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

[Harley]

9 minutes ago, CVG said:

Not sure if you are asking how often the strategy works or how often to rebalance.

The strategy has a good track record over time of making above average returns with reduced volatility. You know that because you're into the same books as me! We cannot be certain of the future (per posts above) so we trade some potential performance in order to hedge against the unknown. I think it will continue to work in future.

How often to rebalance? Could (should?) just go mechanical and rebalance once the asset class or asset class sector is +/- 5% outside of the desired position. In practice my divs and interest flow into the cash class and then I redistribute those as appropriate when I have at least £1K to invest.

Apologies, I meant how often to rebalance as it works for me when I do it (both across asset classes per the Permanent Portfolio and within classes as you point out) but I would be interested in peoples views on timing/frequency, although I like your approach here too which is probably what I sort of unacceptably-randomly do and defo, with hindsight (e.g. PMs versus equities), should have done.

[geordie_lurch]

3 minutes ago, Boon said:

IMHO it's inevitable but it'll be tiered.

What is the difference between a digital £, and the monies used in the large-scale banking transactions anyway? Last time I checked that was digital too, nobody buys their shares with cash.

I don't think it'll be altruistic at all, but rather the new digital £ will be used to help the government towards its goals. 

Personally I think the digital £ and cash pounds could be used in tandem with each other - the digital £ wallet could be heavily restricted to which transactions it can be spent on. If only a narrow range of shops (ie supermarkets) were allowed, then this makes it impossible to trade for regular crypto, and makes the distribution of helicopter money much easier because it can't be misspent on cars or houses.

All about control.

The main difference is that they can control the supply and velocity etc at will as they can like you say also tell you where you are not only allowed to spend it but also probably how long you can keep it - i.e. your Universal Basic Income has to be spent at Amazon, Tesco and other state 'approved' retailers within 90 days. Weren't the human guinea pigs getting swabbed for Covid recently only allowed to spend their 'vouchers' they received in certain retailers?

FYI and others, currently about 97% of the 'money' we use today is created by private banks as per the following video from 2012 which as they say is "at the root of our current social and economic crisis". So given that the current system creates such issues and funnels things to the 1% so well there is no doubt in my mind that new digital 100% fully traceable 'money' that comes straight from the central banks will make things even worse

 

[Harley]

Can't easily find the post but someone mentioned gold is in a cup and handle chart pattern so just to say I've been banging on about this for months and, more importantly, am now seeing this in a number of other areas which to me is a sign of the fundamental (e.g. sectoral) shifts that are underway with Covid cover breaking/zero basing past chart patterns and trends with potentially good pickings in the rubble for the discerning, non-BAU, investor who looks beyond today's noise.

[DoINeedOne]

A Youtube Channel i enjoy is SkillBuilder Roger a plumber enjoys a good rant now and again here he mentions abit about hydrogen boilers currently being developed similar to updates from @Bobthebuilder

 

[geordie_lurch]

9 minutes ago, Harley said:

Can't easily find the post but someone mentioned gold is in a cup and handle chart pattern so just to say I've been banging on about this for months and, more importantly, am now seeing this in a number of other areas which to me is a sign of the fundamental (e.g. sectoral) shifts that are underway with Covid cover breaking/zero basing past chart patterns and trends with potentially good pickings in the rubble for the discerning, non-BAU, investor who looks beyond today's noise.

So in short - gold more likely to go down or up in the next 6 months due to this pattern?

[Alex]

9 minutes ago, geordie_lurch said:

So in short - gold more likely to go down or up in the next 6 months due to this pattern?

Yes.

[Heart's Ease]

32 minutes ago, Harley said:

Can't easily find the post but someone mentioned gold is in a cup and handle chart pattern so just to say I've been banging on about this for months and, more importantly, am now seeing this in a number of other areas which to me is a sign of the fundamental (e.g. sectoral) shifts that are underway with Covid cover breaking/zero basing past chart patterns and trends with potentially good pickings in the rubble for the discerning, non-BAU, investor who looks beyond today's noise.

It was Errol.

[MrXxxx]

1 hour ago, Harley said:

Can't easily find the post but someone mentioned gold is in a cup and handle chart pattern so just to say I've been banging on about this for months and, more importantly, am now seeing this in a number of other areas which to me is a sign of the fundamental (e.g. sectoral) shifts that are underway with Covid cover breaking/zero basing past chart patterns and trends with potentially good pickings in the rubble for the discerning, non-BAU, investor who looks beyond today's noise.

@Errol couple of page back.

[DoINeedOne]

1 hour ago, geordie_lurch said:

The main difference is that they can control the supply and velocity etc at will as they can like you say also tell you where you are not only allowed to spend it but also probably how long you can keep it - i.e. your Universal Basic Income has to be spent at Amazon, Tesco and other state 'approved' retailers within 90 days. Weren't the human guinea pigs getting swabbed for Covid recently only allowed to spend their 'vouchers' they received in certain retailers?

FYI and others, currently about 97% of the 'money' we use today is created by private banks as per the following video from 2012 which as they say is "at the root of our current social and economic crisis". So given that the current system creates such issues and funnels things to the 1% so well there is no doubt in my mind that new digital 100% fully traceable 'money' that comes straight from the central banks will make things even worse

 

The few minutes from 33:10 is why alot companies struggle to get money

Bank lending to a new company limited liability probably not many assets and harder to recover if it goes bust

Bank lending to house buyer there's always the house to take back if they don't pay the mortgage

So more money is lent to people buying houses

[Harley]

1 hour ago, geordie_lurch said:

So in short - gold more likely to go down or up in the next 6 months due to this pattern?

Depends on which currency but in GBP this is now a very mature chart pattern (see below, especially the textbook pull back in Dec-19 or arguably Sep-18 which in USD it is currently doing!) so most bets off other than to say my small gold purchase in 2006 is now up 12% in GBP annualised so I'm happy I bought and held, alas not a massive amount in a government backed leveraged play like in housing, but at least hedged against GBP!

 

[geordie_lurch]

On 24/11/2020 at 14:11, Errol said:

For those wondering about gold - apart from it being Comex options expiry nonsense, gold is also nicely completing the handle of a 10 year cup and handle formation (see below). It could retrace as far as $1700.

 

Thanks - this was @Errol's post

[JMD]

1 hour ago, DoINeedOne said:

A Youtube Channel i enjoy is SkillBuilder Roger a plumber enjoys a good rant now and again here he mentions abit about hydrogen 1boilers currently being developed similar to updates from @Bobthebuilder

 

Crickey I used to listen to him years ago (there was a 'Brummie one'(!) also, an electrician i think, though i think he might have been more ukip oriented?)... he has aged, but then haven't we all!? But so much sense spoken - really puts experts like our corona 'science sages' to shame. However, I don't think that Greta will "...go back to school" - secular Saints are, after all - born fully formed and emaculate! (anyhow she's 18 in January, who knew?)

[Harley]

3 minutes ago, JMD said:

Crickey I used to listen to him years ago (there was a 'Brummie one'(!) also, an electrician i think, though i think he might have been more ukip oriented?)... he has aged, but then haven't we all!? But so much sense spoken - really puts experts like our corona 'science sages' to shame. However, I don't think that Greta will "...go back to school" - secular Saints are, after all - born fully formed and emaculate! (anyhow she's 18 in January, who knew?)

Top guy (plumber) with loads of useful Youtube videos I've used, together with some of the products he's promoted, to good effect!

[sancho panza]

18 hours ago, Cattle Prod said:

Agree, that correlation is strikingly good. I decided to recreate her chart as I wanted to zoom in a bit to think about the next leg up in PMs, recco using that FRED website it's pretty easy, and has incredible dats. So:

With Gold inverted:

Verrrry tight indeed. So my read is that we are going to see the next uplift in Gold when oil inflation starts to jack up CPI figures (unless the Fed pushes yields down first). Is this your read, @sancho panza or others? If so, what do you think the lag will be for oil inflation over the last couple of months to reach CPI data? Next CPI release is 10th Dec. That said, I've just read what that curve is based on: it's the inflation expectations of market participants, not actual inflation. I guess the correlation is tight because gold is simply an expression of the same expectations by the same participants.

Edit:

That plot is a good example of signal to noise, IMO. All the stuff you might read about gold is largely irrelevant: its price is clearly > 90% driven by real rates. Personally, I'll be using little else to time PMs. Thanks, Lyn Alden.

Edit edit:

The recent $300 run up in gold from ~$1750 to 2050 correlated to a .5% drop in real rates 

First of all a warning on CPI data,jsut stating that the inflation numbers do get adjsuted down/up sometimes asmuch as 2 or 3 quarters after the fact.As does GDP obviously.So tehre's risk in the data.

Also a couple of dyor's with reference to the GDP data and the fact that I'm classing for all intents and purposes the two early 80's recessions as one event.Similarly,I'm using some judgement to arrive at a sensible interpretation of the march 20 low in WTI given that it was largely related to a lack of storage rather than supply/demand.Simialrly I use the monthly data on oil jsut to take away the nosie of intraday moves.

Monthly US inflation data 1913 on

USA GDP Quarterly data

WTI monthly data 1970 on

Gold price 1970 on

If we look at the last few recessions there has been (admittedly small sample size) but a reasonable correlation between oil moving CPI.Obviously,we msut remember we're looking through from ahistorical perpsective,whetehr these moves would be apparent to the eye at the time are another matter

In 80,90 and 07/08,the correaltion between the upturn in oil prices and the rise in CPI was pretty spot on either immediate or 6 months.Eact time you're looking at a 100% increase at the minimum.

Confirmation of relevance is possibly in the fact oil peaks were proximate to CPI peaks eg CPI peaks Mar 80 and oil May.

01 was the exception but then the bubble wasn't in the real economy that time which maybe explains the poor correlation.

With this current recession there are a couple of issues where you need to use your judgement.Firstly with covid recession.The bulk of the inital downtrun is stems from the sheer poverty and short sightedness of govts worldwide.You cna either use the WTI bottom at $22 or draw sensible line throught the monthly data at about $35.Either way if you use previous bottom to top runs we can expect anything between a 130% to a 200% so using $22/$35 we get $50 to $165 at peak.

As discussed here,most of us are looking at $60-$80 I think.

Final point .On the first chart below they show that the 30 year rate moves relatively independently of the CPI rate.(also confirms @DurhamBorn oft quoted thesis that teh 30 yr rate drives mortgage rate rather than banking solvency).

 

                                        

US Recession             CPI low       CPI high          Oil low          Oil High           

Jan 80-July 80      Dec 78 7.6     Mar 80 14.8%   Jan 79 $15 May 80 $39.5    

July 81-Nov 82

July 90-Mar 91     May 90 4.4    Oct 90 6.3        Jun 90 $17  Sep 90 $39

Mar 01-Nov 01      Mar 01 2.9     May 01 3.6       Nov 98 $11  Nov 00 $33

Dec 07-Jun 09      Jul 07 2%      Jun 08 5.6%     Jan 07 $58  June 08 $140

 

 

 

 

[Harley]

Following on from my gold charts, the key question is are the silver charts drawing out a similar pattern but have much further to go, giving DB his silver target?

[sancho panza]

20 hours ago, Cattle Prod said:

Agree, that correlation is strikingly good. I decided to recreate her chart as I wanted to zoom in a bit to think about the next leg up in PMs, recco using that FRED website it's pretty easy, and has incredible dats. So:

With Gold inverted:

Verrrry tight indeed. So my read is that we are going to see the next uplift in Gold when oil inflation starts to jack up CPI figures (unless the Fed pushes yields down first). Is this your read, @sancho panza or others? If so, what do you think the lag will be for oil inflation over the last couple of months to reach CPI data? Next CPI release is 10th Dec. That said, I've just read what that curve is based on: it's the inflation expectations of market participants, not actual inflation. I guess the correlation is tight because gold is simply an expression of the same expectations by the same participants.

Edit:

That plot is a good example of signal to noise, IMO. All the stuff you might read about gold is largely irrelevant: its price is clearly > 90% driven by real rates. Personally, I'll be using little else to time PMs. Thanks, Lyn Alden.

Edit edit:

The recent $300 run up in gold from ~$1750 to 2050 correlated to a .5% drop in real rates 

WHilst I'm exploring the St Louis data with the compare tool.

Worth noting the correlation between 10 yr minus 3month and recessions.Uncanny.

 

Also the relationship between gold and real rates.This is the US 30 yr linker yield that I'm using as a proxy for real rates..I'd love to be able to plot that with gold itself but I can'twork out hwo to get the second axis on the right having USD on it.

Appreciate the last explanation CP on how to add lines>Got itworking,have spent three horus playing.I feel so thick with these things

As I see it from my fag packet writings,there appears a corelation

Date                  Gold                         30 yr yield

Aug 99            $250                  Dec 99    4.3%   peak as gold bottoms =gold 3 months ahead

Feb 08            $972                 Jan 08      1.7%   bottom=30yr 1 month ahead

Oct 08            $716                  Oct 08     3.44% peak at same time=0 difference

Aug 11             $1828                                          first gold peak,no bottom in 30 yr

Sep 12             $1771               Oct 12     -0.25%  =gold 1 month. 30 yr yield went negative Jul 12-Apr13

Sep 18           $1268                Oct 18      1.13% 

July 20          $1985                 Aug 20   -1.19%

 

There are a couple of caveats here and that for me would relate to why people are buying gold.Clearly,there';s a close relationship between gold and USD.But if people start buying because their own CB is out of control,I'm not sure whether that relationship would remain as strong.

Dyor natch.

 

[nirvana]

17 hours ago, reformed nice guy said:

What will you be doing now that all the prices have bounced up?

I've been celebrating!

Saw a pizza on special offer 30% off so was down to €1.23.......

I only ate half at first then I felt like a greedy bastard and scoffed the rest an hour later...

I was gonna dump my BT holding at 30% gains and buy some 'new toys' but the bastard keeps going down 

[nirvana]

3 hours ago, geordie_lurch said:

So in short - gold more likely to go down or up in the next 6 months due to this pattern?

JP Morgan manipulate the crap out of the gold market, apparently......probably Goldman Sucks too...

Which is a bit ironic considering a lot of gold bugs think they're giving the Vs to Fiat bankers by buying Gold 

edit: oh yeah and that 'cup of crap' pattern....it's called Pareidolia 

[nirvana]

5 hours ago, geordie_lurch said:

Also do you think they will really let us plebs preserve whatever wealth we each have if their plan is to just 'cancel' the impossibly large amounts of existing debt they have printed and move us over (bribe?) under a global debt 'reset' or similar?

this thread any good?

 

[Froggy2000]

@DurhamBorn, @Heart's Ease and @Harley

Thank you all for the warm welcome and DB for the explanation which has really helped clarify things. 

I guess the only one thing I'm still a bit unsure about is why the decomplex areas struggle so much in the credit expansion phase.  My theory is as follows:

During the credit expansion interest rates are falling/low and credit is artificially abundant, so it's relatively easy to borrow billions to build (e.g) a mine, cable network etc.  The newer entrants have often borrowed at lower rates than the more established names.

So competition is artificially boosted - pushing down profits etc, and the established businesses struggle with everyone else trying to each their lunch.  As the cycle reaches it's extreme, several start to go bust as they cannibalize each other.  

Then when things turn, we have a situation where there is now a lack of investment in these areas - they have been more focused on survival and cutting costs to stay alive.  Once interest rates start to move up (even slightly) and credit dries up it's becomes much harder for new companies to enter.  So the survivors, especially those with fixed borrowings at low interest rates, have the patch to themselves for a few years and can pretty much charge what they like.

Is this the jist of it and does anyone think I've missed or misunderstood anything?

As for looking for bargains after this recent rally, I've been looking at XOM lately.  Still not far off it's lows, especially when priced in sterling.  When doing some research I stumbled across this gem which I hope will give a few of you a laugh:

https://moneymorning.com/2020/11/13/dump-xom-and-these-five-other-stocks-at-any-price-you-can-get/

"Exxon Mobil Corp. (NYSE: XOM) used to be one of the biggest, most powerful companies on Earth. Every quarter its growth seemed unstoppable; it dominated the oil patch. That was then. Now, with the "green" revolution in full swing, renewable and clean energy companies are gobbling up market share. It's simple economics: Green is going to dethrone fossil fuels and make a killing in the process. No mystery why this company was dropped from the Dow this past summer. In fact, avoid the oil sector, as tracked by the United States Oil Fund LP (NYSEArca: USO), altogether."

Time will tell !

 

 

[Froggy2000]

9 hours ago, Harley said:

Welcome (nicely written post), and apologies if you're a lady, but were you around in the 1970s?

Thanks.  No I wasn't - born in the 80s, "self identify" as male.  Why do you ask?  I'm intrigued!

[Option5]

6 minutes ago, Froggy2000 said:

Thanks.  No I wasn't - born in the 80s, "self identify" as male.  Why do you ask?  I'm intrigued!

 No swearing 😂

[dgul]

5 hours ago, Alex said:

Yes.

Could well stay the same.

[sancho panza]

27 minutes ago, Cattle Prod said:

Go to format tab, Line 2, y-axis position to right:

To invert the 30yr, type 1-a in the formula box (as it is a %)

 

Thats a very good correlation too

Cheers CP.I've always wished the boE made things as easy.

Thanks for the help,much appreciated.

[nirvana]

40 minutes ago, Froggy2000 said:

As for looking for bargains after this recent rally, I've been looking at XOM lately.

was just about to say don't touch that dogshit...checked my portfolio, I'm up on them now as well!

so BUY BUY BUY.....funny how suddenly being 'in profit' changes our outlook 

ooh I forgot I did reward myself with a new mobile phone as well as the pizza, 6.67" screen for big tits like me