Credit deflation and the reflation cycle to come (part 9)

[Cattle Prod]

On 21/04/2024 at 07:26, baffledbyzirp said:

The funds confiscated will have already been spent or pledged against arms and aid. The great irony is that during the 1980s Ronald Reagan's Star Wars program forced the Russians to spend resources they did not have countering a supposed threat that never existed. The Star Wars capability was never what the architects had envisioned. Russia was bankrupted and the system fell.

Today the US tried to play the same trick. Initiate a war with Russia via proxies by provocation per Victoria Nuland and Maidan Square. The game plan was promise the Ukrainians the world and military support, sanction Russia, exile them from international financial plumbing, freeze their assets, compel all allies to follow suit ergo the Rouble collapses, Putin is discredited and American hegemony is reestablished following the embarrassments of Syria and Afghanistan. Hey presto Pax Americana is restored and a neat little ancillary benefit is US LNG replaces Russian gas in Europe and Germany, a major exporter of goods to the US, is forced to deindustrialise, win-win.

The reality however is that Russia is incredibly resilient because of the sanctions post 2014 and has established new supply lines and agreements internationally via BRICS. Furthermore, Russia has a competitive cost advantage when it comes to military hardware and a greater reserve of brave young men to be sacrificed on the international political chess board. Thus America is now being dragged further towards the cliff edge with every additional $Billion sent to Ukraine. They have been hoisted by their own petard. Russia learned from the 1980s whereas the Americans did not. They might as well fire the missiles at themselves!

Thats really good BBZ. If could also layer on that Russia has no debt, and has the worlds hoard of commodities. They don't have to sell government bonds and the big difference with the 80s is that the world desperately needs their commodities. There was a glut of oil and gas in the 80s, along with many other materials. They also have enough gold (built up since 2014 as you point out was a key year) to fully back their currency. I think it's entirely possible the DoD has allowed the State Department and the political class be hoisted by their own petard!

May you live in interesting times, said the Chinese fella.

[Axeman123]

30 minutes ago, Cattle Prod said:

this originates in the US Department of Defense. They war gamed this out years ago, as they saw exporting dollars has hollowed out the defence supply chain to China, and is now a huge national security issue. AFAIR, the Treasury department did not want to take the step of sanctioning foreign reserves, but were pushed by DoD

...and suddenly the massive push by the current US administration to troon the military including its top brass looks like an attempt to neuter a rival power base by the Washington DC camp.

[Noallegiance]

43 minutes ago, Harley said:

Ah, when to sell!  Commodities taking a bash these last few days.  IMO, time like this you need a system to make the call to sell or hold.  Lance Roberts on Thoughtful Money has mentioned the 20 SMA as the first line (so of interest to traders - and algos!).  With a twist - don't sell immediately price falls below it but wait to see if there is a rebound.  I've taken his suggestion and sold a few which didn't but have held others (when I would normally have sold based on my previous approach).  Always up for improvement.  Let's see!  Anyone else have sell side algos they follow?

I finally realised months back that my personality and outlook suits reminding myself that I'm an investor, not a trader.

So I continue to remind myself of the big long term picture and simply hold what I believe will be beneficial over the coming months.

Like Jim Willie said, I don't measure my son's height every day wondering whether I need to put him on stilts. I wait a while and hey-presto he's taller.

These pullback have happened and recovered often enough for me not to concern myself.

[Cattle Prod]

3 hours ago, M S E Refugee said:

I'm convinced the Chinese have dirt on most of Biden's administration, Blinken ain't gonna do shit!

The Yanks look pathetic pleading with the Chinese every few weeks.

Yup optics are very important to the Chinese, and I don't see them going to Washington. The Plaza Accord was held at the Plaza hotel in NYC. It wasn't held in Japan, despite them being the economic powerhouse of the time. No, they went as supplicants and took a good rogering, giving them their lost decades. It's a bit different when the US wrote your consitution and enforced it (especially the pacifict aspects) with a few giant guns to their head in the form of US military bases on their soil.

This isn't the case with China now. The Shanghai Accord will be (was?) on Chinese terms.

"I don't care if you were in China last week, get back on that fucking plane!"

"But they'll only take gold and silver in payment for their tea exports!

"Can we not sell them drugs again?"

"No, they are selling us drugs now!"

"FFS. Give the Pentagon what it wants"

Edited April 23 by Cattle Prod

[sancho panza]

On 19/04/2024 at 15:53, Roger said:

Great post. I just wanted to pick up on this point, if I may. My gut would tell me that for every winner in the market, there's a loser. So for those 50% that fail to beat the market, there'll be 50% who succeed (ignoring spreads for the house).

So when you say it's "extremely difficult" to beat the market, are you saying that it's difficult for us lay people because the dice are loaded against us? I.e. the winners are largely insiders/ knowledgeable trading with large sums and we tend to be on the other side?

I think the odds are worse than that tbh.I'd likely say it's 40% winners and 60% losers.Then use a deflator ie real returns,then likely there's 20% winners or less and 80% losers.your average basement dweller likely in the top 10% over last 4 years if they've followed 50% of the timing calls from the SME's like @DurhamBorn @Cattle Prod

you have to consider that the real moeny is made by the middle men.Less brokers these days (they still amke money) but defo money managers with their fees,IFAs to.All make moeny whtehter their investors win or lose.........................and lose they do.

In tersm of the managed there are real structural issues eg 60/40 bond equity splits that essentially mean many of the nominal winners of the last few decades will now beocme losers.

there are aslo structural issues in term sof fees,.So IFAs put peoples money intoa managed fund which may charge 1%,they themselves then cahrge 1%.ave FTSE 100 divi is 4% so 50% of compiund growth is geting stolen.

there's also the issue of managed moeny chasing quarterly returns for bonueses.inherently forcing managed money into momentum stocks that eventually collapse.

 

so why is your ave dweller ahead.well quite simply our timeframes are very different to many otehrs.we make moeny from making profits divi (please dont) or capital gains.curcially our timeframes are way longer than msot hedge funds.I can sit on a lsoing position for four or five years if I wish.even logner maybe.your ave hedgie starts sweating at 30% down.

On 21/04/2024 at 23:22, CannonFodder said:

Whoever is doing it, is using the playbook

It started a long time ago. Apologies if this has been posted before but explains the approach.

 

 

that was excellent.15 years from marxist education to being in govt.so true.

[DurhamBorn]

3 hours ago, reformed nice guy said:

https://www.bbc.co.uk/news/business-68874849

UK government borrowing higher than forecast

Despite the fiscal drag
Despite the massive population increase
Despite the increasing taxes
Despite extra north sea oil tax
Despite the currency devaluation

The short term gilts are about 5% so that will be a lot more interest due in the next 12months.

We are in a debt spiral

Yep.Fiscal drag,Paul gets 6% pay increase,but taxed about a third.Fat Shaz gets 6.8% not taxed at all,so Paul gets 4% Shazza gets 6.8%.Direct transfer of wealth from Paul to Shaz.Paul decides his mental health aint good,joins fat Shaz.

The assault on decent hard working people is incredible.Millions of migrants on top funded by bennies,pushing up rents.

I said six years ago we needed to produce around 30% more,or consume 30% less (likely mixture of the two).Unless they freeze bennies and public sector pensions,workers and private sector pensions will lose 60% to 70% of buying power and around 85% of the population will have to stop working and go on bennies.It was the worst macro set up id ever seen in a developed country,and its playing out to the letter so far with zero reforms.

I should add,its financial repression on steroids,avoid all bonds,and only own needs (like telcos) not wants.

Edited April 23 by DurhamBorn

[sancho panza]

[JREWING]

At least we know the break above US$2,050 in gold since February has them concerned enough to pull a margin increase at the COMEX right ahead of next week's FOMC meeting, and clearly shows that the FED is really stuck and out of bullets and gold knows it;

  1. They are loosing money because long term rates are rising. 

  2. They have to raise rates do deal with inflation and long-term rates but would kill the stock market.

  3. They have to lower rates to keep the stock market going, help real state, and ease the funding of all these wars. 

They are fully out of bullets and gold gets it, do you?

Wake up and realize that for 4000 years gold has not been a Pet Rock but the vaccine for the consequences of Central Bank policy gone awry.

 

 

[sancho panza]

this is one of those one of tax victoreis that will be a fleeeting victory as more people with moeny will leave.utterly derpessing to be facing death and knowing the WEF acolytes in westmisnter will be blowing 40% or so of your savings on bennies for people who have likely never saved

very hsort sighted but that seems to be the plan these days with things like the windfall tax on north sea-one great photo op for the MSM then expensive/cold winters for the population

also some interesting detail on QE losses of £45bn for BoE.which Im not seeing leading the 6 o clock news whihc it should.

https://www.telegraph.co.uk/business/2024/04/23/inheritance-tax-hits-record-stealth-raid-hunt/

Inheritance tax take hits record £7.5bn after stealth raid by Hunt

Data published by HM Revenue & Customs showed it received £7.5bn in inheritance tax (IHT) receipts in the financial year to the end of March, £400m above the same period last year.

The amount raised from IHT has surged in the past few years after the Chancellor froze the threshold at which it is payable at £325,000 until 2028, preventing it from rising in line with inflation and forcing more families to pay.

The deficit stood at £11.9bn last month, according to figures published by the Office for National Statistics (ONS).

This is higher than the £10bn predicted by economists and means the Government borrowed £120.7bn to plug the gap between tax receipts and public spending in the 2023-24 financial year.

It is also £6.6bn above the borrowing target set just a month ago by the Office for Budget Responsibility (OBR), the Government’s tax and spending watchdog.

The figures also show the Government transferred almost £45bn to the Bank of England last year to cover losses on its bond buying programme. The Bank hoovered up around £900bn in debt during the financial crisis and pandemic, turning a profit as the returns on the gilts it bought outstripped the interest it paid to commercial banks on reserves.

However, this has turned into losses as the Bank has raised interest rates to 5.25pc in the wake of Russia’s invasion of Ukraine.

The Bank is also selling some of its bonds at steep losses as it actively winds down its balance sheet. The Bank currently estimates total net losses of £80bn to the taxpayer over the next decade.

[DurhamBorn]

On the metals,this short term knock back is just what we want to see,violent weak hands shaken out.I expect the next leg up will be even more violent.Market is selling because it sees 5% rates BUT if/when inflation turns up again real rates will be -2%+ rocket fuel to metals and will see a huge transfer of wealth from bonds/bubble stocks etc to real assets.

[Axeman123]

22 minutes ago, JREWING said:

loosing

Stopped reading at that point tbh.

[DoINeedOne]

5 hours ago, JREWING said:

Skinny Shaz in Oz

She ain't happy but she'd put a smile on my face.

Getting bad all over now. 

A good point is it's getting getting so expensive to pay someone to build a house and the materials are blowing out in cost.

There is the clue. You'll own a trailer and be happy. Glad I'm an old cunt in his final quarter of life as this won't end well for the 99 percent.

 

I know a few people working their asses off just to pay bills as she said its not living

I

[Long time lurking]

 

[Loki]

8 minutes ago, Long time lurking said:

 

US rate is already 5.25% - 5.50% though?

[janch]

7 hours ago, Axeman123 said:

wealthy foreigners just wanting a pomme de-terre for luxury shopping trips

Sorry I just had to comment................it caused me some merriment......I don't think they're after potatoes......

[Bobthebuilder]

3 minutes ago, janch said:

potatoes.

Apple.

Sorry didn't read the quote correctly.

Potato.

Edited April 23 by Bobthebuilder

[janch]

Housing in US:

https://www.zerohedge.com/markets/bidens-america-40-renters-think-theyll-never-own-home-27-last-year

What a sad state of affairs.

Meanwhile in the UK Bristol is the van-dwelling capital:

https://www.bbc.co.uk/news/uk-england-bristol-68597681

Look at them lined up on the Clifton Downs

[Axeman123]

9 minutes ago, janch said:

Sorry I just had to comment................it caused me some merriment......I don't think they're after potatoes......

I do know it was pied a terre btw, the frogs call potatos "apples of the ground" for some reason if directly translated.

I was expecting laugh reactions, so now I wonder:

• Did no one else spot it?
• Did they spot it and feel bad for me pointing it out because they thought I didn't know?
• Was everyone just too cool to ruin the incredibly subtle joke?

[Long time lurking]

38 minutes ago, Loki said:

US rate is already 5.25% - 5.50% though?

Just like commodities the price today reflects the price you will pay months /years down the line rather than today  

The shit really hits the fan when bonds exceed the Fed`s base rate though at this point everything sold prior to that point gets a hair cut 

Edited April 23 by Long time lurking

[belfastchild]

7 minutes ago, Axeman123 said:

I do know it was pied a terre btw, the frogs call potatos "apples of the ground" for some reason if directly translated.

I was expecting laugh reactions, so now I wonder:

• Did no one else spot it?
• Did they spot it and feel bad for me pointing it out because they thought I didn't know?
• Was everyone just too cool to ruin the incredibly subtle joke?

I went out and counted my potato stash.

Which reminds me to get the next ones into the ground soon.

[Axeman123]

8 minutes ago, Long time lurking said:

The shit really hits the fan when bonds exceed the Fed`s base rate though at this point everything sold prior to that point gets a hair cut 

Indeed, that is likely what the final delay on rate cuts will be - waiting for markets to drop yields on their own first. IIRC the big Fed hikes came when market yields started running ahead of them.

[Long time lurking]

Well on the plus side it`s by 2030 so likely never to happen 

[Axeman123]

Yahoo finance with an epic opening paragraph:

Mortgage lenders hike interest rates as market jitters set in

Quote

Anxiety has set in among UK mortgage lenders, with rates being hiked left, right and centre, amid uncertainty about how the Bank of England's interest rate path will play out...

https://uk.finance.yahoo.com/news/mortgage-interest-rates-latest-barclays-hsbc-natwest-halifax-151133798.html

Meanwhile Sunak confirms ESG just means "aligned with government policy priorities"

PM says investments in weapons companies meet ethical criteria

https://uk.finance.yahoo.com/news/pm-says-investments-weapons-companies-153120348.html

[Long time lurking]

Nothing to see here mover along it`s just market sentiment 

 

[Lightly Toasted]

5 hours ago, Cattle Prod said:

That's a very good question, and I wish more people would ask it.

They do, this originates in the US Department of Defense. They war gamed this out years ago, as they saw exporting dollars has hollowed out the defence supply chain to China, and is now a huge national security issue. AFAIR, the Treasury department did not want to take the step of sanctioning foreign reserves, but were pushed by DoD. Sorry I don't have source to quote for that, but pretty sure Luke Gromen covers it.

It's classic Dutch Disease, if you can print your main export (dollars) your industries will atrophy just as they do when you dig your money out of the ground practically for free (oil and gas). So that's what it's about. They want the UST export racket killed, which means deficit spending killed and/or dollar devaluation so that the dumb fuck politicans have to build up domestic industry again. The Inflation Reduction Act was the first salvo. You'll notice that came out of nowhere with a bow on it not long after those reserves were sanctioned. Now fully stolen. Bear in mind that these are people who are ready to make decisions about nuking millions of people, they could care less about the economic consequences of killing the UST. Deficit spending gone? Fuck you assholes! Suck it up, stick your NFTs where the sun don't shine and build me a goddam ball bearing factory.

Very interesting. The status of reserve currencies is called "exorbitant privilege"; I always wondered "exorbitant for whom?"

In the long term it's exorbitant to the issuer, of course, though that's not what's meant.