Credit deflation and the reflation cycle to come.

[Talking Monkey]

On ‎10‎/‎06‎/‎2018 at 23:11, DurhamBorn said:

In the north decent houses are roughly at 2004 levels and havent moved up or down.However we are the cheapest part of the country.The new builds that are mostly horrible are starting to come back onto the market and cant get close to their sale when new prices,those have a lot of Help to Buy buyers as well.

If we do get a deflation DB and the SE drops by say 30-50%, would the North still drop or would you expect the drops to be trivial and the prices to stay more or less where they are

[MrXxx]

I think prices outside commuting distance of London will reflect local job market and long-term traditional prices, so I can't see places like NE changing much.

[afly]

1 hour ago, Talking Monkey said:

If we do get a deflation DB and the SE drops by say 30-50%, would the North still drop or would you expect the drops to be trivial and the prices to stay more or less where they are

I would think SE will drop to within max earnings of most people (which is still a 40-50% drop). The middlings would need to fall 10-30% and the bottom of the market, already within earnings area, to fall 10%ish. 

Desirability wont change, the hierarchy of most expensive to least would remain but the gaps between the regions shouldn't be the insanity we see now. The regional earnings just don't justify the disparity

 

 

Edit to add: this is what I would expect them to stabilise at after a crash. Lord knows what might happen during

[DurhamBorn]

9 hours ago, Shaneyson said:

Real privilege to see you on here @DurhamBorn

Thankyou Shaneyson,thats really kind.The privilege is that people can exchange ideas and agree or not agree in an open and valuable way.The more views the better.

[DurhamBorn]

1 hour ago, Talking Monkey said:

If we do get a deflation DB and the SE drops by say 30-50%, would the North still drop or would you expect the drops to be trivial and the prices to stay more or less where they are

I think as MrXxx says the falls wont be as much.Nominal it might be 10%/20% and then growing less than inflation.Where they have gone up the most they will fall the most.People in the north who MEWed will still suffer though.The price will still be down a bit so no more equity to MEW and interest rates will start to rise.I expect rates 300% higher on a SVR by 2025.

 

[DurhamBorn]

30 minutes ago, afly said:

I would think SE will drop to within max earnings of most people (which is still a 40-50% drop). The middlings would need to fall 10-30% and the bottom of the market, already within earnings area, to fall 10%ish. 

Desirability wont change, the hierarchy of most expensive to least would remain but the gaps between the regions shouldn't be the insanity we see now. The regional earnings just don't justify the disparity

 

 

Edit to add: this is what I would expect them to stabilise at after a crash. Lord knows what might happen during

Thats the sort of situation i see afly.50% in bubble areas,but more later in the cycle inflation adjusted.15%-30% in the expensive but not crazy areas then down more with inflation,and 10% to 20% in the cheap areas.

What needs to be remembered is those sorts of falls will make sure a lot of people are in negative/low equity and that in turn will make the re-mortgage hard.A lot will end up on SVR or whatever their bank will give them.

My guess is that pretty much anyone who used HTB is stuffed.

[UnconventionalWisdom]

18 minutes ago, DurhamBorn said:

What needs to be remembered is those sorts of falls will make sure a lot of people are in negative/low equity and that in turn will make the re-mortgage hard.A lot will end up on SVR or whatever their bank will give them.

A lot of svr rates are approach 5% now with emergency interest rates. If you are correct and IRs head towards 10% within ten years, the svr rate will be stupidly high. 

[DurhamBorn]

1 minute ago, UnconventionalWisdom said:

A lot of svr rates are approach 5% now with emergency interest rates. If you are correct and IRs head towards 10% within ten years, the svr rate will be stupidly high. 

I think it might hit 12%+ by the end of the cycle.8%+ is pretty certain.The interesting thing will be when long rates start to go up hard.That might see fixed rate deals at higher levels than the SVR.People seem to think fixing will always have lower rates, but they are wrong.We might see SVR at 8% five year fix at 9.5% etc.

[DurhamBorn]

On 10/06/2018 at 10:59, BadAlchemy said:

Yes, I'm intrigued by DB's statement " Government just needs an excuse,and when they get it they will go full guns blazing " .

Any guesses what that excuse might turn out to be? Do we need a few more House of Frasers/massive job losses? Do we need civil unrest like protests and strikes against the rising cost of petrol/the devaluation of the £ by Carney. Are the government waiting for Brexit date and then they'll tie it all in with that and so cover themselves for any unpleasant consequences ? What triggered the last reflation cycle ...in the 70's I think DB said it was? - sorry I was in nappies at that time

People getting close to ropes and lamposts and fearing for their own trust funds and necks.The west needs investment instead of consumption,jobs instead of benefits.A big debt deflation will give them the excuse to get involved.The UK is already starting down this road,government taking stakes in nuclear power stations,next they will do joint ventures in rail etc.The 70s inflation came from an energy shock,then pouring loose money onto the weakened economy.The shock this time will be the end of a huge credit cycle.

[DurhamBorn]

As at 9.13 the biggest riser on the FTSE is Centrica,the biggest faller is Barratt and the biggest faller on the 250 is Crest Nicholson.House builders now will be seeing the end of the cycle where input costs are still going up,but the prices they can get have stuck or are falling.Soon their working capital will start being stuck in houses that arent selling.If HTB wasnt there i think we would be seeing big falls already.

[A_P]

7 minutes ago, DurhamBorn said:

People getting close to ropes and lamposts and fearing for their own trust funds and necks.The west needs investment instead of consumption,jobs instead of benefits.A big debt deflation will give them the excuse to get involved.The UK is already starting down this road,government taking stakes in nuclear power stations,next they will do joint ventures in rail etc.The 70s inflation came from an energy shock,then pouring loose money onto the weakened economy.The shock this time will be the end of a huge credit cycle.

I've travelled a bit around the US and it's shocking how poor their infrastructure has become. Similary in the UK (although not quite as bad), and I'm no expert on the matter, I think it's quite obvious where the spending is going to go in both the US and the UK.

[eek]

2 hours ago, MrXxx said:

I think prices outside commuting distance of London will reflect local job market and long-term traditional prices, so I can't see places like NE changing much.

I can. Prices are still at 2004 prices as they are still being driven by BTLers. I seriously think there is a strong chance of 20%-30% falls in the future once BTLers seeking their 5-6% return disappear... 

[C-gull]

11 hours ago, DurhamBorn said:

Thats great to hear.I actually enjoy the frugal life and dont feel like im missing out on anything.Iv worked with people who had huge mortgages and worked every bit of overtime.Hated work and worked all hours so they could go on holiday for two weeks and dream all year about it.Iv just come back from my rounds to the supermarkets near me at reduction time,all within half a mile.£50 worth of top quality food from Sainsbury for £12.£20 worth from Tesco £5.With £5 from the veg bloke at the side of the road tomorrow we will eat fantastic,healthy meals all week for £22.

Anything needs doing on the house,time to learn,buy the things from Gumtree (garage door £30 not a scratch on it last thing) and do it myself.My little van is fantastic.£800 three years ago it cost,spent a total of £180 on it in three years.So £6 a week its cost up to now.£24 a month.Over the road spend £500 a month on their two lease cars.Never seen them in day light from October until March,out at work.

Since age 39 iv worked 3 to 5 hours a week for the tax allowance.When people talk about the pension age being pushed back and back i just laugh.I couldnt care less.I could carry on as i am now up until pension age if i closed my business tomorrow.I love investing and the security of that,but its not about the money,or what it can buy,its about time and freedom.This country is ran by the rich and elite to tax the middle,to give it to the benefit class,so it can then go up to the elite.That keeps the middle working forever,it keeps the rich rich and it stops the benefit class stealing the land back.The best defense against that for me was to opt out as quickly as possible while understanding the real drivers of an economy.

Whats coming will shock people to the core.This long cycle has made people think free money will always come.Benefits,HPI,MEWing,BTL etc etc.The destruction of leverage will wipe most of that away.The next cycle will be the first real reflation for 40 years,and most people will be so trapped by leverage that they can only suffer more and more pain through it.Only a very few,those liquid,and those invested in inflation loving assets will do well.Those going under through debts will be unable to buy anything.Those struggling to hold on (pretty much anyone with a 3+ x salary mortgage) wont understand whats hitting them.The irony is the most loved assets right now are the ones that will provide the most pain.The least owned and the most hated assets are the ones that will prosper.I just love how contrarian a cycle turn can be.

Hi @DurhamBorn, I'm a long time lurker (here and ToS). Firstly, thank you for all the information you've shared, also thanks everyone else who has also shared information and time.

I have a fairly basic question and I was hoping you would be willing to share your thoughts. Basically, is there some sort of model portfolio, or starter for ten type investment plan for an average chump like myself who has saved a significant sum in cash and is looking to insulate against the rampant inflation that we see on the horizon? To go into more detail; I'd like a house and I'd also like to not be a debt slave, I'd like to be able to work less to spend more time things that matter to me like cooking healthy food, exercise, learning new skills and spending time with my family who live quite far from me. I'm happy with the frugal life and I'm not looking for some get rich scheme, I jut feel very worried looking at the economy and reading what everyone's shared here. The mainstream financial advice seems to be "pay off debt and then throw everything in an index tracker" which seems counter to the sentiment here? What would you advise someone like me do with ~100k bearing in mind that this is a one off windfall and unlikely to be repeated? 

I'm very aware that it probably looks like I'm trying to avoid DYOR / take shortcuts and piggyback of everyone's knowledge but I hope you can empathise with my position; I know nothing and am faced with what looks like years of research, trial and error and I don't have enough saved to lose significant sums on a learning curve, and it certainly seems like I don't have years to learn?

[sancho panza]

On 10/06/2018 at 10:46, No Duff said:

Interesting insight.  These guys are doing mainly end consumer work like extensions, renovations, etc.  What was also interesting was how insensitve the quotes were between quality materials - labour certainly is even a bigger cost driver than before despite large material cost increases (which are not over yet).  Or maybe I was being rolled.  Very unlikely.  But anyway that only ever happens once!

In the middle class world that I and Mrs P inhabit,there's only movement at the margins in terms of awareness.95%+ of our acqauintance is blissfully unaware of the mess that looms.For msot,their only asset is the equity in their residential home and a few have BTL's (some of which are cashflow negative before their 2/3/5 year fixes expire.........and before S24.

However,there's one or two who's businesses are beginning to see changes eg Carillion.

 

On 10/06/2018 at 11:03, DurhamBorn said:

https://www.centrica.com/news/centricas-restore-business-launches-32-mw-virtual-power-plant-belgium

Energy use will start to go up and companies with the technology to work out where each unit comes from,is stored at and then goes to will win big.

https://www.current-news.co.uk/news/centrica-invests-in-energy-blockchain-start-up-lo3-energy

 

 

Centrica has quite a solid stable of potential growth businesses.As you know,we've been averaging in since £2 and down to £1.4 pre divi.All in we're probably around the £1.7/£1.75 mark-I should know shouldn't I?

I look at this business and wonder why so few are investing in it when Next is £60 and Ashtead £23 for instance.

 

We've certificated both for security ref broker and for taking scrip.

On 10/06/2018 at 11:34, Agent ZigZag said:

Enjoying this thread in an adult manner were people have tied their opinions to the mast in an honest manner. . My question to the board is trying to establish an opinion as to when is it most probable that we will see government spending take hold that I consider will be in conjunction with the big pension providers. To establish a likely timescale may be dictated by the amount or lack of liquidity in the system. Therefore is liquidity in the uk drying up or is capital flight from say Europe still coming in that will prop up the existing system that bit longer.

I'm a confimed debt deflationist personally.Big fan of the work of Irving Fisher and Minsky

https://en.wikipedia.org/wiki/Debt_deflation

After that I'm less sure about the reflation as I think there are too many variables-political,socio political,financial,economic etc to work through to predict how and what govt's will be able to do.

I think the current actions of the Fed are a testmament to that.Trump picked Jerome Powell-the first Fed Chair without a formal economics education and whaddya know,he's completely departed from the path set by the previous neo classical economists.

The Fed is setting the agenda currently and I think judging Powell by the Yellen/Bernanke playbook could be a mistake.

 

On 10/06/2018 at 12:54, Majorpain said:

I dont have much knowledge of that construction area but i would imagine its closely tied into consumer spending and house price increases.  Its not an area i would want too much exposure too, the boom has arguably been going on since 1995-7 so is due to come to a shuddering halt some time soon.  The one fly in the ointment is those pesky students, Newcastle's population is 268k, its student population is around the 45-50k mark.  Back when i was studying, everyone rented a shared house in the local area, these days apartment blocks housing 500+ have sprung up in the city center with a few more in the pipeline.  House prices leveled off last month in Newcastle, and zoopla has plenty of student houses all the way up to a portfolio of 5 as landlords try and shift the houses there is no demand for.  I think this is likely to be happening on a national scale in the university cities based on talks with a company who do the student apartment bathroom fitouts. 

https://www.zoopla.co.uk/for-sale/details/47716701?search_identifier=376b120011597088112a4e0069a9f110#t3kSCO4gBx4HcE8D.97

Pack em in tight!

I think you hit on a major issue going forward and that is student housing.Previously,Mrs P and I lived in area of leicester that I'd pretty much grown up in.However,from being an area where people moved in and raised kids and stayed,huge chunks got taken over for student rentals.Crime/degradation have followe.

In the meantime something like 10,000 plus student rooms have been built.If we do get a drop in student numbers (inevitable when the kids realise that for quite a few of them they're paying £50k for a part time job at B&Q-I'm not joking) and a drop in overseas students,then we could see some inner city areas get pummelled.

We should probably have athread on student housing.

 

[eek]

8 minutes ago, C-gull said:

Hi @DurhamBorn, I'm a long time lurker (here and ToS). Firstly, thank you for all the information you've shared, also thanks everyone else who has also shared information and time.

I have a fairly basic question and I was hoping you would be willing to share your thoughts. Basically, is there some sort of model portfolio, or starter for ten type investment plan for an average chump like myself who has saved a significant sum in cash and is looking to insulate against the rampant inflation that we see on the horizon? To go into more detail; I'd like a house and I'd also like to not be a debt slave, I'd like to be able to work less to spend more time things that matter to me like cooking healthy food, exercise, learning new skills and spending time with my family who live quite far from me. I'm happy with the frugal life and I'm not looking for some get rich scheme, I jut feel very worried looking at the economy and reading what everyone's shared here. The mainstream financial advice seems to be "pay off debt and then throw everything in an index tracker" which seems counter to the sentiment here? What would you advise someone like me do with ~100k bearing in mind that this is a one off windfall and unlikely to be repeated? 

I'm very aware that it probably looks like I'm trying to avoid DYOR / take shortcuts and piggyback of everyone's knowledge but I hope you can empathise with my position; I know nothing and am faced with what looks like years of research, trial and error and I don't have enough saved to lose significant sums on a learning curve, and it certainly seems like I don't have years to learn?

He posted this on Friday 

As with everything here do your own research though so you are happy with your choices... 

[No Duff (troll)]

35 minutes ago, Admiral Pepe said:

I've travelled a bit around the US and it's shocking how poor their infrastructure has become. Similary in the UK (although not quite as bad), and I'm no expert on the matter, I think it's quite obvious where the spending is going to go in both the US and the UK.

Indeed.  Not much further to go and we can move from third world to first, China style!  Trouble is, in my experience, renovation is more work than doing it anew.

[ForeverBlowingBubbles]

Hi all, Another long time lurker from over on ToS here with a question for DB... Thanks so much for your input on this topic, it really has become my go to thread from this and ToS over the last month or so.

One thing i don't quite understand with the choice to sit in IBTL, is this is a long dated treasury fund. What is the rationale behind choosing long dated bonds? If my understanding is correct, long dated bonds are likely to lose more value if inflation races up, where as short dated bond funds would constantly be getting the principle back and reinvesting in higher yielding bonds so are less at risk from that. Am i missing something? 

So, if i understand your choice of IBTL right, are you using this as a way to mainly play the USD, or you're using this because you think that interest rates will first fall from where we are - thus the price of the bond will increase when rates fall, and would plan to sell the IBTL position again later before rates start to rise in the reflation? 

What are your thoughts on shorter dated treasury bonds? I suppose for my own thinking, i'm more worried about sitting with my savings in cash and being eroded by inflation. I'm also interested to play a potential appreciation of the dollar vs euro and gbp. But my main worry is losing value from inflation. In that case, would i be better to be sitting in shorter dated bonds? 

Sorry to bombard you with questions. I from what i understand you've not been looking at currencies that much recently, but do you have any thoughts about the Euro vs USD? Most of my savings are currently in Euro (I actually live overseas in New Zealand), but i'm considering moving the majority of my savings to USD, (and also picking up a position in PM and miners)

 

[No Duff (troll)]

16 minutes ago, sancho panza said:

We've certificated both for security ref broker and for taking scrip.

Please expand on that.  In your name?  If do, I've been considering the same but thought it could not be done or too expensive.  You can still do that?  Which broker?  All shares or just Centrica?  If not all, why only some and how did you choose?

[DurhamBorn]

6 minutes ago, C-gull said:

Hi @DurhamBorn, I'm a long time lurker (here and ToS). Firstly, thank you for all the information you've shared, also thanks everyone else who has also shared information and time.

I have a fairly basic question and I was hoping you would be willing to share your thoughts. Basically, is there some sort of model portfolio, or starter for ten type investment plan for an average chump like myself who has saved a significant sum in cash and is looking to insulate against the rampant inflation that we see on the horizon? To go into more detail; I'd like a house and I'd also like to not be a debt slave, I'd like to be able to work less to spend more time things that matter to me like cooking healthy food, exercise, learning new skills and spending time with my family who live quite far from me. I'm happy with the frugal life and I'm not looking for some get rich scheme, I jut feel very worried looking at the economy and reading what everyone's shared here. The mainstream financial advice seems to be "pay off debt and then throw everything in an index tracker" which seems counter to the sentiment here? What would you advise someone like me do with ~100k bearing in mind that this is a one off windfall and unlikely to be repeated? 

I'm very aware that it probably looks like I'm trying to avoid DYOR / take shortcuts and piggyback of everyone's knowledge but I hope you can empathise with my position; I know nothing and am faced with what looks like years of research, trial and error and I don't have enough saved to lose significant sums on a learning curve, and it certainly seems like I don't have years to learn?

If it was me id be want to be mostly cash as the aim is to use that £100k to buy a house (and i would guess have no/as low as possible debt after purchase),there should be a nice window from houses falling hard before inflation runs hard,that will e the sweet spot (when most people without liquidity cant buy).Im always careful and i consider a home without leverage the no 1 priority.Not everyone would agree,thats just how i see it.After all if things do play out,buying a house cash,then using all spare income to buy inflation assets as the cycle unfolds is a very nice position for an ordinary person.

So if i had £100k and i wanted to buy a house at some point in the not too distant future id probably go 75% sterling cash,15% IBTL (a sterling hedge) and 10% some of the bigger Gold miners.If we get deflation the IBTL and sterling cash should/will increase in value against a house.If we get high inflation the gold miners,although only 10% of your wealth would probably return enough to protect the value of the 100%.If your really worried id take the sterling cash to 65% and 10% in silver and gold as well.

The way i see things now (and i think the way lots more people will see things in the future) an ordinary person can protect themselves with between 10% and 20% of their liquid worth in PMs and their miners.If they get cut in half you lose 10% of your wealth.If we get a full on reflation cycle,you likely protect all your wealth and increase it.Thats a risk reward im very happy to take.Im no gold bug,but the signs are everywhere that its best to own some hard assets,not all in,just a sleep at night amount.

 

[No Duff (troll)]

20 minutes ago, sancho panza said:

95%+ of our acqauintance is blissfully unaware of the mess that looms.

Interesting to know their profile like public v private sector, seniority, type of job, type of industry.  Some of my family and friends have very senior roles and the latest feedback, in a well run company which you would not expect, has been worried for a while.  Costs are continually rising and the consumer is tapped out.

[No Duff (troll)]

27 minutes ago, sancho panza said:

For msot,their only asset is the equity in their residential home and a few have BTL's (some of which are cashflow negative before their 2/3/5 year fixes expire.........and before S24.

And so say all the stats.  Problem is, it's not real wealth if you live there.  Same with any chattel.  Now an investment portfolio, precious metals, BTL, art, etc.  That's wealth, even if the valuations can be tricky.  Such a scam - pump up house prices so people feel wealthy (but arn't) while the 1% quietly squirrel away the real wealth.  

PS:  I know you personally know all this SP!

[ForeverBlowingBubbles]

11 minutes ago, DurhamBorn said:

If it was me id be want to be mostly cash as the aim is to use that £100k to buy a house (and i would guess have no/as low as possible debt after purchase),there should be a nice window from houses falling hard before inflation runs hard,that will e the sweet spot (when most people without liquidity cant buy).Im always careful and i consider a home without leverage the no 1 priority.Not everyone would agree,thats just how i see it.After all if things do play out,buying a house cash,then using all spare income to buy inflation assets as the cycle unfolds is a very nice position for an ordinary person.

So if i had £100k and i wanted to buy a house at some point in the not too distant future id probably go 75% sterling cash,15% IBTL (a sterling hedge) and 10% some of the bigger Gold miners.If we get deflation the IBTL and sterling cash should/will increase in value against a house.If we get high inflation the gold miners,although only 10% of your wealth would probably return enough to protect the value of the 100%.If your really worried id take the sterling cash to 65% and 10% in silver and gold as well.

The way i see things now (and i think the way lots more people will see things in the future) an ordinary person can protect themselves with between 10% and 20% of their liquid worth in PMs and their miners.If they get cut in half you lose 10% of your wealth.If we get a full on reflation cycle,you likely protect all your wealth and increase it.Thats a risk reward im very happy to take.Im no gold bug,but the signs are everywhere that its best to own some hard assets,not all in,just a sleep at night amount.

 

actually i see this is a similar Q&A to what i'm looking for. 

From what it looks like, you think the IBTL is for the deflation, and you think PMs are a better way to go to protect against inflation, rather than shorter dated bonds. Is that right?

[DurhamBorn]

3 minutes ago, ForeverBlowingBubbles said:

Hi all, Another long time lurker from over on ToS here with a question for DB... Thanks so much for your input on this topic, it really has become my go to thread from this and ToS over the last month or so.

One thing i don't quite understand with the choice to sit in IBTL, is this is a long dated treasury fund. What is the rationale behind choosing long dated bonds? If my understanding is correct, long dated bonds are likely to lose more value if inflation races up, where as short dated bond funds would constantly be getting the principle back and reinvesting in higher yielding bonds so are less at risk from that. Am i missing something? 

So, if i understand your choice of IBTL right, are you using this as a way to mainly play the USD, or you're using this because you think that interest rates will first fall from where we are - thus the price of the bond will increase when rates fall, and would plan to sell the IBTL position again later before rates start to rise in the reflation? 

What are your thoughts on shorter dated treasury bonds? I suppose for my own thinking, i'm more worried about sitting with my savings in cash and being eroded by inflation. I'm also interested to play a potential appreciation of the dollar vs euro and gbp. But my main worry is losing value from inflation. In that case, would i be better to be sitting in shorter dated bonds? 

Sorry to bombard you with questions. I from what i understand you've not been looking at currencies that much recently, but do you have any thoughts about the Euro vs USD? Most of my savings are currently in Euro (I actually live overseas in New Zealand), but i'm considering moving the majority of my savings to USD, (and also picking up a position in PM and miners)

 

The reason i hold IBTL in my portfolio is as a hedge.If a deflationary credit event happens the rush into the dollar and US long dated bonds will be huge.The long end has the liquidity.It could see 30% gains and perhaps 50% for a sterling investor.If my equities go down 40% and IBTL kept me level,through a huge market correction thats a fantastic position.

As ever its part of a balanced portfolio.I also hold a good sized position in gold miners.Shorter dated bonds dont interest me,mostly as too much messing around from the CBs there,but they would do well in a credit deflation,just not as well as longer dated.

Im not sure on currencies at the moment.Iv done very little work on them lately as they all hit my targets and i used those targets for making dollar asset buys (like IBTL) though there might be some short term Euro strength.

However from the macro work we have been doing  we see the Euro zone as a disaster and one that will be hit very very hard in a debt deflation,much harder than the US.I wouldnt hold Euros myself.Sterling,US$ and PMs.

Its a very personal thing,and every person is different,but as a pretty easy answer to anyone ide say have some PM exposure.

Just now, ForeverBlowingBubbles said:

actually i see this is a similar Q&A to what i'm looking for. 

From what it looks like, you think the IBTL is for the deflation, and you think PMs are a better way to go to protect against inflation, rather than shorter dated bonds. Is that right?

Yes,and its balanced so should protect most portfolios.

[ForeverBlowingBubbles]

1 minute ago, DurhamBorn said:

The reason i hold IBTL in my portfolio is as a hedge.If a deflationary credit event happens the rush into the dollar and US long dated bonds will be huge.The long end has the liquidity.It could see 30% gains and perhaps 50% for a sterling investor.If my equities go down 40% and IBTL kept me level,through a huge market correction thats a fantastic position.

As ever its part of a balanced portfolio.I also hold a good sized position in gold miners.Shorter dated bonds dont interest me,mostly as too much messing around from the CBs there,but they would do well in a credit deflation,just not as well as longer dated.

Im not sure on currencies at the moment.Iv done very little work on them lately as they all hit my targets and i used those targets for making dollar asset buys (like IBTL) though there might be some short term Euro strength.

However from the macro work we have been doing  we see the Euro zone as a disaster and one that will be hit very very hard in a debt deflation,much harder than the US.I wouldnt hold Euros myself.Sterling,US$ and PMs.

Its a very personal thing,and every person is different,but as a pretty easy answer to anyone ide say have some PM exposure.

thanks for your thoughts on this - and for creating such a valuable resource that has really got a lot of people throwing good quality thought into the mix

[No Duff (troll)]

1 hour ago, DurhamBorn said:

Im no gold bug,but the signs are everywhere that its best to own some hard assets,not all in,just a sleep at night.....

Totally agree on that and being mortgage free. 

Re. housing, I bought cheaper where I wanted to live and rented for work.  What the accountants call "matching".  Brilliant move given I quit the job a few years later.

I created a new portfolio asset class some time ago called "hard assets" for these very reasons.  I did not think about the leverage potential to cover other lossess so that's a nice thought.

I've also created an income generating portfolio class of screened (FCF, payout ratio, etc) shares.  Moving from ETFs to holding the top 3 of each instead.  Bonds are problematic, except the NS&I ones.

Then just cash (e.g. NS&I) and foreign currencies and a few investment trusts (as a bit of competition) and a trading account (dormant as I now find this element a bit of a bore and my life more productive elsewhere).  

The trick I found to all this is to visualise your end state (or series of states), such as retirement, and work backwards to now, doing the sums as you go.  And when I say "visualise" I mean the whole thing, not just the money.  Just like doing a financing plan at work - you plan to finance something specific, not just do a plan.  Only then can you have the "right" portfoilo.  People ask what portfolio they should have rather than what portfolio they really need.  A subtle but profound difference.  And that sort of stuff about a bond:equity split to match your age - pure cr*p in my opinion, unless your analysis happens to lead you there.

There are no get quick schemes or any way to avoid some work.  Thankfully, some great things out there like Monevator, Retirement Cafe, Lemon Fool.  The key is not to get bogged down in the details. Get the asset classes and allocations right and you're almost there - the specifc stocks add relatively little on average (that's more akin to trading).

The planning journey is the most important part as it educates you to all the moving parts and shows up the falsehoods you are probably harbouring.  

Oh, and I like a bit of offshore (non UK) where possible just to mitigate a bit more risk.