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

[JMD]

14 hours ago, DurhamBorn said:

Iv been going over a lot of data from the early 1970s charts to try to get a feel for where our inflation might come from this time.What might be the trigger.

Its pretty obvious back in the 70s inflation was mostly a local issue,not worldwide,and it tended to ebb and flow with the odd periodic pressure from worldwide commodity prices.

Since the start of dis-inflation in 1982 there is a graph that times perfectly in the opposite direction.The growth of global supply chains,starting first with Japan and its just in time manufacturing.

That process is now in reverse,because they are forgetting the comparative advantage and are concentrating on security of supply instead and home political problems.This will make things more secure but only by using higher cost local supplies.Already these supply chains are fractured causing huge problems and thats with demand down with lockdowns etc.Indeed my own company has to keep paying people double time to work sundays when parts arrive that werent there when they should of been friday,never heard of before.I keep getting asked "is there anyone local?" 

These fragmented supply chains will give an inflation pulse very soon,and then it will be compounded as demand moves higher out of lockdowns.

There is massive liquidity building,and that means it can be done,but with much higher prices being paid.

I think that will be the story of the start of this reflation cycle.Fractured supply chains needing on shoring that means expanded energy use worldwide that then feeds into already rising costs.

I think looking at investments its clear that all companies that use complex supply chains are going to see lower profits as although they will get higher prices for their products,their supply chain changes and input costs will be higher.

So if we think in simple terms its how many links to the consumer.A car has around 15,000 links,each part etc.A fag from BAT probably has around 15 .

An integrated oil company hardly any.

Potash probably less than 10

A telco,its it around 3? is it direct sale of product once cables are in the ground?

If my thesis on this is correct,then the winners in the cycle ahead will be the companies with the lowest numbers.They will be able to price up with the inflation everyone else is suffering,but will only be suffering a small amount of that inflation themselves.However they need to be companies where demand wont fall much and they are needed/wanted.

Some complex areas will be expanding ,yet might make no money out of the cycle.

It could be no EV car maker makes any money during the cycle for instance.

 

 

 

 

Thanks DB, insights into ideas such as 'distressed supply chain' risk etc, really help because I am currently shortlisting my reflation stocks in case we get a BK event. Ideas like that help me to screen which companies I might consider buying.

[JMD]

11 hours ago, wherebee said:

I'd say one thing to consider re inflation proofing your life are clothes.

 

I remember when a pair of jeans was a major purchase.  Noone under 40 will think of clothes as something to budget for.  If you are unlikely to change your size much, buying 3-4 pairs of good quality jeans or trousers, and a bunch of tshirts and shirts, could be very sensible.

We filled up on socks and underwear at the start of the pandemic due to supply chain fears for australia.  I think we will double dip, stick them in a suitcase, in sealed packets, and leave them until needed.  

I could see the days of cheap clothing for the west being over.

Interesting. It leads me to ask a question that I have kinda posed before, though last time it was specifically about the investment potential of 'future collectables'.                                                                                   Anyway my question this time round is: if you had a spare room at your disposal, what 'cheap/inexpensive' items would the wise people here hoard/store, in the expectation that said items would be in great demand in future years?

[Hunty]

1 hour ago, DurhamBorn said:

 

Im full to the gunnels but if i wasnt id be still buying at any price under £3.50.They are going over £10 +divis in the cycle i think.Minimum.

Agree. I'm £150k all in. Av 1.752..

HOC. £100k Av 1.925.

Gold, Black Muck.

Some you win. Some you'll lose.

I'll take that bet.

You talk sense. Same hymn sheet kidda..  

[Popuplights]

16 hours ago, stokiescum said:

No it’s fun I am a horrible cunt but even I know every decade or so we get a recession it’s been obvious we are due a big one like the 1930s.4 years ago was the wake up call to get your house in order ie brexit which was predicted at the time to decimate the uk.Covid is a black swan no one could have predicted the time of .so if you’ve got a huge mortgage 2 loaned cars on your drive and maxed out credit cards tough fucking shit .you should have thought about brexit and positioned yourself accordingly 

I think someone has Hijacked @stokiescum account, as this post only contains facts and sensible opinion, with no mention of pussy, booze or Globe-shaped drinks cabinets.

[sancho panza]

On 18/12/2020 at 16:13, Cattle Prod said:

I'm trained to spot the signal in the noise, a drop of oil in a vast amount of data that means a big field. That graph is the signal, and everything, I mean everything else that is being bandied around on testing, cases and deaths is noise. Pure and simple. All of it is contaminated data. Comparing all deaths this year to all deaths in previous years is uncontaminated. That curve does not lie: you cannot have an epidemic without excess deaths. It is impossible. I can't fathom why people can't see it, I've sent it to my MP etc etc. It's maddening, frustrating, f'n crazy making. What you've said has given me a glimmer of hope!

I agree CP,the truth lies in the death data.There are nuances behind the data but the up front count is something you jsut can't get around.

When you look at that chart,you can see that before and after the spike in Mar/Apr the line was actually below many other years.

And here's the kicker.WHen you go back to 2000,the population of the UK was 58.79 million.Currently it's 66.65 mn.............so per capita,this year may not even beat 2000 and possibly some other years as well.

I saw Julia Hartley Brewer getting interviewed on SPiked the other day and she was saying that all the conspiracy theories are undermined by the stupidity of our political class.Which I agree with.I think she's missing the fact that the Russian/Chinese politcal classes are quite astute and when you see the outcomes in the West,they do suit them.

One final covid point,Clare Craig-again....-has written an excellent paper on the fact that asymtomatic transmission is not as prevalent as claimed.If that is the case then clearly,locking down healthy people is pointless.

https://lockdownsceptics.org/2020/12/19/#has-the-evidence-of-asymptomatic-spread-been-overstated

Harmful lockdown policies and mass testing have been justified on the assumption that asymptomatic transmission is a genuine risk. Given the harmful collateral effects of such policies, the precautionary principle should result in a very high evidential bar for asymptomatic transmission being set. However, the only word which can be used to describe the quality of evidence for this is woeful. A handful of questionable instances of spread have been massively amplified in the medical literature by repeatedly including them in meta-analyses that continue to be published, recycling the same evidence base.

 

[King Penda]

9 minutes ago, Popuplights said:

I think someone has Hijacked @stokiescum account, as this post only contains facts and sensible opinion, with no mention of pussy, booze or Globe-shaped drinks cabinets.

It’s alleged that stokie was got a bit of a cough and refrained from getting hammered last night.or he has miss calculated and guzzled to much of his self imposed alcohol allowance and was sober last night due to bad maths

[nirvana]

6 hours ago, Hunty said:

Agree. I'm £150k all in. Av 1.752..

they haven't been 1.75 since 1993 so I guess you're what they call a 'long term investor'? 

[Democorruptcy]

9 hours ago, DurhamBorn said:

On the subject of BP this is another great move from the company,

https://www.bp.com/en/global/corporate/news-and-insights/press-releases/bp-acquires-majority-stake-in-largest-us-forest-carbon-offset-developer-finite-carbon.html

I think as the cycle develops natural carbon offsets will really grow.They are the lowest cost solution,and a no brainer.Planting and protecting forests is an easy sell,and provides huge bi-diversity gains on top of carbon storage.BP has made a great move here and i expect this new company to end up a great profit provider to BP.As a shareholder im very happy that my capital is seeding and taking control of this.

I was a bit worried that BP might be going all woke,but what im seeing is fantastic oil and gas finds alongside really good strategic investments in new energy.

Im full to the gunnels but if i wasnt id be still buying at any price under £3.50.They are going over £10 +divis in the cycle i think.Minimum.

As you mentioned a price.... Barclays put a note out earlier this week:

Quote

 

Analysts at Barclays upped their target price for shares of oil major BP, telling clients that the capital outlays needed to transition towards renewable energies would not come at the cost of its near-term shareholder returns.
"Long-term stewardship requires that the company evolves alongside the society that it is ultimately there to provide energy for," they said in a research note sent to clients.

"In theory, the company offers investors the vision of what a future energy group should look like - lower carbon, more stable earnings and less reliance over time on oil and gas."

Yet some investors were seemingly fretting that BP's plans to slash its output of fossil fuels by 40% by 2030, together with a ramp-up in low-carbon spend would depress cashflows in the near term.

"Our own analysis shows that an improved mix of barrels, combined with the cost-savings programme, is set to leave upstream cashflow at least unchanged to 2025, even with the disposals," they retorted.

"Add to this the growth in overall corporate cashflow from the consumer business, and the implied 13.9% [free cash flow yield] yield on which we estimate the stock trades, and we see a compelling investment case."

Barclays therefore revised its target price from 400.0p to 475.0p while reiterating its 'overweight' stance for the group's shares.

https://www.hl.co.uk/shares/shares-search-results/b/bp-plc-ordinary-us$0.25/share-news

 

 

 

[ThoughtCriminal]

If ever a graphic screamed "Short the bastard!", but then on your other shoulder the good angel, let's call him DB, is saying "Marathon not a sprint my son!". 

 

Screw you DB, screw you 😉

[Loki]

17 minutes ago, ThoughtCriminal said:

If ever a graphic screamed "Short the bastard!", but then on your other shoulder the good angel, let's call him DB, is saying "Marathon not a sprint my son!". 

After this year I am allowing myself some gambling/fun money...luckily I only put £35 on Trump as (God bless you durhamborn) I'm aware the market likes to hurt as many as possible 

It's not even about the money, it's about having some excitement and some hope.  I won't be touching my ISA.

[DurhamBorn]

@Democorruptcy looks like Barclays are using oil at $60 for their price targets,BP also used some sleight of hand over their "40% less oil and gas",it doesnt include Rosneft for one.I think their price target is a fair one if inflation stays below 2%.I think oil will average $90 to $120 over the cycle though with highs between $180 and $380 a barrel depending on if things go parabolic towards the end.`Gas should outperform oil on the average increases i think.

I really like the deal to increase ownership in Finite Carbon.I think once the world understands net zero wont all come from renewables natural carbon offsets will become a huge industry and rightly so.Its always amazed me that we chop down the worlds forests then think a windmill is the answer.Finite Carbon is one of those companies that in a parabolic rise towards the end of the cycle could be an IPO with massive valuation.

Of all the renewable energy bubbles we are likely to see,the one hardly anyone mentions is natural carbon offsetting,yet i think it will become maybe the biggest market of them all.Looks like BP think thats possible too and of course they can sell the credits as a package with their energy through their trading platform,probably the best in the industry.

[ThoughtCriminal]

6 minutes ago, Loki said:

After this year I am allowing myself some gambling/fun money...luckily I only put £35 on Trump as (God bless you durhamborn) I'm aware the market likes to hurt as many as possible 

It's not even about the money, it's about having some excitement and some hope.  I won't be touching my ISA.

Same here. 

 

Think it's time a spread betting account had my name on it. 

 

Just for a bit of fun. 

 

Fast forward two weeks and I'm on here asking if I can kip on anyone's sofa lol

[DurhamBorn]

@ThoughtCriminal Tesla is an amazing example of loose money distorting markets for a while.They keep putting out $5 billion share issues to hungry investors at prices like the above.Nuts.Those investors are really saying we are prepared to fund you and get back 10c in the $ if we are lucky.People are simply buying the dream that the company will own Mars one day and run a shuttle bus service there and back,replace all cars on the road here,take over NASA and everything else.

I think its more likely BAT will make more profit from 1 box of fags than Tesla will deliver shareholders from here in 8 years.

Im a dinosaur though,the guy at work told me his son (19) was doing well trading shares,that Tesla and Zoom were great buys now as everyone would use them in the future.

[Loki]

5 minutes ago, ThoughtCriminal said:

Same here. 

 

Think it's time a spread betting account had my name on it. 

 

Just for a bit of fun. 

 

Fast forward two weeks and I'm on here asking if I can kip on anyone's sofa lol

I'm just going to see if I can jump on the forecast rise in silver, and then open a few 'sell' CFDs once we reach all time highs.  Nothing too complicated.

That said I have a feeling the highs will last longer than anyone expects

[ThoughtCriminal]

7 minutes ago, DurhamBorn said:

@ThoughtCriminal Tesla is an amazing example of loose money distorting markets for a while.They keep putting out $5 billion share issues to hungry investors at prices like the above.Nuts.Those investors are really saying we are prepared to fund you and get back 10c in the $ if we are lucky.People are simply buying the dream that the company will own Mars one day and run a shuttle bus service there and back,replace all cars on the road here,take over NASA and everything else.

I think its more likely BAT will make more profit from 1 box of fags than Tesla will deliver shareholders from here in 8 years.

Im a dinosaur though,the guy at work told me his son (19) was doing well trading shares,that Tesla and Zoom were great buys now as everyone would use them in the future.

Not seeking trading advice, natch, but SURELY that share price isn't sustainable? 

 

Even if they became the Amazon of cars, and that just isn't going to happen. 

[ThoughtCriminal]

7 minutes ago, Loki said:

I'm just going to see if I can jump on the forecast rise in silver, and then open a few 'sell' CFDs once we reach all time highs.  Nothing too complicated.

That said I have a feeling the highs will last longer than anyone expects

Yes, even with the batshit insanity that is teslas price, I can still hear ringing in my ears "The market can stay irrational for longer than you can stay solvent". 

[Loki]

1 minute ago, ThoughtCriminal said:

Yes, even with the batshit insanity that is teslas price, I can still hear ringing in my ears "The market can stay irrational for longer than you can stay solvent". 

...until it can't! 

[Democorruptcy]

17 minutes ago, ThoughtCriminal said:

Not seeking trading advice, natch, but SURELY that share price isn't sustainable? 

 

Even if they became the Amazon of cars, and that just isn't going to happen. 

There's a list here of Amazon acquisitions over the years. Tesla is priced like it's going to acquire the other car manufacturers.

[Don Coglione]

22 minutes ago, ThoughtCriminal said:

Yes, even with the batshit insanity that is teslas price, I can still hear ringing in my ears "The market can stay irrational for longer than you can stay solvent". 

The balance of my spread-betting account would agree with this!

[DurhamBorn]

Iv just updated my roadmap on inflation.Im not really bothered about shorter term numbers,too much noise,but out of interest for the thread i see inflation at 3.3% by June.Unless we get a BK and a short hard deflation.

I think then it will be expected to come down,but wont and will rise towards 5%.Then a long slow march to 8%,then a parabolic run up to 16% in a matter of months towards the end of the cycle.

I expect rates to run behind inflation by 2.5% at first,then 3.5% until around 2028 when rates will go into double figures.This will force trillions from bonds and cash into inflation sectors,mostly commods,but also companies that can inflate prices yearly.

The first part of the inflation looks set,the latter half relies on a lot more stimulus,so probably a BK,or a slower recovery and sticky unemployment that scares policy makers.

I think inflation adjusted from here the Vanguard 40/60 fund ,the sort mostly used by people close to,or in pension drawdown will lose 20% of its value before fees nominal.With a drawdown of 5% +2% IFA and platform fees i expect people in drawdown to see their pension go to zero over around 9 years at the same nominal cash withdrawing rate.So people forced out early this/next year will see their pensions run out before their state pension kicks in if taken at 55.The very best i could see is a stand still so pensions cut in half before inflation.

The above suggests we are entering an inflation cycle and a distribution cycle.

I still think the magic number to hold capitals value is an average of 6.5% a year growth.That should keep up with inflation compounded.

 

 

[Noallegiance]

9 minutes ago, DurhamBorn said:

The first part of the inflation looks set,the latter half relies on a lot more stimulus,so probably a BK,or a slower recovery and sticky unemployment that scares policy makers.

 

So do you mean potential BK soon or high unemployment and/or another (or the sooner one if put off again!) BK later?

[Hunty]

2 hours ago, 5min OCD speculator said:

they haven't been 1.75 since 1993 so I guess you're what they call a 'long term investor'? 

My mistake, typo. 2.752.

Too many slugs of the old devils cheer me ups!

[BurntBread]

20 hours ago, Loki said:

A mate of mine keeps insisting I should buy (Edit: well, lease.  Same thing innit as far as most are concerned) a flash car.

The affordability or desire is here nor there - with what we think is coming why the hell would I want a big arrow pointing at me?

My car is 11 years old...and (Gun metal) grey. I own every square cm of it.

I could have quoted many posts, but this one tipped me over the edge to comment.

My biggest financial asset, learned from a life of not much success, but walking some strange psychological paths, is knowing how to be happy with very little. The last time I looked at my total yearly expenditure was in 2018, and I spent less than £10k, including £7200 in rent. I wasn't trying to be frugal, or suffering in order to reach some target: that's just where I had got to, and I couldn't remember a year in which I was happier.

I have thought about this, and having missed out on most of the things people strive for, I have come to the conclusion that the one thing that I need, as much as food, is freedom. I run on it, like it's some kind of high-octane fuel. Freedom is one of those things which is hard to buy with money - at least you get a very poor exchange rate if you try to - but you can buy it with sacrifice, and in that currency it's always on offer. I hasten to add that's not all I need: I also want interesting ideas to think about, I like to feel I'm contributing useful work to the people around me, and I value a few close friends. However, none of those things are expensive.

As for this thread, it has been an enormous education to me, so thank you for everyone who has chipped, but most especially to @DurhamBorn, of course. He (and a few others) have made me feel a complete fool on several occasions, and I'm better for it. I'm thinking particularly of when I have mentioned some sector, and been appropriately slapped down. Years ago, I learned two maxims for life, and they have stood me in good stead: to always keep my office door open* (obviously metaphorical in the present world of open-plan), and to always try to be the stupidest person in the room. I try to live those maxims on this thread.

I'm therefore going to stick my neck out once more, and mention a contrarian sector I'll be looking at more closely next year, with an eye on buying: ... tech stocks. I'm thinking about MSFT, but also pegasystems, and maybe alteryx. They're clearly off-the-scale expensive now, but I have seen how difficult, perhaps even impossible, it is for companies to disentangle themselves from the MS ecosystem. They are also quite de-complex, I think: admittedly they are labour-intensive businesses, and a lot of server infrastructure, but microsoft has shown itself capable of neglecting product improvement, or even bug-fixing, and still finding itself able to charge top-whack. I'm thinking that if there is a tech crash, and once I've had a proper look at the balance sheets, a P/E of below 20 would be a place to start.

As a linux user since 1994, I'm going to hate myself, though.

 

* I think this was originally a quote from Frank Gray at Bell labs, who said that he had noticed two things that correlated with success. One was when people neglected their families, and the other was that those researchers who habitually left their doors open tended to win Nobel prizes; while those who didn't, didn't.

[ThoughtCriminal]

22 minutes ago, Cattle Prod said:

Pity you can only make 100% on a short. As obvious a short Tesla is, there are easier ways to make money long. Many of our March tranches are up over 100% already, with unlimited upside. Imo only.

Only 100% with spread betting? 

 

 

[Loki]

36 minutes ago, BurntBread said:

My biggest financial asset, learned from a life of not much success, but walking some strange psychological paths, is knowing how to be happy with very little.

What a great way of putting it