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Credit deflation and the reflation cycle to come.


DurhamBorn

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@sancho panza i agree Powell was put in a terrible position.Like you say inflation isnt certain at all in the next cycle yet.That will depend on the scale of the debt deflation,the scale of financial dislocation and the CB action to contain it.I think bonds might go all the way back to 1982 levels,though even if they get over a third of the way we will be looking at 8% rates and mortgages at around 9%.

If we look at profits collapsing in most sectors we see the end of this disinflation.Input costs have moved and caught companies out.Next the weak hands go under.Then the stronger hands increase their prices.That then falls on the consumer.I think in the UK its the welfare budget and housing that will suck up a lot of the pain.Houses will fall so less workers capital is needed to pay for them.For BTL they will mostly be a liability rather than an asset,and thats before you count the hugely leveraged.Welfare will be inflated away probably by 30% in real terms over the cycle.

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11 minutes ago, spygirl said:

I read it differently.

The FED is made up of a number of regional chairmen.

In normally times, the Fed operates more like a democracy, with the NY Fed chairman having a lead, wall street n all.

There have been two abnormal times.

One when Volker came it to beat down inflation. By rising rates he was going against macro-economic 'science' Volker was operatign on his gut/good sense.

The other with Greenspan in charge, a dorky twat who enjoyed his power. The fallout from Greenspan 2008, followed by Bernake and Yellan, were a couple of clueless fucks trying t mop up afterwards.

Powells is charge as macro eocnomics has been entirely discredited. There are a number of Fed charman pushing for higher rates - they see the how fast the economy is coming back, and want to lean into it. I see Powels roles a general counsel, talking to Fed charimen and going for a middle course.

I guess there'l be one more IR rise - just to be seen to ignore Trump.

Then they'll sit on their hands for a good 6 months to see how it goes.

 

 

 

 

Id agree on Volker spy.Miller was the one who poured petrol on the inflationary fires.However id say Volker did use macro indicators,he just understood the lags better than most.

I think you might be right on the 6 months sitting on hands.Interesting to see if that or something close does play out.Whatever the outcome i think its clear the world is swapping cycles from a long dis-inflation to roaring inflation,or stagflation.As an investor id prefer the inflation,its easier to navigate.

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55 minutes ago, onlyme said:

Never mind the Fed, FedEx might the the one to take note of.

Down over 9% at the moment.

 

https://www.zerohedge.com/news/2018-12-19/jarring-fedex-outlook-cut-suggests-severe-global-recession

FedEx shares are plunging after what Morgan Stanley called a "jarring" cut to its annual forecasts, suggesting global growth is slowing far more than most expect - in fact, the bank hinted at the possibility of a "severe recession" unfolding - and prompting expectations of an "uber-dovish hike" by the Fed.

 

Lots of anectodal evidence on the twittersphere from various delivery drivers around U.S. saying its the quietest peak season in years.

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Democorruptcy
1 hour ago, DurhamBorn said:

If we look at profits collapsing in most sectors we see the end of this disinflation

I watched that Big Short film again this week. It was very good but I'd have liked more AIG. Anyway I did a bit of a "where are they now". In the film the Mark Baum is really Steve Eisman . That wiki page has him as working for Neuberger Berman they didn't seem too bad as far as fund managers go. This page on their website is on thread, some interesting stats and including near the bottom The Great Disinflation is likely over

 

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8 minutes ago, Barnsey said:

+0.25

Now 2 hikes for 2019 expected vs 3, sounded maybe a tad more hawkish than expected.

https://www.federalreserve.gov/newsevents/pressreleases/monetary20181219a.htm

Jonathan Davies nailed it in today's podcast on TY - said they would still raise but lower expectations.

He reckons still chance of resumption of the rally, in fact most of podcast was bullish with the above being a trigger if rises tailing off a bit. Lots of comparisons of previous trend change points and lack of strength on govt  bonds.

My view thing is we are in uncharted waters, nothing normal about QE and ZIRP,  it pushed everything up, way into excess again so I don't think comparisons are really that relevant where we a re now, is it all sustainable or not, will everything fall with removal of QE/ZIRP, etc etc.

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11 minutes ago, Barnsey said:

+0.25

Now 2 hikes for 2019 expected vs 3, sounded maybe a tad more hawkish than expected. 

https://www.federalreserve.gov/newsevents/pressreleases/monetary20181219a.htm

No hike till recession then, how novel to have central bankers who dont adjust policy on the whim of the stock market.

"Dont fire till you see the whites of their eyes!"

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Well markets, metals falling on the news, treasuries doing well. Still think there's a good chance of a relief rally once the initial shock of a more hawkish Fed subsides. Powell now speaking...

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Just now, zugzwang said:

This new guy at the Fed, Heywood Jablome. Seems to know his own mind. 

Put on your crash helmets.

Still convinced designed to take out Trump.

Insurance policy if you like.

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7 hours ago, DurhamBorn said:

Powell is hellbent to "normalize" rates but is not paying attention to early signals that suggest the Fed has already gone to far. Look at housing and cars. They are rolling over. Look at lumber prices. Powell is a lawyer and does not understand leads & lags & seems to think he's smarter than the market. 

My Macs indicator is flashing in the range for the first time since 2007 for December and is very good at calling recession turns.

Gold has breakout set ups now in almost all major currencies.This last happened around 2005 just before a very nice run up.The set up is starting to look very nice.We also have sentiment on the floor in the PM and miner space.That is good.Nobody trusts the sector will ever go higher.

The Fed has already locked in recession and Powell might give lip service to a pause in tightening,but its likely he will keep reducing the balance sheet or/and tighten until the worst bear market since the war is unleashed in the US and the fact we are in an end of 40 year cycle debt deflation shows itself.

The UK has already seen huge falls in a very large percentage of stocks.I have almost all my ladders in place now to be buying the portfolio i want for the next cycle.An inflationary one with bells on.Sectors that can follow their pricing higher with the inflation,not lag it.Sectors that are hated now.Sectors that will see shift in consumer habits as prices increase and cut out lots of things like car ownership around the margins.Bond holders will be bending over and taking it in the next cycle.Long term debt will be inflated away.Any companies who havent got their balance sheets in order (or have not invested and secured at very low rates) will not be able to re-finance below 5%,and soon 10%.Consumers who are over leveraged have a few years to pay down debts before rates begin a long shocking increase.

These turns and times need a focus on whats ahead.The next cycle will deliver big gains in lots of inflation loving sectors.Picking bottoms is not the order of the day.Laddering in to areas already beaten down is the best solution.For myself il be very happy if my portfolio ends up fully invested and shows -15%/20% at any bottom.If its to be better than that it will depend on if and how high the PM miners run.

My road maps are pretty much where they were with a few slight changes.

Gold to $1500,

Silver $22/23

Oil down to $20,maybe even $15 

Copper down to $1.20

Dollar Index 86 (maybe 75) then a turn

GDX $38 area.GDXJ $63+ area.

I think the Fed has already done the damage,but i also think this Fed meeting is very important indeed.

The UK needs to get out of the EU as quickly as it can.Its ironic,but sterling falling so hard already has already priced in a lot of of the damage and will shield some of the affects.Housing should be the big loser in the UK.

 

Out of an interest, shy is it such a bad thing to raise rates and expose the bad debt for what it is. Why is a recession a bad thing, isn't it absolutely necessary we have one and better now than later? I would have thought it sensible to raise rates after over a decade of free money so we don't put off an even bigger crisis down the line if they don't. Seems like they are damned if they do and damned if they don't but I'd back the BoE and the Fed to raise rates back to normal levels whatever the short term consequence. I don't see much of a future until we stop this type of economy dead in its tracks, reset completely and go back to 4-5% interest rates. So I personally back their policy rather than the extend and pretend alternative.

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Mining stocks getting slaughtered today - although to be fair it looks like EVERYTHING is getting slaughtered, but the Guardian is saying that mining stocks are leading the drop due to fears raising interest rates will lessen demand for commodities.

 

The consensus seems to be that it's not the rate raise yesterday that's causing this - more the Feds commitment to MORE rate raises next year

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Democorruptcy

Kier group down another 11% so far today after losing 7% yesterday. Now 343 with dividend yield showing as over 20% and PE 3%.

Peel Hunt are still mad for them, put out a price target of 900 today! I wonder what they see that nobody else can.

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14 minutes ago, Durabo said:

Mining stocks getting slaughtered today - although to be fair it looks like EVERYTHING is getting slaughtered, but the Guardian is saying that mining stocks are leading the drop due to fears raising interest rates will lessen demand for commodities.

Carnival’s the top faller in the FTSE 100. Not quite sure why? It’s over priced for sure, but it’s been on the slide of late, despite literally buying back stocks every day and a sliding oil price (which should be good for them).

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13 minutes ago, Democorruptcy said:

Kier group down another 11% so far today after losing 7% yesterday. Now 343 with dividend yield showing as over 20% and PE 3%.

Peel Hunt are still mad for them, put out a price target of 900 today! I wonder what they see that nobody else can.

Wow at the Kier news. Poor takeup on the rights issue.

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reformed nice guy

Deutsche Bank hitting new all time lows.

Hoping they either go under or get bailed out massively when the next Euro collapse happens

Screenshot from 2018-12-20 13-57-54.png

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17 hours ago, SillyBilly said:

Out of an interest, shy is it such a bad thing to raise rates and expose the bad debt for what it is. Why is a recession a bad thing, isn't it absolutely necessary we have one and better now than later? I would have thought it sensible to raise rates after over a decade of free money so we don't put off an even bigger crisis down the line if they don't. Seems like they are damned if they do and damned if they don't but I'd back the BoE and the Fed to raise rates back to normal levels whatever the short term consequence. I don't see much of a future until we stop this type of economy dead in its tracks, reset completely and go back to 4-5% interest rates. So I personally back their policy rather than the extend and pretend alternative.

A recession is a good thing in lots of ways.However this wont be a recession.It will start as a recession,but due to the scale of the leverage turn into something much worse.The policy errors were made long ago,though they are simply part of a long cycle.This great dis-inflation that lasted nearly 40 years convinced people rates were low forever,inflation was dead etc.

My interest is where will the money be made.On a brutal side i dont care if the highly leveraged lose everything.My job is to protect and grow my families capital.

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5 hours ago, Durabo said:

Mining stocks getting slaughtered today - although to be fair it looks like EVERYTHING is getting slaughtered, but the Guardian is saying that mining stocks are leading the drop due to fears raising interest rates will lessen demand for commodities.

 

The consensus seems to be that it's not the rate raise yesterday that's causing this - more the Feds commitment to MORE rate raises next year

Just noise and short term reaction.What Powell said was im going to tighten the US into a recession (they already have).Leads and lags say every extra bit of tightening means more loose later and gold will react upwards once the dust settles.Roadmap for me is gold to $1500 and silver $22/23.

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17 hours ago, Sugarlips said:

How will the bigger international banks like hsbc perform in your scenario DB? Feels like They’ve been behaving more like utilities in recent years just a bit more choppy

https://au.finance.yahoo.com/quote/hsba.l?ltr=1

Too be honest im not sure.Im avoiding all the financial companies including the insurance ones as i simply dont know who might be exposed and go down in a debt deflation.You could argue that the banks who survive would do well as rates crank up,though households will be taking much less credit.

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1 hour ago, DurhamBorn said:

Too be honest im not sure.Im avoiding all the financial companies including the insurance ones as i simply dont know who might be exposed and go down in a debt deflation.You could argue that the banks who survive would do well as rates crank up,though households will be taking much less credit.

Agreed, avoid avoid avoid until the dust settles.

https://www.bbc.co.uk/news/business-46472578

Quote

An investor who predicted the 2008 financial crisis has revealed he is betting against the UK banking system.

Steve Eisman, known for appearing in The Big Short, said he had bets against three UK banks, though he declined to name them.

The US investor shot to fame when he featured in the book by Michael Lewis, and was later played by Steve Carell in the Hollywood adaptation.

Mr Eisman said he expected UK markets to fall as a result of Brexit.

Explaining his current investment position, he said that he bet against two UK banks "about a month and a half ago" due to the possibility of Britain leaving the EU and of Jeremy Corbyn becoming prime minister.

"I think in either eventuality the British market will go down," he said.

He added that he decided to bet against a third bank because it "seems more likely that Treason May's proposals will fail".

Known as shorting, the bets against the banks will pay out if the banks' shares fall.

Asked which banks he thought were vulnerable, he said "it doesn't matter which UK banks I'm short. I could have picked three others", adding that he saw it as an "industry" issue.

In other news, Nasdaq has entered a bear market, first time since May 2011. 2yr10yr yield curve back below 10. DB now below 7.

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