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

[Loki]

There's a part 2 of the review

[JMD]

1 hour ago, sancho panza said:

 

Be interesting to see where the rally would be if you exclude the FAANGs

 

 

 

SP, Interesting graph. Made me wonder if it would be a vote winner to announce radical new regulations - effectively breaking up the faangs? This would probably 'crash' the faang stocks whilst protecting the wider stock market. I dont know if this would be a win-win in political terms for someone like Trump? But he is there to 'disrupt the system' after all. And the US has a history of breaking up its own oil and telecom industries, which at the time must have been seen as very radical and 'evan self harming'.

[DurhamBorn]

5 hours ago, Cosmic Apple said:

While the subject of CRE is being bought up... @DurhamBorn You've previously mentioned Newriver, what would your thoughts be on them in a post covid world? I believe you favored them as they'd secured longer term debt at low rates and their centers were more B&M than Habitat (do they still exist?), which should do better than the high end fancy debt fuel'd more upmarket placees?

They have the best managers in the industry and iv bought a few for that reason.The problem though is debt to equity if values keep falling.Their retail park assets are good,their pub assets are good and a lot of their shopping centres have very low rents already.Their balance sheet is unsecured,thats what you want in times like this as people cant force you to sell anything etc.Loan to value is the only real worry as that could cause the banks to call the loan in.If it got close they would have to raise equity.I think they will be free cash positive over the year easily and with no divi that should help the loan to value.I would expect they will return to a 9p divi maybe next year,maybe 2.5p a quarter once they start paying again.Im a contrarian and retail property is about as hated as hated could be so i myself would buy a few and have,but if they went under it would be a mild inconvenience and any affect above that and people should avoid the sector.Intu is fubar mainly because you cant re-position massive centres,small ones you can because there is a core of discounters etc.NewRiver for instance have just singed a lease with Aldi on a unit Next have and they are extending it on the land at the side.They have also just signed B+M for a big empty unit in the park they bought from Intu for half price.Intu was trying to get the likes of Waitrose.NewRiver no doubt had B+M lined up before buying and likely budget hotels etc will follow.

NewRivers management are experts at buying up places when dislocation is going on,the problem they have though is due to the nature of the crash they cant raise equity to do it without diluting shareholders who are underwater.I hope they make it because provincial towns need some form of retail and entertainment in their areas.

[jamtomorrow]

8 hours ago, sancho panza said:

The following is from the daily shot as well.Perhaps explains why the Govts will be looking to find other ways to grease the wheels of commerce.The recent sharp upturn in the UK savings rates woud put most govts interested in pursuing stimulus of finding other routes to market thn giving it to consumers.

Also worth noting that negative rates destroy bank margins,many banks are alreayd constrained by high leverage ratios  and have a poor history of delivering credit growth in such circumstances..If govts pursue them then that's possibly antoher reason why they'll channel the stimulus themselves.

 

Cracking data SP!

So returning to the main theme of this thread - anticipating events, looking after our nearest and dearest - I think the only relevant consideration is how long Government sticks with the programme of whacking stimulus direct into the heart of the economy *if* it comes to pass that the worker (i.e. consumer i.e. voter) isn't invited to the party?

My best guess: long enough that it doesn't matter - industrial investment typically has a very long fuse indeed, and by the time it's apparent that the consumer/voter only benefits from the *creation* of the capacity, we'll be at the end of the decade anyway, bracing for The Really Big Kahuna.

[PaulParanoia]

9 hours ago, AWW said:

The original code was given to Microsoft, who had a number of people try to refractor it into something that looked vaguely professional. That code was then released, still full of bugs. The model gave different results for the same inputs, which is a huge red flag. Rather than fix their thread sync issues, they would just run the model a number of times, take an average and wave away the issue as being due to the stochastic nature of the model.

Unfortunately for our economy, the average of wrong is still wrong.

There's two main issues with the ICL model. 

1. Garbage in, garbage out.  A couple of examples.  a) They started with an unrealistically high IFR.  If i remember correctly they set it to ~3.  The CDC now say it's closer to 0.25.  b) They didn't account for increasing levels of NHS capacity (e.g. Nightingale hospitals).

2. The fact that the code never gives the same output twice makes producing quality code impossible.  Stochastic mathematics may not require reproducible results, but software development does (in order to prove that bugs are not introduced). Modelling programs use seeds to initiate the randomness of the model.  The same seeds can be used repeatedly to ensure the model hasn't been ‘broken’ by introducing bugs which cause unexpected outputs.  Then for a production run truly random seeds can be used to run thousands of iterations before averaging the results.

You only have to look at ICLs predictions for Sweden to see how broken their model was.  At the end of April, ICL predicted 96,000 dead by the end of June if Sweden didn't implement a 'proper' lock-down.  Actual number of deaths ... 5,122.

[AWW]

9 hours ago, sancho panza said:

AWW you might understand some of the nuances in this Lockdown sceptcis review.They state the story as you do,about microsoft tarting it up,but I they say say only certain bits of the code have been released or has it all been released now?

https://lockdownsceptics.org/code-review-of-fergusons-model/

 

In your opinion,how bad was the Imerial model?Have you looekd at it much?Sue Denim states there were several things that would have given professionals in teh industry warnings.Would you agree with that?Have you any idea why the govt advisors didn't tell Bozza?

AIUI, the original 15 year old C code (some of which was source-to-source compiled from even older Fortran code) has never seen the light of day and likely never will, but someone did unearth a short history of code changes going back a few weeks, which revealed that the "tarting up" undertaken was actually a major effort to make the code look like something other than a bug-riddled mess.

So, while I can't comment on the code itself, I can state categorically that the approach taken is negligent, particularly when you consider that the decisions informed by this model are life-changing for millions of people.  While I wish I could simply tut and say "bloody academics", I have seen this sort of thing going on in professional spheres, albeit in teams and organisations that know and admit they have some issues that need to be addressed, which Imperial don't seem able to do.

I have a theory that IT (as in computer engineering, not as in desktop support) isn't really like other engineering disciplines; computer engineers aren't chartered and there's no need to maintain a professional registration with an approved body.  It's also very accessible, with tons of learning material online, and a culture of sharing valuable resources that you don't really see in other industries.  This means that It's relatively easy to get something (broadly) "working" without having much understanding of what's actually going on under the bonnet.  However, the skills and knowledge required to make something work perfectly in all scenarios, particularly multi-threaded code like the Imperial model, are much harder to acquire, as they require lots of reading and lots of experience. Many in IT (myself included) are hobbyists turned pro, which isn't necessarily a bad thing, however it does mean that you're always at risk of having a hobbyist mentality, as is clearly the case with the Imperial "team".

Pretty much everything they did would be a red flag in a professional setting.  There are many things that wouldn't survive even the most cursory audit - lack of documentation for the source-to-source compiled code (which by its nature is unreadable) and zero testing capability would get you on the naughty list at most places, with stern instructions to sort it out.

If you're interested in best practice, check out the book "Clean Code".

[Don Coglione]

The Share That Shall Not Be Named has dropped out of the FTSE100.

Shocking performance.

[jamtomorrow]

50 minutes ago, PaulParanoia said:

The fact that the code never gives the same output twice makes producing quality code impossible.  Stochastic mathematics may not require reproducible results, but software development does (in order to prove that bugs are not introduced). Modelling programs use seeds to initiate the randomness of the model.  The same seeds can be used repeatedly to ensure the model hasn't been ‘broken’ by introducing bugs which cause unexpected outputs.  Then for a production run truly random seeds can be used to run thousands of iterations before averaging the results.

This, this, and this again.

If your software is *incapable* of being regression-tested, you might as well be jabbing away at the keyboard wearing a blindfold.

The other thing I *really* didn't like about the Imperial modelling: they presented a single prediction for each set of assumptions. That just seems unscientific - I want to know about sensitivity to uncertainty. A confidence interval would have been a huge improvement.

All that said ... did any of their predictions attempt to model what the Government ended up doing? I thought all of their assumption sets turned out to be counterfactuals?

[DurhamBorn]

52 minutes ago, Knickerless Turgid said:

The Share That Shall Not Be Named has dropped out of the FTSE100.

Shocking performance.

“When the hurly-burly’s done, when the battle’s lost and won.” The Scottish Play

[AWW]

47 minutes ago, jamtomorrow said:

If your software is *incapable* of being regression-tested, you might as well be jabbing away at the keyboard wearing a blindfold.

The other thing I *really* didn't like about the Imperial modelling: they presented a single prediction for each set of assumptions. That just seems unscientific - I want to know about sensitivity to uncertainty. A confidence interval would have been a huge improvement.

It's breathtaking, isn't it?  Not helped by the deification of "scientists" and perpetuation of the term "The Science", as though the scientific process always produces single incontrovertible truths.  We're all victims of this hype which, in my opinion, has risen alongside the debate around climate change.  Powerful people fund scientists whose research concludes that money should be spent doing something that benefits those funding them.  At the same time, the same powerful people fund media outlets that deify scientists, putting them beyond reproach and shielding their work from close scrutiny.

For every Einstein and Bohr, there's a Piero Anversa or a Phil Jones.

[AWW]

Apols to OP for going OT... back on topic:

Did those posters who were nervously eyeing last week's price action actually place sell orders?

[DurhamBorn]

10 minutes ago, AWW said:

Apols to OP for going OT... back on topic:

Did those posters who were nervously eyeing last week's price action actually place sell orders?

Iv picked up a few more bits last week,mainly some more Telia as i was light on them,they are my 4th biggest Telco holding,but i want them up to 35% of my Vod and TEF holdings that are both roughly equal,VOD slightly bigger.

On Telefonica iv noticed the dividend scrip rights have appeared on HL under my holding,but doesnt show any amounts yet.Repsol should follow soon.I usually take all dividends and was going to invest all dividends coming in into silver,but im going to keep the extra shares on Telefonica and Repsol while they are priced where they are.They would both have to be 25% higher to take the cash.

The interesting thing is to see how the tax works.Repsol are doing a capital increase,so i would guess there would be no tax on the divi,though not certain on that.I think Telefonica is a straight scrip issue,so probably taxed.I should know all that of course before buying something,but my Spanish on my Club 18-30 holidays  only got as far as "Tienes una hermosa sonrisa" ,

[Castlevania]

26 minutes ago, AWW said:

Apols to OP for going OT... back on topic:

Did those posters who were nervously eyeing last week's price action actually place sell orders?

Who was thinking about selling?

[MrXxxx]

3 hours ago, PaulParanoia said:

There's two main issues with the ICL model. 

1. Garbage in, garbage out.  A couple of examples.  a) They started with an unrealistically high IFR.  If i remember correctly they set it to ~3.  The CDC now say it's closer to 0.25.  b) They didn't account for increasing levels of NHS capacity (e.g. Nightingale hospitals).

2. The fact that the code never gives the same output twice makes producing quality code impossible.  Stochastic mathematics may not require reproducible results, but software development does (in order to prove that bugs are not introduced). Modelling programs use seeds to initiate the randomness of the model.  The same seeds can be used repeatedly to ensure the model hasn't been ‘broken’ by introducing bugs which cause unexpected outputs.  Then for a production run truly random seeds can be used to run thousands of iterations before averaging the results.

You only have to look at ICLs predictions for Sweden to see how broken their model was.  At the end of April, ICL predicted 96,000 dead by the end of June if Sweden didn't implement a 'proper' lock-down.  Actual number of deaths ... 5,122.

That must have been the `outlier` they deleted before publishing it! :-) :-):-)

[sancho panza]

13 hours ago, JMD said:

SP, Interesting graph. Made me wonder if it would be a vote winner to announce radical new regulations - effectively breaking up the faangs? This would probably 'crash' the faang stocks whilst protecting the wider stock market. I dont know if this would be a win-win in political terms for someone like Trump? But he is there to 'disrupt the system' after all. And the US has a history of breaking up its own oil and telecom industries, which at the time must have been seen as very radical and 'evan self harming'.

The Anti Trust legialstion that broke up Stanadrad Oil etc is still in place I beleive.It jsut needs a politician willing to wield it.Google particualrly looks to be ticking a lot of boxes.

13 hours ago, DurhamBorn said:

They have the best managers in the industry and iv bought a few for that reason.The problem though is debt to equity if values keep falling.Their retail park assets are good,their pub assets are good and a lot of their shopping centres have very low rents already.Their balance sheet is unsecured,thats what you want in times like this as people cant force you to sell anything etc.Loan to value is the only real worry as that could cause the banks to call the loan in.If it got close they would have to raise equity.I think they will be free cash positive over the year easily and with no divi that should help the loan to value.I would expect they will return to a 9p divi maybe next year,maybe 2.5p a quarter once they start paying again.Im a contrarian and retail property is about as hated as hated could be so i myself would buy a few and have,but if they went under it would be a mild inconvenience and any affect above that and people should avoid the sector.Intu is fubar mainly because you cant re-position massive centres,small ones you can because there is a core of discounters etc.NewRiver for instance have just singed a lease with Aldi on a unit Next have and they are extending it on the land at the side.They have also just signed B+M for a big empty unit in the park they bought from Intu for half price.Intu was trying to get the likes of Waitrose.NewRiver no doubt had B+M lined up before buying and likely budget hotels etc will follow.

NewRivers management are experts at buying up places when dislocation is going on,the problem they have though is due to the nature of the crash they cant raise equity to do it without diluting shareholders who are underwater.I hope they make it because provincial towns need some form of retail and entertainment in their areas.

AT the right price retial will survive and prosper.Particualrly local smaller supermarkets and specialists.The really big worry is that the CRE loans are sat on banks balance sheets marked at par.Any firesale would see likely 80% knocked off the value if the CRE is priced of genuinely reasonable expectations in terms of retnal yield.I always price residential BTL off a 8% yield minium for qulity high end,then add on some extra for a variety of reasons if jsutified eg liekly voids/manintenance etc.

CRE -mainly due to higher void periods/CVA's/maintentance needs/heating bills/aircon bills and the hidden cost of non rent paying anchor stores,has to start at 10% high end.

Some of the palces New River owns are lower maintenacne sites,more local,so a lot of costs are going to be lower.Personally,I think thsoe smaller local CRE plots will do much better than the Lakeside type places.

As you say,main issue is whether loan gets called in.WHilst we don't own any as I think the fear will get worse yet,New River is the only one I'd likely buy.

[sancho panza]

4 hours ago, Cattle Prod said:

Christ, that's horrendous. The stochastic part is taken care of with a monte carlo simulation, and as that starts with a set of random numbers to 'seed' it, which become fixed to the model, it doesn't change the outcome. So my typical model will have 5 main input variables, and the monte carlo is run 20,000 times, which gives me a curve. If I run that model again with the same inputs, the output doesn't change. This is basic stuff, they are idiots.

These posts on Imperial really do exemplify why thsi threads so addictive.I'd never have heard this stuff anywhere else from subject matter experts.

Thanks to all 3 of you for psoting so hoenstly.

2 hours ago, AWW said:

It's breathtaking, isn't it?  Not helped by the deification of "scientists" and perpetuation of the term "The Science", as though the scientific process always produces single incontrovertible truths.  We're all victims of this hype which, in my opinion, has risen alongside the debate around climate change.  Powerful people fund scientists whose research concludes that money should be spent doing something that benefits those funding them.  At the same time, the same powerful people fund media outlets that deify scientists, putting them beyond reproach and shielding their work from close scrutiny.

For every Einstein and Bohr, there's a Piero Anversa or a Phil Jones.

It's really eye watering how the special interests got hold of this covid virus and ran us into the ground.

4 hours ago, PaulParanoia said:

There's two main issues with the ICL model. 

1. Garbage in, garbage out.  A couple of examples.  a) They started with an unrealistically high IFR.  If i remember correctly they set it to ~3.  The CDC now say it's closer to 0.25.  b) They didn't account for increasing levels of NHS capacity (e.g. Nightingale hospitals).

2. The fact that the code never gives the same output twice makes producing quality code impossible.  Stochastic mathematics may not require reproducible results, but software development does (in order to prove that bugs are not introduced). Modelling programs use seeds to initiate the randomness of the model.  The same seeds can be used repeatedly to ensure the model hasn't been ‘broken’ by introducing bugs which cause unexpected outputs.  Then for a production run truly random seeds can be used to run thousands of iterations before averaging the results.

You only have to look at ICLs predictions for Sweden to see how broken their model was.  At the end of April, ICL predicted 96,000 dead by the end of June if Sweden didn't implement a 'proper' lock-down.  Actual number of deaths ... 5,122.

I was amazed that Ferguson ahs been brouhg tback out to claim we could have saved 1000's of lives if we'd locked down earlier....Simply incredible that a man who has the commercial world scorning him,has the politicians at his feet.

[DurhamBorn]

25 minutes ago, sancho panza said:

The Anti Trust legialstion that broke up Stanadrad Oil etc is still in place I beleive.It jsut needs a politician willing to wield it.Google particualrly looks to be ticking a lot of boxes.

AT the right price retial will survive and prosper.Particualrly local smaller supermarkets and specialists.The really big worry is that the CRE loans are sat on banks balance sheets marked at par.Any firesale would see likely 80% knocked off the value if the CRE is priced of genuinely reasonable expectations in terms of retnal yield.I always price residential BTL off a 8% yield minium for qulity high end,then add on some extra for a variety of reasons if jsutified eg liekly voids/manintenance etc.

CRE -mainly due to higher void periods/CVA's/maintentance needs/heating bills/aircon bills and the hidden cost of non rent paying anchor stores,has to start at 10% high end.

Some of the palces New River owns are lower maintenacne sites,more local,so a lot of costs are going to be lower.Personally,I think thsoe smaller local CRE plots will do much better than the Lakeside type places.

As you say,main issue is whether loan gets called in.WHilst we don't own any as I think the fear will get worse yet,New River is the only one I'd likely buy.

Its the only one iv been buying as well SP.Apart from being a macro strategist im a contrarian at heart and the sector is hated,really hated.However their rents are at about 7% turnover for the retailers and thats very cheap.If the shake out in retail had been slower they would of managed it easily,but the massive hit of Covid will be making it very difficult for them even.Im happy to have a punt on them though,but only a smaller holding.

[leonardratso]

2 hours ago, DurhamBorn said:

Iv picked up a few more bits last week,mainly some more Telia as i was light on them,they are my 4th biggest Telco holding,but i want them up to 35% of my Vod and TEF holdings that are both roughly equal,VOD slightly bigger.

On Telefonica iv noticed the dividend scrip rights have appeared on HL under my holding,but doesnt show any amounts yet.Repsol should follow soon.I usually take all dividends and was going to invest all dividends coming in into silver,but im going to keep the extra shares on Telefonica and Repsol while they are priced where they are.They would both have to be 25% higher to take the cash.

The interesting thing is to see how the tax works.Repsol are doing a capital increase,so i would guess there would be no tax on the divi,though not certain on that.I think Telefonica is a straight scrip issue,so probably taxed.I should know all that of course before buying something,but my Spanish on my Club 18-30 holidays  only got as far as "Tienes una hermosa sonrisa" ,

to the waiters yes?

[janch]

Our friend DH agrees with your long-term prediction for DXY @DurhamBorn:

His latest tweet:

@DaveHcontrarian

USD is rolling over & is poised for much lower. Euro, GBP, CAD & AUD all poised for further upside in the weeks & months ahead. I keep hearing calls for a resumption of the dollar rally. Not going to see it until USD falls to 85. That's another 12% downside from here. Big drop.

[nirvana]

20 hours ago, Loki said:

I can hear the doomers in the pandemic thread screaming already

hey loki you'll like this https://brrr.money/

And if you click on 'More Memes' at the bottom, it's takes you to another page where you can play THE FED GAME!! 

Have fun! 

PS I've just had another look and my game has been running since last week lmfao

[nirvana]

52 minutes ago, janch said:

until USD falls to 85

that's a massive drop.....

soooo looking here https://en.wikipedia.org/wiki/U.S._Dollar_Index last time it was really low was :

2013

80.04

Taper tantrum. Government shutdown. Debt crisis.

the euro was at 1.39 to the dollar whereas now it is at 1.13 so the Euro would need to increase in value by about 23% - the Germans will do their nut 

Plus those isses in 2013 where to do with 'spending halts' whereas now it's going BRRRRRRRRRR

Another interesting thing re the FAANGM S&P valuations...it's a tad crazy and no doubt due in no small part to them Robinhood 'master traders' and all the free cash sloshing around.......the market will teach them a costly lesson at some stage like it always does with noobs 

 

 

 

[Loki]

36 minutes ago, 5min OCD speculator said:

hey loki you'll like this https://brrr.money/

And if you click on 'More Memes' at the bottom, it's takes you to another page where you can play THE FED GAME!! 

Have fun! 

PS I've just had another look and my game has been running since last week lmfao

The speed adjustment 

[Harley]

3 hours ago, sancho panza said:

These posts on Imperial really do exemplify why thsi threads so addictive.I'd never have heard this stuff anywhere else from subject matter experts.

I posted elsewhere at the time the Moneyweek podcast "James Ferguson: the virus, the lockdown, and what comes next" where it takes a financial guy (naturally well versed in modelling) to critique the Imperial model.  Link (others available to avoid registering): https://moneyweek.com/economy/global-economy/601420/james-ferguson-the-virus-the-lockdown-and-what-comes-next

[Harley]

Speculating with the monthly FTSE100 chart:

Maybe we had a symmetrical triangle forming from around mid to late 2018.  Such a pattern is stated as being identified by three higher lows and three lower highs.  75% of the time it is a continuation pattern, but maybe not this time, corona virus or not?  Note how the MACD was weakening (then leveling off) during this time of higher lows and lower highs.  A divergence that resolved with a decline, corona virus or not?  A subsequent parallel channel is a also cited as a feature which will be interesting as the lower channel line currently being approached could (as a twist) act as resistance.  The weekly chart is showing momentum is close to the overbought zone (stochastic over 80) and prior chart action does not suggest it lingers there with a continued movement up in price so an intermediate top may be coming in within the next few 100 points.

PS: The MACD is bullish as it has only recently turned up.  However, looking back at previous chart action price often fades well before MACD peaks.

[Don Coglione]

2 minutes ago, Harley said:

Speculating with the monthly FTSE100 chart:

Maybe we had a symmetrical triangle forming from mid to late 2018.  Such a pattern is stated as being identified by three higher lows and three lower highs.  75% of the time it is a continuation pattern, but maybe not this time, corona virus or not?  Note how the MACD was weakening (then leveling off) during this time of higher lows and lower highs.  A divergence that resolved with a decline, corona virus or not?  A subsequent parallel channel is a also cited as a feature which will be interesting as the lower channel line currently being approached could (as a twist) act as resistance.  The weekly chart is showing momentum is close to the overbought zone (stochastic over 80) and prior chart action does not suggest it lingers there with a continued movement up in price so an intermediate top may be in.

Harley (and others),

Can you give an explanation as to why charting works? Be it short, medium, or long-term, I simply can't understand how chart patterns can determine market entry and exit points. Doubly so during a time of uncertainty, such as now.

Genuine question, not trying to piss off anyone!