Eventually Right

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  1. Eventually Right

    Credit deflation and the reflation cycle to come.

    I treated myself to a real vision subscription recently, and was listening to one of their latest videos today, an interview with a PM fund manager, Ned Naylor-Leyland. I found one of the points he made about how gold reacted initially in 2008 interesting. his argument was basically that gold’s 30% price dip in 2008 was due to the market’s believing that the use of unconventional monetary policies (QE etc) was very unlikely to occur. Once it became obvious that they were going to be used, gold quickly reversed. As markets no longer have that psychological hurdle to believing QE to infinity can/will be used, his argument is that a market/economic crash wouldn’t have that same depressing initial influence that happened in 2008. In fact it would be the opposite. I’ll post the relevant transcript below-I’d be interested in people’s views on this, why it might be wrong/right. “So 2008 often gets referred to. But we're not there anymore. And it's not a it's-different-this-time point. It's very, very clear what happened to me. If you look at the Real Yield index I referred to, what you will see is before QE was mentioned, we were in a deflationary collapse. That meant that money on deposit, dollars on deposit, on a forward-looking basis were, according to the bond market, gathering purchasing power just being sat there. Now that is not good for the dollar-gold price. So the dollar-gold price went down nearly 30% in very short order during 2008 before this new, wonderful world of QE was even discussed openly. The moment that happened, it turned. The bond market understood that we are now in an environment where conventional-monetary policy is not around. And we are still in that post-'08 environment, where if we need to, we can go into yet more unconventional environments-- more QE, negative rates-- all these things. We're not where we were in '08 when gold went down 30%. It went down 30% because the bond market-- if you look at the Barclay's-Bloomberg index, it was pricing $1.04. So it was saying, money will be worth 4% more in seven to 10 years' time than it is today. I cannot see any environment of stress where the bond market is going to be pricing that. For me, it's clearly going to go the other way. And people will realize we're going from what is already a tight environment to an extreme-loose one very quickly. It should be the opposite of what we had before.”
  2. Eventually Right

    Credit deflation and the reflation cycle to come.

    A guy I follow on twitter made a case for gold not plunging during a stock market crash in the last few days. His rationale was that whereas in 2008 the large spec positions were long, and gold was in a bull market, at the moment specs are short, and gold seems to be in a bear market. Therefore in 2008, when the spec longs had to close their positions to meet margin calls, they sold, and gold sank. If the same were to happen today, the specs would have to close their short positions by buying, which would have a positive effect on the price of gold and the miners. It makes rational sense to me, although I'd have no clue what the spec position on gold was in 2008, so couldn't confirm whether it was net long, and by how much. It may just mean that the PM miners wouldn't get to quite so crazy a bargain price, compared to other sectors, in the event of a crash.
  3. Eventually Right

    Credit deflation and the reflation cycle to come.

    Anecdotally, I was a VW garage a couple of weeks ago as my girlfriend was looking for a new (second hand) car. i was talking to one of the salesmen about the new 18 plate Polo, and noted to him that they seemed significantly bigger than the old model. His response was that the reason behind this increase in size, was that Golf drivers on finance deals were finding it difficult to afford to finance a new Golf, and so the Polo had been increased in size to give them a similar sized, but more affordable option. No idea whether it’s true or not (it tripped off his tongue, and he seemed confident-but that’s his job), but surely a sign of a bubble running out of road if so.
  4. Eventually Right

    Credit deflation and the reflation cycle to come.

    If you buy UK coins (Britannia’s) are they not exempt from CGT? (obviously UK govt could change the rules)
  5. Eventually Right

    Credit deflation and the reflation cycle to come.

    Yup-sorry, I was just using the spot price for simplicity. I’m just trying to decide how much I invest in PMs/miners/reflation shares now, and how much I keep in cash, given there’s a risk (however unlikely) of skipping the deflation, and the PMs being very close to their lows (at least in sterling) already. its a tricky one!
  6. Eventually Right

    Credit deflation and the reflation cycle to come.

    Hi Durhamborn, I have a question about buying physical PMs if the scenario you see plays out. as I understand it, you can see silver dropping to from it's current level of $16-17 to $10 in a bust, then potentially going to $100+ in the reflation. ideally, if that was to come to pass, it would be preferable to buy at $10 in the deflation, rather than $16-17 now. however, I believe you’ve said you see sterling falling to parity with the dollar in a deflation, as everyone rushes for the safety of the US? In which case you’re talking about paying approximately £12.50 an ounce now, compared with £10 if silver and the £ fall. Given I believe you see that there’s a chance (although you don’t think so) we skip the deflation and go straight to reflation, wouldn’t someone looking to buy physical PMs be better forgoing the potential cheaper prices a deflationary bust would bring, and pay the £12.50 rather than a potential £10? given the potential payoff you see ($100+ silver) should we be that bothered by buying at $16? obviously miners are different, due to the leverage involved and could drop more in a crash/rise more in the reflation. thanks.