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

[JMD]

1 hour ago, Knickerless Turgid said:

How do you value a network stuffed full of Huawei hardware?!

I think we got out just in the nick of time... Maybe the Chinese were hoping to do to us - but in reverse fashion - what we did to them last century. But instead of opium, they were going to stuff our economy with survailling/espionage devices. ...What i don't quiet understand, is that if the Chinese had been more patient they might have succeeded.

[JMD]

10 minutes ago, Harley said:

Been looking at a set of US O&E energy company accounts (FY19 and Q120) and imagine the situation is industry wide (a la BP).  Significant write downs in fixed asset values, including goodwill (like all of it!) forced upon them by accounting standards.  Gotta be a nice tail wind for the survivors when oil prices recover further.

Yes, i was astounded when i first started looking at balance sheets. Of course i had heard of the expression about people trading on the goodwill of others, but didn't realise the concept had bottom-line monetary value! I suppose its modern equivalent replacement is now 'intellectual property'? (what is it they say about there's one born every minute!)

[Harley]

1 hour ago, JMD said:

Just read Hendry's 'paper': - Joe Rogan for Fed Chair, The Dawn of Chaos. Have you read it Harley?

No I haven't and doubt I will as I avoid too many deep dives.  I spent my whole life doing well in treating and making things simple to others and was competent enough not to hide behind complexity (not for a minute am I suggesting this in this case, just my overall approach).  So for me "just the facts ma'am" and that should be a quick process!  I do however enjoy following the deductive and inspirational thought processes as much as the content, something Mr Hendry does well.  It helps broaden and train the mind as I sit here pretty much alone in such matters.  There is also certainly an entertainment factor.

I like to poll a broad array of people for the odd gem and that can come in many forms from the direct to more of a stimulus for my own thinking.  Maybe some ex-hedgies find it hard to drop the old (successful) ways of sounding good (and nuanced-complicated) to prospective investors.  There is an expectation of them to be "thought leaders".  I don't expect them to hit the nail every time.  I'm only looking for inspiration, in its many forms. 

Each has its place though, setting expectations accordingly.  This forum has been excellent for introducing me to new folk such as Lyn (agree with you there) so many thanks to all those introducing me to the likes of Lyn, George Gammon, Macro Voices, etc.  Podcasts are particularity ideal while I'm out working and Youtube for when I manage to put my feet up and celebrate not having a TV licence!

PS:  Very much enjoyed your last piece about "experts".  They (the "technocrats") have blossomed in the inconsequential times of (artificial) plenty and, like a modern version of the Pied Piper, sucked the independence of mind and resilience out of many, culminating in the exhausted phrase "we must be led by the science"!  But they are now, like the wizard behind the curtain, beginning to be exposed as the rubber hits the road.  They have, predictably, doubled down in the face of failure.  Could go either way from here.  In terms of investing. may never be a better time to gamble and go against the herd?

[Harley]

33 minutes ago, JMD said:

Yes, i was astounded when i first started looking at balance sheets. Of course i had heard of the expression about people trading on the goodwill of others, but didn't realise the concept had bottom-line monetary value! I suppose its modern equivalent replacement is now 'intellectual property'? (what is it they say about there's one born every minute!)

I've posted before how inflated many balance sheets are right now with goodwill and, as you point out, intangibles.  Assets are a key denominator for many financial ratios and yet not all assets are created equal.  Take those out and many companies look dire.  Accepted, they are more the norm in some (e.g. software) industries but their existence is far more widespread.  Here, these assets often look like ordnance waiting to explode as they are very subjective in their valuations, even existence, and are unlikely to do well at that "come to Jesus" moment which must be on the horizon.  All feeds to DB's comment about some (presumably physical) assets being undervalued in say telecoms.  This has been the result of a trend in the new normal of fast finance where lumbering physical assets are, like guitars, out.  But, as the Beatles showed, people will be proved wrong.  "Love, love me do"!          

[MrXxxx]

1 hour ago, Harley said:

I've posted before how inflated many balance sheets are right now with goodwill and, as you point out, intangibles.  Assets are a key denominator for many financial ratios and yet not all assets are created equal.  Take those out and many companies look dire.  Accepted, they are more the norm in some (e.g. software) industries but their existence is far more widespread.  Here, these assets often look like ordnance waiting to explode as they are very subjective in their valuations, even existence, and are unlikely to do well at that "come to Jesus" moment which must be on the horizon.  All feeds to DB's comment about some (presumably physical) assets being undervalued in say telecoms.  This has been the result of a trend in the new normal of fast finance where lumbering physical assets are, like guitars, out.  But, as the Beatles showed, people will be proved wrong.  "Love, love me do"!          

Interesting that this subject has come up, as I have just started reading a book on it; basically why FTSE350 companies failed and how it could have been predicted by looking at annual accounts...its incredible what can be put in intangibles and how they can be over valued. Will put a review of it in `The Library` thread once I have finished it.

[Castlevania]

5 minutes ago, MrXxxx said:

Interesting that this subject has come up, as I have just started reading a book on it; basically why FTSE350 companies failed and how it could have been predicted by looking at annual accounts...its incredible what can be put in intangibles and how they can be over valued. Will put a review of it in `The Library` thread once I have finished it.

The signs were there?

[spygirl]

On the radio this morning.

Pointing out the obvious.

Britain will either have to raise taxes or cut spending to pay £2TRILLION covid bill: New head of the government's OBR watchdog warns UK can't rely on inflation to pay off debt over decades

• The new head of the OBR warned that inflation will not tackle the UK's debt pile 
• Richard Hughes said 30 per cent of gilts were now linked to the RPI measure 

https://www.dailymail.co.uk/news/article-8520529/UK-rely-inflation-tackle-2trillion-debt-pile-decades.html

 

Id also add that the unfunded future liabilities - public sector pensions are also index linked.

Theres no way out of this without a lot of pain - for the current and  future public sector worker.

Each time a public body, be it LA, police or fire pension, fails, then it needs to made insolvent and the current and future payouts slashed.

People, be it tax payers or public sector workers, need to be reminded of how expensive those gold plated DB pensions are, now people are living ~15 years longer than 1980.

The private sector had that  moment in the mid 90s.

Ive been hammering the simple fact into the head teacher I used to - the TPS is quickly moving to 40% pension contributions for teachers.

 

 

 

 

 

[wherebee]

OK - after sorting out a load of admin shite I've got about 5k free to invest.  Going to go all in Tesla, to the MOON!

 

 

No, only joking.  I haven't traded for a couple of years, so am approaching with a relatively clear bias.  My view is that the increasing cold war between China and the USA / China and India will result in some real opportunities for companies who can take over the Chinese supply chain.  At this stage I'm thinking onshore manufacturers in the US in medical supplies, security supplies (home defence/protection).  Anyone else looked at that angle?

[Transistor Man]

1 hour ago, wherebee said:

At this stage I'm thinking onshore manufacturers in the US in medical supplies, security supplies (home defence/protection).  Anyone else looked at that angle?

Agilent, ThermoFisher?

[Bricormortis]

2 hours ago, spygirl said:

On the radio this morning.

Pointing out the obvious.

Britain will either have to raise taxes or cut spending to pay £2TRILLION covid bill: New head of the government's OBR watchdog warns UK can't rely on inflation to pay off debt over decades

• The new head of the OBR warned that inflation will not tackle the UK's debt pile 
• Richard Hughes said 30 per cent of gilts were now linked to the RPI measure 

https://www.dailymail.co.uk/news/article-8520529/UK-rely-inflation-tackle-2trillion-debt-pile-decades.html

 

Id also add that the unfunded future liabilities - public sector pensions are also index linked.

Theres no way out of this without a lot of pain - for the current and  future public sector worker.

Each time a public body, be it LA, police or fire pension, fails, then it needs to made insolvent and the current and future payouts slashed.

People, be it tax payers or public sector workers, need to be reminded of how expensive those gold plated DB pensions are, now people are living ~15 years longer than 1980.

The private sector had that  moment in the mid 90s.

Ive been hammering the simple fact into the head teacher I used to - the TPS is quickly moving to 40% pension contributions for teachers.

 

 

 

 

 

 

[Bricormortis]

Re the Pensions issue spygirl raised.

Would just like to say I have an NHS pension which I believe is capped at 5%. If DB's theory comes to pass I am expecting it to get cut  in half by inflation. Bear in mind also the inflation figures are a bit dubious, particularly for the lower income groups, eg. Pensioners.

 

[spygirl]

I dont think theres an inflation cap.

Gidiot changed the inflation stacks from RPI to CPI 

https://www.telegraph.co.uk/finance/personalfinance/pensions/8930868/Public-pensions-switch-from-RPI-to-CPI-declared-lawful-by-the-High-Court.html

https://www.pensionsadvisoryservice.org.uk/content/publications-files/uploads/Spotlight_Change_from_RPI_to_CPI.pdf

This was early in the coaltion, when the full horror of Browns fuckup was becoming apparent.

Gidiot should have moved much faster on tax credits and non citizen access to benefits.

He then put another 5 years on public sector pension age.

Spouse benefits need to be changed, only allowing for 10 years spouse payout after death.

Id prefer spouse benefits to be totally stopped on public sector pensions.

Stop all those 65yo with very young wives.

 

 

[Harley]

2 hours ago, spygirl said:

Britain will either have to raise taxes or cut spending to pay £2TRILLION covid bill: New head of the government's OBR watchdog warns UK can't rely on inflation to pay off debt over decades

We are so going to have a wealth tax in the next Budget.  Listening to the media you can hear the cogs turning (standard operating procedure).  The latest is a group of 350 millionaires pushing for it getting media coverage.  Think that through a bit for a minute.  Who kicked that off, why did they do it, is there a deal, how bad would it be for them and their tax planners  why did the media cover it so often over a week or so, who got which PR organisation to push it to the media?  The beauty is the vast majority will go for it thinking it won't affect them.  Which tax, initially called temporary or for "them" ever stayed that way? To add, a recent reputable article reporting wealth managers being consulted by the Administration about implementing one.

[spygirl]

14 minutes ago, Harley said:

We are so going to have a wealth tax in the next Budget.  Listening to the media you can hear the cogs turning (standard operating procedure).  The latest is a group of 350 millionaires pushing for it getting media coverage.  Think that through a bit for a minute.  Who kicked that off, why did they do it, is there a deal, how bad would it be for them and their tax planners  why did the media cover it so often over a week or so, who got which PR organisation to push it to the media?  The beauty is the vast majority will go for it thinking it won't affect them.  Which tax, initially called temporary or for "them" ever stayed that way? To add, a recent reputable article reporting wealth managers being consulted by the Administration about implementing one.

The 'wealth' is in unfunded public sector pensions.

And Im serious about that.

 

The other thing, which I keep mentioning is that no non citizen in the UK should have *NO* access to public services.

UK tax are too low and public sector services are too ex[pensive.

UK needs to deny all bar JSA to non citizens. And bill for schooling - 7k/head. 

NHS payment,. already in place, needs increasing and chasing up.

Asylum seekers should be self funding - or supported by charity./churches.

These people, be they Polish Somaliai of fucknows are *NEVER* going to be net contributors in their life times.

Looking at the migrants 1970s onwards, most of the kids are fukign useless too. Bar Ugandan asians which are a total one off.

 

 

[spygirl]

A simple levy on non citizens own UK property would help.

5% of a recent valuation.

Allowing millionaires to pay ~5k for a house in London is nuts.

Tax it as an investment.

[Heart's Ease]

32 minutes ago, Bricormortis said:

Re the Pensions issue spygirl raised.

Would just like to say I have an NHS pension which I believe is capped at 5%. If DB's theory comes to pass I am expecting it to get cut  in half by inflation. Bear in mind also the inflation figures are a bit dubious, particularly for the lower income groups, eg. Pensioners.

 

The closed Civil Service schemes are capped at 5% also.  It's all in the tiny print.

[DurhamBorn]

https://www.bbc.co.uk/news/technology-53403793

Reflation cycle in action,blocks chasing the same things in a race,inflation cometh.

[spygirl]

1 minute ago, DurhamBorn said:

https://www.bbc.co.uk/news/technology-53403793

Reflation cycle in action,blocks chasing the same things in a race,inflation cometh.

Take your RAN network and shove it.

We dont need it anymore.

 

[Bricormortis]

14 minutes ago, spygirl said:

The 'wealth' is in unfunded public sector pensions.

 

 

 

Maybe it is, I am not in possesion of all the facts but I would just like to point out the NHS pensions scheme has been known to pay over 2 billion to the exchequer some years because of a perceived surplus.

[spygirl]

1 minute ago, Bricormortis said:

Maybe it is, I am not in possesion of all the facts but I would just like to point out the NHS pensions scheme has been known to pay over 2 billion to the exchequer some years because of a perceived surplus.

There isnt a surplus. Ever. Its not funded.

Its PAYG.

[Majorpain]

20 minutes ago, spygirl said:

Take your RAN network and shove it.

We dont need it anymore.

Massive red herring anyway, Huawei would be well aware it would be pulled to pieces and checked for any backdoors.  The millions of Huawei phones with a few lines of hidden code to download a CCP "approved" update however?

We have probably the only 100% Chinese saw in the country, its been physically disconnected from the internet just in case it decided to "phone home" for a few years now.

[spygirl]

1 minute ago, Majorpain said:

Massive red herring anyway, Huawei would be well aware it would be pulled to pieces and checked for any backdoors.  The millions of Huawei phones with a few lines of hidden code to download a CCP "approved" update however?

We have probably the only 100% Chinese saw in the country, its been physically disconnected from the internet just in case it decided to "phone home" for a few years now.

Same goes for the large switch.

There no point pulling a Waawee swithc apart when - poof! - the next software update puts loads of crap on their.

And you cannot pull apart software.

I can embeds stuff in large application that act as security. My current favourite is a large distributed application then embeds the LUA interpreter.

I hide the LUA byte code in updates then activate it on an install.

 

[janch]

1 hour ago, Bricormortis said:

................. the unfunded future liabilities - public sector pensions are also index linked.

Theres no way out of this without a lot of pain - for the current and  future public sector worker.

Each time a public body, be it LA, police or fire pension, fails, then it needs to made insolvent and the current and future payouts slashed.

People, be it tax payers or public sector workers, need to be reminded of how expensive those gold plated DB pensions are, now people are living ~15 years longer than 1980.

This.  He's right .  Most of the private sector got to grips with their pensions years ago.  For years people working in the public sector knew the pension was one of the biggest perks of the job. 

Most people would be shocked to see how much of the council tax they pay goes on paying the pensions of retired council workers.  Councils used to publish the figures on a flyer which came with the council tax bill to show where all the money goes.  Not any more and it's tucked away in their accounts.

As @spygirl says overgenerous benefits and pensions will make the pain much worse for the people who actually pay the tax.

Cutting them would be political suicide but letting them "wither on the vine" as inflation rises may be an easier way out for the government.

[Talking Monkey]

7 minutes ago, janch said:

This.  He's right .  Most of the private sector got to grips with their pensions years ago.  For years people working in the public sector knew the pension was one of the biggest perks of the job. 

Most people would be shocked to see how much of the council tax they pay goes on paying the pensions of retired council workers.  Councils used to publish the figures on a flyer which came with the council tax bill to show where all the money goes.  Not any more and it's tucked away in their accounts.

As @spygirl says overgenerous benefits and pensions will make the pain much worse for the people who actually pay the tax.

Cutting them would be political suicide but letting them "wither on the vine" as inflation rises may be an easier way out for the government.

But aren't a lot of these pensions inflation linked

Ah just read they usually have a cap at 5%

[Loki]

2 minutes ago, Talking Monkey said:

But aren't a lot of these pensions inflation linked

But we don't have any inflation, apparently!