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

[Harley]

One for the technicians here, if we have any. 

Anyone noticed an anomaly, especially in the US markets - almost all those stocks turning up from oversold on the weekly charts are still overbought on the monthly charts?  Normally both would be oversold and the weekly chart would turn up ahead of the monthly chart turning up.  Sure some stocks can stay overbought on the monthly chart while the weekly swings around for long periods but not this many!   OK, you may have different setups, but are they signalling something odd too?

To me, this signals one of two scenarios:

1. A blip in the weekly to temporarily slow down a monthly turn down.

2. A blow off where the monthlies continue to stay overbought.

Interestingly, many of the stocks are looking ready to turn (or have already started to turn) down on the monthly charts at key resistance levels so for the monthly charts to remain overbought would require a break through these levels which would be quite something.

Bottom line, things are looking particularly odd beneath the surface atm and odd things usually end in a something big.

ConocoPhillips as an example where points A in the weekly and monthly charts are typically well behaved (both oversold) but we have a divergence in points B at a time when there has been a break in the (yellow) trend line at long term resistance (purple) line, and a roll in the monthly MACD.....

Or, maybe only for COP, but this would be wonderful, are we just repeating what happened back in 2017 at point C where we based for a 77% rise?  Which supports scenario #2 (after a pull back to some tempting support levels), aka "onwards and up"!

[Harley]

On 29/08/2021 at 13:38, Harley said:

Big moves on my lovelies in mining and O&G at the close.  Busy day for me Monday as I review the technicals.

Alas, having looked at the US markets, these daily bullish moves have not yet filtered through to my weekly data.  I'll wait to see something in the weekly data to confirm a more persistent push through but, for the miners at least, the ball is still very much in play.  My O&G lovelies are in a weird world as outlined in my previous post - it would take something for the currently overbought monthly data to stay that way but things are defo weird beneath the surface so take yer bets (or wait!).

[Harley]

8 hours ago, DurhamBorn said:

The Scottish share should treble from here 

The mildly good....IMO it's in an ever so glacially slow and minor monthly uptrend atm.  The mildly bad....the fundamentals are so awful there isn't a paper bag thick enough!  The mildly optimistic....a whopping reduction in debt to equity from 383% FY20 to 140% current and a turn from negative core operating cash flow in both FY19 and FY20 to a current positive core flow.

 

[DurhamBorn]

Interesting from Repsol on hydrogen.Looks like they have cracked making hydrogen direct from solar.They are all making massive amounts of cash at the moment,buying back shares and investing in patents without a worry about funding.

https://www.rechargenews.com/energy-transition/very-disruptive-direct-solar-to-hydrogen-commercially-viable-by-2030-says-oil-group-repsol/2-1-1056771

 

[Barnsey]

Entire thread worth a look. Tavi is a relentless doom monger but he's got a point.

[HousePriceMania]

On 29/08/2021 at 17:12, Don Coglione said:

Was that @HousePriceMania / @TheCountOfNowhere ?

Crazy psycho stalker strikes again.

[HousePriceMania]

14 minutes ago, Barnsey said:

Entire thread worth a look. Tavi is a relentless doom monger but he's got a point.

The poor have their hands tied and will have to counter inflationary pressures by revolting.

[reformed nice guy]

https://www.investing.com/news/economy/uk-households-post-rare-net-mortgage-repayment-in-july-2603747

UK households post rare net mortgage repayment in July

A little bit of credit deflation going on, more being sucked out the system.

 

In similar news:

https://www.investing.com/economic-calendar/french-cpi-112

I randomly clicked on French CPI. It has been positive since October 2020 which seems to be the longest period that it has only been a positive figure since the chart started in 1990

[DurhamBorn]

1 hour ago, Barnsey said:

Entire thread worth a look. Tavi is a relentless doom monger but he's got a point.

The only way out is inflation or systemic collapse.Thats it.Of course there are no free lunches and inflation simply replaces problems with new ones.

Dis-inflation and the falling rates that went with it mean those holding lots of saved labour etc do very well.A fresh oven ready chicken is only 10% more today than it was in 1990.When that reverses the extra money going towards a chicken comes from somewhere else.

Interesting how we saw inflation at 3.8% this autumn last March,yet the BOE said no.So our models are better than theirs,or they are fibbing.Of course its very likely its the latter.

Inflation is entrenched now,and any falls will be short term head-fakes.Government is going to have massive problems with councils trying to force through council tax increases etc and the public starting to really feel the price increases.

I think in 20 years if you look back to the start of this cycle now it will be clear what the message really was.Invest your capital in the economy,or we will print,monetize and inflate it away and do it for you.

The problem we have is we could easily get a BK inbetween as the turn in inflation trend causes a credit deflation.

I should add on the chickens i got 5 at that Company Shop last week,extra large ones for £1.25 each  ,if any of you can join and have one near you it really is worth it.

[Noallegiance]

Ladies and Gentlemen, it's Lyn Durhamborn!

 

[Festival]

DB and friends,

 

Great blog this full of useful information.

 

What happens to BATS and IMB over the very long term do you think? Do you expect to see the gradual reduction in the percentage people smoking feeding through into lower Price Earnings ratios and a gradual reduction in the share price all things being equal (which I appreciate they never are)? Will they be able to hold the dividend payments given this or will they have to cut these over time. And how long have they got to go - 20-30 years without major diversification?

 

 

[HousePriceMania]

 

[Barnsey]

1 hour ago, DurhamBorn said:

Interesting how we saw inflation at 3.8% this autumn last March,yet the BOE said no.So our models are better than theirs,or they are fibbing.Of course its very likely its the latter.

Inflation is entrenched now,and any falls will be short term head-fakes.Government is going to have massive problems with councils trying to force through council tax increases etc and the public starting to really feel the price increases.

Absolutely the latter.

Interesting situation with many now seeing genuine wage growth, especially after Brexit. To raise rates would be acknowledging this is a "bad" thing, at least the optics of it. So whilst BoE mandated by Government to keep inflation in check, to burst this wage increase wave would be political suicide. Watch what they do not what they say has never been more true. Not just us of course, but wages need to go up first, then taxes.

[sancho panza]

On 28/08/2021 at 10:53, Talking Monkey said:

I really like Dr Tim's stuff for exactly the reason you mention, his unfailing honesty and logic. His stuff is a big contributer to my decision to be overweight in oil. 

I've got to say it is a bit bleak when you take the Seeds economic model and overlay it with what we discuss here, along with forecasters like David Hunter's predictions for end decade.

His work fits nicely aside the education given us by @DurhamBorn in terms of liquidity flows/macro roadmaps etc and @Cattle Prod in terms of teh mechanics of getting the oil to the surface.

On here we have a laugh and a joke but ye olde dr Tim jsut lays it out and it's depressing if you approach it and look at it logically.It makes perfect sense and particularly as it lays out with an emphasis on the hsitorical perpsetive and where the current trendline is going.

 

On 29/08/2021 at 11:36, belfastchild said:

One of the other big factors was co-ownership, buy half, rent half. Young female teacher relative went this way and we had a long chat about it, she couldnt see how it was making things worse and the response was 'sure its the only way I can afford to buy'. Well if everyone else is doing the same, the folk who can afford to buy now cant. If the cost of the house is maximised then theres less for all the rest of the economy, house stuff, garden stuff, having kids etc etc. I dont have kids through choice, every single one of my under 45 cousins doesnt have kids as they cant afford them, all living in rental places subsidising someone else.

Wonder what happens when all the public sector pension money goes pop..

This is a key factor that will drive our economies into rthe ground voer coming years.The boomer generation have had it all,cheap hosues and HPI,low IR's,free education,free healthcare,RPI linked pensions and let's be honest,they've got the younger generations to pay for it(I'm a tail end boomer btw-1970 vintage)

Demographically we're forced to import other countries youth as our own people can't afford to have any kids.Truly sad what we've done to our young people and that's before this park shutting clique got control of the Westminster bubble.

[sancho panza]

On 29/08/2021 at 14:08, DurhamBorn said:

@belfastchild as you say a huge part of the reason young taxpayers get stuffed on housing is because their tax is being used against them by people getting their money from government.Both pensions and benefits.I know several council workers with BTLs,usually 2 or 3.One of the first lessons i learned about contrarian macro strategy was that any given market will always try to reward the most to the least people and hurt the most people.Its the thing most fail to understand,because evidence from about a third of the way into a cycle until the end is counter to that.

In the UK the cycle has rewarded three sets more than anyone else.Property owners and scaled on how many they buy,government workers and benefit claims with children.

The ending of that cycle,and my work says it ended last winter means the above are certain to feel the most pain from this cycle.How that unfolds,timing,differences etc is cross market work and harder to pin down.

Of course the opposite side to that is hardly any wealth is sat in inflation hedged assets,equity and commods.The market has very few to reward and many to hurt at this stage in the cycle.I love where we are,because the position isnt foggy now,its clear.Inflation is flowing into the cracks like a thousand mountain streams,and trying to dam a few wont stop the lowlands flooding everywhere.The torrential rain has landed and it will reach the sea.

DB,I'd argue that the banking classes have had it pretty good to.Not jsut in terms of the bail outs 2008 but also in terms of the monetary policy that has followed.Banking used to be a utility function of the economy,generally not as well paid as other sections of commerce until the last 20 years when they industrilaized financialization of all assets.

Look at the role of private equity in stripping wealth from taxpayers and lining the pockets of the banking class....it wouldn't have been possible without the collusion of the political elite.

As for your last sentence,I couldn't agree more,the big deflationary wave is building it's jsut a matter of time until it crests.

[Hancock]

 

1 hour ago, DurhamBorn said:

Interesting how we saw inflation at 3.8% this autumn last March,yet the BOE said no.So our models are better than theirs,or they are fibbing.Of course its very likely its the latter.

The problem we have is we could easily get a BK inbetween as the turn in inflation trend causes a credit deflation.

Your model for inflation involves going food shopping and seeing prices shoot up, bills rising and seeing an epic house price inflation being added to the epic house price bubble

Sticks some smartphone apps in to your model, to get a true perspective of whats going on.

Arent we at a stage where the BK happens due to the FED tightening which will just cause investors to follow each other out the market as they'll see the FED no longer has their back; as opposed to a credit deflation actually happening.

 

[reformed nice guy]

1 hour ago, sancho panza said:

Demographically we're forced to import other countries youth as our own people can't afford to have any kids.Truly sad what we've done to our young people and that's before this park shutting clique got control of the Westminster bubble.

For me this is the most important thing and has to be opposed strongly.

The most effective contraceptive we have is high house prices.

Sacrificing our kids to the alter of GDP growth is immoral and as a population we have been cowardly to recoil to the shouts of "racist" for questioning mass migration.

The same people bleating and crawing about "social justice and equality" are the same ones keeping the wages of carers and health care assistants down. Everything in a market is connected - a lot of the elderly have relatively more funds than their following generations but if the wages of a carer went up from £9/hr to £15/hr then it would redistribute it in a much fairer way.

 

[Barnsey]

2 hours ago, sancho panza said:

Demographically we're forced to import other countries youth as our own people can't afford to have any kids.Truly sad what we've done to our young people and that's before this park shutting clique got control of the Westminster bubble.

 

42 minutes ago, reformed nice guy said:

The most effective contraceptive we have is high house prices.

Sacrificing our kids to the alter of GDP growth is immoral and as a population we have been cowardly to recoil to the shouts of "racist" for questioning mass migration.

 

Most developed economies in the same boat.

 

1 hour ago, Hancock said:

Arent we at a stage where the BK happens due to the FED tightening which will just cause investors to follow each other out the market as they'll see the FED no longer has their back; as opposed to a credit deflation actually happening.

I'll just say this is by far the consensus view right now. I'm not as convinced. 

[Harley]

We need to sort out the rent seekers (the "rentiers").  Sure the BTL brigade and its corrosive effect on a stable society but focusing on them alone is a bit like XR protesting in the UK (1% of emissions) rather than man up and deal with the likes of China and India.  A boomer with an expensive house (as a single home) is a lesson in financial delusion (except possibly for the younger inheritors of said house).  It's almost akin to an intangible asset given the ability to directly realise any value (so more indirectly as collateral to borrow more!).  But think about the others that extracted the real money to get to that point!  And it's not just housing.  Like all things these days, think about what needs to be thunk about rather than what they steer you to think about.

[Hancock]

2 minutes ago, Barnsey said:

I'll just say this is by far the consensus view right now. I'm not as convinced. 

I thought the consensus view was we actually get a deflationary bust; as opposed to a taper tantrum on steroids when people realise the FED can/will no longer keep printing money.

[sancho panza]

via kaplan

[Harley]

3 hours ago, Noallegiance said:

Ladies and Gentlemen, it's Lyn Durhamborn!

 

I'm a proud subscriber of her service!  I was keen to see how someone whose abilities I respect approaches stock picking,  asset allocations, and integrating macro.  Not cheap but part of my annual education budget!  IMO, I got a fair amount for the money, although I had to buy the book separately (would have been nice if it had been included in the sub!).

[sancho panza]

On 29/08/2021 at 15:32, Hancock said:

He's a HPCer and has been wrong on every claim i've seen him make, i read twitter for a short while the other year and he was claiming interest rates were about to go up.

He was back on HPC at the start of lockdown claiming a HPC had finally arrived.

Was entertaining on that link where he was on GB News though!

 

Possibly one of the few people who's been wronger than me on UK hosue prices.

STRed in 2002 iirc...........................

[Harley]

8 minutes ago, sancho panza said:

via kaplan

Could be the money shot.  As I mentioned upthread, value stocks (at least) are in an odd technical setup and need to "sh*t or get off the pot" with either a noticeable pullback (not sure BK) or a blow off which blows up the technical norms.

[janch]

3 hours ago, reformed nice guy said:

UK households post rare net mortgage repayment in July

Shaun Richards also covered this today:

https://notayesmanseconomics.wordpress.com/

It's not only a lack of borrowing on mortgages either:

The researcher given the job of presenting the morning meeting in front of Governor Bailey will be thinking it is just not their day as they add this to the mortgage data above.

Overall, individuals borrowed no additional consumer credit in July. Within this, they borrowed an additional £0.1 billion of ‘other’ forms of consumer credit (such as car dealership finance and personal loans), offset by net credit card repayments of £0.1 billion (Chart 2). On average, £1.2 billion of consumer credit was borrowed, per month, in the 2 years to February 2020.