Credit deflation and the reflation cycle to come (part 2)

[Loki]

26 minutes ago, Ponty Mython said:

Run far, far away.

And when you get there, keep running.

Tell me how you really feel!! 

1 hour ago, Errol said:

Lots of good webinars here - https://ttmygh.com/hmmminars/ . From Grant Williams of 'Things that make you go Hmmm'.

Gold webinar filmed on 9/4/20.

That was bloody brilliant.  Very watchable guests and great info.

[M S E Refugee]

1 hour ago, Loki said:

What are your thoughts on airlines?

I'm torn between them being consumer-focused (easyjet) and also part of the globalism which may start to unwind as manufacturing returns, but also an ingrained part the travel infrastructure now.  Apologies if you've already covered, I try to make sure I read all your posts but sometimes miss one 

Instead of trying to turn housing into airport runways I see a trend of turning airport runways into housing.

[Loki]

2 minutes ago, M S E Refugee said:

Instead of trying to turn housing into airport runways I see a trend of turning airport runways into housing.

I think you were making an analogy (if that is the term - and a good one too) There but just in case i have misinterpreted, would the possible ground contaminants rule this out?

My grandad used to help farm what is now Heathrow apparently.  I wonder if we'll end up wondering if it was all worth it.

[Iamcynical]

10 minutes ago, Loki said:

I think you were making an analogy (if that is the term - and a good one too) There but just in case i have misinterpreted, would the possible ground contaminants rule this out?

My grandad used to help farm what is now Heathrow apparently.  I wonder if we'll end up wondering if it was all worth it.

A lot of small airfields have been turned into shit housing/commercial building  estates over the years.  I believe it's because they are classed as brownfield even though they are mainly still fields.  Its been a big loss to the general aviation community actually, and very short sighted in terms of training future pilots.  On that note, I think we might be witnessing the death of very low cost flights with this huge global downturn 

[Loki]

Flying and transiting an airport has become so unpleasant I wouldn't particularly miss it.  Last three times have been for work, so costs not an issue for me.  The loss of skills and jobs from your general aviation area is a shame though.  As is those crappy estates even existing.  

[Iamcynical]

I've got a ppl and flying is great if not rather expensive.  But it's such a pain in the arse to hire a plane and go anywhere for a weekend or whatever.  Most of the general aviators are getting on a bit now, I guess primarily because they're the generation with the disposable income to afford it.  Shame really.  But yes, proper flying with Ryanair et al is shit. 

[MrXxxx]

3 hours ago, DurhamBorn said:

They also have had legacy issues like pension deficits

But is this not the issue for one in particular I.e DB pensions?..With gilts/bonds being so weak and them having to hold these will the matter/liability not get worse going forward rather than better?

[Transistor Man]

3 hours ago, DurhamBorn said:

The beauty for the telcos is its all going over their networks.Even better big tech cant take all the profit this time,because a lot will rely on clouds on the edge of the network,not distant data centres.

This explosion in use will come at the same time as investment slows,and also as prices can start to rise slowly,pulling away from those depreciation charges.It also means as the inflation grows,building anything to compete with the big guys now will simply not happen.

Now telcos have too much debt.Vodafone and Telefonica especially,and they might/will take a hit as economies are whacked after this virus/end of cycle hit.Dividends might have to be cut for a while to de-leverage quicker.They also will be facing much higher rates later in the cycle,so its crucial they have a good debt structure so that they can de-leverage and not have to roll over too much.They should be one of the few sectors able to do that though.

Where a lot of sectors will see huge growth simply because they are inflation loving,the telcos might be an area that are structurally undervalued,and as a sector including dividends might deliver 400% returns against around 100% for inflation.

This area has become big 

This advanced 5G telecoms infrastructure has become very important where I work - especially the space/ satellite(!) aspect, as that’s where we have a lot of experience.

The driver is autonomous vehicles. 

https://www.theengineer.co.uk/uk-space-o2-5g-satellite-cav/

Similarly, Vodafone are now involved with Avellon to put up 5G satellites. 

https://www.telegraph.co.uk/technology/2020/03/03/vodafone-joins-space-race-build-5g-broadband-satellite-network/

 

 

[DurhamBorn]

21 minutes ago, MrXxxx said:

But is this not the issue for one in particular I.e DB pensions?..With gilts/bonds being so weak and them having to hold these will the matter/liability not get worse going forward rather than better?

Yes,in the short term worse,but inflation will help at rates increase.

[DurhamBorn]

14 minutes ago, Transistor Man said:

This advanced 5G telecoms infrastructure has become very important where I work - especially the space/ satellite(!) aspect, as that’s where we have a lot of experience.

The driver is autonomous vehicles. 

https://www.theengineer.co.uk/uk-space-o2-5g-satellite-cav/

Similarly, Vodafone are now involved with Avellon to put up 5G satellites. 

https://www.telegraph.co.uk/technology/2020/03/03/vodafone-joins-space-race-build-5g-broadband-satellite-network/

 

 

Exactly,and thats only the start.Of course the telecoms need to be able to monetize this time,as they have lost out to tech so far.However the risk reward looks superb.The worry is big tech take a lot of them out in takeovers before the cycle unfolds.

[Yellow_Reduced_Sticker]

42 minutes ago, Transistor Man said:

This advanced 5G telecoms infrastructure has become very important where I work - especially the space/ satellite(!) aspect, as that’s where we have a lot of experience.

The driver is autonomous vehicles. 

https://www.theengineer.co.uk/uk-space-o2-5g-satellite-cav/

Similarly, Vodafone are now involved with Avellon to put up 5G satellites. 

https://www.telegraph.co.uk/technology/2020/03/03/vodafone-joins-space-race-build-5g-broadband-satellite-network/

 

 

"An INTERNATIONAL Emergency Appeal to the World’s Governments by Scientists, Doctors, Environmental Organizations and Others to STOP 5G on Earth and in Space"

https://www.5gspaceappeal.org

 

A lot of controversy about 5G at the moment...

 

Whats your view of the above, a storm in a teacup?

[Castlevania]

24 minutes ago, Yellow_Reduced_Sticker said:

"An INTERNATIONAL Emergency Appeal to the World’s Governments by Scientists, Doctors, Environmental Organizations and Others to STOP 5G on Earth and in Space"

https://www.5gspaceappeal.org

 

A lot of controversy about 5G at the moment...

 

Whats your view of the above, a storm in a teacup?

Didn’t you know that 5G has been responsible for transmitting the bat flu around the world?

[Bobthebuilder]

26 minutes ago, Castlevania said:

Didn’t you know that 5G has been responsible for transmitting the bat flu around the world?

 

Well, its been responsible for all the other bullshit tranmitted around the world of late.

[sancho panza]

13 hours ago, Ellandback said:

That's encouraging! Now do I chase or wait for the pullback... Decisions, decisions.

There's still a few beat up shares that stand out in the PM's.We're invested across a good few and of the ones we have I can tell you from my experience that (DYOR natch)

Oceanagold,IAMgold,Hochschild,BVN are stil pretty beat up

Harmony,Oisisko GoRo,Sandstorm and Newcrest(particualrly as the big blue chip) offer reasonable vlaue

New Gold is the medium risk/ high reward play.

 

 

[Loki]

17 minutes ago, sancho panza said:

New Gold

Don't do it 

Took me a bit of digging but i knew I'd read something somewhere about a hedge or a contract

 

[sancho panza]

On 09/04/2020 at 10:25, DurhamBorn said:

There are a few things that go on around debt deflation etc and lags.My friend used to say this is where most/nearly all economists and other market players get it wrong.He said the inflation has already been consumed and the dis-inflation has taken care of it.Its already gone.However a lot of debt has built up on inflation already consumed.Those assets are sat there,ready to produce.In affect the CBs have an open door to print ALL of the dis-inflation over the cycle,because the assets are there to consume the printing.Of course the fuzzy bit is the CBs dont know how much debt is bad,going bad,or in this present situation how much of the asset base will spring back,how much is gone forever.They usually push everything through the capital markets first,but at the end of a cycle they use direct to government as well,they know a fiscal punch is needed.

So all the dis-inflation since 1982 is available to be printed,in theory.Iv road mapped this,and i come up with a figure of 50% of the disinflation and that says $18 trillion balance sheet for the Fed and another $10 trillion to be printed,BOE (who say no printing ) probably $1 trillion.

Of course if they printed nothing,the assets would go back to being worth what they were in 1982 (and overshoot on the downside).The reason the CBs wont let that happen is because its their job not to.The financial dislocation would be on a scale never seen,and society would collapse.Its a bit like having a fire brigade who dont respond to a huge fire.

At the end of a reflation though things change.The inflation has built up in the system,instead of being consumed,it has added onto costs.If the CBs print then you get hyper inflation.They are at the exact opposite of where they are now.So governments cant turn to them,they have to actually live within their means.In simple terms during and at the end of a deflation/disinflation governments cant run out of money.At the end of a reflation/inflation,they do run out.

Given to get back to growth we need to print all of the dis-inflation,it then means the situation comes up where rates end up where they were then as well,however adjusted down for a much more efficient modern economy.

So why buy inflation stocks like oil,potash etc?.Because the market priced them back towards those early 80s prices (they didnt get right back,but well over halfway),rational,but ignoring the CBs would put all that dis-inflation back into the markets.

 

I think CP says it well when he says he finally gets it.It's how I feel.Weird,all these years studying GD1 and the years between 2000-now and I never thought to consdier the monetary situation that preceded 1929.

It's interesting that you reference

However a lot of debt has built up on inflation already consumed.Those assets are sat there,ready to produce.'

It's worth noting that a lot of the inflation psot 82 has ingored the rise in hosue prices as they arent included in CPI,CPIH,RPI(well mortgage interest is but the HPI not).WHich has served the govts well in that they were printing but not creating price inflation due to the mechanims they use to measure it.WHich is a very neat tactic if you're conspriacy minded.

I'm not,I thik it's a situation thats jsut developed but as you say they can print the disinflation back to where they started.

For me the issue remains of trying to predict two things.

1) when they can't print due to inflaitonary pressure

2) how they manage the debt deflation in a situation where printing on it's own won't be enough as you allude tehy can't roedict where and how the bad debts will fall particuarly with the dislocations covd will cause.

AS Ive said,I think the Big Kahuna comes late this year next and as per CP's excellent definition-it only ends with AMZN,FB,AAPL etc on the floor.

 

So I roughly have na idea of what I consdier the end game but need to plan project how we get there.Weak dollar phase ssems sure.

11 hours ago, DurhamBorn said:

By the expansion of productive capacity over the cycle making things cheaper.Those factories and supply chains are now sat there doing nothing,they have already consumed all the liquidity since 1982 .A lot has found its way into housing as well.The only real thing costing more and why it will suffer most.

Where a lot of people go wrong,they think inflation comes when everything expands,it doesnt,it comes when everything shuts.

The reason we get inflation in this new cycle is because the money will be forced down a small area of the economy.Instead of billions of consumers making small choices on products etc we will have governments making  a few choices.

 

On a sdie note,I bought my first call options of the campaign Thrusday night.

Alcoa $10,$12

FCX $8,$10,$12

X $10.

Going with United States steel because I see jobs coming back.Not for the faint hearted but going to sue some increasing of PM miner equity to subsidise my activites in the world of @MvR  

If anyone has any good options ideas,feel free.

[sancho panza]

12 hours ago, Cattle Prod said:

I popped on to post about this, but first can I say what great chat there has been the last few pages. @DurhamBorn your post on the disnflation leaving the doir open to print, that prices will go back to the 80s if not, and oil/potash have already been priced back there...is astonishing. I think I finally fially get it.

On oil, the biggest story no one is talking about is that Saudi yet again has baulked at testing its fabled 12.5 full capacity. I said here that they wouldn't a few weeks ago, because I know they can't. I've hone through their fields, its just not there, how do 99.99% of analysts keep missing this? They pump out their storage to get to 12m, so that's a fake number. I reckon they can do 11.5m bu turning on all their old wells, stressing the reservoirs, only possible for a short time. I said 3 months max, its probably less.

Saudi plays this game because the myth of the spare capacity gives them a seat at the big boys table. I said on my very first post here that they have no spare capacity other than the short term pulse you just saw. It's been tested twice since then, failed both times. Huge, huge implications for the next oil cycle when the market cottons on to this.

So they ran to the table to make a deal. Yes, they couldn't sell it either, and underestimated demand loss, but they are not nearly as strong as they made themselves out to be a few weeks ago. And that moron MBS declared a production level of 13.5m by fiat, I'd love to hsve seen the Aramco guys face who had to go educate him. Russia is not going to give it away for free either, despite the "negative prices" idiots out there.

So a small correction, Vendetta. Neither Russia nor Saudi have ever pumped 12.5m, though they'd have you belueve it with all the numbers floating around. Market sold the news, and may do so again, but for all the controlled OPEC shenanigans, free market capitalism is silently doing its job. On Friday alone we saw another 30 rigs shut down in the Permian, and Shell deferring north sea capex (protecting its divi).

Everyone ignored Mexicos attempt to be relevant, as they are in structural decline and will organically cut anyway. That day is not here yet for Saudi, but it's getting closer all the time. With no spare capacity to flaunt, they are just another big producer.

'cure for cheap oil ' etc

Have you a view on the rumoured stake building in ENI/EQNR/RDSB/TOTAL? I've often wondered if someone would go for the smaller european fishes eg repsol/eni.COuld Saudi really take out EQNR? I hope not,we've got two main holdings  at $15 and one sub $13.Wouldn't want to lsoe them

[sancho panza]

1 hour ago, Castlevania said:

Didn’t you know that 5G has been responsible for transmitting the bat flu around the world?

Realize it was a few pages abck but a comment you madder really got me thinking

 

it was ref if a stock is down50% then you either buy more or sell it.Great way to trade.

Sadlyon the eone that can't be named,I'd have bought more,but ill remember that lesson for the future.

[sancho panza]

29 minutes ago, Loki said:

Don't do it 

Took me a bit of digging but i knew I'd read something somewhere about a hedge or a contract

 

A teachers pension fund ahs swallowed their detbs iirc.CHanges the proposition as they were struggling under their detbs.WOuld have to reacquint myself with the oarticualrs

[Loki]

11 minutes ago, sancho panza said:

A teachers pension fund ahs swallowed their detbs iirc.CHanges the proposition as they were struggling under their detbs.WOuld have to reacquint myself with the oarticualrs

Interesting mate thank you. Never sold my holding so maybe it will come good yet

Here it is: https://www.newgold.com/investors/news-releases/news-details/2020/New-Gold-Announces-300-Million-Partnership-With-Ontario-Teachers-Pension-Plan-at-the-New-Afton-Mine-Adding-Significant-Financial-Flexibility/default.aspx

[DurhamBorn]

23 minutes ago, sancho panza said:

'cure for cheap oil ' etc

Have you a view on the rumoured stake building in ENI/EQNR/RDSB/TOTAL? I've often wondered if someone would go for the smaller european fishes eg repsol/eni.COuld Saudi really take out EQNR? I hope not,we've got two main holdings  at $15 and one sub $13.Wouldn't want to lsoe them

It would be interesting to see how governments would respond as each one is crucial to each country,Repsol Spain etc.

[sancho panza]

13 minutes ago, Loki said:

Interesting mate thank you. Never sold my holding so maybe it will come good yet

Here it is: https://www.newgold.com/investors/news-releases/news-details/2020/New-Gold-Announces-300-Million-Partnership-With-Ontario-Teachers-Pension-Plan-at-the-New-Afton-Mine-Adding-Significant-Financial-Flexibility/default.aspx

couple fo teh big players in the newsletter wrold are psuhing it too.

[sancho panza]

[MvR]

1 hour ago, sancho panza said:

On a sdie note,I bought my first call options of the campaign Thrusday night.

Alcoa $10,$12

FCX $8,$10,$12

X $10.

Going with United States steel because I see jobs coming back.Not for the faint hearted but going to sue some increasing of PM miner equity to subsidise my activites in the world of @MvR  

If anyone has any good options ideas,feel free.

Sorry SP, I meant to reply earlier re: wide spreads and volatility, but have been distracted with prepping.. short answer is I think increased volatility, if anything, would tend to reduce the spreads in further-from-the-money options since they'd be more frequently traded and therefore more liquid, but that's just a guess. It could just be that the instruments you looked at were generally less liquid overall. Sometimes this just happens as options sellers prefer the more liquid instruments, so others fall out of favour for no apparent fundamental reason.

On your calls, what expirations did you buy?   Did you buy naked calls, or sell something else to create a combo of some sort?

 I'm tempted to do something with US steel myself now you point it out. I'll see what the market's doing on Tuesday ( or is it Monday they open? I'd better check!) and put on an X trade of some sort, and post it here, along with its performance and any adjustments I make as time progresses, reasoning etc.

[MrXxxx]

9 hours ago, Castlevania said:

Didn’t you know that 5G has been responsible for transmitting the bat flu around the world?

True, and if you go out on your balcony next Thursday and clap you are subjecting yourself to a 100% greater risk of contracting it...and probably greater...lets say, 200 or 300%!....

...lets hope there is an element of truth in this one as we need a `performing seal` cull.