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

[sancho panza]

 

 

4 hours ago, DurhamBorn said:

Thats what happens when you have lawyers in charge of the Fed.The quicker they act the less it takes.$30 trillion if they wait much longer,might stop the falls with $3 trillion now that the government can then target.This virus is simply doing what the debt was always going to do,kill the host.They need to monetize nearly all of it.People can discuss the morals of that in the future,and they will write books and books about it,but right now they print that amount,or the western way of life collapses,China rules the world,and WW3 will be the end result.

The ECB has been terrible as well of course.They should be buying up government debt and corporate paper in the trillions.

Something new i think is the middle east.I doubt Trump will forget the Saudi's pumping oil trying to kill US shale.They will get cut adrift very soon,or Iran will blow up their oil plants and the Yanks will do nothing.

I think that's the issue for me,I always thought the junk bond implosion would occur for more earthly reasons than a pandemic.I still think there's a possibility that they right the ship for now and we head into 2021 for the Big Kahuna.Time will tell.We're now positioned for both eventualities as much as we can be.

3 hours ago, Bricks & Mortar said:

On it.  There's a bit in The Big Short, where Brad Pitts character says, "for every 1% unemployment, 40,000 people die."
BBC did a whole fact-checking radio show, and delved into much academic research.  Upshot was, is roughly true, across many academic studies, but they don't all agree on the exact method to use or the exact number.

So, when Mnuchin predicts 20% unemployment, up from what, 4% now... that's 16 times 40K = 640,000 deaths from the unemployment and social conditions associated with it, that would be in the US.

Need to wait to see what the virus does, and whether Mnuchin's prediction comes true.

EDIT TO ADD - academic papers can be searched with keywords "mortality after unemployment"
https://www.sciencedirect.com/science/article/abs/pii/S027795361100044X?via%3Dihub

I've said this morning that the solution is potentially worse than the disease,which is especially true given the poverty of the testing regime and the fact that the modelling for the disease is quite poor.

At least with Mnuchin's claim,you can back test it.By the time they can back test the Corona virus,it will be relaively pointless.

3 hours ago, Harley said:

Sancho and I have long talked about this.  As I said then, they have assumed V is fixed but that was a myopic financiers view.  V is all about emotion, sentiment, etc and we now have that in spades with more to come as expanded but cheapened money chases a reduced supply chain (beyond just CV).  And yes, I've often considered the lest few (many) years to rhyme with the roaring 20's.  The select few dancing on increasingly thin ice!

Indeed,and those psots you put up were my introduction to Behavioural Economics.AS you say they've always assumed V was a constant.I agree with your take and when the panic runs so will V.Particualrly the bit in bold.A lesson for the next decade.

2 hours ago, BadAlchemy said:

Me too. I bought probably my last little tranche of RDSB for 9.41 today. Don't be jealous though as I paid over twice that for my first lot!

Interesting to read that David Hunter bloke who believes this is not actually THE 'Big Kahuna' but that we'll have a melt up to 4000 in the S&P and then the Almighty Crash after that. Makes me think...  what could be bigger than this !? 

The thinking here though is that this IS the big one...? Seems to me to hinge on whether the Fed now print $20 trillion or stop at $3 trillion as to which way it goes...? Do they even have a clue what they are facing and what they need to do, I wonder...

We got our highest tranche of RDSB at£23.11 but are buying much bigger tranches at these levels.

AS I said to DB earlier,there's a possibility they right the ship for now,avoid the debt deflation and we get a run up/weak dollar to the Big Kahuna next year.I'm genuinely on the fence.

What will be bigger than this is when the bond markets implode both govt and corporate.Especially if the dollar collapses.Persoanlly,I think this crisis proves it will have one more run in the sun.

[leonardratso]

750bn QE - driving euro and futures now

this funny looking bloke

[sancho panza]

2 hours ago, Bricks & Mortar said:

I don't think it's the big Kahuna right now.  If the Fed don't get hold of it toot soonish, it will be.

I think, for David Hunters thesis to be correct, the Fed would print just enough to take the S&P somewhere near his 4000 level.  At that point, the inflation caused by all this printed cash chasing a reduced amount of goods in the real economy, coupled with the helicopter cash running out, would drag everything into a proper Big Kahuna.
I still like the theory.  But, given the Fed seems completely clueless as to how much to print, the S&P4000 call looks very uncertain to me. 

I think a potnetial factor for the Big Kahuna is that the Fed would potnetially be unable to print because of inflationary pressures.Currently,it can print to cover the holes.I think the BK will occur when they can't or they're reticent to do so.

Whilst this is clearly a substantial crisis,if govts start allowing the pandemic to run through,it would pass relatively quickly but painfully.I think there's a distinct possibility that some govts decide to follow that path when the shelves look likely to empty.Whilst Covid's mrotality rate is argued over,starvation has a 100% record.

[DurhamBorn]

https://www.marketwatch.com/story/european-central-bank-announces-massive-stimulus-plan-to-calm-markets-2020-03-18

ECB injecting,but about 1/8 of what it needs.They will force and keep rates at zero.That is ok,but they need massive fiscal policy from EU governments and this wont cut it.

[DurhamBorn]

1 minute ago, sancho panza said:

I think a potnetial factor for the Big Kahuna is that the Fed would potnetially be unable to print because of inflationary pressures.Currently,it can print to cover the holes.I think the BK will occur when they can't or they're reticent to do so.

Whilst this is clearly a substantial crisis,if govts start allowing the pandemic to run through,it would pass relatively quickly but painfully.I think there's a distinct possibility that some govts decide to follow that path when the shelves look likely to empty.Whilst Covid's mrotality rate is argued over,starvation has a 100% record.

Exactly SP.They can print as much as they want because we are in a deflation.Its the end of the next cycle when they will be trapped.Powell is way behind though and has maybe a day to catch up.

[sancho panza]

2 hours ago, DurhamBorn said:

I think thats very likely too.The key to this whole thing i think is seeing cases turn lower in Italy and Spain etc.The funny thing is my partner was very ill in Jan and seemed like a bad chest infection,i was bad a week later,not as bad as her,but like a flu.You start to think to yourself have i already had this thing,was it all over the UK by then but not picked up.Who knows.It could be half the population has already had it.

Mrs P was saying over dinner this evening how the Govt has had a good grip on things.I ointed out that they have no idea how mnay either have the infection or have had it.

1 hour ago, Barnsey said:

Lest we forget the tragic loss of life through suicide in such times of economic distress

Absolutely

[sancho panza]

57 minutes ago, DurhamBorn said:

Do you think a lot of us might of had it in Dec and Jan/Feb without it being picked up?,my partner was really ill and i was worried,i felt terrible for 4 days,but no cough,probs flu,but makes you start to think,

I think the more extreme cases would have shown up in ICU/Resus,so more likely flu,but noone can be sure.It may well be that there weren't enough extreme cases and noone connected the dots.Given how many Chinese students there are in the UK,I would find it surprising that our first case only occurred in late Feb/early March if it was prevalent in Wuhan in December.It's either not as aggressive as they're claiming or they jsut didn't test for it.

3 minutes ago, Cattle Prod said:

Agree, I don't think the big K is done til lthe FAANG stocks are in single digit PEs. However, it may be a story of sectors. I can't see how this is not the big K for oilies, telcos and other reflation stocks. Who is going to sell them when the money gets pumped like the Amazon river? Could well be that the % energy stocks in the S&P just corrects itself. People sell fluff, buy hard assets. That said, I'd love me some Microsoft and Google if it was cheap enough.

Super definition of the BK there CP.Those sort of drops would be epoch defining.

[DurhamBorn]

10 minutes ago, Cattle Prod said:

Insiders are buying gas like crazy. If the oil shale patch shuts down, there will be a gas supply deficit in the US in months.

Really interested in @DurhamBorn comments on Saudi. They are like children, maybe MBS has just acted like one. I would love to see them shut out (and you really just need to cut off arms supply or maintenance to do that), they are an abhorrent regime.

Front month price hit $20 and change today, so it's gone to the 'end of the world' scenario. I watch the monthly close with interest. 

By the way, it's not just the shale patch facing production drops, and not just because of the price. There is a lot of talk in remote areas of conventional production of shutting all non essential activity due to health risks of getting serious cases out, and that the virus will tear through an isolated camp like a wildfire. There are a lot of old, fat gentlemen hanging around oil fields, all rich, who no longer want to be here. And they are the decision makers.

Remember as well,one of the great driving themes of the reflation was going to be people pulling supply lines back home.Given China hid the virus,pretty much stopped the world getting prepared etc then the west will pull back now.China has stolen from the west enough by gaming WTO etc.There will be a fight for resources kicking in soon.

The Saudi's have shot themselves with their crazy action.They have tried to hurt their main customers/allies etc during their darkest hours since 1939.Expect them to be destroyed in some way.There is no way the US will ignore it,they might quite like Iran/Saudi to destroy each other,after all the US has enough energy,unless shale collapses.

[Talking Monkey]

6 hours ago, DurhamBorn said:

Remember as well,one of the great driving themes of the reflation was going to be people pulling supply lines back home.Given China hid the virus,pretty much stopped the world getting prepared etc then the west will pull back now.China has stolen from the west enough by gaming WTO etc.There will be a fight for resources kicking in soon.

The Saudi's have shot themselves with their crazy action.They have tried to hurt their main customers/allies etc during their darkest hours since 1939.Expect them to be destroyed in some way.There is no way the US will ignore it,they might quite like Iran/Saudi to destroy each other,after all the US has enough energy,unless shale collapses.

Absolutely spot on it was sheer madness what they did, best strategy to let Iran and Saudi batter each other into oblivion

[Talking Monkey]

5 hours ago, Cattle Prod said:

Shale collapse will be solved by Chapter 11, and it'll come back at a price point. There is nothing wrong with shale at a high price, it'll make money, my whole issue with it was it was allowed to flourish under a medium/low price regime. The reserves and technology have been known about since the 50s, it's not new, it's the post 2008 QE cash chasing a home that created the monster. Shale was supposed to be used to balance high (>$100bbl) prices, or just stay in the ground. There is no way to make crap rock better.

I'm liking this thought of Saudi screwing up. I had it in my head given the length of the alliance that Trump asked him to pump as a stimulus. But then Trump doesn't care about the Middle East, or the rest of the world, and most certainly does care about voters in middle America. Saudi is very easy to destroy, they only exist because of security guarantees. They can do very very little for themselves. Ibn Saud knew this 70 years ago, which is why he made the alliance as soon as he saw the oil potential. He'll be rolling over in his grave at his descendant's actions.

30 years from now they will be back to being a desert backwater of camel herders

[Castlevania]

8 hours ago, DurhamBorn said:

In other news today BAT Tobacco had a capital day and said Covid-19 was having no affect on them  ,my favourite stock of all time.

Might even help them. I was speaking to my aunt on the phone earlier this week. She’s in the vulnerable category, in her 70’s, a pre-existing chest condition and a lifetime smoker. She normally smokes around 10 cigarettes a day. She’s getting stressed about having to self isolate. During the hour long call she must have had at least 4 cigarettes!

[Loki]

https://mobile.twitter.com/Vis_in_numeris/status/1240269535753666560

BoE to print unlimited amounts

[Majorpain]

Quote

"Anybody who says, 'I can make a load of money by shorting' [aggressively betting on the value of specific companies continuing to fall] which might not be frankly in the interest of the economy, the interest of the people, just stop doing what you're doing."

BOE's new governor everyone, Short sellers are naughty.  Wasn't complaining when QE pumped assets were racing up........

Does he need someone to explain that leverage works both ways?

[Harley]

8 hours ago, Bobthebuilder said:

Not sure, maybe something to do with driving a vehicle and being able to read stop signals with a thousand people on board maybe?

Plus medical staff wear protection, although are potentially (depending on role) more highly exposed.

[Harley]

7 hours ago, DurhamBorn said:

Remember as well,one of the great driving themes of the reflation was going to be people pulling supply lines back home.Given China hid the virus,pretty much stopped the world getting prepared etc then the west will pull back now.China has stolen from the west enough by gaming WTO etc.There will be a fight for resources kicking in soon.

The Saudi's have shot themselves with their crazy action.They have tried to hurt their main customers/allies etc during their darkest hours since 1939.Expect them to be destroyed in some way.There is no way the US will ignore it,they might quite like Iran/Saudi to destroy each other,after all the US has enough energy,unless shale collapses.

Saudi Arabia needs to remember Iraq, Saddam's actions in particular.

[Harley]

8 hours ago, sancho panza said:

Indeed,and those psots you put up were my introduction to Behavioural Economics.AS you say they've always assumed V was a constant.I agree with your take and when the panic runs so will V.Particualrly the bit in bold.A lesson for the next decade.

I hear they just fired the guy who insisted the velocity of bog roll was a constant!  In normal times quite right, bar an uptick in dicky tums.

OK arguably technically not 100% correct given it's the velocity of circulation and I don't think much re-circulation happens, at the moment!

But a good story!

[MrXxxx]

10 hours ago, Alifelessbinary said:

Wow another crazy day. I’m struggling to keep up and have brought some more Shell and BP today. 
 

The share value destruction for previously well respected companies is incredible to see.

It’s also an education to see the price of silver crash but then watch all the bullion dealers instantly sell out and retain a massive premium on remaining stock.

While I knew this was going to happen the speed is still incredible and has blindsided me.

Can anyone explain why Go Ahead Group have been absolutely spanked this week, down 68% in a week! 

Lower profits ....and then increased news of people working at home; where will they get their money from in the short term?...then add in a trouble `birth` with their new German rail franchise where the population virus wise is about two weeks behind UK...all adds upto a profits warning in q3/4 2020 and a lot of negative sentiment...

..well that's how I see it BUT I am a novice so far from reliable!

[MrXxxx]

10 hours ago, Yellow_Reduced_Sticker said:

FFS...DON'T ASK ME!!!

DB aside, this must be the best piece of trading advice I have read this year...no correction, this century! :-)

MMr Xxxx (a.k.a `Son of YRS`, given my recent buying experiences! :-))

[Harley]

So is now a good time to buy loads of stock about to issue a div, if they exist?

[MrXxxx]

10 hours ago, spunko said:

It's probably the worst time in about 20 years to invest in shares if you don't know what you're doing IMO.

Yes, and just the moment I decided to join in after a year of educating myself and pontificating...wish me luck, and some `wise words of wisdom` occasionally! NOTE (prior to these), they will not be taken as financial advice unless you are @YRS upon whose every word I believe :-) :-) :-)

[Noallegiance]

Ms Janet Yellen circa 2018:

"We will not see another economic crisis in our lifetimes".

Good call love. Good call.

[Yellow_Reduced_Sticker]

SERIOUS question @DurhamBorn, do you think that, Go Ahead Group, Stagecoach, national express could really go BUST?

 

(NOT asking for trading advice just ya view point, THANKS mate)

 

I've followed the above companies for 25 years, it would be a SAD day if they did, I'm in my mid-fifties and have NEVER seen these sort of share price COLLAPSE's... anyway the only 1 I'm heavy in at the mo is Stagecoach...CHEERS!

 

AND now for some some YRS dry humor...as we enter another ROLLER-COASTER Trading day!

 

21 hours ago, AQUAMAN said:

If oil gets to $200 why won’t housing also go to the moon?

 

 

Don't be daft, I bought last October which for some odd reason (for me ) turns out to be the TOP...in house prices!

 

9 hours ago, BearyBear said:

Isn't Lagarde a lawyer too..?

 

Yeah...Also a Convicted CRIMINAL!

Really WONDERFUL people in power...Yes you really could NOT make it up!

https://www.independent.co.uk/news/world/europe/christine-lagarde-convicted-imf-head-found-guilty-of-negligence-in-fraud-trial-a7484586.html

 

[TheCountOfNowhere]

10 hours ago, Barnsey said:

Lest we forget the tragic loss of life through suicide in such times of economic distress

Does that include bankers, estate agents and anyone who's profitted for the last 20 years of handouts and economic pain forced on the rest of us ?

 

Asking for a friend.

[DoINeedOne]

Royal Mail up again today pretty much near break even on this one doubt its going stay there

[Democorruptcy]

11 hours ago, Panda said:

DB. Guys

I have £26k sat in cash in my HL SIPP account.

 

Going all in tomorrow.

Where would you allocate the cash, which shares and how much in on each allocation.

I've never held shares in my life.

 

Appreciate any guidance as I feel this is my once in a lifetime buying opportunity. 

I've just cobbled together enough for some more RDSB. I was going to leave some cash for fees but with it being the new ISA tax year soon I'll be able to top up for that. Hoping that on a future chart the 9.30 today and the much bigger buy at 12.50 and smaller at 16.50 mingle together on the chart as a V that's just noise!