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

[sancho panza]

 

without a hint of $ weakness

https://www.investing.com/analysis/ready-for-natgas-biggest-bull-market-this-year-200483251

The biggest bull market of the year in natural gas is shaping up, with huge stakes riding on an intense freeze forecast in the eastern two-thirds of the United States — the country’s most-closely watched heating market.

 

After tacking on 18% last week to give October a net gain of 13%, benchmark gas futures on the New York Mercantile Exchange’s Henry Hub are headed for yet another positive week, rising 4% in the three sessions to Wednesday.

Latest Gas Injection Seen Nearly 50% Down As Heating Demand Spikes

The sheer cold that led to a near 50% drop in gas injection levels in just a week is exactly what has got the market all hot and bothered since late October.

But even if the injection levels turn out to be higher than forecast, they are unlikely to take away much of the market sentiment — that seems to be the consensus.

 

 

 

 

 

Decl:long a few Nat gas plays.

[Boon]

Would loose monetary policy simply boost asset prices including that of housing? It's the easiest investment for Joe Public.

I do not currently own any property but wondering how to hedge bets in case these assets do go up.

[Shamone]

Thinking the JARA fund. anybody got a view on it?

[Clueless Imbecile]

What do you guys think about holding cash whilst waiting for the downturn ("debt deflation"), in the hope of then being able to use that cash to buy assets (stocks, property, bonds gold, silver) cheaper in the bust?

I wonder if it might just mitigate some of the risk of trying to pick the right stocks in the current market.

I think it's been said that "most assets will go down in the bust". If that is the case, then what are they "going down" against? If they are all falling, say at a similar rate, then what are they falling relative to? (not each other if they all fall by a similar percentage). If a stock market index falls, then I guess that means that on average the share prices have fallen relative to the currency they are priced in (e.g. if FTSE100 falls 200 points then on average the share prices have fallen relative to GBP).

Some risks I see with holding cash (GBP) as a UK investor....

1) Inflation risk - Cash earns little to no return nowadays (due to low interest rates).
2) Risk of bank bail-ins (aka "haircuts").
3) Risk of currency debasement (e.g. due to QE).
4) Risk of the currency falling relative to other currencies (e.g. GBP falling vs USD).
5) Risk of the bank where the cash is held going bust.
6) Some assets might not go down in the bust (e.g. what if some "relation stocks" don't fall much during the bust, or even rise instead? Who knows?)

I'm not keen on holding cash long-term due mainly to 1) & 3). However, I'm a newbie when it comes to stock-picking (having relied on index trackers until recently), and I've already had my fingers burned (metaphorically speaking!) on some stocks over the past year or two. I like the idea of laddering-in to a stock, but I don't know what is a reasonably good price to set the first ladder at. I just wonder if I might be best to hold cash from now on, in anticipation of the bust happening within say, the next 6 to 18 months, and then buy back into the stock market (or maybe even buy my first house) if the markets have fallen substantially by then. I suppose that is partly based on the assumption that currency debasement would take several years to really have a big effect, and that therefore I could use my cash whilst it still had plenty of value relative to whatever I chose to buy.

I'm sick of worrying about all this stuff. Life was a lot simpler when I had firm belief in equity index-tracker funds!

Cheers,
Clueless Imbecile

Disclaimer: I am not an expert. Anything I post here is just my opinions, which may not be factually correct. My posts are intended purely for the purpose of debate and are not to be taken as advice. If you act on any of the above then you do so entirely at your own risk. I do not accept any liability.

[JMD]

1 hour ago, Simon said:

Thinking the JARA fund. anybody got a view on it?

At first look JARA doesn't look attractive to me... fund fees seem expensive/holdings not ideal re. this thread - 30-50% in global real-estate, 2.28% costs.

As an alternative you could take a look at these: Vanguard Global Capital Cycles (vgpmx). VanEck Natural Resources Index (hap). 

 

[leonardratso]

18 minutes ago, JMD said:

At first look JARA doesn't look attractive to me... fund fees seem expensive/holdings not ideal re. this thread - 30-50% in global real-estate, 2.28% costs.

As an alternative you could take a look at these: Vanguard Global Capital Cycles (vgpmx). VanEck Natural Resources Index (hap). 

 

where can you get vgpmx from though,  i assume HL but i havent checked. Its certainly not on offer in their vanguard uk gia;

https://secure.vanguardinvestor.co.uk

 

 

[JMD]

2 hours ago, sancho panza said:

I coma scored most of GDX/GDXJ/XAU/HUI.

Whilst coma scores are backward looking, they pick up outliers. I don't really focus on the goings on ref individual stocks unless you/DB?MP or AN Other mentions something in particualr.COma scoring channels us into companies that are less risky-less upside too.

 

Thank you SP for your earlier reply to me regarding De Grey/Silver Mines. I will have to think about this because, even with holding Silver Lake Resources, my personal risk/reward strategy is not working out quiet as I had calculated/hoped.

For example, amongst the junior PM miners, I was looking at Brixton Metals and Pure Gold Mining, as I noticed Sprott (billionaire gold bull) had big stakes in these. BTW, I do use other criteria(!) but thought this fact interesting.

You mention that you have done your SCS's for GDXJ and other indexes, would you be able to share these at all? I am still buying the miners and know it would help me greatly to judge more appropriately in terms of risk. My intention is to buy a diversified spread of these juniors (I am mostly happy with my large-cap miner portfolio) for buy-and-hold into the next cycle whilst they are still cheap.     

 

[JMD]

31 minutes ago, leonardratso said:

where can you get vgpmx from though,  i assume HL but i havent checked. Its certainly not on offer in their vanguard uk gia;

https://secure.vanguardinvestor.co.uk

 

 

Good question, I was hoping it would be available in the UK by now as i've had it on my list for some time. I had assumed it would be available by now. Does anyone else know if we can buy this in the UK?  

[Shamone]

1 hour ago, JMD said:

At first look JARA doesn't look attractive to me... fund fees seem expensive/holdings not ideal re. this thread - 30-50% in global real-estate, 2.28% costs.

As an alternative you could take a look at these: Vanguard Global Capital Cycles (vgpmx). VanEck Natural Resources Index (hap). 

 

Thanks, will take a look. Have no idea where to put modest savings 

[DoINeedOne]

Eldorado Gold had a fun day i see -15.2%

[UnconventionalWisdom]

On 07/11/2019 at 12:50, DurhamBorn said:

Carney talking now

 "becoming stuck in a “low growth low inflation rut”.

CBs are seeing the  credit deflation threat now,but far too late.They are going to go loose too late,then mega loose.Government will be borrowing massive amounts in a year for "investment" at sub 1%.

All CBs will go loose soon,and all governments will turn to "investment",i expect this thread will get very busy in the spring.

Do you see interest rates rising as soon as governments borrow ir do you think there will be a lag of a year or two?

[Loki]

@DurhamBorn I know you're busy but your thoughts on where gold and silver (Physical/spot rather than miners) are on your roadmap would be appreciated, as things seem to be happening more rapidly now.  

[DurhamBorn]

2 hours ago, UnconventionalWisdom said:

Do you see interest rates rising as soon as governments borrow ir do you think there will be a lag of a year or two?

A good lag.The cycle will develop slowly,inflation maybe 4% and rates similar by halfway through the cycle,say 4 years from when the CBs start real printing.The end of the cycle will probably see inflation and rates move much higher still,likely double figures and maybe touching the 20%s at a push.People will be caught out through the whole cycle i expect.

[DurhamBorn]

57 minutes ago, Loki said:

@DurhamBorn I know you're busy but your thoughts on where gold and silver (Physical/spot rather than miners) are on your roadmap would be appreciated, as things seem to be happening more rapidly now.  

Iv done no work on them since they hit my targets and i sold.My next buy points are gold around $1100,if it doesnt hit,i dont buy.The target is higher than it was before ($900) ,but still consider it could undershoot below $1000.Almost all my work at the moment is building and putting in place buy points for around 50 stocks for my long term portfolio,mostly based on income and tilted to inflation loving areas and some pure play inflation loving stocks in there.My aim is to outrun inflation by 1%+.My portfolio isnt about growth anymore,its about holding its buying power over the cycle.

[Chewing Grass]

3 minutes ago, DurhamBorn said:

A good lag.The cycle will develop slowly,inflation maybe 4% and rates similar by halfway through the cycle,say 4 years from when the CBs start real printing.The end of the cycle will probably see inflation and rates move much higher still,likely double figures and maybe touching the 20%s at a push.People will be caught out through the whole cycle i expect.

Thats many retirees fucked over in the next 10 years who took fixed annuities at abysmal rates as shown below in Hargreaves Lansdowns best buy annuity rates.

100K of pot getting you 3K, single life RPI with strings for the more cautious.

[Talking Monkey]

6 minutes ago, Chewing Grass said:

Thats many retirees fucked over in the next 10 years who took fixed annuities at abysmal rates as shown below in Hargreaves Lansdowns best buy annuity rates.

100K of pot getting you 3K, single life RPI with strings for the more cautious.

My god some folks are going to get destroyed over the next decade even a huge pot buying an annuity today they may well be in poverty in 10-15 years

[UnconventionalWisdom]

A recent post by Dalio has a lot of interesting considerations on where we are and where we're going. 

Apologies if a bit long but theres a lot of relevance to what's spoken about on here.

The World Has Gone Mad and the System Is Broken

 

The World Has Gone Mad and the System Is Broken

Published on November 5, 2019

Ray Dalio

Co-Chief Investment Officer & Co-Chairman of Bridgewater Associates, L.P.

I say these things because:

Money is free for those who are creditworthy because the investors who are giving it to them are willing to get back less than they give. More specifically investors lending to those who are creditworthy will accept very low or negative interest rates and won’t require having their principal paid back for the foreseeable future. They are doing this because they have an enormous amount of money to invest that has been, and continues to be, pushed on them by central banks that are buying financial assets in their futile attempts to push economic activity and inflation up. The reason that this money that is being pushed on investors isn’t pushing growth and inflation much higher is that the investors who are getting it want to invest it rather than spend it. This dynamic is creating a “pushing on a string” dynamic that has happened many times before in history (though not in our lifetimes) and was thoroughly explained in my book Principles for Navigating Big Debt Crises. As a result of this dynamic, the prices of financial assets have gone way up and the future expected returns have gone way down while economic growth and inflation remain sluggish. Those big price rises and the resulting low expected returns are not just true for bonds; they are equally true for equities, private equity, and venture capital, though these assets’ low expected returns are not as apparent as they are for bond investments because these equity-like investments don’t have stated returns the way bonds do. As a result, their expected returns are left to investors’ imaginations. Because investors have so much money to invest and because of past success stories of stocks of revolutionary technology companies doing so well, more companies than at any time since the dot-com bubble don’t have to make profits or even have clear paths to making profits to sell their stock because they can instead sell their dreams to those investors who are flush with money and borrowing power. There is now so much money wanting to buy these dreams that in some cases venture capital investors are pushing money onto startups that don’t want more money because they already have more than enough; but the investors are threatening to harm these companies by providing enormous support to their startup competitors if they don’t take the money. This pushing of money onto investors is understandable because these investment managers, especially venture capital and private equity investment managers, now have large piles of committed and uninvested cash that they need to invest in order to meet their promises to their clients and collect their fees.

At the same time, large government deficits exist and will almost certainly increase substantially, which will require huge amounts of more debt to be sold by governments—amounts that cannot naturally be absorbed without driving up interest rates at a time when an interest rate rise would be devastating for markets and economies because the world is so leveraged long. Where will the money come from to buy these bonds and fund these deficits? It will almost certainly come from central banks, which will buy the debt that is produced with freshly printed money. This whole dynamic in which sound finance is being thrown out the window will continue and probably accelerate, especially in the reserve currency countries and their currencies—i.e., in the US, Europe, and Japan, and in the dollar, euro, and yen. 

At the same time, pension and healthcare liability payments will increasingly be coming due while many of those who are obligated to pay them don’t have enough money to meet their obligations. Right now many pension funds that have investments that are intended to meet their pension obligations use assumed returns that are agreed to with their regulators. They are typically much higher (around 7%) than the market returns that are built into the pricing and that are likely to be produced. As a result, many of those who have the obligations to deliver the money to pay these pensions are unlikely to have enough money to meet their obligations. Those who are recipients of these benefits and expecting these commitments to be adhered to are typically teachers and other government employees who are also being squeezed by budget cuts. They are unlikely to quietly accept having their benefits cut. While pension obligations at least have some funding, most healthcare obligations are funded on a pay-as-you-go basis, and because of the shifting demographics in which fewer earners are having to support a larger population of baby boomers needing healthcare, there isn’t enough money to fund these obligations either. Since there isn’t enough money to fund these pension and healthcare obligations, there will likely be an ugly battle to determine how much of the gap will be bridged by 1) cutting benefits, 2) raising taxes, and 3) printing money (which would have to be done at the federal level and pass to those at the state level who need it). This will exacerbate the wealth gap battle. While none of these three paths are good, printing money is the easiest path because it is the most hidden way of creating a wealth transfer and it tends to make asset prices rise. After all, debt and other financial obligations that are denominated in the amount of money owed only require the debtors to deliver money; because there are no limitations made on the amounts of money that can be printed or the value of that money, it is the easiest path. The big risk of this path is that it threatens the viability of the three major world reserve currencies as viable storeholds of wealth. At the same time, if policy makers can’t monetize these obligations, then the rich/poor battle over how much expenses should be cut and how much taxes should be raised will be much worse. As a result rich capitalists will increasingly move to places in which the wealth gaps and conflicts are less severe and government officials in those losing these big tax payers will increasingly try to find ways to trap them.

At the same time as money is essentially free for those who have money and creditworthiness, it is essentially unavailable to those who don’t have money and creditworthiness, which contributes to the rising wealth, opportunity, and political gaps. Also contributing to these gaps are the technological advances that investors and the entrepreneurs that I previously mentioned are excited by in the ways I described, and that also replace workers with machines. Because the “trickle-down” process of having money at the top trickle down to workers and others by improving their earnings and creditworthiness is not working, the system of making capitalism work well for most people is broken. 

This set of circumstances is unsustainable and certainly can no longer be pushed as it has been pushed since 2008. That is why I believe that the world is approaching a big paradigm shift.

 

[Loki]

34 minutes ago, DurhamBorn said:

Iv done no work on them since they hit my targets and i sold.My next buy points are gold around $1100,if it doesnt hit,i dont buy.The target is higher than it was before ($900) ,but still consider it could undershoot below $1000.Almost all my work at the moment is building and putting in place buy points for around 50 stocks for my long term portfolio,mostly based on income and tilted to inflation loving areas and some pure play inflation loving stocks in there.My aim is to outrun inflation by 1%+.My portfolio isnt about growth anymore,its about holding its buying power over the cycle.

Thank you!

[DurhamBorn]

As above.As iv always said,markets hurt the most people they can.Those who took an annuity will be wiped out,but so will those in draw down if they think a Vanguard style 40%,30% etc bond/stock split will deliver the 5% returns.Most draw downs are structured for that and if the funds lose 5% a year,have a 5% draw down and inflation runs at 5%+ its only a few years before the people are in trouble.There are huge amounts of money out there sat in 1% or less bonds and that is why velocity is dead.Politicians dont understand the macro situation,few do,but they do understand the anger out there and the fact the economy cant provide the demands on it.When the log jam breaks it will sweep many away.

A few areas can front run inflation,they are areas where demand will hold or grow,where the assets cost a lot to develop and where it takes 5 to 10 years to build assets to compete.Thats not growth companies.Its old style value stocks and commods.Once commods suck in the inflation and money,less is available for other areas and people cant borrow to build to compete.Thats when incumbent companies in reflation sectors see free cash explode.

Everything is moving along nicely.It will be interesting to see if the financial dislocation means some annuity providers cant pay up.

[Thorn]

Durhamborn lots to ponder here- so do you see a drop from here then, rather than a bounce up from about 1400-1440?

thought this below looked interesting but now not so sure...

[MrXxxx]

10 hours ago, DurhamBorn said:

mostly based on income and tilted to inflation loving areas and some pure play inflation loving stocks in there.My aim is to outrun inflation by 1%+.My portfolio isnt about growth anymore,its about holding its buying power over the cycle.

So if my understanding of this is correct... the inflation loving stocks due to their strength in having either:

a) the ability to increase prices above inflation due to being consumer essentials, or

b) a foundation of depreciation assets (such as vehicles for bus companies) that were bought in a low interests environment allowing them a greater profit margin,

...means that they will be able to offer more reliable and higher dividends than other areas of the market/stocks?

...and your move of focus from growth to income is due to retirement, so needing a regular/reliable above inflation income, rather than the more volatile `roller coaster ride`/cyclical nature of growth shares?

[MrXxxx]

10 hours ago, Chewing Grass said:

Thats many retirees fucked over in the next 10 years who took fixed annuities at abysmal rates as shown below in Hargreaves Lansdowns best buy annuity rates.

100K of pot getting you 3K, single life RPI with strings for the more cautious.

...and also those on DB pension, where many policies only cover upto 5% in full, half to 10%, and then nothing after that, so when rates go above 5% their buying power will start eroding!...

...also be interesting to see how the Govt manages the Pensions `Triple lock promises`...if they follow through with all of their development promises that will need printing inflation will go up, and then they will need to find even more money to service both public service DB pensions AND triple lock State pensions...oh, and they are going to reduce the taxes as well...yeah right!

[Talking Monkey]

4 minutes ago, MrXxxx said:

...and also those on DB pension, where many policies only cover upto 5% in full, half to 10%, and then nothing after that, so when rates go above 5% their buying power will start eroding!...

...also be interesting to see how the Govt manages the Pensions `Triple lock promises`...if they follow through with all of their development promises that will need printing inflation will go up, and then they will need to find even more money to service both public service DB pensions AND triple lock State pensions...oh, and they are going to reduce the taxes as well...yeah right!

Something will have to give right, I hope I am wrong but there will be huge impoverishment in the coming decade or so, a real rollback in living standards, I just cannot see how it can be sustained

[MrXxxx]

9 minutes ago, Talking Monkey said:

Something will have to give right, I hope I am wrong but there will be huge impoverishment in the coming decade or so, a real rollback in living standards, I just cannot see how it can be sustained

Why am I always `in the wrong place at the wrong time`?!

[MrXxxx]

On 07/11/2019 at 17:23, Clueless Imbecile said:

What do you guys think about holding cash whilst waiting for the downturn ("debt deflation"), in the hope of then being able to use that cash to buy assets (stocks, property, bonds gold, silver) cheaper in the bust?

I wonder if it might just mitigate some of the risk of trying to pick the right stocks in the current market.

I think it's been said that "most assets will go down in the bust". If that is the case, then what are they "going down" against? If they are all falling, say at a similar rate, then what are they falling relative to? (not each other if they all fall by a similar percentage). If a stock market index falls, then I guess that means that on average the share prices have fallen relative to the currency they are priced in (e.g. if FTSE100 falls 200 points then on average the share prices have fallen relative to GBP).

Some risks I see with holding cash (GBP) as a UK investor....

1) Inflation risk - Cash earns little to no return nowadays (due to low interest rates).
2) Risk of bank bail-ins (aka "haircuts").
3) Risk of currency debasement (e.g. due to QE).
4) Risk of the currency falling relative to other currencies (e.g. GBP falling vs USD).
5) Risk of the bank where the cash is held going bust.
6) Some assets might not go down in the bust (e.g. what if some "relation stocks" don't fall much during the bust, or even rise instead? Who knows?)

I'm not keen on holding cash long-term due mainly to 1) & 3). However, I'm a newbie when it comes to stock-picking (having relied on index trackers until recently), and I've already had my fingers burned (metaphorically speaking!) on some stocks over the past year or two. I like the idea of laddering-in to a stock, but I don't know what is a reasonably good price to set the first ladder at. I just wonder if I might be best to hold cash from now on, in anticipation of the bust happening within say, the next 6 to 18 months, and then buy back into the stock market (or maybe even buy my first house) if the markets have fallen substantially by then. I suppose that is partly based on the assumption that currency debasement would take several years to really have a big effect, and that therefore I could use my cash whilst it still had plenty of value relative to whatever I chose to buy.

I'm sick of worrying about all this stuff. Life was a lot simpler when I had firm belief in equity index-tracker funds!

Cheers,
Clueless Imbecile

Disclaimer: I am not an expert. Anything I post here is just my opinions, which may not be factually correct. My posts are intended purely for the purpose of debate and are not to be taken as advice. If you act on any of the above then you do so entirely at your own risk. I do not accept any liability.

Any one else like to give their perspective on this, as mine is a similar scenario?

Note, as always I reserve the right to completely ignore your `financial advice` and lose what little money I have ! :-)