Credit deflation and the reflation cycle to come (part 3)

[planit]

On 21/10/2021 at 13:49, Harley said:

OK, here goes on using DCF (assuming Excel) for some possible planning.

This is not the best format to explain and you can make it as complicated as you like but I'll try with a more basic scenario.  Or you could use one of the on-line calculators, although these are limited to such basic scenarios.

But I must first make a disclaimer that you need to DYOR, accept I may have got this wrong, and accept I assume no liability as it's posted here for discussion and information purposes only - I.e. I produce it here for discussion, comment and validation.  You absolutely must research this stuff and ensure you understand it, or seek professional advice.

Have I got the following correct?

The FV function calculates the future value of an investment/cost assuming periodic, constant payments with a constant interest/inflation rate:  https://corporatefinanceinstitute.com/resources/excel/functions/fv-function-excel/

Example.  I will need to finance living costs of £12,000 pa less a state pension of £8,300 pa (so £3,700 pa net) for 5 years starting now, assuming an inflation rate of 5%:

=FV(rate,nper,pmt,[pv],[type]) or =FV(5%,5,(8300-12000)) or £20,445 is required in total over the 5 years, in today's value of money (i.e. its present value)

To test: 3700+(3700*1.05)+(3700*1.05*1.05)+(3700*1.05*1.05*1.05)+(3700*1.05*1.05*1.05*1.05)=20,455

But you're investing money during this period so how much do you need to start with so you end with zero funds in 5 years time (i.e. break even)?  If your rate of return equaled the 5% inflation rate then you'll need 3700*5=£18,500 now.  The key point here is that if one assumes risk is proportional to the rate of return, then you don't need to chase higher returns and so you can derisk your portfolio by only seeking a 5% pa return.  Or you may have more than £18,500 now so you can derisk even further with the extreme being £20,455 with no return and no (sort of!) compound risk.

So how do you calculate the required starting sum for differing interest rates?  You just re-run the FV formula but use the difference between the inflation rate and your rate of return in the formula.

Example.  Inflation is 5% and my assumed rate of return is 7%:

=FV(rate,nper,pmt,[pv],[type]) or =FV(-2%,5,(8300-12000)) or £17,775 is required in total over the 5 years, in today's value of money (i.e. its present value)

Example.  Inflation is 5% and my assumed rate of return is 2%:

=FV(rate,nper,pmt,[pv],[type]) or =FV(3%,5,(8300-12000)) or £19,644 is required in total over the 5 years, in today's value of money (i.e. its present value)

Sorry this has taken so long to reply, its been on my list until I had some time.

So that all looks good and contains the thought process and workings but to shorten it for people's benefits:

The simplifying thing is to use return of investments relative to inflation; using the FV formula in Excel, everyone can easily see what is needed for different situations

Inputs 

1) Return relative to inflation, 2% would be your invesments are losing 2% to inflation every year, -5% = your investments are beating inflation by 5% per year.

2) Number of years you need the income

3) Income needed at the current value so you can ignore inflation - ie 10000 payout per year is -10000 

So formula for a DOSBODER could be

Giving

Note on relative to inflation

The higher the proportion of bonds in your pot the worse a 'relative to inflation' approximation is going to be:

With investments like shares the earnings* are correlated to inflation so for a simple example if the value of money halves the price of electricity and flour and bread doubles and so does profit for a baker.
Bonds are priced by inflation so they are negatively correlated so if inflation rises, the value of the bonds goes down, the coupon on the bond doesn’t rise so the value of the investment is shrinking at a rate proportionate to inflation rising, the more you need an increase the more it has fallen. The past 40 years of falling inflation have masked this risk.

*valuation of companies using dcf techniques will be affected so share prices might go down especially on tech companies.
 

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So now you can start playing with all the variables:

. How much you need pa

. How long for

. The inflation rate netted against the rate of return

. The amount of money you have to invest now (trial and error for now but there is formulaic way!)

Now comes the important bit as you need to do this given you don't know the above variables for certain.  You need to try different likely values to give you ranges of data to test how reliable your core assumptions are (i.e. perform sensitivity analysis).  This bit can be as simple as a table of possible outcomes or some very sophisticated statistical analysis (expected probabilities on up!).  From all that you can choose the variables you are most comfortable with and work on that basis while you have a feel for the possible extremes

Agreed, everyone should play around with the inputs to see what happens in different circumstances. Having a general feel and understanding on this is vitally important to keep heading in the correct direction. This will give everyone an idea on how 'sensitive' their plans are to different returns and environments. 

 

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One assumption we've made here is that we'll need the money now.  Usually we'd invest towards this point so we would need to first inflate our requirement by the number of years before we need it and then discount it back to today's value, and then discount it forward for the initial investment returns, but that's another chapter!

The key in all such analysis is to first discount the various future flows to their present values and then model from there.  That is, everything has to at first be discounted into today's money so everything is expressed on the same (time) basis.

Most people would want to do this and I would add a calculation on the line above to avoid the formula getting too complicated. You can then use the result of one box in the other one.

This simple calculation allows one to change box A1 and see different figures in box A2. This time the percentage is 1.05 for beating inflation by 5% on the investments.

 

The Value of A2 can then be used as the value input for Harley's FV calculation.

Harley's calculation will need the income figure adjusted for inflation so you will need to make a prediction on that one. So if inflation is 8% (and 5 years as it needs to match the above) you would use =12000*POWER(1.08,5) 

 

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All this is the tip of the iceberg in terms of analysis.  You can build very complex models.  For example, allowing for a legacy, for a large future spend, or allowing for differing periods of the above variables (i.e. x years with one set of variables followed by x years of another set, and so on).  First you work out your various cash flows and their periods and then you discount them all back to today's money (the present value).  And that's more than just one chapter!

And all this can be applied to the floor and upside models - i.e. higher risk/return for the upside.

Agreed, it's a deep rabbit hole.

 

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This is why I worry about things like chasing returns without thinking through the risks (risking what is enough for more).

Very important, everyone should reflect on this

A 37% fall needs a 59% return to get back to the same level
 

 

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Or you could settle for some bloke telling you a 4% withdrawal rate with a 60:40 portfolio will see you good.  Maybe it will.

People like the simplicity of being told something, they don’t want loads of options and they are happier that way. Ignorance is bliss and if it goes wrong they have someone to blame. It's much more painful doing it the open eyed way (and more work too).

 

Quote

Any financial modellers out there to vet my thoughts on DCF?  I also know I've ignored stuff like a loss of capital (say a BK).  It looks a bit like project financial feasibility stuff, only the project here being me!

BK – this type of event needs to be ignored* really  as over a 20 year cycle there will be BK’s and recoveries making up the average return.
* apart from to acknowledge the affect if it happens at day 1 or on the last day as these events are not going to be made up and will have the maximum affect on value.

 

Hopefully this is understandable, I have tried to make it simple so non-excel_experts can get it.

[JMD]

4 hours ago, Majorpain said:

Whilst I am happy to be corrected, I'm fairly sure that the "dollars" in Eurodollar market are US origin.  It would be a strange system if "foreigners" could print your currency at will.  Even if im wrong it doesn't change anything with regards to the rest, the US share of world GDP is not big enough for the amount of currency needed to circulate, if anything it would make it worse as Dollars would be "printed" by every bank that could.

Total Dollars in worldwide circulation is about $40T, Turkey GDP (PPP) is 11th in world is currently about $720bn.  External USD denominated debt is about $453.2bn, so whilst it will put a dent in total assets its only a small fraction in reality.

I thought the point of Eurodollars was that US 'tolerated' (?) them because they were not connected to the domestic dollar, so no direct inflation risks, etc. I say tolerated because their creation is shrouded in some financial mystery (the history of the Eurodollar is quiet interesting), their European banking use having been uncovered/exposed by Milton Friedman in late 60's, and having been invented some 10 years earlier by our own Midland Bank no less!! However, I do suspect the US knew all along, and today there are nearly 20Trillion of the euro things in existence, though i don't know if that number is included within the 40Trillion dollar figure that you mention?

[Erewhon888]

12 minutes ago, JMD said:

I thought the point of Eurodollars was that US 'tolerated' (?) them because they were not connected to the domestic dollar, so no direct inflation risks, etc. I say tolerated because their creation is shrouded in some financial mystery, having been discovered by Milton Friedman in late 60's, and having been invented some 10 years earlier by our own Midland Bank no less!! However, I do suspect the US knew all along, and today there are nearly 20Trillion of the euro things in existence, though i don't know if that number is included within the 40Trillion dollar figure that you mention?

I have not listened to all of them but the "Eurodollar University" series explored this in great (excessive?) depth.

Quote

Alhambra Partners CIO Jeffrey Snider has been one of the most popular guests ever on the MacroVoices weekly podcast. But even the finance professionals in our audience told us that Jeff goes so deep into the EuroDollar system that most people couldn’t follow all the nuances of his statements. So, by request of our listeners, we’re delighted to bring you this special 4-part series. Jeff gives us a complete introduction to the Eurodollar system, its history, and the critical role it has played in monetary history. Jeff asserts that even to this day, central bankers don’t fully understand the workings of the Eurodollar system and its implications on the global supply of U.S. dollars.

https://www.macrovoices.com/aia

[planit]

So the hand has been played. 

The US is to 'release' '$50m' barrels of oil. The figure is in quotes because $18m barrels of it was already planned for release so they are double counting it and 'release' is in quotes because it is an exchange and needs to be returned later just like the previous ones in China etc

US to release 50m barrels of oil from reserves

 

Oil rose on the announcement since it all seems a bit desparate and is a pass to OPEC not to speed up their plans for increasing output (which they probably can't physically do anyway).

Looking to the inventory figures later and tomorrow to hopefully push oil back over $80, I loaded up even more on the dip so too much skin in the game at the moment.

 

US Inventory figures including SPR will probably go under the 1bn barrels for the first time since 2008 (they dipped quickly below 2011) soon.

 

 

[JMD]

4 hours ago, Harley said:

Top guy.  Seldom dissapoints.  I agreed with it all.  Really helps to hear it said.

Harley, I agree, inflation ahead. The inflation/deflation debate has been an interesting one to follow. But do you think the Lacy Hunt deflationist argument is fairly summed up by George Gammon below (very short video), ie that the crucial thing to recognise is that direct government spending and control creates for us a new economic and inflationary paradigm, but that the deflationists themselves seem to think this new system will not happen?                                                        https://m.youtube.com/watch?v=kg_hZoFRQOw

[ThoughtCriminal]

So this US oil release was "sour" oil, which is apparently high in sulphur and needs more refining.

 

Everything they do is a fucking disaster.

[Animal Spirits]

4 hours ago, Mapper said:

They don't "print" at will.

The offshore US dollars are produced in the same way that the majority of any domestic supply of currency is produced - By creating loans.

Banks all over the world create loans demoninated in US dollars. These dollars don't exist as federal reserve notes, they exist on bank balances sheets. Again in the same way as most onshore US dollars exist.

They circulate as freely as dollars created by commercial banks in the US. They are spent, borrowed, used as collateral for more lending.

This is the essense of the current global monetary system. The federal reserve has no control over it.

@Majorpain I made an earlier post on some of this :

It's an issue a number of Fed officials seem to have been aware of, here's Robert Roosa in 1984:

(2) Expanding dollar supplies outside the United States. The pressures

causing some currencies persistently to strengthen, and others to weaken, in

response to their differences in economic performance, were exacerbated by

the unusual dependence on the dollar. For from the early sixties onward there

was virtually no control over the worldwide supply and use of dollars. The

"dollar shortage" of the fifties was becoming the "dollar glut" of the sixties.

It appeared impossible for the United States to maintain effective control

over the supply of dollars at home and abroad simply by following the old

rules of the gold standard game--i.e., by maintaining a surplus in its external

current accounts. The urgent needs for capital expansion around the world

attracted the expertise of rapidly developing multinational companies, many

of them based in the United States, and all of them drawing on additional

dollars to finance their desired growth. Capital outflows from the United

States, spurred by direct investment from within and substantial borrowings

from without, began to flood the world with an apparent excess of dollar liquidity-

despite the absorption of liquidity that might have been expected

from the large current account surplus of the United States. Central banks

abroad found themselves with what became an "overhang" of dollars in

their foreign exchange reserves.

One improvisation after another was attempted in order to preserve or

restore confidence in the credibility of the dollar as a reliable standard of

value and medium of exchange capable of assuring stability in the payments

relations throughout an expanding world. A "gold pool" among leading central

banks, initiation of a "ring of swaps" between the dollar and a dozen or

more other currencies, creation of U.S. dollar obligations denominated in

foreign currencies, the introduction of an Interest Equalization Tax and

other measures to deter capital outflows--all these were part of an effort to

sustain the dollar while also building a network of closer joint involvement

with other countries in maintaining currency arrangements that could serve

the best interests of all.

But this combination of improvisations could not cope with, and indeed

may have contributed to, the enormous expansion in markets for U.S.

dollars offshore, and the new networks of interbank relations that made

possible the creation of additional supplies of dollars outside the United

States and beyond the control of the Federal Reserve. The "offshore" currency

markets soon became securities markets and, spurred by the U.S. effort

to maintain control over capital exports from the United States, markets

in Eurodollar securities (where the interest would not be subject to U.S.

withholding taxes) flourished.

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwjelNW1gq_0AhVzoVwKHUWBBc8QFnoECAcQAQ&url=https%3A%2F%2Fwww.bostonfed.org%2Feconomic%2Fconf%2Fconf28%2Fconf28.pdf&usg=AOvVaw2Pu6zg4B2FbnP2CO4hAS9Q

[Majorpain]

5 hours ago, Mapper said:

They don't "print" at will.

The offshore US dollars are produced in the same way that the majority of any domestic supply of currency is produced - By creating loans.

Banks all over the world create loans demoninated in US dollars. These dollars don't exist as federal reserve notes, they exist on bank balances sheets. Again in the same way as most onshore US dollars exist.

They circulate as freely as dollars created by commercial banks in the US. They are spent, borrowed, used as collateral for more lending.

This is the essense of the current global monetary system. The federal reserve has no control over it.

Just checked and I think I'm right, whilst the banks can use fractional reserve lending to turn 1 dollar into 100, the original base dollar needs to be a US Fed note.  They cannot (legally) magic this out of thin air as the Eurodollar system does not have a central bank to create currency, which is why the Fed swap lines to send dollars out to other markets is crucial at stress times.

It is also true that the vast majority of the liquidity created is from the bank loans that result, so you are technically right as well!

[Majorpain]

1 hour ago, Animal Spirits said:

@Majorpain I made an earlier post on some of this :

Ta, its a very interesting subject that affects everyone yet is pretty much hidden from view.

https://danielangelow.wordpress.com/2020/04/29/the-eurodollar-market-is-the-matrix-behind-it-all/

This guy pretty much makes the same argument i have, although in a lot more detail, i especially like the following bit where it gets a little scary in a world where inflation in the US is 6.2% (and rising) not 1%, and there is no guarantee the Fed can keep those swap lines open and/or keep printing indefinitely.

Quote

Outside of China, and most so in the Cayman Islands and the UK, Eurodollar claims are largely in the financial sector and fall on banks and shadow banks such as insurance companies and pension funds. This is obviously a clearer line of attack/defence for the Fed. Yet it still makes these economies vulnerable to swings in Eurodollar confidence – and reliant on the Fed.

Second, most developed countries apart from Switzerland have opted to hold almost no USD reserves at all. Their approach is that they are also reserve currencies, long-standing US allies, and so assume the Fed will always be willing to treat them as such with swap lines when needed. That assumption may be correct – but it comes with a geopolitical power-hierarchy price tag. (Think yet again of how Eurodollars started and the 1956 Suez Crisis ended.)

Third, most developing countries still do not hold enough USD for periods of Eurodollar liquidity stress, despite the painful lessons learned in 1997-98 and 2008-09. The only exception is Saudi Arabia, whose currency is pegged to the USD, although Taiwan, and Russia hold USD close to what would be required in an emergency. Despite years of FX reserve accumulation, at the cost of domestic consumption and a huge US trade deficit, Indonesia, Mexico, Malaysia, and Turkey are all still vulnerable to Eurodollar funding pressures. In short, there is an argument to save yet more USD – which will increase Eurodollar demand further.

[Animal Spirits]

1 hour ago, Majorpain said:

Ta, its a very interesting subject that affects everyone yet is pretty much hidden from view.

https://danielangelow.wordpress.com/2020/04/29/the-eurodollar-market-is-the-matrix-behind-it-all/

This guy pretty much makes the same argument i have, although in a lot more detail, i especially like the following bit where it gets a little scary in a world where inflation in the US is 6.2% (and rising) not 1%, and there is no guarantee the Fed can keep those swap lines open and/or keep printing indefinitely.

As you'll know the Dollar can be deployed as a weapon...see Iran or even threats to the UK during Suez.

The Fed could jack fed funds up overnight and decide to bulldoze everything or unwind its balance sheet rapidly (obviously self defeating).

All those countries borrowing in USD are effectively running a short Dollar position and the Fed is having to step in because the dealers and lending markets aren't or are unable to. In the Treasury market dislocation last year, dealers could not match sellers with buyers as positions were liquidated for cash and things were seizing up.

[Barnsey]

7 hours ago, DurhamBorn said:

The UKs reserve?,where is that ,a lock up in Hull?

Wherever this guy lives.

 

In other news...

[ThoughtCriminal]

Finally got the house ready to sell after the tenant trashed it (hat tip to DB, SP, CP and others for helping edge me over to selling) and the estate agent came to value it.

 

90k easily achievable he said, these were going for around 60k two years ago.

 

But that's not the best part.

 

In the course of the conversation he mentioned he's been selling a lot of them to Middle East buyers. I said "Brits who work in the Middle East you mean?".

 

No, actual Arabs are buying ex council houses on Teesside 🤣🤣🤣🤣🤣🤣

 

He said they're looking for nice steady yields outside of the stock market.

 

Tell me that isn't ringing the biggest fucking alarm bell you've ever heard.

 

 

[wherebee]

2 hours ago, Majorpain said:

Just checked and I think I'm right, whilst the banks can use fractional reserve lending to turn 1 dollar into 100, the original base dollar needs to be a US Fed note.  They cannot (legally) magic this out of thin air as the Eurodollar system does not have a central bank to create currency, which is why the Fed swap lines to send dollars out to other markets is crucial at stress times.

It is also true that the vast majority of the liquidity created is from the bank loans that result, so you are technically right as well!

I am with HSBC in London (not really - this is a hypothetical).  I want a personal loan for 100k in euro.  The bank creates the 100k out of thin air and credits my account.  I then use my multi-currency account to translate to USD (instant).  Has it swollen the supply of USD?

Some would say no, as the original creation was in EUR.  Others would say yes, as I have ended up with USD that I can buy stuff with (inflationary for goods sold in USD).

[sancho panza]

On 21/11/2021 at 23:37, Castlevania said:

€0.505 per share. Not exactly setting the world on fire with that bid.

I only have a small amount of Telecom Italia but I would like more.

What TIT?

11 hours ago, MrXxxx said:

My personal opinion on PFC is that at the moment the price is low due to the 'flushing out' of those investors who held at a loss and are now happy to get rid at break even. Looking forward they a) they have got all the bad news [SFO fine, share issue] out of the way, and b) as energy markets develop mid/long-term [i.e. oil up then down, green up] contracts will increase...so basically a hold. This same sentiment can apply to their competitors i.e. wg. who have just gone through a similar scenario.....but as always DYOR.

Even with the rights issue,they're equity is miniscule,especially givne the losses lately.

 

10 hours ago, Majorpain said:

Turkey is small fry, after a bit more thought high commodity prices are going to be doing much more damage.  I think you can see it in the DXY chart, it peaks and falls after Mar 20 as lockdowns slam commodity prices, with the slow and steady grind higher from Jun 21 as rising commodities (esp oil) start to bite. 

Not sure it's small fry to a lot of Spainish banks who are exposed there.Typically,banking crises start at the margins.

Aug 15 2020

https://wolfstreet.com/2020/08/15/as-turkeys-2nd-financial-currency-crisis-in-2-years-blossoms-heavily-invested-european-banks-look-for-exit-but-not-the-most-exposed-bank/

By Nick Corbishley, for WOLF STREET:

As the Turkish lira logged fresh record lows against both the dollar and the euro on Friday, and is now down 19% this year against the dollar, attention is turning once again to the potential risks facing lenders. They include a handful of very big Eurozone banks that are heavily exposed to Turkey’s economy via large amounts in loans — much of it in euros — through banks they acquired in Turkey. And the strains are beginning to replay those of the last currency/financial crisis in 2018.

Three weeks ago, when the lira was trading within a tight band against the dollar — the result of the Central Bank of the Republic of Turkey (CBRT) pegging the lira to the dollar by burning through billions of dollars of already depleted foreign-exchange reserves and dollars borrowed from Turkish banks — no corporate bonds in Turkey were trading at these levels. Now that the CBRT has stopped propping up the lira, which has since fallen 7% against the dollar, the average risk premium demanded by investors to hold dollar-denominated notes of Turkish businesses has soared.

European Banks’ Exposure

Of all non-Turkish lenders Spanish and French banks continue to have the most loans outstanding to Turkey, according to the Bank for International Settlements. Banks in Spain, France, Italy and the UK have an estimated combined exposure of around €118 billion. Spanish lenders (read: BBVA) account for just over half of that (€61 billion) while French (read: BNP Paribas), Italian (read: Unicredit) and British (read: HSBC) banks are respectively due €24 billion, €21 billion and €11 billion.

A Big Gamble that went well for years has gone sour.

These lenders were drawn to Turkey by the country’s record of high-octane, debt-fueled economic growth and its much more favorable demographics than the ageing populations of Western Europe. For a fair while, the bet paid off. Erdogan’s economic miracle, fueled largely by a huge foreign-currency-denominated debt bubble, provided over a decade of juicy lending opportunities and bumper profits for the banks. Then, when the miracle faltered, the bubble went pop, and things went to heck.

But the foreign bank that has taken the biggest loss on its investment in Turkey so far…

One foreign bank that remains optimistic, at least outwardly, about its exposure to Turkey’s economy is the most exposed of all: Spain’s BBVA, which owns half of Turkiye Garanti Bankasi. BBVA has already written off over 75% of its investment in Garanti since buying its first chunk of the lender in 2011, under the combined influence of Garanti’s plummeting shares and Turkey’s plunging currency.

Thanks in large part to this, as well as the expansion of lending and the relatively strong performance of the lira in May and June, Garanti earned €189 million in the second quarter of 2020 — despite the loan growth, this was down from €218 million in the second quarter of 2019. And this as as of the end of June.

[Axeman123]

26 minutes ago, wherebee said:

Has it swollen the supply of USD?

Surely no, as your increased USD balance is cancelled by someone else's reduced balance (either the money changer, or someone previously holding USD and now Euros). 

[Harley]

4 hours ago, JMD said:

Harley, I agree, inflation ahead. The inflation/deflation debate has been an interesting one to follow. But do you think the Lacy Hunt deflationist argument is fairly summed up by George Gammon below (very short video), ie that the crucial thing to recognise is that direct government spending and control creates for us a new economic and inflationary paradigm, but that the deflationists themselves seem to think this new system will not happen?                                                        https://m.youtube.com/watch?v=kg_hZoFRQOw

There's a lot of BS spoken these days.  Those of us who've been through this before, even as kids, know better.  There was BS back then too.  I remember (later!) President Carter saying inflation was a mystery, etc. 

IMO the only deflationary fall would be in asset prices, but that's really just a normal stock market crash.  I don't know why we've started to call it something else.  Maybe anoraks splitting hairs on terminology.  Bottom line, IMO the cost of living will go up in fits and assets will lose value at some point via crash and/or through attrition. It happened many times before.  The good inflation (in assets), then the bad (in the cost of living), and then the really bad where asset (equity) prices fail to outrun inflation (Weimar, Venezuela, etc). 

KISS.  Macro to me, over the intermediate to long terms, except for true growth, is a simple zero sum game.  There's no alchemy, just snake oil.  But that's in the overall so, sure individuals can get burnt so others don't.

PS:  I like how he mentioned the 1940's, just like another goodun, Lyn Alden.

[feed]

9 minutes ago, Harley said:

PS:  I like how he mentioned the 1940's, just like another goodun, Lyn Alden.

Today.

[sancho panza]

9 hours ago, Majorpain said:

Whilst I am happy to be corrected, I'm fairly sure that the "dollars" in Eurodollar market are US origin.  It would be a strange system if "foreigners" could print your currency at will.  Even if im wrong it doesn't change anything with regards to the rest, the US share of world GDP is not big enough for the amount of currency needed to circulate, if anything it would make it worse as Dollars would be "printed" by every bank that could.

Total Dollars in worldwide circulation is about $40T, Turkey GDP (PPP) is 11th in world is currently about $720bn.  External USD denominated debt is about $453.2bn, so whilst it will put a dent in total assets its only a small fraction in reality.

The fear is it derivative chain reacts the banks, BBVA, Unicredit, BNP and ING are exposed, so all the EU favorites bar the Germans.  ECB will be in a position to bail them out if worst comes to worst i suspect.

I think one of the overiring issues is regulation.Yes ,they can't print the $1 but they can magive up a $99 loan on the back of it.

Someone already psoted the Jeff Snyder Macrovoices interview.I think it's the one where he talks about red dollars(outside the fed control) and green dollars(inside).The slide deck available with that podcast is a great precy of the issues.

It jsut anotehr issue that creates a huge potential instability in the market as a lot of these Euro dollars are parked up in small offshore places such as the Bahamas.

We've never seen real contagion risk in the eurodollar market but if we did,it'd be an amazing thing to see.Think China's shadow banks on speed.

8 hours ago, Mapper said:

They circulate as freely as dollars created by commercial banks in the US. They are spent, borrowed, used as collateral for more lending.

This is the essense of the current global monetary system. The federal reserve has no control over it.

Agreed.

4 hours ago, planit said:

So the hand has been played. 

The US is to 'release' '$50m' barrels of oil. The figure is in quotes because $18m barrels of it was already planned for release so they are double counting it and 'release' is in quotes because it is an exchange and needs to be returned later just like the previous ones in China etc

US to release 50m barrels of oil from reserves

 

Oil rose on the announcement since it all seems a bit desparate and is a pass to OPEC not to speed up their plans for increasing output (which they probably can't physically do anyway).

Looking to the inventory figures later and tomorrow to hopefully push oil back over $80, I loaded up even more on the dip so too much skin in the game at the moment.

 

US Inventory figures including SPR will probably go under the 1bn barrels for the first time since 2008 (they dipped quickly below 2011) soon.

 

 

 

and for the comedy moment

 

[sancho panza]

Interesting tweet here that suggests we have some way to go thE the oil top.

 

[ThoughtCriminal]

This is the US energy Secretary.

 

She doesn't know how many barrels of oil a day the US uses. 🤣

 

Elon musk's right, this has to be a simulation because there's no fucking way it can be real life.

[Phil]

5 minutes ago, sancho panza said:

Interesting tweet here that suggests we have some way to go thE the oil top.

 

Checked RT news today . Post was 4 mins old when I spotted it, straight to the H&L account and topped up. I think Harley posted some info about how cheap energy is/has been, and how producers have been funding the decedent west’s lifestyle for decades. Really interesting and appreciated. Not a massive sum I got but it will be a hold. 

[Phil]

Just now, Phil said:

Checked RT news today . Post was 4 mins old when I spotted it, straight to the H&L account and topped up. I think Harley posted some info about how cheap energy is/has been, and how producers have been funding the decedent west’s lifestyle for decades. Really interesting and appreciated. Not a massive sum I got but it will be a hold. 

Forgot to mention that Harley said he could smell the fear. I think I could smell it as well.

[wherebee]

21 minutes ago, ThoughtCriminal said:

This is the US energy Secretary.

 

She doesn't know how many barrels of oil a day the US uses. 🤣

 

Elon musk's right, this has to be a simulation because there's no fucking way it can be real life.

To be fair, journalists love this 'gotcha' approach where they have a specific number and throw it at someone.  Unless they know hundreds of numbers in their head, you get to say 'actually, it is X' and make them look a fool.

However, she SHOULD have said 'the release of reserves is, whilst only a few days of use, will release pressure and enable normal market forces to re establish themselves'

she's a classic over promoted leftie.  great at  virtue points, shit at reality.

[Harley]

16 minutes ago, wherebee said:

To be fair, journalists love this 'gotcha' approach where they have a specific number and throw it at someone.  Unless they know hundreds of numbers in their head, you get to say 'actually, it is X' and make them look a fool.

However, she SHOULD have said 'the release of reserves is, whilst only a few days of use, will release pressure and enable normal market forces to re establish themselves'

she's a classic over promoted leftie.  great at  virtue points, shit at reality.

Really not expected at that level.  A very simple read.  I've been in high level meetings where folk have been skewered and gone within the month for less. 

[Harley]

26 minutes ago, Phil said:

Forgot to mention that Harley said he could smell the fear. I think I could smell it as well.

Alas, I have never said anything so sensible or prescient and don't intend starting so now!