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

[TheCountOfNowhere]

• Latest: UK shopping basket prices jump 4.4% in a month

 

https://www.theguardian.com/business/live/2020/apr/16/markets-us-jobless-claims-covid-19-recession-imf-bank-of-england-business-live

 

Welcome to hyper inflation

[TheCountOfNowhere]

Prices rose by 1.8% in the last week alone -- or nearly the UK’s target for inflation over a whole year (2%).

[Craig]

3 minutes ago, TheCountOfNowhere said:

Prices rose by 1.8% in the last week alone -- or nearly the UK’s target for inflation over a whole year (2%).

That'll be fucking Tesco putting all of their prices up.

Edit - and removing all of their special offers. Arseholes.

[TheCountOfNowhere]

1 minute ago, Craig said:

That'll be fucking Tesco putting all of their prices up.

Edit - and removing all of their special offers. Arseholes.

93.6% annualised

[DurhamBorn]

 

21 minutes ago, JMD said:

Its so fascinating to hear that said, but i'm sure it's true and that most retail and institutional investors are still looking the wrong way.  

DurhamBorn do you think the reason why the EU is so slow in reacting is because they (Germany) want to nail down a new integrated EU tax deal for all members to sign up to (at least a draft agreement in principle) before agreeing more bailout money for Italy, Spain, etc? 

I just think the EU is a disaster.Far too slow due to its structure.

[TheCountOfNowhere]

Straight to inflation then.

 

Of course they'll say, it's only a blip, it'll go down again.

 

Like hell it will.

[JMD]

17 hours ago, Loki said:

I really hope you're onto something there

I cant predict future politics of course, but my thinking is that its better to make a strategic investment decision either way, and I do think its the less risky option. But who knows and I may underperform, especially if China 'mends its ways' (though that's not looking good; latest news is that the US is ramping up to blame China 100% for releasing CV from its Wuhan Corona research lab, I think the 'great game' is on!).  

Anyway, for what its worth, and based in part from discussions had here, I have decided - in terms of emerging countries - to give wide berth to China/India/South America/Africa and use instead Russia/E. Europe, inc. the former Soviet states/S. Korea(surely only matter of time before it rejoins with N. Korea)/Vietnam/Cambodia/Singapore. These countries represent a relatively small part of the global economy but I think will be better bet in terms of future trade/governance issues compared to China/India, etc.

[Majorpain]

3 minutes ago, TheCountOfNowhere said:

Straight to inflation then.

 

Of course they'll say, it's only a blip, it'll go down again.

 

Like hell it will.

Its inflation or we go down the deflationary black hole as all that debt goes to zero and the world gets very fair, very fast.

Buy inflation proofed assets, buckle up and cross your fingers.

[TheCountOfNowhere]

1 minute ago, Majorpain said:

Its inflation or we go down the deflationary black hole as all that debt goes to zero and the world gets very fair, very fast.

Buy inflation proofed assets, buckle up and cross your fingers.

The inflation proof assets are all in bubbles.

Take your pick on what way you want to lose your money

[JMD]

17 hours ago, Sasquatch said:

Eric Bloodaxe. Now that's a hammered silver penny I'd like to find in a field one day!

Just so long as he's not the next BoE governor!!

[TheCountOfNowhere]

13 minutes ago, Cattle Prod said:

It's not a trading portfolio count, come back and check in 10 years!

I know, it's the centrica thing, find it hilarious.  I hold quite a lot of their shares, I just never learned.

20 minutes ago, Majorpain said:

Its inflation or we go down the deflationary black hole

Could you narrow it down a bit !!!

[Harley]

11 minutes ago, JMD said:

Just so long as he's not the next BoE governor!!

A fantastic name.  I have name envy!  Hope one of his descendants will be our new Volker!  "My name is Eric Bloodaxe, but you can call me.........'Axe'"!

[spygirl]

Opinion: Big US banks should raise $200bn in capital now Neel Kashkari Large banks are eager to be part of the solution to the coronavirus crisis. The most patriotic thing they could do today would be to stop paying dividends and raise equity capital, to ensure that they can endure a deep economic downturn. Unlike the rest of us, banks have the ability to essentially vaccinate themselves against this crisis. They should do so now. In 2008, US taxpayers injected about $200bn of capital to strengthen banks. Raising that amount from private investors today, as a strong, preventive measure would ensure that large banks could support the economy over a broad range of virus scenarios. The writer, president and chief executive of the Federal Reserve Bank of Minneapolis, oversaw the Troubled Asset Relief Program in 2008-09.

https://www.ft.com/content/0b944cd4-7f01-11ea-b0fb-13524ae1056b

Banks will start raising capital, pushing up yields and hold back on lending.

Higher IRs and less lending.

[TheCountOfNowhere]

3 minutes ago, spygirl said:

Opinion: Big US banks should raise $200bn in capital now Neel Kashkari Large banks are eager to be part of the solution to the coronavirus crisis. The most patriotic thing they could do today would be to stop paying dividends and raise equity capital, to ensure that they can endure a deep economic downturn. Unlike the rest of us, banks have the ability to essentially vaccinate themselves against this crisis. They should do so now. In 2008, US taxpayers injected about $200bn of capital to strengthen banks. Raising that amount from private investors today, as a strong, preventive measure would ensure that large banks could support the economy over a broad range of virus scenarios. The writer, president and chief executive of the Federal Reserve Bank of Minneapolis, oversaw the Troubled Asset Relief Program in 2008-09.

https://www.ft.com/content/0b944cd4-7f01-11ea-b0fb-13524ae1056b

Banks will start raising capital, pushing up yields and hold back on lending.

Higher IRs and less lending.

Unless they dont of course.  Lower IRs and lend magicked up cash.

Give the unelected Bank of England immediately brought in a new Term Funding scheme...which do you think they're going for in the UK? 

[DurhamBorn]

There is no inflation in the system,its a few odd items in high demand.The risk is systemic deflation.

The CBs can print as much as they want when facing deflation,and they will.As iv said before they have all the disinflation since 1982 to print if they want.So the Fed can gets its balance sheet well over $12 trillion,probably towards $20 trillion before they start to tighten later.

Imagine however at the end of an inflation cycle.A real one.If my road map is close and inflation is around 15% there is no way they can print to stem falls.That is when the free falling markets cant be stopped.

If the US sees 20% unemployment we can expect massive fiscal injections as the Fed keeps expanding its balance sheet.

Markets arent linear and cycles take time to play out.If the CBs stopped printing now you would see the biggest financial and social disaster in history.A dislocation so large almost every company would go under.

The 70s  great inflation was given fuel because governments feared the costs of unemployment over the costs of some inflation.We are about to see the same triggers.

The CBs are doing the right thing by printing so much,their mistakes were not printing enough and being too tight going into this.

Total collapse or high inflation (not hyper inflation) those are the two options,there is no middle ground now.The likely macro road ahead cant tell anyone how to time an investment,you can though avoid a big chunk of the falls.

Massive changes ahead in the world economy.

[Majorpain]

39 minutes ago, TheCountOfNowhere said:

The inflation proof assets are all in bubbles.

Take your pick on what way you want to lose your money

That's the negative way of saying that the economy cannot support the demands placed on it, and assets are starting to reprice to a level which it can.  Hat tip DB!

All the money printing is doing is increasing the money supply (and hopefully velocity which was dying) and that debt/liabilities becomes more manageable.

If i have to choose between losing more money and losing less money, ill take less money thanks.  

[DurhamBorn]

7 minutes ago, spygirl said:

Opinion: Big US banks should raise $200bn in capital now Neel Kashkari Large banks are eager to be part of the solution to the coronavirus crisis. The most patriotic thing they could do today would be to stop paying dividends and raise equity capital, to ensure that they can endure a deep economic downturn. Unlike the rest of us, banks have the ability to essentially vaccinate themselves against this crisis. They should do so now. In 2008, US taxpayers injected about $200bn of capital to strengthen banks. Raising that amount from private investors today, as a strong, preventive measure would ensure that large banks could support the economy over a broad range of virus scenarios. The writer, president and chief executive of the Federal Reserve Bank of Minneapolis, oversaw the Troubled Asset Relief Program in 2008-09.

https://www.ft.com/content/0b944cd4-7f01-11ea-b0fb-13524ae1056b

Banks will start raising capital, pushing up yields and hold back on lending.

Higher IRs and less lending.

Agreed spy,the money in the system wont be going through the banks,the government think it will at the moment though.It will end up the BOE expanding the balance sheet to buy gilts the government then spends.Once things settle they wont spend all of it though,they will use it to oil the cogs.New arc furnace on Teesside,government funds the rail links etc.

[TheCountOfNowhere]

4 minutes ago, Majorpain said:

That's the negative way of saying that the economy cannot support the demands placed on it, and assets are starting to reprice to a level which it can.  Hat tip DB!

All the money printing is doing is increasing the money supply (and hopefully velocity which was dying) and that debt becomes more manageable.

If i have to choose between losing more money and losing less money, ill take less money thanks.  

I agree 100% with this, the path to losing less money is not clear :-) 

Thankfully I've worked out how to regain my losses....I'm moving everything into a SIPP when I think the time is right. Hopefully that will turn good by retirement time.

[JMD]

12 hours ago, sancho panza said:

Divi's are what it all about for me.Growth is great but I would always sell it to buy yield.

WHen you're buying in the section of the chart that you are,I wouldnt worry about trying to get the bottom.MY Grandad used ot say to me,'leave the bottom 10% and the top 10% for the gamblers'

Sage advice.We've been beaten handsomely by some of the traders on here.If we're sub £15 on RDSB,I'd be delighted.I can't work it out because it's all certificated and I'd have to get my calculator out.

I think if you're buying FCX below $7 then you're getting a lot of bang for your buck.Maybe consider a second ladder at $6 or $5.50.

Vendetta, I agree with SP's comments above, and wasn't it Einstein who said (well, sort of?) that compounding divis was the most powerful force in the universe. Anyway just to add that I think - particularly with where we are at now - i.e at the turn of new economic cycle - potential risks regarding 'catching a falling knife' are not so crucial... its more about positioning my portfolio in cheap stocks that will do well (explode even) in the next cycle. Also, buying into trends (if they happen as expected) such as the US favouring its own producers (at the expense of China) means companies like Mosaic should do very well. 

[DoINeedOne]

 

5 hours ago, Barnsey said:

MUST READ! (a report from Vincent Deluard which fits this thread’s thesis almost perfectly, we’re starting to have company in the macro world)

https://www.dropbox.com/s/2g92gazyrpdwfyk/MGM_0420.pdf?dl=0

 

Good read 

------

Bought within ISA over the last few days

1st ladder in Repsol yesterday

4th ladder in BP today

4th ladder in Shell today

 

 

 

[Jesus Wept]

IEA projections over coming year. 

Crude Oil is just shy of $20/b.

 

[JMD]

1 hour ago, TheCountOfNowhere said:

The inflation proof assets are all in bubbles.

Take your pick on what way you want to lose your money

Do you mean that? Or are you mainly referring to the potential for another smackdown/big kahuna event? And even if that were to happen I thought the reflation stocks discussed here, if thread ethos is accurate, were set to benefit most over next 5+ years.    

Obviously there are no guarantees, but for example, as this stock has been discussed recently... is Mosaic in a bubble... or the oil/telecom reflation stocks discussed so often here?

[sancho panza]

1 hour ago, Cattle Prod said:

So for my fellow stat nerds, how is the bat flu daily confirmed new cases ex China bell curve doing? I haven't touched the scales or projections, (as people just love to do to make stuff fit, I'm looking at you, climate hockey stick people):

2nd April:

 

15th April:

So beahving itself, and filling out quite nicely. Still a chance of it having a longer flat top, the next few days will tell. If it does, it will be because more developing countries and emerging markets are being added. It's a bit spikier than I'd like, I think this is due to reporting methods. As I said you can only see a peak in the rear view, and another 5 days or so will be safer to see it. But if I was to take a financial position on this (as I did two weeks ago!) I'd say it has peaked (dyor please, I did this for my own purposes only!). There will be secondary peaks in individual countries like Singapore, but global data should smooth these out.

For those focused on financial centres, and thinking about when traders might start to feel a bit happier, courtesy of worldometers.info and GMI:

So peaked and dropping. GMI shows the he UK trailing behind using a 5 DMA:

But interestingly, worldometers without the 5DMA is much flatter. Again, statistics in the eye of the beholder, I wonder why they chose this interpretation of the data for the UK. I prefer the raw data myself:

Not all roses though, I've only been showing daily new confirmed cases, as a proxy for rate of infection, and yes the virus is following a natural cycle: but healing times are long. Which may embolden the govt to keep things locked down for longer in fear of hospitals being overwhelmed. Though I note that reports of half empty ICUs are now hitting the mainstream media, I will watch what the govt says in response to this with interest.

I posted this in the sceptics thread for my records CP.Spot the highest ranking country with no lock down........comes in 8th.The chart is deaths per million,which cuts out all the noise about testing but does obviously include some consistency issues with certification as to the cause of death by various nations.

The problem with the new cases data is that it's heavily influenced by governmental incompetence, and in the matter of the UK's,that creates multiple problems.

There's a body of evidence,mainly anecdotal but some evidentiary,that a substantial flu virus was doing the rounds in Dec/Jan-if not earlier-which might well change your starting point but not the shape of your curve.

I think the govt will have to continue the lock down as not doing so will be tantamount to admitting they were wrong to initiate it.

https://en.wikipedia.org/wiki/2020_coronavirus_pandemic_in_Europe

 

edit toadd:jsut found out they've extended lock down for 3 weeks.

[Sasquatch]

1 hour ago, DurhamBorn said:

There is no inflation in the system,its a few odd items in high demand.The risk is systemic deflation.

The CBs can print as much as they want when facing deflation,and they will.As iv said before they have all the disinflation since 1982 to print if they want.So the Fed can gets its balance sheet well over $12 trillion,probably towards $20 trillion before they start to tighten later.

Imagine however at the end of an inflation cycle.A real one.If my road map is close and inflation is around 15% there is no way they can print to stem falls.That is when the free falling markets cant be stopped.

If the US sees 20% unemployment we can expect massive fiscal injections as the Fed keeps expanding its balance sheet.

Markets arent linear and cycles take time to play out.If the CBs stopped printing now you would see the biggest financial and social disaster in history.A dislocation so large almost every company would go under.

The 70s  great inflation was given fuel because governments feared the costs of unemployment over the costs of some inflation.We are about to see the same triggers.

The CBs are doing the right thing by printing so much,their mistakes were not printing enough and being too tight going into this.

Total collapse or high inflation (not hyper inflation) those are the two options,there is no middle ground now.The likely macro road ahead cant tell anyone how to time an investment,you can though avoid a big chunk of the falls.

Massive changes ahead in the world economy.

So Egon over at Gold Switzerland is perhaps a little sensationalist?

https://goldswitzerland.com/the-greatest-financial-crisis-hyperinflation/

I quite like his style but clearly he is a fully signed up goldbug. 

I'm not sure I want 'total collapse' option to be explained to me by anyone..... 

[TheCountOfNowhere]

1 hour ago, JMD said:

Do you mean that? Or are you mainly referring to the potential for another smackdown/big kahuna event? And even if that were to happen I thought the reflation stocks discussed here, if thread ethos is accurate, were set to benefit most over next 5+ years.    

Obviously there are no guarantees, but for example, as this stock has been discussed recently... is Mosaic in a bubble... or the oil/telecom reflation stocks discussed so often here?

Do I mean that....that is a good question.

Yes, I think I do.

Show me an asset class that doesn't look inflated due to the events of 2007 onwards, cars, houses, US stock market, even Gold, Bit coin, Silver look historically high, relative to UK wages ( that's the important bit ).  In the great depression the US ( land of the free ) tried to confiscate gold.

I think the best you can hope for it to maintain your position but I dont think there is any simple answers on how to do that other than to try and time your jump into various asset classes.

For that though we sure as hell better hope we are about to see some sort of asset deflation event.