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

[nirvana]

The system is bunged up again

All this newly printed money is going nowhere except the stock market, the FED are creating a fuck up of EPIC proportions 

 

[nirvana]

20 minutes ago, Cattle Prod said:

And if it doesn't come out quick enough, they'll stuff more into the pipes to unblock the system. Like eating All Bran 

Indeed, interesting to watch...

 

 

[DurhamBorn]

If you look at the main risers today the market is moving past systemic risk (though it still remains in smaller amounts) and to where inflation goes in the end.At the end of dis-inflation,buy assets,not profits.

Fed and Boe should try to control the long end of the curve as well soon like they did in the 40s,in affect any time yields rise above a set level at the long end the Fed will buy as many bonds as it needs to to force the yield down.They then control the whole curve.It means expanding the printing by big amounts,and will force people into shorter dated debt.Thats what will kick in the real reflation.Silver starting to move would indicate the Fed is already getting active,or ready.

The safe haven market then isnt,because its where governments are going to fund the massive costs of reflation.Expect the Fed and Boe to control the long end,then governments to issue very long term debt at the then very low rates.Only when the CBs have monetized all the disinflation of the past 40 years will rates increase,then they will run and run.The key is the CBs and governments are going to force rates down at the long end,then once down push through massive borrowing at long terms,30 maybe 50 years at very low rates and only then once governments have recovery locked in will CBs stop buying the curve.

Reflation is locking in now ,the irony is we are about to see the lowest rates ever at the long end,the end and a beginning.

[Starsend]

24 minutes ago, DurhamBorn said:

If you look at the main risers today the market is moving past systemic risk (though it still remains in smaller amounts) and to where inflation goes in the end.At the end of dis-inflation,buy assets,not profits.

Fed and Boe should try to control the long end of the curve as well soon like they did in the 40s,in affect any time yields rise above a set level at the long end the Fed will buy as many bonds as it needs to to force the yield down.They then control the whole curve.It means expanding the printing by big amounts,and will force people into shorter dated debt.Thats what will kick in the real reflation.Silver starting to move would indicate the Fed is already getting active,or ready.

The safe haven market then isnt,because its where governments are going to fund the massive costs of reflation.Expect the Fed and Boe to control the long end,then governments to issue very long term debt at the then very low rates.Only when the CBs have monetized all the disinflation of the past 40 years will rates increase,then they will run and run.The key is the CBs and governments are going to force rates down at the long end,then once down push through massive borrowing at long terms,30 maybe 50 years at very low rates and only then once governments have recovery locked in will CBs stop buying the curve.

Reflation is locking in now ,the irony is we are about to see the lowest rates ever at the long end,the end and a beginning.

Probably not quite time to sell the rest of my IBTL yet then, might be one last leg up.

[DurhamBorn]

If anyone is interested in how the Fed manipulated the curve at the long end in the 40s (as i think they are about to do again) its below from the Fed themselves.Roadmaps would say the Fed would expect to maybe end up with 50% to 70% of all bonds by the time the stop.Its why i expect the Fed to get to $10 to $15 trillion in printing minimum.

https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr913.pdf

 

[DurhamBorn]

4 minutes ago, Cattle Prod said:

Sorry DB, I don't understand the bit in bold. I feel this is an important statement and I want to make sure I understand it. Do you mean the safe haven market is then not longer safe? And do you mean TLT and the like?

Yes,because its on borrowed time.The Fed will control the rates along the curve forcing them down,so in affect your capital is safe,but they will continue to do so as inflation increases and that means real terms losses.They will then allow rates to increase and pull back from controlling the curve and that is when nominal values of longer term debt will fall.How and when they stop the control we cant know yet,its only a when.In affect they are saying your capital is safe,but for that we are going to take a charge through inflation and give it to the people in government spending.Plus we will monetize as much as we need to until we dont need to.The pumps are being filled,controlling the long end will then start to force it out,first through government,then through people deciding they dont like certain real terms losses.

 

[Hardhat]

I'm eyeing up Siemens as a potential buy - it's recovering from a covid slump but still at multi year lows, and I would have thought would do well in reflation scenario. Anyone hold / got an opinion on it?

[DurhamBorn]

10 minutes ago, Cattle Prod said:

Veolocity! I must find out what gold and silver did in the 40s, thanks DB.

Exactly.Silver trebled between 40 and 47,gold was controlled then.

[DurhamBorn]

Just now, Hardhat said:

I'm eyeing up Siemens as a potential buy - it's recovering groom a covid slump but still at multi year lows, and I would have thought would do well in reflation scenario. Anyone hold / got an opinion on it?

Big winner from cycle,but already huge so upside will be lower than many other areas.As a core holding in a more conservative reflation portfolio though a fine holding.

[jamtomorrow]

50 minutes ago, Cattle Prod said:

Per my comment on onshoring from China, the drum is beating:

 

Massive incentive and opportunity for automation to affect how this plays out.

As in: if you were about to embark on repatriating production capacity, why wouldn't you take the opportunity to automate it up the ass as you build out (relative to the automation level in, say, a Chinese equivalent)?

Cost of labour is one factor. Advances in automation another. And of course (and back, again, to the main point of this thread), ten years down the line, would you rather have your production costs governed by an inflated-away debt facility or the inflated-up wages of your workforce?

Smart capital could do well out of this, but can't see it doing much for jobs.

[jamtomorrow]

8 minutes ago, Cattle Prod said:

Let's hope the UK goes for that kind of investment. The government could easily encourage it by no longer subsidising companies by paying people to be inefficient via tax credits and working 16hrs a week for top ups etc. Just subsidise the people and be honest about it, and let the bad companies collapse, and the good companies thrive.

A thought experiment:

People are currently being conditioned to get paid for sitting at home, not much of a stretch now to citizen income. So everyone gets an income, while companies have to innovate and automate like hell as you suggest. Everyone is happy! That is until inflation means the government can't print citizen income any more, oops. And per this thread, inflation loving companies such as those we own will have done very well. So the holders of real assets will have done well, while most people will have done not anything except improve their artwork/gardening/protesting/drinking etc. Then the taps turn off, with inflation out of control. The asset holders run for the hills (in my case, that will literally happen), while the indolent mass will erupt. When hard work gives you purpose in life, the opposite gives you...Mad Max?!

My tongue is only slightly in cheek. I give the above scenario a lot higher chance of happening than I did three months ago.

Absolutely this. Automation could prove to be one hell of a cherry on top of the end-of-decade Big Kahuna.

Thinking about this within the inflation thesis (and asking the important question: what will make this rhyme rather than repeat?) ... does automation have implications for how velocity will work out this time? If an ever greater fraction of the production surplus is captured by capital (because automation), at what point does velocity fail to get airborne?

I fully realise the "victory" of capital over labour has been oft predicted ever since before the luddites, but the degree to which automation is looking capable of eating what were previously considered "uniquely human" skillsets is astounding.

[Bricks & Mortar]

1 hour ago, DurhamBorn said:

Exactly.Silver trebled between 40 and 47,gold was controlled then.

Where are you getting that silver trebled between 40 and 47?  In what currency?
I may be using different sources.  But as far as I can see, it barely doubled.
https://www.chards.co.uk/silver-price/all-time-price-usa-dollar

[nirvana]

1 hour ago, Cattle Prod said:

People are currently being conditioned to get paid for sitting at home, not much of a stretch now to citizen income. So everyone gets an income, while companies have to innovate and automate like hell as you suggest. Everyone is happy! That is until inflation means the government can't print citizen income any more, oops. And per this thread, inflation loving companies such as those we own will have done very well. So the holders of real assets will have done well, while most people will have done not anything except improve their artwork/gardening/protesting/drinking etc. Then the taps turn off, with inflation out of control. The asset holders run for the hills (in my case, that will literally happen), while the indolent mass will erupt. When hard work gives you purpose in life, the opposite gives you...Mad Max?!

I concur.......<currently out in the hills waiting for the shit to hit the fan> 

 

28 minutes ago, Bricks & Mortar said:

Where are you getting that silver trebled between 40 and 47?  In what currency?

There was a sizeable war going on then...do we really think this is a good comparison!!?? 

[nirvana]

WE'RE ALL RICH!

THE MARKETS ARE GOING BATSHIT CRAZY AGAIN! 

Right I'm off to run around the house 20 times to control my OCD 

[DurhamBorn]

1 hour ago, Bricks & Mortar said:

Where are you getting that silver trebled between 40 and 47?  In what currency?
I may be using different sources.  But as far as I can see, it barely doubled.
https://www.chards.co.uk/silver-price/all-time-price-usa-dollar

https://sdbullion.com/silver-price-by-year

[DurhamBorn]

44 minutes ago, 5min OCD speculator said:

I concur.......<currently out in the hills waiting for the shit to hit the fan> 

 

There was a sizeable war going on then...do we really think this is a good comparison!!?? 

There is a war going on now,and there is a new cold war starting,and nothing affects metals like real inflation.The comparison is 100% apt because its the last time the Fed tried to control the curve at the long end as i suspect they are about to start.The market expects the Fed messing around in the short end,but if they move to flatten the whole curve they are saying we will inflate until we dont have to,if you want security of capital then your going to pay society a rent in inflation for that

[reformed nice guy]

2 hours ago, Hardhat said:

I'm eyeing up Siemens as a potential buy - it's recovering from a covid slump but still at multi year lows, and I would have thought would do well in reflation scenario. Anyone hold / got an opinion on it?

I bought them for that reason and their Healthineers spinoff. Medical imaging will only grow in the future. It is currently a major bottleneck for a lot of medical issues and requires very large capital expenditure which *hopefully* should happen during a low rates environment.

It is also a likely recipient of loads of dough from the German government when times get tough

[jamtomorrow]

41 minutes ago, Cattle Prod said:

Velocity directly from the consumer's pocket, maybe. If (the vast vast majority of) people feel like they have a guaranteed income, they won't save a thing, and will spend every penny. Their life becomes backstopped, no more worries. Then velocity becomes a direct function of how much money the CBs/Govts print and spray.

That does seem like the "remorseless logic" endpoint of the automation era.

Kinda mind-blowing to imagine a future where reward for work is no longer a useful or viable way of sharing out resources in the economy. "Work" as a moral virtue is perhaps the most ingrained of all, and hard for many/most to look beyond.

[JMD]

4 hours ago, Hardhat said:

I'm eyeing up Siemens as a potential buy - it's recovering from a covid slump but still at multi year lows, and I would have thought would do well in reflation scenario. Anyone hold / got an opinion on it?

HardHat, as DB states above Siemens is a huge conglomerate, so returns might be low.

However, Siemens have been spinning off many of their divisions into separate subsidiaries. For example, maybe look at Siemens Healthineers (medical tech.) or Siemans Gamesa (energy renewables)... these may provide a more focused investment play.

Not advice, for info, only.

[janch]

Wow!  Just caught up.....amazing input from all for the past few days.  All very thought provoking so thanks to all especially @DurhamBorn

[JMD]

4 hours ago, jamtomorrow said:

Massive incentive and opportunity for automation to affect how this plays out.

As in: if you were about to embark on repatriating production capacity, why wouldn't you take the opportunity to automate it up the ass as you build out (relative to the automation level in, say, a Chinese equivalent)?

Cost of labour is one factor. Advances in automation another. And of course (and back, again, to the main point of this thread), ten years down the line, would you rather have your production costs governed by an inflated-away debt facility or the inflated-up wages of your workforce?

Smart capital could do well out of this, but can't see it doing much for jobs.

I agree with what you say. What investments are you looking at?

However Governments will have to resolve those 'employment problems' you mention, probably by finding ways of taxing those 'robots' to fund human UBI (a sort of 'furlough for life', I think it will be popular!). Or perhaps part-time working for all, or combination of both?

[janch]

BBC reporting first use of hydrogen for gas to homes in Scotland:

https://www.bbc.co.uk/news/uk-scotland-edinburgh-east-fife-52711346?intlink_from_url=https://www.bbc.co.uk/news/business&link_location=live-reporting-story

 

[jamtomorrow]

9 minutes ago, JMD said:

I agree with what you say. What investments are you looking at?

Nothing specific so far - I'm at the "what next" stage, having (thanks to this thread) gotten fairly well positioned for the reflation basics.

Hard to map the space out without getting bogged down in specifics. Like: a lot of heat being generated (but not much light?) in the race for self-driving vehicles, yet the important targets might be elsewhere (aka: self-drive has largely totemic importance).

I quite like *some* of the Softbank plays in this direction (deep learning, robotics), just a shame they have to ruin it with trash like WeWork.

[JMD]

4 hours ago, Cattle Prod said:

Let's hope the UK goes for that kind of investment. The government could easily encourage it by no longer subsidising companies by paying people to be inefficient via tax credits and working 16hrs a week for top ups etc. Just subsidise the people and be honest about it, and let the bad companies collapse, and the good companies thrive.

A thought experiment:

People are currently being conditioned to get paid for sitting at home, not much of a stretch now to citizen income. So everyone gets an income, while companies have to innovate and automate like hell as you suggest. Everyone is happy! That is until inflation means the government can't print citizen income any more, oops. And per this thread, inflation loving companies such as those we own will have done very well. So the holders of real assets will have done well, while most people will have done not anything except improve their artwork/gardening/protesting/drinking etc. Then the taps turn off, with inflation out of control. The asset holders run for the hills (in my case, that will literally happen), while the indolent mass will erupt. When hard work gives you purpose in life, the opposite gives you...Mad Max?!

My tongue is only slightly in cheek. I give the above scenario a lot higher chance of happening than I did three months ago.

CP I agree, recent times have shown how crazy things can get under only 'slightly' strained economic circumstances. And timing when to sell those assets might be a very nice problem to have. However, what i've been thinking about recently is the dilemma perhaps of what one would do with the proceeds of those sales?

Commenting on your thought experiment...

I know we may be talking/speculating 2028 or so re. collapse, etc. But for example, you mention literally running for the hills under a 'Mad Max' scenario - i'm not being sarcastic, because this is a genuine question I personally have - but mightn't you get bogged down slightly with all your (gold?) assets... unless, of course you have prepped for such a scenario... and the hill your running toward you already own (with its own homestead, etc)?!    

[Sasquatch]

Just now, Cattle Prod said:

Yes, you would have to have everything in place long before people realise what is going to happen. Capital controls don't take long to go into operation. @Harley is way ahead of the game on this one, and I am about 4-5 years about being where I want to be. But the key thing is: I don't need much. A bit of land, woods, access to fishing, a house with it's own water and heat, I'd live quite happily with very little money. If I have extra, I'll probably buy forestry. I'll always have gold and silver physical, I'll be passing it on to my son.

This is all very interesting. Our plan is a 3 to 4 year one but could be reduced to 2 to 3 years. We need to get moved (95% sure it will to Yorkshire or the east side of Cumbria). Need to get the new property up to spec and, as lots on here agree, it's possible to live quite modestly but well. We want to be on the fringe of a small relatively self supporting community (we have a few locations in mind). The working world holds very little interest for us now. Compared to the average Joe, I reckon we've worked the equivalent of 25 years in the last 15 years whilst we've been running our business. The time has come for this effort to be paid back.