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Credit deflation and the reflation cycle to come.


DurhamBorn

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13 hours ago, Majorpain said:

The US already has the largest declared reserves

So they claim. I don't believe them.

Also, China's gold stock could well be more than that of the US. Who knows?

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5 hours ago, kibuc said:

I have to admit I don't see where that inflation would originate from.

I understand the concept od delationary bust causing CBs to overreact and unleash direct govt spending, triggering inflationary run. However, you seem to indicate that inflation will arrive first (or is already there) and that will encourage further tightening, prompting a bust and a subsequent overraction. Where would that original inflation come from?

I think you have to separate credit inflation/deflation with price inflation/deflation.The two are separate and can occur every which way although we're used to credit inflation running alongside price inflation over the last forty years but it isn't always so.

For a decade I've been a confirmed debt deflationista,such that I couldn't really conceive of where the price inflation would run from.But now looking at the broader money measures,I think there's a real chnce velocity will lift off and when it does all hell could break loose. Price inflation it's worth noting is soemthing that can feed on itself with families spending money before it becomes worthless.

Whilst that takes a lot of political misfortune,it is possible.As DB alludes weakening currencies could be the start of velocity starting to run.

3 hours ago, Cattle Prod said:

I came onto the thread today to post about Venezuela. Interesting how it cropped up a page back.

I've recently read that food is trading at a higher price there at the moment than drugs. And that's what it comes down to in the end, when all else is failing: life. 

I'm fully on board with you guys for the coming inflationary cycle. There is mot a doubt in my mind that it'll be the investment opportunity of my lifetime. Therefore, if I don't get greedy and f*ck it up, I'll be retiring at the end of it (in my 40s). I recall DB saying he has no view on what comes after that, and that there are some potentially scary outcomes. I don't know either, but there will almost certainly  be some degree of society fracturing. Maybe not Venezuela. Mut maybe.

A lot the Western voting public will not be too amused if their specie becomes worth a lot less and the free money tree stops dropping £20 notes

2 hours ago, UnconventionalWisdom said:

Interesting article on recessions and how the next one won't be like the past. Not much new to the thoughts expressed here. Pretty obvious but debt can't expand forever. 

https://oftwominds.cloudhostedresources.com/?ref=https%3A%2F%2Fgoldsilver.com%2Findustry-news%2F&url=https%3A%2F%2Fwww.oftwominds.com%2Fblogfeb19%2Fsell-everything2-19.html&width=360

No longer content with blowing one credit-speculative bubble at a time, central bankers coordinated their efforts in 2009-2018 and inflated the Everything Bubble. But the Everything Bubble didn't resolve or even address the multiple structural imbalances in the U.S. and global economies; it merely papered them over with a triple-whammy credit-speculative orgy of unprecedented enormity.

Unlike the 1970s, 80s, 90s and 2000s, wages (earned income) did not rise for the bottom 90% during the Central Bank Everything Bubble 2009-2018: it isn't just the stock buybacks and other financier speculations that are funded by debt--a great deal of consumption that was once paid out of earnings / revenues is now paid by debt: higher education, paving of roads, auto repairs, etc.

Rather than restructure the economy, the political and financial elites have papered over the imbalances with debt . Debt, we're assured, is harmless; we're going to "grow our way out of debt" by borrowing more. But borrowing more to consume more isn't increasing productivity, and this is one reason why wages have stagnated and prices have soared in the past decade.

The instabilities and imbalances of economies can be papered over with debt for a time, but debt and financialization tricks don't actually fix what's broken--they make the problems worse. Welcome to the recession of 2019-2021, when central bank policies are finally revealed as the' source of half our problems rather than the solution.

That really is a superb read.Thank you.

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https://wolfstreet.com/2019/02/13/mortgage-applications-get-dreary-despite-lower-mortgage-rates/

 

Mortgage Applications Drop Despite Lower Mortgage Rates: Industry is Baffled

Today, the Mortgage Bankers Association (MBA) reported that its purchase mortgage index – which tracks applications (not approvals) for conventional and government mortgages to purchase a single-family house – fell 6% from the prior week and was down 5% from the same week last year – despite falling mortgage rates, which should have cranked up home buying and mortgage activity. It was the fourth week in a row of drops:

US-mortgage-applications-2019-02-13-purc

The Purchase Mortgage Index is considered a reliable indicator of impending home sales, and so this decline, given the lower mortgage rates, mystifies the industry.

“Application activity fell last week – even with rates decreasing – as renewed uncertainty about the domestic and global economy likely held potential homebuyers off the market,” said MBA Associate VP of Industry Surveys and Forecasts, Joel Kan, in the report. “The 30-year fixed-rate mortgage dropped to its lowest level since last March, and was 52 basis points lower than its recent high last November,” he said.

You can practically hear between the lines, so to speak, the bafflement in his voice about this decline in purchase mortgage applications in light of the decline in mortgage rates. The MBA also reported today that the average interest rate for 30-year fixed-rate mortgages with conforming loan balances inched down to 4.65%, back where it had been last April (chart via Investing.com):

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12 hours ago, UnconventionalWisdom said:

Interesting article on recessions and how the next one won't be like the past. Not much new to the thoughts expressed here. Pretty obvious but debt can't expand forever. 

https://oftwominds.cloudhostedresources.com/?ref=https%3A%2F%2Fgoldsilver.com%2Findustry-news%2F&url=https%3A%2F%2Fwww.oftwominds.com%2Fblogfeb19%2Fsell-everything2-19.html&width=360

No longer content with blowing one credit-speculative bubble at a time, central bankers coordinated their efforts in 2009-2018 and inflated the Everything Bubble. But the Everything Bubble didn't resolve or even address the multiple structural imbalances in the U.S. and global economies; it merely papered them over with a triple-whammy credit-speculative orgy of unprecedented enormity.

Unlike the 1970s, 80s, 90s and 2000s, wages (earned income) did not rise for the bottom 90% during the Central Bank Everything Bubble 2009-2018: it isn't just the stock buybacks and other financier speculations that are funded by debt--a great deal of consumption that was once paid out of earnings / revenues is now paid by debt: higher education, paving of roads, auto repairs, etc.

Rather than restructure the economy, the political and financial elites have papered over the imbalances with debt . Debt, we're assured, is harmless; we're going to "grow our way out of debt" by borrowing more. But borrowing more to consume more isn't increasing productivity, and this is one reason why wages have stagnated and prices have soared in the past decade.

The instabilities and imbalances of economies can be papered over with debt for a time, but debt and financialization tricks don't actually fix what's broken--they make the problems worse. Welcome to the recession of 2019-2021, when central bank policies are finally revealed as the' source of half our problems rather than the solution.

In the last part of this article I can't help but see the parallels with the 1970`s/80`s debt crisis in African countries...massive loans/QE are made, this wealth is then siphoned off to a few individuals, and ultimately the other 99% have to suffer the consequences...Developed countries=Developing countries=Developed countries=greedy elite!

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11 hours ago, Talking Monkey said:

Hi DB what does distribution cycle mean

A distribution cycle is where inflation takes income and assets away from most people/companies and distributes them to a few people and assets.It also means as incomes are squeezed due to inflation assets are liquidated to pay for spending and less people able to buy,so price discovery keeps dropping lower.In a dis-inflation (since 1982) we have an accumulation cycle as costs slowly fall compared to liquidity,and so that spare money finds its way into assets like houses,bonds and shares and pushes them up in value.

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19 hours ago, Eventually Right said:

After Powell capitulated on rate rises last month, looks like the Fed are going to stop reducing their balance sheet as well:

https://www.channelnewsasia.com/news/business/fed-to-finalize-plans-to-end-balance-sheet-runoff--at-coming-meetings---mester-11236886

To do a complete 180 in such a short period of time, you get the feeling they can see what's coming in the world economy, and it scares them.

At the mo, as I see it, the Fed are doing two things - raising rates and reducing its balance sheet.

Posters who go 'Oh fed wont do anything to hurt wall street'

dont know how the Fed operates or how small finance is relative to the size of the US economy.

Traditionally,y the Fed *odes* care more about main street than Wall street.

There are more voters in main street. And wall street has blotted its copy a bit.

The Fed wants a smaller, less disruptive whole market.

Rates are not going sky high but they are going up - I  keep repeating here thatthe US job market is burning red hot.

https://www.economist.com/business/2019/02/09/american-manufacturing-companies-have-a-spring-in-their-step

In Cromwell, a nearby town by the bucolic Connecticut River, John Carey, founder of Carey Manufacturing, reflects on his small company’s experience with reshoring. The family-controlled firm makes automobile components as well as metallic handles and latches for such things as toolboxes. Unable to face a flood of cheap Chinese imports around 2000, he outsourced operations to mainland China but found it to be a race to the bottom on quality and price. He brought back the work to America starting in 2014, a process he has accelerated in the past two years. He invested $2.5m in equipment from Trumpf and embraced advanced manufacturing.

Complacencies, faced with rising costs in China and political risk, are avoiding it, rightly so.

Theres no cheap labour in China anymore. There was ~20 years ago.

If - and a big if - US goes nuclear and slaps high tech export bans on China, then its game over for the high tech manufacturing business, which is more about capital spend and supply networks.

 

 

 

 

 

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9 hours ago, sancho panza said:

https://wolfstreet.com/2019/02/13/mortgage-applications-get-dreary-despite-lower-mortgage-rates/

 

Mortgage Applications Drop Despite Lower Mortgage Rates: Industry is Baffled

Today, the Mortgage Bankers Association (MBA) reported that its purchase mortgage index – which tracks applications (not approvals) for conventional and government mortgages to purchase a single-family house – fell 6% from the prior week and was down 5% from the same week last year – despite falling mortgage rates, which should have cranked up home buying and mortgage activity. It was the fourth week in a row of drops:

US-mortgage-applications-2019-02-13-purc

The Purchase Mortgage Index is considered a reliable indicator of impending home sales, and so this decline, given the lower mortgage rates, mystifies the industry.

“Application activity fell last week – even with rates decreasing – as renewed uncertainty about the domestic and global economy likely held potential homebuyers off the market,” said MBA Associate VP of Industry Surveys and Forecasts, Joel Kan, in the report. “The 30-year fixed-rate mortgage dropped to its lowest level since last March, and was 52 basis points lower than its recent high last November,” he said.

You can practically hear between the lines, so to speak, the bafflement in his voice about this decline in purchase mortgage applications in light of the decline in mortgage rates. The MBA also reported today that the average interest rate for 30-year fixed-rate mortgages with conforming loan balances inched down to 4.65%, back where it had been last April (chart via Investing.com):

Rates may be low but LTE are very high.

People are not stupid.

 

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9 hours ago, sancho panza said:

https://wolfstreet.com/2019/02/13/mortgage-applications-get-dreary-despite-lower-mortgage-rates/

 

Mortgage Applications Drop Despite Lower Mortgage Rates: Industry is Baffled

Today, the Mortgage Bankers Association (MBA) reported that its purchase mortgage index – which tracks applications (not approvals) for conventional and government mortgages to purchase a single-family house – fell 6% from the prior week and was down 5% from the same week last year – despite falling mortgage rates, which should have cranked up home buying and mortgage activity. It was the fourth week in a row of drops:

US-mortgage-applications-2019-02-13-purc

The Purchase Mortgage Index is considered a reliable indicator of impending home sales, and so this decline, given the lower mortgage rates, mystifies the industry.

Looks like it's just coming back within range. If it repeatedly drops below 210 then we may be on to something.

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16 hours ago, DurhamBorn said:

In the US a falling dollar probably,its only a spike though,the economy could see outright deflation before too long.The key is it might mean the Fed continue to tighten,even if they indicate they are moving to loose.Longer picture is inflation all the way of course and thats what really counts.I doubt anything can stop that now.

US will tighten to stop dollar falling. Not that they care much, as US exports are low as % of GDP and are in demand high tech - chips, ipads - is almost  monopoly.

Germany will force ECB to ensure Euro does not fall - a lower Euro causing a German export surge, causing Trump to kick off more scares the shit out Bundesbank n german car industry.

Fuck Mario and the rest of europe. Theyve had 10 years to sort their shit out. If theyve not sorted it now they never will. Mario will fuck off with his Do anything in his ears.

This risk affects spain and france more than italy. I reckon italy will do ok if ecb rates go up - countries old, full of savers.

Fed will flip between edging up rates and reducing balance sheet. They can stick with rates for 12 minths as tgey sell off more assets.

China will co tinue to fall apart.

Only affect china has had is pushing supply goods labour into world economy. Bar german capital goods, china has not increased demand at all, which is one reason why western wages have been so shit.

 

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New Gold 2019 outlook is out and headline figures are absolutely devastating. 245-270koz from Rainy River, consolidated AISC US$1340-1440? Those are absolutely terrible numbers at first glance. I'll read through the report to see if there's any justification for that.

Edit: dear oh dear. I appreciate doing the right thing and taking further impairment losses on Rainy River, as well as finally impairing on Blackwater. $670mil impairment looks scary as fuck and will probably send shares into freefall but it had to be done and I commend Adams for having the balls to be straight-up with the investors. What I do not appreciate is hedging half of their 2019 gold (and copper) production, at 1230-1300 US$ / oz. They have effectively signed themselves out of any rally in metals this year. I'm out.

-15% pre-market and going down fast...

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1 hour ago, kibuc said:

New Gold 2019 outlook is out and headline figures are absolutely devastating. 245-270koz from Rainy River, consolidated AISC US$1340-1440? Those are absolutely terrible numbers at first glance. I'll read through the report to see if there's any justification for that.

Edit: dear oh dear. I appreciate doing the right thing and taking further impairment losses on Rainy River, as well as finally impairing on Blackwater. $670mil impairment looks scary as fuck and will probably send shares into freefall but it had to be done and I commend Adams for having the balls to be straight-up with the investors. What I do not appreciate is hedging half of their 2019 gold (and copper) production, at 1230-1300 US$ / oz. They have effectively signed themselves out of any rally in metals this year. I'm out.

-15% pre-market and going down fast...

I’m in two minds about the hedging. Obviously signed themselves out of any rally this year and many (me!) saw this as the only salvation but then they’ve done the same for any drop too. Could be good, bad or even Steven. I suppose you could call it sensible and maybe that’s what’s needed.

But then you couple it with the AISC... and wheres the potential upside. Harrumph.

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48 minutes ago, Lavalas said:

But then you couple it with the AISC... and wheres the potential upside. Harrumph.

In 2019? I don't see any. Abandon ship.

I don't blame Adams, really. He inherited an almighty mess and is doing all the right things to fix it, with long-term sustainability in mind. Improve operations - check. Get books in order - check. Re-prioritise capital expenditure - check. He's got a plan for 2019 to make it a transformative year and hedging allows him to de-risk it. It should provide a really good platform for 2020 and beyond, but in 2019 I'm afraid it will make them very uninspiring and lagging behind any upside in gold price.

It's a shame. I guess I have to make amends with Harmony ;)

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1 hour ago, Lavalas said:

But then you couple it with the AISC... and wheres the potential upside. Harrumph.

 

6 minutes ago, kibuc said:

In 2019? I don't see any. Abandon ship.

I don't blame Adams, really. He inherited an almighty mess and is doing all the right things to fix it, with long-term sustainability in mind. Improve operations - check. Get books in order - check. Re-prioritise capital expenditure - check. He's got a plan for 2019 to make it a transformative year and hedging allows him to de-risk it. It should provide a really good platform for 2020 and beyond, but in 2019 I'm afraid it will make them very uninspiring and lagging behind any upside in gold price.

It's a shame. I guess I have to make amends with Harmony ;)

Just as NGD had broken even for me too...

 

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Conference call explaining results and guidance is in progress, pre-market has been steadily climbing since it started but I've only just logged into it. Should be available in full at later point.

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31 minutes ago, subutai80 said:

Looking at the weekly FTSE 100 chart. RSI doesn't go below 30 often. Does this make it a buy now (or on the next little dip)?

LCG_Trader.thumb.png.d2df6bf3e18b7c3ded06dcb120aeb7a6.png

Sterling devaluation after Brexit might make it shoot up like after the referendum in June 2016.

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Talking Monkey
11 hours ago, DurhamBorn said:

A distribution cycle is where inflation takes income and assets away from most people/companies and distributes them to a few people and assets.It also means as incomes are squeezed due to inflation assets are liquidated to pay for spending and less people able to buy,so price discovery keeps dropping lower.In a dis-inflation (since 1982) we have an accumulation cycle as costs slowly fall compared to liquidity,and so that spare money finds its way into assets like houses,bonds and shares and pushes them up in value.

Thank you DB for explaining it so clearly

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Inoperational Bumblebee
9 hours ago, kibuc said:

New Gold 2019 outlook is out and headline figures are absolutely devastating. 245-270koz from Rainy River, consolidated AISC US$1340-1440? Those are absolutely terrible numbers at first glance. I'll read through the report to see if there's any justification for that.

Edit: dear oh dear. I appreciate doing the right thing and taking further impairment losses on Rainy River, as well as finally impairing on Blackwater. $670mil impairment looks scary as fuck and will probably send shares into freefall but it had to be done and I commend Adams for having the balls to be straight-up with the investors. What I do not appreciate is hedging half of their 2019 gold (and copper) production, at 1230-1300 US$ / oz. They have effectively signed themselves out of any rally in metals this year. I'm out.

-15% pre-market and going down fast...

So even buying at dropped prices, there's no point doing so?

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10 minutes ago, Inoperational Bumblebee said:

So even buying at dropped prices, there's no point doing so?

yes looks like shite. I pulled out a bit back, bit the bullet, glad im only playing with a few hundred here and there on these miners, would have been miffed had it been a few thousand, takes too long to earn that kinda money to piss it away.

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1 hour ago, Inoperational Bumblebee said:

So even buying at dropped prices, there's no point doing so?

I'm shit at trading, but last time they impaired like that (or nothing like that actually, a mere 300mil in July) they dropped 20% on the day but sunk another 13% on the next two trading days and only found the bottom at -60% six weeks later.

I listened to second half of the call and while Adams was quick to stress that share dilution would be considered last resort, I don't know how they're going to proceed without it. With projected AISC around $1400/oz (net of Afton copper, no less!) and half of their production locked under $1300 they are heading for operational loss, and let's not forget over 50mil in debt interest. They'll have to re-finance 500mil in 2022, and 2019 can already be put in the bin. Nah, it doesn't add up. They'll ask the market for lots of money in 2021 or 2022.

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10 hours ago, kibuc said:

I'm out.

-15% pre-market and going down fast...

Did you manage to cash out early enough? 

And many, many thanks for the heads up.  I managed to sell my small holding (bought some near the bottom, and more after you mentioned them few weeks ago) for a £100 profit which would have turned into a loss by about mid- (American) day.

Who knew that occasional sneaky look at my phone at work would eventually payoff!

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