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

[Castlevania]

1 minute ago, Shamone said:

He looks down on me like Im a piece of sh.

Shamone?

[Shamone]

4 minutes ago, Castlevania said:

Shamone?

We'll get told off for derailing the thread. Pretty sure DB has a good senses of hoomer though.

[King Penda]

10 minutes ago, Shamone said:

totally agree. around here you can get a 2 bed for maybe 120k. Really cheap flats if you move into Wales. Yet the wages ARE THE SAME for the majority as if you lived in the SE. You are a wise man. My wife's cousin paid something like 600k for a 1 bed leasehold flat in London 2 years ago, with help from his public-sector-pensioned (tax payers money) parents. He looks down on me like Im a piece of sh.

Minimum wage has just gone up another 50p might not sound much but a couple both on 40 hours should be 160 a month better off it will go a lot further up north 

[Shamone]

1 minute ago, stokiescum said:

Minimum wage has just gone up another 50p might not sound much but a couple both on 40 hours should be 160 a month better off it will go a lot further up north 

in the SE would maybe buy a weekly dance class for the kids

[Jesus Wept]

2 hours ago, DurhamBorn said:

8 years,it will hit $200 minimum,but more likely $330.The big gains will come late though as things go parabolic.

The 70 year MACRO Oil cycle ..... Peaks and troughs.... 

Are we at 1970 again?

Price per barrel inflation adjusted...$

US Crude oil production. Producing a huge amount...since 2012...... correlates with the price collapse since 2012...

How does this fit in with your $200-300 price forecast DB? 

[Loki]

I am wondering if this shutdown of most of the economy will actually keep things in stasis and we need some activity to actually happen in order for the cycle to start properly  (Which also ties in with the second half of this year others have mentioned)

The Fed may well be issuing trillions but those dollars won't be doing anything until people can go back to work and start building infrastructure, hydrogen tech, comms, etc.

Does that idea work with the leads and lags principle?

[Jesus Wept]

17 minutes ago, Vendetta said:

The 70 year MACRO Oil cycle ..... Peaks and troughs.... 

Are we at 1970 again?

Price per barrel inflation adjusted...$

US Crude oil production. Producing a huge amount...since 2012...... correlates with the price collapse since 2012...

How does this fit in with your $200-300 price forecast DB? 

Where is all this oil coming from? I thought we were running out? Peak oil and all that? Plus add to this the massive uptick in renewable alternative energies.

Maybe a $20 oil price is justified?

Saudi Oil production:

[Bobthebuilder]

55 minutes ago, stokiescum said:

I expect them to

claim the sky’s falling for 10 years or more before it actualy happens however half of them

could have bought and had the morgage paid off if they had realised that roughly 2012 was the bottom true maybe a bad idea in the south but prob a wize idea in the midlands and north this will be there next bite of the cherry

This x 100.

I was reading that site from 2005, i bought in q4 2012 now mortgage free, cant even be arsed with that conversation anymore.

[Alifelessbinary]

21 hours ago, DurhamBorn said:

My roadmap shows around 90% inflation over the cycle with a 120% outlier.Rates at 10% a real risk,but 7% are locked in.I think 70% down inflation adjusted is almost certain in the south.They might get away with 60% inflation adjusted and there will be odd places that dont do quite as bad.

The problem for house prices is where as over the last cycle they have had everything in their favour,unlike any other cycle,they are now entering a cycle where everything will be against them.

Inflation running ahead of wages by a lot.

Interest rates starting a cycle long run higher with no falls along the way to lock in lower levels.

Government moving housing support from welfare to social housing.

Demographics as more family homes come on the market and HTB estates falling hugely in price as people who cant sell rent and they slowly turn into sink estates

Cycle being industrial not consumer,so capital will move to areas offering higher gains.

Distribution cycle where pension pots fall as bonds lose over half their value inflation adjusted,so less bank of mum and dad.

I would think a mortgaged southern house would be one of the worst assets classes in the world for the cycle.Though of course for people who have bought a long time ago and paid most off it doesnt matter,its a home.Anyone who bought with high leverage though will suffer greatly.

As always nothing is certain,but the cycles are pretty clear now,its only the scale of the falls in question.

I agree that a heavily mortgaged house will suffer in the next cycle especially in London. Where I don’t believe they will be a severe as you say is that a large percentage of homes are mortgage free. As long as London doesn’t lose it’s safe haven status (not a given) there will always be an influx of international money distorting the true value.

If inflation truly does run rampant then it might finally knock the British obsession with house price. Im a strong believer in mean reversion and the next decade is going to be fascinated.

London is vulnerable right now, as is any global city, however it has a long history of adapting and surviving. The dark web of the City is vast and far reaching and it will continue to thrive whatever the new environment becomes. 

[King Penda]

8 minutes ago, Bobthebuilder said:

This x 100.

I was reading that site from 2005, i bought in q4 2012 now mortgage free, cant even be arsed with that conversation anymore.

The only mistake i

made was thinking small and buying a terrace for 49k don’t regret it I should have spent 75k on a semi in stoke  take this house in uttoxeter I dumped a girl I’d lived with for 2 years over this house well I didn’t dump

her I just fucked every woman I could behind her back

then left her all she had to do was lend me 2k to out bid a builder this house is worth at least 140k now 

[Bobthebuilder]

3 minutes ago, stokiescum said:

I dumped a girl I’d lived with for 2 years over this house well I didn’t dump

her I just fucked every woman I could behind her back

then left her all she had to do was lend me 2k to out bid a builder this house is worth at least 140k now 

Back in 1995 i almost bought a 1/4 acre building plot with a static on site with services in dorset For £64,000, my ex at the time talked me out of it. A million now, stupid girl.

[Alifelessbinary]

11 hours ago, spygirl said:

Disagree. There is not a wide industrial base in London. The area is basically public sector, benefits or finsec.

The issue with London house prices is the multiples are huge. Median London wage is only a few k more than the English Median wage.

The economic activity in London has mainly been low paid, in-work benefits support lunacy.

The London finsec has already shed a few 100k of jobs., This will accelerate.

London house prices could barely survive a mild slowdown.

I suggest you visit Park Royal which is the biggest industrial estate in Europe, or look at the DP World logistic hub. I would also visit KX to see the European HQs of Google et al.  London also has a deep base of SMEs but they don’t inhabit any of the snazzy glass buildings, or Central London location so are not well reported. I have no issue with people having an anti-London sentiment, but you don’t want it to cloud investing sentiment, or ignore the huge competitive advantage that London previously had.

The multiples are huge as they are based on global money and huge disparities in wealth. It is true that the median salary is only a few grand higher, but the property market is driven buy the extremes. There are a lot of people fiddling the books, or abusing non dom status and there the official figures missed the rivers of global money that flow through the system. It is terrible for London long term, but success governments have been happy to turn a blind eye to hover up the stamp duty.

I don’t want to deflect this thread into a north/south house price battle but if you are going to discuss macro trends you also need to thoroughly understand the market and the machinery behind. 

If it’s funded correctly the Northern Hub is essential to balancing the UK economy and I agree with DB’s general statement that affordable northern towns will serve high inflation than heavily indebted Southern home owners. 

 

[King Penda]

5 minutes ago, Bobthebuilder said:

Back in 1995 i almost bought a 1/4 acre building plot with a static on site with services in dorset For £64,000, my ex at the time talked me out of it. A million now, stupid girl.

She was on a morgage so was scared I’d rip her off but we were paying 500 a month to rent she had 8k in the bank but 70k was all they would lend a single male aged about 46 on careworkers money and she could not be put on the morgage the best bit being she was due 60k from a divorce

[Alifelessbinary]

This is an interesting interview. Ray has been bearish for a few years now and was Strongly recommending gold last year. It’s worth mentioning that his fund massively underperformed in 2019, so it will be interesting to see how he can perform in the emerging storm.

Topline: Ray Dalio believes we are hitting a depression similar to that of the 1930s, which will take years of financial and economic reconfiguration and human ingenuity to recover from, as he discussed in a Wednesday

 

• “We’re not going to go back the way it was,” said Bridgewater Associates founder Ray Dalio in the virtual TED talk. “We’re going to restructure our economy and restructure our financial system” over the next couple of years in order to recover.
• Ray Dalio’s Bridgewater Associates has $160 billion in assets under management, making Dalio the 46th richest person in the world with an $18 billion net worth. 
• Dalio’s biggest worry is that restructuring will not be done in a civil, bipartisan way to “both increase the size of the pie and divide it well,” warning of partisan politics preventing effective solutions, “damaging”—rather than repairing—the economy.
• The key to success as an individual investor is to “know how to diversify well and in a balanced way,” he said. “The greatest mistake of all investors is to think that what has done well lately is a better investment; cash is almost always the worst investment.”
• He also thanked the Chinese for their work on coronavirus, noting that doing so was political: “The Chinese, in many ways, are helping with things that are needed to manage this crisis.”
• Dalio flagged the opportunity for entrepreneurship as the catalyst for recovery: “The greatest force through time is human inventiveness. The greatest force of that is reinventiveness.”

Crucial quote: “This is not a recession; this is a breakdown. You’re seeing the same thing that happened in the 1930s.” 

 

[sleepwello'nights]

38 minutes ago, Alifelessbinary said:

 

I don’t want to deflect this thread into a north/south house price battle but if you are going to discuss macro trends you also need to thoroughly understand the market and the machinery behind. 

If it’s funded correctly the Northern Hub is essential to balancing the UK economy and I agree with DB’s general statement that affordable northern towns will serve high inflation than heavily indebted Southern home owners. 

 

Some of London house prices are simply ridiculous. For want of something better to do I watched Location, Location, Location yesterday. A fairly non descript 1930s semi was one of the properties shown, £800k. It was in Elstead or Bexley Heath so nowhere central or that close to the centre.

In 1998 I vaguely thought about moving to Fulham or Chelsea. Got as far as looking at some advertised in The Sunday Times, pre-internet, one advert I looked at was a late Victorian terrace at £250k, now a similar house is £1,250K +.

More than enough to retire on and would have saved years of working! What might have been. 

Will the predicted inflation in the nest ten years level out that sort of price disparity between London and the Northern regions of the UK.

[sancho panza]

13 hours ago, Ellandback said:

I'm down 20% on my PM miner allocation, I bought last autumn planning to hold for a 100% gain then exit and await the deflationary bust - serves me right for being cocky! I get the impression that most of FinTwit expects another run up in PM stocks to start soon (@henrikzeberg is a notable PM bear for the short term but is widely ridiculed for his views) so maybe all is not lost. I'm aiming to increase my exposure soon but as a novice I'm a little hesitant as it's been brutal this year and I can't discount the possibly they just drift lower along with the general market.

Prob not by the end of the day

12 hours ago, DurhamBorn said:

There are a few things that go on around debt deflation etc and lags.My friend used to say this is where most/nearly all economists and other market players get it wrong.He said the inflation has already been consumed and the dis-inflation has taken care of it.Its already gone.However a lot of debt has built up on inflation already consumed.Those assets are sat there,ready to produce.In affect the CBs have an open door to print ALL of the dis-inflation over the cycle,because the assets are there to consume the printing.Of course the fuzzy bit is the CBs dont know how much debt is bad,going bad,or in this present situation how much of the asset base will spring back,how much is gone forever.They usually push everything through the capital markets first,but at the end of a cycle they use direct to government as well,they know a fiscal punch is needed.

So all the dis-inflation since 1982 is available to be printed,in theory.Iv road mapped this,and i come up with a figure of 50% of the disinflation and that says $18 trillion balance sheet for the Fed and another $10 trillion to be printed,BOE (who say no printing ) probably $1 trillion.

Of course if they printed nothing,the assets would go back to being worth what they were in 1982 (and overshoot on the downside).The reason the CBs wont let that happen is because its their job not to.The financial dislocation would be on a scale never seen,and society would collapse.Its a bit like having a fire brigade who dont respond to a huge fire.

At the end of a reflation though things change.The inflation has built up in the system,instead of being consumed,it has added onto costs.If the CBs print then you get hyper inflation.They are at the exact opposite of where they are now.So governments cant turn to them,they have to actually live within their means.In simple terms during and at the end of a deflation/disinflation governments cant run out of money.At the end of a reflation/inflation,they do run out.

Given to get back to growth we need to print all of the dis-inflation,it then means the situation comes up where rates end up where they were then as well,however adjusted down for a much more efficient modern economy.

So why buy inflation stocks like oil,potash etc?.Because the market priced them back towards those early 80s prices (they didnt get right back,but well over halfway),rational,but ignoring the CBs would put all that dis-inflation back into the markets.

 

Thanks for that DB.I hadnt really thought much about this angle .I've always thought debt deflation follows credit bubble and that was about it.After repeated efforts to educate me on here,I've realsied they can print thsi time around,but I never made the hsitorical cconnection with GD1 which is crucial(for me) ie it was preceded by an era of infation.AS you say that handily restrcits CB scope.

I also hadnt thought of it like the bit 'He said the inflation has already been consumed and the dis-inflation has taken care of it.Its already gone.However a lot of debt has built up on inflation already consumed'

 

850 pages in and still learning shedloads.

[sancho panza]

6 hours ago, Bricks & Mortar said:

Yeah, I see the derision that meets Henriks predictions, especially from the PM bull community.
But he was one of the few who called the recent collapse (in general, although he was also calling $800 gold, that didn't happen).
He's revised his timing, and is now predicting a bigger collapse, (including $800 gold), in the 2nd half of the year.  Which puts him in the same camp as anyone here who thinks we may not have seen the 'big Kahuna' yet, and also that guy, David Hunter that sometimes gets a mention on here.

Disclaimer - I'm in that camp.  Not sure who else might be, but at least my view wasn't laughed out of the room.

I'm with the 3 of you.

[RickyBacker]

4 hours ago, Vendetta said:

The 70 year MACRO Oil cycle ..... Peaks and troughs.... 

Are we at 1970 again?

Price per barrel inflation adjusted...$

US Crude oil production. Producing a huge amount...since 2012...... correlates with the price collapse since 2012...

How does this fit in with your $200-300 price forecast DB? 

As far as I'm aware, for the last ten years the increasing global demand for oil has been met, more or less, by that increase from the US. The problem being though that that increase from the US is purely down to shale oil. As Cattle Prod has previously discusses, shale fields have a very steep decline curve which is why these companies have to keep drilling more and more just to keep production flat. Take shale out of the picture at these low oil prices and it's quite easy to see how oil could rocket in price thereafter. 

[Jesus Wept]

Durham Born (June 4th 2018):   Credit Deflation and Reinflation cycle to come  (I cannot use a quote box). 

My thoughts on this playing out are,and remain these,

“The great deflation cycle that started around 35 years ago is about to end with a deflationary collapse.During those 35 years interest rates have fallen to lower lows and made investing in equity/property very easy (they have always gone to higher highs).However that has also caused people to go way way along the risk curve for yield.The leverage on the system is beyond extreme.The Fed (and other central banks) missed out an entire tightening cycle,and in doing so have already made sure the recession dead ahead will see massive un-voluntary debt liquidation,a financial system in free fall and wealth destruction on a scale few can even imagine.Leverage is going to destroy business and individuals on a scale not seen since the late 1920s.Once this does hit the central banks will be slow to react with the right response as they themselves will be shocked at the speed and scale.They will panic and print direct into the economy by passing money/debt to governments at 0.1% or zero coupons.This is what will kick in the first reflation cycle since the 70s.Inflation will appear,rising slowly at first but increasing for perhaps a decade until it reaches double figures.Interest rates will follow,but being behind the curve perhaps through the whole cycle.The leveraged who survived the deflationary collapse will then suffer increasing interest rates for a decade.“

“The next cycle will be industrial and the fuel for the fire will be governments fiscal spending borrowing at very low coupons thanks to massive QE.” (2).

I’d just thought I’d repost (quote) DB’s first post. Fascinating. I’m a bit new to this and need to get acquainted with 456 pages from Part 1 and 354 pages from part 2. Lots to understand. 

Many thanks in advance to those posters - especially DB - who have put the time and energy in their theories and explanations. I’ll try to contribute where I can. Lots to learn though. 
 

IRs are at 0.1% and Global Govts. are ‘printing coupons’...... they are indeed panicking....😳

[Jesus Wept]

Hope you don’t mind placing this here  for easy access:

Platinum price (inflation adjusted)

 

Gold price (inflation adjusted)

 

Is the best exposure to oil, PMs et al. through individual shares in mining/oil companies? Any ETFs recommended? 

Gold looks like it’s about to breakout again. 

[BadAlchemy]

33 minutes ago, Vendetta said:

Hope you don’t mind placing this here  for easy access:

Platinum price (inflation adjusted)

Gold price (inflation adjusted)

The 40 year long cup/handle in silver is quite something too...

[Ellandback]

9 hours ago, sancho panza said:

Prob not by the end of the day

 

That's encouraging! Now do I chase or wait for the pullback... Decisions, decisions.

[Loki]

10 hours ago, sancho panza said:

David Hunter

Here is his Twitter account

https://twitter.com/davehcontrarian?lang=en

[MrXxxx]

22 hours ago, DurhamBorn said:

wrong.He said the inflation has already been consumed and the dis-inflation has taken care of it.Its already gone.However a lot of debt has built up on inflation already consumed.Those assets are sat there,ready to produce.In affect the CBs have an open door to print ALL of the dis-inflation over the cycle,because the assets are there to consume the printing.Of course the fuzzy bit is the CBs dont know how much debt is bad,going bad,or in this present situation how much of the asset base will spring back,how much is gone forever.They usually push everything through the capital markets first,but at the end of a cycle they use direct to government as well,they know a fiscal punch is needed.

So all the dis-inflation since 1982 is available to be printed,in theory.Iv road mapped this,and i come up with a figure of 50% of the disinflation and that says $18 trillion balance sheet for the Fed and another $10 trillion to be printed,BOE (who say no printing ) probably $1 trillion

OK, I understand the second bit of this post (reflation bit), but despite reading again and again, I can't get my head around what this bit means/how it works...anyone care to explain again?

My understanding of disinflation is a slowing down of the inflation rate...its a process, how can it be consumed?...I can understand how inflation can be used to erode a debt but disinflation is acting in the opposite way.confused!?

[Red Debt Redemption]

20 hours ago, DurhamBorn said:

https://www.wsj.com/articles/fed-announces-new-facilities-to-support-2-3-trillion-in-lending-11586435450?emailToken=541e2dedd6bede9b4d6ae9d44a2a062c7HuWo9MeoBNqhzmd09hf0IEjJVhb1HTeGJkTRwnEgr2wW1szbCZ9iSqB5eAUfJ5MrTaa7qUHJRxPktf+vdJ7dWh4tMok+E1cIneDsYK4DiTVjOvzKtS2+Vbq7iqpfucG&reflink=article_copyURL_share

Ok, Powell is right-sizing now,injecting direct into the economy.I make this around $6 trillion ,so another $2 trillion to come from somewhere.This one is stage two backstopping the credit markets,last injection will be the consumer,probably by buying up treasuries as the government borrow.

All happening as expected,this stops the bond market locking up to corporate's trying to roll over.

Debt deflation will still happen but Powell has now removed the systemic risk.ECB need to follow though,so far they have been way behind the curve.Powell caught up at last.

https://www.bbc.co.uk/news/business-52238932