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

[jamtomorrow]

1 hour ago, MrXxxx said:

But by buying the junk are they not just allowing the zombies continuation, rather than letting natural selection cull them?...wouldn't it have been better to `set the bar` of viability a little higher?

Second this. The "interventions" after the 2008 FC may or may not have "saved the world", but they definitely led to misallocation of capital and the creation of a cohort of zombie businesses squatting resources that could have been put to better use.

I know because I ran one such business - without those "interventions", we'd have gone under in short order. Instead we staggered on half dead and (luckily) sold out to a greater fool a few years down the road.

Now of course it's nice and all that I avoided losing the home or having to file for personal insolvency, but that also prevented those premises, employees etc being used more productively by something better.

Can't see why that won't happen on steroids this time round.

[NogintheNog]

1 hour ago, MrXxxx said:

Q. I have heard on here a mention of scripts being `paid` in place of divis, and also read that RR. offer C shares, is this the same thing, and if so what's the benefit for the investor and/or the company in following such an approach?

I think they are more or less the same thing MrXxxx. I suppose the only benefit to the investor is they are still getting something of value from the Company, but more shares will devalue the ones already there. But there again a dividend cash payment also does that to some degree as the Company is 'giving away' money, hence the price usually drops after an ex dividend date.

The real beneficiary is the Company as it retains cash, which in times like this is likely needed to shore up parts of the business. So if for instance Shell goes for a scrip payment, then uses the cash to buy maybe the share that shall not be named! To my mind that may be very good use of that cash that would not have been available without the scrip.

The other benefit for the Company is that cash payments won't necessarily come back as re-investment. Whereas it is quite costly for a small investor to sell to cash a handful of scrip shares to realise the dividend. That same argument wouldn't apply to trusts and funds though.

I used to get a scrip payment from some Santander shares I had. Started with 100 shares, 7-8 years later I had 135. Sold them all now.

[Jesus Wept]

https://amp.theguardian.com/business/2020/may/07/rolls-royce-to-cut-thousands-of-jobs-say-sources

I know this has been mentioned before. 

10,000 + workers will probably be let go by end of month. Many of those local to Derby.

Has this been already reflected in their share price? Has share price of RR hit bottom? 

Catalyst for a big fall in Ftse? Back to 4800 and lower? 

Of course the trick is to pick up individual stocks at/near the bottom and hold for 5+ years. Just got to make sure they are not the ones that will totally collapse. 

Will Rolls Royce survive. Unthinkable for it not to. 

 

[NogintheNog]

12 minutes ago, jamtomorrow said:

Second this. The "interventions" after the 2008 FC may or may not have "saved the world", but they definitely led to misallocation of capital and the creation of a cohort of zombie businesses squatting resources that could have been put to better use.

I know because I ran one such business - without those "interventions", we'd have gone under in short order. Instead we staggered on half dead and (luckily) sold out to a greater fool a few years down the road.

Now of course it's nice and all that I avoided losing the home or having to file for personal insolvency, but that also prevented those premises, employees etc being used more productively by something better.

Can't see why that won't happen on steroids this time round.

Totally agree. They have built a house of cards where the only answer to debt is more debt. Companies and employees have been allowed to carry on with archaic working practices/T&C's/productivity. I was watching the Transport select committee on Monday where a bunch of frankly totally inept politicians where quizzing the infamous ex BA (current IAG) boss 'slasher' Willie Walsh.

They were trying to make him commit to not cutting 12,000 jobs and removing archaic T&C's for those remaining. With BA currently burning through £1BN a month, and a completely different landscape for business airlines on the other side of this I cannot grasp for one minute what the agenda of these idiots is, other than being re-elected by their moaning electorate.

Willie Walsh wasn't having any of it of course. After this he is likely going to have to compete with EasyJet and Ryannair on short haul, and a load of internationally bailed out state airlines!

[Harley]

35 minutes ago, NogintheNog said:

I think they are more or less the same thing MrXxxx. I suppose the only benefit to the investor is they are still getting something of value from the Company, but more shares will devalue the ones already there. But there again a dividend cash payment also does that to some degree as the Company is 'giving away' money, hence the price usually drops after an ex dividend date.

The real beneficiary is the Company as it retains cash, which in times like this is likely needed to shore up parts of the business. So if for instance Shell goes for a scrip payment, then uses the cash to buy maybe the share that shall not be named! To my mind that may be very good use of that cash that would not have been available without the scrip.

The other benefit for the Company is that cash payments won't necessarily come back as re-investment. Whereas it is quite costly for a small investor to sell to cash a handful of scrip shares to realise the dividend. That same argument wouldn't apply to trusts and funds though.

I used to get a scrip payment from some Santander shares I had. Started with 100 shares, 7-8 years later I had 135. Sold them all now.

On an tangent, Max Keiser sees the privatisation of public companies (to the private equity funds, etc and their opaque shareholders) via share issues to only select groups (the said ones).  All part of the Road to Serfdom.

[VeryMeanReversion]

11 hours ago, Bobthebuilder said:

I am going to stick it in my SIPP for the extra 20%.

Using salary sacrifice with employer NI recovery, £100 in your SIPP costs you less than £60 net even as a basic rate taxpayer. (20% income tax, 12.8% employee NI, 13.8% employer NI).

So you can get 60+% more silver for your net-money that way.

NI is the income tax no-one seems to notice.

That's why previous governments made a bit fanfare about income tax being lowered but just shift up NI instead (see below). Its particularly clever in that around half of it is typically paid by the employer so you don't even see that effective income tax on your payslip.  Goose plucked, no hiss.

[DurhamBorn]

12 minutes ago, Harley said:

On an tangent, Max Keiser sees the privatisation of public companies (to the private equity funds, etc and their opaque shareholders) via share issues to only select groups (the said ones).  All part of the Road to Serfdom.

Huge stink isnt there.Companies raising quick money they say even though they have liquidity and shares issued to who knows who,but ordinary investors cant even take part.

In a way they are locking in losses for ordinary share holders.

The divi cuts are another huge problem.Companies slashing to nothing who dont need to etc.Another problem of passive investment.Legal and General,Standard Life etc would be pushing execs to get divis flowing,but passives wont.

Equity investment is one of the only ways an ordinary person can access an income with a few hundred investment the same as the rich.Are the elite trying to remove that route?.

 

[DurhamBorn]

38 minutes ago, NogintheNog said:

Totally agree. They have built a house of cards where the only answer to debt is more debt. Companies and employees have been allowed to carry on with archaic working practices/T&C's/productivity. I was watching the Transport select committee on Monday where a bunch of frankly totally inept politicians where quizzing the infamous ex BA (current IAG) boss 'slasher' Willie Walsh.

They were trying to make him commit to not cutting 12,000 jobs and removing archaic T&C's for those remaining. With BA currently burning through £1BN a month, and a completely different landscape for business airlines on the other side of this I cannot grasp for one minute what the agenda of these idiots is, other than being re-elected by their moaning electorate.

Willie Walsh wasn't having any of it of course. After this he is likely going to have to compete with EasyJet and Ryannair on short haul, and a load of internationally bailed out state airlines!

Our problems havent been the CBs,but governments like you say.When the BOE monetized a few hundred billion last time the government could of build lots of things,but instead it simply used the money to pay tax credits,housing benefit and state worker pensions.It has now got to the point where for most people with children there is no point working.Iv just got my self employed furlough done,£2k grant for the 3 months.My friends get that every month on benefits and have for 9 years.The amount be consumed compared to effort put in has never been greater in the UK

The BOE is again monetizing everything,and they will the whole £300 billion this year and other £200 billion after that.The welfare bill will explode as everyone sees how nice it is to get free money for doing nothing.

Like you say now is the time for companies to face down things,including government.

[geordie_lurch]

Hey all.

Longtime lurker here but just signed up to say thanks to @DurhamBorn and everyone else for making this thread so interesting 

I have opened an account at Hargreaves Lansdown recently and bought a few of the shares mentioned here already at what I think are good ladders long term but not got Royal Dutch Shell yet as thought they might drop back down. As I type they are back at £1,175 but they are having a very bad day and with the talk of airlines not flying anytime soon etc I'm not sure if they might beat their lows from a few weeks ago - what you guys think?

I'm very wary we could still be in the very early stages of a long bear market fake rally to new lows 

[Harley]

"Our Tony" on very good form today.......

 

 

[DurhamBorn]

19 minutes ago, geordie_lurch said:

Hey all.

Longtime lurker here but just signed up to say thanks to @DurhamBorn and everyone else for making this thread so interesting 

I have opened an account at Hargreaves Lansdown recently and bought a few of the shares mentioned here already at what I think are good ladders long term but not got Royal Dutch Shell yet as thought they might drop back down. As I type they are back at £1,175 but they are having a very bad day and with the talk of airlines not flying anytime soon etc I'm not sure if they might beat their lows from a few weeks ago - what you guys think?

I'm very wary we could still be in the very early stages of a long bear market fake rally to new lows 

Nobody can ever know if things will go up or down over short,or even more medium terms.Shell is less than half its highs and if you think massive money printing might help real assets over the cycle then you can start to buy with ladders set.Removing as much emotion as you can is vital at these times.A year ago passive fund investors where happy to be buying Shell at £24 

There are massive financial dislocations going on in the world economy and really this thread is about trying to navigate them as best we can.If we end up down 25% on Shell while others are down 65% then its not ideal,but its better than most.This is the most difficult period i can ever remember,but while mistakes are plenty im pretty happy so far overall.

[geordie_lurch]

Yes I understand nobody can ever know about specific companies over the short and medium term and I have done my own research etc via this amazing thread and elsewhere @DurhamBorn so thanks again. However I guess I was trying to ask if you and others think we have just had a bear market rally over the last few weeks after the first large drops and the real drops are still to come?

I have my risk spread over other assets elsewhere already as have always kept away from shares but given the current risks I wanted to make use of a Stocks and Shares ISA and put something in for the longer term but this will at most be 20% of my relatively meagre wealth.

Thanks again

[sancho panza]

1 hour ago, DurhamBorn said:

Huge stink isnt there.Companies raising quick money they say even though they have liquidity and shares issued to who knows who,but ordinary investors cant even take part.

In a way they are locking in losses for ordinary share holders.

The divi cuts are another huge problem.Companies slashing to nothing who dont need to etc.Another problem of passive investment.Legal and General,Standard Life etc would be pushing execs to get divis flowing,but passives wont.

Equity investment is one of the only ways an ordinary person can access an income with a few hundred investment the same as the rich.Are the elite trying to remove that route?.

 

We talked about the los of CREST accoutns some 700 pages ago irrc.Chickens roosting.

 

I'm not sure they're looking to remove that route but rather steer us into the investments that won't do as well as theirs.

2 hours ago, Harley said:

Yes, yes, and maybe voluntary at first (patriotic, can banging, "War Bonds"), like say the current cv tracing app, but then......The past subtle financial repression may no longer be sufficient, indeed necessary atm.  Too good an opportunity to let go to waste?  Tbc, we were entering a storm before cv.  The recent media uptick in facilitatory (sic) "talk" on the financial implications of cv, as opposed to the medical ones, as mirrored here, should be a canary.  Are we being softened up, again?  Emergency budget?  I started a thread a while back on risk management where I tried to start a dialogue.  Was not too early, just we, including me, too late?  Here's one:

https://www.dosbods.co.uk/topic/6958-financial-risk-management-case-hardening/?do=findComment&comment=323143

PS:  The smart money has not been late, especially given the additional last few months.  They've since followed their money out of the country.  Easy for the rest to maintain their summer hols - easy to isolate in their own villa.  Thank you Mr & Mrs taxpayer.  If you don't know what this picture is all about, then the time is ripe and history knows it.....

 

I think the picture is quite apt.These are dangerous times.Msut say,Errol's various warnings over the years are ringing truer and truer.The only thing that's sure is that main St will get shafted.

Our job on here is to try and make sure we don't get as shafted as Main St.

[Harley]

44 minutes ago, DurhamBorn said:

This is the most difficult period i can ever remember,but while mistakes are plenty im pretty happy so far overall.

100%.  I often post here to help clarify my thoughts, as was the case yesterday.  I went from a massive hit on my income portfolios and not wanting to look under the covers to facing it head on and seeing the bigger, somewhat more rosy picture.  The thing for me is to have balance in what I do.  I write it down, and it is make sense then I feel I'm on top of things, especially if my partner gives me the nod too (when not watching Antony on the Amplify videos "to get educated", the shameful old girl!). 

On the Saigon theme, hopefully this thread is more a case of:

Ironic it was arguably the Vietnam war and the associated move off the gold standard to pay for it that seeded the current mess!

PS:  God I love me helos.  Whether a beautifully lumbering low flying Herc in the middle of the night or a tear jerking whirlwind extraction hailed by that comforting sound.  Just love 'em!

[Loki]

I think I'll spend some of my covidbucks on precious metals and sit the markets out for a bit.  

[spygirl]

1 hour ago, Harley said:

On an tangent, Max Keiser sees the privatisation of public companies (to the private equity funds, etc and their opaque shareholders) via share issues to only select groups (the said ones).  All part of the Road to Serfdom.

There a fe things in modern finance that are detrimental to capitalism - highly leveraged PE and share buy backs, worse if done via debt.

Tax deductability of interest payments needs serious reforms i.e. limit to some operating ration.

Leverage PE cutn weasels have done more damage to capitalism than Marx.

 

 

[sancho panza]

9 minutes ago, geordie_lurch said:

Yes I understand nobody can ever know about specific companies over the short and medium term and I have done my own research etc via this amazing thread and elsewhere @DurhamBorn so thanks again. However I guess I was trying to ask if you and others think we have just had a bear market rally over the last few weeks after the first large drops and the real drops are still to come?

I have my risk spread over other assets elsewhere already as have always kept away from shares but given the current risks I wanted to make use of a Stocks and Shares ISA and put something in for the longer term but this will at most be 20% of my relatively meagre wealth.

Thanks again

You're asking for short term trading advice in bold.Noone knows and you should make your own decisions.The Big kahuna may come next week or next year.You shouldn't be devolving your decision making to a bloke off the internet,no matter how many good calls he's made.

My view is that some shares eg oil/gold/potash will rally here.What the wider market does I couldn't care particularly.That's how we're postioned.My mind is set for a run up now to Big Kahuna next year,which could feature some sector rotation.But that's my view.If I'm wrong then we lose.If I'm right,we gain.

 

[geordie_lurch]

4 minutes ago, Loki said:

I think I'll spend some of my covidbucks on precious metals and sit the markets out for a bit.  

Because you have enough skin in the game so to speak in the markets or you think we have much further to fall?

[Craig]

1 hour ago, Harley said:

On an tangent, Max Keiser sees the privatisation of public companies (to the private equity funds, etc and their opaque shareholders) via share issues to only select groups (the said ones).  All part of the Road to Serfdom.

Isn't that (at least partially) what happened with Royal Mail a few years back?

[geordie_lurch]

2 minutes ago, sancho panza said:

You're asking for short term trading advice in bold.Noone knows and you should make your own decisions.The Big kahuna may come next week or next year.You shouldn't be devolving your decision making to a bloke off the internet,no matter how many good calls he's made.

My view is that some shares eg oil/gold/potash will rally here.What the wider market does I couldn't care particularly.That's how we're postioned.My mind is set for a run up now to Big Kahuna next year,which could feature some sector rotation.But that's my view.If I'm wrong then we lose.If I'm right,we gain.

 

Thanks for highlighting that @sancho panza - I take your point and your subsequent Big Kahuna comment. I'm not basing my decisions on anyone's specific advice here or elsewhere but simply a gut feeling I need to spread what little cash I have around to cover myself and already have outside of stocks and shares. All the best

[Talking Monkey]

1 hour ago, DurhamBorn said:

Our problems havent been the CBs,but governments like you say.When the BOE monetized a few hundred billion last time the government could of build lots of things,but instead it simply used the money to pay tax credits,housing benefit and state worker pensions.It has now got to the point where for most people with children there is no point working.Iv just got my self employed furlough done,£2k grant for the 3 months.My friends get that every month on benefits and have for 9 years.The amount be consumed compared to effort put in has never been greater in the UK

The BOE is again monetizing everything,and they will the whole £300 billion this year and other £200 billion after that.The welfare bill will explode as everyone sees how nice it is to get free money for doing nothing.

Like you say now is the time for companies to face down things,including government.

This whole episode is increasing the unproductive numbers in the country,  when it finally falls over whenever that is sometime later this decade I shudder to think on how bad the fallout will be.  

[sancho panza]

@Harley it's as if the market gods were reading the thread last night.

[Harley]

20 minutes ago, sancho panza said:

I think the picture is quite apt

It was the run up to that photo that was the most prescient.  The fall of Saigon was proceeded by a "stay calm, all is OK" mentality within the city promoted by the media, etc.  A veneer of normality was created on the surface ("keep the City tidy").  Meanwhile, as the VC infiltrated and the frogs boiled, the smart folk moved out.  It is the human condition, hope to the very end.  Never be on the last helo, possibly unless they are paying you mega bucks and you have at least one alternate bug out route.  

[Talking Monkey]

3 minutes ago, sancho panza said:

You're asking for short term trading advice in bold.Noone knows and you should make your own decisions.The Big kahuna may come next week or next year.You shouldn't be devolving your decision making to a bloke off the internet,no matter how many good calls he's made.

My view is that some shares eg oil/gold/potash will rally here.What the wider market does I couldn't care particularly.That's how we're postioned.My mind is set for a run up now to Big Kahuna next year,which could feature some sector rotation.But that's my view.If I'm wrong then we lose.If I'm right,we gain.

 

Bit in bold key point that SP, I see this thread as a key plank in building my understanding, but thats it.

[Loki]

11 minutes ago, geordie_lurch said:

Because you have enough skin in the game so to speak in the markets or you think we have much further to fall?

I will definitely buy more reflation stocks but seeing as durhamborn himself said it's the most difficult market he's seen I'd just sleep easier with PMs. Personal preference and gut feel only and i am not an expert!