Credit deflation and the reflation cycle to come.

[BurntBread]

10 minutes ago, Majorpain said:

It boils down to something simple IMO, people are naturally greedy and want to consume as many resources as possible.  Add this to credit being cheap and its enabling consumers to continue spending long past the point most people expected it to stop.  Those low monthly payments for new shiny toy are sooooo tempting.....

Its not really a big consipiracy, central banks just hooked the world economy up to QE economic heroin and rode the high.  Now the drugs are wearing off, do they go for cold turkey or overdose?  Fed is saying cold turkey.

People can be happy with almost anything, provided their neighbours have the same. It's the competition for status which has almost everyone pressing the debt lever like a rat with cocaine in the water supply.

As for how it keeps going? I think that hitherto, hitherto, mind you, everyone was riding the deflationary effect of China coming-on stream: a massive increase in productive capacity and huge supply of labour, pushing down its value. That's why comments about Chinese wages going up (which, to be fair, has been the trajectory for quite some years), and their current account switching to a deficit, feel very significant.

[Eventually Right]

Hi Durhamborn,

I have a question about buying physical PMs if the scenario you see plays out.

as I understand it, you can see silver dropping to from it's current level of $16-17 to $10 in a bust, then potentially going to $100+ in the reflation.

ideally, if that was to come to pass, it would be preferable to buy at $10 in the deflation, rather than $16-17 now.

however, I believe you’ve said you see sterling falling to parity with the dollar in a deflation, as everyone rushes for the safety of the US? 

In which case you’re talking about paying approximately £12.50 an ounce now, compared with £10 if silver and the £ fall.

Given I believe you see that there’s a chance (although you don’t think so) we skip the deflation and go straight to reflation, wouldn’t someone looking to buy physical PMs be better forgoing the potential cheaper prices a deflationary bust would bring, and pay the £12.50 rather than a potential £10?

given the potential payoff you see ($100+ silver) should we be that bothered by buying at $16?

obviously miners are different, due to the leverage involved and could drop more in a crash/rise more in the reflation.

thanks.

[Lavalas]

Not sure if you can get an oz of silver for much cheaper than ~£16. I agree though it’s an interesting question and I’ve averaged in a bit to make sure I don’t miss any boats.

https://www.silver-to-go.com/en/silver-coins/britannia/1-oz-britannia-silver-2018/

 

[Thorn]

Good to hear the signposts still there for you DB. Feels like we are nearing a Big Turn. and the miners have been grinding upwards.

I got twitchy every TLT/IBTL fall there and moved some out and over to cash. See it’s going back up today, though...

DYOR etc but do you still say get some and is it just hold on and watch for the high as before?

 

Just now, Lavalas said:

Not sure if you can get an oz of silver for much cheaper than ~£16. I agree though it’s an interesting question and I’ve averaged in a bit to make sure I don’t miss any boats.

https://www.silver-to-go.com/en/silver-coins/britannia/1-oz-britannia-silver-2018/

 

+1

[Cosmic]

27 minutes ago, Lavalas said:

Not sure if you can get an oz of silver for much cheaper than ~£16. I agree though it’s an interesting question and I’ve averaged in a bit to make sure I don’t miss any boats.

https://www.silver-to-go.com/en/silver-coins/britannia/1-oz-britannia-silver-2018/

 

Nope you won't be paying spot for coins, perhaps he means a physical backed fund which would get you closer, but chose wisely.

I definitely think it's worth having some now, as a hedge and funds to buy more if it goes down, but if what we expect comes to pass it won't matter if you miss the bottom by a few dollars, but it will hurt if you don't have any.

[harp]

19 minutes ago, Thorn said:

Good to hear the signposts still there for you DB. Feels like we are nearing a Big Turn. and the miners have been grinding upwards.

I got twitchy every TLT/IBTL fall there and moved some out and over to cash. See it’s going back up today, though...

DYOR etc but do you still say get some and is it just hold on and watch for the high as before?

 

+1

I saw IBTL hit 347 (just) before dropping back down again last week. Sold all of it at 345, just looking to buy back in. I take it this is due to the USD dropping? DB says it was going to hit 95 before the turn back down. It very nearly hit 95 before the drop so I sold. But as someone above says that he thinks the USD v GBP is going to parity? I guess as DB says it's back down to 86 odd then turn again? Not sure how to read between the lines sometimes.
But a possible good thing, bought Vodaphone today again (after selliing a fairly large amount last month along with Drax, go-ahead) at 188 and a few more BT today also. Picked up some miners SBGL and Harmony for the first time which scares the shit out of me!!

[Eventually Right]

4 minutes ago, Cosmic Apple said:

Nope you won't be paying spot for coins, perhaps he means a physical backed fund which would get you closer, but chose wisely.

I definitely think it's worth having some now, as a hedge and funds to buy more if it goes down, but if what we expect comes to pass it won't matter if you miss the bottom by a few dollars, but it will hurt if you don't have any.

Yup-sorry, I was just using the spot price for simplicity. 

I’m just trying to decide how much I invest in PMs/miners/reflation shares now, and how much I keep in cash, given there’s a risk (however unlikely) of skipping the deflation, and the PMs being very close to their lows (at least in sterling) already.

its a tricky one!

[Dogtania]

I like having some silver coins in hand now though in this country you do pay quite a premium (US less so?).  Anyway for me at least it's more a long term thing and also not life changing thing.  As I said it's nice having some expensive lump of metal and the way I am looking at it is one day more likely than not silver will "have it's day in the sun".  Mainly it was the most cost effective brits but I picked up some rather nice Queens beasts with unicorns!  And also an Australian mini bar thing with nice dragon design.  I would say if your trying to play the market a bit more etc it would make more sense either buying the some kind of tracker, bullion vault or miners.

[DurhamBorn]

3 hours ago, Talking Monkey said:

DB in the deflation wouldn't the dollar do really well, so why do you expect the dollar to go down from the 95/96 area. Or am I assuming wrong that we are not yet at the cusp of the deflation.

As to the dollar weakening would that be across the board so would you expect GBPUSD to go back to the 1.43 level we saw recently

I expect the dollar to go down to 86 and then yes go much higher in a deflation.However,if the deflation didnt hit id expect the dollar to keep falling.Gold will provide the answers to that one.I havent actually dont much work on currency for 18 months as i positioned off my original work of sterling hitting $1.41 from $1.22 and i positioned in US$ treasuries from $1.39/$1.40/$1.41.

[DurhamBorn]

1 hour ago, Majorpain said:

It boils down to something simple IMO, people are naturally greedy and want to consume as many resources as possible.  Add this to credit being cheap and its enabling consumers to continue spending long past the point most people expected it to stop.  Those low monthly payments for new shiny toy are sooooo tempting.....

Its not really a big consipiracy, central banks just hooked the world economy up to QE economic heroin and rode the high.  Now the drugs are wearing off, do they go for cold turkey or overdose?  Fed is saying cold turkey.

Exactly right i think Majorpain.When my mentor started to teach me about macro strategy the very first thing he said to me was this."Il teach you 90% of what you will learn over twenty years in twenty seconds".He then said this,"the most important element in your work is the cost of money,and the promises (debt) leveraged on that money.If money becomes too cheap then the promises will get too large,and if the money gets too expensive,then the promises get too small".

With rates at 0.5% people buying a house in the south should consider that statement and try to understand what it means.

That is how advanced western economies (and now Eastern economies) work.You run all your cross market work off those facts and it provides the destination (not the timing).With a lot of work,and a lot of understanding of political cycles you can really get to grips.The only real changes have been we are adding more and more of a contrarian boost to calls.The internet and long cycle have made that needed.

Like you say there is no conspiracy.Miller set inflation on fire from policy errors,Volcker put the fire out.Both meant well.

[MrXxx]

OK, ok, I know passive investing is not 'sexy' with you big boys but I would be interested on your views regarding investing in this fashion in the current, mid and long term (5-10yrs) climate, especially if DB's scenario plays out...

..now most passive portfolios (and ISA/pension plans) work around splitting the % based on your age for bonds/property and the rest in a mixed bag of equities (UK, USA, ROW) these usually through a range of indices BUT with the above scenario half of the equities (depending on the index i.e. FTSE100 vs 250, DOW vs NASDAC) or more will be in the 'consumables' that may fall by the wayside...so not too good...

...as for the bonds, as the inflation 'kicks in' they are a bad buy to sit in as well...

...so with a traditional passive approach you could be losing in both camps (assuming all  I have written above i.e. my very basic understanding is correct?!)...

...so for an amateur passive investor is the way forward to have a composite of traditional passive investing with a few extras specific picks in an ISA account?

DB your thoughts?..Wicao you thoughts?..anybody your thoughts?

 

Feel free to  tell me I am talking utter rubbish (as long as you are prepared to explain to me why...in a way a 5 year old would understand.

Mr Xxx

p.s so nice to be able to post again..I was moderated elsewhere...don't know what I did but perhaps Counts called me out as a troll?! :-)))

[DurhamBorn]

1 hour ago, Eventually Right said:

Hi Durhamborn,

I have a question about buying physical PMs if the scenario you see plays out.

as I understand it, you can see silver dropping to from it's current level of $16-17 to $10 in a bust, then potentially going to $100+ in the reflation.

ideally, if that was to come to pass, it would be preferable to buy at $10 in the deflation, rather than $16-17 now.

however, I believe you’ve said you see sterling falling to parity with the dollar in a deflation, as everyone rushes for the safety of the US? 

In which case you’re talking about paying approximately £12.50 an ounce now, compared with £10 if silver and the £ fall.

Given I believe you see that there’s a chance (although you don’t think so) we skip the deflation and go straight to reflation, wouldn’t someone looking to buy physical PMs be better forgoing the potential cheaper prices a deflationary bust would bring, and pay the £12.50 rather than a potential £10?

given the potential payoff you see ($100+ silver) should we be that bothered by buying at $16?

obviously miners are different, due to the leverage involved and could drop more in a crash/rise more in the reflation.

thanks.

I think silver (and gold) are both going to enter huge bull markets.Like you say i have no concerns of buying at $16 if it does hit $10 (or $7 that we see as maybe) id simply average some more.From everything we see the bigger risk is not owing any.The miners are different.Its a very tricky area for people who arent experienced.The falls can be severe.I think a 10% holding in PMs is very very prudent as insurance at the least.

[DurhamBorn]

3 minutes ago, MrXxx said:

OK, ok, I know passive investing is not 'sexy' with you big boys but I would be interested on your views regarding investing in this fashion in the current, mid and long term (5-10yrs) climate, especially if DB's scenario plays out...

..now most passive portfolios (and ISA/pension plans) work around splitting the % based on your age for bonds/property and the rest in a mixed bag of equities (UK, USA, ROW) these usually through a range of indices BUT with the above scenario half of the equities (depending on the index i.e. FTSE100 vs 250, DOW vs NASDAC) or more will be in the 'consumables' that may fall by the wayside...so not too good...

...as for the bonds, as the inflation 'kicks in' they are a bad buy to sit in as well...

...so with a traditional passive approach you could be losing in both camps (assuming all  I have written above i.e. my very basic understanding is correct?!)...

...so for an amateur passive investor is the way forward to have a composite of traditional passive investing with a few extras specific picks in an ISA account?

DB your thoughts?..Wicao you thoughts?..anybody your thoughts?

 

Feel free to  tell me I am talking utter rubbish (as long as you are prepared to explain to me why...in a way a 5 year old would understand.

Mr Xxx

p.s so nice to be able to post again..I was moderated elsewhere...don't know what I did but perhaps Counts called me out as a troll?! :-)))

The FTSE 100 is probably a very good index if things play out.There are a lot of reflation stocks in there and a very large weighting.You could also simply add a few funds to the passive mix.GDX,GDXJ etc as the insurance.The loss of buying ETFs in the US has really hurt.A mix of funds like URA,COPX FCG etc would give a great leverage to a reflation cycle.The only bonds id hold at the minute would be treasuries (and maybe some gilts).Corporate bonds are going to get hit very hard.I wont be touching bonds myself for at least a decade.My father actually sold a bond fund earlier in the year id put him into in 1992.It has returned outstanding results even after they turned it to providing income.Coupon was down to something like 2.3% when he sold.

[Thorn]

9 minutes ago, DurhamBorn said:

I expect the dollar to go down to 86 and then yes go much higher in a deflation.However,if the deflation didnt hit id expect the dollar to keep falling.Gold will provide the answers to that one.I havent actually dont much work on currency for 18 months as i positioned off my original work of sterling hitting $1.41 from $1.22 and i positioned in US$ treasuries from $1.39/$1.40/$1.41.

Lovely. I’ve been surprised at how fast things move when you have a sense of targets.

Did well out of IBTL, Drax... you’re a machine. Just not sure how and when to get back into IBTL...Harp sounds like you are looking at same. Balancing the currency and price points from here.

From what I can see it’s navigate the BS. I see Goldman says Bubble?WhatBubble?re FAANGs...so it seems right to get moving the pieces about a bit more and going to start to get out of general trackers now.

Dollar turning down... so less juice for the FTSE 100...do you think wait for dollar to drop and get IBTL in a ladder makes sense..?

( still asking for a friend... DYOR and all that...)

Mr xxx from what I have read - and I am a complete beginner - the time for non-contrarian passive investing was since 2012 when QE made Everyone A Winner.

[Green Devil]

32 minutes ago, DurhamBorn said:

I expect the dollar to go down to 86 and then yes go much higher in a deflation.However,if the deflation didnt hit id expect the dollar to keep falling.Gold will provide the answers to that one.I havent actually dont much work on currency for 18 months as i positioned off my original work of sterling hitting $1.41 from $1.22 and i positioned in US$ treasuries from $1.39/$1.40/$1.41.

So what is your timetable (ie date) for the debt deflation and then the reflation?

I would need see some signs/triggers to think this is going to play out as you say. Have we seen any yet? (Sorry i didnt read you thread on TOS, perhaps you could explain the triggers and your timetables for those on here in a bit more detail?)

 

 

[MrXxx]

Thanks DB (and Thorn),

yes, so its very much as I though..pick your index wisely, avoid corp bonds (as the big promises become small to paraphrase DB), and counter the equities with the complete opposite i.e. commodity such as PM's...just one further question though...you said (and I am probably showing my novice education here) to stick with treasuries/gilts but in an inflation scenario would they not be a bad buy due as soon as they are purchased inflation increases and so they lose value against the next issue or treasuries/gilts offering more return for your investment?!

 

[leonardratso]

when zero hedge starts doing stories about cute kittens and steam locomotives then the deflation will hit number 11, seems always to be like that, once the doom mongers throw in the towel, the doom begins.

[Berk]

Hi All, I’m a long time lurker on ToS and I’ve been following this thread very closely since it began. @DurhamBorn I must give huge thanks for starting this superb thread and for your brilliant insight. Sincere thanks too to all the other posters whose input has helped expand my mind on these matters further than I could ever have hoped. I’ve also purchased wicao’s book up following the glowing recommendations; I’m presently halfway through and extremely glad to be in possession of it!

After much procrastination I acquired some small PM holdings (gold and silver) as a first foray a while back and I feel great for finally having taken the plunge! More diversification is to follow (after plenty of DYOR of course!) but it’s all thanks to this thread  

[Talking Monkey]

6 hours ago, DurhamBorn said:

I think silver (and gold) are both going to enter huge bull markets.Like you say i have no concerns of buying at $16 if it does hit $10 (or $7 that we see as maybe) id simply average some more.From everything we see the bigger risk is not owing any.The miners are different.Its a very tricky area for people who arent experienced.The falls can be severe.I think a 10% holding in PMs is very very prudent as insurance at the least.

For people who are not experienced with miners what would be the main area that would trip them up. I'm guessing spreading the allocation across 7-8 miners would help, put a little in each. Otherwise its a large PM holding with bulionvault.

I'm guessing in a PM bull market the miners should do equally well,

[Talking Monkey]

6 hours ago, DurhamBorn said:

I expect the dollar to go down to 86 and then yes go much higher in a deflation.However,if the deflation didnt hit id expect the dollar to keep falling.Gold will provide the answers to that one.I havent actually dont much work on currency for 18 months as i positioned off my original work of sterling hitting $1.41 from $1.22 and i positioned in US$ treasuries from $1.39/$1.40/$1.41.

I really struggle to see how we avoid a deflation DB, with so much debt in the system and rates being raised surely things tip over soon.

[Cosmic]

9 hours ago, Thorn said:

Did well out of IBTL, Drax... you’re a machine. Just not sure how and when to get back into IBTL...Harp sounds like you are looking at same. Balancing the currency and price points from here.

I think your wrong to try jumping in and out of IBTL. Its not gone up that much and your losing in spread, charges and tax.

[MrXxx]

Hi Folks,

not sure if this is allowed on this forum (mods take off if not) and I don't want to derail the theme, but as people started to talk about PM's and their role I thought I would share this read in the 'spirit of education/discussion':-

https://www.researchgate.net/publication/262865159_Should_gold_be_included_in_institutional_investment_portfolios

MrXxx

[ThoughtCriminal]

17 minutes ago, MrXxx said:

Hi Folks,

not sure if this is allowed on this forum (mods take off if not) and I don't want to derail the theme, but as people started to talk about PM's and their role I thought I would share this read in the 'spirit of education/discussion':-

https://www.researchgate.net/publication/262865159_Should_gold_be_included_in_institutional_investment_portfolios

MrXxx

Relax, the mods on here are like oddball from Kelly's heroes, all about the positive energy.

[Yellow_Reduced_Sticker]

42 minutes ago, Cosmic Apple said:

I think your wrong to try jumping in and out of IBTL. Its not gone up that much and your losing in spread, charges and tax.

AGREED.

I want to upload a couple of really GREAT books that will help folks here, eg: "Reminiscences of a Stock Operator" (1923), is highly regarded as a must-read for all traders, it deserves more than a passing recommendation. Livermore, who is the author of "How to Trade in Stocks"(1940), was one of the greatest traders of all time. At his peak in 1929, Jesse Livermore was worth $100 million, which in today's dollars roughly equates to $1.5-13 billion, depending on the index used.

Just need to ask the mod/owner of this site @spunko2010if its ok?

[spunko]

49 minutes ago, Yellow_Reduced_Sticker said:

AGREED.

I want to upload a couple of really GREAT books that will help folks here, eg: "Reminiscences of a Stock Operator" (1923), is highly regarded as a must-read for all traders, it deserves more than a passing recommendation. Livermore, who is the author of "How to Trade in Stocks"(1940), was one of the greatest traders of all time. At his peak in 1929, Jesse Livermore was worth $100 million, which in today's dollars roughly equates to $1.5-13 billion, depending on the index used.

Just need to ask the mod/owner of this site @spunko2010if its ok?

You can't upload PDF files here, I assume this is the format...? Currently only images are permitted, but I can try to enable PDF files. The main problem is that they are large files normally, so it may be better to use something free like Scribd.

(The larger the file the more of a security issue it can be potentially)

 

https://www.scribd.com/upload-document

 

If it doesn't work I can look into hosting PDF files here.