Credit deflation and the reflation cycle to come.

[King Penda]

1 minute ago, Inoperational Bumblebee said:

Then interest rates will rise. I still think US debt will be the safe haven though, so as before, interest rate rises will be offset by exchange rate effects.

its like a nuclear deterant to my neive way of looking at things,the chinese could take the yanks down with there debt but that means your cuting off your own nose to spite your face has the chinese need to sell shit to the yanks,the russians would side with the chinese the yanks would lean on friends to buy there debt and germany er euroland would do fk all except hope to move up the ladder

[UnconventionalWisdom]

6 hours ago, stokiescum said:

china might have a part to play in this,what if people stop buying american debt ? unfair questions i know

They had a current account deficit earlier this year.

https://m.scmp.com/news/china/economy/article/2144761/chinas-first-current-account-deficit-17-years-could-signal

If that continues, a stronger yuan could be what they want. 

[Barnsey]

An interesting article on FT about the truck driver shortage in the US I mentioned a few days ago

https://www.ft.com/content/cf42db68-755e-11e8-b6ad-3823e4384287

If link doesn't work Google 'a good life but a rough life' 

[Funn3r]

25 minutes ago, Barnsey said:

An interesting article on FT about the truck driver shortage in the US I mentioned a few days ago

https://www.ft.com/content/cf42db68-755e-11e8-b6ad-3823e4384287

If link doesn't work Google 'a good life but a rough life' 

Given up with FT as I have lost the arms race and Google or not I always get the why not suscribe screen. 

Similarly here though 

https://wolfstreet.com/2018/07/06/class-8-heavy-truck-orders-2018/

[afly]

1 hour ago, Funn3r said:

Given up with FT as I have lost the arms race and Google or not I always get the why not suscribe screen. 

Similarly here though 

https://wolfstreet.com/2018/07/06/class-8-heavy-truck-orders-2018/

Complete ball ache but Facebook referral usually works. Prefix the ft link with https://www.facebook.com/l.php?u=

e.g

https://www.facebook.com/l.php?u=https://www.ft.com/content/cf42db68-755e-11e8-b6ad-3823e4384287

 

 

 

 

 

[afly]

Actually to briefly hijack, is subbing to ft worth it? I can get the student sub for about £140 a year. It always seems like they have decent content economic or otherwise

[Funn3r]

43 minutes ago, afly said:

Complete ball ache but Facebook referral usually works. Prefix the ft link with https://www.facebook.com/l.php?u=

e.g

https://www.facebook.com/l.php?u=https://www.ft.com/content/cf42db68-755e-11e8-b6ad-3823e4384287

 

 

 

 

 

And so it was - thanks. Good read and handy technique to save for future. 

[Funn3r]

41 minutes ago, afly said:

Actually to briefly hijack, is subbing to ft worth it? I can get the student sub for about £140 a year. It always seems like they have decent content economic or otherwise

They sometimes leave free paper copies of FT in a hotel near me where I go a lot. You can read the whole thing in five minutes tbh as a lot of it is share prices in tiny print covering whole pages. Weekend FT is better but costs 4 quid and rarely on the freebie table. If online content is same then cannot see even reduced student being worth it. 

If I access ft.com from abroad it always offers me massive discount so try a vpn and see if it is cheaper than student 

 

[Yellow_Reduced_Sticker]

1 hour ago, afly said:

Actually to briefly hijack, is subbing to ft worth it? I can get the student sub for about £140 a year. It always seems like they have decent content economic or otherwise

 

 

NO (in my opinion) it certainly is NOT!

 

Your local library should have the FT, if they don't ask them why not?!

 

Having said that, my local library is OVERRUN with NOISY scrounging scum immigrants it wasn't like this years ago, main reason I don't bother going there now...

[Gordie Lastchance]

1 hour ago, afly said:

Complete ball ache but Facebook referral usually works. Prefix the ft link with https://www.facebook.com/l.php?u=

e.g

https://www.facebook.com/l.php?u=https://www.ft.com/content/cf42db68-755e-11e8-b6ad-3823e4384287

 

 

 

 

 

So many things you learn on this forum!!

Technique worked for me too. However, when I came out of it and tried to get back in - subscriber message flagged up. However, I employed something I also learned from ToS - went in in incognito mode and, hey presto, doors opened again for me!

Article says "the national average rate for hiring a 'dry van' box trailer increased 30% in the year to June to $2.32 a mile, the highest on record".

Also: "One North Carolina trucking company quadrupled rates in an attempt to curtail demand 'but found that some customers were willing to pay the new rates'."

And: "Between December and June, median per-mile pay increased 8.2%."

If that ain't inflation - and DB's been warning us on this thread about its threat - then I'm a three-legged Mexican.

[DoINeedOne]

With FT this works for me I use a couple of browser add-ons 

1: referral spoof so if URL is a FT page https://google.com is the referer

2: cookie deletion every 3-5 pages most addons add a button to the toolbar you can just click every few pages

[Dogtania]

Good tips above.... Was going to say I seem to have started using Google feeds things by swiping right on my Sony phone.  FT articles always show although no longer with comments.  

Slowly giving up my persona to Google and the coming AI overlords no doubt...dosbods posts have started appearing too!  And I can stop news coming from the daily hate and express nonsense.

[grumpygit]

On 04/06/2018 at 22:26, DurhamBorn said:

I have just moved over onto here and hoped to carry on the conversation about what i think is ahead.A credit deflation followed by a full on reflation cycle.Leveraged assets will be hit very very hard,in the UK that means houses (BTL will see huge pain).

My thoughts on this playing out are,and remain these,

The great deflation cycle that started around 35 years ago is about to end with a deflationary collapse.During those 35 years interest rates have fallen to lower lows and made investing in equity/property very easy (they have always gone to higher highs).However that has also caused people to go way way along the risk curve for yield.The leverage on the system is beyond extreme.The Fed (and other central banks) missed out an entire tightening cycle,and in doing so have already made sure the recession dead ahead will see massive un-voluntary debt liquidation,a financial system in free fall and wealth destruction on a scale few can even imagine.Leverage is going to destroy business and individuals on a scale not seen since the late 1920s.Once this does hit the central banks will be slow to react with the right response as they themselves will be shocked at the speed and scale.They will panic and print direct into the economy by passing money/debt to governments at 0.1% or zero coupons.This is what will kick in the first reflation cycle since the 70s.Inflation will appear,rising slowly at first but increasing for perhaps a decade until it reaches double figures.Interest rates will follow,but being behind the curve perhaps through the whole cycle.The leveraged who survived the deflationary collapse will then suffer increasing interest rates for a decade.

I look forward to anyones thoughts on this,for,against,anything,and its great to of been directed to the forum,thankyou.

Agree with a lot of what you have to say, but just want to put that to one side for now.

I had several people PMing me privately to jump ship and come over here from you know where, so hello everyone and hope this is the new board I desperately need. I am still on HPC and have grown frustrated with it over the years to the point I could of easily sounded off and got myself banned, nearly did once or twice and backed off. I no longer think it is run by people who have the same motivations as many of us and I am sick of their over censorship.

The housing situation in the UK is totally f****ed and far more anger is needed, even action if I could only think what. My main beef with HPC even though I knew several years ago that the housing situation was totally screwed, immoral and corrupt I knew there was enough VI's in the UK to continue the con. I expressed those views several years ago and had I continued I would have been banned, so I basically articulated my views through gritted teeth while following a mantra, it never sat well with me.

Here is to some proper debate I hope

[Mooping]

Hi guys.  I've only must migrated over here from HPC.  I don't have the time to read the whole thread to see if it's been covered but I have a question for you I hope somebody can answer.  Did you find the best way of buying into Silver and Gold miners due to not being able to purchase ETF's such as SIL anymore from the UK?  Thank you.

[sancho panza]

On 06/07/2018 at 23:33, Democorruptcy said:

I emailed Vodaphone Investor Relations and they replied today:
 

 

That takes all the guesswork out of it.Thanks for thinking of that.Noone's more familiar with the matter than Vodafone.

 

On 07/07/2018 at 12:43, Castlevania said:

I’ll try. It broadly works like this (using as an example borrowing $100m for 10 years).

1. Issue $100m of 10 year bonds at 4.5%. Vodafone now have $100m in cash.

2. Enter into a 10 year EURUSD cross currency swap with a bank. 

Cross currency swaps involve exchanging notionals at the outset. So Vodafone hands over the $100m they just borrowed from the bond investors to the bank, who in turn hand Vodafone ~€85m at current exchange rates. Vodafone now have €85m in cash. 

For the duration of the cross currency swap Vodafone will pay the prevailing interest rate on €85m and in turn receive the prevailing interest rate on $100m.

As a proxy for this example let’s use the 10yr German bund yield for the € rate and the 10yr US Treasury yield for the $ rate.

The 10yr Bund yields ~0.3% whilst the 10yr Treasury yields ~2.8%. So Vodafone pay 0.3% on €85m (€255k a year) and in turn receive 2.8% on $100m ($2.8m).

Vodafone will then use the $2.8m from the  USD leg to pay part of the 4.5% coupon on their bonds. So effectively have reduced their net borrowing cost to ~2% in €.

Hopefully the above shows how they can effectively reduce their borrowing costs by ~250basis points by entering into the cross currency swap. 

3. After 10 years, the cross currency swap will mature. Vodafone will hand back the €85m to the bank and receive $100m.

4. Vodafone will then hand back the $100m to the bond investors.

Simples.

 

 

 

That's a really good explantion in simple terms for the layman bond enthusiast like me..Thanks CV

On 07/07/2018 at 20:15, Inoperational Bumblebee said:

 

Near enough for me, though if you understand how bonds work already, I'd just say the exchange rate effect on the interest rate is simply calculated by:
[bond interest rate]+[ECB base rate]-[Fed base rate]
because you pay interest on money you borrow (first two), but earn interest on money you have (latter).

@Castlevania or anyone else for that matter,

1) do you think they'd fix the exchange rate for the bond period (as CV has suggested), or just let it float? I reckon they'd let it float myself...

 

 

2) Depends on the answer to my question immediately above. If fixed for the bond period, then there will be no effect whatsoever.

If floating, then if the dollar gets stronger then this is good for Vodafone (and vice versa). As mentioned previously, those of us doing the IBTL/TLT play are effectively doing the same thing.

What would affect things more is the differential between US and ECB base interest rates, though even if the gap lessened I suspect exchange rate effects would considerably dampen or outweigh this.

1) we'd probably need someone familiar with how long these swaps are normally entered into.From my admittedly very limited knowledge-the company will pay a bank/counterparty a premium which is obviously OTC and therefore negotiable in terms of rate and duration but I'd have thought there were terms that were usual in these situations for longer duration bonds.

There's nothing to stop them enetering into 10/20 year swaps.

2) I think another big issue besides currency risk is counterparty risk and again,you'd need specialist knowledge to know where the risk lies in these deals if say you enter into a 5 year swap with a big bank and they go under taking your $100mn with them.

Be interested to hear what others think.

[sancho panza]

21 hours ago, stokiescum said:

in the event of a bail in are bonds safe ?

See you're thinking similar things.

20 hours ago, Inoperational Bumblebee said:

Well, that's the multi-trillion dollar question. This is complicated by there not being 'euro bonds' but rather individual country bonds. I'd be a lot more comfortable with German bonds rather than any from say Italy or Greece, but I believe they are ultimately they are all underwritten by the ECB. If you've watched recent Greek shenanigans, you'll know what I'm getting at.

Given that the Fed underwrites the US, and the ECB underwrites everyone in the eurozone, I personally have a lot more confidence in US bonds. The way I look at it, what's more likely, the US defaults on its debt, or the eurozone falls apart? I have put my money where my mouth is.

Corporate bonds traded OTC via currency swaps/IR swaps will have a chain of title that would be underpinned by the agreement entered into.When Lehman went,tehre would have been a lot of these deals that were affected and was probably why they went for the TARP so quick so as to avoid a calamitous chain of counterparties sinking each other.

 

As i've stated,I have no specialist knowledge and happy to be educated/corrected.This is potentially a massive issue particularly if you've entered into a swap agreement with the likes Deutsche bank who have complex derivative books.

 

Worth noting that the UK still allows the rehypothecation of collateral (?bonds) and that hence they can be used a few times by different counterparties for different loans.Again,happy to be corrected.

20 hours ago, stokiescum said:

china might have a part to play in this,what if people stop buying american debt ? unfair questions i know

China still hold a chunk of UST's but haven't been big buyers of late iirc.They have a vested interest in holding up the $ and to a lesser extent £ but if they decide not to,then things could change quickly.

7 hours ago, afly said:

Actually to briefly hijack, is subbing to ft worth it? I can get the student sub for about £140 a year. It always seems like they have decent content economic or otherwise

Even when I had a sub, I never read it.Some of the analysis of monetary policy and CB open market ops  was really good but the conclusions were the sort of pap that's got us into the mess we're in and really lacked the sort of substantive questioning that the CB's need to face

Just my view.

[Bear Hug]

19 minutes ago, sancho panza said:

2) I think another big issue besides currency risk is counterparty risk and again,you'd need specialist knowledge to know where the risk lies in these deals if say you enter into a 5 year swap with a big bank and they go under taking your $100mn with them.

Be interested to hear what others think.

Low risk:

- risk only exists if swap has a positive value to you

- just interest payments are at risk, not principal (unlike bond)

- once counterparty defaults, you also don't need to continue to make payments from your side

[Inoperational Bumblebee]

@sancho panza and @stokiescum, for some reason I decided to comment on government bonds rather than corporate ones. It made sense at the time.

Stokie, were you asking about the Vodafone ones or government ones?

[No Duff (troll)]

1 hour ago, sancho panza said:

Some of the analysis of monetary policy and CB open market ops  was really good

We've got SP for that!

[King Penda]

2 minutes ago, Inoperational Bumblebee said:

@sancho panza and @stokiescum, for some reason I decided to comment on government bonds rather than corporate ones. It made sense at the time.

Stokie, were you asking about the Vodafone ones or government ones?

goverment ones,thought i presume its imediet junk status should anyone even think about it.im just interested in how far reaching a bail in could be in theory.

[sancho panza]

1 hour ago, Bear Hug said:

Low risk:

- risk only exists if swap has a positive value to you

- just interest payments are at risk, not principal (unlike bond)

- once counterparty defaults, you also don't need to continue to make payments from your side

I'm not so sure.Like I said,these issues haven't been discussed much in a decade,so I'm rusty.Agreed that the interest streams are the basis of the swap.

Vod floats a $100mn bond and receives $100mn USD and is liable for apr @4% on USD.Enters into the currency swap and is now liable for 2% in EUR.

Risk -to my mind-arises from a change in the USD/EUR rate particularly a strenghtening versus Euro and EM currencies(which form the bulk of Vod income).Also arises from default risk if there's been an adverse movement of USD/EUR.

As you say though,not much compared to bond default.

[sancho panza]

1 hour ago, Inoperational Bumblebee said:

@sancho panza and @stokiescum, for some reason I decided to comment on government bonds rather than corporate ones. It made sense at the time.

Stokie, were you asking about the Vodafone ones or government ones?

It's been a  general chat ref both I guess.These converstions evolve don't they.

re govt bonds I think you have to be wary as you say.I wouldn't touch italian bonds.I'd be interested to know whether ECB will liable for Italian EUR  bonds if Italy leaves the Eurozone.Given the existence of Target2 I suspect not.All the Eurozone banks issue their own notes.

 

[Bear Hug]

8 minutes ago, sancho panza said:

I'm not so sure.Like I said,these issues haven't been discussed much in a decade,so I'm rusty.Agreed that the interest streams are the basis of the swap.

Vod floats a $100mn bond and receives $100mn USD and is liable for apr @4% on USD.Enters into the currency swap and is now liable for 2% in EUR.

Risk -to my mind-arises from a change in the USD/EUR rate particularly a strenghtening versus Euro and EM currencies(which form the bulk of Vod income).Also arises from default risk if there's been an adverse movement of USD/EUR.

As you say though,not much compared to bond default.

I was just commenting on the counterparty risk.  Isn't the whole point of that swap to hedge currency risk anyway?  So if their bonds pay in USD, and assuming their income is in Euros, they swapped future Euros for USD. Now their income and obligations are in the same currency, so whatever happens to EuroUSD doesn't matter..

[sancho panza]

8 minutes ago, Bear Hug said:

I was just commenting on the counterparty risk.  Isn't the whole point of that swap to hedge currency risk anyway?  So if their bonds pay in USD, and assuming their income is in Euros,

they swapped future Euros for USD. Now their income and obligations are in the same currency, so whatever happens to EuroUSD doesn't matter..

There's a $ liability on the bond payments.They're not receiving the income stream off the bonds,they're liable for it.

Any sort of hedging is taking a position in terms of outlook.Vod swapping a USD stream of liabilities for a EUR one is effectively taking a position on the USD/EUR rate for the duration.

If their counterparty defaults(I'm assuming) they'll be liable for a stream of USD rate liabilities which they'll have to fund with EUR and EM currencies.It may go in their favour,but it may not.

[Democorruptcy]

49 minutes ago, Bear Hug said:

I was just commenting on the counterparty risk.  Isn't the whole point of that swap to hedge currency risk anyway?  So if their bonds pay in USD, and assuming their income is in Euros, they swapped future Euros for USD. Now their income and obligations are in the same currency, so whatever happens to EuroUSD doesn't matter..

Re the deal they did this finance to fund, it was buying Liberty Global's operations in Germany, Hungary, Czechoslavakia & Romania. Of those four, at the moment only Germany are using the Euro.

More detail about the Vodaphone deal