Credit deflation and the reflation cycle to come (part 3)

[Harley]

1 hour ago, DurhamBorn said:

Both,physical i view as worthless i dont even add it into my "wealth" calcs,,i bought mostly before the VAT change leaving the EU and is security.I use Wisdom tree physical silver PHSP and some Bullionvault. @Harley might be able to offer up other funds where they own the physical without counterparty,borrowing etc.

I own a selection of physical PM ETFs.  Sprott is also worth a look but is listed in the US and Canada.  Not an issue for me as I avoid brokers with high Forex charges and limited price visibility.  I'm shifting some holdings into Sprott atm as I prefer their structure.  But I don't fully equate ETFs, even Sprott (technically a trust?), with physical.  Just take an afternoon to read and digest their prospectuses to see why!

PS:  I follow a PM pyramid approach of ETFs, physical (both stored and held), then miners.  But I also see PMs as part of a hard asset class in which I hold many other things such as commodities and crypto.  Just a question of allocations. 

[Noallegiance]

1 hour ago, DurhamBorn said:

Both,physical i view as worthless i dont even add it into my "wealth" calcs,,i bought mostly before the VAT change leaving the EU and is security.

That raised my eyebrows. Can you please elaborate on why you look at physical silver in that way?

[Castlevania]

Just now, Noallegiance said:

That raised my eyebrows. Can you please elaborate on why you look at physical silver in that way?

It’s to bribe the guards

[sancho panza]

27 minutes ago, planit said:

@sancho panza, why did you take intangibles off equity instead of assets in your calculation? 

My bad.Good question.

For my spray n pray work I exclude it on the grounds that it's not an asset you can sell for cash(trademarks/patents are different) but workign out their value needs a deep dive.

I take the view that in a crisis you start selling assets ,best ones nromally go first and easiest(because it's a crisis,you never get top dollar/book value).The stuff you can't really sell goes last ergo goodwill/intangibles.So what I'm trying to work out (very roughly admittedly) is that in a firesale,how much could they raise and then how much would shareholders have left to divi up.So on that basis I take them out of the equation but should have taken tehm off both.

Using PFC as an example

Say they go pop,assets get sold off,the stuff that is easily saleable =4201 -181(Goodwill/Intangibles)=4020-3768liabilities= equity 252 for shareholders but of that 252 equity 181mn is GW/Intang which still needs selling.It's very simplistic I know.

I have a very good friend who's an FD and he's always trying to get me to cahnge my views around goodwill but post the Scottish play,taking this approach has protected us from situations where risk has been mispriced.With some fo the big telcos I'll run us closer to the wind but a deep dive reveals a lot of their debt is written at super low coupons out ten years ++.Very different situation to PFC telcos' with millions of customers to oil service business with a few big cutomers who could go bust themselves.

[Harley]

1 hour ago, sancho panza said:

You pay yer money MrX,I'm a 'spray n pray' er ,I look at a lot of balance sheets annually.Theirs is probably in the worst 2-3%.This company isn't for widows and orphans imho.I'm a gambler,so appreciate some of us like a punt,but this needs a warning marker on it for any people new to the thread imho.

It wouldn't tka e alot to go wrong for the recovery to get derailed.

Key thing,equity as at 2020 year end was $433mn over total assets of $4201mn=10.3%

Then take away the goodiwll and intagibles(there might be some patents actually worth something,but probably not)

we get $433mn-$182mn over total assets $4201mn which =5.9%

 

As of Q2 2021 that equity is down to $359mn but goodwill =intagibles is still circa $180mn

In terms of the income statement,even when time swere good they didn't make much

 

zooming in,recent Qs are covered by the corruption scandal,but still,the equity raise looks like small beer

 

 

As part of the refi it's raising $275mn in equity of which $104mn goes straight out as a fine payment.It's also taking what looks like a $500mn loan out,so equity up but then immediately liabilities up....net net?

https://www.investorschronicle.co.uk/news/2021/10/26/petrofac-to-tap-investors-for-275m/

Oil & gas contractor Petrofac (PFC) attempted to put a long-running corruption scandal behind it, as it announced plans to tap equity investors for $275m (£199m), with some of the proceeds earmarked to meet a £77m fine imposed on the company earlier this month,

The $275m equity raise is part of a broader refinancing that will see Petrofac borrow $500m in a bridging loan being taken out ahead of an imminent bond issue, for which it expects a below-investment grade BB- rating. It has also agreed a two-year, $180m revolving credit facility, a new, $50m bilateral loan and an amendment to an existing $50m loan.

 

 

 

 

 

I logged into my broker account today to find a long list of company reorganisations affecting my holdings.  Such are the times.  I thought I saw a proposal for PFC to be transferred to a Russian listed company (which btw has already run up massively!).  Or maybe it was another company.

[Barnsey]

3 hours ago, Sugarlips said:

How are you defining worked?!

Not condoning of course but I'm not surprised if they're turning a blind eye to the shadow areas of the economy which in their own grey ways boost consumption, housing market etc.

[Harley]

32 minutes ago, planit said:

 

@sancho panza, why did you take intangibles off equity instead of assets in your calculation?

For me, because of a few weeks working with a company liquidator going about his job!  

[DurhamBorn]

10 minutes ago, Noallegiance said:

That raised my eyebrows. Can you please elaborate on why you look at physical silver in that way?

Because it provides no income and il likely never sell it unless it does hit the likes of $300+.Im talking silver in hand,not in bullion vault etc.I dont see it the same as my portfolio.I count whats in bullion vault and funds in my portfolio though.

 

 

 

[DoINeedOne]

Has anyone contacted HL.co.uk to find out or know why Sprott is not available for ISA's but ok for normal accounts and SIPP's

[DurhamBorn]

15 minutes ago, sancho panza said:

My bad.Good question.

For my spray n pray work I exclude it on the grounds that it's not an asset you can sell for cash(trademarks/patents are different) but workign out their value needs a deep dive.

I take the view that in a crisis you start selling assets ,best ones nromally go first and easiest(because it's a crisis,you never get top dollar/book value).The stuff you can't really sell goes last ergo goodwill/intangibles.So what I'm trying to work out (very roughly admittedly) is that in a firesale,how much could they raise and then how much would shareholders have left to divi up.So on that basis I take them out of the equation but should have taken tehm off both.

I have a very good friend who's an FD and he's always trying to get me to cahnge my views around goodwill but post the Scottish play,taking this approach has protected us from situations where risk has been mispriced.With some fo the big telcos I'll run us closer to the wind but a deep dive reveals a lot of their debt is written at super low coupons out ten years ++.Very different situation to PFC telcos' with millions of customers to oil service business with a few big cutomers who could go bust themselves.

That is the critical thing to consider.Coupons below inflation structured well over 10 years (last time i checked it was roughly 13 years average for big telco debt).If you can keep customer numbers level and increase prices with inflation that debt means a direct increase in ROCE because coupons are lower than inflation.If you notice VODs last results,the key number for me was ROCE ,it increased at last as expected.Its still too low around 6%,but if inflation stays that will increase and then be leveraged to free cash.

Of course at some point they need to de-leverage or they end up rolling debt over at higher coupons,but they should have a few years of increasing profits first.

Telcos can also pull in their CAPEX quickly if they needed to under a cashflow problem.

The main risk i see for them is counterparty risk on the debt swaps.

 

[Ashby]

15 minutes ago, DoINeedOne said:

Has anyone contacted HL.co.uk to find out or know why Sprott is not available for ISA's but ok for normal accounts and SIPP's

Yes.  They said it was due to hmrc rules as they decide what is allowed in an isa so nothing they could do. 
Felt it was a complete fob off answer and I have no comeback.

If everyone bombards them maybe they will give in.

[Plan-b]

11 minutes ago, Ashby said:

Yes.  They said it was due to hmrc rules as they decide what is allowed in an isa so nothing they could do. 
Felt it was a complete fob off answer and I have no comeback.

If everyone bombards them maybe they will give in.

I think its a similar situation with a Bullionvault SIPP, you can have Gold but not Silver - Shame

[DoINeedOne]

15 minutes ago, Ashby said:

Yes.  They said it was due to hmrc rules as they decide what is allowed in an isa so nothing they could do. 
Felt it was a complete fob off answer and I have no comeback.

If everyone bombards them maybe they will give in.

so just come across this from 2012 but still might explain 

Sprott Physical Gold 

August 7, 2012

On the basis of some of the information we have reviewed previously, we are of the opinion that this trust would be treated as an open-ended investment company (similar to a unit trust or an OEIC) in which case the only way it could qualify for ISA inclusion is if the trust is recognised by the FSA under section 272 FSMA 2000 (ISA Guidance 7.27b). There is no sign of this trust having the necessary recognition so on that basis, it won’t be ISA qualifying. Factors that lead us to categorise this as a form of open-ended collective investment type scheme include: its authorisation in Canada as a Mutual Fund, the redemption of its units at the net asset value (NAV), the same as for a UT or OEIC, and the fact that the trust is marketed as trading in a similar fashion to other exchange traded securities (eg. an ETF).

Other information however, in addition to previous feedback from HMRC, suggest that this trust is of a closed-ended nature. In this scenario, the ISA rules would only allow the units/shares in the trust to be ISA qualifying if they met the ‘qualifying shares’ criteria (ISA Guidance Notes 7.4+). This guidance states that shares have to be issued by a company, which is defined as a body corporate having a share capital. The Sprott Physical Gold/Silver Trust is a trust that is established under the laws of the Province of Ontario, Canada, and is managed by Sprott Asset Management LP. There is an argument that a trust of this nature, is not a company and any units that it may issue are not ‘shares issued by a company’. 
On that basis therefore, the units would not be a qualifying investment for ISAs.

 

[Harley]

So how's fiat doing?

[Harley]

22 minutes ago, DoINeedOne said:

so just come across this from 2012 but still might explain 

Sprott Physical Gold 

August 7, 2012

On the basis of some of the information we have reviewed previously, we are of the opinion that this trust would be treated as an open-ended investment company (similar to a unit trust or an OEIC) in which case the only way it could qualify for ISA inclusion is if the trust is recognised by the FSA under section 272 FSMA 2000 (ISA Guidance 7.27b). There is no sign of this trust having the necessary recognition so on that basis, it won’t be ISA qualifying. Factors that lead us to categorise this as a form of open-ended collective investment type scheme include: its authorisation in Canada as a Mutual Fund, the redemption of its units at the net asset value (NAV), the same as for a UT or OEIC, and the fact that the trust is marketed as trading in a similar fashion to other exchange traded securities (eg. an ETF).

Other information however, in addition to previous feedback from HMRC, suggest that this trust is of a closed-ended nature. In this scenario, the ISA rules would only allow the units/shares in the trust to be ISA qualifying if they met the ‘qualifying shares’ criteria (ISA Guidance Notes 7.4+). This guidance states that shares have to be issued by a company, which is defined as a body corporate having a share capital. The Sprott Physical Gold/Silver Trust is a trust that is established under the laws of the Province of Ontario, Canada, and is managed by Sprott Asset Management LP. There is an argument that a trust of this nature, is not a company and any units that it may issue are not ‘shares issued by a company’. 
On that basis therefore, the units would not be a qualifying investment for ISAs.

 

Personally, I wouldn't been keen to waste my limited ISA funds on a CGT investment!

[JMD]

3 hours ago, sancho panza said:

It's lsited

running it's Dowd Buckner ratio

it's leveraged at 20/1 so not as leveraged as Barclays which comes in at 40/1....................

However,much as I prefer that ratio as a guide to sovlency to all the capital tier 1/tier 2 BS(where they risk weight the assets using their own historical default data----skew.....meh!),it still isnt a catch all.

From the  link we can see they operate in some countires that have a lot more form for defaulting than say Germany.Spain was infamous during the 2000's as people were mrotgaging hotel rooms and the like and none of the banks noticed,well they didn't really need to as the ECB picked up the bill.

https://www.investing.com/equities/bbva-company-profile

As of December 31, 2020, it operated through a network of 7,432 branches and 31, 000 ATMs in approximately 30 countries. It operates in Spain, Mexico, South America, the United States, Turkey, the Asia-Pacific, and rest of Europe.

 

Thanks SP. I did look at them, perhaps I'm wrong but my take was they are expanding through acquisitions and they seem to like the new challenger banks, eg Atom bank here in the UK in which they own majority stake. I think they also like buying private companies which I guess maybe confused me into thinking they were themselves also private. But in the med/long term I assume all the banks, the ones that can survive(?!), will become 'mere' utilities?                                                                                                                                                   Actually in the finance sector I prefer the country stock exchanges which can also be viewed as utilities but at least they are a pure play specialist and a monopoly, so have a 'moat', and I like the business model of providing the infrastructure and then sitting back and earning fees from trade volumes, plus they pay divis! ...Anyway not my idea, it is from Horizon Kinetic who I mention here from time to time.

[planit]

2 hours ago, sancho panza said:

My bad.Good question.

For my spray n pray work I exclude it on the grounds that it's not an asset you can sell for cash(trademarks/patents are different) but workign out their value needs a deep dive.

I take the view that in a crisis you start selling assets ,best ones nromally go first and easiest(because it's a crisis,you never get top dollar/book value).The stuff you can't really sell goes last ergo goodwill/intangibles.So what I'm trying to work out (very roughly admittedly) is that in a firesale,how much could they raise and then how much would shareholders have left to divi up.So on that basis I take them out of the equation but should have taken tehm off both.

Using PFC as an example

Say they go pop,assets get sold off,the stuff that is easily saleable =4201 -181(Goodwill/Intangibles)=4020-3768liabilities= equity 252 for shareholders but of that 252 equity 181mn is GW/Intang which still needs selling.It's very simplistic I know.

I have a very good friend who's an FD and he's always trying to get me to cahnge my views around goodwill but post the Scottish play,taking this approach has protected us from situations where risk has been mispriced.With some fo the big telcos I'll run us closer to the wind but a deep dive reveals a lot of their debt is written at super low coupons out ten years ++.Very different situation to PFC telcos' with millions of customers to oil service business with a few big cutomers who could go bust themselves.

Got it, sorry my misunderstanding but I assumed you were looking from a shareholder perspective and referring to market cap.

I would have removed the intangibles from the top and bottom of the equation though, seems a bit unfair removing from equity but not assets.

So (equity-intangibles)/(total assets - intangibles)

 

Your FD friend is correct in theory but in practice you are using it to simplify your share selection which is fine (main downside I can see is you end up with a less diversified portfolio), it is easier to hide rubbish in intangibles and more subjective for the valuation.

[Axeman123]

1 hour ago, Harley said:

Personally, I wouldn't been keen to waste my limited ISA funds on a CGT investment!

Could you explain a little? I understand the idea of not using ISA funds on risky plays, but surely CGT-free gains that can be rolled into divi payers are a good strategy for someone with time before retirement. There isn't really any other way to become an ISA millionaire, which is a personal ambition of mine, other than decades of maxing out the annual allowance.

Obviously everyone has their own goals and strategies, just curious.

Edit to add: In the sense that some physical PMs are already CGT free outside the ISA, I see your point. However  capital gains within the ISA wrapper can still be rolled into divi payers later on for tax-free income.

[sancho panza]

6 hours ago, DurhamBorn said:

The thread nabbed dozens of multi baggers at the start of the cycle,however we are at the consolidation part now where the aim is to keep all that capital made and increase it slightly ahead of inflation.There will be very sharp pullbacks along the way and they should be used to add to oilies,uranium,silver etc.

Funny you should say that but I think it's wise advice.

We sold Israeli Chem two nights back(potash) after me saying a while back we'd keep em for a long time.I weighed up everything and swapped a treble bagger for a holding in BAT's that will bring us a decent dollar divi for as long as people smoke.

Genuiienly weighing up selling Mosiac as well as bottom ladder has four bagged,again same reason,swap small divi for chunky 8%.

Looked at putting it into Yara which looks the most reasonably valued potash co at the mo but struggle buying it away from our phone broker.

Appreciate how you and the basement dweller community kept us buying at the bottom last year DB.Much appreciated.

[ThoughtCriminal]

We'll look at that, actions have consequences.

 

Dosbods lads holiday in Turkey? 😂

[CVG]

4 hours ago, DurhamBorn said:

Because it provides no income and il likely never sell it unless it does hit the likes of $300+.Im talking silver in hand,not in bullion vault etc.I dont see it the same as my portfolio.I count whats in bullion vault and funds in my portfolio though.

 

 

 

I like dishing out Britannia's to the grandchildren for birthdays and Christmas.

[planit]

OPEC+ Reacts To Biden, May Not Raise Oil Production In December

 

Quote

OPEC+ heavyweights Saudi Arabia and Russia are rethinking their production strategies in the aftermath of several nations’ plans to release crude oil from emergency stockpiles, according to unnamed Wall Street Journal sources.

The United States announced on Tuesday that it would release 50 million barrels of crude oil—32 million barrels in the form of an exchange that would need to be replaced in the coming years, and an accelerated release of 18 million barrels that were already planned. China, Japan, South Korea, and the UK also announced SPR releases at the United States’ bidding.

The SPR release came after President Biden’s failed attempts to get OPEC+ to increase production at a quicker rate than the group had planned—which is an increase of 400,000 bpd every month until the group’s entire production volumes have been restored.

In the days leading up to the release, OPEC+ warned those oil-producing nations that it would respond to a coordinated SPR release. While it did not specify amounts, OPEC+ said at the time that it may reconsider its plans to add additional production.

WSJ sources now suggest that when the group next meets to discuss its production plans, it may rethink its strategy—what was up until now nearly a foregone conclusion—of increasing production by another 400,000 bpd.

OPEC+ delegates said that Saudi Arabia and Russia are considering a pause in the increase. Meanwhile, the UAE and Kuwait are not on board with a pause, WSJ sources said.

Even after the SPR release was announced on Tuesday, the UAE yesterday said that OPEC+ would probably stay the course.

Russia and Saudi Arabia account for roughly half of OPEC+’s total production. 

Oil prices rose shortly after the news broke, swinging from a loss on the day to a gain, with WTI trading up 0.15%.

 

This is interesting, I doubt they will pause and this is just muscle flexing but if they do it will probably be to give countries more time to ramp up production as they have been struggling and this will help them save face.

 

On another subject:

I was thinking today that inflation might surprise to the downside for a few months from Dec (10th). Shipping cost have come down but on the other side the chip shortage is supporting second hand car sales.

If inflation does drop then gold might fall again. After selling 50% of my PM miner holdings last week they have already hit my target for buying back but after thinking about downside risks I am probably going to hold off.

Anyone any thoughts on this? 

 

 

 

[Harley]

2 hours ago, Axeman123 said:

Could you explain a little? I understand the idea of not using ISA funds on risky plays, but surely CGT-free gains that can be rolled into divi payers are a good strategy for someone with time before retirement. There isn't really any other way to become an ISA millionaire, which is a personal ambition of mine, other than decades of maxing out the annual allowance.

Obviously everyone has their own goals and strategies, just curious.

Edit to add: In the sense that some physical PMs are already CGT free outside the ISA, I see your point. However  capital gains within the ISA wrapper can still be rolled into divi payers later on for tax-free income.

First thing on the Sprott thing with HL.  I know someone who had a SIPP with HL and their stock had no price other than during the TSX open.  Had the cost but no value.  Something like that.  A bit annoying.  I never had a problem elsewhere.

Regarding the CGT plays what I was thinking was you get a £12k or so CGT allowance each year so only gains above that need to be shielded in an ISA (unless other gains).  And you decide when to realise that gain (e.g. when you have offsetting losses).  They produce no income. Income stocks don't have that flexibility though so I would give them a higher priority for an ISA to shield the income.  None of it matters of course if you have enough funds in your ISA for both though.  It's just a question of priority if you are constrained.

 

[Hancock]

6 hours ago, DurhamBorn said:

Because im good at this 

Asia's expansion of production was dis-inflationary.As they turn to consumption as the west pulls back supply its hugely inflationary.

Silver might not go there,but along with uranium and natural gas its at a price that could look very very silly looking back in the future.

Its a no brainer to me to own a good chunk.£10ks worth,even £5k could be the difference between being fine and the poor house for ordinary people.Bigger holdings could provide huge capital right at the top of the cycle.

Thanks its something i've been pondering for a while, but your answer makes perfect sense, no complex logic needed.

Ive easily got 10% if SIPP in silver miners, its my dreaded house money thats the headache!

Bought some VODA, CNA ... recently with it, so i have started, about 6k spent just need a crash to get the rest in!

[Democorruptcy]

8 hours ago, DurhamBorn said:

This thread has lots of people at different stages in life,and hopes/needs.A good example are me and my son.Im aiming for inflation+ ,he would like a multi bag.His £30k capital (22 years old) is 100% in silver.

Shouldn't your lad have more input on your allocation, as it's his inheritance money? If you leave money on the table, it might be a bit like you blowing it on a cruise to him.