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

[DurhamBorn]

https://www.bbc.co.uk/news/business-57425281

Like iv said on this sector all along,its in play and the undervaluation is structural IMO.This is going to play out over the cycle and the sector will find ways to surface the value.Good to know we are at least in this one at half the price others are waking up.I think the likely results are that the companies will work with each other more and more rather than buyouts and that the whole sector will lift over time.

This is a Europe and South America theme more than the US.The US is more merged already and massive amounts of debt and risk through media assets.

In Europe all the big players are worth holding for the cycle,also Telenor and Telia in smaller amounts.Brasil its Telefonica Brasil and TIM the best plays.Asia is more tricky ,but Telenor is a good play there anyway.

 

[Harley]

15 minutes ago, BurntBread said:

There's a quote I always remember abut scientific theories, which I heard from David Pine of NYS university (and he didn't claim it as his own). This from a time when academics could freely say such things:

"It's OK to sleep with a theory, but you should never marry one."

Top one that!  That's why I loved economics, as an honest practitioner, and could apply the lessons far and wide!  And why the PPE course seems to have been hollowed out.  The very name of the course stresses it's nature, yet it's students seem to leave welded by stupidity and disrespect to firmly believed constructs.  If so, a lack of intellect at the very least.  Or do we just hear about the few, like those who had to go into journalism!  Or are they actually the smartest guys in the room and know in the long term we're all dead so what the eff (if you don't have kids, etc and your philosophy is more of the French utilitarian kind)!

[nirvana]

I was gonna upload the preface for a taster but I can't upload mp3 format, here have an avi I just converted

I'm sure it hasn't got a virus so listen away and enjoy

0102 - Preface - The Creature from Jekyll Island.avi

edit: it's bloody good that! get listening! 

NB I'll stick another footnote here, yeah yeah the media have the writer down as a 'conspiracy theorist', whatever, feck off and have another cup of tea.....partisans!! 

 

[Harley]

On 08/06/2021 at 14:41, JMD said:

Harley, would you have a min. tangible/intangible asset ratio, maybe even for the different individual sectors,

@JMD one thing I forgot to mention if you want to go that route is Investing.com offers (for free) the comparison of fundamental ratios against the industry average.  Take Telenor for example (a sector where this may be a good idea):

PS:  "-" for Price to Tangible Book is not good!

[Majorpain]

10 hours ago, DurhamBorn said:

For us in the UK its likely the only defence we would have would be higher rates than others.Irony as usual of course that that would smash the main asset in this country,housing wealth.

Might not be in near future, super tax deduction has meant there has been a lot of investment in the UK in the last 6 months, plenty of new factories planned or new equipment in current ones.  Since UK manufacturing has to complete with the world without the advantage of a depressed currency (Cough Germany/China Cough) and has therefore remained competitive, its in a relatively decent place imo.

The wildcard is what the Govt has has stashed down the back of the sofa, HM Treasury is in the rather unique position of having both a large PM market and the ability to "wash" shiny though its own mint, nothing to stop metal coming off the market and disappearing into a vault.  Unsurprisingly there is nothing to say this has happened, although a certain ex-chancellor received honors for something after trying to stab a certain current PM in the back.

[Froggy2000]

Regarding Telefonica Brasil and TIM S.A, when I look to buy those using AJ Bell I'm presented with 3 options for each:

Telefonica Brasil:

Symbol, Name

BMDB207   TELEFONICA BRASIL SPON ADS EA REPR 1 ORD SHS (SEDOL:BMDB207)

BMWC5H9   TELEFONICA BRASIL SPON ADS EA REPR 1 ORD SHS (SEDOL:BMWC5H9)

B6TTV28   TELEFONICA BRASIL SPON ADR EA REPR 1 PFD SH (SEDOL:B6TTV28)

TIM S.A:

Symbol, Name

BK531P5   TIM S.A. SPON ADS EACH REP 5 ORD SHS (SEDOL:BK531P5)

BMD5L13   TIM S.A. SPON ADS EACH REP 5 ORD SHS (SEDOL:BMD5L13)

B6RSRV8   TIM W.E. SGPS S.A COM EUR0.03 (SEDOL:B6RSRV8)

Does any one know the differences between these options and are any of them preferable over the others?

I have to admit, I've struggled to find what the difference is using the AJ Bell website and also just searching on google.

Any help much appreciated!

[nirvana]

I've found my thought for the day lol.....I still think the FED might try an IR hike but Mr Market will hit back and scare the shite of em with an almighty crash 

The fed crooks can either bankrupt the government by raising interest rates or bankrupt the Amerikan people through currency debasement ie hyperinflation. I think the crime syndicate will choose the latter

Also this geezer worth a follow on twitter

https://twitter.com/TapsCoogan

 

edit: soz, this site goes bonkers when you paste a twatter link 

[Harley]

38 minutes ago, DurhamBorn said:

https://www.bbc.co.uk/news/business-57425281

Like iv said on this sector all along,its in play and the undervaluation is structural IMO.This is going to play out over the cycle and the sector will find ways to surface the value.Good to know we are at least in this one at half the price others are waking up.I think the likely results are that the companies will work with each other more and more rather than buyouts and that the whole sector will lift over time.

This is a Europe and South America theme more than the US.The US is more merged already and massive amounts of debt and risk through media assets.

In Europe all the big players are worth holding for the cycle,also Telenor and Telia in smaller amounts.Brasil its Telefonica Brasil and TIM the best plays.Asia is more tricky ,but Telenor is a good play there anyway.

 

I don't think I've given this sector enough attention.  Conceptually lovely but hard to get into based on my criteria.  I've got a few but not enough and most of those were naive legacy purchases stuff.  I probably need to look at it differently and so challenge my way of working.  Or maybe it's telling me to wait rather than pick the winners early.  I'll report back!

[JMD]

1 hour ago, Harley said:

Housing is reasonably cheap, if you mark it to the correct yardsticks.  People don't, indeed they are socialised (distracted) not to.  And probably could not handle it if they did.  It's a beautiful scam, one of the very best.

So is housing where most of that beaten-up/redundant bond money will flow to next? ...steady long-term yield/easy 'social project' mantra sell (fund heat pumps, greenify, etc). Plus, might this 'save' the banking sector? 

[Harley]

26 minutes ago, Froggy2000 said:

Regarding Telefonica Brasil and TIM S.A, when I look to buy those using AJ Bell I'm presented with 3 options for each:

Telefonica Brasil:

Symbol, Name

BMDB207   TELEFONICA BRASIL SPON ADS EA REPR 1 ORD SHS (SEDOL:BMDB207)

BMWC5H9   TELEFONICA BRASIL SPON ADS EA REPR 1 ORD SHS (SEDOL:BMWC5H9)

B6TTV28   TELEFONICA BRASIL SPON ADR EA REPR 1 PFD SH (SEDOL:B6TTV28)

TIM S.A:

Symbol, Name

BK531P5   TIM S.A. SPON ADS EACH REP 5 ORD SHS (SEDOL:BK531P5)

BMD5L13   TIM S.A. SPON ADS EACH REP 5 ORD SHS (SEDOL:BMD5L13)

B6RSRV8   TIM W.E. SGPS S.A COM EUR0.03 (SEDOL:B6RSRV8)

Does any one know the differences between these options and are any of them preferable over the others?

I have to admit, I've struggled to find what the difference is using the AJ Bell website and also just searching on google.

Any help much appreciated!

I'm surprised you can get that much on AJB since they just trade CDIs on the LSE for international stocks(?).  SEDOL no good for me, need the stock ISIN numbers.  I had a quick look at Telefonica.  My guess is you are catching other bits of Telefonica such as Telefonica SA (not Telefonica Brasil), maybe Telefonica Deutschland Holdings AG, etc.  Also, some of these may not be available in an ISA (some brokers OK others not) or even SIPP.  I hope the one we are looking for is the Telefonica Brasil ADR listed on the NYSE (ISIN: US87936R2058?).  Investing.com is good for seeing all the instruments for say "Telefonica", including ISINs.  Just use the search box and follow the resulting stock links.  I would not rely on a broker listing as they may only list what they have, not what you want.  You may also find a "no deal" when you try and submit and order for some of these as the listing does not always mean tradeable.

PS:  There is a long list on Investing.com.  Here are just a few....

 

 

[Harley]

7 minutes ago, JMD said:

So is housing where most of that beaten-up/redundant bond money will flow to next? ...steady long-term yield/easy 'social project' mantra sell (fund heat pumps, greenify, etc). Plus, might this 'save' the banking sector? 

Maybe, or maybe we'll be forced to buy certain bonds.  That groundwork may already be being set with NEST and the touted "Green Bonds", etc.  Maybe tempting yields to start with and then.........!  They haven't taken your money, just saved you from yourself, again!

[JMD]

12 hours ago, Harley said:

...in this theme of cash flow and general liquidity, if anyone is going to look at OCF, look at the actual OCF and not the one netted off with changes in working capital.  You may get a heads up of upcoming fundamental trouble by how hard they screw working capital to make the numbers. As for FCF, about as good as EPS.  Gotta go deeper!

 

Harley, are you saying FCF is misleading? Only i thought it was a better measure than OCF?, which i think was actually the other point that you were making? But could you clarify please, because your FCF/EPS comment has got me a little worried as i rely quiet a bit on the FCF metric. 

(hope not derailing thread, as not really macro, but fcf is always being discussed/mentioned here so would be good i think to ponder any potential positives/negatives?)

 

(following definitions are not required for this discussion i think, but just including for completeness, and in case anyone wants to add to them... 

Free cash flow is the cash that a company generates from its normal business operations before interest payments and after subtracting any money spent on capital expenditures.

Operating cash flow is cash generated from normal business operations or activities.)

[Barnsey]

Never a straight line, and quite possibly the consensus trade now which itself could be short term bearish, but wise words...(there's the 40 year disinflation cycle mentioned yet again)

 

[JMD]

11 hours ago, DurhamBorn said:

The problem i have Harley is if the things in that video come to pass i cant really roadmap it because i mostly stem from dollar liquidity and then cross market others against that.If we suddenly get a two polar world then that becomes a new ball game.

Its also important to try to understand what a crash of the financial system actually means.Plenty say it,but dont explain it.Do they mean the banking system,the Fiat system itself,bond markets,insurance ,or any company who cant roll over a bond.

I agree we will move from debt to equity,that is almost certain as only productive will be rewarded is part of the debt deflation we expect.

In simple terms of course what this all means is soon currencies are going to be priced against real assets depending on how much they have seen printed.The more woke,the more printing the bigger the hit on living standards.

For us in the UK its likely the only defence we would have would be higher rates than others.Irony as usual of course that that would smash the main asset in this country,housing wealth.

Chinese and Russian assets seem the hedge if the thesis is even partly right,and of couse the areas we already mostly own.

DB, when you refer to difficulties in road mapping a 'two polar world', is that currency situation the same/similar to if/when the US dollar should ever lose its world currency reserve status?

I watched the video - but in reference to currencies - i thought it was mostly restating similar thesis to what people like Lyn Alden have been saying for a long time. In that dollar dominance will probably fade (US doesn't really benefit as once did), and we may instead get regional/block currencies, but with no 'world reserve currency' dominating.  ...Perhaps its all the same topic, but the different terminology introduced in the video has got me confused...?

[reformed nice guy]

2 hours ago, nirvana said:

anyone read 'The creature from Jekyll Island'???

 

I have. Its an interesting read and it depends on what you already know. I read it a good few years ago and it was eye opening. Now I expect corruption so it wouldnt be as revelatory

[JMD]

46 minutes ago, Harley said:

Maybe, or maybe we'll be forced to buy certain bonds.  That groundwork may already be being set with NEST and the touted "Green Bonds", etc.  Maybe tempting yields to start with and then.........!  They haven't taken your money, just saved you from yourself, again!

Plus we won't '...own nothing', we will actually own green/social housing bonds, and so '...will be (very smugly) happy'!!!

Hmm, it's slowly falling into place for me. But joking aside, - more importantly are there really any substantive financial escape routes possible from those bond buy-ins, etc, if they should ever happen... apart from selling your sipp (not really an option?) and 'escaping abroad' before capitol controls are enacted?

For example, i'm beginning to think that buying income producing property, which although is an illiquid asset - that might actually become a positive - because it prevents the state from casually stealing it at the flick of a policy switch. And If the property served a 'social purpose' (eg leased to homeless charities) then maybe a further win-win because your investment will be left alone for humanitarian(!) reasons?

Clown World for sure, but does my thinking indicate that i myself have just become Grimaldi's grim apprentice?  

[sancho panza]

13 hours ago, Harley said:

PS: To add, in this theme of cash flow and general liquidity, if anyone is going to look at OCF, look at the actual OCF and not the one netted off with changes in working capital.  You may get a heads up of upcoming fundamental trouble by how hard they screw working capital to make the numbers.  I'm seeing some potential gaming already.  As for FCF, about as good as EPS.  Gotta go deeper!

appreciate the heads up.

9 hours ago, Lightscribe said:

https://www.wsj.com/articles/if-you-sell-a-house-these-days-the-buyer-might-be-a-pension-fund-11617544801
 

Well looks like like a BK correction in house prices could be cancelled after all. In the US the big pension firms are buying up swathes of real estate above asking apparently, completely obliterating any individuals buying a home.

Here next no doubt following Lloyds already laid out plans to become the UKs biggest landlord. ‘You will own nothing’ and all that playing out in real time. 

https://www.wsj.com/articles/invitation-rockpoint-forge-1-billion-rental-home-venture-11602067500?redirect=amp#click=https://t.co/QY3dzdI8QU
 

(deleted the Twitter link as he seemed a bit of a nutter)

Apparently,80% of the UK lived in private rented before WW1.Hancock's dream.

3 hours ago, Harley said:

Our biggest risk is being blindsided by the very things we ignore (in practice if not in thought).  I'm steep in economics and finance but now old enough not to go down those rabbit holes.  I've bashed on about the bigger picture (i.e. political and social) to keep a sense of balance.  The biggest mistake we can make is not to think beyond the finance and economics, like say Napier stresses.  Our guesses could easily be blown out of the water by just a fraction of the covid stuff being applied to the financial world.  And IMO it will, but a lot more.  We can already see the direct impact (RDSB, Exxon, etc) of all this stuff.  But IMO these are very early days with much more to come.  We can be right about the macro and easily still get slaughtered and IMO we probably will.  I'm engaging in the covid forums because of what it means, the bigger and broader picture, to us here.  This stuff has to become viseral to be able to deal with it because it is so foreign. 

FWIW, I believe there will be a bi (or more) polar world, and that a crash will be more than just the narrow stuff we talk about in economic and financial terms.  This other stuff will almost make that traditional crash talk irrelevant.  I see a crash as much being regulation and privatisation to non-existence (at least for us), etc.  Driven under the guise of the social and political narratives currently being seeded.  Of course Russia and China are currently being singled out by the gang!  A gang that is probably well invested (under the cloak of secrecy) in all the things they send their drones to promote against!

You've created a great hypothesis to underpin this thread.  Those old strategy folk would be proud to take it forward.  It's a hypothesis though, and folk need to understand conceptually what that is and how to use it correctly to tease out all the other stuff.  It's the start of the journey, not its end.

God I love this stuff!  Makes you humble, 360 degrees wide!

First bit in bold is possbily one of the best observations in this thread that's brim full of some astute analytical commentary.

Too true.

[The Idiocrat]

29 minutes ago, JMD said:

For example, i'm beginning to think that buying income producing property, which although is an illiquid asset - that might actually become a positive - because it prevents the state from casually stealing it at the flick of a policy switch. And If the property served a 'social purpose' (eg leased to homeless charities) then maybe a further win-win because your investment will be left alone for humanitarian(!) reasons?

Clown World for sure, but does my thinking indicate that i myself have just become Grimaldi's grim apprentice?  

I take care of my dad's money. He's just had some fixed rate savings bonds complete and has a good bit in premium bonds (£25 in 12 months!!). I too have recently been wondering about sticking that into property just for some yield and as a hard asset - I even looked on Rightmove at houses in @DurhamBorn's Redcar suggestion! It pains me to think doing about BTL (especially at a distance but it needs to be a cash buy so comparateively low prices at less than 6 figures), but it's hard to find anywhere else for it that gives any yield at all (he won't do shares) and, as you say, property is unlikely to be confiscated. 

[DurhamBorn]

1 hour ago, Barnsey said:

Never a straight line, and quite possibly the consensus trade now which itself could be short term bearish, but wise words...(there's the 40 year disinflation cycle mentioned yet again)

 

Incredible isnt it that we saw all of this way back,even stating that it was the end of the cycle from Volcker.Of course one policy error now and the unwind would be epic.

 

[sancho panza]

2 hours ago, DurhamBorn said:

https://www.bbc.co.uk/news/business-57425281

Like iv said on this sector all along,its in play and the undervaluation is structural IMO.This is going to play out over the cycle and the sector will find ways to surface the value.Good to know we are at least in this one at half the price others are waking up.I think the likely results are that the companies will work with each other more and more rather than buyouts and that the whole sector will lift over time.

This is a Europe and South America theme more than the US.The US is more merged already and massive amounts of debt and risk through media assets.

In Europe all the big players are worth holding for the cycle,also Telenor and Telia in smaller amounts.Brasil its Telefonica Brasil and TIM the best plays.Asia is more tricky ,but Telenor is a good play there anyway.

 

Incredible to see.And all the big Inv banks were sellers at a pound...ffs

I've jsut had a quick look at the Tele Brasil and TIM SA.Both look like they'll giuve decent coma scores and aren't too lvereged-unlike most European carriers.

I'll have a look lateer and post up.

We're got a drop of cash psot EQNR sale,bought some RDSb and a chunk of Vodafone yesterday.Possibly Japan Tobacco and some of these telco's if they scrub up well on examination.

 

on a separate note,we've been doing some hosue clenaing and I msut say,the forex fees Hargreaves charge for buying foreign stocks open the eyes.Can't reccomend enough the multi currency offerings of people like Interactive brokers/Investors/Saxo

does anyone ehre know if there's a better UK broker forex wise?

[Lightscribe]

57 minutes ago, JMD said:

Plus we won't '...own nothing', we will actually own green/social housing bonds, and so '...will be (very smugly) happy'!!!

Hmm, it's slowly falling into place for me. But joking aside, - more importantly are there really any substantive financial escape routes possible from those bond buy-ins, etc, if they should ever happen... apart from selling your sipp (not really an option?) and 'escaping abroad' before capitol controls are enacted?

For example, i'm beginning to think that buying income producing property, which although is an illiquid asset - that might actually become a positive - because it prevents the state from casually stealing it at the flick of a policy switch. And If the property served a 'social purpose' (eg leased to homeless charities) then maybe a further win-win because your investment will be left alone for humanitarian(!) reasons?

Clown World for sure, but does my thinking indicate that i myself have just become Grimaldi's grim apprentice?  

If all the big funds/investments wade in on all available property buying outright, there may not be a crash but mortgages could still become unaffordable for the plebs.

If the the central banks do start steeply raising interest rates and mortgages follow, anyone who’s over leveraged and bought (certainly in the south) in the last 10 years will find the repayments a struggle especially in a wider inflationary environment. Individual BTL would also be finished which ultimately they would want too. So it’s outright or not at all IMO (DB will have a tsunami of Dosbodders heading his way)

It’s just a case who hoovers up the repossessions or asset forfeiture and if your allowed it back through debt forgiveness via being a good citizen...(for the greater good of social equality and affordable housing re-distribution and all that)

Then for anyone else it’s back to...

[Harley]

1 hour ago, JMD said:

 

Harley, are you saying FCF is misleading? Only i thought it was a better measure than OCF?, which i think was actually the other point that you were making? But could you clarify please, because your FCF/EPS comment has got me a little worried as i rely quiet a bit on the FCF metric. 

(hope not derailing thread, as not really macro, but fcf is always being discussed/mentioned here so would be good i think to ponder any potential positives/negatives?)

 

(following definitions are not required for this discussion i think, but just including for completeness, and in case anyone wants to add to them... 

Free cash flow is the cash that a company generates from its normal business operations before interest payments and after subtracting any money spent on capital expenditures.

Operating cash flow is cash generated from normal business operations or activities.)

I meant IMO that the number is too aggreated, as is EPS.  There are indeed ways to massage such numbers but also it does not give enough data for me.  IMO the best it to look at the detail.  It doesn't take me that much extra time.  But then I focus more on the cash flow than the P&L.  I like to see the history and components of changes in operations, working capital, financing, dividends, and capex.  Follow the money!

Regarding OCF, my comment about looking deeper than the figure net of changes in working capital is I have possible experience of companies screwing down on say accounts receivable to smooth any falls in funds from operations.  Or maybe doing clever intercompany, group, associate type stuff.  I invest internationally so need to be careful!

[Harley]

2 hours ago, nirvana said:

I've found my thought for the day lol.....I still think the FED might try an IR hike but Mr Market will hit back and scare the shite of em with an almighty crash 

The fed crooks can either bankrupt the government by raising interest rates or bankrupt the Amerikan people through currency debasement ie hyperinflation. I think the crime syndicate will choose the latter

Also this geezer worth a follow on twitter

https://twitter.com/TapsCoogan

 

edit: soz, this site goes bonkers when you paste a twatter link 

I heard I think RealVision outline a case for limited rate rises.  They simply cannot afford it.  It sounded a sensible position to take (one of several).  They could maybe switch to regulation, etc instead or just let it be.  That could change this thread's thesis somewhat.  That's a worthy "what if" to assess courtesy of testing baseline assumptions.  

[Harley]

42 minutes ago, DurhamBorn said:

Incredible isnt it that we saw all of this way back,even stating that it was the end of the cycle from Volcker.

 

So where to next?  We've gotta stay ahead!  Retention of capital?  But what macro?  

[Harley]

58 minutes ago, sancho panza said:

on a separate note,we've been doing some hosue clenaing and I msut say,the forex fees Hargreaves charge for buying foreign stocks open the eyes.Can't reccomend enough the multi currency offerings of people like Interactive brokers/Investors/Saxo

does anyone ehre know if there's a better UK broker forex wise?

Oh dear.  I've just done some major housekeeping and spent a ton on HL forex fees!

I actually thought HL could be cheaper than II if the trade is back to GBP rather than hold in the currency.  HL charges max 1% whereas say II charges 1.5% so cheaper with HL on a there and back (which you have to do with HL) than II but 0.5% more expensive compared to II if you do a there but hold the currency on the back leg in II.  So depends on what the plan is.  My purchases are hopefully long term so ok with HL, although the div loss will hurt.  All academic in an ISA though as you can't hold forex so it has to be a there and back in them all.

The #1 hands down for me, if no ISA or SIPP is required, is IB.  They are brill in every way except their software.  But then their app is great, particularly on a tablet.