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

[belfastchild]

14 hours ago, DurhamBorn said:

In order of mention,BAT,Bayer,BP,Telecoms,Vod,Telefonica,has he got the log in to my portfolio?.Where we lead others follow,Peter has been buying for a long time though,and glad to see he said several years ahead,this is just the start.

 

Just watched that one so thanks to the OP. I missed out on bayer and bought siemens instead, up 100% since IIRC around the crash time and they also floated off their energy shares and I got free ones in them.

I was watching another RT documentary last night and was a hatchet job on smoking and vaping and it reminded me of DBs posts about this and BAT etc. It focussed in on the issues with vaping and how, though time, they will probably be seen as no healthier than normal cigarettes. They focussed in on the trendy Juul ones (philip morris) and whilst it was terrible what was happening to people it reminded me of a trip I did from Chicago to Florida 3 years ago now and how Juul advertising was absolutely everywhere. Even had a look at the PM and altria share prices and dividends this morning.

Whilst doing that checked out K&S - I sold when the news of the trouble with german regulators hit, good to see they have doubled since I sold ;-) Dont take investment advice from me ;-)

 

On another subject, Ive a mate who went all in on a pension last year and paid off his house. Still working on a very good salary and drawing about 20k pension (late 50s) Was working until his new pension equalled about another 20k as he said he couldnt live on anything less than 35k but the last two years have done for him and he cant retire quick enough.
I told him to put every single bill on the credit or debit card and add it up over the year. Came back to me at the weekend with 13k. Where the fuck he got the 35k from he doesnt know. Handing his notice in in may a month before his youngest graduates.
Ive the house paid off and can live ok for about 11k, can travel the world for around 15k total. 1k of that is roughly rates bill. If I had bugger all savings I wouldnt have to pay that and would probably get some sort of benefits as well.
Id piss it all up the wall just in time for the law to say I have to take in single mum on benefits in my spare rooms if I want to get the govt credits ;-)

[Hancock]

18 minutes ago, Harley said:

Classic.  People get the noddy appreciation (not real as in you need somewhere to live) while having to pay out real money on real things they need.  Fake asset rich, real cash poor.  TPTB have played a blinder as most sucked it up.  Economic lesson in real value, etc incomming.  Per my earlier post, don't cry into their stale beer.

I'm asset poor, becoming more cash poor.

My only saving grace is i can get paid enough for working very little to not cry too much ... is completely soul destroying for those working full time.

[Bricormortis]

Simple Green levy calculating tool ( move the slidey thing to input your consumption £ )

https://www.taxpayersalliance.com/how_much_do_green_levies_cost_you

[Chewing Grass]

Just now, Bricormortis said:

Simple Green levy calculating tool

https://www.taxpayersalliance.com/how_much_do_green_levies_cost_you

15%

[Bricormortis]

 

Lyn Aldens Newsletter

This newsletter issue takes a look at the self-reinforcing cycle that stuffed excess global capital into the US stock market over the past 40 years (and especially the past decade) like a sponge soaking up water, along with an examination of catalysts that could cause this cycle to reverse.

[Bricormortis]

3 minutes ago, Chewing Grass said:

15%

About the same for me. Low user. 

[CannonFodder]

3 hours ago, JMD said:

Agreed, and when different commentators say similar things, people should listen carefully...                                                          I know I am referencing Victor Shvets (again!) but he also predicted these capitol injection policies (in his 2020 book, which was probably written the year before, how could he possibly have know?!) - however he puts a more realistic/dark description on it - no (cosy) magic money tree for him (he's Russian) - instead he says that private capitol will never again walk unaided!! I recently posted that he thought energy would be inflationary, but commods like zinc and copper would be deflationary. Very intriguing thing to say but unfortunately since promoting his book he doesn't appear to have done other interviews.

I.ve watched those interviews and quite interesting. 

I think Viktor is looking through the banking lens a lot here and yes I see why he thinks banking corporates go to zero here and he wont have shares in them. Their high street presence is disappearing, their staff being automated out and at risk of being supersede by gov direct lending, crowd funding or small specialist firms. The large corporate banking sector could go here.

I think he then extrapolates this thought into sectors he knows less about because he is a banker . 3d printing may replace some manufacturing but it is offset by manufacturing of printers and resin.

Commods in finance thought is generally actually thought of as deflationary. The thesis goes as demand goes up, capex is invested and leveraged on economy of scales unit price goes down - deflation while overall volume of sales go up and profit goes up. This interacts closely  with technology.

In some circles a view exists than technology driven deflation is always highest for primary industry, moderate for manufacturing and low for services sector.

Eg primary - easy to develop more powerful vehicles with bigger shovels over time moving more ore or food per man per hour. Almost a given over 30 years that better kit arrives

Eg secondary manufacturing - harder but still can done. Requires better robots and automated factories

Eg tertiary services. A consultant sells an hour of his time, how can we sell more than one hour in an hour. Or a 30 min spray tan appointment. How many of those  30 min in an hour. This is quite hard to increase.

Massive productivity in commods should be possible of demand present to support capex investment in new kit.

The other result is that a services based economy will struggle with productivity growth.

Back to viktor, he reminded me of one of Engel's friends a guy call Max Stirner who viewed the world similarly as one not needing control of big corporates, almost an anarchy of individual micro interactions.

Max opened a milk shop on these principles and it was a f*cking disaster which is why Marx and Engel.s get remembered and Max is thought of as an idiot really by history.

i think Max had some very clever ideas but the total was not really suited for the real world, it doesnt mean those ideas are wrong.

Max in the age of the internet with crowd sourcing and ways to connect creators to customers directly could have gone another way.

I Like to hear and understand different views of the world. Viktor was interesting, particular his views that younger generation want a bigger public sector due to their values

[reformed nice guy]

1 hour ago, Juniper said:

Nasty oilies buying offshore wind farms again:

ScotWind offshore auction raises £700m https://www.bbc.co.uk/news/uk-scotland-scotland-business-60002110 

 

If there are 5.5 million people in Scotland, then thats £127.27 per person..... probably less than their energy bill is going up for the next 4 months

[planit]

Update on how I see things in case anyone was wondering 

I top sliced some BP and bought some gold shares, they seem very unloved and have disconnected from the gold price which has held up surprisingly well despite the talk all being about tightening over the last 2 months.

FRES nearly completed my head and shoulders target but I thought it not wise to wait for the last 2.5%. On the other hand POLY seems to want to go to zero; I am happy with the average.

 

Everyone thinks 'no profit tech' will continue to fall (both ends of the spectrum including PensionCraft and tech investors)

Sector rotation is well under way as per Peter Schiff's podcast

Energy especially has moved very fast, I think it will move higher when earnings come out (the gas futures issue held back RDS and BP last qtr)

Recovery from Covid is well underway so recovery stocks have done very well

 

For David Hunter to be correct we need more than just a sector rotation, it will take a surprise downside reading on the US inflation figures. Perhaps if Omicron/oil drop dented the US prices in Jan we might get this and everything will take off together. 

If not then we might just see S&P500 move sideways for a month or two whilst value replaces growth in investors portfolios.

 

It does look likely that post Covid excitement will result in an economic boom which will push everything skywards and the resulting oil price shock and FED fast tightening will slam us into the BK. (Q3 might be enough time)

I just want to see a downside inflation spark to ignite it.

 

 

[planit]

12 minutes ago, reformed nice guy said:

If there are 5.5 million people in Scotland, then thats £127.27 per person..... probably less than their energy bill is going up for the next 4 months

And a further £127.27 that will be added to their energy bills in the future!  (+ interest) 

[janch]

2 hours ago, Harley said:

ULVR gaps down while GSK gaps up! 

Yes a nice little rise in GSK.  They want to float off the consumer healthcare side themselves and the offer from ULVR was too low:

https://www.theguardian.com/business/2022/jan/16/analysts-say-gsk-is-right-to-rebuff-50bn-offer-for-consumer-healthcare-venture

[janch]

I also bought some LLOY a little while back and they have announced share buybacks:

https://www.thisismoney.co.uk/money/markets/article-10405735/Lloyds-buy-1bn-shares.html 

Bank revealed in October that it had more than £4billion in surplus capital

 

[geordie_lurch]

4 day week trials - https://metro.co.uk/2022/01/17/four-day-working-week-pilot-launched-in-uk-15929727/

"A six-month trial period of a four-day working week has today been launched across the UK.

Some 30 British companies are expected to take part in the pilot, which will see no loss in pay for employees working one fewer day a week.

Instead they will be asked to maintain 100% productivity for 80% of their time."

 

[CannonFodder]

6 minutes ago, janch said:

I also bought some LLOY a little while back and they have announced share buybacks:

https://www.thisismoney.co.uk/money/markets/article-10405735/Lloyds-buy-1bn-shares.html 

Bank revealed in October that it had more than £4billion in surplus capital

 

A bank having surplus capital is akin to saying there is no one left to sensibily lend money to.

[Funn3r]

43 minutes ago, geordie_lurch said:

4 day week trials - https://metro.co.uk/2022/01/17/four-day-working-week-pilot-launched-in-uk-15929727/

"A six-month trial period of a four-day working week has today been launched across the UK.

Some 30 British companies are expected to take part in the pilot, which will see no loss in pay for employees working one fewer day a week.

Instead they will be asked to maintain 100% productivity for 80% of their time."

 

I know a granny who looks after baby 1 day a week but has been using up 1-day's leave each time. I know she works like fuck anyway so suggested she make a request under the flexible working laws for compressed hours. Same contractual weekly hours compressed into 4 days. No surprise US headquartered company resisting but it's the law they have to consider it fairly. 

[planit]

1 hour ago, janch said:

I also bought some LLOY a little while back and they have announced share buybacks:

https://www.thisismoney.co.uk/money/markets/article-10405735/Lloyds-buy-1bn-shares.html 

Bank revealed in October that it had more than £4billion in surplus capital

 

Hopefully they have decided it's not ethical to buy up the nations housing [using BOE funny money] and rent it back to us.

 

But I doubt it.

[JMD]

3 hours ago, CannonFodder said:

I.ve watched those interviews and quite interesting. 

I think Viktor is looking through the banking lens a lot here and yes I see why he thinks banking corporates go to zero here and he wont have shares in them. Their high street presence is disappearing, their staff being automated out and at risk of being supersede by gov direct lending, crowd funding or small specialist firms. The large corporate banking sector could go here.

I think he then extrapolates this thought into sectors he knows less about because he is a banker . 3d printing may replace some manufacturing but it is offset by manufacturing of printers and resin.

Commods in finance thought is generally actually thought of as deflationary. The thesis goes as demand goes up, capex is invested and leveraged on economy of scales unit price goes down - deflation while overall volume of sales go up and profit goes up. This interacts closely  with technology.

In some circles a view exists than technology driven deflation is always highest for primary industry, moderate for manufacturing and low for services sector.

Eg primary - easy to develop more powerful vehicles with bigger shovels over time moving more ore or food per man per hour. Almost a given over 30 years that better kit arrives

Eg secondary manufacturing - harder but still can done. Requires better robots and automated factories

Eg tertiary services. A consultant sells an hour of his time, how can we sell more than one hour in an hour. Or a 30 min spray tan appointment. How many of those  30 min in an hour. This is quite hard to increase.

Massive productivity in commods should be possible of demand present to support capex investment in new kit.

The other result is that a services based economy will struggle with productivity growth.

Back to viktor, he reminded me of one of Engel's friends a guy call Max Stirner who viewed the world similarly as one not needing control of big corporates, almost an anarchy of individual micro interactions.

Max opened a milk shop on these principles and it was a f*cking disaster which is why Marx and Engel.s get remembered and Max is thought of as an idiot really by history.

i think Max had some very clever ideas but the total was not really suited for the real world, it doesnt mean those ideas are wrong.

Max in the age of the internet with crowd sourcing and ways to connect creators to customers directly could have gone another way.

I Like to hear and understand different views of the world. Viktor was interesting, particular his views that younger generation want a bigger public sector due to their values

I get what you mean about Victor Shvets may simply be extrapolating his banking knowledge into other sectors and therefore getting the wrong answers. You might be right. But his overall deflation thesis is based on his belief that the capitol markets are pretty much dead. That there is too much capitol (a contrarian view), priced too cheaply. That the markets are irreversibly disfunctional, and where for example it takes £4 of debt to increase global GDP by £1, and apparently using his same analysis it took £1 to produce £1 of GDP in the 1970's, so things have been bad for a long time.                                                                                                                        Yes Shvets does see communism, or a form of it coming. He thinks the macro forces of tech disruption, market financialisation, high debt, demographics, rise of China, are overwhelming and will all begin impacting this decade, meaning there is very little wriggle room for politicians - particularly if they wish to avoid wars, etc. It all sounds very extreme but then again I think his timeline for his 'Great Rupture' is next decade, and so I'm reminded that other commentators including David Hunter hint at similar harsh extremes looming then. Of course none of these financial commentators can know what will ultimately unfold, but I use/steal the ideas from people like Napier, Shvets, Hunter, Grant Williams - and of course this fantastic thread - to help formulate my personal macro outlook. The result of doing this is that, over time, I have become more and more risk averse. Which is probably a good thing!?!

[Majorpain]

3 hours ago, geordie_lurch said:

4 day week trials - https://metro.co.uk/2022/01/17/four-day-working-week-pilot-launched-in-uk-15929727/

"A six-month trial period of a four-day working week has today been launched across the UK.

Some 30 British companies are expected to take part in the pilot, which will see no loss in pay for employees working one fewer day a week.

Instead they will be asked to maintain 100% productivity for 80% of their time."

 

I actually did a 4 day week for last quarter last year, despite being initially sceptical i would be able to manage, in fact it turns out not working myself silly actually massively increased my productivity over the entire week.  

And no, i do a proper job that actually has to make a profit, so its not possible to hide all day and do nothing!

[Royston]

6 hours ago, DurhamBorn said:

Interesting looking at Unilever today,one we highlighted as in the danger zone for inflation hitting them hard.Market is smacking them because they dont like the idea of them over paying for GSKs consumer business (its a good business,but pedestrian).However the real story is why? Its because most of their business is seeing margins eroded by inflation and they are desperate to move into areas that can swallow inflation more.

Fundsmith the darling of the middle class dont understand the cycle we are in,their positioning is terrible.

Not disputing what you're saying as you're obviously vastly more knowledgeable than me regarding finance, markets etc but can you explain in simple terms just why you think FS is in such a potentially terrible position?

With 30% consumer staples, 22% healthcare, 33% tech and comms I would have thought it's positioned quite well in the event of reduced discretionary spending, be that due to a recession or inflation.

 

[reformed nice guy]

16 minutes ago, Majorpain said:

I actually did a 4 day week for last quarter last year, despite being initially sceptical i would be able to manage, in fact it turns out not working myself silly actually massively increased my productivity over the entire week.  

And no, i do a proper job that actually has to make a profit, so not its not possible to hide all day and do nothing!

Council office workers across the country have been doing 3 day weeks for the past 30 years - the extra two days in the office is just to plan holidays, look at BTL properties and browser ebay, FB marketplace etc. With covid and working from home, they dont bother getting out their pyjamas now!

[Joncrete Cungle]

4 minutes ago, reformed nice guy said:

Council office workers across the country have been doing 3 day weeks for the past 30 years - the extra two days in the office is just to plan holidays, look at BTL properties and browser ebay, FB marketplace etc. With covid and working from home, they dont bother getting out their pyjamas now!

I recall taking some drawings and reports into the local planning department at 3pm. I was nearly seriously injured in the stampede of civil servants all leaving the building as I attempted to gain access and get up the stairs.

[Bobthebuilder]

7 minutes ago, reformed nice guy said:

Council office workers across the country have been doing 3 day weeks for the past 30 years - the extra two days in the office is just to plan holidays, look at BTL properties and browser ebay, FB marketplace etc. With covid and working from home, they dont bother getting out their pyjamas now!

There is a small council yard in my street, every day an overweight council worker would turn up at 9am, sit in the yard doing nothing, then leave at 3pm. Have not seen him at all this past 2 years, I suppose he just stays at home now on full pay.

On another note. My SIPP/ ISA is looking fantastic since the new year, doubled my BATS holding at just over 25 quid, quite some run.

[CannonFodder]

2 hours ago, JMD said:

I get what you mean about Victor Shvets may simply be extrapolating his banking knowledge into other sectors and therefore getting the wrong answers. You might be right. But his overall deflation thesis is based on his belief that the capitol markets are pretty much dead. That there is too much capitol (a contrarian view), priced too cheaply. That the markets are irreversibly disfunctional, and where for example it takes £4 of debt to increase global GDP by £1, and apparently using his same analysis it took £1 to produce £1 of GDP in the 1970's, so things have been bad for a long time.                                                                                                                        Yes Shvets does see communism, or a form of it coming. He thinks the macro forces of tech disruption, market financialisation, high debt, demographics, rise of China, are overwhelming and will all begin impacting this decade, meaning there is very little wriggle room for politicians - particularly if they wish to avoid wars, etc. It all sounds very extreme but then again I think his timeline for his 'Great Rupture' is next decade, and so I'm reminded that other commentators including David Hunter hint at similar harsh extremes looming then. Of course none of these financial commentators can know what will ultimately unfold, but I use/steal the ideas from people like Napier, Shvets, Hunter, Grant Williams - and of course this fantastic thread - to help formulate my personal macro outlook. The result of doing this is that, over time, I have become more and more risk averse. Which is probably a good thing!?!

Wrong is a strong word, perhaps not universally accurate in all situations

I.M tending to agree that Capital markets are malfunctioning however as the cost of capital goes down and anybody can get capital from a oversaturated market I m not sure that this means that corporates will disappear

Victor looks at it through the banking lens as corporates losing their advantage of cheaper capital ( why bother setting up a corporate if money costs the same or is free for a one man band) however I think they have other advantages such as organisational resilience and operational excellance 

1 miner can borrow the capital to buy his mine for free in Viktor.s world

100 miners can spread the cost of a mechanic or geologist over a 100 people or take it in turns to work mine while one miner is sleeping or asleep.

A company with 10 mines can have a shut down at one, still pay all its workforce 

Should capex advantages disappear; many industries still have opex related advantages related to size.

There is more to running a corporate than getting cheaper Capital from the bank

What I can see is that as the cost of capital reduces and amount becomes Infinite from borrowing then why bother to be listed as as there is no need to attract capital from placements therefore companies start to leave the listed exchanges and go private.

What exactly is victors definition of corporate here - listed or big?

 

[DurhamBorn]

1 hour ago, Royston said:

Not disputing what you're saying as you're obviously vastly more knowledgeable than me regarding finance, markets etc but can you explain in simple terms just why you think FS is in such a potentially terrible position?

With 30% consumer staples, 22% healthcare, 33% tech and comms I would have thought it's positioned quite well in the event of reduced discretionary spending, be that due to a recession or inflation.

 

The consumer staples they own wont be able to pass on the inflation,the tech will be lower in 10 years nominal,never mind inflation adjusted,healthcare should do ok,but governments might press down on prices and they own very little in comms.I think they will likely underperform inflation this cycle and that will be a disaster for the many who use the fund for their pension drawdown.Iv read many times people retired saying they drawdown from Fundsmith 5% a year and its easy etc.

[BadAlchemy]

9 hours ago, Juniper said:

 

 

9 hours ago, Juniper said:

There’s something hugely satisfying about comparing that Moderna chart to the performance of my ISA/pension. 

One indicator of trouble ahead that I’ve recently come across is the Eurodollars futures curve as explained by Jeff Snider 

https://alhambrapartners.com/2021/12/01/this-is-a-big-one-no-its-not-clickbait/

Inversion happened in May 2018 and Dec 2006…see this for an outline of the latter: https://alhambrapartners.com/2018/07/06/good-reason-to-fear-the-futures/

I find Jeff Snider hard work on podcasts because he knows so much (more than me), talks fast and doesn’t always explain well but this indicator seems at least notable in predicting two previous market events.

I hope a crash will come as a result of a collapse of Moderna, Pfizer and all the others…but either way some very clued up people seem to expect some kind of event this year. 

Too lazy, plus otherwise occupied, to read today but wanted to learn about this eurodollar curve and found the following short interview with Jeff Snider by George Gammon (again). Helps allay some of my current  FOMO that this curve is doing the same now as it did before the GFC and before the Repo spike and subsequent plandemic. Happy to stay overweight in cash for time being.

I then spent next two and half hours listening to two more Snider interviews...

Money and Central Banks...

https://youtu.be/GQVGEQlhbJg

All about the Fed, WW1, Bretton Woods, post WW2 rebuilding and globalization leading to demand for dollar, beginnings of the Eurodollar and 'Triffin paradox', Fed losing control and losing the plot... tail wagging the dog!

Emergence of Eurodollar...

https://youtu.be/jwGHV8AxsUc

More on the eurodollar... helping to lead us to the mess we are in now.

Wont pretend I understood it all, but well worth a listen. Good technical history lesson!