Deflationary collapse and the Reflation Cycle to Come.

[Fence]

31 minutes ago, Eventually Right said:

Apologies if this has already been established, but has anyone bought IBTL via interactive investor?

i tried today, both with my isa and trading account, and got a message saying “by regulation they were unable to allow purchases in this instrument.”

I mentioned earlier today that I can't find IBTL on the UK iShares website.  Could find IDTL though.  Not sure if the same.  I think it is just the USD rather than GBP version.  IDTL has a KID on the iShares website but is not listed on HL!

Edited January 16, 2018 by Fence

[Lavalas]

3 hours ago, durhamborn said:

I asked them the same on the phone.I run three accounts on their platform,two for family members.Added together its a big account.I said id have to move everything,they didnt seem bothered at all.I think they are glad of the changes as it means more people in funds that they get a cut out of.Its a shocking situation.With the EU logic i need protecting from US ETFs,but not from Italian banks.

I emailed Global X the other day. Totally forgot but they’ve just replied as well saying...

‘While US registered ETFs are not subject to MIFID II, we are working to understand the implications of the new EU regulations on EU brokers that may provide access to our products on their platforms.  Over the next couple of weeks, we ask that you check globalxfunds.com/press for an update on our findings.’

So a slight contradiction between that and HL but it doesn’t immediately seem like I’m being fobbed off by Global X. Hopefully we’ll get a positive outcome.

[durhamborn]

10 minutes ago, Lavalas said:

I emailed Global X the other day. Totally forgot but they’ve just replied as well saying...

‘While US registered ETFs are not subject to MIFID II, we are working to understand the implications of the new EU regulations on EU brokers that may provide access to our products on their platforms.  Over the next couple of weeks, we ask that you check globalxfunds.com/press for an update on our findings.’

So a slight contradiction between that and HL but it doesn’t immediately seem like I’m being fobbed off by Global X. Hopefully we’ll get a positive outcome.

That gives a bit of hope.Its a terrible situation to be in.We have capital controls on us in a way.Global X is a very good ETF provider.Notice how the press hasnt bothered with this story at all.US markets cut off from private investors and not a word.

[Fence]

36 minutes ago, durhamborn said:

That gives a bit of hope.Its a terrible situation to be in.We have capital controls on us in a way.Global X is a very good ETF provider.Notice how the press hasnt bothered with this story at all.US markets cut off from private investors and not a word.

Here is a bit more info:  https://www.nytimes.com/reuters/2018/01/04/business/04reuters-europe-funds-platforms-suspension.html

The key phrase to search on is "PRIIPs Regulation etfs".

Basically an EU ****-up.  This was meant to happen a year ago, got rejected by the EU Parliament, and was then rushed out, the details vague, so brokers and providers only effectively had from September 2017 to action things, at the same time as they had to deal with Mifid 2.  Even the FSA website is not up to date.  And it is unclear if ETFs should be included yet, but who wants to risk it and get fined?

Correct about capital controls, etc - I had to go to the NY Times for the best status.

Edited January 16, 2018 by Fence

[Thorn]

17 hours ago, Viceroy said:

For those interested; latest podcast from Martin Armstrong 16 Dec 2017.. he touches on DOW, Vertical Market, contagions..

https://www.youtube.com/watch?v=1CpNAzW0_vg

 

Had a good listen there to the whole show. MA stands over his observations that this next year will see a flight to stocks and away from Govt Bonds - but not US Govt bonds yet...

He says ECB owns 40% of EU Govt bonds so is stuck unable to raise rates much and is paralysed versus the US the Fed has 3trn out of 20trn and more independence from govt so free to increase rates. 

He points out that gold cannot be easily moved across borders like it used to so it's not the store of wealth that it once was but will likely go up as people start to move out of bonds.

And he points out that a lot of Govt pensions are bust- California, Germany for example - and that will likely be the next big story out there as people suddenly realise they won't get theirs. Demands for higher interest rates are happening from pension funds who need returns in order to stay solvent and pay out.

Rings true I reckon. Gold, pms might not take off just yet but they will. Could take a number of years before volumes pick up enough eg manufacture of electric batteries for cars- issues of logistics and parking will cause delays.

Flight to the DOW (the Big one they prefer to the S&P or more risky NASDAQ) by big Chinese investment houses seems likely rather than into property in order to ensure return of capital. Nothing to do with value investing really more the big developing bubble.

And when the bust does come, people will face a liquidity crisis and sell anything they can to get some money. 

It's like listening to you, DB, but with encouragement to first stay with the DOW before the bust.

[Errol]

Just trading in SIL (global X ETF) tonight, so no issue on Interactive Investors.

[durhamborn]

20 minutes ago, Errol said:

Just trading in SIL (global X ETF) tonight, so no issue on Interactive Investors.

Thanks Errol,il open an account with them tomorrow.

[durhamborn]

1 hour ago, Thorn said:

Had a good listen there to the whole show. MA stands over his observations that this next year will see a flight to stocks and away from Govt Bonds - but not US Govt bonds yet...

He says ECB owns 40% of EU Govt bonds so is stuck unable to raise rates much and is paralysed versus the US the Fed has 3trn out of 20trn and more independence from govt so free to increase rates. 

He points out that gold cannot be easily moved across borders like it used to so it's not the store of wealth that it once was but will likely go up as people start to move out of bonds.

And he points out that a lot of Govt pensions are bust- California, Germany for example - and that will likely be the next big story out there as people suddenly realise they won't get theirs. Demands for higher interest rates are happening from pension funds who need returns in order to stay solvent and pay out.

Rings true I reckon. Gold, pms might not take off just yet but they will. Could take a number of years before volumes pick up enough eg manufacture of electric batteries for cars- issues of logistics and parking will cause delays.

Flight to the DOW (the Big one they prefer to the S&P or more risky NASDAQ) by big Chinese investment houses seems likely rather than into property in order to ensure return of capital. Nothing to do with value investing really more the big developing bubble.

And when the bust does come, people will face a liquidity crisis and sell anything they can to get some money. 

It's like listening to you, DB, but with encouragement to first stay with the DOW before the bust.

Biggest liquidity crisis in history i think.I wouldnt touch the Nasdaq at these levels.I agree with all of that apart from i think there is a huge risk of a debt deflation that hits very quickly.We are going to get high inflation,no doubt about that,but i still see a severe end to this cycle first.The fact the ECB owns 40% of government bonds shows the scale of the disaster.

[pmgdawau]

7 minutes ago, durhamborn said:

Biggest liquidity crisis in history i think.I wouldnt touch the Nasdaq at these levels.I agree with all of that apart from i think there is a huge risk of a debt deflation that hits very quickly.We are going to get high inflation,no doubt about that,but i still see a severe end to this cycle first.The fact the ECB owns 40% of government bonds shows the scale of the disaster.

higher wages are necessary for higher inflation, I still don't see how companies will pay higher wages when profits are declining.

[Thorn]

6 minutes ago, pmgdawau said:

higher wages are necessary for higher inflation, I still don't see how companies will pay higher wages when profits are declining.

I’m not so sure - haven’t people always gone without unnecessary stuff so as to still find the money even if the price of their fags goes up

[Thorn]

Just now, Thorn said:

I’m not so sure - haven’t people always gone without unnecessary stuff so as to still find the money even if the price of their fags goes up

Ok, vapes if you like

[durhamborn]

9 minutes ago, pmgdawau said:

higher wages are necessary for higher inflation, I still don't see how companies will pay higher wages when profits are declining.

You dont need higher wages,you need higher velocity.In many inflation cycles higher wages feed that velocity,in the next one it will be industrial,it will be money moving through the system that creates the inflation first.Lots of people wont be able to afford the higher prices,but that wont stop them going up.I import myself.My costs have gone up 14% .My prices have gone up 8%.Im selling less products as less people can afford them.To drop the price to where they could afford them id not make a profit.I have no interest in if they go without,only in staying in business.Inflation sees people make choices.Out goes buying more tat and consumer goods as food and energy take up more of the budget.They take the bus to work instead of that 2nd car.

Im pretty convinced the next cycle will see inflation well into double figures and rates not far behind.Of course i could be wrong.

[pmgdawau]

7 hours ago, durhamborn said:

You dont need higher wages,you need higher velocity.In many inflation cycles higher wages feed that velocity,in the next one it will be industrial,it will be money moving through the system that creates the inflation first.Lots of people wont be able to afford the higher prices,but that wont stop them going up.I import myself.My costs have gone up 14% .My prices have gone up 8%.Im selling less products as less people can afford them.To drop the price to where they could afford them id not make a profit.I have no interest in if they go without,only in staying in business.Inflation sees people make choices.Out goes buying more tat and consumer goods as food and energy take up more of the budget.They take the bus to work instead of that 2nd car.

Im pretty convinced the next cycle will see inflation well into double figures and rates not far behind.Of course i could be wrong.

most of the UK economy is consumer based, so it will take a massive hit. Have you factored the impact on GDP in ? Inflation in a consumer based economy requires money to get to the consumer. No good having new industrial spend and infrastructure if people can't afford to eat/house or cloth themselves.

[stuckmojo]

58 minutes ago, pmgdawau said:

most of the UK economy is consumer based, so it will take a massive hit. Have you factored the impact on GDP in ? Inflation in a consumer based economy requires money to get to the consumer. No good having new industrial spend and infrastructure if people can't afford to eat/house or cloth themselves.

This brings it back to the biggest question. The ability to earn is being destroyed for a large enough chunk of the population for the problem to be systemic. We're not there yet, but we're close. I am thinking quite deeply about this and I don't have an answer. 

Citizen's wage? tax the robots? 

If we weren't a cannibalistic narcissist species we'd have figured this out pretty early. The fact we haven't yet makes me worry. 

[durhamborn]

10 minutes ago, stuckmojo said:

This brings it back to the biggest question. The ability to earn is being destroyed for a large enough chunk of the population for the problem to be systemic. We're not there yet, but we're close. I am thinking quite deeply about this and I don't have an answer. 

Citizen's wage? tax the robots? 

If we weren't a cannibalistic narcissist species we'd have figured this out pretty early. The fact we haven't yet makes me worry. 

Yes its systemic,thats why a crisis is already baked in.When i ask my friends opinion on the odds of escaping this cycle with a smooth landing or even just an ordinary business cycle recession his answer is zero.He is quite certain this ends with a credit implosion and massive wealth destruction.He is also pretty certain the next cycle will be a full on reflation because western democracy is at stake for the reasons you mention.The debt levels are simply incredible,and the notional derivatives are probably where the bombs are sitting.Counter party risk and contagion are where the damage will come from.

[Majorpain]

@durhamborn

Carillion is turning into an epic sh*tstorm, I fail to see how a lot of suppliers around the country are not going to go bust in the current climate when they run out of cash.  Its debt deflation down and inflation in a few years for the subbies that are left for the construction suppliers sector now IMO!

 http://www.constructionenquirer.com/2018/01/17/subcontractors-left-stranded-by-carillion-early-payment-system/

 

[winkie]

Most people do not earn money from rents or dividends......their money comes solely from the  work they do, their money can not grow or can be invested when it is spent consuming......their income becomes less when taking on debt to consume, having principal and interest on old and new debt to pay.....if people can't afford to save how can they afford to take on debt.

Since there is so much excess of stuff everywhere it is easier to withhold spending to save a bit as long as little or no rent or debt to pay........why borrow to buy something new when there is so much of the same out there available to use/buy for very little.....others unwanted stuff.

[durhamborn]

15 minutes ago, Majorpain said:

@durhamborn

Carillion is turning into an epic sh*tstorm, I fail to see how a lot of suppliers around the country are not going to go bust in the current climate when they run out of cash.  Its debt deflation down and inflation in a few years for the subbies that are left for the construction suppliers sector now IMO!

 http://www.constructionenquirer.com/2018/01/17/subcontractors-left-stranded-by-carillion-early-payment-system/

 

Exactly.Margins have got too low across most sectors now.Debt cost then start pushing the weakest hands under.The ones left will then be able to increase margins,less competition.Debt deflation that includes massive wealth destruction followed by a reflation.

Most people have no idea this is a credit event.We said such at the start of this thread.Carillion went under not just because it has so much debt,but because the lines of credit ran out.First of many.

[durhamborn]

22 minutes ago, winkie said:

Most people do not earn money from rents or dividends......their money comes solely from the  work they do, their money can not grow or can be invested when it is spent consuming......their income becomes less when taking on debt to consume, having principal and interest on old and new debt to pay.....if people can't afford to save how can they afford to take on debt.

Since there is so much excess of stuff everywhere it is easier to withhold spending to save a bit as long as little or no rent or debt to pay........why borrow to buy something new when there is so much of the same out there available to use/buy for very little.....others unwanted stuff.

You can almost get things free winkie.I buy lots of things from Gumtree.Iv just bought over £700 worth of fishing tackle for £50 (not off Gumtree).Wife had booted her husband out after he was messing about."i just want shot of it and hes not getting in to get it".Il sell a few bits i dont need so pretty much got it for free.No rent or debt payments is the key as you say,no wonder the elite do everything to keep people in debt/rent.

Edited January 17, 2018 by durhamborn

[Liquid Goldfish]

5 minutes ago, durhamborn said:

Exactly.Margins have got too low across most sectors now.Debt cost then start pushing the weakest hands under.The ones left will then be able to increase margins,less competition.Debt deflation that includes massive wealth destruction followed by a reflation.

Most people have no idea this is a credit event.We said such at the start of this thread.Carillion went under not just because it has so much debt,but because the lines of credit ran out.First of many.

Is the GBP going to start falling now with it starting to kick off?

[winkie]

20 minutes ago, durhamborn said:

Exactly.Margins have got too low across most sectors now.Debt cost then start pushing the weakest hands under.The ones left will then be able to increase margins,less competition.Debt deflation that includes massive wealth destruction followed by a reflation.

Most people have no idea this is a credit event.We said such at the start of this thread.Carillion went under not just because it has so much debt,but because the lines of credit ran out.First of many.

.....but the last thing that is needed is less competition, we need more healthy competition...... growing too fast taking on unsustainable debt, digging a hole that requires more debt to continue is a failure waiting to happen.......no security or assets to cover then the line of debt survival is withdrawn........higher you are the harder the fall.

Edited January 17, 2018 by winkie

[winkie]

10 minutes ago, durhamborn said:

You can almost get things free winkie.I buy lots of things from Gumtree.Iv just bought over £700 worth of fishing tackle for £50 (not off Gumtree).Wife had booted her husband out after he was messing about."i just want shot of it and hes not getting in to get it".Il sell a few bits i dont need so pretty much got it for free.No rent or debt payments is the key as you say,no wonder the elite do everything to keep people in debt/rent.

You can, plenty of quality, useful, beautiful free things about there is.

[Pitchfork]

10 hours ago, durhamborn said:

You dont need higher wages,you need higher velocity.In many inflation cycles higher wages feed that velocity,in the next one it will be industrial,it will be money moving through the system that creates the inflation first.Lots of people wont be able to afford the higher prices,but that wont stop them going up.I import myself.My costs have gone up 14% .My prices have gone up 8%.Im selling less products as less people can afford them.To drop the price to where they could afford them id not make a profit.I have no interest in if they go without,only in staying in business.Inflation sees people make choices.Out goes buying more tat and consumer goods as food and energy take up more of the budget.They take the bus to work instead of that 2nd car.

Im pretty convinced the next cycle will see inflation well into double figures and rates not far behind.Of course i could be wrong.

I was going to reply that quite simply wages continue to stagnate, we (normal peeps) still get the inflation but decline into poverty.

DB's explanation is so much better than mine.

[Social Justice League]

38 minutes ago, winkie said:

Most people do not earn money from rents or dividends......their money comes solely from the  work they do, their money can not grow or can be invested when it is spent consuming......their income becomes less when taking on debt to consume, having principal and interest on old and new debt to pay.....if people can't afford to save how can they afford to take on debt.

Since there is so much excess of stuff everywhere it is easier to withhold spending to save a bit as long as little or no rent or debt to pay........why borrow to buy something new when there is so much of the same out there available to use/buy for very little.....others unwanted stuff.

100% agree.  It still amazes me that so many people still buy new cars and tech etc.  We have loads of second hand gear that is perfectly usable that you can pick up for next to nothing.

I always use the old Merc example.  You can today pick for around £1k a 1990's Merc that costed £40k new (the price of a house in the late 90's).  Most run forever with little or no maintenance and you get to drive around in a Merc too.

Yet most people would rather spend £300 a month renting a Kia.

[Fence]

2018 could well be the year.  First we (eventually) had the poor retail Christmas, signposted by Black Friday, and then we start with Carillion.  And only 16 days into the new year. 

This is a sentiment changer for those in the dark and a lifting the blinds moment for those who could not say anything.  I always felt we needed some shocks to break the ice and saw a poor retail Christmas as a necessary prerequisite.  Sure more "shocks" to follow.

Day 16 and the agenda already has bankers, exec pay, screwed suppliers, pension deficits, auditors, past govt actions, etc.  The storm has been brewing for a while and now we start to have the lightening rods appearing.  As January goes, so goes the year.  I expect Europe to contribute in a few months. 

Also, most of my chart indicators are flatlining or down so things could go either way.  Currency movements are masking or hyping some things, for now.

This ETF debacle has me running for cover from an institutional perspective, so not just a market issue.  A typical EU intervention about as useful as the one telling me about cookies each time I go to a web page! 

There is an agenda for sure with banks recently closing their foreign currency account facilities, etc.  I thought 2018 would be about where to put my money.  It is, but the "where" is the country and institution rather than the investment.

Time to think the worst, join the dots, and get out the box and be creative.  Not silly, but a balanced approach that embraces all options, while they exist.