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

[DurhamBorn]

2 hours ago, jamtomorrow said:

Saw this float by: https://www.bnnbloomberg.ca/goldman-warns-central-bank-qe-not-enough-for-avalanche-of-bonds-1.1436941

(Or if you want the ZH phew-what-a-scorcher version: https://www.zerohedge.com/markets/goldman-spots-huge-problem-fed)

DB, how does this jive with your roadmap? Are you expecting the fed to "find a way" to monetize the free float mentioned in the article(s)? Hunter's "second shoe" dropping come autumn might be the excuse?

I expect David is starting to question his 2nd shoe dropping now.The truth is the macro picture isnt clear on that because corona has forced the CBs hands quickly.They are also active in the corporate sector .The CBs are only a third to a half along their road,perhaps not even that.First they get liquidity into the pipes,next they keep pumping to force some out.They are letting governments know they are prepared to monetize the lot,and they will.Powell has stepped up and is doing a very good job.David will be looking at amounts and lags.For now likely another drop is a real risk,but it might be sector rotation rather than sustained across the market.

CBs will print enough to kick in a reflation and there is zero chance they wont.Its baked in now for political and economic reasons.Fed and BOE are actually doing a great job so far,Notice how David is now praising Powell,thats because he knows he is starting to right size policy before systemic collapse arrived and might actually stave off that now.

[Loki]

6 minutes ago, DurhamBorn said:

For now likely another drop is a real risk,but it might be sector rotation rather than sustained across the market

Good point!

[jamtomorrow]

1 hour ago, DurhamBorn said:

I expect David is starting to question his 2nd shoe dropping now.The truth is the macro picture isnt clear on that because corona has forced the CBs hands quickly.

The lags in all of this could get really weird. Seems like we're already into aftershocks and secondary effects at the macro/corporate level - like you say, the initial response seems baked in.

Meanwhile in the economy of SMEs, family businesses and one-man-bands, many will only just now be starting to understand what they have on their hands, with everything having been on pause for 2 months.

Only now do they start finding out if they still have customers; only now do they find out which customer accounts have gone non-paying. It'll take some time to work through, but *that* shoe could drop in the autumn.

[Eventually Right]

1 hour ago, DurhamBorn said:

I expect David is starting to question his 2nd shoe dropping now.The truth is the macro picture isnt clear on that because corona has forced the CBs hands quickly.They are also active in the corporate sector .The CBs are only a third to a half along their road,perhaps not even that.First they get liquidity into the pipes,next they keep pumping to force some out.They are letting governments know they are prepared to monetize the lot,and they will.Powell has stepped up and is doing a very good job.David will be looking at amounts and lags.For now likely another drop is a real risk,but it might be sector rotation rather than sustained across the market.

CBs will print enough to kick in a reflation and there is zero chance they wont.Its baked in now for political and economic reasons.Fed and BOE are actually doing a great job so far,Notice how David is now praising Powell,thats because he knows he is starting to right size policy before systemic collapse arrived and might actually stave off that now.

This is from a David Hunter tweet on the 15th of April:

"By this summer Fed balance sheet will have expanded by $5T plus. If we have the S&P over 4000 with estimates of 15% GDP in 3rd/4th Qtr rebound from deep 2nd Qtr trough plus a commodity rebound including oil above $40,the Fed will be back with QT. This will trigger 2nd leg of bust"

From that, I took it that he expects the second shoe dropping to be contingent on:

1) The S&P melting up

2) Powell reacting to that melt-up by taking his foot off the gas (and even tapping the brakes) at exactly the wrong time.

I thought about asking him what would happen if those two conditions weren't met, but he can be so prickly on twitter that I didn't want to get blocked!

I'd prefer his GDX/GDXJ targets were hit, and then there was a second bust, as I'm probably too heavily concentrated in the miners right now.  Days like Friday make it hard to sell them, and rotate more into potash/telecoms/oil etc!

[Loki]

1 hour ago, DurhamBorn said:

I expect David is starting to question his 2nd shoe dropping now.The truth is the macro picture isnt clear on that because corona has forced the CBs hands quickly.They are also active in the corporate sector .The CBs are only a third to a half along their road,perhaps not even that.First they get liquidity into the pipes,next they keep pumping to force some out.They are letting governments know they are prepared to monetize the lot,and they will.Powell has stepped up and is doing a very good job.David will be looking at amounts and lags.For now likely another drop is a real risk,but it might be sector rotation rather than sustained across the market.

CBs will print enough to kick in a reflation and there is zero chance they wont.Its baked in now for political and economic reasons.Fed and BOE are actually doing a great job so far,Notice how David is now praising Powell,thats because he knows he is starting to right size policy before systemic collapse arrived and might actually stave off that now.

Do you still see DXY going to the 80s?

[sancho panza]

13 hours ago, Majorpain said:

Yeah, they are starting to come good, whilst both have issues with costs, i'm not quite sure fair value is down 1/3 for their 2016 peaks.  I picked up some more Fres in the low 600's which is looking like a good bit of business.

 

Majority of the damage is being hidden by furlough, we are keeping people on who would otherwise have been let go weeks ago.  25% of the workforce going kaput at once would have been "interesting".

 

 

HOC are 50% off 2016/17 peak.I'm not sure that if the bulls are running they should be trading at this big a discount to Hecla

Ref the UB figures.FUrlough hiding all manner of sins.Some people I know been laid off the sagencies already,a few others are expecting the good news at the end of furlough.A lot of jobs not coming back.I desperately hope I'm worng but a lot of service sector eg pubs/bookies/retail look done.

 

[sancho panza]

5 hours ago, Eventually Right said:

This is from a David Hunter tweet on the 15th of April:

"By this summer Fed balance sheet will have expanded by $5T plus. If we have the S&P over 4000 with estimates of 15% GDP in 3rd/4th Qtr rebound from deep 2nd Qtr trough plus a commodity rebound including oil above $40,the Fed will be back with QT. This will trigger 2nd leg of bust"

 

I don't know Hunter's thesis like DB might.The logic of stimulus leading S&P higher is strong,especially if we see sustained strentgh in tech stocks accompanied by reurgence in energy stocks.The S&P these days is dominated by the FANG stocks.

Stimulus will elad to a weaker dollar wihich invariably,histoically leads to higher commodity prices.

It's not a massive leap of faith to say that we'll follow higher commodity prices into the Big Kahuna where the wider delveraging will occur.Wehter that's down to the Fed or external factors,I don't know.

 

6 hours ago, DurhamBorn said:

I expect David is starting to question his 2nd shoe dropping now.The truth is the macro picture isnt clear on that because corona has forced the CBs hands quickly.They are also active in the corporate sector .The CBs are only a third to a half along their road,perhaps not even that.First they get liquidity into the pipes,next they keep pumping to force some out.They are letting governments know they are prepared to monetize the lot,and they will.Powell has stepped up and is doing a very good job.David will be looking at amounts and lags.For now likely another drop is a real risk,but it might be sector rotation rather than sustained across the market.

CBs will print enough to kick in a reflation and there is zero chance they wont.Its baked in now for political and economic reasons.Fed and BOE are actually doing a great job so far,Notice how David is now praising Powell,thats because he knows he is starting to right size policy before systemic collapse arrived and might actually stave off that now.

Personally at the moment,I'm trying to work out if we're in the equivalent of 2007 or 2008.Covid has been a potential game changer in that we may be skipping the starter course and getting onto the main straight away.I'm looking at the UB charts and we know that the logic behind the bit in bold is bang on.That's there playbook and they're unlikely to deviate atthis critical juncture.

But noone can predict the future with any certainty these days.Trying to pick the leads and lags here is incredibly difficult eg all the $ stimulus may not beget a weaker dollar because of the deteriorating situation elsewhere.

I can't believe I'm saying this but I'm genuinely thining about ditching our sotuh african PM miner exposure.We've held GFI since 2017(also HMY,SIB),the first lumpy tranche has nearly trebled whereby a 1% psotion is now roughly a 3% psotion.SA's response to covid has been the stuff of Zanu Bob himself-banning movement/smoking/alcohol.........great case for a weaker rand but hardly going to cause a run on the dollar.

The case for a weaker dollar has to be built on some options aside from teh dollar-PM's,Swissie....what else is there?

Just throwing some thoughts out there .

 

[sancho panza]

Some on point tweets here from solid sources.This is going to be an epic mess.How mnay people are staying home happily thinking things will return to normal when the furlough ends? Main culprit for such missplaced expectations if indeed they turn out to be missplaced is twnety years of easy monetary policy trying to fight off every inventory recession untilmthe Fed meets it's nemesis....

[DurhamBorn]

6 hours ago, jamtomorrow said:

The lags in all of this could get really weird. Seems like we're already into aftershocks and secondary effects at the macro/corporate level - like you say, the initial response seems baked in.

Meanwhile in the economy of SMEs, family businesses and one-man-bands, many will only just now be starting to understand what they have on their hands, with everything having been on pause for 2 months.

Only now do they start finding out if they still have customers; only now do they find out which customer accounts have gone non-paying. It'll take some time to work through, but *that* shoe could drop in the autumn.

Exactly right.From a macro point its very hard to do cross market across the road map here because its so volatile.David uses a lot of the data points i have,but he will have his own since 1990.They are getting fuzzy because the lags arent out of reach of the printing.Like you say many might/will drop for the reasons you said,but massive priming might see sector rotation.

5 hours ago, Loki said:

Do you still see DXY going to the 80s?

Yes,though my first target is 95,that looks baked in on the lags,but will look again then.

[DurhamBorn]

The thing to remember on the debts above are this,300% debt becomes 100% when you expand the money supply 3x.That is exactly what is about to happen.This is the end of a dis-inflation,the one time every 100 years governments can print as much as they want and invest rather than consume.They will and are.

The rights and wrongs dont matter.Assets will be worth 3x what they are now,companies that leverage those assets 6x will be worth 18x what they are now,most other assets will be worth 1/3 or what they are now.

Let the cycle play out,buy oil,gas,silver,gold,potash,telcos,high fixed asset companies.The carnage will be terrible,but thats not our problem.For every 3000 ten bob companies that go under the cycle will build an arc furnace on Teesside.

[MrXxxx]

7 hours ago, sancho panza said:

Some on point tweets here from solid sources.This is going to be an epic mess.How mnay people are staying home happily thinking things will return to normal when the furlough ends? Main culprit for such missplaced expectations if indeed they turn out to be missplaced is twnety years of easy monetary policy trying to fight off every inventory recession untilmthe Fed meets it's nemesis....

Saying just the same to someone the other day, whilst business is in limbo companies can afford 20%, but when they realise their capital loss over the last two months and shrinkage in future orders there is no way they will be able to afford charity at 20% let alone 100%...those who enjoyed their six weeks extra paid holiday didn't realize it was actually six months unemployment benefit!

[nirvana]

14 hours ago, Loki said:

Do you still see DXY going to the 80s?

I don't see this happening.....

If you look at the DXY make up, its over 50% Euro.....the ECB are more likely to pursue NIRP than the FED...

the other major DXY components are YEN (again they like NIRP) and the shitty £ 

So I don't see the DXY going anywhere personally.....(check out another thread I just created for my views on 'Banana Britain' )

[Harley]

10 hours ago, sancho panza said:

.....a lot of service sector eg pubs/bookies/retail look done.

Funny, I posted elsewhere an excellent interview with David Starkey.  He made a passing excellent comment that there is no such thing as a post cv service economy.  UK not looking so clever now, not that such rubbish talk ever did.

[DurhamBorn]

21 minutes ago, Harley said:

Funny, I posted elsewhere an excellent interview with David Starkey.  He made a passing excellent comment that there is no such thing as a post cv service economy.  UK not looking so clever now, not that such rubbish talk ever did.

Exactly,and worse it was mostly propped up by tax on quality manufacturing companies and finance.Hairdressers with 8 girls working 16 hours instead of 4 girls working 32 hours all for tax credits.Government finances will be horrific after this,but the good thing is that will force them to inflate.A citizens income should be considered as well.

[jamtomorrow]

This discussion making me wonder whether we're about to see simultaneous inflation and deflation on a grand scale. The mother of all Cantillon Effects, if you like.

CB-driven inflationary wave rolling over the markets right at the same time as debt deflation really gets its skates on in the so-called "real" economy.

Real economy looks nailed-on for falling turnover -> shrinking capital base -> mass deleveraging come Autumn. And I can't see how the CB wave gets to the real economy fast enough to hold it back.

Could it get *that* weird?

[DurhamBorn]

52 minutes ago, jamtomorrow said:

This discussion making me wonder whether we're about to see simultaneous inflation and deflation on a grand scale. The mother of all Cantillon Effects, if you like.

CB-driven inflationary wave rolling over the markets right at the same time as debt deflation really gets its skates on in the so-called "real" economy.

Real economy looks nailed-on for falling turnover -> shrinking capital base -> mass deleveraging come Autumn. And I can't see how the CB wave gets to the real economy fast enough to hold it back.

Could it get *that* weird?

Yes it can and probably will,iv just had an old friend of mine message me for advice,her hubby just lost his job and they cant pay everything on her wage (shes furloughed on full pay),they have taken mortgage holiday ,but its not good.

Below is an interesting look at the way this end of cycle is playing out in food.Its one of the big reasons i expect a potash bull market.Countries putting blocks on exports of food means others having to ramp production.It might be a bit messy at first but dislocation should see inflation.This is how distribution cycles work..

https://www.project-syndicate.org/commentary/governments-must-prevent-covid19-food-crisis-by-carmen-reinhart-2020-05

From the same site,fiscal moves per country.

 

 

[Barnsey]

JCB announcing the 950 job cuts the other day was a wake up call for me, if larger strong firms are taking such action even with the furlough scheme extended to October it says quite a bit about the lasting effects on the real economy. 

We’re essentially in the calm eye of the storm, we’ve been through the shock of entering, and soon comes the shock of exiting and assessing the damage. People have had at least 80% of their income guaranteed, and a 3 month payment holiday granted with ease for any credit they might have. At the moment the lack of bonuses and overtime has been offset by the inability to go on holidays or eat out. Even though I’m still on full pay, all overtime has disappeared, so loss of 20% of income. I’m sure I’m not the only one in this situation, so there goes the “extras” and delays our ability to build up our house deposit, at a time when mortgage lenders have really tightened up and need at least 25% deposits.

You're absolutely right @sancho panza about waiting on the housing front, there’s just no real pain out there yet, and now things are opening up folk think this was as bad as it gets. Over the coming months, more and more businesses will have to make permanent job reductions, and those lingering demand destruction effects will be what drags the market down. Haldane suggesting this morning that we’re looking at an unemployment % like the early 80s, worse than the 90s and GFC. And because of this, hinting at negative rates.

[DoINeedOne]

Can't remember where i heard this but with all these job cuts coming in

How many people are sitting around indoors and don't have a job to go back too, but just don't actually know that yet because they have not been told

And yet how many have not planned for such a thing, savings etc..

 

[Barnsey]

 

[Barnsey]

I expect this to gain MUCH more traction in weeks ahead as workers are forced back into their day jobs, just not good economic sense perhaps to maintain such a generous furlough scheme?

 

[Kudukid]

https://saudigazette.com.sa/article/593201

 

Good move for Saudi?? 

[Bus Stop Boxer]

Please any recommends on Potash and Silver ETFs.

Dont want to punt on individual companies in PMs. One watch of the gold miner shows on Discovery shows what a crap shoot it can be.

I see Pan American silver have risen nicely since the fella on Kitco blew smoke up them same with Agnico Eagle.

Already hold a pile of sovs so gold is covered. Very nicely.

Nutrien seem the obvious potash stock to hold but would like to spread out a bit.

 

Any tips thoughts appreciated.

Im currently planning on buying Shell BP Conoco and prob the Wisdom Tree Crude ETF (CRUD) also Fever Tree (quinine) Pioneer Natural Resources EOG Resources  and Astra Zeneca.

 

So some sort of catch all ETF recommendations in silver / potash and perhaps cobalt / lithium would be much appreciated.

I would just buy the Vanguard Energy ETF but its not ISA friendly in the UK. Same goes for the Global X Silver ETF.

Cheers.

[Don Coglione]

25 minutes ago, Kudukid said:

https://saudigazette.com.sa/article/593201

 

Good move for Saudi?? 

I am beginning to think that Saudi is being used as a proxy to prop up fucked businesses - didn't they buy a chunk of Carnival Cruise Lines a few weeks ago?

Granted, investing in big oil makes sense and might hint at how worried the Saudis are about their own reserves, but the rest?

[Castlevania]

13 minutes ago, Bus Stop Boxer said:

Please any recommends on Potash and Silver ETFs.

Dont want to punt on individual companies in PMs. One watch of the gold miner shows on Discovery shows what a crap shoot it can be.

I see Pan American silver have risen nicely since the fella on Kitco blew smoke up them same with Agnico Eagle.

Already hold a pile of sovs so gold is covered. Very nicely.

Nutrien seem the obvious potash stock to hold but would like to spread out a bit.

 

Any tips thoughts appreciated.

Im currently planning on buying Shell BP Conoco and prob the Wisdom Tree Crude ETF (CRUD) also Fever Tree (quinine) Pioneer Natural Resources EOG Resources  and Astra Zeneca.

 

So some sort of catch all ETF recommendations in silver / potash and perhaps cobalt / lithium would be much appreciated.

I would just buy the Vanguard Energy ETF but its not ISA friendly in the UK. Same goes for the Global X Silver ETF.

Cheers.

A lot of the ETF’s aren’t available due to a lack of a KIID. So I think the general approach to silver miners is spray and pray. 

[Bus Stop Boxer]

1 hour ago, Castlevania said:

A lot of the ETF’s aren’t available due to a lack of a KIID. So I think the general approach to silver miners is spray and pray. 

Yes that appears to apply to the Global X fund. Will look at the iShares version

 

Looks like this might be the way i will go. Though its not a miner ETF as such.

I dont want to fuck about with physical silver in possession due to VAT and coming out the other side.

Already sat on a pile of Baird rounds waiting for parity afer about 7 years.....

While its nice to hold physical metal, (i do), its a bugger cashing in i feel.

https://www.hl.co.uk/shares/shares-search-results/i/ishares-physical-metals-physical-silver-etc