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

[NogintheNog]

1 minute ago, Hancock said:

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

The problem is this won't be a recession. This is the biggest bubble ever blown, and when it finally gets pricked it won't be a case of people having less money, it will be a case of them having no money and assets worth a lot less in real terms than now. That's why I can't see rates ever being meaningfully raised.

All just my opinion of course....

[Hancock]

 

https://www.telegraph.co.uk/global-health/science-and-disease/covid-news-coronavirus-omicron-stealth-variant-cases-vaccine/

Live  Covid Plan B latest news: New work-from-home restrictions and vaccine passports expected

New work-from-home guidance and vaccine passports could be announced as early as today, according to government officials, as Cabinet ministers move to counter the omicron spread, writes Ben Riley-Smith.

A meeting of the ‘Covid-O’ Cabinet sub-committee is expected to take place today to discuss the measures, with a possible full Cabinet meeting and press conference later.

The timing of the move appears to have been sped up significantly in the past 12 hours, with government sources implying on Tuesday that no decisions would be taken until next week.

The Telegraph revealed today that the Cabinet discussed bringing in vaccine passports in a meeting on Tuesday, which split members around the table.

Michael Gove, the Communities Secretary, and Nadine Dorries, the Culture Secretary, both spoke out in favour of the move, according to multiple sources familiar with the meeting.

But Grant Shapps, the Transport Secretary, and Alistair Jack, the Scottish Secretary, are critical of the move and are understood to have made comments making that clear.

It is not yet clear when the work-from-home guidance or vaccine passports would come into effect if announced today or how far-reaching they would become.

 

[Axeman123]

30 minutes ago, NogintheNog said:

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.

$40k/oz? Don't threaten me with a good time!

[NogintheNog]

15 minutes ago, moneyscam said:

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.

That's exactly why I hold 10% of my wealth in PM's and about 2% in Bitcoin along with my private keys.

16 minutes ago, moneyscam said:

It's not a risk I would be currently comfortable with having a large chunk of my wealth in. 

Agreed!

17 minutes ago, moneyscam said:

The state can legislate it out of existence practically as they confiscated gold in the 1930's.

Well they can't confiscate BTC like they did (or tried to) with gold. So that's that issue sorted. They can legislate I agree, but that's assuming that the State itself actually survives.

[Axeman123]

19 minutes ago, moneyscam said:

Well it looks like we're going to get vaxx passports and WFH now according to leaks.

On the same day as the BJs x-mas party scandal? If anything we may be seeing competing leaks.

[moneyscam]

Just now, NogintheNog said:

That's exactly why I hold 10% of my wealth in PM's and about 2% in Bitcoin along with my private keys.

Agreed!

Well they can't confiscate BTC like they did (or tried to) with gold. So that's that issue sorted. They can legislate I agree, but that's assuming that the State itself actually survives.

Unfortunately that is my current bet, not only does the state survive it becomes larger, stronger and all encompassing. I look back at the last 2 years and the supine compliance of the masses and I despair. Sometimes I wish was I was born as a Kalahari bushman, far away from civilization in the desert only worrying about hunting my food for today and banging the missus upon my return.

[Axeman123]

4 minutes ago, NogintheNog said:

Well they can't confiscate BTC like they did (or tried to) with gold.

Surely they just need to block all the on/off ramps between crypto and fiat, and then escalate the smear campaign linking crypto to pedalos/organised crime.

In that scenario every high profile arrest could have the could have the following added to the reporting "police additionally recovered electronic devices with encrypted data thought to be crypto private keys", imagine a photigraph of a table covered in guns and bags of powder/cash and a row of thumbdrives or external HDDs. Sure the crypto currently held might still circulate but it would be contained, just like the few old fellas buying used yacht or a horses from each other with physical sovereigns.

[geordie_lurch]

Some more of TPTBs plans slowly coming into view for those still not able to join the dots between Covid and these fucking Vaccine Passports (digital ID)

"The prospect of CBDC also opens up the possibility of programming the “wallet” through the API. The BoE has called on ministers to intervene on programming, so that “the money would be programmed to be released only when something happened” through the use of “smart contracts”. The bank could restrict the future use of money for activities seen to be “socially harmful” in some way. But who will judge what is socially harmful? This has the potential to become as severe a restriction on personal freedom as China’s “social credit” system."

 

[JMD]

3 hours ago, moneyscam said:

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.

In ref. to your earlier post and your option 2 scenario of a BK characterised first by a market crackup, I note that Dave Hunter also says that his own meltup thesis will happen with the markets going exponential. I have a lot of my wealth in stocks and i'm seriously thinking that if the SP500 did gain say 250 points in a single month I would sell half my equities, then maybe even sell the remainder if the index continued to rapidly climb.                                                                                                                                                                                          I haven't fully thought this plan  through yet, and of course using a rapid rise in equity market prices as THE timing signal to sell, might not allow enought time to react and to sell out in time, so risky. I know @sancho panzahas several signals he looks for, including oil price, dollar rate, 10 year bonds. But I'm thinking that the politicians will/may continue to 'kick the can' and keep things going, however horrible the market indicators get. So at least selling during a meltup phase would mean being able to take big profits/gains off the table, and give the optionality of cash?          

[MrXxxx]

12 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.

Thanks for posting. Limited economic advice but the second part chimed a lot with my own thoughts/beliefs of what is playing out.

[MrXxxx]

2 hours 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.

Agree, and CBDC with be the equivalent [for mananging the default] of the GS to FIAT move.

[moneyscam]

8 minutes ago, JMD said:

In ref. to your earlier post and your option 2 scenario of a BK characterised first by a market crackup, I note that Dave Hunter also says that his own meltup thesis will happen with the markets going exponential. I have a lot of my wealth in stocks and i'm seriously thinking that if the SP500 did gain say 250 points in a single month I would sell half my equities, then maybe even sell the remainder if the index continued to rapidly climb.                                                                                                                                                                                          I haven't fully thought this plan  through yet, and of course using a rapid rise in equity market prices as THE timing signal to sell, might not allow enought time to react and to sell out in time, so risky. I know @sancho panzahas several signals he looks for, including oil price, dollar rate, 10 year bonds. But I'm thinking that the politicians will/may continue to 'kick the can' and keep things going, however horrible the market indicators get. So at least selling during a meltup phase would mean being able to take big profits/gains off the table, and give the optionality of cash? 

Well that is essentially my strategy with my current market investment and is also why I only have a 1/4 in the market. If I am unable to get the timing right and suffer say a 50% loss before being able to sell then it is still 'only' an 1/8 of my wealth and I could live with that. One option would be to hedge with puts on the indices and then you don't have to worry about perfect timing as long as you do it soon and maintain your hedges. Options on the indices won't be a perfect delta hedge on your underlying stocks but they will come pretty damn close in a BK scenario and will be a lot cheaper and easier than trying to delta hedge the individual stocks.

You can buy long dated puts but you will pay a premium for the long time decay of money (theta) or you can buy shorter dated puts but will have to roll them over with associated transaction costs. All this would have to be done fairly rapidly once it gets going as your hedge will only be as good as your counterparty risk which becomes an issue in a systemic collapse.

If stock melt up then I would expect Vix will fall (and hence also the cost of implied volatility) to around the 10-12 mark, this will be your last opportunity to buy options cheaply for a hedge. Some other posters on here who trade options more actively should be able to recommend some decent options brokers. @sancho panza and some others who I can't remember hopefully will chime in on who they recommend.

My bigger worry though in scenario 2 is due to it being a systemic collapse is what the revaluation will be afterwards. We could move to a new CDBC system but with massive haircuts as the 'price of saving the system' much as financial repression with negative real rates / asset inflation was the price we have all paid for 2008 GFC.

[MrXxxx]

2 hours ago, NogintheNog said:

it will be a case of them having no money and assets worth a lot less in real terms than now.

Mmm, this is the quandry...how long to wait in cash to buy the assets at a reduced price?...buy too soon and you overpay, wait too long and the cash may disappear/be worthless...better to have overpaid and have some of your capital in assets?

[JMD]

Interesting interview with (the controversial?!) Sir James Goldsmith talking about the dangers of globalisation back in 1994. In the context of the then new GATT, he argues against allowing companies sending jobs abroad, and against the blunt and increasingly simplistic measure by economists of merely focusing on 'gdp growth'. Of course the neo-liberals won out... On a minor note, I was surprised at the continual use of the word 'fact' by the participants in the interview, I had thought this was a new phenomena and really hadn't noticed the weaponisation of this word even back then.                                                                                  https://www.upcarta.com/resources/724-charlie-rose-sir-james-goldsmith-interview

[Heart's Ease]

8 minutes ago, JMD said:

Interesting interview with (the controversial?!) Sir James Goldsmith talking about the dangers of globalisation back in 1994. In the context of the then new GATT, he argues against allowing companies sending jobs abroad, and against the blunt and increasingly simplistic measure by economists of merely focusing on 'gdp growth'. Of course the neo-liberals won out... On a minor note, I was surprised at the continual use of the word 'fact' by the participants in the interview, I had thought this was a new phenomena and really hadn't noticed the weaponisation of this word even back then.                                                                                  https://www.upcarta.com/resources/724-charlie-rose-sir-james-goldsmith-interview

We have discussed his books on here some time ago - which cover the discussion in that video. 'The trap' and 'the response' (from memory). Worth a read. Put onto them from TOS.

[sancho panza]

18 hours ago, BurntBread said:

He gives a destination (which he sticks to, and repeats every so often), and then he makes short-term calls about the way the market will get there (never in a straight line), based largely on his reading of sentiment. It's the destination that we should take seriously; and even for that, he always gives caveats when he mentions timings.

Is twitter the right platform for him? I would argue that it is. If you listen to what he says, he is not using his short-term predictions to inform people; but instead, he is using the reactions he gets as a measure of sentiment. He's generous in putting out his predictions (and for the couple of years we have been following him, the destination predictions seem to be very surprising, and ultimately accurate); but he's getting at least as much information from his twitter account as his readers are.

 

 

DH gets a hard time on here sometimes because people think his short term calls are crap-which they may well be,I've never even once let his short term calls affect my own trading.That's done by me.

I've said this before but people really need to work out the timeframe that any commentator is best at.For me,DH builds out a thesis that allows you to pick broader turns in the market that can occur over years not jsut months/weeks/days.I won't lie,his aligning with DB (although possibly based on using similar methodology) meant that I went more heavily into the market bottom than I otherwise would have in march/April 2020 when he made en epic call totally against the market/commnetariat narrative at the time that the S&P was going to 4000+ iirc.At the crucail moment when 99% of the market was wrong,DH was right.

 

13 hours ago, Hancock said:

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/

I can't imagine locking down the 'untermenschen' in the evenings will help......it's hardly going to motivate them in the day either.

I've thought myself,if they ban me from pubs really will go into hermit mode and not buy a thing that I don't absolutely need.

[DurhamBorn]

I paid with cash yesterday in a pub out for a meal,the woman said "oh cash" as if i was the first that day not using a card or a phone.Fools walking headlong into being controlled.These vaccine passports are disgusting yet most of our population is on the state teat and soft as shite.

[DurhamBorn]

@sancho panza similar tools from Fidelity ,cross market differs a lot as 35 years of tweaks from me on that,but cycle long liquidity calls and likely CB moves should be close.

[sancho panza]

5 hours 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.

I agree.Junk bond yields in the US are negative in real terms and have been for sometime.Scenario 2 looks far more likely.I've said before that very few people make the distinction between price inflation/deflation and credit inflation/deflation.

For me the BK will be defined by a huge deflationary wave washing through the banking system that will take down the asset classes driven by credit eg property,equities.At the same time we may see price inflation or at the very minimum prices staying flat as credit deflates which will exacerbate the size and force of the credit deflation along the lines laid out by Irving Fisher 90 years ago.

Govt/CB's will be able to try and paper over the cracks but once the debt deflationary spiral kicks in,there will be only one or two hiding places-cheaply priced commodities/necessities and PM's.The crucial aspect is that once people start paying down debt,the very act of paying down debt inhibits their ability to pay down debt as the economy shrinks and jobs shrink.

https://en.wikipedia.org/wiki/Irving_Fisher

According to Fisher, once the credit bubble bursts, this unleashes a series of effects that have serious negative impact on the real economy:

1. Debt liquidation and distress selling.
2. Contraction of the money supply as bank loans are paid off.
3. A fall in the level of asset prices.
4. A still greater fall in the net worth of businesses, precipitating bankruptcies.
5. A fall in profits.
6. A reduction in output, in trade and in employment.
7. Pessimism and loss of confidence.
8. Hoarding of money.
9. A fall in nominal interest rates and a rise in deflation-adjusted interest rates.

4 hours ago, moneyscam said:

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.

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.

I think it's worth considering that whilst general inflation may be around the 7% level in the UK it's worth considering how different income deciles will feel the pain.

I suspect that for the lowest 20% of earners,due to rising food/fuel prices they're experiencing 10% + inflation.Might even go for the bottom 5 deciles?

On the second point in bold,using Dowd Buckner Barclays are leveraged at circa 50:1.The rest aren't much better and given the scenario we're running through 30:1 isn't much help either.One route we've taken is to certificate a significant proportion of UK stocks.Also I like a stash of tins much to Mrs P's annoyance.Her face is a picture when she goes rooting for baby clothes and finds a discreetly hidden four stack of lentils and mixed beans.

Personally,I think a systemic monetary collapse will occur at some point unless we move back to some sort of gold backed currency which I think will make a lot of sense in 5/10 years.

3 hours ago, invalid said:

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.

 

Sorry about your Mum.My Mum has smoked since she was 14.

If you feel bad about buying tobacco stocks then maybe consider getting exposure to the sugar and lard.As someone has sadi,type 2 diabetes timebomb inbound.

[JMD]

1 hour ago, moneyscam said:

Well that is essentially my strategy with my current market investment and is also why I only have a 1/4 in the market. If I am unable to get the timing right and suffer say a 50% loss before being able to sell then it is still 'only' an 1/8 of my wealth and I could live with that. One option would be to hedge with puts on the indices and then you don't have to worry about perfect timing as long as you do it soon and maintain your hedges. Options on the indices won't be a perfect delta hedge on your underlying stocks but they will come pretty damn close in a BK scenario and will be a lot cheaper and easier than trying to delta hedge the individual stocks.

You can buy long dated puts but you will pay a premium for the long time decay of money (theta) or you can buy shorter dated puts but will have to roll them over with associated transaction costs. All this would have to be done fairly rapidly once it gets going as your hedge will only be as good as your counterparty risk which becomes an issue in a systemic collapse.

If stock melt up then I would expect Vix will fall (and hence also the cost of implied volatility) to around the 10-12 mark, this will be your last opportunity to buy options cheaply for a hedge. Some other posters on here who trade options more actively should be able to recommend some decent options brokers. @sancho panza and some others who I can't remember hopefully will chime in on who they recommend.

My bigger worry though in scenario 2 is due to it being a systemic collapse is what the revaluation will be afterwards. We could move to a new CDBC system but with massive haircuts as the 'price of saving the system' much as financial repression with negative real rates / asset inflation was the price we have all paid for 2008 GFC.

Thanks Moneyscam, it occurs to me that some might think I am attempting to time the market. But no, instead it's just that as we get perceptively(?) closer to a BK, I'm becoming more concerned about how the BK 60-80% market fall - if that were to happen, but I do note this is the type of painful correction being predicted by more and more commentators - how this would impact my energy, telecom, pm/commodity mining stocks (my main invested sectors)... ie what damage might they sustain (probably less)? And i say 'sustain' because people like David Hunter think the overall market will not recover for many years... not saying DH is 100% accurate, but I do think there is value in preparing for a worst case scenario.                                                                                                  I don't think these questions are complete imponderables, but I guess like your great Thomas Sowell quote says - '...there are no solutions only tradeoffs'.

[sancho panza]

3 hours ago, moneyscam said:

Unfortunately that is my current bet, not only does the state survive it becomes larger, stronger and all encompassing. I look back at the last 2 years and the supine compliance of the masses and I despair. Sometimes I wish was I was born as a Kalahari bushman, far away from civilization in the desert only worrying about hunting my food for today and banging the missus upon my return.

fascinating discussion today.Have to do school run .I will retunr.

 

note to self: post macrovices Rosenberg podcast

[Bricormortis]

1 hour ago, JMD said:

13 minutes ago, JMD said:

In ref. to your earlier post and your option 2 scenario of a BK characterised first by a market crackup, I note that Dave Hunter also says that his own meltup thesis will happen with the markets going exponential. I have a lot of my wealth in stocks and i'm seriously thinking that if the SP500 did gain say 250 points in a single month I would sell half my equities, then maybe even sell the remainder if the index continued to rapidly climb.                                                                                                                                                                                          I haven't fully thought this plan  through yet, and of course using a rapid rise in equity market prices as THE timing signal to sell, might not allow enought time to react and to sell out in time, so risky. I know @sancho panzahas several signals he looks for, including oil price, dollar rate, 10 year bonds. But I'm thinking that the politicians will/may continue to 'kick the can' and keep things going, however horrible the market indicators get. So at least selling during a meltup phase would mean being able to take big profits/gains off the table, and give the optionality of cash?     

 

S and P 500 has doubled since March 2020 low. Maybe this is the crackup boom ? Just musing out loud here.

[DurhamBorn]

Remember people can pay down debt and not crash the economy if the state expands its debt while they are doing so.The problem is the state has been doing that mostly to sub bennies and state workers who invested this debt in property,a lot to rent out to bennies whos rents are paid by the state.Its likely the biggest losers will be where this happened most,so i suspect BTL,house prices and bennie claims once kids are over 18.

[Harley]

On 07/12/2021 at 11:50, Harley said:

Another noticeable tendency is how attractive many stocks are on their monthly charts as they have often pulled back to what could be longer term support and maybe their negative price and volume momentum could turn positive over the next few months (tbd)?

As I was saying......I see BATS has bounced off a developing upward sloping trend line this month with a big move week to date.  The third higher low on the monthly chart.  The weekly momentum indicators signalled a likely move but I'm not 100% sure how solid that'll be, although I've often be caught out like this recently such are the markets.  I passed on a buy as I already held some and was pulling back overall given the overall market picture.  The monthly candle looks good for a potential turn but that weekly picture is a concern as is the monthly price action resembling a smaller version of the one following the 2018 crash, and also the velocity of the move.  Maybe a good canary stock?  I should at a few others.  Just for comment, defo not advice, DYOR.

PS:  Goes ex div on the 23 Dec so I better not wait too long!

 

[moneyscam]

9 minutes ago, Harley said:

As I was saying......I see BATS has bounced off a developing upward sloping trend line this month with a big move week to date.  The third higher low on the monthly chart.  The weekly momentum indicators signalled a likely move but I'm not 100% sure how solid that'll be, although I've often be caught out like this recently such are the markets.  I passed on a buy as I already held some and was pulling back overall given the overall market picture.  The monthly candle looks good for a potential turn but that weekly picture is a concern as is the monthly price action resembling a smaller version of the one following the 2018 crash, and also the velocity of the move.  Maybe a good canary stock?  I should at a few others.  Just for comment, defo not advice, DYOR.

PS:  Goes ex div on the 23 Dec so I better not wait too long!

 

I bought a load yesterday and had bought some earlier ladders at 25 and 26. Bought this for the divi yield and because I saw 25 as the current bottom that's held for the last 3 years. My stop loss would be @25 but I am liking the current chart and so will hold for the foreseeable.