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Credit deflation and the reflation cycle to come.


DurhamBorn

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4 minutes ago, sancho panza said:

Funnily enough,I went to short some US hosuebuilders yesterday after reading Wolf Richter Monday and looking at their charts and seeing a short term opportunity.Toll were down 7% at the open iirc.Ended up dropping onto Visa/Hoem Depot instead.I'll be coming out when I can.The dip buyers are out in force I believe.

As i was just saying  we may get a santa rally but looking more asnd more like a Santa dead cat bounce.

 

The three month dollar Libor is promising 2.75%. Set that against evidence of a slowdown in the US and the insane volatility caused by Drumpf's twitter feed and I think the prospects of Santa rally look very slim.

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@sancho panza noticed Boeing got hit hard,i think you were mentioning how it looked prime for falls.

The falls in gold i expect are simply due to forced liquidation during massive falls in other assets.I dont however think it will last very long and on long term charts it will look like a pricing error.I fully expect within 12 months of gold hitting say $900,it will be at all time highs.For myself im still working out how i play my thoughts on that.My main concern is to not enter the next cycle without PM exposure.Thats a given.The question is,do i sell me PMs/miners ,do i hold them etc.Its very likely il sell a lot if gold hits $1450,but hold enough that if im wrong and PMs carry on up i still profit well.Im convinced the next cycle will be a full on reflation with bells.Im also convinced a distribution cycle in most assets will only flow up to certain sectors and companies.I see silver and its miners as the key to wealth preservation and growth in the next decade.My road map says up to $23,down to the $8 area then up to $200,maybe even $300.Im also convinced among the silver space (and perhaps gold) there will be companies that 100x and a lot that 30x in price.All part of a balanced portfolio of course,and never more than around 20% in the PM sector.

Telcos,transport,distributed energy,clean energy,PMs.Those are the areas as i see as the big winners going forward.Myself il be sticking to the big companies in the sectors,as im happy to compound slowly now ,but if anyone wanted to take a few punts on smaller companies,any that are leaders in supplying to those sectors might make life changing returns if bought during the carnage ahead of us.

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2 minutes ago, DurhamBorn said:

noticed Boeing got hit hard,i think you were mentioning how it looked prime for falls.

Could be something to do with one of their aircraft models having a propensity for flying itself into the sea?

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9 minutes ago, DurhamBorn said:

@sancho panza noticed Boeing got hit hard,i think you were mentioning how it looked prime for falls.

The falls in gold i expect are simply due to forced liquidation during massive falls in other assets.I dont however think it will last very long and on long term charts it will look like a pricing error.I fully expect within 12 months of gold hitting say $900,it will be at all time highs.For myself im still working out how i play my thoughts on that.My main concern is to not enter the next cycle without PM exposure.Thats a given.The question is,do i sell me PMs/miners ,do i hold them etc.Its very likely il sell a lot if gold hits $1450,but hold enough that if im wrong and PMs carry on up i still profit well.Im convinced the next cycle will be a full on reflation with bells.Im also convinced a distribution cycle in most assets will only flow up to certain sectors and companies.I see silver and its miners as the key to wealth preservation and growth in the next decade.My road map says up to $23,down to the $8 area then up to $200,maybe even $300.Im also convinced among the silver space (and perhaps gold) there will be companies that 100x and a lot that 30x in price.All part of a balanced portfolio of course,and never more than around 20% in the PM sector.

Telcos,transport,distributed energy,clean energy,PMs.Those are the areas as i see as the big winners going forward.Myself il be sticking to the big companies in the sectors,as im happy to compound slowly now ,but if anyone wanted to take a few punts on smaller companies,any that are leaders in supplying to those sectors might make life changing returns if bought during the carnage ahead of us.

Thanks for explaining.That makes absolutely perfect sense and correltes with historical patterns especially 08 sell off and bounce.I'm jsut struggling with my second round purchases and will likely go for some smaller value players as well as getting my Kinross/HMY/SIB...My limit is also 20% PM's.

 

although I trade shorts,I'm a terrible medium term trader-and I mean terrible-so I jsut plan to hold my PM miners.All too often in the past I've sold on the incline and then never found a buy back point I could tolerate eg Whitbread/Compass etc etc etc.

 

$20 oil correlates with what Paul Hodges is predicting and he's been a shrewd cookie over the years,calling what he sees not what he wants to see.

 

ref Boeing.Yes been eyeing that one for a while.,But I fish with the tides and untill I see a clear transition to a bear market or a bear market,I hold off shorting unless tehre's a compelling chart set up eg Starbucks.

Boeing's 30 year chart features 2008 low of $50 bucks and the 5 yr 2016 low $150.Peak was near $390 earlier this year with parabolic blow off.Fwiw,I'm increasingly focusing my trading time on the US where the overvaluations make Inchcape look like a blue chip utility.

I go part time in the New year.So looking forward to spending even more time doing what I love-reading obscure economic blogs and looking at charts.Hows the job shaping up DB?

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9 minutes ago, zugzwang said:

Whoa! UK services taking a dump.

Anyone mention the r word yet?

794.png?width=620&quality=85&auto=format

Think it's nailed on.I'm a big fan of tlaking to people and watching tills in shops.Contacts in the building trade are themselves saying 'it's going 2008 all over again'.One good friend delivers plasterboard.Second roiund of the day has been cancelled.He's dropping supplies onto supplies he dropped off two weeks before on some sites as they've jsut stopped building.There's a reason the builders have had a big sell off here.Sales bloke for Taylor Wimpey openly saying to my contact that a downturn was needed to get day rates back under control

 

Some of the building insiders on here eg @Bricks & Mortar might be able to confirm or deny this(I'm not sure B&M is currently in building game)

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Democorruptcy
1 hour ago, sancho panza said:

I'm not sure they'll leverage that money in the manner asserted.As quitye simply they'll be kept in check by being liable for the losses on it.

Flip side of the FTB rates is that margins must be getting crushed....................

Well 30 minutes down the thread you mention housebuilders have finally caught a bid. I'm presuming that's partly connected to the record low FTB mortgages rates. Somehow, despite the base rate going up to 0.75%, mortgage rates are falling. As to liable to losses from what I've read this Mansion House leverage doesn't require sign off from the Treasury. It's Ponzitastic, the problem being they keep digging a deeper and deeper hole. I suppose they can always do another sweep under the carpet bad bank job.

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Separate matter,a few years back I read this great academic thesisr by marina Stoop a student of Didier Sornettes.She covers debt deflation,credit creation in the FRB and although it's long at 150 sides.It's well worth the read. @zugzwang presence reminded me of it.

 

I hgihly highly reccomend reading it if you have the time or inclination

 

https://www.ethz.ch/content/dam/ethz/special-interest/mtec/chair-of-entrepreneurial-risks-dam/documents/dissertation/master thesis/MAS_Thesis_Marina_Stoop_2010_final.pdf

Abstract

This master thesis investigates the role of credit creation and its contribution to financial crises. The idea that banks are the creators of credit is at the core of this work. Other aspects relating to credit creation, like the theory of endogenous money, imperfect information and rationed markets are further points that are discussed to help explain the mechanism of credit creation and its role in past and current events. It is argued that it is credit creation that fuels bubbles, makes the system unstable and leads economies into crises. This work identifies different measures that have been taken during the recent Global Financial Crisis that started to unfold in 2007 and during past historical crises. The role of credit creation in the development of bubbles is elaborated. If credit creation is in fact the fundamental cause that leads to bubbles, there might be ways to effectively deal with crises or perhaps even prevent future crises.

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22 minutes ago, sancho panza said:

Separate matter,a few years back I read this great academic thesisr by marina Stoop a student of Didier Sornettes.She covers debt deflation,credit creation in the FRB and although it's long at 150 sides.It's well worth the read. @zugzwang presence reminded me of it.

 

I hgihly highly reccomend reading it if you have the time or inclination

 

https://www.ethz.ch/content/dam/ethz/special-interest/mtec/chair-of-entrepreneurial-risks-dam/documents/dissertation/master thesis/MAS_Thesis_Marina_Stoop_2010_final.pdf

Abstract

This master thesis investigates the role of credit creation and its contribution to financial crises. The idea that banks are the creators of credit is at the core of this work. Other aspects relating to credit creation, like the theory of endogenous money, imperfect information and rationed markets are further points that are discussed to help explain the mechanism of credit creation and its role in past and current events. It is argued that it is credit creation that fuels bubbles, makes the system unstable and leads economies into crises. This work identifies different measures that have been taken during the recent Global Financial Crisis that started to unfold in 2007 and during past historical crises. The role of credit creation in the development of bubbles is elaborated. If credit creation is in fact the fundamental cause that leads to bubbles, there might be ways to effectively deal with crises or perhaps even prevent future crises.

Crazy to think that that U.S. is barely going to reach 3% before the next downturn, UK probably stuck at current 0.75%, and Eurozone at current 0% :S

When the proverbial hit the fan a decade ago, interest rates were 5.25, 5.75 and 4.25% respectively O.o

I think we're going to see huge stimulus which in turn will devalue most global currencies in unison, PMs and possibly Bitcoin (if it survives) will have their day once again.

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20 minutes ago, Democorruptcy said:

Well 30 minutes down the thread you mention housebuilders have finally caught a bid. I'm presuming that's partly connected to the record low FTB mortgages rates. Somehow, despite the base rate going up to 0.75%, mortgage rates are falling. As to liable to losses from what I've read this Mansion House leverage doesn't require sign off from the Treasury. It's Ponzitastic, the problem being they keep digging a deeper and deeper hole. I suppose they can always do another sweep under the carpet bad bank job.

It may be connected to FTB rates but I suspect it's jsut that they're heavily oversold and there's some shorts covering.TW bouncing 5% smacks of shorts covering. imo.Three months back there was article after article on the Motley fool telling people to buy BDEV's divi...

As far as the BoE and the £1.5bn the idea that they could magic up £750bn of credit without consequence seems illogical given that there are clear consequences if you increase broad money supply measures.Given CB's are looking at the 'everything bubble',then I think it's highly unlikely that they'll channel anywhere near that amount into credit markets.

There's also the issue of finding willing borrowers and this is where the Ozzie and San Francisco hosuing markets shine a light as you can see clear evidence of the slightest dint in the uptrend leading to a disproportionate drop in credit demand.

 

Just my views.

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1 hour ago, sancho panza said:

It may be connected to FTB rates but I suspect it's jsut that they're heavily oversold and there's some shorts covering.TW bouncing 5% smacks of shorts covering. imo.Three months back there was article after article on the Motley fool telling people to buy BDEV's divi...

As far as the BoE and the £1.5bn the idea that they could magic up £750bn of credit without consequence seems illogical given that there are clear consequences if you increase broad money supply measures.Given CB's are looking at the 'everything bubble',then I think it's highly unlikely that they'll channel anywhere near that amount into credit markets.

There's also the issue of finding willing borrowers and this is where the Ozzie and San Francisco hosuing markets shine a light as you can see clear evidence of the slightest dint in the uptrend leading to a disproportionate drop in credit demand.

 

Just my views.

According to the FT this morning, BoE getting ready to lower counter-cyclical capital buffer requirement from 1% of total assets to 0%, freeing up £250 billion to lend. Only the start IMO. It's not what we want to hear, but it won't be enough to stop what's coming at all.

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2 hours ago, DurhamBorn said:

For myself im still working out how i play my thoughts on that.My main concern is to not enter the next cycle without PM exposure.Thats a given.The question is,do i sell me PMs/miners ,do i hold them etc.Its very likely il sell a lot if gold hits $1450,but hold enough that if im wrong and PMs carry on up i still profit well.

My SIPP follows the permenant portfolio with 25% of each Bonds, Equity, PMs, and cash equivalents.  PM's is the only area I'm at 25%.  That's because I worry as much about sterling and banking (cash) risks as I do the price of gold and silver.  I've personally found buy and hold works best for me - just average in and ride the dips.  Otherwise timing for me is very hard to get right, especially on such a large allocation.  So I'll trade any major PM moves in my separate trading account to offset any major downside with my SiPP holdings.  That is, a form of hedge.  IMO, better to try and get the timing right on smaller leveraged bets than on the main physical balance.

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Democorruptcy
1 hour ago, sancho panza said:

It may be connected to FTB rates but I suspect it's jsut that they're heavily oversold and there's some shorts covering.TW bouncing 5% smacks of shorts covering. imo.Three months back there was article after article on the Motley fool telling people to buy BDEV's divi...

As far as the BoE and the £1.5bn the idea that they could magic up £750bn of credit without consequence seems illogical given that there are clear consequences if you increase broad money supply measures.Given CB's are looking at the 'everything bubble',then I think it's highly unlikely that they'll channel anywhere near that amount into credit markets. The day after the Brexit vote they magicked up £250bn in one day!

There's also the issue of finding willing borrowers and this is where the Ozzie and San Francisco hosuing markets shine a light as you can see clear evidence of the slightest dint in the uptrend leading to a disproportionate drop in credit demand.

 

Just my views.

One thing leads to another, mortgage record low news might make some short sellers nervous about holding builders.

The thing about this £5bn to £750bn is that it doesn't have to be in play now, to encourage banks to lend more now. What it means is that in the event of an event, the bankers know the BoE has their back, to prevent a credit crunch. It's a credit crunch that reduces the value of the assets they are holding.

In my mind the BoE are like junkies addicted to sustances, they are glue sniffers. Their glue is HPI, which they think holds everything together. I don't think it's as much to do with a few people defaulting on residential mortgages if house prices drop. Their biggest worry is that people use their houses as collateral for businesses.

I'm not suprised therr might be a drop in credit demand in San Francisco, their mortgage rates have increased as The Fed raised rates.

 

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2 hours ago, sancho panza said:

Contacts in the building trade are themselves saying 'it's going 2008 all over again'.One good friend delivers plasterboard.Second roiund of the day has been cancelled.He's dropping supplies onto supplies he dropped off two weeks before on some sites as they've jsut stopped building.There's a reason the builders have had a big sell off here.Sales bloke for Taylor Wimpey openly saying to my contact that a downturn was needed to get day rates back under control

I ordered a bathroom suite at my local merchants last week.  Normally not an issue with the price - always the cheapest.  Not this time!  Cancelled the order and joked to them that they don't seem so cheap any more.  OK, quality comparisions and speedy delivery, etc are worth paying extra for but this was too much.  Suddenly they were manually applying extra discounts to my other purchases (before this was all automated).  Yes, reckon they are suffering and have cut automated discounts to try it on, retreating if customers start kicking up a fuss.  A standard tactic when times are hard.  Time to be more careful how and where I source things from.   

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2 hours ago, sancho panza said:

UK housebuilders finally catch a bid.

image.thumb.png.9e192bb153ca9e59ed94572a4802113a.png

 

 

I've been stumped why a number of them, including Rightmove, have been giving me buy signals for a week now.  Not that I bit!

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15 minutes ago, Harley said:

I've been stumped why a number of them, including Rightmove, have been giving me buy signals for a week now.  Not that I bit!

Everything a bit upside down at the moment Harley, Thomas Cook shares rocketing again despite all the headlines, Palladium has just overtaken Gold to become the most precious metal. An interesting one that, has become so expensive thanks to demand in China for catalytic converters, I'm wondering if Platinum might be a good buy in the next year or so, will quite likely be utilised once again given it's much lower price however manufacturing implementation will take some time. 

Trump in full on pumping Twitter mode today after his damaging comments yesterday, really coming across as incredibly desperate. Let's see if the markets bounce "bigly" tomorrow

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On 03/12/2018 at 10:12, Barnsey said:

Summed up very nicely @DurhamBorn, I'm staying out of this relief rally as only trust my view on a macro long term perspective, using this window to grab some more IBTL as see it as the only safe haven once the debt deflation hits, could potentially be most of what I hold for a few months and will then look at other safe havens (metals and miners) as Fed commences significant policy reversal, possibly around summer next year. Just the partial risk of a bounce late 19/early 20 in equities, before a lower low in the depths of a recession in 2020/21, depends on the perversity of Central banks. We know what they should do but don't know how far they're willing to stretch wild ideas. Next crisis thereafter will be defined contribution/benefit pensions, along with many others no doubt.

Interesting bit 20:24 onwards but a good insightful video throughout, his book is on my Xmas list.

Realvision itself a great channel, bit steep at $180 per year but lots of free content on their YouTube channel.

 

OK, possibly another talking head but something worth serious consideration.

On the one hand I'm pleased as I have been focussing on building an equity income portfolio and PM holdings, but on the other I have been building a permenant portfolio on my SiPP (25% each bonds, broad (growth) equities, PMs, and cash equivalents).  Looks like I should re-evaluate the SiPP bonds and equities split, or maybe more the type of equities, say more equity income and value focussed equity based ETFs.

But then I also took away something else I've been thinking about which is equity income ETFs are not that great as it's more a stock pickers market (need to look at specific company debt levels, etc).  Equity Income ETFs like IUKD seem more like "spray and pray" with a return at the expense of capital.  One of my income portfolios comprises individual companies (possibly poory selected by me!) which may be the better way to go as it's currently ahead of another ETF/IT based equity income portfolio.

And regarding value, I was doing historic reseach on the performance of various broad market ETFs and noticed the (I think) Vanguard value one had done quite well over the years compared to several growth focussed ones.  Indeed, quite a lot better (relatively) than I had expected.  My take away from that was to look at more value focussed ETFs/ITs and this guy has confirmed that.

So many thanks for posting as it comes at just the right time and resonates really well.

 

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11 minutes ago, Barnsey said:

Thomas Cook shares rocketing again despite all the headlines,

My #1 favourite trade setup ever since the Tesco's crash all those years ago.  But the news has gotta be very bad.  Hope it works for BATS! 

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2 hours ago, sancho panza said:

$20 oil correlates with what Paul Hodges is predicting and he's been a shrewd cookie over the years,calling what he sees not what he wants to see.

B*gger, just when I was marshalling my strength to buy into WTI!  Got buy signals but then saw a similar set up a while back which did no end well (further falls).  And there I was saying "nah, don't worry it'll never go back to $30ish again"!  Thought this stuff was meant to be easy!

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Democorruptcy
1 hour ago, Harley said:

I've been stumped why a number of them, including Rightmove, have been giving me buy signals for a week now.  Not that I bit!

Given how the builders slumped on the Brexit vote, maybe this helped them, as well as the record low mortgages rates and capital buffers being relaxed

Quote

 

The risks of Britain crashing out of the EU were seen to have fallen on Tuesday after parliamentary setbacks for Prime Minister Treason May and an opinion from the European Court of Justice that Britain should be allowed to unilaterally revoke its departure notice.

Economists at JP Morgan reckon the odds of Britain staying in the EU have increased to 40 percent after the ECJ advisor’s opinion, from 20 percent previously

https://uk.reuters.com/article/uk-britain-sterling/sterling-supported-by-rising-odds-of-no-brexit-idUKKBN1O40Z3

 

 

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58 minutes ago, Democorruptcy said:

Given how the builders slumped on the Brexit vote, maybe this helped them, as well as the record low mortgages rates and capital buffers being relaxed

 

I think you're bang on with that analysis.makes perfect sense although it never crossed my mind.....

2 hours ago, Harley said:

B*gger, just when I was marshalling my strength to buy into WTI!  Got buy signals but then saw a similar set up a while back which did no end well (further falls).  And there I was saying "nah, don't worry it'll never go back to $30ish again"!  Thought this stuff was meant to be easy!

there'll be zigzags on the way.It won't be a straight line.Plenty of opportunity for a littlre nudge here n there.

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2 hours ago, Harley said:

using this window to grab some more IBTL

I must have been asleep at the wheel.  It's on my watchlist and bottomed early November when I got a buy signal.  I should have bought more.  Looks a bit high now so hope it comes down with a santa rally/deadcat bounce and/or sterling strengthens.

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7 hours ago, Harley said:

 

OK, possibly another talking head but something worth serious consideration.

On the one hand I'm pleased as I have been focussing on building an equity income portfolio and PM holdings, but on the other I have been building a permenant portfolio on my SiPP (25% each bonds, broad (growth) equities, PMs, and cash equivalents).  Looks like I should re-evaluate the SiPP bonds and equities split, or maybe more the type of equities, say more equity income and value focussed equity based ETFs.

But then I also took away something else I've been thinking about which is equity income ETFs are not that great as it's more a stock pickers market (need to look at specific company debt levels, etc).  Equity Income ETFs like IUKD seem more like "spray and pray" with a return at the expense of capital.  One of my income portfolios comprises individual companies (possibly poory selected by me!) which may be the better way to go as it's currently ahead of another ETF/IT based equity income portfolio.

And regarding value, I was doing historic reseach on the performance of various broad market ETFs and noticed the (I think) Vanguard value one had done quite well over the years compared to several growth focussed ones.  Indeed, quite a lot better (relatively) than I had expected.  My take away from that was to look at more value focussed ETFs/ITs and this guy has confirmed that.

So many thanks for posting as it comes at just the right time and resonates really well.

 

Problem is you are looking through the rear view mirror but the road ahead is through the windscreen.

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