Credit deflation and the reflation cycle to come.

[A_P]

9 minutes ago, AnythingWithWheels said:

Interesting viewpoint. Maybe I can be arsed to have a look through the data rather than go on gut feel based on the crappy investment "options" in my previous-workplace pension.

 

That is just in reference to the US equity market. Who knows for the UK. I've not looked at the UK but would be interested especially in relation to what SP and Bear Hug have just said. Since the pensions went puff here, who is going out their way to contribute to them? Very few in my workplace were until auto-enrolment came in. It did have good uptake but we're talking minimum contributions. My director made his feelings on pensions quite clear and is balls deep in BTL/HMO's and so is his family, which is quite big and all are very wealthy. 

[macca]

1 minute ago, Inoperational Bumblebee said:

I'm enjoying the ride. It feels safer than crypto!

We have 12 years to reverse global warming and crypto is using something like 5% of the worlds energy solving equations.. Ban it.. it’s bloody pointless.. gold, silver and sexual favours.. real money.. 😂

[A_P]

[Harley]

3 hours ago, sancho panza said:

Years back they changed the solvency rules(or is it liquidity ratios) and basically raised the amount of govt debt (risk free ) that pension funds had to buy.I don't know much about pensions but it struck me at the time as a canny way of soaking up increased issuance.

And one way they achieve that is by borrowing the bonds in your ETF fund, collateralised against their riskier equity holdings at a, I'm sure, safe 120%.  What could possibly go wrong!

[sancho panza]

1 hour ago, Admiral Pepe said:

It's hard to find nailed down data that's sourced and easily digestible. I'm even taken the data I found in the z1 package with a grain of salt. As you can see from the graphs I've posted passive and ETF's are increasing year on year and there is no denying their increasing popularity. If one has the option to pay someone 2% when you can get the same or better for a fraction, of course, it will be popular.

I don't disagree with you on the mechanical side of them. Naturally as well an active fund/manager or single investor is going to act very differently,  I don't think any of us really know how these will behave in combination in a major run. Least let us not forget the actives are also employing algos and bots to boot. It's going to be interesting that's for certain.

 

 Do you know when the shift culturally was? A major event or just over time? 

I think it was a number of factors such as

1) the changes in the distribution of income and the rise of a substantial middle class who had no history of owning shares

2) substantial losses occuring in the crashes of 1987 and 2000

3) the rise of BTL as an alternative.

I was interested in the stat below about the amount of pension owned stocks reducing.I think the increase in foreign ownership is more a function of how diverse the market is these days.In otehr countires,people are less worried baout owning shares.

I also link to dear old Bernards tome.That stat was one of the few things I remembered some 26 years later

From 2010

http://news.bbc.co.uk/1/hi/business/8482601.stm

'Individuals in the UK own just 10% of the shares traded on the London Stock Exchange, down from 13% in 2006 and far lower than the 54% they owned in 1963.

Foreign investors, of all types, are the biggest group and now own 42% of shares on the London stock market.

The proportion of shares on the London stock market owned by insurance firms and pension companies has been in decline since 1993.

Their combined stake in UK shares was 52% then, but by the end of 2008 had dropped to just 26%.

https://books.google.co.uk/books/about/Beginners_Guide_to_Investment.html?id=ayzz056zUJwC&source=kp_book_description&redir_esc=y

1 hour ago, AnythingWithWheels said:

Indeed. But, I think the cosy reputation of BTL as being safe as houses has turned. A relative of mine who bought a BTL quite some years ago in the south-east "as a pension" now says she wishes she'd sold it rather than renew the mortgage six months ago.  Just as the professional classes couldn't get their arses through the doors of the banks and building societies on the way up, there'll be a humungous rush for the exits when it becomes abundantly clear that UK resi is in freefall.  Anyone with a bit of spare cash and a lack of imagination has a rental property, whether that be one bought specifically to rent, or a starter home that was kept on when upsizing, because servicing debt was cheap.

Even the most (North London) property-obsessed people I know, including a woman who used to go and look around houses on the market, for fun(!) have fallen out of love with it now that the trend is downward.

Interesting viewpoint. Maybe I can be arsed to have a look through the data rather than go on gut feel based on the crappy investment "options" in my previous-workplace pension.

I've genuinely been amazed at the level of ignorance amongst those of my acquaintance with BTL's.

Some heavy hitters with 10+ properties didn't even know what S24 was two years ago.We have some friends with  3 that were losing money even before S24 who didn't know what it was and are already paying 40% tax.

They also don't know their own family home is in the line of fire shoudl they default.

It's nothing short of incredible.I jsut keep my head down when they start telling me to get in before it's too late.

Once the downtrend gets entrenched this will be epic.

[Harley]

2 hours ago, Admiral Pepe said:

In my opinion, it will the joe blogs with his retirement fund in Amazon, who is going to be throwing the towel in. 

Yes sir to that.  They're emotional loose cannons.  Just what's needed to kick things off.

[sancho panza]

9 minutes ago, Harley said:

And one way they achieve that is by borrowing the bonds in your ETF fund, collateralised against their riskier equity holdings at a, I'm sure, safe 120%.  What could possibly go wrong!

[Harley]

41 minutes ago, sancho panza said:

Foreign investors, of all types, are the biggest group and now own 42% of shares on the London stock market.

Do you know who they are?  No, 'cause they all live secretly in Cayman, etc.  It's called old money.  British money or money run by the British "service".  These guys have insulated themselves from what we're all facing by going offshore.  That's what those stats are saying to me.  You want in?  Then pay that ex-PS London fixer who's a "one of us" insider.  The one you always wondered how he made his money and got on so well.  Their ancestors used to run the physical Empire.  Nothing has really changed.  Lords, sheriffs, and serfs.  Yes, I watched the Spider's Web.

[Harley]

18 minutes ago, sancho panza said:

Thanks for the effort.  Nice, chuckle, chuckle. 

I started a much-in-need-of-update thread on such topics in the "Investing and Money" section.  

The heading is "Financial Risk Management".  Really boring and buried deep in the DOSBODS basement.  No-one goes there.

But I see it as a case of "build it and they will come", only too late.  Keeps me focussed though.

I feel like the risk management guy in the canteen of the investment house no-one wants to sit with for lunch, until they, belatedly, need to!

This thread's a bit in the basement too.  Ever worried what we're going to say when the Off Topic guys come calling on us financial nerds looking for a simple answer? 

Although I notice there's now a "Dow Down 3%" thread in Off Topic and some of us have been freelancing so maybe we'll be left alone!

As always, best to keep heads down.

[MrXxx]

9 hours ago, Harley said:

And one way they achieve that is by borrowing the bonds in your ETF fund, collateralised against their riskier equity holdings at a, I'm sure, safe 120%.  What could possibly go wrong!

Exactly, makes a mockery of any regulations to protect the investors...But allows the finance industry to continue in a reckless fashion.

[MrXxx]

9 hours ago, sancho panza said:

I think it was a number of factors such as

1) the changes in the distribution of income and the rise of a substantial middle class who had no history of owning shares

2) substantial losses occuring in the crashes of 1987 and 2000

3) the rise of BTL as an alternative.

I was interested in the stat below about the amount of pension owned stocks reducing.I think the increase in foreign ownership is more a function of how diverse the market is these days.In otehr countires,people are less worried baout owning shares.

I also link to dear old Bernards tome.That stat was one of the few things I remembered some 26 years later

From 2010

http://news.bbc.co.uk/1/hi/business/8482601.stm

'Individuals in the UK own just 10% of the shares traded on the London Stock Exchange, down from 13% in 2006 and far lower than the 54% they owned in 1963.

Foreign investors, of all types, are the biggest group and now own 42% of shares on the London stock market.

The proportion of shares on the London stock market owned by insurance firms and pension companies has been in decline since 1993.

Their combined stake in UK shares was 52% then, but by the end of 2008 had dropped to just 26%.

https://books.google.co.uk/books/about/Beginners_Guide_to_Investment.html?id=ayzz056zUJwC&source=kp_book_description&redir_esc=y

I've genuinely been amazed at the level of ignorance amongst those of my acquaintance with BTL's.

Some heavy hitters with 10+ properties didn't even know what S24 was two years ago.We have some friends with  3 that were losing money even before S24 who didn't know what it was and are already paying 40% tax.

They also don't know their own family home is in the line of fire shoudl they default.

It's nothing short of incredible.I jsut keep my head down when they start telling me to get in before it's too late.

Once the downtrend gets entrenched this will be epic.

I think I would `hold` friends like that at a distance, as it won't be long before they are asking to sleep on your couch, or setup permanent residence in your garage! :-) :-) :-)

[A_P]

9 hours ago, sancho panza said:

I think it was a number of factors such as

1) the changes in the distribution of income and the rise of a substantial middle class who had no history of owning shares

2) substantial losses occuring in the crashes of 1987 and 2000

3) the rise of BTL as an alternative.

I was interested in the stat below about the amount of pension owned stocks reducing.I think the increase in foreign ownership is more a function of how diverse the market is these days.In otehr countires,people are less worried baout owning shares.

I also link to dear old Bernards tome.That stat was one of the few things I remembered some 26 years later

From 2010

http://news.bbc.co.uk/1/hi/business/8482601.stm

'Individuals in the UK own just 10% of the shares traded on the London Stock Exchange, down from 13% in 2006 and far lower than the 54% they owned in 1963.

Foreign investors, of all types, are the biggest group and now own 42% of shares on the London stock market.

The proportion of shares on the London stock market owned by insurance firms and pension companies has been in decline since 1993.

Their combined stake in UK shares was 52% then, but by the end of 2008 had dropped to just 26%.

https://books.google.co.uk/books/about/Beginners_Guide_to_Investment.html?id=ayzz056zUJwC&source=kp_book_description&redir_esc=y

I've genuinely been amazed at the level of ignorance amongst those of my acquaintance with BTL's.

Some heavy hitters with 10+ properties didn't even know what S24 was two years ago.We have some friends with  3 that were losing money even before S24 who didn't know what it was and are already paying 40% tax.

They also don't know their own family home is in the line of fire shoudl they default.

It's nothing short of incredible.I jsut keep my head down when they start telling me to get in before it's too late.

Once the downtrend gets entrenched this will be epic.

So in conclusion, when DB says the most will get hurt, in this country is it the biggest percentgage going to be shareholders either directly or indirectly (pensions etc) or is it our property market where the most pain will be met? Because it seems to me the consensus is the FTSE won't do too bad in a run or reflation. So a few old duffers nearign retirement might lose a bit off the top, however, when we consider the low volume in pensions, it's the middle classes that have loaded up in property. So they've avoided the stock market in fear of another crash and gone and put their eggs all in the property basket. I'm sure we could plot a graph nicely over the ownership of stock graph.

[Majorpain]

9 minutes ago, Admiral Pepe said:

So in conclusion, when DB says the most will get hurt, in this country is it the biggest percentgage going to be shareholders either directly or indirectly (pensions etc) or is it our property market where the most pain will be met? Because it seems to me the consensus is the FTSE won't do too bad in a run or reflation. So a few old duffers nearign retirement might lose a bit off the top, however, when we consider the low volume in pensions, it's the middle classes that have loaded up in property. So they've avoided the stock market in fear of another crash and gone and put their eggs all in the property basket. I'm sure we could plot a graph nicely over the ownership of stock graph. 

The economy cant support QE boosted asset prices, 20-30 year olds on £20k not being able to afford to get a mortgage for a basic house is going to end in disaster or Jeremy Corbyn.  The problem with the everything bubble is if everything is inflated how do you protect your wealth!

Everyone under the age of 27 has only ever known interest rates to be at 0.5% in the UK, thats not a good thing in the long run and i suspect its not going to continue for too much longer before the guts of the economy fall to pieces.

[A_P]

21 minutes ago, Majorpain said:

The economy cant support QE boosted asset prices, 20-30 year olds on £20k not being able to afford to get a mortgage for a basic house is going to end in disaster or Jeremy Corbyn.  The problem with the everything bubble is if everything is inflated how do you protect your wealth!

Everyone under the age of 27 has only ever known interest rates to be at 0.5% in the UK, thats not a good thing in the long run and i suspect its not going to continue for too much longer before the guts of the economy fall to pieces.

Or even people with an above average salary that will only buy them a shitty terraced in the SE. I think one has to realise you can't fully protect your wealth when you're a pleb. Diversify, expect the unexpected and come out with something rather than nothing.

[Funn3r]

12 hours ago, AnythingWithWheels said:

a woman who used to go and look around houses on the market, for fun(!) 

I used to do that regularly at car auctions 

Have you considered doing something with your username - on my screen it gets wrapped round as

AnythingWithWhee
                 Is

and looks a bit odd, took me ages wondering what it meant

[AWW]

11 minutes ago, Funn3r said:

I used to do that regularly at car auctions 

There's not really a voyeuristic angle on that one though, unless you went to look at auctions of Cat C cars with their roofs cut off and blood all over the interior.

 

12 minutes ago, Funn3r said:

AnythingWithWhee
                 Is

looks a bit odd, took me ages wondering what it meant

Noted. Username has been "improved".

[Barnsey]

Current train of thought:

- If markets seems to turn around for a final top into end of year, go heavy into IBTL over next few weeks, hold until summer 2019 through first downward wave of market decline (USD/TLT safe havens during global deflationary bust?)

- Fed reverses tightening policy summer 2019, go heavy miners & Gold/Silver (PMs safe haven during $ collapse?), stocks to see a smaller bounce but then resume downward trend

- Focus heavily on buying value reflation stocks/commodities mid 2019 - late 2020 as global recession takes hold, focus on FTSE 350 companies linked to energy/EV/transport/essential consumer staples/health and low fee trackers in Industrial nations once they hit their (multi) decade lows (Dow, MSCI China/Emerging Markets, Nikkei, Dax)

- Inflation starts to show its ugly face 2020 onwards, end game target of 2025 remains but could shift a couple years later based on timing/length of recession, at that point sell everything?

[Talking Monkey]

1 hour ago, Barnsey said:

Current train of thought:

- If markets seems to turn around for a final top into end of year, go heavy into IBTL over next few weeks, hold until summer 2019 through first downward wave of market decline (USD/TLT safe havens during global deflationary bust?)

- Fed reverses tightening policy summer 2019, go heavy miners & Gold/Silver (PMs safe haven during $ collapse?), stocks to see a smaller bounce but then resume downward trend

- Focus heavily on buying value reflation stocks/commodities mid 2019 - late 2020 as global recession takes hold, focus on FTSE 350 companies linked to energy/EV/transport/essential consumer staples/health and low fee trackers in Industrial nations once they hit their (multi) decade lows (Dow, MSCI China/Emerging Markets, Nikkei, Dax)

- Inflation starts to show its ugly face 2020 onwards, end game target of 2025 remains but could shift a couple years later based on timing/length of recession, at that point sell everything?

Fantastic summary Barnsey, do others concur if not what differences would there be in your views of the next couple of years

[Funn3r]

50 minutes ago, Talking Monkey said:

Fantastic summary Barnsey, do others concur if not what differences would there be in your views of the next couple of years

Dollar Index 96.3 today

A while back DB said he felt 96.5 was the top then decline from there. So IBDTL/IDTL might not be where you wanted to go if buying in Pounds?
 

 

[King Penda]

3 hours ago, Barnsey said:

Current train of thought:

- If markets seems to turn around for a final top into end of year, go heavy into IBTL over next few weeks, hold until summer 2019 through first downward wave of market decline (USD/TLT safe havens during global deflationary bust?)

- Fed reverses tightening policy summer 2019, go heavy miners & Gold/Silver (PMs safe haven during $ collapse?), stocks to see a smaller bounce but then resume downward trend

- Focus heavily on buying value reflation stocks/commodities mid 2019 - late 2020 as global recession takes hold, focus on FTSE 350 companies linked to energy/EV/transport/essential consumer staples/health and low fee trackers in Industrial nations once they hit their (multi) decade lows (Dow, MSCI China/Emerging Markets, Nikkei, Dax)

- Inflation starts to show its ugly face 2020 onwards, end game target of 2025 remains but could shift a couple years later based on timing/length of recession, at that point sell everything?

2025 bejesus,i might start buying beer and spirits working on the principle that we might get minimum priceing on alchol per unit before then and it could turn out to be a good investment

[Harley]

2 hours ago, Barnsey said:

Current train of thought:

- If markets seems to turn around for a final top into end of year, go heavy into IBTL over next few weeks, hold until summer 2019 through first downward wave of market decline (USD/TLT safe havens during global deflationary bust?)

- Fed reverses tightening policy summer 2019, go heavy miners & Gold/Silver (PMs safe haven during $ collapse?), stocks to see a smaller bounce but then resume downward trend

- Focus heavily on buying value reflation stocks/commodities mid 2019 - late 2020 as global recession takes hold, focus on FTSE 350 companies linked to energy/EV/transport/essential consumer staples/health and low fee trackers in Industrial nations once they hit their (multi) decade lows (Dow, MSCI China/Emerging Markets, Nikkei, Dax)

- Inflation starts to show its ugly face 2020 onwards, end game target of 2025 remains but could shift a couple years later based on timing/length of recession, at that point sell everything?

Thank you so much for going first and with such clarity.  Respects to you.  I'm going to have a good think and see if I can constructively add to that.

[Harley]

A point on the markets taking the most from the most (aka the big con) is it has to take people down AND then make them rush to the next safe haven or story which you've already front run.  The big con involves taking both runs!  Only amateurs settle for half the pie!

[Barnsey]

51 minutes ago, Funn3r said:

Dollar Index 96.3 today

A while back DB said he felt 96.5 was the top then decline from there. So IBDTL/IDTL might not be where you wanted to go if buying in Pounds?
 

 

I'm sure DB's prediction of a steep turn for DXY will occur quite soon, looking at very recent Elliott Wave analysis of EURUSD (58% weighting) points to a short term gain for EUR followed by a weakening through to next summer (0.91-1.04), if that unfolds DXY could hold until then, I'm not completely sold on that outcome as @DurhamBorn has been excellent with his charting but see it as a possibility given some other macro economists I respect see it as a likely course. The consensus thereafter very much follows DB's prediction so it's just a matter of positioning wisely for turbulent 6-9 months ahead.

[leonardratso]

2 hours ago, stokiescum said:

2025 bejesus,i might start buying beer and spirits working on the principle that we might get minimum priceing on alchol per unit before then and it could turn out to be a good investment

it wont last, youll have drunk it before then. Even in the 100's of gallons.

[King Penda]

54 minutes ago, leonardratso said:

it wont last, youll have drunk it before then. Even in the 100's of gallons.

i wont be touching jd for a month or two,unless it was the diet coke that was the problem.