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

[MrXxxx]

6 hours ago, JMD said:

However, I think the other reflation sectors, like medical/chemical/construction companies are more tricky so I consider I need to be more careful when selecting them

This and the comments above regarding building supplies got me thinking about construction and housebuilders. The former should be a better bet as although material supply costs are going up the customer I.e govt will be pouring money in and so profits shouldn't suffer. Whereas for the latter this is an issue, as house prices have reached the maximum level of affordability so increased material costs will have to be taken from the developers profit margin.

[DurhamBorn]

2 hours ago, nirvana said:

How do we prep for another European war? ie shit kicking off in the Ukraine

Fucking yanks interfering in the EU again 

OIL up, stonks down? Gold will probably go further now it's finished shitting the bed this time round 

Putin taking advantage of a weak west.Too busy worrying about covid papers to drink a pint of Carling,and all the woke rubbish.France and Germany both have terrible leadership,France is a basketcase and in serious risk of massive unrest and Germany is stuffed without Russian gas,but the US wont tolerate that much longer.

China will make its move soon as well.It was crazy that the US elected Biden,obvious he isnt all there and a front.More and more ducks in line for supply chains coming home.

[sancho panza]

23 hours ago, Cattle Prod said:

Super post. I'm trying to bone up on game theory atm, think it's key at major inflection points.

Game theory is becoming  a part of the covid unwind.QUite noticeable that one of the countires in the worst position forex wise-Turkey- was one of the first to come out and say they won't be covid testing tourists.More of thsi to come.If you look at the USA Flrida and Texas are stealing a huge march on NY and Cali.I know people leaving both the latter now that WFH allows them to buy homes in nice rural states where $300,000 gets you a nice farm and land.Anything more gets a lot more.

You even see it with Whitty-The Tory politician- comign our and trying to get ahead of the changing political narrative.

8 hours ago, Cattle Prod said:

BK safe havens

Had a lookback at TLT and Gold during the last two big liquidity selloffs in 08 and March 2020:

In short, the devil is in the detail. It was telegraphed miles in advance to get into TLT, which had an easy ride into the crisis. Gold had a rougher ride, but we well into a bull market and plenty of people were in profit, so was a natural place to liquidate. Notably, there was a huge run into gold on announcement of the Lehman bankruptcy. TLT also got sold off into the second deeper bottom in March 09 when Gold didn't, with just a regular looking 13% correction a bit later.

In March 2020, both gold and TLT correlated well running into it. I think the bond market got a sniff of the crisis though, TLT setting up a tight bull wedge in Feb before spiking up hard. Both got sold off quickly and hard into the mid March crash. It was really just a week or two, like one of the whipsaws in 2008, and was only a 15% selloff in gold.  The TLT selloff here concerns me, per Luke Gromens comments. Question for the thread and DB in particular is why did people dump treasuries and gold at the same time? Where did the money go, to cash?

As Harley says, cash has its own risks as a safe haven with bail ins. 

In short, I'd always kind of gone with the "gold will liquidate in a big crash as people need to raise capital for margin calls' narrative. DH talks about gold selling off from ~$2500 to ~$1700 in a BK (similar 30% drop to 2008). But I don't think that's the whole story. There was clearly a run into gold when Lehman bankruptcy was announced, and AIG was teetering threatening the whole financial system (which is what we expect from a BK). The only asset with no counterparty risk was grabbed left and right. Then it dumped again, why was this? Screaming shorts in the paper market probably. It actually held up during the big 35% capitulation in the stock market. Maybe the margin calls took a few weeks? Before running up hard 47% in three months while the stock markets capitulated further to a second bottom, and everyone was broke and devastated (I remember the atmosphere well).

To me, gold is looking like a superior BK safe haven. As long as you can stomach 15% in a week whipsaws, I suspect you'll come out whole on the other side. Have some cash on the side for ladders into gold, and you could even come out up. Next question is, which gold vehicles are safe?!

Dyodd as ever!

Edit:

Of course the only way I can buy physical gold in my SIPP is behind a level 4 gate which I need the advice of a financial advisor to get through. Has anyone done this? 

I think Gromen crystallized a few things that had n=been knocking around my head for sometime with that interview psoted on here a few months back.

Fristly,he talked about gold being a solvency play-final payment.I think it's crucial to bear that in mind answering the questions you pose as the punters buying UST's and those buying gold are motivated by different reasons.

Yes both sold off together much like you say for liquidity reasons,they are both assets that can get buyers in a dropping market.After that,I'd have to say for my mind,I'd be buying gold in case the system goes pop in a BK style event DH talks about.I'd be buying UST's to trade into and then back to stocks.That's jsut my motives.All I'm looking to do with a gold trade is increase our holding in the down draft now.There's no way I'm dropping that exposure totally.

With TLT I'd be buying it to buy and sell and increase the size of our equity holdings.I'm not interested in holding it longer term

WHislt this doesn't answer the wider question,I don't think I'll be the only one thinking like that.

 

On a separate matter ,I did ponder today that the BK later this year may be a mainly corporate bond market or at least start there..Possible,likely??.Just struck me that I'm probably too focsued on equites in that respect.A lof of people seem very sure that US yields will stop rising soon enough.

[Talking Monkey]

39 minutes ago, sancho panza said:

Game theory is becoming  a part of the covid unwind.QUite noticeable that one of the countires in the worst position forex wise-Turkey- was one of the first to come out and say they won't be covid testing tourists.More of thsi to come.If you look at the USA Flrida and Texas are stealing a huge march on NY and Cali.I know people leaving both the latter now that WFH allows them to buy homes in nice rural states where $300,000 gets you a nice farm and land.Anything more gets a lot more.

You even see it with Whitty-The Tory politician- comign our and trying to get ahead of the changing political narrative.

I think Gromen crystallized a few things that had n=been knocking around my head for sometime with that interview psoted on here a few months back.

Fristly,he talked about gold being a solvency play-final payment.I think it's crucial to bear that in mind answering the questions you pose as the punters buying UST's and those buying gold are motivated by different reasons.

Yes both sold off together much like you say for liquidity reasons,they are both assets that can get buyers in a dropping market.After that,I'd have to say for my mind,I'd be buying gold in case the system goes pop in a BK style event DH talks about.I'd be buying UST's to trade into and then back to stocks.That's jsut my motives.All I'm looking to do with a gold trade is increase our holding in the down draft now.There's no way I'm dropping that exposure totally.

With TLT I'd be buying it to buy and sell and increase the size of our equity holdings.I'm not interested in holding it longer term

WHislt this doesn't answer the wider question,I don't think I'll be the only one thinking like that.

 

On a separate matter ,I did ponder today that the BK later this year may be a mainly corporate bond market or at least start there..Possible,likely??.Just struck me that I'm probably too focsued on equites in that respect.A lof of people seem very sure that US yields will stop rising soon enough.

On Tlt that's exactly the approach I have planned SP, it will be a fairly short term holding with it being used as a temporary safe haven rather than holding cash through a BK with the potential to make gains to then redeploy into equities. 

[goldbug9999]

4 hours ago, Sasquatch said:

I have physical gold in my SIPP (through bullionvault). 

Or you could just buy ishares /blackrock physical gold (SGLN).

[nirvana]

7 hours ago, DurhamBorn said:

Putin taking advantage of a weak west.Too busy worrying about covid papers to drink a pint of Carling,and all the woke rubbish.France and Germany both have terrible leadership,France is a basketcase and in serious risk of massive unrest and Germany is stuffed without Russian gas,but the US wont tolerate that much longer.

China will make its move soon as well.It was crazy that the US elected Biden,obvious he isnt all there and a front.More and more ducks in line for supply chains coming home.

The Ukrainians have kicked this off with the backing of Biden's puppet masters....

I wouldn't be rejoicing in the Yankee fuckers telling the UK to stock up on nuclear weapons either, christ what a crazy state of affairs...some of us just want a bit o peace and quiet and a sustainable future for our offspring but we're surrounded by these fecking narcissists and psychopaths 

Instead of decreasing its nuclear stockpile to 180 warheads in the mid 2020s, the United Kingdom will increase its stockpile cap to 260 warheads - a 40% increase.

[Sugarlips]

5 hours ago, goldbug9999 said:

Or you could just buy ishares /blackrock physical gold (SGLN).

PSLV/GLD or taking possession of physical are the recommended choices by the whales, I’m not across the SGLN prospectus but black rock and JPM are considered the enemy by most goldbugs - given they are best able to manipulate the paper prices

[MrXxxx]

7 hours ago, goldbug9999 said:

Or you could just buy ishares /blackrock physical gold (SGLN).

For those interested I did a comparison of total costs between holding gold and silver in BuliionVault, RoyalMint, and ETCs (SGLN, RMAP etc). For gold the breakpoint where the former (BV) became the same or cheaper to hold was £20k for 5/10 years. RMAP was a little longer. Can't remember silver but it was even higher/longer due to higher fees.

The only other advantage with BV is that you can choose what vaults to hold worldwide.

[jamtomorrow]

2 minutes ago, MrXxxx said:

The only other advantage with BV is that you can choose what vaults to hold worldwide.

That is definitely worth something to me.

If the spread between paper and physical becomes an "event" in the markets, today's esoteric distinctions between unallocated, allocated and "I actually have my sweaty hands on the filthy lucre" will suddenly become rather topical, and not at all esoteric.

It's therefore worth thinking rather carefully about what "allocated" really means. Are you allocated in a jurisdiction where the authorities might be tempted to get a bit "grabby"? Allocated effectively becoming unallocated overnight at the stroke of a technocrat's pen, in the national interest?

Vaults associated with major markets seem especially risky to me - it will be *really* tempting for the authorities to "borrow" bars in the same vaults if there's a liquidity problem down the road.

[CVG]

22 minutes ago, jamtomorrow said:

That is definitely worth something to me.

If the spread between paper and physical becomes an "event" in the markets, today's esoteric distinctions between unallocated, allocated and "I actually have my sweaty hands on the filthy lucre" will suddenly become rather topical, and not at all esoteric.

It's therefore worth thinking rather carefully about what "allocated" really means. Are you allocated in a jurisdiction where the authorities might be tempted to get a bit "grabby"? Allocated effectively becoming unallocated overnight at the stroke of a technocrat's pen, in the national interest?

Vaults associated with major markets seem especially risky to me - it will be *really* tempting for the authorities to "borrow" bars in the same vaults if there's a liquidity problem down the road.

Mine's in Zurich and I also have the Swiss Francs in currency to get me there

[Harley]

8 hours ago, goldbug9999 said:

Or you could just buy ishares /blackrock physical gold (SGLN).

Again, congratulations to someone who perceived a need (I will not judge) and went the extra mile to deal with it.

This does raise the old chestnut about "paper" or "credit' gold.  What with the Reddit crowd and silver, this has come back into the limelight and this time may be the time to pay closer attention.

For example, I was just listening to the Palisadesradio Luke Groman podcast where towards the end he discussed some interesting thoughts and used the apt term "credit gold", as in a form of fractional reserve gold:

https://palisadesradio.ca/luke-gromen-understanding-the-sovereign-debt-bubble/

"He explains how gold could be revalued and how that could fund the treasury without increasing debt. However, this would be a last-ditch option for the United States.

.....

He discusses how bitcoin could be reflecting what gold should be doing. Bitcoin is not a centralized controlled market, and when big buyers enter the market, it moves higher. Physical gold takes a lot longer to obtain, but paper gold can be bought immediately, which accounts for the performance difference".

I'm going to take steps to address these risks too.

[Majorpain]

3 hours ago, nirvana said:

The Ukrainians have kicked this off with the backing of Biden's puppet masters....

Indeed, and the worrying thing about that is that it was kept very quiet that Ukraine was busy signing decrees to invade Crimea.  Things are getting setup for them to start it and Russia to get the blame!

I doubt Vlad will be completely upset though, he could do with the controlling the Crimean canal up to the Dnieper so it cant be dammed again. 

[Lightscribe]

1 hour ago, Harley said:

He discusses how bitcoin could be reflecting what gold should be doing. Bitcoin is not a centralized controlled market, and when big buyers enter the market, it moves higher.

Or could have just forgot all about Bitcoin and put it all in ChainLink from this time last year and be sitting on 1723.96% ROI...You may of heard me mention it once or twice 

Anyway jokes aside, I do think the markets are hedging their bets between gold and BTC the divide being the older and younger generation hedging against the same outlook. As I’ve said before the governments are happy to take the tax at the moment, even the Nigeria government reversed their crypto banning decision. Problem is it’s growing bigger into mainstream investment vehicles and adoption. The government should have nipped it in the bud if they were intent on killing it off. The fallout will only become worse the bigger it gets as it dwarfs smaller volatile currencies.

As far as gold/silver goes, my pension is the place for paper physical in a balanced fund (after all, I may never see it). My ISA is for the miners (ride the wave in the shorter term) and my physical is my backup plan.

I have no wish to travel to vaults and wait in line with a bit of paper if ever SHTF. I’d rather be long gone rather than a sitting duck for either government confiscation or being robbed by the desperate.

[MrXxxx]

1 hour ago, Harley said:

"He explains how gold could be revalued and how that could fund the treasury without increasing debt. However, this would be a last-ditch option for the United States.

Is this not what Roosevelt did initially when making it illegal to hold gold only to revalue once 'Joe Public' had sold off at the lower price?.....it would work with 'paper' [or electronic] gold but not if a) people had physical, and b) didn't comply by selling off.

[Harley]

12 minutes ago, Lightscribe said:

Or could have just forgot all about Bitcoin and put it all in ChainLink from this time last year and be sitting on 1723.96% ROI...You may of heard me mention it once or twice 

I don't understand.  Did you listen? 

[Harley]

14 minutes ago, Lightscribe said:

the divide being the older and younger generation hedging against the same outlook

I dont think the flows support that idea. 

[Harley]

19 minutes ago, Lightscribe said:

I have no wish to travel to vaults and wait in line with a bit of paper if ever SHTF. I’d rather be long gone rather than a sitting duck for either government confiscation or being robbed by the desperate

You may have missed the issue being discussed - fractional reserve gold.  Or many people owning the same gold.  Comex settling in cash.  Comex sets the settlement price since there isn't a market in a distress situation   Good luck with that.  That sort of thing. 

[Lightscribe]

3 minutes ago, Harley said:

I don't understand.  Did you listen? 

I was commenting on BTC taking the wind out of the sales in regards to paper gold, in regards to the younger generation understanding how the likes paper can manipulate the physical market. They know the likes of JPM rig it, so that’s why their preference is either physical PM or preference towards BTC instead of paper. Obviously older generation doesn’t tend to like BTC so will tend towards both paper physical PM.

Obviously I was joking in regards to putting it all in ChainLink, but what I was referring to there, is that as it’s regarded as a ‘great reset’ token if it all goes tits up. 

[Barnsey]

And...

 

[DurhamBorn]

@Barnsey i think wage inflation is certain now,job losses make no difference to it.All the factories near me are taking on and the wages going up.Crap paying places will only get crap employees going forward.Im getting phone calls every couple of days with job offers,last one Weds was a technician for a clean room where they are bringing screen manufacture back from China.

Question is does the inflation move so fast it catches a lot of companies out and crushes their cash flow?.Big risk it does and that could cause a huge debt deflation kicking in.

The other problem is the way the governments hide the inflation.Its 20% in many areas yet what will the headline show?

I still see around 60% over the cycle,but we might get a big jump,a fall,then a long steady increase.

A few of the best paying employers i know have used temporary contracts for a couple of decades now and only odd ones made permanent,but are now making people permanent after a month.They know they need to keep hold of decent people.

[Loki]

27 minutes ago, DurhamBorn said:

think wage inflation is certain now,job losses make no difference to it.All the factories near me are taking on and the wages going up.Crap paying places will only get crap employees going forward

Do you see this transferring into the trades/construction or staying with tech/production companies?

[goldbug9999]

4 hours ago, Harley said:

This does raise the old chestnut about "paper" or "credit' gold. 

Only to  zero hedge reading tinfoil hatters. 

[Bobthebuilder]

3 minutes ago, Loki said:

Do you see this transferring into the trades/construction or staying with tech/production companies?

I would say you are already starting to see it in the trades. Good Eastern Europeans want £250 a day round London apparently. Nothing ever gets cheaper in our game hey @Loki? Plumbing bits never get any cheaper. I had a chat recently with someone who wants a new fancy heating and hot water set up, unvented cylinder, up rated mains, new gas, rads and underfloor heating. When he told me his budget, it would not cover even half of what he wants. Then he mentioned ground source heat pump???? £30,000 right there fella.

Then he said he wanted to start the works next year. I told him to phone back nearer the time.

[MrXxxx]

3 hours ago, Harley said:

You may have missed the issue being discussed - fractional reserve gold.  Or many people owning the same gold.  Comex settling in cash.  Comex sets the settlement price since there isn't a market in a distress situation   Good luck with that.  That sort of thing. 

But this scenario doesn't apply to allocated paper gold does it Harley?...I suppose the only way to be a 100% sure is to have physical buried in the back garden, but if the world gets that bad I think that would be the least of your worries!....perhaps the ideal is diversification like always ie. to spread your PM allocation across a variety of allocated paper, BV, PM miners/Royalties, and physical if you have somewhere to store it.

[Loki]

Just now, Bobthebuilder said:

I would say you are already starting to see it in the trades. Good Eastern Europeans want £250 a day round London apparently. Nothing ever gets cheaper in our game hey @Loki? Plumbing bits never get any cheaper. I had a chat recently with someone who wants a new fancy heating and hot water set up, unvented cylinder, up rated mains, new gas, rads and underfloor heating. When he told me his budget, it would not cover even half of what he wants. Then he mentioned ground source heat pump???? £30,000 right there fella.

Then he said he wanted to start the works next year. I told him to phone back nearer the time.

Yup, that's what I meant - the materials get more expensive so the wages had/have to suffer as a result