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

[kibuc]

52 minutes ago, Majorpain said:

Expensive would be the right word, $2Bn worth of total resources at current prices vs $800 odd Market cap is a ratio of about 2.5.  For no operating mine.  Or Cashflow.  And 20 million in the bank for a project neeeding 100m in capex.

Barrick producing about 5 million ounces of gold per year is at a ratio of 5 for comparison, if Barrick looks good value then the market has got it wrong IMO!

SILV looks expensive, sure, but the grades they're hitting are mind blowing. Their resource estimate will increase massively in 2020.

If silver goes up, they will be taken over at a juicy premium me thinks. 

Having said that, in terms of multi bag potential I'm much more keen on Alexco and Impact, but there's room for some SILV in my portfolio as well, at least for now. 

[kibuc]

49 minutes ago, Clueless Imbecile said:

Is anyone one here still holding PM mining stocks?

You bet

Impact & Alexco for silver leverage, Guyana as a major turnaround story, Fortuna for Lindero repricing potential, Minera Alamos for similar reasons, SILV as a silver equivalent of WDO, Corvus for takeover potential but with lowest conviction of them all. The latter two will be probably the first ones to have their profits taken and redistributed, while GUY and IMPT I'm planning to ride all the way. 

[DoINeedOne]

Still holding Wesdome full amount, Silvercrest 1 ladder bought

Sold the rest for profits Wesdome has been a great hold 

 

[Lavalas]

9 minutes ago, kibuc said:

You bet

Impact & Alexco for silver leverage, Guyana as a major turnaround story, Fortuna for Lindero repricing potential, Minera Alamos for similar reasons, SILV as a silver equivalent of WDO, Corvus for takeover potential but with lowest conviction of them all. The latter two will be probably the first ones to have their profits taken and redistributed, while GUY and IMPT I'm planning to ride all the way. 

I decided to buy Minera Alamos but for some reason also decided to wait until it edged back to 0.21. It hovered around for a while but never quite got there and now it’s 0.315 and I own zero shares.

What an idiot. I thought I’d found some kind of zen like market patience.

Never mind - still holding plenty of others. With Wesdome and Alexco the stars. Down on Rio2 but got good hopes on that. Holding a few other I’ll advised explorecos which I’ll not mention lest anyone think they’re a good idea. Massively down on those but they have huge potential.

[Green Devil]

I had some ego, bought at a couple of dollars. Sold most of it unfortunately at 4 bucks. Considering buying back in at 7, looks good to me. 

Also have a chunk in black rocks gold fund, bought a while back. 

Would like to buy some trackers in oils and miners but KID is a PITA. Most liquid us trackers are now closed to eu member States. 

BTW what is the ladder you mention? Buying at diff levels on the way down? 

[leonardratso]

yers, thats what they mean by ladders here.

 

[Bricormortis]

4 ladders st 8%drops has been  suggested as a strategy DYOR 

[Errol]

4 hours ago, Clueless Imbecile said:

Is anyone one here still holding PM mining stocks?

Yes. All of them. Why wouldn't you be?

Anything before $5000+ an ounce gold is just noise.

[Castlevania]

4 hours ago, Clueless Imbecile said:

Is anyone one here still holding PM mining stocks?

Yes, I sold some but still hold:

 

Barrick

Centamin

Fresnillo

Harmony

Hochschild

Petropavlovsk

Polymetal

Shanta

 

 

 

[DurhamBorn]

39 minutes ago, Cattle Prod said:

Thanks very much DB, thats brilliant. So another 2 or three months, before the lag catches up. Makes perfect sense. I'm still nervous about the steadily rising price of oil, it's a bit too steady, especially over the holiday period. There is no fundamental driver for it, other than long term investors seeing what we here are seeing. I've maintained on here that the levelling off and gentle decline in US production will be THE trigger for the sentiment of abundance to snap. The Q4 data is clear, but the word 'decline' won't appear till Q1 now. If the rig count reverses, it may be a bit longer. That fits nicely with the lag you describe. 

I've not added for a while now. I really hope I can average down. But sentiment in oil can change very very quickly...Because oil is something people really really need, which we all get complacent about till we think we can't have it!

I think whats interesting is why a falling dollar affects oil.Its mainly because the $ usually falls when the Fed QEs quicker than the treasury issues treasuries.Its simply a case of dollars sloshing around with a lag.The world is convincing itself oil is finished within a cycle,but even if that was true,they are ignoring the massive free cash that will be produced during that time.Its highly likely the oil call is wrong if the dollar call is right,but if they both came close then id be very happy.

I think the next cycle it will be crucial to hold oil stocks throughout the cycle,because the real big gains (oil over $200,maybe over $300) will come right at the end of the cycle.

[Bricks & Mortar]

5 hours ago, Clueless Imbecile said:

Is anyone one here still holding PM mining stocks?

 

I'm still 100% PM stocks.  To be honest, i didn't fancy the move to UK cyclicals and felt there was more to come from the PMs.  I've lost out since August, September.  But think it's looking good again.
I also follow David Hunter.  I think he's broadly on the money and in tune with this thread.  But you don't get any consideration of the GBP/USD rate, as he's US based.  He seems to know where things are going, but can be quite off with the timing.  Has been predicting gold to take off again for several months now.  His estimate of when the deflation comes has been kicked down the road for several years now.  To be fair, I think the view of this thread has as well.

I've been considering a bit of a shuffle these last few days.  wondering whether to take profits on the like of Yamana or First Majestic.  Cut losses on Fresnillo and Hochschild.  And whether to stick with Endeavour even though its barely broken even.
I'd like Alexco, after Kibuc's suggestion.  And also Kirkland Lake, as suggested by an Aussie I follow on Twitter and after reading a lot about a potential deal to buy a new mine.

But I got my fingers burned the last time I shuffled.  Sold Couer and Hecla to buy Hochschild and Fresnillo, in Sep/Oct.  Reasoning these were FTSE listed, and hoped to mitigate a currency move.  Couer and Hecla took off immediately afterward and I'm down about 20% on the ones I bought.  I think the drivers of a PM move are rising spot prices and a falling DXY.  I guess that'll favour US, and maybe Canadian or Mexican miners if their currencies follow the USD to an extent.  I think the USD/GBP part will be outweighed by the rising share prices if it happens.   But, because its a rising tide lifting boats scenario, I'm leaning toward just saving the trading cost and sticking with what I got.  I may yet split a better performer in half and use the funds to buy whatever looks cheap at the time.

As for getting out, I plan to sell up sometime.  Hunter's $1800 / $26 looks like a dream come true, but there are plenty other predictions out there in the twittersphere both higher and lower, although few in tune with our debt deflation hypothesis.  I think I'll start to get anxious long before those levels.  I have 2 plans - the first, being to sell, maybe 20% of holdings at $20, 21, 22, 23, 24 and 25 (or sell out the remaining if it looks like its on the way back down before then).  The second is just to watch for the deflationary collapse happening, mindful that we expect PM prices to collapse when people are forced to sell -  and try to pin a tail on the donkey.

[DurhamBorn]

1 hour ago, Cattle Prod said:

Just to be clear DB, when you say oil call wrong, you mean their oil call that it's finished, and not your one?!

I'm with you on the rest, even though it means I have to keep working in this job till 2028 if I really want to rinse my employer for every penny. Which I really do haha. I work in exploration, which has no value in a downturn, and we have been treated accordingly. Fair enough. At $200, people will be screaming to find more stuff and I will name my price. That will be a good contrarian signal around that time- crazy exploration concepts.

Call as in it might not go down to the mid $40s.A lot depends on how fast the dollar turns down.Both are in play i think.Perfect would be oil dropping as the dollar holds steady or slightly down,then the dollar falls kick in.We will know within a few months.

[Clueless Imbecile]

9 hours ago, Tdog said:

The premise of this thread is that cash will be king for a very short period of time, in the event of a "deflationary bust".

But many wise men have been saying stay in cash for several years, such as Russell Napier.

 

Thanks for your post. I found that video quite interesting. Here are my thoughts on it.......

The video is dated 19 Feb 2016. However, in the description below it, it states "Recorded on 27/11/2014". Just shows how long some people have been waiting for the deflationary bust (as you said). The "trying to time the market" thing is one of the worries I have with trying to act on what has been discussed on this thread.

For me the most interesting content in the video was from about 17min onwards. The following are things that were mentioned from that point onwards which stood out to me.......

Doing nothing
Holding cash
Deflation
Japanese equities (hedged back into the dollar)
Gold
Library of mistakes
Chasing yield (5%)
Never lend money to a foreign government
Risks of borrowing in one currency and investing in another

The above are just things that were mentioned or notes that I made based on what I heard. It would be necessary to listen to the video to hear them in context, and I've no idea whether they are correct or not. I did find them interesting to listen to though. The thing about "Risks of borrowing in one currency and investing in another" reminded me of something that DurhamBorn said recently on here about "Australian housing".
 

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.

 

[DurhamBorn]

I agree on timing,nobody can do it over the long term.Far better to use road maps and ladders.For instance UK cyclicals are up mostly 30%+ from lows.Gold miners provided lots of doubles etc .The key at this stage in a cycle is to be very careful.Buy when targets are hit.The other key point is many UK stocks were down more than they were in the 1920s,1930s,1970s,2008s etc at over 75%.Just because Amazon is worth a trillion and hundreds of others stocks at massive valuations doesnt mean other areas arent at multi decade lows.

The potash and energy sectors are other examples at the moment.Apple is worth more than the entire US energy sector for instance.

[Eventually Right]

On 26/12/2019 at 10:20, DurhamBorn said:

I often mention $ liquidity as one of the most important primary indicators.However almost everyone doesnt understand the affects this has.

For instance,go and ask anyone  what happens when the government (US) borrows and spends a lot more and they will answer "inflation,look at the countries who saw hyper-inflation".

WRONG.

Why?,because the $ is the reserve currency.When the treasury borrows it sells bonds,and when it does,foreign nations,entities and primary banks buy these bonds with their surplus dollars and/or bank reserves,so these dollars flow OUT from the world economy and INTO the treasury causing $ liquidity to dry up.Its DEFLATIONARY for the world.

So once you know this you can do cross market work.

Lets take Australian housing.Austalian lenders can lend cheap to homeowners by borrowing in US$ and converting to Aussie dollars instead of using the depleted deposit fund at home.That is what they have done .Until around 6 months ago as $s tightened.Aussie housing anyone?

So when the US treasury sells more bonds,over the amount the Fed QEs then world $ liquidity falls.With a lag you can do cross market work on where these affects will work first (who is using the carry trade most to fuel bubble markets as well).

Dollar liquidity has fallen 50% since 2014 at the FBOs (foreign banks) and the GSIB (Amercian primary banks).

The Fed knows this,and have started a new easing cycle already.That is about to speed up,and end up going to massive new heights.

So i see a lag affect of the tightening forcing oil down to maybe $44,but a new easing cycle taking the $ down to around 88.9 in its first wave.Those are road maps built off cross market work on the dollar liquidity profile.They arent certain,oil could trade off the dollar easing coming instead of the lagging affects of a lack of dollars in other markets cutting demand for oil.BUT if oil does trade down in the next couple of months before the easing kicks in (roughly 5 month lag) then it will be a superb buy point.If you are already buying oilies,then it provides the point you average down heavily.

If the above is so,then why is it we expect an inflation cycle?

Because the debt deflation isnt affecting the US treasury,its affecting the banking system and so the Fed will print hugely more $s than the treasury will soak up in new debt/bonds,so the extra dollars will allow other CBs to print heavily as well.Instead of having to buy US treasuries with the surplus $s there will be lots spare,these will flow into commods and spark a run.

 

Hi DurhamBorn,

I find this kind of liquidity/macro analysis really interesting-are there any books or resources you’d recommend for reading up on it? 

Cheers

[UnconventionalWisdom]

On 27/12/2019 at 10:05, Loki said:

 

It won't crash until 'they' decide to crash

I think Trump will ensure all is done until 6 months after the election next year. So a correction is prob 1.5 years away. 

Can see him being fine with it after there's no threat of losing power. He'll just say he shifted wealth from wall street to main street.

[DurhamBorn]

8 hours ago, Eventually Right said:

Hi DurhamBorn,

I find this kind of liquidity/macro analysis really interesting-are there any books or resources you’d recommend for reading up on it? 

Cheers

None i have found.There are multitudes of macro books,but none i know that do or show any cross market work.Its the leads and lags that are the interesting bits.The reason so few books is because lots of things are bouncing off the road map all the time.Its why the road map isnt trading advice and doesnt try to be.

If we take oil.The road map i have now goes $43,$22 (for a few days),$265 .If that road map is even close then the key is to try to cross market who gains,who loses etc along the way and at what points.

 

[Viceroy]

On 27/12/2019 at 02:16, Talking Monkey said:

Cheers DB looking t the US markets things seem so toppy, I just can't see how Q1 2020 earnings will meet expectations, therefore when you say things could crack any time definitely feels like it could. Its hard to articulate but there is a sense of an almighty car crash coming

I’m looking to sell my US equity etfs v v soon. Martin Armstrong is sounding the alarm for the week of 13 Jan 2020. 

’If the US share market rallies into the ECM turning point on 18 Jan 2020, there may be a crash into January 2021. This remains tricky. So do NOT anticipate. Let the market make the decision for you.

The Fed will stand behind US banks. They will have no choice. Trump has been now briefed (about the REPO crisis) but they did not brief him of the Mother of All Financial Crises...

 

If we get the high on the ECM in January, then this will warn that the Liquidity Crisis will play out as it did in 1998 where they will sell assets in other investments to raise cash to cover losses in bonds.’

 

He says it will be a sharp correction so I will buy inverse Dow and S&p etfs for the first time. Not betting the house tho, being conservative. No harm sitting in cash for a bit. 

 

Hope everyone had a fab Xmas & thx for all the input on this thread. I am always learning 😊😊

[Thorn]

1 hour ago, Viceroy said:

I’m looking to sell my US equity etfs v v soon. Martin Armstrong is sounding the alarm for the week of 13 Jan 2020. 

’If the US share market rallies into the ECM turning point on 18 Jan 2020, there may be a crash into January 2021. This remains tricky. So do NOT anticipate. Let the market make the decision for you.

The Fed will stand behind US banks. They will have no choice. Trump has been now briefed (about the REPO crisis) but they did not brief him of the Mother of All Financial Crises...

 

If we get the high on the ECM in January, then this will warn that the Liquidity Crisis will play out as it did in 1998 where they will sell assets in other investments to raise cash to cover losses in bonds.’

 

He says it will be a sharp correction so I will buy inverse Dow and S&p etfs for the first time. Not betting the house tho, being conservative. No harm sitting in cash for a bit. 

 

Hope everyone had a fab Xmas & thx for all the input on this thread. I am always learning 😊😊

Interesting for sure. So... does he think Gold will drop then too Viceroy? I’ve become a follower of David Hunter and I search fairly widely now- most of the charts I find seem to show Gold and especially Silver have just broken out to the upside. Hard to time the next pause if they move up this date could be part of it?

[Viceroy]

1 hour ago, Thorn said:

Interesting for sure. So... does he think Gold will drop then too Viceroy? I’ve become a follower of David Hunter and I search fairly widely now- most of the charts I find seem to show Gold and especially Silver have just broken out to the upside. Hard to time the next pause if they move up this date could be part of it?

There r no v recent private blogs on gold, but he’s always maintained that gold should drop along with everything else in the crunch as all types of assets are sold off to cover losses. He says it’s definitely poss to dip below $1000 as does David Hunter. Both agree next cycle will be boom time for commodities which is why I follow this thread for all the education and tips 😊. Timing wise he’s been wrong before, but some of his big correct historical calls are those based on markets which rally (or bottom) into one of his infrequent ECM dates, so I’m not ignoring this big one. Important resistance on the Dow is 29000 and 31000 and Hunter says 36000.  I nearly got in at 16000 but was too green, v cautious and still learning back then sigh. He’s always been bullish on the US markets but lately clearly warns that it’s finally getting toppy. 

Gold he says $5000 max whereas Hunter+DB say could reach 10k. 

He posted the Swiss/Euro cross rate showing a turning point for January in line with his ECM and warns to watch the Euro and to get funds out of Euro banks where poss. 

And interesting Hunter+DB see the end of the next cycle (2028?) as possibly destroying all wealth. Armstrong says the end of the Sixth Wave cycle can go one of two ways; 

https://www.armstrongeconomics.com/armstrongeconomics101/understanding-cycles/dark-age-v-renaissance/

‘this wave peaks in 2032, when we come to a crossroads. We either regress contracting into authoritarianism, then break-up into a fragmented feudal type system of local tribes basically, or we can perhaps crash and burn, but then see the light and we make a major technological leap forward.’

[Castlevania]

I was trying to do some reading up on fracking and stumbled across this. It’s a good read. 

https://www.theguardian.com/news/2018/aug/30/how-the-us-fracking-boom-almost-fell-apart

[Eventually Right]

9 hours ago, DurhamBorn said:

None i have found.There are multitudes of macro books,but none i know that do or show any cross market work.Its the leads and lags that are the interesting bits.The reason so few books is because lots of things are bouncing off the road map all the time.Its why the road map isnt trading advice and doesnt try to be.

If we take oil.The road map i have now goes $43,$22 (for a few days),$265 .If that road map is even close then the key is to try to cross market who gains,who loses etc along the way and at what points.

 

That’s a shame, thanks anyway.  Guess it is a fairly niche area of macro-maybe there’s an obscure academic paper or two lurking somewhere in the depths of the internet!

[sancho panza]

On 23/12/2019 at 18:19, DurhamBorn said:

Just an interesting stat on pension provision.The fact this is the people 55 to 64 is quite incredible.I would guess many in that age group in the private sector would still have DB pensions,even if deferred.How many of these think their home is their pension?.

"The figures were drawn from data published by the Office for National Statistics this month, representing pension wealth in the UK from the period of April 2016 to March 2018. 

Equiniti said this data also showed a "stark difference" between public and private sector savings, with those aged 55 to 64 in the public sector having a median workplace pension savings of £181,100 and those in the private sector having pots roughly seven times smaller at just £27,000."

That's absolutely frightening.What a stat.Given there's a lot of people out there with chunky FTSE 350 pensions,that leaves a lot of people with nothing.

On 24/12/2019 at 17:39, Bricks & Mortar said:

This was a good blog.  "Skyrocketing Costs Will Pop all the Bubbles.

https://www.oftwominds.com/blogdec19/costs-bubbles12-19.html

That really is a super read B&M......I've copied some for those whop didn't click through

 

 

'The reckoning is coming, and everyone who counted on "eternal growth of borrowing" to stave off the reckoning is in for a big surprise.

We've used a simple trick to keep the status quo from imploding for the past 11 years: borrow whatever it takes to keep paying the skyrocketing costs for housing, healthcare, college, childcare, government, permanent wars and so on.

The trick has worked because central banks pushed interest rates to zero, lowering the costs of borrowing more as costs continued spiraling higher.

But that trick has been used up. The next step--negative interest rates--has failed to spark the "growth" required to pay for insanely overpriced housing, healthcare, college, childcare, government, etc.

We've reached the end of the line on lowering interest rates as a way of borrowing more to keep our heads above water. We've reached the point where households and enterprises can't even afford the principle payments, i.e. no interest at all.

 

 

Nobody cares where the taxpayers, renters, buyers or customers get the money; for 26 glorious years, they've somehow come up with the cash to pay the rent that tripled, the healthcare insurance that tripled, the property taxes that tripled, the college tuition that tripled, and so on.

Meanwhile, back in reality, wages have not tripled, they've barely budged for the bottom 90%, and so the widening gap between income--the ability to pay in cash-- and borrowing more to pay on credit has widened to the breaking point.

The most experienced operators are closing shop. As this article notes, the most experienced restaurateurs in Seattle are closing their doors: Seattle's Wage Mandate Kills Restaurants: "I often hear people in Seattle lament that it's becoming 'more corporate.' The truth is that the city has made it nearly impossible for many small businesses to survive." (WSJ.com)

 

You see the disconnect between stagnant wages and costs that have tripled: you can only fill the widening gap with borrowed money for so long, and then even as zero interest the wage earner can no longer afford to borrow more.

At that point, defaulting on existing debt is either impossible to avoid or the wisest choice. The owners of a cafe who can no longer make the insane rent can't default, so they just walk away. Having been stripped to the bone by sky-high costs, there's nothing left for creditors. As the old saying has it, "you can't get blood from a turnip."

The reckoning is coming, and everyone who counted on "eternal growth of borrowing" to stave off the reckoning is in for a big surprise: revenues will plummet, incomes will plummet, lending will plummet, college enrollments will plummet, and tax receipts will plummet. Defaults will skyrocket, triggering a collapse in debt markets, housing markets and stock markets, all of which are totally dependent on the delusion that we can deal with soaring costs by borrowing more, forever and ever.'

[sancho panza]

On 26/12/2019 at 10:20, DurhamBorn said:

Why?,because the $ is the reserve currency.When the treasury borrows it sells bonds,and when it does,foreign nations,entities and primary banks buy these bonds with their surplus dollars and/or bank reserves,so these dollars flow OUT from the world economy and INTO the treasury causing $ liquidity to dry up.Its DEFLATIONARY for the world.

So when the US treasury sells more bonds,over the amount the Fed QEs then world $ liquidity falls.With a lag you can do cross market work on where these affects will work first (who is using the carry trade most to fuel bubble markets as well).

Dollar liquidity has fallen 50% since 2014 at the FBOs (foreign banks) and the GSIB (Amercian primary banks).

The Fed knows this,and have started a new easing cycle already.That is about to speed up,and end up going to massive new heights.

So i see a lag affect of the tightening forcing oil down to maybe $44,but a new easing cycle taking the $ down to around 88.9 in its first wave.Those are road maps built off cross market work on the dollar liquidity profile.They arent certain,oil could trade off the dollar easing coming instead of the lagging affects of a lack of dollars in other markets cutting demand for oil.BUT if oil does trade down in the next couple of months before the easing kicks in (roughly 5 month lag) then it will be a superb buy point.If you are already buying oilies,then it provides the point you average down heavily.

If the above is so,then why is it we expect an inflation cycle?

 

 

Thanks for re explaining in laymens terms how UST issuance is potentially deflationary.Sometimes amidst the noise you can easily forget some of the more subtle truths.

Ref oil,as you know,we're buying already ,since august but would ahppily see some of the bigger ones get smacked some more.I have no idea where oils going over next 6 months hence we're not tkaing the risk of not buying equinor sub $20,exxon sub $70,BP sub £5 etc

I don't know whether  @Harley has a view on the technicals, but the recent run appears to be topping out in the US.The UK will get over the euphoria of the Tory win and I suspect,at the very leat we'll see some sector rotation here if we don't catch the US cold.

On 27/12/2019 at 12:15, Clueless Imbecile said:

Is anyone one here still holding PM mining stocks?

 

Besdies some rotations out of stocks I no longer liked eg Hecla/Couer/Western copper/Amarillo/Novagold, we have increased exposure over the last 2 years.Some eg Sibanye are up 300%,others down 75% eg New Gold.

STrange thing is some of the stuff we've sold eg Hec/Couer/Nova has positively rocketed recently.

We're currently spread across twenty odd stocks at 18% portfolio value, from largest holding Newmont at 1.6% to Petropavlosk at 0.07%

[Harley]

41 minutes ago, sancho panza said:

That's absolutely frightening.What a stat.Given there's a lot of people out there with chunky FTSE 350 pensions,that leaves a lot of people with nothing.

Indeed.  I've mentioned it before but the ONS is a goldmine, at least was as I get the impression they stopped reporting some of this bad stuff.  The last wealth review I saw had most people p*ss poor, even after allowing them to include the full purchase price of chattels such as cars and sofas!  Take the fiction of the funny money equity for OO and it just implodes.  People have no real money, just pretend money and debt.