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

[Sugarlips]

Is this real or have we officially crossed the rubicon?

 

[arrow]

3 hours ago, Castlevania said:

That was one furniture shop in Croydon. 

I watched the shops in Clapham Junction get ransacked. It wasn’t violent.

Anyhow, the fact that everyone they could identify went to prison, I think has acted as a big deterrent for any future trouble. That kid with the Tesco value bag of rice got from what I recall two years in a youth detention place.

Looting is violent. I don't believe they did an oceans 11 style operation. During the riots eight lfb fire engines had their windscreens smashed, two fire cars were attacked, ten firefighters injured, police were shot at,  186 police officers were injured, 14 people were injured by rioters, and there were murders. Richard Mannington Bowes was murdered. The people convicted had their convictions overturned.

[RickyBacker]

3 hours ago, reformed nice guy said:

I remember in 2007/2008 the "cash for gold" adverts started to spring up everywhere.

I saw this one today:

https://www.dailymail.co.uk/money/saving/article-9794787/Should-look-Tallys-gold-linked-account-beat-inflation.html

I know this one well... Traded as a company called 'Lionsgold' on the AIM market. Shares were temporarily suspended by the CEO Cameron Parry as they attempted to change the business to 'Tally Money' . I still have the shares in my portfolio with an exclamation mark and a zero valuation reminding me of my 'investment' decision.
This was maybe three or four years ago... lol, maybe there is still a chance I may get something back!

[JMD]

4 hours ago, geordie_lurch said:

Adam Curtis's film on such matters is very educational - iPlayer link at https://www.bbc.co.uk/iplayer/episode/p04b183c/hypernormalisation or YouTube version below

 

Yes certainly educational and worth watching, though I am always highly averse to image driven docs. In fact I always feel bit 'dirty' after watching Curtis, like I've been manipulated? ...what me cynical, you bet I am!

[JMD]

On 16/07/2021 at 13:15, Barnsey said:

Moneyweek podcast with Russell Napier, worth 35 mins of your time if available!

https://widget.spreaker.com/player?episode_id=45705807&playlist=show&cover_image_url=https%3A%2F%2Fd3wo5wojvuv7l.cloudfront.net%2Fimages.spreaker.com%2Foriginal%2Fe0a4c80dee55b0deb88f54c9137fdcac.jpg

Touches at the end on buying property in the cheaper parts of the UK (mentions Hartlepool, Ellesmere Port and areas around Freeports) with long term fixed debt, given rising inflation and levelling up agenda, rising wages etc (cc: @DurhamBorn) 

Message to Russel Napier (?!) - ie after listening to the podcast and also some of Napier's other recent interviews - it is perfectly obvious he visits here! So come on fella, maybe post here annonimously, but please consider giving 'something back' to this (@Durhamborn) thread!!

[planit]

9 hours ago, Cattle Prod said:

But my point is I do see a pattern. Gold correlates incredibly well to real rates. I think the sentiment is mostly n the breakevens element, and gold fairly mechanically tracks that, particularly on the positive side. I think where gold lags is negative sentiment, sure. Then as sancho points out the safe haven element didn't happen during this time interval.

Yes standard pro licence, though it's become more annoying of late!

I wasn't trying to say there wasn't a pattern, I completely agree with all the points you made regarding the correlation but you asked about the places where it diverges. It was these parts I was referring to.

 

Could you explain why it is annoying? I was thinking about paying which was why I asked.

[geordie_lurch]

2 hours ago, JMD said:

Yes certainly educational and worth watching, though I am always highly averse to image driven docs. In fact I always feel bit 'dirty' after watching Curtis, like I've been manipulated? ...what me cynical, you bet I am!

I know what you mean and feel Curtis is a little too 'establishment' to trust but at least that film should give most reason to pause and rethink what they have grown up with.

[arrow]

The carbon cost of green energy isn't researched in any great detail by the msm. So, I though this piece by cnn on biomass was quite unusual. I've linked to the full article and snipped passages that I though were interesting. Who would've thought that european greens are evil polluters and racists.

"In 2009, the European Union (EU) pledged to curb greenhouse gas emissions, urging its member states to shift from fossil fuels to renewables. In its Renewable Energy Directive (RED), the EU classified biomass as a renewable energy source — on par with wind and solar power. As a result, the directive prompted state governments to incentivize energy providers to burn biomass instead of coal — and drove up demand for wood.

the American South emerged as Europe’s primary source of biomass imports.

relying on biomass for energy has a punishing impact not only on the environment, but also on marginalized communities — perpetuating decades of environmental racism in predominantly Black communities like Northampton County, where Macklin and his family have lived for generations.

Burning wood is less efficient than burning coal and releases far more carbon into the atmosphere, according to almost 800 scientists who wrote a 2018 letter to the European parliament

In 1996, scientists at the United Nations devised a method to measure global carbon emissions. To simplify the process and avoid double counting, they suggested emissions from burning biomass should be calculated where the trees are cut down, not where the wood pellets are burned.

The EU adopted this methodology in its Renewable Energy Directive, allowing energy companies to burn biomass produced in the US without having to report the emissions.

“It doesn’t change the physical reality,” said Tim Searchinger, senior research scholar at Princeton University. “A law designed to reduce emissions that in reality encourages an increase in emissions … has to be flawed,” he said, referring to Europe’s directive.

Ultimately, Europe is not reducing emissions by burning American trees — it’s just outsourcing them to the United States.

North Carolina has been “ground zero” for the wood pellet industry, said Danna Smith, co-founder and executive director of the environmental advocacy group Dogwood Alliance. One hundred and sixty-four acres of the state’s forests are cut down by the biomass industry every day, according to an analysis by Key-Log Economics.

The population of Northampton — which, according to CNN’s analysis, has one of the highest numbers of major air polluters per capita in the state — is predominantly Black, underscoring long-standing concerns over environmental racism."

https://edition.cnn.com/interactive/2021/07/us/american-south-biomass-energy-invs/

 

 

[arrow]

Africa is not happy with the Western Elite's green agenda which is in reality a scheme to keep Africa in poverty. 

 

"The African Energy Chamber has called for the region's countries to boycott companies shunning the continent's fossil fuels sector as part of net-zero ambitions, highlighting the growing concern of energy-hungry African nations over the shift to clean energy by most Western producers.

African oil and gas investment has fallen sharply in the past few years, exacerbated by the COVID-19 pandemic and the energy transition away from oil and gas. The outlook for this sector in Africa is looking bleak, as many of the big international energy companies are starting to reduce their upstream footprints and funding sources for smaller oil and gas players dries up.

In a post published on July 13 on its website, AEC, which represents energy companies on the continent, said it is urging African countries to boycott or refrain from working with international companies that discontinue investments and reject the African oil industry.

"Financial institutions that discriminate against Africa's oil and gas industry in the name of climate change are wrong and desperately need to change both their mindsets and actions," AEC said in a statement. "Institutions have insisted on ending oil and gas investments and development, promoting an immediate energy transition which will and continues to prove disastrous for the African continent and its people."

With significant oil and gas reserves, Africa is expected to see a significant divestment of legacy oil and gas assets, as more energy companies pledge net-zero ambitions. This is already having an adverse impact on Africa, which still depends heavily on the energy and commodity sectors.

AEC's outspoken Executive Chairman NJ Ayuk said the role of oil in Africa's energy and economic future is still key for many underdeveloped African countries.

"As the international community moves to boycott investments in the African energy sector, African people and African development stand to suffer," added Ayuk. "The role of oil in Africa's energy and economic future is apparent, and consequently, should be defended as Western elites move to disrupt African progress."

The decline of oil and gas poses economic challenges to Africa, where many governments see fossil fuels as the most cost-effective way to pull millions out of energy poverty and boost state revenues. Africa is already a big player in oil, and it is expected to emerge as a major player in gas markets as a producer, consumer and exporter with gas output in the coming decades.

But financial institutions are coming under increasing pressure to cut their funding for oil and gas businesses because of the large carbon footprint of such projects. The pressure has intensified since the International Energy Agency said in May the world needs no more new oil and gas developments if wants to be on a path to a net-zero emissions energy sector by 2050.

Last year, Equinor dropped its extensive exploration acreage offshore South Africa and this year ExxonMobil pulled out of a deep-water oil prospect offshore Ghana.

Uganda's maiden oil project has also attracted the growing attention of global environmental groups which claim it will harm the climate, local communities, water supplies, and biodiversity. In March, more than 260 charities and organizations from 49 countries called on banks not to participate in loans to fund the construction of the line.

In mid-May, Nigerian Vice President Yemi Osinbajo said Africa needs an "inclusive, equitable, just and multi-dimensional" energy transition, which will not be achieved by completely banning future natural gas projects.

The "shutting off of capital in energy infrastructure" will not result in a just transition and the attitude towards natural gas needs to be looked at from an energy access and energy poverty point of view, according to Osinbajo.

Africa is projected to represent 8%-9% of the global upstream spend between 2012 and 2025, but its share of global production is also expected to decline over the same period, according to AEC's African Energy Outlook 2021 report."

[arrow]

https://www.spglobal.com/platts/en/market-insights/blogs/energy-transition/071621-ic-elena-anankina-spglobal-ratings-russia-energy-transition-esg-hydrogen

A long article which is generally positive about Russia and its energy companies. It also discusses hydrogen

[Animal Spirits]

10 hours ago, Sugarlips said:

Is this real or have we officially crossed the rubicon?

 

Most bond yields had peaked by late Spring and the rise to date has been modest. I wonder what yield the Italian 10 year would be without the ECB's purchases...

Usually you will see spreads widen between the weaker economies in the EZ compared with German Bunds but some of this is suppressed by the ECB's asset purchases. Here is the 2011 EZ debt crisis:

Low bond yields = low growth/inflation expectations, you know the outlook isnt good when nominal yields are negative.

What stood out in March 2020 was the yield spike on the 10 year, liquidating positions for dollars before the Fed stepped in with full on QE again as opposed to the "not QE" after the repo spike in 2019:

 

[Harley]

8 hours ago, JMD said:

Message to Russel Napier (?!) - ie after listening to the podcast and also some of Napier's other recent interviews - it is perfectly obvious he visits here! So come on fella, maybe post here annonimously, but please consider giving 'something back' to this (@Durhamborn) thread!!

Nobody of any note visits this social media backwater where paramedics, builders, number monkeys, boilermen, and purveyors of fire pits imagine themselves to be, just for one moment, oracles of the financial age!  And why should we not.

[Hancock]

1 hour ago, Harley said:

Nobody of any note visits this social media backwater where paramedics, builders, number monkeys, boilermen, and purveyors of fire pits imagine themselves to be, just for one moment, oracles of the financial age!  And why should we not.

He's been wrong for a very long time

https://moneyweek.com/361388/russell-napier-on-deflation

[wherebee]

2 hours ago, Harley said:

Nobody of any note visits this social media backwater where paramedics, builders, number monkeys, boilermen, and purveyors of fire pits imagine themselves to be, just for one moment, oracles of the financial age!  And why should we not.

fuck!  rumbled!

[Sugarlips]

Has M2 ever gone negative since WW2?

 

[RickyBacker]

2 hours ago, Sugarlips said:

Has M2 ever gone negative since WW2?

 

Took me a moment to understand this graph. I noticed that the y-axis is 'Change in M2 money from a year ago' ... so M2 money is still increasing, just at a slower rate than back in Feb (The Fed don't publish the actual M2 figures anymore). I guess if this rate of change does go negative then we would be in deflation territory?
* Waiting for someone more knowledgeable for the actual answer!

[RickyBacker]

2 hours ago, Sugarlips said:

Has M2 ever gone negative since WW2?

 

That was the final graph from Jan 2021 which shows that M2 has always been in an uptrend (since the 80's which is as far as the data allows) ... although looking at the early 90's it was pretty flat for a few years.

[DurhamBorn]

1 hour ago, Cattle Prod said:

Napiers interview in written format, thanks to those who highlighted the video. It really has dropped a lot of pennies for me, I'd be keen to hear what @DurhamBornthinks:

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

A key paragraph for me:

 

 

As long as the CBs stay engaged then bonds will pay negative yields to inflation.Thats the key for governments to stay solvent.Its one of the reasons i think most pensions invested in lifestyle type funds for the over 50s and the 40/60 ,60/40 type funds in drawdown will prove a disaster.For insurance companies it doesnt really matter.A rising rate environment would increase profits,but standing still doesnt really hurt.

The key though is what happens when the CBs have to stop QE.However that could see the governments having to cut fiscal spending due to structural deficits and that will see  a big slowdown.

Its one reason i see a chance the CBs increase rates,but still print.Whats almost certain though is over the cycle bonds will lose a lot of spending power versus inflation.I think around a 30% loss,it can be capital loss on longer term bonds,rates below inflation etc.

Its another reason why having your own SIPP makes a massive difference.Governments wont force SIPPs to hold bonds,because they use them themselves.

The most likely outcome is the one we have always seen,an inflationary cycle where expensive paid for assets with set depreciation and set debt payments are the place to be.Bonds are on the wrong side of the cycles ,but governments have huge structural deficits.

[Democorruptcy]

15 hours ago, Animal Spirits said:

What stood out in March 2020 was the yield spike on the 10 year, liquidating positions for dollars before the Fed stepped in with full on QE again as opposed to the "not QE" after the repo spike in 2019:

 

Amerman has done a piece on repos including this description:

Quote

 

extend the pawnshop analogy a step further, the Fed borrowed the money to buy the collateral in the first place, call it the "guitars", and it didn't use a pawnshop, but a credit card, where it hadn't pledged the guitars as collateral. There are problems with the credit card, but the Fed still wants to keep buying guitars. So now, the Fed is pledging the guitars it had bought with the credit card, to take out new secured loans at the pawnshop, to keep the cash coming for buying still more "guitars".

Substitute "U.S. Treasury bonds and notes" for "guitars", and replace the pawnshop with the institutional fixed income marketplace, and the same financial principles apply. The Federal Reserve ran up an enormous amount of debt to increase its ownership of the national debt to over $5 trillion, at least temporary strains are developing with its unsecured borrowings, so the Fed is now taking the assets it bought with borrowed money, and pledging them as collateral to borrow the money to fund still more of the national debt.

The Fed Pawns A Trillion Dollars Of The National Debt To Raise Cash

 

 

 

[Harley]

2 hours ago, Cattle Prod said:

Napiers interview in written format, thanks to those who highlighted the video. It really has dropped a lot of pennies for me....

He's been saying it for a while now.  I hope you haven't been distracted by spending too much time on the oil price (spolier:  long term, its going up!).    Lots to do now if you buy into it (I do!).

PS:  Technically, interesting to see financials, especially insurers, weaken atm and bond prices poised for a (potentially dud) bounce.

[Harley]

13 minutes ago, Cattle Prod said:

Thanks Harley, I have been following Napier, but that interview was really clear to me. Lots to do indeed.

Same thing happened to me with one of his earlier interviews about a year ago (again, not the first time I had heard it but it was the time).  We now have the repressive covid experience to really drive it home.  Something I had also previously raised red flags about.  This is the time to be independent of thought, something which unites a lot of us here.  Your above post (reply to DB) is an excellent problem statement.  Now the hard part.  Multi dimensional thinking with a game theory bias!!!! I have been as busy as I can on this front, hence less concerned/consumed by the daily financial ying yang.  Again, all very covidesque. 

[DoINeedOne]

Thoughts?

[DurhamBorn]

1 hour ago, Cattle Prod said:

This does seem to be the nuts of it.

If CBs stop QE, and govts face up to structural deficit, is this where Napier sees govts 'forcing' savers to buy their bonds? I take your point about SIPPs, but I think the key word us 'force'. They won't have to: they have just manipulated ~75% of the people to give up their freedom! A chunk of their pensions will be a walk in the park. A bunch of them will happily hand it over for the virtue signalling alone.

- Green bonds, as Napier says. National ad campaigns, on bus stops. Get the Nudge Unit working hard on it. 

- Most people don't know what they are invested in anyway. They only need 'encourage' institutions buy their bonds (cleverly packaged and marketed of course). They are already voluntarily buying ESG crap, and losing their clients money. It doesn't matter, most of them underperform the market anyway. As long as most of then do, and no one sticks their head above the parapet, no one loses their jobs.

- Could just do it by government guarantees, institutions would hand over their money tomorrow for a small guaranteed yield. Its a choice, right? No coercion needed.

One thing I've learned from actively managing my own pension and the head scratching by my large provider at me is that hardly anyone does it. I think we'll be able to side step it all, but most people just won't care.

It's almost like lockdowns were a test of how manipulatable the public is. Its clear now it'll be a walk in the park. Let's think of a slogan...how about "Build Back Better?"

The total pension pot is £2.5tn, I reckon they could take a third of that without the masses noticing. Not enough on its own to cover the deficit for 7 or 8 years, but in combination with upping the mandatory % contribution, along with some equity growth, the rest of the bond market, and more help from the BOE at the hint of a market crash, maybe there are ways to finance the deficit if QE stops.

Would having access to say a third of the UK pension pot affect you road map?

 

 

That all seems likely.We should sidestep it though because the government already has enough useful idiots.The worry for us though is they legislate us out.Most ordinary peoples wealth,and the thing that will help most 50 year olds retire early is inherited housing wealth.That would seem an area for government to target,but its difficult outside of inheritance tax.

QE and forcing bonds on people of course is communist because the market isnt able to allocate the capital.However its our job to spot who that helps.

I thinka third is exactly what they are after,through tax or more likely 30% inflation over the cycle above coupons.Tax take should increase ahead of spending at that point and stave off government collapse.

The worry is though the amount of state claims from welfare to workers to pensions etc who want more and more.The government are in a huge mess,but seem intent on making it worse and worse.Maybe a sterling crisis would focus their minds.

[DurhamBorn]

Interesting Napier sees very similar cycle inflation as i said a couple of years ago,i saw 65%ish cycle inflation from the macro position  and his 10 year compounding comes out 60% if you take his mid range 4.8%.My initial inflation number was from the amount i expected them to increase liquidity to pull back all the dis-inflation and balance the books.Napier is getting the same numbers now from the money supply.If rates dont follow then it adds more fuel to our sectors.

Over the next ten years, I’d forecast something between 4 and 5,5% in terms of the rate of inflation in the developed world

 

[DurhamBorn]

Government worried that their EV stance means companies pull out early and dont bother investing.

https://www.telegraph.co.uk/business/2021/07/18/ministers-seek-unprecedented-powers-shore-fuel-supplies/

Some parts of the media are catching on 

https://www.telegraph.co.uk/business/2021/07/18/inflation-may-sluggish-ftses-unlikely-saviour/?li_source=LI&li_medium=liftigniter-rhr

And yet inflation hits different companies in different ways. Just take a look at a few of the major sectors. Telecoms and utilities are among the best protected industries. BT for example has already linked broadband prices, its key revenue source, to the Consumer Price Index. When it rises, so do its prices, and since very few of us can contemplate a life without broadband anymore, there won’t be much choice but to pay up.

The same is true for most regulated utilities, which have the flexibility to raise their charges as inflation rises. Next up, take a look at the oil giants. From a low of $16 last year, the price of a barrel of oil has climbed back above $70. Of course, that is contributing to the general rise in inflation, but it is also great for the London-based oil majors BP and Shell, two of the biggest energy companies in the world.