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

[JMD]

5 hours ago, Vendetta said:

I’m not so sure.

Tell that to someone who has bought Shell In 2020  at ladders £22, £20, £18 and £15 ......and then it drops to a £7 deflationary low by 2024.

Then we get big inflation and it goes up a massive 400% by 2028 to £28.......

(*Replace Shell with other ‘reflationary’ stocks and equivalent price points of you choosing). 

Its all very well knowing and being confident in the predicted cycle’ - however timing and buying at or close to the low is pretty important I’d say. Buying at £7 or £22 - pretty important -  Wouldn’t you say? 

Taking Shell in more detail....

12/02/20 Shell was 2021p.

18/03/20 - Shell - 4 weeks later - saw an intraday low of 889p

02/04/20 - 10 working days later it was hitting 1500p.

Daily movements can be pretty relevant - I’d say - if you bought big in early February you’d wish you’d waited a few days - no? 

 

 

 

 

Vendetta,the oil stocks did go manic for a period but with respect that is not what was being discussed. I agree that stating stock prices along with a personal/modified strategy could be useful (though please not inter-day, never mind intra-day). However becoming a mere speaking ticker-tape is beyond excessive, especially when such info can now be sent directly and more usefuly to our phones. It also risks blog getting bunged up with messages and having the more important posts go unread and unnoticed.

[Harley]

RDSB and it's dividend cut is a watershed to me.  It's timing is also key given earnings season, and more importantly, their forward guidance.  Needs very careful study to see the reactions, especially those with income portfolios.  Some companies (CCL) have suffered for obvious reasons with div cuts to follow.  Others have for general reasons or reasons before CV.  I'm not convinced RDSB needed to cut for the first time forever.  It did for other reasons as will others.  Hopefully for acquisitions but some may be looking to effectively go private (to us retail) per Max Keiser.  RDBS price moves deserve close scrutiny to gauge market reaction as lots more to follow.  Friday suggested a lot of (retail?) demand to buy the dip but a need to avoid the sharks. More to watch next week.  I'm waiting to put more money in but I want to see bullish marketing clearing first.  Too many false positives atm, fine for trading but no more.

[Jesus Wept]

7 hours ago, JMD said:

Vendetta,the oil stocks did go manic for a period but with respect that is not what was being discussed. I agree that stating stock prices along with a personal/modified strategy could be useful (though please not inter-day, never mind intra-day). However becoming a mere speaking ticker-tape is beyond excessive, especially when such info can now be sent directly and more usefuly to our phones. It also risks blog getting bunged up with messages and having the more important posts go unread and unnoticed.

Again I 100% agree.

It’s is about the bigger cycle of the macroeconomic markers (demographics, unemployment , IRs, money supply, population growth, technology innovation, asset bubbles etc etc).

As I have said before in the thread I agree that Oil, telecoms, potash, miners, utilities and infrastructure stocks are where I will be positioning funds over next 3 years. 

However (luckily) due to this pandemic event - I think as DB has said markets will see mega deflationary lows before this is out.
 

I am revising my initial prediction made back in Feb of DOW 18,000 and FTSE 4800  and a quick bounce - to 15,000 and 4500 respectively - followed by 12 - 24 months of stagnation. 

Accompanied and followed by the ‘mother of all’ QE, printing and purchasing/support intervention by the Fed, BoE, ECB and Asian central banks - and massive fiscal stimulus. 

Consequently the target stocks Will got new lows in next 6-12 months. I think there will be a year to get positioned from here on in.

Shell will be sub 900p

BP sub 240p 

etc etc...

[Harley]

14 minutes ago, Vendetta said:

Shell will be sub 900p

I'm very tempted to take the other side of that bet.  I may only trade though as there are better companies out there to invest in.

PS: This is a tight race - hold cash for better market prices versus having it stolen in these "unusual" times.  A lot will have changed in a year.  The medical tsunami will soon give way to the financial one.

PPS: For an uber macro picture, wars historically acted as clearing events.  Referring to CV as a war may be on the money.  Time to start studying war time economics and finance?

[sleepwello'nights]

9 minutes ago, Vendetta said:

 

Consequently the target stocks Will got new lows in next 6-12 months. I think there will be a year to get positioned from here on in.

Shell will be sub 900p

BP sub 240p 

 

I jumped in with some buys in early March, just before the prices really fell. I'm holding back on further buys in anticipation of further falls later in the year. 

Lets see if DB and the contrarians referred to have correctly read how the economy will perform. I am surprised by the relatively quick bounce backs that have happened.

[Harley]

12 minutes ago, sleepwello'nights said:

I am surprised by the relatively quick bounce backs that have happened.

I've seen these quite often for individual stocks.  Indeed, made a bit of a study of them and used to trade them.  Been a while now (think Tesco was the last one).  Quite often the precipitous "news" is just the last straw for a company with no resilience and, after trading the bounce, the doldrums beckon.  So true for Tesco.  Not sure about RDSB, which may turn out to be the other kind.  It may seem to sleep at these levels but I'd wager it'll be burning the midnight's oil out of sight on something.  Unless of course we missed it's Tescoesque house of cards.

PS:  I've posted before about the weak fundamental financial state of many companies and how we may be at a cycle end peak of financial "creativity".  That the old guard ceos have left on mass to hunker down with their gains.  Going to get exciting with this current stress test.  I may even dust down me old trades.

[Harley]

38 minutes ago, Harley said:

PPS: For an uber macro picture, wars historically acted as clearing events.  Referring to CV as a war may be on the money.  Time to start studying war time economics and finance?

And on that, the question arises whether there will be war bonds.  Scrub that, the question will be whether you'll have a choice investing in them, pot bangers aside.  

PS:  i've said it before - no-ones got any money.  Well except pensions which are fortified away.  We need a stealth weapon, something safe sounding and backed.  One problem for the victims is it'll be in sterling, that "store of loss". By contrast, China told all its folk to buy gold.  But then they also told them to wear face masks!

[DurhamBorn]

2 hours ago, Harley said:

I've seen these quite often for individual stocks.  Indeed, made a bit of a study of them and used to trade them.  Been a while now (think Tesco was the last one).  Quite often the precipitous "news" is just the last straw for a company with no resilience and, after trading the bounce, the doldrums beckon.  So true for Tesco.  Not sure about RDSB, which may turn out to be the other kind.  It may seem to sleep at these levels but I'd wager it'll be burning the midnight's oil out of sight on something.  Unless of course we missed it's Tescoesque house of cards.

PS:  I've posted before about the weak fundamental financial state of many companies and how we may be at a cycle end peak of financial "creativity".  That the old guard ceos have left on mass to hunker down with their gains.  Going to get exciting with this current stress test.  I may even dust down me old trades.

I think that will be the story Harley.As we knew on here companies simply had far too much debt.Financial creativity as you put it must end here,and will.Shareholders will suffer a distribution cycle as things sort themselves out.Anyone relying on 6% dividends when the FTSE was over 7000 will not be getting them.In very simple terms they paid too much for their shares.BT will cut its dividend this week and rightly so.The question is by how much.I think 30% to 50% would be about right for them.That means they can expand areas to increase cash flow through their own cash flow instead of debt.Crucial.Equity replacing debt will be the big story of the cycle when people look back over it.Shareholders who bought BT at £3+ on a 4% yield going up 10% a year relying on the income will really really suffer.They paid too much for the shares.However i think paying around the level they are now at what i consider a key inflection point is a decent bet.

Im not a trader so i have no idea how much lower individual companies will go.The key for me is areas the cycle should (not will,should) favour and ones that can get through the first stages intact.

The reflation areas i like nearly all have too much debt,but to be fair to most of them thats because they have had to invest in a cycle where ROCE has kept falling,through market and government regulation.

Ends of cycles allow companies to make changes that in other times they cant do.A prime example is Royal Mail ending Saturday letter deliveries.The union will cry,but will they ever come back?.

Government is now in massive trouble.Their huge welfare/state worker size simply cant be sustained.Nowhere near.Huge inflation,tax increases and cuts are coming,only the mix is in question.

One thing is certain,if the CBs stop printing then we might as well make Winchester the state capital again because Athelstan would recognise the subsistence economy.

[DurhamBorn]

12 hours ago, sancho panza said:

We got some RDSB,top price was about £23,bottom price was.jsut above £9.I suspect our average is probably under £15.If you'd offered me that a year ago I'd have taken it.I don't sit with a calucaltor working it out much.As @Talking Monkey said,these are medium to long term trades for us.

Part of life is reflecting what you did right and what you could have done better. Some of DB's calls have been amazing -particualrly the $15 call,how I wish I'd followed it to the letter-but we had a lot of cash last year and needed exposure to somethign that wasn't cash and some of the big oilies looked cheap last august and I was happy to pick some up at those prices.

AS the chasm opened up in March we added very heavily to our oilies positions such that we've ended up with a lot more oil than I would have anticipated and I'm happy with those calls, and realy happy with where we are in terms of gold and potash.You can't get it 100% right all the time.If I get it 51% right then I'm ahead of msot.

Much as it's easy to retrospecitvely trade ,I remember this thread in March and there were a few people thinking it was the Big Kahuna and dropping some exposure.You were quite brave imho if you added even a little exposure given the prevailing mood in the media.At the time,noone knew what was definitely coming,we were working with out best guesses based on the evidence we see.

Part of my attitude is not being greedy and ultimately making my own decisions so whne I look the family in the face I can jsutify why we did what I did with their savings,with some logic and rationale.

Let me tell you,when it's losses it's not nice.....but the markets aren't a welfare state.

 

As above DB, we were buying the oilies mechanically(not all of them,mainly XOM,RDSB,ENI and EQNR) from august.I had price limits I didn't go beyond and I remember the spike in Dec /Jan when we stopped buying and I thought that was it they were going up....and then look what happened. thats markets..

We're relatively set now for the next twelve months apart from some window dressing(we sold up MAG silver today and boguth Newcrest for isntance),need to rearrange Guyana too but this thread has been amazing for us.WHat an education.And then all teh contributions from differnet people with different experiences...

I think that advice in bold is bang on.We woudln't have started laddering into the goldies if it hadn't been for this thread or it's predecessor on ToS.Back then people I know thought I was mad especially when some of them eg Goldfields suffered a 50% fall to $2....

I see @Loki has posted Lacy Hunt and David hunter podcasts to lsiten to over the weekend,that's why I hope this thread lives on for some time more.Every day is a learning day

People forget about that rubber band list of goldies.Harmony at $1.53,Eldorado the old dog that then barked and barked,Sibanye,Yamana etc.

Positioning in oil might see 30% drawdowns,but people should already of made massive amounts of capital on the goldies.The bond calls delivered 30%+ while the market saw massive falls.

Markets arent linear,and you need to let cycles play out.I agree of course on trying to buy as low as possible,but i see the big risk going forward not being positioned.

The main worry i have is how the shareholder seems to be being pushed to the back of the line in lots of ways.Every time i hear some highly paid state employed stooge mention fat cat CEOs and shareholders in the same way is very worrying.The narrative that shareholders should "suffer".Thats what you get when everyone is sucking at the tit of government.Even more reason to de-complex investments because at least that way you capture the value.

 

[nirvana]

13 hours ago, sancho panza said:

but the markets aren't a welfare state

BUT the FED is, markets are the beneficiaries, welfare state for the 1%ers!!!

 

1 hour ago, DurhamBorn said:

One thing is certain,if the CBs stop printing then we might as well make Winchester the state capital again because Athelstan would recognise the subsistence economy

Again if you support all the money printing you're saying 'up the neoliberalists'!!!

Someone clever posted this on twitter earlier 

The continued transfer of wealth from poor to rich, assetless to asset owners, landless to land owners is the only play in the central bank's playbook. What seems like a dystopian monetary nightmare will become reality. We already have 100 year mortgages in Japan

 

[nirvana]

3 hours ago, sleepwello'nights said:

I am surprised by the relatively quick bounce backs that have happened.

You shouldn't be, the market turned the week after the FED said it would provide 'unlimited support' to the markets.....and I believe it said that on a Friday 

[MrXxxx]

On 01/05/2020 at 13:10, Loki said:

https://www.macrovoices.com/838-macrovoices-217-dr-lacy-hunt-the-road-through-deflation-toward-eventual-hyperinflation

This looks like it could be a great listen.  Only just seen it myself.

I don't know if others would agree, but for me this podcast has been one of the major turning points in my understanding of this threads theme...that said, I you are like me you will need to revisit a number of times to digest.

One thought that it has prompted (and I know this sounds callous) is that through their Covid19 management approach the UK government has missed an opportunity to make the economy better...I.e. GDP is increased through private savings (not government expenditure/fiscal stimulus), and the majority of the publics savings is held/tied-up in assets held by the elderly, the very ones the policy is `saving/protecting` at the financial cost to others. If Covid19 was left to its natural course it would have released this capital back into the system (via age selected death) allowing GDP growth without the negative results currently being incurred.

Further, the current approach is compounding the effect as the cost of maintaining those who are a financial `burden` to the system through no income taxation/pensions to fund is at the cost of increased unemployment of those who would be able to contribute most to it.

[Loki]

9 minutes ago, MrXxxx said:

I you are like me you will need to revisit a number of times to digest.

You are not alone there...I have deliberately been treating finance like a second job while the weather has been worse.  Some people spend a life time learning and working with this stuff and I/we're trying to hit the ground running 

[MrXxxx]

5 hours ago, Harley said:

PPS: For an uber macro picture, wars historically acted as clearing events.  Referring to CV as a war may be on the money.  Time to start studying war time economics and finance

I think how we interpret war here is important...war was very different at the last major to what it could be now, and so as a result I think war between nations now will very much be based on economics/trade and rhetoric.

[Loki]

8 minutes ago, MrXxxx said:

I think how we interpret war here is important...war was very different at the last major to what it could be now, and so as a result I think war between nations now will very much be based on economics/trade and rhetoric.

World War D(ollar)

[DurhamBorn]

1 hour ago, 5min OCD speculator said:

BUT the FED is, markets are the beneficiaries, welfare state for the 1%ers!!!

 

Again if you support all the money printing you're saying 'up the neoliberalists'!!!

Someone clever posted this on twitter earlier 

The continued transfer of wealth from poor to rich, assetless to asset owners, landless to land owners is the only play in the central bank's playbook. What seems like a dystopian monetary nightmare will become reality. We already have 100 year mortgages in Japan

 

Fed couldnt care less about the 1%ers,it cares more about the single mother in Detroit working in McDonalds.The rich gain due to government policy not CBs.

The Fed simply uses the markets to get liquidity into the system.Its government welfare policy that means people struggle to build capital,nothing to do with the CBs.

90% of the people in my class at school had zero assets at 16,most of them own some land now,and other financial assets.The people who end up poor usually can blame their parents and themselves more than the Fed/CBs.Wealth/capital grows best when passed carefully down the generations.

[Loki]

6 minutes ago, DurhamBorn said:

The people who end up poor usually can blame their parents and themselves

That's such a coincidence you said that.  I had a thought pop into my head yesterday.  My parents raised me to try and do well at school, work hard etc.  But if the only reason they did that was so i could go out and be a good worker droid making someone else rich, frankly i wish they hadn't bothered. People think in 2 dimensions and "we've always done it this way".  I was talking about my portfolio with the old man and he said about everything going on "there's going to be bad financial times".  I was just gobsmacked like everything I've been talking about hadn't been taking that into account and trying to preserve/increase wealth.

Like i say I'm not a genius (i work on building sites) but i have always questioned everything by nature.

[nirvana]

30 minutes ago, DurhamBorn said:

Fed couldnt care less about the 1%ers,it cares more about the single mother in Detroit working in McDonalds.The rich gain due to government policy not CBs

The rich gain due to CBs AND government policy!!!

Banking is immoral <BIG FULL STOP>! The Fed is a private bank formed by a few cunning men who outwitted Woodrow Wilson......within a month of signing into Law the Federal Reserve Act he acknowledged he had sold out the American people!!

Only in March the market was going to shit, it only stopped going to shit when Powell said he would provide 'unlimited support' to the markets!!! He couldn't give a shite about the plebs....

The youth in the UK have never been poorer cos they've been robbed by Thatcherites! Robbed by boomer pensioners! And robbed by the state by being forced to pay tens of thousands of £sss for their education!

I grew up in a council house in the North east, I went on to get a FREE UNIVERSITY DEGREE!  

[DurhamBorn]

On the news on Telefonica/Virgin Media,if it comes off it might put ITV in play as a bid target.Virgin own 10%.Last time they tried to buy Sky took a stake to stop a bid.This time the way might be clear unless BT take a big stake and counter bid.I bought some ITV below 65p and 60p.I sold a few,but im going to hold the rest however bad any results are because they look sitting ducks for a takeover due to their catalogue and studio business.BT and Vodafone will be worried about this deal if it comes off i expect.If ITV come down this week on a hit to results i might add a few more.

[nirvana]

20 minutes ago, Loki said:

World War D(ollar)

 

@DurhamBorn sorry boss I feel like I'm turning into a spammer, I do agree with most of what you say but not on the subject of bankers

I'll log out now and go and beat myself up with some birch twigs for not being a 'good citizen' 

[MrXxxx]

33 minutes ago, 5min OCD speculator said:

The rich gain due to CBs AND government policy!!!

The rich get rich due to the ignorance of the majority.

35 minutes ago, 5min OCD speculator said:

The youth in the UK have never been poorer cos they've been robbed by Thatcherites! Robbed by boomer pensioners! And robbed by the state by being forced to pay tens of thousands of £sss for their education

A perfect example.

[Harley]

59 minutes ago, Loki said:

Like i say I'm not a genius (i work on building sites) but i have always questioned everything by nature.

Awesome.  You can find the creme de la creme on a building site (as well as the others, for a short while!).  Nothing better than being the grey man.  They pass you over while you smile to yourself for yours is an independent, personal, and thought through, play.  Not smug, just quietly enlightened, except here where they know not who you are.  A glass or two of red will be raised over my steak and chips tonight for us all!

PS:  Currently caked in dust doing some stone cutting, and using the PPE as nature intended!

[Loki]

5 minutes ago, Harley said:

Awesome.  You can find the creme de la creme on a building site (as well as the others, for a short while!).  Nothing better than being the grey man.  They pass you over while you smile to yourself for yours is an independent, personal, and thought through, play.  Not smug, just quietly enlightened, except here where they know not who you are.  A glass or two of red will be raised over my steak and chips tonight for us all!

PS:  Currently caked in dust doing some stone cutting, and using the PPE as nature intended!

I am as grey as they come, in public.  Flash car? A depreciating asset? OK for peacocks! 

Many people on this thread I'd love to share a drink with, you're on that list.  Then the grey facade would drop!

Yes, you do meet some brilliant minds in the trades - both intellectual in engineers, and outside the box types in other areas.

[spygirl]

1 hour ago, 5min OCD speculator said:

 

@DurhamBorn sorry boss I feel like I'm turning into a spammer, I do agree with most of what you say but not on the subject of bankers

I'll log out now and go and beat myself up with some birch twigs for not being a 'good citizen' 

That's bullshit.

And probably anti semitic.

 

[Sasquatch]

36 minutes ago, Loki said:

I am as grey as they come, in public.  Flash car? A depreciating asset? OK for peacocks! 

Many people on this thread I'd love to share a drink with, you're on that list.  Then the grey facade would drop!

Yes, you do meet some brilliant minds in the trades - both intellectual in engineers, and outside the box types in other areas.

Totally agree. I may be a 'suit' but I love to chat away with specialists, especially those working with stone, lead and timber on historic buildings. All fascinating stuff and I've been privileged to get access to bits of ancient buildings most people never see.