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

[Harley]

@JMD

"Virtue is more to be feared than vice, because it's excesses are not subject to the regulation of conscience'- Adam Smith. (btw i'm big fan of A.S. and his 'human scale capitalism', but who knew they had virtue-signalers back then even!)"

They were called Popinjays back then!  Nice term to start using again! 

 

 

[Bricks & Mortar]

6 minutes ago, kibuc said:

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.

I, for one, really appreciate and value your updates, Kibuc.

[Harley]

1 hour 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?

The only time I'll use such a passport is to get the hell out of here, and then burn me papers!

[Boon]

17 minutes ago, leonardratso said:

jet2 sits on a ton of cash

Gotta be careful with the cash in this case. 

Jet2's accounts show the cash at 31/3/20. Massive cash balances here also come with a liability in deferred revenue, because the cash has been received for a service (flight/hotel) yet to be delivered. I'd guess in a lot of these cases it ended up being refunded.

So, the real cash balance might be much less.... looking at the accounts maybe c.£650m.

But this was 6 months ago now. I don't think they have updated the market on what the cash balance may be right now.

[Democorruptcy]

Latest Hussman downdate:

https://www.hussmanfunds.com/comment/mc201016/

[JREWING]

 A Monday dose of reality..... Smirking.

I was working at a yard in Walsend making Jackets for wind turbines last year. I was the only electrician on site so was getting pulled from pillar to post. One of the head guys was on the pad and was p'd off so I said sarcastically do they even think these turbines are green energy due to the amount of steel and transportation fuel that was involved in making them, he laughed at me nearly told me to go f*&k myself then said your right but its politically correct, theres work created in making them and most importantly its heavily subsidised is the reason they build them, I asked would they ever pay for themselves, he smirked and said probably not but they were making profit out of building them....... Of course technology will improve but just don't get green energy investment right now. Shell could invest in other industries that will give far greater reuturns...

[Castlevania]

40 minutes ago, Cattle Prod said:

Equinor going for a bit of Scandi-style sself flagellation today on their disastrous foray into US shale:

Don't worry Equinor, BHP lost a lot more than that in US shale. It's where money goes to die.

Talking about shale, ConocoPhillips are to merge/buy Concho. Doubling down on shale.

https://www.google.co.uk/amp/s/mobile.reuters.com/article/amp/idUSKBN2741E0

[JMD]

Very worth watching these two videos (only 20mins. total), they might appear just dry statistics (the host is a bit of a maths geek), but they definitely aren't.

They give valuable info. about portfolio allocation, plus very surprising insights into performance returns. (spoiler: bonds have always been crap!) 

 

[JMD]

2 hours ago, Harley said:

@JMD

"Virtue is more to be feared than vice, because it's excesses are not subject to the regulation of conscience'- Adam Smith. (btw i'm big fan of A.S. and his 'human scale capitalism', but who knew they had virtue-signalers back then even!)"

They were called Popinjays back then!  Nice term to start using again! 

 

 

Yes, i agree.

But George Galloway got there first - he famously called Christopher Hitchens a 'popinjay' during one of their heated debates.

[reformed nice guy]

6 hours 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

I had a look at NTT Docomo and it looks like it jumped recently as its parent company Nippon Telegraph and Telephone Corp is going to buy it over. The parent company owns about 2/3rds and its planning to buy up the rest of the shares.

The parent company looks interesting but I havent looked into it in detail.

Hargreaves Landsdowne has the NTT Docomo ADR but you have to call up. It doesnt have Nippon Telegraph and Telephone Corp, which does have an ADR available (NTTYY), but I will email them and ask them to add it. The have done it before for when Iv asked (and I ended up not buying what they added!)

[sancho panza]

On 18/10/2020 at 03:01, JMD said:

I know the point your making SP, but hasn't every form of government ended up making the same dreadfull decisions, with all now having a similar looking bunch of ineffective and peculiar leaders at their helms? Has any of these forms of 'representation' made any substantive difference? However, I do think these different chimeras in democracy, whether they be fptp, pr, etc, have been very instructive. I just society is capable of learning from its mistakes. For example, I now term myself a libertarian, despite all my life being negative towards this philosophy - mainly because when the 'facts' change, I change my mind. The new 'facts' I think are significant are the powefull opportunities offered by blockchain technology, including applications like smart contracts, stable coins, etc. These technologies are game changers and make for example concepts like P2P lending look prehistoric.                                                                                                                                                          All this may sound rather utopian, but to be cear I don't think blockchain to be a magic bullit. Instead, I actually fear an increasingly authoritarian state developing over the next few years, with lockdowns and curfews, government by decree, MSM/cross-party consensus, as being perhaps just the start. I think the Psyops have also begun (though I'm pleasantly surprised that the West seem to be as crap and clumsy as the old USSR was about such things). Of course the method is not as blatant as governments telling people what to actually believe, but rather what to (continually) think (or worry) about - Corona, mental health, identity-politics maybe? But so far these distraction/social division techniques appear to be working.                                     Anyway just my collection of rambling thoughts, triggered mainly by the events happening so far this year. Could be way wrong, and I accept it's mostly conjecture (though hope it doesn't sound too ott?). And in any case, perhaps if we are actually heading toward a full monetary collapse by decade end, it might be a good thing for governments to take greater controls in order to prevent violence or even civil wars. But of course, and as always, wrestling those powers back out of the hands of government will then be the problem. And that's why I mention blockchain above, which I think does offer a chink of hope for a very different way of ordering society, along the lines of a small-state libertarian solution. 

I think the thing with PR of msot forms is that authoritarian leaning people would struggle to get 50% of the vote except on rare opccasions.With FPTP,you only need 30-35% in the right places.

Like you,I've been shocked and worried by how quickly the British public has taken to having it's basic liberties suspended.I'd love a constitution to protect our rights.Particualrly in light of the way Big Tech has been the forcing hand of authoritarianism

On 18/10/2020 at 10:38, DurhamBorn said:

Doesnt matter Harley,all that matters is the liquidity goes in the system,the market then allocates that liquidity.Your right on the lack of any financial plan,they are simply printing and spending on the state,but thats exactly what we want.We want all that dis-inflation of 40 years printing back.The biggest boom in industrial assets is starting.Asia has started already,massive investment incoming for them.

Of course sterling could be toast.The goverment have been beyond useless so far.I still think the pain in the UK will be on housing and bonds (pensions in 40/60,20/80 type setups)

At the moment it's all about stimulus and the reality is that the Fed isn't going to stop doing it each time the patient looks like dying,unitl it can't.

Are you thinking that we'll see stimulus equally under Biden as Trump or is there one that's better for Wall St?

On 18/10/2020 at 11:24, jamtomorrow said:

Talking of Government needing to get its act together ... anyone else notice this kite being flown this week?

https://www.bloomberg.com/news/articles/2020-10-13/u-k-plans-new-law-to-unpick-foreign-deals-on-security-grounds

I hope there's something in it. There isn't going to be an industrial-led reflation if Government doesn't provide a bit of muscle.

I think this follows Theresas attempts to allowthe Chinese access to the communication network and Hinkley Point.

[DurhamBorn]

@sancho panza Fed will print the same,but might pump quicker for the Dems so they can front load the fiscal pulse.The Fed want their printing to go full fiscal.

Iv been looking at gas today updating a few things.

I think Europe needs to attract around 80 MPTA to meet emissions targets by 2030.A Japans worth of extra gas.There is going to be a big compounding of the shortages from around 2024

Gas is going to be a stunning investment.Big growth in LNG to Europe.

 

[sancho panza]

11 hours ago, DurhamBorn said:

https://www.bbc.co.uk/news/business-54594877

Notice this bit.Industrial led recovery not consumer.

While growth of 4.9% is slightly below some forecasts. industrial output - a good barometer of state controlled activity - came in above expectations.

Copper price agrees

5 hours 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?

I think there's risk with these things but for a quick potnetial double it offers some diversification much like buying Rolls a few weeks back at £1.15.

I've had a quick look Coma scale wise((Chart 5,inc 4,BS 1 FCF 4 Sector 2=16 although I might be msivaluing the sector there) and the balance sheet was fubar last year,but it was kicking off a lot of free cash flow and from what I've heard BA hasn't wasted this crisis.Lot of old school contracts have been downgraded.

Like oil,I think the big boys will be left in the space,but it's one I'd sell early,like I'd be selling RR now if I'd piled in.There'll hopegfully be otehr opportunities with that one.

4 hours ago, kibuc said:

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.

As B&M said,keep em coming.Much appreciated.

3 hours ago, Cattle Prod said:

Equinor going for a bit of Scandi-style sself flagellation today on their disastrous foray into US shale:

Don't worry Equinor, BHP lost a lot more than that in US shale. It's where money goes to die.

Ouch,that's an impressive loss to be fairr.Strangely,our EQNR shares are up singificantly since purchase unlike msot otehrs :-)

 

 

[sancho panza]

7 minutes ago, DurhamBorn said:

@sancho panza Fed will print the same,but might pump quicker for the Dems so they can front load the fiscal pulse.The Fed want their printing to go full fiscal.

Iv been looking at gas today updating a few things.

I think Europe needs to attract around 80 MPTA to meet emissions targets by 2030.A Japans worth of extra gas.There is going to be a big compounding of the shortages from around 2024

Gas is going to be a stunning investment.Big growth in LNG to Europe.

 

thanks DB

what are the prime options there foir gas exposure  ENI/Repsol/EQNR/Gazprom?

That's a huge amount of new gas to find.Putin will be chuckling.

 

edit to add BT back under a £1. @Cattle Prod probably a safer bet than BA away from oil if you don't already own. dyor natch.

 

[BurntBread]

3 hours ago, Panda said:

 A Monday dose of reality..... Smirking.

I was working at a yard in Walsend making Jackets for wind turbines last year. I was the only electrician on site so was getting pulled from pillar to post. One of the head guys was on the pad and was p'd off so I said sarcastically do they even think these turbines are green energy due to the amount of steel and transportation fuel that was involved in making them, he laughed at me nearly told me to go f*&k myself then said your right but its politically correct, theres work created in making them and most importantly its heavily subsidised is the reason they build them, I asked would they ever pay for themselves, he smirked and said probably not but they were making profit out of building them....... Of course technology will improve but just don't get green energy investment right now. Shell could invest in other industries that will give far greater reuturns...

I'm reading Ben Graham's "The intelligent investor", and he has an interesting story from 1949, which struck me as perhaps relevant. I'll paraphrase, rather than quote, so it may be a good idea to check his words...

During the inter-war years, civil aviation had just been taking off (so to speak) for the upper classes. Then of course WWII put the kibosh on that, while at the same time driving enormous technological advancements.

So, imagine the USA in 1949. Everyone knew "aeroplanes" was about to be a huge growth industry: it looked a dead cert, as there was the demand, the technology, and it was the spirit of the new age. There had also, accidentally, been a lot of government investment in development and training of pilots etc. Lots of companies and investment funds were springing up that looked like sure-fire bets.

Now look back on the industry from a vantage point of (at time of Graham's writing - and his conclusions might also apply further on) 20 years into the future. Was the man in the street right about that new industry? Absolutely: civil aviation had a huge amount of growth, from virtually nothing, to a vast new method of transit ... so the popular forecast was exactly correct in this case.

That said, there was a slight wrinkle: none of the investors made any money. That was partly because a lot of early companies went bust, but more interestingly, even if you had picked the eventual surviving airlines, which grew into very large companies, it turned out they made a net loss for investors over that 20 year period, and needed constant government support even while they grew.

I think we should consider the possibility that the green energy industry (more pertinently for this thread, including green investments by oil companies) might be a similar story.

Surprisingly, to me, Graham made a similar point about the other big technology growth area in his time-frame: that of computers in the 1960's. Again, an area where everyone wanted to invest. My feeling is that with another 20+ years of hindsight, it wouldn't have been quite such a sorry story for investors, in that a few companies did go on to make big profits, but I guess those would have been very hard to identify during the 60's, so again, an enthusiastic investor reliably lost money, even while he was completely right about the sector. Graham's main point was about avoiding "growth" areas; i.e. those that have already grown, but whose price has increased even more, as it's quite possible to lose even while predicting correctly.

[Loki]

@BurntBread fascinating info and parallels there.  I've just ordered the Kindle version, I need to start reading about things properly rather than trying to piece the puzzle together blindfolded I think.

[MrXxxx]

9 hours ago, DoINeedOne said:

Did think if only school lessons where this good

Yeah but he probably had several weeks to prepare it, and his audience are not `swinging from the rafters` or telling him to fu££ off! :-) :-) :-)

[DurhamBorn]

1 hour ago, sancho panza said:

thanks DB

what are the prime options there foir gas exposure  ENI/Repsol/EQNR/Gazprom?

That's a huge amount of new gas to find.Putin will be chuckling.

 

edit to add BT back under a £1. @Cattle Prod probably a safer bet than BA away from oil if you don't already own. dyor natch.

 

Shell and Repsol probably due to it being LNG needed,BP should also do well,anyone who has LNG to ship.By 2024 though i expect a much bigger competition between Europe and Asia,so much higher average prices.

[MrXxxx]

7 hours 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?

Two thoughts if I was going for a Covid recovery punt...

1. Cruises rather than flights as a) people will do the test and can then stay on the ship knowing everyone is `clean`

2. If I was going for airlines it would be short haul/charters, as the pent up demand will be a week in the sun/beach not long haul/business.

Dyor etc :-)

[Castlevania]

My punt for a recovery in people going on holiday is Hostelworld. They only have a couple hundred employees; raised cash back during the brief period of Summer optimism; and a lot of their costs are paying commission after people have clicked through an advertisement to book (I’m saying their costs are low at the moment).

They’ve struggled due to Air B&B and an oversupply of hostels. I stayed in a hostel in London last year for £15 a night. 5 years ago it would have cost twice as much. Now that’s not good for them as they simply take a % commission from anyone who books through their platform. However you’d think that many operators will go bust; and you’d also think that once the pandemic is over there will be a huge demand to travel. Supply and demand = more bookings at higher prices.

[Harley]

On 18/10/2020 at 14:21, DurhamBorn said:

Wouldnt worry about CDIs they are held under crest.I have around 12% of my portfolio in them.Like anything i wouldnt go over 15%,but under that across different stocks im fine.

Fine to keep a lid on any risk areas.  Not so much counterparty risk as liquidity risk.  Some have very low trading volumes.  The case for many secondary markets.

[Heart's Ease]

Quite, quite charming, XOM in particular.

The Scottish Play landscape would have lemmings on it 😁

[Democorruptcy]

2 hours ago, sancho panza said:

edit to add BT back under a £1. @Cattle Prod probably a safer bet than BA away from oil if you don't already own. dyor natch.

 

Bit I read about BT last week, when the share price dipped on a market up day.
 

Quote

 

BT has committed £12bn to its network upgrade but has warned that the government could miss the 2025 target by eight years. Only 70 per cent of the country will to be upgraded on time, it said. It has called for policy changes to lower the cost of deploying fibre by lowering business rates and reforming planning laws to speed up the process.

Meanwhile, Ofcom has opened an investigation into BT for potentially quoting excessive amounts to connect people in very remote areas. The company has an obligation to connect homes to a superfast connection if the cost is below £3,400 but some residents in very rural areas have been quoted sums costing more than the value of their homes for the connection. The regulator said it was concerned BT may not be complying with regulatory conditions when providing those quotes. Matt Warman, the DCMS minister for broadband, highlighted a number of cases in parliament last week including the Scottish island of Iona that had been quoted more than £1m for a connection. A BT spokeswoman said the company “strongly disagreed” with Ofcom’s assessment but admitted a new approach, potentially utilising the OneWeb satellite the government has backed, was needed.

 

 

[MrXxxx]

6 hours ago, Boon said:

Ryanair or Easyjet could not run Heathrow routes for instance.

But these could take the BA slots from Gatwick instead?

[Harley]

3 hours ago, reformed nice guy said:

I had a look at NTT Docomo and it looks like it jumped recently as its parent company Nippon Telegraph and Telephone Corp is going to buy it over. The parent company owns about 2/3rds and its planning to buy up the rest of the shares.

The parent company looks interesting but I havent looked into it in detail.

Hargreaves Landsdowne has the NTT Docomo ADR but you have to call up. It doesnt have Nippon Telegraph and Telephone Corp, which does have an ADR available (NTTYY), but I will email them and ask them to add it. The have done it before for when Iv asked (and I ended up not buying what they added!)

Both on me shortlist.  Can't remember if I meant to buy them tonight or not.  One glass if red is all it takes!