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

[Harley]

1 hour ago, MrXxxx said:

Ditto, but a month ago they were all green, with a few up 30%...go figure!

I've been hoping we've just had a tradeable bounce as liquidity turns to insolvency.  I'm seeding new diversified portfolios with small holdings in what I want and am hoping to ladder in, although some like RDSB look too tempting.  I have no doubt they'll be a ton more liquidity to come and expect a rotation to our beloveds so the prospect of further falls in those we care about is uncertain, but IMO there is still plenty of upside for me to have a partial gamble.  I would love nothing more than to be fully loaded and out in the rain(!) but unfortunately I was MIA in March!

PS:  Come on DRAX, come to daddy!

[wherebee]

2 minutes ago, Harley said:

I've been hoping we've just had a tradeable bounce as liquidity turns to insolvency.  I'm seeding new diversified portfolios with small holdings in what I want and am hoping to ladder in, although some like RDSB look too tempting.  I have no doubt they'll be a ton more liquidity to come and expect a rotation to our beloveds so the prospect of further falls in those we care about is uncertain, but IMO there is still plenty of upside for me to have a partial gamble.  I would love nothing more than to be fully loaded and out in the rain(!) but unfortunately I was MIA in March!

if everything drops another 10% I'm tempted to get some more MOS, BHP, etc etc.  Long term thinking...

[Harley]

14 minutes ago, wherebee said:

if everything drops another 10% I'm tempted to get some more MOS, BHP, etc etc.  Long term thinking...

Looking at DRAX (down 4% today atm) reminded me about percentages.  Stocks have bounced hard from their lows in percentage terms but it takes far smaller percentages to fall back down again.  Suppose I could do the sums and work out what that 4% down today represents in percentage terms of the % up since Its low.

PS: 4% v 9% (worst case)!

PPS:  Looks like all my good stuff (commodity producer plays, etc) are having a bad day.  Weird but great!

[sancho panza]

5 hours ago, jamtomorrow said:

Keeping large amounts on an exchange is asking for trouble, as is keeping keys on a HDD without backup. Use a physical backup like https://www.blockplate.com/, then your only real risks are losing the plates (i.e. same as PMs) or the implied counterparty risk of the entire network (which is certainly debatable, but prob not on this lovely old thread!)

JT and @Harley , the fact that I have to stopop to ask what HDD means tells me that it's something out of my depth.

Didn't mean to be harsh H was jsut saying for non techy people,some things are jsut beyond their comprehension.fair paly to anyone trading it.

14 minutes ago, Harley said:

While I agree with the need for an underlying thesis (except for trades) why does a lower USD imply higher gold, silver, and/or miner prices (in most/all currencies)?  I hold gold and silver but for other underlying reasons.

I ahev two theses on gold.One long term that fiat currencies are fubar.The second relates to the fact that at certain times,there's a strong inverse relationship between USD and gold.The latter is a trade that fits my long term thesis.As I've said before,if I can't indetify the selling point,I'll jsut sit in for the decade.

As @Bricks & Mortar video explained ,if we can identify the BK/credit event moment,then there's a set of trades that can run from that.

[sancho panza]

12 hours ago, wherebee said:

He sounds like he's done a lot of research and knows the Bond market well, but I still do not see how increasing global debt by trillons out of thin air, and doing QE into the billions can be anything BUT inflationary over a long enough timeframe.  I think he is saying deflation first (as people run out of money to buy things) and then inflationary, which I could see as the reality ahead, but he's very focused on the deflation and not how quickly it might turn into inflation?

It's deflationary in that as debtors default they create a chain reaction of risng leverage in the banking system->decreasing credit creation->shrinking GDP->increasing defaults->rising leverage in the banking system.

In itself,historically these things settle,but it can take some time for the wider economy to see inflation as velocity gets killed during a debt deflation.The problem is that for the last 40 years we haven't had an deflation to rebalance western economies.

When you consider the historical perspective below,it's thought provoking.

https://www.investopedia.com/ask/answers/042415/what-impact-does-inflation-have-time-value-money.asp

https://en.wikipedia.org/wiki/Debt_deflation

Assuming, accordingly, that, at some point in time, a state of over-indebtedness exists, this will tend to lead to liquidation, through the alarm either of debtors or creditors or both. Then we may deduce the following chain of consequences in nine links:

1. Debt liquidation leads to distress selling and to
2. Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes
3. A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be
4. A still greater fall in the net worths of business, precipitating bankruptcies and
5. A like fall in profits, which in a "capitalistic," that is, a private-profit society, leads the concerns which are running at a loss to make
6. A reduction in output, in trade and in employment of labor. These losses, bankruptcies and unemployment, lead to
7. pessimism and loss of confidence, which in turn lead to
8. Hoarding and slowing down still more the velocity of circulation.

   The above eight changes cause

9. Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.

— (Fisher 1933)

[sancho panza]

If I can enter one for the income debate dream trade.

Purchase BATs February 2001 for £2.60.Currently paying £2.08 divi............. from one of the healthiest balance sheets in the sector.

edit to add:iirc @DurhamBorn bought in the millenium and held to £40 odd.

[janch]

I take your point about the hot coffee on the keyboard @sancho panza!  So to have a backup is obviously the answer for BTC.  I don't have any as like many on here it's a whole new world and they'll have to simplify it for me to get involved. Another worry is that if everything goes really FUBAR then the power will go off (terrorist/cyber attacks?) and we will really be in trouble.  All our fancy portfolios will be as much use as a chocolate teapot.  Hopefully it will never happen.

This for me is a reason to hold some physical PMs at home (I still have hardly any though) but also cash at home (I don't have much of that either!).  Doing away with cash to my mind is something to be guarded against even if its value deteriorates.  It seems with the "pandemic" we are being slowly programmed not to use cash at all.  I've carried on using it all the time and I know all the reasons why people don't like it but in a real emergency it would be the most useful thing to have as a means of exchange.

Showing my age I remember the three day week and shopping in Tescos by candlelight and no lectures because the lecture halls had no windows.  Tills weren't electric then but if the same were to happen now we wouldn't even be able to get food as all tills are computers.

The upside would be people wouldn't be able to use their mobile phones and might talk to each other instead.  Youngsters would be bereft!

[Shamone]

4 hours ago, Democorruptcy said:

I'm not happy.

Firms are using covid as an excuse not to pay a divi at all but at the same time are taking full salary and bonuses, e.g. BT for figures ending March (largely pre-covid) no divi but 75% of maximum bonus. @DurhamBorn will be along soon to say it's to get the governbankment onside with investment but I'd still prefer an execs salary cut and no bonus. I don't like to think my divi has gone to execs.

Of course they are. The same way my company froze pay for 2 years in 2009 despite never being so profitable. The same way my present company furloughed 50% of staff despite never doing so well. The same way someone very close took the self employed grant despite the company never doing as well this season, their accountant told them everyone was doing it. If everyone else is doing it, eg cutting divi, why wouldn’t you?

[Democorruptcy]

37 minutes ago, Harley said:

Looking at DRAX (down 4% today atm) reminded me about percentages.  Stocks have bounced hard from their lows in percentage terms but it takes far smaller percentages to fall back down again.  Suppose I could do the sums and work out what that 4% down today represents in percentage terms of the % up since Its low.

PS: 4% v 9% (worst case)!

PPS:  Looks like all my good stuff (commodity producer plays, etc) are having a bad day.  Weird but great!

I was just thinking percentages after @wherebeewanted 10% off before buying more MOS "thinking long term...." It's down 81% since the $89 in 2011 to $17 now. Another 10% off now would take it to down 83%. Isn't that short term noise? Another big sell off back down to $6.50 would be better percentage fun

[Democorruptcy]

1 minute ago, Shamone said:

Of course they are. The same way my company froze pay for 2 years in 2009 despite never being so profitable. The same way my present company furloughed 50% of staff despite never doing so well. The same way someone very close took the self employed grant despite the company never doing as well this season, their accountant told them everyone was doing it. If everyone else is doing it, eg cutting divi, why wouldn’t you?

I might find some morals lying around unattended that I could pick up and use before I did the dirty. (It's true, I couldn't say I already had morals )

[Shamone]

10 minutes ago, Democorruptcy said:

I might find some morals lying around unattended that I could pick up and use before I did the dirty. (It's true, I couldn't say I already had morals )

The entire world will be littered with them, you wont need to look far!

[Democorruptcy]

3 hours ago, Shamone said:

The entire world will be littered with them, you wont need to look far!

Actually I've thought about this since and maybe the fact that I implied i didn't have any morals, means I do have some? Or at least I'm honest. Either way I've won something.

[DurhamBorn]

8 hours ago, Democorruptcy said:

I'm not happy.

Firms are using covid as an excuse not to pay a divi at all but at the same time are taking full salary and bonuses, e.g. BT for figures ending March (largely pre-covid) no divi but 75% of maximum bonus. @DurhamBorn will be along soon to say it's to get the governbankment onside with investment but I'd still prefer an execs salary cut and no bonus. I don't like to think my divi has gone to execs.

I agree they should of cut exec salary and bonus as well,that would of been much better,but the telco sector has a small window here to get a few things they have wanted for decades.BT need an inflation deal on returns.The rest of the sector needs the incumbents to get inflation+ deals from government.They also need to be allowed to merge etc.Governments have just had a massive lesson on how vital telcos are now.They have all performed superbly during the crisis and nearly all of the main telcos now have superb management who understand government.Vodafone is making it known that if governments want those strong networks and 5G then a return on equity of 6% isnt enough,and that investors will instead lower capex,lower opex and have bigger divis.We are at a key inflection point in the sector.The market etc is too busy looking backwards and also knows there will be a short term hit as telcos suffer in past recessions.If they can lock in inflation+ increases in a rising inflation cycle,lock in low rates ,structure debt well,then slowly lower opex as they move more and more digital,and lastly then lower capex mid cycle free cash will explode.I think VOD will get to £10billion free cash by the end of the cycle.Telefonica the same.

 

 

[MrXxxx]

6 hours ago, sancho panza said:

These aren't absolute,I reserve the right to panic sell at any point but that's my working thesis.

:-) :-) :-)

[DurhamBorn]

@sancho panza the tobacco stocks back then are a lesson for people now looking at the sectors like telcos,oil,potash etc.An industry that people saw as boring,but that was about to consolidate down.Selling BAT was the hardest choice iv ever made in selling shares and i was very pleased to buy back half my holding when the shares halved.They have too much debt now,but they should steadily pay it down,and they are a cash making machine.They send me a big stonking divid earlier in the week,just like they have every 3 months for decades.

[DurhamBorn]

4 hours ago, Harley said:

Looking at DRAX (down 4% today atm) reminded me about percentages.  Stocks have bounced hard from their lows in percentage terms but it takes far smaller percentages to fall back down again.  Suppose I could do the sums and work out what that 4% down today represents in percentage terms of the % up since Its low.

PS: 4% v 9% (worst case)!

PPS:  Looks like all my good stuff (commodity producer plays, etc) are having a bad day.  Weird but great!

DRAX went xd today.They were one that got hugely over sold in March and were a complete gift under £1.50.Iv sold a few given they doubled,but holding the rest for the cycle,or a takeover.

[MrXxxx]

5 hours ago, Harley said:

I've been hoping we've just had a tradeable bounce as liquidity turns to insolvency.  I'm seeding new diversified portfolios with small holdings in what I want and am hoping to ladder in, although some like RDSB look too tempting.  I have no doubt they'll be a ton more liquidity to come and expect a rotation to our beloveds so the prospect of further falls in those we care about is uncertain, but IMO there is still plenty of upside for me to have a partial gamble.  I would love nothing more than to be fully loaded and out in the rain(!) but unfortunately I was MIA in March!

PS:  Come on DRAX, come to daddy!

I know what you mean about RDSB, just when you think you have enough the little minx tempts you by lowering just that little bit further :-)

[Democorruptcy]

16 minutes ago, DurhamBorn said:

I agree they should of cut exec salary and bonus as well,that would of been much better,but the telco sector has a small window here to get a few things they have wanted for decades.BT need an inflation deal on returns.The rest of the sector needs the incumbents to get inflation+ deals from government.They also need to be allowed to merge etc.Governments have just had a massive lesson on how vital telcos are now.They have all performed superbly during the crisis and nearly all of the main telcos now have superb management who understand government.Vodafone is making it known that if governments want those strong networks and 5G then a return on equity of 6% isnt enough,and that investors will instead lower capex,lower opex and have bigger divis.We are at a key inflection point in the sector.The market etc is too busy looking backwards and also knows there will be a short term hit as telcos suffer in past recessions.If they can lock in inflation+ increases in a rising inflation cycle,lock in low rates ,structure debt well,then slowly lower opex as they move more and more digital,and lastly then lower capex mid cycle free cash will explode.I think VOD will get to £10billion free cash by the end of the cycle.Telefonica the same.

 

 

Yes, if those BT execs can get away with thieving from their customers as much as they have from their shareholders, eventually everything will be OK. (I'm still a tad annoyed about no divi at all, don't know if it shows).

[MrXxxx]

20 minutes ago, Democorruptcy said:

. (I'm still a tad annoyed about no divi at all, don't know if it shows).

Just a bit...but that's because I am a very sensitive/attuned person :-) :-) :-)

[DurhamBorn]

1 hour ago, Democorruptcy said:

Yes, if those BT execs can get away with thieving from their customers as much as they have from their shareholders, eventually everything will be OK. (I'm still a tad annoyed about no divi at all, don't know if it shows).

Its been very worrying the way companies seem to think they can simply stop divis.BT know full well a lot of shareholders rely on them,so as you say they could of cut to the 7.7p rather than miss a year.I think a lot of the blame rests with the market structure now.Passive money etc chasing momentum and "growth" means companies havent been rewarded for paying slowly growing divis.Many execs will be thinking if we arent rewarded for that we might as well go after more growth etc.I think BT fancied the cash flow this year and took the chance,and i do think there was a big political element.Lot less for bad publicity for the regulator etc if they give them a good deal when no divis getting handed out.

[Harley]

3 hours ago, DurhamBorn said:

DRAX went xd today.They were one that got hugely over sold in March and were a complete gift under £1.50.Iv sold a few given they doubled,but holding the rest for the cycle,or a takeover.

Will be interesting to see where its price goes given its current key level.  Sadly I bought mine in Dec 19 and Feb 20 so am currently about 9% down.  Now had I bought some in March or so, I may be evens or so by now.  Maybe I just lack conviction generally so fail to jump on such (to the convinced) opportunities.

[Harley]

Any views on whether the UK (aka "Rip off Britain") has been more keen on cutting divs than say the US?  Another good reason to move on?

[JMD]

2 hours ago, DurhamBorn said:

Its been very worrying the way companies seem to think they can simply stop divis.BT know full well a lot of shareholders rely on them,so as you say they could of cut to the 7.7p rather than miss a year.I think a lot of the blame rests with the market structure now.Passive money etc chasing momentum and "growth" means companies havent been rewarded for paying slowly growing divis.Many execs will be thinking if we arent rewarded for that we might as well go after more growth etc.I think BT fancied the cash flow this year and took the chance,and i do think there was a big political element.Lot less for bad publicity for the regulator etc if they give them a good deal when no divis getting handed out.

DB, do you think a corporate 'growth strategy switch', at the expense of paying dividends (like in US) will become the trend here in the UK/Europe? I ask because I would like to really focus more on getting reflation-type stocks that also pay (or restart paying) decent/sustainable dividends for this coming decade. What constitutes a 'decent' dividend is I guess debatable, and much depends on what price is paid for the share in the first place. But is it the oil and telecoms sectors that look most promising from here? They are certainly currently cheap, so perhaps they are a no brainer? Or are there perhaps other (smaller) sectors that maybe offer even better (total return) potential, eg the cigarette companies, or perhaps some overlooked emerging market sectors? 

[JMD]

52 minutes ago, Harley said:

Any views on whether the UK (aka "Rip off Britain") has been more keen on cutting divs than say the US?  Another good reason to move on?

Harley, I have just posted a question for DB re. dividends. But I recall you mentioning your own dividend portfolio. I wonder, what dividend stocks would you be looking to add to your portfolio now, or if/when they got cheaper (after a market corrections say), in terms of a total-return strategy? I remember you also mentioning the 'dividend aristocrat funds', are you still a fan of those funds?

[wherebee]

23 minutes ago, JMD said:

DB, do you think a corporate 'growth strategy switch', at the expense of paying dividends (like in US) will become the trend here in the UK/Europe? I ask because I would like to really focus more on getting reflation-type stocks that also pay (or restart paying) decent/sustainable dividends for this coming decade. What constitutes a 'decent' dividend is I guess debatable, and much depends on what price is paid for the share in the first place. But is it the oil and telecoms sectors that look most promising from here? They are certainly currently cheap, so perhaps they are a no brainer? Or are there perhaps other (smaller) sectors that maybe offer even better (total return) potential, eg the cigarette companies, or perhaps some overlooked emerging market sectors? 

The cigarette companies always interest me but scare me - all if would take would be a major health drive against smoking in somewhere like china (make smokers have a negative social score, for example) and they'd be fucked.