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


spunko

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33 minutes ago, Castlevania said:

it shouldn’t be an issue

IMO, after what's been happening of late (e.g. weaponising a virus), maybe time to park such comments in 2020! :)

 

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18 minutes ago, Cattle Prod said:

Yep stoch and rsi turned up too, I'll stick up a chart, let me know what you think!

My system, which includes these and other variables, is not so sure about a sustainable rally at this time as there are some signals but also some missing confirmations and we currently at strong resistance (i.e. a prior support) on the monthly.

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27 minutes ago, Harley said:

IMO, after what's been happening of late (e.g. weaponising a virus), maybe time to park such comments in 2020! :)

 

You worry too much :)

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2 hours ago, DurhamBorn said:

Iv been adding back some miners,silver and gold.

I'll post it now so you can remind me should I forget but GDX (for example) is also in a potential multi-year cup and handle chart pattern, which if true means it could also be currently going through a pre-breakout retrace, although that may be a bit premature and it just gapped up.....and as we all know......gaps must be filled!

 

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3 hours ago, Harley said:

I'll post it now so you can remind me should I forget but GDX (for example) is also in a potential multi-year cup and handle chart pattern, which if true means it could also be currently going through a pre-breakout retrace, although that may be a bit premature and it just gapped up.....and as we all know......gaps must be filled!

 

Referring to the chart that (I think) you posted before, was last weeks bottom the bottom of the handle and it will fill upwards from here or was it a 'chink in the china' and will go lower before climbing out?

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On 28/11/2020 at 14:04, DurhamBorn said:

@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.

I've said for sometime that the jsutification for feeding stimulus into the economy directly will be the realtive collapse of the traditional bamnking system,which as we know is on it's knees given it's still more leveraged than 2006.

Simple reality is that the smallest drop of say 10-20% in house prices could undo large chunks of it.There jsut aren't the reserves to take losses that would stem form that.And that's without the wholesale collapse of CRE which is inevitable now.Tens of billions of loans are currently being marked at par on balance sheets for buildings that are empty....

This thread helped me realsie that there was an alternative to outright credit deflation over the longer term,but I remain convinced that it will need a deflationary shock of some magnitude to force the CB's to start bypassing traditonal stimulus routes.

The long term destruction of fiat money systmes seems baked in for me.

On 28/11/2020 at 16:28, 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.

I prefer to separate credit deflation from price deflation.Credit deflation is a function of the fractional reserve banking system and post basel ie the abandoment of cash reserve lending,means that the delicate balance of assets and liabilites on banks is woefully underprepared for any systemic demand shock.

Traditonal stimulus feedback loops are akin to=CB->High St/Commerical bank->credit hungry borrower->consumption->HMRC/retailer/company->High St/Commercial bank->CB

The over reliance on demand borrowers means that the system has a flaw it can't get around in that it simply won't work if people and businesses don't want to borrow.FRB in it's current state jsut can't exist without demand for credit.

We now have a situation where during the crunch in Q2 people actually paid off their credit cards................which isn't meant to happen.The implications for banks are clear ie the music stopped,briefly,but it stopped.

On 29/11/2020 at 11:33, Democorruptcy said:

He's stacked short.Unusual for him.Persoanlly,I think he's oversestimating near term dollar strength(he's been calling the bottom in DXY for a month or two) and I think he's playing with a mania in the Tech sector.He's got balls.I wouldn't take that trade on Tesla.Got burned on it tale end 2019.Never again(although I have checked put prices I won't lie.)

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On 29/11/2020 at 14:10, Democorruptcy said:

I've used City and IG

I think you get better value for moeny buying puts.On IG and the like you're repsonsible for divi payments of the company you're shorting,although nbot an issue with TeslaxD

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The US != UK.

The US is younger, more dynamic, and recovers faster.

It also ha better demographics.

Having limited welfare means that theres no need to spend years winkling people off benefits - they work. The US economic cycle is pretty nifty.

Sadly, the US sets global interest rates, 10y bonds setting the risk free rate.

The UK has to match in step to the Fed or risk its currency falling.

These enough evidence now to show there is no positive to your currency falling against the $. Its all negative.

The US stopped speculating on houses in 2008.

The UK 50+ carried on with IO TL and holiday lets.

Unlike US 50+, the UK 5+ are carrying a lot of debt.

 

 

 

 

 

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16 hours ago, Cattle Prod said:

WTI has crossed positive on the monthly MACD. I've been watching this for months, it's been a rare and reliable indicator of a bull run in oil, from 60%-200%. Think its happened around 7 times in 30 years, coming off a low. I'll try and post a chart tomorrow so my betters can accuse me of various crimes!

Brent not confirmed on monthly yet, and monthly charts can hide sharp corrections which will happen. But for me, this confirms the trend change Ive been expecting q4 this year.

Opec stuff is noise, the longer term supply trends are baked in now. Just wait till we are all let out again...

My reading is much less nuanced.I watch the price every day I'm on here.And over the last couple of weeks,we've jsut not had the downdrafts you'd expect with this sort of run up.But then that's hardly surprising given how much it had sold off.I've run into a few middle class types calling the death of oil lately because Bozo Bozza wants us all out of cars by 2030,rather overlooking the fact there's 7 bn people in the world,99% of whom don't live in his fiefdom.Just looking the wrong way at a crucial intersection.

We know Chinese demand is back up and running,India too.We can see the drawdown's through your psots on the matter.Another one today,althgouh I realsie there'll be subtleties and seasonality in the data I won't understand.

image.png.4ee4c38009541e025df5b22dd4c96faf.png

On 01/12/2020 at 14:15, Ma2 said:

I have the following in my watchlist, they have been at some good prices but I keep missing my targets as have to get approval at work to trade. I'd like a few plays on woodland too and some of these hold both.

ABF (Sugar amongst other things..Primark!)

LAND (Agri REIT)

GHE (Alternative asset mgmt)

BG (farm all the way to consumer goods)

CAM (crops, forestry)

Be good to hear of any others

You have to be careful as some of these ETF's contain exposure to ocmpanies that may be machinery manufacturers etc so not necessarily the exposure you may be looking for.

WOOD was another ETF I remember.

8 hours ago, Castlevania said:

It will come down to the terms of the Credit Support Annex (CSA). As long as the hedge counterparty (typically an investment bank) posts daily or weekly collateral up to the present value of the derivative contract then it shouldn’t be an issue.

This is the whole thing with collateral though.Stating the obvious here, that's it's only as good as the assets within it.

Deutsche Bank is big in derivatives.Need I say more?

It's often claimed that all derivatives net off,which I understand the logic of, however,when the collapse came in 08,turns out the collateral wasn't as good as they thought because of either fraud,incomeptence by ratings agencies or collapsing liquidity in bond markets.

I'm not overly familair with these issues so happy to get some education.

 

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Democorruptcy

Another Hussman downdate, this bloke simply cannot enjoy a rising market!

Quote

 

The chart below shows our Margin-Adjusted P/E (MAPE), which is better correlated with actual subsequent market returns than nearly every alternate measure we’ve tested or introduced. Currently, the MAPE stands at the most extreme level in U.S. history, eclipsing the extremes of 1929 and 2000.

spacer.png

https://www.hussmanfunds.com/comment/mc201201/

 

 

 

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Two Wolf St posts here,similar subject.All roads are leading to a credit deflation in CRE

I jsut can't believe media commentators aren't talking about the looming write downs in CRE because they shiould be.And that's without HSBC losing a shedload in Hong Kong.

https://wolfstreet.com/2020/12/01/just-in-time-for-holiday-shopping-season-uk-fashion-giant-arcadia-crashes-into-bankruptcy/

One of the UK’s largest brick-and-mortar fashion retailers, Arcadia, has crashed into administration, becoming the country’s biggest corporate casualty of the Pandemic so far, according to its administrator Deloitte. But it had already been weakened by years of brick-and-mortar meltdown and by asset stripping by its owners.

Arcadia’s suppliers are owed an estimated £250 million in unpaid invoices. The group’s retail landlords, many of whom were already in deep crisis mode, could also be hit hard. Affected listed landlords include British Land (circa 20 Arcadia stores), Hammerson (15 stores), and Landsec (10 stores),

The department store group Debenhams, which is going through its second light-touch administration in less than two years, is also exposed, since Arcadia is the biggest concession owner at its 122 UK stores. Debenhams was in rescue talks with its last remaining bidder, JD Sports, which pulled out of the talks as soon as it heard of Arcadia’s demise.

Pensioners will also feel the pain. While Green was exceptionally generous with the dividends he paid to himself and his wife, he left Arcadia’s pension fund with a £350 million budget shortfall. Even after the UK’s industry-backed pensions lifeboat takes over the reins, members of Arcadia’s pension plan who have not reached the plan’s normal retirement age at the administration date could lose 10% of their benefits.

 

 

https://wolfstreet.com/2020/12/01/the-state-of-the-american-office-suddenly-emptying-out-again-under-the-second-wave/

US-Kastle-office-occupancy-2020-12-01_10

image.thumb.png.391177d15bf8f4f20f5d0f8ab6e4367e.png

 

 

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Democorruptcy
3 minutes ago, sancho panza said:

Two Wolf St posts here,similar subject.All roads are leading to a credit deflation in CRE

I jsut can't believe media commentators aren't talking about the looming write downs in CRE because they shiould be.And that's without HSBC losing a shedload in Hong Kong.

The media commentators would retort "We cannot believe that sancho panza character has forgotten they now just put all the non performing assets in a bad bank and forget about them".

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and another.You do jsut wonder who's got these assets sat on their balance sheet marked to model.

Devil in the detail.......................................Fitch in the frame on this one.

 

https://wolfstreet.com/2020/11/30/vacancy-rate-at-iconic-manhattan-tower-with-899-apartments-hits-26-this-example-shows-how-fast-massive-the-exodus-has-been/

 

Vacancy Rate at Iconic Manhattan Tower with 899 Apartments Hits 26%: This Shows How Fast & Massive the Exodus Has Been

The iconic “New York by Gehry” 76-story tower on 8 Spruce Street in the Financial District of Manhattan, designed by architect Frank Gehry and built in 2011, with 899 apartments, plus an elementary school for 600 kids occupying the first five floors, had an occupancy rate of 98% in 2019. By September 2020, the occupancy rate had plunged to 74% – roughly 234 units of the 899 units were vacant!

When the $550-million mortgage was securitized in 2014, the building was “valued” at $1.1 billion. But when properties get in trouble – as mall and hotel properties have amply shown – those “valuations” at the time of securitization quickly turn into a hoax, and new appraisals cut valuations far below the original valuations and often below the loan amounts.

The 32-year $550-million loan matures in 2046 and is interest-only until the “anticipated repayment date” in 2024. It is the only mortgage in the CMBS, which was issued by the New York City Housing Development Corporation (NYCHDC 2014-8SPR) – meaning that this CMBS offers no diversification for investors; they’re exposed to the fate of one mortgage, collateralized by one iconic apartment tower with plunging occupancy.

On August 13, when Fitch reaffirmed its “AAAsf” rating – the highest on Fitch’s scale – of class A of the CMBS, the only tranche it rates, it ironically cited the occupancy rate as of March 31, which had dropped by then (from 98% in 2019) to 95.4%, meaning at the end of March roughly 41 apartments were vacant.

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8 minutes ago, Democorruptcy said:

The media commentators would retort "We cannot believe that sancho panza character has forgotten they now just put all the non performing assets in a bad bank and forget about them".

We (ie those basement dwellers on this thread) can't be the only ones sat there for the last two years seeing this implosion coming.

Let's be honest,anyone who can look the growth trend in online shopping and continue drawing the line roughly upwards at a diagonal of 30% eg my 4 year old,could have foreseen this mess.Covid has jsut turned 10 years of 'degrowth' into one.

I agree on the bad banks,but UK gubbermint is loaded to the gills with a lot of otehr problems,not sure there'll be the ability to plug the hole below sea level.

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41 minutes ago, sancho panza said:

I've run into a few middle class types calling the death of oil lately because Bozo Bozza wants us all out of cars by 2030,rather overlooking the fact there's 7 bn people in the world,99% of whom don't live in his fiefdom.Just looking the wrong way at a crucial intersection.

Same here, most notably a bloke who runs a successful business exporting wine to China, extolling the opportunity of selling to the burgeoning Chinese middle class. He genuinely thinks they'll want wine, but not oil. He's no mug but has fallen for the green crap.

It's an excellent sign that oil stocks have a very, very long way to run this cycle.

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geordie_lurch
9 minutes ago, Barnsey said:

Inflation IS coming

 

If they do "helicopter money into individuals' accounts" I believe there's a high chance it will be the fully trackable central bank's digital version which changes even more than this Twitter person and most realise :ph34r:

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2 minutes ago, geordie_lurch said:

If they do "helicopter money into individuals' accounts" I believe there's a high chance it will be the fully trackable central bank's digital version which changes even more than this and most realise :ph34r:

End of the decade I'd have thought, not now.  I agree it's coming though

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geordie_lurch
10 minutes ago, Loki said:

End of the decade I'd have thought, not now.  I agree it's coming though

I hope you are right and we all have long enough to reject it but they seem to nearly have all the required 'ducks in a line'...

So many people and business owners have been forced onto Universal credit and getting by on Covid related 'grants' which could be switched over to a digital universal basic income as a 'trial' etc.

The ever increasing debts due to all this can never realistically be paid back so they could just be wiped in a debt jubilee when they move over to the 'new' digital currencies

Etc etc.

See previous posts I made about China who are already a few months ahead of us with their digital yuan and state approved list of businesses and services you can only spend then with o.O

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5 minutes ago, geordie_lurch said:

digital universal basic income as a 'trial'

This could happen with the dollar still in it's conventional form.  I think it would be a small amount compared to the amounts going into the reflation industries.

What do you mean by digital dollar as most of it is digital already anyway xD

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geordie_lurch
1 minute ago, Loki said:

This could happen with the dollar still in it's conventional form.  I think it would be a small amount compared to the amounts going into the reflation industries.

What do you mean by digital dollar as most of it is digital already anyway xD

I haven't got a list of links to hand as I'm on my mobile but this from my recent history should get you started. You are missing some HUGE differences as IMHO this is potentially the greatest change to the way 'money' works in decades if not longer...

https://www.zerohedge.com/markets/heres-how-central-banks-will-finally-unleash-inflation-shenzhen-case-study

If Zerohedge offends you like some on here then go and look up the federal reserve acts they passed during this pandemic regarding the actual new digital dollars. Alternatively I summarised it all in a post on here somewhere previously :Beer:

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One of the big themes of this thread was about companies who could front run inflation.Put up prices quicker than costs.A prime example of this was Royal Mail putting up stamps by 11% this week.Now of course letter volumes have tanked,but being able to put prices up that fast while workers wages will go up 2% and warehouse/offices/vans etc are depreciating at a set rate means rising free cash.Notice as well very little media attention.In normal times the press would of been all over this,but now its just a passing story.Telcos should be next in line.Regulators are backing off because they know the country needs investment and the companies now have leverage.

Back in the thread Harley mentioned how present generations are going to to taught about push inflation the above is an example.

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Democorruptcy
55 minutes ago, Barnsey said:

Inflation IS coming

 

I thought they have already done that earlier this year?

Quote

 

The intent (of the law) is to get the money out as fast as you can, but when you do that, you can’t possibly anticipate every possible situation,” said Howard Gleckman, a senior fellow at the Urban Institute’s Tax Policy Center. “So there are going to people who fall through the cracks and are going to have to wait until next year to get their money.”

Here's a look at who will be left out when the checks start arriving:

Under the new law, individuals with an adjusted gross income of $75,000 or less are eligible for a one-time payment of up to $1,200 ($2,400 for joint tax returns) and $500 for each qualifying child. Those with little or no tax liability also will get $1,200 ($2,400 for joint returns).

But the payments start to phase out for Americans who earn more than $75,000, or $150,000 for a joint return. The payments phase out completely for single filers with incomes exceeding $99,000, $136,500 for head of household filers with one child and $198,000 for joint filers with no children.

The payments will be sent via direct deposit to people who already have provided the Internal Revenue Service with their bank account information. Those who haven’t will receive a check in the mail.

https://eu.usatoday.com/story/news/politics/2020/04/10/coronavirus-who-doesnt-get-stimulus-check-millions-people-left-out/5112027002/

 

 

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1 hour ago, AWW said:

Same here, most notably a bloke who runs a successful business exporting wine to China, extolling the opportunity of selling to the burgeoning Chinese middle class. He genuinely thinks they'll want wine, but not oil. He's no mug but has fallen for the green crap.

It's an excellent sign that oil stocks have a very, very long way to run this cycle.

How is the wine going to make its way to China?

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