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durhamborn

Deflationary collapse and the Reflation Cycle to Come.

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1 hour ago, durhamborn said:

Exactly,and given silver demand will be the big gainer from that green energy at the same time as investment demand is exploding due to inflation and you can see why it might have its biggest bull in history.All the macro stars are coming into line for it.

Here's hoping.  I just remembered a load of those rubbish £20 coins from the Royal Mint I have knocking about. 

They can turn them into solar panels for all I care :lol:

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On 19/04/2018 at 8:07 PM, Majorpain said:

2 days and he comes out with some ******** about Brexit.

Raising interest rates will crash the housing market, send zombie companies under and blunt the spending of indebted consumers.  The economy must be allowed to purge malinvestment from time to time or they build up, the longer this goes on the worse the results will be.

Nicely put MP.

On 21/04/2018 at 9:19 AM, durhamborn said:

To be honest i do very little work on house prices because they dont affect me.Im mortgage free and will probably never move.However i can and do run them through some cross market stuff involving rates,wages,credit supply etc.Under such things i see probably 40%+ off top to bottom in south east prices nominal,then another 30% due to inflation,so likely down 70% is an area id look at by 2025.

What i can say with a lot of confidence is house prices are going down a lot,and leveraged BTL is about to experience massive pain.First prices will fall to trap them in negative equity/no equity.Then rates will start to rise during the next cycle where debt service goes up much quicker than rents.They are stuffed.The leveraged of course,not the cash buyer BTL.

Another area to avoid is Help to Buy.I simply cant see any way people buying now will have any equity for a decades and will be trapped.Its a disgusting scheme that will ruin a lot of hard working young peoples lives.

I'm of the view that house prices will revert to their historical link with local salaries.

Buy to let mortgages became available in the Uk in 1996 iirc.You can pretty much date the current bubble from there.Hordes of middle aged,middle class have placed their family home on the credit line ever since,quite often wihtout being aware that they have

BTLers formed the bulk of marginal buyers since and post S24,IR hikes,Basel 3 etc etc they'll be stepping back,leaving local buyers buying on MMR based salary multiples.The problem I have is trying to estimate where wages will be in 5 years,given fiscal deficits and deleveraging.

On 18/04/2018 at 12:45 PM, Ash4781 said:

The big shopping centre deal between Hammerson and Intu has collapsed. No surprise really there was a lot of shareholder opposition. Edit: it looks like they will be advising shareholders to vote against the deal. That will keep me laughing for a while.

https://www.ft.com/content/0f9199fc-42d8-11e8-93cf-67ac3a6482fd

Investors pessimistic about retial prospects.

Hammerson trading below the value of it's property portfolio which says it all really.

On 19/04/2018 at 12:54 AM, durhamborn said:

Cycles develop over time and most people miss that.A lot see the numbers and think a collapse is certain.They are right.It is.However they miss the fact that during a disinflation/deflation, CBs have almost unlimited ability to print.The wealth destruction and credit deflation ahead will be very painful,but it isnt a depression.That comes at the end of the reflation when high inflation and rates removes the ability of the CBs to print,and that leads to governments being shut out of the capital market.Im very worried that we might see the biggest crash in human history by around 2026.Thats not hyperbole,its what i see when i run printing of $12 trillion from the Fed and similar % amounts from other key CBs.I try to stop looking that far out as its a bit foggy and a lot can change.

I think its highly likely investors get caught by the next cycle though.Very few will buy inflation assets and when i look around at the leverage ordinary people are carrying on houses,cars etc i know the pain they are going/likely to suffer.

The facts are i fully expect many/most people to disagree and as long as people are respectful and put across their own thoughts thats fine by me and i hope this thread can be open to anyone to do just that,and that it remains a worthwhile debate.However iv also had pretty much 100% of people iv told that there is a very real chance interest rates will be above 10% by 2025 call that crazy talk.They say that would crash the housing market etc.When i say no,it will just keep down a market that has already crashed they think im mad.They are about to get an education i think.

 

This next economic era will feature powerless CB's The Fed's current moves are a sign of the changing times.

Re that last bit in bold,I remember people saying the tech bubble wouldn't burst and buying Scoot.com and Marconi for their retirement.The experience was life changing for me,watching so many loose their shirt.

Edited by Sancho Panza

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23 minutes ago, durhamborn said:

It was weird seeing Micro Focus take a beating the other week.I remember trading them back in the late 90's.

 2 yr generic yield at 2.46%,5 year high....tempting.

https://www.bloomberg.com/quote/USGG2YR:IND

Edited by Sancho Panza

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9 hours ago, Will! said:

Saxo Group Q2 2018 Quarterly Outlook (pdf)

35 pages, but an interesting read I thought.

Thanks for posting Will.Shedlock posted on this but didn't have a link to the full post.He often features Steen jakobsen on his site.

Interesing to see his headline

https://www.themaven.net/mishtalk/economics/saxo-bank-quarterly-outlook-end-of-a-cycle-like-no-other-C8VzKb-HfUapajJPNrKNDg/

'Saxo Bank Quarterly Outlook: End of a Cycle Like No Other

So now we have our first great new showdown since the Cold War, which saw the victory of capitalism over communism. Now comes the fight between nationalism and globalism.

a world split into China versus the US, with the rest of the world having to decide which side to join.

Please explain to me how a 35-year-old can be less optimistic about the future than a 55-year-old! It defies logic, nature, and reasoning. It is a case of young people feeling the pain of the present economic reality: it’s hard to find a decent job and or even interview for a job when you need a PhD to start with. The young are increasingly indebted by education costs and priced out of getting onto the house ownership ladder. '

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15 minutes ago, durhamborn said:

wtf, hahaha, some people eh? its no wonder idiot lottery winners toss it all away in no time at all,  ' We were totally new to having any money ...' id be totally new to having a large amount of money, but because im such a cynic i know for a fact i wouldnt listen to bloody bank, mainly ive become my dad as the years passed, he didnt trust anyone when it came to money (mainly banks, FA's and the govt), and by god he was absolutely right after all.

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Wolf Street outlining how the Fed hopes to deflate the bubble gradually.

There's no dodging the deflation that's coming.Gradual it won't be once it bites.

https://wolfstreet.com/2018/04/19/now-even-a-fed-dove-homes-in-on-the-everything-bubble/

'“If we have learned anything from the past, it is that we must be especially vigilant about the health of our financial system in good times, when potential vulnerabilities may be building,” explained Federal Reserve Board Governor Lael Brainard in a speech in Washington, D.C., this morning.

This was a reference to a time-honored banker adage, now mostly forgotten after nearly nine years of easy money: Bad deals are made in good times.

Brainard fills one of the seven slots on the Board of Governors. Two slots are filled by Chairman Jerome Powell and by Randal Quarles. Four slots remain vacant, waiting for Trump appointees to wend their way. She is a strong “dove” in the world of central banks, and she just pointed at why the Fed is tightening – and will continue to tighten: the Everything Bubble.

It is rare to hear a Fed governor, and a dove in particular, list some of the biggest elements in the Everything Bubble as a concern. And the concern is not how to maintain it and keep it inflated; but how to tamp down on it gradually. '

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8 hours ago, Sancho Panza said:

Wolf Street outlining how the Fed hopes to deflate the bubble gradually.

There's no dodging the deflation that's coming.Gradual it won't be once it bites.

https://wolfstreet.com/2018/04/19/now-even-a-fed-dove-homes-in-on-the-everything-bubble/

'“If we have learned anything from the past, it is that we must be especially vigilant about the health of our financial system in good times, when potential vulnerabilities may be building,” explained Federal Reserve Board Governor Lael Brainard in a speech in Washington, D.C., this morning.

This was a reference to a time-honored banker adage, now mostly forgotten after nearly nine years of easy money: Bad deals are made in good times.

Brainard fills one of the seven slots on the Board of Governors. Two slots are filled by Chairman Jerome Powell and by Randal Quarles. Four slots remain vacant, waiting for Trump appointees to wend their way. She is a strong “dove” in the world of central banks, and she just pointed at why the Fed is tightening – and will continue to tighten: the Everything Bubble.

It is rare to hear a Fed governor, and a dove in particular, list some of the biggest elements in the Everything Bubble as a concern. And the concern is not how to maintain it and keep it inflated; but how to tamp down on it gradually. '

These are the very reasons my charts picked up the turn in liquidity and with cross market stuff flashed red in more areas than iv seen them do before.Running them with data points i was given from when they were used back in the 70s and early 80s when they nailed the start of the dis-inflation cycle they are now flashing end of that cycle.Running cross market liquidity to leverage they are showing inflection point reached.Now at this stage they show a business recession,a bog standard one.If you roll in the leverage and the derivatives i cant chart the falls.They become too severe.Of course at some point on the straight down fall the Fed steps in.

A chief financial officer of a retail property company i know has just locked most of their debt into a 10 year bond at 3% from LIBOR based debt.That was a very shrewd move (and was from very good macro advice).The window will be shut soon on re-finance and when it opens rates will be heading higher.I expect massive falls in the lower end of the bond market.

 

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46 minutes ago, Barnsey said:

So the US 10yr is almost breaking 3% today, could be a big psychological signal?

The document Will posted yesterday mentioned that as being important so I would say yes.

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15 hours ago, durhamborn said:

Exactly whats coming.Italy and Greece will be destroyed with whats ahead.Europe will be saved from collapse by Fed printing,but the end of the next cycle will see no printing due to run away inflation.Thats when Europes experiment will implode i expect.Like you say 2-3% treasury yields wont last in this situation,1% soon.

I'm not so sure Greece's future is as bleak as you paint it. China is investing billions $ into Greece as it will form a critical part of its one belt and road initiative to exports goods into Europe. Greece will be the end point and hub for all goods entering the European market. Has massive potential.

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4 hours ago, SOLZHENITSYN said:

I'm not so sure Greece's future is as bleak as you paint it. China is investing billions $ into Greece as it will form a critical part of its one belt and road initiative to exports goods into Europe. Greece will be the end point and hub for all goods entering the European market. Has massive potential.

The one belt one road will be a key driver of the next cycle,at least from from the east.However Greece has huge problems and a few billion investment from China wont make much difference to them after the initial boost.Italy will be a bigger problem though.Europe will suffer a lot more than the US,thats for sure.

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Slightly off topic but on the subject of China, watched this documentary on netflix over the weekend.

https://www.netflix.com/gb/title/80221646

The China Hustle.

All about reverse takeovers of listed companies by Chinese companies. Companies massively over egging there profits.  Reporting $10m profit locally but $100m to US markets. Best line was something like, “Its not illegal for Chinese businesses to lie to foreigners”

Worth a watch.

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29 minutes ago, durhamborn said:

The one belt one road will be a key driver of the next cycle,at least from from the east.However Greece has huge problems and a few billion investment from China wont make much difference to them after the initial boost.Italy will be a bigger problem though.Europe will suffer a lot more than the US,thats for sure.

@durhamborn - Any chance of saying how you have diversified your savings, for example, how much in cash, how much in shares, how much in other things? 

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27 minutes ago, Lozza said:

Slightly off topic but on the subject of China, watched this documentary on netflix over the weekend.

https://www.netflix.com/gb/title/80221646

The China Hustle.

All about reverse takeovers of listed companies by Chinese companies. Companies massively over egging there profits.  Reporting $10m profit locally but $100m to US markets. Best line was something like, “Its not illegal for Chinese businesses to lie to foreigners”

Worth a watch.

Similar to the intellectual property theft of car designs

https://www.autocar.co.uk/car-news/guangzhou-motor-show/land-rover-complain-about-chinese-copy-range-rover-evoque

The Chinese courts couldn't see what the problem was, as it look nothing like an Evoque :lol:

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27 minutes ago, fru-gal said:

@durhamborn - Any chance of saying how you have diversified your savings, for example, how much in cash, how much in shares, how much in other things? 

While you're fielding questions DB :lol:, any general thoughts on Africa in this cycle? Your post on Greece got me thinking as the Chinese have been doing infrastructure in Africa for years

Edited by chronyx

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4 hours ago, Lozza said:

Slightly off topic but on the subject of China, watched this documentary on netflix over the weekend.

https://www.netflix.com/gb/title/80221646

The China Hustle.

All about reverse takeovers of listed companies by Chinese companies. Companies massively over egging there profits.  Reporting $10m profit locally but $100m to US markets. Best line was something like, “Its not illegal for Chinese businesses to lie to foreigners”

Worth a watch.

3

Watched this tonight worth watching

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14 hours ago, durhamborn said:

These are the very reasons my charts picked up the turn in liquidity and with cross market stuff flashed red in more areas than iv seen them do before.Running them with data points i was given from when they were used back in the 70s and early 80s when they nailed the start of the dis-inflation cycle they are now flashing end of that cycle.Running cross market liquidity to leverage they are showing inflection point reached.Now at this stage they show a business recession,a bog standard one.If you roll in the leverage and the derivatives i cant chart the falls.They become too severe.Of course at some point on the straight down fall the Fed steps in.

A chief financial officer of a retail property company i know has just locked most of their debt into a 10 year bond at 3% from LIBOR based debt.That was a very shrewd move (and was from very good macro advice).The window will be shut soon on re-finance and when it opens rates will be heading higher.I expect massive falls in the lower end of the bond market.

 

The ever excellent Wolf had a piece on junk bond yields the other day that sums up the current madness

https://wolfstreet.com/2018/04/18/junk-bond-market-still-in-total-denial-fighting-the-fed/

' And the spread between the broad junk-bond index and equivalent Treasury yields has narrowed to 3.33 percentage points. Beyond the brief dip on January 26 (to a spread of 3.23 points), it’s the narrowest spread since the la-la days in July 2007 before the Financial Crisis put an end to it

These days, investors are so eager to chase yield that they’re engaging in huge risks with little extra compensation. This is precisely one of the conditions in the financial markets that the Fed is targeting with its tightening policies. It wants yield spreads to widen. It wants risk premiums to grow. It wants long-term Treasury yields to rise, and it wants junk bond yields of equivalent maturities to rise faster than Treasury yields.

All this means is that the Fed wants bond prices to head south.

Eventually, the Fed wins. And when it does, junk bond yields have a tendency to blow out as the companies that issued those bonds suddenly get caught in a credit squeeze and have trouble servicing that debt.

 

12 hours ago, Barnsey said:

So the US 10yr is almost breaking 3% today, could be a big psychological signal?

https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2018

10 yr and 30 yr yield 0.2% apart.................

https://fred.stlouisfed.org/series/T10Y2Y

10 year + 2 year constant maturity chart heading towards inversion just like late 70's,early 80's, late 80's,early noughties, GFC......

I thought yield inversion was a thing of the past but with QT an all..............maybe,just maybe.

Edited by Sancho Panza

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Watched the first 20 minutes or so. Seems to be a cross between

  • promoting Chinese companies as thriving and profitable when in reality they are a backwater tiddly business. Local investigators actually went there and found dirt roads to the factories which could never have supported the claimed thousands of trucks in and out
     
  • tunneling intothe good name of a US legit (but defunct and not trading) business to look OK on the stock market. A bit like you go into a sports shop and buy something made by Dunlop or Karrimor - but they merely bought the name to stick on their own dubious products. I think Wharfedale or Tannoy speakers are a similar example

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5 hours ago, chronyx said:

While you're fielding questions DB :lol:, any general thoughts on Africa in this cycle? Your post on Greece got me thinking as the Chinese have been doing infrastructure in Africa for years

None really,i just want to get my portfolio fully back into dividend paying shares and go back to semi retirement.The only African companies id own would be South African gold miners Harmony and Anglogold Ashanti.

In other news looks like people dont want much double glazing on credit anymore.£12k for a small 3 bed semi when you can do it yourself for £2.5k or get a local fitter and buy the windows etc and do it for £3k.

Margins destroyed,dividend gone,not sure if they are carrying debt as i wouldnt even waste 5 minutes on the balance sheet of the sort of company that will be smashed (and has been)

 

http://www.proactiveinvestors.co.uk/companies/news/195549/safestyle-uk-chairman-quits-as-replacement-windows-maker-issues-another-profit-warning-195549.html

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6 hours ago, fru-gal said:

@durhamborn - Any chance of saying how you have diversified your savings, for example, how much in cash, how much in shares, how much in other things? 

Its roughly 30% cash 20% US treasuries,12% PM miners 7% silver,and 30% equities.I have been buying select shares and added quite a few in the sell off earlier in the year including Vodaphone.I even bought back some Imperial Brands after selling them near their highs.Id owned some of them since the Hanson Trust days,so with 40% fall avoided i decided to buy some back again.

 

 

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Hodges.Cheerful as ever.

https://www.icis.com/blogs/chemicals-and-the-economy/2018/04/the-tide-of-global-debt-has-peaked-8-charts-suggest-what-may-happen-next-as-the-tide-retreats/
'
The results of the central bankers’ great experiment with money printing are now in, and they are fairly depressing, as the charts above confirm:

  • On the left are the IMF’s annual forecasts from 2010 – 2018 (dotted lines) and the actual result (black)
  • Until recently, the Fund was convinced the world would soon see 5% GDP growth, or at least 4% growth
  • The actual outcome has been a steady decline until 2017 and this month’s forecast sees slowing growth by 2020

As the IMF headlined last week,current favorable growth rates will not last”.

  • On the right, is the amount of money the bankers have spent on money printing to achieve this result
  • China, the US, Japan, the Eurozone and the Bank of England printed over $30tn between 2009-2017
  • So far, only China – which did 2/3rds of the printing, has admitted its mistake, and changed the policy

Debt.png

The chart above shows what happens if you spend a lot of money without getting much return in terms of growth.  Again from the IMF, it shows that total global debt has risen to $164tn.  This is more than twice the size of global GDP – 225%, to be exact, based on latest 2016 data.  The IMF analysis also highlights the result of the money printing:

“Debt-to-GDP ratios in advanced economies are at levels not seen since World War II….In the last ten years, emerging market economies have been responsible for most of the increase. China alone contributed 43% to the increase in global debt since 2007. In contrast, the contribution from low income developing countries is barely noticeable.”

Debt2.pngIt doesn’t take a rocket scientist to work out the result of this failed policy, which is shown in the above IMF charts:

  • Global debt to GDP levels are higher than in 2008 and in the financial crisis; only World War 2 was higher
  • Debt ratios in the advanced economies are at their highest since the 1980s debt crisis
  • Emerging market ratios are lower (apart from China), but this is because of debt forgiveness at the Millennium

CAN ALL THIS DEBT EVER BE PAID PACK?  AND IF NOT, WHAT HAPPENS?
Leverage1.png

As everyone knows, borrowing is easy.  Almost all governments and commentators have lined up since 2009 to support the money-printing policy.  But the hard bit happens now as it starts to become obvious that the policy has failed.

We now have all the debt, but we don’t have the growth that would enable it to be paid off.

It would be easy to simply end here, and point out that John Richardson and I set out the reasons why money-printing could never work in 2011, when we published Boom, Gloom and the New Normal: How the Ageing of the BabyBoomers is Changing Demand Patterns, Again.  Our conclusion then was essentially based on common sense:

Central bankers simply confused cause and effect: demographics drive the economy, not monetary policy. 

Common sense tells us that young populations create a demographic dividend as their spending grows with their incomes.  But today’s ageing Western populations have a demographic deficit: older people already own most of what they need,and their incomes decline as they enter retirement.

But having been right in the past doesn’t help to solve today’s problem of excess debt and leverage:

  • Common sense also tells us that leverage equals risk – if it works out, everything is fine; if not…..
  • If you have a lot of debt and the world moves into recession, it becomes very hard to repay the debt

Financial markets are doing their best to warn us that the problems are growing.  Longer-term interest rates, which are not controlled by the central banks, have been rising for some time. They are telling us that some investors are no longer simply chasing yield.  They are instead worrying about risk – and whether their loan will actually be repaid.

Essentially, we are now in the end-game for stimulus policies.  Major debt restructuring is now inevitable – either on an organised basis, as set out by Bill White, the only central banker to warn of the 2008 Crisis – or more chaotically.

This restructuring is going to be painful, as the chart above on the impact of leverage confirms.  I originally highlighted it in August 2007, as the Crisis began to unfold – unfortunately, it now seems to have become relevant again..

PLEASE DON’T FIND YOURSELF SWIMMING NAKED WHEN THE TIDE OF DEBT GOES OUT 
Leverage makes people appear to be geniuses on the way up.  But on the way down, Warren Buffett’s famous warning is worth remembering: “Only when the tide goes out do you discover who’s been swimming naked”.'

 

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18 hours ago, DoINeedOne said:

Watched this tonight worth watching

Re the China hustle... Honestly wasn't surprised at all.... A few scam Chinese company's trying to cash in to the lucrative US money hole.  Bigger American institutions not caring when presented with some facts not all as it seems (as long as there commission train keeps chugging).   Notorious big name rating agencies pimping out their "legit" name, again without a care as long as they get there fees.   

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