Deflationary collapse and the Reflation Cycle to Come.

[leonardratso]

intangibles always made me cringe, whats a brand name worth when no ones even heard of it. Even solid physical machinery, work in progress, stores(ie warehoused raw materials and parts) sell for close to shag all in the event of a liquidation, so what actually are intangibles worth? shag all is my bet.

[Will!]

3 hours ago, Sancho Panza said:

Thanks for posting.

1-Agreed on the US leading.The Fed has blinked and changed tack.It'sy a matter of time before others are brought round to follow with their own versions of QT.I'm  still trying to work out the Feds priorities here and whether it was to defend the dollar, erase moral hazard or some other reason

My theory is the Federal Reserve's priority is to prevent dedollarization of the world economy.

This year two things are making that a bit more difficult, US companies repatriation of overseas cash holdings and Trump's tariffs, and there may be a third difficulty if China reduces Treasury purchases.  

Edited March 24, 2018 by Will!

[StrugglingMillennial]

22 hours ago, durhamborn said:

I think we might be looking at 18 months.If im right that the next cycle is a reflation then gold should turn first.We will get a better idea once the bust speeds up.

So your thinking buy gold/silver first, then sell when the prices have slowed and the stock market has picked up move over to shares?

[durhamborn]

34 minutes ago, StrugglingMillennial said:

So your thinking buy gold/silver first, then sell when the prices have slowed and the stock market has picked up move over to shares?

I own several miners now,one doing badly,others doing very well,i will look to sell them if they run up into the summer and buy them back in a bust.I would be looking to hold the ones i buy through the whole next cycle.Iv been buying a few blue chip shares that have been hit hard as well.Im very pleased with how things have gone so far,but long way to go yet.

[spyguy]

10 hours ago, Will! said:

My theory is the Federal Reserve's priority is to prevent dedollarization of the world economy.

This year two things are making that a bit more difficult, US companies repatriation of overseas cash holdings and Trump's tariffs, and there may be a third difficulty if China reduces Treasury purchases.  

My theory is the US has many cliques, pursuing various ends. Some noble, some greedy.

However, US, good and bad, is more noble and predictable than china, which is coming across as a bunch of commie loons gangsters whove discovered fiat money and global trade.

Fuxed as tge ussr was, it never got involved in global trade or finance. When the ussr popped, it popped on itself.

[durhamborn]

2 hours ago, Noallegiance said:

I think this is the only part of anything you've said that I'm unconvinced about.

For sure the UK military is now globally insignificant without it's allies. However, the US spend three times as much on defence as China and almost ten times as much as Russia. The US and Nato have Russia and Asia surrounded by international bases. For us to consider them a permanent threat is, to me, the height of government hypocrisy. 

I'm not going to agree that we are not on the side of the aggressors with questionable motives. Especially given the magical timing of a so-called attempted murder on a former double agent being the springboard for more sanctions against Russia and the timing of tariffs on China from the US all just one week before the petro-yuan goes live.

It smells.

Don't linger on this too much folks as this could be a derailer of the best thread we have here, for which I apologise. 

Its an area most wont agree on,but look at the spending bill Trumps just passed.He will rebuild the military,no question and it will be a huge part of the next cycle.The aim is to put China and Russia back in the box.Reagan took a lot of flack,but it was the fact the US ran away in terms of weapons that forced the Soviets to give up.That advantage has slipped in the deflation/consumer cycle we have had (and the weak politicians) and communism is as big a threat as ever.Right from the start of this thread we said trade,currency,tariffs etc would be part of the reflation and we are seeing the seeds being planted now.Interesting to see how it plays out,like you say the petro-yuan etc was seen as an attack on dollar hegemony (it is) and will be responded too.Whats in flux will see massive gains for PMs of course,we just need to get through the bust first.

Edited March 25, 2018 by durhamborn

[spyguy]

12 minutes ago, durhamborn said:

Its an area most wont agree on,but look at the spending bill Trumps just passed.He will rebuild the military,no question and it will be a huge part of the next cycle.The aim is to put China and Russia back in the box.Reagan took a lot of flack,but it was the fact the US ran away in terms of weapons that forced the Soviets to give up.That advantage has slipped in the deflation/consumer cycle we have had (and the weak politicians) and communism is as big a threat as ever.Right from the start of this thread we said trade,currency,tariffs etc would be part of the reflation and we are seeing the seeds being planted now.Interesting to see how it plays out,like you say the petro-yuan etc was seen as an attack on dollar hegemony (it is) and will be responded too.Whats in flux will see massive gains for PMs of course,we just need to get through the bust first.

Difficult.

Russia is probably contained bar some minor annoyances.

Keep out of its countries of interest and overt fiddling eith russia's border counrries and itll probably behave.

20 years on and russias population will have.

Purely a sit and wait and dont annoy plan.

Oh, and step up your software spend. West is far far behind, clueless. Uk army/state needs to getting 1000s of v. Exp. softies on its books, 100k would do it.

Chinas a mess. Its pursuing the most blatant merchandualist trade policy ecer seen.

China wants to buy us silicon companies. But denies non chinese from iwning a noodle stand in beijing. Or selling baby powder directly.

[Sancho Panza]

14 hours ago, Thorn said:

I personally think it's the looming pensions issue and they have to try something.

As I've said Powell could be viewing things through a different lens to the likes of Bernanke/Greenspan.QE and Zirp have caused a lot more problems (many of which have yet to fully emerge ).

There's the very real possibility that Powell is taking on board issues like the repercussions for pensions.

11 hours ago, leonardratso said:

intangibles always made me cringe, whats a brand name worth when no ones even heard of it. Even solid physical machinery, work in progress, stores(ie warehoused raw materials and parts) sell for close to shag all in the event of a liquidation, so what actually are intangibles worth? shag all is my bet.

Quite.When you look at it companies like BCA probably have the bulk of their profits in the top 25% of turnover,so in any sort of industry downturn their profits will disproportionately suffer.Their net income is circa £40mn so net profit per car of about £30......

11 hours ago, Will! said:

My theory is the Federal Reserve's priority is to prevent dedollarization of the world economy.

This year two things are making that a bit more difficult, US companies repatriation of overseas cash holdings and Trump's tariffs, and there may be a third difficulty if China reduces Treasury purchases.  

I think you're right.We had a god discussion a few pages back that brought me round to that view.It makes a lot of sense.

I also think though that Powell may be considering the other issues eg moral hazard(bloating of zombie companies), misallocation of capital, declining money velocity, loss of price discovery, pensions.However,though,number 1 is likely preserving dollar reserve status.

[Errol]

I'm not buying miners to trade or even for the next year. I buying for when the gold price is $10,000+ an ounce. What do you think the price of GDX/GDXJ and individual miners will be when gold is $10,000 an ounce ...

Edited March 25, 2018 by Errol

[Slimline]

I'm personally expecting helicopter money for the young (<35) to be the next thing that's thrown at it. Pretty much guaranteed to result in asset inflation but couldn't say what to or how much.

[Cosmic Apple]

26 minutes ago, Slimline said:

I'm personally expecting helicopter money for the young (<35) to be the next thing that's thrown at it. Pretty much guaranteed to result in asset inflation but couldn't say what to or how much.

I'll be pissed... I'm 35 next month  

Suppose the GF can get some

[Jonesy74]

11 minutes ago, Cosmic Apple said:

I'll be pissed... I'm 35 next month  

Suppose the GF can get some

I’m 35 and I’m that unlucky so this is very likely

[Slimline]

11 minutes ago, Cosmic Apple said:

I'll be pissed... I'm 35 next month  

Suppose the GF can get some

Same, here's hoping it's to 40 

[Lavalas]

1 hour ago, TonyJ said:

Of course, IRs will no doubt go negative - ie you get paid by the lender to borrow, and you pay the bank to deposit your money there.

What makes you so certain about this? Seems contrary to the whole premise of this thread.

[leonardratso]

youve had your helicopter money (via PPI) so pesh orf now and get back to work.

[CanAffordWontPay]

2 hours ago, Errol said:

I'm not buying miners to trade or even for the next year. I buying for when the gold price is $10,000+ an ounce. What do you think the price of GDX/GDXJ and individual miners will be when gold is $10,000 an ounce ...

 

Do you think there is any value in buying ETF's backed by physical gold (PHGP) or even silver such (PHSP)?

[Viceroy]

Martin Armstrong 24 March 2018 - covers debt deflation, DOW, interest rates, real estate..

https://seekingalpha.com/article/4158660-week-money-march-24-2018

[durhamborn]

3 hours ago, fru-gal said:

@durhamborn What do you think will be the effect on things like house prices/shares if the Government ends up doing helicopter money or Peoples QE which is quite likely to happen in the next downturn?

It wont happen.The printed money will be used to prop up the welfare system and invest in green energy,transport,housing,the military etc.No need for helicopter money in the UK,the welfare system is already hugely generous (one of the main reasons we are in such a mess).Wealth will be destroyed on a huge scale.In the US equities,in the UK house prices.In the recovery bonds.There are a lot of people in the UK who think they can MEW/Equity release rather than have savings,they are going to get a big wake up on that one.

[Funn3r]

11 hours ago, Noallegiance said:

I think this is the only part of anything you've said that I'm unconvinced about 

Yes I agree, the only part I also am unconvinced about. Putin has played his part by announcing a new invincible weapons system, now this is Trump's cue to say Oh We'll See About That and invest massively in counter invincible weapons. 

But Russia and  China are not going to attack the west. Iran I don't know but suspect not either. 

[leonardratso]

you wont escape some pain, like that why work when you cant afford a home thread, what possible choice do you really have, what would you do otherwise, try and scam it on benefits? takes a certain breed to do that and its usually multi generationally learnt so someone not hardened to it wont likely be able to exploit it to the max. So i work while i can, i pay the tax, there is no way that benefits can match what i earn even after ive been fully shat on with tax and all the other crud i have to pay out, work and stack is all i know and thats not gonna change anytime soon, probably never until i keel over by whatever means. Ill be damned if i give it all away to some knob to own some crappy terrace with rising damp and is a snail shortcut to the back alley.

[durhamborn]

45 minutes ago, TonyJ said:

When you say recovery, do you mean that bonds will be destroyed in the short to medium term as the supposed (synchronized global) recovery rolls on together with currently rising IRs?  And then, as it breaks down into another recession/depression, do you mean equities and house prices will get destroyed? When the breakdown arrives, what measures will do you think TPTB will instigate to try to deal with it?

Bonds have one last burst higher i think as the bust hits,then a long bear market that might take rates back to 1982 levels or not far off as a reflation takes hold.A lot depends on the scale of the bust and the scale of the printing to follow.Nothing is ever certain,but thats where things point.I think the S+P might see 75%+ falls from its high,UK houses in bubble areas probably 40%+ and then another 40% inflation adjusted in the next cycle as inflation rises and interest rates keep a lid on prices.Prices in the south east will probably not see these prices again until the currency turns to dust at the end of the reflation.Im not worried about this cycle,its easy to navigate,the end of the next one scares me,there will be very few places to hide.

[Sancho Panza]

Found this guy via Mish Shedlock with a very erudite take on Jerome Powell-whose mind I'm very interested in understanding.He talks about the Fed perceiving a risk of stagflation in Europe,something discussed on this thread by @zugzwang and others.

I don't think it's a big leap from our general discussion of credit deflation being accompanied by currency induced inflation.Personally,I'm pretty sure we'll be seeing a significant debt deflation in terms of credit but I'm angostic about whther we will get price deflation.

As I've stated several times,I think Powell is a wildcard and a significant departure in terms of background from the those that preceded him.

http://www.dlacalle.com/en/powell-a-welcome-surprise/

'The mandate of Janet Yellen in the Federal Reserve can be considered the “lost opportunity”. Yellen and the Federal Reserve delayed urgent and justified rate increases due to fear of market reaction and likely political tacticism in the face of U.S. elections.

However, the first conference by Jerome Powell as president of the Federal Reserve gave us very positive surprises.

Powell was clearly cautious with long-term estimates, one of the Achilles’ heels of a Federal Reserve that consistently missed its own inflation and growth expectations. His response to a reporter on their predictions for 2020 was perfect. The Fed has to monitor the changes that are taking place, and avoid giving optimistic estimates that only make them lose credibility.

And now, credibility is key.

Powell was technical, correctly agnostic to stock market reactions, and exceptionally aware of the risks in a market extremely oriented towards eternal stimuli.

For market operators, a president with such an unpolitical and market-agnostic profile may not seem like good news. But it is. Too many investors play the “buy the junk” “the worse, the better” trade. That is, to expect poor macro data so that monetary stimulus is perpetuated. This carry trade leads market participants to bet on cyclical assets and inflationary themes while expecting stagnation and higher expansionary policies. And it is dangerous. A relevant proportion of the market reacts negatively to good macro data, a rise in wages and the strengthening of the economy, and should be criticised and urgently.

What Powell explained is very important. The path of rate increases is clear. In addition, the new members of the Federal Reserve arrive with a much more prudent position on monetary policy than those we have known in the past. The “Buy Anything” party is over. And this is good.

The U.S. economy can absorb a rate hike path to 2.75-3.00% in 2019 without a problem. In fact, if the economy could not absorb it, we should be very concerned about the kind of growth and investments we have.

The massive debt deck of cards created by extreme monetary policy is falling and the most fragile countries ignore it.

The key questions are:

• What do we do now with the $7.5 trillion of negative yielding bonds globally?
• Who will accept historic-low bond yields in emerging markets and in old Europe? Greece and Portugal have a lower short term yield than the U.S.
• Who believes that all European countries can finance themselves at lower rates than the United States, discounting inflation?
• Who buys high yield bonds with less than 300 points over Treasuries?

The answer is no one. Real market demand for these extremely expensive assets simply vanishes. The mirage of “high liquidity” disappears in front of any seller’s eyes.

I do not worry about the United States. The transmission mechanisms are very flexible and powerful. Less than 20% of the real economy is financed through banking, compared to 80% in Europe. In the United States, the entire financial sector makes mark-to-market valuations of assets. In Europe and other large economies they use “mark to value”. What does that mean? Excel spreadsheet estimates support everything.

Now we see the risk of the domino effect. Real demand evaporates for expensive “low-risk assets” (bonds), then equities fall, illiquid assets’ valuations are tested, transactions fall, then banks’ core capital erodes. Economies that grew accustomed to cheap and abundant U.S. dollar inflows then see the reverse. Fund flows go back to the U.S. regardless of investment bankers’ comments about value, growth or inflation. It is called “the sudden stop”. And it is essential to stop a bubble from being a systemic risk.

Back to the U.S., the Fed’s expectation of inflation is also very moderate.  Core CPI of 2.1% in 2019 and 2020 is well below what inflationists fear. But, what is more important, the likelihood is that inflation expectations are revised down, not higher. The disinflationary trends of technology, debt and overcapacity are much more important than the inflationary temptations of policy makers.

The path of rate hikes is absolutely essential to reduce the enormous risk of bubbles creating a systemic risk. What I find hilarious is to hear some commentators say that the policy of the Federal Reserve is hawkish.

Raising rates to 1.75% in an economy that is growing 2.5% and almost in full employment while maintaining a nearly unchanged Federal Reserve balance sheet of $ 4.4 trillion is not a restrictive policy. It remains extremely expansive. Even if inflation expectations are met, the Federal Reserve will keep rates between 150 and 200 points below the curve in 2020.

Powell knows one thing. If the Federal Reserve does not accumulate tools now, while the economy is expanding, it will not have any weapon when recession hits. If imbalances are perpetuated, it will not only be a case of finding itself without tools, but, by then, monetary policy will not solve anything. Or do we think that lowering rates from 1.75% to 0% and increasing the balance sheet further will sort out the next crisis? No, it will not.

When I was presenting my book at the Federal Reserve Bank in Houston, one of its excellent economists made a very interesting remark: “Investors are worried about inflation or deflation, but they do not seem to worry about the risk of stagflation”. Because that is a more likely outcome in most G20 economies.

Welcome, then, a more technical message, a Federal Reserve president that feels less “trapped” by market volatility, and a more prudent policy. Ideal? Maybe not. But much needed.

Meanwhile, in Europe, the ECB continues to ignore the accumulated risks and the sovereign bubble. And winter is coming.'

[Sancho Panza]

He's published a book.

http://www.dlacalle.com/en/escape-from-the-central-bank-trap-out-now/

' How to Escape From the $20 Trillion Monetary Expansion Unharmed '

[Thorn]

Might be worth adding this- I’m convinced the wealthy just hoard. QE has been like a dream gift for them all that they’ve also hoarded not spent or shared.

So this weekend I’ve been reading that increasing money supply doesn’t mean the same as increasing liquidity.

and debt is money because credit creates spending-ability...

Trying to get my head round these here with very little help from Wikipedia.

Anybody able to make sense of these ideas- open to insight.

I am going to get some GDX and GDXJ  tomorrow for the HL SIPP- not available via the website or app but you can call them and they will set it up as they say it’s a website update issue only.

 So- if stocks continue to decline - so many BS valuations out there- then I think  now seems to be as good a time as any to get gold via PHGP and miners in the SIPP.

Obviously it’s DYOR for all but db do you still see gold going up to around 1450 then down in a sell-off..? 

(PS  Mods this thread IS the internet- could you please maybe consider bumping  the Bitcoin thread off the top of the front page and put this thread up there as it would save my thumb from scrolling?)

 

 

[Eddie_George]

8 minutes ago, Thorn said:

(PS  Mods this thread IS the internet- could you please maybe consider bumping  the Bitcoin thread off the top of the front page and put this thread up there as it would save my thumb from scrolling?)

+1 This thread deserves to be pinned.