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Credit deflation and the reflation cycle to come.


DurhamBorn

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10 hours ago, MrXxx said:

This (isa, with etf index trackers) was on my `to do list` for about 6 months but I just haven't got round to doing it...now to me it seems like a better option to stay in cash and wait for the dust to settle, what are others thoughts/opinions?

novelinvestor-Asset-Class-Returns-FY-201

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1 hour ago, A_P said:

novelinvestor-Asset-Class-Returns-FY-201

Helpful to see how 2008 annihilated most asset classes, and since the US *is* the global economy, expect similar results here next year.

If many smarter folks than I are right, the decade that follows is going to be a lost one for most of those assets.

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10 hours ago, Barnsey said:

I'm going heavy IBTL and NS&I Premium Bonds with a view to not pick up much else until we're in the bust next year, only then I'll pick up PMs and miners unless they hit my lower targets in the meantime. 

I’m thinking of selling my premium bonds to buy gold and silver? 

I read so many people throwing out crazy numbers for gold and silver future prices.. I’ve missed so many bubbles, housing bubble mainly.. need to take a risk.. 

if it all goes wrong I will buy a parrot 🦜 and get a wooden leg 🦵 become a pirate 🏴☠️

Is everything becoming more expensive or paper money becoming worth less? 

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2 hours ago, MrXxx said:

So I suppose the only alternative to this then is to partly hedge by buy buying some ST overseas treasuries as well as sterling?

Gold as well.

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2 hours ago, A_P said:

novelinvestor-Asset-Class-Returns-FY-201

 

1 hour ago, Barnsey said:

Helpful to see how 2008 annihilated most asset classes, and since the US *is* the global economy, expect similar results here next year.

If many smarter folks than I are right, the decade that follows is going to be a lost one for most of those assets.

Yes a very telling chart with respect to what a credit deflation (aka 2008) does to virtually every asset class. What also stands out (to me anyway) is those EM stocks in purple. They are either at the top, or at the bottom. I'm sure for 2018 they'll be bottom again as the strong dollar takes its toll, but I'd put money on them being at the top in 2019!

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1 hour ago, macca said:

I’m thinking of selling my premium bonds to buy gold and silver? 

I read so many people throwing out crazy numbers for gold and silver future prices.. I’ve missed so many bubbles, housing bubble mainly.. need to take a risk.. 

if it all goes wrong I will buy a parrot 🦜 and get a wooden leg 🦵 become a pirate 🏴☠️

Is everything becoming more expensive or paper money becoming worth less? 

Actually sold some of my premium bonds the other month fully intend to rebuy some in the future though

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Caveat emptor DYOR not trading advice etc etc (seriously!)

My current expectations (which could change/adapt) based on a multitude of sources, along with the discussions we've had on here:

-Short term rally in $SPX and Gold following more dovish tone from Fed at Dec hike meeting and temporarily weaker DXY, confirms 2nd shoulder peak of current H&S pattern, during which time $TLT hovers around 112

-$SPX falls to 2100 in early 2019, possibly Spring, during which Gold heads to $1000, possibly $850. Silver $10. $TLT up to 150. If this is the big one, then will follow through to 1500 after summer, otherwise Fed intervention will accommodate a prolonged zig zag down well into 2020/1 just like 2000. Due to the huge corporate BBB bond risk, and lack of interest rate ammo, could well end up being another 2008 or worse.

-At the point where the Fed reverses course significantly (next Summer), this is the time to buy PMs and miners, along with a very small stash of Bitcoin *if* the future is somewhat protected and the price is in the low $100s.

-Late 2019 into 2020, start to buy back into FTSE 350 reflation stocks *only* when at or exceeding previous crash lows in areas such as telecoms, energy/renewables, transport, A.I., defense, value retail, consumer staples, healthcare

-Hold a balanced diverse reflation portfolio (with modest expectations) 2020 onwards, this is the blurry/scary part, looking to sell *everything* when reckless QE driven inflation causes a tipping point of social unrest, ultimately ending in some kind of global conflict to complete the Strauss-Howe fourth turning, 2025-27.

I say blurry as seeing many predictions of Kondtratiev Winter concluding 2021-22, so perhaps the few years of high inflation to follow will be the start of the new Kondtratiev wave which crosses the end of the fourth turning. Also seeing a lot of pushback on the reflation theory due to demographics, but surely huge debt deflation begets inflation?

I need a lie down xD

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1 hour ago, NogintheNog said:

Yes a very telling chart with respect to what a credit deflation (aka 2008) does to virtually every asset class. What also stands out (to me anyway) is those EM stocks in purple. They are either at the top, or at the bottom. I'm sure for 2018 they'll be bottom again as the strong dollar takes its toll, but I'd put money on them being at the top in 2019!

All about the scale of Fed policy reversal next year IMO, late 2019 could look like a good entry point for EMs B| 

As Mark Yusko says, get your CARBS (China, Argentina, Russia, Brazil, South Korea)

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10 hours ago, macca said:

I’m thinking of selling my premium bonds to buy gold and silver? 

I read so many people throwing out crazy numbers for gold and silver future prices.. I’ve missed so many bubbles, housing bubble mainly.. need to take a risk.. 

if it all goes wrong I will buy a parrot 🦜 and get a wooden leg 🦵 become a pirate 🏴☠️

Is everything becoming more expensive or paper money becoming worth less? 

I am in a similar mind.  Basically -and reading similar sentiment here etc- the way I see it is there is a lot of potential upside.  Of course more volutile and could just keep edging down..But seems obvious in my niavity that there is just so much possibility on an upswing.  If I bet £1 on a 50/50 bet and the max I can lose is £1 but the most is £2+ surely that's a good play?  Not saying it's that simple but that's how I have justified.

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5 hours ago, Dogtania said:

I am in a similar mind.  Basically -and reading similar sentiment here etc- the way I see it is there is a lot of potential upside.  Of course more volutile and could just keep edging down..But seems obvious in my niavity that there is just so much possibility on an upswing.  If I bet £1 on a 50/50 bet and the max I can lose is £1 but the most is £2+ surely that's a good play?  Not saying it's that simple but that's how I have justified.

If you ploughed everything in now, you might see a temporary drop of max 35% across Gold, Silver, GDX and GDXJ but like you say the potential upside could be much, much greater.

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7 hours ago, Barnsey said:

If you ploughed everything in now, you might see a temporary drop of max 35% across Gold, Silver, GDX and GDXJ but like you say the potential upside could be much, much greater.

If we get an up early-mid 2019 in those assets (mainly GDX, GDXJ) I'll take profits and wait for the dip. If it doesn't dip I'll still have skin in the game.

The danger, imho, is we go off to the printy printy races to early and there is no dip...

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Talking Monkey
1 hour ago, Cosmic Apple said:

If we get an up early-mid 2019 in those assets (mainly GDX, GDXJ) I'll take profits and wait for the dip. If it doesn't dip I'll still have skin in the game.

The danger, imho, is we go off to the printy printy races to early and there is no dip...

With the much signalled QT and rate rises by the fed, they would lose all credibility and control if they went off to printy too early, would there not have to be a substantial correction in markets before they started printing, I'm guessing the DOW sub 20K

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On 23/11/2018 at 09:53, Majorpain said:

Its important to be flexible as possible IMO, the one thing this thread taught me is that everything is in a cycle that will change eventually, so what's worked for the last 10 years may be the worst thing to do for the next 10.  BTFD is a good example for US stocks at the minute!  Its too easy to get lazy and think the good (and bad) times will roll forever.

That is how it has always been and likely always will be.People hate being down and so avoid the cheapest assets.Cycles flow from liquidity mostly.Downturns come from a business cycle inventory top and much more rare a credit deflation.It looks like we are about to get both together.Political cycles also point to the need in western countries to reflate and invest.Inflation and a distribution cycle is coming.Assets that will do ok/well/very well in those type of cycles are the ones who struggle in dis-inflation times.It is at key inflection points that they look in terminal decline,finished,terrible investments.Of course this is the very time people should be slowly buying them in a ladder.Iv tightened the ladders down now in some to 5% from 8% as i think the bottoms could be close.Im also very pleased i sold my dis-inflation stocks when i did.The likes of BAT returned close to 1000% since i bought them,but that would have fallen to 600% now after they gave up 40%.In contrast the stocks im slowly buying are down 7% after dividends,and 3.2% if i take off profits iv locked in from Drax and BT.(the goldies/silvers are down 9% after profits from Sibanye were taken).I hope to ladder in roughly 50% of my portolio before i sell treasuries and goldies and ladder that in as well.Id be very happy is my portolio saw a maximum -15%/20% loss before dividends.(excluding the goldies/silvers)

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7 hours ago, Cosmic Apple said:

If we get an up early-mid 2019 in those assets (mainly GDX, GDXJ) I'll take profits and wait for the dip. If it doesn't dip I'll still have skin in the game.

The danger, imho, is we go off to the printy printy races to early and there is no dip...

I might be 100% wrong of course (probably) but personally expecting them to rally in a much shorter time frame, possibly already peaking 2 months from now.

But you're absolutely right, the printy printy will come back quite soon after, so potentially a short window of 4-5 months to buy the PM dip whilst the Fed gets ready to turn on the taps.

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5 hours ago, Talking Monkey said:

With the much signalled QT and rate rises by the fed, they would lose all credibility and control if they went off to printy too early, would there not have to be a substantial correction in markets before they started printing, I'm guessing the DOW sub 20K

Expect a more dovish tone from Powell at FOMC meeting on 19th Dec, setting the scene for a rate pause as housing already rolling over quite significantly. A pause of 6 months or so and then abrupt policy reversal in the summer is well within expectations due to the dramatic pace of the unfolding deflationary bust early next year.

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3 hours ago, DurhamBorn said:

Political cycles also point to the need in western countries to reflate and invest.Inflation and a distribution cycle is coming.

When you say this DB are you suggesting that central banks will avoid stagflation?

The widely held view amongst macro contrarians (after a stimulus driven false bounce around 2021) seems to be a painful stagflationary period taking us up to 2025-27, ultimately leading to a monetary reset and possibly even de-dollarisation or at least some significant moves away from USD.

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3 hours ago, Barnsey said:

Expect a more dovish tone from Powell at FOMC meeting on 19th Dec, setting the scene for a rate pause as housing already rolling over quite significantly. A pause of 6 months or so and then abrupt policy reversal in the summer is well within expectations due to the dramatic pace of the unfolding deflationary bust early next year.

Oil isnt helping, the fall will trickle down into lower inflation removing some of the arguments for the hikes.  They are desperately trying to keep a lid on the some of the more extravagant lending (covenant lite is looking to be a big problem), but thats a consequence of letting everyone know the fed will be back throwing cheap money around if you screw up badly enough....

On another note are cryptos the canary in the coal mine this time around?  Bitcoin is in the danger zone of the network not being profitable enough to run, it wont go slowly to zero, everyone will wake up one morning and the network will be dead if enough people stop processing the blockchain. 

US-crypto-market-cap-2018-11-25.png

https://wolfstreet.com/2018/11/25/bitcoin-plunges-to-3738-whole-crypto-scam-melts-down-hedge-funds-stuck/

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4 hours ago, Barnsey said:

Expect a more dovish tone from Powell at FOMC meeting on 19th Dec, setting the scene for a rate pause as housing already rolling over quite significantly. A pause of 6 months or so and then abrupt policy reversal in the summer is well within expectations due to the dramatic pace of the unfolding deflationary bust early next year.

Disagree.

US lsbour market is still beyond red hot.

They pause for a month or two. Maybe start beating banks up on some if their lending.

The majir cause of the last 20y  low wage griwth has been China. The rate at which works coming back to US is incredible. Its a flood.

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Talking Monkey
24 minutes ago, spygirl said:

Disagree.

US lsbour market is still beyond red hot.

They pause for a month or two. Maybe start beating banks up on some if their lending.

The majir cause of the last 20y  low wage griwth has been China. The rate at which works coming back to US is incredible. Its a flood.

WWhy is work flooding back to the US Spy have the economics tilted into China labour no longer not being cheap enough or is it due to quality or other stuff

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Just now, Talking Monkey said:

WWhy is work flooding back to the US Spy have the economics tilted into China labour no longer not being cheap enough or is it due to quality or other stuff

Wages are up 100x from 20 years ago.

Its finally dawned on US inc. That China is bent and has no desire to chanhe from being a communist state.

The expectation was uf US played nice China would change. Instead china gas become worse, ripping off non chinese companies, scamming them, and just not opening up.

Tescos could not buy a noodle stand in the arse end of nowhere. Yet western governments have allowed chinese comoanies snap up loads of assets, then bought spy riddled junk from them.

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Jobs market is red hot, but much of this based on lagging data, I think the initial jobless claims are going to start ticking up. If Powell doesn't squeeze in another hike in January then that could well be it for this cycle. March seems optimistic, and generally history tells us that when the Fed decide to "pause", it means "stop".

Edit: good point about Chinese middle class, very expensive to now employ

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Talking Monkey
12 minutes ago, Barnsey said:

Jobs market is red hot, but much of this based on lagging data, I think the initial jobless claims are going to start ticking up. If Powell doesn't squeeze in another hike in January then that could well be it for this cycle. March seems optimistic, and generally history tells us that when the Fed decide to "pause", it means "stop".

Edit: good point about Chinese middle class, very expensive to now employ

I didn't realise there was a possibility he would go back to back rises in December and January. If there is a January rise that really will tip things over

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3 minutes ago, Talking Monkey said:

I didn't realise there was a possibility he would go back to back rises in December and January. If there is a January rise that really will tip things over

Thing is, the economy is going to roll over anyway in 2019 (housing already is), so it's all about creating stimulus room with rates now, and little to do with the mainstream narrative.

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39 minutes ago, Barnsey said:

Thing is, the economy is going to roll over anyway in 2019 (housing already is), so it's all about creating stimulus room with rates now, and little to do with the mainstream narrative.

Expensive housing is a drag on the economy.

At the mo, US is pulling vast ammounts of cash for its businesses.

If the US restructures to drive less and reduce oil/head then you are going to see a step up in production and free cash.

This apppears to be happening. Younger amerucans are driving less, living in smaller urban housing. They are efen using - shock horror - public transport, even if they are not poor.

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