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Credit deflation and the reflation cycle to come.


DurhamBorn

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UnconventionalWisdom
54 minutes ago, Onsamui said:

Foreign investors have been withdrawing on a large scale from British government bonds

https://www.armstrongeconomics.com/markets-by-sector/foreign-exchange/pound/foreigner-selling-uk-debt-as-hard-bexit-appears/

I don't understand why foreigners would invest in UK bonds with a lower yield than US ones anyway. 

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3 minutes ago, Yellow_Reduced_Sticker said:

"Australians Told to Expect 'Longest and Deepest' Housing Slump!"

https://uk.finance.yahoo.com/news/australians-told-expect-apos-longest-080948873.html

News gets better by the day...xD

15%,they can expect a lot worse than that,i got steak mince big packs £1.12 in Tesco last night from £4.50 and big packs of sausage £1.00 down from £4.00,Haddock 88p down from £3.50,Sea bass the same,bread,salad,veg,even 2 cooked chickens for £1.13 each instead of £4.50.Mind you iv noticed this week a lot of immigrants appearing,one said the government had given them a house right opposite the store,i might be down to pork products only soon.

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Yellow_Reduced_Sticker
23 minutes ago, DurhamBorn said:

15%,they can expect a lot worse than that,i got steak mince big packs £1.12 in Tesco last night from £4.50 and big packs of sausage £1.00 down from £4.00,Haddock 88p down from £3.50,Sea bass the same,bread,salad,veg,even 2 cooked chickens for £1.13 each instead of £4.50.Mind you iv noticed this week a lot of immigrants appearing,one said the government had given them a house right opposite the store,i might be down to pork products only soon.

Hey DB,

I've been away from this thread for 2 weeks as house sitting for inlaws in Wokingham , OMG you wanna go to Wokingham's Tesco, F**** NO trash/scum romas/inits or gipos!

I was the ONLY bugger there at reduction time!

House prices are a REAL joke around Wokingham, a decent 3-bed 1950/60s' built house £500/600K!

I'm looking forward to these going for 250K in 5 or so years:Geek:

BRING The SE-UK House SLUMP ON BABY!

I'm back at slum city ...and poped in Tesco's last night, picked some stuff up, however noticed reductions getting a bit pricy?!

Maybe cos of the heat no rain etc...stuff going UP!

anyway...RE: "Mind you iv noticed this week a lot of immigrants appearing,one said the government had given them a house right opposite the store"

Is this true? If it is I ain't moving up there then! :Old:

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1 minute ago, Yellow_Reduced_Sticker said:

Hey DB,

I've been away from this thread for 2 weeks as house sitting for inlaws in Wokingham , OMG you wanna go to Wokingham's Tesco, F**** NO trash/scum romas/inits or gipos!

I was the ONLY bugger there at reduction time!

House prices are a REAL joke around Wokingham, a decent 3-bed 1950/60s' built house £500/600K!

I'm looking forward to these going for 250K in 5 or so years:Geek:

BRING The SE-UK House SLUMP ON BABY!

I'm back at slum city ...and poped in Tesco's last night, picked some stuff up, however noticed reductions getting a bit pricy?!

Maybe cos of the heat no rain etc...stuff going UP!

anyway...RE: "Mind you iv noticed this week a lot of immigrants appearing,one said the government had given them a house right opposite the store"

Is this true? If it is I ain't moving up there then! :Old:

Yes,it seems our local housing associations have some sort of deal going with government or southern councils.The immigrant population in the north is very low outside of Boro.We have a lot of Polish people,most of the factories and warehouses sacked a lot of people and brought agency in mostly Polish.Some have gone back though due to the £ and having made enough to buy a house.I find Asda has crowds around waiting for reductions,as does Morrisons (they do at 5pm),but Tesco is ok most nights,a few or nobody.Its near me,but to the edge of town and think its probably a bit out of the way for people walking etc.

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On ‎02‎/‎09‎/‎2018 at 21:23, DurhamBorn said:

In the last 22 years the COTS report has never had silver insiders long.Never.Commercials hedge short as insurance for the silver they hold as part of their business.The knack was to watch when they were the least short etc.The commercials have gone net LONG last week,the first time ever.Silver could chop about more yet and could hit new lows,but a big bull market is likely dead ahead.

Very Interesting thanks, hopefully this is somewhere near to bottom of the cycle (fools game trying to time it exactly).  It is finally looking like the world economy is starting to turn as predicted, exactly 10 years after Sept 2008!

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3 hours ago, Cattle Prod said:

Thanks SP I'd read a version of that before, but not the original article. I didn't know that a 0% rate was on the table. Intuitively I agree, I don't like the theft of my capital. I wonder what the world would look like if that had carried the day? I'm sure there would be unforseen consequences (borrowers wouldn't see their debts being eroded) but imagine saving a pound knowing you can spend the same pound when you retire. It'd make most of the financial industry redundant. Divi stocks would be all you need.

I think if we'd had 0% and then we'd have had a stability that was inherently less unstable than the current preicpice we're looking down..The 2% inflation target isn't the sole reason we're in the mess we're in,repeal of Glass Steagall, abandoning cash reserve lending/Basel 1/2/3,  TBTF etc etc.

 

But it's the mindset that underpins it that baffles me.How anyone who can do basic maths can opt for 2% as opposed to 0% is beyond me. I'm slightly shocked at Greenspan seeing sense but hadn't realised Yellen was at the root of the Fed choosing 2%.

 

I think what saddens me deeply ..but doesn't surprise me.....is the fact that so many rocket scientists struggle to grasp basic logic.On teh M3 thread I posted a few charts on the velocity drops that have accompanied QE and explain why it's been such an epic failure in terms of creating an even bigger crisis than the one it was meant to solve.

2 hours ago, UnconventionalWisdom said:

I don't understand why foreigners would invest in UK bonds with a lower yield than US ones anyway. 

Sterling trade?

1 hour ago, Yellow_Reduced_Sticker said:

"Australians Told to Expect 'Longest and Deepest' Housing Slump!"

https://uk.finance.yahoo.com/news/australians-told-expect-apos-longest-080948873.html

News gets better by the day...xD

The 'forever' boom has burst.Whodda thunk it.

1 hour ago, DurhamBorn said:

15%,they can expect a lot worse than that,i got steak mince big packs £1.12 in Tesco last night from £4.50 and big packs of sausage £1.00 down from £4.00,Haddock 88p down from £3.50,Sea bass the same,bread,salad,veg,even 2 cooked chickens for £1.13 each instead of £4.50.Mind you iv noticed this week a lot of immigrants appearing,one said the government had given them a house right opposite the store,i might be down to pork products only soon.

Don't be cracking that joke down my way.

35 minutes ago, NogintheNog said:

A different view from Harry Dent. Not sure I agree with him.....

https://youtu.be/ylIoZUPAEZk

Harry Dent is one of the few people who's been more wrong than me over the last ten years.But he has sold a lot of books and I love his talks.

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On 27/08/2018 at 21:46, sancho panza said:

'I'm not sure that velocity of money has much to do with inflation. ' Velocity is GDP/money supply. Inherently,if you print money and velocity drops GDP doesn't rise and inflation may well not result as some consumers simply delay or forego purchases.To see price inflation,you generally need velocity to either rise,or at least stay flat.

 

As per the four graphs below.USA CPI is up 47% since 2000.GDP is up 100%.M2 velocity down 33%.

M2 money supply is up 202%

During this period,expansion of M2 hasn't been very inflationary.Ergo,the reduction in velocity has helped ameliorate the increase in M2 in terms of inflation.

 

 

fredgraph(6).png

fredgraph(5).png

fredgraph(4).png

fredgraph(7).png

'I also cannot agree with the argument that the housing bubble was mostly caused by a lack of regulation'.

I used the word 'lax' but I should have chosen my words more carefully.We had lots of regulations,but a) they weren't very good, b) the people and organisations administering them weren't very good c) a lot of banks were quite blatantly ignoring them.

I remain sure that when this is all over,we'll see Glass Steagall get reinstated.You can virtually time the banking arms race from that moment.And let's remember it was written into law in the 1930's to prevent another Great Depression........

 

 

'I would argue instead that there are key bits of regulation and institutional changes that have allowed the money supply to increase dramatically and therefore increase asset prices.'

I don't disagree.Moving away from cash reserve lending onto using broader measures of capital and then Basel 1 which allowed banks to supposedly be monitored/compared internationally and reduce risk when in retrospect,it looks as it did anything but that which it was intended to do..I've posted this Steve Keen piece before but it shows how there was a body of evidence already in 2008 that banks were creating liabilities ahead of deposits which wasn't how the system was meant to work.Now,even the Bank of England accepts this but back in 08 we were being told it was the other way round.Clearly,allowing bankers to create laons ahead of deposits,pocket bonuses and then rinse and repeat was naieve.

http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

Add in Glass Steagall and banks leaving cash reserve lending and you have the perfect storm for a credit bubble.

https://en.wikipedia.org/wiki/Glass–Steagall_legislation

'The separation of commercial and investment banking prevented securities firms and investment banks from taking deposits, and commercial Federal Reserve member banks from:

  • dealing in non-governmental securities for customers,
  • investing in non-investment grade securities for themselves,
  • underwriting or distributing non-governmental securities,
  • affiliating (or sharing employees) with companies involved in such activities.'

 

'For example, the abandonment of fixed exchange rates in relation to the dollar (which in turn was tied to the value of gold) and the adoption of pure fiat currency.'

Bretton woods is a separate debate I think.

 

 

'Or, in the late 90s a few of the large building societies in the UK becoming banks (as I understand it building societies were not allowed to lend on a fractional reserve basis).'

The BS's were using FRB but they were restrained from offering BTL mortgages and essentially offered savings and loans as I understand it.Becoming banks allowed them to ramp up credit expansion.I suspect when we see the current bubble collapse,we'll findd the BS's that are left taking some of the biggest losses.

 

'I read that article as being highly critical of the Federal Reserve for dropping M3:'

I read it that way too.I wasn't defending the fed.They should be using the broadest reliable measures they can imo.

 

'Also, I'm not sure how currency holdings outside the country of issuance can affect domestic inflation of that same country?'

The issue here as I see it is that some forex buyers of a currency may view foreign holdings as a reason to hold,say the dollar, and thus despite money printing,USD stays strong vs other currencies.

 

'Surely, unless people were sneaking suitcases of euro-dollar, euro-sterling, or euro-yen, holdings back into the country of issuance, en masse, then repatriation of currency holdings would be going through the banking system, and therefore be picked up in M3?'

Possibly a reason the Fed stopped using M3.

They should call the failure of QE 'Yellens fallacy'

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16 hours ago, BurntBread said:

Thank you SP. That's a particularly interesting throw-away remark. I'm sure almost everyone here is informed on this subject anyway, but for the few like me, here (if I have the right link) is the unremarkable strategy of the BoE pension fund:

"To acquire low risk, government-guaranteed assets or high quality supra-national assets that will on an on-going basis provide as close a hedge to the cash flows of the Fund's accrued liabilities as is practicable, having regard to transaction costs. To limit the risk of assets failing to meet the liabilities over the long term."

Here are their allocations:

 

boe_pension.png

It looks like they have a small incentive not to burn the pound, and a somewhat larger incentive for the index-linking to actually reflect inflation; both of which are hard to do in an inflationary environment (I would guess).

So, it seems like they are not completely insulated from the consequences of their policies. Oddly, they seem to be moving slightly towards UK fixed-interest.

One last rant and then I'll do my other work without distraction but your post has me spewing rage.

Look at it,the BoE issues the bulk of it's debt as fixed rate, the pension funds of Joe Public are forced to buy huge chunks of issuance because they legally have to maintain certain liquidity ratios and solvency ratio's and the 'people's bank' sticks the bulk of it's pension in linkers..........................you couldn't make it up.

So they tell us inflation isn't a problem and then protect the bulk of their pension funds from it.

 

And not just any inflation products...in RPI linked ones.....a measure that's supposedly so crap that the only use the Govt has for it is to link it's retirees (read MP's) pensions to it.Said MP's wouldn't want to link to the CPIH they impose on every one else would they?

The only blessing and it's a thin one, is that these parasites are morally obliged to eat some of the dog poo sandwich they serve everyone else and thus can't buy UST's.

 

Worth noting that all the time I've been monitoring their pension pot,the BoE has been in majority linkers.

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3 hours ago, Yellow_Reduced_Sticker said:

Hey DB,

I've been away from this thread for 2 weeks as house sitting for inlaws in Wokingham , OMG you wanna go to Wokingham's Tesco, F**** NO trash/scum romas/inits or gipos!

I was the ONLY bugger there at reduction time!

House prices are a REAL joke around Wokingham, a decent 3-bed 1950/60s' built house £500/600K!

I'm looking forward to these going for 250K in 5 or so years:Geek:

BRING The SE-UK House SLUMP ON BABY!

I'm back at slum city ...and poped in Tesco's last night, picked some stuff up, however noticed reductions getting a bit pricy?!

Maybe cos of the heat no rain etc...stuff going UP!

anyway...RE: "Mind you iv noticed this week a lot of immigrants appearing,one said the government had given them a house right opposite the store"

Is this true? If it is I ain't moving up there then! :Old:

Wokingham tesco is my local one and funny how it's calmed down recently. A few months ago the regulars were always lined up for the reduced fresh veg coming out and bloke followed me round the store giving me verbal because I got "his" bag of salad. Now as you say nobody, although to be fair veg reductions are a lot crapper than they were. 

The whole shop has gone downhill though got rid of all the cheap versions of products so you have to buy the higher margin ones, and the stickered chilled stuff still too expensive after reduction. If you're in town again next time there is a larger than normal Lidl just round the corner much better value. 

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God the Tory party need to get rid of Hammond. Looks as if he's got his property bubble blowing chum an extension to his job.

No one could even envisage the extent to which the Tory party have fucked up Brexit, but still this money printing parasite will take it to unseen levels when we leave on WTO.

https://news.sky.com/story/mark-carney-may-stay-on-as-boe-governor-for-smooth-brexit-11490186

 

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Yellow_Reduced_Sticker
2 hours ago, Funn3r said:

Wokingham tesco is my local one and funny how it's calmed down recently. A few months ago the regulars were always lined up for the reduced fresh veg coming out and bloke followed me round the store giving me verbal because I got "his" bag of salad. Now as you say nobody, although to be fair veg reductions are a lot crapper than they were. 

The whole shop has gone downhill though got rid of all the cheap versions of products so you have to buy the higher margin ones, and the stickered chilled stuff still too expensive after reduction. If you're in town again next time there is a larger than normal Lidl just round the corner much better value

YEP. I cycled round there, got my smoked mackerel @ £1.50 a pack half the price of tescos! also picked up the German 'Plembascher' LOL bottled beer @ 89p VERY NICE!

 

45 minutes ago, Banned said:

God the Tory party need to get rid of Hammond. Looks as if he's got his property bubble blowing chum C**T an extension to his job.

No one could even envisage the extent to which the Tory party have fucked up Brexit, but still this money printing parasite will take it to unseen levels when we leave on WTO.

https://news.sky.com/story/mark-carney-may-stay-on-as-boe-governor-for-smooth-brexit-11490186

 

Strewth ya couln't make it up! :PissedOff:

CRASH delayed then ...what do ya reckon DB & folks here...

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UnconventionalWisdom
6 minutes ago, Yellow_Reduced_Sticker said:

YEP. I cycled round there, got my smoked mackerel @ £1.50 a pack half the price of tescos! also picked up the German 'Plembascher' LOL bottled beer @ 89p VERY NICE!

 

Strewth ya couln't make it up! :PissedOff:

CRASH delayed then ...what do ya reckon DB & folks here...

FED are still tightening, as is the ECB. Could be they are forced to follow. 

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1 hour ago, Banned said:

God the Tory party need to get rid of Hammond. Looks as if he's got his property bubble blowing chum an extension to his job.

No one could even envisage the extent to which the Tory party have fucked up Brexit, but still this money printing parasite will take it to unseen levels when we leave on WTO.

https://news.sky.com/story/mark-carney-may-stay-on-as-boe-governor-for-smooth-brexit-11490186

 

"Even though I have already agreed to extend my time to support a smooth Brexit, I am willing to do whatever else I can in order to promote both a smooth Brexit and an effective transition at the Bank of England."

To support a smooth Brexit???????? What a load of meaningless tosh!

The way it's going I really hope we do 'crash' out onto WTO rules.

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9 minutes ago, Yellow_Reduced_Sticker said:

YEP. I cycled round there, got my smoked mackerel @ £1.50 a pack half the price of tescos! also picked up the German 'Plembascher' LOL bottled beer @ 89p VERY NICE!

 

Strewth ya couln't make it up! :PissedOff:

CRASH delayed then ...what do ya reckon DB & folks here...

I picked up a bottle of mulled wine for £1.50 at my local Tesco recently, other than that its either been nothing or a big queue.

Crash delayed - predictions are nothing more than guesses but oil and gas is at a two year high, its certainly going to put pressure on inflation and in turn trim back consumer spending even further,  I think consumer credit is starting to tighten, I think someone posted some charts a while back (might have been on TOS).

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Tahoe's dumpster fire just got some extra petrol, with Guatemalan Constitutional Court re-suspending Escobal mine's license until the issue with local indigenous people is sorted. -20% so far on the day. Oh dear.

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So when do we back the truck up and buy Silver again?

Everything seems to be getting hammered recently, miners, Vod, BT, CNA and the rest of the defensives. Sitting in cash again with just a few k in miners/bullionvault.

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6 minutes ago, null; said:

"Even though I have already agreed to extend my time to support a smooth Brexit, I am willing to do whatever else I can in order to promote both a smooth Brexit and an effective transition at the Bank of England."

 To support a smooth Brexit???????? What a load of meaningless tosh!

 The way it's going I really hope we do 'crash' out onto WTO rules.

Yes he doesn't sign up for 8 years says he's leaving after 4 years, then extends to 5 confirming he is definitely leaving, then he now says he might stay on for another year.

And that is him offering stability.

He knows he will never get a better more high profile job so he is milking it for all he can. I bet a leadership challenge which would see Hammond sacked would put an end to his indecisiveness. 

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1 minute ago, Banned said:

Yes he doesn't sign up for 8 years says he's leaving after 4 years, then extends to 5 confirming he is definitely leaving, then he now says he might stay on for another year.

And that is him offering stability.

He knows he will never get a better more high profile job so he is milking it for all he can. I bet a leadership challenge which would see Hammond sacked would put an end to his indecisiveness. 

Spot on. He is just stringing it out for as long as he can and trying to time his exit just before it either all goes wrong or he gets forced into making a decision of some form.

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7 minutes ago, harp said:

So when do we back the truck up and buy Silver again?

Everything seems to be getting hammered recently, miners, Vod, BT, CNA and the rest of the defensives. Sitting in cash again with just a few k in miners/bullionvault.

Cash is a very good place to be at the moment IMO, Silver price is pretty much at cost right now for the miners but looks like it may have further downside in the global crash, possibly towards $11. I wouldn't say no to averaging in gradually at the moment given where the price is predicted to reach in the next 3 years, and also given the commercial net long position highlighted on this thread, it's a pretty good indicator we're near or at the bottom.

Gold looks like it may weaken a little further (Yuan devaluation if U.S. imposes $200 billion of tariffs tomorrow/next couple weeks). DXY very unlikely to strengthen much further though, think @DurhamBorn call of 96.5 is spot on, may creep a little above for a brief period. Really is a matter of seeing what the next couple of months brings and how that influences the midterms, quite a ride ahead buckle your seatbelts!

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25 minutes ago, harp said:

So when do we back the truck up and buy Silver again?

Everything seems to be getting hammered recently, miners, Vod, BT, CNA and the rest of the defensives. Sitting in cash again with just a few k in miners/bullionvault.

Opened a BullionVault account yesterday and will be buying some silver and gold within the next week as for the others VOD i remember wating for it to hit below 200p pretty shocked its still dropping

 

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5 minutes ago, Barnsey said:

Cash is a very good place to be at the moment IMO,

Im mainly in GBP but its losing value all the time at the moment, cant see it changing until Brexit is sorted one way or another ... or until May resigns or is removed.

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Most of my cash is actually tied up within my company bank account, cant really take it out as it will just be taxed more so just sitting there only thing i can do is use it for work stuff

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32 minutes ago, Banned said:

Im mainly in GBP but its losing value all the time at the moment, cant see it changing until Brexit is sorted one way or another ... or until May resigns or is removed.

It's painful at the moment seeing it at $1.28, but a few factors may assist in turning things back to $1.40-1.45.

The dollar is at or very near peak, September rate hike fully priced in with doubts now surfacing regarding the path thereafter, also interesting to refer back to the COT report and note that commercials are now record levels long Yen (safe haven in a crisis), which ties in nicely with @DurhamBorn's prediction of a strengthening of Yen/EUR. 

I'm now starting to have doubts about the Euro though given the rapidly shifting political momentum and potential banking crisis in Spain/Italy/Poland from EM contagion. The EU may want to calm waters somewhat by being as diplomatic as possible with the UK as they begin to drown in their own political crisis. All eyes on the Swedish elections 9th September, along with developing situation in Italy of course and Czech Republic/Poland/Austria/Hungary. Lets not forget that the ECB will be going into the next recession with negative interest rates and a potential bond bubble bursting (QE was 7x net issuances last October, madness), let's see how they get on with their QT.

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