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

[Bobthebuilder]

Back in late 2007 i could see all this banking crises start to unfold, i had been reading the old K winter thread on tos and had my tunnel vision panic moment. I didnt lose any money through that crash apart from the loss in value of sterling but learnt a few big lessons, mostly about controlling the fear, my scuba diving that i was doing at the time had helped a lot with that. Fast forward a year or so and i was visiting my Sister, her hubby was about to lose his business and i could see the same fear in his face. All i told him was to learn from the experiance (you are not rich with the big house and cars if you have only 2 months money in the bank). Anyway it turned out alright for them in the end.

I am wandering a bit, sorry, but we all need to control the fear going forward and as Harley has often said find ways to minimise our exposure.

Thanks everyone, amazing thread this.

[DurhamBorn]

When i was 17 i went for a job with Lloyds.I think the day was in Newcastle.Tests and interviews etc.Lots of very posh young people.During the interview bits you could almost feel the way they looked down on you being working class.It was a horrible experience.I had a very good understanding of finance,id been buying shares since i was 14 etc but that counted for nothing.

They will be bailed,but not the same as last time.The CBs are monetizing government debt this time,not banks.

During the mid 2000s i was seeing a woman who had a very good job.She had built up £100k of debts and just went bankrupt.Wiped away.Today she still has that very good job yet has had £100k free money.Not from bank bondholders,but from taxpayers.The whole thing stinks,but it suits the elite.

[sancho panza]

48 minutes ago, Bobthebuilder said:

Back in late 2007 i could see all this banking crises start to unfold, i had been reading the old K winter thread on tos and had my tunnel vision panic moment. I didnt lose any money through that crash apart from the loss in value of sterling but learnt a few big lessons, mostly about controlling the fear, my scuba diving that i was doing at the time had helped a lot with that. Fast forward a year or so and i was visiting my Sister, her hubby was about to lose his business and i could see the same fear in his face. All i told him was to learn from the experiance (you are not rich with the big house and cars if you have only 2 months money in the bank). Anyway it turned out alright for them in the end.

I am wandering a bit, sorry, but we all need to control the fear going forward and as Harley has often said find ways to minimise our exposure.

Thanks everyone, amazing thread this.

I agree that it's good to test yourself with stress and fear.Enables you to keep the lid on when the shtf.Paramedicing has been good for me from that perspective.There's been a few moments when I wisehd the ground would swallow me up but you coem through it.

38 minutes ago, Cattle Prod said:

That's my general view, a basic utility. They aren't actually a business, beyond that function, and should be paid accordingly. Everything else flash you see is a product of parasitism and doomed to fail. Thanks @sancho panza, hair raising stuff.

That was my view too.

4 minutes ago, Cattle Prod said:

Dollar down hard against the Euro today. After announcing another 600bn euros to print, I'd have thought it would be the other way around? How on earth could that make the Euro stronger? Is it because that somehow makes the Euro area stronger, and a better bet? The Fed will have to catch up in that case...

96 handle on DXY........gold msut be getting sprung back.

[DurhamBorn]

1 minute ago, Cattle Prod said:

Dollar down hard against the Euro today. After announcing another 600bn euros to print, I'd have thought it would be the other way around? How on earth could that make the Euro stronger? Is it because that somehow makes the Euro area stronger, and a better bet? The Fed will have to catch up in that case...

Leads and lags ,dollar should go below 90 looking at liquidity profiles.I havent put 100% effort into it as iv been more concerned on tweaking investments,but thats what i see.At this stage of a cycle (the end,or the beginning of a new one) systemic risk is at its greatest.If they dont right size things go to zero.Its why i was so interested in that 100 mark on the dollar.Fed had to go hard until it fell away from that.Above,everything was about to unwind.As soon as the Fed was rightsizing that 100 level kept and that was where risk assets rallied.Euro isnt rightsized yet ,they have just removed a lot of systemic risk.Fed has $10 trillion to go i think,maybe more.1/3 done.

[Loki]

What a great idea @Cattle Prod, mind gaming different scenarios to help understand this one better.  I'm looking forward to seeing the replies from the big brains. 

[DurhamBorn]

1 minute ago, Cattle Prod said:

So let's pretend the blasted virus never happened.

The CBs of the world would not have printed any of this money (is anyone doing a running total?) until they had an excuse to do so. Like a bog standard stock market crash in October. However they have not let the chance go a begging, the "Pandemic Emergency Purchase Programme" says it all. As you say DB, they are trying to do what they have long known what needs to be done. It's not evil per se, and I'm sure all the people on furlough would agree. My question and thinking is forward looking. If we have printed x amount (1/3, you suggest), with another 2/3 to go, are we already part way through the debt deflation, and thus reducing the impact and severity of the Big Kahuna? I mean they are monetising debt, so cutting the legs off deflation already. They are even monetising corporate debt, and looking at the tenuous reasons people are now rioting over, they are probably going to somehow monetise consumer debt too. So how bad can the Big K be?

If it's sector rotation, fine, us lot have already been through it. If the FAANGS need to hit single digit PEs before bottom, perhaps it will be a long, slow affair, just grinding down as people begin to see them as utilities (which they are, really), and get excited about the hot new sexy commodity arena (the movie Trading Places was framed around commodity futures, must have been water cooler talk then and taxi drivers advising you on pork bellies!). I can see the conversations now "Oh my God I mean, it's finite! They're not making any more of it, how could I lose?!"

I understand we are in a confusing part of this phase change, and you probably don't have clear signals yet. But I thought I'd try and stimulate debate on this, it's the one big unknown left for me.

 

The debt deflation is two sided.One side is the private sector de-leveraging and the other side is the state and CBs issuing.The interaction is the key.At the moment the CBs are just ahead of things.Lots of companies will go under,but listed companies might mostly make it,but issuing equity.I still think we will see another big drop in the equity markets,but a lot could be sector rotation.Amazon is worth 50 Telefonica's for instance.6% of Amazon would buy you Telefonica,BT,Vodafone and Telia.The fact Amazon raised $10billion in debt the other day is telling.They must be looking at targets,but people wont accept Amazon stock in payment.

My approach has been to take a few profits and slowly build up some more cash again.Im also very happy with the prices iv paid for what im holding apart from a few disasters as always.

If the governments and CBs turn off the liquidity any time soon we will collapse and they will have to engage again to infinity.I really like the idea of keeping invested in de-complex areas and keeping the eye on the longer term likely structure of the cycle.Inflation is certain,high inflation is certain.From here to there is fuzzy,and in lots of ways we simply have to live with that.The perfect scenario would be a fall on sector rotation into reflation/value/pm areas.Its always the most difficult time in an investors life.Getting the falls right and being mostly cash and the right areas then buying heavy at the first bottom,then making fantastic profits only to think is there another even bigger leg down?.There might be yet.

[Shamone]

On 02/06/2020 at 19:13, SillyBilly said:

One thing I am very interested about is how Joe Public will react if markets do completely distort relative to the pain on Main Street. It won't be a good look, at all. We had Occupy Wall Street last time out, what is to come this time around? 

You can't print an economy over night, the thrust of this thread so far as I understand it is a gradual transition and a move from disinflation to inflation. That doesn't account for the sharp effect this will have on jobs and living standards in the immediate term. I think we could see interesting headlines if twice within 15 years the "rich" are seen to escape unscathed from a major economic shock while reports of stocks surging to new highs each month under a back drop of record lay offs. It would be interesting to discuss this because how do the government control the narrative here? They can't print an arc furnace tomorrow, furloughing will have to end not least because those non-furloughed will not tolerate it. Interesting times. 

Joe pubic will do nothing, the same as they always do and the reason they will always be slaves. Possibly they will fight each other over some scraps. A touch of looting.

[Bobthebuilder]

1 hour ago, DurhamBorn said:

My approach has been to take a few profits and slowly build up some more cash again

Would that include oillies, tobacco, utilities profits? Not advice just interested.

[AWW]

5 hours ago, DurhamBorn said:

I had a very good understanding of finance,id been buying shares since i was 14 etc but that counted for nothing.

It's all about who you know, DB. I'm an IT contractor; I design and build algorithmic trading systems for a living. I've worked at probably ten different banks. The people in them are nothing special; in fact many of them are completely useless and I wouldn't employ them to clean my toilet. Come work experience fortnight, in come all the teenagers to get a Big Bank on their CV. Some of them are alright, but most are completely entitled and think they're far cleverer than they are. Then, after they've done the obligatory useless degree, they get their feet under the table in Sales or on one of the trading desks and get very well paid for doing nothing special at all. I could tell you (and the PRA) stories of incompetence and negligence that you would not believe.

I'm grossly overpaid compared to what I'd earn building platforms in any other industry.

Oh by the way, my "in" was via a software company I used to work for. And I still say "bath" rather than "barth" :-)

[nirvana]

15 minutes ago, AWW said:

I design and build algorithmic trading systems for a living

ooh that's an interesting and timely post lol

Do you just do these algos for 'in house' systems or do you go after clients 'stops'? And how do you do it?

PM me if you want, I keep secrets well 

[Majorpain]

Current Nasdaq bubble is making 2000 look like a minor event, very impressive!

[Shamone]

On 03/06/2020 at 14:05, janch said:

From the Telegraph article above:

 

"every measure restraining public behaviour should be examined for whether it really is necessary, bearing in mind that rules such as the two-metre requirement for social distancing are keeping millions of people from earning money and paying taxes. We urgently need to keep a lid on the recession we are facing. Restaurants, bars, shops, factories, tradesmen and offices are all hampered. If at all possible, they should get back to business. This matters not just for now but for the next decade."

 

The reason for all the absurd rules is because of Health & Safety and companies/organisations frightened they will be sued if anyone catches the dreaded lurgey.  The left have truely put a massive spanner in the works of the economy.

This. Went back to work Monday. Signs everywhere. Sanitizer. 2m. Reality? People close as normal. Bullshit as usual. 

[leonardratso]

41 minutes ago, AWW said:

It's all about who you know, DB. I'm an IT contractor; I design and build algorithmic trading systems for a living. I've worked at probably ten different banks. The people in them are nothing special; in fact many of them are completely useless and I wouldn't employ them to clean my toilet. Come work experience fortnight, in come all the teenagers to get a Big Bank on their CV. Some of them are alright, but most are completely entitled and think they're far cleverer than they are. Then, after they've done the obligatory useless degree, they get their feet under the table in Sales or on one of the trading desks and get very well paid for doing nothing special at all. I could tell you (and the PRA) stories of incompetence and negligence that you would not believe.

I'm grossly overpaid compared to what I'd earn building platforms in any other industry.

Oh by the way, my "in" was via a software company I used to work for. And I still say "bath" rather than "barth" :-)

peasant. hahaha, dont worry, they will be the first to be eaten come the apocalypse.

[AWW]

23 minutes ago, 5min OCD speculator said:

ooh that's an interesting and timely post lol

Do you just do these algos for 'in house' systems or do you go after clients 'stops'? And how do you do it?

PM me if you want, I keep secrets well 

My speciality is automated hedging of FX risk. It's not as complicated as you might think - speed is all.

[nirvana]

9 minutes ago, AWW said:

My speciality is automated hedging of FX risk. It's not as complicated as you might think - speed is all.

So I short cable, you take the other side of the bet? Or if it's 'big' you'll pass it on?......interesting IG just announced big profits...fleecing retail at the moment

Edit: will an ECN broker be more likely to pass my order direct to market? or do those robbers just take the other side of your trade too? 

[Shamone]

8 hours ago, Bobthebuilder said:

@sancho panza, Thank you for those bank posts, i really appriciate your hard work. Once again thank you for posting, very informative.

Seconded. Respect. Was thinking of a 500 squid punt on hsbc. It’s up a bit now, mind. You owe me a farthing or a couple of penneth.
 

[AWW]

41 minutes ago, 5min OCD speculator said:

So I short cable, you take the other side of the bet? Or if it's 'big' you'll pass it on?......interesting IG just announced big profits...fleecing retail at the moment

Edit: will an ECN broker be more likely to pass my order direct to market? or do those robbers just take the other side of your trade too? 

Nothing like that - simply managing FX risk resulting from other trading activities.

[DurhamBorn]

3 hours ago, Bobthebuilder said:

Would that include oillies, tobacco, utilities profits? Not advice just interested.

I sold 25% of Shell when they went over £14,mainly because id bought too many,had an average price of £11.30 and i wasnt happy with the holding size.I sold some of the transports i bought when they doubled as i think the nature of the crash might hold them back and be difficult for a few years.I sold a lot of ITV after bagging the bottom at 55p.I sold some Playtech (while keeping a lot) on just shy of a double as id bought a very big holding in the £1.70 area and it was prudent to trim.I sold some Royal Mail i bought at £1.22 simply to lower my loss on the ones i kept and several other trims.I also sold a few silver miners,some were up 150%.Iv put around 10 years living expenses into cash so if i want i can go the whole cycle without selling anything or having to force sell anything.Iv only sold BAT and Imperial once in my life and luckily it was close to the all time highs on both.Having bought them back at what i consider great prices (Bat under £25 and Imperial average £16.40) i doubt il ever sell them.I dont see them as fantastic investments anymore,but they have been very kind to me over the decades and i like owning them.

 

[No One]

On 02/06/2020 at 22:51, DurhamBorn said:

Remember that this thread started about a coming debt deflation.

Well how about the biggest paying off of consumer debt in history.?.How many in the MSM or anywhere else would of expected that.People in lockdown being paid furlough money and paying down their debts.

Notice BearyBear has already posted it above,worth a read.

 

I've done this. Next payment 0 debt.

[DurhamBorn]

https://www.dailymail.co.uk/money/markets/article-8389267/Bank-Englands-money-printing-set-hit-1trillion.html

They think £350 billion is coming,but likely £700 to £900 billion in total before they stop.

[Barnsey]

47 minutes ago, DurhamBorn said:

https://www.dailymail.co.uk/money/markets/article-8389267/Bank-Englands-money-printing-set-hit-1trillion.html

They think £350 billion is coming,but likely £700 to £900 billion in total before they stop.

https://amp.theguardian.com/business/2020/jun/04/bank-of-england-faces-calls-to-overhaul-restrictive-remit

[Bricks & Mortar]

Aussie Government grant aid for house building and renovations. 
Pretty much my wildest dream come true, if not actually in my own country yet.
https://www.theguardian.com/australia-news/2020/jun/04/who-is-eligible-for-homebuilder-grants-and-how-much-will-they-have-to-spend

[DurhamBorn]

7 hours ago, Barnsey said:

https://amp.theguardian.com/business/2020/jun/04/bank-of-england-faces-calls-to-overhaul-restrictive-remit

"Lyons said inflation was gong to remain low for a long time and so would interest rates. Inflation in April tumbled to 0.8%, its lowest level in four years, as the demand for goods collapsed during the lockdown."

 

I love these people,a complete miss-understanding of the macro situation.Demand for goods have collapsed,but that is transient.Notice how they are all now saying they should aim for 4% GDP growth after inflation and remove the 2% inflation target.They are all falling into the 70s trap as expected where they fear unemployment more and think if inflation goes a little over 2% its easy to control after.I love the way they think the BOE controls interest rates.They do around the margins,but the US long bond is a magnitude more important.

I really love how the cycles and the macro make people think certain ways without understanding why.Its fascinating.Long may it continue as we are making out like bandits 

[DoINeedOne]

So apparently they are sending stimulus money out on pre paid cards in America easier to spend than save it 

https://www.eipcard.com/

 

[DurhamBorn]

6 minutes ago, Cattle Prod said:

Oil is due a pullback. The trigger will be news of shut in production in the US coming back on stream, or OPEC disagreement. I really hope it does, it's necessary for a healthy bull market. I have no issue with shut in production coming back on (and there are rumblings that it has already started). This will keep a lid on new frac and drilling activity, which is far more important to keep down. I don't want to see rig or frac spread numbers bouncing back for a few months yet. If shut in production coming back keeps a lid on things for a few more months, then natural decline rates will hobble shale once and for all. The lost production will never be caught up, and the perception of infinite shale supply will change. This is far more important in the medium term than the short term volatility we are likely to see soon.

Yes and for the full bull we want the narrative to move away from the US being energy self sufficient as it will help push the dash for assets elsewhere.We want the bond markets to be wary of funding carbon energy projects as well.I would assume the US frack industry would be losing money below $50 without any expansion capex?