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

[Viceroy]

If of any help to anyone, I follow Gold Ventures @TheLastDegree  -he's followed by the likes of Luke Groman +others and mainly trades/invests in Silver. He follows DaveHunter

He helpfully lists his portfolio- https://www.goldventures.org/blog/silver-sitfolio

Current top 10 for smaller portfolios

1   Abraplata Rescources       2   Defiance Silver       3   Aftermath Silver       4   Aurcana Corp       5   Kuya Silver       6   Impact Silver OR Aya Gold & Silver       7   Golden Tag Resources       8   Southern Silver Exploration       9   SantaCruz Silver      10   Strikepoint

GV's Silver Producers Only List     

- this is a more conservative list with majors and producers. This list is ranked by 2 criteria: risk and upside potential combined. Some picks are not included which i think have less upside than these. 

1   Fortuna Silver       2   Hecla Mining       3   First Majestic Silver        4   Coeur Mining       5   Pan American Silver      

6   Avino Silver        7   Endeavour Silver       8   Impact Silver       9   GoGold Resources       10   Aya Gold &Silver       11 SantaCruz Silver

 

Using cycles/EW/fib etc he points to 2021 Q1/2 being a stock market correction, Q2 a sell off in precious metals, wait til the end of 2021 and then get back in.  

[Eventually Right]

 

48 minutes ago, DurhamBorn said:

Interesting to see Davids take on the BK etc that it might be triggered by the Fed tightening too early due to a parabolic melt up.He could be right and its something i didnt have on my road map at all as i simply didnt see the Fed making that mistake.I would agree with him that any tightening in a big run up would be a massive sell signal.The economy needs more fiscal injections,probably just under half what we have had already.

I had road mapped to hopefully make 65%+ during the cycle minimum to outflank inflation.However today im sat on an overall portfolio gain of 37% including dividends for this year.The question now is if we do get another run up do i sell everything?.Or do i sell out anything outside of defensive.Its something i need to consider very hard.

The problem is of course holding your wealth in sterling,because i would hedge with bonds.

If we get a run up, anywhere in the region of where David is suggesting with regards to the S&P and GDXJ, I’ll definitely be raising my cash levels.

I guess one solution to the issue of how much we sell out of positions in that scenario would be long dated OOTM puts on QQQ, and long dated OOTM calls on TLT/UUP? I’m thinking January 2022 or 2023 dates.

Presumably in a BK event, all 3 of those would dive/spike incredibly, giving us money to deploy at the bottom and compensating for losses in the shares we were holding.

The options would have to be treated as insurance though-money you expect (possibly even hope) to lose. I’m assuming that you think the risk of a BK is highest in the next year or two DB, and that after that, the reflation trade is likely to be in full swing?

[DurhamBorn]

6 hours ago, Eventually Right said:

 

If we get a run up, anywhere in the region of where David is suggesting with regards to the S&P and GDXJ, I’ll definitely be raising my cash levels.

I guess one solution to the issue of how much we sell out of positions in that scenario would be long dated OOTM puts on QQQ, and long dated OOTM calls on TLT/UUP? I’m thinking January 2022 or 2023 dates.

Presumably in a BK event, all 3 of those would dive/spike incredibly, giving us money to deploy at the bottom and compensating for losses in the shares we were holding.

The options would have to be treated as insurance though-money you expect (possibly even hope) to lose. I’m assuming that you think the risk of a BK is highest in the next year or two DB, and that after that, the reflation trade is likely to be in full swing?

Yes the risk is from now until maybe spring 2022 i think.After that  the economy should be expanding with inflation so less chance of systemic falls,more failures,but not systemic.

Its obvious massive amounts of capital will be wiped in bubble stocks,the only question is how much that affects the areas we have been buying.Of course they will fall,but how much,and for how long is the question.If the Fed keeps printing until inflation shows then we should see two markets.One where inflation loving assets grind higher with some pull backs to shake out weak hands and the other where over valued dis-inflation areas fall and fall.

The worry is the debt on the system still.A rush of defaults could trigger a derivative collapse.Thats the worry and the unknown.

[jamtomorrow]

29 minutes ago, DurhamBorn said:

Yes the risk is from now until maybe spring 2022 i think

What would the leading edge of a deflation event look like in M1/M2?

I was thinking about alternative hypotheses for the recent M1-only spike, in terms of "why would large entities suddenly have a preference for M1-type liquidity"?

"About to spend it" is the hypothesis we discussed. But what about:

1. very earliest beginnings of a dash for cash  (i.e. BK leading edge - because from banks' perspective, liabilities moving from M2 to M1 looks like liquidity deterioration)

2. institutions like hedgies getting war chests ready to trade Brexit volatility

3. yields in M2 money fallen so low, might as well hold M1 instead (but that would surely be a gradual effect?)

(Asking in all innocence and ignorance)

[reformed nice guy]

Very informative posts DB, lots of food for thought

I got an email from https://www.coininvest.com/

The last chance to order VAT free silver is the 22nd of December. The prices are high at about £23 an oz but it might be the lowest price for a decade? Im also factoring in the wealth taxes that may be coming as well as the upside potential, so physical may be a type of insurance

[Democorruptcy]

3 hours ago, DurhamBorn said:

Its obvious massive amounts of capital will be wiped in bubble stocks,the only question is how much that affects the areas we have been buying.Of course they will fall,but how much,and for how long is the question.If the Fed keeps printing until inflation shows then we should see two markets.One where inflation loving assets grind higher with some pull backs to shake out weak hands and the other where over valued dis-inflation areas fall and fall.

The worry is the debt on the system still.A rush of defaults could trigger a derivative collapse.Thats the worry and the unknown.

In that scenario, it's what to do with your money if you sell. Just as cash in a trading account might not be safe.

[Sasquatch]

23 minutes ago, reformed nice guy said:

Very informative posts DB, lots of food for thought

I got an email from https://www.coininvest.com/

The last chance to order VAT free silver is the 22nd of December. The prices are high at about £23 an oz but it might be the lowest price for a decade? Im also factoring in the wealth taxes that may be coming as well as the upside potential, so physical may be a type of insurance

I got that email as well. I'm fully allocated in physical silver though. It's heavy stuff! 

I do keep buying the odd bit of antique silver on ebay or from an auction house if the price is right.

[Harley]

48 minutes ago, reformed nice guy said:

Very informative posts DB, lots of food for thought

I got an email from https://www.coininvest.com/

The last chance to order VAT free silver is the 22nd of December. The prices are high at about £23 an oz but it might be the lowest price for a decade? Im also factoring in the wealth taxes that may be coming as well as the upside potential, so physical may be a type of insurance

Chance they are ramping?

[Democorruptcy]

AirBnB IPO today and they are starting at $68

[Majorpain]

13 minutes ago, Cattle Prod said:

Basically, he sees the Fed keep printing which will cause the Euro to keep rising causing deflation in Eurozone as they have no room to maneuvure.

Even if the Fed doesn't make a mistake by rasing rates or letting QE purchases roll off, could this trigger a wave of defaults? We all know what the likes of Deutsche Banks derivative book is like, how would the Fed support Europe, other than strengthening the dollar?

Great article.

I said earlier in the year that they were moving far too slow and would pay the price, the ECB buying sovereign bonds so governments can spend is just using fingers and toes to plug holes in the dam at the minute.  Its also a fascinating (and worrying) idea that the Euro, over many years, has simply backed itself into a corner with no way out and every short term quick fix is now coming back to haunt in a very serious way.

The Fed cant strengthen the dollar without triggering debt default, they are printing to reflate as is every other currency (less Euro) in the SDR basket.

Quote

 

The Recovery Fund is largely an irrelevance at this point. It does not kick in until late 2021 and then runs for six years. Italian budget documents show that only half of the money flowing to Italy (which Italy also pays for as a net contributor) is ‘accretive’. The rest displaces spending already planned. It merely switches the source of borrowing.  

In short, the rising euro is tightening macroeconomic policy in the midst of a recession, and there is no monetary or fiscal stimulus to offset this. 

How ironic that the globalist EU project is the one suffering the most from the pandemic, they would have done better to get Brexit done years ago and try to fix what looks like fatal damage to me.  Totally wrong priorities.

[sancho panza]

On 08/12/2020 at 15:44, Cattle Prod said:

Does this look like what you're describing?!

Record goes back to 1975. There was one previous spike in M1 bigger, week of September 11 2001. Both M2 and M1 increased then, and I recall there was some liquidity injection after the planes hit. How do you think M1 spiked here, I think stock markets were closed?

Zoom in:

But if you take one from the other, you can see the current spike of M1 in excess of M2 is bigger then even that event:

So currently, we are having M2 growing falling away from M1 at the fastest rate since records began. New weekly data due in soon...

Edit:

I note that oil went up ~750% in 7 years after that big 2001 M1 spike! I'm not saying that going to happen again, just stating a fact, dyodd all...

Here it is, it does seem to get a bit spiky when oil is low:

But it does seem to swing the other way soon after, with M2 growing faster than M1, I guess that means like you said we were still in disinflation, and liquidity tended to sit in M2 in the past

It's worth looking at timeframes here imho CP.

Weeklies bring in a lot of noise ,take a look at the quarterly per centage change and that really puts where we are in perspective.And if that doesn't put price inflation on the agenda of even the most hardened deflationist,I don't know what will.

Of course when I'm tlaking inflation I don't mean the dogpoo snadwich figures we get fed but everything inflation ie incl real estate prices, fuel(reflecting the the budget of working age hosueholds),cost of buying a $ of income in pensions etc etc.....

On that basis 2020 beats 2001 hands down

 

Monthlies-even the bounce in the monthlies exceeds 2001 peak!!!

 

Looking at semi annual %age change and I'm adding in HPI.Just check the correlation particualrly between M2 and HPI.Until we had divergence during the boom 2002-2006 when HPI left M2 growth behind and then into 2008-2012 when huge amoutns of moeny supply growqth was needed to resuscitate the corpse of US real estate.

The msot interesting feature for the here and now for me,aside from the correlation 2012-2019 is the divergence during the corona panicdemic.Not only is the acceleration in M2 has not manifested itself in HPI which it historically has.

[Loki]

Come on INFA

[sancho panza]

The following chart sums up the point I'm trying to make.It's indexed back to 1987 to fit the earliest case shiller data.(word of warning that as it's an index it shows M2 surpassing M1 but that's linked to the start point,if we go back to a further away start pooint M1 has surpassed M2)

It demonstrates at the fact that psot 2008,the M1/2 growth in the failed to lift residential real estate the way it previously had.It also shows(beautifully I think),the divergent relationship between the growth in pension assets and the ten year rate

It's also interesting to me,that we're starting to see the money supply reach the point where it is manifestly exceeding the level of pension assets which is a potnetial trigger.

[sancho panza]

@AWW

Sell your oilies and buy a hosue???? The joys of indexing....

[geordie_lurch]

Can you explain what you think all that means to people like me @sancho panza who have bought similar inflation based shares to most on this thread but also currently renting a property?

[sancho panza]

On 08/12/2020 at 19:35, DurhamBorn said:

Job for them is to get through until next year.Government shutting them yet letting Tesco sell cards was a disgrace,company should take legal action really.Their shops are really busy again,problem they have is only letting so many into a shop at a time and the extra staff costs.Iv noticed some price increases on the quality cards and that should boost the bottom line in more normal times.They need to get debt down on the balance sheet so cant see any divis for a while.Great comany but last CEO aid out too many special divis while ramping up debt.

What might help them is basket size going up as people buy more in bulk rather than pop in for each card.The worry is as footfall falls on the high street so does their passing trade.

Very difficult year to manage and then the crazy choice of Bozo Boris to shut physical retail in November.

I was taking Bambino Panza to Leicester market on Tuesday and we saw people queueing outside card factory to get in.Sad.Ridiculous in equal measure.I could rant about the false nature of the panicdemic and false postive rates with PCR/Lateral flow tests but what's the poiint.The policial class have done for people's livelihoods.

Much as I would have spent ten minutes watching the tills with Junior panza who's 13,Bambino is only 2 and probably wouldn't have derived much benefit from it.

My point is that even a one minute walk by showed reduced footfall due to queing and extra staff costs on the door keeping the old biddies in line.

It was a sad sight.

On 09/12/2020 at 00:39, Green Devil said:

Inflation generally does mean higher prices for assets. However housing has other factors involved, deposits, jobs, salary multiples. Personally I think there will be price creep, that is creeping prices, not booming prices. Interest rates won't rise, they will just keep falling. 

Housing also gets to a point where you look at the figures and say fuck it I'm not paying that for that many years to live in that. I think we're are pretty close to that now in the South. 

I think there's a side issue ehre as many posters have said about ten year rates.If you've got a pad that's bearably expensive and you can access cheap ten year money with an overpayment plan,then it's not that expensive.

In Leicester,it's expensive and a future war zone.But some places aren't that bad.

SE is fubar as per @spygirl various posts on finsec jobs in the M4 corridor.

[Bricormortis]

fascinating thread as ever...I dont get some of the graph info though, comes from being a dunce at this and also difficulty making out the colours of the different lines at times.  it would be interesting to have the implications spelt out with the more opaque stuff sometimes.

Over the last few days I have had a couple of thoughts...

First... Japan's liquidity trap crash ......90% top to bottom...I know we are not Japan ect...its just the thought that something on that scale can happen anywhere, I would not fancy being on the recieving end of a rerun of that.

Second....selling up stocks....means giving up ISA allowances....not too big a deal for me as I only have 43k in, but could be a problem for some of you....we dont know what the future is with them either...they might get taken away past and future, or just future. Needs to be considered, anyone know when the next budget is ?

I posted a few months ago saying I would sell up everything except oil and Precious metals....never pulled the trigger though...Im thinking to let the S + P ride up a bit and then start trimming, might even trim oils and metals but I feel I have to leave some skin in the game in case the Big Crash doesn't really arrive in an apocalyptic manner or we are still waiting on it in 2024 or something.. I think we have forecast its imminent arrival every year since 2018.

I am still optimistic for metals and oil in the first quarter.

 

[Bobthebuilder]

4 minutes ago, Bricormortis said:

fascinating thread as ever...I dont get some of the graph info though, comes from being a dunce at this and also difficulty making out the colours of the different lines at times.  it would be interesting to have the implications spelt out with the more opaque stuff sometimes.

Over the last few days I have had a couple of thoughts...

First... Japan's liquidity trap crash ......90% top to bottom...I know we are not Japan ect...its just the thought that something on that scale can happen anywhere, I would not fancy being on the recieving end of a rerun of that.

Second....selling up stocks....means giving up ISA allowances....not too big a deal for me as I only have 43k in, but could be a problem for some of you....we dont know what the future is with them either...they might get taken away past and future, or just future. Needs to be considered, anyone know when the next budget is ?

I posted a few months ago saying I would sell up everything except oil and Precious metals....never pulled the trigger though...Im thinking to let the S + P ride up a bit and then start trimming, might even trim oils and metals but I feel I have to leave some skin in the game in case the Big Crash doesn't really arrive in an apocalyptic manner or we are still waiting on it in 2024 or something.. I think we have forecast its imminent arrival every year since 2018.

I am still optimistic for metals and oil in the first quarter.

 

I am in the process of filling up my SSISA just in case they cut the amount or change the rules etc.

[reformed nice guy]

2 hours ago, Harley said:

Chance they are ramping?

Could be a bit of a squeeze.

£23 an ounce works out about the same as the current spot (~£18) + 20%

[geordie_lurch]

13 minutes ago, Bricormortis said:

fascinating thread as ever...I dont get some of the graph info though, comes from being a dunce at this and also difficulty making out the colours of the different lines at times.  it would be interesting to have the implications spelt out with the more opaque stuff sometimes.

Second....selling up stocks....means giving up ISA allowances....not too big a deal for me as I only have 43k in, but could be a problem for some of you....we dont know what the future is with them either...they might get taken away past and future, or just future. Needs to be considered, anyone know when the next budget is ?

Yep I'm with you on that first point I highlighted above.

As for the second, if you sell the stocks in your ISA you would just be holding cash in your ISA instead so would not be giving up any of your allowances 👍

[reformed nice guy]

10 minutes ago, geordie_lurch said:

if you sell the stocks in your ISA you would just be holding cash in your ISA instead so would not be giving up any of your allowances 👍

Yup, this is correct

I always fund my ISA with cash, even if I am not using it at the time for shares immediately

[sancho panza]

19 hours ago, Castlevania said:

Alternatively charge an imputed rent on housing, based on housing benefit rates. There’s data for that.

They won't do that,they knwo how dodgy that imputed rental data is....

13 hours ago, DurhamBorn said:

Interesting to see Davids take on the BK etc that it might be triggered by the Fed tightening too early due to a parabolic melt up.He could be right and its something i didnt have on my road map at all as i simply didnt see the Fed making that mistake.I would agree with him that any tightening in a big run up would be a massive sell signal.The economy needs more fiscal injections,probably just under half what we have had already.

The problem is of course holding your wealth in sterling,because i would hedge with bonds.

Thing is DH's view is backed by the evidence.The Fed ahs made a lot of msitakes ovver the last 20 years,ergo,it makes a logical step that they'll get it wrong again.

13 hours ago, Barnsey said:

I might be wrong DB but I think Dave's stance has always been a "policy mistake" aka tightening due to a huge run up. Thing is, how long will this take to play out, 2-3 months as he's suggested, or much more drawn out. This tweet sums up the paradox. He's essentially now acknowledged that we'll see inflation in 2021. What if policy is right sized and we continue up from there as the virus slows things down and takes the edge off things?

 

Nice to see DH has been reading the thread,I suspect he's looking at the hisatorically parabolic moves in M1 M2 and seeing the wood for the trees.

Fed hasn't had to face inflation since Volcker.

Unlike DH I don't see first half 2021 as likely crash time purely due to timings.Kaplan has written convincly in the past about timing off the RUT peak and we'll need some time to discern that.

For me that will be the first crash warning marker.Inflation will likely lag.
More important though is the change in inflation expectations.See chart belwo and how market overreacts to money supply changes and actual CPI reacts

12 hours ago, Eventually Right said:

 

If we get a run up, anywhere in the region of where David is suggesting with regards to the S&P and GDXJ, I’ll definitely be raising my cash levels.

I guess one solution to the issue of how much we sell out of positions in that scenario would be long dated OOTM puts on QQQ, and long dated OOTM calls on TLT/UUP? I’m thinking January 2022 or 2023 dates.

Presumably in a BK event, all 3 of those would dive/spike incredibly, giving us money to deploy at the bottom and compensating for losses in the shares we were holding.

The options would have to be treated as insurance though-money you expect (possibly even hope) to lose. I’m assuming that you think the risk of a BK is highest in the next year or two DB, and that after that, the reflation trade is likely to be in full swing?

I've been pricing some puts as I've got a couple of free bets on.Thsoe trades look on the moeny to me.Long TLT short QQQ.

TSLA is a waste of time,you're paying 15-20% at the money for a decent length punt.QQQ which has a 5% TSLA compenent is much cheaper coming in a 6%.I''ll stick some prices up this afternoon if I get the chance.

 

addendum

https://www.macrotrends.net/2584/5-year-5-year-forward-inflation-rate-chart

5 Year 5 Year Forward Inflation Expectation

Measures the expected inflation rate (on average) over the five-year period that begins five years from today. The current 5 Year 5 Year inflation expectation rate as of December 09, 2020 is 1.98.

[Bricormortis]

36 minutes ago, geordie_lurch said:

 

As for the second, if you sell the stocks in your ISA you would just be holding cash in your ISA instead so would not be giving up any of your allowances 👍

Ah, of course.

[sancho panza]

1 hour ago, geordie_lurch said:

Can you explain what you think all that means to people like me @sancho panza who have bought similar inflation based shares to most on this thread but also currently renting a property?

Sorry Gerodie spent too much time on St Louis this mroning.Ever since CP explained how to work the charts it's abeena distraction in life I think there's a lot in that cahrt.I coudl write an essay on ity.

In short, that indexed chart says to me that oil/fuel is likely going up longer term,hosue prices have had their day as an asset class,interest rates are due to rise,velocity is due a rise and that when M1/M2 cross over pension assets we coulkd get some sharp changes in direction of travel of velocity,IR's and infaltion more generally(the dogpoo sandwich measures)

 

[Boon]

Is there any way to get a short QQQ exposure without being rebalanced daily and also within an ISA?

I would be short at these levels but waiting a few months could get expensive.