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

[Yellow_Reduced_Sticker]

3 hours ago, MrXxxx said:

Well doesn't look as though BATS or IMB will be expanding into  New Zealand then!....or perhaps its a ploy for the NZ government to promote their own Victory brand of cigarettes?

https://www.reuters.com/business/healthcare-pharmaceuticals/new-zealand-plans-lifetime-ban-cigarette-sales-stamp-out-smoking-2021-12-09/

 

In which case my yellow reduced sticker target price of: £23.99 may come to fruition!

 

OK, I'll get my coat...

[MrXxxx]

14 minutes ago, Yellow_Reduced_Sticker said:

 

In which case my yellow reduced sticker target price of: £23.99 may come to fruition!

 

OK, I'll get my coat...

I'm not listening to you!....Don't you dare buy our 'precious'! :-)

 

[wherebee]

1 hour ago, sleepwello'nights said:

Dividend data shows: Declaration date 17-Feb, Ex Div 23-Dec, Payment Date 9-Feb

https://www.dividenddata.co.uk/exdividenddate.py?m=ftse100

ah - IB has 17th as last trade date.  

[sleepwello'nights]

4 minutes ago, wherebee said:

ah - IB has 17th as last trade date.  

From the Company's website:

https://www.bat.com/group/sites/UK__9D9KCY.nsf/vwPagesWebLive/DOALSC3V

[geordie_lurch]

This is a great clip of Elon explaining what Governments are very succinctly

“Government is simply the biggest corporation, with the sole monopoly on violence... and where you have no recourse...”

 

[DoINeedOne]

3 hours ago, MrXxxx said:

Well doesn't look as though BATS or IMB will be expanding into  New Zealand then!....or perhaps its a ploy for the NZ government to promote their own Victory brand of cigarettes?

https://www.reuters.com/business/healthcare-pharmaceuticals/new-zealand-plans-lifetime-ban-cigarette-sales-stamp-out-smoking-2021-12-09/

From another article

 

Under legislation announced on Thursday, the minimum age to buy cigarettes would keep rising year after year.

So anyone born after 2008 will not be able to buy cigarettes or tobacco products in their lifetime.

In practice, officials hope smoking will fade away decades before then. Indeed, the plan sets a goal of having fewer than 5% of New Zealanders smoking by 2025

Other parts of the plan include allowing only the sale of tobacco products with very low nicotine levels and slashing the number of stores that can sell them. The changes would be brought in over time to help retailers adjust. (Whilst im not a smoker would that just not make people buy and smoke more to get there hit of nicotine or vape more or eat nicotine chews all of which BATS sell - bit like giving me a shitty weak coffee i want more to get my caffeine hit)

Because the current minimum age to buy cigarettes in New Zealand is 18, the lifetime smoking ban for youth would not have an impact for a few years.

Big tax increases have already been imposed on cigarettes in recent years and some question why they are not hiked even higher.

“We don’t think tax increases will have any further impact,” New Zealand’s Associate Health Minister Dr Ayesha Verrall said. 

“It’s really hard to quit and we feel if we did that, we’d be punishing those people who are addicted to cigarettes even more.” ( but reducing the nicotine to lower level won't make them want and maybe buy more)

And she said the tax measures tend to place a higher burden on lower-income people, who are more likely to smoke.

The new law would not impact vaping. 

Verrall said that tobacco smoking is far more harmful and remains a leading cause of preventable deaths in New Zealand, killing up to 5,000 people each year.

“We think vaping’s a really appropriate quit tool,” she said.

The sale of vaping products is already restricted to those aged 18 (so are cigarettes lol) and over in New Zealand and vaping is banned in schools. (im sure smoking cigarettes is too)

Verrall said there was some evidence of a rise in youth vaping, a trend she is following “really closely.”

New Zealand’s approach to ban the next generation from tobacco smoking has not been tried elsewhere, she said.

 

 

 

 

 

 

 

[MrXxxx]

.

[DoINeedOne]

2 minutes ago, MrXxxx said:

Anyone with GOG?...explains why it '$hit the bed' this morning

https://www.msn.com/en-gb/money/other/uks-biggest-rail-operator-go-ahead-suspends-shares-after-serious-errors-in-accounts/ar-AARDL1I?ocid=mailsignout&li=AAnZ9Ug

 

[DurhamBorn]

4 hours ago, MrXxxx said:

Well doesn't look as though BATS or IMB will be expanding into  New Zealand then!....or perhaps its a ploy for the NZ government to promote their own Victory brand of cigarettes?

https://www.reuters.com/business/healthcare-pharmaceuticals/new-zealand-plans-lifetime-ban-cigarette-sales-stamp-out-smoking-2021-12-09/

Doubt they will care about NZ.Indonesia etc yes,plus fantastic news for smugglers,my mate retired at 35 from fag smuggling,had a unit in Spain making doors,stuffed them full of fags and shipped to UK.Always a free packet off him and a roaring fire at his lock up as he burned all the doors  ,he even used to get something called an enterprise allowance from the government for the "door" company.

[HousePriceMania]

1 hour ago, Yellow_Reduced_Sticker said:

 

In which case my yellow reduced sticker target price of: £23.99 may come to fruition!

 

OK, I'll get my coat...

YRS, I could be mistake, but since you reappeared everything has gone to shit.

You are Mark Carney and I claim by 20% Help To Buy discount.

[JMD]

15 hours ago, mcdongle said:

Ah maybe i misunderstood as i thought the woodside shares were all going to be given to BHP shareholders

Distributing shares – on completion, new Woodside shares (expected to comprise approximately 48% of all Woodside shares post issue) will be distributed to BHP shareholders. The new Woodside shares will be distributed to BHP shareholders as an in-specie fully franked dividend (see Q&A for more information).

I think this is a tax technicality thing. Reading their Q&A section, it says that the 'in-specie...' will be paid in assets not cash. Meaning i think that BHP shareholders will receive Woodside shares?

[leonardratso]

3 minutes ago, JMD said:

Reading their Q&A section, this is a tax technicality thing, and it says that the 'in-specie...' will be paid in assets not cash. Meaning i think that owners will receive shares?

i hope so, i already have too much cash, im lighting the fire with 20's as we speak, these new polymer ones dont like to burn too well, but still better than the glossy junk mail.

[sancho panza]

In terms of market topping out activity,looking at 2000 which was the last time tech ran riot.Currently,huge chunk of gains are FANG related.Survivor bias warning but the thesis states we should see the fangs roll over before the broader indices does.NDX should lead the S&P down.Time will tell.

NDX 100 peaks Mar 2000 using monthly close,bottoms Sep 2002 using monthly close

S&P 500 peaks Aug 2000 bottoms Sept 2000

Cisco peaks Mar 2000

MSFT peaked in Dec 1999

Ebay peaked April 1999

QQQ peaked Mar 2000

Qualcom peak Dec 1999

Texas Instruments peak Feb 2000

 

 

 

[JMD]

5 hours ago, MrXxxx said:

Well doesn't look as though BATS or IMB will be expanding into  New Zealand then!....or perhaps its a ploy for the NZ government to promote their own Victory brand of cigarettes?

https://www.reuters.com/business/healthcare-pharmaceuticals/new-zealand-plans-lifetime-ban-cigarette-sales-stamp-out-smoking-2021-12-09/

Victory brand you say? Strange times certainly lay ahead...  meanwhile...                                                                            Jacinda Adern from Minitrue tweets - '...our Goodthink policy is Fullwise Doubleplusgood!!... see you all at Joycamp.'

[sancho panza]

23 hours ago, DurhamBorn said:

@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.

I thought as much,tI've seen that with my coma scores,how I've adjusted the methology over three years,so although you and David started out from teh same place,you could easily end up at different destinations.and the coma scores are nowhere near as complex as trying to estimate cross market impact of say $X dollar printing.

On 08/12/2021 at 13:04, 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.

I de think a broader propotyion of people are wkaing uup.Booster uptake is way down on the first dose in many places

On 08/12/2021 at 14:21, 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?          

I've psoted on this jsut now but will go back and have a look at the checklist and see where we are.My read is that there's some time to go yet.

I'm planning to sell up and move heavily short using puts if I can identify the turn,otherwise jsut sit tight if I can't and/or msi itt.

I'll psot on here when i start buying puts.Haven't got any yet.Not even priced them to be honest to work out the value plays.

On 08/12/2021 at 14:48, moneyscam said:

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.

The pro's on here @MvR use tastyworks and interactive brokers.

I like saxobanks interface more and it's easier to sue if you're not that techy.in a market smash,you want your big bets on IB as MvR says they get best prices and rarely have outages.

22 hours ago, DurhamBorn said:

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.

An excelent set of poijnts and a good counter point to Fisher's theory.As you allude tho it's how the state steps in that matters and whetehr that moeny finds itself into the hands of marekt players that will spend.

21 hours ago, moneyscam said:

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.

We've built a 3% BAT's position in last two motnhs from nothing ,ave price about 25.50 which I'm well happy with.

[harp]

Silver shitting the bed! Must of been listening to that Hunter chap 

[sancho panza]

Wolf talks some psoter boy stocks getting nailed.I'm unsure about their significance in teh scheme of things.

We've yet to see oil peak and I'd cetainly as a minimum want to see that behind us before mvoing short.

 

https://wolfstreet.com/2021/12/05/the-mayhem-beneath-the-surface-of-the-stock-market/

DocuSign, a company that still had a market cap of $46 billion on Thursday at the close of regular trading, valuing the company at 20 times its 12-months trailing revenues, despite having lost money every year of its existence, plunged 42% on Friday during regular trading, after it had announced that its revenue and billings growth would slow as “the environment shifted more quickly than we anticipated.” Shares are down 57% since September 3rd. Yet, shares are still ridiculous overvalued, trading at 14 times revenues.

Housing-sales-related stocks got crushed.

Zillow had some good news, well sorta, on Friday by promising a big share buyback as it is unwinding its house-flipping business and selling the thousands of houses it got stuck with largely to institutional buyers. Upon the announcement, Zillow’s shares [ZG] jumped 10% on Friday, which whittled down their collapse since February to 71%.

Opendoor [OPEN], another algo-powered house-flipper, has collapsed by 61% since the peak in February this year, only months after its IPO via merger with a SPAC in December 2020.

Compass, which bills itself as a tech company but is a real estate brokerage, went public in April 2021. Over the eight months since then, its shares [COMP] have collapsed by 53%. Hapless dip buyers got steamrollered. It lost money every year under GAAP. If a brokerage cannot make money in the hottest real estate market ever, when can it make money? It still has a market cap of nearly $4 billion.

Redfin [RDFN], another real estate brokerage that cannot figure out how to make money in the hottest housing market ever, experienced a crazy 730% spike in share prices from March 2020 to February 2021. Much of that spike has now been unwound, with shares down 60% from the peak. Easy come, easy go.

[sancho panza]

1 hour ago, harp said:

Silver shitting the bed! Must of been listening to that Hunter chap 

Must say PM's have been one of the few areas where I could see some value options wise.Sold out of our last psotion a week or two back AU 18/19/20 Jan 22.KGC leading the lsoer board.Oct thrid friday close near $7 seems a lifetime ago.

Would love to see some Alexco sub $1.50,Discovery sub CAD $1.60 from a silver persepctive

 

[Bricormortis]

Babcock announce £ 2 billion investment into Plymouths Devonport naval yard, they already indicated 1 billoin of this previously, for the purposes of ensuring the yard can continue to refit / refuel the next generation of nuclear submarines. Sounds like  Faslane could have the plug pulled in the future if the politics fits, Why pay a foreign country to service your fleet. in any event Babcocks will want return on investment from the MOD.

[Bricormortis]

2 minutes ago, sancho panza said:

Must say PM's have been one of the few areas where I could see some value options wise.Sold out of our last psotion a week or two back AU 18/19/20 Jan 22.KGC leading the lsoer board.Oct thrid friday close near $7 seems a lifetime ago.

Would love to see some Alexco sub $1.50,Discovery sub CAD $1.60 from a silver persepctive

 

 I bought first ladders into Barrick, Yamana, First Mafestic about a month ago, holding very long term. I considered the price was good at the time and presume the future will prove me correct.

[Democorruptcy]

23 minutes ago, sancho panza said:

Must say PM's have been one of the few areas where I could see some value options wise.Sold out of our last psotion a week or two back AU 18/19/20 Jan 22.KGC leading the lsoer board.Oct thrid friday close near $7 seems a lifetime ago.

Would love to see some Alexco sub $1.50,Discovery sub CAD $1.60 from a silver persepctive

 

What are your rubber band silver shares?

[sancho panza]

16 minutes ago, Democorruptcy said:

What are your rubber band silver shares?

I don't really have any.With silver I try and buy high quality ones.In the intial round of our purchases Nov 2018,I sprayed n prayed and ended up witha few like Hecla and Couer that I don't want to hold again.

For leverage I try and buy what I believe are high quality so in silver's case,blue chip Fres,small mienrs Alexco/Discovery.

@kibuc and @DurhamBorn prob have more knwoledge on rubber band type stocks.I wouldn't mind reading thsoe names myself.

[sancho panza]

Rosie msut be one of the few deflationsits left and I think it's always good to test your thesis against the best people.I'm a credit deflationist but a price inflationist these days,having been one of Rosie's gang for many years.

Great interview and thankfully a transcript as I soemtiems lose my place in the interviews

Highlights are mine for skimr readers

 

David Rosenberg: Last Disinflationist Standing

 

 Created: 02 December 2021

 

Erik:     Joining me now is David Rosenberg, founder of Rosenberg Research. Rosie, it's great to have you back on the show. Last time we spoke, it wasn't in vogue yet to be talking about inflation, only a few people were. You told us inflation was coming but don't be fooled. It's going to be transitory. Let's get an update. Is that still your view? And what is your outlook? Are you concerned at all about secular inflation?

David:   Well, the last part is easy to answer. So absolutely not at all concerned about secular inflation. And very interesting, I was asked those questions after Barack Obama got elected, and I got asked it again after Donald Trump got elected. And there are no new eras, one about Farrells Fabled 10 marker rules to remember. No new eras, there is no new inflation era despite what you hear. And I would just say that the fundamental forces in place for the past three decades that have ensured that inflation remained on a fundamental downtrend line were the three Ds. Demographics, Debt, and Disruptive technology. And it doesn't mean that we don't have gyrations around that trendline, we had a gigantic gyration around that trendline, you know, in the 2000s, when I was at Mother Merrill and oil prices if you remember went to $150 a barrel and inflation got to the same levels that they're at today and everybody believed back then that we were in some permanently new commodity supercycle inflation era. And I asked the question, how well did that turn out?

So I would say that, you know, for the time being, certainly, inflation is going to remain sticky because of the supply chain issues. People talk about booming demand. That to me is in the rearview mirror, I don't think we have booming demand anymore. And a lot of the durable goods purchases by the American consumer has already been facilitated if there's going to be strengthened spending, it'll come more on the services side, which is still lower today than it was before the pandemic. So speaking of the pandemic, that's really where the inflation is coming from. And it's principally from supply side issues that the Fed or any other central bank has little control over. But I don't believe for a second that supply chains are broken indefinitely. And I do believe that we are going to have a situation where you're seeing it in the commodity markets already where the goods inflation morphs into goods deflation a year from now that's not in the market.

And I guess if transitory to you is, you know, a few days, weeks, months or even quarters, then certainly it's not transitory if you go to the Webster's definition of transitory there's no timeline attached to it. And Jay Powell is thrown in the towel on this, I haven't. Because transitory to me means something that isn't permanent, or something that's short term. And in the overall scheme of things from a, from an economic history standpoint, we will not be talking about this as a major secular inflationary period, any more than we remember what happened in the mid 2000s. When we had that massive commodity supercycle, nobody seems to remember that, but we were talking about inflation back then, too. So I'm feeding the consensus narrative on this. I think the economy is going to slow precipitously next year because of the fiscal withdrawal. I think that God willing, we'll get through the pandemic without any more variants along the way, but that could be wishful thinking. But the supply chains will come back. Globalization is not dead. And we will go back to where we were before, which was an inflation environment. That'll be roughly 2%. I don't see that deviating.

 

Erik:     Now, I'm curious when you refer to Jay Powell throwing in the towel, were you referring to his comments in the course of testimony before the Congress on Tuesday of this week, same day that we're speaking and how do you interpret that? Why do you think the Fed made that statement?

David:   Well, look, it's not the first time we've seen Jay Powell pivot. It's called the Powell pivot for a reason because he was talking extremely hawkishly and actually raising rates in the fourth quarter 2018. And then the stock market collapses 20%. Some stocks are down 30-40%. The credit markets froze. We didn't have a high yield bond issue for a couple of months, and the yield curve flattened. And next thing you know, the Fed's cutting rates three times in 2019. I mean, you got to go back to the last few months in  2018. And rate cuts were nowhere on Jay Powell's mind, and yet 2019 in the context of coming off an epic trillion dollar tax cut by President Trump. We had three Fed rate cuts. So once again, we have a pivot I mean, when you go back to Jay Powell's speech that he gave at Jackson Hole in late August, you know, it wasn't a few years ago, he gave a bellwether speech on the fundamental forces driving inflation down. He seems to have abandoned that and I think because he's under a lot of pressure. He's under a lot of political pressure. And ultimately, you know, who is his boss? It's Congress, but he was reappointed by Biden and I believe he has some sort of political responsibility because the Fed is a political institution when push comes to shove. It is the construct of the Federal Reserve Act by Congress. So to say that the Fed has independence, I've always sort of chuckled at that.

But I think in this case, he's really changed abruptly and I would say no doubt that the inflation situation has proven to have been more cumbersome than even I would have thought or anybody for that matter. But usually, a central bank chair person has a very big picture view, and doesn't allow a few weekly or monthly wiggles in the data. gyrations around the trendline is what I call them, influence your view. I mean, if you remember, go back to Alan Greenspan, back in the 1990s. He was steadfast in the view that we were in a situation of rapid technology, the internet, and that productivity was going to keep inflation low with strong growth. And he didn't feel he had to raise interest rates. And he didn't, and he was right. But he didn't let monthly or quarterly wiggles influence his fundamental view. And I'm finding right now that Jay Powell seems to have been pushed off his fundamental view, it's hard to believe that so much has happened to push them off a fundamental view as much as what's happened in the past couple of months. But let's take a look at what's happened the past couple of months and I'm not talking about inflation. I'm talking about Joe Biden's approval rating has fallen through the floor. And Biden is getting blamed for a lot of this inflation. Most of it actually is beyond his control. Some of it is within his control. But that's because he chose to undergo a massive fiscal stimulus package back in March, at a time when the economy was reopening. And that exacerbated the inflationary situation.

But you see, Biden needs to have Powell sound very tough on inflation right now. He needs that to help his credibility, and to show the public that the government is going to be fighting inflation, since the view is that the reason why Biden's popularity is so low is because of this inflation run up. And of course, you know, it's not really called inflation. It's called screwflation, because most of the things that are going up in price the most are the things that hit the low and middle income households the hardest, and especially when you consider food and energy, and the most visible items in the CPI. So I think a lot of this is politics, in my opinion, and why Powell all of a sudden has taken a more hawkish course, I would still be very surprised. Unless this latest variant turns out to be a flash in the pan that the Fed they they may go ahead with the taper. But I have a tough time believing they're hiking interest rates three or four times next year.

Erik:  That was actually going to be my next question, because Jay Powell did allude to accelerating the pace of tapering and several hikes in 2022. So do you think that was just political posturing doesn't really mean it?

David:   No, I think there's a, a real push within the FOMC to speed up the taper. And they should have actually done that already. I mean, the Bank of Canada north of the border has already ended their QE, the Fed decided to do it in stages. The QE had little impact on the economy. And when you go to the last cycle, under Bernanke, the QE had little impact on the economy. Its impact really is on financial assets. So all the Fed has done is just made fat cats richer by stimulating financial asset inflation. And you could actually argue housing inflation. So that's the problem. The problem here is that the Fed should have started tapering earlier. And frankly, you know, let them taper. They're still buying mortgage backed securities for what reason? Home prices are up 20% year over year. Want to be homeowner households who are renting have been crowded out of the market, because of the insanity on pricing and part of that is because of QE. And the Fed once again, has created a fairly large equity bubble as well. Because even when you normalize for interest rates, the price earnings multiple is so inflated, I mean, you have a cape P/E of 40, which has only happened 2% of the time in the past In the past 130 years. It's a got five standard deviation event.

And so the Fed has once again created as they've done so many times in the past, they created the conditions for a bubble that now has to deflate. The sooner they do that, the better. But when we're talking about taper, that's one thing that's about financial assets, that's about the Fed has your back. And that's not going to be around for investors anymore. rate hikes are something different. Rate hikes will have a meaningful impact on Main Street, which is why I don't think that we'll see the rate hike expectations priced into the treasury curve coming to fruition. And you're starting to see already, just in the past several days, those rate hike expectations coming out of the market, I just think that there's more to go. In fact, I don't even think the Fed will be raising rates at all next year. And it won't be because they don't want to, it's because they don't think the economy will give them the cover to do that. And tremendous opportunity in the rates market, Eurodollar futures, Fed fund contracts, the Treasury curve, anything that's priced for what the market thinks the Fed is going to do next year. That's really what you want to buy.

Erik:     Let's talk about what this means for the stock market. Because normally, if we're talking about disinflation, we're talking about an economy that's going to be in trouble. You know, these are all stock market down kind of signals. But lately, it seems like perhaps due to Fed supplied liquidity, the stock market seems to have this ability to just melt up through almost anything. Is that going to turn around? Are we going to see a meaningful correction or even a cyclical bear market here?

David:   Well, you know the market has received three major tailwinds since coming off the lows in March of 2020. It had a dramatic monetary tailwind, and then it had a dramatic fiscal tailwind. And then it had a dramatic vaccine tailwind. I mean, nobody thought early on that we would ever see a vaccine within five years. And of course, we have to pay attention to the fact that the pandemic is not in the rearview mirror. But we do have vaccines, the medical science is staying ahead of this or staying in line with it. And not withstanding what's happening right now. We have to believe that we did ultimately get through Delta, we'll get through this. But it's going to be a problem. I think, from an uncertainty and volatility standpoint, for the next several months. I don't tend to base my investment advice based on events. As we're seeing right now with this latest variant. I just stick to the fundamentals.

And so what do I see next year? I'm not saying we're going to have a recession, but you don't need to have a recession to have a significant pullback in the stock market. Just go back, as I said before, to the fourth quarter of 2018, there was no recession. That was no walk in the park. And in fact, you had three years in that great cycle from 2009 to 2019. There were three years where the stock market really didn't make you any money. It doesn't go up every year. You know, the problem I have is that there's this expectation now that it will go up every year just because of what happened, you know, coming off the pandemic lows. That's not the way the world works. My big concern is valuations. And people will always say well, but valuations are not a timing tool and they're not a timing tool. But I never advertised to anybody that I was a market timer. This starting point on the multiple is a huge constraint on future returns. In fact, when you're over 40, on the cape multiple, and it doesn't mean you go into recession. It's just about classic Bob Farrell rule number one mean reversion.

In the 2% of the time in the past 130 years that the multiple was this high, the one year, three year, and five year returns for the S&P 500 we're negative and that's all I'm saying. So I don't have a recession forecast next year, I just have a situation where we have an unusually expensive stock market, there's a lot priced in, and there is a risk that the Fed is going to make a policy mistake. And the only way you can justify equity valuations as to where they are right now is through interest rates. But even more to the point when you normalize. When you normalize interest rates. And you look at equity valuations. We're still 15% overvalued. You know, it used to be people said, oh well, we can justify these multiples because look where interest rates are. That was true 9 or 12 months ago. We've way superseded that. So I'm very concerned about what's priced in. I see all the classic signs of a bubble. I see it in leverage. We have marched in debt up more than 40% in the past year, heading to a trillion dollars for the first time. I mentioned the valuations. Sentiment is off the charts. market positioning. I mean, you go to the latest big money, barons poll of portfolio managers, they are all in 68% asset mix in favor of the equity market, it really doesn't get much bigger than that. And then we have portfolio managers when you go to the ICI data sitting on 2% cash ratios, razor thin. And, of course, we got the data from Bank of America just the other day showing that through so far this year, there's been $900 billion of money flowing into equity ETFs, and mutual funds, which is as much as what's been collected in the past 19 years combined.

So you also have massive, if not unprecedented retail participation. These are all the classic signs of a bubble, whether it's sentiment, market positioning, valuation, leverage. And so notwithstanding the economic environment, I am actually pretty worried that anything that causes a mean reversion trade is going to push us into a steep correction. And I think there's a good chance that it'll happen next year. And my big concern, because I don't have a big inflation view, but the Fed seems to have moved in that direction, they start to move rates up then we're in a whole new situation altogether. So the monetary tailwinds that caused people to buy every dip because the Fed had your back. Well, my theme is that the Fed doesn't have your back next year. And we're not going to get fiscal stimulus next year. It's not happening. In fact, the amount of fiscal withdrawal next year is going to be roughly two and a half percentage points of GDP. And yet I don't see that in many forecasters' numbers for next year. How's the economy held in? We had the the amount of fiscal stimulus this year gave the economy a 5% boost. Now, we're going to get some of that infrastructure next year. But it's not going to be enough to offset what's happening in the vacuum from fiscal policy is going to be a huge drag next year, nobody talks about it. So the fiscal tailwinds are over, the monetary tailwinds are over, it doesn't look like the pandemic is over. And so, I think that for next year, it's going to be a little problematic. The big risk to me if you're gonna ask me what the big risk is, and there are numerous risks is that the Fed pulls a classic policy misstep, and decides to follow the market and follow the pressure in the media and start to raise interest rates.

Erik:     Let's talk about commodities. The secular inflation crowd is saying, hey, it's a new commodity supercycle because of the inflation, and it's set to continue. I'm guessing, since you don't share the inflation view that you're probably see commodities is kind of rich to value here?

David:   Well, I think that there are you can point to really a handful of commodities that, you know, are gonna, we'll have a second bull market related to the greening of the world, and electric vehicles, and the like. But, you know, I'm taking a look just now, you know, people are talking about inflation about commodities. I mean, there's some, I mean, if you want to go, you know, if you want to focus on, you know, maybe want to focus on copper, or natural gas, or hydrogen, or those sorts of things, and we've actually constructed an index of secular commodities. There are a handful, but I'm just looking at the day that and everybody's talking about commodity inflation. Meanwhile, from the recent peaks, iron ore is down 60%, lumber is down 50%, steel prices are down 25%, soybeans are down 25%, Corn is down 20% and all of a sudden oil is down 20% and the base metals in the aggregate are down. 12%. And then people come back and say, oh, well, you know, well, you know, lumbers down 50% but only after rising, you know, 100% and I say well do the math on that, because usually you go up 100% And then you're down 50% you're back to where you were. That's exactly what's happened. It's called bear market math. If you go down 100%, you're at zero. And I got people saying, oh well, but you're saying we're down 50% when we were before up 100%. Yeah, exactly!

Erik:     I won't comment on the ability of people in the finance business to understand arithmetic but your point is well taken, sir.

David:   So what, but commodities are rolling over. I mean, up until the last couple of days, the dollar had been strengthening. Of course the dollar has given it up a little bit because of these receding Fed tightening expectations for next year. But I've seen look, the thing about goods inflation, nothing's permanent here. And it just moves on a cycle. I think this time next year, the 40% of the CPI called goods is going to be negative, it ain't going to be positive. Service sector will be a little stickier admittedly. There's going to be all sorts of crosscurrents. But the thing is that the dominant impact on the service sector side is, of course, imputed rents and actual rents. And that's going to be problematic for my view for the next few months. But I'm looking at the data. And this is the reality of a free market enterprise economy is that high prices will attract supply. And maybe this is something that has nothing to do with global supply chains. And nor should it but I'm just noticing that when you take a look at multifamily building permits, housing starts, units under construction and completions, they're booming.

The number of rental units under construction right now in the United States is at the highest level in 45 years. And there's a lag here. But it's telling me that the supply response, in the second half of next year will be overwhelming. The vacancy rate will go back up, and rental rates will come back down. Just as the lagged impacts of what I just mentioned on commodities is going to filter through to the goods part of the CPI. I think inflation is going to melt in the second half of next year. Now for a lot of people that's just too long, because you know, we speak to those people today. They're so tempestuous, long term to them, is lunch tomorrow. But I'm saying that you have a lot of inflation priced into the bond curve. I mean, you got almost 3% inflation breakevens. In the five year treasury note, you got three to four rate hikes priced in for next year.

And based on my forecast on the economy and on inflation, none of that's going to happen. And that's why it tells me to be bullish on the Treasury market. And actually, for all the talk about what a horrible year this has been for the Treasury market, yields peaked at the end of March. It's actually been terrific ever since. Despite all the horrific inflation and all the bond bears out there as vocal as they could be. And we have almost a record net speculative short position on the CBOT and the 10-year note. It's incredible. And so what do you do for an encore? So I think we're going to go through a bull flattening, which has already started, and that tells me and as far as investing is concerned, but you want to be long the longest duration bond, the 30 year treasury. But I would also say that bond proxies should do well.

And I think within the equity market, if I'm long only equity, I want to be in defensive growth. I do not want to be in cyclicals. I think the consumer is going to fade next year, there's no pent up demand on the good side. And I think that if you are going to be in the equity market writ large, defensive growth, you know, that means it could be parts of technology, healthcare, consumer staples, and dare I say utilities. Utilities by the way, which are the most detested and under owned sector of the stock market. But that's because of its high correlation with the Treasury market. That's why everybody despises it so much because they despise the bond market. And they don't understand the bond market. But you're not buying the bond market for the coming year on yield, you're buying it on price. Because if I'm right on this narrative, the total return will be very significant, at least 10% at the long end of the curve.

Erik:     So the play there is price appreciation on the expectation of declining yields on the 30-year, how far down do you think the 30-year yield can go?

David:   Well, you know, we're already down to 180, if not mistaken. And I think the 10-year will get down to 1%. And I think that the long bond will get down to call it roughly 130-135.

Erik:     David, let's move on to precious metals, a subject that's near and dear to many of our listeners hearts. What do you see going on there?

David:   Well, I actually think that if there's going to be a year for gold, 2022 is going to be the year. For one, I think that a lot of these interest rate expectations that are priced in that have caused the US dollar to snap back in the past several months that's going to unwind. And so since gold is priced in US dollars, it's the perfect hedge against the US dollar. I think that's going to be a tailwind. On top of that, if I'm right that a lot of these rate expectations dissipate. Bond yields come down and we have to remember again that gold is inversely correlated to bond yields. Because the opportunity cost of holding gold goes down as bond yields go down. Well that's going to be another very important tailwind for gold. But there's a third one, which is what's happening on the geopolitical side. And we have to keep an eye on China more than ever, more than ever, especially with what's perceived to be a weak administration on foreign policy and Xi Jinping more powerful than he's ever been before. And we have to watch China and its ambitions, we have to watch what that means for Taiwan, which I think we'll see more in the news. And I don't think we'll go into a war with China. That's not going to happen in a classic sense, but economic warfare, cyber warfare, there's going to be that sort of a warfare, I think that tensions with China are going to accelerate.

And gold should once again be that classic geopolitical hedge. You could say to me, well, you know, wouldn't Bitcoin or crypto also serve that purpose? But you see the thing is that gold is a safe haven. And it does not have extraordinary volatility but crypto does. And so for all the people that talk about crypto in how you value it is really anybody's guess, it's really just a momentum gauge. That's all crypto is, it's a momentum gauge. It is the poster child of the risk-on trade. That's all crypto is. And so I think next year is going to be the inverse of the risk-on trade. I think that next year will be the risk-off trade. And I think that crypto and Bitcoin will have a tougher time of it next year, and of everything I said I talked about defensive growth, I talked about utilities, I talked about the Treasury Market, I talked about gold. Next year will be the year of mean reversion where safety valves come back into vogue or capital preservation, which has been lost among the investment masses. Capital preservation never goes out of style. But there's a belief that it has but it hasn't. That will be a theme next year. Safe haven investing, capital preservation, and the era that we've had unusually, and I think this is maybe the market gods have been testing our resolve and our discipline, but throwing caution to the wind, which has worked so well, in the past two years. I expect that that to will be mean reverting in 2022.

 

Erik:     David, with respect to crypto I personally agree with you. I think the fundamental argument for gold is better. But you know, there's a lot of people who disagree with us. What does that mean, just in terms of market share, it seems to me like one of the reasons gold hasn't performed so well here is that a lot of people who used to buy gold under these circumstances have decided that they think it makes more sense to buy crypto. When you see crypto maybe having a washout next year, does that mean that money flows into gold?

David:   I think that that will probably happen. I mean, there's other reasons why I'm bullish on gold, I am not in the higher interest rate camp. If I was I'd be bearish on gold and the lower bond yield camp, that view is now actually not just now, but the past little while been working out very well. I am not a bull on the US dollar and so that's going to be something that helps out. The Crypto call is just because for no other reason. It's just so highly correlated with the risk-on trade. So if I had a risk-on trade for next year, I'd have a high beta portfolio, I'd say sure. You know, go buy Bitcoin or go buy crypto, sure. But if I know anything about the crypto space and I'm not talking about the technology of it. I'm just saying you know, yeah, people are saying that we've been wrong and missed out on this other bubble. But, you know, it's still a currency. You know, it's not called. I mean, unless I'm wrong, correct me if I'm wrong, Erik it is called the crypto market? It's called cryptocurrency. It's currency. We're gonna make a killing on a currency. I don't know. I never heard anybody ever say to me, Hey, how do I make a killing on the Swiss franc or the Korean Won? Can you help me do that?

So it's tremendous optionality because of the volatility. But to me, you know, it's, you know, Bitcoin is really for somebody my opinion with ice in their veins and a certain risk profile. I would never recommend it to my clients because you see, my clients have a certain focus that I can help them with, which is called capital preservation. How does Bitcoin help you with that? It moves in and out of bull and bear markets every two months, but next year, if we're gonna say, go take a few weeks or a few months, we know how volatile it is. I would be very surprised if bitcoin makes you money next year. But I wouldn't be surprised if gold does.

Erik:     Speaking of currencies, let's talk a little bit more about the US dollar because as you said, I agree with you that the risk of escalation geopolitically between China and the United States is very significant. And by the way, China has the more sophisticated and more advanced hypersonic weapons as far as I can tell. So I think this is a really interesting time. What does that mean for the US dollar?

 

David:      Well, I think that, you know, to me, the most important determinant of currencies, ultimately, are relative interest rate differentials. And so I would say that, because I believe that the Fed is not going to be doing anything next year, and I know that raises a lot of eyebrows, but only because of what the markets have suddenly priced in the past little while, I think the dollar is going to come under pressure. Now, I think that if you're talking about which individual currencies, well, in a risk off environment, which I think we're going to have next year, it will be currencies like the Swiss franc, and like the Japanese Yen that you probably want to have in the portfolio. The currencies that are most cyclical are going to have the toughest time and that would include the Canadian dollar, the New Zealand Dollar, the Australian Dollar, the Norwegian Krona, the South African Rand, the commodity currencies next year, I think you're gonna have a pretty rough year. So, you know, when you take a look at the US dollar, there's some areas where it might do better against, but against the Yen and perhaps even against the Euro against Sterling, I think that it's going to struggle on. Those are the dominant components of the trade-weighted index.

Erik:   Well, David, I can't thank you enough for a terrific interview. But before I let you go, tell us a little bit more about what you do at Rosenberg Research. You were with a private wealth firm a few years ago. You've branched off, you've got your own firm, tell us what it's about?

 

[Harley]

5 hours ago, wherebee said:

ah - IB has 17th as last trade date.  

I need to look up "last trade date" as I assumed I could buy up to the session before the ex-div date to get the divs. 

[Castlevania]

4 hours ago, JMD said:

I think this is a tax technicality thing. Reading their Q&A section, it says that the 'in-specie...' will be paid in assets not cash. Meaning i think that BHP shareholders will receive Woodside shares?

Is it a taxable event?