Deflationary collapse and the Reflation Cycle to Come.

[Democorruptcy]

41 minutes ago, durhamborn said:

 

Its how they end up with all the money is all i can say.A deflationary credit event is very very rare.Probably a once in 80 year event.There are few people alive today now who saw the last one.

Didn't we all see a deflationary credit event in 2008?

[Errol]

3 minutes ago, Democorruptcy said:

Didn't we all see a deflationary credit event in 2008?

Only very partial and highly contained (through pumping ludicrous of cash into the system).

[Houdini]

13 minutes ago, Errol said:

Only very partial and highly contained (through pumping ludicrous of cash into the system).

The thing is that we should have done. By pumping cash into the system all they have done is delay it and made the end result far, far worse.

Gordon Brown's statement of no more boom and bust showed that he knew little about the fundamentals of economics. Everything since then has confirmed that as they try and force ever more air into the balloon to stop it deflating...

Edited January 24, 2018 by Houdini

[durhamborn]

1 hour ago, Democorruptcy said:

Didn't we all see a deflationary credit event in 2008?

We saw the start of one,we are about to see the end of it i think.

[Houdini]

Is it just me or does this say there is no where to invest at the moment best to keep in cash

https://www.oaktreecapital.com/insights/howard-marks-memos#

[Bricks n' mortar]

pumped full of drugs.

"Hold onto your hats"

http://www.bbc.co.uk/news/business-42798801

[Democorruptcy]

4 hours ago, PerfectCircle said:

Are we saying that no Fund Manager would ever design a fund raising strategy based on a falling market? Obviously, those guys are doing so well for themselves with other people's money, an hair cut of 50% across 99% of the funds, would only hurt investors and reset the potential for future gain. Thinking about it, they can only attract more capital by claiming money growths. 

A fund manager positioning for 50% falls July last year. 

Quote

 

“I am even more defensive than when we last met,” says Sebastian Lyon, founder of Troy Asset Management and manager of the multi-asset Troy Trojan fund.

“The portfolio has less than 40% in equities, we just cannot find value in the market. Any purchases are made on a rifle shot, not scattergun, basis. Any investor buying equities now is taking a big risk – the more the market climbs the more vulnerable you are to a correction, and it could be as much as 50%.”

http://www.morningstar.co.uk/uk/news/160315/troy-it-is-dangerous-to-buy-equities-now.aspx

 

Nov 2017 

Quote

 

Lyon’s process is grounded in looking at the fundamentals of a stock rather than following current stock market trends. Arguing that “stock market booms sow the seeds of their own destruction”, the manager highlighted the FANG stocks (Facebook, Amazon, Netflix and Google) and large caps as areas that have been pushed up regardless through indiscriminate buying by index funds but could be at risk

https://www.trustnet.com/news/774027/sebastian-lyon-how-i-learnt-to-be-a-cautious-investor-the-hard-way

 

Sebastian Lyon is definitely on thread.

[GeordieAndy]

Thanks all for this thread. I think I understand most of it but don't have much cash to invest in anything. I have just bought Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression by Robert R. Prechter Jr which looks to be some good background reading on this - anyone read it?

[durhamborn]

8 minutes ago, GeordieAndy said:

Thanks all for this thread. I think I understand most of it but don't have much cash to invest in anything. I have just bought Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression by Robert R. Prechter Jr which looks to be some good background reading on this - anyone read it?

I havent,but id say we wont see a depression,it will feel like one,but we wont get one.We will get a bust though on a huge scale.I think the lessons he probably goes into are more about a bust than depression.Frugal living,keeping leverage low,keep liquid assets,avoiding as much counter party risk as possible etc.The next 10 years are going to be very difficult for a lot of people and a big part of that will be the shock factor.People simply wont see it coming.Debt has let margins fall to levels that cant sustain a business right across the economy.That and massive tax avoidance (aka Amazon).Credit lines are mostly being slowly pulled.If your balance sheet isnt in good shape now,your in big trouble.

If i was a finance exec for a corporate my no 1 priority now would be to re-finance long term floating rate bank debt into corporate bonds.Most companies have their balance sheets structured in a way that will destroy them in a fast rising rate cycle.2 x EBITDA wont look so good if refinance rates are 9%+ and free cash flow goes down 70%.

 

[kibuc]

DB, I'm interested in your (or anyone else's  ) opinion on leveraged ETFs in the upcomming collapse. Would you say that in a deflationary bust the risk of such ETFs defaulting (due to default of the short side or the issuer) is higher than usual?

[durhamborn]

1 hour ago, kibuc said:

DB, I'm interested in your (or anyone else's  ) opinion on leveraged ETFs in the upcomming collapse. Would you say that in a deflationary bust the risk of such ETFs defaulting (due to default of the short side or the issuer) is higher than usual?

Well the VIX might go to 100 so i understand the temptation.They contain counter party risk of course.Worse is the decay though.Unless you time things very well the decay is a big problem.I wouldnt use them myself.Im not really looking to make money out of falls.If that happens the $ gains will be good enough.40% up including currency gains and an equity market down 50%+ would be a fantastic performance.

[GeordieAndy]

1 hour ago, durhamborn said:

I havent,but id say we wont see a depression,it will feel like one,but we wont get one.We will get a bust though on a huge scale.I think the lessons he probably goes into are more about a bust than depression.Frugal living,keeping leverage low,keep liquid assets,avoiding as much counter party risk as possible etc.The next 10 years are going to be very difficult for a lot of people and a big part of that will be the shock factor.People simply wont see it coming.Debt has let margins fall to levels that cant sustain a business right across the economy.That and massive tax avoidance (aka Amazon).Credit lines are mostly being slowly pulled.If your balance sheet isnt in good shape now,your in big trouble.

If i was a finance exec for a corporate my no 1 priority now would be to re-finance long term floating rate bank debt into corporate bonds.Most companies have their balance sheets structured in a way that will destroy them in a fast rising rate cycle.2 x EBITDA wont look so good if refinance rates are 9%+ and free cash flow goes down 70%.

 

Thanks ?

[Talking Monkey]

9 hours ago, PerfectCircle said:

Report from the FT on Davos conference https://www.ft.com/content/6a892d1e-0013-11e8-9650-9c0ad2d7c5b5

Finance CEOs (Credit Suisse and Blackstone) bullish on the world economy, confirming earlier report this week from GS of buoyant sentiment underpinning  stronger equity bull market. 

Are these 0.1% amongst the 1% brightest mind in the world be defeated by a self proclaimed ex-factory worker?

More seriously, Durhamborn, how do you explain that none of what you presented here never seems to ever get remotely mentioned as a small probability by the most influential players in business? Do they have secret research department working out the unpleasant scenarios while the PR fabricate some spiel designed around what is commonly accepted? 

Remember Bear Stearns, and Lehman went pop and Merrill Lynch had to go running to BofA. Goldman and Morgan Stanley had to turn themselves into regular depositer type banks to access the Fed funding window thingy. The brightest of minds didn't see the GFC coming in at the level of ferocity which it turned up. UBS got absolutely battered 

[leonardratso]

just a flesh wound, these marvellously run prudent financial companies will come bouncing back and save the world with their philanthropy and socially responsible governance. Im surprised so many came through it, i would have liked to have seen more of them crucified, or even more cruel would have been to turn them into the lowliest turd in the bowl but leave them barely alive - sorry just a vindictive streak in me.

[Pitchfork]

Brent crude at a 12 month high, following a steady climb since June last year.

Looking very likely we will get some small interest rate rises this year.

Inflation running high  (relative to the last couple of years) and I expect it to remain so for a while.

Energy, interest rates and inflation - some of the fundamentals.

So do we get debt deflation or do the government continue to kick the can down the street and pump more money in?

I'll put my money on straight to inflation.

[Viceroy]

https://www.armstrongeconomics.com/markets-by-sector/interest-rates/the-yield-curve/

"..The consensus out there is that while the Fed is expected to raise rates 3 more times this year and 2 to 3 times next year, our models are projecting we are moving back toward a negative yield curve... Those who have bought the long-term assuming that the short-term rate hikes will be modest for some time making a yield of about 2.65% attractive, may discover that the yield curve just may swing into a negative position again rather uncontrollably rather than intentionally.."

DB forecasts 2018 for the 10 YR Bond at 0.8% (currently 2.65)..

[Errol]

Rough sleeping in England rises for seventh year

Rough sleeping in England has increased for the seventh year in a row, new official figures reveal.

http://www.bbc.co.uk/news/uk-england-42817123

[Cosmic Apple]

Just now, Errol said:

Rough sleeping in England rises for seventh year

Rough sleeping in England has increased for the seventh year in a row, new official figures reveal.

http://www.bbc.co.uk/news/uk-england-42817123

Noticeable increase even here in the shithole that is my work city. Very very sad to see rough sleepers in the doorways to empty shops on a street where 75% of the units are empty (Former Boots, M&S, Phones 4U, Game, Nationwide, Post Office along with a few others that have now moved from this particular street).

[Errol]

The U.S. Can No Longer Hide From Its Deep Poverty Problem

https://www.nytimes.com/2018/01/24/opinion/poverty-united-states.html

[zugzwang]

1 hour ago, Errol said:

The U.S. Can No Longer Hide From Its Deep Poverty Problem

https://www.nytimes.com/2018/01/24/opinion/poverty-united-states.html

I am aware that the lives of many (most?) Americans are nasty, brutish and short - a combination of terrible diet and unaffordable healthcare - but it's still shocking to discover that parts of the US have a lower life expectancy than Bangladesh or Vietnam.

[durhamborn]

2 hours ago, Viceroy said:

https://www.armstrongeconomics.com/markets-by-sector/interest-rates/the-yield-curve/

"..The consensus out there is that while the Fed is expected to raise rates 3 more times this year and 2 to 3 times next year, our models are projecting we are moving back toward a negative yield curve... Those who have bought the long-term assuming that the short-term rate hikes will be modest for some time making a yield of about 2.65% attractive, may discover that the yield curve just may swing into a negative position again rather uncontrollably rather than intentionally.."

DB forecasts 2018 for the 10 YR Bond at 0.8% (currently 2.65)..

Yes i see the 10 YR hitting 0.8%,it could be this year,or it could be next.I understand thats a huge contrarian call.Direction would do,and of course sterling has now hit my target so buying with sterling at $1.42.I 100% agree we are entering a reflation cycle soon and it will be defined by very high inflation,i just see a massive deflationary bust first and one last jump in bonds before they reverse all of the gains since 82 in the next cycle.

[durhamborn]

3 hours ago, Pitchfork said:

Brent crude at a 12 month high, following a steady climb since June last year.

Looking very likely we will get some small interest rate rises this year.

Inflation running high  (relative to the last couple of years) and I expect it to remain so for a while.

Energy, interest rates and inflation - some of the fundamentals.

So do we get debt deflation or do the government continue to kick the can down the street and pump more money in?

I'll put my money on straight to inflation.

I see oil going to $15,i think it has topped or is close to a top.Copper the same.

However i do go over and over the risk of straight to inflation and agree it is a risk.I just think liquidity is being tightened past the point where a bust is near certain.Goldies are doing very well now because people see the risk,just as expected.The only thing i differ on is that after a very nice run up they will fall as well in a bust,then be the buys of a lifetime.

[Liquid Goldfish]

29 minutes ago, durhamborn said:

I see oil going to $15,i think it has topped or is close to a top.Copper the same.

However i do go over and over the risk of straight to inflation and agree it is a risk.I just think liquidity is being tightened past the point where a bust is near certain.Goldies are doing very well now because people see the risk,just as expected.The only thing i differ on is that after a very nice run up they will fall as well in a bust,then be the buys of a lifetime.

If we go straight to inflation, what sort of inflation do you envisage that would be? Would the economy be doing well? Would it be price and wage inflation, or just price inflation?

[leonardratso]

[zugzwang]

Keynesian dunce Mario Draghi carries on QE-sing, still confident in his ability to effect a sustainable recovery via asset price manipulation.

Quote

FRANKFURT (Reuters) - The European Central Bank kept its ultra-easy policy firmly on hold on Thursday but ECB chief Mario Draghi will now face the difficult task of addressing the euro’s potentially damaging surge against the dollar.

Even as the euro zone economy roars ahead, a strong euro threatens to dampen inflation and endanger the work done by years of unprecedented stimulus, probably forcing Draghi to pour cold water on rising expectations that the ECB is speeding towards an interest rate hike.

His task was made even more delicate overnight when top U.S. officials made their case for a weak dollar, sending the greenback to a three year low against the euro and raising fears of renewed trade wars.

Still, in a widely expected decision, the ECB kept its key interest rate deep in negative territory, maintained a pledge to hold rates steady until well after bond buys conclude and promised to continue asset purchases until a sustained rebound in inflation.

“The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases,” the central bank said in a statement.

He is now set to address reporters in a 1330 GMT news conference where the euro’s rise and expected changes in the bank’s policy guidance will likely take centre stage.

U.S. Treasury Secretary Steve Mnuchin said he welcomed a weak dollar, arguing that it was good for U.S. trade, and Commerce Secretary Wilbur Ross said “U.S. troops are now coming to the ramparts” in global trade wars.

Any discussion about the euro is likely to be a delicate balancing act: the euro’s five and a half percent rise since December holds back inflation which the ECB wants to see climb. But rapid economic growth and the likely end of the bond buys later this year justify some currency strength.

Wanting to keep all options on the table, Draghi is likely to signal a concern about the rapid rise in the currency but will maintain that it is not a policy target, hoping to strike a balanced message until policymakers are ready to unveil their blueprint for winding down stimulus, economists said.

Having bought more than 2 trillion euros worth of bonds over the past three years, the ECB has almost single-handedly depressed borrowing costs in the euro zone to kick start growth and lift prices.

The purchases, already twice reduced, are set to run until the end of September and investors are betting on their end in the fourth quarter.

But predictions for tighter ECB policy are adding to pressure on the currency and raising market bets for a rate hike as early as December, a move seen as premature even by the most hawkish of policymakers.

Inflation is also years away from rising back to the ECB’s target of 2 percent, so Draghi can hardly afford any big currency swings.

The purchases, already twice reduced, are set to run until the end of September and investors are betting on their end in the fourth quarter.

While the euro’s gain so far has only a modest impact on inflation, the worry is that weaker economies on the bloc’s periphery would be affected by it more, a risk to an economic convergence process that restarted only recently.