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


spunko

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Only had a little bet with this one a year or so ago as a gamble on if they would ever get the permits currently its up 109% since i purchased them as its a small amount i will just hold and see 

(Reuters) - Canadian miner Eldorado Gold Corp on Tuesday said it has received installation permits for its stalled Skouries mine project, and Olympias mines from the Greece’s Ministry of Energy and Environment. 

The permit will allow for the installation of mechanical and electrical equipment in the Skouries mine, which has struggled with permit delays for years.

https://www.reuters.com/article/us-greece-eldorado-gold-permits/greece-issues-permits-for-eldorado-golds-skouries-and-olympias-mine-idUSKCN1VO2K1

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2 hours ago, Majorpain said:

They probably do know from future sales forecasts, but workers at the bottom don't tend to work particularly hard if they know they are going to get made redundant regardless in the near future!

I actually dont think they do know.Not the scale

 

8 minutes ago, DoINeedOne said:

Only had a little bet with this one a year or so ago as a gamble on if they would ever get the permits currently its up 109% since i purchased them as its a small amount i will just hold and see 

(Reuters) - Canadian miner Eldorado Gold Corp on Tuesday said it has received installation permits for its stalled Skouries mine project, and Olympias mines from the Greece’s Ministry of Energy and Environment. 

The permit will allow for the installation of mechanical and electrical equipment in the Skouries mine, which has struggled with permit delays for years.

https://www.reuters.com/article/us-greece-eldorado-gold-permits/greece-issues-permits-for-eldorado-golds-skouries-and-olympias-mine-idUSKCN1VO2K1

I was down 50% at one stage,laddering in and made a fantastic profit on them.Classic rubber band stock,everything going wrong for them just before the complex turns,then things go right adding rocket fuel.

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Brexit-worn Britain looks on track for recession - PMI

Quote

Growth in Britain’s dominant services sector slowed to a crawl in August and business expectations were at their lowest in more than three years, according to the IHS Markit/CIPS UK Services Purchasing Managers’ Index (PMI).

Its headline reading fell to 50.6 from 51.4 in July — barely above the 50 barrier between growth and contraction. A Reuters poll of economists had pointed to a reading of 51.0.

The survey is likely to add to questions over Britain’s ability to bounce back from an economic contraction in the second quarter when a hangover from the stockpiling boom before the original Brexit deadline in March hit output.

PMI compiler IHS Markit said the overall economy looked on track to shrink again in the July-September period at a quarterly rate of 0.1% — a result that would officially herald a recession.

https://uk.reuters.com/article/uk-britain-economy-pmi/brexit-worn-britain-looks-on-track-for-recession-pmi

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21 minutes ago, Barnsey said:

Remainers probably stretching the process so they can blame Brexit,when of course it has very little to do with it.In fact Brexit worries have made the macro situation in the UK better thanks to sterling ,but very little re-balancing went on.The housing market is ground zero in the UK.Its amazing the amount of people who think their house is their pension.The twin affects of falls in equity,and rising rates in the next cycle will kill that idea stone dead.BTL is tricky.Fully paid for houses might still be ok investments for income in cheaper areas,though we could see a big deflation in rents that would lower housing benefits.I work with several Polish and they say many of their friends in lower paid jobs are thinking of going home,not because of Brexit,but because sterling has fallen so far its not worth their while being here.The only ones staying are the ones who are on tax credits.

The markets will now focus on the CBs going loose and forget the damage is already done underneath.Massive deflationary pressures just below the surface.Fed have made biggest policy error since the 30s,too tight for too long.The blow up might be in the east,or Europe,but the cause, a lack of dollar liquidity probably.

Reflation cycle almost certain now.Consumer cant lead the recovery,it has to be state and investment.The bond bull expects the CBs to keep buying the bonds at smaller rates,but they are in for a nasty shock.Once they print governments will use it and velocity will wake up.Housing and bonds will take the pain in the next cycle.Imagine those pensions in "lifestyle" accounts (most of them),take a whack on shares,then as the fund cycles into bonds 5 years from pension age see bonds go south fast.Lifecycle=life wrecking.

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On 03/09/2019 at 08:05, Paulie said:

What ladder strategy do people use?.....

An excellent question to ask.  The sort of thing this forum can also excel at.

For me, I use basic technical analysis to identify a low in the share price.  It works very well except, given my need to ramp up my income portfolio reasonably quickly, I use weekly charts which only spot intermediate lows.  Monthlies would be better but I lack the time to wait ATM.  I recently started a parallel portfolio and can see the cost of doing this, but hopefully short term.

I limit each individual stock to 4% of the total portfolio value.  I often buy an initial 1% regardless of the technicals if I intend to accumulate a stock, just to get it on my radar.  I then buy more in 1% to 2% lots, unless the monthlies also match or I feel close enough.  I look each Sunday night and buy on the Monday.

Sometimes the stock price just keeps going up with no more buy signals in which case I look for an alternative stock in the same industry.

I use fundamental analysis to identify stocks with the required yield.

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I'm in the construction sector and obviously keeping a close eye on any trends (Midlands based). Nothing affecting us directly but we are small and niche. I can see a student housing development site from my office and that was supposed to be open for this academic year but everything stopped after the demolition works in the spring. Currently a hoarded site with nothing going on. Big student housing bubble where we live/work.

 

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7 minutes ago, Sasquatch said:

I'm in the construction sector and obviously keeping a close eye on any trends (Midlands based). Nothing affecting us directly but we are small and niche. I can see a student housing development site from my office and that was supposed to be open for this academic year but everything stopped after the demolition works in the spring. Currently a hoarded site with nothing going on. Big student housing bubble where we live/work.

 

I'm also in a  niche construction sector based in London. About 6 months ago we had never been busier. Seems to have slowed slightly but not massively. Then again we do a lot of work overseas (Europe / Middle East) and that's where a lot of my big recent projects have been. Time will tell. Would be pretty inconvenient to lose my job as I'm planning on buying a lot of cheap shares ;)

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Bricks & Mortar

Further, from a construction perspective, I'm uber-niche in an area very insulated from the wider economy.  But I make a point of asking suppliers what they're seeing.  Most reporting a quieter summer, and I can see that when I visit their yards.  But I haven't detected any tones of panic in their voices.  Most are blaming brexit uncertainty.

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1 hour ago, DurhamBorn said:

Remainers probably stretching the process so they can blame Brexit,when of course it has very little to do with it.In fact Brexit worries have made the macro situation in the UK better thanks to sterling ,but very little re-balancing went on.The housing market is ground zero in the UK.Its amazing the amount of people who think their house is their pension.The twin affects of falls in equity,and rising rates in the next cycle will kill that idea stone dead.BTL is tricky.Fully paid for houses might still be ok investments for income in cheaper areas,though we could see a big deflation in rents that would lower housing benefits.I work with several Polish and they say many of their friends in lower paid jobs are thinking of going home,not because of Brexit,but because sterling has fallen so far its not worth their while being here.The only ones staying are the ones who are on tax credits.

The markets will now focus on the CBs going loose and forget the damage is already done underneath.Massive deflationary pressures just below the surface.Fed have made biggest policy error since the 30s,too tight for too long.The blow up might be in the east,or Europe,but the cause, a lack of dollar liquidity probably.

Reflation cycle almost certain now.Consumer cant lead the recovery,it has to be state and investment.The bond bull expects the CBs to keep buying the bonds at smaller rates,but they are in for a nasty shock.Once they print governments will use it and velocity will wake up.Housing and bonds will take the pain in the next cycle.Imagine those pensions in "lifestyle" accounts (most of them),take a whack on shares,then as the fund cycles into bonds 5 years from pension age see bonds go south fast.Lifecycle=life wrecking.

Very nervous (as mentioned to the point of boredom on here) about buying my first home in the next couple years, but otherwise I'd imagine I'd have to sit on my hands until the end of the 2020's. Looks like i'll be buying in an area that's seen compounded prices rise 2% below RPI for the past 10 years (CPI + 8%), so not great but not terrible either, certainly a much more comfortable situation than buying here in the SE. The key thing is we'll rent in that location for the foreseeable, ready to pounce on a chain free property in need of a bit of work, "kids" desperate for the inheritance sorta scenario.

The big question I seem to constantly battle with in my mind is do we reign in the budget and get something we can pay off comfortably with a 10 year fix, or something we'd be very happy to live in until retirement, essentially "the house", with a longer mortgage term of 15-20 years. I have absolutely no idea where rates may go after a 10 year fix out to 2031.

As for general macro picture, have to say I'm completely numb to any Brexit developments now, my focus really is on what's happening to various macro pictures globally. I foolishly though it would act as an accelerant for a house price reversion, but it's become clear it's going to take much more.

Dollar strength causing enormous stress, Fed should have started easing almost 1 year ago, and yet they tightened, central banks still holding firm with staggering hawkishness, perhaps they want another Dec 18 crash to justify non-political easing? Lagarde will be at the helm by Dec ECB meeting. Let's see what Powell does this month, typically once they start easing they go big and surprise markets, which still only consider a 50 bps rate cut chance at less than 5%. Key thing to remember is that this month we see the US Treasury WITHDRAW 200+ BILLION $ of liquidity, not good for a market addicted to liquidity, $ going even higher, Powell must intervene at some point as what goes around certainly will come around.

 

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8 minutes ago, Barnsey said:

Very nervous (as mentioned to the point of boredom on here) about buying my first home in the next couple years, but otherwise I'd imagine I'd have to sit on my hands until the end of the 2020's. Looks like i'll be buying in an area that's seen compounded prices rise 2% below RPI for the past 10 years (CPI + 8%), so not great but not terrible either, certainly a much more comfortable situation than buying here in the SE. The key thing is we'll rent in that location for the foreseeable, ready to pounce on a chain free property in need of a bit of work, "kids" desperate for the inheritance sorta scenario.

The big question I seem to constantly battle with in my mind is do we reign in the budget and get something we can pay off comfortably with a 10 year fix, or something we'd be very happy to live in until retirement, essentially "the house", with a longer mortgage term of 15-20 years. I have absolutely no idea where rates may go after a 10 year fix out to 2031.

As for general macro picture, have to say I'm completely numb to any Brexit developments now, my focus really is on what's happening to various macro pictures globally. I foolishly though it would act as an accelerant for a house price reversion, but it's become clear it's going to take much more.

Dollar strength causing enormous stress, Fed should have started easing almost 1 year ago, and yet they tightened, central banks still holding firm with staggering hawkishness, perhaps they want another Dec 18 crash to justify non-political easing? Lagarde will be at the helm by Dec ECB meeting. Let's see what Powell does this month, typically once they start easing they go big and surprise markets, which still only consider a 50 bps rate cut chance at less than 5%. Key thing to remember is that this month we see the US Treasury WITHDRAW 200+ BILLION $ of liquidity, not good for a market addicted to liquidity, $ going even higher, Powell must intervene at some point as what goes around certainly will come around.

 

Similar to you sick and tired of listening or hearing about Brexit and just focusing on making money now

As for a home i have discussed this with my partner i would like to move or buy somewhere and probably live there for most if not the rest of my life, But not a smaller home where everyone is on top of each other

Still wonder about moving abroad sometimes not that i think its any better just different options

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@DurhamBorn

Can I ask why you see Gold/Silver/Oil dropping big time once "the event" hits? Will it just be a result of people/insitutions selling off assets to pay debts in the short term? Everything I see points to these things skyrocketing and not stopping, so I was wondering if you could explain the reasons WHY you see these things dropping very low for a short time?

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25 minutes ago, Durabo said:

@DurhamBorn

Can I ask why you see Gold/Silver/Oil dropping big time once "the event" hits? Will it just be a result of people/insitutions selling off assets to pay debts in the short term? Everything I see points to these things skyrocketing and not stopping, so I was wondering if you could explain the reasons WHY you see these things dropping very low for a short time?

Bingo! As seen March - October 2008 in all precious metals, note oil lagged about 2 months behind the reaction of metals, peaking in June and troughing in Jan 09. S&P 500 peaked Sept 2007, bounced with metals flagging March 2008 for a couple months, then headed down firmly together with metals.

Worth a read to jog the memory (and possibly relate to where we are right now):

Markets Soar After Fed Cuts Key Rate by a Half Point

By EDMUND L. ANDREWS and JEREMY W. PETERSSEPT. 18, 2007

Quote

Stocks immediately soared. The Dow Jones industrial average registered its biggest one-day gain in almost five years, closing at 13,739.39, up 335.97, or 2.5 percent. The Standard & Poor’s 500-stock index rose nearly 3 percent.

https://www.nytimes.com/2007/09/18/business/18cnd-fed.html

EDIT: Should probably add for clarity (as most of you probably already know) that precious metals nosedived over a period of just 3 months before starting their staggering ascent over the next 2 1/2 years, I would imagine the move to come will be similar, perhaps faster in both directions?

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6 minutes ago, Durabo said:

@DurhamBorn

Can I ask why you see Gold/Silver/Oil dropping big time once "the event" hits? Will it just be a result of people/insitutions selling off assets to pay debts in the short term? Everything I see points to these things skyrocketing and not stopping, so I was wondering if you could explain the reasons WHY you see these things dropping very low for a short time?

Margin calls in other areas.It depends on where gold ends up where it goes down to.Maybe $1000.Its not a given though and its why iv sold no physical metals and wont.In context i sold a lot of miners,but my profits were getting on for 8 years living costs,mostly made in 8 weeks.The miners delivered me over what my road map said.Everyone here also has different sized portfolios and goals.If i was 25 again id of let the miners run.However they are only a part of my plans and portfolio.My plans were always to use miner profits to ladder into what i consider other reflation areas while keeping exposure through silver miners.Thats exactly what iv done.

In most cycles energy and steel etc would start to run,but we are facing deflation,so they might not,unless the market simply buys them expecting a run as they might.Iv bought a few steel companies for instance,but not in any great amount.

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Thank you Barnsey/DB. Great stuff as always. Are we just waiting for a Black Swan to kick it off now? How do you see the actual kick off happening? If it's not a black swan event, do you think we are on the precipice here, because thats how it feels to me. A margin call scenario seems to preclude a sector by sector collapse, so I'm interested in what you see the trigger being?

A shadow banking collapse in China? The collapse of a major European Bank? Italy? I think Turkey seemed to suffer from a dollar shortage, which seems to be what you predicted DB, and China is increasing capital controls for the same reasons. I think Argentina are also going through something similar - https://www.forbes.com/sites/carlieporterfield/2019/09/02/argentina-introduces-currency-controls-amid-deepening-debt-crisis/

Are these kind of things the canary in the coalmine? If the event is kicked off by a dollar shortage, how does that actually work? Government bankruptcies? Bank bankruptcies? I suppose the question I'm asking is that I feel like we are poised for the black swan event related to a dollar shortage that causes the crash, but could the crash happen WITHOUT a black swan and how would that unfold?

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5 minutes ago, Durabo said:

Thank you Barnsey/DB. Great stuff as always. Are we just waiting for a Black Swan to kick it off now? How do you see the actual kick off happening? A margin call scenario seems to preclude a sector by sector collapse, so I'm interested in what you see the trigger being?

Dollar shortage,the trigger was the Fed tightening 2 years ago.Many UK cyclical stocks are down 75% from highs.They dont need a black swan,they have already lost more than the Great Depression.

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43 minutes ago, DoINeedOne said:

Similar to you sick and tired of listening or hearing about Brexit and just focusing on making money now

As for a home i have discussed this with my partner i would like to move or buy somewhere and probably live there for most if not the rest of my life, But not a smaller home where everyone is on top of each other

Still wonder about moving abroad sometimes not that i think its any better just different options

I just look at some of the new build estates with utter disbelief, to me they're just a modern version of the mining town layouts of old. I can sympathise with the thought of moving abroad, but sometimes better the devil you know, and I think we're in a better position long term than many of our European neighbours.

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3 minutes ago, DurhamBorn said:

Dollar shortage,the trigger was the Fed tightening 2 years ago.Many UK cyclical stocks are down 75% from highs.They dont need a black swan,they have already lost more than the Great Depression.

So how do we go from where we are now to a margin call scenario that sees Gold/Silver/Oil plummet? My apologies if I am revealing my own ignorance by asking these questions!

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13 minutes ago, DurhamBorn said:

Dollar shortage,the trigger was the Fed tightening 2 years ago.Many UK cyclical stocks are down 75% from highs.They dont need a black swan,they have already lost more than the Great Depression.

Staggering when you put it like that, but just a quick comb through the FTSE 350 for performance since just 2014 (well into recovery)

Centrica -78%

Stagecoach -65%

BT -57%

Royal Mail -51%

Galliford Try -50%

Happy days for contrarian bargain hunters!

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2 minutes ago, Durabo said:

So how do we go from where we are now to a margin call scenario that sees Gold/Silver/Oil plummet? My apologies if I am revealing my own ignorance by asking these questions!

It's all about dollar sterngth/weakness.Fed et al will print and try and weaken dollar,commodities will rise due to being sold in non dollar currencies,then as recession starts to near investors will head into the dollar for safety as market internals weaken.It's the switch from $weakness to strength that will trigger the margin calls-although they could be onoging due to lack of $ liquidity.What I describe will either initiate the margin calls (if loss of $ liquidity hasn't) or it will exacerbate them.

 

As $ strneghtens immediately ahead of recession,gold/oil will plummet and UST's will rise(yields down)

Just my views.

Just to add as @kibuc mentioned earlier,the confusing thing here is PM's sternghening on a strong dollar.......which must be a warning of some sort that things aren't right.

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3 minutes ago, Barnsey said:

Staggering when you put it like that, but just a quick comb through the FTSE 350 for performance since 2014

Centrica -78%

Stagecoach -65%

BT -57%

Royal Mail -51%

Galliford Try -50%

Happy days for contrarian bargain hunters!

If you take highs over last 5 years its even worse in many areas.Royal Mail was £6 at one point.BT over £5 etc.Remember as well,priced in $ some of these are down over 80% from lows.

They were right to come down of course as we are at the end of a long dis-inflation.The question is,where will they be at the end of a reflation?.My road maps say the likes of BT go up 300%+,but time will tell.

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Isn't it funny now that house prices are starting to turn downwards throughout the UK, we're now seeing plenty of news stories like this.

Reveals the UK housing market for what it truly is, a speculative ponzi scheme.

Housing crisis? What housing crisis?

Quote

Since at least 2010 a select band of economists and academics have been persistently making the case that, contrary to what most in the industry believe, there is no shortage of homes in the country. And – more controversially – that the cost of housing hasn’t significantly risen in real terms.

The latest salvo in this battle to destroy the intellectual rationale behind housebuilding growth came last week with the publication by the Tony Blair Institute of a 48-page report by its executive director, Iain Mulheirn, asking whether more supply was the answer to the UK’s housing crisis. To which his strong conclusion is a firm no.

But now for the most astonishing part of all: Not only is Mulheirn not alone in his thinking, it’s actually now hard to find serious thinkers about UK housing who completely reject his case. So, what is the evidence behind this seemingly iconoclastic view? And does this spell the end for the government’s 300,000-a-year housing ambition?

https://www.housingtoday.co.uk/in-focus/housing-crisis-what-housing-crisis/5101414.article

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Javid "a decade of renewal"

"record low cost of borrowing means we can invest more"

"rebuild our national infrastructure no1 priority"

There you go,now official,reflation.Every area we mentioned at the start of this thread two years ago mentioned as the priority.

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7 minutes ago, DurhamBorn said:

Javid "a decade of renewal"

"record low cost of borrowing means we can invest more"

"rebuild our national infrastructure no1 priority"

There you go,now official,reflation.Every area we mentioned at the start of this thread two years ago mentioned as the priority.

And similar reflation infrastructure plans from the other sides too should this GE not go the Tories way...

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Just now, DurhamBorn said:

If you take highs over last 5 years its even worse in many areas.Royal Mail was £6 at one point.BT over £5 etc.Remember as well,priced in $ some of these are down over 80% from lows.

They were right to come down of course as we are at the end of a long dis-inflation.The question is,where will they be at the end of a reflation?.My road maps say the likes of BT go up 300%+,but time will tell.

By the way DB,I was going through some research last night and noted that the big ETF's we're dicing and slicing eg XLE have beta's 1.5+,XES 1.91,XOP 1.55 etc if we get any sort of downdraft on the S&P,these things may get cheaper yet

Ref BT have to say they are starting to come into range for me.Even with their pension liabilities

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