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

[TheCountOfNowhere]

17 minutes ago, StrugglingMillennial said:

Seems a bit odd to me, markets going up while economic activity is going down. I understand the inflation part but it hasn't got going yet, the damand for oil has dropped since 20:30 last night but away it goes this morning 🙄

 

It's a long way to go.

Here's what I think will happen now.

3/12 weeks, everything will be fixed, everyone back to normal, markets start to boom, then CV19 Part 2 hits.

new lows. More banker madness.

Depression.

[TheCountOfNowhere]

58 minutes ago, Craig said:

First looked at that graph and thought, "well that's not too bad", then I saw the line!

Things are much worse than anyone thought....stock market goes up.

Who's buying ?

I mean, how much are central banks buying with money that didn't exist 2 weeks ago.

The whole think is rotten to the core.

[Harley]

Sun is out, market is up nicely, government is "doing something"........so I'm getting ready to sell!

Maybe I've been listening to some wrong'uns but I kind of agree any melt up will be followed by worse.  It's not CV per se that worries me but all the other stuff and collateral damage.  A bit like today's delivery.  Stock is there but the HGV drivers are awol (reserve list, taking care at home on 80%, etc).  Financially, I worry about banks.  Not that they'll go bust but that there will be bail ins under the newish laws to stop that, at my expense. 

I thought about what an inflationary or deflationary depression would look like while listening to more Max Keiser last night.  Something we don't do so much here as we focus on the financials.  But as we'll see, the financials are just a part of the picture.  As investors, we need a diversified approach!  The following is not advice but some thoughts to stimulate others to contribute ideas.  The power of crowds and all that.  Everyone can contribute as this is wider than the current market set up.  Indeed, those claiming ignorance of such things may have more to contribute by that fact plus other knowledge which could be leveraged as my thesis is maybe we should be broadening our definition of investment and thinking outside the current box.  One idea in a thousand could be all it takes.    

Physically, I partially moved off grid a while back.  This latest twist is the nudge I need to do more.  I had a nudge back in 2009 when I knew what QE would do but I did not follow through (buy the market).  Not again.  But this is not QE this time though so a change of tack is needed to get ahead of the curve.  I'm not sure what that means but I fear all my previous risk analysis (see thread: regulation, etc) is now relevant.  I'm still debating (getting time) to go into pension draw-down but this time not just to lock that in but to take a wodge for safety.  I'll leave some on the investment table though as balance is key.

Thinking as broadly as my rather blinkered mind can:

Physical PMs.  At home, to a point but hard and expensive (atm) to sell back and could be regulations covering that.  The security aspect is a two edged sword (possession versus theft).  Plus investment risk.  So a limited (less than 100%) holding.  At a custodian?  Again a bit but regulation, investment, and now counterparty risk.   

Bitcoin.  Still new to me and has shown high investment risk, but it surely has a place (the question is just how much and which forms).  What other things could be used as well, not just alt coins but other things?  Needs a bit of thinking through living in scenarios.  For example, toilet paper?!

Physical cash at home.  To a point but could become a cropper with changes like in India.  I stored some twenties once and had to go to London to get them changed when they were withdrawn from circulation.  That put me well into the system.  They even knew my partner had done it before me and questioned me about that!  And that was not a lot of money.

Government bonds.  They have a place, especially to (partially) secure those funds waiting for a market bottom (if seen) or at least a hedge for a further notch down in the markets.  But risks (e.g. currency).  Also long or short term?  DB says(?) not a long term hold but maybe something to fade out of into equities, etc if holding too much cash is too risky. 

Equities.  These have a place but even finally faltered in the end in the Wiemar inflationary depression.  I like SPs list (plus a regional focus towards the East (given their CV performance) and maybe emerging markets).  But then income or growth or total return?  A bit of all I guess (with sector/region being more important).  I must admit being caught out with my income portfolio idea.  Obvious really that they could cut dividends (that being more important for me for a buy and hold income portfolio than share price). 

Trading (any instruments).  Maybe a bit of trading on the side to generate some income.  Hate to see a bit of volatility go to waste!  But right now I've had bigger priorities investing in things outside the financial system.          

Hard assets (other than PMs).  These could either be physical (land, property, etc) but also derivatives (such as commodities).  Land , etc could lose value or shoot up but as one property investor once told me, always have some cash to snap up bargains (such is the nature of the market).  Commodities are an issue in terms of risk (counter-party, contango v backwardisation, etc).  I lost a bit last time round on a locked commodity fund.

Last but not least, my #1 investment effort right now: things, productive things, things that provide direct value to my life.  Use my funds to build a more self sustainable lifestyle.  I need to think that through but livestock, solar, allotment+ are top of my list.  The key (through actual experience and some what-if analysis) is to build in redundancy in such things as energy.  We have oil heating, but wood and bottled gas.  We have oil hot water but also a bottled gas shower and wood.  We have a supermarket, but also an allotment.  We have mains water but also a disused bore hole, access to a stream, water stores and rain water harvesting going in.  I need to build this list.  All this is not reactive and a potential waste as this is how I would actually like to live my life!     

So any other ideas, however off the wall, etc?  One left field idea can lay waste to thousands of box filled ones!  Something like a toilet paper making machine!

[TheCountOfNowhere]

https://oilprice.com/Energy/Energy-General/Oil-Majors-Are-Preparing-For-10-Oil.html

 

$10 a barrel ?

[Bobthebuilder]

10 minutes ago, Harley said:

So any other ideas, however off the wall, etc?

Food wise, learn how to "process". this is where you add value and long life to produce. Pickles, jams etc. You only have to leave a pork chop in salt over night in the fridge for cheaper bacon for example.

[Harley]

2 hours ago, DurhamBorn said:

You have to laugh at the Germans,return to frugal policy ,it doesnt work like that.They will be spending as much as anyone else.Maybe more.Fed will decide what Germany does because commod prices are going to be the story of the cycle and how currencies interact with the $ crucial.

Judging by their (as others) way of recording CV deaths, any frugality maybe more a statistical veneer!

[Agent ZigZag]

24 minutes ago, Bobthebuilder said:

Food wise, learn how to "process". this is where you add value and long life to produce. Pickles, jams etc. You only have to leave a pork chop in salt over night in the fridge for cheaper bacon for example.

Charcuterie is a little hobby passion of mine. Its amazing what you can produce and it is a cost saving exercise especially with the likes of salami etc

[reformed nice guy]

43 minutes ago, Harley said:

Sun is out, market is up nicely, government is "doing something"........so I'm getting ready to sell!

Maybe I've been listening to some wrong'uns but I kind of agree any melt up will be followed by worse.  It's not CV per se that worries me but all the other stuff and collateral damage.  A bit like today's delivery.  Stock is there but the HGV drivers are awol (reserve list, taking care at home on 80%, etc).  Financially, I worry about banks.  Not that they'll go bust but that there will be bail ins under the newish laws to stop that, at my expense. 

I thought about what an inflationary or deflationary depression would look like while listening to more Max Keiser last night.  Something we don't do so much here as we focus on the financials.  But as we'll see, the financials are just a part of the picture.  As investors, we need a diversified approach!  The following is not advice but some thoughts to stimulate others to contribute ideas.  The power of crowds and all that.  Everyone can contribute as this is wider than the current market set up.  Indeed, those claiming ignorance of such things may have more to contribute by that fact plus other knowledge which could be leveraged as my thesis is maybe we should be broadening our definition of investment and thinking outside the current box.  One idea in a thousand could be all it takes.    

Physically, I partially moved off grid a while back.  This latest twist is the nudge I need to do more.  I had a nudge back in 2009 when I knew what QE would do but I did not follow through (buy the market).  Not again.  But this is not QE this time though so a change of tack is needed to get ahead of the curve.  I'm not sure what that means but I fear all my previous risk analysis (see thread: regulation, etc) is now relevant.  I'm still debating (getting time) to go into pension draw-down but this time not just to lock that in but to take a wodge for safety.  I'll leave some on the investment table though as balance is key.

Thinking as broadly as my rather blinkered mind can:

Physical PMs.  At home, to a point but hard and expensive (atm) to sell back and could be regulations covering that.  The security aspect is a two edged sword (possession versus theft).  Plus investment risk.  So a limited (less than 100%) holding.  At a custodian?  Again a bit but regulation, investment, and now counterparty risk.   

Bitcoin.  Still new to me and has shown high investment risk, but it surely has a place (the question is just how much and which forms).  What other things could be used as well, not just alt coins but other things?  Needs a bit of thinking through living in scenarios.  For example, toilet paper?!

Physical cash at home.  To a point but could become a cropper with changes like in India.  I stored some twenties once and had to go to London to get them changed when they were withdrawn from circulation.  That put me well into the system.  They even knew my partner had done it before me and questioned me about that!  And that was not a lot of money.

Government bonds.  They have a place, especially to (partially) secure those funds waiting for a market bottom (if seen) or at least a hedge for a further notch down in the markets.  But risks (e.g. currency).  Also long or short term?  DB says(?) not a long term hold but maybe something to fade out of into equities, etc if holding too much cash is too risky. 

Equities.  These have a place but even finally faltered in the end in the Wiemar inflationary depression.  I like SPs list (plus a regional focus towards the East (given their CV performance) and maybe emerging markets).  But then income or growth or total return?  A bit of all I guess (with sector/region being more important).  I must admit being caught out with my income portfolio idea.  Obvious really that they could cut dividends (that being more important for me for a buy and hold income portfolio than share price). 

Trading (any instruments).  Maybe a bit of trading on the side to generate some income.  Hate to see a bit of volatility go to waste!  But right now I've had bigger priorities investing in things outside the financial system.          

Hard assets (other than PMs).  These could either be physical (land, property, etc) but also derivatives (such as commodities).  Land , etc could lose value or shoot up but as one property investor once told me, always have some cash to snap up bargains (such is the nature of the market).  Commodities are an issue in terms of risk (counter-party, contango v backwardisation, etc).  I lost a bit last time round on a locked commodity fund.

Last but not least, my #1 investment effort right now: things, productive things, things that provide direct value to my life.  Use my funds to build a more self sustainable lifestyle.  I need to think that through but livestock, solar, allotment+ are top of my list.  The key (through actual experience and some what-if analysis) is to build in redundancy in such things as energy.  We have oil heating, but wood and bottled gas.  We have oil hot water but also a bottled gas shower and wood.  We have a supermarket, but also an allotment.  We have mains water but also a disused bore hole, access to a stream, water stores and rain water harvesting going in.  I need to build this list.  All this is not reactive and a potential waste as this is how I would actually like to live my life!     

So any other ideas, however off the wall, etc?  One left field idea can lay waste to thousands of box filled ones!  Something like a toilet paper making machine!

I live in a rural location and have been doing similar for the past 5 years. I have solar, a wind turbine, kerosene, gas, private water supply, poly tunnel, green house, outdoor raised beds, chickens and currently building a hydro scheme. You are correct that it is a lifestyle though, not just something to do. If you dont enjoy digging ditches or having to work outdoors even when its cold & raining then you will likely give in over time.

I would recommend getting into hunting if you are rural. Talk to some neighbours and ask for permission to shoot deer + fox on their land. Apply for your firearms and shotgun certificate. You are not supposed to use them for self defence of course.

Send me a PM if you want any more info or help applying for the FAC.

[Harley]

2 hours ago, Castlevania said:

Is this a bear market rally? I think we’re over the worst for most stocks. A number now up 30%+ from last week’s lows.

Today has set a higher high on the daily FTSE chart which is the first time since the 4 Mar 20.  Stochastics strengthening and MACD is rising from its lowest ever level since whenever (even 2008/9).  The weekly Stochastics are strengthening but MACD is still falling and its curve  looks like it has a bit further to go before it turns upwards (currently close to its 2008/9 low).  Similar on the monthly except only the fast Stochastic has risen and MACD way higher than its 2008/9 low.  The straight 30%+ fall on the monthly index value would make at least a bit of a rally quite possible.  Shock and awe followed by trench warfare would not be an unusual sequence of events.  But, it's all in the detail (specific stocks), not the index.

[Barnsey]

1 hour ago, DurhamBorn said:

As expected the markets can now start to look ahead as the wave of fear selling at any price has stopped for a while.It could come back of course and quickly.

People are waking up to inflation.The huge jumps in the likes of Shell,BP,BHP etc show this.

However id of rather the markets had kept falling for now because the Fed havent done anywhere near enough given the systemic risks.Im really struggling to find out just how much liquidity they have pumped in,but its looking to me like only around half of whats needed.It could be they monetize another $2 trillion once the democrats stop their nut job ways in the Senate.

It always feels nice to get a 30% jump in the likes of Shell,but thats just short term emotions,the more crucial part is that the liquidity is pumped so they can reach potential in 6 years+ and id rather the market had kept its foot on the Feds neck.A 30% jump in Shell now might cost us an extra 200% by 2027 if the CBs think they have got things stable and print less.

They havent printed enough yet to  stave off a massive debt deflation.Hopefully the credit markets can keep the Fed pumping.

Agreed!

I know the market is forward looking but things are about to get worse before better, never mind oil shares look at what Gold is doing. The possibility of a 2nd wave is high.

[DurhamBorn]

1 minute ago, Harley said:

Today has set a higher high on the daily FTSE chart which is the first time since the 4 Mar 20.  Stochastics strengthening and MACD is rising from its lowest ever level since whenever (even 2008/9).  The weekly Stochastics are strengthening but MACD is still falling and its curve  looks like it has a bit further to go before it turns upwards (currently close to its 2008/9 low).  Similar on the monthly except only the fast Stochastic has risen and MACD way higher than its 2008/9 low.  A straight 30%+ fall on the monthly index value would make at least a bit of a rally quite possible.  Shock and awe followed by trench warfare would not be an unusual sequence of events.  But, it's all in the detail (specific stocks), not the index.

I think there are two sides to this IF the Fed print enough.You have the urge to go higher as the liquidity enters the system.On the other side you have the massive damage done to the economy.The problem is how much is that damage?.You would tend to think we shouldnt get a credit even as long as the Fed has unlimited QE.However its very likely that does arrive once they stop,because thats when the market will allocate with focus.A pub running out of beer isnt going to sell it to smelly Jack who runs a tab.There is a huge risk the market runs higher into late summer only for a massive crash to just happen where people simply give up.Its a bit like in the films where the villain is beaten to his knees,while the hero gives him a morality speech for a while before then handing out the coup de grace.

 

[Loki]

2 hours ago, DurhamBorn said:

It always feels nice to get a 30% jump in the likes of Shell,but thats just short term emotions,the more crucial part is that the liquidity is pumped so they can reach potential in 6 years+ and id rather the market had kept its foot on the Feds neck

This is so very true.  It does give a little dopamine boost seeing blue but it is ultimately meaningless for now in context of this thread

[Sasquatch]

All of this is just doing my head in. I was planning to work very hard for another 3 years or so. Retire to a lovely quiet country retreat and listen to prog rock in my yet to be created man cave room.

More than likely now be breaking rocks in some government run labour camp.

[Harley]

44 minutes ago, Barnsey said:

Agreed!

I know the market is forward looking but things are about to get worse before better, never mind oil shares look at what Gold is doing. The possibility of a 2nd wave is high.

The psychology is interesting.  The CV may get worse but it is now more of the same.  Plus, something has now been "done" (regardless of it's effectiveness).  This gives the notion (veneer) of control.  What really shocks is when the paradigm, etc changes, like the initial outbreak.  That's why I look for the next market dislocation to not be more of the same but son (or cousin!) of the same.  Some sort of collateral event which probably has it's roots well back before CV but which will be seen to be CV related.  An unknown unknown.  CV is now merely a known unknown! 

[Harley]

46 minutes ago, DurhamBorn said:

Its a bit like in the films where the villain is beaten to his knees,while the hero gives him a morality speech for a while before then handing out the coup de grace

In a lot of the movies I watched (no time right now!), the villain usually gets up and stabs said heroic morality speech teller in the back!!!!!!

Note a lot of CEOs recently left.  They knew what they had done and what was coming, CV or not.  That to me rules out BAU.  A new CEO needs a new vision, a new story, and a new mountain to heroically climb.  Retrench, security, bring it home, look after our own, slim down, divest, core values, etc could all be the new speak.  But so could a form of feudalism where all the stock goes private (with the aid of the CBs and government) and we're all out of this investment malarkey.  This is time for me to take one foot out of the box, or, to borrow the phrase, "dance in the doorway"!

[Harley]

23 minutes ago, Sasquatch said:

All of this is just doing my head in. I was planning to work very hard for another 3 years or so. Retire to a lovely quiet country retreat and listen to prog rock in my yet to be created man cave room.

More than likely now be breaking rocks in some government run labour camp.

Too negative.  I quit early and became a stone mason!  Really!  Well, they were all lying there and something had to be done!

[Democorruptcy]

2 hours ago, Harley said:

So any other ideas, however off the wall, etc?

Obviously we can only work to what rules we have now but taxation is going to be a big issue going forward. Somebody is going to have to pay for the helicopter money. Tax and inflation combined are going to do their best to crush investment returns. It was partly why I was trying the ISA uplift the other day, that fell on deaf ears. 

[Harley]

Just now, Democorruptcy said:

Obviously we can only work to what rules we have now but taxation is going to be a big issue going forward. Somebody is going to have to pay for the helicopter money. Tax and inflation combined are going to do their best to crush investment returns. It was partly why I was trying the ISA uplift the other day, that fell on deaf ears. 

Wealth tax.  Inflation tax.  Forced this and that.  Go off piste asap?

[DurhamBorn]

The difference is i dont think the debt will be paid.The CBs are creating new reserves and are pretty much just monetizing what governments are borrowing.In affect they are taking off everyone in the country to hand it back to some places.Its pretty much pure inflation.

We were a desert island with 3 people and 6 coconuts and we each have £20.There are now only 4 coconuts,but we arent worried,we still have £20.

 

 

[TheCountOfNowhere]

https://www.telegraph.co.uk/business/2020/03/24/markets-live-coronavirus-latest-news-pound-euro-ftse-100-coronavirus/

 

UK heads for recession ‘of a scale not seen in modern history’ as activity collapses

 

FTSE up 5%

 

[Jimmy64]

First post, long-time lurker (including on TOS). Many thanks to many for the insightful, detailed posts - long may this continue.

Without derailing the thread, I thought I may add a few thoughts and queries - grateful for any responses. 

1. If we have changed cycle from disinflation to reflation, over the next circa 7/8 years could the direction of travel of people in and around towns and cities change (I.e less people working in city centres, with more working at the "end of the railway line" nearer primary/industrial sources?) I live near Glasgow, and whilst so many now travel from the central belt to the city centres (I.e Glasgow or Edinburgh), I wonder if this trend will reverse and industries will return in former industrial heartlands and transport links will adapt to this change?

2. Durhamborn - I noticed that you mentioned that your reflation map started from North of the Humber - assuming this would also include Scotland? Also, have you had a chance to look at any leads and lags on particular sectors for the cycle ahead as mentioned a few pages ago? And good news on the job offer (whether you take it or not). 

Many thanks in advance!

[BearyBear]

4 minutes ago, TheCountOfNowhere said:

https://www.telegraph.co.uk/business/2020/03/24/markets-live-coronavirus-latest-news-pound-euro-ftse-100-coronavirus/

 

UK heads for recession ‘of a scale not seen in modern history’ as activity collapses

 

FTSE up 5%

 

Wolf R: Nothing goes to hell in a straight line  

[TheCountOfNowhere]

5 minutes ago, BearyBear said:

Wolf R: Nothing goes to hell in a straight line  

Last week it was giving it a good go !!!

Just shows you the stick market is not about companies and britain it's about spivs and fraud.

[DurhamBorn]

7 minutes ago, Jimmy64 said:

First post, long-time lurker (including on TOS). Many thanks to many for the insightful, detailed posts - long may this continue.

Without derailing the thread, I thought I may add a few thoughts and queries - grateful for any responses. 

1. If we have changed cycle from disinflation to reflation, over the next circa 7/8 years could the direction of travel of people in and around towns and cities change (I.e less people working in city centres, with more working at the "end of the railway line" nearer primary/industrial sources?) I live near Glasgow, and whilst so many now travel from the central belt to the city centres (I.e Glasgow or Edinburgh), I wonder if this trend will reverse and industries will return in former industrial heartlands and transport links will adapt to this change?

2. Durhamborn - I noticed that you mentioned that your reflation map started from North of the Humber - assuming this would also include Scotland? Also, have you had a chance to look at any leads and lags on particular sectors for the cycle ahead as mentioned a few pages ago? And good news on the job offer (whether you take it or not). 

Many thanks in advance!

Scotland will do well from food and energy production.Its highly likely industries will return to old areas yes.For instance i expect the Teesside area to boom.Anglo American is just the start there.

Its very difficult at the moment to work on lags due to the speed of things,that will come once things settle down.The cycle will be industrial though,so commods will move first.They are used to build the factory,and then by the factory.Massive amounts of supply chain is coming  back to the west.

[TheCountOfNowhere]

https://www.thesun.co.uk/news/11239432/petrol-litre-supermarkets-cut-prices/

 

Morrisons and Asda have slashed up to 12p off the price of fuel because of falling oil prices due to coronavirus in an unprecedented boost for drivers.

 

Inflationary ?