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

[DurhamBorn]

Could this be the trigger for the inflation run?.It could very well be.The US will keep printing to buy the energy,and then as the price starts to move there will be less demand for money,and more demand for commods.That could be what leads inflation higher.The question then is who squeezes who out.The US will be doing everything it can to talk the ME out of China supply,but the Saudi's might take a while to be convinced,after all US shale has been a thorn for a decade.

Iran coming on line would support China,but proxy attacks on their assets would likely follow.Could the US and China fight a proxy war between Saudi and Iran?,maybe.

India is certain to keep China busy on the border.

Here in the UK we could be facing a massive problem.As fuel shoots up our currency might be shooting down.The government will be looking to increase taxes at the same time as inflation is starting to flame.Just as the late 60s brought in the great inflation of the 70s,has anything really changed

"Think of all the hate there is in Red China!
Then take a look around to Selma, Alabama!"

 

[Loki]

2 hours ago, Bricormortis said:

 Brief interview with some local zealot who mentioned "forcing" change.

Worth pointing this out to anyone who thinks we live in a free-market economy

Top-down centralised government diktats/wealth redistribution in the form of subsidies are not capitalist 

[jamtomorrow]

Cracking discussion on China, oil and gold.

When you put it all like that @Cattle Prod, I just don't see an outcome where the interests of both China and the US are looked after. It's zero sum after all, what China gets in oil, ROW doesn't.

Makes me think we're entering a period where market forces will be increasingly sidelined by geopolitical shenanigans, which would certainly explain why China are going big with the "prepping".

[DoINeedOne]

Just like the last article i shared good read and banned from facebook

 

[Errol]

The West gets hardly anything. Also, these transactions won't be in US dollars.

 

Lion’s share of Russia’s Arctic LNG destined for Asia

Russian gas producer Novatek has announced plans to ship 80 percent of the liquefied natural gas (LNG) from its Arctic LNG 2 plant to Asian markets via the Northern Sea Route.

https://www.rt.com/business/503213-russia-arctic-lng-supplies-asia/

[leonardratso]

Fund mentioned, about £1.30(income accum version) to buy a unit, but rather expensive OCF @ 0.9%.

https://ninetyone.com/en/united-kingdom/funds-strategies/funds/enhanced-natural-resources-i-acc-gbp-gb00b2qvx896

ive seen that fund manager before somewhere, or at least his name sounds familiar.

(nay not chev chelios off crank), let you know if i overcome my dementia on that.

[wherebee]

10 hours ago, AWW said:

It's going to take another ten years for this to be a factor IMHO. Houses are currently being inherited by people old enough to not need the money. My in laws have inherited two houses, neither has been sold as they don't need to and seemingly just CBA, both houses have gone to shit as they are uninhabited. It's the neighbours I feel sorry for. Meanwhile their kids who have kids themselves are stuck in private rented while their own parents sit on a few hundred grand's worth of derelict house.

yes - out of my older acquaintances back in the UK (think 60-70), more than half have inherited a house from dying parents in the past 3 years.  None have sold yet.  Their children are in London and Brighton renting.  Me, I think there is a pretty fucking obvious solution to keep the wealth in the family, but what do I know?

[sancho panza]

21 hours ago, DurhamBorn said:

M2 velocity tends to move between the attractiveness of money over other risk/commod assets.Opportunity costs along the curve of the treasury yields play a big part.Money demand is high,but around 5% at the moment is simply due to disinflation pulls.Velocity will increase fast when the flight to money slows or turns.If the Fed is still engaged then even better.During most downturns the Fed simply increases liquidity,but the stock of M2 tends to creep higher pretty much the same as always.The recovery is the economy catching up with the stock of money.

This time however already the CB have injected massive amounts of money.M2.Once the demand for money falls there will by far higher amounts of liquidity as shown by M2 and that liquidity will start to price opportunity cost over 0.5% bonds.

Its then it looks for a new home.People make the mistake of thinking the economy drives the market,but it doesnt.The market drives the economy.The Fed has decided the usual route of creating credit and money through the formal banking system isnt enough.That was the mistake after 09 with the Dodd Frank Act.Thats why the Fed is buying lots of different assets so its not just the formal banks who can issue credit to get things moving.They dont want to.Most people are missing that the demand for money will fall,but the demand for assets will increase as governments increase spending.

https://fred.stlouisfed.org/series/M2#0

For me,I look at the charts below and I'm convinced that at some point,errant savers will be watching theri savings get reamed and they're going to go out and start nudging velocity higher.Once it's running,tehy'l be no putting it back in the bag.Look at th recent curves since March and taken in conjunction these charts tell us it's not going to end well.We're heading into uncharted waters

I never looked at it as they could print all the disninflation back until you discussed it first but there's a compelling lgoic to it.

My only issue really is that standard CPI/CPIH/RPI inflation measures are relatively poor at capturing the changes in living costs for msot people.

I'm intrigued by your coment re Dodd Frank Act.What do you mean?

 

[Don Coglione]

The shinies took a dump again today - what gives?

[wherebee]

5 hours ago, janch said:

What an amazing post @Cattle Prod.  Your insider knowledge of all things oil-related is invaluable.  I think you are probably right about oil backed by gold.  I believe China has also been buying gold as well as stockpiling other commodities.  The Chinese would appear to be streets ahead of the west in their strategic forward planning.

According to the BBC they tested 3 million for CV-19 yesterday in Qingdao because they had 12 cases and will test another 6 million over the next 2 days so testing all 9 million in the city.  It makes us look like the amateurs we are.

My daughter lived and worked in Beijing for a couple of years about 10 years ago in the alternative energy sector.  The Chinese were playing catch-up then with the west and she said how many of the Chinese she worked with were super-bright.  They've probably overtaken us now while we bumble along.

I've lived and worked with Chinese and they are wonderful, often brilliant, and hard working.  But - not inventive or individualistic, and very scared of pointing out errors which means little fuckups become bigger fuckups before exploding.

The best are the HK'ers - a mix of west and east.  I'd take 3 million over any other immigrant group to build a country.

[AWW]

4 minutes ago, wherebee said:

yes - out of my older acquaintances back in the UK (think 60-70), more than half have inherited a house from dying parents in the past 3 years.  None have sold yet.  Their children are in London and Brighton renting.  Me, I think there is a pretty fucking obvious solution to keep the wealth in the family, but what do I know?

Well quite, better to pass wealth onto younger generations when they're young and need it. I think some older folk resent what they see as quite cushy living for younger people - get anything delivered to your house at the click of a button, cheap foreign holidays, amazing gadgets, nice food and, consciously or not, don't feel particularly disposed to helping them, even with something as basic as housing. Hardship as a badge of honour and all that.

Me? My kids are 2 and 0 and are already long inflation stocks. I _want_ them to have an easier time of it than I have. I want them to know what it took me until my thirties to learn.

[sancho panza]

12 hours ago, wherebee said:

Just bought some TELSTRA here in Australia at 2.89.  Hitting 5 year lows against a high of just under 4 bucks, and Australia is a near-monopoly; that coupled with the large infrastructure budgets announced by the government which will include lots of splurging on telco services for all the new buildings means I could not resist.  add in the fact that they have confirmed an 8% dividend level for the foreseeable, and it was too nice to miss.

Only have 5k cash left now for future investment opportunities.  Betcha now the big KH hits and I curse my lack of patience.

Telstra makes a lot of sense and one of the few telecoms where the bullk of the equity isn't goodwill-jsut been looking through,Proximus,KPN,Orange,AT&T.

 

 

10 hours ago, working woman said:

 

For me, this is "The Big Kahuna" that you all talk about and are waiting for, as like Coronavirus, it's consequences are far reaching.  

 

It's a stark reminder that owning flats can be a ot of hassle.I hope you get it sorted out.

Was talking with my LA the other day and she waas saying how many LL's she look safter who own flats and had no idea of the bills that come with them.

[sancho panza]

 

9 hours ago, kibuc said:

More Q3 production numbers

 

New Gold reports 79koz gold and 18.2mlb copper (or 115koz "gold equivalent", because Adams can turn copper into gold), with traces of silver, on track to meet the revised guidance. Average realized gold price dissapointing as expected (gold hedge @1350/koz anyone? anyone?), standing at $1615/oz. Also, a lot of nonsense about their cash position which never, ever turns out to be what they say. Anyway, a boring quarter, nothing blew up, RR walls didn't collapse, grades didn't hit rock-bottom, well done New Gold.

 

First Majestic came up with 3.2moz silver and 26koz gold, not terrible but slightly disappointing for sure. Grades went down due to "limited contractor availability" not allowing them to mine higher grade ore as much as they'd like.  If that's COIVD-related then it's fair to expect similiar issues in Q4.

Thanks for psoting K.Nice to see NGD shoot up to $2-10 USD on the news.

8 hours ago, Cattle Prod said:

They can buy it, they do so every day. But they need to 'secure' it, which is different. Like the US did with it's ME alliances. How is that going to happen? My guess is that once the US election is over, they will make their move, and if it's Biden, something big will happen in the ME in my view. No idea what, but if China doesn't secure its oil supplies (less likely under Trump) they have no option but to spray money at home to hide the lack of growth and keep people from rebelling/

Thoguth provoking psot CP. The bit in bold is what'll direct the action.I think it's a compelling case you make and from a geo political point of view,CHina's best friend will be dsiplacing the dollar if they can.It's a lot easier to displace it with gold than the yuan.A lot easier.

And as you say,there's a clear shortage of oil in China and no viable replacement for oil for the foreseeable.

When it comes to the military side of thigns,it's very hard to unwind once one side starts gearing up.A week or so back we were talking china oil demand and about 'strategic reserves'.

China lacks natural allies.Putin is a friend but a stong China doesn't suit him.AS you said,Japan/Korea/Singaporore don't really get on with the Chinese.India..............no......

Ergo it makes sense for the CHinese to start gearing up and part of that will be nudging different countires to see how they respond.A Biden win would be a disaster for long term world peace

And as @DurhamBorn said,India is likely building up too,not jsut in terms of demand but militarily too.

6 hours ago, Wheeler said:

Good post @Cattle Prod. Thinking about this, what about Africa? The Chinese have been moving in there over the past few years. I don't know much about the oil situation there apart from the fact that Nigeria has some. East coast oil would be more useful for the Chinese though.

Is there much available closer to home for them in Indonesia?

I'm not sure what you mean by "oil in dollars would be $104 an ounce". Are you talking about fluid ounces and how many of those to a barrel? 

The Chinese have a poor record as I understand of geting on with the locals in Africa.From what I've seen in the Gold mining sector,they are taking over the poorer end of the market,lacking in high grade assets.I was speaking to soemone from Zim a while back and they weres saying the Chinese had moved in but jsut weren't working the situation well.Very much a cultural thing I believe.

[sancho panza]

6 hours ago, DurhamBorn said:

Could this be the trigger for the inflation run?.It could very well be.The US will keep printing to buy the energy,and then as the price starts to move there will be less demand for money,and more demand for commods.That could be what leads inflation higher.The question then is who squeezes who out.The US will be doing everything it can to talk the ME out of China supply,but the Saudi's might take a while to be convinced,after all US shale has been a thorn for a decade.

Iran coming on line would support China,but proxy attacks on their assets would likely follow.Could the US and China fight a proxy war between Saudi and Iran?,maybe.

India is certain to keep China busy on the border.

Here in the UK we could be facing a massive problem.As fuel shoots up our currency might be shooting down.The government will be looking to increase taxes at the same time as inflation is starting to flame.Just as the late 60s brought in the great inflation of the 70s,has anything really changed

"Think of all the hate there is in Red China!
Then take a look around to Selma, Alabama!"

 

we hada discussiona few pages back about how each of the last three recessions has been preceded by a 50% plus rise in oil price.Obviously with covid,the calcs get a bit harder but with some common sense applied,we've not had that bull run yet and when we do,those M2 inventory lines might start struggling to stay down.

AS you say,it is easy to see a situation where sterling gets squeezed here and we end up with expensive oil and rising taxes.

[Loki]

You are on fire today @Cattle Prod

[MvR]

1 hour ago, Cattle Prod said:

I avoided saying this explicitly, but I fully agree. It's very concerning. I'm sure the vast powers of Chinese soft and tech power are pushing for that outcome as we type, from Confucious institute nudging to Twitter bots to bribes, donations, 'partnerships' who knows what. Let's hope the Yanks learned their lesson over the Covid propaganda. I did a short stint in China myself as a teacher about 17 years ago. Even then, my phone was tapped, I was followed, told to bring my students to the Taiwan Appreciation Park with a TV crew etc etc. They have vast resources for this type of thing. As much as I dislike the man personally, the world needs Trump to win, whether they know it or not.

As was said upthread, the Chinese people are mostly fantastic, but the CCP is appaling.

I was approached a few times in the early 2000's by Chinese people trying pay me lots of money to go out there and teach them VFX.  the circumstances were always a bit dodgy and ( unlike some of my work colleagues it turned out ) I didn't believe in giving our adversaries knowledge and IP that would diminish our competitive advantage or worse, be used against us militarily or politically.

I bet the likes of Twitter, Facebook, Google etc would happily sell us out though, in return for access to the Chinese market.  

[wherebee]

1 hour ago, MvR said:

I was approached a few times in the early 2000's by Chinese people trying pay me lots of money to go out there and teach them VFX.  the circumstances were always a bit dodgy and ( unlike some of my work colleagues it turned out ) I didn't believe in giving our adversaries knowledge and IP that would diminish our competitive advantage or worse, be used against us militarily or politically.

I bet the likes of Twitter, Facebook, Google etc would happily sell us out though, in return for access to the Chinese market.  

The numbers of academics in Australia who have been exposed as taking money from China in exchange for 'work' is eye opening.  It's very smart - academics being paid by country X are likely to clamp down on things such as demonstrations on human rights abuses on campus (as happened up in Queensland).  Plus, if they have breached disclosure rules and foreign influence laws (as many may have done) they are then subject to blackmail.

Frankly, the whole of academia in US, UK, and Australia needs a McCarthy style review.  Anyone who has taken money from China - gone.  Out.  No question.

[jamtomorrow]

8 hours ago, sancho panza said:

Ergo it makes sense for the CHinese to start gearing up and part of that will be nudging different countires to see how they respond.A Biden win would be a disaster for long term world peace

I'm wondering whether Biden-like vs Trump-like makes much difference in the long run.

I think China's real game is: be ready to take advantage of the coming global systemic collapse (by which I mean: the end-of-decade Really BK).

Natural resources are part of it, but so is social/political unity. That's the part that will screw us in the West - values are completely shattered, and the glue of unity is all but gone.

China know this - that, if you like, *is* their plan.

[Craig]

2 hours ago, jamtomorrow said:

I'm wondering whether Biden-like vs Trump-like makes much difference in the long run.

I think China's real game is: be ready to take advantage of the coming global systemic collapse (by which I mean: the end-of-decade Really BK).

Natural resources are part of it, but so is social/political unity. That's the part that will screw us in the West - values are completely shattered, and the glue of unity is all but gone.

China know this - that, if you like, *is* their plan.

Having been to China many times, it appears that Xi's big issue is whether he can maintain control of the populace for that long. Certainly the economic miracle has proven shiny and new enough to quell most dissent until now (and indeed the COVID lockdowns were a strong sign that government remains in control as things stand). However, there is a sizeable dissenting voice among the young, and a few years of hardship could lead to some pretty confrontational situations in the next few years. Hong Kong was just the start.

So whether Xi can remain in power until the end of the decade is very much up in the air, I'd argue.

[JMD]

15 hours ago, Cattle Prod said:

Good point, but price will take care of it, I think. Stimulate new supply, crush demand from the poorest (unfortunately) will balance it, with a lag. Will need to be sustained high prices though, a spike won't get new projects sanctioned.

Bottom line - oil is far to cheap for whats coming. And so is gold/silver. I won't be without significant exposure to either till the end of the decade.

Very interesting discussion CP. You commented recently that Russia could only increase its own production only slightly. I admit that did surprise me as i had envisioned Russia being able to force its way back onto the (new  non)globalised world-stage by arbitrarging its oil/gas exports (maybe selling to China or Europe depending on the politics). 

eg. I had thought that the massive thawing of the Russian Tundra/Siberia was going to be significant for Russia this decade... i believe there is lots of oil/gas there? Or is it more the case that what is there, is un-economic to extract? (...but what if oil goes to say $150?)

    

...some (random found) examples, but are these just Putin vanity projects?

https://www.nationalgeographic.com/environment/2019/03/sabetta-yamal-largest-gas-field/

https://thebarentsobserver.com/en/industry-and-energy/2019/12/money-pours-more-tundra-oil

 

 

[JREWING]

3rd February 1995.

The last time BP was this low...

Shell seems to be holding on better than BP.

Me thinks the majors are happy with these low oil prices. Kill shale off completed.

Was watching RR bump along ~£1. Thinking nah. Next thing it's £2.

BP next. Not if just when Mr Market stops beating it up.

150 bill MKT Cap to 46 bill unfl**king believable oil major...

 

Takeover anyone?

[kibuc]

Fortuna Silver is up next, with a very solid Q3 production of 2.1moz silver and 13koz gold - a double-digit increase over Q1 2020 and YoY. Grades are also nicely up by both measures. Cash costs stable. Additionally, 18koz of gold has been placed on the leach pad at Lindero at 0.83g/t, while another 27koz at 0.52g/t have been stockpiled in expectation of higher gold prices. The only slight worry is that grades coming from Lindero are significantly below the budget, apparently due to  COVID restrictions which limit access to high-grade ore. Sounds like the same story as with First Majestic yesterday, so we might see it becoming a general theme in the industry.

[sancho panza]

15 hours ago, wherebee said:

I've lived and worked with Chinese and they are wonderful, often brilliant, and hard working.  But - not inventive or individualistic, and very scared of pointing out errors which means little fuckups become bigger fuckups before exploding.

The best are the HK'ers - a mix of west and east.  I'd take 3 million over any other immigrant group to build a country.

One of the weaknesses of totalitarian regimes is that they are genereally poor at constrcutive feedback of the negative type.

It creates limits militarily/economically/intellectually-more particualrly it creates a 'fear of failure' atmosphere.Something highlighted by Norman Dixon back in the 80's iirc in his epic work-The Phsychology of Military Incompetence.There's a lot more to the work but one of the basic take homes is that it's better to be governed by the 'hope of success' rahter than 'fear of failure', as the latter leads to lengthy/poorly informed decision making where quite often,underlings have been afraid to tell the leader the bad news he/she needs to know.

15 hours ago, AWW said:

Well quite, better to pass wealth onto younger generations when they're young and need it. I think some older folk resent what they see as quite cushy living for younger people - get anything delivered to your house at the click of a button, cheap foreign holidays, amazing gadgets, nice food and, consciously or not, don't feel particularly disposed to helping them, even with something as basic as housing. Hardship as a badge of honour and all that.

Me? My kids are 2 and 0 and are already long inflation stocks. I _want_ them to have an easier time of it than I have. I want them to know what it took me until my thirties to learn.

I hear this a lot-don't mention smartphones to an oldie.I regularly point out to my Mum how her generation-and mine to a lesser degree-had it very easy in terms of HPI,student loans etc.My Mum is very switched on compared to many but she needs reminding and that's before we look at things like the national debt.

 

Like you ,everything I do is geared towards teaching the kids(13,3,2 and one inbound) those lessons it took me years to learn.I think they're going to face a far complex world and life than I did.

[JMD]

2 hours ago, Craig said:

Having been to China many times, it appears that Xi's big issue is whether he can maintain control of the populace for that long. Certainly the economic miracle has proven shiny and new enough to quell most dissent until now (and indeed the COVID lockdowns were a strong sign that government remains in control as things stand). However, there is a sizeable dissenting voice among the young, and a few years of hardship could lead to some pretty confrontational situations in the next few years. Hong Kong was just the start.

So whether Xi can remain in power until the end of the decade is very much up in the air, I'd argue.

I agree. Although the West will have its own 'social problems' to sort out this decade. However, in China it will be about keeping the 'nation' - it isn't btw, its a 3000 year old 'Empire' - under jack-boot type control. The multi-decade freedoms introduced in China have changed the character/ambitions of the Chinese people. Look at the Muslim separatists/discontent for example. The CCCP is panicking over this, and have, in the short-term, resorted to re-education camps, in the longer term i dread to think what draconian measures the authorities will attempt to inflict. 

When watching tv documentaries I find it instructive to compare the communist party-functionaries assigned to journalists, etc, whilst they travel around communist countries. Back in the day, the Soviet minders always appeared to me to be highly intelligent/educated, but at the same time rather sardonic in their manner/when answering questions. However, the Chinese party minders in contrast, seem very stilted, air-headed types, and when asked do struggle to articulate what their 'Chinese system' stands for (or against)... I don't pretend to draw any great conclusions from this, other than the USSR minders appeared overly suspicious and to be on-their-game; whereas the CCCP minders just appear plain bored - waiting for/anticipating change perhaps?. (might be personal bias on my part as i expect China to fragment)

  

[JMD]

17 hours ago, wherebee said:

I've lived and worked with Chinese and they are wonderful, often brilliant, and hard working.  But - not inventive or individualistic, and very scared of pointing out errors which means little fuckups become bigger fuckups before exploding.

The best are the HK'ers - a mix of west and east.  I'd take 3 million over any other immigrant group to build a country.

And we might just get those 3million HK'ers. What do you think the odds are?

 

I notice Dr Marc Faber, himself a resident of Hong Kong, and the 'famed' Gloom, Boom, Doom! economist, has done some recent podcasts, worth watching on youtube. He doesn't rate any statist system. He says some interesting things about China and his view is that the West needs a bogey man and at this point in the cycle China will serve that purpose, in order to distract western citizens from their own long-standing and entirely domestic home-spun failings. 

https://www.gloomboomdoom.com/

He quotes from the founder of public relations and modern propaganda Edward Bernays (nephew of Sigmund Freud): “The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. We are governed, our minds are moulded, our tastes formed, our ideas suggested, largely by men we have never heard of…"

 

On a lighter note...