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

[nirvana]

4 minutes ago, Harley said:

Yes, apparently it shows the S&P has risen by the same amount as the money printing!

quelle surprise! 

[SillyBilly]

Can't quite believe I am saying this but tempted to buy back into silver on Monday after some more reading. Was pretty bearish short term after the recent highs. Still expect a big pull back is coming as expecting the FANGs to fall over at some point, I like the idea of sector recalibration though as I am liking my new look portfolio for the next decade. I actually want to go lower, paper losses don't bother me at this stage, I'd like more time to raise cash. First Majestic has pulled back c.12% from when I sold on Monday, I can buy it back with a 10% larger holding on Monday + another £4k. So mulling that over tomorrow,  I like a punt too much , 5 days out and already itchy feet. Slight relief to see my Shell holding almost back in the black, I was about £10k down on that as put a big wedge in the March halfway between the top and the bottom so timed that too early. Am in the CattleProd camp though that we have to expect another pullback from here so am again hoping we get another drop back and I can top up some other oilies to finish my exposure, too much in Shell to average down further, I think that share will be moved into the "never sell camp" anyway. Thanks to Count for the Schlumberger heads up by the way, practically struck at the bottom there and sold last week as I almost doubled up on that with quite a nice holding. Would like to buy it back but will see. 

[DurhamBorn]

10 minutes ago, SillyBilly said:

Can't quite believe I am saying this but tempted to buy back into silver on Monday after some more reading. Was pretty bearish short term after the recent highs. Still expect a big pull back is coming as expecting the FANGs to fall over at some point, I like the idea of sector recalibration though as I am liking my new look portfolio for the next decade. I actually want to go lower, paper losses don't bother me at this stage, I'd like more time to raise cash. First Majestic has pulled back c.12% from when I sold on Monday, I can buy it back with a 10% larger holding on Monday + another £4k. So mulling that over tomorrow,  I like a punt too much , 5 days out and already itchy feet. Slight relief to see my Shell holding almost back in the black, I was about £10k down on that as put a big wedge in the March halfway between the top and the bottom so timed that too early. Am in the CattleProd camp though that we have to expect another pullback from here so am again hoping we get another drop back and I can top up some other oilies to finish my exposure, too much in Shell to average down further, I think that share will be moved into the "never sell camp" anyway. Thanks to Count for the Schlumberger heads up by the way, practically struck at the bottom there and sold last week as I almost doubled up on that with quite a nice holding. Would like to buy it back but will see. 

Its amazing how plans change quickly around the edges.I bought good sized holdings in the transports near the bottom but have sold 3/4s of them after a double in National Express and Go Ahead.I still like the sector for the cycle,but the structure of the collapse worries me that if governments pull support they could really suffer.I bought some National Express back after they dipped to £2 but im in effect running them free now.I re-allocated more into the telcos,hence them being slightly higher than oil in my portfolio now.

Those FANG stocks and many similar look insane prices.Amazon needs to get to $90 billion free cash flow within 5 years to justify it.

[janch]

 

@RaoulGMI

·

2h

 

I don't see YoY GDP growth globally rising above zero for the rest of the year and even well into 2021. Stocks don't care for now, or at all (I have no position and haven't since late March), but the risks of solvencies will very likely rise over time.

 

 

Maybe he's put it all into BTC and or gold or maybe he's so rich he doesn't want/need to participate............but this slightly worries me.

 

He's very bearish about the economy in general worldwide because of CV19.

 

Does he think it's all going completely pear-shaped?

 

 

As far as I'm concerned the FAANGS /S&P can crash all they like but my FTSE shares need to be left alone.

[Loki]

5 minutes ago, janch said:

but the risks of solvencies

what a perfect typo for credit clownworld

"Knowingly trading while solvent" 

[Harley]

1 hour ago, 5min OCD speculator said:

I personally believe when this 'explosion' happens it'll take all markets with it, oil, gold, silver, crypto just like it did in Feb/March but willing to listen to arguments to the contrary?

I've been watching this with interest.  Always do, each "crash", as it shows what's under the covers by where people run.  Everything (particularly the successes) goes down due to the need for liquidity, signalling significant trading on leverage.  This is a clearing event and more akin to "noise".  It's like the receding sea before the Tsunami where you get to see the true ocean floor.  It particularly gives you an idea of the extent of leverage and (with a big inter alia) possible future capacity. 

Things like PMs usually sell off as they have been accumulated in the run up to the crash (early risk off).  They serve that purpose.  They are (tellingly) often equity based (e.g. ETFs and to a separate drum beat miners) and not true physical.  Physical (the underlying) is another world being more the preserve of retail (including big) investors (and wow if that ever changes, silver potentially apart).  Moving to true physical for the institutions requires a more fundamental change in approach (a big deal internally) and is typically more likely to be done by their clients so the lack of that signals a degree of continuing faith in the markets.  Intriguingly, the financial markets can dictate any price it likes to the physical (e.g. PM) markets but that is just on paper and does not often always make it so.  Look at physical PMs and oil.  That's something to spend a little time thinking on (i.e. life outside the burning building).  IMO the time to buy PMs is to average in on sunny equity and (importantly) sunny Sterling days and the time to sell is, atm, never.  And maybe the time to buy BitCoin is on sunny regulatory days.  It just emphasises the need to be forward looking, to have a plan, and in the face of all the noise, to stick to it albeit with a degree of paranoia about doing so. 

Once the boat has steadied miners tend to do better than the underlying up to a point where they fade to the underlying.  Floods of printed money psychologically distorts everything short term but we seem to be having some normality atm with risk on (equity) versus risk off (PMs and bonds).  But PMs may just be in a pullback and climbing a wall of worry like last time.  We currently have sunny days, even if TPTB are making the weather by spraying the markets with a toxic chemical.  Watching where that money goes, and does not, is also interesting.  It further tells you what's going on.  For example, I'm surprised by the relatively poor performance of my renewable holdings.  Is that a worry about their debt profile, a search for more resilient value based equity, or what?  All this printed money is making the market (boat) top heavy, prone to increasingly frequent rolls, and will one day capsize.     

In short, there's the immediate, intermediate and long terms.  Each has it's own drum beat and perspective.  Yes, they all go down in the immediate term, except maybe in reality those disconnected from the finance machine.  What happens next is the fascinating bit if you have the time to look.  The lights come back on but usually something happened in the darkness and things are just a little different.  IMO come the big one, the lights will come on again and the trading room will be mostly empty, no bid as they've all run off to be surrounded by their hard assets.  The financial markets are increasingly like social media - just a parallel and largely fake world with all sorts of drama when one world leaks into the other.

PS:  Solvency.  Forget index levels and liquidity.  Solvency.  That's the thing to watch and that hasn't really started.  Next is the "quick fire" elimination round!

[Harley]

4 hours ago, Wheeler said:

Not at all @Harley. One of the best things about this thread for me are posts that make me go away and think. It doesn't matter whether I agree with the points made or not, anything that has me mulling it over while out walking is a good post.

Good because I'm like a cold calling salesman waiting for that successful 100th call.  If I spurt forth enough I will eventually say something good and make me millions!

[Wheeler]

2 hours ago, 5min OCD speculator said:

what about the right wing 'free money' crowd of bankers who've just received a massive handout?

This massive inflation that will eventually feed through, what happens if it never gets reported properly? They've managed to 'hide' house inflation for long enough

Example, ok fuel gets really expensive but electric cars get pushed onto the masses so they just stop using 'fuel' in the 'inflation basket' 

The bankers will get their cut regardless of the mechanism. In the extreme, when all the money flows through the government then it will go to people and organisations based on political pull. The people who are bankers currently will position themselves accordingly.

The inflation point is interesting and makes MMT even more flaky in my view as the main indicator used to see if there is too much money will not work properly; the tap will remain stuck open. Once key goods like food get too expensive we will see societal collapse. The key factor will be costs of imports where all of the money printing will have an impact on exchange rates. The government won't be able to print more money to stay ahead; classic hyperinflation.

[Wheeler]

1 hour ago, Harley said:

I use a Floor versus Upside Fund approach to control risk and reward. 

I "borrowed" this idea when you wrote about it earlier! I split my holdings into base - key factor for it to be ultra safe, doesn't have to make a profit just hold its value for the next 10 years - and extended - take calculated risks to get some rewards.

I've merged the two portfolios together now but hold to the same principle by using weightings; keeping 12% in cash or equivalents is the safe part. I now look at the overall value and have warning zones to signal I need to move to safety, e.g. if I get a 40% drop from here I'd start to make sure I've taken the base part to safety. This way I can take a bit more risk with the safe part - I do love the miners!

[Errol]

3 hours ago, janch said:

Maybe he's put it all into BTC and or gold or maybe he's so rich he doesn't want/need to participate............but this slightly worries me.

I'm presuming he doesn't count holding bitcoin and loads of physical gold as a 'position'.

He's probably just talking about the markets.

[DurhamBorn]

https://finance.yahoo.com/news/mosaic-announces-paydown-revolving-credit-121500155.html

Mosaic took $400 mill from its credit revolver in March because it wanted $1billion in cash through the crisis,but has paid it back,because it has $1 billion now anyway.

So they are chucking off cash of around $400 million in two months in the biggest panic since 29.De-complex.

 

[leonardratso]

of course in another huge downleg, you know whats going to happen dont you? this board will flood again with 'its going to zero, sell it sell it all now we are doomed, doomed i tell ya!'

It will be like reading the rampers on lse or advfn, even as the nav spins to zero they ramp regardless.

[sancho panza]

On 04/06/2020 at 17:22, Cattle Prod said:

My missus wondered why corona didn't bother me in the slightest. I said "you know my Dad, and my hair raising childhood, this doesn't even register". Like being on the Atlantic in a 14ft boat with a broken outboard cord in your hand, watching your overweight old man rowing into a decent force 6 trying to make it to the headland, no phone, radio or flare, with night falling. That is formative 

 

I'd have crapped myselfI'm a big fan of a couple of moments of absolute terror/fear in terms of life expereince as it can really change how you view things particualrly adversity.Key thing is that you physically make it to the other side obviously.

 

On 04/06/2020 at 17:45, 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?

 

I think there are real issues arising with the market mechanisms available to the CB's.Until now they've been able to manufacture growth via QE/ZIRP where money gets handed to banks who lend it out.

The issues that could arise with this stem from the paper I recently went rhrough and the sheer degree of leverage within the system making it highly likely that at the crucial moment,some of the banks may do what Brisith consumers did recently and start harboruing cash.If that happens then the best intentions of CB's would be undermined.

In itself,it reinfocres the logic behind DB's theis that teh govt will print into the economy.

They will stimulate,we know that from the history of the last twenty years,quite how successful they'll be we don't know and how much damage they'll do,again,we're guessing.AS you say they're trying to cut the deflation's legs off.They're active in the junk bond markets ffs.I'm unsure of the answers as I'm still trying to get my head around the underlying structural problems.I think the Big Kahuna will be huge and will involve some systemic risks from both govt debts defaulting and/or substantial private debt defaults.Fed and CB's seem to think liquidity can solve a solvency crisis.

But I was sent the Dimartino Botth clip as below and it hints at a few of them.

Rough precy of her views.

6 mins-discusses Jay Powell,how in 2012 he was the only person talking about normalising policy at the Fed.Hopes were high on him coming in but within a year or two,it appeared that he'd begun to feel that the problems were way bigger than he'd realsied and started following the ways of his predecessors.

14 mins-Fed has a 1000 Econ Phds ,mostly Keynesians who believe models can solve everythign ie that pritnign moeny can create jobs/cashflow.

19 mins- two America's developing-60% of those on unemployment are making more than they did before the pandemci.The poor and wealthy getting looked after.

22 Middle classes getting shafted. @JMD and discussion on Russia 1917...DDMB talks about thsi being fertile ground for revoltuion when middle classes get screwed over. Middle classes have no politcal representation any more.

24 mins-inflation inbound as wages need to rise.

26 share buyback crisis-buybacks have sucked up capital.1% have made off.

30 mins-recent polcies have allowed c suites to restrict flow of moeny to 99% hence recent politcal results eg rise of Trump and Sanders.Leverage everywhere..

34 mins-Fed has stepped up systemic risk,During recent crisis in March the UST market sturggled to get buyers which meant Fed stepped in and bought some junk bonds as those markets were totally broken.

41 mins- defaults are going to come.

On 04/06/2020 at 18:45, DurhamBorn said:

 

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.

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.

The interaction will be absolutely key and whether the CB's can delvier the liquidity in the right shape and size without doing any damage.Having said that,I'm jsut not sure they're capable of modelling the way the banking system will behave in a crisis.The evidence up to now doesn't fill me with confidence.Even besides the fact that they're mdoels are based on some clearly dodgy fundamentals,there are a lot of moving parts to model that are run by people who are ultimatley human and prey to emotions such as fear and greed.

Watching DDMB above,pretty much confirms to me that we'll be going through some major defaults in the next 5 years.The logic is very strong.Even with huge liquidity injetions,the risk of default remains elevated.

AS per your last bit in bold,I really think that's the only solution I can see working rationally speaking..Decomplex trades and sit tight till the situation clears some.This is going to be an epic mess.

 

 

 

[sancho panza]

On 05/06/2020 at 15:26, Cattle Prod said:

Seriously? That's just noise, like all the other noise you run your red line through. It may flatten and uptick, but you can't tell yet. As you said, the time to buy was 8 weeks ago, and I put up fag packet version of that for the forums benefit around then, with projections, which I'd made my buying decsions on. It wasn't perfect, it turned out more lognormal than normal, but near enough. The virus may well come back, but friendly advice is to try and get ahead of the curve, not the tail end!

Today is fun, I've topsliced SLB XOM and a few others, and bought Barrick, GDXJ, SSLV and a few others. Dyodd, enjoy!

WE're redeploying soem SA PM miner proceeds from GFI/HMY into NCM,BVN,NGD and anything lese looking reasonable in that space.Hoping for some more downside tbh.

Interesting to see if Newmont has topped here on the monthlies as it's had a decent pullback jsut like 06-08 when it peaked first by some distance.

Can't say I'm ready to part with oilies yet but hsi run up does mean some cash needs raising.

On 05/06/2020 at 18:36, Errol said:

Beyond that, there’s not much to say about this report. The numbers as presented are astonishingly implausible. It’s an insult to everyone’s intelligence for the Government and the main stream reporters and analysts to think that anyone with two brain cells to rub together would find this report believable.

https://investmentresearchdynamics.com/through-the-looking-glass-employment-report-fraud/

Well worth the read thank you.It's totally understandable that the BLS would want to massage the figures.

[sancho panza]

 

On 05/06/2020 at 22:12, Wheeler said:

I use the stocks app supplied by Apple to look at the prices of various stocks and they added curated news to it in one of their updates. I hate this and wish I could turn it off. One thing that is useful (to me) is that you often get contradictory articles from the same source but several hours apart. For example from Bloomberg saying FTSE rises due to government policy alongside another saying FTSE falls due to government policy but separated by a few hours. It just makes me realise that the vast majority of financial "news" is complete bullshit and should be ignored.

I added a bit in March but I was put off by second guessing my plan that I'd formulated over the past couple of years. I don't want to blame any of the negative posts but they did influence me a bit to think I should have sold in January. I've always been a non-contrarian so changing my mindset is quite a struggle. I've got a plan but I struggle to make myself stick to it!

Today is a down day for me as I'm heavily into the PMs and miners but I'm trying to think of it as an opportunity to add to my miners even though I'm heavily into them! At least I'm still substantially up on where I was 2 years ago, and with 2 years less life to spend it!

Must say,with each downdraft I'm looking at moving more into PM's here.With everythign that's happening PM' s look like a good spae to be in.

I really liked your driving analogy which sums up beautifully some of the problems the Fed is going to have right sizing what they do from hereonin.

On 05/06/2020 at 22:57, Sugarlips said:

Can you remind us DB are you using the spray and pray strategy with the silver miners or is it buy the one with the most Oz in the ground?

I've got a pretty comprehensive list of Aussie silver mines here, I'm just paralyzed by the choices, do I average in to a few and hope a rising tide will float the dogs as well 😁

https://smallcaps.com.au/silver-stocks-asx-ultimate-guide/

The smallest ones will run last whether in the run up the big K or after,but when they run,they will go hard.I msut say SL,I'll be runnign my old slide rule over that list you've provided .I have a felling the AUD will do badly from ehre,which for those selling in USD will be super

On 05/06/2020 at 23:09, DurhamBorn said:

I mostly buy ones that were beaten down and have the biggest beta to silver.They hammer you hard if silver falls,but outperform if it runs.I dont care about crap management,crap reserves,floating extra equity etc.I do like them to have big exploration prospects,simply because in a bull people start to big up prospects as if they are already mines and if a few do hit during a bull they multi bag.I dont go into a lot of research into the sector into indivudual companies,i spend about 15 minutes looking at each one.In other areas i spend a lot of time.Truth is if silver runs i expect some 3x in the short/mid term,and maybe a few 10x to 50x in a full cycle run.Il take a kick in the nuts if not,but i can live with that.

[Barnsey]

 

[sancho panza]

15 hours ago, DurhamBorn said:

There are lots of things going on at this end of cycle in regards when inflation will start to show.On our road maps we use a formula that includes several inputs.

First is hours worked dropping below trend.We want to see a drop off in production.That shows us that demand is slack.We use a lag of around 9 months on that.Then is there a technology shock.Yes there is.The huge push for green energy has curtailed new investment in oil/gas etc.That has a lag affect.We feel the shortage of oil long before we feel the affects of the new technology.Contrarian,but true.Then you take the size of the actions by the CB,but also how long it is sustained.This amplifies the technology shock.In 2 years if everyone starts raping up production,but the technology shock meant investment stopped in the needed inputs we get a burst,and then prices stop being sticky and jolt higher.

I think we will see the first signs of inflation later this year,and they will start to be clear late spring next year,By 2023 i expect inflation will be at 3%+ and by 2024/5 around the 5% mark.At this point rates will still lag inflation (maybe 2.5%-3% rates) and so people will really start to chase real assets forcing inflation higher.2028/30 is the area where we might see inflation between 12% and 25% and rates hitting 10%.I dont expect inflation to slow at that point until we suffer a huge crash that ends the Fiat currency era.

I think as mentioned above the MMT brigade have control simply because the cycles have come together.They think they can print and control inflation later through tax,less broad money supply etc.The irony is i think MMT is a disaster,yet at this present time they have no choice but to use it because all other roads are closed.As investors we need to get ahead of whats coming,and so far so good.As iv always said,my aim is quite simple.I want to protect my families assets from inflation (or theft in tax) and if in 10 years iv increased the assets by inflation+1% pa then job done.Of course i think/hope to hugely outperform that,but thats the line of success.

So if we accept MMT is the place we are entering,and that can be debated,because it might not be sustained,then we accept inflation is certain,and re-direction of "money" will move more from where the market allocates it,to where governments allocate it.The key here is the market isnt removed,its simply taken a seat in the church behind the governement.

So,if we reach that conclusion,then the question as investors becomes this one.What are governments priorities and likely "wants".?.Where are they going to direct that "money".?.

Thanks for that DB.Learned a lot between you and @Wheeler on MMT and lags in these posts

[Harley]

2 hours ago, Barnsey said:

 

Raoul Pal just said something about all the new day trading accounts that have been opened (with furlough money?) and an earlier post here linked to the talk on pistonheads.  Been there, seen it before, and have the T shirt.  Says "1999" on the front and "2000" on the back!

[MrXxxx]

14 hours ago, Loki said:

You could be right, but to anyone waiting till then to buy physical I'd say good luck!  

In March I learned that by the time you really want some, it's too late. (And March wasn't even 'it')

 

Agree...saw gold at £1000, then creep up to £1200, then creep up to £1350, all the time hoping it would drop back down to £1000...in current climate it's not going to happen...the problem was I didn't buy initially as I wanted to `understand` why (& how) to buy it...very reluctant to buy now, knowing its price six months ago...`glass half empty` mentality I'm afraid! :-(

[Barnsey]

4 hours ago, Harley said:

Raoul Pal just said something about all the new day trading accounts that have been opened (with furlough money?) and an earlier post here linked to the talk on pistonheads.  Been there, seen it before, and have the T shirt.  Says "1999" on the front and "2000" on the back!

Yeah, what’s that saying DB keeps citing? “Markets are designed to hurt the most” or something?

 

[MrXxxx]

Two discussion points on PMs and miners...advantages/disadvantages:

1. Individual miners (and how many) vs ETFs I.e GDGB, GJGB.

2. Vaulted PM vs Allocated PM ETFs. NOT physical at home.

My thoughts:

1. Miner ETFs, a) OCF (avg 0.5) in short/med term will equate to similar costs to individuals purchases; b) although the odd dog will lower return, lower risk as more diversified; c) potentially more liquid. Also some have some Royalties within the ETF, so this will help temper the volatility of pure miners.

2. Allocated ETFs?, a) fear of confiscation no longer relevant as FIAT not linked; b) lower costs until you get into £100k`s?...especially relevant for silver as it value  vs vaulting is low.

Still not 100% on 2, convince me either way.

 

[ThoughtCriminal]

Can I ask what percentage of cash people are holding? 

 

I just can’t see how sterling isn’t going to get trashed in the years ahead and my overriding thought is I need to be down to the bare minimum for living costs etc. 

 

Interested in hearing what the consensus is.

[Harley]

1 hour ago, Barnsey said:

Yeah, what’s that saying DB keeps citing? “Markets are designed to hurt the most” or something?

 

That effing DB, he's going to be right again isn't he, with his effing blow off. 

Anyone else thought he's some well know investing hot shot playing us for shites and giggles with a fake persona?

Probably never even been to Durham! 

PS:  Maybe the financial mafia will still end up with all the government money just like last time!

[Harley]

44 minutes ago, ThoughtCriminal said:

Can I ask what percentage of cash people are holding? 

 

I just can’t see how sterling isn’t going to get trashed in the years ahead and my overriding thought is I need to be down to the bare minimum for living costs etc. 

 

Interested in hearing what the consensus is.

Above 25% in various cash and cash equivalents like short term bonds and NS&I.  And mostly exposed to Sterling.  So yes, a target on my back for bail ins and currency woes!  You?

[Harley]

"At the peak of speculative fervor in February, small traders bought to open 7.5 million call contracts".  Or maybe the Administration rather than real small traders as they laundered more of their printed money!