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


spunko

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1 hour ago, Bobthebuilder said:

They are talking about using hydrogen boilers in new build from 2025, the current gas dosmestic market will probably stay for a while longer yet.

https://networks.online/gphsn/comment/1000042/hydrogen-piggyback-natural-gas-infrastructure

If they can pump Hydrogen through the gas pipelines, it may be a lot longer!

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On 26/01/2020 at 17:55, JMD said:

Harley, do your technicals indicate anything similar happening? If we do I would definitely use that opportunity to buy more silver if/when cheap.     

OK, purely educational/for discussion, I make no recommendations, etc.  Let's look at gold priced in GBP, the currency we use to pay our bills!  Clearly maybe a slightly odd time to be doing this (we'll see what happens in the intermediate term if not otherwise busy). 

The weekly chart is quite something.  We had a possible buy signal prior to "A" and the stochastic then stayed nice and high (over 80) until "B" by which time the price had already started correcting.  Note the MACD blue line peaked prior to the fall to "B".  We then had a nice little suckers rally into "C" (the MACD ignored it) until we got a dubious buy signal around "D" (the same level as the previous all time high).  So we are currently in an uptrend since then but have now reached close to the 80 zone on the stochastic so the question is will it stay up there and support further price rises or will it head back down, taking price with it. 

Looking at past price action, it could be either, although the last two scenarios have seen a prolonged period above 80.  So all attention turns to the MACD:  will it rise, driving up price, or plateau/fall?  TBH, it's looking possibly a bit limp in it's cross.  Pandemics aside, it would look a bit odd if price just kept on up from here without a pullback and the last high was an all time high so one would expect a bit of base building at least before any attempt on a new high. 

But there's a lot going on right now, medically and financially.  One of many possible scenarios (which is quite possible at some point) could be initial weakness in a stock market downturn as people liquidate gold to meet any calls.

My last study of a market correction (I posted way, way back) suggested gold does not particularity react to a stock sell off initially, indeed maybe falls too, but the miners (GDX) do and rise.  Later, if the correction has legs, the miners then fade (relatively) and the corrected gold takes over.  Wearing my behavioral hat would suggest a possible rationale of initially staying in stocks but playing the correction with a sector move into miners, and only moving into another asset class when they realise the correction has legs.  Equity sector moves are relatively easy (within their domain) but asset class and allocation changes are a major disconnect.  No guarantee, but something to look into some more for past corrections.   

Capture.thumb.JPG.b60761bf0d2e7b40a01682063a1cca71.JPG

But that's the weekly which is a bit too racy for me.  So let's join the older folk on the monthly bench.  Initially looks a right mess!  One positive thing is that the stochastic's beginning to look choppy like it did in the run up to the 2011 high (wall of worry?), plus we could still be in a mega drawn out cup and handle chart pattern (with a recent bullish pullback to the last all time high).  Bottom line, Mr Hunter may (preferably ignoring the timings) well be right !  Certainly one sound scenario.

Capture.thumb.JPG.1c3552b982b789a3499ca55fee4204da.JPG

BTW, I never trade PMs.  I buy and hold, which works.  I pretty much lose every time I sell them.  I'm fully allocated, but itching to get greedy at some point!

Silver, well that's a reckless boy but if it was to draw out a similar cup and handle chart pattern then the time for confirming this is approaching!

Take yer bets, that's all they are!

 

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On 25/01/2020 at 12:51, Harley said:

I'm finding Max Keiser's vidoes/podcasts very relevant at the moment.  He just did one on the (Soros?) idea of Reflexivity.  Relevant to this systems discussion.

 

PS:  @sancho panza, one episode also covered a bit about the velocity of money.  The one above covers a hell of a lot more (like the potential issue with trackers/ETFs I and others have mentioned).  Oh, how rude of me, hello Max!

super post there H,Just listening.Nice to see stacey reference my long held observation that markets tend towards disequilibrium.She points out that stocks have advanced more than gdp growth.Funny that to see someone state the patently obvious you have to watch an obscure TV channel.

As you say,lot of questions raised over ETF's ......would be interested to know how accurate his allegation is that many ETF's don't hold the underlying.

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7 hours ago, DurhamBorn said:

I think in that scenario a draw down pension in say 70/30 or 80/20 in a passive with 5% draw down will empty over 7 to 9 years.I dont think people understand how badly postioned they are if inflation does return

So what is the answer for people in such a scenario?...go 100% distribution equities?, but the majority don't understand investment (hence amateur BTL)...go 100% annuities?, but the monthly income will be eroded by inflation...go passive ETF index?, but the big Consumer Discretionaries that make a large % within them are going to get `hammered`....

...i can't see that the `Average Joe` has many options!

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On 26/01/2020 at 01:58, Bricks & Mortar said:

DXY is back up, 97.88.  Been steadily rising since turn of the year.  It's maybe just waiting for a catalyst to kick it on down?

But, just in case there's something up, I took another look at that Brent Johnson Dollar Milkshake Theory.

Found a more recent video, and a podcast.  The video, in particular, I thought gave me a better understanding of his theory, mostly because he speaks slow and used very simple pictures.  At 3:25, he shows a chart with the DXY nearing the end of a rising wedge, (check me!  a year ago, I'd have thought that was something for levelling a ladder).  His hypothesis, is it breaks upward and goes to all-time highs - while DB and others in this thread think its going down.


 

Think the Fed response to US recession will be to cut/QE initally as per previous playbook.Give the insiders time to sell up to retail dip buyers/taxpayer./

Moi...cynical?

Decl:that's what we're posioning for.So confirmation bias right there.

 

23 hours ago, Loki said:

Is it me or...

https://www.zerohedge.com/markets/impulses-lunar-fed-policy-under-repo-madness

How long will it take before the Fed makes a mistake, and repo rates shoot to the moon followed by a deflationary credit crisis?

All it takes is the failure of a big bank or hedge fund to meet its commitments and the whole complex web of agreements comes undone.  In short, a liquidity crisis could quickly contract credit with far reaching implications.  Namely, rapid deflation.

That's poretty much where a good few of us sit.How long it'll last is the issue imho.

22 hours ago, Bear Hug said:

My black swan plan for next week is to start buying oil producers.  Last week was bad, I'd imagine things will get worse before they get better.

Must say,we're about 16% in big oilies.Going to be higher than that with the way these prices are taking out decade +++ lows.eg we're currently sat on a 2.5%Exxon position,I'm hoping it's goes sub $60,is sub $50 possible?.Carefully prepping those ladders,this current run down in oil look like a good opportunity to me.

but then I would say that.

Someone mentioned potash

We bough 0.15% SDF Fri.Second ladder soon

image.png.17303e9c724f99dd4126ed81875ad5e4.png

image.png.abbd67dcc83c7b33014abd516a5d9a8e.png

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10 hours ago, DurhamBorn said:

The China affect will be zero.Nothing,a rounding error probably.

Liquidity drives things and the cost of money.If anything things like this create short term demand spikes.

What does happen though is people look for simple reasons in the markets.

Oil is now down to $52.Almost every big bank and broker said it was going up at $60.They need some excuse to say why they were wrong.It happens time and time and time again.

The lags in oil were there in full view.The only question i have now is if the swift fall means my $43 target is now too low as the velocity fall has been quicker than i expected and the road map might turn early.

Remember as well,oil falls like this are deflationary.In 6 months they will feed into the inflation indexes and the CBs will see outright deflation risk flashing and they will act accordingly.

Il give you an example of how this sort of thinking above though hits investors.

They buy a mask maker at a higher price because demand has gone up for 5 weeks out of the norm.

They sell companies to pay for it whos demand will go down for 5 weeks out of the norm.

 

 

The steepness of the falls in some of the oilies is worht than crash speed.

Gonna be interesting how cheap they get.

 

We bought more XOM/BP/RDSB fri.Happy to see more ladders get hit.

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2 hours ago, JMD said:

Harley, are they discussing/warning here exclusively about the 'synthetic etf's'? e.g. them not holding the actual shares, etc.

 

Lot going on there.  Actual synthetics possible but not normal (more for the short and commodity ETFs).  More an issue of swaping, lending, chain of custody, etc.  Any major event could well show quite a messy back office taking years to resolve.  It hasn't been really stress tested so far.  The other issue mentioned is the nature of market cap ETFs which bias towards the few.  Then there's the whole liquidity issue - who will the ETFs sell to given the only other major players are other ETFs.  These issues have been covered here before, but not everyone agrees there is a possible issue.

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2 hours ago, sancho panza said:

The steepness of the falls in some of the oilies is worht than crash speed.

Gonna be interesting how cheap they get.

 

We bought more XOM/BP/RDSB fri.Happy to see more ladders get hit.

Yes i got some more K+S today,Repsol and Schlumberger.Im tempted to add some ENI but think il get more BP.

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2 hours ago, Harley said:

Lot going on there.  Actual synthetics possible but not normal (more for the short and commodity ETFs).  More an issue of swaping, lending, chain of custody, etc.  Any major event could well show quite a messy back office taking years to resolve.  It hasn't been really stress tested so far.  The other issue mentioned is the nature of market cap ETFs which bias towards the few.  Then there's the whole liquidity issue - who will the ETFs sell to given the only other major players are other ETFs.  These issues have been covered here before, but not everyone agrees there is a possible issue.

That was my thought.With Max you do have to be wary of the tendencey to scaremonger,but I'm in the dark as to whether funds like XOP would hold the udnerlying.I'd have assumed they would but then assumption is the mother of all f*** ups.

time to check methinks.

I think the issue wiht market cap ETF's would be a genuine concern.See the following.This guy has a lot of clued up followers eg SHaun Ricards,Raoul Pal

image.png.f48973a210236d87b20a0ef92228a846.png

image.png.828ddac2162e81b719399d62870998cd.png

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22 minutes ago, DurhamBorn said:

Yes i got some more K+S today,Repsol and Schlumberger.Im tempted to add some ENI but think il get more BP.

I had a good Dec/Jan for us in a way.We stopped buying around Dec 13 across the board on the oilies.Hence missed out on some higher prices until last Friday.I'm not normally a decent timer but I've been sticking to my guns on not chasing this market.We picked our first Repsol since mid Sept on Fri as well.

Oil services getting battered but I think we'll be sticking to the bigger players from here,SLB,KMI,HAL.Haven't got a big postion yet but looking to build it.

Much like the potash.We added fri for the first time since august,only some Yara and K+S but still feel there's some compelling value there right now.

Was hoping to get a final tranche in the goldies but jsut can't identfiy the right moment.Was looking at building some more silver exposure on weakness but there's not been much.

 

 

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USTs rising steadily again, people predicting slower growth and rate cuts I guess.

 

Anybody have any thoughts on Centamin? Yields close to 6% so I'm quite tempted? Anybody hold it?

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18 hours ago, Harley said:

Lot going on there.  Actual synthetics possible but not normal (more for the short and commodity ETFs). More an issue of swaping, lending, chain of custody, etc. Any major event could well show quite a messy back office taking years to resolve. It hasn't been really stress tested so far. The other issue mentioned is the nature of market cap ETFs which bias towards the few. Then there's the whole liquidity issue - who will the ETFs sell to given the only other major players are other ETFs. These issues have been covered here before, but not everyone agrees there is a possible issue.

Harley, thank you, hope I can ask a follow up... Sorry for the long question but hoping that you could provide some insight here. Also think it might be very interesting for many others here who also own gold/silver etfs.  

I have highlighted your remarks above that indicate to me that you are probably already aware of something that Ive only just learned (more fool me perhaps!?!).    

I had already decided to stay away from etf's - until after the expected market correction and after the markets have 'calmed' - mainly because of the risks you mention above. But the video below was a shocker for me as I didn't appreciate the type of risk they mention - because as far as I was concerned, I was 'simply buying' physical silver and that was safe. 

I think its your 'chain of custody' term that kinda links with the concerns I have after watching the video. I was aware of 'counterparty risk' - but thought it wasn't really relevant when buying physical assets. However, the video essentially introduces the concept of the custodian (appointed by the etf fund manager) and how the retail investor in the etf might not get their investment back if the custodian should suffer a catastrophic event, which I guess could be bankruptcy, etc.            

So I guess i''m left confused - Is the video misrepresenting the 'danger' of the trustee/custodian/secure-facility setup that they are describing? 

e.g. I have dug out the below text for my Invesco silver etf and the bit I have highlighted suggests that it is only unallocated silver that falls under the remit of the banks.      

'The Invesco Physical Silver ETC (SSLV) aims to provide the performance of the spot silver price through certificates collateralised with silver bullion. Each Silver ETC is a certificate which is secured by silver bullion held in J.P. Morgan Chase Bank's London vaults. The Issuer of the certificates, Invesco Physical Markets PLC (Invesco PMP), is an Irish-domiciled company administered by Wells Fargo Bank N.A. The vast majority of silver bullion is held in allocated silver bars. Any residual value that cannot be split into standard silver bars will be put into unallocated silver. This is placed in a segregated account with J.P. Morgan Chase Bank acting as Custodian and Deutsche Bank as Trustee.'

 

Video starts at 3:00, with the jaw dropping moment (for me) at 6:50.

Credit to BearyBear for posting this video few weeks back.

 

 

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Clueless Imbecile

Does anyone know why Coeur Mining Inc (CDE) share price has dropped recently? They were around $8 per share in December 2019 but when I last looked recently they seemed to have dropped to around $6 per share. By pure good luck I sold my holding in December, because they were showing a good profit for me and I felt like I would be tempting fate if I had held out for even more profit. Not very scientific of me, I know!

I still have some other PM mining shares, including Endeavour Silver Corp, but most of them were around 20% to 30% below what I paid for them last time I looked.

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.

 

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1 hour ago, Clueless Imbecile said:

Does anyone know why Coeur Mining Inc (CDE) share price has dropped recently? They were around $8 per share in December 2019 but when I last looked recently they seemed to have dropped to around $6 per share. By pure good luck I sold my holding in December, because they were showing a good profit for me and I felt like I would be tempting fate if I had held out for even more profit. Not very scientific of me, I know!

I still have some other PM mining shares, including Endeavour Silver Corp, but most of them were around 20% to 30% below what I paid for them last time I looked.

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.

 

Some recent reports that they haven’t as much In The Ground as they thought 

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10 hours ago, Starsend said:

Anybody have any thoughts on Centamin? Yields close to 6% so I'm quite tempted? Anybody hold it?

I don't have it but I am curious too. I recently tried doing some scoring and comparing of various miners and Centamin seemed unusual in that they have very little debt. i.e in 2018... only $60m total liabilities compared to $1300m total assets (I could be completely wrong of course!). Most other miners seem to have higher debt levels.

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2 hours ago, JMD said:

Harley, thank you, hope I can ask a follow up... Sorry for the long question but hoping that you could provide some insight here. Also think it might be very interesting for many others here who also own gold/silver etfs.  

I have highlighted your remarks above that indicate to me that you are probably already aware of something that Ive only just learned (more fool me perhaps!?!).    

I had already decided to stay away from etf's - until after the expected market correction and after the markets have 'calmed' - mainly because of the risks you mention above. But the video below was a shocker for me as I didn't appreciate the type of risk they mention - because as far as I was concerned, I was 'simply buying' physical silver and that was safe. 

I think its your 'chain of custody' term that kinda links with the concerns I have after watching the video. I was aware of 'counterparty risk' - but thought it wasn't really relevant when buying physical assets. However, the video essentially introduces the concept of the custodian (appointed by the etf fund manager) and how the retail investor in the etf might not get their investment back if the custodian should suffer a catastrophic event, which I guess could be bankruptcy, etc.            

So I guess i''m left confused - Is the video misrepresenting the 'danger' of the trustee/custodian/secure-facility setup that they are describing? 

e.g. I have dug out the below text for my Invesco silver etf and the bit I have highlighted suggests that it is only unallocated silver that falls under the remit of the banks.      

'The Invesco Physical Silver ETC (SSLV) aims to provide the performance of the spot silver price through certificates collateralised with silver bullion. Each Silver ETC is a certificate which is secured by silver bullion held in J.P. Morgan Chase Bank's London vaults. The Issuer of the certificates, Invesco Physical Markets PLC (Invesco PMP), is an Irish-domiciled company administered by Wells Fargo Bank N.A. The vast majority of silver bullion is held in allocated silver bars. Any residual value that cannot be split into standard silver bars will be put into unallocated silver. This is placed in a segregated account with J.P. Morgan Chase Bank acting as Custodian and Deutsche Bank as Trustee.'

 

Video starts at 3:00, with the jaw dropping moment (for me) at 6:50.

Credit to BearyBear for posting this video few weeks back.

 

 

OK this is my understanding of it but as always DYOR.

1. You don't have an ETF, you have an ETC, so rather than holding the real stuff/shares as in a Standard ETF, or something that behaves (supposedly) like them as in a Synthetic ETF, you hold a promisory note thats a bit like a note I.e. "I promise to pay the bearer on request x oz of gold"

2. Ivestco being domiciled in Ireland means that if they go `tits up` your investment is only covered up to €20k assuming they are registered.

3. If Morgan is domiciled in London (vaults are, they may not be) and they go TU then your investment is covered up to £85k, assuming they are registered.

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On 27/01/2020 at 19:46, Harley said:

OK, purely educational/for discussion, I make no recommendations, etc.  Let's look at gold priced in GBP, the currency we use to pay our bills!  Clearly maybe a slightly odd time to be doing this (we'll see what happens in the intermediate term if not otherwise busy). 

The weekly chart is quite something.  We had a possible buy signal prior to "A" and the stochastic then stayed nice and high (over 80) until "B" by which time the price had already started correcting.  Note the MACD blue line peaked prior to the fall to "B".  We then had a nice little suckers rally into "C" (the MACD ignored it) until we got a dubious buy signal around "D" (the same level as the previous all time high).  So we are currently in an uptrend since then but have now reached close to the 80 zone on the stochastic so the question is will it stay up there and support further price rises or will it head back down, taking price with it. 

Looking at past price action, it could be either, although the last two scenarios have seen a prolonged period above 80.  So all attention turns to the MACD:  will it rise, driving up price, or plateau/fall?  TBH, it's looking possibly a bit limp in it's cross.  Pandemics aside, it would look a bit odd if price just kept on up from here without a pullback and the last high was an all time high so one would expect a bit of base building at least before any attempt on a new high. 

But there's a lot going on right now, medically and financially.  One of many possible scenarios (which is quite possible at some point) could be initial weakness in a stock market downturn as people liquidate gold to meet any calls.

My last study of a market correction (I posted way, way back) suggested gold does not particularity react to a stock sell off initially, indeed maybe falls too, but the miners (GDX) do and rise.  Later, if the correction has legs, the miners then fade (relatively) and the corrected gold takes over.  Wearing my behavioral hat would suggest a possible rationale of initially staying in stocks but playing the correction with a sector move into miners, and only moving into another asset class when they realise the correction has legs.  Equity sector moves are relatively easy (within their domain) but asset class and allocation changes are a major disconnect.  No guarantee, but something to look into some more for past corrections.   

Capture.thumb.JPG.b60761bf0d2e7b40a01682063a1cca71.JPG

But that's the weekly which is a bit too racy for me.  So let's join the older folk on the monthly bench.  Initially looks a right mess!  One positive thing is that the stochastic's beginning to look choppy like it did in the run up to the 2011 high (wall of worry?), plus we could still be in a mega drawn out cup and handle chart pattern (with a recent bullish pullback to the last all time high).  Bottom line, Mr Hunter may (preferably ignoring the timings) well be right !  Certainly one sound scenario.

Capture.thumb.JPG.1c3552b982b789a3499ca55fee4204da.JPG

BTW, I never trade PMs.  I buy and hold, which works.  I pretty much lose every time I sell them.  I'm fully allocated, but itching to get greedy at some point!

Silver, well that's a reckless boy but if it was to draw out a similar cup and handle chart pattern then the time for confirming this is approaching!

Take yer bets, that's all they are!

 

Thanks Harley I appreciate your indepth analysis. I only have my minimum allocations at present so am also itchy to buy more. I don't intend to trade the PM's but do want to buy more silver because I hope to hold then 'swop' perhaps half of it for gold when the gold/silver ratio closes to approximately 1/40, currently it's 1/85, so effectively would be getting the gold for half price. 

 

 

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Eventually Right

Lots of conflicting views out there on the seriousness of the corona virus. I thought this macrovoices transcript was quite interesting in terms of discussing the economic/market impacts, if it keeps growing exponentially.

https://www.macrovoices.com/guest-content/list-guest-transcripts/3476-2020-01-27-transcript-of-hot-topic-episode-4-with-erik-townsend/file

 

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4 hours ago, MrXxxx said:

OK this is my understanding of it but as always DYOR.

1. You don't have an ETF, you have an ETC, so rather than holding the real stuff/shares as in a Standard ETF, or something that behaves (supposedly) like them as in a Synthetic ETF, you hold a promisory note thats a bit like a note I.e. "I promise to pay the bearer on request x oz of gold"

2. Ivestco being domiciled in Ireland means that if they go `tits up` your investment is only covered up to €20k assuming they are registered.

3. If Morgan is domiciled in London (vaults are, they may not be) and they go TU then your investment is covered up to £85k, assuming they are registered.

Thanks MrX, good point about the Irish £20000 comp limit. I always make the mistake of calling my etc's etf's.

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