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

[MrXxxx]

8 hours ago, planit said:

 

A word of warning for us all. We are not stock-picking geniuses because we made money in the last month *.

We are definitely NOT going to remortgage the house to buy shares because we have doubled our money on £1000 worth of shares bought in October.

 

 

*past performance is no predictor of returns in the future yadda, yadda, yadda

I hope you are not including @YRS in that statement.....he's the 'Buffet of Dosbods'! :-)))

[leonardratso]

1 hour ago, MrXxxx said:

I hope you are not including @YRS in that statement.....he's the 'Buffet of Dosbods'! :-)))

more like a stool than a buffet

[JMD]

On 03/12/2020 at 22:46, Loki said:

I sold AFC yesterday at a profit (at last!) but I consider things like BP, RDSB, Repsol, SSE, NG, K & S and Anglo American for example as core positions in a reflation portfolio so will only add to them on drops.

Loki, did you buy AFC with intention of a short term speculation buy? Or is it because it has run up fast so maybe best to exit with decent profit? I ask because I missed out getting any of the small cap hydrogen plays, and really regretted not buying - but am now thinking that If I had of bought I would probably have wanted to hold for the long term - and so now am thinking that might have been a naive strategy. Not asking for trading advice of course, but there has been some general discussion here recently on the topic of when to sell, and was wondering what the view is for small cap tech stocks, even if they are next cycle type companies?

[Loki]

14 minutes ago, JMD said:

Loki, did you buy AFC with intention of a short term speculation buy? Or is it because it has run up fast so maybe best to exit with decent profit? I ask because I missed out getting any of the small cap hydrogen plays, and really regretted not buying - but am now thinking that If I had of bought I would probably have wanted to hold for the long term - and so now am thinking that might have been a naive strategy. Not asking for trading advice of course, but there has been some general discussion here recently on the topic of when to sell, and was wondering what the view is for small cap tech stocks, even if they are next cycle type companies?

It was a punt i traded in and out of and ended up waiting months and months for it to do anything else so i bailed.  No one ever went bust pulling a profit as they say. It's AIM listed too which isn't ideal. Saying that i put it into HOC which dropped the next day so what do i know

 

[Harley]

13 hours ago, planit said:

 

A word of warning for us all. We are not stock-picking geniuses because we made money in the last month *.

We are definitely NOT going to remortgage the house to buy shares because we have doubled our money on £1000 worth of shares bought in October.

 

 

*past performance is no predictor of returns in the future yadda, yadda, yadda

I'm just pleased to see my losses shrink, a bit, so no remortgage for me!

[MrXxxx]

For those holding regional transports I.e GOG went in/out of London in the rush hour yesterday. Found the train about 50% pre-Covid; same train was about 10-20% about 4 months ago, and the Underground about 60%.

[Harley]

45 minutes ago, MrXxxx said:

For those holding regional transports I.e GOG went in/out of London in the rush hour yesterday. Found the train about 50% pre-Covid; same train was about 10-20% about 4 months ago, and the Underground about 60%.

Light at the end of the tunnel, as it were, so should I buy more, as it were?

[UnconventionalWisdom]

 

 

[MrXxxx]

3 hours ago, Harley said:

Light at the end of the tunnel, as it were, so should I buy more, as it were?

If I compare this with my other transport (NEX), NEX was a more sensible buy given the circumstances...and who knows what is going to happen lockdown wise in the UK in the New Year?...Caveat emptor!

[DurhamBorn]

Remember everyone,its not just hard assets,its companies that gain from the inflation as well.Those who can push the inflation and run ahead of it.That OFCOM and BT is a prime example.

End of a long disinflation,telcos invest billions but get very little return for it.The profits stand still while debt increase.Shares get sold and sold.

Regulators go to said companies saying we need this/that.Company exec says oh we might build a bit but for now we need to protect from being bought out and asset stripped our shares are so low.Shareholders are leaving,we need to hand them the cash not invest.

OFCOM goes back to cushy office,and think crap,government on our case and we have stuffed the telcos too hard.

So just before a reflation begins they say to the telco,oh built it and we wont regulate prices for at least a decade.Government who need the investment nod it through,after all inflation is dead right,who cares.

BT then build a network with debt coupons of 3% max while putting prices up on it by inflation +3%.A service everyone nearly will use.Free cash exlodes.

Other telcos then have a much higher floor for their pricing and all the boats float higher.

100% classic macro contrarian cross market work.Everyone looking the wrong way at a key inflection point.

De-complex hard assets for the base of the portfolio,then sectors who can push the inflation around them,not have it land on their heads.

 

[Harley]

31 minutes ago, DurhamBorn said:

Remember everyone,its not just hard assets,its companies that gain from the inflation as well.Those who can push the inflation and run ahead of it.That OFCOM and BT is a prime example.

End of a long disinflation,telcos invest billions but get very little return for it.The profits stand still while debt increase.Shares get sold and sold.

Regulators go to said companies saying we need this/that.Company exec says oh we might build a bit but for now we need to protect from being bought out and asset stripped our shares are so low.Shareholders are leaving,we need to hand them the cash not invest.

OFCOM goes back to cushy office,and think crap,government on our case and we have stuffed the telcos too hard.

So just before a reflation begins they say to the telco,oh built it and we wont regulate prices for at least a decade.Government who need the investment nod it through,after all inflation is dead right,who cares.

BT then build a network with debt coupons of 3% max while putting prices up on it by inflation +3%.A service everyone nearly will use.Free cash exlodes.

Other telcos then have a much higher floor for their pricing and all the boats float higher.

100% classic macro contrarian cross market work.Everyone looking the wrong way at a key inflection point.

De-complex hard assets for the base of the portfolio,then sectors who can push the inflation around them,not have it land on their heads.

 

Good point - thinking hat on - alas BT and co (e.g. VOD) are doing my head in regarding (previously reliable) buy signals (i.e. pretty much none these last few years!) - up c.30% on the monthly (over the last two months) but not the usual strong buy signal underpinnings things - maybe we are at extremes and normal things don't behave or maybe a fake (undergoing a bottoming process - maybe that Sept20 low needs retesting?).

[MrXxxx]

On 04/12/2020 at 09:30, Harley said:

Apologies if you have, but IMO it's worth listening to as that stuff was not the main content and apart from VNV, what was discussed was about sectors rather than specifics. 

Fair comment, although having just listened to it I feel its more informative about the whole Covid vaccine issue...worth a listen just for that.

[Harley]

42 minutes ago, MrXxxx said:

Fair comment, although having just listened to it I feel its more informative about the whole Covid vaccine issue...worth a listen just for that.

Agreed.  I nearly posted it on a thread upstairs but try to stay out of trouble these days!

[DurhamBorn]

3 hours ago, Harley said:

Good point - thinking hat on - alas BT and co (e.g. VOD) are doing my head in regarding (previously reliable) buy signals (i.e. pretty much none these last few years!) - up c.30% on the monthly (over the last two months) but not the usual strong buy signal underpinnings things - maybe we are at extremes and normal things don't behave or maybe a fake (undergoing a bottoming process - maybe that Sept20 low needs retesting?).

I think if we get a credit event/BK those lows might be re-tested.Market will want to shake out weak hands and remove as many new buyers as it can before the long grind up.This cycle will see most people getting off at points only for inflation areas to keep going up i think.

[JMD]

3 hours ago, DurhamBorn said:

Remember everyone,its not just hard assets,its companies that gain from the inflation as well.Those who can push the inflation and run ahead of it.That OFCOM and BT is a prime example.

End of a long disinflation,telcos invest billions but get very little return for it.The profits stand still while debt increase.Shares get sold and sold.

Regulators go to said companies saying we need this/that.Company exec says oh we might build a bit but for now we need to protect from being bought out and asset stripped our shares are so low.Shareholders are leaving,we need to hand them the cash not invest.

OFCOM goes back to cushy office,and think crap,government on our case and we have stuffed the telcos too hard.

So just before a reflation begins they say to the telco,oh built it and we wont regulate prices for at least a decade.Government who need the investment nod it through,after all inflation is dead right,who cares.

BT then build a network with debt coupons of 3% max while putting prices up on it by inflation +3%.A service everyone nearly will use.Free cash exlodes.

Other telcos then have a much higher floor for their pricing and all the boats float higher.

100% classic macro contrarian cross market work.Everyone looking the wrong way at a key inflection point.

De-complex hard assets for the base of the portfolio,then sectors who can push the inflation around them,not have it land on their heads.

 

DB, so telcos, ciggies, energy, steel and chemical industries. Have you had any thoughts recently on other (non pm/commodity) inflation front-running sectors? For example cigarette investment was a bit of a revelation to me when you first introduced them, and I note that your other favourite of gambling companies is being further deregulated in the US. Not strictly decomplex sectors, but both are 'addictive pastimes'... so perhaps alcohol/video games also fit same criteria, however I think these ones have many competitors so not easy to pick winners.

[JMD]

6 hours ago, UnconventionalWisdom said:

 

 

But is anyone here still buying commode since their run up? Of course uranium does still look cheap and also its a fantastic contrarian play, so what's not to love? (Metallurgical/steel making coal was also cheap last time I looked)

[Castlevania]

4 hours ago, DurhamBorn said:

Remember everyone,its not just hard assets,its companies that gain from the inflation as well.Those who can push the inflation and run ahead of it.That OFCOM and BT is a prime example.

End of a long disinflation,telcos invest billions but get very little return for it.The profits stand still while debt increase.Shares get sold and sold.

Regulators go to said companies saying we need this/that.Company exec says oh we might build a bit but for now we need to protect from being bought out and asset stripped our shares are so low.Shareholders are leaving,we need to hand them the cash not invest.

OFCOM goes back to cushy office,and think crap,government on our case and we have stuffed the telcos too hard.

So just before a reflation begins they say to the telco,oh built it and we wont regulate prices for at least a decade.Government who need the investment nod it through,after all inflation is dead right,who cares.

BT then build a network with debt coupons of 3% max while putting prices up on it by inflation +3%.A service everyone nearly will use.Free cash exlodes.

Other telcos then have a much higher floor for their pricing and all the boats float higher.

100% classic macro contrarian cross market work.Everyone looking the wrong way at a key inflection point.

De-complex hard assets for the base of the portfolio,then sectors who can push the inflation around them,not have it land on their heads.

 

I was thinking about this earlier today after your initial post on Ofcom and BT. The government are desperate for investment and thus the creation of jobs, that they’ll allow above inflation pricing. I think it ties in with what I think you or @sancho panza mentioned about where we were in the cycle. They’re scared of high levels of unemployment far more than inflation.

[Castlevania]

3 hours ago, Harley said:

Good point - thinking hat on - alas BT and co (e.g. VOD) are doing my head in regarding (previously reliable) buy signals (i.e. pretty much none these last few years!) - up c.30% on the monthly (over the last two months) but not the usual strong buy signal underpinnings things - maybe we are at extremes and normal things don't behave or maybe a fake (undergoing a bottoming process - maybe that Sept20 low needs retesting?).

As stupid as it sounds, if you plan on holding long term does it matter if you paid ~£1.30 now for either Vodafone or BT as opposed to a ~£1.00 six weeks ago?

[Harley]

25 minutes ago, Castlevania said:

As stupid as it sounds, if you plan on holding long term does it matter if you paid ~£1.30 now for either Vodafone or BT as opposed to a ~£1.00 six weeks ago?

Absolutely not (apart from a remote tail risk or broad trend) - I'm just being myopic with my "pay to play" approach (initial positions (the pay) and then wait for buy signals to add to them (the play)), plus well worried about a 1929 style fall (relatively small fall, bounce, then the real biggie).

[Harley]

21 minutes ago, JMD said:

so what's not to love

I'll probably regret saying this - no "carrying" div!

[Harley]

1 hour ago, DurhamBorn said:

I think if we get a credit event/BK those lows might be re-tested.Market will want to shake out weak hands and remove as many new buyers as it can before the long grind up.This cycle will see most people getting off at points only for inflation areas to keep going up i think.

Agreed, value investing is a well discussed thing atm (at least in our circles) and the money flows seem to be showing it so I could envisage a retest come shakeout of those with no conviction, with the herd getting in later after a solvency crisis has shown the importance of fundamentals such as cash, real assets, resilience to inflation, etc.

 

[Harley]

46 minutes ago, JMD said:

DB, so telcos, ciggies, energy, steel and chemical industries. Have you had any thoughts recently on other (non pm/commodity) inflation front-running sectors? For example cigarette investment was a bit of a revelation to me when you first introduced them, and I note that your other favourite of gambling companies is being further deregulated in the US. Not strictly decomplex sectors, but both are 'addictive pastimes'... so perhaps alcohol/video games also fit same criteria, however I think these ones have many competitors so not easy to pick winners.

I've wrestled with this and changed my approach having built initial positions in a number of our beloved industries - I now just run my screens and see what pops up, looking at each one on its merits, regardless of industry, etc but nothing wow so far.

[DurhamBorn]

39 minutes ago, Castlevania said:

I was thinking about this earlier today after your initial post on Ofcom and BT. The government are desperate for investment and thus the creation of jobs, that they’ll allow above inflation pricing. I think it ties in with what I think you or @sancho panza mentioned about where we were in the cycle. They’re scared of high levels of unemployment far more than inflation.

Exactly.It was me,governments and CBs fear unemployment more than inflation and thats one of the critical cross market things to look for.Telecom infrastructure thats robust etc for £5 extra a month on bills.Ofcom have done exactly what i would expect,and actually the right thing,macro forced their hand.Thats the thing with the crowd with no understanding of cycles.They project forward the past,and even then only mostly the past they can easily remember.

I think the sector will do 150% to 300% including dividends over the cycle unless some early takeovers.Violent pullbacks along the way.Hopefully return on capital employed will move higher each year of the cycle,thats the key number for telcos given their huge assets and big fixed debt loads.

[Chewing Grass]

Just seen an advert about something called 'go henry' the debit card for kids.

Apparently 'go henry' is designed to teach children about money (not get potential bank accounts and sell services) and parents can pay pocket money into it for children to spend rather than letting them use cash.

Can't actually see it doing their maths skills any good but hey-ho somebody thinks they can make enough money out of it to advertise it on TV.

[UnconventionalWisdom]

1 hour ago, JMD said:

But is anyone here still buying commode since their run up? Of course uranium does still look cheap and also its a fantastic contrarian play, so what's not to love? (Metallurgical/steel making coal was also cheap last time I looked)

I was more implying that we are likely to be on the right track. Most pension schemes and MSM still pushing equities but this could evidence we are hitting the top for the likes of FAANGS and Tesla.

I did actually add to my physical gold and silver but that was more because I recently received an inheritance. I believe there will be a big pull back in physical but an even greater one in equities. Just covering myself if the BK doesn't happen. If it does, opportunity to get more along with reflation stocks.