Deflationary collapse and the Reflation Cycle to Come.

[Majorpain]

USD/EUR is what's driving the dollar index, not surprising really as EUR is now 25% of currency reserves in the world (USD 62%).  With Europe on the surface putting out positive economic news recently the euro is surging causing the interesting dollar index charts above.  Will the Euro continue to appreciate is the question, there are a lot of mines in the minefield for Mario Draghi, the wheels will fall off if he cant print to buy Italian govt bonds.

My IBTL holdings will be re-evaluated in May, im happy its not GBP/USD driving the dollar index down so the damage should be limited.

[Funn3r]

From the everyday perspective though GBPEUR is a real nuisance for UK people who are more likely to be working or touristing in the Eurozone than dollar. Annoys me paying over the odds for everything when I know deep down the Euro is not worth the current 1.12 to the GBP.

[Barnsey]

VERY interesting that we've seen a mini QE4 burst to save the stock market, so much for staying on the QT course no matter what!

Think @durhamborn is right about rates not going much higher, but how low will the dollar fall? Will DXY overshoot 86?

Edited February 16, 2018 by Barnsey

[Majorpain]

38 minutes ago, Barnsey said:

VERY interesting that we've seen a mini QE4 burst to save the stock market, so much for staying on the QT course no matter what!

Think @durhamborn is right about rates not going much higher, but how low will the dollar fall? Will DXY overshoot 86?

Wow, I must remember to make a big sign to remind me that the only thing that affects the markets these days in is how much money the central banks are printing...  NOTHING else matters

[Errol]

Full audit of US gold is required, with bar numbers and quality verified by an independent party.

[kibuc]

2 minutes ago, Errol said:

Full audit of US gold is required, with bar numbers and quality verified by an independent party.

Required by whom, though? Sure as hell Fed does not require it.

[Noallegiance]

7 minutes ago, Errol said:

Full audit of US gold is required, with bar numbers and quality verified by an independent party.

But some bloke went there, came out and said it's all there.

Good enough for me. They wouldn't lie...

[afly]

14 minutes ago, Noallegiance said:

But some bloke went there, came out and said it's all there.

Good enough for me. They wouldn't lie...

Shuffling along, he seemed weighed down by something 

[Sancho Panza]

16 hours ago, pmgdawau said:

Karl Denninger reckons rollover starts after March, someone commented would take 2 years to bottom based on history

https://market-ticker.org/akcs-www?post=232985

 

7 hours ago, Fence said:

Feel like I've just a facial scrub reading that!  Do you have a link?  I think I'll register as I enjoyed a few of his posts.

Click on 'go to responses' on the link above.Denninger was great value back in the day-(07/08). He was at the coal face in terms of the 'ml implode' or whatever it was (a hot bed of sub prime doubters) and if you read him,then Lehman was no surprise.His was the place I found Mr Mortgage aka Mark Hanson who called Lehman before anyone else I read about.

Denninger is a classic keyboard warrior and he runs his site with an 'iron fist' which is odd for a libertarian but there you go.

 

3 hours ago, Funn3r said:

From the everyday perspective though GBPEUR is a real nuisance for UK people who are more likely to be working or touristing in the Eurozone than dollar. Annoys me paying over the odds for everything when I know deep down the Euro is not worth the current 1.12 to the GBP.

It's surreal to me $1.41 and yet E1.13 ...

[Errol]

Yamana results out - http://www.kitco.com/news/2018-02-16/Yamana-Reports-4Q-Loss-Projects-Higher-Gold-Output.html .

[Democorruptcy]

3 hours ago, Majorpain said:

Wow, I must remember to make a big sign to remind me that the only thing that affects the markets these days in is how much money the central banks are printing...  NOTHING else matters

Sure Money Investor's LAMPP?

[Errol]

4 hours ago, Barnsey said:

VERY interesting that we've seen a mini QE4 burst to save the stock market, so much for staying on the QT course no matter what!

Think @durhamborn is right about rates not going much higher, but how low will the dollar fall? Will DXY overshoot 86?

 

More on this - 

Is The Fed Back To “Quantitative Easing?” - http://investmentresearchdynamics.com/is-the-fed-back-to-quantitative-easing/

[Inoperational Bumblebee]

1 hour ago, Errol said:

Yamana results out - http://www.kitco.com/news/2018-02-16/Yamana-Reports-4Q-Loss-Projects-Higher-Gold-Output.html .

Comments aren't particularly complimentary...

[Cosmic Apple]

27 minutes ago, Errol said:

 

More on this - 

Is The Fed Back To “Quantitative Easing?” - http://investmentresearchdynamics.com/is-the-fed-back-to-quantitative-easing/

For Forks Sake...

[Noallegiance]

52 minutes ago, Errol said:

 

Is The Fed Back To “Quantitative Easing?” 

Based on the chart that shows the Fed assets have gone up since they said they were going down, yes.

https://fred.stlouisfed.org/series/WALCL

Stock market rally anyone?

[durhamborn]

3 minutes ago, Inoperational Bumblebee said:

Comments aren't particularly complimentary...

They never are with the gold miners as they have suffered such a long bear market and a lot of people have taken huge haircuts buying them at over valued prices.When people buy is what matters.Yamana is up 33% from the start of Dec and one of the best performers in the GDX.I actually sold my last today because i wanted to increase treasuries for an average 19% profit and sentiment might hold them back for a while.HMY is up 25% this week as well,but im holding them until gold hits $1450+.Anyone who bought Yamana the day it was put on here can sell right now and make 15% profit and its outperformed the FTSE 100 by 17% since then.

The dollar is going to 86.There will be lots of people saying why gold went up.Inflation,people thinking rates are going down,Yen strength,protection against a bear market.Really its just momentum coming out of a five year consolidation and the power of the tape.

Fascinating market at the moment,im itching to start adding to my UK stocks,but holding off for now.

 

 

[zugzwang]

10 minutes ago, Noallegiance said:

Based on the chart that shows the Fed assets have gone up since they said they were going down, yes.

https://fred.stlouisfed.org/series/WALCL

Stock market rally anyone?

Explains a lot. That and Buffett flapping his gums and airing his laundry.

Let's see how long they can keep it up without admitting what they're doing.

[Sancho Panza]

 

Click the link to see the charts.

Mish 16/2/18

'Albert Edwards on Trump's Legacy:15% Deficits then a Deflationary Bust

 

Albert Edwards at Society General does not have kind words for Trump's stimulus package.

In his latest Email, Albert Edwards at Society General fires a shot at Trump's tax cut.

Edwards says the "fiscal expansion is probably the most foolhardy escapade in modern economic policy, and the timing of the fiscal stimulus that is utterly ridiculous and will only accelerate the collapse of US financial markets as the Fed hikes rates even more quickly."

I doubt this is the most foolhardy expansion in history, but it is reckless and ill-timed.

Here are a few clips from Edwards.

After some eighteen months of surprising to the downside, US wage and price inflation are rising briskly, putting intense downward pressure on financial markets. Yet another Fed-inspired financial Ponzi scheme now looks set to collapse into the deflationary dust. But the post-mortem will identify President Trump’s ludicrously timed fiscal stimulus as a key trigger for the collapse. A 15% deficit will be his legacy.

Whatever the arguments are in favour of tax reform in the US (and there are many), this is probably the singularly most irresponsible macro-stimulus seen in US history. To say it is ill-timed and ill-judged would be a massive understatement.

The outcome of this front-end loaded stimulus package is patently obvious. It will rapidly accelerate the end of the economic cycle.

Tim Lee of pi Economics opined recently on why the VIX will struggle to regain the very low levels of a couple of weeks back. “We are much further into the cycle of what might be thought of as an underlying tightening of monetary conditions. The Fed is contracting its balance sheet and raising interest rates. On top of that ... US imbalances are worsening with the personal savings rate set to fall to a new low while US government finances deteriorate further. Nominal and real bond yields are rising.”

Notwithstanding the fact that I do occasionally get my forecasts correct, I have another prediction on the US deficit. Because of the starting point of US fiscal policy, I have a very high confidence that in the next, not so distant, US recession, the US general government deficit will soar way beyond the 13% the OECD say was the peak for 2009. A ruinous fiscal deficit in excess of 15% of GDP will be Trump’s legacy.

Name the Crisis

 

That chart and many similar ones are making the rounds.

But as discussed, futures bets that the 10-year yield is about to break out are at extreme levels.

See No Bond Vigilantes: Just Record Short Futures Speculators.

Inflation Talk Everywhere

All eyes are on inflation. The CPI jumped and Inflationistas Rang Alarm Bells.

One can easily find inflation in home prices, but the Fed does not count that.

Edwards' Email discusses the Phillips curve, a point on which we disagree.

Most believe there is serious wage pressure, but the data are highly suspect. Close analysis shows Acceleration in Wage Growth is a Statistical Mirage

However, Trump's seriously misguided tariffs may temporarily boost inflation, at least temporarily. Then think Smoot-Hawley.

Deflationary Collapse

Edwards says the next recession will bring outright deflation, helicopter money, negative Fed Funds and negative 10 year bond yields.

 

Overall, Edwards' view message closely matches mine.

I think the tax cuts were a huge mistake. For discussion, please see Tax Cut Stimulus Mish vs. Krugman: Libertarians Dead Wrong?

I have written many times that the low in long-term yields is not yet in, but I am not calling for negative rates just yet.

The next recession undoubtedly brings about outright deflation. Price deflation should to be expected when asset bubbles burst, and this is one massive bubble.

[wish I could afford one]

On 14/02/2018 at 1:15 PM, Fence said:

Now done.

A bit like an echo (makes me feel good!).

I have a different approach to allocations and drawdowns though based on the "Minimum Income Floor and Upside" concept.

Pretty much have been using the same ETFs in the past (for income).

As always I'll stay transparent.  Last week Mr Market took £30k from me and then this week he gave £21k of it back.  Who knows what next week will bring.  I'm glad to see a bit of volatility back in the market ,vs prices always go up, as for me that seems healthy.

What I do know is that the thing that the majority of charts don't show, dividends, just keep rolling in with my FIRE spending plans now more than covered by them.

My strategy remains unchanged.  I'll keep posting here as it will be interesting to see how a very mechanical head in the sand type method will compare to the more dynamic thinking on this thread over the long term.

[wish I could afford one]

On 15/02/2018 at 10:49 PM, leonardratso said:

i dumped tlt, it just kept falling and falling, too much for me to stomach

What's your total portfolio down by and over what period?  My peak was 06 January 2018 and since then I'm down 2.7%.  This of course needs to be read in conjunction with 2017 performance where I was up 8.0% with full details here.

[frederico]

I don't know about a full on crash, might not be allowed to happen, but perhaps the free money top has been reached.

On the other hand , despite 10 years of recovery I see no upside, just risk everywhere.

[leonardratso]

2 hours ago, wish I could afford one said:

What's your total portfolio down by and over what period?  My peak was 06 January 2018 and since then I'm down 2.7%.  This of course needs to be read in conjunction with 2017 performance where I was up 8.0% with full details here.

ill get some figures, i do very often forget to check because im always busy at work or elsewhere. Must admit though, that i love cash and always have a big pile sat close by, not the best strategy, but makes things really easy when the unexpected happens, so im not as invested as i could be. Ill dig some %ages  out.

[wish I could afford one]

23 minutes ago, leonardratso said:

ill get some figures, i do very often forget to check because im always busy at work or elsewhere. Must admit though, that i love cash and always have a big pile sat close by, not the best strategy, but makes things really easy when the unexpected happens, so im not as invested as i could be. Ill dig some %ages  out.

Cash, the one asset class 'guaranteed' to lose value over the long term.

I'm just as bad with £226k currently in cash although I have a definite purpose for it.  It's sitting there as it will help buy my family a home by the end of the year.

After that the aim is to hold 3 years of living expenses in cash to ride out any market downturns.

[leonardratso]

34 minutes ago, wish I could afford one said:

Cash, the one asset class 'guaranteed' to lose value over the long term.

I'm just as bad with £226k currently in cash although I have a definite purpose for it.  It's sitting there as it will help buy my family a home by the end of the year.

After that the aim is to hold 3 years of living expenses in cash to ride out any market downturns.

looks like about 4-5%, yeah i understand about the cash, but where i work they go thru loadsa cycles of lay offs, they seem to have got smart when it comes to redundancies, in that they dont really do them, they just trawl thru the HR markers and get shot of anyone with a mark or complaints against them with a few months money(salary). I wont say anymore since they might be watching. Hence i need to have a liquid war chest just in case.

[wish I could afford one]

4 minutes ago, leonardratso said:

looks like about 4-5%, yeah i understand about the cash, but where i work they go thru loadsa cycles of lay offs, they seem to have got smart when it comes to redundancies, in that they dont really do them, they just trawl thru the HR markers and get shot of anyone with a mark or complaints against them with a few months money(salary). I wont say anymore since they might be watching. Hence i need to have a liquid war chest just in case.

Is that 4-5% down since the start of the year or some other period?  Just trying to understand if 'active' deflationary collapse investing is beating 'passive' gone fishing investing in the current climate.

That sounds like a very valid reason to hold cash to me.  It used to be called an Emergency Fund where numbers like 6 months salary used to be bandied around.  Good luck with it - I hope you stay under HR's radar.

As an aside in the modern world I always laugh at the term HR - Human Resources.  These days they should be called NHR - Not Human Resources.  Some companies no longer try to hide this by calling them Business Partners or similar.