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

[Harley]

40 minutes ago, Presuming Ed said:

Being worried about inflation, yet not seeing much value in the market currently, as a sort of halfway house I've allocated 25% of my portfolio to a number of 'all-weather' investment trusts that aim to preserve and make money in any environment. The 3 I've invested in are Personal Assets Trust (PAT), Capital Gearing Trust (CGT) and Ruffer Investment Co (RICA)

Interesting and thanks for the lead.  I looked at PAT, etc a few years back and concluded they hadn't done much when needed.  But that was then and defo worth another look and maybe an allocation.

[Harley]

2 hours ago, Yellow_Reduced_Sticker said:

 

Indeed!

 

"UK house prices see third month of double-figure growth"

 

Its MENTAL where i live, houses are NOT even being put on RM, sold to people in the area or contacts in the EA game...

 

My neighbor next door has the identical bungalow to mine, they had it valued in the summer at £380K and ffs it would be a refurb!

 

Once I finish landscaping my garden some mug will pay £400K + for mine!

 

Thinking of buying this Detached Bungalow near Durham for only £80,000:

 

https://www.rightmove.co.uk/properties/110218574#/?

 

Yep, a cemetery lodge has lots of potential for up & coming biz!

 

@DurhamBorn how far is it from you, just asking so i don't have far to follow you around for the YRS bargains!

 

They consider that's in bad nick, really?!  Above my normal grade!  I looked at a similar once.  Was tempted as not bothered and that was a gate house.  This one would make a good tea house for the visitors!  The public convenience is next to it (good for the tea house though) and it has opaque kitchen windows (to restrict looking in or out?!).  Presumably, they could bury you in the kitchen to form quite a monument, well for the remaining lease term! 

[DurhamBorn]

2 hours ago, Yellow_Reduced_Sticker said:

 

Indeed!

 

"UK house prices see third month of double-figure growth"

 

Its MENTAL where i live, houses are NOT even being put on RM, sold to people in the area or contacts in the EA game...

 

My neighbor next door has the identical bungalow to mine, they had it valued in the summer at £380K and ffs it would be a refurb!

 

Once I finish landscaping my garden some mug will pay £400K + for mine!

 

Thinking of buying this Detached Bungalow near Durham for only £80,000:

 

https://www.rightmove.co.uk/properties/110218574#/?

 

Yep, a cemetery lodge has lots of potential for up & coming biz!

 

@DurhamBorn how far is it from you, just asking so i don't have far to follow you around for the YRS bargains!

 

Not much going for Hetton apart from a £50 rub and tug.Im in the bottom corner of Durham close to the North Yorkshire border.Its still cheap,but nicer.Stick to the west side of the A1,if you want a real cheap house go for Ferryhill Station,there are rumours they might re-open the station and its on the east coast mainline 10 mins from Durham.If they do prices will shoot up around there ,cheapest place in the country i think.

[DurhamBorn]

@Presuming Ed Ruffer has bought up half of my area.God told him to in a dream or something like that.The church were trying to flog off our history in the Zurbaran paintings,so Ruffer bought them off them,and at the same time said he wanted the Bishops Castle they were in and bought that as well.He is now doing all that up.He has bought up loads of buildings etc as well.Put the lot in a trust etc.My dad has quite a bit in his investment trust.Very clever man.I met his wife ,she does a lot for cancer charities,lovely lady, dressed in old knitted jumpers,seemed to have no interest or be affected by the trappings of wealth,following her Christian faith.

[stoobs]

1 hour ago, geordie_lurch said:

So might be nothing or might be an early warning that TPTB have given the nod to BA about new Thai or possibly even new global restrictions - all flights to Thailand cancelled until October 2022 HT to @montecristo mentioning it elsewhere

It's in the Soaraway Sun. Looks like they're cutting their cloth for a lack of long-haul demand:

https://www.thesun.co.uk/travel/13504897/british-airways-cancelled-flights-summer-seychelles-sydney-bangkok/

Quote

Here is the full list of destinations and when they will stop flying:

 

• San Jose - from April 17
• Seychelles - from April 24
• Pittsburgh, Seoul, Durban, Dammam, Osaka, Abu Dhabi, Lima, Muscat, Charleston, Kuala Lumpur, Calgary - from summer 2021
• Sydney, Bangkok - from October 30

That's a pretty drastic reduction in service to be fair.

We're meant to be returning via Jo'burg with them next August. Looking a bit iffy based on that list.

[Democorruptcy]

1 hour ago, Presuming Ed said:

I took some profits over the last few months and was holding too much cash. Being worried about inflation, yet not seeing much value in the market currently, as a sort of halfway house I've allocated 25% of my portfolio to a number of 'all-weather' investment trusts that aim to preserve and make money in any environment. The 3 I've invested in are Personal Assets Trust (PNL), Capital Gearing Trust (CGT) and Ruffer Investment Co (RICA).

None of them will make me rich but they have good records and they'll hopefully preserve the real value of my money a lot better than cash will. Personal Assets policy is 'to protect and increase (in that order) the value of shareholders’ funds per share over the long term'. Kinda dull but that's what I want at the moment. 

All 3 have been critical of central bank policy and have been primed for inflation for a long time (many deride them as perma-bears) and all have varying allocations to gold, TIPS, etc. but they all have different slants. E.g. Personal Assets are more into quality stocks whereas CGT are more value-oriented. 

Ruffer's biggest equity holdings are BP and Shell so there's obviously an argument that you could just replicate something like this yourself. But what I like about Ruffer in particular is they have allocations to all manner of financial voodoo listed as 'Ruffer Protection Strategies' and 'Ruffer Illiquid Multi Strategies' that I wouldn't know where to start or have access to. 

But in March 2020 Ruffer were one of the few things that actually went up that month because they had a load of derivative protections that kicked in and blunted equity losses. Their monthly report is always quite interesting too:

https://www.ruffer.co.uk/-/media/ruffer-website/files/fund-reports/ric/2021/2021-11-ric-fund-report-nov2021.pdf

The plan is to hold them until any proper crash kicks in (and they hold up better than everything else) then sell in order to buy all the bombed out stuff. If no crash then they'll probably tick along delivering modest returns above the return of cash. 

DYOR etc. They still come with risk but fucked if I'm sitting with half my money in cash at the moment. 

I always like to look a bit deeper at posts like this to see how they have fared and what they are holding.

I presume it's these 3 as they are at HL?

https://www.hl.co.uk/shares/shares-search-results/c/capital-gearing-trust-plc-ord-25p-shares/share-charts

https://www.hl.co.uk/shares/shares-search-results/p/personal-assets-trust-plc-gbp12.50-ord/share-charts

https://www.hl.co.uk/shares/shares-search-results/r/ruffer-investment-co-ltd-red-ptg-pref-share/share-charts

I linked to the chart pages for comparison. The March 2020 falls were something of a blip minor for the Ruffer!

[Presuming Ed]

51 minutes ago, stoobs said:

It's in the Soaraway Sun. Looks like they're cutting their cloth for a lack of long-haul demand:

https://www.thesun.co.uk/travel/13504897/british-airways-cancelled-flights-summer-seychelles-sydney-bangkok/

That's a pretty drastic reduction in service to be fair.

We're meant to be returning via Jo'burg with them next August. Looking a bit iffy based on that list.

Isn't that article a year old??

[Wheeler]

5 hours ago, Don Coglione said:

How anything this volatile can be considered an inflation hedge is a mystery to me.

Up 69% year to date - how much of an inflation hedge do you want? 

[Yellow_Reduced_Sticker]

14 minutes ago, Presuming Ed said:

Isn't that article a year old??

(17 Dec 2020) no - only written 11 months & 29 days ago!

[ThoughtCriminal]

55 minutes ago, DurhamBorn said:

@Presuming Ed Ruffer has bought up half of my area.God told him to in a dream or something like that.The church were trying to flog off our history in the Zurbaran paintings,so Ruffer bought them off them,and at the same time said he wanted the Bishops Castle they were in and bought that as well.He is now doing all that up.He has bought up loads of buildings etc as well.Put the lot in a trust etc.My dad has quite a bit in his investment trust.Very clever man.I met his wife ,she does a lot for cancer charities,lovely lady, dressed in old knitted jumpers,seemed to have no interest or be affected by the trappings of wealth,following her Christian faith.

He's bought half of Bishop Auckland. I've done a few asbestos and strip out jobs there for him. Fascinating bloke and anyone who's watched the Kynren show will be in no doubt that he's VERY Rightwing. 

[planit]

22 minutes ago, Cattle Prod said:

US strategic petroleum reserve going straight to China, as discussed here. Clowns. I think the Pentagon is going to put a stop to this craziness

 

From the release

https://ir.eia.gov/wpsr/wpsrsummary.pdf

Quote

Total commercial petroleum inventories decreased by 15.9 million barrels last week.

That is the highest decrease I have noticed.

 

 

Total stocks including the SPR have resumed their downward trajectory.

 

 

The sentiment is low for oil (and the rest of the market).  Everyone things the lull will last for at least a month (so they are selling).

I worry that the bounce will be very strong when it does happen, oilies' share prices are still low (vs 2019) and getting concentrated due to buybacks.

Everyone sees current oil surplus lasting for the next 6 months+ . US estimated supply has increased 100k for each of the last 3 months but EIA expect this to continue first few months of next year. US DUC's have been reducing steadily in all fields but when I checked the figures I couldn't see signs of stress yet that would feed through to lower oil supply ( @Cattle Prod any comments? ).

 

I am trying to wait for the world covid cases chart to start shooting up before I buy back in, it doesn't look impressive at the moment. (the last wave is Delta but Omicron will kick in and push it higher within 2 weeks).

 

 

[HousePriceMania]

3 hours ago, geordie_lurch said:

So might be nothing or might be an early warning that TPTB have given the nod to BA about new Thai or possibly even new global restrictions - all flights to Thailand cancelled until October 2022 HT to @montecristo mentioning it elsewhere

 

Had a word with the pilot's wife and she says no change as far as they know, they're flying long haul next week too, looked more worried about the other end being put on the naughty(red) list while they are there but think they'll be ok.

 

[HousePriceMania]

Just yesterday I was saying how no one thinks they can lose on the stock market now....

 

https://markets.businessinsider.com/news/stocks/stock-market-outlook-fed-inflates-third-bubble-interest-rates-hawkish-2021-12

 

"The stock market could be on the verge of a massive surge higher if the Federal Reserve doesn't quickly lean into a hawkish policy stance, according to Stifel's Barry Bannister."

 

 

 

Apparently, this isn't a bubble.

 

 

Thank God for that.

 

if this goes pop will someone cry, "they're sliding down Bannister" ?

[HousePriceMania]

More disinformation from the banker run media

 

 

[Hancock]

3 hours ago, HousePriceMania said:

I know a pilot, I'll ask what's going on when I see him next.

Ive just flown to Tenerife and there was about 20 people on the plane.

You can book a 1 way flight for £12.

What seems to be going on is tourism is being decimated.

[HousePriceMania]

27 minutes ago, Hancock said:

Ive just flown to Tenerife and there was about 20 people on the plane.

You can book a 1 way flight for £12.

What seems to be going on is tourism is being decimated.

Deflation is back 

[HousePriceMania]

 

 

 

 

 

 

 

He's my favourite tweeter now.

[HousePriceMania]

https://www.reuters.com/markets/us/fed-prepares-stiffen-inflation-response-post-transitory-world-2021-12-15/

 

so up to 0.03 % by Dec 2023

 

Fed sees three rate hikes in 2022 as inflation battle begins

[HousePriceMania]

Guess what time the latest lies were announced ?

 

[Noallegiance]

12 hours ago, Transistor Man said:

Always worth a listen ...

 

In 18-24 months this man could be a genuine genius.

[stoobs]

3 hours ago, Presuming Ed said:

Isn't that article a year old??

Oops! 

Groundhog Day.

[BWW]

2 hours ago, Hancock said:

Ive just flown to Tenerife and there was about 20 people on the plane.

You can book a 1 way flight for £12.

What seems to be going on is tourism is being decimated.

Is the 12 quid inc taxes.

Plus 80 or so for tests ?

and the vague risk of red list 2000 quid a head welcome-home-jail fee.

I thought spain do not accept pure bloods or are the canaries different?

[sancho panza]

Some wise words from Dr Tim Morgan.

Bold for skim readers

https://surplusenergyeconomics.wordpress.com/2021/12/10/217-no-soft-landing/

#217. No ‘soft landing’

Posted on December 10, 2021

68

MODELLING THE RETURN OF EQUILIBRIUM

 

If we deduct ECoE from total energy available, we’re left with surplus energy, which is the direct material correlate of prosperity.

If we further divide this aggregate surplus energy prosperity by population numbers, the result is prosperity per capita.

Measuring prosperity

The SEEDS economic model – the Surplus Energy Economics Data System – has been designed to interpret the economy in this way. Expressed (for convenience) in financial terms, global aggregate prosperity grew by slightly less than 1.4% annually between 2000 and 2020, meaning that it increased by a total of 31% between those years. 

Over that same period, world population numbers increased by 25%. This means that the average person was slightly less than 5% better off in 2020 than he or she had been back in 2000.

The question here isn’t the feasibility of quantitative conversion to REs. Rather, what we need to know is whether this transition will drive ECoEs back downwards. The hierarchy of challenges involved in transition make this improbable. Even if REs can usher in an era of lower ECoEs, they certainly can’t do so now.    

This interpretation points unequivocally towards further deterioration in prosperity. The average Westerner will carry on getting poorer, whilst prior growth in prosperity per capita in EM countries will go into reverse.

Within this broad projection of eroding prosperity, we also know that the real cost of essentials will carry on rising, not least because most necessities are energy-intensive.

What results is a leveraged equation in which prosperity net of essentials falls more rapidly than top-line prosperity itself. This means that essentials will account for a steadily rising proportion of total prosperity.

It follows from this that both capital investment and the scope for the consumption of discretionary (non-essential) goods and services will be reduced.

None of this constitutes a prophecy of ‘collapse’.

Rather, it poses the challenge of adaption to lower prosperity after more than two centuries in which, thanks to the supply of ultimately finite low-cost fossil fuel energy, world prosperity has expanded very rapidly.  

A process of denial

Conventional interpretations of economics do not recognize the analysis sketched out here. The economy is presented, not as an energy dynamic, but as a system that is wholly financial.

Energy and other resource constraints are dismissed with the nostrum that [financial] demand produces [material] supply.

This nostrum can be described as the systemic fallacy of conventional economics. The reality, of course, is that no amount of monetary demand can create resources (such as low-cost energy) that do not exist in nature.

By the same token, we cannot “stimulate” our way to greater material prosperity, “grow out of” debt and other financial commitments to the future, borrow our way to financial solvency, or “invest” (meaning monetise) our way to economic and environmental sustainability.

Things being as they are, conventional economic interpretation continues to insist that infinite economic growth remains a plausible outcome on a planet that, ultimately, is finite. Nowhere in classical economics will you find any recognition of the concept of ECoE. The word ‘prosperity’ is sometimes employed, but not in the precise and material sense in which it is used here.

This ‘money-only’ fallacy applies, not just to projections for the future, but to interpretation of the recent past. For the period between 2000 and 2020, for example, we’re told that the economy enjoyed “growth” averaging 3.4% annually, and expanded by 94% over that period as a whole.

In pursuit of reconciliation

Here, then, are two contradictory statements. The first is that the economy ‘grew by 3.4% annually’ between 2000 and 2020.

The second is that prosperity ‘expanded by less than 1.4% per year’ over that same period.

We could reconcile these two statements by asserting that the rate of inflation used in the measurement of ‘real’ (ex-inflation) GDP has been understated.

The SEEDS model makes this calculation by calibrating RRCI (the Realized Rate of Comprehensive Inflation). If you took out official inflation (of 1.5%) between 2000 and 2020, and used instead an RRCI rate of 3.5%, reported growth in real GDP would align with growth in real prosperity, as calculated on an energy basis.

There seems little doubt that inflation has been understated – routinely and significantly – in official numbers. This suggests that energy-based analysis can improve our understanding of the economy through the measurement of RRCI.

Measuring difference

Quantitatively, debt expanded by $216 trillion (190%) between 2000 and 2020, a period in which GDP increased by only $64tn (94%). Broader financial liabilities, which include the unregulated shadow banking system, have grown even more rapidly. The same is true of unfunded pension commitments, where we have seen the emergence of enormous “gaps” in the adequacy of provision.

Colloquially, we know that millions of Americans have been described, persuasively, as “debt slaves”, and that millions of people in Britain now use various forms of ‘BNPL’ (meaning “buy now, pay later”), even as more traditional forms of credit-funded consumption have continued to expand.

A growing proportion of the corporate sector has transitioned towards a model based on streams of income, in which the ‘signing up of’ customers is regarded as more significant than actual levels of current sales.

Evidence of the financialization of the economy is, of course, to be found in the prevalence of negative real interest rates, a product of policies which, when first introduced more than a dozen years ago, were presented as “temporary” expedients.

The negative real cost of capital has inflated the prices of assets to levels far beyond anything that can be justified using traditional measures of value.            

From here, where?

Our attention now needs to be devoted to the mechanisms by which equilibrium is restored.

A recent SEEDS project has involved the calibration of a potential ‘soft landing’, by which we manage the restoration of financial and economic equilibrium.

You will not be surprised that the engineering of a ‘soft landing’ is both (a) mathematically feasible, and (b) politically almost impossible.

Essentially, economies would have to accept now adjustments that will, in any case, be enforced upon them at a later point by economic, material, political and environmental trends.

The key word here is “later”. Where unpleasant realities are concerned, ‘never accept today what you can put off until tomorrow’ is an axiom, not just of politics, but of society more generally.

Moreover, there are structural factors – most obviously in America, Britain and the Euro Area – which make the adoption of ‘soft landing’ policies virtually unthinkable.   

In the absence of a soft landing, what lies ahead is a scenario in which we are forced to adjust to ‘prosperity reality’. The likeliest mechanism is inflation and, specifically, escalation in the cost of essentials.

As what is called colloquially ‘the cost of living’ accelerates beyond the affordability of millions, the authorities are likely to be dragged, with the utmost reluctance, into a situation where inflation has to be tamed.

That’s the point – and it’s likely to be very soon – at which equilibrium is restored between an inflated financial system and an eroding underlying economy.

There is analytical value in the modelling of what a soft-landing would look like, even though we know that this course of action isn’t going to be adopted. 

Essentially, a conceptual soft-landing gives us a template against which to measure what actually happens, much as the measurement of prosperity provides a benchmark which can be used to quantify the difference between the economy as it appears and the economy as it is. 

[sancho panza]

6 hours ago, Harley said:

I had hoped to see PM miners rally on good fundamentals but they have backed off for now.  I'll start bying more physical gold soon as that could pop (as it does every few years) but more to hold as a safer haven than cash.  It could go lower but is already quite low and it's a long term hold for me.

It all has a lull before the storm feeling but actually things have been worsening for a few weeks so any storm would be more a late stage realisation!

 

added some alexco,minera alamos and kinross calls tonight.There may be a deeper bottom but the value is compelling here in PM miners.

[Hancock]

33 minutes ago, BWW said:

Is the 12 quid inc taxes.

Plus 80 or so for tests ?

and the vague risk of red list 2000 quid a head welcome-home-jail fee.

I thought spain do not accept pure bloods or are the canaries different?

£25 return. No PCR test needed.

I was merely asked if i had my vaxx at checkin (no one checked), and then i didnt upload my covid vaxx cert for getting the QR code to get into Spain and they just scanned it anyway and let me in.

No more red list countries.

https://www.momondo.co.uk/flight-search/LON-TCI/2021-12-20/2021-12-27?sort=bestflight_a