durhamborn

Deflationary collapse and the Reflation Cycle to Come.

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Just now, Habitationi Bulla said:

Corrected for you!

Well yes,but that is a tale back in history now.All simply parts of the disinflation cycle that started in 1982.Almost everyone from CBs to consumer think thats the norm.The reflation cycle ahead will give them a much needed education.Just a huge deflationary sell off to get through first before that can begin.For a lot of us it might be the last time we see a cycle turn like this,so we better make the most of it.

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7 minutes ago, durhamborn said:

Well yes,but that is a tale back in history now.All simply parts of the disinflation cycle that started in 1982.Almost everyone from CBs to consumer think thats the norm.The reflation cycle ahead will give them a much needed education.Just a huge deflationary sell off to get through first before that can begin.For a lot of us it might be the last time we see a cycle turn like this,so we better make the most of it.

If one can service a large loan, would now not be the time to fill ones boots,if as you predict helicopter money is on its way in the coming years.

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20 minutes ago, Habitationi Bulla said:

If one can service a large loan, would now not be the time to fill ones boots,if as you predict helicopter money is on its way in the coming years.

No i dont think so far too much risk.The inflation will be industrial and might not feed through to the consumer for a long time.There is also a very high chance asset prices go up slower than the inflation.Its leverage that will take down a lot of people and companies.In inflation cycles yields tend to rise and PE ratios contract because of rising rates.You could argue leverage invested in the right sectors will prove a very good bet,but for ordinary investors leverage will catch you in the end and is best avoided.History is full of bankrupt companies and consumers who could service a big loan,until they couldnt.

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48 minutes ago, durhamborn said:

No i dont think so far too much risk.The inflation will be industrial and might not feed through to the consumer for a long time.There is also a very high chance asset prices go up slower than the inflation.Its leverage that will take down a lot of people and companies.In inflation cycles yields tend to rise and PE ratios contract because of rising rates.You could argue leverage invested in the right sectors will prove a very good bet,but for ordinary investors leverage will catch you in the end and is best avoided.History is full of bankrupt companies and consumers who could service a big loan,until they couldnt.

Must admit I don't see how all your freshly printed money is only going to go towards industrial inflation but at the same time house prices are toast. If our governbankment is given lots of spending money, why won't it finish up in assets, via wage inflation? Or do you think it will but just after a delay? For one thing 17% of the workforce is public sector so presumably they will be OK, when the governbankment is stuffed with cash? Printing means the public sector don't have nominal pay cuts like in Greece. If there is more infrastructure spending that even more jobs and wage inflation. Looking at your last reflation period, at the start of the 1970's the average house was £5k by the end of the 1970's it was £20k up 300%.

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1 hour ago, durhamborn said:

No i dont think so far too much risk.The inflation will be industrial and might not feed through to the consumer for a long time.There is also a very high chance asset prices go up slower than the inflation.Its leverage that will take down a lot of people and companies.In inflation cycles yields tend to rise and PE ratios contract because of rising rates.You could argue leverage invested in the right sectors will prove a very good bet,but for ordinary investors leverage will catch you in the end and is best avoided.History is full of bankrupt companies and consumers who could service a big loan,until they couldnt.

Im talking about a person who could quite easily service say a 200K loan. As inflation is the name of the game surely it stand to reason that having debt that will be wiped out by inflation is the way to go.

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38 minutes ago, Democorruptcy said:

Must admit I don't see how all your freshly printed money is only going to go towards industrial inflation but at the same time house prices are toast. If our governbankment is given lots of spending money, why won't it finish up in assets, via wage inflation? Or do you think it will but just after a delay? For one thing 17% of the workforce is public sector so presumably they will be OK, when the governbankment is stuffed with cash? Printing means the public sector don't have nominal pay cuts like in Greece. If there is more infrastructure spending that even more jobs and wage inflation. Looking at your last reflation period, at the start of the 1970's the average house was £5k by the end of the 1970's it was £20k up 300%.

After a delay yes.The inflation will start slowly probably and grow through the cycle.The really high rates will probably only be around for a couple of years.I think double figures is almost certain at the end of the cycle and rates not far behind.Remember as well its a reflation cycle.Not an inflation cycle.Inflation comes with it but down the line.

The money first finds its way into production wages follow later.

For houses the key point is yield.A big part of the market is now BTL.As rates slowly rise following inflation higher the yield needed on an asset grows so the house price falls.I fully expect houses to fall hard and then recover through the cycle.I dont expect them to keep up with inflation or wage inflation because of rising rates.For people looking for a home of course they will be good buys after the falls.A lot of people wont be able to borrow then or finance a house buy.(bank of Mum and Dad not as likely to fund big deposits when their own equity has been smashed).

The UK might indeed try to prop housing up,but their main focus will be on investment to fight the deflation.There will be things we dont spot of course,things that dont go to plan,but the general direction will be baked in i think.In blunt terms by 2025 at the back end of the next cycle,wages will be higher,but house prices will be lower inflation adjusted.

My main focus is on other assets as i have a house and would never buy another and deprive someone of a home.They are going to get cheaper though,and i think,a lot cheaper.

 

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39 minutes ago, Habitationi Bulla said:

Im talking about a person who could quite easily service say a 200K loan. As inflation is the name of the game surely it stand to reason that having debt that will be wiped out by inflation is the way to go.

Personal choice.For me its too risky.Remember interest rates will be shooting higher through the cycle as well.That loan needs servicing if rates hit 10% to pull down 12% inflation.Whenever you introduce leverage you introduce risk,but it is a personal choice.Iv never had debt apart from a mortgage once,and il never have it again.Investing with leverage is out of my scope,as iv never done it.

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40 minutes ago, durhamborn said:

After a delay yes.The inflation will start slowly probably and grow through the cycle.The really high rates will probably only be around for a couple of years.I think double figures is almost certain at the end of the cycle and rates not far behind.Remember as well its a reflation cycle.Not an inflation cycle.Inflation comes with it but down the line.

The money first finds its way into production wages follow later.

For houses the key point is yield.A big part of the market is now BTL.As rates slowly rise following inflation higher the yield needed on an asset grows so the house price falls.I fully expect houses to fall hard and then recover through the cycle.I dont expect them to keep up with inflation or wage inflation because of rising rates.For people looking for a home of course they will be good buys after the falls.A lot of people wont be able to borrow then or finance a house buy.(bank of Mum and Dad not as likely to fund big deposits when their own equity has been smashed).

The UK might indeed try to prop housing up,but their main focus will be on investment to fight the deflation.There will be things we dont spot of course,things that dont go to plan,but the general direction will be baked in i think.In blunt terms by 2025 at the back end of the next cycle,wages will be higher,but house prices will be lower inflation adjusted.

My main focus is on other assets as i have a house and would never buy another and deprive someone of a home.They are going to get cheaper though,and i think,a lot cheaper.

 

Obviously we would be starting from a propped up credit fuelled housing bubble now unlike the 70's, so house prices shouldn't rise like they did then! The problem is that for people holding cash but without wage rises, inflation adjusted houses instead of a nominal crash isn't good enough. Interest income should rise but I think they would do a tax on unearned income. If we do have deflation not stagflation, it depends how long it lasts. QE has had some bad press, favours the rich etc., are they going to wait until the public beg for more? Or just reverse thrust on tightening and turn the printer on to try stop any deflation.   

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1 hour ago, Democorruptcy said:

Obviously we would be starting from a propped up credit fuelled housing bubble now unlike the 70's, so house prices shouldn't rise like they did then! The problem is that for people holding cash but without wage rises, inflation adjusted houses instead of a nominal crash isn't good enough. Interest income should rise but I think they would do a tax on unearned income. If we do have deflation not stagflation, it depends how long it lasts. QE has had some bad press, favours the rich etc., are they going to wait until the public beg for more? Or just reverse thrust on tightening and turn the printer on to try stop any deflation.   

I think they will turn the printer on and call them bonds for this and that once they know the system is imploding with deflation.This time it wont be going to the banks (directly anyway) it will be spent direct into the economy.I think there will be a nominal crash at first and there will be a pretty long window to buy.A good few years at least.I do expect a lot of houses for rent being built.Probably kill BTL.They wont care about that at all as they will be trying to hold society together.

We need to see how the bust takes shape first.We are very close i think.

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heres a list of watching then from google docs since 04/08

Shares (watching) 2017-08-04 NAV P/L P/L(%) Denom Notes
PRSR(Reit) 104.68 104.24 (0.44) (0.42) p PRSR:JUSTWATCH
Centrica(CNA) 200.09 198.38 (1.71) (0.85) p CNA
SSE 1404.51 1391.50 (13.01) (0.93) p SSE
Royal Mail 401.63 398.06 (3.57) (0.89) p RMG
BAE 585.77 582.44 (3.33) (0.57) p BA
Rangold 7111.38 7468.39 357.01 5.02 p RRS
Anglo American 1269.95 1238.75 (31.20) (2.46) p AAL
BHP billiton 1380.87 1331.31 (49.56) (3.59) p BLT
Stagecoach 181.13 180.38 (0.75) (0.41) p SGC
             
SSLV(silver) 15.88 16.66 0.78 4.91 $ SSLV
SGLD(gold) 122.72 125.62 2.90 2.36 $ SGLD
TLT(treasury) 124.92 126.43 1.51 1.21 $ TLT:TGT:$150T
SIL (silver miners) 32.80 33.83 1.03 3.14 $ SIL
GDX(gold miners) 22.57 23.15 0.58 2.57 $ GDX
COPX(cop miners) 24.57 23.78 (0.79) (3.22) $ COPX
URAX(ura miners) 14.31 13.33 (0.98) (6.85) $ URA
FCG(Gas ETF) 19.88 19.63 (0.25) (1.26) $ FCG
Sibanye Gold 5.49 5.88 0.39 7.10 $ SBGL
Yamaha Gold 2.46 2.69 0.23 9.35 $ AUY

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1 hour ago, durhamborn said:

We need to see how the bust takes shape first.We are very close i think.

I agree. Thank you again for this thread, and your contributions @durhamborn you give much to think about and I appreciate your well laid out thoughts.

I feel we are right on the edge of interesting times right now

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13 minutes ago, BearlyBegun said:

I agree. Thank you again for this thread, and your contributions @durhamborn you give much to think about and I appreciate your well laid out thoughts.

I feel we are right on the edge of interesting times right now

I think you only have to look at the general retailer Wilkos this week.Profits fell 80% due to sterling falling mostly.A company without leverage can survive such things,but for a leveraged balance sheet when credit lines run out its curtains.Gearing up on debt because its cheap will show itself for the folly that is when earnings evaporate.Margins are at the point where defaults wont be far away.

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Just to confuse matters, take a look at these two links from the Daily Reckoning.

https://dailyreckoning.com/prepared-inflation-deflation/

https://dailyreckoning.com/gold-not-the-inflation-hedge-you-might-think/?r=milo

I think the first link really points you in the safe direction.  If you stack everything on one side, you could get it wrong big time! Or win out big time...

None of us knows how long this situation can go on for, and in reality I've been waiting for the deflation since 2007/8 but in vain. All I've seen is stagflation! (Been made redundant, new job pays less, prices rising also, savings being eroded by inflation, etc, etc.:()

Don't be surprised if this thread is still running in 5 years time and nothing has changed!

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23 hours ago, durhamborn said:

Personal choice.For me its too risky.Remember interest rates will be shooting higher through the cycle as well.That loan needs servicing if rates hit 10% to pull down 12% inflation.Whenever you introduce leverage you introduce risk,but it is a personal choice.Iv never had debt apart from a mortgage once,and il never have it again.Investing with leverage is out of my scope,as iv never done it.

Have to say I have been considering similar options.

If there is certainly going to be a crash then reflation would a strategy of obtaining a fixed rate loan (via mortgage) not make sense so you could buy assets at the bottom then sell after regulation has occurred?

 

I suppose it depends on how confident everyone is about the upcoming economic cycle and how hard you* back your predictions.

 

*not "you" personally i mean people General-  I think there os a famous fund manager, Druckheimer or something, who advocates going all in on a call. As you say it could be a once in a generation event.

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Old Guy   
5 hours ago, Noginthenog said:

Just to confuse matters, take a look at these two links from the Daily Reckoning.

https://dailyreckoning.com/prepared-inflation-deflation/

https://dailyreckoning.com/gold-not-the-inflation-hedge-you-might-think/?r=milo

I think the first link really points you in the safe direction.  If you stack everything on one side, you could get it wrong big time! Or win out big time...

None of us knows how long this situation can go on for, and in reality I've been waiting for the deflation since 2007/8 but in vain. All I've seen is stagflation! (Been made redundant, new job pays less, prices rising also, savings being eroded by inflation, etc, etc.:()

Don't be surprised if this thread is still running in 5 years time and nothing has changed!

Sounds a bit like me, redundant in 2008 and self employed since then as the salaries on offer are rubbish for the hours needed. I have been all in cash since just before the Brexit referendum (got hammered for that), stayed in cash for the American election (got hammered again). Conference call due in 2 weeks with Hargreaves Lansdowne, my pension advisers, who will probably try to get me back in the markets just before the next Korean War, but how long can any of us wait.......either for markets or houses to represent fair value for money?

 I am grateful to DB for all of his considerable input on this thread, and like others I hope we are nearly there, but I worry that in 5 years little will have changed other than my savings being worth a good deal less.

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Barnsey   
21 hours ago, durhamborn said:

I think you only have to look at the general retailer Wilkos this week.Profits fell 80% due to sterling falling mostly.A company without leverage can survive such things,but for a leveraged balance sheet when credit lines run out its curtains.Gearing up on debt because its cheap will show itself for the folly that is when earnings evaporate.Margins are at the point where defaults wont be far away.

3900 redundancies on their way at Wilko apparently, I thought they were booming, always been a big fan, probably the best value shop of its type in the country.

Been reading quite a bit lately on the stock bubble and seeing a greater occurence of the downward velocity theme, I think you're spot on in this regard DB, the ferocity of the falls could be spectacular. Perhaps a suckers bounce but if there is such a thing as a S&P 500 long term average then it's never been more insane, it's had its most peaceful yearly ascent since 1964!!!

IMG_0016.JPG.faf03c707ed6e3712fbcb3fea4a45a37.JPG

Also strong consensus that Bitcoin will go down with it rather than being seen as a safe haven.

 

Edited by Barnsey

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38 minutes ago, Barnsey said:

Been reading quite a bit lately on the stock bubble and seeing a greater occurence of the downward velocity theme, I think you're spot on in this regard DB, the ferocity of the falls could be spectacular. Perhaps a suckers bounce but if there is such a thing as a S&P 500 long term average then it's never been more insane, it's had its most peaceful yearly ascent since 1964!!!

One here:

Quote

 

The lion’s share of S&P 500’s year-to-date rise, for example, has come on the back of the so-called FAANG stocks, a quintet of internet and technology names.

Of those five, Facebook Inc. FB, +0.41% Apple Inc. AAPL, +1.39% and Netflix Inc. NFLX, +1.34%  all remain above their 50-day averages, while Amazon.com Inc. AMZN, +1.16%  and Google-parent Alphabet Inc. GOOGL, +0.70%  have both fallen and remained below their in recent weeks.

How severe has the divergence between rising stocks and losers gotten?

There were 166 New York Stock Exchange-listed issues hitting 52-week lows on Friday, compared with just 23 hitting new highs. That’s the widest such margin in 18 months, and it comes on a day when the S&P 500 ended higher by 0.1%. The margin was notably wider than on Thursday, the day of the selloff.

On Thursday, 87% of trading volume on the New York Stock was for declining stocks, while 13% was for advancers, a trend that was similar for Nasdaq names, according to data from Frank Cappelleri, an executive director at Instinet.

For S&P 500 stocks, 44.69% of components are above their 50-day moving average, down from a July 19 peak of 74%. Nearly 69% of S&P components remain above their 200-day moving average, but that’s down from 77% in late July.

http://www.marketwatch.com/story/bruising-stock-market-selloff-may-have-cracked-the-rallys-foundations-2017-08-11?siteid=yhoof2&yptr=yahoo

 

 

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Stock markets may be the wrong place to look, central banks are probably propping them up.

The wilko thing is interesting, may be an indication of things to come.

The government is thinking austerity is unpopular, but they need money so have to claw it out of the economy somehow. Companies and individuals are leveraged up, wages are not going up enough, indeed if they do those leveraged companies will be under more pressure.

Funny old game, are we finding out just how stupid all those central bankers and economic experts really are. Why do they even think the current policies can build a sound economy.

The stock markets will likely pop when it becomes apparent that the emperor has no clothes.

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4 hours ago, Barnsey said:

3900 redundancies on their way at Wilko apparently, I thought they were booming, always been a big fan, probably the best value shop of its type in the country.

Been reading quite a bit lately on the stock bubble and seeing a greater occurence of the downward velocity theme, I think you're spot on in this regard DB, the ferocity of the falls could be spectacular. Perhaps a suckers bounce but if there is such a thing as a S&P 500 long term average then it's never been more insane, it's had its most peaceful yearly ascent since 1964!!!

IMG_0016.JPG.faf03c707ed6e3712fbcb3fea4a45a37.JPG

Also strong consensus that Bitcoin will go down with it rather than being seen as a safe haven.

 

Look at the 2000 and 2008 falls almost 50% drops, when it crashes probably be the same

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Odin   
8 hours ago, ThePrufeshanul said:

If there is certainly going to be a crash then reflation would a strategy of obtaining a fixed rate loan (via mortgage) not make sense so you could buy assets at the bottom then sell after regulation has occurred?

But keeping the deposit in the bank may earn more.  In an environment where IR is higher, no tax breaks for 2nd home like activity.  Build to rent kicks in with some of that government helicopter money.  Mortgage products will look different when the climate changes.

The stance I am reading here, is there will be safer things to invest your property deposit in with a higher return.

 

 

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But, if I'm correct, Durhamborn is saying that Interest Rates will not rise until the banks fires up its printing presses and sends inflation through the roof during the reflation cycle.

If you knew that would be the case for certain would it not make sense to get a fixed-rate interest free loan and buy up assets when they are cheap (at the end of the deflation cycle - cost approx 3%, profit multiples of that when they shoot up in reflation) OR do as you say and just keep the money in the bank (cost approx 3%, profit whatever the new interest rates are above 3%, as DB says, possibly into the double figures, plus the erosion of the value of principal loan due to the same thing).

If the deflation (with low interest rates) cycle then reflation cycle (with high interest rates) occurs being liquid with large amounts of cash will put you in an extremely strong position. 

Since the economy is currently on the verge of crashing due to the vast amount of credit available and it has never been cheaper to obtain a large amount of money I was wondering what the disadvantage would be of doing exactly that assuming you could get access a low fixed rate?

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Ash4781   

Thanks for the heads up on Wilko's. I did not read the DFS reports other than reading they were purchasing Sofology. Wilko have just announced a massive restructuring consultation . Sad for those involved.

I am just checking out the Debenhams share price chart. It looks bad, really bad. I know they did have a lot of debt after being taken private and re-floated. Still the problem is collapsing margins. I think it was expected- those with debt have been racing to reduce their debt levels (look at Tesco for example). Others are redirecting strategy (M and S is transforming into more of a food retailer, Sainsbury's purchased Argos). I guess we'll find out who hasn't been successful. 

Also as an aside Alistair Darling is coming out with some interesting statements. I am unsure if he holds non exec directorships or maybe has a lot of free time to do reasearch and talk to his long list of contacts he has .

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wotsthat   
On 11/08/2017 at 4:55 PM, Habitationi Bulla said:

Im talking about a person who could quite easily service say a 200K loan. As inflation is the name of the game surely it stand to reason that having debt that will be wiped out by inflation is the way to go.

 

Cannot believe you have the cheek to suggest  there are posters on this board who  are "talking utter crap" when your suggestion is taking on £200,000 loans at this stage of the cycle..

Please tell us how you are get on with this plan in a few years time, I personally will have about as much sympathy for someone using your plan and it going t**s up as I would with someone who speculates on the property market and looses their shirt.

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29 minutes ago, wotsthat said:

 

Cannot believe you have the cheek to suggest  there are posters on this board who  are "talking utter crap" when your suggestion is taking on £200,000 loans at this stage of the cycle..

Please tell us how you are get on with this plan in a few years time, I personally will have about as much sympathy for someone using your plan and it going t**s up as I would with someone who speculates on the property market and looses their shirt.

Not sure if HB is planning this but it makes sense to take on cheap money if you have the means to pay off easily and get better returns elsewhere, stocks, Isa's p2p lending, loading up a pension etc, cars, watches etc 

in fact since STR 6 weeks ago and could buy mortgage free I have reverted to considering taking on a mortgage again to do just that, of course buying at the right point which isn't now 

 

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