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

[DurhamBorn]

Just read the headline on this because its exactly what i said a while ago.

https://www.bbc.co.uk/news/business-50176961

Amazon can be as big as they want,they are still affected by inflation outside of their control.The cloud will also move onto telcos networks more and more,so they might be at top of cycle as well.

[JMD]

17 hours ago, sancho panza said:

No on the utilities.Been too busy,work,kids,this stuff I do for the family.Utilities jsut aren't top of my lsit at the mo.Needs a couple or three hours and I'm too b usy trying to work out which oil/gold/potash/oil services/rare earths companies to buy.

Ref the Balance sheet,as I say in the post before there's an element of ceterus paribus.Im not buying individual stocks but rather looking to spray n pray and to weed out the duds.

There was a video posted by Danielle Dimartino on the previous page and it really is a superb assessment of the junk bond market and where we are.I'm not sure duration risk is that much of an issue when you're dealing with a bond market implosion that hasn't happened since the 30's.

Ref the BS score,,,,,assets - liabilities =equity.....if equity is around the level of liabilities then i score it a 3.when you move past equitybeing half liabilities,then we're around the 2 level.below that we're headed to 1.

Having said that some sectors carry much more debt than others due to the cost of credit,so you have to adjust for that eg utilities.

 

thank you SP.

Can I inquire if you did buy the lithium minors - CXO, SQM?  or are you still working through these as part of your rare-earths?

Reason I ask is I have bought them, but appreciate they are highly speculative, hence their low price. Apparently if battery technology takes off, and if demand for lithium rises suddenly (not certain apparently as lithium reserves are sort of unknown!), then prices will fly.   

 

[JMD]

4 hours ago, feed said:

looks interesting, i'll take a look.  I do wonder if it's too late to take back our data.  But i guess that's a topic for another thread/discussion.   

Yes I agree discussion for another thread. But the reason I posted it here was to help explain why I don't think Uber/FaceBook/etc will end up with sustainable businesses by making profits from our private data. So from investment perspective those companies are merely fashionable, sort of like those Dutch tulip bulb sellers of 400 years ago.    

[DurhamBorn]

2 hours ago, Cattle Prod said:

I heard that exact comparison from a small cap CEO the other day. We were talking about the WeWork shambles versus how hard it is to get any oil and gas funding currently.

Deja Vu all over again.

Oil had a pretty good run post dotcom bust to 2007!

Deflation sucks capital into blue sky "growth" because nothing to discount the none free cash against.The whole world thinks oil/gas is dead due to green energy.Ironic,because the next cycle will likely see the biggest boom ever in them.Look at Amazon running up against transport inflation.Nothing it can do,people think oh Amazon can walk over anyone,but they have zero control over macro inflationary pressures.Their margins will go down like everyone elses.People never learn and fall for the same wrong thoughts.The best companies to invest in are the ones that have attracted very little capital during the cycle.Not the one who attracted the most.

[MrXxxx]

8 hours ago, DurhamBorn said:

Deflation sucks capital into blue sky "growth" because nothing to discount the none free cash against.The whole world thinks oil/gas is dead due to green energy.Ironic,because the next cycle will likely see the biggest boom ever in them.Look at Amazon running up against transport inflation.Nothing it can do,people think oh Amazon can walk over anyone,but they have zero control over macro inflationary pressures.Their margins will go down like everyone elses.People never learn and fall for the same wrong thoughts.The best companies to invest in are the ones that have attracted very little capital during the cycle.Not the one who attracted the most.

Perhaps I am missing something, but this seems obvious to me and I cannot understand why those in finance cannot see it...its basic fundamentals, you have to move something then a major controlling factor must be the energy input required to do it...likewise with manufacturing products and the availability of raw materials.

[Democorruptcy]

9 hours ago, DurhamBorn said:

Deflation sucks capital into blue sky "growth" because nothing to discount the none free cash against.The whole world thinks oil/gas is dead due to green energy.Ironic,because the next cycle will likely see the biggest boom ever in them.Look at Amazon running up against transport inflation.Nothing it can do,people think oh Amazon can walk over anyone,but they have zero control over macro inflationary pressures.Their margins will go down like everyone elses.People never learn and fall for the same wrong thoughts.The best companies to invest in are the ones that have attracted very little capital during the cycle.Not the one who attracted the most.

Are you still short Amazon?

[DurhamBorn]

2 hours ago, Democorruptcy said:

Are you still short Amazon?

No i closed it ages ago now.Im no expert on shorting and very rare i do it.I dont think people understand that Amazons cloud business could also see margins fall.Looking ahead i think much more will end up on the edge of teclos networks.Its one of the reasons,alongside the amount of devices about to be hooked up that make me think telcos are structurally under-valued for the next cycle.That doesnt say they wont get cheaper again first though in a sell off.

[DurhamBorn]

2 hours ago, MrXxxx said:

Perhaps I am missing something, but this seems obvious to me and I cannot understand why those in finance cannot see it...its basic fundamentals, you have to move something then a major controlling factor must be the energy input required to do it...likewise with manufacturing products and the availability of raw materials.

The long dis-inflation cycle has made people forget.Inflation loving assets need a lot of capital to build and maintain.Over a dis-inflation less and less capital goes to them and more and more goes to "growth" companies.People then think passing facts are long term facts.Amazon will control all retail and make zillions.Well to be fairly priced now it probably needs to make $75 billion in free cash flow.Thats if a recession doesnt hit it hard.If all the delivery companies tell Amazon its paying 100% more tomorrow,then it is.Nothing it can do.Nothing.

The market now is mostly robo driven funds with set asset allocations tracking markets and asset classes.People think thats the winning way,because it has been for a cycle.

In a distribution cycle it will prove a disaster.Imagine a pension in draw down with 1% fees 6% inflation,but indices that are flat or down.It doesnt take long for that pension to end up well below whats needed.

Im pretty convinced that for ordinary people with decent sized portfolios including their pensions,lets say £250k need to have around 25% to 40% in inflation loving sectors.The rest in high free cash companies that wont be affected too much by rising input costs.Its not about getting rich quick,its about spotting the very real risk of what the next cycle will be so that you can out run it by a few % a year.I also fear bond prices,after one last run up will suffer nearly a decade bear market.That will prove poison to pension funds both private and company.Lots of financial dislocation coming.

[Democorruptcy]

3 hours ago, DurhamBorn said:

No i closed it ages ago now.Im no expert on shorting and very rare i do it.I dont think people understand that Amazons cloud business could also see margins fall.Looking ahead i think much more will end up on the edge of teclos networks.Its one of the reasons,alongside the amount of devices about to be hooked up that make me think telcos are structurally under-valued for the next cycle.That doesnt say they wont get cheaper again first though in a sell off.

Part of the Amazon share price drop must be because Microsoft won the $10bn Pentagon contract instead of them

https://www.defenseworld.net/news/25725/Pentagon_Awards_Microsoft__10Bn_Cloud_Computing_Contract

[leonardratso]

wtf happened to bitcoin, every single one of my sell limit orders was taken out in 2 days, i had them set @ 7K, 7.25K, 7.5K, 7.75K and a larger one at 8K, i checked thursday and it was languishing @5.8K, its peaked @8.2K @ 2.30pm this aft, some 25% rise in what looks like 24hrs.

Im only playing with £500, but now ive got £600, hurrah, 100squid i courtesy of the chinese no doubt.

[MrXxxx]

4 hours ago, DurhamBorn said:

I also fear bond prices,after one last run up will suffer nearly a decade bear market.That will prove poison to pension funds both private and company.Lots of financial dislocation coming.

 

[MrXxxx]

So if retiring within the next five years the ideal scenario would be to have a DB pension and let your ex employer worry about inflation/bond returns, and put any other funds you have in stocks; the DB is taking the place of gilts/bonds in your portfolio/pension I.e. `safe` money (yes, I know!)..the second best if you didn't have the security of a DB would be to use some of your funds for an inflation linked annuity (this taking same role as DB above) and put the rest in stocks?

Note above not financial advice!

[JMD]

7 hours ago, MrXxxx said:

Perhaps I am missing something, but this seems obvious to me and I cannot understand why those in finance cannot see it...its basic fundamentals, you have to move something then a major controlling factor must be the energy input required to do it...likewise with manufacturing products and the availability of raw materials.

A regular refrain on this thread, but you are right to ask why finance people have repeatedly ignored the all so obvious 'fundamentals'. When asked 'why' I expect their excuse will be they got swept away by all the predicted shiny benefits supposedly coming from digitalising our economy or by the disruption - i.e. short-termism/undercutting - fads.

As DurhamBorn says '...the long disinflation cycle has made people forget'.

 

This forum might not be the place for poetry? (...darn it, i'll be the first!)... but i think its interesting that Kipling wrote about similar themes after the ravages of the 1st World War, false gods, returning to basics, etc...human nature doesn't change.

'As I pass through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.'

http://www.kiplingsociety.co.uk/poems_copybook.htm

 

[DurhamBorn]

1 hour ago, MrXxxx said:

So if retiring within the next five years the ideal scenario would be to have a DB pension and let your ex employer worry about inflation/bond returns, and put any other funds you have in stocks; the DB is taking the place of gilts/bonds in your portfolio/pension I.e. `safe` money (yes, I know!)..the second best if you didn't have the security of a DB would be to use some of your funds for an inflation linked annuity (this taking same role as DB above) and put the rest in stocks?

Note above not financial advice!

Im cashing in a DB pension right now.I think we are seeing once in a lifetime low rates.We might see one last drop for a few months in a deflation,but then i think we will see gilts end up with 8% coupons,maybe even 12%.Transfer values will likely fall by a lot through the cycle.

I wouldnt touch an annuity.Insurers who offer them could be the big losers in the dislocation ahead.Who know what junk they hold and derivatives?.

Its a very difficult area though,and too complex for this thread as each individual is different and it takes a lot of skill to construct your own retirement portfolio.Im lucky in that i can live on fresh air almost when needed,i have very low fixed costs.

I think the key thing in the next cycle for people retiring and/or getting close is that inflation+fees+draw down will outstrip growth in the assets by a long way.That will prove a disaster for people.They need inflation hedging after this deflation we are going through.

[DurhamBorn]

@Yellow_Reduced_Sticker

youl like this one.Iv just bought a side unit and set of draws,side unit for tv to stand on,133cmx90cmx42cm .Barker and Stonehouse in solid walnut.Got them from a real posh house near Durham,,they were downsizing moving south to be near family,paid £60 for both,and they are in superb condition.I reckon for the two new in B+S they would of been over £1500.Iv had some bargains on there,but i reckon this is the best iv had.Love my old Peugeot estate for picking things up

 

[leonardratso]

cheap skate, lol.

[DurhamBorn]

33 minutes ago, leonardratso said:

cheap skate, lol.

Its amazing the quality items you can buy 2nd hand for peanuts.The way is to wait for the right ones.Iv been looking for about a month,seen some nice ones,but kept waiting.I think the knack is having a van or estate car for bigger items as people cant get them in their cars.Im slowly buying a lot of tools dirt cheap as well.Id advise anyone to use Facebook marketplace.Look for real quality items at good prices.Im not looking for one,but there was a fantastic Italian sofa for £500 a week ago,almost never sat on,probably £4k new.I think a lot of people simply want someone to take it away and save them the trouble,they have plenty of money and dont really care.

[leonardratso]

11 minutes ago, DurhamBorn said:

Its amazing the quality items you can buy 2nd hand for peanuts.The way is to wait for the right ones.Iv been looking for about a month,seen some nice ones,but kept waiting.I think the knack is having a van or estate car for bigger items as people cant get them in their cars.Im slowly buying a lot of tools dirt cheap as well.Id advise anyone to use Facebook marketplace.Look for real quality items at good prices.Im not looking for one,but there was a fantastic Italian sofa for £500 a week ago,almost never sat on,probably £4k new.I think a lot of people simply want someone to take it away and save them the trouble,they have plenty of money and dont really care.

i agree, i love good quality items for giveaway prices, but i am the worst consumer in the world, ill patch and fix until theres more patching and fixing than the original, but to have something quality for basically f'all, ill always go out of my way for that.

[MrXxxx]

1 hour ago, DurhamBorn said:

wouldnt touch an annuity.Insurers who offer them could be the big losers in the dislocation ahead.Who know what junk they hold and derivatives

Ah, I just assumed annuity providers were the same as pension providers I.e. oblidged to keep a % of their funds in treasuries.

 

1 hour ago, DurhamBorn said:

ts a very difficult area though,and too complex for this thread as each individual is different and it takes a lot of skill to construct your own retirement portfolio

Very true, we all have different aspirations of how we want our retirement to be, all have different risk tolerances, and all have different levels of expertise in financial management/stock trading...that said, some of the ideas discussed/mentioned here have given me `avenues to explore` that I didn't know existed, and discussions have helped me to change future thoughts/plans (hopefully) for the better.

1 hour ago, DurhamBorn said:

think the key thing in the next cycle for people retiring and/or getting close is that inflation+fees+draw down will outstrip growth in the assets by a long way.That will prove a disaster for people.They need inflation hedging after this deflation we are going through.

And so how/what actions do you suggest to do this? (genuine question).

[Democorruptcy]

3 hours ago, MrXxxx said:

So if retiring within the next five years the ideal scenario would be to have a DB pension and let your ex employer worry about inflation/bond returns, and put any other funds you have in stocks; the DB is taking the place of gilts/bonds in your portfolio/pension I.e. `safe` money (yes, I know!)..the second best if you didn't have the security of a DB would be to use some of your funds for an inflation linked annuity (this taking same role as DB above) and put the rest in stocks?

Note above not financial advice!

It depends what the uplift is in the pension and whether it applies to all or part of it. If it's below inflation it's not enough? I've cashed an old deferred in 1994 one in this year.  I'd contributed £2,600 but got £124,000 to play with in my SIPP.  

[DurhamBorn]

2 hours ago, MrXxxx said:

Ah, I just assumed annuity providers were the same as pension providers I.e. oblidged to keep a % of their funds in treasuries.

 

Very true, we all have different aspirations of how we want our retirement to be, all have different risk tolerances, and all have different levels of expertise in financial management/stock trading...that said, some of the ideas discussed/mentioned here have given me `avenues to explore` that I didn't know existed, and discussions have helped me to change future thoughts/plans (hopefully) for the better.

And so how/what actions do you suggest to do this? (genuine question).

I think oil and gas companies,potash,select miners,PMs and their miners,telecoms,transports,some cyclical companies who can front run inflation,maybe big tobacco,insurance once the bust is over and we know who didnt blow up.If someone really doesnt want to do too much 15% allocation in silver might do the job of protecting from inflation.

The keys are this.In a deflation cycle (or more a dis-inflation one) bonds are the protection,in a reflation,real assets are.

[King of Fools]

Hey Guys. What’s a good way for me to get some exposure to the PM miners? Some ETF to stick in my Hargreaves Lansdown ISA. All answers gratefully received. The risk is mine so I will DMOR, I just need a couple of pointers from you good people.

[Hardhat]

1 hour ago, King of Fools said:

Hey Guys. What’s a good way for me to get some exposure to the PM miners? Some ETF to stick in my Hargreaves Lansdown ISA. All answers gratefully received. The risk is mine so I will DMOR, I just need a couple of pointers from you good people.

GDX / GDXJ

[MrXxxx]

13 hours ago, Democorruptcy said:

It depends what the uplift is in the pension and whether it applies to all or part of it. If it's below inflation it's not enough? I've cashed an old deferred in 1994 one in this year.  I'd contributed £2,600 but got £124,000 to play with in my SIPP.  

True, most DB pensions yet to pay out have now moved the goalposts so that a) they cover the first 5% in full, and are then a % up to 10% where the uplift stops, and b) some use CPI rather than RPI.

Regarding your transfer (and to make it clear to all), £2.6k is not what it could be paying out on maturity, this will be much higher, and so doesn't look as dramatic to the payoff you got...still not a `investment` though! 

[stockton]

8 hours ago, King of Fools said:

Hey Guys. What’s a good way for me to get some exposure to the PM miners? Some ETF to stick in my Hargreaves Lansdown ISA. All answers gratefully received. The risk is mine so I will DMOR, I just need a couple of pointers from you good people.

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/s/smith-and-williamson-global-gold-and-resources-income-inclusive

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/m/merian-gold-and-silver-r-gbp-accumulation

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/j/junior-gold-trust-class-p-accumulation

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/b/blackrock-gold-and-general-class-d1-income

These are some I have looked at and used, I went for low charges and wanted to avoid the share dealing charges.

Not advice ect...