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

[reformed nice guy]

I think I found this alternative inflation measurement here, but it is a broader index that takes a complete "normal lifestyle" into account:

https://www.manhattan-institute.org/reevaluating-prosperity-of-american-family

[Majorpain]

1 hour ago, Sugarlips said:

Dropping like a stone, currently $26.27, think I’m gonna need a bigger truck..

They are throwing everything at it, chance to buy silver back under $20 again?

[Chewing Grass]

4 minutes ago, Majorpain said:

They are throwing everything at it, chance to buy silver back under $20 again?

Noticed that antique silver coins have almost dropped back to where they were 18 months ago as well, thought I'd broken the 'collecting' habit but might dip my toe back in at less than £20 for average condition.

[sancho panza]

12 minutes ago, Majorpain said:

They are throwing everything at it, chance to buy silver back under $20 again?

We did a partial sale of som PM miners holdings back in Aug/Sept and not really redeployed them back in yet.This has the hallmarks of an opportunity.Markets talking about hawkish fed(please don't laugh),but QE still being pumped,stimulus package still coming.

I'll take my chances if FRES gets to 750/Barrick $15 etc.I don't see us getting back below $23 on silver in the next month or three by which time everyone will have realsied the fed jsut printed another $240bn and added it to the national debt.

sijnce Mar 20 low

[Majorpain]

18 minutes ago, sancho panza said:

We did a partial sale of som PM miners holdings back in Aug/Sept and not really redeployed them back in yet.This has the hallmarks of an opportunity.Markets talking about hawkish fed(please don't laugh),but QE still being pumped,stimulus package still coming.

I'll take my chances if FRES gets to 750/Barrick $15 etc.I don't see us getting back below $23 on silver in the next month or three by which time everyone will have realsied the fed jsut printed another $240bn and added it to the national debt.

sijnce Mar 20 low

Not sure what is going on with FRES, $12 AISC with $26+ AG price is quite tasty when you produce 60m+ Oz so I picked some up in low 800's.  PM's do seem more out of favor on the ftse than US/Can.

[JMD]

On 11/06/2021 at 14:09, Harley said:

PS: Last I looked Morningstar age the long term debt balance.  

Harley, i tried to take a look at that Morning Star aged long term debt balance, but couldn't find it on their site - i guess you need to be a subscriber to see all of their data/maybe they have now moved this data into their subscription service? If however you can still see this data, would it be possible for you to post a link to it to help me locate where it lives? 

[JMD]

2 hours ago, reformed nice guy said:

I think I found this alternative inflation measurement here, but it is a broader index that takes a complete "normal lifestyle" into account:

https://www.manhattan-institute.org/reevaluating-prosperity-of-american-family

That was an interesting read, in regard to (mis)calculating inflation.

Has always struck me as such a stupid idea to attempt to include 'standard of living increase'/'product improvement' metric, into price increases. Its done for 'very convenient' economic reasons i know!!... but the thing is everything these days seems to be veering into the surreal and complex, and having no connection to the 'real world'?     

I was aware of technology improvements being 'discounted', therefore effectively lowering the price inflation figure. But, from the extract below, improvements in medical treatments must have a far greater effect. i.e. cancer drugs may have doubled in price, but if the new improved drug extends a life by say 20 years (opposed to 10 years previously), then the drug price increase is discounted 100%!! (As an aside, the American health system really does need radical reform, its so expensive, but that's a different topic).

 

Medical Care. Health care provides a quintessential illustration of the potential gap between price increases perceived by households and inflation perceived by economists. The BLS estimate for medical inflation appears far lower than the rate at which households are seeing health-care costs rise. BLS reports that medical-care prices have risen 93% from 1999 to 2018;[20] but during the same period, the average family health-insurance premium has increased by 239%.[21] 

Two key factors help to explain this gap: first, when medical care increases in price because it has improved in quality—for instance, thanks to the introduction of a superior but costlier procedure, drug, or device—those price increases are not considered inflationary because the patient is getting greater value for the greater cost. This is an example of quality adjustment.

Second, many purchases of medical care are intermediated by insurance, which inflation analyses strive explicitly to disregard. But the presence of insurance has critical implications for a household. Its costs are determined by the behavior of all participants in their risk pool rather than thier own choices. When people across society consume greater quantities of medical care, the cost of health insurance will rise even if the prices of individual medical services have not, and even for households that consume a lower quantity. Both market and regulatory forces will typically preclude a household from consuming its own preferred bundle of health-care services as opposed to the one reflected by the standard set of insurance offerings.

[jamtomorrow]

Systemic instability might reveal itself like a pot coming to the boil. Little incidents here and there. Then a smattering of incidents. Then before you know it, incidents everywhere you look.

Words like "whipsaw" and "snapback" certainly seem to be cropping up more frequently in the punditsphere. Maybe a useful metric?

 

[ThoughtCriminal]

David Hunter 

 

Summary: Everything is GREAT 

[Loki]

23 minutes ago, ThoughtCriminal said:

David Hunter 

 

Summary: Everything is GREAT 

Great!

[Yadda yadda yadda]

2 hours ago, ThoughtCriminal said:

David Hunter 

 

Summary: Everything is GREAT 

Has he added + to a couple of those numbers? Hunter upgrade.

[Heart's Ease]

Speaking of DH - forgot I hadn't posted this. Have not listened.

[Barnsey]

 

[Hunty]

Link

 

Links

 

https://thelykeion.com/chart/3667/

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Charts of the Month.

WDTCM - June '21

 

We went down the rabbit hole (again) with Jeff Snider, this time to figure out why everyone is talking about Reverse Repos (RRP).

After one email exchange, it was clear that few people actually know why this chart matters (classic FinTwit), so we put it to our contributor network and asked them all the same question, “Why Does This Chart Matter?”

To the standard RRP chart we added US Treasuries because, as Jeff pointed out, RRPs as a standalone statistic doesn’t tell the whole story. We can see on the chart that, on March 18th, right when yields went from reflationary to not reflationary, RRPs picked up, did not come back down to zero as they have always done, and then made their historic run up to today (as of June 14th they sit at $584 billion).

This time around, our contributors’ responses are closely aligned, but each adds their own valuable nuance (which is the exact reason we started this chart's publication).

Jeff Snider | Alhambra Investments
 

• Conventional theory holds that reverse repo use is a monetary policy accommodation to drain an excess of bank reserves from an overly abundant system. This was how it was used in 2008. But like 2008, there is more going on that has less (if not very little) to do with bank reserves and much to do with collateral scarcity for global repo and derivatives markets. [Editor’s Note: in a reverse repo, corporate and depository institutions receive collateral]
• Briefly, the combination of QE along with Treasury refunding of bills further combined with increased risk aversion left the global monetary system with scant collateral options. [Editor’s Note: with the ‘system’ telling us it’s collateral scarce, i.e., it’s fragile]
• This is why - and the only way - there can be an almost perfect positive correlation between reverse repo use and anti-reflation in bills and LT UST's. [Editor’s Note: this is why we see RRP begin to pick up on the same day that yields begin to flatten and eventually reverse (anti-reflationary)]
• "Too much money" would not produce this effect, one being replicated in markets like Eurodollar futures, too. [Editor’s Note: it’s not about too much money, it’s about not enough collateral]

If you want to see how deep the rabbit hole goes, take the red pill and enjoy the following content from Morpheus… I mean Jeff:

1. Emil Kalinowski & Jeff Snider: The Fed's Reverse Repo Program Surges!

2. Reserving Observations On The Reverse Repo Of Reserves

3. No Reserving Interpretation About Reverse Repo Collateral Connection(s)



Mike Green | Simplify
 

• The March date matters because this is when the Fed ended the increase in counterparty limits it enacted on a temporary basis in 2020 as the COVID pandemic hit. The ending of the increased limits meant that banks now must hold equity capital against reserves which incentivizes them to “get rid of them” in the overnight market. This increased incentive had the potential to drive rates permanently negative in the overnight market. So the Fed had to be willing to take them rather than force the banking system to absorb them. This gives us the mechanical explanation of what occurred.
• However, the second critical insight is that this is likely to continue to grow due to quarter end dynamics on June 30th. On this date, offshore banks with US branches have a “window dressing” event that incentivizes them to reduce leverage. That spike is likely to create some turbulence in the market unless the Fed aggressively supports market liquidity.
• Finally, this chart calls into question the concept of an aggressive recovery – the banks see limited use for reserves. In other words, loan demand remains weak.

Luke Gromen | The Forest for the Trees
 

• In the context of Basel 3 banking regulations regarding bank reserves, Fed QE has led to a situation where there is too much cash chasing too little collateral; this has put downward pressure on short-term interest rates.
• The spike in RRP balances is a symptom of the Fed acting (Reverse Repo-ing USTs) to make sure short-term rates stay positive (as negative rates would likely cause severe problems in monetary “plumbing.”)
• The spike in RRP balances is a “Band-Aid fix” – more structural options include tapering QE, having the US Treasury shift issuance to the short end, have the Fed shift QE to the long end, or have the Fed implement a Standing Repo Facility.
• A Standing Repo Facility would likely effectively nationalize US funding markets, which would likely NOT be deflationary or disinflationary.

 

 

 

 

 

 

[Majorpain]

1 hour ago, ThoughtCriminal said:

David Hunter 

 

Summary: Everything is GREAT 

There is currently $750bn parked at the Fed with no home to go to, usual financial leverage (a lot....) and that would probably do the trick.

[macca]

9 hours ago, BWW said:

Did you just accept the 3% from existing supplier or is that the comparison with others/uswitch etc?

 

I got done by the Yorkshire energy bust and ended up with a £1000 bill.. nobody can explain how it happened. Scottish power cant get the readings from Yorkshire and the insolvency company only have a bill that they are chasing me for. 

I am past fuming.. £1000 for 4 months electric and gas! like i had a weed farm in my attic.. 

[JimmyTheBruce]

4 minutes ago, macca said:

I got done by the Yorkshire energy bust and ended up with a £1000 bill.. nobody can explain how it happened. Scottish power cant get the readings from Yorkshire and the insolvency company only have a bill that they are chasing me for. 

I am past fuming.. £1000 for 4 months electric and gas! like i had a weed farm in my attic.. 

I've had very similar.  It's taken a while but I've just had confirmation from Scottish Power that they're reducing my bill by 60%.  I've got the email address for the top secret onshore customer support team who seem to be able to sensibly address a complaint.  If I can figure out how to, and my newbie status allows it, I'll PM it to you.

[leonardratso]

nay lad, weed farms in attic cost much less than that. Try zero for bypassed meters.

[wherebee]

Something for you lot to be aware of: Australian tax year ends June 30th.  There is often a dip in the Aussie stocks as retail investors sell underperformers to crystallise losses, to enable offsetting in the tax return.  

So - if you are watching any aussie stocks (for example miners or oilies) you might see a nudge down before they jump up again after the 30th.

As usual, DYOR, etc etc.

[Lightscribe]

6 hours ago, PrincessDrac said:

I'm underwater with Fres. I'll hold. Well got no choice.

My brother sank £150k in at £8.10 this afternoon. Ballsie or stupid. Guess at 4.30pm tomorrow we'll know.

Never thought I'd see Fres  in the low low 8's with silver where it is.

Volumes today were well up. II buying maybe?

 

I got in with my last tranche at £8.07. Think your bro has called it there. Miners are suffering all over, Harmony is back into ‘buy territory also.

Mr.Market is very confused at the moment. It has all this stimulus but at the same time, IR rate hike talks, reverse repo etc signal all is not well.

Were meant to be in the booming bounce back in the economy, (hence the PM and miner drop) but at the same time money doesn’t listen to politics and smells a rat.

[Lightscribe]

https://www.bloomberg.com/opinion/articles/2021-06-17/america-should-become-a-nation-of-renters

‘You will own nothing’ not even being subtle now. 
 

https://www.moneysavingexpert.com/news/2021/06/mortgage-rates-low-remortgage-check-save/

This is where IFA’s and Martin Lewis gets it so wrong. They advise on the here and now with no thought to the wider economic circumstances. He did the same when Iceland imploded and people were left trying to claw they’re money back. 

By advising people to fix for two years will land then smack bang into inflation territory in 2022/3 on SVR. The Fed have already signalled what they are going do FFS.

https://www.forexlive.com/news/!/us-dollar-jumps-after-fed-pulls-forward-forecasts-for-rate-hikes-20210616

He’s even got a small disclaimer for the ‘mortgage prisoner’ IO idiots, plenty more to add to that in a few years. We did try to help, but we’ve been a bit busy...

[nirvana]

DXY is at 92....there's an IR rise coming?

I knew the £ was fecked at 1.42 BUT i listened to some cunts on the internet 

and now it's at 1.38 

PS and Silver got fecked and I keep saying that's a load o shite too and like a knob I hold loads o that cac too, not having a good week 

[Barnsey]

I'm just going to throw this out there, but the more hawkish tone at the FOMC regarding tapering could well be the early stages of the much touted "policy mistake".

Trying to read the road here, but seems there's more inflation fears already kicking around than I would have expected at this early stage, and I can't help sense a degree of melancholy rather than jubilation about the recovery. Like the mother of all hangovers. I guess things weren't great prior to this saga, but throw China's diving credit impulse into the mix, with many commodities turning downwards, I think there's a very good chance we're now going to hit some kind of lull for a while.

All eyes on Jackson Hole in August now.

Thoughts?

[jamtomorrow]

9 minutes ago, Barnsey said:

I'm just going to throw this out there, but the more hawkish tone at the FOMC regarding tapering could well be the early stages of the much touted "policy mistake".

Trying to read the road here, but seems there's more inflation fears already kicking around than I would have expected at this early stage, and I can't help sense a degree of melancholy rather than jubilation about the recovery. Like the mother of all hangovers. I guess things weren't great prior to this saga, but throw China's diving credit impulse into the mix, with many commodities turning downwards, I think there's a very good chance we're now going to hit some kind of lull for a while.

All eyes on Jackson Hole in August now.

Thoughts?

Zoom out.

Markets are in a state of hair-trigger sensitivity where they'll sh*t the bed just because Jay Powell has his eggs different for breakfast that day. This is not normal, and it might mean we're close to the final divide-by-ZIRP.

It's important to consider whether there's even any point trying to figure out the exact mechanics of the final policy error.

It's like when a car fishtails out of control. It'll eventually veer beyond the driver's ability to correct and crash left or crash right, and the difference between left and right might well matter (e.g. ditch vs cliff).

You can be 99% sure the driver has "lost it", but your chances of calling "left" or "right" correctly are no better than 50/50, at least until the final move is locked in, but you won't know when that is either until it happens.

[ThoughtCriminal]

China credit impulse in more detail. 

 

Shit about to hit the fan?