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

[kibuc]

21 hours ago, Tdog said:

If you're going to do it, the younger the better. Ive got to move my 9 year old areas and schools shortly and im not looking forward to the disruption, id have done this in 2014 after nursery were it not for FFL/HTB. This is why ive a pure hatred for the blue team and the bubble theyve recreated!

It might not be as disruptive as you fear. We have moved in 2015 (from Poland no less), 2017 and again in 2019 (changing cities). Kids never skipped a beat. They were 6 and 3 the first time round, 10 and 7 now. As long as they find stability, care and love at home, everything else will fall into place. Children's ability to adapt never ceases to amaze me. 

[Harley]

19 minutes ago, kibuc said:

It might not be as disruptive as you fear. We have moved in 2015 (from Poland no less), 2017 and again in 2019 (changing cities). Kids never skipped a beat. They were 6 and 3 the first time round, 10 and 7 now. As long as they find stability, care and love at home, everything else will fall into place. Children's ability to adapt never ceases to amaze me. 

I lived in about seven different countries growing up.  Same for my siblings, bar those who went to boarding school.  We're all effing mental!

Of all the currently bad things about those with housing, hard working families not having a secure and decent base is one of the most upsetting.

Though my family would still be mental!

[sleepwello'nights]

3 hours ago, kibuc said:

It might not be as disruptive as you fear. We have moved in 2015 (from Poland no less), 2017 and again in 2019 (changing cities). Kids never skipped a beat. They were 6 and 3 the first time round, 10 and 7 now. As long as they find stability, care and love at home, everything else will fall into place. Children's ability to adapt never ceases to amaze me. 

Doesn't always work out. We moved when I was 11 just after taking my 11 plus. The group of friends I made didn't do me any favours at Grammar school. They egged me on to be cheeky in class and like an idiot I played along. Classic new boy trying to curry favour with the clique.

I sometimes wonder if we hadn't moved whether I would have been less of a disruptive influence at school.

[sleepwello'nights]

8 minutes ago, Tdog said:

I moved age 8 and 13. First was no problem .. second i ended up being kicked out of 2 high schools in 3 years. 

Some people never learn 

[janch]

I was an army brat and went to 8 schools in all.  Luckily I was only in one school for my secondary education and we stayed put when my father left the army.  I don't remember much about my early schooling but by the time of the last move (age about 9) I can remember finding it really upsetting.  I never made many friends until we settled for good as we were always on the move.

[Democorruptcy]

15 hours ago, sancho panza said:

Been thinking all day about your comment.We've been lucky by comparison.

Without being political-but I'm obviously goingto be-I'd never expect the Tories to change the law in favour of tenants a little more,but I do wonder if Labour could have done something(but then a lot of them had BTL's eg Alistair Darling-the man whop bailed RBS)

Their manifesto included:

We will bring in a Better Deal for Renters, including abolishing ‘no fault’ evictions and only requiring one ‘lifetime’ deposit which moves with the tenant. This will create a fairer rental market: if you’re a tenant, you will be protected from revenge evictions and rogue landlords, and if you’re one of the many good landlords, we will strengthen your rights of possession.
 

https://assets-global.website-files.com/5da42e2cae7ebd3f8bde353c/5dda924905da587992a064ba_Conservative 2019 Manifesto.pdf

[Democorruptcy]

Amerman latest:

Quote

 

The amount of money that is being created, and that we are being told is ready to be created if needed - is insane. For perspective, keep in mind that the total assets of the Federal Reserve at the beginning of 2008, after about 95 years in existence, was less than $900 billion. The Fed is ready to create an amount of money that is not all that much less, $634 billion, in the space of a little less than four months as part of their emergency maneuvers to prevent crisis.

http://danielamerman.com/va/ccc/F2YrEndRepo.html

 

 

[stockton]

1 hour ago, Tdog said:

Its all just far to complex and mesmerizing .. who the fuck needs 634 billion dollars in a matter of months?

When i were a lad state spending a hundred million was huge, the uproar about 700 million for the Millennium dome went on for years. Come 2019 you print 634 billion and the plebs have got to dig deep on the internet to find out about it.

No one cares / it's not headline news because it keeps them in the life they have become accustomed too.

 

Keep the plates spinning at all costs!

[sancho panza]

12 hours ago, Democorruptcy said:

Amerman latest:

 

Bodes well for a weak dollar phase

'As shown above - none of this money even existed the week of September 11th, before the repo crisis began. It took 12 weeks for the Fed to create the money to fund $208 billion in repurchase agreements - that funded the ownership of $208 billion in new Treasury obligations. And the Fed has announced plans to offer to approximately double that funding over about the next four weeks, to $415 billion.

Separately, the Federal Reserve reversed its plans to gradually unwind its vast portfolio of Treasury obligations, via which it had already been funding a big portion of the national debt, and instead began in October to buy $60 billion a month in Treasury obligations, with the source of funding also being monetary creation. Adding another month's purchases in, that would take the total purchases of Treasury obligations up to around $219 billion by the first week of January.

Putting it all together - the numbers are astonishing. The Federal Reserve is standing ready to create $634 billion in new money in the span of 16 weeks.

[Harley]

1 hour ago, sancho panza said:

Bodes well for a weak dollar phase

My technicals suggest a continuation of the 13 Dec 19 bounce on the daily, weeklies just pulled up by this, but monthlies heading down, starting in Q4.  Anyone got any targets?

[DurhamBorn]

2 hours ago, Harley said:

My technicals suggest a continuation of the 13 Dec 19 bounce on the daily, weeklies just pulled up by this, but monthlies heading down, starting in Q4.  Anyone got any targets?

88.7 on the dollar index is my target Harley,i did a full scan on all data last week.Im expecting almost all the big currencies to gain against the dollar,not just the Euro,Yen etc.Cable,AUS and CAD should all gain as well.

[Green Devil]

On 19/12/2019 at 15:24, Democorruptcy said:

Their manifesto included:

We will bring in a Better Deal for Renters, including abolishing ‘no fault’ evictions and only requiring one ‘lifetime’ deposit which moves with the tenant. This will create a fairer rental market: if you’re a tenant, you will be protected from revenge evictions and rogue landlords, and if you’re one of the many good landlords, we will strengthen your rights of possession.
 

https://assets-global.website-files.com/5da42e2cae7ebd3f8bde353c/5dda924905da587992a064ba_Conservative 2019 Manifesto.pdf

Litetime deposit, what's that then? Every time you move your slimeball landlord trys to take most of it, so it's hardly a lifetime! 

[Green Devil]

Whats the current view on gold and silver and the gold miners. Are we in a pullback ready to make the new ATH or is that the top of the cycle. Sold my Ego, looking to buy back in possibly.

[DurhamBorn]

2 hours ago, Green Devil said:

Whats the current view on gold and silver and the gold miners. Are we in a pullback ready to make the new ATH or is that the top of the cycle. Sold my Ego, looking to buy back in possibly.

Gold and the miners will likely run higher as the dollar weakens.Im not doing anything in the sector outside of the stocks i already own though so have done no work on it lately.Im spending a lot of time on the oil sector and telcos as i am moving long term capital into them.I still hope for a pull back in oil,a lot could depend if it happens before the $ weakens though.If the $ weakens first then is would probably support commods.

[BearyBear]

6 hours ago, Green Devil said:

Whats the current view on gold and silver and the gold miners. Are we in a pullback ready to make the new ATH or is that the top of the cycle. Sold my Ego, looking to buy back in possibly.

Dave Hunter is predicting gold reaching $1800+ and silver $26 in Q1...

I think they will both go up but it's unlikely to reach these levels in Q1, especially for silver.

[Noallegiance]

Hopefully it won't dip in £s

[Green Devil]

6 hours ago, DurhamBorn said:

Gold and the miners will likely run higher as the dollar weakens.Im not doing anything in the sector outside of the stocks i already own though so have done no work on it lately.Im spending a lot of time on the oil sector and telcos as i am moving long term capital into them.I still hope for a pull back in oil,a lot could depend if it happens before the $ weakens though.If the $ weakens first then is would probably support commods.

Yes, im liking oil stocks, price looking like a rise is coming in oil. Looking to add some exxon mobil when it dips, but looks like it want to break the long term trend at the mo, so it could pay to wait. Good dividend payer.

[sancho panza]

Small cracks ....? Smal/opaque market.Price/volume falling......

https://wolfstreet.com/2019/12/20/below-the-surface-struggles-in-tough-manhattan-housing-market-seep-to-the-surface/

That the Manhattan market for condos and co-ops has been heading lower is no secret. The price and sales data I’m going to briefly lay out here is just to provide a backdrop for what comes next – the struggles below the surface that rarely make it to the surface. But this time they did.

The average sales price of condos and co-ops in the third quarter dropped 14.1% from a year ago to $1.66 million, according to the Elliman Report. The median sales price (half of the condos and co-ops sell for more, and half sell for less) fell 8.2% from a year ago to $1.03 million. That was down 13% from two years ago.

The number of closed sales fell 14.2% from a year ago to 2,592 units. The only price category that saw a year-over-year sales increase (+4.8%) was the below-$500,000 category. In all other price categories, sales fell. In the above-$5-million category, sales collapsed by 42.9%.

Months’ supply of listed inventory – not including unsold units that have been pulled, as we’ll see in a moment – rose 22.9% year-over-year to 8.6 months. And this has occurred despite a steep decline in mortgage rates over the 12-month period.

Back in the second quarter, there had been a rush to buy before the Mansion Tax took effect on July 1, and sales surged at the time, “prompting some market observers to interpret the formation of a recovery,” the Elliman Report said. But as the Q2 Elliman Report had predicted, that surge would unwind in Q3, and it did, plus some.

This is the backdrop to what comes next. Jonathan Miller, author of the Elliman Report and principal at New York City real estate appraisal firm Miller Samuel, exposed today a fascinating aspect of the dynamics beneath the surface in the Manhattan housing market.

But first a distinction. In Manhattan, there are two common types of legal structures for apartment ownership, a condo and a co-op. In a co-op, according to the New York City Bar:

You own shares in the corporation which owns the building, but you are also a tenant who rents an apartment from the corporation. You will be considered a tenant/shareholder. The lease between you and the building is called a “proprietary lease.”

So when you want to sell your apartment, it gets complicated because legally you don’t own the apartment; you own shares in the corporation that owns the whole building. And the co-op board not only gets to say yay or nay over the buyer but also over other things, such as the sales price. And in a down-market, folks appear to be clinging to prices as they used to be.

Jonathan Miller wrote in his Housing Notes today: “I’ll be writing about this phenomenon a lot in 2020, but I’ve been told that a growing number of boards are killing sales they deem too “low” even though the sale was vetted by the market – properly exposed, fully qualified buyer, etc.”

He cites a letter that Donna Olshan, president of Olshan Realty – whom “I’ve known for most of my career,” he says – sent to the board of a co-op that had rejected a sale that finally took place after months of price cuts, because the price was too low. “The letter conveyed the reality of selling co-op apartments in today’s market,” he said and added:

Here’s my message to all co-op boards who do this: The market doesn’t care what you think. By killing sales you think are too low, you are violating your fiduciary responsibility to the shareholders by acting this way. Co-ops that do this are damaging shareholder equity as brokers steer would-be buyers away from boards that are violating their fiduciary responsibilities.

This is the letter by Donna Olshan. He redacted “everything that would reveal the parties.” Note how the apartment gets pulled off the market and is then relisted at a lower price. As this happens with more apartments, it makes the “days on market,” an important metric, look a lot rosier than it actually is:

Dear Board of Directors,

I am writing to provide context for the sales price of $[redacted] million of apartment #[redacted] located at [redacted].

Before being listed for sale, the apartment was professionally staged and refreshed at great expense to [redacted]. Additionally, a professional photographer was hired to insure the portfolio of listing photos were just right. (Please See attached photos):
https:[redacted]

On May 22, 2018, the unit was listed in the multiple listing service run by the Real Estate Board of New York (REBNY-RLS) and disseminated electronically to its approximately 12,000+ residential members. The original listing price was [redacted]. The apartment was shown numerous times however the owners received no offers and by the end of December 2018, the unit was withdrawn from the market so the listing did not appear as stale.

On March 13, 2019, it was relisted at a reduced price of [redacted] million in the hopes that listing earlier in the Spring at a lower level would draw buyers. It did not.

On May 6, 2019, the price was lowered to [redacted].

By August 2019, a contract was signed at [redacted] million.
This was the ONLY offer that the seller received during the entire marketing period.

The current market has been on a consistent downward swing since Congress changed the tax law at the end of December 2017 when the deduction for state and local taxes (including real estate) was capped at $10,000. The mortgage interest deduction was also reduced to a maximum of $750,000. Since 2018, the pool of buyers has shrunk and there has been an increase in inventory. Unit [redacted] was caught in a downward cycle and by any metric available, the market continues to head south. Below is a 3rd quarter report written by the appraiser Jonathan Miller for Douglas Elliman. Jonathan is considered the dean of appraising in the industry and is frequently cited in mass media and is consulted by various institutions:

https://www.elliman.com/pdf/cd301cd94c6c2fee6e9317e7fc8e5ca0b2d9c658

I have been a professional in the real estate business since 1980 and my career spans many markets, properties and clients. I am very experienced in the market and conditions and can confidently state that the price achieved is fair market value and the unit has been thoroughly market-tested.

Very truly yours,
Donna Olshan
President

The letter conveys the nightmare a seller faces – after the expenses of preparing and marketing the apartment followed by serial price cuts – when the co-op board nixes the only offer, thereby killing the sale. This creates the prospect of being stuck with the apartment because the board won’t allow it to be sold at the price the market is willing to pay; and the market doesn’t care what the board thinks and won’t pay its fantasy price.

But more importantly, it shows in granular detail just how tough the Manhattan market has gotten, and the hoops sellers have to jump through to even find an interested and able buyer.

Wow, that was fast: In default is a $650 million portion of a $2 billion loan package, signed in 2018. Read… Brick & Mortar Meltdown Manhattan Style: Lenders Foreclose on Times Square Tower whose Six Retail Floors are 90% Vacant

[sancho panza]

https://wolfstreet.com/2019/12/19/despite-slowdown-sweden-exits-negative-interest-rates-first-central-bank-ever-to-do-so/

The central bank of Sweden, the Riksbank, has thrown in the towel on negative interest rates, and has become the first central bank in history to do so. At its meeting on October 24, it said that it would “probably” do so, after already suggesting at its September meeting that it would do so. And today, it did so. It announced that it raised its “repo” rate to 0%.

It wasn’t exactly a heroic move, but it was the first time in history that a central bank that had gone full NIRP, and had done so before most others in early 2015, has exited it. The new repo rate will be effective January 8. Chart via the Riksbank’s presentation materials. I circled today’s decision:

One of the motives for raising its repo rate out of the negative is visible in its warning about household indebtedness which is among the highest in the world – with household debt exceeding 190% of disposable income — in part due to the low and negative interest rate environment that caused Swedes, as would be expected, to borrow with reckless abandon.

[DurhamBorn]

 

For the next cycle i tend to use M1 money supply to indicate the broad measure of "inflation" building up in the economy.Since 12 its roughly about 55% - gdp growth - velocity.My cross market on this says we have roughly 40% of inflation in the system to come out during the next cycle on top of the growth in M1 during the cycle (im expecting M1 to grow at roughly 160% of its growth over this cycle).In affect im expecting roughly 130% inflation over the next cycle and the likely end point around 29.That is compounded.

 

People arent spotting what is coming because i think they are being swayed by M2 money supply,because they think thats the best way in the modern economy.However i think that velocity is always the trigger that sees the dial move on M1 and inflation flows from that.

Im doing cross market work based on the M1 readings and creating road maps based on those expectations.If right,by 2027 gilts and treasuries should lose around 83% in real terms.

60/40 lifestyle fund for your draw down pension will be a disaster if my road map is even half right.

[Sugarlips]

1 hour ago, DurhamBorn said:

 

For the next cycle i tend to use M1 money supply to indicate the broad measure of "inflation" building up in the economy.Since 12 its roughly about 55% - gdp growth - velocity.My cross market on this says we have roughly 40% of inflation in the system to come out during the next cycle on top of the growth in M1 during the cycle (im expecting M1 to grow at roughly 160% of its growth over this cycle).In affect im expecting roughly 130% inflation over the next cycle and the likely end point around 29.That is compounded.

 

People arent spotting what is coming because i think they are being swayed by M2 money supply,because they think thats the best way in the modern economy.However i think that velocity is always the trigger that sees the dial move on M1 and inflation flows from that.

Im doing cross market work based on the M1 readings and creating road maps based on those expectations.If right,by 2027 gilts and treasuries should lose around 83% in real terms.

60/40 lifestyle fund for your draw down pension will be a disaster if my road map is even half right.

Fascinating DB thanks as always. Are you able to extrapolate this and see prices of other commodities besides oil on the back of inflation launching? 

Iron Ore & Coal perhaps?

I imagine places like Calgary will directly benefit from the oil price surge,

Just looking at the macro picture, you have mentioned govt spending on infrastructure etc as the main trigger for inflation to break out, do you envisage this will in turn inflate away/erode the govt deficits that they are about to generate or will the interest bill bankrupt them first?

[MrXxxx]

10 hours ago, sancho panza said:

https://wolfstreet.com/2019/12/19/despite-slowdown-sweden-exits-negative-interest-rates-first-central-bank-ever-to-do-so/

The central bank of Sweden, the Riksbank, has thrown in the towel on negative interest rates, and has become the first central bank in history to do so. At its meeting on October 24, it said that it would “probably” do so, after already suggesting at its September meeting that it would do so. And today, it did so. It announced that it raised its “repo” rate to 0%.

It wasn’t exactly a heroic move, but it was the first time in history that a central bank that had gone full NIRP, and had done so before most others in early 2015, has exited it. The new repo rate will be effective January 8. Chart via the Riksbank’s presentation materials. I circled today’s decision:

<img alt="Sweden-2019-12-repo-rate.png" data-ratio="90.99" height="434" srcset="https://www.dosbods.co.uk/applications/core/interface/imageproxy/imageproxy.php?img=https://wolfstreet.com/wp-content/uploads/2019/12/Sweden-2019-12-repo-rate.png&key=df7640cd43c0219056a81193bf430a85ba8370bc84e061449963705a938489e9 477w, https://www.dosbods.co.uk/applications/core/interface/imageproxy/imageproxy.php?img=https://wolfstreet.com/wp-content/uploads/2019/12/Sweden-2019-12-repo-rate-260x237.png&key=b3811da4b0bd69afabd9f72443089bc151a751508b79143fa827de6a4cb99b5d 260w, https://www.dosbods.co.uk/applications/core/interface/imageproxy/imageproxy.php?img=https://wolfstreet.com/wp-content/uploads/2019/12/Sweden-2019-12-repo-rate-160x146.png&key=7dade672214ee2101ff208280ace3f18eaef9a7152a20c009b17ec7fb5b3561c 160w" width="477" data-imageproxy-source="https://wolfstreet.com/wp-content/uploads/2019/12/Sweden-2019-12-repo-rate.png" data-src="https://www.dosbods.co.uk/applications/core/interface/imageproxy/imageproxy.php?img=https://wolfstreet.com/wp-content/uploads/2019/12/Sweden-2019-12-repo-rate.png&key=df7640cd43c0219056a81193bf430a85ba8370bc84e061449963705a938489e9" src="https://www.dosbods.co.uk/applications/core/interface/js/spacer.png" />

One of the motives for raising its repo rate out of the negative is visible in its warning about household indebtedness which is among the highest in the world – with household debt exceeding 190% of disposable income — in part due to the low and negative interest rate environment that caused Swedes, as would be expected, to borrow with reckless abandon.

Well at least they were sensible enough to admit their mistake and take a reverse approach rather than `blindly` continuing and hoping for the best...although having such great financial minds you would have thought it was obvious!

[Lightscribe]

9 hours ago, DurhamBorn said:

60/40 lifestyle fund for your draw down pension will be a disaster if my road map is even half right.

Just to add something there, as you say there could be trouble within a generation of retirees reaching pension age and taking a big hit. Will the pension companies then re-evaluate their standard products and the way they are allocated?

I remember before you stating before that you had limited options in your work pension fund, like myself also. I’ve roughly got a 60/40 allocation in cash at the moment in my Legal & General pension, with the rest in the passive FTSE tracker (which is decently weighted in reflation stocks) where the monthly contributions are going to.

Interestingly however Legal & General have added a new fund to the limited list. It’s an actively managed fund that has gold exposure as well as treasuries (once they’ve taken their hit) It’s called the Legal & General Mastertrust Active Diversified Growth Fund. I’m quite liking the look of it (despite the managed fees).

https://fundcentres.lgim.com/srp/lit/Xl6enG/Fact-sheet_BNY-Mellon-Real-Return-Fund-Legal-General-Mastertrust-Active-Diversified-Growth-Fund_31-08-2019_UK-WPEmployee_UK-WPAdviser_UK-WPEmployer.pdf

[MrXxxx]

9 hours ago, DurhamBorn said:

 

For the next cycle i tend to use M1 money supply to indicate the broad measure of "inflation" building up in the economy.Since 12 its roughly about 55% - gdp growth - velocity.My cross market on this says we have roughly 40% of inflation in the system to come out during the next cycle on top of the growth in M1 during the cycle (im expecting M1 to grow at roughly 160% of its growth over this cycle).In affect im expecting roughly 130% inflation over the next cycle and the likely end point around 29.That is compounded.

 

People arent spotting what is coming because i think they are being swayed by M2 money supply,because they think thats the best way in the modern economy.However i think that velocity is always the trigger that sees the dial move on M1 and inflation flows from that.

Im doing cross market work based on the M1 readings and creating road maps based on those expectations.If right,by 2027 gilts and treasuries should lose around 83% in real terms.

60/40 lifestyle fund for your draw down pension will be a disaster if my road map is even half right.

So if you had to recommend a % for dd pensions; not looking for advice, just interested in the scenario, would it be say 80% stocks and the remainder in a secure inflation proof asset I.e IL gilts or gold?

[DurhamBorn]

10 hours ago, Sugarlips said:

Fascinating DB thanks as always. Are you able to extrapolate this and see prices of other commodities besides oil on the back of inflation launching? 

Iron Ore & Coal perhaps?

I imagine places like Calgary will directly benefit from the oil price surge,

Just looking at the macro picture, you have mentioned govt spending on infrastructure etc as the main trigger for inflation to break out, do you envisage this will in turn inflate away/erode the govt deficits that they are about to generate or will the interest bill bankrupt them first?

The answer is sort of.It takes a lot of cross market work to build a road map for one commod so i only tend to do it for the PMs and oil.Now i have time im going to put on here different indicators i use,these are the ones directly given to me.M1 is the number used for inflation building up in the system.We use a 3% velocity growth as standard on that and gdp growth and then take that away from the growth in M1.The rest is inflation sitting somewhere.

The interesting bit is M2 velocity on top of that.That has been falling to deflationary levels.So the M1 money stock has been rising,but the M2 velocity has been falling.The market mainly looks at  M2 for inflation expectations,but we feel thats wrong.It only takes something to trigger velocity to move in M2,that then feeds into M1 that triggers and inflation run.We think M2 shows money parked.

Government spending should trigger M1 as there should be lots more going direct into the system.It should also trigger inflation in areas that stop deflationary pressure (China manufacturing and globalisation the main since 82).

I actually think the UK might be one of the big winners in the next cycle if we crack hydrogen production etc.Lots to play for.The irony is the next cycle will probably finish off fossil fuels,but it will be the price they go to that speeds the transfer and the cash flow that creates should enable the big players to buy up the new tech and production and reward shareholders in cash returns.