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

[Yadda yadda yadda]

13 minutes ago, Cattle Prod said:

Perhaps this will be another big inflection point? I mean, at some point, they will have to start raising rates again, which will surely crater the world economy. I'm guessing you're seeing them keeping rates flat for a while till they think the economy can 'take it', but 5 or 7%? Could we see a repeat of the late 2018 panic on steroids... Perhaps I'm not understanding the leads and lags. So if they can print for another 12-18 months, I'm guessing you think we won't see much inflation by early/mid 2022. Then they have to stop. They'll keep rates flat for a while, then they will have to raise them as they start to chase inflation. If we are in a 'Roaring 20s' by 2023 or so, maybe the economy will take it on the chin. But if not, I'm struggling to see how we'd get to 2027 or 2028 before the whole thing collapses. Could be a systemic risk throughout the period, do you think?

Increase lending standards first. Higher deposits/collateral and/or lower multiples of income. Allow inflation to run ahead, including wage inflation. For a period borrowers, domestic and business, should see debt interest reduce as a percentage of income. Debt as a percentage of GDP should reduce. Then interest rates start going up. Only then does the burden of paying back debt start to rise. Many will have built up a buffer to cope. Follow that path and increasing rates don't have to be disastrous. At least to start with.

Allow people and business to borrow freely at near zero right up to the point rates rise and you have a big, big problem.

[DurhamBorn]

9 minutes ago, Cattle Prod said:

Perhaps this will be another big inflection point? I mean, at some point, they will have to start raising rates again, which will surely crater the world economy. I'm guessing you're seeing them keeping rates flat for a while till they think the economy can 'take it', but 5 or 7%? Could we see a repeat of the late 2018 panic on steroids... Perhaps I'm not understanding the leads and lags. So if they can print for another 12-18 months, I'm guessing you think we won't see much inflation by early/mid 2022. Then they have to stop. They'll keep rates flat for a while, then they will have to raise them as they start to chase inflation. If we are in a 'Roaring 20s' by 2023 or so, maybe the economy will take it on the chin. But if not, I'm struggling to see how we'd get to 2027 or 2028 before the whole thing collapses. Could be a systemic risk throughout the period, do you think?

My road map changes with data as we move along,but rates at 7% are low.I see 10% possible.The CBs need to run rates under inflation to inflate away debt.They are helping move it from business and private sector to government and then into their cupboard marked marked do not open.I think inflation will increase slowly,creeping up so CBs embrace it at first and dont fear it.It will be later in the cycle where they expect a normal business cycle slowdown to emerge that it doesnt and then inflation starts to move through the gears.They will chase,but be scared to get rates too high so always behind the curve.I think once inflation is 2%+ they will stop QE or at least keep any last tranche low.The risk comes when people lose faith in Fiat late in the cycle.All just my opinion of course.

[Loki]

@DurhamBorn Your system still intrigues me.  Do you work this all out manually or did you computerise it? 

How long does it take you to run an update?  Have you always stuck with the same data, or added over the years?

Just being nosey, the fact it works speaks for itself. 

[DurhamBorn]

58 minutes ago, Loki said:

@DurhamBorn Your system still intrigues me.  Do you work this all out manually or did you computerise it? 

How long does it take you to run an update?  Have you always stuck with the same data, or added over the years?

Just being nosey, the fact it works speaks for itself. 

Added over the years,but most of the tools were developed in the 70s and early 80s,mostly by a team at Fidelity.Most is manual charts i plot in old jotters.Some go back to 1973,mainly liquidity flows in the large currencies.Most of the new bits are the cross market work.Thats because some things change over time.I trust the macro charts 99%,the currency calls come from them.The cross market work is more difficult and some calls get bounced off.A good example is the transports being bounced off the road map due to the nature of the end of cycle,however other areas the cross market highlighted have more than made up.

Sometimes i do little work,like now.Im working and my portfolio is in motion.Other times i do a lot.

Its quite fascinating that tools mostly developed in the 70s road mapped this crisis and response better than anywhere iv seen.Even today government mentioning defence spending shooting up,just as we predicted.

The road map showed the backbone of the economy couldnt pay for the demands on it,a reflation was certain,that or the stone age.Macro strategy is the numbers and then the likely places that liquidity will go.

[Loki]

Thanks @DurhamBorn 

My problem is that I find concepts fascinating but not numbers...the easiest way I can explain it is the YouTube channel engineering explained.  I like seeing new a engine design (for example the new variable compression design) but as soon as the in-depth maths comes out my brain just switches off. 

[DurhamBorn]

5 minutes ago, Loki said:

Thanks @DurhamBorn 

My problem is that I find concepts fascinating but not numbers...the easiest way I can explain it is the YouTube channel engineering explained.  I like seeing new a engine design (for example the new variable compression design) but as soon as the in-depth maths comes out my brain just switches off. 

Dont forget as well i am a contrarian.I like to put my numbers against the consensus love it when they are at extreme opposites.Oil is a classic example right now.The macro picture is superb for it,yet everyone thinks its finished and everyone will have an EV etc.If the macro picture was dis-inflation and poor then i wouldnt be buying.

Another where going against the consensus due to a longer term cross market was Royal Mail.Credit Suisse were saying sell at 1.50p with a 94p price target.Now people would say oh its only covid etc.It hasnt been hugely profitable due to entering too early,but still 30%+ dividends over a couple of years.

I find gas the most interesting at the moment.My cross market says 3x the demand if Asia cuts carbon from coal and every Indian family buys a fridge.My liquidity chart shows the money will be there to pay it.MSM and everyone hates its.I think 2023 demand should meet production and then pass.Shell will be having a nice time deciding where to send its LNG ships and be rushing to finish its new massive Canadian LNG trains.

[MrXxxx]

7 hours ago, Yellow_Reduced_Sticker said:

With ALL this chatter about motors ...YOU folks are keeping ya eyes of the ball ...AND missing today's BRILLIANT Royal Mail News!

 

YES...Another LOSS!

 

HOWEVER, they MUST be turning a corner! UP over 5% today to £3.12 ...Good job i bought more around £1.37 ! NEARLY ALWAYS pays to average down/ladder in!

 

They have come down today from their HIGHS ...is that YOU @DurhamBorn OR @5min OCD speculator...talking profits?!

 

Here's a 1 year chart, looks good MAYBE UP and away to £ 7.00 quid ...well by 2026!

 

"Royal Mail posts operating LOSS amid pandemic but pins hope on parcel delivery"

 

https://uk.finance.yahoo.com/news/royal-mail-posts-operating-loss-amid-pandemic-but-sees-parcel-delivery-as-way-forward-092806892.html

Well if a £20mil loss doesn't make the share price drop (amazed it actually went up!), with you buying them I am sure it will have the 'laxative' effect! :-):-):-)

[UnconventionalWisdom]

19 minutes ago, DurhamBorn said:

.A good example is the transports being bounced off the road map due to the nature of the end of cycle,

What makes you think transport won't take off? I think there will be a lot of demand in an industrial cycle with increasing interest rates- lease cars not bring an option, people struggling with mortgages, need for moving around the country for work. Covid have hit things short term but there will be pent up demand for travel come next spring (leisure and all the face-to-face meetings people want).

[UnconventionalWisdom]

20 minutes ago, Loki said:

Thanks @DurhamBorn 

My problem is that I find concepts fascinating but not numbers...the easiest way I can explain it is the YouTube channel engineering explained.  I like seeing new a engine design (for example the new variable compression design) but as soon as the in-depth maths comes out my brain just switches off. 

I love the numbers too! Going to get the stocks i own in ISA, LISA and newly opened SIPP and automate the analysis in python. Should help me see the proportional split as things change as well as producing data on company fundamentals. Hopefully I can move on to modelling the macto situation- I just fear it would take decades to reach @DurhamBorn 's level of understanding!

[Loki]

11 minutes ago, DurhamBorn said:

Dont forget as well i am a contrarian.I like to put my numbers against the consensus love it when they are at extreme opposites.Oil is a classic example right now.The macro picture is superb for it,yet everyone thinks its finished and everyone will have an EV etc.If the macro picture was dis-inflation and poor then i wouldnt be buying.

Another where going against the consensus due to a longer term cross market was Royal Mail.Credit Suisse were saying sell at 1.50p with a 94p price target.Now people would say oh its only covid etc.It hasnt been hugely profitable due to entering too early,but still 30%+ dividends over a couple of years.

I find gas the most interesting at the moment.My cross market says 3x the demand if Asia cuts carbon from coal and every Indian family buys a fridge.My liquidity chart shows the money will be there to pay it.MSM and everyone hates its.I think 2023 demand should meet production and then pass.Shell will be having a nice time deciding where to send its LNG ships and be rushing to finish its new massive Canadian LNG trains.

I've been a contrarian about most things my whole life, finding this thread was a big moment for me in that it could make my mindset work for me

[sancho panza]

2 hours ago, Cattle Prod said:

Perhaps this will be another big inflection point? I mean, at some point, they will have to start raising rates again, which will surely crater the world economy. I'm guessing you're seeing them keeping rates flat for a while till they think the economy can 'take it', but 5 or 7%? Could we see a repeat of the late 2018 panic on steroids... Perhaps I'm not understanding the leads and lags. So if they can print for another 12-18 months, I'm guessing you think we won't see much inflation by early/mid 2022. Then they have to stop. They'll keep rates flat for a while, then they will have to raise them as they start to chase inflation. If we are in a 'Roaring 20s' by 2023 or so, maybe the economy will take it on the chin. But if not, I'm struggling to see how we'd get to 2027 or 2028 before the whole thing collapses. Could be a systemic risk throughout the period, do you think?

I was jsut chatting with someone and it made me look at UK CPIH=0.9% up from0.7% in Sept.

https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l55o/mm23

UK 10 year 0.32% 30 yr =0.92%

https://www.investing.com/rates-bonds/uk-government-bonds?maturity_from=180&maturity_to=310

30 yr bond yield jsut covering current inflaiton.

If they plump for neg rates,jsut how are they going to control the long end?

 

 

[sancho panza]

1 hour ago, DurhamBorn said:

Added over the years,but most of the tools were developed in the 70s and early 80s,mostly by a team at Fidelity.Most is manual charts i plot in old jotters.Some go back to 1973,mainly liquidity flows in the large currencies.Most of the new bits are the cross market work.Thats because some things change over time.I trust the macro charts 99%,the currency calls come from them.The cross market work is more difficult and some calls get bounced off.A good example is the transports being bounced off the road map due to the nature of the end of cycle,however other areas the cross market highlighted have more than made up.

Sometimes i do little work,like now.Im working and my portfolio is in motion.Other times i do a lot.

Its quite fascinating that tools mostly developed in the 70s road mapped this crisis and response better than anywhere iv seen.Even today government mentioning defence spending shooting up,just as we predicted.

The road map showed the backbone of the economy couldnt pay for the demands on it,a reflation was certain,that or the stone age.Macro strategy is the numbers and then the likely places that liquidity will go.

It's reassuring to hear you work it allout on paper.I ahev random notes in drawers and on my desk that detail various positons or research,then the kids come in and use them to play waiters taking orders.....the werid thign is I know hwere  they all are.well til the kids have had them and I'm crying into my cornflake.s

Mrs P is very corporate and she keeps telling me that I need to do spreadsheets but it's jsut not the way I work.

[JMD]

6 hours ago, Knickerless Turgid said:

Was it not only a generation ago that we rented our TVs/VCRs/washing machines?

It was that's true enough, but the products were cheap and disposable (as per consumer cycle). I think the business models are changing to fit with the coming industrial cycle. But this time around fortress Europe won't allow cheap S Korean imports. Moreover, in 2021 there are new EU rules for sustainable consumer products, whereby they must be repairable for at least 10 years, spare parts must be held, etc. This will be so inflationary, but again it fits with next cycle. These changes will mostly favour the quality German manufacturers, so if we get a BK I will be buying companies like Bosch, etc. That slogan: 'You will own nothing, but you'll be happy', is not just hot air, it really is about setting the impending ground rules!!

[Loki]

@JMD quite. I wonder who Bosch will rent their production machines from, or is that just for us plebs

"Seize the means of production"...physically, legally, financially it all works out the same

[DurhamBorn]

7 hours ago, MrXxxx said:

Well if a £20mil loss doesn't make the share price drop (amazed it actually went up!), with you buying them I am sure it will have the 'laxative' effect! :-):-):-)

Debt was cut by £300 million,when your in a negotiation with the regulator and the unions it pays to have a nice spring clean and go into loss at an accounting level.We are losing money,play ball or its Herpes for you lot.We need to do this etc or you lose the universal service.

Markets are never linear.

[DurhamBorn]

7 hours ago, UnconventionalWisdom said:

What makes you think transport won't take off? I think there will be a lot of demand in an industrial cycle with increasing interest rates- lease cars not bring an option, people struggling with mortgages, need for moving around the country for work. Covid have hit things short term but there will be pent up demand for travel come next spring (leisure and all the face-to-face meetings people want).

I do think they will take off,but from a lower base than i expected,i still own some.My road map had them taking up the slack quite early in the cycle as people did exactly as you say,less lease cars etc but they were bounced off that due to what happened.The reason i havent been buying anymore is because if government pulls the plug they go under.However as long as they get through there should be a nice cycle for them.Lots of small coach firms have gone under as well,so less competition.

[DurhamBorn]

 

6 hours ago, sancho panza said:

I was jsut chatting with someone and it made me look at UK CPIH=0.9% up from0.7% in Sept.

https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l55o/mm23

UK 10 year 0.32% 30 yr =0.92%

https://www.investing.com/rates-bonds/uk-government-bonds?maturity_from=180&maturity_to=310

30 yr bond yield jsut covering current inflaiton.

If they plump for neg rates,jsut how are they going to control the long end?

 

 

They arent.The long end will drift out quickly once growth returns.Its being used to park money at the moment,the unwind of that will be one of the big drivers of the cycle.Treasuries/gilts etc are being used now not for return on capital,but for return of capital.

[DurhamBorn]

7 hours ago, UnconventionalWisdom said:

I love the numbers too! Going to get the stocks i own in ISA, LISA and newly opened SIPP and automate the analysis in python. Should help me see the proportional split as things change as well as producing data on company fundamentals. Hopefully I can move on to modelling the macto situation- I just fear it would take decades to reach @DurhamBorn 's level of understanding!

This is the sort of thing 

https://math.libretexts.org/Bookshelves/Algebra/Map%3A_College_Algebra_(OpenStax)/07%3A_Systems_of_Equations_and_Inequalities/704%3A_Systems_of_Nonlinear_Equations_and_Inequalities__Two_Variables#:~:text=A system of nonlinear equations is a system of two,in this form in nonlinear.

[UnconventionalWisdom]

15 minutes ago, DurhamBorn said:

Treasuries/gilts etc are being used now not for return on capital,but for return of capital.

I think if DXY goes down by the 10% you predict, it may be a good time to get some IBTL. I can see them being the flight for safety during the BK while the CBs figure out what to do. Not good long term but may be a good win for a few months.

[Harley]

The MSM is toxic.  RMG is an example of why you should do your own research about finance and everything else and decide for yourself.

[UnconventionalWisdom]

54 minutes ago, Harley said:

The MSM is toxic.  RMG is an example of why you should do your own research about finance and everything else and decide for yourself.

The MSM like to report finance news after it happens. Doesn't want the bad press of reccommending people to do something and then they lose everything. 

They also jump on simple logic like the death of oil and run with it as long as everyone is publishing the same. 

I think it's safe to say most on here read the finance section of a newspaper and do the opposite.😊

[Barnsey]

It's interesting how Mr Hunter's predictions of a "policy mistake" causing the BK are starting to come to the fore, not only in the U.S. but here and elsewhere. Mnuchin asking for the return of $400bn of aid from the Fed back to the Treasury when the Fed are saying it should remain to support the recovery. Sunak's public sector 3 year pay freeze (undoubtedly affecting the North much more than the South). 

[M S E Refugee]

1 hour ago, Harley said:

The MSM is toxic.  RMG is an example of why you should do your own research about finance and everything else and decide for yourself.

I have worked for RMG for over 30 years and I have seen Mail volumes at Christmas fall off a cliff for the past 10 years but this year there will be a major reversal in this trend and I am not sure whether we can cope with the extra work.

 

[AWW]

37 minutes ago, Barnsey said:

Sunak's public sector 3 year pay freeze (undoubtedly affecting the North much more than the South). 

It's Scotland, Wales and NI that will really suffer. IIRC, more than 50% of the population of NI works in the public sector. For Scotland, it's around 40%, and Wales isn't far behind.

North of England is only ("only"!) about 25% and the south around 20%.

EDIT: Found the data.

[feed]

23 minutes ago, M S E Refugee said:

I have worked for RMG for over 30 years and I have seen Mail volumes at Christmas fall off a cliff for the past 10 years but this year there will be a major reversal in this trend and I am not sure whether we can cope with the extra work.

 

As an ebay side hustle seller (toys mostly) the last few weeks have been insane, I literally can not list items fast enough.
Nov/Jan/Feb are always peak, as you'd expect, but in the 5~6 years i've been doing this, i've not seen anything like this before.