Deflationary collapse and the Reflation Cycle to Come.

[Barnsey]

Unfortunately ONS figures out today are UP, +5.6% for April vs 4.5 for March

https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/apr2017

As you rightly point out, heck of a lag on these so we're looking at Autumn before we start to get a clearer picture.

 

Edited June 13, 2017 by Barnsey

[BearlyBegun]

Tech stocks are having a major wobble... 

[durhamborn]

21 minutes ago, Barnsey said:

Unfortunately ONS figures out today are UP, +5.6% for April vs 4.5 for March

https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/apr2017

As you rightly point out, heck of a lag on these so we're looking at Autumn before we start to get a clearer picture.

 

Exactly Barnsey i expect these to turn last because the lag is so far out.Retail sales,footfall,car sales first.

[durhamborn]

1 minute ago, BearlyBegun said:

Tech stocks are having a major wobble... 

The U.S. economy is in trouble and is decelerating vs Europe. Credit growth is really slowing down now. Recession is very close at hand i think.

Euro, yen, CAD & AUD are all poised for rallies here against  the dollar and I suspect pound might follow suit once the election wobble is past.I still have the same target for the dollar index of 86/88 i had at 102.Id of expected gold to rally hard with a falling dollar to perhaps $1450 before it busts,but it seems to be stuck under $1300.The $ probably needs to break down below 96 and keep falling to get gold going.

The Fed this week will be interesting.

[Assume The Opposite]

DurhamBorn have you ever read Brandon Smith from altmarket? He's put forward a lot of articles saying that the Fed is intentionally running down the economy rather than trying to help, hence rate hikes at the wrong time. 

[Errol]

3 hours ago, durhamborn said:

The U.S. economy is in trouble

Gravity Rules: End Of The Bubble Is In Sight

http://investmentresearchdynamics.com/gravity-rules-end-of-the-bubble-is-in-sight/

[Democorruptcy]

Bill Gross says all financial markets are 'increasingly at risk'

Global equity value is now about 95 percent of world GDP — a record.

https://uk.finance.yahoo.com/news/bill-gross-says-financial-markets-141700911.html

[durhamborn]

5 hours ago, Errol said:

Gravity Rules: End Of The Bubble Is In Sight

http://investmentresearchdynamics.com/gravity-rules-end-of-the-bubble-is-in-sight/

I actually track the amount of stocks driving the market and it had got smaller and smaller to the likes of Amazon,Netflix etc.The ironic thing is the age of the consumer is coming to an end and i think we are at a two cycle high for the consumer.The 70's was less about the consumer and more about commodity and industrial demand coupled with a very expansionist monetary policy.That is what we will see again i think once we get through the collapse.It wont be people buying cars,it will be governments building roads.

Derivative exposure is a huge risk here. That alone could trigger an unwind bigger than any in history. Add to that $250 trillion in global debt and the scene is set for an imploding financial system as soon as deflation hits.

[Mooping]

Interesting thread. 

I suppose you see a massive increase in unemployment levels if this plays out?  Concerned about my job.

[kidgorgeous]

So the FED will raise tomorrow and will give details of how they will start unwinding their QE. At some point will the bank of england have to follow their lead?

[TheCountOfNowhere]

On 22/05/2017 at 1:14 PM, durhamborn said:

Rather than put my thoughts in other threads about how i see the end of this cycle playing out i thought a thread dedicated to this would be a much better idea.Many other posters here have some great input and knowledge to add.Those who agree,dont agree,or part agree all have thoughts to offer.

My thoughts are these.

The great deflation cycle that started around 35 years ago is about to end with a deflationary collapse.During those 35 years interest rates have fallen to lower lows and made investing in equity/property very easy (they have always gone to higher highs).However that has also caused people to go way way along the risk curve for yield.The leverage on the system is beyond extreme.The Fed (and other central banks) missed out an entire tightening cycle,and in doing so have already made sure the recession dead ahead will see massive un-voluntary debt liquidation,a financial system in free fall and wealth destruction on a scale few can even imagine.Leverage is going to destroy business and individuals on a scale not seen since the late 1920s.Once this does hit the central banks will be slow to react with the right response as they themselves will be shocked at the speed and scale.They will panic and print direct into the economy by passing money/debt to governments at 0.1% or zero coupons.This is what will kick in the first reflation cycle since the 70s.Inflation will appear,rising slowly at first but increasing for perhaps a decade until it reaches double figures.Interest rates will follow,but being behind the curve perhaps through the whole cycle.The leveraged who survived the deflationary collapse will then suffer increasing interest rates for a decade.

Before this i see gold,silver and the miners maybe having a run up through summer.The dollar index might keep falling (with a bounce or two for noise) to the 88 area.

Others thoughts on this playing out?.Why it will,why it wont?.

You're describing 2007

[durhamborn]

28 minutes ago, TheCountOfNowhere said:

You're describing 2007

Funny enough i think we are going to get 2007 on steroids.The CBs, by saving the financial system then also made it certain the business cycle couldnt work through and we ended up with zombie consumers and zombie companies.They missed a cycle out.Even today the BOE will do nothing as inflation sucks away the purchasing power of consumers.

$250 trillion in global debt now (excluding massive unfunded pension liabilities and derivatives) and the Fed tightening into a recession.Massive financial dislocation dead ahead.Massive wealth destruction and unvoluntary debt liquidation,then CBs expanding their balance sheets by 4 x in panic and an inflation cycle the result.

[ThePrufeshanul]

durhamborn: what is the exact cause of the deflationary crunch you are describing (apart from it being cyclical)?

 

How do the latest inflation figures (as described on the other thread) fit in with your prediction?

 

Many thanks - trying to educate myself.

[Mr Foster]

19 minutes ago, ThePrufeshanul said:

durhamborn: what is the exact cause of the deflationary crunch you are describing (apart from it being cyclical)?

 

How do the latest inflation figures (as described on the other thread) fit in with your prediction?

 

Many thanks - trying to educate myself.

I'm also of the view of deflation first then reflation, you should read David Stockton, Mike Maloney, Harry Dent.

Deflation first.

The reasons for deflation is that the global system is now so indebted, and over leveraged (all at almost 0% interest rate), the whole house of cards is only propped up by the sentiment (confidence in Central banks around the world). The global economy will not be able to grow itself out of it. Best scenario is like Japan where there is no real growth for 10-20 years. But any shock/shocks is likely to create a crisis, then a global financial crisis due to contagion. Because the global debt is now much larger than 2008, the impact is going to be much worse.

Followed by inflation.

Central banks will run out of ammunition and lost confidence of people. Once the crisis is bad enough e.g. >50% fall, government is going to resort to emergency measures.. bypass central banks and print massive amount of money themselves to pay for infrastructure projects, benefits etc, creating inflation..   

Of course, you can't time when it's going to happen.. the market can stay irrational for a long time.. That's why the best measure now is to stay out of debt.. and save money. If massive deflation doesn't happen, at least you'll have saved some money for your future.

[ThePrufeshanul]

Thanks for the reading tips - i will look them up - and for the post, most interesting.

[Mr Foster]

1 minute ago, ThePrufeshanul said:

Thanks for the reading tips - i will look them up - and for the post, most interesting.

No worries. Note it's David Stockman, not Stockton.

[durhamborn]

40 minutes ago, ThePrufeshanul said:

durhamborn: what is the exact cause of the deflationary crunch you are describing (apart from it being cyclical)?

 

How do the latest inflation figures (as described on the other thread) fit in with your prediction?

 

Many thanks - trying to educate myself.

Quite simple leverage (and derivatives tied to it).We missed a cycle out due to QE and rates and in doing so there is simply too much production chasing not enough demand (the consumer is tapped out).That system worldwide is leveraged with $250 trillion of debt.Even with rock bottom rates once demand falls,earnings will be wiped out and a fast un-voluntary debt liquidation will begin.

Commods will probably lead the fall.Oil might hit $15.

The UK inflation figures dont mean anything in the big scheme,it just means we will be even worse off than the rest going into this.Its currency related really.I dont think the Fed causes the crash,but tightening into a recession was madness and will be seen as so in the future.Its the 1930s all over again i think though everyone says the US economy is growing fine.I dont agree at all.

Everyone says the $ is going higher and was the most crowded trade for a decade at 102.Its now down below 97.If what i expect is coming comes,the dollar index will fall to around 88 first.If it does that the point to buy US treasuries.In the crash the dollar index might shoot back up to 140 and treasuries up 30%.

[durhamborn]

15 minutes ago, Mr Foster said:

I'm also of the view of deflation first then reflation, you should read David Stockton, Mike Maloney, Harry Dent.

Deflation first.

The reasons for deflation is that the global system is now so indebted, and over leveraged (all at almost 0% interest rate), the whole house of cards is only propped up by the sentiment (confidence in Central banks around the world). The global economy will not be able to grow itself out of it. Best scenario is like Japan where there is no real growth for 10-20 years. But any shock/shocks is likely to create a crisis, then a global financial crisis due to contagion. Because the global debt is now much larger than 2008, the impact is going to be much worse.

Followed by inflation.

Central banks will run out of ammunition and lost confidence of people. Once the crisis is bad enough e.g. >50% fall, government is going to resort to emergency measures.. bypass central banks and print massive amount of money themselves to pay for infrastructure projects, benefits etc, creating inflation..   

Of course, you can't time when it's going to happen.. the market can stay irrational for a long time.. That's why the best measure now is to stay out of debt.. and save money. If massive deflation doesn't happen, at least you'll have saved some money for your future.

I agree.This is how i see it,

Dollar index down to 88.Gold up to $1450 first.

Deflation hits and its quick.A financial crash.Gold then drops down below $800 stocks hit very hard,property smashed down by huge amounts,dollar index up to perhaps 140.TLT perhaps up to $160.Central banks slow to get right sized response so falls and wealth destruction huge.

They perhaps quadruple their balance sheets pushing money direct to government.Roads,ports,airports,you name it will be built.That will kick in the first real reflation cycle since the 70s.During that the miners and industrials will rocket through the cycle.Gold stocks might be the dot com stocks of the 2020s.The consumer isnt who will drive it.It will be industrial.

If anything like this does hit il be buying the miners and industrial stocks (and some physical gold and silver) during the carnage.

Like you say timing isnt possible and i dont care when it happens.I do think its getting close though and the seeds are already set.If im right in 7 to 10 years inflation and interest rates could be close to or above double figures.Leveraged BTL anyone?

[cognitive dissonance]

Some really sh!t figures out of US this afternoon, CPI and retail sales both negative, market didn't like that, USD/JPY dropped over 100 points.....maybe it's starting? 

All eyes on the Fed for interest rate decision tonight, commentary will be interesting, maybe somebody more clued up than me can comment on the 'fed dot plot'?

[ThePrufeshanul]

Thanks durhamborn mate - very interesting predictions and has made things a lot clearer. 

I was just trying to reconcile the inflation rates with weakening pound post Brexit and interest rates.

I've been trying to do some reading into Janet Yellen to see how she might react to things compared to Greenspan and Bernanke - I found these article quite interesting:

https://www.bloomberg.com/news/articles/2013-09-19/who-is-janet-yellen-a-look-at-the-front-runner-for-the-next-fed-chairman

http://www.newyorker.com/magazine/2014/07/21/the-hand-on-the-lever

 

[durhamborn]

5 minutes ago, cognitive dissonance said:

Some really sh!t figures out of US this afternoon, CPI and retail sales both negative, market didn't like that, USD/JPY dropped over 100 points.....maybe it's starting? 

All eyes on the Fed for interest rate decision tonight, commentary will be interesting, maybe somebody more clued up than me can comment on the 'fed dot plot'?

https://www.bloomberg.com/quote/DXY:CUR

Just what i expected.The Fed will be interesting,but they cant do anything now anyway,its to late.They might try to talk things up and the dollar goes back up a bit,but recession looks close.If they hike again after today they will just make the crash worse when it hits.

[durhamborn]

1 minute ago, ThePrufeshanul said:

Thanks durhamborn mate - very interesting predictions and has made things a lot clearer. 

I was just trying to reconcile the inflation rates with weakening pound post Brexit and interest rates.

I've been trying to do some reading into Janet Yellen to see how she might react to things compared to Greenspan and Bernanke - I found these article quite interesting:

https://www.bloomberg.com/news/articles/2013-09-19/who-is-janet-yellen-a-look-at-the-front-runner-for-the-next-fed-chairman

http://www.newyorker.com/magazine/2014/07/21/the-hand-on-the-lever

 

I dont think it matters.They will be facing massive financial dislocation and wealth destruction on a scale that threatens a breakdown of society.They will expand the balance sheet perhaps 4 x over to stop this.If this does hit,among the carnage be prepared to buy gold,miners and industrials and accept some early pain.The only way out will be a full on reflation cycle.We will get one IMO,but need to go through a deflationary crash first.Lets see what Yellen says today for the comedy interest at least.

[ThePrufeshanul]

Think there's also a good prospect of war kicking off - in which case your advice will also be prudent!

[Mr Foster]

45 minutes ago, durhamborn said:

I agree.This is how i see it,

Dollar index down to 88.Gold up to $1450 first.

Deflation hits and its quick.A financial crash.Gold then drops down below $800 stocks hit very hard,property smashed down by huge amounts,dollar index up to perhaps 140.TLT perhaps up to $160.Central banks slow to get right sized response so falls and wealth destruction huge.

They perhaps quadruple their balance sheets pushing money direct to government.Roads,ports,airports,you name it will be built.That will kick in the first real reflation cycle since the 70s.During that the miners and industrials will rocket through the cycle.Gold stocks might be the dot com stocks of the 2020s.The consumer isnt who will drive it.It will be industrial.

If anything like this does hit il be buying the miners and industrial stocks (and some physical gold and silver) during the carnage.

Like you say timing isnt possible and i dont care when it happens.I do think its getting close though and the seeds are already set.If im right in 7 to 10 years inflation and interest rates could be close to or above double figures.Leveraged BTL anyone?

TLT already up 1.3% today.. and will move hight from here? The market will bet FED getting it wrong and stop hiking rates (even drop rates when recession is confirmed). My question is why wait to buy treasury? Your USD index prediction is 88 (10%) lower, by then, TLT would have gone up 10% at least?

[durhamborn]

4 minutes ago, Mr Foster said:

TLT already up 1.3% today.. and will move hight from here? The market will bet FED getting it wrong and stop hiking rates (even drop rates when recession is confirmed). My question is why wait to buy treasury? Your USD index prediction is 88 (10%) lower, by then, TLT would have gone up 10% at least?

Im waiting as i think sterling will go up against the $ and im long the gold miners Mr Foster,il swap into TLT when i sell those in the summer.I already have some TLT though.

I cant say of course what will go up or down.Im just an ex factory worker who has a hobby of studying cycles.I do think every ordinary person should be prepared though in some way.Simply avoiding leverage/debt is a good start.

Can the CBs keep control?.Thats the question.I dont think they can,and the cycle turning this time will be too fast for them.If they manage to kick the can so be it.