assetpricing

April consumer credit data slow down, difficult to pass the material cost inflation to consumers.

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- i think it is the window time to add more position on TLT or IBTL now. But as DB pointed out that it is only hold for short time. It is based on the judgement that before entering the next reflation cycle, there is a mass destruction and US T bill is the most safe asset.

Hi Durhamborn, have you received a similar message from HL as below. New regulation being introduced on 1 January 2018 will affect dealing in some of your holdings. --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- The new regulation requires that issuers of certain types of investments (known as ‘Packaged Retail Investment and Insurance Products’ or ‘PRIIPs’) must publish a Key Information Document (or KID) if they are available to private investors. Without a KID, private investors will not be able to make any further purchases in that stock, although they can continue to hold the PRIIPs they already own. They can also sell at any stage. The issuers of the investments shown below tell us that they do not intend to publish a KID. First Trust Portfolios Natural Gas ETF iShares Inc 20 Plus YR Treasury Index Fund No action necessary - for your information only This means that from 1 January 2018 you will not be able to buy any more of these stocks. As well as the dealing instructions you give us, the new regulation applies to automated trades we place on your behalf (such as dividend reinvestments, limit orders and regular savings instructions). Therefore, from the start of next year we must also turn off any automated trades we would otherwise have placed in these stocks. Please remember, you can continue to hold the stocks you own, or sell them at any stage, however you will not be able to buy any more. I am sorry about this, but the regulation is very clear. We have no discretion in the matter and it affects all UK stockbrokers in the same way. The new regulation does not come into effect until 1 January 2018, so you can trade as you always have until then. We are writing to you now to give you time to consider your options. If you have any questions please do not hesitate to contact us. Yours sincerely Robert Branch Vantage Account Manager

Thursday's Federal Reserve report on its portfolio holdings shows a near $6 billion decline in its holdings of Treasury securities. https://www.cnbc.com/2017/11/03/its-begun-feds-unwinding-of-its-epic-balance-sheet-officially-showing-up-in-the-data.html Interest rising + balance shrink in the US. A lots of pressure on Mr Carney now.

that only happens after the world currency position of the US dollar is abandoned. I guess it won't happen in the next cycle. The US Fed is raising the IR to save the US dollar now.. it is the biggest possibility to kick off massive debt default

Yellen says Fed might turn to QE in another downturn https://www.ft.com/content/b2aefdd4-b5f0-11e7-a398-73d59db9e399?mhq5j=e6 so she knows there is another crisis on the way.

we are in an era of companies/individuals rich on assets, but poor on cash flow.

the key thing to trigger the next inflation process is the money by the next massive print going to the industries and workers rather than the banking system.

she will raise rates to save the US Dollar, but higher rates will drag the US economy into severe correction. The US economy may survive by another QE, which will cost the world reserve currency position of the Dollar.

Both the UK current account deficit and net capital inflow deteriorate in recent months, with the extremely high household debt, Carney is facing a dilemma. No matter what he chooses, the result won't be good. There is not enough time for him to prepare his ammunition. Maybe Bank of England will ban cash to deal with the next recession. If we see a rate rising in November, how the UK 7 trillion £ house market will react? This time the extended Help to Buy schemes won't help much ...Maybe the auto loan will go burst first this time.

My thoughts: if the US economy doing bad while other economies like Euro, Japan etc grow strong, I would expect dollar keep going down. If the other economies also doing bad, I would expect the dollar going up, as we are entering a world-wide recession, the US treasuries are the safety asset which have to be purchased by the dollar. in the first scenario, the US will rely on fiscal stimulation while rising interest rate slowly. in the second scenario, the US will quickly starting the printing machine to an unprecedented QE.

Agree! it is not easy to enter a easy reflation. The excess capacity from last cycle are still existing there. Real incomes are stagnant. Demand are only maintain by easy credits. The whole system looks very fragile though the economic size appears huge. The GDP number doesn't mean much, just a number to manipulate market expectation. The UK looks even worse than the US. Just look at the recent crime rate across the country, quite worrisome.

Hi Durhamborn, thanks for sharing your ideas. As you mentioned, a severe deflation looks inevitable, which will help to rebalance the market. But I am also thinking how bad the US market will be hit this time, and the timing of the correction. When the Federal started to increase base rate, I thought the US might have a chance to escape the damage even they missed a tightening chance in the last cycle. I guess the Federal know the risk of tightening into a recession since the beginning of monetary base shrink. But they believe tightening can also solve problem, even tightening into booming. They knew the real economy was not good as the data revealed, after the massive QE into the banking industry with the most still sitting in the excess reserve. However, they know the US $ is the world currency and they started gambling with it. I think they always have incentives to use that advantage solve domestic problem. They started the interest rate rising cycle to attract overseas dollars back into the US market. They expect with more and more money flowing into the US market, the US economy will be inflated as well, that is why they stick to the 2% inflation rate. If everything as planned, the capital inflow and the rising rate will become a mutual positive feedback. The Wall Street knows that as well and collude with the Fed. That is why the stock market has been push to a very high position as they expect there will be continuous overseas money back to buy. The mistake the Fed made is they may over estimate the repayment ability of the US household and Corporates, or they didn't expect the systemic leverage soaring so quickly, which lead to the income less enough to cover interest payment. The other reason may be the Russia +China and other oil countries are trying hard to debase the US dollar as the reserve currency, the Fed has to fight for US dollar. No matter which motivation dominates the rate rising and tapering, the action of the FED is the same that we see the tightening moves quicker than expected until very bad things happen. I personally think the extreme high leverage in the economy is not the plan of the Federal, but just a side product of its policy.I agreed that you said we now very close to the massive default point. I have kept an eye on the net capital inflow into the US. The recent date has deteriorated quickly, so I expect the turn point is very soon. The only hope now in the stock market is the Trump Tax plan. But this won't slow down the household and personal default.