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

[Transistor Man]

1 hour ago, BurntBread said:

I'm thinking about telecoms infrastructure, and wondering who the big fibre-optics manufacturers are (in terms of actual cables, rather than switches)? It seems like Furukawa Electric does a lot of this, but HL doesn't list them, so no point in digging more deeply there. Pilkington was swallowed by Nippon Sheet Glass, which also doesn't help. Corning looks interesting, and at least I can buy it. I'm not sure whether it's your area, @Transistor Man?

It’s not really my area, unfortunately - especially in terms of investing. The upgrading of data centres will continue - the replacement of ever shorter copper links, radio-over-fibre for 5G could be a big market for Corning, I imagine. Difficult to know though.

[sancho panza]

9 hours ago, Democorruptcy said:

They have a Premium Charge evasion team that supposedly try to pick up on people who try to use other accounts. I know someone who tried another account then one day he couldn't log in and got a message to say they wanted all the PC he hadn't paid for weeks. He paid because he was doing it for a living and wanted to continue.

I imagine using any of the same name, debit card, DOB, address, PC will easily be spotted. If using a friend's account, if you are both on Facebook it won't help!

They also can spot betting patterns and IP addresess.So if i used a local Leicester friend,my betting would show up eg some small markets i was 10% of it at times.

Ithink if you could get some gucci software to hide your ip it would be possible if you could get a relible third party bank account

[sancho panza]

5 hours ago, MvR said:

Market could be bottoming.  He thinks gold has further to fall, but given political situation in the US, personally I expect it to start to run again soon. 

 

M i'm with you on that bottoming notion.A few weeks back we sold some pms that were well up witha view to use the profits elsewhere eg telecoms and a bit of options action,and redeploy the stake into some lowly rated pm miners

couldnt find any value in the latter but at the current prices,eldorado,oceana,buena,rio2,newcrest look good.rumours abound that kinross is on someones shopping list.time will tel.

[sancho panza]

#debtdeflationcometh

https://wolfstreet.com/2020/09/25/fha-mortgage-delinquencies-hit-record-17-4-subprime-higher-risk-in-deep-trouble-even-as-fed-policies-trigger-mad-land-rush-in-split-housing-market/

Subprime, No Problem? FHA Mortgage Delinquencies Hit Record 17.4%, as Fed Triggers Mad Land-Rush in Split Housing Marketby Wolf Richter • Sep 25, 2020 • 45 Comments

Atlanta metro: 53,000 FHA mortgages are delinquent. Houston metro, 47,000. Just FHA, not including other delinquent mortgages. And when forbearance ends? By metro.

By Wolf Richter for WOLF STREET.

Even as the housing market is being whipped into a mad land rush, with new single-family house sales spiking 46% year-over-year, highest since 2007, with existing home sales jumping to the highest since 2006, and with prices in many metros soaring to new records, the other end of the housing market – high-risk government-insured mortgages – is falling apart, and delinquencies rose to another all-time historic high.

The Federal Housing Administration (FHA) which insures about 8 million high-risk mortgages with lower requirements – “low down payments,” “low closing costs,” and “easy credit qualifying,” it says – reported that an all-time record of 17.4% of its mortgages were delinquent in August, up from what had been the all-time record in July of 17.0%, and having doubled from a year ago.

“Seriously delinquent” mortgages in the FHA portfolio – meaning, 90 days or more delinquent – rose to an all-time record of 11.2% in August, from 10.9% in June, having nearly tripled from 3.8% August 2019.

The delinquency rate for the top 169 metros (table at the bottom), which account for about 6 million of FHA-insured mortgages, rose to 18.0%, and seriously delinquent mortgages rose to 11.7%.

In 29 of these metros, the delinquency rates are between 20% and 27.7%! Other metros have much lower delinquency rates. Because of these huge differences by metro, we’ll look at them by metro.

The delinquency rates include mortgages that were delinquent and were subsequently moved into forbearance programs, where the lender agrees to not pursue its legal rights due to nonpayment of the mortgage, and where the borrower doesn’t have to make payments for a set period. A form of “extend and pretend.”

Many of these borrowers are precisely the ones who got hit hardest by the unemployment crisis.

These delinquencies are not happening because home prices have plunged and people could, but refuse to, make mortgage payments because they’re underwater, the sort of strategic default that happened massively during the Mortgage Crisis, often with investment properties. Home prices have risen, and most of these borrowers are not underwater. The delinquencies are occurring because people lost their jobs or their contract work and cannot make the payments for economic reasons.

 

 

[DoINeedOne]

4 hours ago, BurntBread said:

I'm thinking about telecoms infrastructure, and wondering who the big fibre-optics manufacturers are (in terms of actual cables, rather than switches)? It seems like Furukawa Electric does a lot of this, but HL doesn't list them, so no point in digging more deeply there. Pilkington was swallowed by Nippon Sheet Glass, which also doesn't help. Corning looks interesting, and at least I can buy it. I'm not sure whether it's your area, @Transistor Man?

This is one of the things with HL whilst they are great there has been a few companies i would like to buy that HL doesn't offer even some of the miners

Even more of a disappointment was when i called them to see if i can buy lets say XYZ and they said they can't buy XYZ maybe try again once all this covid stuff has settled down (what the fuck has covid got to do with buying a stock)

So i opened an account with Degiro and bought the stock i wanted

Now pretty much 99% of what i own is with HL but for those that they don't seem to offer i just get it on Degiro

Searched the company you mentioned as a test its there to buy if you wanted it

 

 

[Underwhelmed]

Interesting post by Steve Blumenthal, recommend reading his full post. Lots of room for the Fed to manoeuvre.

Deflation now, inflation later

https://www.cmgwealth.com/ri/on-my-radar-inflation/

 

On My Radar: Inflation

Today’s post is short. Several weeks ago, I wrote an OMR piece titled, “Powell Starts Hard Sell for MMT.” I think we are on the polar opposite side of what I call the Paul Volker Moment. In the early 1980s, inflation was out of control. There was little confidence in the Fed. People were angry. The cost of goods was rising higher than wages. Budgets were squeezed. Tough love showed up in the form of Paul Volker and he did what he needed to do. He whipped inflation.

 

In talking with an advisor client about the Fed this past week, we both agreed there is a floor under the market. The Fed has a lot of free ammo (as you’ll see next). So the narrative goes, buy the dips. I could be wrong, but I do believe that is the right narrative—at least for the time being. The Fed attempts to allow the market to find its footing and then jumps in when things get too hot. Let’s call hot -15% to -20%. The S&P 500 Index is currently down a warm 10%, give or take.

Here is a look at the available capital sitting in the Fed’s kitty. And yes, they can print and make it bigger. Point is there is a lot of firepower yet to be spent. Check out the next chart, courtesy of Camp Kotok fishing buddy, Jim Bianco, via twitter. As he explained, “The grey/blue chart shows the authorized limits that gives the Fed a ton of room to add more (plus QE).”

Grey = Treasury Funds Pledged. Blue = Actual Purchases/Loans.

This next chart shows that the Fed programs to buy loans, muni bonds, commercial paper, corporates, and ETFs have stalled in recent weeks. (Source: Bianco Research.)

So yes… that’s a lot of firepower to buy assets (support the markets). BTW, you can follow me on Twitter @SBlumenthalCMG.

I told the advisor my best guess is that it comes down to confidence. When confidence in the narrative (the Fed) is lost, then significant decline will occur. For me, what will kill that confidence is inflation.

The Fed is wearing a “Whip Deflation Now” button. The inflation genie will escape the bottle. It’s not tough love when you dish out the cookie dough. It’s tough love when you take it away. Inflation will be the trigger. Then, the seesaw will pivot back to the other side, inflation will rise. Then, confidence in the Fed will be lost and markets will reprice.

This is not going to happen in the next two months—and maybe not in the next two years—but it’s coming. Deflation now, inflation later. That’s my base case.

[Donald McFlurry]

5 hours ago, BurntBread said:

I'm thinking about telecoms infrastructure, and wondering who the big fibre-optics manufacturers are (in terms of actual cables, rather than switches)? It seems like Furukawa Electric does a lot of this, but HL doesn't list them, so no point in digging more deeply there. Pilkington was swallowed by Nippon Sheet Glass, which also doesn't help. Corning looks interesting, and at least I can buy it. I'm not sure whether it's your area, @Transistor Man?

I would be weary of investing in telecoms infrastructure and equipment manufacturers. They are very cyclical in nature. Once big infrastructure projects are done, the revenue can slow down rapidly. We saw this in the post-worldcom days where Nortel went bankrupt, and telecoms equipment was being sold for pennies on the dollar. Corning made hay in the boom times, but suffered badly afterwards. Many colleagues of mine lost their jobs in the equipment vendors. The fibre optic cables themselves are more or less a commodity item that has a lifespan of 20 years in the ground. That's how the operators amortize it on their books.

 

For the operators, like BT, TEF etc. think the value that DB, and others including me see is the huge barriers to entry, recurring revenue streams, and the ability to increase prices to counter inflation. I would class telecoms infrastructure suppliers in a completely different sector. Whilst there may still be value there, it needs to be analysed in a completely different way in my opinion.

[DurhamBorn]

17 minutes ago, Donald McFlurry said:

I would be weary of investing in telecoms infrastructure and equipment manufacturers. They are very cyclical in nature. Once big infrastructure projects are done, the revenue can slow down rapidly. We saw this in the post-worldcom days where Nortel went bankrupt, and telecoms equipment was being sold for pennies on the dollar. Corning made hay in the boom times, but suffered badly afterwards. Many colleagues of mine lost their jobs in the equipment vendors. The fibre optic cables themselves are more or less a commodity item that has a lifespan of 20 years in the ground. That's how the operators amortize it on their books.

 

For the operators, like BT, TEF etc. think the value that DB, and others including me see is the huge barriers to entry, recurring revenue streams, and the ability to increase prices to counter inflation. I would class telecoms infrastructure suppliers in a completely different sector. Whilst there may still be value there, it needs to be analysed in a completely different way in my opinion.

I agree,and own none for that reason.The big thing with the telcos is they are going digital and replacing most of their legacy systems and are well through that.I expect both CAPEX and OPEX to fall moving forward and then after a few years inflation to then ramp up prices.In affect telcos are heading for a sweet cycle,after a very long difficult one.People always bid up companies expanding (take big tech now) and then give up on them when profits flat line .Thats exactly whats happened to telcos.However when you have around $15 billion EBITDA as the likes of Vod has and CAPEX and OPEX start to fall free cash moves higher.We also have the fact 10% inflation would likely see a 30% increase in net cash.

Once inflation starts to run i see no way anyone will be able to compete with the big telcos.Bond holders have already financed their networks on coupons of 2% to 3% and return on capital employed is very low at the moment around 6%.Once bond yields move up to 4% to 5% and inflation moves up no new investment will be profitable.The incumbents will benefit hugely from that.

Last thurs/frid the hardest choice was where to invest all the divis that landed,i was torn between oil and telcos,but ended up sticking them in BP.Iv a rule on my portfolio as well that i cant add to any share in my top 5 holdings so that ruled Vod out and BP was 6th .

I think the market is very worried about debt levels of telcos,but the big ones have very good profiles on the debt,Vods is a lesson in how to do it.The spread gives them options each year,pay off what comes due or roll over all/some.

[Castlevania]

Vodafone’s debt profile is excellent for a Telco. 

https://investors.vodafone.com/debt-investors/financing-strategy

There’s an argument that they’ve been run by accountants for the past decade, but the way they’ve structured their debt has been exemplary.

[Plan-b]

7 hours ago, BurntBread said:

I'm thinking about telecoms infrastructure, and wondering who the big fibre-optics manufacturers are (in terms of actual cables, rather than switches)? It seems like Furukawa Electric does a lot of this, but HL doesn't list them, so no point in digging more deeply there. Pilkington was swallowed by Nippon Sheet Glass, which also doesn't help. Corning looks interesting, and at least I can buy it. I'm not sure whether it's your area, @Transistor Man?

Tyco is the most used and well known - was owned by Johnson Controls.

Do some research on globalfoundries

This is the future.... SDM transmission

https://www.ntt-review.jp/archive/ntttechnical.php?contents=ntr201706fa1.html

https://www.eu-japan.eu/sites/default/files/publications/docs/2018-5-photonic-for-life-science-vaskelis-min.pdf

 

[DurhamBorn]

50 minutes ago, Castlevania said:

Vodafone’s debt profile is excellent for a Telco. 

https://investors.vodafone.com/debt-investors/financing-strategy

There’s an argument that they’ve been run by accountants for the past decade, but the way they’ve structured their debt has been exemplary.

I agree,they have made a superb job of the debt profile.Its structured so they can repay as each comes due,or roll over and thats perfect for the cycle.I think they are at last getting the company right sized in the right markets as well.Vodafone also own a big stake in M-Pesa the leading digital payment system in Africa,and expanding into other countries.Sector looks ripe for a decade long turnaround.

[Castlevania]

1 hour ago, DurhamBorn said:

I agree,they have made a superb job of the debt profile.Its structured so they can repay as each comes due,or roll over and thats perfect for the cycle.I think they are at last getting the company right sized in the right markets as well.Vodafone also own a big stake in M-Pesa the leading digital payment system in Africa,and expanding into other countries.Sector looks ripe for a decade long turnaround.

I like Airtel Africa for the mobile money side of things. Plus I like having some more exotic/risky exposure.

[Harley]

5 hours ago, DoINeedOne said:

This is one of the things with HL whilst they are great there has been a few companies i would like to buy that HL doesn't offer even some of the miners

Even more of a disappointment was when i called them to see if i can buy lets say XYZ and they said they can't buy XYZ maybe try again once all this covid stuff has settled down (what the fuck has covid got to do with buying a stock)

So i opened an account with Degiro and bought the stock i wanted

Now pretty much 99% of what i own is with HL but for those that they don't seem to offer i just get it on Degiro

Searched the company you mentioned as a test its there to buy if you wanted it

 

 

You can buy off the Tokyo exchange with Degiro?  Are the prices ok given Degiro uses Morgan Stanley or someone for routing on some exchanges?

[DurhamBorn]

57 minutes ago, Harley said:

You can buy off the Tokyo exchange with Degiro?  Are the prices ok given Degiro uses Morgan Stanley or someone for routing on some exchanges?

Iv been wanting to buy Mitsubishi Chemical Holdings but cant even seem to be able to get the ADR with HL.You would think they would of Tokyo stocks wouldnt you.

[Harley]

3 hours ago, Harley said:

You can buy off the Tokyo exchange with Degiro?  Are the prices ok given Degiro uses Morgan Stanley or someone for routing on some exchanges?

Answering my own question, yes you can, and many others.  Not sure about the prices given the orders go via Morgan Stanley but looks very interesting.

[DurhamBorn]

56 minutes ago, Harley said:

Answering my own question, yes you can, and many others.  Not sure about the prices given the orders go via Morgan Stanley but looks very interesting.

It sure does.There are quite a few Japanese stocks iv been wanting so might sign up and get them on there.About time our big brokers got with it,though of course they dont like people buying shares direct as they dont make anything much after you have bought them apart from the maximum platform fee.

[JREWING]

10 hours ago, DoINeedOne said:

This is one of the things with HL whilst they are great.....

 

 

 

 

 

10 hours ago, DoINeedOne said:

 

 

DIN1

Anyone.

I have everything under HL. Well within the £85k safety limit.

Can I ask. If they went bust. Do I, you own your shares. Or do they own your shares in your account?

So you're shares are HL's equity in a bust. Or your owned equity held within their clients accounts.

I guess what I'm asking is. How many on here would be comfortable holding a five figure sum of shares under the HL umbrella.

I did notice CP mentioned in his cautionary tale the reasonings behind multiple accounts with different providers.

Thanks for any feedback. Much appreciated..

[sancho panza]

11 hours ago, Underwhelmed said:

Interesting post by Steve Blumenthal, recommend reading his full post. Lots of room for the Fed to manoeuvre.

Deflation now, inflation later

https://www.cmgwealth.com/ri/on-my-radar-inflation/

 

On My Radar: Inflation

Today’s post is short. Several weeks ago, I wrote an OMR piece titled, “Powell Starts Hard Sell for MMT.” I think we are on the polar opposite side of what I call the Paul Volker Moment. In the early 1980s, inflation was out of control. There was little confidence in the Fed. People were angry. The cost of goods was rising higher than wages. Budgets were squeezed. Tough love showed up in the form of Paul Volker and he did what he needed to do. He whipped inflation.

 

In talking with an advisor client about the Fed this past week, we both agreed there is a floor under the market. The Fed has a lot of free ammo (as you’ll see next). So the narrative goes, buy the dips. I could be wrong, but I do believe that is the right narrative—at least for the time being. The Fed attempts to allow the market to find its footing and then jumps in when things get too hot. Let’s call hot -15% to -20%. The S&P 500 Index is currently down a warm 10%, give or take.

Here is a look at the available capital sitting in the Fed’s kitty. And yes, they can print and make it bigger. Point is there is a lot of firepower yet to be spent. Check out the next chart, courtesy of Camp Kotok fishing buddy, Jim Bianco, via twitter. As he explained, “The grey/blue chart shows the authorized limits that gives the Fed a ton of room to add more (plus QE).”

Grey = Treasury Funds Pledged. Blue = Actual Purchases/Loans.

This next chart shows that the Fed programs to buy loans, muni bonds, commercial paper, corporates, and ETFs have stalled in recent weeks. (Source: Bianco Research.)

So yes… that’s a lot of firepower to buy assets (support the markets). BTW, you can follow me on Twitter @SBlumenthalCMG.

I told the advisor my best guess is that it comes down to confidence. When confidence in the narrative (the Fed) is lost, then significant decline will occur. For me, what will kill that confidence is inflation.

The Fed is wearing aWhip Deflation Now” button. The inflation genie will escape the bottle. It’s not tough love when you dish out the cookie dough. It’s tough love when you take it away. Inflation will be the trigger. Then, the seesaw will pivot back to the other side, inflation will rise. Then, confidence in the Fed will be lost and markets will reprice.

This is not going to happen in the next two months—and maybe not in the next two years—but it’s coming. Deflation now, inflation later. That’s my base case.

Nice read,very much in with the thinking in this thread that deflation will beget inflation and that the only time they'll stop printing is when inflaiton is running which by the time they recognise it will be too late.

 

 

1 hour ago, Panda said:

 

 

 

 

 

DIN1

Anyone.

I have everything under HL. Well within the £85k safety limit.

Can I ask. If they went bust. Do I, you own your shares. Or do they own your shares in your account?

So you're shares are HL's equity in a bust. Or your owned equity held within their clients accounts.

I guess what I'm asking is. How many on here would be comfortable holding a five figure sum of shares under the HL umbrella.

I did notice CP mentioned in his cautionary tale the reasonings behind multiple accounts with different providers.

Thanks for any feedback. Much appreciated..

Your shares are held in nominee accounts that are generally Mifid 2 compliant.When shares are held in nominees,you aren't the beneficial owner but rather the registered owner hence the nominee gets your votes on company issues.very handy.we had a long discussion on this matter 1000 pages ago,so I can't dig it out but it's worth a read.

One thing you can do is certificate shares out of UK holdings and that is soemthing we do via a UK broker that is happy to do that.I'm sure you can certificate out of HL but you get nailed trying to sell certs generally.We pay £20 per cert no matter size but I'm not sure what more general dealing fees are

https://www.investopedia.com/terms/m/mifid-ii.asp#:~:text=MiFID II%2C a European Union packet of financial,and profession within the EU financial services industry.

[wherebee]

12 hours ago, Cattle Prod said:

 

So the cautionary tale is that even in huge, multnational, boring pension funds, systems creak at times of market stress and strange things can happen to your money. I'm very comforted by what @MvR said about IBs stabilty in the 08 crash, it's a very important aspect of a fund provider. As @Harley has wisely suggested, now is the time to be setting up multiple accounts, and have a cash plan ready for market dislocations. And when they happen, watch your funds like a hawk, take time off work if necessary (I was in the Arctic at the time).

March was but a mini Kahuna. Just don't trust any of them and diversify your providers where you can as well as your holdings.

 

 

This in spades.

Years ago, I had an account with a broker in the UK and although their fees were very low, their systems were always making little niggle errors.  I left them and moved somewhere else because to me that was a sign that they weren't investing in something - compliance, IT, management data? - which meant in a big crash worse problems might arise.

Now I am with IB, and the only issue I have is that the browser I use doesn't always mesh with their system first time - but the trading and analysis stuff is fantastic.  

I would hazard a guess that some of the new entrants in the US (and there are some in OZ recently as well) aimed at the retail market are fine in a bull market, but when a real terror bear market comes along, something will break as everyone rushes for the exits.

[Harley]

6 hours ago, wherebee said:

This in spades.

Years ago, I had an account with a broker in the UK and although their fees were very low, their systems were always making little niggle errors.  I left them and moved somewhere else because to me that was a sign that they weren't investing in something - compliance, IT, management data? - which meant in a big crash worse problems might arise.

Now I am with IB, and the only issue I have is that the browser I use doesn't always mesh with their system first time - but the trading and analysis stuff is fantastic.  

I would hazard a guess that some of the new entrants in the US (and there are some in OZ recently as well) aimed at the retail market are fine in a bull market, but when a real terror bear market comes along, something will break as everyone rushes for the exits.

Fair point of caution.  I've just opened an account somewhere to be proudly told that my verification may take many days due to the tremendous take up.  Good for management but, as someone who has seen the backoffice and system sizings creak under the pressure elsewhere at times like this, something for the customer to be careful about.  I may just put this one down as a bit of account tartiness!  I also look at their websites to see if their IT is any good, the proper investments have been made, and if their IT folk really understand things (like address and telephone formats).  Several don't which does not bode well down the line.  You don't want to be an oddity.

[Harley]

18 hours ago, Cattle Prod said:

I was in the Arctic at the time

As you do!  I love these little asides (maybe more than you!)!  O&G, been a great few decades!  Afforded me a great upbringing, although my dad told me to go elsewhere (as it were!)!

[JREWING]

12 hours ago, sancho panza said:

 

Your shares are held in nominee accounts that are generally Mifid 2 compliant.When shares are held in nominees,you aren't the beneficial owner but rather the registered owner....

Cheers SP.

So in the event of HL filing for bankcrupcy...

Cash held in your trading account I'm guessing would be protected up to £85k.

Shares held over and beyond the £85k. Do they get scooped up by the liquidators or are they all protected as they are owned by the nominee and not HL.

[DurhamBorn]

14 minutes ago, Panda said:

Cheers SP.

So in the event of HL filing for bankcrupcy...

Cash held in your trading account I'm guessing would be protected up to £85k.

Shares held over and beyond the £85k. Do they get scooped up by the liquidators or are they all protected as they are owned by the nominee and not HL.

In theory the only costs taken from the shares in nominee accounts would be winding up costs etc,and a company the size of HL that would be a small % of assets.You might be looking at 0.01% and then thats covered by the £85k.The real problem would be fraud.However regulators will be all over big companies,though you cant trust that.

Its shocking though that shares have to be kept in nominee accounts and its about time individual shareholders were again down on the list.I used to love getting my annual reports through the post etc.

[JREWING]

15 minutes ago, DurhamBorn said:

In theory the only costs taken from the shares in nominee accounts would be winding up costs etc,and a company the size of HL that would be a small % of assets.You might be looking at 0.01% and then thats covered by the £85k.The real problem would be fraud.However regulators will be all over big companies,though you cant trust that.

Its shocking though that shares have to be kept in nominee accounts and its about time individual shareholders were again down on the list.I used to love getting my annual reports through the post etc.

That's quite reassuring. I'd be comfortable with a six figure sum in shares/portfolio.

I have to admit I do like HL's portal, it's so easy to buy land sell..

Just a tad difficult to time. Might suggest to them a bottom button.

Cheers DB...

On another note it looks like rates are going negative..

Another sugar boost for the market..

[wherebee]

34 minutes ago, DurhamBorn said:

In theory the only costs taken from the shares in nominee accounts would be winding up costs etc,and a company the size of HL that would be a small % of assets.You might be looking at 0.01% and then thats covered by the £85k.The real problem would be fraud.However regulators will be all over big companies,though you cant trust that.

Its shocking though that shares have to be kept in nominee accounts and its about time individual shareholders were again down on the list.I used to love getting my annual reports through the post etc.

MF Global.

 

enough said about regulators.