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


spunko
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6 hours ago, sleepwello'nights said:

I thought that the lower the temperature the more efficient the Air Source Heat Pump was. I've no idea really. Happy to be enlightened. All I know is the electricity bill for our house is going to be more than double the combined electric and gas was for our previous house. 

In the case of lower outdoor temperatures, so particularly air source heat pumps, the opposite.  There is less warm air, plus electricity is needed to defrost the compressor.

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22 hours ago, JimmyTheBruce said:

Thanks for this.  Got a link?  I can't see it anywhere on the site and got nothing from them direct.

Timing is not the greatest, but a good excuse for me to have a look see if I can find anything of value.

It’s buried down in the international investing area. Not sure why they aren’t pushing it on their home page. Maybe they will once it’s live.

https://www.ii.co.uk/investing-with-ii/international-investing/trading-fee-free-us-trading

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Optimistic

https://facts4eu.org/news/2021_apr_changing_Britain?fbclid=IwAR2QdmSHWZzfCuxniPieJmZVg9sM9xTwDiFmoexAVPq2PcLGG2GHMr4_g9U

On the subject of boilers!

DB, no need for coal! Put an extra jumper on!!

Better get the last of the burgers while you still can!

No cheap holidays anymore! 

Won't be able to drive round England either as only the rich will be able to own a nice electric car!

Passports required to breathe probably coming next!

I think this is the BK you have all been expecting! 

 

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10 minutes ago, Optimistic said:

https://facts4eu.org/news/2021_apr_changing_Britain?fbclid=IwAR2QdmSHWZzfCuxniPieJmZVg9sM9xTwDiFmoexAVPq2PcLGG2GHMr4_g9U

On the subject of boilers!

DB, no need for coal! Put an extra jumper on!!

Better get the last of the burgers while you still can!

No cheap holidays anymore! 

Won't be able to drive round England either as only the rich will be able to own a nice electric car!

Passports required to breathe probably coming next!

I think this is the BK you have all been expecting! 

 

But all I wanted was a sane economy and maybe a little house.

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NogintheNog

More 'Green-washing' in play;

Quote

Dear Mr (NogintheNog)

Spin Off by EVRAZ Plc

You currently hold 860 shares of EVRAZ Plc (the "Company") in your HSBC InvestDirect ISA.

We're letting you know that:

The board has given approval for the Company to move forward with a potential demerger of its coal business, via a pro rata in specie of the shares the company directly holds in PJSC RASPADSKAYA

Not sure if I'm gonna get any say in the matter, but I will get the 'coal' shares.

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Optimistic
16 minutes ago, Loki said:

But all I wanted was a sane economy and maybe a little house.

Ditto Loki! 

Thousands marched in London yesterday according to SOME news channels, but I read elsewhere it was close to a million! 

Covid lockdown over, welcome to the green lockdown!

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3 hours ago, BurntBread said:

Great interview by David Hunter, posted earlier in the week by @The Idiocrat. Lots of information, including timings and targets. I have posted below my summary table, and I'll add a rough transcript for those who prefer use text for reference. I have been thinking a bit more about strategy for the months ahead, and I'll put up my conclusions later, for people to criticise.

 

 

dh.png

Following this with interest although it's all about the US. IMO FAANG and Tesla which affect the indexes massively are hopelessly overpriced and overhyped so if you avoid those [I do], how can you interpret these predictions. How are people here interpreting it as affecting

a. FTSE 100-250 stocks

b. GBP-USD

Assume that most are UK based and therefore it's the gold/S&P/oil price in GBP that actually matters. Are people taking account of the currency [and tax] effects whe looking at US, CAN, etc shares or just ignoring that bit of the equation / assuming stability?

IMO GBP is still at level it was pushed to post Brexit vote and has been [artificially and incorrectly] suppressed by negative hype around Brexit effect since.. 2022/2023 numbers and new activity should be starting showing that this effect is not as negative as thought and at some point GBP vs EUR at least will regain the 10-15% it lost and more [because the EU are fucking everything up]. TBC I am looking at long term [5yr] trend, not the price in the month after the vote vs the short term blip upwards in the year preceding it which is what the MSM garbage always report.

I am currently entirely in GBP/FTSE. Part of the rationale of that choice when starting putting almost all my savings/pension dosh into the market last year was wanting to avoid all the tax admin and US forms crap. Partly annoyance at a euro investment where they had taken witholding tax and I have the choice either accept the donation of 50-100 quid a year to euro-scrounger-gov or fill in 10 page form to reclaim [I have a broker account in Euroland]. I didn't bother with the form in part because once you start they never stop and a complaints process is neccessary half the years/to get them to stop their threats. Been there several times and it's tedious/annoying. Like everywhere else the competent people work in complaints handling and were excellent.

I am way too long big oil [BP/Shell over 20% of total] but reluctant to reduce yet with small[er] profit. What are predictions from that table for BP/Shell price in GBP. If market leads I assume low is early Q2 2022 but what level. oil was 20$ average for a few months after start of lockdown1 but bottoms in BP/Shell only reached autumn/summer. Annoyingly I bought most of my BP in summer. I am feeling I should reduce those holdings by 50% or so.

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wherebee
1 hour ago, DurhamBorn said:

I think those type of funds could see nominal losses of 3.5% a year over a decade at best.If you add in 1.8% IFA fees 4% drawdown the funds will empty over around 8 years if people take out the same amount.Can you imagine the politics of that.State workers seeing 10% a year pensions increases while the private sector sees their capital gone.People will see its a direct transfer of their saved labour to the state and its workers,and of course they would be right.

This is the worst part.The printed money handed out to only certain sections of society will destroy the savings of the part who mostly didnt get any.Shafted at every turn.

 

this is why I am forever indebted to DB and this thread.  As a largely private sector worker with private sector generated savings and pensions, if oil and inflation let rip, and I did not have a strong starting position in oilies and commodities to ride the dividend wave for income, I would be fucked.  Like, proper fucked.

If it doesn't happen, my private sector pensions will still bump along keeping me from the poorhouse.

So I feel that DB has allowed me to have a bet that wins both ways.

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DurhamBorn
53 minutes ago, Castlevania said:

@DurhamBornwhen you refer to rates topping at around 10% do you mean the 10 year US Treasury? Or do you mean the Fed Funds rate? Or something else?

Fed funds rate.The only question really is how much instead they pull liquidity.However removing liquidity during an inflation would cause a depression.People say oh just remove liquidity,but that misses the point.If everything costs x amount more and you remove liquidity its depression time and systemic collapse.It will have to be rates doing the lifting and thats what most people are missing.In a way rates increases slow things down without destroying the capital.Its a bit like a lorry hurdling down a mountain road too fast.You dont slam the brakes on risking a failure or a skid,you gently press them and slowly increase the pressure until you slow the thing down.

I think the interesting thing here in the UK is how many people have nearly all their wealth in housing and worse high leverage when higher rates are coming.Of course the media and pundits say it cant happen as it will crash the housing market and bankrupt a lot of householders.My answer to them is the US bond doesnt care,and yes,it will.

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DurhamBorn
23 minutes ago, wherebee said:

this is why I am forever indebted to DB and this thread.  As a largely private sector worker with private sector generated savings and pensions, if oil and inflation let rip, and I did not have a strong starting position in oilies and commodities to ride the dividend wave for income, I would be fucked.  Like, proper fucked.

If it doesn't happen, my private sector pensions will still bump along keeping me from the poorhouse.

So I feel that DB has allowed me to have a bet that wins both ways.

I think as well a holding in silver is critical for ordinary people.Even a 10% physical and 10% silver miners will likely protect from inflation across a whole portfolio.

Iv been topping up Yamana Gold as well.

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20 minutes ago, DurhamBorn said:

I think as well a holding in silver is critical for ordinary people.Even a 10% physical and 10% silver miners will likely protect from inflation across a whole portfolio.

Iv been topping up Yamana Gold as well.

Any thoughts on future restrictions of trading in physical?  

 

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wherebee
37 minutes ago, DurhamBorn said:

I think as well a holding in silver is critical for ordinary people.Even a 10% physical and 10% silver miners will likely protect from inflation across a whole portfolio.

Iv been topping up Yamana Gold as well.

i left it too late for physical, with moving between several countries meant buying and transporting was too risky.  miners and junior miners are all I can utilise now.

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6 hours ago, Optimistic said:

https://facts4eu.org/news/2021_apr_changing_Britain?fbclid=IwAR2QdmSHWZzfCuxniPieJmZVg9sM9xTwDiFmoexAVPq2PcLGG2GHMr4_g9U

On the subject of boilers!

DB, no need for coal! Put an extra jumper on!!

Better get the last of the burgers while you still can!

No cheap holidays anymore! 

Won't be able to drive round England either as only the rich will be able to own a nice electric car!

Passports required to breathe probably coming next!

I think this is the BK you have all been expecting! 

 

Yes, last year's activities - with this year's '2020 vision' (the gods must be playing with us!) - shows that our so called Conservative government are now fully on board with the ever more authoritarian agendas of social justice, environmentalism and Covid control (of physical and mental health) - a powerful triumvirate... (to paraphrase) I think they had a revolution and no one came, most citizens were happy to be billeted to home leave, enjoyed time on their Xbox, or were stressing about their kids education. Many people also continued working through the pandemic I know, but my point is that I think irreversible political change happened last year, all institutions signed up to that change, and all opposition debate was effectively silenced, and the scary bit is that most seem totally unaware that we are now living in a benign(?) dictatorship. 

Edited by JMD
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SpectrumFX
10 hours ago, BurntBread said:

David Hunter rough transcript:

DH: Last March S&P was 2200 and I called for new highs: now 4200+. Length of time taking gold to re-emerge from consolidation has been longer than expected, but markets don't always do what we want.

Expect a spectacular melt-up into Q2. This is due to liquidity injection, and fiscal stimulus. Investors have remained relatively restrained, with a wall of worry. Now see more signs that people are believers, but still some healthy scepticism, with people calling for bigger corrections than we have had. Market has been self-correcting on the way up. At true top, we will have many more true believers, saying "this is the start".

I'm looking for equity & commodity markets to make new highs. Oil correction is not yet done, but will come out of that and reach $75 by this summer. Gold & silver will reach new highs (all time high in gold). Bonds can rally. In a global bust, treasuries will make new highs. I'm expecting a bear market in stocks: 60-75% bear market, possibility of 80%, that will be the worst in post-war history.

Inflation will get a lot higher in next 6 months, and fed will have trouble ignoring it. Last July, fed felt comfortable pulling several hundred billion out of the system. That was with no inflation. They could now pull 0.5 to 1 trillion out of the system. System is fragile: needs new liquidity to keep it coming.

Q: Why is the leverage able to speed things up? DH: leverage is both debt and derivatives (people often just think about debt). From late 80s, derivatives really started growing, and is much bigger now than 2008/9 collapse. Tail wagging the dog. Derivatives can really speed up things. This can push the markets.

View on inflation/deflation cycle: Have not had a widespread deflationary downturn since 1930s.

We are very late in the cycle that started 2009 (global bust will be the end of it). A year ago, inflation close to zero could be 3-4% this year. Still relatively low this late in the cycle. If they have to tighten because of overheating, they could tip into negative if policy mistake leading to downturn. We are not starting this downturn with high inflation of 7-8%. A lot of current inflation is commodity inflation, which can fall in a hurry as demand drops. So many people worried about inflation this year (including DH), but we are close, in a longer perspective, to a deflation ... so having fed deal with a breakout of inflation on the eve of what could be a deflation, makes it a very complex situation of a central bank to handle, and they may not be up to it: could slip quickly into deflation if policy mistakes are made. Things could happen quickly. No precedent post WWII, and central bankers rely on precedent.

Downturn before year end, and could slip into deflation. Will be contained within a year, as will the deflation. Call it bust, not depression, because will be short-lived, but will have some of the characteristics and damage of depression, because of involuntary debt liquidation. Europe more precarious than US. Could be largest financial crisis (not largest downturn) in history, because of mass of leverage. Between Q4 2021 and middle 2022 worse than DH has seen in 48 years.

Don't expect to see inflation and deflation in different parts of the economy, because the bust will be quick. Hard to know if everything will deflate. Not like the 30's: it will be fast. Look at second quarter swoon 2020: it was scary. Things can go from seemingly good to bad in a hurry. Primary forecast is most assets will deflate. Even if they were quick to turn the money spigots on, it would be 9 months before it impacts the economy, and maybe another 18 months before it impacts inflation in a big way. A few months of missteps could feel like an eternity.

Will we see yield curve control? DH doesn't think so: YCC on a longer-term basis is a myth because inflation will force their hand. On a short term, they may try. Rates are going to be dropping because of the bust, and after, rates won't be an issue. Lets suppose the bust starts end of this year and carries on at least first part of next year, maybe all of 2022. You are looking at 2024 before you have another inflation concern like now where it's pushing above 4%. It will take several months to a year coming out of deflation before it goes positive, then you will be low single digits for a while. Real inflation story is mid-decade: starting 2024, by 2025-2026, that's when you start to push high single digit to double digit inflation. Having lived though Volker era, the only way to control inflation is to pour more fuel on the fire by pouring in money. That leads to more inflation.

Large parts of the economy are interest-rate sensitive: financing and home-buying, so the fed worries about that, rather than amount of money.

Dollar: Last time talked had an 85 DXY target. It got down to 89 then spent most of the year going back to 93-94. We have rolled over again. I have lower target to maybe 82. Thinks we have finished the upward consolidation. Euro looks like it will get to $1.30. CAD will get $0.90. AUS may get to $0.95. That will help fuel inflation. That move on dollar will be between now and early Sept (maybe sooner). Move to 85 and maybe 82 happens in matter of months.

Q: Do you have end of Q2 time-line for the bust to start? Not the bust: the bust is a H2 event, probably end of year. The bear market refers to the market. The bust refers to the economy. Stock market leads by several months. Stock market may top this quarter. That top may have a secondary rally. Could be mid Q3 before you see market unwinding, but could unwind quickly. Window for top is end May to early July. Top then stretches out into much of Q3. Bust may not start till late 2021. If the market unwinds more quickly, bust would be late Q3, early Q4 event. The bear market will be earlier.

Q: What happens to metals and miners? DH: Definitely correct in the bear market, but probably much less than the equity markets do. The fed will be coming back in with both feet, easing aggressively. Timing and gold and silver going back up will come before the stock market comes back up. Could have 30% pullback in metals, more in silver. Forecast for gold is $2500 for next several months. Probably a Q3 top. If you get a 30% move down from there, you're basically back here. Silver 45-50. Let's say 35% to 40% move back, again you're back here. There's not a lot of downside from here. You may re-test this during the bust. A couple of years ago, I thought gold could see $500 or $800 in the bust, but I'm not there now. It's possible it could get to $1000, but I doubt it. The many months spent in $1700 to $1800 area may serve at the floor.

Q: Why have real rates become disconnected from gold? Using CPI, real rates are rising, but looking at actual inflation, CPI is not measuring that accurately. Realistic inflation is not 1.5% to 2% - it's a lot higher than that over last few months. Nominal rates have risen: that didn't surprise me, but real rates haven't. I'm calling for 1.20% 10Y, in which case real rates are dropping. Then calling 2.5% 10Y as inflation begins to take off, but even then, inflation will be higher. Hard to see a scenario between now and early Sept where real rates rise: they will be falling even as nominal rates are going up.

Q: What are the biggest bubbles which will suffer in the bust? Certainly the equity market. We are coming to a secular peak for a run starting in 1982 (or 1974). We are in the parabolic phase, which is rare. Equities are the prime asset that will be hit hard. Also junk bonds, and toa lesser extent, real estate. RE is funny: we may be making a secular top, but don't know how fatst & hard thy will fall. We were hit hard in 2008/9, and we don't have the same subprime issues (but have others). Canada (and Aus?) are the markets which will fall hardest: they are where the US was in 2008/9. US housing will be hit hard, but I doubt it will be 2008/9 hard.

Commodities: We are in a super-cycle between 2 depressions. 1930's was the last depression. 2030s will be the next, so we have one more recovery to get us to the end of the super-cycle. By the end of the super-cycle, commodities are in for a huge run in post-bust era. It's not a straight line. The run this year has been great, and a lot of analysts are calling for a huge run from here. But, remember: that bust will interrupt the commodities cycle (i.e. the run to the end of the decade): it's like looking from the south rim of the grand canyon to the north. Sure it looks like a straight line, but there is a huge canyon in between. Thinking you can buy commodities today and they will go right on through... But beginning latter part of 2022 to the end of the decade, commodities will have a run like they have never had in history. Oil could get to $200, gold to $10000+, silver to $300+, and the pluses may make the number look silly low. Copper could go up 7-, 8-, 10-fold. The big moves coming in the next cycle are because of the money being put out.

Equities will make a secular top, meaning recovery in equities after the bust won't come close. Maybe it's 4700 for S&P at the top (or 5000 if it goes parabolic). Next cycle, if you have 80% drop and get to 1000, you could triple or quadruple from that, and still not get close to the top we have coming soon. That secular top might not be tested for decades. (2 or maybe many more). Gold and silver, next cycle, go on to much much much higher highers. Social media stocks and FAANGS and growth stocks in general will be dealing with headwind of inflation and rates. Looking at rates for 10 year, maybe 0% at top of the bond market in the bust to 15% by the end of the decade. For index funds, that rise from 0% to 15% will have a big impact on P/E multiples, so will be very hard for indexes to do well next cycle.

Q: How important is the oil price in the economy, and do you use it as a tool to analyse other markets? DH: I look at it, but it's not a primary driver. We have had O&G prices under control. Longer term, it's going to be a big factor, though. We are going to have an industrially-led cycle. Consumers will be digging themselves out from a horrendous bust (and are not strong going into it), then add on what happens if prices are $300+, gasoline will be easily double-digit. Consumer will have a problem even if wages break out. They will be following, nor leading.

Q: Lots of analysts are talking about currency resets. What is your view on crypto, digital currencies? DH: I'm not big on currency reset. If we are going to have a reset, I think it will be late in the decade. I don't see anything poised to take over in next 5 years. Dollar will be in trouble on that horizon. We have talked about dollar going to low 80s (DXY), then it will go to 120 in the depths of the bust, as everyone runs to it. Then, starting from that dollar high, I expect a long-term erosion to the end of the decade: it could be less than 50 cents. But, it won't be replaced as a reserve currency until much later in teh decade. We talked about high inflation at 15 - 20%, interest rates at 15%, and short rates at 20%. That takes all the central banks out of the game. That's why I was bullish last March: the fed was not out of bullets. The opposite end with high rates and inflation, they can't pour fuel on the fire, because it just exacerbates what they're trying to fix. End of the decade the fed cannot intervene, and that's when you can get the collapse of the system (the "Ponzi scheme" that has built up over 50 years). What comes out of that is probably a totalitarian response. That will be the resent, and you can't plan for it, you can design any currency you want.

Q: tell us about contrarianism. DH: In the 70's it was a very rare thing. Everyone today wants to be a contrarian, but it's just a psychological truth that the vast majority of people are not comfortable being outside the crowd, with conviction (actions not words). Computers have made it worse, as everyone is a "relative strength technician".

Q about sentiment for miners. DH: People become too myopic. You need to step back and broaden out the time horizon, even just a small amount sometimes. I love the gold chart and the silver chart. They are in flag formation, and when they break out they are going to do that vertically.

Q on how to decide when to sell? DH: Sentiment drives me more than anything, particularly if it is at an extreme in either direction. Fundamentals and macro also matter to me. It's a mix of all of them.

Q: can you give us some price targets towards the end of Q2 2020? DH: S&P 4700 (but won't be surprised if that's too conservative). DOW 38000. NASDAQ 17000. 10 Year 1.20% this quarter, then start pushing back up to 2.5%. 30 year 1.95% then pushing back to 3%. Gold $2500 at top (but might push beyond that). Silver $45 to $50. Longer term, gold & silver have a lot of upside, but it's not going to be a straight line. Oil probably down to low $50's, but the jury's out. It's possible we have had our consolidation in oil and it starts running again, but more likely it gets to $50-$54, before it makes another run at $75, and then down to sub $20 in the bust, maybe $10 again, before it starts the big move up coming out of the bust. GDX I have raised my target from $55 to $60. GDXJ $100. SIL probably $75. SILJ I have said $30, but now $35, and that may be low, if silver goes to $45 or $50. I think we are very close: we are starting to see the downtrend being broken, and I think gold and silver will start acting better as we move through this quarter.

Q: anything else you would like to mention? DH: Junk bond area is very frothy, because of these low yields we have had, that really reached out on the risk curve to get income, and I would cation people that equities are probably number one to be hit in the bust, but junk bonds are probably right behind them. They are the exact definition of what leverage means. Also, if we get oil back from $75 to $10, then as you know there is a lot of leverage in the shale oil area that got bailed out in March, but I think that is going to have real problems in the bust, and won't be bailed out.

Thanks for sharing that, and the table too. It's very helpful.

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23 hours ago, Hancock said:

I had to do a Google search to see what someone called Zion Lights actually looks like .... and like myself, he's clean shaven.

Another middle class waste of space who like most this breed, will never do a productive days work in their entire life, but is happy to fuck things up for those who do.

106. Zion Lights on Nuclear

But my point was that such people can change their opinions at a flick of a switch (irregardless of what powers it!). She (she is a she btw) harks from Indian subcontinent, so maybe is naturally hairy! But much more important to me is that she is now onboard with nuclear (perhaps both she an me are both fickle?, but)... I don't go in for cutting my nose to spite my face, whether clean shaven or not!!

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stokiescum
7 hours ago, DurhamBorn said:

I think as well a holding in silver is critical for ordinary people.Even a 10% physical and 10% silver miners will likely protect from inflation across a whole portfolio.

Iv been topping up Yamana Gold as well.

A simple question has any government ever confiscated shares in anything and could/would they or would it be pointless 

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