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

[Harley]

I wonder if a solar panel tax will be the new window tax!

[NogintheNog]

4 minutes ago, Harley said:

The hydrogen v electric question is very relevant to me as it may determine if "big oil" remains "big something".  And that is what I need to know.  Plus who doesn't like talking about cars and engines?  I'll miss the oil on me hands but I have a multimeter and I know how to use it!

Yes, without energy there is no economy, unless you believe in the energy tooth fairy. In relation to this thread you are spot on Harley, what does big oil become? I think DB is right that there will be lots of crossover with the utilities and big oil, to merge into 'Big Energy'

[JMD]

17 hours ago, Harley said:

my very raw list for Telecom's (related ETFs in brackets):

Akamai Technologies, Inc.(FIVG)
Alphabet Inc. Class A (IXP,)
American Tower Corporation (NXTG, FIVG)
Analog Devices, Inc.(FIVG)
AT&T Inc.(IXP, FIVG)
Charter Communications,  (IXP)
China Mobile Limited Spon (TDIV)
China Tower Corp. Ltd. Class H (NXTG)
Cisco Systems, Inc.(IXN, HACK, CIBR, TDIV, DRIV)
Citrix Systems, Inc. (IHAK)
Comcast Corporation Class A (IXP, NFRA)
Crown Castle International Corp (INFR, TOLZ, GLIF, NXTG)
Digital Realty Trust, I (NXTG)
Equinix, Inc (NXTG)
Fujitsu Limited (NXTG)
GDS Holdings Ltd. Sponsored ADR Class A (NXTG)
Keysight Technologies Inc (FIVG)
Netflix, Inc.(IXP)
Nokia Oyj Sponsored ADR (NXTG, FIVG)
NXP Semiconductors NV (FIVG)
QUALCOMM Incorporated (FIVG)
SBA Communications Corp. Class A (NXTG)
Telefonaktiebolaget LM Ericsson Sponsored ADR Class B (FIVG)
Tencent Holdings Ltd. (IXP)
Verizon Communications Inc.(IXP)
Walt Disney Company (IXP)
Xiaomi Corp. Class B (NXTG)
Xilinx, Inc.(FIVG)

Clearly some odd ones such as Walt Disney which require further investigation (education?).  Another issue is that, as stated before, maybe the "Telecom" classification is too broad as it covers all sorts of sector actors (e.g. providers as well as manufacturers).  The main issue here is probably that the key global ETF is IXP which is a Communications ETF rather than just a Telecommunication ETF (no such global ETF, according to etf.com, exists).  So I could review the list, re-categorise some (Alphabet is clearly a duplicate and sits elsewhere), and maybe split the sector down into industries.  The latter would be a bit tough (subjective) as where to draw the line - at each company?!!!!  Morningstar's classifications could help here.  

But here's the rub.  The list is crap!, mostly because ETFs can be crap, emphasising to me I'm right (for me) to be looking at specific companies!  I used to be more concerned about ETFs from a security (e.g. securities lending, liquidity, etc) POV.  I'm now equally concerned about exactly what stocks I'm buying versus what I want and think I'm getting!  I checked the IXP ETF and sure enough the likes of Telecom Italia and Orange and Vodafone are there but well down the holdings list.  That's because the likes of Alphabet are so big, cap wise, they blow the others (the real ones!) out of the water.  Furthermore, that has skewed the ETFs away from the objective of an international spread.  IXP for example has 69% US stocks whereas the segment benchmark is 38%.  Plus you really need to know their selection methodology and definitions of things like "Communications". A bit of a bugger if you were right about Telecoms being hot only to pick a rubbish (in terms of actual representation) ETF!

So what have I achieved?  Well a start!  But also further clarity in my mind why not to rely on ETFs.  I'm going to bite the bullet and merge individual market sectors screens (and then compare the list to these lists to see how far off they are as a side matter of interest).  Very bottoms up but I really want the best international stocks (knowing most, but not all, will probably be US!).  That's important given my belief in other themes such as the growth of emerging markets and possible currency trends.

More to follow, hopefully a clean list!

Harley, (btw, I 'un-fired' myself), great post. However, I don't think that list is crap, rather I think you amply demonstrate how crappy passive investing is. I guess etf's (even the smart-beta ones) are not the place to look, as depressingly, it appears that 'Market Cap' rules wherever you turn these days. Although, upon checking I can see that telecom managed funds/trusts also hold quiet similar stock holdings.

I guess the most relevant(?) metric should be how/where does the company derive most of its income. That would surely 'tie' the company to the relevant sector. Though not sure how you would go about discovering that in a timely/efficient way?

But how Disney appears in the list I can't fathom, though Cisco is a definite sector contender to own - but just how many good companies in between are missing in action.      

 

[Bear Hug]

5 minutes ago, JMD said:

Harley, (btw, I 'un-fired' myself), great post. However, I don't think that list is crap, rather I think you amply demonstrate how crappy passive investing is. I guess etf's (even the smart-beta ones) are not the place to look, as depressingly, it appears that 'Market Cap' rules wherever you turn these days. Although, upon checking I can see that telecom managed funds/trusts also hold quiet similar stock holdings.

I guess the most relevant(?) metric should be how/where does the company derive most of its income. That would surely 'tie' the company to the relevant sector. Though not sure how you would go about discovering that in a timely/efficient way?

But how Disney appears in the list I can't fathom, though Cisco is a definite sector contender to own - but just how many good companies in between are missing in action.      

 

I can't quite get my head around it but... IF these non-telecom companies listed as telecoms outperformed the actual telecoms over the last few years, then surely they were a good selection? 

[Democorruptcy]

1 hour ago, confused said:

Yes 60% might sound like a crazy number but when you look at the obesity stats and the general malaise amongst the UK populous I don't think it's unreasonable......

Anyway onlookers, nothing to see at the moment, carry on stuffing yourself with 'sunday lunch' 

I didn't say 60% was a crazy or unreasonable number. All I said was that if it was so high there would collateral damage.

[Democorruptcy]

1 hour ago, confused said:

I'd take what Mohammed says with a pinch of salt, I recall when he was head of Pimco and he left suddenly after 'disagreeing with somebody'

Edit: I remember now why I used to follow him, he is reputed to be a 'top economist'

Economics sucks cos they keep making it up as they go along...

Milton Friedman got a Nobel Prize for claiming that the 'money supply' is the only thing that causes inflation

Then somebody comes along and says ah but what happens if there is a blockage in the system which causes 'zero velocity of money'

Then some government advisers come along and say ah but now we have MMT - that's Modern Money Theory....

Bullshitters the lot of them, nearly as bad as bankers and weather forecasters 

Ps that's why eCONomics is a CON!!! boom boom

He fell out with Bill Gross because he was old school and was too slow to react to changes.

'Well informed' could mean someone who gets info from people in power.

[Barnsey]

Nordea seem to be forecasting a Global PMI of sub 40 (reached 34 in GFC)

[Harley]

1 hour ago, JMD said:

Harley, (btw, I 'un-fired' myself), great post. However, I don't think that list is crap, rather I think you amply demonstrate how crappy passive investing is. I guess etf's (even the smart-beta ones) are not the place to look, as depressingly, it appears that 'Market Cap' rules wherever you turn these days. Although, upon checking I can see that telecom managed funds/trusts also hold quiet similar stock holdings.

I guess the most relevant(?) metric should be how/where does the company derive most of its income. That would surely 'tie' the company to the relevant sector. Though not sure how you would go about discovering that in a timely/efficient way?

But how Disney appears in the list I can't fathom, though Cisco is a definite sector contender to own - but just how many good companies in between are missing in action.     

Great to have you back on board.  No idea why you thought you were fired!  Spot on about the power of what it shows, rather than what I was aiming for it to show.  And that's a worthy exercise to me.  Just to re-iterate, the three top holdings in the global Communications ETF (IXP) are Facebook (12%), Alphabet Inc Class A (11%), and Alphabet Class B (11%).  That's a 32% holding of those three (two!) US stocks.  Vodafone is 1.6%.  The segment benchmark for the US region is 38% and the IXP actual allocation is 69%, although I accept (as you say) regional splits are very difficult (these actually represent company domicile).  Essentially, IMO, "Communication" (and to some extent "Global") is so broad as to be meaningless.

PS: BTW can you imagine how hard some of these collective instruments will fall if a select few stocks (e.g. FANGS) should fall hard even though you bought one for diversification?  How will liquidity hold up?  Will you be able to sell the ETF, fund, etc or will you be locked in?  Hell, do you even know what's in your fund (Woodford at least listed his holdings)?  And so on.  I'd rather the pain of selecting individual stocks (although I do hold some ETFs) than that potential exit pain (been there already!).  Each to their own.  Just worth thinking about, eyes wide open and all that.

[Harley]

1 hour ago, Bear Hug said:

I can't quite get my head around it but... IF these non-telecom companies listed as telecoms outperformed the actual telecoms over the last few years, then surely they were a good selection? 

I don't see it that way (e.g. you could cite the opposite, or just throw darts at the board).  The moral of the story to me is to assume nothing and to do the onerous due diligence.  And my theme of trying to get as close to the source as possible (in this case skip the translations of the ETF intermediary).  "Communications" and "Global" clearly mean different things to different people.  Some people have very clear sector targets, such as telecoms, and could become a cropper here, by investing predominantly in Facebook and Alphabet!.

[harp]

6 hours ago, M S E Refugee said:

Any guesses to how the markets will react on Monday?

More low information voters have been spoon fed coronavirus news over the weekend and those amongst them who only have a cursory interest in their stocks and shares ISA could start selling up.

I've a terrible sense of foreboding here. Not just how the markets will react but about the lack of information coming out of Italy and Iran, Africa etc about the true extent of this virus. I think its a false narrative that JUST older people with pre-existing conditions are dying. I can understand the reason to down play it and for that reason I've been stocking up. Plenty of pigeons looking rather fat cutting around my garden and I've plenty of pellets with their names on them!
As for the markets, I personally think another bad week like last week before Central Banks try stop the carnage. Who knows, but there's always opportunity in a crisis, just trying to figure out what it's going to be!  

[DurhamBorn]

6 hours ago, Transistor Man said:

Reading around,  it looks like Cummins are interested in the fuel cell approach, not hydrogen internal combustion engine.

They are,because we already have gas engines and are pretty much good to go on them if need be.They are worried someone comes along and take away their whole business within a cycle,so are covering all the tech and rightly so of course.

[DurhamBorn]

2 hours ago, Harley said:

The hydrogen v electric question is very relevant to me as it may determine if "big oil" remains "big something".  And that is what I need to know.  Plus who doesn't like talking about cars and engines?  I'll miss the oil on me hands but I have a multimeter and I know how to use it!

Its a huge thought on my mind and why iv avoided mostly the likes of Exxon and gone for players i think could ramp up hydrogen etc quickly.In that i consider Equinor,Shell and BP well placed.The electric players to go with them are SSE and E.ON and im looking for more.

We simply dont know how this is going to play out yet.However im pretty convinced the sector will see massive free cash over the next cycle,so its probably more a factor we watch going foward.

[DurhamBorn]

2 hours ago, NogintheNog said:

Yes, without energy there is no economy, unless you believe in the energy tooth fairy. In relation to this thread you are spot on Harley, what does big oil become? I think DB is right that there will be lots of crossover with the utilities and big oil, to merge into 'Big Energy'

I think thats right and i cant help wondering why big oil hasnt moved more quickly.SSE was a sitting duck at £11 yet BP or Shell didnt act.Maybe Equinor will strike?.

[Loki]

13 minutes ago, DurhamBorn said:

I think thats right and i cant help wondering why big oil hasnt moved more quickly.SSE was a sitting duck at £11 yet BP or Shell didnt act.Maybe Equinor will strike?.

Would this be good or bad for existing SEE shareholders? [/smoothbrain questions]

[DurhamBorn]

6 minutes ago, Loki said:

Would this be good or bad for existing SEE shareholders? [/smoothbrain questions]

Probably good as likely they would be offered shares at a 30% premium in the buyer.It would have to be a big oil co i expect.E.ON would be another target,but that would take a lot more capital and more risk.Probably only Shell could consider that.

Something nobody is considering is we might see big oil players merging as well.Not on a premium bid basis,but simply to cut more costs/invest more capital etc.National goverments get funny though losing their oil majors.

[Loki]

@DurhamBorn Great info thanks

[nirvana]

Quite interesting from that Dave Hunter guy on twitter:

I'm not expecting that the QE we are about to see will prove successful. In fact, I'm calling for a global deflationary bust to hit later this year so I'm expecting this new round of QE to fail. However, the massive QE during the bust will, with a lag, pull us out of the bust.

so if you escape covid19 early this year, you might get it later in the year or you'll lose your job/house/savings/pension in the bust......hookers n blow it is chaps!! 

[nirvana]

4 hours ago, Democorruptcy said:

I didn't say 60% was a crazy or unreasonable number. All I said was that if it was so high there would collateral damage.

yes and I didn't say that you did say that, I just put the 'crazy number' bit in for extra effect  anyway it doesn't matter on this thread as they're all getting psyched up for 70$ OIL next 

AND yes yes Bill, that's him! I remember watching those twats on Bloomberg TV, eventually weened myself off that shite 

[onlyme]

3 hours ago, DurhamBorn said:

Probably good as likely they would be offered shares at a 30% premium in the buyer.It would have to be a big oil co i expect.E.ON would be another target,but that would take a lot more capital and more risk.Probably only Shell could consider that.

Something nobody is considering is we might see big oil players merging as well.Not on a premium bid basis,but simply to cut more costs/invest more capital etc.National goverments get funny though losing their oil majors.

Last one on EV vs Hydrogen on this thread (will copy over to the clean energy one), tried to do a running cost comparison - purchase cost comparison in table too.

Two Hyundais. the Nexo is a bigger car but  not much. obviously just a current comparison and the figures can change, but:

For 100km range price comparison works out:

Kona (EV)

Off peak 3p per KWH - £0.43 per 100km

Standard Tariff Av about 14p per KWh  - £2 per 100km

Nexo (Fuel Cell) - £10 per KG H2 - £9.50 per 100km.

Warranties about the same, Nexo has very short service interval of 6,000 miles, can refuel in 5 minutes though. Kona can charge at 50KW, so can top up a good amount in half an hour if full overnight charge on economy rate not enough for day's driving.

 

[Noallegiance]

2 hours ago, confused said:

However, the massive QE during the bust will, with a lag, pull us out of the bust.

With what results?! "Pulling us out of the bust" sounds positive...

[DurhamBorn]

10 hours ago, confused said:

Hope so, the bastards have rigged the market for far too long 

So impotent CBs combined with my 'fag packet' sums above, things are looking pretty fucked!! 

CBs are never ever impotent,they are simply late,early or on time, in a credit driven money system of course.Modern economies have the stable affect of government.They can replace lost demand,and that is their job.The only question is the lag and the Fed is probably around 18 months too late.If this thing kills a lot of people so what,funerals cost money,and the kids then get left an inheritance they spend.The US long bond will have around 10,000 times the affect of this virus on cycles going ahead.Its the cost of money relative to economy that matters and the Fed has been too tight for a long time.

[Transistor Man]

On 29/02/2020 at 19:27, Harley said:

.

So what's my very raw list for Telecom's (related ETFs in brackets):

Akamai Technologies, Inc.(FIVG)
Alphabet Inc. Class A (IXP,)
American Tower Corporation (NXTG, FIVG)
Analog Devices, Inc.(FIVG)
AT&T Inc.(IXP, FIVG)
Charter Communications,  (IXP)
China Mobile Limited Spon (TDIV)
China Tower Corp. Ltd. Class H (NXTG)
Cisco Systems, Inc.(IXN, HACK, CIBR, TDIV, DRIV)
Citrix Systems, Inc. (IHAK)
Comcast Corporation Class A (IXP, NFRA)
Crown Castle International Corp (INFR, TOLZ, GLIF, NXTG)
Digital Realty Trust, I (NXTG)
Equinix, Inc (NXTG)
Fujitsu Limited (NXTG)
GDS Holdings Ltd. Sponsored ADR Class A (NXTG)
Keysight Technologies Inc (FIVG)
Netflix, Inc.(IXP)
Nokia Oyj Sponsored ADR (NXTG, FIVG)
NXP Semiconductors NV (FIVG)
QUALCOMM Incorporated (FIVG)
SBA Communications Corp. Class A (NXTG)
Telefonaktiebolaget LM Ericsson Sponsored ADR Class B (FIVG)
Tencent Holdings Ltd. (IXP)
Verizon Communications Inc.(IXP)
Walt Disney Company (IXP)
Xiaomi Corp. Class B (NXTG)
Xilinx, Inc.(FIVG)

 

@HarleyI may have misunderstood what you are after, buT If I was looking for the main companies in a particular global field, I’d start by finding the major industry conference.

Then I’d look at the list of conference sponsors, keynote speakers etc.

E.g.

 

 

 

[Noallegiance]

All this talk of electric and/or hydrogen vehicles got me wondering what future 'money' will look like.

The %age of vehicles (new or second hand) bought with savings must be miniscule these days. So who the fuck is going to have equivalent £35k to get an eco-friendly chariot after the biggest credit event in history?!

[Alifelessbinary]

It’s fascinating to see this one play out, although I have a lot more skin in the game compared to 2008.

While CRE especially retail will cause some issues, property will be a smaller player in this cycle. Hammerson is a good example as it’s SP peaked at 1745 in 2007 and crashed to around 250 in 2009. The SP is already below the 2009 low at around 208 on Friday. The banks are much less exposed this time and have exit strategies pre-planned.

Hammerson have been restructuring for the last couple of years away from a retail focus but still posted a £573m loss recently. The loss was mainly a write down on their assets, but as Sancho says the speed of the downturn in retail has shocked many. Several of the large surveying firms have already restructured teams, as there has been a complete collapse in fees. Many are now focused on industrial (warehouses/last mile) to help absorb the loss. 

Undoubtedly some of the big retail firms will collapse or be forced into fire sales, but this will be at the request of the banks. There’s a lot of interest from developers for some of the centrally located shopping centres. They don’t work as schemes now, but once purchased out of administration they will! The banks won’t care as they’ll be funding all the construction finance and will likely be taking stakes in either PRS or Housing Association income streams.

[sancho panza]

6 hours ago, Cattle Prod said:

I just noticed that when GDXJ was last at this price, gold was ~ $1400. They are either pricing in a further significant drop in gold, or, more likely in my opinion, have been oversold. And the companies are making ~$180 an oz extra, currently.

However, my point is rational. It's the irrational that concerns me.

Edit: there is alot of support for gold at 1400, so I have to consider that too. But rationally, I should hold on to my miners as they are already there!

I think I can see c. 15% downside risk left in GDXJ, I can live with that, given the potential upside. Might add a ladder too. This assumes this is not the big kahuna of course, dyodd. Just my 2c.

Good luck all, it's going to be a wild week!

 

I've been looking at historical charts over the weekend.No idea what's going to happen but we're ready to buy some of the tier 2's/3's tomorrow.

Newcrest is a certainty as we're laddering in from $20.Sandstorm/Osisko/BVN look distinct possibilities but I'm happy to pick up some more for less.Can't believe Ive become a dip buyer.

Reality is that it looks like big moeny is piling into gold the only way it knows how-via the paper market.

Sometimes in trading events happen that make you really reassess where you are and where you're going.I'm firmer in my mind since last Monday

Article I posted as part of a Luis tweet dated 26/2/20

https://www.bloomberg.com/news/articles/2020-02-26/investors-pour-more-and-more-assets-into-gold-on-virus-alarm

Global investors are stashing more and more assets into gold as the coronavirus outbreak spreads and appetite for risk takes a hit.

The global tally of bullion in exchange-traded funds swelled by the most in more than a month on Tuesday as equities sank. That was the 25th consecutive day of inflows, a record. At 2,624.7 tons, the holdings are the largest ever.

After surging 18% last year, gold has extended its rally in 2020, with prices hitting the highest since 2013. The haven has been favored as the virus outbreak has spread beyond China, threatening a pandemic and slower growth.

Goldman Sachs Group Inc. has said that should the disruption from the disease stretch into the second quarter, prices may rally toward $1,850 an ounce. Spot bullion was last at $1,644.67, up 0.6%. It touched $1,689.31 on Monday.

 

A global recession is likely if the coronavirus becomes a pandemic, according to Moody’s Analytics Chief Economist Mark Zandi. The odds of that outcome now stand at 40%, up from 20%, he said in a note.

The threat of a prolonged downturn in growth due to the impact of the virus may keep gold elevated, according to Morgan Stanley. Further ETF inflows are likely as long as real interest rates remain negative, it said in a note.