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

[Wheeler]

There is a new report out from Incrementum (the authors of the In Gold We Trust report) titled "The Boy Who Cried Wolf: Is An Inflationary Decade Ahead".

https://www.incrementum.li/en/journal/inflation-special-report/

 

I've not had time to read it yet but I expect it will be worthwhile.

[Errol]

[Froggy2000]

Thanks all for the suggestions.  I'll take a look at them.  Could be an interesting sector, but as you say, difficult to really get involved in without specialist knowledge and lots of cash!

[Loki]

6 minutes ago, Cattle Prod said:

Imagine the fun we'd have explaining what dosbods means "if you don't like it, there's the door"

Darling obliging sweet birds on dating sites 

[Lightscribe]

21 minutes ago, Cattle Prod said:

Agree, I love agriculture, directly and as a potential investment. My parents are farmers and my old lad still has a neat little beef operation. Though like all farmers he can't be convinced that there are good times ahead! I looked for funds before, and got as far as Jim Rogers' fund. He's seriously bullish on the sector ('farmers will be driving lambos'l). But currently I'm stuck with potash, and an intent to buy my own operation toward the end of the cycle, from my filthy oil gains 

https://www.hl.co.uk/shares/shares-search-results/d/deere-and-co-common-stock-usd1

This never got cheap enough into my 'buy' zone...

[leonardratso]

baglar

For retail investor use(London: 2019 -860810 June 20192Barings Global Agriculture FundC H AR AC T E R I S T I C S2 , 3 , 4B AR I N G SG L O B AL AG R I C U L T U R E F U N DNumber of Holdings 36 Active Share (%) 39.35 Off Benchmark (%) 25.70 Tracking Error (%) (3Y Ann) 5.43 Information Ratio (3Y Ann) 0.31 Standard Deviation (3Y Ann) 16.50 Alpha (3Y Ann) 1.76 Beta (Ex Ante) 0.97 Av. Market Cap (GBPb) 17.40 1.Barings assets as of September 30, 2020. 2.Risk statistics are based on gross performance. 3.As of October 31, 2020 4.Refer to glossary on our website for definitions of terms. Characteristics are subject to change. T O P H O L D I N G S ( %O F N AV )3Archer-Daniels-Midland Company 8.49 Corteva Inc 8.36 Nutrien Ltd. 7.81 Deere & Company 7.50 Wilmar International Limited 5.73 Darling Ingredients Inc. 4.82 Tyson Foods, Inc. Class A 4.42 Bunge Limited 4.40 FMC Corporation 4.06 AGCO Corporation 3.62

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/b/barings-global-agriculture-class-i-gbp-accumulation

 

 

 

 

[harp]

8 hours ago, Loki said:

A macro guy on twitter. Shit hot on macro. Abysmal on short term. Every time he's tweeted about the PMs it's dived shortly after

Yep. I noticed he posted (as usual) after the jump today. Down we go tomorrow.

[Yadda yadda yadda]

3 hours ago, Bobthebuilder said:

My wife inflation proofed us a few years ago when a firm she was working for went bust, she came home with thousands of stamps. Enough for a lifetime maybe, she is a good lass.

Presumably the ones with the queen's head on remain usable for ever and not just until a year or two after her death.

[wherebee]

16 minutes ago, Yadda yadda yadda said:

Presumably the ones with the queen's head on remain usable for ever and not just until a year or two after her death.

That's a very good point!

 

quick, down the pub and sell them on before liz kicks it.

 

In a similar vein, when I was renting a shitty place from a very bent landlord who stiffed us on repairs, I found a box in the attic with 10,000 blank envelopes.

 

Still going through them slowly 10 years later.  win!

[King of Fools]

44 minutes ago, wherebee said:

That's a very good point!

 

quick, down the pub and sell them on before liz kicks it.

 

In a similar vein, when I was renting a shitty place from a very bent landlord who stiffed us on repairs, I found a box in the attic with 10,000 blank envelopes.

 

Still going through them slowly 10 years later.  win!

I wondered where those envelopes went.

[DurhamBorn]

3 hours ago, Wheeler said:

There is a new report out from Incrementum (the authors of the In Gold We Trust report) titled "The Boy Who Cried Wolf: Is An Inflationary Decade Ahead".

https://www.incrementum.li/en/journal/inflation-special-report/

 

I've not had time to read it yet but I expect it will be worthwhile.

Always essential reading.

Great to see them mention the QE from the financial crisis simply repaired banks balance sheets as we have been saying on here all along.

"Despite the magnitude of these programs, QE failed to stimulate the real economy. A significant portion of the money generated by QE ended up as banks’ reserves. Over the same period, excess reserves exploded by 1,215% from USD 1.9bn to USD 2.5trn"

Another BANG here,again like we have been banging on about for a few years,its FISCAL this time.

"During financial QE, borrowing remained low relative to the spiking money supply. However, under a regime of fiscal QE, the government treasury taps central banks, the debt is monetized, and the credit is extended to households directly, skipping over commercial banks in the process."

And here,i think this is very much in line with us,

"Winning stocks would belong to companies able to adjust to inflation. This would manifest primarily through the “pricing power vs. margin pressure” dynamic. The dynamic is expressed in the following ideas: 34 • Average profit margins (high is good) • Labor share of costs (low is good) • Herfindahl index (a measure of market concentration) • Commodity producers (pricing power) vs. commodity buyers (margin pressure) • Nominal debt levels are inflated away by higher inflation; therefore businesses with high fixed-rate debt/equity ratios could stand to benefit • Sectors: Cyclicals will lose to Defensives."

 

 

[Harley]

Goldmoney has a book to talk but this doesn't mean they're wrong, you decide....

Palisades Gold Radio: Alasdair Macleod: EU Banking System Imploding https://media.blubrry.com/palisade_radio/content.blubrry.com/palisade_radio/Palisades_Radio-Alasdair_Macleod-Dec_2_2020.mp3

[Harley]

7 hours ago, DurhamBorn said:

Nominal debt levels are inflated away by higher inflation; therefore businesses with high fixed-rate debt/equity ratios could stand to benefit

Maybe I should stop filtering these b*ggers out (75% total debt to equity being my current limit) and that would open up a lot of western companies!

[Harley]

6 hours ago, Cattle Prod said:

WTI has crossed positive on the monthly MACD. I've been watching this for months, it's been a rare and reliable indicator of a bull run in oil, from 60%-200%. Think its happened around 7 times in 30 years, coming off a low. I'll try and post a chart tomorrow so my betters can accuse me of various crimes!

Brent not confirmed on monthly yet, and monthly charts can hide sharp corrections which will happen.

Looks like we have similar approaches and cautions, although I would look for confirmation from other technicals such as momentum to help filter out any false moves.

[wherebee]

7 minutes ago, Harley said:

Maybe I should stop filtering these b*ggers out (75% total debt to equity being my current limit) and that would open up a lot of western companies!

depends how the debt is structured, in which currencies, and whether they will need to roll over into higher costing debt.

I know at one time Aussie banks were massively exposed to foreign debt and when the aussie tanked, they were fucked as they had priced debt repayments in USD and GBP but income was in AUD.....

 

What you want is a company with debt in, say, GBP, earning in a hard commodity which will shoot up at the same time the pound crashes...

[Harley]

12 hours ago, JMD said:

Personally, i found the farming sector too difficult. So i went the 'easy route' - potash/fertilizers (lots of these mentioned if you search back through blog), plus these timber reits/funds looked good to me: Weyerhaeuser, Rayonier, Acadian timber, Western Forest products.

Note, for entertainment purposes only, definitely not investment advise.

I looked at some feed companies but they did not work for me personally (DYOR) but maybe I need to position earlier in the value chain and/or be more forward looking on the financials (or wait for the financials to come to me!).

[DurhamBorn]

10 minutes ago, wherebee said:

depends how the debt is structured, in which currencies, and whether they will need to roll over into higher costing debt.

I know at one time Aussie banks were massively exposed to foreign debt and when the aussie tanked, they were fucked as they had priced debt repayments in USD and GBP but income was in AUD.....

 

What you want is a company with debt in, say, GBP, earning in a hard commodity which will shoot up at the same time the pound crashes...

Agreed.I think if you look at VOD they have a superb debt structure.They can almost pay off the debt as it comes off if they needed to and thats before any jump in free cash from inflation.BAT is similar.Both have debts too high,but very well structured for inflation.One worry i do have though is derivative use.Most hedge currency risk etc and if derivatives are the big risk in the system as i think they are it makes you wonder if companies would be affected if they blow up.

[Harley]

18 hours ago, geordie_lurch said:

Not sure it's going to have any momentum to get back up towards £19.50 where it was less than 30 days ago - it's currently trying to get back over £17.50 never mind over £22 where it was back in August

A valid question to ask for the moment, although in the very big longer term picture I wonder if the GBP silver chart is in an early bullish cup and handle pattern like gold was and is currently working through the characteristic pre-breakout retrace.

[DurhamBorn]

1 minute ago, Harley said:

A valid question to ask for the moment, although in the very big longer term picture I wonder if the silver chart is in an early bullish cup and handle pattern like gold was and currently working the typical exit retrace.

Im not a chartist Harley,but my chart/work says silver is about to run much higher.Iv been adding back some miners,silver and gold.

On oil i think $54 brent is the target,then it depends on stimulus and if we get a big KH or not.

[Harley]

21 minutes ago, wherebee said:

depends how the debt is structured, in which currencies, and whether they will need to roll over into higher costing debt.

I know at one time Aussie banks were massively exposed to foreign debt and when the aussie tanked, they were fucked as they had priced debt repayments in USD and GBP but income was in AUD.....

 

What you want is a company with debt in, say, GBP, earning in a hard commodity which will shoot up at the same time the pound crashes...

Or avoid the bloatware and go East!

[Harley]

4 minutes ago, DurhamBorn said:

Im not a chartist Harley,but my chart/work says silver is about to run much higher.

That would happen if we are indeed in a cup and handle, indeed are towards the end of the retrace.....and then there's the unresolved matter of the gold to silver ratio.

[Harley]

12 minutes ago, DurhamBorn said:

......then it depends on stimulus and if we get a big KH or not.

Indeed, hence my point about momentum which is naturally subdued given all the current mainstream gallery (but not informed) talk and we may consequently see develop during this period of "noise" a divergence between price and MACD, resolving later in big fast move to the upside.

[Harley]

20 minutes ago, DurhamBorn said:

Agreed.I think if you look at VOD they have a superb debt structure.They can almost pay off the debt as it comes off if they needed to and thats before any jump in free cash from inflation.BAT is similar.Both have debts too high,but very well structured for inflation.One worry i do have though is derivative use.Most hedge currency risk etc and if derivatives are the big risk in the system as i think they are it makes you wonder if companies would be affected if they blow up.

That's a reasoned thesis but there is devil in that specific company debt detail such as the derivative risk but also such items as covenants (breaking them can create all sorts of games in which shareholders can be losers).

[Castlevania]

1 hour ago, DurhamBorn said:

Agreed.I think if you look at VOD they have a superb debt structure.They can almost pay off the debt as it comes off if they needed to and thats before any jump in free cash from inflation.BAT is similar.Both have debts too high,but very well structured for inflation.One worry i do have though is derivative use.Most hedge currency risk etc and if derivatives are the big risk in the system as i think they are it makes you wonder if companies would be affected if they blow up.

It will come down to the terms of the Credit Support Annex (CSA). As long as the hedge counterparty (typically an investment bank) posts daily or weekly collateral up to the present value of the derivative contract then it shouldn’t be an issue.

[Harley]

1 hour ago, Harley said:

That's a reasoned thesis but there is devil in that specific company debt detail such as the derivative risk but also such items as covenants (breaking them can create all sorts of games in which shareholders can be losers).

Clarification: "Specific company" does not mean VOD but means you have to look at each company in detail, individually, or just avoid.