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


spunko

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52 minutes ago, sancho panza said:

Quickly did some Coma Scale scores on the doors-and remember I've not run through the whole sectoral ETF for comparison(Scoring the sector 4/5 as I would big oil&gas,and oil services),so the comparison side is against general market levels not competitiors

Over 17 is where I draw the line.

Co            Chart       Income          BS              FCF       Sector

Plains       4                 4                   3                 4            4                 =19/25

Enbridge  2                 4                   2                  3             4               =15/25

Energy Tr 3                  3                   1                 4             4                =15/25

 

Any chance of an explanation for the ones at the back as to where these businesses sit ref big oil/oil services.I noted steady profits-not gleaming but steady even in 2015/16.

Is there an ETF I can run through?

I generally avoid any stock that scores a 1 in any of the sectionsDB.Plains only has 10% goodwill as a %age assets.Like the look of that one.

 

That plains looks a decent cash generative business with plenty of blue sky chart wise.

 

Obviously dyor natch

 

SP, i'd be interested what your scores say for Kinder Morgan, it does carry debt so might look terrible... but apparently has restructured its business. 

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5 hours ago, sancho panza said:

https://incakolanews.blogspot.com/2019/10/why-gold-mining-companies-habitually.html

I got a two word mail "nice interview", from An Industry Professional about half an hour ago. As I tend to pay heed when this particular industry pro recommends something, I've just finished watching this:
 
People, this is obligatory viewing for anyone who invests, trades or even works in precious metals mining companies. Mr. James Rasteh of Coast Capital Management speaks a tonne of sense on a whole range of topics around the central point of this interview, "Why Gold Mining Companies Habitually Destroy Capital". I found myself nodding in agreement all the way through, Rasteh has the clarity and delivery that I'd like when I grow up.

 

 

thanks for posting SP.

 

 

Kibuc, it says in this video, which I would have ignored but heard it stated before so now got me worried(!), that for most gold minors most current reserves were discovered approx. 2010 and these discoveries are due to run-out from 2020. Moreover, less gold year-on-year is being discovered.

What are your thoughts on 'peak gold'? Is the theory even true? If it is true then good for gold prices, but terrible for many minors I assume?

 

Also - of course the commodities don't correlate - but might there be any such similar 'peak silver' reserves problem?   

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58 minutes ago, sancho panza said:

on another matter anyone with a view on Osisko Royalties(aside from them owning 15% Minera Alamos),they've been battered recently. @@kibuc @Majorpain???

$CAD 1.79bn Mcap

$CAD 131m Revenue

$CAD 8.2m (!!!!!) Adjusted Earnings

Looks similar to Wheaton PM who I was interested in with their Alexco stream, you get diversified exposure to lots of different mining companies, but at a very very high cost IMO.    I don't like those types of companies for some reason, but I would be going through their accounts to find out exactly what was going on if I was planning on investing.

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Heads up for finance nerds everywhere. BBC4 Mon 28 Oct 22:00 Storyville: Inside Lehman Brothers: The Whistleblowers.

Also, just watched Laundromat on Netflix. Quite entertaining film on the Panama papers with Gary Oldman, etc.

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2 hours ago, sancho panza said:

Quickly did some Coma Scale scores on the doors-and remember I've not run through the whole sectoral ETF for comparison(Scoring the sector 4/5 as I would big oil&gas,and oil services),so the comparison side is against general market levels not competitiors

Over 17 is where I draw the line.

Co            Chart       Income          BS              FCF       Sector

Plains       4                 4                   3                 4            4                 =19/25

Enbridge  2                 4                   2                  3             4               =15/25

Energy Tr 3                  3                   1                 4             4                =15/25

 

Any chance of an explanation for the ones at the back as to where these businesses sit ref big oil/oil services.I noted steady profits-not gleaming but steady even in 2015/16.

Is there an ETF I can run through?

I generally avoid any stock that scores a 1 in any of the sectionsDB.Plains only has 10% goodwill as a %age assets.Like the look of that one.

 

That plains looks a decent cash generative business with plenty of blue sky chart wise.

 

Obviously dyor natch

 

SP, from your previous posts I think I recall you using the OSX oil service sector etf and the following ones?... but just in case...https://etfdb.com/etfs/industry/oil-equipment--services/

 

...however seems lots of new 'pipeliners' here, fill your boots!

https://etfdb.com/etfdb-category/mlps/

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4 hours ago, Majorpain said:

Looks similar to Wheaton PM who I was interested in with their Alexco stream, you get diversified exposure to lots of different mining companies, but at a very very high cost IMO.    I don't like those types of companies for some reason, but I would be going through their accounts to find out exactly what was going on if I was planning on investing.

I tend to agree, it helps if you think about royalties companies as fund managers. They are supposed to be experts in finding value among junior miners but if they turn out to be such, they get priced accordingly.

 

4 hours ago, JMD said:

Kibuc, it says in this video, which I would have ignored but heard it stated before so now got me worried(!), that for most gold minors most current reserves were discovered approx. 2010 and these discoveries are due to run-out from 2020. Moreover, less gold year-on-year is being discovered.

What are your thoughts on 'peak gold'? Is the theory even true? If it is true then good for gold prices, but terrible for many minors I assume?

 

It's is very true, depressed gold prices halted exploration and there is a significant lag between pumping money into exploration programs and getting any new gold out of the ground. If you're drilling in a new area, where there's no mining infrastructure yet, you're looking at up to 10 years between hitting something interesting underground and celebrating your first gold pour.

I'm not that worried about it though, as I'm focusing on the juniors and for them it's not an issue, in fact it could be beneficial if it results in higher prices. A potential 1moz discovery is barely worth a sniff for the likes of Barrick or Rangold but for a junior it might easily double their resource base and guarantee them another 5-10 years of operation.  It's the majors that have a major (sorry!) problem, hence the increased appetite for merges and acquisitions as a substitute for an exploration program.

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7 hours ago, sancho panza said:

Quickly did some Coma Scale scores on the doors-and remember I've not run through the whole sectoral ETF for comparison(Scoring the sector 4/5 as I would big oil&gas,and oil services),so the comparison side is against general market levels not competitiors

Over 17 is where I draw the line.

Co            Chart       Income          BS              FCF       Sector

Plains       4                 4                   3                 4            4                 =19/25

Enbridge  2                 4                   2                  3             4               =15/25

Energy Tr 3                  3                   1                 4             4                =15/25

 

Any chance of an explanation for the ones at the back as to where these businesses sit ref big oil/oil services.I noted steady profits-not gleaming but steady even in 2015/16.

Is there an ETF I can run through?

I generally avoid any stock that scores a 1 in any of the sectionsDB.Plains only has 10% goodwill as a %age assets.Like the look of that one.

 

That plains looks a decent cash generative business with plenty of blue sky chart wise.

 

Obviously dyor natch

 

Confirms what i thought,i liked the look of Plains.They pipe the oil mostly from the oilfields to ports and refinery.They also tend to have transport as well.I would guess they gain from volume more than prices,but might have something in the contracts for uplifts.

This ETF owns most of them https://etfdb.com/etf/TPYP/#etf-holdings&sort_name=weight&sort_order=desc&page=1 Tortoise North American pipeline fund.Would be great to see your scores on these as id like to buy maybe three.

Also https://etfdb.com/etf/MLPX/ looks to be mainly the mid stream companies.

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Has anyone taken a look at ENGIE? Looks to be coming out of a bottoming out process and could well fit the bill for a stock to well during inflation. 

01DD3D0F-AAAD-4403-BE86-1A7086342E68.jpeg

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7 hours ago, JMD said:

SP, i'd be interested what your scores say for Kinder Morgan, it does carry debt so might look terrible... but apparently has restructured its business. 

44244=18  although an abnormally large profit in 2018 lifts income from 3 to 4,if I was looking more closely I'd look to find the reason for that,but that would still bring it in at 17.I checked my notes and previously scored it a 16 at the start of my endeavours with the coma scale.Many hundreds of companies later and my perpsective is broader.

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2 hours ago, DurhamBorn said:

Confirms what i thought,i liked the look of Plains.They pipe the oil mostly from the oilfields to ports and refinery.They also tend to have transport as well.I would guess they gain from volume more than prices,but might have something in the contracts for uplifts.

This ETF owns most of them https://etfdb.com/etf/TPYP/#etf-holdings&sort_name=weight&sort_order=desc&page=1 Tortoise North American pipeline fund.Would be great to see your scores on these as id like to buy maybe three.

Also https://etfdb.com/etf/MLPX/ looks to be mainly the mid stream companies.

Cheers DB and @JMD for the heads up

Massive revenues and very steady profits.I really hadn't thought of these.Had a quick look and there's 70 odd companies in TPYP.I'll hopefully have some time for these next week.Getting a sneaking feeling oil is getting ready to sell off which could create some great oportunities.

XOP/FCG/XES/OIH all plumbing all time lows..........XLE near 2008 lows.

If we get a 20% market smack,some of these will be so cheap I won't want to buy them.

 

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1 minute ago, sancho panza said:

Cheers DB and @JMD for the heads up

Massive revenues and very steady profits.I really hadn't thought of these.Had a quick look and there's 70 odd companies in TPYP.I'll hopefully have some time for these next week.Getting a sneaking feeling oil is getting ready to sell off which could create some great oportunities.

XOP/FCG/XES/OIH all plumbing all time lows..........XLE near 2008 lows.

If we get a 20% market smack,some of these will be so cheap I won't want to buy them.

 

Im spending most of the time i have on oil and gas now.My road map is saying $43 oil with possible $19 in a bust,but maybe only for a few weeks before a bounce to $32.Longer term its showing minimum $185 for oil,likely $230,maybe $300.I think the way to play oil is the companies to try to multiply the increases.Im not waiting for any bust to $19,im happy to be underwater in this sector if need be and will keep back 1/3 of capital for it.If its not allocated it will go somewhere else.

For the pipeline companies id really like the ones with large exposure to piping from Alberta in Canada.I think that will be the area that sees big investment and lots of need for natural gas pumped for the tar sands.TC Energy is one iv been looking at,though not yet in depth.Kinder Morgan is also likely a big future winner,but im not sure on the makeup of the stock as it has a Canada listing and a US one.It could be two different companies with different assets.

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5 hours ago, kibuc said:

It's is very true, depressed gold prices halted exploration and there is a significant lag between pumping money into exploration programs and getting any new gold out of the ground. If you're drilling in a new area, where there's no mining infrastructure yet, you're looking at up to 10 years between hitting something interesting underground and celebrating your first gold pour.

I'm not that worried about it though, as I'm focusing on the juniors and for them it's not an issue, in fact it could be beneficial if it results in higher prices. A potential 1moz discovery is barely worth a sniff for the likes of Barrick or Rangold but for a junior it might easily double their resource base and guarantee them another 5-10 years of operation.  It's the majors that have a major (sorry!) problem, hence the increased appetite for merges and acquisitions as a substitute for an exploration program.

thanks kibuc for confirming that crucial information

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12 hours ago, DurhamBorn said:

Im not waiting for any bust to $19,im happy to be underwater in this sector if need be and will keep back 1/3 of capital for it.If its not allocated it will go somewhere else.

I'm also looking closely at the sector (just started) and agree with the above as I'll  be investing for the very long term.  So far, I'm seeing a common theme technically of multi year lows with good monthly technicals.  Sure, the weeklies and daylies may have further to weaken but maybe the worst is over and I'm OK with riding out some intermediate fluctuations.  Fading (laddering) in of course.  Hopefully rinse and repeat in a few other sectors.  Hopefully it's like 2000 but instead of tech everyone is in trackers (with a lot of tech).  Back then, the smart money was buying the old boys and girls like Coke and Walmart.  This time I want to be positioned up the supply chains, closer to the sources.  Each to their own.

PS: I use heating oil so need to hedge the price - had enough of log splitting this week!

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12 hours ago, DurhamBorn said:

Longer term its showing minimum $185 for oil,likely $230,maybe $300.

Surely a component of any investing with this thesis then has to be a massive play on Russia?

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14 hours ago, sancho panza said:

44244=18  although an abnormally large profit in 2018 lifts income from 3 to 4,if I was looking more closely I'd look to find the reason for that,but that would still bring it in at 17.I checked my notes and previously scored it a 16 at the start of my endeavours with the coma scale. Many hundreds of companies later and my perpsective is broader.

thanks SP, 'hundreds of companies'... have you thought about doing all 5000 (pehaps >10m cap?) and publishing on own website!!   

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2 hours ago, Harley said:

I'm also looking closely at the sector (just started) and agree with the above as I'll  be investing for the very long term.  So far, I'm seeing a common theme technically of multi year lows with good monthly technicals.  Sure, the weeklies and daylies may have further to weaken but maybe the worst is over and I'm OK with riding out some intermediate fluctuations.  Fading (laddering) in of course.  Hopefully rinse and repeat in a few other sectors.  Hopefully it's like 2000 but instead of tech everyone is in trackers (with a lot of tech).  Back then, the smart money was buying the old boys and girls like Coke and Walmart.  This time I want to be positioned up the supply chains, closer to the sources.  Each to their own.

PS: I use heating oil so need to hedge the price - had enough of log splitting this week!

All my work is pointing to exactly what you say there Harley CLOSER TO THE SOURCES.I think this is the key to the next cycle.Its simply to be in the assets closer to where the inflation is going be because as you go along the line inflation slowly squeezes the margins more and more.Of course the end of the line is the consumer.The very very very end is the highly indebted consumer.

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2 hours ago, Errol said:

Surely a component of any investing with this thesis then has to be a massive play on Russia?

Bearing in mind that according to Reports, Russia is also about to take control of some of the largest oil reserves in the world - in Venezuela:

 

VENEZUELAN GOVERNMENT IS READYING TO HAND OVER CONTROL OVER STATE OIL COMPANY PDVSA TO RUSSIA’S ROSNEFT, A LOCAL NEWSPAPER HAS REPORTED, CITING SOURCES FROM THE INDUSTRY.

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19 hours ago, kibuc said:

… it helps if you think about royalties companies as fund managers. They are supposed to be experts in finding value among junior miners but if they turn out to be such, they get priced accordingly.

... depressed gold prices halted exploration and there is a significant lag between pumping money into exploration programs and getting any new gold out of the ground. I'm not that worried about it though, as I'm focusing on the juniors and for them it's not an issue, in fact it could be beneficial if it results in higher prices. It's the majors that have a major (sorry!) problem, hence the increased appetite for merges and acquisitions as a substitute for an exploration program.

Kibuc, thanks for your earlier reply. To get my asset allocations correct I wonder if you could aid me with the following (to be clear am not requesting investment advise - DB has posted about this recently re. messages he has received - rather for me, calculating risk and balance is as crucial as selecting the right stocks, etc).  

Personally, I  would like to get exposure to royalty/streaming companies by owning some for the medium term, say to 2025 approx. Your comments regarding gold reserves make me think it would be good to at least tilt toward ones holding contracts with junior gold miners. I am aware of the main ones below, I wonder do any of these have good interests in the juniors?   

Established ones (>$1bn cap) - Franco-Nevada, Royal Gold, Wheaton Precious Metals                                                                       Medium size 'younger ones' ($100m-1bn cap) - Osisko Gold Royalties, Sandstorm Gold, Maverix Metals                                           Small 'new' players (<$100m cap) might be good, although don't know names, especially if these ones are focused exclusively on the juniors 

Kibuc, in regard to my junior miner bias/strategy are there some royalty/streaming companies that you would look at?

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16 hours ago, DurhamBorn said:

Im spending most of the time i have on oil and gas now.My road map is saying $43 oil with possible $19 in a bust,but maybe only for a few weeks before a bounce to $32.Longer term its showing minimum $185 for oil,likely $230,maybe $300.I think the way to play oil is the companies to try to multiply the increases.Im not waiting for any bust to $19,im happy to be underwater in this sector if need be and will keep back 1/3 of capital for it.If its not allocated it will go somewhere else.

For the pipeline companies id really like the ones with large exposure to piping from Alberta in Canada.I think that will be the area that sees big investment and lots of need for natural gas pumped for the tar sands.TC Energy is one iv been looking at,though not yet in depth.Kinder Morgan is also likely a big future winner,but im not sure on the makeup of the stock as it has a Canada listing and a US one.It could be two different companies with different assets.

DB, good point, but my understanding is that Kinder Morgan inc (nyse:kmi) wholly owns Kinder Morgan Energy Partners (the Canadian pipeline operator). Hope i'm correct as kmi is what i'm buying! 

 

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1 hour ago, DurhamBorn said:

All my work is pointing to exactly what you say there Harley CLOSER TO THE SOURCES.I think this is the key to the next cycle.Its simply to be in the assets closer to where the inflation is going be because as you go along the line inflation slowly squeezes the margins more and more.Of course the end of the line is the consumer.The very very very end is the highly indebted consumer.

Excellent smmary of what could be a major theme.  I've been feeling this in me waters for a while now so that's given me confidence! Think I'll have a go at putting together some sort of tracker model to monitor this, like a chained set of sector ETFs and some KPIs.  And/or just invest accordingly.  This thing about avoiding US withholding taxes via a SIPP (tbd) could be a godsend for me as I was restricting myself to ETFs in my SIPP but with the KID stuff I could not invest in many sectors globally.  Looking forward to reworking things now my income portfolios are almost complete.

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4 hours ago, Errol said:

Surely a component of any investing with this thesis then has to be a massive play on Russia?

Errol, I agree - Russia is one of my themes and will invest there. On related note I have asked here about China/India and the general view is 'why bother' (because as good or better Western assets are available) / or 'keep away' (government corruption, etc).  

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42 minutes ago, Harley said:

I can feel this in me waters! Think I'll have a go at putting together some sort of model to monitor this, like a chained set of sector ETFs and some KPIs.  And/or just invest accordingly.  This thing about avoiding US withholding taxes via a SIPP (tbd) could be a godsend for me as I was restricting myself to ETFs in my SIPP but with the KID stuff I could not invest in many sectors globally.  Looking forward to reworking things now my income portfolios are almost complete.

Harley, that's very interesting because this has been a focus for me in recent months. I recall your recent discussion about what constitutes a reflation stock which I found useful. So would be very interested in hearing about your model you mention when its done.  

In terms of definitions and investing 'closer to the sources', I assume commodities and energy - but would you include IP as well? My thinking is 'real' (not nebulous stuff) intellectual property is a company asset so 'yes', and example companies might be chip/medical device manufacturers with protected patents/high expertise. But would transports/telecoms be included?

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17 hours ago, DurhamBorn said:

Kinder Morgan is also likely a big future winner,but im not sure on the makeup of the stock as it has a Canada listing and a US one.It could be two different companies with different assets.

The Canadian listing is a subsidiary of the US firm

https://www.fool.com/investing/2019/08/19/better-buy-kinder-morgan-canada-vs-phillips-66-par.aspx

https://www.kindermorgan.com/

https://www.kindermorgancanadalimited.com/pages/default.aspx

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1 hour ago, Harley said:

Excellent smmary of what could be a major theme.  I've been feeling this in me waters for a while now so that's given me confidence! Think I'll have a go at putting together some sort of tracker model to monitor this, like a chained set of sector ETFs and some KPIs.  And/or just invest accordingly.  This thing about avoiding US withholding taxes via a SIPP (tbd) could be a godsend for me as I was restricting myself to ETFs in my SIPP but with the KID stuff I could not invest in many sectors globally.  Looking forward to reworking things now my income portfolios are almost complete.

I think thats a great idea.Perhaps a simple list of ETFs in the sectors we can track against the index (100,250,S+P,DOW,Nasdaq) to see if they do indeed firstly outrun the cycle inflation rate and then outperform the indexes.Dividends will be key though as well as i see the inflation sectors handing back a lot of cash towards the 2nd half of the cycle.We could then actually look at allocation more for part of a portfolio.For instance i think 30% to 40% of a portfolio leaning towards inflation loving sectors should mean a good out-performance over the cycle.It should be easy enough to split that 30/40% into sectors and then companies to replicate the sectors with the KID rules as they are.Easier for bigger portfolios of course.Iv actually got about 50% to invest now as like yourself my income/UK cyclical/reflation portfolio is nearly complete.I had around 10% more to invest at ladder points,but most of the stocks are way above them now.BT for instance was bought in the low £1.60s and last ladder was £1.43ish.The only areas left were the big oil companies here.Im waiting still on those.Most of the capital now is heading for other areas,ladders mostly in place and some bought in potash,oil services etc,but much more work to do in the sectors there.I also need to do some more cross market work in several areas,though iv done a lot of that already and was the reason behind a lot of my UK cyclical buys.A lot of people think the big jump in a lot of them is due to "value" buying that will reverse and growth will continue up.They will have that view tested when velocity shows up.

Yes,just to confirm for everyone the US treats SIPPs as pensions so they are taxed the same as the US pensions ie all dividend withholding tax can be re-claimed.The beauty is this remains the case in draw down because its still classed as a pension.So it goes without saying that if you have ISAs and a SIPP then you should structure your direct US assets into the SIPP.Its a huge plus to be able to get all the income,especially as we can access SIPPs at 55 (for now).I think Canadian stocks are the same,but that needs confirming.

Here below is the direct message i got from HL on the subject.

"I can confirm that yes, any dividends are free of income or capital gains tax in an HL SIPP, and we claim back withholding tax on US shares so long as you've completed a W-8BEN form, which I can see that you did"

 

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@DurhamBorn Just a quick question if I may, does your market/road map work show anything in regards to when interest rates are likely to start rising? OR I'm i right is saying the rate rises will arrive when inflation finally hits HARD in say 3 to 5 years...?  CHEERS!

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