Credit deflation and the reflation cycle to come.

[Talking Monkey]

23 minutes ago, DurhamBorn said:

Lets see if it can get down to 85 Harley before a worldwide debt deflation really gets going.85 and gold $1500,silver $22+.As ever direction of travel along the road map would be fine.

DB with roadmap showing  DXY at 85 before a worldwide debt deflation takes hold, once it actually takes hold would DXY then go up as people run to treasuries for safe haven.

[UnconventionalWisdom]

7 hours ago, spygirl said:

Theres no excuse on not using an online mortgage calculator, just to see how brutal.

People only see the short term. I'm early 30s and haven't bought as I live in the South east so don't want to buy a decorated prison cell for 200k. My brother is 10 years younger and bought a new build with help to buy. When I heard he was going for it, I tried hard to get him to listen but he just said, "no, the government has schemes to help first time buyers like me. I've made up my mind." wouldn't hear me out despite me stating I was also a first time buyer and have done a few years of research and came to the conclusion that things will turn and get ugly. 

People don't want to know and fear they will miss the boat. 

[Cosmic]

17 minutes ago, UnconventionalWisdom said:

People only see the short term. I'm early 30s and haven't bought as I live in the South east so don't want to buy a decorated prison cell for 200k. My brother is 10 years younger and bought a new build with help to buy. When I heard he was going for it, I tried hard to get him to listen but he just said, "no, the government has schemes to help first time buyers like me. I've made up my mind." wouldn't hear me out despite me stating I was also a first time buyer and have done a few years of research and came to the conclusion that things will turn and get ugly. 

People don't want to know and fear they will miss the boat. 

Also when you've been saying it for 10 years people tend to ignore you

My brother bought with a 30yr mortgage. Must be 4-5x joint. If they sprog they'll have no option but to both continue working full time.

[UnconventionalWisdom]

5 minutes ago, Cosmic Apple said:

Also when you've been saying it for 10 years people tend to ignore you

Yep, they wonder where I hide my tin foil hat 😂

[UnconventionalWisdom]

8 minutes ago, Cosmic Apple said:

My brother bought with a 30yr mortgage. Must be 4-5x joint. If they sprog they'll have no option but to both continue working full time.

They'll struggle with the cost of childcare. This is what's crazy about our economy, they'll be no money to spend in the real economy. Just money for the banks and necessities. 

[Cosmic]

1 minute ago, UnconventionalWisdom said:

They'll struggle with the cost of childcare. This is what's crazy about our economy, they'll be no money to spend in the real economy. Just money for the banks and necessities. 

Oh absolutely. Its a shitshow... one of them will be working 4 days a week to pay for working 4 days a week...

[UnconventionalWisdom]

1 minute ago, Cosmic Apple said:

Oh absolutely. Its a shitshow... one of them will be working 4 days a week to pay for working 4 days a week...

I have a mate who's wife will do this. Work 3/4 days and that'll cover the childcare when she's working. She's worries the break will affect her job chances. She's a teacher (languages so not the most in demand), but I'm sure she can have a year or two off with little impact. 

[Lightscribe]

What you have to take in consideration is that the masses have very short memories and will believe whatever the MSM indoctrinates.

Housing shortages spouted by the media, yet they believe mass luxury flat building like China is the answer as well as government props.

Ten years since the last financial crisis is a long time, and pretty much alien to the younger generation. It doesn’t help that boomers amplify that by drilling down the FOMO effect, as going forward we’ll never see their time period again.

[Durabo]

2 hours ago, UnconventionalWisdom said:

She's a teacher (languages so not the most in demand)

Language teachers are absolutely in demand - it's a key shortage subject.

https://getintoteaching.education.gov.uk/funding-and-salary/overview/funding-by-subject

[sancho panza]

10 hours ago, kibuc said:

Too many red flags at the moment.

Short term, the price is all about the Lonmin deal. It's hit a few roadblocks, mostly related to labor unions opposing the deal, and the price kept moving this way and that. It went from $2.05 to $3.40 (+65%) in two months, then dropped back to $2.25 in just 4 weeks when the unions started making noise and now it's been climbing up again after SA's competition commision recommended that the court let's the deal go through 4 days ago (+18% in that span). That's way too much volatility for me, especially if it's due to regulatory risk - the kind of risk you cannot really estimate without insider knowledge.

For that reason alone, I'm not touching it before the deal is either formally concluded, or it hits so many obstacles that it looks dead and burried (and is priced accordingly).

With that out of the way, you enter the realm of typical Sibanye mid and long-term risks, which have been well known for some time, but my optics changed in recent months, courtesy of Tahoe.

First, SA mining is a low-grade, deeeeep undeground affair, meaning it's very high cost per ounce. In Q3, their all-in cost was $1290 at the realised gold price of $1205, meaning they were mining at a loss. AISC was $1295 in Q2 as well, which clearly shows it's not a one-off. They need a bull run to start making money - any money - and if that run comes, you'll still be able to do fine entering at $1300, probably even$1350/oz, as their labour costs are guaranteed to go up: https://thevault.exchange/?get_group_doc=245/1542212701-sibanye-stillwater-signs-three-year-gold-wage-agreement-three-unions-14nov2018.pdf

Then, there's debt. Plenty of debt. Again, a bull run should help with that, but until then each passing quarter pushes the company deeper and deeper into the red, and I'd expect the price to resume it's relentless march downwards while that happens.

And finally, there's their safety record and a very Tahoe-y way it's dealt with. Over the course of this year, it's been raised time and time again that the regulators should take strong action against SA given their death toll and possibly even suspend their SA license. Now, I understand that they have much bigger pull in the SA than Tahoe had in Guatemala but still, I wouldn't simply disregard that risk.

All that being said, you can make a killing if the Lonmin deal goes smoothly and it coincides with a proper gold run. It's just that it's a huge gamble, the potential downside at the moment is substantial, and you can still make good money on it even if you join late when most of the risks dissipate.

Thank you ever so much for such a ful and frank answer.I've been debating a purvchase of these in my second tranche and struggle to get to grips with the issues that so many on here are well acquainted with.I think unlike more general companies eg WH Smith,it's relatively easy to have a quick look at the books,look at the chart and see where we are.With the miners it's so much more difficult especially because the volatility you hgihlight makes the charts virtually unusable-for someone lke m who liks his charts.Then with each individual company there are a raft of capital/geo political/compnay specific issues that you have to read deeply around to get a decent graps.

Like I said,many thanks Kibuc

6 hours ago, spygirl said:

If ..... you have low rates and are in gainful employment in the same place all 30 then yes.

30y timeframe for repaying huge lumps is a bit like winning a 5 horse accumulator.

Quite.It's a long way off,a lot can happen in terms of kids,unemployment,interest rates,job moves.

5 hours ago, UnconventionalWisdom said:

They'll struggle with the cost of childcare. This is what's crazy about our economy, they'll be no money to spend in the real economy. Just money for the banks and necessities. 

Frightening what 1 kid in childcare costs at £50 per day over the year.That isnt factored into MMR calcs when people are borrowing to the max.

[Castlevania]

9 hours ago, DurhamBorn said:

Royal Mail for me,ladder set from here to 2.50p.Very happy if i got to the 2.50p price.I noticed they put prices up 9% to lots of business customers.Key to them is letters will make parcels profitable where other delivery companies dont have that luxury.Centrica and SSE will be down on political worries,the more Brexit trouble the more likely a Labour government etc.Centrica im full,SSE id buy another tranche at £10.30 though they are and would remain a small holding as i prefer Centrica.Im also watching the gambling sector,William Hill and Playtech.Not reflation stocks of course,but a sector that will pick up inflation sloshing around.Iv nibbled some of both and happy to increase going forward.

 

I’ve been buying Playtech. I like companies that generate a load of cash, and they do that. They have way more debt than I’m really happy with. Still, I think the potential upsides outweigh the downsides.

[UnconventionalWisdom]

4 hours ago, sancho panza said:

Quite.It's a long way off,a lot can happen in terms of kids,unemployment,interest rates,job moves

Or people stay in the wrong job because they are tied to the mortgage. I like my job but can easily move on if needed. I know this has helped with getting raises. 

[spygirl]

14 hours ago, UnconventionalWisdom said:

I have a mate who's wife will do this. Work 3/4 days and that'll cover the childcare when she's working. She's worries the break will affect her job chances. She's a teacher (languages so not the most in demand), but I'm sure she can have a year or two off with little impact. 

Id not assuem shes going to have a job.

I think the average school has 20% of non Brits kids who parents are on benefits/low paid.

Depending where she is, she might find teaching a less secure job than she thought.

I really dont grasp why teachers just dont to the North and find a nice cheap area - there are a good few.

 

 

[DurhamBorn]

17 hours ago, Talking Monkey said:

DB with roadmap showing  DXY at 85 before a worldwide debt deflation takes hold, once it actually takes hold would DXY then go up as people run to treasuries for safe haven.

Yes they would (probably).I tend to see TLT as the tool to use (IBTL) in the UK.My dollar road map says down to 85 (there is a 74 extreme,but that can be ignored for now) then probably up to around 104.TLT points to $160 area IF a debt deflation takes hold.I then see a bond bear that takes rates back to close to 1982 levels (10% to 14% maybe in UK,but 7%/8% certain).

These are road maps not trading calls.I use them for tilting my portfolio,not all-in bets.Calls fail,my aim is always to simply avoid the big falls and tilt probability into my favour.

[DurhamBorn]

16 hours ago, Sideysid said:

What you have to take in consideration is that the masses have very short memories and will believe whatever the MSM indoctrinates.

Housing shortages spouted by the media, yet they believe mass luxury flat building like China is the answer as well as government props.

Ten years since the last financial crisis is a long time, and pretty much alien to the younger generation. It doesn’t help that boomers amplify that by drilling down the FOMO effect, as going forward we’ll never see their time period again.

100%,and thats one of the keys.Sentiment.Its not 10 years since a real crisis though for me,id say the late 70s with inflation was the last one,and before that the late 20s.My friend says its when grandparents stop warning their grandchildren a new crisis is close.In the UK thats the case on housing.I am pretty certain its going to get ugly for the highly leveraged.HTB is a disaster and that money should of gone into social stock,not housebuilder dividends and execs.

[DurhamBorn]

9 hours ago, Castlevania said:

I’ve been buying Playtech. I like companies that generate a load of cash, and they do that. They have way more debt than I’m really happy with. Still, I think the potential upsides outweigh the downsides.

These companies tend to pick up inflation as well sloshing about.I would much prefer if Playtech sold off its financial trading arm though as thats a stupid risk.I think the active investors are pushing for that as well so there might be movement on that.Most of the debt is because of buying SNAI and like you id like to see net cash grow on the balance sheet to cover it.SNAI was a great buy though and id expect Playtech to maybe use them to access the US as an Italian outfit.

Hills are interesting.The loss of the machine income in the UK will hit them hard,but they seem to have a fantastic team in the US.Risky,but im happy to build a small stake from these prices down.In past inflation's these sort of companies have done well as people tend to look for escape.The sector is hated and that always gets me interested.

[DurhamBorn]

3 hours ago, spygirl said:

Id not assuem shes going to have a job.

I think the average school has 20% of non Brits kids who parents are on benefits/low paid.

Depending where she is, she might find teaching a less secure job than she thought.

I really dont grasp why teachers just dont to the North and find a nice cheap area - there are a good few.

 

 

My sons partner is a newly qualified teacher,he works at Aldi.They are saving like mad while living with my dad and should be able to buy with 50%+ down by the time they are 24 in 3 years and hopefully a nice time to buy and lock in a 10 year fix at low rates that lets 10% capital be paid off.They should (will) be mortgage free by 34 years old.My daughter is a nurse and they are about 50% through paying off a nice house at 27.They should also be mortgage free by 32/33.Im buying them all some silver for xmas 

[sancho panza]

2 hours ago, DurhamBorn said:

100%,and thats one of the keys.Sentiment.Its not 10 years since a real crisis though for me,id say the late 70s with inflation was the last one,and before that the late 20s.My friend says its when grandparents stop warning their grandchildren a new crisis is close.In the UK thats the case on housing.I am pretty certain its going to get ugly for the highly leveraged.HTB is a disaster and that money should of gone into social stock,not housebuilder dividends and execs.

I have to agree on 2008 not being real crisis from a historical perspective.A lot of bankers lost their jobs and had their incomes curtailed but we didn';t lose many of the zombie companies that Schumpeter(creative destruction-need to clear the old grass to let hte new grass grow) would have predicted.

It shoudl have featured a full debt deflation and a contraction of credit.It didn't.As I have opined before,there are two types of recession imho 1) inventory recession where excess inventory gets cleared 2) credit recession featuring contraction in credit.2008 wasn't the latter.Weak hands and the overleveraged were bailed out.Watching that BBC doc on the 2008 crisis you had all the sweats like Alistair Darling saying how they worked through the night to save the UK financial system.Partly true but missing out the rather obvious point that they used the taxpayers blank chequebook to do it.

I'd agree last proper crisis was 1970's then before that the last debt deflation of the early 30's.

You allude to Kondratiev and when you look at the timelines of life,I think it's very much the case that as the last people who felt the full impact of the 30's crisis died or left office,Glass Steagall was repealed in 1998.

You do wonder what these imbeciles at the CB's are studying when they spend years modeling economics based on flawed assumptiosn.

Look at the DB,you write a para and I spew out a few in rage.

 

2 hours ago, DurhamBorn said:

 

Hills are interesting.The loss of the machine income in the UK will hit them hard,but they seem to have a fantastic team in the US.Risky,but im happy to build a small stake from these prices down.In past inflation's these sort of companies have done well as people tend to look for escape.The sector is hated and that always gets me interested.

Gambling firms do well in recessions apparently.Their High St presence will shrink after the FOBT changes.I think Ladbrokes own Betdaq which was/is a real oppurtunity if they can get liquidity from Betfair.I'm amazed they don't funnel their own liquidity there,.

[sancho panza]

US housing bubble 2 appears to be popping in the hot money markets.Wolf has done some excellent coverage of this.Effect will loom on banking system and Home Depot imho

Some of the grapsh are real bubble watching items.especialy no.1 and no.2

Just proving that it isn't jsut death and divorce that gets people selling.

https://wolfstreet.com/2018/11/17/housing-market-downturn-seattle-bellevue-king-county-active-listings-price-reductions/

'

Bubble Trouble: Seattle-Bellevue Metro Housing Market Goes South

by Wolf Richter • Nov 17, 2018 • 32 Comments

The inflection point was July. Conditions have deteriorated since.

Active listings of houses and condos for sale in October in King County – which includes Seattle and Bellevue but does not include Tacoma – nearly doubled compared to October last year, jumping 91% to 5,749 listings, according to data by the National Association of Realtors. This was the largest inventory for sale since the end of Housing Bust 1 going back to 2012.

Inventory for sale started surging off low levels in the spring. In July, it reached the highest level since October 2014; and it continued to soar from then on. By this measure, July marked the inflection point of the housing market in King County. The red bars in the chart mark the months following the inflection point (all data below via realtor.com):

And cuts in asking prices explode. When inventory piles up and sales cannot keep up because potential buyers aren’t buying, motivated sellers roll up their sleeves and see what it takes to move the house or condo, and what moves it are price reductions that are deep enough to meet the market. The market is where buyers are, but they have retreated and sellers are now having to find them. Gone are the price wars when buyers jostled for position for their chance to drive the price even higher.

The chart below shows the number of price cuts per month in King County. By this measure too, the inflection point occurred in July, when price cuts reached the highest point since October 2014. And over the following months, price cuts blew through the roof:

In terms of percentage change from a year ago, in October these price reductions more than tripled (up 205%) from October last year:

So what’s happening to listing prices? These are the prices that sellers are asking for. They’re not the prices that sellers might obtain if and when the unit is actually sold (that would be a measure of selling price). In King County, the median listing price peaked in May at $742,000. This means half of the properties listed for more and half listed for less. The median asking price has since dropped every month, falling to $675,000 in October. This marks a 9%, or $67,000 drop from the peak.

Some of this drop is normal seasonality, as asking prices in the county typically peak in June or July and then drop through January or February. Year-over-year, the median listing price remains up 3.9%.

But that year-over-year increase of 3.9% is a far cry from the double-digit increases that reigned since Housing Bust 1, topping out at 26% during the final throes of the fever in January this year.

Ironically, the “Trump Bump” had a large effect on real estate though President Trump isn’t exactly the most voted-for politician in King County – he got 21% of the popular vote in 2016. I found this to be true also in other metros that are decidedly not in the Trump-zone, such as in San Francisco and Silicon Valley: He got 9% of the popular vote in San Francisco County, 18% in San Mateo County, and 21% in Santa Clara County. But when it comes to home prices in these liberal bastions, the “Trump effect” made property owners a ton of money – if they’re able to get out in time.

In King County, before the 2016 election, the subcutaneous metrics of the market were already losing steam. But after the election, asking prices surged year-over-year, as if sellers had suddenly picked up some magic cues, and bedazzled buyers chased them higher. But that too has now petered out:

The impact on selling prices – the prices at which properties are actually sold – is already visible, even in the Case-Shiller Home Price Index which lags about three months by design (the data released at the end of October was a rolling three-month average for June, July, and August). After spiking for months into June, prices turned around and dropped 2% in July and August, the sharpest two-month drop since Housing Bust 1:

The Seattle metro is a prime example. But prices ticked lower in some of the biggest housing bubbles in the US. Something is afoot.

[sancho panza]

Another Wolf post.Credit deflation looms and a repricing of risk in junk bond markets

Piccies tell the story as above.

https://wolfstreet.com/2018/11/16/housing-downturn-arrives-in-silicon-valley-san-francisco/

'

Housing Downturn Arrives in Silicon Valley & San Francisco

by Wolf Richter • Nov 16, 2018 • 66 Comments

The inflection point: sellers got the memo and cut prices.

The area of Silicon Valley and San Francisco – comprised of the counties of San Francisco, San Mateo, and Santa Clara – is one of the most expensive housing markets in the US. Atherton, a town in the heart of Silicon Valley, has been named the single most expensive zip code in the US. And when that housing market gets tough, the tough start cutting prices.

And that’s what’s happening.

Sales have slowed. Buyers have lost their enthusiasm, and they’re taking their time. Mortgage interest rates have surged, making home purchases even more expensive. And everyone has figured that the situation on the ground has been a housing bubble accompanied by a tech and social media bubble peppered with all kinds of other specialty bubbles, such as the various “sharing” bubbles, and that they won’t last.

So it’s time to unload. Sellers are putting their homes on the market, and active listings in those three counties combined – San Francisco, San Mateo, and Santa Clara, which cover the area from San Jose to San Francisco – surged by 76% in October compared to October last year, to 4,149 listings, according to the National Association of Realtors.

The red bars in the chart mark the inflection point for this housing market. Note the “Trump Bump” — the phenomenon that caused the already teetering housing bubble in the Bay Area to become re-energized after the election in 2016, with listings drying up and prices surging one more time. But that is over now (data via realtor.com).

Suddenly, there is plenty of inventory on the market. This follows the well-established pattern: there is a perceived and much hyped “housing shortage” during boom times, but when the market slows, suddenly, all kinds of inventory comes out of the woodwork. In other words, eager sellers show up, and that’s good. Having eager sellers is one half of the market. Now if there just were eager buyers.

Despite the surge in inventories, sales across the Bay Area declined by 3% compared to the already low levels last October. Back then, the low sales were blamed on lack of inventory, ironically, and sky-high prices not so ironically. Now there is plenty of inventory, but the median selling price has ticked up too, and sales have slowed further, as inventories are piling up.

What’s the next step? Cutting asking prices.

And so the price cutting has started. In the counties of San Francisco, San Mateo, and Santa Clara, the number of price reduction started seriously jumping in August, hit a post-housing-bust record in September, and blew through the roof in October, nearly quadrupling year-over-year to 1,312 properties with price reductions:

In percentage terms, this move becomes even clearer. In September, price cuts surged by 218% from September last year and in October by 295%. This is what an inflection point in one of the most overpriced housing markets in the US looks like – it’s when sellers begin to get the message:

Even as inventories pile up and sales slow down, the median price across the entire Bay Area rose 7.9%, according to the California Association of Realtors. But in Silicon Valley and San Francisco, the price increases are petering out.

In San Francisco, the median price of single-family houses rose just 0.4% year-over-year to $1.6 million and the median condo price rose 3.7% to $1.275 million. “Median” means that half of the homes sell for more and half sell for less. In San Mateo County, the median house price rose 4.3% to $1.588 million, and in Santa Clara County, it rose by 3.2% to $1.29 million.

Given these big prices, even a 10% cut in the asking price of the median home represents a $160,000 reduction in San Francisco and San Mateo and a $127,000 reduction in Santa Clara County. And this is just the beginning – the inflection point of a long slow process. Sellers are still lagging the market, and by the time they finally catch up with the market, the market will have moved lower.'

[AWW]

7 hours ago, spygirl said:

Id not assuem shes going to have a job.

I think the average school has 20% of non Brits kids who parents are on benefits/low paid.

Depending where she is, she might find teaching a less secure job than she thought.

Don't worry, there'll be demand alright. In Tower Hamlets, over 70% of secondary school kids have a first language that's not English.  More than half the kids get free school meals.

[Errol]

Tower Hamlets is near 90% non-white. Interesting place.

[Democorruptcy]

2 hours ago, sancho panza said:

Gambling firms do well in recessions apparently.Their High St presence will shrink after the FOBT changes.I think Ladbrokes own Betdaq which was/is a real oppurtunity if they can get liquidity from Betfair.I'm amazed they don't funnel their own liquidity there,.

GVC Holdings bought Labrokes/Coral.

GVC were in the news recently:

Quote

 

GVC Holdings avoided paying almost an extra £700m for its acquisition of Ladbrokes after the government issued a new ruling on the UK fixed-odds betting machines.
In a major U-turn on Wednesday the government announced that the maximum amount that punters can stake on fixed-odds betting machines will be limited from next April, instead of October as had been planned.

The culture secretary, Jeremy Wright, issued a written statement on Wednesday afternoon confirming that the stake reduction included B2 gaming machine stakes limited to a stake of £2, down from £100.

GVC would have been liable for a payment of about £670m to former Ladbrokes shareholders if legislation aimed at tackling problem gambling had not been introduced before the end of March next year, analysts said.

GVC issued securities known as Contingent Value Rights (CVRs) as part of their takeover of Ladbrokes in March 2018. The CVR required GVC to pay former Ladbrokes shareholders if a cap on the maximum stake on fixed-odds betting terminals (FOBT) - gambling machines considered highly addictive - was not implemented by March 28, 2019.

https://www.hl.co.uk/shares/shares-search-results/g/gvc-holdings-plc-eur0.01

 

 

 

[Harley]

4 hours ago, sancho panza said:

a repricing of risk in junk bond markets

Dumped all mine a few short weeks back!

Talking of shorting..........!

[sancho panza]

https://moneymaven.io/mishtalk/economics/tweets-of-the-day-is-anyone-worrying-0cbuEK6FWUedvcQXrkmPKQ/