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

[DurhamBorn]

2 hours ago, Democorruptcy said:

This shows the relationship between USA 10 yr bond and 30 year mortgage rates. Both clearly going up until The Fed engaged reverse thrust last year.

https://www.thebalance.com/treasury-note-and-mortgage-rate-relationship-3305734

UK mortgage rates don't seem to have followed that and just got cheaper? If the BoE continues to give banks cheap money, doesn't that negate the 'cost of money' in the real world?

Only in the short term.The CBs can mess with the short end,but the long end is out of even their control.BOE can do that in the short term,but it means a lower currency over the medium term and that means higher inflation etc.I use that a lot in looking across the long bond and the short end.Mostly in currency calls.

[Democorruptcy]

16 minutes ago, DurhamBorn said:

Only in the short term.The CBs can mess with the short end,but the long end is out of even their control.BOE can do that in the short term,but it means a lower currency over the medium term and that means higher inflation etc.I use that a lot in looking across the long bond and the short end.Mostly in currency calls.

Yes but we had 5.7% RPI in 2011 but our base rate stayed 0.5%. Why can't they ignore inflation again?

[Noallegiance]

18 minutes ago, DurhamBorn said:

Only in the short term.The CBs can mess with the short end,but the long end is out of even their control.BOE can do that in the short term,but it means a lower currency over the medium term and that means higher inflation etc.I use that a lot in looking across the long bond and the short end.Mostly in currency calls.

Been watching US bonds today. The short end yields were in the green before lunch. But the whole curve is now dropping again. Wonder if futures will respond now or stocks later today.

[spygirl]

2 hours ago, Democorruptcy said:

This shows the relationship between USA 10 yr bond and 30 year mortgage rates. Both clearly going up until The Fed engaged reverse thrust last year.

https://www.thebalance.com/treasury-note-and-mortgage-rate-relationship-3305734

UK mortgage rates don't seem to have followed that and just got cheaper? If the BoE continues to give banks cheap money, doesn't that negate the 'cost of money' in the real world?

Not quite.

The UK and US housing finance markets are very different.

Theres a bit of spread between 10y/30y treasuries and the conforming home loans (forget sub-prime, non GSE backed debt)

US 10y bond has dipped below 1%

US 20/30y mortgage fixes are ~3.5%

If you can get a confirming mortgage then its cheaper than the US have ever been. And, ouside of the US hotspots -Calif, NY, housing is pretty cheap.

However - despite what people may think Us mortgage lenders are lending  less money to fewer people.

 

UK mortgages a bit more murkier.

US does heavily influence UK BoE rates. Although the UK normally has a 1%/2% spread over the US - just because it has to. Current UK rates are freakish and only that level as markets have other stuff to worry about for now.

And, like the US, the level of debs you can mortgage in he UK is now strictly rationed and tied to earnings - huge problems for London/SE.

And UK banks charge more as they cannot borrow as cheaply as US banks. Not that the more solvent UK banks need to borrow much as they are flush with cash they cannot lend due to MMR. And the less solvent banks are charged a fortune.

If you only need to borrow 50% than you can fix virtually free (2%) for 10y as banks need to sink their money somewhere with limited risk.

If you need to borrow 70%+ than, when you start adding up the fees, its more like 4%5%.

 

 

 

[DoINeedOne]

A bit random but wanted to learn a little about the history of oil and have been watching this when i get the time quite long 8 parts each around a hour long but based on the book "The Prize"

 

 

[JMD]

15 hours ago, DurhamBorn said:

Yes it would be really interesting to hear their insiders take on the future.Im buying them anyway because they should do fine in the next cycle,and for me showed they are ahead of the game by moving more to deeper offshore etc and dropping the rigs etc in shale.However its a big question about how they would fit in to the future.

DurhamBorn, did you buy your 2x ladders when Schlumberger went below $30, I believe that was your plan?     

The reason I ask is I really want to get more exposure to energy services stocks and was thinking of these three in particular: Schlumberger, Halliburton and Core Labs (they also specialise in  sample analysis).

I think you are still buying Schlumberger, but how do you view the other ones i mention?... only there was a lot of discussion last year about the energy service sector, and I was until recently preparing to buy quiet a few, but have now changed my mind as I don't see their risk/reward being so good (particularly compared to the oil giants themselves).   

[Barnsey]

Might be nothing, but received an email from Skipton that my HMRC bonus payment for the month of Feb has been delayed by a "technical glitch", first time it's ever happened, interesting timing.

[JMD]

6 hours ago, Loki said:

As CBs only product is debt i can see house prices staying high. We haven't even hit multi generational whole family mortgages yet!

Yes good point, that and which other policies borrowed (trialled first!?) from Japan, can we expect to hit our shores I wonder?   

[Loki]

13 minutes ago, JMD said:

Yes good point, that and which other policies borrowed (trialled first!?) from Japan, can we expect to hit our shores I wonder?   

Which leads me back to wondering if a house might not be such a bad 'purchase'.... 

[JMD]

1 hour ago, DoINeedOne said:

A bit random but wanted to learn a little about the history of oil and have been watching this when i get the time quite long 8 parts each around a hour long but based on the book "The Prize"

 

 

Thanks I will watch. Hope it has some good stuff on the socio-political/economic-industrial, etc. I find the current economic happenings now unravelling around us fascinating, but unfortunately I don't have the technical skills to understand the fundamental causes - however I hope I do comprehend things on the macro front - meaning, I guess that this still sets me apart from 99% of the population, who don't seem to give any of this a second thought. 

[JMD]

28 minutes ago, Loki said:

Which leads me back to wondering if a house might not be such a bad 'purchase'.... 

Personally I think owning the home you live in has got to be a good thing.

In terms of investment, and whether there might be a house price crash event, I don't think there will be. Instead I think nationwide most of the 'price damage' to house prices will come from inflation effects and also from house price levels being 'controlled' by stricter lending - i.e. it will be done through stealth, so not to upset the voters. However, after last year's general election results, I do think the south east/London may see a slide in prices (I wasn't so sure of this happening before the GE results) - after all, the Conservative party now has a new set of voters in the North, and it will be interesting to see how they balance/tilt their policies toward the Northern regions, without upsetting too much those in the South.  

[Transistor Man]

1 hour ago, DoINeedOne said:

A bit random but wanted to learn a little about the history of oil and have been watching this when i get the time quite long 8 parts each around a hour long but based on the book "The Prize"

 

I read that book a long time ago. Worth a read, It was very interesting. 

[Barnsey]

Tread carefully...

 

[DurhamBorn]

3 hours ago, JMD said:

DurhamBorn, did you buy your 2x ladders when Schlumberger went below $30, I believe that was your plan?     

The reason I ask is I really want to get more exposure to energy services stocks and was thinking of these three in particular: Schlumberger, Halliburton and Core Labs (they also specialise in  sample analysis).

I think you are still buying Schlumberger, but how do you view the other ones i mention?... only there was a lot of discussion last year about the energy service sector, and I was until recently preparing to buy quiet a few, but have now changed my mind as I don't see their risk/reward being so good (particularly compared to the oil giants themselves).   

Yes iv been buying Schlum,iv no opinion on the others really,i decided to concentrate on the oilies over the service companies,but think Schlum is the quality in the sector.

[StrugglingMillennial]

What are peoples thoughts on the markets, i see we have had gradual gains again today and gold has dropped a bit this evening.

Feds rate cut having an impact?

 

[Democorruptcy]

55 minutes ago, StrugglingMillennial said:

What are peoples thoughts on the markets, i see we have had gradual gains again today and gold has dropped a bit this evening.

Feds rate cut having an impact?

 

I think part of the reason behind the drop yesterday and rise today was Super Tuesday. Bernie Sanders was expected to do well and it's known he doesn't like Wall St. Joe Biden's win seemed to be unexpected. I think it also means Trump is more likely to win again. He often quotes rising stock prices as a measure of how great he is.

[dgul]

1 hour ago, StrugglingMillennial said:

What are peoples thoughts on the markets, i see we have had gradual gains again today and gold has dropped a bit this evening.

Feds rate cut having an impact?

 

Hedge funds betting on other central banks stimulating (ECB in sights).

[Lightscribe]

45 minutes ago, dgul said:

Hedge funds betting on other central banks stimulating (ECB in sights).

Exactly that. They can smell the printers being warmed up. Printing like never before. Helicopter money for everyone like in Japan, currently giving money out to families looking after children at home (since schools are closed).

https://www3.nhk.or.jp/nhkworld/en/news/20200303_01/

My view is still that the global economy will be at a standstill for a while which will have a massive impact this year, so they’ll be pumping QE directly into infrastructure to get things rolling.

Markets will be up and down like a yo-yo with ongoing disruption and stimulus being pumped in. 

House prices? Down. If the virus takes hold at current estimates of 3.4% that’s 2 million dead old people in this country alone. BTL landlords running for the exits, it won’t matter what HPI props the government try to put in. 

[Agent ZigZag]

48 minutes ago, dgul said:

Hedge funds betting on other central banks stimulating (ECB in sights).

Odey asset management up 10% last month. They were betting against the market for a fall. The media in my opinion is over playing this virus

[Errol]

6 minutes ago, Agent ZigZag said:

Odey asset management up 10% last month. They were betting against the market for a fall. The media in my opinion is over playing this virus

The Virus is irrelevant.

The monetary roubicon was crossed a long time ago. There is no way out without the system as we know it ending.

[Agent ZigZag]

Exactly Errol the papers and media tell us a reason for such ills. Its Brexit its the virus when the underlying issue is elsewhere. hedge funds are making hay while the sun shines

[sancho panza]

On 03/03/2020 at 19:27, DurhamBorn said:

They sure will,and what people should remember is that during a reflation/inflation companies will struggle to raise equity or debt.So the only people who can invest are the ones gaining from the inflation.Im struggling with the likes of Schlumberger though CP.I think they are worth buying in ladders at these prices,but i worry that they will end up without a business,of course a long time after the next cycle,but still its a consideration.

OIH at 20 year low.Impressive piccy.We sold up our FCG/XOP/XES plays a month or so back as a result of me beginning to understand what CP was on about ref shale and the permian.

I think it's a case of picking the ones that will survive.Increasingly for me that means the bigger decomplex trades in a complex trade if you get my drift.The ones that can carry their balance sheet will do really well.

14 hours ago, kibuc said:

The same could be said (and was/is being said) about stocks - they will not be allowed to crash. They'll cut and print and rinse and repeat until the good work is done.

However, the consensus here seems to be that they will crash, as at some point CBs run out of ammo and reality prevails.

I don't see why housing should be immune to similar logic.

House prices are a leveraged play on cash

Noones really bothered about cash as an asset class at the minute.

My view is that the CB'swill have road to run accomodative QE/NIRP etc until price inflation gets a grip on non core CPI ie food and fuel........then the lid will come off in so many ways.

[sancho panza]

10 hours ago, Democorruptcy said:

Yes but we had 5.7% RPI in 2011 but our base rate stayed 0.5%. Why can't they ignore inflation again?

But we didn't get price inflation in the things people buy with cash particularly and this iw ehre the devil is in the detial of the inflation figures.Before I go full Shaun Richards,what I mean is that when food and fuel start going up relentlessly,the itcan't be ignored.When it's the price of shitty sofas bought on credit or clothes bought on plastic.

[StrugglingMillennial]

2 hours ago, Sideysid said:

Exactly that. They can smell the printers being warmed up. Printing like never before. Helicopter money for everyone like in Japan, currently giving money out to families looking after children at home (since schools are closed).

https://www3.nhk.or.jp/nhkworld/en/news/20200303_01/

My view is still that the global economy will be at a standstill for a while which will have a massive impact this year, so they’ll be pumping QE directly into infrastructure to get things rolling.

Markets will be up and down like a yo-yo with ongoing disruption and stimulus being pumped in. 

House prices? Down. If the virus takes hold at current estimates of 3.4% that’s 2 million dead old people in this country alone. BTL landlords running for the exits, it won’t matter what HPI props the government try to put in. 

Do you think the standstill will hit the markets hard?

I just think somehow it will bumble along untill QE does its work.

[Bear Hug]

@DurhamBorn you have previously mentioned life insurers.L&G supposedly had good results today - made some money on mortality being heavier than expected. Bounced up a little, then drifted down again.

That suggests to me that a lot of their business is annuities rather than life insurance etc. 

However, in the industry, it looks like mortality improved last year, so position could end up worse once the figures feed through into assumptions. None of this allows for coronavirus. If it ends up spreading, then certainly pensions funding would improve. That also includes the likes of bt