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

[Loki]

56 minutes ago, Noallegiance said:

Is what the Fed are doing going to kick start the downward pressure on the $?

I only follow this thread for financial happenings as it seems like everywhere else only goes with END OF THE WORLD or "something happened, money, now here's some puppies".

So I can't help you but someone will, which is why this site is great.

[kibuc]

1 hour ago, kibuc said:

Agnico Eagle reported Q3 financials yesterday, with great numbers. Yamana reports today after close, and others will soon follow. If big boys show us the money, it should give juniors a solid boost as well. 

Agnico: "Free Cash Flow Generation Drives 40% Increase in Dividend" 

Yamana: "Yamana Gold Reports Third Quarter Cash Flows From Operating Activities of $157.4 Million, Increases Earnings, and Lowers Debt; Cash Flows Significantly Exceed the Average of the Three Preceding Quarters" 

Oooooh yeah, keep'em coming. 

[DurhamBorn]

1 hour ago, Noallegiance said:

Is what the Fed are doing going to kick start the downward pressure on the $?

Dollar going to 88 i expect or maybe a bit lower.Fed has started to QE now and although the repo market isnt full on QE is hows the Fed has woke up to the problems.The markets are now expecting QE and they should get it.Industrials are seeing fast falling demand,yet the prospect of QE is holding them up.Fed is too late though for me.I simply cant see an 18 month lag at worst,or 12 month at best in time to stop the debt deflation growing.

Amazing to think on this thread we pinned the bottom on sterling and its seen a strong rise since,yet pretty much all the media including the financial press were saying much lower.

It should be noted UK is still running a big deficit even with sterling down 20%+.That says to me we have a 3% to 4% structural deficit still.

[kibuc]

Amazon just reported, beats on revenue but misses on earnings, offers soft guidance for Xmas, drops 7%  in aftermarket trading. 

[Loki]

Just now, kibuc said:

aftermarket trading

I love that phrase.  If trading doesn't by definition constitute a market of two or more participants...what does?

[Talking Monkey]

16 minutes ago, DurhamBorn said:

Dollar going to 88 i expect or maybe a bit lower.Fed has started to QE now and although the repo market isnt full on QE is hows the Fed has woke up to the problems.The markets are now expecting QE and they should get it.Industrials are seeing fast falling demand,yet the prospect of QE is holding them up.Fed is too late though for me.I simply cant see an 18 month lag at worst,or 12 month at best in time to stop the debt deflation growing.

Amazing to think on this thread we pinned the bottom on sterling and its seen a strong rise since,yet pretty much all the media including the financial press were saying much lower.

It should be noted UK is still running a big deficit even with sterling down 20%+.That says to me we have a 3% to 4% structural deficit still.

With QE about to get going DB and the dollar heading lower do you feel that may lead to a melt up of some size before the rollover

[Errol]

The oldest available gold mining index, the Barron’s Gold Mining Index (BGMI), is currently at its lowest level relative to gold in 78 years.

 

[sancho panza]

2 hours ago, kibuc said:

Agnico Eagle reported Q3 financials yesterday, with great numbers. Yamana reports today after close, and others will soon follow. If big boys show us the money, it should give juniors a solid boost as well. 

Sadly  Superior,Rio2 and Guyanananana both getting nailed.Alexco up 8% on the evening I was hoping to buy more........

Yamana's numbers well received apparently.This bull is building nicely.Goldfields,Harmony,Sibanye and ahost of others all running nicely.

[sancho panza]

7 hours ago, Tdog said:

What do the numbers relate to, maybe best to take a snapshot and post it.

 

On 01/09/2019 at 22:44, sancho panza said:

Just replying to a couple of things off previous thread

@JMD

'Sancho your scs scores are excellent, I find them very helpful, but I don't think they include for factors like long-term-low-interest-debt 'protection' or 'valuable' fixed assets do they? ...how granular to go I guess might be your answer? ...but the reason I ask is because identifying companies with these positive factors (along with good cashflow which I know you do account for) would help find financially sound companies, ones that are better positioned to survive next 10 years.    '

 

No they don't JMD,their purpose is to support spray n pray operations in a sector.So a companies debt profile in terms of duration is ignored but it's total debt isn't.There's an element of 'ceteris paribus' here in that investing across a basket of stocks ,we'll hopefully pick up a nice cross section of corporate detbs across a sector in terms of both duration and debt to equity.

The key aim is to be able to pluck out the clear 'no go's' and focus on the ones that offer the more reliable win.After the inital sift,we might then include other factors such as those you mention as we weight the purchases.

It would also,by implication,allow you to find the companies that are the most leveraged play in the sector by going for the ones with the lowest scores.

 

@Harley 

@sancho panza did you publish the methodology behind these scores?

 

You have to understand that I've developed this system to help with spray n pray operations in various sectors not to assess single companies on their individual merits. Worth noting from the start that all the scores have to be adjusted for the average for the sector.Comparing Telco's with oil services isn't what it's intended for.It serves to pick out the least leveraged,most profitable companies in one sector by comparing companies in one sector with each other.It's based loosely on the Glasgow Coma Scale which is used as an aid in assessing the conciousness of patients.The aim of the Scale is to monitor any change in the neurological state of a patient

 

Glasgow Coma scale scored out of 15(4/5/6)

Eyes:
Open spontaneously 4, open to voice 3, open to pain 2, don't open 1.

Verbal:

Orientated 5, Confused 4, Inappropriate words 3, Inappropriate sounds 2, no response 1.

Motor:

Obey commands 6, Localizes to pain 5, Normal flexion 4, Abnormal flexion 3,  Extension 2, No response 1.

With GCS you get a score between 3 and 15

 

Scores for the Sancho Coma Scale for stocks are worked out a below

            Chart                  Profitability                            Balance sheet                    free cash flow                      Sector

5= very low in chart    Well above average               Very solid                             excellent for the sector     Very good value compared to other sectors

4= below average         Above average                      Above average                    above average                     Good value

3=average                      average                                    average                              average                                   average

2= above average..........and so on.

Lowest score you can get is 5,highest 25.Obviously,subjective,eg having the whole PM mining sector graded as a 5 increases the chances of a score of 17(17 is,aside from company specific issues,my buying point).In a way though,that's it's purpose.It's hopefully gets you running with the bull, as a key feature of stock picking is picking the right sector that has upside potential

Chart score:I have a long term chart set up I like and use as Harley and other chartist will admit,there's a good degree of latitude in reading charts.My score is my view of how much upside there is.5 means lots of upside potential,1 means it's historically high

Obviously,there's a degree of subjectivity in the comparisons of balance sheet,FCF,profitability as for instance, there are some sectors where intangibles will include assets such as intellectual property that likely have a value whereas one might not feel an estate agent would not.

It is what it is but it's a plank of how we're investing at the minute

 

[Thorn]

Watched recently as all pretty much all my pm miner gains were given back... and sterling climbing... felt like I was sliding fast down the Slope of Hope and the old balls were about to get slammed at the knobby bit at the bottom of the bannister.

but then today happened and some relief. And I even had some Silver One in the mix- up 20%. Dear sweet baby Jesus. 

Lets see what the rest of the year brings as a Wall of Worry to be climbed. 

[sancho panza]

6 hours ago, JMD said:

thanks SP, I think its very generous to share this, have you considered doing all 8000 (or more?) entire world market stocks and publishing?! Then again I suppose some outfit already does do this, but imagine the updating (daily!!)?

Could I ask, I believe that the 3rd column is for 'balance sheet'. How do you come to this figure and what weighting do you give company debt? I ask because debt is an important corporate component/consideration on this blog, especially I think as it concerns 5-10 year debt which might/will be hit by crippling interest premiums.   

 

...on a related note, did you finish doing the utilities you were working on?

No on the utilities.Been too busy,work,kids,this stuff I do for the family.Utilities jsut aren't top of my lsit at the mo.Needs a couple or three hours and I'm too b usy trying to work out which oil/gold/potash/oil services/rare earths companies to buy.

Ref the Balance sheet,as I say in the post before there's an element of ceterus paribus.Im not buying individual stocks but rather looking to spray n pray and to weed out the duds.

There was a video posted by Danielle Dimartino on the previous page and it really is a superb assessment of the junk bond market and where we are.I'm not sure duration risk is that much of an issue when you're dealing with a bond market implosion that hasn't happened since the 30's.

Ref the BS score,,,,,assets - liabilities =equity.....if equity is around the level of liabilities then i score it a 3.when you move past equitybeing half liabilities,then we're around the 2 level.below that we're headed to 1.

Having said that some sectors carry much more debt than others due to the cost of credit,so you have to adjust for that eg utilities.

 

[sancho panza]

6 hours ago, JMD said:

thanks SP, I think its very generous to share this, have you considered doing all 8000 (or more?) entire world market stocks and publishing?! Then again I suppose some outfit already does do this, but imagine the updating (daily!!)?

 

I'm glad you appreciate them.I can't imagine the effort that would take doing 8000...this is all based on annual figures anyway

I enjoy the conversation on here,it's very thought provoking and has really got me thinking.A lot of ordinary people jsut trying to protect themselves from the profane greed and stupidity of their political class and their henchmen in the CB's.

It's nice to contribute to it.

[sancho panza]

1 hour ago, DurhamBorn said:

Dollar going to 88 i expect or maybe a bit lower.Fed has started to QE now and although the repo market isnt full on QE is hows the Fed has woke up to the problems.The markets are now expecting QE and they should get it.Industrials are seeing fast falling demand,yet the prospect of QE is holding them up.Fed is too late though for me.I simply cant see an 18 month lag at worst,or 12 month at best in time to stop the debt deflation growing.

Amazing to think on this thread we pinned the bottom on sterling and its seen a strong rise since,yet pretty much all the media including the financial press were saying much lower.

It should be noted UK is still running a big deficit even with sterling down 20%+.That says to me we have a 3% to 4% structural deficit still.

That sterling call was funny as.And they were all calling it lower .....incredible that to preotect your wealth your better off on an obscure internet forum-no disrespect to Spunko (chorus All Hail Spunko)-than lsitening to them.

1 hour ago, kibuc said:

Amazon just reported, beats on revenue but misses on earnings, offers soft guidance for Xmas, drops 7%  in aftermarket trading. 

you're not kidding.still -6.64%.

 

20/50 crossover looming.....

49 minutes ago, Errol said:

The oldest available gold mining index, the Barron’s Gold Mining Index (BGMI), is currently at its lowest level relative to gold in 78 years.

 

Errol,whats that index measure,PM miners?

[sancho panza]

5 hours ago, DurhamBorn said:

 

@sancho panza pleased to see Plains American coming out top in your list,it was the one i liked most from a quick look at the companies.

Good call.I saw the financials on that and assumed-I know,I know-that there'd be a load more like it ...........3 out of 20 viable trades is a pure show.I even went back to a couple to hopefully upgrade a couple but downgraded them instead.

Whoever's left standing in that sector will clean up.

[sancho panza]

This is what happens in a debt deflations.

The demand for debt disappears and because it dissappears we enter the world of Fisher's paradox.It's beginning in the US it looks like.

https://wolfstreet.com/2019/10/24/despite-ultra-low-mortgage-rates-new-house-prices-drop-to-multi-year-low/

Despite Ultra-Low Mortgage Rates, New House Prices Drop to Multi-Year Low

Last time prices fell like this was during the Financial Crisis. But now, there is no crisis.

The median price of new single-family houses in September fell 8.8% from a year ago to $299,400 – down 12.8% from the peak in November and December 2017 and back where the median price had first been in November 2014, according to the Commerce Department this morning:

So the market has significantly changed, and homebuilders are responding to this changed market with lower prices – which is interesting given where mortgage rates are.

Mortgage rates tick up but remain near record low

The average 30-year fixed-rate mortgage interest rate rose to 3.75% for the week , according to Freddie Mac this morning. While up a tad from the near-record lows in August, it is still down over a full percentage point from 4.9% a year ago and remains close to record lows, which puts the decline of new house prices into a peculiar light as it was assumed that such a sharp drop in mortgage rates, as we’ve seen since last November, would boost house prices:

The Long View.

During Housing Bust 1, the median price of new houses dropped 22% from the peak in March 2007 to the bottom in March 2009. Then, from 2011 and 2012 through the peak in November 2017, it surged by about 55% to top out 31% above the peak of Housing Bubble 1. But at the end of 2017, it hit a ceiling and has since then dropped nearly 13%.

Lower prices beget sales.

Homebuilders – unlike homeowners who want to sell – cannot “outwait the market.” They have to move their speculative inventory, and to stay in business, they have to build and sell houses. The lower prices are stimulating volume. In September, homebuilders sold new houses at a seasonally adjusted annual rate of 701,000 houses, the fourth highest since the Housing Bust, and up 15.5% from September last year:

The relationship between prices and sales volume – how they behaved before 2018, and how they changed over the past couple of years – becomes clearer with a comparison of the three-month moving averages of median price and sales (median price = red line, right scale; sales volume = blue columns, left scale). The sharp drop in sales that started in early 2018 was eventually stopped and then reversed by significantly lower prices:

Plenty of Supply.

Inventory of new houses for sale ticked down to a seasonally adjusted annual rate of 321,000 houses. This is still high. But due to the increase in sales, home builders are now sitting on 5.6 months’ supply at the current rate of sales, down from the range between 6 and 7 months late last year and earlier this year. Four months’ supply would be more than enough:

Homebuilders are the pros in the housing market. They have no illusions – unlike homeowners. They have to adjust to the market so that they can continue to build and sell houses at a profit. They cannot build speculative houses and sit on that inventory for long. They have to do what it takes to move it. And they’re doing it.

The median price is impacted by cutting prices and by a change of mix. If homebuilders sell a larger number of lower-priced homes, the median price declines – because builders chose to build houses at lower price points to begin with to meet the market; and because they cut prices of houses they’d intended to sell at higher price points. One way or the other, it shows that on average, as an industry, builders have run into price resistance in enough areas to push down the national median price, despite the ultra-low mortgage rates.

[sancho panza]

@Majorpain,thanks for the heads up on HOC a few months back.Much appreciated

https://seekingalpha.com/news/3508200-hochschild-mining-reports-increase-q3-gold-output-debt-cuts-half

Hochschild Mining reports increase in Q3 gold output, while debt cuts by half

Oct. 23, 2019 6:26 AM ET|About: Hochschild Mining plc (HCHDF)|By: Vandana Singh, SA News Editor

Hochschild Mining (OTCPK:HCHDF) reported ~9% Y/Y jump in Q3 gold production to 67,797 ounces, driven by higher output at its Inmaculada mine in southern Peru, as well as said its debt has more than halved during the period.

The company says that favorable commodity prices combined with the consistent operational delivery, it has been able to reduce leverage further and ended the quarter with net debt of $30M

Average realizable precious metal prices were 1,510/ounce for gold and $18.4/ounce for silver, higher than $1,187 and $13.7, respectively, a year ago.

Looking ahead, Hochschild said it is on track to meet its full year production forecast of 457,000 gold equivalent ounces or 37M silver equivalent ounces, with the 2019 mine plan scheduling a relative reduction in production in Q4

Reiterated that its AISC for 2019 will be in line with the guidance of $960 to $1,000 per gold equivalent ounce, or $11.8 to $12.3 per silver equivalent ounce.

 

[Viceroy]

14 hours ago, sancho panza said:

SCS scores for TPYP if anyone's interested.Halfway through.Some debt soaked balance sheets in there.Personally,if we have a nibble we'll be steering clear of anything with a 1 or 2 in the middle ni this sector unless they're one of the bigger ones.Public utilities they ain't

Just to reiterate,I only do these for spray n pray (ie where I'm looking for sector exposure above exposure to a stock).The scores are my personal view and there's a lot of grey areas at the peripheries but if in doubt ,I score it down.DYOR

KMI/EPD/PAA...............

Company	Sancho Coma Scores	SCS Total	Mcap USD
Enbridge ENB	24234	15	$73bn
TC Energy Corp TRP	14244	15	$10bn
Kinder Morgan KMI	34334	17	$46bn
Williams WMB	33134	15	$28bn
Oneok Inc OKE	14214	12	$29bn
Pembina Pipeline C.......

a while ago I briefly looked at the tax implications of investing in MLPs as a non-resident alien and thought it might be a hassle? I might be wrong tho.  It involves a K-1, but I think a non-US res would have to file a 1040 with the IRS instead?  Dividends (known as distributions) would be taxed at full withholding as well as you are seen to be a partner in the company and doing business in the USA.  Have i got that right??

https://www.financialwisdomforum.org/forum/viewtopic.php?t=111305

https://www.quora.com/What-are-my-tax-duties-as-a-Non-Resident-Alien-owning-an-LLC-Partnership

[MrXxxx]

7 hours ago, sancho panza said:

This is what happens in a debt deflations.

The demand for debt disappears and because it dissappears we enter the world of Fisher's paradox.It's beginning in the US it looks like.

https://wolfstreet.com/2019/10/24/despite-ultra-low-mortgage-rates-new-house-prices-drop-to-multi-year-low/

Despite Ultra-Low Mortgage Rates, New House Prices Drop to Multi-Year Low

Last time prices fell like this was during the Financial Crisis. But now, there is no crisis.

The median price of new single-family houses in September fell 8.8% from a year ago to $299,400 – down 12.8% from the peak in November and December 2017 and back where the median price had first been in November 2014, according to the Commerce Department this morning:

So the market has significantly changed, and homebuilders are responding to this changed market with lower prices – which is interesting given where mortgage rates are.

Mortgage rates tick up but remain near record low

The average 30-year fixed-rate mortgage interest rate rose to 3.75% for the week , according to Freddie Mac this morning. While up a tad from the near-record lows in August, it is still down over a full percentage point from 4.9% a year ago and remains close to record lows, which puts the decline of new house prices into a peculiar light as it was assumed that such a sharp drop in mortgage rates, as we’ve seen since last November, would boost house prices:

The Long View.

During Housing Bust 1, the median price of new houses dropped 22% from the peak in March 2007 to the bottom in March 2009. Then, from 2011 and 2012 through the peak in November 2017, it surged by about 55% to top out 31% above the peak of Housing Bubble 1. But at the end of 2017, it hit a ceiling and has since then dropped nearly 13%.

Lower prices beget sales.

Homebuilders – unlike homeowners who want to sell – cannot “outwait the market.” They have to move their speculative inventory, and to stay in business, they have to build and sell houses. The lower prices are stimulating volume. In September, homebuilders sold new houses at a seasonally adjusted annual rate of 701,000 houses, the fourth highest since the Housing Bust, and up 15.5% from September last year:

The relationship between prices and sales volume – how they behaved before 2018, and how they changed over the past couple of years – becomes clearer with a comparison of the three-month moving averages of median price and sales (median price = red line, right scale; sales volume = blue columns, left scale). The sharp drop in sales that started in early 2018 was eventually stopped and then reversed by significantly lower prices:

Plenty of Supply.

Inventory of new houses for sale ticked down to a seasonally adjusted annual rate of 321,000 houses. This is still high. But due to the increase in sales, home builders are now sitting on 5.6 months’ supply at the current rate of sales, down from the range between 6 and 7 months late last year and earlier this year. Four months’ supply would be more than enough:

Homebuilders are the pros in the housing market. They have no illusions – unlike homeowners. They have to adjust to the market so that they can continue to build and sell houses at a profit. They cannot build speculative houses and sit on that inventory for long. They have to do what it takes to move it. And they’re doing it.

The median price is impacted by cutting prices and by a change of mix. If homebuilders sell a larger number of lower-priced homes, the median price declines – because builders chose to build houses at lower price points to begin with to meet the market; and because they cut prices of houses they’d intended to sell at higher price points. One way or the other, it shows that on average, as an industry, builders have run into price resistance in enough areas to push down the national median price, despite the ultra-low mortgage rates.

So basically housebuilders have no emotional attachment to their properties and need money coming into the till/coffers, and the buyer (or the bank supplying the funds) has now `seen` the long game and realised that its not just the mortgage rate that is important but the combined result of this AND the property price OVER the term...so, the sooner buyers in the UK make the same connection, the sooner the market will return to sensible values/prices!

[BearyBear]

FED is adjusting overnight repo from $75b to at least $120b...

https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/repo-reverse-repo-agreements/repurchase-agreement-operational-details

[Bricks & Mortar]

10 hours ago, sancho panza said:

@Majorpain,thanks for the heads up on HOC a few months back.Much appreciated

Would also add my thanks to @Majorpain.  Checking my HL, I can see I had them since April, but topped up on 18th July, the day you wrote you really liked them.  Currently 2% up on the whole investment. 
Today might be a good day, hopefully.

[Funn3r]

On 22/10/2019 at 22:19, StrugglingMillennial said:

Can i ask a quick dummy question, i keep seeing people talking about laddering in.

Anyone care to explain?

 

I was also wondering that.

I came to the conclusion that laddering in must be the same thing as Buy The F* Dip  BTFD 

[feed]

19 hours ago, JMD said:

For those who may be interested on more about this subject, see Jaron Lanier's book 'You are not a Gadget', it's a thought provoking take on the whole subject of who should own our data. He is an ex-computer science/tech startup entrepreneur so knows his stuff. The guy is a bit weird looking but looks are deceiving, particularly so in his case and the book is 8 years old so perhaps proving guy is ahead of his time. Anyway, his take is that in the future we will all take back control of our personal data (his thesis is the alternative is not worth thinking about; see today's China for how things will work out if we don't change course), he also suggests that such changes could possibly provide incomes for people in the future where jobs will be scarce.

looks interesting, i'll take a look.  I do wonder if it's too late to take back our data.  But i guess that's a topic for another thread/discussion.   

[Majorpain]

12 hours ago, sancho panza said:

@Majorpain,thanks for the heads up on HOC a few months back.Much appreciated

 

2 hours ago, Bricks & Mortar said:

Would also add my thanks to @Majorpain.  Checking my HL, I can see I had them since April, but topped up on 18th July, the day you wrote you really liked them.  Currently 2% up on the whole investment. 
Today might be a good day, hopefully.

No problem, hopefully they will continue to do well in the future, I don't plan on selling mine any time soon unless something fundamental changes.

Only thing I would add is the Arcata Silver mine was described as temporarily on care and maintenance in that update, if that comes back online its another c3m Oz of Ag albeit at $18-19 an oz cost.  Its produced at $14 an oz back in 2016 so it will be interesting to see if they can get thing moving again.

[janch]

4 hours ago, Bricks & Mortar said:

Would also add my thanks to @Majorpain.  Checking my HL, I can see I had them since April, but topped up on 18th July, the day you wrote you really liked them.  Currently 2% up on the whole investment. 
Today might be a good day, hopefully.

Looks like they're on the move at last .  Mine have been sitting there doing nothing since February.........

[spygirl]

18 hours ago, Noallegiance said:

Is what the Fed are doing going to kick start the downward pressure on the $?

Theyll do what they like.

I still think we are getting a stronger dollar. Only because other currencies are fucked.

besides, ether he grasp it or not, having a weak Euro gives Trump a huge fucking stick to beat Europe with.

The sudden brexit is OK change of heart is down to germany telling France to fuck off as they need the UK demand.

And the other European countries told France to fuck off as they dont like he French