Deflationary collapse and the Reflation Cycle to Come.

[Thorn]

The Patsy so far has been the taxpayer.

... but so far this evening, from the news reports re Carillion so far, I’m not sure that TPTB are sure that will work this time round.

if not the taxpayer, the shareholders?

...natural order resumes if so.

[Majorpain]

7 hours ago, Thorn said:

The Patsy so far has been the taxpayer.

... but so far this evening, from the news reports re Carillion so far, I’m not sure that TPTB are sure that will work this time round.

if not the taxpayer, the shareholders?

...natural order resumes if so.

I dont think they can bail it out, banks were fixed by throwing some money at them. 

Carillions problem is that it has bid for work below cost and tried to make it back on the maintenance contracts.  You cant solve a £16bn order book of unprofitable work which you are contractually obligated to build by throwing a small amount of money at it, you would need a blank check to cover problems over the next 5 years.  Its too big to bail out IMO.

[suresh786]

15 hours ago, durhamborn said:

I see sterling crashing as probably the biggest threat to UK savers.I ignore people with lots of leverage,they are smoked anyway.

When i did a lot of work on the currencies November last year part of the dollar call from 102 to 88 (now i see 86 maybe) was sterling up from $1.22 to $1.39.We are nearly there.I see the £ going to $1.10 probably $0.90 in a debt deflation.I also then see inflation running way higher than rates throughout the next cycle.Welfare spending in the Uk is far higher than what the productive economy can pay.The crash and next cycle will destroy that.Its one of the reasons the government will have to increase the productive capacity of the economy with massive investment and direct money away from welfare into investment.

pound / dollar close to what you said, what your thoughts going forward, do you think that its peaked now or not yet

[Fence]

GBP:USD popped up Friday to 1.37+ after a bit of short term consolidation.  Maybe mainly on European news.  Maybe good UK data needed to hold.  Not sure it's over just yet but may be time to be nearer the exits!

[durhamborn]

1 hour ago, suresh786 said:

pound / dollar close to what you said, what your thoughts going forward, do you think that its peaked now or not yet

My target 14 months ago was $1.22 up to $1.39 then down to $1.10 - $0.90 in a debt deflation .Its close enough now for me to start buying $ treasuries.

[durhamborn]

3 hours ago, Majorpain said:

I dont think they can bail it out, banks were fixed by throwing some money at them. 

Carillions problem is that it has bid for work below cost and tried to make it back on the maintenance contracts.  You cant solve a £16bn order book of unprofitable work which you are contractually obligated to build by throwing a small amount of money at it, you would need a blank check to cover problems over the next 5 years.  Its too big to bail out IMO.

RBS was involved in a convertible bond sale for them (fancy that),looking at the balance sheet its about £170 million of the debt on a 2.5% coupon.If there is to be any chance those bond holders would need to accept a swap for equity now,massive falls in value plus a rights issue i think.Looks like it was 11% of the share capital if converted so looks like they are worth £6 million if converted now.

[Old Guy]

20 minutes ago, durhamborn said:

My target 14 months ago was $1.22 up to $1.39 then down to $1.10 - $0.90 in a debt deflation .Its close enough now for me to start buying $ treasuries.

Thanks for the thread DB, I've been following it for months now.

How would I go about buying $ treasuries? ( sorry, but I am a complete simple to in such matters). 

[durhamborn]

35 minutes ago, Old Guy said:

Thanks for the thread DB, I've been following it for months now.

How would I go about buying $ treasuries? ( sorry, but I am a complete simple to in such matters). 

For UK investors now the fund IBTL is probably the best option.There is a short term fund ticker U13G,but i havent researched it to see if there is counter party risk or not.

 

Edited January 14, 2018 by durhamborn

[jimmyblueeyes]

Despite debt-market gurus The Guardian struggle to see an end to this era of cheap credit.

https://www.theguardian.com/business/2018/jan/14/government-tackle-high-street-problems-shop-closures-ghost-towns

 

[spyguy]

17 hours ago, Sancho Panza said:

 

I think the big banks have spent the last ten offloading as much of the high risk loans as they could. RBS particularly, have struggled but I think that relates the quality of  lending pre 07-no profits in ten years despite unprecendeted levesl of front door and back door support

I expect the next round of blood letting to feature Nationwide and a host of small BS's like the Cov ,  Hinckley & Rugby. I could be wrong.

To quote an American bank regilated, where there are 1000s of small banks - the best way to regulate banks is to thtow one under the bus every few years.

Civ BS looks like its going to be BoE test case.

NW cant be far behind.

[Castlevania]

17 hours ago, Sancho Panza said:

 

I think the big banks have spent the last ten offloading as much of the high risk loans as they could. RBS particularly, have struggled but I think that relates the quality of  lending pre 07-no profits in ten years despite unprecendeted levesl of front door and back door support

I expect the next round of blood letting to feature Nationwide and a host of small BS's like the Cov ,  Hinckley & Rugby. I could be wrong.

ABN Amro was stuffed full of absolute crap. 

[Majorpain]

5 hours ago, durhamborn said:

RBS was involved in a convertible bond sale for them (fancy that),looking at the balance sheet its about £170 million of the debt on a 2.5% coupon.If there is to be any chance those bond holders would need to accept a swap for equity now,massive falls in value plus a rights issue i think.Looks like it was 11% of the share capital if converted so looks like they are worth £6 million if converted now.

£170m is a sticking plaster on a sucking chest wound IMO! 

Now the credit insurers wont insure any goods for Carillion, its up to the suppliers if they want to take the risk of losing their money.  One of the local joinery firms in my area lost £200,000 when GB Building went under a few years ago, so its a little risky to say the least. 

Its an £1bn problem for them, if they get to Monday eve without the administrators taking over they are doing well.

[Old Guy]

6 hours ago, durhamborn said:

For UK investors now the fund IBTL is probably the best option.There is a short term fund ticker U13G,but i havent researched it to see if there is counter party risk or not.

 

Thanks 

[Democorruptcy]

6 hours ago, durhamborn said:

For UK investors now the fund IBTL is probably the best option.There is a short term fund ticker U13G,but i havent researched it to see if there is counter party risk or not.

 

I believe part of your reasoning for buying US Treasuries was to take advantage of your expected fall in sterling? Isn't IBTL sterling denominated i.e. you buy in GBP not USD? If sterling did fall against USD won't you miss out on that when selling? Also could the return possibly be reduced if sterling fell?

 

[Cosmic Apple]

26 minutes ago, Democorruptcy said:

I believe part of your reasoning for buying US Treasuries was to take advantage of your expected fall in sterling? Isn't IBTL sterling denominated i.e. you buy in GBP not USD? If sterling did fall against USD won't you miss out on that when selling? Also could the return possibly be reduced if sterling fell?

 

The asset you are buying is USD$ denominated, so if you sold the asset after the £ has fallen against the $ you get more pounds.

 

[durhamborn]

28 minutes ago, Democorruptcy said:

I believe part of your reasoning for buying US Treasuries was to take advantage of your expected fall in sterling? Isn't IBTL sterling denominated i.e. you buy in GBP not USD? If sterling did fall against USD won't you miss out on that when selling? Also could the return possibly be reduced if sterling fell?

 

IBTL is quoted in sterling but not hedged i dont think.If you look at the price graph it went up 20% the week from 23rd June 16,the Brexit vote week as sterling fell against the dollar.

[durhamborn]

2 hours ago, Majorpain said:

£170m is a sticking plaster on a sucking chest wound IMO! 

Now the credit insurers wont insure any goods for Carillion, its up to the suppliers if they want to take the risk of losing their money.  One of the local joinery firms in my area lost £200,000 when GB Building went under a few years ago, so its a little risky to say the least. 

Its an £1bn problem for them, if they get to Monday eve without the administrators taking over they are doing well.

Yes they need to go under.What amazes me it the directors award themselves massive final salary pensions,and these are then passed into the government scheme with a small haircut.Directors should lose all pension rights in these situations.

[durhamborn]

1 hour ago, fru-gal said:

@durhamborn One for you http://www.telegraph.co.uk/investing/bonds/35-year-bull-market-ending-investments-will-affected2/

I agree the cycle is nearly over,but i do think bonds should have one more bump higher as a credit deflation hits,i think that is the bit people are missing.After that, a bond bear to take us back to 1982.

[pmgdawau]

28 minutes ago, durhamborn said:

IBTL is quoted in sterling but not hedged i dont think.If you look at the price graph it went up 20% the week from 23rd June 16,the Brexit vote week as sterling fell against the dollar.

if US decide on another round of QE then $ would drop, guess that's a risk to buying IBTL

[durhamborn]

Just now, pmgdawau said:

if US decide on another round of QE then $ would drop, guess that's a risk to buying IBTL

Yes,it will go down and down and down for a whole cycle.In the deflation though people will be piling into the US government guarantee.I see maybe 20% up + 25% down in sterling.If equities are going down 30%-50%+ then the difference is clear.

Most people think bonds are going down now though.I think we have one last blast up as a bust hits.Thats just my view,i could be really wrong and i have a balanced portfolio holding goldies as well.People will all need to make their own choices on how they structure their assets,its a very difficult time.

[Thorn]

I am watching Carillion play out to see if some form of government intervention happens and it is effectively to become a semi-state organization. Even if different name, management, etc, that would fit with the premise of this thread.

[Sancho Panza]

13 hours ago, Majorpain said:

I dont think they can bail it out, banks were fixed by throwing some money at them. 

Carillions problem is that it has bid for work below cost and tried to make it back on the maintenance contracts.  You cant solve a £16bn order book of unprofitable work which you are contractually obligated to build by throwing a small amount of money at it, you would need a blank check to cover problems over the next 5 years.  Its too big to bail out IMO.

Interesting perspective.Thanks for that.

 

4 hours ago, Castlevania said:

ABN Amro was stuffed full of absolute crap. 

RBS's Ulster Bank losses were impressive on their own.

[Sancho Panza]

2 minutes ago, Thorn said:

I am watching Carillion play out to see if some form of government intervention happens and it is effectively to become a semi-state organization. Even if different name, management, etc, that would fit with the premise of this thread.

It would be a game changer if they started bailing failing construction companies.Imagine the bonuses the Directors could generate..

[durhamborn]

3 minutes ago, Thorn said:

I am watching Carillion play out to see if some form of government intervention happens and it is effectively to become a semi-state organization. Even if different name, management, etc, that would fit with the premise of this thread.

Or let it go under,let the banks take the hit,then take it over.Get it for free and bail out nobody.Protect the jobs but not the debts.

[Thorn]

More vicious but possible. Either way, then use it to do work for the government more directly.