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


spunko

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Just now, Harley said:

I think anything they do will be as much about pacifying the international markets (creditors) as anything that is really necessary.

They are the market at the moment Harley and politics is running ahead of things.China's dollars are going to be spent on commods etc and those dollars are going to be replaced by fresh new ones from the Fed.Check China's record imports of copper last month etc.

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@Cattle Prod and that is the bit almost everyone is missing.The shift to pay for new forms of energy will be from much higher oil and gas prices.When oil hits $200+ and stays there hydrogen production will seem fantastic at the cost of $150 etc.That is the key.Of course in that sort of cycle rates will be moving higher so you will have one set of companies (big integrated oil and gas) who are getting massive amounts of free cash (i think BP is on a free cash price of 2.5/3 later in cycle) to funds and companies who need to borrow to build at 6%/8%+ rates,or issue equity only to fail and be taken out by big oil.BP,Shell,Repsol,Total,Equinor and ENI are all positioning for this very scenario.They just arent giving too much away.

Shell locking up wind and hydrogen to scale up fast in The Netherlands,BP getting ready for big hydrogen on Teesside,BP and Equinor joining up to secure the best offshore wind in the US ,Repsol trailing hydrogen production at its refineries and investing heavily in solar etc etc.All of these projects etc are simply the base to then fire all the spare free cash at.

Lets hope they continue to be hated and dumped for a while yet,people are going to be shocked by the profits they will be making in 5 to 10 years.

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I have to add this from Steve Kaplan,il never tire of reading Steve's thoughts,right or wrong every contrarian leaning investor should read him,and a superb friendly person.

Innovation is worth less than dung in the financial markets.

 

Nowadays it is common to read articles about how you should invest in a particular company because they are amazingly innovative. Innovation has nothing to do with investing. If a company has several money-losing revolutionary products, and they are planning to sell even more money-losing state-of-the-art goods and services, then that company should be avoided. On the other hand, if there is a company in the business of picking up cow manure and selling it at a high profitability then that is likely a wonderful investment especially if it is being undervalued by most investors who would rather buy shares in the cutting-edge company.

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3 hours ago, DurhamBorn said:

No need to grab wealth,or do huge bail ins really.The CBs have already told people how they are going to do it,run rates below inflation for the whole curve apart from maybe the very end.Thats it.Nobody is listening though.

In affect the CBs are telling everyone with massive investments in government debt etc you are going to hand some of that to the economy through government spending.Its the opposite to the last cycle from 82.Thats why highly rated growth companies are running out of road,and why passive investing is setting up for big inflation adjusted losses,ones that wont bounce back.

Invest in real assets that create velocity or we will inflate it away by handing to government to do in QE.Its as simple as that.People are looking as dis-inflation carrying on for 30 years when it is in its final few months.

Do "real assets" include UK residential housing? Looks like the Government want to protect London property prices at the expense of everything else.

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3 minutes ago, HolyCow said:

Do "real assets" include UK residential housing? Looks like the Government want to protect London property prices at the expense of everything else.

No,because they are priced mostly on leverage and cost of servicing that leverage.Houses will lose 60%+ inflation adjusted by the end of the cycle,most of that damage will be in the south.

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17 hours ago, Bricks & Mortar said:

AFAIK: Thermal coal is pretty much any common or garden variety coal, mostly burnt in power stations to make steam for turbines.  It's called that cos you burn it - gets hot, (quite hot, anyway)
For steelmaking, you want metallurgical coal.  That stuff would burn the bollocks off a steel monkey.
From your list of companies, I know you're on the right track, and I'm posting this thing about the technical defintion for others who might be reading.  Don't want anyone buying the wrong thing.

I looked into it when I heard about the Woodhouse mine in Cumbria.  Yeah, totally seems a good idea to me.  Seems you can only make steel with metallurgical coal.  SSAB in Sweden have a plan for an electrical process, but they might be able to do it on an industrial scale by 2035 or some such distant future date.

Anyhoo, you can't buy shares in West Cumbria Mining, they're owned by some EMR Capital outfit, and I didn't bother looking into them. (cos they're overseas)

thank you B&M for correcting, my post was careless. Metallurgical coal is for steel making, and there is no current commercial alternative. Thermal coal has a diminishing market as the power stations are being phased out, although China/India may continue using.

As an aside, I didn't get it when interviews of Scargill would have him talking of UK coal being high quality, but yes it mostly was metallurgical (bituminous) coal, so he was right. Is this another example of 'the West' being shortsighted, or with the advent of globalisation were those UK mines always going to be massively uncompetitive i wonder?

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Transistor Man
6 hours ago, jamtomorrow said:

The world of the 2020's is going to need a lot of semiconductors to power an industrial cycle. 

Not cheap, but Texas Instruments, TI, will do very well here, I think.

They have a large portfolio of electronic systems for automotive, defence, industrial control, robotics, grid, ....

Gateway/EDGE Computing

Programmable logic controller (PLC)

Machine tool with CNC

Machine vision

Transport and handling

Tool control

Robot control

Environmental control

Industrial communication

Autonomous guided vehicle (AGV)

 

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16 hours ago, Sideysid said:

Yup it all stinks to me. One of three possibilities of which will become more apparent in time.

1) The government is genuinely inept. At the moment the global serious case rate is 1% of that only 6% die. That’s flu death proportions and the global governments have way overplayed the response at the expense of the global economy because they thought the R=0 number and mortality rate would be higher.

2) All flashing red indicators were pointing to around 2020 for a financial recession (treasury yield curves going negative etc) COVID happened and the governments have thanked their lucky stars it came along so that they can use it as an excuse to go full on into stimulus with full public backing and have a scapegoat.

3) Tin foil hat option. It was all planned all along for an eventual currency and political reset. It all seems very rushed however, so they all seem to be making a bit of hash it to adhere to some unspoken timeframe.

I agree, and i notice more covid 'science' detractors (denyers?!) are being allowed onto the BBC. 

re. your option 1 - Imagine the backlash if people started to compare/contrast/dought the climate science?

However the scope for revaluating climate-change is small, with climate-change having now become almost a religion, along with its modern-day catastrophising apostles - including the 'old-biblical-sage' Attenborough, and the 'middle-ages-child-savant/saint' wannabe Thunberg - showing us i think, that the same personality types crop-up time and again throughout history (history/cycles repeating?). 

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With regards to Telcos has anyone here bought any TIT (sorry I couldn’t resist - it’s an unfortunate ticker for Telecom Italia). 

They’re now at the same price as they were in the early 1990’s. As with all telcos they have a load of debt, duration is just under 8 years which isn’t great, but have large cash flow, they look rather unloved.

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39 minutes ago, Transistor Man said:

Not cheap, but Texas Instruments, TI, will do very well here, I think.

They have a large portfolio of electronic systems for automotive, defence, industrial control, robotics, grid, ....

Gateway/EDGE Computing

Programmable logic controller (PLC)

Machine tool with CNC

Machine vision

Transport and handling

Tool control

Robot control

Environmental control

Industrial communication

Autonomous guided vehicle (AGV)

 

They also make calculators. The first scientific calculator I ever had was a Texas Instruments one.

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5 hours ago, DurhamBorn said:

No need to grab wealth,or do huge bail ins really.The CBs have already told people how they are going to do it,run rates below inflation for the whole curve apart from maybe the very end.Thats it.Nobody is listening though.

In affect the CBs are telling everyone with massive investments in government debt etc you are going to hand some of that to the economy through government spending.Its the opposite to the last cycle from 82.Thats why highly rated growth companies are running out of road,and why passive investing is setting up for big inflation adjusted losses,ones that wont bounce back.

Invest in real assets that create velocity or we will inflate it away by handing to government to do in QE.Its as simple as that.People are looking as dis-inflation carrying on for 30 years when it is in its final few months.

FT doing a survey on what form a wealth tax should take:

https://www.ft.com/content/2ee63d52-030f-4e7a-8c15-2e39429b8748

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55 minutes ago, JMD said:

thank you B&M for correcting, my post was careless. Metallurgical coal is for steel making, and there is no current commercial alternative. Thermal coal has a diminishing market as the power stations are being phased out, although China/India may continue using.

As an aside, I didn't get it when interviews of Scargill would have him talking of UK coal being high quality, but yes it mostly was metallurgical (bituminous) coal, so he was right. Is this another example of 'the West' being shortsighted, or with the advent of globalisation were those UK mines always going to be massively uncompetitive i wonder?

You had anthracite in South Wales which is arguably the highest quality coal there is. Fun fact (not that fun) the English word “glow” comes from the Welsh word for coal which is “glo”. Celtic warriors used to rub coal on their bodies before they went to war and anthracite has a lustrous sheen or glow to it.

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7 hours ago, Harley said:

To be seriously honest, I'm beginning to feel the wrong sort in the early days of the Reich.  I've seen in my lifetime how quick and bad things can go. Time to learn some more history.  Some people were insightful enough to break the grounding and get sorted early back then.

The social commentator/author Douglas Murrray says too little history learning means many people today have no real appreciation for how good things are, relatively speaking of course. Then again lack of context in many different areas of knowledge is causing massive dislocation in communication and trust. We 'dosboders' sort of anticipate what may unfold. But it is interesting how others interpret things - for example, Murray's take is that the West had it 'sort of cracked' by the 1990's, what with social harmony, fall of USSR, etc. But political leadership was poor and instead of tackling the economic problems (capitalism had been requiring a reboot for decades... increasing bubbles/crashes, banking and currency crises), instead debt, globalisation, etc, were encouraged. The so called peace dividend, along with China offering the West so many opportunities, meant short-sighted decisions were made. The incentives for lazy thinking were too great for our politicians. 

 

 

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33 minutes ago, Castlevania said:

With regards to Telcos has anyone here bought any TIT (sorry I couldn’t resist - it’s an unfortunate ticker for Telecom Italia). 

They’re now at the same price as they were in the early 1990’s. As with all telcos they have a load of debt, duration is just under 8 years which isn’t great, but have large cash flow, they look rather unloved.

I havent as i prefer Italian women like Annalisa Scarrone to Italian assets xD.However the interesting thing is the amount of debt all the telcos have.Thats a good thing for the cycle as its inflated away and they all have an interest in increasing prices.

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4 hours ago, Cattle Prod said:

What's the source of that, Panda? Conspiracy theories aside, the bits in bold are true.

 

 

CP. It's not a published article. Just a comment made by an unknown at the bottom of an article about Covid19 on Zerohedge..

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9 hours ago, DurhamBorn said:

They are the market at the moment Harley and politics is running ahead of things.China's dollars are going to be spent on commods etc and those dollars are going to be replaced by fresh new ones from the Fed.Check China's record imports of copper last month etc.

II should have mentioned I was thinking of the UK.  A bit focussed on that and the upcoming Budget atm.  The Fed and USD is a far bigger fish!

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This week's Financial Sense podcast majors on the growing rotation to our favourite sectors.  We'll materials. Not sure they were brave enough to mention energy or telco.  Still, b*gger!

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2 minutes ago, Harley said:

This week's Financial Sense podcast majors on the growing rotation to our favourite sectors.  B*gger!

Do you have a link Harley,? the budget should be very interesting,lets hope to changes to SIPPs,at least on the way out.

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3 hours ago, DurhamBorn said:

I havent as i prefer Italian women like Annalisa Scarrone to Italian assets xD.However the interesting thing is the amount of debt all the telcos have.Thats a good thing for the cycle as its inflated away and they all have an interest in increasing prices.

I looked up Annalisa Scarrone. I approve.

 

F23836E7-B545-497C-9807-CB2034D2C71B.jpeg

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2 minutes ago, DurhamBorn said:

Do you have a link Harley,? the budget should be very interesting,lets hope to changes to SIPPs,at least on the way out.

https://www.financialsense.com/financial-sense-newshour

Probably a bit light for you!  You can get these and many others automatically to your phone via a podcast app.  I use AntennaPod on Android after trying a few.  Very good.  Also on Apples.  I can provide URLs although the search function should pick them up.  I also subscribed to their paidi podcasts because these are good and Puplava and his team have done great free work for many years.  The general financial podcast community is excellent and great for when working, etc.

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6 hours ago, Castlevania said:

With regards to Telcos has anyone here bought any TIT (sorry I couldn’t resist - it’s an unfortunate ticker for Telecom Italia). 

They’re now at the same price as they were in the early 1990’s. As with all telcos they have a load of debt, duration is just under 8 years which isn’t great, but have large cash flow, they look rather unloved.

Not yet,but probably this week.Only a small holding.First line stocks will be BT/Vod/Orange/AT&T/Sing Tel

A lot of these companies have deep detbs but kicking off a lot of FCF.

We too some prfotis off the table in PM's with a view to reinvesting in other more beaten down PM's but the value seems scant to me away from BVN/EGO/RIO2 so I'm pondering building the first tranche of our telecoms .

Can't beleive I'm picking up BT at a £1.Coma scale 21,top buy in my back yard ,time will tell.

PS also worth taking a look at Proximus/Koninklijk/Nippon telegraph/Korea telecom/Airtel Africa/MTN plus a couple of otehrs I can't remember>lot of old national flag carriers there

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9 hours ago, DurhamBorn said:

@Cattle Prod and that is the bit almost everyone is missing.The shift to pay for new forms of energy will be from much higher oil and gas prices.When oil hits $200+ and stays there hydrogen production will seem fantastic at the cost of $150 etc.That is the key.Of course in that sort of cycle rates will be moving higher so you will have one set of companies (big integrated oil and gas) who are getting massive amounts of free cash (i think BP is on a free cash price of 2.5/3 later in cycle) to funds and companies who need to borrow to build at 6%/8%+ rates,or issue equity only to fail and be taken out by big oil.BP,Shell,Repsol,Total,Equinor and ENI are all positioning for this very scenario.They just arent giving too much away.

Shell locking up wind and hydrogen to scale up fast in The Netherlands,BP getting ready for big hydrogen on Teesside,BP and Equinor joining up to secure the best offshore wind in the US ,Repsol trailing hydrogen production at its refineries and investing heavily in solar etc etc.All of these projects etc are simply the base to then fire all the spare free cash at.

Lets hope they continue to be hated and dumped for a while yet,people are going to be shocked by the profits they will be making in 5 to 10 years.

And Exxon continue to deny that any of this will happen. They have one green play, and that is an algae technology that is never really going to cut it. I just hope the company stays together for 4 more years, until I can retire!!

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