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

[Bricormortis]

1 hour ago, arrow said:

 

Low wind speeds, insufficient storage tech and increased used of electric vehicles are going to provide problems.

https://www.ft.com/content/f5e8995f-00c8-4c74-8738-55b47a871633

 

I wont be too surprised if they incentivise electric cars to boost the economy, get a fair uptake, then ration the electricity so you cant use it. 

I think there was some mention of smart meters that ration you on this thread a couple of weeks back.

The Skoda citygo electric is available for £13000, I can see that selling. I guesstimate a third of cars on the road only function as shopping cars and school run trips, so plenty of folk wont be bothered about the crap milage range.

[Harley]

6 hours ago, Cattle Prod said:

...The basis of science is challenge, rigour, transparency and repeatability of results. Seen any of that lately?!

No, but I have witnessed an exemplar in "The General Theory of Doubling Down"!

[JMD]

35 minutes ago, DurhamBorn said:

No,companies like BAT earn a large part of their profits in $s,Oil companies obvious.Telcos like Vod and TEF both earn most earnings outside of sterling.

Im not 100% sold on sterling going down a lot though to be honest as i havent done much work on it,but still exect inflation assets to far outperform sterling.

Thanks DB for correcting my thinking there. Really glad I asked, as my incorrect assumptions would have led me I think down some very let's just say 'non-productive pathways'!! 

[Harley]

Went to buy a bench saw this week at the usual places (Toolstation and Screwfix).  Noticed how many were out of stock so yes, I can see inflation coming due to money printing versus reduced supply.  I will stick with my circular saw, sans a few fingers!

[Chewing Grass]

2 minutes ago, Harley said:

Went to buy a bench saw this week at the usual places (Toolstation and Screwfix).  Noticed how many were out of stock so yes, I can see inflation coming due to money printing versus reduced supply.  I will stick with my circular saw, sans a few fingers!

I tried to buy a bench-top bandsaw - no chance, everything sold-out.

[Harley]

1 hour ago, Castlevania said:

I like both Airtel Africa and Telecom Italia

Both with negative equity without large Goodwill and/or Intangible balances in their balance sheets.

[Bobthebuilder]

8 minutes ago, Chewing Grass said:

I tried to buy a bench-top bandsaw - no chance, everything sold-out.

Anything that is home / hobby related is in huge demand with lock down etc this year. Peco who make model railway track are running at max capacity but still unable to meet demand, UK based but i dont think you can buy any shares in them unfortunately.

[JMD]

6 hours ago, Harley said:

But the post-modernist fascist woke brigade calling for lockdowns, more control, etc don't believe in science and facts!  Go figure!

Of course we agree Harley. But the 'poor dears' are taught this stuff at school (I have some sympathy as school propaganda is a powerful 'weapon of mass instruction'), along with having to contend with concepts such as people having 'different sets of facts', or having different histories, or having different lived realities. Everything is existential these days, add to this that people live increasingly in 'bubbles', or that every view point has to be checked for it's correct moral value - And no wonder mental illness is on the rise.

[Erewhon888]

"Is money printing set to explode? The short answer is yes" (says George Gammon)

Since that view would seem to have relevance to credit deflation and the topics of this thread, I would like to learn from the knowledgeable folks here gathered:

1. Is there any disagreement with Gammon's explanation of money, the U.S. Fed, banks, reserves and so on?

2. Does it work the same way for the Bank of England?

3. If he is correct, what is the connection to credit deflation and the reflation cycle?

Any enlightenment or education on these matters very welcome.

 

[janch]

Interesting article about "green ammonia" being trialled for fuelling ships.  So another use for excess wind power to make "green ammonia":

https://www.bbc.co.uk/news/business-54511743

......in the search for new cleaner fuels, the foul-smelling substance has emerged as a frontrunner to power ocean-going ships............

By early 2024, Man Energy Solutions plans to install an ammonia-ready engine on a ship. The first models will be dual-fuel, able to run on traditional marine gas oil as well......

New, cleaner ways to make ammonia are emerging. One method, blue ammonia, involves capturing and storing the carbon. More promising, green ammonia, eliminates the use of fossil fuels altogether................

Haldor Topsoe, which makes catalysts used in the production of ammonia, together with scientists from Aarhus University, is aiming to make ammonia from water, air and renewable electricity.

[JMD]

5 hours ago, working woman said:

I'm not so sure, my Mum's favourite phrase was "actions speak louder than words". Watch what people do, rather than what they say.

Young people weren't worrying about Covid 19 over the summer, they were happily enjoying themselves at the pub, dancing in the streets after closing and partying at illegal raves.

I work with a young lady in her 20's, mum is a nurse, so she knows the science, knows she is unlikely to die or have complications from Covid. As a result, she couldn't care less about it and has fun with her friends. She knows she could pass it on to someone vulnerable but she obviously doesn't care.

I do feel sorry for young people as this is curbing their natural instincts, less chance now of meeting someone at work or at pubs/clubs etc. I chatted to a Maternity nurse recently and joked about a forthcoming baby boom due to the first lockdown and all that "working from home". She said they have been told to expect extra births around February next year.

Re: Future money flow when lockdown is lifted - some will be based around "procreation".

- By the 20 year olds, condoms, contraceptives, alcohol etc, going out clothes, weekends away with friends to party areas.

- By the 20/30year olds having a baby - baby clothes, nursery decor, toys, prams etc. 

You describe the ordinary gal/guy accurately. However, I think the more substantive point is that the young agitator or activist types which the media like to continually serve up onto the countless discussion TV/radio shows, etc, has a completely different set of beliefs and morals. I think they have more in common with Mathew Hopkins than say Martin Luther king jr, but that perspective would be completely lost on them... which is part of the tragic and massive divisional divide problem that must be tackled soon.

[JMD]

7 hours ago, Cattle Prod said:

Saw a report that Germany is joining Australia in the military ramp up around Taiwan, which China is again threatening to invade. The thought struck me that as Germany is so reticent militarily, this can only be about trade. They even said "Taiwan is our partner". I know Taiwan makes a lot of stuff, but arguably the most important company is TSMC. 

Who reckons this military standoff is actually about TSMC, and the fact that after being given a choice to supply China or supply the West, they chose the West? China 5G is hobbled without those chips as I understand it. If you ever wanted a signal as to how strategically important telecom companies are now, this could be it. And still BT and Vodafone languish near decade lows. Are institutional investors completely thick or something?!

Yes lines in the sand, or the South China seas, are being drawn.                                                                                 Although I wonder if it is only be a matter of time before this country begins issuing 'inflation passports' (won't be their official name of course!) to Taiwanese people, and HK people, especially those ones who can help fast-track our own technology industries.

[arrow]

23 hours ago, Cattle Prod said:

They are deliberately starving the US of imported OPEC crude precisely to draw down US stocks, as WTI is priced off US stocks. I don't think it's necessary though, as stocks are drawing down worldwide at the moment. This is a seasonal build season, so that may change. 

If we get back to a 100mbpd consumption world, a short squeeze is exactly what we will get. 5mbpd would be enough to cause a major panic. Even a 3mbpd deficit for a year will draw over 1bn bbl out of stocks, and remember, the Corona excess build up was only around 400m (which is now almost gone). It's hard to get a figure for worldwide stock levels, but the IEA publishes OECD ones: they are usually around the 3bn barrel mark. If we go back to a 100mbpd consumption world, we'd better hope there is not a 5mbpd deficit! As DB said, we don't want a big spike, sustained high prices and lots of cashflow will do nicely. Decl: I do have LEAPS on USO, XLE, OIH and XOP to cover next year and most of 2022, but I'll be just as happy to keep rolling them. I'm more interested in my future freedom giving dividend flow from big oil stocks.

USO options are an interesting study: retail gets killed by the contango in USO which uses oil futures rather than physical, and doesn't seem to understand why USO never reaches former highs. But in times of physical scarcity, the curve goes into backwardation and USO doesn't decay. I think the market is missing this, and it looks cheap to me.

I don't know about the rest of Opec, but Saudis have no choice but to create the short squeeze, or at least get prices higher. Aramco has to borrow to pay its latest dividend, most of which goes to the Saudi government. Oil prices have to rise higher.

I think Art Berman is wrong in his view, as of 4 weeks ago, that for next year decreased supply will be be balanced by decreased demand due to the effects of the virus. Even without the rising demand from Asia, the inventory drawdown and the supply destruction, Western democracies cannot maintain this low level of economic activity without becoming unstable. Governments will be forced to act. As David Hunter and Durhamborn have consistently said, there will be government action on infrastructure which will drive prices higher.

[JMD]

5 hours ago, DurhamBorn said:

They are missing a dis-inflation/reflation cycle turn i think.Almost everyone outside of this thread and a few ageing contrarian macro strategists has zero understanding of the effect of inflation on companies with high value fixed assets depreciating at a set rate ,with debt mostly locked in at very low rates.

As an industry everyone uses telcos.The only switching is between them.Like tobacco.My road map priced them through 2029 on rising prices with inflation,but it was very interesting this week to see them introduce an inflation+3.9% yearly price increase "for network investment".It isnt for network investment.That is already accounted for in their turnover way out,right through putting in 5G and FTTH/backhaul.Its just a superb time to do it as like you say the regulator isnt going to say much at the moment,just as we predicted on this thread right from the start.

Someone buying Vodafone,BT and Telefonica can cover most of the 5G and fibre market in Europe.Add in Telia for the Nordics.Telefonica covers Brazil.US is tricky as there is a big spread of companies holding 10% of the fibre and im finding it hard to decide what to buy there.

Hopefully by 2023 the companies can start increasing their divis again (apart from Telefonica who will de-leverage more first and might cut the divi yet)

Iv 3 telco holdings in my top 10 biggest holdings,and Vod is actually my biggest holding in my portfolio,BP is now 2nd.Im interested in adding some more Telcos in the 1% of portfolio range maybe people could come up with some more names,divis without big withholding tax hopefully.

Excellent question DB!!, I say that because I was kinda asking a similar question a few posts back, but in reference to total return.                                                                                                                                                  Along with getting exposure to the US market, are there good telecoms covering Asia? I'm aware of Telstra and Singtel which look good, but are there other favourite ones? In particular is there a good potential Indian Telco?

[DurhamBorn]

1 hour ago, JMD said:

I'm personally not qualified to judge how thick the institutional investors are, but listening to the guests on Grant Williams End Game podcast,  I think they would probably grade them a C minus. Telecoms are cheap and for me double up as a tech play (not just an infrastructure play), they also give massive exposure to the expanding arena of home entertainment, working from home, etc. I'm also a recent convert to total-return strategies. So the telecom divis are just to good to ignore.                                                                   I have lots of BT, VOD and Telefonica already but do want to buy some more. At current prices what would be people's view on the better one to buy if looking at say a total-return '10 year divi yield' perspective? Ie I believe BT is currently the highest divi payer but might Telefonica deliver a larger total return due to its potential higher capital growth? Definitely not looking for investment advice - just asking for 'entertainment purposes' (?!), what would the forums view be if asked to rank these stocks on potential total return?

I keep getting different answers.One day i think VOD has the most potential,lots of fibre now in Germany and eastern Europe.Debts refinanced at crazy low rates and so free cash can pay them off over time if rates increase.

TEF is hated yet has full fibre in Spain,a big chunk in Brazil,soon a big chunk in the UK when 02/Virgin merge,rolling out in Germany.A dividend cut is probably on the cards,but debt should keep falling.

BT is hated,but lots of false stories as fact.It has fantastic EBITDA still and is rolling out fibre and 5G while inflation is still low,and hopefully will get most done before we see big increases.Once those rollouts are done i could see free cash doubling over time,maybe trebling and the debt will be seen to be low compared to assets inflating in price.

So i probably lean to BT being cheapest,but then maybe TEF is,and then VOD might own the best smartfone money app in the world M-Pesa,lead in IOT etc.

So i simply keep buying all of them.Iv a lot of divis landing through until new years eve (Imperial pay New years eve,something iv always enjoyed about them) and its a real struggle between more Shell or more telcos at the moment.

 

[arrow]

David Hunter has now tweeted that we are in the "melt up" stage. So, if he's correct, a 40% rise in US equities, gold and silver is coming. He's also said that energy will "catch up".

[DurhamBorn]

5 minutes ago, JMD said:

Excellent question DB!!, I say that because I was kinda asking a similar question a few posts back, but in reference to total return.                                                                                                                                                  Along with getting exposure to the US market, are there good telecoms covering Asia? I'm aware of Telstra and Singtel which look good, but are there other favourite ones? In particular is there a good potential Indian Telco?

VOD is the play on India.TEF latin American,mostly Brazil.

[arrow]

2 minutes ago, DurhamBorn said:

I keep getting different answers.One day i think VOD has the most potential,lots of fibre now in Germany and eastern Europe.Debts refinanced at crazy low rates and so free cash can pay them off over time if rates increase.

TEF is hated yet has full fibre in Spain,a big chunk in Brazil,soon a big chunk in the UK when 02/Virgin merge,rolling out in Germany.A dividend cut is probably on the cards,but debt should keep falling.

BT is hated,but lots of false stories as fact.It has fantastic EBITDA still and is rolling out fibre and 5G while inflation is still low,and hopefully will get most done before we see big increases.Once those rollouts are done i could see free cash doubling over time,maybe trebling and the debt will be seen to be low compared to assets inflating in price.

So i probably lean to BT being cheapest,but then maybe TEF is,and then VOD might own the best smartfone money app in the world M-Pesa,lead in IOT etc.

So i simply keep buying all of them.Iv a lot of divis landing through until new years eve (Imperial pay New years eve,something iv always enjoyed about them) and its a real struggle between more Shell or more telcos at the moment.

 

BT is hated by the financial press. The reasons they churn out are the pension fund and huawei. I don't agree and, like you, believe that they can easily outstrip the coming inflation.

[JMD]

4 hours ago, working woman said:

Thank you DB for those charts - fascinating.

I'm a relative newbie to DOSBODS  and not that knowledgeable on the world of finance, but I do love a good graph.

My observations.

Chart 1 - The increase / decrease in M2 and it's effect on inflation and deflation.

It goes back to the mid-1850's and between 1850-1950, the lines are very volatile. What is interesting is how how short the time is between what you call a lead and lag. The money is pumped into the system and very quickly it causes inflation. It is almost immediate. In more recent times, since the 1950's the inflation has appeared a little while later, by several years. You can clearly see this in the two peaks in the 1970's when inflation shows up a few years later. 

I was shocked to see that the current increase is 25% only a few previous increases were anywhere near at 15%. This has not led to much inflation yet. It would be shocking if inflation immediately took off like a rocket, like it did n the 1850's-1950's.

Chart 2 - Velocity

It clearly shows that the flow of money has slowed down.

I guess there was a slow down recently in money creation? Or it is being hoarded by businesses and individuals?

Now we have 25% more being created.

If that velocity line continues to stay low, there is clearly a blockage in the system somewhere.

Here is where I am seeing re flow/blockage/spending in people I know and gives a flavour of what is going on for the ordinary person.

Myself - retail worker, currently furloughed, savings building up, due to being concerned about the future, but also can't spend on my main interest, travel abroad. I also have £700 locked/blocked into an airline in the form of a credit voucher, valid for next 2 years, which I hope to use. This will involve additional spending on accomodation etc. A lot of other people will be in the same boat.

Retailer I work for - has asked staff to voluntarily cut hours, but at the same time is selling some of the shops it owns and closed and has just paid to use some HR software for rotas, booking holidays and wage slips. (Hmmmm!) I am sure a lot of businesses will be using this opportunity to get rid of staff unneccessarily to become leaner and fitter. 

Husband - He is a care worker with people with learning disabilities. They have money building up in their accounts which would normally be spent on holidays and activities, which they can no longer do. There is a limit on the amount of savings they can have before it effects benefits. He says the surplus money will likely be spent in the home, new furniture, repairs, decor, then if they can resume holidays and activities, it will be spent on that.

Brother-in-law 1. Has 2 coffee shops in London. Both were very successful before Covid. Mainly now doing take-away by himself. Most staff on furlough . Was very worried at the start, but now has £54K in Government grant/loan. Wife didn't go back to work after having a baby last year and they got a weekly cleaner* in. He is now looking at opening a 3rd coffee shop in London. (*My sideline is cleaning - there is a boom in this  - I turned down 3 opportunities in recent months as busy enough. All younger people in 20's and 30's who don't want to spend their time cleaning).

Brother-in-law 2. Owns a butchers - in the first lockdown, which coincided with Easter and good weather, so BBQ's, he did a roaring trade. Said it was like Xmas. Money made spent on a small campervan for UK holidays and a car. He is hoping to be busy this lockdown and the run up to Xmas. Interestingly a supposedly very deprived area.

In-laws, in their 80's. making the most of their last few years, jetted off to Corfu in September, but money mainly spent on lots of UK hotel/cottage breaks. My MIL has terminal cancer, chosen not to have treatment and has dementia so I don't blame them. They are in the process of moving to somewhere nicer, to give my MIL a boost, so lots of money being spent there.

So my takeaway - go long coffee, burgers and sausages

 

 

 

 

Interesting. Does your brother in law operate independent coffee shops or are they franchises?

[JMD]

2 hours ago, Castlevania said:

I like both Airtel Africa and Telecom Italia

For Japan how about Nippon telegraph and telephone? They own NTT Docomo which itself can be bought, though the parent pays 4% divi.

[JMD]

3 hours ago, janch said:

I give a silent cheer whenever the news reports a pre-lockdown party etc eg the evening before this latest lockdown with youngsters out enjoying themselves.  Also a cheer for the students pulling down the fence in Manchester ouside a hall of residence erected while they were asleep!

 

Fences erected while the students 'were asleep' you say. Bad form, but can you be more specific?!...  NB everyone welcome to supply your own (obvious) jokes!!

[working woman]

5 hours ago, CVG said:

Rent-a-mum. Brilliant business idea

Hi definately!, Whilst cleaning for young professionals, who earn a lot of money, I have been asked if I would do other things which I would class as Housekeeping Services - laundry, ironing, clean out fridge, change the bed etc. Several of my retail colleagues do ironing as a side line.  I put a price list together - I know Housekeepers make a lot more than a cleaner - £25k pa - but they decline. I guess they are comfortable with the idea of having a cleaner, but to have a Housekeeper may be out of their comfort zone, many come from ordinary working class families . I'm predicting in DB's roaring  20's more people will have p/time Housekeepers - it will be one of new status symbols. 

[working woman]

23 minutes ago, JMD said:

Interesting. Does your brother in law operate independent coffee shops or are they franchises?

Independent, he set up the first by himself, after a few years was approached by someone to go into partnership with him, a coffee roaster, and they set up their second, now looking to set up a third.  He initially worked stupid hours on the first one, but with the second, was forced to learn to trust and delegate to his staff, which he really struggled with, so the growth in the business is organic.  The franchise idea is interesting, not sure he would go down a cookie cutter route, as he is a bit of a ageing hipster into artisnal food, but he is also an opportunist businessman. It is a really interesting area to be in, with a lot of opportunities for growth in numerous ways. It keeps him out of mischief

 

[working woman]

7 hours ago, DurhamBorn said:

I think this cycle will be more about enjoying life for the moment rather than flash cars etc. Pubs are likely a fantastic contrarian bet as are the likes of Whitbread as couples and groups have lots more weekends/weeks away more local.Debt is falling hugely now so that means more and more liquidity building to let the good times roll.

Yep, exactly what I said in one of my other posts today,  people will always want and need to enjoy themselves, and telecoms will be important, as it will all be posted on their mobile phones for sharing and approval seeking, signalling status etc.

 

 

[MrXxxx]

On 05/11/2020 at 20:23, DoINeedOne said:

https://podcasts.apple.com/gb/podcast/the-grant-williams-podcast/id1508585135#episodeGuid=ttmygh.podbean.com%2Fae906c16-cef7-3624-955c-de143fd8e845

Just listened to this throughout the day; had to come back a couple of times, and found it really difficult to understand the detail. Can anyone explain the following:-

1. What is long volatility and short volatility?

2. He mentions volatility exposure, what doe she mean by this i.e. is it buying call options when long volatility and put options when short volatiliy?

3 He mentions the tails (of a distribution?) and towards the end an example cites is the "Right tail with the collapse of FIAT, and the left tail with the default of loan"...I cant get my head around this...all I can think of is say a -ve skewed distribution for equities where they steadily climb on the left tail and then suddenly drop after the peak on the the right hand side...how can you get the default crashs mentions above on the left hand side when its climbing?