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

[ashestoashes]

1 hour ago, Tdog said:

I doubt i'll ever be good at timing, but i see this Corona virus as complete and utter nonsense, TPTB could have picked any of the several dozen variants of flu virus going round the Northern hemisphere at the moment and marketed them as destroyers of civilisation that they claim Corona is going to be.

If we are living in the age of stupidity, the marketing and propaganda of Corona tells me this may well be peak stupidity. Im almost 45 and have never known such MSM/global govt complete and utter bullshit. 

Hence im buying to bet against this ... and the theory govts. are desperate for a reason to print and lower rates, and Corona is seemingly that reason.

not aware of flu killing doctors and health workers on such a scale

my view was the news is not going to get any better over the weekend, indeed it may be several years before there's a bottom

[nirvana]

@Tdog Fair dos, I like your attitude actually YOLO 

Have fun and good luck!

[Errol]

I must be immune to being shocked. I guess it's as a result of holding gold since 2000.

In any event gold is still up 20% this year in dollars. And still at near record highs in GBP, Euro etc etc. I'm not sure what all the so-called panic is about. It would have to fall hundreds of dollars in a few days for me to really wake up (say from $1600 to below $1300 in two days).

Gold/silver shares are very interesting now and I will buying more next week. Also looking at Freeport for copper exposure.

[Yellow_Reduced_Sticker]

"Everyone Has Had a Coronavirus Before:

A Cellular Biologist Explains"

interesting interview on bloomberg:

https://www.bloomberg.com/news/videos/2020-02-28/everyone-has-had-coronvirus-before-a-cellular-biologist-explains-how-video

SO, for the corporal jones's here...

 

 

 

[reformed nice guy]

Is it correct to say that the yield curve inversion that happened a few months ago relate to the current blip? Did it cause enough movement of investments from speculative to more conservative investments, which made everything a bit more shaky?

Is the more recent yield curve inversion a sign that the worse is yet to come since recessions happen months after the inversion?

[Ash4781b]

Posted in the wrong thread but Intu Plc looks doomed. They Needed an equity capital injection prior to the malaise. Now the risk could also ramp up on their tenant side obliterating cashflows. They’ll be unlikely to firesale assets only at steep discounts. Only grace might be the lenders don’t want to take control in this environment.

[dgul]

40 minutes ago, Ash4781b said:

Posted in the wrong thread but Intu Plc looks doomed. They Needed an equity capital injection prior to the malaise. Now the risk could also ramp up on their tenant side obliterating cashflows. They’ll be unlikely to firesale assets only at steep discounts. Only grace might be the lenders don’t want to take control in this environment.

I'd suggest that we're on the cusp of emergency support (ultra cheap credit) to companies affected by nCoV (which will end up being 'all of them').  If they can get this cheap credit in time their share price will rocket.

[TheCountOfNowhere]

3 hours ago, dgul said:

I'd suggest that we're on the cusp of emergency support (ultra cheap credit) to companies affected by nCoV (which will end up being 'all of them').  If they can get this cheap credit in time their share price will rocket.

Then what.... 

 

These baulouts must end. 

[dgul]

7 minutes ago, TheCountOfNowhere said:

Then what.... 

 

These baulouts must end. 

Well, isn't that the basic premise to this thread -- that there'll be an enormous stimulus after a market crash, which will then create a spike in asset prices, which then leads to the multi-generational bust?

[DurhamBorn]

6 minutes ago, dgul said:

Well, isn't that the basic premise to this thread -- that there'll be an enormous stimulus after a market crash, which will then create a spike in asset prices, which then leads to the multi-generational bust?

Yes,and its only the scale in question.Lots of different cycles are converging,business,credit,political and even geo-political.Each one leads to inflation on their own of the 3% to 4% kind once they get going,to get all together is where things get interesting.It was always going to be that investment moved from China back home,but we might see even more of that as supply chains pull back as well.The stimulus isnt so much following a market crash,more a credit deflation.

 

[Harley]

I found this quite an interesting read:  https://www.keiserreport.com/2020/02/the-economic-cataclysm-ahead/#more-87805

Have the CBs finally met a force of nature printing money can't fix?  They'll have to start paying people buy money is paper, not stuff.  Are we about to find the true value of money?

[dgul]

46 minutes ago, Harley said:

I found this quite an interesting read:  https://www.keiserreport.com/2020/02/the-economic-cataclysm-ahead/#more-87805

Have the CBs finally met a force of nature printing money can't fix?  They'll have to start paying people buy money is paper, not stuff.  Are we about to find the true value of money?

As far as I can tell, all problems that a CB might see (care about) are resolved by printing money.  The fact that the actual real problems in the world (economy) aren't solved and usually are made worse doesn't ever seem to be relevant to them.

[Barnsey]

Definitely worth a read (from Sven Henrich), what happened and what might come next https://northmantrader.com/2020/02/29/2020-crash/

[Harley]

9 hours ago, Harley said:

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).

A long post with a sad end!

So here goes the first (and last of this particular series) bit.  Mostly about approach.

Before diving into the weeds a bit of context to what I'm trying to do.  I want a portfolio of international companies in the sectors I think will be stronger in the years to come.  I want companies, not ETFs, in order to de-risk (and, as discovered by this work, for many other reasons!).  I'm not looking for the "best" companies as I believe the majority of performance is driven by sector rather than specific company choice.  So I am generally happy to go with the largest companies which are the most representative of their sector.  Ideally I would like say one, two, or three companies per sector (TBD) to mitigate specific company risk.

Things got messier than I expected as I got into it, requiring several judgement calls......

I went to eft.com and listed the top 10 holdings of each global equity ETF.  I then merged duplicate companies (i.e. a company appearing in more than one ETF).  Here I hit my first issue.  Some companies appear in several different sector ETFs.  Microsoft for example appears in IXN, DRIV, GDAT, PRNT, OGIG, TDIV (ETFs ranging from technology to 3D printing to cars).  So I had to use judgement to choose one sector for each company (technology in this case), but kept a record of the ETFs to show the companies' sector spreads.

Next issue was with the sectors themselves.  ETFs can be at several levels of the sector hierarchy.  For example, there is a Natural Resources one but then also Oil & Gas and Metals & Mining.  The later two are more like sub-divisions of the former.  So I had to level the hierarchy.  In this case this meant transferring companies from the natural resources sector to one sector from a leveled set of sectors, such as Oil & Gas and Metals & Mining.  So more judgement.  A further sector issue was some sector classifications are, IMO, not fit for purpose.  "Consumer Cyclical" is IMO too broad a term for the trends/sectors we are seeking to identify.  So I reclassified the companies in such sectors to a more granular set of sectors such as Food & Beverage.  So yet more judgement!

My final issue is that my sector/company list is totally driven from the available global ETFs.  There will be omissions where certain sector ETFs don't exist, or excessive detail where some very niche sector ETFs exist.  Allied to this problem is that not all ETFs use a market capitalisation selection methodology so my list could contain very niche companies from say an actively managed ETF.   So I'm in the process of having a look around at more regional or even country specific sector ETFs to see what's missing and to compare my list to some market stock screeners. 

So why waste my time on ETFs?  Maybe I shouldn't have but I could not find a stock screener which covered all markets/countries at the same time (TBH I didn't look too hard).  I suppose I could have done a screen per market per country which would have possibly consumed even more time.  As an aside, it would be quite interesting to see just how different a US focused ETF would be from a true global list (i.e. the extent of US hegemony).

My next step after validating my 942 company list would be to select criteria to evaluate each company, a bit like SPs Coma Score.  I'm thinking I might need a slightly different set of criteria for each sector to reflect the underlying nature of their attractiveness as discussed on this thread.  For example, one driver behind the attractiveness of Telecoms is the return (FCF) they could make on their existing depreciated asset base.  But such criteria might not be key for another sector.  But then some criteria (debt and FCF) might be relevant for all sectors.  So maybe a mix of core and sector specific criteria.  I'll see as I work the detail.

So what's my very raw list for Telecom's (related ETFs in brackets):

Akamai Technologies, Inc.(FIVG)
Alphabet Inc. Class A (IXP,)
American Tower Corporation (NXTG, FIVG)
Analog Devices, Inc.(FIVG)
AT&T Inc.(IXP, FIVG)
Charter Communications,  (IXP)
China Mobile Limited Spon (TDIV)
China Tower Corp. Ltd. Class H (NXTG)
Cisco Systems, Inc.(IXN, HACK, CIBR, TDIV, DRIV)
Citrix Systems, Inc. (IHAK)
Comcast Corporation Class A (IXP, NFRA)
Crown Castle International Corp (INFR, TOLZ, GLIF, NXTG)
Digital Realty Trust, I (NXTG)
Equinix, Inc (NXTG)
Fujitsu Limited (NXTG)
GDS Holdings Ltd. Sponsored ADR Class A (NXTG)
Keysight Technologies Inc (FIVG)
Netflix, Inc.(IXP)
Nokia Oyj Sponsored ADR (NXTG, FIVG)
NXP Semiconductors NV (FIVG)
QUALCOMM Incorporated (FIVG)
SBA Communications Corp. Class A (NXTG)
Telefonaktiebolaget LM Ericsson Sponsored ADR Class B (FIVG)
Tencent Holdings Ltd. (IXP)
Verizon Communications Inc.(IXP)
Walt Disney Company (IXP)
Xiaomi Corp. Class B (NXTG)
Xilinx, Inc.(FIVG)

Clearly some odd ones such as Walt Disney which require further investigation (education?).  Another issue is that, as stated before, maybe the "Telecom" classification is too broad as it covers all sorts of sector actors (e.g. providers as well as manufacturers).  The main issue here is probably that the key global ETF is IXP which is a Communications ETF rather than just a Telecommunication ETF (no such global ETF, according to etf.com, exists).  So I could review the list, re-categorise some (Alphabet is clearly a duplicate and sits elsewhere), and maybe split the sector down into industries.  The latter would be a bit tough (subjective) as where to draw the line - at each company?!!!!  Morningstar's classifications could help here.  

But here's the rub.  The list is crap!, mostly because ETFs can be crap, emphasising to me I'm right (for me) to be looking at specific companies!  I used to be more concerned about ETFs from a security (e.g. securities lending, liquidity, etc) POV.  I'm now equally concerned about exactly what stocks I'm buying versus what I want and think I'm getting!  I checked the IXP ETF and sure enough the likes of Telecom Italia and Orange and Vodafone are there but well down the holdings list.  That's because the likes of Alphabet are so big, cap wise, they blow the others (the real ones!) out of the water.  Furthermore, that has skewed the ETFs away from the objective of an international spread.  IXP for example has 69% US stocks whereas the segment benchmark is 38%.  Plus you really need to know their selection methodology and definitions of things like "Communications". A bit of a bugger if you were right about Telecoms being hot only to pick a rubbish (in terms of actual representation) ETF!

So what have I achieved?  Well a start!  But also further clarity in my mind why not to rely on ETFs.  I'm going to bite the bullet and merge individual market sectors screens (and then compare the list to these lists to see how far off they are as a side matter of interest).  Very bottoms up but I really want the best international stocks (knowing most, but not all, will probably be US!).  That's important given my belief in other themes such as the growth of emerging markets and possible currency trends.

More to follow, hopefully a clean list!

[DurhamBorn]

Superb @Harley and look forward to this as you work through it.

[Harley]

31 minutes ago, DurhamBorn said:

Superb @Harley and look forward to this as you work through it.

Ta.  Anyone know of a good stock screener where I can ID all the stocks for a particular sector (ideally for all exchanges at the same time!)?  Morningstar requires me to go into each exchange at a time and is just too sloooooooow!

[Harley]

46 minutes ago, Harley said:

Ta.  Anyone know of a good stock screener where I can ID all the stocks for a particular sector (ideally for all exchanges at the same time!)?  Morningstar requires me to go into each exchange at a time and is just too sloooooooow!

To answer my own question, the FT stock screener looks just the ticket!

[DurhamBorn]

https://www.reuters.com/article/us-shell-gasunie-hydrogen/shell-and-gasunie-plan-to-build-massive-dutch-green-hydrogen-plant-idUSKCN20L1AV

This is ignored by almost everyone in the press etc,but you have here the Dutch government and Shell going to build a huge Hydrogen plant and ship the hydrogen no doubt through Gasunie's network pipes.Notice the time to come online.2027.Bang towards the end of what should be the final oil boom.We need to keep an eye on this deal because Shell have said they need extra partners.Whoever they are will likely prove winners in the sector.Everyone thinks wind power will feed the electric cars,but i dont think big oil have any intention of letting that happen and being squeezed out.They will use the incredible free cash they will create in the next cycle and their massive assets to make hydrogen mainstream.The irony is everyone and his dog is saying investing in oil companies is now dead money and the future is Tesla etc.I suspect they couldnt be more wrong on that.

I expect we will see similar in the UK.It could be Equinor and Drax using SSEs wind power from the Dogger Bank,or maybe even old oil rigs in Scotland.Im interested in finding more companies like SSE who should be able to feed the wind power at night and transmit and the gainers.Right now i see Drax,SSE,Shell,Equinor and BP as a cracking place to start.

 

[onlyme]

3 minutes ago, DurhamBorn said:

https://www.reuters.com/article/us-shell-gasunie-hydrogen/shell-and-gasunie-plan-to-build-massive-dutch-green-hydrogen-plant-idUSKCN20L1AV

This is ignored by almost everyone in the press etc,but you have here the Dutch government and Shell going to build a huge Hydrogen plant and ship the hydrogen no doubt through Gasunie's network pipes.Notice the time to come online.2027.Bang towards the end of what should be the final oil boom.We need to keep an eye on this deal because Shell have said they need extra partners.Whoever they are will likely prove winners in the sector.Everyone thinks wind power will feed the electric cars,but i dont think big oil have any intention of letting that happen and being squeezed out.They will use the incredible free cash they will create in the next cycle and their massive assets to make hydrogen mainstream.The irony is everyone and his dog is saying investing in oil companies is now dead money and the future is Tesla etc.I suspect they couldnt be more wrong on that.

I expect we will see similar in the UK.It could be Equinor and Drax using SSEs wind power from the Dogger Bank,or maybe even old oil rigs in Scotland.Im interested in finding more companies like SSE who should be able to feed the wind power at night and transmit and the gainers.Right now i see Drax,SSE,Shell,Equinor and BP as a cracking place to start.

 

Wouldn't frame it as Tesla vs Hydrogen (or oil co's), Tesla (together with most car manufacturers) are obviously keen on the model revolving around the distribution of electricity and oil companies are used to shifting a physical product in tanks and have their eggs in that model

If you go back to the very beginning of cars as transport it was a close run thing between electric and gas, far closer than history would lead anyone to believe, it was only cheap and plentiful oil supply that allowed the ICE engine car to dominate. The likes of Shell certainly don't want to be squeezed out but there's a hell of a battle ahead for them.

Electricity distribution is well proven tech and is cheap, not that difficult to expand either - for a start the system is only running at peak load a small part of the day, you could up the utilisation factor and much around a lot more energy overnight and during the other non peak periods, you'd need cheap storage though.

Which gets to the batteries, they are improving in single digit percentages every year. Moreover the tech around them is beginning to mature - how to warm/coll those batteries to get the maximum lifetime out of them - life of car is the goal. life of drivetrain which is already 100,00's miles (or should be as very simple mechanics and tech really) - this wold also apply to fuel cell driven cars as the motors would be the same. There is so much money going into battery tech and so many different avenues to remove the most expensive elements used in them or new solid state type batteries that sooner or later it is most lily there will be a step change in price/supply and this will tilt the market so heavily in favour of all electric - from the point of generation to the local storage/charging point/car/home that I think it will be a slam dunk that hydrogen will really struggle to compete against.

Hydrogen is going to be cumbersome to pipe / ship around, embrittlement is a persistent problem and you are looking at another step in the generation cycle - generate the electricity, electrolysis to create the hydrogen, then compress, chill  and liquify it to thanker it, or pump it raw and then do the same. So much easier just to shunt the current down the transmission lines.

[Harley]

3 hours ago, dgul said:

As far as I can tell, all problems that a CB might see (care about) are resolved by printing money.  The fact that the actual real problems in the world (economy) aren't solved and usually are made worse doesn't ever seem to be relevant to them.

This time it's different!!!!!!!!!!

[harp]

French oil company Total SA is among the final bidders for a stake in an offshore wind farm that may cost more than $7 billion to develop and operate, according to people familiar with the matter.

The move is significant because it highlights growing interest from major oil companies in renewables assets. It also would be the first facility of its kind in the U.K. built without full state support, making it more risky than what’s been built to date.

The British utility SSE Plc is developing the wind farm in Scotland’s section of the North Sea. It’s seeking partners to help shoulder the costs and risks.

https://www.bnnbloomberg.ca/total-to-bid-for-stake-in-7-4-billion-u-k-wind-farm-1.1397299

 

[Harley]

45 minutes ago, DurhamBorn said:

https://www.reuters.com/article/us-shell-gasunie-hydrogen/shell-and-gasunie-plan-to-build-massive-dutch-green-hydrogen-plant-idUSKCN20L1AV

This is ignored by almost everyone in the press etc,but you have here the Dutch government and Shell going to build a huge Hydrogen plant and ship the hydrogen no doubt through Gasunie's network pipes.Notice the time to come online.2027.Bang towards the end of what should be the final oil boom.We need to keep an eye on this deal because Shell have said they need extra partners.Whoever they are will likely prove winners in the sector.Everyone thinks wind power will feed the electric cars,but i dont think big oil have any intention of letting that happen and being squeezed out.They will use the incredible free cash they will create in the next cycle and their massive assets to make hydrogen mainstream.The irony is everyone and his dog is saying investing in oil companies is now dead money and the future is Tesla etc.I suspect they couldnt be more wrong on that.

I expect we will see similar in the UK.It could be Equinor and Drax using SSEs wind power from the Dogger Bank,or maybe even old oil rigs in Scotland.Im interested in finding more companies like SSE who should be able to feed the wind power at night and transmit and the gainers.Right now i see Drax,SSE,Shell,Equinor and BP as a cracking place to start.

An interesting press article recently about how Wales could become a hydrogen production centre.  There have been some naughty goings on planning wise at the local and national levels which is basically opening up most of the welsh countryside to industrial scale solar and wind farms.  The pieces of the jigsaw are beginning to come together and the picture is not pretty if you live there.

[sancho panza]

12 hours ago, kibuc said:

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. 

Absolutely right.I've been through a few bubbles since the tech buble in 99/00 and been through many sell offs.a lot of the time you're sat there wondering if this is some sort of decent size kahuna.

As part of my work I've learned the art and indeed value of calm reflection(paramedic) ie what went right, what went wrong on a job, what can we learn etc and have applied it to my investing.We had a busy week,sold a few things in the last few weeks XOP/FCG/XES related,then sold our 2% newmont position at $51 earlier this week.I debated with myself whether to sell all the goldies on Tuesday iirc which I posted on here about.decided to stay put for the reasons I said to you.

My thesis on gold is about central bank control not corona virus/I'd likely not buy them back again/they might not have dropped(it asnt guranteed tuesday

the reasons I sold the NWM were to raise capital/I thought it had limited upside from $51/it had had a phenomenal two weeks.

on reflection this sell off rang alarm bells as I'm looking at closing prices fri and the dross got sold off less than the good stuff whioch means that panic sellers were ditching the liquid over the illiquid.this jsut felt like a knee jerk sale in gold

On monday(or if the sell off continues then we'll sit tight but I think the goldies might rally here),we'll be moving New crest at $16 froma 0.5% position to a 1%(leaving us space to ladder in if it hits $15/$14),Sandstorm from 0.8% to %1,Osisko from 0.7% to 1%,Buenaventura from 0.5% to 0.75%.If Barrick/Anglogold drop back to $15 then we'll add to our long term positions(about 2.5% together).

despite saying we wouldn't buy any smallies here but FVI/Integra/AXU/GORO/ look tempting(already have some of the last 3)

 

[Harley]

13 minutes ago, onlyme said:

Wouldn't frame it as Tesla vs Hydrogen (or oil co's), Tesla (together with most car manufacturers) are obviously keen on the model revolving around the distribution of electricity and oil companies are used to shifting a physical product in tanks and have their eggs in that model

What, another one!  Betamax or VHS?!

[onlyme]

Just now, Harley said:

What, another one!  Betamax or VHS?!

A repeat of an earlier battle. Henry Ford's wife didn't drive a Ford (model T) , she didn't  like it!  She drove a Detroit Electric.