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

[sancho panza]

On a personal level the insanity of govt policy will make this crisis much worse than it needs to be.

Baby Panza who's two got sent home from nursery with a 'persistent cough' with a 14 day ban.It means I'll be off work for most of the next two weeks(Paramedic).The fundamental problem is that she hasn't got a persistent cough.I phoned the GP and discussed the issues,he said that without a temperature over 38 degrees,she's acutally not ticking any boxes for Covid as she's systemically very well.

Long story short,you have non clinicians taking clinical decisions on self isolation which will only make the disaster much worse than it needs to be.The vulnerable pts will still end up in hospital,possibly being treated by asymptomatic Covid carriers(NHS workers are not being routinely tested),virtually guaranteeing a higher mortality rate.Non vulnerable pts who could remain economically active and support tax revenues are being held back from work due to poor clinical decisons from non clinicians working from poor public health guidelines ie they need to define what a persistent cough is if they're asking people to self isolate on the basis of it.(The GP said more than a week but said there was no effective definition)

And all the reaction thus far has been based on the practices of other countires with poor testing regimes.There's a distinct possibility that the infection rate doesn't reach 30% let alone 50%.

 

Edit to add: based on my experience today people could be off work for months self isolating without actually having the disease.The least they should be doing is testing people who are self isolating.

[kibuc]

17 minutes ago, sancho panza said:

K you got a view on a new dollar high in Gold this year?I think it's inbound but interested on your take if you have one.

It's difficult to make any sort of prediction right now and not look like a fool three months later.

Having said that, I difficult to see gold not hitting new high this year. It has held remarkably well, all things considered, even before the money taps got turned on. Now, with central banks and governments singing to the same tune of heliopter money, all that's needed to put rocket fuel under gold price is for the sentiment to change. Given how dire the mood seems to be at the moment, the potential for a quick reversal is strong.

As I said previously, the money will not solve the covid problem BUT they will still be there in the markets when the problem gets solved.

[Agent ZigZag]

Excellent points made Sancho. The newspaper/media and senior health figures really need to be held to task as their scaremongering being spouted out is way out proportion to any other flue virus with no thought given to the economic consequences of their actions.

I would suggest the markets are over reacting but the FED really does now need to act quickly

[sancho panza]

4 minutes ago, kibuc said:

It's difficult to make any sort of prediction right now and not look like a fool three months later.

Having said that, I difficult to see gold not hitting new high this year. It has held remarkably well, all things considered, even before the money taps got turned on. Now, with central banks and governments singing to the same tune of heliopter money, all that's needed to put rocket fuel under gold price is for the sentiment to change. Given how dire the mood seems to be at the moment, the potential for a quick reversal is strong.

As I said previously, the money will not solve the covid problem BUT they will still be there in the markets when the problem gets solved.

Reasonable and proportionate response as ever K.As we've seen new highs in most major currencies,it seemed logical that all we needed for a new dollar high would be some weakness.With the printing that's been promised,it's hard to see how the dollar won't deflate when normal life resumes which it has done after every pandemic in human history.

I'm still amazed we've seen near $1700 gold without a weak dollar.We've held our small company positions but have added some more Tier 1/2 exposure on Friday but missed the big sell off eg  paid $14 for Newcrest isntead of $12.

 

[sancho panza]

17 minutes ago, Agent ZigZag said:

Excellent points made Sancho. The newspaper/media and senior health figures really need to be held to task as their scaremongering being spouted out is way out proportion to any other flue virus with no thought given to the economic consequences of their actions.

I would suggest the markets are over reacting but the FED really does now need to act quickly

On an economic level, activty is collapsing way beyond a level commensurate with the crisis we face.If supply chains collapse and millions die worldwide of starvation, then I think there'll be sensible debate about whether we might have been better to deal with consequences of the pandemic rather than trying to prevent it.

I don't think we're on the verge of supply chain collapse yet but common sense needs assert itself at a senior govt level and I must say, thus far, our govt has been the most reasonable internationally.

[Harley]

4 hours ago, NogintheNog said:

Next ladders knocked down another 10%.

Can you explain that please.  It would be interesting to know your mechanics for setting ladder prices.

[Harley]

3 hours ago, DurhamBorn said:

Fed is behind the curve by massive amounts,dollar will fall once Fed gets close to right sized printing.World needs $s,and fast.

I sense (speculate) the US Administration is close to doing something profound which, despite the overall negative reaction so far, will startle most people.  It'll make the last bankers bailout seem pocket money.  They'll double, probably a lot more, down.  You can do masses when people perceive us to be in a more of a war footing.  MMT, UBI, regulation, and all. Trillions.

[Harley]

5 hours ago, NogintheNog said:

If not physical via Coininvest.

Note I understand Coininvest now out of VAT free sliver.

I don't trust any ETF or other collective instrument or counter-party right now. 

I started a risk management thread a while back which was not hot back then....!

[Harley]

1 hour ago, sancho panza said:

Edit to add: based on my experience today people could be off work for months self isolating without actually having the disease.The least they should be doing is testing people who are self isolating.

Not being critical but some genuine confusion: I'm confused on testing.  How long is the result good for?  Up to the point you have the test?  You could go out and catch the virus the next second after the test?  Even from the tester?  And how much good is it to know (medics, etc accepted)?  And worse cleared people subsequently infected could start running around thinking they're "fine".

[Harley]

42 minutes ago, sancho panza said:

On an economic level, activty is collapsing way beyond a level commensurate with the crisis we face.

I think the important thing is to assume/accept this is not just about CV.  Many other issues out there needing an end game/resolution.   This could be by design (not wasting a crisis) or because the virus (and cascade effect from other impacted things) stresses many weaknesses to breaking point.  That's at both a financial, social and political level.   Collateral damage and cascade effects are common characteristics. 

PS: I'm not even sure money (or "value") will be seen in quite the same way going forward.  I wrote about this a few months ago.  Time to start dusting down the Wealth of Nations and other such treaties.  We could be going back to an era of discovery as in the 1600's.  I mean this at an intellectual (but also ensuing practical) level, not some cheap prepper, sensationalist, message board, etc level.

PPS: Working from home, outside of the construct of the "office", etc - so now maybe we'll start seeing who and what has really been adding value all this time and what the nature of that value really is?  Invest and act accordingly?

[Harley]

Valuations could get complicated and a consensus approach will be required.  For example, PM miners may be attractive because they mine valued PMs but what if they have a limited workforce to mine it, get the supplies and transportation they need, etc?  Would they be valued kindly?  Valued on PMs in the ground (i.e. potential)?  But if so, plenty of other companies who would have such potential going forward.  Not saying they won't but this is the time to be questioning the boxes in which we are often dong our thinking (as those grocery panic buyers are now doing). 

[kibuc]

1 hour ago, sancho panza said:

Reasonable and proportionate response as ever K.As we've seen new highs in most major currencies,it seemed logical that all we needed for a new dollar high would be some weakness.With the printing that's been promised,it's hard to see how the dollar won't deflate when normal life resumes which it has done after every pandemic in human history.

I'm still amazed we've seen near $1700 gold without a weak dollar.We've held our small company positions but have added some more Tier 1/2 exposure on Friday but missed the big sell off eg  paid $14 for Newcrest isntead of $12.

 

Also, take a look at the action in treasuries. 10Y is back over 1 (1.06 at the moment) and rising fast, while the dollar is also going higher and higher. There's no flight to safety, just shortage of dollars.

Gold might take a hit because of that, but once that shortage get addressed, I'd expect the response to be overwhelming.

[headrow]

BP & Shell look like they are showing no sign of bottoming out. The dividend has to be at real risk at these levels , Saudi saying they will keep pumping more , Oil price heading to $20 and lower.

If the dividend is suspended what do you reckon BP & Shell would trade at?

I'm already a good £10,000 down.

[Noallegiance]

WTF is going on with the US$???!!!

[kibuc]

Tesla is only $389 away from reaching fair value.

[headrow]

Crude down 15% today.

There are obviously no buyers , where is it all going?

[NogintheNog]

59 minutes ago, Harley said:

5 hours ago, NogintheNog said:

Next ladders knocked down another 10%.

Can you explain that please.  It would be interesting to know your mechanics for setting ladder prices.

Sorry to disappoint you, but...

If someone had said to me a month ago you can buy BP at £3.50 a share, how much do you want? I probably would have tipped £25K maybe £30K in, it would have looked a bargain. With the ground shifting below our feet though, that trade has well and truly passed us by. I've been buying it and Shell/Total all the way down, but so far the falling knife syndrome is getting very painful. I would have hit another ladder today in RDSB at £9.50, but that's now reset to £8.55. Bought TOT in my SIPP on Monday and I'm already best part of 15% down on that. That would have been a £2K allocation, if it hits the next target I might go for £3K's worth.

No mechanics, just fear factor!

[Lavalas]

5 hours ago, Noallegiance said:

Surely he gets it because he's an integral part of upper society that are both arsonist and fireman?

Love that - brilliantly put

[NogintheNog]

32 minutes ago, headrow said:

I'm already a good £10,000 down.

Count yourself lucky. £30K down in three weeks!

[headrow]

2 minutes ago, NogintheNog said:

Count yourself lucky. £30K down in three weeks!

I was buying at 370p. They are trading at 235p now and i'm too scared to buy.

Brutal day for Oil today .

[NogintheNog]

5 hours ago, spygirl said:

7 hours ago, TheCountOfNowhere said:

Dow Futures Dive as Bloomberg Leaks Mnuchin’s 20% Unemployment Fear

 

OMGF!!!!!!!!!!!

The US wil be like ....... France.

If it carries on unemployment will hit ~30% - like Spain.

If it gets even worse itll be like Greece.

That made me laugh!

Where is the US$ going from here...?

[Noallegiance]

15 minutes ago, NogintheNog said:

That made me laugh!

Where is the US$ going from here...?

Looks like the diver climbing the ladder!

[JMD]

On 16/03/2020 at 20:13, Harley said:

Here's one for the collective.

This is a full list of industries from Investing.com.  What are your top 10 sectors for the deflation/inflation ahead (life after CV) and why?  What should the selection criteria be?  I'm thinking those with pricing power, with historical low valuations (e.g. PE ratios), those near the source (i.e. not consumer), those that meet needs not wants, and those who would benefit from infrastructure and other government (capital?) expenditure.  This would help prioritise the search for the best companies in the best industries, something I'm already well into.

Harley, the top sectors for me are ones often discussed here: big oil/energy, power co's, utility co's, commodity miners, telecoms/chemical/steel industries.

But also, a couple of sectors not often discussed: aerospace/defence, biotech/drugs/med. devices. May be guilty of combining some sectors but there is obvious company overlap and I do prefer to identify themes rather than adhere to strict sector lines.

And also the infrastructure sector: this is an interesting sector to try to predict what'll actually be built - I think the focus will be 'fast-track' projects: housing (regional builders working with local authorities), hospitals, high-streets, flood defences, sea ports, environmental (inc. waste management, land management and forestry). (i.e. not more projects like HS2, that are too expensive and take too long)

'My' infrastructure sector would comprise an eclectic mix of activities, but there should be some good UK (European?) engineering co's that can ably straddle several of these specialities, alongside a plethora of smaller ones. Do people here agree with my thinking here? - please critique/comment either way - but if you do, in part agree, I would really love to see one of your dividend-star tables for this sector setup Harvey,  

To add to the criteria you mention above, I would include the next-cycle trends such as the global ones of 'less' China/Middle-East, 'more' Japan, and national food security/energy security; and for us in the UK trends like us pivoting away from EU and instead emulating successful former colonies like Singapore, sounds little strange but its all about less regulation/having a more nimble start-up ethos, e.g. government support for smaller/job creating businesses such as regional builders/and ditching the expensive/inefficient big builders. Cant really 'measure' themes of course but still useful I think.   

Harley, in regard the text I've highlighted in your post, are you creating more of those dividend-star tables (sorry cant recall proper name), or are you identifying say two 'best-of' companies from within each sector? Would like to see the results if you'd care to share.

[TheCountOfNowhere]

20 minutes ago, NogintheNog said:

That made me laugh!

Where is the US$ going from here...?

You know how people have run out of bog roll....

[headrow]

Delta Air Lines $2bn decline in March revenue. Wow.

 

Just noticed Drax down 13% today.

 

Circuit breakers hit again in the US markets.