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


spunko

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35 minutes ago, MrXxxx said:

Thanks for the correction, I will go and refresh my understanding...so say for example Wheaton (a Canadian registered co) sells its shares on LSE from 1 Nov they will take tax at source and you will still need to claim a partial refund under the appropriate double-taxation agreement...isI this correct?

Canada charges withholding taxes on dividends so yes.

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https://dinarrecaps.com/our-blog/banks-brace-for-big-bang-switch-on-80-trillion-worth-of-swaps

Quote

This could help pave the way for a curve that reflects expectations for where the rate will be in the future, addressing one of the new benchmark’s key weaknesses. The big bang “will have a very, very good impact on liquidity,” said Jason Granet, chief Libor transition officer at Goldman Sachs Group Inc.

Not sure how much impact it has on reflation/infrastructure but sounds like it's 'clearing the pipes'

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2 hours ago, Nicolas Turgeon said:

Hi JMD, sorry to bring your post back from the past!

How have you been gettingon with identifying some ETFs and funds to buy in the next cycle? I've been wanting to do something similar for the inflation sectors next cycle I.E. the 'OPTIMISM' sectors, rather than buying individual company shares becasue ETFs and funds sound 'lower maintenance'  than having to keep an eye on dozens of companies for years on end to check they're still being run well etc. I just assume (probably wrongly!) that ETF managers and Fund managers are doing this for you and ditch rubbish companies from their funds. That is a massive and potentially costly assumption so please someone correct me!

From this great thread (many thanks as always to all the regular contributors) the following have come up in the past:

Telecoms:
XSKR - Xtrackers Stoxx Europe 600 Telecommunications UCITS ETF
EXV2 - iShares (BlackRock Asset Management Deutschland) STOXX Europe 600 Telecommunications

Energy:
Schroder ISF Global Energy Class Z - Income (GBP) - Fund

Resources:
Ninety One Enhanced Natural Resources Class I - Accumulation (GBP) - Fund
 

What others have a I missed or have people uncovered? I remember stumbilng on an oil companies ETF we could access in the UK containng loads of the big oilies but failed to take a note of it :( [EDIT: It might have been XSER for the oilies. Also see SPOG for Oil and Gas producers ]

Hi NT, no problem. Once I had done my personal risk/reward analysis I found that I wanted to hold lots of PM's, commodities, energy, telecoms, as I think they are just to good value at moment. The problem I then found with the thematic/sector funds/etfs was that they didn't hold nearly enough of the type of stocks I wanted for my chosen sectors. So I bought the individual energy and the telecoms stocks instead, as these are also mostly a buy and hold anyway for this entire cycle so won't require much maintenance effort plus there is no service fee in holding stocks. However for regional funds i still intend to buy those after any big market correction, if we get one, but at present they are too expensive. For PM's I hold gdx/gdxj and individual silver miner stocks, plus physical silver/gold etc's. I'm currently looking at buying individual commodity miners for uranium, copper, etc. But the Ninety One Resource fund you mention was discussed here only recently and the consensus here was that it does look very good, and holds good allocations in the type of stocks discussed here.                                                                                                                                           I changed by focus to the 'decomplex' type of companies and sectors, like energy, telecoms. The decomplex area is mostly not really served by funds as their remit is much wider. But fortunately I think funds and etfs can mostly be avoided if the investment strategy is to hold next cycle reflation stocks for say 10years, ie there is very little work/overhead in owning say BP or BT. Hope this helps.

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@JMD its a very good point about individual stocks having no fees once bought.Most people under an IFA for their pensions will be seeing 2.2% a year in fees.Given most are in 60/40 or 40/60 funds that have returned around 6% thats a third of the gains compounding.If bonds fall over the cycle  we might see a maximum return of 0% so 2.2% fees on zero returns + inflation,ouch.

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UnconventionalWisdom
41 minutes ago, DurhamBorn said:

@JMD its a very good point about individual stocks having no fees once bought.Most people under an IFA for their pensions will be seeing 2.2% a year in fees.Given most are in 60/40 or 40/60 funds that have returned around 6% thats a third of the gains compounding.If bonds fall over the cycle  we might see a maximum return of 0% so 2.2% fees on zero returns + inflation,ouch.

I think a lot of people are going to suss out that their pension providers have done much but try to track the market. They are all doing the sane so when things turn, it can get very nasty. That will lead to losses and then people will question why they let someone deal with it and want out. Leading to even more pain. I know most people don't care and want to bury their head in the sand but a year or 2 of losses may change that. 

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UnconventionalWisdom

@DurhamBorn >700 hundred pages on this 3rd thread on the topic- thousands of informative posts from the hive. Really impressive stuff! So appreciative to have found it! Let's keep up the good work as all kinds of indicators are pointing towards a big transition. 

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9 hours ago, DurhamBorn said:

One beautiful side will be the 11th Nov when a big fat divi lands from BAT Tobacco and goes into the oilies.

The market is selling off all the very inflation hedges at the start of an industrial cycle.Incredible,but my children will be very grateful down the road.

This thread has opened my eyes to investing. I'm 52 years old, and I wish I had paid attention to this stuff 20 years ago. Anyway, not worth crying over spilt milk. I'm here now, and as soon as I am home I will be setting up my kids with  S/S ISAs, with portfolios based on our thoughts here.

The information and ideas here are gold dust. 🍺🍺

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6 hours ago, Castlevania said:

That’s not correct. Withholding taxes are levied based on where the company is incorporated.

Following on from this I did some searching finding several sites where punters [incorrectly] had the same idea as myself. I then came across this on the Halifax site (https://www.halifax.co.uk/investing/help-and-guidance/existing-customer/international-trading.html):

 

UK listed shares paying US sourced dividends

  • In most cases when you complete a W-8BEN form you will only pay the 15% Withholding Tax rate instead of 30% on US listed shares paying US sourced dividends. For UK listed shares paying US sourced dividends a 30% Withholding Tax rate is applied even if you have a W-8BEN form in place.

For example, you would receive $70 on a $100 dividend.

 

 

So its NOT WHERE the share is LISTED (as I initially thought/wrote) BUT WHERE the dividend is SOURCED!

Thanks once again @Castlevania without your correction I would have continue to be completely 'in the dark'....just shows the value of this thread.

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3 minutes ago, MrXxxx said:

Following on from this I did some searching finding several sites where punters [incorrectly] had the same idea as myself. I then came across this on the Halifax site (https://www.halifax.co.uk/investing/help-and-guidance/existing-customer/international-trading.html):

 

UK listed shares paying US sourced dividends

  • In most cases when you complete a W-8BEN form you will only pay the 15% Withholding Tax rate instead of 30% on US listed shares paying US sourced dividends. For UK listed shares paying US sourced dividends a 30% Withholding Tax rate is applied even if you have a W-8BEN form in place.

For example, you would receive $70 on a $100 dividend.

 

 

So its NOT WHERE the share is LISTED (as I initially thought/wrote) BUT WHERE the dividend is SOURCED!

Thanks once again @Castlevania without your correction I would have continue to be completely 'in the dark'....just shows the value of this thread.

You pay zero tax on dividends on US stocks inside a SIPP so its always best to keep US holdings in there rather than your ISA.

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46 minutes ago, Cattle Prod said:

That perhaps reflects the energy intensity of oil. I can fully believe thst it takes 2 or 3x capex in renewables to get the same energy back as oil, which as I've said is almost free energy once you get it going. You're essentially getting concentrated solar energy in a transportable 'battery', stored a hundred million years ago, for us to use now to power our society. 

This is what a lot of people never understand - oil is not squished up dinosaurs (well it kinda is but thats not important).  It's concentrated sunlight stored for millions of years, in a more effective method than any of our current technologies including renewables and nuclear.

I could theorise that there might be energy sources which overtake oil in due course (the fabled cold fusion, or alien sourced zero point energy, etc) but until one of those fanciful sources becomes true, oil is the game.

I had a realisation the other day - if oil is replaced with a free energy source, and my oilies investments (about 80k) go to zero, it does not matter as I will have free energy and travel for the rest of my life (more than 80k).....

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1 hour ago, Cattle Prod said:

It's just bonkers. People really think the world is running on windmills.

Correct! It's actually run on hot air...or so the pols self-importance tells me

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9 hours ago, wherebee said:

This is what a lot of people never understand - oil is not squished up dinosaurs (well it kinda is but thats not important).  It's concentrated sunlight stored for millions of years, in a more effective method than any of our current technologies including renewables and nuclear.

I could theorise that there might be energy sources which overtake oil in due course (the fabled cold fusion, or alien sourced zero point energy, etc) but until one of those fanciful sources becomes true, oil is the game.

I had a realisation the other day - if oil is replaced with a free energy source, and my oilies investments (about 80k) go to zero, it does not matter as I will have free energy and travel for the rest of my life (more than 80k).....

I've said it many times before. I really wanted to go renewable on a development.  Looked at it for over a year.  Every single technology.  Had them all round to do surveys, went to all the shows, read everything, searched out user experiences, did all the calculations, read all the small print.  Mains gas if I had it, but not, so oIl and a log burner and plenty of appropriate (very key word) insulation.  Maybe an air to air heat pump for a well insulated modern extension largely for an experiment.   Fine if you are building a new house from scratch but after that it really depends and much of our current housing stock says no.

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On 17/10/2020 at 14:23, MrXxxx said:

Here's another great Rosling presentation that debunks some commonly held beliefs regarding population growth:

 

Love things like this especially when present so well and visually, watched it last night thanks for posting

 

Did think if only school lessons where this good

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Regarding XOM, I really wanted it, and reworked my selection criteria to get it shortlisted on the basis it surely should be on the list (it has the largest market cap by far).  That involved accepting companies with a Current Ratio (a measure of solvency) of 0.9 or above.  That should be 1.0 or above (ideally 2 or above!) but I decided to allow a 10% margin.  That was a fair and useful exercise.

It is categorised into the "Oil & Gas Operations" industry (other O&G industries also exist so some companies may be on other lists).  I was creating the list for the best largest companies in the sector (to replace a sector ETF).  

I looked at ordinary shares of the top 15 companies in the markets I can invest in, excluding any silly candidates (such as those with negative equity).  The following were some key results at the time (note there may be errors, there have been in the past, FYI and illustrative purposes only, DYOR).

Two companies scored a 6, the highest score.  6 companies scored a 5 which shows the bunching in the industry.  XOM was in that group.  It would have got a 7 if it had a higher Current Ratio than its 0.93 (the average of the 15 was 1.59) and had a slightly higher 5 year average dividend (just below the 4% average).  It scored well on most of the other metrics though.  For example, a 26% LTDE (debt ratio) versus a 60% average and had 0% intangibles/goodwill as a percentage of total assets versus a 6% average.

So a tough one for me.  I'm looking for 4 companies and already hold Shell and BP (both a 5, although BP has a 104% LTDE ratio!).  Then there are the two 6 scoring ones I found.  I'm tempted to swap BP for XOM, or maybe just buy the 5 companies given my love for the sector!

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Working though my preferred list of industries and one theme is emerging - the relative strength of Asian stocks (Hong Kong and Tokyo), especially in regard to their Long Term Debt to Equity ratio, Current ratio, and percentage of total assets comprised of intangibles/goodwill. 

By contrast many US companies in particular have low (often less than 1) Current ratios, lots of debt and lots of intangibles/goodwill on their balance sheets.  The Asian stocks also tend to have lower dividend payout (from cash flow) ratios.  I used to avoid Japan on the basis of low dividends. This does seem to have changed both in absolute and relative terms and arguably are more secure.   

Example - Communications Services:

Verizon: 0.96 Current, 169% LTDE, 44% Intangibles, 4% Av Div

Comcast: 0.97 Current, 127% LTDE, 65% Intangibles, 2% Av Div

China Mobile: 1.11 Current, 4% LTDE, 2% Intangibles, 4% Av Div

NTT Docomo: 1.74 Current, 6% LTDE, 9% Intangibles, 4% Av Div

So the big question - how reliable is the data (relative, as how reliable is any of it)?  Or is this just emphasising the future is over there?  Same goes for Moscow in the O&G sector.  Maybe all fine if I'm taking 4 companies per sector and spread it around a bit!  

PS: Vodafone: 1.01 Current, 102% LTDE, 32% Intangibles, 6% Average DIV

PS: Top 15 average: 1.11 Current, 101% LTDE, 29% Intangibles, 4% Av Div

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Nicolas Turgeon
19 hours ago, JMD said:

Hi NT, no problem. Once I had done my personal risk/reward analysis I found that I wanted to hold lots of PM's, commodities, energy, telecoms, as I think they are just to good value at moment. The problem I then found with the thematic/sector funds/etfs was that they didn't hold nearly enough of the type of stocks I wanted for my chosen sectors. So I bought the individual energy and the telecoms stocks instead, as these are also mostly a buy and hold anyway for this entire cycle so won't require much maintenance effort plus there is no service fee in holding stocks. However for regional funds i still intend to buy those after any big market correction, if we get one, but at present they are too expensive. For PM's I hold gdx/gdxj and individual silver miner stocks, plus physical silver/gold etc's. I'm currently looking at buying individual commodity miners for uranium, copper, etc. But the Ninety One Resource fund you mention was discussed here only recently and the consensus here was that it does look very good, and holds good allocations in the type of stocks discussed here.                                                                                                                                           I changed by focus to the 'decomplex' type of companies and sectors, like energy, telecoms. The decomplex area is mostly not really served by funds as their remit is much wider. But fortunately I think funds and etfs can mostly be avoided if the investment strategy is to hold next cycle reflation stocks for say 10years, ie there is very little work/overhead in owning say BP or BT. Hope this helps.

Thanks for the update JMD. Much appreicated. Good point about the fees too!

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1 hour ago, Harley said:

Working though my preferred list of industries and one theme is emerging - the relative strength of Asian stocks (Hong Kong and Tokyo), especially in regard to their Long Term Debt to Equity ratio, Current ratio, and percentage of total assets comprised of intangibles/goodwill. 

By contrast many US companies in particular have low (often less than 1) Current ratios, lots of debt and lots of intangibles/goodwill on their balance sheets.  The Asian stocks also tend to have lower dividend payout (from cash flow) ratios.  I used to avoid Japan on the basis of low dividends. This does seem to have changed both in absolute and relative terms and arguably are more secure.   

Example - Communications Services:

Verizon: 0.96 Current, 169% LTDE, 44% Intangibles, 4% Av Div

Comcast: 0.97 Current, 127% LTDE, 65% Intangibles, 2% Av Div

China Mobile: 1.11 Current, 4% LTDE, 2% Intangibles, 4% Av Div

NTT Docomo: 1.74 Current, 6% LTDE, 9% Intangibles, 4% Av Div

So the big question - how reliable is the data (relative, as how reliable is any of it)?  Or is this just emphasising the future is over there?  Same goes for Moscow in the O&G sector.  Maybe all fine if I'm taking 4 companies per sector and spread it around a bit!  

PS: Vodafone: 1.01 Current, 102% LTDE, 32% Intangibles, 6% Average DIV

PS: Top 15 average: 1.11 Current, 101% LTDE, 29% Intangibles, 4% Av Div

It's interesting to see actual figures Harley.

Money Week's Merryn has said for long time that Japan offers value and dividends. I agree and do like her pragmatic style and views about many things. However, i recently learned that she sits on a couple of company investment funds boards, can't recall the details but ones that focus on Japan, so she might be a little biased.

As for the reporting accuracy of those companies i do read time again that Asia has far less governance than the West. Kettle/pot i know, but I believe that Richard Werner (princes of the yen) doesn't think Japan has changed much since his 90's expose of how Japan's government/banking/private-companies all work in 'harmony'/facade (all very Zen-like, until... it isn't).

But personally none of this puts me off, just details to be aware of in  my opinion. And i still plan to allocate some 10% of my sipp/isa into regional funds when/if BK, and most of that will be in Asia.

 

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1 hour ago, Nicolas Turgeon said:

Thanks for the update JMD. Much appreicated. Good point about the fees too!

NT, this forum - and all the great knowledgeable and extremely generous posters on here - has been very instructive for me. I should underline that i do not have any particular financial expertise myself, hence why i have changed my inv. strategy since starting reading here. (In fact, I often prattle on about the macro, but this has been valuable for me in helping 'work-through' probable outcomes, i.e. after much discussion, i think we'll get increasing authoritarian government, and so reduced scope for violent social breakdown come decade end. However this conclusion introduces a new problem - how do we keep our investments from being stolen by government, ...but a topic for another time, along with yet another set of risk/rewards methinks!!).    

Excuse the detour, back to our actual subject(!). I just wanted to properly explain that the outcome of the risk/reward review i did, led me to focus (big time!) on the coming industrial/commodity cycle (that's the 'decomplex' idea i mentioned). So buying shares in the relevant companies that i wanted, was really the only way to get that exposure, as the funds/etfs were too 'diverse' in what they held (though that 91 Resource Fund you list is very good, but i notice even that has approx. 1% fee). Anyway, the more i thought about the pending macro cycle, and the unfolding global politics/social issues, the more it all made sense to me - but please do your own research NT... and i would be interested in your own findings/(investment)doings!   

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56 minutes ago, Cattle Prod said:

Mulling taking a small position in IAG. I don't really like airlines as investments, but the price is tempting for perhaps a 3-9 month timeframe, it's at 75% discount to January. The price is reflecting that the business is screwed for years to come, but I think: 

a) The pandemic is blowing itself out. If you rank countries by deaths per m pop, the ones above ~ 600/million all look to be topping/flattening/declining. And the NE states in the US all look like Sweden, though they went over 1000 (obesity?).

b) There are kites being flown about test or vaccine passes to fly. I really don't agree with civil liberty aspects, but there is a precedent of sorts with yellow fever. Anyway, it doesn't matter what I think, the vast majority of people will jump at this. I think there is a huge pent up demand to travel overseas, and if such a programme is rolled out and is acceptable to destination countries, the airlines will be booked solid very quickly.

I need some diversification from oil in particular, though this is obviously a 'complex' version of that. And is a punt, really.

Thoughts?

jet2 sits on a ton of cash

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I'll be honest, I don't know how much value my updates provide, given that we're in a bull market where pretty much all miners go up and down in tandem, so you can just buy GDXJ and go to sleep for 3 months.

But, just to keep my post count going, I'm letting you guys know that Kirland Lake just reported some absolutely bonkers intercepts at Macasa, including 253g/t over 14.5 meters and 210g/t over 8.2 meters, plus a number of shorter intercepts spanning from 30 to 430g/t. That's gold, Jerry! Gold! Not silver.

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Sanguine on airline stocks.

Discount to past prices is not totally accurate in the case of IAG, because they had a rights issue which has increased the share base. Something like 2.7bn Euros was raised, but the share count has gone up by about 33%.

On current trading there can not be many worse companies for money drain - expensive assets to maintain and highly paid people. On the other side, they do have some kind of natural monopolies in play. Ryanair or Easyjet could not run Heathrow routes for instance.

But whether this is enough to ever regain the past, I am not sure. Packed aircraft do not equate to profits. There have been some really cheap sales from BA recently, I would guess that simply staying break-even in 2021 would be a massive achievement (this is the projection). But if things drift off course from that, I would think the markets would have to be tapped again.

But some of the cherry-puff fares may have disappeared forever. Businesses who may have block purchased a load of flexible business class seats for instance. Some will come back, but I suspect not all. 

I do find it quite funny how Ryanair are now worth several times the multiple of IAG - they could do a capital raise themselves and cause some mischief.

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1 hour ago, JMD said:

Money Week's Merryn has said for long time that Japan offers value and dividends. I agree and do like her pragmatic style and views about many things. However, i recently learned that she sits on a couple of company investment funds boards, can't recall the details but ones that focus on Japan, so she might be a little biased.

She also worked in Japan in her early career.  But then everyone risks having biases.  The trick is to have an adult conversation with yourself and try to allow for them!

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