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Credit deflation and the reflation cycle to come.


DurhamBorn

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Fed raised rates, US economy recovered.

Talk of lowering rates, casuing bonds to fall, money market funds to drop, so 70% of Americans withdraw horns.

Dumb as fuck.

Wall street != main street America; never really has been. Deffo not now, with the higher age profiles.

Fed needs to carry on with draining its TARP program, which will cause bond/fixed prices to raise. And to carry on rsiing rates . slowly.

Raising rates will fuckover China too.

 

 

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Remember reading this about inflation

IMG_6430.thumb.jpg.ec13b50922fb24157743c2dbb70387ca.jpg

IMG_6429.thumb.jpg.d04f1bcd9febb17ab54533941446e7e5.jpg

 

Then went on to talk about Shrinkflation too and how products are shrinking but prices the same or going up.And how the average Joe is getting poorer but doesn't understand why

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40 minutes ago, DurhamBorn said:

Lots going on, $1360 was resistance on a long 6 year consolidation.Im really pleased my road map picked the turn perfectly.I get calls wrong,but i think i got the turn late May early June about as good as anyone in the market.There is still a chance we get a pull back.My sentiment indicator is flashing borderline danger (83% bulls retail) and the commercials have gone heavily short.We might see a pull back in the GDX still to around $22.40 and if we do anyone not long the sector should use the chance to get in.No selling here though for me.Its crucial not to let a pull back if it happens shake you out.Just for information my road map is showing $1550-$1620 likely range for gold,GDX $30 target,then goes down as US equity markets really crack lower.These arent timing tools they are where we should end up. 

I'm less worried about where its going to be next week and more about where its going to be in 6 months, $1500+ gold would certainly put it back in view for the average investor. 

The good news is that Banks are getting wary and financial conditions are starting to tighten for the real economy, competitor took out a £100k loan for 12 months for £50k and a personal guarantee.   That's madness IMO, especially for a £4m turnover business with not a huge amount of debt.

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15 hours ago, Starsend said:

Interesting. I've seen these drawdown figures before and they seem extremely conservative. I no longer have any housing or child costs and I've been recording every penny I spend for a couple of years - I can survive very comfortably on £15k a year.

Going by the above I'd need a pot of at least half a million - no chance, keep me in the office for too many more years.

I've worked out that if I retire with £250,000 at 55 and draw it down at the rate of £15k per year and achieve an average annual return of 3% above inflation that this will last me until I'm 76. This excludes starting to draw the state pension at 67 which would undoubtedly push out my running out of money moment years further.

I'm also quite likely to be able to supplement my income in other small ways - but only if I feel like it, which is the crucial difference.

Am I missing something? Really appreciate a sanity check. I just don't see why people need such a big pot, most people don't live long past 80. I'm not bothered about leaving anything as my kids will get the house.

Not sure where Rowntree get the minimum £14k from unless that includes rent/mortgage. A single person with no dependents can live for very little.

 

 

 

Couple of points:

1. Don't know your health but I can see survival age increasing in future...its all well looking at mean of 71 for men but median is more informative in this scenario.

2. Would you really want to go back to work early 70s?...this would be supermarket assistant, and as we get older we become less tolerant (well I do anyway!).

3. SP?...can't see that being around for much longer (10-15 yrs max)...once the current voting cohort (with their triple promise) have departed there will be no political will to defend it...it Will be a minimum, means tested benefit for anyone alone...you have assets or children and the states expectation will be `you problem to resolve`

4. Finally, your £250k will likely last until 85 at a drawdown of £7500 pa...say £1.5k is C tax, £1.5k heating etc, £1.5k food, £1k utilities leaving you £2k pa (about £35 a week) for clothing/entertainment/holidays/visits to family/broken boilers etc... enough to survive on but not much to enjoy however frugal you are.

Not sure about Rowntree, but if it includes £6.5k housing costs it seems spot on for minimal bare existence/survival.

That said, like your attitude I.e. `...keep me in the office for more years, no chance`

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VeryMeanReversion
7 hours ago, DurhamBorn said:

The years from 55 to 67 are easy,ram all your taxable income into a Sipp and then drawdown the tax allowance each year

Once you start drawdown, new contributions are limited to £4K (tax-relieved) per year so the above only works if your income is <£16K.

Consider the 25% lump sum as the top up income instead. This doesn't trigger the (irreversible) £4K limit.

I've been saving ~40% of gross for a while so on target for 30x target income in a SIPP by age 55.   Then I'll use the lump sum to build a house in the garden (easy to get permission here) for one of the kids to live in and make use of the rent-a-room allowance for ~£8K tax-free income.  Then I'll draw the divis off the SIPP every year and live of that until the state pension kicks in and I can reduce the withdrawal rate to a safer level. 

With the mortgage paid off, my disposable income will be the same as it is now, without having to work.

Remember, overall PAYE rates are not 20%/40% but at least 44%/54% so dumping as much into SIPP as you can to get it back later at <15% average is an astonishingly good deal if you can do without the income now.

Investments are mostly UK divi payers with 15% kept in precious metal ETFs (platinum/silver but no gold).

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15 hours ago, Calcutta said:

14k is more than I live on now and I have to pay rent, run a car and feed/clothe two kids. 

On the road, India, SEA, South America I can live merrily on £10 a day incuding guesthouses. Strips of land in the tropics or the desert are dirt cheap. The area in my profile picture was a 1/4 acre in Peru for around £2000. Not much cop for growing my own food but with water/electric and the permits to build I could quite happily knock up a little shack to hang out in on it.

I can see you are a kindred spirit (although £10 a day is rock bottom even by my frugal travelling standards!), but these are young mens (and womens) pastimes...as people age health becomes the main issue despite how well you look after yourself...65+ you are either going to need to pay substantive health insurance OR live in a country that has free healthcare...UK has its faults but its this provision that means I will probably retire here, assuming of course that the NHS survives (this really worries me!).

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1 hour ago, Cattle Prod said:

@DurhamBorn The biggest compliment I can give you is that I'm not surprised. I've seen you do this on the dollar before, when no one else was calling it. Whatever you're doing, its working! And thanks again for sharing your knowledge.

Your roadmap is indicating c. 25% gain in GDX, and c. 20% in gold itself. I'm interested in why you think the miners won't leverage the price as much this time? General equity negativity?

Edit: that's timely, GDXJ just opened 6.3% up on the LSE, even though sterling bounced! US open is going to be bonkers, if they don't smash it down first

Its a conservative target CP and is only stage one in a cyclical bull,though i think the GDXJ might put on 50%+ during stage 1.A lot depends on how far the dollar goes down.A lot of miners give back on currency what they gain on gold,but investors tend to sentiment on gold price alone.Expect platinum to take over from gold at some point as well,it should double going forward.

For myself my aim is to re-deploy capital from miners into reflation stocks and defensives.Iv been buying back the likes of Imperial Brands.Sold at double where they are now and although they are disinflation stocks they should run when bonds are routed.A lot of capital will leave the junk bond market and if the US 10 year is giving 1/2% some should leak into bond proxies.Ignore the hyperbole about no future for them,iv heard that many times in the past.

Jury still out if we go straight to inflation or get a sharp deflation,but the mid term is clear.Inflation cometh.

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24 minutes ago, VeryMeanReversion said:

Once you start drawdown, new contributions are limited to £4K (tax-relieved) per year so the above only works if your income is <£16K.

Consider the 25% lump sum as the top up income instead. This doesn't trigger the (irreversible) £4K limit.

I've been saving ~40% of gross for a while so on target for 30x target income in a SIPP by age 55.   Then I'll use the lump sum to build a house in the garden (easy to get permission here) for one of the kids to live in and make use of the rent-a-room allowance for ~£8K tax-free income.  Then I'll draw the divis off the SIPP every year and live of that until the state pension kicks in and I can reduce the withdrawal rate to a safer level. 

With the mortgage paid off, my disposable income will be the same as it is now, without having to work.

Remember, overall PAYE rates are not 20%/40% but at least 44%/54% so dumping as much into SIPP as you can to get it back later at <15% average is an astonishingly good deal if you can do without the income now.

Investments are mostly UK divi payers with 15% kept in precious metal ETFs (platinum/silver but no gold).

My partner rents two room out in her house for the tax free income.Much better than renting the whole house out.You can boot out any loons with no notice and zero income tax.The bang into a Sipp i presumed for people who pack in at 55 and simply draw down with no more saving and have no intention of saving in a pension again.Like you say though there is a chance to make a free £600 a year by banging in that amount they let none taxpayers pay in.Thinks its about £3k or something,nice little free bit of money though each year.

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34 minutes ago, MrXxx said:

Couple of points:

1. Don't know your health but I can see survival age increasing in future...its all well looking at mean of 71 for men but median is more informative in this scenario.

2. Would you really want to go back to work early 70s?...this would be supermarket assistant, and as we get older we become less tolerant (well I do anyway!).

3. SP?...can't see that being around for much longer (10-15 yrs max)...once the current voting cohort (with their triple promise) have departed there will be no political will to defend it...it Will be a minimum, means tested benefit for anyone alone...you have assets or children and the states expectation will be `you problem to resolve`

4. Finally, your £250k will likely last until 85 at a drawdown of £7500 pa...say £1.5k is C tax, £1.5k heating etc, £1.5k food, £1k utilities leaving you £2k pa (about £35 a week) for clothing/entertainment/holidays/visits to family/broken boilers etc... enough to survive on but not much to enjoy however frugal you are.

Not sure about Rowntree, but if it includes £6.5k housing costs it seems spot on for minimal bare existence/survival.

That said, like your attitude I.e. `...keep me in the office for more years, no chance`

They will never means test the state pension.Never.They will increase council tax etc instead.They have already shown how they will reduce the costs,they will keep pushing the age back.I also think they will tighten when you can access a private pension,they might even reduce to 5 years before state pension age,so i think its far better to put into draw down as quickly as possible.I agree £7500 isnt enough.£12k is the figure i use as a minimum.

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Don't forget silver.

But look at the performance of these three UK silver ETFs so far today:

SSLN: 1.77%

PHSP: 2.11%

SSLV: 0.07%

Invesco SSLV is USD while the others are GBX.  Invesco SLVP is in GBX but is actually down today!  Silver in GBP is up about 0.76% so far today.  Go figure!

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5 minutes ago, Harley said:

Don't forget silver.

But look at the performance of these three UK silver ETFs so far today:

SSLN: 1.77%

PHSP: 2.11%

SSLV: 0.07%

Bought some more silver yesterday on Bullionvault

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1 hour ago, DurhamBorn said:

Expect platinum to take over from gold at some point as well,it should double going forward.

Or take over from Palladium!  Been a nice ride up but may switch to Platinum or just hedge PMs with something like ETF PPHP.   

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17 minutes ago, Yellow_Reduced_Sticker said:

@DurhamBornGOLD has rocketed up by near on... $40 today! :Jumping:

I've just FedEx 'd ya FREE fish&chips!:Beer:

image.jpeg.77208c17c5ea22a8c59da979c330946c.jpeg

Greggs corned beef bakes on offer in Iceland £1 a box,been stocking up and my 14 year old car only failed its test on one tyre and handbrake too much play.Very happy with that another year where my car costs should be £24 a month.Iceland discount before they open and so do Aldi now.They are next door to each other less than half a mile from me.Nobody there when they open,so get whatever there is without any scrum.

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2 hours ago, VeryMeanReversion said:

Once you start drawdown, new contributions are limited to £4K (tax-relieved) per year so the above only works if your income is <£16K.

Consider the 25% lump sum as the top up income instead. This doesn't trigger the (irreversible) £4K limit.

I've been saving ~40% of gross for a while so on target for 30x target income in a SIPP by age 55.   Then I'll use the lump sum to build a house in the garden (easy to get permission here) for one of the kids to live in and make use of the rent-a-room allowance for ~£8K tax-free income.  Then I'll draw the divis off the SIPP every year and live of that until the state pension kicks in and I can reduce the withdrawal rate to a safer level. 

With the mortgage paid off, my disposable income will be the same as it is now, without having to work.

Remember, overall PAYE rates are not 20%/40% but at least 44%/54% so dumping as much into SIPP as you can to get it back later at <15% average is an astonishingly good deal if you can do without the income now.

Investments are mostly UK divi payers with 15% kept in precious metal ETFs (platinum/silver but no gold).

VMR which platinum etf do you use? 

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1 hour ago, Harley said:

Or take over from Palladium!  Been a nice ride up but may switch to Platinum or just hedge PMs with something like ETF PPHP.   /

Harley, do you use any particular etfs to get exposure to copper and uranium?

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VeryMeanReversion
38 minutes ago, JMD said:

VMR which platinum etf do you use? 

https://www.hl.co.uk/shares/shares-search-results/i/invesco-physical-markets-platinum-p-etc   

(Should have said ETC rather than ETF in my post)

Simply backed by physical with no leverage.

ETC charge is 0.39%. No platform charge with HL.

The more the bankers print and the more the governments lie about inflation, the more I like shiny stuff.

 

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IMO top down talk of safe withdrawal rates, like that nonsense of having a bond:equity split according to your age, is a bit like saying you'll not get pregnant if you do it standing up!  Arguably extremely basic and rather silly.  Work out what's needed in retirement (serious people should really know what they're currently spending), what to have left on death (if wanted and affordable), and choose a suitable risk:return (with matching investments) to deliver it.  Ideally add a bit of sensitivity analysis to stress test the assumptions.  If the results don't work (as they won't for a lot of people) then cut back on expectations and start saving - the targets would have been set.  The lucky few may find they can actually ease up on the risk (and return).  Fairly basic discounted cash flow techniques (of which Excel has loads, as do a number of internet calculators).  Sure beyond some people, mostly those who did not pay attention in class or who see the internet as for entertainment purposes only.  But also not totally people's fault given the pervasiveness of such "wisdom". 

According to: https://www.mycalculators.com/ca/retcalc1m.html

Dreamer Joe wants to retire at 55 with a £250k pension pot and reckons he needs £15k pa to live on (for simplicity, let's ignore the state pension whenever that kicks in).  Joe reckons he'll live to 85 like his mum and dad.  He doesn't want to leave any legacies other than his house which anyways may be needed for care.  Joe's done his research, listening to the former sports presenter now economics correspondent on the TV, and understands inflation is well under control at 2% and he can get 7% invested "somewhere".  Joe's right!  He can draw down an inflation adjusted £15k pa and end up thirty years later on £0 savings.

Then the truth fairy pays Joe a visit one night.  First she paints a picture of Joe living on £15k pa.  Fine for the basics thinks Joe but a basic 30 years is a long time.  So let's say £20k (although truth be known, he really thinks £25k).  Then the truth fairy reads him a bed time story about the deviousness behind the inflation figure and Joe realises he should have plumped for 5%.  Oh, and those investment returns, other than that 5:1 down the bookies, maybe should be more like 5% tops just to take some of the "excitement" out of the next 30 years.  Back to his calculator and, oh dear....£8k pa for you son!  But then he'll have his state pension, eventually, which assuming several things, may make up some of the shortfall, if he can live on the £8k until then.

Joe, thinking early retirement not so great, decides to work a bit easier a bit longer and happily books 2048 with the Grim Reaper!

Joe goes his merry downsized way, working part time while taking out his £8k a year.  Actually, turns out working at that checkout is good fun, meeting all those happy people.  But dark clouds start to gather.  Turns out that 5% return rate was a bit of a wish as the stock market just went down 25% the same year he "retired" and his pot shrunk to £187,500.  Hopefully it will go up again but alas hope doesn't pay the bills and it'll have to go up a lot to catch up and compensate.  Anyways this stock market thing is too scary so he gets talking to this bloke who says UK bonds are safer, at a cost of a 2% rate of return.  This other bloke cuts in the conversation and mentioned an optimised portfolio approach and expected rates of return but Joe don't do math.  So back to the calculator....£4k pa for you son!

Joe works out how long his £187,500 will last and calls back the Grim Reaper to re-book for 2036!  Agreed, a bit pessimistic given he's ignored his state pension but it turns out the Grim Reaper was on his way to visit HM Treasury for a "chat"!  Meanwhile, you can find Joe during his time off down the pub.  Buy him a drink and he'll now tell you about how a withdrawal rate is the answer and not the question.  That involves: the actual amount needed, the amount to leave behind, how long you've got, a real personal inflation rate, and a sensible rate of return versus risk (which is predicated on a chosen asset allocation), plus a few other assorted odds and sods.  

PS: A top down "safe" withdrawal rate of 4%?  That would be £10k pa on £250K, assuming that assumes a drawn down of a stable capital base to zero.  Or, looking beneath the sheets, 30 years at 7% return at 5% inflation, every year, no surprises.  Point is, how many would know how crucial these (brave?) assumptions are and are successfully managing things accordingly?  Me?  Even now, I only get one right!

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Its interesting Harley how much a final salary pension helped things.Even if you had £100 a week from one at say 60 it made planning much much easier given that and the state pension are inflation hedged mostly.

Of course the back up is if you end up running out of assets you get pension credit,and simply cash in a couple of grand of silver/gold over in Blackpool a year.

One mate of mine grows weed for his pension and is worried they might make it legal as big tobacco will nick his retirement.

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7 minutes ago, DurhamBorn said:

Its interesting Harley how much a final salary pension helped things.Even if you had £100 a week from one at say 60 it made planning much much easier given that and the state pension are inflation hedged mostly....

Yup, that or an equivalent annuity, to de-risk things.  But our glorious financial masters have destroyed all that.  Talk about kicking the can (low interest rates versus pension provision) down the road.  People's lives have been put on the sacrificial alter to the gods of crony capitalism and political expediency (nay quasi graft).

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reformed nice guy
5 hours ago, Cattle Prod said:

 If someone sorts out a decent index of inflation loving stocks only, I'd happily passive invest in that.

I have a watchlist that I have been gathering with that aim in mind if anyone would care to comment:

ATRI Atrion Corp
BA. BAE Systems plc
BP. BP Plc
CVX Chevron Corporation
COST Costco Wholesale Corp
CRH CRH plc
DGE Diageo plc
XOM Exxon Mobil Corp
IFX Infineon Technologies AG
INTC Intel Corporation
JNJ Johnson & Johnson
LIN Linde Plc
MA Mastercard Inc
MDT Medtronic plc
NESN Nestle Sa
PG Procter And Gamble Co
RO Roche Holding AG
RDSB Royal Dutch Shell Plc B 
SMDS Smith (DS)
ULVR Unilever plc
UTX United Technologies Corp
VZ Verizon Communications Inc
V Visa Inc
WMT Walmart Inc
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Yellow_Reduced_Sticker
2 hours ago, DurhamBorn said:

Greggs corned beef bakes on offer in Iceland £1 a box,been stocking up and my 14 year old car only failed its test on one tyre and handbrake too much play.Very happy with that another year where my car costs should be £24 a month.Iceland discount before they open and so do Aldi now.They are next door to each other less than half a mile from me.Nobody there when they open,so get whatever there is without any scrum. 

THANKS for the Iceland & Aldi TIP!

Glad ya car going well...

I bought myself a Honda Jaxx 2005 at BCA, got it for £1560 ...YOU should have seen all the vulture-traders all over it ...though had to pay total with BCA commision £1975, even so this motor is SUPERB, great condition, full service history only 49,000 miles excellent condition & MOT histroy is very good having only failed 1 time. last sunday I drove from SE to SW to look at that REDUCED price house (feck is that a PARADISE area compared to where i live right now) 145 mile round trip, the car drove like a dream! I would NEVER of got a motor like this sold privately, well NOT in my neck of the woods...

1 hour ago, DurhamBorn said:

One mate of mine grows weed for his pension and is worried they might make it legal as big tobacco will nick his retirement.

Just LOVE thisxD

13 hours ago, DurhamBorn said:

Another point is part time work.Nothing wrong with jacking in,but working 16 hours in a low stress low paid job.Even NMW doing that gets you over £500 a month.A £100k dividend portfolio,mortgage free and 16 hours a week at NMW would do me fine.I could retire now,but i went back to work as im saving 100% of the wage and put it into PM miners and probably only for another 6 months to a year.

...is that  "No Matter What" ?

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