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

[dgul]

25 minutes ago, Democorruptcy said:

One for Errol:

https://www.bbc.co.uk/news/av/uk-51416500/bank-of-england-gold-rare-look-inside-the-vaults

I like the little flags for different countries and that it was shown to someone in a wheelchair, so he couldn't run off with any!

Whenever they decide to tell us about the BoE gold stocks, I wonder why now?

[DurhamBorn]

4 hours ago, onlyme said:

Base cost of UPVC window very approx £200 a pop for window itself for reasonable spec, supposed to have FENSA fitter (another bollocks regulation) fitter. About an hour to two for each window would guess, rip out old, clean up, fit, re-seal.

Yep,exactly what i paid £200 for decent sized window each.The guys charged me about £200 each guy to fit them.They were semi retired window fitters i knew.They did one job a week so to keep under VAT threshold etc.They did my daughters as well a few months ago.Charged £300 each to fit those because she had a curved bay as well and a bit awkward,cracking job though.One of them is only doing odd windows now though not a full house,he 68 and said he cant be arsed up ladders all day anymore.

[onlyme]

1 minute ago, DurhamBorn said:

Yep,exactly what i paid £200 for decent sized window each.The guys charged me about £200 each guy to fit them.They were semi retired window fitters i knew.They did one job a week so to keep under VAT threshold etc.They did my daughters as well a few months ago.Charged £300 each to fit those because she had a curved bay as well and a bit awkward,cracking job though.One of them is only doing odd windows now though not a full house,he 68 and said he cant be arsed up ladders all day anymore.

Massively cheaper than standard/discounted quote from window companies - windows / conservatories, boy are those salesmen high-pressure and on large bonuses for a very good reason, pressure to sign on the spot immense, don't let them in, my mate was one, a very successful one.

[Chewing Grass]

I have a bizarrely fake private sector job in that the ultimate client is always the glubberment since 'privatisation' of the late 1980s.

Glubberment wants something doing then it goes through one, two three, four, five, six, seven organisations and companies hands before it reaches that actual doer.

It could actually be more than 10 before the thing they want materialises.

Every set of hands gets a cut of varying percentages.

Its why everything from Aircraft Carriers to Sizewell whotsit & HS2 is so expensive and why government is so stuffed full of vested interests.

They had to cut some of this crap out in WW2 hence:- https://en.wikipedia.org/wiki/Ministry_of_Supply

[JMD]

18 hours ago, DurhamBorn said:

Funny enough iv been thinking long and hard over the service companies and the mid caps for that reason.I think it will be best to sell them at some point during the next cycle and no buy back.I think gas has a long term future though,at least 40 years.

I will have much more in the big oilies,because they suit my profile and age,but a scattering of mid caps that might give us some 10 baggers.

thanks DB, I think the great thing about 'big energy(oil)' is that, for the ordinary investor (like me), they are almost like investing in a generic energy fund but without having to pay those nasty management charges. As long as the energy company is pivoting strategically towards future growth areas, e.g. renewables, hydrogen.

DB, I guess this approach isn't directly one of 'decomplexity'(?), but I think it does link nicely to your recent post where you write about investing closer to the sources, and stress the importance of investing in strategic - next cycle -assets, and where so long as there is adequate cash flow, healthy company profits will follow. 

I think a similar focused approach - identifying large, dominant/strategically diversified co's with a sector - can be achieved for big pharma and big tobacco, and where the somewhat limited company choice within these sectors makes it fortunately more straightforward to do.

However, I'm currently trying to apply this to the commodities and telecoms sectors, but its more tricky do. 

For example, I'm trying to come up with a selection of telco's that have strategic assets. BT is an obvious first choice because it 'owns the exchanges'. But the mobiles are harder to rate. I suppose identifying ones with growing future income streams is one way. But i'm finding it difficult to Does anyone have different ideas or thoughts?    

For commodities its perhaps more difficult. Looking at the production of the big miners (their reserves/costs are also important). e.g. AngloAmerican might look good as it is worlds largest copper and platinum producer, but a massive 35% of its revenues come from coal - so maybe not so good after all. Alternatively, I'm thinking it might be better to identify smaller miners which have 'good future' diversification (for battery metals, electrification, construction). So for example, Norilsk Nickel has largest nickel reserves and at lowest extraction cost, and large platinum and copper reserves - but it is currently trading at high price. Has anyone other ideas about how/where to invest in this sector?   

 

 

As an aside, I notice the boss of the Scottish Mortgage fund last year wrote article where he slams the oil companies. I guess his fund is a growth fund (big into Tesla) so he is biased, but like many other commentators/experts, his argument is too simplistic - i.e. he might be correct in regards mid-cap oil focused co's, but big oil can play the long game. 

'Mr Anderson expects the UK market, which he said was stuffed with companies in areas such as oil and commodities, to be "dead" within a decade...'

https://www.ftadviser.com/investments/2019/01/11/baillie-gifford-s-anderson-blasts-self-indulgent-investors/

 

[JMD]

18 hours ago, Alifelessbinary said:

I’ve recently finished  a brilliant book called, Prisoners of Geography by Tim Marshall, which explains of a lot of the geopolitical points covered in this thread.

The section on China is particularly fascinating and throws up some interesting investing ideas. Apparently 40% of arable land is either too polluted to sustain crops or the top soil is so thin the land is unviable for farming. While this is terrible for the planet it is good news for Potash/fertiliser producers. 

China has pretty much gone all in for growth, if they win they rule the world, if growth slows and unemployment kicks in we’ll likely see civil unrest never seen before. 

At least the overall view of the geography of Britain was positive,. It’s just essential that any infrastructure spent enhances our geographical competitive advantages.

Good points. I've read similar things before and find that type of macro analysis - in terms of investment decisions - fascinating.

Personally, I think China will go the way of the old USSR. My post yesterday with youtube link to documentary, contains a segment showing how the citizens of the USSR knew they were living in an artifice (ial) state, one that was deceiving them. The USSR had a relatively peaceful breakup, hope China can do same.     

[JMD]

7 hours ago, DurhamBorn said:

Probably places like Barrow with BAE building subs there.Most of the UK economy now is based around benefits.A very large part of the population get tax credits or universal credit on top of part time wages.Browns big idea was instead of trying to keep well paid steel works etc,they would shut them,put a Tesco on the land and top up all the wages to 2/3s of a steel workers with tax credits.I kid you not.It was policy.I knew Blairs agent.Of course the problem is not everyone can get tax credits,it means women dont need men etc and it meant all wages went down to the minimum because there was no need or point in an employer paying more.It also sucked in mass immigration.Im not sure on the exact numbers,but several years ago when i was a councillor my local town got something like 57% of income from welfare and 14% from public sector employment.Private sector was only 29% of the economy.Incredible numbers,and one of the reasons so much will be pumped into the north in the next cycle.

DB, interesting - hadn't seen you mention that particular aspect before - but your exactly right, and its very depressing when one expands to the 'hilt' the whole root causes/consequences bit... hmm, talking of hilts, another consequence are acts like the London stabbing epidemic (where boys don't have fathers)- tragically, people think this problem can be solved in a few years by reversing austerity and by 'yoof clubs'.

A genuine question though. Wasn't Brown's policy of going large on benefits, in order to support low paying jobs, really just an inevitable successor-policy of the 'race to the bottom' which itself began in the 70/80's. I guess i'm asking wasn't pumping up the service economy, because this was all governments had left in their arsenal, due to globalisation (e.g. how does the West compete with China in a totally free (for all) market)?

 

 

[Shamone]

7 hours ago, DurhamBorn said:

Probably places like Barrow with BAE building subs there.Most of the UK economy now is based around benefits.A very large part of the population get tax credits or universal credit on top of part time wages.Browns big idea was instead of trying to keep well paid steel works etc,they would shut them,put a Tesco on the land and top up all the wages to 2/3s of a steel workers with tax credits.I kid you not.It was policy.I knew Blairs agent.Of course the problem is not everyone can get tax credits,it means women dont need men etc and it meant all wages went down to the minimum because there was no need or point in an employer paying more.It also sucked in mass immigration.Im not sure on the exact numbers,but several years ago when i was a councillor my local town got something like 57% of income from welfare and 14% from public sector employment.Private sector was only 29% of the economy.Incredible numbers,and one of the reasons so much will be pumped into the north in the next cycle.

Great post. Incredible, not even 1/3 of the economy actually productive. Reminds me of the many times in my old life how I tried to explain to plebs how people like teachers, police, council workers, civil service (I briefly worked at DVLA, Swansea late 90s, they called it the “Holiday Camp”) etc don’t actually pay real tax. And no, not on their pensions either! I stopped when my blood pressure couldn’t take it anymore.

[Chewing Grass]

2 minutes ago, Simon said:

Reminds me of the many times in my old life how I tried to explain to plebs how people like teachers, police, council workers, civil service (I briefly worked at DVLA, Swansea late 90s, they called it the “Holiday Camp”) etc don’t actually pay real tax.

Government jobs recycle somebody else's money in ever decreasing circles.

[Democorruptcy]

Re stock picking I read a bit about a study this week that the USA stock market (Russell 3000) rose by 900% between 1983 to 2006. Just 25% of the stocks accounted for all the profits. 64% of stocks underperformed the index, 39% were down in absolute terms, 19% lost 75% or more of their value. Even in a bull market there were far more losers than winners.

Another study showed that of the stocks listed since 1926 the majority of them had a life time buy and hold performance that is less than one month of Treasuries. In terms of dollar wealth creation, the best performing 4% of listed companies explain the net gain of the entire US stock market since 1926.

Sobering thoughts stock pickers?

 

[Bobthebuilder]

1 hour ago, Simon said:

I briefly worked at DVLA, Swansea late 90s, they called it the “Holiday Camp

It was so easy to get a new reg number and log book for a , lets say scrap motorbike/ scooter from you lot in those days.

[Shamone]

1 hour ago, Bobthebuilder said:

It was so easy to get a new reg number and log book for a , lets say scrap motorbike/ scooter from you lot in those days.

Sorry about that. I was in the selling prime registration plate dept. What a fucking money making scam that is. I suspect one still can’t buy C1 UNT

[DurhamBorn]

4 hours ago, Democorruptcy said:

Re stock picking I read a bit about a study this week that the USA stock market (Russell 3000) rose by 900% between 1983 to 2006. Just 25% of the stocks accounted for all the profits. 64% of stocks underperformed the index, 39% were down in absolute terms, 19% lost 75% or more of their value. Even in a bull market there were far more losers than winners.

Another study showed that of the stocks listed since 1926 the majority of them had a life time buy and hold performance that is less than one month of Treasuries. In terms of dollar wealth creation, the best performing 4% of listed companies explain the net gain of the entire US stock market since 1926.

Sobering thoughts stock pickers?

 

Yes its a fact.However it takes no account of dividends.It shows though how difficult this game is and why trackers have become so popular.The question is though with bonds yielding 1% will that continue?.Dividends are crucial to long term returns,and securing them as cheap as you can.

[MrXxxx]

15 hours ago, Democorruptcy said:

Re stock picking I read a bit about a study this week that the USA stock market (Russell 3000) rose by 900% between 1983 to 2006. Just 25% of the stocks accounted for all the profits. 64% of stocks underperformed the index, 39% were down in absolute terms, 19% lost 75% or more of their value. Even in a bull market there were far more losers than winners.

Another study showed that of the stocks listed since 1926 the majority of them had a life time buy and hold performance that is less than one month of Treasuries. In terms of dollar wealth creation, the best performing 4% of listed companies explain the net gain of the entire US stock market since 1926.

Sobering thoughts stock pickers?

 

So is this not strong justification for buying passive index trackers?...as an active buyer you everyone of your `winners` has to outperform by 300% just to breakeven/account for the losers...this of course is assuming you have no superior knowledge/advantage over other stock pickers.

[MrXxxx]

13 hours ago, Simon said:

Sorry about that. I was in the selling prime registration plate dept. What a fucking money making scam that is. I suspect one still can’t buy C1 UNT

No, I think those are reserved for diplomatic cars driven on the wrong side of the road!

[MrXxxx]

10 hours ago, DurhamBorn said:

Yes its a fact.However it takes no account of dividends.It shows though how difficult this game is and why trackers have become so popular.The question is though with bonds yielding 1% will that continue?.Dividends are crucial to long term returns,and securing them as cheap as you can.

Ok, doing a bit of reading at the moment and this got me thinking.

So assuming we are just approaching the cycle crest (as suggested by disinflation), and just about to go over the top and slide down into a recession/deflation phase [please correct if I have got this wrong], then now (and until we hit the bottom) we should be buying non-cyclical income/divi payers?...then once at the bottom we should buy the unloved (and so cheap) cyclical growth stocks ready for their resurgence on the increasing inflation phase of the cycle?...correct?

[Democorruptcy]

19 minutes ago, MrXxxx said:

So is this not strong justification for buying passive index trackers?...as an active buyer you everyone of your `winners` has to outperform by 300% just to breakeven/account for the losers...this of course is assuming you have no superior knowledge/advantage over other stock pickers.

I suppose index trackers = diversification (within shares only). The premise now though is that we are at the end of disinflation, so it's different this time. We just need to pick the winners! 

[DurhamBorn]

I think thats right.At the start of a rate cutting cycle (1982 until 2021) then it makes sense to invest in tracking assets that gain from falling rates and let the market decide.A long rate cutting cycle ensures the economy keeps growing and should ensure investments grow above inflation.

However,during a reflation cycle where interest rates are heading higher that isnt the case.A tracker might protect you from individual failures,but its certain to lose you money against inflation.I dont think thats a good bet.

I think IF the macro postion points to a cycle turn then its prudent to lean your wealth towards areas that should respond.

The key to this is that trackers and an equity/bond allocation is the right way to invest for most people most of the time.However the one thing it misses,the one thing it doesnt cover is if we get an inflation.The prime example of this was the 1970s.

Dividends are also crucial.

Its a tough old game investing.

[reformed nice guy]

It certainly is a tough old game!

I invest in some broad, low cost trackers every month but outside of the UK. Each month I buy a different area - America, Japan, Asia, West Europe, East Europe, India etc.

My logic is that this reduces my UK exposure for international diversification since my home, job and a fair chunk of my individual stocks are UK. I do not have the time and skill to understand other markets like India, but a tracker will give me exposure

[MrXxxx]

9 hours ago, DurhamBorn said:

,during a reflation cycle where interest rates are heading higher that isnt the case.A tracker might protect you from individual failures,but its certain to lose you money against inflation

Don't get this bit...my understanding was that stocks gave you a (risk) premium above the rate of BoE interest rate, and as this is use to tame inflation the inflation rate is not that far ahead...is it that in a reflation inflation rates are much greater?...and if so why?

[UnconventionalWisdom]

On 14/02/2020 at 22:09, Alifelessbinary said:

I’ve recently finished  a brilliant book called, Prisoners of Geography by Tim Marshall, which explains of a lot of the geopolitical points covered in this thread.

The section on China is particularly fascinating and throws up some interesting investing ideas. Apparently 40% of arable land is either too polluted to sustain crops or the top soil is so thin the land is unviable for farming. While this is terrible for the planet it is good news for Potash/fertiliser producers. 

China has pretty much gone all in for growth, if they win they rule the world, if growth slows and unemployment kicks in we’ll likely see civil unrest never seen before. 

At least the overall view of the geography of Britain was positive,. It’s just essential that any infrastructure spent enhances our geographical competitive advantages.

Sounds interesting, especially with the seismic political changes that have taken place over the past couple of years. Will add it to the "to read" list 

[DurhamBorn]

42 minutes ago, MrXxxx said:

Don't get this bit...my understanding was that stocks gave you a (risk) premium above the rate of BoE interest rate, and as this is use to tame inflation the inflation rate is not that far ahead...is it that in a reflation inflation rates are much greater?...and if so why?

The best advice is to research what happened to stocks ,inflation and rates between say 74 onward to 82.There are rare cycles where inflation goes so quick and high that bonds and most stocks fall.

[UnconventionalWisdom]

10 hours ago, DurhamBorn said:

I think thats right.At the start of a rate cutting cycle (1982 until 2021) then it makes sense to invest in tracking assets that gain from falling rates and let the market decide.A long rate cutting cycle ensures the economy keeps growing and should ensure investments grow above inflation.

However,during a reflation cycle where interest rates are heading higher that isnt the case.A tracker might protect you from individual failures,but its certain to lose you money against inflation.I dont think thats a good bet.

I think IF the macro postion points to a cycle turn then its prudent to lean your wealth towards areas that should respond.

The key to this is that trackers and an equity/bond allocation is the right way to invest for most people most of the time.However the one thing it misses,the one thing it doesnt cover is if we get an inflation.The prime example of this was the 1970s.

Dividends are also crucial.

Its a tough old game investing.

I've been dealing with a lot lately so havent kept up with this thread for a while. Caught up by reading 10 pages a day for the past few days- @Clueless Imbecile, about 10 pages back you asked about stock allocation based on age. DB's post above shows the danger of following rule-of-thumb investment rules. 

The problem now with the dis-inflation cycle lasting decades, people have made money on passive investing where firms like vanguard tell everyone to do this. This is fine with an ever increasing economy, but when things go against the plan, everyone has their money in the same investments. When there are auto-triggers for sell-points, there is potentially a rush for the exits, which will lead to further exits. 

They paved over the cracks of a corrupt financial system by printing $4.5trillion since 08, they are now all-in and I think a lot of people following the advice from the financial section of the times, guardian or telegraph are in for a big surprise. 

[Democorruptcy]

5 minutes ago, DurhamBorn said:

The best advice is to research what happened to stocks ,inflation and rates between say 74 onward to 82.There are rare cycles where inflation goes so quick and high that bonds and most stocks fall.

On that note.... just read Amerman's latest:

Using A Contracyclical Rebalancing Hedge For Stocks & Gold To Increase Inflation-Adjusted Returns From Price Changes By 50% While Lowering Risks

[Long-game]

On 15/02/2020 at 09:57, onlyme said:

Base cost of UPVC window very approx £200 a pop for window itself for reasonable spec, supposed to have FENSA fitter (another bollocks regulation) fitter. About an hour to two for each window would guess, rip out old, clean up, fit, re-seal.

Where I thought. Roughly 150 to 220 a window gives me a baseline figure to bargain. So far I was looking at 2800 for 11 windows fitted or so 👍