Credit deflation and the reflation cycle to come (part 9)

[Axeman123]

11 hours ago, Harley said:

Truth is it's a temptress of a Gordian knot.

The lucky are the ones who avoid the rocks long enough to drop their delusions and give themselves up to the mere probabilistic series of events it is.

You are Hugh hendry, AICMFP

[feed]

More Napier, this time the FT. 

https://www.ft.com/content/9f400538-645f-4c80-b206-0de6c51dc75f?shareType=nongift

China is moving towards full monetary independence
The country needs to inflate away its high debt burden
RUSSELL NAPIER

The world’s second-largest economy is about to move to monetary independence and in so doing it will destroy the current international monetary system.

[baffledbyzirp]

1 hour ago, Alifelessbinary said:

I generally agree with all your points and have a similar setup of passive investment, with a naughty section of actively managed funds to flex my ego. When I account for all the time I spend 

What I like about this thread is the broad range of knowledge that helps people tweak their personal strategies. The shares chat is actually the least useful stuff, as being a professional stuck in London I had no idea that benefits were so rampently abused. This helped me pivot out of bonds and into gold/commodes. Which has probably made/saved me a six figure sum by the time I retire.

No one should use a single source of information to make important financial decisions. I do consider this thread to be a brilliant resource where a broad range of adults can discuss investing themes.

Yes there’s often a focus on certain sectors or themes I don’t necessarily back (sitting out waiting for a BK), but this thread has always been about surviving a the credit cycles not the optimum investing strategy for most people (passive). This thread was miles ahead of anyone predicting rampant inflation and interest rate hikes. 

Everyone’s an adult here and it’s up to them what decisions they want to take. I’ll pipe up if I think people are spreading duff information. 

VOD at this price point looks like a solid divi payer to get through the next period of inflation. I also thought that five years ago! 

Gold commodes? That must be a London thing. I heard the streets were paved with gold but toilets made from precious metal is ridiculous. Talk about north-south divide.

[Mandalorian]

11 hours ago, Harley said:

And I reckon that's 'cause people don't want the brain ache or don't have the required temperament (Mr Market sucks in all types!).  Fine if they're just playing with some play money, else FFS, be professional or hire one.

 

The professionals are no better than the amateurs though....

[CannonFodder]

Regarding returns and TA, there was a book I read, can't remember which book that set out three types of risks/opportunities that make/lose money. It has structured my thinking and helps me.

Alpha risk- how good a company is, managed, whether it makes profit or not. You read company reports when you have time and try to compete with big boys and their data sources, full time experts etc.

Beta risk- rising market lifts all boats, silver, oil, wheat prices doubles or halves, then doesn't matter how good or not company is or what it writes in it's reports, the price will move.

Gamma risk- COVID or sanctions or new invention or tariffs, comes out of nowhere, can't be predicted unless you follow Nancy Pelosi trades. Government interference is a subset of gamma. Tax breaks or tax gouging 

Book said each risk managed differently and has different strategy, gamma is diversification for example 

 

[Mandalorian]

2 hours ago, baffledbyzirp said:

The idea that you can't beat the market is nothing new.

I'm not saying you can't beat the market or the market can't be beaten.  I'm saying its impossible to do it year in, year out for the long term.

 

Quote

The countervailing force is the madness of crowds and mean reversion. Your stated timeframe is 5 years and you compare the S&P 500 with BAT and VOD. Your chosen index is driven by the performance of the MAG 7 which accounts for 30% of the index market cap when I last checked. Furthermore, the gains of the past 5 years are disproportionately attributable to these stocks. If you look a little further into the distance your timeframe would incorporate the GFC (2007-9), the dotcom crash (2000) and the collapse of LTCM (1998). LTCM was run by Harvard professors and Nobel laureates who outperformed the market spectacularly until it became apparent their frame of reference was too narrow.
 

 

Not true.  My stated time frame is much longer than 5 years.  It's just HL's data that I use for the graphs only goes back 5 years.

Going back 100 years, the US stock market returns an average of about 10% p.a.  or 7% inflation adjusted.

https://tradethatswing.com/average-historical-stock-market-returns-for-sp-500-5-year-up-to-150-year-averages/

 

Quote

Your reasoning assumes that pervious patterns dictate future trends. This is assumption has risks attached. Russell called it the problem of induction.

1. Is the UK stock market a complete shit show? Yes. 

2. Has the S&P 500 out performed it over the previous 5 years? Yes.

3. Is the US index overpriced in terms of the PE by comparison to historical norms and the UK? Yes.

4. Are US insiders liquidating equity at an elevated rate since the year end? Yes.

5. Of the 2 markets which has the greatest way to fall? The US.

6. If GBP takes a pounding will stocks with international exposure and income streams represent a compelling proposition? Yes, as per the recent news regarding the considered takeover of BP.
 

I submit that UK valuations are low compared to the US and that there is a strong case that, if and when the correction occurs, the UK will perform relatively better since we have much less air beneath our feet.

So you're predicting specifics of the future now.  Exactly what I'm warning against!

Quote

I also think that your analysis suffers from base year distortions. Finally the notion that the S&P 500 is diversified is invalid due to the weight of the Mag 7.

Fine.  You ignore the other 75% by weight or 493 other companies in the index than if it makes you feel better in saying the S&P 500 is not diversified.

Quote

Stock pickers get it wrong. It is extremely difficult to beat the market. However, passive investment creates an enormous overhang with everybody on the same side of the boat. At times of fundamental change stock pickers can make a fortune while the rest of the market comforts itself referring to Black Swans. Look at the 12 Bezemer economists who correctly identified the drivers of the GFC and predicted its fallout including, Keen, Roubini, Shiller, Hudson, Godley and the much derided Schiff. When the shit hits the fan it won't be any comfort that your are with the herd.

I am not wrong, I'm just not right yet!

Yes.  They CAN, but consistently?  The people you cite there have predicted 137 of the last 2 recessions and bear markets.  Stopped clock syndrome.

Edited April 19 by Mandalorian

[Mandalorian]

1 hour ago, DurhamBorn said:

The UK market has some incredible bargains in my view,im talking generational bargains.Everything has gone against it the last 20 years.The cycle,the US bubble,crap UK polos,massive move from UK equity to gilts from pensions,retail investing moving into BTL etc.Lots of the companies have also been through investment cycles so pressure on balace sheets.The UK market is losing company after company because they are so under valued.D S Smith my latest to go for 50% more than i paid a few month earlier (and undervalued at the takeover price IMO).Of course we have Labour soon ,but they wont last long,then politics will swing right.Im a contrarian,and im patient,i want the hated areas as long as the cycle should help.

Bargains?  Or just cheap rubbish.

Cheap rubbish is still rubbish.

[Mandalorian]

1 hour ago, ThoughtCriminal said:

And yet, you have STILL not demonstrated that Divis aren't a net gain.

 

Dealt with that one.  They are not free money.  They are not extra cash added to the pot like interest.  They are your share of the profit paid out of company assets.

They are a shareholder asset baked into the market cap and share price.  Which is why the share price falls (+/- market movement) on XD day.  Watch share prices of dividend payers on Thursday mornings at market opening time on XD day.

58 minutes ago, Loki said:

Even if it's all the same, if you were selling and buying accordingly you'd get trading fees etc every time 

So don't sell every time you want paying.  Save it up in a lump.  but £5 ain't going to break the bank once a month.

Edited April 19 by Mandalorian

[geordie_lurch]

6 minutes ago, Mandalorian said:

Bargains?  Or just cheap rubbish.

Cheap rubbish is still rubbish.

Why don't you start your own thread @Mandalorian about S&P 500 trackers etc as you seem unable to read the room here and I'm sure I'm not the only one getting tired of reading your endless diatribe against what this thread is specifically here to discuss and the person who created it 

 

Edited April 19 by geordie_lurch

[Pip321]

1 hour ago, DurhamBorn said:

The UK market has some incredible bargains in my view,im talking generational bargains.Everything has gone against it the last 20 years.The cycle,the US bubble,crap UK polos,massive move from UK equity to gilts from pensions,retail investing moving into BTL etc.Lots of the companies have also been through investment cycles so pressure on balace sheets.The UK market is losing company after company because they are so under valued.D S Smith my latest to go for 50% more than i paid a few month earlier (and undervalued at the takeover price IMO).Of course we have Labour soon ,but they wont last long,then politics will swing right.Im a contrarian,and im patient,i want the hated areas as long as the cycle should help.

I think it’s all about mindset and what you think you are buying. Particularly bargains.

I know a lot of people who absolutely will not invest in shares, it’s all too risky. Then they pile £250k into a hair dressing salon and work 45 hours a week to build a business…..so effectively they have invested in a business albeit one they control. And obviously many of these guys lose everything….

For me, I would rather have a have in a super massive oil giant, commods, finance, retail, tech businesses etc running my business….and all I have to do is make sure I spread the risk, and maybe rock up to the shareholder meeting once a year for an update.  

So for me once we get BK out of the way (whatever that looks like) I am buying a mix of real businesses but rather than tin pot hairdressers I will buy (with spread so maybe funds/efts) into world leading businesses. With a slant directed by the macro thinking at that time. 

But I am not buying ‘investments’ as such but rather I am buying ‘assets’ which I hope will do well…and as you say some good looking prospects out there. 

Then there is the balance between overall wealth assets….25% cash/property/assets and equities. Even that will be blurred with some equities in ‘asset rich’ businesses and some of the physical basket actually in EFTs supported by physical. It’s not a precise plan just yet.

Out of interest, My current trading thinking today…

I about to buy Abdn, I like them and sold them for 180p so have some bias. But I paused….I realised from a trading view point I need to focus, there is no rush….I still may buy but probably at a lower ladder because the day to day moves don’t make too much odds

The only area of FOMO is only Gold and silver….i think when that goes (and even with pull back) it will go. 

Edited April 19 by Pip321

[DoINeedOne]

58 minutes ago, feed said:

More Napier, this time the FT. 

https://www.ft.com/content/9f400538-645f-4c80-b206-0de6c51dc75f?shareType=nongift

China is moving towards full monetary independence
The country needs to inflate away its high debt burden
RUSSELL NAPIER

The world’s second-largest economy is about to move to monetary independence and in so doing it will destroy the current international monetary system.

Incase no-one can get passed the paywall https://archive.is/gu8lt

[montecristo]

12 minutes ago, geordie_lurch said:

Why don't you start your own thread @Mandalorian about S&P 500 trackers etc as you seem unable to read the room here and I'm sure I'm not the only one getting tired of reading your endless diatribe against what this thread is specifically here to discuss and the person who created it 

 

I would disagree.  Good to have a different point of view.  I would call my self financially illiterate.  I read a lot from Buffett and and his below statement always sticks in my mind.  I followed it and I buy EFT funds.  I look at my portfolio today and it is up 30% - 40%.  

“By periodically investing in an index fund, for example, the know-nothing investor can actually out-perform most investment professionals. Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”

[Bobthebuilder]

16 minutes ago, geordie_lurch said:

Why don't you start your own thread @Mandalorian about S&P 500 trackers etc as you seem unable to read the room here and I'm sure I'm not the only one getting tired of reading your endless diatribe against what this thread is specifically here to discuss and the person who created it 

 

I suggested that a week or so ago, and @Mandalorian has started another thread.

[leonardratso]

hmm, wonder what happened to ds smith, fell 11 odd % at 12:03

maybe a welsh pub opened nearby.

[leonardratso]

ah, mondi did the catholic thing.

They pulled out.

https://www.proactiveinvestors.co.uk/companies/news/1045672/ftse-100-live-stocks-fall-after-israel-strikes-iran-ds-smith-plummets-1045672.html

[goldbug9999]

1 hour ago, CannonFodder said:

Regarding returns and TA, there was a book I read, can't remember which book that set out three types of risks/opportunities that make/lose money. It has structured my thinking and helps me.

Alpha risk- how good a company is, managed, whether it makes profit or not. You read company reports when you have time and try to compete with big boys and their data sources, full time experts etc.

Beta risk- rising market lifts all boats, silver, oil, wheat prices doubles or halves, then doesn't matter how good or not company is or what it writes in it's reports, the price will move.

Gamma risk- COVID or sanctions or new invention or tariffs, comes out of nowhere, can't be predicted unless you follow Nancy Pelosi trades. Government interference is a subset of gamma. Tax breaks or tax gouging 

Book said each risk managed differently and has different strategy, gamma is diversification for example 

But in reality none of those things are the main market drivers today - its mostly US monetary policy, the $trillian per 100 days is the price driver, yes you could class this as "government interference" but this it more than mere interference its got to the point there government/Fed policy IS the key fundamental.

Edited April 19 by goldbug9999

[Errol]

1 hour ago, Mandalorian said:

Bargains?  Or just cheap rubbish.

Cheap rubbish is still rubbish.

People were saying this about gold decades ago.

[goldbug9999]

1 hour ago, Mandalorian said:

The people you cite there have predicted 137 of the last 2 recessions and bear markets.  Stopped clock syndrome.

Yeah including clowns like Gerald Celente and Harry Dent who I still see people mentioning here.

[DurhamBorn]

2 hours ago, feed said:

More Napier, this time the FT. 

https://www.ft.com/content/9f400538-645f-4c80-b206-0de6c51dc75f?shareType=nongift

China is moving towards full monetary independence
The country needs to inflate away its high debt burden
RUSSELL NAPIER

The world’s second-largest economy is about to move to monetary independence and in so doing it will destroy the current international monetary system.

It will force financial repression on the west,as we are already seeing.However the CBs will need to move to "average inflation targeting" .Then they will be able to do lots of yield control,short end maybe even zero to keep rates up the curve below inflation.I expect they will start to talk about AIT soon.Alongside that you will get regulatory policies so you have captive domestic buyers.Under this it will be critical they keep capital within the borders.Debt liquidation needs negative real rates and inflation.It is the only way out of this mess.

[feed]

British Savings Bonds | NS&I (nsandi.com)

British Savings Bonds – announced by the Chancellor of the Exchequer in the Spring Budget 2024 – are now on sale

3 year bond 4%.  Voluntary, obviously.  But do your duty.... 

[Errol]

56 minutes ago, goldbug9999 said:

Yeah including clowns like Gerald Celente and Harry Dent who I still see people mentioning here.

If people just followed Celente they would be fine. He's been buying gold for decades, and advising others to do the same. And gold still hasn't really got going yet.

[Funn3r]

2 hours ago, geordie_lurch said:

Why don't you start your own thread @Mandalorian about S&P 500 trackers etc as you seem unable to read the room here and I'm sure I'm not the only one getting tired of reading your endless diatribe against what this thread is specifically here to discuss and the person who created it 

 

Not having a go at anyone but dosbods is like that sometimes. Someone who specifically disagrees with a main premise of a thread just can't keep away from that thread.

Imagine going into a football thread and posting all the time about how stupid grown men kicking a ball around, or a petrolheads thread and incessantly calling for cars to be banned because climate.

[janch]

1 hour ago, DurhamBorn said:

I expect they will start to talk about AIT soon

What is AIT?

[DurhamBorn]

4 minutes ago, janch said:

What is AIT?

Average inflation targeting.They will say "we are aiming for 2% or 3% average inflation through the cycle" instead of a 2% target, then they will do yield curve control keeping the short end at zero or less than 1% and force down the whole curve below inflation .Governments need to do that and increase entitlements to below inflation as well.Its a terrible set up for savers and investors.Horrible for capital formation.

[JMD]

On 18/04/2024 at 11:54, DurhamBorn said:

Yes Ashmore wants to go a lot higher,but as AUM drifts lower they sell back off to £1.80 area.To get any escape velocity they will need to see AUM go positive from flows and value.The dollar falling is the key to unlocking all the value in lots of sectors.Hence the violent moves to the downside whenever the US rate cut gets pushed out.Very tricky period.

DB, I like the thesis that asset managers with EM focus, eg. Ashmore/91/Abrdn are a good cycle leverage play and i do own these.

Please could you comment on the below two companies, which Im sure have been discussed before, however I don't know if they provide relevant/good EM exposure? 

Phoenix Group.  I believe you did used to rate it - but mostly for its pension book if i recall correctly(?) - but that was also some time ago and was wondering what your current thoughts were?

Janus Henderson.  I note that since it's merger AUM have been falling (and it's management flailing!). However unsure whether it has a good EM focus?

 

Edited April 19 by JMD