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

[Green Devil]

5 minutes ago, Talking Monkey said:

Ive checked an hour or so ago and cannot see the Dividends for Exxon or Chevron in HL, is this normal do they have a delay.  Has anybody ever experienced a Divi not turning up and having to chase HL admin.

Dividend date was 10Nov so i would of thought youd have it in hand by now.

[Harley]

2 minutes ago, Green Devil said:

They have already mapped out what happens. They will switch from dollar to CBDC and when they do they will wipe out government and company debt. The only mugs left swimming out when the tide recedes will be those with big fat mortgages as we know pricing of housing is the one thing they will keep constant. They might give all those endebted a sweetner, ie holiday for a few years. But their debts will stand to ensure their compliance in the future. Happy days. Buy bitcoin now while its under 100k.

Well put, I think I might just do that.....!

[Talking Monkey]

33 minutes ago, Harley said:

One thing I'm not clear on (maybe once explained but the brain has shrunk too much to retain) - what actually causes a BK (trigger and then ensuing process)?  And by BK I am assuming we mean a worldwide equity market fall in prices of say 65-80% of 3 to 4 months duration.  I can posit from some classic economics, including Austrian School, but I think the rationale is different.  Is it a solvency/liquidity crisis where the first grain of sand (a company) can no longer fund its debt and we have a cascade effect (an unwinding)?

Vague memories from the early 2000s was how everything was totally nuts the valuations on some of the internet stocks were insane, daft metrics like burn rate and the higher the cash burn the better. The equivalent today are the insane PEs we see. From 2007/8  the first wobble akin to that grain of sand that I became aware of was a couple of funds at Bear Stearns running into trouble.

 

Hunter talks of Fed mistakes leading to a BK, by that I assume the mistake is they at some point over the next few months stop growing their balance sheet in the face of a very very overheated stock market and rising inflation. Alongside this the insolvencies must appear at some point along with  some fund of significant size going pop. Whatever it is that precipitates a very significant correction in hindsight we will interpret it as the straw that broke the camel's back, but in reality it was simply the inevitable consequence of extreme valuations

 

[Talking Monkey]

8 minutes ago, Green Devil said:

Dividend date was 10Nov so i would of thought youd have it in hand by now.

The Ex Dividend date was 10th Nov, the actual pay date was 10 Dec for XOM and Chevron both haven't turned up

[Harley]

9 minutes ago, Talking Monkey said:

Vague memories from the early 2000s was how everything was totally nuts the valuations on some of the internet stocks were insane, daft metrics like burn rate and the higher the cash burn the better. The equivalent today are the insane PEs we see. From 2007/8  the first wobble akin to that grain of sand that I became aware of was a couple of funds at Bear Stearns running into trouble.

Hunter talks of Fed mistakes leading to a BK, by that I assume the mistake is they at some point over the next few months stop growing their balance sheet in the face of a very very overheated stock market and rising inflation. Alongside this the insolvencies must appear at some point along with  some fund of significant size going pop. Whatever it is that precipitates a very significant correction in hindsight we will interpret it as the straw that broke the camel's back, but in reality it was simply the inevitable consequence of extreme valuations

Nice one thanks - so the answer is really in asking the right question.  It seems it is that we have an "overloaded", "top heavy", "inherently unstable", etc ship due to monetary flows in and out which only requires a minor trigger (could be anything) to set off a cascade of events - a great unwinding.  A car ferry with too many and badly positioned vehicles making it unstable and it overturns in a flash due to a minor freak wave or whatever.

All this reminds me of when I studied Advanced Economic Theory all those years ago - so terribly taught they had to give us all a 2:1 for it - but I do remember talk about bouncing balls in boxes and the like - really wish it had worked out back then - or maybe you need to live a bit first (clearly the academic involved hadn't (quelle suprise), hence being challenged to deliver the course!).  

[Talking Monkey]

1 hour ago, DurhamBorn said:

David will be putting out the things he sees in the structure of the macro position.It could be a lot of the market goes down 80% but some holds its own or even goes up.

David worked for the best equity team who ever lived.He was trained by the best macro strategists of the last 50 years.As with Steve Kaplan its best for everyone to enjoy their work and form their own thoughts,but take a lot from those guys.I rate them both as two of the best contrarian investors out there,and among the very few who have seen cycles like the one likely ahead.Nobody under 40 has any memory of whats likely ahead.I can just remember.

The most fascinating part for me is that although both see an almost 80% correction occurring David sees a melt-up first to some very lofty levels

There are tons of awesome insights to be had from both of their work 

[Lightscribe]

1 hour ago, Green Devil said:

😂

80% crash in the stock market next year? 

Inflation 20%, interest rates 15%.

Come on... I could see inflation at 20%, but the rest is pure fantasy. 

It’s not fantasy dear fellow.

Just because the media says one thing, doesn’t change the fact the damage is already done.

The first wave in a Tsunami isn’t the one that causes the devastation.

https://www.cityam.com/almost-a-fifth-of-all-us-dollars-were-created-this-year/

[Green Devil]

2 minutes ago, Lightscribe said:

It’s not fantasy dear fellow.

Just because the media says one thing, doesn’t change the fact the damage is already done.

The first wave in a Tsunami isn’t the one that causes the devastation.

https://www.cityam.com/almost-a-fifth-of-all-us-dollars-were-created-this-year/

So where does it say 20% inflation means 15% interest rates?

Old school money theory spread by dinosaur gold bugs in the media.

[Underwhelmed]

Have previously posted excerpts from this guy's newsletter again this part is pertinent to this thread and resonates with the main thesis:

https://www.cmgwealth.com/ri/on-my-radar-minus-43-8-to-fair-value/

 

Quote

 

On My Radar: Minus 43.8% to Fair Value

• December 11, 2020

By Steve Blumenthal

“Rule #3: There are no new eras – excesses are never permanent.”

– Bob Farrell,
Former Chief Stock Market Analyst and Sr. Investment Advisor, Merrill Lynch
Bob Farrell’s 10 Rules for Investing

Today, I share my favorite stock market valuation chart with you. It bluntly suggests that a 43.8% correction is required to get us back to what is considered “fair value.” Will it happen? Don’t know.

A 26.3% correction gets us back to what is considered “overvalued.” The S&P 500 Index was at 3,621.63 on November 30, 2020. Minus 26.3% puts the market at 2,669.14. Consider that a higher probability. A shock that would send the Fed to the rescue.

What is clear is that we sit at one of the most overvalued levels in history. I find valuation data useful in terms of asset allocation (targets for opportunity) and by process, I like to review various valuation metrics each month. Before we take a look at what they’re telling us, recall that debt is a drag on growth and thus a drag on future earnings. “There are no new eras.” I wrote last week about William White (check it out here). Bill was the chief economist at the Bank for International Settlements. Think of the BIS as the central banks’ central banker. “The elephant in the room is debt,” he said. Bill sees four possible scenarios:

1. Households, corporations, and governments try to save more to repay their debt. But we know that this gets you into the Keynesian Paradox of Thrift, where the economy collapses. This way leads to disaster.
2. You can try to grow your way out of a debt overhang through stronger real economic growth. But we know that a debt overhang impedes real economic growth. Of course, we should try to increase potential growth through structural reforms, but this is unlikely to be the silver bullet that saves us.
3. This leaves the two remaining ways: Higher nominal growth – i.e., higher inflation – or
4. Get rid of the bad debt by restructuring and writing it off.

Bill advises a combination of three and four, adding, “Approach the problem, try to identify the bad debts, and restructure them in as orderly a fashion that you can.”

On the surface, that “restructure” and “orderly” sound easy to do. But restructuring the mortgage debt mess in 2009 was not so orderly. We now call it “The Great Financial Crisis.” Expect the same sort of impact to hit the corporations who have binged on debt and the investors who own that debt. “Excesses are never permanent.”

You’re not going to be happy if your bond fund drops 40%—an all-too-real risk.

Creditable academic research suggests debt affects growth when it crosses 90% debt-to-GDP. Note the right-hand column in the following chart and factor the information into your deflationary calculator. This is the elephant in the room! (Data through June 30, 2020.):

Source: Ned Davis Research

Getting rid of the bad debt by restructuring and writing it off means that in our immediate future, deflation persists. Excess global production capacity and aging demographics also mean deflationary pressures persist. But do keep one eye on future policy response. If we get what I think is coming, in the U.S. and globally, inflation will become front-page news. That will create an entirely different investment regime. My best guess is that it will happen two years from now.

 

 

 

 

[Harley]

1 hour ago, DurhamBorn said:

I should add,there is still a year window for bonds to have one last run up in a big kahuna.

This is what I'm going for as one of only a few pre BK safe harbours unless anyone says different.  The issue is in its implementation as it would be via a collective instrument like an ETF and most lend out their holdings to (and you just can't make this up) banks, etc!  Vanguard say they don't lend but I have to look harder to find a UST ETF (or maybe a fund) as VGOV is a bit of everything.  Then there's the issue with any such collective instruments in a BK - access to sell - everything could get locked down, even then opening later at a discount.  UK gilts are easier to get in a collective or even outright, but Sterling?

[Harley]

12 hours ago, DurhamBorn said:

No deal would probably see quick 5% to 8% down,especially in the 250 but then go higher as market wakes up to the fact it will mean more liquidity.

Sooner or later this will lead to massive bank failures of course,and maybe some insurance ones.That would be interesting insurers of annuities etc going under.

Germany will be thinking France is trying to hit German industry hard for a few fisherman because they will be the big loser from no deal not the UK.

I have a feeling supply chains are breaking down a bit already before Brexit.

Bit in bold.  Thanks, bang goes one of my ideas for when a wealth tax or other repression comes - buy an annuity to switch capital to income!  I feel like that mouse I'm trying to catch - I'll get him in the end, we all know that!

[geordie_lurch]

7 minutes ago, Underwhelmed said:

Getting rid of the bad debt by restructuring and writing it off means that in our immediate future, deflation persists. Excess global production capacity and aging demographics also mean deflationary pressures persist. But do keep one eye on future policy response. If we get what I think is coming, in the U.S. and globally, inflation will become front-page news. That will create an entirely different investment regime. My best guess is that it will happen two years from now.

The other alternative, which only a few on here seem to be taking seriously is they write the old money system off in it's entirety either as a result of the BK or a coordinated debt jubilee. We are then all moved over to their Central Bank Digital Currencies (CBDCs) which is 100% trackable and 100% controllable by them in terms of supply, length of time you have to spend it and where

[Underwhelmed]

2 minutes ago, geordie_lurch said:

The other alternative, which only a few on here seem to be taking seriously is they write the old money system off either as a result of the BK or a coordinated debt jubilee. We are then all moved over to their Central Bank Digital Currencies (CBDCs) which is 100% trackable and 100% controllable by them in terms of supply, length of time you have to spend it and where

Agree they are coming, only question is implementation date, will it be next year or year after or are we still a decade or so away from them?

[Harley]

11 minutes ago, geordie_lurch said:

The other alternative, which only a few on here seem to be taking seriously is they write the old money system off in it's entirety either as a result of the BK or a coordinated debt jubilee. We are then all moved over to their Central Bank Digital Currencies (CBDCs) which is 100% trackable and 100% controllable by them in terms of supply, length of time you have to spend it and where

Count me in.  Buy what you need now to make life cheaper then.  And anything else to get out of the financial system, but be proportionate in case you're wrong.  In modelling, we look at all reasonable/material scenarios and build a series of responses according to their expected outcomes.  Others go to church instead!

[geordie_lurch]

15 minutes ago, Underwhelmed said:

Agree they are coming, only question is implementation date, will it be next year or year after or are we still a decade or so away from them?

Well if we are going to be following or maybe implementing what China tells us (if we are already in their pocket ) then next year seems most likely to me. See this article about jd.com now taking them and their sub headline...

Quote

If expanded nationwide, China could turn into the most powerful economy yet to offer a national digital currency, beating a forthcoming digital version of the euro from the European Central Bank

and which I corrected at the end

Quote

Central banks around the world are within reach of launching sovereign digital currencies, with the Bahamas — whose central bank launched its Sand Dollar beyond a pilot program in October this year — topping the chart. Perhaps most significant, however, is that of The People’s Bank of China, which has been researching a digital yuan since 2014. Today, China stands a chance of being the first major economy to introduce a sovereign digital currency.

As a matter of fact, China has left the rest of the world in the dust when it comes to digital currencies. It is not surprising considering the way the government and domestic companies such as e-commerce giant Alibaba Group Holding and its fintech affiliate Ant Group have used digital technology to transform China’s traditional banking and financial architecture into a cutting-edge, online-focused, and user-friendly system for the internet era another means of totalitarian control.

 

[Harley]

I love this thread, especially at moments like this - where else can you get such a flurry of great thought/distillation of what's floating around out there?  It's like a well we have to keep coming back to to fill up on.  And now I must go to that other work.....and that mouse....!

[Lightscribe]

18 minutes ago, geordie_lurch said:

The other alternative, which only a few on here seem to be taking seriously is they write the old money system off in it's entirety either as a result of the BK or a coordinated debt jubilee. We are then all moved over to their Central Bank Digital Currencies (CBDCs) which is 100% trackable and 100% controllable by them in terms of supply, length of time you have to spend it and where

Eventually that is where it’s going. For some time on here I have been providing updates in regards to my crypto trading. I was early on BTC (approx 2013/14) unfortunately always sold too early, same with ETH. 

It’s still very early in the whole grand scheme of things. As I have said before only 2% of wallets contain 1BTC or more (I may or may not be included in this statistic ) What the media and boomer always focus on however is BTC, electric usage and mining rather than the technology itself. The integrated blockchain future will comprise of a number of different aspects in industry and everyday living.

https://www.weforum.org/whitepapers/bridging-the-governance-gap-dispute-resolution-for-blockchain-based-transactions

[Lightscribe]

22 minutes ago, Underwhelmed said:

Agree they are coming, only question is implementation date, will it be next year or year after or are we still a decade or so away from them?

They have to break the old fiat monetary system first. They can do that with a rapid rise in inflation and following with interest rates (so it looks like they’re attempting to save the global reserve currency at least). 

[Lightscribe]

I’ll give you all a clue to what you should be watching as part of the oracle side of things that link smart contracts in future.

https://www.crypto-news-flash.com/chainlink-and-world-economic-fund-propose-industry-oracle-standard/

[Lightscribe]

26 minutes ago, geordie_lurch said:

Well if we are going to be following or maybe implementing what China tells us (if we are already in their pocket ) then next year seems most likely to me. See this article about jd.com now taking them and their sub headline...

and which I corrected at the end

 

Or rather what the wef has already arranged with China...

 

[Loki]

1 hour ago, Underwhelmed said:

Agree they are coming, only question is implementation date, will it be next year or year after or are we still a decade or so away from them?

End of the decade I think, if we get it now then I don't see how the reflation plays out.  We 'need' the collapse at the end to get the bit in the middle.

So I agree with both concepts but not the timeline of CBDC happening now.

[Errol]

'The Process of formation of multipolarity is irrevocable. History cannot be stopped. However, we are witnessing attempts to slow down this process. Recently western colleagues have realized it was impossible to completely restore the unipolar world, craved by Americans and their allies'

Sergey Lavrov - Minister of Foreign Affairs of the Russian Federation

[DurhamBorn]

2 hours ago, Green Devil said:

We're already in asset inflation. Its just not showing in wages or food etc. There's always a crash due to some external events so a dip is certainly possible, but a year long bust? We had corona crash and that only lasted 2 months FFS! Can it get much worse? Anyone who talks about rates rising still thinks we're in the old monetary system. IMO we're not.

 

Its the crux i agree.I think we are in the old monetary system though,but the route to market of liquidity is changing and about to change in a huge way.The transfer mechanism of money really.Instead of CB/Bank/Consumer/Entity loans its CB/Government/Handout/Spending.

I think what i see really is that the modern money people dont undertsand that they are printing back PAST dis-inflation.Its not that the economy can take unlimited liquidity,its that dis-inflation has meant there is a large amount of production to swallow a lot of liquidity.However EVERYTHING needs inputs,and i think its those inputs that will cause the inflation.Cost push inflation as you will.

I think they are looking at the cost of the tin of beans on the shelf for now,but it doesnt matter how many shops,how many factories,how many lorries to deliver etc.Once the price of growing those beans goes up the whole chain gets an inflation pulse.I see that pulse now getting underway.

I think if invested in inflation areas,even a big hit will be short lived.I think the main risks are in derivatives ,mostly debt insurance etc.

I think rates will increase a lot,but always negative real rates.My chart on what governments need is rates around 2% below inflation for the whole cycle.Roughly.If CBs keep rates even lower than that it should fuel inflation even faster.

 

[Barnsey]

Read something recently from Saxobank suggesting if this was passed onto consumers we'd be seeing CPI in the range of about 5% if properly measured and accounted for (never gonna happen).

[dnb24]

https://www.telegraph.co.uk/property/house-prices/looming-threat-forced-sellers-could-hit-house-prices-despite/

 

anecdotal- family member works in Liverpool for council advising on benefits- in last 6 weeks she reports significant increase in forced sellers of property due to  savings been rinsed trying to keep afloat.