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

[Libspero]

5 hours ago, DurhamBorn said:

In an inflation the potash company and the fuel company tell the farmer its 100% more,he passes on,the factory then sees everything shooting up so tries to pass on the inflation.Tesco say 20p more?,nope we will do 10p,factory margin crushed,and sales fall double hit.They say to potash company but youl sell 20% less,they say who gives a fuck when we getting 100% more price.40 years favoured the ends of the chains as disinflation removed costs all along the supply,re-flation does the opposite,it inflates costs all along the chain destroying margins as it goes.

Thank you,  appreciated.

I picked up the gist when I finally got to the end of burntbread’s very good “cliff notes” thread, but it helps to know I understood it correctly,  and it explains the difference in attitude now between “inflation stocks” and just traditional “defensive/recessionary” stocks.

I think my gut feeling is that if the protracted scenario of inflation and high interest rates plays out fully,  some defensive stocks may still do ok..  depressed people will probably consume more chocolate and alcohol for example.  I also suspect some companies will manage to maintain their margins a bit more successfully than you perhaps hypothesise but I could definitely foresee hard times with more losers than winners. 

I now appreciate the elegance of your thesis though..  I hope it continues to serve you and everyone else here well.  You have another “long thread” convertee.   I will be following with interest. Thanks! 

[wherebee]

5 minutes ago, Libspero said:

Thank you,  appreciated.

I picked up the gist when I finally got to the end of burntbread’s very good “cliff notes” thread, but it helps to know I understood it correctly,  and it explains the difference in attitude now between “inflation stocks” and just traditional “defensive/recessionary” stocks.

I think my gut feeling is that if the protracted scenario of inflation and high interest rates plays out fully,  some defensive stocks may still do ok..  depressed people will probably consume more chocolate and alcohol for example.  I also suspect some companies will manage to maintain their margins a bit more successfully than you perhaps hypothesise but I could definitely foresee hard times with more losers than winners. 

I now appreciate the elegance of your thesis though..  I hope it continues to serve you and everyone else here well.  You have another “long thread” convertee.   I will be following with interest. Thanks! 

ideally, you want to find an old timer who traded into the 70's and got rich under the radar.

My dad knew one, but he ended up in jail and died....

[Libspero]

24 minutes ago, wherebee said:

ideally, you want to find an old timer who traded into the 70's and got rich under the radar.

My dad knew one, but he ended up in jail and died....

I think what would worry me is if things got that bad this time around I could see desperate governments confiscating any wealth you’d made in order to appease an angry public.  Gold may yet again be king .

 

[Plan-b]

1 hour ago, Libspero said:

 Gold may yet again be king .

 

Some would say it always has been 

[Castlevania]

1 hour ago, Libspero said:

Thank you,  appreciated.

I picked up the gist when I finally got to the end of burntbread’s very good “cliff notes” thread, but it helps to know I understood it correctly,  and it explains the difference in attitude now between “inflation stocks” and just traditional “defensive/recessionary” stocks.

I think my gut feeling is that if the protracted scenario of inflation and high interest rates plays out fully,  some defensive stocks may still do ok..  depressed people will probably consume more chocolate and alcohol for example.  I also suspect some companies will manage to maintain their margins a bit more successfully than you perhaps hypothesise but I could definitely foresee hard times with more losers than winners. 

I now appreciate the elegance of your thesis though..  I hope it continues to serve you and everyone else here well.  You have another “long thread” convertee.   I will be following with interest. Thanks! 

Comes down to pricing power. The thing to note is that many manufacturers of branded food and household goods have been able to keep their costs down through economies of scale - consolidating production for a region through having fewer but bigger more efficient production plants - but these are further away from the end consumer. In a disinflation it makes sense. However if you’re manufacturing something heavy (liquids for example) and transport costs are up significantly then it looks less clever. 

The large manufacturers of branded household goods have been able to keep costs down and put through above inflation price rises whilst maintaining sales in developed markets, so their margins have been increasing and so combined with growth in less developed markets all the likes of Unilever, Heineken, Colgate Palmolive etc trade on large earnings multiples.

Their stock prices in my opinion will be very sensitive to costs going up by a larger % than they can push through price rises (their margin as a % will be hit) and this is before you present value against a higher long term interest rate. I expect them to still be profitable but that margin growth will likely disappear and I don’t see them continuing to trade at 30 times earnings. 

[Libspero]

10 minutes ago, Castlevania said:

Their stock prices in my opinion will be very sensitive to costs going up by a larger % than they can push through price rises

I’m digesting your logic and I think you are right,  but my only question is..  what stops them raising the costs of shampoo and detergent etc such that they can’t keep their margins?  If you ever try to buy from anyone other than these guys it’s practically impossible.  So if the cost of your shampoo doubles/triples to £5 say,  where else would consumers buy from? Or would they stop washing their hair?

I’m not saying I’m right.. but getting control of all the variables in your head  is enough to make your brain spin.

Energy and primary input stocks seem to be the no-brainer though..  so perhaps everything else is just academic and needlessly overthinking.

[CannonFodder]

Inflation up to 5.4%, starting to rise now in a way that will be visible to common joe.

[spygirl]

17 minutes ago, CannonFodder said:

Inflation up to 5.4%, starting to rise now in a way that will be visible to common joe.

temporary

noun

plural temporaries

Definition of temporary (Entry 2 of 2)

: one serving for a limited time adding several temporaries as typists during the summer

[spygirl]

I think the Fed, ECB n BoE need to be getting Websters to change the dictionary ...

The UK's cost of living rose at its fastest pace in 30 years in the year to December, official figures show.

The Consumer Prices Index measure of inflation rose to 5.4% from 5.1% in November, the Office for National Statistics (ONS), said.

The last time inflation was higher was in March 1992, when it was 7.1%.

 

So ......... China imports disinflation is long over. Just in time for the chaos of various Chinese finance blowing up too.

Great moderation my arse

https://www.bankofengland.co.uk/-/media/boe/files/speech/2009/the-great-moderation-the-panic-and-the-great-contraction.pdf

[Castlevania]

30 minutes ago, Libspero said:

I’m digesting your logic and I think you are right,  but my only question is..  what stops them raising the costs of shampoo and detergent etc such that they can’t keep their margins?  If you ever try to buy from anyone other than these guys it’s practically impossible.  So if the cost of your shampoo doubles/triples to £5 say,  where else would consumers buy from? Or would they stop washing their hair?

I’m not saying I’m right.. but getting control of all the variables in your head  is enough to make your brain spin.

Energy and primary input stocks seem to be the no-brainer though..  so perhaps everything else is just academic and needlessly overthinking.

Depends. Is it necessary or discretionary? Can you go without? Can you use less? Is there a cheaper alternative? It’s hard to know how people will react. I have certain goods where I’m loyal to a brand and will pay the higher prices and others where I simply buy what’s cheapest. Then you have items that are purely discretionary and if the perceived price is too high I’ll go without. If incomes are stretched then a consumer will invariably cut back on something.

[The Bear of Doom]

46 minutes ago, CannonFodder said:

Inflation up to 5.4%, starting to rise now in a way that will be visible to common joe.

CPI 5.4% and RPI 7.5% 

BT and VOD set the price increases for some tariffs using the inflation figures released this month.

For BT it is CPI + 3.9% so it will be 9.3% from March

For VOD it is CPI + 3.9% for customers who took on a home broadband plan from 02/02/2021, otherwise it is the RPI figure from March. In both cases the increase is applied in April.  For Mobile customers, the March RPI figure is used for customers who took out a plan before 09/12/2020, for plans taken out after that date, an increase of CPI + 3.9% is applied.

[CannonFodder]

17 minutes ago, Libspero said:

I’m digesting your logic and I think you are right,  but my only question is..  what stops them raising the costs of shampoo and detergent etc such that they can’t keep their margins?  If you ever try to buy from anyone other than these guys it’s practically impossible.  So if the cost of your shampoo doubles/triples to £5 say,  where else would consumers buy from? Or would they stop washing their hair?

I’m not saying I’m right.. but getting control of all the variables in your head  is enough to make your brain spin.

Energy and primary input stocks seem to be the no-brainer though..  so perhaps everything else is just academic and needlessly overthinking.

People will use cheaper supermarket own brands, even if manufacturered by same companies, revenue will drop.

People wont stop washing but dying the colour of one.s hair as often? Exfoliation? 

 

[Sugarlips]

37 minutes ago, Castlevania said:

Depends. Is it necessary or discretionary? Can you go without? Can you use less? Is there a cheaper alternative? It’s hard to know how people will react. I have certain goods where I’m loyal to a brand and will pay the higher prices and others where I simply buy what’s cheapest. Then you have items that are purely discretionary and if the perceived price is too high I’ll go without. If incomes are stretched then a consumer will invariably cut back on something.

Agreed, I imagine most are buying a brand out of habit, if Pantene goes from 2 for £5 to £4 each it might be worth the effort to walk to pound land after and get Pingtang or whatever the knock off version is for half the price

[Harley]

2 hours ago, Libspero said:

I think what would worry me is if things got that bad this time around I could see desperate governments confiscating any wealth you’d made in order to appease an angry public.  Gold may yet again be king .

 

You're asking all the right questions.  They don't always get asked and scrubbed hard enough with follow up questions.  The devil is in the detail and I'm sure there are several, including lurkers, who welcome them.  Assumptions also should be under constant scrutiny (both intellectually and with reference to the data) especially as things often rhyme more than repeat. Appreciated.  Regarding consumer essentials, etc, that's one reason why the sectors are split into consumer discretionary and staples.  There were some postings here a while ago about the good and bad sectors in an inflationary environment but I'm sure they're on the internet somewhere. That said, it was a hard find for me given the last time this inflation happened so overtly predated the internet!

[Harley]

8 hours ago, JREWING said:

@WICAO

I jumped ship on BP today. £150k at 2.52 sold at 3.62. Bought back in at 3.2 sold at 3.98 today. I'm coming back to Oz. I'm a citizen so makes life easy. Got a big chunk of Ozzy dollars now. Guys can you access HL portal in Australia. Or does the Australian IP address get blocked by the HL portal. Can I trade while in Australia via the HL portal. Just thinking out load.

@WICAO what visa you on? Business investment. I'm thinking of Fremantle in Perth. 

12 hours ago, Hancock said:

Thought i'd work out what ive actually put into my SIPP after reading this comment.

First money went in April 2nd 2018, and a total of £95,783.66 invested, which is now worth £163,000 thus a gain of 70.18%. 

If only you were as good at predicting house prices.

Only messing, hats off to Mr. DB for getting myself and seemingly dozens of others who read this topic, ready for what has came and went ... and what will come!

Wow, no wonder my investing journey is so boring! 

[Hancock]

Just now, Harley said:

Wow, no wonder my investing journey is so boring! 

I do believe it could go down as quick as it went up, but could also double in a couple of years if silver, gold, telcos and PM's go on a run!

[spygirl]

32 minutes ago, The Bear of Doom said:

CPI 5.4% and RPI 7.5% 

BT and VOD set the price increases for some tariffs using the inflation figures released this month.

For BT it is CPI + 3.9% so it will be 9.3% from March

For VOD it is CPI + 3.9% for customers who took on a home broadband plan from 02/02/2021, otherwise it is the RPI figure from March. In both cases the increase is applied in April.  For Mobile customers, the March RPI figure is used for customers who took out a plan before 09/12/2020, for plans taken out after that date, an increase of CPI + 3.9% is applied.

Each time you see that RPI figure, just remind yourself that student debt is RPI + 3%

That debt will be going up this year by more than than the total of all student debt up to ~ 2005ish.

And start looking a the large campuses in various mid sized towns where a teaching training college or FE college have turned into Fulchester University.

 

 

[geordie_lurch]

10 hours ago, Errol said:

Views on K+S?

I still have the share purchased at 8.6 Euro and 5.25 Euro. It's now nearly 19 Euro, but I was wondering if it was best to wait until it went parabolic before selling. I sold the Mosaic too early, so perhaps K+S is going much higher.

I've just bought more at €17.62 @Errol as they are down around 5% early doors today and I trebled my last investment in them cashing out several times to bank the cash. I think they must have further to go in this inflationary environment so am treating these shares as a completely new investment in them. Not advice, DYOR etc

[Majorpain]

12 minutes ago, spygirl said:

Each time you see that RPI figure, just remind yourself that student debt is RPI + 3%

That debt will be going up this year by more than than the total of all student debt up to ~ 2005ish.

And start looking a the large campuses in various mid sized towns where a teaching training college or FE college have turned into Fulchester University.

 

 

Not for everyone though, income dependent although at 7.5% RPI the extra 3% is hardly going to matter.  I do think that the interest rate needs updating slightly, RPI at 1.5% is a little out of date!

https://www.gov.uk/repaying-your-student-loan/what-you-pay

Your annual income	Interest rate
£27,295 or less	RPI (currently 1.5%)
£27,296 to £49,130	RPI (currently 1.5%), plus up to 3%
Over £49,130	Usually RPI (currently 1.5%), plus 3%

[DurhamBorn]

1 hour ago, CannonFodder said:

Inflation up to 5.4%, starting to rise now in a way that will be visible to common joe.

Government still dont get it,increasing bennies etc is causing the inflation because they are printing the entire working age welfare budget.If they keep chucking more to bennies while letting inflation and tax hit low paid workers it will get worse and worse.Work doesnt pay,investment doesnt pay.Immigration is destroying finances as well as most are takers.Boris should be finished soon,his Blair mark 2 government is proving a disaster for an inflation.

Notice here how people are saying all parts of the process are increasing in price,thats why de-complex and cutting out parts of the chain will be key for people.Most who cant do anything,even cook are in for a huge shock.

https://www.bbc.co.uk/news/business-60050699

 

[Libspero]

33 minutes ago, CannonFodder said:

People will use cheaper supermarket own brands, even if manufacturered by same companies, revenue will drop.

People wont stop washing but dying the colour of one.s hair as often? Exfoliation? 

 

To play devils advocate,  who makes the own brands?  If it is the same giants then what stops them putting those lines up too?  

Then you have the idea that in a recession people spend more on small treats because they can’t afford big treats.  Will the ladies give up on their little luxuries,  or spend more to make them feel better?  I don’t know if I’m honest,  but something to think about.

[nirvana]

what's the 'hive mindset' on Bill Ackman? he thinks the FED might surprise with a 50bps IR rise

 

[Hancock]

@HousePriceMania This is from "Hancock" in todays Telegraph, just when you thought it wasn't possible to despise this lying, cheating, crooked, weird communist little cunt any more he states 

https://www.telegraph.co.uk/news/2022/01/19/raising-interest-rates-beset-danger/

As all the focus in Westminster is on the latest revelations, the story that most affects people’s lives is the recovery from the pandemic.

Last week we learnt that the UK economy has recovered to its pre-pandemic size. As the Chancellor put it, this is down to the grit and determination of the British people. But it’s also down to the rapidity of the vaccine rollout, the massive uptake among the public, and the unprecedented level of economic support over the past two years.

Even with any short-term bump from omicron over Christmas, the immediate prospects look good and the UK is emerging sooner and stronger than most other nations. It’s like the pandemic is a bed of hot coals we have collectively had to walk across. Britain looks about to reach the other side, with sore feet but soon to step onto the soothing wet green grass beyond.

Because in the UK we invested in vaccines early, and because uptake has been so high, we are likely to be one of the first major nations in which Covid moves from pandemic to endemic and life can get back to normal.

This is a huge personal achievement for Boris Johnson. Yet this good news hides some rocks below the surface.

Top among them is the challenge of the cost of living, made worse by the global rise in energy prices. Policy can only alleviate this real pressure on households to a degree. There isn’t a quick fix, and any temporary support must be well targeted. But we can and should act in the medium term, with policies that cut both costs and emissions, like insulating homes.

But I fear that the political debate about the recovery is only skin deep. The UK’s economic performance since the 2008 crash has relied on ultra-loose monetary policy and near- or even below-zero interest rates. This can’t last forever. Yet unwinding a decades-long stimulus is beset with danger.

First, the huge injection of taxpayers’ money was vital to keep the economy afloat. This was an active policy choice. The economic disruption was due to decisions necessary to save lives; the economic support was there to help businesses through and – as yesterday’s employment figures prove – keep people in work, so we could rebound as well as possible when it was all over.

Yet this has come at a price. No event since the Second World War has had such a big economic impact. Last year the Government borrowed twice as much as at the height of the financial crisis. Fully a fifth of all the gilts ever issued have been issued in the past two years. Debts have to be paid.

Second, inflation is on the rise. Last week we saw US inflation rise to 7 per cent. In Britain, inflation has been at a 10-year high, and is expected to rise to its highest rate in almost 30 years. Once the inflation genie gets out of the bottle it is very hard to put it back in – so it is vital to bring it back to low and stable levels. But stopping inflation involves tough medicine too.

That brings us to interest rates. The Bank of England has already signalled that rates are expected to rise further. This raises profound questions that are not being debated in Westminster. How much will a rise in interest rates impact the housing market? When rates fell to near-zero levels over a decade ago, many people with mortgages kept some headroom in their budgets in case they rose again. But how many still have? How many families could cope with a rise to more normal levels of interest? Instead of keeping a cushion, many have used low rates to borrow yet more, and chased house prices up. It will take great skill to let the air out of this bubble safely.

How will the Bank start to unwind the massive amounts of quantitative easing? What will happen when the Government tries to borrow in the open markets, without the Bank snapping up all the new bonds? For almost two years the Bank rightly printed all the money the Government needed to finance the pandemic. What will happen when that, rightly, stops? What will happen to companies and pensions savings when interest rates rise and the bond market correspondingly falls? It was James Carville, Bill Clinton’s legendary strategist, who said that when he was reincarnated he wanted to come back as the bond market, because then you can intimidate everyone.

When I worked at the Bank, we put huge efforts into calibrating the impact of a rise in interest rates on how people behaved. It was difficult back then. But now, interest rates have been so low for so long it is hard to predict how people will respond. The risks are perilous. We must ensure banks and pension funds are well capitalised to be prepared for the risks to come. We must support entrepreneurs and job creators much more and we must never take for granted the economic recovery generated by business.

So, as we leave the hot coals behind us as we get over the tumult of the pandemic, recovery is going well. We must not squander it on the rocks ahead.

 

Edit - The fact he says that Westminster never debates the housing bubble, shows they clearly do.

Edit - His last comment about supporting job creators shows that cunts like him think they can control markets, if cunts like him would fuck off job creators and society would be far better off.

 

[nirvana]

31 minutes ago, Hancock said:

I do believe it could go down as quick as it went up, but could also double in a couple of years if silver, gold, telcos and PM's go on a run!

can we have a ban on talking bout shitty Gold n Silver in here? plenty of other threads for that.......most, manipulated, markets, ever 

soz, give myself 10 lashes, I know boss man is a fan.....I'll go and sit in the corner with my dunces hat on too...

 

[Hancock]

8 minutes ago, nirvana said:

can we have a ban on talking bout shitty Gold n Silver in here? plenty of other threads for that.......most, manipulated, markets, ever 

Houses and covid PPE win that one!