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

[MrXxxx]

11 hours ago, sancho panza said:

Both of you,don't read the following well written critique of the lcok down.Toby Young(whom I've vaguely heard of).It's derpessing how bumbling our govt has been.The truth will come out and the sunlgiht wont be kind to our govt

But I think history will reserve a place in hell for Neil Ferguson and his Imperial assesment prediucting 500,000 deaths

https://lockdownsceptics.org/2020/05/02/latest-news-18/

As the lockdown eases and we survey the economic wreckage, more and more people will start asking whether the cure was worse than the disease. And the evidence that the more modest social distancing measures put in place by the Government on March 16th were sufficient to “flatten the curve” continues to mount. A reader has sent me this interesting graph showing the use of mass transport in London, Birmingham and Manchester declining rapidly before the lockdown was imposed:

This is just one data point, but if you want to read a full survey of the evidence that lockdowns don’t work I recommend this paper by Thomas Meunier entitled ‘Full lockdown policies in Western Europe countries have no evident impacts on the COVID-19 epidemic‘. Here’s what the abstract says:

This phenomenological study assesses the impacts of full lockdown strategies applied in Italy, France, Spain and United Kingdom, on the slowdown of the 2020 COVID-19 outbreak. Comparing the trajectory of the epidemic before and after the lockdown, we find no evidence of any discontinuity in the growth rate, doubling time, and reproduction number trends. Extrapolating pre-lockdown growth rate trends, we provide estimates of the death toll in the absence of any lockdown policies, and show that these strategies might not have saved any life in western Europe. We also show that neighboring countries applying less restrictive social distancing measures (as opposed to police-enforced home containment) experience a very similar time evolution of the epidemic.

 

I'm not even sure Neil Fergusons 'famous 'paper has even been released for peer review.........................which tells a story of it's own if true.

I think people have to be careful and even question the `experts`/scientists. Academia has changed dramatically over the last 20-30 years and become far more competitive. As a result there is a greater pressure for self-promotion/`prostitution`, blind acceptance of dogma, and to publish at `all costs`, hence a dramatic increase in retraction of papers publishes in `top drawer` journals such as Nature due to methodical error, unreproducibility, and in some cases fraud.

[MrXxxx]

8 hours ago, sancho panza said:

Really superb.Covers too much for one lsiten as @MrXxxx says.......love that guy and I msut say,Erik Townsend lets him tlak which interviewers normally don't.Even addresses issue of deceling velocity amidst moeny printing.

 

I don't know if its the issue of covering too much, its just that a) I am a novice, and b) a visual learner...as a result I normally have to go over something 3-4 times before it finally `clicks` into place. As for its length, I have listen to a few of these now and the guest discussion (best bit with `padding` either side) starts at 20.00 and finishes at 60.00, so is an easy (and worthwhile) 40 minutes. Be interesting to know others thoughts on this series of podcasts....thaks to whoever highlighted them.

[Loki]

Just reposting this for reference as this morning's posts lost

 

[Sasquatch]

1 minute ago, Loki said:

Just reposting this for reference as this morning's posts lost

 

Thanks. I've just listened to it. Very very interesting, especially the melt up to labor day, the bust down by up to 80%. Particularly interested to hear that he thinks some banks are going down as well. I'm going to listen through again and take notes. 

[Loki]

17 minutes ago, Sasquatch said:

Thanks. I've just listened to it. Very very interesting, especially the melt up to labor day, the bust down by up to 80%. Particularly interested to hear that he thinks some banks are going down as well. I'm going to listen through again and take notes. 

It's going to be a long slow summer I think, waiting.  Compounded by any lockdown issues/places being shut I think mid 2020 is going to be well boring.

 

[Wheeler]

Note: these are responses to posts lost in this morning's server crash and are in reference to the David Hunter podcast above. I'll fish out my notes and do a repost.

 

2 hours ago, M S E Refugee said:

If this played out would anyone be tempted to sell at the end of August?

Just to be clear that DH was more nuanced than my simple notes. He did talk about the timing of the bust could be August or even July. 

I did consider this when I made my plans over the last couple of years but decided that as I'm pretty rubbish at timing I'd probably just ride it out and rely on the long term trend. I've already got some planned profit taking ladders in place for rebalancing purposes in the miners that will move me into a bit more cash.

I don't think I'll fully go into cash though as I want to keep balanced for all circumstances. 

 

2 hours ago, Sasquatch said:

Makes you think! I've got a heap of gold bullion in my SIPP. It's tempting to think I could sell at the $2000 high then buy back at $1000. Ditto with some stocks. However, getting the timing right is the tricky thing. The decade long macro picture is the key surely? 

David Hunter did talk about banks failing in the bust. I'm more worried about the government welching on the FSCS £85,000 number on monies in bank accounts. Or bail ins....

That is in my thinking too, either hard bail-ins where anything over the limit is lost, or soft bail-ins where access is restricted to say £500 a week for 6 months. Those sort of restrictions could be sold to the public at large using the current crisis as they wouldn't be affected.

 

 

[Wheeler]

32 minutes ago, Loki said:

Just reposting this for reference as this morning's posts lost

 

Reposting my notes:

• Expecting a melt up into summer with the S&P getting to 4000+ 
• Bust sometime around end of August but maybe in July or into September with S&P falling 80%
• Dollar (DXY) to fall to 85 by summer then to rise in the bust
• Economy to move from consumer lead to industrial for the next cycle
• Bust will lead the Fed to expand balance sheet to $20tn maybe even $30tn
• Price inflation to appear by 2022
• Gold to $2000+ by labor day (beginning of September) but dropping to $1000 in the bust but rising to $10000+ by end of the decade
• Silver to $25, dropping to $10 in the bust and rising to $300 by end of decade
• The bust will impact all assets except for the dollar and treasuries.
• Oil $45, dropping to $10 in the bust then rising to $300 by 2026-8
• US 10-year yield to 1.5% in the summer, 0% in the bust and rising to 15% by the end of the decade
• Big collapse after 2030 as the Fed will be unable to print due to inflation

 

The podcast is more nuanced in terms of timings and ranges, and is worth listening to as it gives more explanations/reasons to the predictions.

 

 

[Loki]

5 minutes ago, Wheeler said:

Expecting a melt up into summer with the S&P getting to 4000+ 

I am considering a punt on this, exiting before 4000 in order to have some 'free' cash to invest in reflation stocks...

[Eventually Right]

47 minutes ago, Loki said:

I am considering a punt on this, exiting before 4000 in order to have some 'free' cash to invest in reflation stocks...

Just a word of caution Loki, but David Hunter has been calling for a melt up scenario (in the relatively immediate future) for a while now:

https://seekingalpha.com/user/8405611/comments

I’m absolutely not saying he’s wrong, but, for example, he’s been talking about silver going to $25, GDXJ to $70 in the next few months for a long time (it’s always surprised me that he puts such tight time frames on those calls!). So, if you’re going to punt on his 4000 call, using options for example, I’d use expiry dates much further out, in case he’s right, but in say 8 months time, rather than 4 months.

Of course if he’s right, and SPY hits 400 by September, then some of the ootm options would pay off at upwards of 150-1...so might be worth the risk!

[Jesus Wept]

39 minutes ago, Loki said:

I am considering a punt on this, exiting before 4000 in order to have some 'free' cash to invest in reflation stocks...

Could do @Loki

However there is the considerable risk that market meltdown occurs this week - starting Monday and (over a fairly long and protracted period with occasional bull traps) the DJ falls to 15,000 (or lower) accompanied by Ftse falling to 4,500 or lower - taking all the other indices and ‘The good value’ stocks and commodities -including gold with them.....

As with all such choices its 50:50 in my book. I am going to sit it out for a few months and build up ‘liquidity’. 

I think there will be plenty of time to go back into market in the months ahead. 
 

Old Warren Buffet 90 years old is probably right. Sitting on a pile of cash and content to be taking a $40bn loss on his airline stocks.
 

New lows to be had in the coming months I’d say...across the board. Very few stocks will be immune to the -30% +  falls coming.
 

https://www.bbc.co.uk/news/amp/world-us-canada-52518186 

[Loki]

@Eventually Right and @Vendetta thanks guys some good food for thought there.  Part of it is it's something to do besides twiddling my thumbs! You're right to be cautious though. Back to work next week so that will keep my mind occupied at least for a while

[Sasquatch]

Echoing some of the chat this morning on this thread, I'd add that it's human nature to pick the forecaster that suits one's own narrative or position. For example, I keep up to date with Egon von Greyerz over at goldswitzerland.com. He thinks we are already at the full bust position and are heading into hyperinflation in the relatively near future. I'd like to believe this as I'm nicely position in PM and mining stocks and they would go to the moon if this scenario. However, it feels too neat to me. 

It's going to be very messy.

And then of course we have the potential for more black swan events including a mutation of the virus to something more deadly, a full blown trade war (or worse) between west and east, a blow up in the middle east, the fat one in North Korea losing his shit, etc etc. 

[Jesus Wept]

15 minutes ago, Sasquatch said:

Echoing some of the chat this morning on this thread, I'd add that it's human nature to pick the forecaster that suits one's own narrative or position. For example, I keep up to date with Egon von Greyerz over at goldswitzerland.com. He thinks we are already at the full bust position and are heading into hyperinflation in the relatively near future. I'd like to believe this as I'm nicely position in PM and mining stocks and they would go to the moon if this scenario. However, it feels too neat to me. 

It's going to be very messy.

And then of course we have the potential for more black swan events including a mutation of the virus to something more deadly, a full blown trade war (or worse) between west and east, a blow up in the middle east, the fat one in North Korea losing his shit, etc etc. 

I think massive deflation first. 

Demand has - and will continue to collapse.

Lots of businesses will fail and default on debts.

Very little lending by banks. 

Lack of confidence causing a ‘domino and contagion effect’ that will spread and spiral downwards. 
 

Massive monetisation and fiscal policy to attempt to reverse this deflationary event will be needed first before we have the start of the full inflationary effect.

[MrXxxx]

1 hour ago, Wheeler said:

3 hours ago, Sasquatch said:

David Hunter did talk about banks failing in the bust. I'm more worried about the government welching on the FSCS £85,000 number on monies in bank accounts. Or bail ins....

That is in my thinking too, either hard bail-ins where anything over the limit is lost, or soft bail-ins where access is restricted to say £500 a week for 6 months. Those sort of restrictions could be sold to the public at large using the current crisis as they wouldn't be affected.

I assume the FSCS welching would also apply to any cash waiting to be invested in a S&S trading account...and could the government also welch on the FSCS cover of brokers holding your share certificates in trust?

[AlfredTheLittle]

Surely the last few posts show up the whole point of this thread? None of us know which way the market's going tomorrow, or later in the summer.

We do think that over the next few years the reflation stocks will do well, so could be worth picking up at or around current prices, which are a lot lower than they were a couple of months back.

[NogintheNog]

From the Troy investment report;

Quote

Bear market rallies
Since the last week of February, when it was
confirmed that the virus had spread to Italy,
stock markets have experienced record levels of
volatility, matching those experienced after the
bankruptcy of Lehman Brothers in October
2008. While the falls have been breath taking, if
not yet stomach churning, the subsequent rallies
have also been huge. This pattern is not unusual.
One common misconception is that large daily
rises for stock markets belong only to bull
markets. On the contrary, the fastest rallies occur
in bear markets. It is easy to be deceived by
short covering – the repurchasing of stocks to
close out short positions. This, if sustained, often
leads to further buying driven by the fear of
missing out. In the last week of March, the S&P
500 Index had its best three-day streak since
October 93. This hardly inspires confidence
that we have entered a new bull market.

Last month was one of the best in terms of rallies on markets.....???

[JMD]

On 02/05/2020 at 14:36, Loki said:

That's such a coincidence you said that.  I had a thought pop into my head yesterday.  My parents raised me to try and do well at school, work hard etc.  But if the only reason they did that was so i could go out and be a good worker droid making someone else rich, frankly i wish they hadn't bothered. People think in 2 dimensions and "we've always done it this way".  I was talking about my portfolio with the old man and he said about everything going on "there's going to be bad financial times".  I was just gobsmacked like everything I've been talking about hadn't been taking that into account and trying to preserve/increase wealth.

Like i say I'm not a genius (i work on building sites) but i have always questioned everything by nature.

I agree. But it's not about genius which is a very rare thing, and not even about being intelligent in my opinion. Rather I think 'common sense" should be sufficient to carry most people through life. However the modern tragedy is that we have economic systems and politicians that act counter to common sense. For me this is how the system is stacked against the 'common man'. As Durham born says there is no Fed conspiracy, and for me it's more to do with the accumulation of one bad idea stacked on top of the next useless idea. 

[Loki]

27 minutes ago, AlfredTheLittle said:

Surely the last few posts show up the whole point of this thread? None of us know which way the market's going tomorrow, or later in the summer.

We do think that over the next few years the reflation stocks will do well, so could be worth picking up at or around current prices, which are a lot lower than they were a couple of months back.

Exactly, I liked both posts - both, one, or none of them may be right but it's still great to see what people are thinking.  It might spark an idea from someone else they can share

FWIW I lean more towards deflation first, with inflation that exceeds durhamborns as we hit 2030, hyperinflation 

[JMD]

On 02/05/2020 at 14:40, 5min OCD speculator said:

The rich gain due to CBs AND government policy!!!

Banking is immoral <BIG FULL STOP>! The Fed is a private bank formed by a few cunning men who outwitted Woodrow Wilson......within a month of signing into Law the Federal Reserve Act he acknowledged he had sold out the American people!!

Only in March the market was going to shit, it only stopped going to shit when Powell said he would provide 'unlimited support' to the markets!!! He couldn't give a shite about the plebs....

The youth in the UK have never been poorer cos they've been robbed by Thatcherites! Robbed by boomer pensioners! And robbed by the state by being forced to pay tens of thousands of £sss for their education!

I grew up in a council house in the North east, I went on to get a FREE UNIVERSITY DEGREE!  

I think most here are already aware of the history of money and the history of central banks. Although i agree that the banking system is a private franchise and that it has run its course. However I disagree with you when you imply 'conspiracy' and actually think it is an unfortunate part of modern day 'victim culture' to see conspiracy everywhere. People have more power than they think they have as history repeatedly shows us. Unfortunately this power usually manifests as violent revolution and which merely gets usurped by another set of politicians and so nothing much changes. The boring non violent answer is to use our (pseudo) democracy against itself. It can work as recent Brexit result shows. However I am not naive and unfortunately think we have left things too late to make meaningful change and will have to see what the next cycle delivers for us.                                                                                                                                                          As for the banking system being 'immoral' - that sounds a pretty daft concept to me. Morality and ethics are not fixed and change over time. For example I perfectly expect that future generations will view us as immoral for being meateaters, as immoral as say we view and judge our own ancestors for owing slaves. Of course future generations will have the luxury of  selecting from lab produced meat, so they won't have to even contend with the moral hazard of a 'slaghtered' bacon sandwich!

[Loki]

47 minutes ago, JMD said:

I agree. But it's not about genius which is a very rare thing, and not even about being intelligent in my opinion. Rather I think 'common sense" should be sufficient to carry most people through life. However the modern tragedy is that we have economic systems and politicians that act counter to common sense. For me this is how the system is stacked against the 'common man'. As Durham born says there is no Fed conspiracy, and for me it's more to do with the accumulation of one bad idea stacked on top of the next useless idea. 

Maybe not even that so much. In my case i like to think if i hadn't bumbled across this thread I'd have found something similar. Never forget just how incurious and bovine people can tend to be.  I'm always looking at stuff...nutrition, health, wealth, climate... As you say hard work should be enough and maybe those days are coming back in the reflation

[Lightly Toasted]

1 hour ago, Vendetta said:

I think massive deflation first. 

Demand has - and will continue to collapse.

Lots of businesses will fail and default on debts.

Very little lending by banks. 

Lack of confidence causing a ‘domino and contagion effect’ that will spread and spiral downwards. 
 

Massive monetisation and fiscal policy to attempt to reverse this deflationary event will be needed first before we have the start of the full inflationary effect.

I fear a hybrid, double-whammy kind of thing...

(1) Collapse in demand for things that were previously in demand --> collapse in certain asset prices, higher unemployment and/or lower wages, de facto de-skilling.

(2) Higher prices for essentials, particularly those that have to be imported.

[reformed nice guy]

1 hour ago, Sasquatch said:

the fat one in North Korea losing his shit, etc etc. 

I think the biggest risk for the west isn't war in Korea, but reunification.

All investment income will be sucked into it since the opportunity would be huge. If the north was to achieve even half of the infrastructure standard as the south then it would require hundreds of billions in basic work - house building, roads, telecoms etc

Why would an investor chase 2% yield in a crowded, competitive western market when they could get 5% for a company that has the contract to build a motorway or similar?

 

[Wheeler]

1 hour ago, MrXxxx said:

I assume the FSCS welching would also apply to any cash waiting to be invested in a S&S trading account...and could the government also welch on the FSCS cover of brokers holding your share certificates in trust?

I don't think it is correct to consider it welching; I think they will return deposits up to the £85k limit though the payouts could be delayed. There's been plenty of warnings from the banks over the past few years about the FSCS limits that they could justifiably say that people knew it could/would happen.

I think the shares in the Crest system are held by a nominee company owned by the broker so wouldn't be at risk except for administration fees if the company goes into administration. The administrators are part of the court system and can take their costs from client funds if there isn't enough in the company to pay for administration. I think the big brokers claim to retain enough of their own funds to cover the administration costs.

 

[nirvana]

Ok I listened to the macrovoices podcast with Dr Lacy Hunt, I didn't finish it cos I was falling asleep..... not his fault I actually found it quite interesting!

Some points he made:

-the velocity of money will continue to fall* ushering in weaker growth and economic activity
-the Feds kind of lending will not generates an income stream to repay interest and principle therefore the inflation rate will go into negative territory
-Hyperinflation is only going to happen if the Federal Reserve Law gets changed so that the Fed can 'spend directly' and this will make 99% of us terribly miserable; sadly politics is looking towards changing the law.....

His most entertaining comment:

the BOE is crossing the rubicon by directly giving the uk government half a billion quid and is in danger of turning the UK into a banana republic!! 

@JMD I take on board what you're saying....

how much money has been printed in April and where has it gone? Nobody on here can answer that simple question....
(I'm not even bothered about an exact figure, the nearest billion will do) 
Why? Cos the banks are not transparent about what they do for starters!
Do you believe in usury? One of the popes certainly didn't, he banned it for a while! Maybe he saw through the bankers too??

And seeing as it's Sunday and we should all have a laugh on a Sunday

* there's a measurement for velocity of money somewhere.....it's very important cos the CBs can print as much as they want but if it's not going anywhere it's not much use!

 

 

 

[JMD]

19 hours ago, sancho panza said:

Both of you,don't read the following well written critique of the lcok down.Toby Young(whom I've vaguely heard of).It's derpessing how bumbling our govt has been.The truth will come out and the sunlgiht wont be kind to our govt

But I think history will reserve a place in hell for Neil Ferguson and his Imperial assesment prediucting 500,000 deaths

https://lockdownsceptics.org/2020/05/02/latest-news-18/

As the lockdown eases and we survey the economic wreckage, more and more people will start asking whether the cure was worse than the disease. And the evidence that the more modest social distancing measures put in place by the Government on March 16th were sufficient to “flatten the curve” continues to mount. A reader has sent me this interesting graph showing the use of mass transport in London, Birmingham and Manchester declining rapidly before the lockdown was imposed:

This is just one data point, but if you want to read a full survey of the evidence that lockdowns don’t work I recommend this paper by Thomas Meunier entitled ‘Full lockdown policies in Western Europe countries have no evident impacts on the COVID-19 epidemic‘. Here’s what the abstract says:

This phenomenological study assesses the impacts of full lockdown strategies applied in Italy, France, Spain and United Kingdom, on the slowdown of the 2020 COVID-19 outbreak. Comparing the trajectory of the epidemic before and after the lockdown, we find no evidence of any discontinuity in the growth rate, doubling time, and reproduction number trends. Extrapolating pre-lockdown growth rate trends, we provide estimates of the death toll in the absence of any lockdown policies, and show that these strategies might not have saved any life in western Europe. We also show that neighboring countries applying less restrictive social distancing measures (as opposed to police-enforced home containment) experience a very similar time evolution of the epidemic.

 

I'm not even sure Neil Fergusons 'famous 'paper has even been released for peer review.........................which tells a story of it's own if true.

Thanks SP. I suspect that the stats will show that deaths attributall to CV will be very similar across most countries that enacted lockdowns. I mean surely the CV will get you (not you!) eventually - until that is we develop a vaccine. That's why I was in favour of no lockdown, but instead the targeted protection of the vulnerable, even if that meant mobilising the army to achieve it.                                                                                                                                                                                                                  But SP have you any ideas why S Korea 'only suffered' 300 deaths? Was it down to contact tracing alone? And if so how did they perfect that system so quickly? Particularly as they were one of the first to be struck.                                                                                                                                                                                                                                                                                                                                                                                              Toby Young was instrumental in the free school movement so is hated by the liberal left community (or whatever they are) who continually agitate to get Young fired from government advisory poisitions, a la Roger Scruton, its so depressing how free speech has been shutdown.