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


spunko

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Democorruptcy
4 hours ago, DurhamBorn said:

I added some Bayer today,small opening position,looking to add going forward.

That was a good wait!

When you said you were setting ladders on that one and a few other Euro shares Aug 2019, I put a watchlist of them  together. Bayer is down 37% since. Cargotec has done best at +20%. I mentioned withholding tax and didn't buy any.

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4 hours ago, Nicolas Turgeon said:

 

4 hours ago, Nicolas Turgeon said:

Agreed! the decomplex theme has been heavily discussed here i.e. going back to the root inputs of industry rather than investing in (for example) the retailers who buy products made from parts made by part makers made from inputs made from chemicals made from raw materials.... with a few other steps thrown in! That kind of disconnection is the opposite from the decomplex theme. Which is why the consensus on here is loving those raw ingredients.

The recent thougts I had were around holding US dollars in an ISA/SIPP once the dollar gets cheaper i.e DXY down below 90. This has been mentioned on here before and a friend mentioned these two as possible ways of holding USD in investment accouints-

GBUS - WisdomTree Long USD Short GBP
XUSD - Xtrackers USD Rate Swap UCITS ETF
plus I also found:
SMTC - LYXOR INDEX SMART CASH UCITS C USD CAP

As always, check their suitability and all the small print!

 

David Hunter forecasts that after the dollar goes to 85 it may go to 140. I had thought about putting some cash into US treasurys via HL when the dollar is cleary down. Any reason why not ?

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8 minutes ago, Bricormortis said:

David Hunter forecasts that after the dollar goes to 85 it may go to 140. I had thought about putting some cash into US treasurys via HL when the dollar is cleary down. Any reason why not ?

I've bought IBTL via HL before, no problems. Not sure if you'd be better off with a shorter duration bond, that's well out of my knowledge

 

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2 hours ago, Democorruptcy said:

That was a good wait!

When you said you were setting ladders on that one and a few other Euro shares Aug 2019, I put a watchlist of them  together. Bayer is down 37% since. Cargotec has done best at +20%. I mentioned withholding tax and didn't buy any.

Withholding tax does put me off a lot on them its a real pain.I didnt buy many of the Euro shares until the big falls in March,some have done very well,others like Telefonica and Repsol have 18% losses.Like everywhere outside of the US its a very volatile and plus or minus mixed back.Bayer has been being whacked with fines for causing cancer.I had ladders set in Cargotec but only bought a few and let the others go,mistake as they have doubled from then.So many were falling in March choices had to be made and as ever some of the ones scratched have doubled and some of the ones bought (big oil) have drifted a bit lower.Its a brutal,volatile market at the moment.

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UnconventionalWisdom
2 hours ago, Bricormortis said:

David Hunter forecasts that after the dollar goes to 85 it may go to 140. I had thought about putting some cash into US treasurys via HL when the dollar is cleary down. Any reason why not ?

I'm trying to get my head around TIPs. Bond prices get hit as inflation goes up so would TIPs be a better bet if you are trying to capitalise on a stronger dollar as inflation rises. TIP price would be linked to inflation and you'd get both its imncreased price and the benefit of the stronger dollar if that happens. 

I'm still trying to figure it out so may have completely missed the point. Someone more informed got an opinion? 

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I live off my dividend income , haven't worked for the past few years but since March i'm probably down an average of about 700 a month , but i've reigned in my expenditure and continued to reinvest the bulk of my dividend income. Might be chucking good money away but i can see a bit of light at the end of the tunnel and more and more dividends are getting reinstated.

No way would i consider going back to work , i'd rather live frugally than face doing that. My portfolio is about 100k down from it's peak but i've kept buying on the big down days and feel pretty comfortable that i am making the right decision  and every year i get another 20k out of the grubby hands of the taxman.

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Eventually Right
31 minutes ago, UnconventionalWisdom said:

I'm trying to get my head around TIPs. Bond prices get hit as inflation goes up so would TIPs be a better bet if you are trying to capitalise on a stronger dollar as inflation rises. TIP price would be linked to inflation and you'd get both its imncreased price and the benefit of the stronger dollar if that happens. 

I'm still trying to figure it out so may have completely missed the point. Someone more informed got an opinion? 

I’m fairly sure David Hunter’s dollar rise call is based on a flight-to-safety trade as the second part of the deflationary bust happens. That’s why he sees the dollar and US treasuries doing well next year.

so you wouldn’t get the inflationary increase part of your trade in that scenario (at least not in conjunction with the much stronger dollar).

TLT or UUP LEAPS would work well if DH is right about Big Kahuna part 2 hitting.

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What happened in Jan 2018 to cause the DXY to go to 89?

It obviously didn't like it down there cos then it went to 102....xD

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17 hours ago, DurhamBorn said:

Dieing doesnt matter to me

Agree, making sure the government gets as little tax from me as possible does!...I've almost considered becoming a hermit and living in a cave when I retire, but I am sure they would have a taxation plan for that scenario as well! :-)

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9 hours ago, Eventually Right said:

I’m fairly sure David Hunter’s dollar rise call is based on a flight-to-safety trade as the second part of the deflationary bust happens. That’s why he sees the dollar and US treasuries doing well next year.

Certainly is, I'm really testing my conviction of this happening at the moment given central banks and governments already poised to act especially as "no inflation in sight for a long time to come". I was almost certain Dave would be right this year as doubts remained about the ability to act fast enough, and that's pretty much what they managed to do since March.

Mr Hunter's premise is sound, I understand the huge leverage, but what if we don't get this final blow off top? My understanding of his expectation is that for a bust to occur, it takes a manic melt up followed by a "policy mistake" (tightening). What if the stimulus bill isn't agreed until 2021? 

It's been a long old wait, forgive my impatience! Dave seems quite certain that this will all happen by next month, perhaps December, however I do wonder if much of this is reliant on the stimulus bill being agreed (perfectly possible of course) and a very clear election win in either direction.

Just to revisit your more recent stream of thought @DurhamBorn, am I right in thinking that you're leaning towards a sector rotation rather than a bust where huge £££ is lost (obviously still a risk but magnitude less so given ability and readiness to act)? This would certainly chime with the narrative from the now quite popular and rather bang on Hedgeye team who see greater fiscal action leading to a Quad 4 - Quad 3 - Quad 2 (Hedgeye terms) rotation in quick succession, with a background risk of returning to Quad 4 (inflation and growth falling).

Still holding fire on the housing front. Little did I think banks would be turning customers away by RAISING rates in a deflationary environment all thanks to insane demand from the stamp duty holiday. Not entirely convinced this is the sole reason, if the banks didn't see risk surely they'd be doing everything they could to get more customers? This dynamic in the midst of the recession (double dip?) we're in is also very testing! My expectations have been decimated for now which isn't entirely unexpected but disappointing nonetheless and makes me wonder "what next"? Have we already had our housing crisis? (stagnation post Brexit)

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Democorruptcy
9 hours ago, headrow said:

I live off my dividend income , haven't worked for the past few years but since March i'm probably down an average of about 700 a month , but i've reigned in my expenditure and continued to reinvest the bulk of my dividend income. Might be chucking good money away but i can see a bit of light at the end of the tunnel and more and more dividends are getting reinstated.

No way would i consider going back to work , i'd rather live frugally than face doing that. My portfolio is about 100k down from it's peak but i've kept buying on the big down days and feel pretty comfortable that i am making the right decision  and every year i get another 20k out of the grubby hands of the taxman.

Which ones?

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1 hour ago, Barnsey said:Still holding fire on the housing front. Little did I think banks would be turning customers away by RAISING rates in a deflationary environment all thanks to insane demand from the stamp duty holiday. Not entirely convinced this is the sole reason, if the banks didn't see risk surely they'd be doing everything they could to get more customers? This dynamic in the midst of the recession (double dip?) we're in is also very testing! My expectations have been decimated for now which isn't entirely unexpected but disappointing nonetheless and makes me wonder "what next"? Have we already had our housing crisis? (stagnation post Brexit)

https://www.thelondoneconomic.com/news/another-u-turn-banks-uneasy-over-pms-plan-for-low-deposit-mortgages/09/10/
 

“We don’t want to be part of the problem for the future,” said a senior executive at one high-street lender told the publication. “People won’t thank us in 12 months’ time if they are saddled with unsustainable debt on their homes.”

The banks know what’s going to happen just like the government does, they are just putting on a charade to the masses.

All the furloughs, giveaways, and props have dangerously set a ticking time bomb and the general public are blissfully unaware. They see no reason why house prices can’t rise and the BoE can’t print forever and they can’t continue to be paid sitting at home indefinitely.

Most have no perception of recessions, let alone what’s coming and what the impact will be to them personally.

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Eventually Right
1 hour ago, Barnsey said:

 

Mr Hunter's premise is sound, I understand the huge leverage, but what if we don't get this final blow off top? My understanding of his expectation is that for a bust to occur, it takes a manic melt up followed by a "policy mistake" (tightening). What if the stimulus bill isn't agreed until 2021? 

Exactly-if Biden wins (Likely), are the democrats going to agree a massive stimulus bill before he is inaugurated, that Trump could call his legacy?

There might be a smaller one to “tide things over” but surely the big “New Deal” esque stimulus will come once the democrats can take full ownership of it?

in which case, how do you get the melt-up? And surely there’s a heightened risk of BK part 2 starting sooner, as a result of 2-3 months of inaction?

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10 hours ago, headrow said:

I live off my dividend income , haven't worked for the past few years but since March i'm probably down an average of about 700 a month , but i've reigned in my expenditure and continued to reinvest the bulk of my dividend income. Might be chucking good money away but i can see a bit of light at the end of the tunnel and more and more dividends are getting reinstated.

No way would i consider going back to work , i'd rather live frugally than face doing that. My portfolio is about 100k down from it's peak but i've kept buying on the big down days and feel pretty comfortable that i am making the right decision  and every year i get another 20k out of the grubby hands of the taxman.

Iv gone back to work headrow but not because i need to.I got offered a good job back in June to do with covid and then i got offered an even better one back with an old employer.Iv gone back for several reasons.Main one is it means i can re-invest all my divis again and given the prices of many assets i want thats a great position.I can also save 80% of my salary so i can SIPP down to £1k a month to pay no tax,or another route.Im just working that out at the moment as my SIPP is pretty much already at the level where i can draw down tax free from 55 etc so the only gains would be investment gains on the saved tax and inheritance tax shielding.Another reason is my children.They are all doing well etc but with the situation i thought it prudent to be in a position where i could prop them up if needed without having to touch capital.

My partner also has a bit of ill health and i want to set aside enough so she can retire at 55 if needed.She is 100% fine pension wise from 60 as she has a state final salary,house rented out paid for and enough in capital to cover 60 to 66/67 .She is saving 70% of her salary now as well,but i could get her over the line very quickly without having to cost her into my capital etc.

This time as well at last iv got the oldest car in the car park out of 1000 employees.I noticed two older last time.Im really proud of that.Cant beat a 2.0l diesel engine.

 

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Democorruptcy
10 minutes ago, Wheeler said:

I find the following site quite useful for dividend information for the main FTSE listed companies:

https://www.dividenddata.co.uk/dividend-cuts.py?market=alldividends&sort=resumed&order=0

 

There are a surprising number of re-instated dividends in the list, though none in the shares I own.

Cheers, I've used that site before but didn't realise they had a "Dividends Resumed" column.

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@Barnsey im leaning to sector rotation,but still a huge risk of everything going down hard again.Im very very happy with the prices im paying for stocks i want though,and the way iv tried to handle things is by taking some profits off the table.For instance the gambling stocks iv taken out a lot of big profits.Even companies like DRAX that have more than doubled iv sliced.Mosaic i sold a lot on a near treble.Im very confident my portfolio will shine over the cycle because the CBs cant stop until we get inflation.Whats happened so far has been fantastic because although we have areas in the red,some by a lot,others have more than made up for that.Anyone holding Sibanye still knows that.

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1 hour ago, Barnsey said:

Just to revisit your more recent stream of thought @DurhamBorn, am I right in thinking that you're leaning towards a sector rotation rather than a bust where huge £££ is lost (obviously still a risk but magnitude less so given ability and readiness to act)?

Does it really matter between the two right now? I think the strategy should be to get a stake in strong businesses for the future, at attractive prices. For me, I'm happy that I have done that with the oil companies, and (with less conviction) the telecoms and some miners (given their current financial positions). If the stock market price craters for a few months ... or even a year or two, I'm still in that position.

I might regret missing some cherries on the cake, but equally I'm not reaching under a whipsaw looking for a gold sovereign I suspect someone's dropped. If there is a generalised market crash (rather than a sectoral rotation) I may have some difficult decisions about whether to buy more of the sectors I already own plenty of, or bulk out some of the other areas that I'm currently under-weight (particularly industrials, like Caterpillar, Jacobs group, BASF, Siemens, Bayer etc.).

I'm still trying to think through how I will react to my first crash with skin in the game, and I expect by posting I'm just creating noise and embarrassing hostages to fortune, so apologies for that. I am struck by many comments in Graham's book, especially the fact that very few actively managed funds out-perform the broad market, as well as his constant exhortations that it's extremely easy to under-perform. He himself, one of the most famed investors of all time, in his Graham-Newman Corp., "only" managed to out-perform the broad market by 2.5% over his career. Admittedly, that compounds up a lot over a long lifetime, but still worth bearing in mind that a cautious investor, just holding a broad index fund (and most importantly, not selling it), would have done respectably well - and  even indistinguishably well over the course of a couple of years. I'm thinking that if there is a big crash, I might start buying and holding indexes in addition to what I have.

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25 minutes ago, Sideysid said:

https://www.thelondoneconomic.com/news/another-u-turn-banks-uneasy-over-pms-plan-for-low-deposit-mortgages/09/10/
 

“We don’t want to be part of the problem for the future,” said a senior executive at one high-street lender told the publication. “People won’t thank us in 12 months’ time if they are saddled with unsustainable debt on their homes.”

The banks know what’s going to happen just like the government does, they are just putting on a charade to the masses.

All the furloughs, giveaways, and props have dangerously set a ticking time bomb and the general public are blissfully unaware. They see no reason why house prices can’t rise and the BoE can’t print forever and they can’t continue to be paid sitting at home indefinitely.

Most have no perception of recessions, let alone what’s coming and what the impact will be to them personally.

Got my son and partner into a 10 year TSB fix just before lockdown,they moved into house in March,it was about 2.6% for 10 years,no lock in after 5 so can pay 10% off a year up to year 5,then as much as you want.Its now over 3% for the same mortgage.

Banks dont actually have that many people on high LTV mortgages.Most have decent equity,with reayment mortgages most of the tail will still have 20% equity.The only real areas  that dont will be new build HTB etc.Banks  are quite happy with squeezing rates up to increase profits and see a 20% fall in prices.Why chase 4% increase in customers each year if you can increase your margin by 10%.Its a distribution cycle we are entering.Increase prices,not increase business.

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12 minutes ago, Eventually Right said:

Exactly-if Biden wins (Likely), are the democrats going to agree a massive stimulus bill before he is inaugurated, that Trump could call his legacy?

There might be a smaller one to “tide things over” but surely the big “New Deal” esque stimulus will come once the democrats can take full ownership of it?

in which case, how do you get the melt-up? And surely there’s a heightened risk of BK part 2 starting sooner, as a result of 2-3 months of inaction?

Good angle there, for logistical reasons alone with a new administration it wouldn't be until Feb at the earliest. It's act now or in 3-4 months. There's also the potential complications with a conservative Republican senate. I'm still on the fence about a landslide win for Biden, polls are closing up again, this election result could easily drag on into the new year if it's much closer.

4 minutes ago, DurhamBorn said:

@Barnsey im leaning to sector rotation,but still a huge risk of everything going down hard again.Im very very happy with the prices im paying for stocks i want though,and the way iv tried to handle things is by taking some profits off the table.For instance the gambling stocks iv taken out a lot of big profits.Even companies like DRAX that have more than doubled iv sliced.Mosaic i sold a lot on a near treble.Im very confident my portfolio will shine over the cycle because the CBs cant stop until we get inflation.Whats happened so far has been fantastic because although we have areas in the red,some by a lot,others have more than made up for that.Anyone holding Sibanye still knows that.

Yeah I must admit I got out of Drax, been bottom feeding knowing full well my infrastructure/inflation portfolio could be hit much harder. Big fan of @sancho panza spray and pray method at the moment, taking a multi decade view of just how low some have become. Struggling with the higher priced commodity plays at the moment as think the reflation narrative is priced in to a great extent with little downside seen, hoping for some bumps along the road first.

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@Barnsey i really like @sancho panza spray and pray method.You can simply adjust it slightly to have bigger holdings in some,say 3x Vod to Telia etc.I fully intended to hold the likes of Mosaic for the cycle,but a treble in 6 months simply meant adjusting other areas up a bit.Mosaic profits mostly went across the big oilies and a few more K+S ,OCI.Nutrien.Still hold Mosiac,and will hold them,but sold 65% on the treble.

Its a very difficult time and people can only do what they think best for the longer term.

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8 minutes ago, BurntBread said:

I'm thinking that if there is a big crash, I might start buying and holding indexes in addition to what I have.

I think there could be some great opportunities in EM markets if the $ really gets hit hard in coming years, but I am concerned that the years ahead really will be different this time and if inflation runs hot I'm not too sure holding a DM index ETF is a safe play (maybe DAX?).

This could be the decade for the active managers to reclaim their purpose.

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The average share price of a tech company on a U.S. exchange is $32.15. The avg share of an energy company goes for a lowly $6.45, less than half the price of the next lowest priced sector:

 

Image

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1 minute ago, Errol said:

The average share price of a tech company on a U.S. exchange is $32.15. The avg share of an energy company goes for a lowly $6.45, less than half the price of the next lowest priced sector:

 

Image

Jesse Felder has been bringing a lot of attention to this in recent weeks and months, someone I trust above most in his subtlely to look at the big picture.

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1 hour ago, DurhamBorn said:

@Barnsey im leaning to sector rotation,but still a huge risk of everything going down hard again.Im very very happy with the prices im paying for stocks i want though,and the way iv tried to handle things is by taking some profits off the table.For instance the gambling stocks iv taken out a lot of big profits.Even companies like DRAX that have more than doubled iv sliced.Mosaic i sold a lot on a near treble.Im very confident my portfolio will shine over the cycle because the CBs cant stop until we get inflation.Whats happened so far has been fantastic because although we have areas in the red,some by a lot,others have more than made up for that.Anyone holding Sibanye still knows that.

I've just had a quick look at a selection of my stocks to see what's happened to them since 6th April 2020 (I have a spreadsheet based on the tax year). This is the increase or decrease on the share price quoted and not how much I've gained or lost. Currency effects have reduced the gain for the USD denominated stocks as GBP has strengthened relative to the USD.

image.png.74477746bb69c00656b906a3056e55d9.png

I did take some profits from Sibanye at the end of February but I'm pretty much letting all of my winners run and only plan on trimming them when I need to rebalance, probably in December. If we do get a parabolic melt up then I will take some profits but will let most ride through any bust. I'm trying to steer a middle course and not go all in on either preserving capital (sell everything and come back after the bust) or making mad gains (trying to time selling at the top and buying at the bottom).

 

 

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