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

[working woman]

29 minutes ago, Harley said:

But the post-modernist fascist woke brigade calling for lockdowns, more control, etc don't believe in science and facts!  Go figure!

I'm not so sure, my Mum's favourite phrase was "actions speak louder than words". Watch what people do, rather than what they say.

Young people weren't worrying about Covid 19 over the summer, they were happily enjoying themselves at the pub, dancing in the streets after closing and partying at illegal raves.

I work with a young lady in her 20's, mum is a nurse, so she knows the science, knows she is unlikely to die or have complications from Covid. As a result, she couldn't care less about it and has fun with her friends. She knows she could pass it on to someone vulnerable but she obviously doesn't care.

I do feel sorry for young people as this is curbing their natural instincts, less chance now of meeting someone at work or at pubs/clubs etc. I chatted to a Maternity nurse recently and joked about a forthcoming baby boom due to the first lockdown and all that "working from home". She said they have been told to expect extra births around February next year.

Re: Future money flow when lockdown is lifted - some will be based around "procreation".

- By the 20 year olds, condoms, contraceptives, alcohol etc, going out clothes, weekends away with friends to party areas.

- By the 20/30year olds having a baby - baby clothes, nursery decor, toys, prams etc. 

[jamtomorrow]

2 hours ago, Cattle Prod said:

Saw a report that Germany is joining Australia in the military ramp up around Taiwan, which China is again threatening to invade. The thought struck me that as Germany is so reticent militarily, this can only be about trade. They even said "Taiwan is our partner". I know Taiwan makes a lot of stuff, but arguably the most important company is TSMC. 

Who reckons this military standoff is actually about TSMC, and the fact that after being given a choice to supply China or supply the West, they chose the West? China 5G is hobbled without those chips as I understand it. If you ever wanted a signal as to how strategically important telecom companies are now, this could be it. And still BT and Vodafone languish near decade lows. Are institutional investors completely thick or something?!

Very interesting thoughts @Cattle Prod

Doubt it's just 5G, or even 5G at all that's top of the list here. TSMC are the main fab for NVIDIA and AMD GPUs - the world pretty much depends on TSMC for anything vaguely approaching HPC these days.

There have been some attempts at diversification of late (NVIDIA used Samsung 8nm process for consumer Ampere), but it seems the TSMC habit is hard to kick: https://www.tweaktown.com/news/75679/nvidia-will-shift-over-to-tsmc-for-new-7nm-ampere-gpus-in-2021/index.html

Situation got so bad earlier this year, TSMC were pretty much beating chipcos back with a shitty stick: https://www.extremetech.com/computing/313222-intel-amd-reportedly-fighting-for-capacity-at-tsmc

Faint smell of tech bubble black swan?

[Noallegiance]

13 hours ago, DurhamBorn said:

On long term money supply this shows the affect and leads and lags on inflation

https://www.longtermtrends.net/m2-money-supply-vs-inflation/

Usually inflation lags the money supply growth.Notice the two jumps in the 70s.

Notice too how over the long term increases in the money supply set inflation higher,and then money supply falls.They usually meet in the middle area.That is one reason why i think 10% inflation or higher could happen this cycle.

Notice also M2 and inflation tend to stay quite steady until M2 jumps quickly.Thats because instead of a greater demand on money,there suddenly becomes much more money and so a greater demand for products and services jolting prices.

Now notice the velocity of the money stock.

https://fred.stlouisfed.org/series/M2V

So we have a massive increase in money,and a long cycle collapse in the velocity of that money.

The question is what would make that velocity increase and breach the dam?.Inflation heading higher in a big sector most likely.

Energy or food will start the increases i think.

 

You've said a few times about the possibility of another illusion of a 'roaring 20s'.

Is it possible that since the 1990s and the amount of consumer credit taken on to fund an illusory standard of living that we could have had a multi-decade creeping of a roaring 20s but less concentrated?

What's the probability of the next decade being the burning end to that alongside a commodity boom instead of a roaring 20s masking everything still further?

[DurhamBorn]

2 hours ago, Cattle Prod said:

Saw a report that Germany is joining Australia in the military ramp up around Taiwan, which China is again threatening to invade. The thought struck me that as Germany is so reticent militarily, this can only be about trade. They even said "Taiwan is our partner". I know Taiwan makes a lot of stuff, but arguably the most important company is TSMC. 

Who reckons this military standoff is actually about TSMC, and the fact that after being given a choice to supply China or supply the West, they chose the West? China 5G is hobbled without those chips as I understand it. If you ever wanted a signal as to how strategically important telecom companies are now, this could be it. And still BT and Vodafone languish near decade lows. Are institutional investors completely thick or something?!

They are missing a dis-inflation/reflation cycle turn i think.Almost everyone outside of this thread and a few ageing contrarian macro strategists has zero understanding of the effect of inflation on companies with high value fixed assets depreciating at a set rate ,with debt mostly locked in at very low rates.

As an industry everyone uses telcos.The only switching is between them.Like tobacco.My road map priced them through 2029 on rising prices with inflation,but it was very interesting this week to see them introduce an inflation+3.9% yearly price increase "for network investment".It isnt for network investment.That is already accounted for in their turnover way out,right through putting in 5G and FTTH/backhaul.Its just a superb time to do it as like you say the regulator isnt going to say much at the moment,just as we predicted on this thread right from the start.

Someone buying Vodafone,BT and Telefonica can cover most of the 5G and fibre market in Europe.Add in Telia for the Nordics.Telefonica covers Brazil.US is tricky as there is a big spread of companies holding 10% of the fibre and im finding it hard to decide what to buy there.

Hopefully by 2023 the companies can start increasing their divis again (apart from Telefonica who will de-leverage more first and might cut the divi yet)

Iv 3 telco holdings in my top 10 biggest holdings,and Vod is actually my biggest holding in my portfolio,BP is now 2nd.Im interested in adding some more Telcos in the 1% of portfolio range maybe people could come up with some more names,divis without big withholding tax hopefully.

[DurhamBorn]

12 minutes ago, Noallegiance said:

You've said a few times about the possibility of another illusion of a 'roaring 20s'.

Is it possible that since the 1990s and the amount of consumer credit taken on to fund an illusory standard of living that we could have had a multi-decade creeping of a roaring 20s but less concentrated?

What's the probability of the next decade being the burning end to that alongside a commodity boom instead of a roaring 20s masking everything still further?

I think that is possible yet,though i think this cycle will be more about enjoying life for the moment rather than flash cars etc.Pubs are likely a fantastic contrarian bet as are the likes of Whitbread as couples and groups have lots more weekends/weeks away more local.Debt is falling hugely now so that means more and more liquidity building to let the good times roll.

[DurhamBorn]

1 hour ago, Bear Hug said:

I get the impression that mobile and broadband bills are very low particularly if shopping around for various discounts/cashbacks. 

Competitive market is great for me as a customer but how will any of them make money if they just discount against each other all the time? 

 

Because the ones owning the actual networks,the nuts and bolts will increase prices and everyone prices off them.The regulator controls a lot of that.The regulator is allowing the likes of Openreach to increase access prices to the network for "investment" .

Imperial Tobacco and BAT have their fags on the same shelf in Tesco.They both make massive margins,yet dont seem to cut prices to take market share.That happened when 100 players became 3 (Japan Tobacco) Telcos are on the same path.

Government has a choice,£20 phone bill,lack of investment,economy falls back,£26 phone bill lots of investment etc.

Given what has just happened its the latter that will happen.

There will also be an explosion in SIMs across the network as more and more things are connected.Vodafone for instance is probably world leader in 5G connections for autonomous cars.

Vod might be a £100 billion+ company again before the cycle is over.Before divis and any buy backs,

[Bear Hug]

9 minutes ago, DurhamBorn said:

Because the ones owning the actual networks,the nuts and bolts will increase prices and everyone prices off them.The regulator controls a lot of that.The regulator is allowing the likes of Openreach to increase access prices to the network for "investment" .

Imperial Tobacco and BAT have their fags on the same shelf in Tesco.They both make massive margins,yet dont seem to cut prices to take market share.That happened when 100 players became 3 (Japan Tobacco) Telcos are on the same path

Thanks, this is very helpful. 

[Shamone]

19 hours ago, Democorruptcy said:

You have got that all wrong. You should be popping out 1 a year and raking in the bennies.

I can’t live like those animals. I have a tiny bit of pride left.

[sleepwello'nights]

3 hours ago, Cattle Prod said:

Are institutional investors completely thick or something?!

I wonder how their portfolios skewed towards APPL, NFLX, TSLA etc are performing.

A lot better than my energy and telecom stocks 

[Democorruptcy]

1 hour ago, working woman said:

I'm not so sure, my Mum's favourite phrase was "actions speak louder than words". Watch what people do, rather than what they say.

Young people weren't worrying about Covid 19 over the summer, they were happily enjoying themselves at the pub, dancing in the streets after closing and partying at illegal raves.

I work with a young lady in her 20's, mum is a nurse, so she knows the science, knows she is unlikely to die or have complications from Covid. As a result, she couldn't care less about it and has fun with her friends. She knows she could pass it on to someone vulnerable but she obviously doesn't care.

I do feel sorry for young people as this is curbing their natural instincts, less chance now of meeting someone at work or at pubs/clubs etc. I chatted to a Maternity nurse recently and joked about a forthcoming baby boom due to the first lockdown and all that "working from home". She said they have been told to expect extra births around February next year.

Re: Future money flow when lockdown is lifted - some will be based around "procreation".

- By the 20 year olds, condoms, contraceptives, alcohol etc, going out clothes, weekends away with friends to party areas.

- By the 20/30year olds having a baby - baby clothes, nursery decor, toys, prams etc. 

The BBC narrative... "It's the young people wot did it"... trying to turn people against one another, instead of looking at testing failures etc. Who was worrying about covid in the summer? Beaches and other places were packed with people of all ages. The governbankment did the eat out to help out scheme that packed pubs/restaurants with people of all ages. If I caught covid from a younger person or anyone else, it would be my fault because I made the decision to go close enough. I don't want young people locking up, I want them to be able to roam free.

[working woman]

13 hours ago, DurhamBorn said:

On long term money supply this shows the affect and leads and lags on inflation

https://www.longtermtrends.net/m2-money-supply-vs-inflation/

Usually inflation lags the money supply growth.Notice the two jumps in the 70s.

Notice too how over the long term increases in the money supply set inflation higher,and then money supply falls.They usually meet in the middle area.That is one reason why i think 10% inflation or higher could happen this cycle.

Notice also M2 and inflation tend to stay quite steady until M2 jumps quickly.Thats because instead of a greater demand on money,there suddenly becomes much more money and so a greater demand for products and services jolting prices.

Now notice the velocity of the money stock.

https://fred.stlouisfed.org/series/M2V

So we have a massive increase in money,and a long cycle collapse in the velocity of that money.

The question is what would make that velocity increase and breach the dam?.Inflation heading higher in a big sector most likely.

Energy or food will start the increases i think.

 

Thank you DB for those charts - fascinating.

I'm a relative newbie to DOSBODS  and not that knowledgeable on the world of finance, but I do love a good graph.

My observations.

Chart 1 - The increase / decrease in M2 and it's effect on inflation and deflation.

It goes back to the mid-1850's and between 1850-1950, the lines are very volatile. What is interesting is how how short the time is between what you call a lead and lag. The money is pumped into the system and very quickly it causes inflation. It is almost immediate. In more recent times, since the 1950's the inflation has appeared a little while later, by several years. You can clearly see this in the two peaks in the 1970's when inflation shows up a few years later. 

I was shocked to see that the current increase is 25% only a few previous increases were anywhere near at 15%. This has not led to much inflation yet. It would be shocking if inflation immediately took off like a rocket, like it did n the 1850's-1950's.

Chart 2 - Velocity

It clearly shows that the flow of money has slowed down.

I guess there was a slow down recently in money creation? Or it is being hoarded by businesses and individuals?

Now we have 25% more being created.

If that velocity line continues to stay low, there is clearly a blockage in the system somewhere.

Here is where I am seeing re flow/blockage/spending in people I know and gives a flavour of what is going on for the ordinary person.

Myself - retail worker, currently furloughed, savings building up, due to being concerned about the future, but also can't spend on my main interest, travel abroad. I also have £700 locked/blocked into an airline in the form of a credit voucher, valid for next 2 years, which I hope to use. This will involve additional spending on accomodation etc. A lot of other people will be in the same boat.

Retailer I work for - has asked staff to voluntarily cut hours, but at the same time is selling some of the shops it owns and closed and has just paid to use some HR software for rotas, booking holidays and wage slips. (Hmmmm!) I am sure a lot of businesses will be using this opportunity to get rid of staff unneccessarily to become leaner and fitter. 

Husband - He is a care worker with people with learning disabilities. They have money building up in their accounts which would normally be spent on holidays and activities, which they can no longer do. There is a limit on the amount of savings they can have before it effects benefits. He says the surplus money will likely be spent in the home, new furniture, repairs, decor, then if they can resume holidays and activities, it will be spent on that.

Brother-in-law 1. Has 2 coffee shops in London. Both were very successful before Covid. Mainly now doing take-away by himself. Most staff on furlough . Was very worried at the start, but now has £54K in Government grant/loan. Wife didn't go back to work after having a baby last year and they got a weekly cleaner* in. He is now looking at opening a 3rd coffee shop in London. (*My sideline is cleaning - there is a boom in this  - I turned down 3 opportunities in recent months as busy enough. All younger people in 20's and 30's who don't want to spend their time cleaning).

Brother-in-law 2. Owns a butchers - in the first lockdown, which coincided with Easter and good weather, so BBQ's, he did a roaring trade. Said it was like Xmas. Money made spent on a small campervan for UK holidays and a car. He is hoping to be busy this lockdown and the run up to Xmas. Interestingly a supposedly very deprived area.

In-laws, in their 80's. making the most of their last few years, jetted off to Corfu in September, but money mainly spent on lots of UK hotel/cottage breaks. My MIL has terminal cancer, chosen not to have treatment and has dementia so I don't blame them. They are in the process of moving to somewhere nicer, to give my MIL a boost, so lots of money being spent there.

So my takeaway - go long coffee, burgers and sausages

 

 

 

 

[CVG]

6 minutes ago, working woman said:

All younger people in 20's and 30's who don't want to spend their time cleaning).

Rent-a-mum. Brilliant business idea

[working woman]

13 minutes ago, Democorruptcy said:

The BBC narrative... "It's the young people wot did it"... trying to turn people against one another, instead of looking at testing failures etc. Who was worrying about covid in the summer? Beaches and other places were packed with people of all ages. The governbankment did the eat out to help out scheme that packed pubs/restaurants with people of all ages. If I caught covid from a younger person or anyone else, it would be my fault because I made the decision to go close enough. I don't want young people locking up, I want them to be able to roam free.

That was a response to the woke quote, which tends to be some younger people, so that is why I mentioned that age group. I am not demonising them, only saying what I see. I later went onto say that I feel sorry for them for having their natural instincts being curtailed. In my next post, I also said I supported my elderly In-laws making the most of / enjoying  their next few years. 

People of all ages will always find a way to enjoy themselves even if they are in a war or pandemic.  This is the only sane way to cope with it. 

[Democorruptcy]

14 minutes ago, working woman said:

That was a response to the woke quote, which tends to be some younger people, so that is why I mentioned that age group. I am not demonising them, only saying what I see. I later went onto say that I feel sorry for them for having their natural instincts being curtailed. In my next post, I also said I supported my elderly In-laws making the most of / enjoying  their next few years. 

People of all ages will always find a way to enjoy themselves even if they are in a war or pandemic.  This is the only sane way to cope with it. 

It's all probably best in the Pandemic thread?

[RickyBacker]

4 hours ago, Cattle Prod said:

Saw a report that Germany is joining Australia in the military ramp up around Taiwan, which China is again threatening to invade. The thought struck me that as Germany is so reticent militarily, this can only be about trade. They even said "Taiwan is our partner". I know Taiwan makes a lot of stuff, but arguably the most important company is TSMC. 

Who reckons this military standoff is actually about TSMC, and the fact that after being given a choice to supply China or supply the West, they chose the West? China 5G is hobbled without those chips as I understand it. If you ever wanted a signal as to how strategically important telecom companies are now, this could be it. And still BT and Vodafone languish near decade lows. Are institutional investors completely thick or something?!

I can't add a comment about whether it is about TSMC or not, but they are certainly building the military capability. They have spent billions of USD just this last couple of months building up the coastal defense with Harpoon missiles. It was also rather disconcerting to see/hear! brigades of tanks rolling past our apartment block at 2:30am last week.

[arrow]

National Grid have now warned twice in 3 weeks that "low renewables output" will stretch uk electricity supply.

Their website is full of renewable and low carbon, but they still need nuclear, gas and coal power stations to stop blackouts.

Low wind speeds, insufficient storage tech and increased used of electric vehicles are going to provide problems.

https://www.ft.com/content/f5e8995f-00c8-4c74-8738-55b47a871633

 

[janch]

1 hour ago, RickyBacker said:

It was also rather disconcerting to see/hear! brigades of tanks rolling past our apartment block at 2:30am last week.

Blimey, I'd be worried too

[Castlevania]

3 hours ago, DurhamBorn said:

 

Iv 3 telco holdings in my top 10 biggest holdings,and Vod is actually my biggest holding in my portfolio,BP is now 2nd.Im interested in adding some more Telcos in the 1% of portfolio range maybe people could come up with some more names,divis without big withholding tax hopefully.

I like both Airtel Africa and Telecom Italia

[janch]

2 hours ago, Democorruptcy said:

The BBC narrative... "It's the young people wot did it"... trying to turn people against one another,

I give a silent cheer whenever the news reports a pre-lockdown party etc eg the evening before this latest lockdown with youngsters out enjoying themselves.  Also a cheer for the students pulling down the fence in Manchester ouside a hall of residence erected while they were asleep!

 

[Barnsey]

1 hour ago, arrow said:

National Grid have now warned twice in 3 weeks that "low renewables output" will stretch uk electricity supply.

Their website is full of renewable and low carbon, but they still need nuclear, gas and coal power stations to stop blackouts.

Low wind speeds, insufficient storage tech and increased used of electric vehicles are going to provide problems.

https://www.ft.com/content/f5e8995f-00c8-4c74-8738-55b47a871633

 

And that's in a friggin lockdown and major recession FFS

[JMD]

22 hours ago, DurhamBorn said:

@Cattle Prod welcome to hard core macro strategy.Its critical, the interaction between the amount of debt and M2 because what really counts is the amount of money and the DEMANDS on it.When M2 increases faster than debt then there is LESS demand on the money and that means there is MORE that can be spent.The QE in 08 was actually going into a hole already spent because it was for debt defaulted on,the demand was backward looking,not forward.Like you say all this liquidity is building in the pipes and will explode across the economy at some point.Its crucial people own assets that earn outside of sterling and ones that can leverage the inflation.

DB when you say '...own assets that earn outside of sterling' are you referring to for example, overseas  divi paying stocks from say Asia and Europe? 

[Chewing Grass]

1 hour ago, arrow said:

National Grid have now warned twice in 3 weeks that "low renewables output" will stretch uk electricity supply.

Their website is full of renewable and low carbon, but they still need nuclear, gas and coal power stations to stop blackouts.

Low wind speeds, insufficient storage tech and increased used of electric vehicles are going to provide problems.

https://www.ft.com/content/f5e8995f-00c8-4c74-8738-55b47a871633

 

I have been warning for years that electric cars would be the tipping point in an incoherent politically correct energy policy and was repeatedly flamed for it be electric car evangelists even over here.

Easily solved but the government would rather spend £150BN the price of 75 x 2GW power stations (of whatever flavour you choose) on keeping half the population sat on their arses for 6 more months.

 

[DurhamBorn]

6 minutes ago, JMD said:

DB when you say '...own assets that earn outside of sterling' are you referring to for example, overseas  divi paying stocks from say Asia and Europe? 

No,companies like BAT earn a large part of their profits in $s,Oil companies obvious.Telcos like Vod and TEF both earn most earnings outside of sterling.

Im not 100% sold on sterling going down a lot though to be honest as i havent done much work on it,but still exect inflation assets to far outperform sterling.

[Harley]

 

4 hours ago, DurhamBorn said:

maybe people could come up with some more names,divis without big withholding tax hopefully.

Well, now that you ask, I just completed this piece of work.......!

A list of some (not all) "Communication Services" (as defined by others, not me) Ordinary Shares over about £1bn cap at the time of study in the markets I can invest in, and several other filters and caveats.  DYOR - no responsibility accepted for errors, omissions, etc and I do indeed make mistakes as probably do the data providers.  I already own Vodafone (hence the blue shading).  I own some others too but not enough!

PS: Telefonica was excluded as it appears to have a negative PTBV ratio.  That is, it's equity is exceeded by the Goodwill and Intangibles held in its balance sheet.  Actually, exceeded by either of them!

[JMD]

6 hours ago, Cattle Prod said:

Saw a report that Germany is joining Australia in the military ramp up around Taiwan, which China is again threatening to invade. The thought struck me that as Germany is so reticent militarily, this can only be about trade. They even said "Taiwan is our partner". I know Taiwan makes a lot of stuff, but arguably the most important company is TSMC. 

Who reckons this military standoff is actually about TSMC, and the fact that after being given a choice to supply China or supply the West, they chose the West? China 5G is hobbled without those chips as I understand it. If you ever wanted a signal as to how strategically important telecom companies are now, this could be it. And still BT and Vodafone languish near decade lows. Are institutional investors completely thick or something?!

I'm personally not qualified to judge how thick the institutional investors are, but listening to the guests on Grant Williams End Game podcast,  I think they would probably grade them a C minus. Telecoms are cheap and for me double up as a tech play (not just an infrastructure play), they also give massive exposure to the expanding arena of home entertainment, working from home, etc. I'm also a recent convert to total-return strategies. So the telecom divis are just to good to ignore.                                                                   I have lots of BT, VOD and Telefonica already but do want to buy some more. At current prices what would be people's view on the better one to buy if looking at say a total-return '10 year divi yield' perspective? Ie I believe BT is currently the highest divi payer but might Telefonica deliver a larger total return due to its potential higher capital growth? Definitely not looking for investment advice - just asking for 'entertainment purposes' (?!), what would the forums view be if asked to rank these stocks on potential total return?