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

[sancho panza]

Holger intrigues

Rhymes with preevious histroy ref the stocks that have led the charge waning well before the broader market peaks.I will see if I can dig up a psot from ages back on that matter tmrw.

@Hancock after this the deluge.

[Hancock]

Just now, sancho panza said:

I've been trading the pull backs in the oilies since last july time using calls.I was hoping for antoehr run up.

Agree,if a BK occurs we might see £3 again but then again we might not.

Ref the BK trigger,logic dictates it's the winding in of QE/zirp but it could be caused by something unpredicatble like war.

All we really know is that the banks balance sheet are ready for a clean out.

I'm more a buy and hold type of guy, so just got to sit at the poker table waiting for a pair of Aces, and looking un-phased by it all.

 

[sancho panza]

this is a significant milestone,a double top to my untrained eye,this is the sort of signal showing market interanls weakening.

if we strat seeing this in the fang stocks then I'll be readying shorts.

 

[Hancock]

4 minutes ago, sancho panza said:

Holger intrigues

Rhymes with preevious histroy ref the stocks that have led the charge waning well before the broader market peaks.I will see if I can dig up a psot from ages back on that matter tmrw.

@Hancock after this the deluge.

Not looking to rosey in Germany right now

https://www.telegraph.co.uk/business/2021/12/07/german-economy-slumps-new-blow-incoming-chancellor-scholz/

[Viceroy]

for those interested, Financial Sense interview with Martin Armstrong from end of November.

Part 1 - https://www.armstrongeconomics.com/armstrong-in-the-media/martin-armstrong-beginning-of-2022-panic-cycle-underway-part-1/

Part 2 - https://www.armstrongeconomics.com/armstrong-in-the-media/martin-armstrong-covid-civil-war-and-major-capital-shifts-part-2/

short term correction coming, buy the dip, capital flows into private assets due to a collapse in confidence globally in Govts, stay away from Govt debt, v bearish Europe.

[sancho panza]

muh transitory...6.7%

for those lubing their short machine,lyn says take a breath.

good advice imho.

[Harley]

3 hours ago, Viceroy said:

for those interested, Financial Sense interview with Martin Armstrong from end of November.

Part 1 - https://www.armstrongeconomics.com/armstrong-in-the-media/martin-armstrong-beginning-of-2022-panic-cycle-underway-part-1/

Part 2 - https://www.armstrongeconomics.com/armstrong-in-the-media/martin-armstrong-covid-civil-war-and-major-capital-shifts-part-2/

short term correction coming, buy the dip, capital flows into private assets due to a collapse in confidence globally in Govts, stay away from Govt debt, v bearish Europe.

Cheeky of him or FS given it was in my paid for FS subscription!

[MrXxxx]

22 hours ago, Democorruptcy said:

I feel like a bad person buying fags with so many deaths caused by it in our family

I know what you mean, but you could use the same argument for sugar and Type 2 diabetes, or even Big Pharma. The way I view it is that a) most things in moderation are not bad for us, and b) people can choose to partake, and so it is they who impose the results on themselves. The same argument could not be said for armaments, where the results of your investments are often imposed upon innocent people unwillingly.

[MrXxxx]

20 hours ago, Yellow_Reduced_Sticker said:

 

NOT a chance!

 

WHY...Cos some of TPTB fookers are holders British American Tobacco shares.

Back in in 1998, Ken Clarke has grossed an estimated £1m since joining the board of the multinational tobacco firm BAT.

Even i'm thinking of buying BAT ...BUT only with the yellow sticker price of: £23.99

 

pls stop buying cos the price is ROCKETING ...UP 56p today!

I have BAT....knowing your track record please keep away as I am quite fond of my divis! :-)

[moneyscam]

8 hours ago, Hancock said:

Ive still got a feeing it'll go below 300p at some point in the next 12 months.

Mainland Europe seems to be clamping down fairly hard at the moment, and all it'll take is for the UK/US to follow them.

Or on the other hand they use it as the get out clause to end all this insanity by claiming its a weakened strain and is now dominant ... which leads to the FED winding up their printing and raising interest rates far quicker ... which is what is meant to trigger the mythical BK.

I see two possible routes to the BK. One is the one you've outlined where the FED returns to normality and real rates come back to neutral / positive. Because of the large public / private debt overhang, the economy will struggle @ rates of 2% never mind the 6 / 7% needed for positive real rates. And that's if you believe official CPI - shadowstats and people's personal experience of price inflation would have it at least twice as much at 12% CPI. When the FED uses the language of describing the inflation as transitory when they obviously know better because of their actions, it tells me they will not opt for the option of normalisation and will not 'take away the punch bowl' as they have in the past.

This leaves IMO the more likely second route - continued debasement of the dollar via continued printing, QE and direct payments to consumers / businesses. Coupled with ongoing supply chain constraints (partly due to covid, partly due to stupid policies which exacerbate this constraint e.g los angeles docks ban trucks made before 2015 from delivering and loading / unloading) this leads to a crack up boom. Markets will go through a blow off top before collapsing. As it is the world reserve currency rather than the Argentian peso, the collapse will be far more catastrophic than scenario 1 as the associated equity/ bond/ currency/ commodity and derivates markets implode.

For us investors BK scenario 1 is far more preferable as there will still be something left standing we can take advantage of for the next cycle. In BK scenario 2 the contagion will be so widespread and will not just be a financial economy concern that there are few safe havens I can envisage in such a scenario other than PM's.

My sense currently is the FED has painted itself into a corner, they've maintained negative real rates for far too long (IMO since dot com bust) leading to an explosion of debt that cannot be maintained at previously normal rates so they won't take the normalisation route. It's a bit like having the choice of taking some harsh punishment now or deferring it to harsher punishment later. I believe the FED will bottle it and BK scenario 2 is the way this will go.

Of course I could be completely wrong and something else happens entirely however it doesn't really affect my investment stance. I only have a quarter of my wealth tied up in the market paying me a dividend yield of 6% which is sufficient for my needs. I don't want or need to put any more money to work and so can sit back and wait to see how things eventually evolve without feeling I'm missing out on something.

[JimmyTheBruce]

Rockhopper is getting a bid this morning.  Presumably off the back of this news about their partnering arrangements:

https://rockhopperexploration.co.uk/investors/announcements/

[JimmyTheBruce]

6 minutes ago, moneyscam said:

I only have a quarter of my wealth tied up in the market paying me a dividend yield of 6% which is sufficient for my needs. I don't want or need to put any more money to work and so can sit back and wait to see how things eventually evolve without feeling I'm missing out on something.

But, given your previous point about inflation running at 12%, what is the other three quarters in?  If it's in cash, then its not necessarily a case of putting it to work, it's more about stopping a good chunk of it being stolen.

[moneyscam]

1 minute ago, JimmyTheBruce said:

But, given your previous point about inflation running at 12%, what is the other three quarters in?  If it's in cash, then its not necessarily a case of putting it to work, it's more about stopping a good chunk of it being stolen.

That's US inflation, I reckon we're around 6-7% in the UK. However your point stands and it is currently very difficult to find alternatives other than cash. The last two decades of financial repression has forced everyone out on the risk curve and there isn't really anywhere left to go that is safe and that will preserve your capital against inflation. 

Given I do not want to take any more additional risk I accept there will be some drawdown on the 3/4 remaining capital by inflation so the calculation then becomes do I have sufficient capital given my modest expenses and expected future inflation to live out my remaining years? Currently I am standing at 57 years of living expenses (I'm 51) so I am comfortable given average life expectancy for a former smoker male.

I'm not counting either any future inheritance which is multiples of what I currently have. Obviously my position is not the norm and the calculation is very different for someone with substantially less capital.

My biggest worry / fear is with where the capital is currently held. In a BK many banks / financial institutions could go under or bail in and steal our money that way. I don't really want to keep large wads of cash or PM's at my home but I am prepared to do that if I start to sense a systemic monetary collapse is on the cards.

There are no easy answers or get out's, it's more a case of damage limitation IMO.

[planit]

10 hours ago, sancho panza said:

 

For me omicron was the buying oppurtnity.For an hour two fridays back you could get BP sub 320,that was the extent of the pullback imho-I missed btw as I was doing school runs and cooking...very Warren Buffet like.

 

I have had a great 10 days, first time I ever used margin on Friday 26th but have now sold out most of what I bought and some extras, now highest level of cash since August (when I sold out due to Delta but got FOMO and bought back in too quickly LOL).

 

10 hours ago, Hancock said:

Ive still got a feeing it'll go below 300p at some point in the next 12 months.

Mainland Europe seems to be clamping down fairly hard at the moment, and all it'll take is for the UK/US to follow them.

Or on the other hand they use it as the get out clause to end all this insanity by claiming its a weakened strain and is now dominant ... which leads to the FED winding up their printing and raising interest rates far quicker ... which is what is meant to trigger the mythical BK.

I don't think Omicron has been digested yet, the recovery was too quick and no one has priced in a gigantic surge in [relatively-benign] cases.

It will pass through quite quickly so plenty of time for the crack up boom starting on Christmas day (and setting the stage for the FED raising rates too much).

[invalid]

10 hours ago, sancho panza said:

I say this as an ex smoker but smokers are a demogrpahic/fiscal dream for the west in many ways.

They die young ,generally pay through the nose for the privilege of doing so and thus pay far more in taxes than they take out compared to many non smokers.

We bought a load of BAT's last week and feel pleased to do so.AS you say,jsut getting my moeny back in case it catches up with me.

 

 

Totally agree and often made this point to people in the past.

To put some context on that with some numbers (not sure if correct, just the first ones I found):

Annual tobacco duty receipts - £9.96 billion

https://www.statista.com/statistics/284329/tobacco-duty-united-kingdom-hmrc-tax-receipts/

 

NHS budget - £176.5 billion

https://www.nationalhealthexecutive.com/articles/nhs-budget-2021

 

That's smokers paying for around 5% of the NHS budget on top of taxes they are already paying.

 

I would not want to encourage smoking but these days if anyone chooses do so they should be allowed to - it's a fully informed choice and certainly in the UK the risks are well known. My late mother on the other hand was not so well informed, lived her life in relative poverty, gave a fair chunk of what little money she had to the tobacco companies and then died a horrid death in her 50s from lung cancer.

 

Perhaps I should also be buying a large holding of BAT to get back some of what she and I as an ex smoker put in.

 

[Axeman123]

1 hour ago, moneyscam said:

I see two possible routes to the BK. One is the one you've outlined where the FED returns to normality and real rates come back to neutral / positive.

I would imagine the end of COVID would produce a short-lived boom, and briefly make raising rates seem sustainable. That would give us the blow-off top in stock markets. In that scenario I expect headlines praising rate rises as showing the health of the recovery to start with, perhaps predicting a gilded decade ahead like the US after WW2 now that the economy has bee set free. Then comes the collapse.

[Hancock]

1 hour ago, moneyscam said:

I see two possible routes to the BK. One is the one you've outlined where the FED returns to normality and real rates come back to neutral / positive. Because of the large public / private debt overhang, the economy will struggle @ rates of 2% never mind the 6 / 7% needed for positive real rates. And that's if you believe official CPI - shadowstats and people's personal experience of price inflation would have it at least twice as much at 12% CPI. When the FED uses the language of describing the inflation as transitory when they obviously know better because of their actions, it tells me they will not opt for the option of normalisation and will not 'take away the punch bowl' as they have in the past.

This leaves IMO the more likely second route - continued debasement of the dollar via continued printing, QE and direct payments to consumers / businesses. Coupled with ongoing supply chain constraints (partly due to covid, partly due to stupid policies which exacerbate this constraint e.g los angeles docks ban trucks made before 2015 from delivering and loading / unloading) this leads to a crack up boom. Markets will go through a blow off top before collapsing. As it is the world reserve currency rather than the Argentian peso, the collapse will be far more catastrophic than scenario 1 as the associated equity/ bond/ currency/ commodity and derivates markets implode.

For us investors BK scenario 1 is far more preferable as there will still be something left standing we can take advantage of for the next cycle. In BK scenario 2 the contagion will be so widespread and will not just be a financial economy concern that there are few safe havens I can envisage in such a scenario other than PM's.

My sense currently is the FED has painted itself into a corner, they've maintained negative real rates for far too long (IMO since dot com bust) leading to an explosion of debt that cannot be maintained at previously normal rates so they won't take the normalisation route. It's a bit like having the choice of taking some harsh punishment now or deferring it to harsher punishment later. I believe the FED will bottle it and BK scenario 2 is the way this will go.

Of course I could be completely wrong and something else happens entirely however it doesn't really affect my investment stance. I only have a quarter of my wealth tied up in the market paying me a dividend yield of 6% which is sufficient for my needs. I don't want or need to put any more money to work and so can sit back and wait to see how things eventually evolve without feeling I'm missing out on something.

The FED stopping QE is a dead cert, its a case of how high they go with raising interest rates, and if they are unwilling to lower them again.

We're at the cliff edge of when this is all going to happen so we should see in the coming months.

Maybe its a case of the FED doing what happened with the last taper tantrum, and going back to more QE/ZIRP when Wall St. tells them.

A rinse and repeat of the last decade.

 

[NogintheNog]

31 minutes ago, moneyscam said:

My biggest worry / fear is with where the capital is currently held. In a BK many banks / financial institutions could go under or bail in and steal our money that way. I don't really want to keep large wads of cash or PM's at my home but I am prepared to do that if I start to sense a systemic monetary collapse is on the cards.

There are no easy answers or get out's, it's more a case of damage limitation IMO.

Hi moneyscam.

You don't mention having any Bitcoin? If a BK happens and banks / financial institutions could go under or bail in, Bitcoin will walk out the other side of that, along with the PM's and commodities.

https://medium.com/road-less-ventured/why-bitcoin-could-become-the-world-reserve-asset-4100f54b1093

[Hancock]

15 minutes ago, Axeman123 said:

I would imagine the end of COVID would produce a short-lived boom, and briefly make raising rates seem sustainable. 

The Coronavirus act or whatever its called ends in March, covid only ends if they dont extend it again ... i presume all nations have something similar in place.

[Axeman123]

1 minute ago, Hancock said:

The Coronavirus act or whatever its called ends in March, this only ends if they dont extend it again ... i presume all nations have something similar in place.

Omicron is the end of it IMO, and people won't stand for much more as that becomes more and more obvious. At the last no 10 press conference BJ even promised a review of those powers after three weeks. I expect good news before Christmas, perhaps with trivial stuff like mandatory-but-unenforced masks in supermarkets continuing until March.

(If it is still BJ making the announcement he will probably invoke Churchill "this is not the end, but it is the begining of the end").

[NogintheNog]

25 minutes ago, Hancock said:

The FED stopping QE is a dead cert, its a case of how high they go with raising interest rates, and if they are unwilling to lower them again.

We're at the cliff edge of when this is all going to happen so we should see in the coming months.

Maybe its a case of the FED doing what happened with the last taper tantrum, and going back to more QE/ZIRP when Wall St. tells them.

A rinse and repeat of the last decade.

 

I just can't see higher rates. That's the problem with a FIAT system with a set FIAT reserve currency ie the USD$.

Without the chains of a gold standard the debt has risen to a point where it can never be paid back, but needs to be inflated away or defaulted on, as the US did when it came off the gold standard in 1971. (That was a default!)

This enabled the system to be tweaked to fight recessions and wars with printed money. The debts are now unsustainable and I can see inflation/default as the only way out, or back onto a gold standard with gold repriced to the debt.

[NogintheNog]

23 minutes ago, Axeman123 said:

Omicron is the end of it IMO, and people won't stand for much more as that becomes more and more obvious. At the last no 10 press conference BJ even promised a review of those powers after three weeks. I expect good news before Christmas, perhaps with trivial stuff like mandatory-but-unenforced masks in supermarkets continuing until March.

(If it is still BJ making the announcement he will probably invoke Churchill "this is not the end, but it is the begining of the end").

I really hope you are right, but with many other countries moving towards more restrictions and enforced vaccinations etc, I have my doubts and suspect he may move in the other direction towards the dark side.....

Edit. I live in hope.

[moneyscam]

8 minutes ago, NogintheNog said:

Hi moneyscam.

You don't mention having any Bitcoin? If a BK happens and banks / financial institutions could go under or bail in, Bitcoin will walk out the other side of that, along with the PM's and commodities.

https://medium.com/road-less-ventured/why-bitcoin-could-become-the-world-reserve-asset-4100f54b1093

Whilst I admire the blockchain technology and can see its many applications, I don't trust crypto as a long term store of value. My main issue with crypto is that it is such an obvious challenge to the power of the current issuers of currency that I can't see it being allowed to survive as an permanent alternative medium of exchange. The state is currently gaining more power not less over our daily lives so I cannot see them giving up one of the fundamental pillars of their power base anytime soon. The state can legislate it out of existence practically as they confiscated gold in the 1930's. It's not a risk I would be currently comfortable with having a large chunk of my wealth in. 

I've read the article you posted and cannot dispute his thesis that the dollar is doomed following the pattern of previous reserve fiat currencies. I just differ on the end point as to what replaces it. Some believe it will be some form of decentralised crypto, I believe it will be a centralised CBDC. The same guys that know they are blowing up the system also know how they will replace it while still at the helm. No one knows exactly how things will play out especially after a total systemic reset. At best we can make educated guesses and hope that works out according to our specific circumstances.

 

[Hancock]

17 minutes ago, NogintheNog said:

I just can't see higher rates. That's the problem with a FIAT system with a set FIAT reserve currency ie the USD$.

Without the chains of a gold standard the debt has risen to a point where it can never be paid back, but needs to be inflated away or defaulted on, as the US did when it came off the gold standard in 1971. (That was a default!)

This enabled the system to be tweaked to fight recessions and wars with printed money. The debts are now unsustainable and I can see inflation/default as the only way out, or back onto a gold standard with gold repriced to the debt.

I think you underestimate the Americans, its not like over here where we have an ignorant population when it comes to finance, with even politicians keeping out of the debate with regards to inflation and interest rates.

I am certain the FED will raise interest rates, its more a case of whether they keep doing so.

All that happens in a recession is people lose their job, have less money, don't buy as much "stuff" and don't go out as much ....  people seem more than happy with the latter options.

[moneyscam]

11 minutes ago, NogintheNog said:

I really hope you are right, but with many other countries moving towards more restrictions and enforced vaccinations etc, I have my doubts and suspect he may move in the other direction towards the dark side.....

Well it looks like we're going to get vaxx passports and WFH now according to leaks. As I and others have argued in Covid sub-forum, this was always the plan as the vaxx passports are the precursor to a digital id / social credit / obey your master system.