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Credit deflation and the reflation cycle to come.


DurhamBorn

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A bit OT, but I think that things 'financial' usually manage to rumble along far beyond any point of sense, waiting for a reason to change.  A bit like those videos of superchilled water that suddenly freezes.  Anyway, we've just had an earthquake in California -- it's unlikely to be more than it is, but if it is a foreshock...

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16 minutes ago, DurhamBorn said:

We are going to get a debt deflation followed by price inflation.I have no idea when prices will go down or up.I dont do any work on house prices.100% of my work the last 6 months has been on the PM sector as thats where my own personal money has been invested and anyone following that advice on timing should be up between 30% and 50% from the buy late May call.I already have ladders set up in the stocks i want for the next cycle.Iv got around 60% invested already.I invest over a cycle.If i invest £500k my aim is to return around 9% a year compounding,or 3% above inflation.My road map says much higher inflation and so much higher interest rates by around 2028.That road map would say in that environment houses will fall around 50%,or maybe more inflation adjusted by 2028.

My cycle work says reflation stocks will hugely outperform "growth" sectors between now and 2028.How people allocate their capital is up to them.I dont do timing work on sectors i want outside of the PMs,i use ladder buys and start buying when i think we are close to the end of the cycle as i think we are now.Trying to time is a waste of time mostly,and over a cycle makes very little difference.Buying Imperial at £3.50 or £4.50 in 2000 made no difference by 2016 for instance.

If i was buying a house i would buy one where i live tomorrow and enjoy life.If i was down south i wouldnt touch one until at least 2022/3.

 

2022/3?!...no sorry, us Southerners can't wait that long...looks as though we will have to move enmasse, bring all of our good genes up North for the local ladies...oh, and a bit of culture as well! :-)

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Yellow_Reduced_Sticker
1 minute ago, MrXxx said:

2022/3?!...no sorry, us Southerners can't wait that long...looks as though we will have to move enmasse, bring all of our good genes up North for the local ladies...oh, and a bit of culture as well! :-)

...xDxD

thats why i'm moving to a SECRET paradise location in the SW!:Beer:

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Bobthebuilder
45 minutes ago, Yellow_Reduced_Sticker said:

...xDxD

thats why i'm moving to a SECRET paradise location in the SW!:Beer:

I have guessed before, south Somerset aint it?

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I live in a SW secret paradise and it's totally ignored by the media in their stupid best places to live lists and long may it continue 😀.  Not going to tell you where either 😜

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2 hours ago, Lavalas said:

Actually had an offer rejected on a house last week. Went to best and final and came second. First time I’ve ever offered. Big ish deposit and a ten year fix was the plan. If it were just me then I’d wait (and I’m secretly hoping nothing else comes up for a while) but our lass can’t wait and to be honest I’d don’t want to wait any longer either. I figure sometimes you just gotta do what you gotta do and hope that forewarned is forearmed. Inflation eating away at the debt whilst inflation investments work to pay it off at or soon after the first fix ends.

🤷🏻‍♂️

Similar position but currently looking at relocating north to Staffordshire area, still a year or two away from putting in offers. House prices in areas of interest seem to be up 30-35% from 2011 low, RPI since then around 25%, so only 5-10% up in real terms, well below the madness of the Greater London bubble.

We're now tinkering on recession, both domestically and globally, so buying a house at this particular moment is a tad scary. There's a pretty high probability the BoE along with everyone else will get rates down and QE flowing rapidly, so I wouldn't be surprised to see many 10 yr fixes at sub 2%, maybe even approaching Denmark's 1% (for 30 year fix!). Naturally this takes time to feed through (typically 12-18 months for first cut) so it's in this window of deflationary fear I aim to buy our first home, which due to our ages is more like our middle home. An older property with plenty of indoor and outdoor space.

Of course, things never go the way you plan them, but I've put years of research and deep thought into this decision.

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sancho panza
12 hours ago, Noallegiance said:

Car sale woes:

https://www.bbc.co.uk/news/business-48865702

No mention of maxed out debt and people have no money. 

This is already shaping up to be a severe downturn, and it allegedly hasn't even started yet.

Intersting psot as the next big sales driver was going to be leccy cars.......until it isn't.Could be an outlier,but if it is a sign of things to come then it's not jsut Pendragon that have problems.

7 hours ago, DurhamBorn said:

Inflation is coming and people are slowly waking up to it.They dont understand that a debt deflation is simply part of the road map to higher prices in goods and services.Once rates start to crank higher it will be much harder to invest in capital assets and the owners of those will crank prices higher.Its really key though that companies have their debt structured right.You want to be able to pay it off mostly as it comes due,not re-issue into much higher rates.It will be the final theft of cash assets in the early stages (and the removal of housing equity during the process).

Where im working are a superb leading indicator of recession,and while everyone i work with has a fancy lease car and high spending lifestyle it seems they are in for a very nasty shock pretty soon i think.Instead of working on the line i would of been far more useful to the company giving them a road map of whats about to hit them.They will do very well in the next cycle but will have a very difficult 18 month/24 month period as the cycles turn.

I havent done much work lately,but looking at liquidity profiles and leads and lags on currency i use i think money might flow into the UK soon.China looks like it might be ground zero.

This is the thing.Price inflation expectations are so low that they're completely of most peoples radar.

However, it's worth noting that the only thing that has prevented huge price inflation is velocity heading lower.If for any reason people start to fear for the value of their savings over a medium term or longer timeline,then velocity could start to rumble which will create a virtuous circle of rising velocity begetting rising inflation expectations.

The lunatics at teh Central Banks have basically begun to believe that no matter how much they print they will be able to control price inflation around the 2%level.History and Zimbabwe says not.They haven't been on target for more than a couple of months in the last twenty years.I think once inflation gets out of the bag,it will run hard.

5 hours ago, JMD said:

SP, interesting that you say that, do you think these stocks will go low(er) again, later in year perhaps? Not asking for a crystal ball, but I assume you have a technical reason why you think this may be the case, or is it just part of the general FTSE market blow-off expected to happen at some point?

I ask because I wanted to buy into these along with buying further into basket of other reflation stocks but unfortunately I haven't the funds at the moment. Hopefully I haven't completely missed the latest lows for these?   

I don't think this is a general buying oppurutnity yet.I'm with many others eg Kaplan, DB, that bloke who always gets quoted on Mish(help me here) etc etc.60-70% off peak and then we'll commit ourselves.There are opportunities in companies that are already at huge discounts to peak but this is a difficult market to call.I bouhgt our first ladder in Centrica at £2-00,so best not to time off me.

But as we've discussed a fe wtimes on here,buy good value stocks and hold.With the tobacco's I'll take my chances of a bigger discount in 2020.We might buy some oilies in the near term and commodity producers but little else unless it cheap,eg CNA and Vod.They aren't must haves for me in the way that mobile telecoms or Godlies are.If they get cheap enough,we'll have some.

MY research is guiding me towards timing off the dollar,treasuries and gold stocks.

In short ,consider taking your time and buying in small amounts across the next two years.Some of these Brokers offer super cheap dealing fees.

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Talking Monkey
42 minutes ago, Yellow_Reduced_Sticker said:
@DurhamBornThanks for posting the above.
 
Here's my layman's understanding to help other dosbods folks who may get confused along the way...i certainly did!xD
 
1) from now to anytime within the next few months to up to 2021 -> we get a stock market high then... COLLAPSE!
 
this is the time when us good folks of dosbods start our bottom buying/feeding frenzy and hoover up them CHEAP stocks!:D
 
during this time CB's make IR's go to zero in the panic -> ( Deflation period)
the above will last around 2 years...
 
2) then we move to Inflation -> IR's start to go up AND in to double figures by 2025/28
 
its during this period that DB expects house to drop by the biggest falls (i would agree with this - how many of today's house buyers can even get their head around 17% mortgage rates? well i REMEMBER them very well...i can remember 1990 to 93 like it was yesterday!)
 
@DurhamBorn Correct me if i'm wrong.
 
BTW, just came back from tesco's and BLANKED!:o

How would they possibly hold off a collapse all the way to 2021, seems an awfully long time when the cracks are appearing now

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DurhamBorn

Well yesterday where iv been working announced job losses,70 so far.A month ago they were worried they wouldnt be able to get the orders out over summer due to demand,now they are seeing demand fall and needing to release people.One 25 year old im working with has just bought a £185k four bed detached with a £155k mortgage with his girlfriend.This will just be the start i expect.People are in for a huge shock.I went back to buy gold and silver miners with the wages and hoped for a year.Il of got 10 months so thats good enough.Im going to sit it out though until im finished rather than leave as i want to keep my record clean,just in case i want to go back at any point.

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16 hours ago, DurhamBorn said:

Inflation is coming and people are slowly waking up to it.They dont understand that a debt deflation is simply part of the road map to higher prices in goods and services.Once rates start to crank higher it will be much harder to invest in capital assets and the owners of those will crank prices higher.Its really key though that companies have their debt structured right.You want to be able to pay it off mostly as it comes due,not re-issue into much higher rates.It will be the final theft of cash assets in the early stages (and the removal of housing equity during the process).

Where im working are a superb leading indicator of recession,and while everyone i work with has a fancy lease car and high spending lifestyle it seems they are in for a very nasty shock pretty soon i think.Instead of working on the line i would of been far more useful to the company giving them a road map of whats about to hit them.They will do very well in the next cycle but will have a very difficult 18 month/24 month period as the cycles turn.

I havent done much work lately,but looking at liquidity profiles and leads and lags on currency i use i think money might flow into the UK soon.China looks like it might be ground zero.

US job stats are out today.

In my various work, I speak to about 20 odd USers. This is chit chat stuff, whilst we wait for stuff.

Everyone is changing jobs. Everyone is screaming for labour.

This is not an economy teetering on recession. Neither is it all Trumps tax cuts - they were a huge sugar rush on top of the rebalancing of US-China trade.

 

 

 

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Yellow_Reduced_Sticker
9 hours ago, Bobthebuilder said:

I have guessed before, south Somerset aint it?

NO!

8 hours ago, Innkeeper said:

I live in a SW secret paradise and it's totally ignored by the media in their stupid best places to live lists and long may it continue 😀.  Not going to tell you where either 😜

 
I found this SW secret paradise area by chance 2 years ago when house hunting, cos basically was NOT going to get sucked/into buying overpriced place in SE surrey/Hampshire border.
 
AGREE with the bolded comment - if any one of those pricks from the media had accompanied me a couple of weeks ago saw/ experienced this SW secret paradise area, their jaws would of dropped! :P
 
The same house i'm buying would cost ya an extra £150K if it was in surrey/Hampshire- yet i'm only 1-3/4 hours drive from London!
 
I know full well house prices are coming DOWN and going DOWN the pan over the next few years the SE house BOOM ENDED 2017, a neighbour a few doors down put her overpriced semi sh*thole on the market last week at £450K they had an open weekend for buyers, 2 people turned up, (if it was 2017 she'd had a dozen turn up!) anyway she immediately slashed the price by £25K AND still NO takers(mugs) xD
 
The reason i'm buying now is basically if i stay where i'm now it will be the end of be, its effecting my health and as i'm a lot older than most on here i can't wait forever as NONE of us know how long we have...

 

 

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20 minutes ago, DurhamBorn said:

Well yesterday where iv been working announced job losses,70 so far.A month ago they were worried they wouldnt be able to get the orders out over summer due to demand,now they are seeing demand fall and needing to release people.One 25 year old im working with has just bought a £185k four bed detached with a £155k mortgage with his girlfriend.This will just be the start i expect.People are in for a huge shock.I went back to buy gold and silver miners with the wages and hoped for a year.Il of got 10 months so thats good enough.Im going to sit it out though until im finished rather than leave as i want to keep my record clean,just in case i want to go back at any point.

Buses.

Poor sales planning.

Nobody buys coaches in summer.

The old bus/coach cycle used to be work at Plaxtons Oct->May. Then work in the holiday trade Jun->Sep.

That was when people did not have benefits though

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10 hours ago, sancho panza said:

Intersting psot as the next big sales driver was going to be leccy cars.......until it isn't.Could be an outlier,but if it is a sign of things to come then it's not jsut Pendragon that have problems.

This is the thing.Price inflation expectations are so low that they're completely of most peoples radar.

However, it's worth noting that the only thing that has prevented huge price inflation is velocity heading lower.If for any reason people start to fear for the value of their savings over a medium term or longer timeline,then velocity could start to rumble which will create a virtuous circle of rising velocity begetting rising inflation expectations.

The lunatics at teh Central Banks have basically begun to believe that no matter how much they print they will be able to control price inflation around the 2%level.History and Zimbabwe says not.They haven't been on target for more than a couple of months in the last twenty years.I think once inflation gets out of the bag,it will run hard.

I don't think this is a general buying oppurutnity yet.I'm with many others eg Kaplan, DB, that bloke who always gets quoted on Mish(help me here) etc etc.60-70% off peak and then we'll commit ourselves.There are opportunities in companies that are already at huge discounts to peak but this is a difficult market to call.I bouhgt our first ladder in Centrica at £2-00,so best not to time off me.

But as we've discussed a fe wtimes on here,buy good value stocks and hold.With the tobacco's I'll take my chances of a bigger discount in 2020.We might buy some oilies in the near term and commodity producers but little else unless it cheap,eg CNA and Vod.They aren't must haves for me in the way that mobile telecoms or Godlies are.If they get cheap enough,we'll have some.

MY research is guiding me towards timing off the dollar,treasuries and gold stocks.

In short ,consider taking your time and buying in small amounts across the next two years.Some of these Brokers offer super cheap dealing fees.

Nope.

Thees a few causes esp. in the UK where TCs have suppressed incomes (baically, people get their money from benfits /kids) and EE have driven down/suppressed wages for the bottom 50%.

But the major cause is China - flooding the developed world with supply.

As China exports go int oreverse, due to tariffs and starts consuming .i.e. exportign demand, then everything shifts.

CBs messed up massdively on leting debts get stupid 2002->2008.

Tnen have doubly fucked up by QE and ZIRP.

Idiots.

 

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2 hours ago, DurhamBorn said:

 £185k four bed detached with a £155k mortgage

This is insanity and shouldn't be allowed. With a 50% house price collapse they will be wiped out.

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Noallegiance
1 minute ago, Errol said:

This is insanity and shouldn't be allowed. With a 50% house price collapse they will be wiped out.

Allowance is part of the problem.

If gov and CB didn't interfere in the first place we'd have due diligence and market forces as standard.

To learn these kinds of lessons people need a financial spanking.

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Bobthebuilder
3 minutes ago, Noallegiance said:

Allowance is part of the problem.

If gov and CB didn't interfere in the first place we'd have due diligence and market forces as standard.

To learn these kinds of lessons people need a financial spanking.

You know its wierd. I know a lot of EEs who i have worked with since 2006. Lately they have been buying houses, i dont know why now, brexit perhaps or is it just "the market hurts as many people as it possibly can", its a predatory monster.

Most have mortgages of approx £200k but one i know who bought 4 months ago has a 2 year fix at 1.9% on a £400k mortgage. Mental.

This is the SE/ London.

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sancho panza
54 minutes ago, spygirl said:

Nope.

Thees a few causes esp. in the UK where TCs have suppressed incomes (baically, people get their money from benfits /kids) and EE have driven down/suppressed wages for the bottom 50%.

But the major cause is China - flooding the developed world with supply.

As China exports go int oreverse, due to tariffs and starts consuming .i.e. exportign demand, then everything shifts.

CBs messed up massdively on leting debts get stupid 2002->2008.

Tnen have doubly fucked up by QE and ZIRP.

Idiots.

 

Without going all neo classical on you,there are generally three types of inflation.Demand pull,cost push or money supply realted.

I was talking about demand pull and you're maiking a point re cost push.equally valid.China has been a massive deflationary force but the impact lin the more medium term will be decided by whether people can substitute Chinese products or indeed whether they jsut stop buying tat.Tat stops being inflationary to a consumer,the moment the consumer stops buying it.

As discussed previously on here,price inflation affects different income deciles differently.Those on the lowest incomes -genereally working with with no benefits,suffer disproportionately with regard to food and fuel.

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sancho panza
23 minutes ago, Bobthebuilder said:

You know its wierd. I know a lot of EEs who i have worked with since 2006. Lately they have been buying houses, i dont know why now, brexit perhaps or is it just "the market hurts as many people as it possibly can", its a predatory monster.

Most have mortgages of approx £200k but one i know who bought 4 months ago has a 2 year fix at 1.9% on a £400k mortgage. Mental.

This is the SE/ London.

That's interesting.

The thing is with these types of buyers is that they are more marginally attached to the UK than UK born or thsoe who've travlled from further abroad and can't go back eg Mrs Panza-South Africa

Wage inflation in Poland is building nicely and it would be a lot easier to dodge a lingering mortgage debt in Poland than it is here.The Polish have serious options re going back to a budding economy.

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sancho panza
3 hours ago, DurhamBorn said:

Well yesterday where iv been working announced job losses,70 so far.A month ago they were worried they wouldnt be able to get the orders out over summer due to demand,now they are seeing demand fall and needing to release people.One 25 year old im working with has just bought a £185k four bed detached with a £155k mortgage with his girlfriend.This will just be the start i expect.People are in for a huge shock.I went back to buy gold and silver miners with the wages and hoped for a year.Il of got 10 months so thats good enough.Im going to sit it out though until im finished rather than leave as i want to keep my record clean,just in case i want to go back at any point.

It's truck engines isn't it?

Related to this? I'd stick it out as long as you can.If sterling dives some more,business will get a lift as you know.

https://wolfstreet.com/2019/07/02/trucking-veers-into-ditch-class-8-orders-boom-bust/

Trucking is Infamously Cyclical, But This is a Tad Extreme

by Wolf Richter • Jul 2, 2019 • 26 Comments • Email to a friend

After truck manufacturers eat up their backlogs, then what?

Orders for heavy trucks plunged by 69% in June compared to June last year, to 13,000 units, after having plunged by 71% in May, to just 10,400 units, FTR Transportation Intelligence reported today. It was the eighth month in a row of year-over-year declines. So far in 2019, the year-over-year declines in orders for Class-8 trucks ranged from -52% to -71%, which, as FTR said in the statement, makes it “the weakest six-month start to a year since 2010”:

US-class-8-truck-orders-yoy-change-FTR-2

Orders for Class-8 trucks experienced a historic boom last year, reaching over 52,000 orders in both July and August, in a burst of ordering amid what was then called a “capacity panic.” But this boom is now getting unwound:

US-class-8-truck-orders-FTR-2019-06.png

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6 hours ago, spygirl said:

US job stats are out today.

In my various work, I speak to about 20 odd USers. This is chit chat stuff, whilst we wait for stuff.

Everyone is changing jobs. Everyone is screaming for labour.

This is not an economy teetering on recession. Neither is it all Trumps tax cuts - they were a huge sugar rush on top of the rebalancing of US-China trade.

 

 

 

 

    Expectations of a heavy interest rate cut in the US later this month were dealt a blow on Friday by surprisingly strong jobs numbers.

The US 10-year government bond yield shot above 2 per cent after figures showed the economy added 224,000 jobs in June, comfortably beating expectations of just 160,000.

The benchmark yield surged to 2.015 per cent from 1.98 per cent.
 

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3 hours ago, Bobthebuilder said:

You know its wierd. I know a lot of EEs who i have worked with since 2006. Lately they have been buying houses, i dont know why now, brexit perhaps or is it just "the market hurts as many people as it possibly can", its a predatory monster.

Most have mortgages of approx £200k but one i know who bought 4 months ago has a 2 year fix at 1.9% on a £400k mortgage. Mental.

This is the SE/ London.

 

They more than likely have children now and want them settled into a school so decided to stay put in the UK.

 

                  --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

This thread is by far the best on the web IMHO so many thanks to all who contribute.  I've learnt so much and hopefully I'll make a bit of money which will be useful when the price inflation hits:)

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Always fun to watch the algos selling gold on 'news'. Clearly nothing to do with reality - as if people sit around selling (or buying) gold based on the laughable US jobs numbers ...

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10 minutes ago, Errol said:

Always fun to watch the algos selling gold on 'news'. Clearly nothing to do with reality - as if people sit around selling (or buying) gold based on the laughable US jobs numbers ...

Gold is currently only trading based on interest rate expectations, not more concerning factors (yet). This small pullback could make a nice entry point for folks.

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