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

[planit]

Nice to see articles agreeing with things we were discussing here previously.

It's hard to see where the increase in supply will come from at the moment if the futures 4 months out are not high enough to divert supply from other regions. In the mean time inventory will draw down until someone blinks. Then spreads might spring back as everyone panic buys. I hope BP has a nice position to profit if this occurs.

Oilprice.com article by Zerohedge:

Spreads And Inventory Levels Suggest Oil Prices Will Go Even Higher

Quote

Using the inventory and spread picture from above, it's clear that we have now reached the point where inventory levels could become problematic. It's clear that the current pace of inventory draws cannot be sustained. Inventory draws are a result of non-normal backwardation. We are currently witnessing non-normal backwardation. Should the trend of draws continue from here through the second half of the year, the set-up for higher prices is intact.

I bought back today in anticipation of the inventory figures tomorrow. The upside outweighs the downside and I don't disagree with David Hunter on his melt up prediction.

 

ps I guess this situation is good for traders at the expense of producers as the producers sell 6 months in the future and the traders profit by taking risk and holding until just before delivery. I hope BP will have the best ever trading arm profit last qtr. If the shale producers lost $20bn from hedging, someone had to pick it up and it clearly wasn't Shell.

[Majorpain]

US CPI print is actually worse than first seems, Goods inflation is 8.7%, headline was held back by only 3.1% Service sector inflation.

So basically stuff that involves actual tangible things is starting to reflect the money printing.

[Lightscribe]

https://amp.ft.com/content/234a9b90-e4f6-4b59-9e39-c6e34ac78276
 

Pace of US inflation picks up again in test for Fed

“Consumer price index jumps 5.4% from a year ago amid debate over the risk of runaway prices

The breakneck pace of US consumer price increases seen since the start of the year accelerated in June, which could challenge the Federal Reserve’s case that the burst of inflationary pressures accompanying the economic reopening will prove temporary.

The consumer price index rose last month at the fastest pace since August 2008, up 5.4 per cent from the previous year. That is well above the 5 per cent rise reported in May and the 4.9 per cent increase that economists had forecast. 

On a monthly basis, data released by the Bureau of Labor Statistics showed price gains of 0.9 per cent, the biggest one-month jump since June 2008.

Stripping out volatile items like food and energy, “core” CPI rose from 3.8 per cent in May relative to the year before to 4.5 per cent in June.

Investors, economists and policymakers have scrutinised incoming inflation figures amid a fierce debate about the risk of runaway consumer prices fuelled by ultra-accommodative fiscal and monetary policy. 

Price jumps have so far been most significant for sectors directly affected by the coronavirus pandemic. Travel-related expenses, such as airfares, have soared, while a semiconductor shortage has contributed to a jump in used car prices. 

One-third of the rise in the CPI last month stemmed from a record jump in previously-owned vehicle prices, according to the Bureau of Labor Statistics, which appreciated 10.5 per cent in June from the previous month. 

The US central bank has long characterised elevated inflation prints as “transitory”, which will fade as Covid-19 lockdowns ease further and supply catches up with pent-up demand. Joe Biden’s administration shares this view, and a White House official expressed confidence that inflationary pressures would soon abate.

Market measures of inflation expectations also reflect ebbing concerns about runaway consumer prices, with long-dated metrics running below their short-term counterparts. But some investors warn that higher inflation could persist for longer than many anticipate. 

“Most of the increase in the monthly metrics still look related to massive supply-demand imbalances in categories that were ‘closed’ in 2020: used cars, hotel rooms, travel costs, and so forth,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott. “Supply will eventually normalise in these categories, but it could take longer than common sense suggests, meaning that somewhat elevated inflation prints could last until 2022.”

US government bonds pared back recent gains after Tuesday’s release, sending yields higher from the recent lows seen since the Fed’s meeting on monetary policy in June, which raised the prospect of a quicker withdrawal of accommodation than initially expected. 

The benchmark 10-year note traded 0.02 percentage points higher before settling around 1.38 per cent.“
 

Then the FT has this article in regards to a ‘holy grail’ of everything index fund and the comments rubbing their hands in anticipation. They really have no idea how inflation is going to rock their very existence.

https://www.ft.com/content/9a9056e1-b35e-4ea7-b9f7-7668c07469ed

 

[JMD]

On 12/07/2021 at 14:43, MrXxxx said:

Ok, what about pm miners/streamers that give a return and/or commods?

For me I'd say yes, not the same as bonds of course, but I think they are one of the asset types which will soak up some of that huge money-flow away from bonds as/when bond holders look for alternatives.

[DurhamBorn]

1 hour ago, Cattle Prod said:

So far so good for this thread. Of course this guy doesn't understand that gold isn't a commodity, but anyway...

And gas leading everything ,i expect lumber will turn back up soon as well as its a leading indicator,market thinks its short term inflation when it isnt.

[HousePriceMania]

[No One]

22 minutes ago, HousePriceMania said:

yes but adjusted for inflation what would it look like?

 

two mountains of the same size?

[JMD]

27 minutes ago, JMD said:

For me I'd say yes, not the same as bonds of course, but I think those examples you cite are one of the asset types thall will soak up some of the huge money-flow away from bonds as/when bond holders look for alternatives.

 

[JMD]

Anyone watching Gold Town (bbc2)? It's a 3 part humbrum documentary, but it's the story of Scotland's first commercial goldmine... and we do like our Goldie's here!! Apparantly It took 4 different companies, nearly 40 years, to eventually crack it and to get where they are now which is a working gold mine.                                                                                                                                                                       'Only' £200million estimated reserves, so small, however the actual land owner doesn't appear to own what's beneath his land and so won't profit directly from the discovered riches. Does anyone know if this is a 'Scottish thing', or across the whole UK, ie landowner can't benefit from minerals discovered beneath their land?

[HousePriceMania]

1 minute ago, JMD said:

Anyone watching Gold Town (bbc2)? It's a 3 part humbrum documentary, but it's the story of Scotland's first commercial goldmine... and we do like our Goldie's here!! Apparantly It took 4 different companies, nearly 40 years, to eventually crack it and to get where they are now which is a working gold mine.                                                                                                                                                                       'Only' £200million estimated reserves, so small, however the actual land owner doesn't appear to own what's beneath his land and so won't profit directly from the discovered riches. Does anyone know if this is a 'Scottish thing', or across the whole UK, ie landowner can't benefit from minerals discovered beneath their land?

As my Scottish friend says...the Queen owns the reek off yer shite.

You get the jist

It seems you can declare yourself over lord of everything and that you own everything and for 100s of years idiots play along.

https://www.mylondon.news/news/zone-1-news/why-queen-owns-swans-england-17733992

 

The remarkable reason why the Queen owns all of the swans in England

[planit]

54 minutes ago, DurhamBorn said:

And gas leading everything ,i expect lumber will turn back up soon as well as its a leading indicator,market thinks its short term inflation when it isnt.

Are you sure this could be a smooth line towards inflation? 

I don't have a roadmap but I still see the current balance as deflationary, if there is slow tightening from here we still have a hangover recession to go through. That will very quickly take the momentum out of inflation.

 

I still see a wrong footed CB move pushing into recession, resulting in repeated printing producing a more persistent inflation (I think you have said this before).

The high reading today actually makes it easier to have a 'low' surprise in the next 2 months. Second hand cars can't power the inflation on it's own forever, once new cars are available they will be a drag on inflation (price increase of new cars will take over then LOL).

[ONC]

ok, Zerohedge.  

says Goldman Sachs has aggressively sold a quarter of its proprietary equities (I think this means there own investment money). 

https://www.zerohedge.com/markets/goldman-has-aggressively-and-quietly-liquidated-quarter-its-equity-investments

I was 100% equities myself at the start of year. I have been slowly selling. Now I am 30% cash.

From the Jeremy Grantham interview posted by Noallegiance, Jeremy tells of publishing an article calling the bottom of market in 2009 titled “ investing when terrified”

Is it now time for an article called   “ Divesting when Euphoric”???

 

 

On 05/07/2021 at 14:30, Noallegiance said:

 

 

 

[dnb24]

1 hour ago, planit said:

Are you sure this could be a smooth line towards inflation? 

I don't have a roadmap but I still see the current balance as deflationary, if there is slow tightening from here we still have a hangover recession to go through. That will very quickly take the momentum out of inflation.

 

I still see a wrong footed CB move pushing into recession, resulting in repeated printing producing a more persistent inflation (I think you have said this before).

The high reading today actually makes it easier to have a 'low' surprise in the next 2 months. Second hand cars can't power the inflation on it's own forever, once new cars are available they will be a drag on inflation (price increase of new cars will take over then LOL).

It’s all I can see too, so much is on a knife edge, it’s bipolar out there- there are obviously areas of the economy marching ahead (and dbs been right all along- it’s industry and inflation from here), but other big areas have really gone off the boil or dead, and all along you have this backdrop of covid and the authoritarian government bent- I can’t see how we get to the inflation side without seeing a huge deflationary event to give a definitive direction change towards inflation.

[HousePriceMania]

I hate to keep posting this but I think it's important.

 

I thought it might take a week or two to his those 2018 highs.

The question for me us what else is going to follow it.

[Cosmic]

10 hours ago, MrXxxx said:

Q regarding SIPPs.

Say you have set-up a SIPP,

do you/your employer have to transfer capital in directly 

OR

can you pay in from your post-tax capital and then have the SIPP provider add the 25% tax into your SIPP?

If you can do it via Salary Sacrifice you'll get your NI too, and possibly upon negotiation the employer NI (depends on your employer though).

Mine wouldn't do it to a SIPP, but would do it to a PP, so I've done that for the past several years. CBA to make up numbers, I take a £350 hit in my take home and get something like £580 in to the PP. Sadly it means I'm limited to my choices of investments, but it does act as a hedge to my contrarian ISA.

Ideally I'd do it straight to the SIPP, that will come in time

[MrXxxx]

8 minutes ago, Cosmic Apple said:

If you can do it via Salary Sacrifice you'll get your NI too, and possibly upon negotiation the employer NI (depends on your employer though).

Mine wouldn't do it to a SIPP, but would do it to a PP, so I've done that for the past several years. CBA to make up numbers, I take a £350 hit in my take home and get something like £580 in to the PP. Sadly it means I'm limited to my choices of investments, but it does act as a hedge to my contrarian ISA.

Ideally I'd do it straight to the SIPP, that will come in time

So what will you do when you finish with your current employer, transfer it to a SIPP so that you can control your investment options?....i`m pretty sure this is possible as I think @DurhamBorn has mentioned doing it himself if I am not mistaken.

[Cosmic]

11 minutes ago, MrXxxx said:

So what will you do when you finish with your current employer, transfer it to a SIPP so that you can control your investment options?....i`m pretty sure this is possible as I think @DurhamBorn has mentioned doing it himself if I am not mistaken.

Its not very likely I will leave, but precisely, do a transfer in to my SIPP, once I have the power to do so.

[DurhamBorn]

1 hour ago, MrXxxx said:

So what will you do when you finish with your current employer, transfer it to a SIPP so that you can control your investment options?....i`m pretty sure this is possible as I think @DurhamBorn has mentioned doing it himself if I am not mistaken.

You can transfer any company or private money purchase pension to your SIPP in a couple of minutes with HL,just a few details and if the pension scheme uses something called Orio it transfers between a week and ten days.If its a final salary pension you need to be a fantastic actor,get an IFA onboard,convince him/her they can fleece you for years etc and get the transfer to them,but the minute it arrives hand them a letter not to invest it,launch a transfer on them into your SIPP.

[JMD]

3 hours ago, ONC said:

ok, Zerohedge.  

says Goldman Sachs has aggressively sold a quarter of its proprietary equities (I think this means there own investment money). 

https://www.zerohedge.com/markets/goldman-has-aggressively-and-quietly-liquidated-quarter-its-equity-investments

I was 100% equities myself at the start of year. I have been slowly selling. Now I am 30% cash.

From the Jeremy Grantham interview posted by Noallegiance, Jeremy tells of publishing an article calling the bottom of market in 2009 titled “ investing when terrified”

Is it now time for an article called   “ Divesting when Euphoric”???

 

 

 

 

Unfortunately the article doesn't mention which sectors GS sold most heavily, or perhaps it was across the board? Would be interesting to see their thinking (eg. look at what they do, not what they say).

[desertorchid]

7 hours ago, JMD said:

Anyone watching Gold Town (bbc2)? It's a 3 part humbrum documentary, but it's the story of Scotland's first commercial goldmine... and we do like our Goldie's here!! Apparantly It took 4 different companies, nearly 40 years, to eventually crack it and to get where they are now which is a working gold mine.                                                                                                                                                                       'Only' £200million estimated reserves, so small, however the actual land owner doesn't appear to own what's beneath his land and so won't profit directly from the discovered riches. Does anyone know if this is a 'Scottish thing', or across the whole UK, ie landowner can't benefit from minerals discovered beneath their land?

Watching it now. AFAIK this is how the mining industry works. Landowners will need to contractually offer the rewards of the mining to contractors who then take all the risk in the excavation work. I spoke to a commodities trader who claimed vast majority of projects never create a revenue stream. Don't think landowners can be expected to be the big gainers when they take none of the risk and don't hold the capital needed for the mining in the first place. In the program, I belive the owner does benefit in other ways e.g rent/shares. If you follow the murky world of mining companies shares, news from their prospective mines is what causes the huge volatility in this sector.

[Barnsey]

As for the building inflation worries in the U.S., it's all about rent inflation, looking at quite a scary increase in August/September. Taper tantrum to follow?

[Majorpain]

51 minutes ago, Barnsey said:

As for the building inflation worries in the U.S., it's all about rent inflation, looking at quite a scary increase in August/September. Taper tantrum to follow?

RPI Jun 2020 1.1% - Jun 2021 3.9%, a slightly more accurate measure IMO since RPI is what's used for Indexed Gilts....  and the BOE pension fund IIRC!

https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/chog/mm23

https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/dogd/mm23

I get 2.3% service inflation and 4.2% on goods for Jun 20 - Jun 21, which is nice as its reasonably similar to US data.

[HousePriceMania]

22 hours ago, Majorpain said:

US CPI print is actually worse than first seems, Goods inflation is 8.7%, headline was held back by only 3.1% Service sector inflation.

So basically stuff that involves actual tangible things is starting to reflect the money printing.

Would it be fair to say, that is the sharpest rise in inflation in the US ever ?

[Sugarlips]

16 minutes ago, HousePriceMania said:

Would it be fair to say, that is the sharpest rise in inflation in the US ever ?

Not sure about ever but if you want real data try shadowstats.com they reckon it’s running at 13% and climbing

[Barnsey]

Great article featuring Russell Napier, must read! (Honestly)

https://themarket.ch/interview/russell-napier-we-are-entering-a-time-of-financial-repression-ld.4628

"Why are yields not just signalling that they are not convinced that inflation is going to stick?

As you know, I was on the deflation side of the argument for 25 years. The reason I changed is because the structure has changed. Banks didn’t lend up until 2019, broad money was stagnant, velocity fell, so you had to be on the deflation side. But now banks do lend, because they are compelled to by the government, broad money is growing, and, as we will find out, the velocity of money will be rising. That’s why I’m in the inflation camp now."