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Deflationary collapse and the Reflation Cycle to Come.


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12 hours ago, Thorn said:

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 

Momentum investing can work for some when things are on the up, I'd get a little nervous about doing it right now at potentially near the top/recession as it can be very cruel on the way down. If kept as a modest part of your overall portfolio strategy then worth a go, low cost funds are easiest, 2 or 3 best performing funds over the past year, which haven't seen a negative return in the past 5 at least, redo every 6-12 months.

On another note, interesting to see the sharp decline in green energy investment in the past year. Japan now in contraction, widespread EM rout, North Korea turbulence returning, US auto payments delinquency rate highest since 1996, Italy drama, risk returning in a big way to the US subprime mortgage market. Things coming back together.

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Edited by Barnsey
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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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https://notayesmanseconomics.wordpress.com/2018/05/16/will-italy-get-a-250-billion-euro-debt-write-off-from-the-ecb/

Quote

1) Five Star and the League expect the @ecb to forgive 250 billion euros in Italian bonds bought via quantitative easing, in order to bring down Italy’s debt.

Bwahahahahaha

How did I go bankrupt?  Slowly first, then quickly.

They know that the ECB under Draghi will keep buying Italian bonds no matter what they do, why not throw a load of populist stuff in their coalition agreement with the free money?  The German people are going to be very upset when the bill arrives.

Edited by Majorpain
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Japan contracting again just three months after the BoJ declares 'mission accomplished'. :rolleyes:

https://uk.reuters.com/article/uk-japan-economy-gdp/japans-gdp-ends-best-growth-run-in-decades-as-spending-trade-fade-idUKKCN1IG3D4

Quote

TOKYO (Reuters) - Japan’s economy contracted more than expected at the start of this year, suggesting growth has peaked after the best run of expansion in decades, unwelcome news for a government struggling to get traction for its reflationary policies.

The world’s third largest economy shrank by 0.6 percent on an annualised basis, a much more severe contraction than the median estimate for an annualised 0.2 percent decline.

The contraction, which was driven by declines in investment and consumption and weaker export growth, comes as Japan Inc frets over the possible effects of U.S. President Donald Trump’s protectionist policies on exports.

It also highlights the central bank’s vulnerability to an economic or financial shock after five years of heavy monetary stimulus has left it with little ammunition to defend growth.

Economy Minister Toshimitsu Motegi said there was no change to the government’s view that the economy was recovering moderately, predicting a resumption in growth to be driven mainly by private consumption and capital expenditure.

“But we need to be mindful of the impact of overseas economic uncertainty and market volatility,” he added.

External demand - or exports minus imports - added just 0.1 percentage point to first-quarter GDP as imports slowed more than exports.

However, a breakdown of the data shows export growth is losing momentum, expanding just 0.6 percent in the first quarter after growth of 2.2 percent October-December last year.

Slower export growth reflected a decline in shipments of mobile phone parts and factory equipment in the quarter, a government official said.

This is a concern for Japanese manufacturers because many of these machines and electronic components are sent to China, where they are used to produce goods for export, but this trade is at risk if the Trump administration’s threatened tariffs on Chinese exports go ahead.

 

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18 minutes ago, Noallegiance said:

I still don't understand why the US$ would go up and not down.

As grubby as it is the USD remains the cleanest shirt in the laundry. So much so that the Fed is currently QTing while the other three major central banks (PBoC, BoJ and ECB) are still QEing like madmen. The Bank of England's decision to backpedal on interest rates leave it straddling the divide for now, although the TFS repayments will constitute a modest credit contraction over the next four years.

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3 minutes ago, zugzwang said:

As grubby as it is the USD remains the cleanest shirt in the laundry. So much so that the Fed is currently QTing while the other three major central banks (PBoC, BoJ and ECB) are still QEing like madmen. The Bank of England's decision to backpedal on interest rates leave it straddling the divide for now, although the TFS repayments will constitute a modest credit contraction over the next four years.

But if QE has to be turned on again across the pond, why would anyone go to the dollar when it's already in a down trend with QT?

Can't have it both ways, surely?

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1 minute ago, Noallegiance said:

But if QE has to be turned on again across the pond, why would anyone go to the dollar when it's already in a down trend with QT?

Can't have it both ways, surely?

The dollar is supported in two ways 1. via the fx markets and 2. via the bond markets. It's in a major uptrend at present but a stockmarket crash caused by QT and the Trump deficits would wipeout and/or re-price trillions in dollar-denominated assets depreciating the USD significantly. The rest of the world would then be obliged to re-inflate using the dollar as reserve currency as before, or declare the USD unfit for purpose and adopt a bancor-type currency such as the IMF's XDR instead.

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5 hours ago, zugzwang said:

The dollar is supported in two ways 1. via the fx markets and 2. via the bond markets. It's in a major uptrend at present but a stockmarket crash caused by QT and the Trump deficits would wipeout and/or re-price trillions in dollar-denominated assets depreciating the USD significantly. The rest of the world would then be obliged to re-inflate using the dollar as reserve currency as before, or declare the USD unfit for purpose and adopt a bancor-type currency such as the IMF's XDR instead.

To which up trend are you referring? Since Dec 2016 it's been down, down, diddly down.

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3 hours ago, Noallegiance said:

To which up trend are you referring? Since Dec 2016 it's been down, down, diddly down.

No it's up recently, against the pound at least. I buy a lot of dollars for personal reasons, nothing to do with investment, and it's been really tricky recently shall I buy today or will it be more expensive tomorrow. 

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9 minutes ago, Funn3r said:

No it's up recently, against the pound at least. I buy a lot of dollars for personal reasons, nothing to do with investment, and it's been really tricky recently shall I buy today or will it be more expensive tomorrow. 

Timeframe is the thing.

A rally isn't a trend.

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9 hours ago, zugzwang said:

The dollar is supported in two ways 1. via the fx markets and 2. via the bond markets. 

You forgot the main way - by armed force and the weight of American hegemony.

Edited by Errol
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14 minutes ago, Errol said:

You forgot the main way - by armed force and the weight of American hegemony.

Speaking of which, Total is set to quit Iran because of Trump's sanctions.

https://m.in.investing.com/news/economy-news/total-stops-iran-gas-project-as-risk-from-sanctions-too-high-1165889?ampMode=1

Quote

(Bloomberg) -- Total SA (PA:TOTF) said it will not risk investing in Iran following the return of U.S. sanctions, unless it can secure a waiver.

Continuing to do business in Iran would be too great a risk as the company has large operations in the U.S. and depends on the country’s banks for financing its operations, Total said in a statement Wednesday. So the French energy giant won’t commit any more funds to Iran’s South Pars 11 project, in which it took a controlling stake last year.

The comments from Total -- the first Western oil company to sign binding agreements to develop Iran’s oil and gas fields following the end of a previous round of sanctions in 2015 -- illustrate the challenge posed by renewed U.S. restrictions. While the French company was speaking about a natural gas project, its reluctance to continue operating there could equally apply to others that rushed back into sectors from automobiles to aviation and engineering to the oil trade.

“The risks of being on the wrong side of the U.S. government are not worth the benefits of trading with Iran once the sanctions are in place,” said Jason Gammel, a London-based analyst at Jefferies LLC. “Oil companies are not going to be able to invest in the upstream sector, traders and purchasers of Iranian crude are going to have to find other sources, or seek an exemption from the U.S. government to be able to continue buying.”

 

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14 hours ago, Noallegiance said:

But if QE has to be turned on again across the pond, why would anyone go to the dollar when it's already in a down trend with QT?

Can't have it both ways, surely?

My dollar forecast was 103 down to 88 (or 86) then up.That hit.I now see 94/95 then down to 86 then up to 120.I havent done much work on that call though,no cross market work,just rough numbers.I think house prices have topped in the UK and are heading down now.Expect average selling prices from the builders to start falling first.

 

 

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3 hours ago, Errol said:

China already apparently ready to take Total's place. Europe will lose big time - to China and Russia. 

The sanctions are actually aimed at Europe, not Iran.

Well $80 a barrell is the immediate result so most everyone loses (unless you buy petrol in Egypt or similar)

 

@DB regards BT shareprice, the 1993 reference may be a bit of a stretch, they spun off mm02 in the interim.

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5 minutes ago, Sugarlips said:

Well $80 a barrell is the immediate result so most everyone loses (unless you buy petrol in Egypt or similar)

 

@DB regards BT shareprice, the 1993 reference may be a bit of a stretch, they spun off mm02 in the interim.

Yes agree buys and sells in there.They also bought EE though with half equity they issued at around £4 a share.Asset heavy companies have been running to stand still for a long time.An inflation cycle should help them as prices rise quicker than depreciation costs.

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1 hour ago, Sugarlips said:

Well $80 a barrell is the immediate result so most everyone loses (unless you buy petrol in Egypt or similar)

 

@DB regards BT shareprice, the 1993 reference may be a bit of a stretch, they spun off mm02 in the interim.

petrol in Egypt isn't cheap. its a gas producer mainly

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6 hours ago, Errol said:

Thanks for putting this up Errol.I've read him before when you've posted his stuff.

Interesting that he says

' The homebuilders are already in a bear market, like the one that started in mid-2005 in the same stocks about 18 months before the stock market started heading south in 2007. My Short Seller’s Journal subscribers and I are raking in a small fortune shorting and buying puts on homebuilder stocks. As an example, I recommended shorting Hovnanian (HOV) at $2.88 in early January. It’s trading at $1.78 as I write this – a 38.2% ROR in 4 months. Anyone get that with AMZN in the last 4 months? You can learn more about the SSJ here: Short Seller’s Journal. '

 

Very much coincides with my view on Uk building stocks

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As previously discussed on here, Powell's tenure at the Fed is a real departure from those who've perceded him.Here's a guy whom isn't imprisoned by the Neo Classical constraints of his forebears.

Not only has the cost/benefit been realistically assessed,but they clearly quwation whether the Fed is creating a moral hazard intervening in the MBS markets/Corporate credit markets

Interesting times.If ten year yields rise,I'm not sure Powell is going to mind.

https://wolfstreet.com/2018/05/16/will-the-new-fed-shed-all-its-mortgage-backed-securities-that-seems-to-be-the-plan/

'Will the New Fed Get Rid of All its Mortgage-Backed Securities? That Seems to be the Plan

by Wolf Richter • May 16, 2018 • 42 Comments

The Fed shouldn’t be getting into “allocating credit.”

Chairman Jerome Powell is a lawyer, not an economist. So for balance, the vice chair is going to be a tried-and-true economist. Clarida fits the bill. But when he testified before the Senate Banking Committee on Tuesday, his views seemed to be a mirror image of Powell’s views. And that’s why what Clarida said about mortgage-backed securities on the Fed’s balance sheet is so interesting – even if he doesn’t make it through the Senate confirmation process – because it likely shows the direction of Powell’s thinking as well.

First things first. Like Powell, Clarida said he “absolutely” supports the Fed’s normalization of interest rates and the balance sheet. Like Powell, he said that the normalized balance sheet should be “a lot smaller,” and that Powell’s suggestion of a range of $2.4 trillion to $2.9 trillion, down from its peak-level of $4.5 trillion, “makes sense.”

Like Powell, he said stock market volatility itself – that’s downward volatility, the only volatility that matters on Wall Street – shouldn’t determine the Fed’s policy decisions. On banking regulation too he mirrored Powell.

So in this sense, what he said about mortgage-backed securities on the Fed’s balance sheet is fascinating: The Fed should shed them entirely, down to zero.

Clarida explained that there are “benefits and costs” of QE, and that as more layers of QE were piled on, “the benefits of QE diminished and the costs went up.” And as vice chairman, he’d “have to take a serious look at the costs of QE.”

Then he was asked about “non-Treasury instruments, like mortgage-backed securities,” for QE – that the Fed, when selecting non-Treasury securities, would be getting into something that it shouldn’t, namely “allocating credit.”

“Yes, absolutely,” Clarida replied: “My preference would be for the Fed to end up with a Treasury-only portfolio.”

He then added that, “as a general proposition, my preference would be to have the balance sheet as much as possible in Treasury securities.”

Shedding MBS from the balance sheet entirely and keeping them off could have a big impact. Currently, the Fed holds $1.74 trillion of MBS. That’s about 26% of all residential mortgage-backed securities outstanding. The Fed is the elephant in the MBS room.

Over the years, given the magnitude, the Fed’s MBS purchases and holdings have been a big force in the mortgage market, helping to push down yields of residential MBS, and thereby helping to push down mortgage rates.

That Clarida is thinking about shedding them entirely appears to be unrelated to mortgage rates per se, and all about what types of decisions the Fed should stay out of – and in this case, that the Fed should stay out of “allocating credit,” which would give one type of private-sector bond a competitive advantage over other types that are not being selected.

This was perhaps also a veiled criticism of the ECB’s QE program, which very specifically and publicly is “allocating credit” by buying (in addition to government bonds) corporate bonds, asset-backed securities, and covered bonds. The individual corporate bonds the ECB has acquired can be viewed in its public data base. For a company, having its bonds acquired by the ECB is deemed a stamp of approval and has pushed the yields of those bonds, and thus the cost of borrowing, way down. In other words, the ECB decides on a daily basis that certain types of private-sector credits, such as bonds of specific companies, will get preferential treatment, and others will not.

Clarida seemed to be saying that the Fed shouldn’t get into these decisions of preferential treatment in the private sector, that at first it might be MBS, but then, like the ECB, the Fed might slither into other credits, such as corporate bonds. Hence, stick to Treasuries only. And given that he and Powell are on the same page on just about all other issues brought up, it’s likely that this view is shared as well.

The Treasury Department reported that foreign holdings of Treasury securities rose by $220 billion over the 12 months through March 31. Over the same period, the US gross national debt surged by $1.24 trillion. Japan systematically dumped US Treasuries while China hung on. So who bought those Treasuries? Read…  But Who the Heck Bought the $1.2 trillion in New US Debt Over the Past 12 Months? '

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7 hours ago, Sancho Panza said:

As previously discussed on here, Powell's tenure at the Fed is a real departure from those who've perceded him.Here'suy whom isn't imprisoned by the Neo Classical constraints of his forebears.

Not only has the cost/benefit been realistically assessed,but they clearly quwation whether the Fed is creating a moral hazard intervening in the MBS markets/Corporate credit markets

Interesting times.If ten year yields rise,I'm not sure Powell is going to mind.

https://wolfstreet.com/2018/05/16/will-the-new-fed-shed-all-its-mortgage-backed-securities-that-seems-to-be-the-plan/

'Will the New Fed Get Rid of All its Mortgage-Backed Securities? That Seems to be the Plan

by Wolf Richter • May 16, 2018 • 42 Comments

The Fed shouldn’t be getting into “allocating credit.”

Chairman Jerome Powell is a lawyer, not an economist. So for balance, the vice chair is going to be a tried-and-true economist. Clarida fits the bill. But when he testified before the Senate Banking Committee on Tuesday, his views seemed to be a mirror image of Powell’s views. And that’s why what Clarida said about mortgage-backed securities on the Fed’s balance sheet is so interesting – even if he doesn’t make it through the Senate confirmation process – because it likely shows the direction of Powell’s thinking as well.

First things first. Like Powell, Clarida said he “absolutely” supports the Fed’s normalization of interest rates and the balance sheet. Like Powell, he said that the normalized balance sheet should be “a lot smaller,” and that Powell’s suggestion of a range of $2.4 trillion to $2.9 trillion, down from its peak-level of $4.5 trillion, “makes sense.”

Like Powell, he said stock market volatility itself – that’s downward volatility, the only volatility that matters on Wall Street – shouldn’t determine the Fed’s policy decisions. On banking regulation too he mirrored Powell.

So in this sense, what he said about mortgage-backed securities on the Fed’s balance sheet is fascinating: The Fed should shed them entirely, down to zero.

Clarida explained that there are “benefits and costs” of QE, and that as more layers of QE were piled on, “the benefits of QE diminished and the costs went up.” And as vice chairman, he’d “have to take a serious look at the costs of QE.”

Then he was asked about “non-Treasury instruments, like mortgage-backed securities,” for QE – that the Fed, when selecting non-Treasury securities, would be getting into something that it shouldn’t, namely “allocating credit.”

“Yes, absolutely,” Clarida replied: “My preference would be for the Fed to end up with a Treasury-only portfolio.”

He then added that, “as a general proposition, my preference would be to have the balance sheet as much as possible in Treasury securities.”

Shedding MBS from the balance sheet entirely and keeping them off could have a big impact. Currently, the Fed holds $1.74 trillion of MBS. That’s about 26% of all residential mortgage-backed securities outstanding. The Fed is the elephant in the MBS room.

Over the years, given the magnitude, the Fed’s MBS purchases and holdings have been a big force in the mortgage market, helping to push down yields of residential MBS, and thereby helping to push down mortgage rates.

That Clarida is thinking about shedding them entirely appears to be unrelated to mortgage rates per se, and all about what types of decisions the Fed should stay out of – and in this case, that the Fed should stay out of “allocating credit,” which would give one type of private-sector bond a competitive advantage over other types that are not being selected.

This was perhaps also a veiled criticism of the ECB’s QE program, which very specifically and publicly is “allocating credit” by buying (in addition to government bonds) corporate bonds, asset-backed securities, and covered bonds. The individual corporate bonds the ECB has acquired can be viewed in its public data base. For a company, having its bonds acquired by the ECB is deemed a stamp of approval and has pushed the yields of those bonds, and thus the cost of borrowing, way down. In other words, the ECB decides on a daily basis that certain types of private-sector credits, such as bonds of specific companies, will get preferential treatment, and others will not.

Clarida seemed to be saying that the Fed shouldn’t get into these decisions of preferential treatment in the private sector, that at first it might be MBS, but then, like the ECB, the Fed might slither into other credits, such as corporate bonds. Hence, stick to Treasuries only. And given that he and Powell are on the same page on just about all other issues brought up, it’s likely that this view is shared as well.

The Treasury Department reported that foreign holdings of Treasury securities rose by $220 billion over the 12 months through March 31. Over the same period, the US gross national debt surged by $1.24 trillion. Japan systematically dumped US Treasuries while China hung on. So who bought those Treasuries? Read…  But Who the Heck Bought the $1.2 trillion in New US Debt Over the Past 12 Months? '

Anyone know who bought those treasuries. A fascinating post

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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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