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

[Democorruptcy]

FTSE well up today, is it all that fresh new ISA/SIPP money or a trend up?

[Don Coglione]

30 minutes ago, Democorruptcy said:

FTSE well up today, is it all that fresh new ISA/SIPP money or a trend up?

Probably wishful thinking, but I reckon the fresh punter money has a lot to do with it (although other markets are up as well).

Look at the movement in Carnival - ships docked indefinitely, oldies realising that they are floating Petri dishes, that will be denied entry to every port at the first sign of a sniffle. So let's all lump on and give the share price a 13% kick today.

Remember, kids - just because a share has dropped 90% doesn't mean it represents good value (see our old friend for details...).

[TheCountOfNowhere]

This is slightly worrying...

 

https://www.telegraph.co.uk/business/2020/04/06/uk-will-not-see-runaway-inflation-bailey-insists/

 

"UK will not see runaway inflation, Bailey insists

Bank will not engage in ‘monetary financing’, as consumer confidence suffers biggest ever crash"

 

 

The official denial is in.....

[Democorruptcy]

A couple of snippets from the Surplus Energy Economics latest.

Quote

 

The model indicates that the average person worldwide will be poorer by 9.5% in 2030, and by fully 20% by 2040, than he or she is today. It follows from this, of course, that his or her ability to carry debt and other financial burdens – and to pay taxes – will be correspondingly impaired.

Two further trends, both of which are of fundamental importance, can be anticipated as consequences of the de-complexifying process. One of these is simplification, which describes a rolling contraction in the breadth of choice on offer to consumers, and a corresponding contraction in systems of supply. The second is de-layering, meaning the removal of intermediate economic processes.

https://surplusenergyeconomics.wordpress.com/2020/04/03/169-at-the-zenith-of-complexity/

 

 

[Noallegiance]

45 minutes ago, TheCountOfNowhere said:

This is slightly worrying...

 

https://www.telegraph.co.uk/business/2020/04/06/uk-will-not-see-runaway-inflation-bailey-insists/

 

"UK will not see runaway inflation, Bailey insists

Bank will not engage in ‘monetary financing’, as consumer confidence suffers biggest ever crash"

 

 

The official denial is in.....

Kinda like 'No crash in our lifetimes' or 'peace in our time'.

[DurhamBorn]

1 hour ago, Democorruptcy said:

When they talk about printing they say it's the equivalent of reducing rates by X%. At the time that you suggest they will increase rates, why wouldn't they just reduce their balance sheet back down a bit, for the X% equivalent in increasing rates? 

Because they need to get rates back to being the main control over the economy.Using liquidity instead of rates means more and more simply ends up in housing and encourages consumption over savings.

[TheCountOfNowhere]

7 minutes ago, DurhamBorn said:

Because they need to get rates back to being the main control over the economy.Using liquidity instead of rates means more and more simply ends up in housing and encourages consumption over savings.

Do they care ?

 

They hold all the assets.

[DurhamBorn]

1 minute ago, TheCountOfNowhere said:

Do they care ?

 

They hold all the assets.

They very much care.CBs arent some evil menace.They are the basis of the western democratic system.They make mistakes,sometimes huge ones,but their aim is a simple one.To see people at the bottom get slowly better off,and that has worked.The fact the rich gain isnt the aim,its simply an affect.If everyone gets richer then its obvious the best connected and clever will get richer by more than the slavering person at the bottom.

A lot of the problems have come from governments not CBs.In a way they have had to deal with government disasters.Browns welfare system paid for by a financial sector boom being the prime example

[Democorruptcy]

16 minutes ago, DurhamBorn said:

Because they need to get rates back to being the main control over the economy.Using liquidity instead of rates means more and more simply ends up in housing and encourages consumption over savings.

We had 5.7% RPI and 5.2% CPI in 2011 but it didn't shift rates above 0.5%. Since then we have had 7 years of the governbankment building liabilities in Help to Buy. Rock and hard place due to awful policies so far.

[DurhamBorn]

23 minutes ago, Democorruptcy said:

We had 5.7% RPI and 5.2% CPI in 2011 but it didn't shift rates above 0.5%. Since then we have had 7 years of the governbankment building liabilities in Help to Buy. Rock and hard place due to awful policies so far.

Difference this time will be rising rates in the US.Government has been a big part of the problem like you say.Insane policies.HTB is a disaster.I know a couple just buying a £170k house on it now.Shes a trainee dog groomer.Hes a driver.Crazy.Parents encouraged it with them.Cant go wrong etc.

[Democorruptcy]

3 minutes ago, DurhamBorn said:

Difference this time will be rising rates in the US.Government has been a big part of the problem like you say.Insane policies.HTB is a disaster.I know a couple just buying a £170k house on it now.Shes a trainee dog groomer.Hes a driver.Crazy.Parents encouraged it with them.Cant go wrong etc.

The one thing I'd really like to see is a big shift back from airbnb, holiday lets and second homes to residential properties. It's a scandal that at the moment young people who might be working, are living with older people who consequently risk getting infected. While lots of holiday properties are left empty and people aren't using them (unless you are a Scottish health executive)

[NogintheNog]

1 hour ago, Cattle Prod said:

19 hours ago, Festival said:

Oil Price and Deflation

I dug out and reread the relevant chapter of the Prize the epic book about the oil industry specifically the one covering the great depression. Some interesting parallels to today.

In 1926 texas oil was trading at $1.85 a barrel and even in 1930 was averaging around $1 a barrel.

In early 31 even with the rest of the country in depression oil was being produced in great quantities with new oil fields being discovered and all producers drilling like there was no tomorrow.

By May 31 though the price had fallen to 15 cents a barrel and some being sold as low as 6 cents both well below the cost of production (80 cents a barrel apparently) but still production was rising.

Eventually on direction of Texas governor the National Guard and Texas Rangers forced shutdowns and pro-rationing was introduced which forced the oil price back up to $1, 

In 1933 each state was given lower production quotas, and this alongside tariffs on foreign oil mainly Venezuelan and Mexican were agreed which between 1934 and 1940 led to an oil price between $1-1.18 per barrel.

I cant help thinking that the route out of the current low oil price will be similar this time. The Americans will need to reduce shale production to a level where it along with OPEC member cuts will hold the oil price at something like $50 dollars ie a level it was trading at before the price war and demand destruction of coronavirus.

Given its an election year I cant see the US govt wanting (or even being able) to impose production cuts on shale so we will probably get there through a combination of higher cost shale producers drop out of the game, majors cutting back on production , US introducing some oil import tariffs and OPEC maybe in two bites eventually agreeing some meaningful production cuts? Going to be interesting watching this week particularly if Trump plays his tariff card. 

 

It's a fantastic book. I can't remember the details, but the supply situation was way in excess in those days. You were at the start of the discovery curve, and demand was still low. IIRC the East Texas oil field alone supplied a large % of the world at that time. That's not the case anymore, and never will be again, so I'd bear that in mind when making comparisons with today. I don't think there will be any enforced production cuts on shale, they will cut out new wells themselves because they are broke, and decline will rapidly take care of it.

I think we also need to note that back in the early days of the oil industry in the USA the country was on a Gold standard, unlike the FIAT system of today.

Surely there is no doubt that the CB money creation has pushed up asset prices and oil along the way. It has also helped fund the oil independence of the USA which along with the Russian output curtailed the power of OPEC.

So in theory more FED printed $ = higher future prices (in US$)?

However the shale patch looks like it's gonna become a graveyard, Whiting petroleum was $400 a share back in 2014, but has recently filed for bankruptcy! Surely some of the big players will be looking at some of these assets??

I'm assuming that unlike an old washed out oil well which needs to be carefully managed in old age, shale can to some extent be 'turned on or off' to capture higher prices? 

[PaulParanoia]

1 hour ago, DurhamBorn said:

Because they need to get rates back to being the main control over the economy.Using liquidity instead of rates means more and more simply ends up in housing and encourages consumption over savings.

To us, it would makes sense to get rates back to being the main control mechanism.  But for a politician with a 5 year view, surely it's better to pressure the central banks into using liquidity as the tool in order to keep a 'feel good' factor going.  What's going to force the central banks to use interest rates instead of liquidity?

[Boon]

Been building some positions in GDX.... does anyone know if there is an equivalent one priced in Sterling? 

[MrXxxx]

2 hours ago, Ponty Mython said:

oldies realising that they are floating Petri dishes,

I love the way you put this...definitely `tickled my funny bone`! :-) :-) :-)

[MrXxxx]

2 hours ago, Democorruptcy said:

A couple of snippets from the Surplus Energy Economics latest.

 

Well, just make sure you are not the average person then I.e putting all your money I a savings account or bonds!

[Festival]

1 hour ago, Cattle Prod said:

It's a fantastic book. I can't remember the details, but the supply situation was way in excess in those days. You were at the start of the discovery curve, and demand was still low. IIRC the East Texas oil field alone supplied a large % of the world at that time. That's not the case anymore, and never will be again, so I'd bear that in mind when making comparisons with today. I don't think there will be any enforced production cuts on shale, they will cut out new wells themselves because they are broke, and decline will rapidly take care of it.

Tend to agree CP and I think that could hold OPEC back from agreeing all the production cuts until sufficient production has been removed from the shale fields. Any idea how long it might take for the production there to fall away? Like many on here I suspect I want to patiently add to shareholdings in a number of the oil majors and I'm hoping we will see lower prices in these shares in the coming months. Presumably companies like XOM and Chevron will be beneficiaries of the shale cuts as they will be able to acquire better fields from the companies that are about to go under.

[DurhamBorn]

9 minutes ago, PaulParanoia said:

To us, it would makes sense to get rates back to being the main control mechanism.  But for a politician with a 5 year view, surely it's better to pressure the central banks into using liquidity as the tool in order to keep a 'feel good' factor going.  What's going to force the central banks to use interest rates instead of liquidity?

The US long bond controls rates,not CBs.They can control the short end,but the long end they cant,not for any length of time.Why would anyone lend to Susan the nail technician at 2% when they can lent to Uncle Sam at 4%,5%,6% etc.?

The consumer is dead,and once the cycle gets underway capital will flow into industrial areas.Countries are going to re-build the backbones of their economies.

Leveraged BTL and the over leveraged consumer will be roughly bottom and close to bottom of the pecking order.

 

[Hardhat]

1 hour ago, Boon said:

Been building some positions in GDX.... does anyone know if there is an equivalent one priced in Sterling? 

GDGB

[janch]

5 hours ago, Democorruptcy said:

A couple of snippets from the Surplus Energy Economics latest.

 

Thanks for posting.  His thesis makes a lot of sense and I would urge all to read it.  Another snippet:

 

The financial and economic ‘high command’ has never understood this energy-based interpretation, and this incomprehension has created a parallel narrative of futile (and increasingly dangerous) financial adventurism.

This is why we can expect a GFC II-type event to coincide with a decisive downturn in the economy. Though the coronavirus crisis is acting as a trigger for these events, we should be in no doubt that both of them were due to happen anyway.

[JMD]

What is the view of this thread of future virus pandemic threats becoming on equal par with the 'great' global warming environmental threat? Is this too bigger leap in thinking or just being realistic, especially if next corona virus is both easily communicable and lethal to all age groups. If so, and in terms of potential investment strategies, I assume the obvious relevant companies to buy might be the drug companies. I guess other sectors that would be given a boost is 'home working' tech., but are there other sectors that people here have been considering in regard to potential pandemic threats/mitigation/containment? Of course some sectors might even diminish/disappear because of future pandemic threat (so equally valuable to be aware of). Or is this type of thinking Science Fiction at this stage?       

[Don Coglione]

10 minutes ago, JMD said:

What is the view of this thread of future virus pandemic threats becoming on equal par with the 'great' global warming environmental threat? Is this too bigger leap in thinking or just being realistic, especially if next corona virus is both easily communicable and lethal to all age groups. If so, and in terms of potential investment strategies, I assume the obvious relevant companies to buy might be the drug companies. I guess other sectors that would be given a boost is 'home working' tech., but are there other sectors that people here have been considering in regard to potential pandemic threats/mitigation/containment? Of course some sectors might even diminish/disappear because of future pandemic threat (so equally valuable to be aware of). Or is this type of thinking Science Fiction at this stage?       

I don't think it is realistic to conflate the threat from a pandemic with that to and from the environment. 

Mother Nature will take care of the environment, one way or another, over a long period of time - this may or may not include the destruction of a number of human beings.

A pandemic (especially if you believe it to be man-made) poses a clear and present danger to the human population; as such, it is of potentially immediate magnitudes greater a threat.

Searching for relevant investment areas is part and parcel of this thread but, if the part in bold above comes to pass, investment will be the least of our worries!

The "environment" has become a politically-expedient topic, therefore it is reasonable to look at, for example, renewable energy as a pragmatic investment area.

The "pandemic", in my view, is likely to be used, politically, to justify throwing money at public healthcare systems; yes, there will be winners in the private sector too, but which companies is anyone's guess (at the healthcare level).

[Harley]

8 hours ago, Boon said:

Been building some positions in GDX.... does anyone know if there is an equivalent one priced in Sterling? 

KID compliant gold mining ETFS:

GDGB (GDX in GBP)

GJGB (GDXJ in GBP)

AUCP (AUCO in GBP)

SPGP (IAUP in GBP)

All the USD ones (GDX, GDXJ, IAUP, AUCO) are also tradeable on the LSE.

I don't think any of the GBP ones hedge their underlying currency (USD).

I haven't looked at the market liquidity, bid to offers, tracking, etc of the GBP denominated ones.

[Loki]

DXY now closer to 101 than 100! (100.75 peaked at 100.92 earlier)

[DurhamBorn]

Just now, Loki said:

DXY now closer to 101 than 100! (100.75 peaked at 100.88 earlier)

Longer it stays over 100 the more systemic risk.My road map says its going to 91,thats based on what i think the Fed will do even though they dont know it yet