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

[DoINeedOne]

Snapchat whilst i don't use it does have a interesting website where you can you can see videos people have posted bit weird but still a interesting tool

https://map.snapchat.com

So in London Grant has been sharing how dead it is at rush hour

So i thought how's China getting on

 

 

Interesting tool/website

[CVG]

Depending on your interests, another investment that might be worthwhile before inflation kicks in is a National Trust Lifetime Membership.

[Majorpain]

13 hours ago, sancho panza said:

ANy views anyone? @Transistor Man

I remember buying them with a 1 handle back in the tech bubble

They are currently getting stuffed because of the 50% Aero engine revenue, the daft thing is that they have a large pipeline of next gen products that look to have significant promise.

HM Treasury is going to be funding them anyway due to things like the Dreadnought reactors/Tempest engine/Electric gen, they should really be taking a close look to see if an equity investment would be value for money for taxpayers in the long run.  RR is more important than Oneweb IMO, and that got $500m, $500m at RR current market cap is a lot!

Its what i'm going to be doing if (when) it gets down to 80-90p.

[Lightscribe]

In other news I was late to the party but got an allocation of Eurasia mining when it dropped to 17p last week, now nudging around the 25p mark.

https://www.proactiveinvestors.co.uk/companies/news/930459/eurasia-mining-boasts-strong-finances-as-sales-process-continues-930459.html

Legal teams are involved and looks like sale is a done deal, could be a multibagger. Who could be the buyer? Sibanye, one can only hope. 

https://www.miningmx.com/news/gold/40418-sibanye-stillwater-to-pull-trigger-on-4bn-to-5bn-takeover-in-nine-months-froneman/

[JMD]

19 hours ago, DoINeedOne said:

On Sharepad i think its £300 a year for everything the results where mixed as Canada was not included but Weyerhaeuser on a few sites doesn't show under forestry or timber categories but under financial REIT  and seems like some where missing maybe as another category

Also tired looking at the screener on SimplyWall.st has options to scan everywhere and industry sectors but only set filters in regards to ratios (Shown Below) etc... The main issue is like you said different sites categorise things differently 

 

Interesting discussion about stock screeners. Personally I find them barely bearable, and your animation (clever stuff btw) is almost bringing on a panic attack!

I use screeners, but as an 'alternative', i also seek out online portfolios for inspiration, piggy-back off others research(!).

e.g. here is a deep dive into Bill Gates' foundation portfolio. Interesting, if only to gain an insight into Gates sees the future unfolding... 'Crown Castle International' (cellphone towers and fibre play), 'Ecolab' anyone?   

https://www.suredividend.com/bill-gates-portfolio/

 

[nirvana]

Bill Gates turned into an A1 cunt.......all that twat wants to do nowadays is drug everybody up!!! I'm sure he's in bed with the WHO....

Edit: proof he's a cunt https://www.businessinsider.fr/us/bill-gates-coronavirus-treatments-cut-the-death-rate-dramatically-2020-7

must be a tough gig when you get bored of being a computer billionaire and became a medical guru instead 

[JMD]

19 hours ago, RickyBacker said:

I can't read all of it... but that's Japanese not Chinese. 
Basically, Japanese is a mixture of inherited Chinese characters (Kanji) and Japanese characters (Kana). The Kanji has references to Tokyo and Osaka, but I can't read enough to fully understand it.

Your teasing us RickyBacker (curiously, i find i strangely like it!)

[dgul]

1 hour ago, CVG said:

Depending on your interests, another investment that might be worthwhile before inflation kicks in is a National Trust Lifetime Membership.

That's not an investment, it is an expenditure.

[dgul]

3 minutes ago, 5min OCD speculator said:

Bill Gates turned into an A1 cunt...

He always was.

[wherebee]

22 minutes ago, dgul said:

That's not an investment, it is an expenditure.

the national trust does have some good properties for a day out.  A lifetime membership to go to, for example, Arundel castle for free would pay for itself if you lived within 20 miles and went 3 times a year (as I used to, because when you have visitors its a great day out).

[DurhamBorn]

Its to be remembered that energy use is likely to nearly double between now and 2050.The covid blip is just that,a blip.

A typical fridge uses more energy in a year than the typical emerging market consumer uses in a year IN TOTAL.

A hot tube uses more electricity than an standard African village.

Charges and other sleeping devices use up 8% of developed world consumer power,and its 30% in the developing world.

As the emerging world use more fridges,laptop chargers,even lighting,then energy use is going to explode.

Oil use might fall by around 5% as part of the mix,but on a nearly doubling of demand.

Gas use part of the mix might nearly double and on top of demand doubling.Doubling market share on a market doubling.

These figures are based on emerging marker consumers going from using 1/3 the energy of a western consumer to using 1/2 the energy by 2050

Even is you electrify transport etc it doesnt change much as large amounts of the electric will be from gas powered plants,likely with carbon capture.

I think the oil and gas market is offering a chance you get two or three times in a lifetime to x your families capital.

The market and MSM dont agree of course.Good.

 

 

[CVG]

13 minutes ago, DurhamBorn said:

A hot tube

Not my idea of fun

Actually, mumsnet call them sex ponds!

[DurhamBorn]

1 minute ago, CVG said:

Not my idea of fun

Actually, mumsnet call them sex ponds!

Id never have one given,but the council estate near me love them,and the electric they use in winter is eye boggling.

[leonardratso]

what is it?

ah, hot tub, hehehe i was thinging hot tube? eh.

[Harley]

1 hour ago, dgul said:

That's not an investment, it is an expenditure.

And a woke one.

[sancho panza]

Ref the gaming of inflation figures hiding the pain for ordianry people.Shauin Richards superb as ever

 

 

https://notayesmanseconomics.wordpress.com/2020/10/01/the-perversion-of-inflation-targeting-is-accelerating/

The perversion of Inflation Targeting is accelerating

Posted on October 1, 2020

Today my topic is a subject which may seem like shuffling deck chairs on The Titanic but in fact turns out to be very important. This is because it affects workers, consumers and savers ever more because of the way that both wage growth and interest-rates head ever lower. For the latter we often see negative interest-rates and for the former the old text book concept of “sticky wages” has been in play but pretty much one way as rises are out of fashion but falls do happen. Indeed we have seen more than a few cases of wage cuts recently with the airline industry leading the way for obvious reasons. So we can afford inflation if I may put it like that much less than previously as it more quickly affects living-standards.

The Fantasy World

Central bankers have become wedded to the idea of inflation targeting but have not spotted that there is a world of difference between applying it when you are trying to reduce inflation and trying to raise it. In the former you are looking to raise living-standards via real wages and in the latter you end up trying to reduce them. How does this happen? In spite of over a decade of evidence to the contrary they hang onto theories like this.

If the anchor for inflation is the inflation aim, the Phillips curve – the link between the real economy and inflation – plays a central role in allowing central banks to steer inflation towards that aim. But in the low inflation environment, prices appear to have become less responsive to the real economy. ECB research suggests that the empirical Phillips curve remains intact, but it may be rather flat. ( ECB President Christine Lagarde yesterday )

It can be any shape you like according to them which means it is useless. Accordingly it follows that they have been unable to steer inflation towards its target and for reasons I shall explain later they may well have been heading in the wrong direction. But let us move on with the Phillips curve being described by Lewis Carroll.

“When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’

’The question is,’ said Alice, ‘whether you can make words mean so many different things.’

The next issue is that they have got away with defining price stability as something else entirely. Back to Christine Lagarde of the ECB.

Since 2003, the ECB has used a double-key formulation to set our objective, defining price stability as a year-on-year increase in inflation of “below 2%”, while aiming for inflation of “below, but close to, 2%”.

This misrepresentation was exposed back around 2016 when measured inflation fell to approximately 0% but there were price shifts because the inflation fall was driven by a large fall in the price of crude oil. We saw it in another form as goods inflation fell to zero and sometimes negative where services inflation continued and in the case of my country was little affected. So the bedrock of the 2% inflation target crumbled away.

But they cannot stop clinging to the Phillips Curve.

The intuition behind the first factor is that the Phillips curve is alive and well, but the euro area faced a series of large shocks that made it harder to measure economic activity relative to potential. ( Lagarde)

Let me give you an example where this failed utterly in my home country the UK. Back in 2013 the then new Bank of England Governor Mark Carney established his Forward Guidance based on a 7% Unemployment Rate. Within six months that was crumbling and we went in terms of a “full employment” estimate 6%,5.5%,5%, 4.5% and lastly 4.25%. I would argue it was worse than useless as it was both actively misleading and an attempt to claim he was on the verge of raising interest-rates without having any real intention of doing so.

How much difference does it make?

Central bankers live in a world like this.

Broadly speaking, three factors might explain why inflation responded so weakly to improvements in the economy in the run-up to the pandemic.

One of the reasons is that the economy did not improve that much. The previous peak for Euro area GDP was 2.47 trillion Euros at the start of 2008 which rose to 2.68 trillion at the end of 2019 on 2010 prices. The increase of around 8.5% is not a lot and compares badly with the previous period.

Next comes the fact that central bankers inflate their own efforts and policies according to Chicago University. From Bloomberg.

However, they also find that, on average, papers written entirely by central bankers found an impact on growth at the peak of QE that was more than 0.7 percentage points higher than the effect estimated in papers written entirely by academics. (This is a sizable difference considering the effect found on average across all studies was 1.57% at the peak.) In the case of inflation, the difference in the effect of QE at its peak between the two sets of papers was more than 1.2 percentage points. Central bankers also tended to use more positive language in summarizing their results in abstracts.

They have discovered a point I have been making for some years now.

They suggest that career concerns may have played a role and provide some evidence that central bank researchers who found the largest impact of QE had a better chance of receiving a promotion.

Measuring Inflation

An issue here is the way that official inflation indices have been designed to avoid measuring inflation. I noted this yesterday with reference to the Christine Lagarde speech.

We need to keep track of broad concepts of inflation that capture the costs people face in their everyday lives and reflect their perceptions, including measures of owner-occupied housing.

This continues a theme highlighted by Phillip Lane back in February.

I think we at the ECB would agree that there should be more weight on housing – but there is a difficulty and this has been looked at several times before.

Just for clarity they completely ignore owner-occupied housing which Mr,Lane admitted was up to 33% of people’s spending in a different speech. In other matters ignoring such a large and significant area would get you laughed out of town but as most are unaware it just means they do not believe the inflation numbers.

a lot of households think it is higher. ( Phillip Lane)

I wonder why they might think that? From UBS.

Use our interactive Global Real Estate Bubble Index to track and compare the risk of bubbles in 25 cities around the world over the last three years. Munich and Frankfurt top our list in 2020. Risk is also elevated in Toronto, Hong Kong, Paris, and Amsterdam. Zurich is a new addition to the bubble risk zone.

So the ECB has topped the charts and has four of the top seven. Makes them sound like The Beatles doesn’t it?

Comment

The situation here is an example of institutional failure. Central banks had a brief period of relative independence because politicians failed to get a grip on high inflation and so they sub-contracted the job. Whether they thought it would work or whether they wanted simply to shift the blame off themselves is a moot point? Either way it had its successes as inflation did fall as highlighted by the description of that phase as the NICE decade by the former Bank of England Governor Baron King of Lothbury.

The problems in the meantime are as follows

1. Inflation is now below target partly due to the miss measurement of it. We are also in “I cannot eat an I-Pad” territory.
2. They believe that 2% inflation is causal rather than something which was picked at random.
3. They believe that they can influence it much more than the evidence suggests.
4. Most breathtakingly of all they believe that raising the inflation target will make people better off via the wages fairy ( where wages growth will rise even faster).

Or you can take the view that this is all about keeping debt costs low for government’s and all of the above is simply a front.

Let me now address further the issue of how things have been made worse. Firstly there is the psychological impact of so-called emergency measures persisting and all the policy moves. Next has come the Zombification of many times of business as models which should have failed get bailed out. Also the use of negative interest-rates cripples much of the pensions and longer-term savings and insurance industry.

On the this road the 2% inflation which they cannot achieve and anyway would make you poorer seems likely to become 3% which is even worse….

 

[Harley]

Tough day, other than the shoulder pain.  Wanted to top up RDSA and RDSB (oh yes!) after @DurhamBorn call but no buy signal for me yet.  I fear I'll have to watch like a hawk as if it moves, it'll be quick.  But in compensation, I decided to add some other sector plays.  Seemed a better strategy (invest broad rather than deep).  Also time to prune some winners like RMG and WMH which have done, er, quite well.  This is an income portfolio with strong allocation rules so it's off with their heads!  Alas, the others aren't technically ready yet to put some more money down BUT signs of life in the most unusual of places such as banks, transports, and leisure.  Early possible buy signals but more importantly there are divergences between their MACDs and price everywhere.  One has to give!  A bit early yet for me but interesting.  Some will I fear never come back so best I set up a "bad bank", stuff them in there and continue my look for new ones.  Dividend season in my cash account.  Better than last year but alas that's a bit backwards looking.  The portfolio is still down 30% odd on a capital basis but it's a young and foolish one!!!

[DurhamBorn]

@Harley we should pin that "prune some winners like Royal Mail"  .I sold a few as well as i tagged the bottom on some,holding the rest.

[Democorruptcy]

It's nearly made it this morning but might get some VOD sub a £1, if the US markets puke on opening.

[Harley]

42 minutes ago, DurhamBorn said:

@Harley we should pin that "prune some winners like Royal Mail"  .I sold a few as well as i tagged the bottom on some,holding the rest.

I prefer "off with their heads"!  That'll teach them to pop their heads above my 4% allocation rule!

[nirvana]

Yankies have bought the dip!!! We're going UP UP UP!!! Dollars for the weekend!! 

Oops might be in the wrong thread again 

[Democorruptcy]

9 minutes ago, 5min OCD speculator said:

Yankies have bought the dip!!! We're going UP UP UP!!! Dollars for the weekend!! 

Oops might be in the wrong thread again 

 

Given how he has often claimed how marvellous he is based on the DOW rising, you might think with him catching a "killer" virus the markets might go down. Obviously he will still be saying buy the DOW as his coffin is on the conveyor heading into the furnace!

[dgul]

2 hours ago, wherebee said:

the national trust does have some good properties for a day out.  A lifetime membership to go to, for example, Arundel castle for free would pay for itself if you lived within 20 miles and went 3 times a year (as I used to, because when you have visitors its a great day out).

• It is tying up money which could be used for investment with an actual return
• It ties up money that might prove useful would the worst happen (where you could choose not to go to NT properties to save money)
• Your preferences/habits might change, making the 'investment' worthless.

And finally, for the avoidance of doubt, spending money which protects against inflation on discretionary expenditures, is still an expenditure and does not magically turn into an investment.

[nirvana]

8 minutes ago, Democorruptcy said:

you might think with him catching a "killer" virus the markets might go down.

they did! But now they're going back up......for how long is all part of the game*

I shot my load too early this morning.....shoulda waited til an hour before US open 

*methinks Mr Market doesn't give a crap about Trump, any excuse to take things up, down, up, down.....'big boys' make money whatever.....which reminds me of another saying...

Bulls make money, Bears make money, Sheeple get slaughtered  

[JMD]

18 hours ago, Harley said:

Thanks.  I used the opportunity to do a walk-through test of things I have set up.  Must be on my fifth iteration and now feel comfortable.  Now to point my bazooka at several industries!  Quite exciting really!  I'm buying before the BK, but just initial stakes.  This is to get them into my system, be ready to run hard at the right time, and to also to mitigate the risk of no BK. 

As much as I like looking at such metrics, I'm also very aware of not going too deep and anorak.  And I'm saying that as someone who has a lot of such knowledge/capability.  I like a light touch combined with risk control.  So no, not fair value.  Especially as I once asked an accountant who specialised in valuing companies and he told me when asked, he looked at car number plates on the way into a meeting to decide on a number!  That way it sounded considered and therefore valid.

I keep it simple, deal in cash, ignore the stories, and look under floorboards for nasties.  All I'm trying to do is play macro sector themes and avoid using ETFs, etc by buying the sane big players in the industry.  I'm not trying to out alpha that macro focus with "hot" stocks.  I may do that later but that would be a different process, with a different risk management process, and a different amount of allocated capital.

The most important lesson I've learnt is to decide precisely what you are aiming for and stick to it.  Selection and maintenance of aim.  No drift.  If I want to try something different fine, but treat it separately and differently (appropriately).  Many people seem to be "confused" like teenagers on a hormonal high.  They ask if the should do "x" with no reference to what they are trying to do, circumstances, etc.  That's a random walk and raises a red flag.  

More bad weather due and a work injury (due to some wonker of a plumber) so more screens likely!

Harley, for sure, its macro all-the-way for me also (its why i 'kinda guiltily drift a little' off-topic on here, to help compose/develop my thoughts, whether they be social/political/financial, as i think it all feeds into the macro).

I take your point about not getting hung-up about, technicals, financials, charts, etc. It is also a lot about personal risk/reward and that is something i have just about sorted, its taken me a long time to achieve because it can't be done - for the mammoth style changes in macro/next cycle we are anticipating - without accounting for so many variables and lots of discussion.

Interesting what you say about attempting to calculate 'fair-value', i guess you would absolutely spurn ebitda then! Its meant to be good for companies with large asset base, but then which 'independent' individual decides on depreciation, etc?  

I agree it is important to have a buying strategy, mine is to buy into what i consider already 'cheap sectors': pm's, oil, telecoms. But i can't currently decide about the commodities. They have run up a little already so i do need to decide - maybe i will take up initial positions, as you do, then ladder in further if/when get the BK. Although for sectors like health/tech/infrastructure, they do seem far to expensive to buy any at all.