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

[DurhamBorn]

10 minutes ago, Noallegiance said:

What's the significance and mechanism of a new infrastructure bank? Just an artery to pump copious fiat into copious infrastructure projects without retail bank involvement?

Yep,direct into the veins of the economy.Dont need banks when you merge fiscal and monetary policy.Of course they can also attract private capital and leverage it.HTB for investors.

[Heart's Ease]

https://moneyweek.com/investments/commodities/energy/oil/602370/best-ways-to-invest-in-cheap-oil?amp

Almost forgot to paste this for our interest - latest from Frizzers.

Out of reps (what a day!) so - welcome @Froggy2000 to the thread.

 

[Bricormortis]

1 hour ago, reformed nice guy said:

Here is a question @DurhamBorn and other people that ladder

What will you be doing now that all the prices have bounced up? A lot of the current prices are a good bit above the next ladders I had set

I have experienced just that quite a bit recently, I put a toe in the door with freeport mcmoran for instance and it shot up 120% over a few months couldnt ladder in. So I look at stocks that go up after my first ladder and just note that means my invested cash is doing better than inflation, job done, dont need to ladder upwards, job done.

[sancho panza]

5 hours ago, Cattle Prod said:

Agree, that correlation is strikingly good. I decided to recreate her chart as I wanted to zoom in a bit to think about the next leg up in PMs, recco using that FRED website it's pretty easy, and has incredible dats. So:

With Gold inverted:

Verrrry tight indeed. So my read is that we are going to see the next uplift in Gold when oil inflation starts to jack up CPI figures (unless the Fed pushes yields down first). Is this your read, @sancho panza or others? If so, what do you think the lag will be for oil inflation over the last couple of months to reach CPI data? Next CPI release is 10th Dec. That said, I've just read what that curve is based on: it's the inflation expectations of market participants, not actual inflation. I guess the correlation is tight because gold is simply an expression of the same expectations by the same participants.

Edit:

That plot is a good example of signal to noise, IMO. All the stuff you might read about gold is largely irrelevant: its price is clearly > 90% driven by real rates. Personally, I'll be using little else to time PMs. Thanks, Lyn Alden.

Edit edit:

The recent $300 run up in gold from ~$1750 to 2050 correlated to a .5% drop in real rates 

CP,I'll reply to thsi tmrw as I have a day with my desktop.I agree with you,this looks very intersting indeed.

iirc Macrovocies wer talking about buying back in at $1800.

also worth ntoing thsi chart only goes back to 2015.I'll ahve a look tmrw to see if there's any other workable correaltions with PM's and real rates.

5 hours ago, DurhamBorn said:

@Cattle Prod might help you graph gold,my interest rate road map says rates will lag inflation by 2.5% over the cycle as CBs run rates behind the curve all the way 

I was hoping you'd be onto contriute on real rates.Your call makes a lot of sense to me as I think we'll see CB's/govts actively underestimating inflation to reduce debt/GDP ratio's..(more than they already do)

It's a bizarre world when the govts are doubly incentivized to misrepresnt inflation.That 2.5% could run like that for msot of the 20's or do you think it will catch up?

[DurhamBorn]

9 minutes ago, sancho panza said:

CP,I'll reply to thsi tmrw as I have a day with my desktop.I agree with you,this looks very intersting indeed.

iirc Macrovocies wer talking about buying back in at $1800.

also worth ntoing thsi chart only goes back to 2015.I'll ahve a look tmrw to see if there's any other workable correaltions with PM's and real rates.

I was hoping you'd be onto contriute on real rates.Your call makes a lot of sense to me as I think we'll see CB's/govts actively underestimating inflation to reduce debt/GDP ratio's..(more than they already do)

It's a bizarre world when the govts are doubly incentivized to misrepresnt inflation.That 2.5% could run like that for msot of the 20's or do you think it will catch up?

Most of the 20s starting about 14 months from now,maybe a little later.I expect 3% inflation will see 0.75% rates 4% inflation 1.5% rates.I think CBs will think inflation will then top out,but then it will go 5%,6% etc.It might flatline a while mid cycle between 4% and 6%,then instead of falling move higher and then CBs will try to remove QE,but that wont be easy as so much is now owed by governments.

These rates are based on a lot more printing yet though to come.For now we have passed printing back the disinflation however a sharp move into outright deflation could hit us yet,but very short term.

I need to add this quote from an article in The Telegraph,they are in for a massive shock.

With interest rates close to zero, and now likely to stay there for a generation, we can afford to carry debt of 100pc of GDP, and perhaps 110pc or 120pc. It isn’t a catastrophe.

[sancho panza]

11 minutes ago, DurhamBorn said:

Most of the 20s starting about 14 months from now,maybe a little later.I expect 3% inflation will see 0.75% rates 4% inflation 1.5% rates.I think CBs will think inflation will then top out,but then it will go 5%,6% etc.It might flatline a while mid cycle between 4% and 6%,then instead of falling move higher and then CBs will try to remove QE,but that wont be easy as so much is now owed by governments.

These rates are based on a lot more printing yet though to come.For now we have passed printing back the disinflation however a sharp move into outright deflation could hit us yet,but very short term.

I need to add this quote from an article in The Telegraph,they are in for a massive shock.

With interest rates close to zero, and now likely to stay there for a generation, we can afford to carry debt of 100pc of GDP, and perhaps 110pc or 120pc. It isn’t a catastrophe.

I think thsoe estimates are entirely reasonable for where we are currently and what's gone on psot 2008 in terms of M2 growth

It really is going to be interesting to see what the govt response will be to 5%+ inflation given how addicted they'll be to stimulus(even more than they are now)

As for the last bit,it trully is scary what's happened to mainstream financial journailsts ...as well as mainstream political hacks.

[Noallegiance]

58 minutes ago, DurhamBorn said:

 

With interest rates close to zero, and now likely to stay there for a generation, we can afford to carry debt of 100pc of GDP, and perhaps 110pc or 120pc. It isn’t a catastrophe.

With this sort of thinking and behaviour it pains me to think that maybe we ain't seen nothing yet in terms of consumer borrowing.

The maths today is astronomical and pretty much immeasurable. Add another borrowing binge on top for another 8-10 years and it's like trying to comprehend the size of the universe.

[sancho panza]

@Cattle Prod dumb question time.how do you get the st louis chart to load the second set of data?

[Harley]

6 hours ago, Noallegiance said:

With this sort of thinking and behaviour it pains me to think that maybe we ain't seen nothing yet in terms of consumer borrowing.

The maths today is astronomical and pretty much immeasurable. Add another borrowing binge on top for another 8-10 years and it's like trying to comprehend the size of the universe.

Get in there,  it's the end game with a monetary system reset to come to wash away our sins, for a nasty price.

[Harley]

11 hours ago, Froggy2000 said:

Hi All, long time lurker here.  DurhamBorn I can't begin to describe how grateful I am for you sharing your knowledge like this.  I have learnt a tremendous amount about all sorts of things, not just investing, and have read both threads on here as well as the original one on TOS.

One concept I've struggled with a bit is the notion of "decomplex" trades.  I get that during a disinflation, credit is expanding as interest rates fall and lending standards loosen.  This causes bubbles in asset prices such as real estate in global cities with lots of demand, bonds, and bond proxies etc.

However when the credit expansion reverses, and central banks start printing to counteract the deflation, how does this flow into decomplex areas of the economy like telecoms, mining, agriculture etc?  In the past a lot seems to have gone into recapitalising banks (QE) after the financial crisis so didn't really impact anything and inflation remained low.  Now it seems it will go direct to government, which will spend on welfare, and some on infrastructure etc.  The infrastructure spending I imagine would drive up commodity prices to some extent, but why does that drive up prices and profits for those at the beginning of the chain rather than more evenly across the chain?  Why is it that Telcos for example couldn't really raise prices during the disinflation but can now?   And how does govt infrastructure spending impact Potash, Silver etc?  I'm still struggling a bit with that one.

Really would like to get my head around this!

I'm determined not to lurk in future, and I'll chip in if I think or see anything other may find interesting. 

Hope you find it useful!

Welcome (nicely written post), and apologies if you're a lady, but were you around in the 1970s?

[wherebee]

6 hours ago, Noallegiance said:

With this sort of thinking and behaviour it pains me to think that maybe we ain't seen nothing yet in terms of consumer borrowing.

The maths today is astronomical and pretty much immeasurable. Add another borrowing binge on top for another 8-10 years and it's like trying to comprehend the size of the universe.

I'm a bit annoyed that I am not at the point where I can borrow 500k on a ten year fix.  I have money in the bank, but low documented income so I would not pass the serviceability test.  I do think that if you have cash on hand, and can fix long term, borrowing now to gain a hard asset that will generate income or value growth is seriously worthwhile.

 

[Harley]

29 minutes ago, wherebee said:

I'm a bit annoyed that I am not at the point where I can borrow 500k on a ten year fix.  I have money in the bank, but low documented income so I would not pass the serviceability test.  I do think that if you have cash on hand, and can fix long term, borrowing now to gain a hard asset that will generate income or value growth is seriously worthwhile.

 

Old sailors pull their sails in when heading into a storm and all hardtail riders slow down when heading onto a bumpy road!

[Harley]

10 hours ago, reformed nice guy said:

Here is a question @DurhamBorn and other people that ladder

What will you be doing now that all the prices have bounced up? A lot of the current prices are a good bit above the next ladders I had set

My concern/situation too given my conservative nature but I console myself with initial "ladders" to hedge any BK and the belief my chosen "value" stocks have a long way to run regardless of today's apparent high percentage gains, with handy pullbacks along the way even without a BK.

[Castlevania]

10 hours ago, reformed nice guy said:

Here is a question @DurhamBorn and other people that ladder

What will you be doing now that all the prices have bounced up? A lot of the current prices are a good bit above the next ladders I had set

Sit on my hands. A little bit of rebalancing.

I ran down my cash savings hard in March and they’ve been lower than I’d like for most of the year, so I’m happy to let the cash balance accumulate.

[MrXxxx]

36 minutes ago, wherebee said:

I'm a bit annoyed that I am not at the point where I can borrow 500k on a ten year fix.  I have money in the bank, but low documented income so I would not pass the serviceability test.  I do think that if you have cash on hand, and can fix long term, borrowing now to gain a hard asset that will generate income or value growth is seriously worthwhile.

 

It's interesting that you make this statement as its what I was thinking about a couple of pages ago, there must be a `sweet spot` to borrow cheap money and use your own capital to invest elsewhere on S&S...assuming it doesn't all `blow up in your face`!

[CVG]

11 hours ago, reformed nice guy said:

Here is a question @DurhamBorn and other people that ladder

What will you be doing now that all the prices have bounced up? A lot of the current prices are a good bit above the next ladders I had set

My strategy will be different from many here.

I target a certain percentage towards asset classes. This makes sure that I always have something (investment) positioned correctly whatever happens. I'm a half-in kind-a-guy.

When one asset class rises too far above another then I rebalance by selling some of the riser and puting it in the loser. For instance in this thread, we expect our chosen equities to rise and bonds to get crushed. As that happens I will start selling equities (at their high prices) to rebalance into bonds (at their low prices).

And now to your question (at last!). I do the same WITHIN each equity class. I have a set proportion for Oil and Gas, Potash, Telecoms, etc. As one rises, I top slice and redistribute into the losing sectors (even though they may be at prices now higher than those original ladders).

For example, this last week I took profits from my oilies and made up some recent losses in my silver miners.

Your portfolio is like a shrub. It needs attendance and pruning but not too often!

[CVG]

Spending Review changes RPI to CPI in 2030. Paycut for me in 10 years time and massive pension costs for some of our favourites.

https://www.thisismoney.co.uk/money/news/article-8986441/Spending-Review-RPI-inflation-phased-February-2030.html

[geordie_lurch]

A quick question for @DurhamBorn and others about something I think has a strong possibility of happening in the same 5-10 year time frame we are all focussing on...

Before I ask it though I want to say I'm fully on board with the investment types and strategies discussed so brilliantly here IF the next 5-10 years are like the last 50+ years using the same rules within the same system but what if they aren't? I would guestimate 99.9% of us didn't see negative interest rates, help to buy and all the other crap they created to keep the current system from dying in 2008 so are we all missing an even larger, once in a lifetime / several generations change about to take place?

What happens to our best laid plans if they move everything and everyone over to digital $ and £s?

Hear me out... it's an open secret the world's central banks want to issue their own digital currency as per the following from here with any emphasis mine...

Quote

“We are looking at the question of, should we create a Bank of England digital currency,” said Andrew Bailey, governor of the Bank of England, during a webinar event in July.

“We’ll go on looking at it, as it does have huge implications on the nature of payments and society.”

In June the bank also initiated a consultation exploring the potential launch of a state digital currency.

The president of the Federal Reserve Bank of Cleveland, Loretta J. Mester said the following here in September 2020 with any emphasis mine...

Quote

"Legislation has proposed that each American has an account at the Fed in which digital dollars could be deposited, as liabilities of the Federal Reserve Banks, which could be used for emergency payments."

“Other proposals would create a new payments instrument, digital cash, which would be just like the physical currency issued by central banks today, but in a digital form and, potentially, without the anonymity of physical currency.”

Mester explained that some designs of the digital dollar allow the central bank to directly issue the CBDC into end users’ wallets using central-bank-facilitated transfer and redemption services, without the involvement of commercial banks.

She further confirmed that “The Federal Reserve has been researching issues raised by central bank digital currency for some time,” emphasizing that various Federal Reserve Banks are part of initiatives to explore the use of a central bank digital currency.

I know everyone talks about being a 'contrarian' investor here but as someone who really prides myself on critical thinking I can't help feeling there's a MASSIVE blind spot here a lot of people just aren't seeing as everyone seems to be expecting the same rules AND the same system to still be here in 10 years time 

Put yourself in any of the western Government's shoes at the moment... if you knew that in 5 years time all the debt you created was going to be wiped out then why wouldn't you spend billions of 'old' money on these eye watering corona virus bail outs etc? Not only that but at the same time, by imposing all these lockdown measures you could also wipe out lots of small businesses and get more people dependent on the state so when you need minimal opposition to issue your new fully traceable digital currency you can make sure these newly dependent plebs can't refuse it as they can only have it in their "end users' wallets" 

Also do you think they will really let us plebs preserve whatever wealth we each have if their plan is to just 'cancel' the impossibly large amounts of existing debt they have printed and move us over (bribe?) under a global debt 'reset' or similar?

I really hope there's enough people in this thread to have a respectful discussion about such matters above and I'm happy to start a new thread if anyone wants 

[jamtomorrow]

16 minutes ago, geordie_lurch said:

A quick question for @DurhamBorn and others about something I think has a strong possibility of happening in the same 5-10 year time frame we are all focussing on...

Before I ask it though I want to say I'm fully on board with the investment types and strategies discussed so brilliantly here IF the next 5-10 years are like the last 50+ years using the same rules within the same system but what if they aren't? I would guestimate 99.9% of us didn't see negative interest rates, help to buy and all the other crap they created to keep the current system from dying in 2008 so are we all missing an even larger, once in a lifetime / several generations change about to take place?

What happens to our best laid plans if they move everything and everyone over to digital $ and £s?

Hear me out... it's an open secret the world's central banks want to issue their own digital currency as per the following from here with any emphasis mine...

The president of the Federal Reserve Bank of Cleveland, Loretta J. Mester said the following here in September 2020 with any emphasis mine...

I know everyone talks about being a 'contrarian' investor here but as someone who really prides myself on critical thinking I can't help feeling there's a MASSIVE blind spot here a lot of people just aren't seeing as everyone seems to be expecting the same rules AND the same system to still be here in 10 years time 

Put yourself in any of the western Government's shoes at the moment... if you knew that in 5 years time all the debt you created was going to be wiped out then why wouldn't you spend billions of 'old' money on these eye watering corona virus bail outs etc? Not only that but at the same time, by imposing all these lockdown measures you could also wipe out lots of small businesses and get more people dependent on the state so when you need minimal opposition to issue your new fully traceable digital currency you can make sure these newly dependent plebs can't refuse it as they can only have it in their "end users' wallets" 

Also do you think they will really let us plebs preserve whatever wealth we each have if their plan is to just 'cancel' the impossibly large amounts of existing debt they have printed and move us over (bribe?) under a global debt 'reset' or similar?

I really hope there's enough people in this thread to have a respectful discussion about such matters above and I'm happy to start a new thread if anyone wants 

History rhymes, plus ca change etc

The most surprising outcome of all would be for this cycle to follow the same old rails as it unfolds. More likely, something will be different, trick will be to spot it early or get hold of one of those crystal ball things.

[MrXxxx]

25 minutes ago, geordie_lurch said:

A quick question for @DurhamBorn and others about something I think has a strong possibility of happening in the same 5-10 year time frame we are all focussing on...

Before I ask it though I want to say I'm fully on board with the investment types and strategies discussed so brilliantly here IF the next 5-10 years are like the last 50+ years using the same rules within the same system but what if they aren't? I would guestimate 99.9% of us didn't see negative interest rates, help to buy and all the other crap they created to keep the current system from dying in 2008 so are we all missing an even larger, once in a lifetime / several generations change about to take place?

What happens to our best laid plans if they move everything and everyone over to digital $ and £s?

Hear me out... it's an open secret the world's central banks want to issue their own digital currency as per the following from here with any emphasis mine...

The president of the Federal Reserve Bank of Cleveland, Loretta J. Mester said the following here in September 2020 with any emphasis mine...

I know everyone talks about being a 'contrarian' investor here but as someone who really prides myself on critical thinking I can't help feeling there's a MASSIVE blind spot here a lot of people just aren't seeing as everyone seems to be expecting the same rules AND the same system to still be here in 10 years time 

Put yourself in any of the western Government's shoes at the moment... if you knew that in 5 years time all the debt you created was going to be wiped out then why wouldn't you spend billions of 'old' money on these eye watering corona virus bail outs etc? Not only that but at the same time, by imposing all these lockdown measures you could also wipe out lots of small businesses and get more people dependent on the state so when you need minimal opposition to issue your new fully traceable digital currency you can make sure these newly dependent plebs can't refuse it as they can only have it in their "end users' wallets" 

Also do you think they will really let us plebs preserve whatever wealth we each have if their plan is to just 'cancel' the impossibly large amounts of existing debt they have printed and move us over (bribe?) under a global debt 'reset' or similar?

I really hope there's enough people in this thread to have a respectful discussion about such matters above and I'm happy to start a new thread if anyone wants 

Well if this happens we will all have to go back to bartering to avoid the control..or alternatively a black market economy in gold or Cowrie shells.

[Democorruptcy]

10 hours ago, sancho panza said:

It really is going to be interesting to see what the govt response will be to 5%+ inflation given how addicted they'll be to stimulus(even more than they are now)

They will get the champagne out.

[Harley]

2 hours ago, CVG said:

My strategy will be different from many here.

I target a certain percentage towards asset classes. This makes sure that I always have something (investment) positioned correctly whatever happens. I'm a half-in kind-a-guy.

When one asset class rises too far above another then I rebalance by selling some of the riser and puting it in the loser. For instance in this thread, we expect our chosen equities to rise and bonds to get crushed. As that happens I will start selling equities (at their high prices) to rebalance into bonds (at their low prices).

And now to your question (at last!). I do the same WITHIN each equity class. I have a set proportion for Oil and Gas, Potash, Telecoms, etc. As one rises, I top slice and redistribute into the losing sectors (even though they may be at prices now higher than those original ladders).

For example, this last week I took profits from my oilies and made up some recent losses in my silver miners.

Your portfolio is like a shrub. It needs attendance and pruning but not too often!

Works for me but how often?

[Harley]

50 minutes ago, geordie_lurch said:

A quick question for @DurhamBorn and others about something I think has a strong possibility of happening in the same 5-10 year time frame we are all focussing on...

Before I ask it though I want to say I'm fully on board with the investment types and strategies discussed so brilliantly here IF the next 5-10 years are like the last 50+ years using the same rules within the same system but what if they aren't? I would guestimate 99.9% of us didn't see negative interest rates, help to buy and all the other crap they created to keep the current system from dying in 2008 so are we all missing an even larger, once in a lifetime / several generations change about to take place?

What happens to our best laid plans if they move everything and everyone over to digital $ and £s?

Hear me out... it's an open secret the world's central banks want to issue their own digital currency as per the following from here with any emphasis mine...

The president of the Federal Reserve Bank of Cleveland, Loretta J. Mester said the following here in September 2020 with any emphasis mine...

I know everyone talks about being a 'contrarian' investor here but as someone who really prides myself on critical thinking I can't help feeling there's a MASSIVE blind spot here a lot of people just aren't seeing as everyone seems to be expecting the same rules AND the same system to still be here in 10 years time 

Put yourself in any of the western Government's shoes at the moment... if you knew that in 5 years time all the debt you created was going to be wiped out then why wouldn't you spend billions of 'old' money on these eye watering corona virus bail outs etc? Not only that but at the same time, by imposing all these lockdown measures you could also wipe out lots of small businesses and get more people dependent on the state so when you need minimal opposition to issue your new fully traceable digital currency you can make sure these newly dependent plebs can't refuse it as they can only have it in their "end users' wallets" 

Also do you think they will really let us plebs preserve whatever wealth we each have if their plan is to just 'cancel' the impossibly large amounts of existing debt they have printed and move us over (bribe?) under a global debt 'reset' or similar?

I really hope there's enough people in this thread to have a respectful discussion about such matters above and I'm happy to start a new thread if anyone wants 

I certainly expect things to be very different in that time frame (we are on an exponential path of change everywhere) and give such digitisation a very high probability, maybe with a "discount" for the cash alternative, and I am doing what I can to prepare because you are right to look at the bigger picture as I have been banging on about this here for ages, most recently late last year and early this, most of which has already started to happen with Covid providing the cover.

[Boon]

38 minutes ago, geordie_lurch said:

A quick question for @DurhamBorn and others about something I think has a strong possibility of happening in the same 5-10 year time frame we are all focussing on...

Before I ask it though I want to say I'm fully on board with the investment types and strategies discussed so brilliantly here IF the next 5-10 years are like the last 50+ years using the same rules within the same system but what if they aren't? I would guestimate 99.9% of us didn't see negative interest rates, help to buy and all the other crap they created to keep the current system from dying in 2008 so are we all missing an even larger, once in a lifetime / several generations change about to take place?

What happens to our best laid plans if they move everything and everyone over to digital $ and £s?

Hear me out... it's an open secret the world's central banks want to issue their own digital currency as per the following from here with any emphasis mine...

The president of the Federal Reserve Bank of Cleveland, Loretta J. Mester said the following here in September 2020 with any emphasis mine...

I know everyone talks about being a 'contrarian' investor here but as someone who really prides myself on critical thinking I can't help feeling there's a MASSIVE blind spot here a lot of people just aren't seeing as everyone seems to be expecting the same rules AND the same system to still be here in 10 years time 

Put yourself in any of the western Government's shoes at the moment... if you knew that in 5 years time all the debt you created was going to be wiped out then why wouldn't you spend billions of 'old' money on these eye watering corona virus bail outs etc? Not only that but at the same time, by imposing all these lockdown measures you could also wipe out lots of small businesses and get more people dependent on the state so when you need minimal opposition to issue your new fully traceable digital currency you can make sure these newly dependent plebs can't refuse it as they can only have it in their "end users' wallets" 

Also do you think they will really let us plebs preserve whatever wealth we each have if their plan is to just 'cancel' the impossibly large amounts of existing debt they have printed and move us over (bribe?) under a global debt 'reset' or similar?

I really hope there's enough people in this thread to have a respectful discussion about such matters above and I'm happy to start a new thread if anyone wants 

IMHO it's inevitable but it'll be tiered.

What is the difference between a digital £, and the monies used in the large-scale banking transactions anyway? Last time I checked that was digital too, nobody buys their shares with cash.

I don't think it'll be altruistic at all, but rather the new digital £ will be used to help the government towards its goals. 

Personally I think the digital £ and cash pounds could be used in tandem with each other - the digital £ wallet could be heavily restricted to which transactions it can be spent on. If only a narrow range of shops (ie supermarkets) were allowed, then this makes it impossible to trade for regular crypto, and makes the distribution of helicopter money much easier because it can't be misspent on cars or houses.

All about control.

[CVG]

11 minutes ago, Harley said:

Works for me but how often?

Not sure if you are asking how often the strategy works or how often to rebalance.

The strategy has a good track record over time of making above average returns with reduced volatility. You know that because you're into the same books as me! We cannot be certain of the future (per posts above) so we trade some potential performance in order to hedge against the unknown. I think it will continue to work in future.

How often to rebalance? Could (should?) just go mechanical and rebalance once the asset class or asset class sector is +/- 5% outside of the desired position. In practice my divs and interest flow into the cash class and then I redistribute those as appropriate when I have at least £1K to invest.