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

[Castlevania]

1 hour ago, Popuplights said:

I particularly like the way he has the horse racing on in the background.

He’s a gambler. 

[MvR]

8 hours ago, Cattle Prod said:

Thanks, I was thinking about that all right, I'm trying to set up calculators for me to understand this in my simple Excel way!

TBH I don't go into that level of analysis when I do these things. I only use a spreadsheet to make pretty graphs of my profits.  That's probably partly experience, but mainly because the greeks, specifically delta and theta, tell me what I need to know. If the underlying instrument is in a bull market, I want to sell the short call at a level where the overall delta is reduced by about 2/3 to 3/4 ish, and theta is positive.  If I'm really bullish, I'll sell higher strike calls so the overall delta is maybe 1/4 smaller.  If I'm neutral or bearish, I might sell the short call at the money, or even lower.

Or I might sell not just calls but  puts too, if I'm happy to own the underlying.

Here's my current SLV position in my speculative account as an example.  It may sound complex, and I suppose it is in a way, but hopefully it's a useful look at how I do this in practice, and may give you some ideas. 

The top row is the aggregate of all the options below. Green in the cost column means I sold that option and received that amount. Red means I paid out. The six rows below the aggregate row you see 3 short weekly straddles, which I'm currently rolling over to next week. The top two are still on this weeks expiry ( Aug 28th - today ), waiting for order at the bottom to be filled. When it does, I'll receive $115 for the roll.  The next four have already rolled over to Sept 4th, taking in another $115 for one, and $89 for the other.  Those two rolls have locked in $264 profit ( see the aggregate row).   Overall these short options are making me about $300 per week.

Below that is a long 27 call expiring in 14 days. It's a leftover from a position I can't remember. Theoretically I should sell it, but I've kept it just in case we spike up . 

Below that is a Sept 18th Big Lizard.. short the 25 call and put, and long the 27.  It's not there for any particular reason.. I just felt like putting it on at the time, and since the odds are in my favour, why not? Like a casino, the more busy I am, the more I make.

The next four rows are my core bullish position, 10 Jan calls at 26 strike, 10 more at 28 strike, then 10 short at 31 and 10 short at 35.  Looking at the cost column, you can see I actually received more for the short calls than the long ones. This is because I sold the short calls after a rise. Sometimes I'll roll these short calls forward or backward in time, or up and down as the stock moves.  

So.. overall, this current position effectively paid me $848 to put it on ( top row cost column ), is currently worth $2247, so is currently $3095 in profit.

 It's also paying me about $300 a week from the near term short options as described above, and has long exposure ( delta ) of 402, i.e. equivalent to 402 shares or SLV, or 402 silver brits.

Like I say, it may sound complex, but it's not some finely balanced machine... its really just a pile of long and short options that basically express the the opinion that SLV could get to £35 by January, but won't get there straight away, and if I'm totally wrong, I lose about $2k and have to buy 300 SLV shares at an average price of $25.50 a share. 

It could certainly be streamlined if I were putting on a new position to express the same opinion.

Oh and here's the overall P&L chart ( X axis = SLV price, Y axis, my P&L assuming no further adjustments ).  Sorry there's no scale on the Y axis, but the little info box at the selected prices gives you an idea. Max profit a bit  over $10k if SLV is around $35 in January. ( plus the short premiums I take in each week )

[MvR]

19 minutes ago, Cattle Prod said:

I've already started selling my positions and re-opening them on IB! Thanks for the heads up. Like Hargreaves Lansdown, the I think the best protection is to go with the biggest broker. I didn't do due dilligence on this broker like I would with investments, lesson learned

I agree. that's one reason I use IB.   Realistically the chance of Saxo doing anything dodgy is probably extremely small, but given what's a stake, why take the risk?

Plus you have the platform reliability. I watched the GFC tick by tick, and when everyone else was panicking, broker platforms were going down, people getting terrible fills.. IB breezed through without so much as a hiccup. 

[Jesus Wept]

I don’t think we will go straight to inflation. 
 

Yes the FED has printed $TRILLIONS.....

 

However it’s going nowhere at the moment....

 

I think the upcoming NASDAQ collapse which will spread to all sectors will herald a deflationary bust 2021-22 and then as this money gets moving BOOM 💥....inflation right through and past the end of the decade.....

[sleepwello'nights]

1 hour ago, Noallegiance said:

I'll trump those trinkets with food and shelter. You know. Stuff to live.

Your original question was what has fallen in price. Food and shelter have increased.

[jacko73]

Hello All,

I don't really post on forums so please be gentle.  I Firstly want to say thanks to DB for pointing me towards David Hunter as with his knowledge and my charting i have posted gains that I did not believe possible.  So I would like to give back to you guys I think i can add value to your group.  I trade from charts in truth and you all seem to look at fundamentals and cycles, so we could be real good together.   

 

 

 

 

 

 

 

.

 

 

 

 

[MvR]

45 minutes ago, Cattle Prod said:

Thanks a lot, that's very helpful. I do like the idea of a little income while I wait, I have to say. I'm the kind of guy who has to derive a formula before using it, so I'll play around with it over the weekend. Just to be clear, for a straddle you're buying a put and call at the same strike, and when you say 'sell the short call' you mean close the put (when the theta etc is in your favour), rather than selling a call?

I guess that would necessitate watching the screens reasonably closely? My strategy is gear toward less interaction as I work full time too...but I look at my bloody phone enough 

No...  I always SELL the straddle first, ( sell a put and call the same strike ). That means I'm now SHORT a straddle. Look at the position size to the left of the option month. The calls and puts that make up the straddles all show a position of -1.

When I roll the straddle I BUY it back, usually for a profit as it's generally worth less due to the decay, and SELL a new straddle for the next week.

This is the key point.. I'm basically a seller, not a buyer. That's what puts time decay, and therefore the odds in my favour.  .

A short straddle has risk to the upside and the downside,  but that's OK because if SLV goes down, I'm happy for the short puts to be exercised by the counter-party, because I"m happy owning 300 SLV shares (which I can always sell covered calls against ).

If SLV goes up, the short straddles go against me, but the core position ( the 20 long Jan calls and 20 short Jan calls ) goes in my favour by a much larger amount, because there's there are more of them.

This means I don't need to watch the market closely at all, since I'm happy whatever happens. Sometimes I'll only check my account once or twice a day, though watching things more closely allows me to pick the optimal time to roll the straddles or make other adjustments.. thus squeezing a little more out of the position.

The great thing with options selling is you don't have to watch things closely. Lots of options sellers give it 15-30 minutes a day max. 

EDIT:  And by "selling short call",  I mean selling a call I don't already own, therefore ending up short a call.  Technically I should have said "selling a call" not "selling a short call", since to be short a call, you already sold it.

I'm starting to think a video might be in order...

[MrXxxx]

5 hours ago, M S E Refugee said:

Portnoy's Rough n Rowdy is quite entertaining.

Chris I thought it was Boris with a new haircut...explain some of his recent decisions if it was! :-) :-) :-)

[Democorruptcy]

4 hours ago, Cattle Prod said:

I've already started selling my positions and re-opening them on IB! Thanks for the heads up. Like Hargreaves Lansdown, the I think the best protection is to go with the biggest broker. I didn't do due dilligence on this broker like I would with investments, lesson learned

Talking about HL:

 

Quote

 

Stocks protected in nominee accounts with you as beneficial owner

Stock you hold with us is held in the name of or to the order of Hargreaves Lansdown Nominees Limited, or by an approved third party custodian. Hargreaves Lansdown Nominees Limited is a non-trading company so it cannot run up liabilities of its own and Hargreaves Lansdown accepts full liability for any default by our nominee company. We maintain detailed records of all your investments and assets for which you will at all times remain the beneficial owner. We do not lend stock held in our HL or PMS service.

Our senior management and CASS Committee are responsible for periodic reviews of the nominees with which stock is deposited.

https://www.hl.co.uk/security-centre/how-safe-is-your-investment

 

Our stock is held by HLNL or an approved custodian. Reading between the lines, doesn't that imply that unlike HLNL the custodian could be a trading company, could run up liabilities and HL don't accept full liability for their default?

 

[sancho panza]

@MvR thanks for those phone numbers you're  a gentleman.I've found that Saxo has a lot of options available thanks to @Cattle Prod but the choice is limited in some respects for things like BP.

I've also checked the countries list and there shouldn't be a problem.I'll get it done next week.It needs to happen as the costs of Saxo are a lot higher than IB if I want to have a go at my first Big Lizard

On 27/08/2020 at 20:57, Cattle Prod said:

I'm happy my oil ones are not moving, I want more.  Also want some QQQ puts for BK. Partly to hedge the calls though they are mostly 18-24 months out and should sort themselves through turbulence, but anything I get on the puts I can put into more calls. I've been getting bogged down in shorter timescales a la Kaplan and Hunters recent calls, so I'm saying screw it, my conviction is highest over 3-7 years so just get the longest date I can and add in 3-6 roll costs into the risk:reward calculation. It's suiting me much better to have the exposure I want over that timescale, so I don't hsve to worry my ISA and SIPP to death. 

SDF are only Dec 21 now that I check so I'll likely have to roll those in a few months. They were EUR 32-38 each for strike 10, gone down a bit since 

I used your saxo tip to buy some BP March 21 270/280/290 and RDSB 1100.Saxo doesn't go past March for those......

Like you,I think my 3 year views  give my trades time to work throuhg and looking at my record over time,they generally take at least three years to come good.

 

On 27/08/2020 at 22:40, DurhamBorn said:

Yep,its incredible really isnt it how things are falling into place.The market is pretty much missing the fact we are at a key inflection point.The key is that the Fed want inflation higher than rates and once people wake to that fact there will be a big market shift.

@sancho panza great work on the Telcos.A really good list.The good thing is all the balance sheets are loaded with debt so they all need to focus on getting returns up.They key is the structure of the debt and maturity.

I was surprised by a couple of them.I rescored BT 21 today after working out it's msot recent FCF from the numbers provided.We bought our first tranche today with the profits from yesterday that we're not putting back into the PM sector.I've slagged BT off for years as an investment but at £1 they have become my number 1 invesment at the minute.

On the downside,was surprised by how bad the debt position was at Telenor.Key thing for me and the Telecoms ehre,is that they have to have a decent chance of making it through the credit event intact.Whislt Telenor may be a well run company,I'm not into that sort of risk after the Scottish play-all the shareholder equity there is is intangibles/goodwill.

15 hours ago, Harley said:

Ta.  TBC, not having a go, just want to understand the process, something I see as important as the final list.  Same with TDS.  Not a recommendation or anything, just exploring the process for its exclusion.

On charts for value stocks, I adopt a two stage process with fundamental selection first.  The charts are used to time purchases, either whenever or not at all.  Stocks may be cheap for a reason and well bid stocks may go higher (I'm still annoyed with myself for not buying APD on my chemicals list because it was too high at the time!).

Each to their own.  All views matter!

alos @MrXxxx

The coma scores are meant to assist spray n pray investing.Not stock picking.Thats a key thing to stress.Ceteris paribus,some stocks will get some pleasant surprised through the year,some will get some nasty shocks.My aim is to build a selection that hopeuflly leverage me/us to the sector.

I'm developing it but generally,I take net income and divide by market cap to give me an idea of profitability.I'll then have a butcher's at the income statment for anythign particualrly unusual (but I'm not an accoutnant),then I'll do the same with balnce sheet intially grading them by dividing equity by assets,again having a look for anyhting unusual.Genereally keep a an eye peeled on intagibles/goodwill.I then wokr out the free cash flow yield and again have a quick scan.

the telecoms portfolio will generally get built wiht a top line where I'll put the biggest positions,then maybe another three lines,on which the positons will get progressively smaller and they'll be less of them.,an inverted pyramid if you will.It's guranteed I think that BT will be our largest position,alognside Vod,Nippon,AT&T,Telstra,Thigns liek Airtel  Africa will eb small positon bottom line.

For Mr X,scores are basically my view on ponteial upside.Shares with beat up charts and lots of blue sky get 5's.Charts that are peaking get 1's.

FCF getting kicked off,particualrly over last 4 years gets a 5,low FCF gets a 1.

I grade the sectors on my general view of how upside there is for the sector.I woud currently grade oil&gas a 5.Telecoms a 4.PM's a 2(as we've come up so much.

Obviosuly,the concept is based on the Glasgow Coma Scale used in neurological assessment of patients

Hope that expalins.

[sancho panza]

14 hours ago, wherebee said:

So - I have a bit of USD I need to get back into AUD or GBP.  But - the rates are shite at the moment compared to the past two years.  Is the common view on here that we'll see a spike in USD before the big crash?

My presonal view is that after 4 to 7 months of a rising USD we'll see a decent size credit event.Dyodd natch.

Key thing is to see a bottom in the monthlies but it's very hard to discern amongst the noise.

 

[sancho panza]

6 hours ago, MvR said:

TBH I don't go into that level of analysis when I do these things. I only use a spreadsheet to make pretty graphs of my profits.  That's probably partly experience, but mainly because the greeks, specifically delta and theta, tell me what I need to know. If the underlying instrument is in a bull market, I want to sell the short call at a level where the overall delta is reduced by about 2/3 to 3/4 ish, and theta is positive.  If I'm really bullish, I'll sell higher strike calls so the overall delta is maybe 1/4 smaller.  If I'm neutral or bearish, I might sell the short call at the money, or even lower.

Or I might sell not just calls but  puts too, if I'm happy to own the underlying.

Here's my current SLV position in my speculative account as an example.  It may sound complex, and I suppose it is in a way, but hopefully it's a useful look at how I do this in practice, and may give you some ideas. 

The top row is the aggregate of all the options below. Green in the cost column means I sold that option and received that amount. Red means I paid out. The six rows below the aggregate row you see 3 short weekly straddles, which I'm currently rolling over to next week. The top two are still on this weeks expiry ( Aug 28th - today ), waiting for order at the bottom to be filled. When it does, I'll receive $115 for the roll.  The next four have already rolled over to Sept 4th, taking in another $115 for one, and $89 for the other.  Those two rolls have locked in $264 profit ( see the aggregate row).   Overall these short options are making me about $300 per week.

Below that is a long 27 call expiring in 14 days. It's a leftover from a position I can't remember. Theoretically I should sell it, but I've kept it just in case we spike up . 

Below that is a Sept 18th Big Lizard.. short the 25 call and put, and long the 27.  It's not there for any particular reason.. I just felt like putting it on at the time, and since the odds are in my favour, why not? Like a casino, the more busy I am, the more I make.

The next four rows are my core bullish position, 10 Jan calls at 26 strike, 10 more at 28 strike, then 10 short at 31 and 10 short at 35.  Looking at the cost column, you can see I actually received more for the short calls than the long ones. This is because I sold the short calls after a rise. Sometimes I'll roll these short calls forward or backward in time, or up and down as the stock moves.  

So.. overall, this current position effectively paid me $848 to put it on ( top row cost column ), is currently worth $2247, so is currently $3095 in profit.

 It's also paying me about $300 a week from the near term short options as described above, and has long exposure ( delta ) of 402, i.e. equivalent to 402 shares or SLV, or 402 silver brits.

Like I say, it may sound complex, but it's not some finely balanced machine... its really just a pile of long and short options that basically express the the opinion that SLV could get to £35 by January, but won't get there straight away, and if I'm totally wrong, I lose about $2k and have to buy 300 SLV shares at an average price of $25.50 a share. 

It could certainly be streamlined if I were putting on a new position to express the same opinion.

Oh and here's the overall P&L chart ( X axis = SLV price, Y axis, my P&L assuming no further adjustments ).  Sorry there's no scale on the Y axis, but the little info box at the selected prices gives you an idea. Max profit a bit  over $10k if SLV is around $35 in January. ( plus the short premiums I take in each week )

you know,I read your psosts M,scratch my head for an hour,and then see a long road ahead of me.

Thanks as ever for the education.

 

[sancho panza]

#Debt deflation cometh

https://wolfstreet.com/2020/08/27/subprime-mortgages-fall-massively-delinquent-taxpayers-on-hook-housing-market-splits-in-two/

The Federal Housing Administration (FHA) prides itself in insuring subprime mortgages with, as it says, “low down payments,” “low closing costs,” and “easy credit qualifying” – all true. Of its active portfolio of 8 million mortgages that it insures, 17% were delinquent in July, the highest rate in FHA history. In many metros, the delinquency rates of FHA mortgages are above 20%; and in two metros, the delinquency rates exceed 27%.

 

https://wolfstreet.com/2020/08/27/unemployment-data-chaos-labor-dept-admits-seasonal-adjustments-went-haywire-during-pandemic-why-i-stopped-using-them-in-may-week-23-of-u-s-labor-market-collapse/

 

https://wolfstreet.com/2020/08/26/the-zombie-companies-are-coming/

Through the first half of August – which is normally a quiet period for the bond market in the US – a total of $56 billion in junk bonds and leveraged loans were issued by junk-rated companies, according to S&P Global. That was nearly 50% higher than the prior records for the same period in 2012 and 2016, and more than double the amount issued in the entire month of August last year.

Cruise lines are now burning cash day after day, and they’ll continue to burn cash for months if not years, even after they start operating again, and they’re piling on mountains of debt in order to raise cash that they’ll burn before they’ll ever start operating again.

If they weren’t zombies before the Pandemic, they’ll be zombies going forward.

This borrowed cash will be gone, and the debt will remain, and they won’t be able to get rid of this debt and trim it down unless they restructure it, either in bankruptcy court or outside of bankruptcy court, by transferring all or much of the equity to creditors, with shareholders getting wiped out, or mostly wiped out, and some creditors taking big losses too.

But instead, they got bailed out, and they were turned into zombies, and a whole new generation of zombies was born that will add to the number of existing zombies.

For investors, a restructuring would be ugly. But for the cruise lines, it would be a great thing. They’d be smaller and nimbler and they’d be more able to invest, and they could move forward. But no. Instead of allowing this to happen, they were turned into zombies.

With this strategy of bailing out and pumping up the corporate credit market, and particularly the junk-bond market and leveraged-loan market, the Fed made it possible for corporate zombies to raise new money from investors and become even bigger zombies, rather than being restructured and cleaned up. And it’s causing a whole new generation of zombies to be born.

 

 

 

[sancho panza]

More WOlf take

More credit deflation pieces

https://wolfstreet.com/2020/08/26/small-landlords-tenants-lenders-governments-grapple-with-extend-and-pretend-forevermore/

A recent poll by the National Residential Landlords Association (NRLA) suggests the number could be higher: 87% of the landlords surveyed said their private tenants had paid their rent as normal throughout the pandemic so far. An additional 8% said they had agreed a reduced rent, a rent-free period, or made some other agreement with their tenant. The remaining 5% of tenants are behind on their rent without the consent of their landlords. In other words, according to the NLRA, 13% of tenants in the UK are not paying their full rent.

Many furloughed workers have continued to earn the lion’s share of their salary despite the fact they’re not working. This has allowed many of them to continue making their rent payments. But that may not last much longer. The government has already begun scaling back the furlough program’s provisions and is scheduled to scrap it altogether at the end of October.

Landlords are edgy. Some are calling for the government to directly bail out renters so that the renters can then bail them out. In Wales, an even more ingenious scheme has been hatched: the government essentially gives struggling private sector tenants that have arrears dating back to the Pandemic a loan so that they can pay their landlords the arrears they owe. The taxpayer funds go directly to the landlords, who are made whole, while the struggling tenants get to take on thousands of pounds of fresh debt.

But before landlords in Wales and England get ahead of themselves, they might want to consider that a very similar scheme was launched four months ago in Spain, where rental delinquencies are a much bigger problem, and it’s been a complete flop. Just 1.3% of tenants have shown an interest in applying for the government-backed loans — a fraction of the estimated 15% of tenants who are no longer paying rent.

In most cases, the reason is simple: having lost their job or business and facing the bleakest economic panorama of their lifetime, tenants are struggling to see the point of taking on piles of fresh debt to pay months of rental arrears when they can’t even rustle up today’s rent. Not everyone, it seems, wants to play the extend and pretend forevermore game

 

 

I wonder what comes next?

Is the banking system ready...methinks not.

https://wolfstreet.com/2020/08/25/pent-up-supply-in-san-francisco-turns-into-glut-of-houses-condos-for-sale-prices-weaken/

So what we’re seeing in San Francisco in August…

Is a record onslaught of homes for sale, particularly of condos, that has come out of the woodwork in June, July, and August, per Redfin’s data. Before the Pandemic, there was an inventory “shortage,” as the industry likes to call it, and now there’s a glut, all of a sudden.

The Case-Shiller index is now showing pricing weakness in April, May, and June. This is particularly pronounced with condos, extends back two years, and is now taking on momentum.

Trying to figure out why people are wanting to suddenly sell their homes in San Francisco is going to be an interesting guessing game, and there are likely lots of reasons. Some of those reasons come to mind right off the bat:

• Investors wanting to get out before prices drop, especially with condos where carrying costs are high due to home-owner association fees;
• Airbnb hosts that can’t make their mortgage payments off the limited number of guests they might have;
• People just wanting to get the heck out of dodge, now that they can, since they’re working at home;
• People who’ve lost their jobs and cannot afford to live in San Francisco any longer;
• Landlords facing tenants that move out amid dropping rents and high vacancy rates, either to leave the city or to move into a better deal (“upgrades” for the same rent are now a thing for tenants).

 

[jamtomorrow]

7 hours ago, sancho panza said:

#Debt deflation cometh

https://wolfstreet.com/2020/08/27/subprime-mortgages-fall-massively-delinquent-taxpayers-on-hook-housing-market-splits-in-two/

The Federal Housing Administration (FHA) prides itself in insuring subprime mortgages with, as it says, “low down payments,” “low closing costs,” and “easy credit qualifying” – all true. Of its active portfolio of 8 million mortgages that it insures, 17% were delinquent in July, the highest rate in FHA history. In many metros, the delinquency rates of FHA mortgages are above 20%; and in two metros, the delinquency rates exceed 27%.

 

https://wolfstreet.com/2020/08/27/unemployment-data-chaos-labor-dept-admits-seasonal-adjustments-went-haywire-during-pandemic-why-i-stopped-using-them-in-may-week-23-of-u-s-labor-market-collapse/

 

https://wolfstreet.com/2020/08/26/the-zombie-companies-are-coming/

Through the first half of August – which is normally a quiet period for the bond market in the US – a total of $56 billion in junk bonds and leveraged loans were issued by junk-rated companies, according to S&P Global. That was nearly 50% higher than the prior records for the same period in 2012 and 2016, and more than double the amount issued in the entire month of August last year.

Cruise lines are now burning cash day after day, and they’ll continue to burn cash for months if not years, even after they start operating again, and they’re piling on mountains of debt in order to raise cash that they’ll burn before they’ll ever start operating again.

If they weren’t zombies before the Pandemic, they’ll be zombies going forward.

This borrowed cash will be gone, and the debt will remain, and they won’t be able to get rid of this debt and trim it down unless they restructure it, either in bankruptcy court or outside of bankruptcy court, by transferring all or much of the equity to creditors, with shareholders getting wiped out, or mostly wiped out, and some creditors taking big losses too.

But instead, they got bailed out, and they were turned into zombies, and a whole new generation of zombies was born that will add to the number of existing zombies.

For investors, a restructuring would be ugly. But for the cruise lines, it would be a great thing. They’d be smaller and nimbler and they’d be more able to invest, and they could move forward. But no. Instead of allowing this to happen, they were turned into zombies.

With this strategy of bailing out and pumping up the corporate credit market, and particularly the junk-bond market and leveraged-loan market, the Fed made it possible for corporate zombies to raise new money from investors and become even bigger zombies, rather than being restructured and cleaned up. And it’s causing a whole new generation of zombies to be born.

 

 

 

At the macro level (and seems the cat is fully out of the bag after Powell's comments this week), the intention is presumably to inflate debt away and thus release zombie companies from their torpor.

But this cruise lines example has me wondering whether there might be such a thing as a "Goldilocks" zombie, screwed enough to burn cash, but not screwed enough to burn it faster than existing debt inflates away, ending up just as zombified as when the reflation began.

Is that even possible? With the Fed effectively backstopping the "hard" part - semi-directly financing the ballooning zombie debt - what's to stop it?

[Jesus Wept]

9 hours ago, sancho panza said:

#Debt deflation cometh

https://wolfstreet.com/2020/08/27/subprime-mortgages-fall-massively-delinquent-taxpayers-on-hook-housing-market-splits-in-two/

The Federal Housing Administration (FHA) prides itself in insuring subprime mortgages with, as it says, “low down payments,” “low closing costs,” and “easy credit qualifying” – all true. Of its active portfolio of 8 million mortgages that it insures, 17% were delinquent in July, the highest rate in FHA history. In many metros, the delinquency rates of FHA mortgages are above 20%; and in two metros, the delinquency rates exceed 27%.

 

https://wolfstreet.com/2020/08/27/unemployment-data-chaos-labor-dept-admits-seasonal-adjustments-went-haywire-during-pandemic-why-i-stopped-using-them-in-may-week-23-of-u-s-labor-market-collapse/

 

https://wolfstreet.com/2020/08/26/the-zombie-companies-are-coming/

Through the first half of August – which is normally a quiet period for the bond market in the US – a total of $56 billion in junk bonds and leveraged loans were issued by junk-rated companies, according to S&P Global. That was nearly 50% higher than the prior records for the same period in 2012 and 2016, and more than double the amount issued in the entire month of August last year.

Cruise lines are now burning cash day after day, and they’ll continue to burn cash for months if not years, even after they start operating again, and they’re piling on mountains of debt in order to raise cash that they’ll burn before they’ll ever start operating again.

If they weren’t zombies before the Pandemic, they’ll be zombies going forward.

This borrowed cash will be gone, and the debt will remain, and they won’t be able to get rid of this debt and trim it down unless they restructure it, either in bankruptcy court or outside of bankruptcy court, by transferring all or much of the equity to creditors, with shareholders getting wiped out, or mostly wiped out, and some creditors taking big losses too.

But instead, they got bailed out, and they were turned into zombies, and a whole new generation of zombies was born that will add to the number of existing zombies.

For investors, a restructuring would be ugly. But for the cruise lines, it would be a great thing. They’d be smaller and nimbler and they’d be more able to invest, and they could move forward. But no. Instead of allowing this to happen, they were turned into zombies.

With this strategy of bailing out and pumping up the corporate credit market, and particularly the junk-bond market and leveraged-loan market, the Fed made it possible for corporate zombies to raise new money from investors and become even bigger zombies, rather than being restructured and cleaned up. And it’s causing a whole new generation of zombies to be born.

 

 

 

Is not one of the major contributors to high wage inflation a ‘very tight labour market/nearing full employment’? 
 

70s UK an exception (high oil) and stagflation? 
 

I am more inclined to hold the ‘Deflationary bust cometh’ theory - with inflation building over 10 years from at the earliest least 2022 as the money supply gets moving. 

[Sasquatch]

Our office block is 100% full again with a waiting list. I'm not fooled that this represents good news for the economy though. The units are one month notice managed workspaces and I believe that local companies have come to the end of normal 5 year leases elsewhere and have gone for the flexible option. This must mean that there will be lots of empty spaces elsewhere in the city.

[DurhamBorn]

1 hour ago, jamtomorrow said:

At the macro level (and seems the cat is fully out of the bag after Powell's comments this week), the intention is presumably to inflate debt away and thus release zombie companies from their torpor.

But this cruise lines example has me wondering whether there might be such a thing as a "Goldilocks" zombie, screwed enough to burn cash, but not screwed enough to burn it faster than existing debt inflates away, ending up just as zombified as when the reflation began.

Is that even possible? With the Fed effectively backstopping the "hard" part - semi-directly financing the ballooning zombie debt - what's to stop it?

The Fed is setting its stall out to run interest rates below inflation for the cycle,or at least until near the end of the cycle.They are telling the market,but the market isnt listening.However its only a window now to structure debt and once the cycle gets underway proper, rates will slowly track higher following inflation.

The Fed is trying to save Carnival etc,its simply filling the pipes with liquidity and letting the market allocate it.

The best position debt wise it to be a company with high fixed assets,debt structured over a long time where most could be paid from free cash if needed and not rolled over.

45 minutes ago, Cattle Prod said:

This is a very dangerous situation. I feel for renters, who could be very exposed with all this. I don't want to see people turfed out a la the states, that's a big taboo where I come from.

But it will not have escaped any private landlords notice that their long enshrined property rights have been suspended. In their cack handed way, by mandating "no evictions" without any attempt at a plan (at least the Welsh tried something) the government has put up a huge red flag agsinst residential property investment in the future. Were they offered anything by the govt for this suspension of rights? Any guarantee?

I'm not talking about the btl muppets, they probably haven't noticed that they don't have rights to their own property anymore. I'm talking about professional landlords. The (remaining) business case for them has just been ripped up by the government and they will (a) dump their portfolios as soon as possible (easier to just buy some XOM 😊), and (b) not invest in the coming years.

You'd want your head examined to rent out a property after this.

So this will all fall back on the govt. The taxpayer will have to buy the housing stock they will dump, and do much more of the building in the future. 

"Get back to work and spend money, feckless office drones" is getting ever more shrill from the govt, commercial property is screwed. I've just bought a run around (12 yo ford focus with 60k miles on it for the frugal fans, it'll run for years) for the Mrs as I'm never going back in 5 days a week whether they want me to or not. So goodbye season slave ticket, hello driving three days a week. We've already sublet a floor of our office block due to previous redundancies to some charity. It wont be long before another floor is freed up. Who is going to sub let it this time? The bottom two floors are a recruitment agency. Our building will probably be half empty inside a year. Read that across London and other cities. Brrrrr goes the printer.....

 

 

Its incredible really,but really chimes with the end of a cycle.Government built up a massive client state,both workers and welfare and as expected the end of the cycle has shown that the economy simply cant sustain the spending.The backbone isnt there.As you say the only thing they can do it print.

Fantastic buy that Focus,my 15 year old PUG 2L diesel just keeps going,but i am thinking of buying a Focus myself in the new year.The PUG has cost me £16 a week since buying including depreciating to zero value and all repairs.

[leonardratso]

spendthrifts.

[jamtomorrow]

57 minutes ago, DurhamBorn said:

The best position debt wise it to be a company with high fixed assets,debt structured over a long time where most could be paid from free cash if needed and not rolled over.

Cheers @DurhamBorn, that's a nice recap I can work into my stock assay recipe.

The hard part to dig up (seemingly) is debt structure. I've not seen any standardized reporting for that, and so far I've been piecing it together from news items, annual reports and misc other investor materials. Any better suggestions?

[MvR]

2 hours ago, Cattle Prod said:

So this will all fall back on the govt. The taxpayer will have to buy the housing stock they will dump, and do much more of the building in the future. 

Great post CP,  I don't understand this part though. Couldn't they just let prices fall until they find their fair value, however low that is?

 

[MvR]

 

18 hours ago, jacko73 said:

Hello All,

I don't really post on forums so please be gentle.  I Firstly want to say thanks to DB for pointing me towards David Hunter as with his knowledge and my charting i have posted gains that I did not believe possible.  So I would like to give back to you guys I think i can add value to your group.  I trade from charts in truth and you all seem to look at fundamentals and cycles, so we could be real good together.   

Welcome aboard!  Yup, we've got all kinds of expertise on this thread, including a fantastic buffet of Buffettry but there's always room for more perspectives 

[Shamone]

22 hours ago, 5min OCD speculator said:

yup can read that.....

I'm getting my lucky coin out........

Exxon @ 40 us cents is about 30p......sooooo 100k shares is about £30k AND is this a good hedge against £ cos it's US $ denominated?

OR

Straight RDSB purchase?

COME ON! spin the wheel of fortune! We need to be able to vote on individual posts 

Hold on......option 3, long Tesla? 

Every time I buy rdsb it goes down. Love it. I’m buying more next week.

[Underwhelmed]

21 hours ago, 5min OCD speculator said:

that's Dave Portnoy.....he's a cunt but he can be entertaining.... Looking like a 300k day....

 

Yeah he is cuntish, he also bought a shit ton of Bitcoin & got Winkelvoss twins (also cunts) to explain it all but admitted he still doesn't know what he owns! He also made an absolute killing on Chainlink (LINK).

[Bobthebuilder]

33 minutes ago, Shamone said:

Every time I buy rdsb it goes down. Love it. I’m buying more next week.

Stick it in your pension and forget about it for a few years, well thats what im doing so should @5min OCD speculator.