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

[DurhamBorn]

3 minutes ago, sancho panza said:

Powerfulland depressing in equal measure DB.

..WHat I find sad is that either way the man on the street gets shafted,Delfation,he loses his job he may stuggle to buy food.Inflation,he has a job but could still struggle to buy food.

I'm thankful for the enlightenment I've found through this thread but it's bloody depressing at times.

On reflection,this is where we as a family have we improved our game this time,last time I fought the fed......big msitake.

I used to think like that,and outside of my investing head i still do,but its crucial to think it,but act on the system we have.Too many people lose because they wish for something that isnt there.During the crash that we knew was coming the only question to be asking was when is the Fed starting to right size.Not,if they will act etc as many were asking.I wasnt even watching the equity markets to try to time,i was watching that dollar index like a hawk,creeping over 100 meant systemic risk,below the Fed was right sizing.Most people get everything the wrong way around and dont understand how our system works in those situations.The CBs dont act to save companies,they act to save the system.They fill the plumbing with liquidity,then they let the market allocate it into the real economy.Thats why when people say it isnt capitalism,they are wrong.It is,its just during a disinflation less companies fail due to being able to borrow at low rates.

The Fed is trying to keep the system moving and has done a good job,the risk though is that they cant see the derivative books,and its highly likely the scale of the crash has left a lot of damage.There are huge risks still out there.I didnt rate Powell at all,but he got up to speed just in time.The CBs need governments to invest though,and quickly,they cant just keep filling the plumbing because broad money is building far too fast.If economies fall too much that broad money will be chasing a lot less goods and inflation will run quickly.Id much prefer the cycle builds more slowly,as that will give the markets more time to build a narrative and then send inflation loving assets parabolic in the latter half of the decade.

[DurhamBorn]

18 minutes ago, Cattle Prod said:

Agree I've been buying PMs and miners for the last 10 days or so, thinking about this FOMC and whats coming. Last tranche at 4.29 today. It was going to be a big meeting, and it was better/worse than I expected. $120bn/mo new baseline QE, zero rates to at least 2022 (in the reserve currency)....and the guy was shaken. Not confident. It's bad. Inflation is guaranteed 

Folks here have been looking back to March etc and what happened, what we all shoulda would done. I have no interest in that, I'm interested in forwards. DB and others here are years ahead of me of course, but I'm learning. Look forward, think forward, plan forward. 

I've topped up my SSLV well over the oz of silver I think I'll need to clear my mortgage before 2028 (for those who are fretting about physical premiums just buy sslv/phag when physical is tight, then switch to physical when premiums ease off if you want to).  I'll sleep well tonight. 

I think 2022 on rates will likely prove right.They wont tighten until they know they have traction in inflation,and of course then they will be playing chase.It means we are going to have a large window of rates below inflation.Its opening the door for indebted,but free cash heavy companies to de-leverage and its critical they do.Thats the main thing il be watching in stocks i own going forward.Structure the debt right and you could pay it all off over the cycle at 2% coupons.The structure of the cycle is really starting to form now.Governments pumping spending while CBs monetize and hold rates down.There could be a dash for real assets,and i expect even if there is the Fed will stick on course,they have no choice.

 

[MrXxxx]

7 hours ago, DurhamBorn said:

I used to think like that,and outside of my investing head i still do,but its crucial to think it,but act on the system we have.Too many people lose because they wish for something that isnt there.During the crash that we knew was coming the only question to be asking was when is the Fed starting to right size.Not,if they will act etc as many were asking.I wasnt even watching the equity markets to try to time,i was watching that dollar index like a hawk,creeping over 100 meant systemic risk,below the Fed was right sizing.Most people get everything the wrong way around and dont understand how our system works in those situations.The CBs dont act to save companies,they act to save the system.They fill the plumbing with liquidity,then they let the market allocate it into the real economy.Thats why when people say it isnt capitalism,they are wrong.It is,its just during a disinflation less companies fail due to being able to borrow at low rates.

The Fed is trying to keep the system moving and has done a good job,the risk though is that they cant see the derivative books,and its highly likely the scale of the crash has left a lot of damage.There are huge risks still out there.I didnt rate Powell at all,but he got up to speed just in time.The CBs need governments to invest though,and quickly,they cant just keep filling the plumbing because broad money is building far too fast.If economies fall too much that broad money will be chasing a lot less goods and inflation will run quickly.Id much prefer the cycle builds more slowly,as that will give the markets more time to build a narrative and then send inflation loving assets parabolic in the latter half of the decade.

So `in a nutshell` and just to make sure I understand your narrative, the CBs adjust the money tap to try and get a regular flow within the system, not too much to avoid too much inflation, not too little to avoid a recession.

Meanwhile, if you are a company that has invested in longterm infrastructure when money/rates were inexpensive this will allow you to increase your profit margin over your competitors/other markets when inflation takes off...correct?

[Castlevania]

The share that must not be named has announced 5,000 job cuts. Half of which will be those in management roles. That’s 2,500 managers. What were they doing? No company needs so many managers. 

[M S E Refugee]

27 minutes ago, Castlevania said:

The share that must not be named has announced 5,000 job cuts. Half of which will be those in management roles. That’s 2,500 managers. What were they doing? No company needs so many managers. 

Royal Mail is the same,in a shift of 60 workers you will have 4 or 5 managers when you only need 2.

[Chewing Grass]

32 minutes ago, Castlevania said:

The share that must not be named has announced 5,000 job cuts. Half of which will be those in management roles. That’s 2,500 managers. What were they doing? No company needs so many managers. 

That's because the future is entirely electric in the new green utopia, I would buy shares in this company if I could, but you can't.

Turnover £20Bn last year.

https://en.wikipedia.org/wiki/SHV_Holdings

[jamtomorrow]

10 hours ago, DurhamBorn said:

It took me many many years to understand how leads and lags work and to really get to grips with what drives what.Most of the market reacts during or after things happen and think they are the only one that knows,when everybody knows.A lot of the problem is investors believe all the rubbish about an evil Fed and the 1% etc.Its utter rubbish.The guy who i learned most off knew several Fed officials,including a couple of Chairmen (he didnt know the chairmen in a personal capacity but had met them several times and knew people who advised them) and told me they were all simply trying to do their jobs.They followed models,but got things wrong sometimes.They also had to consider the state of the country,and above all protect the American way of life.Like i have said many times,Powell is trying to cushion and help a single mother in Detroit who works two jobs.He has zero interest in the elite,or how markets react.People really need to understand that and hammer it into their minds.

Dis-inflation is fantastic for the consumer and they have enjoyed a long cycle.A 1.65kg chicken cost me £2.95p in Lidl tonight and a wholemeal seeded loaf 75p.Thats incredible value,the best in human history.Right now though capital cant turn a profit in basic areas and due to that people are losing their jobs.It is always so after a long dis-inflation.The CBs fear that,and rightly they should.Our way of life starts to crumble.If that chicken goes to £3.95 over 5 years,but the CBs can increase company profits,keep governments funded and give young people a future while the backbone of the economy can heal and grow in new areas they will do it.If oil and potash go up in price with that inflation,and the companies leverage up by 3x that increase,it isnt because the CBs wanted to hand a gift to Mosaic,its simply the way it is.

Today you will read lots of people saying the Fed is removing risk from the market etc and how terrible it is.Again that is utter rubbish.3 months ago BP was hitting £2.22 a share down 2/3s,Vodafone hit £1 down 65%,BT hit £1,down 80%,.What people really mean is they have put in zero effort to understand the macro picture,and because of that they get whipsawed by the market,fear forces them to be a rabbit in headlights during fantastic buying moments,and then they blame the Fed.

That nasty Fed,i wanted BP at £1.60 and id of got it if the Fed hadnt acted.Probably yes.The Fed doesnt give a toss about that though.Systemic risk threatened the country and the peoples way of life.They did their job,far from perfect and far from over,but the correct action that the scale of the disinflation called for.

Of course all those people saying the Fed is removing risk arent listening to the cycle,or what the Fed is really telling them.They arent removing risk at all,they are simply turning the risk from deflation to inflation.The risk is moving from commods and expensive real assets to bonds and debt instruments.People need to listen,learn and let cycles unfold.

DB, this "avoidance of systemic collapse" is interesting to me - your roadmap is telling us that once the start of this new cycle unfolds, it looks like we're heading into a proper systemic collapse at the end of the decade with "nowhere to hide". If the Fed see that too, does that mean we're in a "choose your systemic collapse" situation?

Reminds me of how it feels to lose it as an inexperienced driver - back slides out, you yank the wheel round, back slides out the other way, you yank the wheel some more, until eventually you spin it and hopefully end up in a field or hedge and not a tree. Whereas experienced drivers either don't get into these situations, or else they know that sometimes you have to "choose your accident".

Seems to me the international monetary and economic system we have simply doesn't allow CBs/governments to "choose their accident "- they're just going to have to keep yanking that wheel.

Seatbelts on!

[Bricks & Mortar]

13 hours ago, Cattle Prod said:

Just looking at the guy, he means every word of it. He's personally worth about $50m, and he's looking out the window at mobs like the rest of them. He doesn't want them coming for him. He specifically referred to the social unrest and racism in his speech. 

Panem et circences...for a long time. I'm struggling to see what is going to trigger the Big K here. They are going to print the other 2/3 in record time at the first sign of trouble.

Powell is printing to put money into the economy.  It'll take a while to get to the corners it needs to.  Meanwhile, investors are going nuts.  Bidding stocks up to crazy levels, considering the current underlying.
I think the big K starts with a stock market collapse.  Anything from this point onward could trigger it.  But it becomes more and more likely, the higher the market goes, and it looks like the herd of investors are bent on taking us there.
Powell has to keep printing, to get money into the real economy, to lessen the effects there, when it happens. 
The market doesn't understand the lag or see the danger, unfortunately.
When it happens, it's a wiping out of massive amounts of wealth.   Start of the Big K.

[Castlevania]

13 minutes ago, Bricks & Mortar said:

Powell is printing to put money into the economy.  It'll take a while to get to the corners it needs to.  Meanwhile, investors are going nuts.  Bidding stocks up to crazy levels, considering the current underlying.
I think the big K starts with a stock market collapse.  Anything from this point onward could trigger it.  But it becomes more and more likely, the higher the market goes, and it looks like the herd of investors are bent on taking us there.
Powell has to keep printing, to get money into the real economy, to lessen the effects there, when it happens. 
The market doesn't understand the lag or see the danger, unfortunately.
When it happens, it's a wiping out of massive amounts of wealth.   Start of the Big K.

Tesla’s over $1,000 a share.

Nikola was briefly worth more than Ford - although I actually like the idea they’re pushing. Hydrogen trucks and a network of hydrogen refuelling stations. 

[TheCountOfNowhere]

-1.34%

[sancho panza]

9 hours ago, DurhamBorn said:

I used to think like that,and outside of my investing head i still do,but its crucial to think it,but act on the system we have.Too many people lose because they wish for something that isnt there.During the crash that we knew was coming the only question to be asking was when is the Fed starting to right size.Not,if they will act etc as many were asking.I wasnt even watching the equity markets to try to time,i was watching that dollar index like a hawk,creeping over 100 meant systemic risk,below the Fed was right sizing.Most people get everything the wrong way around and dont understand how our system works in those situations.The CBs dont act to save companies,they act to save the system.They fill the plumbing with liquidity,then they let the market allocate it into the real economy.Thats why when people say it isnt capitalism,they are wrong.It is,its just during a disinflation less companies fail due to being able to borrow at low rates.

It's funny.We've had some 5 year bonds( I think they were 5 years) at the NS&I that we've rolled until March,then the capitulation selling started and we paid the penalties and moved it over to tradingh accounts.

As you say,we knew what was coming.Desperately sad though it is that our economies have been that mismanaged that we need to do it.But the 2008/9 bail out was always going to beget a bigger bail out.And on and on until the big K arrives I guess.

In the my hurry to get acquainted with the oilies and buy more PM miners and monitor the sell off, I missed your focus on DXY.

 

 

9 hours ago, DurhamBorn said:

 

The Fed is trying to keep the system moving and has done a good job,the risk though is that they cant see the derivative books,and its highly likely the scale of the crash has left a lot of damage.There are huge risks still out there.I didnt rate Powell at all,but he got up to speed just in time.The CBs need governments to invest though,and quickly,they cant just keep filling the plumbing because broad money is building far too fast.If economies fall too much that broad money will be chasing a lot less goods and inflation will run quickly.Id much prefer the cycle builds more slowly,as that will give the markets more time to build a narrative and then send inflation loving assets parabolic in the latter half of the decade.

In the sense that they're put the fire out for now,the Fed have done a good job but at every opporuntiy they've had since Greesnpan took over they've failed to reflect on the broader impact of their policies,alongside those of the Treasury(same in the UK).

I don't think it's intentional,more a product of their educational biases and a lack of philosophical breadth.When you beleive fundamentally that markets tend towards equilibrium/consumers act rationally/consumers act independently then it's no wonder they're models are so ineffective at preventing bubbles..As I think you said(might have been someone else might have been @Harley),they believe in their computer models and they know nothing else.They don't look at declining velocity and think that maybe it's evidence that QE won't work as intened because quite simply they see from the point of view that they needed to do more of it.

We are where we are.I only hope that some more far sighted and thoughtful people take over from the current CBers/legislator.

 

[sancho panza]

1 hour ago, jamtomorrow said:

DB, this "avoidance of systemic collapse" is interesting to me - your roadmap is telling us that once the start of this new cycle unfolds, it looks like we're heading into a proper systemic collapse at the end of the decade with "nowhere to hide". If the Fed see that too, does that mean we're in a "choose your systemic collapse" situation?

Reminds me of how it feels to lose it as an inexperienced driver - back slides out, you yank the wheel round, back slides out the other way, you yank the wheel some more, until eventually you spin it and hopefully end up in a field or hedge and not a tree. Whereas experienced drivers either don't get into these situations, or else they know that sometimes you have to "choose your accident".

Seems to me the international monetary and economic system we have simply doesn't allow CBs/governments to "choose their accident "- they're just going to have to keep yanking that wheel.

Seatbelts on!

I'm not sure they see the guranteed systemic collapse we do.They'll be moving the deck chairs on the sinking ship until the last minute.

It'll be compounded -in the UK at least- by the sheer poverty of talent in our political class.Although historically,the real leaders come through in the moment of crisis eg Churchill.

I think teh steering weel/rudder analogy is apt given that as the vehicle/boat heads for the rocks,each attempt at correcting the oversteer/understeer begets an even more uncontrollable vehicle which needs an even larger correction to get it steady.

9 hours ago, DurhamBorn said:

I think 2022 on rates will likely prove right.They wont tighten until they know they have traction in inflation,and of course then they will be playing chase.It means we are going to have a large window of rates below inflation.Its opening the door for indebted,but free cash heavy companies to de-leverage and its critical they do.Thats the main thing il be watching in stocks i own going forward.Structure the debt right and you could pay it all off over the cycle at 2% coupons.The structure of the cycle is really starting to form now.Governments pumping spending while CBs monetize and hold rates down.There could be a dash for real assets,and i expect even if there is the Fed will stick on course,they have no choice.

 

That's an amazing thought.

[TheCountOfNowhere]

11 hours ago, ThoughtCriminal said:

Interesting update on bounce back loans today that has confirmed my suspicion that they are going to end very badly. 

 

Romanian guy we sub our soft strip work to set up a ltd company in February. We pay the wages  to him, he pays his guys. He’s had about 20k through it from us. 

 

So he’s found out about bounce back loans and is asking me about it. I told him he’s got no chance as he hasn’t been going very long and his turnover isn’t high enough. “Bullshit!  I’ll fill in the form then jiggy jiggy: 50 grand. I go back to Romania and buy house. F*ck the government, I not pay it back.”

 

I laughed and told him he’s going to be disappointed. Well feck me, 48 hours later and he’s only got the money! 
 

He THEN tells me that all the Romanians are doing it and sending the money back home. 😳

 

I sense a BIG scandal in the making. 

What did these f**king morons expect, self cert loans for anyone in business. Sunak is a disaster for the UK.

 

[ThoughtCriminal]

14 minutes ago, TheCountOfNowhere said:

What did these f**king morons expect, self cert loans for anyone in business. Sunak is a disaster for the UK.

 

Exactly Count.

 

These Romanian boys are using “companies” for this that are companies in name only.

 

I really don’t blame anyone who games the system now.

[JMD]

15 hours ago, Cattle Prod said:

Just looking at the guy, he means every word of it. He's personally worth about $50m, and he's looking out the window at mobs like the rest of them. He doesn't want them coming for him. He specifically referred to the social unrest and racism in his speech. 

Panem et circences...for a long time. I'm struggling to see what is going to trigger the Big K here. They are going to print the other 2/3 in record time at the first sign of trouble.

Agreed, nor does he want pitchforks arriving in the lobby for his children, grandchildren, great...

I notice DB's post mentions Fed, CB's not being evil, etc - I agree btw - and scanning ahead his comment refreshingly seems not to have triggered the usual suspects! (though I cant guarantee they aren't somewhere off-thread silently self-harming, or is that me now being 'evil'?).

Anyway, this topic reminds me of an economics book coming out next month (I mentioned it recently). Looks interesting as it doesn't attack individuals, instead it describes the structural problems, and also attempts to tackle the required social, economic changes laying ahead. Plus, the author's credentials look solid - he was fired in the 90's as a chief EU economist for speaking out against the Euro - 

https://www.amazon.co.uk/You-Always-Hurt-One-Love/dp/1785905961/ref=sr_1_1?dchild=1&keywords=bernard+connolly&qid=1591268937&s=books&sr=1-1

   

[Bobthebuilder]

6 minutes ago, ThoughtCriminal said:

Exactly Count.

 

These Romanian boys are using “companies” for this that are companies in name only.

 

I really don’t blame anyone who games the system now.

Thousands of people are doing this. Possibly the biggest mess up the goverment have done with CV related pay outs. As @DurhamBorn has said before, thats a lifetimes savings for a lot of working class people, a right kick in the balls. The only people i know who have been offered it but not taken up the offer are home owning hard working types that dont like the idea of a loan around the neck. Some i know have taken the loan and plan to leave it to one side and see how the repayment part goes.

[Hardhat]

22 minutes ago, Bobthebuilder said:

Thousands of people are doing this. Possibly the biggest mess up the goverment have done with CV related pay outs. As @DurhamBorn has said before, thats a lifetimes savings for a lot of working class people, a right kick in the balls. The only people i know who have been offered it but not taken up the offer are home owning hard working types that dont like the idea of a loan around the neck. Some i know have taken the loan and plan to leave it to one side and see how the repayment part goes.

Makes me wish I still had a LTD co...

[Bricormortis]

13 hours ago, MrXxxx said:

Interesting read on the assumptions of gold in a portfolio

https://www.google.com/amp/s/seekingalpha.com/amp/article/4351376-is-golden-opportunity

Well worth a read.

[MrXxxx]

3 hours ago, Bricks & Mortar said:

Powell is printing to put money into the economy.  It'll take a while to get to the corners it needs to.  Meanwhile, investors are going nuts.  Bidding stocks up to crazy levels, considering the current underlying.
I think the big K starts with a stock market collapse.  Anything from this point onward could trigger it.  But it becomes more and more likely, the higher the market goes, and it looks like the herd of investors are bent on taking us there.
Powell has to keep printing, to get money into the real economy, to lessen the effects there, when it happens. 
The market doesn't understand the lag or see the danger, unfortunately.
When it happens, it's a wiping out of massive amounts of wealth.   Start of the Big K.

OK, so based on the above (and this is for everyone not just B&M) , the fact that governments have been pumping money into zombies, and recent investor buyers, when the big crash comes does it not mean all the inflationary effects of the recent QE printing will be annulled?..as surely the recently increased money supply will disappear over night.

[AWW]

6 minutes ago, MrXxxx said:

OK, so based on the above (and this is for everyone not just B&M) , the fact that governments have been pumping money into zombies, and recent investor buyers, when the big crash comes does it not mean all the inflationary effects of the recent QE printing will be annulled?..as surely the recently increased money supply will disappear over night.

The money has to go somewhere. For everyone who loses their free money buying shares in bankrupt companies, there's a seller who made a profit (or a smaller loss!)

[DurhamBorn]

4 minutes ago, MrXxxx said:

OK, so based on the above (and this is for everyone not just B&M) , the fact that governments have been pumping money into zombies, and recent investor buyers, when the big crash comes does it not mean all the inflationary effects of the recent QE printing will be annulled?..as surely the recently increased money supply will disappear over night.

No it will expand inflation.Liquidity doesnt go up in smoke it moves around and is still out there,most is parked in treasuries/bonds etc.The only people who can make it go are the CBs through tightening the QE,pulling it in and evaporating it.They will be trying to do that later in the cycle,but far too late.Its why the CBs have rates at zero and are trying to force inflation.They want the liquidity to move into the real economy.Never fight the Fed,Powell told everyone yesterday they will pump until it happens.

I wont be around much for a few days im building a couple of fish tanks,all rocks and plants,iv found myself taking in every little detail of how to get things perfect,and my son is moving house this weekend so im firing up the old estate.Nice to see the markets selling off,crucial to keep the foot on the Feds neck,no offence intended to BLM.

[The Idiocrat]

1 hour ago, Bobthebuilder said:

Thousands of people are doing this. Possibly the biggest mess up the goverment have done with CV related pay outs. As @DurhamBorn has said before, thats a lifetimes savings for a lot of working class people, a right kick in the balls. The only people i know who have been offered it but not taken up the offer are home owning hard working types that dont like the idea of a loan around the neck. Some i know have taken the loan and plan to leave it to one side and see how the repayment part goes.

That’s what I’m doing. No interest to pay for a year. I hate debt with a passion, and have none, but it seems silly to avoid free money at no cost, even if it’s temporary. Might stick it in silver for a year and take the hit if it’s down.

[Starsend]

2 hours ago, JMD said:

Agreed, nor does he want pitchforks arriving in the lobby for his children, grandchildren, great...

I notice DB's post mentions Fed, CB's not being evil, etc - I agree btw - and scanning ahead his comment refreshingly seems not to have triggered the usual suspects! (though I cant guarantee they aren't somewhere off-thread silently self-harming, or is that me now being 'evil'?).

Anyway, this topic reminds me of an economics book coming out next month (I mentioned it recently). Looks interesting as it doesn't attack individuals, instead it describes the structural problems, and also attempts to tackle the required social, economic changes laying ahead. Plus, the author's credentials look solid - he was fired in the 90's as a chief EU economist for speaking out against the Euro - 

https://www.amazon.co.uk/You-Always-Hurt-One-Love/dp/1785905961/ref=sr_1_1?dchild=1&keywords=bernard+connolly&qid=1591268937&s=books&sr=1-1

   

The Fed have wrecked millions of people's lives with their stunning stupidity over the decades. They've devalued the dollar by well over 90%. Great if you're one of the very few people who have some idea how to stay ahead of their bubble blowing and are happy to spend a good amount of your life energy figuring it out when you could be doing something more productive. How many people have worked hard and honestly all their lives, saving for retirement, to find it mostly stolen by the actions of banks like the Fed? How many people in the UK alone have suffered enormously because they didn't own assets (like a house) when the Fed started blowing bubbles and the rest of the world's banks followed like lemmings? The mess they are trying to fix now is a mess of their own making.

Stunningly stupid or evil? Not much difference if it wrecks so many lives. The Fed is a force for great harm in the world but we are all forced to go along with them. Our living standards have improved enormously over the last five decades or so (unless you want to live in a house) despite the Fed. If we'd had a more honest system in place then the increase in living standards would have have been truly incredible.

 

 

[Craig]

Pre-markets looking a bit chewy. Going to be a bumpy ride today!

[Craig]

Panic over!