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Deflationary collapse and the Reflation Cycle to Come.


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Durhamborn... DYOR etc obviously...but just suppose you had a friend... who was thinking of buying miners... volatile wee buggers... would you say get shares in them now, or would you say hold on til after the bust..? 

DYOR once again... but honest to God they are some craic these days..!!

 

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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

How convenient.

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3 hours ago, Will! said:

One of the things I don't understand about China's mercantilism is if they're going for the number one spot then why are they still buying US Treasury bonds?  It doesn't make sense to me for China to keep buying the debt of the country they now seriously aim to supplant. 

1.  As long as they keep buying the debt, they obviously don't want the number one spot yet.  Their whole economy is based on having a weaker currency, so they can export their sports socks at twofer a pound / dollar.  Buying the debt keeps the $ high for them.

2.  Their debt holding is a weapon.  Suppose Mr Trump comes out with... um... extending the Mexico wall through California, out to Hawaii, and up to Alaska?  Yeah, wouldn't surprise me either.  So that's when the Chinese tell him they're dumping the debt if he goes through, (maybe after they sell him a few billion bricks certified for a marine environment).

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7 hours ago, Thorn said:

Durhamborn... DYOR etc obviously...but just suppose you had a friend... who was thinking of buying miners... volatile wee buggers... would you say get shares in them now, or would you say hold on til after the bust..? 

DYOR once again... but honest to God they are some craic these days..!!

 

Id buy a few gold miners now,and silver miners.If gold hits £1450/$1500 id sell them,if it didnt and the miners fall,during a market sell off id buy more.I expect gold to run to $1450+ before being hit,if it doesnt i fully expect the inflation of the next cycle to see them go up in price many times over.Without going all hyperbole i think some miners will 50 bag if/once inflation really gets running.Part of  balanced portfolio of course.

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On 17/12/2017 at 16:44, SillyBilly said:

Has anybody got any views as to which countries are likely to do well out of a reflation type event (post deflationary bust)?

Personally I quite like India, Mexico & Russia for a variety of reasons. Countries with household debt @ lower than 20% of GDP and significant commodity producers as well.

If I had to invest in European countries I'd lean toward the Czech Republic and Poland. Both developing countries with rising wages and opportunites for an expanding middle class. The opposite of Western Europe with a hollowing middle class and stagnating wages. And both with manageable debt to GDP ratios, Czech Republic's being particularly low.

Colombia would be my Southern American pick. Strong agricultural exporter, particularly in coffee, bananas, rice, tobacco, corn, sugarcane, cocoa beans, oilseed, vegetables & forest products. Currently diversifying its economy away from being so heavily dependent on oil, a reasonable growth outlook, an expanding manufacturing sector and low debt to GDP. Argentina is one I am monitoring in terms of the political situation as they have all the ingredients to do well in my view. Agriculture makes up over 50% of their exports. Significant deposits of Al, Pb, Cu, Zn, Ag, Au which have been underexploited due to a chaotic political situation and economic mismangement. New president, Mauricio Macri, seems determined to sort the country out, already having recently harmonised taxes and regulations in hopes of attracting investment into mining industry. Looking to exploit their shale gas reserves and massively upgrade their energy infrastructure, deals recently signed. Interesting to watch.

Less keen on China and Japan. China I expect needs a significant pull back before it goes onto the next stage of its development, kill of the excesses of a decade of loose credit. Japan has a demographic and debt problem.

Countries I really don't like = Sweden, UK, Canada, Australia, Switzerland, New Zealand.

Countries I don't much like = US, Thailand, Netherlands, Finland, Norway, Malaysia, Denmark, Portugal, Spain, France.

Great post all round, and I wondered if you have any updates thoughts on Argentina as the Peso collapsed again today. 

I noticed @durhamborn mentioned AGT and ARGT but both seem unavailable with HL app so appreciate any further comments

Interesting times coming though

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17 hours ago, Will! said:

One of the things I don't understand about China's mercantilism is if they're going for the number one spot then why are they still buying US Treasury bonds?  It doesn't make sense to me for China to keep buying the debt of the country they now seriously aim to supplant. 

It's the mechanism by which they keep their exports cheap.They don't repatriate dollar/sterling revenues buying bonds etc thereby keeping yuan down vs $.

They inevitably, as you allude become hostages to fortune in that they'll struggle to cash in their assets without causing their collapse.

As soon as they do cash in then the yuan goes up anyway.

Reminds me of the old Oscar Wilde quote about when you owe the bank £100 you have a problem,when you owe them a million,they have the problem.

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13 minutes ago, chronyx said:

Great post all round, and I wondered if you have any updates thoughts on Argentina as the Peso collapsed again today. 

I noticed @durhamborn mentioned AGT and ARGT but both seem unavailable with HL app so appreciate any further comments

Interesting times coming though

The full article is worth a read.

https://wolfstreet.com/2018/05/12/whos-most-afraid-of-a-latin-american-debt-crisis-apart-from-latin-america/

'Economic history appears to be rhyming once again in Latin America. Perennial credit-basket-case Argentina was one of the first countries to suffer a major currency crisis this century. Now, its government has asked the IMF for a brand-new bailout. But if this classic last-gasp fix was meant to calm the markets, it isn’t working.

Previous Latin American debt crises have taught us two things:

  1. The direct impact on the general populace, already suffering from sky-high poverty rates, is devastating;
  2. Once the first domino falls, contagion can spread like wildfire.

The debt crisis of the early 1980s, which spread to virtually all corners of the region, famously paved the way to Latin America’s “lost decade.” Mexico’s Tequila Crisis of 1994-5 at one point became so serious that it almost brought down some of Wall Street’s biggest banks.

At the moment, as long as the US dollar and US yields continue to rise, emerging market jitters can be expected to grow. As British financial correspondent Neal Kimberley notes, markets often behave like predators, running down what they perceive as the weakest prey first — a role being filled, with usual aplomb, by Argentina.'

Edited by Sancho Panza
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Popped on to upload this Wolf St piece.I'm weighing some shorts on housebuilders who led the drop into 08 in 07.........Wolf saying no stock market crash in 2018,so if housebuilders head down,would be -dare a I say it- a repeat of 07/08

 

https://wolfstreet.com/2018/05/13/why-i-think-the-stock-market-cannot-crash-in-2018/

'The 85% of S&P 500 companies that have reported earnings so far disclosed they’d bought back $158 billion of their own shares in Q1, according to the Wall Street Journal. The quarterly record of $164 billion was set in Q1 2016. If the current rate applies to all S&P 500 companies, they repurchased over $180 billion of their own shares in Q1, thus setting a new record:

US-share-buybacks-2018-Q1.png

At this trend, including a couple of slower quarters, S&P 500 companies are likely to buy back between $650 billion and $700 billion of their owns shares in 2018. This would handily beat the prior annual record of $572 billion in 2007. Here are the top buyback spenders in Q1:

In the first quarter, investors pulled $29.4 billion out of US stock mutual funds and exchanged-traded funds, the most since the sell-off in early 2016, according to a BofAML report, cited by the Wall Street Journal. Retail investors, after the phenomenal Trump spike, have lost their enthusiasm.

A large portion of these buybacks are now funded by corporations’ “overseas” cash. This cash accumulated in overseas entities as a result of profits that thus dodged the old US tax law. This “cash,” while registered overseas, has actually been invested in US Treasuries, US corporate bonds, and other investments in the US and elsewhere. Share repurchases were among the things companies could not do with this “overseas” cash without triggering 39% income tax. Now they can, under the reduced rates of the new tax regime.

With this kind of corporate buying pressure in the market, it’s very hard for shares to crash no matter what else is going on such as during the record buyback-year 2007 the housing bust, a budding mortgage crisis, and big visible cracks in the banks. In 2018 too, companies will pile into the market at every dip and buy as high as possible. And they’ll be able to prevent their shares from crashing.

This has already played out during the sell-offs this year, when corporate buybacks surged on days when everyone was selling. And it stopped the sell-offs.

But this “overseas” cash is a one-time trove of money. Once it’s used up, it’s gone. Then what?

Then share buybacks will have to be funded by cash flows and borrowing. Cash flows aren’t nearly enough to maintain this buyback pace, and borrowing is getting increasingly expensive, and corporations are already burdened by a record amount of debt. The Fed’s QE Unwind, which is currently ramping up, will drain up to $600 billion a year in liquidity out of the market in 2019 and later years, when share buybacks funded by “overseas” cash, which were able to counteract the early effects of the Fed’s liquidity drain, will begin to fade out. This gradual transition is one of several reasons why I think that in the near future this market cannot crash — say, a 50% decline over a relatively short period of time — but that it will instead zig-zag lower, and that this process could last many years before the excesses have been wrung out of the market.'

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https://www.washingtonpost.com/opinions/why-the-financial-crisis-in-argentina-matters/2018/05/13/ee84f270-553f-11e8-a551-5b648abe29ef_story.html?noredirect=on&utm_term=.2b1337c1b1f7

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What is to be feared is the possibility that what’s happening to Argentina could happen to other nations. For the past two years or so, international investors have poured money into “emerging market” countries, such as Argentina, Brazil, Mexico, India, China and Indonesia. In 2017, inflows to 25 of these countries totaled$1.2 trillion, according to the Institute of International Finance, a research and advocacy group for global financial institutions.

 

If these inflows slowed significantly — or stopped altogether — there would be negative consequences for the wider world economy. Countries might have to raise interest rates to defend their currencies against crippling depreciations. At some point, herd behavior might take over: Investors would buy or sell financial instruments (stocks, bonds, currencies and the like), mainly because they thought that others were going to buy or sell the same instruments.

What seems especially worrisome, argues economist Desmond Lachman of the American Enterprise Institute, is the “abrupt change in market sentiment.” Investors who only recently had been emerging-market enthusiasts have suddenly become risk-averse skeptics. We may or may not be on the edge of another financial crisis, but regardless of what you think, there’s plenty of room for self-doubt. One way or another, Argentina matters.

 

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1 hour ago, Sancho Panza said:

The full article is worth a read.

https://wolfstreet.com/2018/05/12/whos-most-afraid-of-a-latin-american-debt-crisis-apart-from-latin-america/

'Economic history appears to be rhyming once again in Latin America. Perennial credit-basket-case Argentina was one of the first countries to suffer a major currency crisis this century. Now, its government has asked the IMF for a brand-new bailout. But if this classic last-gasp fix was meant to calm the markets, it isn’t working.

Previous Latin American debt crises have taught us two things:

  1. The direct impact on the general populace, already suffering from sky-high poverty rates, is devastating;
  2. Once the first domino falls, contagion can spread like wildfire.

The debt crisis of the early 1980s, which spread to virtually all corners of the region, famously paved the way to Latin America’s “lost decade.” Mexico’s Tequila Crisis of 1994-5 at one point became so serious that it almost brought down some of Wall Street’s biggest banks.

At the moment, as long as the US dollar and US yields continue to rise, emerging market jitters can be expected to grow. As British financial correspondent Neal Kimberley notes, markets often behave like predators, running down what they perceive as the weakest prey first — a role being filled, with usual aplomb, by Argentina.'

Excellent article and post, cheers Sancho

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2 hours ago, fru-gal said:

Interesting comment from the Wolf Street article re hottest and coldest luxury property markets;

 

Worth noting that foreign buyers withcommercial loans sourced abroad appear as cash buyers even though they're not.

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10 hours ago, leonardratso said:

not really, this was known already widely across these fora.

There are new readers of this thread who may not be aware.There's often media talk of 'foreign cash buyers' when quite clearly they may not be all they seem.

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13 hours ago, maybe said:

Intersting to see that all put together

The big banks are spending a small fortune at the minute on historical compliance issues......

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12 minutes ago, Sancho Panza said:

There are new readers of this thread who may not be aware.There's often media talk of 'foreign cash buyers' when quite clearly they may not be all they seem.

Exactly - the spirit of this thread is sharing knowledge and learning, not ‘I already knew that so why didn’t you’.

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im not saying that, im just saying thats its not a pivotal secret thats just been revealed. It doesnt really make much of a difference anyway, there wont be much effect from it, maybe a Malaysian gets his legs broken by a loan shark, or a battersea flat sale falls through since they wont/cant start paying off the mortgage and pull out losing the loan sharked deposit. Its probably always been the case so i doubt its impact will be felt much elsewhere.

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3 hours ago, Barnsey said:

https://northmantrader.com/2018/05/15/the-tax-cut-recession/

Well worth a read, from Sven Henrich @northmantrader on Twitter

Cheers Barnsey.Interesting discussion re yield inversion-something discussed on here about 50 or so sides back.I think of late,people-including me-have gotten that obsessed with the 10yr note that we've forgotten about the flattening curve.Can't see the wood for the trees etc.

Interesting to note his timeline for inversion is before early 2019.......

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1 hour ago, Sancho Panza said:

Cheers Barnsey.Interesting discussion re yield inversion-something discussed on here about 50 or so sides back.I think of late,people-including me-have gotten that obsessed with the 10yr note that we've forgotten about the flattening curve.Can't the wood for the trees etc.

Interesting to note his timeline for inversion is before early 2019.......

And the conclusion: US QE is coming back, its a when not an if.

Wouldnt this shock the market and force the USD down?

 

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5 hours ago, Barnsey said:

https://northmantrader.com/2018/05/15/the-tax-cut-recession/

Well worth a read, from Sven Henrich @northmantrader on Twitter

Thanks Barnsey very interesting find. seems to confirm the premise of the thread and there are others thinking the same out there.

I am now reading up on Momentum Investing. Is there an ETF people have used for this or is it more a do-it-yourself thing- looks interesting either way 

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10 hours ago, Sugarlips said:

And the conclusion: US QE is coming back, its a when not an if.

Wouldnt this shock the market and force the USD down?

 

More QE than people can imagine,they will be shocked i expect.Lack of liquidity and the dollar is starting to bite (or should be).I still see the dollar maybe going 94 then down to 86 then up and away,but i positioned around 88 my target anyway.Gold interests me most here.I keep seeing $1450/$1500 yet it seems unable to break out of consolidation.It could be a case it simply goes up quickly at some point and people look for reasons after the event.I do expect gold down heavily at some point so if it did head down without a jump id have to accept a hit on my miners.

Interesting to see PE ratios of 7 around again.Those are the sort of levels id expect in the start of a reflation.We have them already here in the UK.BT back to where it was in 2008 or 1993 if you want to keep heading back.Capital investment doesnt deliver to shareholders in a dis-inflation,only employees.BT will be a classic case.It will be very interesting to see if that changes once the next cycle gets going.Individual companies will differ of course on debt,management etc.

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  • 429 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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