Credit deflation and the reflation cycle to come.

[SpectrumFX]

46 minutes ago, spygirl said:

Its complex.

BoE is independent of ECB and FED but ....

The BoE rate has to follow the FED rate as the dollar is *the* currency used in trade, so sets the global risk free rate for cash.

If the BoE rate is below the FED then the pound falls and inflation rises.

ECB is big enough to make its own weather but even they stopped QE and started talking up rates when the US moved.

Its really gormless to suggest tat the BoE is independent. Its not, not from the amrket. And the FED decides the lower limit.

BoE should have moved the rate up 2% by now.

 

 

Calm down, My fix is up, and I've got to get a new mortgage deal next month. 

[spygirl]

21 minutes ago, Majorpain said:

However it hasn't yet come back to bite them yet, GBP/USD is far from catastrophic and I doubt big moves by the MPC will happen until sterling tanks.  Everything is still ticking along well enough.

2$ = 1£ = strong pound

1$=1£ = weak pound.

I use 1.5$=1£ as a happy medium.

~1.3$ at the mo.

BoE needs to get ahead of the game rather than have to do larger increments just to catch up.

 

[whome_yesyou]

4 hours ago, spygirl said:

2$ = 1£ = strong pound

1$=1£ = weak pound.

I use 1.5$=1£ as a happy medium.

~1.3$ at the mo.

BoE needs to get ahead of the game rather than have to do larger increments just to catch up.

 

That drop was primarily caused by the EU referendum voting Brexit though. In fact, while the fed has been raising the gap between their base rate and ours, the pound has been getting better compared to the dollar. 

So far, it’s not gone as I expected but there you go.

[spygirl]

4 minutes ago, whome_yesyou said:

That drop was primarily caused by the EU referendum voting Brexit though. In fact, while the fed has been raising the gap between their base rate and ours, the pound has been getting better compared to the dollar. 

So far, it’s not gone as I expected but there you go.

You cannot point to a single thing and say Oh brexit.

EU trade does not form a massive part of UK economy.

[Majorpain]

27 minutes ago, spygirl said:

EU trade does not form a massive part of UK economy. 

That trade thing sounds like a lot of work, can we not just swap houses to each other for more money?

[whome_yesyou]

26 minutes ago, spygirl said:

You cannot point to a single thing and say Oh brexit.

EU trade does not form a massive part of UK economy.

Not sure I’m following your response. Are you saying...

1) ...that Brexit had nothing to do with the pound tanking? Maybe just a coincidence it plummeted immediately after the results were announced.

http://static3.uk.businessinsider.com/image/58f65d33dd0895e1758b49cc-538/brex1.jpg

2) ...the pound hasn’t been getting stronger against the dollar while the BoE and Fed base interest rate widens?

[XswampyX]

9 minutes ago, whome_yesyou said:

1) ...that Brexit had nothing to do with the pound tanking? Maybe just a coincidence it plummeted immediately after the results were announced.

This caused it... so indirectly so did brexit.

 

[Agent ZigZag]

45 minutes ago, whome_yesyou said:

That drop was primarily caused by the EU referendum voting Brexit though. In fact, while the fed has been raising the gap between their base rate and ours, the pound has been getting better compared to the dollar. 

So far, it’s not gone as I expected but there you go.

The pound was correcting down pre Brexit 2014/2015. Brexit is a nice bow to tie up the UK woes.  It was then over sold after Brexit. It bounced back to 1.40ish and is down to were we are today. Its in a general decline in my opinion. Would not be surprised to see near parity with the dollar.

[Thorn]

Let's all make sure the thread doesn't get pulled down into a spiral of Brexit talk.

Getting back to the thread, here- what about Netflix today and First Majestic seems to have broken out of its lovely channel. Anybody know why?

[Thorn]

On ‎11‎/‎07‎/‎2018 at 06:30, Viceroy said:

Hi Thorn - most recent is that the DOW is consolidating, which could extend into 2020.

Nothing has changed long-term, but the volatility is increasing sharply and 2018 is a Panic Cycle Year.  It appears that we are extending the cycle so we do not expect this target we had in the 25,000-28,000 level to remain as the major high. This will clearly undermine people's confidence and it may send more capital into the waiting arms of government hawking their bonds. 

Keep in mind 2018 is a PANIC CYCLE year. A Panic cycle means the market can capitulate, or swing up and down testing previous highs/lows and that warns that while it may look dark and grim right now, play it by the reversal numbers for this thing can then swing down and turn violently back up after creating a BEAR TRAP.

Keep in mind that we have some resistance in this 25000-28000 zone and after that it jumps to 32990.

 

From any major high, his model issues Bearish Reversal numbers - how quickly the DOW falls and hits those numbers tells you how deep and protracted any bear market will be - hitting them within 3 months of the all time high would be very bearish.

Since the January '18 high 7 months ago the DOW has not hit (elected) any major Monthly Bearish reversals...yet.

(30Yr UST Bonds hit 2 Bearish reversals within 3 months from its July 2016 high signalling a severe bear market trend in action ever since). 

 

Electing a Major Monthly Bearish reversal means a bull market changes trend into a bear market.  That bear market reverses into a bull market when it elects a Major Monthly BULLISH reversal which would have been generated from the low. Obviously it can take months/years for that reversal to be elected, with lots of short-term rallies and drops interim.

 

For example: From GOLD's low in Dec 2015, the model generated a Major Monthly Bullish Reversal at 1362.50.  Gold has to close on the last trading day of a month above that number to confirm a Bull market is now on - so far it’s failed to do so. 

 

https://www.armstrongeconomics.com/armstrongeconomics101/understanding-cycles/is-the-vertical-market-over-or-just-beginning/

We have not declined to test the Monthly Bearish and we would have to close BELOW 21600 on the Dow on a Monthly Basis (i.e. last day of the trading month) to imply a short-term correction will be sustained.

 

The DOW has climbed nearly 10,000 points since 2016. MA did forecast at the 2016 WEC that the DOW would enter a Phase Transition and rise for the next 2 years into 2018 as long as it elected the Monthly Bullish 18,625 which it did at the end of November 2016 : https://vimeo.com/198896912 - (listen at 2 hours+50mins & 3 hours+25mins).  

He does forecast 40,000+ top for DOW not before 2020, but when exactly is still not clear.  He says watch the election of reversals to guide you.

Really interesting again Viceroy many thanks.

21600 currently seems very far down from here... but now we are back above 25000, and with all those emerging market risks, it will be interesting to see where we go from here.

[Lavalas]

6 minutes ago, Thorn said:

Let's all make sure the thread doesn't get pulled down into a spiral of Brexit talk.

Getting back to the thread, here- what about Netflix today and First Majestic seems to have broken out of its lovely channel. Anybody know why?

Strongly agree!!!

With regard to First Majestic, this is all I’ve got but I don’t know how true it is...

 

[whome_yesyou]

On 16/07/2018 at 14:38, whome_yesyou said:

Did we expect gold to be tumbling down over $100/oz for the past couple months? Just wondering what this means for the forecast, or if it is just meaningless?

Does anyone have any thoughts on this? Gold still on a downward trend today.

[DurhamBorn]

9 minutes ago, whome_yesyou said:

Does anyone have any thoughts on this? Gold still on a downward trend today.

The miners did just fine today,gold down,but the miners pretty much level or up.This looks like most of the weak hands have now left the sector (as expected when retail bulls are at 7%).The dollar index is still below 96 and i expect it to remain under 96.5 and then head lower.Sentiment is terrible towards the metals complex,thats what i want to see as it usually signals a reversal is close.This consolidation has taken a long time,but i fully expect $1450 to $1580 gold and GDX to perhaps $37.The Fed is behind the curve with inflation,or is tightening into recession,both will see gold higher.

[Barnsey]

Well worth a read from DK Analytics:

https://dkanalytics.com/wp-content/uploads/2018/03/DK-Analytics-post-32-Will-the-Feds-0.9-balance-sheet-limit-QT-3_13_18-6.pdf

Conclusion: 
As sure as night follows day, before all too long the world’s leading central banks will be abandoning both fledgling 
interest rate increases and QT fantasies (reducing the size of their balance sheets by selling bonds and stocks) out of “status quo necessity.” Specifically, central bankers’ incredibly arrogant, utterly ignorant, and pathetically misguided conviction that sustained asset bubbles, advanced by the two-headed dragon also called “monetary-Keynesianism,” are the wellspring of the “wealth of nations” has increased debt and made our economies very interest rate sensitive. As such, when price discovery threatens to trump dissipating financial repression by pummeling bond and stock valuations to reflect heightened risk, our “Frankenstein” central bankers/central planners will revert to ZIRP and QE. 

This is especially true given the huge financial repression-induced damage to the global economy over the past decade, such as: $91trn in new debt, $233trn in total debt, over $30K per capita debt, deficit-financed redistributionism, a decline in homeownership juxtaposed against real estate bubbles, gigantic misallocations, and vanishing productivity growth.

Paradoxically, central bankers will need to resort to unprecedented money printing in an effort to protect their own extremely leveraged, asset bubble-exposed balance sheets and to convince speculators and investors that “they have their bond and stock valuation backs” once confidence in financial repression is lost, which is not a question of “if,” only “when.” While there is no guarantee that relatively puny central banks will be able to overwhelm re-awakening “bond vigilantes” that hit the sell button shortly before QT gets started (if it happens at all), there is a 
virtual guarantee that they will try. This should be our “currency and bond debasement on steroids” allocation guide!
In a related sense, we couldn’t resist sharing these discerning, timely thoughts:
My generation gave former tenured economics professors discretionary authority to fabricate money and to fix interest rates. We put the cart of asset prices before the horse of enterprise.
We entertained the fantasy that high asset prices made for prosperity, rather than the other way around.
 

We actually worked to foster inflation, which we called 'price stability' 
We seem to have miscalculated.
 Source: Jim Grant's November 2014 speech at the Cato Institute
And sadly, that miscalculation will be doubled down on given that a decade long, absolutely unrivalled yield 
deprivation and balance sheet expansion has driven us into a debt, productivity, and growth ditch. In fact, the very engineers of Global Frankenstein Finance (GFF) -- degenerate stuff such as yield deprivation and their NIRP
perversion -- the Feds, the ECBs, the BOJs, and the SNBs of the world, with their hugely interest rate-exposed and 
terrifically leveraged balance sheets, will likely soon find themselves back in the ZIRP and QE “operating room” for 
their own sake and that of major/money center banks. That is, if the GFF cabal manages to leave it in the first place. 
Two issues will bedevil them. On the one hand, that QT may have “front-running” bond vigilantes drive up interest 
rates (selling long duration bonds) in a hopelessly interest rate sensitive, debt-addicted, low productivity growth world 
economy where a one percentage point higher interest rate amounts to 3% of global GDP. On the other hand, they 
fear, more than anything, that their aggregate $15trn balance sheet expansion-enabled global debt growth of $91trn may unleash debt-induced deflation (versus good, productivity-based deflation). This deflation, in an age of statism, could well result in a political disaster, which of course would have politicians blaming central bankers for the ensuing financial and economic tumult. That is, unless they spike that monetary punch bowl with more QE booze in time to sustain the unsustainable for as long as possible, very much including inflationary socialism, a sneakier piecemeal 
default until it careens out of control into inevitable hyperinflation and food and energy shortages. From QE to QT 
aspirations quickly back to stunning QE accompanied by a return to a ZIRP by the Fed? We could think of much more improbable things! In any case, we continue to think that both the dollar and bonds (and thus stocks), in particular dollar bonds, are at a secular bond bull market inflection point. Caveat emptor, as we’re apt to say!

[Thorn]

56 minutes ago, DurhamBorn said:

The miners did just fine today,gold down,but the miners pretty much level or up.This looks like most of the weak hands have now left the sector (as expected when retail bulls are at 7%).The dollar index is still below 96 and i expect it to remain under 96.5 and then head lower.Sentiment is terrible towards the metals complex,thats what i want to see as it usually signals a reversal is close.This consolidation has taken a long time,but i fully expect $1450 to $1580 gold and GDX to perhaps $37.The Fed is behind the curve with inflation,or is tightening into recession,both will see gold higher.

Lavalas many thanks that’s some info/ a bit of googling and you find some of the info on the pumpers is hidden because of GDPR it seems!

Interesting to see if First Majestic is being pumped alright- but as you say DB the pms are unloved. I was looking at PALL on HL there. Think I was the only person on planet Earth looking at it at the time while everybody else outside this thread is looking at their shiny new cars they’ve got on Tick.

What do you think of PALL yourself/ it looks extremely unloved...

[UnconventionalWisdom]

7 hours ago, spygirl said:

If the BoE rate is below the FED then the pound falls and inflation rises.

Genuine question. Why does will it fall? I'm assuming it's to do with the rates you get with government bonds. Right now, it doesn't seem logical to invest in UK bonds when you get a better yield with US ones. Is this implication that money will get transfered out of the UK economy to the US if the BOE base rate remains less than that of the FED? 

[DurhamBorn]

12 minutes ago, Thorn said:

Lavalas many thanks that’s some info/ a bit of googling and you find some of the info on the pumpers is hidden because of GDPR it seems!

Interesting to see if First Majestic is being pumped alright- but as you say DB the pms are unloved. I was looking at PALL on HL there. Think I was the only person on planet Earth looking at it at the time while everybody else outside this thread is looking at their shiny new cars they’ve got on Tick.

What do you think of PALL yourself/ it looks extremely unloved...

I like the whole complex.Im expecting Platinum to enter a long bull market very soon.I dont own First Majestic,its gone up 50% since earlier in the year.I prefer Yamana Gold as a play on silver.

[macca]

2 hours ago, whome_yesyou said:

Not sure I’m following your response. Are you saying...

1) ...that Brexit had nothing to do with the pound tanking? Maybe just a coincidence it plummeted immediately after the results were announced.

http://static3.uk.businessinsider.com/image/58f65d33dd0895e1758b49cc-538/brex1.jpg

2) ...the pound hasn’t been getting stronger against the dollar while the BoE and Fed base interest rate widens?

Before the banking financial terrorists destroyed the economy in 2007 it was $2 to £1 or €1.56 to £1...

But the billionaire run news papers said nothing? 

Brexit has had hardly any effect in comparison but the papers keep shouting look at the £.. look what the Brexit voters have done! People lap it up.. power of the billionaire owned media.. 😂

my guess is with continued productivity reduction, continued wage suppression, continued selling off of our infrastructure the £ is where it should be regardless of Brexit.. 

turn the light on = profit goes to France 

get on a train = profit goes to Germany

run your tap = profit goes to the Middle East 

empty your bin = profit goes to France

 call an ambulance = profit for private company

go to hospital = profit goes to one of 10 tax avoidance subcontracting multi billion £ companies.. 

What economy is the £ measured against? We don’t have one! 

[DurhamBorn]

10 hours ago, macca said:

Before the banking financial terrorists destroyed the economy in 2007 it was $2 to £1 or €1.56 to £1...

But the billionaire run news papers said nothing? 

Brexit has had hardly any effect in comparison but the papers keep shouting look at the £.. look what the Brexit voters have done! People lap it up.. power of the billionaire owned media.. 😂

my guess is with continued productivity reduction, continued wage suppression, continued selling off of our infrastructure the £ is where it should be regardless of Brexit.. 

turn the light on = profit goes to France 

get on a train = profit goes to Germany

run your tap = profit goes to the Middle East 

empty your bin = profit goes to France

 call an ambulance = profit for private company

go to hospital = profit goes to one of 10 tax avoidance subcontracting multi billion £ companies.. 

What economy is the £ measured against? We don’t have one! 

Productivity has been destroyed by importing millions of low skilled workers and tax credits.As a business it is far better to hire on NMW and let tax credits do the lifting.The productive side of the UK cant support the massive handouts.Welfare spending is huge.My home town sees over 60% of its income from welfare,and thats before state and council workers.

The west is similar across the board.We have the biggest welfare problem,others have state worker problems etc.

Lots of this will change going forward.Welfare will see level or falling amounts while investment grows strongly.The next cycle will be wealth creation,but only in certain sectors.

Once we are into a reflation velocity will get off the floor and start to really move,inflation will follow.

 

[spygirl]

13 hours ago, UnconventionalWisdom said:

Genuine question. Why does will it fall? I'm assuming it's to do with the rates you get with government bonds. Right now, it doesn't seem logical to invest in UK bonds when you get a better yield with US ones. Is this implication that money will get transfered out of the UK economy to the US if the BOE base rate remains less than that of the FED? 

Its sot of complex and no things fixed in stone but .....

The $ is the world business currency. Everything, from oil and commodities, to iPads are billed/traded  in $.

Does not matter if you are in the EU or China or Japan or India or some shithole - its $.

And it means that companies counter party risk and currency is all dollar centric.

So the $ sucks all spare cash/hedging/whatnot.

if The FED sets  the short term rates at 2% then thats the risk free rate.

BoE - or shithole CB - have to match that plus any risk premium.

Keep it lower then your curency will fall.

'Ah but wont that make is ore competitive ..... just like the BoE/UKGOV model predict.

Nope.

As most of UK trade is not soley with inputs from the UK.

What you gain in cheaper UK labour you lose in more expensive import costs.

Besides, as DB mentioned, more + more of the UK work force is totally unproductive - either nailbar tax creditor or NHS Stop smoking nurses.

 

 

 

 

 

2 hours ago, DurhamBorn said:

Productivity has been destroyed by importing millions of low skilled workers and tax credits.As a business it is far better to hire on NMW and let tax credits do the lifting.The productive side of the UK cant support the massive handouts.Welfare spending is huge.My home town sees over 60% of its income from welfare,and thats before state and council workers.

The west is similar across the board.We have the biggest welfare problem,others have state worker problems etc.

Lots of this will change going forward.Welfare will see level or falling amounts while investment grows strongly.The next cycle will be wealth creation,but only in certain sectors.

Once we are into a reflation velocity will get off the floor and start to really move,inflation will follow.

 

I think wage inflation will kick in as tax credit have removed so many people fro mthe work force.

And high housing costs has made the work force totally rigid.

You want to get a skilled worker? Then you'll have to move them from somewhere else i nthe UK. And pay 3x 4 bedroom house for their skills.

 

[DurhamBorn]

On 16/07/2018 at 16:03, Alifelessbinary said:

One of the main reasons the shares have dropped so heavily is that Govia Thameslink are days away from losing their franchise due to terrible performance. 

I imagine that HSBC analysts have strong new sources and are reacting accordingly.

While the DfT is doing everything in their power to avoid another East Coast Mainline debacle, the recent timetabling fuck up has pretty much forced their hands. I give it 50/50 that they’ll lose the franchise this week or be put on notice.

 

 

Go Ahead are the biggest riser on the FTSE 350 today and were yesterday as well.First Group are the 2nd,Stagecoach are up over 20% since their results.The transports would do well to walk away from all the rail contracts if they cant get them on better terms.Its their bus side (and the coming massive growth in on demand travel) alongside Metros that will drive their free cash in the next cycle.This end of cycle noise over rail has (and might more yet) provided fantastic entry points.They have a difficult climate right now,but should do very well in the next cycle.At some point i see them being a very hot sector,once the reflation drives costs into their favour and alongside massive technology benefits.

 

[UnconventionalWisdom]

46 minutes ago, spygirl said:

Keep it lower then your curency will fall.

'Ah but wont that make is ore competitive ..... just like the BoE/UKGOV model predict.

Thanks for the explanation. I do fear what will happen. Like DB says, tightening into a recession is a recipe for disaster. With BOE being slow to follow the FED, they will prob need quick rate rises if the currency begins to fail... Prob too quick for the UK economy to deal with. 

[DoINeedOne]

Ok well a quick question share prices for some or most companies have dropped a lot, Some back to levels when we were last in a recession and had huge drops I suppose what I'm asking is companies like centrica, vodafone, stagecoach etc.. that were all looking at how much more do you think they may drop if we officially go into a recession 

[Band]

36 minutes ago, UnconventionalWisdom said:

Thanks for the explanation. I do fear what will happen. Like DB says, tightening into a recession is a recipe for disaster. With BOE being slow to follow the FED, they will prob need quick rate rises if the currency begins to fail... Prob too quick for the UK economy to deal with. 

 The BoE have already shown they have no interest in protecting the currency. As in more printy printy + tfs and 0.25% drop after brexit vote.

[DurhamBorn]

52 minutes ago, DoINeedOne said:

Ok well a quick question share prices for some or most companies have dropped a lot, Some back to levels when we were last in a recession and had huge drops I suppose what I'm asking is companies like centrica, vodafone, stagecoach etc.. that were all looking at how much more do you think they may drop if we officially go into a recession 

The answer is no idea at all,they could go down 50% or more.However they are all companies that have had to run to stand still in a dis-inflation cycle that has lasted a very long time.Their share prices reflect the fact people think that will last forever and its far better to buy consumer or tech stocks on 25 -200 times earnings than asset heavy reflation stocks on 6-10 x earnings.

I have always followed the same system.I buy in a staircase once i think the company is cheap.I buy mostly what i think will have the next cycle on their side.If i fail to get 100% of what i want in then it means iv stabbed the bottom somewhere and the capital is deployed elsewhere.I pretty much hold my stocks for a cycle,so anything from 5 to 20 years.I have no interest if im down 20% or more in some or all over the short term (or even medium term).

I pretty much retired at 39 and most of that was due to building an income portfolio over time (i never earned big wages).This is only the 3rd time iv sold out of most stocks and started to re-build with others.Most will remain from the FTSE 350,its just i will of tilted it to companies that prefer a reflation.It just happens that the market has priced most of those at giveaway prices over the last year.Some like Drax have already delivered over 50%+ gains.I aim for 9% compounding over the long term (i need 6% to stay retired if i stopped my small business to keep capital level inflation adjusted).