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

[DurhamBorn]

https://www.telegraph.co.uk/business/2020/11/07/rely-qe-lockdown-will-never-end/?li_source=LI&li_medium=liftigniter-rhr

Refresh and hit esc to read 

Where this is wrong is it wont end in a currency collapse until they cant print anymore and inflation is running out of control.Its loss of buying power that forces a currency dump as people rush to buy anything of value with it.

Sterling is likely to rise against the dollar until the dollar gets down to 88 or lower because liquidity is lagging in the UK.The BOE is around £100 billion behind on QE.

I expect another £100billion in spring,maybe £120 billion,then another £200 billion over the next 24 months.Then maybe a last £50 billion twice.

If we get a big kahuna then another £300 billion in the months after then £200 billion and two £50 billions.

So £420 billion more QE or £600 with a big kahuna.

When did we tell everyone this was going to happen at the end of the cycle?

 

The Bank of England is, to all intents and purposes, buying gilts directly from the government – albeit using the secondary market to claim it’s avoiding outright “banana republic” style money-printing.

 

 

[Erewhon888]

29 minutes ago, DurhamBorn said:

Where this is wrong is it wont end in a currency collapse until they cant print anymore and inflation is running out of control.Its loss of buying power that forces a currency dump as people rush to buy anything of value with it.

Quote

This amounts to “Modern Monetary Theory” – the crackpot set of ideas, promoted by advisors to Bernie Sanders and, increasingly, Joe Biden, that claims governments can spend without limit, and only immoral people could possibly object to that. It may be no coincidence this absurd school of thought has the same initials as “Magic Money Tree”.

The Government is clearly in a tough position. But so-called QE-infinity, just because “everyone else is doing it”, is emphatically the wrong answer.

It will end in inflation, a currency collapse and broader financial turmoil. 

Seems like Halligan doesn't appreciate the insights of Stephanie Kelton and Warren Mosler. Their detractors these days tend to say MMT is an accurate description of what is already happening but shouldn't be a prescription.

If that is right, why would there ever be a time when "they can't print anymore"? Or, does this mean they can't sensibly invent more money since the link to high inflation would be obvious?

[Errol]

5G is a bit old now. China is already onto 6G:

 

China successfully sends world’s first 6G satellite into orbit to test technology

https://www.rt.com/news/506011-china-6g-satellite-space/

[sancho panza]

On 05/11/2020 at 20:40, DurhamBorn said:

The difference with the printing in 08 to 2020.In 08 it was to re-capitalise the banks.This time it also mainly goes in fiscal spending by the governments.People think QE is deflationary,but thats only when its to re-capitalise banks.When its for fiscal spending its inflationary.

 

I think the key thing here for me is the direction of travel for CB's.

Post 2008,CB's took route 1 and QEed on the basis of stimulating lending via the banks.Reality is that they eventually created a broken banking system that eventually jsut ceases to function like it used to-ie lower rates,more lending.We're hitting that drop in aggregate demand for credit.

Route 2 is the direct to market that will liekly come,as you,CP and otehrs have said,it's looking likely they'll funnell the funds direct to consumers and miss out the banks(they may get a bit of a kickback from rising wages and rising real asset values)

We can all see what's coming.Where I might differ is that as we transition from route 1 to route 2,I think there's going to be a dislocation in the banking sector as the credit deflation works through both corporate credit markets and commerical real estate.

On 06/11/2020 at 10:04, Cattle Prod said:

 

So though government debt has been rising, M2 has been rising faster, since 2008. I get that the latest downleg in that ratio is due to recent printing, which your second graph shows to be both QE and fiscal spending. But prior to this year, it was almost all QE. Where is that money now, just sitting in commercial banks because they don't want to lend it out? It's a strange standoff, because they are about to be put in the dustbin of history by the CBs, are they not more afraid of that?!

I think thats the key issue as above.Banks are facing capital constraints down the line if CRE and corporate bond markets implodes.Once the credit deflation kicks in then we'll see the banks starting to hang onto stimulus .Longer term as you allude,the banks are destined to become a utility function of the economy once again(thankfully).

Hence I struggle to see how we'll avoid realtively systemic collapse of those banks at some point before govts give up and channel stimulus direct to the point of spending.

On 06/11/2020 at 14:37, Barnsey said:

Looking through the crazy Halifax hpi % today, Oct price growth tailed off quite significantly to just 0.3%. Chimes very much with the lack of activity I've seen in recent weeks.

I simply cannot see the market accelerating again until Spring. Even if they announce an extension of the stamp duty holiday, all that'll do is cause even more sales to fall through now as folks will decide to wait to see what happens. It's the panic of not making the cut off date (due to the largest backlogs ever seen in housing market history) that has driven recent transactions, mainly at the higher end of course.

 

 

Once furlough ends,the jobs losses will mount.Then the banks will start going pop and pulling mortgages and raising LTVs.At the moment there's a lot of people swapping equity.At some point this will get nasy for a time.

[sancho panza]

On 06/11/2020 at 17:27, Cattle Prod said:

USO options are an interesting study: retail gets killed by the contango in USO which uses oil futures rather than physical, and doesn't seem to understand why USO never reaches former highs. But in times of physical scarcity, the curve goes into backwardation and USO doesn't decay. I think the market is missing this, and it looks cheap to me.

That's an intriguing point.How often does WTI go into backwardation?Do you know?

 

 

7 hours ago, DurhamBorn said:

I keep getting different answers.One day i think VOD has the most potential,lots of fibre now in Germany and eastern Europe.Debts refinanced at crazy low rates and so free cash can pay them off over time if rates increase.

TEF is hated yet has full fibre in Spain,a big chunk in Brazil,soon a big chunk in the UK when 02/Virgin merge,rolling out in Germany.A dividend cut is probably on the cards,but debt should keep falling.

BT is hated,but lots of false stories as fact.It has fantastic EBITDA still and is rolling out fibre and 5G while inflation is still low,and hopefully will get most done before we see big increases.Once those rollouts are done i could see free cash doubling over time,maybe trebling and the debt will be seen to be low compared to assets inflating in price.

So i probably lean to BT being cheapest,but then maybe TEF is,and then VOD might own the best smartfone money app in the world M-Pesa,lead in IOT etc.

So i simply keep buying all of them.Iv a lot of divis landing through until new years eve (Imperial pay New years eve,something iv always enjoyed about them) and its a real struggle between more Shell or more telcos at the moment.

 

BT were my top coma scale score of 21 when I filtered them.AS per @Harley statement,lot of goodwill and intagibles.Off memory,VOD,Singtel,Telatrs and one otehr weren't in that psoition

[ForeverBlowingBubbles]

Other names to consider in the telecom space, liberty global, Swisscom, China mobile. 

All are in downtrends, but look like good value. I believe kennox strategic value owned Swisscom and China mobile some months back when I saw a story on moneyweek. Buffet owns liberty global since 2013,but the price has been trending down and they have been selling some shares in the last few months.

Anyone looked at any of these? 

[JMD]

8 hours ago, DurhamBorn said:

I keep getting different answers.One day i think VOD has the most potential,lots of fibre now in Germany and eastern Europe.Debts refinanced at crazy low rates and so free cash can pay them off over time if rates increase.

TEF is hated yet has full fibre in Spain,a big chunk in Brazil,soon a big chunk in the UK when 02/Virgin merge,rolling out in Germany.A dividend cut is probably on the cards,but debt should keep falling.

BT is hated,but lots of false stories as fact.It has fantastic EBITDA still and is rolling out fibre and 5G while inflation is still low,and hopefully will get most done before we see big increases.Once those rollouts are done i could see free cash doubling over time,maybe trebling and the debt will be seen to be low compared to assets inflating in price.

So i probably lean to BT being cheapest,but then maybe TEF is,and then VOD might own the best smartfone money app in the world M-Pesa,lead in IOT etc.

So i simply keep buying all of them.Iv a lot of divis landing through until new years eve (Imperial pay New years eve,something iv always enjoyed about them) and its a real struggle between more Shell or more telcos at the moment.

 

Thank you DB, great info. Your reference to the vodaphone smartphone money app is an example why I view telecoms as a tech play, in addition to their more traditionally commented upon sector features (especially as most pure tech companies are themselves prohibitively expensive now). Perhaps I should look up what the resident futurologists (yes they exist, at least they used to) of the various telecoms are saying, I remember that the BT one was always appearing on our TV's until about 10 years ago. Then again if these people still exist their speel will probably be mostly pr, though I do remember them being mostly academic types so I will take a look and report back if I find anything interesting.

[JMD]

5 hours ago, MrXxxx said:

Just listened to this throughout the day; had to come back a couple of times, and found it really difficult to understand the detail. Can anyone explain the following:-

1. What is long volatility and short volatility?

2. He mentions volatility exposure, what doe she mean by this i.e. is it buying call options when long volatility and put options when short volatiliy?

3 He mentions the tails (of a distribution?) and towards the end an example cites is the "Right tail with the collapse of FIAT, and the left tail with the default of loan"...I cant get my head around this...all I can think of is say a -ve skewed distribution for equities where they steadily climb on the left tail and then suddenly drop after the peak on the the right hand side...how can you get the default crashs mentions above on the left hand side when its climbing?

Can't answer your specifics. But yes Chris Coles Dragon portfolio, which I assume he is referring to in the podcast as I recall some of those terms you mention, is based on complex commodity trading and even more complex options trading, and which makes the portfolio itself only suitable for professionals to operate. Anyway there was a good macro voices podcast early in year where they explored this dragon portfolio.

[DurhamBorn]

7 hours ago, JMD said:

Thank you DB, great info. Your reference to the vodaphone smartphone money app is an example why I view telecoms as a tech play, in addition to their more traditionally commented upon sector features (especially as most pure tech companies are themselves prohibitively expensive now). Perhaps I should look up what the resident futurologists (yes they exist, at least they used to) of the various telecoms are saying, I remember that the BT one was always appearing on our TV's until about 10 years ago. Then again if these people still exist their speel will probably be mostly pr, though I do remember them being mostly academic types so I will take a look and report back if I find anything interesting.

BT still has a huge research facility at Adastral Park,an asset most people dont even know about,but vital.

https://atadastral.co.uk/

The whole sector is incredible value IMO.End of cycle has convinced people the companies cant increase profits,but thats simply the affect of having to invest heavily during a long dis-inflation.Inflation makes a massive difference.

They could get a perfect cycle.Inflation as well as millions of extra sims on the network from IOT,cars,energy,appliance etc adding operational leverage.A consolidation of the sector would also be fantastic,but thats more tricky due to political reasons.However merging assets like towers is very likely.

[DurhamBorn]

@sancho panza its interesting to think that the CBs are now avoiding the banks but its true.

A lot of the cycle calls,in fact most of them on the road map need the transmission of liquidity to change from QE-Bank-loan-goods/services to QE-gilt-handout/investment-goods/service

Whats key to the change from a dis-inflation to a reflation is that transmission.Governments find it harder to say no than banks as can be seen today in the crazy school meals thing.

Once again my dollar call from 100 has proved bang on the money and those calls are all about liquidity.

What people are missing and is really where a macro strategist shines is that debt is FALLING.Its going in debt deflation from defaults, but also from rising M2 and all forms of money supply.The BOE by printing for direct fiscal spending is removing debt from the economy and parking it on its balance sheet at 0.1% interest.They are taking away all the dis-inflation from the economy so that they can re-boot demand and set prices increasing instead of decreasing.

[Democorruptcy]

10 hours ago, sancho panza said:

Once furlough ends,the jobs losses will mount.Then the banks will start going pop

Good luck with furlough ending, for that very reason.

The UK has just splurged loads of money to enable people to stay at home and pay their existing debt and take on more (HPI at an all time high), when it could have gone on infrastructure and create jobs.

[Clueless Imbecile]

I wonder if any of you guys could comment on the following?....

Globally speaking...

I know it's been said that the long-term interest rate ("long bond rate"?) is controlled by the market and that apparently not even the Fed can control long rates. It's been forecast that inflation will rise a lot over the next cycle and the interest rate will follow but with a lag.

On the face of it that would seem to suggest that the property market would face a strong headwind which would limit house price inflation.

Considering the UK...

Even if the above scenario plays out, what is to stop the UK government using QE to lend directly for mortgages, thereby disconnecting UK mortgage rates from global interest rates and thereby keeping UK house price inflation running high?

I imagine that ultimately that would impoverish the majority of people in the long run, but that doesn't seem to have stopped the government continually throwing stimulus at the property market over the past 20 years. The government seem to be determined not just to prevent house price falls, but to also prevent house price stagnation, hence the rhetoric about "getting the property market moving" which I guess means getting prices moving upwards. That seems to go for whichever wing of LibLabCon is in government.

This is a big worry for me, since I don't own a house. I don't really want the responsibility of owning a house at the moment because I'm quite happily living cheaply at my parents house. It does mean though that I need to ensure that my investment portfolio at least keeps pace with house prices (or ideally does better) because I might eventually want to buy a house of my own.

I can only guess that you guys have faith in reflation stocks performing at least as well (or better) than property, otherwise you would be talking about property investment on here rather than talking about reflation shares?

Cheers,
Clueless Imbecile

Disclaimer: I am not an expert. Anything I post here is just my opinions, which may not be factually correct. My posts are intended purely for the purpose of debate and are not to be taken as advice. If you act on any of the above then you do so entirely at your own risk. I do not accept any liability.

 

[arrow]

45 minutes ago, Clueless Imbecile said:

I wonder if any of you guys could comment on the following?....

Globally speaking...

I know it's been said that the long-term interest rate ("long bond rate"?) is controlled by the market and that apparently not even the Fed can control long rates. It's been forecast that inflation will rise a lot over the next cycle and the interest rate will follow but with a lag.

On the face of it that would seem to suggest that the property market would face a strong headwind which would limit house price inflation.

Considering the UK...

Even if the above scenario plays out, what is to stop the UK government using QE to lend directly for mortgages, thereby disconnecting UK mortgage rates from global interest rates and thereby keeping UK house price inflation running high?

I imagine that ultimately that would impoverish the majority of people in the long run, but that doesn't seem to have stopped the government continually throwing stimulus at the property market over the past 20 years. The government seem to be determined not just to prevent house price falls, but to also prevent house price stagnation, hence the rhetoric about "getting the property market moving" which I guess means getting prices moving upwards. That seems to go for whichever wing of LibLabCon is in government.

This is a big worry for me, since I don't own a house. I don't really want the responsibility of owning a house at the moment because I'm quite happily living cheaply at my parents house. It does mean though that I need to ensure that my investment portfolio at least keeps pace with house prices (or ideally does better) because I might eventually want to buy a house of my own.

I can only guess that you guys have faith in reflation stocks performing at least as well (or better) than property, otherwise you would be talking about property investment on here rather than talking about reflation shares?

Cheers,
Clueless Imbecile

Disclaimer: I am not an expert. Anything I post here is just my opinions, which may not be factually correct. My posts are intended purely for the purpose of debate and are not to be taken as advice. If you act on any of the above then you do so entirely at your own risk. I do not accept any liability.

 

Next year the UK will experience very high unemployment. Other countries that experienced the same were able to export people to other countries, including the UK. The UK won't have that option. Very high unemployment destabilises states. It was one main factor of World war 2. UK gov/establishment/people love property but unemployment will be a huge threat to them. Infrastructure will be a priority to soak up unemployment, by creating jobs. That's not to say there won't be an attempt to prop up property, but I can't see it being the main recepient.

 

[NogintheNog]

44 minutes ago, arrow said:

Next year the UK will experience very high unemployment. Other countries that experienced the same were able to export people to other countries, including the UK. The UK won't have that option. Very high unemployment destabilises states. It was one main factor of World war 2. UK gov/establishment/people love property but unemployment will be a huge threat to them. Infrastructure will be a priority to soak up unemployment, by creating jobs. That's not to say there won't be an attempt to prop up property, but I can't see it being the main recepient.

 

Yes, the spinning plates look increasingly like they will fall.

2 hours ago, Democorruptcy said:

Good luck with furlough ending, for that very reason.

The UK has just splurged loads of money to enable people to stay at home and pay their existing debt and take on more (HPI at an all time high), when it could have gone on infrastructure and create jobs.

Agreed! So far... However lots of anger over Furlough, very unfair so I can see the rest of the plebiscite getting increasingly angry over that! So....

Furlough changes to Universal Basic Income, and as Arrow said;

44 minutes ago, arrow said:

Infrastructure will be a priority to soak up unemployment, by creating jobs.

It won't matter if many of those jobs are a waste of space, the government will feel they 'have to do something'

= reflation.

[UnconventionalWisdom]

15 hours ago, DurhamBorn said:

https://www.telegraph.co.uk/business/2020/11/07/rely-qe-lockdown-will-never-end/?li_source=LI&li_medium=liftigniter-rhr

Refresh and hit esc to read 

Where this is wrong is it wont end in a currency collapse until they cant print anymore and inflation is running out of control.Its loss of buying power that forces a currency dump as people rush to buy anything of value with it.

Sterling is likely to rise against the dollar until the dollar gets down to 88 or lower because liquidity is lagging in the UK.The BOE is around £100 billion behind on QE.

I expect another £100billion in spring,maybe £120 billion,then another £200 billion over the next 24 months.Then maybe a last £50 billion twice.

If we get a big kahuna then another £300 billion in the months after then £200 billion and two £50 billions.

So £420 billion more QE or £600 with a big kahuna.

When did we tell everyone this was going to happen at the end of the cycle?

 

The Bank of England is, to all intents and purposes, buying gilts directly from the government – albeit using the secondary market to claim it’s avoiding outright “banana republic” style money-printing.

 

 

Could you imagine telling someone this at the turn of thd millenium- they'd section you. 

Crazy way to run the economy but they can't just take away the punch bowl. Macro, fiscal, monetary, political future will be interesting

[Democorruptcy]

1 hour ago, NogintheNog said:

Agreed! So far... However lots of anger over Furlough, very unfair so I can see the rest of the plebiscite getting increasingly angry over that! So....

Furlough changes to Universal Basic Income, and as Arrow said;

It won't matter if many of those jobs are a waste of space, the government will feel they 'have to do something'

= reflation.

I haven't seen any anger over furlough, except on here. They need to start making other people pay for it before the anger starts. It's way too generous but then we have a lot of household debt, so our need is great! I voted that it wouldn't end and would become basic income. In the US press this week they were calling our scheme, basic income.

A mini-budget is pencilled in for 25th Nov

[sancho panza]

On 06/11/2020 at 11:08, Noallegiance said:

 

So we appear to have a choice between stupid that used to be sensible and more stupid because the stupid has got so stupid that the only thing that can be done is more stupid because sensible has been forced to disappear. Which is stupid.

My own personal view is that we should have allowed a banking collapse and credit deflation in 2008.That would have avoided the reblowing of the bubble even more than before to prevent the bubble blowing....again.

I'd also introduce some reforms to banking regulation particualrly with regard to risk weighting of assets,inflation/GDP measurement(current efforts are jsut heating the dog poo sandwich ie it's warmer but still inedible.)

Having said all that,once we start accepting that we have to use the CB playbook,we become a hostage to  fortune so to speak.They'll keep blowing the bubble till it bursts and use the age old defence of 'it's a global problem,none could have seen it coming etc etc'...

4 hours ago, DurhamBorn said:

BT still has a huge research facility at Adastral Park,an asset most people dont even know about,but vital.

https://atadastral.co.uk/

The whole sector is incredible value IMO.End of cycle has convinced people the companies cant increase profits,but thats simply the affect of having to invest heavily during a long dis-inflation.Inflation makes a massive difference.

They could get a perfect cycle.Inflation as well as millions of extra sims on the network from IOT,cars,energy,appliance etc adding operational leverage.A consolidation of the sector would also be fantastic,but thats more tricky due to political reasons.However merging assets like towers is very likely.

I misstyped my last reply on BT,they were the standout pick on my last coma scale run throuhg a few months back.I'm still waiting for the BK to move to full allocation in telecoms but the pickings are slim in the sector if you steer clear of thsoe companies where the equity is all goodwill.Intangibles eg patents,intelectual property could be worth a few quid in the sector..

I've disliked BT as an investmetn for 2 decades but price changes everything.

[sancho panza]

4 hours ago, DurhamBorn said:

@sancho panza its interesting to think that the CBs are now avoiding the banks but its true.

A lot of the cycle calls,in fact most of them on the road map need the transmission of liquidity to change from QE-Bank-loan-goods/services to QE-gilt-handout/investment-goods/service

Whats key to the change from a dis-inflation to a reflation is that transmission.Governments find it harder to say no than banks as can be seen today in the crazy school meals thing.

Once again my dollar call from 100 has proved bang on the money and those calls are all about liquidity.

What people are missing and is really where a macro strategist shines is that debt is FALLING.Its going in debt deflation from defaults, but also from rising M2 and all forms of money supply.The BOE by printing for direct fiscal spending is removing debt from the economy and parking it on its balance sheet at 0.1% interest.They are taking away all the dis-inflation from the economy so that they can re-boot demand and set prices increasing instead of decreasing.

I think they ahev no alternative if they see stimulus as the way out.CP has previously alluded to the central leverage problem restraining credit creation as commercial banks as seeing a debt deflation coming.

Where I think we may differ is that I don't think the transfer of QE routes will come without a signficant dislocation in the banking system ie debt/credit deflation.I think govts will only move to direct helicopter money when the banking sytem is patently broken.We know that the banks are more leveraged than 2006 and are in no state to deal wiht whats coming

Hence,I remain pretty sure we're going to see a major dislocation in stock and credit markets at some point.

Ref you excellnet points on M2(see graph) that really shows in simple terms,the direction of travel for govts.ANd the message is simple,if the banks can't deliver,then they find someone/something else that will.If banks are loaded with toxic debts and they can stimulate the consumer directly,then the banks will be left to their own devices.

[MrXxxx]

This weeks Macrovoices podcast has some interesting arguments relevant/opposing thought to this thread i.e. its not just about PM as the title may lead you to believe:

https://www.macrovoices.com/907-macrovoices-244-marin-katusa-how-to-play-the-secular-gold-bull-market

40-43 mins in suggests a mechanism why it may be the green energy boys that end up buying out the oil bays rather than the other way around.

1hr.15-1hr.41 mins in enlightens one as to why Biden's win may not be 'cut and dried' and why American votes do not actually vote for the President.

[DurhamBorn]

8 minutes ago, sancho panza said:

I think they ahev no alternative if they see stimulus as the way out.CP has previously alluded to the central leverage problem restraining credit creation as commercial banks as seeing a debt deflation coming.

Where I think we may differ is that I don't think the transfer of QE routes will come without a signficant dislocation in the banking system ie debt/credit deflation.I think govts will only move to direct helicopter money when the banking sytem is patently broken.We know that the banks are more leveraged than 2006 and are in no state to deal wiht whats coming

Hence,I remain pretty sure we're going to see a major dislocation in stock and credit markets at some point.

Ref you excellnet points on M2(see graph) that really shows in simple terms,the direction of travel for govts.ANd the message is simple,if the banks can't deliver,then they find someone/something else that will.If banks are loaded with toxic debts and they can stimulate the consumer directly,then the banks will be left to their own devices.

I agree on the banks,i simply dont consider them really because they are all last cycle.As you say they dont drive economies in a reflation,governments do.Market has forgot all about that.They still think credit creation is a banking situation forgetting that the bank the banks use (CB) is the ultimate credit creator and unlike the banks can direct into the economy through willing governments.Its actually fantastic to see that now happening because it was really the entire basis of this thread that that route would be taken.If it hadnt been the entire reflation cycle roadmap might/would of fallen apart.Luckily however the macro numbers etc showed that however much hardly anybody expected it,it would end up the only show in town.

I agree there is massive dislocation ahead in the credit markets and the stock markets.Incredible amounts of liquidity is going to swap asset classes and we cant be sure how it plays out,at least in the short term.

What will be interesting is to see if the CBs try to force down mortgage rates.Everyone is crying for it,and execting it,but im not sure they will.Its not a priority because the consumer isnt driving the economy now.

[DurhamBorn]

4 hours ago, Democorruptcy said:

Good luck with furlough ending, for that very reason.

The UK has just splurged loads of money to enable people to stay at home and pay their existing debt and take on more (HPI at an all time high), when it could have gone on infrastructure and create jobs.

Im working full time again,but government keep sending my self employed furlough grants because i was self employed during the timescale and was a sole trader not Ltd.

Its been going into the oilies and of course into my SIPP so i could claim the tax relief as well on the free money 

[Barnsey]

15 hours ago, sancho panza said:

Once furlough ends,the jobs losses will mount.Then the banks will start going pop and pulling mortgages and raising LTVs.At the moment there's a lot of people swapping equity.At some point this will get nasy for a time.

I'd suggest LTVs and product availability have already been restricted to GFC levels Sancho, job losses are mounting but only now moving up to middle incomes and therefore home owners.

[sancho panza]

4 hours ago, Cattle Prod said:

Not exactly, I don't have the right time spread curves set up. Does anyone know if you can do this in TradingView? Maybe @MvR?!

But it flips to backwardation when physical is scarce: traders will pay more for oil now, rather than future oil needing a storage cost priced in. Pretty sure it happened in the run up to mid 2018 when stocks were being drawn. If you overlay USO onto WTI during this time, you can see USO even increased a little over WTI.

In the coromavirus crash, it massively blew out in contango, almost blowing up the ETF and destroying investors. I think it'll switch to backwardation in the next three months.

I've had a butchers on investing.com.I think it'd need someone with @MvR expericne to set that chart up.If he can't then I'll have a search on the web.I've tried looking for the 12 month's futures price on inv.com but could only find the generic WTI futures which I presume is the front month which wouldn't really highlight any of the interactions we're interested in.

key thing is that as you say backwardation is a sign of scarcity in the physical markets in oil.

I need a reliable source for this data if it's a reliable indicator of a turn.I'll psot what I find.

[sancho panza]

4 hours ago, Democorruptcy said:

Good luck with furlough ending, for that very reason.

The UK has just splurged loads of money to enable people to stay at home and pay their existing debt and take on more (HPI at an all time high), when it could have gone on infrastructure and create jobs.

Excellent point DM

If furlough ends ,I think it'll only be inflation,banking crisis or a weakening in sterling that'll stop it.And one of them will.By which time,we'll be too deep in the hole.The die is cast.

Every option is a dogpoo sandwich for most working people,warmed up or not.Political class are way out of their depth.

[Harley]

18 hours ago, MrXxxx said:

Just listened to this throughout the day; had to come back a couple of times, and found it really difficult to understand the detail. Can anyone explain the following:-

1. What is long volatility and short volatility?

2. He mentions volatility exposure, what doe she mean by this i.e. is it buying call options when long volatility and put options when short volatiliy?

3 He mentions the tails (of a distribution?) and towards the end an example cites is the "Right tail with the collapse of FIAT, and the left tail with the default of loan"...I cant get my head around this...all I can think of is say a -ve skewed distribution for equities where they steadily climb on the left tail and then suddenly drop after the peak on the the right hand side...how can you get the default crashs mentions above on the left hand side when its climbing?

Just listened.  Excellent and on the money.  Exactly what, in part, I was going on back in December/January when discussing value and the meaning/validity of money as a store of value, etc.  Scary as I'm hearing this topic discussed quite often and do think we are at a paradigm shift in our ultimate underlying, the thing currently called money.  Many of his other comments align with the themes here.  I liked the emphasis about trying to use liquidity to address a solvency crisis and its end game.  Heard that a lot.  And that the mass of liquidity (via increased derivatives) causes peversity like the derivative (e.g option) driving the underlying price rather than the other way.  All that liquidity is making the boat more top heavy and unstable causing it to rock more often and to a greater extent.

He defined short vol as say going net long the stock market such as buy and hold.  Essentially, you are betting limited net volatility in that asset class, that you will end up ahead.  Same with buying the dips as you assume mean reversion and you'll be ahead later.  But what if things have changed and these valid assumptions in the past no longer work?  That such passive investing no longer works.  That you need to trade the tails of the distribution, typically with options (e.g straddles) but also with asset classes (one reason I like the balanced portfolio).  

Or something like that!