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

[Boon]

This is interesting.

Maybe wishful thinking but I was hoping there may be a crack up boom still.

Every other asset class I can think of is priced above pre-pandemic. Stuff like gold/silver has been weak for about a year now, but still is maybe 20% above the end of 2019. Property on average, maybe 15%? Let's not mention the gains for crpyto.

The FTSE is still -10% off the end of 2019, and many commentators still think UK companies offer much better value relative to the US. Certainly I feel the risk/reward in many of the bigger companies (oil/telcos/miners) to be pretty favourable. Although there are some exceptions many of the 100 companies have some pricing power in their markets.

So would it be too much to ask for the FTSE to make a boom up to the mid 8000's level? It wouldn't mean that it is any more expensive, just that the underlying currency has gotten weaker - the same thing which pushes up prices of everything else.

[Bricormortis]

Interesting Harley. This week could clarify direction with the FOMC meeting.

[Harley]

48 minutes ago, Bricormortis said:

Interesting Harley. This week could clarify direction with the FOMC meeting.

Just to emphasise it could go either way.  Often the price changes to match but we are expecting a crack up boom and are in interesting times....!

[Froggy2000]

https://market-ticker.org/akcs-www?post=243059

Apologies for the slight thread derailment but it ties in closely with nuclear being the long term threat to the oil majors.  Would make green investments / bonds even more of a calamity too if this technology plays out as hoped.

I like Karl's writing style too 😄.

[Pinkpanther]

On 22/07/2021 at 21:49, Don Coglione said:

 

Does anyone else find the throwaway use of the term "jab" disturbing?

It is an unambiguous and legally neutral term.

[ThoughtCriminal]

Dave's not letting up

[Pinkpanther]

Hi All,
Meant to post back in December to thank foks and introduce myself. - but been caught up in the Covid forum.

So I'm a long time Lurker to the basement.

About 3.5 years ago I noticed that there were signs in the media that reminded me of 2006-7 and
(The increase in personal debt and increase in house prices etc)
Dissatisfaction with the mainstream narrative meant I started looking for something more .. nutritional!

The Money saving expert forum led me to TOS and ultimatly stumbling accross the original thread an as a result
Ive been following the last 3.5 years, with fascination.

Like many long time lurkers I feel I dont have much to contribute, but as many have voiced - I have learnt a lot.
Not just from the discussion/views and links posted here, but also from getting some books and self study so i can
understand the jargon used within the financial/business world.

In March last year I finaly plucked up the courage to get some "skin in the game" and opened an ISA with HL.
Over the last 16 months have laddered into oil and Telco stocks and watched and wondered and looked at what causes the short term
fluctuations in the stock market. I appreciate that feeling of having your investments in the "red" but try see it as
the next ladder down oppertunity and the view it doesent matter as I am not (planning to) sell for another 4 years.
Durhamborn's and others talk of ignoring the noise and looking at the big picture has been a sound mindset, particualry for a novice invester.

There are 2 things i can contribute

Macrovoices - I think it ws 3 weeks ago, Vickor Shvets seemed to be bang on what Durhamborn has been saying in terms of deflation/inflation and
change.  https://www.macrovoices.com/989-macrovoices-279-viktor-shvets-the-inflation-deflation-pendulum
It was so interesting - I bought his book and will post in the Library when Ive finished,

Having beeing following the covid thread since the beginning - I think that Covid/fiscal policy and the shift to digital currency are totaly linked.
The Fiat collapse that may happen in the next decade is now just a matter of time. There are a lot of thread on this forum that are interlinked.

Thanks for the open discussion and sharing of Ideas.

 

[JMD]

16 hours ago, Harley said:

Not yet (apart from a bullish chart!) so need to learn. 

Yes plus could make the case I think for carbon credits being a commodity, especially if in forests/conservation assets?                                                                                                                                                                                                                                                                                                                                    Are there any carbon credit 'experts' here on the thread? Is this sector I wonder going unnoticed, because it is considered only for the 'woke'? Tbc I am not interested for its green credentials, but rather to capture the wall of money going into the sector.                                                                                                                                 Am asking because the carbon credit sector itself is more nuanced than I originally thought, for example Shell appear to be making available their own CC-investment portfolio (utilising their own specified projects) for other companies to buy as their own required offsets. I had previously thought Shell would be mainly buying cc's from other specialist cc companies, but these internal schemes, if successful, will surely be generating yet another income stream for Shell, plus more lovely profits!?!                                                                                      @DurhamBorn has predicted the oilies might move into and perhaps even dominate the renewables sector. But has the thread considered the expanded business model for oilies if they say became big players in the carbon credit market? Is this happening under the radar, is it yet another example of how illogically hated the oil companies currently are, until that is they become government's new best friend?                                                                                                                                                                                https://www.shell.com/shellenergy/othersolutions/welcome-to-shell-environmental-products/shell-global-portfolio-of-emissions-reduction-projects.html#iframe=L3dlYmFwcHMvMjAxOV9FUFRCLw                                                                          ...might also be useful, I haven't read it yet, but Marin Katusa (who I referenced in earlier post) has teamed up with Richard Kiyasaki (rich dad) to produce this free book download.

[MrXxxx]

7 hours ago, Harley said:

I seeing a divergence on my general miners between price and momentum.  This often results in a sharp correction in one of the two with either momentum up to align with the price trend or a fall in price to match the trend in momentum.  Price seems to be rising/holding while momentum has been waning.

Take GLEN on the weekly as an example:

Just an observation for discussion purposes.  Not trading/investing advice.  DYOR.

Thanks for posting this as I am just learning Tech Analysis and they mentioned divergence in MACD histograms against price, your picture shows just this, and so as you say you would expect the price breakout downwards next/soon.

[DurhamBorn]

56 minutes ago, JMD said:

Yes plus could make the case I think for carbon credits being a commodity, especially if in forests/conservation assets?                                                                                                                                                                                                                                                                                                                                    Are there any carbon credit 'experts' here on the thread? Is this sector I wonder going unnoticed, because it is considered only for the 'woke'? Tbc I am not interested for its green credentials, but rather to capture the wall of money going into the sector.                                                                                                                                 Am asking because the carbon credit sector itself is more nuanced than I originally thought, for example Shell appear to be making available their own CC-investment portfolio (utilising their own specified projects) for other companies to buy as their own required offsets. I had previously thought Shell would be mainly buying cc's from other specialist cc companies, but these internal schemes, if successful, will surely be generating yet another income stream for Shell, plus more lovely profits!?!                                                                                      @DurhamBorn has predicted the oilies might move into and perhaps even dominate the renewables sector. But has the thread considered the expanded business model for oilies if they say became big players in the carbon credit market? Is this happening under the radar, is it yet another example of how illogically hated the oil companies currently are, until that is they become government's new best friend?                                                                                                                                                                                https://www.shell.com/shellenergy/othersolutions/welcome-to-shell-environmental-products/shell-global-portfolio-of-emissions-reduction-projects.html#iframe=L3dlYmFwcHMvMjAxOV9FUFRCLw                                                                          ...might also be useful, I haven't read it yet, but Marin Katusa (who I referenced in earlier post) has teamed up with Richard Kiyasaki (rich dad) to produce this free book download.

https://www.fundacionrepsol.com/en/green-engine?_ga=2.230033176.508620720.1627298897-614102414.1624832076&_gl=1*yoz50j*_ga*NjE0MTAyNDE0LjE2MjQ4MzIwNzY.*_ga_SHK91P7TCD*MTYyNzMxNTc1MS43LjAuMTYyNzMxNTc1MS4w

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

[JMD]

35 minutes ago, DurhamBorn said:

https://www.fundacionrepsol.com/en/green-engine?_ga=2.230033176.508620720.1627298897-614102414.1624832076&_gl=1*yoz50j*_ga*NjE0MTAyNDE0LjE2MjQ4MzIwNzY.*_ga_SHK91P7TCD*MTYyNzMxNTc1MS43LjAuMTYyNzMxNTc1MS4w

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

Thanks DB, It is an interesting subject. I was aware of the individual projects and partnerships, though not that the oilies were buying so heavily into these carbon credit companies. But the Shell page I posted, well a sub page off it, seemed to be explicitly offering companies who might want to offset their own emmisions to contact Shell - I may have misinterpreted this as Shell actually offering to sell carbon credits!!!, which I would have understood as a game changer in helping to 'rehabilite'' the oilies environmental image problem, plus being a new revenue stream (potentially massive according to some commentators)... However as I say i could be wrong, I will go check up and perhaps have to report back with my tail between my legs?!!

[Talking Monkey]

2 hours ago, ThoughtCriminal said:

Dave's not letting up

He is not letting up at all. That'll be one hell of a run if his forecast happens

[Harley]

Anyone invest in Japanese stocks?  Quite a few cyclical stocks appearing on my screener this week and are also in the oversold zone on the weeklies.  A few have pinged buys on the weekly but most are not there yet but are strengthening.  However the monthlies are still overbought.  So pull back or major change in trend?  IMO, looking at past moves, any upside from overbought are usually limited so on balance I'll wait to see if we get a grind lower.  Note the VJPN ETF itself doesn't show this (such are trackers!).

[Harley]

1 hour ago, MrXxxx said:

Thanks for posting this as I am just learning Tech Analysis and they mentioned divergence in MACD histograms against price, your picture shows just this, and so as you say you would expect the price breakout downwards next/soon.

Nice to hear.  These are great setups.  Sometimes price breaks to the upside.  Not typical but these are not typical times!  Whichever way, the re-alignment is usually quite violent.  One (of several!) to watch.

[23rdian]

Just watched this on inflation etc. Thought was quite good. 

 

 

[ThoughtCriminal]

History rhymes........... 

[Majorpain]

18 hours ago, ThoughtCriminal said:

Dave's not letting up

The CB's can keep bond yields low as long as they like, what they cant do is keep the lid on inflation to disguise it being inflated away.  You cant fool all of the people all of the time.

[DurhamBorn]

10 minutes ago, Majorpain said:

The CB's can keep bond yields low as long as they like, what they cant do is keep the lid on inflation to disguise it being inflated away.  You cant fool all of the people all of the time.

Thats right,and the more they become the market for government debt and push out private capital the more that capital looks for another home.

Its the great irony of our system.The left pushes for higher and higher spending,but higher deficits simply mean higher asset values,so the more assets you own the more you make from government running a deficit.That is of course when you have over a billion Chinese workers and Eastern Europe to employ to do the work.

The great macro pincer movement is now happening though where instead of simply pushing up asset values deficits push up inflation.The main thrust of this thread and actually my work the last several years,was that the backbone of the economy couldnt produce enough for the demands placed on it.Worse,as the cycle develops we are seeing production removed from the economy,not added,from massive increase in Chinese costs to workers shrugging their shoulders to crap pay and conditions.

Longer term the CBs would love a digital currency and to do away with cash because it means they could move to negative interest rates.Forcing you to spend or invest so government can catch the tax.The only thing that stops them is the fact everyone would simply withdraw their money and keep as cash.

Of course at that point China or Russia could launch their own crypto backed by gold and / or silver and the change in currency values would see a massive wealth transfer to them,systemic.

Notice today as well Reckitt getting hit hard.Of course lots of excuses etc,but inflation will be starting to hit them.

[Castlevania]

41 minutes ago, DurhamBorn said:

Notice today as well Reckitt getting hit hard.Of course lots of excuses etc,but inflation will be starting to hit them.

Saw that. Unilever were hit last week too. Suggests that they don’t have as much pricing power as they may have alluded to. 

[JMD]

17 hours ago, JMD said:

Thanks DB, It is an interesting subject. I was aware of the individual projects and partnerships, though not that the oilies were buying so heavily into these carbon credit companies. But the Shell page I posted, well a sub page off it, seemed to be explicitly offering companies who might want to offset their own emmisions to contact Shell - I may have misinterpreted this as Shell actually offering to sell carbon credits!!!, which I would have understood as a game changer in helping to 'rehabilite'' the oilies environmental image problem, plus being a new revenue stream (potentially massive according to some commentators)... However as I say i could be wrong, I will go check up and perhaps have to report back with my tail between my legs?!!

Mea Culpa x3(!)... I have now re-read the Shell carbon credit web pages and am reporting back that i was wrong, appologies if I mislead anyone. Tbc Shell are not selling carbon credits, they are just doing what other energy companies are doing, ie offsetting co2 by operating environmental carbon sink projects.                                                               (also I notice I didn't post the link to that Katusa/Kiyosaki(rich dad) free book on carbon credits, still haven't read it myself, but here it is for those interested...                                                                                         https://join.katusaresearch.com/trillion-dollar-tsunami-goog?sl=trillion-dollar-tsunami-google&gc_id=10629573802&h_ad_id=530471976409&gclid=EAIaIQobChMIhOmDiPKA8gIVz-vtCh0b5wddEAAYAiAAEgLvn_D_BwE

[JMD]

21 minutes ago, Castlevania said:

Saw that. Unilever were hit last week too. Suggests that they don’t have as much pricing power as they may have alluded to. 

But why do you think big dominant players like Reckitt and Unilever don't have pricing power? Is it because their brands are expensive and customers are moving to cheaper products? Or maybe 'temporary'(?!) supply chain problems? ...Very interested to understand why, because would be valuable knowledge to apply to other companies that also maybe can't adapt their businesses to the looming inflation pressures.

[23rdian]

5 minutes ago, JMD said:

But why do you think big dominant players like Reckitt and Unilever don't have pricing power? Is it because their brands are expensive and customers are moving to cheaper products? Or maybe 'temporary'(?!) supply chain problems? ...Very interested to understand why, because would be valuable knowledge to apply to other companies that also maybe can't adapt their businesses to the looming inflation pressures.

Aldi?

[Castlevania]

40 minutes ago, JMD said:

But why do you think big dominant players like Reckitt and Unilever don't have pricing power? Is it because their brands are expensive and customers are moving to cheaper products? Or maybe 'temporary'(?!) supply chain problems? ...Very interested to understand why, because would be valuable knowledge to apply to other companies that also maybe can't adapt their businesses to the looming inflation pressures.

There are own brand substitutes for most of their products. If your input costs are up by 10% it’s a big ask to maintain your margin and also put the selling price up 10% without taking a sales hit when there are cheaper substitutes available. 

In many cases you’re paying a premium for the perceived quality of the brand. At one time you may well have paid a premium for a much higher quality product. However many consumer goods companies have spent years reforumlating their products by removing ingredients with cheaper alternatives to boost their margins. 

I think you need to pay attention to the brands that dominate a sector and where people are unlikely to seek substitutes when faced with a price hike and so can pass on their higher input costs.

[Boon]

I think the notion of brand equity is quite a hard one to really measure, and for some brands it can quickly change.

Hellmans Mayonnaise for instance for Unilever, a solid enough brand which people happily buy. I must admit for sauces I did this out of habit.

I wouldn't buy a branded tinned tomatoes and pay 2x the price over own brand, because to me there is no real difference.

Started doing the same with condiments, and it's been the same. OK a slight difference but nothing which says I should spend double on one.

I would guess that declining real incomes means that trade-offs will be made and these kind of premium brands are first in line. It doesn't have the emotional attachment of say alcohol brands, or something like Coke. 

[arrow]

Well, this article has pretty much got it all. Supply chains coming back. China distrusted. Necessary nuclear energy. The destruction of the UK nuclear industry leading to the French and Chinese being asked to build UK nuclear power stations. China stealing from the US to build their nuclear industry and so being blacklisted, along with any nuclear projects they're involved in, including the UK ones. French EDF saying how the 100 Chinese nuclear engineers they want for the UK are necessary for UK nuclear projects, in spite of being ultimately employed by the Chinese military (something the article omitted). Huawei was forced from the UK by US pressure (something the article omitted). China wanting to build a nuclear power plant in Essex.

"UK looks to remove China’s CGN from nuclear power projects
Change in stance follows worsening of relations between London and Beijing

The British government is exploring ways to remove China’s state-owned nuclear energy company from all future power projects in the UK, including the consortium planning to build the new £20bn Sizewell nuclear power station in Suffolk, according to people close to the discussions.

The change in mood at the top of government also affects proposals by China General Nuclear to build a new plant at Bradwell-on-Sea in Essex using its own reactor technology and raises questions about the future of the UK’s nuclear energy programme.

It follows the chilling in relations between London and Beijing in recent years over issues including China’s clampdown on dissent in Hong Kong, its repression of the Uyghurs and other Muslim minorities in Xinjiang and its handling of the initial Covid-19 outbreak in Wuhan. 

Foreign secretary Dominic Raab said last year the UK could no longer conduct “business as usual” with Beijing. The most high-profile action has been the government’s decision to force Chinese telecoms equipment maker Huawei out of Britain’s 5G network. 

The move to reconsider nuclear power partners comes as the US and its allies in Europe and Asia are increasingly looking to prevent China from obtaining sensitive technology and to protect their own supply chains or critical infrastructure from over-reliance on Chinese technology. 

The collaboration on nuclear power dates back to a 2015 agreement that was endorsed by David Cameron, then-British prime minister, and Chinese president Xi Jinping.

That deal envisaged that CGN would become a 20 per cent partner in the development of the planned Sizewell C plant on the Suffolk coast, with an option to participate in its construction. It also sealed Chinese investment in the 3.2 gigawatt Hinkley Point C nuclear power facility, which is currently under construction in Somerset.

Under the agreement, CGN also became the lead developer of the proposed Bradwell B plant in Essex, in which it plans to install its own Hualong HPR1000 reactor technology.

The design is undergoing the UK regulatory approval process. But one person familiar with the matter said Chinese plans to build the power plant on the coast just 50km from London were now a non-starter.

“There isn’t a chance in hell that CGN builds Bradwell,” the person said, adding: “Given the approach we’ve seen to Huawei, [Downing Street] aren’t going to be letting a Chinese company build a new nuclear power station.”

Discussions were already taking place with the lead developer of Sizewell C, the French state-backed utility EDF, about whether it could find new partners for the project, the person added.

Another person close to the discussions said Number 10 did not want CGN involved in either project but hoped the company would withdraw without a confrontation. Both CGN and EDF declined to comment.

British ministers are concerned about CGN‘s involvement in critical UK infrastructure and believe Sizewell would be viable without the Chinese company. 

This is despite EDF using the technical input of CGN engineers on Hinkley Point C, which will operate using European Pressurised Reactor technology, a Franco-German design.

CGN’s Taishan nuclear power plant in southern China was the first in the world to operate using EPR technology and more than 100 CGN engineers have been involved with Hinkley Point C, around 50 on-site in Somerset. 

One nuclear expert expressed concerns about a lack of CGN involvement in future projects involving EPRs: “It was the Chinese who built the [first operational] EPR.”

    The removal of CGN from Sizewell could nevertheless help EDF attract North American infrastructure investors to the project, which nuclear industry leaders said would otherwise be challenging with Chinese involvement.

    The US put CGN on an export blacklist in 2019, alleging it had stolen US technology for military purposes, while the Trump administration warned the UK against Chinese involvement in nuclear power.

Theresa May, the former prime minister, came within a “whisker” of forcing CGN out of Hinkley Point C, according to one UK government figure. May ordered a review, which allowed the Somerset project to go ahead with certain stringent conditions attached. 

The government refused to confirm or deny that it no longer wanted CGN to take part in the nuclear programme. “All nuclear projects in the UK are conducted under robust and independent regulation to meet the UK’s rigorous legal, regulatory and national security requirements, ensuring our interests are protected,” a spokesperson said."