Credit deflation and the reflation cycle to come.

[sancho panza]

 

11 hours ago, DurhamBorn said:

Ok,i finished off building a PM portfolio for my dad last night.He wanted 12% of his portfolio in PM miners.They arent all exact 2%,some are 1.5% some 2.5% ect (HMY biggest at 2.6%).I bought from miners who are showing good technical support (Yamana etc) and ones that look like they might snap back very fast (oversold,HMY NGD etc) if we are at an inflection point in the complex.In my own portfolio i own these and a couple of others,

Harmony Gold (HMY) $1.56

Yamana Gold (YRI) $3.86

Sibanye Gold (SBGL) $2.42

New Gold (NGD) $2.06

Sandstorm Gold (SSL) $5.91

Endeavor Silver Corp (EDR) $4.10

If anyone was wanting to invest £10k in the space thats the portfolio id advise.Its a risky portfolio of course as i picked the stocks that i think will do very well IF we enter a PM metals/miners bull market.If we dont there will probably be pain in the portfolio.However its a risk/reward situation.DYOR etc etc,not individual advice etc etc,see an IFA to pay for his fees etc etc.

 

There's so many cheap mining stocks -particularly SA - eg Anglogold, Sib,GF-that it's hard to pick anyone or six that stand out from the rest.As per previous my current standout stat is market cap to revenue,but there are others.

Chartwise Harmony is only 2 times 2015 low 75c...

[Majorpain]

I like Sibanye as a company, but i dont like how it keeps getting cheaper.

The very definition of catching a falling knife! 

[Funn3r]

38 minutes ago, null; said:

Went into tescos the other evening and noticed a very large queue of people outside the cafe area (which was closed for the evening). There was a member of staff there and one of those pull out barriers and a sign saying please queue here. On the way out I took a closer look and was surprised that it was a queue for the reduced items and the member of staf was only allowing one person at a time to look. I did wonder if they also restricted how much any one person could buy. There must have been around 20 people in the queue.

Also, our local Tescos express now has a full time security guard, I asked why (I live in a relatively nice area) and was told that the amount of theft was now so bad it justified a full time guard.

Round my way the reduced items is slim pickings nowdays. Our Asda used to be quite good, good reductions and things that could be frozen.

I have been thinking and wondering about this. I have been a reduced/yellowsticker hound all my life because I grew up poor and I am just like that. Why would anyone pay a pound for something if it can be had for 20p? My kids tease me non-stop, or they used to they have got bored now after so many years. 

But I never saw anything like this. I can easily afford to pay full price but rather have it cheap. Now though I think some folk go into Tesco and leave empty-handed if they can't get anything reduced. I had a screaming row not too long ago with a bloke who said I had the reduced cauliflower which was rightfully his.  It seriously scares me. Where is our society going.

[sancho panza]

13 minutes ago, Majorpain said:

I like Sibanye as a company, but i dont like how it keeps getting cheaper.

The very definition of catching a falling knife! 

Hate to say it but Sib and NGD don't appear to be bottoming yet.

Decl:we own NGD

I'm tempted by Harmony for the first time

[sancho panza]

Assorted Wolf St posts

https://wolfstreet.com/2018/06/29/rate-hike-ammo-fed-target-core-pce-inflation/

'

That inflation is rising is no longer surprising anyone and is no longer being disputed. The data is cropping up everywhere. The Consumer Price Index, released two weeks ago, rose 2.8% in May from a year earlier, on its way to 3%. Companies have been complaining about price pressures on the input side, and they have been able to gradually pass this on to the next entity in line, and ultimately to the consumer, as this data shows.

This PCE inflation data will feature prominently in the Fed’s post-meeting statements to justify further rate hikes, with the probability of a total of four rate hikes this year – with two more to go – gaining steam, followed by more rate hikes in 2019.'

 

[sancho panza]

Bricks and mortar smacked again.

I've posted elsewhere on the assets of Debenhams and the huge chunk of intangibles therein..More below on US retail

https://wolfstreet.com/2018/06/28/on-day-3-in-the-dow-walgreens-gets-hit-by-dropping-same-store-sales-offers-10-billion-in-financial-engineering-shares-plunge-10/

'It was a melancholic but symptomatic day for the US economy when a once mighty industrial company that manufactures big complex things, such as diesel-electric locomotives, jet engines, and power-plant turbines, was kicked off the Dow after 111 years and replaced by a retailer that sells mostly imported drugs, imported plastic stuff, and packaged junk food. That was Tuesday morning when GE (GE) was replaced by Walgreens (WBA).

Today it became even more symptomatic for the US economy when Walgreens announced declining same stores sales – as part of the brick-and-mortar meltdown – and a $10 billion share buyback program to soothe rattled investors’ nerves, with money it would have to borrow, and its shares, in the morning of their third day on the Dow, plunged 10%.

A pile of debt: Walgreens has $1.8 billion in cash, but it’s all borrowed cash: Among its $41.7 billion in total liabilities is $15 billion in debt.

A big blob of “assets” with zero tangible value: There are two types of “assets” on its balance sheet that have no tangible value:

• “Goodwill” of $17.1 billion, a result of paying more for acquisitions than fair value. It can sit on the balance sheet for years. But eventually, some or all is written off, and thus becomes an expense.
• “Intangible assets” of $12.1 billion, which will be amortized and thus becomes an expense over time.

This amounts to $29.2 billion that will eventually turn into an expense. They account for about 40% of its total assets ($70 billion).

Negative tangible equity: Total assets minus total liabilities produces “equity,” of which it has a respectable-sounding $28.5 billion. But take out goodwill and intangible assets, and the resulting tangible equity is negative -$730 million.

It’s in this scenario that Walgreens announced today that it would raise its quarterly dividend by 10% to 44 cents per share. With 995 million shares outstanding at the end of the quarter, the dividend payments at the announced rate would amount to a cash outflow of $1.8 billion a year. Dividends are the classic way with which profitable companies reward shareholders – and they should.

But then Financial Engineering: Walgreens also announced today that its board of directors has authorized a share repurchase program “for up to $10 billion.”

 

 

[Majorpain]

23 minutes ago, sancho panza said:

Hate to say it but Sib and NGD don't appear to be bottoming yet.

My gut feeling is your right for a couple of reasons.

Main markets still on QE high so people are expecting the next wave up after the "consolidation" to make them some more money.  Worked for the last 10 years....  Sadly the CB's printing presses will be off by December so this is one dip i wouldnt want to buy.

China has been buying up loads of gold, they now have no QE, Trump Tariff threats, Yuan/USD falling and everyone up to their eyeballs in debt.  I dont think they are not going to be buying in the same volume they have for a long time, if ever.  That is not good for the gold price.

The Cycle will happen as DB predicted, im pretty sure, but the timeframe and catalyst for a credit meltdown is incredibly difficult to pin down.  Im sticking with treasuries and not PM's until i start seeing some proper panic in the west which will kickstart PM's.

[sancho panza]

48 minutes ago, Majorpain said:

My gut feeling is your right for a couple of reasons.

Main markets still on QE high so people are expecting the next wave up after the "consolidation" to make them some more money.  Worked for the last 10 years....  Sadly the CB's printing presses will be off by December so this is one dip i wouldnt want to buy.

China has been buying up loads of gold, they now have no QE, Trump Tariff threats, Yuan/USD falling and everyone up to their eyeballs in debt.  I dont think they are not going to be buying in the same volume they have for a long time, if ever.  That is not good for the gold price.

The Cycle will happen as DB predicted, im pretty sure, but the timeframe and catalyst for a credit meltdown is incredibly difficult to pin down.  Im sticking with treasuries and not PM's until i start seeing some proper panic in the west which will kickstart PM's.

We have some PMs but keeping plenty back as experience tells me that trying to pinpoint the turn or indeed the rop into it,could be very hard.

I'm a fan of this Shedlock piece which alludes to the correlation between periods where faith in CB's got walloped and the price of the yellow stuff.

There's still too much faith in CB's.

I'm going to reprint the full piece because it's well worth the time imho

Unlike Mish,I don't rule out price inflation existing happily alongside credit deflation.

https://www.themaven.net/mishtalk/economics/secular-disinflationary-trend-hits-new-highs-deflation-on-deck-what-s-that-mean-for-gold-1HVGJo4NykmJCIDVGUc9UQ

'What’s That Mean for Gold?

Contrary to popular belief, gold is not an inflation hedge. We had inflation every step of the way from 1980 to 2000 with gold falling from $850 to $250 along the way.

To be more precise, we had disinflation, a falling, but positive rate of inflation as measured by the CPI. Those are conditions in which gold tends to perform miserably.

Gold tends to do well in deflation, stagflation, and times of credit stress. More importantly, gold does well when confidence in central banks is on the wane.

The second to last slide above is worth a detailed inspection. Here is the timeline.

 

• August 15, 1971: Nixon closed the gold redemption window. Gold was $43.15 per ounce.
• January 21, 1980: Gold closed at $850 an ounce. That was the market top for decades.
• March 1980: US inflation peaked at 14.8%. The Federal Reserve Board led by Paul Volcker raised the federal funds’ rate to a peak of 20% in June 1981. It was not the rate of hikes that directly led to the plunge in gold. Rather, the rate hikes convinced the public and the markets that the Fed had everything under control.
• August 11, 1987: Greenspan took over as Fed chair. The “Great Moderation” started. Disinflation and slowing falling interest rates were the norms. Greenspan was labeled the “Maestro”. Faith in central banks peaked under Greenspan.
• May 7, 1999: The Bank of England announced plans to dump gold for other assets. The price of gold was $282 per ounce. The advance notice of the sale drove the price down by 10% by the time of the first auction on July 6, 1999. With many traders shorting, gold reached a low of $252.80 on July 20. This is frequently called “Brown’s Bottom” after Gordon Brown, the UK Chancellor of the Exchequer.
• 2000-2007: The DotCom bubble burst and Greenspan slashed interest rates to a then record low. This was followed by a housing bubble, a housing bubble bust, and Greenspan leaving the Fed. Ben Bernanke took over. Bernanke slashed interest rates to nearly zero and kicked off three rounds of QE. Faith in central banks was again in question for most of this timeline.
• August 23, 2011: Gold peaked at $1923.70 with a European debt crisis underway, worries about Greece, and with the Fed involved in a series of QE actions.
• July 26, 2012: Mario Draghi gave his famous “Whatever it Takes” speech. “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” Faith in central banks was temporarily restored.
• November 22, 2015: Gold touched $1056. In the chart, I gave a December date. That timeframe is when faith in central banks hit a rebound peak.
• Present: A debate is on whether or not the Fed is behind or a head of the curve. Dissent at the Fed as to whether it should be hiking or cutting is widespread. Many economists advocate a higher range of inflation even though the Fed cannot get to 2% inflation. Asset bubbles are numerous and obvious to many observers, but not the Fed.

The price of gold closely follows faith in central banks. If you think faith in central banks will again come into widespread question, then add to your gold stash.

Deflation on Deck?

Is deflation on deck? Yes, asset deflation, a very destructive kind of deflation.

CPI deflation is not to be feared. More precisely, CPI deflation is a benefit. Falling prices increase purchasing power by definition and thus raise standards of living.

Yet, central banks (especially the Fed, ECB, Bank of Japan, and the People’s Bank of China) foolishly poured trillions of dollars into the economy an attempt to boost CPI inflation.

Instead of boosting the CPI, central banks created numerous asset bubbles. When asset bubbles burst, and they always do, bank loans based on inflated asset values come into question.

This is precisely what happened in the housing bubble, and it will happen again, perhaps not as severely globally, but it may be crippling in the EU.

Economic Challenge to Keynesians

Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.

I have commented on this many times and have been vindicated not only by sound economic theory but also by actual historical examples.

1. My article Deflation Bonanza! (And the Fool’s Mission to Stop It) has a good synopsis.
2. My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit" has gone unanswered.

There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced.

BIS Deflation Study

The BIS did a historical study and found routine deflation was not any problem at all.

"Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.

Meanwhile, economically illiterate writers bemoan deflation, as do most economists and central banks. The final irony in this ridiculous mix is central bank policies stimulate massive wealth inequality fueled by soaring stock prices.

 

[leonardratso]

makes  a bit of a mess of the page all those slides.

[Thorn]

Timing the turns seems almost impossible. 

Holding the right assets for the for the next turn seems to make sense.

[DurhamBorn]

2 hours ago, Majorpain said:

I like Sibanye as a company, but i dont like how it keeps getting cheaper.

The very definition of catching a falling knife! 

I agree.However i run two sorts of screen on this sector.One i get the 5 companies that are outperforming the rest and have good technical charts.Yamana and Endeavor fits this.I then have 5 that i call rebound stocks.These are stocks that have hugely under performed the sector.Harmony and Sibanye fit this section.Those stocks tend to keep falling until the complex itself turns,then they rebound much faster.In 2016 AG was the no 1 rebound stock and it went up 600%.Harmony is the no 1 rebound stop on my filter at the moment.Of course the key is that the complex turns as a whole.Time will tell.

[Dogtania]

I was reading an advert in magazine for an 02 contact when I noticed that they include a RPI % increase in the contact.  I wasn't aware or hadn't noticed this previously but after checking seems it's been adopted by the major providers over the last 12 months.   

I have been paying the same £10/ month for not far off a decade on a monthly basis.  I've often been told and know that better offers are available elsewhere even with Tesco who I'm with by taking up a fixed term contract.   In fact at least once in the past my bill went marginally up (not sure if this was RPI linked or what but I simply called up and reverted to the £10 deal that was still offered (despite them trying to pull a fast one for an extra 20p or something from me and probably thousands of others).

A bit OT but I definitely hadn't noticed the RPI being so visibly described in the advert before, although to be fair I may have not been looking.

[Inoperational Bumblebee]

14 hours ago, Yellow_Reduced_Sticker said:

LOVING THIS!

 

 

I rather watch paint dry than talk to an IFA!

 

Besides we're getting your EXPERT knowledge, PLUS we are getting GREAT entertainment on bargain hunting & living frugally!

 

NO IFA can supply that!

 

A couple of points, not necessarily for your benefit:

DB (or anyone else on this thread) are not providing financial advice; you should do your own research. Just as a disclaimer...

An IFA would look to provide advice that they could justify in court if it all went tits up. This does not necessarily mean it is the best advice, just that they are qualified to provide it. There's not likely to be anything out of the ordinary in it.

[DurhamBorn]

15 hours ago, Van Lady said:

Another very good point! Source the reduced stuff then freeze it while continually building a personal portfolio of top class meals to enjoy according to your bounty!

I’m a slow cooker fan for curry, bolognaise sauce, stew, cooking e.g. brisket. I’ve used it for years so am an expert re timing. Some things I’ll finish off in the oven eg Chinese style pork ribs are fabulous after slow cook then ten minutes or so in the oven.

In my smallish Scottish rural town I get all my half price meat, chicken and fish supplemented with veg salad on near enough a daily basis. Reductions are mainly at opening time but an assistant told me sometimes there are reductions befor closing time. I go at 8am or just after it’s a rare day that there’s nowt. Ideal time for me taking dogs on first walk. Aldi less than ten minute walk away. To date I haven’t had to go in the evening because there’s more than I can buy available thats ample for me and my son plus occasional extra folk for a meal.

Im onto my 3rd freezer now,get them off Gumtree for £30.I like have a big range of frozen things iv got reduced,that way whatever i get veg/salad etc i can think right that will go with x.Plus i find you have days where you get a lot of really good stuff.The other week there was 9 packs of 5% steak mince,best you can get that and usually £4 reduced to £1.We get two nights meals out of 1,just with onions and mushrooms or with a pie crust.With lots of veg we can have a meal for 2 for around £1.30.

I usually find i get a lot of the shops best lines for 25% of the price.Sainsbury is a good example.Got my dad 4 packs of Sea Bass last night for £1 a pack,usually £4 and in Tesco two big bits of haddock fillet that had been a total of £16 for £3.50.I got 5 good sized fillets from that.

I used to pass a co-op and they were always good for things at the right time and good quality,but only a very small one near me so dont bother with it.

[DurhamBorn]

8 hours ago, Dogtania said:

I was reading an advert in magazine for an 02 contact when I noticed that they include a RPI % increase in the contact.  I wasn't aware or hadn't noticed this previously but after checking seems it's been adopted by the major providers over the last 12 months.   

I have been paying the same £10/ month for not far off a decade on a monthly basis.  I've often been told and know that better offers are available elsewhere even with Tesco who I'm with by taking up a fixed term contract.   In fact at least once in the past my bill went marginally up (not sure if this was RPI linked or what but I simply called up and reverted to the £10 deal that was still offered (despite them trying to pull a fast one for an extra 20p or something from me and probably thousands of others).

A bit OT but I definitely hadn't noticed the RPI being so visibly described in the advert before, although to be fair I may have not been looking.

Exactly,RPI increases in an inflation cycle while depreciation is already set in stone.Of course some will shop around,but the whole industry will be doing the same.While the companies arent going to make anyone rich as we are talking £20 billion and £50 billion market caps for BT and Vod alone,they should find a much easier macro climate going forward.Of course that assumes their price increases can outpace the interest on their debts.So debt profile matters.

[Inoperational Bumblebee]

1 hour ago, DurhamBorn said:

Exactly,RPI increases in an inflation cycle while depreciation is already set in stone.Of course some will shop around,but the whole industry will be doing the same.While the companies arent going to make anyone rich as we are talking £20 billion and £50 billion market caps for BT and Vod alone,they should find a much easier macro climate going forward.Of course that assumes their price increases can outpace the interest on their debts.So debt profile matters.

Isn't that part of your attraction to VOD? That their debt is structured as corporate bonds and therefore will not be subject to interest rate rises?

[sancho panza]

https://www.bloomberg.com/news/articles/2018-07-01/curve-flattening-juggernaut-faces-risk-from-fed-concern-on-trade

'The relentless flattening of the U.S. yield curve could be poised for a breather, as investors look for signs this week that escalating trade disputes will alter the Federal Reserve’s plans to lift borrowing costs.

Thursday’s release of minutes from the central bank’s June meeting looms large in a holiday-shortened week, after two Fed presidents warned that trade friction is weighing on businesses and clouding the economic outlook. The next day brings a U.S. deadline to slap $34 billion in tariffs on China, a threat that Beijing has already pledged to retaliate against.

 

The 10-year Treasury yield fell the past three weeks, shrinking its spread over 2-year debt to the narrowest since 2007. Any hint that the Fed may pull back from plans to hike twice more this year -- as officials signaled in June -- could slow the curve’s march toward inversion. Barring that, the latest monthly job-market reading at the end of week stands to hammer home that the economy is solid enough to warrant tighter policy.

 

The 10-year note yields 2.86 percent, down from the 2018 high of 3.13 percent set in May. The 2- to 10-year yield spread is about 33 basis points, with the gap between 5- and 30 years at about 25 basis points, also close to the smallest since 2007. The shape of the curve is drawing scrutiny because inversion has been a reliable indicator of recessions. '

 

 

 

 

[sancho panza]

https://www.bloomberg.com/news/articles/2018-07-01/south-korea-exports-unexpectedly-dipped-in-june-amid-trade-woes

'South Korea’s exports slightly contracted in June, adding to concerns about the health of the country’s economy.

Shipments fell 0.1 percent from a year earlier, compared with the 2.2 percent gain forecast in a Bloomberg survey of economists. Imports increased 10.7 percent, leaving a trade surplus of $6.32 billion, according to a statement from the trade ministry on Sunday.

 

The dip in exports was partly due to a lower number of working days and the base effect from large-scale exports of vessels a year earlier, according to the trade ministry.

 

The country is one of the first major economies to report trade data, and is considered a bellwether for global demand. Korea’s economic growth has been led by exports this year while domestic demand has been lackluster.'

[sancho panza]

https://uk.reuters.com/article/us-ecb-president-weidmann/germanys-weidmann-says-next-ecb-boss-must-be-able-to-tighten-money-taps-idUKKBN1JR1JD

' The next head of the European Central Bank must be someone who can tighten the money taps after years of crisis-fighting and stimulus, the head of the Bundesbank Jens Weidmann said in a radio interview on Sunday.

Weidmann, seen as a leading candidate to replace Mario Draghi in November 2019, has so far avoided throwing his hat into the ring for the job, which is decided on by euro zone finance ministers.

But, when asked on Sunday about the next ECB President, his comments were closely aligned with some of his own views, including his long-standing call for the bank to halt extraordinary stimulus measures and tighten monetary policy.

 

Weidmann built a reputation as Draghi’s staunchest opponent on the ECB’s Governing Council during the debt crisis of 2011-2012, when he opposed a scheme to help countries in distress by buying their bonds.

While that facility was never used, the ECB has bought huge amounts of government bonds since 2015 to boost inflation, a policy that Weidmann has stigmatized as risky and too close to outright government financing.'

[sancho panza]

5 hours ago, DurhamBorn said:

Im onto my 3rd freezer now,get them off Gumtree for £30.I like have a big range of frozen things iv got reduced,that way whatever i get veg/salad etc i can think right that will go with x.Plus i find you have days where you get a lot of really good stuff.The other week there was 9 packs of 5% steak mince,best you can get that and usually £4 reduced to £1.We get two nights meals out of 1,just with onions and mushrooms or with a pie crust.With lots of veg we can have a meal for 2 for around £1.30.

I usually find i get a lot of the shops best lines for 25% of the price.Sainsbury is a good example.Got my dad 4 packs of Sea Bass last night for £1 a pack,usually £4 and in Tesco two big bits of haddock fillet that had been a total of £16 for £3.50.I got 5 good sized fillets from that.

I used to pass a co-op and they were always good for things at the right time and good quality,but only a very small one near me so dont bother with it.

Was in Aldi first thing after a night shift on Saturday morning and was pleased to see 50% off stickers on the fresh produce with BB date of saturday.Aldi never used to do this.

Have told Mrs P we need to get a big freezer for the garage.

50% off Aldi price is 75% off Sainsbury's imho.

[Ma2]

https://www.thesun.co.uk/money/6640548/young-couples-race-against-time-to-pay-off-40k-help-to-buy-loan-for-three-bed-town-house/

My jaw actually dropped open.

I really didn’t realise HTB was this bad a deal. 

[A_P]

40 minutes ago, Ma2 said:

https://www.thesun.co.uk/money/6640548/young-couples-race-against-time-to-pay-off-40k-help-to-buy-loan-for-three-bed-town-house/

My jaw actually dropped open.

I really didn’t realise HTB was this bad a deal. 

Reads more like a sales pitch to me that article. I've seen "educated" people first hand after being told how bad a deal it was go and run into HTB as soon as they realised it opened a door to owning. All the sheeple care about is that they can call themselves home owners. If the headline/short terms sums equal close to what they pay in rent they don't care about the rest. This is who the article is appealing to imo.

Have a few smug friends/colleagues after I advised against HTB and why it wasn't for me, go and sign up to it. I'm confident not one of them even considered how much they'll pay in interest over 30 years, any increase in interest rates or the HTB aspect at all. Let's just say, I'm not shy about talking abotu London house prices and how it appears to be spreading out to our region

Also I think the data show's these HTB'ers are probably paying close to 30% more for their homes

[leonardratso]

32 minutes ago, The XYY Man said:

Sorry, but I can't actually read the story as the click-bait section on the right has pictures of Mrs Paddy McGuinness.

In a bikini....

XYY

nice mott

[Ma2]

34 minutes ago, Admiral Pepe said:

Reads more like a sales pitch to me that article. I've seen "educated" people first hand after being told how bad a deal it was go and run into HTB as soon as they realised it opened a door to owning. All the sheeple care about is that they can call themselves home owners. If the headline/short terms sums equal close to what they pay in rent they don't care about the rest. This is who the article is appealing to imo.

Then I’m even more horrified. I read the article as a warning! 

[leonardratso]

2 minutes ago, Ma2 said:

Then I’m even more horrified. I read the article as a warning! 

notice the area isnt mentioned, id say its fake.