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Credit deflation and the reflation cycle to come.


DurhamBorn

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10 minutes ago, Talking Monkey said:

Very interesting question DB, I'm of the opinion they will go down somewhat in the huge downdraft but they've been so battered I cant see how they could halve from here

Passive ETF selloff 

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A market liquidation takes everything down as people sell to cover positions.  Bet SP has some data on historic leverage levels, fund inflows, etc.  And the dumb money usually piles in before a redistribution cycle (such a nice sounding term!).  But the cream of the crop eventually bounces back.  So depends on your time horizon.  Assuming Brexit has put the brakes on the FTSE(?), could be its biggest dividend.

The thing with bonds is a high price comes without yield.  That means retirees will need to sell capital to generate an income if they are still buying or funds roll over their holdings, which they will, especially in any selloff.  In that sense bond funds could be a bit like a short ETF, a poor long term hold.  If bonds fall, and they bought recently, then capital goes too, so the resulting smaller total yield comes at some cost. Div stocks may therefore shine, although most people defer to their investment provider so what they do will be interesting.

So loss of capital via inflation and through having to draw down capital (plus the odd bail in) - ouch, especially as most have small pension capital balances, just enough to be ignored by the state.

People might even start to feel sorry for boomers come a possible "Great Recogning".  Nothing quite like full cycle in one's lifetime.

PS:  Reading DBs post above, maybe add forced purchases of government infrastructure bonds into your pension and a wealth tax on the rest of your capital, starting with hated rich, and then you.

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35 minutes ago, Barnsey said:

Passive ETF selloff 

Expand on this please.

As I understand passive funds equate to less than half the market in the US and a just a fraction here in Europe. 

The passive funds will track what the overall market does. If anything I would take a punt without looking at the data that a good majority of those passives are locked in retirement vehicles such as Roth IRAs and 401k. So will be less inclined to panic sell than those who are less diversified.

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11 hours ago, DurhamBorn said:

Going to blow my own trumpet here.

Nice to see you staying with us by moving on, as it were, as we move from the return on money to the return of money!  After all, anyone can be lucky once 😉!

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54 minutes ago, Barnsey said:

Absolutely incredible Twitter thread about NIRP paper recently released by IMF, a MUST read for all on here!

 

Signs of a well read and sharp mind:

"Allow me to quote Hobbes on life before the social contract: Life is solitary, poor, nasty, brutish and short".

 
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2 hours ago, DurhamBorn said:

Dont forget Durham,we have some fantastic places just avoid the small ex pit villages.Im 25 minutes from the coast,1hr30 from the Lake District,1hr30 from Scotland,Whitby etc 1hr20 ,east coast mainline in Darlington or Durham 20 mins can get London in 2hr10mins and we are the cheapest place in the country mostly for houses.

Not an area I know much about to be honest. We've holidayed in the Lakes, North York Moors and Dales quite a bit. Our daughters live in Leeds (one in Uni, one just graduated) and they are likely to stay north and I think we will gravitate towards them and make sure no more than 1 to 1.5 hours drive away. I'm pretty keen to 'cash in' our relatively expensive house and buy something equivalent elsewhere for half the price!! That would help early retirement a lot.....

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1 hour ago, A_P said:

Expand on this please.

As I understand passive funds equate to less than half the market in the US and a just a fraction here in Europe. 

The passive funds will track what the overall market does. If anything I would take a punt without looking at the data that a good majority of those passives are locked in retirement vehicles such as Roth IRAs and 401k. So will be less inclined to panic sell than those who are less diversified.

I won't pretend for one second that I'm an expert on ETFs, but much of my concern surrounds the weighting of the top 10 stocks in the S&P 500, arguably the most popular focus of ETFs globally, and the sheer scale of an illiquid selloff should those top 10 take a massive hit. I never underestimate contagion, and as the ETFs become "arrested" in a panicked fall, with bid and ask spread miles apart, I can see actual stock holdings (no matter what they are) also being sold off in tandem as may be more liquid and only source of liquidity in a falling ETF market, especially if not holding more liquid assets such as Gold. Just thinking out loud.

Valuable point regarding more of a US issue, but I'm still thinking of the theory of an S&P flight to safety and melt up from other nation index trackers if we see some kind of rate/QE surprise from the Fed as others enter severe recession imminently, whilst the US still stands relatively stable (for now).

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3 hours ago, DurhamBorn said:

Mr Johnson said the chancellor could take advantage of "extremely low interest rates" and begin "borrowing more to pay for more infrastructure".

Meaning interest rates will stay low forever, or we'll end up paying them off in quick order (wealth tax?)!

.....or plenty of inflation!

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7 minutes ago, Harley said:

Meaning interest rates will stay low forever, or we'll end up paying them off in quick order (wealth tax?)!

.....or plenty of inflation!

The one thing I'm not seeing, is any conviction of higher inflation in the coming years, at all. Seems most are convinced that the deflationary effects of an ageing population and technology are everything and here to stay. I'm not as convinced given what we could see central banks pull out of the hat in coming bust.

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45 minutes ago, Barnsey said:

The one thing I'm not seeing, is any conviction of higher inflation in the coming years, at all. Seems most are convinced that the deflationary effects of an ageing population and technology are everything and here to stay. I'm not as convinced given what we could see central banks pull out of the hat in coming bust.

The problem is that the deflation (which looks inevitable now) eventually brings unfortunate consequences (economic collapse).  How does a pension fund, which requires cash on hand to pay people, operate in a govt bond environment (which they are forced to buy) when everything out to 50 Years has a negative yield?  Doesn't work, and its surprising that more people cant do the basic maths on that one.  Ditto for the screwed Euro banks.

It really is print or die, and Sajid is greasing the UK printing presses as DB detailed up thread...  A good dose of 10% + inflation will sort out the debt problem for better or worse.

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Democorruptcy
5 hours ago, DurhamBorn said:

"It is obvious to me that when you've got some of the lowest rates on government debt this country has ever seen, I wouldn't be doing my job if I wasn't thinking seriously about how do we use [that opportunity]," he said.

Mr Johnson said the chancellor could take advantage of "extremely low interest rates" and begin "borrowing more to pay for more infrastructure".

Well yeah... it's because the BoE is buying so much of the debt and then giving the governbankment the coupon yield on it back to spend. It doesn't mean we are performing economically well and trusted more than ever. It just means we have taken shystering to the highest level.... so far.

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4 hours ago, Barnsey said:

Passive ETF selloff 

Yep,and/or raising liquidity for derivative sell off elsewhere.It might be very quick though and they bounce,while others stay down.Very tricky.

5 hours ago, Loki said:

Looking at how over-budget HS2 has gone - and the usual level of government incompetence on big projects - is your main concern the tangible results at the end of this cycle, or simply 'the numbers' working in our favour? 

 

Numbers and the fact it will be world wide.Massive combined stimulus,but not like last time.This forces up velocity.Then inflation.Then rates.

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19 minutes ago, DurhamBorn said:

Numbers and the fact it will be world wide.Massive combined stimulus,but not like last time.This forces up velocity.Then inflation.Then rates.

Thanks mate, it's a pretty crucial distinction for those of us who look for real world results being needed for the money taps to open. You work with your hands, you know what I mean I hope!

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Currently scratching my noggin and wondering if the VAT free window for buying silver britannias in from the EU is closing rapidly. I bought a monster box from Goldcore at the end of March before the Brexit deadline. I think BoJo and his cronies really mean it regarding Oct 31 and maybe this could be the last opportunity to buy in with the discount? 

I bought through Goldcore last time and the process was a little lacking. From purchase to delivery was nearly 4 weeks and the plastic monster box was in the flimsiest wafer thin cardboard outer box. I've used coin invest (silver2go) before for a smaller order and that went well but they are more expensive for the larger quantities. There's also goldsilver.be and they are even cheaper than Goldcore. Anyone used them?

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UnconventionalWisdom
25 minutes ago, Sasquatch said:

Currently scratching my noggin and wondering if the VAT free window for buying silver britannias in from the EU is closing rapidly. I bought a monster box from Goldcore at the end of March before the Brexit deadline. I think BoJo and his cronies really mean it regarding Oct 31 and maybe this could be the last opportunity to buy in with the discount? 

I bought through Goldcore last time and the process was a little lacking. From purchase to delivery was nearly 4 weeks and the plastic monster box was in the flimsiest wafer thin cardboard outer box. I've used coin invest (silver2go) before for a smaller order and that went well but they are more expensive for the larger quantities. There's also goldsilver.be and they are even cheaper than Goldcore. Anyone used them?

I think the same. Worth getting another purchase in just in case

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26 minutes ago, Sasquatch said:

Currently scratching my noggin and wondering if the VAT free window for buying silver britannias in from the EU is closing rapidly. I bought a monster box from Goldcore at the end of March before the Brexit deadline. I think BoJo and his cronies really mean it regarding Oct 31 and maybe this could be the last opportunity to buy in with the discount? 

I bought through Goldcore last time and the process was a little lacking. From purchase to delivery was nearly 4 weeks and the plastic monster box was in the flimsiest wafer thin cardboard outer box. I've used coin invest (silver2go) before for a smaller order and that went well but they are more expensive for the larger quantities. There's also goldsilver.be and they are even cheaper than Goldcore. Anyone used them?

 

1 minute ago, UnconventionalWisdom said:

I think the same. Worth getting another purchase in just in case

Thanks guys, I have a fairly small stash that was a "Buy and forget".  I may top up soon.

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UnconventionalWisdom
2 hours ago, Majorpain said:

How does a pension fund, which requires cash on hand to pay people, operate in a govt bond environment (which they are forced to buy) when everything out to 50 Years has a negative yield?  Doesn't work, and its surprising that more people cant do the basic maths on that one.  Ditto for the screwed Euro banks.

This will be the light bulb moment for most people when they realise negative interest rates can't become the norm. 

3 minutes ago, Loki said:

Buy and forget".  I may top up soon

The addition will also be a buy and forget. :)

if people lose faith in the CBsththey will first run to gold, once that gets too expensive, they will head to silver. 

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9 minutes ago, UnconventionalWisdom said:

This will be the light bulb moment for most people when they realise negative interest rates can't become the norm. 

The addition will also be a buy and forget. :)

if people lose faith in the CBsththey will first run to gold, once that gets too expensive, they will head to silver. 

Although, to slightly misquote Roy Scheider, I'm gonna need a bigger safe......

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4 hours ago, Barnsey said:

I won't pretend for one second that I'm an expert on ETFs, but much of my concern surrounds the weighting of the top 10 stocks in the S&P 500, arguably the most popular focus of ETFs globally, and the sheer scale of an illiquid selloff should those top 10 take a massive hit. I never underestimate contagion, and as the ETFs become "arrested" in a panicked fall, with bid and ask spread miles apart, I can see actual stock holdings (no matter what they are) also being sold off in tandem as may be more liquid and only source of liquidity in a falling ETF market, especially if not holding more liquid assets such as Gold. Just thinking out loud.

Valuable point regarding more of a US issue, but I'm still thinking of the theory of an S&P flight to safety and melt up from other nation index trackers if we see some kind of rate/QE surprise from the Fed as others enter severe recession imminently, whilst the US still stands relatively stable (for now).

Thanks for expanding. Although seems like bit of a chicken and egg thing going on. In my mind It would be the actual stock holdings being sold first. Additionally i would suspect the vast majority of people in the etf/passive fund world are geared towards an equity/bond split, with the most likely to panic, closer to retirement are heavily in bonds and other asset classes. Again though not looked at the data.

How did the major ETF's do when there was a 10% drop back in Dec? I know from reading online in the UK some people that panicked were unable to get their global/US fund sell orders through for a good number of days. But i don't recall reading there was much impact in regards to the wider passive market.

Unchartered territory that is for sure.

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2 hours ago, Majorpain said:

The problem is that the deflation (which looks inevitable now) eventually brings unfortunate consequences (economic collapse).  How does a pension fund, which requires cash on hand to pay people, operate in a govt bond environment (which they are forced to buy) when everything out to 50 Years has a negative yield?  Doesn't work, and its surprising that more people cant do the basic maths on that one.  Ditto for the screwed Euro banks.

It really is print or die, and Sajid is greasing the UK printing presses as DB detailed up thread...  A good dose of 10% + inflation will sort out the debt problem for better or worse.

It doesnt work,and thats exactly why thanks to the help of someone else on here im in the process of taking the transfer value of my DB pension and putting it into my SIPP (hopefully).The transfer value is eye popping compared to the pension given up.I am worried though they will move the age up where you can get it,its going to 57,but who is to say it wont go to 65 and state pension 70.If they dont stagger the move to 57 i should be able to get into draw down at 55,but who knows.

Like you say there is only one end result of whats coming,inflation.My friend thinks 18% or more and rates above 20% for a few months.Im not a high as that,but i do think inflation at 10% as you say is very very likely,and above 7% certain.I think my inflation road map goes to 12% and rates 11%.It sounds incredible,but if they are to stop the collapse and introduce enough liquidity to turn things that what looks likely.Silver says $150 to $250 or higher.Crazy really.

The only way out is total collapse or some real full on inflation.So inflation it is.They tried to get it already,but it just pushed up shares in the US and houses in the UK.This time they will bypass the banks and inject into the economy.Lets see what Javid starts with.

 

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1 hour ago, UnconventionalWisdom said:

This will be the light bulb moment for most people when they realise negative interest rates can't become the norm. 

The addition will also be a buy and forget. :)

if people lose faith in the CBsththey will first run to gold, once that gets too expensive, they will head to silver. 

I was tempted by ETFs, but I can't shake the idea that "If you can't hold it, you don't own it".  Regardless of issues with spot price/selling, I think physical is the way to go.  Of course all we talk about here is electronic/paper based too, but I consider my 'stash' the ultimate backup plan.

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Noallegiance
1 hour ago, DurhamBorn said:

It doesnt work,and thats exactly why thanks to the help of someone else on here im in the process of taking the transfer value of my DB pension and putting it into my SIPP (hopefully).The transfer value is eye popping compared to the pension given up.I am worried though they will move the age up where you can get it,its going to 57,but who is to say it wont go to 65 and state pension 70.If they dont stagger the move to 57 i should be able to get into draw down at 55,but who knows.

Like you say there is only one end result of whats coming,inflation.My friend thinks 18% or more and rates above 20% for a few months.Im not a high as that,but i do think inflation at 10% as you say is very very likely,and above 7% certain.I think my inflation road map goes to 12% and rates 11%.It sounds incredible,but if they are to stop the collapse and introduce enough liquidity to turn things that what looks likely.Silver says $150 to $250 or higher.Crazy really.

The only way out is total collapse or some real full on inflation.So inflation it is.They tried to get it already,but it just pushed up shares in the US and houses in the UK.This time they will bypass the banks and inject into the economy.Lets see what Javid starts with.

 

It's all very well the world measuring PMs in $, but unless there's a real reason for the attitude as a whole toward PMs to do a 180, a weak $ and a strengthening £ doesn't do UK physical holders much good, does it?

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