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

[M S E Refugee]

https://finance.yahoo.com/news/mark-precious-metals-reports-fiscal-200500821.html

It looks like retail buyers are selling whilst Central Banks are buying.

[M S E Refugee]

3 minutes ago, Jesus Wept said:

It would make sense to move increasingly towards cash if one observed a 500 days ++ inverted yield curve and thought that might predict a 50% crash.

Not by chance -  I have sold nearly all my share holdings - still holding PMs, Miners, Oil, Emerging Markets and Gold. 

Frizzers expecting the £ to crash soon although he's often wrong.

 

 

[headrow]

9 hours ago, Jesus Wept said:

I’ve said this before ….

“The yield curve has been inverted now for over 500 days ”. 

This has only happened three times in the past century, in 1929, 1974, and 2009, and that each time the market fell more than 50 percent.

Just saying. 

Does a 50% fall from here even take out the covid low?

[headrow]

3 minutes ago, Jesus Wept said:

Throw in the 25% additional impact of inflation and it’s a massive crash in real terms.

Also you can't forget the dividend increases either. Every month I get more than I did a year ago.

 

I've considered going all cash and waiting for a crash but I've decided to stay fully invested and save the cash from the dividends to take advantage if and when the crash does come. It's took me 15 years to build this income stream and it's given me so much freedom , I'd rather live with the worry of a huge crash than live with the worry of where do I invest it all again.

 

I'm 85% shares and bonds and 15% cash.

[M S E Refugee]

5 minutes ago, headrow said:

Also you can't forget the dividend increases either. Every month I get more than I did a year ago.

 

I've considered going all cash and waiting for a crash but I've decided to stay fully invested and save the cash from the dividends to take advantage if and when the crash does come. It's took me 15 years to build this income stream and it's given me so much freedom , I'd rather live with the worry of a huge crash than live with the worry of where do I invest it all again.

 

I'm 85% shares and bonds and 15% cash.

I'm no expert and I don't know if it will be the same in Western stockmarkets but going into cash in Colombia or Venezuela waiting for a crash would've have been disastrous.

I've learned that many things in life are counterintuitive and staying invested could be one of those moments.

[HousePriceMania]

10 hours ago, Jesus Wept said:

I’ve said this before ….

“The yield curve has been inverted now for over 500 days ”. 

This has only happened three times in the past century, in 1929, 1974, and 2009, and that each time the market fell more than 50 percent.

Just saying. 

Your post had me thinking last night, all this FTSE all time high stuff, no recession, dropping interest rates etc...all seem too good to be true.

Then I came across this...

https://www.ft.com/content/8979b020-5c9f-40ca-aa28-53559bb8885c

 

The *real* yield curve has just inverted

“Real” meaning inflation-adjusted, or the one that actually matters? Both.
 

Alexandra Scaggs

 FEBRUARY 8 2024

[Noallegiance]

Depressing stuff. Seems like the ideal place for it.

 

[wherebee]

43 minutes ago, M S E Refugee said:

I'm no expert and I don't know if it will be the same in Western stockmarkets but going into cash in Colombia or Venezuela waiting for a crash would've have been disastrous.

I've learned that many things in life are counterintuitive and staying invested could be one of those moments.

This.

My great grandfather didn't lose his wealth in the stock market.  He lost it in the banks collapses that followed on from the stock market collapses.  

So being all in cash - what does that mean?  Numbers in a bank system which might not exist after a crash?

[DoINeedOne]

22 hours ago, M S E Refugee said:

Got rid of SEDY and HFEL this morning so zero exposure to China,Hong Kong and Taiwan.

I've had a punt on some Country specific ETF's such as Mexico Brasil,Vietnam, Turkey,South Africa,Thailand,Indonesia and Malaysia.

21 hours ago, Starsend said:

Can you share some details of the ETFs you've gone for, what kind of tasty yields they have and if you can hold in HL.

I hold SEDY AND HFEL still but am increasingly nervous about exposure to China and Taiwan.

I like SEDY but do agree with the China part and getting my fingers burnt with Gazprom, I posted back in January 2023 some images on the holdings of SEDY, we know they change regularly but I thought I would see the difference between then and now

Hopefully, the image below is not too small, maybe click it to enlarge it 

It's the Chinese bank shares that worry me the most

 

[DoINeedOne]

44 minutes ago, HousePriceMania said:

Your post had me thinking last night, all this FTSE all time high stuff, no recession, dropping interest rates etc...all seem too good to be true.

Then I came across this...

https://www.ft.com/content/8979b020-5c9f-40ca-aa28-53559bb8885c

 

The *real* yield curve has just inverted

“Real” meaning inflation-adjusted, or the one that actually matters? Both.
 

Alexandra Scaggs

 FEBRUARY 8 2024

https://archive.is/ONmDN

[leonardratso]

23 minutes ago, DoINeedOne said:

https://archive.is/ONmDN

hmm .is seems to not work;

https://archive.ph/ONmDN

[montecristo]

Reeves has said they won't raise SPA.  1st time I have heard a politician saying that life expectancy is decreasing instead of the usual SPA must be raise as people are living longer.

 

"Labour will not raise the state pension age if it wins the next general election, Rachel Reeves has said.

The state pension age is already set to increase from 66 to 67 in 2028 and then to 68 by the mid-2040s amid an ageing population.

But Ms Reeves, the shadow chancellor, said there was no “justification” to increase the threshold despite warnings it may have to rise to 70 by 2040 to balance the public finances.

In a phone-in on LBC Radio, she said: “What you’d need to see for any further increases in the state pension age is life expectancy increasing and sadly it’s going backwards at the moment, but also healthy life expectancy, and sadly that is also going back at the moment.

“So I don’t think there’s any justification for further increases in the state pension age.”

https://www.telegraph.co.uk/politics/2024/05/08/labour-not-raise-state-pension-age-rachel-reeves-election/

[Axeman123]

4 hours ago, sleepwello'nights said:

If one accepts that view then it should be that the debt is extinguished when the individual dies. Control of the assets that they have acquired during their lifetime can be passed on to whoever the individual decided but the debts owed to him can no longer be settled. 

What if the assets are debts of others? If a deceased individual can't owe a debt transferable to heirs, can they be owed one on the same terms? Debt is already extinguished on death of the borrower, if it exceeds the assets in the estate. The alternative would create a perverse incentive to simultaneously run up debts and claims on the debts of others and hope to be outlived by the creditors.

[HousePriceMania]

11 minutes ago, leonardratso said:

hmm .is seems to not work;

https://archive.ph/ONmDN

In short, real yields and the curve are finally restrictive enough to lead the economy to recession sometime in the next 7 to 12 months.

 

6 minutes ago, montecristo said:

Reeves has said they won't raise SPA.  1st time I have heard a politician saying that life expectancy is decreasing instead of the usual SPA must be raise as people are living longer.

 

"Labour will not raise the state pension age if it wins the next general election, Rachel Reeves has said.

The state pension age is already set to increase from 66 to 67 in 2028 and then to 68 by the mid-2040s amid an ageing population.

But Ms Reeves, the shadow chancellor, said there was no “justification” to increase the threshold despite warnings it may have to rise to 70 by 2040 to balance the public finances.

In a phone-in on LBC Radio, she said: “What you’d need to see for any further increases in the state pension age is life expectancy increasing and sadly it’s going backwards at the moment, but also healthy life expectancy, and sadly that is also going back at the moment.

“So I don’t think there’s any justification for further increases in the state pension age.”

https://www.telegraph.co.uk/politics/2024/05/08/labour-not-raise-state-pension-age-rachel-reeves-election/

She's lying.

[montecristo]

7 minutes ago, HousePriceMania said:

In short, real yields and the curve are finally restrictive enough to lead the economy to recession sometime in the next 7 to 12 months.

 

She's lying.

soon find out

[Axeman123]

The real yield curve is an interesting idea, however I don't see the fundamental logic in it. An inverted yield curve is about the difference between long and short yields, and banks etc following the incentive to collect the highest yield available and shifting behaviour from credit creation to holding T-Bills etc as a result. Assuming his inflation adjusting just deducts a flat yoy inflation rate or similar from all yields I don't see what insight that gives us, other than to acknowledge that most real yields have (by design) been negative for a long time. If his entire cunning model rests on the result of the mathematical convention that deducting one negative number from another sometimes results in a positive one then that seems the definition of midwittery to me.

Its possible that the actual inflation adjustment of yields is doing something far more intelligent like using inflation breakevens at each duration, but the article is devoid of such detail so who knows?

Edited May 8 by Axeman123
clarify cunning model sentence

[goldbug9999]

3 hours ago, Jesus Wept said:

It would make sense to move increasingly towards cash if one observed a 500 days ++ inverted yield curve and thought that might predict a 50% crash.

Not by chance -  I have sold nearly all my share holdings - still holding PMs, Miners, Oil, Emerging Markets and Gold. 

The various tealeaf analysts, I mean "TA" pundits on twitter seem to have all capitulated on the yield-curve-inversion-signals-recession narrative. 6 months ago they were all crowing about how clever they were in spotting this and preparing, now ... tumbleweed.  Of course that might mean that you are now right being the last man standing.

[HousePriceMania]

15 minutes ago, montecristo said:

soon find out

Best we can hope for is a hung parliament.

Also 650 of them, hung 

[Axeman123]

7 minutes ago, goldbug9999 said:

The various tealeaf analysts, I mean "TA" pundits on twitter seem to have all capitulated on the yield-curve-inversion-signals-recession narrative. 6 months ago they were all crowing about how clever they were in spotting this and preparing, now ... tumbleweed.  Of course that might mean that you are now right being the last man standing.

Macro seems to be directionally accurate but terrible for timing. Its also worth noting that historically it has been the uninversion that actually rings a bell, which still hasn't happened. Considering how utterly unprecendented the money-printing has been since 2008 I wouldn't expect anything less than the longest ever lag from inversion to recession anyway.

[SpectrumFX]

40 minutes ago, montecristo said:

Reeves has said they won't raise SPA.  1st time I have heard a politician saying that life expectancy is decreasing instead of the usual SPA must be raise as people are living longer.

 

"Labour will not raise the state pension age if it wins the next general election, Rachel Reeves has said.

The state pension age is already set to increase from 66 to 67 in 2028 and then to 68 by the mid-2040s amid an ageing population.

But Ms Reeves, the shadow chancellor, said there was no “justification” to increase the threshold despite warnings it may have to rise to 70 by 2040 to balance the public finances.

In a phone-in on LBC Radio, she said: “What you’d need to see for any further increases in the state pension age is life expectancy increasing and sadly it’s going backwards at the moment, but also healthy life expectancy, and sadly that is also going back at the moment.

“So I don’t think there’s any justification for further increases in the state pension age.”

https://www.telegraph.co.uk/politics/2024/05/08/labour-not-raise-state-pension-age-rachel-reeves-election/

It's not clear to me from the article whether she's saying that it will stay at 66, or whether there will be no increase beyond the current planned increase to 68.

I wish that they'd make proper policy announcements with the actual detail in writing, rather than just saying stuff off the cuff to the media.

[goldbug9999]

11 hours ago, Funn3r said:

I'm surprised at all the discussion of "what actually is money?"

Surely anything is money. When I was a kid working class people who could not afford to gamble used to play cards for matchsticks. People have had stones with holes in, funny-looking seashells, dolphin teeth. I've heard that pot noodles are used as currency in prisons.

All that matters is that 

1. Everyone agrees that the special stones or whatever are money. No good being a seashell millionaire if everyone believes that money is special stones. Vice versa.
    
2. There is some sort of restriction and difficulty in being able to get new ones - you can't have something where people can just add as many as they like if they are running short.
    

It's for keeping score. Anything will do.  

Salient points indeed, specifically intrinsic/commodity/utility value not required.

[goldbug9999]

18 minutes ago, Axeman123 said:

Macro seems to be directionally accurate but terrible for timing. Its also worth noting that historically it has been the uninversion that actually rings a bell, which still hasn't happened. Considering how utterly unprecendented the money-printing has been since 2008 I wouldn't expect anything less than the longest ever lag from inversion to recession anyway.

Yes pretty much all the macro commentators have been wrong because that have some aversion to taking account of the $trillion every 100 days printing and insist on comparing yield charts with the 1930's or whatever.

[Harley]

11 hours ago, Joncrete Cungle said:

I have been tempted into a small first ladder back into Yara...

Had a look.  Heading up but may just be the run up to that juicy div ex div date and the back to normal?  MOS up too though and I'm always interested when I see a few move in an industry.  Big picture, the SPAG sector ETF up too, heading back up to re-test resistance on D, W, and M?

Edited May 8 by Harley

[Axeman123]

15 minutes ago, goldbug9999 said:

Yes pretty much all the macro commentators have been wrong because that have some aversion to taking account of the $trillion every 100 days printing and insist on comparing yield charts with the 1930's or whatever.

The most useful thing for me has been understanding the incentives of those people, so for example a macro commentator on YT like George Gammon needs to constantly put out attention getting videos with both an implied urgency and "shocking new information". He can't wait six months otherwise his video will seem old hat after all the competitors have done the topic to death. Even a bank analyst like Zoltan Pozsar has a similar incentive, to literally publish or perish. That doesn't mean there aren't gems in both mens' output, but filtering is required.

[goldbug9999]

Seen a couple of mentions of HFEL  - any theories as to why it was on a long term downwards trend which suddenly reversed about november 2023 ? - looks cheap by historical standards IF the current uptrend is sustained ...