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

[Bricormortis]

 I deleted my post , out of date info on uranium supply and demand.

[TheCountOfNowhere]

Uk propaganda channels letting the people know today things are bad and might not bounce bsck..... 

[M S E Refugee]

https://www.marketwatch.com/story/schlumberger-swings-to-large-loss-misses-revenue-and-cuts-dividend-by-75-stock-surges-2020-04-17

[Loki]

9 hours ago, TheCountOfNowhere said:

Uk propaganda channels letting the people know today things are bad and might not bounce bsck..... 

Any particular good links count?

[TheCountOfNowhere]

57 minutes ago, Loki said:

Any particular good links count?

Was on TV, Sky news

[TheCountOfNowhere]

2 hours ago, M S E Refugee said:

https://www.marketwatch.com/story/schlumberger-swings-to-large-loss-misses-revenue-and-cuts-dividend-by-75-stock-surges-2020-04-17

Market Summary > Schlumberger Limited.

NYSE: SLB

Follow

 

15.28 USD +1.23 (8.75%)

Bad is Good.

I bought these at the opening bell yesterday at $14.40

Looking at the historical all time graph, unless the company folds, I dont see how you cant win on this one. 

 

1 hour ago, Loki said:

Any particular good links count?

https://news.sky.com/story/coronavirus-uk-economy-faces-worst-downturn-since-records-began-bank-of-england-boss-warns-11974778

[Loki]

Is this big news or just hype?

https://www.goldmoney.com/research/goldmoney-insights/the-looming-derivative-crisis

Quote

The powerful forces of bank credit contraction are at the heart of a rapidly evolving financial crisis in global derivatives, whose gross value is over $600 trillion; an unimaginable sum. Central banks are on course to destroy their currencies through unlimited monetary expansion, lethal for bullion banks with fractionally reserved unallocated gold accounts, while being dramatically short of Comex futures.

This article explains the dynamics behind the current crisis in precious metal derivatives, and why it is the observable part of a wider derivative catastrophe that is caught in the tension between contracting bank credit and infinite monetary inflation.

 

[sancho panza]

On 17/04/2020 at 12:11, Talking Monkey said:

SP whats leading you to think that the weak dollar phase may not come about, with an elevated dollar index wouldn't stresses remain in the system. I would have thought the Fed would be incentivised to push on till they got it to 95 at least maybe it doesnt go to the 85 but rather drift a bit lower than the 100 where it is now

I'm constantlyquestioning my thesis.As of Jan this year,I was relatively convinced we'd have a sniff of recession>bit of QE/IR cuts> weak dollar phase>commodities up>worldwide recession/debt deflation>strong dollar phase.

I look at a number of thigns and am reassessing whether we might be on the verge of cutting out the middle man and going straight to the 'don't poanic' phase and the strong dollar.

Fed is incentivised to get DXY down but if you're facing a wall of international hysteria over covid then,it might not be as easy as I'd thought.

On 17/04/2020 at 14:11, MvR said:

The weekly and monthly Cameco charts both show clear W%R vs price divergence ( see below ), which means the bottom is probably in. The Kumo Clouds on the Weekly and Monthly haven't yet twisted to show some green in the future though. This suggests some choppiness here for a few months, between around 8 and 12.

 

I think your ladder plan and levels aren't bad. I'd buy a little now, but personally I might set the second ladder around 9, then 8, and then 7, though that might not fill.

I wouldn't pile in, given the recent bounce and potential for a pullback, but accumulating here and below seems reasonable. Options spreads are wide right now, but lets see where they are when the markets open in 1/2 an hour. If I was accumulating this, I'd probably do it by selling puts at 9, 8.5, 8 and 7.5, for a month out.. possibly waiting to enter orders for the lower puts until price approaches these levels ( if they do )

 

Super idea M.Not a bad strategy,pick up the premiums till then.

ALso beign someone who jsut buys the calls or puts(I know,I know),worth consdiering the Jan 21 strikes.$9 was $2 USD fri ngith$10 was circa $1.7,$11 1.4USD.

@Cattle Prod good discussion onoign over on the otpions thread,in a separate part of the basement

18 hours ago, Transistor Man said:

Can I ask what the thinking is with Uranium? 

isn’t it a metal who’s future demand is straight forward to work out?

I remember the price going crazy in 2007, but that was a time when a world-wide nuclear renaissance looked like it was ramping up. With Perhaps 100+ reactors being built.

(I left my job, and went to work in the nuclear industry in 2008. Went back to microelectronics in 2010.)

Lot of new reactors being built,unloved sector,forgotten but potnetially good value.

You;ve been in the industry TM is it fubar in your opinion?

https://www.statista.com/statistics/513671/number-of-under-construction-nuclear-reactors-worldwide/

 

[Loki]

2 minutes ago, sancho panza said:

Fed is incentivised to get DXY down but if you're facing a wall of international hysteria over covid then,it might not be as easy as I'd thought.

IS that simple down to the old 'pushing on a rope' analogy or something more complicated?

[M S E Refugee]

20 minutes ago, sancho panza said:

I'm constantlyquestioning my thesis.As of Jan this year,I was relatively convinced we'd have a sniff of recession>bit of QE/IR cuts> weak dollar phase>commodities up>worldwide recession/debt deflation.

I look at a number of thigns and am reassessing whether we might be on the verge of cutting out the middle man and going straight to the 'don't poanic' phase and the strong dollar.

Fed is incentivised to get DXY down but if you're facing a wall of international hysteria over covid then,it might not be as easy as I'd thought.

Super idea M.Not a bad strategy,pick up the premiums till then.

ALso beign someone who jsut buys the calls or puts(I know,I know),worth consdiering the Jan 21 strikes.$9 was $2 USD fri ngith$10 was circa $1.7,$11 1.4USD.

@Cattle Prod good discussion onoign over on the otpions thread,in a separate part of the basement

Lot of new reactors being built,unloved sector,forgotten but potnetially good value.

You;ve been in the industry TM is it fubar in your opinion?

https://www.statista.com/statistics/513671/number-of-under-construction-nuclear-reactors-worldwide/

 

That's just what the World needs, nuclear reactors built by those Chinese fuckwhits who can't even store Bat viruses safely.

[janch]

3 minutes ago, M S E Refugee said:

who can't even store Bat viruses safely.

I know it's ZH but it could be a man-made virus apparently.......

https://www.zerohedge.com/health/covid-19-man-made-virus-hiv-discoverer-says-could-only-have-been-created-lab

 

Professor Luc Montagnier, 2008 Nobel Prize winner for Medicine, claims that SARS-CoV-2 is a manipulated virus that was accidentally released from a laboratory in Wuhan, China. Chinese researchers are said to have used coronaviruses in their work to develop an AIDS vaccine. HIV DNA fragments are believed to have been found in the SARS-CoV-2 genome.

[sancho panza]

The unintended effects of QE hitting home.The Big kahuna will be epic when it lands

 

https://moneymaven.io/mishtalk/economics/illinois-is-insolvent-state-requests-a-pension-bailout-from-congress-KBL-qGQEuEatxroIBr31Sw

Illinois is Insolvent

I was certain this would happen, but the way this happened is a bit unexpected. Some of the state pension plans will run out of money in as little as 2-7 years. 

Wirepoints reports Illinois pension plans were running out of cash long before the Coronavirus hit.

Take, for example, the Chicago firefighter fund. In 2018, its total assets were $1.1 billion and its pension payout for that year was $330 million. That means it had about 3 years’ worth of payouts on hand – an asset-to-payout ratio of 3.4. There are just a handful of funds in the nation with lower ratios than that.

By comparison, the plan’s assets amounted to nearly 10 years’ worth of payouts in 2000.  

Chicago’s firefighter plan is now dangerously close to becoming a pay-as-you-go pension plan. That would make firefighters dependent on the city – which is already junk rated and effectively bankrupt – for their retirement checks.

It’s not just the firefighters’ fund that’s in trouble. It’s the same thing for Chicago police. Their funds’ ratio was just 4.1 in 2018. Chicago municipal had a ratio of 4.7 years. With the markets and bond yields down significantly, Chicago’s funds are now in a precarious position.

The state’s funds are only slightly better off. Illinois’ biggest fund, the state Teachers’ Retirement Fund, had a ratio of just 8.2 in 2018. At the turn of the century, it had 17 years’ worth of payouts.  

The State Employees Retirement System had a ratio of only 7 years.  

Worst of all is the Illinois lawmakers’ fund, which had just 2.5 years worth of payouts.

There is much more bad news in the article. Including a look at various cities.

Wirepoint Concludes

If the market meltdown persists for much longer, expect the city of Chicago’s rating to fall further and for the state’s to end up in junk. The consequences of both would be huge. But so far, Gov. J.B. Pritzker and Mayor Lori Lightfoot continue to reject an amendment to Illinois’ pension protection clause.

But soon, they may be forced to choose between either chaos or reforms. Barring state bankruptcy, pension reform is the only way to cut Illinois’ strangling debts and to keep pension fund asset-to-payout ratios from plunging straight to zero.

No Bailout

Illinois does not deserve a bailout. Its pension woes are of it own making, and have nothing to do with the coronavirus.

The state and cities need serious reform starting with the state allowing cities to declare bankruptcy. 

Trump could easily have passed national bankruptcy reform in his first Congressional term but he failed to do so. Now Democrats would likely block it. 

Two Things

1. Bankruptcy Reform
2. Pension Reform 

Illinois needs both, and both are up to the state, not the federal government.

Mike "Mish" Shedlock

 

[Transistor Man]

13 minutes ago, sancho panza said:

 

Lots of new reactors being built,unloved sector,forgotten but potnetially good value.

You;ve been in the industry TM is it fubar in your opinion?

https://www.statista.com/statistics/513671/number-of-under-construction-nuclear-reactors-worldwide/

 

 

I think I’m a little of our touch.

That’s much more world new build than I thought was going on.

i follow Wylfa closely, and that’s a joke.

It’s embarrassing  for the UK that we’ve done so little over the past decade. 

The uk gov should just have ordered 8. It would have been money well spent. 

[sancho panza]

8 minutes ago, Loki said:

IS that simple down to the old 'pushing on a rope' analogy or something more complicated?

That's it.Fed isn'tomnipotent.Doesn't operate in isolation.It functions in conjunction with aspects of other CB's/nation's/societies behaviour.

Jsut because they want a lower dollar,doens't mean they'll get it.

THat WOlf st post CP referred to has really got me thinking

I've said many times,debt deflations result generally more from a mood change in consumer behaviour that leads to a drop in aggregate demand than any one occurence in isolation.Rather lots of little occurences combine to create the change in mood that begets the change in credit demand.

You can't lend to peole who dont want to borrow if you get my dirft.It's at that point that Fed policy will be redundant because over last 80 years theyve relied on consumers ever increasing demand for credit.

Has covid created more changes in consumer/banks attitudes than I'd anticipated???? Thats my question I gues.

 

Still don't have an answer.

Possbile they can rebuidl the consumer one last time before the genreational lessons in indebtedness get aired.

[DurhamBorn]

$ goes up when there is systemic risk,and as US assets are bought.As the Fed prints and US assets go up in price there is more reason to sell the $ and buy other assets (foreign stocks etc)

My dollar target is 95,then 88.At that point i think we might see the final leg down in the equity markets.

Lots of noise about in the media and blogs that the Fed is now tightening.It isnt.Its trying to get the amounts right while the US government does fiscal injections.The Fed might do less at the repo and short end or even the junk bond area,but at the same time be buying up longer dated treasuries so the federal treasury can issue debt.

In a "normal" downturn the Fed would punch money into the plumbing of the capital markets only,but such is the size of the deflation (as we always said on here) it needs a massive fiscal injection as well over a long time frame.

So the Fed is expanding its reserves,but its doing it two ways.First trying to right size the injection into the capital markets to remove the systemic risk,and secondly buying up treasuries along the curve to in affect monetize the T bills being issued.Fed will be back in the markets doing this for the next 6 months.

[sancho panza]

11 minutes ago, M S E Refugee said:

That's just what the World needs, nuclear reactors build by those Chinese fuckwhits who can't even store Bat viruses safely.

hadn't thought of that aspect.

5 minutes ago, Transistor Man said:

 

I think I’m a little of our touch.

That’s much more world new build than I thought was going on.

i follow Wylfa closely, and that’s a joke.

It’s embarrassing  for the UK that we’ve done so little over the past decade. 

The uk gov should just have ordered 8. It would have been money well spent. 

whats wylfa?

yeah it's more under construction than you realsie.

Obviously a great weak dollar play as well.Nuclear is some of the greenest energy there is...cough...cough.Enoguh to fuel the cars of all the people who go to Greta protests in order to elcture everyone else on not doing needless journeys.

[sancho panza]

1 minute ago, DurhamBorn said:

$ goes up when there is systemic risk,and as US assets are bought.As the Fed prints and US assets go up in price there is more reason to sell the $ and buy other assets (foreign stocks etc)

My dollar target is 95,then 88.At that point i think we might see the final leg down in the equity markets.

Lots of noise about in the media and blogs that the Fed is now tightening.It isnt.Its trying to get the amounts right while the US government does fiscal injections.The Fed might do less at the repo and short end or even the junk bond area,but at the same time be buying up longer dated treasuries so the federal treasury can issue debt.

In a "normal" downturn the Fed would punch money into the plumbing of the capital markets only,but such is the size of the deflation (as we always said on here) it needs a massive fiscal injection as well over a long time frame.

So the Fed is expanding its reserves,but its doing it two ways.First trying to right size the injection into the capital markets to remove the systemic risk,and secondly buying up treasuries along the curve to in affect monetize the T bills being issued.Fed will be back in the markets doing this for the next 6 months.

I need to get my questions ordered and reasoned.Just thinking aloud a bit too much.

Logic dictates we shoudl get a weak dollar phase as fed prints and people choose to favour other currency assets.

Problem is whetehr covid has created a situation where people are jsut going straight for the dollar and not letting go.

I suspect as confidence returns,we'll get teh DXY drop long predicted on here.But as yet we've not got eyes on the revolving creidt data and the like which will give us a good guide as to any changes(although expansion could be driven by consumer desperation rather than greed for chiense tat)

What's unnerving me is the sheer size of the deflation we're seeing(admittedly early guesstimates are jsut that) but if it is as big as we think,is there a chance we're missing out the pre recession weak dolar phase?

[Transistor Man]

1 minute ago, sancho panza said:

 

whats wylfa?

 

Power station on Anglesey, north wales. Where I grew up. 

 

Work on the new one is suspended. Hitachi And UK couldn’t agree on the funding. 

Remember,  UK gov sold Westinghouse electric, a superb nuclear vendor, in 2006. 

[DurhamBorn]

5 minutes ago, sancho panza said:

I need to get my questions ordered and reasoned.Just thinking aloud a bit too much.

Logic dictates we shoudl get a weak dollar phase as fed prints and people choose to favour other currency assets.

Problem is whetehr covid has created a situation where people are jsut going straight for the dollar and not letting go.

I suspect as confidence returns,we'll get teh DXY drop long predicted on here.But as yet we've not got eyes on the revolving creidt data and the like which will give us a good guide as to any changes(although expansion could be driven by consumer desperation rather than greed for chiense tat)

What's unnerving me is the sheer size of the deflation we're seeing(admittedly early guesstimates are jsut that) but if it is as big as we think,is there a chance we're missing out the pre recession weak dolar phase?

Yes there is a risk,though i think its more if the Fed doesnt do enough.They have un-limited ability to print and the government have un-limited ability to spend.

The consumer is finished so there is no need for a strong currency to aid in keeping import prices down.The spending will be from government and that will kick in inflation.

We should see spending/debt shoot higher from govenrments,CBs keep monetizing,capital markets sniff inflation so start to push prices up of real assets,that then makes the market allocate the liquidity to industrial areas and feed the inflation.

Very difficult given the nature of how the cycle ended,though in lots of ways much better,because governments have been handed a once in a lifetime chance to inject massive amounts,pull back supply chains etc.

 

[Majorpain]

1 hour ago, Transistor Man said:

Remember,  UK gov sold Westinghouse electric, a superb nuclear vendor, in 2006. 

Went bust in 2017, the modern reactors seem to be far more complex than previous versions, even France which has a long history of building them has had serious problems at Flamanville with the new EPR.  

Quadruple redundancy isn't cheap post Fukushima! 

[Barnsey]

1 hour ago, DurhamBorn said:

Yes there is a risk,though i think its more if the Fed doesnt do enough.They have un-limited ability to print and the government have un-limited ability to spend.

The consumer is finished so there is no need for a strong currency to aid in keeping import prices down.The spending will be from government and that will kick in inflation.

We should see spending/debt shoot higher from govenrments,CBs keep monetizing,capital markets sniff inflation so start to push prices up of real assets,that then makes the market allocate the liquidity to industrial areas and feed the inflation.

Very difficult given the nature of how the cycle ended,though in lots of ways much better,because governments have been handed a once in a lifetime chance to inject massive amounts,pull back supply chains etc.

 

Thanks for your answer to @sancho panza’s great question as I too was mulling over whether we’re now in the crisis flight to safety stage. Never before (?) has the S&P been so disconnected from reality. Whilst Mr Hunter’s prediction of 800 after a melt up to 4000+ is rather extreme, the other day we had Scott Minerd of Guggenheim (one of the smartest big names out there IMO) call for a possible low of 1200, not a million miles off.

[Loki]

2 hours ago, DurhamBorn said:

We should see spending/debt shoot higher from govenrments,CBs keep monetizing,capital markets sniff inflation so start to push prices up of real assets,that then makes the market allocate the liquidity to industrial areas and feed the inflation.

Thanks for that - Put like this it all sounds so easy to understand  

[Transistor Man]

3 hours ago, Majorpain said:

Went bust in 2017, the modern reactors seem to be far more complex than previous versions, even France which has a long history of building them has had serious problems at Flamanville with the new EPR.  

Quadruple redundancy isn't cheap post Fukushima! 

They’re not much more complex, imo. Main issue is lack of manufacturing scale, and failure to more along the learning curve. 

I don’t think AP1000 is  much more complex than Snupps — sizewell b.

[Loki]

I'm always unsure about posting ZH links in this thread but this does seem relevant

https://www.zerohedge.com/economics/getting-out-dodge-after-exiting-loans-and-hiking-mortgage-standards-jpmorgan-stops

Basically they have exited the home equity loan "HELOC" business, raised its mortgage standards, and halted all non-Paycheck Protection Program based loan issuance for the foreseeable future

[Transistor Man]

2 hours ago, Transistor Man said:

They’re not much more complex, imo. Main issue is lack of manufacturing scale, and failure to more along the learning curve. 

I don’t think AP1000 is  much more complex than Snupps — sizewell b.

It’s pouring concrete properly, and producing large forgings with the correct composition that’s the problem. 

Mostly because Areva and Westinghouse others haven’t been doing it for 25 years.