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

[Democorruptcy]

34 minutes ago, DurhamBorn said:

@BurntBread is we do get a complete market melt down id expect the dollar to go up 30%,maybe 40%.Sterling would likely be in that mix.It might mitigate the falls in certain sectors and mean ones who have assets in $ recover quickly,hence gold,silver,oil etc.

One of the attractions of oil shares is earnings are in dollars. If sterling did suffer, oil shares might rise to offset it?

[Bricks & Mortar]

3 hours ago, Eventually Right said:

Anybody on here following Gold Ventures on twitter?

He's an interesting follow-his "story" is that he started with $32k in 2009, turned it into $18.5m in about 5-6 years trading silver/miners/options on both.  Then sat out of the markets for the last 5 years, but now is back because he sees the biggest opportunity in gold/silver that he's ever seen.  He sees $65 silver next year, and $350 by 2026.

Strategy is broadly 60% in small/micro cap silver co's, 30% in small/micro cap gold co's, and 10% options on SLV/Couer/First Majestic/Alexco/Hecla etc.  With the miner portfolios he's spreading it out over 25-40 companies to spread the risk.

Obviously this is the internet, so his claims of turning $32k into millions might be complete BS, but to my mind, it's not coming across like that.  What he's saying re options makes sense, and I'm not seeing the mining twitter accounts I trust (Grant Beasley, Pamplona Trader etc) rubbish him.

https://twitter.com/TheLastDegree

This is his website where he details his portfolios/thoughts-it comes up as unsafe on my work network, but works fine on my phone:

goldventures.org

The only thing I'd note though, is that I don't think he sees the big kahuna happening anytime soon-he sees S&P going to 5-6,000 before a crash.  

Yes, I'm following.  Have been for several months.  I'm intrigued by his options trading.  Never done that myself yet.  I likely won't, this side of a BK event, or until we see enough money printed that I'm thinking it won't happen..  Either way, at that point, I might be tempted with options on miners.  Or I might look at PUT options during the BK.   Was trying to resurrect an IG account earlier in the weekend.  Password trouble though, I probably have to call them.

Agree, he seems sensible.  Although, even more bullish than most in this thread.

 

[sancho panza]

 

12 hours ago, DurhamBorn said:

 

The main problem is that governments are now structured to simply give out more and more free money.This crisis has shown that as clear as day,and how the bennie class and government/council workers mostly get to sit at home on full money (councils claiming to be working as hard at home is bullshit) and that means debt is exploding higher,and its structural.It looks like the government has zero stomach to actually do whats needed and the left seem to of infiltrated the whole of government,the media,all of education,councils etc etc.

However our worry for now is if,when and how a big collapse works through.Will everything come down,or a huge sector rotation?

Years ago I remember stduying the German economy of the 1930's.It was underwritten by expanding govt debt and expanding spending of equal proportions.It was only ended by WW2.This is the path we're treading in the West.

We've been massaging the infaltion data and the GDP data for many years(I believe imputed rents were only 2% of GDP in the 1960's,currently 12% etc etc).

Govts of the last 20 years(last fiscal surplus was 1992 iirc) have been getting elected with ever increasing promises of magic moeny.It has to end and it will.But each year of addication witll make the withdrawal of it much harder for people to bear.

10 hours ago, jamtomorrow said:

It's sometimes tempting to think the reds are under the bed again, but it's not a problem confined to the left - the whole country is gripped by every kind of corruption you can imagine. And the Government won't do anything because they're too busy working their own flankers. We're witnessing a complete national moral collapse.

Some of the pork barrel land deals going on round here - public money being spaffed straight into the pockets of "associates" of Tory councillors - have to be seen to be believed.

At the national level, they're not even bothering to cover it up, let alone do it discreetly: https://bylinetimes.com/2020/09/02/government-awards-43-8-million-ppe-deal-to-dormant-firm/

Lots of city and county councils haven't changed control in years,making it ever more tempting for people to feather their nests.

Leicester city council has 53/54 councillors Labour.Has been that way for 8 years

9 hours ago, Sideysid said:

A lot of newly unemployed in former low/average paid jobs with a rented house and two kids will now realise that they are better off on universal credit and wonder why they ever bothered in the first place.

I was at a 40th birthday party last night, the amount of people who aren’t going back to the office until 2021 was in the majority of those there. London will be a wasteland of deserted businesses, offices and half built ‘luxury’ flats.

The strain on the remaining PAYE tax workers will be immense, the government will have to act one way or another. We basically have UBI already except to a small minority of the country.

There are a ot of people facing redundacny as well.Talking to a friend who employs 15 or so people,he was weighing whether to cut some of them now that he's got to pay 10% of the furlough.Reckons he'll be cutting staff in half when furlough ends,if not more.

This is the unpredicatable thing here,what happens when the furlough ends and how steep the unemployment spike goes,

[Bricks & Mortar]

 

[Chewing Grass]

7 minutes ago, sancho panza said:

Leicester city council has 53/54 councillors Labour.Has been that way for 8 years

All Hard-Core Labour Councils are corrupt as fuck, St Helens council in the 1970s went as far as finding out if there employees voted Labour or not by routinely going through used ballot papers.

I found this out as a kid when I asked my father who he voted for and he said Labour because 'he had to'.

[sancho panza]

9 hours ago, Errol said:

US inflation rampant:

In the four weeks ended Aug. 22:
-Egg prices rose 16.5%
-Cheese prices rose 7.3%
-Lunch meat prices rose 8.1%
-Diaper prices rose 8.8%
-Laundry detergent prices rose 9.2%

https://twitter.com/jessefelder/status/1301209563396485120

 

It's being cushioned by lower oil prices.Which will work until it doens't.This inflation scare could run quite quickly once it gets traction.

9 hours ago, Cattle Prod said:

Here's another graph from Spain that nicely shows whats fuelling the media/government policy (top bars), and reality (bottom bars).

I think a lot of Western govts have backed themselves into a deep hole on covid.Running early with lock downs,that appear on the whole to have made no difference.Theyve decided to cling to their narrative rather than admit they got it massively wrong.WHich is historically,what most govts do.

The more that comes out about how awful the Imperial modelling was,the more the govt double down on driving MSM reports of rising cases despite the clear lack of a rising death toll.The death toll in many countires is now at or below their road death tolls.

I honestly believe,if Boris had known the economic damage he was going to do,he would probably have struck with plan A.Instead he rotates between telling u to panic and wear a mask on the bus and go out for meals without one.

[sancho panza]

6 hours ago, Cattle Prod said:

That's what's swung it for me. During lockdown, I have the same ten pound note in my wallet since March, and overall spending is way down. I really don't need as much as I thought.

Definitely a fishing boat, though the independence of sailing is appealing. A Mitchell 22, ideally. Great sea boat for the Atlantic. I've a lot of experience fishing at sea, since I was 6 years old, its not for everyone but I increasingly miss it. It's kept my fsmily going in tough times past.

The biggie here is the price of the land and the hosue.The maths of my reirement strategy could change in 6 months if PM's/oil move up and hosue prices down,then it's game on.Once you're mrotgage free you don't need much.especially if you have your own wood/food soruces.

Particualrly if the oilies/telecoms/potsah yield moves up.

 

[sancho panza]

49 minutes ago, Bricks & Mortar said:

Yes, I'm following.  Have been for several months.  I'm intrigued by his options trading.  Never done that myself yet.  I likely won't, this side of a BK event, or until we see enough money printed that I'm thinking it won't happen..  Either way, at that point, I might be tempted with options on miners.  Or I might look at PUT options during the BK.   Was trying to resurrect an IG account earlier in the weekend.  Password trouble though, I probably have to call them.

Agree, he seems sensible.  Although, even more bullish than most in this thread.

 

I wouldn't bother with IG(only index options avaialble iirc),far better to spend your moeny on some single stock call/put options imho.but obviously dyodd.

drop in on the optiosn thread if you have any questions and MvR will answer them

 

[Paulie]

For those who believe that dollars and treasuries are a useful vehicle through a generalised stock crash what are the preferred holdings. Seems choice may be limited by KID legislation. 

[DoINeedOne]

18 hours ago, Cattle Prod said:

That's what's swung it for me. During lockdown, I have the same ten pound note in my wallet since March, and overall spending is way down. I really don't need as much as I thought.

Definitely a fishing boat, though the independence of sailing is appealing. A Mitchell 22, ideally. Great sea boat for the Atlantic. I've a lot of experience fishing at sea, since I was 6 years old, its not for everyone but I increasingly miss it. It's kept my fsmily going in tough times past.

When i quit construction and started working from home for myself the money i saved with less diesel in fact i only use the car maybe once a week now, no eating out everyday for lunch, no time wasted in traffic meaning being lazy by time i got home around 7pm+ and just ordering takeaway might not seem much but was easily spending £25+ a day on the above plus stress and poor diet

Family member had similar experience was working in London as a tradesman needed to have the van for the tools plus running to different jobs

• 3 hours traffic in the morning
• 3 hours traffic to come home
• Congestion charges, fines, parking charges
• Diesel costs
• Poor diet from eating on the road
• Stress
• But good money

Quit started working more local for himself doing extensions etc... you saw a changed man looked happy, less tired, more time with family and most mornings walked to walk if nearby with a coffee

But slightly less money and stress, actually it was not that much less 

Many friends and family members rant about what they need to earn but if they just sorted their finances out a bit and actually worked out what they are spending, but they don't because they are to stressed and busy working

For me ever since working from home made me realise and because of covid alot more who said i can't work from home have now seen what they can save

 

The problem with working from home

Its spoiled me i go shopping when most are at work, i get haircut when the barbers is empty, i get stuff done when the roads are pretty empty

if i do any of the above during the weekend it blows my mind how much longer everything takes and thats the problem people don't have time

 

 

11 hours ago, sancho panza said:

The biggie here is the price of the land and the hosue.The maths of my reirement strategy could change in 6 months if PM's/oil move up and hosue prices down,then it's game on.Once you're mrotgage free you don't need much.especially if you have your own wood/food soruces.

Particualrly if the oilies/telecoms/potsah yield moves up.

 

Same my goal is a decent home (mortgage free) out of London with a nice bit of land that will that be my project to make that home and my life as efficient as possible for saving money, working, health and relaxing

[DurhamBorn]

10 hours ago, sancho panza said:

The biggie here is the price of the land and the hosue.The maths of my reirement strategy could change in 6 months if PM's/oil move up and hosue prices down,then it's game on.Once you're mrotgage free you don't need much.especially if you have your own wood/food soruces.

Particualrly if the oilies/telecoms/potsah yield moves up.

 

My direct debits including car tax are £280 a month.Food etc £150 a month,car £85 a month (buy/depreciate,repairs,insurance,fuel),so just a tick over £500 a month.Thats two of us though,my partner gives me £250 a month towards bills so i actually pay £260.£100 a week on top for weekends away,meals out,odd repair on house etc is easily enough.Hence i can retire easily on £1000 a month and the state pension is £175 a week at 67 or whenever.So from state pension age id only need around £300 from investments a month.However i look at around £1200 a month income both before and after state pension age,and thats how im structuring myself really.I expect my kids to get most of my SIPP when i leave this mortal coil.

[Bricks & Mortar]

2 hours ago, Paulie said:

For those who believe that dollars and treasuries are a useful vehicle through a generalised stock crash what are the preferred holdings. Seems choice may be limited by KID legislation. 

I've got my eye on IBTL etf.  But would hope to limit how much I put in to a small %, in case of financial problems for the etf provider.
Buy some USD from the Post Office, (not too much, since it has no tax protection, like an ISA).
David Hunters suggestion and just hold stocks in precious metal miners through it.
Physical metal, as at least that can't go to zero.  (i guess some of the miners could, in a debt deflation).

Interested in spreading out as much as possible, so other suggestions welcome.

 

[JMD]

11 hours ago, sancho panza said:

I wouldn't bother with IG(only index options avaialble iirc),far better to spend your moeny on some single stock call/put options imho.but obviously dyodd.

drop in on the optiosn thread if you have any questions and MvR will answer them

 

SP and BricksMorter and others, dont forget MvR's new thread for this.

 

[JMD]

1 hour ago, Cattle Prod said:

Great comments to add:

1) Conventional is hugely cheaper. Johan Sverdrup Opex is $3-4 a barrell, and it's producing at the rate of ~ 750 shale wells. Not many beasts like that left

2) The well also needs to ramp up to full production, so add another few months. Youre right, producers have focussed on the best bits post 2016, and these are largely tapped out. The treadmill will speed up

3) I don't understand this either, other than I often see how little non geoscientists understand decline. Extrapolating curves forward? 

4) I don't agreee with those demand assumtions either. It's a bit 'the end is nigh' and as you say, US centric

5) This is very true, and true of most American oil people. It's often hilarious working with them, especially if they've only worked in the USA. Some of their techniques and workflows are stone aged. 

CP, I'm interested in which 'gallon measure' takes precedence - US or Imperial? ...And I guess its all inches? ('stone age' eh?, i bet there are very few modern-day bohemians(!?) with ME history degrees like Art Berman.; apologies to AB but i couldn't resist!)

[Bobthebuilder]

1 hour ago, DoINeedOne said:

The problem with working from home

Its spoiled me i go shopping when most are at work, i get haircut when the barbers is empty, i get stuff done when the roads are pretty empty

if i do any of the above during the weekend it blows my mind how much longer everything takes and thats the problem people don't have time

My self employed work is much the same as you. I hate driving / shopping at weekends these days, the bad driving, stress, aggresive attitude of people who dont have time is really obvious to me now.

 

1 hour ago, DurhamBorn said:

My direct debits including car tax are £280 a month

Mine are about the same, i just need to build some good divi payers to cover this + inflation during retirement.I guess thats why most of us are here.

Great thread everyone, enjoy reading this every day.

[JMD]

1 hour ago, Bricks & Mortar said:

I've got my eye on IBTL etf.  But would hope to limit how much I put in to a small %, in case of financial problems for the etf provider.
Buy some USD from the Post Office, (not too much, since it has no tax protection, like an ISA).
David Hunters suggestion and just hold stocks in precious metal miners through it.
Physical metal, as at least that can't go to zero.  (i guess some of the miners could, in a debt deflation).

Interested in spreading out as much as possible, so other suggestions welcome.

Excellent question Bricks&Mortar.

I assume TIPS are not an alternative here for the purposes of a short-term capitol protection play (i.e. 'buy before/sell after' crash) - because their coupon is lower/duration shorter, so wouldn't offer the same short-term capital protection? 

But should it be the IBTL(sterling denominated) or the IDTL(dollar denominated) one to buy? I'd assume the dollar one is better, but would it matter?

I find Treasuries confusing so some practical opinion from others planning/already doing this, would be very welcome.

https://www.hl.co.uk/shares/shares-search-results/i/ishares-iv-plc-usd-treasury-bond-20-year

https://www.hl.co.uk/shares/shares-search-results/i/ishares-usd-treasry-bond-20yr-ucits-etf-usd

(I guess could just buy the actual T-note, but if aim is to just hold for the short term, the fund costs would be small)

[Talking Monkey]

On 06/09/2020 at 08:42, DurhamBorn said:

 

 David is looking at the collapse of Fiat and the debt system at the end of the inflation cycle,but thats a long way out and a lot can change.We could see a new Bretton Woods,or some kind of drawing rights with the central banks all linking so no currency can collapse and start a chain reaction.

The main problem is that governments are now structured to simply give out more and more free money.This crisis has shown that as clear as day,and how the bennie class and government/council workers mostly get to sit at home on full money (councils claiming to be working as hard at home is bullshit) and that means debt is exploding higher,and its structural.It looks like the government has zero stomach to actually do whats needed and the left seem to of infiltrated the whole of government,the media,all of education,councils etc etc.

However our worry for now is if,when and how a big collapse works through.Will everything come down,or a huge sector rotation? 

 

Totally agree DB a lot can change in the coming decade though I think the downturn at the end of this decade will be at  least on a par with the great depression even if its no where near as bad as David  says.

I think everything will come down but within that there will be a sector rotation, the smart money will be positioning  so whilst it looks horrific  as indexes collapse and its a sea of red the reflation stocks will have relatively trivial falls  in comparison to say the tech sector. 

From a personal standpoint the reflation stock positions are for the long haul and so I am comfortable being down large percentages. They also pay decent dividends which helps even things out

 

[JMD]

35 minutes ago, Cattle Prod said:

US, inches, feet, miles but it's more the techniques. If it isn't seen in the US, it doesn't work etc etc The US majors used to rotate their staff through the North Sea for this reason - it's very complex and the best training ground.

Yes, i knew what you were getting at (hence my silly sarky jibe at AB). But if being critical (and im not really, because all empires develop in same way) we might today term it 'American exceptionalism', was same in 'old Rome' ...until it wasn't.

But i was genuinely asking about gallons, how do you oil guys sort that one? (i.e. the Hubble US/Europe space teams 'famously' worked in inches/cms)

[wherebee]

12 minutes ago, Talking Monkey said:

Totally agree DB a lot can change in the coming decade though I think the downturn at the end of this decade will be at  least on a par with the great depression even if its no where near as bad as David  says.

I think everything will come down but within that there will be a sector rotation, the smart money will be positioning  so whilst it looks horrific  as indexes collapse and its a sea of red the reflation stocks will have relatively trivial falls  in comparison to say the tech sector. 

From a personal standpoint the reflation stock positions are for the long haul and so I am comfortable being down large percentages. They also pay decent dividends which helps even things out

 

On my mind now is the possibility to sell during the fall, and buy back at 10% lower.  If, say, BP falls from 260 to 240 and you sell at 250, and buy back at 240, isn't that a win?

 

Or is that messing around when it could bounce back and catch you with your pants down?

[DurhamBorn]

1 minute ago, wherebee said:

On my mind now is the possibility to sell during the fall, and buy back at 10% lower.  If, say, BP falls from 260 to 240 and you sell at 250, and buy back at 240, isn't that a win?

 

Or is that messing around when it could bounce back and catch you with your pants down?

Oil is going to $200 minimum in the cycle i think,do you want to risk missing that for a few pence?.Or would you prefer to re-invest divis at the lower prices and keep holding?

I bought BAT at 3.78p in 1999 and it went down to £2.50p,i kept buying a few more with the divis rolling in.When i sold them in 2017 i was getting 58% a year divi on my average buying price.The divi was more than my salary.At the time the narrative was they were going out of business,dead money,etc etc.

At key inflection points its easy to make the mistake of trying to time,and we all do it,but more important is positioning.20% here or there will mean nothing 8 years out.

 

[JMD]

18 hours ago, Clueless Imbecile said:

A while back I saw on David Hunter's twitter that he mentioned two books:

1. Winning The Loser's Game (by Charles Ellis)

2. Contrarian Investment Strategies (by David Dreman)

I think he might have mentioned these in the video in the post above by Noallegiance.

I bought both of those books earlier this year. So far I've only read the first one (Winning The Loser's Game). As I understood it, the book seemed to be promoting passive investing & equity index-tracking as a stragegy. I was quite surprised that David would mention a book like that, considering his apparent view on the likely prospects for indexes over the next, say, 10 years.

Regarding what you say about "how we allocate".... I find this whole situation a bit of a nightmare! Until recently I had a lot of faith in passive investing & index trackers. I had read "Smarter Investing, Third Edition (by Tim Hale)" and was all set to arrange an asset allocation of bond funds and equity index tracker funds using the principle of "Own your age (as percentage) in bonds and the rest in equities", but reading this thread (and other things such as the book "The End Of Indexing (by Neils Jensen)"), and reading about bonds being poor value, has made me really question my beliefs. 

Those are very relevant questions because many people are still buying, reading and acting upon advise contained in those (recently published, popular) books you mention. However, as per this thread, when cycles turn, strategies must change. Index funds worked in a 'growth/momentum type environment', following markets up higher and higher. We are now in a reset situation so managed funds will probably do better from here. However, probably best to stay out of funds/eft's, if that is possible, until after the markets reset/crash/rotate... Obviously none of this is meant as advice, posted merely for entertainment(?) purposes only(!).

[Talking Monkey]

31 minutes ago, wherebee said:

On my mind now is the possibility to sell during the fall, and buy back at 10% lower.  If, say, BP falls from 260 to 240 and you sell at 250, and buy back at 240, isn't that a win?

 

Or is that messing around when it could bounce back and catch you with your pants down?

For big oil  personally once falls get underway I wouldn't do that due to bounce back and also from being caught in some form of decision making paralysis. So  from here  if we get a meltup and the oilies actually participate in moving up in the meltup, I will incrementally trim individual positions (reduce by at most say 40-50%) and buy back through the Big Kahuna. However if from here the Big Kahuna gets underway ie last week's falls were the start then I will just hold through. The strategy is based on the two components of the positions being long term holdings and my conviction in our reflation thesis

[jamtomorrow]

1 hour ago, DurhamBorn said:

Oil is going to $200 minimum in the cycle i think,do you want to risk missing that for a few pence?.Or would you prefer to re-invest divis at the lower prices and keep holding?

I bought BAT at 3.78p in 1999 and it went down to £2.50p,i kept buying a few more with the divis rolling in.When i sold them in 2017 i was getting 58% a year divi on my average buying price.The divi was more than my salary.At the time the narrative was they were going out of business,dead money,etc etc.

At key inflection points its easy to make the mistake of trying to time,and we all do it,but more important is positioning.20% here or there will mean nothing 8 years out.

 

Great reminder DB. And this (IMO) being the third most important thing I've learned from this thread (after: 1/ macro perspective, 2/ using ladders to buy) ...

3/ decide whether you're trading or investing, and then stick to it. That mental clarity is your life raft when things get tasty, and everyone will be in need of a life raft sooner or later

[sancho panza]

On 05/09/2020 at 23:19, Noallegiance said:

Right on cue:

 

What an amazing interview.It was like listening to a rough precy of a lot of conclusions in this thread after a long debate.

It's anotehr like the Art Berman piece CP posted,where I'm going to need to take notes through that for my learnings.I'll post on here for people who prefer to read it.

To me this is a msut watch video.

 

Some incredibly sage bits of advice littered throughout.

Intersting he timeframes BK for next year......he's on my team................although I did miss him saying oil would lead us into recession...

DXY to 140 next year....bear market to be faster than 08/09.

[sancho panza]

6 hours ago, Paulie said:

For those who believe that dollars and treasuries are a useful vehicle through a generalised stock crash what are the preferred holdings. Seems choice may be limited by KID legislation. 

I haven't bought any yet but I'd imagine if you have a USD accoutn with either interactive brokers or intereactive investors tehn you can buy them in ddollar accounts getting around KIID.dyodd natch

2 hours ago, Talking Monkey said:

Totally agree DB a lot can change in the coming decade though I think the downturn at the end of this decade will be at  least on a par with the great depression even if its no where near as bad as David  says.

I think everything will come down but within that there will be a sector rotation, the smart money will be positioning  so whilst it looks horrific  as indexes collapse and its a sea of red the reflation stocks will have relatively trivial falls  in comparison to say the tech sector. 

From a personal standpoint the reflation stock positions are for the long haul and so I am comfortable being down large percentages. They also pay decent dividends which helps even things out

 

When you look at the size and scale of this specualtive bubble,it dwarfs GD1 in terms of debt to GDP.It involves real estate,stocks,banks and bonds..............at the end of the day,a lot of Chinese investors won't get paid and that never ends well.