Credit deflation and the reflation cycle to come.

[Thorn]

2 minutes ago, Talking Monkey said:

I just cannot see it going up much further the PE is way over stretched. Will the next earnings round be even better than Q2, or will we see that earnings have peaked.

True... doesn’t make sense... but depends how much we believe the PE matters I reckon.

Maybe if the DOW is indeed now a safe haven where you will at least get something back if TSHTF you will choose it still, regardless of earnings, because you don’t believe bonds will repay or real estate can be sold for enough.

In fact here- so maybe it does matter (of course) but the important thing is it just matters less than emerging market currencies collapsing.

Just trying to get my head round it. If foreign capital is looking for a safe haven to get moved to, where else can it go- real estate seems to be dropping worldwide and government bonds apart from the US aren’t maybe a good bet. 

Gold and the pms cant be moved as easily as before, but maybe the industrial cycle ahead will indeed see increased demand for the shiny stuff.

 

[Barnsey]

There isn't much logic at the peak, desperation blinding common sense and charts. Morgan Stanley have advised their clients to take profits on any consumer focused stocks, also predicting a reversal of QT Sept 19. I think you're right @Thorn the DOW is perhaps seen as a little less risky right now, but my understanding is that the professionals are now starting to sit on the sidelines and the regular folks are being sucked in just before it goes bang, backed up by many US funds very recently reducing their fees to 0%.

[Lightscribe]

22 hours ago, Thorn said:

DB what do you see ahead for the funding of public sector pensions in the UK and elsewhere... 

I can help out here as I work in the public sector. The answer is that the changes have already happened in 2015. Final salary has long since departed, and the key factor now is everyone (except those <10 years retiring) has now moved onto a new scheme. This is now linked with state pension age and all previous pension contributions and terms are frozen. If they continue to raise the state pension age, then the public sector pension raises with it, which means plenty of 70 year olds dropping dead at their desks.

I however (after briefly working in the area of setting up severance and pension quotations) have come out of the direct benefit scheme and am now in a partnership scheme. This enables me to control my funds, where my employer contributions are invested and more importantly my pension age.

[Lightscribe]

12 hours ago, Thorn said:

So... DOW back up over 26,000... and it’s all gone a bit red on the miners after yesterday being lovely and green.

Will the DOW next be headed for 40,000 with foreign capital and returning Tax looking for a home is the nagging question. 

Viceroy what’s your finger on the pulse say? 

I’ll chime in here too, I suspect your getting your 40,000 figure from Armstrong. That won’t happen as long as the Fed is in QT mode, and it’s looking overstretched in the Dow already. Once the Fed gets desperate and goes QE infinity and beyond to save the day however, all bets are off...

[DurhamBorn]

14 hours ago, MrXxx said:

I assume that you are not desperate for the pension so why sacrifice the 40%-?...do you think the economic climate is such that DB pension providers are likely to default or `move the goal posts` within 10 years?

Iv always lived my life to take money up front when its offered.Where ever iv worked iv always made sure im first up for redundancy etc.I always jumped for joy when where i worked decided to cut jobs,close the place.My state pension will be £600 a month so i want a maximum of £450 coming from other pensions so i stay under the personal tax allowance.Taking my final salary pension at 55,plus my SIPP at 6% a year draw down will see me just under that.I never want to earn more than £12k a year from self employment,work or pensions.My ISA is much more important to me than any pension.

[DurhamBorn]

2 hours ago, Sideysid said:

I can help out here as I work in the public sector. The answer is that the changes have already happened in 2015. Final salary has long since departed, and the key factor now is everyone (except those <10 years retiring) has now moved onto a new scheme. This is now linked with state pension age and all previous pension contributions and terms are frozen. If they continue to raise the state pension age, then the public sector pension raises with it, which means plenty of 70 year olds dropping dead at their desks.

I however (after briefly working in the area of setting up severance and pension quotations) have come out of the direct benefit scheme and am now in a partnership scheme. This enables me to control my funds, where my employer contributions are invested and more importantly my pension age.

Can public sector workers still take the pension 10 years early Sideysid with a reduction?.I used to know it was similar to mine in that you lost 4% for each year early you took it.Most councils still seem to offer it if they want shot of you.Bang in 6 months sick each year on full pay usually gets you the package.So at 54 start the 6 months sick.

[Inoperational Bumblebee]

Anyone got any thoughts on Stobart?

[Lightscribe]

2 hours ago, DurhamBorn said:

Can public sector workers still take the pension 10 years early Sideysid with a reduction?.I used to know it was similar to mine in that you lost 4% for each year early you took it.Most councils still seem to offer it if they want shot of you.Bang in 6 months sick each year on full pay usually gets you the package.So at 54 start the 6 months sick.

From 55 upwards now since 2010 at a pension age of 60 (classic and premium schemes) with a 5% reduction with each year taken early.

Ridiculous thing being when they were getting rid of headcounts on the ‘early departure scheme’ in tge civil service on voluntary redundancy you could retire 50 upwards, and by forgoing your severance sum, the employer would cough up the full amount to take the full pension from then onwards costing them sometimes hundreds of thousands. You would still get your pension lump sum too (classic).

I wasn’t allowed to ‘advise’ on options to take, but it’s certainly ‘enlightening’ just to see how oblivious the workforce was at the benefits of the doing the above. They just saw the compensation payment (which was trival and taxed in comparison) and wanted it there and then.

[Lavalas]

5 hours ago, Sideysid said:

I can help out here as I work in the public sector. The answer is that the changes have already happened in 2015. Final salary has long since departed, and the key factor now is everyone (except those <10 years retiring) has now moved onto a new scheme. This is now linked with state pension age and all previous pension contributions and terms are frozen. If they continue to raise the state pension age, then the public sector pension raises with it, which means plenty of 70 year olds dropping dead at their desks.

I however (after briefly working in the area of setting up severance and pension quotations) have come out of the direct benefit scheme and am now in a partnership scheme. This enables me to control my funds, where my employer contributions are invested and more importantly my pension age.

Interested to hear more about your experience of the Partnership scheme. First step for me is to read some more about it but wondered what kind of choice you get on where it’s invested? If it’s a limited range then I might be best waiting, considering the premise of this thread.

[Lightscribe]

34 minutes ago, Lavalas said:

Interested to hear more about your experience of the Partnership scheme. First step for me is to read some more about it but wondered what kind of choice you get on where it’s invested? If it’s a limited range then I might be best waiting, considering the premise of this thread.

Well typically it’s whichever pension companies that your organisation is setup with. Where I am you have a choice of Scottish Widows and Standard Life.

You can either go the route of going into a ‘lifestyle’ option in which they automatically manage the pot allocation as you get older or you can manage it yourself. The range of funds isn’t great, and out of the equity options mainly trackers, with a few managed with a slightly higher AMC say 1.3% rather than 1%. Slightly more choice at Standard Life, so thats who I went with.

Mine is mostly sitting in cash fund, with a small allocation of gilts at the moment after being in Vanguard global tracker for years. If you look at the group stakeholder list on the following link you can see the list of funds available.

https://www.standardlife.co.uk/c1/funds/how-are-my-funds-doing.page

[sancho panza]

5 hours ago, Sideysid said:

I can help out here as I work in the public sector. The answer is that the changes have already happened in 2015. Final salary has long since departed, and the key factor now is everyone (except those <10 years retiring) has now moved onto a new scheme. This is now linked with state pension age and all previous pension contributions and terms are frozen. If they continue to raise the state pension age, then the public sector pension raises with it, which means plenty of 70 year olds dropping dead at their desks.

I however (after briefly working in the area of setting up severance and pension quotations) have come out of the direct benefit scheme and am now in a partnership scheme. This enables me to control my funds, where my employer contributions are invested and more importantly my pension age.

I'm into the new scheme (NHS),I think it works out to salary of 3 best earning years in last 10 divided by 60 then multiplied by years worked.

So someone finishing on £30k having done 20 years would get £10,000 p.a.

I have my doubts there'll be much to collect if the next generation have any sense and just default on all the over generous promises made in their name.

5 hours ago, Sideysid said:

I’ll chime in here too, I suspect your getting your 40,000 figure from Armstrong. That won’t happen as long as the Fed is in QT mode, and it’s looking overstretched in the Dow already. Once the Fed gets desperate and goes QE infinity and beyond to save the day however, all bets are off...

As per previous discussion re Armstrong he had someone on the thread on ToS always quoting this 40,000 for the Dow.I asked the very simple question of how on earth Armstong could vaguely predict the value of a price weighted index with opaque entry criteria(and never received a satisfactory reply.).If boeing goes back to 2016 level of $130 the Dow would get walloped.

'The Dow components are chosen by S&P Dow Jones Indices, and there are no specific rules for inclusion. Generally speaking, components of the Dow should be large and respected companies. However, they aren't the 30 largest companies in the market (a common misconception).'

 

 

3 hours ago, DurhamBorn said:

Iv always lived my life to take money up front when its offered.Where ever iv worked iv always made sure im first up for redundancy etc.I always jumped for joy when where i worked decided to cut jobs,close the place.My state pension will be £600 a month so i want a maximum of £450 coming from other pensions so i stay under the personal tax allowance.Taking my final salary pension at 55,plus my SIPP at 6% a year draw down will see me just under that.I never want to earn more than £12k a year from self employment,work or pensions.My ISA is much more important to me than any pension.

Had an acquaintance worked for Rover.Turned down voluntary with generous terms then got made redundant a year later and got a lot less.

 

Bird in the hand,every time.

[DurhamBorn]

13 minutes ago, sancho panza said:

I'm into the new scheme (NHS),I think it works out to salary of 3 best earning years in last 10 divided by 60 then multiplied by years worked.

So someone finishing on £30k having done 20 years would get £10,000 p.a.

I have my doubts there'll be much to collect if the next generation have any sense and just default on all the over generous promises made in their name.

As per previous discussion re Armstrong he had someone on the thread on ToS always quoting this 40,000 for the Dow.I asked the very simple question of how on earth Armstong could vaguely predict the value of a price weighted index with opaque entry criteria(and never received a satisfactory reply.).If boeing goes back to 2016 level of $130 the Dow would get walloped.

'The Dow components are chosen by S&P Dow Jones Indices, and there are no specific rules for inclusion. Generally speaking, components of the Dow should be large and respected companies. However, they aren't the 30 largest companies in the market (a common misconception).'

 

 

Had an acquaintance worked for Rover.Turned down voluntary with generous terms then got made redundant a year later and got a lot less.

 

Bird in the hand,every time.

I got made redundant and had to go in to sign the paperwork etc,my boss who was doing it said how terrible it was and that people going in were crying etc.He said he was quite shocked that i seemed very happy about it.I answered him this.In two minutes your going to give me a 40% uplift in my pension,share options come live worth £34k and £22k lands in my bank from redundancy money and all you want in return is a signature,thats the best deal il ever get in my life,of course im happy so can we get this sorted.The ironic thing is not only did they lift my final salary pension by 40% as part of package it also goes up each year with RPI.Since i left the wages have gone up much much slower than RPI,sometimes by half,so the workers still there are seeing their pensions go up much slower than mine yet i left years ago.Terms always get worse over time,like you say bird in hand every time.

[A_P]

20 minutes ago, sancho panza said:

I'm into the new scheme (NHS),I think it works out to salary of 3 best earning years in last 10 divided by 60 then multiplied by years worked.

So someone finishing on £30k having done 20 years would get £10,000 p.a.

I have my doubts there'll be much to collect if the next generation have any sense and just default on all the over generous promises made in their name.

From my understanding of the new NHS pension (2015) is 1/54th of your annual salary. Depending on your pay there is a set contriubtion percentage, the percentage amount gets higher as your go into higher bands eg on a salary of £30k the contribution amount is 9.3% which would you give a £555.55 (30k/54) annunity. After 10 years on the same salary one would essentially have an annuity of £5555.55 if taken at state pension age. Rises with RPI as long as you're in the scheme.  No idea on the penalty amount if you decide to take it early but I imagine it's quite signifcant. I could be completely wrong though

[Long time lurking]

 

[sancho panza]

11 hours ago, Inoperational Bumblebee said:

Anyone got any thoughts on Stobart?

Wafer thin margins as I understand it but I haven't researched them a great deal.

 

On a wider note, intersting to see some of the financials rolling over....Barclays,Lloyds,Prudential,Shcroders,HSBC.

Funnily enoughm,jsut read Shaun Rochards and he's on about Deutsche Bank-the second DB.

https://notayesmanseconomics.wordpress.com/2018/08/29/the-ongoing-saga-that-is-deutsche-bank-rumbles-on/

'Comment

There is quite a bit to consider here as we see that in spite of an economic environment that is very bank friendly Deutsche Bank never seems to actually recover. More money has been taken from shareholders who must be worried about the next downturn especially as the issue below has continued to fester. From Reuters in June 2016.

“Among the G-SIBs, Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC  and Credit Suisse ,” the fund said…….“The relative importance of Deutsche Bank underscores the importance of risk management, intense supervision of G-SIBs and the close monitoring of their cross-border exposures,” the IMF said, adding it was also important to quickly put in place measures for winding down troubled banks.

This is a reminder of the worries about its derivatives book and its global links. It was hard not to think of that yesterday as rumours spread about Germany offering financial aid to Turkey.

As to the proposed merger with Commerzbank has everybody suddenly forgotten the problems of Too Big To Fail or TBTF banks?

With €1900bn in total assets, a merged Deutsche-Commerzbank would be the third-largest European bank after HSBC and BNP Paribas.  ( FT)

Oh and as to the question posed by etfmaven in the comments the experience in the credit crunch era is a pretty resounding no.

Do two lousy banks make one good one?

Shareholders of Commerzbank may also acquire a liking for the Pet Shop Boys.

What have I, what have I, what have I done to deserve this?
What have I, what have I, what have I done to deserve this?'

 

 

 

Picture paints a 1000 etc.....

Chart is the $ version.Same shape as Countrywide.

[Viceroy]

7 hours ago, sancho panza said:

As per previous discussion re Armstrong he had someone on the thread on ToS always quoting this 40,000 for the Dow.I asked the very simple question of how on earth Armstong could vaguely predict the value of a price weighted index with opaque entry criteria(and never received a satisfactory reply.).If boeing goes back to 2016 level of $130 the Dow would get walloped.

'The Dow components are chosen by S&P Dow Jones Indices, and there are no specific rules for inclusion. Generally speaking, components of the Dow should be large and respected companies. However, they aren't the 30 largest companies in the market (a common misconception).'

That would be me 😁.  

Below should explain... the DOW is foreign money investing there for currency gain and ‘trophy’ big name status..PE is not considered relevant by the foreign or institutional investor when they seek safety for their capital when fleeing a crisis. 

https://www.armstrongeconomics.com/markets-by-sector/stock-indicies/sp-500/the-dow-v-sp500-v-nasdaq-whats-the-difference/

“QUESTION: Dear Mr. Armstrong

Why do you always use the Dow Jones Index? It seems to have the least logical construction of the major indices. Why not use the S&P500?

Many thanks for your informative and thought-provoking blog,

G

ANSWER: Each index offers a completely different perspective. The Dow Jones Industrials is the “big” money. You will notice that this index leads the way. It is the first out of a key low because it is typically the foreign capital that comes in based on currency. You will also notice it tend to top out first because the big money tends to start to pull out first also due to currency.

The S&P500 is domestic US institutions and this tends to reflect the more serious money in the market.

Last, but not least, is the NASDAQ. This is the retail market. You will see this is the last to peak and is the one that gets the retail all hot and bothered.

Each index has its place and reflects a different segment. The foreign capital always buys the big names. That is why the Dow is very important. It is also where big money parks in crisis”

[sancho panza]

19 minutes ago, Viceroy said:

That would be me 😁.  

Below should explain... the DOW is foreign money investing there for currency gain and ‘trophy’ big name status..PE is not considered relevant by the foreign or institutional investor when they seek safety for their capital when fleeing a crisis. 

https://www.armstrongeconomics.com/markets-by-sector/stock-indicies/sp-500/the-dow-v-sp500-v-nasdaq-whats-the-difference/

“QUESTION: Dear Mr. Armstrong

Why do you always use the Dow Jones Index? It seems to have the least logical construction of the major indices. Why not use the S&P500?

Many thanks for your informative and thought-provoking blog,

G

ANSWER: Each index offers a completely different perspective. The Dow Jones Industrials is the “big” money. You will notice that this index leads the way. It is the first out of a key low because it is typically the foreign capital that comes in based on currency. You will also notice it tend to top out first because the big money tends to start to pull out first also due to currency.

The S&P500 is domestic US institutions and this tends to reflect the more serious money in the market.

Last, but not least, is the NASDAQ. This is the retail market. You will see this is the last to peak and is the one that gets the retail all hot and bothered.

Each index has its place and reflects a different segment. The foreign capital always buys the big names. That is why the Dow is very important. It is also where big money parks in crisis”

Viceroy,welcome back.As ever though,he just isn't answering the question.

Using the Dow for anything is dangerous,let alone encouraging retail investors into a misplaced sense of security.

1) The committee can change the components at will,with no formula deployed.

2) Goldman Sachs share price $240 USD has a market cap of $90bn and a higher weighting in the index than Exxon market cap $330bn share price $80.

3) The Dow isn't necessarily 'big money' because a) they weight according to share price

                                                                                         b) they don't pick shares for inclusion on market cap eg Amazon

4) His claim that 'big money' parks there in a crisis is just tosh.It's gone down and up with the S&P.

[DoINeedOne]

Just finished a book I saw that looked pretty interesting and had good reviews on Amazon obviously by the title it talks a lot about how you should own whatever in different parts of the world, not just UK based. Which I suppose miners and telecoms etc fall into as they operate in different areas around the world also spoke a lot about gold and silver and was nice to see a site mentioned here BullionVault mentioned in the book

For someone like me new to all this was an interesting read

 

Also Vodafone still dropping I see using @DurhamBorn  method of buying at 8% drops looks like I shall be buying some more Vodafone

 

 

Also just starting a new book that was mentioned in this book "The Ivy Portfollio"

[Barnsey]

The momentum seems to build, just look at what's being going on in Argentina today with the Peso and their interest rate hike, EM contagion really spreading now thanks to strong $, TRY also weakening again. Italian Bonds continue to tumble.

US housing sales falling over several months now whilst inventory in bubble cities increases, but still on track to see a decent Q3 GDP figure because of inventory build up, which will likely help Trump in the midterms, September hike fully priced in it seems according to ex-Fed Danielle DiMartino Booth (well worth a watch despite the dodgy volume issues from the host)

 

[Talking Monkey]

Things are defo unravelling at the periphery in multiple jurisdictions. Australian housing/mortgages look shaky too. We must be close, I think. What do others think. Talk of things going great guns all the way to 2020 I just can not see it being kept up that long

[Barnsey]

1 hour ago, Talking Monkey said:

Things are defo unravelling at the periphery in multiple jurisdictions. Australian housing/mortgages look shaky too. We must be close, I think. What do others think. Talk of things going great guns all the way to 2020 I just can not see it being kept up that long

It's the combination of wobbles right now which is very worrisome and unprecedented frankly since the GFC, so many potential triggers whilst US stocks continue upwards seemingly unchallenged, but a final push to 3000 for SPX into late Autumn was always on the cards, as @Cattle Prod points out in that fantastic and very comprehensive post (lots to digest!), the dumb money is being sucked in at the last minute as Hedge Funds make for the exits (major divergence began in July), enticed even further by many popular funds waiving their fees recently.

A bottom of $10.50-11 for silver seems to be the lower consensus for those expecting the bust, hopefully this coincides with a slightly stronger £.

[harp]

1 hour ago, Cattle Prod said:

Hello all. I've been meaning to write this post for a while, there has been so many excellent comments on this thread. I've lurked on ToS for since the GFC really, but as I'm a big believer in skin in the game, I didn't contribute as I had long since sold to rent. Now? I've just bought a house...! It's well overdue I started contributing here, and not just benefiting, so here are some of my views:

--------snip----------------
 

Welcome Cattle Prod. A great read and I look forward to your imput.
.
Everything seems to be getting smashed lately. PM's are dropping like a stone. I've been buying silver on BullionVault the last month or so. Just a kilo here and there. But this last few days have upped it to 3/4 kilos every couple of days. No idea if this is the 'right thing to do'.  But hey, with all the news just seems to get worse, what the hell.
I sold all my stocks (Vod, CNA, BT, Imperial etc) last week and now just have a small position in around 8 miners. It's all going down!! BUT I have cash ready. I'm new to this game, can you tell??

[invalid]

1 hour ago, Cattle Prod said:

Hello all. I've been meaning to write this post for a while, there has been so many excellent comments on this thread. I've lurked on ToS for since the GFC really, but as I'm a big believer in skin in the game, I didn't contribute as I had long since sold to rent. Now? I've just bought a house...! It's well overdue I started contributing here, and not just benefiting, so here are some of my views:

Housing 
Fully agree with DB on the above housing comments. However, I will not be moving or trading up from the house I have just bought, so long term, the cost of ownership is of more importance to me than the future sale value. I managed to get a simply ludicrous mortgage of 2.54% fixed over ten years, and this is the key element in my equation. Hat tip to DB and others: your analysis of the Vodafone debt helped me make the decision to do something similar. I lived through the property crash in Ireland, and the people who got bargains were cash buyers (and large funds). Mortgages were thin on the ground, and marked way above base rates. There was a lot of bank advertising, with no money being lent out. I'm too old to take that gsmble again. So I'm expecting notional capital losses, perhaps a further 25% in my area. Repaying a 25% smaller mortgage is equivalent to mine ar 5%. I also got it about 11% under asking, from a price offered about 8% under next door sold for a year ago. The market has certainly turned. Lastly, it sold last in 2004, and I inflated that price forward by RPI and paid that price and no more. A bit crude, but I think reflects the materials and services inflation in the house, without most of the fluff.

I'm comfortable with my decision. I hope the guys with the time to wait it out get a bargain, and a low mortgage to boot!

PMs
Of course the other angle on a 10 year fix is that I have a small stack of physical silver with which I intend to pay the balance of the mortgage off with in ten years time. Like DB I see high interest rates, high inflation and high PM prices ahead. Its not unusual, if you zoom out and look at a longer wavelength cycle (my father never stops reminding me about 15% interest rates. Less so about how many ounces of silver it would have taken to pay off his mortgage balance!). I began buying physical silver and gold in 2006 I think, I remember being very uncomfortable about the economy (enough to sell my house), without fully understanding what was going on (as an interesting aside, there is wisdom in crowds - birth rates drop at such times). I started to learn about commodities, banking, money ... and it scared me shitless. Before the time of Northern Rock, I had a small stash of food as well, and after the bank run my wife no longer thought I was crazy! In Ireland, it subsequently transpired that Trichet called the Minister for Finance minutes before he was to go in front of the Dail (Parliament) to announce a haircut for bondholders (which they had already priced in, of course). Trichet told him that if he did so, there would be no money in the ATMs on Monday. So not crazy at all. I'm relating this with reference to what is coming, and the possible differences this time around. 

I was only in physical then. I bought silver around $13 and sold around $32. Nice return, but how much would that have been had I been into the miners?! Anyway, looks like I get another chance! I've paid close attention to DBs comments on cycles, and I have to say your currency calls are astonishing. And thank you for sharing your knowledge, it has helped me and I'm sure many others. So again, I feel I must try and contribute here. I largely agree with you on housing, the dollar, inflation, inflation assets and interest rates over the next 3-8 years. But of course the next three years are key, and I can't quite see the up-down-way up for PMs and oil the same way as you do. I see an 'up' from here in gold, but maybe only back to the previous resistance area at c. 1380. When the next financial crash hits, the PM complex will certainly go back down, but I don't think it'll be as much % wise as in 2008. After that, I agree, PMs, and silver in particular will go way way up over the next 8 years or so.

So I obsess about positioning. Now is obviously a good time, but how low could they go in a major risk off event? I have hedged with a short on the S&P 500, but I'd rather not. My view is that gold won't drop as far as 800, silver to 10 and oil to $15. I don't have the data to do quantitative or informed macro work, so I can't settle on a downside target. DB's vastly superior analysis worries me (and provides an most welcome and rigorous sense check, so thanks again :-)). So I have backed off positioning fully. The main qualitative reason for my view is how slowly the authorities reacted in 2008, and that they won't make that mistake again. For example, the real capitulation in gold came after Lehmans in Septemeber 2008, and hit bottom about a month later (after the US announced TARP and the UK public infrastructure spending...sound familiar?!). I don't think that will happen again, so I don't think the PMs will be hit as hard. Someone mentioned this week that PMs will only get caught in a risk off sell everything event if the longs holding them have to sell. I agree with that. 

I remember that month well, it was Armageddon. Does anyone remember the day or two before AIG's fate was decided? If AIG went, that really was the financial system gone. I think that month scared the living shit out of CBs and governments, and will not be allowed to happen again. I distinctly remember the cavalier approach to 'letting Lehmans go', it was like 'ah screw them they're kind of assholes anyway'. Can you possibly imagine that happening now?! Now, they bail out everything!! Junk bonds, corporate bonds, just a sniff of anything material and money is thrown at it. 
But equites and the S&P have to have a severe correction, I agree on that. I just think it's currently being filled with dumb money. Smart money is largely on the sidelines. Dumb money isn't systemic. We also now have bail ins, more capital reserves etc. Basically, I see DB being right again, but in a more condensed, maybe less severe pattern. I think they will go very quickly to inflation, infrastructure spending, and printing money. Retail and average people will suffer the consequences of the crash, I see more layoffs than systemic risk this time.

In summary I'm very happy PMs have had a 7 year bear market going into this, and I see the potential for a big 'hit' to them as reduced. One other thing I think about is long term inflation. If you stick a long term trendline on the bottoms of oil, gold, silver etc and calculate the slope, its about 6% a year. This, I believe, is not far off the natural rate of inflation for a finite, declining commodity which doesnt cost the same in supplies and labour to extract in 2018, as it did in 2008, or 2003. We are on that slope right now, so I am very very bullish on PMs. I just want this financial craziness to come to a head so I can fully position. 

Oil
After the GFC, I liked commodities so much I went back to college, requalified and joined the oil industry (subsurface). I've since learned alot about supply and demand, the bullshit that is reported, and what actually drives the price. My expertise is obviously on the supply side, and I made alot of money buying futures last summer (now mostly out as we are consolidating) as I saw a clear mispricing given supply constraints. The key piece of insight I can bring to the forum is about supply, as thats my job. 

In a nutshell, the current oil market and pricing is largely based on the assumption that the USA, meaning shale, meaning Permian shale is practically unlimited, and can act as swing production. World oil prices react to tiny changes in American oil inventory, which is largely being governed by drilling a small area of Texas. It's nuts. This play being readily accessible excess or swing production is wholly not the case for many reasons, and EIA projections are fundamentally flawed. Shale is a glorified ponzi, and I think is now turning, and when Wall street realises, I think all hell will break loose. In fact, like in 2008, it may even be the pin to prick the bubble. However this time, I don't think it'll be deep or long, probably a big dumping of paper quickly followed by a big buying of paper.

I have looked at almost every material oil field in the world technically, and almost all are declining. The peak oil thesis was/is largely correct; it just didn't reckon on QE providing the shale industry a couple of hundred billion (with zero return, it's all gone) to smash up some seriously crappy rock for scraps. World oil production less USA/Canada is flat to declincing since 2010 or so. The Permian is the last material shale play (Argentina possibly has the only other one, but no one has the industrial capacity of the USA necessary to make it work), and there is recent evidence emerging that it's slowly rolling over. Saudi is opaque, but their fields still have to obey natural laws. They do not have the stated spare capacity. Demand has been linear for years, with minor deviations for recessions. The shift to alternatives is not happening quickly enough. Again blame QE fir allowing a zombie industry (shale) to thrive and divert stimulus to alternative energy.

I don't recommend investing in oil companies or futures markets. Some will do as well as the miners, and I expect oil itself over 200 dollars in the next 3 years. But it will cycle unpredicably because the world needs it but can't afford it (even at current prices). Demand destruction will be met by supply shortages. The impact will be far reaching. Buy potash. I don't bring up oil here for investmemt reasons, but because what happens to oil will influence, directly, every other sector. If any elements of this thesis are of interest, please just ask. There is too much detail to go into now, this is long enough!

To lastly add, this week, a long time hero of mine, Jim Rogers, mentioned oil in dispatches. Can't remember the last time he mentioned it, he is smelling it too...
https://moneyweek.com/493654/jim-rogers-buy-gold/

Looking forward to discussions over the coming years. I'm much more interested in challenge than confirmation bias, so fire away!
CP

Great post, and for me the comments on oil in particular. I have kept an eye oil prices for the last 20 years, it is so fundamental to our way of life and yet I think many underestimate its importance and just how dependant on we are.

I would very much like to hear more of your thoughts, in particular with regard to North Sea oil and gas, maybe also gas wholesale prices in the Uk as they are now the main driver of energy costs and have risen sharply in the last couple of months.

Could I suggest that you might want to start a dedicated thread for oil and energy?

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I struggle to keep up with this thread, so please excuse what may be dumb question to most - is the general feeling that we are about to see GBP fall in value against USD, or for USD to be strong against all currencies?

[azzuri82]

9 minutes ago, Cattle Prod said:

I often wonder should I just sit in cash, but I cannot see a further PM smashdown from here. Mabye another 10% in gold, but that would be a stretch. So I'm in miners. I'm keeping my divi stocks too through thick and thin - I've adopted the barbell investment strategy from Taleb as described in Antifragile. If I don't have my safe steady income on one side, I can't play with the goldies. 

As for kilo bars, I had them in my house throughout the GFC. I slept like a baby.

Interesting you mention Taleb, I too am a big fan. How do you apply the barbell strategy in your trading? As much as I love Taleb, the nature of his writing leaves a lot open to interpretation (deliberately), thus I've found it difficult to apply a lot of his recommendations to my own life/situation.

I'm sitting all in cash at the moment as I try and work out my strategy going forward. Tempted to short a lot of equities but my prediction history shows I'm normally too early / pessimistic on my general predictions, so shorting at the moment seems a dangerous game.