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


spunko

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sancho panza

@Cattle Prod are Canadian banks about to get mullered( the figures look relatively small but combined with dropping real estate markets could eb the perfect storm)? Any idea how much Candaian supply is going to be lsot?

Credit deflation cometh....

https://wolfstreet.com/2020/07/07/huge-debt-payments-come-at-worst-time-possible-for-canadian-drillers/

Huge Debt Payments at Worst Time for Canadian Oil Drillers

This year, the oil crash coincides with the highest-ever annual debt maturities in the Canadian energy sector, according to Refinitiv data cited by Reuters. In 2020, oil and gas firms have to repay US$3.7 billion (C$5 billion) in debt maturities, up by 40% compared to last year.

The energy sector has the most refinancing needs over the next six months, at US$4.43 billion (C$6 billion), and faces the most potential downgrades, according to Bank of Canada.

As credit downgrades could raise funding costs, energy companies are likely to face further pressure in obtaining refinancing. Low oil prices could be a major hurdle to energy firms obtaining refinancing of their debt, the bank said, noting that energy-related bonds could dominate the high-yield debt in Canada.

Energy loans have surged as Canadian banks have increased their loans to the industry by 59% over the last five years.

 

 

Credit deflation cometh...........

Store closures keep coming,those CRE loan defaults must need recognising soon

https://wolfstreet.com/2020/07/08/pandemic-compresses-brick-mortar-meltdown-brooks-brothers-files-for-bankruptcy-ascena-ann-taylor-etc-preparing-to-file-tailored-brands-mens-wearhouse-etc-not-far-behind/

Pandemic Compresses Brick & Mortar Meltdown: Brooks Brothers Files for Bankruptcy, Ascena (Ann Taylor, etc.) Prepares to File, Tailored Brands (Men’s Wearhouse, etc.) Not Far Behind

Brooks Brothers has around 500 stores globally and 200 remaining stores in North America. Unlike other American brands that have off-shored all manufacturing of clothing to cheap-labor countries decades ago, Brooks Brothers has continued to operate three plants in the US that make suits, ties, and shirts, accounting for about 7% of its sales. The rest of its merchandise is manufactured in cheap-labor countries.

 

Waiting in the wings with their bankruptcy filings:

Ascena Group, which operates nearly 3,000 stores in the US under seven brands – Ann Taylor, LOFT, Lou & Grey, Lane Bryant, Cacique, Catherines, and Justice – is now said to be preparing a Chapter 11 bankruptcy filing as soon as this week and is considering closing at least 1,200 stores and selling or shutting down some brands.

It would be a prepackaged bankruptcy filing where it and its creditors have worked out an agreement that would eliminate $700 million of its $1.1 billion in debt.

Bankruptcy fears have dogged the company for a while. Back in August 2019, with cash running low, and brick-and-mortar sales melting down, and two months after Ascena had announced that it would close all its 661 Dressbarn stores, its lenders began fearing a bankruptcy filing and started preparing for it.

Tailored Brands, the holding company for men’s apparel stores, including Men’s Wearhouse, JoS. A. Bank, and K&G, disclosed in an SEC filing on June 10 that it may have to file for bankruptcy.

In its June 10 update on how well things were going at its reopened stores and at its ecommerce site, Tailored Brands said that total revenues in the quarter ended May 2 collapsed by 60% year-over-year, with even ecommerce sales plunging 32% — when everyone else’s ecommerce sales were skyrocketing. By June 5, the company had reopened 634 stores, and average comparable sales at stores open at least an entire week were down 65% at Men’s Wearhouse, 78% at Jos. A. Bank 78%, and 40% at K&G.

 

 

 

Credit deflation cometh.....

Interestring point re maturity defaults on CRE loans.

https://wolfstreet.com/2020/07/05/mall-and-hotel-loans-are-blowing-up-commercial-mortgage-backed-securities/

Mall and Hotel Loans Are Blowing up Commercial Mortgage-Backed Securities

The delinquency rate for Commercial Mortgage Backed Securities (CMBS) spiked by 317 basis points to 10.3% in June, after having spiked by 481 basis points in May, which had been the largest month-to-month spike in the data going back to 2009, according to Trepp, which tracks securitized mortgages for institutional clients.

us-CMBS-delinquency-rate-2020-06.png

But this theory will be challenged by the meltdown of retailers that continues despite the reopening of malls — more on that in a moment.

Commercial mortgages have a balloon payment at the end of the term, and when the loan matures, the balloon needs to be paid off or be refinanced. But when this becomes impossible, “maturity defaults could still be an issue,” Trepp said.

Industrial property loans, such as for warehouses, are the best-performing category with a delinquency rate of 1.57% in June.

Office property loans are experiencing still low delinquency rates, though they ticked up in June to 2.66%, from 2.4% in May and 1.92% in April.

Multifamily loans (apartment buildings) are experiencing moderately rising delinquency rates, at 3.29% in June – up from 2.11% in June last year.

Retail property loans – this is the brick-and-mortar meltdown and includes many loans backed by malls and outlet properties – are getting crushed: 18.07% were delinquent in June.

Hotel property loans are the worst hit as much of the travel industry has shut down. The delinquency rate spiked to 24.3% in June, and the sector remains in turmoil, with many hotels still closed (delinquency rates by Trepp):

us-CMBS-delinquency-rate-hotels-retail-2

Many hotels that are now closed will eventually re-open, and those that are now open, will eventually see their occupancy rates rise from the current fiasco levels. But the glory days, especially for business travel – the most lucrative segment for hotels – may well be gone, and it will be a tough slog going forward.

But the brick-and-mortar retail business is in a different ballgame. There are now estimates that between 20,000 and 25,000 stores will be permanently closed this year, after nearly 10,000 stores were permanently closed last year, with department stores and apparel and fashion stores on top of the list.

Department stores serve as anchors at the malls. With them gone, foot traffic at the mall declines further and causes other retailers to close their stores. And when retailers disappear or don’t pay rent, landlords eventually fall behind on servicing the mortgage.

The problem with retailers is structural. The Pandemic compressed three future years of brick-and-mortar meltdown, that the industry could have dealt with more adequately, into just a few months.

 

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13 hours ago, sancho panza said:

Its difficult not to tamper.Over the last year I've sold a fair few I wasn't ahppy with eg Hecla/Couer/WRN/Amarillo/SGI/GUY(jsut before they trebled recently:ph34r:). I took some profits elsewhere to subsidize the losses,but the main purpose was to focus the portfolio over fewer stocks(currently 28---spray n pray) and with a proportionate exposure to risk ie loading the top line with Tier 1's and 2's and then the riskier stuff in smaller sizes on lines 4 and 5.

Most of these 28 have been held since purcahse in 2017/18/19/20 and added to where value looked good.But it's been a sharp learning curve at times.

Ref the silver miners I've been researching their running time in the prvious bull runs and have psoted on thsiu before ie they run late and hard like silver.I'm looking to start selling the 2017 batches of GFI/AU and plan to put it into the silvers but not yet.I'm not sure we've seen the monthly peak in either of thsoe two yet or HMY/NWM,these are some the early peakers from what I can see.Personally,I think thsoe silver miners will end up turning your biggest profits.

Have you studied the copper gold ratio much?

Edit to add-on Fiore,I looked pondered and and by the time I was ready it was gone.......looks a great prospect.

28 shares :o Respect, I find it difficult to keep up with my 8.

My problem with silver miners atm is that they ones running up the most are already hugely overvalued. I cannot see myself buying Frist Majestic, for instance, when its peers are trading and much lower multiples. But those low-valuation peers are lagging behind, while FR keeps going higher and higher... Massively frustrating.

In goldies at least I can see some of the producers who were laughably cheap putting up some good gains. HMY is still hugely undervalued and so is Fiore. I might even hold my nose and take a punt at Great Panther. Marginal miners are poised for a big move at rising prices.

I don't know much about copper. It's that thing that you put on the roof and it turns green, ain't it?

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21 hours ago, Hardhat said:

The short answer is yes.

“At its height, it was the largest empire in history and, for over a century, was the foremost global power. By 1922 the British Empire held sway over about 458 million people, one-fifth of the world's population at the time. The empire covered more  than 33,700,000 km2 (13,012,000 sq mi), almost a quarter of the Earth's total land area.”
{Ferguson 2004 p.15, Elkins 2005 p.5}
 
Also worth looking into the history of the East India Company, Royal Niger Company (now Unilever) and pretty much any other British / English on this list: https://en.wikipedia.org/wiki/Chartered_company
 
The Empire did deliver some benefits to the countries that were colonised, but it's hard to ignore the point that it was essentially extraction of resources by force and most of those chartered companies had private armies. Those resources were funnelled back to Britain and made Britain rich, especially textiles, spices, etc. You have to remember this was a world before widespread crude oil consumption, which was the major game changer for the balance of world power & wealth in the last century.

thank you Hardhat for answering the question, which essentially was: Did Britain benefit from its empire? But with hindsight i can see my question was pretty dumb, as why have an empire in the first place if it doesn't generate wealth for the ruling nation, etc. Again thanks for responding, and maybe topic for another thread, but while this thread of late seems a bit quiet, i did want to slip this ostensibly 'economic' question in! And to be clear it is the economic angle and context that i wish to understand. 

So did want to just add that I the question i should have asked is: Did Britain's empire do more harm or good - economically/socially - to its colonies? I notice you quoted from the historian Ferguson, and i believe he says more good than harm was done; his theory is that empires throughout history have morphed succesively into more 'liberal' regimes (can't think of a better term), culminating with the US empire that we have today.

...I suppose what i wanted to understand was how did the British empire 'disable economically' its former colonies from progressing; and if so, what's the explanation for countries like S. Korea that have developed. I wonder if the roots of economic stagnation are not so much about the aftermath of empire, but rather whether a country can engage productively with outside investors? It is interesting that China appears to be exploiting large parts of Africa/South America today, with many of those countries/corrupt leadership frustratingly seemingly welcoming being exploited all over again. 

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18 hours ago, sancho panza said:

I'm that sad I don't even know whata semiconductor doesB|............however,I totally get your point about it being a force for disinflation and ref energy economics.

have you any idea how much of world supply bitcoin mining uses(not that I have nay idea how to mine a bitcoin but I have read that it's energy intensive

I read somewhere, that is uses 0.25% of world power production.

Some US states a few years ago even sought to prohibit data centers hosting bitcoin mining because some data centers had started to re-locate in order to use the cheap electricity on offer, which ironically was being generated from green solar/hydro if i recall correctly!   

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Transistor Man
49 minutes ago, JMD said:

I read somewhere, that is uses 0.25% of world power production.

To support <7 transactions per second? Pretty crazy really.

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On 08/07/2020 at 14:38, sancho panza said:

 

Wealth taxes are expensive to implement and easy to duck if you're mobile(and people with capital generally are).The unintended consequences are huge when inward invesment starts plummeting.

 

The problem the government have is that the alternatives are not pallatable. It would be a hard sell to the red wall that Austerity was back. Income/NI tax rises are both politically suicidal and the complete opposite of what is needed when the economy needs help.

Wealth tax rises are politically popular and I am not sure that the "fleeing the country" will actually happen. They will be seen as being totally unpatriotic at a time when the country needs them. 

So I think they will come. Cummings is smart and will know where he can target this. At least the government will be seen to be doing something. Alternatively, they can just let the BoE not ask for their money back for a bit longer (if ever).

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5 minutes ago, The_Doc said:

The problem the government have is that the alternatives are not pallatable. It would be a hard sell to the red wall that Austerity was back. Income/NI tax rises are both politically suicidal and the complete opposite of what is needed when the economy needs help.

Wealth tax rises are politically popular and I am not sure that the "fleeing the country" will actually happen. They will be seen as being totally unpatriotic at a time when the country needs them. 

So I think they will come. Cummings is smart and will know where he can target this. At least the government will be seen to be doing something. Alternatively, they can just let the BoE not ask for their money back for a bit longer (if ever).

Big problem with wealth tax is the majority of peoples wealth is in their house/pension, the papers would be full for weeks of old people being forced to sell to pay the tax.  Do you count things like a PCP car as well, which legally isn't theirs and is owned by finance company?  

It is a legal minefield and would be "spare room tax" x 1000.

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8 minutes ago, Majorpain said:

Big problem with wealth tax is the majority of peoples wealth is in their house/pension, the papers would be full for weeks of old people being forced to sell to pay the tax.  Do you count things like a PCP car as well, which legally isn't theirs and is owned by finance company?  

It is a legal minefield and would be "spare room tax" x 1000.

I don't think they will go for taxes on primary houses. That is sacrosanct. 

Thinks to look at would be pension relief (limited to basic rate) , entrepeneurs relief (already started on this), corporation tax to 20%. They could look at taxing capital gains at marginal rates (last done by Nigel Lawson under Margaret Thatcher).

Maybe these are not classified as wealth taxes per se, but will hit the wealthiest more. 

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On 08/07/2020 at 14:38, sancho panza said:

 

We'll be buying but possibly not for a year or two.This mess has to play out first.Till then it's oil/gold/potash/utilities/uranium in that order for me.

Attacks on wealth and capital are greeted with flight in the main.

Wealth taxes are expensive to implement and easy to duck if you're mobile(and people with capital generally are).The unintended consequences are huge when inward invesment starts plummeting.

Im note sure how we ended up with the 1% having so much of the assets but when I was a kid CEO's were paid a lot less than they are now in terms of mulptiles of the lowest workers salareis.

Because since the 70s the population has been so dumbed -down with educashun and media lies, terrible food and constant distractions that they have never developed adult intelligence enough to see what has been done to them, let alone develop a strategy to arrest what’s coming to them.

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DurhamBorn

https://finance.yahoo.com/news/bp-invests-1b-fuels-joint-182223271.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvLnVrLw&guce_referrer_sig=AQAAACfg272qL5scD6q7hrdjgI6rp9jwfpd76YwoA2B3aTLI3tojbqIOIBxWtCDm2Gm_knLGIAHNrThXTovfO92RxtlGKO5WcoJoi9tYe6bixvwruOz2GHaIM5u8Oxlr5FRqVjBTPrNe7TiPMA9S-R0j5VILctQGGJ0R3SfzuWW4iwEw

Good move from BP.Obvious the focus on Green energy is is mainly for headlines and they still intend to sell their oil.India will be a very fast growing market over the cycle.I was getting a bit worried about the leadership,but this deal says to me they are playing to the gallery and still intend to keep big cash flow from oil.

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DurhamBorn
6 hours ago, The_Doc said:

I don't think they will go for taxes on primary houses. That is sacrosanct. 

Thinks to look at would be pension relief (limited to basic rate) , entrepeneurs relief (already started on this), corporation tax to 20%. They could look at taxing capital gains at marginal rates (last done by Nigel Lawson under Margaret Thatcher).

Maybe these are not classified as wealth taxes per se, but will hit the wealthiest more. 

Pension relief is 100% certain,just when.I think they will increase basic tax relief to 25% for everyone.I dont think there will be many other changes to pensions.The other big one is merging income tax and NI.That will then mean NI paid on pension income and investment income.I think they would set a higher allowance though at 68,maybe £17k for the combined tax and NI.

Higher council tax bands might happen.They really need to cut welfare,but they have no backbone.

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9 minutes ago, DurhamBorn said:

https://finance.yahoo.com/news/bp-invests-1b-fuels-joint-182223271.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvLnVrLw&guce_referrer_sig=AQAAACfg272qL5scD6q7hrdjgI6rp9jwfpd76YwoA2B3aTLI3tojbqIOIBxWtCDm2Gm_knLGIAHNrThXTovfO92RxtlGKO5WcoJoi9tYe6bixvwruOz2GHaIM5u8Oxlr5FRqVjBTPrNe7TiPMA9S-R0j5VILctQGGJ0R3SfzuWW4iwEw

Good move from BP.Obvious the focus on Green energy is is mainly for headlines and they still intend to sell their oil.India will be a very fast growing market over the cycle.I was getting a bit worried about the leadership,but this deal says to me they are playing to the gallery and still intend to keep big cash flow from oil.

Thanks for that, I noticed they dropped below 300 today. 

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11 minutes ago, DurhamBorn said:

https://finance.yahoo.com/news/bp-invests-1b-fuels-joint-182223271.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvLnVrLw&guce_referrer_sig=AQAAACfg272qL5scD6q7hrdjgI6rp9jwfpd76YwoA2B3aTLI3tojbqIOIBxWtCDm2Gm_knLGIAHNrThXTovfO92RxtlGKO5WcoJoi9tYe6bixvwruOz2GHaIM5u8Oxlr5FRqVjBTPrNe7TiPMA9S-R0j5VILctQGGJ0R3SfzuWW4iwEw

Good move from BP.Obvious the focus on Green energy is is mainly for headlines and they still intend to sell their oil.India will be a very fast growing market over the cycle.I was getting a bit worried about the leadership,but this deal says to me they are playing to the gallery and still intend to keep big cash flow from oil.

I agree with this, I have a small amount in a crappy India fund that I will probably hold on to.

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3 minutes ago, Loki said:

Thanks for that, I noticed they dropped below 300 today. 

Markets have decided to give me second chance to buy!

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Checked what my LISA stocks did.  Bloodbath in transport, telecoms and retail almost offset by doubling gold miners...

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6 hours ago, Bear Hug said:

Checked what my LISA stocks did.  Bloodbath in transport, telecoms and retail almost offset by doubling gold miners...

I sold my transports mostly on the doubling after the falls in March,the structure of the economic fall from the virus made life very difficult for them.Im up or level including divis on all telcos apart from BT,they are down 14%.Im hoping the sector can stay down longer as im still adding to two smaller holdings,Telenor and Shaw Communications.Im also slowly taking some profits in the silver miners and buying more agriculture especially Nutrien at the moment.Iv got a few scattered stocks down 50% and the one not to be named more.Portfolio 7% below highest its ever been (last week),very happy with that considering.Given a lot of the stocks are still paying divis i hope they stay down or fall,the more i can add at these prices or less the better.Broad money is exploding higher,inflation inbound,with a lag.

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On 08/07/2020 at 15:22, DurhamBorn said:

The real big worry is if they move back the age you can access your pension.Im looking at 55 still just

I love HMRC. I got the dreaded brown envelope today. No problem! Have a £2600 rebate. I couldn't understand how I was due that given that my personal pension is so small. So I checked the HMRC calculations. Of course, I cashed in 2 small DC's last year when I turned 55 and must have ended up overpaying higher rate tax.

On a separate point, just in case anyone isn't aware and can benefit from it, if you can afford it - put away £3600 a year into a SIPP for your child. You stick in £2880 and the lovely HMRC add £720.

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I'm seeing some very encouraging production numbers from some of the miners on my radar. Fiore obviously, as already reported. Eldorado with big, big Q2 production and solid increase Q/Q and YoY. Even managed to stay flat YoY in the one mine that was shut down for 3 weeks due to lockdown. Great Panther (ugh! yuck!) with strong increase in gold and AuEq production, even though silver production from locked-down Mexico tanked as expected by 2/3rds. Even Endeavour Silver, massively affected by Mexico closures, "only" took a 44% hit YoY thanks to big stockpiles getting processed.

 

On a separate note, what does the group think about Adriatic Metals? I used to think of them as a base metals explorer and didn't pay much attention, but when I look at them through a precious metals lens, silver in particular, then they look... quite cheap?

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RDSB falling again - could be back to £10 hopefully.

What are people's opinions on gold and silver? Take profits or keep adding? I am probably getting close to 10% of portfolio in there now.

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33 minutes ago, Boon said:

RDSB falling again - could be back to £10 hopefully.

What are people's opinions on gold and silver? Take profits or keep adding? I am probably getting close to 10% of portfolio in there now.

For physical and storage like BullionVault i'm holding but will be positioning myself to buy more if we see the market drop and metals get sold off too

Im currently 33% Metals in my portfolio and that's not including the few miners i have too :/

Bought some more Gazprom 

Will probably reinvest BP & Shell Dividends back into them today not a lot but still

EDIT: just reinvested those dividends

 

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