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

[CVG]

7 minutes ago, CVG said:

Is that wishful thinking based on my Card Factory holdings or factual? Lol.

Having just laughed about one, I see it is up 14% today and Stockopedia lists my gain % as -71.6% so it's probably not a terrible measure.

 

[NogintheNog]

Two muppets with headphones. Oil, houses and Gold. See if you can pick the bones out of this mainstream crap!

 

[sancho panza]

15 hours ago, S Brule said:

Does anyone else follow that Raoul Pal fella of RealVision on Twitter? He's made some good calls in the past. He's posted a link where you can get his April report for free, here is the link to the pdf in googledrive that is in the email (in case you don't want give your email address to sign up).

TBH, I've not read it yet, it's 120 pages so I'll save it for the weekend. But skimming through it does mention debt deflation a few times so I thought I'd share it here (he does say share with friends and family haha).

He's very much along with the credit deflationists about the coming Big Kahuna.Page 34 he talks about debt deflationa and a velocity of money crisis.................wow.....calling all the students of behaviorual economics.

 

 

Well worth a read I've pulled a few points out

 

I think he nails it with his 3 phase theory-(saying we're in the panic).Very much echoes some of kaplan's work.Some great points on stock market history from 1929.

1) the panic

2) the hope

3) the insolvency.

A lot of the 120 pages i charts so you can skim read quite a bit.

Having said that,he calls for a possible move SPX to 2000 first two weeks in April-wrong.

Calls for a six month rally from the bottom-I think he's right on (decl-thats roughly what we're postioned for).

 

great quote-

'what's unfolding has elements of all the macro events of my life plus 1929,all rolled into one.'

 

'The everything crisis

Largest equity bubble of all time

Largest wave of retirees of all time

Largest student loan bubble

largest auto loan bubble

Indexation bubble

largest corporate credit bubble

ETF/market structure bubble

Foreign borrowings bubble

Monetary policy bubble

EU banking crisis'.

 

 

 

Edit to add:it's a proper bear fest.Should carry a warning to all baby boomers holding ETF's. @Harley he refers a lot to market structure I struggle to see how ETF's like GDX are a problem structurally.I can see why some high yield/junk bond ETF's with illiquid assets are a problem.Are ETF's like GDX a problem in your opinion?

Edit to add 2:Consumption crisis->corporate debt crisis->govt debt crisis->velocity of money crisis->dollar standard crisis pushes up dollar->foreign dollar debt crisis->dollar breaks after dollar spike->somewhere in thsi the EU loses it's banking system->'finally the entire sh1tshow  of global debt and pension losses-say $50trillion-goes onto govt balance sheets l;eading to a loss of faith in the financial system and money itself'

I feel like a Bull for once.

[Craig]

I reckon the recipe is less important than the dough management side of things. Tend to find that the longer I leave the dough in the fridge, the better. Not only relaxes the gluten, but also aids flavour development. Three days is the longest I've tried, but have heard people doing the cold ferment for seven or eight days.

[Agent ZigZag]

Sancho - Whats your current strategy. Are you looking to run with the mkt and skim a bit off your holdings here and there before a further sell off or just hold and ride it out. I aim to skim a bit off in order to have a cash position. I took a position in GDXJ and will run with this. There is enough commentators calling a run in gold to £2000 in gold and will form a bench mark for me to sell at that point. It is worth while remembering that many UK stocks have already seen a big sell off. Should we just stop stressing and let the game play out.?

[TheCountOfNowhere]

41 minutes ago, Democorruptcy said:

This Pizza base stuff is getting complicated. I pay £1.20 for an Asda Pizza Mix. The box has 2 sachets in, that just need a bit of water adding. Never had a soggy bottom.

https://groceries.asda.com/product/baking-mixes-kits/asda-pizza-mix/910000437024

 

 

Big spender !!!! I bet you own shares in Centrica !!!

I get bread flour from Lid, around 50p for 1.5Kg.

Salt, sugar, olive oil, yeast, water, probably makes about 8 pizzas in total.

 

26 minutes ago, sancho panza said:

1) the panic

2) the hope

3) the insolvency.

 

 

This is what I've been pondering.

Is it time to sell up now and wait for the market reality to hit ?

[Democorruptcy]

17 minutes ago, TheCountOfNowhere said:

Big spender !!!! <.....................deleted..................>

I get bread flour from Lid, around 50p for 1.5Kg.

Salt, sugar, olive oil, yeast, water, probably makes about 8 pizzas in total.

Try to do folk a favour and you get kicked in the balls!

[S Brule]

59 minutes ago, sancho panza said:

 

Thanks Sancho. Always appreciate your insights and posts. Yeah, he became pretty worried towards the end of last year.

[sancho panza]

1 hour ago, Agent ZigZag said:

Sancho - Whats your current strategy. Are you looking to run with the mkt and skim a bit off your holdings here and there before a further sell off or just hold and ride it out. I aim to skim a bit off in order to have a cash position. I took a position in GDXJ and will run with this. There is enough commentators calling a run in gold to £2000 in gold and will form a bench mark for me to sell at that point. It is worth while remembering that many UK stocks have already seen a big sell off. Should we just stop stressing and let the game play out.?

 

We've ended up currently circa 45% big oil, 20% goldies,then 20% cash ,some potash,utilities,and some randoms eg cameco/vodafone/options.

I mention it beacuse it's not where I planned us to be 2 years ago.As I've said big oil was going to be 10%.Telecoms 25%(currently 0.5%iirc).

My plans have therefore changed going forward.We have pciked up some oil holdigns we will likely hold throughout what's coming so bottom ladders in XOM/BP/RDSB/EQNR/Total/Respol.Upper ladders will get sold during the relief rally that rises on a weakening dollar, that will take us up to the Big Kahuna. We'll then be selling our goldies plus everything else taking us back to 80% cash(mostly dollars).We may mvoe thsoe dollars into TLT/ZROZ but maybe jsut sit in cash.

Plan would then be to buy back goldies lower than we sold them,oilies/telecoms/potash/chemicals for the long term.Moving us back to 80% equities.

I think Big Kahuna will be next year or possibly late this year.We need to see rally fade.

I think gold to $2000 is a given in this phase pre Big Kahuna...............be very very surprised if we don't get a dollar high soon

 

Having said we'll trade what's coming,I think there's also a middle road case for buying and holding your goldies/oilies and jsut sit it through as you say Agent.

 

ref last bit in bold,important to remember that some stocks go up while the wider markets crashes.happens every time.We jsut got to pick em.

 

Edit to add-cheap leccy I use those moneysavign sites,but you have to do online,its way cheaper.

[sancho panza]

1 hour ago, TheCountOfNowhere said:

This is what I've been pondering.

Is it time to sell up now and wait for the market reality to hit ?

Depends where you are in life and if you're a gambler.

I most definitely am a gambler and wear my betfair ban with pride.I would avoid advice from people like me,as I'll take risks financially,that common sense says you shouldn't.

My Grandad always said to me ,leave the top 10% and the bottom 10% to the gamblers.We're playing around the market top here.Shirts will get lost over the next year or two imho.Mine might eb one of them.

[sancho panza]

16 hours ago, S Brule said:

Does anyone else follow that Raoul Pal fella of RealVision on Twitter? He's made some good calls in the past. He's posted a link where you can get his April report for free, here is the link to the pdf in googledrive that is in the email (in case you don't want give your email address to sign up).

TBH, I've not read it yet, it's 120 pages so I'll save it for the weekend. But skimming through it does mention debt deflation a few times so I thought I'd share it here (he does say share with friends and family haha).

Can't thank you enough for psoting that.What a thoroughly thought provoking piece of work.Great way to spend a couple of hours.Duly forwarded to some friends.

[Loki]

1 hour ago, sancho panza said:

He's very much along with the credit deflationists about the coming Big Kahuna.Page 34 he talks about debt deflationa and a velocity of money crisis.................wow.....calling all the students of behaviorual economics.

 

 

1 hour ago, Craig said:

I reckon the recipe is less important than the dough management side of things. Tend to find that the longer I leave the dough in the fridge, the better. Not only relaxes the gluten, but also aids flavour development. Three days is the longest I've tried, but have heard people doing the cold ferment for seven or eight days.

Can I just say the juxtaposition here cracked me up 

[TheCountOfNowhere]

5 minutes ago, Loki said:

 

Can I just say the juxtaposition here cracked me up 

It's all about the dough

[DoINeedOne]

10 minutes ago, sancho panza said:

 

We've ended up currently circa 45% big oil, 20% goldies,then 20% cash ,some potash,utilities,and some randoms eg cameco/vodafone/options.

I mention it beacuse it's not where I planned us to be 2 years ago.As I've said big oil was going to be 10%.Telecoms 25%(currently 0.5%iirc).

My plans have therefore changed going forward.We have pciked up some oil holdigns we will likely hold throughout what's coming so bottom ladders in XOM/BP/RDSB/EQNR/Total/Respol.Upper ladders will get sold during the relief rally that rises on a weakening dollar, that will take us up to the Big Kahuna. We'll then be selling our goldies plus everything else taking us back to 80% cash(mostly dollars).We may mvoe thsoe dollars into TLT/ZROZ but maybe jsut sit in cash.

Plan would then be to buy back goldies lower than we bought,oilies/telecoms/potash/chemicals for the long term.

I think Big Kahuna will be next year or possibly late this year.We need to see rally fade.

I think gold to $2000 is a given in this phase pre Big Kahuna...............be very very surprised if we don't get a dollar high soon

 

ref last bit in bold,important to remember that some stocks go up while the wider markets crashes.happens every time.We jsut got to pick em.

 

Edit to add-cheap leccy I use those moneysavign sites,but you have to do online,its way cheaper.

This is me as of today

 

Problem is them stocks broken down are 40% miners and 39% oil rest is Vodafone, Royalmail, SSE etc... Think i got a little bit over excited with oil, gold and silver (wish me luck)

[JMD]

14 minutes ago, Talking Monkey said:

They will lose control. What I don't understand is why this bullshit is being put out, its literally destroying the economy, will decimate the tax take for years to come, its suicidal for the government and also for the public sector. None of it stacks up at all. 

TalkingMonkey I know where you are coming from - but I think it is MORE CONTROL that governments seek, and I believe they will succeed in their desire. So more control over the economy, more control over social programs, etc. Ok track history is bad, but what is the alternative?  

And in terms of public acceptance over the new 'temporary' measures, the tiller the government appears to favour to 'steer' our citizenry will be instilled panic (bitter pill) over disease and then our sainted NHS (sweet pill) coming to the rescue. And why not? For many years the NHS has after all been called the UK's religion. Clapping hands today, genuflecting tomorrow.

I keep hearing the phrase 'the new normal'. Certainly Orwellian sounding. But where is the debate? Rhetorical question perhaps, as apparently we no longer need debates, because the government is at all times just following the 'science'. The science is 'settled' you see... ok, I accept government have not used that particular phrase (this time around).   

I'm not into conspiracies, but do enjoy science-fiction. So I wonder - if the daily government briefings (currently Corona themed) were to continue into the future, what's the betting the politician in the centre of our screens is one day flanked on the one side by a climate scientist, and by a psychologist on the other side... I leave it to you (and your nightmares) to imagine what the policies being explained are!! 

 

...hmm, I think I should now stop posting these type of fanciful(?) posts as I don't want to derail this excellent thread. After all, and can confirm, I am still very much into investing for the next cycle, but do admit that recent economic/political events have somewhat derailed my own thoughts and focus.

[Loki]

12 minutes ago, JMD said:

I am still very much into investing for the next cycle, but do admit that recent economic/political events have somewhat derailed my own thoughts and focus.

You aren't the only one.

[JMD]

49 minutes ago, sancho panza said:

We've ended up currently circa 45% big oil, 20% goldies,then 20% cash ,some potash,utilities,and some randoms eg cameco/vodafone/options.

I mention it beacuse it's not where I planned us to be 2 years ago.As I've said big oil was going to be 10%.Telecoms 25%(currently 0.5%iirc).

My plans have therefore changed going forward.We have pciked up some oil holdigns we will likely hold throughout what's coming so bottom ladders in XOM/BP/RDSB/EQNR/Total/Respol.Upper ladders will get sold during the relief rally that rises on a weakening dollar, that will take us up to the Big Kahuna. We'll then be selling our goldies plus everything else taking us back to 80% cash(mostly dollars).We may mvoe thsoe dollars into TLT/ZROZ but maybe jsut sit in cash.

Plan would then be to buy back goldies lower than we sold them,oilies/telecoms/potash/chemicals for the long term.Moving us back to 80% equities.

I think Big Kahuna will be next year or possibly late this year.We need to see rally fade.

I think gold to $2000 is a given in this phase pre Big Kahuna...............be very very surprised if we don't get a dollar high soon

Having said we'll trade what's coming,I think there's also a middle road case for buying and holding your goldies/oilies and jsut sit it through as you say Agent.

ref last bit in bold, important to remember that some stocks go up while the wider markets crashes. happens every time. We jsut got to pick em.

SP, I hope things play out as you describe. But if we do get a market high late this year/next year i wouldn't plan to sell everything and go to cash (i'm not that brave), but as i've mentioned before, I have made plenty of buying mistakes and therefore want an opportunity (2nd bite at cherry/moon on a stick) to adjust my portfolio for my preferred long term hold strategy (well to 2028)... And moreover being able to buy back into a future market - after it has crashed/big kahuna - would be the icing on the cake.... but do things like this really happen, surely that would be like winning the lottery?

[DoINeedOne]

On 05/04/2020 at 12:19, DoINeedOne said:

Also looking at getting back into a few old miners sold HMY at around $3.3

 

Currently $3.48 miners going crazy

[JMD]

55 minutes ago, Loki said:

 

Can I just say the juxtaposition here cracked me up 

yep, same here. I thought Craig was going to introduce a convoluted 'dough' and 'recipe' economic metaphor, not talk about making pizzas!

btw, nothing wrong with pizzas, but pretty much everything wrong with economic system.

[Harley]

@sancho panza sounds like your time might be even more profitably employed bagging those NHS discounts.  Just heard Brewdog offering NHS workers 50% off!

[Craig]

6 minutes ago, JMD said:

yep, same here. I thought Craig was going to introduce a convoluted 'dough' and 'recipe' economic metaphor, not talk about making pizzas!

btw, nothing wrong with pizzas, but pretty much everything wrong with economic system.

Sadly, advising folk to buy a Ferrari pizza oven has probably been my greatest contribution on here...

[Cosmic]

4 minutes ago, Harley said:

@sancho panza sounds like your time might be even more profitably employed bagging those NHS discounts.  Just heard Brewdog offering NHS workers 50% off!

Wow their stuff is expensive. May just be worth it with the GFs ID tho

[TheCountOfNowhere]

My share holdings has dipped below a 20% loss today, 18% down now, IIRC was about 40% at one point till I started laddering in.

The share than remains nameless apart from when I post has killed me, would be looking fairly  unscathed had it not been for them and a couple of other dogs like Stagecoach.

I caught schlumberger  at rock bottom ( for now )  and glencore is up about 10% from when I bought them, which have eased my pain.

Everything else is down about 5%ish but stable

The 2nd leg down will be here any minute I expect.

 

[Harley]

1 hour ago, Cosmic Apple said:

Wow their stuff is expensive. May just be worth it with the GFs ID tho

Did you know they call me Mr 10%?

[Jesus Wept]

Interesting article about ETFs/ETCs that invest in oil.

Oil prices have gone negative this week for the first time in history. But what does this phenomenon mean and is a cue for investors to buy the black stuff?

Crude oil prices were more than $100 a barrel as recently as August 2014. But a double whammy of a global fall in demand because of the Covid-19 lockdown and an oversupply of the commodity by oil cartel Opec has seen prices nosedive.

The dramatic move is enough to make many investors conclude that now is an ideal time to buy oil. The simplest way for investors to do this is to buy an oil exchange-traded commodity. ETCs are similar to an exchange traded fund, or ETF, but do not meet the diversification requirements need for Ucits fund status because they are only exposed to one thing.

If you’re thinking now is the time to buy, you’re not alone. European energy ETCs have raked in more than £2 billion year to date. Half of those net flows have gone into the mega-sized WisdomTree WTI Crude Oil ETC (CRUD) alone.

But before you hit the buy button, there are some important things to consider:

How Do ETCs Track Oil?

It is at times like this that the proverbial devil lurking in the detail comes out to play. The first thing to understand about oil ETCs is that they don’t track the spot price of oil. Unlike most gold ETCs, these vehicles don’t buy and sell the physical commodity. This is because oil is costly to store and transport. Instead, they invest in highly liquid futures contracts (a type of derivative) which have their own pricing dynamic.

To maintain a steady exposure to the price of oil, these ETCs invest in futures contacts promising to purchase physical oil at a set point in the future. Just before the contract expires and it is obliged to physically take ownership of the oil, the ETC sells that contract and replaces it with an equivalent contact with a longer date to expiry. This cycle is repeated at predefined intervals throughout the year.

Do You Contango?

The current glut of oil has filled up global oil storage facilities. As they near capacity, fewer investors are willing to take physical delivery of the commodity, so buyers for the contracts closest to expiry have dried up.

Many investors left holding these contracts have no wish or ability to receive physical delivery of barrels of oil and are willing to pay others who can, to take these contracts off their hands. This has pushed the price of futures closest to maturity into negative territory – it means the investors that hold these contracts are effectively paying someone else to take the oil off their hands.

The global oversupply is expected to be temporary, which is why contracts for delivery later in the year are trading at a much higher price.

This leaves a rule-based ETC facing serious ‘rolling’ costs, as it pays to offload short-term contracts and buys much pricier longer-term contracts. This results in an extreme case of what is known in commodities jargon as contango.

Contango Erodes Returns

In this case, even if the oil spot price is rising, the contango losses caused by repeatedly selling cheap contracts and buying expensive ones can more than offset gains, resulting in net losses to the ETC investor. In fact, the relatively high storage costs of oil mean that the crude market is in contango more often than not, creating a significant headwind for long-term investors.

The graph below shows the performance of the most popular crude oil ETC in Europe versus the spot price of oil as markets recovered following the global financial crisis of 2007/08.

 

The comparisons in performance are stark. In the three years of recovery following the crash, in dollar terms, the spot price of oil rebounded an impressive 138%. Over the same period, the WisdomTree WTI Crude Oil ETC rose just 45%. This large disparity in performance can primarily be attributed to the return sapping impact of rolling futures contracts under contango.

Buying cheap oil using an ETC may seem tempting, but the complexities and idiosyncrasies of the crude futures markets mean that you can lose money even if oil prices rise. For most investors, this this approach is best left to specialists.

Am I correct in thinking?.....

So basically if I put £1000 into WTI crude (CRUD) when the ETC is £2 and oil Spot Price is at $20 a barrel if Oil rises to $40 a barrel (which might take 2-3 years maybe less) the ETC Price might given best scenario rise to £2.80 or so. So £1000 becomes £1400 after charges etc.

If you had a choice to invest in oil or a general S&P fund in 2009 - the S&P fund would have done better.

The sentence that stands out is:

”In fact, the relatively high storage costs of oil mean that the crude market is in contango more often than not, creating a significant headwind for long-term investors.“

The most popular OIL ETF: ‘WTI CRUD’ may be CRUD by name CRUD by nature......

Better off investing long term in BP, RDSB, Exxon, Phillips etc...