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Credit deflation and the reflation cycle to come.


DurhamBorn

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Talking Monkey
1 hour ago, DurhamBorn said:

They buy gilts in the open market with printed money.Government issues new gilt at 0.98%.BOE buys it.In affect the governments debt goes up,but the coupons are tiny,and most of it goes back to the government anyway.Lots of debt will sit on the BOE balance sheet,but after an inflation cycle it wont look as bad.

DB this kind of stuff is it open to only western economies in the upcoming cycle or will most countries be doing it eg would say Thailand, Malaysia or India be doing loads of printing like this and infrastructure spending, or just US, UK, Europe

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Talking Monkey
1 hour ago, DurhamBorn said:

They buy gilts in the open market with printed money.Government issues new gilt at 0.98%.BOE buys it.In affect the governments debt goes up,but the coupons are tiny,and most of it goes back to the government anyway.Lots of debt will sit on the BOE balance sheet,but after an inflation cycle it wont look as bad.

DB this kind of stuff is it open to only western economies in the upcoming cycle or will most countries be doing it eg would say Thailand, Malaysia or India be doing loads of printing like this and infrastructure spending, or just US, UK, Europe

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UnconventionalWisdom
3 hours ago, Agent ZigZag said:

The general consensus from City boys I chat to all agree that Central banks will print again but it will be given to the banks and therefore will just be more of the same

If it leads to a big bust the public will start to question why QE (in its current format) took place. Having a housing bubble and a shot economy wont be accepted by people, especially those losing their jobs. 

I chat to a few city boys (not frequently mind- mates of mates) and they don't know half as much as the guys here. They seem to have been taught how to do a job and they continue with it. No talking of the macro picture. 

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18 minutes ago, Talking Monkey said:

DB this kind of stuff is it open to only western economies in the upcoming cycle or will most countries be doing it eg would say Thailand, Malaysia or India be doing loads of printing like this and infrastructure spending, or just US, UK, Europe

Everyone i suspect.The thing that will shock the market and send commods up is that every currency will be inflating so nowhere to run.Our currency work has been very good at picking this up.When its ran with no other currency to go to its the commod sector that takes the liquidity.If you cant hide your capital in any currency because they are all slicing their value at the same time where do you go?.Property in a rising rate world?.Bonds?,growth stocks who provide no yield and arent growing much?.Rising demand will push up the commods first,then it will be a wall of liquidity.Silver should see $200,maybe even $300 or more.

The end of the dis-inflation has seen a currency war that then expanded to a trade war.Its because nobody can get any growth,so they are desperate to keep the currency competitive rather than invest.Once the dollar starts to fall though as it will soon,that game is up and they will all go loose at once.

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Talking Monkey
2 minutes ago, DurhamBorn said:

Everyone i suspect.The thing that will shock the market and send commods up is that every currency will be inflating so nowhere to run.Our currency work has been very good at picking this up.When its ran with no other currency to go to its the commod sector that takes the liquidity.If you cant hide your capital in any currency because they are all slicing their value at the same time where do you go?.Property in a rising rate world?.Bonds?,growth stocks who provide no yield and arent growing much?.Rising demand will push up the commods first,then it will be a wall of liquidity.Silver should see $200,maybe even $300 or more.

The end of the dis-inflation has seen a currency war that then expanded to a trade war.Its because nobody can get any growth,so they are desperate to keep the currency competitive rather than invest.Once the dollar starts to fall though as it will soon,that game is up and they will all go loose at once.

Thank you DB

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26 minutes ago, UnconventionalWisdom said:

If it leads to a big bust the public will start to question why QE (in its current format) took place. Having a housing bubble and a shot economy wont be accepted by people, especially those losing their jobs. 

I chat to a few city boys (not frequently mind- mates of mates) and they don't know half as much as the guys here. They seem to have been taught how to do a job and they continue with it. No talking of the macro picture. 

Most big investment houses dont even do any real macro work now.They play lip service,but their real aim is to outperform the other guys by 1%.There are very few people in the city who can even remember a reflation cycle.They actually think we have just had one.They think QE was a reflation,when in fact its deflationary due to its affect on velocity.Reflation is when demand gets in front of supply and stays there or pulls away.This cycle has seen demand way behind supply,its why margins are so small even for the best companies and debt is so high for the worst ones.

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Agent ZigZag
32 minutes ago, UnconventionalWisdom said:

I chat to a few city boys (not frequently mind- mates of mates) and they don't know half as much as the guys here. They seem to have been taught how to do a job and they continue with it. No talking of the macro picture. 

I find that true also

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Bricks & Mortar
5 hours ago, Barnsey said:
6 hours ago, JMD said:

Barnsey, that's interesting plan, but i'm confused - aren't TLT and IBTL both 20year+ US treasuries? ...Or is there a subtle (but crucial market) difference between them?

They are indeed JMD, IBTL essentially "international access to TLT". You want to be avoiding unnecessary FX fees. I should have said IBTL for both to avoid confusion, apologies, I read far too many U.S. posts :D

Saying that, it's TLT I've got my eyes on from a technical perspective to avoid risk of FX fluctuations clouding things.

Can you buy TLT from the UK? 
I can't find it on my HL platform right now, but thats just because their search feature is down.  Pretty sure I found it the other day, and was duly informed I couldn't, due to lack of a KID, (Key Investor Document - the EU requirement that stops us buying all sorts of interesting international ETFs)

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For those of you who like a bit of confirmation before investing, #HZM has poked its little head up today. I am hoping it doesn't get bought too early and has chance to grow. Various internet gobshites suggest that there is £60 billion nickel in the ground. They are developing their own nickel district in bumblefuck Brazil with two tier 1 assets which will make them ripe for takeover by a major (Glencore appears to be the current rumour). Nickel inventories are dropping significantly year on year and electric vehicles will want to gobble that stuff up for use in their batteries. Current MCAP is £35.8m @2.88p a share. 

https://horizonteminerals.com/news/en_20190511_investor_presentation.pdf

Sexual.

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3 hours ago, DurhamBorn said:

Oh and on natural gas,i think it might be the next best performing asset after silver.Could get smashed lower first though.

So a bet on Russia then?

TurkStream, Power of Siberia and Nordstream II coming on line soon.

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2 hours ago, billfunk said:

For those of you who like a bit of confirmation before investing, #HZM has poked its little head up today. I am hoping it doesn't get bought too early and has chance to grow. Various internet gobshites suggest that there is £60 billion nickel in the ground. They are developing their own nickel district in bumblefuck Brazil with two tier 1 assets which will make them ripe for takeover by a major (Glencore appears to be the current rumour). Nickel inventories are dropping significantly year on year and electric vehicles will want to gobble that stuff up for use in their batteries. Current MCAP is £35.8m @2.88p a share. 

https://horizonteminerals.com/news/en_20190511_investor_presentation.pdf

Sexual.

I hold them. Lots of fluctuation from day to day but a lot of potential upside. Little bit worried about Brazil's political situation, but otherwise seem good value. 

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Anyone hear Radio 4s finance slot at 06.00 this morning where they discuss with financial traders?...they were discussing one of the European gov selling 30year zero bonds and the reasons why (conclusion=investors think economy and shares are toast)....so even the So-Called BBC are now reporting the dark clouds of recession, so it must be close.

This however has come at the wrong time as having now formed  a financial game plan (see below) thanks to great discussions on here (and lots of reading), I am not sure if its the best time to implement it.....So with this in mind, and sitting in cash what would you do?...is it better to wait to buy shares?...would it be crazy to buy gilts/bonds now/ever!?...even now is it still better to be in the market than outside in cash?

Plan: 3 tier, base=passive, longterm, World index share/gilt/bond etf; mid=income via divi rather than growth shares, top=SMALL, learning fund of value shares traded more frequently.

Thoughts on all of the above? (As always DYOR etc).

 

 

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12 minutes ago, MrXxxx said:

Plan: 3 tier, base=passive, longterm, World index share/gilt/bond etf; mid=income via divi rather than growth shares, top=SMALL, learning fund of value shares traded more frequently.

Thoughts on all of the above? (As always DYOR etc).

 

 

 

Watch your World Index Share ETF. It may be heavily weighted towards US and towards a few shares in the US, e.g. FAANG's, so may not be as diverse as you imagine.

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5 minutes ago, CVG said:

Watch your World Index Share ETF. It may be heavily weighted towards US and towards a few shares in the US, e.g. FAANG's, so may not be as diverse as you imagine.

True, that's the problem with some indices...in fact someone the other day (AP?) mentioned a US broker site where you can create you own Etfs and this seemed a great solution to the above problem I.e buy/create the index based on presence rather than weight.

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Democorruptcy
14 hours ago, DurhamBorn said:

The reason it makes my list Harley is they have a good sized business in oilfield chemicals.I see that as a likely big winner in the next cycle.So something that has done ok the last 5 years,plodding along is actually a very very good sign.The business should be able to take advantage of the reflation.

Cargotec is another i really like once the bust is over.Pretty much everything they make is for moving items in construction,ports,timber etc.Could be a real gem in a reflation.

I must admit i forgot all about withholding tax and have no idea how that works if owning these stocks in an ISA or SIPP and how much it lowers the yields.

Withholding tax of 26.37% got a mention on page 9

Would be a shame to miss out on the capital appreciation because of it.

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Don Coglione

Could someone explain the following quote from today's BBC Business pages to me?

If you needed proof that investors are living in strange times, look no further than Germany's fund raising efforts on Wednesday.

Germany sold a 30-year bond at 0% interest.

What's more, institutions were so eager they ended up paying Germany more than the face value of the bonds. Why?

"The world is upside down," says Alberto Gallo, fund manager at Algebris Investments.

"Investors are essentially going to lose money over a 30-year period because they are going to get back a bit less than they paid. But actually now every government is borrowing below inflation"

He says: "The reason why this is happening when investors buy bonds instead of stocks, is because they're worried about inflation. So we have been in a 10-year recovery after the financial crisis, where central banks lowered interest rates, trying to spur growth, and also bought assets - the so-called quantitative easing...but this hasn't really worked.

As I understand it, Joe buys this bond for 1 Euro and, in 30 years' time, gets back 1 Euro (in fact, it seems that Joe is willing to pay 1.02 Euros today, to get back 1 Euro in 30 years' time). No interest, or coupon, is payable throughout the 30 year period. Correct so far?

Even at today's low inflation rate, 30 years of compounding would see Joe's original 1 (or 1.02) Euro investment erode to, say, 0.50 Euros. If Joe is worried about inflation (which I take to mean it going higher), then his original stake could be eroded to, say, 0.10 Euros. If this is correct, surely Joe is doing exactly the wrong thing?

One of either I, or Alberto Gallo, is not very bright here. It is probably me, in which case I should politely step away from this thread...

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28 minutes ago, Ponty Mython said:

Could someone explain the following quote from today's BBC Business pages to me?

If you needed proof that investors are living in strange times, look no further than Germany's fund raising efforts on Wednesday.

Germany sold a 30-year bond at 0% interest.

What's more, institutions were so eager they ended up paying Germany more than the face value of the bonds. Why?

"The world is upside down," says Alberto Gallo, fund manager at Algebris Investments.

"Investors are essentially going to lose money over a 30-year period because they are going to get back a bit less than they paid. But actually now every government is borrowing below inflation"

He says: "The reason why this is happening when investors buy bonds instead of stocks, is because they're worried about inflation. So we have been in a 10-year recovery after the financial crisis, where central banks lowered interest rates, trying to spur growth, and also bought assets - the so-called quantitative easing...but this hasn't really worked.

As I understand it, Joe buys this bond for 1 Euro and, in 30 years' time, gets back 1 Euro (in fact, it seems that Joe is willing to pay 1.02 Euros today, to get back 1 Euro in 30 years' time). No interest, or coupon, is payable throughout the 30 year period. Correct so far?

Even at today's low inflation rate, 30 years of compounding would see Joe's original 1 (or 1.02) Euro investment erode to, say, 0.50 Euros. If Joe is worried about inflation (which I take to mean it going higher), then his original stake could be eroded to, say, 0.10 Euros. If this is correct, surely Joe is doing exactly the wrong thing?

One of either I, or Alberto Gallo, is not very bright here. It is probably me, in which case I should politely step away from this thread...

The report is wrong.  People are worried about deflation (or, rather, worried about their investment failing so they get nothing back).  I suppose the article is sort-of-technically correct -- they're worried about inflation of the negative type...

The bonds seem mad -- you're better off in cash -- but the types buying the bonds are the sort that can't hold vast amounts of cash (pension funds, etc), so bonds is all there is left if you want 'secure'.

But there's more to it as well -- the sale was a failure; they didn't sell their offering (I think they sold 1/3rd of it).

And there's even more -- the market is being led by governments / central banks buying their bonds (but in the secondary market, so it is okay and not bad, apparently) -- so if they couldn't sell the bunds what does that tell you...

Oh, but they did sell them -- the unsold ones were bought by the Bundesbank -- and what does that tell you.

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Funny old times at the moment (fed notes yesterday, bund sale, Powell's speech Friday, etc).  They know they've got to reduce rates, but they can't reduce them without the market telling them that it's needed, which it'll do with a reduction in share prices reflecting 'definitely recession coming' -- but no matter what they say the market responds with 'that means lower interest rates!', so they don't get the sell-off which would allow them to lower interest rates...

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Don Coglione
27 minutes ago, dgul said:

The report is wrong.  People are worried about deflation (or, rather, worried about their investment failing so they get nothing back).  I suppose the article is sort-of-technically correct -- they're worried about inflation of the negative type...

The bonds seem mad -- you're better off in cash -- but the types buying the bonds are the sort that can't hold vast amounts of cash (pension funds, etc), so bonds is all there is left if you want 'secure'.

But there's more to it as well -- the sale was a failure; they didn't sell their offering (I think they sold 1/3rd of it).

And there's even more -- the market is being led by governments / central banks buying their bonds (but in the secondary market, so it is okay and not bad, apparently) -- so if they couldn't sell the bunds what does that tell you...

Oh, but they did sell them -- the unsold ones were bought by the Bundesbank -- and what does that tell you.

Cheers, dgul, that is exactly what I thought, I just needed a reality check.

BBC reporting is never good at the best of times, but recently the standard has dropped significantly.

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All the fall out from letting banks print loads of money and pour it into unproductive assets - real estate.

The only way to wiggle out is to vastly increase the risk weighting on property.

You are seeing that with the likes of MMR and the fall in bank lending, a lot is due to to low rates (negative real rates) destroying banks.

UK is going to see a couple of banks fail soon.

Good.

Most of Europes bank might as well qluidise their books, lay off their staff, whilst they still have some value left.

 

 

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The Netherlands joins the queue for deficit spending on infrastructure -- https://uk.reuters.com/article/uk-netherlands-government/dutch-government-considers-major-investment-push-source-idUKKCN1VC0J6

Quote

The government would consider borrowing up to 50 billion euros (£45.4 billion)for the fund as it looks to profit from historically low and even negative interest rates on its loans, Dutch newspaper De Telegraaf reported earlier on Thursday, citing government sources.

 

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1 hour ago, spygirl said:

Most of Europes bank might as well qluidise their books, lay off their staff, whilst they still have some value left.

Who’ll buy the crap on their balance sheets? Politically doing a GRG won’t be tolerated.

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