The Finance Thread

[SillyBilly]

3 hours ago, LesterRam said:

I was watching Jeff stelling on sports Saturday and he made a dig at Mr Cameron and his lack of effort on his part, it looks like another coal industry, we need to support heavy industry.

another hammering on the FTSE, time to hide your money

I think it actually might have been Keynes (can be corrected) that said during a downturn you should protect (i.e. subsidize) high cost to entry strategic industry at the expense of low cost to entry business. As trends reverse (always do) the industrywill be there to compete in the new market, lose it (the skills or the assets) and you may lose the opportunity to re-enter the market in the uptrend due to cost barrier (could apply to steel). One might think it strategic to not offshore our steel, nuclear and energy production industries (unless you have an optimistic view of the success of future foreign policy over the next few centuries). FWIW I don't follow Keynesian economics but think he may have had a point there.

Instead with tax credits we do the opposite, we support failing or non-productive businesses (specifically talking of JC's pushing people into self-employment) such as dog walkers, nail technicians, cupcake makers etc. Of course this is as much to massage the job numbers by propping up hobby businesses which can't pay a wage. We gave how many million to support the workers of Redcar, to do what? Retrain and become hairdressers? Work in what productive industry? We need an industrial/manufacturing policy.

Should point out that average wages in the U.K don't include the self-employed. Without TC's they take home less than NMW on average. Another sign of the UK's robust economy...another reason to ignore government figures.

 

 

[LesterRam]

I would rather subsidise the steel industry than let them lose there jobs, look what happened to coal and the towns that supported them, mass unemployment and deprived community.

 

[SillyBilly]

On gold, my stock pick is:

Barrick Gold - I suspect it'll be a 5 bagger in the next 5-10 years. AISC (all-in sustaining cost) of less than $900 and average reserve grade of 2.01 g/tonne (average peer grade 0.9 g/tonne). Loving its share price at the moment. It was 5 times this 4 years ago. I will go big in this at the first sniff of a real meltdown.

Gold is in backwardation atm. My prediction is we'll have a test of lows in gold within the next 3-4 months and then a meteoric rise at the back end of 2016 into 2017.

[Ramarena]

26 minutes ago, LesterRam said:

I would rather subsidise the steel industry than let them lose there jobs, look what happened to coal and the towns that supported them, mass unemployment and deprived community.

 

I agree, but you know what's coming. We have HS2 and Hinkley Point, etc as big development projects over the coming years. There's going to be fair amount of steel needed, but what's the betting that British steel won't be part of this as it won't get the support it need's now?

[SillyBilly]

29 minutes ago, LesterRam said:

I would rather subsidise the steel industry than let them lose there jobs, look what happened to coal and the towns that supported them, mass unemployment and deprived community.

 

Has to be temporary though. Remains to be seen whether it can be as its a 3 fold problem:

1) E.U hates any business which so much as farts SO2 or CO2 (taxes them out of Europe)

2) High cost of energy in the U.K (completely failing energy industry)

3) Competition with nations (i.e. China) who have deeper pockets to subsidise their industry (we won't win a war of attrition with a country which has almost $4 trillion in reserves).

If we removed 2 of them, it might give our steel industry a fighting chance, its a perfect storm though. Not sure how much influence we could exert over China either. This hasn't happened over night, we should remind ourselves of this.

 

 

[SillyBilly]

http://www.independent.co.uk/news/uk/home-news/vince-cable-former-business-secretary-warns-that-severe-economic-storms-are-on-the-way-a6734006.html

Perhaps the first of the "mainstream" lot to come forward and state it. Though, typically he is now out of office.

I agree with him private debt is high but not sure that is the focus this time round, although certainly it will have to reverse.

[Ramarena]

3 hours ago, SillyBilly said:

http://www.independent.co.uk/news/uk/home-news/vince-cable-former-business-secretary-warns-that-severe-economic-storms-are-on-the-way-a6734006.html

Perhaps the first of the "mainstream" lot to come forward and state it. Though, typically he is now out of office.

I agree with him private debt is high but not sure that is the focus this time round, although certainly it will have to reverse.

He was one the only mainstream politicians to raise his concerns in the run up to 2008. Will he get it right twice on the spin?

[uttoxram75]

2 hours ago, Ramarena said:

He was one the only mainstream politicians to raise his concerns in the run up to 2008. Will he get it right twice on the spin?

There was plenty of non mainstream concerns over the way the economy was going.

Those of us who have read Private Eye regularly over the years know and understand the devious world of corrupt corporate lobbyism undermining democracy and perverting markets for short term gain. Unfortunately you won't read it in the popular daily newspapers or the TV news.

I don't have the financial awareness or understanding of SillyBilly but i find his posts absolutely fascinating and educational.

The financial industry is geared up to take money from the lower strata of society and shift it to the top (richest) level. That money will be hidden away in tax havens. If you run the system to allow money to trickle down then there is a bedrock of financial stability because poor people will spend their cash, mostly in their local economy.

There is a solid financial and economic argument that strong laws regulating the financial markets benefit the country as a whole. It would encourage long term investment rather than sacking people if the first quarter profits are slightly less than budgeted. The problem is that the policy makers are now all controlled by the worst type of get rich quick at any cost Gordon Gekko types. Austerity is the only way we're told - tax cuts for the rich at the expense of the less well off. Every honest economist will tell you that it doesn't work - it doesn't benefit the country.

The French and Germans subsidise their heavy industries, the Chinese flood the market with cheap steel. We subsidise hedge funds and vulture capitalism instead of real people.

 

 

 

 

[Zag zig]

On 13 November 2015 19:33:54, SillyBilly said:

Gold is in backwardation atm. My prediction is we'll have a test of lows in gold within the next 3-4 months and then a meteoric rise at the back end of 2016 into 2017.

To coincide with peak dollar or the dollar dying?

[LesterRam]

I feel for those that are on zero houred contracts saddled with mortgages.

 

[SillyBilly]

47 minutes ago, Zag zig said:

To coincide with peak dollar or the dollar dying?

Good question, I'd bet against the dollar in the long run but short term I'd still buy it. The reason I say that is I don't see the immediate threat to dollar hegemony, there is no viable alternative for the big money (where else can it go?), therefore in a crisis (talking within the first few days/weeks) I expect to see the dollar initially strengthen again like it did last time (particularly against the euro). I may be totally wrong but that is what I have pre-determined to run with. My current plan in the next downturn (which I expect to be a sovereign debt crisis) is to go short euro 3x bullish dollar ETF (I expect Europe to get smacked harder than the U.S), long gold in a couple of mining stocks, decent cash position and buy companies over sold with low gearing and good assets (commodities mostly). I am very pessimistic with the euro in the medium to long term and so during a crisis I'd expect massive capital flows to move from euro to dollar assets, strengthening the dollar and potentially moving US stocks higher following an initial steep pull back. I also expect large net capital flows from emerging economies back to the dollar, an interest rate rise from the Fed could be the initial trigger for that. In short I don't believe its as simple as saying its going to be a stock market crash everywhere, money pilling into bonds (we already have negative yields this time!) and the dollar getting sacked, there are more factors on the table than 2007/2008 which makes it tricky to call.

On the other hand I know plenty of gold bugs like Peter Schiff etc. are calling a dollar bubble right now and as you'll be aware, dollar weakening automatically means gold strengthening when priced in dollars. I can see the argument but I think gold will strengthen in all currencies due to loss of confidence in government so how the dollar performs with other currency pairs is a side-show in gold for me.

http://www.macrotrends.net/1329/us-dollar-index-historical-chart

US Dollar index still isn't 100 but its certainly not a weak dollar. Very hard one to call. What are your thoughts?

[Zag zig]

1 hour ago, SillyBilly said:

Good question, I'd bet against the dollar in the long run but short term I'd still buy it.

On the other hand I know plenty of gold bugs like Peter Schiff etc. are calling a dollar bubble right now and as you'll be aware, dollar weakening automatically means gold strengthening when priced in dollars. I can see the argument but I think gold will strengthen in all currencies due to loss of confidence in government so how the dollar performs with other currency pairs is a side-show in gold for me.

http://www.macrotrends.net/1329/us-dollar-index-historical-chart

US Dollar index still isn't 100 but its certainly not a weak dollar. Very hard one to call. What are your thoughts?

Thanks, I thought it was.  Personally I'm grappling with currency thoughts, but find it hard to disagree with your logic other than to say, I believe all main currencies are seemingly in a race to the bottom due to their debt burdens, with the dollar trying to be last man standing.

On P.M stocks I would not expose myself to anything much paper. Whilst I understand their may be opportunities and I will certainly consider Barrick, Newmont and maybe some small juniors for adrenaline plays, my fear is the scenario where they are continually pushed lower, with rising costs due to (hyper) inflation? Aided by the big stakeholders ( hedgies) having to liquidate all assets in a stock market meltdown, such moves have already been seen. So I'm largely keeping my powder dry, you can see the dilemma to someone who believes in we are possibly witnessing wholesale currency devaluation. Whilst gold is the king, I believe Silver could offer greater reward, only because of so many stats purporting the supply being continually outstripped by demand. My conundrum here though is the belief the market is rigged and COMEX needs to implode for any good to come of this, altogether different debate I know. However at the risk of sounding hypocritical, I would favour (and track) 3x leveraged Silver ETF's. Taking into account the au/ag historical ratios, any upside in the former could provide the mother of all slingshots to the latter. Again my caution lies though with every commodity continually struggling in a market meltdown, will they truly disconnect and become more than a medium of exchange being another.

Schiff is probably better than most gold bugs, but I'm loathed to pay homage to many if any, as for too long, far too many seem to have been talking their own book, to paddle their wares I.m.o

Essentially I'm a trader, (speculator, call it what you like), so I try to keep it simple and not let the politics (or loathsome politicians) become a distraction. But it pays I guess to keep an eye on the bigger picture if only to try and in find some sort of insurance policy. Mostly trading means blocking out the noise, but I often wonder if deep down I'm seeking confirmation bias at times of indecision.

Thanks for answering though.

[SillyBilly]

46 minutes ago, Zag zig said:

Thanks, I thought it was.  Personally I'm grappling with currency thoughts, but find it hard to disagree with your logic other than to say, I believe all main currencies are seemingly in a race to the bottom due to their debt burdens, with the dollar trying to be last man standing.

On P.M stocks I would not expose myself to anything much paper. Whilst I understand their may be opportunities and I will certainly consider Barrick, Newmont and maybe some small juniors for adrenaline plays, my fear is the scenario where they are continually pushed lower, with rising costs due to (hyper) inflation? Aided by the big stakeholders ( hedgies) having to liquidate all assets in a stock market meltdown, such moves have already been seen. So I'm largely keeping my powder dry, you can see the dilemma to someone who believes in we are possibly witnessing wholesale currency devaluation. Whilst gold is the king, I believe Silver could offer greater reward, only because of so many stats purporting the supply being continually outstripped by demand. My conundrum here though is the belief the market is rigged and COMEX needs to implode for any good to come of this, altogether different debate I know. However at the risk of sounding hypocritical, I would favour (and track) 3x leveraged Silver ETF's. Taking into account the au/ag historical ratios, any upside in the former could provide the mother of all slingshots to the latter. Again my caution lies though with every commodity continually struggling in a market meltdown, will they truly disconnect and become more than a medium of exchange being another.

Schiff is probably better than most gold bugs, but I'm loathed to pay homage to many if any, as for too long, far too many seem to have been talking their own book, to paddle their wares I.m.o

Essentially I'm a trader, (speculator, call it what you like), so I try to keep it simple and not let the politics (or loathsome politicians) become a distraction. But it pays I guess to keep an eye on the bigger picture if only to try and in find some sort of insurance policy. Mostly trading means blocking out the noise, but I often wonder if deep down I'm seeking confirmation bias at times of indecision.

Thanks for answering though.

Good post. I will definitely have some silver too, just depends on what %, as you say the potential upside is far greater but obviously it tends to be more volatile. COMEX is another thread on its own...

Rising costs in miners would be more than offset by rising value (in paper money) of the gold/silver mined so would it not be relative? Not a rhetorical question as I'm not convinced how it plays out myself...The cost of gold and silver would hyper inflate with the currencies its denominated in? So, in theory you could have $10,000/ounce gold or something (just purely speculating here) and more worthless dollars to buy the stock? I know why you'd have concerns in paper, I do myself, its a gamble but so is leaving cash in the bank. If hyper inflation does play out then I don't pretend to know the implications at all. I mean that is basically the entire collapse of the international monetary system, everything might seem a little trivial then!

And yes, the liquidation of the big money is the reason I'm waiting it out, anticipating a repeat of 08 with a big smackdown in both and then the liftoff. Drifting around in the meantime.

I don't trust gold bugs either, particularly ones that sell it, but I have time for Schiff's wider economic analysis - I do remember him being the maverick getting ridiculed on Fox in 2006 when he called the sub-prime crisis. He calls the Fed out too (and accurately thus far) which you rarely see on the mainstream channels.

Well, good luck in your trading. Volatility should be your best friend in the coming months!

 

[SillyBilly]

http://www.zerohedge.com/news/2015-11-14/about-38-all-comex-gold-hong-kong-left-warehouses-yesterday

Topical post from Zerohedge on COMEX, supposedly on Friday last week, 21 tonnes of gold (38% of total) left the COMEX vaults in Hong Kong. Its clear people want gold and they're prepared to pay more for it now than for future delivery. All the while we have record amounts of paper claims floating about for increasingly scare physical metal in the vaults. Some vaults (central bank) are arguably empty with all metal loaned...they don't allow independent audit and can't deliver when repatriation of owned gold is requested (i.e. U.S panic over Germany's repatriation request).

 

[LesterRam]

20 hours ago, Zag zig said:

Thanks, I thought it was.  Personally I'm grappling with currency thoughts, but find it hard to disagree with your logic other than to say, I believe all main currencies are seemingly in a race to the bottom due to their debt burdens, with the dollar trying to be last man standing.

On P.M stocks I would not expose myself to anything much paper. Whilst I understand their may be opportunities and I will certainly consider Barrick, Newmont and maybe some small juniors for adrenaline plays, my fear is the scenario where they are continually pushed lower, with rising costs due to (hyper) inflation? Aided by the big stakeholders ( hedgies) having to liquidate all assets in a stock market meltdown, such moves have already been seen. So I'm largely keeping my powder dry, you can see the dilemma to someone who believes in we are possibly witnessing wholesale currency devaluation. Whilst gold is the king, I believe Silver could offer greater reward, only because of so many stats purporting the supply being continually outstripped by demand. My conundrum here though is the belief the market is rigged and COMEX needs to implode for any good to come of this, altogether different debate I know. However at the risk of sounding hypocritical, I would favour (and track) 3x leveraged Silver ETF's. Taking into account the au/ag historical ratios, any upside in the former could provide the mother of all slingshots to the latter. Again my caution lies though with every commodity continually struggling in a market meltdown, will they truly disconnect and become more than a medium of exchange being another.

Schiff is probably better than most gold bugs, but I'm loathed to pay homage to many if any, as for too long, far too many seem to have been talking their own book, to paddle their wares I.m.o

Essentially I'm a trader, (speculator, call it what you like), so I try to keep it simple and not let the politics (or loathsome politicians) become a distraction. But it pays I guess to keep an eye on the bigger picture if only to try and in find some sort of insurance policy. Mostly trading means blocking out the noise, but I often wonder if deep down I'm seeking confirmation bias at times of indecision.

Thanks for answering though.

well I'm thinking of sexual thoughts, each to their own.

[Zag zig]

13 hours ago, LesterRam said:

well I'm thinking of sexual thoughts, each to their own.

Get them too. Try to keep them separate from financial thoughts though, or I end up not knowing whether I'm coming or going in the confusion 

[Animal is a Ram]

UK inflation stuck at -0.1%.

Mostly because fuel prices have stayed around the 105.9-110.9p mark I'd guess.

[SillyBilly]

I have previously posted about housing on this thread and another. Housing is a market I take a lot of interest in as I think people, particularly the young, should really get the "alternative" view as to why the market is moving away from them. I have previously put forward the view that house price growth is driven principally by supply of credit then interest rates then supply of stock. Pretty much in that order of effect on price. Something no politician talks about.

I have just stumbled across an EU research paper from 2008 (things are much worse since this was published) which basically looks at the data across Europe and backs my assumptions up to the letter.

https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp888.pdf?aae25e46c7906056e754b9d641d0c10f

I'll start with the conclusion of the paper:

"The empirical analysis of this paper offers a number of interesting insights. There is evidence of a significant multidirectional link between house prices, broad money, private credit and the macroeconomy. Money growth has a significant effect on house prices and credit, credit influences money and house prices and house prices influence both credit and money."

On money supply, this is an old graph but I can't find a newer one. Also reference the second graph in the post, as per the report, the two are linked but who talks about the effect of "broad money supply" on property prices eh?! Since its publish, we've obviously done a lot of QE which exaggerates the trend in money creation. With QE, we increase the money supply (the total amount of money circulating in the economy held as reserves, cash, retirement savings etc.) by central banks creating "money " to buy government debt. But nobody really knows what implications all this money that has been printed has/will have in the economy and ultimately the effect on our currency, most of it is still sat on bank balance sheets. In a tragically simplistic example, imagine there are 5 houses in the economy, each priced at $2 and there is a total money supply of $10. Double the money supply to $20 with QE. All things equal, each house gradually (over time) would trend towards $4 to reflect the increase in money supply. There a LOT more factors here and I have grossly over-simplified but hopefully you can follow the basic logic. But who is this trend benefiting? Well, are wages matching this inflation in asset prices? If not there is an effective advantage artificially created to those who own the assets against those who don't, the extra $2 on each house has been created as debt (money is created as debt) remember, and someone has to service that debt if they are new to the market. It therefore distorts the economy, QE is a perfect example of the trickle down effect, where money supply has been increased but the majority of capital stays with those who have a lot of assets or assets already paid for/partially paid for.

On a side note, it is not widely noticed or understood the forces behind the declining value of the pound over time (almost imagine that graph as an inverse of the purchasing power of the pound, what could you buy in 1970 with £1 and what can you buy now with the same amount?). Ignorance here is manipulated by government. It is of course now in the long term interest of a Western government to trash its own currency but to do it slowly as not to trigger a panic or currency crisis, this means its debt, which it has no intentions of paying back, can be eroded over time by the currency being taken down (in other words they are defaulting via a process of devaluation - they can't meet debt at face value). So we pay back the debt in the future where £1.5 trillion buys you a packet of crisps. Additionally, the DEFICIT (Western) countries are now also reliant on the cash rich countries (up until recently China/Russia/Saudi) and other OWNERS of debt to basically transfer cash from themselves to us. A 10% devaluation of our debt basically means whoever owns it has transferred 10% of their investment to us as we spent the money with 100% purchasing power when loaned, not the 90% or purchasing power (substitute for value) when it is returned. On a 30 year bond this is basically stealth THEFT by governments (think the value of pound when loaned and value when returned over 30 years), most private citizens don't realise this is the new game and up until recently neither did nations. But what is happening now? China and Russia etc. are re-balancing from LONG term debt to SHORT term debt. They don't want their money tied up over 30 years when they know what we are doing with it. That is a separate post in itself... and something to really watch for. Why isn't the system crashing then, if there are big sellers of LONG debt in favour of short debt then who are the buyers? Think we know the answer to that...

Will summarize my ramblings with quotes from the report:

INTEREST RATE EFFECT:

Shocks to GDP, the CPI and the interest rate are in turn found to have significant effects on house prices, money and credit.

CREDIT EFFECT:

 

The figures reported in Table 4 still suggest that the five countries with the highest house prices increases since 1985 were also characterised by relatively high LTVs on average or LTVs rising to high levels over this period.

WHY THE CENTRAL BANKS ACTUALLY THINK THIS IS POSITIVE - "THE WEALTH EFFECT":

A link between credit and house prices may arise via housing wealth and collateral effects on credit demand and credit supply and via repercussions of credit supply fluctuations on house prices. According to the lifecycle model of household consumption, a permanent increase in housing wealth leads to an increase in household spending and borrowing when homeowners try to smooth consumption over the life cycle. Besides this wealth effect, there is also a collateral effect of house prices emanating from the fact that houses are commonly used as collateral for loans because they are immobile and can, therefore, not easily be put out of a creditor’s reach. As a consequence, higher house prices not only induce homeowners to spend and borrow more, but also enable them to do so by enhancing their borrowing capacity

EFFECT ON ASSET OWNERS:

This is because a permanent increase in house prices will not only have a positive wealth and collateral effect on landlords and owner-occupiers, but it will also have a negative income effect on tenants who have to pay higher rents, and on prospective first-time buyers who now have to save more for their intended house purchase.

EFFECT ON YOUNG:

Also there it might be argued that those who have already completed their life-cycle purchases gain from asset price increases, while those who have yet to save up for retirement lose.

 EFFECT ON YOUNG/UNBORN:

Moreover, a large proportion of the ‘losers’ from a relative housing price increase are those yet to be born, and those too young to be earning for themselves. They can hardly save more, or lower their current consumption, whereas the old home owners (the net gainers) can, and will, raise their consumption

LOOK AT GRAPH OF MONEY SUPPLY, IT STARTS TO INCREASE RAPIDLY FROM THE 70S:

This link is found to be stronger over a more recent sub-sample from 1985 to 2006 than over a longer sample going back to the early 1970s, a finding that most likely reflects the effects of financial system liberalisations in industrialised countriesduring the 1970s and early 1980s.

SELF-REINFORCING LOOP:

An exogenous change in credit supply, e.g. driven by financial liberalization, may in turn also have repercussions on house prices. The price of property can be seen as an asset price, which is determined by the discounted future stream of property returns. An increase in credit supply lowers lending interest rates and stimulates current and

future expected economic activity. As a result, property prices may rise because of

 

 

[Rev]

@SillyBilly, your posts on this thread are informative, interesting and terrifying in equal measures!

Keep it up.

 

[SillyBilly]

Typed that quickly, reading it back, lost the context, should have clearly stated the fact that money supply is obviously directly linked to credit (which then has a major influence on house price). Basically QE creates the money to be loaned out into the economy. So increasing money supply, increases credit, increases asset prices, increases debts to new buyers. This effects the consumption model of the economy, those with assets (i.e. a house) who benefit from the "unearned" asset price tend to consume more, while those who don't either have to pay for this consumption via increased rent (house price to rent ratio) or REDUCE their own consumption to enable them to buy the equivalent asset BUT with more DEBT to do so. I think its a pretty poor state of affairs.