Credit deflation and the reflation cycle to come (part 2)

[feed]

I've been saying this for a couple of years and i expect i'll still be saying it for a while yet.

Mass private ownership of cars in the West is done

All western autos want EV's and cars as a service.  
 

[Errol]

6 hours ago, DurhamBorn said:

Should we set up  Ltd  and buy this up the road from me?.Its still got the bank vault in it,we might even be able to fit @Errol s stash in there and @Harley would be all kinds of happy renovating those locks .

https://www.rightmove.co.uk/properties/106071926#/

Love the fact that from the front it just looks like a normal shop (you could remove the Lloyds Bank sign) but underneath you could be storing hundreds of millions in precious metal.

[Loki]

44 minutes ago, feed said:

I've been saying this for a couple of years and i expect i'll still be saying it for a while yet.

Mass private ownership of cars in the West is done

All western autos want EV's and cars as a service.  
 

That's why I bought a great big petrol truck.  Pointless trying to conform to whatever emissions crap they come out with.  Go out with a bang, as it's a Toyota I hope it's the last 'fossil fuel' vehicle I have to buy.

Emissions surcharges will just be added onto my invoices.

[AWW]

18 minutes ago, Errol said:

Love the fact that from the front it just looks like a normal shop (you could remove the Lloyds Bank sign) but underneath you could be storing hundreds of millions in precious metal.

HSBC does exactly this with a derelict looking shop on Leyton high street.

[Bricormortis]

23 minutes ago, Errol said:

Love the fact that from the front it just looks like a normal shop (you could remove the Lloyds Bank sign) but underneath you I could be storing hundreds of millions in precious metal.

Fixed for you

[MrXxxx]

6 hours ago, DurhamBorn said:

@Cattle Prod i think whats interesting this cycle is how the Fed do tighten.They might actually go to interest rate increases rather than QE removal after the initial tightening.Removing liquidity will cause an incredible bust.Tightening the cost of money might not.Thats the conversation i would be having if i was on the board.Tighten slightly through rates while leaving M3 high.Not yet of course.

How's that going to work? surely the more (surplus) money in the market, the more likely the market (borrowers) are going to demand lower borrowing interest rates?...or am I missing something?

[planit]

Looks like we need to change our position on the oil outlook. Goldman have uncomfortably similar views just even more bullish. 

 

 

Goldman: Oil To Hit $80 On Largest Ever Demand Jump

Goldman Sachs expects global oil demand to realize the biggest jump ever over the next six months, the investment bank said on Wednesday, keeping its bullish forecasts for oil prices this summer.

Higher demand for travel and acceleration of vaccinations in Europe are set to result in “the biggest jump in oil demand ever, a 5.2 million barrels per day (bpd) rise over the next six months,” Reuters quoted Goldman Sachs as saying in a note to clients.

Goldman Sachs continues to see oil rising to $80 per barrel this summer and says that “The magnitude of the coming change in the volume of demand -- a change which supply cannot match -- must not be understated,” as carried by FXStreet.

At the beginning of this month, Goldman also issued a bullish note, saying that it anticipated strong demand that would require OPEC+ putting another 2 million barrels per day (bpd) on the market in the third quarter, after the around 2 million bpd that the alliance and Saudi Arabia decided to return between May and July.

[planit]

India in talks too. Everyone has realised the same thing - there is a looming huge oil shortage

(obviously this is the other way round but tie-ups in any case)

 

Saudi Aramco and India’s Reliance discuss cash and share stake deal

[Loki]

1 minute ago, Cattle Prod said:

I've been looking at hiluxes myself Loki, would you mind telling me the importer you used?

I will PM you, to save cluttering the thread, got some general Hilux JDM info you might find useful

[Chewing Grass]

7 minutes ago, Cattle Prod said:

Big geopolitical move here, China directly taking a slice of the Saudi pie. I've been saying for a while that they are going to have look beyond Iran in the ME, and that it will put them in direct conflict with India and USA. US Sec State is on the phone now threatening withdrawl of security guarantees, I bet. This could be the key move for energy in the coming years.

https://www.reuters.com/article/us-saudi-aramco-stake-china-exclusive/exclusive-major-chinese-investors-in-talks-to-take-aramco-stake-sources-idUSKBN2CF2II

Also, are these the actions of an oil consumer that has plentiful stocks and solid suppliers, or one with an enormous structural supply problem that directly threatens their political regime?

US imports from overseas jumped this week by over 1mbpd. Let's see if that's a trend.

Hence all the manic interest in Windmills, Electric Cars, Rail (HS2), fucking off Airlines via Covid, discouraging travel etc, the single worst thing they could have done would have been to say 'the oil is running out'.

[Animal Spirits]

6 hours ago, janch said:

I'm also wondering about this as house prices are still on the rise everywhere it would seem.  The average is 12%pa in US:

https://notayesmanseconomics.wordpress.com/

Is this a temporary thing before the bust? 

By DH timeline, yes. I do recall DH did stated on more than one occasion that real estate would be a beneficiary in the short term and you could argue the majority of US housing market is quasi-nationalised anyway, guess that's one of the benefits of exorbitant privilege.

Fannie Mae and Freddie Mac were taken over by the Federal Government in 2008 and are known as Government Sponsored Enterprises (GSE's). About 80% of all mortgages in the US are 30 year fixed rate so I imagine on top of what Shaun Richards and Wolf Richter have mentioned regarding the last years speculative mania and inventory shortages there would have been plenty of refinancing into more expensive properties/second homes.

It may have been mentioned in the past but the Basel accord may bear some responsibility:

Basel 1 - Mortgage risk rating of 50%

Basel 2 - Mortgage risk rating of 35%

Basel 3 - Mortgage risk rating in the US for state sponsored mortages is 0% and government debt is also considered risk free. The rest are done on a risk weighted basis depending on LTV.

If DB's longer term timeline of rising rates plays out it will remind people of the relationship between price and yield, John Hussman:

Put simply, the long-term returns that investors can expect in the future are driven by the valuations they pay for their investments, at the time of their investment. When glorious past performance is driven by an advance to rich valuations, past performance is absolutely the last thing that investors should consider, except as a contrary indicator of future prospects.

NAYME blog is good for the discussions on the discrepancy between inflation statistics and what people see every day; the use of hedonics, substitution and weighting distorting the picture. I think some ordinary folk can see it, they just aren't able to articulate it into the bigger picture. Case Shiller sales pairing vs. owner equivalent rents is a great example, where those who don't have assets need to work x amount longer to own the same asset.

Check out Aaron Layman Properties blog, here's a realtor calling things as they are:

https://aaronlayman.com/blog/

It's certainly not how I or most predicted it would run but we didn't fully anticipate they would sabotage the economy and implement forbearance and furlough schemes on the scale they did. As @DurhamBorn has mentioned before, it's all about liquidity but a misread of a situation leaves policy makers with very little room if they want to avoid deflation.

I've seen people say "they'll" never raise rates, ok but let's take this on a few steps. Lets imagine a scenario where the base rate is 0.1% and CPI is 5% or even 10% annually, that is rapid depreciation. Yes you work off debt obligations quickly through financial repression and some will do nothing and lose but what about the others? They won't hang about and that in itself will generate inflationary pressure in the assets they will flee to. It feeds on itself, people instantly get rid of the local currency in exchange for something else; this has gone on numerous times in countries like Argentina.

In this scenario the distortions would quickly filter through elsewhere and I'd suggest you'd see it in political instability or something breaks before that and it's not exactly rock solid now. You would think they'd have to defend the currency at some point even if the they maintain negative real rates for a prolonged period of time. The only possible caveat is a political one, mandated purchasing of government securities which Russell Napier has mentioned...shudder...hopefully that isnt a realistic option on a large scale.

[planit]

1 minute ago, Cattle Prod said:

Yes they realise it, like us basement dwellers have done for some time, but the vast majority of the market still doesn't. Just look at the % of energy stocks in the S&P, XOM getting kicked out of the DOW ffs... sentiment is still poor. We're not mainstream yet, thankfully.

 

The sentiment is also helping cloud judgement.

The article writers are all woke and see it as their duty to 'educate' the plebs. As we have seen with Trump and Covid, they are willing to make up shit if the end goal is achieved.

In the case of the oil sector they are looking for every reason or risk that people should not invest.

In parallel to that you have the activists hounding the funds and cancelling anyone not bending the knee.

Faced with all this negativity investors have questioned their own views and sold out. I could see it on the boards last two days with BP.

 

I am pretty happy still holding, as DB says, the more buybacks at current prices the better.

We have the shit Shell results to come tomorrow so I wonder how the market will take those, I think they hedged at $40 until 2029 LOL.

[planit]

I really hope things don't get too bad regarding an oil shortage.

The environmentalists are partly to blame for global worming by fighting against nuclear for 40 years and I don't want them to be responsible for people starving through lack of food.

 

The world might be an awful place within 3 years, there are so many problems to deal with - left gone crazy, governments gone crazy, banks gone crazy, environment gone crazy.

I have posted too much already tonight, there are no shrimps to talk to. ;)

[planit]

2 minutes ago, Cattle Prod said:

Wtf

...

 

It was a joke, their update just sounded like they screwed up 

Quote

   -- Trading and optimisation results are expected to be significantly below 
      average. 
 
   -- Approximately 80% of our term sales of LNG in 2020 have been oil price 
      linked with a price-lag of up to 6 months. The volatility of the JKM spot 
      price in January had limited impact on Adjusted Earnings. 

 

[Loki]

DXY just took a whack, anything to do with the fed announcement today?

[DurhamBorn]

4 minutes ago, Cattle Prod said:

I thought Powell was very poor in the presser. He was asked @DurhamBorns question about how they will tighten, by rates or by tapering, he fluffed it a bit and went back to script. Some good questions from the press today. 

Its the crucial question.Pulling liquidity would cause a massive crash where rates increases would simply slow down certain sectors.The market is almost to a man expecting nearly all the liquidity to be pulled back first before any rate increases.I think the CBs want the inflated money supply to remain in the system to increase tax take for governments etc and might throw a curve ball and raise interest rates instead.They might do some token liquidity draw first.

Most of our work is now unfolding nicely as we expected and while people are shocked at what unfolds now and concentrates on that we need to be moving along the roadmap to what follows.I dont think they have finished printing yet,i expect a few more tranches yet.

[DurhamBorn]

Im going to blow my trumpet on my dollar call yet again.I dont think anyone iv seen anywhere has called the dollar as well over the last four years as i have,im really pleased that the tools i use are proving so good even with extreme liquidity pulls.Check out the 1 month chart on the DXY when almost everyone again was saying it was going higher.

https://www.marketwatch.com/investing/index/dxy

[Noallegiance]

2 minutes ago, DurhamBorn said:

I dont think they have finished printing yet,i expect a few more tranches yet.

Only another $3.8T for the next CTRL P...

$1,400 Stimulus Checks Are Tiny: Joe Biden Has Bigger Plans For America | The National Interest

[Lightscribe]

https://www.reuters.com/world/europe/great-exit-central-banks-line-up-taper-emergency-stimulus-2021-04-28/
 

Canada first up with tapering...

[DurhamBorn]

1 minute ago, Lightscribe said:

https://www.reuters.com/world/europe/great-exit-central-banks-line-up-taper-emergency-stimulus-2021-04-28/
 

Canada first up with tapering...

Only slowing its purchases remember though,the question is do they remove any liquidity they printed,or do they use rates instead.I think they will use rates and not remove the liquidity so starting the cycle with a much higher monetary base.They are going to say theres the inflation,let the market share it out.

[Noallegiance]

31 minutes ago, DurhamBorn said:

Only slowing its purchases remember though,the question is do they remove any liquidity they printed,or do they use rates instead.I think they will use rates and not remove the liquidity so starting the cycle with a much higher monetary base.They are going to say theres the inflation,let the market share it out.

How does the method of tapering affect the potency of a potential market correction?

[Noallegiance]

Start your engines...

[Harley]

9 hours ago, DurhamBorn said:

......People get way way too interested in the smallest detail when its the big swoop that counts.Getting a roadmap sorted out means you dont waste your time on all the noise.The crazy thing is as well its people who are way clever who make the mistake the most.I spent 5 minutes per balance sheet when i was buying last March.If some had gone under,well tough.I didnt have time.More interested in how the Fed would react and map that than worry if BT had too big a pension deficit,or if some Swedish schoolgirl said oil was finished.Truth is it doesnt matter what the managers do compared to if they can put prices up by 4% a year.

Erroneous precision.  The art is knowing how far to go, regardless of the apparent potential.  You see that mindset everywhere, not just in finance. Trying to dissect everything because you apparently can, meanwhile killing that Leibensteinesque X factor. 

5 mins on a balance sheet is generous!  That's tops for all the financials for me!  I know what I care about, find it and make a decision there without over thinking it.  Nice and boring is great.  Of course I initially had to go deep to define my "simple" approach!

Diverged today as I saw a massive increase in the working cash flow tied up with accounts receivable for a Chinese water company.  Downloaded the accounts, looked deep into the notes, something about land rights and the directors view.

Waste of time.  If it ain't clear, move on.

[JMD]

5 hours ago, Harley said:

@Frank Hovismade a very insightful post on another thread about car usage, pointing out that the authorities here and in the US have done little to prepare the infrastructure for the massive implications of increased electric vehicles, etc.  Something I have also seen mentioned on several podcasts (i.e. scratching of heads and a feeling it's almost impossible to deliver in California).  Then the penny drops - maybe they don't intend for us all to have cars, just "them".  Maybe that's how to read these things.  They're thinking of a lot more changes!  Think it best I keep my SGC, etc!

But realistically we have 20+ years to make the transition to EVs and even then there might be combination of hydrogen and electric cars. First adopters will be those with driveways to enable easy home charging, but I suspect the rest of us will always have to make do with visiting centralised fuel stations. I think shared car ownership will become big if/when/eventually self driving cars become a reality, but in terms of control I think cbdc's and smart meters will provide ample scope for government to 'nudge'(?!) our behaviours along the way. This scatter-gun approach would be seen as a win-win by government because it enables them to achieve their policies without upsetting the voters too much, they can after argue that they are being flexible and offering people options.

[JMD]

6 hours ago, feed said:

I've been saying this for a couple of years and i expect i'll still be saying it for a while yet.

Mass private ownership of cars in the West is done

All western autos want EV's and cars as a service.  
 

You could be correct, but I think the way that would be achieved will take far longer than many think, similar to the self driving car becoming the dominant technology, which I think is at least 10 years away from happening.