Deflationary collapse and the Reflation Cycle to Come.

[durhamborn]

2 hours ago, winkie said:

......seems plausible.....why ban cash?......is not having a choice on how to use money far better than being forced to be completely vaunerable to electronic transactions, the hard and software that support it and the electrical energy that keeps it up and running.......clear to see why banks have a vested interest to remove cash from the system, but would it be in the best interest of the people that make the money transactions.....could one reason be virtual money can be made to be negative interest......gone the promise to pay bearer on demand?

They would love to be able to put negative interest rates into action to force velocity up (at least according to the models they use) even though it would be a disaster.PMs would go through the roof if they tried that one.

[Inoperational Bumblebee]

4 hours ago, stuckmojo said:

good discussion there. Sideways question: I was using Interactive Investor in the past, now I'm back to the UK I'm looking at another share dealing account. Thoughts?

Check out http://monevator.com/compare-uk-cheapest-online-brokers/ to see which broker will suit your investing style and portfolio value.

[stuckmojo]

24 minutes ago, Inoperational Bumblebee said:

Check out http://monevator.com/compare-uk-cheapest-online-brokers/ to see which broker will suit your investing style and portfolio value.

Thanks

[ThePrufeshanul]

It's quite straightforward, HB doesn't like immigrants or homosexuals hence his comments.

Depsite that the question he asks is a valid one - if there is an upcoming crash why does it not make sense to get a serviceable (fixed rate) access to cash to invest in the right places to take advantage of this?

[leonardratso]

3 minutes ago, ThePrufeshanul said:

It's quite straightforward, HB doesn't like immigrants or homosexuals hence his comments.

Depsite that the question he asks is a valid one - if there is an upcoming crash why does it not make sense to get a serviceable (fixed rate) access to cash to invest in the right places to take advantage of this?

isnt that trading on margin?

 

always ends very well, ask some chinese traders,

Edited August 14, 2017 by leonardratso

[ThePrufeshanul]

Well I guess it would be a bit like shorting the market.

The reason we are in such a mess is that money is so cheaply and easily available. 

So, it's surely a valid question whether or not that cheap cash (it's never been cheaper!) can be used to an advantage.

So far, apart from general grumblings and warnings, no-one has posted a valid argument or support either way. 

[Talking Monkey]

3 hours ago, durhamborn said:

I have no idea the cost of a loaf of bread from tomorrow or any other time.However what i do know is the person selling the grain to make it will be making more profit than the retailer in the mid 2020s if things work out as i think.They key point is input inflation will be higher than output in most consumer areas.Margins will compress for the retailer (mostly) and rise for the producer of commodity (mostly).

UK debt per household will fall if you take out government debt.The credit cycle is ending.Households will have much lower percentage debts by 2025 than they do today.

We cant know how each part will work out though and there will always be examples that dont fit.Mines that go bust and odd retailers who fly in a reflation.However the broad spread is whats important and direction.Before we get to that though we need to get the deflation event.Without it we wont see the printing needed to kick in a reflation.A recession wont do it.It needs to be huge,as i expect its going to be.We have to just wait and pick over all the data that flows in for now.

DB the driver of lower household percentage of debt does that mean the percentage of the entire UK debt load attributable to households is lower, that makes sense to me as the government will be cranking up borrowing so the percentage carried by households of the total falls. However the average debt per household relative to average household income does that come down too, if so what is the driver, is it higher wages, if so wouldn't the increased wages be consumed by inflation, just trying to get my head round what the standing of the average household will be in 2025

[durhamborn]

15 minutes ago, ThePrufeshanul said:

Well I guess it would be a bit like shorting the market.

The reason we are in such a mess is that money is so cheaply and easily available. 

So, it's surely a valid question whether or not that cheap cash (it's never been cheaper!) can be used to an advantage.

So far, apart from general grumblings and warnings, no-one has posted a valid argument or support either way. 

Leverage for investing is a huge area and a personal choice.Myself iv never and would never use it.However if things pan out is there an argument for borrowing £10k if you have no savings and buying the GDX or COPX or both?.Yes.The problem is when you introduce leverage you introduce risk.Its leverage that is going to make this cycle turn so painful.

I dont think its possible for one person to tell another if they should use leverage,but for ordinary people just trying to built a portfolio over the years id say avoid it myself.People make different choices when leverage is involved and pay for too much attention to the tape every day.

[durhamborn]

3 minutes ago, Talking Monkey said:

DB the driver of lower household percentage of debt does that mean the percentage of the entire UK debt load attributable to households is lower, that makes sense to me as the government will be cranking up borrowing so the percentage carried by households of the total falls. However the average debt per household relative to average household income does that come down too, if so what is the driver, is it higher wages, if so wouldn't the increased wages be consumed by inflation, just trying to get my head round what the standing of the average household will be in 2025

Debt service costs will probably be much higher than now so households will probably be paying more out in debt costs even though they owe less through the cycle.The average debt will come down compared to the average income,but the service costs of that debt will probably out run the cuts in principal debt (at least from halfway in the cycle).Interest rates will likely rise slowly for the first few years then speed up.The wage inflation will mostly be eaten up by increased costs,but not all.The reason the consumers principal debt will be much lower is because they will consume less through the cycle as well i expect.Consumers should be in much better shape by the end of the cycle,but they probably wont feel like they are.A lot depends on the size of the defaults as well early in the cycle.People tend to fight to keep their "home".This debt shock is one of the causes of the deflation.People pull in spending out of fear once they see others start to roll over.The CBs made a huge mistake not letting the business cycle end last time.How much of a mistake we are about to find out.

[Talking Monkey]

1 minute ago, durhamborn said:

Debt service costs will probably be much higher than now so households will probably be paying more out in debt costs even though they owe less through the cycle.The average debt will come down compared to the average income,but the service costs of that debt will probably out run the cuts in principal debt (at least from halfway in the cycle).Interest rates will likely rise slowly for the first few years then speed up.The wage inflation will mostly be eaten up by increased costs,but not all.The reason the consumers principal debt will be much lower is because they will consume less through the cycle as well i expect.Consumers should be in much better shape by the end of the cycle,but they probably wont feel like they are.A lot depends on the size of the defaults as well early in the cycle.People tend to fight to keep their "home".This debt shock is one of the causes of the deflation.People pull in spending out of fear once they see others start to roll over.The CBs made a huge mistake not letting the business cycle end last time.How much of a mistake we are about to find out.

Thanks DB makes sense. On that last point absolutely agree it just set things up for an inevitable even bigger correction

[leonardratso]

I wouldnt borrow money to gamble, you lose your gamble and its gone, but at least if it wasnt borrowed then thats a full stop under your losses.

Its basically why i wouldnt spread bet or go into fx trading, the downside risk is too much for me personally.

 

 

[durhamborn]

1 minute ago, Talking Monkey said:

Thanks DB makes sense. On that last point absolutely agree it just set things up for an inevitable even bigger correction

It did and cant be explained why they did it.The cycle was ending and it wouldnt of been pretty,but a nasty recession with a smashed up financial system would of been the result.Intead we now face leverage on a scale never before seen where balance sheets both personal and business are stretched even on cycle end rates.I dont think people understand that in a macro sense the Fed has already tightened to a very large degree.It has shrunk the monetary base since QE3 (nearly 3 years) against a hugely leveraged system.You could argue they had no choice due to asset inflation,but that passes the blame for their past mistakes.

Trump is talking about China again today and tariffs.

 

[jonb2]

5 hours ago, frederico said:

In my lifetime I don't recall them printing money. I do remember the BOE taking the actions I suggested. I am aware of devaluation and tax increases. I'm not sure why you think the government will cause inflation by spending money. This has never been their agenda. They tried that in Japan a bit, ended up with bridges to nowhere and no inflation.

The FED and the Americans generally have a lot better grip on reality than the BOE and UK government. The FED wants to normalise rates, bank debts and unwind QE, the government wants on shore manufacturing and technological exploration.

I'm not sure how building the M6 toll road, crossrail and eventually HS 2 are ever going to create inflation. They are deluded attempts at improving productivity which obviously fail and actually reduce productivity by adding to debt and increasing taxes.

My view, this is as good as it gets, it may take a few years to play out, but the party's over. Poverty wages are here to stay, Thatcher's high value high wage economy only happened in the city. We're then looking at 20 years of grind. 

We could have done it another way by actually being clever and creating valuable i.p. However anything of any real value in this country gets sold off.

I also think that none of our politicians or bankers really understand how to construct a successful economy. In fact most of the population have no idea. Such is the decline of educational standards and rise of celebrity culture in this country.

Absolutely bang-on Frederico. I will add the deliberate manipulation and distraction techniques used by the corporatists (those really in charge). For example, the continued left/right juxtaposition, Brexit, third rate TV, individual human stories, Facebook et al.

The trouble is this destroys so much. Where's the creativity this country was so good at? I also fear that the famed British Dunkirk spirit cohesion is being eroded.

I remember Gillian Tett when financial correspondent at the Beeb, now the FT US correspondent. She said when asked about what happens next on the Greek tragedy something along the lines of "You are asking me in cold financial terms what happens next, but my degree was in sociology, people will decide long term and they are very unpredictable".

[Leviathan]

I've long been of the opinion that the cycle is going to play out in three overlapping parts, first a currency war, then a trade war and then war kind of rhyming with the 30s-40s. I see the ending of the currency war coinciding with a deflationary bust as per DBs posts with money flowing to US Treasuries and the Dollar for a final time. I believe the trade war has started with some evidence that tariffs have been on the rise globally since 2011, Brexit, Trump, US/EU sanctions against Russia etc recently taking this to the next level. Perhaps we will see tit for tat moves between China and US next and/or a hardening of Brexit or another EU member looking to exit or renegotiate terms?

As for war I think we are a fair way away yet posssibly 7-10 years but rearming the military might be one reason for reflation - with a new deal that DB talks about maybe we will avoid or limit this final phase. The latter part of this view  is influenced by the book the Fourth Turning (quite similar to the K winter) which also chimes with the long term secular ending of the credit cycle and interest rates bottoming with a final deflationary leg down. The key to this for me is social mood - you can see a hardening of views now in many places in society including on HPC and I expect politics and economics to be profoundly affected by the hardening of this mood going forward and I don't expect a return to the broad consensus that has existed since 1980 anytime soon.

Similar to DB I see a reflation, public works, military reequipping, investment in energy self sufficiency, and a general move away from the consumer to the producer. To get there central banks will need to have been seen to fail first.

Lev

 

[Democorruptcy]

2 hours ago, ThePrufeshanul said:

Well I guess it would be a bit like shorting the market.

The reason we are in such a mess is that money is so cheaply and easily available. 

So, it's surely a valid question whether or not that cheap cash (it's never been cheaper!) can be used to an advantage.

So far, apart from general grumblings and warnings, no-one has posted a valid argument or support either way. 

I think you should go for it - ALL in.

The best time to buy assets is when asset prices are low and rates are high, as rates decrease assets should increase

The worst time to buy assets is when asset prices are high and rates are low, as rates increase assets should decrease

At the moment we have record high assets and record low rates. So you borrow a lot of money at a low long term fixed rate and short the S & P 500 

If it all goes pear shaped the UK isn't a one of the worst places to go bankrupt. 

 

 

[ThePrufeshanul]

11 minutes ago, Democorruptcy said:

I think you should go for it - ALL in.

The best time to buy assets is when asset prices are low and rates are high, as rates decrease assets should increase

The worst time to buy assets is when asset prices are high and rates are low, as rates increase assets should decrease

At the moment we have record high assets and record low rates. So you borrow a lot of money at a low long term fixed rate and short the S & P 500 

If it all goes pear shaped the UK isn't a one of the worst places to go bankrupt. 

 

 

LOL - think you may have the tongue firmly wedged in the cheek there but I'm considering it.

From Stanley Druckenmiller (one of the most successful hedge fund managers of all time):

https://www.fool.com/investing/general/2014/09/07/5-ways-to-improve-returns-from-this-billionaire-an.aspx

"While working for George Soros between 1988 and 2000, Druckenmiller cemented his reputation making huge speculative bets on macroeconomic trends. In 1992, he made his most famous trade, taking a $10 billion short position -- betting the value will fall -- against the British Pound. When the Pound crumbled on what would be referred to as "Black Wednesday" Soros' fund walked away with a cool $1 billion in profit. 

Overlapping his work with George Soros, Druckenmiller also ran his own hedge fund. From 1986 until he retired in 2010, Duquesne Capital averaged 30% returns and never had a down year. 

For investors that want to amp up their investing returns, here are 5 tips from this legendary hedge fund investor.

3. When you're right, go big
"I like putting all my eggs in one basket, and then watching the basket very carefully." 

Most novice investors could drastically improve their returns by practicing extreme diversification -- or buying and holding an S&P 500 index fund over a long period of time. For those of you looking to beat the market, however, Druckenmiller suggests building a smaller portfolio and sticking to the investments you have the most conviction in." 

 

Clearly it's a high risk strategy and not something I would advise anyone to pursue however definitely some food for thought.

[Democorruptcy]

21 minutes ago, ThePrufeshanul said:

LOL - think you may have the tongue firmly wedged in the cheek there but I'm considering it.

Clearly it's a high risk strategy and not something I would advise anyone to pursue however definitely some food for thought.

It was tongue in cheek about the bankruptcy but when markets are at all time highs, it's got to be tempting to think they might go lower before they go a lot higher.

Taking the S&P 500 at a current 2465

Say you short it with figures in mind of say

2065 or -400 pts or -16%

3465 or +1000 pts or +40%

At say £50 a point you would betting £50,000 at 2/5 or 1.40 to win £20k, that it hits 2065 before it hits 3465 (excluding charges)

I am not a financial advisor, DYOR etc.

[durhamborn]

2 hours ago, Leviathan said:

I've long been of the opinion that the cycle is going to play out in three overlapping parts, first a currency war, then a trade war and then war kind of rhyming with the 30s-40s. I see the ending of the currency war coinciding with a deflationary bust as per DBs posts with money flowing to US Treasuries and the Dollar for a final time. I believe the trade war has started with some evidence that tariffs have been on the rise globally since 2011, Brexit, Trump, US/EU sanctions against Russia etc recently taking this to the next level. Perhaps we will see tit for tat moves between China and US next and/or a hardening of Brexit or another EU member looking to exit or renegotiate terms?

As for war I think we are a fair way away yet posssibly 7-10 years but rearming the military might be one reason for reflation - with a new deal that DB talks about maybe we will avoid or limit this final phase. The latter part of this view  is influenced by the book the Fourth Turning (quite similar to the K winter) which also chimes with the long term secular ending of the credit cycle and interest rates bottoming with a final deflationary leg down. The key to this for me is social mood - you can see a hardening of views now in many places in society including on HPC and I expect politics and economics to be profoundly affected by the hardening of this mood going forward and I don't expect a return to the broad consensus that has existed since 1980 anytime soon.

Similar to DB I see a reflation, public works, military reequipping, investment in energy self sufficiency, and a general move away from the consumer to the producer. To get there central banks will need to have been seen to fail first.

Lev

 

Thanks Lev,interesting.I agree on the trade wars,thought they probably wont be full on,just tariffs being adjusted over time.They are all part of a reflation cycle so very likely.Social mood is important though i think it follows the cycle rather than creates it.Like you say that is one of the reasons i see the reflation cycle containing all of the above you state.

Key as you mention is the end of the credit cycle.I think thats already turned,but the lags wont show it yet.They will soon.

I actually think we are going to get the reflation by accident,not design.More, there will be such a panic that the market and even society is breaking down they (CBs) will act.I dont think they will be seen to of failed,but i do think there is no way they can pump money just into the banks.Politics wont allow that this time.If the banks get capital (as they will) it will only be after the equity is wiped out and the senior bond holders i think.The printing will be going to government.UK i see massive investment in energy self sufficiency as you say.Thats almost certain and the cycle will favour the producers yes.Google earth in 20 years wont show a chinese produced trampoline in every 3rd garden,but it might show massive amounts of wind farms and battery storage plants.

[Old Guy]

.

[Talking Monkey]

2 hours ago, durhamborn said:

Thanks Lev,interesting.I agree on the trade wars,thought they probably wont be full on,just tariffs being adjusted over time.They are all part of a reflation cycle so very likely.Social mood is important though i think it follows the cycle rather than creates it.Like you say that is one of the reasons i see the reflation cycle containing all of the above you state.

Key as you mention is the end of the credit cycle.I think thats already turned,but the lags wont show it yet.They will soon.

I actually think we are going to get the reflation by accident,not design.More, there will be such a panic that the market and even society is breaking down they (CBs) will act.I dont think they will be seen to of failed,but i do think there is no way they can pump money just into the banks.Politics wont allow that this time.If the banks get capital (as they will) it will only be after the equity is wiped out and the senior bond holders i think.The printing will be going to government.UK i see massive investment in energy self sufficiency as you say.Thats almost certain and the cycle will favour the producers yes.Google earth in 20 years wont show a chinese produced trampoline in every 3rd garden,but it might show massive amounts of wind farms and battery storage plants.

For the large global banks is the view that they are better capitalised than 2008 or will a lot of them completely fail taking the deposits down too, I expect as above most f the equity to go

[leonardratso]

1 hour ago, Old Guy said:

.

its true i tell you.

[Mooping]

A quick question.  If this scenario comes to pass, what's likely to happen to the price of agricultural land?  It is now I believe in bubble territory.

[durhamborn]

12 hours ago, Talking Monkey said:

For the large global banks is the view that they are better capitalised than 2008 or will a lot of them completely fail taking the deposits down too, I expect as above most f the equity to go

They are better capitalised but the derivative exposure is huge.I think several banks around the world will go under.In the UK i think Barclays might be in trouble depending on how bad the crash its.I dont see any deposits being lost though below the protected amounts (if any) and i actually have money with Barclays because in a deflation the CBs will be printing as much as they need.They will prop up the banks,but this time they will let the equity go to zero and the senior bond holders all get cleaned out i think.

[stuckmojo]

4 minutes ago, durhamborn said:

They are better capitalised but the derivative exposure is huge.I think several banks around the world will go under.In the UK i think Barclays might be in trouble depending on how bad the crash its.I dont see any deposits being lost though below the protected amounts (if any) and i actually have money with Barclays because in a deflation the CBs will be printing as much as they need.They will prop up the banks,but this time they will let the equity go to zero and the senior bond holders all get cleaned out i think.

Which is only fair and should have happened the first time around. Now that everyone had more than a fair chance to protect themselves, it's time for some to understand what "risk" means with lending money to a bank beyond the guaranteed sums and buying their shares

 

[durhamborn]

12 hours ago, Mooping said:

A quick question.  If this scenario comes to pass, what's likely to happen to the price of agricultural land?  It is now I believe in bubble territory.

Probably do very well.There could be a big lag though where it goes down a lot first.A lot of the assets that will do the best in a reflation will get hit hardest in a deflation sell off.Two of the biggest financial mistakes iv ever made.First not buying a holiday home  for £60k that is now "worth" £300k and rents for £500 a week holidays, i was minutes away from buying it at an auction,and not buying a huge field for £7k i was offered when i was 21.I regret the field more as i could of built my own wildlife reserve on it,its in a beautiful valley.