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

[Noallegiance]

Well, well, well.

I find zero coincidence that this is on the So-Called BBC homepage this morning:

https://www.bbc.co.uk/news/av/uk-51416500/bank-of-england-gold-rare-look-inside-the-vaults

It's like it's worth something.

[DurhamBorn]

13 hours ago, M S E Refugee said:

I work for Royal Mail and I wouldn't say the Union members were crazy, we had an agreement that the management ripped up so understandably we are a bit miffed. 

However redundancies would be welcome as in my office as we are overstaffed and they could cut around 25% of the staff no problem but unfortunately we have probably the worst management in the Country,half the time we have to organise ourselves to start machines as our morbidly obese Managers just sit in their office eating.

We ought to be delivering parcels 7 days a week but higher management will not countenance such things until most of our competition does it,Royal Mail's management are reactive rather than proactive. 

Most of us are up for change as we know that is the only way to keep our jobs. 

I think there is huge potential,for the company,and also for the workers.I also think that potential will come out.The new top management have taken the right choice to cut the dividend for now and invest.Its crucial the company and the unions work together quickly.Letters might be falling,but just delivering a few to each street gives a massive advantage over every other courier.I agree there will be huge fat to cut in those middle managers,and once things settle down i would expect that will happen.

[DurhamBorn]

14 hours ago, Majorpain said:

Very interesting thanks, Jeff Bezos would seem to share your sentiments about the companies prospects!

https://www.wsj.com/articles/amazons-heavy-recruitment-of-chinese-sellers-puts-consumers-at-risk-11573489075

Just under 40% of top sellers in UK/US are from China, its over 50% in France/Spain, thats before you even get to merchants like you used to be selling Chinese goods.  If China doesn't get those factories open soon, Amazon is going to struggle for $1Bn free cash flow, never mind $100bn.

Everything i sold came from China.Most sellers are the same.Lots of the dis-inflation of the last cycle was due to China and marketplaces etc.That is all coming to an end.China isnt that cheap anymore,and they are starting to feel inflation,and it will get much worse.Amazon have been an amazing company,but structural headwinds are turning against them,not for them like the last 20 years.

6 hours ago, Bear Hug said:

I am really struggling to find low fee place which trades these.  Degiro and Trading 212 have couple of things from the list but none of the oil company or silver funds.  Does anyone have any suggestions?  On XES, OIH etc.  I know SIL is not available in UK.

I have started buying individual company share but looking for some (preferably mainly capital gains) ETFs, as  none of my holdings are in SIPP and I want to avoid withholding dividend tax

The EU stopped us buying them all,crazy,and cut off an easy route to diversify and also keep $ assets.Hopefully that changes now we are out/leaving.

[DurhamBorn]

7 hours ago, Bear Hug said:

This is excellent, reminds me of @DurhamBorn 's laddering explanation.  Kaplan's buying at each 1% down looks a bit tight but guess it can be done if fees are low enough.

Kaplan's way if perfect,but he uses funds with no fees etc,we dont have that luxury as we have lots of fees on top,currency,dealing etc.Thats why i buy in higher totals and higher % difference.I usually do 4 £2500/£3000 at 5% to 8% gaps (depending on sector).However in some companies that i want smaller holdings in i will do 4 or 5 ladders at £1000 and i would think £500 would be ok if you have low dealing charges.In affect people could ladder £2k into each company easy enough and get the same affect.The only way it is worse is if the shares keep falling,but iv always thought having a set number of ladders stops you from carrying on buying one that goes bust.

[Democorruptcy]

Worth a read (buckle up first!)

Currency experts fear IMF no longer has firepower to act as world's lender of last resort

Some snippets:

Quote

 

A surge in offshore dollar lending-increasingly through opaque security markets-has exploded to $18 trillion and has overwhelmed the safety buffers of the existing financial architecture. The concern is that a continued surge in the value of the US dollar-potentially triggered by the coronavirus epidemic, or any other black swan catalyst-could bring this to a head.

….

The report from the Robert Triffin International forum said the purely “private component of global liquidity” (defined as foreign currency credit to non-banks) has mushroomed to $12 trillion. This now dwarfs the shrunken $3 trillion pool of “official” liquidity, such as IMF resources, central bank swap lines, and even the eurozone bailout fund (ESM).

This private liquidity is highly geared to spasms of risk appetite and over-confidence, and even more geared to panic when trouble starts. It can snap back violently and set off potentially unstoppable chain reactions in a heartbeat. The liquidity is ‘destroyed’ by forced deleveraging. Staircase up, escalator down.

….

It took some $600bn of Fed swap lines to halt contagion during the Lehman crisis in 2008 when the wholesale capital markets froze and offshore dollar funding vanished. In other words, the Fed rescued the European Central Bank and saved the euro from an impending cataclysm-though to this day few EU politicians understand what really happened.

However, Fed support-while in principle still available-ultimately requires the political assent of the US Treasury and the US Congress. In Washington’s current America First mood these so-called FX lines are seen by many on Capitol Hill-and perhaps in the Oval Office-as bailing out foreigners. There may be critical blockages or delays in a fast-moving crisis, allowing a Lehmanesque event to spin out of control. The IMF has issued just a warning.

Furthermore, key Fed figures from the Lehman drama-including Tim Geithner and Ben Bernanke-warn that post-crisis legislation such as the Dodd-Frank Act prevent the Fed from repeating such a rescue in extremis. Specifically, new rules limit emergency help for foreign entities.

 

 

[Noallegiance]

1 hour ago, Democorruptcy said:

Worth a read (buckle up first!)

Currency experts fear IMF no longer has firepower to act as world's lender of last resort

Some snippets:

 

So it's a choice between two fuck ups.

We are living in the epitome of 'damned if you do, damned if you don't'.

[Loki]

Quote

Strong contagion

what a choice of phrase

[janch]

I know it's ZH but it does tie in with the themes in the thread:

https://www.zerohedge.com/markets/ticking-timebomb-heres-chart-convinced-albert-edwards-helicopter-money-its-way

US debt out of control; inflation to come to get the debt down but thinking it will be helicopter money (direct to people?) rather than infrastructure spending.

[Erewhon888]

I hope the experts here can give an opinion on how much of Raoul Pal's alarm about the US Pensions crisis is relevant to the UK?

The Coming Retirement Crisis and the Everything Bubble (should be free access now)

 

 

[Chewing Grass]

58 minutes ago, Erewhon888 said:

I hope the experts here can give an opinion on how much of Raoul Pal's alarm about the US Pensions crisis is relevant to the UK?

The Coming Retirement Crisis and the Everything Bubble (should be free access now)

 

 

The UK mirrors the US as the US drives the market, everything he mentioned is exactly the same in the UK.

Nice graph that illustrates the problem, at age 50 the baby boomers had accumulated 3x the wealth of todays Gen X with millennials on course for 1/6th.

Exactly ties in with those at work cashing their final salary schemes in at 60 cos there 1 million in the notional 'transfer' pot due to pension freedoms.

Meanwhile us money purchase suckers in the stock market via pension co might get 1/3rd of that by 60 if we are lucky.

[Errol]

Issues are exactly the same.

[Barnsey]

Small in the grand scheme of things but not great news for the Perkins staff in the town I now call home

https://www.expressandstar.com/news/business/2020/02/10/taskforce-in-place-as-jobs-at-risk-at-stafford-engine-maker/

[UnconventionalWisdom]

On 16/01/2020 at 22:39, DurhamBorn said:

They saw a foot off the beds usually.They also place mirrors all over the place to make them look bigger.The ones near me now all have ^ shaped gardens,about 12 foot long with a bit of false grass and two paving slabs for the bins.Utter shit they are.

I went to the hospital the other day and parked in the new build estate next to it because they haven't sorted out parking restrictions yet (saving a few quid like a good dosbodder). Obviously trying to get staff at the hospital to buy- offers were £1k off every £50k and free flooring. Why are they selling new builds without flooring?! Crazy what people accept in the housing market. 

[Bear Hug]

17 hours ago, DurhamBorn said:

Kaplan's way if perfect,but he uses funds with no fees etc,we dont have that luxury as we have lots of fees on top,currency,dealing etc.Thats why i buy in higher totals and higher % difference.I usually do 4 £2500/£3000 at 5% to 8% gaps (depending on sector).However in some companies that i want smaller holdings in i will do 4 or 5 ladders at £1000 and i would think £500 would be ok if you have low dealing charges.In affect people could ladder £2k into each company easy enough and get the same affect.The only way it is worse is if the shares keep falling,but iv always thought having a set number of ladders stops you from carrying on buying one that goes bust.

Thanks for the response.  As far as I can tell, there is no per-trade fee, just a spread in Trading 212, so I am buying tiny (even one share at a time sometimes) amounts of oil/pipeline companies discussed above.  Only got couple of thousand in so far, with the aim to have about £10k by the end. Possibly double that, if under $40 bottom becomes true. 

Lesson from gold over the last 2 years - not to panic when it's all red, so that I don't miss the bottom.  I didn't sell off, but didn't add to what would have been very profitable positions in hindsight either.

[Harley]

Amazon.  I been busy buying and very hard to avoid direct ships from China.  I'm not keen, virus or not, on quality, etc grounds. So look elsewhere.  Add supply chain issues and general consumption changes and Amazon looks like it'll have a hard time.

Royal Mail.  Apparently they'll deliver fewer parcels as Amazon setting up its own distribution in the area.  Might explain random very late deliveries despite Amazon saying they've been delivered over a week earlier.  Another negative for them.  As is the continued use of some horrendous delivery companies.

Add my experience of a few dodgy suppliers on eBay and this type of internet shopping a big turn off.

[Heart's Ease]

9 hours ago, Bear Hug said:

Thanks for the response.  As far as I can tell, there is no per-trade fee, just a spread in Trading 212, so I am buying tiny (even one share at a time sometimes) amounts of oil/pipeline companies discussed above.  Only got couple of thousand in so far, with the aim to have about £10k by the end. Possibly double that, if under $40 bottom becomes true. 

Lesson from gold over the last 2 years - not to panic when it's all red, so that I don't miss the bottom.  I didn't sell off, but didn't add to what would have been very profitable positions in hindsight either.

My sipp and s&s isa I hodl so to keep things fresh I've started to nibble away with Freetrade app - gather up little bits from my different pots and buy something from my watchlist every few days. It's diversification on a micro level and keeps me aware of weekly moves and on top of the themes in this thread (having even one share in eg ITM power means I'm much more aware and interested to learn about hydrogen powered cars, for example). I have been doing a Kaplin and not even known it! 

Works for me, will not work for everyone, not in any danger of getting anywhere near the £2k in dividends limit (I wish), DYOR natch but thought I'd share my experience. They do not have everything I look for by a long stretch but there's enough in there to follow the themes here.

[JMD]

16 hours ago, Erewhon888 said:

I hope the experts here can give an opinion on how much of Raoul Pal's alarm about the US Pensions crisis is relevant to the UK?

The Coming Retirement Crisis and the Everything Bubble (should be free access now)

 

 

DurhamBorn, what are your thoughts on what Raoul Paul says from 30mins+ in? (The first 30mins is mostly a history lesson of market manipulation, etc.)

But he then talks about the pensions crises and how the US gov. will need to buy the pension funds - not as a silver bullet - but just to keep the wheels turning... From reading your posts concerning pensions I don't think this is what you believe will happen, but what is your take on his theory?         

[Democorruptcy]

2 hours ago, Tdog said:

I was expecting Stagecoach to shoot up today after Boris's plan to spend 5 billion on buses was revealed.

Should have bought bus manufacturer shares .. £5billion / 4000 = £1.25 million per bus. 

Surely cheaper to refit old double deckers with a leccy motor .. such as this one on ebay for 10k.
https://www.ebay.co.uk/itm/Refitted-Red-Double-Decker-Bus-Mobile-Classroom-Changing-Room-Full-MOT/133312405848?hash=item1f0a09e158%3Ag%3Aj4YAAOSwOeBeIDPi&LH_BIN=1

It's old news. A bus plan was in the Tory manifesto, so the shoot up was after the election result. Look at the 3 month chart:

https://www.hl.co.uk/shares/shares-search-results/s/stagecoach-group-plc-ordinary-125228p

Public transport might be less used if the coronavirus gets worse and could explain the recent downward trend? A couple accosted me in a shop yesterday to ask about hand gels because they were worried about touching bad things on a bus. They said they won't be using them as much but will have to sometimes because they don't have a car. 

Disclosure: I own some SGC. 

 

[Bricks & Mortar]

23 hours ago, janch said:

I know it's ZH but it does tie in with the themes in the thread:

https://www.zerohedge.com/markets/ticking-timebomb-heres-chart-convinced-albert-edwards-helicopter-money-its-way

US debt out of control; inflation to come to get the debt down but thinking it will be helicopter money (direct to people?) rather than infrastructure spending.

I've been reading Albert Edwards Twitter, and some of his pieces.  When I think of helicopter money, I think of cheques in the mail to the citizens.  But I suspect Albert is using it more broadly, to just mean large amounts of printed money being lashed about by government - including infrastructure spending.
I was meaning to try asking him on Twitter, and think I'll do that now.

EDIT - So, I asked, but I don't see Albert interacting much in comments on his other Twitter posts.  Did a google search and see he's been mentioning helicopter money as a tool for the next crisis since at least 2016.
Personally, I think cheques or banks deposits to the citizens are the ideal tool to combat deflation and think they'll come out right at the start.

[leonardratso]

kin'ell, bought some ITM on the 6th after theyd gone up 10%, thought id be holding for a while until they broke even, just had a look and up 30% since then, nice one from the hydrogen electrolysers.

see bitcoin had a bit of a wobble, nearly pulled the plug yesterday but perservered and back on the bull run, sellout completely  @ 8100, then its back to cash for a rinse repeat.

[sancho panza]

On 08/02/2020 at 15:28, JMD said:

SP, thanks again, I appreciate the info. and your comments. As I said criticism, good or bad is welcomed. I was hoping others here might already be doing/planning to use the GSR.

I'm still researching, but my main concern was for having capital tied up in gold/silver etf's for 5-15+ years which seems a waste. I need to understand the risks better and compare them to the missed opportunity cost of not operating a GSR strategy. But I find the GSR intriguing... depending of course on the approach employed, is it really 'trading' - or is it more comparable to rebalancing (and de-risking)? My plan is to begin very overweight in silver (a calculated risk), and then over time swop silver for gold as/when GSR is favourable. If successful, my eventual gold holding would be much larger than if I had just purchased gold at outset. I accept that finding the correct indicators to do this is key, but the only real downside risk as I see it, is that I would end up with more silver and less gold than planned; and crucially at no stage will I be 'out of' the PM complex.

 

Kaplan is great, he generously shares his portfolio, which I think is almost unique. Anyway, its just that - and i may be wrong - but reading his latest post I thought I detected he might now no longer see a big melt-up/down in the market, but instead prolonged bumpy rides across the different - over/under valued - sectors. He said he would post a follow up with more details. If so, I find this interesting because DurhamBorn was writing about something similar to this happening recently.

           

 

I thinkt ehre's a fair bit of logic and history on your side if your looking to go long gold and then move to silver before the eponential phase if you can call it.

Certainly something that's on my radar and I said as much when talking aobut a leverage to si,ver price porfolio.

For me,and this is jsut my personal view, the GSR has more power as a selling tool than a buying tool.This is where some technical analysis as well as in depth research of the RoC of G+S might help shed light.

 

Edit to add:Kaplan is still in the 70% ++ bear club.Peak to botttom.

On 10/02/2020 at 11:11, Democorruptcy said:

Worth a read (buckle up first!)

Currency experts fear IMF no longer has firepower to act as world's lender of last resort

Some snippets:

 

Macro voices had a great podcast on onshore/offshore dollars I think it's here.I havent had time to check but defo recall an excellent discussion about the pontential for a blow up of offshore dollar creation.It's long but that Sneider guy knows his stuff.

If it's not this one,Ill try and post the relvant one tmrw.

 

https://www.macrovoices.com/podcasts-collection/macrovoices-all-stars-podcasts/753-all-stars-83-jeff-snider-objective-analysis-of-global-usd-liquidity-yields-a-different-story-than-financial-media-are-telling

[DurhamBorn]

9 hours ago, JMD said:

DurhamBorn, what are your thoughts on what Raoul Paul says from 30mins+ in? (The first 30mins is mostly a history lesson of market manipulation, etc.)

But he then talks about the pensions crises and how the US gov. will need to buy the pension funds - not as a silver bullet - but just to keep the wheels turning... From reading your posts concerning pensions I don't think this is what you believe will happen, but what is your take on his theory?         

Inflation.

Most pensions have uplifts of 5%,some even less at 3% etc,max.Once inflation goes over  say 7% then those pension deficits fall.The pension crisis is mainly because the economy isnt producing enough wealth to pay for them,mostly because capital is going into none productive assets like gilts,treasuries and houses.This is the correct response in a dis-infation.However if the markets are doing that there comes a point where the government take that money,and instead of giving it to the stay at home mummy in benefits to buy trampolines from China,they invest it themselves in the backbone of the economy.Thats exactly whats happening,and starting already.

As an investor who uses road maps the position is quite clear.Gilts and fixed rate assets (and assets priced off them like houses and growth shares) will have a terrible cycle.Worse,there isnt even any yield at this point to undo some damage.Inflation loving assets and assets priced off higher rates will do from well,to outstanding.

As i always say,the market hurts the most people it can.Right now that means housing,fixed rate assets gilts/bonds etc.99% of the UK public are positioned for the start of a dis-inflation cycle,when we are at the end of one.

[sancho panza]

This how debt deflations start,demand drops-no IR hikes, no job losses etc

Wolf's conclusion hints at there being fewer homeowners now but clearly leads me to the conclusion that a lot of the newer arrivals are more leveraged than than the cohorts they're replacing.

https://wolfstreet.com/2020/02/09/heloc-balances-plunge-to-15-year-low-whats-going-on-here/

HELOC Balances Plunge to 15-Year Low. What’s Going on Here?

So what is going on here?

Housing-related debt fell off sharply during and after the mortgage crisis as foreclosures made their way through the system: Total housing debt had peaked at $9.99 trillion in Q3 2008, and then dropped by 16% to $8.4 trillion. In Q3 2019, it almost got back to where it had been in 2008, to $9.83 trillion.

But there are now 128.6 million households, up 9% from the 116.8 million households in 2008. Everything has grown over the 11 years, the economy, the population, incomes, consumer prices, and home prices. So the current housing debt in aggregate, compared the overall economy, has fallen from 64% of nominal GDP at the peak, to 44% in Q3 2019.

So “in aggregate,” this looks good. But this aggregate is composed of several opposing factors, including these four:

1. Many homeowners have paid off their mortgages and own their homes free and clear, which has become a more attractive option for households in expensive housing markets, as the mortgage interest deduction has been further reduced, and as “risk-free” returns (Treasury securities, FDIC insured CDs, etc.) have been miserably low.
2. Many other homeowners are pushing the envelope in terms of their mortgage debt and mortgage payments, struggling to make ends meet on a monthly basis. If one of the earners loses their job, the entire math gets in trouble.
3. Cash-out refis have become popular again, and the risks associated with them are increasing to where regulators are trying to put some limits on them, but in terms of the mortgage debt “in aggregate,” they have not moved the needle much.
4. The homeownership rate has declined from 69% in 2005-2006 to 65.1% currently, after hitting a multi-decade low of 62.9% in 2016. This means fewer mortgages and fewer HELOCs and more renters.

[DurhamBorn]

9 hours ago, Tdog said:

Cheers with all the giveaways i missed that one. Still very expensive buses, recent buses bought for London cost circa 250k-300k ... amazing that a battery can cost £1million pound extra.
https://londonist.com/2013/05/new-bus-for-london-cost-revealed

A new double decker was 190k in 2015.

https://www.newstatesman.com/politics/devolution/2015/10/single-object-sums-boris-johnsons-disastrous-mayoralty

We built bus engines and most of the clean engines for around £10k to £14k an engine.Buses wont end up electric i doubt,they will end up hydrogen.

[sancho panza]

Looks liike punters are bandoing CRE.Small part of the market but 'contagion' is a pshychological phenomenon.

https://wolfstreet.com/2020/02/07/wework-debris-hits-bystanders-two-more-real-estate-mutual-funds-are-gated-this-time-in-ireland-fitch-warns-of-contagion/

Two More Real-Estate Mutual Funds “Gated,” This Time in Ireland. Fitch Warns of Contagion

 

Last week, the Irish Property Fund and Friends First Irish Commercial Property Fund, both owned by the British insurer Aviva, announced they were freezing withdrawals for up to six months after failing to meet investors’ demands for the return of their cash. The funds, whose properties include the Royal Hibernian Way shopping mall in Dublin and the Globe Retail Park in Naas, have already been marked down by 7% and 9.1%, respectively.

Contagion already appears to be spreading across parts of the UK fund industry following the gating last year of WEI and M&G Property Portfolio. Once worth £10 billion, WEI was closed for good in October, leaving more than 300,000 (largely retail) investors shouldering losses of up to 50% of their initial funds. As for M&G Property Portfolio, it closed its doors in December after investors yanked an estimated £900 million from the fund in the first ten months of 2019. The fund remains shut today as it tries to raise cash by selling some of its assets.

Property funds endured the largest and most sustained withdrawals on record in 2019, with total outflows of £2.2 billion — the equivalent of £1 in every £15 under management — according to global fund transactions network Calastone. The intensity of outflows grew over the course of the year, reaching a crescendo in the final quarter when £770 million of funds were withdrawn.

Over the past three years, the combined value of the three funds has plunged from £16 billion to £8.5 billion. 

The reverberations could extend beyond the industry: “Banks or other lenders may also be affected if an affected fund uses them for debt financing or liquidity facilities,” Fitch warns. “However, significant contagion to the broader financial system is unlikely given CRE (commercial real estate) funds’ small relative size. CRE funds represent only about 2% of mutual funds globally by assets under management.”