Credit deflation and the reflation cycle to come.

[Democorruptcy]

On 15/07/2018 at 15:32, Chewing Grass said:

In my home town the average wage is £23918 and the average house is £201070.

That is 8.4 x Single Wage.

30 years ago (1987) the average wage was £202.1 per week (shows how most were paid weekly then) or £10509 and the average house cost £32000

Call it 3.2x

By 1988 it became a means to print money based on using two incomes to put a roof over your head and de-regulation of mortgages to fund it.

Boom - the U.K. is now minted/booming/successful courtesy of the stroke of a regulatory pen.

Loads of interesting numbers below:-

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/adhocs/006810newearningssurveynesagegroupgrossweeklyandhourlyexcludingovertimedata

Going from 3x Main plus 1x Second income to the now no more than 15% of mortgages over 4.5x household income has tripled prices.

[Bear Hug]

It's interesting how 0.3% rise of GBPUSD has coincided with 1.2% drop of FTSE100.  The pound has now dropped almost all the way back to this morning but FTSE only partially recovers and is still on 0.8% drop.

VOD was at 179 for a while as well.  I was so convinced by cheap borrowing and high dividends argument, I feel quite trigger happy to buy some more, but should probably sit this out in case it gets even better.

[DurhamBorn]

4 hours ago, BearingUp said:

What's happening with Go Ahead today?  Down about 9%.  Can't find any news on-line.  Worth topping up?

HSBC turned to Hold from Buy,very kind of them and I added them today.I got a 50% share in them as im very happy with the price and will finish my holding in two more 25%s at £12.80 and £11.60 if they hit those levels.Go Ahead are slightly behind Stagecoach (but better management) in that their bus investment is just starting to tail off so depreciation is still over the 1.0 level,but should move into the right area later this year/early next.Most of the city looks at the transports as being ex growth without rail and so knock the shares when a franchise is struggling,but i dont care about the rail side.Free cash should start to grow soon in them all as inflation moves ahead and depreciation sticks or falls.

[leonardratso]

32 minutes ago, DurhamBorn said:

HSBC turned to Hold from Buy,very kind of them and I added them today.I got a 50% share in them as im very happy with the price and will finish my holding in two more 25%s at £12.80 and £11.60 if they hit those levels.Go Ahead are slightly behind Stagecoach (but better management) in that their bus investment is just starting to tail off so depreciation is still over the 1.0 level,but should move into the right area later this year/early next.Most of the city looks at the transports as being ex growth without rail and so knock the shares when a franchise is struggling,but i dont care about the rail side.Free cash should start to grow soon in them all as inflation moves ahead and depreciation sticks or falls.

Go ahead if you please.

[Agent ZigZag]

It has always intrigued me the accounting method for individual stocks in how they are ranked according to how much they deviate from the market. Where do you find such information on a stock to review its market swings. This is a key area for entry buys/selling. Do Hargreaves publish such data

 

[leonardratso]

morning star or any kiid usually has a benchmark graph for funds, not so sure about individual shares.

BTW anyone else noticing google finance doesnt seem to cover uk mutual funds anymore(sinc  about a month ago), ive got a replacement that scrapes morning star if anyone else is interested.

[Band]

2 hours ago, DurhamBorn said:

HSBC turned to Hold from Buy,very kind of them and I added them today.I got a 50% share in them as im very happy with the price and will finish my holding in two more 25%s at £12.80 and £11.60 if they hit those levels.Go Ahead are slightly behind Stagecoach (but better management) in that their bus investment is just starting to tail off so depreciation is still over the 1.0 level,but should move into the right area later this year/early next.Most of the city looks at the transports as being ex growth without rail and so knock the shares when a franchise is struggling,but i dont care about the rail side.Free cash should start to grow soon in them all as inflation moves ahead and depreciation sticks or falls.

If Steptoe were to win an election wouldnt the share price of these companies be toast being as they'd lose their rail franchise?

[Barnsey]

Just reflecting on the pace of what's to come, and it's becoming so darn obvious that this recession/deflationary crash will likely happen faster than most bears predict after the yield curve inverts due to the position of weakness to begin with, especially compared with previous recessions. It's incredible how so many are saying it's different this time, they're right, in many ways it's much worse. Yield curve inverts by end of the year, recession next summer rather than a year later as many expect?

[Alifelessbinary]

1 hour ago, Banned by HPC said:

If Steptoe were to win an election wouldnt the share price of these companies be toast being as they'd lose their rail franchise?

This political risk is certainly one of the potential risks weighing heavy on the sector. It slightly depends on what happens with the Brexit negotiations, as EU law currently prohibits Mr C’s nationalisation plan, which is one of the reasons he quite likes the hard option.

My main concern in the short term is that the market overreacts if Go Ahead lose the Thameslink franchise, so I’m going to wait and see what happens, as it could throw up further opportunity. 

I agree with DB that Go Ahead have a solid management team, especially Patrick Butcher who’s a seriously smart FD with solid experience in the transport sector. 

The last few years I’ve just riden the bull market wave, but there does appear to be some great opportunities opening up for  contrarian investors who don’t have to follow the dumb money.

[Band]

50 minutes ago, Barnsey said:

Just reflecting on the pace of what's to come, and it's becoming so darn obvious that this recession/deflationary crash will likely happen faster than most bears predict after the yield curve inverts due to the position of weakness to begin with, especially compared with previous recessions. It's incredible how so many are saying it's different this time, they're right, in many ways it's much worse. Yield curve inverts by end of the year, recession next summer rather than a year later as many expect?

Be fair several years ago the next recession was predicted by most to have arrived well before July 2018.

[leonardratso]

fairly pap day at the miners, but as was mentioned, if you cant stand to sit in red for a good while, then probably not worth doing the PMM's, ive got time, the cash isnt needed elsewhere, so ill let it ride.

[DurhamBorn]

2 hours ago, Banned by HPC said:

If Steptoe were to win an election wouldnt the share price of these companies be toast being as they'd lose their rail franchise?

They would lose them yes as they came up,but i always ignore political risk.Its very unlikely Labour will win outright,and then the Labour party would be split in two.

The train companies make about 1.5% margins on rail.A Labour government would see that up in smoke the first week as the unions demand much higher wages etc.

[DurhamBorn]

20 minutes ago, Alifelessbinary said:

This political risk is certainly one of the potential risks weighing heavy on the sector. It slightly depends on what happens with the Brexit negotiations, as EU law currently prohibits Mr C’s nationalisation plan, which is one of the reasons he quite likes the hard option.

My main concern in the short term is that the market overreacts if Go Ahead lose the Thameslink franchise, so I’m going to wait and see what happens, as it could throw up further opportunity. 

I agree with DB that Go Ahead have a solid management team, especially Patrick Butcher who’s a seriously smart FD with solid experience in the transport sector. 

The last few years I’ve just riden the bull market wave, but there does appear to be some great opportunities opening up for  contrarian investors who don’t have to follow the dumb money.

I agree.There are lots of great value stocks around now and im very happy to do my usual 3 or 4 averages in.The next cycle will be kind to transport,it will likely be one of the big winners.

The long dis-inflation cycle has seen the cross eyed dunce from school driving around in a lease car.Those days will be over soon.More and more people will have to give up the car,or the 2nd car at least.I also think the on demand trials could become a massive success.Like you say the balance sheet at Go Ahead is in very good shape,about 1.1 times EBITda for an asset heavy company that has updated most of its fleet at the end of a difficult cycle is a very strong position.

Id be happy if they went down another 20% as id be full then.

[leonardratso]

cross eyed dunce. i ilke it.

[Castlevania]

30 minutes ago, DurhamBorn said:

They would lose them yes as they came up,but i always ignore political risk.Its very unlikely Labour will win outright,and then the Labour party would be split in two.

The train companies make about 1.5% margins on rail.A Labour government would see that up in smoke the first week as the unions demand much higher wages etc.

The irony of the privatisation of the railways is that rail workers have made off like bandits.

[Barnsey]

10 hours ago, Banned by HPC said:

Be fair several years ago the next recession was predicted by most to have arrived well before July 2018.

They do say it takes at least ten years of predicting a recession for one to come along, cycles and all that. I was guilty of thinking the China stock plunge was the start of it, yet here we are 3 years on. Trying to focus on the technicals now and ignore much of the sentiment, yield curve is key.

Here is another gem of a chart courtesy of @occupywisdom on Twitter

[sancho panza]

On 15/07/2018 at 15:32, Chewing Grass said:

In my home town the average wage is £23918 and the average house is £201070.

That is 8.4 x Single Wage.

30 years ago (1987) the average wage was £202.1 per week (shows how most were paid weekly then) or £10509 and the average house cost £32000

Call it 3.2x

By 1988 it became a means to print money based on using two incomes to put a roof over your head and de-regulation of mortgages to fund it.

Boom - the U.K. is now minted/booming/successful courtesy of the stroke of a regulatory pen.

Loads of interesting numbers below:-

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/adhocs/006810newearningssurveynesagegroupgrossweeklyandhourlyexcludingovertimedata

And 70% of UK net wealth tied up in it's housing stock.

A few bad auctions and the write downs begin.

17 hours ago, Bear Hug said:

It's interesting how 0.3% rise of GBPUSD has coincided with 1.2% drop of FTSE100.  The pound has now dropped almost all the way back to this morning but FTSE only partially recovers and is still on 0.8% drop.

VOD was at 179 for a while as well.  I was so convinced by cheap borrowing and high dividends argument, I feel quite trigger happy to buy some more, but should probably sit this out in case it gets even better.

Persoanlly,I focus more on weekly and mon thly movements,There's a lot of noise day to day,

11 hours ago, Alifelessbinary said:

This political risk is certainly one of the potential risks weighing heavy on the sector. It slightly depends on what happens with the Brexit negotiations, as EU law currently prohibits Mr C’s nationalisation plan, which is one of the reasons he quite likes the hard option.

My main concern in the short term is that the market overreacts if Go Ahead lose the Thameslink franchise, so I’m going to wait and see what happens, as it could throw up further opportunity. 

I agree with DB that Go Ahead have a solid management team, especially Patrick Butcher who’s a seriously smart FD with solid experience in the transport sector. 

The last few years I’ve just riden the bull market wave, but there does appear to be some great opportunities opening up for  contrarian investors who don’t have to follow the dumb money.

Political risk has many variables and makes it hard to predict.It only takes one drop of the ball and the election can be swung heavily the other way.

Personally,I think Steptoe will lose.May will get replaced.I'm agnostic.Can't stand either the Oxbridge blue team or red team.Twoi sides of the same ZIRP/QE coin.

41 minutes ago, Barnsey said:

They do say it takes at least ten years of predicting a recession for one to come along, cycles and all that. I was guilty of thinking the China stock plunge was the start of it, yet here we are 3 years on. Trying to focus on the technicals now and ignore much of the sentiment, yield curve is key.

Here is another gem of a chart courtesy of @occupywisdom on Twitter

Nice chart Barnsey,Wolf St has some recent articles focusing on booming HPI in San Fran and a couple of other places.

[C-gull]

I posted a question on here a while back and never got around to coming back to say thank you for the answers and the help. Thanks to @DurhamBorn, @Funn3r and @sancho panza and anyone else if I have missed who helped, appreciate everyone's time! In case anyone is interested I took a small (15%) position in physical gold and silver, I held off on IBTL as, frankly, I don't fully understand what I'm doing and figured that maybe buying things you don't understand is probably not the right way to go...

One thing that I have been wondering, and I think it's been mentioned in passing here too, is regarding the seeming implacable nature of the Feds tightening. One explanation seems to be their lack of insight, i.e. that they will accidentally tighten into recession. What about the possibility that they are deliberately causing recession in order to defend the USD hegemony as the global reserve; that is, the Fed is banking on being able to foment deflationary shocks in hegemonic challengers such as the EU and China in order to create the "flight to safety" impulse in investors that will reinforce the status of the USD / US Treasuries as the no-risk asset. This is based on the sort of reasoning that sees a recession or the undermining of global reserve status as the two main options on the table, and in that case I can certainly see the case for deliberately causing a recession from a policy makers perspective.

[DurhamBorn]

26 minutes ago, C-gull said:

I posted a question on here a while back and never got around to coming back to say thank you for the answers and the help. Thanks to @DurhamBorn, @Funn3r and @sancho panza and anyone else if I have missed who helped, appreciate everyone's time! In case anyone is interested I took a small (15%) position in physical gold and silver, I held off on IBTL as, frankly, I don't fully understand what I'm doing and figured that maybe buying things you don't understand is probably not the right way to go...

One thing that I have been wondering, and I think it's been mentioned in passing here too, is regarding the seeming implacable nature of the Feds tightening. One explanation seems to be their lack of insight, i.e. that they will accidentally tighten into recession. What about the possibility that they are deliberately causing recession in order to defend the USD hegemony as the global reserve; that is, the Fed is banking on being able to foment deflationary shocks in hegemonic challengers such as the EU and China in order to create the "flight to safety" impulse in investors that will reinforce the status of the USD / US Treasuries as the no-risk asset. This is based on the sort of reasoning that sees a recession or the undermining of global reserve status as the two main options on the table, and in that case I can certainly see the case for deliberately causing a recession from a policy makers perspective.

We actually had a good talk about this very thing and we came to the same conclusion.That the Fed must be cutting liquidity to protect the dollar.Its ironic though that commercials are now heavily short the dollar and the retail money is 91% bullish.Those sort of set ups dont tend to end well for the retail money.

[spygirl]

20 hours ago, Democorruptcy said:

Going from 3x Main plus 1x Second income to the now no more than 15% of mortgages over 4.5x household income has tripled prices.

4.5 household income *NET* of any regular spend.

 

Greene Kings starting its spiral of doom.

Good.

Piss beer. Shit pubs.

[spygirl]

33 minutes ago, C-gull said:

I posted a question on here a while back and never got around to coming back to say thank you for the answers and the help. Thanks to @DurhamBorn, @Funn3r and @sancho panza and anyone else if I have missed who helped, appreciate everyone's time! In case anyone is interested I took a small (15%) position in physical gold and silver, I held off on IBTL as, frankly, I don't fully understand what I'm doing and figured that maybe buying things you don't understand is probably not the right way to go...

One thing that I have been wondering, and I think it's been mentioned in passing here too, is regarding the seeming implacable nature of the Feds tightening. One explanation seems to be their lack of insight, i.e. that they will accidentally tighten into recession. What about the possibility that they are deliberately causing recession in order to defend the USD hegemony as the global reserve; that is, the Fed is banking on being able to foment deflationary shocks in hegemonic challengers such as the EU and China in order to create the "flight to safety" impulse in investors that will reinforce the status of the USD / US Treasuries as the no-risk asset. This is based on the sort of reasoning that sees a recession or the undermining of global reserve status as the two main options on the table, and in that case I can certainly see the case for deliberately causing a recession from a policy makers perspective.

The FED gives a sum total of fuckall to the countries it might effect - our currency, our problem.

Main streets exposure to FED rates is pretty low. US mortgage costs are derived from 10Y bonds. Most US mortgages are a *lot* higher than then the FED repo rates:

30-year fixed	4.625%	4.699%
20-year fixed	4.375%	4.476%
15-year fixed	4.125%	4.253%
10-year fixed	4.375%	4.559%

 

Compare those to UK rates, where the mortgage rate is fixed around the BoE base rate.

The FED has decided- rightly - it needs to move IR to more normal rates. It sees enormous risk with low rates.

The US economy is fucking red hot at the moment. FED rates should be around 5%.

Fed will be happy shifting rates to about 3%ish.

 

 

[macca]

1 hour ago, spygirl said:

 

30-year fixed	4.625%	4.699%
20-year fixed	4.375%	4.476%
15-year fixed	4.125%	4.253%
10-year fixed

The FED has decided- rightly - it needs to move IR to more normal rates. It sees enormous risk with low rates.

The US economy is fucking red hot at the moment. FED rates should be around 5%.

Fed will be happy shifting rates to about 3%ish.

But will that effect the BOE/ECB base rate as America moves to normalise..? 

[Wheeler]

1 hour ago, DurhamBorn said:

We actually had a good talk about this very thing and we came to the same conclusion.That the Fed must be cutting liquidity to protect the dollar.Its ironic though that commercials are now heavily short the dollar and the retail money is 91% bullish.Those sort of set ups dont tend to end well for the retail money.

So presumably if the dollar falls then it is bad in the short term for TLT/IBTL and good for gold? 

I've converted some of my USD funds in a trading account into GBP over the past couple of weeks as part of a move away from US tech stocks - still got some left that I've had since pre 2000 but at a P/E of nearly 300 I can't really see much upside! I'll be using that to add a bit of gold to hedge the dollar position.

[spygirl]

17 minutes ago, macca said:

But will that effect the BOE/ECB base rate as America moves to normalise..? 

Its complex.

BoE is independent of ECB and FED but ....

The BoE rate has to follow the FED rate as the dollar is *the* currency used in trade, so sets the global risk free rate for cash.

If the BoE rate is below the FED then the pound falls and inflation rises.

ECB is big enough to make its own weather but even they stopped QE and started talking up rates when the US moved.

Its really gormless to suggest tat the BoE is independent. Its not, not from the amrket. And the FED decides the lower limit.

BoE should have moved the rate up 2% by now.

 

 

[Majorpain]

26 minutes ago, spygirl said:

The BoE rate has to follow the FED rate as the dollar is *the* currency used in trade, so sets the global risk free rate for cash.

If the BoE rate is below the FED then the pound falls and inflation rises.

BoE should have moved the rate up 2% by now. 

However it hasn't yet come back to bite them yet, GBP/USD is far from catastrophic and I doubt big moves by the MPC will happen until sterling tanks.  Everything is still ticking along well enough.