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


spunko

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12 hours ago, Tdog said:

I was expecting Stagecoach to shoot up today after Boris's plan to spend 5 billion on buses was revealed.

Should have bought bus manufacturer shares .. £5billion / 4000 = £1.25 million per bus. 

Surely cheaper to refit old double deckers with a leccy motor .. such as this one on ebay for 10k.
https://www.ebay.co.uk/itm/Refitted-Red-Double-Decker-Bus-Mobile-Classroom-Changing-Room-Full-MOT/133312405848?hash=item1f0a09e158%3Ag%3Aj4YAAOSwOeBeIDPi&LH_BIN=1

The transports will respond when oil goes through the roof in the next cycle.They hedge 4 years out mostly.They will also be the first to use hydrogen etc when oil becomes a $300 a barrel commod.I expect car ownership to start to fall around 2023 for economic reasons,and then speed up through the cycle.

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4 minutes ago, DurhamBorn said:

We built bus engines and most of the clean engines for around £10k to £14k an engine.Buses wont end up electric i doubt,they will end up hydrogen.

Was having a chat today to an old boy who's nephew works at Aston martin as an engineer.He was saying his nephew reckons -as per your view-hydrogen will be the winner.

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Spamming a full 3 Wolf St pieces but they are good.

https://wolfstreet.com/2020/02/11/ok-it-gets-sticky-job-openings-plunge-the-most-since-the-great-recession/

Job Openings Plunge the Most Since the Great Recession

US-job-openings-JOLTS-YOY-2020-02-11.png

Job openings are a first indication. Other indicators lag job openings, including at the far end total nonfarm employment. And for now, these other indicators have not yet picked up on the plunge in job openings though some have started to wobble.

 

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1 minute ago, sancho panza said:

Was having a chat today to an old boy who's nephew works at Aston martin as an engineer.He was saying his nephew reckons -as per your view-hydrogen will be the winner.

Im pretty certain of it SP.Our engineers reckoned we were world leaders in the tech in the UK,but lots was under wraps.Big oil cant corner the electric battery market,but their billions can build the hydrogen plants and supply the network.SSE are going up (50% from my bottom ladder now) because all that wind power being wasted on a night will be making Hydrogen soon.Id expect Drax to turn over one of their power stations soon as well.Hydrogen needs lots of electric and needs it cheaper and we are about there.I like Linde in the space but the shares have never come into range.Dennis should do very well building the buses.

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1 minute ago, DurhamBorn said:

Im pretty certain of it SP.Our engineers reckoned we were world leaders in the tech in the UK,but lots was under wraps.Big oil cant corner the electric battery market,but their billions can build the hydrogen plants and supply the network.SSE are going up (50% from my bottom ladder now) because all that wind power being wasted on a night will be making Hydrogen soon.Id expect Drax to turn over one of their power stations soon as well.Hydrogen needs lots of electric and needs it cheaper and we are about there.I like Linde in the space but the shares have never come into range.Dennis should do very well building the buses.

I'm looking for the 'decomplex' trades here.We've been picking up XOM,RDSB,BP,EQNR heavily last two weeks after taking time off from mechanical buying over Dec/Jan as prices too high imho.

EQNR jsut dropped to August 2019 low........my question is whether the big oilies have the vision to see the end of fossil fuels coming and to prepoare for it.Hydrogen would give them that edge so logn as they use their scale early.

I'm sure all the hydrogen stuff would be guarded closely,whosoever gets those patents in first and right makes a fortune.

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28 minutes ago, DurhamBorn said:

Inflation.

Most pensions have uplifts of 5%,some even less at 3% etc,max.Once inflation goes over  say 7% then those pension deficits fall.The pension crisis is mainly because the economy isnt producing enough wealth to pay for them,mostly because capital is going into none productive assets like gilts,treasuries and houses.This is the correct response in a dis-infation.However if the markets are doing that there comes a point where the government take that money,and instead of giving it to the stay at home mummy in benefits to buy trampolines from China,they invest it themselves in the backbone of the economy.Thats exactly whats happening,and starting already.

As an investor who uses road maps the position is quite clear.Gilts and fixed rate assets (and assets priced off them like houses and growth shares) will have a terrible cycle.Worse,there isnt even any yield at this point to undo some damage.Inflation loving assets and assets priced off higher rates will do from well,to outstanding.

As i always say,the market hurts the most people it can.Right now that means housing,fixed rate assets gilts/bonds etc.99% of the UK public are positioned for the start of a dis-inflation cycle,when we are at the end of one.

Succinctly put.

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10 minutes ago, sancho panza said:

I'm looking for the 'decomplex' trades here.We've been picking up XOM,RDSB,BP,EQNR heavily last two weeks after taking time off from mechanical buying over Dec/Jan as prices too high imho.

EQNR jsut dropped to August 2019 low........my question is whether the big oilies have the vision to see the end of fossil fuels coming and to prepoare for it.Hydrogen would give them that edge so logn as they use their scale early.

I'm sure all the hydrogen stuff would be guarded closely,whosoever gets those patents in first and right makes a fortune.

Iv started buying Gaslog Ltd,LNG shipper,getting really tough for them,but if they can survive the downdraft i see them 10x.Not for widows and orphans and only a small holding.

Iv also started to buy NorskHydro ,very small amounts,but ladders set up.

Very small holding in Vermilion Energy as well.Gas play.

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1 hour ago, sancho panza said:

.my question is whether the big oilies have the vision to see the end of fossil fuels coming and to prepoare for it.Hydrogen would give them that edge so logn as they use their scale early.

BP already tried with Beyond Petroleum. When was that, 2003ish? I think they were too far ahead if anything. Doesn't mean they can't still miss the boat as you say

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3 hours ago, DurhamBorn said:

Inflation.

Most pensions have uplifts of 5%,some even less at 3% etc,max.Once inflation goes over  say 7% then those pension deficits fall.The pension crisis is mainly because the economy isnt producing enough wealth to pay for them,mostly because capital is going into none productive assets like gilts,treasuries and houses.This is the correct response in a dis-infation.However if the markets are doing that there comes a point where the government take that money,and instead of giving it to the stay at home mummy in benefits to buy trampolines from China,they invest it themselves in the backbone of the economy.Thats exactly whats happening,and starting already.

As an investor who uses road maps the position is quite clear.Gilts and fixed rate assets (and assets priced off them like houses and growth shares) will have a terrible cycle.Worse,there isnt even any yield at this point to undo some damage.Inflation loving assets and assets priced off higher rates will do from well,to outstanding.

As i always say,the market hurts the most people it can.Right now that means housing,fixed rate assets gilts/bonds etc.99% of the UK public are positioned for the start of a dis-inflation cycle,when we are at the end of one.

DB.

If you were 50. 

500k in cash.

How would you take advantage of the coming cost inflation.

I use 500k. As a round number. 1 million seemed to high.

I ask as I can see inflationary pressures everywhere. Just wonder how you fight it even with a few quid in the piggy bank...

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10 hours ago, Panda said:

DB.

If you were 50. 

500k in cash.

How would you take advantage of the coming cost inflation.

I use 500k. As a round number. 1 million seemed to high.

I ask as I can see inflationary pressures everywhere. Just wonder how you fight it even with a few quid in the piggy bank...

Its very tricky,but firstly you do the things you want doing.New boiler,windows etc,do it now while its dirt cheap.Next you get rid of all debts,while beans might go up 10% a year mortgages might go up 40% a year 2% to 2.8% in a year then 3.2%,4.7% etc.

Then a broad spread of investments in things that cost massive amounts to build,but everyone needs/uses.Inflation means building expensive capital assets with debt is off the table.You want companies who have the assets,but arent getting the return at the moment.At this stage of the cycle you want to be buying a companies assets,not its profits.Cycle turns see a massive miss-pricing as investors price growing earnings (that are about to turn south) at huge multiples,but high asset,slow growth dirt cheap.

The other thing with that sort if capital for me is have £50k in silver and gold.See it for what it is ,real insurance against inflation getting so hot even inflation assets cant keep up.

Its very tricky at the moment,but my key thought after maybe one last hurray from bonds is avoid fixed interest.I see terrible returns over the next decade.

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23 hours ago, Tdog said:

Cheers with all the giveaways i missed that one. Still very expensive buses, recent buses bought for London cost circa 250k-300k ... amazing that a battery can cost £1million pound extra.
https://londonist.com/2013/05/new-bus-for-london-cost-revealed

A new double decker was 190k in 2015.

https://www.newstatesman.com/politics/devolution/2015/10/single-object-sums-boris-johnsons-disastrous-mayoralty

Those are the stupid Router masters.

Its hard to get an exact price, s DD prices are murky.

The world's best double decker is probably the Enviro400.

This will cost 150-200k.

However .... itll have a good resale value after 5 years.

AlexanderDennis couachbuilding. Volvo transmission, Cummins engine.

The operational cost of these buses is very very small - they are very wee designed and built.

https://www.alexander-dennis.com/products/double-deck-buses-2-axle/enviro400/

enviro400-9.jpg?height=850&mode=crop

Phwaor ....

And for the thread crossers/conspiracy minded , thats Sirius Minerals HQ in the background.

 

 

 

 

 

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1 hour ago, spygirl said:

Those are the stupid Router masters.

Its hard to get an exact price, s DD prices are murky.

The world's best double decker is probably the Enviro400.

This will cost 150-200k.

However .... itll have a good resale value after 5 years.

AlexanderDennis couachbuilding. Volvo transmission, Cummins engine.

The operational cost of these buses is very very small - they are very wee designed and built.

https://www.alexander-dennis.com/products/double-deck-buses-2-axle/enviro400/

enviro400-9.jpg?height=850&mode=crop

Phwaor ....

And for the thread crossers/conspiracy minded , thats Sirius Minerals HQ in the background.

 

 

 

 

 

Yep,and i built the engines.They really are cracking buses.They mostly have ISB6.7 engines in those.Those engines are bulletproof.Iv seen one stripped from test cells after 500k miles with sand blowing around and pretty much zero damage.Most operators switch the engines out though after so long.Aim is zero breakdowns for say 5 years then swap engine or like you say re-sale bus.Those engines will be roughly £8k to £12k depending on how much of the other stuff we add on for them.Some like DAF will just want the basic engine,not even any belts,others will want starters,alts,belts,almost everything ready to drop in.Likely a lot of those will switch over to hydrogen over the next 15 years as well.I worked there,but Cummins really are the dogs bollocks when it comes to engines.

Dennis are doing fantastic and have a great range of products.It used to miff us though how you always heard about Nissan and Jaguar Landrover etc,but we have a very large engine/bus/machinery industry in the UK that is doing really well.Optare in Leeds are also doing really well.They tend to use Mercedes engines,but we did build a few for them.

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Otavio Costa again:
 
To set the stage: China’s credit imbalances dwarf anything ever seen.
 
400% growth in banking assets since ’08.
 
Incomparable to any other major economy.
 
Image
 
The Coronavirus is just the tip of the iceberg.
 
China is largest credit imbalance in history now facing its Lehman Brothers’ moment.
 
The bust will be globally contagious.
 
Image
 
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Babcock reported this morning. Interesting about the oil & gas.

 

(Sharecast News) - Engineering firm Babcock lowered its full year profit guidance range on Wednesday due to contract award delays in its aviation division and an ?85m write down on oil and gas assets.
The company said it now forecast underlying operating profit of ?540m compared with a previous range of ?540m - ?560m. Revenue guidance was unchanged at around ?4.9bn.

The aerospace and defence contractor last week announced that Scottish chief executive Archie Bethel was retiring,

In a trading update for the first nine months of the financial year, Babcock said it had won or been selected as preferred bidder for aerial emergency services contracts worth around ?600m in Italy and Spain.

However, delays in awarding them had pushed revenue in future periods.

"Oil and gas continues to be a tough market. The three large providers of helicopter services who operate worldwide in oil and gas have all emerged from Chapter 11 bankruptcy protection with reduced debt and written-down assets," Babcock said.

"This has effectively reset global market pricing levels, forcing us to respond quickly to remain competitive. We will also exit our oil and gas businesses in Ghana and Congo."

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42 minutes ago, janch said:
 
 
Otavio Costa again:
 
To set the stage: China’s credit imbalances dwarf anything ever seen.
 
400% growth in banking assets since ’08.
 
Incomparable to any other major economy.
 
Image
 
The Coronavirus is just the tip of the iceberg.
 
China is largest credit imbalance in history now facing its Lehman Brothers’ moment.
 
The bust will be globally contagious.

I disagree with that.

Sure therell be some disruption but the pain will be mainly contained in China.

China has limited to no external ban funding.

All non Chinese banks are kept out.

 

 

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1 minute ago, spygirl said:

I disagree with that.

Sure therell be some disruption but the pain will be mainly contained in China.

China has limited to no external ban funding.

All non Chinese banks are kept out.

 

 

HSBC?

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1 hour ago, spygirl said:

I disagree with that.

Sure therell be some disruption but the pain will be mainly contained in China.

China has limited to no external ban funding.

All non Chinese banks are kept out.

It depends on what timescale, whilst the Trump tariffs caused a slow and steady trickle of manufacturing away from China, in a bust scenario in which it becomes an avalanche of collapses it will destroy the world supply chains before they have a chance to adapt.  Whilst company A is sitting pretty knowing that all of its suppliers are local, there is nothing to say that 50% of those suppliers are reliant on critical parts which they can only get from China as everyone else has been put of business!

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1 hour ago, Majorpain said:

It depends on what timescale, whilst the Trump tariffs caused a slow and steady trickle of manufacturing away from China, in a bust scenario in which it becomes an avalanche of collapses it will destroy the world supply chains before they have a chance to adapt.  Whilst company A is sitting pretty knowing that all of its suppliers are local, there is nothing to say that 50% of those suppliers are reliant on critical parts which they can only get from China as everyone else has been put of business!

No, money had stopped going into China before Trump.

Trump came along at roughly same time most western companies had realised theyd been diddled.

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16 minutes ago, spygirl said:

No, money had stopped going into China before Trump.

Trump came along at roughly same time most western companies had realised theyd been diddled.

That's irrelevant if companies cant get the components they require to manufacture goods, its a hassle to find another supplier, drawings/manufacturing info need updating etc, so its not a seamless transition to change.  Even for a small business there are 200+ process components which need to be in place for product to go out the door.

As an example, one of our suppliers acts as an importer for a big Chinese hardware manufacturer, there is no-one in the UK who makes a similar style.  Once their stock runs out i'm expecting that we will be going for the more austere British manufacturer in Newton Aycliffe, but even then we shall see where their raw material comes from and how much of their product was actually Asian in origin.

It has the potential to be a giant train wreck.

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2 minutes ago, Majorpain said:

That's irrelevant if companies cant get the components they require to manufacture goods, its a hassle to find another supplier, drawings/manufacturing info need updating etc, so its not a seamless transition to change.  Even for a small business there are 200+ process components which need to be in place for product to go out the door.

As an example, one of our suppliers acts as an importer for a big Chinese hardware manufacturer, there is no-one in the UK who makes a similar style.  Once their stock runs out i'm expecting that we will be going for the more austere British manufacturer in Newton Aycliffe, but even then we shall see where their raw material comes from and how much of their product was actually Asian in origin.

It has the potential to be a giant train wreck.

Most companies i know have always maintain  second or third source, just for sanity.

They never went that far in with China. And have  been moving away for 5+ years.

It got to a point that if you werent called Apple tjen you get neither the quality or the deadline.

 

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7 hours ago, DurhamBorn said:

Its very tricky,but firstly you do the things you want doing.New boiler,windows etc,do it now while its dirt cheap.Next you get rid of all debts,while beans might go up 10% a year mortgages might go up 40% a year 2% to 2.8% in a year then 3.2%,4.7% etc.

Then a broad spread of investments in things that cost massive amounts to build,but everyone needs/uses.Inflation means building expensive capital assets with debt is off the table.You want companies who have the assets,but arent getting the return at the moment.At this stage of the cycle you want to be buying a companies assets,not its profits.Cycle turns see a massive miss-pricing as investors price growing earnings (that are about to turn south) at huge multiples,but high asset,slow growth dirt cheap.

The other thing with that sort if capital for me is have £50k in silver and gold.See it for what it is ,real insurance against inflation getting so hot even inflation assets cant keep up.

Its very tricky at the moment,but my key thought after maybe one last hurray from bonds is avoid fixed interest.I see terrible returns over the next decade.

Thanks for posting this again DB, I know you have covered these points previously, but hearing them again and alongside some recent reading/study has helped me digests/contextualize them fully.

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9 hours ago, DurhamBorn said:

Its very tricky,but firstly you do the things you want doing.New boiler,windows etc,do it now while its dirt cheap.

I am considering getting a big TV as I think that any pauses in china's production may push up prices short term. But can't justify it as I barely watch it

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58 minutes ago, Bear Hug said:

I am considering getting a big TV as I think that any pauses in china's production may push up prices short term. But can't justify it as I barely watch it

If you do, get an LG. They make a lot of the components for other brands (eg Samsung) but are much cheaper. 

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