Jump to content
DOSBODS
  • Welcome to DOSBODS

     

    DOSBODS is free of any advertising.

    Ads are annoying, and - increasingly - advertising companies limit free speech online. DOSBODS Forums are completely free to use. Please create a free account to be able to access all the features of the DOSBODS community. It only takes 20 seconds!

     

IGNORED

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


spunko

Recommended Posts

UnconventionalWisdom
50 minutes ago, Lightscribe said:

realise that inflation is rapidly taking hold.

Wouldn't people see gold as an inflation hedge? Or do you think people will need the liquidity?

Link to comment
Share on other sites

  • Replies 35.1k
  • Created
  • Last Reply
1 hour ago, UnconventionalWisdom said:

Wouldn't people see gold as an inflation hedge? Or do you think people will need the liquidity?

Only if they see the inflation coming! We're ahead of the curve.

But at some point after high inflation, I think that you'll see a rotation into long-term gilts becasue they'll be paying a good fixed yield whereas gold pays none.

Link to comment
Share on other sites

11 hours ago, sancho panza said:
13 hours ago, Bricormortis said:

Harry Dent screaming deflation. 13 minute video.

Contrary to the views expressed here of course, I found it interesting, talks bout gold a lot

Harry Dent has been screaming deflation for as long as I can remember.A very lucid and engaging speaker but someone who needs to take on board that liquidity can undermine the most logical of thoughts.

The banking system is set up for a deflationary event,msot likely in corporate bond/money markets but also possibly car loans /revolving credit.But it has been set up for a deflationary event since 08.

This one will kick in once the infaltion is runnign and the Fed can't push liquidty like it's done over the last decade..

This BK could see the end of banks as we've known them.

Harry Dent is right that Central Banks are fighting deflation, but I think he is fundamentally wrong when he remarks that there has been no inflation.
Government inflation indices are comprised of a very thin data set, they certainly don't include equity prices and assets such as real estate. Throw them in the mix and we've had plenty of inflation, but the likes of Harry are happy to just ignore that.
His calls on Gold have been nothing short of abysmal, that's not to say that we might not get $600 Gold, but seriously can anyone see that, every PM mining company would go bust!
Central Banks have over the last two decades proven without doubt that they can fill any deflationary hole whenever one appears, whether it be a credit crunch, or a pandemic.
If they want to get their economy moving and the consumer can't, I don't doubt their ability to take the consumers place!

They want inflation, they need inflation, they explicitly state a 2% target, they will I'm sure run behind it when it comes because it is in their interest to do so.
I want what Harry predicts, but I know I'm not gonna get it....

Link to comment
Share on other sites

4 hours ago, Lightscribe said:

This pretty much. The markets dislike uncertainty. They think that Biden is in, the vaccine is here and normal service resumes but with ever more QE stimulus coming.

Why would you need something like gold, when there’s stocks like Tesla (that isn’t based on anything silly like production/profit/dividends etc) will continue to go up and up forever?

If by some 4D chess move Trump manages to overturn it, the markets will tank and PMs will shoot back up. 

Other than that PMs will slowly decline from here until either the economic realisation causes the big kahuna next year or the masses start to realise that inflation is rapidly taking hold.

I think that PMs will also be influenced by the US stimulus and dollar index. When the next stimulus packages go through congress/senate/president then you could see PMs go higher. A lower dollar index could also see PMs higher

Link to comment
Share on other sites

44 minutes ago, Cattle Prod said:

Not a hard target anymore  Fed snuck that in over a summer. When inflation is 5%, they'll be averaging it over the last 5 years or something to come up with 1.99%.

Yes and running behind the target by around 2% on rates maybe even 3% at some points.Plus what everyone will miss is that rates wont be that affective early on because they have put that much liquidity into the system.If we take some big cash flow companies with high debts as an example,they will likely simply pay off debt as it comes up rather than re-issue at much higher coupons.Of course the consumer will suffer a lot at the margins,but only the margins.The main hit will be highly leveraged mortgage holders both private and BTL,but this is an industrial cycle coming up and consumers arent driving it anyway.

The other problem for CBs is that if they remove QE this time they pretty much bankrupt governments because thats where most of the QE has gone.Governments are already going to be in massive trouble because gilts etc will become less and less attractive as inflation moves higher.To roll gilts over its likely the BOE will have to be involved.If they try to issue at too low rates though they will simly be pouring fuel onto the inflation fire.

The only route through is likely to be tax the inflation.Allowances of all kinds kept steady while inflation runs.State spending kept below inflation.Its going to be a fascinating cycle.

Link to comment
Share on other sites

45 minutes ago, Cattle Prod said:

Not a hard target anymore  Fed snuck that in over a summer. When inflation is 5%, they'll be averaging it over the last 5 years or something to come up with 1.99%.

From the Fed's website,

"Why does the Federal Reserve aim for inflation of 2 percent over the longer run?

The Federal Open Market Committee (FOMC) judges that inflation of 2 percent over the longer run, as measured by the annual change in the price index for personal consumption expenditures, is most consistent with the Federal Reserve’s mandate for maximum employment and price stability. When households and businesses can reasonably expect inflation to remain low and stable, they are able to make sound decisions regarding saving, borrowing, and investment, which contributes to a well-functioning economy."

So, the Fed wants 2% minimum inflation

"For many years, inflation in the United States has run below the Federal Reserve’s 2 percent goal. It is understandable that higher prices for essential items, such as food, gasoline, and shelter, add to the burdens faced by many families, especially those struggling with lost jobs and incomes. At the same time, inflation that is too low can weaken the economy. When inflation runs well below its desired level, households and businesses will come to expect this over time, pushing expectations for inflation in the future below the Federal Reserve’s longer-run inflation goal. This can pull actual inflation even lower, resulting in a cycle of ever-lower inflation and inflation expectations."

The Fed is terrified of low inflation

"If inflation expectations fall, interest rates would decline too. In turn, there would be less room to cut interest rates to boost employment during an economic downturn. Evidence from around the world suggests that once this problem sets in, it can be very difficult to overcome. To address this challenge, following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation modestly above 2 percent for some time. By seeking inflation that averages 2 percent over time, the FOMC will help to ensure longer-run inflation expectations remain well anchored at 2 percent."

Modestly well anchored at 2% means excessively above 2%. The Fed makes no secret of its aim to get inflation much much higher. Any stock market bust which follows on from an economic bust will get them to get to this aim by any means necessary. Inflation will be a major problem, stoked by fears of a deflation

 

 

Link to comment
Share on other sites

@arrow nice for people to actually see the Fed wake up to the fact they need to end the dis-inflation cycle at whatever cost because the end of dis-inflation means outright deflation that destroys fiat money debt systems.

They have moved onto our road map.Never fight the Fed.

Link to comment
Share on other sites

Long time lurker here, love this thread- best education I’ve ever had I think (including the 12 years at school)!
Afraid I can’t offer the insights like DB/CP etc but Just a few things I’ve been made aware over the past week showing how money from BOE is being spent across government initiative. Our hospital-I work in NHS as clinician (and from what I’m told 35-40 more UK wide) will be rebuilt- our hospital build is forecast to cost £1billion- so that’s £40billion earmaked.
Also been made aware of Some infrastructure initiatives in Italy- Which seem incredibly generous https://www.romizi.com/eco-bonus-sisma-bonus-and-super-bonus/#toggle-id-4 - I wonder if UK may try something similar.

Seems like they are trying pretty hard to fight off deflation, despite continuing with these lockdowns! my thoughts on that is they don’t see the hospitality parts of the economy playing a roll in the reflation and want the weakest hands out the market.

 

Link to comment
Share on other sites

40 minutes ago, dnb24 said:

Long time lurker here, love this thread- best education I’ve ever had I think (including the 12 years at school)!
Afraid I can’t offer the insights like DB/CP etc but Just a few things I’ve been made aware over the past week showing how money from BOE is being spent across government initiative. Our hospital-I work in NHS as clinician (and from what I’m told 35-40 more UK wide) will be rebuilt- our hospital build is forecast to cost £1billion- so that’s £40billion earmaked.
Also been made aware of Some infrastructure initiatives in Italy- Which seem incredibly generous https://www.romizi.com/eco-bonus-sisma-bonus-and-super-bonus/#toggle-id-4 - I wonder if UK may try something similar.

Seems like they are trying pretty hard to fight off deflation, despite continuing with these lockdowns! my thoughts on that is they don’t see the hospitality parts of the economy playing a roll in the reflation and want the weakest hands out the market.

 

Welcome dnb24,everyones insights are welcome here iv gained huge amounts myself from everyone on the thread.

Those sort of things are exactly right about reflation.People simply dont understand how macro works over long cycles.My old friend called them macro tourists.The fact is the way our money and government systems are set up in a modern economy mean there is room for almost infinite printing and spending while we have dis-inflation.It would be insane not to print,and those who call for the CBs to print nothing when economies are in free fall are really calling for the biggest crash and dislocation in human history.It sounds almost too simple,but actually CBs fight whats in front of them.Thats it.Its their job.As you say all these little none jobs that a long dis-inflation has thrown up,service led consumption really cant be saved because the cycle ahead isnt for them.They had theirs.The economy underneath them simply couldnt support them anymore.

A small to most people,but hugely important one for me and my area is this one

https://www.chroniclelive.co.uk/news/north-east-news/department-transport-consider-re-opening-18522760

Ferryhill is one of the poorest towns in the country.Built on coal.It sits on the east coast mainline.Actually on it,around it.Yet its station was closed during the Beeching Cuts.This sort of investment would open up the country to the people on their doorstep,London in 2h25,Darlington in 10 minutes,Newcastle,Durham,Scotland etc.Not just for work,but for recreation etc.The pubs and restaurants of Durham 10 minutes away by train.Fantastic for local people,and not so local would use it for the mainline as well.

The above multiplied 1000s of times are what the cycle will be about,across the world.

CBs are going to print it,and governments are going to spend it,and if you think you can sit on capital doing nothing while the natives start to polish off their spears because they are fed up you can think again.

The message soon will be loud and clear.Do you want to invest with us? ,government and private sector/finance,or should we just print all your capital away and do it anyway?.Thats the only choice for the cycle.

Those muppet woke investment funds are dumping the very sectors that will gain from the cycle.Perhaps not gain the most,there will be many unexpected winners,but what i like is the fact they are almost certain to gain,and be able to leverage the inflation.

 

Link to comment
Share on other sites

29 minutes ago, Cattle Prod said:

Another penny drops for me. I never really understood why deflation is so bad per se, clears out bad debts and zombies and makes stuff cheaper. But I hadn't taken it to its logical conclusion - that is quite the incentive. 

That also shows that gold is good to hold in a deflation. If you can suffer the initial liquidity selloff, you are covered if (a) deflation is allowed destroy fiat, or (b) CBs print their way back out of the deflationary hole back to inflation. Always hold gold IMO. I bought some more on Friday.

True on gold,but remember its very unlikely Fiat would ever fail in a dis-inflation/outright deflation because CBs will react on steroids.The fail would come if they didnt react.The macro work is around the size of their action in regards to the situation,too little or too much.The nature of the beast is its very unlikely to be ever just right.

Fiats likely demise will come at the end of an inflation cycle.Its that point CBs are trapped.They can remove fiat of course,but its a very difficult thing to get right.

Iv been thinking a lot about the next/this next cycle end.This cycle is running for me now so im more interested in looking at the end of the roadmap now.

I have been and am very very scared of what the macro position will be.However smoke is clearing a bit and a roadmap out of systemic collapse.I think it will involve taxation,a basic income,and a lowering of working hours.

I think we might see 10 hours a week citizens income,and a reduction in hours worked in full time workers.

Im going to be doing a lot more work on the end of the roadmap the next couple of years,but for now i dont want to go into it too much as it doesnt affect us yet,wont for several years and doesnt change the investment thesis at all for a long time.

Link to comment
Share on other sites

53 minutes ago, Cattle Prod said:

Another penny drops for me. I never really understood why deflation is so bad per se, clears out bad debts and zombies and makes stuff cheaper. But I hadn't taken it to its logical conclusion - that is quite the incentive. 

That also shows that gold is good to hold in a deflation. If you can suffer the initial liquidity selloff, you are covered if (a) deflation is allowed destroy fiat, or (b) CBs print their way back out of the deflationary hole back to inflation. Always hold gold IMO. I bought some more on Friday.

PM's are one of my five Asset Classes - 20% split between physical at home, physical in vault, miners and ETF's for simplified balancing. I also weight within that according to the gold silver ratio. So at the moment I'm buying more silver action than gold. As PM prices fall I'm forced to rebalance from my winning asset classes thus buying low.

Link to comment
Share on other sites

3 hours ago, dnb24 said:

Long time lurker here, love this thread- best education I’ve ever had I think (including the 12 years at school)!
Afraid I can’t offer the insights like DB/CP etc but Just a few things I’ve been made aware over the past week showing how money from BOE is being spent across government initiative. Our hospital-I work in NHS as clinician (and from what I’m told 35-40 more UK wide) will be rebuilt- our hospital build is forecast to cost £1billion- so that’s £40billion earmaked.
Also been made aware of Some infrastructure initiatives in Italy- Which seem incredibly generous https://www.romizi.com/eco-bonus-sisma-bonus-and-super-bonus/#toggle-id-4 - I wonder if UK may try something similar.

Seems like they are trying pretty hard to fight off deflation, despite continuing with these lockdowns! my thoughts on that is they don’t see the hospitality parts of the economy playing a roll in the reflation and want the weakest hands out the market.

 

Welcome dnb24. Wasn't that hospital build target that you mention seen as just another one of our prime minister's early faux pas? He was widely poked fun of at the time, about 18 months ago I believe, for suggesting such an ambitious idea, but was it in reality just typical unprofessional Boris letting the 'reflation cat' out of the bag...?                                                                                                                                                           If we do get 50 new hospitals, is there a clear investment strategy for us to play here? What do others here think?                                                                                                                                                                                           ...Perhaps we won't get a commodity cycle, but a covid cycle, sort of makes terrifying sense if you think about it! (Don't have nightmares!)

Link to comment
Share on other sites

5 hours ago, arrow said:

The Fed is terrified of low inflation

"If inflation expectations fall, interest rates would decline too. In turn, there would be less room to cut interest rates to boost employment during an economic downturn. Evidence from around the world suggests that once this problem sets in, it can be very difficult to overcome

But is this not what they have all done over the last 5-10 years and why in Europe they are screwed with -ve interest rates?!

Link to comment
Share on other sites

1 hour ago, JMD said:

Welcome dnb24. Wasn't that hospital build target that you mention seen as just another one of our prime minister's early faux pas? He was widely poked fun of at the time, about 18 months ago I believe, for suggesting such an ambitious idea, but was it in reality just typical unprofessional Boris letting the 'reflation cat' out of the bag...?                                                                                                                                                           If we do get 50 new hospitals, is there a clear investment strategy for us to play here? What do others here think?                                                                                                                                                                                           ...Perhaps we won't get a commodity cycle, but a covid cycle, sort of makes terrifying sense if you think about it! (Don't have nightmares!)

Short Private Healthcare?...Long Big Pharma/Biomed/Equipt?....or maybe its all being set-up for a sell off to mates?

Link to comment
Share on other sites

2 hours ago, DurhamBorn said:

True on gold,but remember its very unlikely Fiat would ever fail in a dis-inflation/outright deflation because CBs will react on steroids.The fail would come if they didnt react.The macro work is around the size of their action in regards to the situation,too little or too much.The nature of the beast is its very unlikely to be ever just right.

Fiats likely demise will come at the end of an inflation cycle.Its that point CBs are trapped.They can remove fiat of course,but its a very difficult thing to get right.

Iv been thinking a lot about the next/this next cycle end.This cycle is running for me now so im more interested in looking at the end of the roadmap now.

I have been and am very very scared of what the macro position will be.However smoke is clearing a bit and a roadmap out of systemic collapse.I think it will involve taxation,a basic income,and a lowering of working hours.

I think we might see 10 hours a week citizens income,and a reduction in hours worked in full time workers.

Im going to be doing a lot more work on the end of the roadmap the next couple of years,but for now i dont want to go into it too much as it doesnt affect us yet,wont for several years and doesnt change the investment thesis at all for a long time.

Do you see PMs as a vital hold over the next few years?

Link to comment
Share on other sites

21 minutes ago, Noallegiance said:

Do you see PMs as a vital hold over the next few years?

I see them as a vital hold always to be honest for insurance.I think topping up silver at anything below $30 makes sense.Iv been buying some miners again myself,mostly Harmony Gold at the moment as that and Cameco are going to form most of my Uranium assets.

Link to comment
Share on other sites

2 hours ago, JMD said:

is there a clear investment strategy for us to play here? What do others here think?

I guess this is where we call on the wide experience of the posters here. Hospital re-build is very different to pharma, so who actually makes medical equipment? There are some specialist companies for new medical devices in the Cambridge business parks, but I guess the big spend will be on fitting out theatres and wards, so more mundane stuff. I do know that 20 years ago, UK surgeons would swear by Black & Decker, but I don't think surgeons are a large part of B&D's consumer base.

More generally, for the reconstruction, what UK based engineering co's are people buying? As DB has said, JCB unfortunately only has two shares, and neither of them are for sale. Rolls Royce looks very saddled with debt and is loss-making. Who will be the main contractors in general infrastructure re-builds (transport, hospital buildings, power stations etc.)? The oil, energy and telcos will presumably have their own parts of that story sewn up, but what other players will benefit?

Link to comment
Share on other sites

The hospital rebuild partners are as follows. It seems the basis for hospitals is folllowing the Chinese model- ie you’re assessed and investigated on the day- the plan is investigations (Mri/ct/bloods etc) all completed on the day- therefore massively increasing imaging and testing capacity -shares in imaging Companies may be worth worth looking at

Programme Management Currie & Brown
Architect Led Design Team Ryder Architecture Lead
Healthcare Planning ETL
Project Management Aecom
Quantity Surveyor Currie & Brown
Enabling Works Project Management Currie & Brown
Link to comment
Share on other sites

3 hours ago, MrXxxx said:

But is this not what they have all done over the last 5-10 years and why in Europe they are screwed with -ve interest rates?!

Yes and no.After the financial crisis the CBs pretty much re-financed the banks balance sheets with QE and also monetized half of governments welfare budgets .This time they are going to finance direct fiscal investment.They are even nudging governments to get on with it.Its a once in a generation chance to print enough to actually re-tool,re-build.I wont see it again,my children might not.

Europe has made massive policy errors yes.Its mainly because they have the same currency but different fiscal needs.Germany has pretty much stolen all the wealth.As usual.

Link to comment
Share on other sites

Shell must pay nearly half a billion for oil spill in Nigeria, court rules

Nigeria’s Supreme Court has declined an application from Royal Dutch Shell which aimed to set aside a previous ruling that ordered the company to pay $467 million for damages caused by an oil spill almost five decades ago.

The judges upheld the previous decision, which ruled that the oil conglomerate must pay damages for an oil spillage in Ejama-Ebubu in Rivers State. According to Bloomberg and local media reports, the five-member panel said that Shell’s request to review the case lacked merit.

https://www.rt.com/business/508092-shell-oil-spill-nigeria/

Link to comment
Share on other sites

Democorruptcy

Just looking at True Contrarian's largest shorts in his last post Nov 8th  he could do with a turn

Quote

I have 17.5% of my total liquid net worth short XLK, 5.2% short TSLA, 4.1% short QQQ (some new), 2.3% short ZM, 0.8% short AAPL, and 0.4% short SMH. I plan to keep adding especially to my QQQ short into strength whenever QQQ is near 295 or above.

https://www.marketwatch.com/investing/fund/xlk/holdings?mod=mw_quote_tab

https://www.marketwatch.com/investing/stock/tsla

https://www.marketwatch.com/investing/fund/qqq/holdings?mod=mw_quote_tab

https://www.marketwatch.com/investing/stock/zm

Link to comment
Share on other sites

12 minutes ago, Democorruptcy said:

It's Big Short 2 stuff. Can he hang in long enough?

Link to comment
Share on other sites

10 minutes ago, Democorruptcy said:

Must admit shorting isnt for me.I never use leverage ever and with longs you can sit and wait with no pressure.Im pretty sure all his shorts will fall huge amounts from where they are now,but a parabolic increase would destroy anyone leveraged.Tesla is a huge bubble of course.Even a guy at work said his son had started buying it on some App,hes 21 and works in Tesco.Tesla only makes money on carbon credits etc from what i can see in its accounts.

Instead of shorting though i prefer to look at the opposite end of the bubble,of course that old style energy right now.

Steve is a superb contrarian and has really deep knowledge in areas most people dont even consider.He would be first to admit though timing is never perfect.

Link to comment
Share on other sites

The comedy/tragedy of all this is that the West spent millions of lives in the 20th century trying to defend itself against socialism. Now we're at the stage where we've let so much socialism in that the only response available is more of it because the free market antidote would initially be so expensive that it's unpalatable.

Would you like to continue to eat the sick, or get out of eating sick by first eating shit?

Link to comment
Share on other sites

Archived

This topic is now archived and is closed to further replies.

  • Recently Browsing   0 members

    • No registered users viewing this page.

×
×
  • Create New...