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

[janch]

21 hours ago, Hancock said:

Yes "long covid" will be a like a lottery win for the public sector. Strangely no "freelancers or contractors" will caught it.

I for one will love seeing the parasite class lose their non-jobs.

But they won't lose their jobs.  They will just go long-term sick.

[Harley]

4 hours ago, Vendetta said:

How does the market value a company? Which companies share price look expensive based on their most recent profits? 

Leta have a look at GSK.

£12.18 a share.

Market cap £61.14bn

Glaxo made profits of:

£7.8bn in 2020

£6.9bn in 2019

and revenue and growth is predicted (has been) ‘pretty strong’.

So it’s share price is valued at 8 x yearly profits which are expected to increase.

Is this typical? Or just for the pharmaceutical sector? 
 

 

So look at BP...

How does Glaxo compare to BP ?

Well BP is 273p a share - so valued at a similar price to Glaxo at a £55bn market cap today.

BP makes a profit of about £7 billion in 2019 

This is similar to Glaxo so valued in a similar way at 8x yearly profits

So let’s take a look at Shell (1347p)

RDSB market cap £105bn

Makes a profit of £12bn in 2019 (falls to £4bn in 2020 as a Pandemic and exceptional), but again is valued AGAIN at about 8x 2019 profits.

So these 3 big companies are valued at TYPICALLY 8 x times yearly profit. Is that typical for well established companies making the same profits? 8 x seems to be the recurring sweet spot in the current market climate.

Of course this ‘market cap valuation (share price) depends (‘should be’ factoring in the markets prediction) on potential growth and expansion (or the opposite). 
 

Amazon made profits of about £17bn in 2020 and is valued at £1670 billion, that’s about 100 x it’s profit for 2020.

Tesla made profits of about £1 billion pounds in 2020 ** and is valued at £766 billion, that’s about 766 x it’s profit for 2020
 

** That’s me being generous and rounding up.

I have just checked Rio Tinto as I need more exposure to big miners.

Its valued at a market cap of £80bn and made £8bn in 2020. This values it at about 10x profits of 2020.
 

Again it’s share price gives it a market cap in that range of 6-10x average yearly profits.

But prices of metals are predicted to surge  multiple times so profit is predicted to soar.
 

These are all back of a fag packet market calculations. 

So should I buy Tesla and / or Amazon or Rio Tinto? Are these tech stocks overvalued? 🤔 

I have just seen a post above from @sancho panza saying there are red flags in the metal sector share prices - copper and other metals hitting ATHs - are the miners peaking or is this just the start? 

 

Just for fun I tried valuing Argo bitcoin miner. 

If it manages to make 2000 BTC a year and makes a profit of £30,000 on each one that gives it a yearly predicted profit of £60 million.

It is valued currently (300p a share) at a market cap of £1 billion which is 16x potential Profits for 2020. Assuming BTC price stays at $55,000.

So the market seems to be betting on a BTC price of $80-100,000 for this to have market cap / profit ratio of 8-10.

I thought the Argo market cap looked ‘bubbly’ but compared to Amazon and Tesla it looks positively conservative.

What are your thoughts on these valuations? I know people look at eps and P/E ratios etc. But this market cap to profits ratio looks a fairly good simple way of valuing a company and whether it’s share price is astronomically out of the ball park..... 

 

Still time to buy the likes of these miners / metal processors... what do you guys think? Why I didn’t buy these miners 8 months ago I don’t know? (Actually I do ... I put all my money into RDSB, and BP, silver etc and Argo. Should never have sold FCX (copper miner) up 300% since.

 

I need to look up BATs and IMB later to see how there market cap compares to their yearly profits. Unless @DurhamBorn you have them to hand off the top of your head? How do you value a company? I think generally I see myself as a ‘value investor’ as opposed to a growth speculator (Argo excepted!). 

 

Nice bit of analysis.  We'll make a value investor of you yet!  BTW, I use price to book ratios for my searches, and especially price to tangible book given the stuff on many (especially US large cap) balance sheets.  

What all this says to me, and has for some time, is it's not just a case of Telsa, etc versus the rest but essentially the US markets versus the rest (such as the FTSE, Japan, etc).  Problem has been the US markets have the size, liquidity, and dominance.  They also have the growth stocks.  But maybe there are some growing macro trends out there to undermine that situation at some point.

As one podcast mentioned this week, you would have done relatively badly, even recently, as a value investor.  But if you like trying to front run things then a value approach, and going to the companies and markets that approach leads you to, may be best.  Even the FTSE may yet have its day in the sun after its years of darkness!

I even wonder if post any (optional) crack up boom, it is these companies and markets which will be left standing or at least getting up sooner after a BK.  Regardless, my strategy is to partially invest in value (partial in case no BK, etc) and trade growth.

PS:  My problem with the FTSE atm is that there are not many large caps with good balance sheets and that those who have them are technically overbought on the long term (monthly) charts or have yet to bottom.

PPS:  And those who question the reliability of data from the other markets may be right but may also be over-egging those of the US, UK, etc.  Like the demise of the UK bobby, it taking a pandemic for some to see the reality.

[Hancock]

18 minutes ago, DurhamBorn said:

Im sort of both ways on this.On the one hand i have no sympathy for people who put their lifes savings into one company,one get rich quick scheme.Tough.However the other side says these people are victims of fraud and also a useless FSA/FSA and government.

This wasn't FCA/FSCS approved, it was a German company.

I can obviously sympathise with people who have genuinely been defrauded, but this looks like greed, in that they were looking for guaranteed 15% returns.

People expecting 15% returns aren't savers, as you know people saving get somewhere between 0-1%.

[Harley]

31 minutes ago, janch said:

But they won't lose their jobs.  They will just go long-term sick.

I once had a spell as a turnaround agent.  Boy would I love that job, getting the terms of reference, etc bolted down beforehand of course!  Cummings and co came from "The Problem".  It needs someone from the street!

[leonardratso]

Dont forget that Hunters hypothesis is that this current melt-up is a secular bull, meaning that come the BK, recovery will not make these highs again for literally decades, if you are just eeking out the last few % of the bull top and the BK hits it up at -80% then you will definitely lose a ton if you hold thru and maybe not make it back to the tops and beyond again.

Hence only averaging down at the lows will actually get you some capital appreciation there.

[Hancock]

8 minutes ago, Harley said:

I once had a spell as a turnaround agent.  Boy would I love that job, getting the terms of reference, etc bolted down beforehand of course!  Cummings and co came from "The Problem".  It needs someone from the street!

I worked on a National Grid job, for a few days there was no welding to do, so the welders were sat around.

The job was close to the Humber Estuary, so 2 people were employed for the care of the wildlife ie literally counting the birds.

Anyway 1 of these 2 people was unhappy about the welders sitting around so made a complaint to the management about them. These men are pipeline welders, who are becoming as rare as rocking horse shite, when they work its 10 hours of non stop graft. They have to be some of the most productive and needed people in the entire economy.

Yet some utter wanker with a degree whose job is a burden on bill payers, thinks they should be sweeping up or washing cars when there is no actual work to do.

He was one of about 100 needless parasites that were passing bits of paper to each other, who were making money on the back of these men working hard.

(i try to do as little as possible at work but that is acceptable as i'm a lazy cunt)

[janch]

5 hours ago, Vendetta said:

 

Still time to buy the likes of these miners / metal processors... what do you guys think? Why I didn’t buy these miners 8 months ago I don’t know? (Actually I do ... I put all my money into RDSB, and BP, silver etc and Argo. Should never have sold FCX (copper miner) up 300% since.

I'm in the same quandry for the same reasons!  I do remember @DurhamBorna few pages back saying he's sold his BHP as the big miners were running too fast and @sancho panza's charts of metal futures also look "toppy".  Yet the City am article posted by @Heart's Ease is screaming "buy".

I'm thinking some of the people who in the past would have invested in oil were put off by the ESG stuff and so put their money into commodities instead so maybe there'll be a pullback in the large miners as people take some out and put it in the oilies now they see the price of oil going up.

I shall keep a close eye and may put some in on any dips plus I'm prepared to hold through a BK and add more at the lows for all the reflation stocks.

[Yadda yadda yadda]

58 minutes ago, janch said:

I'm in the same quandry for the same reasons!  I do remember @DurhamBorna few pages back saying he's sold his BHP as the big miners were running too fast and @sancho panza's charts of metal futures also look "toppy".  Yet the City am article posted by @Heart's Ease is screaming "buy".

I'm thinking some of the people who in the past would have invested in oil were put off by the ESG stuff and so put their money into commodities instead so maybe there'll be a pullback in the large miners as people take some out and put it in the oilies now they see the price of oil going up.

I shall keep a close eye and may put some in on any dips plus I'm prepared to hold through a BK and add more at the lows for all the reflation stocks.

Last week I had a look at a mining area on Google maps. This was extracting metals from open cast mines. Decided I'd better not mention to certain people that I'm invested in that, although lots will be via their pensions. I don't think it is possible to claim that mining is less environmentally damaging than oil. Not just the mining but the processing and the downstream uses. I think investing in both is fully justified as modern life just isn't possible without either.

Arguably tobacco is morally superior as that only kills people and doesn't cause long term damage to the environment (even if people don't believe in climate change pollution is a fact). Although I suppose you have to account for the land use.

At a certain point you either accept a level of environmental degradation but mitigate as much as possible or go full Pol Pot. If something is essential to modernity it is investible.

[Bricormortis]

Commodities V  S and P 500

[Yadda yadda yadda]

22 minutes ago, Bricormortis said:

Commodities V  S and P 500

That seems to end around 2018. It is interesting but would be good to see if the turn has begun. Also how much lower that line got.

[A tremendous # on the lung]

27 minutes ago, Bricormortis said:

Commodities V  S and P 500

What's the best play on this? Is there a general ETF or similar?

[CVG]

4 minutes ago, A tremendous # on the lung said:

What's the best play on this? Is there a general ETF or similar?

I can remember riding the JPM Natural Resources fund in my AVC during that last peak. It played a significant role in my ability to retire early.

[Bricormortis]

27 minutes ago, Yadda yadda yadda said:

That seems to end around 2018. It is interesting but would be good to see if the turn has begun. Also how much lower that line got.

https://www.isabelnet.com/commodities-to-sp-500-ratio/

This chart gives it to 2019, best I can do,  moves sideways approximately

[Yadda yadda yadda]

8 minutes ago, Bricormortis said:

https://www.isabelnet.com/commodities-to-sp-500-ratio/

This chart gives it to 2019, best I can do,  moves sideways approximately

Thanks. Still going slowly down at that point. Must have turned by now. Will reverse sharply if the market goes BK.

[Harley]

2 hours ago, janch said:

I'm in the same quandry for the same reasons!  I do remember @DurhamBorna few pages back saying he's sold his BHP as the big miners were running too fast and @sancho panza's charts of metal futures also look "toppy".  Yet the City am article posted by @Heart's Ease is screaming "buy".

I'm thinking some of the people who in the past would have invested in oil were put off by the ESG stuff and so put their money into commodities instead so maybe there'll be a pullback in the large miners as people take some out and put it in the oilies now they see the price of oil going up.

I shall keep a close eye and may put some in on any dips plus I'm prepared to hold through a BK and add more at the lows for all the reflation stocks.

IMO many resource stocks are overbought ATM.  They can stay overbought but usually the best of the price action has happened by then and price gets more volatile with an increased risk of going nowhere.  All over the longer (monthly) term.

[Errol]

 

[Hancock]

10 hours ago, sancho panza said:

It's weird ,the four they name aren't the usual suspect eg Spelthorne which means there's even more bad news out there.

I've said this before but these councils need reorganisning for the modern world.Leicesterhire has something like ten district councils plus county and Leicester city.All have chief execs on £150k plus and reams of hangers on picking up fat salareis for doing next to nothing.

Even a very close firend who's a right lefty was saying the other night that they coukd do it with one council.We could save tens of millions a year.

Let's have a look at Harbought District council,200 employees and resposnible for

'Each district council covers a smaller area and provides more local services, including council housing, local planning, recycling and refuse collection and leisure facilities.'

Obviously, a lot of workers are employeed by the contractors.But still,no reason why the County council couldn't run the lot.

94,000 residents according to WIki.Here's the slary structure.It's eye watering.

file:///C:/Users/capta/AppData/Local/Temp/CMT_structure_January_2021.pdf

All those names except one strike me as white British. (isnt Leicester an area where white British are now a minority)

Surely these lefty socialists need to hire a diversity officer to sack them and replace them with some more diversity. 

[Yadda yadda yadda]

30 minutes ago, Hancock said:

All those names except one strike me as white British. (isnt Leicester an area where white British are now a minority)

Surely these lefty socialists need to hire a diversity officer to sack them and replace them with some more diversity. 

I think that is Harborough District Council. Hence the 94,000 population and largely British staff. I've no idea what Market Harborough is like but it isn't Leicester City. However, makes the salaries even more amazing. It isn't a large council.

[Jesus Wept]

2 hours ago, A tremendous # on the lung said:

What's the best play on this? Is there a general ETF or similar?

CMOP

CMOD

Commodity indexes by Bloomberg. 
 

Plus there are lot of other metal plays etc...

Here is the watchlist I set up in April 2020.

Fuck.... if I’d had a bit more liquidity / money and understood ISAs and investing properly back then I might have played things slightly differently.

Mind this is probably hindsight and confirmation bias.... should’ve  could’ve .... would’ve....

Question is..... is it too late now? I think so .... Big Kahuna coming maybe? I am reluctant to put money in a fund / stock that has gone up so much already....  mind if it is the start of a commodity super cycle..... ??? 🤔 

I just want the tech bubble and bitcoin to pop in next 6 months and take everything out in a big deflationary big kahuna - so everything goes down the shitter and people are desperate to cover margin.....except OIL and telecoms and a few value stocks like fags and GSK.

Then the governments just print print print.... but maybe that’s already happened....

 

[ThoughtCriminal]

Can any kind soul jog my memory about a share that was mentioned on here a couple of months ago? 

 

I believe it was an oil tanker company, possibly Swedish?? Their price plummeted after the 2008 fiasco and is now at an ATL just bumping along. 

 

Serves me right for not noting it down. 

[leonardratso]

12 minutes ago, ThoughtCriminal said:

Can any kind soul jog my memory about a share that was mentioned on here a couple of months ago? 

 

I believe it was an oil tanker company, possibly Swedish?? Their price plummeted after the 2008 fiasco and is now at an ATL just bumping along. 

 

Serves me right for not noting it down. 

hmm, only 1 i can remember is frontline

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

dont think its swedish though, might be since the ceo sounds swedish or some such.

[Loki]

20 minutes ago, ThoughtCriminal said:

Can any kind soul jog my memory about a share that was mentioned on here a couple of months ago? 

 

I believe it was an oil tanker company, possibly Swedish?? Their price plummeted after the 2008 fiasco and is now at an ATL just bumping along. 

 

Serves me right for not noting it down. 

Euronav?

[ThoughtCriminal]

7 minutes ago, leonardratso said:

hmm, only 1 i can remember is frontline

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

dont think its swedish though, might be since the ceo sounds swedish or some such.

That's the bugger! Norwegian owner. 

 

Knew there was some Scandinavian link there 😂

 

Cheers L! 👍

Just now, Loki said:

Euronav?

Its Frontline. Leo just got it for me. 

 

Cheers though Loki 👍

[leonardratso]

19 minutes ago, ThoughtCriminal said:

That's the bugger! Norwegian owner. 

 

Knew there was some Scandinavian link there 😂

 

Cheers L! 👍

Its Frontline. Leo just got it for me. 

 

Cheers though Loki 👍

i think YRS pumped it? or maybe not, for its 30% dividend. I bought a few anyway with loose change, its done alright considering its high risk;

another of my zero analysis chuck ins.

[ThoughtCriminal]

20 minutes ago, leonardratso said:

i think YRS pumped it? or maybe not, for its 30% dividend. I bought a few anyway with loose change, its done alright considering its high risk;

another of my zero analysis chuck ins.

Whereas I dithered and now it's up over 40%

 

What a dick 🤦‍♂️😂

 

Fair play to you though, good call 👌