Credit deflation and the reflation cycle to come.

[Cosmic]

29 minutes ago, sleepwello'nights said:

and as a percentage of average earnings?

Quick earnings data garnered from a chart, so accurate to around +/- £10 a week:

2002 46%

2009 53%

2015 55%

I suppose that we should compare a 2002 Polo to a 2009 Fox to a 2015 Up! as they keep replacing the smallest model in the range as the smallest 'grows up'. In which case, I think a new Up! starts at £9325!

Quick anecdote from the salvage auctions... more and more cars are going up with reserves rather than pure sale, and not meeting them. I know because they come back around (sadly sold price data isn't available, you only know how much it sells for if you watch the live online auction). Some stuff seems very cheap, 20% of 'retail' (which can be somewhat inflated) for a Cat N 2017 Ibiza I was watching last week. Very annoyed I didn't get it but I stuck fast to my limit. Sadly purely anecdotal as no data is available

[Band]

8 hours ago, sancho panza said:

My Barratts short is still out of the money.

Berkely down £1...............Taylor Wimpey proceeding nicely.Long bear campaign ahead and I'm only putting a toe in the door.You thinking about it?

Do you not think they'll get the contracts whenever the next council house building bonanza kicks off. Profits they'll make from ripping the govt off when building 2/3 bed terraces will be phenomenal. 

[DurhamBorn]

18 minutes ago, sleepwello'nights said:

and as a percentage of average earnings?

Cars are cheaper now when you consider earnings and quality.However @sancho panza ,s two posts are hugely important because they are starting to show what we expected 18 months ago.Increased costs and falling real incomes would see a crunch and credit deflation.

Turns are all that matter.If i have £400 this week and i spend it all,and have £390 next week and spend it all,someone has £10 less.If a business is down to zero free cash flow with debts and then go -£10 its only a matter of time before they go bust.Right across the economy that is whats happening now.The inflation is due to external costs (import prices etc) so its being sucked out of the economy.On top of this liquidity is falling,so margins will be squeezed even more.The CBs are now trapped.Dont tighten inflation keeps running faster than wages.Tighten,you bring forward recession that due to the scale of leverage will turn into something much worse.The UK is still running loose so on a macro basis we might keep growing,but not for long.Everything i track is flashing late stage/last stage of the cycle.Simple recession it wont be.

[sancho panza]

2 hours ago, sleepwello'nights said:

I'm sure you're right. My anecdotal perception is different. When I was in my early twenties there is absolutely no way I could afford a new car. Closest I got was a three year old Escort Mexico for £600 with 60k on the clock. Wish I'd kept it, that's another story. These days anyone can drive a new car from as little as £100 a month. 

How does that tie in with your factual report above that new vehicles are more expensive now?

Wolf is referring to the nominal price of the car,you're referring to the finance that's available.Two separate issues.Take away cheap/easy finance and you wouldn't be driving anything away for a ton a month.Risk in car finance has been woefully mispriced for years thanks to QE,Zirp etc.

The big issue comparing car prices as discussed above is trying to price technological changes and reliability changes but I drive a 7 year old and will drive it until I scrap it as I'm a tight git.

Having said that I'd be fascinated to see a chart comparing new car prices versus average salary-which would exclude technological changes.Might be easiest on models such as Ford Escort which have occupied a mid market spot for decades.

 

edit to add,realsie CA has done that already

[sancho panza]

 

2 hours ago, Gordie Lastchance said:

Burned? I got cindered! Ok, not great sums of money (although every penny's a prisoner to me), but I seem to be so darned unlucky. I have so many "I should have bought that one" shares which I'd had an eye on but rocketed when I didn't buy them. I was so tempted last year to have a try again (after an 18-year break from share buying) - this time a North Sea oil company. Didn't do it. I researched it. The little doubt devil on my shoulder said "don't". But in seven months it's doubled. Aaargh! But thanks for your comforting words, leonardratso.

I'm still sat on M&S froma quick trade last year even though I know retail is fubar and I've been wrong on UK property for 16 years...........I win...

On another tack,have you thought about buying some blue chips and then using the divis to take on some risk if it's risk you're after?

 

1 hour ago, Cosmic Apple said:

Quick earnings data garnered from a chart, so accurate to around +/- £10 a week:

2002 46%

2009 53%

2015 55%

I suppose that we should compare a 2002 Polo to a 2009 Fox to a 2015 Up! as they keep replacing the smallest model in the range as the smallest 'grows up'. In which case, I think a new Up! starts at £9325!

Quick anecdote from the salvage auctions... more and more cars are going up with reserves rather than pure sale, and not meeting them. I know because they come back around (sadly sold price data isn't available, you only know how much it sells for if you watch the live online auction). Some stuff seems very cheap, 20% of 'retail' (which can be somewhat inflated) for a Cat N 2017 Ibiza I was watching last week. Very annoyed I didn't get it but I stuck fast to my limit. Sadly purely anecdotal as no data is available

Thanks ever so much for that CA.Fascinating insight.

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/averageweeklyearnings

59 minutes ago, Banned by HPC said:

Do you not think they'll get the contracts whenever the next council house building bonanza kicks off. Profits they'll make from ripping the govt off when building 2/3 bed terraces will be phenomenal. 

Got to be careful here but there's going to be a large gap between them getting any of that money-even if it does appear-and me closing my position.

[Band]

2 minutes ago, sancho panza said:

 

IGot to be careful here but there's going to be a large gap between them getting any of that money-even if it does appear-and me closing my position.

All political. Once May is ousted whoever replaces her will go with for the big council house build to win votes even JRM has mentioned this. As will Labour and their coalition partners.

[Cissy]

23 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.

Great thread 

Would it be foolish of me to think my pension company will be acting on your scenario?

Hmm...

 

                        

[Thorn]

DB and Sancho Panza this lot might be worth you running your slide rules over- could be one to add to the list of reflation picks. See what you think. 

MasTec (MTZ). Seem to tick a lot of boxes. 

[leonardratso]

mtz sounds familiar, sure it was mentioned on tos quite a while back.

[Funn3r]

22 minutes ago, The XYY Man said:

Well this thread is an eye-opener.

20 pages that I have read thoroughly - even though I didn't understand much of the financial stuff at all, what with being a working man.

But the message seems to chime with what I see on the streets, and hear in the factory canteen. Tales of woe from my equipment suppliers also suggest things are heading South with increasing mass.

Welcome to DOSBODs folks.

I'm gonna pop down from off-topic every now-and-again, and visit this thread - if you guys don't mind...?

Mind I'm on my best behaviour right now - and confess that I might swear a bit more on my next visit.

So best say "No" if you're easily offended.

Well howay then - speak-up now, or forever hold thy peace...!

 

XYY

Very niceto see you in the thread. This is serious stuff though and often about decent amounts of dosh so none of the c-word if you don't mind. Unless we're talking about central bankers or politicians obviously.

[Bricks & Mortar]

8 hours ago, Banned by HPC said:

Do you not think they'll get the contracts whenever the next council house building bonanza kicks off.

I don't think they're favourites.  Expect them to try for a slice of course.  But:
1.  Only those contractors / housebuilders still existing at that point will be in the game.
2.  There are established social housing contractors, who be first in the queue.
3.  The private housebuilders present model is crap quality, kerb appeal and charge what they like with subsidised and clueless buyers.  Social housing is a government cheque to the council, and an obligation on the council to prove best value.  It's really not the same thing.

In Scotland, we're building council houses.  Here's the list of who's building them.  Not a Barratt among them.
https://www.scottishconstructionnow.com/26452/contractors-revealed-for-1-5bn-social-housing-framework/#

[MrXxx]

7 hours ago, The XYY Man said:

Well this thread is an eye-opener.

20 pages that I have read thoroughly - even though I didn't understand much of the financial stuff at all, what with being a working man.

But the message seems to chime with what I see on the streets, and hear in the factory canteen. Tales of woe from my equipment suppliers also suggest things are heading South with increasing mass.

Welcome to DOSBODs folks.

I'm gonna pop down from off-topic every now-and-again, and visit this thread - if you guys don't mind...?

Mind I'm on my best behaviour right now - and confess that I might swear a bit more on my next visit.

So best say "No" if you're easily offended.

Well howay then - speak-up now, or forever hold thy peace...!

 

XYY

You sound a bit northern to me....not sure if my southern sensitivity can cope with the expletives ;_)

[Gordie Lastchance]

9 hours ago, sancho panza said:

 

I'm still sat on M&S froma quick trade last year even though I know retail is fubar and I've been wrong on UK property for 16 years...........I win...

On another tack,have you thought about buying some blue chips and then using the divis to take on some risk if it's risk you're after?

 

Thanks ever so much for that CA.Fascinating insight.

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/datasets/averageweeklyearnings

Got to be careful here but there's going to be a large gap between them getting any of that money-even if it does appear-and me closing my position.

Thanks for that SP - your comment is why I leapt from anonymous mousey-clicker to signed-up member of this forum. I am determined to dip the tip of a toe in, but I'm a guy who looks at a share and thinks "that was only X when I looked at buying it 20 years ago - I might do that when it comes back down again". I remember looking at Rolls Royce way back and thinking: "Nah, £1.49 looks expensive to me." Look at it now. I don't know if I could be described as contrarian, awkward or just plain dumb! This thread and its cousin elsewhere has opened my eyes to investments other than individual shares, though - funds or trackers and the like. I do fear the coming financial apocalypse and want to prepare as best I can. I'm sure someone on ToS used to suggest preparing for it by stocking up on shotgun cartridges and tins of beans. Problem is, I'm a terrible shot and haricots give me hellish wind!! Cheers.

[DurhamBorn]

13 minutes ago, Gordie Lastchance said:

Thanks for that SP - your comment is why I leapt from anonymous mousey-clicker to signed-up member of this forum. I am determined to dip the tip of a toe in, but I'm a guy who looks at a share and thinks "that was only X when I looked at buying it 20 years ago - I might do that when it comes back down again". I remember looking at Rolls Royce way back and thinking: "Nah, £1.49 looks expensive to me." Look at it now. I don't know if I could be described as contrarian, awkward or just plain dumb! This thread and its cousin elsewhere has opened my eyes to investments other than individual shares, though - funds or trackers and the like. I do fear the coming financial apocalypse and want to prepare as best I can. I'm sure someone on ToS used to suggest preparing for it by stocking up on shotgun cartridges and tins of beans. Problem is, I'm a terrible shot and haricots give me hellish wind!! Cheers.

Buying large,good quality companies when they are cheap and holding them a long time is how you make good money in shares.Compounding up the dividends and the slow increases.If you can compound between 6% and 10% youl end up doing very well.

People forget the dividend but its crucial.Vodaphone has a divi of 7.02% today.All things being equal if they can increase that dividend by 2.0% a year over 10 years on average then the shares should return 9% compounding.

Centrica pay 8.1% dividend today.They would just need to increase theirs at 0.9% on average over 10 years.

Card Factory pay 8.4% if the special divi is 7.5p,they would need to average a 0.6% increase over 10 years.

This is of course changed with dividend cuts etc,but over a decent sized portfolio of companies (15 to 20) bought when out of favour with a cycle that should favour them its within easy reach.

All my best long term returns have come from buying big companies when they were out of favour,sold off,even hated.Losses in my younger days were from buying companies loved and talked of as the future.Some people get lucky and bag some huge share price growth,but i prefer a nice steady quality portfolio compound away.

 

[Gordie Lastchance]

10 hours ago, DurhamBorn said:

Cars are cheaper now when you consider earnings and quality.However @sancho panza ,s two posts are hugely important because they are starting to show what we expected 18 months ago.Increased costs and falling real incomes would see a crunch and credit deflation.

Turns are all that matter.If i have £400 this week and i spend it all,and have £390 next week and spend it all,someone has £10 less.If a business is down to zero free cash flow with debts and then go -£10 its only a matter of time before they go bust.Right across the economy that is whats happening now.The inflation is due to external costs (import prices etc) so its being sucked out of the economy.On top of this liquidity is falling,so margins will be squeezed even more.The CBs are now trapped.Dont tighten inflation keeps running faster than wages.Tighten,you bring forward recession that due to the scale of leverage will turn into something much worse.The UK is still running loose so on a macro basis we might keep growing,but not for long.Everything i track is flashing late stage/last stage of the cycle.Simple recession it wont be.

Hi DB, after taking so much from you (as an onlooker from outside the fence) in the past year or so since you raised this thread, I hopefully can give something back now as a fully fledged member. It's this - a paragraph or two from a Legal and General annual summary of investments 2018 document my father-in-law got because he has an Isa with them. In a market overview section of the document, a heading reads "Potential for market disappointment". The text then says: "Our chief investment officer, Anton Eser, also highlights in his latest update his concern over the outlook for investment markets and believes that this global reduction of central bank support could end up in a 'rude awakening' for investors. After almost nine years of uninterrupted equity market gains, it could be time for a reversal of fortunes, or at least a slowing in the rate of asset price appreciation." On another page is another headline "Wary of future recession risks." That text goes: "We need to be particularly wary of growing recession risks in 2019. This takes into account the typical 6-12 month lead of markets over the economic cycle. At that stage, unemployment will likely be well below sustainable levels. Higher interest rates could also start to bite into corporate and household budgets. While interest rates could drift up, however, we do not think this is the beginning of the end for the bond markets."

I can't remember when my father-in-law got that report, but I'd say months ago rather than weeks ago. He gave it to me because he says he doesn't understand it. Like I do????? Ha ha.

[Gordie Lastchance]

14 minutes ago, DurhamBorn said:

Buying large,good quality companies when they are cheap and holding them a long time is how you make good money in shares.Compounding up the dividends and the slow increases.If you can compound between 6% and 10% youl end up doing very well.

People forget the dividend but its crucial.Vodaphone has a divi of 7.02% today.All things being equal if they can increase that dividend by 2.0% a year over 10 years on average then the shares should return 9% compounding.

Centrica pay 8.1% dividend today.They would just need to increase theirs at 0.9% on average over 10 years.

Card Factory pay 8.4% if the special divi is 7.5p,they would need to average a 0.6% increase over 10 years.

This is of course changed with dividend cuts etc,but over a decent sized portfolio of companies (15 to 20) bought when out of favour with a cycle that should favour them its within easy reach.

All my best long term returns have come from buying big companies when they were out of favour,sold off,even hated.Losses in my younger days were from buying companies loved and talked of as the future.Some people get lucky and bag some huge share price growth,but i prefer a nice steady quality portfolio compound away.

 

Thank you for that, DB. I've seen you mention those names before and I do keep an eye on them. I know Centrica took a huge fall a wee while back and have been bumping along ever since. And I saw Vodafone take a drop last week and it was only reading on here that someone mentioned that had happened because it went ex-dividend. I just know if I buy either one they're going to take another hit. I know you can't time markets (something that's written about on here), but I if I could only get in close to the bottom!! 

[InLikeFlynn]

1 hour ago, DurhamBorn said:

Buying large,good quality companies when they are cheap and holding them a long time is how you make good money in shares.Compounding up the dividends and the slow increases.If you can compound between 6% and 10% youl end up doing very well.

 

 

This. Too much investment talk on the 'web focuses on buying shares in small and risky companies or instruments (mining cos, crypto currencies, CFDs), hoping for wild and exciting capital growth.

The cruel truth is that none of us can read the future reliably and that the "wild and exciting" capital gains more often than not turn out to be lame and depressing losses.

The dull but pragmatic approach of regular saving into low cost investment funds (in a tax efficient manner using ISAs, SIPPS, VCTs etc), with dividend reinvestment will usually offer much greater rewards in the long term. You will also be able to sleep at night.

Apologies for taking this thread OT,

as you were

 

[Castlevania]

2 hours ago, DurhamBorn said:

Buying large,good quality companies when they are cheap and holding them a long time is how you make good money in shares.Compounding up the dividends and the slow increases.If you can compound between 6% and 10% youl end up doing very well.

People forget the dividend but its crucial.Vodaphone has a divi of 7.02% today.All things being equal if they can increase that dividend by 2.0% a year over 10 years on average then the shares should return 9% compounding.

Centrica pay 8.1% dividend today.They would just need to increase theirs at 0.9% on average over 10 years.

Card Factory pay 8.4% if the special divi is 7.5p,they would need to average a 0.6% increase over 10 years.

This is of course changed with dividend cuts etc,but over a decent sized portfolio of companies (15 to 20) bought when out of favour with a cycle that should favour them its within easy reach.

All my best long term returns have come from buying big companies when they were out of favour,sold off,even hated.Losses in my younger days were from buying companies loved and talked of as the future.Some people get lucky and bag some huge share price growth,but i prefer a nice steady quality portfolio compound away.

 

This is very true. You get rich slowly. 

[Gordie Lastchance]

50 minutes ago, InLikeFlynn said:

This. Too much investment talk on the 'web focuses on buying shares in small and risky companies or instruments (mining cos, crypto currencies, CFDs), hoping for wild and exciting capital growth.

The cruel truth is that none of us can read the future reliably and that the "wild and exciting" capital gains more often than not turn out to be lame and depressing losses.

The dull but pragmatic approach of regular saving into low cost investment funds (in a tax efficient manner using ISAs, SIPPS, VCTs etc), with dividend reinvestment will usually offer much greater rewards in the long term. You will also be able to sleep at night.

Apologies for taking this thread OT,

as you were

 

Now I know why I'm an insomniac - all those losses!!! I reckon I should emulate the tortoise than try to be the hare.

[Frank Hovis]

2 hours ago, DurhamBorn said:

Buying large,good quality companies when they are cheap and holding them a long time is how you make good money in shares.Compounding up the dividends and the slow increases.If you can compound between 6% and 10% youl end up doing very well.

People forget the dividend but its crucial.Vodaphone has a divi of 7.02% today.All things being equal if they can increase that dividend by 2.0% a year over 10 years on average then the shares should return 9% compounding.

Centrica pay 8.1% dividend today.They would just need to increase theirs at 0.9% on average over 10 years.

Card Factory pay 8.4% if the special divi is 7.5p,they would need to average a 0.6% increase over 10 years.

This is of course changed with dividend cuts etc,but over a decent sized portfolio of companies (15 to 20) bought when out of favour with a cycle that should favour them its within easy reach.

All my best long term returns have come from buying big companies when they were out of favour,sold off,even hated.Losses in my younger days were from buying companies loved and talked of as the future.Some people get lucky and bag some huge share price growth,but i prefer a nice steady quality portfolio compound away.

 

Entirely my approach but I tend to do funds rather than individual shares so that I don't need to watch them.

I always want high yielding equities because IMO a high and consistent yield signifies a well run company.

My income now outstrips my salary (ok, my salary has reduced a bit!).

[Castlevania]

1 hour ago, Gordie Lastchance said:

Thank you for that, DB. I've seen you mention those names before and I do keep an eye on them. I know Centrica took a huge fall a wee while back and have been bumping along ever since. And I saw Vodafone take a drop last week and it was only reading on here that someone mentioned that had happened because it went ex-dividend. I just know if I buy either one they're going to take another hit. I know you can't time markets (something that's written about on here), but I if I could only get in close to the bottom!! 

The alternative if you’re a bit unsure is to set up a regular saver, and simply buy a few hundred pounds worth a month. I’m currently doing this by buying £200 worth a month of each of Centrica; SSE and Johnson Matthey for example. 

[Gordie Lastchance]

1 minute ago, Castlevania said:

The alternative if you’re a bit unsure is to set up a regular saver, and simply buy a few hundred pounds worth a month. I’m currently doing this by buying £200 worth a month of each of Centrica; SSE and Johnson Matthey for example. 

Please excuse my complete ignorance here, but do you buy them in a specially set up fund or are they bought individually? This is a question from someone who still has/only has paper certificates! Grateful to you and everyone who chips in.

[Castlevania]

1 minute ago, Gordie Lastchance said:

Please excuse my complete ignorance here, but do you buy them in a specially set up fund or are they bought individually? This is a question from someone who still has/only has paper certificates! Grateful to you and everyone who chips in.

Via a nominee account. Hargreaves Lansdown charge £1.50 a trade for regular savings. The costs and time and effort of paper certificates wouldn’t be worth it for such small amounts.

[A_P]

16 minutes ago, Frank Hovis said:

Entirely my approach but I tend to do funds rather than individual shares so that I don't need to watch them.

I always want high yielding equities because IMO a high and consistent yield signifies a well run company.

My income now outstrips my salary (ok, my salary has reduced a bit!).

In regards to the funds, if you don't mind me asking what kind?

[Gordie Lastchance]

2 minutes ago, Castlevania said:

Via a nominee account. Hargreaves Lansdown charge £1.50 a trade for regular savings. The costs and time and effort of paper certificates wouldn’t be worth it for such small amounts.

I'll have a look at that, thank you. I have the paper ones because I bought the shares so long ago! I had to phone Barclays to do a trade and it was, if I remember, £17.50 to buy and the same to sell. Dealing costs + losses = hacked off. Back then, I only had newspapers to follow, so my research was probably pretty rubbish.