Deflationary collapse and the Reflation Cycle to Come.

[Ash4781]

19 hours ago, Sancho Panza said:

It's an industry in it's death roll.The flip side of all these retail failures is that it will strengthen the hand of the remaining stores to negotiate substantial rent reductions.

When you look at it holistically,it's quite likely that the profit for retailers is pretty much in the top 20% of footfall at these rental levels.Back of fag packet calcs admittedly but sans rent reductions the figures will stop stacking up in the next year or two for all but the anchor stores.

The impact on credit creation will be substantial if they marked the loans to market.

Wouldn't want to be a small retail CRE LL over the next few years trying to hawk empty sadnwich shops in Leicester for £15k in rent.

As per previous discussion re the Fed raising rates,it can't have escaped their notice that the natural follow on from Zirp was zombie companies destroying price discovery on every level.

Worth noting that Jerome Powell has no formal education in Economics so may not be as prone to the delusions of his predecessors about the cure for GD1 being printed cash.

The US of A are hiking with CPI at 1.8% and we're staying flat depsite CPI at 2.7%.....................Carnage.

 

To misquote Forrest Gump

'Stoopid is as stoopid does.'

The CBers are our representatives and they rarely get held to account.You can't blame the private equity guys for helping themselves in some respects.

If it was a zero sum game I'd be mightily relieved.Future generations will be paying for this profligacy for decade

 

The Carpet Right shareholder loan update today has interesting words re store closures - essentially closing stores will have little effect on customer experience. I think that captures the mood quite well. Their empty stores are not necessarily all due to the internet as other businesses but it is the same result.

[Sancho Panza]

20 hours ago, Bricks n' mortar said:

As someone who came to this thread because I saw the reflation, but didn't 'get it' about deflationary collapse; I found this story quite good.  It seems to be explaining the CB role in what has gone before, and what is to come.  Probably not news to the more enlightened among you, (apart from that the views of this thread are making the news, albeit not a mainstream publication).

http://nationalinterest.org/feature/the-federal-reserve-cannot-engineer-soft-landing-24980

That's a super find and succinctly states where we are-this is a Central Bank crisis.

From the article.Highlights are mine.

' They(the Fed) believe that by pulling levers and twisting dials in just the right combination, interest rates will gradually rise, the Fed’s so-called “quantitative easing” program will slowly unwind, and more than $4 trillion in “out of thin air money” created since 2009 will be “retired”—without triggering a recession.

The truth is that when the Fed cuts interest rates or otherwise eases monetary policy, it is not "stimulating" the economy, as is claimed. What the Fed really is doing is distorting the two most important sources of information in the economy: the price of money (i.e., interest rates) and the supply (i.e., quantity) of money.

BUT, when the monetary system is manipulated, i.e., when it is controlled by the Federal Reserve and other central banks—including the European Central Bank, the Bank of Japan, the Bank of England, the Swiss National Bank and the People’s Bank of China—the price signals become warped. As a result, more and more false information (“fake news”) is forced into the economic system. The price of money, and therefore all other prices, which are a derivative of the price of money, are not real. They do not accurately reflect supply and demand.

When interest rates are artificially low, as has been the case since 2009, investors and entrepreneurs are incentivized to take more risk than they otherwise would have taken. Businesses and consumers load up on debt that they otherwise could not afford and will not be able to pay back when rates rise. Corporations borrow hundreds of billions to buy back stock, warping their capital structures (i.e., increasing their ratio of debt to equity) and setting themselves up for defaults, bankruptcies and rapidly falling share prices when rates rise. Lenders extend credit to borrowers whom they otherwise would avoid, such as subprime auto loan borrowers, subprime real estate borrowers and subprime credit card borrowers—running the risk of systemic bank failure when rates rise.

This cycle has a name. Keynesians, who worship at the central bank altar, call it the "business cycle." They even warp the language to blame it on “business,” instead of blaming it on the real culprit: the Federal Reserve and other central banks.

Would the “business cycle” exist without the Fed or central banks? Indeed, there were “booms and busts” before the Fed. But they were far less severe and were more short-lived. In effect, free market pricing corrected the excesses faster and with less economic and human damage than the Federal Reserve.

As bad as the Fed’s overall track record has been, its manipulation of interest rates and the money supply has grown worse by the decade, largely as a result of the end of “anchored” money in August 1971. This was because money was no longer tied to a commodity like gold, so the Fed could now create money “out of thin air.”

For the past four decades, the Fed has attempted—in dark comedic fashion—to manage its own mismanagement. It has invented even more levers and dials to use in a never-ending attempt to fine tune what the Federal Reserve Chairman, his or her fellow board members and their collective staffs of hundreds of Keynesian economists cannot even begin to understand. More specifically, the Fed and its minions have not allowed each successive, and ever worsening, boom and bust cycle, which they created in the first place, to run its course. Instead, the Fed, lurching from crisis to even worse crisis, has responded to every downturn with even lower interest rates and even more "easy money" than before.

The Fed's response to the emerging markets crises of 1997–98 fueled the dot-com boom and its demise. The Fed’s response to that bust from 1999 to 2000 and its related recession enabled the 2008 housing bubble, which was encouraged by Congress for political reasons, and the Global Financial Crisis of 2009 that followed. The Fed’s response to that crisis, its coordination with central banks around the world to lower rates—even into negative territory in Europe and Japan—and print unprecedented amounts of fiat money, has created the biggest and most pervasive bubble the world ever has seen. Total world debt now exceeds $233 trillion, and the debt to “world GDP” ratio is 318 percent, down just slightly since hitting 321 percent in Q3 of 2016, the largest ratio in human history.

“Soft landing” coming? Do not bet on it.'

'

[Sancho Panza]

21 hours ago, Bricks n' mortar said:

As someone who came to this thread because I saw the reflation, but didn't 'get it' about deflationary collapse; I found this story quite good.  It seems to be explaining the CB role in what has gone before, and what is to come.  Probably not news to the more enlightened among you, (apart from that the views of this thread are making the news, albeit not a mainstream publication).

http://nationalinterest.org/feature/the-federal-reserve-cannot-engineer-soft-landing-24980

Sorry to double tap you but that piece made me think of the following Jim Rickards speech where from 33 mins he outlines points made previously in this thread about the Fed's inability to generate inflation depsite all the printing due to the assumption that velocity was a constant.Worth a watch in it's entirety but definitely from 33 minutes

 

[Fence]

1 hour ago, Sancho Panza said:

Sorry to double tap you but that piece made me think of the following Jim Rickards speech where from 33 mins he outlines points made previously in this thread about the Fed's inability to generate inflation depsite all the printing due to the assumption that velocity was a constant.Worth a watch in it's entirety but definitely from 33 minutes.

Nice one guys.  What I've been saying so long.  At least until V goes up!  The trick is to work out the triggers, prepare before hand, and "brace, brace, brace" 'cause when it goes, it goes!

[Sancho Panza]

2 hours ago, Ash4781 said:

The Carpet Right shareholder loan update today has interesting words re store closures - essentially closing stores will have little effect on customer experience. I think that captures the mood quite well. Their empty stores are not necessarily all due to the internet as other businesses but it is the same result.

hattip @Errol for the Grauniad link and reinforcing the downward pressure on rents.How many CRE loans are underpinnign these warehouse retailers?

https://www.theguardian.com/business/2018/mar/21/carpetright-moss-bros-kingfisher-high-street-retail-mothercare

'Carpetright, Britain’s biggest carpets retailer, did not reveal how many outlets might shut, but it is believed to be considering axing up to a quarter of its 409 UK stores. A decision is expected in the next few weeks. It said the closures were needed to address the “legacy property issue” resulting from overexpansion under its previous management.

The company is considering a company voluntary arrangement (CVA), a process designed to stave off insolvency by closing stores and negotiating lower rents with landlords. It has arranged an emergency short-term loan of £12.5m from shareholder Meditor in return for an additional 5% stake and also wants to raise between £40m and £60m through an equity issue.

The potential Carpetright closures come as fashion retailer New Look’s creditors meet on Wednesday afternoon to vote on a CVA that will involve the closure of up to 60 of its 593 stores and rent reductions on dozens more.

At B&Q, which is owned by Kingfisher, sales dropped by 5.1% as the chief executive, Véronique Laury, described the outlook for the UK as “uncertain”. Kingfisher’s profits for the year to end January were down by 10% to £682m.

The slowdown at Kingfisher comes despite troubles at its major competitor Homebase, where sales have slumped since a botched takeover by Australian group Bunnings. The group is considering closing as many as 40 stores putting hundreds of jobs at risk.

Department stores House of Fraser, Debenhams and Marks & Spencer are also closing store space as they try to adapt to changing shopping habits. '

 

 

Worth noting the point I made elasewhere that I suspect Kingfisher 5% down in sales will lead to a much bigger drop in it's bottom line without significant reductions in it's fixed costs.

 

[Viceroy]

On 3/21/2018 at 6:52 AM, durhamborn said:

Gold miners are a very difficult area to invest in.When new to the area its best to stick to small stakes across a few.

DB - what's your view on the precious metal royalty/streamers - such as Wheaton Precious Metals, Franco Nevada, Sandstorm Gold etc?

[durhamborn]

10 hours ago, Viceroy said:

DB - what's your view on the precious metal royalty/streamers - such as Wheaton Precious Metals, Franco Nevada, Sandstorm Gold etc?

I like them,but they are expensive.In a bull i prefer miners with higher AISC,but big reserves.They get smashed in bears of course.Im not an expert on the space as i have avoided it for a long time,but into the next cycle its likely they will do very very well.

The markets are whacking down companies with debt (deflation assets) hard now because they think rates are going to shoot up.They arent yet,rates are going down later this year probably,or next year,but its a taste of what happens in a reflation.The UK market has already suffered a  massive bear,domestic stocks down 50%/70% from highs.The only thing keeping the market looking better are shares aimed at inflation.They will be hit very hard in the next stage of the sell off IMO.

[chronyx]

Any thoughts on the tariffs announced today having effects relevant to this thread?

[DoINeedOne]

On 20/03/2018 at 5:52 PM, durhamborn said:

Yamana has great assets and terrible managers.Its a share best suited to traders.Iv had it several times over the last 2 years and been down 30% at times,but selling at an average 25% profit.Iv got a few left in my SIPP that are sat -8% at the moment.

My favourite mid tier is Harmony Gold,but they are already up 35% since i put them on this thread.They are still very cheap,if gold runs up.If it doesnt they could drift lower again.They also have the South African risk.Iv also bought a few Anglogold Ashanti today and last week.In a gold bull id see them much higher.

Gold miners are a very difficult area to invest in.When new to the area its best to stick to small stakes across a few.

Thanks for the reply, Yeah I'm not going go to mad on miners but just spread some money across a few as more of a risky investment 

[Sancho Panza]

On 14/03/2018 at 4:29 PM, Sancho Panza said:

More protectionism.

 

https://wolfstreet.com/2018/03/13/leaked-trumps-next-shoe-to-drop-on-us-china-trade/

'This is the big one. It makes steel and aluminum tariffs look like a game.

 

To punish China for its intellectual property theft, including IP infringements such as counterfeiting, and to retaliate against Chinese investment rules that require technology transfers to Chinese partners in order to set up shop in China, the Trump administration is considering a proposal by the Office of the US Trade Representative (USTR) that would impose:

• Tariffs on a large variety of Chinese products, including tech products and consumer goods like clothing.
• Restrictions on investment by Chinese companies in the US, the first impact of which we have already seen by Trump’s order yesterday blocking all Chinese takeovers of large US tech companies.
• And limits on visas for certain Chinese nationals.

Trump had pledged to crack down on the causes of the huge US trade deficit. In terms of the magnitude of the trade deficit, no country comes even close to China (chart shows China and Hong Kong combined due the transshipments via Hong Kong): '

 

On 16/03/2018 at 1:30 PM, durhamborn said:

Rates are going to double figures yes,but i think the first increases will cause a credit/debt deflation first and send rates to record lows.Its like standing on the grand canyon.Everyone sees the other side,its just they dont notice the massive drop before you get there.

Trade wars,Communism on the march,a deep state trying to remove an American President.The next cycle wont be pretty.

AS per previous discussion.

Also worththinking about the fact they pumped stocks to create a wealth effect.Stocks going down may reverse that factor(if it ever existed and I have my doubts that making the 1% better off increases aggregate demand.

2 hours ago, chronyx said:

Any thoughts on the tariffs announced today having effects relevant to this thread?

Worth noting that history is our guide in many things re the passing of Smoot Hawley in 1930,widely credited with exacerbating the Great Depression

https://en.wikipedia.org/wiki/Smoot–Hawley_Tariff_Act

 

[Sancho Panza]

Highlighting the prolems presented with a price weighted index when a couple of the heftier shares start selling off

3M $223

Boeing $319

Cat $156

 

https://uk.reuters.com/article/us-usa-stocks/stocks-tumble-to-worst-day-in-six-weeks-after-trump-tariff-action-idUKKBN1GY1IF

'Major industrials slumped. Plane maker Boeing Co lost 5.2 percent, Caterpillar Inc dropped 5.7 and 3M Co lost 4.7. The three were among the biggest drags on the Dow Jones Industrial Average. The S&P industrials sector plunged 3.28 percent. '

Edited March 23, 2018 by Sancho Panza

[Sancho Panza]

https://uk.investing.com/indices/eu-stoxx50-components

49 down out of 50 on the Euro Stoxx

[Talking Monkey]

9 hours ago, Sancho Panza said:

https://uk.investing.com/indices/eu-stoxx50-components

49 down out of 50 on the Euro Stoxx

It definitely looks like the correction is underway

[Dogtanian]

It does, every other day your hearing about the woes of struggling businesses - albeit usually the consumer retail ones that have been listed here as being the first to go and go down big. 

But there is also a bit of worrying rhetoric being aired around wars be it military or trade /currency.  Nobody has the crystal ball but wonder what is being played or planned out behind the scenes, certainly nothing is certain and maybe I'm being subjectively biased but does seem time's now are less stable or balanced than has been in my living memory. 

[chronyx]

21 hours ago, Sancho Panza said:

 

AS per previous discussion.

Also worththinking about the fact they pumped stocks to create a wealth effect.Stocks going down may reverse that factor(if it ever existed and I have my doubts that making the 1% better off increases aggregate demand.

Worth noting that history is our guide in many things re the passing of Smoot Hawley in 1930,widely credited with exacerbating the Great Depression

https://en.wikipedia.org/wiki/Smoot–Hawley_Tariff_Act

 

Never even heard of that one. Thank you

[Noallegiance]

1 hour ago, Dogtanian said:

It does, every other day your hearing about the woes of struggling businesses - albeit usually the consumer retail ones that have been listed here as being the first to go and go down big. 

But there is also a bit of worrying rhetoric being aired around wars be it military or trade /currency.  Nobody has the crystal ball but wonder what is being played or planned out behind the scenes, certainly nothing is certain and maybe I'm being subjectively biased but does seem time's now are less stable or balanced than has been in my living memory. 

I've been considering this. I have to be careful not to get carried away as I get older.

Like it or not, between 5-20 years ago (the first 15 years of my adult life) this financial and political stuff was going on and I didn't even know it (or at least appreciate the effects) let alone care. Take the strife of the 80s, the 70s, the 60s, the first 50 years of the 20th century. It's always going on.

As I got older and had children it started to become more important. Such is the way of things. We live in a tumultuous universe.

Whatever is coming, sections of folk won't even realise and/or remember it happened.

And so forth until the end tomorrow or in a billion years.

Edited March 23, 2018 by Noallegiance
Content

[Dogtanian]

@Noallegiance really well put.  I think your right so not convinced but still have that inkling that in the west things are less certain than the last 30-40 years.  (I think I similar vintage to you).  Obviously it would be different story if say you were from some parts of Africa or say in Syria... Some places have been razed so the change there is through the roof. 

Slightly off tangent but made me think that I used to have some good discussions with an university tutor /Prof and back when I was starting to pay more attention and I would say that the overall change in civilization / industrial /culture was surely massive or even exponential. He would counter that whilst many posit the same it was really hard to say as it was all about perception and maybe all past generations felt the same, hard to say.  Well nowadays I'm convinced that we are experiencing massive change at an accelerating pace.  Maybe I'm getting all swept up in the hubris of the age of silicon though! 

[durhamborn]

6 minutes ago, Dogtanian said:

@Noallegiance really well put.  I think your right so not convinced but still have that inkling that in the west things are less certain than the last 30-40 years.  (I think I similar vintage to you).  Obviously it would be different story if say you were from some parts of Africa or say in Syria... Some places have been razed so the change there is through the roof. 

Slightly off tangent but made me think that I used to have some good discussions with an university tutor /Prof and back when I was starting to pay more attention and I would say that the overall change in civilization / industrial /culture was surely massive or even exponential. He would counter that whilst many posit the same it was really hard to say as it was all about perception and maybe all past generations felt the same, hard to say.  Well nowadays I'm convinced that we are experiencing massive change at an accelerating pace.  Maybe I'm getting all swept up in the hubris of the age of silicon though! 

Before the end of the year (or into next year) the global economy will be beginning a deflationary bust, a downturn worse than 2008 and the worst since the war. The supply of US T bills will  be far bigger than anyone expects due to massive Fed printing yet worldwide demand for this U.S. government guaranteed debt will far exceed the supply and rates will fall and fall sharply. The U.S. Treasury bond will be the most sought after asset in the world, as investors across the world seek safety from what will be the biggest financial crisis of this era.The whole market is pricing in higher rates and higher inflation.They are wrong.More wrong than in 85 years.Whats coming will see massive financial dislocation and wealth destruction on a scale that people alive now will teach their grandchildren about.This isnt hyperbole,its a pretty much certain destination of where the macro situation puts us.Trump is already setting the seeds of the reflation cycle to come.Massive industrial production,massive military spending to upgrade western forces to face the huge threat from China/Russia/Iran and their proxies,huge energy and basic infrastructure investment in the west.The free ride for the east by raping the west on unfair trade terms is over,or will be very soon.

These seeds are set.Dollar should see 86 but is already in range now and will reverse to 130.Gold should run to $1450+ but has already run up.The S+P might run to 3100,but will see 80% falls from there.Sterling $1.10 at best,maybe even 90c.Whats in play cant be stopped,but only a very few see it.

Buy gold,buy miners,buy IBTL/TLT and then buy inflation assets during the carnage.

[Talking Monkey]

43 minutes ago, durhamborn said:

Before the end of the year (or into next year) the global economy will be beginning a deflationary bust, a downturn worse than 2008 and the worst since the war. The supply of US T bills will  be far bigger than anyone expects due to massive Fed printing yet worldwide demand for this U.S. government guaranteed debt will far exceed the supply and rates will fall and fall sharply. The U.S. Treasury bond will be the most sought after asset in the world, as investors across the world seek safety from what will be the biggest financial crisis of this era.The whole market is pricing in higher rates and higher inflation.They are wrong.More wrong than in 85 years.Whats coming will see massive financial dislocation and wealth destruction on a scale that people alive now will teach their grandchildren about.This isnt hyperbole,its a pretty much certain destination of where the macro situation puts us.Trump is already setting the seeds of the reflation cycle to come.Massive industrial production,massive military spending to upgrade western forces to face the huge threat from China/Russia/Iran and their proxies,huge energy and basic infrastructure investment in the west.The free ride for the east by raping the west on unfair trade terms is over,or will be very soon.

These seeds are set.Dollar should see 86 but is already in range now and will reverse to 130.Gold should run to $1450+ but has already run up.The S+P might run to 3100,but will see 80% falls from there.Sterling $1.10 at best,maybe even 90c.Whats in play cant be stopped,but only a very few see it.

Buy gold,buy miners,buy IBTL/TLT and then buy inflation assets during the carnage.

If the dollar index goes to 86 would cable run up to 1.45 or something or could it go to 1.50 before it collapses down

[Thorn]

14 minutes ago, Talking Monkey said:

If the dollar index goes to 86 would cable run up to 1.45 or something or could it go to 1.50 before it collapses down

If this is a Big Unmasking of Value, we are in for some ride. People’s imagined Net Worths will shrivel. Pension pots, all assets including property will tank. I’d guess from a stock market bottom then 2 more years for property values to hit bottom- slower to sell, maybe? 

And those who can buy will shop around among newly distressed and surprised sellers whose imagined Net Worth isn’t what it was. 

Edited March 23, 2018 by Thorn

[durhamborn]

55 minutes ago, Talking Monkey said:

If the dollar index goes to 86 would cable run up to 1.45 or something or could it go to 1.50 before it collapses down

I had seen sterling going to $1.41 from £1.20s when the dollar hit 86 then turning.If it overshoots by a bit then thats fine by me.I see the last bit of dollar weakness being Yen related,but if sterling did go up a bit more so be it.I see $1.10 and maybe less and a 30% increase in T bills from here as yields go to 3/4s on the ten year.

Im very very pleased how things have panned out so far.The deflation stocks i sold,many after 20+ years of holding have been tanking (some down 40%).UK mid caps have seen 50%+ falls in many cases and the index's are propped up by "growth" stocks that will see 80%+ falls soon.

I noticed today Woodford funds have sold their Astrazeneca holdings,no doubt because they had to fund massive pull outs from the fund and they are trying to stop the whole fund failing (they couldnt sell Imperial as they are down 40% and look decent value now).Woodford talks about the macro environment yet its 100% obvious he has no understanding (or any of his staff) of the macro situation.If he did he would of avoided the disasters he has seen and the ones to likely come.

[Slimline]

treasury bond etfs, any recommendations durhamborn ?

[Tapori]

19 minutes ago, Slimline said:

treasury bond etfs, any recommendations durhamborn ?

Thread should have an updated tips panel with who recommended and why (linked post) and disclaimer it;s at your own risk.

Could well put most esteemed "Economists and Analysts," to shame.

Edited March 24, 2018 by Tapori

[Slimline]

4 minutes ago, Tapori said:

Thread should have an updated tips panel with who recommended and why (linked post) and disclaimer it;s at your own risk.

Could well put most esteemed "Economists and Analysts," to shame.

Not a bad shout 

[StrugglingMillennial]

Heres a question that i dont think has been asked before, now that the bust seems to be getting underway how long do you think it will take until the reflation part of the cycle starts to kick in?

Im really hoping to make the most of it, i have sold all my assests (except for a few pieces of gold and silver) so i have quite a bit of cash, certainly more that i would like to lose.