Credit deflation and the reflation cycle to come.

[sancho panza]

2 hours ago, Democorruptcy said:

I used to think we would run out of borrowers but when RPI hit 5.2% in 2011 and the base rate stayed at 0.5%, I gave up on that idea. A lot on here and ToS seem to have a few quid and for £100k in the bank the interest is down about 5% since the FC and with mortgage rates going down, each saver is gifting a debtor about £100 every week. I suppose it would be worse, having to stand at a restaurant door gifting 4 couples £25 cash.

Re solvent banks the "living will" palaver is pencilled in for 2022, so plenty of lobbying time left to scupper that. In November 2009 the BoE disclosed they had done £62bn in secret loans to RBS and HBoS at the height of the crisis.

They have such a huge carpet now they seem to be able to sweep anything under it.

 

I think it's constantly important to reevaluate what the policy response might be and crucially whether it will work.There is a growing body of evidence that QE/Zirp hasn't worked hence so mnay Fed Doves are now accepting rates need to rise.Recent Fed votes ahve been unanimous.If the fed doesn't QE,even aside from collapsing asset values,it's hard to see the boE moving on it's own without destroying sterling.

 

what do you mean by 'living will' Dm?

[Democorruptcy]

4 minutes ago, sancho panza said:

I think it's constantly important to reevaluate what the policy response might be and crucially whether it will work.There is a growing body of evidence that QE/Zirp hasn't worked hence so mnay Fed Doves are now accepting rates need to rise.Recent Fed votes ahve been unanimous.If the fed doesn't QE,even aside from collapsing asset values,it's hard to see the boE moving on it's own without destroying sterling.

 

what do you mean by 'living will' Dm?

Living wills

[Calcutta]

1 hour ago, M.C. UK said:

That is their free option and how it  worked for me:

"We also execute our free trades in batches to cut operational costs.  We collect orders and execute them in bulk at a given time of the day."

I couldn't see the paying option - perhaps because even though we were on trading hours for the US, here the markets were closed AND no US stocks are present as per yet on their platform.

I've checked few times during the day  and saw it processed today (Tuesday and order put "late" Monday) at/just after 16:00.

I've made the mistake of not taking note of the price I had "reserved" the shares and the end price I've paid - I will do it properly to report accordingly.

The issue I had was adding money into the trading account: I've added the trial value (just £10) to see if would reach my account.

This was late on Sunday - as per their rules, this wouldn't appear on the account until Monday before noon.

Monday afternoon arrived and I've opened a call/chat with support : very good chaps in there (took about 3 or 5 minutes to get help).

They've said they were experiencing issues with accounts top up, but would be resolved soon and they would contact me when the money reached the account.

They've kept their word, message and email sent to me when the money was on my trading account, however, it was to late to get into Monday's "batch" processing window - what happened next day (Tuesday at 16:00 in this occasion).

 

And that has been my experience so far - I hope the above info is of any help  :-)

 

This is all great stuff, instead of giving bet365 the occasional quid when I'm bored I could buy a quids worth of Goldman Sachs and feel like a businessman for a bit.

[sancho panza]

1 minute ago, Democorruptcy said:

Living wills

Cheers DM,didn't realise the term or the timeline but be interesting to see-alongside the stress tests-how realistic they will be.

[sancho panza]

Shaun Richards on the Italina banks today

https://notayesmanseconomics.wordpress.com/2019/01/08/what-will-happen-to-bank-carige-of-italy/

I still recall Prime Minster Renzi assuring investors that shares in the trouble Monte Paschi di Siena were a good purchase. Here is an example of this from him in Il Sole from January 2016 via Google Translate and the emphasis is mine.

“The recent turbulence around some Italian banks indicates that our credit system – solid and strong thanks to the extraordinarily high savings of Italian families – still needs consolidation, so that there are fewer but stronger banks (…) Today the bank it is healed, and investing is a bargain. On Mps has been knocked down speculation but it is a good deal, has gone through crazy vicissitudes but today is healed, it is a nice brand. Perhaps in this process that will last a few months must find partners because it must be with others “.

Since then the bank has seen the Italian state take a majority stake and the share price is a bit less than forty times lower than when Renzi made his statement.

A deeper perspective can be provided by the fact that the Italian banking laws are called the “Draghi Laws” after the President of the European Central Bank Mario Draghi. In his new role he has undertaken three policies which have helped the Italian banks. They have been particularly large beneficiaries of his liquidity operations called TLTROs which have provided cheap ( the deposit rate is -0.4%) for banks. Then the QE programme boosted the price of Italian government bonds benefiting the Italian banks large holdings. Then more opaquely at least in terms of media analysis it bought covered bonds ( mortgage bonds) in three phases and still holds around 271 billion Euros of them.

The catch of this from Mario’s point of view is that liquidity is only a short-term solution and soon falls short when the real questions are about solvency. Even worse the way this umbrella shielded the banks from the rain meant that the promised reforms never happened and the path was made worse rather than better. Also if we think of this from the point of Italy and its economy we see that we have part of the reason for its ongoing economic lost decade style troubles. The banks have helped suck it lower. Also and hat tip to Merryn Somerset Webb for this a letter to the FT today has on another topic covered the issue really rather well.

ECB can’t solve problems because to attempt to do so would be to admit that problems exist.

The Italian Government

This found itself in between a rock and a hard place as the Five-Star movement has consistently opposed both bailouts and bail-ins. Yet the government of which it is a member took I am told only 8 minutes to decide this last night.

The decree, signed off on Monday after a surprise cabinet meeting, will allow the bank to benefit from state-backed guarantees for new bond issues and funding from the Bank of Italy.

The lender, which last year failed to secure shareholder backing for a capital increase, will also be able to request access to state-backed precautionary recapitalization, if needed.

So yet again in a choice between the interests of the people and the interests of “the precious” we see that the same old status quo continues to play.

Comment

The issue here is that on a generic basis the events described above are so familiar now that even the use of phrases like groundhog day does not do the situation justice. There are always going to be problems because regulators invariably end up being captured by the industry they regulate and banking is perhaps the worst example of this. But changes were promised so long ago and yet the Italian taxpayer will find him/herself on the hook in addition to the 320 million Euro hybrid bond that the deposit protection fund bought late last year. Even worse they may end up backing this enough for someone else to be willing to take it over and profit from. Oh and so much for hybrid!

Meanwhile in a land far, far, away I see that the Financial Times has interviewed the head of the Euro area banking resolution body.

Speaking to the FT to mark three years since the SRB became fully operational at the start of 2016, Ms König said a page had been turned in how the bloc handled bank failures — not least after its first intervention, at Spain’s Banco Popular in 2017 — but that the system remained a work in progress.

There is no mention of Italy at all which is really rather breathtaking, although there may be an implied hint.

Making sure that bank crises could be contained without resorting to taxpayer help was “an ongoing challenge”, she said.

Some claim the lack of contagion is progress, but you see there is a clear flaw in that as the problems here were evident as long ago as 2014 so what is called the “smart money” will have gone long ago. In some ways this makes things worse because in another shocking failure of regulation Italian retail depositors were encouraged to buy bank bonds.

[DurhamBorn]

1 hour ago, sancho panza said:

I think it's constantly important to reevaluate what the policy response might be and crucially whether it will work.There is a growing body of evidence that QE/Zirp hasn't worked hence so mnay Fed Doves are now accepting rates need to rise.Recent Fed votes ahve been unanimous.If the fed doesn't QE,even aside from collapsing asset values,it's hard to see the boE moving on it's own without destroying sterling.

 

what do you mean by 'living will' Dm?

Agreed,advanced countries dont go bankrupt,debt monetization simply translates into currency devaluation.The £ isnt down because of Brexit,its down because they printed 6 years of the tax credit bill, £200 billion,and spent it on Chinese imports (mostly trampolines if the council estate near me is anything to go by).

[Harley]

So what's everyone's investment and/or trading strategy for this year?  What, not got one?  Ouch!

Or show me yours and I might show you mine!

[Bobthebuilder]

5 minutes ago, Harley said:

So what's everyone's investment and/or trading strategy for this year?  What, not got one?  Ouch!

Or show me yours and I might show you mine!

A few miners blah, blah, blah.

Some utilities blah, blah blah.

A few domestics blah, blah , blah.

Gonna buy the wife a big 40th pressie, blah, blah, blah.

I might have forgotten something.

[Barnsey]

5 hours ago, Democorruptcy said:

I used to think we would run out of borrowers but when RPI hit 5.2% in 2011 and the base rate stayed at 0.5%, I gave up on that idea. A lot on here and ToS seem to have a few quid and for £100k in the bank the interest is down about 5% since the FC and with mortgage rates going down, each saver is gifting a debtor about £100 every week. I suppose it would be worse, having to stand at a restaurant door gifting 4 couples £25 cash.

Re solvent banks the "living will" palaver is pencilled in for 2022, so plenty of lobbying time left to scupper that. In November 2009 the BoE disclosed they had done £62bn in secret loans to RBS and HBoS at the height of the crisis.

They have such a huge carpet now they seem to be able to sweep anything under it.

Key thing I've done lately is to look at mortgage lending in last recession, LTV for first time buyers dropped to 75%, lending fell from £364 billion in 2007 to $111 billion in 2010. Biggest banks in a better position to continue lending this time but greatly depends on the scale of declines. If history rhymes, that gives me a window of 2020-2022 to get a good long term fix whilst sentiment is low and lending remains accomodative to those with 25% deposits.

[Harley]

44 minutes ago, Bobthebuilder said:

A few miners blah, blah, blah.

Some utilities blah, blah blah.

A few domestics blah, blah , blah.

Gonna buy the wife a big 40th pressie, blah, blah, blah.

I might have forgotten something.

I think that needs a bit more work, especially the wife's pressie thing!

[DurhamBorn]

1 hour ago, Harley said:

So what's everyone's investment and/or trading strategy for this year?  What, not got one?  Ouch!

Or show me yours and I might show you mine!

That the next cycle is the 70s all over again.What a lovely time,gold through the roof and Blondie making tents in my school trousers.Who cares about a little bit of inflation and massive financial dislocation when we have the metals in our pockets and the leveraged destroyed.

"Its 11.59 (in the cycle) and i want to stay alive"

 

 

[Bear Hug]

1 hour ago, Barnsey said:

Key thing I've done lately is to look at mortgage lending in last recession, LTV for first time buyers dropped to 75%, lending fell from £364 billion in 2007 to $111 billion in 2010. Biggest banks in a better position to continue lending this time but greatly depends on the scale of declines. If history rhymes, that gives me a window of 2020-2022 to get a good long term fix whilst sentiment is low and lending remains accomodative to those with 25% deposits.

I am very much hoping my 10% deposit will turn into 50% in a couple of years:

10% current + 10% saving over 2 years + 5% investment gains  + 25% due to halving of house prices

Of course, I will also accept:

10% current + 10% saving over 2 years + 30% investment gains  + 0% (no nominal change in house prices) in a crazy scenario if everything and the kitchen sink is again thrown at the housing market to keep prices inflated but everything else also inflates

 

[Bear Hug]

2 hours ago, Bobthebuilder said:

A few miners blah, blah, blah.

Some utilities blah, blah blah.

A few domestics blah, blah , blah.

Gonna buy the wife a big 40th pressie, blah, blah, blah.

I might have forgotten something.

No wife is probably by far the highest contribution to my saving and investment performance.  Don't get me wrong, she always worked and probably earns more than me now but amazing ability to come up with ways to spend money

[MrXxx]

8 hours ago, DurhamBorn said:

That the next cycle is the 70s all over again.What a lovely time,gold through the roof and Blondie making tents in my school trousers.Who cares about a little bit of inflation and massive financial dislocation when we have the metals in our pockets and the leveraged destroyed.

"Its 11.59 (in the cycle) and i want to stay alive"

 

 

I remember the `Blondie` thing (or one/any of Bananarama) but I am buggered if I can remember any of the successful companies/investments...one track teenage mind I suppose?! :-)

[Democorruptcy]

FCA have given the IPSX recognised investment exchange status to trade commercial property

Quote

IPSX it said the exchange could be used by businesses that occupy buildings to release value from freehold assets “without entering into a traditional sale and leaseback transaction or procuring a joint venture partner”

FT article: UK regulator gives green light to property exchange

[Democorruptcy]

9 hours ago, DurhamBorn said:

That the next cycle is the 70s all over again.What a lovely time,gold through the roof and Blondie making tents in my school trousers.Who cares about a little bit of inflation and massive financial dislocation when we have the metals in our pockets and the leveraged destroyed.

 

One here about The Great Inflation, it sounds similar to President Trump?   
 

Quote

 

President Nixon's primary concern was not dollar holders or deficits or even inflation. He feared another recession. He and others that were running for re-election wanted the economy to boom. The way to do that, Nixon reasoned, was to pressure the Fed for low-interest rates.

John Connolly, the Nixon-installed Treasury Secretary who did not have formal economics training, later declared personal bankruptcy.

 

 

[sancho panza]

10 hours ago, Barnsey said:

Key thing I've done lately is to look at mortgage lending in last recession, LTV for first time buyers dropped to 75%, lending fell from £364 billion in 2007 to $111 billion in 2010. Biggest banks in a better position to continue lending this time but greatly depends on the scale of declines. If history rhymes, that gives me a window of 2020-2022 to get a good long term fix whilst sentiment is low and lending remains accomodative to those with 25% deposits.

That's an amazing drop.I think once prices start dropping people will jsut delay buying because each month you hold off saves you a chunk of cash.Hence the political class fear of deflation.

I'm a massive fan of long term fixes.We rent on a 3% gross yield.The next house up with more space rents under 2.5%.It's going to be a while before I'm going to see a case for raiding my IG account or flogging one of my long term high yielders.

On another matter barnsey,I posted this wolf st poscast yesterday.Did you have time for a butchers.Well worth a listen.I nkow we've talked possible rallies since before Dec.Looks like we're in one now,I suspect lot of shorts getting reamed especially on TSLA and AMZN,but also a lot of retail buying the dip.Setting up a vicious dip down in the not too distant imo-which is Wolf's thesis.I admit to tlaking my book here but I'm looking at some of the price action and jsut amazed at where this rally has taken soem things that looked utterly broken a few weeks back.

'Nothing Goes to Hell in a Straight Line, not even on Wall Street.'

https://wolfstreet.com/2019/01/06/the-wolf-street-report-nothing-goes-to-hell-in-a-straight-line-not-even-on-wall-street/

 

100's Big gainers today,builders.

Looking at the 350 gainers over 3%,there's some stellar names in there like kier,Ocado,JD Sports,Serco etc.

 

There's an old market saying the more a resistance gets tested,the more likely it is to hold.

 

 

[sancho panza]

10 hours ago, DurhamBorn said:

That the next cycle is the 70s all over again.What a lovely time,gold through the roof and Blondie making tents in my school trousers.Who cares about a little bit of inflation and massive financial dislocation when we have the metals in our pockets and the leveraged destroyed.

"Its 11.59 (in the cycle) and i want to stay alive"

 

 

One of my favourite ever songs that DB...........

On the matter of the 70's,whilst I've been a debt deflationist for a decade plus,I've learned that credit deflation and price inflation aren't mutually exclusive..The two are separate matters.I think with where sterling is going longer term,price inflation could be vicious,forcing the boE's hand,raising rates which in turn reinforces the downward credit spiral.

Rememebr the Turkish Gold holders.

[Majorpain]

http://fortune.com/2019/01/08/samsung-lg-profit-warnings/

Samsung profits down 28.7% YOY.

LG profits down 80% YOY.

Chickens are coming home to roost.

[Barnsey]

9 minutes ago, sancho panza said:

That's an amazing drop.I think once prices start dropping people will jsut delay buying because each month you hold off saves you a chunk of cash.Hence the political class fear of deflation.

I'm a massive fan of long term fixes.We rent on a 3% gross yield.The next house up with more space rents under 2.5%.It's going to be a while before I'm going to see a case for raiding my IG account or flogging one of my long term high yielders.

On another matter barnsey,I posted this wolf st poscast yesterday.Did you have time for a butchers.Well worth a listen.I nkow we've talked possible rallies since before Dec.Looks like we're in one now,I suspect lot of shorts getting reamed especially on TSLA and AMZN,but also a lot of retail buying the dip.Setting up a vicious dip down in the not too distant imo-which is Wolf's thesis.I admit to tlaking my book here but I'm looking at some of the price action and jsut amazed at where this rally has taken soem things that looked utterly broken a few weeks back.

'Nothing Goes to Hell in a Straight Line, not even on Wall Street.'

https://wolfstreet.com/2019/01/06/the-wolf-street-report-nothing-goes-to-hell-in-a-straight-line-not-even-on-wall-street/

 

100's Big gainers today,builders.

Looking at the 350 gainers over 3%,there's some stellar names in there like kier,Ocado,JD Sports,Serco etc.

 

There's an old market saying the more a resistance gets tested,the more likely it is to hold.

 

 

Thanks Sancho lots of relevance in Wolf's comments. Does indeed look like a possible bounce now underway, US-China trade talks seem to have concluded positively even though they are now further apart on some more meaty issues. Our stock market should be in panic freefall right now if politics play out but as you point out, lots of green, even my SSE stocks are heading back up!

This is a bounce I'm staying out of because I can't remember a time when there were SO many viable black swan triggers. Just a reminder, Germany GDP released on 14th Feb has high possibility of confirming they entered technical recession in Q3 2018. Also the key statistic that US will set a new record for longest GDP growth cycle in history as of June, incredible/terrifying. Combine this with all the other macro fundamentals such as most of Asia stock markets being down more than 20% so far, and we're not a long way off now. I simply can't see how this all miraculously turns around, we're slowing down globally in relative synchronicity so best to ignore the noise. Question remains, do we go out with a bang this year or do we get a QE fuelled bounce after the initial destruction followed by a greater decline next year, possibly dragged on into 2021?

[Democorruptcy]

16 minutes ago, sancho panza said:

100's Big gainers today,builders.

Presumably because the governbankment lost a vote on a Brexit bill last night? Anything that reduces the chance of a hard Brexit (or no Brexit) has to be good for builders after project fear on house price falls.

https://www.dw.com/en/british-pm-theresa-may-loses-vote-on-no-deal-brexit-powers/a-47003005

[sancho panza]

11 minutes ago, Barnsey said:

Thanks Sancho lots of relevance in Wolf's comments. Does indeed look like a possible bounce now underway, US-China trade talks seem to have concluded positively even though they are now further apart on some more meaty issues. Our stock market should be in panic freefall right now if politics play out but as you point out, lots of green, even my SSE stocks are heading back up!

This is a bounce I'm staying out of because I can't remember a time when there were SO many viable black swan triggers. Just a reminder, Germany GDP released on 14th Feb has high possibility of confirming they entered technical recession in Q3 2018. Also the key statistic that US will set a new record for longest GDP growth cycle in history as of June, incredible/terrifying. Combine this with all the other macro fundamentals such as most of Asia stock markets being down more than 20% so far, and we're not a long way off now. I simply can't see how this all miraculously turns around, we're slowing down globally in relative synchronicity so best to ignore the noise. Question remains, do we go out with a bang this year or do we get a QE fuelled bounce after the initial destruction followed by a greater decline next year, possibly dragged on into 2021?

Wise words.This is one for specualtive money.Cattle prod was saying a few days back that the buying in the US rally was seeing utilities surge somewhat but the techies have recovered their poise too.

Shaun Ricarhds had a great post on Italian banks yesterday but as you say there's far more on the horizon-Brexit( Germany made a big mistake forcing UK into a No Deal), China credit bubble imploding,US run of growth will end at some point,US shares massively overvalued, Australia(the canary) sinking on the back of record low interest rates.....I could go on.But the German news is the one that's occupying my mind.

I have a few days off from wokr(hence my post count through the roof) but it's been amazing catching up with the news and the price action.

Personally,I don't think the fed will QE again.Too many doves on the Board have signed up for rate rises.Main St is what matters and bernanke's wealth effect theory was jsut utter bullshit.

As I've said before,Trump knew what he was getting when he picked Powell.

17 minutes ago, Democorruptcy said:

Presumably because the governbankment lost a vote on a Brexit bill last night? Anything that reduces the chance of a hard Brexit (or no Brexit) has to be good for builders after project fear on house price falls.

https://www.dw.com/en/british-pm-theresa-may-loses-vote-on-no-deal-brexit-powers/a-47003005

Think you're right on that DM,makes sense.My chart work say short,my head says wait.

[Barnsey]

3 minutes ago, sancho panza said:

Wise words.This is one for specualtive money.Cattle prod was saying a few days back that the buying in the US rally was seeing utilities surge somewhat but the techies have recovered their poise too.

Shaun Ricarhds had a great post on Italian banks yesterday but as you say there's far more on the horizon-Brexit( Germany made a big mistake forcing UK into a No Deal), China credit bubble imploding,US run of growth will end at some point,US shares massively overvalued, Australia(the canary) sinking on the back of record low interest rates.....I could go on.But the German news is the one that's occupying my mind.

I have a few days off from wokr(hence my post count through the roof) but it's been amazing catching up with the news and the price action.

Personally,I don't think the fed will QE again.Too many doves on the Board have signed up for rate rises.Main St is what matters and bernanke's wealth effect theory was jsut utter bullshit.

As I've said before,Trump knew what he was getting when he picked Powell.

On China:

Further supports a short term bounce at least 

[kibuc]

WDO Q4 results and 2019 guidance should drop today or tomorrow.

I'm expecting results to be bang in the middle of the revised 70-75koz guidance. They delivered a touch above 54koz in the first three quarters and Eagle River was scheduled to process some slightly lower-grade ore in Q4, including some tailings from the Mishi pit, so additional 18koz seem likely and would mean that the upward-revised guidance was right on target.

As for the 2019 guidance, I'm siding with my local twitter expert @EconomicAlpha on the 80-85koz range. With low-grade dirt from Mishi slowly disappearing from picture, they should be able to mill 50k tones of high-grade Eagle River ore each quarter. At 13g/t it would put them aroung 84koz mark for the full year.

Given their recent developments in the 303 & 7 zones, that would be a rather conservative guidance and one that would probably be revised mid-year, but it would make for a very good launching platform for the upcoming year. Anything above that would indicate a very high level of confidence in Eagle River development. The mill is good for 1000 tonnes per day so there's still plenty of reserve there. If they can open another mining face and start pushing extra ore through that mill even for one quarter, that guidance will be easily beaten and the path for 100koz in 2020 will be clear.

 

Edit: as for the price action, if the results are indeed as expected, it wouldn't surprise me if there was a correction, just like there was one after the last month's resource update. Simply meeting the guidance is not very sexy, and few people bother to actually read beyond the headline - f.eg. to check the proportion of high-grade Eagle River ore and low-grade Mishi ore milled in Q4. It was the same story with NGD Q3 results, where the impressive turnaround at Rainy River after late-August mill improvements was highlighted for anyone who cared enough to get to page 3. I know I fell for the headline numbers trap as well at first.

[Democorruptcy]

1 hour ago, sancho panza said:

Personally,I don't think the fed will QE again.Too many doves on the Board have signed up for rate rises.Main St is what matters and bernanke's wealth effect theory was jsut utter bullshit.

I think they will definitely QE again. This time it will trickle up. It will be QE for helicopter money. People at the bottom will think it's great and they are getting something for nothing.  That will be true, it will be something for nothing. It will create price inflation so the gifted money will be eaten by prices rise and it will trickle up to the 1%. Inflation hurts the poorest people the most. It's the logical next step and merely an extension of other governbankment subsidies/benefits that ultimately just enable some people to pay more, so everybody has to. I went on the electoral roll last year to get my share, might as well have it.