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

[JMD]

Anyone here own Gran Columbia Gold?

$400million gold junior, good financials, proven management, 4% divi, debt being paid down. Commentators seem very positive, but don't they always! Chart price has been falling all year but now may have bottomed. I'm tempted, but unsure about Columbia political risk?

Obviously not recommendation/advise, please dyor.

[sancho panza]

Hodges.In bold for skimmers.

More fuel for the taper debate.

https://www.icis.com/chemicals-and-the-economy/2021/09/housing-markets-face-long-term-downturn-as-central-banks-abandon-stimulus/

Last month saw the beginning of the end for the central banks’ 20-year experiment with stimulus. They thought they could overcome demographic pressures from ageing populations by printing bucket-loads of money at zero interest rates to support housing and stock markets. Now they are finally realising this was wishful thinking.

The policy reversal began with an unprecedented letter from Senator Joe Manchin to US Federal Reserve chairman, Jay Powell.  He called on him to stop the Fed’s stimulus program which he said was causing:

“Unavoidable inflation taxes that hard-working Americans cannot afford”. 

Clearly, the White House was seeing rising concerns among voters over the impact of house price speculation – and next year’s mid-term elections are getting closer. Plus, of course, President Biden is focused on supporting families rather than the stock market – as he told Congress in April:

“Trickle-down economics has never worked. It’s time to grow the economy from the bottom up and middle out”.

And Federal Reserve Governors soon began to fall smartly in line with the new focus. Eric Rosengren from Boston was the first to go public, calling for the Fed to stop buying $120bn/month of Treasury bonds and mortgage as these were:

“Mostly helping drive up the prices of interest-rate sensitive goods such as homes and cars. Home prices are rising at the fastest pace in nearly 20 years.”

James Bullard from St Louis was next, and highlighted the depth of the policy reversal now being considered:

“The whole point of asset purchases is to keep longer-term interest rates lower than they otherwise would be, in order to influence interest-sensitive sectors. And if there was ever an interest-sensitive sector, it’s housing. And so you’re getting this rapid increase in prices. I think you’ve also got an aspect of this where you’re freezing out new homebuyers and homebuyers that might be at the lower end of the income distribution, and they’re getting priced out of the market. So it’s not clear to me that we’re really doing anything useful here.” (my emphasis)

This is a quite amazing shift.  The Fed, after all, refused to consider any alternatives to stimulus even after the disaster of the subprime crisis in 2008. It was no unforecastable ‘black swan’ event – after all, even I had been forecasting it here and in the Financial Times. And when the pandemic arrived, they simply did more – taking their balance sheet from $865bn in 2007 to an astonishing $8.3tn today.

The chart highlights how they have taken house prices to the stratosphere over the past 20 years (based on the US Case-Shiller 10-City Index):

• The Index rose from $63 to $83 from 1987 – 1997 as the vast Boomer generation settled down and started families
• The dot.com bubble then saw speculation take it to $114 in 2000, as the Fed cut interest rates
• Fed Chairman Greenspan then focused on moving prices higher – his subprime bubble led it to double to $227 by 2006
• It then, of course, collapsed to $152 in 2009 during the financial crisis and stayed around this level to 2012
• But then Fed Chairs Bernanke, Yellen and Powell pressed the stimulus accelerator, taking it to $275 by May this year

Now seems to be payback time, as clearly very few people can actually afford to buy houses at today’s inflated values.

Instead, they have been buying – as during subprime – on the basis that prices will never fall. So they only focus on how to afford the interest payments each month. They assume that prices will always rise – and so the capital will never need to be repaid.

Sadly, the USA was not alone in using stimulus to turbo-charge house and stock prices, as the chart shows. Total stimulus spend has now reached $50tn since 2009.  China has been “subprime on steroids” as I have noted here and in the Financial Times in the past. Europe has a similar problem due to the European Central Bank and Bank of England’s stimulus policies.

Groupthink around the effectiveness of stimulus has dominated central banks for the past 20 years. It will therefore likely be a long and painful journey back to ‘normality’. The problem is that a whole generation has been taught that house and stock prices can only rise. So there will be lots of ‘false bottoms’ before prices finally reach a stable value. 

[sancho panza]

3 hours ago, Cattle Prod said:

 If the Fed tapers, it means all those assistance programmes also taper. And as you allude to the reason that they can do this and the other countries can't is that they print the worlds reserve currency wich other countries need.

So other currencies should strengthen againt the dollar if they are tapering. You would think. The ECBs balance sheet is much higher as a % of GDP than the Feds, there is lots more room for them yet.

Holger makes the same point.ECB maybe has run out of room.Fed has space left.

Also,makes a good point about junk bond yields below.Could be bullish for yellow stuff and BTC

[JMD]

5 hours ago, wherebee said:

helpful hint: use your toilet roll tubes you all horde (I know as good DOSBODDERS you throw nothing away), fill them with the lint you get out of the clothes washer filters, and hey presto, an instant firelighter.  You can store them easily in an empty cereal packet and you have a whole winters worth of firelighters for free!

At first read i thought you were describing going into the cladding business!!

[JMD]

4 hours ago, HousePriceMania said:

Those charts are off the scale crazy.

You cant tell me there is not more to this whole covid thing.  IMHO it was either used as a great excuse to line the bankers/politicians pockets or there was a banking/financial collapse at the end of 2019 and they are keeping very quiet about it.  

This guy thinks there was indeed a near market collapse toward end of 2019. Subsequent to the near collapse, the tptb apparently needed to put the market (patient) into a (Covid!) coma, inject vast amounts of liquidity medicine, before slowly reviving (withdrawing lock-down!)... 

However, maybe ignore the 'Marxist crap' the author spouts - but for me personally - i think the main thesis is very interesting, dare i say an appealing narrative even. 

A Self-Fulfilling Prophecy: Systemic Collapse and Pandemic Simulation - The Philosophical Salon

 

[Harley]

1 hour ago, Inigo said:

I just signed up for a new SIM with Three (slight saving compared to existing), I had to tick a box saying that I would accept the 4.5% price increase every April.

And they just introduced European roaming fees.  Optimistic bunch!

[Harley]

1 hour ago, Bricormortis said:

I would be cautious on gold till the dollar gets below 91.70. There could be more downside.

Yes, it's a real grind.  But I quite like that as it's often been like that and then done well.  The risk reward is looking better than for a while.  But my focus is more on the cash rich and high div equities as I'm already 20% allocated to physical PMs and crypto. 

My current allocations are 30% equity, 20% hard assets, 20% bonds and 30% cash equivalents.  Just the way it is given where we are.

I reviewed the markets today but have Asia still to do.  Nothing of value bar one copper play.  Asia should be better but the China fear is quite loud atm so I'm cautious.  I need stocks to either break out and smash the normal technical "rules" or pull back and clear.  Oh well, October soon!

I'm probably going to have to take on non-value oriented trades at this rate.  And despite it all, play some options. 

I've already started on deep dives into some sectors to see if my value screens are missing some other gains, starting with the miners and telcos, given the value screens are turning up very little to nothing.

[Yadda yadda yadda]

2 hours ago, Barnsey said:

Genuinely starting to think the Cons want to hand over to Labour in 2023. They can wheel out the magic money tree rhetoric once again in 2027.

 

If you're wearing a tin foil hat then a lab-green pact is perfect for the great reset/build back better.

[JMD]

2 hours ago, Harley said:

It only holds the physical.  Sprott does also invest in mining companies but that's separate.  I looked at some companies and then bought the GCL (LSE) fund instead given it covers hard to get stuff and I could stick it my ISA.  Jonathan Davis mentioned it which was nice of him, although I'm annoyed my research did not id it (but then as he said, it's a small fund).  I may branch out though into some individual holdings.  I'll post and list to validate in case I missed any.   I recommend listening to that Uranium podcast I posted earlier.  One key takeaway is that the Sprott fund is providing/forcing price discovery on the market in that it said, for now, it would issue shares and buy more uranium when it was valued at a premium.  It may list on the US exchange later but will face objections from the utility companies on who's parade it may well have rained on (at least the ones that did not buy forward).  But I digress.  Bottom line, I personally like a mix of physical and miners, just as with PMs.

PS: Talking of PMs, gold may be getting ready to move up from its base and silver may already be on the off over the next few weeks?  Not a recommendation, just possible signs of strength, finally?  Miners and physical?

Thanks Harley. Appreciate your full reply. Yes, i listened a couple days back to the uranium podcast that you posted, in fact it was that which made me do a double-take on the new Sprott fund as i had erraneously thought the fund also held some miners (plus i already own Yellow Cake which holds physical).

Frustratingly, I only got half of my planned allocation to uranium, but am hoping for a pull back (after the recent 20th Aug. 'Sprott spike'!) before buying more uranium miners.     

[janch]

This was mentioned in AG Bell's Shares magazine as a high divi payer (10%+) which they like:

Diversified Energy Company PLC      LON:DEC

 

It's a US gas and oil production company so could be of interest.

This is not a recommendation   DYOR   (I don't have any)

[janch]

UK GDP shows us heading for stagflation

https://notayesmanseconomics.wordpress.com/

I liked this bit:

output in the extraction of crude petroleum and natural gas remains low by historical standards, with July 2021 output 19.1% below its July 2020 level.

I thought I would take more of perspective and here is spglobal looking at the data up until May.

UK crude production has been recovering since 2014, but remains below half of levels at the turn of the millennium.

 

If the record gas prices continue then North Sea Gas is going to look a lot more attractive. Obviously if it is in the UK sector but also if it is in friendly Norway. I realise this is not official policy but at some point governments will be forced to come down from their present fantasies.

[HousePriceMania]

1 hour ago, JMD said:

This guy thinks there was indeed a near market collapse toward end of 2019. Subsequent to the near collapse, the tptb apparently needed to put the market (patient) into a (Covid!) coma, inject vast amounts of liquidity medicine, before slowly reviving (withdrawing lock-down!)... 

However, maybe ignore the 'Marxist crap' the author spouts - but for me personally - i think the main thesis is very interesting, dare i say an appealing narrative even. 

A Self-Fulfilling Prophecy: Systemic Collapse and Pandemic Simulation - The Philosophical Salon

 

If you look at what's happened since it does explain a lot of inexplicable decisions !!!

My only problem with it is, so many countries seem to be complicit with it so something would have leaked out.

CV19 a disease that kills no one that isn;t going to die soon anyway which looks like the flu/common cold used to hand $10T worldwise to the financial sector/banks/corporations.

It's all a bit...odd.

[Sugarlips]

Credit to Doug Casey for this:

 

[Nomad]

I always enjoy the irony of these climate summits, https://www.bbc.co.uk/news/uk-58360996

Surely they should happen by zoom? Or is it a case of do as I say not as I do?

Reminds me of this https://www.bbc.co.uk/news/av/uk-47991377 

[Harley]

1 hour ago, JMD said:

Thanks Harley. Appreciate your full reply. Yes, i listened a couple days back to the uranium podcast that you posted, in fact it was that which made me do a double-take on the new Sprott fund as i had erraneously thought the fund also held some miners (plus i already own Yellow Cake which holds physical).

Frustratingly, I only got half of my planned allocation to uranium, but am hoping for a pull back (after the recent 20th Aug. 'Sprott spike'!) before buying more uranium miners.     

This morning's Moneyweek MoneyMorning mail even had a focus on uranium so might take a while but I agree/am hopeful. 

https://moneyweek.com/investments/commodities/energy/603830/uranium-price-rise-nuclear-power

 

[MrXxxx]

2 hours ago, Nomad said:

I always enjoy the irony of these climate summits, https://www.bbc.co.uk/news/uk-58360996

Surely they should happen by zoom? Or is it a case of do as I say not as I do?

Reminds me of this https://www.bbc.co.uk/news/av/uk-47991377 

Yes I must admit I laughed the other day when Biden went to visit the flooded areas in the US the other day, made a statement that it was all down to climate change, but couldn't see the irony that he took Air Force One [could you get a bigger aircraft?] to get there rather than driving or even using a small jet!

[JMD]

7 hours ago, HousePriceMania said:

If you look at what's happened since it does explain a lot of inexplicable decisions !!!

My only problem with it is, so many countries seem to be complicit with it so something would have leaked out.

CV19 a disease that kills no one that isn;t going to die soon anyway which looks like the flu/common cold used to hand $10T worldwise to the financial sector/banks/corporations.

It's all a bit...odd.

That was my initial thoughts also - how could such an epic financial banking secret be kept? But that was just a lapse on my part. You see I am slowly trying to rid myself of fixating on or blaming global conspiacies. It's like @DurhamBornrepeatedly tells us on this thread, the real driver is the economics, and the political ham fisted policies merely attempt to play catchup. I do of course accept that fraud crimes happen, but in the main, instead of grand complicities, I think that most covert actions/policies by tptb are dogma driven, or maybe simply in our specific case that there are tragically so few choices left when capitalism itself has kinda run out of road.                                                                                                                                                                                       Actually - if not going completely off piste - there is a book by Mary Midgely, The Myths we Live By, which does a great job of explaining how/why these 'myth/dogma driven' models of human behaviour have occured throughout history and across all human endeavour, so also useful I think for contextualising our current rather terrifying 'post truth' era!          https://www.amazon.co.uk/Myths-Live-Routledge-Classics-Paperback/dp/0415610249

[wherebee]

43 minutes ago, JMD said:

That was my initial thoughts also - how could such an epic financial banking secret be kept? But that was just a lapse on my part. You see I am slowly trying to rid myself of fixating on or blaming global conspiacies. It's like @DurhamBornrepeatedly tells us on this thread, the real driver is the economics, and the political ham fisted policies merely attempt to play catchup. I do of course accept that fraud crimes happen, but in the main, instead of grand complicities, I think that most covert actions/policies by tptb are dogma driven, or maybe simply in our specific case that there are tragically so few choices left when capitalism itself has kinda run out of road.                                                                                                                                                                                       Actually - if not going completely off piste - there is a book by Mary Midgely, The Myths we Live By, which does a great job of explaining how/why these 'myth/dogma driven' models of human behaviour have occured throughout history and across all human endeavour, so also useful I think for contextualising our current rather terrifying 'post truth' era!          https://www.amazon.co.uk/Myths-Live-Routledge-Classics-Paperback/dp/0415610249

I would be very very happy if the dystopian 2020-21 and all the lies by governments were economic lead.  That would be the best possible outcome.

[nirvana]

[Green Devil]

13 hours ago, MrXxxx said:

Yes I must admit I laughed the other day when Biden went to visit the flooded areas in the US the other day, made a statement that it was all down to climate change, but couldn't see the irony that he took Air Force One [could you get a bigger aircraft?] to get there rather than driving or even using a small jet!

Its the one rule for us and another rule for the plebs. Nothing has changed throughout humankind. 

[Harley]

2 hours ago, nirvana said:

There's a suitable retort there somewhere.....!

 

[Harley]

18 hours ago, JMD said:

Thanks Harley. Appreciate your full reply. Yes, i listened a couple days back to the uranium podcast that you posted, in fact it was that which made me do a double-take on the new Sprott fund as i had erraneously thought the fund also held some miners (plus i already own Yellow Cake which holds physical).

Frustratingly, I only got half of my planned allocation to uranium, but am hoping for a pull back (after the recent 20th Aug. 'Sprott spike'!) before buying more uranium miners.     

That got me looking at Yellow Cake.  What's going on here?  And did they really both start at the same time (Sprott has presumably inherited the data from the acquired Uranium Participation Corp).  Will Yellow Cake play catch-up or are they somehow different?

[wherebee]

I sold my uranium holdings after making 300% feb-jun ish.  Held onto 100 bucks worth for fun.

Now I'm full of slight regret, as the oilies I ploughed the profits into go sideways...

[nirvana]

9 minutes ago, Harley said:

That got me looking at Yellow Cake

I used to hold Yellow Cake lol (again)

[wherebee]

Suddenly had a morbid idea.  

If mortality in the UK is going to rocket over winter due to a combination of NHS collapse, untreated cancers, ADE, and other lovely stuff...

wouldn't funeral parlours be a good pick?