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

[sancho panza]

 

 

15 hours ago, ThoughtCriminal said:

Some choice quotes in there. 

 

"In his suburb, the neighbourhood patrol operates only at night. He has joined it, along with about 25 other men.

"Some have guns, but most of us just carry sticks, pipes and torches. I never thought I'll ever do this, but we have no choice. There are no police; no soldiers," he said.

"We block all intersections with our cars. Some of us will stand there; others will do foot patrols." 

 

32% unemployment. 

 

 

Mrs P is a Saffer.Very sad.About 200 shopping malls have been looted and loads of warehouses.Unemployment was bad before,now even worse.

They're blaming it on Zuma getting banged up but the reality is that they've had a seriously repressive lockdown and it was a powder keg looking for a spark.

Here's SKy with some vids,but there's oads online and Whatsapp.

https://news.sky.com/story/south-africa-violence-a-jailed-former-president-and-covid-19-why-people-are-rioting-and-looting-12355887

Could happen in the UK in one of the big cities-most likely Londinium-once people realsie how few police they're actually are.

[sancho panza]

12 hours ago, DurhamBorn said:

I really hope the oilies can stay down so they can buy back as many shares as possible before renewables blow up.The costs of mining the things needed for the energy transition are huge,a magnitude, and people dont undertsand the energy use in that.Each tonne you need to mine of rock has a cost on how much percentage grade is what your after.I think the cost roughly trebles compared to what you need for carbon cars etc.The  irony is the higher the carbon tax,the higher the cost of transition.A classic inflation feedback loop.

Down the line blue hydrogen will easily outprice green,and natural solutions will become huge as politicians use them to get net zero when they realise their plans are a disaster.

I see no way they will be able to force people to get a heat pump etc,its all just pie in the sky talk.

I think there's some ok value in oilies at the minute,we've got some EQNR profits to recycle but Repsol,ENI.On top of that we're recycling the divi's in so happy to get divi's on BP sub £3 for sure.

Of late,looks like some compelling value in telecoms.Telefonica Deutsch,SIng Tel,Vod,TIM,VIV,(decl long all).BT/Telstra too pricey for me.

 

[sancho panza]

The tightening meme.CB's getting forced into a corner.

https://wolfstreet.com/2021/07/14/bank-of-canada-tapers-bond-purchases-3rd-time-bank-of-new-zealand-stops-qe-cold-turkey-citing-housing-bubble-in-least-regrets-policy/

Today, the world saw announcements by two central banks about reducing or ending asset purchases: By the Bank of Canada, its third reduction, and by the Bank of New Zealand which will stop them cold turkey in 10 days – following a slew of similar announcements by other central banks, while the Fed is still fiddling as inflation burns.

he Bank of Japan, one of the biggies, has been tapering its asset purchases for months. By June, its total assets, after months of slowing growth, fell by ¥7.7 trillion ($70 billion) from May, to a still gargantuan ¥717 trillion ($6.5 trillion):

The Reserve Bank of Australia announced on July 6 that it would reduce its weekly purchases of government bonds by A$1 billion a week, to A$4 billion a week.

The Bank of England announced in May that it would reduce its bond purchases from £4.4 billion a week to £3.4 billion a week.

The Riksbank of Sweden announced in late April that it is sticking to its plan to end QE entirely by late this year.

So why is the Fed so far behind the curve, rather than leading, with inflation having surged in recent months at the red-hottest pace since 1982? Why is it still buying mortgage-backed securities, given the biggest housing bubble since this data was tracked? The convoluted rationalizations and denials coming out of the Fed trigger nothing but bewildered head-scratching.

 

as per @DurhamBorn previous psot on transport costs.

https://wolfstreet.com/2021/07/14/and-now-the-wtf-spike-in-transportation-costs/

Trucking strains as rates soar.

The average national spot rate for van-type trailers has been rising for the past 12 months and in June reached $2.67 a mile, up 47% year-over-year, according to DAT Freight & Analysis. The average national contract rate for vans jumped by 36% year-over-year, to $2.73 per mile.

The average national spot rate for flatbed trailers (hauling heavy equipment, construction materials, and the like) jumped by 52% year-over-year to $3.15 per mile. The contract rate jumped 29% year-over-year to $3.12 a mile.

Diesel prices jump.

At the end of June, the average price of diesel at the pump reached $3.33, up 37% year-over-year, but it still remains far below the $4 range in 2012 through 2014:

Transportation costs are getting passed on and feed into the broader inflation scenario. The scenario here is paralleled by the ocean freight industry. For example, average spot rates from Shanghai to Los Angeles have spiked from around $1,500 per 40-foot container in early 2020, to nearly $10,000 now, as Container Freight Rates Spike to New Extremes, with Worse Still Ahead

[leonardratso]

i recommend centrica, with price caps maybe going up next month.

I recommend you sell it sharpish, ive got rid of all of mine now at a loss, but it taught me 1 thing, lifes too short to wait for shit like that to rebuild.

[Boon]

I think unemployment is more of a problem there - it was something like 32%, and that was only the official measure - it may be worse than that.

That's a hell of a lot of people that may be poor and have nothing to lose. But there must be another political dimension as it seems it hasn't spread all over the country, or maybe it's not being reported like that, I don't know.

But I remember the London riots here and this somehow inspired other cities to do their own riots.

 

 

[Harley]

So Total Energies now pay a cash dividend rather than scrip, with WHT at 30%!   Time to move out of my ISA to possibly reclaim the tax?

[Harley]

36 minutes ago, Cattle Prod said:

Jesus Christ.

Viruses go away eventually,this problem is structural. I saw a headline with some jackass proposing a fat tax to "protect the NHS". Genie is out of the bottle now, people complied and the NHS will continue to be used this way. NHS has had massive bed and resource cuts over the years (Germany has 4x critical care beds, thats 400% more!), but rather than reform it they will lock us down as soon as it gets full. Like it will this winter with flu. I have to say I'm not comfortable in such a society. How could I be comfortable when my local paramedic is doing a new year's eve every night and wants to quit? It's a total mess, decades in the making. And once the BOE stops funding the deficit there will be no money to fix it.

It's Trough Central.

[Harley]

9 hours ago, sancho panza said:

 

 

Mrs P is a Saffer.Very sad.About 200 shopping malls have been looted and loads of warehouses.Unemployment was bad before,now even worse.

They're blaming it on Zuma getting banged up but the reality is that they've had a seriously repressive lockdown and it was a powder keg looking for a spark.

Here's SKy with some vids,but there's oads online and Whatsapp.

https://news.sky.com/story/south-africa-violence-a-jailed-former-president-and-covid-19-why-people-are-rioting-and-looting-12355887

Could happen in the UK in one of the big cities-most likely Londinium-once people realsie how few police they're actually are.

A possibly enlightening piece on TimesRadio this morning about there being a state within a state now feeling threatened by the action against Zuma.  They're potentially agitating things as many of the serious stuff (attacks against infrastructure rather than looting) is co-ordinated and needs the right resources.  However, also plenty of kindling with a long running failure to deliver to the masses and a very harsh lockdown.  I expect Africa to receive a lot of attention going forward as a Geo-political play with financial interests getting their cut.

[Harley]

18 hours ago, Lightscribe said:

The PM miners finally look like they’re reacting to the inflation news.

Got a cheeky final allocation of FRES at 780 odd last week.

The mighty Panther is up 9.48% in the past 5 days. The unbelievers will be punished accordingly.

I've consistently failed in trading GDX many times so am perfectly unqualified to comment!  Monthly momentum is up for it and the miners I hold (div payers) but MACD is not following.  GDX (in GBP) was down 14% last month so maybe just a bounce?  That said it does look like we're going through some basing in GDX and gold itself around the 2016 entry into the cup and handle pattern (long term bullish?), although there could be more downside to come in the intermediate.  Depends on your time horizon.  Mine is months.  DYOR.

[planit]

17 hours ago, HousePriceMania said:

That was a bit of a surprise.

 

 

Sold out at 320 a few weeks ago

Any idea what's going on, time to buy again ?

 

19 hours ago, Harley said:

I have an old overseas pension.  Most of their funds now have a "sustainable" element.  Many of my funds were rebranded as such without any warning so, for example, my Latin America fund is now the Sustainable Latin America fund!  

Yes, in the UK they'll use your savings to fund green stuff in the absence of anything else (e.g. a growing tax base through real growth).  Their spending will bring in a period like when the German Social Democrats built all those autobahns, etc.  It will probably need paying for in blood too at some point.  Only question is when, and later, who's blood.

These two things are connected to some extent. BP etc are being dropped by funds one after the other. A year ago nearly every pension fund would have owned some BP, now everyone is falling over themselves to say they are ESG.

At some point this will end and the share price might rerate. I have no idea how long it will take but I am hoping for substantial buybacks starting after the 1st Aug that will help mop up shares.

As DB says, the more shares that can be bought back at current prices the better. As Warren Buffet would say, they can buy $5 bills for $3.50.

Anything less than $1bn of buybacks I will be disappointed with, I think they need to be buying $1.5bn each quarter at the moment to reach their promise of 60%+ of free cash flow return to investors.

[Harley]

21 hours ago, No One said:

@DurhamBorn I have a question for you.

 

I'm seeing lot's of red. Buying opportunity or the end of the reflation trade?

Telefonica is down, would you buy more?
BP? Shell? etc

I couldn't resist a coffee and a preview of the charts before their Friday close.  It's gonna be a fun weekend as the charts are clearly bifurcating into riders and fallers.  Definite sector themes are at play.  I do wonder however how much the recent round of div payments is having an impact.  Regardless, may be a good time for me to ladder out of a good few holdings to buy back lower.

 

[Harley]

Looks like BP tested resistance (which, classically, used to be long term support) and turned tail and ran away!  That's woke for you!  Maybe better luck next time!

[Harley]

10 hours ago, sancho panza said:

I think there's some ok value in oilies at the minute,we've got some EQNR profits to recycle but Repsol,ENI.On top of that we're recycling the divi's in so happy to get divi's on BP sub £3 for sure.

Of late,looks like some compelling value in telecoms.Telefonica Deutsch,SIng Tel,Vod,TIM,VIV,(decl long all).BT/Telstra too pricey for me.

 

IMO things are looking a bit anti-thread atm.  In the UK, utilities and consumer staples (including supermarkets) look to be holding well, but not telco (including beyond the UK).  Resources, including energy, look weak as do financials.  So do the covid "good news" stocks like transports and tourism.  Bonds (e.g. IBGL) may well be turning and gold really wants to break out but keeps getting slapped back down.  The good news is we have action in our preferred sectors/stocks so can reload at some point.  At least it's not paint dry boring anymore!

[Starsend]

54 minutes ago, Cattle Prod said:

My favourite chart this morning, TIPS at all time highs and breaking up:

Gold in purple. Very tight correlation since 2018. So are TIPS signalling gold should be 2100? Maybe, and as I'm invested in gold it's tempting. But if I check my bias, I think gold is smarter than bonds. Gold front runs almost everything. So why are these 'jaws' opening up? Are TIPS wrong?

...

Few hours have passed, and I made this:

It's real rates (10y yield minus 10 year breakevens) with gold inverted. The 'jaws' are not as wide now, so I like that. Similar to Lyn Alden's measure, I think. What I see is a close correlation, with periods of gold lagging. So real rates do seem to lead. Thoughts?

What next? Real rates have been bouncing off a -1.1 level since gold topped in August 2020. Will it break lower and give us another leg in gold? Assuming the 10y yield stays between 1.2-1.5 or whatever, the second part of the equation is more interesting. 10y breakeven definition:

So market participants currently think inflation is going to average 2.32% over the next 10 years. Strongly implying that they believe the current spike is transitory. But then I saw our friend Larry Fink, who controls $10 trillion dollars worth of funds giving his staff an 8% payrise because he doesn't think inflation is transitory. So is he buying gold, or bonds?!

There is a little table added there showing the % change in gold is remarkably consistent with a bps change in real rates. An average of 4.32 bps per % increase in gold. So to get to David Hunter's $2500, and the 10y stays roughly where it is, you would meed market participants to think inflation is going to average 3.94% over 10 years. Seems like a reasonable rate to us basement dwellers, but do you think CBs would have to act before it gets there? Perhaps that would just push down the 10y and have the same result. Thoughts?

So they believe that it will only take $125.78 in 2031 to buy what $100 will buy today, roughly a quarter increase in price. Deluded. Many of my outgoings have doubled in the last ten years of "low inflation."

I wouldn't be surprised if if took $200 or even considerably more to buy what $100 will buy now - if the $ hasn't been completely destroyed that is.

I think that many people, including the investment professionals, actually believe the Government inflation figures. My own belief is that gold is the smartest money of all and over long enough periods of time tracks real inflation pretty accurately.

We all know that Governments around the world need massive inflation over the coming decade so that's exactly what we'll get while they lie to us every step of the way. 

 

[Barnsey]

Moneyweek podcast with Russell Napier, worth 35 mins of your time if available!

https://widget.spreaker.com/player?episode_id=45705807&playlist=show&cover_image_url=https%3A%2F%2Fd3wo5wojvuv7l.cloudfront.net%2Fimages.spreaker.com%2Foriginal%2Fe0a4c80dee55b0deb88f54c9137fdcac.jpg

Touches at the end on buying property in the cheaper parts of the UK (mentions Hartlepool, Ellesmere Port and areas around Freeports) with long term fixed debt, given rising inflation and levelling up agenda, rising wages etc (cc: @DurhamBorn) 

[Bricormortis]

http://online-stock-trading-guide.com/image-files/1929-1932-stock-chart-s.png   

These charts remind me how trading after a BK is not straight forward. I have always thought we wont go straight down in one hit, the historical view seems to support that. Does not make me happy looking at these. Edit to say there should also have been a chart of the Wall St crash attached, Its gone Awol.

 

 

[Bricormortis]

Like ripples on a pond surface after a stone gets thrown in ( decreasing amplitude )

[janch]

Dan Collins was an interesting guest on Kaiser Report yesterday.  He's been on a few times and has good knowledge of China and worked there for 20 years.  He thinks China is now overtaken the US and is the leading superstate and has control of the S China Sea and won't hesitate to act if it sees fit.

They mean business with HK and Taiwan and have more naval power than Japan, India, Australia and US combined.  They will join forces with Russia and Iran against the west.  I don't know if he was exagerating but it sounded quite plausible. 

Max and Stacy chat to businessman Dan Collins, a long-time former resident of China, about the latest emerging tensions as its power and wealth increases. They discuss how the richest American businessmen, like Charlie Munger and Elon Musk, have been openly praising China’s business model as Jack Ma is dethroned. They also discuss the ‘warnings’ that Chinese household wealth could soon be ‘unleashed’ upon the world and drive up prices even further than the money printing has done.

[JMD]

15 hours ago, sancho panza said:

Mrs P is a Saffer.Very sad.About 200 shopping malls have been looted and loads of warehouses.Unemployment was bad before,now even worse.

Could happen in the UK in one of the big cities-most likely Londinium-once people realsie how few police they're actually are.

But rioting did happen here in London summer 2011, 10 years ago, time certainly flies!! Not trying to correct you SP - for me the lesson here is the scary reminder of how useless the police were at that time; moreover the very next year the G4S Olympic security contract was removed due to company incompetence, and of course a complete lack of government oversight given it was such a high profile event... these examples show I think how we cannot hope to rely on the state to protect us if/when things really do turn?!    (Deck: I'm not a prepper... But more fool me maybe?!)

[Bricormortis]

29 minutes ago, janch said:

Dan Collins was an interesting guest on Kaiser Report yesterday.  He's been on a few times and has good knowledge of China and worked there for 20 years.  He thinks China is now overtaken the US and is the leading superstate and has control of the S China Sea and won't hesitate to act if it sees fit.

They mean business with HK and Taiwan and have more naval power than Japan, India, Australia and US combined.  They will join forces with Russia and Iran against the west.  I don't know if he was exagerating but it sounded quite plausible. 

Max and Stacy chat to businessman Dan Collins, a long-time former resident of China, about the latest emerging tensions as its power and wealth increases. They discuss how the richest American businessmen, like Charlie Munger and Elon Musk, have been openly praising China’s business model as Jack Ma is dethroned. They also discuss the ‘warnings’ that Chinese household wealth could soon be ‘unleashed’ upon the world and drive up prices even further than the money printing has done.

I read something about China building hundreds of underground missile silos presumably for ICBMs . I thought "thats Taiwan gone then". I am not clued up on geopolitics, but it always feels like we never really embrace Taiwan in the way we do Japan or the Phillipines.

 

[JMD]

6 hours ago, Cattle Prod said:

Jesus Christ.

Viruses go away eventually,this problem is structural. I saw a headline with some jackass proposing a fat tax to "protect the NHS". Genie is out of the bottle now, people complied and the NHS will continue to be used this way. NHS has had massive bed and resource cuts over the years (Germany has 4x critical care beds, thats 400% more!), but rather than reform it they will lock us down as soon as it gets full. Like it will this winter with flu. I have to say I'm not comfortable in such a society. How could I be comfortable when my local paramedic is doing a new year's eve every night and wants to quit? It's a total mess, decades in the making. And once the BOE stops funding the deficit there will be no money to fix it.

Hmm, you point out that in future there may be 'no money to fix' the NHS, plus you mention flu this winter potentially crippling the NHS. Interestind as i've actually been thinking recently on such things and what may play out near term this winter. Especially given health chiefs are estimating 60,000 flu deaths this coming year, are we being softened up?... I wonder, is a clumsy cataclysm within the NHS being engineered? Off topic thoughts, not meant as a  discussion point.

[DurhamBorn]

18 minutes ago, Bricormortis said:

I read something about China building hundreds of underground missile silos presumably for ICBMs . I thought "thats Taiwan gone then". I am not clued up on geopolitics, but it always feels like we never really embrace Taiwan in the way we do Japan or the Phillipines.

 

I dont think China will nuke anyone unless nuked first.They plan over 1000 years and wouldnt want to ruin the planet for when they take it over.They are winning a fantastic war already though,because surely this woke and cancel culture stuff must be coming direct from their agents and plants across the west.Its incredible how much damage it is doing.Every lockdown,every stupid rule,every footballer who can get more money for scroungers in welfare means less for weapons,and a society slowly falling apart.

Instead of dealing with the hard political choices,the west,and Japan,who are actually leading this are merging more and more the monetary CBs with the fiscal governments.That is why you see governments throwing money at anything and everything rather than debateas the CBs buy the debt and monetise it all.

China is close to the point where it can use its own population to consume more,and that will force up prices in the west even more because western currency will fall in value relative.

I sometimes used to look at the reflation ahead and think the outcomes expected were maybe outliers,but if anything my models are likely underscoring the inflation and dislocation ahead.

For ordinary people, they are walking directly into a distribution cycle that would be difficult at it is.If you add one the insane energy transition costs and maybe tax increases on things like council tax,its going to very nasty.

[DoINeedOne]

 

[DoINeedOne]

Sold Gazprom 40+%

Sold Wesdome 30+%

Sold Harmony  11+%

Wanted some cash reserves within my ISA, and see these as small wins in building up ISA value

[Democorruptcy]

Hussy is having another hissy

https://www.hussmanfunds.com/comment/mc210715/