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

[Clueless Imbecile]

28 minutes ago, Lavalas said:

I was hoping to have a discussion on reflation funds, and a passive approach to investing in the next cycle. I would like to set someone up with a bit of a plan but won’t be able to manage it for them like I would in an ideal world. 

Does anyone think this would merit another thread or shall I stick some ideas in here for feedback when I’ve done some research? Any help will be really valuable to me.

I had been thinking of starting a thread about passive investing & equity index-tracker funds, with a view to discussing them in relation to what DurhamBorn (and others) have said on this thread. I have occasionally posted about trackers on this thread, but I got the feeling that not many on here are interested. They seem to be more into stock-picking and, in-effect, being their own active fund-manager. If that's true then fair enough. I'm not criticising anyone.

I have a lot of respect for DurhamBorn. It's been quite an education reading his posts (thank you DurhamBorn!). I come from a background of having been a believer in the passive investment strategy (monthly buy and long-term hold of low-cost equity index-tracker funds with dividends re-invested in a tax-efficient wrapper, such as an ISA). I still have some faith in trackers but not as much as I used to. I have tried to hedge by stopping my monthly contributions into index-funds and instead buying some of the reflation stocks mentioned on this thread. My main worry is that even if things play out exactly as has been forecast on this thread, I might simply not be skillful enough to follow that strategy successfully. The question is: would my amateurish attempt to follow DurhamBorn's strategy be better or worse than just sticking with my index-funds? I really don't know!!

I do think a separate thread would be a good idea though, so that the comments don't get lost in the other comments on this thread. Not sure though whether or not the people whose comments I'm most intrigued to read would bother to post on a passive investing thread.

Best wishes to all you people on this thread! I hope you're all doing ok in these difficult times.

 

Cheers,
Clueless Imbecile

Disclaimer: I am not an expert. Anything I post here is just my opinions, which may not be factually correct. My posts are intended purely for the purpose of debate and are not to be taken as advice. If you act on any of the above then you do so entirely at your own risk. I do not accept any liability.

 

[DurhamBorn]

36 minutes ago, Lavalas said:

I was hoping to have a discussion on reflation funds, and a passive approach to investing in the next cycle. I would like to set someone up with a bit of a plan but won’t be able to manage it for them like I would in an ideal world. 

Does anyone think this would merit another thread or shall I stick some ideas in here for feedback when I’ve done some research? Any help will be really valuable to me.

Its a very tricky area mainly due to the EU banning access to all the funds in the US.Every area was covered there from copper to potash,to oil sea freight.There are a few funds that can be used,but i think individual stocks will still be needed.Iv been building a few smaller portfolio's for family since this crash,including my kids and its still do-able on fairly small amounts.My daughter had £18k and iv built her a nice portfolio.Some of the stocks only have £500 in them,Shell the largest has £1400 .She is also adding £500 a month and im topping up a share or adding a new one.

I know what you mean about managing,but thats a lot easier at the start of a cycle,as the best outcomes will likely come from simply leaving everything alone.The only thing of course is re-investing dividends,but you could perhaps do that once a year.

[DurhamBorn]

@Clueless Imbecile i think there is room for funds,i have owned a lot myself over the years,the difficult part is due to the EU rules most of the ones that would be of use we cant access.There are some though ike GDXJ of course,and a few others.Im sure another thread would be useful as people would be able to pick up on funds and others could then look at them for the positives/negatives.

[Castlevania]

1 hour ago, Lavalas said:

I was hoping to have a discussion on reflation funds, and a passive approach to investing in the next cycle. I would like to set someone up with a bit of a plan but won’t be able to manage it for them like I would in an ideal world. 

Does anyone think this would merit another thread or shall I stick some ideas in here for feedback when I’ve done some research? Any help will be really valuable to me.

Vanguard have the Global Capital Cycles fund. I’m not sure if you can buy it in the U.K. though, but it does cover a lot of the companies and industries that have been covered in this thread, plus the odd consumer goods company and a lot of banks.

https://investor.vanguard.com/mutual-funds/profile/overview/VGPMX/portfolio-holdings

[Clueless Imbecile]

29 minutes ago, DurhamBorn said:

@Clueless Imbecile i think there is room for funds,i have owned a lot myself over the years,the difficult part is due to the EU rules most of the ones that would be of use we cant access.There are some though ike GDXJ of course,and a few others.Im sure another thread would be useful as people would be able to pick up on funds and others could then look at them for the positives/negatives.

Thanks DurhamBorn.
 

I've started a new thread:

Passive investing & index-tracker funds

Cheers,
Clueless Imbecile

Disclaimer: I am not an expert. Anything I post here is just my opinions, which may not be factually correct. My posts are intended purely for the purpose of debate and are not to be taken as advice. If you act on any of the above then you do so entirely at your own risk. I do not accept any liability.

 

[Lavalas]

30 minutes ago, Clueless Imbecile said:

I had been thinking of starting a thread about passive investing & equity index-tracker funds, with a view to discussing them in relation to what DurhamBorn (and others) have said on this thread. I have occasionally posted about trackers on this thread, but I got the feeling that not many on here are interested. They seem to be more into stock-picking and, in-effect, being their own active fund-manager. If that's true then fair enough. I'm not criticising anyone.

I have a lot of respect for DurhamBorn. It's been quite an education reading his posts (thank you DurhamBorn!). I come from a background of having been a believer in the passive investment strategy (monthly buy and long-term hold of low-cost equity index-tracker funds with dividends re-invested in a tax-efficient wrapper, such as an ISA). I still have some faith in trackers but not as much as I used to. I have tried to hedge by stopping my monthly contributions into index-funds and instead buying some of the reflation stocks mentioned on this thread. My main worry is that even if things play out exactly as has been forecast on this thread, I might simply not be skillful enough to follow that strategy successfully. The question is: would my amateurish attempt to follow DurhamBorn's strategy be better or worse than just sticking with my index-funds? I really don't know!!

I do think a separate thread would be a good idea though, so that the comments don't get lost in the other comments on this thread. Not sure though whether or not the people whose comments I'm most intrigued to read would bother to post on a passive investing thread.

Best wishes to all you people on this thread! I hope you're all doing ok in these difficult times.

 

Cheers,
Clueless Imbecile

Disclaimer: I am not an expert. Anything I post here is just my opinions, which may not be factually correct. My posts are intended purely for the purpose of debate and are not to be taken as advice. If you act on any of the above then you do so entirely at your own risk. I do not accept any liability.

 

Thanks for your thoughts - it sounds like a thread could be useful then as I’m sure there are perhaps others lurking who would find it beneficial. Worst case nobody posts so nothing ventured nothing gained. I’m happy to do it but would need to do a fair bit more research first as I’m a novice on funds and don’t want to just ask for advice. Feel free to start it if you’d like to see it sooner.

29 minutes ago, DurhamBorn said:

Its a very tricky area mainly due to the EU banning access to all the funds in the US.Every area was covered there from copper to potash,to oil sea freight.There are a few funds that can be used,but i think individual stocks will still be needed.Iv been building a few smaller portfolio's for family since this crash,including my kids and its still do-able on fairly small amounts.My daughter had £18k and iv built her a nice portfolio.Some of the stocks only have £500 in them,Shell the largest has £1400 .She is also adding £500 a month and im topping up a share or adding a new one.

I know what you mean about managing,but thats a lot easier at the start of a cycle,as the best outcomes will likely come from simply leaving everything alone.The only thing of course is re-investing dividends,but you could perhaps do that once a year.

Thanks DB - my approach would be very similar to that of your daughters I.e. stock picking now at those kind of levels, reinvesting divis and not really investing in funds. So I’m doing very similar for someone else now but it’s the reinvesting part that I need to figure out as I won’t be able to advise on that and they don’t have the knowledge. As you say, it’s the EU ETF rules that have scuppered it - i would know exactly which ones of those to go for. Perhaps a good action for me now would be try to get a definitive list of ETFs that are available.

Then there’s the question of when to sell but you can’t do everything can you.

 

[leonardratso]

53 minutes ago, Castlevania said:

Vanguard have the Global Capital Cycles fund. I’m not sure if you can buy it in the U.K. though, but it does cover a lot of the companies and industries that have been covered in this thread, plus the odd consumer goods company and a lot of banks.

https://investor.vanguard.com/mutual-funds/profile/overview/VGPMX/portfolio-holdings

ive been looking for this for ages but cant actuallu find it anywhere here. They swapped out a gold fund i think in favour of this or deprecated the gold fund anyway.

[DoINeedOne]

New tax year tomorrow 

[DoINeedOne]

Also looking at getting back into a few old miners sold HMY at around $3.3

 

[MrXxxx]

Q. Looking at HL stock info at Director deals tab. What do statements mean in the real world I.e `Sell (tax related)` means person has to sell some shares to cover their tax bill?...`Regular sell (transaction market) means ?.etc

[Harley]

35 minutes ago, DoINeedOne said:

New tax year tomorrow ...

And ISA season.  I wonder if we will see a (usual?) pump and dump on the indices to fleece the topper-uppers!

PS: Partner just paid the last SIPP contribution ever, bar the minimum allowed without income (gross £3,600).  I did that a long time ago.  Will now go into drawdown and put the 25% somewhere safer!

[MrXxxx]

2 hours ago, Harley said:

And ISA season.  I wonder if we will see a (usual?) pump and dump on the indices to fleece the topper-uppers!

PS: Partner just paid the last SIPP contribution ever, bar the minimum allowed without income (gross £3,600).  I did that a long time ago.  Will now go into drawdown and put the 25% somewhere safer!

Not invested a s&s isa before, is this what usually happens and h long does it take for prices to resettle/go back to the norm?

[Festival]

Oil Price and Deflation

I dug out and reread the relevant chapter of the Prize the epic book about the oil industry specifically the one covering the great depression. Some interesting parallels to today.

In 1926 texas oil was trading at $1.85 a barrel and even in 1930 was averaging around $1 a barrel.

In early 31 even with the rest of the country in depression oil was being produced in great quantities with new oil fields being discovered and all producers drilling like there was no tomorrow.

By May 31 though the price had fallen to 15 cents a barrel and some being sold as low as 6 cents both well below the cost of production (80 cents a barrel apparently) but still production was rising.

Eventually on direction of Texas governor the National Guard and Texas Rangers forced shutdowns and pro-rationing was introduced which forced the oil price back up to $1, 

In 1933 each state was given lower production quotas, and this alongside tariffs on foreign oil mainly Venezuelan and Mexican were agreed which between 1934 and 1940 led to an oil price between $1-1.18 per barrel.

I cant help thinking that the route out of the current low oil price will be similar this time. The Americans will need to reduce shale production to a level where it along with OPEC member cuts will hold the oil price at something like $50 dollars ie a level it was trading at before the price war and demand destruction of coronavirus.

Given its an election year I cant see the US govt wanting (or even being able) to impose production cuts on shale so we will probably get there through a combination of higher cost shale producers drop out of the game, majors cutting back on production , US introducing some oil import tariffs and OPEC maybe in two bites eventually agreeing some meaningful production cuts? Going to be interesting watching this week particularly if Trump plays his tariff card. 

 

 

 

 

 

 

 

[DoINeedOne]

24 minutes ago, Festival said:

Oil Price and Deflation

I dug out and reread the relevant chapter of the Prize the epic book about the oil industry specifically the one covering the great depression. Some interesting parallels to today.

In 1926 texas oil was trading at $1.85 a barrel and even in 1930 was averaging around $1 a barrel.

In early 31 even with the rest of the country in depression oil was being produced in great quantities with new oil fields being discovered and all producers drilling like there was no tomorrow.

By May 31 though the price had fallen to 15 cents a barrel and some being sold as low as 6 cents both well below the cost of production (80 cents a barrel apparently) but still production was rising.

Eventually on direction of Texas governor the National Guard and Texas Rangers forced shutdowns and pro-rationing was introduced which forced the oil price back up to $1, 

In 1933 each state was given lower production quotas, and this alongside tariffs on foreign oil mainly Venezuelan and Mexican were agreed which between 1934 and 1940 led to an oil price between $1-1.18 per barrel.

I cant help thinking that the route out of the current low oil price will be similar this time. The Americans will need to reduce shale production to a level where it along with OPEC member cuts will hold the oil price at something like $50 dollars ie a level it was trading at before the price war and demand destruction of coronavirus.

Given its an election year I cant see the US govt wanting (or even being able) to impose production cuts on shale so we will probably get there through a combination of higher cost shale producers drop out of the game, majors cutting back on production , US introducing some oil import tariffs and OPEC maybe in two bites eventually agreeing some meaningful production cuts? Going to be interesting watching this week particularly if Trump plays his tariff card. 

Posted this a while back which is like a 6 hour documentary based on that book

 

[Democorruptcy]

8 hours ago, Harley said:

And ISA season.  I wonder if we will see a (usual?) pump and dump on the indices to fleece the topper-uppers!

PS: Partner just paid the last SIPP contribution ever, bar the minimum allowed without income (gross £3,600).  I did that a long time ago.  Will now go into drawdown and put the 25% somewhere safer!

HL are open until midnight tonight for very last minute contributions.

[Harley]

6 hours ago, MrXxxx said:

Not invested a s&s isa before, is this what usually happens and h long does it take for prices to resettle/go back to the norm?

Best to look at the charts for a correlation to ascertain validity.  Or just average in over the year.  Most work I've seen is US based which shows some correlation with key tax dates, etc.

51 minutes ago, Democorruptcy said:

HL are open until midnight tonight for very last minute contributions.

Yep, we were a bit earlier than usual, Saturday.  No fun.  We normally leave things until the very end!

[sancho panza]

On 03/04/2020 at 17:12, Cattle Prod said:

Really interesting graph from Raoul Pal and Remi Telot at Global Macro Investor:

 

I think he's right, in that new confimed cases reflects the people sick enough to be tested, i.e. the cohort from which deaths, hospital bed pressure, government over reaction and general hysteria are coming from. Big statistical population. And it's clearly following a bell curve shape. Bit early to say it's rolling over, but shouldn't be far off. Global peak within a week if this holds. I think this is what oil is sniffing out, rather Trump Tweets. Here are some reasonable fits I eyeballed (dyor, curves are in the eye of the beholder etc etc):

 

I think Bat Flu is more catchy than Covid-19 myself. If you want to check out GMI's models, they have kindly posted a report on their linkedin (follow Raoul). Of course the UK will lag for being idiots early on, but we invest globally. Fingers crossed!

 

 

 

I'll have a look at that CP,thanks for psoting.Going from what I saw at the weekend ,I think the peak may be near at hand,if not already here in the UK.

 

Will be looking at FCX calls tmrw I think.XOM too.

On 03/04/2020 at 15:03, Talking Monkey said:

On telecoms the 3 I have been laddering into are VOD, BT and Telefonica, with an emphasis on VOD and BT. Going to take a look at Deutsche Telecom, are any other worth taking a look at.

Telstra was one of my earliest tips on this thread but still not got any,telenor/swisscom at the right price

On 04/04/2020 at 00:43, DurhamBorn said:

We can never know what sets off the end of a cycle,just that we are close and the tinder is dry.Wild fires dont start when its hossing down and damp,but when its tinder dry.Nobody would want one to end like this,with death and loss of loved ones.However,it might be brutal,but as iv always said the market hurts the most possible.I guess in a way its an education.It seems as a species we only learn from pain and hurt.

The greatest book ever written on contrarian thinking had this to say.It could of been wrote today,it was published in 1841.

 

“During seasons of great pestilence men have often believed the prophecies of crazed fanatics, that the end of the world was come. Credulity is always greatest in times of calamity. Prophecies of all sorts are rife on such occasions, and are readily believed, whether for good or evil. During the great plague, which ravaged all Europe, between the years 1345 and 1350, it was generally considered that the end of the world was at hand. Pretended prophets were to be found in all the principal cities of Germany, France, and Italy, predicting that within ten years the trumpet of the Archangel would sound, and the Saviour appear in the clouds to call the earth to judgement.”

Charles Mackay, Extraordinary Popular Delusions & the Madness of Crowds

Nice find DB.I really do need to read that book.It's amazing me how mnay people think venturing out guranateees certain death at the moment when the data tells a much ess interesting story.By year end,I do wonder what size of blip this will be in the UK's 1600 daily average death charts.

Even the most cheerful people I know have been infected by the doom mongers

[Harley]

Crazy!  Just finished running my weekly trade scan.  Got a high 178 hits of possible buy signals.  But gave up on about number 30.  They all (bar one weak one) show increasing momentum but no follow through on the averages.  Either this is a fake rally or my system can't handle these extremes!

[sancho panza]

On 04/04/2020 at 18:37, Harley said:

And, after an unbelievable lockdown and more, quite plausible!  The Overton window has just taken a big shift.  Front-run it!  The bills will come due and "they" never pay, we always do!

PS:  Napier has an unassumingly brilliant mind!

Did a great MacroVOices interview a while back.

 

ON a separate matter,these have jsut come across my radar.How low will they go?

16 minutes ago, Harley said:

Crazy!  Just finished running my weekly trade scan.  Got a high 178 hits of possible buy signals.  But gave up on about number 30.  They all (bar one weak one) show increasing momentum but no follow through on the averages.  Either this is a fake rally or my system can't handle these extremes!

I think we're going to see the beginning of some major sector rotations behind headline rallies voer the next 6 months.If you're not watching the sub titles,you won't be bale tofollow the plot.

[Harley]

47 minutes ago, sancho panza said:

Did a great MacroVOices interview a while back

Funny, I just found that last night and was listening to it.  MacroVoices looks good.  And yes, the interview was more extensive with a good interviewer.  A lot of what he said then has come to pass.  He derides economists but seems quite a good one!  I was ticking off the things he said against my list like QE v MMT is equivalent to asset v price inflation.  And what do we have now!  And as for the repression with capital controls, etc, well I'm right with him there, if a little shocked as it means I'm not a sole nutter!

[DurhamBorn]

Our new governor of the BOE said in the Financial Times today the BOE wouldnt be printing any money as it wasnt consistent with 2% inflation.The man is a complete idiot,as he was at the FCA.We are in the teeth of the biggest deflation since the Viking invasion,a systemic crash risk and he is worrying about over shooting a target that has no meaning.Luckily he has no say in matters,the Fed will be printing,the ECB will be printing and he will be swept along with events.

From a macro strategy point of view he was about as far away from where we need to be in his views.Frightening.

The good news though is he is talking complete bollocks.They have already expanded the balance sheet by £200 billion,and him saying there will be no more is rubbish.Before things are right sized he will be printing £400 billion more probably.

The clowns in the CBs have an eye on inflation,when inflation is exactly what the system needs right now.Deflation is about to consume most sectors and will cause far more damage and financial dislocation than some inflation.

Ignore him.They will print,and the answer is to increase rates to 1.5% 18 months later and keep increasing to 4%.

Instead he will say they wont,then be forced to,then be too late raising rates.

Dear Mr Bailey,

you have no say in matters,

yours,

US Long Bond.

 

I should add.One of the things i learned was that one of the triggers of the 70s inflation was when policy makers feared the costs of unemployment over the costs of some inflation.That is exactly what will slam them in the face now as well.

[DurhamBorn]

1 hour ago, Harley said:

Crazy!  Just finished running my weekly trade scan.  Got a high 178 hits of possible buy signals.  But gave up on about number 30.  They all (bar one weak one) show increasing momentum but no follow through on the averages.  Either this is a fake rally or my system can't handle these extremes!

Fed needs to outrun the deflation going on Harley.Its job is made very difficult because it cant model the likely debt deflation about to hit.They cant wait for that because they will get systemic collapse,so they are trying to right size the QE while blind.Dollar index would say they stopped the collapse for a few weeks,but the stress is increasing again.They need to do enough to get the dollar down to the 95 area.The longer they wait the more they will have to print and as each day ticks by with the $ over 100 i see a lower target,91 looks likely now.

It could be we see a combined effort including the ECB once they think the virus is topping out.That would give the markets the liquidity just at the time they can decide where to allocate it with a view to the worst being over.

We really do need that $ under 100 and falling.

 

[Harley]

Not advice and it's a crap shoot but I'm sticking with my weekly system for now and expecting a downdraft coming soon.  Maybe or maybe not a new low.  But I'll still be opening small positions in my selected buy and hold inflationary stocks, especially one which was mentioned on Financial Sense at the weekend (bugger!).  I may hold them in my trading account for now though!

Just on Napier again, he was talking about inflation post deflationary shock back in his January interview and (as here) was talking about the attractiveness of fixed asset heavy companies during inflation as opposed to the opposite for the last few decades.  Just think of the social/psychological impact of that  especially if the uber physically asset light flim flam companies of the millenial times are significantly washed away.  As today, people's worlds and frames of reference will undergo disturbing change.  Laguardism again?   Doing to pensions and savings what Thatcher did to school milk?  Very negative on bonds too, with a recap on the 1970s, going to the IMF, etc.

I like those strategists, old or smart enough to remember the past (1970s and all).  As has been said here, the markets like to hurt the most people possible and there is now enough distance from those times.  Mine was the last year to learn about inflation accounting (current cost adjustments and all that) all those years ago.  Says it all!  The trouble with a little bit of inflation is you never get it once it gets going (velocity and all).  It's been well hidden so far but that is at its limit.  A rubber band!  CBs eventually push on strings and pull on rubber bands!  I, like him, may well never see the past disinflation/deflation in my life again.

Also sees like me a European banking crises with the likes of France, Netherlands, Norway and Poland looking sick (but perversely not Italy).  And lawyer Lagard is a shoe in for a regulation heavy response to any crisis.  Corporate, not government, debt is the driver in many cases (France especially).  The general narrative is, as usual, looking at the wrong things.  Many things like this suggest the US may get a pass for now.  I would also possibly favour APD/EM as part of a reconfiguration of the monetary system where they have enough mass to go it alone, although Singapore is on his list with China and Australia.  But then he later mentions Singapore as a possible haven?  Maybe i need to wait a bit more on that idea.

I like him because he aligns with a lot on this thread, plus picks up on the regulatory side.  I see he is focused on advising advisors, hence talk about moving to non regulated assets, etc.  Very insightful.

[Festival]

12 hours ago, DoINeedOne said:

Posted this a while back which is like a 6 hour documentary based on that book

 

Interesting thanks look forward to watching - the book itself is excellent although you need a fair amount of free time to do it justice.

[Democorruptcy]

7 hours ago, DurhamBorn said:

Our new governor of the BOE said in the Financial Times today the BOE wouldnt be printing any money as it wasnt consistent with 2% inflation.The man is a complete idiot,as he was at the FCA.We are in the teeth of the biggest deflation since the Viking invasion,a systemic crash risk and he is worrying about over shooting a target that has no meaning.Luckily he has no say in matters,the Fed will be printing,the ECB will be printing and he will be swept along with events.

From a macro strategy point of view he was about as far away from where we need to be in his views.Frightening.

The good news though is he is talking complete bollocks.They have already expanded the balance sheet by £200 billion,and him saying there will be no more is rubbish.Before things are right sized he will be printing £400 billion more probably.

The clowns in the CBs have an eye on inflation,when inflation is exactly what the system needs right now.Deflation is about to consume most sectors and will cause far more damage and financial dislocation than some inflation.

Ignore him.They will print,and the answer is to increase rates to 1.5% 18 months later and keep increasing to 4%.

Instead he will say they wont,then be forced to,then be too late raising rates.

Dear Mr Bailey,

you have no say in matters,

yours,

US Long Bond.

 

I should add.One of the things i learned was that one of the triggers of the 70s inflation was when policy makers feared the costs of unemployment over the costs of some inflation.That is exactly what will slam them in the face now as well.

When they talk about printing they say it's the equivalent of reducing rates by X%. At the time that you suggest they will increase rates, why wouldn't they just reduce their balance sheet back down a bit, for the X% equivalent in increasing rates?