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


spunko

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leonardratso
4 minutes ago, Hardhat said:

I used silver profits to buy HZM today because I love risk.

oh ill carry on with some of mad aim dog penny shits, just a few every month for £1.50 a throw, £100 here, £100 there, nothing too massive since it just takes one of them to go to the moon and it covers all the rest in usually 1 swoop, got to be quick though on some of them, can multibag and return in a matter of hours or even less.

Just a little bit of punting on the side, nothing serious. No stampduty either since its aim and they know you are likely to piss the lot away.

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1 hour ago, Cattle Prod said:

Interestingly on the options side, my Oct and Jan SIL calls have not lost as much value as I thought they would, options traders treating this like a short term correction @MvR? Or maybe they will in coming weeks. Bought some SLV puts last week to hedge a little.

Open Interest in the call options has continued to climb slowly despite the dip - see the yellow line on the bottom chart. People are accumulating, and the dip hasn't put them off. This has translated to high Implied Volatility( IV) , i.e. higher options prices. See the purple line on the next section up.

With the high IV, a lot of traders will be selling calls against the long term options rather than sell the options themselves. This helps keep open interest high. 

To be honest though, it's hard to read anything into these numbers.. Options players with a directional bias will be looking at the same price charts as everyone else, and simply using options to squeeze everything they can out of a move ( or indeed lack of movement ) and improve their odds.

The most useful signal to watch for is during the end of a major bear market, when IV reduces as the stock is still falling.  That's a sign that the big players are removing their downside hedges.. i.e. selling their long puts, and starting to short them to capture lots of overpriced premium.  This is first noticeable maybe 24-48 hours before the actual bottom, and is a major sign to back up the truck.

You may notice a similar drop in IV on the call side when the market is topping, but this tends to be disguised in the overall IV figure by the increase demand for puts, so it's harder to spot without looking at the individual option IV values.

292009631_Screenshot2020-08-12at17_21_38.thumb.png.04abae7ba091fa2ffaa9740b3c3a17bf.png

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geordie_lurch

I also put a sell order in for around 20% of my Merian Gold and Silver last Friday to take out a fair deal of the profits I'd made which went through on Monday but just seen another 7.8% fall on it today and wondering whether I should have taken more as this pullback unfolds O.o

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Democorruptcy
4 hours ago, MvR said:

Thanks DB, and thanks for your road-map which has allowed me to confidently inject some directional bias into my trading, lifting my annual return from 20% ish to over 50%.  You're changing people lives here with an eduction we'd never get anywhere else. :)

Thinking about your point about the Fed forcing re-finance rates down for a short period before they take their hand of the scales reminds me of these figures I found a while back, comparing inflation to bank savings rates. If we had typical business finance rates going back this far, it would be interesting to see how they compared to inflation.

You can see how the super-cycle played out from 1982, and how close we are to another turn. Blue is inflation, green is savings rates.

1669969848_Screenshot2019-03-24at18_09_16.thumb.png.2992a8ee06bd7ae9689475df4f36e6f8.png

Those figures look a bit iffy. In 2011 CPI hit 5.2% (RPI 5.7%). Is it inflation in a particular month an annual average wouldn't work on an index? If prices were 5% higher one month but inflation was lower at 3% the next month, prices have gone up the first month then increased more the second month. Using an average of 4% would understate it.

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1 hour ago, Democorruptcy said:

Those figures look a bit iffy. In 2011 CPI hit 5.2% (RPI 5.7%). Is it inflation in a particular month an annual average wouldn't work on an index? If prices were 5% higher one month but inflation was lower at 3% the next month, prices have gone up the first month then increased more the second month. Using an average of 4% would understate it.

Errm.. I'm not sure to be honest.. my maths isn't nearly as good as it should be.. but here's my original post, the sources, and a CSV of the numbers if you've spotted an error..  I appreciate having someone more capable check my work.

Quote

 

Data from here :-

http://www.swanlowpark.co.uk/savings-interest-annual

https://www.inflation.eu/inflation-rates/great-britain/historic-inflation/cpi-inflation-great-britain.aspx

And a CSV for anyone who wants to check my working..

Year,UK CPI,UK Savings Rate
1960,1.81%,3.38%
1961,4.37%,3.56%
1962,2.65%,3.75%
1963,1.86%,3.56%
1964,4.8%,3.5%
1965,4.49%,3.85%
1966,3.68%,4%
1967,2.45%,4.25%
1968,5.94%,4.42%
1969,4.67%,4.88%
1970,7.89%,5%
1971,9.03%,5%
1972,7.65%,4.88%
1973,10.58%,6.58%
1974,19.14%,7.5%
1975,24.89%,7.21%
1976,15.07%,6.88%
1977,12.14%,7%
1978,8.39%,6.25%
1979,17.24%,8.31%
1980,15.12%,10.5%
1981,12.05%,8.9%
1982,5.41%,8.54%
1983,5.31%,6.75%
1984,4.58%,7%
1985,5.64%,7.57%
1986,3.75%,8.65%
1987,3.71%,9.83%
1988,4.55%,9.31%
1989,5.53%,11.96%
1990,7.49%,13.56%
1991,7.32%,10.57%
1992,2.6%,8.19%
1993,2.37%,5.66%
1994,2.01%,5.36%
1995,3.03%,5.6%
1996,2.21%,4.54%
1997,1.73%,5.45%
1998,1.56%,6.33%
1999,1.11%,4.71%
2000,0.83%,5.47%
2001,1.09%,4.64%
2002,1.62%,3.68%
2003,1.33%,3.73%
2004,1.57%,4.56%
2005,2.02%,4.92%
2006,2.86%,4.68%
2007,2.3%,5.55%
2008,3.08%,5.09%
2009,2.07%,2.21%
2010,3.15%,2.8%
2011,3.6%,2.75%
2012,2.42%,2.8%
2013,1.95%,1.77%
2014,0.71%,1.48%
2015,0.5%,1.4%
2016,1.79%,1.23%
2017,2.74%,1%
2018,2%,1.18%

 

 

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Democorruptcy
5 minutes ago, MvR said:

Errm.. I'm not sure to be honest.. my maths isn't nearly as good as it should be.. but here's my original post, the sources, and a CSV of the numbers if you've spotted an error.

 

Cheers.

It states in the source:

Quote

 

The inflation rate is based upon the consumer price index (CPI). Two overviews are being presented:

  • the annual inflation by year for Great Britain - comparing the december CPI to the december CPI of the year before and
  • the average inflation by year for Great Britain - the average of 12 monthly inflation rates of a calendar year

https://www.inflation.eu/en/inflation-rates/great-britain/historic-inflation/cpi-inflation-great-britain.aspx

 

Those are 3.6% and 3.85% respectively.

Averaging inflation months just seems a strange way of doing it to me. I was thinking if they compared Dec 2010 to the average months in 2011 it would be too low. That would be 93.4 - 91.2 = 2.4% definitely too low.  However I suppose comparing one year's average to another years average smooths it out. That's 93.4 to 89.4 so 4.5% which is more like how I see 2011

CPI Index from 2010

+23.7% Jan 2010 to Jun 2020! The £1 in your pocket!

 

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sancho panza
5 hours ago, MvR said:

 

I guess you've seen how long options act when price goes the wrong way, and how long it takes, if ever, for them to get back to their peak value.  If you sell some long calls, you can always get back if you change you mind, and in the meantime, being flat allows one to take a less emotional view on the situation. 

Generally speaking, with short options, I keep a position on unless there's a good reason not to. With long options it's the opposite. I stay out unless there's a good reason to be in.

The only long options I hold for a long time are at least 6 months out, and I sell short term calls against them, rolling them each week, creating something like stock with a covered call.  As with most of what I do, I sacrifice short term upside in return for positive theta ( time decay working in my favour ),  less volatility, and a better probability of success.

It's the tortoise vs the hare, and it's surprising how much ground the tortoise can cover in a year.

btw another good education source if I haven't mentioned it already Option Alpha at   https://www.youtube.com/user/bullzandbearz

I admit that I generally take positons that hedge my own thesis or add leverage toit.I sold our FCX at jsut under $11 in Feb iirc and was looking to reload it.buying the long option positions enables me to take a position for a period of time without having to commit capitla.if market reverses,i buy the stock cheaper,if mraket moves up I exercice my calls and take the stock.the price I pay is the options premium but because I trade so rarely,it doesn't really bother me.

All my current calls are for stocks that I wanted some cheap coverage on to Jan 21

having said that,I will hopeuflly have some more time this winter to practice some of the techniques you have discussed in the options thread(thanks for the heads up on the option alpha).

 

separate matters

image.png.ff07f8362bf95ab5212296cd70695e18.png

image.png.705677095df336afe6cb5cfa318b4cae.png

 

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Chewing Grass

Just been logged onto 'the bank' and its the first time I have ever seen them pushing 3 types of credit extension simultaneously.

1) Extend your overdraught - big banner ad then top of the main page after you have told it to 'go away'.

2) Extend your Mortgage  'Additional borrowing on your mortgage could help you do more'

3) Choose from two ways to finance your next car.

All seems a bit desperate to me.

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Noallegiance
1 hour ago, Chewing Grass said:

Just been logged onto 'the bank' and its the first time I have ever seen them pushing 3 types of credit extension simultaneously.

1) Extend your overdraught - big banner ad then top of the main page after you have told it to 'go away'.

2) Extend your Mortgage  'Additional borrowing on your mortgage could help you do more'

3) Choose from two ways to finance your next car.

All seems a bit desperate to me.

Is one of the choices within option 3 "Wait 6 months"?

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On 11/08/2020 at 17:37, Castlevania said:

Lots of companies have secondary listings on other countries exchanges. They’re the same share. You can in theory buy from one exchange and sell on another. I’d imagine the Spanish listing seeing as Repsol is a Spanish company would be more liquid, so you should receive a tighter bid offer spread.

Just a quick update. I managed to buy Repsol via the Spanish listing as you suggested. Thanks for the advice.

Then I tried to buy Telia and hit a similar issue. I contacted ii and they said only the primary listing can be traded. If that country (in this case Sweden) is not included on the online platform then you have to execute the trade by phone ... for which there is a £49 charge. :CryBaby:

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21 minutes ago, stoobs said:

Just a quick update. I managed to buy Repsol via the Spanish listing as you suggested. Thanks for the advice.

Then I tried to buy Telia and hit a similar issue. I contacted ii and they said only the primary listing can be traded. If that country (in this case Sweden) is not included on the online platform then you have to execute the trade by phone ... for which there is a £49 charge. :CryBaby:

HL you can buy Telia online as normal .I have a much smaller holding in them than others,i really like them,but the dividend tax is much higher.

in the bad old days nearly all trades were on the phone and expensive.I used to take my share certificates on holiday in case i needed to sell anything in the local Barclays.xD

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Don Coglione
2 minutes ago, DurhamBorn said:

HL you can buy Telia online as normal .I have a much smaller holding in them than others,i really like them,but the dividend tax is much higher.

in the bad old days nearly all trades were on the phone and expensive.I used to take my share certificates on holiday in case i needed to sell anything in the local Barclays.xD

image.jpeg.90e914ab20001a32b7cc82fafee7af00.jpeg

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20 hours ago, Moominpapa said:
On 11/08/2020 at 00:31, sam1994 said:

I’ve been dropping in and out of this thread and following things. Unfortunately things for me at least seem to be getting even more confusing. 

The S&P is up, but when we look at DXY, it doesn’t seem to be. Just a weaker dollar. And those gains are in FAANG. Other sectors are still depressed. 

In an investment forum I am following, it’s been suggested that people ride out this uncertainty with TIIPS. These seem to be inflation protected bonds in the US. Obviously with the currency hedge and probably a lack of availability in the U.K., it isn’t feasible. Is there a UK equivalent? Gilts look awful but I’d like to park some cash but the concept of inflation protected (I know government stats are bollocks but still) seems too good to be true?

Not sure if you have been anwered or not but a fund you might be interest in is, otherwise you can purchase the individual shares. 

INXG iShares £ Index-Linked Gilts UCITS ETF GBP (Dist)

I am yet to find a TIIPS ETF hedge in GBP, if you find one please let me know.

I've been hunting for these as well,  found the following funds (available on HL)

ASI Global Inflation-Linked Bond 
Fidelity Global Inflation Linked Bond 
Legal & General Global Inflation Lnk Bond Indx 
Smith & Williamson Global Inflation Linked Bond
Legal & General All Stocks Index-Linked Gilt Index

No idea if they are any good or not.

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1 hour ago, Lozza said:

I've been hunting for these as well,  found the following funds (available on HL)

ASI Global Inflation-Linked Bond 
Fidelity Global Inflation Linked Bond 
Legal & General Global Inflation Lnk Bond Indx 
Smith & Williamson Global Inflation Linked Bond
Legal & General All Stocks Index-Linked Gilt Index

No idea if they are any good or not.

Thanks for the list. I invested in the iShares offering but really should have done more research as having thought about it I'm unclear as to how effective these are.

Some things I've been mulling over -

 - Inflation linked bonds return both your interest and captial increased by inflation (whichever measure of inflation they are using) 

 - Inflation is woefully underreported by the measures we have in the UK currently so are you really maintaining spending power?

 - Interest rates are at their lowest now so when inflation kicks in you may be getting a return inflation adjusted but only on a low interest rate, when real interest rates may be higher after inflation has kicked in?

 - How do interest rates lag (I presume) inflation?

 - Better keeping some cash to take advantage of potentially higher interest rates rather than all locked into low rate index linked bonds?

 

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4 minutes ago, Shamone said:

I have already bought some more. Bought for long game I hope. 

Same here, if I had any free cash I would have done the same

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re. index linked bonds...

The Inverse Correlation Between Interest Rates and Inflation

Under a system of fractional reserve banking, interest rates and inflation tend to be inversely correlated. This relationship forms one of the central tenets of contemporary monetary policy: Central banks manipulate short-term interest rates to affect the rate of inflation in the economy.

Key Takeaways

  • There is a general tendency for interest rates and the rate of inflation to have an inverse relationship.
  • In the U.S, the Federal Reserve is responsible for implementing the country's monetary policy, including setting the federal funds rate which influences the interest rates banks charge borrowers.
  • In general, when interest rates are low, the economy grows and inflation increases.
  • Conversely, when interest rates are high, the economy slows and inflation decreases.

So seems that these would protect spending power as far as our inflation measures go...

Edit: Apologies to everyone for thinking out loud!

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Here is an interesting pilot project which involves some of our reflation companies:

 

https://www.bbc.co.uk/news/uk-england-london-53762711?intlink_from_url=https://www.bbc.co.uk/news/business&link_location=live-reporting-story

 

Energy firm SSE Enterprise will lead the project, backed by Bus2Grid project in a partnership including the mayor of London, Transport for London, bus operator Go-Ahead London and the University of Leeds.

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3 hours ago, Loki said:

K&S had a bit of a whack today.

Helios Towers,  (I think DB may have mentioned it?) did the same.  I haven't looked into the company but the drop looks more technical to me, and a nice cup and handle might be forming on the daily.  Too early to say at this point, so not a recommendation, just a heads-up.

Screenshot 2020-08-13 at 19.36.58.png

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On 12/08/2020 at 17:35, leonardratso said:

oh ill carry on with some of mad aim dog penny shits, just a few every month for £1.50 a throw, £100 here, £100 there, nothing too massive since it just takes one of them to go to the moon and it covers all the rest in usually 1 swoop, got to be quick though on some of them, can multibag and return in a matter of hours or even less.

Just a little bit of punting on the side, nothing serious. No stampduty either since its aim and they know you are likely to piss the lot away.

£1.50 a go?  I have £1.50 regular dealing charges set up for aj bell but only for FTSE 250... Take it you don't own the shares your taking the punt on?

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2 hours ago, Dogtania said:

£1.50 a go?  I have £1.50 regular dealing charges set up for aj bell but only for FTSE 250... Take it you don't own the shares your taking the punt on?

You could use Trading 212 for free dealing (probably charged via spread, has Isa wrapper too) or Degiro for still very cheap dealing (and very wide stock and market selection, but no Isa). Neither do Sipp or Lisa

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