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

[DurhamBorn]

3 hours ago, dnb24 said:

I personally don’t think (more like hope) it will be spun out further than the end of 2021. I think (hope) once industry and inflation spark, the job will have been done and they will need us to more freely move around and interact for inflation to do its magic in the West over the next 10 years. Though I can see the benefits of locking people down to stimulate a drive of pent up inflation.

From medical aspect with intro of Lateral flow tests/vaccine/change in PCR cycles over the next 3-6 months i my hope is increased as it gives the west a get out of jail card as these should show direction of change- ie magically sars coV-2 disappears and Healthcare goes back to normal staffing, less covid, more pneumonia, less need to have separate wards etc. Media lose interest, odd story here and there- and if we get a big economic downturn- the public/media will probably have got over covid and be more worried about putting food on the table.

I’m not sure a BK is being engineered as such, my interpretation is that they (just as DB/David Hunter)  predicted & know the fractious state the west is in- and a cycle change was required-I think they’ve taken advantage of something to do this. But like Harley I struggle working out whether it’s  the head or tail!?!

Superb post dnb24 ,one of the reasons this thread is so valuable to everyone.However much you have your head and numbers around the cycle,sometimes others thoughts really help clarify things.

I think now they know what we knew.The west was going to go down the pan with China a huge threat so they needed a cycle change.They knew one was coming,and Covid provided the cover to monetize and provide the liquidity.Thats why i love macro strategy,it points where we are likely to go before we know why or how.

[DurhamBorn]

1 hour ago, Noallegiance said:

I the spirit of the current convo from Mr Hunter:

"...I am calling for an inflation scare in the early months of this year led by commodities. This will trigger a Fed tightening response that will help trigger the deflationary bust I have been forecasting..."

Good to see David focus us in on what to watch.I think inflation hits 3% and they continue printing as they expect it to fall back,but if they do tighten then id agree 100% it would be a disaster and cause massive dislocation.However my thinking is the Fed and BOE etc all want rates 3% below inflation for the cycle,so wont tighten until that happens.

Critical we  keep a close eye on this though and David is right to focus on the Feds actions when inflation moves higher.

[Loki]

12 minutes ago, DurhamBorn said:

Superb post dnb24 ,one of the reasons this thread is so valuable to everyone.However much you have your head and numbers around the cycle,sometimes others thoughts really help clarify things.

I think now they know what we knew.The west was going to go down the pan with China a huge threat so they needed a cycle change.They knew one was coming,and Covid provided the cover to monetize and provide the liquidity.Thats why i love macro strategy,it points where we are likely to go before we know why or how.

 And shutting down the consumer economy could have forced some hands to make sure they allocate the CB funds where they are needed 

[Noallegiance]

18 minutes ago, DurhamBorn said:

Good to see David focus us in on what to watch.I think inflation hits 3% and they continue printing as they expect it to fall back,but if they do tighten then id agree 100% it would be a disaster and cause massive dislocation.However my thinking is the Fed and BOE etc all want rates 3% below inflation for the cycle,so wont tighten until that happens.

Critical we  keep a close eye on this though and David is right to focus on the Feds actions when inflation moves higher.

This is horrible.

I mean, sure, with the assets talked about here, having a financial nap through it all until 2026 would be lovely. But imagine selling a portion of each stock and buying back in to top up for the cycle at 50-80% down.

There are times when I dislike the frailties of my human mind.

[Barnsey]

1 hour ago, DurhamBorn said:

Good to see David focus us in on what to watch.I think inflation hits 3% and they continue printing as they expect it to fall back,but if they do tighten then id agree 100% it would be a disaster and cause massive dislocation.However my thinking is the Fed and BOE etc all want rates 3% below inflation for the cycle,so wont tighten until that happens.

Critical we  keep a close eye on this though and David is right to focus on the Feds actions when inflation moves higher.

The issue I have with David's thesis is that the memory of the huge plunge due to Fed tightening still very vivid, and huge % of population unable to handle rising rates and won't be participating in any recovery anytime soon unless rates kept as low as possible.

Crazy theory from rockstar Glaswegian Hugh Hendry, Fed go massively negative.

[Barnsey]

7 minutes ago, Cattle Prod said:

Good point, and I agree as a logical thinker.

But maybe 500 constipated PhDs will persuade the board otherwise.

You might be right...

 

[Talking Monkey]

4 hours ago, sancho panza said:

the reality is that they could finish this pandemic by limitng PCR cycles to 15.Like you say,it's the obvious get out of jail card and then we go back to people dying of flu/pneumonia.

I don't think our political class are bright enough to pre empt this and are far more likely to be reacting and choosing the easiest option out of whatever mess they've got themselves into.The western debt situation is the stuff of utter stupidity and short sightedness.There's no way even people as stupid and irresponsible as our political class would have gone down that road if they'd understood the consequences.

David Hunter's rather dark warning about what comes after he's dead has stayed with me ever since I first heard him utter it.I do think think we're lumbering into a crisis that will threaten modern society as we know it.

There's too many people with too many claims on production and too many people becoming superfluous to requirements as each year passes.

[mcdongle]

https://www.theedgemarkets.com/article/asian-lng-sold-above-benchmark-record-amid-supply-deficit

[The Idiocrat]

My monthly SIPP payment has hit my account and I’m wondering what to buy. As we’ve said on here, it’s proving difficult finding value. I still like the oilies but am well overweight on those. I’ll probably do a few good divi payers, but I’m also thinking of emerging markets, excluding China, and more specifically India and Russia. Does anyone have any thoughts on those, or share/fund ideas?

[spygirl]

Investors sceptical over Bank of England’s QE programme

FT survey finds big players in bond market think plan is attempt to finance government deficit

https://www.ft.com/content/f92b6c67-15ef-460f-8655-e458f2fe2487

The Bank of England is on course for a difficult 2021, after a Financial Times survey found investors believe the central bank’s quantitative easing programme is a thinly veiled attempt to finance the government’s deficit to keep its borrowing costs down.

The BoE maintains that its QE programme is calibrated to keep inflation close to its 2 per cent target. Andrew Bailey, the central bank’s governor, said in November: “We do not . . . set a level of quantitative easing and asset purchases in any way related to what the government is going to borrow.”

But investors are convinced the BoE bought an additional £450bn of gilts during the Covid-19 crisis in order to ease the government’s huge programme of borrowing by keeping debt servicing costs at rock bottom.

...

In particular, most said they thought the scale of BoE bond buying in the current crisis had been calibrated to absorb the flood of extra bonds sold this year, suggesting they believe the central bank is financing the government’s borrowing. “In this extraordinary year of gilt supply, the BoE has been the dominant buyer,” said Matthew Amis, of Aberdeen Standard Investments. “Without this significant support, bond yields would have risen significantly. Very simply, the gilt market could not have taken down the record £485bn supplied by the Debt Management Office to the market this year.”

 

Pants on fire!

 

[spygirl]

Comments

(Edited)

 

Did FT just wake up or simply ignoring the fact for so long?!

 

The QE engine will keep running till it hits a brick wall.  The question one should start asking is 'are we prepared for this?' 

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[Sugarlips]

5 hours ago, DurhamBorn said:

Yeah i think they are a great investment.Iv been looking to see if there are any ways i can really leverage it,but i might have to accept playing it with the big boys.Offsetting is going to be the main winner from climate change ,that and gas 

Another interesting suggestion however it’s gone from $15 to $33 this year has a 2% yield and a P/e of 50, still a great investment today?

as an aside does anyone like Lithium as a little gamble, the last price breakout was a while after the silver one and it’s not moved much recently, yet. I appreciate battery tech is going to keep evolving but it’s an essential component presently.

[Harley]

5 hours ago, Cattle Prod said:

Weyerhauser for equity ownership and divis. They own many, many trees. Not sure how the balance sheet is mind you.

I passed on it and all its cohort except one a few months back  Time to take another look and maybe get a less fussy, or hold my ground and wait.

 

[Yadda yadda yadda]

45 minutes ago, spygirl said:

Investors sceptical over Bank of England’s QE programme

FT survey finds big players in bond market think plan is attempt to finance government deficit

https://www.ft.com/content/f92b6c67-15ef-460f-8655-e458f2fe2487

The Bank of England is on course for a difficult 2021, after a Financial Times survey found investors believe the central bank’s quantitative easing programme is a thinly veiled attempt to finance the government’s deficit to keep its borrowing costs down.

The BoE maintains that its QE programme is calibrated to keep inflation close to its 2 per cent target. Andrew Bailey, the central bank’s governor, said in November: “We do not . . . set a level of quantitative easing and asset purchases in any way related to what the government is going to borrow.”

But investors are convinced the BoE bought an additional £450bn of gilts during the Covid-19 crisis in order to ease the government’s huge programme of borrowing by keeping debt servicing costs at rock bottom.

...

In particular, most said they thought the scale of BoE bond buying in the current crisis had been calibrated to absorb the flood of extra bonds sold this year, suggesting they believe the central bank is financing the government’s borrowing. “In this extraordinary year of gilt supply, the BoE has been the dominant buyer,” said Matthew Amis, of Aberdeen Standard Investments. “Without this significant support, bond yields would have risen significantly. Very simply, the gilt market could not have taken down the record £485bn supplied by the Debt Management Office to the market this year.”

 

Pants on fire!

 

Looking at that graph the BoE has QEd more cash than the Government has borrowed since May.

[jamtomorrow]

46 minutes ago, Sugarlips said:

as an aside does anyone like Lithium as a little gamble, the last price breakout was a while after the silver one and it’s not moved much recently, yet. I appreciate battery tech is going to keep evolving but it’s an essential component presently.

I had a sniff around about a year ago along similar lines and came to the conclusion that supply side is pretty elastic, which means it's unlikely to do what we expect, say, oil to do i.e. hold high prices for long periods because supply is inelastic and laggy.

Mothballing of Wodgina is a case in point: https://www.abc.net.au/news/2019-11-01/wodgina-lithium-project-mothballed-and-workers-to-lose-jobs/11663726

Wodgina capacity on its own is a sword of damacles over the market, and Albemarle have a couple of existing projects running at idle waiting for demand to pick up: https://www.mining.com/albemarle-ahead-with-expansions-despite-lithium-market-weakness/

Basically, it looks like everyone knows there's a wall of EV demand coming for lithium, but there's a corresponding wall of supply capacity front-running the demand.

DYOR of course (and I'd be interested to hear if you find a counter-narrative)

[Sugarlips]

14 minutes ago, jamtomorrow said:

I had a sniff around about a year ago along similar lines and came to the conclusion that supply side is pretty elastic, which means it's unlikely to do what we expect, say, oil to do i.e. hold high prices for long periods because supply is inelastic and laggy.

Mothballing of Wodgina is a case in point: https://www.abc.net.au/news/2019-11-01/wodgina-lithium-project-mothballed-and-workers-to-lose-jobs/11663726

Wodgina capacity on its own is a sword of damacles over the market, and Albemarle have a couple of existing projects running at idle waiting for demand to pick up: https://www.mining.com/albemarle-ahead-with-expansions-despite-lithium-market-weakness/

Basically, it looks like everyone knows there's a wall of EV demand coming for lithium, but there's a corresponding wall of supply capacity front-running the demand.

DYOR of course (and I'd be interested to hear if you find a counter-narrative)

Great perspective thanks, could the same argument be offered for silver or iron ore etc? Neither are genuinely scarce so rising demand can be met indefinitely if the price is right.

id be curious what drove the Lithium price in the mid teens, it really moved there for a while.

[Harley]

1 hour ago, spygirl said:

But investors are convinced the BoE bought an additional £450bn of gilts during the Covid-19 crisis in order to ease the government’s huge programme of borrowing by keeping debt servicing costs at rock bottom.

Of course they are as they've got eff all ability to "configure" inflation or anything else.  Hubris for the younguns and plain old smoke blowing for the oldies.

[Loki]

14 minutes ago, Sugarlips said:

Great perspective thanks, could the same argument be offered for silver or iron ore etc? Neither are genuinely scarce so rising demand can be met indefinitely if the price is right.

 

Demand met with supply, but at what price? 

[Harley]

6 hours ago, DurhamBorn said:

Joking apart it has crossed my mind for us to set up a Ltd company,buy some shit land and plant a load of trees.

I planted c.400 (i.e. really not that many!) a while back.  Doing fine but need thining out!  More amenity and shelter belt than for cropping but plan on adding a few Christmas trees this year, although bagged a nice reduced £9.99 one this year so why bother (ah yes, inflation!).

[Sugarlips]

1 minute ago, Loki said:

Demand met with supply, but at what price? 

Circular isn’t it! I’m going to dip a toe in the name of diversifying, can’t hurt to be spread across as many base resources as possible in these bizarre times..

[Loki]

Just having a read of Dave H's latest twitter post, have to admit I folded up laughing at this reply.  Looks like others saw the funny side too

 

 

[Harley]

1 hour ago, Sugarlips said:

Another interesting suggestion however it’s gone from $15 to $33 this year has a 2% yield and a P/e of 50, still a great investment today?

Nice to hear someone say that.  Plus some have weakish financials (e.g. debt).

[JMD]

11 hours ago, Cattle Prod said:

There will be very little North Sea revenue from now on, that ship has sailed (I wish someone would tell the Scots though). Like any business, you can offset your losses, and there has been so much loss in the last few years, much of the remaining revenue will come in tax free. The only ones paying tax at the moment are the majors who have had good cashflow throughout and haven't lost money. But they are selling their portfolios, as margins get thinner.

Then someone like Chrysoar buys up the major's assets. Then they buy Premier Oil, with around $4bn of accumulated tax losses. Hey presto! Tax free income for those old majors assets, nothing for HM revenue. The North Sea will be wound down in this fashion, with a trickle of taxes coming from major-run long life assets like Clair and Elgin-Franklin. Then comes decommissioning where you can write off much of that cost against tax elsewhere too. 

When some journalist finally joins the dots on this (it's all public domain) there will be uproar, but the govt is trying to keep the jobs going as long as possible, while retaining some energy security. People forget that oil and gas companies can and will just move to another jurisdiction if they don't like the Ts and Cs any more. So governments tend to improve the terms as the industry matures. The time to haul in the tax is in the middle of the production curve, and they blew that on benefits. The Scots got their fair share of that.

As for pandas, aren't they going extinct due to a lack of sex drive?!

Apologies, I don't think I was clear, I was really referring only to the off shore wind that was mentioned in the original post article. I did mention the oil companies but only because they will be the probable owners of the wind farms.                                                                                                                                                                              Interesting that you say the depletion of North sea oil has been known for some time. I'm sure a big part of Alex Salmond's economic case for Scottish independence relied upon that oil!! I know he's a politician but how could a former 'senior oil executive' (as we were repeatedly told by the media) make such a school boy error? ...Rhetorical Question of course.

[JMD]

12 hours ago, Harley said:

Indeed.  As I often say, political economy, but I never truly expected (internalised) this intensity when first really starting to say it with earnest last year.  Sometimes hard to know which is the head and which the tail so yes, both linked and relevant.  Plandemic or whatever, it is the new blatantness and intensity that are key.  2021 is the year of financial repression via regulation, tax, and every other lever.  I repeat this to myself over and over again and yet still have so much left undone, a rabbit in the headlights, a continual failure to fully internalise what is going on and going to happen, always on the back foot.  The worse kind of battle, one where you think this might be the day.

Sobering post Harley given your background. My use of the term 'plandemic' is lazy - I freely admit I don't know what I mean by it - only that 'something' doesn't look/sound/smell right. But I refuse to believe, given the massive money spending, public on side/good will, etc, how the government has screwed up so badly. And not just ours but all governments. It can't be due to mass incompetence, ok many would disagree with me on that point I'm sure. Everything is crazy - The only way I have managed to keep my own sanity is too reflect on all the madness happening around through the lens of Howe's Fourth Turning. Things like institutional decay, and maybe the assumtion that those at the top are aware of an impending required reset would kinda explain the willful neglect being inflicted upon Western nations. ...The weird thing is I actually sleep better thinking this... it doesn't bring closure, but maybe a form of strange serenity, sick or what - hope it's not a sign of early onset Stockholm Syndrome!!

[JMD]

10 hours ago, sancho panza said:

the reality is that they could finish this pandemic by limitng PCR cycles to 15.Like you say,it's the obvious get out of jail card and then we go back to people dying of flu/pneumonia.

I don't think our political class are bright enough to pre empt this and are far more likely to be reacting and choosing the easiest option out of whatever mess they've got themselves into.The western debt situation is the stuff of utter stupidity and short sightedness.There's no way even people as stupid and irresponsible as our political class would have gone down that road if they'd understood the consequences.

David Hunter's rather dark warning about what comes after he's dead has stayed with me ever since I first heard him utter it.I do think think we're lumbering into a crisis that will threaten modern society as we know it.

SP I don't follow why flu cases would increase, or the get out of jail point. Do all nations use the same PCR test sensitivity (15?)? If they don't, I understad that this would presumably register different infection rates/covid cases - and that the stats would then change for the better and the R rate would fall. That's good for massaging the stats. However changing the PCR test scale wouldn't change the number of seriously ill covid patients from entering hospital, and where their high viral infection level would be correctly measured/diagnosed. If these patients died, it would surely be recorded as a covid death. Have I misunderstood you? Why would the number of flu cases increase?