Credit deflation and the reflation cycle to come.

[Durabo]

59 minutes ago, spygirl said:

Rates plateue then fell in 07/08.

08 was down to huge amounts of bank credit not a hot labour market.

Central banks are always looking in the rear mirror - on a different car.

CBs have enoguh infio - bank credit and labou market and prices to make a better decision.

I dont really know how the US n UK will pan out - noone does.

However .... IRs will be higher.

 

 

Debt is higher now than it was then in many areas - much higher. Personal/corporate especially. Interest Rates dipped once the recession started but didn't they raise going into it? Just like now?

[spygirl]

7 minutes ago, Durabo said:

Debt is higher now than it was then in many areas - much higher. Personal/corporate especially. Rated dipped once the recession started but didn't they raise going into it? Just like now?

Its not evenly distributed.

Its hard to divine much from the aggregate figures.

At a personal level, in the US, debt is not much of a problem for the plebs. Most mortgages are non recourse.

 

 

[MrXxx]

Heads Up...The Big Short is currently on BBC iPlayer.

[SillyBilly]

On 04/01/2019 at 08:19, Durabo said:

Is the feeling that this is well under way now? I've seen MSM articles about an economic slowdown in 2019, including on the So-Called BBC website. Would anyone care to guess a timescale?

So many false flags over the last 3-4 years I've given up calling it. I remember back end of 2015 where everyone was getting very excited and things were getting very ropey...and here we are over 3 years later spinning plates still. Whether the central banks just go straight back to QE at any real indicator of a stock market crash will be telling. They could push this out even further IMO. The issue for me is I am not sure how reliable looking to the past is now when the rules of the game have been changed so much. It is given when a bubble is blown it will pop but no given of when that is if there are ever more creative ways of getting air in.

[Talking Monkey]

45 minutes ago, SillyBilly said:

So many false flags over the last 3-4 years I've given up calling it. I remember back end of 2015 where everyone was getting very excited and things were getting very ropey...and here we are over 3 years later spinning plates still. Whether the central banks just go straight back to QE at any real indicator of a stock market crash will be telling. They could push this out even further IMO. The issue for me is I am not sure how reliable looking to the past is now when the rules of the game have been changed so much. It is given when a bubble is blown it will pop but no given of when that is if there are ever more creative ways of getting air in.

But they can't do any shenanigans until we have some sort of crash I'd guess Dow would have to be below 20K or something before they would start on the QE

[SillyBilly]

10 minutes ago, Talking Monkey said:

But they can't do any shenanigans until we have some sort of crash I'd guess Dow would have to be below 20K or something before they would start on the QE

Flash crash then back to the printing presses? That would be a depressing reality if it came to pass as it would just re-set us for a next artificial leg up. I'm not really interested until the whole thing blows (as per this thread) and we can start to re-assess value again on the other side - I do however have the strong residual fear that the central banks have stumbled upon a method to keep plates spinning for much longer than conventional business cycles and we're in the throes of figuring out how long "much longer" actually is. 

[DoINeedOne]

Eldorado price update seems to be back on HL now

 

[Eventually Right]

On 01/01/2019 at 17:51, DurhamBorn said:

For gold and silver, I think they are still in a cyclical bear market that began after the peak in 2011. I think both are poised for nice rallies here (silver to $24 and gold to $1500) before rolling over in a final leg down to lower lows (silver to $8 & gold to $700).

I’ve been thinking about how best to guard against gold/silver/miners being sucked into the final stages of a deflation, if they first rally to the levels DB suggests.

I’d be reluctant to sell my mining shares if they go on a run from here, for the reasons I previously mentioned-the danger of losing your position if gold/silver don’t get sucked down by the deflation.

One way I have thought of protecting any gains we might have made if the precious metals go on a run up from here, could be to buy put options in the GLD and SLV etfs, which are etfs that track the underlying price of gold and silver.

Given that DB sees the (probable/potential) move down in gold/silver as both extreme (more than halving from the $22-24/$1500 levels) but also very quick, happening in months, rather than years, protecting against that specific scenario would be very cheap, if one were to buy 12-24 month put options with low strike prices that would only pay off in the event of such an extreme move, within that 12-24 month timeframe.

You'd view the options as an insurance trade/hedge-if the move down occurs, then your mining shares have taken a hit, but your options have paid off, giving you extra money you can deploy at the bottom of the market. If it doesn’t occur, and the precious metals/miners keep going up, then you’ll have lost the option premium, but shouldn’t care that much if your main position in mining shares is going higher and higher.

I’d see this as potentially being a good idea IF both of the following occurred:

1) Gold/Silver/GDX do run up to $1500/$22/$35 levels, giving us significant paper profits we want to protect.

2) This happens whilst the rest of the world/financial markets are really going to hell in a deflation, and a sell off in everything, including gold seems possible.

Obviously this isn’t for everyone, as options can be a level of risk beyond even those of junior mining companies, particularly if people aren’t familiar with them.

If anyone on this thread does have any experience with options, I’d be interested in their thoughts on this though-particularly why I might be wrong,

[MrXxx]

5 hours ago, MrXxx said:

Heads Up...The Big Short is currently on BBC iPlayer.

Well worth watching a second time, there was so much I missed/didn't understand but the second time it all fell into place...must be the excellent education I am receiving here! :-)

Just one question though, towards the end Goldman Sachs came back to Dr Burry and said they had ` recalculated` the situation and subprime bonds WERE correlated with the sub prime insurance shorting position they originally provided to him. From this I assume they had sold their ownings in sub prime bonds and then started shorting against the people they had just sold them to?...What I don't understand is where they got the shorting products from as they originally had to create them for Dr Burry?!

[spygirl]

1 minute ago, MrXxx said:

Well worth watching a second time, there was so much I missed/didn't understand but the second time it all fell into place...must be the excellent education I am receiving here! :-)

Just one question though, towards the end Goldman Sachs came back to Dr Burry and said they had ` recalculated` the situation and subprime bonds WERE correlated with the sub prime insurance shorting position they originally provided to him. From this I assume they had sold their ownings in sub prime bonds and then started shorting against the people they had just sold them to?...What I don't understand is where they got the shorting products from as they originally had to create them for Dr Burry?!

In very simple terms - finance got too big, too complex, too full of crooks.

Look at uk, banks are struggling to sell mortgages. HP are too high. Theres still too mank banks and people chasing too little business. Chuck NW under the bus ffs.

 

[invalid]

7 hours ago, SillyBilly said:

So many false flags over the last 3-4 years I've given up calling it. I remember back end of 2015 where everyone was getting very excited and things were getting very ropey...and here we are over 3 years later spinning plates still. Whether the central banks just go straight back to QE at any real indicator of a stock market crash will be telling. They could push this out even further IMO. The issue for me is I am not sure how reliable looking to the past is now when the rules of the game have been changed so much. It is given when a bubble is blown it will pop but no given of when that is if there are ever more creative ways of getting air in.

Absolutely this!

Don't underestimate the government and central banks ability to meddle and kick that can down the street for another year, two, three, decade...

[Errol]

Below is Gold’s performance against all of the major currencies since it bottomed on August 16:

https://www.zerohedge.com/news/2019-01-04/gold-takes-center-stage-fiat-world

[Majorpain]

2 hours ago, null; said:

Absolutely this!

Don't underestimate the government and central banks ability to meddle and kick that can down the street for another year, two, three, decade...

Possible, but unlikely.  Its only 10 years on from 2008-9, we are due a recession but its not overdue yet.  2019 is looking nailed on if the yield curve inversions are correct.

The fed tightening will crash the economy, but from the USA's point of view if it takes China out like Japan in the 90s it would be well worth it.

Quote

The People's Bank of China said on Friday it will be cutting its reserve requirement ratios by 100 bps, currently at 14.5 percent for large institutions and 12.5 percent for smaller banks, freeing up USD 116 billion for new lending amid persistent concerns about the health of the world's second-largest economy.

https://tradingeconomics.com/china/cash-reserve-ratio

[wherebee]

1 hour ago, Majorpain said:

Possible, but unlikely.  Its only 10 years on from 2008-9, we are due a recession but its not overdue yet.  2019 is looking nailed on if the yield curve inversions are correct.

The fed tightening will crash the economy, but from the USA's point of view if it takes China out like Japan in the 90s it would be well worth it.

https://tradingeconomics.com/china/cash-reserve-ratio

I think the over capitalization forced on banks all around the world since 2008 is another tool for the TPTB to push the crash date out.  The China story above would bear that out - allow the minimum capital ratios to come down, so the banks can have less capital backing more loans/debt, which means two things: one, more easy money to keep asset prices high, and two allows absorption of worse debt books.  Oh, and it also means that when the crash does come, more Banks will go BANKRUPT (the clue is in the name, peeople).

Fascinating times.

[spygirl]

8 hours ago, wherebee said:

I think the over capitalization forced on banks all around the world since 2008 is another tool for the TPTB to push the crash date out.  The China story above would bear that out - allow the minimum capital ratios to come down, so the banks can have less capital backing more loans/debt, which means two things: one, more easy money to keep asset prices high, and two allows absorption of worse debt books.  Oh, and it also means that when the crash does come, more Banks will go BANKRUPT (the clue is in the name, peeople).

Fascinating times.

Banks are not over capitalised.

There's a strong point that most are still under capitalised when it comes to real estate.

 

[Castlevania]

17 hours ago, MrXxx said:

Well worth watching a second time, there was so much I missed/didn't understand but the second time it all fell into place...must be the excellent education I am receiving here! :-)

Just one question though, towards the end Goldman Sachs came back to Dr Burry and said they had ` recalculated` the situation and subprime bonds WERE correlated with the sub prime insurance shorting position they originally provided to him. From this I assume they had sold their ownings in sub prime bonds and then started shorting against the people they had just sold them to?...What I don't understand is where they got the shorting products from as they originally had to create them for Dr Burry?!

Other banks. There’s a classic called Abacus from the mess that was ABN Amro which RBS picked up the bill for. Goldman had put this together for a hedge fund. ABN received US$1.5m a year to cover losses on US$909m of sub prime bonds. RBS ended up closing out the contract by paying Goldman US$840m.

https://www.google.co.uk/amp/s/mobile.reuters.com/article/amp/idUSTRE63F5CZ20100416

 

[DurhamBorn]

On 05/01/2019 at 08:56, Durabo said:

The US posted very strong job numbers in 2007. Doesn't a booming job market mean that interest rates are more likely to rise, which brings us closer to the crash?

Exactly.That is why gold should continue up once the markets wake up to the fact.Higher interest rates mean higher inflation (at least seeing higher inflation),good for PMs,and higher debt servicing costs,bad for stocks/economy.What they will miss though is the scale of the falls ahead due to the size of the leverage and also the derivatives out there.Everyone says they cancel each other out and nothing to see.Thats is very very wrong.The macro picture is very clear.The scale of leverage can not be covered with interest rates where they are already.So rates go down,or we get a debt deflation.

Debt deflations dont just kill companies though,even strong companies change how they operate.Take BAT tobacco.They have debts of around $42billion.Free cash flow of around $8+ billion,and pretty stable free cash even in a recession and are de-leveraging at 0.4 a year 4.0 to 3.6,3.2,2.8 times earnings etc aiming for 2.0s.However once a debt deflation hits they will start to focus more on that debt.Its highly likely they will stop dividend increases and instead de-leverage quicker at say 0.5 (or be unable to fund 0.4 and higher divis,so no higher divi).Thats not a problem in the scheme of things,but it does mean all those BAT shareholders suddenly have a dividend slowly going down inflation adjusted.

That is why debt deflation hits very hard certain sectors where "want" spending goes.In the S+P this last 3 months the sectors/shares with investment grade bonds,strong balance sheets and low beta have outperformed the market by 25%.

 

[Durabo]

1 hour ago, DurhamBorn said:

That is why debt deflation hits very hard certain sectors where "want" spending goes.In the S+P this last 3 months the sectors/shares with investment grade bonds,strong balance sheets and low beta have outperformed the market by 25%.

Stop teasing DB. Give me some names so I can spend even more time ignoring my wife in 2019 and looking at charts instead 

[DurhamBorn]

4 hours ago, Durabo said:

Stop teasing DB. Give me some names so I can spend even more time ignoring my wife in 2019 and looking at charts instead 

https://seekingalpha.com/article/4229964-50-best-performing-s-and-p-500-stocks-sell

[Inoperational Bumblebee]

On 05/01/2019 at 09:38, spygirl said:

Most [US] mortgages are non recourse.

I thought it was only two states that allowed that?

[Bobthebuilder]

1 hour ago, DurhamBorn said:

https://seekingalpha.com/article/4229964-50-best-performing-s-and-p-500-stocks-sell

Interesting to see Mcdonalds in the top 10. I used to live out of them in the early 90s recession, when i was a young and self unemployed.

[DurhamBorn]

29 minutes ago, Bobthebuilder said:

Interesting to see Mcdonalds in the top 10. I used to live out of them in the early 90s recession, when i was a young and self unemployed.

Its very interesting the companies that do well.People often think things like cinema do badly,but they actually do very well.People like to escape during hard times and a £5  film is cheap .Mcdonalds have pricing power.In a recession its likely they can squeeze suppliers,squeeze their workers and squeeze any landlords at the same time as being able to put a few cents on a meal without affecting sales.

[Shatner's Bassoon]

Thought this thread was interesting - very much chimes with the views on here. (click on Michael Krieger's text rather than the original part below to see his thread).

 

[wherebee]

12 hours ago, spygirl said:

Banks are not over capitalised.

There's a strong point that most are still under capitalised when it comes to real estate.

 

Sorry, I mean over capitalised compared to 1990-2008.  

My preferred model for banks is to insist on 100% capitalisation against all loans.  Never happen though - it would mean the end of easy money for the 1% and governments.

[Noallegiance]

3 hours ago, Shatner's Bassoon said:

Thought this thread was interesting - very much chimes with the views on here. (click on Michael Krieger's text rather than the original part below to see his thread).

 

Tonight, Matthew, Michael Krieger is Durhamborn...