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

[Chewing Grass]

3 minutes ago, The Idiocrat said:

A long way to go on that front and a lot of stuff is hard to cost-justify.

A long way to go on that front and a lot of stuff is hard to cost-justify pointless.

Human beings are stubborn and get more so as they get older and wiser.

Most tech is essentially pointless as it is doing stuff that humans do wirelessly, cordlessly and biologically every day of the week for millennia and without even thinking too hard about it to boot.

Humans need things to do and that is not watching movies and consuming media after all the devil makes work for idle hands and idle minds which after all is why we are all here.

[DurhamBorn]

3 hours ago, Talking Monkey said:

DB what is your view on the magnitude of the QE during the 08 recession, what they will do now will completely dwarf that, did they get the magnitude right then for that situation

They got a lot right in 08,but a lot wrong,mainly they put  almost everything through the banks,this time they are injecting direct into the economy.

https://www.barrons.com/articles/federal-reserve-etfs-corporate-bond-markets-51589288437

Fed buying not far off a trillion in corporate debt.They are injecting direct there.They are trying to hold up the companies and stop a financing crunch while the government pump fiscal money through individuals and companies.

Powell is getting up to speed,i didnt rate him,but hes doing everything right now to stave off a systemic collapse,we might even avoid another 50% off in the equity markets if he can keep right sized.Hes keeping rates pegged down as well so likely gold and silver run soon.

[DurhamBorn]

2 hours ago, Cattle Prod said:

Refiners are going to want the stuff for gasoline soon enough, it is drawing hard and coming back quickly to the 5 year average. Everyone wants to drive over public transport (for what little exists in the USA). That's something I'm trying to get my head around wrt to Stagecoach and the like in the UK going forward, if we see a change in this behaviour here, it will have huge implicaitons for the transports here, as well as roads and infrastructure.

My gut feeliing is that this a temporary fear driven response, which will pass after bat flu vaccine/herd immunity. But it is making me question my Stagecoach investment. Thoughts, @DurhamBorn? 

I bought a lot of Go Ahead near the bottom and National Express near £1,but iv sold all of them and taken profits,National Express at £2.58 and Go Ahead at £12.20.I still own Go Ahead in my ISA and Stagecoach,Go Ahead just underwater,Stagecoach well underwater.Im not selling those,but im a bit worried about the sector for a couple of years.Once things settle governments might cut bus investment.The bull case is they should do well as the cycle unfolds and people drop to one car instead of two etc and i think thats still in play.Getting from now to then is tricky.I will probably add more Go Ahead if they go back to £10 and National Express at £1.60.The nature of the way the cycle ended wasnt what i expected in that i never expected they would shut down everything so nobody used transport.

The irony is the sector made me in about 3 weeks what i expected over half a cycle ,but that was luck really.Iv actually sold quite a few companies that bounced hard.I bought a lot of ITV at 60p but decided to sell well over half at 74p,

The nature of this cycle end means we have to question all choices i think.

[Don Coglione]

8 minutes ago, DurhamBorn said:

I bought a lot of Go Ahead near the bottom and National Express near £1,but iv sold all of them and taken profits,National Express at £2.58 and Go Ahead at £12.20.I still own Go Ahead in my ISA and Stagecoach,Go Ahead just underwater,Stagecoach well underwater.Im not selling those,but im a bit worried about the sector for a couple of years.Once things settle governments might cut bus investment.The bull case is they should do well as the cycle unfolds and people drop to one car instead of two etc and i think thats still in play.Getting from now to then is tricky.I will probably add more Go Ahead if they go back to £10 and National Express at £1.60.The nature of the way the cycle ended wasnt what i expected in that i never expected they would shut down everything so nobody used transport.

The irony is the sector made me in about 3 weeks what i expected over half a cycle ,but that was luck really.Iv actually sold quite a few companies that bounced hard.I bought a lot of ITV at 60p but decided to sell well over half at 74p,

The nature of this cycle end means we have to question all choices i think.

DB,

You are a legend on this site and will have my eternal respect and gratitude, but have you ever fucked up big-style, investment-wise?

[Harley]

Good to see all this stuff being discussed.

A timely reminder though to look the right way.  Not government debt, but corporate debt, as previously discussed.  That's ground zero for some countries.

Russell Napier: https://moneyweek.com/economy/global-economy/601106/the-moneyweek-podcast-russell-napier-how-much-debt-is-too-much

 

[Loki]

Twatter tearing Dave Hunter a new one

https://mobile.twitter.com/DaveHcontrarian/status/1260562552171327488

[Harley]

57 minutes ago, DurhamBorn said:

.......The nature of this cycle end means we have to question all choices i think.

Indeed.  I've just completed a deep dive review of the last 5 months with my partner and that, with my other work and listening, says this was/is a traders not an investors market.  My faith in my system is being severely tested as it's not giving many/any long term (investment) buy signals.  If true, I was right to sit this out from an investment POV.  Where I potentially could have done better was to have the agility to switch to a traders view and play the bounce to make up for some of my investment losses (although that would have been limited due to allocation rules).  But, in part, I had other commitments and therefore lacked the required attention to ramp up and trade.  Maybe next time(!) I'll keep my trading on a warmer stand by.  But good investing is glacial by comparison and, due to my asset allocations, I'm actually down only a few percent overall, even if my income portfolios have been decimated.  In that sense, I've done alright as that lost trading time was not wasted (it being spent prepping for a life more outside the current financial system).  So putting things in perspective, any trading would have been icing on the cake.  In regard the income portfolios, I could take the severe capital losses as I treated the portfolios more like proxies for some annuities.  What I missed though was the dividend cancellations (which seem a bit obvious with hindsight).  Hopefully this will not linger but I'm surprised how exposed my portfolios are despite trying to avoid the consumer, etc.  The trader in me says "nuff said" and look forward to tomorrow.  If I start getting investment buy signals I'll need to go for a long walk!  Ideally, we'll get a correction and I'll play trader as this is probably the new normal, aside from a few strategic sector investments as discussed here.

[reformed nice guy]

2 hours ago, Transistor Man said:

It’s been a very good last 10 years in microelectronics. 

Amazon, Alibaba, Facebook, Google all designing their own custom chips for machine learning. Never thought I’d see that.

Since 2012, Apple have set an incredible pace: a new A series processor every year, fabricated on an improved process. It’s driven the whole industry. + All the sensors, LTE modems, RF chipsets. Incredible rate of progress. Driven by people ditching 1 year old models, and paying a huge amount for a new one.

Many could see the fall off in the smartphone sales coming.

Next, looks like: Medical, AI, smart cars, 5G, IOT.

I think that software still has a lot of the world to eat up and chinky flu will just hasten that process. There is a lot of shite out there but I have some ladders for companies that are boring and B2B. My reasoning is similar to oil and gas - these companies have the huge cashflows required to buy the interesting next gen tech. They dont need to make the big breakthroughs in AI, IOT or whatever. They just need to buy whoever does:

Alphabet (google) 1200

Amazon 1750 (especially due to webservices, not their retail side)

Baidu (chintech) 85

Fanuc Corp (robotics/automation) 15000 (yen)

JD.com (chintech) 45

Microsoft 160

SAP 100

Tencent (chintech) 50

 

[sancho panza]

3 hours ago, Cattle Prod said:

Refiners are going to want the stuff for gasoline soon enough, it is drawing hard and coming back quickly to the 5 year average. Everyone wants to drive over public transport (for what little exists in the USA). That's something I'm trying to get my head around wrt to Stagecoach and the like in the UK going forward, if we see a change in this behaviour here, it will have huge implicaitons for the transports here, as well as roads and infrastructure.

My gut feeliing is that this a temporary fear driven response, which will pass after bat flu vaccine/herd immunity. But it is making me question my Stagecoach investment. Thoughts, @DurhamBorn? 

As you know,we're pretty much invested in oil/gold/leccy/potash in that order with a few residual trades aside.

For me,Stagecoach and the transports are too complex a trade for where we are in the cycle.I can see the logic,much like with the telecoms but there's a raft off issues looming more as a result of teh covid response rather than covid itself.

I think life will return to normal relatively quickly.Speaking to an A&E Dr the otehr night,he was saying last friday they started getting normal friday night jobs coming back in and on my way home this morning,there was some business traffic on the roads at 0600.Having said that,it's not so much that people will stay away from public transport,more that I think more people will be working from home.

Come the big kahuna,I think these complex trades will be very compellling-I think the thesis is spot on.

[sancho panza]

1 hour ago, Harley said:

Indeed.  I've just completed a deep dive review of the last 5 months with my partner and that, with my other work and listening, says this was/is a traders not an investors market.  My faith in my system is being severely tested as it's not giving many/any long term (investment) buy signals.  If true, I was right to sit this out from an investment POV.  Where I potentially could have done better was to have the agility to switch to a traders view and play the bounce to make up for some of my investment losses (although that would have been limited due to allocation rules).  But, in part, I had other commitments and therefore lacked the required attention to ramp up and trade.  Maybe next time(!) I'll keep my trading on a warmer stand by.  But good investing is glacial by comparison and, due to my asset allocations, I'm actually down only a few percent overall, even if my income portfolios have been decimated.  In that sense, I've done alright as that lost trading time was not wasted (it being spent prepping for a life more outside the current financial system).  So putting things in perspective, any trading would have been icing on the cake.  In regard the income portfolios, I could take the severe capital losses as I treated the portfolios more like proxies for some annuities.  What I missed though was the dividend cancellations (which seem a bit obvious with hindsight).  Hopefully this will not linger but I'm surprised how exposed my portfolios are despite trying to avoid the consumer, etc.  The trader in me says "nuff said" and look forward to tomorrow.  If I start getting investment buy signals I'll need to go for a long walk!  Ideally, we'll get a correction and I'll play trader as this is probably the new normal, aside from a few strategic sector investments as discussed here.

Are thtere any shares you think are really overvalued for where we are.Not looking for trade ideas here harley more jsut observing that Berkeley/BDEV etc all look over exposed to a slump in demand for overpriced hovels and companies like Ferguson-a real peak cycle favourite are still voerblown.

I reckon half the FSTE 100 could halve from ehre and I still wouldn't buy any.

 

[Harley]

55 minutes ago, sancho panza said:

Are thtere any shares you think are really overvalued for where we are.Not looking for trade ideas here harley more jsut observing that Berkeley/BDEV etc all look over exposed to a slump in demand for overpriced hovels and companies like Ferguson-a real peak cycle favourite are still voerblown.

I reckon half the FSTE 100 could halve from ehre and I still wouldn't buy any.

TBH, I'm amazed at the valuations of my income stocks.  The usual FTSE crowd.  But some are at near record lows, just depends on how far their charts go back (one low goes back to 1995!).  Most got pummeled against the FTSE average on the way down and, so far, on the way up.  I'd knee-jerk think they can't go down much more but of course they could.  I thought the FTSE would be safer relative to other markets given it's missed out on a lot of the bull run but no.   

I own Bellway and Crest.  I went into these Q319 against my overall view because I thought the government had their backs.  It may still.  But if not then they have plenty of air beneath their current prices.  Bellway has entered an indeterminate zone after the now common bounce.  Momentum is falling nice and low on the monthly chart but has a bit further to complete and then could linger at the bottom for a lot longer, bringing down price a lot further.  Or I suppose it could turn up.  Time is needed to get a sense of the direction.  Obviously, I want it to turn up but on balance it could get creamed.  But market moves seem more focused on burning shorters these days. 

Maybe stocks are being taken out to the woodshed in groups.  First we had the emerging obvious ones like Carnival, TUi, etc.  Then maybe we'll get the slow burn ones which suffer from the real underlying state of the economy (which is the opposite of the still overly, wantish, bullish market sentiment), the builders being the poster children.  Then maybe the ones that just unwind and collapse under the weight of too many past sins (debt covenants, bullish accounting valuations, etc), and so on.

It doesn't matter how hard I look, I see nasty monthly charts everywhere.  Either in continuing clear downtrends or what looks to me like fading fake bounces.  The technicals say momentum without a material change in the underlying averages which means a short shot up and a grind down.  In short, to answer your question, on the average, anything that hasn't hit its 2008/9 or earlier (where available) low!  Shock and awe.  We've had the shock but not the awe!  The market does its best to upset.  In a world where everything and everybody is running fast, a slow, drip drip grind will be the worst it could do.

For me, this is a time for strategic portfolio allocations, understanding relative value, risk management, and thinking out the box, peppered with a bit of trading.  This is so the end of cycle.  Any Hunter style melt up in the FTSE (I hold on the US markets) would be a marvel to see.  Sell in May?   

[DurhamBorn]

BOE saying

https://uk.reuters.com/article/uk-health-coronavirus-britain-bailey/bank-of-england-can-help-spread-the-cost-of-coronavirus-to-society-bailey-idUKKBN22P2VS

Being upfront now,no need to cut spending,we monetizing the lot.No government cuts,debt rolled over forever.Cant wait to get my self employed furlough money,im buying silver with it 

[Bobthebuilder]

10 minutes ago, DurhamBorn said:

Cant wait to get my self employed furlough money,im buying silver with it 

I am going to stick it in my SIPP for the extra 20%.

[AWW]

Just a thought on all the Furlough "helicopter" money, i.e. not the payments going to those on PAYE, but the grants to small business owners and the self-employed. Most people will spend it and, with foreign travel looking unlikely this year, they'll spend it here. Could the start of the next great inflation be as close as three months away?

[sancho panza]

2 hours ago, Harley said:

TBH, I'm amazed at the valuations of my income stocks.  The usual FTSE crowd.  But some are at near record lows, just depends on how far their charts go back (one low goes back to 1995!).  Most got pummeled against the FTSE average on the way down and, so far, on the way up.  I'd knee-jerk think they can't go down much more but of course they could.  I thought the FTSE would be safer relative to other markets given it's missed out on a lot of the bull run but no.   

I own Bellway and Crest.  I went into these Q319 against my overall view because I thought the government had their backs.  It may still.  But if not then they have plenty of air beneath their current prices.  Bellway has entered an indeterminate zone after the now common bounce.  Momentum is falling nice and low on the monthly chart but has a bit further to complete and then could linger at the bottom for a lot longer, bringing down price a lot further.  Or I suppose it could turn up.  Time is needed to get a sense of the direction.  Obviously, I want it to turn up but on balance it could get creamed.  But market moves seem more focused on burning shorters these days. 

Maybe stocks are being taken out to the woodshed in groups.  First we had the emerging obvious ones like Carnival, TUi, etc.  Then maybe we'll get the slow burn ones which suffer from the real underlying state of the economy (which is the opposite of the still overly, wantish, bullish market sentiment), the builders being the poster children.  Then maybe the ones that just unwind and collapse under the weight of too many past sins (debt covenants, bullish accounting valuations, etc), and so on.

It doesn't matter how hard I look, I see nasty monthly charts everywhere.  Either in continuing clear downtrends or what looks to me like fading fake bounces.  The technicals say momentum without a material change in the underlying averages which means a short shot up and a grind down.  In short, to answer your question, on the average, anything that hasn't hit its 2008/9 or earlier (where available) low!  Shock and awe.  We've had the shock but not the awe!  The market does its best to upset.  In a world where everything and everybody is running fast, a slow, drip drip grind will be the worst it could do.

For me, this is a time for strategic portfolio allocations, understanding relative value, risk management, and thinking out the box, peppered with a bit of trading.  This is so the end of cycle.  Any Hunter style melt up in the FTSE (I hold on the US markets) would be a marvel to see.  Sell in May?   

I think that beautifully sums up what I was working towards without me even knowing it.I like the woodshed analogy a lot and the consequential description of the companies suffering from the real state of the economy.The imagery is compelling and apt too.

I think that's the distinction I've been missing in my mind.The builders,pumped up on gear as they are,are flattering to deceive.Strangely,theyve beena a safe haven play for a eyar or two,even now,amidst a collapsing market,big oil has been hammered far far more with much less jsutficiation,

WHilst I am expsoed to the market,it's only 4 sectors really at the mo.I wouldn't want the risk of owning much else.I think the broader market could suffer pull backs but I think it's going hgiehr into Labor day more generally.

A big part of that coud be some sector rotation as/if the dollar weakens.At some poijt AMZN/FB etc going to get mullered

[DurhamBorn]

I think Harley might of nailed whats going on.Sectors are almost behaving as entities.Re-rating down.The question is of course what sectors have already taken most/all of the pain they are going to?

Its also pretty obvious the reason the extended the furlough scheme so far out is they know there is going to be a massive jump in job losses.Lots of companies deserve the pain,but when you see a lot of companies suffering you really feel for them.

[JMD]

6 hours ago, Harley said:

Good to see all this stuff being discussed.

A timely reminder though to look the right way.  Not government debt, but corporate debt, as previously discussed.  That's ground zero for some countries.

Russell Napier: https://moneyweek.com/economy/global-economy/601106/the-moneyweek-podcast-russell-napier-how-much-debt-is-too-much

 

Harley, If I understand the podcast correctly, there is a scary part between 19-21 mins when they talk about a form of 'bond bail-in'  (my clumsy term?) where retail investors may be forced to buy government bonds, if said investor holds funds in a government regulated institution. Is my interpretation correct? If so Harley, is this the kind of thing you've been concerned of and writing about recently? And how would it work - for example I'm thinking a directive would be sent to me to sell say 20% of my sipp equities before a specified date and buy gov. bonds?                                                                                                                                                                                                                                              l might be way off, but otherwise this is pure Twilighlight Zone horror stuff...    What do others think?                              DurhamBorn, is this kind of thing on your radar at all?

[MrXxxx]

19 hours ago, DurhamBorn said:

also think they will find savings in public sector pensions.How they do it im not sure,but they will.

I think here they will take the same approach as they did with the university's DB/final salary scheme:

1. Fix salary ceiling I.e.contributions for earnings above £55k go into a DC pension SO maximum DB pension would be £55k.

2. Increase employees contribution %.

and new joiners would go straight into DC scheme (not currently case for USS).

[DoINeedOne]

Halifax letter came today for a savings account i don't have any money in change in interest rate 

was 0.1% now 0.01%

Whilst taking some risk instead of having money in the above

I sold a few miners i bought over the last few months at around 30% ROI each

[MrXxxx]

14 hours ago, Chewing Grass said:

Human beings are stubborn and get more so as they get older and wiser

:-) :-) :-) :-)...and I thought it was due to me going through the male menopause!

On another note, reading through the last few pages has made me appreciate the breadth of specialism we have on this forum, from economist to engineers, geologists/petrochem to computing, electromechanical to education...a real wealth that is greater than its sum of parts, and a fascinating read.

[MrXxxx]

13 hours ago, DurhamBorn said:

They got a lot right in 08,but a lot wrong,mainly they put  almost everything through the banks,this time they are injecting direct into the economy.

https://www.barrons.com/articles/federal-reserve-etfs-corporate-bond-markets-51589288437

Fed buying not far off a trillion in corporate debt.They are injecting direct there.They are trying to hold up the companies and stop a financing crunch while the government pump fiscal money through individuals and companies.

Powell is getting up to speed,i didnt rate him,but hes doing everything right now to stave off a systemic collapse,we might even avoid another 50% off in the equity markets if he can keep right sized.Hes keeping rates pegged down as well so likely gold and silver run soon.

But by buying the junk are they not just allowing the zombies continuation, rather than letting natural selection cull them?...wouldn't it have been better to `set the bar` of viability a little higher?

[MrXxxx]

13 hours ago, DurhamBorn said:

National Express at £1.60.The nature of the way the cycle ended wasnt what i expected in that i never expected they would shut down everything so nobody used transport.

But with NEX selling off their overseas operations and trying to focus on just the UK are they not limiting their scope for profitability in what is an overcrowded (and `sewn up` by GOG/SGC) anyway?

[MrXxxx]

Q. I have heard on here a mention of scripts being `paid` in place of divis, and also read that RR. offer C shares, is this the same thing, and if so what's the benefit for the investor and/or the company in following such an approach?

[Festival]

19 hours ago, MrXxxx said:

Hi Festival,

I think you'll find what you are looking for here:

https://monevator.com/investor-compensation-scheme/

Thanks that's been really helpful to see everything in one place Mr Xxxx.

Until now to me this has been largely a risk where an individual broker could fail so spread the risk. If we do move into a debt deflation default scenario then the cascade or systemic risk would worry me and i would want to hold more assets where there was no or more limited counterparty risk, particularly if markets are also falling at a rate that they were in march and brokers were restricting access to cash. 

[Harley]

9 hours ago, JMD said:

Harley, If I understand the podcast correctly, there is a scary part between 19-21 mins when they talk about a form of 'bond bail-in'  (my clumsy term?) where retail investors may be forced to buy government bonds, if said investor holds funds in a government regulated institution. Is my interpretation correct? If so Harley, is this the kind of thing you've been concerned of and writing about recently? And how would it work - for example I'm thinking a directive would be sent to me to sell say 20% of my sipp equities before a specified date and buy gov. bonds?  l might be way off, but otherwise this is pure Twilighlight Zone horror stuff...    What do others think?  DurhamBorn, is this kind of thing on your radar at all?

Yes, yes, and maybe voluntary at first (patriotic, can banging, "War Bonds"), like say the current cv tracing app, but then......The past subtle financial repression may no longer be sufficient, indeed necessary atm.  Too good an opportunity to let go to waste?  Tbc, we were entering a storm before cv.  The recent media uptick in facilitatory (sic) "talk" on the financial implications of cv, as opposed to the medical ones, as mirrored here, should be a canary.  Are we being softened up, again?  Emergency budget?  I started a thread a while back on risk management where I tried to start a dialogue.  Was not too early, just we, including me, too late?  Here's one:

https://www.dosbods.co.uk/topic/6958-financial-risk-management-case-hardening/?do=findComment&comment=323143

PS:  The smart money has not been late, especially given the additional last few months.  They've since followed their money out of the country.  Easy for the rest to maintain their summer hols - easy to isolate in their own villa.  Thank you Mr & Mrs taxpayer.  If you don't know what this picture is all about, then the time is ripe and history knows it.....