Credit deflation and the reflation cycle to come.

[invalid]

11 minutes ago, DurhamBorn said:

Interesting talk today with someone in one of the worlds biggest engineering companies.He told me they were moving work back into their UK plants because it was too expensive to make in China now.Thats right,too expensive in China,better in UK.This company pays its production workers £30k+ a year in the UK,very well paid.They said the cost increases in China were really hurting.Its funny because what i import has seen the prices go through the roof to the point there is very little margin if any (hence the carnage on the high street).Could China be where this debt deflation kicks off?.Given it looks like the Fed is determined to increase rates until they squeeze consumer spending down China might be very exposed.

I've had some involvement with industrial equipment that was manufactured in China around 5 years ago. It's now coming to light that the equipment is not hitting the expected lifespan and the reason is down to poor quality materials and manufacturing processes. Some of the defects would have been very hard to find during QA checks at the time. As an example a steel box section component was found to have a variation of thickness caused by shortcuts during the manufacturing.

So its not just the cost, its the added cost of getting poor quality or the extra cost of the extensive QA needed to ensure a good product.

As a long time lurker on ToS I've seen plenty of calls on the crash come and go. I don't want to say things are different this time, but there does seem to be a number of things going on. The next three months should give a good indication of if we are heading for more business as usual - or not!

[azzuri82]

2 hours ago, DurhamBorn said:

Interesting talk today with someone in one of the worlds biggest engineering companies.He told me they were moving work back into their UK plants because it was too expensive to make in China now.Thats right,too expensive in China,better in UK.This company pays its production workers £30k+ a year in the UK,very well paid.They said the cost increases in China were really hurting.Its funny because what i import has seen the prices go through the roof to the point there is very little margin if any (hence the carnage on the high street).Could China be where this debt deflation kicks off?.Given it looks like the Fed is determined to increase rates until they squeeze consumer spending down China might be very exposed.

I think it's baked in that China will be where it all kicks off. China's positioned now where the USA was in 1929, broadly speaking.

What particular industry is this company in, out of interest? 

[DurhamBorn]

7 minutes ago, azzuri82 said:

I think it's baked in that China will be where it all kicks off. China's positioned now where the USA was in 1929, broadly speaking.

What particular industry is this company in, out of interest? 

JCBs,Monatsu,Trucks,Buses etc,main supplier for heavy machinery parts.

[azzuri82]

9 minutes ago, DurhamBorn said:

JCBs,Monatsu,Trucks,Buses etc,main supplier for heavy machinery parts.

The industry I was in saw a glut of new Chinese-made commercial vehicles around 5-6 years ago. About 20-25% cheaper than European-made. 

You hardly see any 5 y.o. Chinese ones on the road. They are absolutely dog shit other than the Cummins diesel engines they put in them. They fall to bits. European stuff will be on the road for 12-14 years.

[Castlevania]

1 hour ago, azzuri82 said:

The industry I was in saw a glut of new Chinese-made commercial vehicles around 5-6 years ago. About 20-25% cheaper than European-made. 

You hardly see any 5 y.o. Chinese ones on the road. They are absolutely dog shit other than the Cummins diesel engines they put in them. They fall to bits. European stuff will be on the road for 12-14 years.

Have you seen their houses?

[Talking Monkey]

10 hours ago, null; said:

I've had some involvement with industrial equipment that was manufactured in China around 5 years ago. It's now coming to light that the equipment is not hitting the expected lifespan and the reason is down to poor quality materials and manufacturing processes. Some of the defects would have been very hard to find during QA checks at the time. As an example a steel box section component was found to have a variation of thickness caused by shortcuts during the manufacturing.

So its not just the cost, its the added cost of getting poor quality or the extra cost of the extensive QA needed to ensure a good product.

As a long time lurker on ToS I've seen plenty of calls on the crash come and go. I don't want to say things are different this time, but there does seem to be a number of things going on. The next three months should give a good indication of if we are heading for more business as usual - or not!

Even if nothing much happens over the next 3 months and it is business as usual, I can't see too much business as usual, at some point the FED rises and QT will have an impact

[Funn3r]

I buy anything I can from China aliexpress.com but the price advantage is steadily narrowing. I like 5-blade type razor blade things and almost run out. Concluded that this time round it is better value to get a pack of the excellent "Shark" replacement cartridges from Lidl. 

[azzuri82]

8 minutes ago, Funn3r said:

I buy anything I can from China aliexpress.com but the price advantage is steadily narrowing. I like 5-blade type razor blade things and almost run out. Concluded that this time round it is better value to get a pack of the excellent "Shark" replacement cartridges from Lidl. 

And the Chinese can only artificially suppress the yuan so much. Trump's trade war will make sure the yuan is revalued by hook or by crook, taking on China in trade is popular with his core vote and with mid-terms coming up in November, he'll be keen to stoke the embers of nationalism once more.

[Majorpain]

5 hours ago, Talking Monkey said:

Even if nothing much happens over the next 3 months and it is business as usual, I can't see too much business as usual, at some point the FED rises and QT will have an impact

Italy is on a collision course with the EU/ECB again.  They have realised that they are too big to fail, so the ECB cannot refuse to buy their debt OR kick them out, ergo its free money and citizens income for all!

German citizens are going to be well pissed off when the Target 2 bill gets wiped and they find out they paid for the largesse

[spygirl]

4 minutes ago, Majorpain said:

Italy is on a collision course with the EU/ECB again.  They have realised that they are too big to fail, so the ECB cannot refuse to buy their debt OR kick them out, ergo its free money and citizens income for all!

German citizens are going to be well pissed off when the Target 2 bill gets wiped and they find out they paid for the largesse

The nd game for the ECB is itll have to rise rates.

1) To ensure the EURO does not fall, which would cause a problem with EU-US trae i.e. mainly Germany who are shit scared about a trade war aimed atthem.

2) To sort of the shit out in Italy. ECB has played nice, all the Med countries have took the piss. Now hardball.

 

[Lightscribe]

32 minutes ago, Funn3r said:

I buy anything I can from China aliexpress.com but the price advantage is steadily narrowing. I like 5-blade type razor blade things and almost run out. Concluded that this time round it is better value to get a pack of the excellent "Shark" replacement cartridges from Lidl. 

Get a decent old fashioned doubled sided razor. Once you get used to the technique, it’s much better than the multibladed nonsense and just as quick.

A pack of 500 say SuperMax blades for £10 lasts for years.

[Majorpain]

37 minutes ago, spygirl said:

The nd game for the ECB is itll have to rise rates.

1) To ensure the EURO does not fall, which would cause a problem with EU-US trae i.e. mainly Germany who are shit scared about a trade war aimed atthem.

2) To sort of the shit out in Italy. ECB has played nice, all the Med countries have took the piss. Now hardball.

 

Raise rates?  No chance! The ECB is dragging its heels and keeping real rates low for a very good reason.

https://www.cnbc.com/2017/07/25/boaml-says-there-are-more-zombie-companies-in-europe-now-than-pre-lehman-times.html

Imo Five Star/Northern league want out of the Euro, but they don't want the flak from the voters in taking the decision.  The ECB can therefore play as hardball as they like, you cant negotiate with a kamikaze that's too big to bail out!

[MrXxx]

5 hours ago, Majorpain said:

Italy is on a collision course with the EU/ECB again.  They have realised that they are too big to fail, so the ECB cannot refuse to buy their debt OR kick them out, ergo its free money and citizens income for all!

German citizens are going to be well pissed off when the Target 2 bill gets wiped and they find out they paid for the largesse

When I was there they were not too happy about helping their brother's from the East, so helping the culturally different ones from the South really won't go down very well!

[MrXxx]

5 hours ago, spygirl said:

The nd game for the ECB is itll have to rise rates.

1) To ensure the EURO does not fall, which would cause a problem with EU-US trae i.e. mainly Germany who are shit scared about a trade war aimed atthem.

2) To sort of the shit out in Italy. ECB has played nice, all the Med countries have took the piss. Now hardball.

 

You forget 3. The Eastern Europeans that joined the party late...If I was Polish I would be lobbying my MP`s for PEXIT, now that the teat is about to dry up and their economy is on the up....I think if they stay they will end up taking over the role of Germany within the EU I.e. provider.

[spygirl]

1 hour ago, MrXxx said:

You forget 3. The Eastern Europeans that joined the party late...If I was Polish I would be lobbying my MP`s for PEXIT, now that the teat is about to dry up and their economy is on the up....I think if they stay they will end up taking over the role of Germany within the EU I.e. provider.

Not sure.

Theres a lot of money put in EE.

The not too bent ones are doing really. Most have overtook Greece income / head. Slovenuas probably ahead of Spain.

Romania bulgaria - fucked.

[Dogtania]

8 hours ago, Majorpain said:

 

German citizens are going to be well pissed off when the Target 2 bill gets wiped and they find out they paid for the largesse

Maybe different but hearing this reminds me about reading recently on Greece a few years back when they initially joined the Euro.  Sounded like corruption/ paying no tax/ fiddling the books was so endemic from top to bottom that it was only through hook and crook that they were admitted in the first place and the Euro chiefs were either negligent or at least made to look like they had the wool pulled over their eyes.

Then when in trouble and in order to fulfill conditions Greece basically sold the bail out money and future bail out money for payday cash from American investment banks and the like.  All in order to keep the plates spinning and keep those sweet billions from sugar daddy ECB coming in.

Maybe slightly different now because the general economic outlook isn't seen as so stellar as the earlier days of the Euro.  So indeed the Germans not quite so happy whereas before brushed under the table?

Anyway I was shocked reading that in Greece when people were applying for mortgages the banks would themselves inflate the incomes of applicants knowing that everyone under reports/ tax evades.  No wonder they could never balance the books! And at the same time here mortgage applicants were doing the exact opposite (liar loans et Al).

 

[spygirl]

On 27/09/2018 at 14:46, sancho panza said:

As per many discussions on here about Powell being a real change of tack compared to previous incumbents at the fed..

Powell's lack of a neo classical economics education will stand tax payers in good stead.

 

https://wolfstreet.com/2018/09/26/fomc-jerome-powell-press-conference-rate-hikes-still-accommodative/

'The Fed’s Not Backing Off: Powell’s Standouts & Zingers at the Press Conference

by Wolf Richter • Sep 26, 2018 • 6 Comments

US is “on an unsustainable fiscal path, there’s no hiding from it.”

I have to say, Fed Chairman Jerome Powell is a breath of fresh air when he talks, after the near-physical pain I experienced listening to his last three predecessors. I actually get what he is saying, even if it’s a little twisted. I can make out his veiled disdain for fancy but dubious economic theories and iffy forecasts. And I get to look forward to some zingers when I least expect them – such as at today’s press conference, when he valiantly defended the Fed’s preferred inflation measure, core PCE, by saying that it “tends to run a little lower, but that’s not why we pick it.”

About that wildly ballooning federal deficit:

Even though the question came at the end of the press conference, I’m pulling it to the top because it’s so important. Asked if fiscal policy – the ballooning deficit, after tax cuts and spending increases – comes up a lot at FOMC meetings, he said:

“It doesn’t really come up. It’s not really our job…. We don’t have responsibility for fiscal policy. But in the longer run, fiscal policy will have a significant impact on the economy, so for that reason, I think, my predecessors have commented on fiscal policy, but they have commented on it at a high level rather than trying to get involved in particular measures.

“My plan is to stick to the same approach, and stay in our lane. So I would just say, it’s no secret, it’s been true for a long time, that with our uniquely expensive healthcare delivery system and the aging of our population, we’ve been on an unsustainable fiscal path for a long time. And there is no hiding from it, and we will have to face that, and I think the sooner the better.

“These are good times. This is the economy in the range of full employment. Interest rates are low. It’s a good time to be addressing these things. So I put that out there and leave it at that.”

About that mysteriously vanished sentence:

A sentence that had vanished from the FOMC statement today, after having been standard for years – “The stance of monetary policy remains accommodative” – caused instant media speculation that the Fed would “pause” next year, in line with persistent bias in the media of seeing every vagueness as a dovish signal.

Powell shot this down several times, first in his prepared statement and then in the Q&A. In the statement, he emphasized, “overall financial conditions remain accommodative,” and specifically addressed the disappearance of that sentence:

This change does not signal any change in the likely path of policy; instead, it is a sign that policy is proceeding in line with our expectations. We still expect, as our statement says, “further gradual increases….”

During the Q&A, he was asked about it several times, from different angles. And he expanded on the theme:

“The point with ‘accommodative’ was that its useful life was over. We put that in the statement in 2015 just when we lifted off [beginning of rate-hike cycle]. The idea was to provide assurance that we weren’t trying to slow down the economy, but that in fact interest rates were still going to be pushing to support economic activity. That purpose has been well served, and that language now doesn’t really say anything that’s important to the way the committee is thinking about policy going forward. That’s why it came out.”

He was asked if the Fed’s policy is accommodative now – meaning if the federal funds rate is still below some theoretical “neutral” rate at which it would neither stimulate nor slow the economy. And he said:

“The federal funds rate, even after today’s move, is below the longer-run neutral estimate of every single participant who submits an estimate. So that’s why it’s the perfect time to take the language out because it’s perfectly clear that there can’t be a signal because by definition that means an accommodative policy. So it wasn’t because the policy is not accommodative. It is still accommodative.”

And just to make sure everyone got it, he threw in “another point too”:

“We don’t want to suggest either that we have a precise understanding of where ‘accommodative’ stops, or suggest that that’s a really important point in our thinking…. What we’re going to be doing is carefully monitoring incoming data from the financial markets and the economy and asking ourselves if our policy is achieving the goals we want to achieve: Sustain the economy, maximum employment, and stable prices. That’s the way we’re thinking about it. That does kind of amount to thinking less about one’s precise point-estimate of the natural rate.”

“You can think of it in different ways. Maybe we have underestimated the neutral rate, maybe we’ll be raising our estimate of the neutral rate, and we’ll just go to that. Or maybe we’ll keep our estimate of the neutral rate here [he made a precise gesture with both hands] and then go one or two rate increases beyond it. I think it’s very possible.”

What could change the rate-hike tango?

The FOMC would raise rates faster “if inflation surprises to the upside,” he said, but “We don’t see that.”

And the FOMC would raise rates more slowly if there is:

• “A significant correction in the financial markets,” which, as he explained later, is one that causes consumers to spend less, such as the mortgage meltdown did during the Financial Crisis, while a standard sell-off in the stock market would not qualify.
• “A slowing down of the economy that is inconsistent with our forecast.”

The risk after the Financial Crisis is to “forget things we learned”:

Asked about the biggest lessons learned from the Financial Crisis, he listed some of the big changes in the financial system since then, such as higher capital, more liquidity, better regulation, etc., and then added:

“Those are the really important lessons. We were determined not to forget them. And I think that’s a risk now, is to forget things that we learned. That’s just human nature over time.

No problem that higher rates whack consumers:

Asked if he was concerned about the impact of higher rates on consumers, with credit-card rates having reached “17%,” he replied:

“Interest rates are going up across a broad range of consumer borrowing…. But they’re still quite low by historical levels.

“And the other thing I’ll say, if you take housing, if you look at the NAR affordability index, housing is still more affordable now than it was before the Financial Crisis. So the cost of borrowing is going up, but it’s going up from what were extraordinarily low levels.

Being “humble” about productivity forecasts:

“We’re so bad at forecasting productivity, it’s just very hard to know when productivity is going to arrive and in what quantity…. So I think we have to be humble about how little we really know about where these variables either are, or are going.”

Core PCE inflation “tends to run a little lower, but that’s not why we pick it”

In response to a question about wage growth, he explained as an aside, how wage growth is adjusted for inflation to get “real” wage growth.

The indicators of nominal wage and benefit growth are “clustered around 3%,” he said. But then you have to figure inflation into it to get real wage increases.

“And there you have to pick an inflation measure. Some people pick CPI [= 2.7%]. We of course pick Personal Consumption Expenditures [core PCE = 2.0%] because we think it’s a little better measure, it’s a little broader, and it tends to run a little bit lower as well, but that’s not why we pick it…”

Darn, and I thought all along that’s precisely why they picked it. '

One thing wages stars miss is people changing jobs.

Joe 6pack getting aa 5% raise shows.

Joe leaving for 15% more doesnt.

[leonardratso]

On 11/09/2018 at 12:19, leonardratso said:

https://en.wikipedia.org/wiki/Agile_software_development

minimum viable product is a tenant to it.

ususally ends up as non scalable piece of shit though, bit like a reliant robin, will never be anything but.

didnt know you could quote yourself, but obviously can.

[Bobthebuilder]

So, another new month tomorrow. Drip feeding into the usual stocks as discussed on this thread and another chunk of silver to add to the pot.

Do you lot think we will have another Santa rally this year?

Keep up the good work folks, cracking thread.

[DurhamBorn]

1 hour ago, Bobthebuilder said:

So, another new month tomorrow. Drip feeding into the usual stocks as discussed on this thread and another chunk of silver to add to the pot.

Do you lot think we will have another Santa rally this year?

Keep up the good work folks, cracking thread.

Im in full silver buying mode now.Im going to keep buying every couple of weeks going forward probably over 18 months.I think there is a chance silver goes below $10 one the debt deflation really gets going,but im prepared to keep averaging if that happens.I still think we will see $200 silver within a decade,perhaps even $300.Even if those targets arent hit im pretty sure the road map points to a very strong bull cycle for the metal.

[Talking Monkey]

36 minutes ago, DurhamBorn said:

Im in full silver buying mode now.Im going to keep buying every couple of weeks going forward probably over 18 months.I think there is a chance silver goes below $10 one the debt deflation really gets going,but im prepared to keep averaging if that happens.I still think we will see $200 silver within a decade,perhaps even $300.Even if those targets arent hit im pretty sure the road map points to a very strong bull cycle for the metal.

DB a couple of months back the debate on the thread was that it was still up in the air whether a deflation first or straight to inflation, would you say anything has changed tilting it more in one direction or is it still up in the air

[DurhamBorn]

6 minutes ago, Talking Monkey said:

DB a couple of months back the debate on the thread was that it was still up in the air whether a deflation first or straight to inflation, would you say anything has changed tilting it more in one direction or is it still up in the air

I still think we will get the deflation,but im happy to keep averaging in.Im pretty certain we are heading for a reflation cycle that will likely get very much out of hand and the end result is a ten bag for silver from here.If it goes down 30% first il be buying more.All eyes on if China de-values by a big amount soon.

[Talking Monkey]

5 minutes ago, DurhamBorn said:

I still think we will get the deflation,but im happy to keep averaging in.Im pretty certain we are heading for a reflation cycle that will likely get very much out of hand and the end result is a ten bag for silver from here.If it goes down 30% first il be buying more.All eyes on if China de-values by a big amount soon.

Cheers DB

[wherebee]

50 minutes ago, DurhamBorn said:

I still think we will get the deflation,but im happy to keep averaging in.Im pretty certain we are heading for a reflation cycle that will likely get very much out of hand and the end result is a ten bag for silver from here.If it goes down 30% first il be buying more.All eyes on if China de-values by a big amount soon.

Agreed.  I cannot see how gold or silver are not a safe haven asset for the next 20 years given all the fucking about with printy printy we have seen.  Putting your life saving into it is probably stupid, but dismissing it definitely is so.

[DurhamBorn]

17 minutes ago, wherebee said:

Agreed.  I cannot see how gold or silver are not a safe haven asset for the next 20 years given all the fucking about with printy printy we have seen.  Putting your life saving into it is probably stupid, but dismissing it definitely is so.

Its amazing to think hardly anyone owns it yet the commercials are net long for the first time in history.I fully intend to have 15% of my liquid wealth in silver and another 10%-15% in PM miners.The risk/reward is hugely in favour.It might not come off,i can live with that,but life changing amounts could be made for ordinary people who are prepared to get in and wait.