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Leviathan

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Posts posted by Leviathan

  1. Maybe talkingmonkey.

    I'm not sure whether a top in equities is in yet - it looks like it is in the UK and there is some evidence that FTSE can lead S&P down in previous crashes. However, I still think most of the major central banks are loosening not tightening and that may move the markets up a little longer. Final issue is the yield curve - normally it inverts before markets fall and we are still a way off here. Maybe it wont this time given the amount of manipulation that has gone on since 2009. I think oil will probably be the last to roll over probably after equity markets have all turned. However whilst many of the pieces of the jigsaw are here and we can see what the picture is calling timing is much harder - DB has given a number of specific targets on this thread for different assets which £ aside is more than I feel able to offer. This thread is performing a valuable service IMO - its questioning how we can get an inflation given how much leverage and bad debt is already in the system and challenging the mainstream view that long term rates are going to rise in the immediate future. 

  2. Great thread - the most interesting read on the HPC forum - thanks to all the posters. I don't get much time to comment unfortunately but a few bullets of where I think we are and what might happen next:

    - US is the key market to watch as it leads the others up and down

    - US yield curve is flattening - short term rates are rising as the market prices in rate rises whereas 10UST yield may have peaked. If so another 2 rates rises should see the yield curve invert. Will we get there? - I think we will as the Fed sees but doesn't understand why inflation is so low outside of asset prices and will raise short term rates once or twice more before the long bond yield moves decisively down. They don't understand or accept that private debt is simply too high for the system to work IMO and that bad debt needs to be driven out via defaults taking asset prices back closer to the mean. 

    - Oil price is still rising - this was the last price to peak in 2008 so not a foretell of inflation more that debt based speculation continues apace into that commodity for now.

    - Currency war is morphing into a trade war which will be the politician's answer to private debt to GDP being way too high in nearly all economies but particularly in China. US thinks it can win a trade war with China and some in US may be anticipating a deflationary world where USD rises and Chinese currency falls which might explain the recent moves?

    - Signs of stress seem to be rising now eg HK$ close to breaking US$ peg, default rates rising on P2P, multiple companies in some sectors seem to be failing eg retail as consumer is increasingly tapped out  and housing market in UK has topped potentially certainly in London (it topped in qt 2 2007 a good 15-18 months before the big bust)

    How long have we got now the signs of deflation are visible? I don't know but I wonder whether the wait is in part linked to the actions of central banks in Europe, Japan and China. ATM their monetary policies remain accommodative and are effectively delaying and magnifying the bust when it comes. I think we get there this year probably with a blow off top in US stocks and oil (and compensatory dollar low) to finish it but we'll see. Interesting times

    Lev

     

     

     

     

     

     

     

     

  3. 7 hours ago, Gribble said:

    Lev,  I totally agree that the £ still has a long way to crash against the Euro. It surprises me when people think (and there are many) that £ will go up against other currencies. Currencies do NOT revert to some long/medium term mean value; they ,move in long term trends. Look at DM/Euro against £ over 40 years.  Yes Europe has problems but look at our debt, trade balance, etc

    Yep well put Gribble I remember being told by my parents a list of European countries not to visit because they were so expensive in the 70s and early 80s. North Sea oil changed that but it’s gone now and it was masking a serious trade imbalance. 

  4. It’s bonkers they have thrown so much at keeping house prices up - yesterday’s SDLT change being the latest example. However with a third of MPs having buy to let’s and the other pro older homeowner and anti renter policies out there it’s no surprise. The voter demographics will change this soon.

    We left the Uk for sunnier climbs in 2009 although I came back to work in the Uk from time to time my wife has been out 8 plus years and we look back with increasing incredulity at the UK. We were lucky to buy a house at 1.40 euros to £ in 2015. If the Uk carries on down the current road I think we will see the currency half in value against Euro and $ by 2030 and be worth 50/60 cents now there’s no North Sea oil propping it up. There’s maybe still a window to get out of sterling possibly up to 1.40 $ in the short term but it’s closing soon. As for house prices who cares what they cost if the currency is worth so little in comparative purchasing power?

     

    Lev

  5. Don’t have a huge amount to add to this excellent thread ATM other than to express thanks to the regular contributors.

    Two things I note with interest - first the yield spread of the 10 year UST over the 2 year UST is now down to 0.67 the lowest it has been so far in this bull market. Second an oil price spike does tend to be followed by a recession and correction or even crash in stock prices. Odds of a correction/crash seem to be increasing as the US stock market makes new highs with fewer stocks now lifting the index. This is a traditionally strong time of year for markets will we see a rally into afin top over the next few weeks/months I wonder?

     

    Lev

  6. Thanks Db - Likewise I've made some small TLT purchases but have the majority still to buy. I think like you I will continue to drip in probably without hedging first as I have a reasonable USD position in the meantime. I don't think the stock markets are quite ready to roll over yet causing the flight to UST but the sterling risk to capital feels pretty close by. Like you I don't want to get caught the wrong side of any local currency depreciation.

  7. Db and all

     

    If DXY does head to 88 it doesn't appear to be taking sterling with it for the ride.

    Any views on where next with Sterling vs the dollar? I was hoping we would get a bit of a rally into the Autumn for sterling maybe as far as 1.38 to 1.40 on dollar weakness before it turned round but that seems less and less likely by the day. I can see a smaller chance we may get to the top of the channel at c 1.35 now but I'm struggling to see any more upside here and the downside risks (economy slowing, domestic credit risks increasing, trade deficit worsening etc) are creating a lot of negative sentiment for traders and speculators to take advantage of (see Euro sterling).  

    Lev

     

  8. I've long been of the opinion that the cycle is going to play out in three overlapping parts, first a currency war, then a trade war and then war kind of rhyming with the 30s-40s. I see the ending of the currency war coinciding with a deflationary bust as per DBs posts with money flowing to US Treasuries and the Dollar for a final time. I believe the trade war has started with some evidence that tariffs have been on the rise globally since 2011, Brexit, Trump, US/EU sanctions against Russia etc recently taking this to the next level. Perhaps we will see tit for tat moves between China and US next and/or a hardening of Brexit or another EU member looking to exit or renegotiate terms?

    As for war I think we are a fair way away yet posssibly 7-10 years but rearming the military might be one reason for reflation - with a new deal that DB talks about maybe we will avoid or limit this final phase. The latter part of this view  is influenced by the book the Fourth Turning (quite similar to the K winter) which also chimes with the long term secular ending of the credit cycle and interest rates bottoming with a final deflationary leg down. The key to this for me is social mood - you can see a hardening of views now in many places in society including on HPC and I expect politics and economics to be profoundly affected by the hardening of this mood going forward and I don't expect a return to the broad consensus that has existed since 1980 anytime soon.

    Similar to DB I see a reflation, public works, military reequipping, investment in energy self sufficiency, and a general move away from the consumer to the producer. To get there central banks will need to have been seen to fail first.

    Lev

     

  9. 1 hour ago, durhamborn said:

    Leads and lags are crucial Lev and they are mostly ignored by most investors.I think i mentioned earlier the 93 area was where the dollar would probably stage a small recovery and it did dead on.I still think its going to 88,perhaps even 85.I am with you on sterling topping around September to November.Im more bothered about the dollar index though and will leave sterling whatever price it is when the dollar index gets below 90 (assuming it does of course).The sectors to lead the decline is a tough one.I think oil will be hit very hard along with oil service companies.Tech looks very exposed as well in the US.Rather than sectors i think leverage is what we need to watch though.Leveraged sectors will see massive falls.This is going to be a balance sheet event.The leveraged will pay a hard price and there will be mass involuntary debt liquidation.

    Tobacco,restaurants,pubs,consumer staples are all areas i bought from the early 90s and even more during the tech boom when they were giving them away and i have now sold them all as i think the disinflation cycle that drove them higher is over (or nearly over).I see them lagging way behind in the next cycle as their margins compress with rising input costs.I have bought a few inflation stocks the last month,but only 5% of my portfolio even though i expect falls.Im not interested in the bottom as i see them all way higher by 2025,but of course i fully expect to be buying them a lot cheaper soon as well.Just starting to trickle a few now really.

    If we do get a reflation cycle most investors will have no idea we are in one,or how to invest.Tracker funds will be a disaster inflation adjusted.A very large percentage of the market cap is in companies that will struggle against inflation.

    I could be very wrong of course,but happy to say it as i see it.

    Thanks for the response Durham - on the currencies how I have interpreted what you are saying is that the upward movement in the dollar once it reverses later in the year in a deflation will be such that investors wont want to be in another currency. Hope the £ makes it to 1.40 in the interim as this would be a good turning point. I think the euro will also turn down around September.

    I agree with you on oil - lots of leverage in oil and oil services. Less leverage maybe in tech but some very stretched valuations to be wary of when the market turns. 

    Great thread this first thing i read on hpc.

     

  10. 43 minutes ago, durhamborn said:

    Well i think they are looking at the jobs market etc and thinking its really tight now and inflation wont be far behind.Their models tell them this.However jobs are a huge lagging indicator and the fact the jobless rate can be at 4.3% with hardly any inflation shows that capacity is still in front of demand.Capacity wasnt taken out last time.As i say everyone always looks the wrong way.Markets are priced at that unemployment figure going to 2.0%.Is that more likely than it going to 5.3%?.They always (as do most investors) follow the direction of the tape and forget how far along it is.Each click along makes the risk it stops and reverses so much more likely.If everyone has a job and a car and a new TV demand tips over.Its always been so and always will be.

    I dont know if they could stop it.Anything is possible,but every cycle has ended badly when its got as far down the curve as this one.The only difference this time is leverage is higher than ever seen before by massive amounts.Somewhere is a point where earnings cant meet the debt repayments.I think that point is very very close.Everything else is just noise.Being contrarian means you have to expect to be pretty lonely most of the time.

    Auto sales,construction,mall traffic,restaurant traffic are forward indicators for me.Jobs and house prices move once we are already in recession,but before the figures show it.

     

    Pretty much my thoughts on leads and lags - employment is the biggest economic lag item there is - perhaps along with GDP. $ is rising today, TLT in $'s is falling today with no real impact if you measure TLT in sterling.

    Interested in any thoughts on what the lag times are between currencies, what is happening with financial stocks and which sectors will lead the decline? 

    On currencies my recollection from 2007 is that the £ topped in $'s in late 2007 at just over 2. It then fell all the way to $1.38 with the deflation in 2008. Then the US property market topped in summer 2006 and the UK market topped in summer 2007. So if the $ topped this year in March I think we might see the £ top in September or possibly later - but I think this could depend on what happens to financial stocks as sterling tends to be strongly correlated with its financial sector.

    I don't think bank stocks will be the sector leading the declines this time though they look stronger than other sectors ATM. Retail has been struggling for a while so could slide further and I wonder whether big car manufacturers like BMW will start to turn down soon as auto sales and leasing deals fall knocking on to manufacturers? Durhamborn you have mentioned others like tobacco, restaurants, pubs etc

    Lev

     

  11. 2 hours ago, durhamborn said:

    Thankyou Lev.First i ignore the debt.My macro call is based on the end of the disinflation cycle that i think started in around 1982.Im pretty convinced that cycle is ending.There are lots of charts i map that point to that i wont go into here.Rates are where my charts would show them to be now (they actually pointed to 07/08/09,but the Fed really tagged another business cycle onto the end).I agree 100% the Fed has acted as if this is a simple business cycle.I also agree they are acting just like 35/45.I also think they are making the same mistakes.I dont blame Yellen 100%,as like you say she is acting with the cycle in front of her and ignoring the fact we are at the end of a super cycle (if we are of course).

    My dollar call was based on simple leads and lags.The US was going to slow relative to the Euro zone and other large economies because they took their foot of the monetary gas before everyone else.In turn that would see the dollar weaken against all/most other leading currencies.It has mapped my charts really well apart from falling slightly quicker than i expected.All world economies are running on debt at this stage of the disinflation/cycle so whoever stops first slows first,its as simple as that.The market was looking the wrong way as ever.

    Im not bullish on sterling at all going forward and in the deflation i see 90c as a likely area.However when i charted the dollar index late last year it threw up sterling at $1.40 as the area before the deflation hits.Its a loose area and the pound has gone half way since i roughed that in.I also was trying to close down an entry point into TLT /US treasuries and its a tough call when to go as a sterling investor.Il likely go when/if the dollar index hits 90 (though i expect 88/86).

    I think you are reading the dollar right.I fully expect once the deflation hits that the dollar will fly as will US treasuries.The US will not default.(not this cycle).How the CBs react will signal what follows.I think the Fed will print $8 trillion and that will kick in a proper full on reflation cycle.

    Here we are moving way ahead of ourselves though.For now we just need to consider if this deflation hits.When doesnt really matter (i think its close).I also think due to the leverage on the system we will see massive amounts of involuntary debt liquidation.I also think 99.9% of the population will be shocked to their core at the wealth destruction that comes with it.

    Of course nothing goes in a straight line and there are many moving parts,but i really do think the only question is the size of the crash.There is one possible other outcome though and thats we dont see a deflation event and go straight to stagflation.I dont see that,but it is possible.

    Sorry if thats a bit mumbled,

     

    Thanks for the reply durham much appreciated.

    I tend to agree with your call re sterling down to 90 cents - I think this will shock the vast majority of people if and when the currency breaks through parity and through the previous bottom at 1.05 cents. Money will flow to the strongest currency in a deflation and especially to US Treasury bonds. 

    I would have thought given the valuations of companies and in parts of the property market (in the Uk and in a number of other markets) are so stretched and given it costs next to nothing to borrow ATM that a crisis or deflationary event is most likely outcome with a negative feedback loop then occurring between the stock market and the wider economy. Not sure what the policy response will be this time round - slow at first in America given the desire to reduce the balance sheet. Not sure about the UK - Carney leaving next year, messy domestic politics etc could compromise a response initially?
      

  12. Durhamborn

    First of all my thanks to you for this thread which is an excellent read plus your other contributions to the board. A few quick questions for you if I may.

    The first relates to your macro call of deflation linked to the long term debt super cycle ( circa 75 years). Is your take that the deflationary assessment starting with the US as the leading equity market is based on a similar analysis to Ray Dalio who is effectively calling time on the long term debt super cycle as IRs globally really can't go below zero? To precis his view I hear him to be saying that the Fed are raising rates and threatening to unwind part of their balance sheet because they are over focused on the short term (5-8 year) business cycle but without really understanding that as IR's have been forced to zero they cannot effectively be lowered which is his way of saying the debt super cycle is coming to and end. He sees the period coming as most analogous to 1935-1945 where we have had the big crash (1929, re 2008) and the policy response to lower IRs etc and the next major move by the Fed will be one of lower rates and QE. This is currently weighing on the Dollar as people see the US slowing down ( and the Uk for that matter) although not Europe although once the deflation starts in earnest the dollar will rise as a portion of  EM debt denominated in dollars defaults and hence there is a shortage of dollars?

    I am very bearish on sterling for the period coming forward based on the current account deficit, the political muddle and the lack of an industrial or trading strategy generally. I'm looking to reduce my exposure to it probably for dollars. Do you have any specific reason for why sterling may first rise to USD1.40 first or for why DXY may ultimately top out around the 130-140 level? I assume the ultimate DXY top would be at the end of the deflationary shock and that once a reflation takes place DXY will then fall back again?

    Appreciate any light you can throw onto the above.

    Lev

     

     

     

     

  13. 20 hours ago, warpig said:

    USDX @ 101.15 and whilst no one's reporting it yet, I'd say USDX has broken out of it's trading range and is now on it's way to 120. Whilst it will need to confirm the break-out with a backtest which will take a while, this could well mean sub $1K gold before it resumes it's upward trend.

    My best guess is USDX - 100 > 108 < 100 > 112 < 108 > 120

    Thanks for the response Warpig. Given the sheer scale of US$ denominated debt 150 trillion I believe it's difficult to see the $ doing anything other than rising in a world where IR's are rising and the interest payments on US debt is rising.I suppose this is going to need an  international agreement to resolve eventually a la the Plaza Accord especially as China, Japan UK and many others are all still actively weakening their currencies. Until then it looks one way traffic for the dollar unless the US changes tack and starts reducing rates 

  14. Hi Warpig

    Been following your posts for a while and I see you making good calls re the $ and gold. Presumably today should prove whether the dollar holds its break above 100.5? Assuming it does I buy your logic for a backtest in time and then take off toward the 2002 high at circa DXY120. Assuming that plays out do you think that is it for the $ bull market or can it head towards the mid 80's highs back towards 150-160 perhaps in a world of Euro break up or a China crash?

    Lev

     

  15. Question  to one and all.

    It seems to me that if you look at most of the places where there has been very high house price inflation the main beneficiaries have been those places that for whatever reason have been attractive to Chinese investment. These include London, Singapore, Hong Kong, Vancouver, San Francisco as well as Chinese cities. Circling back over the last financial crisis in 07-08 the trigger seemed to be decisions by investment banks, hedge funds and private individuals to short mortgage backed securities leading to margin calls etc etc.

    Last year it looked for all the world that the Chinese stock market was going to collapse after a very rapid rise but the authorities clamped down on short selling, added stimulus to the economy and before too long the economy had stabilised and then the effects of that stimulus were driving up local and favoured real estate markets - see Shenzhen and Hong Kong. 

    My question is not about the rights and wrongs of this as I'm sure a majority would agree that use of stimulus is leading to malinvestment. My question is given the Chinese have proved once that they are able to limit the downside momentum that occurs in most "free markets" once short selling and margin calls work through into pricing what is to stop them doing this indefinitely or at least in a more controlled manner where a full bust never occurs i.e. A state backed version of the Greenspan put if you like?

     

    Lev

  16. Think we know the answer to this don't we pound will keep on falling until enough people twig this means higher prices in the shops and pumps and then maybe just maybe if enough pressure is put on they will raise rates. Tourism up big time but I'm not sure we will capitalise export wise as too many stop go decisions around soft hard brexit to deter investors ATM. As for abandoning Brexit altogether if TSHTF then it must be a possibility but I don't think it would be by design. Foreign investors must be panicking now down 20 percent since June 23 a few must want out at any price and property about to go no bid IMO

  17. Fascinating thread 13.4 Deutschemarks to the £ in 1948 barely 2 now. How the UK has avoided a major current account problem post North Sea Oil is difficult to understand but we are about to find out if this will become centre stage or not. I don't want to speculate on Brexit but the market looks spooked to me by the possibility of WTO trading in two years. As for house prices the main falls will be currency adjusted as per 2008 but given levels of foreign ownership this could be more significant IMO?

     

    http://www.wsj.com/amp/articles/brexit-turns-ugly-for-pound-gilts-1475840667

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