this: who can honestly say they've lived a healthier life than those people? I haven't. I won't live as long. And current numbers are being goosed by medical and child mortality improvements. 

Most middle aged people won't see their pension because the retirement age is based on the generation ahead. That the decline is now possibly becoming visible in the early baby boomers is very interesting (and makes sense, seeing how they lived). 

Perhaps governments see unfunded liabilities as not so much of a problem?

Bottom line - if you're not planning for an early retirement like most of us are you're not going to get one.

Yes huge and very very interesting.Its something im very interested in so great to see some evidence.I think a lot depends on when you can retire.Retire at 50/55 i think your in decent shape to have a good long retirement.Your still in good nick them mostly,and it gives you time to keep fit/eat healthy/sleep well etc.Going at 65+ means your about knackered before you start.I hammer home to people that you can retire early.You just need to have enough to get you from the date you pack in to state retirement age +£80 a week.I base decent retirement to be £250 a week when debt free and trained to be frugal.So for myself i plan for £250 a week up to state pension age,then full state pension +£80 a week.Im there already and have been since 38 years old.I returned to work last October simply to take advantage of this present situation.Its likely il retire for good in a year.Or maybe go to 2 days a week part time in something i enjoy.I see that as most likely.

[Talking Monkey]

18 minutes ago, DurhamBorn said:

Yes huge and very very interesting.Its something im very interested in so great to see some evidence.I think a lot depends on when you can retire.Retire at 50/55 i think your in decent shape to have a good long retirement.Your still in good nick them mostly,and it gives you time to keep fit/eat healthy/sleep well etc.Going at 65+ means your about knackered before you start.I hammer home to people that you can retire early.You just need to have enough to get you from the date you pack in to state retirement age +£80 a week.I base decent retirement to be £250 a week when debt free and trained to be frugal.So for myself i plan for £250 a week up to state pension age,then full state pension +£80 a week.Im there already and have been since 38 years old.I returned to work last October simply to take advantage of this present situation.Its likely il retire for good in a year.Or maybe go to 2 days a week part time in something i enjoy.I see that as most likely.

250 a week is definitely doable, I don't think one has to even be that fugal, you can still eat really well provided it is all home cooked

[sancho panza]

10 hours ago, reformed nice guy said:

Agree. Sky broadband emailed me this morning saying that its price is going up £1 from April.

Is there any non-Governmental index of inflation that covers basics? Rather than including the price of the latest electronics (alexa, ipads, etc), an index that focuses on rent, price of bread, fuel and mostly basic consumables? A quick google yieled nothing obvious.

There are a smorgasboard of alternatives.ALl have strenghts and weaknesses.RPI includes some element of house purchase cost -but not the actual cost of the hosue-CPI,CPIH( H=rental equaivlence measure) .In terms of reading,following SHaun Richards will enlighten anyone from the well versed to the first time reader.His comments section is also very friendly with some seriously knowledgeable posters on there.

FOr me,the problem with inflation measdures is that different income deciles expereince price increase differently..There's a real irony in calling core CPI 'core' because it basically exlcudes all the things that are necessities,eg food,fuel and the price of a house.What may be of itnerest to you is comparing core CPI to CPI and extracting some understanding of what's happening to food and fuel(because they're included in CPI.)

[sancho panza]

5 hours ago, Wheeler said:

I've got some IBTL (about 6% of my portfolio) but I only consider them as a short term investment. I've got them in case there is a rush to safety as part of a deflationary collapse. Of course that's on the basis that the US dollar is still considered relatively safe. I've seen reports saying that places like China and Russia are moving away from US treasuries and stockpiling PMs instead but I think there will probably still be a swing towards US treasuries in the event of a global collapse. 

I'll hold them until the end of June, when they pay the dividend and then consider whether to reduce the holding or not. I'd be looking for the Fed to reduce interest rates during a recession to try and kick start a recovery and would expect to sell out of IBTL once I think that most of the IR reductions are in.

These are just general thoughts and not specific advice of course! I'd welcome any other points of view.

I'm waiting for my entry poiint in Tresuries.It will eb the trade as the stock market sinks.Capital gains and income.I think UST's may drift out over the next few months and dollar go down.

[sancho panza]

5 hours ago, DurhamBorn said:

TLT and bonds will be destroyed in the next cycle as rates go all the way back to even perhaps 13%.TLT is there to protect against a huge debt deflation.I see it as a hedge along with my PMs.I wouldnt hold any bonds in the next cycle,say 18 months out.Where rates and inflation end up cant be certain,but i fullt expect they will be high enough to destroy housing wealth,final salary pensions with 5% inflation limits etc.

They will get destroyed but there's capital growth in moments of crisis.Check out the move from 90USD to 120 in 08......

Agreed on the longer term outlook for TLT.

Do you nkow any funds for shorter term UST's?

 

[sancho panza]

3 hours ago, sam1994 said:

How are you guys working out how to spread investments across miners? Is it a case of distributing it in proportion to shares in circulation / cap? Is there some analysis which demonstrates higher risk of some gold miners than others?

I'm considering just sticking with GDXJ and IAU for now until I can get a better understanding of things. I know the potential return will be lower than if you pick individual miners; but this may beyond my depths. 

@DurhamBorn Do you still think GDXJ will dip below $32 / we'll get a good opportunity to jump in around May?

As an aside, what do people think will happen with things like P2P lending services? Is it worth putting a small amount in them or will we see higher defaults as IRs increase?

S

SOunds like an ETF might be best.You really have to spread yourslf around-and I'm speaking from bitter experience with Eldorado and New Gold

 

P2P lending is jsut not worht the risk imho.Picking up pennies on a train line.Just my vierw.You only need one default and years of work could go down the swanny

[sancho panza]

2 hours ago, Cattle Prod said:

I hadn't seen that, and I've been waiting to see such a signal. Huge, huge implications.

Life expectancies are projected based on who is dying today, i.e. people born pre/during/early postwar.

Tell me this: who can honestly say they've lived a healthier life than those people? I haven't. I won't live as long. And current numbers are being goosed by medical and child mortality improvements. 

Most middle aged people won't see their pension because the retirement age is based on the generation ahead. That the decline is now possibly becoming visible in the early baby boomers is very interesting (and makes sense, seeing how they lived). 

Perhaps governments see unfunded liabilities as not so much of a problem?

Bottom line - if you're not planning for an early retirement like most of us are you're not going to get one.

Reality is that anitibitoics will become increasingly less effective as time goes by.They're being overused.Also,NHS /most western Govts badly manage health systems.Was it ever thus?

I think we've hit peak retirement as well.

[Inoperational Bumblebee]

11 hours ago, reformed nice guy said:

Agree. Sky broadband emailed me this morning saying that its price is going up £1 from April.

Is there any non-Governmental index of inflation that covers basics? Rather than including the price of the latest electronics (alexa, ipads, etc), an index that focuses on rent, price of bread, fuel and mostly basic consumables? A quick google yieled nothing obvious.

I was going to suggest Shaun Richards too @sancho panza! There's also https://www.numbeo.com/cost-of-living/ which could probably be played about with as they have historical data from end users.

7 hours ago, Ma2 said:

I have seen TLT and IBTL mentioned a good few times on this thread (going back to ToS), from my understanding these are 20+ year US Treasury Bond funds and I was going to look into them further in case of lower interest rates. What are people's views currently on this type of investment in the current / impending climate?

5 hours ago, Barnsey said:

I agree with this message, TEMPORARY flight to safety only, especially given how drastically U.S. will have to ease and print.

Agreed, temporary only, but they are also an entertaining hedge against GBP. It's usually a change in IBTL that tips me off about currency fluctuations, which encourages me to go looking in the news... Strange way about it possibly!

 

[Harley]

3 hours ago, Cattle Prod said:

Bottom line - if you're not planning for an early retirement like most of us are you're not going to get one.

Love that!  We really need to look at the whole!

After a life and career on the up, early retirement, downsizing, etc can be scary.  But also one of those things you may look back on and be even more scared you might never have done it!

[Harley]

2 hours ago, Talking Monkey said:

250 a week is definitely doable, I don't think one has to even be that fugal, you can still eat really well provided it is all home cooked

The dynamics once retired are so different from working life.  You eat better, sleep so-so but probably better, get fit and active, learn so much new stuff, etc.  The biggest risk is not getting out enough and meeting people and being social.

2 hours ago, DurhamBorn said:

You just need to have enough to get you from the date you pack in to state retirement age +£80 a week

I spent Q118 full time on this type of planning.  A million times better than any financial planner with their simplisitc rules of thumb could do.  Proper (expense) data gathering, Excel based analysis, and forecasting based on discounted cash flows.  Like financial forecasting a project, or a product lifespan.  Invaluable.   

[Harley]

1 hour ago, sancho panza said:

Do you nkow any funds for shorter term UST's?

I have these bond ETFs in my watchlist:

Long Govt UK    VGOV
Long Govt UK    IGLT
Long Govt US    IBTL
Long Govt EU    IBGL
Short Govt US    TSY3
Short Govt US    IBTS
Short Govt UK    GLTS
Short Govt UK    IGLS
Short Govt EU    IEGE

Others available but I wanted to spread risk across providers.

I don't have positions in all of them.

I would tend to use the shorter ones when I'm worried about the return of my cash, given the yields and diminution of value over time.

[Bobthebuilder]

1 hour ago, Cattle Prod said:

Wise words. Personally, I haven't retired or downsized yet, but I'm not scared in the slightest, and I can't wait for that freedom. I have what some might call a high flying career: well paid, international travel, lots of status/pats on the head etc but I'm not interested in that stuff (and people really don't know how to relate to that I increasingly find).

The key for me is I didn't increase my spending when my salary did. I spend the same (inflation adjusted) as I did 5 years ago, and I dump the rest into savings.

So I don't really need to downsize! And I'm not afraid of going fishing every day with a bit of carpentry on the side, pint in the evening. And a million other things I want to do. I don't think I've ever been bored in my life, I just don't understand it.

I semi retired 2 years ago, still running my business part time. Im 50 this year and have approx 20 years of salary in the bank. I just enjoy my hobbies and flutter with things, hence why im here.I know im gonna run out of luck at some point, but hey, its been a good run.

[MrXxx]

12 hours ago, DurhamBorn said:

Yes huge and very very interesting.Its something im very interested in so great to see some evidence.I think a lot depends on when you can retire.Retire at 50/55 i think your in decent shape to have a good long retirement.Your still in good nick them mostly,and it gives you time to keep fit/eat healthy/sleep well etc.Going at 65+ means your about knackered before you start.I hammer home to people that you can retire early.You just need to have enough to get you from the date you pack in to state retirement age +£80 a week.I base decent retirement to be £250 a week when debt free and trained to be frugal.So for myself i plan for £250 a week up to state pension age,then full state pension +£80 a week.Im there already and have been since 38 years old.I returned to work last October simply to take advantage of this present situation.Its likely il retire for good in a year.Or maybe go to 2 days a week part time in something i enjoy.I see that as most likely.

...and why £250 a week?...as it's just about the personal tax allowance, very clever! :-)

[MrXxx]

9 hours ago, Harley said:

Love that!  We really need to look at the whole!

After a life and career on the up, early retirement, downsizing, etc can be scary.  But also one of those things you may look back on and be even more scared you might never have done it!

Turning point for me was a posters comment on here (or TOS), `A career is just another job, but without the paid overtime`...so true, when you leave company x who really gives a toss about you/your career?...this and other things made me decide ten extra years were worth more than a bit of extra pension/career kudos.

[sancho panza]

Morrisons shows Tesco/John Lewis/Asda/Sainsburys the way.

 

https://www.retailgazette.co.uk/blog/2019/03/morrisons-books-3rd-straight-year-of-profit-sales-growth/

// Morrisons enjoys 8.6% Y-o-Y uptick in underlying full-year profits

// Groups like-for-likes also up 4.8 per cent, total revenue up 2.7%

// However, pre-tax profit was down 15.8% after exceptional costs

---

Morrisons has recorded another year of growth in sales and profit as chief executive David Potts boasted that the Big 4 grocer’s turnaround scheme was “well on track”.

According to Morrisons’ preliminary results for the 52-week period ending February 3, underlying pre-tax profits came in at £406 million – an 8.6 per cent year-on-year uplift.

Meanwhile, operating profit before exceptionals was £465 million, a 4.5 per cent year-on-year increase.

READ MORE:

• Morrisons faces fresh equal pay claim
• Morrisons & Waitrose introduce new crackdowns on plastic bags
• Morrisons books 4th consecutive Christmas of growth
• Morrisons ‘too good to waste’ box goes for just £1

On a statutory basis though, operating profit was down 14 per cent to £394 million and pre-tax profits fell 15.8 per cent to £320 million after £86 million of exceptional costs.

Nonetheless, group like-for-like sales shot up by 4.8 per cent, an increase on the 2.8 per cent uptick in like-for-likes recorded the year before.

Meanwhile, total revenue for the year was up 2.7 per cent to £17.7 billion.

Morrisons saw like-for-like retail sales growth slow to 0.6 per cent in the final three months, down from 1.3 per cent in the third quarter.

However, like-for-like sales overall rose 3.8 per cent in the fourth quarter thanks to a 3.2 per cent contribution from the wholesale division, which includes tie-ups with McColl’s and Amazon.

Potts hailed the results as a third straight year of sales and profit growth for Morrisons.

“A third consecutive year of strong sales and profit growth, and a total annual dividend up over 150 per cent during those three years, show the Morrisons turnaround is well on track,” the chief executive said.

“This turnaround is based on improving the shopping trip for customers, making Morrisons more popular and accessible.

“And our customers are noticing. Most pleasing of all was another big increase in customer satisfaction, now up a full 20 percentage points in the last four years, which is all down to the friendliness and expertise of our team of unique food makers and shopkeepers.”

Morrisons chairman Andrew Higginson said: “In a challenging period for customers and an ever-changing British retail scene, the turnaround at Morrisons has continued to progress well.

“The team has now completed four years of important work, building Morrisons as a broader, stronger business.

 

[Agent ZigZag]

I would struggle at £250pw retirement and I am debt free already. Taking out council tax, gas, elec and water etc would leave me with £8500pa. £24per day spending. There is frugal and then there is frugal. My late father in law who retired at 55, and he was bloody frugal set his retirement planning at £350pw between him and his wife.

For me I consider one of the best retirement plans, although everyones financial situation is different, is to ensure my SIPP is used up between the years 57 - 67 at the allowable tax allowance, with my ISAs and other assets making up any shortfalls through my married user allowance, ie I can gift my wife part of my assets up to the same taxable allowance.. At 67, take state pension and top up with isas and other assets.With the taxable allowance to be set at £12,500pa (I think) this is very generous. If married, even better up to £25k tax free would see a very comfortable retirement. This is is my aim and goal as it stands.

[JMD]

18 hours ago, sam1994 said:

How are you guys working out how to spread investments across miners? Is it a case of distributing it in proportion to shares in circulation / cap? Is there some analysis which demonstrates higher risk of some gold miners than others?

I'm considering just sticking with GDXJ and IAU for now until I can get a better understanding of things. I know the potential return will be lower than if you pick individual miners; but this may beyond my depths. 

@DurhamBorn Do you still think GDXJ will dip below $32 / we'll get a good opportunity to jump in around May?

As an aside, what do people think will happen with things like P2P lending services? Is it worth putting a small amount in them or will we see higher defaults as IRs increase?

 

Most p2p investments risk the borrower defaulting - especially going forward; and the property/developer backed loan type p2p's are rather opaque with property valuations suspect.

However check out Unbolted - their p2p model is based on pawnbroker type loans, so relatively small, asset backed, short term loans - so potential defaults would be recovered by selling the deposited/held gold, jewellery items, etc. I use this and earn 8%/annum (no defaults so far) using the auto-invest facility so requires no effort/expertise.    

[JMD]

15 hours ago, sancho panza said:

Reality is that anitibitoics will become increasingly less effective as time goes by.They're being overused.Also,NHS /most western Govts badly manage health systems.Was it ever thus?

I think we've hit peak retirement as well.

Is peak retirement a 'thing'?

To be honest i used to hold the same opinion over pension age, but my take on things now is that more and more people will be put on a 'universal basic income' scheme in near future (after all isn't this what universal credit will morph into?) as jobs get automated. For example the transport/supply chain and retail sectors will be hardest hit.

My prediction is part-time work becoming the norm within 25 years with all adults receiving £1000/month top up, pre/post 'retirement age'.   

 

[Majorpain]

Sweet baby jesus and the orphans.

Elon is off his rocker.

[janch]

18 hours ago, DurhamBorn said:

Yes huge and very very interesting.Its something im very interested in so great to see some evidence.I think a lot depends on when you can retire.Retire at 50/55 i think your in decent shape to have a good long retirement.Your still in good nick them mostly,and it gives you time to keep fit/eat healthy/sleep well etc.Going at 65+ means your about knackered before you start.I hammer home to people that you can retire early.You just need to have enough to get you from the date you pack in to state retirement age +£80 a week.I base decent retirement to be £250 a week when debt free and trained to be frugal.So for myself i plan for £250 a week up to state pension age,then full state pension +£80 a week.Im there already and have been since 38 years old.I returned to work last October simply to take advantage of this present situation.Its likely il retire for good in a year.Or maybe go to 2 days a week part time in something i enjoy.I see that as most likely.

I've already done it!  Working in a succession of shit jobs made me really depressed so I stopped at age 54.  I downsized and moved to a different town nearer my daughter.  Best thing I ever did even though I'll be poor (unless the miners come up trumps).  I lived off some of my house proceeds until age 62 when the state pension kicked in and I'm even more frugal than you as I manage on less than £250 per week and that's without all the yellow stickers (I just buy cheaply).  I was able to help my daughter when she had a baby and also looked after her house while she worked in China for a year.

If I'd carried on working I've no doubt my health would have suffered.  According to Max Keiser the life expectancy in the US is falling steadily because of opioid addiction.  This may be true but obesity/diabetes etc is probably even worse than here.  I've no doubt work contributes hugely to poor health.

40 minutes ago, JMD said:

Is peak retirement a 'thing'?

To be honest i used to hold the same opinion over pension age, but my take on things now is that more and more people will be put on a 'universal basic income' scheme in near future (after all isn't this what universal credit will morph into?) as jobs get automated. For example the transport/supply chain and retail sectors will be hardest hit.

My prediction is part-time work becoming the norm within 25 years with all adults receiving £1000/month top up, pre/post 'retirement age'.   

 

I've thought this for a while too.

[janch]

Do people have any thoughts on investing in renewables?  Is it worth taking a punt on small companies or stick with the likes of SSE and Centrica?  There's a lot going on with regard to storage of renewable energy too eg vanadium flow storage system.  This is going to be huge I should think since the main drawback with renewables is they only work when the sun is shining or the wind is blowing. 

I know of a small company involved with a vanadium flow system and it has the advantage of being usable for 25 years+ ie not like a normal battery with limited life.  However the system is cumbersome so not suited to domestic use.  At the moment their stock is in pennies but if it were to take off could become huge.

[Castlevania]

Does anyone know what’s going on with Shanta Gold? It’s a small AIM listed miner, so open to some pretty wild swings, but it’s up 30% today and I can’t fathom why?

[Castlevania]

1 hour ago, janch said:

Do people have any thoughts on investing in renewables?  Is it worth taking a punt on small companies or stick with the likes of SSE and Centrica?  There's a lot going on with regard to storage of renewable energy too eg vanadium flow storage system.  This is going to be huge I should think since the main drawback with renewables is they only work when the sun is shining or the wind is blowing. 

I know of a small company involved with a vanadium flow system and it has the advantage of being usable for 25 years+ ie not like a normal battery with limited life.  However the system is cumbersome so not suited to domestic use.  At the moment their stock is in pennies but if it were to take off could become huge.

Worth a punt in my opinion. But I do mean a punt, only invest what you can lose.