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

[leonardratso]

how about :

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/b/barings-global-agriculture-class-i-gbp-accumulation

as a potash play via nutrien K+S, its 6.7% of the fund, i know you guys dont like funds much and the OCF isnt that low on this, but it is free or very low dealing cost and no stamp duty i think?

[DurhamBorn]

2 hours ago, Festival said:

DB you talked earlier about fear of what happens at the end of the next cycle when inflation is double digits and precious metals no longer protect wealth. Given the dollar will have fallen significantly over the next cycle what stops son of Volcker going in and crushing the inflation as per last time in the early 1980s. Wouldn’t the trade then be back into US bonds as per 1981? Or is it the total debt to GDP that’s the problem or something else such as geopolitical realignment that’s driving the worry. Sorry I must be missing something obvious 

Yes the problem is the debt will be so high and we could see complete currency collapse.Its too far ahead,but the end of the next cycle looks terrible.So far this one has followed the macro playbook and the CBs have responded as expected.So we were right,but still hinged on the CBs right sizing things.

[Popuplights]

3 hours ago, Shamone said:

Think I may throw another small amount into Mosaic too. Pity I missed the big fall!

It's still 10 bucks cheaper than in January!

[Loki]

2 hours ago, Festival said:

precious metals no longer protect wealth

Why is this?

[TheCountOfNowhere]

23 minutes ago, Loki said:

Why is this?

Money, precious objects have never been worth anything. Power is the only real thing in our human world thats worth anything. You got any? 

[Loki]

40 minutes ago, TheCountOfNowhere said:

Money, precious objects have never been worth anything. Power is the only real thing in our human world thats worth anything. You got any? 

nope

[TheCountOfNowhere]

23 minutes ago, Loki said:

nope

None of us do 🤔

[sancho panza]

11 hours ago, DurhamBorn said:

https://stockhead.com.au/stockhead-tv/rocktalk/rocktalk-why-the-cycle-smells-right-for-potash/

Interesting talk from people in the industry on potash.From about the 10 minute mark the talk is on SOP potash,the big gainers from that would be K+S and Intrepid.Mosaic produce but it wouldnt have as big an affect on them due to product mix.

I was lucky and picked ups ome interpid circa 75cents.

That looks very interesting.I need to get a better grip on potash.It's our only other significant invesment besides oil/gold/utilities.But it's not well covered at the mo.

Agree ref AAL and Siruius.Those big boys know.

I was dissappointed Potash Sakatchwan merged with agrium a few years back.

11 hours ago, DurhamBorn said:

I think the 70s provided the answer SP.Politicians are allowed to print by the Central Banks when the fear of unemployment is greater than their fear of inflation.Given where we are there is a fear of unemployment maybe even higher than the Great Depression (even if missguided) and no fear at all of inflation.Putting the two together as a contrarian it says we are going to end up with lower unemployment (always with a lag) and much higher inflation.

"At the surface level, the United States had a burst of inflation in the 1970s because no one-until Paul Volcker took office as chairman of the Federal Reserve-in a position to make anti-inflation policy placed a sufficiently high priority on stopping inflation. Other goals took precedence: people wanted to solve the energy crisis, or maintain a high-pressure economy, or make certain that the current recession did not get any worse. As a result, policymakers throughout the 1970s were willing to run some risk of nondeclining or increasing inflation in order to achieve other goals. After the fact, most such policymakers believed that they had misjudged the risks, that they would have achieved more of their goals if they had spent more of their political capital and institutional capability trying to control inflation earlier. At a somewhat deeper level, the United States had a burst of inflation in the 1970s because economic policymakers during the 1960s dealt their successors a very bad hand. Lyndon Johnson, Arthur Okun, and William McChesney Martin left Richard Nixon, Paul McCracken, and Arthur Burns nothing but painful dilemmas with no attractive choices. And bad luck coupled with bad cards made the lack of success at inflation control in the 1970s worse"

Does everyone see the above?,could it be today? "solve the energy crisis" "other goals" " "make certain the current recession doesnt get any worse"

If anyone wants to read a really good take on the 70s inflation that takes in the macro,but also the ducks that line up to create the conditions (both economic and political,and a lack of leadership) iv always thought this is the best on the subject

https://core.ac.uk/download/pdf/6483544.pdf

The more I look at where we are the more I see the staglfationary outcome we've discusssed.I have tried and tried to work out how we'd possibly go Japanese for 30 years but it doesn't really bear much scrutiny and I don't want to digress too much here.

Fear of unemployment and a lack of inflation is not suprisingly seeing the moeny shovelled into the markets.The reference to Volcker is typical of the 1% I was talking about .There was a guy who changed the game and the direction of the good ship Uncle Sam.A lot of thes epoliticains are tweaking the rudder but people like volcker are the ones we don't necessarily see coming.Especially after we've had Bernanke/Yellen/Powell.I ahd a view at the start of Powell's tenure that he might be a game changer but was disavowed of that pretty quickly.

The issues I'm stuggling with QE are that if the intent is to lube the machien to buy equity,wouldn't we be seeing some kind of loosning of solvency ratios in pensions funds? I've never really understood how pension funds have got this far without blowing up.Especially some of the 'special' legacy pension funds eg BA...BT...??

Addressing the poitns in bold,they raise a couple of important points that I need to consdier.Fristly,room for manouvre.There's very little.At the moment,the CB's are boxed in,times aren't desperate enough for a severe change of direction,so 'print n push velocity' is what theyll do and we'll jsut get the print bit with velocity on the floor.

The main issue that will concern them here is unemployment.Volcker wasn't dealing with a huge cedit deflation that we're facing today.

Reality is that to me the CB's have badly judged velcoity/what drives it/and the fact that it's the primary driver of inflation imho.On top of the fact that they conceive of infaltion as a monetary phenomenon.

We're setting up for a real sh1t show down the line.

 

[sancho panza]

6 hours ago, Fully Detached said:

I listened to the James Ferguson podcast - I think he's answered my question as to why we had such a drastic and sustained stimulus response to covid-19, in that CBs worldwide were failing to stoke inflation but had no excuse to turn the hoses on. Along comes a variant of the common cold and bob's their uncle.

He seems to be looking at a much shorter time frame that DB and others on this inflation kicking in, i.e. 6-12 months. His main reasoning is that this time around a lot of cash has been put directly in to people's pockets, they haven't been able to spend it, and the banks basically now need to lend lend lend. The only thing I didn't hear him say was that the banks wanting to lend is meaningless if people are losing their jobs or scared of losing their jobs.

Anyone changing their opinions on the time frame? I'm starting to wonder if now is the time to go and buy a bastarding house and finally accept that there's fuck all point trying to be responsible and think logically, when instead I could put a (shit) roof over my head and just deal with whatever happens afterwards.

The thing that defines a proper debt deflation is the fact that there's a hgue drop in demand for credit.

Govt can print as much as it wants,if people don't want to borrow,then stimulus won't work as intended.

[sancho panza]

4 hours ago, Festival said:

DB you talked earlier about fear of what happens at the end of the next cycle when inflation is double digits and precious metals no longer protect wealth. Given the dollar will have fallen significantly over the next cycle what stops son of Volcker going in and crushing the inflation as per last time in the early 1980s. Wouldn’t the trade then be back into US bonds as per 1981? Or is it the total debt to GDP that’s the problem or something else such as geopolitical realignment that’s driving the worry. Sorry I must be missing something obvious 

THis time round they might be crushing employment as well as inflation

[sancho panza]

2 hours ago, DurhamBorn said:

Yes the problem is the debt will be so high and we could see complete currency collapse.Its too far ahead,but the end of the next cycle looks terrible.So far this one has followed the macro playbook and the CBs have responded as expected.So we were right,but still hinged on the CBs right sizing things.

WHen you look atnthe govt and private debt levels put togehter,it's eye watering how much is owed even compared to teh 70's/GD1 .Volcker wasn't facing thsi.The CBers of the next decade are going to face an even tougher balancing act.

[Harley]

5 hours ago, Fully Detached said:

I think maybe something to watch as far as inflation goes is how far the govt will go to persuade people to borrow. If they start unveiling more schemes to help distressed borrowers avoid repercussions, then they're effectively telling people they can borrow with impunity. It was interesting to see Nationwide say yesterday that borrowers making use ot the extended mortgag holiday ought to have a mark on their credit file for it. If the prevailing narrative goes that way then they might be pushing on a string. If it goes the other way, then why wouldn't people borrow 300k for a 2 bed terrace in shitsville - it's not their problem if they don't have to worry about paying it back.

They will go fiscal mad.  They started with the £50k loans (to be written off), etc and do not care about fairness, winners, losers or the principles on which a lasting currency is based (store of value, etc).  They just want to pump money into the system, increase velocity, and have inflation.  They will continue their new regulatory zeal to make people spend until almost Weimar like, people need no encouragement.  Cash, Sterling particularly, is trash.  Has been particularly since 2008 but this is an escalation.  They will have inflation and yes, soon.  But liquidity is not solvency and this money printing virus will rip through the economy destroying good and bad.  I last felt like this in 2009 and with QE.  I said then cash was trash and I was right but stupid not to act enough.  I face this same danger again.  It's hard to act but at least, having already suffered this last decade, I'm totally clear.  This is the end of "money".

[Harley]

16 minutes ago, sancho panza said:

WHen you look atnthe govt and private debt levels put togehter,it's eye watering how much is owed even compared to teh 70's/GD1 .Volcker wasn't facing thsi.The CBers of the next decade are going to face an even tougher balancing act.

Per Napier, we need to be looking at corporate debt too.  Indeed arguably instead of the others.  That's ground zero this time.  Borrowed money, inflated stock prices through buy backs, inflated asset values, inflated dividend payouts, inflated executive compensation, and zombification.  That folding deck of cards could be epic.

[Harley]

10 hours ago, Shamone said:

Great Scott he’s put a real downer on my Saturday.

He's saying similar to many other key people.  Only the timelines differ.  We will have a credit deflation and monetary inflation, potentially overlapping, even coterminous.  Regulation will determine the shape of things to come as much/more than the usual past dynamics.  Covid was, is, and will increasingly be about regulation.  Same in the financial markets, as far as we are concerned.

[JMD]

15 hours ago, sancho panza said:

99% of the time it's a function of the economics.it's the 1% I'm interested in when a poltician pressed the override button and either carried on printing or doesn't.

It's a moot point at hte minute.we know what's going to happen for the next few years,I'm jsut interested in the political margins for movement

Yes SP, the macro environment, it's causes, the policy response, and it's effects are all baked in. And as you comment it's the political margins for movement that are interesting to gauge. So yes it is not about left/right politics, nor is it the mere counting of angels on the head of a pin...                                                                                                                                                                Instead I'm reminded of the first Russian Revolution in March 1917 (bear with me!,), where If Kerensky had pulled Russia out of the 1stWW, would the 2nd Revolution in October when Lenin took charge, have happened? After all Lenin was only allowed out of German exile because the Germans hoped his policy to get Russia to sue for peace with Germany would succeed. I guess Russia would have still gone communist even without the psycho Lenin in charge (not to mention Lenin's henchman, the even bigger psycho Stalin) but perhaps Russia might not have gone completely rogue - so maybe no cold war, and so maybe this allowed scope for the US to neutralise the China threat by using it's 'Central America infiltration tricks' within China to stoke division and collapse. Perhaps ultimately if Kerensky had used his own 1% political margin, the world today would be a lot safer? A lot of ifs and maybes, but I believe history turns on these type of small margins... isn't this called the butterfly effect?

[DurhamBorn]

8 minutes ago, Harley said:

They will go fiscal mad.  They started with the £50k loans (to be written off), etc and do not care about fairness, winners, losers or the principles on which a lasting currency is based (store of value, etc).  They just want to pump money into the system, increase velocity, and have inflation.  They will continue their new regulatory zeal to make people spend until almost Weimar like, people need no encouragement.  Cash, Sterling particularly, is trash.  Has been particularly since 2008 but this is an escalation.  They will have inflation and yes, soon.  But liquidity is not solvency and this money printing virus will rip through the economy destroying good and bad.  I last felt like this in 2009 and with QE.  I said then cash was trash and I was right but stupid not to act enough.  I face this same danger again.  It's hard to act but at least, having already suffered this last decade, I'm totally clear.  This is the end of "money".

Yes,they are simply pumping liquidity.Those £50k loans free money to any Ltd are the real disgusting bit.A factory worker might get that in his pension after 15 years of graft.They are destroying the connection (what was left of it) between working and not.Im thinking 25% inflation is now a real risk by 2028/30 and above 12% almost certain.The key is though that they are walking into a trap.As soon as inflation gets over around 4% the BOE will stop printing.The FED will likely stop when around 3%.Thats the point the squeeze starts to bite on the government.They have a 12 month window on a lag.

For myself iv got the whole family covered now and have been very happy with the turn so far,though any messing with the pension age for SIPPs would hurt going forward as my assets are now weighted to my SIPP.

We have a situation where the half of the population who are fleeced to pay for the other half are about to be rinsed.The government will simply ramp spending up and up.There is no other way out for them.

My prediction is that a 40/60 or 20/80 pension entering drawn down from next year with 2% fees and 4% draw down will empty to nothing over 10/12 years.

Commods will keep up and more with inflation due to the structure of the coming cycle,and its critical for people to own the areas that can leverage those assets.

Im really missing being able to buy the likes of SILJ and URA as well.Mid cycle is going to get very interesting as mortgage rates get to 5%+,every HTB without over payments is in negative equity and on SVRs and the CB are trying to pull back inflation,but due to massive leverage in the economy are behind the curve all the way.

Sterling could put on 10% though before it heads lower again.Never linear.

[Harley]

People need to understand we are standing in a burning building.  Not a smoking one, a burning one.  There is no fire brigade this time.  No amount of insulation or wet towels can protect you forever.  Get out of the building?  Do we know where the outside is and what it looks like, and where the exits are?  Or are we hypernormalised to the point of being frozen on the spot?  This is first and foremost a massive mind game with much more to follow.  Covid was week one of basic training for the financial rollercoaster to come.  If there ever was a time for personal strategic thinking it's now, indeed yesterday.

PS:  Just look at the regulations they have imposed in dealing with CV and how easily they got away with it.  Does anyone really think they could not do the exact same financially.  And worse, they are emboldened.  Is there anything that we take for granted and fundamentally rely on that they could not change on a whim?  That's the future I see.  We have nothing unless they let us.

[Harley]

46 minutes ago, DurhamBorn said:

Yes,they are simply pumping liquidity.Those £50k loans free money to any Ltd are the real disgusting bit.A factory worker might get that in his pension after 15 years of graft.They are destroying the connection (what was left of it) between working and not.Im thinking 25% inflation is now a real risk by 2028/30 and above 12% almost certain.The key is though that they are walking into a trap.As soon as inflation gets over around 4% the BOE will stop printing.The FED will likely stop when around 3%.Thats the point the squeeze starts to bite on the government.They have a 12 month window on a lag.

For myself iv got the whole family covered now and have been very happy with the turn so far,though any messing with the pension age for SIPPs would hurt going forward as my assets are now weighted to my SIPP.

We have a situation where the half of the population who are fleeced to pay for the other half are about to be rinsed.The government will simply ramp spending up and up.There is no other way out for them.

My prediction is that a 40/60 or 20/80 pension entering drawn down from next year with 2% fees and 4% draw down will empty to nothing over 10/12 years.

Commods will keep up and more with inflation due to the structure of the coming cycle,and its critical for people to own the areas that can leverage those assets.

Im really missing being able to buy the likes of SILJ and URA as well.Mid cycle is going to get very interesting as mortgage rates get to 5%+,every HTB without over payments is in negative equity and on SVRs and the CB are trying to pull back inflation,but due to massive leverage in the economy are behind the curve all the way.

Sterling could put on 10% though before it heads lower again.Never linear.

Sterling will continue to lose the international competitive monetary debasement game more than most.  Some currencies will be seen as relative safe havens while others will be backed by resources.  We have neither to offer and will get crushed further over the intermediate to long term.  Remember the graph of UK house prices in gold.  We are already well along that path.  Getting out of sterling is one of my key goals.

The world is your oyster if you know where to dive.  But ETFs could make you sick!

Commodities are showing signs of life, at least the ags and of course oil atm.  But they are not long term plays in terms of the available instruments so that leaves producer, etc equity (aka GDX v Bullionvault). But learning to trade commodities could be a good move.

Bonds may eventually be rubbish, especially sterling denominated ones, in any form.  But will we be permitted to not hold them in our pensions, etc?

Pensions and ISAs are all that are left to fleece.  Most people cannot afford further property taxes and salaries have already been collapsing for most with more to follow.  They will however not be enough so more money printing.  But watch the ramped anti boomer ageist stuff, as so well articulated by some less aware types here on DOSBODS, to provide cover for the pillaging.  The loves, what goes round comes round but a rabble needs feeding before it finally eats itself.  Plenty of historical examples, some more recent than Germany.

The connection between working and not will get more blurred as we move further towards serfdom.  Employment will comprise the gatekeepers (plantation managers), robots (AI), and casual (aka irregular) workers (at the gatekeepers' discretion)  

 

[Harley]

Well I think I got most of it off my chest!  Just one thing before saying goodnight.  Effing understand and effing answer the effing exam question!  Goodnight!

[JMD]

8 hours ago, Fully Detached said:

I listened to the James Ferguson podcast - I think he's answered my question as to why we had such a drastic and sustained stimulus response to covid-19, in that CBs worldwide were failing to stoke inflation but had no excuse to turn the hoses on. Along comes a variant of the common cold and bob's their uncle.

I thought the Money Week James Ferguson podcast was excellent. Perhaps Ferguson is right and CV19 was a black swan type event that the CBs didn't let go to waste. It struck me as curious how that from the start the Italian doctors referred to the CV19 epidemic as them fighting a 'war'. I have mentioned several times here, my own cynicism and alarm over CV19, the over-the-top government policy responses, etc. However, if this pandemic 'is the war' (figuratively speaking), as opposed to having to endure a real hot war (re 4thTurning theories, etc, i.e. catastropihic event in order to generate mass social disruption, inflation), then I think I'd gladly take it!                                                                                                                                                                                                                                                                       And no, I don't think I'm being callous here as I believe that the so called excess deaths statistics will show that CV19 is no more serious than other Corona viruses. But if any of this is even part true, then I think it would be wise to spend much time anticipating the type of unique future societal effects, government policies, financial costs, geo-political/macro trends, that are sure to result from this health crises. 

[sleepwello'nights]

On 30/05/2020 at 05:10, JMD said:

followed by a succession of even more narrowly focused on domestic issues presidents, mostly or totally disingaged from international affairs. 

Uhh?

Can't square that with the turmoil the US created in the Middle East.

[Fully Detached]

7 hours ago, JMD said:

I thought the Money Week James Ferguson podcast was excellent. Perhaps Ferguson is right and CV19 was a black swan type event that the CBs didn't let go to waste. It struck me as curious how that from the start the Italian doctors referred to the CV19 epidemic as them fighting a 'war'. I have mentioned several times here, my own cynicism and alarm over CV19, the over-the-top government policy responses, etc. However, if this pandemic 'is the war' (figuratively speaking), as opposed to having to endure a real hot war (re 4thTurning theories, etc, i.e. catastropihic event in order to generate mass social disruption, inflation), then I think I'd gladly take it!                                                                                                                                                                                                                                                                       And no, I don't think I'm being callous here as I believe that the so called excess deaths statistics will show that CV19 is no more serious than other Corona viruses. But if any of this is even part true, then I think it would be wise to spend much time anticipating the type of unique future societal effects, government policies, financial costs, geo-political/macro trends, that are sure to result from this health crises. 

I've always like James Ferguson since I started reading Moneyweek way back when. His thought porcesses seem logical and consistent to me, none more so than in this podcast. He used almost exactly the same words as I put to my wife - if I could see back in March that the lockdown was an economic disaster being launched against a disease of relatively unknown severity, then the government and their experts could too - so why do it? I guess I was simply slow to catch on, but I believe I now have my answer. The question is whether or not they will be successful, or perhaps more accurately, how long it will take for them to be successful.

[Fully Detached]

8 hours ago, sancho panza said:

The thing that defines a proper debt deflation is the fact that there's a hgue drop in demand for credit.

Govt can print as much as it wants,if people don't want to borrow,then stimulus won't work as intended.

Yes, exactly - the bit in bold is the bit we don't know about yet. Common sense would say that nobody in their right mind would borrow in the upcoming climate, but given the covid-19 forgiveness trend and the never ending capacity for joe public to completely bewilder me, I'll be keeping a close eye on take-up.

[sleepwello'nights]

On 30/05/2020 at 07:54, jamtomorrow said:

 

Simply: exchanging your labour for compensation as the primary means of obtaining your needs and wants is coming to an end, and either the system is going to have to be reconfigured or it's going to have to get nasty (and then the system will get reconfigured anyway).

 

This is the reason why most of us go to work; human nature. I cannot see any alternative. Currently those that go to work are supporting more and more who have no work available or who choose to rely on the support of the taxpayer. This is breeding resentment. Hence the disparagement towards the benefit classes. It is also becoming recognised that benefits aren't just paid to the low skilled, the lazy or those gaming the system but also to the owners of capital. The complaints against BTL owners on here and TOS are recognition that housing allowances ostensibly paid to the benefit classes are in effect being paid to landlords, many of whom were wealthy in their own right long before the legislative changes to the rental sector in the 1990s.

The nature of work has changed in that there are more and more "service sector" non-jobs growing to fill the vacuum the disappearance of real jobs has left. 

Economists promoting a citizens income (CI) hypothesize that it can be achieved by making the population owners of shares in the productive companies and industries and that the CI is their dividend receipts. It might sound theoretically possible but history shows us that it doesn't work. The aristocracy in Rome grew their wealth from the exploitation of the populace. The widows of soldiers killed in wars couldn't survive on the land they owned and had to sell it and find other means of support. Over time two classes emerged the plebians and the patricians.

Communism was another attempt more recently that failed as we know. You pretend to pay us and we pretend to work. Money is an illusion but one we need.

I'd be interested to hear of a conceptual leap that overcomes the problems inherent in devising an alternative to exchanging your labour for compensation.

[sleepwello'nights]

10 hours ago, TheCountOfNowhere said:

Money, precious objects have never been worth anything. Power is the only real thing in our human world thats worth anything. You got any? 

Its money or precious objects that people will exchange their labour for that allows those with money to exert power.

Unless you're a total fruit cake and create a religion.