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

[Alifelessbinary]

Well this all escalated quickly!

You wait so long for something to happen and then when it finally happens the speed can still shock you.

I brought a few ladders this week, but imagine that I could well hit quite a few more depending on how events pan out over the weekend. 

The biggest surprise was the savage drop to the gold miners. 

 

[sancho panza]

12 hours ago, MvR said:

I wasn't planning to, but you've got me looking now

This is absolutely not trading advice, but generally speaking if I'm bullish and I think we're going through a capitulation, I'd go for a call spread ( long call, with a short call a few strikes higher ), with the long call at at the 1 standard deviation level.. i.e. the one with a delta around 0.16. The short call would be the one around 0.05 delta, and I'd buy the spread as far out as I though it needed to for price to get above the upper short call. 

In the case of XOP for example,  the Jan 2021  22/27 call spread is about 0.30 or $30.00 a contract, and the max profit is $470 if we end above 27.   If I consider a fast rebound likely, i might leg into the spread by buying the 22 strike calls at the current $41 a contract, and then entering a GTC order to sell the 27 strike calls for the same $41 a contract, hopefully to filled during the bounce. 

This may not be optimal probabilistically, but psychologically it means I know I've taken out my initial stake, and I'll go looking for other opportunities.

As for taking profits, I'd probably sell the position once it had achieved 50% of it's max profit. It pays not to be greedy when you're in a net long options position, since the profits can evaporate quickly.

I need about half an hour to reasearch some of your posts and cross check the maths until I fully understand them

Love it.thank you.

 

9 hours ago, Harley said:

Unilever, my canary, now following the FTSE down almost in lockstep.  You don't sell ULVR unless it's pretty big.  The core is weakening.

Nice turn of phrase.I think well have some sector rotation now,then warm up for the biggie.lot of different views in terms of the kahuna Harley.Is this it?

9 hours ago, Harley said:

Not totally clear there.  Are you holding your PM miners, selling them, or buying more?  A larger future position could be due to higher future prices or purchases.  I'm looking to buy some GDX/SIL type stocks as part of a hold sector allocation.  My TA has never worked on GDX!

I had a moment three days back when I considered selling all the goldies.I sold Newmont which was a 2% portfoilio postion and redeployed into big oil .

On consideration I ddint sell any more although with the benefit of hindsight we'd be buying back in now for a chunky 20%/30% on some stocks.

Despite a lot of bearish sentiment,I'm thinking of nudging some back into the goldies next week,possibly some fresh capital too in the spirit of buffet,,,,greed fearful be when others are/....

9 hours ago, Lavalas said:

 

I’m investing in big oil for safety but keen on some riskier plays in natural gas, and for those reading, I’m a novice and this does appear to be a riskier play. I’m guessing coma score says as much @sancho panza?

Cheers

we pulled of our nat gas plays two weeks or so back,looking for the re entry but too busy with big oilies to worry.nat gas is a leveraged play to me.

 

[sancho panza]

7 hours ago, kibuc said:

Sweet Mother Mary.

Alexco -25%

Impact -17%... again.

Fortuna -15%.

New Gold -14%

I was semi-chilled about it all so far but I'm entering "how do I tell my wife about it" territory.

I'm sitting tight.Have to admit,we might even be buying a few Monday/Tuesday

OR/BVN/SAND/AU/NCM from the Tier 2/3's

Looking at AXU/FVI/GORO down more than Couer and Hecla...which sort of sums these moves up.

5 hours ago, DurhamBorn said:

If i say it myself probably best call on oil anywhere that one.I put a lot of work in.I also gave some indicators extra value.My road map said about another 6 weeks though to hit,so its obvious sentiment has brought things forward and we could under-shoot.I had Shell B at around £15.50 at $43 so slightly above where i expected,so that shows actually big companies have lagged behind a bit.Lets see if the road map is right in calling a turn soon and a 50%+ increase within a year.

On gold remember leads and lags.The people buying the miners and gold like we did last May have already been very well rewarded.The complex went up in anticipation of what we are now seeing,and of course now we are here many will sell.Is it wrong to sell a 200% profit and buy a beaten down blue chip for instance.Then there will be margin calls in play.

Of course once that is done its likely the PMs will move back up and my target on gold is $1740.People will remember they dont have exposure and will start to buy.Im going to run the rule over the miners next week as i might re-enter a few.

These market have everyone scared and across the board selling,but this thread has been preparing for this,we have put the work in to what to buy,avoided falls of 40% to 80% and that work will be rewarded i expect in the next cycle.We cant avoid losses as we position,nobody can,but by avoiding the noise and the smoke,we can see the sunlit uplands.

 

 

We bought RDSB/BP/XOM/EQNR/REP wed and then again today.I was thinking we might get $48 on XOM tonight but by the time I got the kids to bed it was $51 and up a dollar on the day.EQNR was slightly up too.Maybe bottoming signs.We havea buying plan though which is base don tiem or price movement depending on maket  oves but we're being more aggressive than planned.

As above to Kibuc DB I'm looking at the goldies for some extra.Must sya this has the hall marks of a panic sell off as the good ones are getting a hidin g worse than some of the dogs.

Much as Im tempted to buy some more smallies,going to be sticking with goldies with $1bn market cap from here.

5 hours ago, Castlevania said:

It’s a complete and over reaction. It’s not airborne Ebola which would necessitate such panic. It’s a nasty flu. Being hysterical won’t help you. Stay calm and take simple steps to protect yourself such as washing your hands and avoiding people who look sick.

I’ll be buying some more on Monday.

well reasoned points CV.Look at wuhan,11 mn people,how many caught it?mortality rate around 2% of those that contracted it and many of those had comorbiities.Im sorry thos people have died but it isn't ebola as you say.I'd have sold everything if it was.

There's a lot of hysteria.It's tough buying through it,but we have a plan and Im sticking to it.

2 hours ago, Castlevania said:

It’s a nasty flu. The way it’s being reported in the press is that it’s a death sentence. It isn’t. The vast majority of people will make a full recovery within a week. The question is, did it warrant such a response from China in the first place?

 

[sancho panza]

2 hours ago, Cattle Prod said:

You may well continue to be right, and there is nothing wrong with a cash position.

As my dear old Mum always said to me when I was younger

'In God we trust, for everyone else,cash is good.'

2 hours ago, Barnsey said:

Bingo!

 

Some random greens in a few sectors that I'm monitoring.Weird seeing Exxon and EQNR ending the day green.

 

[Harley]

2 hours ago, sancho panza said:

Harley.Is this it?

A case of "Contact, wait out"!  Could be a patrol or the whole effing advance!

Spent the afternoon listing the top 10 companies in every global equity sector ETF to prepare that list of targets of mine.  Need to add US/European ETFs where the global ones lack sector coverage.  Next steps are to rate each sector according to our thread model(!) and take small positions in the better sectors/companies (not the ETFs), buying further ladders on the basis of their TA and/or fear of having cash balances stolen.

Selection and maintenance of aim!  I'm looking for sustainable dividend income in part but mainly total return ahead of the coming inflation.  Still am and things are now cheaper, some even floored.

My FTSE income portfolio is presumably well chewed up but it's a proxy annuity so I'll leave it alone, CCL, TUI, included!  Indeed I'll add where not at full allocation but won't rebalance things.  I might put any cash into a hedging short but think there is a good chance of a relief rally next week so need to wait.

I've been working through my list of priorities and only now have reached the financial stuff.  I've had some very productive weeks and have snapped out of a bit of a stupor.  I'm very happy with my strategic life decisions right now.  I don't know if this is the big one but that doesn't really matter, it's coming.  

TBH, it's like the old days.  Head down and keep going.  The Rover will be over one of those hills, or not.  The best and the worst.  Green on, game on.

[headrow]

75k down this week but my portfolio is still positive , it is the dividends that worry me the most , i'm hoping for the cuts not to to be too severe in the next quarter. My share account dividends fund my S&S ISA , i got the full 20K in by January this year , will be interesting to see how it gets on this coming year. I've moved 30k in cash to my share account to take advantage of the sell off but i wont be buying until infections in the USA have peaked and start to decline.

 

it has been quite brutal to watch this week but i hope i have learnt something that i can use to make myself a little bit better in the future.

[CVG]

11 minutes ago, headrow said:

but i wont be buying until infections in the USA have peaked and start to decline.

I started scanning the US for bargains last week. I couldn't believe the PE's still averaging (guess) around 20. Even with the correction I think that the US is overvalued.

But Westcake Chemical PArtners LP (WLKP) caught my eye. Good yield, low debt, high interest coverage, high Quick Ratio, forward PE 9, forward PEG of 0.7 and good P/FCF. Must be a gotcha somewhere.

[sancho panza]

The devil is in the detail.

 

 

from the 22nd but the point stands

[Majorpain]

5 hours ago, Cattle Prod said:

Right on cue, Chinese PMI comes in at 35.7, lowest on record. Coming soon to the USA, unless...

This will be what makes pumping more QE a difficult decision, Lack of goods + Money printing = inflation.

Obviously government spending at infrastructure etc. is less of an issue, targeting consumer spending is a big no no when there are less goods to buy.

[Barnsey]

5 hours ago, Cattle Prod said:

Right on cue, Chinese PMI comes in at 35.7, lowest on record. Coming soon to the USA, unless...

Jeeeeessssuuuuuusssss!

That’s the Global PMI about to be decimated, make no mistake folks, huge coordinated global stimulus imminent.

China non-manufacturing even worse at 29.6!

[sancho panza]

7 minutes ago, Majorpain said:

This will be what makes pumping more QE a difficult decision, Lack of goods + Money printing = inflation.

Obviously government spending at infrastructure etc. is less of an issue, targeting consumer spending is a big no no when there are less goods to buy.

I think the response @Barnsey refers to is going to be inflationary.Especially given how current prices of commoditiers wil haev led to production being reduced..............

looking at FCX I sold at $10.70,dropped to $9-20 but back near $10....time will tell if we get another decent drop but I'm not so sure.this was one rapid sell off.short covering rally could be imminent

[headrow]

1 hour ago, CVG said:

I started scanning the US for bargains last week. I couldn't believe the PE's still averaging (guess) around 20. Even with the correction I think that the US is overvalued.

But Westcake Chemical PArtners LP (WLKP) caught my eye. Good yield, low debt, high interest coverage, high Quick Ratio, forward PE 9, forward PEG of 0.7 and good P/FCF. Must be a gotcha somewhere.

A month ago i was struggling to find any value , by value i mean a yield of 6% . Now i am spoilt for choice . I expect a bounce on monday & tuesday and then the sell off to continue.

Had an interesting week looking to find the stocks that didn't crash as hard as the index , will be purchasing them pretty soon i hope. 

[DurhamBorn]

41 minutes ago, Majorpain said:

This will be what makes pumping more QE a difficult decision, Lack of goods + Money printing = inflation.

Obviously government spending at infrastructure etc. is less of an issue, targeting consumer spending is a big no no when there are less goods to buy.

Like i always said the printing this time isnt going to trampoline makers in China through tax credit spending in the UK its going direct into the economy.I think this is the bit the markets will miss.They are right to expect liquidity,.its coming in buckets,just not the affect.Of course less consumer goods forcing down prices,more investment in capital assets means higher inflation means lower bonds.Thats the cycle ahead.

[sleepwello'nights]

28 minutes ago, headrow said:

A month ago i was struggling to find any value , by value i mean a yield of 6% . Now i am spoilt for choice . I expect a bounce on monday & tuesday and then the sell off to continue.

 

Isn't the issue that the fall in equities is the expectation of lower profits and reduced dividends?

[DurhamBorn]

@Harley good to see you back on the case.Can you put up the ones you like out of the telecom sector,big oil,potash,i want to see if you flag any iv missed.Also any other companies in sectors you think will do ok in inflation and look good.

I pretty much think calls have all landed now (next one dollar down to $90 or $87) so im going to do some work on my inflation/interest rate road map for the next cycle up to 2029,,how about that for one that can leave real egg on your face.Cant do much cross market on it,but these PMI numbers etc are starting to show me the likely scale of printing,so i can start to get the angle of projection now.

 

[sleepwello'nights]

14 minutes ago, DurhamBorn said:

Of course less consumer goods forcing down prices, more investment in capital assets means higher inflation means lower bonds. That's the cycle ahead.

This is what I always get stuck on. I buy a bond (a gilt usually but the principle is the same) for the coupon. The capital will be returned on redemption, inflation linked to reduce the risk of purchasing power erosion).

The market price of the bond will fall if interest rates rise but the coupon and redemption value are unchanged. Should it concern me if I intend to hold until redemption anyway. 

[DurhamBorn]

The problem is your not buying at par,the issue price,most bonds you buy are already in the market and trading above par/redemption level.Its tricky to calculate them all because of lots of factors,but it could be a 10 year investment in bonds delivers 1% a year over the cycle,or inflation adjusted -70%

The way i look it is through the eyes of someone in a pension draw down type situation.They will be 60 to 80% bonds in lifestyle type accounts with IFAs.If we take an average fee of 2%,draw down of 4%,and undershooting inflation at best by 4% the pension will be worth hardly anything after 10 years.The equity side might lift things a little,but given where most market cap is,they could also undershoot inflation.Apple and Amazon will not do well in an inflation for instance.

The way i see bonds at this stage of the cycle is they might have a bit more yet,but you might as well swap them for cash at the moment,though that has its own risks of course in a meltdown.

[DurhamBorn]

Oh and on the China PMI dig in the figures and the export orders PMI is at 28.7 .Those sort of numbers would say parts of the supply chain have gone down and orders cant be filled.At the end of a dis-inflation thats what youd expect,its the seeds being set for inflation.I expect China will look inward now and invest like crazy.

Interesting to see if the markets carry on down due to those terrible numbers,or if the thought of QE turns things.

[sleepwello'nights]

11 minutes ago, DurhamBorn said:

The problem is your not buying at par,the issue price,most bonds you buy are already in the market and trading above par/redemption level.Its tricky to calculate them all because of lots of factors,but it could be a 10 year investment in bonds delivers 1% a year over the cycle,or inflation adjusted -70%

 

Thanks.

I've just been looking at the DMO website and Computershare to work through some permutations. The buying price is never known until the transaction is executed. 

Although the index linked fund in Vanguard has risen in value this week. Flight to safety?

Although the falls in Gold and Silver argue that its pure liquidity concerns. Why would cash be safer?

[Bricks & Mortar]

6 minutes ago, Tdog said:

Out of whats about to be a 70k SIPP ive now 24k in shares and the rest in cash, hence was looking at dropping a grand into gold to hedge my bets.

I'd wait for the central banks to act, but think that's a reasonable proposition.  I think your situation is likely mirrored in SIPPS and trading accounts all over the world.  There's been massive de-risking and flight to cash last week.
If the central banks cut rates, or QE, it'll be looking for a home.  And I think gold and other PM's will get a good share. 
(that is to say, I don't think this was/is the big kahuna - or at least, it doesn't have to be, provided the central banks do their thing)

Not advice, etc.

[201p]

Gold sold off apparently not just because of margin calls, but funds re-balancing because they were too heavy in gold and too light on stocks.

Monday might see some bounce.

[kibuc]

11 hours ago, sancho panza said:

I'm sitting tight.Have to admit,we might even be buying a few Monday/Tuesday

Wasn't an easy decision but decided to stay put as well, still 100% in. The gold is still almost 1600. Silver is 16.70. All my producing plays are cash cows at these prices. I know that negative sentiment might very well render the fundamentals irrelevant but I cannot predict human behaviour, whereas I can crunch the numbers. Have to stick to what I know. 

[Harley]

1 hour ago, DurhamBorn said:

@Harley good to see you back on the case.Can you put up the ones you like out of the telecom sector,big oil,potash,i want to see if you flag any iv missed.Also any other companies in sectors you think will do ok in inflation and look good.

I pretty much think calls have all landed now (next one dollar down to $90 or $87) so im going to do some work on my inflation/interest rate road map for the next cycle up to 2029,,how about that for one that can leave real egg on your face.Cant do much cross market on it,but these PMI numbers etc are starting to show me the likely scale of printing,so i can start to get the angle of projection now.

 

Ta.  Wilko.  Will need some input along the way on certain matters.  Will use Telecoms as my exemplar then.  More to follow (a few jobs first).

[Barnsey]

For some perspective on just how shocking this was:

 

[nirvana]

I remember talking to some Halifax employees in 2007, they had 'invested' in their beloved employee at circa £12/share and the management kept telling them it was a no brainer!

Then the shares dropped to 40p.......RBS dropped to 5p......

Anyway it appears a lot of you guys like a good fight with 'Mr Market'??? I learnt a long time ago it's not good to fight with him 

The ECB and the Central Bank of Japan already have negative interest rates, so you're putting your faith in the FED? and that 'small player' the BOE? I know it worked in 2008 but this time it might be different!!??

Who remembers what Woodrow Wilson said about the FED shortly after it was created???

@Tdog and anyone else who thinks covid19 is 'just the flu' aren't you worried about this graph?

And @Chewing Grass reckons the cases in South Korea are increasing at nearly 50%/day for the last 12 days....I've asked him for a mortality rate....data, need more data, lol

EDIT: update from chewing grass, he reckons the mortality rate is 4% and Dave down the pub says he's a bit of a clever bastard 

Right enough of this banter, I'm off out to 'have some fun' before it's too late!!! Failing that I might just ride my bike