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

[Barnsey]

COPPER!!! 

[sancho panza]

On 29/01/2020 at 10:12, Bricks & Mortar said:

If the Fed see's a US recession, I agree, cuts and QE.

I think the question is, when they'll open their eyes.  I think Dollar Milkshake has the potential to keep the US propped up (at least on measures like the DXY and stock markets), while the rest of us pay a visit to Helena Handbarrow.  At least for a while.

I should declare that I think its a little wild.  I've posted Dollar Milkshake links a couple of times, but sorta from a Devil's Advocate point of view.  I'm just thinking it's something to be aware of, in case the DXY doesn't turn and starts climbing instead.

 

It's a really thought provoking post B&M and one that is constantly on my mind as I set up the weak dollar thesis trades going forward.

My thinking is this.We get a weak dollar,then we're positoned very well for the run up in commodities.

We get a persistently strong dollar,then we will under perform but we'll be in investments I can live with dollar denominated/commodities.Just been running the slide rule over Mosaic(potash miner) and it's down 87% from 2008 peak.Solid balance sheet,can't see demand for the product going down much and it's still got strong free cash flow.

It's also been interesting to see PM's strengthen while we're enduring a strong dollar.That's either really strange or a sign possibly of 'insider buying' as retail starts to dominate the momentum on Wall St.Time will tell on that one

Funnily enough,I'm posting this as I listen to Russell Napier on Macro voices hattip @Cattle Prod and he predicts a strong USD mainly as people leave the Euro

https://www.macrovoices.com/773-macrovoices-203-russell-napier-the-coming-credit-crisis-will-be-outside-the-u-s

Well worth listening to.He basically starts talking about systemic banking crises being inbound but the US is NOT one of them.He uses a scoring system.He talks about a run into UST's and US corporate bonds.Capital flight in Europe is the issue.Of the countries with serious risk of banking crisis a good few are in the Eurozone and crucially EU has new banking legislation meaning depositors will get a haircut over E100,000

Basic Thesis-possible capital flight already ongoing from EU,post 2008 US banks shrank their balance sheets,huge potential chasm at centre of the EU-France  Debt to GDP 329% Germany 181% Debt to GDP and yet they have the same intertest rate.

2 reds-ie systemic banking crisis within 3 years

China-huge %age global GDP,huge chunk of global growth,debt to GDP grew by 5% in Q1 2019

Canada

Hong Kong

Turkey-already in significant default.

 

 

1 Red

Japan

Netherlands

Singapore

Chile

Thailand

Columbia

Indonesia

 

Amber-50% chance of a banking crisis in 3 years

France

Belgium

Finland

 

Napier predicts huge jumps in long term bond yields-capital controls-helicopter money from Laguarde-says he's been writing about deflation for 25 years but reckons this will be the last time he does-final deflationary shock coming from Eurozone or China-last year year and a half of bull market-debt will be inflated away-you don't want to be owning debt when they do-velocity could get out of control as workers try and defend themselves from the impact of inflation-US China cold war inbound.

[Barnsey]

https://www.bmmagazine.co.uk/news/uk-personal-company-insolvencies-reach-record-levels/

“Individual insolvencies have risen to highest annual level since 2010, with the UK retaining its status as the country with the highest level of personal insolvency in the world. The total number of County Court Judgments (CCJs) issued against individuals in debt reached 1.15 million in 2019 – the highest on record.

[DurhamBorn]

@sancho panza

Thats exactly whats coming as you added above.The process isnt certain,and we cant know where what bottoms etc.What is certain though from a macro point is this deflation is ending,probably with a bang,and then its off to the races with a full on reflation.

If im wrong i will under perform the market,maybe by quite a lot over the rest of my life.I can live with that.However once velocity moves and longer term bond yields start to move higher most peoples pension plans will be destroyed.I see a very real risk of 50% to 60% loss in bonds.Maybe 90%.Imagine that with a 1% fee and 4% draw down.Pots will empty over 8 to 13 years.People simply think equity/bonds as if that the only interaction.They forget about inflation.The margin destruction going on is due to rates being zero.Everyone can borrow and compete and force prices down.Once that ends margins will start to increase again,but only in certain sectors.

The other myth that will be exposed is BTL and houses as pensions.Once rates hit 7% a very large chunk of BTL will be loss making.

[sancho panza]

 

On 29/01/2020 at 10:39, Democorruptcy said:

Cineworld Group plc is a United Kingdom-based international cinema chain. The Company operates in approximately nine countries. The Company operates through two segments: UK and Ireland, and Central and Eastern Europe and Israel (CEE & I). The Company has over 9,518 screens in over 790 sites in across 10 countries. It operates in the United Kingdom, Jersey, Ireland, Poland, Israel, Hungary, Czech Republic, Bulgaria, Romania and Slovakia.

Also bought Canada's Cineplex for $2.1bn in December.

Will you be going to the cinema if the Corona Virus gets more widespread? Just saying....

as @DurhamBorn bortn says,eye watering debts.iirc,the ticket moeny goes to the studios and the cinemas make their cash off the overpriced popcorn.Besides....

 

On 29/01/2020 at 11:04, Majorpain said:

https://www.bbc.co.uk/news/business-51266079

Private equity behind Amigo Loans trying to get shot of it to a greater fool.  Can they see the writing on the wall?

I suspect like Barbers and taxi drivers,they feel the downturn long before anyone else in the broader economy.

Selling while the going is reasonable.Why not?

23 hours ago, DurhamBorn said:

I pay £2.50 to go to the local Vue and buy nothing in there,but the younger people all seem to be coming in with two foot tall cokes and snacks.I see a good future for the industry,but that debt is a big worry.If i was a shareholder id rather they cut the divi in half and de-leveraged as quick as they can before they cant.

I mentioned a while back,took Junior Panza rto watch Star Wars,£5 each on a saturday.Paid as much in the 90's.

Thy're doomed until they've flushed the debt down the toilet.

17 hours ago, Barnsey said:

What could possibly go wrong?

Interesting to see the housebuilders up this morning as they're a safety trade.I honestly don't know what those city boys are smoking but I'd like some.

[Barnsey]

The 7-2 vote to hold rates where they are isn't one of confidence in our economy but one of "shock and awe" when the time comes.

[Barnsey]

If you had any doubts about a potentially weaker $ in the short term:

 

[sancho panza]

5 hours ago, Majorpain said:

Stage set for Powell to go "not me guv, i tried" when the inevitable happens?

Yeah,I had some left field hopes for Powell but he's proven to be no real difference to those that went before him.Worth noting that napier said on his Macro Voices podcast that the Fed no longer has the options that Volcker did due to the fact that they've blwon IRs that low that people/govts couldn't afford the slightest rise in rates.

Today,I've got some space and no kids.Just rerunning voer the PM portfolio and looking to add some more before things get hectic.There's not oodles of value knocking around as you'd expect.

large:BVN/OR/NCM?even contemplating adding to Barrick Holding/HOCMstill looking cheap/

Mid/Small:had a pluck through SILJ for some leverage to silver price.?Hudbay/EXK/AXUFortuna/Sierra/Goro/BCM

If you have the time MP have a listen to that Napier podcast.Talks about Gold after 47 minutes or so.Well worth a listen from someone(Napier) who thinks we're headed for strong USD territory due to deeper real negative rates,calling for a 30 year bull in gold.

 

 

4 hours ago, Democorruptcy said:

Yesterday, I saw the bit about Huawei getting part of 5G but never thought about how much that might cost BT, they say £500m over 5 years. https://www.hl.co.uk/shares/shares-search-results/b/bt-group-plc-ordinary-5p/share-news

British jobs for British people!

Re Shell, I posted I'd sold all mine on 30th Sept and it's just hit -15% since then. I can't bring myself to buy back in yet with this coronavirus scare.

We started buying in August.Still at it.You're well up on that trade now DM...nice timing.

2 hours ago, DurhamBorn said:

Iv got ladders set based on my $43 from $60 oil target.IF oil got close to $43 i have ShellB ladder set £17.20 (two before that though).Its very tricky as half way along the road map in the right direction has gone a bit too fast and we might get a turn.Lets hope not.

To be fair,great call on the oil price going lower.As I've said before we've been buying big oil mechanically under certain price points.

We're prepared to follow these down for 6 months to a year.But I think they'll bottom sooner than that. 

Be interesting to see what happens to Potash Miners this afternoon in the US

 

[sancho panza]

2 hours ago, DurhamBorn said:

@sancho panza

Thats exactly whats coming as you added above.The process isnt certain,and we cant know where what bottoms etc.What is certain though from a macro point is this deflation is ending,probably with a bang,and then its off to the races with a full on reflation.

If im wrong i will under perform the market,maybe by quite a lot over the rest of my life.I can live with that.However once velocity moves and longer term bond yields start to move higher most peoples pension plans will be destroyed.I see a very real risk of 50% to 60% loss in bonds.Maybe 90%.Imagine that with a 1% fee and 4% draw down.Pots will empty over 8 to 13 years.People simply think equity/bonds as if that the only interaction.They forget about inflation.The margin destruction going on is due to rates being zero.Everyone can borrow and compete and force prices down.Once that ends margins will start to increase again,but only in certain sectors.

The other myth that will be exposed is BTL and houses as pensions.Once rates hit 7% a very large chunk of BTL will be loss making.

Somethign Napier referred to was increasing Unionisation leading to higher velocity as epople try and protect their living standards.

 

We've been t alking velocity on here since the beginning including @Harley and the role that behavioural economics may well play in leading the resurgence of infaltion as people start seeing the value of their money decline in their pockets as soon as pay day comes.

I foresee this inflationary scenario picking up steam but for all the 'wrong reasons' in the 'wrong sort of leaves on the line' type excuse.The keynesians are all set up for inflationary driven through monetary expansion.They think they can control it(which is expecially easy when you can dictate the way in which it's measured and block out half the stuff going up in price).If velocity explodes it will be a psychological phenomenon and once it's out of the bottle,I'm not sure how they'll get it back in.

 

As you and Napier argue,the real losses will be in bonds.I think your logic is compelling.

[DurhamBorn]

@sancho panza iv got some oilies already and hoping my road map is right and they keep going down.I have lots to invest yet.My eye is on the end of the next cycle now,this one can plays its cards as it will.The key to the stocks im buying are that they will all see a spike down in price of their product and demand,but that demand isnt going away and in an inflation the prices will go up.The CBs have destroyed margins with their zero rates policy.All that QE is sat in bonds ,mega cap tech shares and houses.Once people and the market wake up to the fact they need to price off rising inflation and rates you will see a huge turn in velocity.

Iv just transferred a final salary pension as well and waiting for the cash to land (DC kept me from going crazy with the process of getting it done),that will need investing,so deciding if to open up new ladders in new companies ,or do that and increase size of ones already set up.

I think getting a transfer based on 0.7% 15 year gilt yields will prove crazy in years to come.Of course the IFAs who did the transfer advise 60% in bonds for safety 

 

 

 

[JMD]

1 hour ago, sancho panza said:

Today,I've got some space and no kids.Just rerunning voer the PM portfolio and looking to add some more before things get hectic.There's not oodles of value knocking around as you'd expect.

large:BVN/OR/NCM?even contemplating adding to Barrick Holding/HOCMstill looking cheap/

Mid/Small:had a pluck through SILJ for some leverage to silver price.?Hudbay/EXK/AXUFortuna/Sierra/Goro/BCM

SP, for silver leverage what do you think of Australian silvie South32. Or for gold how about the gold jnr trans Siberian gold, it pays 5% divi.

[DurhamBorn]

Rig counts down in the US by large amounts.Very likely the natural gas price moves higher within 3 months.Iv just opened a small holding on Range Resources.Widows and orphans and all that.

[JMD]

Hi All, hoping for some advice on the industrial commodities sector - as I have discovered some alarming gaps in my portfolio.

I already own the big mining conglomerates (Glencore, etc), so am looking really to buy some good small miners operating in the particular areas below and where I am deficient. Help with any/all of these would be very appreciated...  

Platinum (e.g.: Impala Platinum, AngloAmerican Platinum, Zimplats - but these do look expensive - or am I wrong?)

Bauxite Ore (bit niche sounding, but its used in processing platinum) 

Iron ore (for steel production)

Graphite 

Cobalt 

Nickel

 

Also, an interesting sector that is not much spoken about at present - does anyone have knowledge of some good 'PM recovery companies', I think this sector will become increasingly important as metal reserves become scarcer/or difficult to get at all - particularly if China started limiting its commodity sales to the West. e.g. I'm aware of: Jubilee Metals, Enviroleach Tech - does anyone know of other ones?

 

[Democorruptcy]

5 hours ago, Barnsey said:

https://www.bmmagazine.co.uk/news/uk-personal-company-insolvencies-reach-record-levels/

“Individual insolvencies have risen to highest annual level since 2010, with the UK retaining its status as the country with the highest level of personal insolvency in the world. The total number of County Court Judgments (CCJs) issued against individuals in debt reached 1.15 million in 2019 – the highest on record.

I thought BEG might be doing well with that sort of news but no or not yet.

[Democorruptcy]

4 hours ago, sancho panza said:

 

as @DurhamBorn bortn says,eye watering debts.iirc,the ticket moeny goes to the studios and the cinemas make their cash off the overpriced popcorn.Besides....

CINE down another 3% today, setting a new year low.

[Loki]

1 hour ago, DurhamBorn said:

Iv just opened a small holding on Range Resources

Would you mind a brief run down of how you found them, and what made figures you buy them?  I'd like to be able to contribute more knowingly to this thread 

[Democorruptcy]

3 hours ago, sancho panza said:

We started buying in August.Still at it.You're well up on that trade now DM...nice timing.

 

I wasn't expecting the Brexit deal to go through so expected an election. I didn't expect the Tories to do so well, so could only see more downside than upside. I sold 6 around then and only the old dog CNA  has let me down +18%, RDSB -15%, RMG -6%, SGC -9%, VOD -8%, BT -21%. I know I'm supposed to hold but the gambler in me won't allow it! I've missed some divis but overall those shares are down -8% so I have some to play with to buy back in. I expect the UK to do quite well and all those will spring back quickly once this coronavirus scare dies down.

[DurhamBorn]

1 hour ago, Loki said:

Would you mind a brief run down of how you found them, and what made figures you buy them?  I'd like to be able to contribute more knowingly to this thread 

I have lists of all equities in each sector im interested in.Iv bought a few because  they are number 2 on my rubber band list for gas producers in the US and i think gas is within 3 months of a bottom.Rubber band stocks have a lot of energy when they turn and provide big returns.They also inflict lots of pain if the downturn continues.I usually only buy rubber band stocks in two tranches,not my usual four or five.I also  buy a few companies because there is a big risk some can go under if the sector doesnt turn.My PM stocks last May provided superb returns from the rubber band list.Not all of them of course.

[Errol]

8 hours ago, Barnsey said:

COPPER!!! 

Watching it. I've got my eye on Freeport McMoran and will be buying once Copper is at a low.

[Loki]

14 minutes ago, DurhamBorn said:

I have lists of all equities in each sector im interested in.Iv bought a few because  they are number 2 on my rubber band list for gas producers in the US and i think gas is within 3 months of a bottom.Rubber band stocks have a lot of energy when they turn and provide big returns.They also inflict lots of pain if the downturn continues.I usually only buy rubber band stocks in two tranches,not my usual four or five.I also  buy a few companies because there is a big risk some can go under if the sector doesnt turn.My PM stocks last May provided superb returns from the rubber band list.Not all of them of course.

Thanks - so does this rubber band list (I do like that expression, it sums up the potential nicely) cover non-oil (I know you cover that separately) energy in general, just gas, or just US Gas?

[DurhamBorn]

29 minutes ago, Loki said:

Thanks - so does this rubber band list (I do like that expression, it sums up the potential nicely) cover non-oil (I know you cover that separately) energy in general, just gas, or just US Gas?

Its the whole sector including service companies.However most of the big companies havent fallen as far and none make the rubber band list.

[Loki]

Just now, DurhamBorn said:

Its the whole sector including service companies.However most of the big companies havent fallen as far and none make the rubber band list.

Thanks for the details

[Democorruptcy]

Amerman on the impact in real terms of gold price rises accompanied by higher tax and inflation.

http://danielamerman.com/va/ccc/F5BernLizGoldTaxes.html

 

[Majorpain]

8 hours ago, Democorruptcy said:

Amerman on the impact in real terms of gold price rises accompanied by higher tax and inflation.

http://danielamerman.com/va/ccc/F5BernLizGoldTaxes.html

 

Yeah......

But im not sure that having 50% of your previous wealth is worse than not doing anything and have 10%.  He also assumes that the government will get away with a 50% capital gains tax without people getting upset about having their money robbed in an inflationary scenario, see UK Inheritance tax that cost TM the 2017 election!

[Castlevania]

14 hours ago, Democorruptcy said:

I thought BEG might be doing well with that sort of news but no or not yet.

They fell 20% at the start of the week, which I’m still confused about.