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

[Bobthebuilder]

Article from this month's gas safe mag. Offshore wind power to produce Hydrogen in Fife, companies involved etc.

[feed]

weirdly (or not) i'm starting to get stuff like this in my news feed.

Ørsted, Siemens Gamesa, ITM Power, and Element Energy have been awarded EUR 5 million in funding to demonstrate and investigate a combined wind turbine and electrolyser system designed for operation in marine environments.

https://www.offshorewind.biz/2021/01/08/orsted-siemens-gamesa-kickstart-offshore-wind-to-hydrogen-project/

[Jesus Wept]

On 25/12/2020 at 21:44, DurhamBorn said:

You know when you can be right by being wrong,and they keep knicking out roaring 20s quote .I think the FTSE will do well over the cycle compared to many.However unlike this article it will actually be the very stocks he says drag the FTSE down that will do the lifting.Another example of why most people will hold the wrong areas for a reflation.

The comment about shrinking tobacco companies is also incredible considering BAT has delivered amazing returns over 30 years.

https://www.telegraph.co.uk/business/2020/12/24/roaring-twenties-should-finally-propel-ailing-ftse-five-digits/

@DurhamBorn Do you think there is still long term value in BATs & IMB ? 
 

Unlike my usual style of investment for myself - which is to buy and sell with the big peaks and troughs (every few years or so), I’m now looking to invest for the kids longterm in solid dividend paying companies. Tobacco companies, miners, potash, telecoms and oil, seem to fit the bill. What do you think in particular about the tobacco companies ? I’m holding a little bit too much oil % wise of my portfolio now (60%).
 

I know you’ve done exceedingly well out of the tobacco companies - over the last 20 years or so. They look oversold at present. Potentially large dividends that might keep pace with inflation.

Your thoughts are welcome and won’t be treated as investment advice.

I am also thinking as a sector they are very much out of favour (like oil) and as such might be very good value.

 

[Loki]

I mean everyone likes a fag don't they

(This is not financial advice)

[Jesus Wept]

https://www.bbc.co.uk/news/uk-england-tyne-55593754

The re-industrialisation of the North. Looks like there could be a lot of investment in the next few years with government borrowed money at low long term rates.

[leonardratso]

whats an energy park?

[Loki]

1 minute ago, leonardratso said:

whats an energy park?

Where solar panels go to play

(Either hydrogen production or production of technology - solar, turbine blades, hydrogen fuel cells - i assume)

[leonardratso]

1 minute ago, Loki said:

Where solar panels go to play

(Either hydrogen production or production of technology - solar, turbine blades, hydrogen fuel cells - i assume)

id say it was just an industrial estate with boats. hahaha, could be wrong.

[harp]

Is it me? But every time I see this graph over the last couple of months I just think that's a lovely cup and handle. When the handle was just about forming I was thinking how I could play this.

[Wheeler]

15 minutes ago, harp said:

Is it me? But every time I see this graph over the last couple of months I just think that's a lovely cup and handle. When the handle was just about forming I was thinking how I could play this.

The infection chart on the right is clearly a bubble. It’s bound to collapse.

[leonardratso]

20 minutes ago, Wheeler said:

The infection chart on the right is clearly a bubble. It’s bound to collapse.

might be a coronacoin chart, in which case its about to go exponential.

[DurhamBorn]

@Vendetta on tobacco i think they have a place in peoples portfolios at these levels.I had relations who worked for Rothmans who became part of BAT and one still goes around the world putting in machines for them as a contractor.He told me BAT make 1cent a stick in most countries.They can increase profits hugely with small price increases.They are also very well placed for new sorts of smoking,including cannabis.Both BAT and Imperial have too much debt,but they are slowly paying it down and they should clear most of it in 10 years.If you look at the structure of BATs debt they can pretty much pay each chunk off as it comes due with no re-financing if they wanted.

I dont expect them to do much share price wise,maybe 20% up over time,but if they increase the divis by inflation from here only id be very very happy.Holding them both gets me 8 big divis a year .BAT has 250 million customers,most who buy their products every day with hardly any chance of new competition,thats a hell of a business.

 

[Majorpain]

1 hour ago, harp said:

Is it me? But every time I see this graph over the last couple of months I just think that's a lovely cup and handle. When the handle was just about forming I was thinking how I could play this.

You could have done everyone a favour and cropped the lizard on the left out!

[Wheeler]

30 minutes ago, Majorpain said:

You could have done everyone a favour and cropped the lizard on the left out!

Ditto!

[MrXxxx]

On 03/01/2021 at 10:31, DurhamBorn said:

This is a good article for anyone wanting to understand why a contrarian approach at extremes usually proves the correct route to take.Simply avoiding a few extreme valutation can make a massive difference over the longer term.

I have several times sold an entire holding when it became the biggest in an index,BAT and GSK were two prime examples,both really big holdings,both sold out of 100% when they were the biggest stocks in the FTSE,both bought back now at 52% less and 40% less.GSK topped out 20 years ago over £20 just as i left,pure coincidence im sure 

Worth a read if people have time,especially people trying to learn contrarian investing.

https://www.researchaffiliates.com/en_us/publications/articles/674-buy-high-and-sell-low-with-index-funds.html

Well worth a read and very thought provoking, hence why I have bounced it.

[Loki]

27 minutes ago, MrXxxx said:

Well worth a read and very thought provoking, hence why I have bounced it.

THANK YOU, I totally missed that. Just gone back to give Mr Born his rep 

[DurhamBorn]

If every car in the EU goes EV they will need an extra 400gw of power.The UK ,the best place in the world probably for wind generation is producing 6gw from wind tonight from around 24gw installed capacity.So the EU will need to build 66 times the amount of turbines the UK has even if they had the same amount of wind.They dont.Its likely they will need 100x the turbines the UK has.Thats before replacing gas cycle turbines,thats just for ICE going to EV.

When this dawns on people they will push blue hydrogen etc and carbon capture will become a huge business.Green hydrogen will get the publicity and the early kick ,but the big winners will be blue,carbon capture and gas producers.

[Chewing Grass]

1 minute ago, DurhamBorn said:

When this dawns on people they will push blue hydrogen etc and carbon capture will become a huge business.Green hydrogen will get the publicity and the early kick ,but the big winners will be blue,carbon capture and gas producers.

Yeah, but by 2030 you won't own anything and you will be happy. Likewise if you haven't got a job you won't need a car or a foreign holiday so won't burn much fossil fuel to capture or hydrogen for that matter. People simply won't be travelling like they did and we have spent the last 12 months proving it.

[Loki]

Nice little overhead on energy prices, removing or storing the carbon. 

[Bobthebuilder]

2 minutes ago, Chewing Grass said:

Yeah, but by 2030 you won't own anything and you will be happy. Likewise if you haven't got a job you won't need a car or a foreign holiday so won't burn much fossil fuel to capture or hydrogen for that matter. People simply won't be travelling like they did and we have spent the last 12 months proving it.

Have you got your heating on?

[Jesus Wept]

On 19/12/2020 at 10:44, DurhamBorn said:

Iv been going over a lot of data from the early 1970s charts to try to get a feel for where our inflation might come from this time.What might be the trigger.

Its pretty obvious back in the 70s inflation was mostly a local issue,not worldwide,and it tended to ebb and flow with the odd periodic pressure from worldwide commodity prices.

Since the start of dis-inflation in 1982 there is a graph that times perfectly in the opposite direction.The growth of global supply chains,starting first with Japan and its just in time manufacturing.

That process is now in reverse,because they are forgetting the comparative advantage and are concentrating on security of supply instead and home political problems.This will make things more secure but only by using higher cost local supplies.Already these supply chains are fractured causing huge problems and thats with demand down with lockdowns etc.Indeed my own company has to keep paying people double time to work sundays when parts arrive that werent there when they should of been friday,never heard of before.I keep getting asked "is there anyone local?" 

These fragmented supply chains will give an inflation pulse very soon,and then it will be compounded as demand moves higher out of lockdowns.

There is massive liquidity building,and that means it can be done,but with much higher prices being paid.

I think that will be the story of the start of this reflation cycle.Fractured supply chains needing on shoring that means expanded energy use worldwide that then feeds into already rising costs.

I think looking at investments its clear that all companies that use complex supply chains are going to see lower profits as although they will get higher prices for their products,their supply chain changes and input costs will be higher.

So if we think in simple terms its how many links to the consumer.A car has around 15,000 links,each part etc.A fag from BAT probably has around 15 .

An integrated oil company hardly any.

Potash probably less than 10

A telco,its it around 3? is it direct sale of product once cables are in the ground?

If my thesis on this is correct,then the winners in the cycle ahead will be the companies with the lowest numbers.They will be able to price up with the inflation everyone else is suffering,but will only be suffering a small amount of that inflation themselves.However they need to be companies where demand wont fall much and they are needed/wanted.

Some complex areas will be expanding ,yet might make no money out of the cycle.

It could be no EV car maker makes any money during the cycle for instance.

 

 

 

 

I missed the above post first time around - well worth a read if you have not done so already). 

Fantastic post @DurhamBorn

So what you’re saying is if people invest in the sectors below  ( OPTIMiSM BUT also CC), then that should be a pretty good hedge against inflation? A nice spread over these sectors might hopefully give a ‘real return’ of 5% to 7% per year above inflation over the next 10 years (including dividends)?

Oils

Potash

Telecoms

Infrastructure 

Mining Companies

Silver

Metals

Bitcoin

Utilities

Tobacco

and also......

Commodities (an etf?)

Clean Energy (hydrogen etc)

Are there any other sectors worth looking at that are not on the list?

I wonder is it best to be ‘drip feeding’ into these over the next 12 months or use up all ISA allowances (for me that’s £20k, £20k, £9k & £9k using wife and kids) early doors in April 21’ and May 21’.... thereby ‘getting in as early as possible’, before inflation bites.
 

I already have exposure in Oils, Potash, Telecoms (but am only holding these 3 sectors so I am quite exposed). Not a very broad portfolio ! but doing well ! Thanks to @DurhamBorn! 
 

Planning on buying some IMB , BAT and GSK for long term dividend yield this week to use up the kids ISA allowance for the year. 
 

I’d love if we had some type of ‘BK’  or even just a 10% crash after April 6th for the start of the new financial year like last time. If not I think I’ll go in fairly large early early doors as I can’t see the Fed turning off the taps until much later in the cycle - as people have said when ‘inflation bites’ and their ‘hands are tied’.

 

[AWW]

That's what I'm wondering V.

I currently have some money sitting in a Ltd Co that I'm not going to be using anymore. I'd also like to buy a house this summer.

Question is, do I pile half the cash into my SIPP using the 3 year rule, making a huge tax saving but reducing the amount left over for a house deposit, or do I take the hit and have cash available for deposit and refurb?

The SIPP is by far the best option in the long term, but the kids are young right now and our current flat doesn't really suit family life.

I've never had a problem delaying gratification, but I feel my hand being forced by circumstances. I really hate paying tax when I see what it gets spent on.

Sorry, not hugely relevant to the thread, just thinking aloud...

[DurhamBorn]

37 minutes ago, AWW said:

That's what I'm wondering V.

I currently have some money sitting in a Ltd Co that I'm not going to be using anymore. I'd also like to buy a house this summer.

Question is, do I pile half the cash into my SIPP using the 3 year rule, making a huge tax saving but reducing the amount left over for a house deposit, or do I take the hit and have cash available for deposit and refurb?

The SIPP is by far the best option in the long term, but the kids are young right now and our current flat doesn't really suit family life.

I've never had a problem delaying gratification, but I feel my hand being forced by circumstances. I really hate paying tax when I see what it gets spent on.

Sorry, not hugely relevant to the thread, just thinking aloud...

Id be tempted by the SIPP route as long as you are keeping at least a 15% deposit,that will get you fantastic rates on the mortgage.Depending on your age of course,but there is always the 25% tax free lump sum to clear the mortgage later on.You could always SIPP more now then overpay the mortgage once your in.My son bought just before lockdown,but moved in during in June.The mortgage i got him was insane value,fixed for 10years at 2.6%,10% overpays ok first 5 years then free to move or overpay as much as you want the next 5 years.He borrowed around £100k but had put £30k in silver,thats now about £40k.He is overpaying about £5k a year on to of the repayment side and the intention is to sell the silver as soon as it reaches whatever is left on the mortgage.If my roadmap is just a bit right he should be mortgage free at 27 years old on a nice house.

[Jesus Wept]

38 minutes ago, AWW said:

That's what I'm wondering V.

I currently have some money sitting in a Ltd Co that I'm not going to be using anymore. I'd also like to buy a house this summer.

Question is, do I pile half the cash into my SIPP using the 3 year rule, making a huge tax saving but reducing the amount left over for a house deposit, or do I take the hit and have cash available for deposit and refurb?

The SIPP is by far the best option in the long term, but the kids are young right now and our current flat doesn't really suit family life.

I've never had a problem delaying gratification, but I feel my hand being forced by circumstances. I really hate paying tax when I see what it gets spent on.

Sorry, not hugely relevant to the thread, just thinking aloud...

@AWW

I think it is very relevant.

I’m a higher tax payer, but I’m still not convinced about a SIPP. I much prefer to use the ISA allowances for long term pension building, (and the CGT £12.5k a year allowance for short term trading).

Maybe I’m wrong but surely with a SIPP you’re paying tax and CGT on any profits you make? (Not the case with an ISA). I am not too sure how a SIPP works - does the government pay in automatically and can you access it before your pension date. I don’t like the idea of money tied up in stocks. I need an accountant.

Had a Finacial Advisor come around (would he explain the above...,,would he fuck.... I told him to go to fuck). 
 

Edit to add: just seen @DurhamBornpost. I need an ‘idiots guide’ I’m not getting my head around a SIPP at all. 

[AWW]

Just now, DurhamBorn said:

25% tax free lump sum to clear the mortgage later on

This is an excellent point DB and not something I had considered. I've just turned 40. I know, young for a London FTB :-)