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

[sancho panza]

3 hours ago, DurhamBorn said:

Whats amazing as a macro strategist is when you see people shocked.They simply have no idea of leads and lags etc.Maybe someone on here should set up a consultancy and pimp our work to big companies.Id be in.Point them to this thread in the blurb.They employ economists,but not macro.

The problem is that they employ economists who study models that are based on relatively illogical assumptions on consumer rationality and independence, and also on markets tending towards equilibrium(which anyone who studies them for two hours can see is at best at odds with the evidence.

They could really do with learning more about irrationailty on investors and consumers parts,as well as leads and lags over the course of economic history going back a couple of hundred years.

1 hour ago, Errol said:

When the blue line starts to shoot up, the fire starts:

 

 

US M1 money supply has increased by 55% since February. 35% of all US dollars in existence have been printed in 10 months:

 

Nice charts errol.I'm still struggling for a rational explanation for the scale of the bump in M1 since Nov 23,we'll have to watch the data over the next week or so.

I agree about the recent uptick in velocity,it could be anomalous or it could be the start of the inflationary run.I'd be interested in @DurhamBorns views on how long the upturn in velocity will tkae to run throuhg into headline CPI/H? I aslo foresee a run up in the oil price here and we've had a chart ref oil price/CPI rises recently.

So upturn in velocity in M1-> exacerbates oil price rise->CPI rise-> stimulus reduced.Makes you wodner how reckless the Fed will be if CPI gets to 3%???

Also in response to both you and  @Cattle Prod this below hcart goes to show the build up in M1 versus M2 since the start of the year.Impressive that it's not fed through into M2.Is that evidence that the Fed is starting to push on a string?

[Chewing Grass]

7 minutes ago, sancho panza said:

They could really do with learning more about irrationailty on investors and consumers parts,as well as leads and lags over the course of economic history going back a couple of hundred years.

The other problem is that most people are completely ignorant of how shit their money purchase pension is when they glance at their payslip and conveniently ignore that piece of paper that the government forces Pension Co to send out once a year.

When they do realise they go oh-shit and either carry on till they are 67+ (if they can) or think fuck-that and stop spending and working hard because it is in the end pointless.

[sancho panza]

This charts a bauty.Jsut look at the interlinkage between velocity and stock and then look at the last year in a 40 year context.

I used to be a confirmed debt deflationista and relatively reluctant inflationista.The more I learn,,the more of a stagflationist I become ie credit deflation alongside with price inflation.

Indexed to Jan 1980 =100.Is this the elephant in the room?

[Errol]

[sancho panza]

2 hours ago, Chewing Grass said:

I was watching the grid on Friday & Saturday as it was the start of this colder spell and the only thing that stopped them having to do extra-ordinary things was the 11-12GW that was coming in from wind. On Thursday wind was struggling to push 2GW and solar was non-existent so they got lucky.

How clsoe are we to black outs? @Transistor Man as well if you're flaoting around.Anyone else?

How many GW do they need on a cold winters day?

2 hours ago, DurhamBorn said:

35% in 10 months.Incredible,but expected.Lots of M1 about to buy real assets/build real assets etc.Bond holders need to sniff their poppers and bend over soon.They might get one last day in the sun though on a BK.

I'm getting mroe itnerested in working out why we're not seeing increases in M2 like we usually do.It seems a red flag to me but I'm not sure what for?

Your previous answer ref companies getting ready to invest makes sense,as does businesses/consumers harbouring cash in uncertain times.

WHat we cna see from the charts-aside from the really outlandish late Nov figures,is that this has been going on since th start of covid.

[sancho panza]

Pick your poison,everything is cheap versus M1 these days.

Gold has perhaps done the best as you'd expect but all commodities look value here.

[Chewing Grass]

6 minutes ago, sancho panza said:

How clsoe are we to black outs? @Transistor Man as well if you're flaoting around.Anyone else?

How many GW do they need on a cold winters day?

I'm getting mroe itnerested in working out why we're not seeing increases in M2 like we usually do.It seems a red flag to me but I'm not sure what for?

Your previous answer ref companies getting ready to invest makes sense,as does businesses/consumers harbouring cash in uncertain times.

WHat we cna see from the charts-aside from the really outlandish late Nov figures,is that this has been going on since th start of covid.

I have just done a screenshot as there is no wind today and it is a Sunday so less electricity being used by industry.

So Wind is effectively Zero GW and current demand (off peak daylight hours) is 40GW.

Gas 30GW
Nuclear 6GW
Biomass 3GW
Coal 2GW
Hydro 1GW

So assuming all those are available (not broke) and can work flat out we have.

42GW

Everything else is imported from the continent.

If we have a really cold spell below zero for an extended period and no wind we are fucked and Ireland is too.

[DurhamBorn]

Im convinced M1 is so high because entities are waiting to invest it in real assets/capital assets.Iv tried to put it through a few things,but i havent much to work with on the lead/lag on M1/velocity because iv never seen this sized expansion before and it usually moves into M2 in an orderly manner.

So iv used my usual M2//GDP lag and done a 1.5 speed up on it to try to compensate for size and i think velocity will start to move early spring,so around early March.This assumes no BK before then.

You have to think the market will want to whipsaw people out of inflation assets though.Market might remove the tech/bubble profits in a few days though to stop anyone re-allocating in time.We might see inflation stocks go down 15% as bubble stocks go down 70%+ over a few days/weeks then the inflation stocks start a long decade bull run as people buy the techs/bubble stocks waiting for a recovery that never arrives.

 

[DurhamBorn]

@Chewing Grass look at Drax running at full capacity,lovely 

[planit]

I can't see a crash too soon.

Currently the markets want good news so much they are going to ignore bad news (and there isn't much of it around at the moment)

Companies and people are hording cash due to uncertainty and there it not much incentive to put it to work earning 0.1% interest somewhere (reason for M1/M2 divergence?).

Governments only need to vaccinate a small percentage of the population to have a big effect on mortality rates (healthcare workers spreading virus to vulnerable people and very small percentage of the population at high risk). This will drive people to believe Covid is over quicker than they currently expect.

Markets are split, I can't see tech stocks falling immediately whilst everything else has room to rise (some by a lot)

So a crazy run up to March, much higher than people expect is very possible as everyone ends up delusional about the future (and ignores the risks/warnings) and jumps on the band wagon.

It will take a while for a crazy buying splurge to show up in inflation figures [energy driven?] so what could happen between March/April and end of next year is a complete blank to me. 

 

I am looking for a reason stocks will do badly between now and March so can anyone put out the opposite view?

 

[Loki]

25 minutes ago, planit said:

 

 

I am looking for a reason stocks will do badly between now and March so can anyone put out the opposite view?

 

Just BTFD  ©2008

[Chewing Grass]

1 minute ago, Cattle Prod said:

So about 75% gas today.

What I say to people who turn their nose up at my profession "Do you like being cold?". People need to wake up.

They have just turned on the open-cycle gas-turbines.

[Transistor Man]

1 hour ago, sancho panza said:

How clsoe are we to black outs? @Transistor Man as well if you're flaoting around.Anyone else?

How many GW do they need on a cold winters day?

I'm getting mroe itnerested in working out why we're not seeing increases in M2 like we usually do.It seems a red flag to me but I'm not sure what for?

Your previous answer ref companies getting ready to invest makes sense,as does businesses/consumers harbouring cash in uncertain times.

WHat we cna see from the charts-aside from the really outlandish late Nov figures,is that this has been going on since th start of covid.

Not close to blackouts, imo.

If needed, National Grid can call on the diesel farms, but also fairly massive demand reduction and private generation as a response to triad charges/ payments. In total, There’s about 20 GW of diesel generation available at airports, supermarkets, hospitals, industrial, etc.

 

What are Triads?

Triads are the three half-hour settlement periods with highest system demand. We use them to determine charges for demand customers with half-hour metering and payments to licence-exempt distributed generation.

[Loki]

1 minute ago, Chewing Grass said:

They have just turned on the open-cycle gas-turbines.

CCGT aren't at full pelt yet so maybe to do with profitability rather than total demand? 

Unless some of the CCGT are down for maintenance 

[Chewing Grass]

11 minutes ago, Loki said:

CCGT aren't at full pelt yet so maybe to do with profitability rather than total demand? 

Unless some of the CCGT are down for maintenance 

Looks like some of the CCGT are not working as they have flat lined and the Open Cycle ones are getting cranked up even more.

42GW is the limit for normal generation plus imports without wind.

5 minutes ago.

 

[JMD]

3 hours ago, Cattle Prod said:

As long as demand recovers, there will he a big bull. It just takes too long for production to respond.

Example: Johan Sverdrup foeld in Norway, currently pumping about 500,000 a day and still ramping up. This was discovered in 2012 or so, at $100 oil times. I worked on it back then, and I can tell you that the discovery was very high risk, I think a 20% chance of success at best. Probably 15%. The structure was known about for decades, but it took those sustained prices to make it worth a punt on a risked basis. I see stuff potentially that now and I can't get them within an asses roar of investment. It'll take another few years of high prices to get the animal spirits going again, then another 8 years to drill, appraise, develop and ramp it up to full production. So you need 500k barrels? Maybe 2030.

There are some projects on the shelf still hanging on from the last 2008-2014 investment period, but not many. Falklands is one. If demand recovers, there won't be enough.

This is the nuts of what makes oil and gas boom bust: lead times and inelastic supply.

CP, Falklands you say?... I have my own (share that should never be named!) - Rockhopper. Went to £400 back in 2011, then it fell but I kept it hoping it might do something, however now its at £6!!! I bought it much cheaper than its peak price, and it was only ever a small holding, but am still sitting on big % loss. I bought it originally as speculation. Do you think a company like Rockhopper might one day still do something, maybe strike it big with those untapped Falkland reserves?

[Castlevania]

2 hours ago, sancho panza said:

No Vod have taken guarantee that they can sell X amount of dollars at a certain price,if their counterarty goes bust,Vod still have the dollars.May actually work in their favour depending on the $.May not.

The party that writes the forex call carries the bulk of the risk unless Vod is runnign a strategy that unevenly exposes them to risk in a currency eg their Swiss taking out a dollar loan in Switzerland.But there's no reason for vodafone to do that.

In the event that one of the counterparties goes bust the contract gets torn up. From a counterparty credit risk perspective this is only an issue if the present value of the trade is positive to you. So if I was Vodafone and I’d hedged my interest rate or currency risk with Barclays for example and Barclays went under, there’s only credit risk if at that time the trade had a positive value to me and by extension a negative value to Barclays. The trade will get torn up and you’d make a claim to the insolvency practioners to be compensated. Maybe several years later you’d receive a few pence in the pound.

If on the other hand the trade had a negative value to Vodafone when in our example Barclays went bust, then again the trade gets torn up. Vodafone would owe the present value at that time to Barclays and would simply pay it over. They’d then be free to rehedge with another market participant at better rates. The key part here is that because it’s a liability then there is no credit risk.

Alternatively, to avoid such situations both counterparties could agree to post cash collateral up to the value of the trade on a daily basis. In such a situation if the trade had a positive value to Vodafone, then Vodafone would be holding onto the cash collateral. Tear up the contract on Barclays going bust, and net the cash against the present value. You’ve mitigated most of the credit risk.

[Democorruptcy]

4 hours ago, feed said:

 

US House votes to decriminalize marijuana, little chance in current Senate | News | DW | 04.12.2020

If the dems take the senate in Jan with Georgia runoff.  

On a side note, with the telecoms.  Facebook/twitter/google and to a certain extent Apple, don't exist without them. 

Something I noticed back in 2016 with the release of the mobile pokemon game, value for the game designer and the IP holder went to the moon, but it was the Telecom companies I saw people buying more download capacity from.  For some reason people don't see the pipes.  Anyway, if new media/social media companies are leading our new era of politics, I doubt they'll let regulars slow those pipes. 

 

The bad news for that fine upstanding firm Cineworld on Friday could be another plus for telco's, bearing in mind they are also bundling media packages these days. Presumably it will also feed through over here?

Quote

 

The Cineworld Group (LSE: CINE) share price fell by as much as 20% when markets opened this morning. As I write, shares in the troubled cinema chain are trading down by 11% at 65p.

Today’s slump has been triggered by news that US movie giant Warner Bros will release new films to US streaming and cinema at the same time next year. The decision could mean that US cinema fans choose to stay home and watch movies rather than going to the cinema.

https://www.fool.co.uk/investing/2020/12/04/why-the-cineworld-share-price-is-crashing-today/?

 

 

[JMD]

1 hour ago, Chewing Grass said:

Looks like some of the CCGT are not working as they have flat lined and the Open Cycle ones are getting cranked up even more.

42GW is the limit for normal generation plus imports without wind.

5 minutes ago.

 

Real nail biter this!! ...Does anyone remember that '24' TV series with Kiefer Sutherland?

[Chewing Grass]

Very worthy of watching especially as it reaches a climax.

 

[Loki]

Those ship beaching/breaking videos are something else.  There's a great one where an oil tanker is run ashore at max speed and they show the GPS system 

[Bricormortis]

2 hours ago, planit said:

I can't see a crash too soon.

Currently the markets want good news so much they are going to ignore bad news (and there isn't much of it around at the moment)

Companies and people are hording cash due to uncertainty and there it not much incentive to put it to work earning 0.1% interest somewhere (reason for M1/M2 divergence?).

Governments only need to vaccinate a small percentage of the population to have a big effect on mortality rates (healthcare workers spreading virus to vulnerable people and very small percentage of the population at high risk). This will drive people to believe Covid is over quicker than they currently expect.

Markets are split, I can't see tech stocks falling immediately whilst everything else has room to rise (some by a lot)

So a crazy run up to March, much higher than people expect is very possible as everyone ends up delusional about the future (and ignores the risks/warnings) and jumps on the band wagon.

It will take a while for a crazy buying splurge to show up in inflation figures [energy driven?] so what could happen between March/April and end of next year is a complete blank to me. 

 

I am looking for a reason stocks will do badly between now and March so can anyone put out the opposite view?

 

There may be quite a Christmas hangover in the US. As I understand it the US  rent arrears moratorium ends this December 26th,  and Social Security largess re covid ends then also, thats 9 million income streams unless agreement is soon reached to roll it over. 20 million on unemploymnet benefit already.   On the one hand the vaccine is coming but peak covid occurs for them also at that time, with 250,000 fatalities already. https://www.sfgate.com/business/article/A-bleak-outlook-for-millions-facing-cutoff-of-US-15778359.php

The short answer to your question would be.... because everything in the real economy is fubar.....whether the markets tank.....nobody knows.

[Yadda yadda yadda]

It amuses me that my utilities provider claims to use 100% green electricity. What the hell is keeping my lights on now then? Not bothered because they are comparatively cheap. However, how do they get away with it? If they claimed to use green electricity when available that would be fine.

[AWW]

Anyone know why my HL balance is up £600 since yesterday evening? There are only European and US/Canada equities in it.

[Yadda yadda yadda]

2 minutes ago, AWW said:

Anyone know why my HL balance is up £600 since yesterday evening? There are only European and US/Canada equities in it.

Exchange rate?