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

[leonardratso]

Just now, Loki said:

Not doing well here am I, misread the tweet and forgot you were being contra-contrarian 

heheh, has sir been drinking strong black coffee again without having any greasy sausages to help soak it up.

[Loki]

Just now, leonardratso said:

heheh, has sir been drinking strong black coffee again without having any greasy sausages to help soak it up.

Haven't even got that excuse, just being a dopey twat for 5 mins after waking up from a snooze 

[leonardratso]

i see uncle terrys 67 now and has grown a beard.

Hes starting to look more and more like peter schiff these days, if he starts pushing gold then we'll know its the same guy;

https://www.fundsmith.co.uk/tv

some bobbins about hm retiring, ve actually done really well out of fundsmith and i know he wouldnt be in favour here, but i really dont mind having some money in there since its practically doubled over last couple of years, dont mind the fees cos hes doing all the work, so fair enough.

[ThoughtCriminal]

https://www.bbc.co.uk/news/world-us-canada-56307153

 

In today's NFT clown world...........

 

Bidding for Jack Dorseys first ever tweet (Twitter founder) has reached 2 million dollars. 

 

That meteor of death can't get here soon enough. 🤦‍♂️

[Starsend]

Quick pension question as I know pension related stuff has been discussed quite a lot in the past on this thread.

I've just managed to find an old pension from a company I was at 30 years ago. I was only there for two years and I think a couple of thousand got paid in. It's now worth just over eight thousand. Not a huge sum but better than a smack in the teeth.

I'm wondering what to do with it. It's currently invested with Aegon in some crappy lifestyle fund. Is it worth transferring such a small amount to my main SIPP with Hargreaves Lansdown or is the hassle/fees not worth it?  Would I be better off leaving it where it is and putting it in drawdown in two years when I'm 55 and taking the lot out in one year?

I have done some googling but didn't really find anything very helpful.

 

 

[planit]

This next turn is important.

Everyone is expecting the inflation figures to start coming through. This means that focus will move from treasuries falling to real rates going negative again, there is no way the yield on treasuries to rise enough to stop this move.

Gold needs the real rates to be negative so the down trend in gold should be broken.

I am not sure whether this fits in with the Dollar strength reversing but perhaps DB can fill me in on where we are with that move.

I don't see how this more apparent inflation will be negative for oil unless it comes through much less strong than expected.

 

From the chart it looks like the data could be a way off yet, April figures are probably a step up and then May for the bigger jump. So we have a few weeks of uncertainty, gold could go lower, oil could pull back.

 

For me I am hoping we still have a bit of a run left in RDSB and BP,

I am willing to wait on the gold (stay invested with a recent increase in miners exposure) as it will be too hard trying to hit the bottom.

 

Or I could be talking shit and gold is in a 5 year bear market with oil about to hit -$20 again. Please let me know if you disagree.

Thanks and cheers

[Bus Stop Boxer]

1 hour ago, ThoughtCriminal said:

🤣

 

Fair point, but it's my "get the fuck out of blighty" money and I've been too shitty arsed to risk it. 

 

Although its being risked anyway if we get the inflation DB is expecting.

 

I really do need to take the plunge with it though, you're right. 

He was expecting it in a few years time if i remember correctly.

[Castlevania]

7 minutes ago, Starsend said:

Quick pension question as I know pension related stuff has been discussed quite a lot in the past on this thread.

I've just managed to find an old pension from a company I was at 30 years ago. I was only there for two years and I think a couple of thousand got paid in. It's now worth just over eight thousand. Not a huge sum but better than a smack in the teeth.

I'm wondering what to do with it. It's currently invested with Aegon in some crappy lifestyle fund. Is it worth transferring such a small amount to my main SIPP with Hargreaves Lansdown or is the hassle/fees not worth it?  Would I be better off leaving it where it is and putting it in drawdown in two years when I'm 55 and taking the lot out in one year?

I have done some googling but didn't really find anything very helpful.

 

 

HL do all the donkey work. They’ll harass your old pension provider to hand it over to them. So from an effort point of view it’s minimal from you once you’ve filled in the forms.

[Bus Stop Boxer]

10 minutes ago, Starsend said:

Quick pension question as I know pension related stuff has been discussed quite a lot in the past on this thread.

I've just managed to find an old pension from a company I was at 30 years ago. I was only there for two years and I think a couple of thousand got paid in. It's now worth just over eight thousand. Not a huge sum but better than a smack in the teeth.

I'm wondering what to do with it. It's currently invested with Aegon in some crappy lifestyle fund. Is it worth transferring such a small amount to my main SIPP with Hargreaves Lansdown or is the hassle/fees not worth it?  Would I be better off leaving it where it is and putting it in drawdown in two years when I'm 55 and taking the lot out in one year?

I have done some googling but didn't really find anything very helpful.

 

 

 

Ive got (currently) £36k-ish gross, im waiting on at the end of May when i turn 55.

I doubt i will make it over the bridge, before Schwab nicks it all, however, if the chance presents itself, i will be taking it all and not coming back next week for a shot at the car and the holiday.

[feed]

Well, we'll see on Monday

https://www.teletrader.com/us-senate-passes-1-9-trillion-covid-19-stimulus/news/details/54821448?internal=1

The United States Senate approved the $1.9 trillion coronavirus stimulus package early on Saturday after more than 24 hours of debating the legislation and amendments to it. 

[Castlevania]

Just now, feed said:

Well, we'll see on Monday

https://www.teletrader.com/us-senate-passes-1-9-trillion-covid-19-stimulus/news/details/54821448?internal=1

The United States Senate approved the $1.9 trillion coronavirus stimulus package early on Saturday after more than 24 hours of debating the legislation and amendments to it. 

Time to buy Tesla 

[Loki]

15 minutes ago, feed said:

Well, we'll see on Monday

https://www.teletrader.com/us-senate-passes-1-9-trillion-covid-19-stimulus/news/details/54821448?internal=1

The United States Senate approved the $1.9 trillion coronavirus stimulus package early on Saturday after more than 24 hours of debating the legislation and amendments to it. 

Let's get this party started

(Although, the bill will now be returned to the House of Representatives for final approval.)

[AlfredTheLittle]

29 minutes ago, planit said:

This next turn is important.

Everyone is expecting the inflation figures to start coming through. This means that focus will move from treasuries falling to real rates going negative again, there is no way the yield on treasuries to rise enough to stop this move.

Gold needs the real rates to be negative so the down trend in gold should be broken.

I am not sure whether this fits in with the Dollar strength reversing but perhaps DB can fill me in on where we are with that move.

I don't see how this more apparent inflation will be negative for oil unless it comes through much less strong than expected.

 

From the chart it looks like the data could be a way off yet, April figures are probably a step up and then May for the bigger jump. So we have a few weeks of uncertainty, gold could go lower, oil could pull back.

 

For me I am hoping we still have a bit of a run left in RDSB and BP,

I am willing to wait on the gold (stay invested with a recent increase in miners exposure) as it will be too hard trying to hit the bottom.

 

Or I could be talking shit and gold is in a 5 year bear market with oil about to hit -$20 again. Please let me know if you disagree.

Thanks and cheers

I guess the reason the RDSB and BP share price is lower than you would expect with oil at its current level is because of the backwardation, where prices are expected to fall back down soon. I wonder how long it will take for expectations to adjust and share prices to go up if oil doesn't fall.

Given that this thread is expecting oil to easily break through 100 dollars within a few years, is there an easy way of trading the futures and would it be worth doing? Brent futures for 2028 are 55 dollars, I guess you could buy now at 55 and get an opportunity to sell in the next few years at a higher price, but assuming oil does go up a lot you'd maybe make more just buying BP 🙂

[planit]

24 minutes ago, AlfredTheLittle said:

I guess the reason the RDSB and BP share price is lower than you would expect with oil at its current level is because of the backwardation, where prices are expected to fall back down soon. I wonder how long it will take for expectations to adjust and share prices to go up if oil doesn't fall.

Given that this thread is expecting oil to easily break through 100 dollars within a few years, is there an easy way of trading the futures and would it be worth doing? Brent futures for 2028 are 55 dollars, I guess you could buy now at 55 and get an opportunity to sell in the next few years at a higher price, but assuming oil does go up a lot you'd maybe make more just buying BP 🙂

If you were playing the futures you would normally be looking at leverage so the profit or loss could be very big.

I seem to remember I think it was Bubble Pricker looking at oil futures and the size of a contract was something like $55,000 but he was spot on, oil was about $10 at the time and it went up to $140 [sic?] although the contract length was probably a few years short of the whole bull run. I wonder if he did manage to invest somehow (I don't think he really wanted to gamble that big and I am not sure if he had access to the market).

[leonardratso]

2 minutes ago, Cattle Prod said:

He's right though, oil has caught up. It closed last week at 3 year highs. Few would have predicted that 6 months ago, now I'm seeing 80, 90, 100 barrel calls everwhere like bleeding lemmings.

It was easy to call this at $20 or $35, due to the clear mispricing. Not so easy now. Its still the question between lost supply and demand to come back. Lost supply is pretty clear, but I'm not convinced yet about a full demand bounce back, you only have to look at how stupid our government is being about travel. A bunch of US states are ending lockdown and it'll be very interesting to watch activity there, especially as we move into driving season.

I expect Saudi are watching the same thing. It's a tricky time, not to get cocky about profits. I'd really feel a lot better if we had a proper bull market correction. I'm suppose I'm really speaking about my leveraged positions, I'm not too bothered about my stock holdings. Long term holds.

hmm yar i was thinking of top slicing the oilers last week, in total about 20% up on a drip in, gold and silver fooked though, so was thinking of a quick slice into gold/silver, emptied all the tech last week and then started buying some back on late friday, so might have to do some jiggery pokery on monday, or could just say fuck it and buy some mo BTC and ETH, theyve been in a channel for while now, without much direction, not sure what they are waiting for or which way they are going, the stimmy cheques might help, but not a winkle so far, maybe they are waiting for the real cash to turn up.

[Yadda yadda yadda]

2 hours ago, planit said:

This next turn is important.

Everyone is expecting the inflation figures to start coming through. This means that focus will move from treasuries falling to real rates going negative again, there is no way the yield on treasuries to rise enough to stop this move.

Gold needs the real rates to be negative so the down trend in gold should be broken.

I am not sure whether this fits in with the Dollar strength reversing but perhaps DB can fill me in on where we are with that move.

I don't see how this more apparent inflation will be negative for oil unless it comes through much less strong than expected.

 

From the chart it looks like the data could be a way off yet, April figures are probably a step up and then May for the bigger jump. So we have a few weeks of uncertainty, gold could go lower, oil could pull back.

 

For me I am hoping we still have a bit of a run left in RDSB and BP,

I am willing to wait on the gold (stay invested with a recent increase in miners exposure) as it will be too hard trying to hit the bottom.

 

Or I could be talking shit and gold is in a 5 year bear market with oil about to hit -$20 again. Please let me know if you disagree.

Thanks and cheers

My thinking was that expectation of increasingly negative real rates drove the rise in gold miners last week whilst the metal went down. Although I suppose the dollar going up helps when costs are in other currencies.

[JREWING]

16 minutes ago, leonardratso said:

hmm yar i was thinking of top slicing the oilers last week, in total about 20% up on a drip in, gold and silver fooked though, so was thinking of a quick slice into gold/silver, emptied all the tech last week and then started buying some back on late friday, so might have to do some jiggery pokery on monday, or could just say fuck it and buy some mo BTC and ETH, theyve been in a channel for while now, without much direction, not sure what they are waiting for or which way they are going, the stimmy cheques might help, but not a winkle so far, maybe they are waiting for the real cash to turn up.

Yep. I took 25% of BP at 3.25p on Friday PM. Top of the channel I hope. RSI at 70. If it touches 3.25 next week I'll take another 25%.

Will go long on a few miners next week with the funds.

Target.

Polymetal 14.30

Fresnello 8.85

Centamin 1.02

Hothschild 1.95

Seen these mentioned often on here.

I'd be happy as those entry prices.

Might look at Harmony and Yamana.

 

Reckon PM's might bounce Wednesday onwards.

[Barnsey]

3 hours ago, feed said:

Well, we'll see on Monday

https://www.teletrader.com/us-senate-passes-1-9-trillion-covid-19-stimulus/news/details/54821448?internal=1

The United States Senate approved the $1.9 trillion coronavirus stimulus package early on Saturday after more than 24 hours of debating the legislation and amendments to it. 

 

[feed]

20 minutes ago, Barnsey said:

 

All in on Disney then?????? 

[sancho panza]

1 hour ago, Cattle Prod said:

He's right though, oil has caught up. It closed last week at 3 year highs. Few would have predicted that 6 months ago, now I'm seeing 80, 90, 100 barrel calls everwhere like bleeding lemmings.

It was easy to call this at $20 or $35, due to the clear mispricing. Not so easy now. Its still the question between lost supply and demand to come back. Lost supply is pretty clear, but I'm not convinced yet about a full demand bounce back, you only have to look at how stupid our government is being about travel. A bunch of US states are ending lockdown and it'll be very interesting to watch activity there, especially as we move into driving season.

I expect Saudi are watching the same thing. It's a tricky time, not to get cocky about profits. I'd really feel a lot better if we had a proper bull market correction. I'm suppose I'm really speaking about my leveraged positions, I'm not too bothered about my stock holdings. Long term holds.

It's a tricky position for the elveraged plays.I saw Devon and ahwole host of smaller plays I sold in Feb 20 have recovered thsoe prices and then some.Devon has 4x of the bottom at five bucks.

Having spoken like the near term top must be in,I'm not convinced things like XOM might not advance some more.Chevron ahve recovered all their covid losses,shares like BP/XOM/RDSB have nowhere near recovered.I'm tempted to hang in for now on the leveraged plays but as you say the long term holds are the long term holds.

34 minutes ago, Barnsey said:

 

This was the Dimartino tweet that caught my eye earlier.

[sleepwello'nights]

On 05/03/2021 at 12:47, Yadda yadda yadda said:

Just repossess.

That is probably what they are thinking. And if they do who will buy the repossessed houses?

Rather than let prices crash they can keep them and generate an income.  

[sancho panza]

 

Shaun Richards delivers some pearls of wisdom.Some really timeless quotes in there.

Particualrly with reference to the change in deifniton of US M1 which intrigues me.

Apologies to the LPP

https://notayesmanseconomics.wordpress.com/2021/03/04/the-great-inflation-lie-of-2021/#comments

The Great Inflation Lie of 2021

Posted on March 4, 2021

The events of 2020 and so far in 2021 have provided quite a shock to the economic system. Let us call it what it has been which is a depression. It may for some be a speeded up one but others such as Italy and especially Greece had never really recovered from the credit crunch one so it is another feature in their lost decade. The policy response and the hoped for bounce back pose a lot of questions? Today I intend to look at the inflation issue.

Where Does It Come From?

Both versions of economic policy have been applied with full force. If we start with monetary policy we see a world of ZIRP ( Zero Interest-Rate Policy) and in some places NITP ( N = Negative) plus a whole swathe of bond and asset buying under the QE banner. This has meant that the money supply has surged. For example on the UK the measure of broad money M4 is growing at an annual rate of 15%. Monetarist theory suggests that goes into nominal GDP and as growth will not be 15% there will be an inflationary push. With the swings in the economy it is hard to have any precision as where do you start from?

Another way of expressing the problem is shown by the US. Right in the middle of the crisis ( last May) they  changed the definition of the M1 measure of the money supply and roughly trebled it. So analysis is broken for it and we see a classic bureaucratic move. So they are worried and the first response is to try to hide the evidence.

If we switch to fiscal policy we see that the taps have been open there too. For example the Chancellor claimed this in his Budget Speech yesterday.

Once you include the measures announced at Spring Budget last year, including the step change in capital investment, total fiscal support from this Government over this year and next amounts to £407 billion.

Let me give you the US position from a different perspective.

US National Debt moves above $28 trillion for the first time, increasing $4.6 trillion over the last year. ( Charlie Biello on Tuesday)

I note that the discussion seems to be bypassing $29 trillion and going straight to $30 trillion as people mull the stimulus plan of President Biden.

 

Savings

These are another reflection of the situation and bring in elements of both factors above. Let me explain via the US which updated us at the end of last month.

Disposable personal income (DPI) increased $1,963.2 billion (11.4 percent) and personal consumption expenditures (PCE) increased $340.9 billion (2.4 percent). ( BEA)

As you can see there is quite a gap and a heavy hint at quite a surge in savings. This was backed up later.

Personal saving was $3.93 trillion in January and the personal saving rate—personal saving as a percentage of disposable personal income—was 20.5 percent

So there has been an over US $3 trillion rise in savings and the January rise came from fiscal policy.

The increase in personal income in January was more than accounted for by an increase in government social benefits to persons as payments were made to individuals from federal COVID-19 pandemic response programs.

Switching to the money supply this will be part of the increase in it ( strictly speaking the amount which is now sitting in bank accounts).

If we look at monetarist theory this is quite close to how the textbooks explain it. The phrase “excess money balances” covers savings which are mostly being built up because they cannot be spent. In the theory the next step is that when they are spent we get growth but also inflation.

Inflation Expectations

These are in my opinion widely misunderstood. Just because there is a price for something does not mean it is the right price and these days so many prices have been manipulated by central banks. The first situation is like forward prices for exchange-rates which are far from a guide to future exchange-rates and are a reflection of now rather than the (unknown) future. Here is Kailey Leinz of Bloomberg.

Hello inflation expectations. 5-year breakevens just hit 2.5% for the first time since 2008.

 

As Dawn Penn put it “No! No! No!”. There is an implication of more inflation but as a measure it is very inaccurate. That is before we get to the next issue which is that the US index or inflation linked bond market has been rigged by a familiar player. It has bought some US $321 billion of them or if you include the inflation compensation US $365 billion of them.

The concept was given a push by the ECB back in the day but it all backfired and went wrong, But as so often these days this sort of thing survives.

Output Gap

Whilst we are discussing things which are useless let me point out one more time that the Output Gap concept has had a dreadful credit crunch era. If economics was a science then its continual failure would lead to its rejection. Even worse it is dreadfully measured yet some cling to it like a life raft. My advice is to avoid it.

Inflation Measurement

This is an issue and let me be clear even a genuine attempt at inflation measurement will not be perfect. It will be a generic but it can be genuine unlike the official measures I see. The first issue comes from owner-occupied housing and the worst case is the Euro area which completely ignores it.

House prices up by 4.9% in the euro area (EA-19) and by 5.2% in the EU-27 in the third quarter of 2020, compared with the same quarter of 2019. ( Eurostat)

Other countries ( US and UK ) use rents as a way of reducing inflation and the UK is so desperate it uses last years rents. As an aside that is backfiring right now. But the crucial point is that in the US house price inflation of 9%-10% becomes the much more friendly 2.7% of imputed fantasy rents.

Next comes the impact of the pandemic itself and the shift in our spending patterns. I asked the UK Office for National Statistics about spending on masks and cleaning products. I was told it was not significant. I did not believe that then and even less so now as mask use has increased. For a cost of living measure the whole change is an increase. Another area has been the increase in the number of people get dogs leading to a doubling and trebling of the price. Apparently it is too hard to get a price which us news to the two people I know who have got one in the last fortnight.

 

Comment

There has been a fair bit of debate on this issue on social media. Some of it has been from those who previously assured us there would be no inflation so there has been an element of covering their tracks to some extent. But let me get to the heart of the issue which is can you have deflation and inflation at once? The answer is yes mostly because deflation ( a fall in aggregate demand) is misunderstood. Looked at like that it not only has been here for a year or so it will be for at best some months yet. We already have inflation if you look at the US January numbers.

Real PCE increased 2.0 percent; goods increased 5.1 percent and services increased 0.5 percent

As depending where you are some or many services are not available if you start adjusting for reality you move nearer to the 5.1% of goods inflation. Add in house price inflation and you can see where this is going.

Also it does not need much inflation these days to cause trouble because wage growth is weak. So even the 3-4% that central bankers currently dream of can cause quite a downturn for the ordinary person. In the UK if we look back to 2010/11 we see that real wages have never recovered from the 5% inflation peak back then. Oh and back then I made similar points to today against a background of claims that we would either have no inflation or hyper inflation.

For the avoidance of doubt I have reported the latest UK average earnings figures as not fit for purpose to the UK Statistics Authority.

[sancho panza]

Wolf-the warning signs for the BK mount.Credit cards getting repaid and remortgage cash outs at rare levels.......

https://wolfstreet.com/2021/03/05/consumers-paid-down-credit-card-debt-again-by-most-ever-but-cash-out-refis-spiked-to-highest-since-2005-peak-what-gives/

Consumers Paid Down Credit Cards Again! By Most Ever. But Cash-Out Refis Spiked to Highest since 2005/6 Peaks. What Gives?

There is no monolithic American consumer. Each does their own thing. And the folks with credit card debts and other revolving credit such as personal loans – all of it high-interest rate debt – paid them down by record amounts in January, possibly using their stimulus money to do so.

And in the opposite direction, the folks who own homes have been extracting cash from their homes via cash-out refinancing their mortgages at a clip in Q4 not seen since the peak of the good old days before the housing bust in 2005 and 2006, and at record low mortgage rates while they lasted. But those two groups may not be the same people.

 

 

There were only two periods in credit card history when balances dropped on a year-over-year basis, and for two very different reasons: First, during the Financial Crisis when consumers defaulted on their credit cards; and second, during the Pandemic when the government sent hundreds of billions of dollars in waves of stimulus payments to consumers, and some of this money was used to pay down credit card debts.

 

In the opposite direction: Cash-out Refis.

Historically low mortgages in the fourth quarter triggered a historic mortgage refi boom that exceeded the peaks before the housing bust. Amid this historic refi boom was a near-historic cash-out refi boom. According to a New York Fed report two weeks ago, the amount that homeowners extracted from their homes  in Q4 spiked to $63 billion, with borrowers on average extracting $27,000 from their homes (chart via New York Fed):

 

So the theory that most of the cash-out refis were used to pay down expensive credit card debts doesn’t hold water. These are different consumers. As the New York Fed pointed out, the cash-out refis were mostly used to fund consumption or home improvements, such as a new deck and hot tub, which has been back-ordered because of the surge in demand, or speculative investments in what were then seemingly forever booming financial markets.

[Loki]

Great links/posts @sancho panza thanks.  I always forget to check Wolf's site

[DurhamBorn]

5 hours ago, Starsend said:

Quick pension question as I know pension related stuff has been discussed quite a lot in the past on this thread.

I've just managed to find an old pension from a company I was at 30 years ago. I was only there for two years and I think a couple of thousand got paid in. It's now worth just over eight thousand. Not a huge sum but better than a smack in the teeth.

I'm wondering what to do with it. It's currently invested with Aegon in some crappy lifestyle fund. Is it worth transferring such a small amount to my main SIPP with Hargreaves Lansdown or is the hassle/fees not worth it?  Would I be better off leaving it where it is and putting it in drawdown in two years when I'm 55 and taking the lot out in one year?

I have done some googling but didn't really find anything very helpful.

 

 

Yes transfer,no fees,HL will do it for you in a crack.