Credit deflation and the reflation cycle to come.

[sancho panza]

10 hours ago, Democorruptcy said:

If the current metrics start having a problem, the BoE could change them - up! No more than 25% over 4.5x household income, No more than 15% over 5x household income. Nothing would surprise my any more.

I agree.I think where the problem is comeing is that we're facing what what allways comes in a debt deflation and that's demand destruction.Gradually,for whatever reason,people jsut increasingly don't want to party any more.

Galbraith wrote about similar things in GD1.Look at new car sales.You can cut rates,but some people are becoming aware of the risks and opting for a used car.

Underpinning QE/ZIRP/HTB1+2/FLS was that they'd always find willing borrowers but as I've posited before,from what I can see ,all they really got to borrow more were the poeple who couldn't repay what they already owed.The consumers they really wanted to do some lifting ie those with savings and strong equity positions more generally,actually reduced the velocity of the consumption.

It's going to be interesting to see how they try and lift spending this time.

Sort of on topic,my friend who delivers buidlign materials got laid off yesterday.He knew it was coming but in the pub we were chatting about some of the people at his work and how they had borrwed money to consolidate credit card debts,then bought neew cars and could barely afford to live.Those debts are never going to be repaid and one job loss is all it will take.

[sancho panza]

14 hours ago, DurhamBorn said:

@sancho panza as i mentioned a long way back in the thread iv always found one of the best lead indicators is lumber prices

https://markets.businessinsider.com/commodities/lumber-price

It picks up a slowdown in construction and consumption.Semis can often be one of the last sectors to roll over,so the fact they might be would signal to me everything else is already heading down.

 

Thanks for that.

As you've probably read I've been researching what led the turn in 08 lately eg hosuebuilders/travel+leaisure.

Anythign else that's worth watching for confirmation signals DB?

AS above,my pal the delivery driver got the chop yesterday,he saw it coming.Shame as his job was a great source of info.He was telling me construction has hit the wall,load of projects getting mothballed/cutting the number of bricklaying gangs on site etc etc.He really thinks this is it in terms of the credit bubble unwind.Loads of the businesses he spoke to on his rounds have had a terrible 2 months.Previous to that things were good.Add in the global car unwind and the other things we've discussed and it does look 'game on' to me.

 

Also Mrs P's place had a shock round of redundanices-some long term 10 years + got laid off.She works in research for a big Multinational.Just what we've discussed one here in terms of margin compression forcing inhosue efficiency drives.

My pal should be ok,he's either going to apply to Aldi or go and do some driving for the MOD which needs previous service precluding many from applying.Sad times however inevitable they were.

[sancho panza]

12 hours ago, Shaneyson said:

 

The wholesale used car market is currently crashing. Used cars values moved down the largest amount in many years last month and that decline is continuing this month. This is not reflected at the retail end yet as many retailers are carrying old stock which they can't turnover. The last time I remember the market like this  was 2008 where nobody was able to value cars as they were depreciating so quickly. I think we are at the start of the second leg down in used car residuals

May delivers biggest used car price decline 'since records began'

ref above what my pal said re construction shaney.then from your link

interesting times.

https://www.am-online.com/news/used-cars/2019/05/28/may-delivers-its-used-car-price-decline-since-records-began

“We have witnessed an almost perfect storm in the last two months. The drop is due to prices increasing in 2017 and 2018, coupled with heavy supply and weakening, seasonally affected retail demand.”

[sancho panza]

4 hours ago, spygirl said:

 

As they retire they look to live off investments that are or very near cash (money market).

The low yield caused by ZIRP, is making them hang on for a few years - Well, Maud, We're not getting much return from out (near cash) account. Ill get a job a the <DIY>, tie us over till the rates go up a bit.

If the Fed wants to create inflation then it needs to normalise IRs - not tighten! - , raising the return on cash/nearcash investments, odlsters will ealve labour market, wages will rise.

Absolutely bang on.Raising IR's will aslo lifte velocity.My fear is that they've so badly misjudged things over the last ten years that wehn they finally get inflation it will run and run.

[Yellow_Reduced_Sticker]

36 minutes ago, sancho panza said:

Sort of on topic,my friend who delivers buidlign materials got laid off yesterday.He knew it was coming but in the pub we were chatting about some of the people at his work and how they had borrwed money to consolidate credit card debts,then bought neew cars and could barely afford to live.Those debts are never going to be repaid and one job loss is all it will take.

 

Also Mrs P's place had a shock round of redundanices-some long term 10 years + got laid off.She works in research for a big Multinational.Just what we've discussed one here in terms of margin compression forcing inhosue efficiency drives.

My pal should be ok,he's either going to apply to Aldi or go and do some driving for the MOD which needs previous service precluding many from applying.Sad times however inevitable they were.

YEAP SP, the very same discussion conversation on LBC radio a few mornings ago, and yet the C**Ts in power say high employment & EVERYTHING is ROSY

bit like those PR*CKS Halifax saying BULLSH*TING house prices rose 0.5% on the month in May!

THATS ...*WHY* a house i'm interested in thats been on the market for 2 months at: £265K...(no offers)

HAS just 5 days ago been REDUCED to £250K ...YES £15k OFF ! ...please explain that you MORONS Halihoax!

[Cosmic]

28 minutes ago, Yellow_Reduced_Sticker said:

HAS just 5 days ago been REDUCED to £250K ...YES £15k OFF ! ...please explain that you MORONS 

If yesterdays loaf of bread is reduced 50% in Tescos does that mean all prices are down 50%?

[sancho panza]

23 minutes ago, Cosmic Apple said:

If yesterdays loaf of bread is reduced 50% in Tescos does that mean all prices are down 50%?

Bread has a shelf life of a few days,hosues have a shelf life of a 100 years if well built.You could have picked a better analogy.

Shaun richards commenting on Woodford

https://notayesmanseconomics.wordpress.com/2019/06/07/the-woodford-funds-issue-highlights-yet-another-side-effect-of-qe/

Comment

There is in my opinion something missing from the debate and well might the Bank of England look away from this. It comes if we look back and take a once in a lifetime opportunity to ask this question.

You may ask yourself, “Well, how did I get here?”

Seeing as it along with the other central banks has chopped interest-rates and yields via all the reductions and bond purchases they have crippled the old concept of investing for income. It was only yesterday we were observing that Germany has a benchmark yield of -0.23% and the UK Gilt equivalent is 0.86%. So how do you offer a yield of say 4% plus a capital gain? Plainly you have to take more risks than in the past.

There is an irony as we note the role of “The Precious” here. There was a time when in the UK the banks offered what was perceived as a safe dividend yield ( younger readers I am asking you to trust me on this,,,,,) and were a staple of this sort of investing strategy. Not only has that gone but the consequences of that is the low,no and negative yield world in which we now exist.

So the people who are supposed to protect us are the ones who in fact have contributed to the problem as we ask one more time.

Quis custodiet ipsos custodes? ( Juvenal)

In the interests of full disclosure I wrote a piece for the Woodford blog a few years back predicting that the next move from the Bank of England would be an interest-rate cut.

[Cosmic]

9 minutes ago, sancho panza said:

Bread has a shelf life of a few days,hosues have a shelf life of a 100 years if well built.

Maybe its a new build?

[Yellow_Reduced_Sticker]

58 minutes ago, Cosmic Apple said:

If yesterdays loaf of bread is reduced 50% in Tescos does that mean all prices are down 50%?

I'm checking house prices weekly in SE & SW (prices £250/300K) ...let me tell ya they ALL have reductions!

(its ONLY the few are far between crème de la crème properties that are sold quick or not reduced)

BTW, why are you sticking up for a bank?!

[sancho panza]

42 minutes ago, Cosmic Apple said:

Maybe its a new build?

When I wrote that 100 years the thought struck me that it may no longer be accurate for housing built in the last 20...but I'll be dead by the time I'm proved wrong.

 

[Bobthebuilder]

30 minutes ago, Yellow_Reduced_Sticker said:

I'm checking house prices weekly in SE & SW (prices £250/300K) ...let me tell ya they ALL have reductions!

(its ONLY the few are far between crème de la crème properties that are sold quick or not reduced)

BTW, why are you sticking up for a bank?!

I check the SW weekly and would agree with this.

[CVG]

4 minutes ago, Bobthebuilder said:

I check the SW weekly and would agree with this.

TBF, I think that the Halifax may have a northern bias in it's lending and that might explain the unexpected figure. For my part, I think that we're just at the very top of that roller coaster - still going up but very, very, slowly and we know what is coming.

[Cosmic]

44 minutes ago, Yellow_Reduced_Sticker said:

I'm checking house prices weekly in SE & SW (prices £250/300K) ...let me tell ya they ALL have reductions!

(its ONLY the few are far between crème de la crème properties that are sold quick or not reduced)

BTW, why are you sticking up for a bank?!

We picked apart the methodology of the NW/Halifax Indexes a decade or more ago, when people came up with the same comments as you are now. They are based upon mortgage approvals by those banks, which are of course in them selves going to be a select set of the market. LR will give more accurate figures but again will not account for asking prices/asking price reductions which is what you are seeing. I often see houses sit, reduced, before disappearing with no sale, these will show on none of the 3 measures mentioned. As has been the case since 2007, we need VOLUME in the housing market*.

 

Edit: * And of course we're only going to get that at much lower prices.

[MvR]

Gold just broke its February high of 1346.   I notice gold miners are lagging a bit though.. GDX is a few percent below its February high, and GDXJ is lagging even further.

Any thoughts of what to make of this?

 

[Noallegiance]

"May delivers biggest used car price decline 'since records began"

She can't get anything right can she?

[DurhamBorn]

48 minutes ago, MvR said:

Gold just broke its February high of 1346.   I notice gold miners are lagging a bit though.. GDX is a few percent below its February high, and GDXJ is lagging even further.

Any thoughts of what to make of this?

 

Gaps to fill and people thinking its another faint.GDX going to 28 it think then likely a decent sell off then up to 38.Gold will lead,then platinum will take over and be a big winner,then silver will join in.Im not selling anything this time and some have popped hard.

[Castlevania]

2 hours ago, MvR said:

Gold just broke its February high of 1346.   I notice gold miners are lagging a bit though.. GDX is a few percent below its February high, and GDXJ is lagging even further.

Any thoughts of what to make of this?

 

I’ve been thinking the same. The miners aren’t reacting as much as I’d hoped/expected 

[Castlevania]

2 hours ago, DurhamBorn said:

Gaps to fill and people thinking its another faint.GDX going to 28 it think then likely a decent sell off then up to 38.Gold will lead,then platinum will take over and be a big winner,then silver will join in.Im not selling anything this time and some have popped hard.

Ah platinum. What makes you think that? My understanding is that it’s been in the doldrums due to being the metal of choice for diesel catalytic converters. Palladium’s flown by contrast due to being the one of choice for petrol converters. Thanks Volkswagen.

Who are the big miners? Sibanye and Lonmin (soon to be swallowed up by Sibanye) I know of. Any others?

[Democorruptcy]

2 hours ago, DurhamBorn said:

Gaps to fill and people thinking its another faint.GDX going to 28 it think then likely a decent sell off then up to 38.Gold will lead,then platinum will take over and be a big winner,then silver will join in.Im not selling anything this time and some have popped hard.

Do you still see a big dip and then shoot up or just shoot up now?

[Harley]

Sancho, regarding your previous question about sources for UK ETF information, I had cause to do some research today and found https://www.justetf.com/uk/ the best of my bunch.  No holdings or yield information info though so had to go to the funds' websites (good to do anyway). 

 

[DurhamBorn]

1 hour ago, Democorruptcy said:

Do you still see a big dip and then shoot up or just shoot up now?

There are gaps to fill on the thrust up,but its hard to say if we pull back or not.Many silver stocks are lagging so far due to silver not following gold yet,but it will later and they can still be bought.Rough estimate is we go up into late August (maybe gaps being filled in stocks shooting up between now and then) a pull back then up into xmas.My initial target is $28 on the GDX sometime this year then il decide then how much to sell.I will be selling some then,though not sure how much yet.People will not expect this is a trend change in the complex,simply a bounce,but if it is the change there should be some very nice profits in many miners.As always for others reading,not financial advice/only a sector for the experienced or brave.

[DurhamBorn]

10 hours ago, Yellow_Reduced_Sticker said:

 

Thanks for the info, in which case I'll go to 'Hall 1 REDUCED Section' when i pop over to Blackbushe Car Auctions next Monday...

 

After all wouldn't want to splash-out MEGA cash on a motor ONLY for it to depreciate in value, as soon as i drive off!

 

So YES its a £100 car bargain for me, I'll be joining the bottom feeder bargain hunters there, however those bottom feeder bargain hunters ain't seen nothing ...cos I'm bringing me own YRS Tea FLASK & SANDWICHES!

Im still driving my old 05 Pug 2.0 L diesel.14 years young now,had it 9 years.I bought my partners car off her and give her a grand for it,another 07 Pug,but i havent used it much yet,its sat on the drive.I like having two though,it means i can do any jobs on one while driving the other and its a spare for all my family when needed.Insurance is £420 a year for both of them,tax £280 the pair,MOT £80 the pair and whatever parts i need,say another £100.£880 to keep two cars on the road for the year.I depreciate the 07 one in my head at £10 a week,so in two years that will be all the costs.I was a bit upset the other day though.I drove into work past all the BMWs,Audi's etc the young lads all have on finance but saw a car OLDER than mine in the car park.An 03 Renault Clio.It upset me a bit to think i didnt have the oldest car.(in not counting the two cars from the early 1970s that two guys bring now and again they have restored,fantastic).

[DurhamBorn]

2 hours ago, Castlevania said:

Ah platinum. What makes you think that? My understanding is that it’s been in the doldrums due to being the metal of choice for diesel catalytic converters. Palladium’s flown by contrast due to being the one of choice for petrol converters. Thanks Volkswagen.

Who are the big miners? Sibanye and Lonmin (soon to be swallowed up by Sibanye) I know of. Any others?

Anglo American are the big platinum miner,but diluted by everything else.Im thinking about buying some more physical, have a small amount.The sentiment indicators are looking terrible for platinum,ie superb for buying it.Likely a big bull market is about to start in the metal.Its likely platinum will double before gold does,but its a lot easier to play the gold sector through the miners.For holders of Sibanye though i would hold as a volatile,but very leveraged play.

[Froggy2000]

Hi Everyone 

Long time lurker here.  Since I found the thread a few months ago I've gone to the beginning and read the whole thing!  What a great thread - I've learnt a lot so thank you everyone

I've followed the markets since the financial crisis woke me up a bit.  It looks to me that the Fed is trapped and that the markets will soon wake up to the fact the ZIRP is now permanent.  Alongside that will come massive inflation despite what happens to credit in the interim.  My 2c anyway.  All in all, I agree with the jist of the thread.

Anyway I have a question!  My liquid investments are in FTSE 100 trackers at the moment and I am happy with them.  This thread has inspired me to add some more specific investments that will benefit from the macro environment.  I have this year's ISA allowance to invest and I'm torn between domestic stocks that are pretty battered down right now (Centrica, Royal Mail, Vodafone etc), or whether to go into the gold miners.

The issue I have with the gold miners is the transaction costs.  My FTSE tracker is with iWeb sharedealing.  I paid a 25GBP one off fee and there are no other fees for holding the investment!  Great value.  Unfortunately the selection is limited and they don't have GDX.

I can set up an ISA account with AJ Bell (only one can be set up a year apparently) but there is a 1% FX charge for foreign dealing.  Plus 0.25% annual management charge, plus 0.5% GDX fee.

The last two are a fact of life and quite competitive actually, but the FX charge can really stop you from moving in and out each year or so - 2% round trip cost on 20k is 400quid!

To those that hold GDX, what provider do you use?  Is there away to avoid the FX charge by funding the account with USD?  Maybe I'm better off just going for UK listed miners.

DurhamBorn, thank you for your fantastic contribution (founding?!) of the thread.  Do you just use GDX as a guide to the miners as a whole or do you actually hold it?

Thank you!

 

[Harley]

23 hours ago, Shaneyson said:

The wholesale used car market is currently crashing. Used cars values moved down the largest amount in many years last month and that decline is continuing this month. This is not reflected at the retail end yet as many retailers are carrying old stock which they can't turnover. The last time I remember the market like this  was 2008 where nobody was able to value cars as they were depreciating so quickly. I think we are at the start of the second leg down in used car residuals

Funny, BCA Marketplace PLC came into view today with it's 4.8% dividend, increased FCF, lower net debt, etc.  And its price recently had a technical bounce.  Sounds like you wouldn't be a buyer though on a fundamental basis?