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

[Agent ZigZag]

2 hours ago, Sasquatch said:

Just come off an email exchange with a senior construction lawyer specialist. Apparently governments are not printing money and there are no inflationary concerns in the world economy.

You heard it here first!   

 

Thats because he is a bloody lawyer. They are useless. Just look at the House of Commons - full of lawyers

[JMD]

12 hours ago, UnconventionalWisdom said:

Coininvest have Britannias back in stock but are asking for more than 23 quid a piece. Gold.co.uk have them at around 16 quid. 

Coininvest have been good in the past but that's quite some premium. Anyone used gold.co.uk before?

Hope OK to ask a rather specific question. Actually this topic has been discussed before, but not for some time, and the info. may I hope perhaps be of interest to those not aware of these options. 

Am I correct in saying that the precious coin/bar companies are now all charging vat on silver coins, or are there some not yet charging? Vat was always charged on silver bars (except those curious coin-bar products 'minted in Fiji' !!.. actually I do own some, but even these products are currently out of stock). 

 

I was looking to buy some silver bars because of the lower price premium compared to coins, but am turned off having to pay that vat 'mark-up'. I'm thinking an alternative option might be to use companies like Gold.co.uk or GoldCore.co.uk who appear to offer a good combined buy+storage service costing 1%/annum of the metal value (for comparison a very small bank safe deposit box costs £200/year), and which also I think compares reasonably with say etf charges of 0.4%.

If you don't take physical delivery of your purchase, and instead opt for storage at a European storage facility, then there's no vat to pay. The snag is that when it comes time to sell, the only option seems to be to sell back to the company, so hardly 'open market'. So no vat, but not perfect... but I guess what is? 

I'd be very keen to hear anyone's experiences using this type of service/setup. (perhaps you have even gone on a European Road Trip and visited your precious metal... however, i guess your not allowed to actually 'withdraw it'; because despite owning the silver/gold, the only 'exit option' appears to be to sell back to company?)

[Castlevania]

25 minutes ago, JMD said:

Hope OK to ask a rather specific question. Actually this topic has been discussed before, but not for some time, and the info. may I hope perhaps be of interest to those not aware of these options. 

Am I correct in saying that the precious coin/bar companies are now all charging vat on silver coins, or are there some not yet charging? Vat was always charged on silver bars (except those curious coin-bar products 'minted in Fiji' !!.. actually I do own some, but even these products are currently out of stock). 

 

I was looking to buy some silver bars because of the lower price premium compared to coins, but am turned off having to pay that vat 'mark-up'. I'm thinking an alternative option might be to use companies like Gold.co.uk or GoldCore.co.uk who appear to offer a good combined buy+storage service costing 1%/annum of the metal value (for comparison a very small bank safe deposit box costs £200/year), and which also I think compares reasonably with say etf charges of 0.4%.

If you don't take physical delivery of your purchase, and instead opt for storage at a European storage facility, then there's no vat to pay. The snag is that when it comes time to sell, the only option seems to be to sell back to the company, so hardly 'open market'. So no vat, but not perfect... but I guess what is? 

I'd be very keen to hear anyone's experiences using this type of service/setup. (perhaps you have even gone on a European Road Trip and visited your precious metal... however, i guess your not allowed to actually 'withdraw it'; because despite owning the silver/gold, the only 'exit option' appears to be to sell back to company?)

I’m pretty sure you can collect it in person from the Swiss vault where it’s kept. Although in theory if you do take possession then VAT is then payable at the VAT and spot rate at that time.

[Harley]

1 hour ago, DurhamBorn said:

@Harley good to see BASF top rated,iv been buying them for their position for the next cycle,so nice to see your work on them.They are a fantastic company.Pretty much the only bits we bought in for engines and didnt make ourselves came from them.The other in the sector i like not on your list is Solvay SA.

I was desperate to get to Solvay (and some of your others, I'm doing several industries) to help validate my work!  They would be on the draft list (as would Evonik) and would probably score well if I was looking at the top 20.  Maybe I should, especially as I'm struggling to find enough good industries/companies (*).

FYI, here is my industry list (green worth looking at on a macro basis, red not (other than maybe a few checks of the obscure ones later)).  Make sense to you and your telescope?!

Green:

Chemicals
Forestry & Paper
Industrial Metals
Mining
Beverages
Food Producers
Household Goods
Tobacco
Food & Drug Retailers
Health Care Equipment & Services
Pharmaceuticals & Biotechnology
Aerospace & Defense
Alternative Energy
Oil & Gas Producers
Oil Equipment, Services & Distribution
Software & Computer Services
Fixed Line Telecommunications
Mobile Telecommunications
Electricity
Gas, Water & Multi-utilities

Red:

Automobiles & Parts
Leisure Goods
Personal Goods
General Retailers
Media
Travel & Leisure
Banks
Financial Services
General Financial
Life Insurance
Nonlife Insurance
Real Estate Investment & Services
Construction & Materials
Electronic & Electrical Equipment
General Industrials
Industrial Engineering
Industrial Transportation
Support Services
Technology Hardware & Equipment

(*) Some industries in the green list are not looking that great overall.  Maybe some gems within but say "Household Goods", the top 15 companies I looked at have an average Quick Ratio of a mere 0.57 (that is current liabilities almost twice current assets).  OK just one metric and arguably industry specific but sometimes where you see one rat......!

[Erewhon888]

2 hours ago, Agent ZigZag said:

Thats because he is a bloody lawyer. They are useless. Just look at the House of Commons - full of lawyers

The Devils Own apparently.

https://www.youtube.com/watch?v=QVuHihtwsxU

[JMD]

1 hour ago, Castlevania said:

I’m pretty sure you can collect it in person from the Swiss vault where it’s kept. Although in theory if you do take possession then VAT is then payable at the VAT and spot rate at that time.

thanks Castlevania. In the meantime I will keep an eye out for some coin bars, for when they come back in stock, and hopefully before that loophole is removed.

[JMD]

5 hours ago, Harley said:

Sancho, chemicals, better late than never!

DYOR, not advice, data may be iffy, blah, blah....

I've used criteria drawn from a liquidators mindset!  What do you use?

How do the high scorers match up to yours?

Notes:

. List is based on the largest market caps on the exchanges I can access

. Ignores ADRs, pink sheet stocks, incorrect industry assignments, etc

. Based on FT.com industry assignment of stocks

. Used a KISS small set of criteria!

. Green is good and is above/below average for the listed 15

. Score is the number of greens for a company (top 3 marked in green)

. "OCF +ve" is number of the last 5 years where OCF has been positive

. "OCF Growth" is number of the last 5 years OCF has grown YOY

. "Div Cover" is number of the last 5 years div covered by OCF

I then do a deep dive on the top ones, looking at charts, PE ratios, etc.

Harley, welcome back - you couldn't stay away for long I notice... great list and information.

I've had following ones on my chemical industries watch list for so long now I can't now remember why!... anyway might be of some interest. 

Westlake Chemical partners (US)                                                                              Victrex (UK, but expensive?)

[Harley]

56 minutes ago, JMD said:

Harley, welcome back - you couldn't stay away for long I notice... great list and information.

I've had following ones on my chemical industries watch list for so long now I can't now remember why!... anyway might be of some interest. 

Westlake Chemical partners (US)                                                                              Victrex (UK, but expensive?)

I promised SP! 

Ta.  Westlake is a fund (LP).  I excluded them as I like full clarity of holdings, financials, etc.  Which they may have but I need to dig.  Same for the MLPs.  However, I may be grabbing some funds later after this is done so one I'll look at.  Victrex a bit small atm (I'm playing sectors with large caps atm) but has a stonking Quick Ratio (although 2019 divs exceeded OCF for the first time, naughty!).  Actually, making me think I should maybe preselect all companies with a ratio > 1 to go in my initial 15 list as even at £1.7bn cap it's plenty big enough for me!

 

[Alifelessbinary]

1 hour ago, JMD said:

thanks Castlevania. In the meantime I will keep an eye out for some coin bars, for when they come back in stock, and hopefully before that loophole is removed.

Previously you could mitigate some of the VAT by purchasing coins from Europe. I’ve used both goldsilver.be and the Europeanmint in the past. Due to postage costs you tend to need to buy £300+ to make it worthwhile.

Since the bear market started though and silver prices crashed to circa $12 oz, you haven’t been able to buy silver from any bullion dealers. The stuff I have seen has had a premium of at least 60% which is ridiculous. In my opinion this complexly mitigated the benefits of owning physical silver and you are better off waiting until the premium because more favourable.

In more normal times quite a lot of the UK dealers will sell second hand coins which means they are VAT exempt. Again all this stock disappeared a couple of weeks ago, which just shows how rigged the physical market is.

[JMD]

1 hour ago, Harley said:

I promised SP! 

Ta.  Westlake is a fund (LP).  I excluded them as I like full clarity of holdings, financials, etc.  Which they may have but I need to dig.  Same for the MLPs.  However, I may be grabbing some funds later after this is done so one I'll look at.  Victrex a bit small atm (I'm playing sectors with large caps atm) but has a stonking Quick Ratio (although 2019 divs exceeded OCF for the first time, naughty!).  Actually, making me think I should maybe preselect all companies with a ratio > 1 to go in my initial 15 list as even at £1.7bn cap it's plenty big enough for me!

 

thanks Harley, Victrex is known for being a true 'innovator', but can the company grow, with recent years having not shown spectacular performance. Perhaps more focus on UK supply and companies will help. 

[JMD]

39 minutes ago, Alifelessbinary said:

Previously you could mitigate some of the VAT by purchasing coins from Europe. I’ve used both goldsilver.be and the Europeanmint in the past. Due to postage costs you tend to need to buy £300+ to make it worthwhile.

Since the bear market started though and silver prices crashed to circa $12 oz, you haven’t been able to buy silver from any bullion dealers. The stuff I have seen has had a premium of at least 60% which is ridiculous. In my opinion this complexly mitigated the benefits of owning physical silver and you are better off waiting until the premium because more favourable.

In more normal times quite a lot of the UK dealers will sell second hand coins which means they are VAT exempt. Again all this stock disappeared a couple of weeks ago, which just shows how rigged the physical market is.

Yes, I seem to recall that the European gold/silver dealers 'got away' (legally I hasten to add!) with not applying vat because they could legitimately claim that the silver they sold was second hand in some way. I cant remember the scheme details, but it does seem to have come to an end and we now have to pay vat. 

If anyone does know how we might still buy silver - coins or bars - vat free, please could they let us know.

[Harley]

2 hours ago, Harley said:

Westlake is a fund (LP).  I excluded them as I like full clarity of holdings, financials, etc.  Which they may have but I need to dig.  Same for the MLPs. 

Found the financials on Investing.com.  Not available on FT.com.  I note they are heavily debt financed, so exposed to high interest rates?  Also stuff about investors getting wiped out in 2015?  Risky?

[Harley]

56 minutes ago, Cattle Prod said:

Equinor is having a good day, up 49% off the bottom now. Doesn't look like the Norwegians believe in $20 oil.

Just been looking!  Which version do you track (invest)?  US OTC, Oslo, etc?  Took a while to get a buy signal and that's only week to date on the weekly and messy on the daily, although these are messy times!

[Castlevania]

2 hours ago, Alifelessbinary said:

Previously you could mitigate some of the VAT by purchasing coins from Europe. I’ve used both goldsilver.be and the Europeanmint in the past. Due to postage costs you tend to need to buy £300+ to make it worthwhile.

Since the bear market started though and silver prices crashed to circa $12 oz, you haven’t been able to buy silver from any bullion dealers. The stuff I have seen has had a premium of at least 60% which is ridiculous. In my opinion this complexly mitigated the benefits of owning physical silver and you are better off waiting until the premium because more favourable.

In more normal times quite a lot of the UK dealers will sell second hand coins which means they are VAT exempt. Again all this stock disappeared a couple of weeks ago, which just shows how rigged the physical market is.

Second hand coins aren’t VAT exempt. However, if you trade in second hand goods bought from the public you can choose to apply VAT on the markup only. So essentially if you bought a coin for £10 and sold it for £16, you’d pay £1 in VAT on the £6 gross markup. The net result isn’t that different than if you bought from a commercial supplier and netted off the input and output VAT.

If you’re VAT registered the only way to avoid VAT is to not put it through the books.

[spunko]

I am considering ordering in some heating oil, currently the lowest price I can find is £0.33 a litre on Boilerjuice, with delivery 3 weeks ago. The price I ordered at last month was £0.43... Clearly the price has dropped significantly due to crude oil price bombing... Does it make sense to wait a few days to see if it bottoms out, or should I order now?

 

I was trying to find futures on brent crude but couldn't find much, be helpful to see what the "experts" are predicting.

PS: I came across this: https://www.ccn.com/this-is-how-oil-prices-can-crash-below-0-yes-really/

[Chewing Grass]

Yes, get two lots even if you have to buy another tank.

[DurhamBorn]

1 hour ago, spunko said:

I am considering ordering in some heating oil, currently the lowest price I can find is £0.33 a litre on Boilerjuice, with delivery 3 weeks ago. The price I ordered at last month was £0.43... Clearly the price has dropped significantly due to crude oil price bombing... Does it make sense to wait a few days to see if it bottoms out, or should I order now?

 

I was trying to find futures on brent crude but couldn't find much, be helpful to see what the "experts" are predicting.

PS: I came across this: https://www.ccn.com/this-is-how-oil-prices-can-crash-below-0-yes-really/

Cant see it running up fast,but id be buying it now if i wanted it.Id also be trying to find somewhere to store it.On my gas/electric my fix runs out next month and im going to try to get the longest fix i can.I probably wont see deflation again in my lifetime.Id by a coffin now if our lass would let me keep it in the garage.

[Loki]

6 minutes ago, DurhamBorn said:

.Id by a coffin now if our lass would let me keep it in the garage.

You know that spare Peugeot...?

[sancho panza]

22 hours ago, Cattle Prod said:

Shut ins very rarely happen widely, and usually presage a long bull (1998). There are many reasons for a crashing oil market (another one not being discussed is hedge funds having to cover producers hedges into a falling market), but shut in production is a feature of the worst. An oil field is not like a tank in your attic, from where you can turn the tap on and off and get a stream of water. They operate under high pressure, which is what pushes the oil kilometres to the surface. In an old oil field, particularly, the pressure is low, and if you shut it in, the oil will never come out again the same way. It has to be carefully managed in old age, the oil just kind of settles back and refuses to come out. Sometimes, producers suck harder before shutting in, "blowing down the reservoir" in a desperate grab for cash. This soon pulls water into the wellbore, meaning the oil can't get to it any more, this is "reservoir damage". The well is now worthless. In general, about half of the oil present in a good quality field (can be as low 10%) can ever be extracted, so these financially driven decisions simply increase that %. And old marginal fields, doing a couple of thousand barrels a day or whatever, will never come back, like those two Enquest has just dumped.

Lets say ... 2% of world supply gets shut in, never to return. A figure off the top of my head, but it's a small percentage. (Edit: I've qualified that a bit. Enquest revised down production guidance by 4000 barrels a day, so my guess was right that they do a couple of thousand barrels a day each. So the 2% figure could be just 1000 of these old fields, worldwide. Or 250 of them, with 1.5m lost from US shale, which is probably going to be conservative). Then lets say only 2% of the 5% of worldwide natural decline gets replaced this year - who is going to invest? That's 5m bbl a day done from the supply side, or over half a Saudi Arabia. It'll take time to work through stock builds due to demand loss, but they will be worked through, as they always do. Time to accumulate stocks before the supply shock hits  Then, one day, the oil will not be there to be supplied. Back to the tank in your attic - you cannot turn that tap on,  and it will take years to build a new tank. 

There you have the cyclicity of oil markets: the are inherently boom and bust.

And I guarantee you won' t find a half a Saudi Arabia again on this planet. Furthermore, we have already had a soft run of this from 2014-2019. Money was not spent building new tanks, just on shale and sweating the crap out of old fields. I genuinely believe supply is teetering medium term, which seems like a crazy thing to say now. I wonder has Saudi/Russia just decided to kick the legs out from under it, once and for all? All the elements are there for a massive bull run, once this is through. The curse and the opportunity now is to try and decide who will survive, which is why I have only ever recommended big oilies on this thread. There will be casualties, which is the whole point, of course. As much as it pains me to say it.

I don't really know if that's why the big oilies held up: I'd be interested to see current insider buying/selling numbers. Boomers still make up the largest cohort in those companies, are all loaded, insured with final salary pensions, and have been through these troughs a few times before. Also as has been pointed out recently - the big integrated companies can make money with cheap oil too. 

Thanks for the in depth explanation.The more I read your posts and the more I understand the way the oilies work,the more baked in the recovery from $20 is.We bought more BP/Shell today as I've decided to move from the price ladders that took us to $34 on XOM/£2.25 BP/£9.10 RDSB to timing ladders over the coming weeks and moneths.

My view is that I thinkw e've seen the bottom in the oilies.I think we have roughly 6-8 weeks before the Corona Virus situation appears on a resolvable path and forward looking markets will price up the reflation stocks.We're gradually moving to our full allocation in the oilies.AS I've said previously we sold up our oil services/smaller OIl&gas (XES/XOP) plays and deployed that abck into big oil but take the view that whatever comes the bigger plays will come through.I only bought the XOP/XES plays with stong balance sheets but having gone through them all there were some really weak players and even some of my picks have been hammered 70%++.

WOrst performer of orus is Occidental where we've been centricaed.Otherwise,recent lows have allowed me to bring our other holdings down to good lontg temr prices.

I jsutt find it utterly fascianting to understand how lsoing 5% production and old fields being run dry,virtually guarantees a price bubble on the otehr side of the dip.

Always appreciate you taking the time to psot in depth explanations CP.Thanks.

[sancho panza]

14 hours ago, kibuc said:

It's a paid leave for absence so no, at least for now. They are using the Retention Scheme and topping it up quite generously for higher earners, so I'm only 20% net worse-off. It balances itself out with the season ticket and the babysitter, neither of which I need at the moment.

I was feeling burned out and considering an unpaid leave for a month or two, so suddenly getting a paid one actually makes me happy. Only my ego keeps nagging me that I'm not considered essential enough to keep at work  In our Tech department they kept all leads and some (most?) seniors.

The scheme runs until end of May and I'd expect them to take advantage of that, so it'll probably be two months in the end. I'd be gutted if I got a boot after that as I really like it there, but emloyment-wise it should be fine, offers for senior devs are aplenty.

Glad to hear you'relooking forward to family time.80% is pretty good al in but Mrs P has been working from hoem for two weeks and raised the tempo of my cleaning efforts.She knows how to sweat an asset

[sancho panza]

13 hours ago, Harley said:

Sancho, chemicals, better late than never!

DYOR, not advice, data may be iffy, blah, blah....

I've used criteria drawn from a liquidators mindset!  What do you use?

How do the high scorers match up to yours?

Notes:

. List is based on the largest market caps on the exchanges I can access

. Ignores ADRs, pink sheet stocks, incorrect industry assignments, etc

. Based on FT.com industry assignment of stocks

. Used a KISS small set of criteria!

. Green is good and is above/below average for the listed 15

. Score is the number of greens for a company (top 3 marked in green)

. "OCF +ve" is number of the last 5 years where OCF has been positive

. "OCF Growth" is number of the last 5 years OCF has grown YOY

. "Div Cover" is number of the last 5 years div covered by OCF

I then do a deep dive on the top ones, looking at charts, PE ratios, etc.

Thanks for doing all the hard work Harley.Is there a US ETF that covers chemicals you know about?I'll ahev aflick through these wed/thu if the kids are in nursery and I have time.

[Harley]

21 minutes ago, sancho panza said:

Thanks for doing all the hard work Harley.Is there a US ETF that covers chemicals you know about?I'll ahev aflick through these wed/thu if the kids are in nursery and I have time.

Lyxor STOXX Europe 600 Chemicals UCITS ETF for Europe but just general material ones like VAW in the US.

[sancho panza]

6 hours ago, Cattle Prod said:

Equinor is having a good day, up 49% off the bottom now. Doesn't look like the Norwegians believe in $20 oil.

Lot of the euro oilies aremoving up.Hard to believe Total were E22 a week or two back.Repsol and ENI still looking good value

I'm taking the view now that whatever we can get RDSB below £15 and BP £4 is a bonus from ehre.Hope there might be a second run down but this market jsut doesn't have that sort of feel.

Having said that selling is heavier fri night as people don't want to be long over the weekend and I can see that trend conituing for some time.Monday mronings have been especailly weak.RDSB dropped down toe £11.87 Monday monring.Naturally I was busy dealing with the kids winding their Mum up so missed it.I keep telling them it's their Uni money but they don't listen.Ever.

On a that  matter my 3 year old today appeared at the kitchen window around the height of a 6 foot 6 inch bloke .I get out their and he's found one side of a cot(the bit with the railings in) and used it as a ladder to try and scale the drainpipe.......it's a kind of light relief to get back to the feeling of consistency I get from nursing my ever so red  position that cannnot be named @Democorruptcy

 

[Harley]

20 minutes ago, Cattle Prod said:

Oslo - it's available to me in my ISA. Hopefully it closes with that weekly signal, thanks for the information.

Oslo?  Wow!  Not on mine, unless an LSE based CDI.  Annoying none of mine gives access to any Scandinavian exchanges.  Lot's of interesting material stocks there.  I'm too cautious to use ADRs, etc on my accessible exchanges given the potential counter party risk.  Probably being OTT though but that's me ATM!

[sancho panza]

2 hours ago, spunko said:

I am considering ordering in some heating oil, currently the lowest price I can find is £0.33 a litre on Boilerjuice, with delivery 3 weeks ago. The price I ordered at last month was £0.43... Clearly the price has dropped significantly due to crude oil price bombing... Does it make sense to wait a few days to see if it bottoms out, or should I order now?

 

I was trying to find futures on brent crude but couldn't find much, be helpful to see what the "experts" are predicting.

PS: I came across this: https://www.ccn.com/this-is-how-oil-prices-can-crash-below-0-yes-really/

Buy now.

I alwasy take the view if it's a price I'd have taken 6 months back,I'd take it now but I said that about the stock that cannot be named at£1.45 so dyor Spunko.

1 minute ago, Harley said:

Lyxor STOXX Europe 600 Chemicals UCITS ETF for Europe but just general material ones like VAW in the US.

I'll have a butchers tmrw all ebing well.