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

[sancho panza]

On 06/07/2021 at 20:52, Cattle Prod said:

On oil, most of what you're hearing is noise. Oil is very short term overbought atm, and as I said a week or so ago, badly needs a 10, maybe 15% correction. Opec is just the narrative to fit that fact, their actions are actually bullish. I hope today is is the start of it, loads of Johnny come latelys hopping on board for the train to $100 oil need to be thrown off. They didn't put in the 3 year grind we did to get here, so Mr. Market will cut off their weak hands.

I'll be interested to see the market reaction to Thursdays inventory report.

I've been waiting for a decent pullback for a while.

Looking at the situtaiton currently,we can say there's been a 7% pullback.I keep waiting ofr a deeper sell off but we jsut don't get it.

Must admit that my specualtive buying has moved from RDSB where we've been heavily active last two motnhs to BP.

 

14 hours ago, Loki said:

Shell second quarter 2021 update note

7 July, 2021

The following is an update to the second quarter 2021 outlook. The impacts presented here may vary from the actual results and are subject to finalisation of the second quarter 2021 results, which will be announced on July 29, 2021. Unless otherwise indicated, all outlook statements exclude identified items.

Strong cash generation supports additional shareholder distributions in the second half of 2021 
----------------------------------------

As a result of strong operational and financial delivery, combined with an improved macro-economic outlook, Shell will move to the next phase of its capital allocation framework and, subject to final Board approval, increase total shareholder distributions to within the range of 20-30% of CFFO, starting at the Q2 results announcement. The level of additional distributions will be determined with full visibility of the Q2 financial results.

In the second quarter, Shell expects to have further reduced its net debt, although the extent of the reduction will be moderated by working capital movements. In conjunction with the increased distributions, Shell will retire its net debt milestone of $65 billion and will continue to target further strengthening of its balance sheet and AA credit metrics. 2021 cash capex will remain below $22 billion
 

I havent traded a company's results in a long time as it's jsut not the sort of trade we do.But I was discussing with my dear old mum whether we have a punt options wise on BP/RDSB results-late Jul iirc.Genuinely tempted.

Both shares are depressed,RDSB less so of late witbh a run past 1400 but last day or two while Ive been workign BP has caught my eye.

on another thread,I'd be interested to know what names the hive mind has been buying in PM miners.

I'm looking at Barrick,Anglo,Kinross,FRes.

[sancho panza]

A full repsot of a Wolf St article.my ato pologies to the LPP but it's clearly relevant

https://wolfstreet.com/2021/07/06/bank-of-japan-stops-qe-reserve-bank-of-australia-starts-tapering-bank-of-canada-bank-of-england-already-tapering-amid-shock-and-awe-rate-hikes-in-emerging-markets/

Bank of Japan Stops QE, Reserve Bank of Australia Starts Tapering, Bank of Canada & Bank of England Already Tapering, Amid Shock-and-Awe Rate Hikes in Emerging Markets

by Wolf Richter • Jul 6, 2021 • 147 Comments

The Fed is a laggard, now discussing when and how to taper QE. The ECB is an even bigger laggard, as inflation begins to rage.

By Wolf Richter for WOLF STREET.

The Fed is a laggard, not the leader, in ending the ridiculously easy money policies. At the ECB, internal resistance is building against its asset purchases but for now is getting squashed, leaving the ECB even further behind than the Fed.

The Swiss National Bank continues full tilt, but it doesn’t buy Swiss assets; it prints francs and dumps those printed francs for assets denominated in euros, dollars, and other currencies, including US stocks, which is a different ball game and works as long as enough foreign investors are silly enough to buy these Swiss francs.

But other central banks have already started the process of tapering asset purchases or hiking rates. The Bank of Japan, which started tapering months ago, has now completed its tapering and its total assets actually fell. And some central banks have announced rate hikes, and others have already imposed hiked rates, including shock-and-awe rate hikes in Brazil, Russia, and Turkey to tamp down on raging inflation.

So these are the major central banks that are ever so gingerly stepping away from the ridiculous easy money policies.

Reserve Bank of Australia announced today that it would taper its QE, by reducing weekly purchases of government bonds by A$1 billion a week, to A$4 billion a week.

The Bank of Japan, one of the most voracious money printers over the years in terms of the size of its economy, behind only the tiny Swiss National Bank, has already been tapering its asset purchases for months. With the BoJ, one has to look at the numbers, not at the mumbo-jumbo in the press releases. The BoJ publishes its balance sheet numbers every 10 days.

The balance sheet data release on July 2 revealed that its total assets, after months of slowing purchases, actually fell by ¥7.7 trillion ($70 billion) at the end of June compared to the end of May, to a still gargantuan ¥717 trillion ($6.5 trillion):

The three-month moving average of its monthly QE purchases shows the ongoing trend: In April, May, and June, its total assets increased by an average of only ¥0.78 trillion per month, the smallest increase since the beginning of Abenomics in 2012:

The Bank of Canada announced the first reduction in its purchases of Government of Canada bonds in October last year, from C$5 billion to C$4 billion, when it also ended buying mortgage-backed securities. In March 2021, it started unwinding its liquidity facilities, citing “moral hazard” as reason. In April, it announced a further reduction in its purchases of Government of Canada bonds, to C$3 billion, citing “signs of extrapolative expectations and speculative behavior” in the housing market.

The assets on its balance sheet have now dropped from C$575 billion at the peak in March, to C$481 billion as of June 30:

The Bank of England announced in May that it would reduce its asset purchases, tapering the bond purchases from £4.4 billion a week to £3.4 billion a week.

Like the Bank of Canada had denied in October that its tapering was actual “tapering,” the BoE also denied that its tapering was tapering, calling it instead an “operational decision” that “should not be interpreted as a change in the stance of monetary policy.”

The reason this tapering isn’t tapering, according to BoE governor Andrew Bailey at the post-meeting press conference, is that the BoE didn’t change its “fixed amounts” of its overall QE target of £895 billion, it’s just buying less per week to get to this target.

The Central Bank of Turkey shocked the financial world in March with a shock-and-awe rate hike of 2 percentage points, from 17% to 19%, to tamp down on raging inflation and prop up the lira, when economists had expected a rate hike of half that magnitude. Shortly after the shock-and-awe rate hike, Turkey’s President Recep Tayyip Erdoğan came up with his own shock-and-awe move: he fired the governor of the Central Bank. Under the new governor, the policy rate has remained at 19%.

The Central Bank of Brazil has hiked its policy rate three times by a total of 2.25 percentage points, since mid-March, 75 basis points each time. The first of the rate hikes was shock-and-awe, with economists expecting much less of a hike. Since March, the Central Bank has raised its policy rate from 2.0% to 4.25%, and has put more rate hikes on the table, to tamp down on raging inflation.

The Bank of Russia has been “surprising” economists with multiple rate hikes, and steeper rate hikes than expected, starting March 19 with a 25-basis-point rate hike, when none was expected, followed on April 23 with a 50-basis-point hike, and on June 11, with another 50-basis-point hike. Over the period, it had raised its policy rate from 4.25% to to 5.50%.

The next policy meeting is scheduled for July 23. And Bank of Russia Governor Elvira Nabiullina has already prepared the markets for the possibility of a shock-and-awe rate hike of up to 100 basis points. The reason: raging inflation, which the Bank of Russia, as she said, sees as “not transitory.”

The Bank of Mexico hiked its policy rate by 25 basis points on June 24, to 4.25%, also surprising economists that had not expected a rate hike. No one ever appears to be expecting rate hikes.

Norges Bank, the central bank of Norway, which never got into QE, confirmed repeatedly that it would start raising interest rates in the second half of this year, now likely in September, and put two more rate hikes on the table for next year.

The Riksbank, Sweden’s central bank, announced in late April that it is following through on its plan and end its QE program by late 2021.

The Fed itself is now discussing when and how to reduce its asset purchases. The Fed still claims that it sees the raging inflation as “transitory” or “temporary.” In its announced sequence, it will end its asset purchases first; then after the balance sheets stops growing, the Fed will hike its policy rates; then later, the Fed may shrink its balance sheet. This was the sequence last time, when inflation was still below the Fed’s target, and that’s the plan going forward.

The gradual pace assumes that this raging inflation, the worst since 1983 even according the Fed’s own low-ball measure, of today is truly “temporary.” But if it turns out that business and consumer behavior with regards to inflation has changed — as I see and allege all over the place, including in the largest retail category, auto sales — which would render this raging inflation much more persistent, then the Fed may belatedly come up with its own shock-and-awe treatment to get a handle on it.

[DoINeedOne]

I always enjoy listening too Tony Deden 

From Twitter a quick read

A great piece on resilience from Michael Weeks of Edelweiss Holdings (headed by Tony Deden)

Small clip from the PDF 

A more effective way to add resilience to one’s savings is by ruthlessly avoiding its opposite: economic fragility.

Thankfully, unlike resilience, fragility is often staring you in the face. This is where financial analysis really starts to shine. Is the company dependent on a few key customers and suppliers? Is the company overleveraged or buying back shares at indecent prices, just because it can? Are there elements of pricing power, or do their earnings evaporate at the first sign of trouble?

Could a government ruling or decree suddenly break their business? Can their customers really afford to buy their products next year?

There are about 2’700 listed businesses presently valued at more than $1 billion in Europe and North America. One-fifth of them were loss-making in the three years before Covid.

Thirty percent were loss-making in the last twelve months. If a company is struggling during ‘normal’ times, what does that say about its ability to survive when times are hard? Admittedly, fragility can be hidden too and will sometimes slip through the cracks, but much of the time it can simply be avoided.

 

https://edelweissjournal.com/pdfs/EdelweissJournal-020.pdf

[MrXxxx]

If you have shares in shale best hope that you picked the right company!

https://www.ft.com/content/0d60da9b-54ad-4027-b054-2ff25261e506

[DoINeedOne]

15 minutes ago, MrXxxx said:

If you have shares in shale best hope that you picked the right company!

https://www.ft.com/content/0d60da9b-54ad-4027-b054-2ff25261e506

https://archive.ph/HCOD4 for anyone getting paywalled

[Barnsey]

19 hours ago, DurhamBorn said:

Amazing how this reflation is kicking in and amazing how the MSM and most investors havent worked out the massive energy demands needed for a cycle.

Current reflation sentiment check:

Wage inflation becoming a real likelihood too, which will only add fuel to everything in time.

 

Giveth to those who spend the most...

UK employers struggle with worst labour shortage since 1997

https://www.theguardian.com/business/2021/jul/08/uk-employers-struggle-with-worst-labour-shortage-since-1997

And taketh away from those who spend the least...

 

[DurhamBorn]

24 minutes ago, Barnsey said:

Current reflation sentiment check:

Wage inflation becoming a real likelihood too, which will only add fuel to everything in time.

 

Giveth to those who spend the most...

UK employers struggle with worst labour shortage since 1997

https://www.theguardian.com/business/2021/jul/08/uk-employers-struggle-with-worst-labour-shortage-since-1997

And taketh away from those who spend the least...

 

Its as clear as day to a macro person what they are doing and its simply to lift everything up by around 30%,liquidity.Thats the level where tax should increase faster than spending.However that relies on governments keeping public sector pensions,pay and all benefits much below real inflation.The UK is in such a bad position because of the amount of public sector handouts.There is a huge structural problem there.

Wages are going up arent they.We have said it all along,even when it seemed everyone else was saying it was going to be mass unemployment and collapsing wages.In simple terms shipping items,especially bulky items a long way has dozens of inflation touch points.In a reflation each one adds its own costs.Suddenly  its much cheaper to pay a £14 an hour wage here,than a £6 one in China.Small items of course no so much.Its all about unit cost in the shipping/mocing etc.

This is why iv been positioning into sectors that can hopefully leverage the inflation,or at worst keep pace.

The key is patience and confidence.Some sectors will pop faster than others,as @sancho panza mentioned a prime example in Cameco.

Its fascinating watching this cycle turn and build,and the fact most still dont accept it.Markets will keep shaking people out though and top slicing when you can and adding again or others on pullbacks would likely add to gains,if your good at it.

 

[M S E Refugee]

4 minutes ago, DurhamBorn said:

Its as clear as day to a macro person what they are doing and its simply to lift everything up by around 30%,liquidity.Thats the level where tax should increase faster than spending.However that relies on governments keeping public sector pensions,pay and all benefits much below real inflation.The UK is in such a bad position because of the amount of public sector handouts.There is a huge structural problem there.

Wages are going up arent they.We have said it all along,even when it seemed everyone else was saying it was going to be mass unemployment and collapsing wages.In simple terms shipping items,especially bulky items a long way has dozens of inflation touch points.In a reflation each one adds its own costs.Suddenly  its much cheaper to pay a £14 an hour wage here,than a £6 one in China.Small items of course no so much.Its all about unit cost in the shipping/mocing etc.

This is why iv been positioning into sectors that can hopefully leverage the inflation,or at worst keep pace.

The key is patience and confidence.Some sectors will pop faster than others,as @sancho panza mentioned a prime example in Cameco.

Its fascinating watching this cycle turn and build,and the fact most still dont accept it.Markets will keep shaking people out though and top slicing when you can and adding again or others on pullbacks would likely add to gains,if your good at it.

 

As I have got older it still amazes me how many things in Life are Counter-intuitive, you have a fantastic skill and a unique way of looking at things. 

[DoINeedOne]

20 hours ago, planit said:

I found "URANIUM PARTICIPATION CORP COM NPV" only when choosing Canada as the country on ii, the symbol was just 'U'

Hopefully the Sprott Uranium Trust will be added to HL

The vote from yesterday

#Uranium Participation Corp Shareholders voted 99.92% in Favour of the transition to become the Sprott
 Physical Uranium Trust

[sancho panza]

1 hour ago, DoINeedOne said:

https://archive.ph/HCOD4 for anyone getting paywalled

Thanks for psoting that.I won't subscribe to FT for a variety of political reasons and also that it isn't generally worth reading.

Harold Hamm,clearly a basement dweller......I claim my £5.

[Democorruptcy]

22 hours ago, planit said:

FT article today saying that Boris wants to agree "at least one nuclear plant" before the next election. I feel there will be a rush to nuclear once peoples negative perceptions are overcome.

Anglesey has a Tory MP so it could be Wylfa. Stick it in Wales in cases it leaks! (Bugger... I can see it from my window).

[Froggy2000]

I'm topping up my isa this month and looking for value.  I can't get Tim or Telefonica brasil with AJ Bell unfortunately, but Yamana looks pretty good value here.

Im close to pulling the trigger but wondered what peoples thoughts are on the pros/cons of the US vs Canadian listing?

I've ruled the LSE listing out due to lack of volume, but I'm not sure of the implications of choosing the US vs Canadian listing.

DurhamBorn.  I remember you saying you used the Canadian exchange for these.  Can you explain your reasoning?

I'm getting to grips with these things slowly but I've still got a lot to learn.  Especially when it comes to shares listed on multiple exchanges, interpreting ISIN info etc.  I'm going to look for some learning material and will report back if I find anything!

[HousePriceMania]

Anyone buying Easyjet shares ?

Friend of mine says their flight from France to the UK has just been cancelled, so queried them on that...seems they must be mistaken....

[DoINeedOne]

16 minutes ago, Froggy2000 said:

I'm topping up my isa this month and looking for value.  I can't get Tim or Telefonica brasil with AJ Bell unfortunately, but Yamana looks pretty good value here.

Im close to pulling the trigger but wondered what peoples thoughts are on the pros/cons of the US vs Canadian listing?

I've ruled the LSE listing out due to lack of volume, but I'm not sure of the implications of choosing the US vs Canadian listing.

DurhamBorn.  I remember you saying you used the Canadian exchange for these.  Can you explain your reasoning?

I'm getting to grips with these things slowly but I've still got a lot to learn.  Especially when it comes to shares listed on multiple exchanges, interpreting ISIN info etc.  I'm going to look for some learning material and will report back if I find anything!

I know with HL i can only buy the London listing now it was only the Canadian listing before so hopefully volume on the London listing should start to increase

[Castlevania]

21 minutes ago, Froggy2000 said:

I'm topping up my isa this month and looking for value.  I can't get Tim or Telefonica brasil with AJ Bell unfortunately, but Yamana looks pretty good value here.

Im close to pulling the trigger but wondered what peoples thoughts are on the pros/cons of the US vs Canadian listing?

I've ruled the LSE listing out due to lack of volume, but I'm not sure of the implications of choosing the US vs Canadian listing.

DurhamBorn.  I remember you saying you used the Canadian exchange for these.  Can you explain your reasoning?

I'm getting to grips with these things slowly but I've still got a lot to learn.  Especially when it comes to shares listed on multiple exchanges, interpreting ISIN info etc.  I'm going to look for some learning material and will report back if I find anything!

The exchange used doesn’t make much difference. It’s the same share you’ll purchase. In theory the higher the volume the tighter the bid offer spreads will be. In practice any gains from a tighter spread will probably be outweighed by currency conversion costs.

[JMD]

1 hour ago, DurhamBorn said:

Its as clear as day to a macro person what they are doing and its simply to lift everything up by around 30%,liquidity.Thats the level where tax should increase faster than spending.However that relies on governments keeping public sector pensions,pay and all benefits much below real inflation.The UK is in such a bad position because of the amount of public sector handouts.There is a huge structural problem there.

Wages are going up arent they.We have said it all along,even when it seemed everyone else was saying it was going to be mass unemployment and collapsing wages.In simple terms shipping items,especially bulky items a long way has dozens of inflation touch points.In a reflation each one adds its own costs.Suddenly  its much cheaper to pay a £14 an hour wage here,than a £6 one in China.Small items of course no so much.Its all about unit cost in the shipping/mocing etc.

This is why iv been positioning into sectors that can hopefully leverage the inflation,or at worst keep pace.

The key is patience and confidence.Some sectors will pop faster than others,as @sancho panza mentioned a prime example in Cameco.

Its fascinating watching this cycle turn and build,and the fact most still dont accept it.Markets will keep shaking people out though and top slicing when you can and adding again or others on pullbacks would likely add to gains,if your good at it.

 

Events are certainly happening(unraveling?) just as you and your right-on road-map predicted DB. Fascinating to see unfold, although as i'm also heavily invested in the predicted outcomes, its also a very nail-biting ride.   

Someone on here, some time back (can't recall who it was), said that visiting/reading here was like having a ring-side seat to 'history unfolding'... actually i think i may have misquoted/scrambled him/her (apologies) - however, i'm sure the sentiment rings true with all you guys. 

 

[JMD]

1 hour ago, sancho panza said:

Thanks for psoting that .I won't subscribe to FT for a variety of political reasons and also that it isn't generally worth reading.

 

As an aside SP, your comment about the FT made me recall something which happened in my first job some 30 years ago... A group of graduate trainees, as part of their induction, were spending time in each of our company depts., sorry to say - but all smug, arrogant types (not meant as a major criticism btw, as i am a bit smug/arrogant my self!)... Anyway one of the graduates was a real lefty, however he bought in a copy of the Times to read every day. The thing is that he loved explaining to everyone who queried his choice (back in the halcyon days when such comments were not taken personally!) that the Times was actually quiet a left-wing paper!! Proving to me at least that politics, institutions, etc, have been unraveling for many many years, without most of the populous noticing?

 

[Froggy2000]

15 minutes ago, Castlevania said:

The exchange used doesn’t make much difference. It’s the same share you’ll purchase. In theory the higher the volume the tighter the bid offer spreads will be. In practice any gains from a tighter spread will probably be outweighed by currency conversion costs.

Thanks CV.  Is there any differences with withholding taxes?  Can we avoid them by using the LSE listing?

[DurhamBorn]

43 minutes ago, Castlevania said:

The exchange used doesn’t make much difference. It’s the same share you’ll purchase. In theory the higher the volume the tighter the bid offer spreads will be. In practice any gains from a tighter spread will probably be outweighed by currency conversion costs.

Do you understand German witholding tax .I notice it says 15% with treaty so i guess divi from Telefonica D would see a 15% tax,but it also says 10% for valid pension scheme,so im wondering if in a SIPP it would be zero.Most brokers are a nightmare trying to get these answers from.

Notice today Telefonica D is up 3.5% among the big falls everywhere,and @sancho panza coma scores top rated have outperformed the sector since he put them up.I own a lot of BT,but sold a small tranche at 2.04p and added to other money into Telefonica D and Brasil and an outperformance since.Seem like a very useful tool in broad sectors,even just to use to maybe slice ones that have ran and the score has dropped and increase or open new positions in ones that rate top 4 in the scores.

[M S E Refugee]

 

[Barnsey]

15 minutes ago, M S E Refugee said:

 

It's most certainly coming. Andy Haldane had an insightful conversation with Merryn Somerset Webb about the possibility of 'Britcoin', and my understanding was that adoption would be primarily taken up by the young (obviously) and the rest will be tempted by very attractive interest rates. If we didn't want this to happen then we should never have embraced contactless payment, social media, and online shopping. People en mass will enable this change, will seem great and rewarding at first by design, then naturally becoming an integral part of our lives, especially in the next recession, whatever that'll look like. Personalised taxation, stimulus etc. The anti crypto transparency appeal of CBDC will push it further to the fore.

[feed]

3 minutes ago, Barnsey said:

It's most certainly coming. Andy Haldane had an insightful conversation with Merryn Somerset Webb about the possibility of 'Britcoin', and my understanding was that adoption would be primarily taken up by the young (obviously) and the rest will be tempted by very attractive interest rates. If we didn't want this to happen then we should never have embraced contactless payment, social media, and online shopping. People en mass will enable this change, will seem great and rewarding at first by design, then naturally becoming an integral part of our lives, especially in the next recession, whatever that'll look like. Personalised taxation, stimulus etc. The anti crypto transparency appeal of CBDC will push it further to the fore.

Maybe but so what.  It’ll just be what you pay your taxes and buy your groceries with. 

The state will not decriminalise drugs and people that trade drugs are wealthy and powerful.  Secondary and black market currencies will proliferate and it’s not like the police and legal system can cope with the drug trade today.  
 

[Barnsey]

Insane move:

In other news, funny how these warnings are now coming out once the economy is back on its feet. I'll say it again, crypto was allowed to run to act as a volatility sponge (truck run off ramp analogy).

 

[MrXxxx]

43 minutes ago, Froggy2000 said:

Thanks CV.  Is there any differences with withholding taxes?  Can we avoid them by using the LSE listing?

Hi @froggy if you search my name within this thread I asked and others answered this....it was about 3-6 months ago.

[MrXxxx]

15 minutes ago, Barnsey said:

It's most certainly coming. Andy Haldane had an insightful conversation with Merryn Somerset Webb about the possibility of 'Britcoin', and my understanding was that adoption would be primarily taken up by the young (obviously) and the rest will be tempted by very attractive interest rates. If we didn't want this to happen then we should never have embraced contactless payment, social media, and online shopping. People en mass will enable this change, will seem great and rewarding at first by design, then naturally becoming an integral part of our lives, especially in the next recession, whatever that'll look like. Personalised taxation, stimulus etc. The anti crypto transparency appeal of CBDC will push it further to the fore.

Agree 100%, and those `blindly`following it at the moment will eventually be `punished` and realise it wasn't such a good idea...I am resisting it at all cost by not making such payments, but realise I am like Canute trying to hold back the tide!