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

[Hancock]

7 minutes ago, Bricormortis said:

lol that might be because of the impending doom.

Certainly been a lot of doom behind us, but does the line that economist had predicted a dozen of the last 2 recessions apply!

[M S E Refugee]

David Hunter Retweeted

 

 

 

IG

 

@IGcom

·

9 Sep

 

Contrarian macro investor

@DaveHcontrarian

discussed his views on the markets. Hunter said we are in the final melt-up stage for markets, with 70-80% downside on the horizon. He expects a sharp drop in oil prices too next year down to $20 a barrel.

[Harley]

Looking at oil atm just summarises so much else in the markets which is why I'm just mostly sitting watching atm.  At price resistance, momentum is overbought and turning down, and the MACD is weakening.  But is this just a pullback before an break of resistance, a real blow off?  Oil's been here before.  Turns a bit only to reverse back up and break out for a final run.

PS:  And to make it worse, the weekly charts show momentum oversold but maybe correcting to the upside.  Quite unusual to see such a divergence between the weekly and monthly momentum.  Doing me head in!

[Hancock]

25 minutes ago, Harley said:

Doing me head in!

Like having a 16 hand in pontoon when the dealer has a 6, the dilemma of sticking or twisting is just too much to take.

And on that note i am going to get off my laptop, and visit the gym i joined last month and have only visited on 3 occasions.

[sancho panza]

1 hour ago, Bricormortis said:

lol that might be because of the impending doom.

Actually personally I take an interest in various indicators, XLU utilities ETF which is a large fund that takes institutional money to move it and is a safety play, also the  russell 2000 indicating how America views the prospects of Main St, and turns down first, American Transportation ETF XTN also, and I have recently become aware of the University of Michegan consumer sentiment index, which is currently dire.  Im not seeing major warning lights coming on just yet based on those I must admit but I dont feel good about where we are.

What indicators do others pay attention to ?

I do come across graphs that shock or inform me, so post them here occasionally for peoples consideration.

I remember kaplan saying Russell 2000 had peaked in 2018....jsut going to show even experts get it wrong.

I've played with key commodities.Copper normnall ypeaks before oil.Currently oil lagging copper.

Obviosuly dyor,but I can see a case for oil launching off the back of copper before the BK.

1 hour ago, Cattle Prod said:

What's taking the Fed so long? Is it not that it is the only one of the major economies above doing fiscal stimulus, or handing out printed money to its people? As was pointed out the other day, Trump filled the Treasury account with Fed money early doors in the pandemic, and Biden has now handed most of it out. They are going to need significantly more QE to finance Bidens 'infrastructure' bill, which is mostly 'human infrastructure', i.e. handouts. If the Fed tapers, it means all those assistance programmes also taper. And as you allude to the reason that they can do this and the other countries can't is that they print the worlds reserve currency wich other countries need.

So other currencies should strengthen againt the dollar if they are tapering. You would think. The ECBs balance sheet is much higher as a % of GDP than the Feds, there is lots more room for them yet.

That's my line of thought CP.A run of Fed printing for politcal reasons I can see happening.While the other worlds currencies strengthen versus USD and we get that classic USD weakness before the crash that sends commodities on one last leg up.This si teh DH thesis looking at recent writings.

Decl:we're long oil,so beware any posts from me saying go long oil.DYOR...

[DurhamBorn]

The CBs are all printing for political reasons because only fiscal injections can stave off systemic collapse.My call is that they need to lift every thing by 30% because thats the level where tax should increase faster than spending lowering deficits.Here in the UK though they are raising tax,the worst thing they could do right now.Its nuts.Unless they are trying to slow inflation with higher taxes while still getting fiscal injections from the BOE.That will end very badly.They should be lowering tax on work as fast as they can,mostly at the bottom to lower bottom end,and cutting welfare.

Printing looks 2/3s done here outside of a BK.Might get another £80 billion from the BOE.

[Barnsey]

Genuinely starting to think the Cons want to hand over to Labour in 2023. They can wheel out the magic money tree rhetoric once again in 2027.

 

[JMD]

On 06/09/2021 at 19:33, Harley said:

U.UN, on the TSX.

Harley, def. not asking for stock tips of course, its more that i am looking to understand the uranium market more, and do already hold some miners. Hoping you might be able to answer my question.

Do you know if the U.UN fund will, in future, also hold mining stocks? Perhaps i misunderstood the fund's investment intention, but after reading up it appears to 'only hold' the physical, e.g. like Yellow Cake? I ask because i do already hold Yellow Cake, and am not sure if there is a difference between the two?

[Ash4781b]

Just looking at the National living wage forecast from Low Pay Commission. They must have slipped this out back in March as I missed it. Edit £9.42 per hour National living wage. Presumably another load of costs on the employers NI. Ok if an employee can pass on the costs….
 

No wonder they binned the triple pension lock. Hope I can get on the right side of what looks to be a monumental standard of living adjustment. People are going to be angry ! 

https://www.gov.uk/government/consultations/low-pay-commission-consultation-2021

[Harley]

1 hour ago, jamtomorrow said:

Yup - the sudden change in the balance of power between capital and labour, consumers and producers, is striking.

Might have to stock up on popcorn, before it gets expensive.

I was thinking between the two types of CEO, but yes, more a three way punch up!  A labour market brawl indeed!

[Harley]

37 minutes ago, JMD said:

Harley, def. not asking for stock tips of course, its more that i am looking to understand the uranium market more, and do already hold some miners. Hoping you might be able to answer my question.

Do you know if the U.UN fund will, in future, also hold mining stocks? Perhaps i misunderstood the fund's investment intention, but after reading up it appears to 'only hold' the physical, e.g. like Yellow Cake? I ask because i do already hold Yellow Cake, and am not sure if there is a difference between the two?

It only holds the physical.  Sprott does also invest in mining companies but that's separate.  I looked at some companies and then bought the GCL (LSE) fund instead given it covers hard to get stuff and I could stick it my ISA.  Jonathan Davis mentioned it which was nice of him, although I'm annoyed my research did not id it (but then as he said, it's a small fund).  I may branch out though into some individual holdings.  I'll post and list to validate in case I missed any.   I recommend listening to that Uranium podcast I posted earlier.  One key takeaway is that the Sprott fund is providing/forcing price discovery on the market in that it said, for now, it would issue shares and buy more uranium when it was valued at a premium.  It may list on the US exchange later but will face objections from the utility companies on who's parade it may well have rained on (at least the ones that did not buy forward).  But I digress.  Bottom line, I personally like a mix of physical and miners, just as with PMs.

PS: Talking of PMs, gold may be getting ready to move up from its base and silver may already be on the off over the next few weeks?  Not a recommendation, just possible signs of strength, finally?  Miners and physical?

[Harley]

They can print what £400bn for their mates over covid but when it comes to us looking after granny, we have to pay higher taxes?

[Inigo]

4 hours ago, DurhamBorn said:

It could,but wont be.Im not sure how it would play out,the best fit would be Telefonica,but cant because of o2.Vod isnt out of the question.What the telcos are really doing though and need to is share more of their kit,and use co kit.That way they can stop competing as much.Use say the tower company to charge them all the same high amount,they then all have to pass the costs on,but all get the profit.

Whatever telcos are entering a much nicer cycle for them.It could take a while for value to surface,but it will in time.Inflation used to hit them as people used their landlines less to save money,but now inflation is a real tailwind.If they can pass on 4% inflation pa it should see free cash increase 12%+ ,one of the few areas that can leverage the increases,assuming regulators keep off the case and their debt books are well structured.

I just signed up for a new SIM with Three (slight saving compared to existing), I had to tick a box saying that I would accept the 4.5% price increase every April.

[Bricormortis]

I would be cautious on gold till the dollar gets below 91.70. There could be more downside.

[JMD]

Anyone here own Gran Columbia Gold?

$400million gold junior, good financials, proven management, 4% divi, debt being paid down. Commentators seem very positive, but don't they always! Chart price has been falling all year but now may have bottomed. I'm tempted, but unsure about Columbia political risk?

Obviously not recommendation/advise, please dyor.

[sancho panza]

Hodges.In bold for skimmers.

More fuel for the taper debate.

https://www.icis.com/chemicals-and-the-economy/2021/09/housing-markets-face-long-term-downturn-as-central-banks-abandon-stimulus/

Last month saw the beginning of the end for the central banks’ 20-year experiment with stimulus. They thought they could overcome demographic pressures from ageing populations by printing bucket-loads of money at zero interest rates to support housing and stock markets. Now they are finally realising this was wishful thinking.

The policy reversal began with an unprecedented letter from Senator Joe Manchin to US Federal Reserve chairman, Jay Powell.  He called on him to stop the Fed’s stimulus program which he said was causing:

“Unavoidable inflation taxes that hard-working Americans cannot afford”. 

Clearly, the White House was seeing rising concerns among voters over the impact of house price speculation – and next year’s mid-term elections are getting closer. Plus, of course, President Biden is focused on supporting families rather than the stock market – as he told Congress in April:

“Trickle-down economics has never worked. It’s time to grow the economy from the bottom up and middle out”.

And Federal Reserve Governors soon began to fall smartly in line with the new focus. Eric Rosengren from Boston was the first to go public, calling for the Fed to stop buying $120bn/month of Treasury bonds and mortgage as these were:

“Mostly helping drive up the prices of interest-rate sensitive goods such as homes and cars. Home prices are rising at the fastest pace in nearly 20 years.”

James Bullard from St Louis was next, and highlighted the depth of the policy reversal now being considered:

“The whole point of asset purchases is to keep longer-term interest rates lower than they otherwise would be, in order to influence interest-sensitive sectors. And if there was ever an interest-sensitive sector, it’s housing. And so you’re getting this rapid increase in prices. I think you’ve also got an aspect of this where you’re freezing out new homebuyers and homebuyers that might be at the lower end of the income distribution, and they’re getting priced out of the market. So it’s not clear to me that we’re really doing anything useful here.” (my emphasis)

This is a quite amazing shift.  The Fed, after all, refused to consider any alternatives to stimulus even after the disaster of the subprime crisis in 2008. It was no unforecastable ‘black swan’ event – after all, even I had been forecasting it here and in the Financial Times. And when the pandemic arrived, they simply did more – taking their balance sheet from $865bn in 2007 to an astonishing $8.3tn today.

The chart highlights how they have taken house prices to the stratosphere over the past 20 years (based on the US Case-Shiller 10-City Index):

• The Index rose from $63 to $83 from 1987 – 1997 as the vast Boomer generation settled down and started families
• The dot.com bubble then saw speculation take it to $114 in 2000, as the Fed cut interest rates
• Fed Chairman Greenspan then focused on moving prices higher – his subprime bubble led it to double to $227 by 2006
• It then, of course, collapsed to $152 in 2009 during the financial crisis and stayed around this level to 2012
• But then Fed Chairs Bernanke, Yellen and Powell pressed the stimulus accelerator, taking it to $275 by May this year

Now seems to be payback time, as clearly very few people can actually afford to buy houses at today’s inflated values.

Instead, they have been buying – as during subprime – on the basis that prices will never fall. So they only focus on how to afford the interest payments each month. They assume that prices will always rise – and so the capital will never need to be repaid.

Sadly, the USA was not alone in using stimulus to turbo-charge house and stock prices, as the chart shows. Total stimulus spend has now reached $50tn since 2009.  China has been “subprime on steroids” as I have noted here and in the Financial Times in the past. Europe has a similar problem due to the European Central Bank and Bank of England’s stimulus policies.

Groupthink around the effectiveness of stimulus has dominated central banks for the past 20 years. It will therefore likely be a long and painful journey back to ‘normality’. The problem is that a whole generation has been taught that house and stock prices can only rise. So there will be lots of ‘false bottoms’ before prices finally reach a stable value. 

[sancho panza]

3 hours ago, Cattle Prod said:

 If the Fed tapers, it means all those assistance programmes also taper. And as you allude to the reason that they can do this and the other countries can't is that they print the worlds reserve currency wich other countries need.

So other currencies should strengthen againt the dollar if they are tapering. You would think. The ECBs balance sheet is much higher as a % of GDP than the Feds, there is lots more room for them yet.

Holger makes the same point.ECB maybe has run out of room.Fed has space left.

Also,makes a good point about junk bond yields below.Could be bullish for yellow stuff and BTC

[JMD]

5 hours ago, wherebee said:

helpful hint: use your toilet roll tubes you all horde (I know as good DOSBODDERS you throw nothing away), fill them with the lint you get out of the clothes washer filters, and hey presto, an instant firelighter.  You can store them easily in an empty cereal packet and you have a whole winters worth of firelighters for free!

At first read i thought you were describing going into the cladding business!!

[JMD]

4 hours ago, HousePriceMania said:

Those charts are off the scale crazy.

You cant tell me there is not more to this whole covid thing.  IMHO it was either used as a great excuse to line the bankers/politicians pockets or there was a banking/financial collapse at the end of 2019 and they are keeping very quiet about it.  

This guy thinks there was indeed a near market collapse toward end of 2019. Subsequent to the near collapse, the tptb apparently needed to put the market (patient) into a (Covid!) coma, inject vast amounts of liquidity medicine, before slowly reviving (withdrawing lock-down!)... 

However, maybe ignore the 'Marxist crap' the author spouts - but for me personally - i think the main thesis is very interesting, dare i say an appealing narrative even. 

A Self-Fulfilling Prophecy: Systemic Collapse and Pandemic Simulation - The Philosophical Salon

 

[Harley]

1 hour ago, Inigo said:

I just signed up for a new SIM with Three (slight saving compared to existing), I had to tick a box saying that I would accept the 4.5% price increase every April.

And they just introduced European roaming fees.  Optimistic bunch!

[Harley]

1 hour ago, Bricormortis said:

I would be cautious on gold till the dollar gets below 91.70. There could be more downside.

Yes, it's a real grind.  But I quite like that as it's often been like that and then done well.  The risk reward is looking better than for a while.  But my focus is more on the cash rich and high div equities as I'm already 20% allocated to physical PMs and crypto. 

My current allocations are 30% equity, 20% hard assets, 20% bonds and 30% cash equivalents.  Just the way it is given where we are.

I reviewed the markets today but have Asia still to do.  Nothing of value bar one copper play.  Asia should be better but the China fear is quite loud atm so I'm cautious.  I need stocks to either break out and smash the normal technical "rules" or pull back and clear.  Oh well, October soon!

I'm probably going to have to take on non-value oriented trades at this rate.  And despite it all, play some options. 

I've already started on deep dives into some sectors to see if my value screens are missing some other gains, starting with the miners and telcos, given the value screens are turning up very little to nothing.

[Yadda yadda yadda]

2 hours ago, Barnsey said:

Genuinely starting to think the Cons want to hand over to Labour in 2023. They can wheel out the magic money tree rhetoric once again in 2027.

 

If you're wearing a tin foil hat then a lab-green pact is perfect for the great reset/build back better.

[JMD]

2 hours ago, Harley said:

It only holds the physical.  Sprott does also invest in mining companies but that's separate.  I looked at some companies and then bought the GCL (LSE) fund instead given it covers hard to get stuff and I could stick it my ISA.  Jonathan Davis mentioned it which was nice of him, although I'm annoyed my research did not id it (but then as he said, it's a small fund).  I may branch out though into some individual holdings.  I'll post and list to validate in case I missed any.   I recommend listening to that Uranium podcast I posted earlier.  One key takeaway is that the Sprott fund is providing/forcing price discovery on the market in that it said, for now, it would issue shares and buy more uranium when it was valued at a premium.  It may list on the US exchange later but will face objections from the utility companies on who's parade it may well have rained on (at least the ones that did not buy forward).  But I digress.  Bottom line, I personally like a mix of physical and miners, just as with PMs.

PS: Talking of PMs, gold may be getting ready to move up from its base and silver may already be on the off over the next few weeks?  Not a recommendation, just possible signs of strength, finally?  Miners and physical?

Thanks Harley. Appreciate your full reply. Yes, i listened a couple days back to the uranium podcast that you posted, in fact it was that which made me do a double-take on the new Sprott fund as i had erraneously thought the fund also held some miners (plus i already own Yellow Cake which holds physical).

Frustratingly, I only got half of my planned allocation to uranium, but am hoping for a pull back (after the recent 20th Aug. 'Sprott spike'!) before buying more uranium miners.     

[janch]

This was mentioned in AG Bell's Shares magazine as a high divi payer (10%+) which they like:

Diversified Energy Company PLC      LON:DEC

 

It's a US gas and oil production company so could be of interest.

This is not a recommendation   DYOR   (I don't have any)

[janch]

UK GDP shows us heading for stagflation

https://notayesmanseconomics.wordpress.com/

I liked this bit:

output in the extraction of crude petroleum and natural gas remains low by historical standards, with July 2021 output 19.1% below its July 2020 level.

I thought I would take more of perspective and here is spglobal looking at the data up until May.

UK crude production has been recovering since 2014, but remains below half of levels at the turn of the millennium.

 

If the record gas prices continue then North Sea Gas is going to look a lot more attractive. Obviously if it is in the UK sector but also if it is in friendly Norway. I realise this is not official policy but at some point governments will be forced to come down from their present fantasies.