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Credit deflation and the reflation cycle to come.


DurhamBorn

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Wage growth beat market and economist expectations in the three months to April.

Pay rose by 3.4% compared with a year ago. After taking inflation into account, wage growth was 1.4%, official figures show.

https://www.bbc.co.uk/news/business-48594011

Whod have thought that rolling back a bit TCs, where ~50% of fmailies  with school age kids get paid a middle income for 16h work, and a slow down in EEers moving to UK to take advantage of TC/16h, would result in uptick in wage growth.

Really, this is dreadful. UK needs to import a few million chinese.

 

 

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Lega is busy floating ideas for the new euro replacement  minibot currency, the shots across the ECB's bow are getting very close.

 

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7 hours ago, Democorruptcy said:

What do you think of this for asset allocation?

 

assetallocation.jpg

Looks decent for this stage of the cycle,if those bonds are treasuries and gilts of course.Iv hardly any overseas equities at the moment apart from the goldies and silvers.

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5 hours ago, Barnsey said:

As someone looking to buy my first home in the next 2 years or so, a sobering read but I agree. I'll be buying outside of the SE bubble and keeping my expectations modest, 10 year fix essential.

My house is at the price it was in about 2004

 

5 hours ago, spygirl said:

Wage growth beat market and economist expectations in the three months to April.

Pay rose by 3.4% compared with a year ago. After taking inflation into account, wage growth was 1.4%, official figures show.

https://www.bbc.co.uk/news/business-48594011

Whod have thought that rolling back a bit TCs, where ~50% of fmailies  with school age kids get paid a middle income for 16h work, and a slow down in EEers moving to UK to take advantage of TC/16h, would result in uptick in wage growth.

Really, this is dreadful. UK needs to import a few million chinese.

 

 

Shame they hadnt got the reforms through the lords they wanted.Only real reform on tax credits is the new two child limit.Its a very good reform,but not nearly enough.Universal credit still isnt in everywhere and is still far too generous,though only when there are kids.

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leonardratso

i wonder if those people who made it out of woodford in time hoyed into fundsmith, im having a bit of trouble getting through to them, maybe they are extremely busy.

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Democorruptcy
33 minutes ago, DurhamBorn said:

Looks decent for this stage of the cycle,if those bonds are treasuries and gilts of course.Iv hardly any overseas equities at the moment apart from the goldies and silvers.

I did wonder if you might say you would prefer more UK than overseas equities.

It's the most recent allocation from the Troy Trojan fund.

Disclosure, I do have it in my SIPP.

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21 hours ago, CVG said:

For the loss you'll suffer in returns in cash you may as well put 50K in Premium Bonds each for you and partner (if you have one). That's what I have done, and I'm averaging the expected 1.4% tax free return. I know that is a loss after inflation but it's pretty miniscule.

CVG, thanks but I already own the maximum allocation of PB's.

Unfortunately have never earned the 'average return rate' despite holding PB's for several years... However, I have heard that statistically it is the newest bonds that win the jackpot most often. I used to regularly look at the monthly winners which also listed the duration of the winning bond (i.e. held 3-months, 4-months, etc) and there certainly seemed to be lots of winners of newly purchased bonds - many more than I would have expected anyway - but that's me assuming (incorrectly perhaps) that the average bond is several years old... Ernie is meant to be random, - electronic random number indicator equipment - but its part of the financial services sector so who knows! 

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24 minutes ago, leonardratso said:

i wonder if those people who made it out of woodford in time hoyed into fundsmith, im having a bit of trouble getting through to them, maybe they are extremely busy.

Not surprised, Terry Smith is very open and no fool.  He is also very much into his assets being liquid which is where Woodford properly fell down.

That said, nothing lasts forever and whilst i held and made a nice profit from Fundsmith in the past im suspicious of how much of his phenomenal gain is QE driven.  When the inevitable crisis hits and everything starts getting beaten down i will probably sink a small % of my portfolio his way.

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21 hours ago, Bobthebuilder said:

Cash is always a hard bit to do.

I park funds in 1Yr fixes spread across 4 quaters so i am having to find the best deal every 4 months.

Premium bonds are ok and pretty liquid.

Clear any debt, etc, i could go on but you know what im talking about.

thanks Bob, I also am making use of savings accounts, but suppose i'm just really getting impatient for things to unravel.

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1 hour ago, DurhamBorn said:

Looks decent for this stage of the cycle,if those bonds are treasuries and gilts of course.Iv hardly any overseas equities at the moment apart from the goldies and silvers.

 

8 hours ago, Democorruptcy said:

What do you think of this for asset allocation?

 

assetallocation.jpg

hmm, looks interesting as I have what I consider to be too much cash in my pension and am looking for an alternative for this cash holding. I do already have some US treasury bonds (TIPS).

Does any one here have a strategy for holding bonds into the next cycle in order that they can reallocate to equities when time comes?

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32 minutes ago, Democorruptcy said:

I did wonder if you might say you would prefer more UK than overseas equities.

It's the most recent allocation from the Troy Trojan fund.

Disclosure, I do have it in my SIPP.

I think the macro cycle points to UK assets being undervalued in $ terms.The extended time sterling has been well below trend would point to a big uplift in UK asset prices (outside of housing) at some point.It could be a case of we go down 20% while the Nasdaq goes down 70% of course.I road mapped out a lot of reflation stocks about 3 years ago and expected them to bottom out during a crash with PE ratios between 6 and 9.A large part of them are already in that range,so they have crashed,but hidden by the overall index holding up.The key question of course is are profits going to bottom this year and then start to turn as inflation creeps higher,or is there another down draft that would mean another 20%+ off.

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2 hours ago, JMD said:

CVG, thanks but I already own the maximum allocation of PB's.

Unfortunately have never earned the 'average return rate' despite holding PB's for several years... However, I have heard that statistically it is the newest bonds that win the jackpot most often. I used to regularly look at the monthly winners which also listed the duration of the winning bond (i.e. held 3-months, 4-months, etc) and there certainly seemed to be lots of winners of newly purchased bonds - many more than I would have expected anyway - but that's me assuming (incorrectly perhaps) that the average bond is several years old... Ernie is meant to be random, - electronic random number indicator equipment - but its part of the financial services sector so who knows! 

I think that its probably a quirk in the stats given that they raised the limit from 20K? to 50K a few years ago so there are probably an overweight number of 'new' bonds - not that they win more often - it just seems like it.

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1 hour ago, JMD said:

 

hmm, looks interesting as I have what I consider to be too much cash in my pension and am looking for an alternative for this cash holding. I do already have some US treasury bonds (TIPS).

Does any one here have a strategy for holding bonds into the next cycle in order that they can reallocate to equities when time comes?

I just use a 'Golden Butterfly' approximated portfolio - 20% cash (or equiv), 20% Long Term Gilts, 20% Gold related, 20% Large Equity, 20% Small Equity. Actually, I tilt from LT Gilts (10%) to Equities (50%). But you always want Cash available to rebalance/take opportunities as they arise.

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3 hours ago, leonardratso said:

i wonder if those people who made it out of woodford in time hoyed into fundsmith, im having a bit of trouble getting through to them, maybe they are extremely busy.

Funny, I've been looking at Investment Trusts (yes, I know, not quite the same) and see they don't disclose all their holdings.  I believe the same for unit trusts as Woodford was applauded for disclosing his holdings.  A big turn off for me, especially as I found out other things about optionally paying fees from capital, etc.  I may get a small exposure but you can't beat being only a custodian away from your actual stock holdings.

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3 hours ago, JMD said:

CVG, thanks but I already own the maximum allocation of PB's.....

Funny, I've been going over my asset allocation model.  I was applying it to my SIPP but then decided I should be applying it to my floor income fund instead, which includes more than just my SIPP, such as premium and other NS&I bonds.  I've decided to include the NS&I bonds as part of my bond allocation for my floor fund, freeing up money in my SIPP for more equities.  Thoughts?

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3 hours ago, JMD said:

Does any one here have a strategy for holding bonds into the next cycle in order that they can reallocate to equities when time comes?

I'm not keen on bond funds versus holding actual bonds (in a ladder).  So I yet again (today) looked at the bonds (corporates, gilts, pibs, etc) available in the UK market.  The redemption yields were poor in the past, and with current higher prices, are even worse.  So a say 5% bond has a redemption yield of say 1%.  My understanding is that if I bought it now (well above par), after allowing for the loss in value on redemption it would only yield 1%.  Capital protection maybe, but naff all return.  I might as well put the money in a tin!  Or am I reading this stuff incorrectly? 

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3 hours ago, DurhamBorn said:

I think the macro cycle points to UK assets being undervalued in $ terms...

Me too, I'm focusing on the FTSE not just because it's easier but it is so well behind the other markets, despite being very international.  Could be a gift!

3 hours ago, DurhamBorn said:

A large part of them are already in that range,so they have crashed,but hidden by the overall index holding up.

I was very surprised to see the same in the US.  I knew the FANGS were distorting things but not the extent.  I was looking for high yielders in the US markets today and was surprised to see how far they had fallen.  And I mean those seen as high yielders as opposed to becoming high yielders due just to a price fall!  Not as far as a lot of the UK stuff, and now on the up this year, but still well down.

3 hours ago, DurhamBorn said:

I road mapped out a lot of reflation stocks about 3 years ago

I'm off to have a hunt.  You couldn't remember what the weather was like at the time of writing could you?!

3 hours ago, DurhamBorn said:

The key question of course is are profits going to bottom this year and then start to turn as inflation creeps higher

It might be a bit OTT but my current first pass stock screener for my income portfolio looks at the 5 year history for operating cash flow, interest charges, net cash flow, dividends, dividend cover (using net cash flow) and yield.  I want stable growth in everything other than interest charges, or reasonable explanations for divergences.  Anything passing that then gets a close look at debt levels and their maturity profile (the later the better).  Then a look at the more traditional stuff.  That's my current priority.  Alas, it's not long before I have to start looking outside the UK market!   

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2 minutes ago, Harley said:

Me too, I'm focusing on the FTSE not just because it's easier but it is so well behind the other markets, despite being very international.  Could be a gift!

I was very surprised to see the same in the US.  I knew the FANGS were distorting things but not the extent.  I was looking for high yielders in the US markets today and was surprised to see how far they had fallen.  And I mean thise seen as high yielders as opposed to becoming high yielders due just to a price fall!  Not as far as a lot of the UK stuff, and now on the up this year, but still well down.

I'm off to have a hunt.  You couldn't remember what the weather was like at the time could you?!

It might be a bit OTT but my current first pass stock screener for my income portfolio looks at the 5 year history for operating cash flow, interest charges, net cash flow, dividends, dividend cover (using net cash flow) and yield.  I want stable growth in everything other than interest charges, or reasonable explanations for divergences.  Anything passing that then gets a close look at debt levels and their maturity profile (the later the better).  Then a look at the more traditional stuff.  That's my current priority.  Alas, it's not long before I have to start looking outside the UK market!   

Id be interested in a list of US stocks you pick up on.My focus is Uk at the moment due to valuation,but it would be interesting to see what you are seeing value wise in the US.Dividend payers of course.

Debt maturity is going to be very important as you say.I notice Imperial Brands wanting to get £2 billion in from sales by 2020,just as debts become liable.Looks like they are wanting to de-leverage rather than roll over a lot of it.

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20 minutes ago, Harley said:

 I might as well put the money in a tin!  Or am I reading this stuff incorrectly? 

The issue with bonds is that many large investors use them as a cash equivalent for safe-haven times; when you've got a $billion to keep safe you've not got many choices.  When you've got more manageable numbers to work with then keeping in a tin becomes a possibility.   

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1 minute ago, dgul said:

The issue with bonds is that many large investors use them as a cash equivalent for safe-haven times; when you've got a $billion to keep safe you've not got many choices.  When you've got more manageable numbers to work with then keeping in a tin becomes a possibility.   

Ta.  I assume the graft (and it's always there somewhere) is that the initial purchasers make the killing, buying near par and the selling on at a premium, or just have better access to the placements than us to buy near par at issue and hold?  The very few placements my brokers offer (and they are corporate bonds only) are mostly in dubious companies, not your household names.  

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17 minutes ago, DurhamBorn said:

Id be interested in a list of US stocks you pick up on

OK, very very early days but I was clearing out some old bookmarks and found this one (the meat is towards the end):

https://www.simplysafedividends.com/intelligent-income/posts/3-high-yield-dividend-stocks-july-2018

I need to study it a lot more but charted a few of the stocks like LEG, VZ, HTA, etc. 

Something happened in 2016 which caused the S&P to leave these stocks behind.  Some have fallen recently and some technicals say this is not over.

Obviously need to do proper due diligence on the financials, etc but enough to get me interested.  

But if nothing else, it screams at me personally (DYOR) to stay away from an S&P tracker!

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Democorruptcy
3 hours ago, DurhamBorn said:

I think the macro cycle points to UK assets being undervalued in $ terms.The extended time sterling has been well below trend would point to a big uplift in UK asset prices (outside of housing) at some point.It could be a case of we go down 20% while the Nasdaq goes down 70% of course.I road mapped out a lot of reflation stocks about 3 years ago and expected them to bottom out during a crash with PE ratios between 6 and 9.A large part of them are already in that range,so they have crashed,but hidden by the overall index holding up.The key question of course is are profits going to bottom this year and then start to turn as inflation creeps higher,or is there another down draft that would mean another 20%+ off.

20% off before an upturn isn't a problem to buy and hold. It's only a problem if the 20% off makes them go bust!

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10 hours ago, Harley said:

I'm not keen on bond funds versus holding actual bonds (in a ladder).  So I yet again (today) looked at the bonds (corporates, gilts, pibs, etc) available in the UK market.  The redemption yields were poor in the past, and with current higher prices, are even worse.  So a say 5% bond has a redemption yield of say 1%.  My understanding is that if I bought it now (well above par), after allowing for the loss in value on redemption it would only yield 1%.  Capital protection maybe, but naff all return.  I might as well put the money in a tin!  Or am I reading this stuff incorrectly? 

That all feels right but you'd be surprised. The portfolio I follow allocates a % to LT Gilts (30Y+). I know that these will be slaughtered when inflation takes off and that is why I tilt towards equities. However, I have had a 10% capital return on these bonds over the last 2 years (prices have gone up 10%) in addition to interest payments of around 3%.

As inflation takes off, and the prices of these babies fall dramatically, I will quickly start tilting back into LT Gilts to lock in guaranteed high returns.

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1 hour ago, CVG said:

......As inflation takes off, and the prices of these babies fall dramatically, I will quickly start tilting back into LT Gilts to lock in guaranteed high returns.

Ta.  Sounds like I should keep under review but wait for now for some price falls.

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