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

[DurhamBorn]

1 hour ago, Seacrest said:

Natural gas continues on... up 10% since the early hours of Friday morning  forward electricity pricing showing + 30% between now and Christmas for any commercial enterprise that did not hedge last year,  that is on top of 13.8% last month alone

 

That is a 5 fold increase from the extreme low last year in Electricity pricing  with no sign of slowing down,  commercials are now paying 16p per Kwh by the time you add in Triad, DuOS, and all the green subsidies,  that is not transitory, most Utililities expect 15 day payment terms with a few able to accomodate 90 days, if you cant absorb that rise it gets passed on pretty quickly to your customers at 15 days payment terms

Gas hasnt seen nothing yet,my roadmap shows the supply squeeze hits from 2023.Enough gas,not where its needed.LNG shippers will be printing money.

Energy is a macro contrarians dream going forward.Massive structural changes being pushed too fast by idiot woke western governments while Asia carries on as normal.Government has zero chance of hitting people with more tax on energy and changing their boilers etc.

The most profit is likely in areas we havent spotted though.Companies who can mitigate the increases.Trade the energy etc.The Scottish share should treble from here 

[CVG]

20 minutes ago, DurhamBorn said:

The most profit is likely in areas we havent spotted though.Companies who can mitigate the increases.Trade the energy etc.The Scottish share should treble from here 

Modest expectations. Some will hope for 7-fold!

[DurhamBorn]

3 minutes ago, CVG said:

Modest expectations. Some will hope for 7-fold!

I think there has been too much value destruction to get back to those levels.The balance sheet showed the problems,but i ignored them,big mistake,but then in the scheme of a portfolio a small hit,even if nasty in isolation.However i think it was the reason @sancho panza developed his COMA score approach so a spray and pray style can try to at least avoid the big traps.Sometimes you can get value from losses.

[No One]

1 hour ago, DurhamBorn said:

Gas hasnt seen nothing yet,my roadmap shows the supply squeeze hits from 2023.Enough gas,not where its needed.LNG shippers will be printing money.

Energy is a macro contrarians dream going forward.Massive structural changes being pushed too fast by idiot woke western governments while Asia carries on as normal.Government has zero chance of hitting people with more tax on energy and changing their boilers etc.

The most profit is likely in areas we havent spotted though.Companies who can mitigate the increases.Trade the energy etc.The Scottish share should treble from here 

Any LNG shipping company stocks that you hold?

[DurhamBorn]

1 hour ago, No One said:

Any LNG shipping company stocks that you hold?

Just the big oilies.I used to use the SEA etf before the EU saved us from ourselves.

[JMD]

23 hours ago, Harley said:

And with immaculate timing (even BTO gets a mention as names are named!)...

https://palisadesradio.ca/john-feneck-bullish-signals-all-around-in-the-mining-stocks/

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

I wish this guy ran his own fund. Looking at his site, his returns are much higher than gdxj, over last 5 years, except I think for one year where I think he was down. But I don't fancy his subscription rates, several hundred dollars/month, to steep for me though like everything in life I suppose you have to pay for 'quality'.                                                    But interesting what he said about him probably exiting his PM trading by 2026, as I've heard other commentators say they might start selling down own PM positions from 2026 onward, especially their mining stocks. Is anyone else on here contemplating doing the same?                                                                       (Btw does anyone else think his photo looks like Harry Enfield's character 'loads a money!'?)

[Phil]

6 hours ago, DurhamBorn said:

Gas hasnt seen nothing yet,my roadmap shows the supply squeeze hits from 2023.Enough gas,not where its needed.LNG shippers will be printing money.

Energy is a macro contrarians dream going forward.Massive structural changes being pushed too fast by idiot woke western governments while Asia carries on as normal.Government has zero chance of hitting people with more tax on energy and changing their boilers etc.

The most profit is likely in areas we havent spotted though.Companies who can mitigate the increases.Trade the energy etc.The Scottish share should treble from here 

Can you please explain the Scottish share"

[Animal Spirits]

On 26/08/2021 at 14:42, sancho panza said:

I'll be interested to read that tonight.Figure 5 sets the tone for the BK postponed/can kicked from 08...thanks for posting

 

It's actually worth reading, even if just the summary and recommendations but I've picked out some relevant parts for the threads interest:

49.Quantitative easing is particularly effective as a tool to stabilise financial markets. There is strong evidence that shows it is an effective monetary policy tool when it is deployed at times of crisis, when financial markets are dysfunctional or in distress.

50.While the evidence on quantitative easing’s economic impact is mixed, we note that central bank research tends to show quantitative easing in a more positive light than the academic literature. We conclude, on balance, that the evidence shows quantitative easing has had limited impact on growth and aggregate demand over the last decade. To stimulate economic growth and aggregate demand, quantitative easing is reliant on a series of transmission mechanisms that operate primarily in and through financial markets. There is limited evidence to suggest that these increase bank lending or investment, or boost consumer spending by wealthy asset holders.

68.However, the mechanisms through which quantitative easing effectively stabilised the financial system following the global financial crisis have benefited wealthy asset holders disproportionately by artificially inflating asset prices. On balance, we conclude that the evidence shows that quantitative easing has exacerbated wealth inequalities.

69.The Bank has not adequately engaged with debate about the trade-offs created by sustained quantitative easing. We heard that it has been “defensive” about the extent to which quantitative easing has exacerbated inequalities. The Bank should publish an accessible overview of the distributional effects of quantitative easing which includes a clear outline of the range of views as well as the Bank’s view.

89.Perceptions that the Bank of England had acted primarily to finance the Government’s deficit were entrenched because the Bank of England’s gilt purchases aligned closely with the speed of issuance by HM Treasury. Furthermore, statements made by the Governor in May and June 2020 on how quantitative easing helped the Government to borrow lacked clarity and were likely to have added to the perception that recent rounds of asset purchases were at least partially motivated to finance the Government’s fiscal policy. If this perception continues to spread, the Bank of England’s ability to control inflation and maintain financial stability could be undermined significantly.

On the topic of transitory inflation:

109.Charles Goodhart said there is a long-term reversal of global low-wage manufacturing taking place, which makes it more likely that “the underlying context in which central banks will have to operate over the next few decades will shift from deflationary to inflationary.” However, he argued that in the short-term it would be “very unwise” for central banks to change their policy stance because it is still highly uncertain how economies will recover once the pandemic has fully receded.

111.However, other witnesses expressed concern that the rounds of quantitative easing conducted since March 2020 may prove to be inflationary. Professor Tim Congdon, Founder and Chairman of the Institute of International Monetary Research at University of Buckingham, and Liam Halligan, Senior Economics Commentator at The Telegraph Media Group, both said that rounds of quantitative easing since the start of the COVID-19 pandemic would be inflationary. Professor Tim Congdon said that the expansion of quantitative easing had rapidly increased the quantity of money in circulation. He warned that this could be inflationary if it coincided with excess demand and spending post-pandemic. Liam Halligan agreed and said that a concurrent increase in quantitative easing and Government debt could cause inflationary pressures if increased savings that had accumulated throughout the pandemic led to excess demand.

112.William Allen, Visitor at the National Institute of Economic and Social Research, saw “a clear risk of inflation taking off”. He said that quantitative easing had increased the money supply and that there is a risk that inflation will rise if there is a release of pent up demand, in part driven by the increase in household savings over the COVID-19 pandemic.

113.David McMillan, Professor of Finance at the University of Stirling, said that, unlike the initial round of quantitative easing in which there was a requirement to recapitalise the banking sector, the current round “is instead directly entering the economy.” He said that an increase in the money supply is not inherently inflationary, but that the potential for higher inflation is realistic if it were to coincide with a strong economic recovery in which demand outstrips supply and real wages increase substantially. However, he said that there are still deflationary factors—such as an ageing population, technological advancements and falling commodity prices—that may mitigate a rise in inflation over the long-term.

152.Managing the UK’s increased public debt accrued in response to the COVID-19 pandemic will require greater coordination between monetary and fiscal authorities. We heard a range of proposals setting out how the Bank of England and HM Treasury could mitigate the impact that interest rate rises could pose to the sustainability of the Government’s debt. These proposals amount to fiscal policy as they would effectively be a tax on the banking sector—we heard that if Bank Rate was to rise to 1% without interest paid on reserves, commercial banks would forgo around £9 billion a year based on current reserve levels. HM Treasury needs to clarify and put beyond doubt whether any decision to cease paying interest on reserves would be taken by Ministers, not the Bank of England.

177.There is an increasing risk that central banks are facing a “no-exit paradigm” from quantitative easing. No central bank has managed successfully to reverse its asset purchases over the medium to long-term, and the key issue facing central banks as they look to halt or reverse quantitative easing is whether it will trigger panic in financial markets that spills over into the real economy.

It wasn't the purpose of the report but some of the conclusions could be taken a discussion further:

1. The specifics as to why the markets experienced periods of illiquidity. We know this is not specifically because of CV19 because of the age of this thread and @DurhamBorn thesis and the seizure of overnight funding markets in September 2019. Evidently, the "strongest US economy ever" was weaker than thought for the pace of the balance sheet roll off which lead to the Powell Pivot.

2. What price should an asset be. And we know the answer to 2 is to prevent a potentially major liquidation event.

3. Why banks aren't lending. Is it supply side? Banks don't think they will be paid back, NPL's sit on balance sheets. Demand side? Excessive debt on borrowers balance sheets or a combination of both.

4. Do they ask the market why they want to hold long duration despite the possibility of real terms losses? (I know right now DB's going leads & lags!) Perception and sentiment are factors. The market has favoured safety/liquidity preference, "At least if I need cash I know I can sell or repo these treasuries and find a counterparty" vs being stuck in a scramble for cash when rolling over positions and the market has decided the collateral you have is now deemed junk (maybe it is) or it will be accepted in repo with a bigger haircut. I suppose the implementation of the standing repo facility may reduce this providing the counterparty holds eligible collateral which of course could have revised definitions should the circumstances arise...

[janch]

Lyn Alden' latest newsletter:

https://www.lynalden.com/august-2021-newsletter/

it's good on a historical explanation of where we are now and broadly in agreement with @DurhamBorn

She finishes with:

I continue to prefer good stocks and hard assets in this environment with a long-term view, but investors should be prepared for volatility along the way.

 

She thinks hard assets are where to go but also includes real estate:

 

Many countries, especially the US, are backed into a corner due to high levels of debt and basically have to do fiscal stimulus while holding interest rates low, and it is real assets (stocks, real estate, commodities, etc) that benefit from that outcome.

 

She's mainly focused on the US of course and I expect there will be rises in some areas and falls in others as we are expecting here (north vs south).  I hope she's wrong on this otherwise housing will just be further and further out of reach for the majority.

[Animal Spirits]

45 minutes ago, Phil said:

Can you please explain the Scottish share

 

[Phil]

10 minutes ago, Animal Spirits said:

 

Cheers

[Bobthebuilder]

7 minutes ago, Phil said:

Cheers

Many people here, myself included, bought these around 2018.

[leonardratso]

its the best share ever.

Reduced my tax bill by 1000's of zimbabwe dollars.

[Phil]

1 minute ago, leonardratso said:

its the best share ever.

Reduced my tax bill by 1000's of zimbabwe dollars.

I am under the impression that, no identified, it’s something I need to be as far away from as is possible. I hope it’s fortunes change.

[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?