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

[Harley]

My income portfolio issue is that the FTSE has stayed a dog compared to all the other international indices and asset classes.  Some talking head saying it's because it's more international than domestic!  FFS!  Oh well, the tide will hopefully turn one day but I need more international exposure do new adds will be just that.  Another head mentioned South America for the longer term inflation/commodity play which is brave but interesting and worth maybe a piece since it's one of the few fellow dogs right now.

[geordie_lurch]

Pretty much everything looks red today in my  Stocks & Shares ISA but I now have the stocks I want and a wide range of shares for the coming years of inflation. I just can't see how else it will play out based on the money printing etc as has been discussed here so brilliantly so best to just head out and enjoy the sun I think 

[Democorruptcy]

2 hours ago, wherebee said:

This is the view I have.  I don't need the divi now, really, as I have other sources of income.  When I will need them is in 15-20 years time when I have little other income.  I'm also happy to have no divvi now and no tax, and then divvi later when I will be below the taxable level, than vice versa.  

I'm not happy.

Firms are using covid as an excuse not to pay a divi at all but at the same time are taking full salary and bonuses, e.g. BT for figures ending March (largely pre-covid) no divi but 75% of maximum bonus. @DurhamBorn will be along soon to say it's to get the governbankment onside with investment but I'd still prefer an execs salary cut and no bonus. I don't like to think my divi has gone to execs.

[wherebee]

3 minutes ago, Democorruptcy said:

I'm not happy.

Firms are using covid as an excuse not to pay a divi at all but at the same time are taking full salary and bonuses, e.g. BT for figures ending March (largely pre-covid) no divi but 75% of maximum bonus. @DurhamBorn will be along soon to say it's to get the governbankment onside with investment but I'd still prefer an execs salary cut and no bonus. I don't like to think my divi has gone to execs.

sorry, my wording was poor.  what I mean is that I can be happier with no divi now than in 20 years time when it is a key plank of income.  doesn't mean I am HAPPY.

[JMD]

2 hours ago, Harley said:

A bit harsh mate!  It's an itch for me so I'll hold some.  

What sounded 'harsh' (strawman) to me was SP comparing Bitcoin to Barrick, surely a more equitable comparison might have been Trans Siberian Gold or Aftermath Silver!! 

Ok, i admit that i myself until recently, considered BTC as kinda referencing the latest bunch of 'Benighted-Tulip-Crowders'!!... but i have now recently bought, and think this time - well, in the next 3 years - Rodney/Raoul (Pal?) we'll be millionaires!!

(Usual disclaimers apply, not investment advice, all content purely for entertainment purposes, please dyor)

[MrXxxx]

1 hour ago, geordie_lurch said:

Pretty much everything looks red today in my  Stocks & Shares ISA but I now have the stocks I want and a wide range of shares for the coming years of inflation. I just can't see how else it will play out based on the money printing etc as has been discussed here so brilliantly so best to just head out and enjoy the sun I think 

Ditto, but a month ago they were all green, with a few up 30%...go figure!

[sancho panza]

17 hours ago, MrXxxx said:

But at what price do you sell once it has recovered?...I can imagine a lot of people would be relieved when it hits their entry price, and sell at that point....obviously forgetting about the opportuniy cost, quite sizeable if you have been invested for three years or more.

I think as you get more used to trades sitting in the red for periods of time,you become less likely to sell at break even.Having said that,you've read DB's comments upthread about his Sibanye sale.

In terms of where you sell,I take the view that you have to underpin your strategy with a viable thesis.For instance,we're currently in PM's,which runs alongside a weakening dollar thesis.Once it looks like the bottom is in in the dollar,there'll be near term reasons for me to trade out into UST's/USD ie positon for rising $USD.My selling triggers are more to do with price levels in otehr things rather than the PM miners themselves eg DXY,GSR,Oil>$80,copper>3.60,USD/EURO <0.74,GBP/USD $1.65,UST 2 yr yield>2%.These aren't absolute,I reserve the right to panic sell at any point but that's my working thesis.

In short,I'm trying to say my focus is not on the price of gold but rather the price of other things.

[sancho panza]

12 hours ago, Bricks & Mortar said:

Steve Van Meter.  Talks about reasons he thinks USD and treasuries will do well while gold and equities go down suddenly for a period in our near future.
Sounds to me like he's describing a BK-like event. 
I especially like his explanations about treasuries, (as I do acknowledge I don't know nearly enough about them).

He's referring to a 2008 repeat with minor changes and I'd go with that.We know the Fed will QE.

[Harley]

52 minutes ago, sancho panza said:

For instance,we're currently in PM's,which runs alongside a weakening dollar thesis.

While I agree with the need for an underlying thesis (except for trades) why does a lower USD imply higher gold, silver, and/or miner prices (in most/all currencies)?  I hold gold and silver but for other underlying reasons.

[Harley]

1 hour ago, MrXxxx said:

Ditto, but a month ago they were all green, with a few up 30%...go figure!

I've been hoping we've just had a tradeable bounce as liquidity turns to insolvency.  I'm seeding new diversified portfolios with small holdings in what I want and am hoping to ladder in, although some like RDSB look too tempting.  I have no doubt they'll be a ton more liquidity to come and expect a rotation to our beloveds so the prospect of further falls in those we care about is uncertain, but IMO there is still plenty of upside for me to have a partial gamble.  I would love nothing more than to be fully loaded and out in the rain(!) but unfortunately I was MIA in March!

PS:  Come on DRAX, come to daddy!

[wherebee]

2 minutes ago, Harley said:

I've been hoping we've just had a tradeable bounce as liquidity turns to insolvency.  I'm seeding new diversified portfolios with small holdings in what I want and am hoping to ladder in, although some like RDSB look too tempting.  I have no doubt they'll be a ton more liquidity to come and expect a rotation to our beloveds so the prospect of further falls in those we care about is uncertain, but IMO there is still plenty of upside for me to have a partial gamble.  I would love nothing more than to be fully loaded and out in the rain(!) but unfortunately I was MIA in March!

if everything drops another 10% I'm tempted to get some more MOS, BHP, etc etc.  Long term thinking...

[Harley]

14 minutes ago, wherebee said:

if everything drops another 10% I'm tempted to get some more MOS, BHP, etc etc.  Long term thinking...

Looking at DRAX (down 4% today atm) reminded me about percentages.  Stocks have bounced hard from their lows in percentage terms but it takes far smaller percentages to fall back down again.  Suppose I could do the sums and work out what that 4% down today represents in percentage terms of the % up since Its low.

PS: 4% v 9% (worst case)!

PPS:  Looks like all my good stuff (commodity producer plays, etc) are having a bad day.  Weird but great!

[sancho panza]

5 hours ago, jamtomorrow said:

Keeping large amounts on an exchange is asking for trouble, as is keeping keys on a HDD without backup. Use a physical backup like https://www.blockplate.com/, then your only real risks are losing the plates (i.e. same as PMs) or the implied counterparty risk of the entire network (which is certainly debatable, but prob not on this lovely old thread!)

JT and @Harley , the fact that I have to stopop to ask what HDD means tells me that it's something out of my depth.

Didn't mean to be harsh H was jsut saying for non techy people,some things are jsut beyond their comprehension.fair paly to anyone trading it.

14 minutes ago, Harley said:

While I agree with the need for an underlying thesis (except for trades) why does a lower USD imply higher gold, silver, and/or miner prices (in most/all currencies)?  I hold gold and silver but for other underlying reasons.

I ahev two theses on gold.One long term that fiat currencies are fubar.The second relates to the fact that at certain times,there's a strong inverse relationship between USD and gold.The latter is a trade that fits my long term thesis.As I've said before,if I can't indetify the selling point,I'll jsut sit in for the decade.

As @Bricks & Mortar video explained ,if we can identify the BK/credit event moment,then there's a set of trades that can run from that.

[sancho panza]

12 hours ago, wherebee said:

He sounds like he's done a lot of research and knows the Bond market well, but I still do not see how increasing global debt by trillons out of thin air, and doing QE into the billions can be anything BUT inflationary over a long enough timeframe.  I think he is saying deflation first (as people run out of money to buy things) and then inflationary, which I could see as the reality ahead, but he's very focused on the deflation and not how quickly it might turn into inflation?

It's deflationary in that as debtors default they create a chain reaction of risng leverage in the banking system->decreasing credit creation->shrinking GDP->increasing defaults->rising leverage in the banking system.

In itself,historically these things settle,but it can take some time for the wider economy to see inflation as velocity gets killed during a debt deflation.The problem is that for the last 40 years we haven't had an deflation to rebalance western economies.

When you consider the historical perspective below,it's thought provoking.

https://www.investopedia.com/ask/answers/042415/what-impact-does-inflation-have-time-value-money.asp

https://en.wikipedia.org/wiki/Debt_deflation

Assuming, accordingly, that, at some point in time, a state of over-indebtedness exists, this will tend to lead to liquidation, through the alarm either of debtors or creditors or both. Then we may deduce the following chain of consequences in nine links:

1. Debt liquidation leads to distress selling and to
2. Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes
3. A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be
4. A still greater fall in the net worths of business, precipitating bankruptcies and
5. A like fall in profits, which in a "capitalistic," that is, a private-profit society, leads the concerns which are running at a loss to make
6. A reduction in output, in trade and in employment of labor. These losses, bankruptcies and unemployment, lead to
7. pessimism and loss of confidence, which in turn lead to
8. Hoarding and slowing down still more the velocity of circulation.

   The above eight changes cause

9. Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.

— (Fisher 1933)

[sancho panza]

If I can enter one for the income debate dream trade.

Purchase BATs February 2001 for £2.60.Currently paying £2.08 divi............. from one of the healthiest balance sheets in the sector.

edit to add:iirc @DurhamBorn bought in the millenium and held to £40 odd.

[janch]

I take your point about the hot coffee on the keyboard @sancho panza!  So to have a backup is obviously the answer for BTC.  I don't have any as like many on here it's a whole new world and they'll have to simplify it for me to get involved. Another worry is that if everything goes really FUBAR then the power will go off (terrorist/cyber attacks?) and we will really be in trouble.  All our fancy portfolios will be as much use as a chocolate teapot.  Hopefully it will never happen.

This for me is a reason to hold some physical PMs at home (I still have hardly any though) but also cash at home (I don't have much of that either!).  Doing away with cash to my mind is something to be guarded against even if its value deteriorates.  It seems with the "pandemic" we are being slowly programmed not to use cash at all.  I've carried on using it all the time and I know all the reasons why people don't like it but in a real emergency it would be the most useful thing to have as a means of exchange.

Showing my age I remember the three day week and shopping in Tescos by candlelight and no lectures because the lecture halls had no windows.  Tills weren't electric then but if the same were to happen now we wouldn't even be able to get food as all tills are computers.

The upside would be people wouldn't be able to use their mobile phones and might talk to each other instead.  Youngsters would be bereft!

[Shamone]

4 hours ago, Democorruptcy said:

I'm not happy.

Firms are using covid as an excuse not to pay a divi at all but at the same time are taking full salary and bonuses, e.g. BT for figures ending March (largely pre-covid) no divi but 75% of maximum bonus. @DurhamBorn will be along soon to say it's to get the governbankment onside with investment but I'd still prefer an execs salary cut and no bonus. I don't like to think my divi has gone to execs.

Of course they are. The same way my company froze pay for 2 years in 2009 despite never being so profitable. The same way my present company furloughed 50% of staff despite never doing so well. The same way someone very close took the self employed grant despite the company never doing as well this season, their accountant told them everyone was doing it. If everyone else is doing it, eg cutting divi, why wouldn’t you?

[Democorruptcy]

37 minutes ago, Harley said:

Looking at DRAX (down 4% today atm) reminded me about percentages.  Stocks have bounced hard from their lows in percentage terms but it takes far smaller percentages to fall back down again.  Suppose I could do the sums and work out what that 4% down today represents in percentage terms of the % up since Its low.

PS: 4% v 9% (worst case)!

PPS:  Looks like all my good stuff (commodity producer plays, etc) are having a bad day.  Weird but great!

I was just thinking percentages after @wherebeewanted 10% off before buying more MOS "thinking long term...." It's down 81% since the $89 in 2011 to $17 now. Another 10% off now would take it to down 83%. Isn't that short term noise? Another big sell off back down to $6.50 would be better percentage fun

[Democorruptcy]

1 minute ago, Shamone said:

Of course they are. The same way my company froze pay for 2 years in 2009 despite never being so profitable. The same way my present company furloughed 50% of staff despite never doing so well. The same way someone very close took the self employed grant despite the company never doing as well this season, their accountant told them everyone was doing it. If everyone else is doing it, eg cutting divi, why wouldn’t you?

I might find some morals lying around unattended that I could pick up and use before I did the dirty. (It's true, I couldn't say I already had morals )

[Shamone]

10 minutes ago, Democorruptcy said:

I might find some morals lying around unattended that I could pick up and use before I did the dirty. (It's true, I couldn't say I already had morals )

The entire world will be littered with them, you wont need to look far!

[Democorruptcy]

3 hours ago, Shamone said:

The entire world will be littered with them, you wont need to look far!

Actually I've thought about this since and maybe the fact that I implied i didn't have any morals, means I do have some? Or at least I'm honest. Either way I've won something.

[DurhamBorn]

8 hours ago, Democorruptcy said:

I'm not happy.

Firms are using covid as an excuse not to pay a divi at all but at the same time are taking full salary and bonuses, e.g. BT for figures ending March (largely pre-covid) no divi but 75% of maximum bonus. @DurhamBorn will be along soon to say it's to get the governbankment onside with investment but I'd still prefer an execs salary cut and no bonus. I don't like to think my divi has gone to execs.

I agree they should of cut exec salary and bonus as well,that would of been much better,but the telco sector has a small window here to get a few things they have wanted for decades.BT need an inflation deal on returns.The rest of the sector needs the incumbents to get inflation+ deals from government.They also need to be allowed to merge etc.Governments have just had a massive lesson on how vital telcos are now.They have all performed superbly during the crisis and nearly all of the main telcos now have superb management who understand government.Vodafone is making it known that if governments want those strong networks and 5G then a return on equity of 6% isnt enough,and that investors will instead lower capex,lower opex and have bigger divis.We are at a key inflection point in the sector.The market etc is too busy looking backwards and also knows there will be a short term hit as telcos suffer in past recessions.If they can lock in inflation+ increases in a rising inflation cycle,lock in low rates ,structure debt well,then slowly lower opex as they move more and more digital,and lastly then lower capex mid cycle free cash will explode.I think VOD will get to £10billion free cash by the end of the cycle.Telefonica the same.

 

 

[MrXxxx]

6 hours ago, sancho panza said:

These aren't absolute,I reserve the right to panic sell at any point but that's my working thesis.

:-) :-) :-)

[DurhamBorn]

@sancho panza the tobacco stocks back then are a lesson for people now looking at the sectors like telcos,oil,potash etc.An industry that people saw as boring,but that was about to consolidate down.Selling BAT was the hardest choice iv ever made in selling shares and i was very pleased to buy back half my holding when the shares halved.They have too much debt now,but they should steadily pay it down,and they are a cash making machine.They send me a big stonking divid earlier in the week,just like they have every 3 months for decades.

[DurhamBorn]

4 hours ago, Harley said:

Looking at DRAX (down 4% today atm) reminded me about percentages.  Stocks have bounced hard from their lows in percentage terms but it takes far smaller percentages to fall back down again.  Suppose I could do the sums and work out what that 4% down today represents in percentage terms of the % up since Its low.

PS: 4% v 9% (worst case)!

PPS:  Looks like all my good stuff (commodity producer plays, etc) are having a bad day.  Weird but great!

DRAX went xd today.They were one that got hugely over sold in March and were a complete gift under £1.50.Iv sold a few given they doubled,but holding the rest for the cycle,or a takeover.